Professional Documents
Culture Documents
Summer T in Hindalco
Summer T in Hindalco
ON
“WORKING CAPITAL MANAGEMENT”
CERTIFICATE OF ORIGINALITY
I hereby declare that this Summer Internship Project is my own work and that, to the best of
my knowledge and belief, it reproduces no material previously published or written that has
been accepted for the reward of any other degree or diploma, except where due
acknowledgment has been made in the text.
(Signature)
Roll No : 2012111
Batch : 2012-14
Date:
Page 2 of 82
Working Capital Management of Hindalco Industries
Limited
CERTIFICATE
This is certify that Mr. PRATYUSH KUMAR DUBEY, PGDM (2012-14) batch a student
of Institute of Technology & Science, Mohan Nagar Ghaziabad has undertaken the project on
―WORKING CAPITAL MANAGEMENT‖. The survey, data collection & analysis work for
preparing the project has been carried out by the student in the partial fulfillment of the
requirements for the award of PGDM, under my guidance and supervision.
(Signature)
Date :
Page 3 of 82
Working Capital Management of Hindalco Industries
Limited
ACKNOWLEDGEMENT
In an organization, is it an industry, a school or society, no outcomes can be achieved by one
man working in isolation. It‘s always a group working and achieving the outcome in totality.
It is the outcome of all the guidance and support that I received from this organization. This
project has been an endeavor to integrate my knowledge, skill and ability in the pursuit of
excellence in my chosen fields. I would take this opportunity to acknowledge a debt of deep
gratitude to many people for their valuable assistance and continuous support during the
course of my summer Internship Program. I convey my sincere thanks to Mr. S.K.Das,
General Manager (Training and Development) for allowing pursuing summer training in this
prestigious organization. I am also thankful to Mr. Ajay Joshi, Vice president (Finance &
Accounts), and other members of the accounts department for providing necessary help
whenever required for the completion of the project. I am thankful to our guide Mr. Vimal
Raheja, Senior Manager (Finance & Accounts), for his valuable guidance and his precious
time he develop for mentoring us, without which this project would not have been successful.
I sincerely express my thanks to my Finance faculty Prof. Mayank kumar for his valuable
guidance and intellectual suggestions during this project. I also express my sincere
thankfulness to my mentor Dr. Vikas Saxena for his kind advice, suggestions and constant
help in a lot of various ways during project course. I would be failing in my duty if I don‘t
express my profound gratitude to the entire respondent who has spent their valuable time to
answer the questionnaire. Last but not the least; I would also like to expand my thanks to my
parents and family and all faculty members of Institute of Technology and Science,
Ghaziabad, who have helped a lot during the course of my project. I am also thankful to the
librarian for allowing us access to valuable journals and reports which gave life-blood to our
project.
Page 4 of 82
Working Capital Management of Hindalco Industries
Limited
PREFACE
The report has been intended to reflect some of the basic issue covered under the ―Working
Capital Management‖ of Hindalco Industries Ltd., a first truly MNC in India. All the aspects
have been formulated and presented on the basis of the idea and information gathered by the
investigator during the span of project training. This gives a practical exposure of the content,
under topic what has already been studied in the classroom in theoretical form.
This report has been written in response to comprehensive study conducted on the topic. The
reports mentions and evaluate various aspects, pertaining to the working capital management
of the company.
After the thorough analysis of various facts and stand figures, a set of conclusion has been
given the prime consideration, while compiling the report and are authoritative and authentic.
I make sure that anyone who goes through the report will learn how much we have learn so
for, and can get the benefit of the same.
Page 5 of 82
Working Capital Management of Hindalco Industries
Limited
EXECUTIVE SUMMARY
This project has been great learning experience for me; at the same time it given me enough
scope to implement my analytical ability. This project as a whole can be divided into two
parts:
1. The first part gives an insight about the working capital and its various aspects. It is
purely based on whatever I learn at HINDALCO INDUSTRIES LTD. One can have
a brief knowledge about working capital and all its basic through the project. All the
topics have been covered in a very systematic way. The language has been simple so
that even a layman could understand. All the data‘s have been well analyzed with the
help of charts and graphs.
2. The second part consist of data‘s and their analysis, it covers the topic ―Management
of Working Capital‖. The data has well organized and presented. Hope the research
findings and conclusion will be of use.
3. The research is conducted by the use of financial reports (Annual report) of the
company. The data is secondary and is made available by the organization for
conducting the research.
Page 6 of 82
Working Capital Management of Hindalco Industries
Limited
TABLE OF CONTENT
CONTENT PAGE NO.
ABOUT ADITYA BIRLA 8
ABOUT HINDALCO 12
PRODUCTION CAPACITY 17
MANAGEMENT TEAM 19
HISTORY 22
MILESTONES 23
SWOT ANALYSIS 26
WCM LITERATURE 29
RESEARCH METHODOLOGY 50
ANALYSIS OF WCM 51
WORKING CAPITAL TURNOVER 54
DEBTORS MANAGEMENT 56
CREDITORS MANAGEMENT 59
INVENTORY MANAGEMENT 60
CASH MANAGEMENT 63
SUBSEQUENT OBSERVATIONS 70
RATIO ANALYSIS 75
FINDINGS 80
RECOMMENDATIONS 81
BIBLIOGRAPHY 82
ANNEXURE i - iii
Page 7 of 82
Working Capital Management of Hindalco Industries
Limited
Over 53 per cent of its revenues flow from its overseas operations. The Group operates in 36
countries – Australia, Austria, Bangladesh, Brazil, Canada, China, Egypt, France, Germany,
Hungary, India, Indonesia, Italy, Ivory Coast, Japan, Korea, Laos, Luxembourg, Malaysia,
Myanmar, Philippines, Poland, Russia, Singapore, South Africa, Spain, Sri Lanka, Sweden,
Switzerland, Tanzania, Thailand, Turkey, UAE, UK, USA and Vietnam.
Globally
A metals powerhouse among the world‘s most cost efficient Alluminium and copper
producers. Hindalco–Novelis from its fold in fortune 500 company. Aluminium
rolling company.
It ranks as No.1 in viscose staple fibre
The largest single location palm oil producer
The third largest producer of insulators
The third largest producer of carbon black
The eleventh largest producer of cement and the largest in single geography
The largest single location copper smelter
Among the world‘s top 15 BPO‘s and among India‘s top three
Among the best energy efficient fertilizer plants
In ASIA
Page 8 of 82
Working Capital Management of Hindalco Industries
Limited
IN INDIA
GROUP VISION
―To be the premium metals major, global in size and reach, with a passion for
excellence‖
GROUP MISSION
―To relentlessly pursue the creation of superior shareholder value by exceeding
customer expectations profitability, unleashing employee potential and being a
responsible corporate citizen adhering to our values.‖
GROUP VALUES
―Integrity, Commitment, Passion, Seamlessness, Speed‖
Page 9 of 82
Working Capital Management of Hindalco Industries
Limited
A metals powerhouse, among the world's most cost-efficient aluminium and copper
producers. Hindalco-Novelis is the largest aluminium rolling company. It is one of the
three biggest producers of primary aluminium in Asia, with the largest single location
copper smelter.
No.1 in viscose staple fibre.
No.1 in carbon black.
The fourth-largest producer of insulator.
The fifth-largest producer of acrylic fibre.
Among the top 10 cement producers.
Among the best energy-efficient fertilizer plants.
The largest Indian MNC with manufacturing operations in the USA.
Page 10 of 82
Working Capital Management of Hindalco Industries
Limited
Rock solid in fundamentals, the Aditya Birla Group nurtures a culture where success does
not come in the way of the need to keep learning afresh, to keep experimenting.
IN INDIA:
The Aditya Birla Group runs 42 schools across India – providing quality education to
45,000 children including 18,000 students from the underprivileged segment. Merit
scholarships are given to an additional 8,500 children from the interiors
Its 18 hospitals tend to more than a million villagers
In line with its commitment to sustainable development, the Group has partnered
with the Columbia University in establishing the Columbia Global Centre's Earth
Institute in Mumbai
To embed CSR as a way of life in organizations, the Group has set up of the FICCI –
Aditya Birla CSR Centre for Excellence, in Delhi
Page 11 of 82
Working Capital Management of Hindalco Industries
Limited
Page 12 of 82
Working Capital Management of Hindalco Industries
Limited
VISION
―To strengthen our position as a premium Aluminium company, sustaining Domestic
Leadership and Global Competitiveness through Innovation, Quality and Value Added
Growth‖
MISSION
―To pursue the creation of value for our Customers, Shareholders, Employees and society at
large‖
STRATEGY
Efficiency Focus: - ―To be one of the largest cost producers globally.‖
QUALITY POLICY
We, at Hindalco, shall aim to achieve and sustain excellence in all our activities.
We are committed to total customer satisfaction by providing products and services,
which meet or exceed the customer‘s expectations.
Modernization of the manufacturing facilities, stress on technological innovation and
training of employees at all levels shall be a continuous process in Hindalco.
A motivated workforce with a sense of pride in the organization shall lead us towards
total quality.
Page 13 of 82
Working Capital Management of Hindalco Industries
Limited
Established in 1958, they commissioned their aluminium facility at Renukoot in Eastern Uttar
Pradesh, India in 1962. Later merger and acquisitions, with Indal, Birla copper and the Nifty
and Mt. Gordan copper mines in Australia, strengthened their position in value-added
alumina, aluminium and copper products.
The acquisition of Novelis Inc. In 2007 positioned them among the top five aluminium
majors worldwide and the largest vertically integrated aluminium company in India. Today
they are a metal powerhouse with high-end rolling capabilities and a global footprint in 13
countries. The consolidated turnover of USD 15.85 billion (Rs. 72,078 crore) places them in
the Fortune 500 league.
Hindalco is one of the leading producers of aluminium and copper. Its aluminium units across
the globe encompass the entire gamut of operations, from bauxite mining, alumina refining
and aluminium smelting to downstream rolling, extrusions, foils, along with captive power
plants and coal mines.
Copper unit, Birla Copper, produces copper cathodes, continuous cast copper rods and other
By-products, such as gold, silver and DAP fertilizers.
Primary Aluminium
Alumina Chemicals
Wire Rods
Rolled Products
Alloy Wheels
Foils
The various Copper products manufactured by the Hindalco Industries are:
Copper Cathodes
Precious Metals
Rods of Cast Copper
Page 14 of 82
Working Capital Management of Hindalco Industries
Limited
ALUMINIUM
Hindalco's major products include standard and specialty
grade alumina and hydrates, aluminium ingots, billets,
wire rods, flat rolled products, extrusions and foil.
A strong presence across the value chain and synergies between operations has given us a
dominant share in the value-added products market. As a step towards expanding the market
for value-added products and services, we have launched various brands in recent years —
ever last roofing sheets, Freshwrapp kitchen foil and Freshpakk semi-rigid containers.
COPPER
Birla Copper, Hindalco‘s copper unit, is located at Dahej
in Gujarat, India. The unit has the unique distinction of
being the largest single-location copper smelter in the
world. The smelter uses state-of-the-art technology and has
A capacity of 500,000 TPA. Birla Copper also produces precious metals, fertilizers
and sulphuric and phosphoric acid. The unit has captive power plants for continuous
power generation and a captive jetty to facilitate logistics and transportation.
Birla Copper upholds its longstanding reputation for quality copper cathodes and
continuous cast copper rods by assuring its management processes meet the highest
standards. It has acquired certifications such as ISO-9001:2000 (Quality Management
Systems), ISO-14001:2004 (Environmental Management System) and OHSAS-
18001:2007 (Occupational Health and Safety Management Systems).
Page 15 of 82
Working Capital Management of Hindalco Industries
Limited
MINES
Hindalco acquired two Australian copper mines, Nifty and Mt. Gordon, in 2003. The Birla
Nifty copper mine consists of an underground mine, heap leach pads and a solvent extraction
and electro winning (SXEW) processing plant, which
produces copper cathode.
Both Nifty and Mt. Gordon have a long-term life of mine off-take agreement with Hindalco
for supply of copper concentrate to the copper smelter at Dahej.
PRODUCTION CAPACITY
ALUMINA
700000 TPA RENUKOOT
350000 TPA BELGAUM
450000 TPA MURI
Page 16 of 82
Working Capital Management of Hindalco Industries
Limited
ALUMINIUM
345000 TPA RENUKOOT
161400 TPA HIRAKUD
EXTRUSIONS
230000 TPA RENUKOOT
8000 TPA ALUPURAM
REDRAW RODS
56400 TPA RENUKOOT
CAPTIVE POWER
742 MW RENUKOOT
638 MW HIRAKUD
84 MW RENUKOOT COGEN
30 MW MURI
Page 17 of 82
Working Capital Management of Hindalco Industries
Limited
MANAGEMENT TEAM
Page 18 of 82
Working Capital Management of Hindalco Industries
Limited
BOARD OF DIRECTORS
Mr. Kumar Mangalam Birla, Chairman
Mrs. Rajashree Birla
Mr. C. M. Maniar
Mr. M. M. Bhagat
Mr. K. N. Bhandari
Mr. A. K. Agarwala
Mr. N. J. Jhaveri
Mr. Ram Charan
Mr. Jagdish Khattar
Mr. D. Bhattacharya, Managing Director
Mr. M. Damodaran
COMPANY SECRETARY
Mr. Anil Malik
NOVELIS INC.
Mr. Philip Martens, President and Chief Executive Officer
Page 19 of 82
Working Capital Management of Hindalco Industries
Limited
GENERAL MANAGER
SENIOR MANAGER
DEPUTY MANAGER
ASSISTANT MANAGER
ACCOUNTS OFFICER
ASSIST.ACCOUNTS OFFICER
ASSISTANT
HINDALCO INDUSTRIES MANUFACTURING UNIT,
Page 20 of 82
Working Capital Management of Hindalco Industries
Limited
RENUKOOT
Renukoot plant was commissioned in 1962, with one pot line and a smelter of 20,000 TPA
capacities. Over the years the plant has increased its capacity through various Brownfield
expansions and asset sweating measures. Today Hindalco, at Renukoot operates the
aluminium value chain from bauxite mining, alumina facility houses a 700,000 tpa alumina
refinery and a 345,000 tpa aluminium smelter along with facilities for production of semi-
fabricated products namely conductor redraw rods, sheet and extrusions. In 1967 Hindalco
established a captive power plant at Renusagar, the first captive power plant (CPP) for
aluminium industry in India. This along with a co-generation power unit ensures continuous
supply of power for the smelter and other operations. Renukoot has earned the Integrated
Management System (IMS) certification combining quality, environment and occupational
health and safety into one business excellence model. The sprawling 1056 acre Renukoot
complex located near the Rihand Dam, 160 Kms from the city of Varanasi, includes
beautifully landscaped gardens with residential colony cum mini township for management
and staff members, a full-fledged hospital for employees and the community around along
with schools, clubhouses, banks, sports and cultural facilities, supermarkets and the
Renukeshwar Mahadev Temple. As a responsible corporate citizen Hindalco Renukoot‘s
Community Development Cell plays a leading and exemplary role in social projects on health
care, women‘s empowerment, education, and sustainable livelihood schemes and espouses
social causes. Hindalco Renukoot‘s CSR cell has taken up various innovative rural
development projects in 385 neighbouring villages around its operating sites in the states of
Uttar Pradesh, Jharkhand and Chhattisgarh. These social projects are carried out under the
aegis of Aditya Birla Centre for Community Initiatives and Rural Development spearheaded
by Mrs. Rajshree Birla.
Page 21 of 82
Working Capital Management of Hindalco Industries
Limited
HISTORY
The Hindalco story dates back to the young Indian democracy of the 1950s. Ready to take a
giant leap, India was geared to make it big, especially in terms of innovation and
industrialization. Hindalco embarked on its journey in 1958. Its first real contribution to the
vision of an industrial India occurred four years later, when the visionary – late Mr. G.D.Birla
set up India‘s first integrated aluminium facility at Renukoot, in the eastern fringe of Uttar
Pradesh, India. It was backed by a captive thermal power plant at Renusagar in 1967.
Hindalco attained its leadership position in the aluminium industry under the dynamic
leadership of the late Mr. Aditya Vikram Birla – a formidable force in the Indian industry.
And it was through the vision and guidance of Mr. Kumar Mangalam Birla, the Group
Chairman that the business segments of aluminium and copper are consolidated to make
Hindalco the non-ferrous metals powerhouse it is today. This was achieved in part by
expansion through mergers and acquisitions with companies such as Indal and Birla Copper.
Hindalco also secured copper reserves and amplified its operating base by acquiring the
Australian Nifty and Mt. Gordon copper mines. Over the years Hindalco has grown into the
largest vertically integrated aluminium company in the country and among the largest
primary producers of aluminium in Asia. Its copper smelter is today the world‘s largest
custom smelter at a single location. In 2007, the landmark acquisition of Novelis Inc, the
world‘s largest aluminium rolling company, placed Hindalco‘s footprint across the globe,
securing it a rank amongst the top five global aluminium majors and also placing it in the
Fortune 500 league.
Page 23 of 82
Working Capital Management of Hindalco Industries
Limited
Page 24 of 82
Working Capital Management of Hindalco Industries
Limited
Handles Cans
Page 25 of 82
Working Capital Management of Hindalco Industries
Limited
SWOT ANALYSIS
STRENGTH
Global brand image.
Cost effective producer.
Sound financial position.
A high degree quality consciousness is the core competence of the company,
ISO 9001 and ISO 14001 have added more prestige to the company.
Integrated production facility at Renusagar Power Plant.
Company has a well-established distribution network, covering a
geographically wide and scattered market.
A number of Brownfield & Greenfield Projects.
Industrial peace as, there has been no major strike in last 22 year.
A well focused human resources development.
Serve maximum customer satisfaction.
WEAKNESS
Present production capacity is not adequate to meet the rising high demand.
Technology is not upgraded to mark as compare to global giants in aluminium
industry.
OPPORTUNITY
R & D collaboration with universities and another research organisation.
More emphasis on downstream production of value added products.
Recycling should be adopted as routine production.
Raising more finance from marketing for more acquisition and merger for
consolidating position in the global market.
Aluminium, continuous to be strong with a growth in transportation sector
16%, Construction 15%, passenger car 25%, two wheeler segments 14%
respectively.
THREATS
Page 26 of 82
Working Capital Management of Hindalco Industries
Limited
Page 27 of 82
Working Capital Management of Hindalco Industries
Limited
WORKING
CAPITAL
MANAGEMENT
Page 28 of 82
Working Capital Management of Hindalco Industries
Limited
WORKING CAPITAL
Every business needs investment to procure fixed assets, which remain in use for a longer
period. Money invested in these assets is called ‗long term funds‘ or ‗fixed capital‘.
Business also needs funds for short-term purposes to finance current operations. Investment
in short term assets like cash, inventories debtors etc. is called ‗short term funds‘ or ‗working
capital‘.
The working capital is categorized as fund needed for carrying out day-to-day operations of
the business smoothly. The management of the working capital is equally important as the
management of long term financial investment.
Every running business needs working capital. Even a business which is fully equipped with
all types of fixed assets required is bound to collapse without-
The business will not be able to carry on day-to-day activities without the availability of
adequate working capital.
Working capital, also known as net working capital, is a financial metric which represents
operating liquidity available to a business.
Along with fixed assets such as plant and equipment, working capital is considered a part of
operating capital. It is calculated as current assets minus current liabilities. if current assets
are less than current liabilities, an entity has a working capital deficiency, also called as
working capital deficit.
Page 29 of 82
Working Capital Management of Hindalco Industries
Limited
A company can be endowed with assets and profitability but short of liquidity if its assets
cannot readily be converted into cash. Positive working capital is required to ensure that a
firm is able to continue its operations and that it has sufficient funds to satisfy both maturing
short-term debt and upcoming operational expenses. The management of working capital
involves managing inventories, accounts receivables and payable and cash.
CALCULATIONS
Current assets and current liabilities include three accounts which are of special
importance. These accounts represent the areas of business where the managers have the most
direct impact-
The current portion of debt (payable within 12 months) is critical, because it represent a short
term claim to current assets and is often secured by long term assets. Common types of short-
term debts are bank loans and lines of credit.
An increase in working capital indicates that the business has either increased current assets
(that is received cash, or other current assets) or has increased current liabilities, for example
paid off some short-term creditors.
CURRENT ASSETS- this is any cash or assets that can be quickly turned into
cash. This includes prepaid expenses, accounts receivables, most securities and your
inventory.
Page 30 of 82
Working Capital Management of Hindalco Industries
Limited
Raw material
Work in process
Stores and spares
Finished goods
Coal and fuel
Temporary investments of surplus funds
Prepaid expenses
Accrued expenses
Bills payable
Sundry creditors or accounts payable
Short term loans, advances & deposits.
Dividend payable
Bank overdraft
Provision for taxation, if it does not amount to appropriation of profits
IMPLICATION ON M & A-
The common commercial definition of working capital for the purpose of a working capital
adjustment in an M & A transaction (i.e. For a working capital adjustment mechanism is a
sale and purchase agreement) is equal to-
Page 31 of 82
Working Capital Management of Hindalco Industries
Limited
DECISION CRITERIA
By definition, working capital management entails short term decisions- generally related to
next one year period- which are ―reversible‖. These decisions are therefore not taken on the
same basis as capital investment decisions (NPV or related, as above) rather they will be
based on cash flows and/or profitability.
One measure of cash flow is provided by the cash conversion cycle- the net number of
days from the outlay of cash for raw material for receiving payment from the
customers. As a management tool this metric makes explicit the inter-relatedness of
decision relating to inventories, accounts receivables and payables and cash. Because
this number effectively corresponds to the time that the firm‘s cash is tied up in
operations and unavailable for other activities, management generally aims at a low
net count.
In this context, the most useful measure of profitability is return on capital (ROC).
The result is shown as a percentage, determined by dividing relevant income for the
12 months by capital employed; return on equity (ROE) shows this result for the
firm‘s shareholders. Firm value is enhanced when, and if, the return on capital, which
results from working capital management, exceeds the cost of capital, which results
from capital investments decisions as above. ROC measures are therefore useful as a
management tool, in that they link short-term policy with long-term decision making.
See economic value added (EVA).
Page 32 of 82
Working Capital Management of Hindalco Industries
Limited
CASH MANAGEMENT- Identify the cash balance which allows for the
business to meet day to day expenses, but reducing cash holdings costs.
INVENTORY MANAGEMENT- Identify the level of inventory which
allows for uninterrupted production but reduces the investment in raw materials- and
minimizes reordering costs- and hence increases cash flows; see supply chain
management; just in time (JIT); economic order quantity (EOQ); Economic
production quantity.
DEBTORS MANAGEMENT- Identify the appropriate credit policy, i.e. credit
terms which will attract customers, such that any impact on cash flows and the cash
conversion cycle will be offset by increased revenue and hence return on capital (or
vice versa) see discount and allowances.
CREDITORS MANAGEMENT- Accounts payable is money owed by a
business to its suppliers shown as a liability on a company's balance sheet. It is
distinct from notes payable liabilities, which are debts created by formal legal
instrument documents.
Page 33 of 82
Working Capital Management of Hindalco Industries
Limited
Classification of working
capital
Page 34 of 82
Working Capital Management of Hindalco Industries
Limited
The gross working capital concept focuses attention on two aspects of current assets
management-
Page 35 of 82
Working Capital Management of Hindalco Industries
Limited
negative NWC means a negative liquidity, which may prove to be harmful to company‘s
reputation. It poses a threat on the company solvency and makes it unsafe and unsound.
Page 36 of 82
Working Capital Management of Hindalco Industries
Limited
Page 37 of 82
Working Capital Management of Hindalco Industries
Limited
Page 38 of 82
Working Capital Management of Hindalco Industries
Limited
The duration or time required to complete the sequence of events right from purchase of raw
materials / goods for cash to the realization of sales in cash is called the Working Capital
Cycle.
During this cycle, capital converted from one form to another form such as cash----------raw
material----------finished goods----------debtors or bill receivable----------cash.
Working capital cycle also called circulating capital. The speed with which the working
cycle completes one cycle determines the requirements of working capital. Longer the cycle
larger is the requirement of working capital.
Page 39 of 82
Working Capital Management of Hindalco Industries
Limited
PRODUCTION CYCLE
Production cycle is concern with procurement of raw materials to the completion of
manufacturing process leading to the production of finished goods. Funds have to be
necessarily ties up during the process of manufacturing necessitating enhanced to working
capital. The long time span production cycle will be longer span of time, therefore larger
working capital needed.
The production cycle of HINDALCO industries ltd. is near about 30 days. It breaks up in
following ways-
Total = 30 days
Page 40 of 82
Working Capital Management of Hindalco Industries
Limited
PRODUCTION POLICY
A production policy also determines the quantum of working capital. Production policy may
be of two types-
CREDIT POLICY
Credit policy is relating to sales and purchase of product, which also affect the working
capital. The policies influence the requirement of working capital in two ways-
The prevailing trade policies are as well as the changing economic condition affect the credit
terms fixed by an enterprise. In Hindalco credit period are as follows-
Page 41 of 82
Working Capital Management of Hindalco Industries
Limited
PROFIT LEVEL
In the Hindalco maximum working capital is arranged by the internal source. So the change
of profit level does not affected by the working capital level.
The implication of changing price level on working capital position varies from company to
company depending on the nature of its operations, standing in the market and their relevant
considerations.
Change in the price level of crude oil also make a deep impact on working capital of Indian
industries, so it‘s also affect the working capital of Hindalco Industries.
Page 42 of 82
Working Capital Management of Hindalco Industries
Limited
OPERATING EFFICIENCY
The operating efficiency of the management is also an important determinant of the level of
working capital, though management cannot control rise in price, it can ensure the efficient
utilization of resources by eliminating waste, improving co-ordination etc. Efficiency of
operations accelerates the pace of cash cycle and improves the working capital turnover.
Since working capital is the excess of current assets over current liabilities, estimating
amount of different constituents of working capital can makes an assessment of working
capital requirement. For example, inventories, account receivables, cash, debtors, creditors
etc.
1. Inventories: - The average amount of raw material to be kept in stock will depend
upon quality of raw material required for production during a particular period and average
time taken in obtaining fresh delivery. Suitable adjustment may have to be made for
incontinency and seasonal factor. It can be calculated by following formula :
Page 43 of 82
Working Capital Management of Hindalco Industries
Limited
3. Finished Goods: - The period for which finished goods have to remain in the
warehouse before is an important factor determining the amount locked up in finished
goods. It summed up as:
Budget Production × cost of goods produced × finished goods holding period
(Units) (Per unit)(Exclude DEP.) (Months or Days)
6. Sundry creditors: - The lag in payment of supplier of raw materials, goods etc
and the likely credit purchases made during them to help in estimating the amount
of creditor –
Page 44 of 82
Working Capital Management of Hindalco Industries
Limited
Page 45 of 82
Working Capital Management of Hindalco Industries
Limited
ANALYSIS:-
From this method we can conclude the data, how much working capital (in percentage)
Hindalco need in the next year. This gives help to control the working capital level. This is
an important aspect to control the cost of finished goods through reduce the cost of
inventories.
The duration of operating cycle for the purposes of estimating working capital requirements
equivalent to the sum of the duration of each of these stages less credit period allowed by the
superior of the firm.
Page 46 of 82
Working Capital Management of Hindalco Industries
Limited
SYMBOLICALLY:
Here,
O = Duration of operating cycle
R = Raw material storage period
W = Work-in-progress period
F = Finished goods storage period
D = Debt collection period
C = Creditors payment period
After completing the period of one operating cycle total number of operating cycle that can
be completed during a year can be computed by dividing 365 days with the number of
operating days in a cycle.
Page 47 of 82
Working Capital Management of Hindalco Industries
Limited
SYMBOLICALLY:
N = 365/O
Here,
N = numbers of operating cycles
O = duration of operating cycles
The working capital has the following components, which are in several forms of current
assets:
Cash in hand
Cash at bank
Stock of raw material
Stock of finished goods
Value of debtors
Miscellaneous current assets(short term investment, loans & advances)
Cost of production
3. Stock of finished goods
Cost of sales or sales value
4. Debtors
Working expenses
5. Cash
Page 48 of 82
Working Capital Management of Hindalco Industries
Limited
Page 49 of 82
Working Capital Management of Hindalco Industries
Limited
RESEARCH METHODOLOGY
The methodology adopted for the present study was discussed with my instructor and
coordinator Mr. Vimal Raheja, Sr. Accounts & Finance Manager at Hindalco Industries Ltd.
Renukoot. The main focus was to gain knowledge and experience during the training period
that will help to understand the whole process of tendering in procurement management and
analyze the profitability of the company.
RESEARCH DESIGN:
A research design specifies the methods and procedures for conducting survey. Research
design is the plan and structure of investigation so conceived as to obtain answer to research
questions. The plan is overall scheme of the research. Descriptive Research Design has been
adopted while doing the research.
DATA ANALYSIS:
For data analysis different tools like MS-WORD and MS-EXCEL is used. Simple tables and
diagrams are used for the purpose of comparison and help of graphs and pictures are also
taken for making the interpretation easier.
Page 50 of 82
Working Capital Management of Hindalco Industries
Limited
(Note: The value of loan & advance in the year 2009 and 2010 is showing different figures
as per the annual report; I assume the bigger figure is correct)
Page 51 of 82
Working Capital Management of Hindalco Industries
Limited
GRAPHICAL INTERPRETATION
14000
12000
10000
8000 2011-12
2010-11
6000
2009-10
4000
2000
0
Current assests Current liabilities Working Capital
ANALYSIS:
The above data shows that working capital is increasing in comparison to last year which is
good for the liquidity of the company. Current assets are increased by 9.66% and current
liabilities are increased by 0.96% only, in 2012. This means that current assets are adequate
to meet its currents liabilities as there is slight increase in current liabilities. The current
ratio of the company is 1.3. It shows that company is having good liquidity position but
they should try to improve it. Another way to describe it is that the working capital is
increased to Rs.1861cr. from Rs.903.76cr. it directly affect the cash flow statement of the
company.
Page 52 of 82
Working Capital Management of Hindalco Industries
Limited
Page 53 of 82
Working Capital Management of Hindalco Industries
Limited
Page 54 of 82
Working Capital Management of Hindalco Industries
Limited
GRAPHICAL REPRESENTATION
25
20
15
Working capital turnover
10
0
2011-12 2010-11 2009-10
INTERPRETATION:
The higher your working capital turnover ratio is, the more efficient you are in using working
capital to generate sales In the year 2009-10 the working capital is 2715.87, in 2010-11 it
increases to 903.76, and in 2011-12 it increases to 1861.00. It means that in the last year the
company‘s liquidity is improve and the company become more efficient to pay its current
obligations. At the same time if we compare no. of times of net working capital to turnover,
it has come down to 14.2 times from 26.39 times in previous year. This is showing good
profitable condition in this year. The sale is increased but working capital is not increasing
with the same rate as sales increases, it means that the liquidity position is somehow affected
this year.
Page 55 of 82
Working Capital Management of Hindalco Industries
Limited
Payment Terms:
Based on the above payment terms, Hindalco‘s past three year‘s debtor‘s data is as follows:
YEAR
Particular 2011-12 2010-11 2009-10
Sales 26597 23859 19522
Debtors 1348.22 1290.43 1256.54
Debtor turnover 19.72 times 18.48 times 15.53 times
Debtors conversion 18 days 20 days 23 days
period
GRAPHICAL REPRESENTATION
Debtor turnover
25
20
15
Debtor turnover
10
0
2011-12 2010-11 2009-10
Page 57 of 82
Working Capital Management of Hindalco Industries
Limited
INTERPRETATION:
Here, In spite of increase in sales in 2011-12, total debtors have been increased, which
indicated that the company is not having very effective credit policy. But the same case is not
for the previous years. Whereas if we analyze the debtor‘s turnover ratio, we can say that the
company is capable of reducing the period of debtor‘s conversion. Higher the debtor‘s
turnover ratio, lesser time it will take to collect debts.
In 2012, Period of Debtor‘s conversion is reduced to approx 18 days. Last year debtor
conversion is found at 20 days in the research, it implies that there is very slight
improvement in turnover in spite of increase in sales. Although the balance of debtor comes
down considerably but still there is scope in Debtors Management for the Company.
Page 58 of 82
Working Capital Management of Hindalco Industries
Limited
Manage the working capital according to need as recovering the debt from
customer as early as possible while, get extension of payment of dues on the
company of others as suppliers of raw material as late as possible.
CREDITORS MANAGEMENT
You rely on good relations with creditors for the smooth operation of your business.
Suppliers (trade creditors), the bank, and statutory bodies such as HM Revenue & Customs
(HMRC) all affect the cash flow of most businesses. When your cash flow is tight, you
may not be able to pay your bills on time. If you manage the situation well, your creditors
will have more trust and confidence in you than before. But managed badly, the situation
can develop into a crisis.
A short-term liquidity measure used to quantify the rate at which a company pays off its
suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made
from suppliers and dividing it by the average accounts payable amount during the same
period.
YEAR
Particular 2011-12 2010-11 2009-10
Credit purchase 23583.46 22436.05 18423.27
Avg. creditors 6701.24 6192.47 3773.22
creditors turnover 3.51 times 3.62 times 4.88 times
Creditors payment 103 days 100 days 74 days
period
Page 59 of 82
Working Capital Management of Hindalco Industries
Limited
INTERPRETATION:
In the year 2010-11 the creditors turnover has decreased from 4.88 to 3.62 it indicate that the
credit worthiness of companies has decreased and they are unable to pay their creditors
efficiently than the previous year. During this year the cash equivalent items has been
increased to 3094.21 cr. from 2942.88 cr. In this year 2011-12, the ratio has been decreased
from 3.62 to 3.51 which show that the company credit worthiness has again decreased & in
this year also the company delays the payment of their creditors.
Hindalco produces normal production cycle items against the firm orders from customers.
Because of this as well as sizeable raw materials and compulsory bulk purchase of items, the
company has to carry high level of inventories.
YEAR
Particular 2011-12 2010-11 2009-10
Cost of goods sold 23492 20705 16572
Avg. Inventory 7697.13 6786.8 4995.77
Inventory turnover 3.052 times 3.050 times 3.31 times
Days of turnover 120 days 120 days 110 days
A low inventory turnover ratio is a signal of inefficiency, since inventory usually has a rate
of return of zero. It also implies either poor sales or excess inventory. A low turnover rate can
indicate poor liquidity, possible overstocking, and obsolescence, but it may also reflect a
planned inventory buildup in the case of material shortages or in anticipation of rapidly rising
prices.
Page 60 of 82
Working Capital Management of Hindalco Industries
Limited
A high inventory turnover ratio implies either strong sales or ineffective buying (the
company buys too often in small quantities, therefore the buying price is higher).A high
inventory turnover ratio can indicate better liquidity, but it can also indicate a shortage or
inadequate inventory levels, which may lead to a loss in business.
GRAPHICAL INTERPRETATION
INVENTORY TURNOVER
3.35
3.3
3.25
3.2
3.15
3.05
2.95
2.9
2011-12 2010-11 2009-10
Interpretation:
The turnover increases due to increase in sales and minimizing the inventory level. In my
research, I find that there is very minor change in the turnover in year 2011 and 2012. The
inventory turnover is 3.052 and 3.050 in 2010-11 and 2011-12 respectively. The days of
turnover are 120 days in 2011-12 and also in 2010-11.
But if we see the turnover of year 2009-10 then we came to know that in 2009-10 the
turnover is 3.31, the days of turnover is 110 days.
This suggests that the company is not able to increase their sales in last two years and
company will take more days to convert their inventory into sales.
Page 61 of 82
Working Capital Management of Hindalco Industries
Limited
There is direct relation of working capital requirement with Debtors and Inventory. Above
data indicates that company has taken certain strategic measures to manage its Debtor and
Inventory.
Special task forces were built up from Debtors and Inventory Management at senior
level.
Regular follow up at senior level.
A close contact with the customers.
Proper age-wise analysis of the debtors.
Proper classification between collectible debtors and bad debts.
Bad debts written off as early as possible after making all efforts of its collection.
Product cycle minimized so that cost of the product does not become high to the
agreed amount because of time factor.
Formation of specific group in each area to identify the wastage elements and seek
participation of all.
Formulation of action plan to eliminate/minimize wastage.
Identification of corrective actions and their implementation.
Page 62 of 82
Working Capital Management of Hindalco Industries
Limited
Page 63 of 82
Working Capital Management of Hindalco Industries
Limited
Page 64 of 82
Working Capital Management of Hindalco Industries
Limited
ii) Lock box system: This system is more popular in the U.S.A. and is further step in
speeding up collection of cash. This system has been devised to element delay arising
in cash of the concentration banking system on account of a time gap between actual
receipt of cheques by the regional collection centers and its deposits in the local bank
account. Under this system company hire a post office box and instruct its customers
for their remits to the box. It also reduces the chances of frauds in the cash collection
process and controls the cash inflows better. In order to avoid the unnecessary pockets
of idle funds, the company should maintain minimum number of bank accounts.
iii) Playing float, technique should be used by the company for maximizing the
availability of funds. The term ‗float‘ means the account tied up in checks which have
been issued by company but not have been presented for payment by the creditors. As
a result of a time lag between issue of a cheque and its actual presentation, the actual
bank balance of a firm may be more than the balance shown in the books. The
difference is called ‗payment of float‘. The longer the ‗float period‘ the greater would
be the benefit of the firm.
Page 65 of 82
Working Capital Management of Hindalco Industries
Limited
ii) Inflows and outflows of cash: In order to check the change in cash position of
the firm from one period to another, a cash flow statement is prepared. It helps
management in controlling inflows and outflows of cash.
iii) Ratio analysis: Ratio analysis is also an important tool of cash control. Different
financial ratios are used for this purpose. These ratios include current ratio, liquidity
ratio, receivables turnover ratio, and inventory turnover ratio and cash position ratios.
Page 66 of 82
Working Capital Management of Hindalco Industries
Limited
GRAPHICAL INTERPRETATION
Current Ratio
1.8
1.6
1.4
1.2
0.6
0.4
0.2
0
2011-12 2010-11 2009-10
INTERPRETATION:
In 2011-12, the current ratio of the company is 1.3, which is higher than the previous year. It
indicates that the company‘s current liabilities were increased but with the lower rate as
compared to current asset. Due to increase in the current liabilities at lower rate and increase
in current assets with higher rate as compared to previous year, there is little improvement in
current ratio, it is favorable for the company because it indicates the company is in position to
meet its liabilities.
Page 67 of 82
Working Capital Management of Hindalco Industries
Limited
QUICK RATIO
GRAPHICAL INTERPRETATION
Quick Ratio
0.6
0.5
0.4
0.3
Quick Ratio
0.2
0.1
0
2011-12 2010-11 2009-10
INTERPRETATION:
Now we compare the company‘s position according to the liquidity ratio. As we know the
standard of the liquid ratio is 1:1.
In 2011-12 the liquid ratio of the company is 0.45 which is less than the standard ratio this
indicates the liquidity position of company is not optimum. But if we compare the data with
previous year (0.34) then there is some improvement observed in the quick ratio. The
liquidity ratio follows the same trend in the year further due to large amount of inventories is
kept with the company and there is not any improvement in the inventory conversion period.
Page 68 of 82
Working Capital Management of Hindalco Industries
Limited
2. Besides above, the company has various credit arrangements with banks to finance
the daily working capital requirement. These are of following types:
Cash credit
Purchase/discounting of bills
Working capital term loans
Letter of credit
1) Cash credit:
The company has cash credit facilities with various banks. The administrative of this
is done at the principle office at Renukoot. However its Regional and area offices are
authorized to utilize the cash credit facilities up to the limit described by the principle
office.
2) Purchase/discounting of bill:
The company has also purchase and discounts the bills issued by its customers to meet
daily requirements.
Page 69 of 82
Working Capital Management of Hindalco Industries
Limited
SUBSEQUENT OBSERVATIONS
In this section all those things are mentioned that the company‘s accounts department
assigned us to do during the summer internship period. The following are the work I done
during summer training:
Godown
Production
Customer
Agent
Inspection&
Packaging
Warehousing
Godown
Dispatching
Customer
Agent
Page 70 of 82
Working Capital Management of Hindalco Industries
Limited
1. Type of material.
2. Size of truck or the loading capacity.
3. Location to which the goods are to be transported.
Allocation
Grouping
Clearence
Consignment tracking
1. There is no system to track the goods dispatched from one department to another
within the plant. Hindalco management has been thinking of implementation of RFI
system for this purpose. But the cost of installation and maintenance is the cause of
delay.
Page 71 of 82
Working Capital Management of Hindalco Industries
Limited
1. Any physical nature complaint such as Corrosion, Accident or any Quality related
issues are regarding alloys is handled by the Production Department.
2. Complaints regarding packaging and interleaving are handled by Quality and
Inspection Department.
Key Customers are provided Login Id so as to make direct complaints while other customers
have to complain to nearest the Zonal office. There are about 23 zonal offices of Hindalco
Industries in India.
After the dispatch of the finished goods a Daily Production Sheet is produced.
Extrusion 80 80 160
Problems:
Page 72 of 82
Working Capital Management of Hindalco Industries
Limited
Indirect tax is a tax which is indirectly exposed on the goods and services, in this department
my work is to entry of the form details in excel sheet. The department gives me 100 forms on
daily basis and I have supposed to do the entry of all forms in one day.
Form 38 is a form which is issued by commercial tax department for those industries who
buy goods or raw material interstate. The seller has to fill the form and send the original copy
of the form with the driver of the truck or any other mean of transportation; it is checked at
every police check post for the sake of transparency of goods in the sense of legal status. In
case of non availability of form 38 with the driver, the whole consignment will be ceased and
40% of the consignment is charged as a penalty.
In case of filling the commercial tax, the company has to show all details of the consignment
along with the supplier TIN number so that the avoidance of tax in any case will be avoided.
Fine of Rs.1, 00000 paid by the company for reissue of duplicate copy.
The company has to file F.I.R to their respective police station.
Company has to advertise for the same in the local newspaper.
An additional fine of Rs.25000 also paid by company.
Page 73 of 82
Working Capital Management of Hindalco Industries
Limited
Financial institutions/banks are playing a very vital role in industrial development of India,
Bank section, HINDALCO Renukoot works as an interface between the financial
institution/Banks. Although the responsibility of making a broad policy frame work of
guidelines to interact with Financial institution in HINDALCO is looked after by
HINDALCO CFD, Mumbai but the responsibility of executing the policy and guidelines
applicable to Renukoot operation solely lying with the Bank section Renukoot, HINDALCO
Bank Section, Renukoot in addition to compliance of the guidelines of CFD, Mumbai
involved in different financial activities which are necessary for smooth running of financial
activities at Renukoot. The company is operates with the link up of following banks to which
they have bank accounts also:
Page 74 of 82
Working Capital Management of Hindalco Industries
Limited
RATIO ANALYSIS
1. MARGIN RATIOS
It is the amount of profit (at the gross, operating, pre tax or net income level) generated
by the company as a percent of the sales generated. The objective of margin analysis is to
detect consistency or positive/negative trends in a company‘s earnings.
Positive profit margin analysis translates into positive investment quality. To a large
degree, it is the quality, and growth, of a company‘s earnings that drive its stock price.
(Rs. In Crores)
Page 75 of 82
Working Capital Management of Hindalco Industries
Limited
GRAPHICAL INTERPRETATION
GMP
14
12
10
6 GMP
0
2011-12 2010-11 2009-10
INTERPRETATION:
In the above case a decline can be seen in the GP ratio which is due to the reason that
increase in sales has not resulted in an increase in GP which has gone down year after
year, due to the increase in the cost of production.
Page 76 of 82
Working Capital Management of Hindalco Industries
Limited
(Rs. In Crores)
GRAPHICAL INTERPRETATION
OPM
16
14
12
10
8
OPM
6
4
2
0
2011-12 2010-11 2009-10
INTERPRETATION:
As the ratio measures the quantum and extent of expenditure incurred in producing and
selling the goods. The operating profit margin has decreased as compared to the previous
years. The Operating profit has not been able to match the increase in sales. It means the
level of operating expenses have not been able to match the increase in sales. High
operating profit margin shows that company is in good state and has healthy margins. But
due to inflation the operating expenses has increased considerably.
Page 77 of 82
Working Capital Management of Hindalco Industries
Limited
Looking at the earnings of a company often doesn‘t tell the entire story. Increased
earnings are good, but an increase does not mean that the profit margin of a company is
improving. For instance, if a company has costs that have increased at a greater rate than
sales, it leads to a lower profit margin. This is an indication that costs need to be under
better control.
(Rs. In Crores)
Page 78 of 82
Working Capital Management of Hindalco Industries
Limited
GRAPHICAL INTERPRETATION
NPM
10
9.5
NPM
8.5
7.5
2011-12 2010-11 2009-10
INTERPRETATION:
The reduction in Net profit margin primarily is due to high increase in interest paid during
the year and cost of sales has increased considerably with the increase in sales.
Page 79 of 82
Working Capital Management of Hindalco Industries
Limited
FINDINGS:
The working capital is increasing in comparison to last year (2011-12) is good for the
liquidity of the company.
The working capital turnover is decrease in 2011-12; this is showing good profitable
condition in this year. The sale is increased but working capital is not increasing with
the same rate as sales increases, it means that the liquidity position is somehow
affected this year.
The inventory turnover is not much varying from previous year, this shows that the
company is not able to do much for inventory management. But if we compare the
data with 2009-10 then they efficiently manage their inventory and able to increase its
sale in 2009-10
The sale is increase in 2011-12; total debtors have been increased, and turnover is also
increasing it indicates that the company is having very effective credit policy and they
are efficiently manage their debtors.
The company‘s current ratio is increasing in comparison to previous year it shows that
the company‘s is able to improve its liquidity position in comparison to previous year.
The company‘s liquidity position is lower than the standard liquid ratio, in 2011-12
the quick ratio is 0.45; the ideal liquid ratio is 1:1 but, the goodness of liquid ratio is
vary as per the nature of the business. So, we take it as improvement in quick ratio in
comparison to previous year.
Despite the increasing cost pressure and the fluctuating demand, the operating profit
and the net sales has increased.
For the year ended March , 2012 net sales at Rs. 26,597 cr. were almost 11% higher
than the previous year‘s sales.
The production volume has increased in the current financial year overcoming the
Hirakud setback in the previous financial year.
Page 80 of 82
Working Capital Management of Hindalco Industries
Limited
RECOMMENDATION
Expenses in stock, compensation of raw material, employees cost, power and fuel and
depreciation including impairment has increased continuously. Measures should be
taken for the improvement of inventory levels so that the extra expenses could be
reduced.
Due to increase in the cost pressure because of increase in cost of raw materials and
transportation so the company should focus on increasing the operational efficiency in
production.
As we have analyzed that the company is running more on its equity and has scope for
increasing its financial leverage so that it can generate more revenue by investing in
more profitable ventures.
Inventory levels are high which has reduced the profitability of the company and it
needs to be maintained at an optimum level.
Page 81 of 82
Working Capital Management of Hindalco Industries
Limited
BIBLIOGRAPHY
BOOKS REFERRED
WEBSITES REFERRED
www.hindalco.com
www.workingcapital.org
www.investopedia.com
www.adityabirla.com
Page 82 of 82