the kerala state co-operative consumers' federation ltd

The Kerala State Co-operative Consumers’ Federation Ltd. Profile and Financial Performance

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4.1 Kerala State Co-operative Consumers’ Federation Ltd - Profile.

4.2 Financial Performance of the Kerala State Co-operative Consumers’ Federation Ltd.

This chapter of the thesis is divided into two parts. The first part deals

with the Profile of Kerala State Co-operative Consumers’ Federation Ltd and

the second part evaluates its financial performance.

PART - I

4.1 Kerala State Co-operative Consumers’ Federation Ltd- Profile A brief picture of co-operatives functioning in the state of Kerala is

given in this part of the chapter as CONSUMERFED is an inalienable part of

the co-operative system. The objectives and activities of CONSUMERFED are

also briefly described in this part.

4.1.1 Co-operatives – An Instrument for National Development

Co-operative movement in India is considered to be one of the largest

movements in the world. The co-operative movement has been recognized as an

important instrument for the economic development of the rural masses and for

improvement in the socio-economic condition of the poor. The co-operative

movement had its origin in western countries such as Ireland, England, Russia,

Cont

ents

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etc. Co-operation was introduced to India by the Imperial rulers. But even after

independence, the movement continued with in the planned economy. The

modern form of co-operation was started in India in the year 1904 with the

enactment of the Cooperative Societies Act, 1904 in the agriculture credit sector.

But, consumer cooperatives had started their function earlier than this. However,

under the British rule, it could not make much headway as the peoples’ movement

nor objectives and ideals were developed, though it was accepted as an

indispensible instrument for rural development as early in 1897 when sir

F.Nicholson highlighted the need of it in his classic report. Since the attainment of

independence in 1947, the first five year plan and successive plans laid down the

great stress the expansion and diversification of co-operative movement and it

became the integral part of the economic policies of central government. Co-

operative movement has made tremendous progress in every sector of the Indian

economy. The co-operative sector is multi-dimensional and has an eminent place

in every sphere of Indian economy. ‘The movement has covered 98 per cent of

villages and 75 per cent of rural households in the country. Over 6,10,020 co-

operatives at all levels with a membership coverage of 24.93 crore, working

capital of 7,29,576.57 crore and 38,328.45 crore capital function in the

country. Around 114 types of co-operatives inclusive of credit and non-credit co-

operative societies are functioning in the country’1(NCUI. 2012). The movement

has been recognized by our rulers as an effective instrument for the economic

development of the rural masses and for improvement in the socio-economic

conditions of the neglected. Co-operation had been part of national policy in all

five year plans and hence the Indian co-operative movement is sometimes

ironically described not as a movement but only as a product of government

policy. It spread and diversified to all areas including production as well as

service sectors with the encouragement and support of the government. The co-

operative movement in India is basically an organized one.


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The co-operative sector spread its wings to agriculture credit sector

(service co-operatives), production co-operatives such as agriculture farming,

poultry faming, etc, marketing co-operatives, consumer co-operatives,

education and health co-operatives, etc. Now, we cannot neglect the role of co-

operatives in any field of activity in India. The co-operative movement in

India completed 108 years of existence in 2012. Co-operation is visualized as

a way of life for the people- the foundation of economic and political

democracy. The Indian cooperative movement is probably the strongest and

oldest among developing countries. It is structured in the Rockdale and

Raiffesien model for the alleviation of the sufferings of the peasantry and is

termed the `Economic Miracle’ of the last century.

Table 4.1. The primary level co-operatives in India (2009-10)

Name of co-operatives No. of Societies

Total membership in million

Share capital ( in crore)

Credit Co-operatives 1,47,991 181.15 19,268.06

Non –credit co-operatives 4,58,068 68.22 7475.28

Total 6,06,059 249.37 27843.35 Source: ‘Indian Co-operative Movement a Statistical Profile- 2012’, National Co-operative

Union of India.

Co-operatives today have a remarkable role in the economic and social

lives of men. It is visualized as a way of life and the foundation of economic

and political democracy. More than 50 percent of rural agriculture credit in

India is dispersed by cooperatives. About 17 per cent of available employment

opportunities is offered by the co-operative sector in India. More than 22,000

consumer co-operatives supply essential commodities to the rural people.

Thousands of marketing co-operatives buy agricultural produce from the

farmers and save the farmers from the exploitation of middlemen /traders. Co-

operatives play a remarkable role in the utilization of natural resources

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(irrigation co-operatives in Maharashtra, coir co-operatives in Kerala), social

infrastructure development (education co-operatives, hospital co-operatives,

etc.), and technology up gradation (co-operatives of artisans, handicrafts, etc).

Co-operatives spread and flourished and have made unquestionable

contributions in diversified fields like dairy, sugar, consumers, credit,

agriculture fertilizers, education, traditional and unorganized sectors, etc.

In the present economic regime co-operatives face the uphill task of

being exposed to competition, where public investments are being withdrawn

or remain stagnant. The role of cooperatives is indispensible in sectors where

the motive of private investors is only profit and development of that area is

inevitable. Since co-operatives have been sponsored, partnered, guided and

controlled by the state, the growth of cooperatives can be equated with

government investment.

Table 4.2. Share of Co-operatives in National Economy.

Particulars 2004-05 2007-08 2009-10

Rural network of co-operatives 100% 97% 98

Agriculture credit disbursed by co-operatives among the total

38% 36.9% 50.08%

Fertilizer Disbursed 35% 36% 42%

Retail Fair price shops under co-operatives

20.3% 20.3% 19.8%

Direct Employment through co-operatives

1.2 million 1.42 million 1.63 million

Self employment generated in co-operative sector

15.42 million 15.47 million 16.32 million

Agriculture Credit given by co-operatives ( in crore)

32,293.16 (38% of the total)

47,389.75 (37% of the total)

91,303.82 (50.90% of the total)

Source: ‘Indian Co-operative Movement –A Statistical Profile-2006, 2009 and 2012’ published by NCUI, New Delhi.


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4.1.2 State Co-operative Consumers’ Federations in India

In India, as per available statistics about 21000 primary co-operative

consumers’ stores and 718 District Wholesale Consumers’ stores function with

the purpose of distributing consumer goods. Many of them have a long history

of establishment and have been formed for making available essential

commodities at reasonable prices to the members maintaining quality in every

respect. The Government of India realized that these small co-operatives have

not been able to survive without getting professional assistance from well

established and state supported apex institutions. With the aim of providing

support to primary co-operatives consumers’ stores, wholesale co-operative

consumers’ societies and to strengthen the supply of consumer goods

distribution of government, state co-operative consumers’ federations had

been established in 1965. Now, we have 30 state Federations with a

membership of more than 3504 affiliated societies and 10827 other

institutions. In 2009-10, these federations together have 533 branches

including supermarkets all over India with a sales business of 2980 crore.

The total share capital of the federations was 134.95 crore and 13 were

working at a profit during the year 2009-10. Government participation of share

capital was estimated to be more than 93 per cent in all state co-operative

consumer federations. The Kerala State Co-operative Consumers’ Federation

Ltd is the most prominent one among the state co-operative consumers’

Federations considering share capital, sales turnover, number of stores and

employment. Many consumer federations function nominally in other states.

The Tamil Nadu State Co-operative Consumers’ Federation Ltd focuses on the

wholesale distribution of rice to primary cooperatives. It also intervenes in the

consumer goods markets as and when required by the state government of

Tamil Nadu.

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Table 4.3. Progress of State Co-operative Consumers’ Federations in India

Particulars 2003-04 2006-07 2007-08 2009-10

No.of Federations 30 30 30 30

No.of branches 644 495 495 533

Total Membership 19,966 20,018 20,020 20,039

Membership of co-operative stores

5001 4495 4488 5718

Individual membership 10689 10856 10858 10827

Other membership 4276 4667 4674 5708

Share capital ( In million) 1284.6 1336.8 1343.77 1349.5

Govt. participation in share capital

93.38% 93.1% 93.4% 93.01%

Working capital ( in million) 4331.4 4059.2 4150.3 5092.3

Assets ( in million) 2566.9 2627.7 2741.9 3031.4

Total sales ( in million) 22045.7 19140.9 20378.9 29799.9

No.of Federations in Profit 10 13 13 13

Employment 5528 5170 5291 4167

Source: Indian Co-operative Movement, a statistical profile 2006, 2009 and 2012, National Resource Centre of NCUI.

4.1.3 National Co-operative Consumers’ Federation of India (NCCF).

National Co-operative Consumers’ Federation of India (NCCF) is the

apex body of the consumer co-operatives in the country. It was started on 16

October 1965 and is administered under Multi State Co-operatives Act, 2002.

The main objective of the NCCF is to provide supply support to the consumer

co-operatives and other distribution agencies of consumer goods at reasonable

and affordable rates besides rendering technical guidance and assistance to the

consumer co-operatives. The present membership of the Federation is 136

comprising primary co-operative societies, wholesale societies, state co-

operative Federations, National Co-operative Development Corporation and


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the Government of India. The commercial operation of the NCCF is managed

through it headquarter at New Delhi and 34 branches/sub-branches located in

state capitals and other important procuring centres in different parts of the

country. It has a dal processing unit at Bhiwani. The national Federation has

grocery retailing at 20 centers. 296.75 crore was the sales in 2011-12. It

distributes agriculture inputs through 4 branches and had sale of 43.45 crore

in 2011-12. Sales of general merchandise stood at the level of 159.98 crore in

the year 2011-12. It has also a textile business unit and registered a turnover of

58.20 crore in the reported year.

The national body has a total turnover of 1322 crore in 2009-10 as

against 855 crore in 2008-09. During 2009-10, it made a profit of 8.33

crore as against 1.58 crore in 2008-09.

4.1.4 Co-operatives in Kerala

The state of Kerala is a land of co-operatives. There are 24914 primary

co-operative societies registered in the state until 31. 3. 2010. Among them

15490 are functioning, 7431 are dormant and 1993 are under the process of

liquidation. In Kerala, Primary Co-operative societies are classified in to seven

categories such as co-operatives under the Registrar of Co-operatives, Coir co-

operatives, Fisheries co-operatives, Industrial co-operatives, Handloom co-

operatives, Dairy Co-operatives and Khadi and Village Industries Co-

operatives.

The co-operative movement in Kerala has a strong foundation and an

impressive track record in terms of financial stability and sound infrastructure

to generate adequate funds. The spread and growth of cooperatives in different

sectors were nurtured under development plans with initiatives and

government finance. ‘Kerala has a wide network of co-operatives engaged in

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various promotional activities, particularly in agriculture credit, Public

Distribution System, consumer activities, distribution of agriculture commodities,

marketing of agriculture produce, public health, education, housing, insurance,

women development, etc.2(Economic Review. 2009). In the education sector

also the role of co-operatives is predominant as many educational institutions

including more than ten engineering colleges function under Co-operative

Academy for Professional Education (CAPE). The credit co-operatives

perform a prevalent role in satisfying the credit needs of the farmers of Kerala.

1531 Service Co-operative Banks, 37 Farmers Banks,18 Rural Banks,51

Primary Agriculture and Rural Co-operative Banks, 14 District Co-operative

Banks and the State Co-operative Bank together satisfy about 50 per cent of

agriculture credit needs of the state. Therefore, the credit co-operatives are the

most flourished type of co-operatives in the state. It is widely accepted that co-

operatives are among the strong pillars that support the celebrated ‘Kerala

Model’ of development. Table 4.4 gives the primary co-operatives functioning

under the Registrar of Co-operatives in Kerala.


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Table 4.4. List of Primary Co-operatives Functioning under the Registrar of Co-operatives in Kerala State as on 31-03-2010

Sl.No Types of Societies Functioning Dormant Total 1 Service Co-operative Banks 1531 36 1567 2 Farmers Banks 37 0 37 3 Rural Banks 18 0 18 4 Primary Agrl And Rural Co-

operative Bank 51 4 55

5 Scheduled Caste CS 394 302 696 6 Scheduled Tribe CS 59 32 91 7 Urban Co-operatives 177 6 183 8 Rural Co-operative Societies 113 3 116 9 Employees Co-operative Societies 905 104 1009

10 General Marketing Co-operative Societies

183 217 400

11 Special Marketing Co-operative Societies

53 69 132

12 Joint Farming Co-operative Societies 32 31 63 13 Primary Consumer Stores 190 348 538 14 College Co-operative Stores 158 16 174 15 School Co-operative Stores 3718 109 3827 16 Primary Housing Co-operatives 278 78 356 17 Labour Contract Co-operatives 256 242 498 18 Transport Co-operative Societies 50 70 120 19 Women Co-operative Societies 719 227 946 20 Hospital Co-operative societies 96 53 149 21 Printing Co-operative societies 37 28 65 22 Canteen Co-operative societies 34 35 69 23 Social Welfare Co-operative societies 207 52 259 24 Educational Co-operative societies 90 28 118 25 Other Credit Co-operative societies 343 100 443 26 Other Non-credit Co-operative societies 449 303 752

Total 10178 2493 12671 Source: Kerala State Co-operative Union.

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4.1.5 Apex Co-Operative Institutions in Kerala

There are seventeen apex co-operative institutions functioning in Kerala,

which co-ordinate the activities and functions of different affiliated primary

and secondary co-operatives under them. They function with the financial aid

of the state government to achieve the objectives entrusted on them. The

following are the apex co-operative institutions in Kerala.

1) Kerala State Co-operative Bank Ltd.

2) Kerala State Co-operative Agriculture and Rural Development Bank Ltd.

3) Kerala Co-operative Hospital Federation Ltd.

4) Kerala State Federation of SC/ST Development Co-operatives Ltd.

5) Kerala State Co-operative Milk Marketing Federation Ltd.

6) Kerala State Co-operative Consumers Federation Ltd.

7) Kerala State Co-operative Housing Federation Ltd.

8) Kerala State Handicrafts Apex Co-operative Society Ltd.

9) Kerala State Co-operative Coir Marketing Federation Ltd.

10) Kerala State Co-operative Rubber Marketing Federation Ltd.

11) Kerala Khera Karshaka Sahakarana Federation Ltd.

12) Kerala Women Co-operative Federation Ltd.

13) Kerala State Handloom Weavers Co-operative Society Ltd.

14) Kerala State Cashew Workers Apex Industrial Co-operative Sciety Ltd.

15) Kerala State Co-operative Federation for Fisheries Development.

16) Kerala State Co-operative Marketing Ltd.

17) Kerala State Co-operative Textiles Federation Ltd.

Source: Kerala State Co-operative Union


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4.1.6 The Kerala State Co-operative Consumers’ Federation Ltd

Kerala State Co-operative Consumers’ Federation Ltd is the apex body

of the consumer co-operatives in the state and is known as CONSUMERFED.

It is one among the 17 apex co-operatives functioning in Kerala.

CONSUMERFED was registered on 09-04-1965 and started functioning from

10-07-1965. This apex society functions according to the laws and provisions

of the Kerala State Co-operative Societies Act and Rules 1969 and the

amendments there of. The head office of the Federation is situated at

Gandhinagar, Ernakulam. As on 31-3-2013, it has 11 regional offices, namely,

at Thiruvananthapuram, Kollam, Alappuzuha, Pathanamthitta, Kottayam,

Thrisur, Ernakulam, Kozhikode, Edppal, Kannur and Kazargod. The area of

operation of the Federation is limited to the state of Kerala. The management

of the Federation is vested with the board of directors consisting of 18

members, constituted with one representative each of the14 District Wholesale

Stores and 3 nominees of the government and the Managing Director.

The Federation is considered the second largest organized food and

grocery chain retailer in the state based on the number of outlets. ‘Kerala State

Civil Supplies Corporation is the largest food retailer in the state having more

than 1450 outlets’3(Economic Review 2010). CONSUMERFED has 246

supermarkets named ‘Triveni Supermarkets/Little Triveni Stores in various

parts of the state. It has 7 Floating and 123 Mobile Trivenis to make available

essential goods at different parts of the state. In addition to Triveni Stores, it

operates 756 ‘Nanma Stores’ to supply selected essential commodities at

subsidized rates and other essential goods to the public at various parts of

Kerala state (as on 31-3-2013). To facilitate ‘Nanma Stores’ many local bodies

and service co-operative banks have extended their help to the Federation by

offering facilities at a nominal rent. Together with the supermarkets owned by

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the Federation and the Nanma Stores, the Federation offers most of essential

consumer goods at reasonable prices to almost every populous place in the

state. It supplies consumer goods to about 1200 Neethi stores run by the

service co-operative banks in Kerala that sell goods at low prices. As an

intervention in the pharmaceutical sector, it purchases and supplies medicines

to more than 350 ‘Neethi Medical Stores’ run by service co-operative banks in

the state. In addition to the wholesale supply of medicines to primary societies,

the Federation owns 101 ‘Neethi Medical Stores’. The Federation has 46

foreign liquor shops, one LPG bottling plant, one spices powdering unit and

one computer stationery unit. It has eight coffee houses, two stationary

distribution centres, one spice powdering unit and have a number of

warehouses and godowns for Triveni stores and Neethi medicals. It also

successfully runs two restaurants, one at Gandhi Nagar, Ernakulam and

another at Kundara, Kollam. It also aims at entering the education sector.

Thus, the activities of the Federation are certainly multi facetted.

Triveni Stores are prominent in the supply of consumer goods in the

state. It deals in 800 to 1000 commodities (merchandise line) with 3 to 8

choices/brands (width of category) in each item. The assortment of goods

includes most of the essential commodities such as food and grocery, staple

goods such as personal care items, home care items, biscuits and other bakery

items, baby food, nuts, school stationery and so on. Most of Triveni Stores

deal with only food, grocery, and convenience goods but two Triveni

hypermarkets among them (Punalur and Vadakara) deal with consumer

durables also. Many of the Triveni stores are 2000-5000 sq.ft. in size and

provide facilities for self service. The goods are arranged in racks and

displayed attractively. The layout provides ample pass over space between

racks which is suitable for using push wheel carriers. All this make Triveni


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outlets equivalent to new generation retail enterprises and thereby increase the

sales. Two to four billing counters are arranged at each out let which reduces

the customer waiting time at the counter. All food items especially own label

merchandise are packed well in suitable containers which will help the

customers choose products on primary inspection. It was observed that many

of the stores are aesthetically pleasing and clean. These stores offer parking

facilities to their customers. The market share of CONSUMERFED outlets is

estimated to be 7 per cent of food, grocery and convenience goods market in

Kerala. As per the average number of customer bills of outlets, 125 customers

visit each supermarket daily (the number of Triveni stores is 246) and 75

customers each visit Nanma, and floating and mobile Trivenis (total 886). The

stores function six days a week. All together on an average, 1132

CONSUMERFED outlets serve 583200 customers a week presumably each

customer representing a household. Considering the total number of households

to be 8000000, the share of outlets is estimated to be 7 per cent.

4.1.6.1 Objectives of CONSUMERFED.

The objectives of the Federation are primarily to co-ordinate and facilitate

the working of affiliated societies and to assist in the promotion, organization and

development of consumer cooperatives in the state. As the Federation is

established to function as an agent to distribute consumer goods in the state, it has

been performing this by establishing supermarkets, mini bazaars and seasonal

outlets in various parts of the state. It functions as a wholesaler in the distribution

of consumer goods to consumer outlets owned by primary consumer co-

operatives, service co-operative banks and district wholesale stores. It has a full-

fledged net work for the large scale purchase, storage and distribution of

medicines to the Neethi medicals run by the firm as well as service co-operative

banks. The following are the major objectives of the Federation:

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1) To make bulk procurement of consumer goods and to supply

them to affiliated and or other co-operative societies and arrange

for proper storage, packaging , grading and transfer of such

goods.

2) To establish and run manufacturing and processing units for the

production of consumer goods in collaboration with other co-

operatives or directly by itself.

3) To function as agents for the distribution of consumer goods and to

import consumer goods whenever necessary.

4) To render technical assistance and guidance to affiliated societies

in grading, packaging, standardization, bulk buying, storing,

display, pricing and other business techniques and also

management methods to improve and increase their operational

management efficiency.

5) To advise and assist affiliated societies in standardizing the

accounting and stock control methods and practices.

6) To supervise the working of affiliated societies.

7) To hold seminars, conferences, meetings and to undertake

publicity, propaganda and education campaigns and similar other

functions as may help the development of consumer cooperative

movement within Kerala.

8) To arrange for the training of employees of consumer cooperatives

in coordination with and with the assistance of other agencies.

9) To collect and disseminate market intelligence and other information

relating to the business of consumer cooperatives.


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10) To assist affiliated societies in securing financial accommodation

from government and other agencies.

11) To function as agents of insurance companies and

12) To conduct retail branches at district head quarters whenever

found necessary with the permission of the government.

(Source: Registered Byelaws of the Kerala State Cooperative Consumers’ Federation Limited. No.4318)

4.1.6.2 Growth of Units of CONSUMERFED

It is clear from the available statistics that the apex consumers’

cooperative in the state had been performing nominal activities until 2005. But

it had incurred a huge accumulated loss from 1965 to the year 2005-06. Since

2005, it has started intervening in the consumer market by starting more retail

outlets and seasonal stores. The Federation had only 17 Triveni Supermarkets

in 2001, the number increased to 51 in 2003, 118 in 2010, 232 in 2012 and

now the number stands at 246. It entered medicine retailing in 2003 by starting

19 Neethi Medical Stores. Further, the number increased to 25 in 2008, 41 in

2010 and 101 in 2012. The growth of CONSUMERFED units is given in the

table 4.5.

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Table 4.5. Units of the CONSUMERFED - Growth from 2001 to 2013.

Sl. No Units 2001 2005 2006 2008 2009 2010 2011 2012 2013

1 Triveni Supermarkets

17 65 57 67 85 111 175 232 246

2 Mobile Triveni 2 4 6 9 123 3 Floating

Triveni 3 6 7 7

4 Restaurant 1 1 1 1 1 2 5 Triveni coffee

house 1 2 5 8 9 8

6 Triveni godowns

18 20 22 26 26 39 56

7 Neethi medical warehouses

3 3 3 4 5 5 8

8 Neethi medical stores

24 24 25 30 41 86 93 101

9 Foreign Liquor shops

46 46 46 46 46 46 46

10 Beer units 3 3 3 3 3 3 3 11 Note book

manufacturing 1 1 1 1 1 1 1

12 LPG bottling plant

1 1 1 1 1 1 1

13 Spices powdering unit

1 1 1 1 1 1 1

14 Neethi distribution centers

14 14 14 14 14 20 27

15 Computer stationary unit

1 1 1 1 1 1 1

16 Regional offices

3 3 3 4 5 5 7 7 11

17 Nanma stores 500 756 Total 20 92 172 187 217 267 387 975 1398

Source: Annual reports and office records of CONSUMERFED


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The number of units of the Federation expanded to 1398 in 2013 from 20

in 2001. In addition to the units specified in the above table, it conducted

seasonal consumer fares by opening up of thousands of temporary outlets

during the important festival seasons of Kerala such as Onam, Ramsan,Vishu

and X’mas.

4.1.6.3 Membership of CONSUMERFED

The membership of the Federation is limited to the state government,

wholesale and primary co-operative societies. As promoting agency, the

government of Kerala is the first member and 14 wholesale co-operative

consumer stores in Kerala working at the district level are the members of the

Federation. 11 primary co-operative societies are also admitted as Associate

Members in due course. Table 4.6 depicts the membership position of the

Federation as on 31-03-2012:

Table 4.6. Members of the Federation and their share capital contribution

Types of Members Number of members Share capital ( in lakh)

Government of Kerala 1 5567.39 (98.88)

District Wholesale Stores 14 64.82 (1.14)

Primary Co-operative societies 11 0.01 (0.0002)

Total members 26 5632.22 (100)

Source: www.consumerfed.gov.com. (Figures in brackets are percentages on total)

From the table above it is clear that more than 98 percent of the share

capital is contributed by the state government. District consumer co-operative

stores have a contribution of 1.16 percentage shares in their state apex body

and primary co-operatives have only negligible percentage of share capital

contribution in the Federation.

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4.1.6.4 Share Capital of CONSUMERFED

The major portion of the paid up share capital of the Federation is

contributed by the state government. As on 31-03 -2003, the Federation had

2977.49 lakh as paid up share capital, of which 2912.66 lakh had been

contributed by state government, 64.82 lakh was contributed by wholesale

co-operative consumer stores and 0.01 lakh was contributed by other primary

cooperative societies. Table 4.7 provides the amount of paid up capital,

reserves, working capital and borrowings of the Federation from 2005

onwards.

Table 4.7. Share capital and other particulars of CONSUMERFED from the year 2005-06 to 2011-12 ( in lakh)

Particulars 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Paid up capital

3008.73 3009.47 3054.68 3293.79 4842.03 5111.03 5632.22*

Reserves 2041.25 2029.59 2226.06 2416.03 2719.19 3100.03 4451.74*

Working capital

9381.29 13211.06 12980.59 18364.95 28945.40 51558.54 59176.1*

Borrowings 12166.06 16483.22 13702.18 10477.66 29306.92 32830.00 44666.74*

Source: Compiled from the annual statements of CONSUMERFED.* Estimated figures.

The paid up capital of the Federation increased to 56.32 crore in 2011-

12 from 30.09 crore in 2005-06. About 87 per cent growth was recorded

during the period in the paid up capital of the firm. During the period, a

growth of 531 per cent had been recorded in the amount of working capital

while, the growth of borrowings recorded a hike of 267 per cent.

4.1.6.5 Management of CONSUMERFED

The management of the Federation is vested with the board of directors

consisting of 18 members, constituted with one representative each of the 14


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district wholesale co-operative stores, three nominees of the government and the

Managing Director. The board has wide powers to decide the policy matters of the

Federation. The board must convene at least once in three months. The

Federation has a president, who chairs the board meetings. In the absence of the

president, the vice- president of the Federation will have the power to preside over

board meetings. The Managing Director as Chief Executive of the Federation has

all the delegated powers of the board of directors to implement the decisions of

the board. He has the power to enter into contracts with all parties, but has to get

them approved by the board. He is responsible for the daily functioning of the

Federation. In addition to the Managing Director, the Federation has a Chief

Manager, who co-ordinates the activities in the head office.

4.1.6.6 Organizational Structure of CONSUMERFED

Organizational structure is an established pattern of relationships among

the component parts of an organization. It refers to the methods of allocating

duties and responsibilities to individuals, and the ways in which individuals

are grouped together in to units, departments and divisions4 (Subba Rao.1999).

The Board of directors stands in the top of the organizational hierarchical

chain of command of CONSUMERFED. The Managing Director is the

authority to implement all policy matters decided by the board and is

responsible for all the day to day affairs of the organization. Under him, the

Chief Manager functions as a coordinator of the activities of the head office,

below him there are finance manager, accounts officer, manager for Nanma

Scheme, manager for beverages, IT specialist, chief administrative officer and

manager for Neethi Gas division in the head office. In addition to this, seven

regional managers work under the managing director, to co-ordinate the

Triveni Supermarkets including purchases, godowns and distribution.

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The organizational structure of the consumers’ Federation is vertical/

tall in structure. As per this type of structure, the authority and responsibility

flows from top to bottom through all levels of the hierarchy. Accountability

flows from the lowest level to the highest level. The daily performance of the

employees should be reported to the higher authority and a sum up of the

performance will reach the Managing Director. CONSUMERFED is

centralized in organization. Tall and centralized organizations lend

bureaucratic characteristics rather than commercial characteristics to the firm.

At the same time firms can formulate effective policies, programs and control

mechanisms5 (Certo Samuel & Peter Paul.1995). The following figure depicts

the organization structure of CONSUMERFED.

Source: Office records of CONSUMERFED

Figure 4.1: Organizational Structure of the CONSUMERFED

Board of Directors

Managing Director

Chief Manager (Nanma Scheme)

Regional Mgrs (Triveni Stores)

Manager (Neethi Medicals)

Godown in charge, Purchase mgr, Store incharge, Sales staff

Finance Manager

Admn Manager

Account Officer

Manager (Beverages)

Manager (Stationary)

Manager (Neethi Gas)

Manager (IT)

Finance Staff

Assistants Account

Staff

Assistants

Co-ordinators.

Clerks

IT Staff

Purchase Manager(Neethi Stores)


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4.1.6.7 Number of Employees of CONSUMERFED.

The Federation provides employment to 1791 persons, including 240

persons deputed by the Government of Kerala. In 2004, it had 562 employees,

which increased to 895 in 2008. Presently, the strata of employee cadre

include one Chief Executive (Managing Director), one General Manager, ten

managers to control various functions, 1378 clerical and ministerial

employees, 160 contract employees and 2 sub-staff in addition to the deputed

employees. 3 to 5 employees work in each Triveni supermarket, 4 to 5 persons

in each foreign liquor outlet and 2 each work in Nanma stores.

Table 4.8: Trend in the number of employees of CONSUMERFED from 2004 to 2012

Employees 2004 2008 2012

Chief Executive ( M.D) 1 1 1

Managers cadre 9 12 15

Clerical and ministerial staff 260 550 1373

Contract employees 290 80 160

Sub-staff 2 2 2

Employees on deputation 262 240

Total 562 907 1791 Source: Office records of the Federation

It is seen that the number of employees of the Federation has been

increasing at a fast rate. But considering the number of units, the hike in the

number of employees has not been amazing. In 2004, the Federation had only

92 units and had 562 employees, whereas the number of units increased to

1375, the number of employees increased only to 1791 in 2012. It has been

found that 3 to 9 persons work in Triveni stores, 4 persons work in liquor

shops and 2 persons work at Nanma stores.

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4.1.6.8 Activities of CONSUMERFED.

The consumers’ Federation of the state, in practice performs a number of

activities such as acting as an apex body in the state to guide and control

consumer cooperatives in the state. It is the most prominent government

controlled body supplying consumer goods through its 1132 outlets. It

purchases and supplies consumer goods (acts as a wholesaler) to more than

1200 Neethi stores working in the state. Neethi stores are owned and operated

by service co-operative banks and other credit societies. It sells medicines to

Neethi medicals operated by service cooperative banks in the state. The

Federation acts as an agency to supply stationery items to various government

departments and companies in the state. It supplies stationery to 810

departmental customers such as local self governments, BSNL, Airport

Authority of India, and Kerala State Passport Department and so on. It has 101

own Neethi medical stores in the state; through them the Federation retails

medicines to the public at low rates (discount ranges from 16 to 70 percent).

The Federation also supplies medicines as a wholesale agency to hundreds of

medical stores owned and operated by primary co-operative societies in the

state to make available medicines at reasonable prices. These medical stores

owned by the Federation and primary societies function as a net work to retail

all types of medicines at a discount of 16 to 60 percentage. The active

intervention of the Federation in the medicines market is considered one of the

important steps of the Federation to control the price levels of medicines,

which is a boon to thousands of poor patients in the state.

It usually operates thousands of special consumer markets during festival

seasons to supply consumer goods at low prices to the public in the state. It

supplies 20-30 items at subsidized rates to all ration cardholders in the state

during important festival seasons in the state. This particular service of these


173

stores lasts for more than 60 days a year. The active intervention of the special

markets in the general consumer goods market paved the way for holding the

price levels of essential goods in the state during last few years. As the PDS

system in the state is under used by the public and through them only a few

commodities are sold, these types of fairs are much needed in the state. The

Economic Review 2010 stated that the PDS as conceived by the Union

Government covers only a small range of goods. With the introduction of

Targeted PDS, the Union Government has sought to remove what it considers

the APL population from the ambit of PDS of even this small range of goods6

(Economic Review. 2010). It may be noticed that the price levels of vegetables

shows a hiking trend during last few years in the state. To curtail these vicious

problems and to intervene in the most perishable goods market, the Federation

recently, started retailing of vegetables at the important and populous places

by opening special vegetable markets. The functioning of these has observed

to be successful to control the price level of vegetables. Long queues have

been seen at all stores where these markets were started to function.

Inefficient planning, lack of proper storage and other infrastructure facilities

make loss to the Federation in the vegetable retailing.

CONSUMERFED is an agency of the Government of Kerala in the co-

operative sector to supply almost all essential commodities to public and it

supplies more than 800 consumer goods through its retail depots- Triveni

Supermarkets. Effectiveness of these retail outlets are studied in the analysis

chapters by seeking the opinion of consumers.

For influencing the consumer goods market in Kerala, the Federation

performs the various activities under following divisions;

1) Triveni supermarkets, mega Triveni and mini Triveni stores

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174

2) Neethi Scheme

3) Neethi Medical scheme

4) Neethi Gas Scheme

5) Foreign Liquor Division

6) Triveni Note Book Division

7) IT/Stationary Wing

8) Hurry Curry Masala

9) Copra/Paddy Procurement.

10) Nanma stores

4.1.6.8.1 Triveni Super Markets/Little Triveni Super Stores/Mega Markets.

The Kerala State Cooperative Consumers’ Federation Ltd was

established with the main objective of saving the public from the exploitation

by private retailers/ middlemen in the state in the distribution of consumer

goods. To realize this foremost objective the Federation it owns 246 retail

outlets known as Triveni Supermarkets/little Triveni Stores/Triveni Mega

Markets for the retailing of food and grocery, cosmetics, toiletries, electrical

items, etc. They deal mainly the retailing of essential goods such as food and

grocery, bakery items, cosmetics, home care items, etc. In addition to the

supermarkets, 123 mobile Triveni units and 7 floating Triveni stores were also

started functioning in the distribution of different consumer goods. The

Federation has at least one store each in all 140 assembly constituencies of

Kerala state. It had 17 Triveni consumer outlets in 2001 and the number

increased to 65 in 2005, then to 87 in 2009, 232 in 2012 and 246 on 31-03-

2013. The increase in the number of Triveni stores and the trend of sales of


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Triveni stores are portrayed below. CONSUMERFED has 56 godowns for

Triveni division alone, which offers packing and storage facilities.

Table 4.9. Growth of the number of Triveni stores and their sales from 2003-04 to 2011-12

Year

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

No. of stores 51 65 65 66 67 87 118 187 232

Sales ( in lakh)

4612.2 5557.8 5662.8 5927 8114.7 9558.7 13537.5 17861.3 25704.9

Annual Growth of sales (percentage)

_ 20.50 1.89 4.66 36.91 17.79 41.62 31.94 43.91

Average annual sales per store ( in Lakh)

90.44 85.50 87.12 89.8 121.11 109.88 114.72 95.51 110.79

Compound Annual Growth Rate (CAGR) of sales of Triveni stores = 22.13 Percentage, CAGR of sales per store = 2.28 percentage.

Source: Data from annual records of CONSUMERFED

Table 4.9 shows the growth of Triveni Stores from 2003-04 to 2011-12,

sales (in lakh) of Triveni division during the period, annual growth of sales in

percentage, average annual sales per store during the period and compounded

growth rate of sales from 2003-04 to 2011-12. The number of stores increased

from 51 to 87 in 2008-09 and the number had gone up to 232 in 2011-12. The

sales of Triveni division were to the tune of 4612.2 lakh in 2003-04 which

increased to 5557.88 lakh in 2004-05 and further increased to 9558.77 in

2008-09. The sales shown an increase to 13537.5 lakh in the next year and

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176

the figure raised to 17861.33 in the year 2010-11 with an annual growth of

31.94 percentage and in the year 2011-12 the sales reached 25704.95 lakh.

The compound growth rate of sales is estimated to be 22.13 percentage for the

period from 2003-04 to 2011-12. The highest (43.91 per cent) annual growth

recorded during 2011-12 and the lowest annual growth (1.89 per cent) was

recorded in the year 2005-06.

Figure 4.2: Growth of sales of Triveni stores (Triveni division of CONSUMERFED only)

(Source: Annual reports of CONSUMERFED)

Figure 4.2 shows the trend of annual sales of Triveni division of the

Federation from 2003-04 to 2011-12. It is seen that the sales of Triveni Stores

shown an increasing trend in all the years and has accelerated since 2008-09

onwards. The sales amount of Triveni Stores had increased, at an annual

exponential rate of 0.209 with an R2 value of 0.937.


177

Figure 4.3: Growth of Triveni stores in number.

(Source: Annual reports of the Federation)

As shown in figure 4.3, the number of Triveni Stores had increased from

51 in the year 2002-03 to 232 in 2011-12, with an annual exponential rate of

0.178 with an R2 value of 0.858.

Figure 4.4. Trend of sales turnover per store

(Source: Annual reports of the Federation)

It is seen that sales per supermarket of CONSUMERFED shows a volatile

trend. The sales per store from 2002-03 to 2011-12, shows at a low annual

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exponential rate of 0.031 with an R2 value of 0.821. The trend of growth in sales

per store had not increased at an acceptable rate during the above period.

4.1.6.8.2 Neethi Scheme.

As per the direction of the state government for strengthening the

distribution of consumer goods through government controlled system, 1067

Neethi stores were started through selected Primary Co-operative Agriculture

Credit Societies in 1997 as a mega project in the consumer goods market.

CONSUMERFED purchases goods for these stores and makes them available

to them as per their requirements. For the service, it charges 4 per cent

commission and determines the price of various goods to be sold by these

stores. Due to this, the prices of various consumer goods sold by all Neethi

stores remain the same at all places in the state. Most of these consumer stores

function at the rural areas, they act as agencies of the government for

intervention in the essential goods market in rural areas Kerala. 21 godowns

function at different parts of the state providing package and storage facilities

exclusively to the Neethi scheme. The number of Neethi stores increased to

1200 in the year 2011-12. The sale proceeds of Neethi Scheme in 2011-12 was

estimated at 334 crore. It was only 70.67 in the year 2006-07.

4.1.6.8.3 Neethi Medical Scheme.

The Federation started the Neethi Medical Scheme with the assistance of

the Government of Kerala from November 1, 1998 to make medicines

available to patients at low prices. For wholesale buying and distribution of

medicines to the Neethi Medical Stores, the Federation has a separate unit at

its head office and has 8 warehouses at various places in the state. The

Federation owns and operates about 101 Neethi Medical stores and it supplies

medicines (wholesaling) to about 350 Neethi Medical Stores, which are owned


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and operated by Primary Co-operative Credit Societies, especially Service

Co-operative Banks in the state. For this wholesale activity, it charges 4 per

cent commission of the sale proceeds. The retail prices if medicines are also

fixed by CONSUMERFED, which helps sell medicines at a fixed rate by

every Neethi medical stores in the state. The sale proceeds of the Neethi

medical scheme had increased to 34.19 crore in 2011-12 from 10.15 crore

in 2006-07.

4.1.6.8.4 Neethi Gas Scheme.

To resolve the acute shortage of cooking gas during the year 1998,

CONSUMERFED launched LPG connection and distribution through Neethi

stores. In May 2000, the Federation purchased an LPG bottling plant at

Palakkad and it presently distributes LPG gas to more than 60000

households. The sale proceeds of the division had reached to 4.35 crore in

2011-12.

4.1.6.8.5 Foreign Liquor Division.

CONSUMERFED owns and operates 46 liquor retail outlets in the

state. It entered liquor retailing in 2001-02 as result of a shift in the liquor

policy of the government of Kerala. The liquor business had not been

profitable to the Federation up to the year 2006 but since then the business

became profitable. The sale of foreign liquor contributes a major portion of

the sales turnover and it is understood that the healthy existence of the

Federation is possible only through the liquor sale. Sale proceeds of

beverages division increased to 640.53 crore in 2010-11 from 345.76 crore

in 2007-08. It had increased to 786.56 crore in 2011-12. 240 abcari workers

deputed by the government of Kerala are working with the liquor retail

depots of the Federation.

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4.1.6.8.6 Triveni Note Books and school markets

CONSUMERFED started the manufacturing of note books in the year

2006 under the brand name `Triveni Note Book’ at Kunnamkulam, in Thrissur

district with the financial aid of the National Co-operative Development

Corporation. For this purpose, it constructed a godown for stationery and

began the distribution of note books through all Triveni stores. To cater to the

increasing need for note books during school opening times, CONSUMERFED

usually opens school markets at important centers as well as through its all

Triveni stores in the state. The sales turnover of Triveni note books during

2010-11 stood at 11.81 crore.

4.1.6.8.7 Computer Stationery business

In June 2005, CONSUMERFED had started a computer stationery unit at

Kunnamkulam, Thrissur district along with its note book unit. Now, it sells all types

of computer stationery items to various co-operatives and other institutional

customers through two stationery outlets owned by the Federation. The sales

turnover of the computer stationery was estimated to be 6.11 crore during 2010-11.

4.1.6.8.8 Stationery Division.

The Federation has a separate shop for the sale of office stationery items

at the head office premises at Ernakulam. All types of office stationery

required by all offices of the Federation are sold from here. This unit supplies

stationery to departmental customers such as primary co-operatives, district

co-operative banks, local self governments, etc.

4.1.6.8.9 Hurry Curry Spices powdering unit

The Federation owns a spice powdering unit at Thiruvananthapuram,

which prepares and packs all types of curry powders and markets them under


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the brand name ‘Triveni Hurry Curry’ through its retail outlets all over

Kerala. The sale proceeds of the spices unit was estimated at 3 crore in

2010-11.

4.1.6.8.10 Copra and Paddy Procurement.

CONSUMERFED was appointed by government of Kerala as a state

nodal agent from 2009 onwards along with Kerafed and Marketfed for the

procurement of Copra, coconut and paddy under the Minimum Support Price

Scheme of the government. It procures the three commodities from farmers as

per the directions of the state government. During 2009-10, the Federation

procured copra worth 1.56 crore and in 2010-11 the amount of purchase was

estimated to be 11.78 crore. Paddy procurement was also made by the

Federation in the years 2010-11 worth 5 crore. Paddy procurement was not

made by the Federation during the year 2011-12.

4.1.6.8.11 Nanma stores

As per the directives of the state government, the Federation recently

(2011-12) started more than 500 small outlets for the regular supply of 10

to 20 essential commodities at subsidized rates to the ration cardholders of

the state. In addition to the supply of specified essentials at subsidized

rates, these stores offer around 200 essential items to the public at low

rates. The number of Nanma stores increased to 756 in 2013. The rate and

quantity of the specified commodities are determined by the Federation in

consultation with the state government. The government reimburses the

subsidy amount (difference between the normal selling price of the goods

and subsidized offer price) to the Federation. At many places, the premises

to run Nanma stores are offered by the service-co-operative banks

concerned at a nominal rent.

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4.1.6.8.12 Special Triveni markets/ Seasonal stores

With the objective of the supply of essential goods at reasonable prices

and to hold the price levels of essentials during important festival seasons in

Kerala, thousands of temporary shops known as ‘Special Triveni Markets/

Sahakarana Fares’ are usually operated by the Federation. The functioning of

these stores leads to the supply of selected essential goods at fixed quantity to

all ration cardholders at subsidized rates once a week. As the shops are wide

spread and consumer response is favorable, these retail arrangements pose a

threat to the private traders in the state. Long queues can be seen in front of

these stores even hours before opening time. The total subsidy given to the

customers (difference between the price in Triveni stores and sales price

amount) will be reimbursed by the government. The functioning of the special

outlets had been criticized in the sense that they supply only limited number of

items and at low quantities. It is noted that customers had to wait long hours

for getting the goods. To solve the problem, the number of items with

subsidized rates has to be increased and other infrastructure in these stores has

to be constructed. Table 4.10 provides the details of outlets that functioned

from the years 2006 to2012.


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Table 4.10. Details of special Triveni markets operated by CONSUMERFED from 2006 to 2012

Sl. No.

Particulars No.of items sold

No.of days

No.of units

Total sales ( in

crore)

Special Triveni Sales –Yearly- in

crore

1 Onam-2006 10 7 1075 1.71 1.71

2 Sahakarana Vipanam 2007 21 60 3615 53.36

3 Onam- 2007 32 43 1942 26.95

4 Ramsan & Christmas-2007 25 30 1072 9.25

5 Fair price rice shops-2007 5 40 3989 25.09 114.65

6 Vishu-2008 23 11 1634 21.86

7 Onam & Ramsan 2008 31 60 3909 31.58

8 Bakrid and Christmas-2008

28 15 1948 29.04 82.4

9 Vishu -2009 20 13 2591 15.44

10 Onam & Ramsan 2009 37 62 5990 141.95

11 Bakrid& Christmas -2009 31 32 3070 72.59 229.98

12 Vishu-2010 25 14 3125 41.07

13 Onam & Ramsan 2010 22 55 5255 157.54

14 Essential goods distribution-2010

10 22 3485 30.24

15 Christmas- 2010 23 7 1838 22.82 251.67

16 Vishu-2011 15 17 1702 18.71

17 Onam & Ramsan 2011 18 60 5132 55.33

18 Bakrid 2011 15 11 65 9.32

19 Christmas 2011 15 30 3415 62.7 146.06

20 Vishu 2012 20 10 3249 38

21 Ramsan and Onam 2012 13 35 5142 120.94

22 X’mas 2012 13 24 4578 98.33 257.27

Source: Data from reports handed over to the government by CONSUMERFED

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From the table 4.10, it is clear that CONSUMERFED has been actively

intervening in the essential commodities market with the aim of supplying

goods at low prices in order to hold price levels of essentials in the state during

the important festival seasons of Kerala. It is seen that more than 5000

temporary stores had been operated by the Federation from 2009 onwards

during Onam and Ramsan seasons for a period of 60 days each. It has also

effectively intervened in the essential goods markets during other festival

seasons of the state such as X’mas, Bakrid and Vishu.

4.1.6.9 Purchase Procedure Followed by CONSUMERFED

The state cooperative consumers’ Federation has both retailing and

wholesaling of consumer goods including almost all essential goods and

general medicine. For purchasing various goods, the Federation has three

levels of purchase committees, namely, Central Level Purchasing Committee,

Regional Level Purchasing Committee and Store Level Purchasing

Committee. Therefore, three levels of purchasing are made by the Federation:

1) Central Purchasing by the Central Level Purchasing Committee,

2) Regional level purchasing by Regional Purchasing Committees,

and

3) Store level purchasing by Store Level Purchasing Committees.

The Central Level Purchasing Committee is entrusted with the duty of

purchasing all items sold at subsidy rates through CONSUMERFED stores

and Neethi stores. For wholesaling to Neethi stores, the central level

purchasing committee purchases all items. They invite open public tenders

through national and local dailies. Based on the estimation of monthly sales, it

fixes the quantity to be purchased every month and the purchase quantities of


185

materials are also specified in the quotation notice. It accepts least price

quotations, but only after examining the samples. In addition to this, it also has

arrangements to buy packed and bottled products from multi- nationals such as

Unilever Ltd, etc. It purchases all medicines for retailing as well as for

wholesale.

The regional level purchase committee headed by the Regional Manager

considers the stock of goods available in the godowns and at the stores in the

light of the previous month’s sales and convenes monthly meetings for the

purchase of various items needed. They purchase of all food and grocery items

offered through Triveni Stores and Nanma stores (except items sold on

subsidy). They invite suppliers to the meeting by telephone. Based on the offer

price as well as the quality of samples, the purchase deal will be fixed between

the CONSUMERFED region and the suppliers. CONSUMERFED informed

me that the Federation conducts market study and based on the information, it

bargains with the suppliers to fix reasonable prices. The suppliers will supply

goods to regional godowns.

The lower level purchasing committee functions at the store level and it

is headed by the store- in- charge. It is assigned with the duty of purchasing

local items sold through the store as well as highly perishable items. But some

restrictions have been imposed on them on the maximum amount for purchase

and the items.

Therefore, it is understood that the purchase procedure followed by

CONSUMERFED does not follow modern methods of purchasing such as ‘E-

purchase’ or ‘direct procurement from growers or manufactures’. Since

CONSUMERFED is one of the large retailers, it has to buy huge quantities of

goods at low rates. Buying goods at low rates is possible only when they

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186

purchase either directly from the manufactures or from direct agents/

wholesalers without compromising quality aspects. It can purchase from

states such as Madhya Pradesh or Rajasthan, both the states ‘Mandi-System’

prevails, where traders have the opportunity to buy directly from farmers at

regulated markets organized by Agricultural Boards of the states at regulated

market places.

4.1.6.10 Pricing Strategy of CONSUMERFED

It was informed that, the regional level purchasing are made at prices

around 20 per cent less than the average market prices. A cost- plus pricing

strategy is followed by the Federation. Accordingly, CONSUMERFED fixes

prices of various goods by adding 10 per cent to the unit cost. And so, they

claim that the selling prices of all goods must be at least 10 per cent less than

the average market prices.

4.1.6.11 Logistics Management System.

The Federation has more than 59 godowns, of which 39 function

exclusively for Triveni Supermarkets. Modern principles of logistics

management has not been followed by the Federation while opening the

godowns. As a result, the distribution system is found not effective in the

sense that it incurs additional transportation expenses and unnecessary delay in

sending merchandise to the outlets.

4.1.6.12 Position of government sponsored subsidies

It is mentioned that CONSUMEFERD sells 10-20 essential consumer

items at subsidized rates through its Nanma stores, special fare and through

Neethi stores. The amount of subsidy is the difference between normal price of

the items in the Triveni Stores and the original sale price. Even though, the


187

subsidy sales are government sponsored, it takes years to reimburse the

amount. As the amount pending is huge one, it must be detrimental to the

Federation.

Table 4.11. Position of Festival Subsidy –Receivable and Received

Year Festival subsidy receivable ( in crore)

Festival subsidy received ( in crore)

2002-03 0.01.00 -

2003-04 0.87 -

2004-05 1.02 -

2005-06 1.03 -

2006-07 9.98 1.71

2007-08 22.39 5.02

2008-09 118.31 14.34

2009-10 126.22 12.20

2010-11 128.89 20.1

2011-12 95.00 50.00

Total 503.72 103.37 Source: Audited annual statements of CONSUMERFED

The subsidy reimbursable from the state government by the

CONSUMERFED as on 31 March 2012 stood at 400.35 crore.

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188

PART - II

4.2 Financial Performance of the Kerala State Co-operative Consumers’ Federation Ltd.

This part of the chapter discusses the financial performance of

CONSUMERFED

Financial health of a business is crucial to its proper functioning and so it

is termed as finance is the life blood of every business. The amount of long

capital invested and its sources have long term implications for the financial

performance of an enterprise. While choosing a particular source for financing,

the cost and risks involved are to be considered. For example, when firm

functions with large amount of debt capital, the liability of the interest outlay

as well as the cost involved in the procurement are important. If the liability of

interest payment is a huge amount, that will affect the net earnings negatively.

The major sources of long term funds of CONSUMERFED are capital

contribution and subsidies of government and borrowings from banks and co-

operatives.

‘Ratio analysis as widely used tool is used in this study for assessing the

financial performance of the Federation. Ratio analysis is important in

understanding the financial well being of any organization. It permits intra and

inter- company evaluations as well as comparisons with industrial averages’7

(Michael Chibili. 2010). Financial statements provide necessary figures for

ratio analysis. These statements are summarized reports of transactions during

an accounting period. They include income statement-Profit and Loss account

and position statement-Balance Sheet. Cash flow statement and schedules are

also necessarily prepared and reported by joint stock companies with profit

and loss account and balance sheet. Income statement exhibits the net


189

operation results for a given period by matching revenues and costs. Balance

sheet is a statement which exhibits every type of asset held by the enterprise

represented by equity and liability at a point of time. The cash flow statement

summarizes the causes of changes in cash position of a business8 (Reddy and

Appannaiah-1992). Smith and Ashburne define financial statements as “the

end product of financial accounting is a set of financial statements, that

purport to reveal the financial position of the enterprise, the result of its recent

activities, and an analysis of what has been done with earning”. Financial

statements are mirrors which reflect the financial position and operating

strength or weakness of the concern. These statements help to the interested

parties to take own decisions. They also assist in reviewing the business for a

given period and take suitable corrective action for the coming period.

Financial statements are highly useful to the management, creditors, bankers,

investors, government and public. The management uses the information in the

financial statements for controlling cost, declaring dividend, formulation of

future plans, etc. Creditors may decide whether they have to expand credit or

maintain the same level as it is maintained now or they have to contract credit.

Bankers are very interested to know the position and liquidity of the enterprise

to pay back the existing liabilities. The analysis of financial statements with

proper tools shall help to the investors and others for making wise decisions to

invest or withdraw.

4.2.1 Financial Statement Analysis

Financial statement analysis is a process of evaluating the relationship

between component parts of a financial statement to obtain a better

understanding of a firm’s position and performance. It helps to understand the

trend of the figures, which is useful to draw concrete conclusions about

different aspects of a concern. The main purpose of financial analysis and

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190

interpretation is to render service to those concerned with the firm. Owners,

creditors, debenture holders, investors, government, management, employees

are the persons and institutions interested in the business enterprise. Each one

of them has their own purpose to be met with and they may be summed up as

follows.

1) To determine the earnings capacity of the business;

2) To assess the financial position of the firm;

3) To know about the solvency and long term- liquidity of the firm;

4) To assess the borrowing capacity of the firm;

5) To decide about the future prospects of the firm.

6) To measure the efficiency of operations.

The object of the analysis determines the extent on the view of the

analyst and the need for enquiry. Based on the material used, analysis of

financial statements take place in two ways.1) Horizontal Analysis and 2)

Vertical Analysis. According to the objectives of analysis, financial statement

analysis can be divided into: 1) Long term analysis and 2) Short term analysis.

If the financial data are analyzed for two or more years with the object of

comparing the statements, it is called ‘horizontal analysis’. ‘Vertical analysis’

is concerned with the analysis of financial statement of one single period or

one single date. The long term analysis made to reach a conclusion that

whether an enterprise maintain suitable return on investment for the long term

growth. Here stress is given to the stability of earnings and growth. In short

term analysis working capital and principal components of the working capital

are important. Comparative financial statements, common size statements,

trend ratios, statements of changes in working capital fund flow and cash flow

statements and ratio analysis are the important tools used for financial


191

analysis. Mainly, ratio analysis is used in this study to analyse the financial

strength and performance of the Federation. It is one of the effective and

useful techniques to understand the financial soundness of an enterprise.

Before proceeding to the ratios analysis of the COSUMERFED, the sales

and net working results (Net Profit/Net Loss) are analyzed below.

4.2.2 Growth of Sales Turnover of the CONSUMERFED.

The sales of the Federation had shown little growth from 2002-03 to

2005-06. But a steady and stable growth in sales amount has been recorded

from 2006-07. It was because of the starting up of new Triveni stores as well

as 46 beverage retail outlets. But due to the very slow growth in profit making,

it was not able to write off its accumulated loss – a huge amount, 74.17

crore. This is about 132 per cent more of its paid up capital.

Table 4.12 Growth of sales turnover of CONSUMERFED from 2002-03 to 2011-12

Year TURNOVER ( in crore) % increase/ decrease

2002-03 300.63 -

2003-04 330.44 9.92

2004-05 350.14 5.96

2005-06 355.48 0.02

2006-07 445.97 25.46

2007-08 564.12 26.49

2008-09 691.85 22.64

2009-10 1006.56 31.27

2010-11 1312.40 20.56

2011-12 1540.42* 17.37

Compound Annual Growth Rate (CAGR)

17.74

Source: Compiled from annual statements of the CONSUMERFED. *Estimated figure

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192

The highest annual growth of sales was attained in the year 2009-10

(31.27 per cent) A Compound Annual Growth Rate of 17.74 was recorded

during the period, which is considered a high rate of growth. The following chart

shows the exponential trend of the sales turnover of the CONSUMERFED from

2000-04 to 2011-12.

Figure 4.5. Trend in sales of CONSUMERFED (source: annual records of CONSUMERFED)

The trend in sales turnover from 2002-03 to 2011-12 of the Kerala State

Co-operative Consumers’ Federation Ltd is depicted above. The sales

increased from 300.63 crores from 2002-03 to 1540.42 crore in 2011-12, at

an annual exponential rate of 0.193 with an R2 value of 0.941.

4.2.3 Trend of unit-wise sales of the CONSUMERFED

The number of units of CONSUMEFERD increased from 40 in 2002-03

to 475 in 2011-12 (excluding NANMA stores, which started from April 2012

onwards). Here, an attempt to assess the trend of unit wise sales of the

Federation is made.


193

Table 4.13. Trend of unit- wise sales of the CONSUMERFED from 2002-03 to 2011-12

Year Sales ( in crore) No. of units Sales per unit

( in crore)

2002-03 300.63 40 7.51

2003-04 330.44 42 7.86

2004-05 350.14 63 5.55

2005-06 355.48 92 3.86

2006-07 445.97 172 2.59

2007-08 564.12 187 3.01

2008-09 691.85 217 3.18

2009-10 1006.56 267 3.76

2010-11 1312.40 387 3.39

2011-12 1540.42* 475 3.24

Compound Annual Growth Rate (CAGR)

17.74 -0.82

Source: Audited annual statements of CONSUMERFED

It is seen that considerable decrease occurred in the unit- wise sales of

CONSUMERFED from 2002-03 to 2011-12. Though, the total sales recorded

a growth of 17.74 per cent (CAGR) during the period, the per unit sale had

shown a decrease of 0.82 per cent (CAGR). This shows the poor financial

performance and management of the units of the Federation.

4.2.4 Net Working Results of CONSUMERFED

The Consumers’ Co-operative Federation had been a loss making body

until 2006-07. But, it started to gain profit from 2007-06 onwards and the

trend continues, even though, it has an accumulated loss of more than 74

cores as per its recent audited reports. The year- wise net working results of

the Federation are given below:

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194

Table 4.14. Trend of Net - Operating Results of CONSUMERFED from 2002-03 to 2010-11

Year Profit ( in crore) % increase/ decrease

2002-03 -16.44 -

2003-04 -7.46 54.64

2004-05 -9.39 25.87

2005-06 -13.36 -42.27

2006-07 -7.28 45.45

2007-08 1.51 79.25

2008-09 2.47 63.57

2009-10 2.76 11.75

2010-11 1.11 59.78 Source: Audited annual statements of CONSUMERFED.

The net results table shows that a slow recovery from loss has been

attained by the Federation. It started running at profit from 2007-08 and during

that year it attained high growth in the annual increase in profit (79.25)

considering the recovery of loss of 7.28 in the preceding year.

Figure 4.6. Trend of net results of the Federation from 2002-03 to 2010-11 (Source: Audited annual statements of CONSUMERFED)


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The above chart shows the trend of net working results of CONSUMERFED

from 2002-03 to 2010-11.

4.2.5 Accounting Ratios of CONSUMERFED

A ratio is simply a notation of the relationship between two or more

things. It is a term which establishes the relationship between two figures or

variables. It has a numerator and denominator. ‘Ratio analysis permits the

creation of new, much more meaningful and useful information that permits

that goes beyond the facts and figures found in financial statements. It permits

intra and inter- company evaluations as well as comparisons with industrial

averages’9 (Michael Chibili . 2010). It is important in understanding the

financial growth/structure of any organisation. It can be expressed as a simple

fraction, integer, decimal fraction, as a coverage of so many times or

percentage. According to James C.Van Horne, “Ratio is a yardstick used to

evaluate the financial condition and performance of a firm, relating to two

pieces of financial data to each other’

H.G.Guthmann defined ratio as ‘the relationship or proportion that one

amount bears to another, the first number being the numerator and the latter

denominator’. All these definitions clearly indicate that ratio helps to know the

financial condition and performance when applied to the financial data. There

are three kinds of ratios- a) Balance Sheet ratios, b) Income statement ratios

and c) Inter-statement ratios or combined ratios. Balance sheet ratios are those

whose numerator and denominator are drawn from the balance sheet (current

ratio, debt equity ratio, etc.). Ratios which are drawn from trading and profit &

loss account are known as income statement ratios (operating ratio, net profit

ratio). If the ratio is drawn with the help of figures from income statement and

Balance sheet, the ratio is known as combined ratio (sundry debtors to sales

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196

ratio). The financial performance of the Kerala State Co-operative Consumers’

Federation Ltd is analysed with the help of the audited financial statements

published by it. The audit wing of the Registrar of Co-operative Societies,

Kerala is the authority to audit the accounts of the Federation. In order to

understand the pattern of growth/decline with respect to the financial

performance and the financial health of the Federation, accounting statements

from 2003-04 to 2010-11 have been taken into consideration. Therefore, the

period considered for the study ranges from 2003-04 to 2010-11. For

evaluating the financial performance of CONSUMERFED, the following

ratios are computed and an intra- firm assessment is made.

1) Profitability Ratios: a).Gross Profit Ratio. b). Operating Profit

Ratio, c).Net Profit Ratio, d) Return of Total Assets, e) Return on

Capital Employed and f) Return on Total Assets

2) Liquidity Ratios: a) Current Ratio, b) Working Capital Turnover

Ratio.

3) Leverage Ratios : a) Solvency Ratio, b) Debt-Equity Ratio and c)

Interest Coverage Ratio

4) Activity Ratios: a) Inventory Turnover Ratio and b) Working

Capital Ratio.

4.2.5.1 Profitability of CONSUMERFED.

The term ‘Profitability’ implies the profit- making capacity of a firm. It

is defined as the ability of a given investment to earn a return from its use.

Profit is the difference between revenue and expenses and so is the residue of

income. Efficiency and financial stability can be evaluated in terms of profit.

Operational efficiency is judged by assessing the profitability of a firm. The

profitability of an enterprise can be calculated through establishing a


197

quantitative relationship between profit earned and sales amount or the level of

investment. ‘Sufficient profits must be earned to sustain the operations of the

business, to distribute to shareholders and to sustain the growth and expansion

and to contribute towards social well being.’10(Peter Druker.1998). The

profitability of the Federation is computed with the help of profitability ratios.

These ratios highlight the end result of the activities of the Federation and

judge the overall efficiency of it. This ratio shows how far the business is

successful.

4.2.5.1.1 Gross Profit Ratio

This ratio exhibits the relationship between gross profits on sales to net

sales. Gross profit ratio helps in measuring the results of trading or

manufacturing operations. It shows the gap between revenue and expenses at a

point after which an enterprise has to meet the expenses related to non-

manufacturing activities like marketing and administration. This ratio acts as

an index of the mobility of an enterprise to meet marketing and administration

expenses, finance cost, taxes and appropriations like dividend, etc. This ratio

reveals the extent to which sales promotion is successful in the enterprise.

Causes of variation in gross profit can also be identified. An increase in gross

profit ratio may be due to an increase in sales price or decrease in the cost of

goods sold. This ratio is a useful index in identifying the quality of marketing

and production functions in its coordinated form as well as isolation.

Gross profit Ratio = Gross Profit SalesNet

100×

Table 4.15 shows the gross profit ratio of the Kerala State Cooperative

Consumers’ Federation Ltd for the years 2003-04 to 2010-11.

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198

Table 4.15. Gross Profit Ratios of CONSUMERFED (2003-04 to 2010-11)

Year Gross Profit ( in lakh)

Annual Growth Rate (percentage)

Net Sales ( in lakh)


Gross profit ratio-Percentage

2003-04 1027.57 - 29903.4 - 3.4

2004-05 876.07 -14.74 31678.6 5.93 2.76

2005-06 870.88 -0.59 32170.2 1.55 2.70

2006-07 1649.03 89.44 41994.71 30.53 3.92

2007-08 3303.87 100.47 55254.71 31.57 5.97

2008-09 4436.18 34.27 68926.97 24.74 6.43

2009-10 6004.38 35.35 96273.29 39.67 6.23

2010-11 7006.42 16.68 131240 36.32 5.34

Average 4.60

CAGR 27.17 20.31 Source: Annual audited statements of the Federation.

The gross profit ratio of the Federation ranges from 2.70 percentage to

6.43 percentage during the period under study. The least ratio was recorded in

the year 2005-06 and the highest in 2009-10. The gross profits show an

increasing trend (amount wise) from the financial year 2005-06 onwards.

Compound growth rate is recorded as 27.17 percentage, which is considerably

an acceptable growth rate of gross profit. 20.31 percentage is the compound

growth rate of net sales during the period under study.

4.2.5.1.2 Operating Profit Ratio.

Operating profit ratio is considered to be one of the crucial profitability

ratios. Operating profit ratio is the ratio between the operating profit and

revenue. Operating profit is the difference between the gross profit and

operating expenses. This profit may also be calculated by adding non-


199

operating expenses and deducting non-trading incomes from the net profit.

Here, the second method is used.

Table 4.16 Operating Profit Ratios of CONSUMERFED from 2003-04 to 2010-11

Year Operating

profit ( in lakh)

Annual Growth

Rate (percentage)


Annual Growth

Rate (percentage)

Operating Ratio

2003-04 -239.44 - 29903.4 - -0.8

2004-05 -459.65 -91.96 31678.6 5.93 -1.45

2005-06 -807.38 -75.65 32170.2 1.55 -2.50

2006-07 188.50 123.34 41994.71 30.53 0.45

2007-08 1249.68 562.96 55254.71 31.57 2.26

2008-09 1357.61 8.63 68926.97 24.74 1.96

2009-10 2247.1 65.52 96273.29 39.67 2.33

2010-11 2360.91 5.06 131240 36.32 1.79

Average 0.49


As per table 4.16, the operating profit of the Federation during the three

years starting from 2003-04 was a negative value as the firm incurred heavy

operating losses during that period. From 2006-07 to 2010-11, the undertaking

had run at operating profit. The highest percentage was recorded in the year

2009-10. The compound growth rate of the operating profit is recorded as

85.81 percentage during 2003-04 to 2010-11.

4.2.5.1.3 Net Profit Ratio

Net profit ratio expresses net profit as a percentage of sales. This ratio

indicates the profitability and efficiency of the business. This ratio shows the

amount left to shareholders out of sales, after meeting all costs and expenses.

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200

This ratio is determined by dividing the net profit after tax, by the net revenue.

It is also called net margin. If the ratio arrived at is high, it indicates a good

profit position.

Net Profit Ratio =Net Profit SalesNet

100×

This ratio also indicates the firm’s capacity to withstand adverse

economic conditions. A firm with a high Net Margin Ratio would be in an

advantageous position to survive in adverse conditions such as low sales,

falling prices, etc. Table 4.17 shows the changes in the net profit ratio of

CONSUMERFED from 2003-04 to 2010-11.

Table 4.17 Net Profit Ratios of CONSUMERFED from 2003-04 to 2010-11

Year Net Profit ( in lakh)



Annual Growth

Rate (percentage)

Net Profit Ratio

(percentage)

2003-04 -746.44 - 29903.4 - -2.49

2004-05 -939.49 -25.86 31678.6 5.93 -2.96

2005-06 -1336.46 - 42.25 32170.2 1.55 -4.15

2006-07 -728.5 45.49 41994.71 30.53 -1.73

2007-08 151.37 120.77 55254.71 31.57 0.27

2008-09 247.77 63.68 68926.97 24.74 0.35

2009-10 276.12 11.44 96273.29 39.67 0.28

2010-11 111.5 -66.88 131240 36.32 0.08

Average -1.29

CAGR -7.36 (2006-07 to 2010-11)

20.31

Source: Annual audited statements of the Federation.

The net profit of the Federation had shown a negative trend during

2003-04 to 2006-07. And from 2007-08 onwards the trend had been positive.


201

Until 2006-07, the Federation incurred net losses and it has been making profit

from 2007-08 onwards but the amount of profit declined during 2010-11. The

maximum Net Profit Ratio is 0.35 percentage, which is recorded in 2008-09.

The net profit ratio of the Federation is negative as it incurred losses up to 2006-

07 and too low from 2007-08 onwards as it made small amounts of profit. The

compound growth rate in the case of net profit is -7.36 and 20.31 in the case of net

sales.

4.2.5.1.4 Return on Total Assets.

This ratio measures the profitability of investment. The overall profitability

of a firm can be deciphered by applying this ratio. This ratio is also known as

return on gross capital employed. This can be measured by dividing the net profits

by total assets. Net profit for calculating this ratio is net profit before interest and

tax. Table 4.18 depicts the return of total assets ratio of the Federation.

Table 4.18 Return on Total Assets of CONSUMERFED from 2003-04 to 2010-11

Year Net profit before

interest and tax.

( in lakh)

Annual Growth rate (percentage)

Total Assets ( in lakh)

Annual Growth

Rate (percentage)

Return on Total Assets

Ratio (percentage)

2003-04 -161.13 - 13239.22 - -1.21 2004-05 -300.58 -86.54 13858.58 4.67 -2.16 2005-06 -525.65 -74.9 14300.87 3.19 -2.40 2006-07 337.29 164.16 21863.82 52.88 1.54 2007-08 1432.33 324.65 21598.51 -1.21 6.63 2008-09 1795.72 25.37 25846.92 19.66 6.94 2009-10 2506.49 39.58 45950.13 77.77 5.45 2010-11 2860.91 14.14 71888.12 56.44 3.97 Average 2.35 CAGR 72.59 23.55

Source: Annual audited statements of the Federation.

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202

The return on total assets of the Federation had shown negative

percentage up 2005-06 and displayed a sudden growth in the next three years,

but had shown a decline from 2009-10. The highest ratio (6.94) was recorded

in the year 2008-09 and the lowest (-2.4) during 2005-06. The compound

growth rate for net profit before interest and tax is recorded as 72.59 and for

total assets 23.55 percentage during the period under study.

4.2.5.1.5 Return on Capital Employed

Return on capital employed is the ratio of adjusted net profit to capital

employed. This ratio shows the overall profitability of the enterprise. It helps

in profit planning, evaluating and controlling capital expenditure projects and

facilitates comparison of the relative profitability of the various departments

and different type of products. It indicates the return on capital employed in

the business and it can be used to show the efficiency of the business as a

whole. Formulation for the calculation of return on capital employed is as

follows.

100employed capitalNet

dividend) and tax interest, before(Profit ×

The term capital employed refers to long term funds supplied by the

creditors and owners of the firm. Net capital employed is the difference

between the sum of assets and current liabilities. The following table shows

the Return on Net capital Employed of CONSUMERFED from 2003-04 to

2010-11.


203

Table 4.19 Return on Capital employed of CONSUMERFED from 2003-04 to 2010-11

Year

Net profit before

interest and tax.

( in lakh)


Net Capital

Employed ( in lakh)

Annual Growth

Rate (percentage)

Return on capital

employed (percentage)

2003-04 -161.13 - 9521.41 - -1.69

2004-05 -300.58 -86.54 9832.8 3.70 -3.05

2005-06 -525.65 -74.87 10094.6 2.66 -5.20

2006-07 337.29 164.16 13891.15 37.60 2.42

2007-08 1432.33 324.65 13847.8 -0.31 10.03

2008-09 1795.72 25.37 19576.73 41.37 9.17

2009-10 2506.49 39.58 30613.07 56.37 8.18

2010-11 2860.91 14.14 54055.04 76.57 5.29

Average 3.41


As seen in table 4.19, the return on capital employed of the Federation

was the highest in the year 2007-08 (10.03 percent) and the lowest in 2005-06

(-5.2). The average ratio for the period from 2003-04 to 2010-11 has been

recorded as 3.41 percentage, which seems to be a very low percentage return

on capital employed. In contrast, the compound growth rate of capital

employed is recorded as 24.24 percentage during the period from 2003-04 to

2010-11.

Summarizing, the profitability ratios show the poor profit making

capacity of the Federation. Even though, the Compound Growth Rate of net

sales shows 27.17 percent, the average gross profit ratio is only 4.60 percent

and net profit ratio shows an average of -1.29 percent during the period under

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204

study. Fortunately, from 2007-08 onwards the firm started to make profits,

which marks a promising beginning to its revival. Likewise, the average return

on total assets also depicts a small percentage, i.e. 2.35. The average Return

on Capital Employed by the Federation during the period is also very low

(3.41 per cent).

4.1.5.2 Liquidity Position of CONSUMERFED

Liquidity of a firm means its ability to meet its short- term obligations.

Liquidity ratios are useful in assessing the liquidity position of an enterprise. A

liquidity ratio measures the availability of cash within the organization to pay

its current debts. It is used to determine the organisation’s ability to pay off its

short term obligations. Since liquidity is basic to the continuous operations of

the firm, it is necessary to determine the liquidity of the firm. The higher the

value of the ratios the better will be the margin of safety that the organization

has, to cover its long term obligations. The ability of the firm to transform its

current asset into cash to take care of its debts is of prime importance

whenever its creditors seek payment. The liquidity position of the Federation

is assessed by computing its current ratio with current assets and current

liabilities.

4.1.5.2.1 Current Ratio

Current ratio is useful in assessing the solvency and liquidity position of

the enterprise. This ratio indicates the extent of current assets available to meet

current obligation. Thus current ratio shows the direct relationship between

current assets and current liabilities. This ratio is normally expressed as

coverage of so many times. The management as a safety measure will have 2:1

current ratio, i.e. Rs. 2 in current assets and Re.1 in current liability. Creditors

prefer a higher current ratio because it gives them assurance that the


205

organization can pay back its debts in time. These formulas maintain a safety

margin as some of the current assets may not realize quickly. Even if there is

common agreement regarding the sound current ratio as 2:1, the situation of

the firm also determines the margin between current asset and current liability.

If the organization sells only on cash basis, the margin required may be less.

Current Ratio= Current Assent /Current liabilities.

Table 4.20 shows the current ratio of the Federation. For calculating this

ratio, current assets and current liabilities are taken in to account. ‘Assets

which may be converted into cash or used up within one year is considered as

current assets and liabilities to be payable within a year from its origin is

termed as current liabilities’ (S.N. Maheswari.1992)11.

Table 4.20. Current Ratios of CONSUMERFED for the period from 2003-04 to 2010-11

Year Current Assets.

( in lakh)


Current Liabilities ( in lakh)

Annual Growth

Rate (percentage)

Current Ratio

(in times)

2003-04 12723.98 - 3717.81 - 3.42:1

2004-05 13003.87 2.19 4025.78 8.20 3.23:1

2005-06 13587.09 4.48 4205.80 4.47 3.23:1

2006-07 21183.73 55.91 7972.67 89.56 2.65:1

2007-08 20731.30 -2.13 7750.71 -2.78 2.67:1

2008-09 24634.22 18.82 6269.27 -19.11 3.92:1

2009-10 44282.46 79.75 15337.06 144.63 2.88:1

2010-11 69391.62 56.70 17833.08 16.27 3.89:1

Average 3.23:1


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206

The relationship between the current assets and the current liabilities of

the Federation has been found higher than the ideal ratio (2:1) throughout the

years under study. The average Current Ratio for the years under study is 3.23.

During the years 2003-04, 2008-09 and 2010-11, the ratio shows a higher

value than the average. It seems that the Federation keeps current assets more

than at the ideal level and the liquidity position of CONSUMERFED is good.

But, under trading or keeping more stock than at the optimum level may also

be a cause of higher current ratio than the ideal one. Compound Annual

Growth Rate for current assets is found to be 23.61 percentage for eight years

from 2003-04 and for current liabilities 21.65 percentage.

4.1.5.3 Long term financial solvency position of CONSUMERFED

The determination of the financial health of a firm involves short and

long term solvency. Liquidity ratios are useful in computing the short term

solvency position of a firm. In contrast, leverage ratios are helpful in analyzing

the long term financial solvency of a firm. These ratios indicate the ability of a

company to meet its obligations when they are due (including the principal and

interest on their long term debts). There are basically two sources of funds to

finance an enterprise; which are funds received from the owners and funds

received through contracting debts with third parties. Leverage refers to the

amount of long term debts that is used to finance the assets of a company to

the amounts of owners’ equity. A firm with significantly more debts than

equity is considered to be highly leveraged. The following leverage ratios of

the Federation have been computed in this respect.

4.1.5.3.1 Solvency Ratio.

The solvency ratio, as specific ratio, indicates the organization’s ability

to take care of its long term obligations.


207

Solvency Ratio = Total Assets ÷ Long Term Liabilities to outsiders

The greater the leverage used by the organization, the lower will be the

solvency ratio. Creditors normally prefer a high solvency ratio. Solvency ratio of

the State Co-operative Consumers’ Federation is computed and shown below.

Table 4.21. Solvency Ratios of CONSUMERFED from 2003-04 to 2010-11

Year Total Assets

( in lakh)


Long term debts to

outsiders ( in lakh)

Annual Growth

Rate (percentage)

Solvency Ratio

(in times)

2003-04 13239.22 - 9744.92 - 1.35:1

2004-05 13858.58 4.67 10550.31 8.26 1.31:1

2005-06 14300.87 3.19 12166.09 15.31 1.17:1

2006-07 21863.82 52.88 16483.22 35.48 1.32:1

2007-08 21598.51 -1.21 13702.18 -16.87 1.57:1

2008-09 25846.92 19.66 10477.66 -23.53 2.46:1

2009-10 45950.13 77.77 29306.92 179.71 1.56:1

2010-11 71888.12 56.44 46879.21 59.96 1.53:1

Average 1.53:1


It is found that 1.53:1 is the average Solvency Ratio (total assets/ long

term debts to outsiders) of CONSUMERFED during the period from 2003-04

to 2010-11. It shows the Federation has been using a very high amount of debt

in its capital structure. Solvency ratio of the Federation is the lowest (1.17:1)

in 2005-06 and the highest (2.46:1) in 2008-09. The leverage used by the

Federation is found high in all years under study except the year 2008-09. The

compound annual growth rate is recorded 23.55 percentage in the case of total

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208

assets and 21.67 percentage in the case of long term liabilities during the

period under study.

4.1.5.3.2 Debt-Equity Ratio.

The relationship between borrowed funds and owner’s capital is a

popular measure for the calculation of the long term financial solvency of a

firm. This relationship is shown by the debt to equity ratio. This ratio indicates

the relative proportion of debt and equity in financing the assets of a firm. It

also shows the organization’s ability to survive. Debt equity ratio is very

important to determine the efficiency of financial management of an

undertaking. It relates all creditors’ claims on assets to the recorded owners’

claims.

Debt equity ratio is directly computed by dividing total debt by net

worth or equity. Total debt includes all debts including short and long term.

And equity means the claim of owners calculated as share capital plus reserves

and surplus minus accumulated losses.

Debt-equity ratio = Outsiders fund ÷ Shareholders fund

An acceptable norm for this ratio is considered to be 2:1. A high ratio

shows that the claims of creditors are greater than those of owners. This

position is unfavorable from the point of view of the firm. A low debt- equity

ratio implies a greater claim of owners than creditors. A very high ratio is

unfavorable from a firm’s point of view. There should be a strike of balance

between the use of debt and equity. Table 4.22 shows the debt- equity ratio of

the Federation.


209

Table 4.22 Debt Equity Ratios of CONSUMERFED (2003-04 to 2010-11)

Year Total Debt ( in Lakh)


Equity ( in

Lakh)

Annual Growth

Rate (percentage)

Debt-equity ratio

( in times)

2003-04 13462.73 - 398.62 - 33.77:1

2004-05 14576.09 8.27 425.54 6.75 34.25:1

2005-06 16371.62 12.31 603.37 41.78 27.13:1

2006-07 24455.89 49.37 281.15 -33.93 86.98:1

2007-08 21452.89 -12.28 238.45 -15.18 89.97:1

2008-09 16746.93 -21.94 476.59 99.84 35.14:1

2009-10 44643.98 166.58 581.69 22.05 76.75:1

2010-11 64712.29 44.95 612.23 10.84 105:1

Average 61.12:1


The Debt Equity Ratio of the Federation varied in the range of 27.13 to

105 times during the period of study. The average ratio is recorded 61.12:1,

which is too high and shows an unfavorable position from the owners’ point of

view as it depicts the least claim to the owners on the assets of the firm. The

ratio shows a high rate as the total debt of the Federation has increased from

13462.73 lakh in 2003-04 to 64712.29 lakh in 2010-11. The compound

annual growth rate was recorded as 21.68 percentage for debts, where as it was

0.55 percentage in the case of equity from 2003-04 to 2010-11.

4.2.5.3.3 Interest Coverage Ratio.

This ratio shows the relationship between the earnings before interest

and taxes and interest expense. It shows the ability of an enterprise to

discharge its interest liabilities. If the ratio is higher, it means that the firm has

good financial capability to pay off interest expenses. When the ratio shows a

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210

small figure, it shows the incapability to meet loan interest making the firm

incapable of going for further fixed obligations.

Table 4.23. Interest Coverage Ratios of CONSUMERFED from 2003-04 to 2010-11

Year

Earnings before

interest and tax (EBIT) ( in lakh)


Interest Expenses ( in lakh)


Interest coverage

ratio (percentage)

2003-04 -161.13 - 585.31 - -27.52

2004-05 -300.58 -86.54 638.87 9.15 -46.95

2005-06 -525.65 -74.87 810.83 26.91 -64.82

2006-07 337.29 164.16 1065.79 31.44 31.64

2007-08 1432.33 324.65 1280.95 20.19 111.81

2008-09 1795.72 25.37 1548.01 20.85 116.00

2009-10 2506.49 39.58 2239.37 44.66 111.92

2010-11 2860.91 14.14 2749.41 18.55 104.06

Average 42.02


Table 4.23 depicts the Interest Coverage Ratios of various years and

their average for the period from 2003-04 to 2010-11 of CONSUMERED.

During the first three years under study, the ratios show negative values

because it is seen that the interest liability had been higher than the EBIT. But

from 2007-08 to 2010-11, the ratios were high and so the Federation could

have attained some funds for meeting its other obligations. The average ICR is

42.02 percentage for the period, which is certainly a high rate. But, the CAGR

for the EBIT shows a good tendency as it rises at 72.59 per cent compared to

the interest expense of 42.02 per cent.


211

4.2.5.4 Operational Efficiency of CONSUMERED

Activity ratios measure the operational efficiency of a concern by

assessing how efficiently the assets are employed by the firm. These ratios

indicate the speed with which assets are being converted in to cash or sales.

They are considered useful to measure the level of activities. In precise, they

are intended to measure the effectiveness of assets management. The greater

the turnover, the more efficient the management would be. To understand the

level of activities and thereby to measure the operational efficiency of the

Kerala State Cooperative Consumers’ Federation, Ltd, activity ratios such as

Inventory Turnover Ratio, Working Capital Turnover Ratio and Fixed Assets

Turnover Ratio are computed as shown below.

4.2.5.4.1 Inventory Turnover Ratio of CONSUMERFED.

This ratio measures whether investment in inventory is efficiently used

or not. It measures the effectiveness of the sales efforts made by a firm.

Inventory Turnover Ratio = Cost of Goods Sold÷ Average Stock.

The inventory turnover ratio signifies the liquidity of the inventory. A

high inventory turnover ratio indicates brisk sales. A low inventory turnover

ratio results in blocking of funds in inventory. There is no standard ratio for

the inventory turnover. Table 4.24 shows the inventory turnover of the

Federation from 2003-04 to 2010-11.

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212

Table 4.24. Inventory Turnover Ratio of CONSUMERFED from 2003-04 to 2010-11

Year Cost of

goods sold. ( in lakh)


Average Stock ( in lakh)

Annual Growth

Rate (percentage)

Stock turnover

Ratio (times)

2003-04 28875.83 - 2220.02 - 13

2004-05 30802.53 6.67 2092.92 -9.06 14.72

2005-06 31299.32 1.61 2032.60 -2.87 15.40

2006-07 43107.12 37.72 2564.5 26.16 16.81

2007-08 51436.57 19.32 2627.95 2.47 19.57

2008-09 65043.15 26.45 2394.97 -8.86 24.16

2009-10 90265.89 38.78 4139.49 75.21 21.89

2010-11 120726.45 33.74 4842.51 16.98 24.93

Average 17.18

CAGR 19.58 10.24 Source: Annual audited accounts of the Federation.

The stock Turnover Ratio of CONSUMERFED varies from 13 to 24.93

times during the period from 2003-04 to 2010-11. These high ratios show the

speed in the conversion of its stock in to sales. Based on the average inventory

turnover ratio of CONSUMERFED, inventory turnover days seem to be 22.

The average STR of the Federation is found to be 17.18 times during the

period of study. The CAGR of cost of goods sold (19.58 per cent) is found to

have a higher rate than the CAGR of average stock (10.24) during the

evaluation period. All these indicate the high amount of sales acquired by the

Federation with its low amount of average stock.

4.2.5.4.2 Working Capital Turnover Ratio

This ratio provides knowledge of the trading level (over trading or under-

trading) of an enterprise. This is calculated by dividing the net sales by net working


213

capital. Net working capital is arrived at by deducting current liabilities from current

assets. The following table shows the working capital ratio of COSUMERFED.

Table 4.25 Shows the Working Capital Ratio of CONSUMERFED from 2003-04 to 2010-11

Year Net Sales

( in Lakh)


Net Working Capital ( in Lakh)


Working capital ratio

(times) 2003-04 29903.4 - 9006.17 - 3.32 2004-05 31678.6 5.93 8978.09 -.003 3.53 2005-06 32170.2 1.55 9381.29 4.49 3.43 2006-07 41994.71 30.53 13211.06 28.99 3.18 2007-08 55254.71 31.57 12980.59 1.74 4.26 2008-09 68926.97 24.74 18364.95 41.48 3.75 2009-10 96273.29 39.67 28945.40 57.61 3.33 2010-11 131240 36.32 51558.54 78.12 2.54 Average 3.41 CAGR 20.31 24.37


The Working Capital Turnover Ratio of the Federation ranges from 2.54

to 4.26 times during the review period. The lowest ratio is recorded during

2010-11 and the highest during 2007-08. It is found that the average WCR of

CONSUMERFED is 3.41 times during the eight years from 2003-04. This

shows that the firm had maintained a good trading level during the period.

Again it is seen that the net working capital of the Federation has increased at

a CAGR of 24.57 per cent during the period. This shows the good working

capital position and trading efficiency of the firm.

4.2.5.4.3 Fixed Assets Turnover Ratio

This ratio indicates the extent to which the investments in fixed assets

contribute towards sales. It shows the extent of sales compared with the fixed

Chapter -4

214

assets of a firm or how the fixed assets are used for sales. The fixed assets

turnover ratio of the Federation from 2003-04 to2010-11 is given below.

Table 4.26 Fixed Assets Turnover Ratios of CONSUMERFED from 2003-04 to 2010-11

Year Net Sales ( in Lakh)


Fixed assets ( in

Lakh)

Annual Growth

Rate (percentage)

Fixed assets

Turnover Ratio

(times)

2003-04 29903.4 - 515.24 - 58.04

2004-05 31678.6 5.93 854.71 65.88 37.06

2005-06 32170.2 1.55 713.31 -16.54 45.09

2006-07 41994.71 30.53 680.09 - 4.6 61.74

2007-08 55254.71 31.57 867.21 27.54 63.72

2008-09 68926.97 24.74 1212.70 39.84 56.84

2009-10 96273.29 39.67 1667.67 37.52 57.72

2010-11 131240 36.32 2496.50 49.71 52.56

Average 54.09

CAGR 20.31 21.80 Source: Audited annual accounts of the Federation

The fixed Assets Turnover Ratio of the Federation varied from 37 times

to 63 times during the years under study. 54.09 times seem the average, and

no doubt, this can be considered to be a high rate. This shows the efficiency of

the Federation to attain a high sale with a small amount of fixed assets. The

highest fixed assets turnover ratio (63.72) is recorded in the year 2007-08. In

contrast to this, during 2004-05, the ratio is found to be the lowest (37.06). It

is seen that the compound growth rate of the fixed assets of the Federation is

21.80 and net sales is 20.31 percentage during the period. The highest annual

growth rate (65.88 per cent) is found in the year 2004-05 of fixed assets, where


215

as 2009-10 is the year in which the Federation earned the highest annual

growth rate (39.67) in sales.

4.2.5.5 Expense Ratio of CONSUMERFED

Expense ratios, otherwise called cost ratios, show the relationship

between operating costs and expenses on the one hand and net sales on the

other. In other words, these ratios express each element of cost and expenses

as a percentage of sales. Expense ratios give an indication of the extent to

which the credit effects of the revenue are neutralized by the debit impact of

the business. These ratios indicate the importance of cost minimization

programmes or the effect of such programmes.

4.2.5.5.1 Operating Cost Ratio

Operating Cost Ratio expresses the relationship of cost of goods sold

plus operating expenses to net sales.

Operating Cost Ratio = salesNet

Expenses Operating sold goods ofCost +

Operating cost consists of selling and distribution expenses, financial

expenses and administrative expenses. This ratio indicates the operating

efficiency of the enterprise. It provides a useful link with the profitability of an

enterprise. Again, by a meaningful analysis of the gross profit ratio vis-à-vis

the operating ratio further insight relating to the quality of internal operations

can be obtained. If the operating ratio is lower, it indicates the greater

profitability of the enterprise. Reverse is the position when the ratio is higher.

The operating ratio of the Federation from 2003-04 to 2010-11 is calculated

and depicted below

Chapter -4

216

Table 4.27. Operating Cost Ratios of CONSUMERFED from 2003-04 to 2010-11

Year

Cost of Goods Sold

+ Operating

exp. ( in lakh)

Annual Growth

Rate (percentage)


Annual Growth

Rate (percentage)

Operating Expenses

Ratio ( in times)

2003-04 30203.23 - 29903.4 - 1.01 2004-05 32166.74 6.5 31678.6 5.93 1.01 2005-06 32879.41 2.21 32170.2 1.55 1.02 2006-07 44637.21 35.76 41994.71 30.53 1.06 2007-08 53567.93 20 55254.71 31.57 0.96 2008-09 68212.62 27.33 68926.97 24.74 0.98 2009-10 94234.85 34.21 96273.29 39.67 0.97 2010-11 124926.87 32.56 131240 36.32 0.95 Average 1.00 CAGR 19.41 20.31


The operating expense ratio of the Federation ranges from 0.95 and 1.06

times during the review period. The average operating expense ratio for the period

is arrived to be 1 time. It is also seen that the operating expenses of the Federation

exceeded net sales from 2003-04 to 2006-07 and the net sales exceeded the

operating expenses in the succeeding years. The operating expenses grew at an

average compound growth rate of 19.41 while the net sales at 20.31 percent

during the period. The operating expense ratio shows a higher ratio during 2003-

04 to 2006-07 and then declined to 0.95 in the year 2010-11. This shows loss

during the first period, i. e from 2003-04 to 2006-07 and profit from 2007-08

onwards. It is seen that the operating expenses has shown an increase of about 300

percentage since 2003-04. (17.9 crore to 48.6 crore), which is one of the major

reasons for the high operating expense ratio. The ratio provides a serious

symptom of the poor profitability of the Federation.


217

Summary

Co-operatives have been functioning exemplarily in the country in tandem

with the public sector as instruments of national development. The movement

today covers almost every village in the country and involves about 75 per cent of

the population with a network of over 610020 different types of co-operatives.

Co-operatives in the state of Kerala have proliferated beyond the sustainable level,

leaving the financial performance except of a few credit and marketing co-

operatives at an unacceptable level. In the case of CONSMERFED, the CAGR of

sales per store had been recorded only at 2.28 per cent, though the number had

increased to 22.13 per cent. In 2006, the number of special Triveni Stores

operated in the state were 1075, which increased to nearly 5000 in 2012, showing

an active and subtle involvement in controlling the price levels of essentials by the

state consumer Federation. The CAGR of sales of CONSUMERFED has found to

be at 17.74 from 2002-03 to 2011-12, while the CAGR of the sales per unit was a

negligible one. The gross profit of the Federation had recorded an average of 4.6

per cent for the period from 2003-04 to 2010-11, while the operating profit and

net profit were recorded at 0.49 per cent and -1.29 percent during the period.

During the period, the average return on assets was recorded at 2.35 per cent and

return on capital employed at 3.41 per cent, however, the current ratio had

recorded an average of 3.23 times, solvency ratio at 1.53 times and debt- equity

ratio at 61.12 times. The interest coverage ratio of the Federation for the period

had shown a CAGR of 18.26 per cent, which highly affected its profitability

during the period. The average inventory turnover and working capital ratios were

found to be 17.18 percentage and 3.41 percentage during the period, which is

rated good. The CAGR of the operating cost of the Federation is recorded at 19.41

percent during the eight years ending in 2010-11. The paid up share capital

increased to 56.32 crore in 2011-12 from 20.08 crore in 2005-06 having a

Chapter -4

218

CAGR of 11.08. The working capital of the Federation has increased to 591.76

crore from 93.81 during the above said period with a CAGR of 35.93.

Conclusion

While concluding, it is clear that CONSUMERFED followed an internal

growth strategy with a conglomerate diversification strategy. ‘Internal growth is

achieved through increasing the firm’s production capacity, employees and sales.

When firms diversify their activities to different and unrelated areas of their

existing business is called conglomerate diversification’ (Subba Rao-1999)12. The

number of Triveni shops increased to 232 in 2012 from 17 in 2001 and many

other units were started in the pharmaceutical retailing sector and so on. This can

be regarded as internal growth. But at the same time it started retailing of foreign

liquor and also established an LPG bottling plant in the year 2006 as part of

expanding its activities. This diversification was none other than conglomerate.

The sales turnover of the Federation increased to 1540 crore in 2011-12 from

300 crore in 2003-04. Even though, this seems to be a high growth rate, sales per

store have not increased considerably. The increase amounted to 110.79 lakh

from 90.44 lakh per year. Different profitability ratios such as GPR and OPR of

the Federation are seen to be very low. The NPR records a negative value (-1.29).

However, the current ratio 3.23, seems good. Long term solvency is seen to be

good except the interest coverage ratio, which is very high (42.02 per cent) and

affected the profitability of the firm adversely. During the year under study, the

operational efficiency ratios of the firm seem to be good. But the operating

expense ratio is very high, which is adverse to the better financial performance of

the Federation. Therefore, it is emphasized that state apex body of consumer co-

operatives need a professional financial management approach to overcome its

weak financial structure and poor relationship between sales turnover and the

profitability.


219

References

[1] Indian Co-operative Movement: A Profile- 2012, National Resource

Centre, National Co-operative Union of India, p.32.

[2] Economic Review, (2009) Kerala State Planning Board. p .112.

[3] Economic Review, (2010), Planning Board of Kerala. p. 394.

[4] Rao, P. Subba, (1999). “Business Policy and Strategic Management”,

Himalaya Publishing House, Mumbai, p. 302.

[5] Samuel, C.Certo and J. Paul Peter, (1995) “The strategic Management

Process”, Richard Irwin, D. Inc., Homewood, Illinois, p.113.

[6] Ecomonic Review-2010, op.cit. p. 315

[7] Chibily. N. Michael., (2010) Noordhoff Uitgevers /Houten. ed .p . 111.

[8] Reddy, P,N and Appanniah, H,R, (1992) ‘Essentials of Management

Accounting’. Himalaya Publishing House,Bombai, pp .12.

[9] Chibili, N. Micheal. op.cit. P. 178.

[10] Druker, Peter. F, (1998). ‘the Practice of Management’, PHI India Ltd,

New Delhi, p.99.

[11] Maheswari, S.N, (1992), Management Accounting and Financial Control,

Sultan Chand and Sons, New Delhi, p. B.51.

[12] Rao, P. Subba, op.cit. p 214.

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