financial managemt

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STATEMENT OF THE PROBLEM

Trade credit arises when a firm sells its products or services on credit and does not

receivable immediately. It is an essential marketing tool, acting as a bridge for the movement of

goods that the production and distribution stages to customers. Credit creates “Receivables or Book Debts” which the firm is expected to collect in the near future. Book debts or receivable

arising out of credit receivable constitutes a substantial portion of current assets of the firm.

Receivables constitute a substantial portion of current assets of several firms. After the

inventories, trade debtors, are the major components of the current assets. They form one-third

of the current assets. Granting credit and creating debtors amount to the blocking of funds.

The interval between the date of sale and the date of payment has to be financed out of the

working capital. Thus, trade debtors represent investment. As substantial amounts are tied up

in trade debtors, it needs careful analysis and proper management.

An attempt is made in the project work to analyze the efficiency of receivable

management of the sample unit.

SVCCS, CTR(M.B.A Dept.)



INTRODUCTION

Finance is aptly described as the lifeblood and nerve centre of any business. It is just

as the circulation of blood, an essential system in the human body to keep and alive. Finance

is vital input for the smooth functioning of the business. Every business enterpriseirrespective of its size and nature needs finance to carry on its operations and achieve its

target.

FINANCIAL MANAGEMENT:

Definition:

“Business finance can broadly define as activity concerned with planning, organizing,

controlling and administration of funds used in business.”

“Financial management as an application of general managerial principles to the area

of decision-making.”

Working capital refers to a firm’s investment in short-term assets viz, cash, short-term

securities.

Current assets are to be managed in an efficient manner. Receivables represent an

important component in current assets of a firm. Management of receivables is having more

significance in order to avoid blockage of funds in receivables.

RECEIVABLES MANAGEMENT

The term receivable is defined as ‘debt owed to the firm by customers arising from sale

of goods or services in the ordinary course of business’. Receivables management is also

called trade credit management. Thus, accounts receivable represent an extension of credit to

customers, allowing them a reasonable period of time in which to pay for the goods received.

These receivables come under current assets as they sooner are converted into cash.

Accounts receivables are the second most liquid form of assets of the firm. Skill full

administration of the receivables management is therefore of prime importance to the

business. The very reason of credit sales is to expand sales volume. Trade credit is

considered as an essential marketing tool, acting as a bridge for the movement of the products

through production and distribution stages to the customers.




DEFINITION OF ACCOUNTS RECEIVABLE MANAGEMENT:

ACCOUNTS RECEIVABLES:

“Receivables represent amount owed to the firm as a result of sale of goods or

services in the ordinary course of business”

RECEIVABLES MANAGEMENT:

“Receivables management is the process of making decisions relating to investment in

trade debtors”

A firm investment in accounts receivable depends upon volume of credit sales and

collection period.

The three major areas involved in accounts receivables management includes credit

policy, credit terms and collection policies.

CREDIT POLICY

The credit policy of a company is considerably influenced by the practices followed

by the industry.

The credit policy of a firm provides the framework to determine,

1. Whether or not to extend a credit to customer and

2. How much credit to extend.

The credit policy decision of a firm has a two broad dimensions:

1. Credit standards

2. Credit analysis

CREDIT STANDARDS

The term’ credit standards’ represents the basic criteria for the extension of credit of

customers. Our aim is to show what happens to the trade-off when standards are relaxed or,

alternatively, tightened.

The tradeoff with reference to credit standards are:

• The collection costs

• The average collection period

• Level of bad debt losses

• Level of sales




CREDIT ANALYSIS

Besides establishing credit standards a firm should develop procedures for evaluating

credit applicants. The second aspect of credit policies is credit analysis and investigation. The

two basic steps that are involved in the credit investigation process are:

• Obtaining credit information

• Analysis of credit information

Credit information can be obtained by both internal and external sources. Internalsources includes various forms and documents that are filled by the customers, records of

the firm. External sources to assess the credit worthiness of the customers are published

financial statements of the customers, bank references, trade references, credit bureau

reports.

Information gathered can be analyzed by both qualitatively and quantitatively.

CREDIT TERMS

The second decision in accounts receivables management is the credit terms. After the

credit standards have established and the credit worthiness of the customers has been

assessed, the management of a firm must determine the terms and conditions of which trade

credit will be made available. The stipulations under which goods are sold on credit are

referred to as credit terms.

CREDIT TERMS HAVE THREE COMPONENTS

1. CREDIT PERIOD

In terms of the duration of time for which trade credit is extended during this period the

overdue amount must be paid by the customer. A firm’s credit period may be governed by

the industry norms. But depending on its objective, the firm can lengthen the credit period.

2. CREDIT DISCOUNT




If any, which the customer can take advantage of, that is, the overdue amount will be

reduced by this amount. The firm uses cash discount as a increase in sales and accelerate

collections from customers.

3. CREDIT DISCOUNT PERIOD

Which refers to the duration during which the discount can be available of these terms are

usually.

COLLECTION POLICIES

The third area involved in the accounts receivables management is collection policies.

They refers to the procedures followed to collect account receivables when, after the expiry

of the credit period, they become due. These policies cover two aspects.

1. DEGREE OF COLLECTION EFFORT

To illustrate the effect of the collection effort, the credit policies of a firm may be

categorized into

• Stringent/Light

• Lenient

The collection policy would be tight if very rigorous procedures are followed a tight

collection policy has implications which involve benefits as well as costs

.

2. TYPES OF COLLECTION EFFORTS

The second aspect of collection policies related to the steps that should be taken

to collect over dues from the customers. The steps usually taken are

• Letters, including reminders, to expedite payment.

• Telephone calls for personal contact.

• Personal visits.

• Help of collection agencies and fully.

• Legal action.

1. The aim should be to collect as early as possible; genuine difficulties of

the customers should be given due consideration.

2. The management of receivables involves crucial decision in 3 areas credit

policies, credit terms, collection policies.




3. The objective of receivables management therefore is to have a trade-off

between the benefits and costs associated with the extension of credit.

4. The extension of credit involves risk and cost. The benefits are increased

sales and anticipated increased profits/incremental contribution.

INDUSTRY PROFILE

Industry Overview:

The total Indian storage battery market is approximately estimated at US$ 500 Million

with the automotive battery segment contributing 60 to 65 percent of the overall market value.

In terms of volumes, the overall consumption of automotive batteries could be around 6.3

million units with the OE segment comprising around 1.2 to 1.3 million units per annum,

according to an interview with the Executive Vice President of ARBL that was published on

the website chennaibest.com. The late 1990s also saw a surge in the sales of the passenger car

segment for around 2 years due to certain factors like the software boom, lowering of interest

rates, etc. - which increased the overall sales of batteries. The automotive sector did not see any

significant growth during the early part of the new millennium and is slowly showing signs of

growth during this financial year. This factor also adds to the demand in the aftermarket as

more number of cars was sold around 2 to 3 years back which is generally the life of a lead acid

battery. The replacement automotive battery market is expected to grow at a healthy rate in the

coming years.

The SLI market in the Indian subcontinent is a highly fragmented industry with a few

manufacturers in the organized segment and a lot many belonging to the tier 2 / tier 3

categories which have a regional presence and thrive especially among the semi urban and rural

areas.

Role of Technology




With the advent of newer more advanced technologies, the consumer is getting the best

of both worlds; a superior product at an affordable price. ARBL sells its automotive battery

under the brand name Amaron which is the country's first Zero Maintenance Free Automotive

battery while the competitors had only maintenance free batteries that needed topping up of

distilled water. Today, all the leading manufacturers are also offering a similar product with

focus shifting towards offering a technologically superior product. Amaron was also the first to

talk about what goes into making a great product. It spoke of having silver inside which is used

as an alloy mix that actually increases the battery life and this was the first attempt by any

battery manufacturer to educate the consumers.

Fuddy Duddy Category to Creative Advertisement of the Year

The interest level shown by any car owner to a battery revolves around only when the

car fails to start. Amaron therefore realized the need to make the consumer think about

automotive batteries, because thinking before a purchase will definitely lead to a comparison

among the brands available in the market.

Amaron thus went ahead with its "Chicken Leg" media campaign that created a storm

in the advertising industry and made people look to this relatively new player in the battery

industry. Over the years, the creative bent of all its campaigns starting from the media blitz, to

below-the-line campaigns have been towards educating the consumer about a battery.

The lead shown by ARBL was quickly followed by the others, with Exide Industries

sponsoring a cricket series in India for the first time with the campaign "India moves on Exide"

becoming a major success.

All this action in the automotive battery industry did not go unnoticed. An automotive

battery manufacturer (Amaron) for the first time was in the same league as mega ad spenders

like Coca Cola, Times of India, and others and won the Creative Advertiser of the Year, which

was a shot in the arm for the entire automotive battery industry.

Distribution

For the success of any aftermarket product, availability of the same is as important as

the product quality and competitive pricing which go a long way in increasing the visibility and

creating a network across markets. Here again, the leading automotive battery manufacturers

became aggressive in extending their reach to the nooks and corners of the country and also

moved away from the traditional distribution network and instead appointed dealers and

distributors who were the first timers to the battery business like service outlets of some of the

automobile majors like Maruti, Hyundai, Telco, Ashok Leyland, Hindustan Motors etc,




roadside mechanics and lube shops etc., which went a long way in increasing the reach and

visibility. There has been certain uniqueness that has been brought into the business by

establishing exclusive outlets with some flashy names like "Pitstops" and "Terminals" which

was never seen earlier in this industry. All this, resulted in taking the smaller / regional

manufacturers head on and helped in building better brand recall and awareness among the end

users.

Global scenario:

Global Opportunities for Advanced Battery Technologies in Automotive Applications,

1998 to 2008 is a multi client report designed specifically to provide subscribes with an

accurate and independent assessment of emerging opportunities in the automotive battery

industry. In addition to providing invaluable information and insights into developments in

starting, lighting, and ignition (SLI) technology, the report focuses specifically on opportunities

emerging from electric vehicles and hybrid electric vehicles.

The report provides material suppliers, advanced battery companies, automotive original

equipment manufacturers, investors, and others with an excellent resource to build soil,

strategic plans and respond to competitive forces, emerging technologies, and evolving market

needs. Specifically, the report assists subscribers in growing their business by providing the

following:

Features:

Identification of the issues and timing for large scale commercial implementation of

advanced battery technology in the global automotive industry.

• Unbiased global scenario forecasts of commercial systems to 2003 and 2008.

• Forecast of material requirements for advanced batteries.

• Profiles of companies those are active in this field.

Benefits:

Identification of emerging business opportunities for advanced batteries

• New SLI technologies

• HEVs

• EVs

• Competitive intelligence for use in bench marking

• A resource for screening potential merger and acquisition candidates

The business:




Revenues for the global battery market reached an estimated $30 billion in 1998.SLI and

related secondary battery applications represent approximately one-half of the overall revenues

and are mostly utilized in automotive applications. High-performance secondary batteries used

in such applications as portable electronics represent approximately 15% of the overall battery

market. These high-performance secondary batteries have the fastest growth rates, at over 10%

a year. Primary batteries represent the remaining one-third of battery industry revenues.

A battery is an electro chemical device in which the free energy of chemical reaction is

converted in to the electrical energy. The chemical energy contained in the active materials is

converted electrical by means of electrochemical oxidation reduction reactions.

HOW BATTERY WORKS:

When you place the key in your car’s ignition and turn the ignition switch “ON” a

signal sent to the battery. Upon receiving the signal, the battery takes energy that it has been

strong in chemicals form and releases it as electricity power is used to crank the engine. The

battery also release energy to power the car’s light and others accessories. It is the only device,

which can store electrical energy in the form of chemical energy, and science it is called as a

storage battery.

SEALED MAINTENANCE FREE (SMF) BATTERY:

Sealed maintenance free (SMF) batteries technologies are leading the battery industry in

the recent years in automobile and industry battery sector around the globe.

SMF batteries come under the rechargeable battery category so it can be used a number

of times the life of a battery. SMF batteries are more economical than cadmium batteries. These

batteries are more compact then the wet type batteries. It can be at any position, these batteries

are very popular for portable power requirements and space constraint applications. The

replacement market, on the other hand, is much longer. The replacement market is

characterized by the presence of large unorganized sector, which constitutes around 55-60% of

the total replacement market.

INDUSTRIAL BATTERIES:

Industrial batteries can be basically classified into two main categories:




• AUTOMOTIVE BATTERIES

• STATIONARY BATTERIES

The automotive batteries are used in electric vehicles and forklifts. The stationary

batteries used in Telecom, Railway and power industries have Registered a growth in excess of 20% and this trend in likely to be continuing in the next 5 years.

The industrial segment is highly technology is an important factor land is vital for

brand reference. The total demand for the industrial battery segment is met by indigenous

production with a small saves of about 10% of by imports. The demand for industrial has

grown slowly and steadily.

RECYCLING OF BATTERIES:

Battery acid is recycled neutralizing it into water of converting it to sodium soleplate for

laundry manufacturing. Cleaning the battery cases, melting the plastics and reforming it into

pellets recycle plastic. Lead, which makes up 50% of every battery, is melted, poured into slabs

and purified.

PROSPECTUS OF SMF\ VRLA BATTERIESD IN INDIA:

The following factors are influencing demand of VRLA technology batteries.

• Entry of multinationals in telecom industry.

• DOT’S policy decision to upgrade the overall technology base.

• Constraints in the use of conventional battery in radio

TELECOM:

The government policy to increase the capacity from 10 million lines by 2000 increased

the demand for storage batteries considerably. The value added services like radio paging and

cellular will increase the demand for storage batteries in future considerably.

RAILWAY:




• Both personnel and industrial programs.

• Start-up of environment management system (EMS) implementation

Programs.

• Nil discharges and lowest emission awareness and implementation program.

• Waste reduction program.

• Energy conservation program.

• Continuous and massive greenbelt development program ground water level

improvement program.

• Central wastage collection, treatment, storage on safe disposal personal health safe

guarding program.

AWARDS:

• “ The spirit of excellence”

- awarded by academy of fine arts, Tirupathi.

• “ Best entrepreneur of the year 1998 “

- awarded by Hyderabad management association




• “ Industrial economist business excellence awards – 1991”

- awarded by the industrial economist, Chennai.

• “ Excellence award”

- Institution of economic studies (New Delhi).

• “Udyog ratton award”

- Institution of economic studies (New Delhi).

COMPANY PROFILE:

Background and inception of the company:




Amara Raja Batteries Ltd:

Amara Raja Batteries Limited (ARBL) Company incorporated under the company’s

act, 1956 in 13th February 1985 and converted into public limited company on 6 th September

1990.

ARBL is the first company in India to manufacture VRLA (value regulated lead acid)

Batteries. The main objective of the company is manufacturing of good quality of SEALED

MAINTENANCE FREE lead acid batteries (SMF). The company was set up with Rs.1920

lakhs in 18 acres area near Karakambadi village, Renigunta Mandal. The project site is notified

Under “B” category.

The company has the clear-cut policy of direct selling without any intermediate. So

they have set up six branches and are operated by corporate operations office located in

Chennai. The company has virtual monopoly in higher A.H (Amp Hour) rating market its

product VRLA. It is also having the facility for Industrial and Automotive Batteries.

Mr. Galla Rmachandra Naidu, chairman who is an NRI having engineering background

promoted AMARA RAJA BATTERIES LTD. in 1985 at Karakambadi Village near Tirupathi.

He also seeded HARSHA ELECTRONICS Pvt. Ltd. in 1990 at Karakambadi Village near

Chittoor and AMARA RAJA ELECTRONICS Ltd. in 2000 at Diguvamagham village near

Chittoor. Before embarking on this venture he worked as senior project engineer with M/S

Sergeant& Lundy, USA (power consultants) for about 20 years. Prior to this, he worked as an

Electrical Engineer for US Steel Corporation for about 3 years.

In 1989, ARBL has entered into Industrial Battery market with Technical alliance with

GNB Batteries, USA to promote advanced Maintenance Free Valve Regulated Lead Acid (MF-

VRLA) batteries prior to setting its own facilities ARBL Imported the product in semi-




Knocked down condition. In September 1990, it was converted into a public limited company

and it’s IPO (Initial Public Offer) in January 1991 aggregating Rs.59.5Million. It was formed to

manufacture Maintenance-free, sealed lead acid batteries in which commercial production

commenced from May 1992. Despite its initial technical support from GNB Batteries, during

the financial year 1998 ARBL ceded a 23.7% stake to Johnson Controls Inc. USA, at a

premium of Rs.75 per share to cement a financial and technical tie-up to foray into Automotive

Batteries. Besides having overall control of the company as the chairman Mr.R.N.Galla. His

son, Mr. Jayadev Galla, who is acting as a managing director of the company, has worked

earlier with GNB Battery Technologies, USA as an International Sales Executive.

Nature and business carried:

ARBL comprises of two major divisions viz,

4. Industrial Batteries Division (IBD)

5. Automotive Batteries Division (ABD)

6. Small Batteries Division (SBD)

Industrial battery division (IBD)

Amara raja has become the benchmark in the manufacture of industrial batteries. India

is one of the largest and fastest growing markets for industrial batteries in the world and Amara

raja is leading the front with an 80% Market share for stand by VRLA batteries. It is having the

facility for producing plastic components required for industrial batteries.

Incorporation:

ARBL is the first company in India to manufacture VRLA batteries. The company has

setup of Rs. 1920 lakhs. Plants in 18 acres in karakambadi village, near Tirupati.




ARBL was established in the year 1985 as private limited and then it has been changed

into public limited company with the advent of GNB industrial batteries USA, for

manufacturing sealed value regulated.

Capacity

The actual installed capacity of IBD is over 4, 00,000 cells per annum and utilization

capacity is reached over 3, 50,000 cells per annum.

Automotive Battery Division (ABD)

ARBL inaugurated its new automotive plant at karakambadi near Tirupati. On

September 2001 this plant part of the most completely integrated battery manufacturing facility

in India with all critical components including plastics sourced in house from existing facilities

on site. This gives Amara raja is having complete control own inventory and product quality in

this project, Amara raja strategic alliance partners Johnson Controls USA have closely worked

with their Indian counterparts to put together the latest advances in manufacturing technology

and plant engineering. It is also having the capacity for producing plastic components required

for automotive batteries.

Capacity:

Amara Raja has a replacement Battery Brand Amaron hi-life. ARBL has a capacity for

manufacture of around 1,000,000 units at its facility at Tirupati with an investment of US $

10.00 million. A Greenfield project is planned at the same site with an additional investment of

US $6 million to augment capacity to 2 million batteries. The Amaron hi-life battery is a

product of the collaborative efforts of engineers at Johnson Controls Inc. and Amara Raja. This

Zero maintenance product incorporates the latest technological advances in the field and is on

par with batteries manufactured and marketed in developed countries. A fully charged, factory-

activated battery provides extra high starting performance and power at any temperature.

Mission, vision and history:

Mission:

Mission, mantra, way of thinking, philosophy, what we live for… call it what you want,

you’ll find it below.




“To transform our spheres of influence and to improve the quality of life by building

institutions that provide better access to better opportunities, goods and services to more

people…all the time.”

Introduce latest generation technologies:

• Adapt these technologies to suit the operating environment

• Develop and manufacture globally competitive, customer-focused products of world-

class quality.

• Responsibly introduce these products into relevant markets.

• Provide world-class customer support.

Vision:

In January 2007, ARBL announced expansion plans to invest Rs.84 crores to set up thecombined manufacturing capacity of 3.2 million units for 2-wheeler batteries and small VRLA

batteries for UPS applications. Currently 1 million units combined capacity is ready and will

scale up to 3.2 million units by FY 2010.

Product profile:

Automotive battery products:

Four-wheelers:

1. Amaron hi-way

Amaron hi-way truck batteries-lasts long,

really long

Amaron hi-way truck batteries, brought to

you by Amara Raja Batteries Limited

(ARBL), the largest manufacturer of Stand-

by VRLA Industrial Batteries in the Indian.

2. Amaron pro hi-life

Amaron PRO hi-life

batteries design features and

benefits




Longest life – thanks to the reformulated Advanta

paste recipe.

Zero maintenance – high heat technology, premium silver alloys for a low-corrosion and no

top-ups experience.

Highest cranking power – largest intercell welds, 19mm lugs.

Amaron harvest

Types of Harvest tractor batteries

75 Ah – TRA 500 D31R/L

90 Ah – TRA 600 H29R/L

3. Amaron shield

Amaron shield – power Infinite

The new Amaron shield, with an unheard of 24

months warranty. A product of Amara Raja

Batteries Limited, Amaron shield is a result of a partnership between the Amara Raja Group

and Johnson Control Inc, USA, the global leader in interior experience, building efficiency and

power solutions.

Amaron shield design features and benefits Long life –

the robust plate design and a ribbed container provide

extra strength and improved resistance to corrosion.

Ultra low maintenance – the special hybrid alloy system

minimizes water loss, making the battery ultra low

maintenance and ensuring longer life.Ready to install – factory charged, wet shipped and

equipped with T3 terminals.Charge acceptance – the unique paste formulation provides for

quick charging between power failures.

4. Amaron go:

Amaron go batteries design features and benefits

Long life – thanks to the reformulated advanta paste recipe.




Maintenance free – High heat technology, premium silver alloys for a low-corrosion and no

top-ups experience.

Factory fresh – wet shipped and ready to fit.

5. Amaron fresh

6.Amaron optima

Optima yellow top: deep cycle batteries for extreme applications

Optima blue top: for twice the life of traditional marine

and RV batteries

Optima red top: the battery that withstands the most

vibrations

Applications:

O.E.Customer Model Number Rating

Hyundai(Santro) 38B20R 12V35Ah




Maruthi Udyog Ltd(Wagon R) 38B20l 12V35Ah

Maruthi Udyog Ltd(Swift) 38B20R 12V35Ah

GMIL(Tavera) 80D26R 12V60Ah

GMIL(Optra) 55D23R 12V55Ah

Ashok Leyland(Goods) 75D31R 12V75Ah

Ashok Leyland(Passenger) HCVX00D04R 12V150AhAshok Leyland(Goods) HCV500D31R 12V80Ah

M&M(Scor/Comm/Marshall) 65D26R 12V65Ah

M&M(Bolero) 75D31L 12V75Ah

M&M(Champion) 48D26R 12V50Ah

M&M(Tractors-All Types) TRA500D31L 12V75Ah

HONDA(City) 34B19L 12V32Ah

HONDA(Accord) 55B24L 12V60Ah

TELCO(Ace-Cub) 38B20L 12V35Ah

TELCO(207DI/Sumo/Variants) 75D31R 12V75Ah

TELCO(Safari-CRDI) 95D31R 12V80AhTELCO(Telco709/907) HCV700H29R 12V100Ah

TELCO(1613) HCV800D04R 12V120Ah

TELCO(1313/1512) HCVX00D04R 12V150Ah

SWRAJ MAZDA(Truck) 75D31R 12V75Ah

HML-Kolkata(Ambassador-D) 75D31R 12V75Ah

HML-Kolkata(Ambassador-P) 55D26R 12V60Ah

HML-Chennai(Lancer-P) 38B20L 12V35Ah

HML-Chennai(Lancer-D) 95D31L 12V80Ah

EICHER Tractors(for available models) TRA500D31R 12V75Ah

INTERNATIONAL Tractors TRA500D31R 12V75Ah

Two wheelers:

Applications:

Vehicle

manufacturer

Scooters Battery type




Bajaj Bajaj Bravo AP-ATX2.5L

Bajaj Saffire, sprit,wave AP-ATX5L

TVS Scooty ES,Scooty

pep,spectra

AP-ATX5L

Herohonda Pleasure, Street AP-ATX5LSuzuki Access 125 AP-ATX5L

Kinetic honda Kinetic

hondaDX,Zx

AP-ATX5L

kinetic Nova 135,Nova

EX,Blaze

AP-ATX9

Industrial battery division:

Amara Raja’s Power Stack is a high performance battery designed to meet the demands

of a wide range of industrial applications. The power stack range is modular in structure and is

capable of accommodating a wide spectrum of capacities depending on the application. Major

application areas include telecommunications, power utilities, railways, defence, and other

heavy industries.




The advantages of powerstack at a glance:

• The advantages of power stack at a glance

• Design floats life of 20 years

• Proven performance in harsh tropical conditions

• Deep discharge capabilities

• Unbeatable track record in applications across heavy industries

• QS 9000 – accredited across all functional areas and business ranging from

manufacturing to services.

• World class ISO 14100 accredited facility

Quanta is not just another UPS battery, it is a UPS battery with a back-up for a back-

up.UPS battery is further backed by the world renowed technology that others cannot provide

you with. Put simply, Quanta is the product of fail-safe, fool-proof battery technology,

produced and tested in our premier manufacturing facility and provides several firsts for a

battery of its kind.




The advantages of Quanta at a glance

• Unique heavy-duty, corrosion-resistant alloy for positive grids, to increase cyclic life in

a tropical environment.

• Lower internal resistance for superior high-discharge performance.

• Interchange, a patented paste recipe for excellent charge acceptance.

• Aesthetically designed with a rugged Flappon terminal protector that prevents shorts

• Compact, lightweight, factory-charged, explosion-resistant and environment friendly

clean and sleek looks.

• Apart from the technology itself, helping us meet our stringent quality norms is our QS

9000 accredited manufacturing plant. All of which makes Quanta the unrivalled choice

for the smart UPS equipment buyer.

Power Control:

• They provide back-up critical installations in power generating units and provide back-

up power for transmission and distribution sub-stations like:

• North Chennai thermal power station

• ARBL is an approved vendor for NTPC/NHPC and power Grid Corporation.

Oil & gas:

1. ARBL provides integrated solutions for renewable energy back-up power for ONGC’s

offshore platforms.

2. The island of Lakshadweep is powered through Amara Raja Power Systems.

3. They also provide back-up power for low power transmitters for Doordarshan.

Motive Power:

1. ARBL is the country’s first manufacturer of maintenance-free traction batteries used in

Forklifts and Pallet trucks.

Defence:

ARBL introduced new technologies for back-up power in defence, police and

paramilitary communication systems.




UPS & EPABX:

ARBL is the preferred suppliers for all leading UPS back-up manufacturers like APC,

Numeric, DB power, AP Lab, Electronics & Controls etc. our UPS batteries are the fastest

growing battery brand since its launch in July 2002 with a nation-wide footprint of sales and

service points and over 3,00,000 batteries in use at over 10,000 customer sites.

Railways:

• ARBL pioneered the use of maintenance-free batteries in the Indian Railways.

• Over 50% of Indian Railways’ two and three tier self-generation Air-conditioned

coaches are powered by ARBL.

• Over 40% of Railway’s Signalling and Telecom power supply solutions are provided

by ARBL.

Area of operation:

Regional: Leading battery manufacturer Amara Raja Batteries Limited launched Amaron pit

shop in Kakinada and Rajamundry today. With these the total number of pit shops in Andhra

Pradesh will grow to 14. The complete range of Amaron automotive batteries, the most popular

product from ARBL, will be available at the pit shop. Amaron pit shop is an innovative concept

pioneered by Amara Raja in the automotive battery industry.

National: The Company currently has a pan-India sales and service network with 152

franchisees, 120 pit shops and over 15000 active retailers.

Ownership pattern:

Shareholding of promoter and promoter group

Indian - 20.5427%

Foreign - 31.5187%

Public shareholding

Institutions- 15.1278%

Non-institutions - 32.8106%




Competitor’s information:

EXIDE: The Company was incorporated as Associated Battery Makers (Eastern) Ltd., on 31st

January, 1947 under the Companies Act, 1913 to purchase all or any of the assets of the

business of manufacturers, buyers and sellers of and dealers in and repairers of electrical and

chemical appliances and goods carried on by the Chloride Electric Storage Company (India)

Ltd, in India , since 1916 with a view thereto to enter into and carry into effect (either with or

without modification) an agreement which had already been prepared and was expressed to be

made between the Chloride Electric Storage Co (India) Ltd on the one part and the Company of

the other part. The Company manufactures the widest range of storage batteries in the world

from 2.5 Ah to 20,400 Ah capacities, covering the broadest spectrum of applications. The

Company has six factories strategically located across the country – two in Maharashtra, one in

West Bengal, two in TamilNadu and one in Haryana. The Company’s predecessor carried on

their operations as import house from 1916 under the name Chloride Electrical Storage

Company. Thereafter, the Company started manufacturing storage batteries in the country and

have grown to become one of the largest manufacturer and exporter of batteries in the sub-

continent today. Exide separated from its UK-based parent, Chloride Group Plc., in 1989, after

the latter divested its ownership in favour of a group of Indian shareholders. The Company has

grown steadily, modernized its manufacturing processes and taken initiatives on the service

front. Constant innovations have helped the Company to produce the world’s largest range of

industrial batteries extending from 2.5 Ah to 15000 Ah and covering various technology

configurations.

Atlas:

Manufacturer of Lead Acid Batteries from 32 – 180Ah

Total number of employees 51- 100

Location details:

Punjab Ludhiana transport nagar

Ludhiana

Punjab State




The other competitors in the market are Hyderabad Batteries Limited, Southern Batteries Ltd,

Atlas batteries industries, Mico Bosch Automotive Batteries Ltd etc.

HIGHLIGHTS:

• Amaron TM is the preferred supplier to Daimler Chrysler, Ford and General Motors

• Automotive product of the year 2000 by overdrive

• Excellence in Environmental management in 2002 by AP Pollution Control Board

• Creative Advertiser of the year ’02 by ABBY

• Ford “World Excellence Award”

• Ford Q1 Award

• ISO - 9001 in 1997….RWTUV

• QS 9000 in 1999….RWTUV

• ISO/TS 16949 in 2004….RWTUV

• Quality benchmarks

• Best business practices as per JCI

• ISO 14001 in 2002…..RWTUV

• Part of the world’s largest battery manufacturing alliance- Johnson Controls Inc., USA

• Largest manufacturer of standby VRLA batteries for industrial application in India

• Auto CAD for sheet metal design

• Largest & dominant market leader of standby batteries in Railways, Telecom, power

generating stations in India

• One of the largest (designed for producing 2.5 million batteries p.a) and most modern

automotive battery plants in Asia

• Highly automated (oxide preparation to finishing; all processes and operations are

automated)

• Part of Amara Raja’s highly integrated battery complex (most components are built in-

house)

• Industrial Economist Business Excellence Award – 1991 by the Industrial Economist,

Chennai.

• Best Entrepreneur of the year 1998 – by Hyderabad Management Association.

•

Excellence award by Institution of Economic Studies (ES), New Delhi.




• Udyog Rattan – 1999 by Institution of Economic Studies (ES), New Delhi

• Q1 vendor status by Ford India Limited – 2003

• World Excellence Silver Award by Ford USA

• The spirit of Excellence by Academy of fine arts, Tirupathi

Workflow model:

FIGURE1.6.1: AMARA RAJA WORK FLOW MODEL:

Oxide plant Grid casting




Plate Preparation

Assembly

Formation

Finishing

Dispatching




Future growth and prospectus:

The company has plans of expanding its battery manufacturing capacity a robust 50%

from 3.6 million units per annum to 5.4 million units per annum. The company intends to make

an investment of Rs 882 million for the expansion.

The company plans to expand the capacity of the industrial battery division, which

would incur a capital expenditure of Rs 650 million. The company would be investing Rs 1,134

million in setting up a facility at Tirupati for the manufacture of two wheeler and small VRLA

batteries. The proposed Share valueinvestment would be spread over three years. The

capacity’s facility would increase to 5.74 million units Share value




NEED FOR THE STUDY

The main purpose behind this project is to know how debts were procured by Amara

Raja batteries Limited. The study is on internal financing pattern of the debtor’s receivables

relating to the wing of cash management to achieve more customers with better excellence of policies relating to domestic economy of the company. Therefore, clear analysis is to be made

to know the reasons & find out the measures to be taken to make the organization more

successful in acquiring debt amounts from its customers.




SCOPE OF THE STUDY

The current study is undertaken for the purpose of analyzing receivables management

of Amar Raja batteries Ltd, which is situated at Tirupati, Andhra Pradesh.

An extensive study is done on the blocking up of receivables and its retaining activities,

and the factors determining these receivables. The study concentrates on the liquidity position

of the firm, and a brief study is made on the techniques used by the firm for collection.




OBJECTIVES OF THE STUDY

The main objective of the current study is to know the company performance towards

receivables action executing in ARBL. The prime objective is to analyze and evaluate thereceivables management and its performance in ARBL.

The following were the objectives of study were:

• To know how the receivables were managed.

• To analyze to what extent they were offering credit.

• To know who were the major defaulters.

• To know how much extent of cash is blocked as bad debts.




RESEARCH METHODOLOGY

Methodology refers to the way adopted for collecting information for the purpose of drawing inferences. Methodology plays a vital role in the analysis of the study.

Methodology is the science of system and a method of conducting a research work.

Data Collection:

The study is depends on primary and secondary data from various sources:

Primary Data:

First hand information was collected from experts of finance department, on their

course of actions towards collections.

Secondary Data:

The Secondary data that is required for the studies is collected from the Schedules, past

notes, Budgets, through company websites and other statements provided by Finance

Department of AMARA RAJA BATTERIES LIMITED.




LIMITATIONS

1. The data used is gathered mainly through secondary sources and no independent

verification has been done on the same.2. Only five years financial reports have been considered i.e., from 2005 to 2009.

3. And the total statements are given as secondary sources and they don’t provide to go through

scrutiny of those statements.




ANALYSIS FRAME WORK

CLASSIFICATIONS OF COLLECTION OPERATIONS:

Preparation of Aging Schedules.

Credit Sales to Accounts ReceivablesStatement.

Collections to Accounts Receivables Statement.

The whole calculation part data has provided by the employees of Finance Department as

secondary source of data and there was no scope has given me to look into original

statements.when we step into the organization,we will see a wal hanger consists of “A LITTLE

FROM EVERYONE CAN SAVE A LOT”.

ANALYSIS OF AGING SCHEDULE

The company prepares monthly aging schedule to monitor its book debts.The debtsoutstanding are broken down into branch wise entries.The aging schedules for the past two

years have been thoroughly analyzed to come out with average outstanding days of the book

debts in the company is as follows overdue less than 30 days, 301to 60 days, 61 to 90 days, 91

to 180 days, 181 to 300days, 301 to 365 days and above 365 days respectively.

These reports are prepared especially for the extended over due accounts. The basic reason is

to develop a file of customers who require special attention either in the form of

statements,letters or other collection activity.RECEIVABLES MANAGEMENT:

Accounts receivables are the second most liquid form of assets of the firm.the receivables

come into being as credit sales and constitute as one of the largest assets. Skill full

administration of the receivables management is therefore of prime importance to the business.

The very reason of credit sales is to expand sales volume. If the company is very strict in

granting credit to customers many sales may be lost that would other wise contribute to the

profits of the firm. Before going to quote the credit aspiration and credit practices at Amara

Raja Power systems Ltd.,




What actually credit will create?

1. Company position.

2. Protection from competition.

3. Buyer states and Requirements.

4. Dealer Relationship.

5. Transit Delays.

6. Industrial practie

CREDIT POLICY AND PRACTICES AT AMARA RAJA POWER SYSTEMS LTD.

The sales of the company Amara Raja power systems ltd go on cash as well as credit

terms. The trading division of the ARPSL sells its products, which it receives from the

factories on a credit period of 45 days,through the branches of the company located all over the

country.

CREDIT POLICY

Credit Standards Credit Terms Collection Cash Discount

It is careful analysis Specified Lower collection

Risk of the influences lower

Duration investment in

Receivables and Vice-versa.




CREDIT STANDARDS

CREDIT STANDARDS ARE CRITERIA TO DECIDE THE TYPES:

Customers to whom goods could be sold on credit. If a firm has slow paying customer

its investment in accounts receivables will increase, the firm will also be exposed to higher risk

of default.

CREDIT TERMS:

Specify duration of credit and terms of payment by customers, investment in accounts

receivables will be high if customer are allowed extended time period for making payment.

COLLECTION EFFORTS:

Collection effort determine the actual collection period. The lower the collection

the lower the investment in accounts receivables and vice-versa.

GOALS OF THE CREDIT POLICY

Stringent credit policy Leninent credit policy

Less credit to customer as a More credit to customer as

Results decrease in sales it leads to increase in sales.




CREDIT POLICY AND PRACTICES AT AMARA RAJA BATTERIES LTD.

The sales of the company Amara Raja batteries ltd go on cash as well as credit terms.

The trading division of the ARBL sells its products, which it receives from the factories on a

credit period of 45 days,through the branches of the company located all over the country.

If there is any changes in credit policy there will be change in the

1. Volume of credit sales.

2. Default risk (or) Bad debts.

3. Costs.

4. Average collection period.

Looks for the period of presence of the customer in the business.

1. RAILWAYS

2. TELECOM

3. SERVICE OR SPARES

Looks for the character of the customer i.e., his willingness to pay the moral factor is of

considerable importance in credit position.

Looks for his ability to pay is evaluated by his financial position and the bank guarantee

given by him.

Based on the above factors the company analyses the customers and determine the credit

limit to them. Every six months the company goes for the review of the customers.

When a customer is found to be regular in paying the dues within 30 days the company

may go for increase in the credit limit for the customer. In a small way, the new customers are

taken into consideration and given the credit.

COLLECTION PROCEDURES:

The company follows a system of centralized control and decentralized collections. the

company does not employ any collection agency for its collection activities. The trading

division receives a statement of sales and outstanding daily from all the branches in the

country, to initiate appropriate actions. the sales offices are engaged in collection activity and

the collection is done through CMP account and through Bank cheques.




MONITORING BOOK DEBTS

The company classifies its book debts based on the number of outstanding days in the given

following way:

OUTSTANDING DAYS DEBTS CATEGORY

MORE THAN 300 DAYS DISPUTES

BETWEEN 180 DAYS BAD DEBTS

BETWEEN 90-180 DAYS DOWBTFUL DEBTS

BETWEEN 0-90 DAYS GOOD DEBTS.

CLASSIFICATION OF CUSTOMER ACCOUNTS:

An analysis of collection from aspects of accounts provides a useful measure of the

potential loss in the various customer classifications. Customer accounts may be classified in

various categories.

1. Prime or excellent large. Well-established firms.

2. Good firms that are not large and have not yet established excellent credit

reputations.

3. Restricted: firms that are limited to a definite credit line and

4. Marginal high risk accounts which must be watched.




DATA ANALYSIS & INTERPRETATION

Analysis of Aging Schedule:

The company prepares monthly ageing schedule to monitor its book debts. The

outstanding are broken down into branch wise entries. The ageing schedules for the past two

years have been thoroughly analyzed to come out with average outstanding days of the book

debts of the company. On an average the outstanding days of the book debts in the company is

as follows:

Aging schedule for the year 2005

Outstanding period Outstanding Receivables(values in Rs)

% of total outstandingreceivables

Not due 32,23,38,603 48.68%0-30 11,48,55,005 17.34%

31-60 7,70,01,950 11.63%

61-90 2,55,44,568 3.88%

91-180 2,60,41,030 3.93%

>181 9,63,22,626 14.54%

Total 66,21,03,780 100%

ANALYSIS:

During the year 2005, the total outstanding receivables were Rs.

66,21,03,780.out of which 48.68% were not due, 17.34% receivables were

collected within 30 days, 11.63% were collected in between 31 days to 60 days,

3.88% were collected in between 61 days to 90 days, 3.93% were collected in




between 91 days to 180 days. The remaining 14.54% receivables are taking

more than 180 days.




Not due 46,98,01,208 52.53%

0-30 18,31,25,405 20.47%

31-60 5,19,19,923 5.80%

61-90 3,94,65,006 4.41%

91-180 4,22,79,809 4.75%

>181 10,77,48,085 12.04%

Total 89,43,39,436 100%

ANALYSIS:


89,43,39,436.out of which 52.53%were not due, 20.47% receivables were


4.41% were collected in between 61 days to 90 days, 4.75% were collected in

between 91 days to 180 days. The remaining 12.04% receivables are taking

more than 180 days.







Not due 96,44,89,566 64.29%

0-30 30,56,53,366 20.37%

31-60 10,00,07,796 6.67%

61-90 2,80,30,688 1.86%

91-180 3,86,07,054 2.57%

>181 6,32,06,125 4.24%Total 1,499,994,595 100%

ANALYSIS:




1.86% were collected in between 61 days to 90 days, and 2.57% were collected

in between 91 days to 180 days. The remaining 4.24% receivables are taking

more than 180 days.







Not due 1,575,899,203 68.67%

0-30 34,44,41,876 15.00%31-60 22,02,53,459 9.59%

61-90 6,07,89,668 2.65%

91-180 5,07,57,638 2.23%

>181 4,26,53,695 1.86%

Total 2,294,795,539 100%

ANALYSIS:









more than 180 days.




Not due 1,330,159,216 63.21%

0-30 45,84,78,599 21.79%

31-60 10,73,51,757 5.10%

61-90 3,92,04,061 1.86%

91-180 11,57,01,735 5.50%

>181 5,31,29,750 2.54%

Total 2,104,025,117 100%

ANALYSIS:









more than 180 days.

1) DEBTORS TURNOVER RATIO:

NET CREDIT SALES

DEBTORS TURNOVER RATIO = ---------------------------------

AVERAGE DEBTORS

Opening debtors + closing debtors

AVG DEBTORS = ----------------------------------------------------

2

YEARS Net credit sales Avg debtors TIMES

2005-06 391,85,58,196 75,31,13,338.5 5.20

2006-07 595,80,16,404 115,80,32,766.5 5.14

2007-08 1083,32,56,904 186,21,13,498 5.81

2008-09 13,177,230,047 217,15,87,529.5 6.06




INTERPRETATION:

During the year 2005-06, the debtor’s turnover is 5.2 times.

In the year 2006-07, it was slightly decreased, but in the year 2007-08&2008-09 it was

increased to 5.81 times and 6.06 times respectively.

Overall it is in increasing trend.

2) DEBTORS COLLECTION PERIOD(in days):

Avg debtors

= ----------------------------x365

Net salesYEAR AVG DEBTORS NET SALES IN DAYS

2005-06 75,31,13,338.5 391,85,58,196 70.14

2006-07 115,80,32,766.5 595,80,16,404 70.94

2007-08 186,21,13,498 1083,32,56,904 62.73

2008-09 217,15,87,529.5 13,177,230,047 60.15

INTERPRETATION:

During the year 2005-06, the debtor’s collection period was 70.14 days.




In the year 2006-07, it was slightly increased to 70.94 days, but in the years 2007-08

and 2008-09 it was decreased to 62.73 days and 60.15 days respectively.

The above table reflects, the firm is maintaining strict collection policy.

FINDINGS

1. The credit worthiness and credit limit of customer is determined by the character and

financial position of a customers and period of presence in the business.

2. The transactions with the new customers will be on cash terms, with due course of time,

credit will be given to them.

3. The company follows the classification of debts into three categories namely debts

outstanding for less than 30-90 days are considered to be “GOOD”, for 90-180 days

are considered to be “DOUBTFUL” and > 181 days are considered to be

“DISPUTES”, >365 days are considered to be “bad debts”.

4. The sales of the company on both cash and credit terms. Out of the sales generated 60%

are of cash and 40%are of credit basis.

5. No bad debts are seen in the year of September 2009 & February 2010.6. From the analysis it is found that Tirupathi branch performance is good when compared

with other branches.




SUGGESTIONS

1. The company Structured frame work of bank Guarantee Limits must be done by the

company to which extent the company may give credit limit to its customers.

2. Implementation of special package of “EPR”, that which can improve the cash and

credit management procedure in a better manner regarding to “ACCOUNTS

RECEIVABLES”.

3. Granting cash discount will be better to encourage regular payments.

4. The payments are delayed due to wrong billing; delayed billing etc., the billing system

should be improved. (Reasonable time).

5. If any customer is habitually defaulter in making payments, guarantee must be taken.

6. If credit period is increased the company can increase its sales.




CONCLUSION

The receivable management systems followed by Amara Raja batteries Ltd shows

satisfactory position. It gives to clear idea to the management to take decision. .The company is

reduced its bad debts .it can get extra receivables. If credit period is increased, the collections

can increases in sales. Overall the financial performance of the company is good. And it has to

take necessary steps to further growth of the company.




BIBLIOGRAPHY

• M.Y.KHAN & P. K. JAIN (2007) Financial Management: Text, problems& cases, 4/e,

Tata MCGRAW-HILL PUBLICATIONS: New Delhi’s.

• I.M. PANDEY (2004), Financial Management, 9/e, VIKAS PUBLICATIONS, New

Delhi

• PRASANNA CHANDRA (2003), Financial Management, 5/e, TATA MCGRAW-

HILL PUBLICATIONS: New Delhi.

• http://www.amararaja.co.in.

• http://www.arbl.co.in


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