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ANALYSIS OF PROFITABILITY AND FINANCIAL HEALTH OF SAMBALPURI

BASTRALAYA HANDLOOM CO-OPERATIVE SOCIETY Ltd. IN BARGARH DISTRICT

Article in Journal of Information and Computational Science · November 2020

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Journal of Information and Computational Science ISSN: 1548-7741

ANALYSIS OF PROFITABILITY AND FINANCIAL

HEALTH OF SAMBALPURI BASTRALAYA HANDLOOM
CO-OPERATIVE SOCIETY Ltd. IN BARGARH DISTRICT

*
Shruti Sudha Mishra1
ICSSR Doctoral Fellow, Dept. of Business Administration,
Sambalpur University, Odisha, India
[email protected]

Prof. (Dr.) A. K. Das Mohapatra2

Professor, Department of Business Administration
Sambalpur University, Odisha, India
(Email: [email protected])

Abstract
The Handloom Industry in Bargarh – a district in Western Odisha, with its long tradition of
excellence in craftsmanship, occupies a place of eminence in preserving the State’s heritage and
plays an important role in the economy of the State. Studies relating to the financial performance
of the handloom societies operating in Bargarh District are essential to identify the major issues
affecting the performance of the handloom weaver’s cooperative societies. The present study
highlights the overall performance of the Sambalpuri Bastralaya Handloom Co-Operative
Society Ltd. in terms of their financial health over the period of 12 years, from 2007 to 2019.
Keywords: Handloom, Western Odisha, Financial Health

1. INTRODUCTION

Handloom is the next largest economic activity after agriculture. It is a traditional hand weaving
culture which symbolizes the age old weaving practises in India. Indian Handloom industry is as
aged as civilization by itself. It acts as a backbone of Indian culture with a huge variety of
designs, printing techniques, weaving art and materials used. Indian handloom has created and
inspired people from all over the world, Phulkari from Punjab, Chanderi from Madhya Pradesh,
Ikats from Andhra Pradesh and Odisha, Tie and Dye from Rajasthan and Gujarat, Daccai from

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West Bengal, Brocade from Banaras and Jacquard from Uttar Pradesh are some of the jewels that
have been dazzling all over the world. India stands number one in the global scenario of
handlooms which possess 85% (3.90 million) of the world installed capacity. Nearly 23.77 lakhs
handlooms provide direct or indirect employment to 43.32 lakhs weavers and allied workers, of
which 36.33 lakhs workers stay in rural areas and 6.98 lakhs workers stay in urban areas and
77.90% are women (Das, 2016). This is in view of secondary data available and perception of
the policy makers. But when it comes to the practicality of handloom’s position in Indian
scenario, it is facing a deep crisis, caught in a diabolical circle of low productivity and wages,
unable to hold on a competitive edge in the competition from the powerlooms, raising cost of
inputs and production, shrinking markets and lack of adequate state support. With every possible
challenge, handloom industry still is a pioneer, showcasing the aesthetic and cultural boon for
India.

The emerging issues in Handloom Sector have been studied by various researchers and
investigators to figure out the main issue areas and extensive literature reviews has been done to
conceptualize their views. Elavarasi Janardhan (2008) identified the major issues faced by the
artisans of India, he singled out the market shifts, lack of demand, seasonal constraints,
middlemen involvement and space unavailability are some of the reason out of the numerous
number of issues. As per the reviews of the literature it could be stated that one of the biggest
problems for handlooms’ is the fierce competition with the powerlooms. The preferential
treatment given to powerlooms has led to the decrease in the competitive spirit of the handlooms.
Lack of stable and constant market demand is again a setback which this sector suffers from.
Inspite of regular interventions of government on supply side, the improvement and current
condition is still weak. Generalised and non specific schemes and policies have added more to
the woes of the weavers. Again insufficient budget, lack of proper infrastructure, upgraded
looms, lack of new technologies are other problems faced by the handloom industry. There are
marketing related issues like lack in availability of market information, lack of awareness about
product features, insufficient promotion and advertisement, lack of quality standardization,
improper management of handloom logistics, unable to exploit export potentiality, weekly haats
are some of the issues which needs to be addressed along with the other issues.

For the present study, Sambalpuri Bastralaya Handloom Co-operative Society Ltd is being
considered because of its large spread of operation extending from Bargarh to Sambalpur
districts of Odisha. It is a handloom Cooperative society functioning since 1954 and emerged its
kind as an Apex Body in the state of Odisha under Handlooms, Textiles & Handicrafts
Department. A financial health analysis on SBHCSL, will give us an insight about the position of
handloom industry in Western Odisha, inspite of being a cultural and traditional symbol of our
rich Western Odisha heritage.

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2. SAMBALPURI BASTRALAYA : The Pioneering Institute.

Sambalpuri Bastralaya was registered as a Handloom Co-operative Society under the

Odisha Co-operative Societies Acts & Rules during the year 1954. The credit for starting the
society goes to Padmashree Dr.Krutartha Acharya whose contribution to Odisha’s Handloom
Sector has been second to none. It started its business with effect from 1.7.1954 with an
objective to produce high quality handloom fabrics through its members, its affiliated societies
and production agents and arrange to market their products. It has played outstanding role in
preserving and propagating the World famous typical Sambalpuri technique of tie and dye
(IKAT) in Handloom and promoting Handloom Industry in Odisha. The institution being a
leading one in the State is widely known for its efficient commitment for the up-liftment of
Schedule Cast, Schedule Tribe and economically backward classes of the society including
women. More-over it provides opportunities for the rural based employment in a large scale. It
has earned national & international reputation because of high business ethics of its founder
Padmashree Dr. Krutartha Acharya. It also plays an important role in the socio-economic
development of weavers of Western Odisha.

It is a production-cum-marketing unit having its turn-over about Rs.50.00 crore per

annum. The society provides raw-materials to its weaver members and collect the finished goods
by paying fair wages to them and market their product in its own sales outlets as well as through
agents and by participating in Various Expos, and Exhibitions inside and outside the state to
generate funds for providing regular employment to the poor weavers of this region as well as to
the weavers of the Eastern part of the state of Odisha through the affiliated W.C.S. and also to
provide technical knowhow to them for their socio-economic development. The society has a
Dyeing unit of its own at Bargarh, in which grey yarn about 200 bundles has been dyed to meet
the requirement of the production branches for production. The color used in the fabrics are AZO
free and having fastness in rubbing and bleaching. The society has 40 nos. of production centers
of its own and marketed its products through its 43 nos own sales outlets and 11 nos of sales
representative inside and outside the state of Odisha. The products manufactured by the society
are thoroughly checked by technical staff of its quality control section. After that the same is
supplied to the sales unit for marketing of defect free product. The production ranges of the
society covers production of tie & dye design sarees, dhotis, Lungies, Napkins, Bed-covers,
furnishing materials, dress materials and so on of cotton yarn, mercerized yarn, silk yarn and
tassar yarn. The range of production is more than 3000 varieties with 52 sales outlets.

Present Status:

 Sambalpuri Bastralaya is one of the largest Primary Weaver’s Co-operative Society in the
Country.
 It is producing exclusive handloom fabrics as well as undertaking marketing of those products.

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 5628 number of highly skilled weavers with 5365 looms are working under 40 production
centres of this society.
 In addition to the above members many weavers from its 90 associated Primary Handloom
Societies in the state are also working with it.
 Its production estimates to about one fourth of the total Handloom production of the state under
the co-operative fold. It has a large network of marketing both inside and outside Odisha through
its 43 nos of own sales outlets & 11 sales representatives.
 Because of its strong infrastructure network, it functions like an Apex body within the Co-
operative frame work of the State.
 With identity of excellence, it produces exclusives Sarees, Dress Materials, Scarves, Home
Furnishings, Bed Sheets, Handkerchiefs both in cotton,Silk & Tasar yarn with jalla & dobby
designs.
 Recently this society has developed 167 nos of designs under Design Referance Collection of
Odisha Handloom given by this 5 eminents designer named by Mr.Bibhu Mohapatra, Mr.Rajesh
Pratap Sing, Mr.Rakesh kumar Thakur, Ms.Anjali Kalia & Ms.Rta Kapur chishti having
International reputes which have good response in the market.

Mission (SBHCSL):

 To give a thrust to the co-operative movement of Odisha.

 To preserve and propagate traditional handloom art and crafts and thereby to promote handloom
industry.
 To produce high quality handloom fabrics through its members and arrange sales of their
products.
 To uplift the socio-economic condition of the poor weavers from economically backward classes
including scheduled caste and scheduled tribe and women category of the society.
 To arrange for providing better educational facilities to the children of the weavers.

Vision (SBHCSL):

 To improve the skill level of the handloom weavers of the society and to increase their wage
earning.
 To undertake production of extensive range of fabrics to capture the customers inside the country
as well as abroad.
 To produce quality fabrics with attractive designs and competitive price.
 To produce exclusive varieties of exportable products to enter into the global market.
 To provide regular employment to maximum number of weavers under the handloom sector and
thereby to improve their economic and social condition.

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Goal (SBHCSL):

 To create scope for massive rural employment.

 To provide sustainable livelihood support to the weavers including those from backward, SC and
ST classes.
 To provide all possible supports to the organization to enable it grow & prosper under the sector.
 To create continuous worldwide avenue of Sambalpuri Handlooms by adding special identity to
it.
 The shoulder the responsibility for the social security of the poor weavers is the cherished goal of
the society.

3. Objective of the study

1. To analyze and interpret the financial health of Sambalpuri Bastralaya Handloom Co-Operative
Society Ltd.
2. To provide suggestion for improving the profitability of SBHCSL.

4. Research Methodology

The study involves the collection of primary as well as secondary data. The primary data were
collected directly from handloom weavers and from SBHCSL authorities. The secondary data
relating to SBHCSL’s financial health were collected from the audited financial reports of
Sambalpuri Bastralaya. The collected data were tabulated and analyzed properly in accordance
with the objectives of the present study. The collected data has been analyzed and interpreted
with the use of ratio analysis, in form of

1. Profitability Ratio: Gross profit ratio, Operating profit ratio, Net profit ratio, ROI
2. Liquidity Ratio: Current ratio, Quick ratio
3. Solvency Ratio: Debt- Equity ratio, Equity ratio, Debt ratio
4. Efficiency Ratio: Asset Turnover ratio, Stock Turnover ratio, Working Capital Turnover
ratio
5. Data Analysis and Interpretation of Result

An extensive survey of literature collected from various sources produced a base for determining
the financial health of an organization. We can call it as “7 signs of good financial health”. These
7 signs could be described as:

1. Revenue Is Growing
When looking at the profit-and-loss statement, one should be able to see a pretty steady increase
in revenue month over month, year over year. It doesn’t have to be a huge spike in profitability,

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but even just an increase of a couple percent shows upward movement and a strong financial
outlook.

2. Expenses Are Staying Flat

In conjunction with the revenue growing, the expenses should also stay flat. If the business
experiences a significant growth spurt, then expenses may rise, but in general, this increase
should be in-line with increase in revenue. So if revenue is increasing 3% year over year, then
expenses should not increase more than 3% during the same timeframe.

3. Cash Balance Demonstrates Positive Long-Term Growth

While one may be increasing his/her revenue, by taking that money and simply investing it back
into the business, he might find himself asset rich and cash poor.
A low or stagnant cash balance means business is not sustainable. People want to keep a healthy
amount of cash in the bank so that if anything urgent comes up, they aren’t in a position of
having to incur more debt to meet an unexpected expense.

4. Debt Ratios Should Be Low

There are two debt ratios to pay particular attention to in a business, i.e. debt-to-asset ratio and
debt-to-equity ratio. Also referred to as solvency ratios, these formulas specifically measure how
much business owes versus how much business is worth. As with most ratios, a lower number is
ideal, and for debt-to-asset ratios, maintaining a 2:1 ratio or lower is preferable.

5. Profitability Ratio Is on the Healthy Side

There are a handful of profitability ratios that measure the return on your sales and investments.
One of the best ratios to measure is the profit margin. This involves taking the annual net profits
and dividing it by the annual sales. So while there may be sales, but still profit margin could be
low depending on the pricing structure, start-up costs or other factors. Your profitability ratio is
considered healthy when it’s on the high side.

6. Activity Ratios Are In-Line

There are a few different activity ratios that measure how business manages its assets. Three of
the most common are:
Asset Turnover: This formula takes sales and divides it by assets. A high turnover ratio translates
to more efficient asset management.
Inventory Turnover: This formula is cost of sales divided by average inventory. A high
inventory turnover ratio means inventory is efficiently managed.
Operating Expense Ratio: For this formula, operating expenses is divided by total revenue. This
measures how much is spend in order to generate revenue. In this instance, a lower ratio shows
efficiency.

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7. Working With New Clients and Repeat Customers

The cost to acquire new clients is higher than the cost to work with the same customers over and
over again. A steady stream of new clients and repeat customers demonstrates that business has
multiple options for generating revenue. By having access to new customers, it can help in
insulating the business from changing attitudes and buying patterns.

So on the basis of 7 signs of good financial health, a ratio analysis has been done to understand
the financial position of SBHCSL. For these purpose, audited financial data of 12 years has been
taken starting from 2007 to 2019. A detailed analysis table has been given below to make the
purpose clear.

Table 1: Revenue Is Growing

50,000,000.00
45,000,000.00
40,000,000.00
35,000,000.00
30,000,000.00
25,000,000.00
20,000,000.00
15,000,000.00
10,000,000.00
5,000,000.00
-

Table 1 shows that there is a steady increase in profit from 2011 till 2017, but during 2017-18
and 2018-19 there is a sharp fall in profit, which is not a good sign of positive financial health.
Table 2: Expenses Are Staying Flat

Year Operating Profit Operating

Ratio Expenses Ratio
2007-2008 1.25 8.06
2008-2009 6.47 7.53
2009-2010 5.37 9.49
2010-2011 0.83 15.44
2011-2012 2.28 9.05
2012-2013 3.55 9.61
2013-2014 6.70 6.90
2014-2015 8.10 6.28

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2015-2016 8.79 6.45

2016-2017 11.00 6.68
2017-2018 0.94 7.63
2018-2019 0.09 7.07

The operating profit margin ratio indicates how much profit a company makes after paying
for variable costs of production such as wages, raw materials, etc. It is also expressed as
a percentage of sales and then shows the efficiency of a company controlling
the costs and expenses associated with business operations. Furthermore, it is the return achieved
from standard operations and does not include unique or one time transactions. Table 2 shows
higher operating margins till 2016-17, which is generally better than lower operating margins, so
it might be fair to state that the only good operating margin is one that is positive and increasing
over time. Again 2017-18 and 2018-19 shows a low profit margin which means that the society
isn't efficiently converting revenue into profit. This scenario could result from, prices that are
too low, or excessively high costs of goods sold or operating expenses, which is pretty obvious
from Table 2.
Table 3: Cash Balance Demonstrates Positive Long-Term Growth
Year Current Ratio Quick Ratio
2007-2008 7.67 3.63
2008-2009 7.54 3.53
2009-2010 5.57 2.38
2010-2011 5.30 2.17
2011-2012 7.94 3.58
2012-2013 6.07 3.28
2013-2014 6.26 3.08
2014-2015 7.14 3.62
2015-2016 7.31 3.65
2016-2017 7.48 3.87
2017-2018 6.20 3.10
2018-2019 6.15 2.79

Table 3 shows the current ratio is too high which indicates that the SBHCSL is not efficiently
using its current assets or its short-term financing facilities. If current liabilities
exceed current assets the current ratio will be less than 1. Generally, current ratio shows the
ability of business to generate cash to meet its short-term obligations. A decline in this ratio can
be attributable to an increase in short-term debt, a decrease in current assets, or a combination of
both.

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Quick ratio is greater than 1 which means that SBHCSL has enough quick assets to pay for its
current liabilities. Quick assets (cash and cash equivalents, marketable securities, and short-term
receivables) are current assets that can be converted very easily into cash. In finance, the quick
ratio, also known as the acid-test ratio is a type of liquidity ratio, which measures the ability of
an organization to use its near cash or quick assets to extinguish or retire its current liabilities
immediately. A normal liquid ratio is considered to be 1:1. If a company has a
high ratio (anywhere above 1) then they are capable of paying their short-term obligations. The
higher the ratio, the more capable is the organization.

Table 4 Debt Ratios Should Be Low

Year Debt Equity Ratio Equity Ratio Debt Ratio

2007-2008 113.27 0.06 7.24
2008-2009 16.33 0.06 1.00
2009-2010 2.48 0.40 1.00
2010-2011 2.80 0.36 1.00
2011-2012 2.67 0.37 1.00
2012-2013 2.98 0.34 1.00
2013-2014 3.06 0.33 1.00
2014-2015 3.10 0.32 1.00
2015-2016 3.17 0.32 1.00
2016-2017 3.19 0.31 1.00
2017-2018 3.27 0.31 1.00
2018-2019 3.45 0.29 1.00

A good debt to equity ratio is around 1 to 1.5. Table 4 shows a high debt-to-equity ratio which
indicates that SBHCSL may not be able to generate enough cash to satisfy its debt obligations. A
debt ratio greater than 1 shows that a considerable portion of debt is funded by assets. Ratio of
0.4 or lower is considered a good debt ratio. A ratio above 0.6 is generally considered to be a
poor ratio, since there's a risk that the business will not generate enough cash flow to service
its debt. A higher debt ratio (0.6 or higher) makes it more difficult to borrow money. Lenders
often have debt ratio limits and do not extend further credit to firms that are overleveraged. Of
course, there are other factors as well, such as creditworthiness, payment history, and
professional relationships.

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Table 5: Profitability Ratio Is on the Healthy Side

Year Gross Profit Ratio Net Profit Ratio RoI

2007-2008 9.31 1.39 16.25
2008-2009 14.00 6.58 68.14
2009-2010 14.86 5.46 57.84
2010-2011 16.27 0.85 8.05
2011-2012 11.33 2.30 18.01
2012-2013 13.15 3.58 20.88
2013-2014 13.60 6.89 26.92
2014-2015 14.39 8.40 38.34
2015-2016 15.23 8.84 63.67
2016-2017 17.68 9.50 49.96
2017-2018 8.57 2.08 10.90
2018-2019 7.16 1.42 5.38

The gross profit margin (also known as gross profit rate or gross profit ratio) is a profitability
measure that shows the percentage of gross profit in comparison to sales. In other words, it
calculates the ratio of profit left of sales after deducting cost of sales. Generally, the higher the
gross profit margin the better. Table 5 shows a high gross profit margin which means that
SBHCSL did well in managing its cost of sales. It also shows that the organization has more to
cover for operating, financing, and other costs. But after a stable increase for some years, gross
profit ratio has drastically decreased during the year 2017-18 and 2018-19.The gross profit
margin may be improved by increasing sales price or decreasing cost of sales. However, such
measures may have negative effects such as decrease in sales volume due to increased prices, or
lower product quality as a result of cutting costs. Nonetheless, the gross profit margin should be
relatively stable except when there is significant change to the organization’s business model.

The net profit percentage is the ratio of after-tax profits to net sales. It reveals the
remaining profit after all costs of production, administration, and financing have been deducted
from sales, and income taxes recognized. Net profit (NP) ratio is a useful tool to measure the
overall profitability of the business. A high ratio indicates the efficient management of the affairs
of business. Table 5 shows a higher net profit ratio but it has decreased to 2.08 and 1.42 during
the year 2017-18 and 2018-19. These could be due to number of external and internal causes
like low sales, increased credit, improper marketing, increased input cost etc.

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ROI (Return on Investment) measures the gain or loss generated on an investment relative to the
amount of money invested. ROI is usually expressed as a percentage and is typically used for
personal financial decisions, to compare a organization’s profitability or to compare the
efficiency of different investments. A good marketing ROI is 5:1

Table 6: Activity Ratios Are In-Line

Year Assets Turnover Stock Turnover Working Capital

Ratio Ratio Turnover
2007-2008 0.20 5.85 0.73
2008-2009 0.28 6.00 0.99
2009-2010 0.38 6.35 1.10
2010-2011 0.40 7.45 1.04
2011-2012 0.46 6.76 1.08
2012-2013 0.50 7.53 1.18
2013-2014 0.57 8.77 1.34
2014-2015 0.60 10.15 1.23
2015-2016 0.60 9.18 1.05
2016-2017 0.59 9.84 0.99
2017-2018 0.61 11.05 1.08
2018-2019 0.64 21.17 1.22

The asset turnover ratio measures the efficiency of how an organization uses assets to produce
sales. A higher ratio is favorable, as it indicates a more efficient use of assets. Conversely, a
lower ratio indicates the organization is not using assets as efficiently. Table 6 shows a very low
asset turnover ratio which indicates that SBHCSL “turn” of asset is not so efficient, hence low
productivity. But whether a particular ratio is good or bad depends on the industry in which the
organization operates. It is the higher the asset turnover ratio, the more efficient an organization
is. Conversely, if an organization has a low asset turnover ratio, it indicates it is not efficiently
using its assets to generate sales.

Table 6 shows a high inventory turnover ratio which is considered a positive indicator of
effective inventory management. However, a higher inventory turnover ratio does not always
mean better performance. It sometimes may indicate inadequate inventory level, which may
result in decrease in sales.

The working capital turnover ratio measures how well an organization is utilizing its working
capital to support a given level of sales A working capital ratio of less than 1.0 is a strong
indicator that there will be liquidity problems in the future, while a ratio in the vicinity of 2.0
is considered to represent good short-term liquidity. Table 6 shows a good working capital ratio

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of SBHCSL. The working capital turnover ratio should be carefully interpreted because a very
high ratio may also be a sign of insufficient quantity of working capital in the business.

The last sign of good financial health is ‘Working with New Clients and Repeat Customers’. As
far as SBHCSL is considered, it very obvious from its debtors and creditors list that it has
repeatedly worked with its old customer but has not been able to create a considerable number
new clients, which indicates towards a lack of marketing strategy of creating customers for its
products.

6. Conclusion
The weakening position of handloom sector in the wake of global competition of textile industry
has posed a serious threat to the socio-economic life of the traditional weaver communities. With
growing competition posed by the modern textile industry, the handloom industries has steadily
deteriorated over the last decade, rendering thousands of weavers to unemployed and under
employed resulting in large scale closure of several societies and production units. After
enjoying several years of prosperity and success, the weavers of Odisha famous Sambalpuri sari
have fallen on hard times. The Bhulias of western Odisha are the acclaimed weavers of
celebrated tie-and-dye textile fabrics, popularly known as Sambalpuri cloth. For centuries they
have practiced and perfected the local tie- and- dye techniques of designing and weaving and
zealously guarded the secret from being passed onto others. Demand for Sambalpuri saris all
over India and overseas ensured a high turnover for the cooperatives. Sambalpuri Bastralaya of
Bargarh alone used to do business worth Rs.15 crore a year. The handloom cooperative society
connected with the sale of handloom cloth and ensuring regular employment to weavers have
become sick and day by day losing its apex fame under the pressure of financial restructuring.
But, absence of an organized market has pushed it into a state of misery.
The present study on SBHCSL revealed that inspite of being an apex institution and a largest co-
operative society; it is still facing the burn of declining handloom market. There are number of
reason for its poor financial health, like, lack of marketing, more of credit, low sales at exhibition
and retail Showroom, insufficient budget, need for more customization of products, increase in
operating expenses etc. To keep the Sambalpuri sari art in tact which is an important part of our
culture we have to find out the possible ways how the weavers will get fair wages. In the current
scene of the aggressive marketing and high competition the business needs to adopt some
modern practices to keep the art, technique and pride alive. The handloom textile sector has its
own peculiar features and determinants of competitiveness. Once they are identified, we can
attempt for its development along with global challenges. What our handloom industry needs
now is better marketing strategies and design innovations. We could experiment with our
patterns and add more creativity to suit the international market.

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