Company Profile

The success story began with the establishment of the Kaleesuwari Refinery Pvt. Ltd. in 1995. Since then, the company has made incredible strides in the edible oil market with its flagship brand "Gold Winner". Driven by the goal to provide quality sunflower oil at competitive prices, Gold Winner within a short span of time, has become the most preferred brand.

Gold Winner has proved once again that it is aptly named - according to a report published by The Economic Times Brand Equity on April 21, 2008, Gold Winner is ranked 63rd among India's hundred biggest Fast Moving Consumer Goods (FMCG) brands by A.C. Nielsen Retail Audit. This comprehensive retail audit was done based on a variety of parameters including sales, top-of-the mind recall and trust. Not long ago, an ORG-MARG survey also had rated Gold Winner as number one in the FMCG (edible oils) category in South India. Gold Winner has become a member of the US based National Sunflower Association (NSA), whose aim is to promote quality sunflower products across the globe keeping the health of the people in mind.

Gold Winner finds a place in every discerning home, thanks to the highly sophisticated and rigorous processes adopted to refine crude sunflower oil. A unique distribution network ensures that the end consumer always keeps company with health and happiness. Gold Winner is now available in Sri Lanka and is all set to establish its presence in Singapore.

Manufacturing

Gold Winner's state-of-the-art production unit is situated at Vengaivasal , about 14km from Chennai, India.

The plant uses the automatic and continuous Belgian technology for processing in order to maintain the highest standards of quality and hygiene. The Desmet technology used is state of the art and ensures that the refined oil produced is of international standards.

The storage capacity at the plant is 16000 tones. This large tank space ensures that enough stocks are available to service the ever-growing demand promptly.

The crude oil is systematically purified in well-defined stages like Neutralization, Bleaching, Dewaxing and Deodorization. All processes are monitored and controlled automatically by using PLC based systems. Untouched by hand, the oil produced here matches the exacting requirements of our customers.

To keep the processes stable and controlled, we have adopted modern plant maintenance practices including Preventive maintenance. Condition monitoring of critical equipment is resorted to periodically. In observance to stipulated standards, calibration of instruments and control devices are done routinely.

Manpower:

A high-level in-plant safety committee ensures that the prescribed safety norms are strictly adhered to. Personnel safety has the highest priority. Gold Winner has employed well qualified and experienced personnel to handle all its functions. The workforce, largely local, is inducted to work only after a rigorous training process that includes on the job training. All welfare measures are in place to ensure that the productive capacity of our people is maintained at the highest level.

Their caring for the environment:

Gold Winner understands its social responsibilities and the effluent treatment process is built on the concept of using environment friendly waste disposal practices. The green environs in and around the factory bear ample testimony to it.

Quality Assurance

To ensure the highest level of quality in the finished product, all our incoming raw and other materials are subjected to stringent tests and checks.

The raw material - crude sunflower oil - is procured from reliable sources in India and abroad and tested using the modern analytical Gas Chromatograph .The quality at various stages of the processing is also checked and is further assured by using Good Manufacturing Practices (GMP). Undesirable components are removed during the processing.

The good properties of the refined sunflower oil are maintained intact by the use of appropriate packing. This ensures that the freshness we put in at the time of manufacturing is the same freshness you get when you open your pack .Simply put this is the unique FIFO (Freshness In -Freshness Out) benefit that Gold Winner brings to you.

This ensures that every time you buy Gold Winner, you actually carry home health and happiness.

Marketing

Vision: We envision that Gold winner should become the most valued and preferred edible oil brand in our nation by 2007. Kaleesuwari Refinery Private Limited has dedicated itself to its mission of building a conveniently available, affordable world class brand that is trusted and preferred by the consumer for its quality & nutritional value. Today Gold winner is available in all the southern states of India and Maharastra. Gold winner is constantly consolidating and expanding its distribution reach with the single minded objective of coming closer to customer.

Infact Kaleesuwari Refinery Private Limited is implementing an organization wide ERP project named c2c or closer to customer. Once completed, "This project is expected to track the buying behavior closely and help us to effectively service our customers requirements". The SAP implementation would also bring in commensurate reduction in lead time to deliver there by positively impacting our inventory levels. Gold winner is now an international brand having established its presence in Sri Lanka. Gold winner would soon be available in Singapore as well. The range of products has been enlarged to cater to the requirements of our customer comprehensively.

About EFA

The Secret of a winning formula: EFAEvery glistening drop of Gold Winner comes with the promise of ample nutrition and unending good health. Just a little Gold Winner can add to your meal the innumerable benefits of pure refined sunflower oil. Thanks to the fact that it contains EFA, Gold Winner keeps the winner in you going strong at all times.

Why EFA?With the advent of calorie-conscious and healthy eating habits, low fat diets have become the order of the day. Leading to a curious dilemma - where does one draw the line between excessive fat and essential fat? This is where EFA steps in to add the needed sprinkle of health to every recipe.

What is EFA?EFA (or Essential Fatty Acids) supply the body with vital macronutrients that are not naturally produced by the human body, and it can be acquired only from external sources through the food we consume. Sunflower Oil is one such source, which is EFA rich.Gold Winner, Refined Sunflower Oil rich in EFA ensures that it turns each meal into a culinary delight.

Leverage

One of the tough challenges that firms face is to determine the right amount of leverage. Leveraging decision is important because it affects the financial performance of the firm. The capital structure of a firm is defined as specific mix of debt and equity that a firm uses to finance its operations. Firms can choose among many alternative capital structures. For example, firms can issue a large amount of debt or very little debt. Firms have options of arranging lease financing, use warrants, issue convertible bonds, sign forward contracts or trade bond swaps. They can also issue dozens of distinct securities in countless combinations.

When a firm considers its financing options, for example debt vs. equity, it must ensure that the amount of leverage does not impose an excess burden on the firm. This means that the firm should be able to meet its financial obligations during both good and bad times.

The two important points to be considered while making financing decisions are:First, debt implies fixed financial obligations for the firm. After the firm breaks even, meaning its earnings cover its debt obligations, any additional earnings will be distributed among shareholders. Thus, when times are good and the firms earnings are high, debt financing results in higher EPS. However, when times are bad and the firms earnings barely cover its debt obligations, there is little left for shareholders and, thus, EPS is low under debt financing. This relationship also shows that EPS exhibits a greater variation under debt as opposed to equity financing in the two scenarios as can be seen from the results shown in the last table. Second, stock financing does not dilute the shares of current owners. Therefore, in the boom scenario, existing shareholders benefit from a higher EPS, but, in the bust scenario, they bear the whole burden of the firms poor performance.

To the entrepreneur and corporate Liberalization, Globalization and Privatization are the important issues threatening the existence of a firm. In such a complex corporate environment, it is a challenge to the Finance Manager to survive the firm in long run perspective with the objective of maximizing the owner's wealth. With a view to achieve this objective finance manager is required to pay his due attention on investment decision, financing decision and dividend decision.

Assuming that a sound investment policy and opportunity are in place, it is the intention of this dissertation to optimize the financing decision and dividend decision in the context of achieving the stated objective. Financing decision refers to the selection of appropriate financing mix and so it relates to the capital structure or leverage.Leverage is used to describe the firm's ability to use fixed cost to increase the return to its owners. It is a tool for measuring Business Risk, Financial Risk and Overall Risk. A company's long term debt in relation to equity is its capital structure. The larger the long term debt, the higher the leverage. There are 3 types of leverages that are financial leverage and combined leverage and operating leverage.

Financial Leverage* Operating Leverage= Combined Leverage

Capital structure refers to proportion of long-term debt capital and equity capital required to finance investment proposal. There should be an optimum capital structure, which can be attained by the judicious exercise of financial leverage.

In order to run and manage a company, funds are needed. Right from the promotional stage, finance plays an important role in a companys life. If funds are inadequate and not properly managed the entire organization suffers, it is therefore necessary that correct estimation of the current and future need of capital be made to have an optimal capital structure which shall help the organization to run smoothly.The capital structure is made up of debt and equity securities and refers to permanent financing of a firm. On the other hand a general dictionary meaning of the term Leverage refers to an increase of accomplishing some purpose. In Financial Management the term leverage is used to describe the firms ability to use fixed cost assets or funds to increase the returns to its owners.This dissertation mainly concentrates on the study of effects of leverage on Manufacturing and service sector firms.

Types of leverage

There are three type of leverage:1. Financial Leverage.2. Operating leverage.3. Combined or composite leverage.

Financial leverage:Is primarily concern with the financial activities in which involve rising of funds from the sources from which a firm has to bear fixed charges. These sources include long-term dept (e.g.: bonds, debentures, etc) & preferences share etc. Long-term debt carries a contractual fixed rate of interest & obligatory. As the debt providers have Prior claim on income &assets of a firm over equity shareholders their rate of interest is generally lower than expected return of the equity shareholders.

Further interest on debt capital is tax-deductible expenses. These two-phenomenon lead to magnification of rate of return on equity capital & hence E.P.S goes without saying that effects of changes in E.B.I.T on the earning per share are shown by the financial leverage. Financial leverage can best be described as the ability of firm to use fixed financial charges in E.B.I.T. on the firm earning per share.

Financial leverage helps to know the responsiveness of E.P.S. to change in the EBIT. It involves use of funds obtained at fixed cost in the capital structure in such a way that it increase the return for common shareholders.

It is referred to a state at which a firm has to bear fixed financing cost arising from the use of debt capital. The firm with high financial leverage will have a relatively high fixed financing cost compared with low financial leverage. Financial leverage occurs when a company employ the fixed cost of funds debt or preference share capital with a view to maximizing earning available to equity shareholder by a way of a higher income of funds. This technique also called Trade on equity. Financial leverage influence the financial risk as long as the companys earnings are greater than its fixed cost it will enjoy a favorable financial leverage position and make earning available to equity shareholders.

Financial leverage can measure with the help of the following formula:- Financial leverage=

Financial leverage will have a favorable impact on earnings per share a return of equity only. When the firms return on investment exceeds the interest cost of debt. The impact will be unfavorable if the return on investment is less than interest.

The financial leverage measures the relationship between the E.B.I.T. & E.P.S. And it reflect the effect of change in E.B.I.T. On the level of E.P.S. The financial leverage measures the responsiveness of the E.P.S. to charge in E.B.I.T. If defined as dividend by % change in E.B.I.T.

Degree of financial leverage=

Operating leverage

Operating leverage associated with investment activities (Assets acquisition). It occurs anytime when firm has fixed costs that must be met regardless of volume in operating leverage, when fixed cost remain constant the percentage change in profit accompanying a change in volume is greater than the percentage change in volume A firm with high operating leverage will have a relatively high fixed cost in comparison with a firm with low operating leverage. If a company employs operating leverage then its operating profit will increase at a faster rate for any given increase in sale. However I sales fall the firm with high operating leverage will suffer more loss than the firm with the no or low operating leverage. Therefore operating leverage called 2-edged sword. It can be ascertained by the help of following formula

Operating leverage =

Degree of operating leverage

A high degree of operating leverage shows the greater impact on the operating income of the company due to variability in its sales, which is also responsible for variability in its operating profit. It is an important determinant of operation risk.

It can be measured by % change in E.B.I.T. due to percentage change in sale.

Degree of operating leverage =

Favorable leverage is said to occur when the firm earns more on the assets purchased with the funds than their opportunity use. It is unfavorable when firm doesnt earn equivalent to the cost of funds.

Composite leverage or combined leverage or Total Leverage

When financial leverage is combined with operating leverage the effect of change in revenues or earning per share is magnified Composite / combined leverage refers to extent to which firm has fixed operating cost as well as financial cost.

The degree of operating and financial leverage can be combined to show the effect of total leverage on E.P.S associated with given change in sales.

Operating and financial leverage together wide fluctuation in E.P.S for given change in sales if company employs high level of operating leverage and financial leverage even a small change in level of sales will have a dramatic effects on earning per shareIt can be calculate by the help of following formula:-

Combined leverage =

Significance:-

A proper combination of both financial & operating leverage is blessing for firm growth, while improper combination of both leverage may prove curse for the growth of company. So company should try to achieve balance of both leverage.

Implications, Applications and Utility of Leverages

Financial leverage is primarily concerned with the financial activities, which involve raising of funds from the sources for which a firm has to bear a fixed charge. These sources include long-term debt (e.g. bonds, debenture etc.) and preference share capital. Long-term debts capital carries a contractual fixedrate of interest and its payment is obligatory. As the debt provides have prior claim on income and assets of a firm over equity shareholders, their rate of interest is generally lower than the expected return on equity shareholders.

Further interest on debt capital is a tax-deductible expense. These two phenomenons lead to the magnification of rate of return on equity capital and hence EPS. It goes without saying that the effects of changes in EBIT on the earnings per share are shown by the financial leverage. Financial leverage can best be described as the ability of a firm to use fixed financial charges to magnify the effect of changes in EBIT on the firms earnings per share.

Financial leverage helps to known the responsiveness of the earnings per share (EPS) to the changes in earnings before interest and taxes (EBIT). It involves the use of funds obtained at a fixed cost in the hope of increasing the return to common shareholders.

Financial leverage refers to the extent to which a firm has fixed financing cost arising from the use of debt capital. The firm with financial leverage will have a relatively high fixed financing cost compared to the firm with a low financial leverage.

Financial leverage will occur when a company employs the fixed cost of funds, debt or preference share capital with a view to maximizing earnings available to equity shareholders by way of a higher income than the cost of funds.

These techniques also called trading on equity. Financial leverage influences the financial risk of a company. If the earnings are insufficient for covering the fixed cost burden then the company has to face financial risk. As long as the companys earnings are greater than its fixed costs, It will enjoy a favorable financial leverage position and a make use of the earnings available to equity shareholders.

The behaviors of Degree of Financial Leverage (DFL) reveals that:

1. Each level of EBIT has distinct DFL.2. DFL is undefined at financial BEP.3. DFL will be negative when the EBIT level goes below the financial BEP.4. DFL will be positive for all values of EBIT that are above the financial Break-even point. This will however starts to decline as EBIT increases and will reach to a limit of one.

By assembling DFL one can understand the impact of a change in EBIT on the EPS of the company. It helps in assessing the financial risk of the company. It also explain the impact of market risk on financial risk.

Greater the financial leverage, wider the fluctuation in return on equity and greater is the financial risk.

Implications

1. High operating leverage combined with high financial leverage will consolidate risky situation.2. Normal situation is one should be high and another should be low. If a company has a low operating leverage, financial leverage can be higher and vice versa.3. Ideal situation is when both the leverages are low.

Application and Utility of Leverage:

To understand the applications and utility of leverage in financial analysis it is important to understand the behavior of degree of operating leverage. It is to be noted that:

1. For each level of output there is a distinct Degree of Operating Leverage (DOL).2. At BEP, DOL is undefined.3. If quantity is less than BEP, the DOL will be negative. (But there is no such direct relationship that less quantity leads to decrease in EBIT no such connection to be formed.)4. If quantity is greater than BEP the DOL will be positive (but there is no such direct relationship. DOL may start declining after increasing quantity beyond certain level and will limit to one.5. A large DOL indicates that small fluctuation in the level of operation will produce large fluctuation in the level of operating income.

Why leverage is possible?

PROFITABILITY A CATALYST IN THE LEVERAGE:

Profitability is the ability of a company to generate profit. It is an overall measure, which depicts the efficiency and efficiency and effectiveness at which the company has been operating. It indicates the overall result of the management's decision. Further, it reflects how best the company has put to use its scarce resources to generate a higher rate of profitability.

Profitability is also taken as a criterion to measure and assess the relative efficiency of the management of a company to generate profit. A company, which generates a higher rate of profitability, is considered to be more efficient than other companies. Profitability is represented by the return on investment (ROI). It is the overall measure of a company's performance.

According to Du-Pont control chart, variability in profitability is explained by taking into consideration its two components viz profit margin and asset turnover. As per this part, an overall control is exercised on the various resources of a company and necessary corrective action for further improvement in profitability is suggested.

Profitability is ascertained from the income statement. The various components of an income statement and their inter-relationship embrace the profitability status of the firm. This can be shown from the following table:-

INCOME STATEMENT:

Total Revenue Variable cost Fixed Expenses=Earnings before Interest and Tax (EBIT) Interest on Debt= Profit before Tax (PBT) Tax= Profit after Tax (PAT) Preference Dividend= Equity Earnings

EBIT = Total revenue Total cost} Total cost = V +F Now total revenue = Quantity produced * unit selling priceTherefore EBIT = Q * S Q * V F = Q (S - V) F

Where:- Q = Quantity produced and sold.S = Unit selling priceV = Variable cost per unitF = Total fixed cost.

EPS = PAT / N and EPS per equity = PAT DP / N

Now PAT = EBIT I Tax on (EBIT - I)

Therefore EPS for equity = [ (EBIT I )(1 - T) DP] / N

Thus we can see that EBIT is related S, Q.V, and F and EPS is related to EBIT. This relationship can be used to understand movement in related items with reference movement in certain items.The relationship between quantity of production sold and earning capacity established operating leverage. The operating hints that when we change the level of operation it results in the change in earning capacity.

The relationship between organizations total earning capacity and earning by the individual investors establish financial leverage. The financial leverage hints that when earning capacity changes it results in the corresponding change the earning by the individual investor.

The relationship between the two leverage brings out the total leverage. The total leverage hints that when there is a change in level of operation it results in the corresponding change in the earnings by the individual investor.

Thus this relationship can be shown as:

QUANTITY EBIT EPS

Levels of operation Earning capacity Earnings per share

Op. leverage Fin. leverage

Total Leverage