CONTENTS

I. COMPANY PROFILE
II. OBJECTIVE OF THE STUDY III. RESEARCH METHODOLOGY IV.INTRODUCTION TO THE WORKING CAPITAL MANAGEMENT Definitions Concepts of working capital Operating cycle Importance Determinants Techniques V. DATA ANALYSIS & INTERPRETATION Comparative statement of current assets& current liabilities Schedule of changes in Working Capital Working capital related ratios & graphs Debtors management Inventory management Creditors management

VI. CONCLUSIONS VII. SUGGESTIONS IX. BIBLIOGRAPHY

A.) Industry Overview DC Power systems are used across the world for a variety of application where the traditional power supply system domains that are encompassed in the cannot be sustained/ supported. DC power systems vary The from

Telecommunications, Aviation, Rail coaches and signaling to Oil Refineries, Power generating stations, Oil drilling and pipelines. These applications have grown significantly in the last two decade due to the embraceable of newer technology and also because the conventional power sources are available only in a limited domain, beyond which the reliance on DC / alternative Power systems is unavoidable. With the march of technology and its blending with the industrial applications there is a need for an efficient and reliable power supply sources at all times and place. DC Power systems provide a back up / alternative source of power for running and maintaining applications wherein loss of power supply is critical. There is a need for the power supply in remote and far-flung areas and at such places the dependence is on DC power sources is complete DC power systems are also required in mobile (non-stationary) applications like Rail coaches, Aviation etc. In these applications the usage of conventional sources of power / electricity is not possible and DC power supplied thru batteries is to be relied upon. Defense applications too, require power for communications, aviation and naval application like propulsion of torpedoes. The application for DC power also finds place in Defense Research establishments like NSTL (Naval Science and Technological Laboratory), DRDO (Defense Research and Development Organization, DRDL (Defense Research and Development Laboratory amongst others.

The Company is manufacturing specialized batteries and electronics products. The end users of its products are in various sectors i.e. Communications, Railways, Defense, Oil and Natural Gas, Petroleum, Steel, General industry, etc. Most of these segments are core sector of countrys economy. Given the background of inadequacies and shortcomings associated with the power supply situation, every end user requires reliable, consistent and clean power source for running the establishments. Thus back up power requirements are rapidly growing to cater the increasing requirements of the above segments. Further advent of latest technologies deployed by many sectors like Telecommunications, Info com, Information technology, rail and road transport and manufacturing units having sophisticated computer numerically operated equipment requires continuous and reliable

power supply which necessarily has to be met through to back up power only. In remote areas where the mains power supply is not at all available i.e. railways, defense, communications, oil supply only. exploration etc. have to depend on back up power Thus this sector of business all over the world works out to several billion US The segments in which we

dollars. Among these countries like China, India, and South East Asian countries where the requirements of rapidly growing population is also very high. growth potential of 10-12% annually. Being in a very vital sector of business and past track record from last 23 years the future for this sector is quite encouraging. Market demand for the products is increasing very rapidly. Liberalized policies of Government of India from 1991 onwards opened up foreign direct investments in several sectors i.e. Telecom, Infocom, IT, Transport, etc. This has achieved very satisfactory level of foreign direct investments. Financial sector reforms also will contribute for further growth of economy in several sectors in the years to come. This will increase the demand for technology driven sectors where the usage of back up power is very essential which will be a catalyst for the growth of the companys business both in terms of volume and value, which will contribute to consistent growth of business of all the products including electronics products. NiCad batteries Source: Extracts from Investigation on Storage Technologies for Intermittent Renewable Energies: Evaluation and recommended R&D strategy-Nickel batteries dated 2003-06-23 by Investire Network [Project funded by European programme (1998-2002)] Nickel cadmium (NiCd) batteries have been in industrial production almost as long as lead Community under the 5th frame work are in business the annual requirement is more than Rs. 3,000 crores having compound

acid batteries. The NiCd battery of type vented pocket plate (PP), was invented by Jungner in 1899 and is still used with the same design today. NiCd batteries for industrial applications are today a niche product. The main applications for industrial NiCd batteries are railroad service, switchgear operation, telecommunications, emergency lightning and in uninterrupted power supply. Industrial NiCd-batteries of more modern weight and volume efficient designs than the pocket plate are also used in modern trains, aircraft's, electrical vehicles (EV) and hybrid electrical vehicles (HEV). Industrial NiCd cells are designed as vented prismatic cells with positive and negative plates containing the positive and negative active materials. There are four different types of vented industrial NiCd batteries commercially available. Pocket plate batteries Fibre plate batteries Sinter plate batteries Sinter/plastic bonded plate batteries

Pocket plate batteries are the oldest and least expensive type with a very reliable and long-life cell design that can stand severe mechanical and electrical abuse. The sinter plate battery was invented 1932 by Shlecht and Ackermann. They have superior high discharge and low temperature performance but are the most expensive battery due to high manufacturing cost and high nickel content. The gap between the superior but high cost and size limited (<100Ah/cell) sinter battery and the low cost but bulky and heavy PP battery was filled in the eighties by the development of fibre plate batteries and later the plastic bonded electrode (PBE) batteries. Fibre plate NiCd (FNC) batteries were developed for electrical vehicles (EV) applications by Deutsche Automobilesellschaft mbGh (DAUG) and are today available for general industrial applications. In sinter/PBE batteries the positive plates are made with sinter plate technology and the negative plates are made with plastic bonded technology. The main conventional applications for vented NiCd batteries of type pocket plate, sinter/PBE and fibre are used in applications of industrial nature.Examples are railroad service, switchgear operation telecommunications, uninterrupted power supply and emergency lighting. Fibre plate and sinter/PBE NiCd batteries are used in trains and electrical vehicles. Fibre plate batteries are also used in aircrafts. Vented sintered plate NiCd batteries are used in applications requiring high power discharge service such as aircraft turbine engine and diesel engine starting and other mobile and military equipment.

Sealed NiCd batteries are used in portable equipment, like toys, phones, camcorders, computers and power tools. The batteries are also used in military equipment and in emergency lightning, alarms, and memory back up. History and Corporate Structure of HBL POWER History and Major Events HBL Power Systems Limited (formerly known as HBL NIFE POWER SYSTEMS LIMITED) was originally incorporated in August 29, 1986 (Registration No.01-6745 of 1986-87) with registered Office at 8-2-601, Road # 10, Banjara Hills, Hyderabad 500 034 under the name and style of SAB NIFE Power Systems Limited by Dr. A J Prasad. It received the certificate to commence business on September 22, 1986. Hyderabad Batteries Limited (HBL) an entity of Dr. A.J. Prasad (Promoter) acquired the status of a co-promoter along with SAB NIFE AB, Sweden as the joint venture partner and financial collaborator. The Company was setup commenced in August 1988. SAB NIFE Power Systems Limited came out with a public issue of 30 Lacs Equity Shares of Rs. 10/- each at par in February 1992 to part finance its expansion and Pinaki diversification plans. In April, 2000 the Company merged with itself HBL Limited (one of the promoter of SAB NIFE Power Systems Limited) along with another associate company Technologies Limited. The merger was with an objective of complementing the then existing product range and to establish a manufacturing facility for switch mode rectifiers at Kothur, Mahaboobnagar District Andhra Pradesh. Post merger to represent the new focus of the company it was renamed as HBL NIFE Power Systems Limited During 2001-02 the company acquired controlling interest in Compact Power Sources Private Limited, which was engaged in manufacturing of Cap Lamps and Batteries for amalgamated / merged with HBL NIFE mining industry. The said company was eventually with an object to manufacture various types of batteries and electronic products. Commercial production

Power Systems Limited vide court order in February 2004. HBL NIFE manufactures large capacity nickel cadmium batteries and power electronics equipment like rectifiers, battery chargers and uninterrupted power systems.

HBL Power Systems Limited - High Lights 1. A leading player in industrial and specialized batteries, DC Power Systems and other

Electronic Products. 2. A technology focused manufacturer of several ranges of specialized application batteries i.e. Nickel cadmium (Pocket, Fibre and Sintered plate), Silver Oxide Zinc, Lithium, Thermal, Lead acid (VRLA, MBD etc) 3. The Customer segment in India include telecom, railways, defense, Power, nonconventional energy (solar), petroleum, oil and gas, uninterrupted power supply systems process and core industrial users.

4. Products are exported to several countries in Asia, Europe and the Americas.
well as from new territories.

Exports

are growing at over 40% with increasing business from existing markets / customers as

5. Apart from Batteries and DC Power Systems (chargers, distribution boards, etc.), the
company has developed several advanced electronic products for Indian railways and reached an advanced stage for completion of development. The company has made defence electronics in product process substantial investments

development for its core products as well as the new electronic products with exclusive specialist qualified man power for in-house Technology development.

6. Development orders, approvals and release of commercial orders from railways and
defence sectors for some of the signaling and electronic products of the Company as paved the way for additional increase in growth and major diversification in the next few years.

7. With its country wide sales and effective service net work, the Company is by far the
largest supplier in the booming telecom sector as well as for specialized alkaline application battery segments. Focus Areas of Business Presently, the thrust areas of the Company to which it caters are:

Communications / Telecom Defence Railways Power Petroleum, Oil &Gas, Steel Non-Conventional Energy (Solar) Uninterrupted Power Supply Systems Business Overview

Overview of the Market / business: A) Industrial Batteries: In the Indian market substantial growth is being noticed in almost all the segments in which the Companys products are marketed. The industrial battery market currently is Rs.2000 to 2500 crores with 20% annual growth in the coming years.

ii

Telecom Sector :

This sector is experiencing maximum growth in volume and reach reaching 35 per 100 in three years.

from a tele-density of less than 10 per 100 at the turn of the century, it has almost crossed 20 per 100 and there is a clear target of This translates in to a growth of nearly 100% year by year for next 3 years. With the foreign direct investment (FDI) caps liberalized, major consolidation in the market already taken place and the global leaders in technology, equipment and project technology are directly undertaking the expansion of the projects, thereby communications sector Nearly 2% of the will be most stable and effective in terms of the future growth. cost approximately Rs.4,000 over line, the battery exceed Rs.1200 corers in the iii Power Sector: The power segment is a major user of batteries and DC power systems right from the main generating plants, power supply back up to auxiliaries, material handling, UPS, control and instrumentation; switch yards, substation and switch gears in generation, transmission and distribution. The present countrys installed capacity of 112,000 MW is to cross to MW 200,000 by 2012. The advanced power development and reforms programme (APDRP) of The government already under implementation is helping to add capacity / improve generation even in existing plants apart from setting up of new green field projects. Electricity Act, 2003 has liberalized the norms to ensure private power plants can be quickly implemented in short gestation periods. The expansion capacity target thus will have 20% private projects and 25% through reforms and modernization. As the Battery back up in the main power plant areas need to be highly reliable, nickel cadmium batteries find extensive use in this segment and 25 to 30% yearly growth is expected for these alkaline batteries from this segment. next 2 to 3 years.

telecom capacity expansion project costs account for batteries and stand by power. With a purchase in the telecom sector will

With the additional investments planned in this sector Rs.200 crores per annum of the battery purchase is the replacement demands for existing plants. envisaged to cater to the growth apart from

B) Other Industrial Segments i. Fast growth is expected in the Solar Power (Non-conventional energy) achieve electrification of non-polluting power. As each solar street light, home light and power plant needs batteries to store and supply the power, the potential in this area is also substantial with the Government planning to electricity 100,000 villages through the MNES programmes and private enterprises also coming into the sector. Growth of 22 to 25% per annum is expected in this segment. ii. The other high growth industrial segment is the UPS. and IT in all spheres is of each UPS is a battery bank which keeps batteries in an UPS range from 20-50%. per annum in the enterprise segment. iii. Road transport sector is also a growing segment where the company is making a selective and focused entry to supply high quality pure lead tin batteries to the busses of RTCs. batteries for these future products. iv. Railways: The Railways segment is growth well with expansion in tracks and routes. With more and more types of batteries being approved by RDSO, the 30% per annum. The Company is also working with developers of electrical vehicles to design advanced technology The large growth in automation The value of segment to

remote and non-grid areas as well as to encourage use of green,

driving the UPS segment that is growing by 25-30% p.a. The heart the stand-by power stored. The UPS market today is more than Rs.1,000 crores

This translates into increasing requirement of batteries for train lighting, AC coaches, signaling and communications. growth in this segment for the Company is more than v. Defence :

The defence segment has been a prized customer for the Company with made batteries being supplied to the Army, Navy and the Air Force. Defence for critical application areas like units etc. where no other major

several specialized, tailor torpedoes,

The Company is most dependable supplier to manufacturers can cater.

missiles, aircraft starting, ground power

Specially designed Silver Oxide Zinc, Nickel Cadmium Sintered Plate,

Lithium and other chemistries are used for such defence applications.

The Company has a niche in this market and with growing defence expenditure and entry of private sector now being altered, this segment is a valuable business and growth area for the Company. C) Export Markets The global market for batteries is also growing by almost 10% with much higher growth in the Asia Pacific region. Increases in capital spending and in manufacturing enterprises in the industrializing parts of the world are driving growth.

The total battery market globally is envisaged at US $ 43 bn out of which 30% is considered to be in non-automotive applications segment. In the developed economies, nonlead acid (alkaline) rechargeable batteries are out pacing the lead acid secondary batteries. HBL NIFEs technology driven Nickel cadmium batteries are very well here to meet this trend as the results already show. increasing demand With growing acceptance of the Companys NiCad products all through capacity expansion, over the world, consistent growth is expected and the company is planning to meet this own overseas facilities, more effective dealer / reselling customer net work and product / technology improvement programmes. D) Electronic Products The Company is an established supplier of industrial chargers, distribution boards etc. to industrial customers all over India and overseas. suppliers for complete DC Power Systems and the demand. Several Project Customers prefer system Company is well placed to cater to this charging and

Integrated Power Supply systems (IPS) which are multi voltage

power supply systems are very popular with the Railways and the Company is leading supplier of this product. Railway signaling is a major growth area, which the company is focused to capitalize. The Railways have allocated a special budgetary fund of Rs.5,000 crores to upgrade signaling systems in 5 years apart from their regular budgets. railway operations, the investment in this area Safety becoming a critical aspect in will increase manifold in future.

The Company has developed several advanced technology electronics products to cater to this high growth segment. The Company is working closely with IRISET, RDSO and other agencies with development orders and regular orders already coming in for several electronics products like Data loggers, train charting systems, high frequency track digital axle counters, etc. circuits, solid state interlocks, The Company has undertaken execution of railway signaling

contracts on turn key contract basis with supply of batteries and electronics products as a part

of the terms of contract. This area will grow very rapidly since the railways have embarked upon the modernization programmes of signaling systems all over the country in a phased manner. This is a substantial future growth area and also contributes to the diversification / introduction of new technology driven electronic systems in large volumes. E.) Defence Electronics The Company being trusted supplier of various specialized batteries to Defence has been encouraged to develop several electronics products used for electronic warfare, radar, microwave, proximity fuzes, radios, thermal imagers etc. With liberal investment in R&D, new product development, tie-ups with research institutions and sheer technological enterprise, the Company has been successful in developing advanced electronics products suitable and acceptable to the Defence applications and is poised for assumed growth in this specialized market of limited competition. Outlook - The Road Ahead The Company has a diversified portfolio of products. It has carefully developed strengths in areas of limited customers / market segments. competition and focused on direct marketing to chosen The direct sales approach through a network of more than engineers

10 branches in India and 3 overseas with a growing teams of sales and service become their preferred supplier.

exceeding (presently over 200) has enabled the company to own selected customers and This has resulted high and sustainable sales growth of the Company from the major expansion of business growth of these customers. Developing new products tailored for such customers will ensure business growth from new products as well as increase the share of existing product sales. This strategy will drive the overall growth of the Company. The highest growth areas of the Company in the next few years will be: i. Telecom: The lead acid battery business in this segment has doubled last financial year and re-double in two years. The countrywide net work of the Company customers and matching production capabilities will

further expected to

with dedicated teams for the telecom ensure dominance in this segment. ii.

Exports & NiCad Business: With the Company being able to establish acceptance and

growth from quality buyers from several sectors and Asian countries for its Nickel Cadmium batteries, very quick growth in this area is assured. This global demand growth of NiCad Batteries will be firmly strengthened by the rising domestic demand for the Power and Oil and gas segments where NiCad batteries are preferred over all other types. With limited competition in this product area both in India (only two suppliers HBL Power and AMCO) and

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overseas (SAFT, Alcad Hoppecke), the future is indeed bright and promising. capacities and with export suited years. iii. Electronics: period will spurt this growth and can double the

Increased

exclusive manufacturing facilities within shortest gestation existing NiCad business in next two to three

The thrust and focused attention in the Railway Signaling and Defence ensure high turnover levels for the company in the years to come

Electronics Products will

MAIN OBJECTS OF THE COMPANY

1. To Manufacture, assemble, purchase, import, export and otherwise deal in India or abroad in all types of cells, batteries, energy storage devices, conversion and generation devices, appliances, gadgets, equipments and thereof. products, including power packs, power supplies, components, parts and accessories generators, solar panels, chargers and sub-assemblies,

2.

To manufacture, assemble, purchase, sell, import, export or otherwise deal in India or

abroad in all electrical, electronic, electro mechanical and metallurgical appliances, devices and sub-assemblies, accessories, parts and components thereof. 3. To manufacture in India or abroad products based on electrolytic, electro-thermal and electro-chemical processes, including sintered products and products based on powder metallurgy technology. 4. To establish, provide, maintain an operate plants in India or abroad for the extraction, refining and electro plating of metals and alloys by electrolytic processes. 5. To acquire, develop or supply engineering services, know-how, technology, process designs, patents, equipment, plant and machinery in India or abroad for the manufacture and/or supply of all kinds of energy systems, electric or electronic devices and also undertake the provisions of related technical, marketing and engineering consultancy services. 6. To buy, sell, manufacture, refine, manipulate, treat, prepare, import and export and deal in all kinds of chemical, industrial, medical, pharmaceutical and other preparations,

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substances, apparatus, and articles, synthetics and substitutes.

compounds, cements, oil paints, pigments and varnishes,

drugs, dyes and dye-wares, paint and colour grinders, spirits, alcohol and other alkaloids,

7. To design, manufacture, install, erect, repair, alter, amend, improve, maintain, remove, exchange, replace, import, export, sell, purchase, license, lease, hire-purchase and to act as agents in India or in any part of the world for all types of special purpose industrial machinery, products made-up of composite material, computer hardware, engines, equipment, components and its related accessories and services. 8. To undertake the designing and development of systems and application software either for its own use or for sale in India or for export outside India and to design and develop such systems and application software for or on behalf of manufacturers, owners and users of computer systems and digital/electronic equipments in India or elsewhere in the world. 9. To set up and run electronic data processing centers and to carry on the business of data processing, word processing, software consultancy, systems studies, management consultancy, techno-economic feasibility and share/debenture transfer agency. 10. To carry on the business of manufacturing, producing, generating power from all or any of the available sources such as Thermal, Hydel, Gas, Wind, Co-generation, Solar, Petroleum or from any other possible sources conventional or non-conventional and in particular to construct, lay, own, establish, fix and carryout all necessary power stations, cables, wire lines, accumulators, lamps and works and other elections whatsoever as may be necessary or required for generation, accumulation of power for captive consumption or for distribution, marketing, supplying of power in India or elsewhere to any of the industries, firms, electricity boards, government of semi government bodies, public or private companies and also for private or public purpose. 11. To act as a Export House and to carry on the business of merchants, traders, kinds of goods, products, articles, merchandise studies of projects, design and development of management and/or registration

management information systems, share/debenture issues

manufacturers representatives, commission agents, selling agents, brokers and to export, import, indent, buy, sell or otherwise deal in all either manufacture by the company or otherwise.

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Subsidiaries of the Company

The Company has 3 subsidiaries. Bhagirath Energy Systems Private Limited, Sanagaon, Lalitpur, Nepal The Company was incorporated in October 2001 and started commercial operation in the month of May 2002. Company is wholly owned subsidiary of HBL Power Systems Limited. business of execution of the orders placed by the holding The Company was engaged in the

company i.e. HBL Power Systems Limited. A wholly owned subsidiary in Nepal is in process of winding up and hence the latest audited financial statement are not available. Provision for diminution in the value of investment, which was Rs 79.44 lakhs, has been made based on Official Liquidator's Certificate of cash available as on 31-03-2005. No further provision is considered necessary, as there is no reduction in cash balance as on 31-03-2009. The operations of Bhagirath Energy Systems Ltd, Nepal (BES) a 100% subsidiary of the company became unviable with the changes in duty structure in India and the sourcing of the raw materials by the company and therefore it has been decided to wind up the subsidiary company.

HBL NIFE (UK) Limited, UK

The Company was incorporated as a private limited company by shares on April 30, 2002 with Company number 4427297. It commenced trading on June 14, 2002. The Company is engaged in the business of trading of batteries and systems. HBL (UK) Limited has a Trademark violation case initiated against it during financial year 2006 as a first defendant and the Parent company as a second defendant by SAFT AB. The company initiated winding up proceedings. Considering liquidation proceeding and non-availability of audited financial statements of the Subsidiary Company, the investment of Rs 72.29 lakhs, advance against investment of Rs 30.95 lakhs and other dues Rs 14.40 lakhs have been fully provided.

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HBL NIFE (M) Sdn. Bhd., Malaysia (Formerly known as HBL Technologies (M) Sdn .Bhd.) The Company was incorporated in with company no. 486701 H on June 23, 1999 in Malaysia. The Company is engaged in the business of Manufacturing of Nickel batteries. This Joint venture company in Malaysia has reported a profit of Rs 16.52 lakhs for the year and accumulated loss of Rs 3.51 lakhs up to 31-03-2009. This loss is considered temporary as it is a trade loss and hence no provision is made in the accounts for the fall in the investment. Further a sum of Rs 16.24 lakhs remitted towards share capital is shown under loans and advances pending allotment of shares.

Strategic Partners / Financial Partners

The Company currently has no strategic partner / financial partner, however in the past Swed Fund AB, and SAB NIFE AB, were a strategic investor in the Company. Currently the Company exports Nickel Cadmium Batteries to several customers the world.

Infrastructure facilities for raw materials and utilities like water, electricity etc. Raw Materials :Major raw material required for the manufacture of NiCad batteries are Nickel plated cold rolled steel strips, Nickel Hydroxide, Cadmium Hydroxide, Potassium Hydroxide (KOH), Polypropylene for Cell containers, Copper, Steel etc. The Company has evolved a system for bulk purchases of the specialized and valuable materials and a separate team tracks the movement of prices on regular market. There is no problem in having basis, while basic inputs are purchased from local

the availability of the requisite quantity of raw material and the company is

regular suppliers with long standing relationships for meeting its requirements. The requirements of the raw material are estimated according to the orders in hand and past experience of the demand. Also, it is not possible to estimate the annual quantitative requirement of raw material. Utilities for the Existing setup and proposed project:

Power:

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Shameerpet works: The facility has a contracted load of 1250 KvA, from APCPDCL Nandigaum works: The facility has a contracted load of 1650 KvA from APCPDCL VSEZ & VZM:The facility has a contracted load from APEPDCL . Water: Shameerpet works : Water is required at the plant for various processes and treatment of effluents along with drinking and sanitation. Company has adequate arrangements to meet its requirements. Nandigaum works: Water is required at the plant for various processes and treatment of effluents along with drinking and sanitation. The facility has 2 bore wells to meet its requirements besides it sources average of daily 1.5 Lac liters of water from other sources. Also the company has a wastewater treatment plant wherein the water used during the manufacturing process is treated & re-cycled for re-use. VSEZ : Water shall be required for various processes & for drinking and sanitation. It is estimated that the requirement at VSEZ shall be 50 Kl liters per day Effluent Treatment: The Company has installed the required effluent treatment equipments at its factories and has the requisite approvals. It is has obtained necessary clearance from the Andhra Pradesh Pollution Control Board, Hyderabad. .

Products / Services of the Company i. Nature of Products/ services and end users

The Company manufactures a host of batteries in the Industrial segment. The products include Pure Lead VRLA batteries, NiCad batteries, Tubular Lead Acid batteries Aviation, (Gel), Lithium batteries, and Thermal batteries amongst others. It caters to a variety of industries and end users ranging from Communication, Defence, Railways, and the Industrial segment. manufactured out of the current project is an existing NiCad batteries to be

product of the company and is used in Railways, Defence and Industrial

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applications like oil refineries etc. The Company primarily caters to the following Industries: Industry Applications Aviation Air Craft Engine starting, Emergency systems Railway Train lighting and Air-conditioned coaches, Signaling and communications Defence Wireless communication in Army, Battle Tanks Engine starting Telecom Back up power, basic GSM and CDMA technologies at telephone exchanges andat MSCs (Main Switching Centers) and BTH (Towers)

II.

Market including details of the Competition, past figures for the industry, existing installed

production capacity

Competition
In India, there are 4-5 companies who can be considered as competitors. Among them - HEB, Excide and Amara Raja Batteries are the major ones, besides Amco and Kirloskar can be claimed as distant competitors. It is pertinent to note that Excide and Amara Raja specialize in manufacture of automotive batteries, wherein the HBL Power has no presence. The company is not in automotive sector and focuses on the industrial sector of specialized batteries and electronics covering major segments of industry. end user requirements varied across industries. Also, unlike competitors, the company has basket of products that caters to variety of

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The company has been consistently investing in modernizing and expanding capacities so as to achieve economies of scale. The current expansion will provide for the additional capacities at a lower cost and will position the company to offer its customers better products and face the competitionp past Production figures and existing Installed Capacity

The Industrial batteries industry is highly specialized and is catered to by a few select players who have presence in automotive industry as well. The capacities are broad and interchangeable, so definitive information on the activities of the competitors is not publicly available. Also HBL Power operates in a niche market and makes products as per the specifications of the customers who are generally industrial customers. There are no published data available to the Company for past production figures, existing installed capacity, past trends and future prospects regarding exports, demand & supply forecasts. However, the Company has shown consistently high capacity

utilization in the NiCad batteries

segment, as is enumerated in the table

wherein Nickel Cadmium (Pocket Plate and Fibre Plate) batteries past capacity utilization and Production figures are reflected. Year Capacity Production Utilization FY 2008-09 Ah Ah 101% FY 2007-08 Ah Ah 76% FY 2006-07 Ah 420 Lacs 384 Lacs 550 Lacs 417 Lacs (% Age) 550 Lacs 554 Lacs Capacity Installed

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Ah 91%

iii. marketing and proposed marketing setup

Approach to

NiCad batteries finds its use across industries and there is a growing export market. The existing marketing set up shall be used optimally to sell the predominant demand for NiCad production from the proposed project. The overseas subsidiaries.

batteries is from exports and company has an existing marketing setup with

As regards the other products and supplies to Defence and Railways, the Company functions in a to be supplied market, wherein the suppliers are few and the products need a pre approval and to that

extent there cannot be a threat of new players entering into the market and associated price pressure. The Company adopts direct marketing approach thru its branches located at all important customer the information of the orders to the locations. These branches forward Sales Department at Centralized

Hyderabad that coordinates the sales efforts of all the branches and arrange necessary follow up bank guarantees, earnest money deposits, samples etc. The Centralized sales Department is headed by supported by his subordinates, Department. HBL NIFE Defence, Private Railways, Clients. The supplies Company General Manager (CSD) and is under direct supervision of India, Ministry of which functions to is Government also

of Chairman (Executive) considering the importance and sensitive nature of the Other Government Departments/ PSUs and also to the registered Defence Vendor

and authorized Railway supplier. While, Public Sector Undertakings and Government Departments invite tenders through public notice, tender from private sector are negotiated. The Company obtains tender document from Public Sector Undertakings / Government Department on the basis of such public notice and has been successfully doing so. To procure contracts from Private Clients, the Company on continuous basis collects market information

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and

makes

presentation

to the

existing

and

prospective

customers.

The

Companys past track record and its association with the industry for more than two decades also helps in getting orders. The Company has also been successfully bagging repeat orders from its reputed existing client base.

The Company has wide spread customer base, the top 10 are as under:
Sr. No. Name of the Clients 1. Reliance Infocom Limited 2. Motorola India Limited 3. Ministry of Defence 4. Indian Railways 5. AEG

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Power Solutions 6. Integral Coach Factory, 7. Nokia India Limited 8. Hutchison Essar Telecom Limited 9. Erickson India Limited 10. Bharat Heavy Electricals Limited

The Companys global presence is evident in the fact that the Company is continually expanding its facilities to meet the increasing demand of quality products. High Degree of Customer Satisfaction and increased turnover year

after year has further added to the creditability of the organization

Business Strategy
The Companys Business Strategy is to develop globally competitive

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business in manufacturing and services by taking advantage from the cluster of scientific / technology institutions and qualified, trained technical personnel available in India. Further the existing businesses to be integrated deploying innovating technology and by widening the product range within the business segments. Also the Company believes in a high degree of in house components thus reducing the dependability on outside vendors at the same time it gives the company the requisite flexibility to make to order as per customers specification and thus providing enhanced customer satisfaction.

SYNOPSIS

WORKING CAPITAL MANAGEMENT More businesses fail for lack of cash than for want of profit Cash is the lifeline of a company, no matter how large or small the organization is. If this lifeline deteriorates so does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital Management. Working capital management involves the relationship between a firm's current assets and its current liabilities. Current Assets are resources, which are in cash or will soon be converted into cash in "the ordinary course of business". Current Liabilities are commitments which will soon require cash settlement in "the ordinary course of business".

The goal of working capital management is to ensure that a firm is able to

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continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash to pay current liabilities as they fall due. This implies a clearly designed risk policy to determine the required liquidity level. Why Firms Hold Cash The finance profession recognises the three primary reasons offered by economist John Maynard Keynes to explain why firms hold cash. The three reasons are for the purpose of speculation, for the purpose of precaution, and for the purpose of making transactions. All three of these reasons stem from the need for companies to possess liquidity

CONCEPTS OF WORKING CAPITAL: There are two concepts of working capital: (I) Gross Working Capital. (ii) Net Working Capital.

In the broad sense, the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Current assets are those assets, which in the ordinary course of business can be converted into cash within a short period of normally one accounting year. In a narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of current assets over current 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 intend to be paid in the ordinary course of business within a short period or normally one accounting year out of the current assets or the income of the business. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. These two concepts of working capital are not exclusive, rather both have their own merits.

Working Capital = Current Assets - Current Liabilities

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Gross concept is very suitable to the company form of organization where there is divorce between ownership, management and control. The net concept of working capital may be suitable only for proprietary form of organizations such as sole-trader or partnership firms. However, it may be made clear that as per the general practice net working capital is referred to simply as working capital.

TYPES OF WORKING CAPITAL: Working Capital may be classified in two ways: (a) On the basis of concept. (b) On the basis of time. (a) On the basis of concept, working capital 1. Gross working capital. 2. Net working capital. (b) On the basis of time, working capital can be further classified into 1. Permanent or fixed working capital. 2. Temporary or variable working capital. Permanent working capital: 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 enterprise to carry out its normal business operations. For example, every firm has to maintain a minimum level of raw materials, work-in-process, finished goods and cash balance. This minimum level of current assets is called fixed working capital. Temporary working capital: Any amount over and above the permanent level of working capital is temporary, fluctuating or variable working capital. This portion of the required working capital is needed to meet fluctuations in demand consequent upon changes in production and sales as a

23

result of seasonal changes. Working Capital Cycle: Cash flows in a cycle into, around and out of a business. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands, the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits. There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-progress) and Receivables arising from credit terms extended to customers and as reflected in day sales outstanding (DSO - DSO provides a rough guide to the number of days that a company takes to collect payment after making a sale). The main sources of cash are Payables arising from trade terms adopted in supply chain management (your creditors) and Equity and Loans.

Each component of working capital (namely inventory, receivables and payables) has two dimensions. TIME ......... and MONEY. When it comes to managing working capital - TIME IS

24

MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit, you effectively create free finance to help fund future sales.

If you ... Collect receivables (debtors) faster Collect receivables (debtors) slower Get better credit (in terms of duration or amount) from suppliers Shift inventory (stocks) faster Move inventory (stocks) slower

Then ... You release cash from the cycle Your receivables soak up cash You increase your cash resources You free up cash You consume more cash

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing down a plug hole, they remove liquidity from the business.

IMPORTANCE OF WORKING CAPITAL: Working capital is the lifeblood and nerve centre of business. Just as circulation of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business can run successfully without an adequate amount of working capital. The main advantages of maintaining adequate

25

amount of working capital are as follows: 1. Solvency of the business: Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production.

2.

Goodwill: sufficient working capital enables a business concern to make prompt payments and hence helps in creating and maintaining goodwill.

3.

Easy loans: A concern hacking adequate working capital, high solvency and good credit standing can arrange loans from banks and others on easy and favorable terms.

4.

Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs.

5. Regular payment of salaries: wages and other day-to-day commitments company which has ample working capital can make regular payment of salaries, wages and other day-today commitments which raises the morale of its employees, increases their efficiency, reduces wastages and costs and enhances production and profits.

6.

Regular supply of raw materials: Sufficient working capital ensures regular supply of raw materials and continuous production.

7. Ability to face Crisis: Adequate working capital enables a concern to face business crisis in emergencies such as depression because during such periods, generally, there is much pressure on working capital. 8. Quick and Regular return on Investments: Every Investor wants a quick and regular return on investments. Sufficient of working capital enables a concern to pay quick and regular dividends to its investors, as there may not be much pressure to plough back profits. This gains the confidence of its investors and creates a favourable market to raise additional funds in the future.

DISADVANTAGES OF EXCESSIVE WORKING CAPITAL Every business concern should have adequate working capital to run its business operations. It should have neither redundant or excessive working capital nor inadequate nor shortage of working capital. Both excessive as well as short working capital positions are bad for any business.

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1.

Excessive working capital means idle funds which earn no profits for the business and

hence the business cannot earn a proper rate of return on its investments. 2. When there is redundant working capital, it may lead to unnecessary purchasing and

accumulation of inventories causing more chances of theft, waste and losses. 3. Excessive working capital implies excessive debtors and defective credit Policy which may cause higher incidence of bad debts. 4. It may result into overall inefficiency in the organisation. 5. When there is an excessive working capital relation with the banks and other financial institutions may not be maintained. 6. Due to low rate of return on investments the value of shares may also fall.

DISADVANTAGES OF INADEQUATE WORKING CAPITAL 1) A concern, which has inadequate working capital, cannot pay its short-term liabilities in time. Thus it will loose its reputation and shall not be able to get good credit facilities.

2) The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies, increases costs and reduces the profits of the business. 3) It becomes impossible to utilise efficiently the fixed assets due to non-availability of liquid funds. 4) The rate of return on investments also fall with the shortage of working capital.

CAPITAL MANAGEMENT APPROACHES TO WORKING The objective of working capital management is to maintain the optimum balance of each of the working capital components. This includes making sure that funds are held as cash in bank deposits for as long as and in the largest amounts possible, thereby maximizing the interest earned. However, such cash may more appropriately be "invested" in other assets or in reducing other liabilities. Though Working capital management takes place on two levels, component level and analysis level, the approach to WCM depends upon

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1. Natures or Character of Business 2. Size of Business/Scale of Operations 3. Production Policy 4. Manufacturing Process 5. Working Capital Cycle 6. Rate of Stock turnover 7. Credit Policy 8. Rate of Growth of Business 9. Earning Capacity and Dividend Policy 10. Price Level Changes MANAGEMENT OF CASH Cash Management is one of the key areas of working capital management. Cash, the most liquid asset is of vital importance to the daily operation of business firms. Crucial for the solvency of the business it is referred to as the life blood of business. Firm needs cash to meet the needs of daily transactions, to take advantage of unexpected investment opportunities. While cash serves these functions, it is an idle resource with an opportunity cost. The liquidity provided by the holding cash is at the expense of profits that could accrue from alternative investment opportunities. Hence, the firm should plan and control cash carefully.

OBJECTIVES:

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*0 *1

Bringing the companys cash resources within control as quickly and efficiently as Achieving the optimum conservation and utilization of the funds. Accomplishing the first goal requires, establishing accurate, timely

possible.

forecasting and reporting system, improving cash collections and disbursements and decreasing the cost of moving funds among affiliates. The second objective is achieved by minimizing the required level of cash balances, making money available when and where it is needed and increasing the risk-adjusted return on those funds that can be invested. Cash management deals with the following: 1. Cash inflows and outflows 2. Cash flows within the firm 3. Cash balances held by the firm at a point of time Cash Management needs strategies to deal with following various facets of cash: CASH PLANNING It is a technique to plan and control the use of cash. A projected cash flow statement may be prepared, based on the present business operations and anticipated future activities. The cash inflows from various sources may be anticipated and cash outflows will determine the possible uses of cash. CASH FORECASTS & BUDGETING A cash budget is the most important device for the control of receipts and payment of cash. A cash budget is an estimate of cash receipts and disbursements during a future period of time. It is a forecast of expected cash intake and outlay. Normally a cash budget consists of 1. Cash collections 2. Cash payments 3. Cash balances

OPTIMUM CASH BALANCE A firm has to maintain a minimum amount of cash for settling the dues in time. By preparing Cash Budget we determine the optimum cash balance. If a firm maintains less cash balance then its liquidity position will be weak. If a higher cash balance is maintained

29

then an opportunity to earn is lost.

INVESTMENT OF SURPLUS FUNDS There are, sometimes, surplus funds with the companies, which are required after sometime. These funds can be employed in liquid and risk free securities to earn some income. There are number of avenues where these funds can be invested.

*2 *3 *4 *5 *6

Unit 1964 Scheme Ready forwards Investment in Marketable Securities Bald Financing Negotiable Certificate of Deposit

Rational Behind the study: In these days working capital is most important in every company. This study helps the management of the organization in taking decision regarding working capital and financial decisions. This study is useful to the HBL power systems Ltd, Towards their working capital management. A study of working capital management is a major importance to internal & external analysis.

OBJECT OF THE STUDY

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Primary objective: To know the Working capital management of the HBL power systems Ltd.

Secondary objective: To identify the efficiency of cash management in the HBL power systems Ltd., To compare the performance of the previous year balance sheet. To analyze the operating cycle of HBL power systems Ltd. To analyze the different ratios in HBL organization. To evaluate the effectiveness of inventory management in the HBL Ltd.

SCOPE OF THE STUDY The study is mainly conducted to know the working capital management of the firm.

The working capital management is concerned with the firm current assets and liabilities. It is important and integral part of financial management as short term survival to long term success. To analyze the ratio analysis of HBL power systems Ltd. To compare the balance sheet of HBL power systems Ltd. To compare the statement of changes in working capital of HBL power systems Ltd.

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LIMITATIONS 1. It is only a study of interim reports. 2. It is based on monetary information but not on non-monetary information . 3. It does not consider change in price level. 4. Changes in accounting procedures management. by firm may often make working capital

INTRODUCTION TO WORKING CAPITAL MANAGEMENT Working capital may be regarded as the most important factor of a business, its effective provision and utilization can do much to ensure the success of a business. While the efficient management may not only lead to loss of projects but also to the

32

ultimate shown fall of what other wise would be considered as promising concern. A study on working capital is of major importance, because of its close relationship with current day-today operations of a business. The term working capital stands for that form of capital which is required for the financially of working or current need of the company it is usually invested in raw material work in progress, finished goods, accounts receivable and salable securities. Management of working capital usually involves planning and controlling current assets, namely cash and marketable securities, assets receivable and inventories and also administration of current liabilities. Working capital or current assets management its one of the most important aspect of the over all financial management. Its is concerned with the problem that arises in attempting to mange the current assets. The current liabilities and the inter relationships that exist between them. Current assets are the assets which can be converted into cash with in an Accounting year and includes cash short term securities, debtors, bill receivable and inventories current liabilities are those claims of out side which are expected to mature for payment with in an Accounting year and includes creditors bill payable and outstanding expenses.

The goal of working capital management is to mange the firms current assets and current liabilities in such a way enough to cover its current liabilities in order to ensure that they are obtained and used in the best possible way.

Meaning of Working Capital Capital required for a Business can classified under two main categories. 1. Fixed Capital 2. Working Capital Working capital is the amount of funds necessary to cover the cost of operating of enterprises. Every business needs funds for two purpose for its establishment and to carry out its

33

day-to-day operations. Long-term funds are required to create production facilities through purchases of fixed assets such as plant, machinery, land building, furniture etc. Investment in these assets represented that part of firms capital, which is blocked on a permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purpose for the purchase of raw material, payment of wages and other day-to-day expenses. These funds are known as working capital funds thus, invested current assets keep revolving fast and are being constantly converted into cash and this cash flows out again in exchange for other current assets. Hence it is also known as revolving or circulating capital as short-term capital. Circulating capital means current assets of a company that are changed in the ordinary course of business from to another for example: From cash to inventories to receivables, and receivables to cash.

CONSTITUTENTS OF CURRENT ASSETS 1. Cash in hand and bank balance 2. Bills Receivable 3. Sundry debtors( less provision for doubtful debts) 4. Short term loans and advances 5. Inventories of stock as: a. Raw Material b. Work in Progress c. Stores and spaces d. Finished goods. 6. Temporary investments of surplus funds 7. Prepaid expenses 8. Accrued incomes

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Net Working Capital is the excess of Current assets over current liabilities. Net Working Capital = Current assets-Current Liabilities, Net Working capital may be +ve or ve. When the Current assets exceed the Current liabilities the Working capital is +ve and the ve Working capital results when the Current Liabilities are more than the Current Assets , Current Liabilities are those liabilities which are intended to the paid in the ordinary course of business with in a short period of normally one accounting year out of the Current Assets or the income of the business. CONSTITUTENTS OF CURRENT LIABILITIES 1. Bills Payable 2. Sundry creditors or Accounts/payable 3. Accrued or O/S Expenses 4. Short terms loans, Advances and deposits 5. BOD 6. Dividend payable 7. Provision for taxation, if it does not amount to appropriation of profits. CLASSIFICATION OF WORKING CAPITAL: Working capital may be classified into two ways: i. ii. On the basis of concepts. On the basis of time.

The basis of concepts, Working Capital is classified as gross Working Capital and net Working Capital. On the basis of time: 1. Permanent or fixed Working Capital 2. Temporary or variable Working Capital Permanent or fixed Working Capital: It is the minimum amount, which is required to Current

ensure effective utilization of fixed facilities and for maintaining the circulation of enterprise to carry out its normal business operation.

Assets there is always a minimum level of Current Assets, which continuously required by the

35

As the business grants the requirement of permanent we also increases due to increase in Current Assets from cash to inventories from inventories to receivables and from receivables to cash and so on.

Temporary or Variable Working Capital: It is the amount of Working Capital, which is required to meet the seasonal demands, and some special emergencies, variable Working capital can further be classified seasonal Working Capital and special Working Capital. The capital required to meet the seasonal needs of the enterprise is called seasonal Working Capital special Working Capital is that part of Working Capital which is required to meet the special exigencies such as launching of extensive marketing campaigns for conduction research etc.,

IMPORTANCE OF ADEQUATE WORKING CAPITAL: WC is the life blood, just as circulation of blood is essential in the human for maintaining life, WC is very essential to maintain to smooth running of a business no business can run successfully wit out an adequate of amount of WC are as follows: WC . The main advantages of maintaining adequate

1. Solving of the business:

Adequate

WC helps in maintaining solvency of the

business by providing uninterrupted flow of production.

2. Goodwill: Sufficient WC enables a business concern to make prompt payment and

hence in creating and maintaining goodwill.

3. Easy loans: A concern having a WC, high solvency and good credit standing can
arrange the loans from banks and other on easy and favorable term.

4. Cash discount: Adequate WC also enables a concern to avail cash discounts on the
purchase and hence it reduced cost.

5. Regular supply of raw material: Sufficient WC ensures regular

material and continuous production.

supply of raw

6. Regular payments of salaries, wages and other day-to-day commitments:

36

Company which has ample WC can make regular payments of salaries, wages and after day-to-day commitments which raises the morale of its employees, increases their efficiency, reduces wastage and cost and enhances production and profit.

7. Exploitation of favorable market condition: Only concern with adequate WC an

exploit favorable market conditions such as purchasing its requirements in bulk when the prices are lower and by holding it inventories for higher prices.

8. Ability to face crisis: A WC enables a concern to face business crisis in emergencies

such as depression because during such periods, generally, there is much prices use on WC.

9. Quick and regular return on investment:

Every

investor wants a quick and

regular return on his investments sufficiency of WC enables a concern to pay quick and regular dividends to its investors as then may no be much pressure to plough back projects. This gains the confidence of its investors and creates a favorable market to raise additional funds in the future.

10. High morale: Adequacy pf WC creates an environment of society confidence, and

high morale and creates efficiency in a business. EXCESS OR INADEQUATE WORKING CAPITAL: Every business concern should have adequate working capital to run its business operations. It should have neither redundant or excess working capital nor inadequate or shortage of working capital. Both excess as well as short working capital position a bad for any business. However, out of the two, it is the inadequate of working capital, which is more dangerous from the point of view of the firm. DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL: 1. Excess working capital means ideal funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments. 2. When there is a redundant working capital it may lead to unnecessary purchasing and accumulation of inventories causing more change of theft, waste and losses. 3. Excessive working capital impulse excessive debtors and defectives credit policy, which causes high incidence of bad debts. 4. It may result into overall inefficiency in the organization. 5. Due to low of return on investment, the values of shares may fall. 6. The redundant working capital gives raise to speculative transaction.

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DISADVANTAGES OR DANGEROUS OF INADEQUATE WORKING CAPITAL: 1. A concern which has inadequate working capital cannot pay it short-term liabilities in time. Thus, it will lose its reputation and shall not be able to get good credit facilities. 2. It cannot buy its requirements in bulk and cannot avail of discounts etc., 3. It becomes difficult for the firms to exploit due to lack of working capital. 4. The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies, increased cost and reduces the profit of business. 5. It becomes impossible to utilize efficiently the fixed assets due to non availability of liquid funds. 6. The rate of return of investments also falls with the short of working capital. Factors Determining Working Capital Requirements 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Nature or character of Business Size of Business/ sale of Operations Production policy Manufacturing process/Length of the Production cycle Seasonal Variations Working Capital Cycle Stock Turnover ratio Credit policy Business Cycle Rate of Growth of Business Earning Capacity and Dividend Policy Price Level Changes Other Factors

OPERATING CYCLE The profit earned by the firm depends upon magnitude if the scales among things

successful scales program is in other words necessary for earning profits by one business enterprises. However sales do not convert into cash instantly there is invariably time lag between sale of goods and receipt of cash. There is, therefore a working capital in the form of current assets to deal with the problem arising out of the lack of immediate realization of cash against goods sold. Therefore sufficient capital is necessary to sustain sales activity. Technically there is referred to as the operating cycle and cash cycle. It is defined as a

38

continuing flow from cash suppliers, to Inventory, to accounts receivables and back into cash. It consists of 3 phases: 1. Conversion of cash into Inventory. 2. Conversion of Inventory into Receivables 3. Conversion of Receivables into cash.

PARTICULARS Raw material stock Work in progress Finished goods Debtors Creditors Raw material consumption Purchases Cost of production(exclude dep) Cost of goods sold Sales

2009 9516.01 5058.17 3424.09 28263.56 10484.08 82030.37 78482.99 88427.43 108193.25 140126.76

2008 8563.51 7483.06 1200.08 27300.56 8503.87 68598.83 72237.38 68861.62 91950.86 113397.35

2007 4977.19 2372.01 272.48 17420.42 7493.91 32178.82 33285.06 35625.44 45580.45 58828.83

2006 3758.22 2358.01 651.69 13834.34 5378.81 22485.39 22846.52 24597.43 31245.41 42095.37

2005 3314.81 1585.97 352.12 11435.94 4545.37 17276.08 18529.81 19136.82 25822.38 33143.55

PARTICULARS Raw material Conversion period Raw material Consumption during the year average consumption per day Raw material Closing stock value Raw material conversion in days Work in progress conversion period Total cost of production excluding dep cost of production per day WIP value WIP conversion period in no days Finished goods conversion period Total cost of goods sold cost of goods sold per day Finished goods value Finished goods conversion in days Debtors conversion period in no days Sales value Sales value per day Debtors value Debtors conversion period in no days Payments differed period Total purchase value Purchase value per day Creditors value at closing

2009 82030.37 224.74 9516.01 42.34

2008 68598.83 187.94 8563.51 45.56

2007 32178.82 88.16 4977.19 56.46

2006 22485.39 61.01 3758.22 61.01

2005 17276.08 47.33 3314.81 70.03

88427.43 242.27 5058.17 20.88

68861.62 188.66 7483.06 39.66

35625.44 97.61 2372.01 24.31

24597.43 67.39 2358.01 34.99

19136.82 52.43 1585.97 30.25

108193.25 296.42 3424.09 11.55

91950.86 251.92 1200.08 4.76

45580.45 124.88 282.48 2.26

31245.41 85.61 651.69 7.61

25822.38 70.75 352.12 4.98

140126.76 383.91 28263.56 73.62

113397.35 310.68 27300.56 87.87

58828.83 161.17 17420.42 108.08

42095.37 115.33 13834.34 119.95

33143.55 90.81 11435.94 125.94

78482.99 215.02 10484.08

72237.38 167.91 8503.87

33285.06 91.19 7493.91

22846.52 62.61 5378.81

18529.81 50.77 4545.37

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Creditors payment differed period Gross working capital operating cycle days (RMCP+WIPCP+FGCP+DCP) Net working capital operating cycle days (Gross operating cycle-PDP Operating Cycle in no months

48.76 148.39

42.97 177.87

82.18 191.01

85.93 223.56

89.53 231.02

99.63

134.91

108.93

137.63

141.67

PERMANENET AND VARIABLE WORKING CAPITAL: The

3.32

4.5

3.63

4.59

4.72

magnitude of working capital required is not always the same and increases and However there is always a minimum level of current assets, which is

decreases over time.

continuously required by the firm to carry on this business operation this minimum level of current is referred to as permanent for fixed working capital. It is permanent in the same way as the firm fixed assets are. Depending up on the changes in production and sales the need for working capital, over and above permanent working capital will fluctuate . For example extra inventory of finished goods will have to be maintained to support peak period of sale and investment. In receivables any also increase during such periods. The extra working capital needed to support the changing production and sales temporary working capital. activity is called fluctuation or variable or

Both

kind

of working capital-permanent ad temporary are necessary

to facilitate

production and sales through operating cycle, but temporary working capital is created by the firm to meet liquidity requirements that will last only temporarily. Permanent working capital is stable over time while temporary working capital is fluctuating. However a permanent working capital the time need not be horizontal of the firm. Requirements for permanent capital are increasing over period for a growing firm, the difference between permanent and temporary working capital depicted below.

DRAW BACK OF EXCESSIVE WORKING CAPITAL: 1. It result in unnecessary accumulation of inventories thus Echinacea of inventory mishandling, waste, theft and losses increases

40

2. It is indication of defective credit policy and slack collection period consequently higher incidence of bad debts results, which adversely effects profits. 3. Excessive working capital makes management complacent which degenerates in, to managerial inefficiency.

INADEQUATE WORKING CAPITAL: 1. Stagnates growth. It becomes difficult for the firm to undertake profitable projects for non-availability of working capital funds. 2. It become difficult to implement operating plans achieve the firm profit target. 3. Operating inefficiency creep in which it becomes difficult even to meet day-to-day commitments. 4. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus firms profitability would Detroit. 5. Paucity of working capital funds renders the firm unable to avail attractive credit opportunities.

STATEMENT OF SCHEDULE CHANGES IN WORKING CAPITAL OF HBL POWER SYSTEMS LTD., AS ON 31 MARCH 2007-08 AND 2008-09 (Rs. in lakhs)

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PARTICULARS Current Assets Inventory Sundry debtors Cash & Bank balance Loans & Advances Total Current Liabilities Bills payable Creditors Other Liabilities Total Net WC (CA-CL)

2007-08

2008-09

INCREASE

DECREASE 7730.64 0 0 0 0 3055.59 0 3055.59

17246.55 27300.56 4792.96 4209.27 53549.44 4930.21 8503.87 2611.71 16045.78 37503.66

9516.01 28263.56 8170.28 4245.71 50195.56 1874.61 10484.08 5403.54 17762.23 32433.33

963.01 3377.32 36.44

0 1980.21 2791.83 4772.04 4930.71

STATEMENT OF SCHEDULE CHANGES IN WORKING CAPITAL OF HBL POWER SYSTEMS LTD., AS ON 31 MARCH 2005-06 AND 2006-07 (Rs. in lakhs) DECREASE

PARTICULARS

2005-06

2006-07

INCREASE

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Current Assets Inventory Sundry debtors Cash&Bank balance Loans & Advances Total Current Liabilities Bills payable Creditors Other Liabilities Total Net WC (CA-CL)

6767.92 13834.34 2471.74 1902.98 24976.98 318.91 5378.8 1526.42 7224.13 17752.85

7531.68 17420.42 2515.39 2948.79 30416.28 1499.65 7493.91 1227.47 10221.03 20195.25

763.76 3586.08 43.65 1045.81 5493.3 1180.74 2115.11 3295.85 2442.4

0 0 0 0 0 0 0 298.95 298.95 0

STATEMENT OF SCHEDULE CHANGES IN WORKING CAPITAL OF HBL POWER SYSTEMS LTD., AS ON 31 MARCH 2003-04 AND 2004-05 (Rs. in lakhs) DECREASE

PARTICULARS Current Assets Inventory Sundry debtors

2003-04 3347.14 6529.1

2004-05 5359.4 11435.95

INCREASE 2012.26 4906.85

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Cash&Bank balance Loans & Advances Total Current Liabilities Bills payable Creditors Other Liabilities Total Net WC (CA-CL)

1248.82 878.34 12003.4 641.15 2943.87 670.16 4255.18 7748.22

1416.18 1089.46 19300.99 740.55 4545.37 874.91 6160.83 13140.16

167.36 211.12 7297.59 99.4 1601.5 204.75 1905.65 5391.94 0 0 0 0

RESEARCH METHODOLOGY The secondary data was collected from the finance department of the company

pertaining to five financial years 2003-2004 to 2008-2009. Other details of the research data were collected from annual reports, profile of the company and through the references from different books dealing with working capital for the above financial years. The data from these reports have been analyzed by using various tools and techniques

44

(accounting and statistical ) with a view to evaluating of working capital and its various components Annual report published, by company discloses true and fair statement because these are guided by auditors as per rules and regulations stated under the law. a) DATA COLLECTION: The Secondary data is to be collected from the finance department of the company pertaining to the last five years. Certified accounts by internal audit copy. b) PERIOD OF STUDY: Period of study form 01-03-2010 to 30-04-2010. c) LIMITATION: This report is restricted to secondary data. Support from the management side may be limited due to their pre-occupied works.

RATIO ANALYSIS Ratio Analysis is widely used tool for financial analysis. It is the systematic use of ratio to interpret the financial statement so that the strength and weakness of a firm as well as its historical performances and current financial position can be determined. The term ratio refers to the numerical relationship between two items of variables. percentage fractions, proportion of numbers This relationship expressed as These alternative methods of expressing item,

which are related to, each other are for purpose of financial analysis.

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Ratio Analysis is a technique of analysis and interpretation of financial statement. It is the process of establishing and interpreting various ratios for helping in making certain decision. The suppliers of goods on credit, banks, financial institutions, investors, share holders and management make use of ratio analysis as a tool in evaluation the financial positions and performance of a firm for granting credit providing loans and making investments in the firms. A single ratio in itself does not convey much of sense. Evaluation may be done by direction of changes and

comparing present rations and past ratios as this indicates the constant over a period of time.

whether the firms performance and financial positions has improved, deteriorated or remained

I have studied the following Ratios in analyzing the working capital management.

CURRENT RATIO: Current Assets -----------------------------Current Liabilities (Rs.in Lakhs) CURRENT LIABILITIES 6160.83 7224.13 10221.03 16045.78 17762.23

Current Ratio

YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

CURRENT ASSETS 19300.99 24976.98 30416.28 53549.44 50195.56

CA/CL 3.13 3.46 2.98 3.34 2.83

C r e tR t ur n aio
300 00

200 50

200 00

Amount

100 50

Microsoft Office Excel Worksheet

C R E TA S T U RN SES

C R E TL B IT S U R N IA IL IE

100 00

50 00

0 2 0 -2 0 04 05 2 0 -2 0 05 06 2 0 -2 0 06 07 2 0 -2 0 07 08 2 0 -2 0 08 09

F a c l Y as in n ia e r

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Interpretation: Current ratio HBL Power in 2007-08 3.39 but in 2008-09 the current ratio is 3.84. Here increasing the current ratio due to increase in current assets.

QUICK RATIO: Quick assets ----------------------------------Current liabilities (Rs. In Lakhs)0 YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 QUICK ASSETS 13941.59 18208.96 22884.61 36302.79 40679.55 CURRENT LIABILITIES 6160.83 7224.13 10221.03 16045.78 17762.23 QA/CL 2.26 2.52 2.24 2.26 2.29

Quick ratio

Interpretation: The quick ratio of HBL power systems Ltd has show slight changes the quick ratio in And again it increased to 2.45 in 2007-

2005-06 3.02 but it decreased in 2006-07 as 2.26.

08 and 2.80 in 2008-09. This is due to increase and decrease in quick assets.

QUICK RATIO

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20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2004-05 2005-06 2006-07 2007-08 2008-09 CURRENT LIABILITIES QUICK ASSETS

WORKING CAPITAL TURNOVER RATIO:

Net Sales Working capital turnover ratio -------------------------------------------Working Capital YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 SALES 33143.55 42095.37 58828.83 113397.34 140126.76 WORKING CAPITAL 13140.16 17752.85 20195.25 37503.66 32433.33 (Rs. in Lakhs) SALES /W.C 2.52 2.37 2.91 3.02 4.32

Interpretation: The working capital turn over ratio of HBL Ltd has shown slight changes are there if we consider the ratios in 2004-05, 2005-06 slight changes that is increase in 2006-07 to compare

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2007-08 due to increase in sales and W.C but in 2008-09 it was decreased to 2.28.

WORKING CAPITAL TURNOVER RATIO

45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2004-05 2005-06 2006-07 2007-08 2008-09
SALES WORKING CAPITAL

INVENTORY TURNOVER RATIO: Net Sales Inventory turnover ration-------------------------------------Avg Inventory YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 SALES 33143.55 42095.37 58828.83 113397.34 140126.76 AVG.INVENTORY 5359.41 6767.92 7531.68 17246.65 9516.01 (Rs. in Lakhs) SALES/AVG. INV 6.18 6.22 7.81 6.58 14.73

Interpretation: The inventory turnover ratio of HBL Ltd in 2008-09 6.22 is greater than of 6.12 in

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2007-08 due to sales is increased and inventory is also increased. I INVENTORY TURN OVER RATIO

45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2004-05 2005-06 2006-07 2007-08 2008-09

SALES AVG.INVENTORY

FIXED ASSET RATIO: Sales Fixed asset turnover ratio-----------------------------------------------------Fixed assets (Rs. in Lakhs) YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 SALES 33143.55 42095.37 58828.83 113397.34 140126.76 FIXED ASSETS 9554.65 12353.88 17634.84 25389.44 28815.19 SALES/F.A 3.47 3.41 3.34 4.47 4.86

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Interpretation: The fixed assets turnover ratio in HBL has decreased form 2.76 to 2.73 during the

period 2005-06 due to decrease in sales. The ratio then decreased to 2.29 due to increase in fixed assets then the ratio increased to 3.41 during the period 2007-08 and 2008-09 due to increase in sales.

FIXED ASSET RATIO

45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2004-05 2005-06 2006-07 2007-08 2008-09

SALES FIXED ASSETS

DEBTORS TURNOVER RATIO: Credit Sales Debtors turnover ratio --------------------------Average Debtors YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 CREDITSALES 33143.55 42095.37 58828.83 113397.34 140126.76 AVG.DEBTORS 11435.95 13834.34 17420.42 27300.56 28263.56 (Rs. In Lakhs) CR.SALES/AVG.DEBTORS 2.91 3.04 3.38 4.15 4.96

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Interpretation: Debtor turnover ratio in HBL also. decreased in 2007-08 compare with 2006-07, but it

increased in 2008-09 up to 3.04. Due to

increase in debtors and also increase in credit sales

DEBTORS

TURNOVER

RATIO

45000 40000 35000 30000 25000 20000 15000 10000 5000 0

CREDITSALES AVG.DEBTORS

2004-05 2005-06 2006-07 2007-08 2008-09

INVENTORY MANAGEMENT Inventories constitute a major part of the working capital, Inventories are

approximately 60% of current assets in Public Limited Companies, it is therefore absolutely imperative to manage inventories efficiency and effectively. NATURE OF INVENTORIES:

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The various forms of inventories exist in a company are: 1) Raw Materials 2) Work in-progress 3) Finished goods The raw materials inventory consists of items that are purchased by the firm from others and are converted into finished goods. There are important inputs of the final product The work-in-progress inventory consists items currently being used in the production process. There are normally partially or semi-finished goods. Finished goods inventory represent final on completed products, which are available to sale. NEED TO HOLD INVENTORIES: There are 3 general motives in holding inventories. 1) Transaction Motive: Transaction motive which emphasis to maintain inventories to facilitate smooth production of sales operations. 2) PRECAUTIONALY MOTIVE: Precautionary motive which influences the decision to increase or decrease inventory level to take advantage of price fluctuations. 3) SPECULATIVE MOTIVE: Speculative motive which influences the decision to increase or decrease inventory level to take advantage of price fluctuations.

INVENTORY MANAGEMENT TECHNIQUES: The company should aim at an optimum level of inventory on the basis of trade-off between cost and benefit to maximize companys wealth. inventories make the firm flexible. The following are some of the important control techniques: 1. SETTING INVENTORY LEVELS: This involves fixing a define maximum and minimum reorder levels. These levels Efficiently controlled

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should not be allowed to the static. They must be revised to such circumstances. 2. ABC ANALYSIS: All items in the inventory are not equally important. Emphasis of control should very depending upon the importance use and value of item. For that purpose the inventories are categorized into 3 classes. A,B and C based on their usage value are quantity. INVENTORY BREAK DOWN BASED ON ABC ANALYSIS CLASS A B C QUANITY 5%-10% 15%-20% 70%-75% VALUE OF ITEM 70%-80% 15%-20% 5%-10%

3. TWI BIN SYSTEM: Under this system of control, two bins are maintained for each item of inventory. The first bin contains stock, which is sufficient for usage which occurs between receipts of an order and placing of next order. The second bin contains a reserve stock, which will be sufficient for consumption from the date of order to delivery date and reserve stock. As soon as the first bin is empty, a requisition for supply is placed and second bin is used in the mean time.

4. ECONIMIC ORDER QUANTITY (EOQ): There are 3 major cash involved with inventories. The are carrying costs, ordering costs and stock out cost. a) CARRYING COST: These cost all increased for maintaining or carrying inventory.. Some of the carrying costs are storage cost. i.e Tax, depreciation, insurance, insurance of inventory etc., they may be 30% of investment in inventor. b) ORDERING COST: These costs are also known as acquisition or setup costs. They are related to processing and generating an order and connected paperwork. consist of salaries, to purchasing staff, telex, telegrams. c) STOCK OUT COSTS: They are invisible get important, these costs are incurred by the company . It there is a stock-out-resulting in loss of production. They may be loss of profit on lost production, loss of goodwill, impact on future stock. The question how much to order, relates to the problem of determining levels of They

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inventories. Bulk buying reduces the frequency of ordering and hence ordering cash. But may result in large inventory, leading to an increase in carrying cost. The determination of EOQ is to balance ordering cost and carrying cost. Formula EOQ = 2 AO/C Where A = C = Annual Consumption Carrying cost per unit

O = Ordering cost per unit

OBJECTIVES OF INVENTORY MANAGEMENT: a. To maintain inventory for efficient and smooth production and sales operations. b. To minimize firms investment in inventories and to maximize profitability. c. To utilize available storage space and prevent stock from exceeding space availability. d. To check against loss of materials through carelessness and pilferage. e. To provide a perpetual inventory value and a consistent and reliable basis for preparing financial statements.

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FINDINGS It was found that, current ratio of HBL increased from 2005 to 2006, due to decrease in current assets and current liabilities. increased to fluctuations in current assets. It was found that, debtors turnover ratio in HBL has increased from 2005 to 2006, this is due to the increase in sales and decrease in debtors. The ratio decreased from 2006 to 2007, this is due to increase in average debtors, again it increased in 2008. It was found that, the inventory turnover ratio in HBL has increased from 2005-06 due to the increasing sales. The ratio then increased to 6.12 during the period 2007-08, due to the increase in sales. It further increased in 2009. It was found that, the working capital turnover ratio in HBL has shown increasing trend during the period 2005-2008. It has increased from 2.27 to 2.41. This is due to increase in net working capital. It was decreased in 2009 to 2.28. It was found that, the fixed asset turnover ratio in HBL, has decreasing from 2.76 to 2.29 during the period 2005 to 2007, due to decrease in sales. The ratio then increased to 3.41 during the period 2007-08, due to increase in sales. It was constant in 2009 Then in decreased to next year and again it

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also. It was found that, fixed assets in 2005 are 6346.23 and it increased to 7422.87 in year 2006. This is due to the increase in net block. Current assets increased in 2006 against 2005. This is due to increase in all current assets.

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SUGGESTIONS

To study the management practices of M/s. HBL POWER SYSTEMSS: Some amount of expenditure authority has also to be passed on the lower level. If authority is passed on the lower level it will increase responsibility in them, which will help in

motivating them. To study the Growth of HBL POWER SYSTEMS LIMITED: Company should try to control its expenditures by reducing Administration and Repairs & Net current assets should be maintained at a steady level by keeping a fixed level of Company should try to improve total income and other incomes by increasing product sales. To study the financial performance of HBL POWER SYSTEMS LIMITED: Company should try to improve its current ratio either by increasing current assets or

Maintenance expenditure. inventories.

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decreasing current liabilities. Increasing product sales should increase net profit margin. EPS should be maintained constant or a study growth by improving net profit margin. Increasing reserves & surplus should increase book value of shares.

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BIBLIOGRAPHY S.NO 1 2 PRASANNA CHANDRA AUTHOR KHAN AND JAIN TITLE FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT THEORY AND PRACTICE 3 I.M PANDEY 4 SHARMA & SHASHI. K GUPTA 5 RUSTAGI R.P FINANCIAL MANAGEMENT GALGOTIA PUBLISING HOUSE FINANCIAL MANAGEMENT KALYANI PUBLISHERS FINANCIAL MANAGEMENT VIKAS PUBLISING HOUSE PVT LTD PUBLISHER VIKAS PUBLISING HOUSE PVT LTD TATA MCGRAW HILL PUBLISING CO LTD

WEBSITE: - www.hbl.in

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