"Summer Training project Report
PROJECT REPORT FOR THE PARTIAL FULLFILLMENT OF THE REQUIREMENT FOR MASTER OF BUSINESS ADMINISTRATION ON “Working Capital Management and its Appraisal” IN Birla Corporation Limited
Submitted to:Mr. Ajay Gangwal (V.P., Finance)
Submitted by:Umesh Soni M.B.A-Part III A.I.M.S.,Jaipur
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 32 PARTICULARS ACKNOWLEDGEMENT EXECUTIVE SUMMARY INDUSTRY PROFILE-CEMENT IONDUSTRY PROCESS TOP TEN CEMENT PLAYER VARIOUS CHARTS ANALYSIS GOVERNMENT ACTIOJNS & IMPACT ON INDUSTRY PEER GROUPS COMPARISON COMPANY PROFILE COMPANY LOGO EXPORT ACTIVITIES LOCATION AND CAPACITY OF CEMENT PLANTS MANAGEMENT MISSION & VISION OBJECTIVE & OBLIGATION SHAREHOLDING PATTERN CORPORATE SOCIAL RESPONSIBILITY AWARDS & ACHIEVEMENTS RAW MATERIAL FOR CEMENT PLANTS OF BIRLA & FINANCIAL PERFORMANCE SWOT ANALYSIS INTRODUCTION OF WORKING CAPITAL TYPES OF WORKING CAPITAL SIGNIFICANCE OF WORKING CAPITAL WORKING CAPITAL RATIO SATEMENT SHOWING CAHANGE IN W.C. CALCULATION OF WORKING CAPITAL VARIOUS COMPONENETS OF WORKING CAPITAL WORKING CAPITAL RATIOS & ANALYSIS FUND FLOW & CASH FLOW STATEMENTS CONCLUSIONS MAJOR FINDINGS BIBLIOGRAPHY & WEBLIOGRAPHY PAGE NO. 1 2 3 6 8 09 11 12 13 14 15 15 17 18 19 20 21 23 25 30 33 35 38 39 40 41 42 43 50 57 58 59 60
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ACKNOWLEDGEMENT
Words are indeed inadequate to convey my deep sense of gratitude to all those who have helped me in completing this summer project to the best of my ability. Being a part of this project has certainly been a unique and a very productive experience on my part. I am really thankful to Mr. Ajay Gangwal, Vice President (Finance & Accounts) for making all kinds of arrangements to carry the project successfully and for guiding and helping me to solve all kinds of quarries regarding the project work. His systematic way of working and incomparable guidance has inspired the pace of the project to a great extent. I would also like to thank my mentor and project – coordinator, Mr. Kamal Kishor Tosawar, Asstt. Manager, (Finance & Accounts) for assigning me a project of such a great learning experience and acquainting me with real life project financing and appraisal. I am very grateful to Mr. Malhotra (Training & Placement Officer) of APEX INSTITUTE OF MANAGEMENT & SCIENCE, Jaipur. Who has given me the opportunity to do this project in the Birla Corporation Ltd. and very thankful to all lecturers of A.I.M.S. , Jaipur for their useful guidance and advise. This project would not have been successful without the help of Mr. B.R.Nahar (Executive Director & CEO) of BCL and Mr.S.L.Dugar (Chairman) of R.D.Industries. Last but not least I would like to thank all the employees of Birla Corporation Ltd. who have directly or indirectly helped me with their moral support for the completion of my project.
(UMESH SONI)
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EXECUTIVE SUMMARY
Founded in 1919 by the visionary industrialist, Shri G.D. Birla, at the outskirts of the then Kolkata. Birla Manufacturing Company Ltd was the first company of Birla industrial conglomerate. Under the stewardship of his nephew, Shri M.P.Birla, the company diversified and expanded its business interest beyond cement, jute, PVC goods, steel casting and auto trims. Birla Corporation limited is the flagship company of M.P.Birla group. It has variety in its basket. The core business of Birla Corporation limited is cement, generating 93% of the revenue for the company, 6% jute and 1% from other sectors. The project entitled “Working Capital Management and its Appraisal in BCL” deals in this segment. The term of study was kept limited to make the title true. The purpose of the report is to get the in depth understanding of the process of working capital management. With the growing Indian economy and the government policies for infrastructure the demand for cement is increasing and seeing this as an opportunity is under taking many new projects for expansion of the production which are under implementation for increasing the capacity of the plants. Working capital has been analyzed in two ways – overall study of the working capital of Birla Corporation Ltd and secondly, plant-wise working capital of Birla Corporation, since the company has seven plants in different region and each plant has its own working capital. Borrowings are an important ingredient of funding a business entity. The lenders must feel comfortable with their clients and Birla Corporation enjoys this position among their lenders. Borrowing is done for working capital requirement i.e., to meet the day to day requirement for smooth functioning of the production, and term loans for projects of capacity expansion. Major portion of the borrowing is done from banks at better rate of interest. The performance of the cement division of the company during the year was satisfactory. The production of cement during the year was 52.28 lack tones, compared to production of 5.26 million tones; the highest ever.The Satna unit produced 20.20 lacks tones of clinker during the year. The cement production at Satna and Raebareli was lower at 21.55 lacs tones as compared to 21.87 lack tones during the previous year. The cement dispatches of Satna and Raebareli units where 21.44 lack tones as compared to 21.89 lack tones during last year. The production of Portland Pozzolana cement (PPC) at Satna, however, recorded on all time high level of 11.77 lack tones as against the previous best of 11.61 lack tones. Jute division of the company produced 37990MT of jute goods during the year as compared to 29289MT in the previous year. During the year the company has total 7 plants with annual capacity of 10 million tones. The Company has posted yet another impressive for the 2007-08 results, which has surpassed all respective previous levels. It has shown substantial growth in turnover, cash profit, profit before tax and profit after tax. The total turnover of company has registered a growth of 11.27% whereas
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operating profits for the year where higher by 18.03% mainly on account of increase in the volume of blended cement in the overall cement sales, higher realisation and effective cost control measures taken by the company. The profit before tax was up by 19.37% at Rs.551.18 crores as against Rs.461.74 crores in the previous year. The profit after tax is 393.58 crores as against Rs. 326.23 crores in the previous year. EPS was 51.11 as against 47.51 in the previous year. The cash earnings of the company improved substantially to Rs.501.39 crores as against Rs.178.25 crores in the last financial year. With increase in capacity on account of expansion projects being undertaken by the company, it is expected that the Company would be in a position to maintain the growth in future years. Company has recommended a dividend of Rs 4.00 per share (40%) on 7, 70, 05,347 ordinary share compared 3.50 per share (35%) last year. The objective of this project work is to focus on the working capital of the Birla Corporation and exploring its potential in the company. The project contain the basic postulates of working capital, procedure of analysis of working capital, ratio being used to define the working capital and the impact of working capital in the company in case of excess or inadequacy. Also, the project contains analysis of estimation of working capital requirement and the procedure to estimate working capital requirement in manufacturing and trading concern. and from the data available it can be concluded that it holds a very strong position in the market.
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Cement Industry:Cement industry is one of the important industries to country development in the light of the main important basis for construction industry and also the important indicator showing domestic economic growth. In the past, the domestic demand of cement used to be up to 36 million tons. But, the severely negative effects from economic crisis in 1997 have caused real estate and construction industry subdued; the domestic demand of cement has shrunk and been in oversupply atmosphere. Until 2001–2003, the government has launched many economic actuating policies. This has made real estate and construction industry recovered and the demand of cement has been increasing gradually from 21 million tons in 2001 to 25 million tons and 26.82 million tons in 2002 and 2003 respectively; and the price level is higher in line with increased production cost. Cement Industry originated in India when the first plant commenced production in 1914 at Porbandar, Gujarat. The industry has since been growing at a steady pace, but in the initial stage, particularly during the period before Independence, the growth had been very slow. Since indigenous production was not sufficient to meet the entire domestic demand, the Government had to control its price and distribution statutorily. Large quantities of cement had to be imported for meeting the deficit. The industry was partially decontrolled in 1982 and this gave impetus to its pace of growth. Installed capacity increased to more than double from 27 million tones in 1980-81 to 62 million tones in 1989-90. The cement industry responded positively to liberalization policy and the Government decontrolled the industry fully on 1st March 1989. From 1991 onwards cement industry got the status of a priority industry in schedule III of the industry policy statement, which made it eligible for automatic approval for foreign investment up to 51% and also for technical collaboration on normal terms of payment of royalty. After the globalization and liberalization of Indian economy, the cement industry has been growing rapidly at an average rate of 9 per cent. The country is now the second largest producer of cement in the world next only to China with a total capacity of 188.97 million tones. Additionally, in the last two decades, the industry has undergone rapid technological up gradation and growth, and now, some of the cement plants in India are comparable to the world’s best operating plants in all respects. Till a few years ago India was importing cement from other countries, as the production could not meet the demand for the whole country. Now the tables have turned as India has started exporting large quantities of cement and clinker to Bangladesh, Nepal, Sri Lanka, Maldives, Mauritius, Africa, Seychelles, Burma, UAE, and Singapore etc.
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India is today the second largest producer of cement in world with an installed capacity of close to 188.97 million tones per year. 95 % is consumed domestically and only 5% is exported. Demand is growing at more than 10 % per annum. More than 90 % of production comes from large cement plants. There are a total of 130 large and more than 350 small cement manufacturing units in the country. More than 80% of the cement-manufacturing units use modern environment friendly “dry” process. Today total number of cement companies in Indian market are 47,having number of cement plants 139, the installed capacity of large plants is 188.97 million tones and cement production during 2007-2008 was 168.31 million tones
The forms of cement produced:• • • Ordinary Portland Cement ( OPC ) Portland Pozzolana Cement ( PPC ) Portland Slag Cement ( PSC )
Major players in Indian cement sector:• • • • • • • • • ACC Lafarge Gujarat Ambuja Cement Ultratech Cement India Cements Century Cements Jaypee Group Madras Cements Birla Corporation Limited
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How is Portland cement manufactured?
There are mainly two processes viz. “Wet process” & the “Dry process”. In “Wet process” the mixing & grinding of raw material is done in wet condition. In “Dry process” the mixing & grinding of raw material is done in dry condition. There is also a “Semi-dry process” in which raw materials are ground dry and then mixed with 1014% of water and then further burnt to clinkering temperature. The processes of manufacture can also be categorized as "Traditional Process of Manufacture"
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Cement Industry - INDIA
Overview 1. Indian cement industry dates back to 1914 - first unit was set-up at Porbandar with a capacity of 1000 tones 2. Currently India is ranked second in the world with an installed capacity of 188.97 million tones. 3. Current per capita consumption - 85 kgs. as against world standard of 256 kgs 4. 55 - 60% of the cost of production are government controlled 5. Continuous Growth approximately 1.3 times of the country’s GDP. 6. Construction is the biggest industry after agriculture in India. It is a industry worth Rs.300 Thousand Crores. 7. During 2007-2008 cement demand grew 8%,with a firmly country wide rise in prices.
Transportation :• • Transportation costs high - freight accounts for 17% of the production cost Road preferred mode for transportation for distances less than 250kms. However, industry is heavily dependant on roads as the railway infrastructure is not adequate - shortage of wagons.
Overview of the performance of the Cement Sector :The Indian cement Industry not only ranks second in the production of cement in the world but also produces quality cement, which meets global standards. However, the industry faces a number of constraints in terms of high cost of power, high railway tariff; high incidence of state and central levies and duties; lack of private and public investment in infrastructure projects; poor quality coal and inadequate growth of related infrastructure like sea and rail transport, ports and bulk terminals. In order to utilize excess capacity available with the cement industry, the government has identified the following thrust areas for increasing demand for cement: Housing development programmes; Promotion of concrete highways and roads; Use of ready-mix concrete in large infrastructure projects; and Construction of concrete roads in rural areas under Prime Ministers Gram Sadak Yojana.
The types of cement in India have increased over the years with the advancement in research, development, and technology. The Indian cement industry is witnessing a boom as a result of which the production of different kinds of cement in India has also increased.
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By a fair estimate, there are around 11 different types of cement that are being produced in India. The production of all these cement varieties is according to the specifications of the cement.
Some of the various types of cement produced in India are:
Clinker Cement Ordinary Portland Cement Portland Blast Furnace Slag Cement Portland Pozzolana Cement Rapid Hardening Portland Cement Oil Well Cement White Cement Sulphate Resisting Portland Cement
In India, the different types of cement are manufactured using dry, semi-dry, and wet processes. In the production of Clinker Cement, a lot of energy is required. It is produced by using materials such as limestone, iron oxides, aluminum, and silicon oxides. Among the different kinds of cement produced in India, Portland Pozzolana Cement, Ordinary Portland Cement, and Portland Blast Furnace Slag Cement are the most important because they account for around 99% of the total cement production in India.
CAPACITYWISE TOP TEN PLAYERS FOR YEAR 2007-2008
( figures in Mn.Tones)
COMAPNY HOLCIM / ACC / AMBUJA GRASIM / ULTRA TECH CEMENT JAYPEE GROUP. THE INDIAN CEMENTS LTD. SHREE CEMENT CENTURY TEXTILES & INDUSTRIES LTD. CAPACITY 38.21 36.25 9.93 9.64 9.10 7.80
BIRLA CORPORATION LTD.
5.78
MADRAS CEMENTS LTD.
5.47
LAFARGE INDIA PRIVATE LTD.
5.15
JK CEMENT
4.30
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Production & Consumption Trend in Cement:-
GDP versus cement demand growth:-
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All-India average cement price trend
Utilization versus cement prices:-
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Government intervention impacts sentiment
Calendar of events (since January ’07)
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The recent Government action to ban exports of cement and clinker is not likely to have any major impact on domestic prices as only 3.6% of total cement production is exported. However, pricing upside may be capped in coastal Gujarat and Maharashtra. Rising inflation had forced the Indian Government to play a proactive role in fixation of prices for the cement sector. As a result, the
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Government had announced a flurry of steps during recent months leading to the fury of the cement manufacturers around the country. In January, the import duty was reduced to zero from 12.5%, and in April, the countervailing duty and additional customs duty on imported cement was reduced to nil. This posed threat of imports at prices lower than the local prices, but imported cement has certain entry barriers like high freight, infrastructure bottlenecks, plus cement industry is highly localised, bulky and have just 45 days shelf life.
Peer Group Comparison :
Particulars Company Name 1 ACC 2 UltraTech Cem. 3 Birla Corp. 4 Shree Cement 5 J K Cem Ltd Sales 6396.43 5484.35 1792.84 1613.14 1529.67 Sales Growth% 72.88 44.89 25.24 95.74 37.97 ROCE% 41.28 42.96 60.68 19.62 32.36 APATM% 17.15 14.26 18.2 10.97 11.68 Div Yld% P/E 1.86 0.45 1.56 0.48 2.07 11.93 11.64 4.24 16.12 4.43 EPS 67.72 76.82 53.01 77.75 38.15
(Rs.in crore) Mkt Cap 15156.75 11126.92 1732.73 4367.37 1182.17
Company Profile:History of the company
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The company was founded by Late Shri G.D.Birla and was incorporated on 25th August 1919, in the name and style of The Birla Jute Manufacturing Company Limited. A man of vision and enterprise, he set up the first Indian –Owned Jute Mill near Kolkata which marked not only the birth of the company but also the beginning of the Birla Industrial Group in India. The company grew steadily under his guidance in the earlier years. Thereafter Shri M.P.Birla took over the reins of the company and he helped transform it from a jute mill to a leading multi-product, multi-location corporate with widespread activities. Today, the product range includes cement, jute goods, vinoleum floor covering, auto trims and steel castings. After the demise of Shri M.P.Birla in 1990, Smt.Priyamvada Birla took over as the Chairman of the company and under her Chairmanship; company crossed the Rs.1,000 cores plus turnover mark. After the demise of Smt.Priyamvada Birla on 3rd July 2004, Shri R.S.lodha took over as the chairman of the company and under his Chairmanship, company has attained new heights. The name of the company was changed to Birla Corporation Limited with effect from 27th October, 1988 to establish the size, image and conglomerate character of the company.
Credit Rating of the Company
Credit Analysis and Research Limited ( CARE ) has assigned “CARE AA” rating for the company long and medium term facilities of more than one year tenure and PR 1 + ( PR one plus ) rating for short term bank facilities , aggregating Rs.500 crores. Further , the rating Committee of CARE has re-affirmed PR 1 + rating and CARE AA rating for short term debt and the proposed long term borrowing programme of the company.
Late Shri M.P.Birla
Late Smt. Priyamvada Birla
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Birla Corporation Limited is a multi- product conglomerate. • • • It plays significant roles in the Cement, Jute, PVC floor Covering, Auto Trim and Steel casting industries. The concentric around the triangle represents this very multi-dimensional nature. The apex of the triangle is a visual representation of the force that drives the entire corporation – the unifying force in search of excellence. The circle represents the inspiration to explore new frontiers of growth.
Division Wise Export Turnover
Particular Cement Jute Other Total 2007- 08 35.23 41.71 0.57 77.51 % 45.45 53.83 0.72 100.00 2006- 07 10.80 39.26 0.72 50.78 Rs in crore % 21.27 77.31 1.42 100.00
CEMENT DIVISION:17
Cement is the primary product of the company and accounts for around 90% of the turnover of the company. The company has seven cement plants at four locations, namely, Satna Cement Works ( SCW ) and Birla Vikas Cement ( BVC ) at Satna (Madhya Pradesh ), Chanderia Cement Works ( CCW ) and..."
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