mamta report

7/30/2019 Mamta Report

1/104

A

PROJECT REPORT

ONWORKING CAPITAL

MANAGEMENT

AT

JINDALSTAINLESSLIMITED,HISAR

(Submitted in partial fulfilment for the completion of degree of

BACHELOR OF COMMERCE)

Under Guidance of: SubmittedBy:

Dr.AjayVerma MamtaDhanda

Assistant Professor Enrollmentno.110557

FACULTY OF ARTS, SCIENCE &COMMERCE

Mody Institute of Technology & Science

Laxmangarh (Rajasthan)

2013-14


2/104

PREFACE

This department is intended for the experience gained by us during Summer

Training in Jindal Stainless limited, Hissar.

While making this project we became familiar with the financial terms that are

usually used in a company and the different functions that a Finance Manager

has to perform. We have learnt how to analyse ratio.

We have also gained confidence to interact with different persons working at

reputed positions during the summer training, in preparing the project report.

We have tried our level best effort to make it reliable, compact and accurate

organization.


3/104


4/104

Acknowledgement

I take this opportunity to express my profound gratitude &deep regards to my

guide Professor Mr.Ajay Verma for his exemplary guidance, monitoring &

constant encouragement throughout the course of this project. The blessing,

help & guidance given by him time to time shall carry me a long way in the

journey of life on which I am about to embark.

I also take this opportunity to express a deep sense of gratitude to Mr. Jasu

Jain, Manager (Jindal Stainless Ltd), for their cordial support, valuable

information & guidance, which helped me in completing this task through

various stages.

I am obliged to staff members of company, for the valuable information

provided by them in their respective fields. I am grateful for their cooperation

during the period of my project.

Lastly, I thank almighty, my parents, brother, sister & friends for their constant

encouragement without which this project would not be possible.

MAMTA DHANDA


5/104

DECLARATION

I,Mamta Dhanda , Enrollment No. 110557 a student of Class

Bachelor of Commerce (Honours) hereby declare that the Project

entitled Working Capital Management at Jindal Steel & Power

Ltd. is my original work and the same has not been submitted to

any other institution for the award of any other purpose.

Mamta Dhanda


6/104


7/104

CONTENTS

1. Introduction

2. About the topic

3. Work done at JSPL

4. Research Methodology

5. Finding & Analysis

6. Conclusion

7. Limitations of the study

8. Recommendations

9. References

10. Annexure


8/104

CHAPTER-1

INTRODUCTION

A.ABOUT THE INDUSTRY :

The global steel industry has seen continued strong demand growth during the

year. However, depressed prices have put pressure on margins. During

H1FY2007 (April-September 2006), Indias finished steel production increased

7.2% (year on year) to 22.31 million tonnes (mt). By comparison, finished steel

production increased 6.5% during FY2006. However, apparent steel

consumption increased at a higher rate of 7.9% (yoy) to 19.51 mt, driven by

higher demand for long products like bars and rods. High demand growth

reflects increased demand from construction, automotive, consumer durables,

and general engineering. The domestic prices of steel products have moved in

tandem with world prices. After a period of decline during July 2005-March

2006, domestic steel prices have increased significantly during FY2007. At the

beginning of July 2006, some of the steel companies announced price hike in

the range of Rs. 750-1,000 per tonne.

World crude steel production is expected to increase 9% during 2006 to around

1.23 billion tonnes, and is forecast to be the fifth consecutive year that world

steel production has exceeded 5%. Steel production has been driven by demand

in many developing/emerging countries. Inventory rebuilding has also occurred

in several developed countries after the production cuts in 2005. China has

dominated steel production growth over the last decade, and Chinas crude steel

production is expected to increase 17% during 2006 to around 408 mt.

The consumption of finished steel products world-wide increased to over 1

billion tones, an increase of 40 million tonnes. Steel production andconsumption in China continued to outstrip global growth rates and now


9/104

accounts for 31% of the worlds production and consumption of steel. Security

of raw material supply has become a new priority with various global steel

manufacturers seeking captive capacities or long-term commitments for iron

ore.

The Indian economy continued to see robust growth across most sectors and the

8% growth rate appears to be sustainable. The Indian corporate sector has

shown its confidence in the countrys economic fundamentals by committing

significant amounts of capital towards the creation of new capacity in several

sectors. The Indian steel industry has also increased production to cater to the

higher consumption levels. Jindal Steels performance in the past year has

understandably reflected the trends prevailing in the country. The Company has

been able to post its highest-ever output and sales and has continued to focus

on enriching its product mix to meet the demands of sophisticated user

industries. Domestic steel prices however have weakened, mirroring trends in

international markets.

Steel consumption is expected to grow at 9-10% per annum during the medium

term, driven by higher construction and infrastructure activity. Despite recent

strong growth in steel consumption at 38 kgms per person in 2005, consumption

in India is still very low by world standards. Steel consumption in China was

270 kgs per person in 2005. The growth is expected to drive by anticipated

growth in construction, automobile, oil and gas transportation, and

infrastructure sectors of the economy. The rural consumption of steel in India

remains at around 2 kg per capita per annum, primarily because steel is

perceived to be expensive. The Government has set a target for raising the per

capita rural consumption of steel to 4 kg per annum by 2019-20, implying a

CAGR of 4.4%.


10/104

On the supply side, finished steel production is expected to increase from

around 42.6 mt in FY2006 to 63 mt in FY2011. Because of increased demand,

Indian producers have announced substantial new capacity in steel. Producers in

India have announced plans to add around 60 mt of total capacity by 2008. The

NSP envisions overall steel production to grow at 7.3% per annum to 110 mt by

2020. While steel imports will grow at the rate of 7.1% per annum to 6 mt in

2020, exports will grow at the rate of 13.3% per annum to 26 mt. India already

exports substantial amounts of steel estimated at around 4.38 mt of finished

steel and 0.23 mt of semis. Considering the expected demand growth of 9-10%

per annum, the vast majority of Indias new production capacity will be for

export. Even if much of this is capacity for producing downstream products, the

result will be increased exports of higher value-added products.

The steel industry is a highly volatile industry and the movement in steel prices

governs the profitability. While low steel prices resulted in extremely poor

performance by the steel industry (both domestically and globally), the

improvement in steel prices since 2002-03 have resulted in sharp improvement

in performance since then, This positive trend is expected to continue in the

near-term, because of stable to increasing price outlook in the near-term.

However, there seems to be a concern on the sustainability of this trend due to

the expected additions of steel capacity worldwide, and possible slowdown in

demand because of rising prices.

In recent years, steel was regarded as a sunset industry and value destroyer

world-wide. Today, the industry is characterized by strong demand growth and

consolidation. The per capita consumption of steel in India continues to be

extremely low at around 32 kilograms. The large infrastructure projects under

implementation in the country are expected to significantly increase the demand

for steel in the coming years. If India were to have the same per capita


11/104

consumption as China has today, then India could consume more than 260

million tonnes of steel annually.

B..COMPANY PROFILEMr. O.P. Jindal promoted JSPL as Orbit Steel Private Limited (OSPL) in

1979. OSPL became a public limited company in 1998 and its name was

changed to the current JSPL (Jindal Steel & Power Limited)

Jindal Steel & Power Limited (JSPL), an O.P. Jindal Group Company, was

formed by hiving off the Raigarh and Raipur facilities of Jindal Stainless

Limited into a separate Company as part of a scheme of arrangement, w.e.f.

April 2, 1998.

The Company has plant at Raigarh (Chhattisgarh) for manufacture of

sponge iron with an installed capacity of 13, 70,000 tons per annum, & it is

the only sponge iron producer in the country with its own raw material

source and power generation making it one of the most cost effective

producers of sponge iron in the country. Power Generation plants with a

capacity of 290 MW, Steel Melting plant with a capacity of 24, 00,000 TPA

with Blast Furnace of 250,000 TPA capacity.

C.International Collaboration:

JSPL produces rails, H-beams, columns and sheet piles with JFE's

technical services assistance.

JSPL has entered into technical services assistance agreement with JFE

(earlier known as NKK Corporation), Japan for technology transfer to

produce superior quality, worlds longest rails of 120m finished length,

along with Parallel Flange Beams, Columns and Sheet Piles for the first

time in the country. This technical collaboration shall enable production of


12/104

long rails requiring far less joints in tracks, ushering a new era in safer rail-

travel and making introduction of fast trains in India a reality.

D.Awards & Recognition(i)National Award for Excellence in Cost Management 2005, third prize

in the private sector-manufacturing segment, by the Institute of Cost

&Work Accountant of India (ICWAI)(ii)National Energy Conservation Awards for 2001, 2002, 2003, 2004,

and 2005 by the Ministry of Power, Government of India.

(iii)National Safety Awards 2003-2004, by the Minter of Labour.(iv)IIM Quality Award for 2002-03 by the Indian Institute of Metals First

Prize in the IIM Awards 2001 for Quality by the Indian Institute of

Metals.

E. Future plans:

Expanding to newer horizons JSPL firmly believes that change is the only

constant in life and it shall have to continuously upgrade its existing

technologies, embrace new technologies, motivate its personnel and uplift

the living standards of those around us. Adhering to these values, major

expansion plans are being execute:

1.Raigarh

(i) 10.0 Lac MTPA capacities Plate Mill.(ii)50 MW capacities Power Plant based on fuel gases of coke oven.


13/104

(iii)7.0 Lac TPA Rebar, TMT and Wire Rod Mill.(iv)25.0 Lac MTPA capacities Sinter Plant.(v) 4.0 Lac MTPA Coke Oven Plant.(vi)12.5 Lac MTPA Blast furnaces.(vii)6 million tonne capacity steel plant in Orissa with an investment

of Rs. 13,500 crores

(viii)5 million tonne capacity steel plant in Jharkhand with an

investment of Rs. 11,500 crores .

An MOU has been signed between JSPL and the Government of Chhattisgarh

for setting up an additional 7.0 MTPA steel plant in phases and a 1600 MW

power plant with an investment of over US $ 5.20 billion (Rs. 260 billion).

2.Jharkhand

An 11 million ton integrated steel plant and 2600 MW captive power plant in

phases, with a total investment of US $ 6.00 billion, (Rs. 300 billion).

3.Orissa

A 12.5 million ton integrated steel plant and 2600 MW captive power plant in

phases, with a total investment of US $ 8.00 billion (Rs. 400 billion). The first

phase of 3 million ton is expected to be commissioned by 2011.

4.Coal to Liquid Petroleum Project

Jindal Steel & Power has been allotted the Ramchandi Promotional Coal Block

in Orissa for the proposed Coal to Liquid (CTL) project by the Union Coal

Ministry, Government of India. The project cost estimated to be around US $

8.4 billion (Rs. 420 billion) includes CTL plant, coal mining and power plant.

The project to be located in Tehsil Kishore Nagar, Dist. Angul, Orissa will

produce 80,000 barrels per day (4.0 MMTPA) crude using environment friendly


14/104

Indirect Coal Liquification Technology developed by M/S Lurgi of Germany

for the first time in India. The prestigious CTL project is yet another feather in

JSPLs cap.

5.Jindal Petroleum Limited

As part of its diversification process, JSPL has recently forayed into the oil and

gas sector, operating under the banner of Jindal Petroleum Limited. The

company has acquired 7 Oil & Gas blocks in different parts of the world,

including 5 in Georgia, 1 in Bolivia and 1 in India. Mr. Naveen Jindal recently

led a delegation to Georgia to sign contracts with the Government of Georgia

for the exploration and production of the blocks, signifying the importance the

company is giving to its petroleum business. The company has so far committed

an investment of US $ 200 million (Rs. 10 billion) and is working on several

other projects in the sector.

6. Bolivia

JSPL plans to invest US $ 2.1 billion (Rs. 105 billion) in Bolivia, South

America, in the coming years for mining and setting up of an integrated 1.7 MT

steel plant, 450 MW power plant, 6 MT sponge iron and 10 MT iron ore pellet

plant.

F. Objective

To develop a pool of technically trained power plant professionals for powerutilities ofIndia & Abroad. The course authorizes the pass outs to operate OR

undertake Maintenanceof any part or whole of a generating stations of capacity

100 MW & above together with the

associated substation.

G. RANGE OF PRODUCTS & SERVICE


15/104

Jindal organization has expanded and diversified into core business areas.

Ensuring synergy amongst its various business ventures spread over 13

plants at 11 pivotal locations in India.

The Jindal team embodies one of the most coveted talent pools of

technological acumen available in the country today with expertise that have

enabled the organization to put up large-scale projects in record time.

(i) Jindal Steel and Power Limited(ii) Jindal Strips Limited(iii)Jindal Saw Limited(iv)Jindal Iron & steel co.(v) Jindal Power Limited(vi)Nalwa Sponge Iron Limited(vii)Jindal Stainless Limited(viii)Vijayanagar Minerals Private Limited(ix)JSW Steel Limited

H. SWOT ANALYSIS

1.Strength:

(a)One of the largest and lowest cost producers of coal based sponge iron

in the country.

(b)Total backward integration ensuring steady stream of profits

(i) Captive mining of iron ore and coal with coal washery facility(ii) Captive power generation

(c)Identifying projects and business opportunities.

(d)Expertise in project implementation at low capital cost and within theschedule time.


16/104

(e)Lowest cost producer of sponge iron (coal based in the country).

(f)JSPL is expanding its operations with the new plants proposed in

Orissa and West Bengal.

(g)Huge reserve of iron ore and coal in mines.

(h)The worlds longest rail developed in the factory brightens companys

future outlook.

2. Weakness:

(a)Domestic consumption of steel dependent on infrastructure spending

by GOI.

3. Opportunity:

(a) Madhya Pradesh and Chhattisgarh are power deficit states, which

would help company in continuous selling of surplus power to

MPEB & CSEB on long-term basis.

(b) Forward integration into value-added Products, Rails & Universalbeams will drive future growth.

(c) Association with NKK to create huge export potential for Rails.

(d) State of Chhattisgarh encourages the setting up of new power

projects.

(e) The Governments policy to privatize the power trading leaves new

opportunities opened for the company.

(f) Reduced availability of steel scrap (substitute for the sponge iron)

will increase demand for the sponge iron.

(g) The increasing price of steel in the market will maximize the

profitability of the company further.

4. Threats:


17/104

(a)Sponge iron prices movements are dependent on international scrap

prices, which fluctuate widely.

(b)The main competitors like SAIL, TISCO, MITTAL STEEL, etc. of

JSPL.

(c)The proposed steel plants of Mittal Steels in the state of Jharkhand

and of Tata Steel in the district of Bastar in Chhattisgarh, raises

further threats for JSPL.

I.MARKET PRESENCE

In the world of business, the Jindal Organization is a celebrity. Ranked sixth

amongst the top Indian Business Houses in terms of assets, the group today

is a US $ 4 billion conglomerate.

Jindal Organization aims to be a global player. For that, it is committed to

maintain international quality standards, efficient delivery schedule,competitive price and excellent after sales service.

Jindal Organization set up in 1970 by the steel visionary late. Mr. O.P.

Jindal has grown from an indigenous single unit steel plant in Hisar,

Haryana to present multi-billion, multi-location and multi-product steel

conglomerate and the organization is still expanding, integrating,

amalgamating and growing. New directions, new objectives, but the Jindal

motto remains the same

We are the Future of Steel.

The group has been technology driven and has a broad product portfolio.

Yet, the focus at Jindal has always been steel. From mining of iron-ore to

the manufacturing of value added steel products, Jindal has a pre-eminent

position in the flat steel segment in India and is on its way to be a major


18/104

global player, with its overseas manufacturing facilities and strategic

manufacturing and marketing alliances with other world leaders.

J. TECHNOLOGYICAL EDGE

The hallmark of the organizations achievement and growth has been its

ability to develop and adopt the latest technology, the match the demands of

a dynamic and burgeoning Indian Industry.

Seeing doors where others see walls

At Jindal, research is a self-imposed discipline; a challenge it has pursued with a

pioneers zeal. Exploring new ideas, attempting break through products and

processes. For instance, tracking and adopting the latest in world technology,

anticipating customer needs with const-efficient, reliable solutions and

promoting engineering skill and manpower calibre. Jindals R&D investment,

together with its R&D capability has given it a head start over others.

K. HISTORY

1.1972

(i) The Comp. was originally incorporated as Piramal Steel Ltd. [PSLs] on2nd June. The main objectives of Comp. are to manufacture Casting of

steel scrap into ingots, slabs, blooms, billets, etc.

(ii)1,20,000 No. of equity shares subscribed for by promoters, directors,etc. 7,000 Pref. & 1,68,000 No. of equity shares offered at par to the

public in April 1973.

2. 1983


19/104

(i) The name of Comp. was changed from Piramal Steel, Ltd., to Jindal Iron& Steel Comp. Limited vide fresh Certificate of Incorporation dated 12th

April.

(ii)5, 60,000 Rights Equity shares issued at par in propn. 2:1.3. 1984

(i) Meanwhile, the continuous casting machine had arrived & wasundergoing modifications. The Comp. had also ordered a large induction

furnace to double the steel making capacity to 36,000 tonnes per year.

(ii)The Comp. also reviewed & deferred the rolling mill project conceived byprevious management & the rolling mill equipment already procured was

disposed of. The Government of India had turned down the company

proposal to instal induction furnace. Hence the Comp. was forced to go in

for arc furnace route as desired by Government & the project reports were

under preparation.

4. 1985

(i) 8, 40,000 Rights equity shares issued at par in prop. 1:1.5. 1988

(i) Overall recession in stainless steel market coupled with high cost ofinputs restricted the production of stainless steel to bare minimum level.

(ii)7,000 Pref. shares redeemed on 26.6.1988. 6,950 - 9.5% Pref. sharesallotted on 28.9.1988. These Pref. shares redeemable no later than 10

years from 28.9.1988.

6. 1989


20/104

(i) The Comp. undertook to enhance the steel melting capacity to 1,50,000TPA through installation of 35 tones Ultra High Power Electric Arc

furnace & modernization of slab casting machine & other equipments.

7. 1991

(i) The plants operated at full capacity & registered considerableimprovement in operational efficiency.

(ii)2,000 - 11% Pref. & 13, 02,118 No. of equity shares allotted withoutpayment in cash to members of NAL on its merger. Another 1, 15,125No. of equity shares also allotted without payment in cash.

8. 1992

(i) The Comp. offered 38, 73,109-12.5% partly convertible debentures of Rs.110 each on rights basis to the shareholders in the proportion of 5

debentures: 4 equity shares held. Additional 80,966 debentures were

allotted to retain oversubscription.

(ii)Another 1, 93,655-12.5% partly convertible debentures were offered tothe employees of Comp. on an equitable basis. Additional 8,045

debentures were allotted to retain oversubscription.

(iii)Part A of Rs. 50 of each debenture will be converted into one equity shareof Rs. 10 each at a premium of Rs. 40 per share on the expiry of 6 months

from the date of allotment. Accordingly, a total 46, 55,775 No. of equity

shares were allotted.

(iv)The Comp. revalued its plant & machinery as on 31st March, & thesurplus of Rs. 78, 01,651 arising out of this was credited to revaluation

reserve.


21/104

9. 1993

(i) The Comp. embarked on setting up of an integrated steel plant having acapacity of 1.25 million tpa of steel at Bellary, Hospet, Vijayanagar, in

Karnataka. As per the promoters agreement with KSIIDC, the Comp. is

to undertake its said project in a newly promoted Comp. 'Jindal

Vijayanagar Steel Ltd.

(ii)During April, the Comp. issued 129, 30,000 - Zero Interest second fullyconvertible debentures of Rs. 60 each on Rights basis in proportion 1:1.

(iii)Each debenture would be converted into 1 equity share of Rs. 10 each at apremium of Rs. 50 per share after 1 year from the date of allotment of

debenture.

(iv)172,42,080 - Zero interest fully convertible debentures of Rs. 100 eachwere issued through the prospectus as follows on firm allotment basis:

(v) 5,00,000 debentures to UTI,(vi) 10,00,000 debentures to Financial Institution,(vii)27,00,000 debentures to NRIs on repatriation basis,(viii) 15,00,000 debentures to shareholders of Group Companies,

(ix) 5, 00,000 debentures to Indian Mutual Funds. Balance 105, 42,080debentures were issued to public.

(x) Each debenture was to be converted into 1 equity share of Rs. 10 each at apremium of Rs. 90 per share after 12 months from date of allotment.

10. 1994


22/104

(i) During the year, the Comp. proposed to further expand its capacities toremove bottlenecks to become fully integrated steelmaker, hot & cold

roller & galvaniser.

(ii)The existing cold rolling unit of 20,000 tonnes at Narsapur was shifted toTarapur & its capacity was to be expanded to 50,000 tonnes by June.

(iii)During November, the Comp. issued 98, 70,000 - 10.5% securedredeemable non-convertible debentures of Rs. 500 each with detachable

warrants on Rights basis in proportion 23 debentures: 100 equity shares

held. [all were taken ups].

(iv)The warrant entitles the holder to apply for 1 equity share of Rs. 10 eachat a premium of Rs. 190 per share at any time before 60 months from the

date of allotment of debentures.

(v) Part B of Rs. 60 of each debenture was to be redeemed at par in threeequal annual installments on the expiry of 6th, 7th & 8th year

respectively from the date of allotment.

(vi)299,87,080 No. of equity shares of Rs. 10 each allotted as a consequentto the conversion of zero interest Secured Fully convertible debentures

on 12th July.

11. 1995

(i) The overall margins on total sales declined due to increased cost ofimported raw materials coupled with the price collapse in the

International market.

(ii)The Comp. proposed to sell the Aluminum unit, since the unit has nosynergy with the mild steel business operations & constitutes a small

portion of overall business of company.


23/104

(iii)During the year, the Comp. proposed to acquire the cold rolling unit of150,000 TPA capacity of Jindal Strips Ltd.

(iv)11% Redeemable Cumulative Pref. has been redeemed on 30th Sept.12. 1996

(i) The Comp. undertook balance capacity enhancement of 1.5 lakh tonnesper annum. The Comp. also undertook modernization projects essentially

involving technological up gradation of manufacturing facilities with the

objective of achieving cost effectiveness & product quality improvementat par with the international standards.

(ii)The Comp. incorporated a joint venture Comp. viz. `BJS Steel ProductsPvt. Ltd.' with British Steel Plc. U.K.

(iii)Subject to necessary approvals being obtained from the High Court ofMumbai, it was proposed to merge Navin Alloys limited [NALs] with the

company.

(iv)The amalgamation was expected to result in a forward integration makingthe amalgamated Comp. an integrated steel plant with in-house facilities

for melting, slap casting & hot rolling.

(v) In keeping with the strategy to grow exponentially, the Comp. proposedto forward integrate the operations through amalgamation of two of its

group companies namely Nalwa International, limited & Nasrapur

Metals, Ltd.

13. 1997

(i) The Jindal Iron & Steel Comp. Ltd [Jiscos] & the British Steel are joininghands to float a 50:50 joint venture company, JBS Steel Products limited.


24/104

The joint venture will have a capacity to manufacture 1 lakh tonne of

color coated steel products and also set up steel service center in India.

(ii) Jisco is the first major Comp. to earmark funds for buy-back of sharesalthough several managements have acquired powers for buy-back as

soon as the law to do so is in place.

(iii)Jindal Iron and Steel Comp. Ltd [Jiscos] & Lloyds Steel are hiking theprices of their flat steel products. Jisco hike comes into effect on July 11.

(iv)Jisco has taken up a forward integration project to manufacture organiccoated steel products in financial collaboration with British Steel Plc.

14. 1998

(i) The Comp. is setting up a three lakh tonne per annum galvanized steelunit.

(ii)The A+ rating assigned to the nonconvertible debenture [NCDs] issues ofJindal Iron & Steel Ltd [Jiscos] aggregating Rs.503.7 crore has been put

on rating watch with developing implications by Credit Rating

Information Services of India Ltd [Crisils].

(iii)The Comp. is setting up a service center in one of European countries tocater to the customers.

15. 1999

(i) The Jindal group has set up overseas projects in Texas, US, throughacquisition of Saw pipes & plates manufacturing facilities of US Steel.

(ii) Jisco holds 9,09,69,100 equity shares of face value Rs 10 each,amounting to Rs 97 crore & 3,57,50,000 equity shares of JVSL acquired

from Jindal Strips Ltd [JSLs] amounting to Rs 35.75 crore.


25/104

(iii)Debenture programme of Jindal Iron & Steel Comp. [Jiscos] from `bbb+'to speculative grade `bb' which denotes 'inadequate safety'.

(iv)The Comp. has entered into an agreement with Steel Authority of India[SAILs] for procurement of slab.

(v) British Steel of UK has put on hold its investment in a proposed jointventure Comp. -- JBS Steel Products Pvt Ltd -- in association with Jindal

Iron and Steel Co [Jiscos].

(vi)Jindal Iron & Steel Comp. Ltd [Jiscos] has been awarded the Niryat Shreebronze trophy by Federation of Indian Export Organizations [FIEOs].

16. 2000

(i) Jindal has introduced a range of security doors with features such as fullysecure lock-up [16 rods] that prevents forced opening by drilling/prying.

(ii) ICRA has downgraded Jindal Iron & Steel Comp. limited to `LAA-' from`LAA+'.

(iii)The Sajjan Jindal group flagship Jindal Iron and Steel Co will increase itsholding in Jindal Vijaynagar Steel from 8 per cent to 16.8 per cent

through conversion of debt into equity.

(iv)ICRA has downgraded the rating of debentures of Jindal Iron and SteelComp. in the wake of downgrading of credit rating of its guarantor IFCI

Ltd.

(v) The Comp. launched a B2B portal for steel, christened steelmart.com.(vi)Jindal Iron and Steel Comp. have acquired the 50 per cent equity stake

held by British Steel Benelux in JBS Steel Products Ltd, a joint venture

Comp. of British Steel Plc, UK & JISCO.

17. 2002


26/104

(i) Jindal Iron &Steel appoints Mr. Sajjan Jindal as the Chairman & theManaging Director of the company.

(ii) Jindal NCD programme is being downgraded to LBB [structuredObligations] from LA-[OSs] by ICRA.

18. 2003

(i) Unit Trust of India approves Jisco debt restructuring.(ii) Jindal Iron & Steel makes a strong recovery on buying support from

institutions.

(iii)Approve in principle the restructuring envisaging consolidation of itssteel business with that of Jindal Vijaynagar Steel Ltd.

(iv)Appointment of ICICI Securities Ltd and M/s RSM and Co as consultant,in this regard.

(v) Appointment of M/s Deloitte Haskins and Sells & ICICI Securities Ltd,as valuers, in this regard.

19. 2004

(i)Nissin Steel entering into equity & technology collaboration with JindalStainless

(ii) Jindal Stainless Limited - technical collaboration with the Japanesestainless steel major, Nisshin Steel.

(iii)The Orissa high court on May 11 directed the state government not tosign the joint venture agreement with Jindal Stainless Steel Ltd for the

exploitation of the Tangarpada chromites mines in the state.


27/104

(iv)Launches a premium range of beverage sets in designer stainless steelunder the brand name Art d'inox.

(v) Jindal Stainless signs a stainless steel supply contract for US $ 18.5million

20. 2006

(i) Jindal Stainless signs MOU with Steelway s.r.l. Italy Ltd for establishinga Service Centre near Gurgaon, Haryana

21. 2007

(i) Jindal Stainless Ltd has delisted with effect from March 31, 2007 fromDelhi Stock Exchanges Ltd (DSE) in terms of SEBI (Delisting of

Securities) Guidelines, 2003 for voluntary delisting.

22. 2008

(i) Stainless Ltd has informed that the Board of Directors of the Company atits meeting held on January Jindal 21, 2008, inter alia, has appointed Sh.

Arvind Parakh as Additional Director w.e.f. January 21, 2008. Jindal

Stainless Ltd has informed that the Company has received the certificate

dated September 23, 2008, issued by the Registrar of Companies,

NCT of Delhi & Haryana, New Delhi consequent upon change of name

of the Company from Jindal Stainless Ltd to JSL

(ii)Company name has been changed from Jindal Stainless Ltd to JSL Ltd.23. 2010


28/104

(i) The Government of Orissa has inked a Memorandum of Understanding(MoU) with JSL Ltd. for setting up a 1.6 mn tonne integrated Stainless

Steel Park at Kalinganagar (Orissa).

(ii) JSL Ltd has informed that the Board of Directors of the Company hasappointed Mr. Jurgen Hermann Fechter and Mr. James Alistair Kirkland

Cochrane as Additional Directors w.e.f. Mar JSL Ltd has appointed Mr.

Rajeev Bakshi as Additional Director w.e.f. July 01, 2010 by passing the

resolution through circulation.

(iii)Company has changed its name from JSL Ltd. to JSL Stainless Ltd. 2011(iv)JSL Stainless signs power purchase agreement with GRIDCO.(v) The names of the Company have been changed from "JSL Stainless

Limited" to "Jindal Stainless Limited" with effect from December 07,

2011.

Jindal Stainless, Jaipur receives coveted Orissa State Govt.'s

POLLUTION CONTROL AWARD.

24. 2012

(i) The Rework Package of the Company under the Corporate DebtRestructuring (CDR) Mechanism has been approved by the CDR

Empowered Group on August 24, 2012 and the same has been

communicated to the Company by CDR Ceil vide its letter dated

September 18,2012.

(ii)The Company has allotted 3,64,972 equity shares of Rs. 2/- each to "TheRoyal Bank of Scotland NV London Branch 09, 2010

L.MISSION


29/104

To strive to be a world class service centre of stainless steel through constant

learning & quality improvement.

M.VISION

We are committed to provide world class ethical & quality service for our

customer delight.

1. Treat employees as 'partners' in progress2. Be a good corporate citizen.3. Creating value for all stakeholders.

N. TRAINING METHODOLOGY:

(i) Class room lectures for imparting theoretical & technical knowledge

(ii) Practical training in different technologies: 4X250, MW, 4X600 MW& 4X135 MW capacity Jindal thermal Power Plants.

(iii) Simulator training (JIPT has 4X250 & 4X600 MW Honeywell make

simulator which is replica of actual thermal plant)

(iv) Case studies /group discussions/ experience sharing/panel discussion

(v) Self learning through CBT training packages

(vi) Exposure Visits to other power plants

O. Jindal Institute of Power Technology (JIPT) CEA

Approved

Jindal Institute of Power Technology is recognized by Central Electricity

Authority (CEA), Ministry of Power as category-l Institute, as per provisions of

Sub Rule 2A of Rule 3 of Indian Electricity Rules 1956 is promoted by Jindal

Education & Welfare Society, located at Jindal Power Limited which is a part of


30/104

US$ 12 billion O.P. Jindal Group. The Institute possesses a world class

Simulator of 250 MW/600 MW generating units & state of art infrastructure.

JIPT is Located inside the 4X250,4X600 MW Jindal Thermal power plant in

Tamnar,Raigarh,CG 4961

P.MANAGEMENT:

Name Designation

Savitri Jindal Chairperson

Subash Singh Virdi Exe.Director & COO

Naveen Jindal Director

T S Bhattacharya Director

James Alistair Kirkland Cochrane Director

Ratan Jindal Vice Chairman & Mng.Director

Jitender P Verma Executive Director

Suman Jyoti Khaitan Director

Rajeev Bakshi Director

Gautam Kanjilal Nominee Director

Q. Registered Address:OP Jindal marg,

Hissar ; Haryana,125005

R.COMPETITORS:

COMPANY SYMBOL


31/104

Jindal Stainless Ltd. JINDAS

Elango Industries Ltd. ELAIND

Inducto Steel Ltd. INDUST

Mahindra Ugine Steel Company

Ltd. MAHUGI

Mukand Ltd. MUKLTD

Panchmahal Steel Ltd. PANSTE

Shah Alloys Ltd. SHAALL

Usha Martin Ltd. USHMAL

Welcast Steels Ltd. WELSTE

CHAPTER -2

ABOUT THE TOPIC

A. MEANING OF WORKING CAPITAL:
http://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-750.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-6215.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-6215.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-5624.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-11356.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-11356.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-13382.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-11287.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-11287.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-11022.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-12833.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-12813.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-12813.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-12813.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-12833.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-11022.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-11287.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-13382.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-11356.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-11356.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-5624.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-6215.cmshttp://economictimes.indiatimes.com/Jindal%20Stainless%20Ltd./stocks/companyid-750.cms


32/104

(i) Working Capital is the amount of Capital that a Business has available tomeet the day-today cash requirements of its operations

(ii)Working Capital is the difference between resources in cash or readilyconvertible into cash (Current Assets) and organizational commitments for

which cash will soon be required (Current Liabilities)

(iii)It refers to the amount of Current Assets that exceeds Current Liabilities(i.e. CA - CL)

(iv)Working Capital refers to that part of the firms Capital, which is requiredfor

Financing Short-Term or Current Assets such as Cash, Marketable

Securities,Debtors and Inventories. Working Capital is also known as

Revolving or Circulating Capital or Short-Term Capital.

(v) Working Capital includes the current assets and current liabilities areasof the balance sheet. Working Capital can be called by its alternative

name - "Net Current Assets.

(vi)Working Capital includes four balance sheet items:Stock - stocks of raw materials, partly completed production and finished

good awaiting sales

Debtors - amounts owed TO the company, mainly from customers in

respect of sales made on credit.


33/104

Creditors - amounts owed BY the company, mainly to suppliers of raw

materials, services (electricity, water, telephone, rent, etc.) but also,

possibly, unpaid tax demands, unpaid dividends and other items

Cash - bank balances, cash holdings and short-term investments.

B. CLASSIFICATION OF WORKING CAPITAL:

1. On basis of concept:

(a) Balance Sheet Concept:

There are two interpretation of working capital under the balance sheet

concept:

(i) Gross working capital: The term working capital refers to the Gross

working capital and represents the amount of funds invested in current

assets . Thus, the gross working capital is the capital invested in total

current assets of the enterprises. Current assets are those assets which are

converted into cash within short periods of normally one accounting year.

Example of current assets are:

Cash in hand and Bank balance

Bills Receivable

Sundry Debtors

Short term Loans and Advances

Inventories or Stock as:

Raw Materials

Work in Process

Stores and Spaces


34/104

Finished Goods

Temporary Investments of Surplus Funds

Prepaid Expenses

Accrued Incomes

(ii)Net working capital: The term working capital refers to the net working

capital. Net working capital is the excess of current assets over current

liabilities or say:

Net Working Capital = Current AssetsCurrent Liabilities.

Net working capital may be positive or negative: When the current assets

exceed the current liabilities, the working capital is positive and the negative

working capital results when the current liabilities are more than the current

assets. Current liabilities are those liabilities which are intended to be paid in the

ordinary course of business within a short period of normally one accounting

year of the current assets or the income of the business. Examples of currentliabilities are:

Bills Payable

Sundry Creditors or Account Payable

Accrued or Outstanding Expenses

Short term Loans, Advances and Deposits

Dividends Payable

Bank Overdraft

Provision for Taxation, If does not amount to appropriation of profits

The gross working capital concept is financial or going concern concept

whereas net working capital is an accounting concept of working capital.

(b) Operating cycle concept


35/104

Working Capital refers to that part of firms capital which is required for

financing short term or current assets such as cash, marketable securities, debtors

and inventories. Funds thus invested in current assets keep revolving fast and

being constantly converted into cash and these cash flows out again in exchange

for other current assets. Hence it is also known as revolving or circulating capital.

The circular flow concept of working capital is based upon this operating or

working capital cycle of a firm. The cycle starts with the purchase of raw material

and other resources

And ends with the realization of cash from the sales of finished goods. It

involves purchase of raw material and stores, its conversion into stocks offinished goods through work in progress with progressive increment of labour

and service cost, conversion of finished stocks into sales, debtors and

receivables and ultimately realization of cash and this cycle continuous again

from cash to purchase of raw materials and so on. The speed/ time of duration

required to complete one cycle determines the requirements of working capital

longer the period of cycle, larger is the requirement of working capital.

Cash

Raw

Material

Work -

In-

Process

Finished

Goods


36/104

The gross operating cycle of a firm is equal to the length of the inventories and

receivables conversion periods. Thus,

Here, RMCP = Raw Material Conversion Period

WIPCP = Workin- Process Conversion Period

FGCP = Finished Goods Conversion Period

RCP = Receivables Conversion Period

However, a firm may acquire some resources on credit and thus defer payments

for certain period. In that case, net operating cycle period can be calculated as

below:

Further, following formula can be used to determine the conversion periods.

Raw Material Conversion Period = Average Stock of Raw Material.

Raw Material Consumption per day

Work in process Conversion Period = Average Stock of Work-in-Progress

Total Cost of Production per day

Finished Goods Conversion Period = Average Stock of Finished Goods

Total Cost of Goods sold per day

Receivables Conversion Period = Average Accounts Receivables

Net Credit Sales per day

Payable Deferral Period = Average Payable

Net Credit Purchase per day

Gross Operating Cycle = RMCP + WIPCP + FGCP + RCP

Net Operating Cycle Period = Gross Operating Cycle Period Payable Deferral period


37/104

2. On basis of time

On the basis of concept, working capital is classified as gross working capital

and net working capital. The classification is important from the point of viewof the financial manager.

(a) Permanent or Fixed Working Capital: is the minimum amount which is

required to ensure effective utilization of fixed facilities and for maintaining

the circulation of current assets. There is always a minimum level of current

assets which is continuously required by the enterprises to carry out its normal

business operations.

(b) Temporary or Variable Working Capital: is the amount of working capital

which is required to meet the seasonal demands and some special

exigencies.Varibles working capital can be further classified as second

working capital and special working capital. The capital required to meet the

seasonal needs of the enterprises is called the seasonal working capital.

Temporary working capital differs from permanent working capital in the sense

that is required for short periods and cannot be permanently employed gainfully

in the business

C. IMPORATNCE OR ADVANTAGE OF ADEQUATE

WORKING CAPITAL:

Working capital is the life blood and nerve centre of a business. Just a

circulation of a blood is essential in the human body for maintaining life,

working capital is very essential to maintain the smooth running of a business.

No business can run successfully without an adequate amount of working

capital. The main advantages of maintaining adequate amount of working

capital are as follows:

Solvency of the Business


38/104

Goodwill

Easy Loans

Cash discounts

Regular supply of Raw Materials

Regular payments of salaries, wages & other day to day commitments.

Exploitation of favourable market conditions

Ability of crisis

Quick and regular return on investments

High morals

D.THE NEED OR OBJECTS OF WORKING CAPITAL:

The need for working capital cannot be emphasized. Every business needs some

amount of working capital. The need of working capital arises due to the time

gap between production and realization of cash from sales. There is an

operating cycle involved in the sales and realization of cash. There are time

gaps in purchase of raw materials and production, production and sales,

And sales, and realization of cash, thus , working capital is needed for the

following purposes:

(i) Payment of daily expenses &for continuity in production.(ii)Payment of current liabilities on time.(iii)

Taking advatages of cash discount.

(iv)Taking advantages of favourable oppurtunities of the market.E. FACTORS DETERMING THE WORKING CAPITAL

REQUIRMENT:

The working capital requirements of a concern depend upon a large number of

factors such as nature and size of the business, the characteristics of their


39/104

operations, the length of production cycle , the rate of stock turnover and the

state of economic situation. However the following are the important factors

generally influencing the working capital requirements.

1.Nature or characterstics of business: The nature and the working

capital requirement of enterprises are interlinked. While a manufacturing

industry has a long cycle of operation of the working capital, the same would

be short in an enterprises involve in providing services. The amount required

also varies as per the nature, an enterprises involved in production would

require more working capital then a service sector enterprise.

2.Manufacture or production policy : Each enterprises in the

manufacturing sector has its own production policy, some follow the policy

of uniform production even if the demand varies from time to time and other

may follow the principles of demand based production in which production

is based on the demand during the particular phase of time. Accordingly the

working capital requirements vary for both of them.

3.Operations :The requirement of working capital fluctuates for seasonal

business. The working capital needs of such business may increase

considerably during the busy season and decrease during the off season.

4.Market conditions : If there is a high competition in the chosen project

category then one shall need to offer sops like credit, immediate delivery of

goods etc. for which the working capital requirement will be high. Otherwiseif there is no competition or less competition in the market then the working

capital requirements will be low.

5.Avability of raw material : If raw material is readily available then one

need not maintain a large stock of the same thereby reducing the working

capital investment in the raw material stock. On other hand if raw material is

not readily available then a large inventory stocks need to be maintained,

there by calling for substantial investment in the same.


40/104

6.Growth & expansion : Growth and Expansions in the volume of

business result in enhancement of the working capital requirements. As

business growth and expands it needs a larger amount of the working capital.

Normally the needs for increased working capital funds processed growth in

business activities.

7.Price level changes : Generally raising price level require a higher

investment in the working capital. With increasing prices, the same levels of

current assets needs enhanced investments.

F.MANAFACTURING CYCLE: The manufacturing cycle starts

with the purchase of raw material and is completed with the production of

finished goods. If the manufacturing cycle involves a longer period the need for

working capital would be more. At time business needs to estimate the

requirement of working capital in advance for proper control and management.

The factors discussed above influence the quantum of working capital in thebusiness. The assessment of the working capital requirement is made keeping

this factor in view. Each constituents of the working capital retains it form for a

certain period and that holding period is determined by the factors discussed

above. So for correct assessment of the working capital requirement the

duration at various stages of the working capital cycle is estimated. Thereafter

proper value is assigned to the respective current assets, depending on its level

of completion. The basis for assigning value to each component is given below:

COMPONENTS OF WORKING

CAPITAL

BASIS OF VALUATION

Stock of Raw Material Purchase of Raw Material


41/104

G.DANGERS OF REDUDANT WORKING CAPITAL:

(i) Low rate of return on capital

(ii) Decline in Capital and Efficiency

(iii) Loss of Goodwill and Confidence

(iv) Evils of Over-Capitalization

(v) Destruction of Turnover Ratio

Company must have adequate working capital pursuant to its requirements. It

should neither be excessive nor inadequate. Both situations are dangerous.

While inadequate working capital adversely affects the business operations and

profitability, excessive working capital remains idle and earns no profits for the

company. So company must assure its working capital is adequate for its

operations.

I.SOME DECISION TAKEN IN WORKING

CAPITAL MANAGEMENT:

(i) An adequate supply of raw materials.

(ii) Cash to meet the operational payments.

Stock of Work -in- Process At cost of Market value which is

lower

Stock of finished Goods Cost of Production

Debtors Cost of Sales or Sales Value

Working Expenses


42/104

(iii) The ability to grant credit to customers.

(iv) Investment in various current assets and to determine sources of fund to

finance.

(v) Proportion of long term and short term funds to finance current assets.

J.CONTENTS

1.Calculation

Current assets and current liabilities include three accounts which are of

special importance. These accounts represent the areas of the business where

managers have the most direct impact:

accounts receivable (current asset) inventory (current assets), and accounts payable (current liability)

The current portion of debt (payable within 12 months) is critical, because it

represents a short-term claim to current assets and is often secured by long term

assets. Common types of short-term debt are bank loans and lines of credit.

An increase in working capital indicates that the business has either increased

current assets (that it has increased its receivables, or other current assets) or has

decreased current liabilitiesfor example has paid off some short-term

creditors, or a combination of both.

Implications onM&A: The common commercial definition of working capitalfor the purpose of a working capital adjustment in an M&A transaction (i.e. for

a working capital adjustment mechanism in a sale and purchase agreement) is

equal to:

Current Assets Current Liabilities excluding deferred tax assets/liabilities,

excess cash, surplus assets and/or deposit balances.

Cash balance items often attract a one-for-one, purchase-price adjustment.
http://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Accounts_payablehttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Current_assetshttp://en.wikipedia.org/wiki/Current_liabilitieshttp://en.wikipedia.org/wiki/M%26Ahttp://en.wikipedia.org/wiki/Deferred_tax_assetshttp://en.wikipedia.org/wiki/Deferred_tax_assetshttp://en.wikipedia.org/wiki/M%26Ahttp://en.wikipedia.org/wiki/Current_liabilitieshttp://en.wikipedia.org/wiki/Current_assetshttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Accounts_payablehttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Accounts_receivable


43/104

CHAPTER-3

WORK DONE AT JSPL


44/104

A.INVENTORY CONTROL AT JSPL:

Inventory is monitored differently for raw material, work in progress,

finished goods and spares. Monthly inventory report is sent to the financedepartment in the corporate office. Obviously the inventory report is

prepared at plant level. Procurement Department gives the data of closing

stock of raw materials, finished goods as well as the work in progress

There are two components of inventory, Raw Material and Stores & Spares

in JSPL. In the Raw material part, JSPL have approximately fifty items.

Only five to six of them are belongs to A class, as shown by red colour.

Items in blue colour belong to class B and rests belong to class C.

Item which come under Class A are:-

LAW COKE

CALCINED PETROLIUM COKE

IRON ORE

COKING COAL

LAM COKE (PARADIP PORT)

COKING COAL ( AT PORT/CA)

In the case of Store & Spares, total number of items is around forty five.

Here also five to six belongs to Class A (shown by red colour), remaining in

class B and Class C shown by blue and black colour respectively. Some of

the A class items of stores and spares are:-

ELECTRICAL ITEMS

WELD, CUT & RELENQUISHMENT


45/104

BEARINGS & ACCESSORIES

PETROLIUM PRODUCTS

PIPE FIT & NOSELS

JUTE AND HDEP GOODS

HEAVY M/C & SPARES

GEAR BOXES & SPARES

HYD, PNUM, & SPARE

Consumption of each item is divided by the total value of consumption and

on the basis of set standards, items are categorized. Items in red shows the F

class or Fast moving goods, where in blue we have slow moving goods and

rests are no moving goods.

Some of the fast moving raw materials of JSPL are:-

Iron Ore

Law Coke

Washed Coal

Coking Coal

Some of the Fast moving store & Spares of JSPL are:-

Heavy machinery

Electrical & installable items

Petroleum products

Building material & cement


46/104

During a month, there are only three or four items which belong to F class.

The whole classification is given in the table no 6.

Maximum level, minimum level and reorder level

Four basic levels will need to be established for each line/category of stock.

There are the:

a) Maximum levelachieved at the point a new order of stock is

physically received;

b)Minimum level the level at point just prior to delivery of a

new order (sometimes called buffer stocks those held for

short term emergencies);

c) Reorder levelpoint at which a new order should be placed so

that stocks will not fall below the minimum level before

delivery is received; and the

d)Reorder quantity or economic order quantity the quantity of

stock, which must be reordered to replenish the amount held at

the point delivery, arrives up to the maximum level.

Once these controls are implemented an efficient system of recording

receipts and issues is vital to exercise full control of inventories.

After ABC analysis, next work is to find out the maximum level, minimum

level & reorder level for the materials. As it was already mentioned that

JSPL have more than fifty items under its raw material, it is very difficult to

find out all the levels for all the materials. So, only Class A items are taken

for this classification.

To find out maximum level, minimum level & reorder level, we need safety

stock, lead time and daily consumption. After getting information related to

these things we can find out all levels easily.


47/104

ITEM

NORMAL LEAD

TIME

( IN DAYS )

MAXIMUM LEAD

TIME

( IN DAYS )

From

vend

or

From

port

Custom

clearanc

e

From

vend

or

From

port

Custom

clearanc

e

LAM COKE (PARADIP

PORT) 6 0 0 8 0 0

COKING COAL ( AT

PORT/CA) 6 0 0 8 0 0

CALCINEDPETROLIUM COKE 15 0 0 20 0 0

IRON ORE 6 0 0 8 0 0

COKING COAL 21 6 6 25 8 7

LIMESTONE 15 0 0 20 0 0

LAW COKE 21 6 6 25 8 6

ITEM

SAFET

Y

NORMAL

DAILY

MAXIMU

M DAILY

MINIMUM

DAILY


48/104

The above table shows that the items of category A, with their lead time,

level of safety stock and time period for holding of the safety stock.

Calculation

Reorder level = Maximum usage x Maximum delivery time

Maximum level = Reorder level (minimum usage x Minimum delivery

time) + reorder quantity

Minimum level = Reorder level (Normal usage x Average delivery

time)

STOCK USAGE

(85%)

USAGE

(100%)

USAGE

(60%)

LAM COKE (PARADIP

PORT) NA NA NA NA

COKING COAL ( AT

PORT/CA) NA NA NA NA

CALCINED

PETROLIUM COKE 500 mt 119.02 mt 140 mt 84 mt

IRON ORE

45000

mt

16503.65

mt 19415 mt 13408 mt

COKING COAL 2500 mt 1479.73 mt 1740 mt 1045 mt

LIMESTONE 2600 mt 1283.91 mt 1510 mt 900 mt

LAW COKE 2700 mt 1137.67 mt 1340 mt 800 mt


49/104

ITEM

Reorder

level

Maximum

level

Minimum

level

LAM COKE (PARADIPPORT) N.A. N.A. N.A.

COKING COAL ( AT

PORT/CA) N.A. N.A. N.A.

CALCINED PETROLIUM

COKE 2800 MT N.A. 1015 mt

IRON ORE 155340 mt N.A. 56322 mt

COKING COAL 69600 mt N.A. 20760 mt

Limestone 30200 mt N.A. 10955 mt

LAW COKE 44220 mt N.A. 6700 mt

Above table shows the minimum level & reorder level of some of the raw

materials of the company. As the data related to reorder quantity is not

given, therefore maximum level is not calculated.

B. RECEVIABLE CONTROL AT JSPL:

Corporate office and the commercial department in coordination do the

management of receivables. The management of receivable is dealt on

major part by corporate office and minor part by commercial department of

the company.

JSPL in matter of granting a credit period to customers tighten their policy

and reduce credit period to27 days in 2011 to its debtors. Total Debtors


50/104

amounted to Rs. 211.16 lacks by the end of 2011, which further decreased

to 172.91 in 2012.

1.Evaluation

Evaluation of the performance of the credit department is a difficult task.

There is no standard yardstick to compare with the actual performance. Yet

a successful receivable management must ensure a comparatively slow

growth of receivable as against sales, as factory collection period and

receivable task over minimum bad debts losses and effective use of capital

invested in receivable. To what extent the concerns have been successful intheir efforts, can be gauged by their actual performance. Accordingly the

following criterion has been employed to evaluate the performance of

receivable management in JSPL:

The broad range of project management and financial advisory services

include:

(i) Average collection period: To measure the effectiveness ofcollection efforts.

(ii)Relationship between debtors and sales: To know growth rate andalso co-efficient of correlation and determination.

(iii)Receivable as percentage of sales ratio: To examine the level ofinvestment is receivable

2.Debtors Turnover Ratio:

This ratio is calculated the effective utilization of funds involved in receivable.


51/104

JSPL For the year ended

31 Mar 12 31 Mar 11 31 Mar 10 31 Mar 09

Debtors Turnover 12.18times 12.76times 7.4 times 6.7times

Average Collection

Period

29 days 28 days 49 days 54 days

Continuous increase in debtors turnover signifies that the investment in

debtors is decreasing over a period of time. And from last two years it is

nearby similar. Increase in debtors turnover is a positive sign for the

company, because with the increase in debtors turnover amount in

investment will decrease and company is realizing its receivables earlier, as

companys debtors turnover is increasing its average collection period is

decreasing. Therefore, a high debtor turnover and low average collection

period is favorable for the company and because of this cash cycle and

operating cycle is also decreased. In the year end 2010, debtors turnover

was 6.7 times and average collection period was approx. 54 days. But in last

few years JSPL showed good improvements and is able to increase its

debtors turnover up to 12 .18 times and decreases its average collection

period to 29 days.

3. Credit policy of JSPL:

(i) For domestic customers: Most of the domestic sales of JSPL are basedon advance payment. Some part of contract money is received in


52/104

advance and than sale is made. Remaining amount is received later on.

Generally, the credit period allowed by JSPL is up to 30 days but

sometimes it went up to 45 days also (only via prior approval of

management). Company also doesnt plan for any bad debts losses, but

if any bad debt happen than it has to be written off fully.

For obtaining information related to the new applicants only internal

sources are used. As company generally deals with either PSUs, or blue

chip companies or old customers, it is not a difficult job to obtain

information about them. No external source is used by JSPL

And for the analysis part, company use both qualitative and

quantitative tools. As per qualitative tool, company generally go for

market reputation and past record of customer and for quantitative

tool, company use the size of order, financial position of customer etc.

As far as collection efforts are concerned, company generally uses

lenient efforts. But in some cases company also go for strict methods.

JSPL normally uses all types of collection efforts like letters includingreminders, telephone calls, personal visits & legal actions. But company

doesnt take help of collection agencies. The collection cost is very

nominal in domestic sales and difficult to determine. Whereas capital

cost is equal to the cost of working capital which is not determined

because of confidentiality.

Management has power to offer a discount up to Rs. 250 per metricton, but no discount is generally offered to any customer.

(ii)For Export Sales: From the sale data of JSPL it was found that around15% of sales are based on exports. Therefore it is very important area for

planning. Exports are based on letter of credit. A foreign company who

want to purchase the material from JSPL sent an LC first. Than on the

basis of that LC, export order is made. Copy of that order is sent tomanufacturing plant at Raigarh. From the Raigarh only, the material is


53/104


54/104

on changing from year to year depending up on companys position

transactions, profitability and inventory position. Here the initial allocation

for manufacturing units is done by corporate office and all supplementary

requirements are to look upon by Commercial Department Company

operates an annual Cash Budget and a rolling Cash Plan drawn up every

month. Although specific forecasting technique is used, funds are deployed

to different departments as per their requirements. Daily reports on cash

transaction are prepared by Procurement department to keep a track of all

payments made in the days work. Every month cash transaction report is

sent to Finance department in the corporate office showing all the

transaction of cash, (inflow and outflows) actual utilization of cash and

allocation of fund is compared. If the utilization of cash is more than the

allocation of fund, then the plant has to justify its more utilization.

1. Measuring the efficiency of the total cash usage:

A few important ratios which help to measure the efficiency of cash usageare explained below:

.

RATIOS 2012 2011 2010 2009

Cash in Current Assets in

% (CCA) 2.05 2.81 3.35 4.27

Cash turnover to sales

(CTS) 77.81 103.51 67.89 73.51

Cash turnover in total funds

(CTTF) 137.99 109.29 70.82 60.12


55/104

D.PAYABLE CONTROL AT JSPL:

Mostly the creditor comprises of the bank that is financing the working capital

needs and the suppliers to whom payments are to be given. This is basically

done as per terms and condition with the respective parties. The company is not

able to make properpayment to its creditors as year on year companys

creditors are increasing (creditors increased from 51.49 on 2011 to 505.47 in

2012)

1. Evaluation

The evaluation for payable management is done with the help of ratios:

Creditors turnover ratio

Average Payment Period


Payable

Management

31 Mar 12 31 Mar 11 31 Mar 10 31 Mar 09

Creditors Ratio 4.19 times 4.45 times 2.82 times 3.77 times

Avg. Payment period 50 42 60 40

0

50

100

150

2012 2011 2010 2009(CCA) (CTS) (CTTF)


56/104

It is clear from the above data that the major source of cash flow in the company

is financing activities. It can be a cause of concern for the company, because

company is heavily dependent on financing activities for procurement of funds.

It happened in the year 2011-12 only. Before that company is earning mainly

from its operating activities.

Therefore, there is a strong need to increase inflows from operating activities.

Company should improve its operational part to be in to secure position.

On the other hand, every year companys outflow in investing activities is

increasing. The reason behind this is that company is growing quickly. And fora growing company making investments is necessary. Therefore it is not a cause

of worry for the company. In the year 2011-12 JSPL purchases JSPL, for the

generation of power.

Company is not maintaining high cash balances and is able to grow from many

years. It shows how efficiently company is using its funds. It is a policy of

company that not to maintain high cash balances. Every time when company

received a big sum of money, it invested in to short term investments as soon as

possible.

Summary:

The analysis shows that the minimum average creditor period is 42 days and

maximum is 60 days. By analysis reveals the decreasing and increasing trend in

average payment period, which shows company is provided with liberal and

strict credit payment period over the year and according to the market situation


57/104

E. Operating Cycle Analysis:

The need for working capital to run the day-to-day business activities cannot be

overemphasized. We will hardly find a business firm, which does not require

any amount of working capital. Indeed, firms differ in their requirements of the

working capital. We know that a firm should aim at maximizing the wealth of

its shareholders. In its Endeavour to do so, a firm should earn sufficient return

from its operations. Earning a steady amount of profit requires successful sales

activity. The firm has to invest enough funds in current assets for generating

sales. Current assets are needed because sales do not convert into cashinstantaneously. There is always an operating cycle involved in the conversion

of sales into cash.

There is a difference between current and fixed assets in terms of their liquidity.

A firm requires many years to recover the initial investment in fixed assets such

as plant and machinery or land and buildings. On the contrary, investment in

current assets is turned over many times in a year. This very soon realized

during the operating cycle.

Operating cycle is the time duration required to convert sales, after the

conversion of resources into inventories, into cash. The analysisof the operating

cycle helps in determining the delay centers for the company where the working

capital of the company has been locked up and due to which the interest costs of

the company is increasing. The operation cycle of a manufacturing company

involves three phases:

(i) Acquisition of resources such as raw material, labor, power

and fuel etc.

(ii) Manufacture of the product which includes conversion of

raw material into work-in-process into finished goods.


58/104

(iii) Sale of the product either for cash or on credit. Credit sales

create account receivable for collection.

These phases affect cash flows, which most of time, are neither synchronized

nor certain. They are not synchronized because cash outflows usually occur

before cash inflows. The firm is, therefore, required to invest in current assets

for a smooth, uninterrupted functioning. It needs to maintain liquidity to

purchase raw materials and pay expenses such as wages and salaries, other

manufacturing, administrative and selling expenses and taxes as there is hardly

a matching between cash inflows and outflows.

Determination of Operating Cycle of JSPL:

The determination of length of the operating cycle of a manufacturing firm is

the sum of:

(i) inventory conversion period (ICP), &

(ii) debtors conversion period (DCP)

(i) Inventory conversion period:

It is the total time needed for producing and selling the product. Typically, it

includes:

raw material conversion period (RMCP)

work-in-process conversion period (WIPCP), and

Finished goods conversion period (FGCP).

Inventory Conversion period = RMCP + WIPCP + FGCP


59/104

Inventory Conversion period 2012 2011 2009 2008

Raw material conversion period 69 49 59 70

Work-in-process conversion period 6 4 6 3

Finished goods conversion period 32 17 18 8

Inventory holding period 107 70 83 81

(ii) Debtors conversion period:

It is the time required to collect the outstanding amount from the customers.

The total of inventory conversion period and debtors conversion period is

referred to as gross operating cycle (GOC).

0

50

100

2009 2010 2011 2012

Inventory Holding Period

RMCP WIPCP FGCP

Gross Operating Cycle = ICP + DCP


60/104

F.Payable Deferral period:

This is very common to get gross operating cycle but in practice, a firm may

acquire resources (such as raw materials) on credit and temporarily

postpone payment of certain expenses. Payables, which the firm can defer,

are spontaneous sources of capital to finance investment in current assets.

The payables deferral period (PDP) is the length of time the firm is able to

defer payments on various resource purchases.

Working capital cycle 2012 2011 2010 2009

Holding period 107 70 83 81

Collection period 29 28 49 54

Gross working capital cycle 136 98 133 135

Payment Period 50 42 60 40

Net working capital cycle 86 56 73 95

Net Operating Cycle = GOCPDP


61/104

The above graph shows an increasing trend in IHP, it means that the co. is

holding inventory for longer period. This is one of the reasons of increasing

cycle time. In year 2009 the GWC is very long but as the co. is availing longer

APP so the NWC is coming least. As it is a growing co. so it has to hold

inventory but the co. should try to get longer APP from the suppliers to shorten

its net working capital cycle.

0

20

40

60

80

100

120

140

2012 2011 2010 2009

Working Capital Cycle

IHP ACP GWCC APP NWCC


62/104

CHAPTER- 4

RESEARCH METHODOLOGY

A. RESEARCH OBJECTIVE

This project was undertaken to analyse the working capital policies,

working capital management of the company and to reduce down their

problems and finding the solutions with respect to the working capital

management of the company.

The objective of the study is to provide the solutions for reducing down the

duration of the operating cycle, to analyse the working capital position of

the company and the liquidity position, finding out the problems that the

company is facing in managing the working capital and showing trend of

particular ratios in future and at same suggesting them to solve their

problems.

(i) To study the working capital concept.(ii)To see how the day-to-day operations of the company takes place.(iii)To study the working capital management process in Jindal Steel

& Power Ltd.

(iv)To see whether the company is prepared with enough workingcapital to face any kind of contagious.

(v) To compare the performance of W/C for a particular year withprevious years

position, Long term solvency, operational efficiency, and

(vi)To assess Liquidity p overall profitability of JSPL.


63/104

Providing suggestions to solve the problems of the company.

B. RESEARCH DESGIN

This project would start with understanding the basic financial structure

of the company. It would then go on understanding the working capital in

detail. This project would also highlight the practical aspects, my

experience and key learning derived from it. Key issues found in this

practical exposure will be analysed and discussed. The project will help one

understand the basics of corporate finance. The readers will come to know

about JSPL. The various products and services offered by the company will

be discussed. The study of strategic approach to financial success at JSPL

will give me wide view of corporate strategies adopted by companies. It will

help one in understanding the role of a finance department in the company.

The industry comparison & analysis will help one in understanding the key

differentiating factors.

C. Value Addition for the company:

A well designed and implemented working capital management is expected

to contribute positively to the creation of a firms value The purpose of this

project is to examine the trends in working capital management and its

impact on firms performance.

This project would help JSPL in comparing its stand with its competitors.

The in depth analysis might bring out some key issues that may be ignored

but may prove significant for the company. Various analyses conducted for

analysing the working capital will prove beneficial to the company.


64/104

D. DATA SOURCES

There are two methods of collecting data are as follows:-

1.Primary Data It is data which is collected afresh by the researcher

himself. It consumes time and needs trained researchers. It is expensive but,

at the same time leads to more accurate results. It includes the demographic

or socio-economic characteristics of consumer such as age, sex, income

level, education background, marital status, occupation, social class etc.

There are three methods of collecting primary data are as:-

(a) Experimentation In this method, cause and effect relationshipbetween various set of variables is tried to be known. Example:

knowing the effect of increase in income level on purchases of luxury

products.

(b) Observation It is an interpretation of consumersbehaviour bydirect and indirect method.

(c) SurveyCollection of datathrough actually going into the marketis called survey. It is of two types:-

(i) Census SurveyWhen whole of the population is surveyed than it iscalled census survey.

(ii)Sample SurveyChoosing some members from the population basedupon a particular criteria than it is called sample survey.

2. Secondary DataIt is the data which is already present in the record and

is readily and easily available. It is cheap but, may be obsolete and may not suit

all applications of the research. There are different ways for collecting

secondary data are as:-

(a)Newspapers

(b)Magazines


65/104

(c)Generals(d)Editorials(e)Companies(f)Official Documents(g)Internet etc.


66/104

CHAPTER-5

FINDINGS & ANALYSIS

A. FINDINGS

This report includes the in depth analysis of Working Capital. On the basis

of the analysis following conclusions has been made:

(i) JSPL is a growing company and largest producer of sponge iron in India.Production of other items is also increasing because domestic &

international demand of steel products is continuously increasing.

(ii) Profitability ratios of JSPL are high as per industry ratios it means thatcompany is maintaining a good profitability over the years.

(iii) The return ratios are not showing an increasing trend which is not a goodsign for the companys growth. But return of working capital isincreasing which means that company is doing more sales with less

working capital.

(iv) Gearing ratio is high which shows that it is more levered firm, it may seema cause of concern but it affects the overall cost of capital in a positive

manner.

(v) The overall liquidity position is very poor. The companys current ratio isapprox. one from last many years which means that company can face

liquidity problems by lacking of cash.

(vi) The correlation shows the impact of various components of WorkingCapital on Profitability of the company. So, that company can take careof main components.


67/104

(vii) JSPLs Raw Material holding period is increasing due to which its RawMaterial turnover is also declining.

(viii)As far as Receivables are concerned co.s credit policy is according to thenature of the business & one can say that this policy is good for a steel

company.

(ix) JSPLs total international sales accounts for 10% & the balance 90%represent sales in India.

(x) Co. has a policy to invest their cash in Short term Investments options likemutual funds. This can help company to arrange cash in a very short

period. The co. prepares cash budget on a regular basis.

(xi) The Inventory Holding Period (IHP) is increasing due to this their NetWorking Capital cycle is increasing. Average collection period is also

decreasing but not up to that extent.

(xii) Companys short term financing policy is quite reliable as the Co. usesvarious techniques like Hedging, use of CC limits, use of LC etc. and also

company has very good relations with banks which can help them to

arrange loans easily.


68/104


69/104

1. Profitability:Making profit is the ultimate goal of all the activities of

the business. Lord Keyens remarked, Profit is the engine that drives the

business enterprise. Bankers financial institutions and other creditor are

also keen to measure the operating efficiency of the firm, through

profitability ratio as an indicator to the firms ability to make regular

payment of interests and the borrowed funds.

Snapshot of Profitability Ratios:


Basic Ratios 31 Mar 12 31 Mar 11 31 Mar 10 31 Mar 09

Gross profit margin 37.43 37.38 32.27 23.11

Operating profit margin 38.86 38.79 39.57 33.77

Net profit margin 22.11 22.7 24.15 16.47

Retained profit margin 20.08 20.45 21.39 13.71

(a) Gross Profit Margin:

The gross profit margin ratio tells us the profit a business makes on its cost

of sales, or cost of goods sold. It tells us how much gross profit per Rs.1 of

turnover our business is earning.


70/104

Gross Profit Margin = Gross Profit/Turnover * 100

YEAR JSPL TATA SAIL

31 March 2012 37 39 24

31 March 2011 37 40 36

31 March 2010 32 32 18

31 March 2009 23 20 5

* Rounding off the figures*

(i) As the above table is showing the GP ratio of JSPL is increasing

over the period. Reasons for this are

(ii) (i) Increase in the prices of the steel,

(iii) (ii) Increase in the demand of the steel, and

(iv) (iii) Decrease in the cost of production.

(v) If we compare it with TATA then we find that TATA has equal

GP ratio initially but from last two years, TATAs GP ratio is

higher than JSPLs ratio.

0

10

20

30

40

2012 2011 2010 2009

GROSS PROFIT MARGIN

JSPL TATA SAIL


71/104

(vi)SAIL, which is a PSU is also showing good GP ratio but t is lower

than TATA & JSPL.

(b) Operating Profit Margin:

Operating profit is that profit which is earned by a firm by its operations.

Other popular name for it is EBIT (i.e. Earning Before interest and tax). It is

generally used for find out whether a firm is making profit by its operations

or not.

YEAR JSPL TATA SAIL

31 March 2012 38 38 23

31 March 2011 38 41 36

31 March 2010 39 32 20

31 March 2009 33 23 11


Operating Profit Margin=

Operating Profit

* 100

Turnover

0

10

20

30

40

2012 2011 2010 2003

GROSS PROFIT MARGIN

JSPL TATA SAIL


72/104

(i) Like GP ratio, same is the case with Operating ratio. Initially the

operating ratios of JSPL were higher than the TATAs, but last

year, it was equivalent to TATAs.

(ii) Operating ratio of JSPL is consistent from last three years. They

are able to sustain a good operating profit margin in their

operations.

(iii) In the current year SAILs operating profit ratio has improved a lot

but it is still lower than that of TATAs & JSPL.

(c) Net Profit Margin:

After taking account of the cost of sales, the administration costs, the selling

and distributions costs and all other costs, the net profit is the profit that is

left, out of which they will pay interest, tax, dividends and so on.

Net Profit Margin= Net Profit / Turnover * 100

0

5

10

15

20

25

2012 2011 2010 2003

Net Profit Margin

JSPL TATA SAIL


73/104

YEAR JSPL TATA SAIL

31 March 2012 22 22 13

31 March 2011 22 23 23

31 March 2010 24 17 10

31 March 2009 16 10 00


(i) Net profit marg