INDUSTRY PROFILE

The automotive industry in India is one of the larger markets in the world and had previously been one of the fastest growing globally, but is now seeing flat or negative growth rates. India's passenger car and commercial vehicle manufacturing industry is the sixth largest in the world, with an annual production of more than 3.9 million units in 2011. According to recent reports, India overtook Brazil and became the sixth largest passenger vehicle producer in the world (beating such old and new auto makers as Belgium, United Kingdom, Italy, Canada, Mexico, Russia, Spain, France, Brazil), grew 16 to 18 per cent to sell around three million units in the course of 2011-12. In 2009, India emerged as Asia's fourth largest exporter of passenger cars, behind Japan, South Korea, and Thailand. In 2010, India beat Thailand to become Asia's third largest exporter of passenger cars. As of 2010, India is home to 40 million passenger vehicles. More than 3.7 million automotive vehicles were produced in India in 2010 (an increase of 33.9%), making the country the second (after China) fastest growing automobile market in the world in that year.According to the Society of Indian Automobile Manufacturers, annual vehicle sales are projected to increase to 4 million by 2015, no longer 5 million as previously projected. The majority of India's car manufacturing industry is based around three clusters in the south, west and north. The southern cluster consisting of Chennai is the biggest with 35% of the revenue share. The western hub near Mumbai and Pune contributes to 33% of the market and the northern cluster around the National Capital Region contributes 32%.Chennai, with the India operations of Ford, Hyundai, Renault, Mitsubishi, Nissan, BMW,Hindustan Motors, Daimler, Caparo, and PSA Peugeot Citron is about to begin their operations by 2014. Chennai accounts for 60% of the country's automotive exports.[8]Gurgaon and Manesar in Haryana form the northern cluster where the country's largest car manufacturer, Maruti Suzuki, is based.The Chakan corridor near Pune, Maharashtra is the western cluster with companies like

General Motors, Volkswagen, Skoda, Mahindra and Mahindra, Tata Motors, Mercedes Benz, Land Rover, Jaguar Cars, Fiat and Force Motors having assembly plants in the area. Nashik has a major base of Mahindra & Mahindra with a UV assembly unit and an Engine assembly unit. Aurangabad with Audi,Skoda and Volkswagen also forms part of the western cluster. Another emerging cluster is in the state of Gujarat with manufacturing facility of General Motors in Halol and further planned for Tata Nano at their plant in Sanand. Ford, Maruti Suzuki and PeugeotCitroenplants are also set to come up in Gujarat. Kolkata with Hindustan Motors, Noida withHonda and Bangalore with Toyota are some of the other automotive manufacturing regions around the country. HISTORY The first car ran on India's roads in 1897. Until the 1930s, cars were imported directly, but in very small numbers. An embryonic automotive industry emerged in India in the 1940s. Mahindra & Mahindra was established by two brothers as a trading company in 1945, and began assembly of Jeep CJ-3A utility vehicles. Following the independence, in 1947, the Government of India and the private sector launched efforts to create an automotive component manufacturing industry to supply to the automobile industry. However, the growth was relatively slow in the 1950s and 1960s due to nationalisation and the license raj which hampered the Indian private sector. Total restrictions for import of vehicles was set and after 1970 the automotive industry started to grow, but the growth was mainly driven by tractors, commercial vehicles and scooters. Cars were still a major luxury. Eventually multinational automakers, such as, though not limited to, Suzuki and Toyota of Japan and Hyundai of South Korea, were allowed to invest in the Indian market ultimately leading to the establishment of an automotive industry in India. A number of foreign firms also initiated joint ventures with Indian companies. As of 18 March, 2013 global brands such as Proton Holdings, PSA Group, and Geely Holding Group are shelving plans for India due to the global economic crisis.[16]

EMISSION NORMS
In tune with international standards to reduce vehicular pollution, the central government unveiled the standards titled 'India 2000' in 2000 with later upgraded guidelines as 'Bharat Stage'. These standards are quite similar to the more stringent European standards and have been traditionally implemented in a phased manner, with the latest upgrade getting implemented in 13 cities and later, in the rest of the nation. Delhi(NCR), Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune, Surat, Kanpur, Lucknow, Solapur, and Agraare the 13 cities where Bharat Stage IV has been imposed while the rest of the nation is still under Bharat Stage III. Exports India's automobile exports have grown consistently and reached $4.5 billion in 2009, with United Kingdom being India's largest export market followed by Italy, Germany, Netherlands and South Africa. India's automobile exports are expected to cross $12 billion by 2014. According to New York Times, India's strong engineering base and expertise in the manufacturing of low-cost, fuel-efficient cars has resulted in the expansion of manufacturing facilities of several automobile companies like Hyundai, Nissan, Toyota, Volkswagen andMaruti Suzuki. In 2008, South Korean multinational Hyundai Motors alone exported 240,000 cars made in India. Nissan Motors plans to export 250,000 vehicles manufactured in its India plant by 2011. Similarly, US automobile company, General Motors announced its plans to export about 50,000 cars manufactured in India by 2011. In September 2009, Ford Motors announced its plans to set up a plant in India with an annual capacity of 250,000 cars for US$500 million. The cars will be manufactured both for the Indian market and for export.The company said that the plant was a part of its plan to make India the hub for its global production business. Fiat Motors also announced that it would source more than US$1 billion worth auto components from India.

In July 2010, The Economic Times reported that PSA Peugeot Citron was planning to re-enter the Indian market and open a production plant in Andhra Pradesh with an annual capacity of 100,000 vehicles, investing EUR 700M in the operation.[80] PSA's intention to utilise this production facility for export purposes however remains unclear as of December 2010. In 2009 India (0.23m) surpassed China (0.16m) as Asia's fourth largest exporter of cars after Japan (1.77m), Korea (1.12m) and Thailand (0.26m) by allowing foreign carmakers 100% ownership of factories in India, which China does not allow In recent years, India has emerged as a leading center for the manufacture of small cars.Hyundai, the biggest exporter from the country, now ships more than 250,000 cars annually from India. Apart from Maruti Exports' shipments toSuzuki's other markets, Maruti Suzuki also manufactures small cars for Nissan, which sells them in Europe. Nissan will also export small cars from its new Indian assembly line. Tata Motors exports its passenger vehicles to Asian and African markets, and is in preparation to launch electric vehicles in Europe in 2010. The firm is also planning to launch an electric version of its low-cost car the Tata Nano in Europe and in the U.S. Mahindra & Mahindra is preparing to introduce its pickup trucks and small SUV models in the U.S. market. Bajaj Auto is designing a low-cost car for Renault Nissan Automotive India, which will market the product worldwide. Renault Nissan may also join domestic commercial vehicle manufacturerAshok Leyland in another small car project.[81] While the possibilities are impressive, there are challenges that could thwart future growth of the Indian automobile industry. Since the demand for automobiles in recent years is directly linked to overall economic expansion and rising personal incomes, industry growth will slow if the economy weakens.

AUTOMOBILE INDUSTRY IN INDIA UPTO 2013 The Indian automotive industry has emerged as a 'sunrise sector' in the Indian economy. India is emerging as one of the world's fastest growing passenger car markets and second largest two wheeler manufacturer. It is also home for the largest motor cycle manufacturer and fifth largest commercial vehicle manufacturer. India is emerging as an export hub for sports utility vehicles (SUVs). The global automobile majors are looking to leverage India's cost-competitive manufacturing practices and are assessing opportunities to export SUVs to Europe, South Africa and Southeast Asia. India can emerge as a supply hub to feed the world demand for SUVs. India also has the largest base to export compact cars to Europe. Moreover, hybrid and electronic vehicles are new developments on the automobile canvas and India is one of the key markets for them. Global and Indian manufacturers are focussing their efforts to develop innovative products, technologies and supply chains. The automotive plants of global automakers in India rank among the top across the world in terms of their productivity and quality. Top auto multinational companies (MNCs) like Hyundai, Toyota and Suzuki rank their Indian production facilities right on top of their global pecking order. Key Statistics The amount of cumulative foreign direct investment (FDI) inflow into the automobile industry during April 2000 to January 2013 was worth US$ 7,653 million, amounting to 4 per cent of the total FDI inflows (in terms of US$), as per data published by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce. The Indian small and light commercial vehicle segment is expected to more than double by 2015-16 and grow at 18.5 per cent compound annual growth rate (CAGR) for the next five years, according to a report titled, 'Strategic Assessment of Small and Light Commercial Vehicles Market in India' by Frost & Sullivan. The light commercial vehicles (LCV) market - both passenger and goods carrier is estimated to register a sales growth of around 20 per cent during FY 2012-FY 2015, as per a RNCOS report titled, "India LCV Market Outlook".

India is the world's second-largest heavy commercial vehicle market. The RNCOS report, "India MCV and HCV Market Outlook", observed that infrastructure boom and emergence of hub and spoke model, among other factors have given a new dimension to the medium and heavy goods carrier commercial vehicles' sector in India. It is anticipated that the sales of medium and heavy commercial (M&HC) goods carriers will increase at a CAGR of more than 10.5 per cent during 2011-12 to 2014-15. In another RNCOS research report, "Indian Automobile Sector Analysis", the production of passenger vehicle is forecast to grow at a CAGR of around 11 per cent from 2009-10 to 2012-13, and domestic volume sales at a CAGR growth of around 12 per cent. MAJOR DEVELOPMENTS & INVESTMENTS

Yamaha Motor Co (YMC) has announced to set up its fifth global research and development (R&D) centre at its Greater Noida facility

Honda Cars India Ltd (HCIL) plans to invest Rs 2,500 crore (US$ 462.11 million) at its Tapukara plant in Rajasthan. The company plans to set up a new assembly line for car with an installed annual capacity of 120,000 units

Isuzu Motors plans to set up its greenfield manufacturing facility in Andhra Pradesh (AP), for pickup trucks or LCV and SUV, with an investment of Rs 1,500 crore (US$ 277.26 million) over 5-7 years

Volvo plans to expand car operations in India. The company looks to drive in new models in the market apart from increasing its sales network

Global ultra-luxury car maker, Rolls-Royce Motor Cars, plans to launch exclusive 'India Edition' cars in 2013. The car maker would come up with a customised edition of its Phantom and Ghost models for Indian buyers

Escorts Ltd has inked a partnership with Italy-based BCS SpA to distribute and sell the speciality Ferrari brand of tractors in India

TVS Motor and BMW AG's motorcycle division have announced a deal to jointly develop bikes that would give the Indian automaker access to BMW technology. TVS Motor and BMW will develop motorcycles in the sub 500 cc segment

Bajaj Auto and Kawasaki Heavy Industries plan to take their partnership to Indonesia, under which select Bajaj products will be assembled at the Kawasaki facility and distributed through its network

Bajaj Auto also plans to become the first Indian automobile company to manufacture a street bike, with a made in India motorcycle tag, in the US. The Indian company will manufacture this product for its partner KTM AG

GOVERNMENT INITIATIVES The Government of India allows 100 per cent FDI in the automotive industry through automatic route. Some of the highlights of the Union Budget 2012-13:

The auto industry is encouraged by 5 years extension of 200 per cent weighted deduction of R&D expenditure under Income Tax Act and also introduced the weighted deduction of 150 per cent for expenditure on skills development. These measures will help the industry improve its products and performance

The increase in customs duty on cars and multi-utility vehicles (MUVs) valued above US$ 40,000 from 60 per cent to 75 per cent seems to be a step to encourage local manufacturing, value addition and employment

Also, the concessional import duty on specified parts of hybrid vehicles has been extended to lithium ion batteries and other parts of Hybrid vehicles. This will help the industry to achieve better cost efficiency

The Government of India plans to push the supply of vehicles powered by electricity over the next eight years. It is expected that there will be a demand of 5-7 million electricity-operated vehicles by 2020. The Government also plans to introduce fuelefficiency ratings for automobiles to encourage sale of cars that consume less petrol or diesel, as per Mr Veerappa Moily, Union Minister for Petroleum and Natural Gas. The rapid improvement in infrastructure, huge domestic market, increasing purchasing power, established financial market and stable corporate governance framework have made the country a favourable destination for investment by global majors in the auto industry, as per Automotive Mission Plan (AMP) (2006-16). The AMP aims at doubling the contribution of automotive sector in gross domestic

product (GDP) by taking the turnover to US$ 145 billion in 2016 with special emphasis on export of small cars, MUVs, two & three wheelers and auto components. Road Ahead India is expected to become the 11th largest market for Renault by the end of 2013, as per Mr Carlos Ghosn, Chairman and CEO, Renault. India is expected to be a critical global hub for the firm along with Brazil, Russia and, perhaps, another country in the ASEAN region. Additionally, the vision of AMP 2006-2016 aims India "to emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$ 145 billion accounting for more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016." Moreover, the introduction of alternative fuels like hydrogen and bio fuels needs to be promoted to ensure sustainability of the industry over the long term. Exchange Rate Used: INR 1 = US$ 0.01849 as on April 16, 2013 IMPORTANT FACTS ABOUT INDIAN TWO WHEELER INDUSTRY

According to industry body, the Society of Indian Automobile Manufacturers, the Indian two-wheeler industry is expected to post an annual growth of 11-12 per cent, and the market is expected to double every four years till 2020. According to data from Nomura and Crisil, as many as 10 million twowheelers were sold in India 2011-12. Vehicles in the executive segment formed the bulk of sales at 6.5 million, followed by the economy segment (1.8 million) and premium segment (1.7 million).

The recent series of hikes in the price of petrol have played a significant role in the sale of two-wheelers, according to SIAM, as most first-time fourwheeler buyers in rural India and tier II and tier III cities have deferred their purchases. Two-wheelers account for a whopping 76 per cent of market share in the automobile sector in Asias third-largest economy. Passenger vehicles account for 16.25 per cent.

Barely 18 months after Indias most successful two-wheeler marriage ended, Honda made its ambitions clear by launching the 110cc Dream Yuga, its first low-cost motorcycle meant to target the budget market ruled by Hero and Bajaj. The Dream Yuga comes at an attractive Rs. 44,642, and will compete with Heros Splendor, which costs Rs. 42,950. The Splendor is Indias topselling bike.

Other two-wheeler companies such as Yamaha and Suzuki, too, are steadily focusing on the mass-market segment in an attempt to dislodge the two giantsHero and Bajaj. Yamaha last month announced a new $280 million factory in India to nearly triple its capacity to 2.8 million motorcycles by 2018, while Suzuki Motor, which is expected to launch a mass-market offering soon, is building a new factory to take its India capacity to close to one million motorcycles by 2014.

Hero has a market share of around 56 per cent in the overall domestic twowheeler market. At 25.5 per cent, Bajaj comes a distant second, but maintains a healthy lead over Honda and TVS, which have 7.5 per cent and 6.2 per cent market share, respectively. In terms of volume growth over the previous fiscal year, Hero leads with 16.5 per cent, followed by Honda (13.6 per cent), Bajaj (7.4 per cent) and TVS Motors (minus 0.3 per cent). Top brands from each stable are as follows: Hero Passion, Splendor and Pleasure (scooter); Bajaj Pulsar and Discover; Honda Unicorn, Twister and Activa (scooter); TVS Flame, Apache and Scooty (scooter).

PICTORIAL REPRESENTATION OF THE INDIAN AUTOMOBILE INDUSTRY

COMPANY PROFILE
TVS Motor Company is the third largest two-wheeler manufacturer in India and one among the top ten in the world, with annual turnover of more than USD 1 billion in 2008-2009, and is the flagship company of the USD 4 billion TVS Group. TVS Group - 100 years young The TVS group has always been inspired by a century long mission and vision of its own destiny. it is not just a business but a way of doing business, which sets TVS apart from others. Back in 1911, to the founder of the company, the ordinary ambitions of a bus fleet operator or a vehicle servicing business would not suffice.Rather, he wanted to create an enduring business led by a family of like minded workers and managers united by a set of shared high principles. Driven by this inspiration, the TVS group has today emerged as India's leading supplier of automotive components. Today the TVS Group is the largest automotive component manufacturer in India, with annual turnover of more than USD 4 billion. The group has over 30 companies employing a work- force of 40,000 people.

Underlying the success of the group is its philosophy of commitment to the cherished values of promoting trust, value and customer service. This was the personal philosophy of the Group's Founder Shri T V Sundaram lyengar, and it remains the overarching code by which the Group functions. Market leadership and rewards of business have followed naturally. T.V. Sundaram lyenger and sons limited (TVSs) is the holding company for the TVS Group of companies engaged in the manufacturing unit of almost all kinds of automotive components, two wheelers and a few other industrial products. They are also into the financial services sector. The turnover of the entire group was close to $2 billion in 2003.

The TVS Motor Company was founded by T.V. Sundraram lyenger in 1911. It is only automotive manufacturer in India to get the prestigious Deming Prize. One of its subsidiaries Sundaram Clayton was the first company in India to receive The Deming Prize. This was quickly followed by Sundaram brake Linings also getting the Deming Prize. This Prize given to organizations or division of organizations that have achieved districtive performances improvement through the application of TQM in a designated year. Sundaram Clayton went on to be awarded the Japan Quality Medal. The TVS group of Companies is mainly situated in Padi, Tamil Nadu, in the outskirts of Chennai (formerly madras). TVS Motors: In 1929 T.V. Sundaram Jyenger established the parent company. In 1962 T.V. Sundaram Lyenger & Sons Collaborated with Calyton Devandre and established Sundaram Clayton Limited at Chennai to manufacture automotive air brake system. In 1980 Sundaram Clayton Limited Diversities and opens its Moped Plant at Harita. Housr. In 1983 Sudnaram Clayton Limited collaborated with Suzuki Motors Corporation of Japan and established IND-SUZUKI motorcycle manufactured Limited at Harita, Housr. In 1984 the first IND-SUZUKI AX-100 motorcycle manufacture by IND-SUZUKI Limited in September. In 1986 IND-SUZUKJ Motorcycle Manufactured by IND-SUZUKI Motorcycle Limited rebnamed itself as TVS SUZUKI Limited in September. In 1987 TVS SUZUKI Limited purchased the Mope Division from Sundaram Clayton Limited in September. In 1980 TVS so, India's first two-seater moped rolled out of the factory at Housr in Tail Nadu, Southern India. A byword for reliability, the TVS 50 had proved itself promising and successful in every test and paved a way for many successes for TVS SUZUKI. Likewise the TVS Champ and Super Champ gave a reliable and sturdy two wheeler to public, who wanted looks fused with economy. These two wheelers together redefined the category' of moped in India. TVS later left its collaboration with Suzuki and started to manufacture its own vehicles. TVS Motor Company Limited, which is part of TVS Group, manufactures motorcycles,scooters, mopeds and auto rickshaws in India.

HISTORY TVS was established by Thirukkurungudi Vengaram Sundaram Iyengar. He began withMadurai's first bus service in 1911 and founded T.V.Sundaram Iyengar and Sons Limited, a company that consolidated its presence in the transportation business with a large fleet of trucks and buses under the name of Southern Roadways Limited.[2] When he died in 1955 his sons took the company ahead with several forays in the automobile sector, including finance, insurance, manufacture of two-wheelers, tyres and components. The group has managed to run 33 companies that account for a combined turnover of nearly $3 billion. Early years Sundaram Clayton, then the flagship company, was founded in 1962 in collaboration with Clayton Dewandre Holdings, United Kingdom. It manufactured brakes, exhausts, compressors and various other automotive parts. The company set up a plant at Hosur in 1978 to manufacture mopeds as part of a new division.[3] A technical collaboration with the Japanese auto giant resulted in the joint-venture Ind Suzuki Limited in 1982 between Sundaram Clayton Ltd and Suzuki Motor Corporation. Commercial production of motorcycles began in 1984. Suzuki relationship TVS and Suzuki shared a 19 year long relationship that was aimed at technology transfer to enable design and manufacture of two-wheelers specifically for the Indian market. Rechristened TVS-Suzuki, the company brought out several models such as the Suzuki Samurai, Suzuki Shogun and Suzuki Fiero. Differences in opinion on how to run the join venture eventually led to the partners going their separate ways in 2001 with the company being renamed TVS Motor, relinquishing rights to use the Suzuki name. There was also a 30 month moratorium period during which Suzuki promised not to enter the Indian market with competing two-wheelers.[4] The company also got over a period of labour unrestthat required Chairman Venu Srinivasan to take tough measures to resurrect a company that was in a state of turmoil. He would go on to invest in new technology, nurture in-house design, and implement Toyota-style quality programs.[5]

Recent Over the years TVS Motor has grown to be the largest in the group, both in terms of size and turnover, with four state of the art[6]manufacturing plants in

Hosur, Mysore and Nalagarh in India and Karawang in Indonesia. TVS Motor is credited with many innovations in the Indian automobile industry, notable among them being the introduction of India's first two-seater moped, the TVS 50cc. The company became the leader in its category of sub 100 cc mopeds, having sold 7 million units. It also introduced the TVS Scooty, which is India's second largest brand in the scooterette segment.[7] The TVS Jive launched in November 2009 became India's first clutch-free motorbike aimed at a stress-free rider experience[8] while the unisex scooter TVS Wego is targeted at urban couples, featuring body-balance technology for easier handling.[9] On 1 June 2012, TVS Motors reported a dip of 5% in its total sales for May 2012.[10] In July 2012, TVS Motors and BMW Motorrad were reported to be in talks for technology sharing.[11] 0n 8 April 2013, BMW Motorrad and TVS Motor Company signed a cooperation agreement with the aim to develop and produce motorcycles in the segment below 500 cubic centimetres. TVS Motor Company Mission We are committed to being a highly profitable, socially responsible, and leading manufacturer of high value for money, environmentally friendly, lifetime personal transportation products under the TVS brand, for customers predominantly in Asian markets and to provide fulfilment and prosperity for employees, dealers and suppliers.

Vision Statement TVS Motor - Driven by the customer TVS Motor will be responsive to customer requirements consonant with its core competence and profitability. TVS Motor will provide total customer satisfaction by giving the customer the right product, at the right price, at the right time.

TVS Motor - The Industry Leader TVS Motor will be one among the top two two-wheeler manufacturers in India and one among the top five two-wheeler manufacturers in Asia. TVS Motor - Global overview TVS Motor will have profitable operations overseas especially in Asian markets, capitalizing on the expertise developed in the areas of manufacturing, technology and marketing. The thrust will be to achieve a significant share for international business in the total turnover. TVS Motor - At the cutting edge TVS Motor will hone and sustain its cutting edge of technology by constant benchmarking against international leaders. TVS Motor - Committed to Total Quality TVS Motor is committed to achieving a self-reviewing organization in perpetuity by adopting TQM as a way of life. TVS Motor believes in the importance of the process. People and projects will be evaluated both by their end results and the process adopted. TVS Motor - The Human Factor TVS Motor believes that people make an organization and that its well-being is dependent on the commitment and growth of its people. There will be a sustained effort through systematic training and planning career growth to develop employees talents and enhance job satisfaction. TVS Motor will create an enabling ambience where the maximum self-actualisation of every employee is achieved. TVS Motor will support and encourage the process of self-renewal in all its employees and nurture their sense of self worth. TVS Motor - Responsible Corporate Citizen TVS Motor firmly believes in the integration of Safety, Health and Environmental aspects with all business activities and ensure protection of employees and

environment including development of surrounding communities. TVS Motor strives for long-term relationships of mutual trust and interdependence with its customers, employees, dealers and suppliers. The inspirational heritage Although the letters TVS represent the initials of our founder, T V Sundaram lyengar, to us within TVS they have always stood for Trust, Value and Service. The founder of the company embodied these values and set an example for all employees to emulate. TVS believes that the success of any enterprise is built on the solid foundation of customer satisfaction. Continuous innovation and close customer interaction have enabled TVS companies to stay ahead of competition. Quality at TVS determines not only the end product but the systems, processes and operations at all levels. The first four companies in India, which have won the coveted Deming Prize are from the TVS group. The business ranges across automobile component manufacturing,

components distribution, manufacturing of powered two-wheelers, computer peripherals, financial services, contract manufacturing services and software development. TVS Motor company Ltd (TVS Motor)- member of the TVS group is the largest company of the group in terms of size and turnover. THE TEAM TVS Racing has brought into motor racing the professional team concept. It is headed by Mr. Arvind Pangaonkar, General Manager, Research and Development, TVS Motor Company Limited. He has a 12-member team comprising Engineers to Post Graduates who provide technical support to the motorbikes and seven of these professionals travel with the racers during competitions. It is no surprise then that TEAM TVS Racing is today viewed as the numero uno of motor racing in India.

TVS Racing has been instrumental in churning out the country's best racers ever C. Vijaykumar, a 21-year-old lad from Bangalore, is a prime example of this. TVS spotted his talent two years ago in a TVS Motocross School organized in Bangalore. He was just a novice and when TVS put him through a training process and groomed him to take on the Motocross challenges and today he has become the best racer the country has ever produced. TVS believes in identifying these talents and grooming them at an early age thus making them compete in events where their real grit and talent is put to test. These racers are given state of the art training to enable them to gear up to face International competition. Presently TVS Racing team comprises 9 professional riders with most of them being ace riders in the country in various classes. MANUFACTURING EXCELLENCE Launch of 7 vehicles on the same day - Manufacturing Excellence makes this feasible At the heart of the new product launches is the Production Team, setting to motion the dream put forward by the R&D. Driven by the Five Pillars of TQM The management philosophy is based on five pillars of TQM (Total Quality Management) which rests on the foundation of Total Employee Involvement, daily management and Kaizen (Continuous improvement). The Total Employee Involvement The Total Employee Involvement program ensures that responsibility for the company's performance is the shared responsibility of all levels of employees. It provides all employees with the opportunity to be involved in breakthrough activities and other improvements, over and above their daily routine. Daily work management Daily work management consists of defining and monitoring key processes, ensuring that they meet set targets, detecting abnormalities and preventing their recurrence.

TVS Motor encourages continuous improvement in all aspects of work, using Cross Functional Teams (CFT), Supervisory Improvement Teams (SIT) Quality Control Circles (QCC) and suggestion schemes The five pillars start with policy management, which is used to arrive at the annual breakthrough objectives. There are generally not more than three company objectives, arrived at after a detailed exercise, which are deployed and reviewed periodically. The company conducts an exhaustive range of training programs, utilising both inhouse skills and consuftants from all over the world. The programs are conducted for all employees, at all levels. The Inspiration Moment When we won the Deming Prize in Quality in 2002, we were the only two wheeler manufacturer in the world to have won the award. However, our penchant for quality continues as we work in line with the principles of Kaizen (Japanese for Continuous improvement) and TQM (Total Quality Management).

TVS Motor company Ltd (TVS Motor)- member of the TVS group is the largest company of the group in terms of size and turnover. AWARDS The Deming Prize - TVS Motor Company is the only two-wheeler company in the world to be awarded the world's most prestigious and coveted recognition in Total Quality Management Technology Award 2002 from Ministry of Science, Government of India for the successful commercialization of indigenous technology for TVS Victor Emerging Corporate Giant in the Private Sector awarded by The Economic Times and the Harvard Business School Association of India. Best Managed Company award from Business Today, one of India's leading business magazines. Most Investor friendly company by Business Today, one of India's leading business The 'Good Advertising' award by Auto India Best Brand Awards 2009.

SAP ACE AWARD 2007 - The company won the SAP ACE 2007 Award for Customer Excellence in the Most Innovative Netweaver Category. TEAM TECH 2007 Award - TVS Motor Company bags TEAM TECH 2007 Award of Excellence for Integrated use of Computer Aided Engineering Technologies See full report

BOARD OF DIRECTORS

Venu Srinivasan H. Lakshmanan T. Kannan C.R. Dua K.S. Bajpai R. Ramakrishnan Prince Asirvatham

Chairman & Managing Director Director Director Director Director Director Director

Senior Management

Venu Srinivasan K.N. Radhakrishnan H.S. Goindi Harne Vinay Chandrakant S.G. Murali Finance K.S. Srinivasan

Chairman & Managing Director President & CEO President - Marketing & Sales President NPI Executive Vice President

Company Secretary

Many firsts to the Automotive Industry in India TVS has been at the forefront in bringing a revolution in the way personal commutation was happening, way back in the 1980s. Beginning with launching a simple, easy-to-use moped for the middle class in India in the 1980s to launching 7 new bikes in a single day (first time in the history of the automotive industry in the world), TVS has often taken the unbeaten path to innovation.

Ushering in the personal transportation revolution

2012 2011 2010 2009 2008

TVS Flame SR 125 Disc launched TVS Apache RTR ABS launched TVS Wego and TVS Jive launched TVS Apache RTR 180 and TVS Streak launched. TVS Flame, TVS Scooty Electric Vehicle and Three wheeler TVS King launched.

2007

Apache RTR - first two wheeler in India to have racing inspired engine and features.

2006 2004

Launched TVS Apache - first bike to win 6 awards in a row Launched the revolutionary VT-I engine for the best in class mileage in TVS Centra

2001

Launched India's first fully indigenously designed and manufactured motorcycle.

2000 1997 1996

Launched India's first 150 cc, 4 stroke motorcycle - The Fiero Introduced India's first 5 speed motorcycle, Shaolin Introduced India's first catalytic converter enabled motorcycle, the 110 cc Shogun

1994

Launched India's First indigenous scooterette (sub - 100 cc variomatic) - TVS Scooty

1984

First Indian company to introduce 100 cc Indo - Japanese motorcycles

1980

Launched TVS 50, India's first 2 seater 50 cc moped

THE PRESENT (2012-13) TVS Group Company is India's Largest Automobile ancillary manufacture group. It is one among the top 15 largest industrial group of India. 1) It is one of the largest two-wheeler company of India 2) Pioneer later introduced latest 100 CC Bikes in India 3) First to introduce Catolyte converters in two wheelers collaboration with one of the world two wheelers leaders, Suzuki Motors Co-operation of Japan. 4) First to introduce new radical style Four Stroke Scooter. 5) First to introduce a Digital CDI and Intelligent carburetor in the test Four Stroke Motor Cycle i.e., TVS FIERO. THE MAJOR PRODUCTS MOTOR CYCLES:

TVS Star TVS Star City TVS Star City Deluce TVS Star Sports TVS Fiero F2 TVS Centra TVS Victor (110 cc) TVS Victor GLX ( 125cc) TVS Victor LiDGH( 125 cc) TVS Flame (125 cc) TVS Apache (150 cc, 13.7 Ps@8500 rpm) TVS Apache RTR 160 TVS Apache RTR 160 EFI (Electronic Fuel Injection)

SCOOTERS: Spectra DX (150 cc) Spectra Ax (150 cc)

SCOOTKRE1TES: TVS Scooty IIS (60 cc) TVS Scooty KS (60 cc)

TVS Scooty Pep (75 cc) TVS Scooty Pep + (90 cc) VS Teenz

LAUNCH: 8 December 2006, Engine Volume : 65 cc, Top Speed : 70 km/h, Mileage : 4045 km/1, Colors : Black, Red, Violet. MOPEDS: TVS 50 XL (50 cc) TVS XL (60 cc) TVS XL Super (60 cc) TVS Champ (60 cc) TVS Super Champ (60 cc)

BRANCHES OF TVS BIKES NORTH ZONE: CHANDIGARH NEW DELI II JAIPUR LUCKNOW

SOUTH ZONE: BANGLORE CHENNA1 COCHIN COIMBATORE HYDERABAD KARIMANAGAR

EAST ZONE: BHUBNESHWAR KOLKATA PATNA

WEST ZONE: BARODA BHOPAL MUMBAI PUNE NAGPUR RAJKOT

RECENT PERFORMANCE TVS Motors Company February 2013 sales declined 3.7% YoY to 1,65,696 units and were below expectations. Moped sales remained flat. Motorcycle sales declined marginally while the scooter sales continued to face pressure with double digit decline. Three wheeler sales grew 57% YoY to 4,801 units. TVS Motors February 2013 sales: Two wheeler sales decline 5%, three wheelers show strong growth. TVS Motors YTD FY13 688165 720631 YTD FY12

13-Feb 12-Feb MoM(%) YoY(%) 63019 69284 36693 -5.50% 0.40% -19.30% -3.20% 0.00%

YoY(%)

Motorcycle 60985 Mopeds Scooters Total Two wheeler Three wheelers 69299 30611

777344 -11.50% 711057 1.30% 489700 -15.80%

-16.60% 412373 -4.80%

160895 168996 -6.20%

1821169 1978101 -7.90%

4801

3065

8.70%

56.60% -3.70%

44113

37514

17.60%

Overall Sales 165696 172061 -5.80%

1865282 2015615 -7.50%

PROFILE OF ADARSHA SHOWROOM

TVS Showroom in Karimnagar has been established in the year 1996 November & Physically it is located Kothirampur. In 1999 it has been taken by ADARSHA MOTORS. The proprietor of TVS showroom is Mr. Satyanarayana Goud & Manager is Mr. Anjaneyulu, Mainly the Showroom has been established for sales of two wheelers and spare parts of TVS company Bikes. TVS Showroom has been providing good services to the customers from the last 4 years. The TVS showroom has got good reputation in Karimnagar. The Showroom is located in Karimnagar town & it has all kind of good equipment for servicing. It gives response to the customers & takes good care of them. And also it is convenient to all customers.

OBJECTIVES OF TVS SHOW ROOM: The main objectives of TVS showroom are to sell TVS products. 1) Their first objectives are to improve the sales of TVS two wheeler vehicles in Karimnagar. 2) To motivate the consumers to purchase TVS two wheelers vehicles by providing promotional schemes. 3) To satisfy the customers by providing technical services. 4) Attracting the new customers by advertisements in magazines, Newspapers & Televisions etc. 5) To spread their TVS two wheelers all over the stales & everywhere. IMAGE TVS BIKES

WORKING CAPITAL MANAGEMENT

MEANING OF WORKING CAPITAL Working capital refers to short term funds to meet operating expenses. "It refers to the funds, which a company must possess to finance its day to day operations". It is concerned with the management of the firm's current assets and current liabilities. It relates to with the problems that arise in attempting to manage the current assets, current liabilities and their inter-relationship that exists between them. If a firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. Definition:1.According to Guttmann & Dougall:Working capital is defined as current assets minus current liabilities. A positive position means that a company is able to support its day-to-day operations. i.e. to serve both maturing short-term debt and upcoming operational expenses. 2. According to Park & Gladson:The excess of current assets of a business (i.e. cash, accounts receivables, inventories) over current items owned to employees and others (such as salaries & wages payable, accounts payable, taxes owned to government). Working capital like many other accounting terms and financial terms has been used by different people in different senses. One school of thought believes that, as all capital resources available to a business organization From shareholders, bondholders, and creditors (secured and unsecured) works up in the business activities to generate revenues and facilitate future expansion and growth; they are to be considered as working capital.

NEED FOR WORKING CAPITAL The need for working capital cannot be over emphasized. Every business needs some amount of working capital; the need for working capital arises due to the time gap between production and realization of cash from sales. There is an operating cycle involved in the sales and realization of cash. There are time gaps in purchase of raw materials and production; production and sales; and sales and realization of cash. Thus, working capital is needed for the following purposes. For the purchase of the raw materials, components and spares. To pay wages and salaries. To incur day to day expenses and overhead costs such as fuel, power and office expenses. To meet the selling costs as packing, advertising. To provide credit facilities to the customers. To maintain the inventories of raw materials, work in progress, stores and spares and finished stock. OBJECTIVES OF WORKING CAPITAL MANAGEMENT The objectives of Working Capital Management could be stated as To ensure optimum investment in current assets. To strike a balance between the twin objectives of liquidity and profitability in the use of funds. To ensure adequate flow of funds for current operations. To speed up the flow of funds or to minimize the stagnation of funds.

WORKING CAPITAL CYCLE:

A firm requires many years to recover initial investment in fixed assets. On contrary the investment in current asset is turned over many times a year. Investment in such current assets is realized during the operating cycle of the firm. It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing down a plughole, they remove liquidity from the business DETERMINANTS OF WORKING CAPITAL There are no set rules to determine the working capital requirements of firms. A large number of factors, each having a different importance, influence working capital needs of firms, therefore, an analysis of relevant factors should be made in order to determine total investment in working capital. The following is the description of factors, which generally influence the working capital requirements of firms. I. NATURE AND SIZE OF BUSINESS The size of business also has an important impact on its working capital needs. Size may be measured in terms of the scale of operations. A firm with large scale of

operations will need working capital than small term. The working capital requirements of a firm are basically influenced by the nature of business trading and financial firm has a very less investment in fixed assets, but require a large sum of money to be invested in working capital. 2. TECHNOLOGY AND MANUFACTURING POLICY The manufacturing cycle starts with the purchase and use of raw materials and completes with the production of finished goods. Longer the manufacturing cycle, larger will be the firm working capital requirements. An extended manufacturing time span means a larger tie-up of funds in inventories. Thus if there are alternative technologies of manufacturing a product, the technological process with the shortest manufacturing cycle may be chooses. 3. FIRMS CREDIT POLICY The credit policy of the firm affects the working capital by influencing the level of debtors. The credit term to be granted to customers may depend upon the forms of the industry to which the firm belongs. 4. AVAILABILITY OF CREDIT Creditors also affect the working capital requirements of a firm. A firm will need less working capital if liberal credit terms are available to it. 5. OPERATING EFFICIENCY The operating efficiency of the firm relates to the optimum utilization of resources at minimum costs. The firm will be effectively contributing in keeping the working capital investment at a lower level if it is efficient to controlling operating costs and utilizing current assets. The use of working capital is improved and pace of a cash conversion cycle is accelerated with operating efficiency. 6. BUSINESS FLUCTUATIONS Most firms experience seasonal and cyclical fluctuations in the demand for their products and services. This business variation effects the working capital

requirements especially the temporary working capital requirement of the firm. When there is an upward swing in the economy, sales will increase and vice-versa. 7. PRODUCTION POLICY A steady production policy will cause inventories to accumulate during the off-season periods and the firm will be exposed to greater inventory cost and risk. Thus, if the cost and risks of maintaining a constant production schedules are high, the firm may adopt the policy of varying its production schedules in accordance with the change in demand. 8. GROWTH AND EXPANSION ACTIVITIES The working capital needs of firm increases it growth in terms of sales of fixed assets. If it is difficult to precisely determine the relationship between volume of sales and the working capital needs. The critical fact however that is the need for increased working capital funds does not follow growth in business activities but precedes it 9. PROFIT MARGIN AND PROFIT APPROPRIATION Firms differ in their capacity to generate profit from business operations. Some firms enjoy a dominant position, due to quality product or good marketing management or monopoly power in the market and earn a high profit margin. Some other firms may have to operate in an environment of intense competition and may earn low margin of profits. A high net profit margin contributes towards the working capital pool. In fact the net profit is a source of working capital to the extent it has earned in cash. Working capital occupies a peculiar position in the capital structure of a company. The decision as to the adequacy of working capital is a complicated and yet a very important decision. Working capital is the life-blood of all types of enterprises, manufacturing and trading both. It is constantly required to buy raw materials for payment of wages and other day-to-day expenses. Without adequate working capital, manufacturing operations will be crippled. For trading enterprises, the capacity to stock a variety of goods for sale depends upon its working capital. It is a base on which all the activities of business enterprise depend. Many companies still under estimate the importance of working capital management as a lever for freeing up cash from inventory, accounts receivable, and accounts payable. By effectively

managing these components, companies can sharply reduce their dependence on outside funding and can use the released cash for further investments or acquisitions. This will not only lead to more financial flexibility, but also create value and have a strong impact on a companys enterprise value by reducing capital employed and thus increasing asset productivity. High working capital ratios often mean that too much money is tied up in receivables and inventories. Typically, the knee-jerk reaction to this problem is to apply the big squeeze by aggressively collecting receivables, ruthlessly delaying payments to suppliers and cutting inventories across the board. But that only attacks the symptoms of working capital issues, not the root causes. A more effective approach is to fundamentally rethink and streamline key processes across the value chain. This will not only free up cash but lead to significant cost reductions at the same time. Only those enterprises which have adequate working capital can survive in times of depression. The investment in raw materials becomes long- term investments during depression and cash flow declines due to fall in sale. In such circumstances only enterprises with adequate working capital can survive. The firm loses its reputation when it is not in a position to honour its short term obligations. As a result, the firm faces tight credit terms. It stagnates growth. Another school of thought links working capital with current assets and current liabilities. According to them, the excess of current assets over current liabilities is to be rightly considered as the working capital of a business organization. According to Shubin working capital is the amount of funds necessary to cover the cost of operating the enterprise. Working capital in a going concern is a revolving (circulating fund), it consists of cash receipts from sales which are used to cover the cost of current operations. Circulating capital means current assets of the company that are changed in the ordinary course of business from one form to another, as for example from cash to inventories, inventories to receivables and receivables to cash. Working capital is descriptive of that capital which is not fixed. But, the more common use of working capital is to consider it as the difference between the current assets and the current liabilities. Current assets and current liabilities are assets and liabilities which arise in the course of business. The WC demonstrates the amount of liquid assets that are

available to sustain and build the business by measuring companys efficiency and short-term financial health. As such, it carries great value to those who might be interested in investing in business or even purchasing it.Working capital, also known as net working capital, is a measurement of a businesss current assets, after subtracting its short-term liabilities, typically short term. Sometimes referred to as operating capital, it is a valuation of the assets that a business or organization has available to manage and build the business. Generally speaking, companies with higher amounts of working capital are better positioned for success because they have the liquid assets that are essential to expand their business operations when required. Characteristics of Working Capital Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business can run successfully with out an adequate amount of working capital. The features of working capital distinguishing it from the fixed capital are as follows: 1 Short term Needs: Working capital is used to acquire current assets which get converted into cash in a short period. In this respect it differs from fixed capital which represents funds locked in long term assets. The duration of the working capital depends on the length of production process, the time that elapses in the sale and the waiting period of the cash receipt. 2 Circular Movement: Working capital is constantly converted into cash which again turns into working capital. This process of conversion goes on continuously. The cash is used to purchase current assets and when the goods are produced and sold out; those current assets are transformed into cash. Thus it moves in a circular away. That is why working capital is also described as circulating capital.

An Element of Permanency: Though working capital is a short term capital, it is required always and

forever. As stated before, working capital is necessary to continue the productive activity of the enterprise. Hence so long as production continues, the enterprise will constantly remain in need of working capital. The working capital that is required permanently is called permanent or regular working capital. 4 An Element of Fluctuation: Though the requirement of working capital is felt permanently, its requirement fluctuates more widely than that of fixed capital. The requirement of working capital varies directly with the level of production. It varies with the variation of the purchase and sale policy; price level and the level of demand also. The portion of working capital that changes with production, sale, price etc. is called variable working capital. 5 Liquidity: Working capital is more liquid than fixed capital. If need arises, working capital can be converted into cash within a short period and without much loss. A company in need of cash can get it through the conversion of its working capital by insisting on quick recovery of its bills receivable and by expediting sales of its product. It is due to this trait of working capital that the companies with a larger amount of working capital feel more secure. 6 Less Risky: Funds invested in fixed assets get locked up for a long period of time and can not be recovered easily. There is also a danger of fixed assets like machinery getting obsolete due to technological innovations. Hence investment in fixed capital is comparatively more risky. As against this, investment in current assets is less risky as it is a short term investment. Working capital involves more of physical risk only, and that too is limited. Moreover, working capital gets converted into cash again and again; therefore, it is free from the risk arising out of technological changes.

Special Accounting System not needed: Since fixed capital is invested in long term assets, it becomes necessary to

adopt various systems of estimating depreciation. On the other hand working capital is invested in short term assets which last for one year only. Hence it is not necessary to adopt special accounting system for them. Among the most important items of working capital are levels of inventory, accounts receivable, and accounts payable. Working capital can be expressed as a positive or a negative number. When a company has more debts than current assets, it has negative working capital; When current assets outweigh debts, a company has positive working capital. A company will try to manage cash by: Identifying the cash balance that allows it to meet day-to-day expenses but minimizes the cost of holding cash; Finding the level of inventory that allows for continuous production but lessens the investment in raw materials and reduces reordering costs; Identifying the appropriate source of financing, given the cash-conversion cycle. It may be necessary to use a bank loan or overdraft. However, inventory is preferably financed by credit arranged with the supplier. If a company is not operating efficiently, this will show up as an increase in the working capital. This can be judged by comparing the amounts of working capital from one period to another. Slow collection and inventory turnover may signal an underlying problem in the companys operations. Advantages Proper management of working capital gives a firm the assurance that it is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short term debt and upcoming operational expenses.

Disadvantages If a companys current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. A declining working-capital ratio over a longer time period could also be a red flag that merits further analysis. For example, it could be that the companys sales volumes are decreasing and, as a result, its accounts receivable are diminishing. FACTORS INFLUENCING WORKING CAPITAL Need of Working Capital Working capital is among the many important things that contribute to the success of a business. Without it, a business may cease to function properly or at all. Not only does a lack of working capital render a company unable to build and grow, but it may also leave a company with too little cash to pay its short-term obligations. Simply put, a company with a very low amount of working capital may be at risk of running out of money. When a company has too little working capital, it can face financial difficulties and may even be forced toward bankruptcy. This is true of both very small companies and billion-dollar organizations. A company with this problem may pay creditors late or even skip payments. It may borrow money in an attempt to remain afloat. If late payments have affected the companys credit rating, it may have difficulty obtaining a loan at an affordable interest rate. The need for working capital gross or current assets cannot be over emphasized. As already observed, the objective of financial decision making is to maximize the shareholders wealth. To achieve this, it is necessary to generate sufficient profits can be earned will naturally depend upon the magnitude of the sales among other things but sales can not convert into cash. There is a need for working capital in the form of current assets to deal with the problem arising out of lack of immediate realization of cash against goods sold. Therefore sufficient working capital

is necessary to sustain sales activity. Technically this is refers to operating or cash cycle. Concept of Working Capital There are two concepts of working capital: 1. Gross working capital 2. Net working capital 1. Gross Working Capital The gross working capital is the capital invested in the total current assets of the enterprises. Current assets are those Assets which can convert in to cash within a short period normally one accounting year. Constituents of Current Assets: Current assets are assets which are expected to be sold or otherwise used within one fiscal year. Typically, current assets include cash, cash equivalents, accounts receivable, inventory, prepaid accounts which will be used within a year, and short-term investments. a) Cash in hand and cash at bank b) Bills receivables/Sundry debtors c) Short term loans and advances. d) Inventories of stock as: Raw material Work in process Stores and spares Finished goods e) Temporary investment of surplus funds. f) Prepaid expenses g) Accrued incomes. h) Marketable securities.

2. Net Working Capital In a narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of current assets over current liability NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES. Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors, bills payable and outstanding expenses. Net working capital can be positive or negative Constituents of Current liabilities Current liabilities are considered as liabilities of the business that are to be settled in cash within the fiscal year. Current liabilities include accounts payable for goods, services or supplies, short-term loans, long-term loans with maturity within one year, dividends and interest payable, or accrued liabilities such as accrued taxes. 1. Accrued or outstanding expenses. 2. Short term loans, advances and deposits. 3. Dividends payable. 4. Bank overdraft. 5. Provision for taxation, if it does not amount to appropriation of profit. 6. Bills payable. 7. Sundry creditors. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Both the concepts have their own merits.

The gross concept is sometimes preferred to the concept of working capital for the following reasons: 1. It enables the enterprise to provide correct amount of working capital at correct time. 2. Every management is more interested in total current assets with which it has to operate then the source from where it is made available. 3. It take into consideration of the fact every increase in the funds of the enterprise would increase its working capital. 4. This concept is also useful in determining the rate of return on investments in working capital. The net working capital concept, however, is also important for following reasons: i. It is qualitative concept, which indicates the firms ability to meet to its operating expenses and short-term liabilities. ii. iii. iv. IT indicates the margin of protection available to the short term creditors. It is an indicator of the financial soundness of enterprises. It suggests the need of financing a part of working capital requirement out of the permanent sources of funds. Working capital, on the one hand, can be seen as a metric for evaluating a companys operating liquidity. A positive working capital position indicates that a company can meet its short-term obligations. On the other hand, a companys working capital position signals its operating efficiency. Comparably high working capital levels may indicate that too much money is tied up in the business. The most important positions for effective working capital management are inventory, accounts receivable, and accounts payable. Depending on the industry and business, prepayments received from customers and prepayments paid to suppliers may also play an important role in the companys cash flow. Excess cash and no operational items may be excluded from the calculation for better comparison.

Classification of Working Capital Working capital may be classified in to ways: On the basis of concept. On the basis of time.

On the basis of concept working capital can be classified as gross working capital and net working capital. On the basis of time, working capital may be classified as: Permanent or fixed working capital. Temporary or variable working capital

A-Permanent OR Fixed Working Capital The operating cycle is a continuous feature in almost all the going concerns and therefore creates the need for working capital and their efficient management. However the magnitude of working capital required will not be constant, but will fluctuate. At any time, there is always a minimum level of current assets which is constantly and continuously required by a business unit to carry on its operations. This minimum amount of current assets, which is required on a continuous and uninterrupted basis, is after referred to as fixed or permanent working capital. This type of working capital should be financed (along with other fixed assets) out of long term funds of the unit. However in practice, a portion of these requirements also is met through short term borrowings from banks and suppliers credit. Permanent Working Capital The amount of current assets required to meet a firms long-term minimum needs are called Permanent current assets. For e.g., In a manufacturing unit, basic raw materials required for production has to be available at all times and this has to be financed without any disturbance.

B-Temporary OR Variable Working Capital Any amount over and above the permanent level of working capital is variable, temporary or fluctuating working capital. This type of working capital is generally financed from short term sources of finance such as bank credit because this amount is not permanently required and is usually paid back during off season or after the contingency. As the name implies, the level of fluctuating working capital keeps on fluctuating depending on the needs of the unit unlike the permanent working capital which remains constant over a period of time. The Temporary or Variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as Seasonal Working Capital and Special Working Capital. The capital required to meet the seasonal need of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc. Temporary working capital differs from Permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business.

RATIO ANALYSIS a) Current ratio It defines the relationship between current assets and current liabilities. It is also known as Working capital ratio. It is calculated by dividing the total of current assets by total of the current liabilities. It measures the general liquidity position and is most widely used to make the analysis of short term financial position (or) liquidity of firm. Current Assets Current liabilities

Current ratio

Current ratio = Current Assets Current Liabilities Current Assets include cash, marketable securities, bills receivable, sundry debtors, inventories, prepaid expenses, work in progress etc., Current Liabilities include outstanding expenses, bills payable, sundry creditors, dividend payable, income tax payable, short term advances and bank over draft etc., b) Liquid ratio or acid test or quick ratio Quick ratio also known as acid test ratio (or) liquid ratio is a more rigorous of liquidity than the current ratio. The term liquidity refers to the ability of a firm to pay its short term obligations as and when they become due. Quick Assets Liquid Ratio = Current Liabilities Quick assets = Current assets (Inventories (or) Stock + Prepaid Expenses)

c) Super quick ratio Quick Assets Quick Liabilities Quick Liabilities = Current Liabilities Bank overdraft

Super Quick Ratio

d) Working capital turnover ration Net sales Working Capital turnover ratio = Working capital e) inventory turnover ratio: Meaning: This Ratio establishes a relationship between Cost of goods sold or sales and average inventory. Components: 1. Sales or Cost of Goods Sold. 2. Average Inventory (average of opening closing balance of inventory). Computation: This ratio is computed by dividing the sales or COGS by average inventory. Formula: Cost of goods sold Inventory turnover Ratio = -------------------------Average inventory OR Sales Inventory turnover ratio = ----------------------Inventory

f) Working capital turnover ratio: Meaning: This ratio establishes a relationship between net sales and working capital. Components: 1. Net sales (Gross sales - sales returns) 2. Working capital (CA - CL) Computation: This ratio is computed by dividing the net sales by the net working capital Formula: Net sales Working capital Turnover Ratio = -----------------------Working capital g) current assets turnover ratio: Meaning: This ratio establishes a relationship between net sales and current assets. Components: 1. Net sales (Gross sales - sales returns) 2. Current assets. Formula: Net sales current assets Turnover Ratio = ------------------------Current assets