Industry And Company Analysis

CHAPTER-1

INDUSTRY AND COMPANY ANALYSIS ➢ Refractory Industry ➢ Present Scenario of Industry ➢ Refractory industry related to CHINA ➢ Tata Refractories Limited

1

Refractory Industry

Refractory is a term given to a class of materials which are produced from nonmetallic minerals and possess capability to withstand heat and pressure. These are products that confer properties like high temperature insulation, resistance to corrosive and erosive action of hot gases, liquids and solids at high temperatures in various kilns and furnaces. The production of refractories started in India in the form of fire clay bricks in 1874. Today, a wide variety of refractory products are manufactured tailor made to suit the requirements of the application in various sectors which include iron and steel, cement, glass, non-ferrous metal, petrochemical, fertilizer, thermal power plants etc. The fortunes of the refractory industry are linked to the growth of iron and steel sector which consumes a mammoth 75% of the refractories produced. Sector wise consumption of the refractories in India is shown below in the pie chart. The specific refractory consumption is about 27 Kg/T in steel industry, 1.7 Kg/T in Cement and 55 Kg/T in glass industry. These sectors are giving high thrust on productivity, quality, cost, energy conservation and cleaner environment which necessitates new generation of refractories with specific requirements

Source: Status & Outlook of India Refractory Industry, B. V. Raja

Raw materials used in the production of basic Refractories are magnesites, dolomite, chrome ore, spinel and carbon. Basic Refractory bricks such as Magnesia-chrome and Magnesiaspinel are made up of synthetic magnesia clinker or dead burned natural magnesite; that forms spinel during firing of the brick.

Present Scenario of Industry Being fully reliant on end user industries including steel and aluminum, the Indian refractory industry is currently encompassing the downward cycle. Although this has not affected the growth rate of the industry at all, yet it is a matter of great concern. The global economic 2

slowdown has affected the local manufacturing sectors badly with demand from auto, aviation and railways remains stagnant since the blip of meltdown felt about 12 months ago. Being immune to the global industrial development, India's refractory industry has witnessed a dramatic squeeze in margins amidst poor demand from end users and raising raw material prices. Sudden fall in demand has also caused huge inventory pile ups thereby pressurizing manufacturers to clean up stockpiles at the price decided by the end users. The Indian refractory manufacturers are squeezed between the raw material suppliers and steel makers. The negotiating power of refractories makers is very poor, mainly due to its size, as it is catering to an industry far bigger in size, primarily steel. Raw material prices are on fire. But unlike steel makers, it is difficult for refractory manufacturers to pass on the burden of increasing raw material prices. Even for them, who operate in high end technology segments, the real price rise of the end products in the last two years has been actually negative. Margins are under severe pressure. Fresh steel production capacity to the tune of 4.8 million tons will come on stream in 2009-10 taking the total finished steel capacity for the industry to around 70 million tons. In view of this, finished steel production is expected to grow by 6.5 percent in 2009-10. The government's emphasis on infrastructure spending in order to stimulate economic growth is expected to keep demand for long products healthy. Real estate construction activity would pick up gradually in the second half of 200910 due to low interest rates and fall in property rates and hence the demand of steel and its backward integration products. Such projects may provide stimulus for refractory companies also. According to available reports, installed production capacity as on December 2006 was roughly around 20 lakh tons per annum. Conservatives estimate that it went up by around 5 to 10 percent in 2007 and remained stagnant in 2008. Similarly, the production capacity that stood at 10 lakh tons per annum is estimated to have grown by at least 10 percent in 2007. But it is expected that by 2010, along with the increase in steel production in the country, the demand for refractories will touch 12 lakh tons per annum. Industry experts, however, draw a different picture. Items, which are enjoying good demand, do not have excess capacity. Makers of these refractories are operating currently at 80 percent capacity utilization. But, apprehensions are that there would be a shortage in the market once the expansions plans by Indian steel producers start rolling at the expected pace.

Refractory industry related to CHINA 3

The refractory industry is small and fragmented, but is very important. The industry is fragmented with more than 150 players. Out of the lot, there are around 15 to 16 major players while the remaining are smaller ones. On the other hand, there are only a few big customers. This has provided a major bargaining power to the consumers. At the same time, severe competition within the country as well with global players, mainly the Chinese manufacturers, have forced the Indian players to operate on thin margins. But consolidation may not be a solution in the Indian refractory industry, feel experts. Taking all factors into consideration, it will be very interesting to watch the way this industry moves. However, all these hurdles have not slowed the industry's progress. Apart from steel, demand is rising from sponge iron and cement units too, which has resulted in a sales growth of around 7 percent this year. The industry had recorded a turnover of Rs 3,000 crores in 2007-08, against Rs 2,370 crores in the last fiscal. Production stood at 1.3 million tons in 2007-08, against 1.08 mt in 2006-07, up around 17 percent. Growth in sales was driven by growing demand from sectors like steel, cement, aluminum, spongeironand others. Exports during 2007-08 were at Rs 452 crores, up from Rs 314 crores in the previous fiscal. However, imports stood at a staggering high of Rs 818 crores, which industry experts found promising. A majority of these imports in 2007-08 came from China which could pose a threat for the indigenous refractory industry. China has an advantage over India in terms of raw material availability. China had certain good quality raw materials as well. According to informed sources, in the last 10 to 12 years, the Indian refractory industry has been "considerably dependent" on imports from China for critical raw materials, such as brown fused alumina. The Indian refractory industry requires about 50,000 tons a year of brown fused alumina. Most of this is imported from China, as India does not produce sufficient quantities of equivalent quality. Sources said that over the last three-four years China has progressively introduced measures that discourage refractory exports. These include licensing, quantitative restrictions, export duties and withdrawal of export benefits. The next five years can be clearly divided into two phases. During the next three years, steel output is likely to grow at an annual rate of 9 to 10 percent. But there would be a There is significant change after that, from 2011-12 onwards. Then the Indian steel industry might see a high double digit growth in the Indian steel sector. Market dynamics would surely change for the refractory makers as well. Refractory makers are setting up new plants and are augmenting production capacities. Steel makers, on the other hand, are not being able to go ahead with their expansion plans. This might lead to significant mismatch. It will create some problem for the brick (a have type of refractory) makers, as ordered been placed but steel makers are not picking up the goods.

4

Tata Refractories Limited Introduction: Tata Refractories Limited (TRL) was set up in 1958 by Tata Steel at Belpahar in Orissa, an eastern state of India. TRL has today grown in to the leading Refractories manufacturer in India meeting the demands of sophisticated refractories for the steel, glass, non- ferrous and petro- chemical Industries both in India and abroad. TRL today, is the largest refractories maker in India. It has pioneered refractories making in the country and is the number one refractories company in India with around 22% of the market share. With an annual capacity of 245,600 MT the company has also equity participation from SAIL, the largest public sector steel producer of India. Its main Works is strategically located at Belpahar in the district of Jharsuguda in the state of Orissa which is nearer to major steel plants and some raw material sources. TRL has a DBM Plant and operations in Salem (Tamil Nadu), operations in Jamshedpur, and captive mines in Chhuinpalli and Talabasta in Orissa. A new green field plant has been setup in China to manufacture Magnetite based bricks. Also a new operation has come up in Gujarat to manufacture High Alumina Castables and Bauxite based bricks.

This is the story of a 50 year old Company with a record of uninterrupted profitability turning sick for a variety of reasons and thereafter “turning around” through a series of innovative and entrepreneurial initiatives. It should be a lesson for all organizations who either tend to get complacent because of continued success or become technologically obsolescent in an environment of fast changing business scenarios or both.

About The Tata Group: Tata Refractories Limited is the part of TATA Group of Companies which is largest and most respected business groups company in world. Jamsetji Nusserwanji Tata laid the foundations of Tata Group when he started a private trading firm in 1868. In 1874, he set up the Central India Spinning Weaving and Manufacturing Company Limited and thus marked the Group's entry into textiles. In 1887, Jamsetji Tata formed a partnership firm, Tata & Sons, with his elder son Sir Dorabji Tata and his cousin Ratanji Dadabhoy Tata.1896. In 1902, the Indian Hotels Company was incorporated to set up the Taj Mahal Palace and Tower, India's first luxury hotel, which opened in 1903. The Tata Iron and Steel Company (now known as Tata Steel) were established to set up India's first iron and steel plant in Jamshedpur. The plant started production in 1912. In 1910, 5

Tata Hydro-Electric Power Supply Company, (now Tata Power) was set up. In 1917, Tata Oil Mills Company was established to make soaps, detergents and cooking oils.

In 1932, Tata entered aviation sector with the establishment of Tata Airlines. In 1939, Tata Chemicals, presently, the largest producer of soda ash in India, was established. In 1945, Tata Engineering and Locomotive Company (renamed Tata Motors in 2003) was established to manufacture locomotive and engineering products. In 1954, India's major marketing, engineering and manufacturing organization, Volta’s, was established In 1962, Tata Finley (now Tata Tea), one of the largest tea producers, was established. In 1968, Tata Consultancy Services (TCS), India's first software services company, was established as a division of Tata Sons. In 1970, Tata McGraw-Hill Publishing Company was created to publish educational and technical books. In 1984, Titan Industries, a joint venture between the Tata Group and the Tamil Nadu Industrial Development Corporation (TIDCO), was set up to manufacture watches. In 1996, Tata Teleservices (TTSL) was established to lead the Group's foray into the telecom sector. In 1998, Tata Motors launched Tata Indicia, India’s first indigenously designed and manufactured car. In 2000, Tata Tea acquired the Tetley Group, UK. This was the first major acquisition of an international brand by an Indian business group. In 2001, Tata entered into insurance business in joint venture with Tata AIG. In 2007, Tata Steel acquired Corus the fifth largest steel company in the world

Some Group of Companies of Tata: ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢

Tata Steel Tata Motors Tata Consultancy Tata Powers Tata Communication Tata Chemicals Tata Tea Tata Teleservices Tata Auto comp Systems Voltas India Hotels ➢ Titan

~ 100 Operating Company Group as a pioneer of Tata: ➢ ➢ ➢ ➢

India’s first indigenous steel mill. India’s first power utility. India’s first hotel chain. India’s largest salt work. 6

➢ India’s first international airline. ➢ India’s first fully indigenous passenger car. ➢ India’s first software venture.

TRL is the first Refractories Company and also one among very few companies in India to have successfully implemented Integrated Management System in 2006 after adopting Quality Management System (QMS) (Current Standard ISO 9001: 2000) during the year 1994-95

It major client are integrated mini & other steel plant & various non-ferrous, Glass, petro chemical & fertilizer industries. TATA REFRACOTRIES LTD also extends technical services to its customers 7 helps in designing & application of refectories.

Product Mix of TRL: ➢ Basic Bricks: ➢ High Alumina Bricks ➢ Silica Bricks ➢ Dolomite Bricks ➢ Monolithic Refractories ➢ Flow Control Products

Every Company has its Mission, Vision and Value, TRL also has its mission vision and values which is shows how TRL different from other company. Here are the mission, vision and value of TRL. VISION A Global Refractories Company. MISSION TATA Refractories shall be a high performance and technology driven organization committed to create value for all its stakeholders.

VALUES •

Customer delight 7

• • • •

Leadership by example Integrity and transparency Fairness Furthering excellence

MAJOR COLLABORATIONS: 1. KROAKI (JAPAN) • • •

MCG BRICKS BASIC MONOLITHIS SLIDE PLATES

2. DOLOMITWERKE (GERMANY) ➢ DOLOMITE REFACTORIES 3. STOPINI (SWITZERLAND) ➢ L.S.SYSTEAM FOR SLIDEGATE 4. MONOCON (U.K.) BASIC SPARYING MASS ➢ 5. LICHTENBERG (GERMANY) COKE OVEN REPAIR MATERIALS ➢ 6. A.P. GREEN (USA) ➢

CASTABLES

SERVICES ➢ Total refractories solution for equipment for making steel, copper, aluminum, glass etc. ➢ Total refractories management i.e. providing running maintainces of customers’ equipment such as ladles, kilns, Furnaces etc.

COMPETITORS OF TRL: 8

As other fields have competitions, the Refractories market also has a competition.     

Orissa Cement Bharat Refractories ACC Cement IFGL Refractories Vishuvyas Refractories

HISTORY OF TATA REFRACOTRIES LTD 1958: Promoted jointly by Tata Steel and Didier-Werke of Germany. 1959: Production of Basic, HA and Silica Refractories. 1971: R & D facility established. 1986: Re-christened as “Tata Refractories Ltd”. 1993: Established leading market position. 1994: Commissioned 30,000 MTPA Dolomite Plant. 1999: ISO 9002 certification for the whole Plant. 2003: Fortune 500 Programme for making ‘Young TRL’. 2004: TBEM Serious Adoption Award. 2005: TBEM Active Promotion Award. 2006: Integrated Management System certification. 2007: Moved up to 550-650 band in TBEM. 2008: Mission 2000 Programme Moving fast in TBEM Journey.

AWARDS: ➢ CAPEXIL award for export for consecutive last 12 yrs ➢ State safety award for best occupational health care company in 95-96, 96-97,99-00 ➢ 1996 : ISO 9001 certification for total product range ➢ 2002: Golden peacock award for best EMS ➢ 2002: PCRA award for fuel conservation 9

➢ 2006: Green Tech silver award for environment management ➢ 2006: IMS certification/ Golden Peacock Innovation award ➢ 2007: Golden peacock award for innovation ➢ 2007: Tata Group Innovation Award (among Top-3in Promising Innovation Category) ➢ 2009: TERI Corporate Social Responsibility Award

CHAPTER-2

Working Capital Management ➢ ➢

➢ ➢

Introduction Working Capital Cycle of TRL Norms of Working Capital Interpretation

10

Working Capital Management Every business needs investment to procure fixed assets, which remain in use for a longer period. Money invested in these assets is called ‘Long term Funds’ or ‘Fixed Capital’. Business also needs funds for short-term purposes to finance current Operations. Investment in short term assets like cash, inventories, debtors etc., is called ‘Short-term Funds’ or ‘Working Capital’. The ‘Working Capital’ can be categorized, as funds needed for carrying out day-to-day operations of the Business smoothly. The management of the working capital is equally important as the management of long-term financial investment. Every running business needs working capital. Even a business which is fully equipped with all types of fixed assets required is bound to collapse without: (i) (ii) (iii) (iv)

Adequate supply of raw materials for processing; Cash to pay for wages, power and other costs; Creating a stock of finished goods to feed the market demand regularly The ability to grant credit to its customers.

All these require working capital. Working capital is thus like the lifeblood of a business. The business will not be able to carry on day-to-day activities without the availability of adequate working capital. Working capital cycle involves conversions and rotation of various constituents components of the working capital. Initially ‘cash’ is converted into raw materials. Subsequently, with the usage of fixed assets resulting in value additions, the raw materials get converted into work-in- progress and then into finished goods. When sold on credit, the finished 11

goods assume the form of debtors who give the business cash on due date. Thus ‘cash’ assumes its original form again at the end of one such working capital cycle but in the course it passes through various other forms of current assets too. This is how various components of current assets keep on changing their forms due to value addition. As a they rotate and business operations continue. Thus, the working capital cycle involves rotation of various constituents of the working capital Working Capital Management is concerned with current assets current liability and their relationship to the firm. Working Capital policies affects the future returns and risk of the company; consequently they have an bearing ultimate bearing on shareholder wealth. Generally Working Capital Divided into two parts: (i) Gross Working Capital (ii) Net Working Capital (i) Gross Working Capital: Gross Working Capital refers to the firm’s investment in current assets. Current assets are the assets which can be converted in to cash within an accounting year and include cash, short term securities, debtors, and stocks. (ii) Net Working Capital: Net Working Capital refers to the difference between current assets and

current liabilities. Current liabilities those claims of outsiders which are expected to matured for payment within an accounting year and include creditor, bills payables, and outstanding expanses. Net working capital can be positive or negative. A positive net working capital will arise when current assets exceeds current liabilities. Negative net working capital occurs when current liabilities are in excess of current assets.

Net Working Capital=Current Asset – Current Liability The Table below shows the Gross Working Capital and Net Working Capital of TRL from the year 2005 to 2008: TABLE-1 A GALANCE AT TRL'S NET WORKING CAPITAL Current Assets

As on 31.03.2008

As on 31.03.2007

As on 31.03.2006

As on 31.03.2005

a) Stores and Spare Parts (at cost)

8,53,67,154

6,40,02,684

4,35,67,566

4,46,55,042

18,22,760

11,64,815

10,77,258

11,69,508

c) Stock-in Trade

85,13,94,581

58,61,30,368

63,21,91,956

63,65,90,022

d) Sundry Debtors

109,44,61,154

103,75,57,010

78,13,27,686

66,67,41,534

6,47,80,695

3,42,38,276

3,47,76,842

9,27,98,670

b) Loose Tools

e) Cash and Bank Balances

12

Total Current Assets

2,097,826,344

1,723,093,153 1,492,941,308

1,441,954,77 6

Current liabilities a) Acceptances

6,17,43,902

64,82,700

96,25,532

8,41,65,532

b) Sundry Creditors

66,84,41,252

64,36,62,467

62,39,47,395

56,61,04,791

c) Advances received from customers

10,83,12,593

14,96,82,413

2,82,85,001

10,92,81,991

1,86,88,757

89,06,511

72,91,624

27,30,208

3,31,894

10,64,452

11,02,460

12,95,679

85,75,18,398

80,97,98,543

67,02,52,012

76,35,78,201

822,689,296

678,376,575

d) Interest accrued but not due e) Other Liabilities Total Current Liabilities NET WORKING CAPITAL

1,240,307,946

913,294,610

CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL

➢ Growth may be stunted. It may become difficult for the enterprise to undertake profitable projects due to non-availability of working capital. ➢ Implementation of operating plans may become difficult and consequently the profit goals may not be achieved. ➢ Cash crisis may emerge due to paucity of working funds. ➢ Optimum capacity utilization of fixed assets may not be achieved due to non-availability of the working capital. ➢ The business may fail to honor its commitment in time, thereby adversely affecting its credibility. This situation may lead to business closure. ➢ The business may be compelled to buy raw materials on credit and sell finished goods on cash. In the process it may end up with increasing cost of purchases and reducing selling prices by offering discounts. Both these situations would affect profitability adversely. ➢ Non-availability of stocks due to non-availability of funds may result in production stoppage. ➢ While underassessment of working capital has disastrous implications on business, over assessment of working capital also has its own dangers. CONSEQUENCES OF OVER ASSESSMENT OF WORKING CAPITAL ➢ Excess of working capital may result in unnecessary accumulation of inventories. ➢ It may lead to offer too liberal credit terms to buyers and very poor recovery system and cash management. ➢ It may make management complacent leading to its inefficiency. ➢ Over-investment in working capital makes capital less productive and may reduce return on investment.

13

Working capital is very essential for success of a business and, therefore, needs efficient management and control. Each of the components of the working capital needs proper management to optimize profit.

Component of Working Capital: Component of Working Capital

Basis of Valuation

Stock of raw material

Purchase cost of raw materials

Stock of work in process

At cost or market value, whichever is lower

Stock of finished goods

Cost of production

Debtors

Cost of sales or sales value

Cash Working expenses

Working expenses

Factors requiring consideration while estimating working capital. ➢ The average credit period expected to be allowed by suppliers. ➢ Total costs incurred on material, wages. ➢ The length of time for which raw material are to remain in stores before they are issued for production. ➢ The length of the production cycle (or) work in process. ➢ The length of sales cycle during which finished goods are to be kept waiting for sales. ➢ The average period of credit allowed to customers ➢ The amount of cash required to make advance payment SIGNIFICANCE OF WORKING CAPITAL:

14

Working Capital Cycle of TRL Working capital cycle involves conversions and rotation of various constituents’ components of the working capital. Initially ‘cash’ is converted into raw materials. Subsequently, with the usage of fixed assets resulting in value additions, the raw materials get converted into work in process and then into finished goods. When sold on credit, the finished goods assume the form of debtors who give the business cash on due date. Thus ‘cash’ assumes its original form again at the end of one such working capital cycle but in the course it passes through various other forms of current assets too. This is how various components of current assets keep on changing their forms due to value addition. As a result, they rotate and business operations continue. Thus, the working capital cycle involves rotation of various constituents of the working capital.

15

Above is the working Capital Cycle Of the Tata Refractories Limited , which shows how cash converted into work-in-process after that finished goods and how debtors again converted into cash. The length of the operating cycle of TRL is the sum of inventory conversion period and debtor conversion period. The inventory conversion period is the total time taken for producing and selling the product. Typically it includes, raw material conversion period, work-in-progress conversion period, stores and spares conversions period, fuel conversion period, and finished goods conversion period. The debtor conversion period is the time required to collect the outstanding amount from the customer

Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. The operating cycle of TRL includes three phases: ➢Acquisition of resources, such as raw materials, labour, power, and fuel etc. ➢Manufacture of the product which includes conversion of raw material into work-in-progress in to finished goods. ➢Sale of the product either for cash or credit. A credit sale creates accounts receivable for collection 16

Importance of Working Capital Ratios Ratio analysis can be used by financial executives to check upon the efficiency with which working capital is being used in the enterprise. The following are the important ratios to measure the efficiency of working capital. The following, easily calculated, ratios are important measures of working capital utilization. Ratio StockTurnover (in days)

Formulae

Result

AverageStock* 365

= x days

/ Cost of Goods Sold

Interpretation On average, you turn over the value of your entire stock every x days. You may need to break this down into product groups for effective stock management. Obsolete stock, slow moving lines will extend overall stock turnover days. Faster production, fewer product lines, just in time ordering will reduce average days.

ReceivablesRatio (in days)

Debtors*365

= x days It takes you on average x days to collect monies due to you. If your official credit terms are 45 day and it takes you 65 days. One or more large or slow debts can drag out the average days. Effective debtor management will minimize the days.

PayablesRatio (in days)

Creditors * 365

Current Ratio

Total Current Assets

/ Sales

/ Cost of Sales Purchases)

/ Total Liabilities

= x days On average, you pay your suppliers every x days. If you negotiate better credit terms this will increase. If you pay earlier, say, to get a discount this will decline. If you simply (or defer paying your suppliers (without agreement) this will also increase - but your reputation, the quality of service and any flexibility provided by your suppliers may suffer.

= x times Current Assets are assets that you can readily turn in to cash or will do so within 12 months in the course of business. Current Liabilities are amount you are due to pay within the coming 12 Current months. For example, 1.5 times means that you should be able to lay your hands on $1.50 for every $1.00 you owe. Less than 1 times e.g. 0.75 means that you could have liquidity problems and be under pressure to generate sufficient cash to meet oncoming demands.

Working Capital Ratio (Inventory+ Receivables Payables)

As% Sales A high percentage means that working capital needs are high relative to your sales. -

/ Sales

TABLE-2 WORKING CAPITAL; AS ON 31.03.2008 ITEMS

AS PER NORM

NORMS

17

Rs. in Cr ACTUAL AS ON 31.03.2008

DIFF

RAW MATERAIL WORK IN PROGRESS STORES & SPARES FUEL FUEL

45DAYS OPF CONSMN 15DAYS COST OF PRODUCTION 120DAYS OF CONSUMPTION

FINISHED GOODS

15DAYS OF CONSUMPTION 30DAYS COST OF PRODUCTION PLUS E.D

OTHERS

ACTUAL

DEBTORS

70 DAYS OF SALES

TOTAL CURRENT ASSETS CREDITORS (OPERATION) OTHER CREDITORS & PROVISIONS Incl. not due within one year

45DAYS,COST OF PRODUCTION ACTUAL

TOTAL CURRENT LIABILITY NETWORKING CAPITAL

24.8 32 (45DAYS) (59DAYS) 20.03 13.47 (15DAYS) (11DAYS) 2.52 5.15 (120DAYS) (246DAYS) 2.41 3.56 (15DAYS) (23DAYS) 44.85 39.66 (30DAYS) (27DAYS)

-4.23 7.2 -6.56 2.63 1.15

46.59 113.67 (70DAYS)

46.59 109.44 (68DAYS)

-5.19

254.87 60.1

249.87 73.01

-5

(45DAYS)

(66DAYS)

12.91

25.29

25.29

0

85.39

98.3

12.91

0

169.48 151.57 17.91 (Source from Annual Report2007-2008)

TABLE-3

18

WORKING CAPITAL AS ON 31.03.2007 ITEMS

AS PER NORM

NORMS

RAW MATERAIL

30DAYS OPF CONSMN

WORK IN PROGRESS

15DAYS COST OF PRODUCTION

STORES & SPARES FUEL

90DAYS OF CONSUMPTION

FUEL

15DAYS OF CONSUMPTION

FINISHED GOODS

30DAYS COST OF PRODUCTION PLUS E.D

OTHERS

ACTUAL

DEBTORS AL CURRENT ASSETS CREDITORS (OPERATION) OTHER CREDITORS & PROVISIONS Incl.not due within one year

16.39 (30DAYS) 17.66 (15DAYS) 2.52 (90DAYS) 1.96 (15DAYS) 40.08 (30DAYS)

Rs. in Cr ACTUAL AS ON 31.03.2007 DIFF 19.02 (35DAYS) 2.63 14.06 (12DAYS) -3.6 3.82 (137DAYS) 1.3 2.68 (21DAYS) 0.72 25.52 (18DAYS) -14.56

60 DAYS OF SALES

37 86.12 (60DAYS)

37 103.75 (73DAYS)

45DAYS,COST OF PRODUCTION

201.73 52.98 (45DAYS)

205.85 65.01 (56DAYS)

12.03

17.69

17.69

0

70.67

82.7

12.03

ACTUAL

TOTAL CURRENT LIABILITY NETWORKING CAPITAL

0 17.63 4.12

131.06 123.15 -7.91 ( Source from Annual Report2006-

2007)

19

TABLE-4 WORKING CAPITAL; AS ON 31.03.2006 AS PER NORM

Rs. in Cr ACTUAL AS ON 31.03.200 6 DIFF 25.2 (51DAYS) 2.97 15.39 (16DAYS) 0.97 3.42 (66DAYS) -1.24 1.05 (10DAYS) -0.52 22.56 (24DAYS) -1.53

ITEMS

NORMS

RAW MATERAIL

FINISHED GOODS

35DAYS OPF CONSMN 15DAYS COST OF PRODUCTION 90DAYS OF CONSUMPTION 15DAYS OF CONSUMPTION 30DAYS COST OF PRODUCTION PLUS E.D

OTHERS

ACTUAL

DEBTORS

70 DAYS OF SALES

37 37 75.61 78.13 (60DAYS) (62DAYS)

TOTAL CURRENT ASSETS CREDITORS (OPERATION)

45DAYS,COST OF PRODUCTION

227.08 230.25 43.19 63.35 (45DAYS) (66DAYS)

WORK IN PROGRESS STORES & SPARES FUEL FUEL

OTHER CREDITORS & PROVISIONS Incl.not due within one year

ACTUAL

TOTAL CURRENT LIABILITY NETWORKING CAPITAL

22.3 (45DAYS) 14.42 (15DAYS) 4.66 (90DAYS) 1.57 (15DAYS) 24.09 (30DAYS)

0 2.52 3.17 -20.16

53.99

53.99

0

70.67

82.7

12.03

131.06

123.15

-7.91

(Source from Annual Report2005-2006)

20

TABLE-5 WORKING CAPITAL; AS ON 31.03.2005 ITEMS

NORMS

RAW MATERAIL

FINISHED GOODS

35DAYS OPF CONSMN 15DAYS COST OF PRODUCTION 90DAYS OF CONSUMPTION 15DAYS OF CONSUMPTION 30DAYS COST OF PRODUCTION PLUS E.D

OTHERS

ACTUAL

DEBTORS

WORK IN PROGRESS STORES & SPARES FUEL FUEL

AS PER NORM 19.48 (45DAYS) 9.75 (15DAYS) 4.4 (90DAYS) 1.13 (15DAYS) 24.09 (30DAYS)

Rs. in Cr ACTUAL AS ON 31.03.2005 DIFF 30.31 (70DAYS) 2.97 14.07 (18DAYS) 0.97 3.91 (80DAYS) -1.24 0.68 (9DAYS) -0.52 19.28 (24DAYS) -1.53

70 DAYS OF SALES

37 65.67 (60DAYS)

37 66.67 (61DAYS)

45DAYS,COST OF PRODUCTION

174.95 37.03 (45DAYS)

185.45 65.02 (79DAYS)

-27.99

44.34

44.34

0

TOTAL CURRENT LIABILITY

81.37

109.36

-27.99

NETWORKING CAPITAL

95.58

76.09

-17.49

TOTAL CURRENT ASSETS CREDITORS (OPERATION) OTHER CREDITORS & PROVISIONS Incl.not due within one year

ACTUAL

0 2.52 10.5

(Source from Annual Report20042005)

21

WORKING CAPITAL; AS ON 31.03.2004 AS PER NORM

ITEMS

NORMS

RAW MATERAIL

FINISHED GOODS

35DAYS OPF CONSMN 15DAYS COST OF PRODUCTION 90DAYS OF CONSUMPTION 15DAYS OF CONSUMPTION 30DAYS COST OF PRODUCTION PLUS E.D

OTHERS

ACTUAL

DEBTORS

WORK IN PROGRESS STORES & SPARES FUEL FUEL

12.19 (35DAYS) 9.75 (15DAYS) 4.26 (90DAYS) 1 (15DAYS) 22.62 (30DAYS)

Rs. in Cr ACTUAL AS ON 31.03.2004 DIFF 23.97 (68DAYS) 11.78 11.64 (18DAYS) 1.89 3.67 (78DAYS) -0.59 0.92 (14DAYS) -0.08 20.42 (27DAYS) -2.2

70 DAYS OF SALES

25.01 60.25 (70DAYS)

25.01 49.82 (58DAYS)

45DAYS,COST OF PRODUCTION

135.08 29.25 (45DAYS)

135.45 40.61 (62DAYS)

-11.36

30.44

30.44

0

TOTAL CURRENT LIABILITY

59.69

71.05

-11.36

NETWORKING CAPITAL

75.39

64.4

-10.99

TOTAL CURRENT ASSETS CREDITORS (OPERATION) OTHER CREDITORS & PROVISIONS Incl.not due within one year

ACTUAL

TABLE-6

22

0 -10.43 0.37

(Source from Annual Report20032004)

GRAPH 01

INTERPRETATION OF GROSS WORKING CAPITAL

Looking at a glance on the above graph, it is seen that working capital had decreased during 200506 as compared to 2006-07 and 2007-08 .It was due to decrease in debtors, cash and bank balances and adoption of new borrowings and recovery of old dues. Working capital turnover of RHI till 2005-2006 were less than TRL, later it improves its position in 2006-2007 and 2007-2008 GRAPH 02

INTERPRETATION OF NET WORKING CAPITAL

The graph of Net Working Capital shows an irregular trend .It shows decreasing trend in financial years 2006-07 and 2007-08 as compared to 2005-06 caused by the increase in current liabilities and provisions. This is a result of Mission 2000 programme. The resulting increase in working capital was due to increase in the amount of raw material purchased and increment in provision. The Net Working Capital Turnover of Versuvius exceeded its competitors in all the years under study. The working capital position of Versuvius were comparatively better than TRL

23

CHAPTER-3

RECEIVABLES MANAGEMENT ➢

➢ ➢ ➢

Introduction Management Of Receivable at TRL Aspect of Credit Management Factoring

Introduction 24

Given a choice, every business would prefer selling its produce on cash basis. However, due to factors like trade policies, prevailing marketing conditions, etc., businesses are compelled to sell their goods on credit. In certain circumstances, a business may deliberately extend credit as a strategy of increasing sales. Extending credit means creating a current asset in the form of ‘Debtors’ or ‘Accounts Receivable’. Investment in this type of current assets needs proper and effective management as it gives rise to costs such as: i. Cost of carrying receivable (payment of interest etc.) ii. Cost of bad debt losses Thus the objective of any management policy pertaining to accounts receivables would be to ensure that the benefits arising due to the receivables are more than the cost incurred for receivables and the gap between benefit and cost increases resulting in increased profits. An effective control of receivables helps a great deal in properly managing it. Each business should, therefore, try to find out average credit extended to its client using the below given formula: Average credit Extended (in days)= Total amount of receivables / Average credit sales per day

Each business should project expected sales and expected investment in receivables based on various factors, which influence the working capital requirement. From this it would be possible to find out the average credit days using the above given formula. A business should continuously try to monitor the credit days and see that the average credit offered to clients is not crossing the budgeted period. Otherwise, the requirement of investment in the working capital would increase and, as a result, activities may get squeezed. This may lead to cash crisis.

Late payments erode profits and can lead to bad debts Profits only come from paid sales. Slow payment has a crippling effect on business; in particular on small businesses who can least afford it. If you don't manage debtors, they will begin to manage your business as you will gradually lose control due to reduced cash flow and, of course, you could experience an increased incidence of bad debt. But TRL has take the risk debtors because some of Debtors are regular customers so as TRL has the Policy that “Give Preference to Our Customers and Stakeholder”. Here are some graphs and table’s which show the Receivable management at TRL:-

Debtors over Current Asset: Debtors over Current Asset Table No.-7

25

YEARS 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004

DEBTORS 1094461154 1037557010 781327686 666741534 49,82,40490

CURRENT ASSETS 2497217831 2091980916 2302450905 1854490292 1354516543

RATIOS 43,83% 49,60% 33,94% 35,95% 36,78%

INTERPRETATION: If we go through the gross current asset of TRL we can see that about 49% of its represented by debtors in the financial year 2006-2007, which is about Rs 102.507 crores more than its norms. However it may be seen that in subsequent years TRL has reduced the gap and brought the debtors position level at par level of norms . As debtors is a important person in the working capital management, TRL has properly analyzed in details how exactly debtors are managed here.

Average Collection Period (ACP): It also helps to find the firm’s average investment in account receivable. Average collection period of TRL for five YEARS DEBTORS CREDIT ACP year is shown SALES below in the 2007-2008 1,09,44,61,154 5,84,59,23,088 67.398 Days form of the 2006-2007 1,03,75,57,010 5,16,75,44,869 72.282 Days table and graph.

2005-2006

78,13,27,686

4,55,70,76,293

61.723 Days

2004-2005

66,67,41,534

4,00,54,21,306

59.926 Days

2003-2004

49,82,40,490

3,17,07,24,228

56.57 Days

26

INTERPATION: By seeing five financial year from 2003-2004 to 2006-2007 we can say that average collection period is very high in this five year which means TRL’s investment in account receivable is also higher . TRL has set up a group of persons which comprising of members from marketing and finance department. This group is mainly set to identify the lacuna in the system of collection in time and also given more attention for collecting the old dues.

Consider As Doubtful Debt: YEARS

2007-2008 2006-2007 2005-2006

2004-2005

2003-2004

CONSIDERED DOUBTFUL

1258142

17883524

15666605

2958142

2901255

Interpretation: Consulting above graph it was found that the amount of doubtful debt during 2003-2004 was very high which later decreased by considerable amount and reduce to in lacks at it was possible by taking drastic measures on the part of company. Norms Of TRL in Comparison with Actual (Days) : Debtors in Days Year

Norms

Actual

2003-04

70

58

2004-05

70

61

2005-06

70

62

2006-07

60

73

2007-08

70

68

27

Interpretation: The trend of debtors has followed a upward trend in the year 2006-07 to retain the old customer in the competitive market scenario. The norms have been accordingly decreased to maintain aggressive collection policy. Subsequently in the year2007-08 due to strict collection policy debtors (no of days) have decreased and accordingly norms were kept as 70 again.

ASPECTS OF CREDIT MANAGEMENT: 1. Terms of payment: – – – – –

100% advance. 30 days credit. 60 days credit. Letter of credit. Payment on the basis of performance

2. Credit policy variables Credit standard: It is the criteria which a firm follows in selecting customers for the purpose of credit extension.TRL gives credit according to the past history and past experience of the customer. Credit period: The credit period given by TRL is generally 60 days. Cash discount: The discount rate is 3% on list price if it is paid on advance. Collection effort: In TRL collection effort is done by the marketing department. 3 .Credit evaluation of customer TRL is mainly adopting traditional credit analysis, so it is call for assessing prospective customers in terms of 4C: Character, capacity, condition and collateral. TRL has categories it’s customers into three categories: ➢ GREEN: These are the people who have the good transaction record with the company and they have no previous recorded credit history .These green group customers is eligible for unsecured credit with

28

defined credit limit and it should be approved by VP .The unsecured credit may be extended to include prepaid the transportation.

➢ YELLOW: The customer who have the unsatisfactory payment mode to the company, but they are providing firm regular and substantial business. This type of customer is to extended secured credit, with privileges payments .In this credit limit to the customer is approved by the G.M Of Marketing prepaid transportation to be included in the same way. ➢ RED: In this type of customer there credit history says that the firm should deal with this type of customer by taking 100% advance along with the purchase order, 100% payment against proforma invoice (PI) prior to dispatch .In some of the special cases the order can be accepted with letter of credit.

4. Credit-granting decision Once the firm has assessed the creditworthiness of a customer, it has to decide weather or not credit should be granted. In TRL the basically there is no thumb rule for credit granting decision. All decisions related to credit granting is taken by the heads of three profit centre i.e. (Basic and Dolomite, Alumina and Silica, Monolithic and Flow control), joint MD and MD. 5. Control of accounts receivables TRL has set up a task force comprising of members from marketing and finance department. The task force is mostly set to identify the loc mina in the system of collection on time and also given more attention for collecting the old dues. 6. Measures commonly employed for studying bad debt losses ratios. Default rate can be measured in terms of bad losses ratios indicates default risk. Default risk is the likelihood that a customer will fail to repay the credit obligation.

Analysis of Data Term of Payment in TRL Analysis with Its Specified Customers: In TRL the term of payment is generally made with different basis, by which the customers of the TRL are pay, the money with definite period. In the procedure TRL has made standard relation with the customers and gives more scope to them for make payment with limited time. It will be help to customers of TRL for increase their product purchase reasonable time .in this procedure get benefit by both customers of TRL and TRL. Actually in term of payment are very easy for customers to accept because it shows clear cut procedure of payment in a definite period. Generally the term of payment made by TRL towards its customers in four types, which are 30days payment, Letter of credit (LC), Post dated cheque (PDC)/Stock in sales and Advance payment. In this four term of payments are very help to TRL as well as its customers to make payment within the time or in specified time. For analysis the customers of TRL we have to categories them in this four method , by which we can easily know the which customer paid in which term and specified them for next better relation and sales more deal with them. So we can get more order from them and as a result get more profit. 29

➢ 30 DAYS PAYMENT: In this term TRL gives 30 days to its customers to make payment .in this term customers has to pay 20% in advance, 50% at the time of dispatch the goods and left 30% within 30 days .generally big big companies are come under this term because they have get product in quick time so they make payment in time, by which they get more scope by TRL next time when they need product in short time. By which sale will be increase by TRL and get more profit. ➢ LETTER OF CREDIT (LC) A letter of credit (LC) is signed instrument undertaking banker of buyer of a to pay seller a certain sum of money on presentation of document, evidencing shipment of a specified goods and subject to compliance with the stipulated term and condition. It is bank promise to pay upon the satisfactory compliance with LC terms & condition by the beneficiary. Three part of this term are issuer, applicant and beneficiary. Issuer-the entity that issue credit i.e. a bank or financial institution. In TRL banks deal with customers are State Bank of India (SBI) and Central Bank of India (CBI).Applicant – It is the customer who request the issuer the credit he wants for beneficiary. In TRL various customers make payments in this are JSW steel and power limited, Hindustan copper etc.

➢ SALES TO STOCKIST Sales to stock is term in which different stocker purchased the products directly from company and sell to customers in some extra benefit. In this Terms Company has no so risk about payment because company deal with stocker not with the customers. In TRL provide the products to stocker in directly payment term by they do not take any type risk at the time of sales. In this term payment may be late but ensure that payment will be made in specified time. ➢ ADVACE PAYMENT In this term payment is made in advance before purchased. In TRL generally deal this term with small undertakings. These small customers are generally purchased small amounts of products so that TRL want get advanced by that they produce according to orders. In this process payment is made easily but formalities must be maintained.

30

31

TATA REFRACTORIES LIMITED TATA REFRACTORIES LIMITED PROVISION FOR REJECTION AND BAD DEBTS AS ON 31.03.2009 Rs.in lakhs Name of the Customers SL

Party

No.

Code

Total BG

Overdue

Outstan ding as on 31.03.09

Not Due

Bills up to

Bills from

Bills more than

180 Days

181-360 Days

360 Days

30 DAYS PAYMENT 1

D2000 1

TATA STEEL LIMITED

100

572.74

405.9 5

118.51

48.28

0

2

D2000 2

SAIL-BHILAI STEEL PLANT

100

1465.28

308.4 6

936.24

195.48

25.1

3

D2000 3

SAIL-ROURKELA STEEL PLANT

500

204.62

88.57

74.07

33.9

8.08

4

D2000 5

SAIL-DURGAPUR STEEL PLANT

200

192.22

51.38

34.2

106.64

0

5

D5801 3

VEDANTA ALUMINIUM LIMITED

200

299.68

0.19

26.09

207.67

65.73

2939.16

854.5 5

1189.11

591.97

98.91

TOTAL AMOUNT LETTER OF CREDIT 6

D1000 1

JINDAL STAINLESS LIMITED

100

58.77

24.9

33.87

0

0

7

D1601 3

SPS STEEL & POWER LIMITED.

200

14.52

0

14.52

0

0

8

D1500 7

BHUSHAN POWER & STEEL LIMITED

300

22.52

20.57

1.93

0.02

0

9

D1604 1

ACTION ISPAT & POWER (P) LTD

300

60.77

7.52

53.25

0

0

10

D2001 0

JSW STEEL LIMITED

200

107.31

12.16

55.6

11.08

28.47

263.89

65.15

159.17

11.1

28.47

TOTAL AMOUNT SALES TO STOCIST 85

D9500 5

JANOO REFRACTORIES PVT. LTD.

400

24.52

13.69

8.26

2.57

0

12

D1512 5

MANZIL ENTERPRISES PVT. LTD

400

59.1

34.55

19.16

5.39

0

13

D9503 2

INTEGRATED SERVICES

400

108.59

12.74

62.04

33.81

0

14

D9500

MORTEX (INDIA)

400

47.11

19.74

26.32

1.05

0

32

33

FACTORING Factoring is a financial option for the management of receivables. In simple definition it is the conversion of credit sales into cash. In factoring, a financial institution (factor) buys the accounts receivable of a company (Client) and pays up to 80 %( rarely up to 90%) of the amount immediately on agreement. Factoring company pays the remaining amount (Balance 20%-finance cost-operating cost) to the client when the customer pays the debt. Collection of debt from the customer is done either by the factor or the client depending upon the type of factoring. We will see different types of factoring in this article. The account receivable in factoring can either be for a product or service. Examples are factoring against goods purchased, factoring for construction services (usually for government contracts where the government body is capable of paying back the debt in the stipulated period of factoring. Contractors submit invoices to get cash instantly), factoring against medical insurance etc. Let us see how factoring is done against an invoice of goods purchased. It is also a contract between the suppliers of goods/services and the factor under which;(a) The supplier and its customers (debtors) other than those for the sale of the goods bought primarily for their personal, family or household use, (b) The factor is perform at least two of the following functions(i) Finance by the supplier, including loans and advance payment .(ii) Maintenance of accounts; (iii) Collection of accounts and (iv) Protection against the default in payment by the debtors; (c) Notice of assignment of the receivables is to given debtors. The agreement between the supplier and factor specifies the factoring procedure. The firm sends the customer’s order to the factor for evaluating the customer’s creditworthiness and approval. Once the factor satisfied about the customer’s creditworthiness and agrees to buy receivables, the firm dispatches goods to the customer .the customer will be informed that his account has been sold to the factor and he is instructed to make payment directly to the factor .To perform his functions credit evaluation and collection for large number of clients, a factor may maintain a credit department with specialized staff. Once the factor has purchased a firm’s receivables and if he agrees to own them, he will have to provide protection against any bad-debt losses to the firm. Factoring services While purchase of receivables is fundamental to the functioning of factoring, the factor provides the following three basic services to clients. ➢ Sales ledger administration and credit management. ➢ Credit collection and protection against default and bad-debt losses ➢ Financial accommodation against the assigned book debts (receivables). Factoring and bill discounting Factoring and Short-term finance Although factoring provides short-term financial accommodation to the client. Factoring involves ‘sale’ of book debts. Thus, the client obtains advance cash against the expected debt collection and does not incur a bad debt. Factoring provides flexibility as regards 34

credit facility to the client. Factoring is a unique mechanism, which not only provides credit to the client but also undertakes the total management of client’s book debts.

Factoring and bill discounting Factoring should be distinguished from bill discounting. Bill discounting or invoice discounting consists of the client drawing bill of exchange for goods and services on buyers, and then discounting with bank for charge. Bill discounting is a sort of borrowing while factoring is the efficient book and specialized management of book debts along with enhancing the client’s liquidity. The client has to undertake the collection of book debt. Bill discounting is always ‘with recourse’, and as such the client is not protected from bad debts. Bill discounting is not a convenient method for companies having large number of buyers with small amounts since it is quite inconvenient to draw a large number of bills. A single factoring company may not offer all these services Recourse factoring In recourse factoring, client undertakes to collect the debts from the customer. If the customer doesn’t pay the amount on maturity, factor will recover the amount from the client. This is the most common type of factoring. Recourse factoring is offered at a lower interest rate since the risk by the factor is low. Balance amount is paid to client when the customer pays the factor. Non recourse factoring In non-recourse factoring, factor undertakes to collect the debts from the customer. Balance amount is paid to client at the end of the credit period or when the customer pays the factor whichever comes first. The advantage of non-recourse factoring is that continuous factoring will eliminate the need for credit and collection departments in the organization. The factor is the financial institution that purchases the clients accounts receivables and in relation thereto, controls the credit, extended to customers. Factoring facility is given by TRL only to green customers. The factor (bank), which gives services to TRL for bills discounting facility, is HSBC; Bhubaneswar.TRL only gives this facility to its holding company, which is TATA steel Jamshedpur.

35

The specimen of factoring of TRL for the financial year has been shown below.

36

Summary Statement, Enclosure to Letter No. AC/HDFC/ 1375

DT. 19.03.2009 (Amt in Rs.)

Name of the Customer Period From

1

Total No. of

Aggregate Gross Amount

To

Invoices

27.02.2009

77

1,87,72,611.92

14.03.09

40

1,46,02,438.28

18.03.2009

37

1,08,30,008.34

18.03.2009

33

94,61,686.39

Total

187

5,36,66,744.93

LAESEN & TOURBRO LIMITED 02.02.2009 (As per statement enclosed)

2

RIMJHIM ISPAT LIMITED 08.02.2009 (As per statement enclosed)

BHUSAN POWER & 3 STEEL LIMITED 07.02.2009 (As per statement enclosed) 4

GEE ISPAT LIMITED 03.02.2009 (As per statement enclosed)

For Tata Refractories Limited Authorised Signatories TATA Refractories Limited Regd. Office Belpahar Dist. Jharsuguda (Orissa) 768218 Tel 91 6645 258415 Fax 91 6645 250254

37

CHAPTER-4

CASH MANAGEMENT ➢ ➢ ➢ ➢

INTRODUCTION CASH PLANNING CASH BUDGETING MANAGEMENT CASH COLLECTION & DISTRIBUTION

38

Introduction: Cash is the most liquid current asset. It is of vital importance to the daily operations of business. While the proportion of assets held in the form of cash is very small, its efficient management is crucial to the solvency of the business. Therefore, planning cash and controlling its use are very important tasks. Cash budgeting is a useful device for this purpose. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset. Other assets that are considered relatively liquid and included in quick assets are debtors, loose tools, and marketable securities. Inventories are considered to be less liquid. Inventories normally require some time for realizing in to cash; their value also has a tendency to fluctuate. The quick ratio is found out by dividing quick assets by current liabilities. For some persons, Cash means only money in the form of currency. For other person cash means both cash in hand and cash at bank. Cash itself does not produce goods or services. It is used as a medium to acquire other assets. It is the other assets, which are used in the manufacturing goods or providing, services. The idle cash can be deposited in bank to earn interest. The good manufactured or services produced are sold to acquire cash. A firm has to also maintain a minimum cash limit. If at a time it does not have sufficient cash with it, it will have to borrow from the market for reaching the required level. Cash is one of the most important current assets of the firm. Cash or fund is the basic input needed to keep the business in a running condition; it is also the ultimate output expected to be realized by selling the service or product manufactured by the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s manufacturing operations while excessive cash will simply remain idle, without contributing anything towards the firm’s profitability. So to effective cash flow inside and outside the firm there should be effective management of cash. Basically in TRL cash management is known as funds management.

An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset. Other assets that are considered relatively liquid and included in quick assets are debtors, loose tools, and marketable securities. Inventories are considered to be less liquid. Inventories normally require some time for realizing in to cash; their value also has a tendency to fluctuate. The quick ratio is found out by dividing quick assets by current liabilities. Quick ratio is found out by dividing quick assets by current liabilities.

39

Ratios: Ratio

2003-04

2004-05

2005-06

2006-07

2007-08

Year Quick Ratio Absolute Liquid Ratio

2.71

1.83

2.16

2.04

2.35

0.055

.1215

0.052

0.042

0.076

Interpretation: ➢ Quick Ratio: Analysing table and the figures presented on the graph , it revel that a quick ratio from 2003-2004 to 2007-2008 where 2.71; 1.83; 2.16; 2.04; and 2.35.In, fact quick ratio establishes relation between quick asset and current liabilities. The rule of thumb for Quick Ratio is 1:1 which is supposed to be standard to be maintained by almost all firms Quick Ratio for TRL over the period under study show quick asset are in excess over the current liabilities which are not desirable. It is assumed that large amount of current asset excluding inventories were used. ➢ Absolute Liquid Ratio: The Above Table represents the cash ratio in relation to total current assets. The figures have been plotted on the graph and revaled the position that during 2003-2004 to 2007-2008, the cash ratio to current asset where 0.055; 0.1215; 0.052; 0.042; 0.076 respectively. In all cases the cash amount was very negligible in relation to current asset during 2004-2005.The company should not maintain such large amount of cash in hand or at bank which may be miss appropriated or otherwise misutilised.

Cash management is concerned with the managing of:

1.Cash flow into and out of the firm – In TRL the cash which comes from debtors through the sale of product(Bricks) is the cash inflow and the cash which is paid to creditors for the purchase of raw-materials(Dolomite, Silica, etc), spares and parts, machinery etc is the cash outflow. 40

2. Cash flow within the firm – Cash flow within TRL would constitute: a) b) c) d)

TRL is paying wages and salary to their employees and labour. It has made separate department for provident fund (PF) trust. For the payment of gratuity TRL has tie up with LIC gratuity. For super annotation TRL is deducting 15% of basic salary which is deposited with LIC for 55 years after which a monthly pension is given to employee for lifetime.

3.Cash balances held by the firm at a point of time by financing deficit or investing surplus cash – At the time of deficit of cash TRL takes short term loans(STL) from their respective bankers(SBI, Samada and CBI, Belpahar) and at the time of surplus cash it does not invest in marketable securities until it pays its debts.

CASH PLANNING:

It’s a technique to plan and control the use of cash. It helps to anticipate the future cash flows and needs of the firm and reduces the possibility of idle cash balances(which lowers firm’s profitability) and cash deficits(which can cause the firm’s failure).

Cash planning protects the financial condition of the firm by developing a projected cash statement from a forecast of expected cash inflows and outflows for a given period. The forecast may be based on the present operations or the anticipated future operations. Cash plans are very crucial in developing the overall operating plans of the firm.

In TRL the management makes 5 year business plan for future, if it requires they also make 10 year business plan. Taking this into consideration they make cash planning for annual business plan for one year.

Cash Budget

41

Cash budget basically incorporates estimates of future inflows and outflows of cash over a projected short period of time which may usually be a year, a half or a quarter year. Effective cash management is facilitated if the cash budget is further broken down into month, week or even on daily basis. There are two components of cash budget: (i) Cash inflows and (ii) Cash outflows. The main sources for these flows are given hereunder: Cash Inflows: (a) Cash sales (b) Cash received from debtors (c) Cash received from loans, deposits, etc. (d) Cash receipt of other revenue income (e) Cash received from sale of investments or assets. Cash Outflows: (a) Cash purchases (b) Cash payment to creditors (c) Cash payment for other revenue expenditure (d) Cash payment for assets creation (e) Cash payment for withdrawals, taxes (f) Repayment of loans, etc. In TRL the cash budgeting is done for every month for determining cash requirements if cash flows show extreme fluctuations. It is highly advantageous because it helps to determine the net cash inflow or outflow so that at the end it can arrange its funds. Cash forecasts are needed to prepare cash budgets. In TRL cash forecasting is done on short term and long term basis. For short term decisions the head of finance department takes his own decision and for long term board of directors (BOD) of TRL takes decision. The cash inflow includes sales realization, export packing credit, short term loan, term loan, receipt of fixed deposit etc. The cash outflows from the firm are raw materials, fuel, salary and wages, gratuity, bonus, stores and spares, repairs, power, sales tax, income tax, interest capital expenditure (CAPEX) etc. The Projected cash inflow and cash outflow statement for the financial year 2008-2009 has been prepared by TRL and it has been shown in the below table:

PARTICULARS

Aug

Sep

Oct

42

Nov

Dec

Jan

Feb

Mar

2008 IN - FLOW Sales Realization Export Packing Credit Miscellaneous Income Short Term Loan Term Loan Receipt of Fixed Deposits. Recourse bill discounting TOTAL IN-FLOW OUT-FLOW Raw Materials Fuels Salaries & Wages Gratuity/Superannuation Bonus &Cash reward Stores, Spares and Repairs Power Other Expenses Freight & Forwarding Excise Duty Sales Tax Income Tax Interest Capital Expenditure Repayment of F.D. Repayment of Packing Credit Repayment of TL - CBI Repayment of TL - SBI Repayment of STL Repayment of HSBC Friendly Departure Scheme Dividend Tax TOTAL OUT-FLOW Surplus/(Deficit) for the month Opening Balance Closing Balance Sanctioned Cash Credit

58 2 0.5

2008

2008

0.02

60 2 0.5 20 10 0.02

0.02

0.02

5 65.52

5 97.52

5 68.02

28.5 6 3.06

28.5 6 3.06 0.3

2009

2009

0.02

20 0.02

0.02

60 2 1 20 15 0.02

5 68.02

5 88.02

5 88.02

5 68.02

5 103.02

28.5 6 3.06

28.5 6 3.06

28.5 6 3.06 0.3

29.75 6.5 3.06

29.75 6.5 3.06

29.77 6.5 3.06 2.1

2.4

2.4

2.4

2.4

2.4

2.4

2.4

1.2 3.45 2.2 4 1.5

1.2 3.45 2.3 4 1.5

1.25 3.45 2.3 4 1.5

1.05 1.56 0.02 2

1.05 5 0.02 2

1.25 3.45 2.3 4 1.5 3.66 1.05 7.05 0.02 2

1.25 3.45 2.3 4 1.5

1.05 3.26 0.02 2

1.2 3.13 2.1 4 1.5 3.66 1.05 3.04 0.02 2

1.1 15.35 0.02 2

1.15 13.5 0.02 2

1.25 3.5 2.3 4 1.5 3.07 1.15 18.31 0.02 2

5 0.23

2.5 1 20 5 0.23

5 0.23

5 0.23

2.5 1 20 5 0.23

5 0.23

5 0.23

2.5 1 20 5 0.23

65.15 0.37

90.69 6.83

62.17 5.85

65.71 2.31

95.27 -7.25

77.91 10.11

76.11 -8.09

109.66 -6.64

-29.17 -28.8 38

-28.8 -21.97 38

-21.97 -16.12 38

-16.12 -13.81 38

-13.81 -21.06 38

-21.06 -10.95 38

-10.95 -19.04 38

-19.04 -25.68 38

43

60 2 1 20

2009

60 2 1

1.2 3.13 2.1 4 1.5

60 2 1

2008

60 2 1

1.7 2.4

60 2 1

2008

Once the cash budget has been prepared and appropriate net cash flow established, so TRL should ensure that there does not exist a significant deviation between projected cash flows and actual cash flows. TRL prepares every year the projected cash flow for the next financial year. The projected and actual cash flows are compared and differences are calculated and the variances are highlighted. The comparison between the projected and actual cash flow for the previous year 2007-2008 is shown below. CASH FLOW ACTUAL VS

PROJECTION

FOR THE PERIOD FROM APR'07 TO MARCH'08 ( Rupees in Crores ) Apr'07 to Mar'08 No.

PARTICULARS

Actual

DIFF.

Projection

RECEIPT 1.

Collection from Debtors

543.56

601.00

(57.44)

2.

Miscellaneous Income

12.16

6.00

6.16

3.

Recourse bill discounting

41.84

-

41.84

TOTAL

597.56

607.00

(9.44)

604.57

(31.77)

20.90

(14.59)

PAYMENT 1

Total Payments

572.80

2

Borrowings, Other than CC (Net)

3

Repayment of bill discounting

29.43

TOTAL

608.54

6.31

29.43 625.47

(16.93)

CASH CREDIT Surplus/(Deficit)

(10.98)

(18.47)

7.49

Opening Balance

(8.75)

(8.75)

-

Closing Balance

(19.73)

(27.22)

7.49

Sanctioned Cash Credit

38.00

38.00

Interpretation: It can be seen from above table that only 90 percent i.e.Rs.543.56 Crores had been collected from debtors and remaining 10 percent i.e. Rs.57.44 Crores are expected to be collecting in next financial year. So here TRL has to be more conscious about its collection procedure. To achieve this, cash management efficiency will have to be improved through a proper control of cash collection and disbursement. The twin objective in managing the cash flows should be to accelerate cash collections as much as possible and to decelerate or delay cash disbursements as much as possible. 44

Managing Cash Collections and Disbursement: (i) Accelerating Cash Collections: A firm can collect more cash and reduces its balance. Cash requirement balance if it can speed up its cash collection. The first obstrugles in decreasing the collection period is the extra time enjoyed by the customers in clearing of bills can be accelerated by decreasing the gape between the time a customer pay bill and the time the cheque is collected and funds become available by the firms for use. TRL has adopted various strategies for accelerating cash collection. Such as Cash Management A/C with  ICICI Bank and HDFC Bank. CMS a/c makes online payment transactions possible which leads to highly reduction in processing time than the traditional way.  ICICI Bank Charges 0.05 paisa per thousand in per day collection.  HDFC Bank Not Charges any thing for collection. TRL is now planning to close its account in ICICI and open its account with the AXIS Bank and this bank will not charge any thing for collection. (ii) Stretching Accounts Payables: One simple strategy of efficient cash management is to stretch the account payables. A firm should pay its account payable as late as it possible without dominating its credit policy or standing. It gives benefit of the cash discount available on prompt payment. TRL collection a procedure is fast in same way it also makes prompt payment to their suppliers. So TRL is not adopting the policy of stretching account payables.TRL uses various ways for the payment to their supplier according to their convent: (a) Multicity Cheques: The SBI Belpahar issues this cheque. With this cheque being presented for payment in any branch of S.B.I then the amount due thereon will be immediately paid and TRL a/c will be immediately debited on the same day. (b) At Par Cheque: The bank issuing this cheque in SBI on the same day CBI Gomadera. The bank deducts no charges when it is encased. (c) Magnetic Ink Character Recognition (MICR): It is a system that is used by the bank in which the electronic data is used instead of paper. Therefore TRL have started using MICR to automate the clearing process. TRL maintain an account with RBI in which debit entire for inward entire and credit entire for outward clearing. (iii) Other Income: There are various other sources from which the TRL get income. And they are: (a) Scrape Sales (b) Hospital: Jehangir Ghandy Hospital. (c) Application of Refractories products 45

CHAPTER-5

INVENTORY MANAGEMENT ➢ INTRODUCTION ➢ TRL INVENTORY MANAGEMENT – – – –

RAW METRIAL STORES AND SPARES FINISHED GOODS FUEL

46

Introduction: “Inventory” to many small business owners is one of the more visible and tangible

aspects of doing business. Raw materials, goods in process and finished goods all represent various forms of inventory. Each type represents money tied up until the inventory leaves the company as purchased products. Likewise, merchandise stocks in a retail store contribute to profits only when their sale puts money into the cash register. In a literal sense, inventory refers to stocks of anything necessary to do business. These stocks represent a large portion of the business investment and must be well managed in order to maximize profits. In fact, many small businesses cannot absorb the types of losses arising from poor inventory management. Unless inventories are controlled, they are unreliable, inefficient and costly

Successful Inventory Management: Successful inventory management involves balancing the costs of inventory with the benefits of inventory. Many small business owners fail to appreciate fully the true costs of carrying inventory, which include not only direct costs of storage, insurance and taxes, but also the cost of money tied up in inventory. This fine line between keeping too much inventory and not enough is not the manager's only concern. Others include: Maintaining a wide assortment of stock -- but not spreading the rapidly moving ones too thin Increasing inventory turnover -- but not sacrificing the service level Keeping stock low -- but not sacrificing service or performance Obtaining lower prices by making volume purchases -- but not ending up with slow-moving inventory ➢ Having an adequate inventory on hand -- but not getting caught with obsolete items. ➢ ➢ ➢ ➢

Controlling Inventory: To maintain an in-stock position of wanted items and to dispose of unwanted items, it is necessary to establish adequate controls over inventory on order and inventory in stock. There are several proven methods for inventory control. They are listed below, from simplest to most complex. ➢

➢

Visual control enables the manager to examine the inventory visually to determine if additional inventory is required. In very small businesses where this method is used, records may not be needed at all or only for slow moving or expensive items. Tickler control enables the manager to physically count a small portion of the inventory each day so that each segment of the inventory is counted every so many days on a regular basis. 47

➢ ➢

Click sheet control enables the manager to record the item as it is used on a sheet of paper. Such information is then used for reorder purposes. Stub control (used by retailers) enables the manager to retain a portion of the price ticket when the item is sold. The manager can then use the stub to record the item that was sold.

As a business grows, it may find a need for a more sophisticated and technical form of inventory control. Today, the use of computer systems to control inventory is far more feasible for small business than ever before, both through the widespread existence of computer service organizations and the decreasing cost of small-sized computers. Often the justification for such a computer-based system is enhanced by the fact that company accounting and billing procedures can also be handled on the computer. ➢ Point-of-sale terminals relay information on each item used or sold. The manager receives information printouts at regular intervals for review and action. ➢ Off-line point-of-sale terminals relay information directly to the supplier's computer who uses the information to ship additional items automatically to the buyer/inventory manager.

Inventory includes all types of stocks. For effective working capital management, inventory needs to be managed effectively. The level of inventory should be such that the total cost of ordering and holding inventory is the least. Simultaneously, stock out costs should also be minimised. Business, therefore, should fix the minimum safety stock level, re-order level and ordering quantity so that the inventory cost is reduced and its management becomes efficient

TRL’s Inventory Management: By studying balance sheet of previous five years, it is observed that inventory form substantial part of current assets. It is one of the major factors affecting the working capital cycle. In order to reduce the working capital turnover, the company imposed inventory control scheme. In order to analyse the inventory control in details, each item had been taken separately

(a) Raw Material: In many organizations, materials form largest single expenditure item. An analysis of the financial statements of a large numbers of private and public sector organizations indicates that materials account for nearly 60% of total revenue expenditure. Raw Material (Rs in lakh)

2003-04

2004-05

48

2005-06

2006-07

2007-08

Total sales

319

404

460

460

528

R.Material Consumption

121

159

182

197

199

(%)

38

39

40

42.86

37.69

Interpretation: Raw materials constitute approximately 40% of total sales of different years under study. TRL import nearly 50-55% of the raw materials .Sixty percent of the imported raw materials are from China and rest from other parts of the world. There are 250 types of raw materials. Nothing worthwhile can be achieved without proper planning. In order to reduce the raw material cost proper planning and control is needed most.

Procurement of raw materials: TRL adopts strategic planning for procurement of raw materials, which is based on previous twelve months consumption or the average monthly consumption, actual requirements and major expected orders or sales forecasts by the marketing department. Of 250 raw materials, 50 are imported. The imported goods have high lead-time varying from two to three months. Keeping lead-time in view, schedules for purchase of raw materials are made. A glance at inventory of raw materials for previous five financial years from 2003-2004 to 2007-2008 reveals the following position (Rs. In lakh) Years Stock

2002-03 1202

2003-04

2004-05

2005-06

2006-07

2007-08

2397

3031

2527

1902

3200

Going through the above figures ,it is found that the stock of raw material has shot up to double from Rs. 1202 lakh to Rs. 2397 lakh in the year 03-04 and then it decreased by 26% to Rs. 1902 lakh in the year 2006-2007and then it increased to Rs, 3200 lakh in 2007-08. The market being unpredictable and gloomy it has become difficult for the marketing department to predict the sales or order. Keeping in view, the favorable condition in future, the Material department suggest for high inventory of raw materials to avoid the future losses. Sales figures show increasing trends which caused increment in consumption of raw material. Improvised products are produced which contribute consumption of quality raw materials. 49

Managing inventory is a juggling act. Excessive stocks can place a heavy burden on the cash resources of a business. Insufficient stocks can result in loss of sales\ and consumers. The key is to know how quickly a company’s overall stock is moving or put another way, how long each item of stock sits on shelves before being sold. Average stock holding periods will be influenced by nature of business.

METHODS USED IN INVENTORY CONTROL OF RAW MATERIALS: The Baan ERP Software System display item data of all the raw materials executed. For procurement and control of raw material, the Material department looks at the following in displayed item data-

➢ Safety stock ➢ Inventory on hand ➢ Inventory on hold

– – –

The minimum stock required in the Material Department Raw material in hand Raw materials those cannot be used for production for temporary period, as these are under inspection. ➢ Inventory on order – Order placed for raw material but yet to receive. ➢ Allocated Inventory – Inventory required by the department depending on order. ➢ Economic stock – Inventory on hand + Inventory on order +Allocated inventory INVENTORY CONTROL PARAMETRE OF TRL: For inventory control, EOQ technique, Maximum levels, Minimum levels, Reordering levels are used. 1. Average Monthly Consumption (AMC) =

Total consumption No. Of month (Preferably for 12-18 months) 2. Lead Time – Lead time for procurement: From the time of indent to the time of receipt, it does not include order lead-time The Parameters used for inventory control are: A)Minimum stock level:(MNSL) This is the stock level that shows the minimum stock that should be in hand at all times. If the stock is less than the minimum level, there may be chances for the stoppage of work shortage of material. It is calculated by the following model: =1.65 x L.T. x Std. Deviation (AMC) or Z x F Where, Z = (ALT x DM + AMC x DL)2 Where, 1.65 is a factor for 95% availability. B)Maximum stock level: (MXSL) 50

It is the limit beyond this, the stock should not be. If the quantity is more, this limit is called as overstocking. Overstocking is harmful for firms. It is represented by MNSL + (L.T. x AMC) x

1/2

C)Recording Quantity: (ROQ) When the quantity of materials reached to a specific level where the fresh order is sent for next procurement. = 2 x AMC x Ord.Cost Inventory cost

Steps to reduce raw material stock:  The transportation of chorus-imported raw materials has been shifted from Visag to Paradip port thereby reducing the lead-time by approximately seven days.

51

 To reduce the lead-time of imported materials from China, frequency of ships from China has increased from 7 to 9 times yearly. Efforts are made to enhance the frequency of ships to 10 to 12 times in a year which may cause drastic reduction in lead time. Table showing the calculation of MSL, ROP, ROQ and AMC

Raw Materials Norm’s v/s Actual:

SI NO.

Item

Description

Stock On Hand

Rate/U nit

Inventory value in Lacs

Mini Stock level

ROP

ROQ

AMC

Service Level

Lead Time In Days

186

28006157

Cover Battery With Seat

2

4296.6 5

0.08

2.008

2.408

0.4

1.2

90

10

336

28005008

Kit Hoist cyclinderMH16207-650

1

1401.4

0.01

0

0

0

0

0

20

200

28002410

LH Wheel Cylinder870001303

3

1014.8 6

0.03

5.271

7.271

2

3

90

20

56

22322295

Bearing Roller 22215 K

1

2273.2 9

0.02

3.526

3.88

0.354

2.125

90

5

161

28006910

Wheel Crown & Pinion Assy

2

7604.6 6

0.15

2.133

2.557

0.424

1.2727

90

10

57

22322305

Bearing Roller 22216 K

2

2317.9 5

0.04

3.28

3.613

0.333

2

90

5

237

28006106

Cable With Conc 0302632

9

631.29

0.05

4.92

5.92

1

3

90

10

99

22344140

Bearing Thrust 51312 F

1

2259.0 5

0.02

3.28

3.613

0.333

2

90

5

86

22333225

Bearing Taper Roller 32216

5

741.03

0.03

9.84

10.84

1

6

90

5

150

28005130

STEER HYD.PUMP13747

0

7260.6 5

0.0

3.365

4.603

1.238

1.8571

0

20

40

22300515

Bearing Ball 6316

1

719.3

0.0

3.205

3.527

0.322

1.9333

90

5

257

28005639

HOSE-798622029

1

674.49

0.0

3.28

4.613

1.333

2

0

20

81

22333135

Bearing Taper Roller 30218

1

3185.4 4

0.03

2.077

2.285

0.208

1.25

90

5

149

28005754

TIP MOVABLE —09816A0027

1

3297.5 3

0.03

7.633

10.522

2.888

4.3333

0

20

168

28005005

Brush holder drive motor(BENN)

1

6258.7 2

0.06

1.64

2.306

0.666

1

0

20

42

22300545

Bearing

2

2975

0.05

2.091

2.3

0.208

1.25

90

5

52

(b) STORES AND SPARES Stores play a vital role in the operations of a company. It is in direct touch with the user departments in its day-to-day activities. The most important purpose served by the stores is to provide uninterrupted service to the manufacturing divisions. Further, stores are often equated directly with money, as money is locked up on the stores. Stores and Spares management at TRL Before analysing effect of stores and spares on working capital structure at TRL let's peep into the working procedure of stores department at TRL, Belpahar. Working Procedure:

Stores & Spares at TRL consists of (a) Spares, (b) Insurance spares, (c) Fuel. ➢ Spares – Under this category mostly different parts of machinery. ➢ Insurance Spares – These spares are some rare spares and most demanding. The lead-time for this category spares is very high, more than three months. These spares are rarely used; sometime they are used once in lifetime of equipment. The stores department cannot go without such spares though they are rarely used because when required if they are not available then the whole plant may come to a stand still. ➢ Fuel – In a manufacturing unit like TRL, fuel is very essential. Detailed analysis is done in later part.

For procurement, control of any spares the stores department at TRL follows the Statistical Inventory Control (SIC) SYSTEM. For the procurement of spares on regular basis SIC system in suitable. Every thing is done in Baan ERP software system. When a department needs a particular spare, which does not come under SIC system the stores department goes for its procurement directly from the supplier. For each item of spare there is display item data in Baan ERP system. It is mostly evaluated online regularly. Whenever the stores department services any service order from any department it immediately analyses the display item dates. Each item has an item code. From the data the stores department can know about the followings about a spare item. a) Safety Stock b) Maximum Inventory 53

c) Inventory on hold d) Inventory on hand e) Inventory on order f) Allocated inventory g) Economic stock By analysing the display item data and requirement of the concerned department the stores manager goes its procurement and stock control. Effect of stores management on working capital management. If we analyse last five financial years’ data, we can find that the actual are much higher than the norms for stores and spares. In accordance with the Chore committee the norms for stores and spares in Indian manufacturing units is three months stock. TRL’s target is also three months stock. But if we see the graphical presentation we can very well find that stores stocks were much higher than required from financial year 2003-04 to 2007-08.

Some of the causes behind such trend a) In the year 2003-04 the management has removed the departmental or the sub-store concept. Before the year 2003-04 each department kept its spare stock at its individual stores department started keeping all the spare stocks of all departments. Thus the closing inventory in the year 2003-04 shot up. b) It has been observed that many times individual department has given order to stores for spares but it has not drawn the spares as per schedule Non-moving and slow moving items Many spares have been brought under non-moving and show moving category. A detailed analysis is given below. Inefficient operation High inventory stock of the stores department also gives a light on the inefficient operations of the stores department as a whole. CAUSE ANALYSIS FOR THE NON MOVING SPARES

Non- moving spares have proved to be the major obstacle in the inventory control management by stores department. Here is the action plan how stores department has handled with its non- moving items to reduce the stock and it is classified as follow :  Demand spares  Mother equipment disposed off 54

 Mother equipment modified And the action plans for it are:     

Possibility of using in other existing equipment; Possibility of using it in other equipments with modification at optimum cost; To see the possibility of selling it to other Refractories company; To write off and to be sold as scrap; To tag it for further procurement

. INSURANCE SPARES:

The action plans for insurance spares are  To tag it as insurance;  To retain it in stock till requirement arises. And it is categories as under  Excess procurement  Long life of spare  No of equipment reduced

TRIAL ITEM :

Action plan for the above category is given below • •

To start the trials for the items which have not been yet started. In case the trial is not unsuccessful the items are to be disposed off at book value.

GENERAL: All items not drawn after 2003-04 is under the following categories should be sold off at book value/scrap rate as deemed fit. 1) Damaged spares 2) Mother equipment disposed off 3) Mother equipment modified 4) Trial items The above-mentioned actions have been implemented in the year 2004-05 which has resulted in the reduction in non-moving items. Subsequently, the stores and spares stock have reduced in 2004-05 onwards.

(c) FUEL 55

In a manufacturing concern like that of TRL, fuel forms very important source of energy. If proper inventory of fuel is not maintained then the plant may come to stand still due to want of it. At TRL fuel consists of – a) Furnace Oil b) Light Diesel Oil c) Coal Furnace oil is used in the running of Kilns of mostly three production departments. They are (1) BASIC, (2) DOLOMITE, (3) HIGH ALUMINA. DOLOMITE and BASIC department mostly uses light diesel oil. SILICA department & HIGH ALUMINA mainly utilize coal. At the time of study price rate prevailing of the three major fuels are as followsFurnace Oil – Rs.26000 per KL Light Diesel Oil – Rs.37000 per KL Coal – Rs. 6000 per MT for ‘A’ grade Rs. 4500 per MT for ‘B’ grade Rs. 3700 per MT for ‘C’ grade Glance at fuel inventory If we start analysing the last five financial years from 2003-04to 2007-08, we can find that the Fuel inventory is within the control.

Present scenario of fuel inventory: ➢ M/s. TRL has negotiated with IOCL and at present 4 to 5 tankers are brought on regular basis. So inventory problem has much reduced. ➢ M/s. TRL is trying to increase the consumption of coal which is the cheapest source of fuel among the three ➢ At present coal is kept at 15 days consumption and about 800 MT, it is procure by the company from MCL. (d) FINISHED GOODS INVENTORY

M/s. TRL has six different manufacturing units such-Basic, Dolomite, Silica, High Alumina, Flow Control Product , and Monolithic. All six units have different product cycle time and different market share. The product mix is as follows: BASIC DOLOMITE SILICA

- 10-11 days - 6-7 days - 30-31 days 56

HIGH ALLUMINA - 11-12 days F.C.P - 20-21 days MONOLITHICS - 4-5 days When we study the finished good inventory from 2003-04 to 2007-08, we can observe that there is continuous rise in inventory in tonnage, value. The below Graph show the finished goods actual v/s norms in days of TRL:

The reason of rise in inventory mostly depends on the following factors in any manufacturing unit and M/s. TRL is also not different from the same.  Finished go-gods inventory increases mainly due to manufacturing without firm order taking risk of the market.  Inventory increases due to increases due to increase in the unsaleable product.  Customer suspends the order due to the sluggish market condition.  Increase in inventory as customer not able to pay as per the selling terms. Out of above reasons the industry is badly effected due to accumulation of non-moving stock because in the balance sheet show moving goods. Remedial action: I) TRL has implemented ERP (Enterprise Resource Planning) system through integrated computer system, which can identify the material movement easily at any point of time. ii) It has taken considerable effort to control over make within 2%.

iii) Taking action not to produce material, which may be stock up in the stock for not meeting the specification of the customer (quality improvement).

57

CHAPTER-6

WORKING CAPITAL FINANCING ➢ ➢

➢

INTRODUCTION BANK FINANCE FOR WORKING CAPITAL VARIOUS TYPES OF BANK FINANCE

58

Introduction: The funds that are available from outside for one year or less are called Short Term finance. In TRL the Short term fund is mainly used for financing the working capital. Two main type of short term financing the working capital are trade credit and bank borrowing, In India the trade credit was not famous before one year but it is know it is being famous. In trade credit the current asset ratio is about 40%. And then the bank borrowing is the next source of rising fund for the short term. Working capital or current assets are those assets, which unlike fixed assets change their forms rapidly. Due to this nature, they need to be financed through short-term funds. Short-term funds are also called current liabilities

The following are the major sources of raising short-term funds: TRADE CREDIT:

Trade credit refers to the extended by the suppliers of goods in the normal course of business. In this the purchaser doesn’t have to pay cash in the same day for the goods purchase by the firm. The trade credit arrangement of a firm with its suppliers is an important source of shortterm finance. The credit worthiness of a firm and the confidence of its suppliers are the main basis of securing trade credit. It is mainly granted on an open account basis whereby suppliers send goods to the buyer for the payment to be received in future as per terms of the sales invoice. When the firm delays the payment beyond the maturity date as per the term of sales invoice, it is called STRETCHING ACCOUNTS PAYABLE. In particular, a small firm are mainly dependent on trade credit as a source of finance because the small firm get difficulty in the time to raising funds from banks or other source in capital market. Open account trade credit appears as sundry creditor on the buyer’s balance sheet. Trade credit may also take the forms of Bill Payable. When a buyer signs any negotiable instrument to obtain trade credit, it appears on the buyer’s balance sheet as bill payable. The bill has a specified future date, and usually used when the supplier is less sure about the buyer’s unwillingness and ability to pay, or when the suppliers want cash by discounting the bill from a bank.

59

CREDIT TERMS

It means a condition under which the suppliers’ sells on credit to the buyer, and the buyer is in need to repay the credit. This condition includes the maturity date and the cash discount if any for giving the prompt payment. Maturity date is the date in which the supplier thinks that they while expects cash till that date. Cash discount is the discount, which is made for motivating the customers for the prompt payment.

BANK FINANCE FOR WORKING CAPITAL

Every businessman has nothing cash with them. But banks are the main source of financing the working capital in India. We have studies the importance of trade credit in the financing the working capital after that the trade credit the bank finance is another source of bank finance the working capital. The bank takes into consideration the firms sales, productivity and desire level of current asset in determing the working capital requirement of the firm. The amount of working capital sanctioned by the bank is known as the credit limit of the firm. Credit limit mean up to this amount the firm can take money from the bank. FORMS OF BANK FINANCE:

The major portion of working capital is provided by bank. He bank finance the working capital to the firm in various a way that are given below (I) Cash Credit: The RBI issued a directive to all scheduled commercial banks on 28th March 1970, prescribing a commitment changes which banks should levy on the unutilised portion of the credit limits. A cash credit is an arrangement by which a bank is allowing his customer to borrow money up to a certain limits against some guarantees. The interest in case of cash credit limit is charged on daily balance and not in the entire amount of the account (ii) Loans: Some time the firm require the additional money then the sensation money at that time there is the temporary accoudamation of the excess money then the sencened money is require to meet the uncertain contingencies. (iii) Overdrafts: It is a system in the bank in which the current account holder can withdraw more money then the amount available in their current account. In this type of finance amount is which the amount is repayable on the demand, this is generally continue for a long period by annual renewal of the limit. In this interest is charged on daily balances on the amount actually withdrawn subjected to some minimum charges. The person who have taken loan he can operate his account through cheques. (iv) Purchasing and Discounting of Bills: It is the one of the most important technique, which is used by the borrower in which the bank lend money to the borrower without any collateral securities. In this the goods is sold to the buyer and the seller draw a bill against the goods on the buyer for the credit purchase by the buyer. The bill may be clean bill or the bill attached by the railway receipt or any other document .In case the seller is require of cash then he will go to bank and ask to purchase of the bill and the bank will 60

purchase the bill which is payable in demand and credits the customer’s account with the amount of the bill less discount. At the maturity the bank will present the bill to the person on whom the bill is being drawn and collect the cash and incase the bill is dishonored the bank will collect whole amount from the seller with extra expenses in that connection To give more importance to bill as an instrument of credit, the RBI introduced the new bill market scheme in 1970.The Scheme was intended to reduce the borrowers’ reliance on the cash credit system which is being misuse. (v) Letter of Credit: In short we can call the letter of credit as L/C. This is mainly used for the foreign trading. It is a document in which the If a China purchase a raw material from INDIA Then on the behave of foreign company the bank will give guarantee on behalf of the foreign company that if that company is not paying then the bank will pay the amount on behalf of the company. It is a simply a guarantee by the bank to the supplier that their bills up to a specified amount that would be honored. Security Required In Bank Finance: Any person cannot give loan to any unknown person without knowing them. Generally bank does not finance working capital without adequate securities. There are various modes of securities in which the securities are taken and they are: 1. Hypothecation: In this type of securities the bank takes for giving the loans for working capital against the moveable property usually inventory .The person who have taken the loan does not transfer the possession of property to the bank. It hypothecation is a charge against property for the debt. If the borrower fails to pay his dues to the bank, the banker may file a case to realise his dues by sale of the goods or property hypothecated. 2. Pledge: It is a system of arrangement to the borrower is required to transfer the physical possession of the property or the goods to the bank as securities. The bank has a right of lien and retains possession of the goods unless payment of the principal, Interest and any other expenses are made. 3. Mortgage: It is the transfer of a legal or equitable interest in a specific immovable property. Although the possession of the property remain with the borrower but the legal paper are with the lender. In case of the borrower default in the payment then the bank can sale the goods because all the legal paper are with the bank. 4. Lien: It means right of lender to retain property belonging to the borrower until he is not repays credit. It cannot be a particular or general lien. Particular lien is a right to retain property until the claim is associated till all due of the lender are paid. VARIOUS TYPES OF BANK FINANCING FACILTITES THAT ARE AVAILED BY TRL Tata Refractories Ltd. at present there working capital is financed by mainly by two banks. They are: (I) State Bank of India (ii) Central Bank of Indi

61

TRL has divided their working capital finance in two heading. Those are fund based and nonfund base. In fund based there are various way of rising fund and SBI and CBI finance it. The various ways under the heading fund based are: CASH CREDIT: The RBI issued a directive to all scheduled commercial banks on 28th March 1970, prescribing a commitment change, which banks should levy on the unutilised portion of the credit limits. A cash credit is an arrangement by which a bank is allowing his customer to borrow money up to a certain limits against some guarantees. The interest in case of cash credit limit is charged on daily balance and not in the entire amount of the account. He is not need to borrow the entire sanctioned credit once, rather, he can take the money periodically to the extent of his requirements and repay by depositing surplus funds in his cash credit account. It is the most flexible arrangement from the borrower’s point of view. EXPORT PACKING CREDIT: If any bank gives any loan or advance or any credit provided to an exporter for financing the purchases, processing, manufacturing or packing of goods prior to shipment, on the basis of credit opened in his favour or in favour of some other person, by an overseas buyer or a confirmed and irrevocable order for the export of goods from the producing country or any other evidence of an order for export from that persons, unless lodgement of exporters order or letter of credit with the bank has been waived. The various non-fund based limits with SBI and CBI are: • Letter of Credit • Bank Guarantee Letter of Credit: In short we can call the letter of credit as L/C. This is mainly used for the foreign trading. It is a document in which the If a China purchase a raw material from INDIA Then on the behave of foreign company the bank will give guarantee on behalf of the foreign company that if that company is not paying then the bank will pay the amount on behalf of the company. It is a simply a guarantee by the bank to the supplier that their bills up to a specified amount that would be honored. Bank Guarantee: A surety is a person who agrees to be responsible for the debt or obligation of another. Furthermore, a surety is also a "security against loss or damage or for the fulfillments of an obligation, the payment of a debt, etc.; a pledge, guaranty, or bond." The situation in which a surety is most typically required is when the ability of the primary obligor or principal to perform its obligations under a contract is in question, or when there is some public or private interest which 62

requires protection from the consequences of the principal's default or delinquency. In most common law jurisdictions, a contract of surety ship is subject to the statute of frauds (or its equivalent local laws) and is only enforceable if recorded in writing and signed by the surety and the principal. If the surety is required to pay or perform due to the principal's failure to do so, the law will usually give the surety a right of subrogation, allowing the surety to "step into the shoes of" the principal and use his (the surety's) contractual rights to recover the cost of making payment or performing on the principal's behalf, even in the absence of an express agreement to that effect between the surety and the principal. The act of becoming a surety is also called a guarantee. Traditionally a guarantee was distinguished from a surety in that the surety's liability was joint and primary with the principal, whereas the guaranty's liability was ancillary and derivative, but many jurisdictions have abolished this distinction. In the United States, under Article 3 of the Uniform Commercial Code, a person who signs a negotiable instrument as a surety is termed an accommodation party; such a party may be able to assert defences to the enforcement of an instrument not available to the maker of the instrument

Usage There are several uses of the word "guarantee" in today's parlance; however the following should be used in legal documents. Guaranty is the actual document containing language of assurance. Guarantor is the entity giving the guaranty and guarantee is the entity receiving the guaranty. Following conventional English spelling rules, therefore, the plural of guaranty or verb usage of the word should be guaranties, as in "The seller (guarantor) guaranties something to the buyer (guarantee). Example: A guarantee should be absolute with no chance of ambiguity or rebuttal. An example: I spoke with Jesse this morning and he gave me the "guarantee" that the game was on at 1:00pm. The comment that the game is on at 1:00pm is an absolute, which can be verified, therefore making Jesse's "guarantee" irrefutable. A guarantee should be based on fact, which can be relied upon by others to make decisions; and not an opinion that requires interpretation. A "surety" is also known as a "bonding company SHORT TERM LOAN: The entire bank given below to TRL usually finances the short-term loan for working capital needs: (I) HDFC (II) HSBC (III) CANARA BANK The short-term loan, which is availed by the TRL, is given below: 63

Bill Discounting: It is a facility, which avails by the TRL from HDFC and HSBC through factoring Arrangement. At present TRL is availing this facility from the HDFC bank because it offers competitive rate than HSBC. Letter of Credit: This letter of credit facility is provided by the S.B.I to TRL. It is provided within the limits fixed for the working capital facilities Stand by line credit is availed also from S.B.I as a part of the funds based limit.

LIMITATION ➢ This study has been conducted within a short period of 45days. Thus, it was not possible to enter into minute aspect of finance at TRL. Belpahar.

➢ Due to the internal audit carried out by the outside auditors in the finance department the higher officials could not provide too much time for detailed discussion. ➢ The Study has only made on the finical implication of Working Capital Management and does not involve other financial and non-financial aspect of managing cash. ➢ The total report is only dependent in the Annual Report published by TRL ➢ Working Capital Management is a very wide topic and it is difficult to analyze thoroughly within the short period of time

64

CONCLUSION AND SUGGESTION Working capital it is the life blood of any company. so it is natural that differ major departments like production, marketing, purchase, inventory, maintenance along with the finance department have to function efficiently for maintaining a good working capital management. By studying the working capital of TRL the efficiency of different departments are come into picture along with that of finance department. Though TRL is managing its working capital well, a thorough study of the working capital management of the company brings out many opportunities for improvement of the company. Though TRL is trying to overcome its shortcomings at various levels, here are some suggestions for TRL, which may help to improve the working capital position. 1. TRL has introduced a group of people for overcoming from drawbacks of collecting money from their customer. At one area where TRL is lacking and it has to take immediate action in regularity in collection from debtors. It is seen many times that the focus on collections is irregular. 2. If we will see that 30 days credit payment M/S TRL actually receives its money by the end of 55th or 60th day. If possible they can try to reduce the number of credit days by offering the goods at lower price or by offering some discount to there customer. 65

– • • • 1. 2.

3. 4.

5.

6.

Track and purse late payers. Getting external help if TRL’s efforts fail. TRL marketing personals have to be hard on issue. Solve the problems of the customers vis. Problem of invoice not received, problem of wrong invoice etc. The production departments can try to improve the quality and minimize the rejections with aid of suitable techniques. The finished stocks should be stored properly otherwise some of the products which get hydrated very fast will be damaged quickly and they will be treated as non-moving current asset. Special care should be taken to reduce the non-moving finished stock that should be evaluated and production departments have to plan to minimize occurrence of such causes. In TRL coal is supplied from MCL which is near to Belpahar working unit. TRL can negotiate with MCL and receive coal on regular basis due to that the storage burden of coal for the company will reduce.. Material management department along with finance department can try to bargain with supplier to reduce the price and change the mode off payment, which is suitable for the company. Individual person assigned for different task which directly or indirectly affects the working capital should be made realise their responsibilities. This can be done by giving the persons at work more authority, responsibility, remuneration for increasing their efficiency. All different works relating persons, as it is needed as together form a team.

7. TRL is financed from two major banks with whom TRL is doing business since long time. In my opinion it should try assessing the working capital finance with other leading banks of India, whose branches are not more than 20 K.ms from the office. Who knows the new banks may provide better or comparative finance. 8. Material management department along with finance department can try to bargain with supplier to reduce the price and change the mode off payment, which is suitable for the company. 9. The production departments can try to improve the quality and minimize the rejections with aid of suitable techniques. 10. The finished stocks should be stored properly otherwise some of the products which get hydrated very fast will be damaged quickly and they will be treated as non-moving current asset. 11. Material management department along with finance department can try to bargain with supplier to reduce the price and change the mode off payment, which is suitable for the company. 12. Debtor’s realization in not very much smooth and regular which should be looked into with some kind of innovative credit policy as a result of which helps the drawing power under Maximum Permissible Bank Finance to a favorable condition.The utilization of current 66

assets towards repayment of creditors and other liabilities should be proper and accurate in order to derive maximum drawing power under MPBF. What we have seen between the financial year 2005-06 and 2006-07 MPBF drawing power has been sustainably reduced due to realization of loans and advances to repay the creditors which should not be the practices in general. 13. The company should plan the repayment schedule of its loan and advances in such a way that a minimum burden should fall on the company’s liquidity and working capital requirements. 16.Repayment of bank borrowings particularly working capital finance through surplus cash to reduce the interest cost

APPENDIX

67

BALANCE SHEET AS ON 31ST MARCH 2004,05,06

Particulars

As on 31/03/2004

As on 31/03/2005

As on 31/03/2006

1.Share Capital

11,00,00,000

11,00,00,000

20,90,00,000

2.Reserves and Surplus

38,62,91,362

61,46,64,680

161,65,65,593

FUNDS EMPLOYED

3.Share Application Money Pending Allotment 4.Total Shareholder's Funds

26,44,64,680 49,62,91,362

98,91,34,520

182,55,65,593

(a)Secured

40,86,54,812

37,15,94,969

80,34,24,189

(b)Unsecured

12,67,79,147

12,95,91,749

8,77,10,85

6.Deferredb Payment Credit

12,98,57,895

7,87,77,632

2,02,28,416

7.Deferred Tax Liability(Net)

8,65,34,833

12,72,07,749

13,85,51,901

8.Provision For Employee Separation Compensation

18,74,90,094

16,22,16,980

13,84,69,881

9.Total Funds Employed

143,56,08,143

185,85,23,599

301,39,50,835

(a)Gross blocks

185,84,04,064

225,08,14,488

313,00,95,009

(b)Less: Depreciation

1,10,18,68,978

1,16,32,54,660

125,49,49,206

(c)Net Block

75,65,35,086

1,08,75,59,828

187,51,45,803

11. Investment

1,19,50,530

1,00,96,270

1,00,96,325

(a)Stores and Spare Parts (at cost)

4,49,45,895

4,46,55,042

4,35,67,566

(b)Loose Tools

9,23,578

11,69,508

10,77,258

(c)Stock in Trade

56,02,67,707

63,65,90,022

63,21,91,956

(d)Sundry Debtors

49,82,40,490

66,67,41,534

78,13,27,686

(e)Cash and Bank Balances

2,19,89,892

9,27,98,670

3,47,76,842

(f)Income Accrued On Deposits

1,16,424

25,739

9,750

(g)Loans and Advances

22,80,32,557

41,25,09,777

80,94,99,847

Total Current Assets

135,45,16,543

185,44,90,292

230,24,50,905

51,77,75,891

76,35,78,201

67,02,52,012

5.Loans

APPLICATION OF FUNDS 10.Fixed Assets

12.Current Assete,Loans and Advances

13.Less:CURRENT LIABILITIES & PROVISIONS (a)Current Liabilities

68

BALANCE SHEET AS ON 31ST MARCH 2008 AND 2007 Particulars

As on 31/03/2007

As on 31/03/2008

1.Share Capital

20,90,00,000

20,90,00,000

2.Reserves and Surplus

166,86,67,304

179,96,37,740

187,76,67,304

200,86,37,740

(a) Secured

113,71,48,864

124,34,93,987

(b) Unsecured

239,43,000

1,69,15,448

7.Deferred Tax Liability (Net)

175,065,246

13,81,95,577

8.Provision For Employee Separation Compensation

11,22,54,335

8,74,21,010

9.Total Funds Employed

332,60,78,749

349,46,63,762

(a)Gross blocks

325,62,44,372

330,64,06,453

(b) Less: Depreciation

137,54,29,725

153,77,49,761

(c) Net Block

188,08,14,647

176,86,56,692

11. Investment

33,89,34,595

33,89,34,595

(a) Stores and Spare Parts (at cost)

6,40,02,684

8.53,67,154

(b) Loose Tools

11.64,815

18,22,760

(c) Stock in Trade

58,61,30,368

85,13,94,581

FUNDS EMPLOYED

3.Share Application Money Pending Allotment 4.Total Shareholder's Funds 5.Loans

6.Deferredb Payment Credit

APPLICATION OF FUNDS 10.Fixed Assets

12.Current Asset, Loans and Advances

69

(d) Sundry Debtors

103,75,57,010

109,44,61,154

(e)Cash and Bank Balances

3,42,38,276

6,47,80,695

(f)Income Accrued On Deposits

52,627

7,945

(g) Loans and Advances

36,88,35,136

39,93,83,542

Total Current Assets

254,66,60,234

249,72,17,831

(a)Current Liabilities

89,95,46,583

85,75,18,398

(b)Provisions

54,07,84,144

25,26,26,958

144,03,30,727

111,01,45,356

14.Net Current Assets

110,63,29,507

138,70,72,475

15.Total Assets [Net]

332,60,78,749

349,46,63,762

13.Less: CURRENT LIABILITIES & PROVISIONS

PROFIT AND LOSS AND ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2008 AND 2007 31st march 2008

31st March 2007

584,59,23,088

516,75,44,869

57,38,24,714

57,20,23,668

527,20,98,374

459,55,21,201

2. Other income

2,66,93,209

4,40,54,013

3.Total Income

529,87,91,583

463,95,75,214

4. Manufacturing and Other Expenses

464,17,32,539

410,69,91,619

5. Depreciation

18,10,51,81

17,17,71,165

6. interest

11,74,80,260

8,82,37,087

Particulars INCOME 1. Sale of Products and Services Less: exercise duty

EXPENDITURE

7. Less: Expenditure included in above

70

Items (other than interest ) capitalized

(1,45,08,497)

(4,00,65,089)

8. Employee Separation Compensation

54,04,319

66,90,836

Total Expenditure

493,11,59,802

433,36,25,618

PROFIT BEFORE TAXES

36,76,31,781

30,59,49,696

a. Current

(12,60,00,000)

(5,00,00,000)

b. Deferred

3,68,69,669

(6,29,52,787)

c. Fringe Benefit Tax

(38,00,000)

(33,52,637)

d. Taxation for earlier years

(5,81,49,171)

1,48,492

PROFIT AFTER TAXES

21,65,52,279

18,97,92,664

10. Balance brought forward from last Year

19,30,09,320

23,87,98,499

11. Amount available for appropriation

40,95,61,599

23,85,91,163

a. Proposed dividend

7,31,50,000

7,31,50,000

b. Corporate dividend tax

1,24,31,843

1,24,31,843

c. Transferred to General Reserve

15,00,00,000

15,00,00,000

Balance Carried to balance sheet

17,39,79,756

19,30,09,320

Earning per share

10.36

9.08

Nil

Nil

10

10

9. Provision for Income Tax :

12. Appropriations:

Face value per share

PROFIT AND LOSS AND ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2004, 2005, 2006

71

31st march 2006

31st March 2005

31st March 2004

455,70,76,293

400,54,21,306

317,07,24,228

63,31,74,649

47,24,81,890

37,28,14,875

402,39,01,644

353,29,39,416

279,79,09,353

2. Other income

4,71,73,897

3,10,32,355

1,70,20,326

3.Total Income

407,10,75,541

356,30,71,771

281,49,29,679

4. Manufacturing and Other Expenses

354,40,72,995

306,62,56,350

242,00,72,065

5. Depreciation

11,13,17,185

8,15,97,822

8,22,55,900

6. interest

3,16,49,521

3,37,40,749

4,94,81,837

Items (other than interest ) capitalized

(14,47,43,641)

(9,61,31,330)

(3,18,02,514)

8. Employee Separation Compensation

1,20,63,999

1,10,53,529

2,90,73,092

Total Expenditure

355,43,60,059

309,65,17,120

254,90,80,380

PROFIT BEFORE TAXES

51,67,15,482

46,65,54,651

26,58,49,299

a. Current

(14,45,00,000)

(13,26,00,000)

(8,60,00,000)

b. Deferred

(1,13,44,152)

(4,06,72,961)

(1,43,80,862)

c. Fringe Benefit Tax

(68,29,895)

Nil

Nil

d. Taxation for earlier years

Nil

(27,20,604)

Nil

PROFIT AFTER TAXES

35,40,41,435

29,05,61,131

16,54,68,437

10. Balance brought forward from last Year

12,93,97,586

5,10,24,268

2,27,83,956

11. Amount available for appropriation

48,34,39,021

34,15,85,399

18,82,52,393

a. Proposed dividend

8,29,99,800

5,50,00,000

3,30,00,000

b. Corporate dividend tax

1,16,40,722

71,87,813

42,28,125

c. Transferred to General Reserve

15,00,00,000

15,00,00,000

10,00,00,000

Balance Carried to balance sheet

23,87,98,499

12,93,97,586

5,10,24,268

Earning per share

21.33

26.41

15.04

21.33

25.73

15.04

10

10

10

Particulars INCOME 1. Sale of Products and Services Less: exercise duty

EXPENDITURE

7. Less: Expenditure included in above

9. Provision for Income Tax :

12. Appropriations:

Face value per share

72

PERFORMANCE OF TRL Vs. COMPETITORS COMPANY

PARTICULARS

2002-03 2003-04 2004-05 2005-06 2006-07

TRL Sales Revenue excluding Excise Duty (Rs. Lacs) EBIDTA (Rs.Lacs) EBIDTA (% of Revenue) Depreciation (Rs. Lacs) Depreciation (% of Revenue) Interest (Rs. Lacs) Interest (% of Revenue) Profit before Tax (Rs. Lacs) Profit before Tax (% of Revenue) Profit after Tax (Rs. Lacs) Profit after Tax (% of Revenue) Capital Investment (Rs. Lacs)

24379

28149

35631

40711

46396

2288

3976

5819

6597

5660

9

14

16

16

12

815

823

816

1113

1718

3

3

2

3

4

739

495

337

316

882

3

2

1

1

2

734

2658

4666

5167

3059

3

9

13

13

7

674

1655

2906

3540

1898

3

6

8

9

4

674

2498

3924

8793

1261

31546

38893

49150

55832

81795

4594

6139

7169

9326

16983

15

16

15

17

21

1411

1969

2214

2704

3296

4

5

5

5

4

771

671

1296

1335

2506

2

2

3

2

3

2412

3499

3659

5287

11181

8

9

7

9

14

1833

2261

2817

3509

7176

6

6

6

6

9

2838

6932

11616

12086

OCL INDIA LTD Sales Revenue excluding Excise Duty (Rs. Lacs) EBIDTA (Rs.Lacs) EBIDTA (% of Revenue) Depreciation (Rs. Lacs) Depreciation (% of Revenue) Interest (Rs. Lacs) Interest (% of Revenue) Profit before Tax (Rs. Lacs) Profit before Tax (% of Revenue) Profit after Tax (Rs. Lacs) Profit after Tax (% of Revenue) Capital Investment (Rs. Lacs)

73

IFGL REFRACTORIES LTD Sales Revenue excluding Excise Duty (Rs. Lacs)

7461.5

9339

11387

13092

15149

EBIDTA (Rs.Lacs)

1282.6

1837

2345

2895

3304

74

EBIDTA (% of Revenue)

17

20

21

22

22

Depreciation (Rs. Lacs)

664

430

386

411

368

9

5

3

3

2

16

50

38

95

430

0

1

0

1

3

603

1357

1921

2389

2526

8

15

17

18

17

298

861

1195

1550

1639

4

9

10

12

11

91

717

446

968

72

Depreciation (% of Revenue) Interest (Rs. Lacs) Interest (% of Revenue) Profit before Tax (Rs. Lacs) Profit before Tax (% of Revenue) Profit after Tax (Rs. Lacs) Profit after Tax (% of Revenue) Capital Investment (Rs. Lacs)

BIBLOGRAPHY 75

– www.tataref.com – www.indiarefractory.com – www.ocl.com – www.Ifgl.com – www.tata.com – www.tatasteel.com – www.moneycontrol.com – www.pdfcoke.com – www.wikipedia.com – Tata Refractory Annual report(20003-04 to 2007-08) – Tata Refractory Mazagines (Magazine published by CFA) – TBEM Application 2009 – Financial Management by: I.M. Pandey – Financial Management by: Sharma Gupta(From 18.1 to 21.20) – Status & Outlook of India Refractory Industry (B. V. Raja) – Refractory Sector Immune To Global Economic Meltdown (Steel World Research Team)

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