Projec Vyom

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HCL INFOSYSTEMS LIMITED PROJECT REPORT ON

Working capital management

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SUPERVISOR MR. Virender Pasricha

SUBMITTED BY Mishrkeshi Mishra

MANAGER ACCOUNTS

MBF (2006-2008)

HCL

Indian Institute of Finance DELHI

ROLL. NO.4106095095

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TABLE OF CONTENTS

>AIM OF THE PROJECT >STATEMENT OF PROBLEM >INTRODUCTION OF THE PROJECT >INTRODUCTION OF HCL >COMPANY PROFILE >FINANCIAL HIGHLIGHTS >PRODUCTS >SCOPE OF STUDY >ANALYSIS OF DATA >METHOD OF COLLECTING DATA & SOURCE >SUMMARY OF FINDINGS >RECOMMENDATIONS >LIMITATIONS >CONCLUSION >REFERENCES /BIBLOGRAPHY >GLOSSARY

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ACKNOWLEDGEMENT I take this oppurtunity to express my heart-felt thankfulness to every one who has given a valuable contribution towards the successful completion of my project I also want to convey my deepest gratitude to my project guide Mr. Virendra Pasricha for his continuous guidance and never ending encouragement. I would also like to extend my thanks to Mr.N.Sharma and Ms. R. K.Goel for their guidance, help and cooperation. I also wish to express my gratitude to Prof (Col) J D Agarwal Chairman, Indian Institute of Finance, Delhi and all the Faculty members and friends who played an important role in the successful completion of this project.

Date: Place:

Mishrkeshi Mishra

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AIM OF THE PROJECT

TO

LEARN ABOUT

WORKING CAPITAL.

PRACTICAL MANAGEMENT

OF

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STATEMENT OF THE PROBLEM

 How to improve the cash position of the company & how to reduce bills receivable.



How to keep a sufficient inventory level so as to meet the requirements of the customer on time.

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INTRODUCTION This project deals with working capital management. Working capital management involves with two things I)- current assets management, II)-financing of these current assets. Current assets include: cash, marketable securities, bills receivable, inventory, prepaid expenses etc. this project only cash, inventory, and bills receivable management have been reviewed for the concern, under study. The first part of the project deals with cash management the terms current assets and cash are most often used synonymously. Cash is the most liquid current asset and is the common denominator to which all current assets can be reduced. This underlines the significance of cash management. The basic objective of cash management is two-fold: to meet the cash disbursement needs or the payment schedules and to minimize funds committed to cash balances. These are mutually contradictory and conflicting and the task of cash management is to reconcile them. The broad cash management strategies are essentially related to the cash cycle together with the cash turnover. The cash cycle refers to the process by which cash is used to purchase materials from which goods are produced, which are

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then sold to customers, who later pay the bills. The firm receives cash from the customers and the cycle repeats itself. The number of repetitions is the cash turnover. In addressing the issue of cash management major concern is on the time periods

involved in material received, payments, cheque Clearance, Customer mailed payments, payments received, cheque deposited with banks, funds collection.

OVERVIEW

HCL is a leading global Technology and IT enterprises with annual revenues of US$ 4 billion. The HCL Enterprise comprises two companies listed in India, HCL Technologies (www.hcltech.com) and HCL Infosystems (www.hclinfosystems.in) The 30 year old enterprise, founded in 1976, is one of India's original IT garage start ups. Its range of offerings span R&D and Technology Services, Enterprise and Applications Consulting, Remote Infrastructure Management,

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BPO services, IT Hardware, Systems Integration and Distribution of Technology and Telecom products in India. The HCL team comprises 45,000 professionals of diverse nationalities, operating across 17 countries including 360 points of presence in India. HCL has global partnerships with several leading Fortune 1000 firms, including several IT and Technology majors.

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THE HCL DNA •

Fueled by the entrepreneurial zeal of its founders, HCL developed the first indigenous micro-computer in 1978, at the same time as Apple. Since then, HCL has had a 3 decade rich history of inventions and innovations. Intrapreneur is the term that best describes the HCL employees. The TIME magazine has referred to HCL as an "intellectual clean room where its employees could imagine endless possibilities."

•

Ever since HCL entered into an alliance in 1970s, partnerships and HCL have been inseparable. Bonds have been forged with partners to co-create value. Strong inorganic growth is a testimony to the spirit of partnerships.

•

This entrepreneurial and win-win relationship driven culture continues to guide HCL in all its endeavors.

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OUR PURPOSE

Vision Statement

“Together we create enterprises of tomorrow.’’

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Mission Statement

“To provide world class information technology solutions and services

to enable our customers to serve their customers better.

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QUALITY POLICY STATEMENT

"We will deliver defect-free products, Services and solutions to meet the requirements our external and internal customers the first time, every time.”

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HISTORY

Born in 1976, HCL has a 3 decade rich history of inventions and innovations. In 1978, HCL developed the first indigenous micro-computer at the same time as Apple and 3 years before IBM's PC. During this period, India was a black box to the world and the world was a black box to India. This micro-computer virtually gave birth to the Indian computer industry. The 80's saw HCL developing know-how in many other technologies. HCL's in-depth knowledge of Unix led to the development of a fine grained multi-processor Unix in 1988, three years ahead of Sun and HP. HCL's R&D was spun off as HCL Technologies in 1997 to mark their advent into the software services arena. During the last eight years, HCL has strengthened its processes and applied its know-how, developed over 30 years into multiple practices - semi-conductor, operating systems, automobile, avionics, bio-medical engineering, wireless, telecom technologies, and many more. Today, HCL sells more PCs in India than any other brand, runs Northern Ireland's largest BPO operation, and manages the network for Asia's largest stock exchange network apart from designing zero visibility landing systems to land the world's most popular airplane. TIMELINE 1976 -

Hindustan Computers Limited (HCL) born.

1977 - Distribution alliance formed with Toshiba for copiers. 1978 HCL successfully ships in-house designed micro-computer at the same time as Apple. The Indian computer industry is born. 1980 -

HCL introduces bit sliced, 16-bit processor based micro-computer.

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1983 - Indigenously develops an RDBMS, a Networking OS and a Client Server architecture, at the same time as global IT peers. 1986 -

HCL becomes the largest IT company in India.

1988 -

HCL introduces fine grained multi-processor Unix-3 years ahead of “Sun” and “HP

1990 -

Data Quest marks HCL No.1 amongst top ten computer giants.

1991 -

HCL Ltd. and Hewlett Packard, USA, partner to form HCL-Hewlett Packard Ltd. - JV develops multi-processor Unix for HP-heralds HCL’s entry into contract R&D.

1994 -

Distribution alliances formed with Ericsson Switches and Nokia Cell phones.

1997 -

HCL

Infosystems

is

formed.

- HCL's R&D spun-off as HCL Technologies- marks advent into software services. - JV with Perot Systems, stake divested in 2003.

1999 -

Initial

Public

Offering

made

- Formation of Global Board of Directors.

by

HCL

Technologies

Ltd.

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2000 -

Large contracts won from Bankers Trust, KLA Tencor, Cisco, GTech, NEC among others.

2001 -

JV

with

Deutsche

-

Bank-

DSL

HCL

software

BPO

formed. Incorporated.

- Acquired British Telecom’s Apollo’s contact center in Belfast, Northern Ireland. - HCL Infosystems becomes largest hardware company. 2002 -

Strong pursuit of nonlinear strategy to widen services portfolio; several JVs and alliances formed. - Strategic alliance forged with Jones Apparel Group, Inc. a fortune 500 company. - Infrastructure services division launched to address emerging global needs. - Software businesses of HCL Infosystems and HCL Technologies merged.

2003 -

Largest BPO order ever outsourced to an Indian BPO firm, won from British Telecom. - Landmark deals signed with Airbus and AMD.

2004 -Accorded

leader

status

by

Meta

Group

in

Offshore

Outsourcing.

- HCL is India’s No.1 PC 4th year in a row 2005 - HCL signs Software Development Agreement with Boeing for the 787 Dreamliner program. -

JV HCL

sets

up

with first

Power

PC

architecture

NEC, design

centre

Japan. outside

of

IBM.

- Completes buy-out of JVs with Deutsche Bank and British Telecom's Apollo Contact Centre.

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-

HCL

integrates

all

group

employees

under

hcl.in

domain.

- Sets up a dedicated Offshore Design Center for leading Tier-1 Aerospace supplier, Hamilton Sundstrand. - HCL Infosystems launches sub Rs.10,000 PC. Joins hands with AMD, Microsoft to bridge the digital divide. 2006 -

75,000+

machines

produced

in

a

single

month.

- HCL Infosystems in partnership with Toshiba expands its retail presence in India by unveiling 'shopToshiba'. -

HCL

Infosystems

&

Nokia

announce

a

long

term

distribution

strategy.

- HCL the leader in Desktops PCs unveils India's first segment specific range of notebooks brand 'HCL

Leaptops'.

- HCL Infosystems showcases Computer Solutions for the Rural Markets in India. - HCL Support wins the DQ Channels-2006 GOLD Award for Best After Sales Service on a nationwide

customer

satisfaction

survey

conducted

by

IDC.

- HCL AND ZEE - Dish TV team up to take DTH TV to its next level of growth in India - HCL Infosystems First in India to Launch the New Generation of High Performance Server Platforms

Powered

by

Intel

Dual

-

Core

Xeon

5000

Processor.

- HCL Forms a Strategic Partnership with APPLE to provide Sales & Service Support for iPods in India.

Business Model The HCL Enterprise comprises two companies listed in India, HCL Technologies and HCL Infosystems. HCL Technologies is the IT and BPO services arm focused on global markets, while HCL Infosystems is the IT, Communication, Office Automation Products & System Integration arm focused on the Indian market. Together, these entities have uniquely positioned HCL as an enterprise with service offerings spanning the IT Services and Product spectrum.

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INITIATIVES AND ACHIEVEMENTS 2005-2006 Some of the initiatives and achievements are: •

IDC reported that the company was number one in desktop PC sales for the fifth year in a row

•

DATAQUEST Top20 Report 2005 rates HCL Infosystems as the largest PC manufacturer with market share of over 13.7%

•

HCL announced the launch of PC for India the HCL sub 10K PC

•

It entered into a partnership with a Bank to make PCs more affordable. Lowest ever EMI in India : Rs499 for HCL Ezebee

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Launched the next generation Xeon processor based Infiniti Global Line 2700 server series

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It launched RP2 system to overcome power problems for PC users

•

It got the SAP standard Application Benchmarks certification on the Infiniti Global Line 4800TG high performance enterprise server.

•

The company launched a ground breaking platform with four terminal PC-One that offers multiple user system.

Performance The consolidated net revenue of the company was Rs. 11402.16 crores as against Rs. 7788.58 crores in the previous year. The consolidated profit befor tax was rs. 385.26 crores as against rs. 296.01 crores in previous year.

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The net revenue and profit before tax of the parent company were rs. 2311.71 crores and rs 131.52 crores respectively. During the year, your company and nokia jointly announced a long term distribution strategy for further developing the rapidly growing Indian mobile phones market.As per the revised arrangement, nokia would add certain areas for direct billing by them so as to ultimately maintain a balanced channel mix, for GSM handsets. As a part of this announcement, your company’s distribution agreement with Nokia has been extended for the next several years.

In FY 2005-2006, HCL Infosystems Ltd., India’s premier information enabling company, continued its growth and maintained its leadership position in the Desktop PC market.

FINANCIAL INFORMATION

YEAR ENDED JUNE 30 TOTAL REVENUE PROFIT AFTER TAX OPERATING MARGIN RETURN ON NET WORTH RETURN ON CAPITA EMPLOYED

2006 11455 280 8% 40% 35%

2005 7787 228 9% 41% 35%

2004 4412 175 7% 41% 35%

2003 2705 93 5% 31% 23%

2002 1367 15 8% 6% 4%

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ALLIANCES AND PARTNERSHIPS

To provide world- class solutions and services to all the customers, HCL has formed alliances and partnerships with leading IT companies’ worldwide. HCL Infosystems Ltd has alliances with global technology leaders like Intel, AMD, Toshiba, Ericsson, Microsoft, SAP, Scansoft, SCO, EMC, Veritas, Citrix, CISCO, Oracle, Computer associates, RedHat, Infocus, Duplo, Samsung, Novell. These alliances on one hand give the best technology and products as well as enhance the understanding of the latest technology. On the other hand they enhance our product portfolio, and enable the company to be one stop shop for customers.

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Shares Holding Pattern Holding Pattern of HCL Infosystem as on Description Total Foreign

% of Holding 31.03

Total Institutions

5.50

Total Govt. Holding

0.00

Total Non-Promoter Corporate Holdings

0.93

Total Promoters Total Public & Others Total

54.59 7.95 100.00

SALES AND MARKETING Sales & Marketing function at HCL Infosystems spearheads the delivery of solutions in the corporate market. The Direct Sales Organization (DSO) has nine major business geographic entities, headed by a business entity manager. In addition to the Enterprise 2000, addresses the solution market in three major verticals of Manufacturing, Finance & Banking and Telecom. The marketing Head-Office is located at Noida, which looks after all product management activities & coordinates large deals.

Professional Services Organization (PSO)

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The company with its focus shifting towards total solutions enhanced its PSO. HCL Infosystem PSO provides it’s solutions expertise through 600 software experts, 9 domestic support development centers, 3 export software factories and it’s specialized centers of excellence at Mumbai and Chennai and the SAP center of excellence at Noida. PSO continues to consolidate it’s position as the largest technology integrator in the country, by offering systems integration and software consultancy services to industries such as finance, banking, telecommunications and manufacturing.

PSO has now matured its processes to extend its charter into the following four major service areas: High level IT consulting High value, large systems integration projects execution with the company being the prime contractor Turnkey software development projects both for domestic and overseas customers Functional consulting and implementation services for ERP projects. PSO entered into a very significant alliance with SAP, the world’s largest ERP software company, by setting up the SAP centers of excellence at Noida dedicated to providing functional consulting and implementation services. Another milestone achieved by PSO in creating business relationship for offshore projects is CIGNA, leading provider of health care, insurance and financial services, throughout the US and around the world by opening CIGNA-HCL Technology Center (CHTC) wherein HCL has a MOU extending HCL’s six-year relationship till the year 2000 on CHTC. PSO follows world class standards for development and delivery of solutions. PSO’s facilities at Chennai and Coimbatore are ISO 9001 certified. To further elevate its software process capability, PSO aims to attain SEI Level III as prescribed by the SEI (Software Engineering Institute) of the US at Noida and Level IV at Chennai.

SYSTEMS SUPPORT ORGANIZATION (SSO)

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Even as every branch of the company geared itself to take on the new role of a technology integrator, customer support continues to be one of the HCL lnfosystem’s competitive edges today and tomorrow. It’s SSO is perhaps the only support set up in the country capable of Providing direct support even at inaccessible locations and 21 test and repair centers, value added services such as APEX, site preparation, complex networking, performance tuning, and disaster recovery play an important role in it’s increasing success among it’s customers in India.

Information Management by Information Systems Department HCL Infosystems has one of the most extensive and multi locational networks for information sharing. The management initiative and focus started way back in 1987 where a centralized Information System (IS) group was formed for managing the company’s critical information for key business processes and decision-making. Subsequent to this, major thrust was given to strengthen and widen the scope information capturing & sharing the information throughout the organization. With this, centralized data was made available to decentralized servers with daily upload and downloads for ensuring data parity. Over the years we have upgraded our IS servers with faster and latest technology hardware (from 8088 based computers to the latest K Class RISC servers from HP). The RDBMS application software was also upgraded from Unify to Oracle and further to the currently used SAP R/3 systems. With implementation of ERP system the data was shifted from decentralized to centralized servers with online sharing, countrywide via fast communication means through VSAT, leased lines, LAN & Radio links. Right from customer sales order punching, information related to inventories, production, shipment delivery and finance are available online. Availability of key critical business information like customer order management, material inventory management, vendor management & cash flow management has helped in managing our key processes effectively and efficiently. General security of information is ensured by extensive backup

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procedures, controlled by well-designed processes for disaster management & recovery. Limited & controlled access is allowed to the Information System servers. The relevant data for employees like attendance, payroll, salary slips, tax are also available on ERP system. The information access is controlled through provision of different function wise logins, protected by passwords. Unauthorized network access to ERP server has been protected by "Firewall" software. Only authorized personnel are allowed to access & work on the system. The continuous functioning of the ERP system server is ensured through fault tolerant UPS and Generator combination. The access to the server room is restricted and only authorized personnel are allowed to access. The back up of data is taken periodically and the backup tapes/cartridges are stored in fireproof storage. •

Information is captured manually or through ERP system in different reports (like, DORT, BFT, QAG etc.) which and shared in different forum at Management/working level (like MCM, QIT etc.).

Lot of information sharing happens through circulars, regular meetings, quality notice boards, Intouch magazine, Technical Advisory note, technical mails, DTSR etc. Most of this information is shared electronically through email and HCL Insys Intranet. HCL Insys’s Intranet is regularly updated by the relevant functions wherein a lot of technical/general information is made available to all the employees. Information updation / accesses on these are also controlled through authorized logins and passwords. This information is also protected against VIRUS by VIRUS Scanning Software.

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Escalati on P rocess HCLInfosystems Support Representatives resolve most problems quickly

Support Support Requested Requested

Timely Resolution ?

YES

HCL Infosystems activates additional resources to ensure efficient resolution of unusual problems.

NO

Problem Problem Escalated Escalated

Activate Activate Additional Additional Resources Resources

Problem Resolved? YES Monitor Monitor

Problem Problem Solved Solved

Review Review

NO

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The escalation process management and back-up systems and processes enhance the support quality. The customer satisfaction level of the company is at par with the best in the world. The company conducts User Meets of the customers, technical seminars and indirect feedback to analyze lapses and implement the solutions to meet the continuously increasing customer expectations. Thus to support the largest installed base of computers in the industry, HCL has set up maintenance watch that guarantees proactive support service and maintains the performance of critical elements of the system.  Escalation Management Program, which involves the application of an increasingly higher level of expertise to any maintenance problem until it, is completely resolved.



Regular User meets, wherein senior HCL Infosystems interact with customers to get a direct feedback on customer satisfaction levels.

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MANUFACTURING HCL Infosystems Manufacturing Organization –is the largest manufacturing organization in the country with its ISO 9001 certified factory, for computers at Pondicherry. In recognizing the challenges posed by the changing IT environment, HCL Manufacturing has consistently and continuously evolved and improved its processes, guided the development and transition to the latest technology and products for its customers, both internal and external. As information technology needs mature, the IT industry has witnessed a continual evolution through a progressively finer segmentation of markets. Design and delivery of solutions across diverse hardware platforms, and the ability to respond to the rapid penetration & usage of PC s, fast changing roadmaps, convergence in technology,

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turbulence in supply chain are key determinants for success in the current IT environment. HCL Manufacturing has always performed beyond the expectations of its customers. Growing continuously the HCL Manufacturing has developed a strong combination of competent people and technologies. Currently the HCL Manufacturing factories have got the capacity to manufacture 15,000 PCs per month per shift.

Manufacturing Objectives *Ensure that the delivery commitments made to our customers are met on time. *Improve the rate of defect free shipments *Improve the response time to resolve customer problems Key Activities HCL Manufacturing Organization has following key activities *Design and Development of Products and Solutions *Product and Process Engineering *Supply Chain Management and Vendor Development *Manufacturing resource planning and scheduling *Materials Management *Quality Management *Production , System Integration and Test control *Configuring to Customers’ requirements *Outbound shipments and Delivery management

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ENGINEERING FUNCTION As a manufacturing company, One of the main focus and key strength is our engineering function. We lay a lot of emphasis on the engineering function, thereby building the quality into the design itself. The key focus areas in our Product Engineering function are: * Product Development – Taking inputs from Customers, Markets and competition product analysis, we develop the specifications and products. * Product Engineering: To evaluate a product before its launch and release to manufacturing. * Process Engineering: To arrive at correct processes to ensure productivity & reliability * Test Engineering: To ensure fool proof testing methods and facilities * Industrial Engineering: To ensure proper layout and equipment for optimum productivity * Materials engineering: To ensure that only good quality material are selected for our products and conformance to specifications and standards. * Other key activities include Change management, Technical marketing and Technical Training for Internal and external customers.

We continuously improve our products and processes to provide leading edge technology products and services to or customers ahead of competition.

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HCL LAB – The facility in Noida and Pondicherry identify, evaluate, test, exploit and qualify the technology and products. The Labs ensure the functionality and compatibility of components and sub-assemblies approved. HCL Labs has been functioning since long to provide quality hardware to the Indian market. Our specialized technology skill spans hardware, operating systems, drivers and middlewares for distributed computing and management.

QUALITY IN MANUFACTURING -

Quality for us is not just conformance to standards but meeting or exceeding the customer expectations. We believe customer satisfaction is achieving customer delight. Quality is built into our processes right from beginning. We certified our plants under ISO 9002 with System Improvement as a goal. Some of our quality processes are: Fool Proof Integration and Testing Processes to ensure minimum operator intervention. Maximum care handling processes for Electrostatic Discharge (ESD) sensitive items and Hard Disks to avoid immediate and latent failures. (These handling standards are at par and even exceed to that used by MNCs across the globe). Frequent Process and Product Audits. Apart from these areas, quality is a way of life in the Manufacturing Organization. Factory QIT (Quality Improvement Team) leads the company-wide implementation of Philip B. Crosby's Quality Improvement Process. This improvement process ensures that

everybody in the company is educated on quality and the tools required to build quality into our working, not just products.

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HCL Labs has been functioning since long to provide quality hardware to the Indian market. Our specialized technology skill spans hardware, operating systems, drivers and middlewares for distributed computing and management. We carry our special environmental testing so that our products operate smoothly under the varied weather, power and transportation conditions in India. Over time, we have developed close interaction with other test labs all over the world such as Intel, Microsoft, NSTL, SCO, Novell, Seagate, Quantum, to name a few. We work as a Beta testing site of Intel server products. Our products are certified from Microsoft, Novell and SCO; this helps us to remain a technology leader as well as provide quick solutions to our customers in this highly dynamic, open-ended and hightech world.

PRODUCTION FACILITY –

The Production facility at Pondicherry is a state-of-art manufacturing unit and the largest in the country with a capacity to manufacture 1,50,000 units per shift per annum. To meet the international quality and process standards and to adhere to product test methodology the factory is equipped with latest tools and equipment, ESD certified workforce and workstations, special Hard Disk handling work areas. With SAP ERP controlling the production and planning the organization exercises not only better control over resources and planning but also more flexibility and online real time accessibility of information. Through this we achieve lowest Annualized Failure Rates and best cycle times consistently. The production facility is flexible enough to handle peak loads when the situation demands.

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STRENGHTHS OF MANUFACTURING *Processes Benchmarked against the world’s best *ISO 9001 Certified. *Company wide implementation of Philip B. Crosby’s Quality Improvement Process Management *Working on the Excellence model as per EFQM *High investment in Engineering resources *World class plant layout *Proven and reliable delivery network across the country *Factory Electronically connected to all major offices in India and world wide *Web enabled transactions with major vendors and Customs etc. *24 Years of Manufacturing experience *Expertise in Technology transfer *Experience in Contract Manufacturing for overseas markets. *Processes and reliable delivery network. *Factory accessible through dedicated VSAT link from all major cities in India

Pondicherry Manufacturing Operations (PMO) is an extension of HCL INFOSYSTEMS Computer manufacturing function. It is located at Pondicherry (150Km. from Chennai) on a 33,000 Sq. Ft. facility and became operational from Nov'96.

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HCL Infosystems manufacturing unit both at Noida & Pondicherry has been awarded the ISO 9002 Certification by the BVQI for quality systems. The plants are fully automatic & equipped with the state-of-the-art facilities. The processes are in-built with Quality. The key activities in manufacturing are. -Vendor Development and Materials Management  Product and Process Engineering  Quality Management  Integration and Testing

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Quality is the way of life in our manufacturing organization.

PRODUCTS & SOLUTIONS HCL recommends Microsoft,windows,xp professional for business. HCL Infosystems' portfolio of products covers the entire spectrum of the information technology needs of its customers.

By virtue of the immense diversity of markets and customers that it addresses, HCL Infosystems' products offerings include everything from high end enterprise level servers for mission critical applications to multimedia home computers. You may be a large multi-location company exploring solutions to e-enable your organization or you may be a new born rising star looking for someone for IT Planning or setting up your IT Infrastructure, HCL Infosystems has a solution tailor-made for you.

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DESKTOPS -Business PCs -Home PCs -Workstations -Mobile Desktops SERVERS Intel Servers -Infiniti GL Servers -Infiniti Solutions

In today's competitive business environment, these servers are your foundation for a dependable network- helping you reduce costs and boost profits and keeping you ahead of competition. If you are investing in computer technology , invest in these servers and get a new level of dependability and productivity. HCL presents power packed performance through its wide range of servers to choose from . The wide range of servers are designed to respond to your changing business needs. They provide the perfect building block necessary to run your business, today and tomorrow.

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Infiniti Xcel Line Servers -Infiniti Xcel Line 2200AZ SUN Servers HP Risc Servers & Workstations

WINBEE Thin Clients SUN Thin Clients WINBEE Thin Clients SUN Thin Clients Display Products HCL Peripherals offers a powerful range of WINBee Thin Clients based on Beelin, which gives the end customers the look and feel of working on a Windows environment. Its superior graphical interface provides the users with the most easiest and efficient way of getting connected to respective servers. The Clients Remote management software, the Bee Control gives the administrator Zero Administration risk which allows him to have full control of WINBee from a single location with ease and security. In addition to this we have provided the administrator to administer the client from any location just with the help of a PC Browser . With our new Desktop and Application mode, the administrator has the flexibility to assign the common users with the ability to get to what the user actually want in term of ease of use and quickness. We have added many other features such as Single and Multi-user mode, WINBee connection manager and so on that makes them feel at home. With WINBee 4000 JB the

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user gets to have all the features of WINBee 4000 B along with a local browser which supports both Shockwave Flash player and Nfuse.

NETWORKING PRODUCTS Modems Cables Switches DSL Wireless LAN SECURITY PRODUCTS -HCL Info NetMon -HCL InfoWall -HCL Info SecuMon

STORAGE HCL Storage Products -HCL Infiniti InfoStore 320 JBOD -HCL INfiniti SAN ARRAY 2502FC EMC Storage Solutions HP Storage Solutions TOSHIBA NOTEBOOKS Increase your productivity anywhere ,anytime and anyway you want. Toshiba's new range of Notebooks gives you the freedom. Freedom to roam around the office, thanks to

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the built-in wireless-ready capabilities that gives instant access to network resources. Freedom on the move, thanks to advanced technology, intelligent design and fully equipped communication features. Toshiba Notebooks have the versatility that you need to reach your peak performance and to be at your best, wherever you are, whenever you are. SOLUTIONS -Infostructure Services -Networking Services -Security Services -Facilities Management Services -Domestic Hardware Services SOFTWARE LICENSES HCL Infosystems , India's premier technology integration company has the capability to deliver end-to-end implementations for its clients across regions and segments. To provide end-to-end solutions to the customers, HCL has partnered with many leading companies to provide software licenses like.: •

Oracle

•

SAP

•

BroadVision

•

Microsoft

•

Novell

•

Linux/SCO

•

Computer Associates

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•

Citrix

•

Veritas

Besides, HCL Insys can support these products and develop solutions on these products.

Philosophy of Quality "We deliver defect-free products, services and solutions to meet the requirements of our external and internal customers, the first time, every time." To exist as a market leader in a globally competitive marketplace, organizations need to adopt and implement a continuous improvement-based quality policy. One of the key elements to HCL 's success is its never-ending pursuit of superior quality in all its endeavors. HCL INFOSYSTEMS believes in the Total Quality Management philosophy as a means for continuous improvement, total employee participation in quality improvement and customer satisfaction. Its concept of quality addresses people, processes and products. Over the last 20 years, we have adapted to newer and better Quality standards that helped us effectively tie Quality with Business Goals, leading to customer and employee satisfaction.

QUALITY AT HCL INFOSYSTEMS LTD.

The history of structured quality implementation in HCL Infosystems began in the late 1980s with the focus on improving quality of its products by using basis QC tools and Failure Reporting and Corrective Active Systems (FRACAS). We also employed

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concurrent engineering practices including design reviews, and rigorous reliability tests to uncover latent design defects. In the early 90s, the focus was not merely on the quality of products but also the process quality systems. We were certified for ISO 9002 by BVQI in 1994 and re-certified in 1997 to ISO 9001-2000 (for Design & Manufacture of Personal Computers, Business Servers, Work Stations and their Associated Sub-Assemblies). In early 1995, a major quality initiative was launched across the company based on Philip B. Crosby's methodology of QIPM (Quality Improvement Process Management). This model was selected to because it considered the need and commitment by an organization to improve but more importantly, the individual's need towards better quality in his personal life. Under our Quality Education System program, we train our employees on the basic concepts and tools of quality. A number of improvement projects have been undertaken

by our employees, whereby process deficiencies and bottlenecks are identified, and Corrective Action Projects (CAPs) are undertaken. This reduces defect rates and improves cycle times in various processes, including personal quality. We have received MAIT's 'Level II recognition for Business Excellence' for our initiatives in the Information Technology Industry, adding another commendation to our fold. MAIT's Level II recognition is based on the 'European Foundation for Quality Management' (EFQM), for gaining quality leadership and business competitiveness. Our certifications / awards in 2003 include ISO 9001-2000 certification by BVQI for our Infostructure Services (for Consultancy, Implementation, Support, Audit & Management Services for Information Technology Solutions in the domain of Networking, Security, Facilities Management and System Integration) and award of First Prize by ELCINA (Electronic Component Industries Association) for Quality, 2002-03. The ELCINA award criteria considers two aspects. (1) Enablers (Leadership & Management commitment, Resource Management, Product Realisation, Measurement

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Analysis & Improvement) and Results (Product Quality, Customer / Stake holder satisfaction , Business results). The tryst for continuous quality improvement is never-ending in HCL Infosystems. We always strive to maintain high quality standards, which help us fulfill our mission to provide world-class information technology solutions and services, to enable our customers to serve their customers better.

Frontline Division

Frontline Division formerly HCL Infosolutions Ltd. (HCL Insol) started with the aim of increasing market penetration by handling segments not covered by HCL Insys and creating new niches. Today it specializes in distribution of reputed national and international brands, as well as its own range of home computers - the Beanstalk. In the Enterprise Segment it has end products from HP, HCL and Siemens Nixdorf, as well as desktops and Toshiba notebooks. It also markets printers, plotters and scanners from HP. The products are supported through a network of ‘Authorized Service Providers". Frontline division provides Tele support to its customers and is the only accredited remote support partners for Microsoft products. The acquisition of HCL Insol would enable close monitoring of pricing and costing, better assets management, leveraging a sales network and savings on overheads Office Automation Division Office Automation Division formerly HCL Office Automation Ltd. is into marketing of both office automation and communication products. Among the former it has Toshiba copiers, Sharp and HP fax machines, HP copyjets, Cannon electronic typewriters and Cannon imaging products. Its communication products include Key Telephone Systems and IVRs from intervoice. It is also the distributors of Nokia Cellular phones and pages.

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The acquisition of the CSO activities will help Infos to utilize its support services manpower both in the domestic and export markets HCL Infos has been reorganizing itself for higher value-added businesses. The company is consolidating the hardware and services businesses of the group in itself. This will better equip it to offer both solutions development, implementation and support services, in India and globally Indian customers as well as the global market. The approach synergizes with the growth of the professional services as well as support services HCL Infosys has direct customer service centers at 143 locations and state-of-the-art manufacturing facilities at Noida and Pondicherry.

With a mission statement to provide world class information technology solutions and services, to enable it’s customers to serve their customers better; HCL Infosys is setting new standards of technology in India. All this has been made possible only through a shared vision of the organization and a strong belief in its people. This value is inculcated in each department and in each employee. It is translated in the belief that the customer, whether internal or external, deserves the BEST. In brief, we can quote HCL Infosystems will continue to focus on the domestic market by delivering solutions to the Indian companies in industries such as banking, finance, telecommunications and manufacturing Quality and research are the core strengths Wide array of products and services Largest and most comprehensive network for support and services are being practiced in different functions.

Peripherals Division

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Peripherals Divisions formerly HCL Peripherals Ltd. is into peripheral design, development and manufacturing. It has a plant at Chennai. The acquisition of HCL Peripherals would improve coordination and reduce cycle time as the bulk of sales of HCL Peripherals are to HCL Insys. This will also lead to increasing sales to other companies due to leveraging on sales network.

Large Projects Some of the Networking Projects Implemented by HCL Infosystems Limited Sl.

Name & Address

Scope of the

No of Project

No.

of site

project

Nodes Start

1 National

This is a

Project

Order

Completed Value

Date Date 350 7/7/97 25/09/97

Contact Person Address 50L Dr. Krishnan National

Chemical Lab.,

Campus wide

Chemical

Pune

network

Laboratory,

connecting 350

Dr. Homi

nodes. This

Bhabha

order includes

Road, Pune

supply and

411 008

installation of switches, hub, structured cabling, Routers. This order also included supply HP RISC based

Tele 021

338

`

servers and Netscape software. This is a turnkey project for installation of Web server, Proxy server, Email servers, DNS server and a leased line connectivity to Internet. 2 Hindustan

This is a

300 1/10/97 20/12/97

45L

Times,New Delhi Building & Lucknow

Network with wide area network connectivity with Delhi and Lucknow press. The Network includes supply and installation of Riuters, Switches,Hub

H.T Tower,

and structured

Mr.SM

K.G.Marg,

cabling

Dutta,Chief

New Delhi - 318

equipments.

Enginer

110 001

331

`

3 CBI (Nation wide This contract network)

400 1/10/97 Installation 250L

includes Supply

under

and installation

progress.

of HP RISC and Netservers, Routers, Switches. Also implementation

4 IFCI (Country wide networK)

4th Floor, B-

of Lotus mail

Mr. NR Wasan, III,CGO

436

across 90 CBI

Dy. Director,

436

locations.

Administration New Delhi. 436

This order

Complex,

600 1/1/96 30/06/96 300L

includes supply and Installation of HP RISC (UNIX) servers, Infiniti (Novell) servers, Switches, hubs and structured cabling. This is also includes establishing countrywide network (11 locations) linking through

IFCI Tower,

X.25 with Lotus

Mr.B.S.S.

Nehru Place,

Email

Gupta, Chief

New Delhi -

application.

G.M

110 019

648

`

5 IIT, Kanpur

This is a

325 5/4/97

6/6/97

40L

Campus wide network connecting 300+ network. This is a completely switch based network with ATM backbone. This also includes

6 CII (Mumbai,Delhi,

Deptt. Of

structured

Mr Sanjeev

Computer

cabling

Aggarwal,

Science &

including the

Associate

Engineer,

fiber cabling

Professor &

Indian

connecting

Head

Institute of

various

Computer

Technology, 257

buildings.

Centre

Kanpur

This order is for Supply and

400 10/9/97 28/12/97 200L Col. Manchanda

Road, New 462 Delhi - 110

Chandigargh)

003

Switches, routers and structured cabling. This is a nation wide network

257

23-26,Lodi 462

Chennai,Calcutta, installation of HP servers,

051

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connecting 7 CII offices through ISDN network. MS Backoffice is implemented for workflow application.

FINANCIAL CONDITION OF COMPANY

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Business Income grew to Rs. 11455 crores in the current financial year ended 30.06.2006, from Rs. 7787 crores in the previous year,an increase of 47%. Total revenue including ‘other income’ grew from Rs. 7813 crores in the previous year to Rs. 11489 crores for the year under-review. REVENUE FY 2002 2003 2004 2005 2006

Revenue 1367 2705 4412 7787 11455

Rs crores

Revenue 15000 10000

Revenue

5000 0 1

2

3

4

5

Financial year

Segment performance Computer systems and related products & Services:

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The segment operations comprises of sale of hardware and system integration products and providing a comprehensive range of IT services including system maintenance,facilities management etc in different industries. Segment revenue grew by 21% from rs 1971 crores in the previous year to rs 2381 crores in current year .PBIT for current year is rs 126 crores .capital employed in the segment is Rs 387 crores as on june 30, 2006 as against Rs 298 crores as on 30 june 2005.Return on capital employed is 32%.

TELECOMMUNICATION & OFFICE AUTOMATION:

The segment operations comprise of distribution of telecommunication products, office automation products and related comprehensive maintenance services. Revenue of segment for current year grew by 57% from Rs 147 crores in previous year to Rs 9050 crores.The PBIT grew by 66% from RS 147 crores in the previous year to rs 244 crores in current year .capital employed in the segment is negative rs 1.2 crores as on june 30, 2006 as against rs 39 crores as on june 30, 2005.

INTERNET & RELATED SERVICES: The segment provides virtual private network, internet access services and other connectivity services. Revenue of the segment for the current year is rs 37 crores and PBIT isrs 4 crores.the segment achieved significant growth in its profitability through continuous efforts on acquiring new customers and reducing cost of operations. As indicated by the management in the beginning of the year, business environment continued to remain challenging. However, the company recorded an improvement in revenue performance.

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Other income’ is Rs. 34 crores in the current financial year as against Rs. 26 crores in the previous year. The income from investments in growth funds, forming part of other income, is recognized at the time of realization.

2. Gross Margins: Gross Margins (excluding ‘Other income’) for the current financial year are at Rs. 779 crores as against Rs. 605 crores in the previous year.

3. Personnel-Costs: staff costs for the current year are rs 181 crores as against rs 149 crores in the previous year.manpwer increased from 3879 as at june 2005 to 4323 as at june 2006.staff costs as a % of sales has declined to 1.6 % from 1.9 %.

4. Administrative, Selling & Repairs: Expenses for the current year are rs 221 crores as against rs 189 crores in the previous year .the expenses as a % to sales declined to 1.9% from 2.4%. The company has continued with it’s austerity drive during the current year, as a result, the Administration & Selling costs decreased. Major reductions were in Printing & Stationary items.

5.OperatingProfit (EBIDT): Operating profit grew by 45% from rs 252 crores in the previous year to rs 365

`

crores in the current year.

6. Finance Costs: Net finance income for the current financial year under review is Rs. 1 crore as against Rs. 3 crores in the previous year.

7. Profit-Before-Tax: PBT grew by 30% from rs 296 crores in the previous year to rs 385 crores in the current year.the five year compounded annual growth rate is 109%. Exchange fluctuations are accounted for in accordance with AS .rupee has been sharply volatile during the year, resulting in exchange loss of rs 14 crores including unrealised loss of rs 7 crores .exchange gain in previous year was rs 14 crores.

Profit before tax FY 2002 2003 2004 2005 2006

PBT 20 78 212 296 385

PBT

Rs crores

600 400 PBT 200 0 Financial year

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8. Taxation: The Company has provision of Rs.105 crores for current taxation, and Rs. 11 crores for deferred tax during the current financial year.

9. Profit-After-Tax: The Profit after tax grew by 23% from the rs 228 crores in the previous year to rs 280 crores.the five years compounded annual growth rate is 107% . The profit for the current year are after a provision for rs 99 crores for the current tax expense and rs 3 crores for fringe benefit tax.

Profit before tax FY 2002 2003 2004 2005 2006

PAT 15 93 175 228 280

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Rs crores

PAT 300 200

PAT

100 0 1

2

3

4

5

Financial year

10. Dividend: The company distributed interim dividends @ 100% in each of the first three quarters .the company proposes to pay a final dividend of 100% per fully paid up equity share of rs 2/- each. The interim dividend paid together with proposed final dividend total to 400% for the current year, entailing an outflow of rs 154 crores, including distribution tax.

Dividend % 400 300 200

Dividend %

100 0

1

2

3

4

5

6

7

`

11. Earnings Per Share: Basic EPS grew from rs 13.7 in the previous year to rs 16.7 in the current year .diluted EPS grew from rs13.5 in the previous year to rs 16.5 in the current year. The earning considered in ascertaining the company’s EPS represent profit for the year after tax. Basic EPS is computed and disclosed using the weighted average number of equity shares outstanding during the year. Diluted earning per share is computed and disclosed using the weighted average number of equity and dilutive equivalent shares outstanding during the year, except when results would be anti-dilutive.

BASIC EPS FY 2002 2003 2004 2005 2006

EPS 1 5.8 10.9 13.7 16.7

EPS

1

5.8

16.7 10.9 13.7

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Key Financial Ratios

------------------- in Rs. Cr. ------------------Jun

Jun

Jun

Jun

Jun

'02

'03

'04

'05

'06

Adjusted Net Profit Margin (%)

3.66

5.28

7.94

6.74

4.75

Cash Profit Margin (%)

4.66

5.96

8.61

7.07

5.04

Gross Profit Margin (%)

5.08

6.14

9.11

7.88

5.81

Operating Profit Margin (%)

6.70

7.13

10.04

8.59

6.69

5.69

6.46

9.37

8.26

6.41

Return On Capital Employed(%)

16.66

23.87

31.42

33.19

27.30

Return On Net Worth(%)

14.81

26.84

33.64

32.08

26.93

Profitability Ratios

Profit Before Interest And Tax Margin (%)

`

Management Efficiency Ratios Debtors Turnover Ratio

5.25

6.98

5.92

5.93

5.40

Fixed Assets Turnover Ratio

11.85

15.69

14.93

19.84

23.77

Inventory Turnover Ratio

11.30

16.40

12.16

11.28

11.12

--

--

--

--

--

2.93

3.68

3.33

3.99

4.24

Current Ratio

1.62

1.51

1.31

1.36

1.32

Debt Equity Ratio

0.38

0.38

0.26

0.19

0.33

Long Term Debt Equity Ratio

0.22

0.25

0.16

0.06

0.01

3.53

6.54

10.07

11.69

7.23

Loans Turnover Ratio Total Assets Turnover Ratio Liquidity And Solvency Ratios

Balance Sheet Ratios Interest Cover

FINANCIAL CONDITIONS

1. Shareholders funds/Net Worth: Net worth as on june 30, 2006 is rs 698 crores .share capital as at the year end is rs 34 crores divided in to 16.9 crores share of rs 2/- each.reserve and surplus as at year end are rs 664 crores after appropriating rs 156 crores for interim and proposed final dividend. During the current financial year there is an addition of the reserves, taking the total Reserves of the Company to Rs. 377.59 crores 2. Borrowings: Growth has been largely financed through internal accruals

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The year end loan balances marginally increased from Rs. 82 crores as on 30.06.2005 to Rs. 84 crores as on 30.06.2006.

3. Fixed assets: Gross block increased from Rs. 95.27 crores as on 30.06.05 to Rs. 111.09 crores as on 30.06.06. Additions are mainly in the areas of premises, plant, equipment and software.

4. Investments: Investments in Maturity plan increased by Rs 12.77 crores. During the year the Company invested Rs. 15.00 crores in HSBC cash fund and made further investments of Rs. 2.51 crores in DSPML liquidity fund.total investment increased from rs 122.77 crores as on 30 june 2005 to rs 135.39 Crores as on 30 june 2006.investment in subsidiary is rs 1.68 crores. 5. Inventories: Inventories increased during the current financial year from Rs. 349 crores as on 30.06.05 to Rs. 470 crores as on 30.06.06. With efficient inventory management, the inventory turn over on sales is 24.4 times in the current year as against 22.3 times in previous year. 6. Debtors: Debtors increased from Rs. 532 crores as on 30.06.05 to Rs. 705 crores as on 30.06.06. Debtors as number of days of sales stands reduced to 22 days as on june 30, 2006 from 25 days as on june 30, 2005.

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7. Liquid assets (investment in mutual funds and fixed deposits with bank) : Liquid assets as on june 30, 2006 is Rs. 354 crores as against rs 253 crores as on june 30, 2005.

8. Other current assets including loans and advances: Other current assets decreased marginally from Rs. 154 crores as on previous year end to Rs. 153 crores as at current year-end. Other current assets of parent company increased marginally from rs 112 crores as on june 30,2005 to rs. 113 crores as on june 30, 2006. 9. Net Working Capital : The Net working capital of the Company decreased from Rs. 424 crores as at previous year end to Rs. 400 crores as at current year-end. The current ratio stands at 1.35 as at 30.06.06 as against 1.49 as on 30.06.05. 10. Deferred Tax Liability : The accumulated net deferred tax liability arising on account of timing differences as at 30 june 2006, Rs 10.76 crores from Rs. 7.35 crores as on 30 june 2005.current liabilities and provisions increased from rs 863 crores as on june 30, 2005 to rs 1143 crores as on june 30, 2006.Deferred revenues as at june 30 , 2006 are Rs. 131 crores.

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Current liabilities and provisions of the parent company increased from rs. 468 crores as on june 30, 2005 to rs. 606 crores as on june 30, 2006.

11. Cash flow : The cash generation from operating activities in the current year is rs. 278.63 crores while in previous year it was rs 126.75 crores.Cash from investing activities is rs (168.33) crores in current year as against rs 62.24 crores in previous year.Cash from financing activities is rs (146.65) crores as against rs (82.95) crores in previous year.

CASH FLOWS CASH FLOWS NET CASH FROM OPERATING ACTIVITIES NET CASH FROM INVESTING ACTIVITIES NET CASH FROM FINANCING ACTIVITIES

2006 278.63 -168.33 -146.65

2005 126.75 62.24 -82.95

2004

The decrease in cash flows has been due to the purchase of investment in the year 2006. The firm has disposed of investments worth around 1957 Crores to meet it’s growing needs. The other notable feature is decline is the firm’s inflows from operations primarily due to the reason that the cash generated from the operations is the lowest in three years. And the firm’s growing dividend policy has contributed to the outflows in financing activities.

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CASH FLOW IN OPERATING ACTIVITIES

WORKING CAPITAL CHANGES TRADE AND OTHER RECEIVABLES INVENTORIES TRADE PAYABLES AND OTHER LIABILITIES

2006 705.30 469.61 652.27

2005 532.39 349.39 452.93

CHANGE 172.91 120.22 199.34

The cash from the operation has been subject to considerable change due to the changes that could be adjusted towards trade receivables and trade payables. The resulting reduction in the cash outflows might be because of the inventories being procured more on credit. That the cash from operations has increased.

CASH FLOW IN INVESTING ACTIVITIES INVESTMENTS IN MUTUAL FUNDS PURCHASE OF INVESTMENTS DISPOSAL/REDEMPTION OF INVESTMENTS INVESTMENT

2006 2101.82 1956.46 295

2005 1675.66 1759.80 143

The investments have increased from the last year due to the purchase of investments. We can see that the firm has in these two years decreased their cash inflow from the investing activities. Now what has to be asked here is that why did the firm cut down on its revenue earning fund for the procurement of the inventory which had a huge %in closing raw materials and that too at a time in which its availability is quite easy as compared to the earlier years when almost all the inventory had to be imported, there was a very long time lag involved and there were strict import restrictions. The investment in mutual funds are beneficial to the firm in the context that they contain interest bearing securities which adds up as a source of revenue for the firm unlike cash

`

which remains idle and unproductive when not in use. In the year 2006 the revenue earned by the firm in the form of interest and dividend has increased from Rs.11.43 in 2006 to Rs.3.62. This increase of dividend could be attributed to investments in mutual funds,shares and subsidiary.

CASH vs. MARKETABLE SECURITIES The investment in marketable securities rather than having large cash balances is something that has been given thought for by the firm. This is because while a firm gets revenue in the form of interests by investments, it actually has to pay a certain amount of money to the banks for maintaining current accounts and fixed deposits usually have a longer maturity period. That is, the problem with high investment is that the opportunity to earn is lost, thus a firm has to maintain an optimal cash balance. . But the investment in mutual funds or other marketable securities might create a problem of investment, as they might not be readily realizable as say liquid cash or the amount deposited in the current account. The investments in say fixed assets say may earn a fixed rate of interest but they have a maturity period attached to them.

In HCL, STANDERED CHARTERD is the concentration bank in which all the cash inflows from the deposit banks are concentrated and passed on to the disbursement banks for further disbursement.

LIQUID CASH BALANCE The liquid cash maintained in the business is only that much as is required to satisfy the daily requirements of the firm and not more. The rest of the cash is invested into mutual funds and also held in fixed deposits and current accounts.

`

INSTRUMENTS USED The instrument used here are primarily cheques comprising of around 97% of what is used in. The rest 2-3% comprise of the letters of credit.

WORKING CAPITAL MANAGEMENT

 WORKING CAPITAL POSITION  CURRENT ASSET SCENARIO  INVENTORY MANAGEMENT  CASH MANAGEMENT  WORKING CAPITAL AND SHORT TERM FINANCING  RECEIVABLE MANAGEMENT

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Working Capital Management We are enjoying Rs. 115 Crs. of Fund Based limit and Rs.285 Crs. Non-Fund based limit from a consortium of 13 Banks. The details are as under:

The present allocation of limits is hereunder: Rs./Lacs Non Fund Bank State Bank of India ICICI bank HDFC bank Canara bank Standard Chartered Bank State Bank of Patiala State Bank of Saurastra Societe Generale Total

Fund

Basedbased

limit 3600 1282 1200 1203 1200 1300 715 1000 11500

limit 9500 3790 4525 2335 2000 2350 3000 1000 28500

Total Limit 13100 5072 5725 3538 3200 3650 3715 2000 40000

The Fund based limits & non-fund based limits have been allocated to various divisions and regions as per their requirements. The following activities are the subset of the working capital management. A)

Renewal of limits.

B)

Sanction of adhoc limit.

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C)

Documentations.

D)

Allocation of limit by the lead bank (SBI-CAG) to other banks.

E)

Consortium meeting.

F)

Stock Statement

G) Financial Follow-up reports (I&II) H)

Allocating limits to regions

I)

Factory Visit etc.

J)

Stock Audit

Renewal of Limits All banks sanction the limits for a period of one year. There it is to be renewed every year. The lead bank, SBI-CAG appraises the total limit on behalf of the consortium. The individual banks appraise for their own individual limit. The company need to provide the following information to bank for appraisals: 1. Credit Monitoring Appraisal (CMA) 2. Write up on company 3. Share holding pattern 4. List of the directors Credit Monitoring Appraisal (CMA) - CMA is nothing but the detailed financials of the company submitted in a prescribed format of RBI. The CMA is mainly contains the following statements: i) Operating Statement (P&L) ii) Balance Sheet Spread (B/S) iii) Comparative statement of Current Assets & liabilities iv) Computation of Maximum permissible bank finance for working capital v) Funds Flow Statement

`

In CMA the data has to be provided for four years. Actual data for last year and current year and the projections for next two years. The projections are to be prepared and finalized by the finance section based on the data available like business plans etc. after discussion with the CFO. Since the projections depend upon various factors like market conditions, Govt. policies, management perceptions etc., the preparation of the same is not explained here. Write up on Company. Write up on Company has to be submitted to the banks. Broadly it should contain the following:



Highlights of past performance



Future growth trend



Future business strategy



IT industry scenario



Note / status / performance of subsidiaries



Limit requirements



Other proposals for the banks.

Share holding pattern & List of the directors: The present shareholding pattern and the list of Board of Directors are to be submitted along with renewal proposal. Both the lists have to be collected from Secretarial Dept. Any other information as and when asked for by the banks has to be provided. On the basis of the information provided the lead bank (SBI) would apprise the banks about the limits sanctioned by SBI, as well as for the limits appraised on behalf of the consortium.

`

Sanction of adhoc limit. Adhoc Limit - As the name clearly indicates it is a one time limit for a short-term period. Sometimes we are required to provide bank guarantee or LC on an urgent basis but the limits sanctioned are fully utilized. In this case we can approach the banks for sanction of adhoc limits. The banks may ask for the following information: -

Limit utilization in various banks

-

Quarterly / half yearly results

-

Details of BG/LC to be opened    

Amount Tenure Beneficiary’s name Any special clause etc.

Important points for adhoc limits The following must be clarified to the banks at the beginning that 1.

NOC for lead bank will not be possible.

2. This adhoc limits will be over and above the consortium limits. 3. All the necessary documents will be signed, but no personal guarantee. 4. No margins for LC/BG.

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Documentation There are various documents need to be signed at the time of renewal or inducting any bank to the consortium. The various documents are as below: 1. Loan Agreement 2. Hypothecation agreement for movable machinery 3. Hypothecation agreement for movables and book debts 4. Counter Indemnity The above are the standard agreements asked for by the banks. There may be other additional agreements asked for by some of the banks as per their internal guidelines. But no personal guarantee papers should be signed. The common seal has to be affixed on the documents, wherever necessary. The common seal has to be witnessed by the Company Secretary and one of the directors of the Company. Note: A copy of the documents must be kept for our records. Joint Documentation Joint documentation is executed between the company and the consortium of banks for the working capital facilities extended by the consortium to the company. The documents comprising joint documentation are: 1) Working capital consortium agreement 2) Joint Deed of Hypothecation 3) Inter se Agreement between bankers

`

4) Letter of Authority to lead bank by other consortium banks 5) Letter of Authority to second lead bank by other consortium banks 6) Undertaking to create charge on the assets of the company.

Allocating limits to regions We park CC/BG/LC limits at various regions for our operational convenience. When it is decided to park any type of the limit at the regions, we approach the respective banks in Delhi for allocation of the limit to the region. Once the limits are allocated, the other formalities are taken care of by the respective regions and the regional accounts head.

Factory Visit As per our sanction norms stock inspection and factory visit has to be carried out by the banks at regular intervals. Our major stocks are at plant at Pondicherry. In the past it had become very difficult to handle the plant visit and stock inspection because all the individual banks used to request for the plant visit now and then. Therefore this matter was discussed in one of the consortium meetings and it was decided that there would be one visit in one quarter. The consortium leader with consultation of the company will decide the time and the members for the visit. The company will make all the necessary arrangements for the visit. The member banks visiting the plant will prepare the inspection report and circulate it to all the member banks.

`

Preparation of Financial Model for System Integration and BOOT projects a.

The company is bidding for various BOOT tenders like

 Implementation of core banking solutions for the banks  Issuance of smart card based licenses for a state transport company  Billing systems for a PSU telecom company  Total solutions and billing for civic amenities for state government or Municipal Corporations.

b.

The company acts as a consortium leader in all these projects where the major

hardware and equipment are supplied by the Company besides roping in other vendors for supply of software and equipment that may be required for the project. The financing is arranged by the company to meet the capex requirements. c.

The project period is typically in the range of 3-5 years with the estimated revenue

in the range of Rs.50-100 Crores for low value projects and Rs.500-1000 Crores for high value projects. d.

The projects need to be funded to meet the capex requirements because in most of

these projects, the capex is recovered over the period of project. The funding may be in the form of term loan with disbursement at the time of actual expenditure, it may be in form of equity participation or may be funded from internal surpluses. e.

The period of funding for the project, depending upon the cash accrual pattern,

may be either spread over the period of project or the period over which the cash accruals are sufficient to repay the loan, whichever is earlier. f.

The security for the term loan extended is limited to the project assets.

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g.

The process of preparation of financial model is as under; 1.

A tender copy is provided by the marketing/SI team

2.

The feedback is provided by us on the financial parameters of the tender

3.

The marketing/SI team provides the cost sheet of the project with period-

wise schedule of various expenditure heads. 4.

A quotation sheet is prepared by us, followed by a cash flow and abstract

Profit and Loss A specimen set of financial model is attached for the reference. h.

Role of Finance and Accounts department once the order is bagged by the

company: 1.

Negotiations with banks for financing tie up for the project if required

2.

Preparation of revised cash flows based on the actual costs incurred and

revenues received. 3.

Monitoring of financial position of the project in terms of financing

requirements.

STOCK STATEMENT PROCESS We are enjoying Rs 115 crs. of Fund Based Limits from the consortium of banks. The Drawing power for fund based limits out of the consortium arrangement are determined based on stock statement submitted by the company. As per the sanction terms, we are required to submit the stock statement to all the member banks in the consortium for

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every month on or before 21st of the next month i.e. stock statement for the month of January is to be submitted by 21st of February. CAUTION Delay in submission of this statement is a violation of the sanction terms, and the banks can charge 2.25% p.a. on the entire fund base limit for the delayed period. Various Steps 1.

Collection of data from all the divisions.

2.

Compilation of stock statement.

3.

Preparation of covering letter and sending it to the banks.

4.

Getting the acknowledgement and filing it properly.

Collection of data from all divisions All the divisions are supposed to send the data (details of inventory, debtors etc. copy of the report attached) latest by 13th of next month. If does not reach by 13th then the reminder have to be escalated to the following persons:

Frontline division. OA division. Peripheral division. If not received by 15th then escalate it to the following division. Insys division. OA Division. Frontline Division.

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Peripherals Division . Compilation of stock statement. Please refer to the attached copy of the stock statement to understand the method of preparation of the stock statement. (The required inputs are numbered in the enclosed copy of Stock Statement for reference. Pl. refers to the relevant numbers below to understand each figure). 1.

Update the last months closing stock as opening stock in the current month.

2.

Update the division wise closing stock to arrive at the total closing for the month.

3.

Put in the purchase figure for the month.

4.

Key in the export debtors and domestic debtors (>4 months and < 4 months) division wise.

5.

Table 3 figures are linked. The figures will be arrived automatically. This table

shows total of inventory + debtors. 25% margin (except for export debtors) ? raw material creditors. 6.

Update last month gross sales, consumption of R.M and purchases.

7.

Key in current month sales.

8.

Consumption of R.M and purchase figures is linked and will be arrived from the top.

9.

(i) This shows the cumulative figure of sales, consumption and purchases. Add the current months figure to last month’s cumulative figure. (ii) Key in the current month’s raw material creditors for all the divisions.

10. It is linked to the utilization level. 11. Check up with the insurance section, whether it is the same figure or it has been changed.

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12. Key in the current month. GIT figure. 13. Update the current month end utilization level obtained from various divisions. 14. Check for any change in the allocation limits with the banks. 15. Update for reduction in limit incase of earmarking, if any because of issuance of commercial papers. Points to remember 16. Check the figure properly if there is any major deviation in the figure as compared to the last month. 17. Check if the > 4 months debtors figure has gone up drastically. 18. The drawing power has to be more than the allocated limit otherwise D.P will get reduced accordingly. At present the allocated limit is Rs. 115 Lacs. 19. The stock statement send to the bank is given above.

Preparation of covering letter and sending it to the banks. There is a mail merge document. Change the date; the drawing power (as per the stock statement) and the month, and then click the mail merge icon. It will generate the letter for all the banks. Print the letter in two copies, one in letterhead (for banks) and one in plain paper (office copy). Prepare the set for all the banks and send to the banks maximum by 19th of the next month. Getting the acknowledgement and filing it in properly The office copy must be acknowledged by the banks along with the signature and the rubber stamp and date to keep proof that it has been delivered before due date i.e 21 st of the next month. These acknowledged copies must be filed properly for future reference in case of any dispute with the banks.

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The address of the banks and the name of contact persons with the bank are enclosed herewith. We need to give some declarations to few banks and also additional sets details enclosed (Specimen copies of the declaration are attached). LIST OF BANKS S.NO

BANK WITH ADDRESS & CONTACT PERSON

REMARKS

1

Mr. Swami Nathan,

A Declaration

State Bank of India, CAG Jawahar Vyapar Bhawan 10 Janpath, Tolstoy Marg, New Delhi 110 001

2

Mr. Kishore Karla, Societies Generals, Mohan Dev Building, Tolstoy Marg, New Delhi 110 001

3

Mr. A.R. Saha State Bank of Saurashtra, C-37, Atma Ram House, Connaught Place, New Delhi 110 001

4

Mr. Rakesh Bhutoria, Standard Chartered Bank, H-2, Connaught Circus

(Specimen copy enclosed) duly signed by authorized signatories to be attached (SBI 1)

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New Delhi 110 001.

5

Mr. Vineet Ahuja ICICI Bank Ltd. NBCC Place, Lodhi Road New Delhi 110 001

6

Mr. L.K Dhamija, HDFC Bank, Safdarjung enclave New Delhi

7

Mr. U.G Pai, Canara Bank, DDA Building, Nehru Place Branch, Nehru Place, New Delhi 110 019.

8

Mr. Bhalla, state Bank of Patiala, 32, 33 Nehru Place. New Delhi 110 001.

Financial Follow-up reports (FFR)

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As per the sanction terms, we are required to submit FFR I & II to all the member banks in quarterly and half yearly intervals. FFR I? It is an extract of balance sheet. In this report we are required to submit the details of sales, current assets & current liabilities for the quarter and the estimates for the current year. These data are to be collected from the monthly MIS reports. Cautions? The debtors, inventory and the creditors level must match with the stock statement submitted to the banks. The sales figure must match with the quarterly published results. This report has to be submitted to the bank within 6 weeks from the close of the quarter.

Financial Follow-up reports (FFR) As per the sanction terms, we are required to submit FFR II&I to all the member banks in quarterly and half yearly intervals. FFR II? We are required to prepare P&L, B/Sheet and Cash Flow in a different format. As it is a very detailed exercise, therefore the preparation of the same is not explained here. The information is to be provided for last year (actual), current year half yearly results (actual) and the estimates for the next year. Caution - The debtors, inventory and the creditor’s level must match with the stock statement submitted to the banks. The sales figure must match with the quarterly published results. The balance sheet is not sending to the banks. This is prepared for the cash flow linking. This report has to be submitted to the bank within 8 weeks from the close of the half year.

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CAUTION- Submission of FF Reports are stipulated as one of the conditions for sanction of advances to the company. Though there is no penalty for non-submission or delayed submission of the reports, but this is treated as a violation of the sanction terms.

Credit Rating Credit rating is an appraisal of company’s inherent strengths by an outside rating agency. It reflects the quality and the reliability of the instrumented rated. Rating helps us in raising funds in an easier way and at lower cost. We have got our Commercial Paper program (Rs. 75 Crs.) rated by ICRA. ICRA has assigned A1+ credit rating for the same. This rating indicates highest safety where timely payment of debt/obligation is the best. Rating agency does detailed appraisal about company. The whole process can be explained through following steps. 1.

Mandate letter to ICRA

2.

Financial appraisal

3.

Appraisal of business segments

4.

Discussion with all the department heads

5.

Discussion with the higher management

1. Mandate Latter ? The mandate letter has to be given to ICRA as per their prescribed format along with the prevailing fees (0.1% of mandate / rated amount at present) at that point of time before the rating process begins. The format of the mandate can be obtained from ICRA on request.

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2. Financial Appraisal ? We are required to submit the following inputs/documents for the financial appraisal by ICRA: a) Past three years financial results with detailed break up of revenue (business segment-wise details) from various activities, current assets, current liabilities, fixed assets and investments. b) Next three year projections i.e. the profit & loss a/c, balance sheet, cash flow and the detailed break up as mentioned above. c) Monthly break up of the P&L, B/Sheet & Cash Flow of the current year results & the next year projections. d) Detailed break up and explanation of the figures specifically asked by the analysts of ICRA. e) Detailed break up of revenues (1) from HW sales, (2) service revenue. The consistency level of these streams gives more comfort level to the analysts as these streams gives better margin. f) The following additional inputs are also required to be given: a.

Impact of the budget and various Govt. announcements on the organization.

b.

Impact of Foreign exchange fluctuation (INR depreciation against USD).

c.

Bank limit utilization.

d.

Quality of the investments & assets.

e.

Return on various investments & surpluses.

f.

Impact of any new project/investment in projections and the justification of the

same. g.

Any fresh borrowings, reasons and the utilization of the same.

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The projections are prepared by the finance section based on data available like business plan etc and finalized after discussion with Mr. Sandeep Kanwar, CFO. Since projections depend on various factors like actuals as on that date, market conditions, Govt. policies, management perceptions etc., we cannot make a process for preparing projections. But for the reference purpose one can refer to the previous year workings [hard copies is kept in the ICRA file and the soft copy is maintained in Alok?s PC (F:\user\alok\icra]. Appraisal of the Business Segments: we need to give input / documents /information on following segments to substantiate our financial data: -

Market of the products & market share of the company. This is to be supported by

various survey studies/ reports. -

Production capacity, utilization, modernization plan of plant etc.

-

Manpower: breakup as per skill, qualification, experience etc. to know the quality

of manpower. Details of employee turnover rate, ESOP & others schemes like PSS etc. -

Benefit from Quality programme

-

Details of tax benefits.

-

Write up on Corporate governance

-

Details of new subsidiaries in business areas

Discussion with all the Department Heads - The analysts meets all the department heads and the division heads for detailed discussion to clarify and to take input on any query and to understand that area in macro and micro point of view. Any queries left on answered at the time of the discussion has to be obtained form the concerned persons and delivered to the analysts. After all the above-mentioned discussions, analysts list down the area where they have concerns/need more clarity & comfort. Those are to be discussed with the CEO of the Company.

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Discussion with the higher management - A meeting is arranged with CEO with the head of rating agency . One should get a list of expected questionnaire form the analysts and appraise CEO before the meeting. Here the focuses of analysts are usually on the broader view of the organizations business prospective, future business trend, the industry scenario, and strength & weakness of the company vis- is to the competitors etc. This proposal is appraised by the committee of ICRA and based on assessment rating is assigned. This is communicated through a letter to the Company. The Company has right to accept/reject the rating. A Board resolution is to be passed authorizing the some officials who can accept the rating on behalf of the company.

PROCESS FOR PLACEMENT OF COMMERCIAL PAPER Commercial Paper (CP) is an effective tool for reduction of interest cost for any corporate. By using CP instrument, corporate is in a position to do interest arbitrage by replacing high cost funds with lower cost CP. CP is freely transferable, the banks, financial institutions and other holders of short term funds are able to easily invest their short-term surplus funds in this highly liquid instrument at attractive rates of return. The pre-requisite for issuance of the commercial paper is to have the instrument rated by any RBI approved credit rating agency. We have A1+ credit rating, which indicates highest safety from ICRA for placement of Commercial Paper up to Rs. 75 Crores. The process of issuing the CP is as below:



Negotiation with the banks directly or through the brokers.



Documentation for placement of commercial paper



Placement of the commercial paper, fund raising and the fund utilization?



Repayment of CP.

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Negotiation with the banks directly or through the brokers. We are required to approach the bankers directly or through the brokers when we decide to place the commercial papers. As the CP interest rate is linked to call money market, the quotes are usually available 2-3 days before the placement of CP. After the deal is confirmed the banker/broker will give a confirmation by fax (copy enclosed).

Documentation for placement of commercial paper The documents required for the placement of commercial paper are as mentioned below: 1) Letter of Intent. 2) Master Creation form. 3) Corporate Action for. 4) Deal confirmation note. 5) Letter of offer. 6) Letter from SBI for placement of CP. 7) Limit Earmarking from lead bank. 8)

Credit rating copy.

9) Stamped jumbo CP. 10) Eligibility confirmation letter to IPA. 11) Transfer letter for transfer of funds to normal a/c. 12) Authority letter for collection of high value cheque (if deal done through broker) RBI Reporting letter. 14) CP redemption to IPA (if redemption is taking place on same date. 15) Board resolution for placement of Commercial paper.

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16) Letter to NSDL.

Activities before placement of commercial Paper.

1)

1) A board resolution authorizing the placement of commercial paper stating the authorized signatories is passed by the board of director in their meeting. This remains valid until there is any change in the issue size or the authorized signatories. This resolution also authorizes opening of CP Allotment a/c and CP redemption a/c.

2)

2) The IPA Agreement (Issuing & Paying Agent Agreement) is signed with IPA Agent, which can be a schedule bank. We have appointed Standard Chartered Bank as our IPA agent. The IPA Agreement is an annual agreement and needs to be renewed every year.

3)

3) A CP allotment A/c and CP redemption A/c is opened with IPA. The funds received from issue of CP are first credited to CP allotment account and then transferred to CC a/c. For payment of CP are funds are transferred to CP redemption a/c from the Cash Credit Account.

4)

4) Credit Rating for commercial paper is obtained from credit rating agency. This is an annual rating subject to review by the credit rating agency in the interim if required. Currently ICRA has rated our commercial paper size of Rs 75 Crore as A1+ indicating the highest safety. The CP Market is active for A1+ Paper only which get the best rate in the market depending upon the company and industry profile.

5)

5) We have appointed Alan kit Assignments Limited as Registrar for electronic issue of CP.

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Charges currently effective in issuing commercial paper 1) 1) IPA charges? 0.10% per annum of the issue amount subject to maximum 20,000 2) 2) NSDL charges? Rs 10000/- per annum 3) 3) Registrar Charges? Rs 2500/- per issue. 4) 4) Broker Charges? 0.05% of the issued amount if investor is arranged through him. If the Investing bank is arranged by us then the brokerage is Rs 5000/= 5) 5) CP Stamping charges? 0.05% p.a. of issued amount plus agent commission. Process of placement of Commercial Paper assuming .V. as the value date Date V- 4 days

Process

1)

1) Credit rating letter from ICRA is obtained for issue of CP. The rating letter is valid for 3 months.

2)

2) NOC letter is obtained from the lead bank (SBI) for issue of CP. The CP is issued against the earmarking of consortium limits. The request to lead bank should contain the proposed

V-4 days

earmarking of these limits. The NOC is valid for 15 days The jumbo CP is stamped in Tis Hazari Courts. The unsigned jumbo CP

V-4 days

is valid for six months. The deal is conformed with the investor and the deal confirmation note is obtained form the investor stating the following:

1)

1) Issue size

2)

2) Discounted value. This needs to be checked at our end.

3)

3) Tenor

4)

V-3 days

4) Investor DP ID and Client ID 1) 1) Letter of intent for issuance of CP is sent to NSDL Mumbai requesting for activation of ISIN NO. Wherein the CP units in demat

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form are created. 2) 2) The ISIN NO is obtained by the day end. 3) 3) The master creation form, Corporate Action Form & One page V-2 days

summary of issue details is to be sent to NSDL The following documents are sent to IPA against which the IPA issues a IPA Certificate. The IPA confirms through IPA certificate that all the documents and necessary conditions to issue of CP are in order. 1) 1) Letter of Offer. 2) 2) Deal confirmation note 3) 3)

Eligibility confirmation letter to IPA

4) 4)

Stamped Jumbo CP

5) 5)

Copy of Credit rating letter.

6) 6)

Funds transfer letter for transferring funds from CP allotment

account to the cash credit account.

V-1 day.

7) 7)

Board resolution if the CP is issued for the first time.

8) 8)

Letter from NSDL allotting ISIN NO.

9) 9)

NOC from the lead bank.

1) 1)

The IPA issues IPA certificate & signature confirmation

certificate. This has to be faxed to NSDL & registrar. Confirmation from the registrar is obtained for receipt of fax and V 1 day

uploading of data in NSDL. Broker collects the following documents form us to present them to investor:1) 1) Letter of Offer. 2) 2) Deal confirmation note 3) 3) Copy of Credit rating letter. 4) 4)

NOC from the lead bank

5) 5)

IPA Certificate and the signature verification letter

6) 6)

Authority letter to broker for collecting the high value cheque

on value date from the investor on our behalf.

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V day1

The cheque is collected by the broker and deposited with IPA agent. The cheque should be deposited within the high value clearing time. The funds are first credited to the CP Allotments a/c and then transferred to

V day

the CC account. The RBI reporting is sent to the IPA agent. This should reach to the IPA within V+1 day so that IPA can report it to RBI. The time limit for reporting to RBI is V+3 days.

Process of CP redemption 1)

1) Before the due date of redemption, it is decided whether to replace the CP maturing with a fresh CP or not.

2)

2) The cash credit account is funded for transfer of amount to CP redemption a/c for redemption of CP

3)

3) A fund transfer letter is send to the IPA agent for transfer of funds.

4)

4) If the CP redemption proceeds are to be funded through the issue of fresh CP, the process of CP issue mentioned above is followed.

Caution - The CP must be paid on the due date. It should be ensured that funds are available with the IPA. If the CP payment is not honored, it affects the reputation of the company in the market, & it will be difficult to arrange funds from the market in future.

FOREX MANAGEMENT The forex management- The objective of foreign exchange management is to protect our Imports Liabilities against fluctuation in the foreign currency and keep cost low. This activity is very important for our organization since our imports are around USD 120-150 million p.a.?

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We do the following activities to manage our forex exposure

A) Forex rate updating B) Forex Sheet (Report consolidating the liability for next 3 months). C) Forex risk hedging through Forward cover and Dollar/Rupee option booking D) Circulation of prevailing rate to Marketing The above processes are described in detail:

Forex rate updation At the time of accounting for any foreign currency transaction, the system picks up the rate available in the system. But in case of export transactions, it has been agreed to punch the rates at the time of entering the transactions separately without taking the system rates. There are three types of rate maintained in the system. M- Import rate B- Average rate of imports & Exports G- Export rate We update the M rate twice a week i.e. on Tuesday & Friday. For this we obtain the Bill selling/buying rates except USD/INR rate from State Bank of India treasury to update into our system. The USD rate is taken as Closing inter bank rate for the day + 7 paisa. The interbank closing rate is ascertained from the Telerate terminal .This is the effective rate at which our day to day payments take place. At the month end all the three rates are to be updated in the similar manner except manner in which USD/INR is ascertained. The certificate of closing interbank rate is obtained from the bank.

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Forex Sheet The forex sheet shows the consolidated import liability and the forward cover taken for the same. This is compiled for the liabilities of the current month and next two months. The following liabilities are considered for NMO/PMO and Frontline division. We also? Include the forex liability of Office Automation division (HCL Infinet) while compiling the forex sheet: 1.

LC based liabilities? Obtained from MMS?

2.

Confirmed DA cases - Obtained from MMS

3.

Shipment based liabilities - Obtained from MMS

4.

PO based liabilities? Given by the procurement for the major suppliers depending

the amount of orders placed. This also reflects the amount of cover taken for the respective month. This is updated as soon as any forward cover is booked. A copy of the report is attached. Note: Other Divisions (OA, FLD, PD & Infinet) manage operational modalities on their own. We advise them on regular intervals on forex booking.

Booking of Forward Cover Forward Cover - A forward contract is simply an agreement to buy or sell foreign exchange at a stipulated rate at a specified point of time in the future. It is a contract calling for a settlement beyond a spot rate. A forward contract locks the company to a

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particular rate at which the contract would be performed with no relation to the existing rate. Forward contracts are usually available for a period up to 12 months and forward premiums governed by the demand & supply, which provides the corporate with the arbitrage opportunities. We take forward cover for a certain percentage of our liability to keep our-shelves hedged against the short-term market fluctuations. For the $ liability we decide the extent of cover a) depending upon the market condition/trend, b) advise of our forex consultants, Trend etc. c) advise of our higher management. As a matter of policy, we usually cover 25% to 30%. Of the USD liability for the month & 15% to 20% of the liability for the next month irrespective of the prevailing rate. We also have to take immediate action if there is major fluctuation in the market. Cover for confirmed/crystallized liability The instruction has to be given by way of a letter to the banker signed by the authorized signatories. The letter must contain the following details:

i)

Bill value

ii)

Amount (including the interest)

iii)

LC/bank reference number

iv)

Due date

v)

Suppliers name &

vi)

Instruction to book the forward cover

Once the letter is faxed to the banker one has to discuss with the banker for the current prevailing rate, negotiate if required for the margins etc. and give a verbal confirmation to book the forward cover.

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The forward cover rate comprises of the following:

i)

Inter bank spot

ii)

Forward premia for the period

iii)

The bankers margin

Once the cover is booked, the original letter must be send to the banker. The banker will send across a contract copy, which has to be signed and return back after keeping a copy of the same. Note: booking is done in the branch where the liability lies except in HDFC, ICICI, SBI & Standard Chartered Bank. These are booked in Delhi for Chennai Branch Exposure because branches are online & data are communicated between the branches on online basis. Purchased Order based liability The forward cover booking process is the same as above. As the liability is not crystallized we need to provide the banker the amount of liability, the date range when the liability is tentatively falling due and the proof for the under lying transaction. Caution - The entire amount covered must be utilized during the option period given above. If it is not utilized then we are required to cancel on the contract on the due date where we may suffer a loss. Therefore, it is advised that book maximum upto 50% to 60% of the total PO based liability in a particular bank. Booking of Dollar/Rupee option or other currency derivatives The currency risk may be hedged through Currency options like dollar/rupee option. The bank treasury works out a dollar/rupee option levels. The option structure is reviewed. If the structure is attractive depending upon the market conditions, the transaction is closed telephonically.

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The option structure should be more beneficial vis-à-vis hedging through forward covers and is usually optimal when the currency markets are volatile. After the deal is closed, the bank sends a deal confirmation note, which is to be signed by the authorised signatories and returned back to the bank.

Note: As soon as the forward cover/ option is taken, it must be updated in the forex report file. Circulation of prevailing rate to Marketing Deptt. The import contents in our PCs and servers are higher than 50% and our major imports are in US $. As indicated by procurement, the payment terms for PC purchases and Sun servers are 75 days and 45 days respectively. As rupee is generally depreciating against the dollar, the material purchased and accounted for may be at lower rate, while the payment will take place at higher rate irrespective of the fact that whether the forward cover is booked or not. Therefore, the US $ rate is circulated to marketing department, by considering the prevailing market rate + premia for 75/45 days so as to make necessary adjustment while giving the quotes to the customers. This rate is circulated on or before 30th of every month for the succeeding month. However based on the market view and the Rupee movement, we may revise the rates in the interim. The rate is calculated as below:

a) Average of last six days bill selling rate, add

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b) Forward premia for 75/45 days

LEASE FINANCE This is one of the ways of financing. Assets are taken on lease rather than buying it. Outflow are scattered over a period of time. The rent payments become revenue expenditure rather than capitalization of assets in books. Lease financing enables for renting the services of an asset rather than buying it. It is a contract whereby the owner of asset [the lesser] grants to another party. [The lessee] the exclusive right to use the asset, usually for agreed period of time, in return for the payment of rent. Lease & Sale Back: Under the sale & lease back arrangement a firm sells the asset to a leasing company and that leasing company virtually leases it back to the firm. Seller get the funds on sale of assets and then continue to use the same assets by acquiring it on lease from the financer who becomes the lesser and selling firm becomes the lessee. Another parallel agreement entered with the Customer who intends to take assets on rental basis & possession of asset is transferred to that company. Steps: 1.

Negotiation with the leasing

company 2.

Documentation

with

leasing

company 3.

Receipts of the sale proceeds.

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4.

Payments of lease rentals.

5.

Closure of the lease.

6.

Pre-closure of the lease.

Negotiation with the leasing company One must discuss with at least 4-5 leasing companies, while negotiating for the lease. Depending upon the periodicity of the rental from the customer, one should ask for the quote from the leasing company in the similar lines. For example, if we are going to receive the rentals from the customer quarterly in arrears, we must ask the leasing company to provide the quote for the lease rent payment on quarterly arrears basis. The leasing company is finalized financing us at the lowest IRR, calculated on the basis of their quotes. The leases are usually for a period of 3-5 years. The rate depends on Depreciation rate on the equipment, prevailing interest rates in the market and the rating of the company etc. While calculating the IRR the following must be considered: a) Lease Management Fees b) Rentals (quarterly/monthly, in advance/arrears) c) Residual value d) Security advance, if any. Note: One must also see other terms & conditions like the interest variation clause etc.

Documentation with leasing company

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We are required to sign the lease agreement with the leasing company. The list of the documents required by the leasing companies be given hereunder: i)

Copy of the invoice along with the location of the assets.

ii)

Board resolution

iii)

Signed lease agreement

iv)

Residual Value letter, if any.

v)

Excise duty gate pass,

vi)

Lorry receipt and delivery challan

vii)

Installation note etc.

Receipts of the sale proceeds. In case of the sale & lease back transactions the leasing company will disburse the sale proceeds after deducting the following: i)

Lease management fee

ii)

Security deposit, if any

iii)

1st month/quarter lease rental, if the terms are to pay the rental in advance.

After receiving the proceeds it must be informed to SMS and the banking section with all the details. Payments of lease rentals. The lease rent has to be paid as per the agreement, on or before the due date. The lease rental payment schedule must be provided to the banking section. The rentals are calculated as per the agreement plus the lease tax, which depends upon the location of the asset.

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Caution- If the rental not paid by the due date, then the leasing companies will start charging the penal rate of interest, which may be as high as 36% p.a. Note: The rental payment process is covered by the banking section.

Closure of the lease After the lease period is over the lease must be closed formally. The residual value must be paid or adjusted with the security deposit, if any. If the leasing company is comfortable, then request to raise the invoice in favour of the company. If the leasing company does not agree with the above, then we may be required to buy back the assets through a nominated company. If possible, get a No Dues Certificate from the leasing company. The process of accounting after the assets are purchased by the company is covered by the MMS. Pre-closure of the lease. t

Investments

t 1.

A tender copy is provided by the marketing/SI team

2.

The feedback is provided by us on the financial parameters of the tender

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3.

The marketing/SI team provides the cost sheet of the project with period-wise

schedule of various expenditure heads. 4.

A quotation sheet is prepared by us, followed by a cash flow and abstract Profit

and Loss A specimen set of financial model is attached for the reference. h.

Role of Finance and Accounts department once the order is bagged by the

company: 1.

Negotiations with banks for financing tie up for the project if required

2.

Preparation of revised cash flows based on the actual costs incurred and revenues

received. 3.

Monitoring of financial position of the project in terms of financing requirements.

Monthly Cash Budget

Monthly Cash Budget is prepared at the beginning of every month. This indicates the requirements of funds are to run the day to day operations of the company for next one month.

Normally a substantial portion of Cash Budget reflects Materials related

requirements & balances other expenses like Administration, Staff, Regional Remittances & Local Purchase, Sales Commission EMD etc. A very detailed working is

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made to compile this report. This report helps to monitor the usage of funds and analysis of actual expenditure on the budget.

This consists of following information: -

1.

The Materials & Custom Duty Requirement

The materials related cash flow requirements is provided by the Procurement Department.

The Procurement starts compiles requirement on the basis of Business

segments wise Billing Plan [SSO, DSO, and FL], which is decided by the Management Council Meeting, held at the start of every month. With the help of Billing Plan, the procurement works out actual material requirements for each Business segments wise. A detailed calculation is made to find out cost of materials by doing reversal working. The past sales trend of each business segments gives an idea of their products wise sales. The percentage of product wise sales would be fixed on basis of above trend & requisite materials would get procured accordingly after considering opening balance of each product.

The procurement provides billing figures, Materials to be procured during that month, Advance payment to supplier & Custom Duty requirement for both NMO & PMO.

2.

Committed Liability Payments

Committed liabilities are to be discharged on due date without fail, which includes all DALC Liability, DA Cases which mainly comprises of HP. Intel & Other suppliers liability if any & Post Dated Cheque Liability. Bank wise, Due date wise & Amount

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Payable on due date is provided by PMO & MM section. This would help us to make funds availability in respective bank on or before due date.

1.

Vendor Liability

This is based on the system liability as on cut off date. In other words this indicates the liability against materials received in Plant for which GR made. Further Credit period is added on GR Date as defined in Purchase Order to derive the due dates. Since DALC, PDC & Advance payment liability is considered in under the head “Committed Liability Payments” [mentioned above], this is not cash flow under this head.

4.

Local Purchase, EMD, Octroi & Sales Commission

The SMS section provides this information. information received from all the Regions.

This is complied on the basis of Local purchase liability is against the

materials procured locally at Region to meet out the Customer order requirement. EMD is paid normally Tender is submitted against any Government order. Octroi is an entry tax levied by the

Municipal Corporation in some states. Sales commission is payable on achievement of sales target.

5.

Interest & Bank Charges. [Interest on Cash Credit]

The interest on Cash Credit utilization is payable on quarterly basis. A provision is made on the basis of daily physical balances & the same is considered for cash flow purpose. Bank Charges is based on the past trend, which broadly includes Bank Guarantee Charges, L C Opening & Amendment Charges, Processing Charges & Penal interest charges etc.

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6.

Lease Rental Payments

This is based on the various lease rental agreements entered with leasing companies & the date wise payment schedule is complied by banking section. These payments are made on due date with out fail, as any delay of these payments would attract heavy penal interest.

7.

Administrative Expenses

The Administrative expenses is comprises of Office Rent, Electricity, Telephones, Repair & Maintenance Expense, Dispatch, Travels, CLA, Staff welfare & other miscellaneous expenses etc. This is provided by the Overhead section & complied on the basis of past trend and any anticipated liability.

8.

Staff Compensation

Staff compensation is provided by the Overhead Section is compiled on the basis of past trend or any anticipated payment during coming month. This includes Salaries, Income Tax, Provident Fund & ESI etc.

9.

Regional Remittance & Foreign Travels

Regional remittances are sent to take care of day to day operational expenses at Regional offices as per budgets compiled at HO at the commencement of the year.

Foreign

Travels expenses are provided based on the input received from respective PSO Department.

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10. Sales Tax The respective State Government as prescribed by the Sales Tax Act levies sales tax & is payable in the following month on basis of sales affected in immediately preceding month. 11. Capex Capital expenditure includes all hard furnishing expenditure payable to employee & other expenses to buy any capital related items. 12. Royalty A good amount of outflow goes towards Royalty payments, which is payable in the second month of the immediately preceding quarter. This based on the number of machines dispatched in the previous quarter & this would help us to plan in advance. The Royalty computation is prepared by MMS section & paid to Micro Soft thru State Bank of Saurashtra, New Delhi.

How to compile Cash Budget?

A mail is sent to NMO Procurement, PMO Accounts & All Sectional heads in accounts department with a request to provide their inputs on monthly cash flow requirement for the following month by 25th of every month.

On receipt of all information from respective section, a careful scrutiny & study is done.

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A comparison is done with previous month cash flow requirement & clarification is obtained wherever abnormal figures are reported.

All the supporting documents are serially numbered as per Date wise Cash Outflow Sheet & filed in a folder.

On the outcome of discussion, changes if any, is incorporated in the respective sheet.

The final set of complete copy is sent to CHAIRMAN, one copy is retained as office copy .

Cash Projections would help us in following way to make better planning: Cash Projections would helps the management to know the cash required for operations at the start of the month. Revenue targets can be fixed with the help of Cash Budget. It gives clear-cut visibility on all Committed Liability Payments like DALC, Post Dated Checks, DA Bills etc., to avoid any default & save the corporate image. Statutory payments like Income Tax, Sales Tax, PF, EPF and Other tax liabilities payment can be effected as per stipulated time frame to avoid heavy penalties. A good amount of outflow goes towards Royalty payments, as per the credit term agreed with the Vendor [normally falls due in 3rd weekend of the month. Projections would help us to plan in advance.

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Local Purchase is depends upon liability report sent by Region.

Materials

procured locally at Region would get reflected in this report. Other Expenses like Administration, Staff Compensation, Bank charges are depends upon past trends. Regional remittances are sent to take care of day to day operational expenses at Regional offices as per budgets.

Benefits from Daily Cash Reports: Daily Cash Flow reports reflects both inflows & expense head wise outflows incurred for the previous day as well as month to date. Corporate inflows like WCDL Drawn down from Bank, Commercial Papers Placed, FCNR [B] & NCDs and outflows there of are reflected separately to have better focus. It also indicates what is actual expenditure against planned at the start of month. It helps to prioritize payment for critical activities etc. To take borrowings in case of deficit of funds. Make investment in case of surplus funds.

Shortfalls:

As we cannot predict exactly inflows for the following day, it would be very difficult to plan in advance.

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Payment for unplanned expenditure would impact seriously other planned expenditure. Import Sight Bills are paid on receipt of actual documents at Bank. It is practically very difficult to predict the dates & requisite fund to effect this kind of payment. Any major payment would seriously impact the cash flow. Further delay would result in loosing credit worthiness of the company in the international market. Any wrong reporting in committed liability payment would also adversely impacts the cash flow. Since there are no fixed due dates for non-commitment payment, these get accumulated and keep pressure on cash flows.

Daily Cash Flow Report

Cash Flow is broadly divided into 4 reports:

1.

1.

Bank Position

2.

Funds Position

3.

Date wise fund outflow report.

4.

Cash Position and Expected Payments

Bank Position

Bank Position Sheet reflects bank wise availability of funds after considering all inflows and outflows of funds. Finance section provides Drawing Powers of banks & changes if

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any are also intimated time to time, to banking section & the same is considered in the report. Bank wise WCDL utilization level also incorporated in this report.

2. Fund Position Fund Position reflects Collection's and Expenditure. It is a summary of Bank Position (2) and Date wise fund outflow (4). In fund position sheet we can see total inflow of funds, outflow of funds and availability of funds as on date.

3 Date wise Fund Outflow Report This report shows head wise & date wise outflow of funds and balance projected outflow of funds for rest of the month.

4. Cash Position & Expected Payments. This sheet shows collection for the day and head wise bare minimum requirement of funds for next two days.

Steps for making Bank Position on daily basis: -

Replace bank wise opening balance with closing balance of previous day. (Copy the closing balance excluding grand total column, E.Cls Bal row, Paste the value at opening balance row A.Opening Bal by using paste special.)

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Delete all bank wise previous day's outflow and inflow figures appearing under head Payments and Deposits. In Manual Cash Flow Scroll Register, Do bank wise and Expense head wise total of cheques issued for the previous day. Plot bank wise total under payments head against cheques row. All Bank to Bank transfers have to be reported against Transfer row under Payment Head & Deposits Head. Transfer reported under payment head indicates outflow of funds from respective bank & under deposit head indicates inflow of funds in respective bank.

Fund transfer to PMO and Other Banks which are not forming, as a part of bank position would be treated as fund outflow. The Sum of all Debit Advice's received from banks have to be reported in respective banks under Payments head against advice's row.

All the collection figures are reported by SMS section through e-mails on daily basis. These inflows are plotted against respective bank under Deposit head. These inflows are also to be plotted in bank wise inflow table being maintained at right side of Bank Position's excel sheet. (Date wise inflow total and MTD inflows are linked with a cell reference at Fund Position under Inflow Head against Collection row.) Daily physical balances are also plotted bank wise down below the bank position sheet to find out the average cash credit utilization level.

Prepayment or restoration of WCDL to be reported as below:

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

In case of prepayment of WCDL subtract the amount in bank position under Drawing Power head and WCDL row in respective bank.



In case of restoration of WCDL add the amount in bank position under Drawing Power head and WCDL row in respective bank.

Date wise Outflow of Funds

Insert a row before previous day's outflow row and copy figures of previous day in newly inserted row. Then delete figures from last row [newly inserted excluding formula column] and also change the date.

From Cash flow Scroll register pickup expense wise outflow and plot the same against respective expense heads.

Plot total of debit advises received from in respective expense heads. [e.g. DALC, DA Cases, HP Cases etc ]

All funds transfers related to PMO to be plotted under PMO Funds Transfer Column.

PMO sends daily cash flow report through e-mail. The total expense to be plotted under PMO column in outflow sheet.

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Deduct actual expense for the day from budgeted for the day (row). Expenses which were not done for the day to be added with next day expenses. In case of

any expense head exceeds against budgeted figure than to the extend of amount exceeded to be plotted in additional row.

Fund Position

In Fund Position the closing balance of the previous day will become opening balance for the following day (Subtract minus dollar balance if any). Change the linked reference cell no. To next cell no to get inflow for day. This cell reference is linked with the date wise collection table in the bank position sheet. The outflows in Fund Position sheet are linked with Date wise outflow sheet. The Date wise outflow would get changed automatically as soon the inflow plotted at Outflow sheet. Erase previous day’s inflow and outflow figures incorporated directly against Others head and Other/Corporate/WCDL head respectively. Plot new figures if any in these place(Normally this cell indicates inflow & outflow related to corporate transactions, Any increase & decrease in WCDL Level, Increase in cc limits and other than operating inflows etc.) Availability figures under NMO for the day excluding Dollar balance should tie up with total availability of bank position and it is holds truth for PMO also.

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Cash Position and Expected Payments One more MIS report is being prepared, this indicates summary of inflows and outflows also indicates corporate inflows and outflows with more details. This report also reflects average CC utilization Lavel and Funds borrowed from banks (i.e. WCDL utilization, FCNR (B) & Commercial Papers etc.) Expected payments for next three days for NMO and PMO. Like committed payments for DALC, PDC?s, DA bills, backlogs are considered. Also indicates other critical & bare minimum required for next three days for operations.

Other recoverable

This is a part of current asset schedule. In our books we have different recoverable schedule like Sales tax, Excise tax & Custom Duty recoverable etc.

All other

recoverable which are not covered in the above mentioned are covered under this schedule. As this a common schedule, it has been suggested to circulate a copy of this schedule at end of every month & also have it confirmed the same from the person responsible.

Most of the figures reported under this schedule are linked with Income & Tax Deducted at source. i.e. Interest Income on Bank TDR, LC margin money & Money held trust, Interest on Investment etc.

It is also suggested to obtain a detailed working sheet of

each component from the person concerned at the every month end.

It should reflect

Total Income, TDS Components, Net of TDS & Amount receivable under other recoverable.

The income part should tie-up with Other Income Schedule & TDS part

with related TDS receivable schedule. For Person Responsible, please refer the schedule.

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The Closing Balances of this schedule are grouped with Amount recoverable in cash or in kind or for value to be received under schedule 11 of Loans & Advances in the Published Result of the company

Accounting Aspects: SAP Transaction Code: 1.

If the any amount is recoverable. GL Code

Debit Other Recoverable

64260 Dr

Credit to Respective Income Account

2.

GL Code

Vendor Cr

On recovery of amount GL Code

GL Code

Debit to Bank where cheques deposited Credit to Other Recoverable

64260 Cr

Lease Rental - Plant & Machinery & Vehicles

Lease financing enables the renting services of an asset rather than buying it. It is a contract whereby the owner of asset [the lesser] grants to another party [the lessee] the

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exclusive right to use the asset, usually for agreed period of time, in return for the payment of rent.

Lease & Sale Back: This has been a very popular mode of leasing transactions. Under the sale & lease back arrangement a firm sells an asset to a leasing company and leasing company leases it back to the former. This enables the seller company to raise cash inflow from the sales of asset and then continue the use of same assets by acquiring it on lease from the purchaser who becomes the lessor and selling firm become the lessee. Another parallel agreement entered with the Customer who intends to take the same assets on rental basis & possession of asset is transferred to that company.

Finance section provides lease agreement, which contains Lessee's Name & address, Lease Value, Lease Period, Mode of Payment, Frequency of payment, Repayment Schedule etc. All the payments are effected as per the agreements.

All payments are made on or before due date of payment as per the agreement. Any delay in payment attracts heavy penal interest & impact of the credit worthiness of the company adversely. It is advised that all the payments should be made well in time.

Un-expired Lease rental amount on lease agreements have to be reported in notes to accounts in the published results of the company.

Payment Process:

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1.

Prepare a Lease rental payment chart, which indicates due date of payments as per the agreement.

2.

Create liability document .

3.

Prepare the cheque for the rental amount & ensure that it reaches leasing company before three banks working from the due date to avoid delay & consequence penal interest.

4.

To get scroll & signature from authorized signatories.

5.

Prepare a covering letter & dispatch the same to the Leasing Company.

6.

Update monthly Lease Rental Payment Schedule.

7.

Compute the prepaid amount at the month end & pass the requisite accounting entries in the books of accounts.

8.

The prepaid Documents have to be reversed in the following succeeding month.

9.

All the payments which falls due in 1st week of the following month should be made in the last week of preceding month.

10. In case of any security deposit paid, the same is to be adjusted while making final payment.

Daily Bank to Bank Fund Transfer All major collections are pooled in two banks namely State Bank of Saurashtra & Standard Chartered Bank on daily basis. These funds are transferred to different banks on daily basis to meet out committed liability & other requirement arises in these banks. In case of surplus funds, it is required to spread the same across all Cash Credit banks to reduce the Cash Credit utilization level & to save the interest cost.

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Any delay or non-compliance on this may result in dishonor of cheque issued by the company, which is a legal offence under the Banking, Public Financial Institutions and Negotiable Instrument Laws. (Amendment) Act, 1988 as per section 138 to 143 under the chapter XVII. The punishment prescribed for an offence under this Chapter is imprisonment for a term, which may extend to one year or with fine, which may extend to twice the amount of the cheque or with both.

The ripple effect on this could affect the image of the Company very adversely. This is a time bound exercise & should be monitored very closely always to avoid such events.

In case of Cross Company The accounting entry same as mentioned above, except the code, this need to be changed depends upon the transactions. In case of two different company involved then, system by default generate Cross Company docs in both company codes.

Investments in Mutual Funds

Currently we are making Investments in Mutual Funds whenever we have surplus funds to derive the maximize returns.

Operational surplus funds are deployed in

Overnight Liquid Funds, the same would get returns as per current market conditions.

Procedure for Investment: -

The investment in Mutual Fund can be broadly divided into Operational Funds & Corporate Funds.

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Operational funds are generally made out of temporarily operational surplus funds & invested for very short period is called Operational Funds. [eg. Out of surplus collection after meeting all requisite expenditure]

The investment other than operational surpluses are invested for long-period are Corporate Funds. [ eg. Business Consideration, Tax Refund, Any Specific Purpose]

Proposal for Investment is made by finance section as per investment guidelines and duly approved by the committee of Investment, then forwarded to banking section for execution.

1.

To Fill the Mutual Fund application form as per Investment Proposal.

2.

To Prepare cheques or to prepare funds transfer letter directly to Mutual Funds Account.

3.

To make accounting documents.

4.

To enter the details in cash flow register.

5.

To have the documents scrolled.

6.

Have the document authorized.

7.

To get the signature from the Authorized Signatory on the application form, Cheques or Transfer Letter.

8.

Fax the Fund transfer letter to Bank & get confirmation to ensure the receipt of the same at their end.

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9.

Fax the Fund transfer letter/ copy of cheque and application form to the Fund House & get confirmation to ensure the receipt of the same at their end.

10. Follow-up with bank to effect the transfer to the Mutual Fund Account, in case of funds transfer letter. 11. Co-ordinate with the Broker & Mutual Fund house & to hand over Original application form, Cheque and copy of funds transfer letter etc. 12. To get the statement of account from Mutual fund & check the details of investment like date of investment, value, units & NAV etc. 13. Update the details in excel file for compiling report & analysis etc. 14. File the Copy of application, cheques, fund transfer letter & account statement.

Compliance As per 372 A of the Indian Companies Act 1956, no loan or investment shall be made or any guarantee or security be provided unless duly authorized by a Board Resolution (and prior approval of public financial institutions, where any term loan is subsisting).

How to Calculate Profit & Loss on Disposal of Current Investment

In order to compute profit & loss on sale of Investment average method is adopted. Eg. In case multiple folios for any given fund, it is necessary to find out the average Unit Price. [ Let us assume that XYZ named folios were Purchased in various dates, in this case to find out the average unit price. Average Per Unit Price of XYZ Folio = Summation of value of all XYZ Folios/ Total Units of XYZ Folios

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[only outstanding amount & Units there of on the date of redemption have to be taken into account for the above computation.]

On Partial or Full Redemption any of the XYZ folio, the profit or loss is the difference between the actual Sale Unit Price Less Average Purchase Unit Price then multiplied by the total units sold.

Review / Monitoring

The Closing Balances of the Investments is to be reported under schedule 6 of Investments in the Published Result of the company.

The Dividend Income & Profit on

disposal of Current Investment have to be reported under schedule 14 of Other Income in the Published Result.

The Diminution in value of Current Investment is to be

reported under schedule 17 of Administration, Selling, Distribution and Others.

A weekly report is complied to review the return on various investments made. This report comprises of week-to-week fund wise performance, cumulative performance of the fund, Fund wise corpus status, NAV statement & summary status on company as a whole. This report states the performance of various funds on any given week or date. In turn this would helps the management to take decision like switchover between funds or redemption of any fund etc or any alternative mode of Investment etc.

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Accounting Aspects: SAP Transaction Code: On making investment

1.

GL Code

GL Code

Investment - Others

60400 Dr

Credit to Respective Bank Account

2.

Bk Cd Cr

On receipt of Dividend (reinvest option)

Investment

60400 Dr

Income from Investments Dividend

3.

71045 Cr

On Sale/maturity of Investment

Debit to respective bank Loss on sale of Investment if any

86155

Profit on Sale of Investment if any

86155

Investment

60400 Cr

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4.

Diminution in value of Investment

Diminution in value of Current Investment

86154 Dr

Investment

60400 Cr

Capital gains

In order to compile advance tax computation a detailed excel sheet is comprises of Name of the Fund, Date Investment, Purchase Value, Purchase NAV value, No of Units Purchased, Dividend Units, Dividend Value, Redemption date, Sale Value, Sale Unit Price, Profit or Loss on sale of Investment etc to be compiled.

Basically line item wise

details is required for each investment made till the date of disposal investment for the given period. This would help the taxation section in deciding whether the profit gained is on short term or long term. This information is complied & forwarded to the taxation as per the period defined by them on quarterly basis for tax computation.

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DESKTOP MARKET SHARE

TOTAL MARKET SHARE-06

HCL HP IBM/LENOVO ZENITH OTHER BRANDED UNBRANDED

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WORKING CAPITAL NEEDS There are many factors that determine working capital needs of an enterprise: NATURE OR CHARACTER OF BUSINESS: HCL Infosystems carry on the activities related to computer systems. Though they are primarily an assembling firm they also have manufacturing facilities in Chennai and Pondichery. This requires them to keep a very sizeable amount in working capital.

SIZE OF BUSINESS/ SCALE OF OPERATIONS: HCL is the leader in its segment in both consumer as well as commercial market share they have increased their share in the consumer segment notably in the last two years. This they have achieved through retail expansion. The scale of operation and the size it holds in the Indian IT market makes it a must for them to hold their inventory and current asset at a huge level.

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COMMERCIAL MARKET SHARE 20.00% 15.00% 10.00% 5.00% 0.00% HCL

HP

IBM

COMPANY

CONSUMER MARKET SHARE 20.00% 15.00% 10.00% 5.00% 0.00% HCL

HP

ZENITH

COMPANY

2006(9M)

2006

2005

RATE OF GROWTH OF BUSINESS: The rate of growth of sales indicates a need for increase in the working capital requirements of the firm. As the firm is projected to increase their sales by 73% from what it is on 2005. The firm is required to guard them against the increasing requirements of the net current asset by way of efficient working capital management. The sales and projected sales level projected determine the investment in inventories and receivables.

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HCL Infosystems Limited

2004

2005

2006

GROSS SALES/INCOME FROM OPERATIONS I522.03 1967.37

2361

2007 2008 PROJECTED 2833 3400

PRICE LEVEL CHANGES: Changes in the price level also affect the working capital requirements. It was the reduced margins in the price of the raw materials that had prompted them to go for bulk purchases thus making on additions to their net current assets. They might have gone for this large-scale procurement for availing discounts and anticipating a rise in prices, which would have meant that more funds are required to maintain the same current assets.

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

2006 1543 98 1641 0.94

2005 1287 76 1363 0.94

2004 912 66 978 0.93

2003 676 66 742 0.91

The current asset %on total asset is the highest over the years. This increasing %of current assets to the total assets at first might indicate a preference for liquidity in place of profitability. But a

look into the nature of the business carried on by HCL

Infosystems reveal the reason behind it. How far their preference to current assets has affected the sales is shown below.

2002 569 80 649 0.88

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NET CURRENT ASSET-SALES

The sales has increased and the profits risen .But what is noteworthy here is that the firm has reversed the trend of a decline in net current assets. Whether the change has worked for the company has to be analyzed in the context of the growth in sales as compared to the previous year. There has been a30%rise in sales or revenue generated this would automatically suggest towards a very efficient working capital management were the assets of the firm which are short term in nature has been utilized optimally in connection to their fixed assets. That the firm has gone towards such a dramatic shift in their working capital position might be because of the tremendous growth witnessed in the domestic IT market. In this the hardware alone comprises a high growth . And in this market HCL being the market leader they are expected to visualize the movements in market and make the maximum out of it.

CURRENT ASSET-FIXED ASSET

PARTICULARS NET CA/ NET BLOCK

2006

2005

2004

4.08:1

5.58:1

3.26:1

2003

2002

1.82:1 2.93:1

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The ratio of the net current asset to the fixed ones is an indicator as to the liquidity position of the firm. This ratio is the highest for the firm in the year as compared to the preceding years. There could be an argument as to whether the increased ratio of working capital to net block is a conservative policy and whether it would be detrimental to the interest of the company. Or whether it would have been proper if the company invested more into the capital expenditure in the form of plant and machinery or invested in any other form that would have got them an internal rate of return. What has to be kept in mind before coming to a conclusion as to the policy of the company is the fact that the firm being primarily into assembling, its investment in the fixed asset segment need not be high? A look into the capacity utilization of the plant would reaffirm this point. It would be ideal for the firm to continue in the same line and not have excessive investment in the fixed asset as they can easily add on to this part if the need arise as their capital expenditure is not more than 23.13crores so addition of an extra line of production isn’t going to cost company much. The additions made to the net fixed assts for the past years show that has been the policy followed by the company.

The amounts spend on capital

expenditure for computer systems were Rs15.71 crores in 2006.

COMPUTER AND MICRO PROCESSOR BASED SYSTEMS YEAR INSTALLED CAPACITY ACTUAL PRODUCTION 2006 1150000 581805

INDIA PC SHIPMENTS BY FORM FACTOR

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Year on year growth ( april 2005 - march 2006) Consumer desktops Commercial desktops Desktop pc total Note books

33% 15% 21% 168%

DATA GRAPHIC/DISPLAY MONITOR/TERMINALS/HUBS YEAR INSTALLED CAPACITY ACTUAL PRODUCTION 2006 250000 267326

That the fixed assets of the firm are being put to efficient use and the firm is trying for optimum capacity utilization is something that can be easily deduced. Whether the current assets or the working capital of the firm has anything to do with it is for us to see. An increased production in normal circumstances means better raw material to finished good conversion rate, i.e., the firm is taking less of time in the production process and this happens when the current asset employed in relation with the fixed ones are at optimum. The other notable feature here is that though the firm has added on to its installed capacity in all three years they were still able to increase the capacity utilization. That they have been able to do it shows that the more current assets, especially inventory used in relation to the fixed assets, i.e., plant and machinery and their management has only helped in increasing their utilization to the maxim.

CURRENT ASSET-CURRENT LIABILITY

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PARTICULARS CURRENT ASSETS CURRENT LIABILITIES %CURRENT ASSET INCREASE %CURRENT LIABILITY INCREASE

2006 1543 1143 20.0 32.0

2005 1287 863 41.0 24.0

2004 912 697 35.0 25.0

2003 676 556 19.0 66.0

2002 569 335

The Net Current Assets has been decreased by 6% and increase in Current Liability has been only 8% over that of the previous year. This is an indication as to the expanding operations of the firm. HCL has increased its current assets in order to meet the increasing sales. The firm’s level of liquidity being high we need a check on whether it affects the return on assets.

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RISK-RETURN ANALYSIS

Here ROI= EBIDT / Net Current Asset + Net Block

PARTICULARS Net CA+ Net BLOCK EBIDT RETURN ON INVESTMENT

2006 498 396 80.0%

2005 500 308 62.0%

2004 281 238 85.0%

2003 186 137 74.0%

2002 314 48 15.0%

The scenario witnessed here is that the returns have been increased by the marked growth in working capital and though a 80% return on investment is more than what it was last year. But what has to be understood here is that the net current asset in 2003 was the lowest in all five years and that in 2005 the highest.

CURRENT ASSET SCENARIO

CURRENT ASSET INVENTORY SUNDRY DEBTORS CASH AND BANK ASSETS OTHER CURRENT ASSETS LOAN AND ADVANCES

2006 240.31 511.26 145.29 74.97 37.87

2005 188.10 369.92 146.32 79.42 32.08

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2006

INVENTORY SUNDRY DEBTORS CASH AND BANK ASSETS OTHER CURRENT ASSETS LOAN AND ADVANCES

2005 INVENTORY SUNDRY DEBTORS CASH AND BANK ASSETS OTHER CURRENT ASSETS LOAN AND ADVANCES

That inventory and debtors are the largest contributors to the current assets over the three years. That is understandable for a manufacturing concern given the sizeable inventory it should have at its disposal and the major portion of the finished goods they have to sell on credit. But while there is an increase in the value of all components of the Current Assets the proportion of inventory, debtors and loans and advances to the current assets have declined. Whether this proportionate decline to current assets is as a result of

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reduced lead time and better operating cycle This might directly implicate better receivables management and inventory control. The other notable feature is that cash and bank balances as a %of current assets are on a rise. Now this ensures high liquidity and funds, which are easily realizable when the need arises.

COMPONENT INCREASE OVER THE YEARS CURRENT ASSET INVENTORY SUNDRY DEBTORS CASH AND BANK ASSETS OTHER CURRENT ASSETS LOAN AND ADVANCES

2006 469.61 705.30 214.92 97.25 55.49

2005 349.39 532.39 251.27 108.12 45.69

The above table is a clear indicator as to the increasing liquidity of the firm. The cash balances and other current assets (prepaid expenses) along with loans and advances have increased to a marked extend as compared to last year. This increase indicates an improvement in the solvency position of the firm, as these assets are more liquid and easily realizable than inventory. Is having such a huge increase in unproductive sources such as cash and bank balances thus hampering the profitability position of the firm is the question.

LIQUIDITY RATIOS RATIO CURRENT RATIO QUICK RATIO

2006 1.35 0.93

2005 1.49 1.08

2004 1.31 0.90

2003 1.22 0.78

2002 1.70

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The current ratio after a decline in 2003 has increased which means an increase in liquidity and solvency position of the firm. This reaffirms what had been stated earlier firm’s current assets are at an all time high. This they might have done to cover the risk involved in their expanding operations. The firm’s ability to meet its financial obligations in the immediate future is the best for three years The present ratio of 1.35:1 could be claimed to be optimal as the desired ratio of the company is about is about 1.33:1. But the higher ratio might also be that a greater %of the firm’s resources are tied in unproductive resources. But how far is the ratio successful in indicating the relative liquidity of current assets and urgency of repayment of current liabilities and short-term financial position of the firm has not been answered. Because when certain current assets and assets have to be realized in a couple of weeks others might take months.

INVENTORY MANAGEMENT

COMPOSITION RAW MATERIAL STORES AND SPARES FINISHED GOODS WORK IN PROGRESS

2006 63.49 37.13 133.7 4 5.95

2005 77.94 29.87 72.45 7.84

% INC -19.0 24.0 85.0 -24.0

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%INCREASE

GOODS

FINISHED

S

%INCREASE RAW MATERIAL

100 80 60 40 20 0 -20 -40

The increasing component of raw materials in inventory is due to the fact that the company has gone for bulk purchases and has increased consumption due to a fall in prices and reduced margins for the year. Another reason might be the increasing sales, which might have induced them to purchase more in anticipation of a further increase in the demand of the product. And the low composition of work in progress is understandable as because of the nature of the business firm is involved in. To the question as to whether the increasing costs in inventory are justified by the returns from it the answer could be found in the HCL retail expansion. HCL caters to the need of the two separate segments today are the institutions for which they manufacture against orders and the other the retail segment of the market. They are more into retail than earlier and at present more than 650 retail outlets branded with HCL signages and more are in the pipeline. With retail segment the problem is that a wide variety and magnitude of the components have to be kept at the disposal, as this segment is very volatile and also vary in their needs. This also ensures availability of products to meet the increasing sales. The company in order to meet its raw material requirements could have gone for frequent purchases, which would have resulted in lesser cash flows for the firm rather

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than the high expenditure involved when procuring it at bulk. The reason why the firm has gone for these bulk purchases is because of the lower margins and the discounts it availed because of procuring in bulk quantities.

A negative growth in WIP could be because of 1) Better and efficient conversion of raw materials to finished goods i.e. the time taken to convert raw materials after procurement to the end product is very

minimum.

2) This also is due to capacity being not utilized at the optimum, which should mean that more of goods are stagnant at the operations. But this is not the scenario witnessed here as could be easily seen from the increased utilization of plant capacity. As to the work in progress time taken it is in normal circumstances very less. They have more than 7 assembly units in which5000 machines work at a single time. This increased automation has not only reduced the W.I.P. conversion time but also has brought down the processing and labor charges to a significant extent.

ABC system ABC system of inventory keeping is followed in the factories. Various items are categorized into three different levels in the order of their importance. For e.g. items such as memory, high capacity processors and royalty are placed in the ‘A’ category.

JIT The relevance of JIT in HCL Infosystem can be questioned. This is because they procure materials on the basis of projections made atleast two to three months before. Even at the time of procurement they ensure that they procure much more than what actually is required by the firm that is they hold significant amount of inventory as safety stock.

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This is done to counter the threat involved in default and accidental breakdowns. The levels of safety stock usually vary according to the usage.

PEAK & OFF SEASONS As they are in to the computer system business we cannot clearly demarcate their business into peak and off-seasons as their sales fluctuate and vary. The working capital utilization for inventories is made on the forecasts of demand three months prior to the procurement.

CASH FLOWS IN INVENTORY PROCUREMENT The cash flows also play an important role in the purchase of raw materials. In case they are not able to realize their cash flows in receivables at the time when inventory is required they pledge the existing stock of inventory as collateral security to the banks in order to avail finance for the working capital management.

CONVERSION PERIODS

RAW MATERIAL PARTICULARS RAW MATERIAL CONSUMPTION RAW MATERIAL CNSUMPTION PER DAY RAW MATERIAL INVENTORY RAW MATERIAL HOLDING DAYS

2006 1210.77 3.31 63.49

2005 980.48 2.68 77.94

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The raw material conversion period or the raw material holding cost has reduced from28 to 26. This is despite an increase in its consumption. This indicates that the firm is able to convert the raw material at its disposal to the work in progress at a lesser time as compared to the last year. It would be to the benefit of the firm to reduce the production process and increase the conversion rate still as the firm is required to meet the increasing demand.

WORK IN PROGRESS PARTICULARS COST OF PRODUCTION COST OF PRODUCTOION PER DAY WORK IN PROGRESS INVENTORY WIP HOLDING DAYS

2006 1978.51 5.4 5.95

2005 1604.69 4.4 7.84

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

FINISHED GOODS PARTICULARS

COST OF GOODS SOLD COST OF GOODS SOLD PER DAY FINISHED GOODS INVENTORY FINISHED GOODS INVENTORY HOLDING DAYS

2006

2005

1919.11 5.25 133.74

1598.17 4.37 72.45

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The time taken for the firm to realize its finished goods as sales has improved as compared to last year. This growth in sales could be traced back to the growing domestic IT market for the commercial as consumer segment in India. HCL has around 15%of the market in desktop and it is the market leader at this segment. So it is only natural that they are able to better their conversion rate of finished goods to sales.

OPERATING CYCLE PARTICULARS INVENTORY CONVERSION PERIOD AVERAGE COLLECTION PERIOD GROSS OPERATING CYCLE AVERAGE PAYMENT PERIOD OPERATING CYCLE

2005 42 63 105 23 82

2004 45 66 111 17 94

2003 28 55 83 16 67

The operating cycle of the firm reveals the days within which the inventory procured gets converted to sales or revenue for the firm. This time period is of importance to the firm as a lag here could significantly affect the profitability, liquidity, credit terms and the policies of the firm. All the firms would like to reduce it to such extend that their cash inflows are timely enough to meet their obligations and support the operations. That the firm has been able to reduce the ratio is in itself an achievement as they were having huge stocks of inventory. But the reduction in the cycle could also be attributed to the boom in the market and the growth it is expected to reach. This boom automatically ensures the demand for the finished goods and thus helping it to garner sales for the firm.

RAW MATERIAL CONSUMPTION RAW MATERIALS CONSUMED IMPORTED INDIGENOUS %IMPORTS

2006 920.07 290.70 75.99

2005 708.40 272.09 72.25

2002 43 74 117 21 96

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A major chunk of the imports come from Korea and Thaiwan and is purchased in US$. The value of imported and indigenous raw material consumed give a clear picture that if there is a change in the EXIM policy of the government it is bound to affect the company adversely as more than70%of their consumption is from imports. But this is a scenario witnessed in the industry as a whole and though HCL is into expanding its operations to Uttaranchal it in the present state is would be affected by a change in the import duty structure. A major chunk of their current assets are in the form of inventory and the change in technology will invariably be a threat faced by the firm. The question of technology applying here like say a certain device going say out of fashion or outdated. For e.g. TFT monitors being in demand more than CRT. This scenario in all probability is not one, which is applicable to the Indian market as might be with say foreign. As in India say a product doesn’t co outdated as obsolescence here could always be countered by selling the product at a lower cost The output or the production in units has increased in both the products they are related with. This increase has not been in the same proportion as compared to the year 2004. This however doesn’t project any significant details as to whether the operating cycle and the working capital management policy is efficient or not. It indicates towards better capacity utilization by the firm. Thus we can conclude that the firm not only in terms of value but units has justified the increase in raw material consumption.

CASH MANAGEMENT

The cash management system followed by the firm is mainly lock box system

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Cash Management System involves the following steps: •

The branch offices of the company at various locations hold the collection of cheques of the customers.

•

Those cheques are either handed over to the CMS agencies or bank of the particular location take charge of whole collection.

•

These CMS agencies or bank send those cheques to the clearinghouse to make them realized. These cheques can be local or outstation.

•

The CMS agencies or bank send information to the central hub of the company regarding realization/cheque bounced.

•

The central hub passes on the realized funds to the company as per the agreed arrangements.

•

The CMS agencies or concerned bank provides the necessary MIS to the company as per requirement.

In cash management the collect float taken for the cheques to be realized into cash is irrelevant and non- interfering because banks such as Standard Chartered, HDFC and CITI who give credit on the basis of these cheques after charging a very small amount. These credits are given to immediately and the maximum time taken might be just a day. The amount they charge is very low and this might cover the threat of the cheque sent in by two or three customers bouncing. Even otherwise the time taken for the cheques to be processed is instantaneous. Their Cash Management System is quite efficient.

CASH- CURRENT LIABILITY

PARTICULARS ABSOLUTE LIQUID RATIO

2005 0.31:1

2004 0.11:1

2003 0.165:1

The absolute liquid ratio is the best for three years and the cash balances as to the current liability has improved for the firm. Firm has large resources in cash and bank

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balances. While large resources in cash and bank balances may seem to affect the revenue the firm could have earned by investing it elsewhere as maintenance of current assets as cash and in near cash assets and marketable securities may increase the liquidity position but not the revenue or profit earning capacity of the firm.

CURRENT- LIQUIDITY INDEX

PARTICULARS CURRENT LIQUIDITY INDEX

2005

2004 36.88

2003 45.66

This computation of current liquidity index for the firm is acting as a contradiction of the earlier mentioned statements on high liquidity. This percentage here is indicating that the liquidity position of the firm has worsened as compared to last year. This decline is primarily due to the fact that the cash flow from the operation has declined considerably over that in the last year.

DIVIDEND POLICY-CASH PARTICULARS DIVIDEND POLICY% SHIFT IN SALES CASH BALANCE CASH IN HAND

2005 310 7548.77 190.64 0.26

2006 400 11180.90 218.38 0.26

36.01

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Dividend % 400 300 200

Dividend %

100 0

1

2

3

4

5

6

7

The other notable feature in HCL statements has been the growing dividend policy of the firm. The payment of dividend means a cash outflow. Thus cash position is an important criterion at the time of paying dividends. There is a theory that greater the cash position and the liquidity of the firm better it would be in a position and ability to pay dividends. The firm has adopted a policy of disbursing the revenue earned as profits to the shareholders as dividends as could be seen from the increasing % of dividends declared.

PARTICULARS PBIDT EQUITY DIVIDEND%

2006 396 135

2005 308 103

2004 238 68

2003 137 32

2002 48 8

This could mean two things for the firm the amount of cash retained in the business for capital expenditure purposes are minimal or nil. But rather than investing more in plant and machine which they can at any point in time by adding on a additional line if need be they would like to optimize their utilization in fixed assets at present. This also means that the percentage of cash in hand maintained by the firm as a source of liquidity could

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be reduced, i.e., the amount of idle cash in the business could be made to a level which the firm feels optimum. The firm feels that there is no point in retention of cash and it would be in the interest of the firm as well as the shareholders to give away these profits as dividends. This would automatically mean an increase in Earning Per Share (EPS)(Basic EPS has gone up from 13.7 in 2005 % to 16.7% in 2006) It would prompt more of investors being interested in the shares of the company, which could boost the purchase of the securities and increase the Market Price Per Share thus being beneficial for the firm. If the optimal working capital policy is one, which increases the shareholders wealth, then the firm is following one. There are also various other factors such as variability in sales that we have dealt with and cash flows that govern the policy.

CURRENT ASSETS CASH

TRAVEL SANCTION CLAIMS:

Travel sanction claims deal with providing the employees with advance payments for CO. tours and also to reimburse them for the balance amount on their return. The employee going on tour fills the travel requisition forms with details of the expenses involved. The Co. has provided certain guidelines for settlement of travel sanction claims, which are as follows: -

PROCESS FOR CLAIMING ADVANCE PAYMENTS FOR TOUR PAYMENT.

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A form is filled in quadruplicate by the employee and is submitted to the account dept. For getting tour advance duly approved by the head of the dept, at least 24 hours before proceeding on tour.  Green colored copy is for taking advance payment.  White colored copy is for submission of tour claims on return .Pink colored copy is for administration to book the tickets.  Yellow colored copy is for regularizing attendance. For exceptional cases of mode of travel prior approval of the concerned manager is taken.

Before releasing the advance, it is checked whether any previous unsettled accounts are pending against the employee or not. If this is the case, then the employee has to settle all the previous advances and claims before making a fresh claim. . Accounts return all the three copies except the green one to the employee. Then the accounts department for taking advance clears the green form.

PROCESS OF PAYMENT OF TOUR EXPENSES An employee has to submit the claim within 3 days from the return of the tour on the white form, along with:  Departure/ Arrival date & time must be entered in tour claim.  Travel ticket /air ticket / taxi bills  Hotel bills for room rent and taxes or an undertaking of own arrangements.

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 Food bills (for travel plan TP5 &TP6 it is not applicable, they can claim on a flat rate basis.)  STD Bills or any other official expenses incurred during tour with proper bills only.  Any exception should be listed on the claim duly approved from director before sending to accounts for clearance. Travel claim should be as per travel rule.

PROCESS OF BOOKING OF LOCAL CONVEYANCE BILLS Conveyance expenses must be submitted on weekly basis along with the following details.

 Serial no.  Date  From  To (customer name)  Mode of conveyance  Total amount Employee has to fill customer contact time report and call report along with copy of local conveyance voucher. After getting approval from the concern manager employee can submit their conveyance voucher with accounts dept. For payment / approval. Accounts dept. Verifies the claim with their own customer contact time and call report, for clearance of vouchers. If it is not as per their customer contact time and call report, it is then

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sent back to their reporting manager. Accounts clear the voucher after verification of all details. HCL follows the following procedural path for updating the books: PATH:

HRMS-PAYMENT

RECEIPTS-PAYMENTS-CASH

PAYMENT

VOUCHER-CREATE.

PROCESS OF CASH PAYMENT OF LOCAL

CONVEYANCE

VOUCHER

1.) The process starts with the checking of the vouchers for the authencity of the claims and whether they are applicable to the employee in his particular grade. 2.) In the system ,first the module ZUSR is opened.Then the path followed is :



HRMS-PAYMENT/RECEIPTS-GENERAL VOUCHER.

Then on screen comes the document date and posting date. In which the date is typed on which the voucher is being punched. The document type here is SP.It is for payments .It is different for different items like vendors, supplier etc. it is so because the SAP no., which is generated, is accordingly different.then there is header text where the details of the conveyance like from which date to which date it is being claimed. The transaction being done in Indian rupees, currency rate is taken as INR. 1.) Then this customer is debited (put 40 infront of PST KY and in a/c code enter the corresponding code given in the voucher)

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2.) Then simulate. 3.) Then information regarding amount, cost center are inputted also in text the name of the claimant and conveyance details are input then personnel code is also input. 4.) Now the cash account is credited amount, business area Corp, value date, and in text name and details of the claimant is put. 5.) Now the sap document no. Generated is noted

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OVERSEAS TRAVEL SHORT TRIPS: If the employee travels overseas for a month then his expenses are covered under daily allowances.these consists of three parts: 1. food, laundry,and miscellaneous (boarding) 2. hotel (lodging) 3. conveyance and incidentals (conveyance)

OTHER ENTITLEMENTS: 1. Conveyance from residence to airport and back 2.Airport tax wherever applicable 3.Conveyance from airport to hotel and back at overseas location 4.Visa processing charges LONGER DURATION TRIPS: If the duration of the tour is more than 30 days then the employee will be paid monthly allowances, which is inclusive of accommodation, conveyance, miscellaneous expenses as well as applicable taxes.

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TAX DEDUCTED AT SOURCE (TDS) COLLECTIONS

Tax deducted at source is the tax deducted on each monetary transaction held with the vendor, customer or on the job trainees (temporary employees). According to the prevalent slab rate, form 16 in the case of salary. Timely collection of TDS is quite important else the government levies a penalty on the company. TDS is usually deducted from the following three categories of people in the Co. 1.Temporary employees or OJT’s on salary 2.Suppliers 3.Customer

PROCESS OF COLLECTION OF TDS FROM TEMPORARY EMPLOYEES Temporary employees are also considered as vendors by the Co. this helps the Co. to avoid costs of the facilities that the permanent employees of the co. avail. The basic account entries for this are: STI PEND A/C—Dr. To EMPLOYEE A/C-------Cr.

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And when TDS is cut according to the applicable slab rate on the employee’s salary. The following book entry is passed. EMPLOYEE A/C—Dr. To TDS PAYABLE A/C------Cr.

When the salary is paid to the concerned employee, the following entry is passed. EMPLOYEE A/C –Dr. To BANK A/C ------Cr.

Now when the tax is deposited in the bank the following journal entry is made. TDS PAYABLE A/C—Dr. TO BANK A/C -------Cr. The path followed in the system is: ZUSR-MODULE IS ACTIVATED. HRMS-PAYMENT / RECEIPTS-GENERAL VOUCHER

Now the document date and the posting date are made. The narration about the kind of entry being made is given. Document type here is SA. Now the stipend a/c is debited, (PST ky-40) now the amount, the area, and narration is given and TDS is deducted according to the rate applicable. Then the employee a/c is credited by the remaining amount. The SAP document number is then generated automatically by the system and noted down.

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PROCESS OF COLLECTION OF TDS FROM SUPPLIERS. In general accounting practices if a firm is registered and getting supply of materials from the vendor of more than Rs. 20,000/- per order, then the then the taxable amount is deducted as per the income tax slab rate from the total amount and balance is to be paid to the vendor.

The TDS amount is then deposited with the central government within 7 days of the next month, non submittance of which is treated as a crime and the company can be penalized for it. The process followed in the system is more or less similar as that for in the case of temporary employees except the code changes.

PROCESS OF COLLECTION OF TDS FROM CUSTOMERS:

If the services are delivered to any big organization or dealer, then they also deduct tax on the total amount of services or Annual Maintenance Contract (AMC) delivered as per the prevalent slab rate in the market.when the customer has deducted the TDS, he attaches the covering note giving complete details.the Co. then sees that the customer has deducted the correct prevailing rate of TDS .for more accuracy the Co can fill the certificate itself and give it to the customer, who provides his signature and all the details.All TDS forms are then sent to HO for verification and then dispatched to the concerned customers.

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PROCESS OF ISSUANCE OF EARNEST MONEY DEPOSITS

For competing in a tender bid, details of the tender are sent to the regional office. These include Tender information, Order details, delivery information, installation information, warranty details, payment terms, pricing and training details. In HCL all tenders less than RS 100/- Lac can be sent directly by the sales executive to the regional office but if greater then the aforesaid then the request form must be signed by the RCEM. EMD i.e. earnest money deposit is a percentage amount of the expected order value of the tender to be submitted and which is returned after the closing of the order. In tender information, information like customer name, customer profile, tender number, tender date, tender due on, EOV (expected order value), whether EMD is requested in the form of DD or BG, expected date of refund, expected time frame of closing the order, whether any existing EMD is pending with the particular customer, whether any B/R is pending with the customer, any S/W or N/W consultant is involved or not, NIC/NICSI is involved or not, the major competitors, business of the customer with the Co. in the last one year, Business lost to competitors, customer’s vendor /brand preference, products to be quoted, local purchase items are mentioned. Order details consider the following: whether technical and price are separate, i.e. whether it is a 2 part bid, whether price bid would be opened after the technical bid, when will the purchase order be placed, and details about distribution of different items in L1, L2, L3 categories, vendors are placed in these categories according to the prices quoted by them and also different items in the same category are distributed accordingly. Delivery terms include late delivery clause, exact rates and details. whether it is a single location delivery or multi location delivery, whether customer will give any road permit,

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whether any PDI (pre dispatch inspection)/acceptance testing is involved or not Installation details include information about installation / integration period provided after delivery, late delivery charges on late installation after delivery, and what would happen in case of SNR (site not ready) Warranty details deal with for how many years is the warranty, what will be the post warranty AMC rate required in the tender. warranty support commitment if any, any penalty clause on delay in problem attending/resolution during warranty period Payment terms deal with like what the payment terms are, installation, submission of bank guarantee, security and performance deposit required, bills receivable time etc. Pricing clause includes the margin in the deal, information regarding requirement of forms C/D for sales tax, whether the customer is eligible for duty exemption, whether there is any requirement for insurance coverage beyond the delivery. Training information includes whether any training is required or not, and in the former case whether the customer would be paying for it, whether the balance of payment is linked to it, etc.

PROCEDURE FOR RECORDING AND UPDATING THE EARNEST MONEY DEPOSIT IN THE BOOKS OF ACCOUNTS.

PATH:

ACCOUNTING-FINANCIAL

DOCUMENT ENTRY-GL POSTING

ACCOUNTING-

GENERAL

LEDGER-

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After this it is required to type the document date, type, co. code and the posting date, the currency (here it being Indian rupees, INR is typed), then reference document here the narration of the text is typed.then the name is searched.now .now the amount, business area, the due date of the tender and in the text narration the tender no., and tender date is put.

PROCESS OF REFUND OF EMD FROM CUSTOMERS

A follow up with the sales team is done so as to know whether the tender is open or closed. Then correspondence is initiated with the concerned departments through the business entity manager for refund sanction note is raised, giving complete details, if the customer through the BEM only has forfeited the EMD. Copies of the letter to higher authorities are sent in case there is no response from the concerned departments. Indemnity bond is given to the bank for closed case, in case of local pay order which are still unpaid by the bank through the customer giving following reasons: -

1.) Pay order has been lost in transit. 2.) Being an old case &since it pertains to government department it is very difficult to dig out the old records. 3.) The validity of the pay order has been lapsed.

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Then a letter is taken from the bank where the demand draft is payable stating that the draft is still outstanding after getting the same is submitted to the issuing branch with an indemnity bond on stamp paper of Rs 10/- giving any reason out of the above three and then this is cancelled and credited to the Co. Sometimes it may so happen that the customer has made the refund but the same has been locked wrongly to the bills receivable or AMC or local billing etc., in this case details are taken from the customer , checked through the system and the same then being locked against the EMD.

PROCEDURE FOR UPDATING THE ENTRIES IN THE BOOKS.

PATH: ACCOUNTING-FINANCIAL ACCOUNTING-ACCOUNT RECEIVABLEDOCUMENT ENTRY-INCOMING PAYMENT.

When the EMD is punched it is done so in a special GL A/C, which has a code C: EMD, O: OCTROI, M: AMC, and PST Ky. 09.and a customer card is maintained having customer code, address, name, etc

When EMD is paid, the entry is:

Bank A/C------Dr. To Customer A/C ------Cr.

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And when EMD is returned the entry is:

Customer A/C ------Dr. To Bank A/C-----------Cr.

PROCESS OF INVOICES Invoices are issued to the customers for the materials supplied to them and the invoice amount includes the sales tax to be charged. Invoices are of the following types: LOCAL BILLING INVOICE Local billing is for networking, which a customer may desire along with a machine. This and other uncoded items can only be locally procured through the process of sub contract. (Suppose the customer gives the Co., an order, this will be through the main contract now the networking part may further be given to a vendor; the contract between the Co. and the vendor would be the sub-contract.). And it should not be for more than 10% of the total order value. If other wise so then approval of the head of the department is required. The net profit is found out after deducting sales tax and local billing amount of the vendors.

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PROCESS IN CASE OF LOCAL BILLING / PROCESS OF PURCHASE FROM VENDORS 1.) Receipt of local billing request along with customer purchase order for procurement of material duly approved by BEM/RCEM.Check the customer purchase order and give the sanction for purchase of material as per customer order to procurement department/commercial department. 2.) Quotations are invited from different vendors and one of them is selected on the basis of quality and rate. 3.) Procurement department then issues the order to this vendor. 4.) After completion of work at the customer place, procurement department gives the copy of the vendor bill, delivery challan copy duly signed by customer as a mark of satisfaction. 5.) Accounts department will certify the vendor bill as per the purchase order given to them and book the purchase and also deduct the TDS if applicable.

ANNUAL MAINTAINENACE CONTRACT (AMC) INVOICE 1.) SSO enters the information about the period of AMC, discount given, TDS deducted by customer etc., 2.) SSO also provides the contract no. In the PRA request form for issuance of AMC invoice for the customer. 3.) Accounts then issues the AMC invoice as per the contract number in the system. 4.) And on the basis of this invoice no. Accounts lock the payment against the AMC invoice The path followed by the System is:

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LOGISTICS-SERVICE-MANAGEMENT CONTRACTS & PLANNING CONTRACTS-DISPLAY. Now the system asks for the contract no., then the AMC period is checked and also the amount, for it billing plan is checked. For billing purposes the PATH followed is: LOGISTICS-SALES-DISTRIBUTION-BILLING-BILLING DOCUMENT-CREATE. Now the contract number is inputted along with the default data which includes billing type (code is ZV in the SAP system for the AMC Invoice), billing date i.e. the date of entry.then the above information is executed. For raising the invoice the PATH followed is: ACCOUNTING-FINANCIAL ACCOUNTING-ACCOUNTS RECEIVABLEDOCUMENT ENTRY-INCOMING PAYMENT.

Now the information asked on the screen is typed in, document being an AMC invoice the doc. Type code is DZ for B/R it is DV and for rentals it is DB. it serves the purpose of differentiating the different types of accounts receivable. in the reference document the contract number is given and in header text the cheque no., then the next step is to go to residual item screen, select all items, inactivate them, sort them with reference no., choose the relevant ones and send the not assigned amount to the partial payment screen and save the document and to write down the sap document no. generated in the process.

PROCESS OF ANALYSIS OF MARGIN ON SALES ORDER

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for this month are filed the book entry is: TAX A/C—Dr. To BANK A/C------Cr. Now the sales invoice is raised with the customer to bill the customer on the basis of the services provided to him. The amount the customer is asked to pay is equal to the payment made by the Co. to the vendor plus the margin desired by the Co. the entry made at this stage in the books of accounts is: -

CUSTOMER A/C—Dr. Here margin is defined as: SALES PRICE-PURCHASE PRICE = MARGIN When an order is received it consists of hardware as well as networking, i. e., installation, providing UPS, cable laying, providing accessory furniture, etc. THE hardware part is billed at the plant itself and the networking part is billed at the regional office. For networking, the Co.

employs Vendors. The process of selecting the

appropriate vendor starts with the Co., inviting quotations from them. These quotations are then compared for the rates quoted the quality and the reliability the vendor is going to provide. Then the order is placed with the vendor selected to do the work at the site place i.e., at the customer’s place. The Vendors does the work and gets a sign-off receipt from the customer, which he submits at the co., As soon as the vendor is employed he is issued a delivery challan and the following entry is made in the books of accounts. PURCHASE A/C—Dr. To VENDOR A/C------Cr. If TDS (Tax Deducted at Source) is applicable while paying the vendor the following entry is made alongside. VENDOR A/C—Dr. To TAX A/C--------Cr.

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And after payment to the vendor for his services, the book entry is: VENDOR A/C—Dr. To BANK A/C------Cr. And when during the next month, the tax returns To SALES A/C--------Cr. And after receipt of payment from the customer the book entry is: BANK A/C—Dr. To CUSTOMER A/C--------Cr. Now the amount of margin the CO. desires varies with the order size. It is usually 15 % of the total order value. But in case the order value of networking for the hardware part is of a lesser amount and even if losses are to be incurred if the networking part is undertaken then too it may be done so because the losses incurred on the networking part will more or less be covered by the huge profits made in the hardware part of the deal. Margin is usually calculated as a % of sales.(MARGIN/SALES)*100 = % OF MARGIN ON SALES.

For calculating the margin on the hardware part the procedure is: 1.) A Daily Pickup Registration (DPR) register is maintained and entry of daily booking of all customers’ order is done. With the entry in DPR the processing time starts. 2.)

Then the quotation is prepared in the system as per the purchase order and handed over to the Order Clearance Department.

3.) Then after the clearance, the complete set moves to New Installation Group (NIG) for technical order clearance.

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4.) W hen NIG approves the order moves to the business entity manager to evaluate the margin on sales and get the order approved by the concerned manager. 5.) After the approval, the order moves to the accounts for clearance after that it goes back to Order Clearance Department for clearing the order to the customer. 6.) Three sets of the finally cleared order are photocopied. One for New Installation Department, second for Sales Executive who has booked the order and third copy for the Business Entity Manager. The process followed in the system is: LOGISTICS-SALES-QUOTATION-DISPLAY From the purchase order value the system generates the quotation value. First the program VA23 for quotation inquiry is started. Then the system asks for quotation number and under header pricing and details of pricing. Margin is calculated as follows: SALES PRICE-BASIC PRICE- H/W WARRANTY-PROJECT MANAGEMENT COST = MARGIN. Here basic price includes office price +plant cost+manufacturing cost. PROCESS OF REFUND OF ADVANCE TO CUSTOMER TOWARDS ADVANCE CANCELLATION

If the customer is not satisfied with the quality of the products and services provided to him by the Co. or if the vendor has not followed the terms and conditions of the purchase order then the customer may cancel the order and the advance which he has already paid needs to be refunded back to him The normal procedure for refund of advances to the customer against order cancellation is as follows:

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REGIONAL OFFICE SANCTION NOTE-HEAD OFFICE FOR APPROVALHEAD OFFICE A/Cs FOR CLEARANCE – REFUND OF ADVANCE/EXCESS PAYMENT TO CUSTOMER.

STEPS:  The process begins with the regional office getting a request letter from customer for order cancellation.  The regional office then prepares a sanction note after verifying the records from sales executives concerned.  Then the sanction note is sent to the head office for approval.  Then the approved sanction note is received back from the head office duly numbered along with the refund of the cheque.  The cheque is then sent to the customer along with the Covering letter of the Co. \

PROCESS OF MAKING OCTROI PAYMENTS:

Octroi payments are the tax levied by the govt. On the goods entering a particular city or state. This is paid at the borders while crossing into a particular city or state. This

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is paid at the borders while crossing into a particular state or city. The amount of the tax, to be paid, depends upon the amount of the material entering the state. Octroi payment made is of two types: 1.) Paid by the customer: It is when the customer makes the payment. The transporter calls the customer at the border for clearance. The customer makes the payment and takes charge of the delivery. 2.) Borne by the Co.: In this case the Co. bears the Octroi charges. In some cases the Co. bears the Octroi charges on behalf of the customer who repays the amount later. the book entry made is:

OCTROI TAX A/C –Dr. To BANK A/C----------Cr. And when the customer makes the payment the following entry is made: BANK A/C—Dr. To CUSTOMER A/C----------Cr.

THE PROCEDURE OF MAKING OCTROI PAYMENT AT STATE LEVEL IN HCL IS AS FOLLOWS: -

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The process starts with the finance dept. Getting a notice for Octroi payment from the commercial / Logistic Dept. To pay Octroi on behalf of the customer or to be paid by HCL as the case may be. 1.) Then an advance voucher is given, for the Octroi payment, to the transporter by cash or cheque. 2.) If out location Octroi is payable then demand draft are sent to the respective location. 3.) Then the original Octroi receipt is received along with complete order no. from the transporter. 4.) The books of accounts are then checked regarding Octroi as to who will bear the Octroi charges. 5.) If payable by customer as per customer order, accounts has to follow the following process for updating of Octroi in the system. PATH: ACCOUNTING-FINANCIAL ACCOUNTING- GENERAL LEDGERDOCUMENT ENTRY-POSTING OF THE TRANSACTION. 6.) Then the original Octroi slip is handed over to the sales executive for collection of the payment from the customer. 7.) Then the cheques are received from the customers and updated in the system. The path followed is: ACCOUNTING-FINANCIAL ACCOUNTING-ACCOUNTS RECEIVABLEDOCUMENT ENTRY-INCOMING PAYMENT. When the Octroi charges are payable by HCL as per customer purchase order, Accounts Dept. Has to follow the following process for updating of Octroi.

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1.) Receiving the original Octroi slip with complete details i.e., order number etc. 2.) The customer purchase order in the system is compared with HCL reference no., for Octroi payment. 3.) On receipt of the original Octroi slip, the following journal entry is passed.

OCTROI EXPENSE A/C—Dr. To TRANSPORTER A/C-------Cr. With the following path in the system: ACCOUNTING-GENERAL ACCOUNTING – DOCUMENT ENTRY POSTING.

ANALYSIS OF TARGET Vs ACTUAL Head Office issues an yearly budget to various regional offices so as to meet all day to day expenses.the accounts head sees that the various expenses incurred are as per the projects.he money is thus paid to the regional accounts head who allocates the amount to various department heads under him. Various projects which different departments undertake may have different expenses but it must be in limit.any +/- variation can be looked upon by the HO. Proper monthly expense statement is then made & filed for future purpose as and when require to PATH FOR TARGET VS ACTUAL IN THE SYSTEM PATH: ACCOUNTING-CONTROLLING/COST CENTRE-INFORMATION SYSTEMS-CHOOSE REPORT-FURTHER REPORT-COST CENTRE

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Then the system asks for the controlling area i.e. the group DSO/SSO/ACC for which the comparison is to be made.the fiscal year and then the period find out the total cost of a particular project. Also if the monthly budget exceeds in a particular month it can be adjusted in the subsequent months but the total expenses made should not exceed the yearly expense. It must be within limits. Proper vouchers are maintained for each head and entered into the system for future reference.

The accounts department has to analyze the budget Vs actual report on monthly basis or ortnightly basis &also to give physical report to business entity manager alongwith the covering letter to control the expenses where negative variance is coming. The expenses taken exclude salary, perks, incentive etc.now if expenses are greater then that allotted then a sanction note has to be raised with the HO for the excess amount. for which the comparison is to be made like from which date to which date. Then the plan version, which in this case is plan Vs actual and lastly the cost center.

CONTROLLING OF FUNDS All details as per budget amount are given to all the departments and a monthly report is prepared by every department head showing all the details where they have allocated what amount of money and if the funds exceed the budgeted amount then proper decisions have to be taken for controlling of the funds.

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PROCESS OF THE MEDICAL POLICY The medical policy is a facility given to the employees of the organization whose gross pay is more than RS. 6500/-. This covers self, spouse, dependent, children and parents. For employees whose salary is under Rs. 6500/- there is the facility of ESI. The benefit, which the employee gets under this policy, is one-month basic salary as “ Domiciliary” and 15 months basic salary under “hospitalization”. The employees get their medical claim from National Insurance company (NIC) & the procedure is as follows: -

The employee writes his claim on the prescribed claim form, mentioning his employee code, region code and location.this form should be submitted by 10th of each month.doctor’s prescription must be attached for claims of medicines greater than Rs. 500/-. The maximum limit for spectacles is Rs. 750/- and Rs. 1000/- for dental treatment. Reports are to be attached for claims of clinical tests irrespective of the bill amount. For hospitalization claim all reports, documents and discharge summary should be attached.separate claims should be submitted for domicilliary and hospitalization. Bills are sent on 10 th of every month to head office accounts department for reimbursement.employees will get medical reimbursement from head office with the next month salary.

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PROCESS FOR DEDUCTION OF EMPLOYEE STATE INSURANCE (ESI)

ESI is also deducted from an employee’s salary if his monthly salary is less than Rs. 6500/-. According to the labor act, the co. is bound to deduct ESI from the casual employee salary and to deposit the same in the ESI a/c .It is deducted @ 1.75% of the employees salary. This has great advantage for the employees. If the employee or their dependent fall sick, they can get themselves treated free of cost in any of the ESI hospitals .If the hospital refers them to some other non- – ESI hospital then the money is refunded to them. Now, if the hospital suggests rest to the patient and as they don’t have the facility of leave for greater than a day, therefore the ESI pays the employee ½ a month’s salary for a month’s leave. ESI also issues ESI cards, on the basis of which different facilities can be availed off. The Co. has also to pay 4.5 % of the temporary employees’ salary to the ESI account. The process of punching the entries is quite similar to that followed while deducting TDS from temporary employee’s salary.

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PROCESS FOR PREPARATION OF MONTHLY SALES TAX REPORT FOR FILING RETURN WITH SALES TAX DEPARTMENT Monthly sales tax report is prepared at the end of each month and needs to be deposited with the sales tax department within 15 days of the next month. Sales tax details include: Invoice no., order no, date, customer name, place and invoice value. This invoice value is bifurcated according to the different item categories in the invoice. Because sales tax dept. has levied different amount of sales tax on different item categories. The categories being computers, UPS, networking, and so on. Then a consolidated sales tax report is made. Local Sales Tax (LST) & Central Sales Tax (CST) are also defined. LST for transport of goods within the state and CST for materials going outside the state. The procedure, which is followed, is as follows:  The finance department firstly verifies the CST or LST applicable before filing the return.  The data is downloaded from the system to excel worksheet for calculating the CST and LST payable figures and also manually as no proper format is available in SAP to know the CST and LST.

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 The sales book and stock transfer figures are compared with manual figures. The details are generated by the system but also have to be done manually because the system is not foolproof.



The sales tax figures separately item wise and scraps sales and also sales against form C/D are collected. (as applicable as per sales tax rule).

 The private sector firms due to which they will receive concession in sales tax fill form C. for the same reason, form D is filled by the government sector.  The cheque is then prepared and the bank voucher is passed in the SAP system for payment and also to clear all open items of sales tax with the following entry.

Path: ACCOUNTING-FINANCIAL

ACCOUNTING-

DOCUMENT ENTRY-OUTGOING PAYMENT.

And the accounting entry will be: SALES TAX A/C—Dr. To BANK A/C-------Cr.

GENERAL

LEDGER-

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 Then the sales tax payment challan is sent to respective banker along with sales tax return.

 The challan is returned to the CO. from the bank duly signed and stamped from the respective banker.

 Then the sales tax return is filed with the sales tax dept. Along with the copy of the deposit challan.

THE PROCESS OF SALES INCENTIVE

The highlights of the incentive scheme for the year 2003-04 are: GRADE

BILLING MULTIPLE PER Rs 100/-

P1

0.40

P2

0.35

P3

0.27

P4

0.18

P5

0.12

P6

0.10

This is according to the different category in which the sales executives are placed and the incentive, which they earn, is the billing multiplier of the category to which they belong into the purchase order value. Above this, additional incentives are given on margin boosters of advance collection, dollar sales commission business, VPN business, SAP product sales and service sales by DSO.

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ADVANCE COLLECTIONS: Additional incentive on the above billing to the extent of 20% of billing multiplier for advance collection is given. DOLLAR SALES: 2% of commission value will be distributed as incentive to be shared 4:3:3 between sales executive: accounts manager: business entity manager.

SOFTARE PRODUCT SALES: The BEM will earn Rs 0.2 per Rs 100/-billed and the account manager and sales executive will earn 0.1 per Rs 100/- billed. There is no minimum target to be achieved. SERVICE SALES: Additional incentive of Rs 1/- per Rs 100/- is given to be distributed between the SAM VPN BANDWIDTH: sales executive and accounts managers earn an incentive of 0.2 per Rs 100/MINIMUM ELIGIBILITY CRITERIA On every order (1-year warranty) with margin greater than or equal to 12% and bills receivable collected in 90 days full billing incentive is given. On every order (1-year warranty) with margin greater than or equal to 10 % and bills receivable collected in 90 days 75 % of the billing incentive is given. Moreover the collections should be 100% & there is no target to be achieved.

THE PROCESS: For giving sales incentive the order bookings are checked for chief executive’s name, amount of collections, MDP for margin, and whether the delivery is late or not as there is no sales incentive on late deliveries.

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In excel now a worksheet is created having following columns.P.O.No, Order, document no., type, date, cumulative amount, MDP for margin: A-100% of billing, B75%

of billing days, value: 100% in terms of total amount to earn sales incentive,

multiplier according to the incentive scheme and the hierarchical position of the person, and finally the calculated incentive. Sales incentive is given in a hierarchical manner. The sales person directly responsible for the sales gets the highest % amount of sales incentive, then the manager above him gets a % amount from all the sales executives under him and the BEM a lesser amount of sales incentive from all such managers under him.

PROCESS OF SALES COMISSION PAYMENT In HCL Infosystems, sales commission is generally paid to the sales agent who are responsible for sale.generally sales commission request is received from the BEM/RCEM.The finance department requires a sales commission form to be filled up.The following procedure is followed by finance department with regard to payment of sales commission RECEIPT OF SALES COMMISSION REQUEST FROM BEM/RCEM The following details are to be provided in sales commission request form 1. Customer name 2 Customer code 3

HCL order reference number

4

Total order value

5

Invoice no./date/amount

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6

Payment details with PRA number

7

Amount of sales commission

Sales commission request should be duly signed by RCEM/BEM

VERIFICATION 1. The order value of customer is checked in SAP 2. Sales commission amount is also checked in SAP (A/C head 54050) 3. The B/R status is checked on the system and for commission it should be nil. 4. Now the sales commission papers are prepared along with agreement and clearance letter

5. If all the dues are nil then it is signed by the BEM/RCEM ,in case of exceptions the same are sent for directors approval. 5.

Sales commission papers are sent to the head office accounts through transmittal note alongwith complete address of sales agent

6. Minimum seven days time

is taken by the HO for processing of the sales

commission forms 7. HO accounts then verifies the paper .if they are found in order then they issue the cheque. 8. HO accounts send directly the cheque to the sales agent’s address along with the intimation to the regional finance office with complete details. 9. Regional accounts/finance then updates its manual ledger

The following is the format of the sales commission form: Date: Name of the sales agent: Name of the customer

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Sales agreement (no & date) Clearance letter (no. & date) Sales tax charged @ Invoice format:

NO.

INVOICE DATE

AMOUN CHALLA DATE

NO.

T

AMOUNT

N NO.

Commission payable NO.

CONFIGUR PRICE

COMMISSION COMMISSION

REMAR

ATION

RATE

K

WITHOUT CST

The path followed in the system is:

LOGISTICS-SALES/DISTRIBUTION-SALES-ORDERDISPLAY

PAYABLE

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Now the order is checked and under header pricing is given. Now ZSCB module is started to check the commission stated against the given order, if not given then percentage of the PO value is taken. Now the BR is checked.the path followed is:

Accounting-financial accounting-accounts receivables-accounts display

Now against the customer code a/c balance is checked. If B/R is nil then the commission is paid, else commission isn’t released. Then it is sent to the HO for signature and payment.

PURCHASE OF RAW MATERIALS

Purchase of raw materials involves inviting quotations from various suppliers.purchase department carefully analyzes these quotations and book orders with the suppliers which offer least price and the most acceptable quality of the required materials as a large portion of cash is utilized in purchasing raw materials.

5. BANK BANK GUARANTEE Bank guarantee is a guarantee provided by a bank to a customer for the material supplied or for the performance of the company. The bank issues such guarantee against certain immovable assets of the co., which it holds as security and charges a fixed amount as service charge for providing such; a service.each bank has a time limit. The span of time

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for which an issued BG will remain valid .It can be 3 years, 5 years and so on. Moreover each bank provides a limit upto, which it would provide the BGs for a particular Co.

TYPES OF BANK GUARANTEES

1.) ADVANCE BANK GUARANTEE This type of BG is issued when the Co. requires payment in advance.this advance payment can be 90%, 70%, or 30% of the total order value. A customer making an advance payment requires assurance for the supply of material and for this purpose BG is issued 2.) PERFORMANCE BANK GUARANTEE-This BG is issued when the machine has been already been installed, for the balance payment remaining the Co. issues a performance BG which is usually 10% of the total order value. 3.) EARNEST MONEY DEPOSIT (EMD) This is issued as an irrevocable BG against earnest money deposit, which is required to be submitted by the bidder as a condition precedent foe participation in the bid. The amount is liable to be forfeited on the happening of any contingencies mentioned in the bidding document 4.) BID This is issued as security if the bidder i.e. the Co withdraws its bid during the period of the bid validity or if the bidder having been notified of the acceptance of its bid fails or refuses to execute the contract or fails or refuses to furnish the performance security. 5.) ANNUAL MAINTAINENACE CHARGE, (AMC) ADVANCE

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This BG is issued against the advance payment made by the customer for the Annual Maintenance Charges (AMC) of the machines supplied by the Co. it is sometimes 100%. Then for the full year the Co. provides service free of cost. Mostly it is quarterly and for banks it is usually half yearly.

TIME LIMITS OF DIFFERENT BANK GUARANTEES

1.ADVANCE BG It is usually valid for 1 month to 3 months. As the balance amount is still to be paid by the customer the Co. tries to minimize it. 2. PERFORMANCE BG: It is for 12 months or 13 months. Mostly it is for the warranty period.

3. EMD: It is for 120 days, 180 days, or 6 months. 4. BID: It is valid for the period for which the bid is valid. Usually it is valid for 180 days. 5. AMC: Quarterly, six months, or one year is the time for which it is usually valid. Legally a BG is valid for 30 years, after the date of issue, and a customer can lay his claim any time during this period. So in order to limit its risk a bank incorporates a not withstanding clause in all types of BGs. the main focus of this clause is on:

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1.)

THE BANK GUARANTEE AMOUNT:

The amount of money for which the bank is responsible. 2.) VALIDITY PERIOD: The date unto which the BG is valid, i.e. unto the time the customer can lay his claim.

3.) CLAIM PERIOD: This is after the validity period and is usually one month or three months or six months .In case the claim period is not given then the validity date is considered as the claim date.

PROCESS OF ISSUANCE OF BG 1.) The process starts with the finance department receiving a request for a BG with a specified amount and other details on a BG request form along with the details of the original purchase order receipt.

2.) Then the name of the customer, the HO or SAP order no., purchase order no., the issuance date, the validity date and the BG no are noted in the books of account. This order form has to be signed by the BEM/RCEM and authorized by the concerned manager. 3.) Usually BGs are issued on a standard format, which requires minimum language and is quite simple. Sometimes customers ask for a specified format then the bank may have to take approval from its legal cell and an extra weeks time may be given to it. Sometimes customers may show a preference for a particular bank or for a nationalized/scheduled/foreign bank .if feasible the request is complied with.if not

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feasible or if such a request is not made the Co. may choose upon the bank whose financial charges are minimum.

PATH FOLLOWED TO UP DATE FRESH BANK GUARANTEES IN THE BOOKS OF ACCOUNTS

PATH: ACCOUNTING-GENERAL ACCOUNTING-ACCOUNTS RECEIVABLEDOCUMENT ENTRY-OTHER-STATISTICAL POSTING

PROCESS OF REVERSAL BANK GUARANTEES

As soon as the validity date expires, the bank writes a letter to the customer, informing him about the details and asks him about the course of action he wish to undertake, to be conveyed to the bank within one month. If the customer fails to do so a second reminder is sent to the customer with the same time constraint of one month. According to its clause, the bank considers the BG to stand canceled after (1+1) month after the validity date. Mostly the terms of the BG are favorable for the Co. and by issuing a BG which is of a lesser amount the Co. easily gets a payment (usually partial) which is of a larger amount quite easily.then cash inflows of the Co. increases as compared to cash outflows.

PROCESS OF REFUND OF EXPIRED BGs

The company also requires the original BG back after the date of expiration. It follows more or less the similar process as of the bank. In case customer is able to give the original BG due to any reason a “NO CLAIM LETTER” addressed to the customer

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issues the concerned bank. This usually happens when the customer retains the original BGs for their audit purposes. But this NCL should be on the customer’s letterhead with correct BG reference numbers and preferably should be signed by some authorized signatory alongwith his rubber-stamp. In case of loss of expired BGs, indemnity bond is to be issued by the bank to the customer & customer’s signature is taken as a proof &then deposited in the bank for their records. As soon as the Co. receives the BG letter it gives it to the concerned bank so that they can delete it in their books of accounts. Sometimes customers can directly ask the bank to return the BG to the Co. As soon as the bank receives the letter it releases a new limit for the Co. against which it can issue new BGs. HOW TO PUNCH EXPIRED BGs IN THE BOOK OF ACCOUNTS PATH: ACCOUNTING-FINANCIAL ACCOUNTING-ACCOUNTS RECEIVABLEDOCUMENT-REVERSE INDIVIDUAL DOCUMENT EXTENSION OF BANK GUARANTEES It is on rupees hundred-stamp paper. All the terms and conditions of the original BG remain the same except for the date, which is extended after the expiry date of the original BG.

AMENDMENT OF BANK GUARANTEES Except the amount every thing else can be changed but a proof has to be given that there has been a typing error. It is also made out on a Rs. 100/- stamp paper .If changes in the amount are required then another fresh BG for the balance amount is made out.

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REVOCATION OF BANK GUARANTEES When the bank receives a revocation letter from the customers it sends the same to the Co., which tries to settle the matter without the customer having to resort to revoking the BG as the losses incurred by the Co. would be greater in the later case.

PROCESS OF CHEQUES DEPOSITED WITH BANKS

The process starts with the collection of cheques from the customers for the materials supplied by the Co. this is to be updated in the books of accounts as follows:  The finance dept. receives the PAYMENT RECEIPT ADVICE (PRA) from DSO/PSO/SSO in which the following details are mentioned. Customer name Customer address Customer code Type of payment (AMC, B/R, Advance, rental) Customer purchase order no. Check no. Amount Date % Of payment received Deductions if any with the PRA form The PRA should be duly signed by the Sales Executive & authorized by the concerned BEM (business entity manager)/RCEM (regional customer engineer manager)

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 The second step is to verify the PRA in the books of accounts .for it the order no. is input ,as given in the PRA and check the customer name whether it is same as that of the PRA or not .

The path followed is: LOGISTICS-SALES/ DISTRIBUTION-SALES- ORDER-DISPLAY.  Next the accounts documents for that customer are checked for those accounts, which have been marked not cleared, and the total invoice value against that particular order. Then if the payment made out is complete then the check value should correspond with this order value. In case it is a % payment then it is calculated on the total invoice value and matched with the value given in the check.

 The Co. code given along with the customer name is also checked; it provides the information about, which division of the co has serviced the customer, so that the cheque is deposited for that division.

Some of the location codes are: 1000-NDC (Noida distribution center) 3000-PMP (Pondicherry manufacturing plant) 3100-PMP1 3200-PMP2

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 After completing the PRA in the system all the cheques are listed with their internal document reference number generated by the system. HCL Infosystems Ltd has four types of PRAs and follows different procedural steps for each.

1.) PROCEDURE

FOR

MONEY

LOCKING

AGAINST

RECEIVABLE

ACCOUNTS. The path followed in the system is: ACCOUNTS-FINANCIALACCOUNTING-ACCOUNTS

RECEIVABLE-

DOCUMENTENTRY-INCOMINGPAYMENT On screen now appears “ Post Incoming Payment: header Data” Now the following information is input. For the DOCUMENT DATE the date given on the cheque is filled. COMPANY CODE is filled according to the division servicing the customer, and can be 1000,3000,and so on as explained earlier. DOCUMENT TYPE it tells about the type of entry whether it is bills receivable, of vendor, advance, rental etc. In this case it is DZ POSTING DATE is the date on which the B/R is being punched.

For CURRENT/RATE INR is typed as all transaction here take place in Indian rupees. PERIOD is generated automatically. It begins from July for which the code is 01, for august 02 and so on.

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REFERENCE DOC. Is the order number. In the HEADER TEXT the check no is noted Under ACCOUNT the account no. of the bank in which the cash will be deposited is noted. Banks used are Standard Chartered, Citibank, Bank of Madura, SBI, HDFC, and PNB AMOUNT is the cheque amount. VALUE DATE is the date on which the cheque will be deposited in the bank. TEXT under it the bank name and address is written down. BUSINESS AREA, it basically defines the code of the concerned division. It can be CORP (FOR ACCOUNTS, the same is applicable here), DSO (Direct Support System), SSO (Service Support System). ALLOCATION, this is the internal sequence no., issued by the co on yearly basis, and it is different for different days. ACCOUNT TYPE: here it is D, which stands for customers, can also be K for Vendors, M for Materials, S for general a/c for expenses. A for assets. ACCOUNT it is for the customer code. Now on screen the heading reads “Post Incoming Payment: Process Open item”, select menu path. The Path followed here is GOTO- PARTIAL PAYMENT SCREEN. And the information is entered as per the specifications on the screen. Then this entry is saved in the system, which automatically generates a document no. For this entry. Which is noted down before depositing the cheque in the bank.

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The process for customer advance payment and rentals is more or less the same as that followed in the case of account receivables.

PROCESS FOR ANNUAL MAINTENANCE CONTRACT (AMC) LOCKING.

1.) The Service Support Organization provides the information to the accounts department about items like period of AMC, discount given, TDS deducted by the customer etc. 2.) SSO provides the contract no. In PRA request form for issuance of AMC invoice to the customer. 3.) Accounts issue the AMC as per the contract no. in the system. 4.)

And on this basis accounts lock the payment against the AMC invoice

5.) The path followed in the system is:

LOGISTICS-SERVICE MGMT.- CONTRACT&PLANNING CONTRACTDISPLAY Now the contract no. Is typed to check upon the AMC period and the amount (for it we move to billing plan) For billing the Path followed is:LOGISTICS-SALESDISTRIBUTION-BILLING-BILLING CREATE Now for billing the path followed is:

DOCUMENT-

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LOGISTICS-SALEAS DISTRIBUTION-BILLING-BILLING DOCUMRNTCREATE. Now the system asks for the contract no., in the billing type, since the entry is being made for AMC invoice, the code is ZV.for the billing date, the date of entry is typed. Then this information is executed.

Now for raising the invoice the PRA no. Is punched, then in document type DZ is typed, this being the AMC invoice for bill receivables the code being DV and for rental being DB. For reference document the contract number is written. Header text is the check number. For saving this entry the path followed is:GOTO-RESIDUAL ITEMS. Then this particular entry is saved. And the doc. Entry no generated is noted down.

PROCESS OF BANK RECONCILIATION First the cheque balance details obtained from the bank are converted to EXCEL worksheet with the following columns: -

SEQ.

DT.OF ISSUE

CLEARING

CHQ/DT.

Dr./Cr.

AMT.

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For those cheque entries whose cheque number is not given, the same is found out from the information regarding not cleared cheques through G/L accounting.this is then saved as a text file. Then the module ZBB1 is activated in order to update this file to SAP .Now the system asks the following things, including the A/C no, of the bank to be updated . Statement Date: Beginning Balance

The date of the Bank Statement : Closing Balance/Ending balance of the last statement entered.

(Balance would be zero for the first time of bank reconcilation.for debit in Bank statement the amount should be entered with a negative sign. Closing Balance

: It should be the closing balance as Per the statement .For debit in bank statement the amount should be entered with a negative sign.

Posting date

: Posting date should be preferably Last day of the month.

Now the data already in SAP and that entered as bank data is reconciled through cheque number through the program module F.13.Then the system asks for: Co. code, financial year, bank code etc. Then it is tested. Now the system shows the following statements:

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PARTICULARS

DEBIT

CREDIT BALANCE

Bank balance as per bank book

xxxx

Cheques issued but not presented for payment

xxxx

Cheques deposited but not credited by bank xxxx Credited by bank but not adjusted by us Debited by bank but not adjusted by us

xxxx

xxxx

Total:

The bank balance calculated as per bank statement/certificate &the bank balance as per bank statement/certificate should be equal otherwise the bank reconciliation statement is not correct. Now credit /debit done by bank but not adjusted are done. Through ZBRC module the bank reconciliation is printed and for it, the system asks for GL code, financial year, and posting date.

BILLS RECEIVABLE

Bills receivables are payments, which are due from customers or recoverable from customers. One bill receivable report is generated, it shows outstanding payments. It shows the amount paid by the customers and the balance due from the customers. Co. also maintains an aging schedule of bills receivable, which shows the amount due from customers as on a particular date. In case customer makes advance payment before giving the purchase order the company raises a debit note in the dummy account of the customer. When a customer gives the purchase order then the amount is adjusted to correct account by raising a credit note.

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So, the bank a/c first gets debited and then credited against that particular customer name. DSO/SSO gets advances from customers for supply of the material in order to issue the customer code to them. But if the order is wrongly entered in to other customer code then in order to rectify the same the accounts dept. Has to issue the debit or credit note for transfer of amount from one customer code to correct customer code account. Such issued debit and credit notes the head of dept. Usually signs for adjustments of the wrong entries. Such a note is then sent to the head office for adjustments and they will then issue a J.V. no. After adjustment in the correct order.

GENERATION OF B/R REPORT HCL prepares bills receivable report showing the amount received from customers and the amount outstanding .T o give correct B/R report to BEM/RCEM on monthly process for generation of bills receivable report at regional basis with the following transaction code. ZFB2 ZAGE ZPBR The following path is to be followed: PATH: - ACCOUNTING-FINANCIAL ACCOUNTING-ACCOUNTS RECEIVABLEPERIODIC PROCESSING-INFORMATION-REPORTS-OTHER ANALYSIS-LINE ITEMS B/R SIGN-OFF REPORTS; -

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Each month all the managers associated with the DSO and SSO receives a B/R sign-off report for the customers under his area. It provides a detailed account about the actual amount receivable from the customers at the date of the preparation of the sign – off. Then this goes to the head office where the performance of the managers are evaluated.

B/R-COMMENTS/ADJUSTMENTS SHEETS

It is always in the standard format as approved by HCL management.it is an internal process followed by HCL .it is used mainly for adjustments of wrong entries of customers,or for adjustments of vendors who are customers as well.or for TDS certificates that are received from the customers and on payment the adjustments are done by the HO through the B/R C sent by the RO TO the HO.adjustments are for suppose the customer has given the balance payment after deducting TDS but the HO considers the TDS amount deducted as bills receivable.Then the customer entry has to be adjusted by the RO accordingly and sent to the HO.IT is also used for machines sent out for demonstration and are received back and then sold.the debit /credit entries changes can only be done by the HO.the information about in which GL code the entry is lying and in which it should be punched is written on a standard performa of the BRC and is signed by the manager accounts and the regional accounts officer and sent to the HO ,.all changes in the customer accounts except for cheques are made through BRC.

STOCK

INVENTORIES ( in Rs/Lacs) 2006(rs/cr) 2005(rs/cr)

2004(rs/lacs 2003(rs/lac )

s)

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Raw Materials & components In hand & in transit 63.49

77.94

6126.95

2602.52

Stores & Spares

37.13

29.87

3810.56

3209.00

Work In Progress

5.95

7.84

871.23

487.68

Finished Goods

133.74

72.45

17233.28

17510.01

TOTAL

240.31

188.10

28042.02

23809.21

Raw materials: HCL Infosystems purchases for hardware such as monitor, keyboard etc. certain software also forms part of raw material purchases. Raw material is purchased either in the northern region (Noida, Jaipur, Chandigarh) or eastern region. It is then transported to the company’s manufacturing plant 1(company code 3000) or manufacturing plant 2 (company code 3100) in Pondicherry .The transportation cost forms a part of the purchase price.the transported material is then utilized in either of the Pondicherry plant for manufacturing of various segments. For purchasing raw materials it invites tenders from various suppliers with special emphasis on the quality of materials. The following purchases are made in respect of raw materials are ; 1. Server with novel net ware 2. Node with disk 3. Node without disk 4. Ethernet switch 5. Cat 5 UTP cable (305 meters) 6. 3’ patch cord 7. 7’ patch cord 8. 24 port patch /jack panel 9. serial port 10. VSB port

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11. Parallel port 12. Key tops

Stores and Spares: Stores and Spares include various peripherals, which are mentioned as under: -Touch screen kiosk cabinets with LCD monitors and panel PC -Metallic infrastructure specially made from IBM servers -Turbo terminals with integrated in house developed CRT controller.

Software Work in Progress: It includes: Case 1: Generally when HCL installs software, customer does not make full payment rather it makes part payment, 100% is only paid when the customer is satisfied with the installation, the outstanding amount to be paid by the customer is regarded as software work in progress. Case 2: Sometimes the software to be installed is quite large and therefore the installation is done in parts. Thus the customer also makes part payment, the outstanding amount to be paid by the customer is treated as software work in progress.

Finished goods: Finished goods men systems which have undergone all stages of manufacturing and are ready for sale, Until they are sold they form a part of the closing stock.

ANALYSIS OF THE STOCK YEARWISE: 2003: In the financial year 2003, the company has used the closing stock of raw materials of the previous year (the raw materials for the year 2002 being greater than the amount of finished goods produced), and it also has a fair deal of stock in stores also.

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The finished goods are more than the raw materials in hand implying that the Co. has used the stock to the fullest extent, may be due to more demand during the year. 2004: In the financial year 2004,the company has followed the method of inventory control as they have maintained minimum inventory level,at the same time keeping almost the same amount in stores and spares.Also as there is some amount of stock both in S/Wand H/W it has lead to a good amount of finished goods ready for dispatch.This may be due to reduction in prices of raw material or may be due to development of some new technology in the area of software and hardware services. 2005: In the financial year 2005, the amount of raw material is more as compared with the previous year that indicates that there must be some closing stock at the end of the previous year. The amount of finished goods is also more as compared to previous years, indicating that the company is making huge amount of H/W sales while maintaining minimum inventory level. 2006: In the financial year 2006,against a minimum stock level the amount of finished goods has increased so has the stores and spares and also hardware WIP and in software WIP the increase has been manifold.

FINANCING THE WORKING CAPITAL

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In order to finance the working capital needs of the firm in the form of Working Capital Demand Loan there is a consortium of eight banks. The consortium of banks provide a fund based limit of 115 Crores which comprises of cash credit and working capital demand loans and non fund based limits which has bank guarantee and letter of credit subject to a limit of 385 Crores. The lead bank in this consortium of banks is State Bank of India and the second lead bank is ICICI. It is SBI, which fixes the limit on the basis of consortium. They in consultation of the company decide the allocation of limit to various member banks. The allocation cannot be higher than the limits fixed by it. SBI is the biggest contributor in the consortium for both fund and non-fund based limits with about 3600 rs crores in funds and 9500 rs crores in non- fund limits. It is on the basis of the accounts receivables that the banks come to an agreement with regards to the limits imposed. Though it is the fund based limits that finance the working capital requirements the non-fund based limits are important for the management of the working capital as there might be clients who are not willing to sell on open credit and might be demanding letters of credit before any advances. All banks sanction the limits for a period of one year. Thereafter it is to be renewed every year. SBI appraises the limit on the basis of consortium. The individual banks appraise for their own individual limit. The non-fund based limit of the firm in consortium financing has been subjected to change for the past two years as per the requirements of the firm and the consent of the lead bank to its proposal. Allocation of the fund based and non-fund based limits among the banks based on operational convenience rather than allocating the fund based and non-fund based on the same ratio is also among the proposals made by the firm. The company needs to provide the following information to bank for appraisals •

Credit Monitoring Appraisal

•

Write up on company

•

Share holding pattern

•

List of the directors

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SHORT TERM FINANCING Other than the investment in current assets the firm also has to be concerned with short term to long-term debt as this plays a role in determining the amount of risk undertaken by the firm. That is the firm not only have to be concerned about current assets but also the sources through which they are financed. A firm before financing in either of the two has to take into consideration various aspects. While short term might seem the ideal way to finance your assets than the long term due to shorter maturity period and also less of costs involved there is an inherent risk in short term financing due to fluctuating interest rates and due to the reason that the firm might be unable to repay the amount in a shorter span of time.

Under secured loan cash credit along with non-fund based facilities, foreign currency term loan from banks are secured by way of hypothecation of stock-in trade, book debts as first charge and by way of second charge on all the immovable and movable assets of the parent company. Term loan in Indian rupees from a bank is

subject to a prior charge in favor of Company’s bankers on book debts and stock in trade for working capital facilities.

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

YEAR END COMMERCIAL PAPERS

The credit rating by ICRA continued at ‘A1+’indicating highest safety to company’s commercial paper program of Rs.75 Crores. It acts as an effective tool in reducing the interest cost and is used for financing inventories and other receivables.. As and when the firm issues commercial papers it sends a letter to the leader of the

consortium, i.e., SBI to reduce from the fund based limits the amount it has issued in the form of the commercial papers. Suppose the firm issues 30crores as commercial papers and the fund based limits are say 115 Crores. Then firm sends a letter to SBI to reduce the existing fund based limits from 115 to 85 Crores. In terms of desirability the commercial papers are cheaper and advantageous to the firm compared to the consortium financing. The main advantage being the interest rate which is lower than the bank rates existing under consortium financing. But the firm depends on both and for working capital financing is depended on the banks for funds such as working capital demand loans and cash credits. There is no point in the firm in not making use of the fund based limits in the consortium banking as their commercial paper are restricted to 75 Crores.

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ACCRUED EXPENSES AND DEFERRED INCOME The advances from customer and accrued expenses as sources of short-term credit and interest free source of financing is not at all depended or relied by the firm. Their decline over the two years doesn’t have any implication on the short-term credit position of the firm. Factoring of accounts receivables to various financial institutions is something that the firm is giving thought to at present.

CURRENT ASSETS OF THE COMPANY FOR THE LAST FIVE FINANCIAL YEARS

2006 2005 Rs(crores) Rs(crores) INVENTORIES Raw materials & comp.

63.49

77.94

2004 Rs(lacs)

2003 Rs(lacs)

6126.95

2602.52

2267.72 487.68 3546.86 8904.78

in hand & transit Stores &spares WIP Finished goods Total

52.55 5.95 347.62 469.61

43.16 2621.56 7.84 871.23 220.45 6506.15 349.39 16125.89

SUNDRY DEBTORS debts >6 months Other debts

75.13 631.34

65.88 1646.56 1890.84 468.79 27807.88 20041.64

Total

705.30

532.39 29454.44 21932.48

` CASH & BANK BAL. Cash in hand &transit bal. With scheduled banks On current A/Cs On margin A/Cs On fixed deposits On dividend a/c Total

24.28

32.89

2464.18

2342.31

130.33 0.41 58.59 2.05 214.92

108.13 0.39 109.51 1.46 251.27

958.10 2.00 975.44 99.15 4461.89

720.20 3.28 1265.35 46.14 4338.43

PROCESS OF PHYSICAL VERIFICATION OF STOCK The objective of physical verification of stock, done at the end of each quarter is to check the Inventory present against inventory as per report provided by Head Office Accounts.Administration department or commercial department carries out all the activities of physical verification of stocks. Accounts executive/auditors observe the actual verification of regional stock. The department follows the instructions and guidelines as per the stock circular. Before starting the physical count the postings are blocked and book inventory is freezed and no movement of material is allowed to take place while stocktaking is going on. The material is physically counted and stores person notes the actual count and also verifies with the Head office list. The role of accounts personnel here is to check the physical inventory.

After the count of a storage location is complete, the counts are updated in physical inventory report. The reports are then duly signed by the Stores-in-charge which are then handed over to Accounts/Auditors at the end of stock taking process duly signed by the BEM.List of serialized stock i.e. machine stock is scrutinized. The total number of serial numbers allotted for machines should be equal to the total number of machines physically found at the time of stock verificationAfter completing the stock verification,

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stores department gives the account department a Discrepancy Report, if any discrepancies are found during the process, duly signed by BEM.After getting the report from stores, accounts checks the report as per the list provided by the head office along with the physical stock and sent to the Head Office.Physical verification of the stock asper the list provided by the headoffice is done. PROCESS OF ACQUISITION OF STOCK AND NUMBERING

The process begins with the receipt of the bill from the administration department alongwith the Purchase Order in the name of the vendor and a copy of sanction note duly approved by the directors. Then the following things are verified; copy of the purchase order, original vendor bill, copy of the sanction note duly numbered from Head Office Accounts, Supplier name/supplier code, amount, payment terms with purchase order, original Delivery Challan signed by respective department “who” has received the material with the clause “material received in good condition”. In the system all the details are entered with proper supplier code and name from whom the purchase has been made and saved, the system will generate the asset no. for that particular asset and thus it will be numbered accordingly copy of the Vendor bill along with all detailsis sent to the head office accounts and also one copy is given to administration department for updating/numbering the items.

METHOD OF DATA COLLECTION For this project the data incorporated is secondary data mainly taken from balance sheets and profit and loss accounts.and for the methodology involved in various processes, the same has been provided by the various people working on the same.

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LIMITATIONS

For this project secondary source of information has been employed mainly, so it isn’t fully relevant for the purpose more so ever it may also be biased.

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BIBLIOGRAPHY

1.] Khan, M.Y. & Jain, P.K.

:

Financial Management

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2.] Khan, M.Y. & Jain, P.K.

:

Management Accounting

GLOSSARY AMC:

Annual Maintenance Contract.After the delivery of the machine ,if the customer wants any kind of system support

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then a contract is drawn and the customer pays some additional charges for a specific duration, normally not less than one year. BEM:

Business Entity Manager.He is responsible for all the projects assigned to him by his RCEM.They are assigned teams ,whom they manage and are responsible for.

BG:

Bank Guarantee.It is a guarantee given to the customer as a surety against the delivery and proper working of the material. The bank issues it on the company’s behalf that if the company is not able to satisfy the customer,then the bank can be held liable for it.

B/R:

Bills Receivable.It means that the customer has got the Delivery of the machine and the money is still outstanding i.e. bills are yet to be received.

DSO:

Direct sales Organization. A team is formed under DSO & It basically deals with selling of PCs directly to the customers .

EMD:

Earnest Money Deposit. When the tender is closed and the Amount of work is not known, the vendor then pays the amount in the form of demand draft or BG, as a form of security to the customer that if he gets the tender then he will be performing the work and if he isn’t able to do so as per the tender terms then the amount will be forfeited by the customer.

OCTROI:

Octroi are the char ges which either the company pays or the customer themse lves pay at the borders while

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crossing different states for delivering the materials.

PHILIP

The designer of Quality Education System.He introduced

CROSBY:

tools and techniques to help the companies to make Quality a part of their jobs.

PRA:

Payment Receipt Advice.Whenever a customer pays the cheque for the payment against his order, this receipt is issued to him against the cheque.

PSO:

Professional Support Organization.The main function of PSO is developing software for customers according to Their requirements and also to provide System support to them.

RCEM:

Regional Customer Entity Manager i.e. they are the Regional heads. All the BEMs have to report to their RCEM for all the work they are assigned for..

SAP:

Systems,Applications,Products in Data Processing.SAP is An ERP: Enterprise Resource Planning software which Interlinks all the departments of the company all over India, wherever the connectivity exists. In SAP Basically,different kinds of modules are there like Production, Finance, marketing etc., which caters to The different needs of the different departments. Any Information whenever required can be gathered Immediately by logging onto the system without any

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Hassels.Thus, it helps the company by saving time and Money which can be used elsewhere in some productive Work. SSO:

System Support organization team is formed under SSO which not only deals with selling of machines but Provides system support to the customers of DSO, SSO And PSO.

SUPPLIERS:

Those who provide inputs to a process. Suppliers can Be external or internal to the organization.

SUMMARY OF THE FINDINGS CASH: The company has a fairly good estimate of its cash position.This helps in the synchronization of the cash inflows and outflows.Cash out flows can be estimated as the date for payment to the suppliers is fixed at the time of placing the order.Generally the

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raw materials purchased are done so in bulk,requiring a significant amount of investment on the behalf of the company ,so the company procures the same from the bank against some charge, which is usually the material being purchased and the credit limit ,the extent to which the company can draw cash from the bank , is fixed.It is decided on the basis of the fixed assets of the company.Now the limit can be overdrawn to a certain extent which is determined by the business strength reflected by the market value of the shares.Also other main outflows include salaries of on-the-job trainees, local conveyance of the employees on official work, travel claims of the employees all of which can be estimated to a certain extent.Cash inflows are mainly in the form of bills receivable which are to be realized in that period and there amount is known in advance. TRAVEL: This is a major outflow of cash. As whenever an employee goes for a tour, according to his grade he gets a minimum cash amount to meet his day to day expenses. Now before releasing any such amount to an employee all records against him are checked, to see whether at an earlier date he took an advance and didn’t submit the bills or not. And whenever the employee returns from the trip, he is required to produce all the bills and vouchers within three days of return to the accounts department for the settlement of the balance amount of the expenses and to update the books of accounts.

TDS:

TDS is usually deducted by the customers and also by the company for the suppliers. Now the TDS deducted by the customer is a sort of cash outflow for the company as when the customer makes the payment he does so for the remaining amount,i.e. the Total Invoice Value.-TDS.And the TDS amounts deducted by the suppliers are a source of

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cash inflow for the company as the company pays to the suppliers for the goods an amount which is less than the total purchase value by the TDS amount. CASH PAYMENT TO SUPPLIERS: HCL generally predicts what will be the inflows and outflows since the dates are fixed for payment to suppliers so it needs sufficient cash balance for remittance. or this purpose, t largely relies upon cash credit limit.So cash inflow and outflow should be properly monitored and managed so as to avoid extra outflow in the form of interest payment to bank. ue to the company’s operating efficiency the bank does extend the credit limit but this brings an additional cost of financial charge on the bank. lso to avail of favourable prices of raw materials the company buys them in bulk and then uses them over time

OCTROI CHARGES: They are payable at every state border and forms a significant amount of outflow of the company.The company has a tie up with the transporters ,who pay at every border and get the payment after producing all the receipts regarding octroi. HCL Infosystems follows a systematic procedure for collecting of proper receipts and updating all the entries into the system.Any outstanding balance in any of the transporter’s account immediately comes into notice and is adjusted accordingly.

SALES COMMISSION: This also forms a major part of the company’s outflows.To keep an edge over its competitors the company offers lucrative offers

to its vendors on the terms and

conditions of the company and with the intimation that the commission would only be

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delivered to him after the completion of the project i.e., after the receipt of the full and final payment by the company.

FINANCE COST: Finance cost is the cost which are borne by the company in case they fail to collect the balance of bills receivable from the customer on time against the material delivered.As the entire process is through bank,so if the bills are not collected , the company has to pay extra finance charge in the form of interest to the bank.To maintain such an outflow sales executives are intimated to tell the customers to clear the bills timely.Then only the sales executives are entitled for sales incentives.This also leads to control of finance charges.

FINANCING SCHEMES: Though the IDBI scheme is still in existence, the company has stopped using it,because the funds are now available more easily and at lesser financial charge from the banks under different schemes.

MEDICAL POLICY: A fixed limit is disbursed for hospitalization. Excess expenditure is to be borne by the employee.The employee gets the reimbursement with the next months salary.

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BANK: HCL Infosystems maintains three types of accounts with banks :Collection account- all the amounts collected from the customers are deposited in this account. Current account- this is used for meeting day to day expenses of the company. Margin account- from this account limit for bank guarantees is drawn and some security should always exist in it as margin. STOCK: HCL follows a very systematic procedure for managing stock.The goods dispatched are of both refundable and non-refundable kind.In case of non-refundable kind of goods the company faces no kind of limitation,but in case of refundable kind of goods the co has a major draw back that they aren’t returned to the co. at the designated time ,from the customer’s place where they are sent for demonstration.this may be due to the laziness of sales people or negligence of the higher authorities.moresoever no documentation of receiving back of goods was also present.In case of non-refundable the company faces another kind of problem ,sometimes complete delivery of all the items does not take place,some item may be left behind ,the customer then intimates the regional office of the same ,which then further passes the information to the manufacturing plant which then through short shipment sends it to the regional office which in turn dispatches it to the customer.This leads to delay to the customer.HCL maintains a minimum inventory level by analyzing the past orders that are received.In HCL the stock maintained is of three kinds: raw materials, work in progress, software work in progress, [for the partial installation of the software the customer pays the advance and the remaining amount that hasn’t been paid by the customer is treated as software work in progress.The

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company receives both bulk orders and small orders,for this purpose HCL is divided into two segments:-

-RETAIL SEGMENT -CORPORATE SEGMENT In RETAIL SEGMENT, HCL Infosystems receives small orders which can be met through minimum inventory level ,so that materials can be dispatched as soon the order is received.In Retail segment no credit period is there and the orders are usually standard configuration type.

In CORPORATE SEGMENT ,usually bulk orders are received of varied configurations and thus there is a credit period .As the raw material required may not be available at the time of the order and the purchase department may have to procure it after the order,so there may be a gap between demand and supply.In this case the purchase department needs to forecast the raw material requirements,which depends upon past experience. Valuation of stock is done according to the generally accepted accounting principles.Managemet every year physically verifies stock of finished goods,stores & spares and raw materials of the company at all the locations.Confirmation of stock lying with third party is also made.The company also determines unserviceable or damaged stores,raw materials and finished goods on the basis of technical evaluation.On this basis adequate amount is written off each year for such stocks.However proper records of disposal of such stock are maintained each year.

RECEIVABLES MANAGEMENT

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PARTICULARS DEBTORS TURNOVER RATIO AVERAGE COLLECTION PERIOD

2005 5.80 63

2004 5.53 66

2003 6.62 55

2002 4.94 74

A better turnover ratio implies for the firm more efficiency in converting the accounts receivable to cash. A firm with very high turnover ratio can take the freedom of holding very little balances in cash, as their debtors are easily realizable. In case of HCL the collection period for the firm is 63 days. That in spite of the growth in sales the collection period has improved is noteworthy.

PARTICULARS PROVISION FOR DOUBTFUL DEBTS (CASH FLOW) DEBTS DOUBTFUL (EXEEDING 6 MONTHS) %ONDEBTS (EXEEDING 6 MONTHS)

2005 49.85 134.09 2.22

2004 25 69.8 4.23

2003 3321.97 44.8 2.36

The debts doubtful has doubled but their percentage on the debts have almost become half. This implies a sales and collection policy that get along with the receivables management of the firm.

COLLECTION POLICIES: It refers to the collection procedures such as letters, phone calls and other follow up mechanism to recover the amount due from the customers. It is obvious that costs are incurred towards the collection efforts, but bad debts as well as average collection period would decrease. Further, a strict collection policy of the firm is expensive for the firm because of the high cost is required to be incurred by the firm and it may also result in loss of goodwill. But at the same time it minimizes the loss on account of bad debts. Therefore, a firm has to strike a balance between the cost and benefits associated with collection policies.

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The steps usually followed in collection efforts are: •

Sending repeated letters and reminders to the customers

•

Personal visits

•

Using agencies involved in collection process

•

Making telephonic reminders

•

Initiating legal actions

•

Real Time Gross Settlement (RTGS)-

Real time gross settlement as such is a concept new in nature and though the firm uses the system with all the members of the consortium. It is still in its primal stage and will take time before all of the clients of the firm are willing to accept it. The firm has made a proposal to the consortium of the banks during appraisal for faster implementation of Internet based banking facility by all the banks and adoption of RTGS payment system through net. The debtor’s turnover ratio is completely depended upon the credit policy followed by the firm. The credit policy followed by the firm should be such that the threat of bad debts and the default rate involved should be terminated.

PARTICULARS CREDITORS TURNOVER RATIO PAYMENT PERIOD

2005 15.68 23

2003 21.29 17

2004 21.14 16

2005 17.26 21

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That the creditors turnover ratio has declined and payment period has increased indicate that the company has got a leeway in making the payment to the creditors by way of increased time. With creditors they are having pre-agreements and have undertaken arrangements with them, which they believe to be the best in the business and these are fixed. (NOTE:- acceptances not included in the computation of creditors turnover)

The company updates the bill receivable report on a continuous basis.This helps in knowing the position of B/R of the company on a particular date.Hence by referring to B/R report company can send intimations,send letters to its customers and can adopt other collection steps for collection of due money.Raising of debit/credit note also enables the company to make adjustment for advance payment so that there is no effect on cash balances.ageing schedule helps in knowing from how much time amount is due from the customer.

TAX REDUCTION: -The company shifted its plant to pondicherry from Noida and thus started paying less tax.this was mainly due to lesser tax rates existing in Pondicherry.So HCL was able to reduce its tax to a greater extent.

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- Another reason for tax reduction is that for filing tax returns ,the profit or loss reported is for HCL infosystems on the whole irrespective of the contributions of the different units as a result losses incurred by one unit are more or less compensated by the excess profits of another.This has reduced the amount of taxes to be paid to a greater extent.

RECOMMENDATIONS Some suggestions for improving the present system at the regional finance and accounts office are: 1. In case of giving sales incentive to the sales executives there is a provision that if the entire billing amount is not received within 90 days , the sales executive will lose out on the incentive.now sometimes it may so happen that the goods are dispatched late from the plant itself,and thus the billing is not received in the stipulated period so the incentive is not given.But in this case ,the delay isn’t the sales executives responsibility.so whenever the payment is received with a delay ,the reason for the delay must be looked into before deciding upon the incentive. 2. In the process of paying monthly salaries to the on –the –job trainees, the salary vouchers are sent to the accounts department by the different heads at different times as a result this process is stretched till almost fifteen of the month Thus a fixed time can be decided by the finance and accounts department by which the salary vouchers would be received by them and after that they would be processed and consequently paid out.

1. In case of medical policy claims, the settlement of the claim is done according to the basic salary of the employee .But it should be done according to the graveness of the illness. In the medical policy instead of the compensations according to the grades,

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different illness should be defined along with the compensations for the same, irrespective of the grades. 2.

Though bank guarantee creates a feeling of security both for the firm as well as the customer, it is a financial burden on the firm. As the company has to pay a service charge to the bank, which may be monthly, quarterly ,half yearly, yearly or on the percentage basis of the total BG amount. Moreover a BG creates a charge on the fixed assets of the company. Whereas on the other hand corporate finance requires no such charge so the company should emphasize on the latter.

3. Most of the BGs received by the company are of the performance kind as balance of money is blocked till the machinery is fully installed and the customer is satisfied. In case of advance BG the money is received before the delivery and installation. Therefore the company should focus on the latter. 4. In case of cheques deposited with banks, different banks have different weekly days off. The company having numerous Customers, who give cheques of their respective banks, is unable to remember the different days off of different banks. So, often cheques are sent for deposition during weekly off days. As a result they get bounced and are returned for which the company has to bear the bounce charges. So, if the 5. company could convince the banks not to bounce the cheques but to deposit the same on the next working day. This could be one solution to the problem.

In case of local travel different rates per kilometers are assigned to employees according to their grades. But employees can take undue advantage of this by taking auto rickshaw in place of taxi, bus in place of auto rickshaw, for which they are entitled for and pocket the balance amount when there claims are settled.

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So the company vehicles can be: fixed for different areas so that wherever the employees need to go for call, they can use company’s vehicles for commuting purposes. 6. In case of TDS deductions by the customers, the company receives the balance amount of the total pay order value. This has a direct impact on the cash inflows of the company. So if the customers made the full payment instead without any tax deductions then the extra amount can be used to earn profit and the tax amount can be paid by the company on the customer’s behalf within the stipulated time frame. 7. In case of sales tax return being filed, the same is computed both manually and also through the system. Thus double labour is required because of the lesser reliability of the system’s calculations. Thus the fallacy should be corrected to speed up the process and to do away with the manual calculations totally.

7.In the case of payment of local conveyance vouchers, the employees claim their payments at their convenience, the frequency varies from employee to employee. The greater the frequency, greater the processing time and greater the human effort used. SO, the company can estimate the requirement of the employees, and on monthly basis pay the said amount as an advance to the employee and on submittance of proper documentation ,the next month adjust the excess or less balance of the present month 8.In case of non-refundable goods if any part is missing by chance,then under the present procedure the customer intimates the regional office which forwards the information to the plant from where the required part is dispatched first to the regional office and from there to the customer.this is a long procedure as manufacturing plant and the regional office are in different cities so if this method could be short circuited it would definitely benefit the company.

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9 At present,the company doesn’t provide any discount to the customer,neither cash nor bulk.So the company could incorporate

these to reduce the time of accounts

receivables.

CONCLUSION There is always a scope of improvement. Although the processes followed in the company for the management of current assets are well defined and Efficient ,yet after

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an intensive study of the same it was found that some lacunae existed in the same.Different remedies have been suggested for them in the recommendations.Also a survey of different people of the finanace department of the company at different hierarchical

levels was undertaken for their opinions regarding their field of

expertise,the existing method of working and the changes they would like to incorporate to increase the efficiency.The answers have then been analysed and stated

Current assets management forms a major part of the working capital management.And at HCL due importance has been given to it .Much emphasis is laid on efficient management of the current assets of the company in order to increase the profitability of the company.

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HCL INFOSYSTEMS LIMITED-COMPANY PROFILE

HCL Infosystems Ltd. is the Flagship Company of the US$ 600 million HCL group, India’s largest Information Technology (IT) transnational conglomerate. With its in depth expertise in developing solutions spanning diverse technologies, HCL Infosystems aims to propel its course on to the high growth path of total technology integration:

In recognizing the challenges posed by the changing IT environment, HCL has consistently guided the development of this business. As information technologies needs to be mature, the IT industry has witnessed a continuous evolution through a progressively finer segmentation of markets. Design and delivery of solutions across diverse hardware platforms, and the ability to respond to the rapid penetration of PCs, are key determinants for the success in the current information technology environment.

Towards capturing two ends of the market spectrum-enterprise solutions and PCs-HCL Infosystems has made significant strategic infrastructure investments in the Professional Service Organizations (PSO), the Support Service Organizations (SSO) and its manufacturing plant at Pondicherry.

HCL Infosystems is the manufacturer of general-purpose computers and provided services in the areas of IT consultancy, systems integration, software development and training. In addition to modern manufacturing facilities at Pondicherry, HCL Infosystems has 34 sales offices and 143 customer support locations. HCL Infosystems

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has an electronic hardware technology park and three software technology parks to dedicatedly address export opportunities in contact.

ASSETS AND LIABILITIES OF HCL INFOSYSTEMS LIMITED RS/crores 2006

2005

2004

2003

34

2002

33

33

32

32

664

521

390

265

238

Loans Funds

84

82

72

118

141

Deferred Tax Liabilities (Net)

11

7

Sources of Funds Equity Funds Reserves and Surplus

5

(10)

8

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Total

793

643

500

405

419

Net Block

98

76

66

66

80

Investments

295

143

219

219

102

Current Assets

1543

1287

912

676

569

Current Liabilities

1143

863

697

556

335

Net Current Assets

400

424

215

120

234

Total

793

643

500

405

419

Application of Funds

IDBI FINANCING SCHEME

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The main objective and purpose of this financing scheme is that purchaser can buy the machinery by paying only % advance and balance can be paid over a period of 3, 5 & 7 years. It is very useful for the seller also as he gets the money from IDBI as soon as he delivers the equipment to the purchaser. There are two scheme under IDBI financing :a) IDBI Bills Re-discounting Scheme. b) IDBI Direct Discounting Scheme.

Under “IDBI Bills rediscounting Scheme” HCL don’t have any limit. The only difference between the two scheme is that in Rediscounting scheme, the bills will be discounted by the seller bankers and the bank will rediscount the ‘Hundies’ from IDBI and gets the payment. Under this scheme the rate of interest is slightly higher. There are enough limits under “IDBI Direct Discounting Scheme”. The purchaser need not have to take any approval from IDBI and all the discounting have to be done under HCL limits. The main points to be taken care of are as under : HCL must get a firm order from the customer with at least 10% advance clearly stating the balance money is to be financed through IDBI Direct Discounting Scheme.  The customer must have deferred limit with the banker as the banker has to accept the ‘Hundies’.  After the receipt of the firm order the advance payment, the ‘Hundies’ has to be drawn and stamped from the court.  The stamps applicable on ‘Hundies’ are special adhesive stamps.  The parties have to sign the ‘Hundies’ only after proper stamping is done.

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The documents required under this scheme are as under :-

‘Hundies’ :- This can be in following forms : Bills of Exchange / ‘Hundies’ drawn by us accepted by the customer and co-accepted by the customer banker.  Bills of Exchange drawn by customer and accepted by their banker.  Bills of Exchange drawn by us accepted by customer and supported by a bank guarantee issued by customer banker.  Promissory Note drawn by us.  10 Nos. of ‘Hundies’ are to be prepared. The first Hundi is payable after 6 month and the last Hundi is payable after 60 months keeping a gap of every 6 months.  The date of ‘Hundies’ should be after the stamping date. 

IDBI does not accept the cases which are below 1 lakh (Principal Amount).

Break up Chart : The break up chart has to be prepared by reflecting the total invoice value, advance received and the amount to be financed by IDBI i.e. Principal Amount.  The Principal amount is to be divided into ten installments, the amount which are payable after every six months along with interest. 

The rate of interest applicable currently @1807% p.a. Normally IDBI declare the rate of interest during April every year.

 The interest is to be calculated on reducing balance (Diminishing method). 

In case the machine is shipped after the date of Bills of Exchange, HCL have to refund the interest to the customer. That means IDBI will advise the company to refund the interest part due to the customer from the date of bills of exchange to the

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date of shipment and from the date of shipment to the date of discounting the bills of exchange. IDBI will refund the interest to HCL Infosystems Limited.

Industrial Concern Certificate The customer has to issue the certificate on his letter head stating that he is an Industrial Concern as defined under Section 2(C) of Industrial Development Act, 1964. “Industrial Concern” means any concern engaged or to be engaged in: The manufacture, preservation or processing of goods.  Shipping 

Mining including development of Mines

 Hotel Industry  Transport of passengers or goods or by air or by ropeway or lift.  Generation, storage or distribution of electricity or any other form of energy.

Purchasing Certificate:The customer has to issue this certificate stating the purpose of purchasing the machinery, IDBI financing the equipment only for the following purposes : Diversification  Expansion  Replacement  Modernisation

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In case the machinery is required for implementation of a new project, prior approval from IDBI is required. The customer has also to undertake that he will not sell or dispose off the machinery as long as the bills remains unpaid. He has also to undertake IDBI can inspect/verify the relative machinery as long the records pertaining to its scale at any time at its discretion either before or after the discounting of the ‘Hundies’. The nature of the industry in which the customer is involved is also to be mentioned. This certificate has to be signed by authorized officials of the customer with his rubber stamp and it has also to be counter signed by his banker.

Banker’s authorization certificate

This certificate is very important and special care must be taken while getting the certificate. This certificate has to be issued by the customer banker’s stating that the officials who has/have signed the ‘Hundies’ and certificate are the Authorized Purchaser persons and their signatures have been verified. The senior official of the Bank should this certificate. This is required on the Banker’s letterhead and it should have the Rubber stamp along with the officer signature code no. Waiver Certificate

The purpose of this certificate is that if IDBI does not present the ‘Hundies’ on the due dates with the Customer Banker. It is the responsibilities of the bank to make the payment on the respective due dates to IDBI. This certificate has to be typed on Banker’s letter head with the rubber stamp and also should have Banker officials signature code. Correction Certificate

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In case there are any cutting or changes in the ‘Hundies’ this certificate is a must. This certificate has to be signed by all the parties i.e. Purchaser, Seller and Banker. All the parties have also to sign on the cutting and changes in the ‘Hundies’. It is advised that special care should be taken while executing ‘Hundies’. Acceptance of the ‘Hundies’

All the Banks can accept / co-accept the ‘Hundies’ except SBI which always issues the bank guarantee supported by ‘Hundies’. The BG should be as per the IDBI format and it should be valid six months after the due dates of the last bill. All the formats of the above, certificates are enclosed.

Important

IDBI has agreed as a special case to waive the requirements of bank guarantees and instead accept the corporate guarantee of the buyer. However, this facility is available only to buyers that are large and financially sound companies. Typically, all ‘AAA’ rated companies will be eligible. Before processing the case under the scheme, HCL is required to first clear the name of the company with IDBI. This approval will have to be taken before the execution of documents with the customer. The following documents will need to be submitted to IDBI for getting clearance regarding waiver of bank guarantee :-

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 Annual report of the customer for the last three years.  Un-Audited financial reports for the latest half year.  A write up about the company.  Copy of Performa invoice.  Credit rating of the customers, if any.

Letter Of Credit  Advising bank should be SBI, Noida or SBM, Nehru Place, New Delhi.  Negotiation of letter of credit should not be restricted to any bank and should instead be unrestricted for negotiation.  Bank charges should be to the account of the opener. 

Partial shipment and transshipment should be permitted.

 Letter of Credit should be drawn on sight basis.  If Letter of Credit are taken they should specifically state that interest will be to the account of the opener.  Some Letter of Credit are opened with a clause that documents shall be pre accepted by the opener and shall accompany the negotiable documents. Such clauses lead to an enormous delay and should not be accepted.

 Letter of credit including Sight Letter of credit terms them upon presentation of documents by the beneficiary, the payment should be released immediately and reimbursement claimed from (Delhi branch of opener bank).

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

This clause is an authorization from the letter of credit opening bank of the advising bank to pay the beneficiary without waiting for confirmation from opening bank.

 The letter of credit should specifically have a clause that permits shipment before the date of letter of credit.

PROCESS OF SALES INCENTIVE

Before giving the sales incentive HCL needs to verify the following: Check the quarterly target of sales executive duly approved by Business Entity Manager.  Check order wise details.  Bill receivable should be NIL as per incentive scheme.  No C/D form is required.  Incentive should be checked as per incentive scheme.  Last step for verifying sales incentive is sending it for reimbursement of incentive with salary duly approved by business entity manager.

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PROCESS OF SALES COMMISSION PAYMENT In HCL Infosystems, Sales Commission is generally paid to the sales agent who is responsible for Sale. Generally Sales Commission request is received by finance department from BEM/RCEM. The Finance department requires a sales commission request form to be filled up. The following procedure is followed by finance department with regard to payment of sales commission:-

A. Receipt of sales commission request from BEM/RCEM. a) The following details are to be provided in sales commission request form. 1) Customer Name. 2) Customer Code. 3) HCL order reference number. 4) Total order value. 5) Invoice number/date/amount. 6) Payment details with PRA number. 7) Amount of sales commission agent. b) Sales commission request should be duly signed by BEM/RCEM. B. Next step is to verify the following:1) Check order value of customer in SAP. 2) Check sales commission amount in SAP (ACCOUNT HEAD GL 54050) 3) Check the B/R status on the systems against the particular order and B/R Status should be nil.

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4) Prepare sales commission papers along with agreement and clearance letter.

 If all the dues are nil, and get it signed from BEM/RCEM. In case of exceptions the same are sent for directors approval.  Sales commission paper are sent to head office accounts through transmittal note along with complete address of sales agent.  Minimum seven days time should be given for processing the sales commission at Head Office.  Head Office accounts will verify the paper, if the papers are okay then they will issue the cheque.  Head Office accounts will send the cheque directly to the address of sales agent under intimation to regional finance office with complete details. Regional accounts/finance shall update the manual ledger The following is the format of the sales commission form

(a) Sales Commission Form Date Name of the sales agent Name of the customer Sales agreement

no

Date

Clearance Letter

no

Date

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Sales tax charged @ Is it IDBI case

yes/no?

HO Invoice Number 1 2

Invoice no.

Date

Amount

Challan no.

Date

Amount

Commission Payable Number

Confrigation

Price without

Commission Commission Remarks

cost

rate

payable

PURCHASE OF RAW MATERIALS Purchase of raw materials (as enclosed in annextures) involves inviting quotations from various suppliers. Purchase department carefully analyze these quotations and book orders with the suppliers, which offer least price for the required materials. A large portion of cash is utilized in purchasing raw materials.

SUGGESTIONS

The management of working capita plays a vital role in running of a successful business. so things should go with a proper understanding for managing cash, receivables and

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inventory. Thus in this respect the suggestions for managing the working capital are as follows:  The business runs successfully with adequate amount of the working capital but the company should see to it that the cash should not be tied up in excessive amount of working capital.  Though the present collection system is near perfect the company as due to the increasing sales should adopt more effective measures so as to counter the threat of bad debts  The over purchasing function should be avoided as it can lead to liquidity problems.  The investment of cash in marketable securities should be increased, as it is very profitable for the company.  Holding of excessive and insufficient stock must be avoided as it creates a burden on the cash resources of a business and result in lost sales, delays for customers, etc respectively.