Doc-20190327-wa0019.docx

A PROJECT REPORT ON “WORKING CAPITAL MANAGEMENT IN HCL INFOSYSTEM LIMITED”

SUBMITTED TO THE UNIVERSITY OF MUMBAI

IN THE PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF BACHELOR OF MANAGEMENT STUDIES BY NIKHIL SRIVASTAV UNDER THE GUIDANCE OF PROF. :-_____________________________ VIVEK COLLEGE OF COMMERCE ACADEMIC YEAR 2018 - 19

DECALARATION I, ALTAMASH KAMANI, student of university of Mumbai B M S course of J.M.PATEL College of commerce here by submit my project entitle "WORKING CAPITAL MANAGEMENT IN HCL INFO SYSTEM LTD" In the academic year 2016 -17 The subject matter contained in this project is researched and the work carried out is original and under the guidance of PROF:-_____________________________________, However, this material is developed to enhance the clarity of hypothesis and has been used for academic purpose only. Also no part of this project may be used and reproduced by others, either accidently or commercial without written consent of author and/or her guide

Yours sincerely, Place: Mumbai

Signature of the student (ALTAMASH KAMANI)

ACKNOWLEDGEMENT I would like to thank the following people without whom this dissertation would not have been possible Firstly, I thank my col1ege J.M.PATEL College of Commerce for the facility like lab and library etc. would like to thank my project guidance Mrs. Monica Chandelle for helping me completing this project of "WORKING CAPITAL MANAGEMENT IN HCL INFOSYSTEM LTD" I thank her for her guidance support and encouragement I would also like to thank my class teacher Prof:-______________________ for his guidance, support and encouragement throughout the project I also wish to thank Manager of HCL Info system ltd for giving the precious time for providing me necessary information regarding my project Lastly, I thank my parents, brother, sisters and friends for the constant encouragement without which this assignment would not be possible

TABLE OF CONTENTS CHAPTER NO.

CONTENTS ACKNOWLEDGEMENT ABSTRACT INTRODUCTION · THE PROBLEMS · PURPOSE OF STUDY 1.RESEARCH METHODOLOGY · SCOPE OF THE STUDY · DATA SOURCES · LIMITATIONS 2. HINDUSTAN COMPUTERS LIMITED 3. HCL INFOSYSTEMS – AN OVERVIEW · COMPANY’S HISTORY · HCL AT A GLANCE · ALLIANCES AND PARTNERSHIPS · MANAGEMENT TEAM · CORPORATE INFORMATION 4. CONCEPTUAL FRAMEWORK · INTRODUCTION TO WORKING CAPITAL MANAGEMENT · SIGNIFICANCE OF WORKING CAPITAL MANAGEMENT · LIQUIDITY VS PROFITABILITY: RISK – RETURN TRADE OFF · CLASSIFICATION OF WORKING CAPITAL · TYPES OF WORKING CAPITAL NEEDS · FINANCING OF WORKING CAPITAL · FACTORS DETERMINING WORKING CAPITAL REQUIREMENTS · WORKING CAPITAL CYCLE · SOURCES OF WORKING CAPITAL · HCL FINANCIALS · WORKING CAPITAL POSITION · INVENTORY MANAGEMENT · CASH MANAGEMENT · RECEIVABLES MANAGEMENT · MANAGING PAYABLES (CREDITORS) · FINANCING CURRENT ASSETS · WORKING CAPITAL & SHORT-TERM FINANCING 5.DATA ANALYSIS& INTERPERTATION · INDUSTRY ANALYSIS

PG.NO.

· FINANCIAL GRAPHS · CONCLUDING ANALYSIS · SUGGESTIONS AND RECOMMENDATIONS · BIBLIOGRAPHY .APPENDIX

ABSTRACT This project is based on the study of working capital management in HCL Info stems. An insight view of the project will encompass – what it is all about, What it aims to achieve, what is its purpose and scope, the various methods used For collecting data and their sources, including literature survey done, further specifying the limitations of our study and in the last, drawing inferences from the learning so far. HCL Info systems Limited (HCL), is a leading domestic computer hardware And hardware services company. HCL is engaged in selling manufactured (like PCs, servers, monitors and peripherals) and traded hardware (like notebooks, Peripherals) to institutional clients as well as in retail segment. It also offers Hardware support services to existing clients through annual maintenance Contracts, network consulting and facilities management. The working capital management refers to the management of working capital, Or precisely to the management of current assets. A firm’s working capital Consists of its investments in current assets, which includes short-term assets— Cash and bank balance, inventories, receivable and marketable securities. This project tries to evaluate how the management of working capital is done in HCL Info systems through inventory ratios, working capital ratios, trends, Computation of cash, inventory and working capital, and short term financing.

INTRODUCTION: The project undertaken is on “WORKING CAPITAL MANAGEMENT IN HCL INFOSYSTEMS LIMITED”. It describes about how the company manages its working capital and the Various steps that are required in the management of working capital. Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund operations, reinvest and meet capital requirements And payments. Understanding a company's cash flow health is essential to Making investment decisions. A good way to judge a company's cash flow Prospects is to look at its working capital management (WCM). Working capital refers to the cash a business requires for day-to-day operations Or, more specifically, for financing the conversion of raw materials into finished Goods, which the company sells for payment. Among the most important items Of working capital are levels of inventory, accounts receivable, and accounts Payable. Analysts look at these items for signs of a company's efficiency and Financial strength. The working capital is an important yardstick to measure the company’s Operational and financial efficiency. Any company should have a right amount Of cash and lines of credit for its business needs at all times. This project describes how the management of working capital takes place at HCL Info systems. THE PROBLEMS In the management of working capital, the firm is faced with two key problems: 1. First, given the level of sales and the relevant cost considerations, what are the Optimal amounts of cash, accounts receivable and inventories that a firm should Choose to maintain? 2. Second, given these optimal amounts, what is the most economical way to? Finance these working capital investments? To produce the best possible Results, firms should keep no unproductive assets and should finance with the Cheapest available sources of funds. Why? In general, it is quite advantageous For the firm to invest in short term assets and to finance short-term liabilities. PURPOSE OF STUDY The objectives of this project were mainly to study the inventory, cash and Receivable at HCL Info systems Ltd., but there are some more and they are – · The main purpose of our study is to render a better understanding of

The concept “Working Capital Management”. · To understand the planning and management of working capital at HCL Info systems Ltd. · To measure the financial soundness of the company by analyzing various Ratios. · To suggest ways for better management and control of working capital at The concern. RESEARCH METHODOLOGY · This project requires a detailed understanding of the Concept – “Working Capital Management”. Therefore, firstly we need to have a clear idea of what is working Capital, how it is managed in HCL Info systems, what are? The different ways in which the financing of working Capital is done in the company. The management of working capital involves managing inventories, Accounts receivable and payable and cash. Therefore one also needs to have a sound knowledge about cash management, inventory management And receivables management. · Then comes the financing of working capital requirement, i.e. how the Working capital is financed, what are the various sources through which it Is done. · And, in the end, suggestions and recommendations on ways for better Management and control of working capital are provided.

SCOPE OF THE STUDY This project is vital to me in a significant way. It does have some Importance for the company too. These are as follows – · This project will be a learning device for the finance student. · Through this project I would study the various methods of the working Capital management. · The project will be a learning of planning and financing working capital. · The project would also be an effective tool for credit policies of the Companies. · This will show different methods of holding inventory and dealing with Cash and receivables. · This will show the liquidity position of the company and also how do them maintain a particular liquidity position. DATA SOURCES: The following sources have been sought for the prep of this report: · Primary sources such as business magazines, current annual reports, book On Financial Management by various authors and internet websites the Imp amongst them being: www.hcl.com, www.indiainfoline.com, www.studyfinance.com. · Secondary sources like previous year’s annual reports, reports on working Capital for research, analysis and comparison of the data gathered. · While doing this project, the data relating to working capital, cash Management, receivables management, inventory management and short Term financing was required. · This data was gathered through the company’s websites, it’s corporate Intranet, HCL’s annual reports of the last five years. · A detailed study on the actual working processes of the company is also Done through direct interaction with the employees and by timely Studying the happenings at the company. · Also, various text books on financial management like ICFAI’s book, Khan & Jain, Parana Chandra and I.M.Pandey were consulted to equip Ourselves with the topic.

LIMITATIONS OF THE STUDY: · We cannot do comparisons with other companies unless and until We have the data of other companies on the same subject. · Only the printed data about the company will be available and not The back–end details. · Future plans of the company will not be disclosed to the trainees. · Lastly, due to shortage of time it is not possible to cover all the Factors and details regarding the subject of study. · The latest financial data could not be reported as the company’s Websites have not been updated. HINDUSTAN COMPUTERS LIMITED: Type Public (BSE: 500179, BSE: 532281) Founded 11th August 1976 Headquarters Noida, India (Delhi metropolitan area), India Key People Shiv Nadir, Founder, Chairman & CEO Sanjay Kumar Chaudhary, Viet Near Industry Information Technology Services Revenue ▲4.7 billion USD Employees ~53,000 (as on 31st Dec 2007) Website www.hcl.in Hindustan Computers Limited, also known as HCL Enterprise, is one of India's largest electronics, computing and information Technology Company. Based in Noida, near Delhi, the company comprises two publicly listed Indian Companies, HCL Technologies and HCL Info systems. HCL was founded in 1976 by Shiv Nadir, Aja Chowdhury and four of their Colleagues. HCL was focused on addressing the IT hardware market in India for The first two decades of its existence with some sporadic activity in the global Market. In 1981, HCL seeded a company focused on addressing the computer Training industry, NIIT, though it has currently divested its stake in the Company. In 1991, HP took minority stake in the company (26%) and the

Company was known as HCL HP for the five years of the joint venture. On Termination of the joint venture in 1996, HCL became an enterprise which Comprises HCL Technologies (to address the global IT services market) and HCL Info systems (to address the Indian and APAC IT hardware market). HCL Has since then operated as a holding company. HCL INFOSYSTEMS LIMITED AN OVERVIEW ABOUT THE COMPANY HCL Info systems is no flash in the Information Technology pan. Founded in 1976, the firm has climbed into pantheon of India's corporate giants on the Strength of its IT products and services. HCL Info systems specializes in IT Hardware (PC's and servers, as well as networking, imaging and Communications products), and system integration services serving the Domestic Indian market. In addition to its consumer products, the company Provides commercial IT products, facilities management, network services, and IT security services for clients in such industries as government, financial Services, and education. HCL Corporation owns significant stakes in HCL Info systems (about 44%) and sister company HCL Technologies. HCL Info systems Ltd, a listed subsidiary of HCL, is an India-based hardware And systems integrator. It claims a presence in 170 locations and 300 service Centers. Its manufacturing facilities are based in Chennai, Pondicherry and Uttara hand .Its headquarters is in Noida. HCL Peripherals (A Unit of HCL Info systems Limited) Founded in the year 1983, has established itself as a leading manufacturer of computer peripherals In India, encompassing Display Products, Thin Client solutions, Information And Interactive Kiosks. HCL Peripherals has two Manufacturing facilities, one In Pondicherry (Electronics) and the other in Chennai (Mechanical) .The Company has been accredited with ISO 9001:2000, ISO 14001, TS 16949 and ISO 13485. HISTORY HCL Info systems Ltd is one of the pioneers in the Indian IT Market, with its origins in 1976. For over quarter of a century, We have developed and implemented solutions for multiple Market segments, across a range of technologies in India. We Have been in the forefront in introducing new technologies and Solutions. The highlights of the HCL saga are summarized Below: YEARHIGHLIGHTS 1976 - Foundation of the Company laid

- Introduces microcomputer-based programmable calculators with wide Acceptance in the scientific / education community 1977 - Launch of the first microcomputer-based commercial computer with a ROM -based Basic interpreter - Unavailability of programming skills with customers results in HCL developing Bespoke applications for their customers 1980 - Formation of Far East Computers Ltd., a pioneer in the Singapore IT market, for SI (System Integration) solutions 1983 - HCL launches an aggressive advertisement campaign with the theme ' even a Typist can operate' to make the usage of computers popular in the SME (Small & Medium Enterprises) segment. This proposition involved menu-based applications For the first time, to increase ease of operations. The response to the advertisement Was phenomenal. -HCL develops special program generators to speed up the development of Applications 1986 - Zonal offices of banks and general insurance companies adopt computerization - Purchase specifications demand the availability of RDBMS products on the Supplied solution (Unify, Oracle). HCL arranges for such products to be ported to Its platform. - HCL assists customers to migrate from flat-file based systems to RDBMS 1991 - HCL enters into a joint venture with Hewlett Packard - HP assists HCL to introduce new services: Systems Integration, IT consulting, Packaged support services (basic line, team line) 1994 - HCL acquires and executes the first offshore project from IBM Thailand - HCL sets up core group to define software development methodologies 1995 - Starts execution of Information System Planning projects - Execution projects for Germany and Australia - Begins Help desk services 1996 - Sets up the STP (Software Technology Park) at Chennai to execute software Projects for international customers - Becomes national integration partner for SAP

1997 - Kolkata and Noida STPs set up - HCL buys back HP stake in HCL Hewlett Packard 1998 - Chennai and Coimbatore development facilities get ISO 9001 certification 1999 - Acquires and sets up fully owned subsidiaries in USA and UK - Sets up fully owned subsidiary in Australia - HCL ties up with Broad vision as an integration partner 2000 - Sets up fully owned subsidiary in Australia - Chennai and Coimbatore development facilities get SEI Level 4 certification - Bags Award for Top PC Vendor in India - Becomes the 1st IT Company to be recommended for latest version of ISO 9001 : 2000 - Bags MAIT's Award for Business Excellence - Rated as No. 1 IT Group in India 2001 -Launched Pentium IV PCs at below Rest 40,000 -IDC rated HCL Info systems as No. 1 Desktop PC Company of 2001 2002 -Declared as Top PC Vendor by Dataquest -HCL Info systems & Sun Microsystems enters into an Enterprise Distribution Agreement - Realigns businesses, increasing focus on domestic IT, Communications & Imaging products, solutions & related services 2003 - Became the first vendor to register sales of 50,000 PCs in a quarter - First Indian company to be numeri Uno in the commercial PC market - Enters into partnership with AMD - Launched Home PC for Rest 19,999 2004 - 1st to announce PC price cut in India, post duty reduction, offers Ezeebee at Rest. 17990 - Maintains No.1 position in the Desktop PC segment for year 2003 - Becomes the 1st company to cross 1 lac unit milestone in the Indian Desktop PC Market - Partners with Union Bank to make PCs more affordable, introduces lowest ever EMI for PC in India

- Registers a market share of 13.7% to become No.1 Desktop PC Company for Year 2004 - Crosses the landmark of $ 1 billion in revenue in just nine months 2005 - Launch of HCL PC for India, a fully functional PC priced at Rs.9, 990/- Rated as the No.1 Desktop PC Company by IDC India -Dataquest - 'Best Employer 2005' with five star ratings by IDC India -Dataquest. - 'The Most Customer Responsive Company 2005' -IT Hardware Category by The Economic Times -Avaya Global Connect. -Top 50 fastest growing Technology Companies in India' & 'Top 500 fastest Growing Technology Companies in Asia Pacific' by 'Deloitte & Touché'. By 'Deloitte & Touché' -'7th IETE -Corporate Award 2005' for performance excellence in the field of Computers & Telecommunication Systems by IETE. -India’s 'No.1 vendor' for sales of A3 size Toshiba Multi-Functional Devices for The year '04 -'05 by IDC. -Toshiba 'Super Award 2005 towards business excellence in distribution of Toshiba Multifunctional products, -Strategic Partners in Excellence' Award by in focus Corporation for projectors. -'Most valued Business Partner' Award for projectors by in focus Corporation in 2005 2006 (Till June) - 75, 000+ machines produced in a single month - HCL Info systems in partnership with Toshiba expands its retail presence in India By unveiling 'shop Toshiba' - HCL Info systems & Nokia announce a long term distribution strategy - HCL the leader in Desktops PCs unveils India's first segment specific range of Notebooks brand - 'HCL Laptops' - IDBI selects HCL as SI partner for 100 branches ICT infrastructure rollout - HCL Info systems showcases Computer Solutions for the Rural Markets in India - HCL Support wins the DQ Channels-2006 GOLD Award for Best after Sales Service on a nationwide customer satisfaction survey conducted by IDC - HCL Info systems First in India to Launch the New Generation of High Performance Server Platforms Powered by Intel Dual - Core Xeon 5000 Processor - HCL Forms a Strategic Partnership with APPLE to provide Sales & Service Support for iPods in India VISION STATEMENT: "Together we create the Enterprises of Tomorrow" MISSION STATEMENT: "To provide wox`x`rld-class Information Technology solutions and services In order to enable our customers to serve their customers better"

CORE VALUES: · Nothing transforms life like education. · We shall honor all commitments · We shall be committed to Quality, Innovation and Growth in every Endeavor · We shall be responsible corporate citizens QUALITY POLICY: "We shall deliver defect-free products, services and solutions to meet the Requirements of our external and internal customers, the first time, every time." OBJECTIVES: · MANAGEMENT OBJECTIVES – To fuel initiative and foster activity by allowing individuals, freedom Of action and innovation in attaining defined objectives. · PEOPLE OBJECTIVES – To help people in HCL Info systems Ltd., share company’s success, Which they make possible; to provide job security based on their Performance; to Recognize their individual achievements; and help them gain a sense of Satisfaction and accomplishment from their work. ALLIANCES and PARTNERSHIPS: To provide world-class solutions and services to all our customers, HCL Info systems have formed Alliances and Partnerships with leading IT companies Worldwide. HCL Info systems has alliances with global technology leaders like Intel, AMD, Microsoft, Bull, Toshiba, Nokia, Sun Microsystems, Ericsson, NVidia, SAP, Scan soft, SCO, EMC, Veritas, Citrix, CISCO, Oracle, Computer Associates, Red Hat, in focus, Duplo, Samsung and Novell. These alliances on one hand give us access to best technology & products as Well as enhancing our understanding of the latest in technology. On the other Hand they enhance our product portfolio, and enable us to be one stop shop for Our customers. MANAGEMENT TEAM: Aja Chowdhury Co-Founder HCL, Chairman and CEO - HCL Info systems. An engineer by training, Aja Chowdhury is one of the six cofounder Members of HCL, India’s premier IT conglomerate. J V Ramamurthy Chief Operating Officer HCL Info systems Ltd. J V Ramamurthy has an engineering degree in Electronics & Communications, from Gundy Engineering College, and a Masters'

Degree in Applied Electronics from the Madras Institute of Technology, both in Chennai. Rupendra Kumar Executive Vice President - Frontline Division HCL Info systems Ltd. Mr. Rupendra Kumar has been with HCL for over 30 years and has Seen HCL grow from a startup company to a gigantic conglomerate that it is today. WORKING CAPITAL MANAGEMENT CONCEPTUAL FRAMEWORK Introduction Significance of working capital management Liquidity Vs profitability: Risk – Return trade off Classification of working capital Types of working capital needs Financing of working capital Factors determining working capital requirements Working capital cycle Sources of working capital HCL financials Working capital position Inventory management Cash management Receivables management Managing payables (Creditors) Financing current assets Working capital & short-term financing Financing Current Assets

Significance of Working Capital Management The management of working capital is important for several reasons: · For one thing, the current assets of a typical manufacturing firm account For half of its total assets. For a distribution company, they account for even More. · Working capital requires continuous day to day supervision. Working Capital has the effect on company's risk, return and share prices, · There is an inevitable relationship between sales growth and the level of Current assets. The target sales level can be achieved only if supported by Adequate working capital inefficient working capital management may lead To insolvency of the firm if it is not in a position to meet its liabilities and Commitments. LIQUIDITY VS PROFITABILITY: RISK - RETURN TRADE OFF Another important aspect of a working capital policy is to maintain and Provide sufficient liquidity to the firm. Like the most corporate financial Decisions, the decision on how much working capital be maintained involves a Trade off- having a large net working capital may reduce the liquidity risk Faced by a firm, but it can have a negative effect on the cash flows. Therefore, The net effect on the value of the firm should be used to determine the optimal Amount of working capital. Sound working capital involves two fundamental decisions for the firm. They Are the determination of? · The optimal level of investments in current assets. · The appropriate mix of short-term and long-term financing used to support This investment in current assets, a firm should decide whether or not it Should use short-term financing. If short-term financing has to be used, the Firm must determine its portion in total financing. Short-term financing May be preferred over long-term financing for two reasons: · The cost advantage · Flexibility CLASSIFICATION OF WORKING CAPITAL Working capital can be classified as follows:

· On the basis of time · On the basis of concept

TYPES OF WORKING CAPITAL NEEDS Another important aspect of working capital management is to analyze the Total working capital needs of the firm in order to find out the permanent and Temporary working capital. Working capital is required because of existence of Operating cycle. The lengthier the operating cycle, greater would be the need For working capital. The operating cycle is a continuous process and therefore, The working capital is needed constantly and regularly. However, the Magnitude and quantum of working capital required will not be same all the Times, rather it will fluctuate. The need for current assets tends to shift over time. Some of these changes Reflect permanent changes in the firm as is the case when the inventory and Receivables increases as the firm grows and the sales become higher and Higher. Other changes are seasonal, as is the case with increased inventory Required for a particular festival season. Still others are random reflecting the Uncertainty associated with growth in sales due to firm's specific or general Economic factors.

The working capital needs can be bifurcated as: · Permanent working capital · Temporary working capital Permanent working capital: There is always a minimum level of working capital, which is continuously Required by a firm in order to maintain its activities. Every firm must have a Minimum of cash, stock and other current assets, this minimum level of Current assets, which must be maintained by any firm all the times, is known As permanent working capital for that firm. This amount of working capital is Constantly and regularly required in the same way as fixed assets are required. So, it may also be called fixed working capital. Temporary working capital: Any amount over and above the permanent level of working capital is Temporary, fluctuating or variable working capital. The position of the required Working capital is needed to meet fluctuations in demand consequent upon Changes in production and sales as a result of seasonal changes.

The permanent level is constant while the temporary working capital is Fluctuating increasing and decreasing in accordance with seasonal demands as Shown in the figure. In the case of an expanding firm, the permanent working capital line may not Be horizontal. This is because the demand for permanent current assets might Be increasing (or decreasing) to support a rising level of activity. In that case Line would be rising.

FINANCING OF WORKING CAPITAL There are two types of working capital requirements as discussed above. They Are: · Permanent or Fixed Working Capital requirements · Temporary or Variable Working Capital requirements Therefore, to finance either of these two working capital requirements, we Have long-term as well as short-term sources FACTORS DETERMINING WORKING CAPITAL +REQUIREMENTS There are many factors that determine working capital needs of an enterprise. Some of these factors are explained below: · Nature or Character of Business. The working capital requirement of a firm is closely related to the Nature of its business. service firm, like an electricity undertaking or a Transport corporation, which has a short operating cycle and which sells Predominantly on cash basis, has a modest working capital requirement. Oh the other hand, a manufacturing concern like a machine tools unit, Which has a long operating cycle and which sells largely on credit, has a Very substantial working capital requirement. HCL Info systems carry on activities related to computer systems. Though they are primarily an assembling firm they also have Manufacturing facilities in Chennai and Pondicherry. This requires them To keep a very sizeable amount in working capital. · Size of Business/Scale of Operations. HCL is the leader in its segment in both consumer as well as Commercial market share. They have increased their share in the Consumer segment notably in the last four years. This they have Achieved through retail expansion. The scale of operations and the size It Holds in the Indian IT market makes it a must for them to hold their Inventory and current asset at a huge level

WORKING CAPITAL POSITION: CURRENT ASSET – TOTAL ASSET PARTICULARS CURRENT ASSETS NET BLOCK TOTAL ASSETS CA/TA

2006

2005

2004

100970 7970 122479 82.44

81533 54091 5329 4925 99139 87076 82.24 62.12

2003

2002

45042 55985 4954 5552 71285 75205 63.18 74.43

The current asset percentage on total asset is the highest over the years. This Increasing percentage of current assets to the total assets at first might indicate A preference for liquidity in place of profitability, but a look into the nature of The business carried on by HCL Info systems reveal the reason behind it. How Far their preference to current assets has affected the sales is shown below. NET CURRENT ASSET – SALES PARTICULARS 2006 2005 NET CURRENT

2004

2003

2002

14301

18752

27065

ASSETS

40343

34742

SALES

238136

199886

154295 166604

WORKING CAPITAL % INCREASE

16.12

142.93

-23.736

SALES % INCREASE

19.14

29.54

-7.38

-30.7

31.18

127003 -0.46

8.7

The sales has increased and the profits risen despite the 16.12% increase in Working capital. But what is noteworthy here is that the firm has managed to Maintain the trend of an increase in net current assets. Whether the change has Worked for the company has to be analyzed in the context of the growth in Sales as compared to the previous year. There has been a 19.14% rise in the Sales or revenue generated. This would automatically suggest towards a very Efficient working capital management where the assets of the firm which are Short-term in nature have been utilized optimally in connection to their fixed Assets. The firm has gone towards such a dramatic shift in their working Capital position might be because of the tremendous growth witnessed in the

Domestic IT market. CURRENT ASSET – FIXED ASSET PARTICULARS 2006 NET CA/NET BLOCK 5.062:1

2005 2004 6.519:1 2.903:1

2003 3.785:1

2002 4.875:1

The ratio of the net current asset to the fixed ones is an indicator as to the Liquidity position of the firm. This ratio has declined for the firm compared to The previous year. There could be an argument as to whether the increased ratio Of working capital to net block is a conservative policy and whether it would be Detrimental to the interest of the company. Or, whether it would have been Proper if the company invested more into the capital expenditure in the form of Plant and machinery or invested in any other form that would have got them an Internal rate of return. What has to be kept in mind before coming to a Conclusion as to the policy of the company, is the fact that the firm being Primarily into assembling, its investment in the fixed asset segment need not be High. A look into the capacity utilization of the plant would reaffirm this point. It would be ideal for the firm to continue in the same line and not have Excessive investment in the fixed asset as they can easily add onto this part. COMPUTER and MICRO PROCESSOR BASED SYSTEMS` YEAR INSTALLED ACTUAL % CAPACITY CAPACITY PRODUCTION UTILIZATION 2006 1150000 581805 50.59 2005 600000 448121 74.69 2004 525000 295192 56.23 DATA GRAPHIC/DISPLAY MONITOR/TERMINALS/HUBS YEAR INSTALLED 2006 250000 267326 106.9352 CAPACITY ACTUAL 2005 250000 259617 103.85 PRODUCTION % CAPACITY 2004 350000 297991 85.14 UTILIZATION That the fixed assets of the firm are being put to efficient use and the firm is Trying for optimum capacity utilization is something that can be easily deduced. Whether the current assets or the working capital of the firm has anything to do With it is for us to see. An increased production in normal circumstances means Better raw material to finished goods conversion rate, i.e. the firm is taking less Of time in the production process and this happens when the current asset Employed in relation with the fixed ones are at optimum. The other notable Feature here is that though the firm has added on to its installed capacity in all

Three years, they were still able to increase the capacity utilization. That they Have been able to do it shows that the more current assets, especially inventory Used in relation to the fixed assets, i.e., plant and machinery and their Management has only helped in increasing their utilization to the maximum. CURRENT ASSET – CURRENT LIABILITY PARTICULARS 2006 2005 CURRENT ASSETS 100970 81533 CURRENT LIABILITES 60627 46791 % CURRENT ASSETS INCREASE 23.84 50.7 %CURRENT LIABILITES 29.57 17.6 INCREASE

2004 54091 39790

2003 45042 26290

2002 55985 28920

20.09 51.35

-19.54 -9.1

8.9 19.45

The 16.12% increase in Net Current assets despite of the fact that there has Been an increase in the Current Assets by 23.84% and increase in Current Liability has been by 29.57% over that of the previous year has to be attributed To the fact that in 2005, the company showed such a high increase in CA, that it Is still being offset. This is an indication as to the expanding operations of the Firm. HCL has increased its current assets in order to meet the increasing sales. The firm’s level of liquidity being high, we need a check on whether it affects The return on assets. INVENTORY MANAGEMENT Inventories Inventories constitute the most important part of the current assets of large Majority of companies. On an average the inventories are approximately 60% of the current assets in public limited companies in India. Because of the large size of inventories maintained by the firms, a considerable amount of funds is committed to them. It is therefore, imperative to manage the inventories efficiently and effectively in order to avoid unnecessary investment. Nature of Inventories Inventories are stock of the product of the company is manufacturing for sale And components makeup of the product. The various forms of the inventories In the manufacturing companies are: Raw Material: It is the basic input that is converted into the finished Product through the manufacturing process. Raw materials are those units Which have been purchased and stored for future production.

Work-in-progress: Inventories are semi-manufactured products. They Represent product that need more work they become finished products for Sale. Finished Goods: Inventories are those completely manufactured Products which are ready for sale. Stocks of raw materials and work-in progress Facilitate production, while stock of finished goods is required For smooth marketing operations. Thus, inventories serve as a link between the production and consumption of goods.

Inventory Management Techniques In managing inventories, the firm’s objective should be to be in consonance With the shareholder wealth maximization principle. To achieve this, the firm Should determine the optimum level of inventory. Efficiently controlled Inventories make the firm flexible. Inefficient inventory control results in Unbalanced inventory and inflexibility-the firm may sometimes run out of stock And sometimes pile up unnecessary stocks. Economic Order Quantity (EOQ): The major problem to be resolved Is how much the inventory should be added when inventory is? Replenished. If the firm is buying raw materials, it has to decide lots in Which it has to purchase on replenishment. If the firm is planning a Production run, the issue is how much production to schedule. These Problems are called order quantity problems, and the task of the firm is To determine the optimum or economic lot size. Determine an optimum Level involves two types of costs:Ordering Costs: This term is used in case of raw material and Includes all the cost of acquiring raw material. They include the Costs incurred in the following activities: ª Requisition ª Purchase Ordering ª Transporting ª Receiving ª Inspecting ª Storing Ordering cost increase with the number of orders placed; thus the More frequently inventory is acquired, the higher the firm’s Ordering costs. On the other hand, if the firm maintains large Inventory’s level, there will be few orders placed and ordering Costs will be relatively small. Thus, ordering costs decrease with The increasing size of inventory. Carrying Costs: Costs are incurred for maintaining a given level

Of inventory are called carrying costs. These include the following Activities: . Warehousing Cost .Handling .Administrative cost .Insurance .Deterioration and obsolescence carrying costs are varying with inventory size. This behavior is Contrary to that of ordering costs which decline with increase in Inventory size. The economic size of inventory would thus depend On trade-off between carrying costs and ordering cost. Composition Raw Material Stores and Spares Finished Goods Work-in-progress

2006 6349 3713 13374 595

2005 7749 2987 7245 784

2004 6127 2622 6506 871

The increasing component of raw materials in inventory is due to the fact That the company has gone for bulk purchases and has increased Consumption due to a fall in prices and reduced margins for the year. Another reason might be the increasing sales, which might have induced Them to purchase more in anticipation of a further increase in demand of The product. And the low composition of work-in-progress is Understandable as because of the nature of the business firm is involved In. To the question as to whether the increasing costs in inventory are Justified by the returns from it the answer could be found in the HCL Retail expansion. HCL caters to the need of the two separate segments: a) Institutions for which they manufacture against orders and, b) Retail segment of the market. They are more into retail than earlier and at present more than 650 retail Outlets branded with HCL sign ages and more are in the pipeline The company in order to meet its raw materials requirements could have Gone for frequent purchases, which would have resulted in lesser cash Flows for the firm rather than the high expenditure involved when Procuring in at bulk. The reason why the firm has gone for these bulk Purchases because of the lower margins and the discounts it availed Because of procuring in bulk quantities. A negative growth in WIP could be because: a) The time taken to convert raw materials to finished goods is very Minimal b) This is also due to capacity being not utilized at the optimum. ABC System: ABC system of inventory keeping is followed in the Factories. Various items are categorized into three different levels in the Order of their importance. For e.g. items such as memory, high capacity Processors and royalty are placed in the ‘A’ category. Large number of Firms has to maintain several types of inventories. It is not desirable the Same degree of control all the items. The firm should pay maximum

Attention to those items whose value is highest. The firm should Therefore, classify inventories to identify which items should receive the Most effort in controlling. The firm should be selective in approach to Control investment in various types of inventories. This analytical Approach is called “ABC Analysis”. The highvalue items are classified As “An items” and would be under tightest control. “C items” represent Relatively least value and would require simple control. “B items” fall in Between the two categories and require reasonable attention of Management. JIT: The relevance of JIT in HCL Info system can be questioned. This is Because they procure materials on the basis of projections made at least Two or three months before. Even at the time of procurement they ensure That they procure much more than what actually is required by the firm That is they hold significant amount of inventory as safety stock. This is Done to counter the threat involved in default and accidental Breakdowns. The levels of safety stock usually vary according to the Usage. Work-in-progress Particulars Cost of Production Cost of Production/day Work in progress inventory WIP Holding days

2006 191911 525.78 689.5 1.31

2005 159651.19 437.4 827.52 1.89

2004 113500.33 310.95 679.455 2.19

The work-in-progress holding time is important for a firm in the sense that it Determines the rate of time at which the production process will be complete or The finished goods will be ready for disposal by the firm. The firm as it is in the Process of assembling should take the least possible time in conversion to finished goods unlike a hard core manufacturing firm, as any firm would like to have its inventory in the work-in-progress at the minimum. There would also be Less of stock out costs as due to better conversion rates the firm is able to meet The rise in demand situations. More the time it spends lesser its efficiency would Be in the market. Here the firm has been able to bring down its WIP conversion Periods.

Finished Goods Particulars 2006 2005 Cost of goods sold 228177 178438.8 Cost of goods sold/day 625 488.87 Finished goods inventory 10310 6875.725 Finished goods inventory Holding days 16 14.06

2004 124768.92 341.832 5026.505 14.8

The time taken for the firm to realize its finished goods as sales has increased as Compared to last year. This growth in sales could be traced back to the growing Domestic IT market for the commercial as consumer segment in India. HCL has Around 15% of the market in desktop and it is the market leader in this segment. So it is only natural that they are able to better their conversion rate of finished Goods to sales. Operating Cycle Particulars Inventory conversion period Average collection period Gross operating cycle Average payment period Operating cycle

2006 38 70 108 22 86

2005 42 63 105 23 82

2004 45 66 111 17 94

The operating cycle of the firm reveals the days within which the inventory Procured gets converted to sales or revenue for the firm. This time period is of Importance to the firm as a lag here could significantly affect the profitability, Liquidity, credit terms, and the policies of the firm. All the firms would like to Reduce it to such extend that their cash inflows are timely enough to meet their Obligations and support the operations. That the firm has been able to reduce the Ratio is in itself an achievement as they were having huge stocks of inventory. But the reduction in the cycle could also be attributed to the boom in the market And the growth it is expected to reach. This boom automatically ensures the Demand for the finished goods and thus helping in it to garner sales for the firm. Raw Material Consumption Particulars 2005 Imported 92007 Indigenous 29070 % Imports 75.99

2004 70784.27 27187.04 72.25

2003 42129.63 15645.51 72.92

A major chunk of the imports come from Korea and Taiwan and is purchased in US$. The value of imported and indigenous raw material consumed give a clear Picture that if there is a change in the EXIM policy of the government it is Bound to affect the company adversely as more than 70% of their consumption Is from imports. But this is the scenario witnessed in the industry as a whole And though HCL is into expanding its operation to Uttaranchal it in the present

State is would be affected by a change in the import duty structure. A major chunk of their current assets are in the form of inventory and the Change in technology will invariably be a threat faced by the firm. The question Of technology applying here like says a certain device going say out of fashion Or outdated. For e.g. TFT monitors being in demand more than CRT. CASH MANAGEMENT SOURCES OF CASH: Sources of additional working capital include the following: · Existing cash reserves · Profits (when you secure it as cash!) · Payables (credit from suppliers) · New equity or loans from shareholders · Bank overdrafts or lines of credit. · Long-term loans If you have insufficient working capital and try to increase sales, you can Easily over-stretch the financial resources of the business. This is called Overtrading. Early warning signs include: · Pressure on existing cash · Exceptional cash generating activities e.g. offering high discounts for Early cash payment · Bank overdraft exceeds authorized limit. · Seeking greater overdrafts or lines of credit · Part-paying suppliers or other creditors · Paying bills in cash to secure additional supplies · Management pre-occupation with surviving rather than managing · Frequent short-term emergency requests to the bank (to help pay wages, Pending receipt of a cheese). CASH MANAGEMENT IN HCL INFOSYSTEMS: The cash management system followed by the HCL Info systems is mainly Lock box system. Cash Management System involves the following steps: 1. The branch offices of the company at various locations hold the Collection of cheese of the customers. 2. Those cheese are either handed over to the CMS agencies or bank of the Particular location take charge of whole collection. 3. These CMS agencies or bank send those cheese to the clearing house to Make them realized. These cheese can be local or outstation. 4. The CMS agencies or bank send information to the central hub of the Company regarding realization/cheese bounced. 5. The central hub passes on the realized funds to the company as per the Agreed agreements. 6. The CMS agencies or concerned bank provides the necessary MIS to the

Company as per requirement. In cash management the collect float taken for the cheese to be realized into Cash is irrelevant and non-interfering because banks such as Standard Chartered, HDFC and Citibank who give credit on the basis of these cheese After charging a very small amount. These credits are given to immediately and The maximum time taken might be just a day. The amount they charge is very Low and this might cover the threat of the cheese sent in by two or three Customers bouncing. Even otherwise the time taken for the cheese to be Processed is instantaneous. Their Cash Management System is quite efficient. Cash-Current Liability Particulars 2006 2005 2004 Absolute Liquid Ratio 0.24:1 0.31:1 0.11:1 The absolute liquid ratio is the best for three years and the cash balances as to The current liability has improved for the firm. Firm has large resources in cash And bank balances. While large resources in cash and bank balances may seem To affect the revenue the firm could have earned by investing it elsewhere as Maintenance of current assets as cash and in near cash assets and marketable Securities may increase the liquidity position but not the revenue or profit Earning capacity of the firm. Dividend Policy-Cash Particulars Dividend Policy% Shift in Sales Cash Balance Cash in Hand

2004 210 154295 4463.43 118.33

2005 310 199886 14582.65 128.97

2006 400 238136 14529.29 128.97

The other notable feature in HCL statements has been the growing dividend Policy of the firm. The payment of dividend means a cash outflow. Thus cash Position is an important criterion at the time of paying dividends. There is a Theory that greater the cash position and ability to pay dividends. The firm has Adopted a policy of disbursing the revenue earned as profits to the shareholders As dividends as could be seen from the increasing % of dividends declared. Particulars PBIDT Equity Dividend%

2006 14284 400

2005 15634 310

2004 14523 210

This could mean two things for the firm the amount of cash retained in the Business for capital expenditure purposes are minimal or nil. But rather than Investing more in plant and machine which they can at any point in time by Adding on an additional line if need they would like to optimize their utilization In fixed assets at present. This also means that the percentage of cash in hand Maintained by the firm as a source of liquidity could be reduced, i.e. the amount Of idle cash in the business could be made to a level which the firm feels Optimum. The firm feels that they should retain cash and it would be in the interest of the Firm as well as the shareholders. This would automatically mean as decrease in Earning/share (EPS) (Basic EPS declined from 8 in 2005 to 6.74 in 2006). It Would prompt more of investors being interested in the shares of the company, Which would boost the purchase of the securities and increase the market Price/share thus being beneficial for the firm. Cash Flows Cash Flows 2006 2005 2004 Net Cash from Operating activities 6924 2675.57 13706.34 Net Cash from Investing activities -3515 15661.29 -2169.16 Net Cash from Financing activities -3512 -8217.68 -11412.1 The firm has disposed of investments worth around 655 Crores to meet its Growing needs. The other notable feature is decline is the firm’s inflows from Operations primarily due to the reason that the cash generated from the Operations is the lowest in three years. And the firm’s growing dividend policy Has contributed to the outflows in financing activities. Cash Flow in Operating Activities

Working Capital Changes Working Capital Changes 2006 Trade and other receivables -14166 Inventories -5221 Trade Payables and other Liabilities 13026

2005 -14510.69 -2683.92 6419.13

2004 -7106.68 -7221.11 14311.5

The cash from the operation has been subject to considerable change due to the Changes that could be adjusted towards trade receivables and trade payables. The outflows in inventory have become as low as 37% of what it was last year Despite an increase in the inventory consumption by 16.64%. The resulting Reduction in the cash outflows might be because of the inventories being Procured more on credit. That the cash from operations has declined has Affected the current liability index of the firm. Cash Flow in Investing Activities Investments in Mutual Funds 2006 Investments (yearend) 13539 Purchase of Investment -65992 Disposal/Redemption of Investment 65312

2005 12277.44 -53075.99 65489.84

2004 28059.88 -59249.81 52087.36

The investments have reduced from the last year due to the redemption of Investments taken place to meet various needs such as increasing demand in Stock or inventory and to ensure better credit and receivables policy. We can see that the firm has in these three years increased their cash inflow from the Investing activities by way of disposal of investments when in need. That is the Firm has redeemed to realize cash as to meet its expanding operations, fund the Inventory procurement and meet the obligations. The investments in mutual funds are beneficial to the firm in the context that They contain interest bearing securities which add up as a source of revenue for The firm unlike cash which remains idle and unproductive when not in use. This Reduction of dividend could be attributed to disposal of investments in mutual Funds and subsidiary. This disposal creates a fund, which can be used by the Company as and when the need arises. RECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS: PARTICULARS DEBTORS TURNOVER RATIO AVERAGE COLLECTION PERIOD

2006 5.21 70

2005 5.80 63

2004 5.53 66

2003 6.62 55

A better turnover ratio implies for the firm, more efficiency in converting the Accounts receivable to cash. A firm with very high turnover ratio can take the Freedom of holding very little balances in cash, as their debtors are easily Realizable. In case of HCL, the collection period for the firm is 70 days.

PARTICULARS 2006 PROVISION FOR DOUBTFUL DEBTS 3 (CASH FLOW) DEBTS DOUBTFUL 47 (EXCEEDING 6 MONTHS)

2005 49.85

2004 25

134.09

69.8

The debts doubtful have doubled but their percentage on the debts has almost Become half. This implies a sales and collection policy that get along with the Receivables management of the firm. COLLECTION POLICIES: It refers to the collection procedures such as letters, phone calls and other follow Up mechanism to recover the amount due from the customers. It is obvious that Costs are incurred towards the collection efforts, but bad debts as well as average Collection period would decrease. Further, a strict collection policy of the firm is Expensive for the firm because of the high cost is required to be incurred by the Firm and it may also result in loss of goodwill. But at the same time it minimizes The loss on account of bad debts. Therefore, a firm has to strike a balance between The cost and benefits associated with collection policies. The steps usually followed in collection efforts are: · Sending repeated letters and reminders to the customers · Personal visits · Using agencies involved in collection process · Making telephonic reminders · Initiating legal actions · Real Time Gross Settlement (RTGS) Real Time Gross Settlement as such is a concept new in nature and though the firm Uses the system with all the members of the consortium, it is still in its primal stage And will take time before all of the clients of the firm are willing to accept it. The Firm has made a proposal to the consortium of the banks during appraisal for faster Implementation of internet based banking facility by all the banks and adoption of RTGS payment system through net. The debtor’s turnover ratio is completely dependent upon the credit policy Followed by the firm. The credit policy followed by the firm should be such that The threat of bad debts and the default rate involved should be terminated. PARTICULARS 2006 2005 2004 2003 CREDITORS TURNOVER RATIO 16.44 15.68 21.29 21.14 PAYMENT PERIOD 22 23 17 16 That the creditor’s turnover ratio has declined and payment period has increased Indicate that the company has got a leeway in making the payment to the creditors By way of increased time. With creditors they are having pre-agreements and have undertaken arrangements

With them, which they believe to be the best in the business and these are fixed. (NOTE: Acceptances are not included in the computation of creditor’s turnover) MANAGING PAYABLES (Creditors) Creditors are a vital part of effective cash management and should be managed Carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can Create liquidity problems.

Consider the following: · Who authorizes purchasing in your company - is it tightly managed or spread Among a number of (junior) people? · Are purchase quantities geared to demand forecasts? · Do you use order quantities, which take account of stock holding and Purchasing costs? · Do you know the cost to the company of carrying stock? · Do you have alternative sources of supply? If not, get quotes from major Suppliers and shop around for the best discounts, credit terms as it reduces Dependence on a single supplier. · How many of your suppliers have a return policy? · Are you in a position to pass on cost increases quickly through price increases? To your customers? · If a supplier of goods or services lets you down can you charge back the cost? Of the delay? · Can you arrange (with confidence!) to have delivery of supplies staggered or On a just-in-time basis? There is an old adage in business that "if you can buy well then you can sell Well". Management of your creditors and suppliers is just as important as the Management of your debtors. It is important to look after your creditors- slow Payment by you may create ill feeling and can signal that your company is Inefficient (or in trouble!). Remember that a good supplier is someone who will work with you to enhance the Future viability and profitability of your company.

Financing Current Assets: The firm has to decide about the sources of funds, which can be availed to make Investment in current assets. Long term financing: It includes ordinary share capital, preference share capital, debentures, long term Borrowings from financial institutions and reserves and surplus. Short term financing: It is for a period less than one year and includes working capital funds from Banks, public deposits, commercial paper etc. Spontaneous financing: It refers to automatic sources of short-term funds arising in normal course of Business. There is no explicit cost associated with it. For example, Trade Credit And Outstanding Expenses etc. Depending on the mix of short and long term financing, the company can Follow any of the following approaches. Matching Approach In this, the firm follows a financial plan, which matches the expected life of Assets with the expected life of source of funds raised to finance assets. When the Firm Follows this approach, long term financing will be used to finance fixed assets And permanent current assets and short term financing to finance temporary or Variable current assets. Conservative Approach In this, the firm finances its permanent assets and also a part of temporary current Assets with long term financing. In the periods when the firm has no need for Temporary current assets, the long-term funds can be invested in tradable securities To conserve liquidity. In this the firm has less risk of facing the problem of Shortage of funds. WORKING CAPITAL & SHORT-TERM FINANCINGCONSORTIUM BASED FINANCINGCurrent Working Capital Limits NAME OF THE BANK FUND BASED NON-FUND BASED STATE BANK OF INDIA

3600

46000

ICICI BANK

1282

19000

HDFC BANK

1200

10000

STANDARD CHARTERED BANK

1200

19000

STATE BANK OF SAURASHTRA

715

7500

STATE BANK OF PATIALA

1300

7700

CANARA BANK

1203

6000

SOCIETE GENERALE

1000

4000

HSBC BANK

1000

18300

TOTAL

12500

137500

In order to finance the working capital needs of the firm in the form of Working Capital Demand Loan, there is a consortium of nine banks. The consortium if Banks provide a fund based limit of 125 Crores which comprises of cash credit and Working capital demand loans and non-fund based limits which has bank guarantee And letter of credit subject to a limit of 1375 Crores. The Lead Bank in this Consortium of banks is State Bank of India and the second lead bank is ICICI. It Is SBI, which fixes the limit on the basis of consortium? They, in consultation of The company decide the allocation of limit to various member banks. The Allocation cannot be higher than the limits fixed by it. SBI is the biggest Contributor in the consortium for both fund and non-fund based limits with about 31.30 In funds and 34.02 in non-fund limits. The ratio of both limits for the year 2006 is 0.23:0.77 It is on the basis of the accounts receivable that the banks come to an agreement With regards to the limits imposed. Though it is the fund based limits that finance The working capital requirements, the non-fund based limits are important for the Management of the working capital as there might be clients who are not willing to Sell on open credit and might be demanding letters of credit before any advances. RENEWAL OF LIMITS LIMITS 2006 FUND BASED 11500 NON FUND BASED 48500 TOTAL 60000

2005 11500 38500 50000

2004 11500 28500 40000

All banks sanction the limits for a period of one year. Thereafter it is to be renewed Every year. SBI appraises the limit on the basis of consortium. The individual Banks appraise for their own individual limit. The non-fund based limits of the firm In consortium financing has been subjected to change for the past two years as per The requirements of the firm and the consent of the lead bank to its proposal. It was Around 385 Crores in 2005 and had been risen to around 485 Crores in 2006. A proposal has been made by the firm to further appraise the limits by 100 Crores to 585 Crores in view of the growing operations of the firm with full Interchangeability between letter of credit and bank guarantee limits for Operational flexibility. Allocation of the fund based and non-based limits among The banks based on operational convenience rather than allocating the fund based Andon-fund based on the same ratio is also among the proposals made by the Firm.

The company needs to provide the following information to bank for appraisals: · Credit Monitoring Appraisal · Write Up on company · Share holding pattern · List of the directors CONSORTIUM MEETING: All the members of the consortium are required to meet to discuss various issues Relating to the working facilities. As per RBI guidelines, the lead bank, i.e., SBI Should ensure that one consortium meeting is held every quarter send this meeting Has to be arranged by HCL. DOCUMENTATION and JOINT DOCUMENTATION: There are various documents that need to be signed at the time of renewal or Inducting any bank to the consortium. The various documents are as follows: · Loan agreement · Hypothecation agreement for movable machinery · Hypothecation agreement for movables and book debts · Counter Indemnity The above are the standard agreements asked for by the banks. The common seal Has to be witnessed by the company secretary and one of the directors of the Company. As of 2005, no additions or deletions were made to the consortium of the banks. But over the years the number of banks in the consortium have been reduced. Indian Banks and State Bank of Hyderabad are the two banks which were earlier a Part of the consortium. Joint Documentation is executed between the company and the consortium of Banks for the working capital facilities extended by the consortium to the Company. The joint documentation is valid for three years. The documents Comprising joint documentation are: · Working Capital consortium agreement · Joint deed of documentation · Inter se agreement between bankers · Letter of authority to lead bank by other consortium banks · Letter of authority to second lead bank by other consortium banks · Undertaking to create charge on the assets of the company. ALLOCATION OF LIMIT BY LEAD BANK SBI appraises the limit on behalf of the consortium. It in consultation with the Company decided the allocation of the limit to various member banks. The Allocation of any member bank cannot be higher than the limit sanctioned by it. The drawing power for it fund based limits out of the consortium are determined On the basis of the stock statement submitted by the company. HCL is required to Submit the stock statement to all member banks in consortium for every month.

FINANCIAL FOLLOW UP REPORTS (FFRI& FFRII): Every quarterly and half quarterly intervals, the firm submits Financial Follow Up Reports I and II. FFR I is an extract of the balance sheet. In this report, the Company is required to submit the details of sales, current assets and current Liabilities for the quarter and the estimates for the current year. FFR II – the Company is required to prepare P&L, B/S and Cash Flow in a different format. The Information is to be provided for the last year (actual), current year half yearly Results (actual) and the estimates for the next year. SHORT TERM FINANCING Other than the investment in current assets, the firm also has to be concerned with Short-term to long-term debt as this plays a very important role in determining the Amount of risk undertaken by the firm. That is, the firm not only has to be Concerned about current assets but also the sources through which they are Financed. A firm before financing in either of the two, has to take into Consideration various aspects. While short term might seem the ideal way to Finance your assets than the long term due to shorter maturity period and also less Of costs are involved, there is an inherent risk in short term financing due to Fluctuating interest rates and due to the reason that the firm might be unable to repay The amount in a shorter span of time. SECURED LOANS SHORT TERM LONG TERM TOTAL %SHORT TERM

2006 2005 3849 4991.28 0 530.07 3849 5521.35 100 90.4

2004 6903.7 0 6903. 100

2003 4987.52 3461.36 8448.88 59.03

Under secured loan cash credit, along with non-fund based facilities, foreign Currency term loan from banks are secured by way of hypothecation of stock-intrude, Book debts as first charge and by way of second change on all the Immovable and movable assets of the parent company. Term loan in Indian rupees From a bank is subject to a prior charge in favor of company’s bankers on book Debts and stock in trade for working capital facilities. UNSECURED LOANS SHORT TERM LONG TERM TOTAL % SHORT TERM

2006 15104 11 15115 99.93

2005 2593.39 17 2610.39 99.348

2004 63.94 169.51 233.45 27.38

2003 76.84 3261.42 3338.26 2.3

Here HCL has a major portion of their financing done through short term financing Than long term financing. The preference of short term financing to long term as Such is not the part of any policy employed by the firm but it was due to the reason That the interest rates in short term were more investor friendly and the cost Involved in them were also low. At present, we can see that the firm is moving More towards long term financing as the interest terms in the long term has

Reduced compared to the short term. YEAR- END COMMERCIAL PAPERS PARTICULARS 2006 2005 2004 COMMERCIAL PAPERS 4000 2500 ---

2003 3000

The credit rating by ICRA continued at ‘A1+’indicating highest safety to Company’s commercial paper program of Rest. 75 Crores. It acts as an effective tool In reducing the interest cost and is used for financing inventories and other Receivables. As and when the firm issues commercial papers, it sends a letter to the Leader of the consortium, i.e., SBI to reduce from the fund based limits the amount It has issued in the form of the commercial papers. Suppose the firm issues 30 Crores as commercial papers and the fund based limits are say 115 Crores. Then Firm sends a letter to SBI to reduce the existing fund based limits from 115 to 85 Crores. In terms of desirability, the commercial papers are cheaper and advantageous to The firm compared to the consortium financing. The main advantage being the Interest rate which is lower than the bank rates existing under consortium Financing. But the firm depends on both and for working capital financing, it is Dependent on the banks for funds such as working capital demand loans and cash Credits. There is no point in the firm not making use of the fund based limits in the Consortium banking as their commercial papers are restricted to 75 Crores. MERITS OF COMMERCIAL PAPERS: · It is an alternative source of raising short-term finance, and proves to be Handy during periods of tight bank credit. · It is a cheaper source of finance in comparison to the bank credit. DEMERITS OF COMMERCIAL PAPERS: · It is an impersonal method of financing. · It is always available to the financially sound and highest rated companies. · The amount of loanable funds available in the commercial paper market is Limited to the amount of excess liquidity of the various purchasers of Commercial paper. ANALYSIS INDUSTRY ANALYSIS INDUSTRY STRUCTURE AND DEVELOPMENTS Industry analysis >Financial graphs >Concluding analysis >Suggestions and recommendations >Bibliography

Over the past decade, the Information Technology (IT) industry Has become one of the fastest growing industries in India, Propelled by exports (the industry accounted for more than a Quarter of India’s services exports in 2004-05). The key segments That have contributed significantly (96 percent of total) to the Industry’s exports include – Software and services (IT services) And IT enabled services (ITES) i.e. business services. Over a Period of time, India has established itself As a preferred global sourcing base in these segments and they Are expected to continue to fuel growth in the future

FINANCIAL GRAPHS · Gross Business Income: Consolidated Revenue for the year grew to Rest. 11855 crores. Services Revenue grew by 31%, from Rest. 274 crores to Rest. 360 crores in the current Year. The Compounded Annual Growth Rate (CAGR) for the preceding five

Years is 45%. · Profit before Tax: PBT grew by 11% from, Rest. 385 crores in the previous year to Rest. 429 Crores in the current year. The Compounded Annual Growth Rate (CAGR For the preceding five years is 53%. · Profit after Tax: Profit after tax grew by 13%, from Rest. 280 crores in the previous year to Rest. 316 crores. The Compounded Annual Growth Rate (CAGR) for the Preceding five years is 36%. Profits for the current year are after a provision ForRs.106 crores for current tax expense, Rest. 3 crores for deferred tax Expense and Rest. 4 crores for Fringe Benefit Tax. · Earnings per Share: Basic EPS grew from Rest. 16.7 In the previous year to Rest. 18.7 in the current Year. Diluted EPS grew from Rest. 16.5 In the previous year to Rest. 18.6 In the Current year.

· Dividend: The Company distributed dividends @ 100% per share in each of the first Three quarters of the current year. The company proposes to pay a final Dividend of 100% per fully paid up equity share of Rest. 2/- each. The interim Dividends paid together with proposed final dividend total to 400% for the Current year, entailing an outflow of Rest. 156 crores, including distribution Tax.

· Net worth/ Shareholders Fund: Net Worth grew from Rest. 698 crores as at previous year-end to Rest. 860 Crores as on June 30, 2007. Share capital as at year-end is Rest. 34 crores Divided into 16.9 crores shares of

Rest. 2/- each. Reserves & surplus as at Year-end are Rest. 826 crores after appropriating Rest 156 crores for dividends. Book value per share grew from Rest. 41.3 As at June 30, 2006 to Rs.50.8 as at June 30, 2007. During the year, the Company allotted 4.2 lakh shares under Employee Stock Option Scheme realizing Rest. 4.4 crores.

· Borrowings: Year-end loan balances increased from Rest. 85 crores as on June 30, 2006 to Rest. 236 crores as on June 30, 2007. The increase in loan Balances was mainly to fund growth in Computing Business including System Integration. Debt-Equity ratio [Debt/ (Debt Equity)] is 22%. · CURRENT ASSET RATIO:

CONCLUDING ANAYSIS · The working capital position of the company is sound and the various Sources through which it is funded are optimal. · The company has used its dividend policy, purchasing, financing and Investment decisions to good effect can be seen from the inferences made Earlier in the project.

· The debts doubtful have been doubled over the years but their percentage on The debts has almost become half. This implies a sales and collection policy That get along with the receivables management of the firm. · The returns have been affected by a marked growth in working capital and Though a 29.75% in 2006 return on investment is good, but it got reduced as Compared to 39.01% return in 2005. · The various ratios calculated are an indicator as to the fact that the Profitability of the firm and sales are on a rise and also the deletion of the Inefficiencies in the working capital management.

SUGGESTIONS AND RECOMMENDATIONS The management of working capital plays a vital role in running of a successful Business. So, things should go with a proper understanding for managing cash, Receivables and inventory. HCL Info systems is managing its working capital in a good manner, but still There is some scope for improvement in its management. This can help the Company in raising its profit level by making less investment in accounts Receivables and stocks etc. This will ultimately improve the efficiency of its Operations. Following are few recommendations given to the company in Achieving its desired objectives: · The business runs successfully with adequate amount of the working Capital but the company should see to it that the cash should not be tied up In excessive amount of working capital. · Though the present collection system is near perfect, the company as due To the increasing sales should adopt more effective measures so as to Counter the threat of bad debts. · The over purchasing function should be avoided as it could lead to Liquidity problems.

· The investment of cash in marketable securities should be increased, as it Is very profitable for the company. · Holding of excessive and insufficient stock must be avoided as it creates a Burden on the cash resources of a business and results in lost sales, delays For customers, etc. respectively.

BIBLIOGRAPHY Following sources have been sought for the preparation of this report: · Corporate Intranet · Financial Statements (Annual Reports) · Direct interaction with the employees of the company · Internet ----www.hclinfosystems.in · Textbooks on financial management I .M .Pandey Khan and Jain Prasanna Chandra

APPENDICES

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD. Last 4 year Balance Sheet: Although debt as a percent of total capital increased at HCL Info systems Ltd. over The last fiscal year to 21.53%, it is still in-line with the IT Services industry's norm. Additionally, even though there are not enough liquid assets to satisfy current Obligations, Operating Profits are more than adequate to service the debt. Accounts Receivable are among the industry's worst with 28.44 days’ worth of sales Outstanding. This implies that revenues are not being collected in an efficient Manner. Last, inventories seem to be well managed as the Inventory Processing Period is typical for the industry, at 21.29 days.

Currency in Millions of Indian Rupees

Assets

As of:

Jun 30 2004

Jun 30 2005

Jun 30 2006 Reclassifie Restated Restated d

Jun 30 2007

Cash and Equivalents

1,452.3 2,512.7

2,149.2

1,976.5

114.8 1,573.6

3,137.7

2,939.9

TOTAL CASH AND SHORT TERM INVESTMENTS

1,567.1 4,086.3

5,286.9

4,916.4

Accounts Receivable

4,390.4 6,103.1

7,691.4 10,520.0

Short-Term Investments

Other Receivables

228.2

400.5

468.1

593.4

TOTAL RECEIVABLES

4,618.7 6,503.6

8,159.5 11,113.4

Inventory

2,804.2 3,493.9

4,696.1

7,918.8

Prepaid Expenses Other Current Assets

107.0

163.0

146.0

287.8

23.8

56.4

86.8

84.8

TOTAL CURRENT ASSETS

9,120.8 14,303.2

Gross Property Plant and Equipment

1,406.1 1,404.7

Accumulated Depreciation NET PROPERTY PLANT AND EQUIPMENT Goodwill Long-Term Investments Deferred Tax Assets, Long Term

18,375.3 24,321.2 1,731.9

2,431.0

-749.1

-744.9

-852.4

-966.5

657.0

659.8

879.5

1,464.5

--

--

0.2

0.8

2,190.9

--

--

--

59.1

--

--

--

Other Intangibles

--

95.3

32.4

30.9

Other Long-Term Assets

--

5.1

71.8

16.0

TOTAL ASSETS

12,027.9 15,063.4

19,359.2 25,833.4

LIABILITIES & EQUITY Accounts Payable Accrued Expenses Short-Term Borrowings Current Portion of Long-Term Debt/Capital Lease Current Income Taxes Payable Other Current Liabilities, Total Unearned Revenue, Current TOTAL CURRENT LIABILITIES Long-Term Debt Deferred Tax Liability Non-Current Other Non-Current Liabilities TOTAL LIABILITIES

3,390.6 4,100.9

5,964.8 8,298.5

100.4

101.0

140.4

209.8

--

307.9

784.9

1,182.4

690.4

499.6

0.4

892.5

30.1

80.9

77.4

252.8

2,914.6 3,377.3

4,687.9

5,216.6

557.9

775.2

536.4

965.8

7,662.6 9,433.4

12,213.7 16,827.8

15.8

7.2

60.1

284.0

109.0

73.5

107.6

124.8

13.9

3.8

1.0

--

7,801.3 9,517.9

12,382.4 17,236.6

Common Stock

328.9

334.4

337.5

338.3

Additional Paid in Capital

673.9

883.7

1,044.5

1,087.9

3,193.2 4,297.3

5,565.2

7,141.4

30.1

29.6

29.2

TOTAL COMMON EQUITY

4,226.6 5,545.5

6,976.8

8,596.8

TOTAL EQUITY

4,226.6 5,545.5

6,976.8

8,596.8

TOTAL LIABILITIES AND EQUITY

12,027.9 15,063.4

19,359.2 25,833.4

Retained Earnings Comprehensive Income and Other

30.6

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD. Last 4 year Cash Flow Statement: In 2007, cash reserves at HCL Info systems Ltd. fell by 172.7M. However, as a percent of revenues, this change was similar to the IT Services industry median. By looking at the Cash Flow Statement, analysts can easily see the sources and use of cash generated throughout the year.

Currency in Millions of Indian Rupees

NET INCOME Depreciation & Amortization Amortization of Goodwill and Intangible Assets

As of: Jun 30 2004

Jun 30 Jun 30 2005 2006 Restate Reclassifie Restated d d 1,751.1 2,277.0

Jun 30 2007

2,803.6 3,159.5

180.1

152.4

124.3

144.0

--

--

--

4.1

DEPRECIATION & AMORTIZATION, TOTAL (Gain) Loss from Sale of Asset (Gain) Loss on Sale of Investment Asset Write-down & Restructuring Costs Other Operating Activities Provision & Write-off of Bad Debts Change in Accounts Receivable

180.1

152.4

124.3

148.1

-0.4

-1.6

0.5

0.6

-79.6

-84.9

-61.5

-55.2

0.0

0.5

--

--

292.8

31.2

79.6

271.8

14.8

14.4

7.2

9.2

-1,593.4 -1,993.4

-1,724.7 -3,158.8

-423.3 -689.7

-1,202.2 -3,222.7

Change in Accounts Payable

1,471.8 1,561.6

2,759.5 3,112.2

CASH FROM OPERATIONS

1,614.0 1,267.5

2,786.3

264.7

-180.7 -267.8

-424.3

-674.5

Change in Inventories

Capital Expenditure Sale of Property, Plant, and Equipment

3.5

10.7

80.3

1.6

Investments in Marketable & Equity Securities

73.7

841.4

-1,453.6

289.0

CASH FROM INVESTING

30.8

622.4

-1,683.3

-231.9

Short-Term Debt Issued

41.1

169.5

--

--

Long-Term Debt Issued

200.8

231.3

200.5 1,837.2

TOTAL DEBT ISSUED

241.9

400.8

--

--

-172.3

-74.7

Long Term Debt Repaid

-707.9 -302.7

--

-250.0

TOTAL DEBT REPAID

-707.9 -302.7

-172.3

-324.7

163.9

44.2

Short Term Debt Repaid

Issuance of Common Stock

283.3

215.2

Common Dividends Paid

-866.2 -1,047.4

TOTAL DIVIDEND PAID 1,546.1

-866.2 -1,047.4

Other Financing Activities CASH FROM FINANCING NET CHANGE IN CASH

-98.9

200.5 1,837.2

-1,526.6 -1,546.1

-1,526.6 -

-95.4

-132.0

-216.1

-1,147.8 -829.5

-1,466.5

-205.5

497.1 1,060.4

-363.5

-172.7

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD. Last 4 year Income Statement: Year over year, HCL Info systems Ltd. has seen revenues remain relatively flat (113.7B to 116.9B), though the company was able to grow net income from 2.8B to 3.2B. A reduction in the percentage of sales devoted to cost of goods sold from 93.21% to 92.53% was a key component in the bottom line growth in the face of flat revenues.

Currency in Millions of Indian Rupees

As of:

Revenues Other Revenues

Jun 30 Jun 30 Jun 30 2004 2005 2006 Restate Reclassifie d Restated d

Jun 30 2007

43,064.477,478.9 113,683.1 116,853.0 --

-35.7

61.6

63.8

TOTAL REVENUES

43,064.477,443.2 113,744.7 116,916.8

Cost of Goods Sold

38,701.371,496.1 105,964.4 108,121.4

GROSS PROFIT

4,363.1 5,947.1

7,780.3

8,795.4

Selling General & Admin Expenses, Total

2,268.8 3,305.9

3,764.3

4,527.1

Depreciation & Amortization, Total

180.6

152.4

124.3

148.1

--

-84.0

84.8

91.2

OTHER OPERATING EXPENSES, TOTAL

2,449.4 3,374.3

3,973.4

4,766.4

OPERATING INCOME

1,913.7 2,572.8

3,806.9

4,029.0

Other Operating Expenses

Interest Expense

-82.8

-77.6

-132.6

-214.6 223.8

Interest and Investment Income

132.1

146.1

208.0

NET INTEREST EXPENSE

49.4

68.5

75.4

9.2

Currency Exchange Gains (Loss)

37.9

145.0

-144.4

189.6

Other Non-Operating Income (Expenses)

32.0

--

--

--

2,033.0 2,786.3

3,737.9

4,227.8

EBT, EXCLUDING UNUSUAL ITEMS Gain (Loss) on Sale of Investments

79.6

85.0

61.5

55.2

Gain (Loss) on Sale of Assets

0.4

1.6

-0.5

-0.6

Other Unusual Items, Total

2.3

87.2

4.0

4.7

Insurance Settlements

2.3

3.7

4.0

4.7

Other Unusual Items

--

84.0

--

--

2,115.1 2,960.1

3,802.9

4,287.1

683.1

999.3

1,127.6

Earnings from Continuing Operations

1,751.1 2,277.0

2,803.6

3,159.5

NET INCOME

1,751.1 2,277.0

2,803.6

3,159.5

NET INCOME TO COMMON INCLUDING EXTRA ITEMS

1,751.1 2,277.0

2,803.6

3,159.5

EBT, INCLUDING UNUSUAL ITEMS Income Tax Expense

364.0

NET INCOME TO COMMON EXCLUDING EXTRA ITEMS

1,751.1 2,277.0

2,803.6

3,159.5