You are on page 1of 97

Analysis Of Working Capital Management

Corporate Internship Report Internship Report submitted as a partial requirement for the award of the two year Master of Business Administration Programme MBA 2010-12

Submitted By:-

Submitted To:-

CERTIFICATE

This is to certify that the project work done on Working Capital Management Of Jaiprakash Associates Limited , Submitted to Rajkumar Goel Institute Of Technology in partial fulfillment of the requirement for the award of PG Degree in Business Management, is a bonafide work carried out by her under my supervision and guidance. This work has not been submitted anywhere else for any other degree.

Date:

25th july 2011

Address: Sector 128, Noida201304, U.P.

DECLARATION

I hereby declare that this Project Report entitled Working Capital Management Of Jaiprakash Associates Limited submitted in the partial fulfillment of the requirement of Raj Kumar Goel Institute Of Technology is based on primary & secondary data found by me in various departments, books, magazines and websites collected by me under the guidance of Mr. Mahesh kukreja ji

Date: 25th july 2011 Ankit Dadu

ACKNOWLEDGEMENT

With regard to my Project, I would like to thank each and every one who offered help, guideline and support whenever required. First and foremost I would like to express gratitude to Mr. Mahesh Kukreja ji, Vice President Finance Department and other staff of account department for their support and guidance in the Project work. I am extremely grateful to my guide, S.N JHA Deputy General Manager Finance for their valuable guidance and timely suggestions. I would like to thank all the members of Jaiprakash Associates Limited for the valuable guidance & support. I convey my thanks to Ashish Kumar Singh and college faculty who significantly contributed their knowledge to complete my training report. Their valuable suggestions considerably helped me in the final drafting of this report.

I would also like to extend my thanks to my friends for their continuous help and support. And lastly, I would like to express my gratefulness to the parents and guardian for seeing me through it all.

CONTENTS

Cover Page Self Certificate Declaration Acknowledgement Company Profile Industry Analysis 6. Financial Analysis 7. Working Capital 8. Inventory Management 9. Conclusions and\or Recommendations 10. Bibliography

1. 2. 3. 4. 5.

COMPANY PROFILE

GENERAL PROFILE OF JAYPEE ORGANISATION

JAYPEE
The established names in India. The profile of the company is quite impressive, which Ever since its inception four decades ago, Jaypee Group has proven itself as one of boasts of having business in diversified fields. It has shown its presence in engineering and
7

constructions, while its business is flourishing in power, cement and hospitality. The company has entered the real estate business and is providing world-class facilities through its township, which is the first ever golf-centric real estate development in India. Check out more information on the profile of the Indian real estate company, Jaypee Group.

HISTORY

BACKGROUND Jaypee Group is five decade old conglomerate based in Noida, India.involved in various industries that include Engineering, construction , Cement, Power, Hospitality, Real Estate, Expressways, Highways, Education and Social Commitment. Shri. Jaiprakash Gaur, Founder Chairman of Jaiprakash Associates Limited after acquiring a Diploma in Civil Engineering in 1950 from the University of Roorkee, had a stint with Govt. of U.P. and branched off on his own, to start as a civil contractor in 1958, group is the 3rd largest cement producer in the country. The groups cement facilities are located in the Satna Cluster

(U.P), which has one of the highest cement protion growth rates in India. With a single minded focus in mind, to achieve pioneering myriads of feat in civil engineering Shri. Jaiprakash Gaur, Founder Chairman of Jaiprakash Associates Limited after acquiring a Diploma in Civil Engineering in 1950 from the University of Rookies, had a stint with Govt. of U.P. and with steadfast determination to contribute in nation building, branched off on his own, to start as a civil contractor in 1958, group is the 3rd largest cement producer in the country. The groups cement facilities are located in the Satna Cluster (U.P), which has one of the highest cement production growth rates in India.

TIMELINE/ MILESTONES 1979 - Jaiprakash Associates Pvt Ltd formed and sets foot in Iraq. 1981 - Commenced Hotel Business with first hotel in Delhi Siddharth 1982 - Hotel Vasant Continental was set up 1986 - Commissioning of 1st unit of 1 MTPA Jaypee Rewa Plant (JRP) in District Rewa, MP Formation of Jaiprakash Industries Ltd (JIL)
9

1987 - JIL listed on Bombay Stock Exchange 1991 - Commissioning of 2nd unit of 1.5 MTPA Jaypee Rewa Plant 1992 - Jaiprakash Hydro Power Ltd established to operate 300 MW Baspa II HE Project, Jaiprakash Power Ventures Ltd established to operate 400 MW Vishnuprayag HE project 1993 - JIL signs MOU to develop & operate 1000 MW Karcham Wangtoo HE Project 1995 - Bela Cement Ltd incorporated to establish 3rd Cement Plant at Bela, Hotel Jaypee Residency Manor set up 1996 - Commissioning of the 3rd cement plant 1.7 MTPA Jaypee Bela Plant in District Rewa, MP. 1999 - Hotel Jaypee Palace, Agra set up 2000 - Jaypee Greens Ltd 458 acre golf centric real estate company comes into being 2001 - Jaypee Institute of Information Technology (deemed University since Nov 1 2004) set up at NOIDA 2002 - Jaypee Karcham Hydro Corporation Ltd established to operate 1000 MW Karcham Wangtoo HE Project, Jaypee

10

University of Information Technology (State university), Waknaghat set up 2003 - Jaypee Institute of Engineering Technology (Constituent Centre of JUIT, Waknaghat) set up at Raghogarh, Guna. Later this institute was declared first private state university of Madhya Pradesh as Jaypee University of Engineering & Technology. Also 1st Captive Thermal Power Plant of 25 MW commissioned at JRP. Formation of Jaiprakash Associates Ltd (JAL) by merging JIL with Jaypee Cement Ltd 2004 - Commissioning of 2nd Captive Power Plant of 25 MW at Jaypee Bela Plant1999 - Hotel Jaypee Palace, Agra set up 2005 - Shares of JHPL listed on BSE/NSE. First hydropower company to be listed in the country 2006 - Setting up of Madhya Pradesh Jaypee Minerals Corporation Ltd (MPJMCL) in JV with MP State *2007 Signing of a joint venture agreement with Steel Authority of India Ltd for setting up a 2.0 MTPA slag based cement plant at Bhilai 2007 Singing of a joint venture agreement with a steel

authority of india Ltd for sitting up a 2.0 MTPA slag based cement plant at Bhilai. Himalyan expressway Ltd incorporated
11

for implementation of 27.14 km Zirakpur parwanoo expressway awarded by NHAI. Mandla north coal block in chindwara allotted to company for captive requirement of cement business. Jaypee greens launched a Wish Town a historic residentional township in india. Slated to be the indias development in over 1162 acers. 2008 jaypee greens infrastructure corporation Ltd incorporated for largest township

implementation of 1047 km long 8 lane access

controlled expressway between greater noida and ballia in up, chunar and dalla cement plants(UPPCL) in UP commissioned. 1.5 MTPA grinding unit at panipath Haryana, commissioned. Brokaro. Jaypee cement Ltd incorporated for implementation of 2.1 MTPA slag based cement plant at Brokaro, Jharkhand in JV with SAIL.

2009 - Amalgamation of four Group Companies, namely, Jaypee Cement Limited, Gujarat Anjan Cement Limited, Jaypee Hotels Limited and Jaiprakash Enterprises

12

Limited with flagship company JAL. Acquired Sangam Power Generation Company Ltd. Signing of MOU for setting up a 2.0 million tonnes per annum capacity cement plant in joint venture with Assam Mineral Development Corporation Limited

(AMDC). Group is setting up a Jaypee Hitech Casting Centre. Amalgamation of Jaiprakash Power Ventures Ltd. with Jaiprakash Hydro-Power Ltd.; the name of the Company i.e. Jaiprakash Hydro-Power Ltd. changed to Jaiprakash Power Ventures Ltd.

2010

- Commissioning of 1.75 MnTPA Jaypee Himachal

Cement Grinding and Blending Plant, Bagheri (H.P.)., 2.2 MnTPA Bhilai Jaypee Cement Ltd., Satna (Madhya Pradesh)., 1.2 million tonnes Jaypee Roorkee Cement Grinding Unit (JRCGU) at Roorkee, Uttarakhand.

2011-Amalgamation of Jaypee Karcham Hydro Corrporation Limited(JKHCL) and Bina Power Supply Company Limited(BPSCL) With Jaiprakash Power Ventures Limited(JPVL) With effect From April 1,2010, being the Appointed Date.

13

INFORMATION ON JAYPEE GROUP INDIA

The Corporate Information section imbibes the vision and the mission statements of the group. It provides a comprehensive list of the Board of Directors, along with policies on Corporate Governance and Code of Conduct. The Quality Policy covers aspects pertaining to customer satisfaction and the efficient use of the vital resources. The efforts of the group are highlighted by the achievement section which depicts the various awards that are bagged by the group over the various years. The Group has CT -1 and CR 1 grading to its credit.

Business Areas

14

Jaypee Group is a renowned company, accredited for the construction of multi-purpose river valley and hydropower projects in India. The company has also shown interest in the fields of power and cement. It boasts of having the largest market share in the Indian hydropower sector. It has gained the distinction of being the third largest cement producer in India. The company is the owner of four 5-star hotels and a state-of-the-art resort. With its Jaypee Greens projects, it has marked its presence in the Indian real estate business as well.

Major Project
Jaypee Greens, a luxurious fully integrated complex, is one of the major projects of Jaypee Group. Located in Greater Noida (Uttar Pradesh), the complex is India's first ever golf-centric project. It comprises of an 18-hole Greg Norman Golf Course. Spreading over 450 acres, the complex is set amidst lush green surroundings, with commercial spaces, corporate park, entertainment spaces and residences. The project was kick-started in 2002, with an aim to bring about a revolutionary change in people's perception of the real estate business

15

in India. The company brought the concept of golf homes to India, which was already a hit in the US, Middle-East, Australia and Europe. The concept was accepted wholeheartedly by the customers in India, because of the flawless plan and complete dedication in the construction, shown by Jaypee Group. The idea was to provide a feeling of luxurious living in a resort, to the India consumers, through the residential complex. Motivated by the appreciation shown by its customers for Jaypee Greens and success received from the same, Jaypee Group announced its second project, four years later. The second project in Noida proved to be four times bigger and luxurious than the previous one. The second project, launched in 2007, was named as India's First Wish Town and located in Noida. Stretching over 1162 acres of land, the integrated township consists of one 18-hole and two 9-hole golf facility. In addition to this, it offers a commercial complex, medical facilities and educational facilities, with a host of recreational facilities such as entertainment zone and social club.

New Ventures
16

Jaypee Greens AMAN is the new residential project of Jaypee Group. Stretching over 70 acres of land, the complex is located at sector 151, Noida, on the Noida-Greater Noida expressway. The project is something to look forward to, as it consists of as many as 3300 apartments, with world-class and luxurious facilit

MANAGEMENT
17

Board of Directors

The Board of Directors of the company have envisioned the organisation to new heights. The company is well managed under the foray of these individuals : Shri Jaiprakash Gaur, Founder Chairman Shri Manoj Gaur, Executive Chairman & CEO Shri Sunil Kumar Sharma, Executive Vice Chairman Shri S K Jain, Vice Chairman Shri A K Sahoo (LIC Nominee) Shri K P Rau (IDBI Nominee) Shri R N Bhardwaj Shri B K Goswami Shri B K Taparia Shri S C Gupta Shri S C Bhargava Shri M S Srivastava

18

Dr. B. Samal Shri V.K. Chopra Shri Pankaj Gaur, Jt. Managing. Director (Construction) Shri Sunny Gaur, Managing. Director (Cement) Shri R K Singh, (Whole-time)

ACHIEVEMENTS

19

Year 2010
The garbage processing plant of Jaiprakash Associates Ltd. located in Dadumajra, Chandigarh was awarded Excellence for the best solid waste management plant in the country by Confederation of Indian Industry (CII). "Lifetime Achievement Award" being conferred to Shri Jaiprakash Gaur, Founder Chairman by Merchants Chamber of Uttar Pradesh, Kanpur for creating new milestones in Infrastructure development and his achievement in Corporate Social Responsibility for the year 2010.

20

Infrastructure Leader of the Year award being conferred to Shri Jaiprakash Gaur, Founder Chairman by Shri Kamal Nath, the Union Minister of Road Transport and Highways during the Essar Steel Infrastructure Excellence Awards 2010 in association with CNBC TV18. 400 MW Vishnuprayag Hydropower Project of Jaiprakash Power Ventures Ltd (JPVL) was awarded 1st Prize in the category Energy & Power by the Essar Steel Infrastructure Excellence Awards 2010 in association with CNBC TV18. 300 MW Baspa II Hydropower project being awarded with Silver Shield by Shri Sushil Kumar Shinde, Union Minister of Power along with Shri Bharatsinh Solanki, Union Minister of State for Power in the prestigious National Awards for Meritorious Performance in Power Sector by the Ministry of Power for 2008-09.

Year 2009
Jaypee Rewa Plant, Jaypeenagar and Jaypee Bela Plant, Jaypeepuram (Both Units of Jaiprakash Associates Limited) were awarded Five Star Rating by the British Safety Council, London, U.K. for Health and Safety Management System.

21

11th F L Smidth Energy Award 2009 for reduction in Thermal Energy in clinker (Jaypee Bela Plant); Minimum auxiliary power consumption in thermal generation (Jaypee Bela Plant CPP); Minimum Plant heat rate in thermal generation (Jaypee Rewa Plant - CPP); Minimum auxiliary power consumption in thermal generation (Jaypee Rewa Plant - CPP) were awarded by Chhattisgarh and Madhya Pradesh Cement manufacturers Associations to Jaiprakash Associates Limited (Cement Division). 400 MW Vishnuprayag Hydropower Project of Jaiprakash Power Ventures Ltd (JPVL) was awarded 1st Prize in the category "Excellence in Fast Track Power Project Execution - Hydro" by the Indian Electrical and Electronics Manufacturers Association (IEEMA) Power Awards 2008. 300 MW Baspa II Hydropower project being awarded with Gold Shield by Honble President of India Smt. Pratibha Devisingh Patil in the prestigious National Awards for Meritorious Performance in Power Sector by the Ministry of Power for 2007-08.

Year 2009

22

Entrepreneur of Year Award being conferred to Shri Jaiprakash Gaur, Founder Chairman for his exceptional contribution in Infrastructure & Construction sector by Ernst & Young. Award presented for Overall Performance, 'Use of Explosives & Dust Suppression and Safety Education during Metalliferous Mines Safety Week Celebration (Jabalpur Region) to Naubasta Limestone Mine of Jaiprakash Associates Limited. FLS (F.L. Smidth) Energy Award 2007 for Maximum percentage reduction in Thermal Energy (Kcal) consumption per kg of Clinker production over year 2005-06 (Jaypee Rewa Plant) & Minimum % of Auxiliary power consumption with respect to Thermal power generation in M.P. ,Chhattishgarh states in the year 06-07 (Jaypee Bela Unit, Captive Power Plant, 200607)National Safety Award for the year 2006 to Jaypee Rewa Plant for longest Accident Free Period.

Year 2007
PHDCCI Good Corporate Citizen Award 2007 awarded by Shri. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, Government of India. FLS (F.L. Smidth) Energy Award 2007 for Maximum percentage reduction in Thermal Energy (Kcal)

23

consumption per kg of Clinker production over year 2005-06 (Jaypee Rewa Plant) & Minimum % of Auxiliary power consumption with respect to Thermal power generation (Jaypee Bela Unit, Captive Power Plant, 2005-06) Narmada Award for Overall Performance, Sonebhadra Award for Community Development & Award for Waste Dump Management, Water Quality Management, Publicity & Propaganda received by Naubasta Limestone Mine of Jaiprakash Associates Limited during Mines Environment & Mineral Conservation week

Award for Management of Sub- Grade Mineral received by Jaypee Limestone Mine of Jaiprakash Associates Limited during Mines Environment & Mineral Conservation Week.

Year 2006
National Energy Conservation Award 2005, for cement sector conferred by Govt. of India, Ministry of Power. Award for Overall Performance, Water Quality management and Community

Development received by Naubasta Limestone Mines during Mines Environment and Mineral Conservation week. Award for Waste Dump management received by Jaypee Limestone Mines during Mines Environment and Mineral Conservation week.

24

FLS (Fuller Smidth) Energy Award for Reduction in Electrical Energy in Clinker (Jaypee Rewa plant unit), Lowest Thermal energy in Clinker (Jaypee Bela plant) and Minimum plant Heat Rate Kcal/Kwh in Thermal Generation (Captive Power plant).

Year 2005
Lifetime Achievement Award conferred upon Shri. Jaiprakash Gaur by Builders Association of India in recognition of outstanding contribution to Indian Construction Industry. FIMIs Environment Award Abheraj Baldota Environment Award for Naubasta Limestone Mine. Award Presented by Indian Bureau of Mines During Mines Environment & Mineral Conservation Week (Jabalpur Region) to Jaypee Rewa Plant for Overall Performance, Afforestation and Water Quality Management. Award Presented by Director General Mines Safety During Metalliferous Mines Safety Week Celebration (Jabalpur Region) to Jaypee Rewa Plant for Transport of & overburden etc.

25

Award Presented by Director General Mines Safety During miners Metalliferous Mines Safety Week Celebration (Jabalpur Region) to Jaypee Bela Plant for Overall Performance, Standard of working & House Keeping. Indian Economic Development and Research Association National Award for outstanding contribution in the field of mining by Jaiprakash Associated Limited.

Year 2004
F.L. Smidth Energy Award, Presented by MP Manufacturers Association to Jaypee Bela Plant for Lowest Thermal Energy Consumption. National Award for Meritorious Performance in recognition of the outstanding performance of the 300 MW Baspa IIHydro Power Station was awarded by Honble Prime Minister of India, Dr. Manmohan Singh. National Award for Environmental Excellence in Limestone mines associated with Jaypee Rewa plant. National Safety Award, Presented by Govt. of India, Ministry of Labour to Jaypee Rewa plant for Longest Accident Free Period.

26

INDUSTRY ANALYSIS

Companies in the Industry


The cement industry comprises of 125 large cement plants with an installed capacity of 148.28 million tonnes and more than 300 mini cement plants with an estimated capacity of 11.10 million tonnes per annum.

27

The Cement Corporation of India, which is a Central Public Sector Undertaking, has 10 units. There are 10 large cement plants owned by various State Governments. The total installed capacity in the country as a whole is 159.38 million tonnes. Actual cement production in 200203 was 116.35 million tonnes as against a production of 106.90 million tonnes in 2001-02, registering a growth rate of 8.84%.Major players in cement production are Ambuja cement, Aditya Cement, J K Cement and L & T cement. Apart from meeting the entire domestic demand, the industry is also exporting cement and clinker. The export of cement during 2001-02 and 2003-04 was 5.14 million tonnes and 6.92 million tonnes respectively. Export during April-May, 2003 was 1.35 million tonnes. Major exporters were Gujarat Ambuja Cements Ltd. and L&T Ltd. Cement industry has been decontrolled from price and distribution on 1st March 1989 and de-licensed on 25th July 1991. However, the performance of the industry and prices of cement are monitored regularly. Being a key infrastructure industry, the constraints faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary (Coordination). The Committee on Infrastructure also reviews its performance.

Technological change
Continuous technological upgrading and assimilation of latest technology has been going on in the cement industry. Presently 93 per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only 7 per cent of the capacity is based on old wet and semi-dry process technology. There is tremendous scope for waste heat recovery in cement plants and thereby

28

reduction in emission level. One project for co-generation of power utilizing waste heat in an Indian cement plant is being implemented with Japanese assistance under Green Aid Plan. The induction of advanced technology has helped the industry immensely to conserve energy and fuel and to save materials substantially. India is also producing different varieties of cement like Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement etc. Production of these varieties of cement conform to the BIS Specifications. Also, some cement plants have set up dedicated jetties for promoting bulk transportation and export.

MARKET SIZE OF CEMENT INDUSTRIES

29

India is the second-largest cement producer in the world, with an installed capacity of about 236 million tonnes (MT) in 20092010. The sector is expected to add an additional capacity of 92.3 MT by 2013. As a result, the industry will have a total installed capacity of 383.5 MT by March 2013. During January 2011, the cement production touched 14.52 MT, while the cement despatches quantity was 14.47 MT during the month. The total cement production for April-January 2010-11 reached 136.51 MT as compared to 130.85 MT over the corresponding period last fiscal. Further, cement despatches also witnessed an upsurge from 130.09 MT during April-January 2009-10 to 135.56 MT during April-January 2010-11. According to latest research report Indian Cement Industry Forecast to 2012, produced by RNCOS, cement production in India has grown at a brisk pace during the last few years. Despite recession, Indian cement industry performed incredibly well amid recent boom in the infrastructure and housing markets. In view of the upcoming massive infrastructure projects, manufacturers are aggressively increasing their production capacities and the study foresees a 10.5 per cent CAGR growth in cement production during FY 2010-FY 2014. According to a press release, the push in cement demand during the last fiscal was attributed to revival of infrastructure and real estate projects, especially in rural areas.

Government Initiatives
The cement industry is pushing for increased use of cement in highway and road construction. The Ministry of Road Transport and Highways has planned to invest US$ 354 billion in road infrastructure by 2012.
30

Housing, infrastructure projects and the nascent trend of concrete roads would continue to accelerate the consumption of cement. Increased infrastructure spending has been a key focus area. Finance Minister Pranab Mujherjee has proposed to earmark US$ 47 billion for infrastructure development during fiscal 2011-12. The infrastructure sector has received an impetus in the form of increased funds and tax related incentives offered to attract investors for tapping the infrastructure opportunities around the country. Introduction of tax free bonds, creation of infrastructure debt funds, formulating a comprehensive policy for developing public private partnership projects are some announcements which will give a fillip to the infrastructure sector which is the backbone of any economy.

GROWTH OF INDUSTY

Jaiprakash Associates Ltd. announces 51.85% growth in total revenue for Q1FY11

31

Competitive Analysis-

32

Market Share
The continued growth of key world economies results in an increasing demand for construction materials. As a consequence, the global production of cement in 2030 is projected to grow to a level roughly five times higherthan its level in 1990, with close to 5 billion tonnes worldwide This has a significant impact on the overall level of . anthropogenic greenhouse gas (GHG) emissions as the production of each tonne of cement leads to emissions of roughly 0.89 tonnes of carbon dioxide As a consequence, the emissions of the global cement sector alone are very . likely to surpass the total amount of CO2 emissions of the EU before 2030. This report attempts to identify the drivers of this process and explore options to mitigate emissions

Rapid expansion of production in developing countries


the rapid expansion of global cement production since 1990, which mainly stems from production increases in China. The viewgraph also

33

shows projected future increases of cement production. Many new cement plants are going to be built in the next decade, especially in developing countries. Their lifespan will probably exceed 40 years. In a future carbon constrained world, the profitability of individual plants will depend on their CO2 intensity. Significant emissions reductions at existing plants by improving the technology and operating practices are achievable. The accelerated closure of outdated plants with low efficiency can also make substantial contributions to emission reductions.

Indian cement industry comprises 130 large cement plants and 365 mini-cement plants. The total installed capacity in the country is estimated at 240 million tons per annum making India the second largest cement producer in the world after china...... It is estimated that there is 75% capacity utilization in this industry which means the annual industry volume is 180 MT per year. The industry is growing at 8% CAGR every year.
34

Generally, the size, scheduling and complexity of large scale projects precludes the participation by smaller and less sophisticated engineering and construction companies, and whilst there are many qualified competitors, there are only a few Indian engineering and construction companies with the requisite capacity and experience to complete large industrial or infrastructure works on demanding schedules. Among those companies, which are able to execute such major projects, competition is largely based on the proven ability to complete work on time, as well as price. The company has experience and proven track record for timely completion of large projects in India spanning over 30 years, together with its in-house design and engineering expertise and capacity for in-house fabrication of large scale hydro-mechanical equipment.

PURPOSE35

VISION As a group, we are committed to strategic business development in infrastructure, as the key to nation building in the 21st century. We aim to achieve perfection in everything we undertake with a commitment to excel. It is the determination to transform every challenge into opportunity; to seize every opportunity to ensure growth and to grow with a human face. The company group focus on always believes in Growth with a Human face and to fulfill its obligations.

MISSION It is our dream of a brighter India that gives us the courage to brave the odds and emerge successful. It`s no small dream. But then, it`s not toobig either. Our solitary Mission is to achieve Excellence in every sector that we operate in - be it Engineering & Construction, Cement, Real Estate or Consultancy.

36

To augment our core competencies and adopt the most comprehensive modern technology to overtake the obstacles in our path of achievement. To obtain sustainable development and simultaneously enhancing the shareholders value and fulfilling our obligations towards building a better India".

Corporate Governance
Corporate Governance is a concept in the heart of which lies the immutable principles which dictates the essence on which a

company should ethically conduct the affairs of the business. Ethics connote the commitment of the company towards its shareholders / stakeholders, creditors, business associates, the state and the employees at large. Strong Corporate Governance is indispensable to a resilient and vibrant corporate entity. The principles on which the good corporate governance is based are simple principles of fairness, transparency and accountability.

37

A Broadly speaking, Corporate Governance denotes the following: Direction and control of the affairs of a company; Establishing a system whereby directors of companies are entrusted with responsibilities and duties in relation to the direction of a company's affair; A system of structuring, operating and controlling a company with specific aims of fulfilling the long-term strategy goal of the owners; Consideration and care for the interest of the employees; Taking account of the needs of the environment and the local community; Maintaining excellent relations with both customers and suppliers; Maintaining proper compliance with all the applicable legal and regulatory requirements; A system of accountability primarily directed towards the shareholder in addition to maximising the welfare of shareholders.

SECTOR & MARKET SEGMENT


38

Transforming challenges into opportunities has been the hallmark of the Jaypee Group, ever since its inception four decades ago. The Group is a diversified infrastructure conglomerate and has a formidable presence in Engineering & Construction along with interests in the Power, Cement and Hospitality. The infrastructure conglomerate has also expanded into Real Estate & Expressways. ENGINEERING & CONSTRUCTION The Engineering and Construction wing of the Group is an acknowledged leader in the construction of multi-purpose River Valley and Hydropower projects. It has the unique distinction of having simultaneously executed 13 Hydropower projects spread across 6 states and the neighboring country Bhutan for generating 10,290 MW power. The Group has been assigned CR1 grade by ICRA Ltd. indicating very strong contract execution capacity with best prospects of timely completion of projects, without cost overruns for projects with average value of Rs. 2500 crore. It is the only Group in India, which pre qualifies on its own for the bidding of various projects that are awarded in the country. A leader in Engineering and Construction of Hydropower projects in India, the Group has the largest market share in the Indian Hydropower, E&C and EPC sector having participated in 54% of Hydropower projects developed in 10th 5-Year Plan in different capacities. JAL is the only integrated solution provider for Hydropower projects in the country with a track record of strong project implementation in different capacities and has participated in projects that have added over 8840 MW of Hydroelectricity to the National grid between 2002

39

to 2009. (AN UNPARALLEL FEATURE IN INDIAN POWER SECTOR) The Group also has the distinction of executing three out of five Hydropower projects contracted on an EPC basis in the country till March 2009. Two of these, 300 MW Chamera - II and 520 MW Omkareshwar, have been completed ahead of schedule. The 900 MW Baglihar (Stage-I and II) Hydroelectric project in Jammu & Kashmir, has been set up in the challenging environment of the State with 22 million cubic meters of concrete, has been the largest EPC project executed in the country in Hydropower sector, so far.

The key non-EPC projects completed across India are 1450 MW Sardar Sarovar Project, the largest water resource project in India, 1000 MW Tehri Dam, Asia's highest rockfill dam., 1000 MW Indira Sagar Power House, second largest surface power house in the country. 1500 MW Nathpa Jhakri Power House, the largest underground power house in the country. The in-house Design and Consultancy Company, Jaypee Ventures Pvt. Ltd. (JVPL), gives JAL a competitive edge over its rivals. The design and engineering arm has been awarded CT1 grade by ICRA with CIDC (The Construction Industry Development Council). This is the highest rating assigned to consultants in the field of Engineering.

40

POWER The Group with its operational projects of 300 MW Baspa-II (Himachal Pradesh) and 400 MW Vishnuprayag (Uttarakhand) is Indias largest private sector Hydropower producer. Besides this, 1000 MW Karcham Wangtoo project (Himachal Pradesh) is under advanced stage of implementation. In addition, with 3200 MW projects (2700 MW Lower Siang & 500 MW Hirong ) coming up in Arunachal Pradesh and 720 MW (270 MW Umngot and 450 MW Kynshi Stage II) in Meghalaya, the Group will have total Hydropower generation capacity of over 5600 MW by 2019. After having established a strong presence in the Hydropower sector the Group has initiated its entry into Thermal Power Generation, Power Transmission and also forayed into Wind Power. The Group is in the process of implementing 2 x 660 MW pit head based Nigrie Thermal Power plant in district Singrauli of M.P. and 5x 250 MW Thermal Power plant at Bina M.P. JAL has been awarded LOIs for 1980 MW (3 x 660 MW) Karchana Thermal Power Project and 3300 MW (5 x 660 MW) Bara Thermal Power project in UP. Besides this, 49 MW of Wind Power plant is operational in Maharashtra and Gujarat. The Group is also implementing a Transmission system associated with 1000 MW Karcham Wangtoo Hydro-electric project. The Transmission project will consist of a 217 km long transmission line between Wangtoo in Himachal Pradesh and Abdullapur in Haryana.

41

CEMENT Jaypee Group is the 3rd largest cement producer in the country. The group produces special blend of Portland Pozzolana Cement under the brand name Jaypee Cement (PPC). Its cement division currently operates modern, computerized process control cement plants with an aggregate capacity of 21.30 MnTPA*. The company is in the midst of capacity expansion of its cement business in Northern, Southern, Central, Eastern and Western parts of the country and is slated to be 37.55 MnTPA by FY12 (expected) with Captive Thermal Power plants totaling 702 MW. (* includes 2.2 MnTPA capacity in Joint Venture with SAIL)

HOSPITALITY The Group owns and operates 4 Five Star Hotels, two in New Delhi and one each in Agra and Mussoorie with a total capacity of 644 rooms. Another state-of-the-art resort and SPA is being set up in collaboration with SIX SENSES at Greater Noida.

REAL ESTATE AND EXPRESSWAYS The Group is a pioneer in the development of Indias first golf centric Real Estate. Jaypee Greens - a world class fully integrated complex consists of an 18 hole Greg Norman Golf Course. Stretching over 452 acres, it also includes residences, commercial spaces, corporate park,
42

entertainment

and

nature

in

abundance.

The Group is constructing 165 km long 6 lane Yamuna Expressway project from Noida to Agra and ribbon development on 6175 acres at five or more locations along the expressway for commercial, industrial, institutional, residential and amusement purposes, will also be undertaken as an integral part of the project. In addition to this, 1047 km long 8 lane Ganga Expressway from Greater Noida to Ballia (Eastern Uttar Pradesh) will also be developed by the Group which will be the largest private sector infrastructure project in India.

EDUCATION People of resources must contribute towards making a better tomorrow for all. Shri Jaiprakash Gaur ji, Founder Chairman of the Group firmly believes that quality education on an affordable basis is the biggest service which, as a corporate citizen, we can provide. Education is the cornerstone to economic development and the strength of 1 billion Indians can be channelized by education alone to build India into a developed nation. The Group currently provides education across all spectrum of the learning curve through 19 schools, 3 ITI's, 2 colleges and 3 universities catering to over 20,000 students. The Jaypee education system plans to take the vision of service to society through quality education to another plane by expanding its infrastructure to provide education to a universe of 200,000 students in less than a decade from now. SOCIAL COMMITMENTS

43

The Group has always believed in growth with a human face and to fulfill its obligations it has set up Jaiprakash Sewa Sansthan (JSS), a not-for-profit trust which primarily serves the objectives of socio economic development, reducing the pain and distress in society. For over 4 decades now, Jaypee Group has supported the socioeconomic development of the local environment in which it operates and ensured that the economically and educationally challenged strata around the work surroundings are also benefited from the Groups growth by providing education, medical and other facilities for local development.

The Group also undertakes Comprehensive Rural Development Programme (CRDP) which covers a wide range of projects such as free medical camps, health check-ups for village school children, literacy campaigns like Balwadis for young boys and girls, safe drinking water supply, creating huge water reservoirs in different villages, self employment which includes tailoring classes for women and animal husbandry. Some other important activities undertaken include the renovation of old temples, other schools and hospital buildings in the adjoining adopted villages. ENVIRONMENT Every time we borrow from nature, we return it with interest. We at Jaypee believe that harmony between the man and his environment is the prime essence of healthy life and living. The
44

sustenance of our ecological balance is therefore of paramount importance. Efforts are made to conserve ecological balance without any harm done to the local flora and fauna. The Group has also taken green initiatives, afforestation drives, resources conservation, water conservation, air quality control and noise pollution control and created a green oasis amidst the limestone belt at the cement complex in Rewa. Last but not the least, as a Group we remain committed to strategic business development in infrastructure, as the key to nation building in the 21st century. We aim for perfection in everything we undertake and we have a commitment to excel. It is the determination to transform every challenge into opportunity; to seize every opportunity to ensure growth and grow with human face; that drives us.

Financial Analysis
Financial ratios are useful indicators of a firms performance & financial situation. Most ratios can be calculated from information provided by the financial statement. Financial statement can be use to analysis trends & to compare the firm financial to those of other firms. IN some cases, ratio analysis can predict future bankruptcy. Financial ratio can be classified according to information they provide. There are following types of ratios-

Ratio Analysis
45

Liquidity ratios Profitability ratios Activity ratios Leverage ratios

Liquidity ratioCurrent Ratio current ratio measures the company's ability to pay its short-term liabilities from short-term assets. Current ratio = Current Assets / Current Liabilities

Current <= 1 Going bankrupt! Ratio 1 < Current Ratio <= 2 May experience difficulties in facing short term commitments. 2 < Current <= 5 Normal, depending on the industry Ratio standards for companies of similar size and activity. 5 < Current Ratio Very little short term debt!

46

Current ratio of JAL is greater than its competitor ACC that means JAL is facing more difficulties in short term commitments than ACC.

QUICK RATIO

47

The quick ratio, defined also as the acid test ratio, reveals a company's ability to meet short-term operating needs by using its liquid assets. It is similar to the current ratio, but is considered a more reliable indicator of a companys short-term financial strength. The difference between these two is that the quick ratio subtracts inventory from current assets and compares the quick asset to the current liabilities. Similar to the current ratio, value for the quick ratio analysis varies widely by company and industry. In theory, the higher the ratio is, the better the position of the company is. However, a better benchmark is to compare the ratio with the industry average.

Quick Ratio:

Quick Assets Current Liabilities.

48

Interpretation and AnalysisThis is obviously a good position for the firm to be in. It can meet its short-term debt obligations with no stress. If the quick ratio was less than 1.00X, then the firm would have to sell inventory to meet its obligations So, a quick ratio great than 1.00X is better than a quick ratio of less than 1.00X with regard to maintaining liquidity and not being forced into the position of having to sell inventory.

CASH RATIO Cash ratio measure the ability of a business to meet short term obligations. It measures to the extent which current obligations can be paid from cash or near cash assets. Cash ratio = (Cash and Cash equivalents) / Current Liabilities

49

Cash Ratio 1 < Cash Ratio 2 < Cash Ratio

<= 1 Dangerous Zone. Very low liquidity. Short term debt can be paid in full with cash and near cash items. Bad management of short term liquidity ? Cash could be invested in longer term assets earning a higher return.

50

We see that the JAL maintains substantial cash and bank balances for each of the years and moreover, the cash ratio has shown constant improvement over the years that is 18% for FY 08-09 and 13% for FY 09-10. In case immediate cash is demanded, JAL is in the position to meet 49% of the current liabilities at the end of FY 07-08, 58% at the end of FY 08-09, and 66% at the end of FY 09-10. This heralds very positive message to the short time creditors who can invest their fund in the company. Whereas in ACC cash ratio is lower than JAL and is fluctuating too, this creates a risky image infront of the investors for the company.

Profitability ratios Gross profit margin Return on assets Return on equiety

Gross Profit Ratio:


It measures the percentage of each sales rupee remaining after the firm has paid for its goods. We will calculate gross profit by subtracting manufacturing & factory expenses by total income. It is expressed as: Gross Profit Margin: Gross Profit Net Sales

51

Year

2007-08

2008-09

2009-10

Gross Profit Net Sales Gross Ratio

230662 427389 53%

316339 614799 51%

586272 1167178 50%

In case of JAL the fraction is less and almost constant for the three years, this means that there is not very vast difference between PAT and EBIT. This is a good indicator for shareholders because there is less tax imposed. Whereas in the case of ACC the ratio is more and not profitable for shareholders.

52

Interpretation of ratio: The gross profit ratio shows the profit made
by the firm after meeting its cost of production expenses. The trend shows that gross profit is increasing and firm is reducing its cost of operation continuously.

Return On Assets:
The profitability ratio in terms of the relationship between net profit & assets. The ROA may also be called profit to assets. Assets here mean total assets. The real return on assets is the net earnings available to owners & interest to lenders as owners as well as creditors. This equation correctly reports the operating efficiency of firms. The ROA is expressed as:

53

Net Profit After Taxes Total Assets

Year

2007-08

2008-09

2009-10

PBT /Total Assets ROA

427389 195616 21.8%

614799 2480058 24.78%

1167178 3183152 36.66%

Interpretation of ratio: The trend is increasing one which means


that for same assets employed in the firm return is increasing. This is a good sign for firm as its efficiency is increasing continuously.
54

c) ROE (return on equity)


The Return on Equity ratio is perhaps the most important of all the financial ratios to investors in the company. It measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company. The calculation is: Net Income/Stockholder's Equity = _____%. Net income comes from the income statement and stockholder's equity comes from the balance sheet. In general, the higher the percentage, the better, with some exceptions, as it shows that the company is doing a good job using the investors' money.

55

ACTIVITY RATIO
1) Inventory Turnover Ratio 2) Debtors Turnover Ratio 3) Assets Turnover Ratio

56

a) Inventory Turnover Ratio


Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet the requirements of the business. But the level of inventory should neither be too high nor too low. A too high inventory means higher carrying costs and higher risk of stocks becoming obsolete whereas too low inventory may mean the loss of business opportunities. It is very essential to keep sufficient stock in business. Inventory Turnover Ratio= Net Sales / Avg. Inv. at Cost

57

b) Debtors Turnover Ratio


Indicates the velocity of debt collection of a firm. In simple words it indicates the no. of times average debtors (receivables) are turned over during a year. Trade debtors are expected to convertible into cash within a short period of time. Debtors Turnover Ratio= Total Sales / Debtors

58

c) Assets Turnover Ratio


the fixed assets turnover ratio measures the companys effectiveness in generating sales from its investments in plant,property, and equipment. The total assets turnover ratio measures the companys effectiveness in generating sales from all its funds employed.

Total Assets Turnover = Total sales / Total Assets

59

LEVERAGE RATIO; 1) Proprietary ratio or Equity Ratio 2) Fixed Assets to Proprietors Fund Ratio 3) Current Assets to Proprietors Fund Ratio

60

Proprietary ratio or Equity Ratio


This ratio relates the shareholder's funds to total assets. Proprietary / Equity ratio indicates the long-term or future solvency position of the business.

Proprietary or Equity Ratio = Shareholders funds / Total Assets

61

Interpretation
This ratio throws light on the general financial strength of the company. It is also regarded as a test of the soundness of the capital structure. Higher the ratio or the share of shareholders in the total capital of the company, better is the long-term solvency position of the company. A low proprietary ratio will include greater risk to the creditors.

B) Fixed Assets to Proprietors Fund Ratio


Fixed assets to proprietor's fund ratio establishes the relationship between fixed assets and shareholders funds.

62

The purpose of this ratio is to indicate the percentage of the owner's funds invested in fixed assets.

Fixed Assets to Proprietors Fund = Fixed Assets / Proprietors Fund

63

Significance: The ratio of fixed assets to net worth indicates the extent to which shareholder's funds are sunk into the fixed assets. Generally, the purchase of fixed assets should be financed by shareholder's equity including reserves, surpluses and retained earnings. If the ratio is less than 100%, it implies that owners funds are more than fixed assets and a part of the working capital is provide by the shareholders. When the ratio is more than the 100%, it implies that owners funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance the fixed assets. There is no rule of thumb to interpret this ratio by 60 to 65 percent is considered to be a satisfactory ratio in case of industrial undertakings

C) Current Assets to Proprietors Fund Ratio Ratio establishes the relationship between current assets and shareholder's funds.

64

The purpose of this ratio is to calculate the percentage of shareholders funds invested in current assets.

Current Assets to Proprietors Funds = Current Assets / Proprietor's Funds

YEAR 2008 2009 2010

JAL 1.64 1.59 1.74

ACC 0.60 0.40 0.45

65

Significance:
Different industries have different norms and therefore, this ratio should be studied carefully taking the history of industrial concern into consideration before relying too much on this ratio.

Ratios ConclusionThis table show downwards trend of liquidity of the company. Current ratio of the company is 2.24 . it is not bad because company meet his current liabilities without selling there product. Companys quick ratio is 1.97 times that show company has sufficient cash liquidity to meet there liabilities. Quick ratio of 1:1 is considered to represent satisfactory and company has satisfactory level.

WORKING CAPITAL AN INTRODUCTION

Working Capital-

66

Working capital is a financial metric which represents the amount of day-by-day operating liquidity available to a business. The goal of Working capital is to ensure that the firm is able to continue its operations and that it has sufficient cash flow. Working capital is the single best method of determining the position of a company. When all is said and done, the company's working capital is what makes it profitable or not profitable. The more working capital a company has the better that company is doing, financially. Many potential investors and others in the public sphere will scrutinize a balance sheet to find the working capital calculation of a company. Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of Working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.

67

Decision criteria of Working CapitalBy definition, working capital management entails short term decisions - generally, relating to the next one year periods - which are "reversible". These decisions are therefore not taken on the same basis as Capital Investment Decisions (NPV or related, as above) rather they will be based on cash flows and / or profitability. Hence working capital management can be considered as the management of cash, market securities receivable, inventories and current liabilities.

In fact, the management of current assets is similar to that of fixed assets the sense that is both in cases the firm analyses their effect on its profitability and risk factors, however differ on three major aspects. 1. In managing fixed assets, time is an important factor discounting and compounding aspects of time play an important role in capital budgeting and a minor part in the management of current assets. 2. The large holdings of current assets, especially cash, may strengthen the firms liquidity position, but is bound to reduce profitability of the firm as ideal cash yield nothing.
68

3. The level of fixed assets as well as current assets depends upon the expected sales, but it is only current assets that are adjusted with the fluctuation in the short run in a business.

Types of Working CapitalTo understand working capital better we should have basic knowledge about the various aspects of working capital .There are 2 types of working capital: 1. Gross Working Capital 2. Net Working Capital

Gross Working CapitalGross working capital simply called as working capital. It is refers to the firms current assets. Current assets include cash, debtors, bills receivable and stock. Gross working capital, which is also simply known as working capital, refers to the firms investment in current asset. Another aspect of gross working capital points out the need of

69

arranging funds to finance the current assets. The gross working capital concept focuses attention on two aspects of current assets management, firstly optimum investment in current assets and secondly in financing the current assets. These two aspects will help in remaining away from the two danger points of excessive or inadequate investment in current assets. Whenever a need of working capital funds arises due to increase in level of business activity or for any other reason the arrangement should be made quickly, and similarly if some surpluses are available, they should not be allowed to lie ideal but should be put to some effective use.

Net working CapitalNet working capital refers to the difference between current assets and current liabilities less Short-term borrowing. Current liabilities include creditors, bills payable and outstanding expenses. Net working capital can be positive as well as negative. Positive working capital refers to the situation where current assets exceed current liabilities and negative working capital refers to the situation where current liabilities exceed current assets. The net working capital helps in comparing the liquidity of the same firm over time. For purposes of the working capital

70

management, therefore, Net Working Capital can be said to measure the liquidity of the firm.

Calculation of Working Capital of J.P. Cement200708 200809 200910

Year

Inventories Sundry Debtors Cash & Bank Other Current Assets Loans & Advances Total Current Assets

98130 58618 181544 3190 222194 563676

122862 102204 290859 1282 330810 848017

155363 228503 387918 3038 399472 1174294

71

Current Liabilities Provisions

334909 30605

455439 48231 503670

520143 65146 585289

Total Current Liabilities 365514

Working Capital

198162

344347

589005

Dimensions of Working Capital of J.P. CementWorking Capital management refers to the administration of all aspect of current assets and current liabilities. The management must determine levels and composition of current assets. Managers see the right sources are tapped to finance current assets. It is necessary to manage working capital in the best possible way to get maximum benefit. Manage Current Assets is the best way to control working capital. Management of current assets gives a right dimension of working capital.

72

Dimensions of working capital

73

Determinants of Working CapitalThere is no specific method to determine working capital requirement for a business. There are a number of factors affecting the working capital requirement. These factors have different importance in different businesses and at different times. So a thorough analysis of all these factors should be made before trying to estimate the amount of working capital needed. Some of the different factors are mentioned here below:

Nature of businessNature of business is an important factor in determining the working capital requirements. There are some businesses which require a very nominal amount to be invested in fixed assets but a large chunk of the total investment is in the form of working capital. There businesses, for example, are of the trading and financing type. There are businesses which require large investment in fixed assets and normal investment in the form of working capital.

Size of business-

74

It is another important factor in determining the working capital requirements of a business. Size is usually measured in terms of scale of operating cycle. The amount of working capital needed is directly proportional to the scale of operating cycle i.e. the larger the scale of operating cycle the large will be the amount working capital and vice versa.

Manufacturing CycleAs is evident from the very word, manufacturing cycle means the starting of the cycle with the purchase of raw material and ends when finished products are churned out. An extended manufacturing time span means larger tie ups and hence more working capital. So the shortest manufacturing cycle should be chosen.

Business Fluctuations75

Most business experience cyclical and seasonal fluctuations in demand for their goods and services. These fluctuations affect the business with respect to working capital because during the time of boom, due to an increase in business activity the amount of working capital requirement increases and the reverse is true in the case of recession. Financial arrangement for seasonal working capital requirements are to be made in advance.

Production Policy-

As stated above, every business has to cope with different types of fluctuations. Hence it is but obvious that production policy has to be planned well in advance with respect to fluctuation. No two companies can have similar production policy in all respects because it depends upon the circumstances of an individual company.

76

Firms Credit PolicyThe credit policy of a firm affects working capital by influencing the level of book debts. The credit term is fairly constant in an industry but individuals also have their role in framing their credit policy. A liberal credit policy will lead to more amount being committed to working capital requirements whereas a stern credit policy may decrease the amount of working capital requirement appreciably but the repercussions of the two are not simple. Hence a firm should always frame a rational credit policy based on the credit worthiness of the customer.

Availability of CreditThe terms on which a company is able to manage its credit also affects the working capital requirement. If a company in a position to get credit on liberal terms and in a short span of time then it will be in a position to work with less amount of working capital. Hence the amount of working capital needed will depend upon the terms a firm is granted credit by its creditors.

77

Growth and Expansion activitiesThe working capital needs of a firm increases as it grows in term of sale or fixed assets. There is no precise way to determine the relation between the amount of sales and working capital requirement but one thing is sure that an increase in sales never precedes the increase in working capital but it is always the other way round. So in case of growth or expansion, the aspect of working capital needs to be planned in advance.

Price Level ChangesGenerally increase in price level makes the commodities dearer. Hence with increase in price level the working capital requirements also increases. The companies which are in a position to alter the price of these commodities in accordance with the price level changes will face fewer problems as compared to others. The changes in price level may not affect all the firms in same way. The reactions of all firms with regards to price level changes will be different from one other

78

MANAGEMENT OF INVENTORY

Inventory ManagementInventories are the stock of the product made for sale by the company or semi finished goods or raw materials. Inventory of finished goods which are ready for sale is required to maintain smooth marketing operation. The inventory of raw material and work in progress is required in order to maintain an unobstructed flow of material in the production line. These inventories serve as a link between the production and consumption of goods. The aspect of management of inventory is especially important in respect to the fact that in country like India, the capital block in terms of inventory is about 70% of the current assets. It is therefore, absolutely imperative to manage efficiently and effectively in order to avoid unnecessary investment in them. Although to maintain low inventories may prove to be profitable but to maintain very low inventories may prove risky on the contrary.

79

This aspect of management if tackled in a proper way may prove to be a boom; its effective and efficient management would result in the maintaining of optimum level of inventories. At this level the profitability of the organization will not be jeopardized at the cost of inventory. Now from the above stated facts it is clear that maintaining of optimum level of inventory involves huge cost, so why should keep the inventories at all.

Basically there are three main reasons for which inventories are stocked and they are:1. Transaction Motive: This motive lays emphasis on maintaining of inventories in order to maintain a smooth and unobstructed supply of materials for the sales and production operations.

80

2. Precautionary Motive: This motive emphasizes on the stocking goods in order to guard against the uncertainties of future i.e. unpredictable changes in the forces of demand, supply and other forces.

3. Speculative Motive: This motive influences the decisions regarding the increase or decrease in the level of inventory in order to take advantage of price fluctuations. A company should maintain adequate stock of materials for continues supply to the factory for an uninterrupted production. It is not possible for a company to procure raw material instantaneously whenever needed. A time lag exists between demand and supply of material. Also, there exists an uncertainty in procuring raw material in time at many occasions. The procurement of materials may be delayed because of factors beyond companys control e.g. transport disruption, strike etc. Therefore, the firm should keep a sufficient stock of raw material at a time to have streamline production. Other factors which may incite us to keep stock of inventories is the quantity discounts, expected rise is price. The work in process inventory builds up because of the production cycle. Production cycle is the time span between the introduction of
81

raw material in to the production and the emergence of finished goods at the completion of production cycle. Till the production cycle completes, the stock of work in process has to be maintained. Efficient firms constantly try to make the production cycle smaller by improving their production techniques. The stock of finished goods has to be held because production and sales are not instantaneous. A firm can not produce immediately when goods are demanded by customers. Therefore to supply finished goods on regular basis, their stock has to maintain for sudden demand of customers. In case the firm sales are seasonal in nature, substantial finished goods inventory should be kept to meet the peak demand. Failure to supply products to customer, when demanded, would mean loss of the firms sales to the competitors. The basic objective in holding raw material inventory is separate purchase and production activities and in holding finished goods inventory is to separate production and sales activities. If raw material inventory is not held, purchase would have to be made regularly at the time of usage. This would means production interruptions and high cost of ordering.
82

A sufficiently large inventory has to be maintained of finished goods so as to meet the fluctuating demands. If a close link is maintained between the sales and the production department then an organization can do with a small inventory also. In the process inventory is also necessary because production can not be instantaneous. But it should be seen that the size of production cycle should be small.

Objectives of Inventory ManagementIn the modern business world there is practically nothing that is done without objective. The objective is also one that would help the organization in reaching its goals in a better way. Hence it can be inferred that the importance given to management of inventory in the business world is not devoid of a concrete reasons behind it. The two main reasons behind all this are, firstly, to maintain a inventory big enough that the production and sales operation are carried on without any hindrance and secondly, to minimize the investment in inventory, in order to maximize the profits. Both, excessive as well as inadequate inventory level is not good. They are the two danger points that a company should try to avoid and should always try to maintain optimum level of inventory.

83

The excessive investment in the inventory has the following drawbacks: # Unnecessary ties up of firms fund and loss of profit. # Excessive carrying cost. # The risk of liquidity. The over investment of funds in inventory eat up the precious funds which could have been put to some profitable use. The carrying cost incurred, can not be ignored, this is the cost of storage, handling insurance, recording and inspecting. These all costs incurred in order to have large inventories impair the profitability of the firm. Another danger of carrying excessive inventory is the deterioration, obsolescence and pilferage of raw materials. Maintaining inadequate inventory is also dangerous. The consequences of under investment in inventory are: # Production holds ups; # Failure to meet commitment

84

If the inventory of finished goods is not adequate than the demand of customer is peak periods may not be left unmet and it the under investment is in the area of raw materials that is likely that the production process may be held up frequently. The aim of inventory management thus should be to avoid excessive and inadequate level of inventory and to maintain sufficient inventory for smooth production and sales operation. Efforts should be made to place an order at the right time to right source to acquire right amount at the right price and for right quantity. The aspects of a effective inventory management should take care of are as: Ensure continues supply of material to facilitate uninterrupted production. To maintain sufficient stocks of raw material in the periods of short supply and evident price rise. To maintain sufficient inventory of finished goods for smooth sales operation. Minimize carrying cost and time. Control investment and keep it to the optimum level.

85

COMPOSITION OF INVENTORY31-03-2010 Rs. Inventories Stores, Spare parts etc. Goods-in process Finish Goods Raw Material Material-in-Transit Total 61252 23918 13280 2390 2167 103007 59.46 23.22 12.89 2.32 2.1 100 In Lacs % of Total Inventory

86

Trend Analysis of InventoryInventories Stores, Spare parts etc. Goods-inprocess Finish Goods Raw Material Material-inTransit Total 2.1 100 2.52 100 2.76 100 23.22 12.89 2.32 49.83 3.14 .070 51.66 3.156 1.076 59.46 43.79 41.34 31-03-2010 31-03-2009 31-03-2008

87

Trend of Inventories

Techniques of Inventory ControlThere are many techniques to inventory. Control over inventory is very important for company because it is involved lost of money. Some techniques are:

88

Economic Order QuantityIt is the inventory level which minimizes the total of ordering and carrying cost. Determining economic order quantity involves two types of costs i.e. ordering cost and carrying cost. Here we find the economic order quantity with the help of the formula: EOQ = (2AO/C) ^1/2 Where, A -> -Total Annual Requirement O -> per order cost C -> per unit carrying cost

1. ABC Analysis-

ABC analysis is a technique of selective control of inventory by classifying all items of stores into three categories namely Category A- A few items accounting for substantial usage in term of total monetary value (10% of items covering 75% value).

89

Category B- In between items A and C (20% items representing 15% value). Category C- Large number of items of small value (70% items covering 10% value).

2. Just-In-Time Purchasing-

In this technique company are reducing stock levels to a minimum by creating closer relationship with suppliers and arranging more frequent deliveries of small quantities. The objective of just-in-time purchasing is to purchase goods so that delivery immediately precedes their use.

3. VED Analysis-

Vital, Essential and Desirable (VED) analysis is done mainly for control of spare parts keeping in view the criticality to production.

Vital spare are spares the stock-out of which even for a short time will stop production for quite some time. The stock-out cost of vital

90

items is very high. Essential spare are spare the absence of which cannot be tolerated for more then a few hours a day and cost of lost production is high. Desirable spare are those which are needed but their absence for even a week or so will not lead to stoppage of production.

4. FSN Analysis-

In this technique items are classified according to Fast-moving (F), Slow-moving (S), and Non-moving (N) on basis rate of consumption. The non-moving items are items not consumed for a long period say 24 months. The classifications of fast and slow moving items are determined on the basis of storage turnover and it helps in proper arrangement of stocks in stores and distribution and handling methods.

ConclusionThis table shows that company has improving his inventory turnover and sales there finished good quickly. Inventory turnover ratio
91

increased by 17.98% in 3years. This shows that company has turn there inventory 17.98% more than previous years. Company turn there inventory 12.73 times in a years. This means company turn there inventory in to cash 12.73 times. Company holds there inventory 28.27 days. This is show that company has good sales over previous years.

92

SUGGESTIONS

SUGGESTION
Keeping in view of detailed analysis for the 5 years of study and our findings mentioned in above paragraphs, the following suggestions shall be helpful in increasing the efficiency in working capital management J.P. Cements working capital is less then 25% of its Current assets. Company has to improve ther working capital. In case of inventory management ABC analysis, FSN technique, VED technique should be adopted to increase the efficiency of inventory management. Company should be focused on his Capital Structure.

93

CONCLUSION

Conclusion-.
Company has 548014 lacs working capital which is 41.84 % of his current assets. So company has to increase his working capital for day to day operation. Companys working capital should have to 25% 0f his current assets. J.P. Cement has 62.74% current assets of total assets this is low percentage of current assets. Company utilizes his cash properly and maintaining his sundry debtors. Company is increasing his inventory. Company is also increasing his prepaid expenses. J.P. Cement has good liquidity position. Current ratio of the company is 2.24 times. It is 0.24 times more than satisfactory level. Companys quick ratio is 1.97 times. Net working capital ratio is 0.37 times of his total assets.

94

J.P. Cement manage there cash properly. Company has 0.74 time cash to his current liabilities. Company has ability to meet his more than 50% current liabilities without converting inventory and debtors in to cash. Debtors turnover in 2009 is 1.72 time. It is increase to 2.20 in FY 2010. It has increased by 27.91% in 2010. Company turn there inventory in to cash 8.39 times. Company holds there inventory 44 days. Inventory turnover ratio increased by 7.39% in 3years. J.P.Cement has good sales over previous years. In Inter-firm comparison J.P. Cement has good position but ACC Cement has better sales and manage there finance.

95

BIBLIOGRAPHY
Pandey I.M. Financial Management Annual Report J.P.Cement www.J.P.cement.com www.jalindia.com www.jaypeegroup.com www.investorpidia.com www.wikkipidia.com

96

97