ALTERNATIVES OF FINANCING TO DECREASE INTEREST EXPENSE IN PT PUPUK SRIWIDJAJA PALEMBANG I YEAR 2020

• Main Author: Atizah, Sinta
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/54914
• Institution: Institut Teknologi Bandung

PT Pupuk Sriwidjaja (PUSRI) is the pioneer of the fertilizer company in Indonesia. Although as the pioneer, the competitiveness of the company in generate profit seems to left behind from the new entrants. To increase its competetiveness, PUSRI has built mega project of new plant which being commercial on 2017. Examined the trend, it’s found that there is no significant increase in profit since the new plant operated. While the new plant produce in much higher efficiency, it’s an abnormality to have the net profit to be stagnant even decrease. Although the product produced by new plant has much lower cost of good manufactured, the cost of good sold (COGS) is still not as efficient as expected. The causative factor affect high of COGS that it’s including interest expense. Not only affect level of COGS, interest expense also significantly drop net profit over the year. This research aims to help PUSRI to analyze its debt structure in order to find the optimum financing mix to maximize company’s profit. Analysis of business issue conducted in order to explore the root cause of the issue, which are consist of financial statement analysis, solvency and liquidity analysis, and debt structure analysis. Both liquidity and solvency ratio of PUSRI, in general, are better than its previous year. However, the company is not liquid and solven enough if it is compared to the average of industry which are another SOE fertilizer company in Indonesia. By the trend analysis, the significant component which affect the increase trend of total liablilities is working capital loan (KMK), invesment credit (KI), and bond. Examined further, KMK is not only the highest component but the amount also increase from year to year. Confirm to management, the main factor is the late disbursement of subsidy by government. Examine both trend KMK and subsidy disbursement, it’s found that unt il 2017, KMK withdraw as amount as outstanding subsidy, but later than 2017, KMK loan even higher than the outstanding subsidy. After analyze business issue, this research propose solution by using Damodaran framework of optimum financing mix. The solution consist of Interest Coverage Ratio (ICR) level proposed to eliminate drop in Earning Before Interest, Tax, Depreciation, and Amortization (EBITDA), debt ratio level proposed to maximize firm value, and alternative of financing proposed by the framework. By the analysis, it’s found that the current level of ICR has drop 10% of EBITDA. The current debt ratio is overlevered than its optimal which cause the decrease in firm value level. Applying Damodaran framework to PUSRI, it’s found that level of ICR proposed is 4.25, debt ratio proposed is 66,64%, and financing mix consist of pay off debt with retained earning, reduce or eliminate dividend, and issue new equity and pay off debt. Based on the financing mix decided by Damodaran framework, this research formulated action plan related to equity financing. Equity financing sources may consist of internal and external equity. Internal sources related to the increase of retained earning. External source including capital injection, IPO, and ESOP. Based on the analysis, capital injection is the most proper to be applied by the company. The objective is to repair the company’s debt structure which directly related to the effort to reduce interest expense and enhance profit. IPO might be taken by the company once the debt structure are repaired and the profit shows stable growth. The objective of IPO would be focus to fund new profitable project.