Sales Cash/ ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Purchase Wages Bank ports A STUDYStock ON Excise Sales tax

ledger OF Raw materials Wages-II Zonal and WORKING CAPITAL MANAGEMENT Wages 1 A/B Stores township wages THE BHILAI STEEL PLANT, BHILAI, CHHATTISGARH Store bills Imports Project Operation expansion miscellaneou Costing s and budge ting SUMMER PLACEMENT PROJECT Submitted By VISHAL KESHRI (Reg. No: 0935F0631) Central account department Under the guidance of Ms. C. Vinotha, MBA, M. Phil In the partial fulfillment of the requirement for the degree of MASTER OF BUSINE SS ADMINISTRATION Of Bharathiar University, Coimbatore. 2009-2011 GURUVAYURAPPAN INSTITUTE OF MANAGEMENT (AFFILIATED BY BHARATHIAR UNIVERSITY) COI MBATORE-641105

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai (An exclusive institute offering MBA Programme, approved by AICTE & affiliated to Bharathiar University) Certificate This is to certify that the project work entitled A STUDY ON WORKING CAPITAL MANA GEMENT OF THE BHILAI STEEL PLANT, BHILAI, CHHATTISGARH Is the bonafide record of work done by MR. VISHAL KESHRI Reg. No: 0935F0631 And is submitted in partial fulfillment of the requirements For the award of the Degree of MASTER OF BUSINESS ADMINISTRATION Of the Bharathiar University, Coimbatore 2009-2011 Director/ Principal Faculty Guide

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai DECLARATION I, VISHAL KESHRI, student of Guruvayurappan Institute of Management Coimbatore h ereby declare that the project report entitled A STUDY ON WORKING CAPITAL MANAGEM ENT OF BHILAI STEEL PLANT, BHILAI CHHATTISGARH which is submitted to Bharathiar U niversity in partial fulfillment of the requirement for the award of the Degree of Master of Business Administration, is a record of original research work done by me under the guidance of Ms. C. Vinotha, MBA, M.Phil., of Guruvayurappan Ins titute of Management, during the academic year 2009-2011 Place: Coimbatore Date: VISHAL KESHRI (Reg.No. 0935F0631) Acknowledgement

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai I sincerely feel that the credit of the project work could not be narrowed down to only one individual. The work is an integrated effort of all those concerned with it, thorough whose able cooperation and effective guidance I could achieve its completion. I would like to express my sincere gratitude to Dr. VERGHESE MAT HEW B.Sc. (Engg), MBA, Ph.D., DGM (Germany), FIIE, the Director, Guruvayurappan Institute of Management and Dr.THOMAS T. THOMAS, B.Sc., MBA, PGDPR&J, Ph.D. the Principal, Guruvayurappan Institute of Management, for their active support and guidance during the course of my studies in the Institute. I am greatly indebted to my guide Ms. C. VINOTHA MBA, M.Phil, for his kind cooperation, help, guidanc e and encouragement for preparing this project report. I express my sincere grat itude to Mr. R.C.SRIVASTAV the deputy manager, Finance Department, Bhilai Steel Plant, Bhilai for giving me the opportunity to conduct this project work in thei r organization and whose immense support and guidance helped me to make this pro ject fruitful. I would like to thank my family, friend and well wisher for their encouragement in completing the project work I take this opportunity to extend my sincere thanks to all who have helped me and encouraged me all through out in bringing the best of project. Vishal keshri CONTENT

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai PAGE CHAPTER CONTENT LIST OF TABLES LIST OF CHARTS I 1.1 1.2 1.3 1.4 1.5 II III 3.1 3.2 IV V 5.1 5.2 5.3 INTRODUCTION Industry Profile Company Profile Introduction to the topic Obje ctive of the study Scope of the study REVIEW OF LITERATURE Design of the study R esearch Methodology Limitation of the study ANALYSIS AND INTERPRETATION FINDINGS , SUGGESTIONS & CONCLUSION Finding Suggestions Conclusion BIBLIOGRAPHI ANNEXURE NO. 1-13 14-51 52-64 65 65 66 67 68 69-88 89 89 90-91 92 93 TABLE NO. LIST OF TABLES Table showing Asia- pacific steel market value PAGE NO. 4

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Table showing Asia- pacific steel market volume Table showing Asia- pacific stee l market segmentation Table showing Asia- pacific steel market share Table showing key facts Table showing expansion plan Table showing saleable steel capacities Table showi ng main product & expected market share 2011-2012 Table showing market share of BSPs product range Table showing product mix Table showing total production Table showing total inventories Table showing total current assets Table showing curr ent liabilities Table showing working capital Table showing liquidity ratio Tabl e showing current ratio Table showing quick ratio Table showing absolute ratio 5 6 7 8 10 18 20 30 31 31 69 70 71 72 73 75 76 77

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Table showing current turnover ratio Table showing inventory ratio Table showing calculation of forecasting working capital Table showing forecasting working ca pital Table showing profit after tax Table showing cash profit Table showing ope rating profit Table showing gross marging Table showing profitability ratio 79 80 83 84 85 85 86 86 87

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai CHAPTER I

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai INTRODUCTION Theres a little bit of SAIL in everybodys life. STEEL is the basic framework which has built nations, and it is on this strength that nation stand apart. This man-made metal has an extraordinary quality of contribu ting to every aspect of life while it keeps the wheels of industry turning. It a lso lends ever-lasting quality to all kinds of structure and infrastructure. SARDAR VALLABH BHAI PATEL Many students may have done work on this project in different ways/styles. I hav e also tried to work on this project in a different way. It was for the first ti me I got the opportunity to work in such a prestigious and well-known organizati on and things which I have experienced in my training period are going to help m e through out my life time. I have worked on this project with great enthusiasm and zeal. I have tried to cover almost all the things, which I have experienced and learned during the training period. To run a giant organization each and eve ry department has to play its role effectively. In this era of cut-throat compet ition there is no room for complacency. Steel is the basic framework which has b uilt nation, it contributes every aspect of life. The main goal of my project is the A Study on working capital management of the Bhilai Steel Plant, Bhilai. It would be my great pleasure, if this project can help this company to achieve its goal higher. This project has been undertaken to study the procedures and pract ices followed in Finance and Accounts department. The Finance & Accounts Departm ent of Bhilai Steel Plant is divided into various sections and each section spec ializes in different activities. This report is prepared on the basis of the ext ensive study carried out at Finance & Accounts Department of SAIL, Bhilai Steel Plant.

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Industry profile

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai 1.1 Industry introduction The global steel industry has been going through major shifts in focus. Not only has a new steel making giant emerged the entire geographical focus of steel pro duction has been undergoing major changes. Such changes have been taking place o n a critical scale since the Second World War but have completely taken many by surprise in the last quarter of a century. Steel is a strong material. The stren gth of steel reflects the strength of nation. It is reflected in two ways, econo mic and military. The quantum of steel consumed has been the barometer for measu ring development & economic progress. Whether it is construction or industrial g oods, steel is the basic raw material. Global steel production grew enormously i n the 20th century from a mere 28 MT at the beginning of the century to 780 MT a t the end. That was the period when the steel industry developed in Western Euro pe & the USA followed by the Soviet Union, Eastern Europe & Japan. However, stee l consumption in the developed countries has reached a high stable level & growt h has tapered off. Attention has now shifted to the developing regions. In the W est, steel referred to as a sunset industry. In the developing countries, the su n is still rising, for most it is only a dawn. Towards the end of the last centu ry, growth of steel production was in the developing countries such as China, So uth Korea, Brazil & India. World crude steel production reached 1,220 million me tric tons for the year of 2009. This is a decrease of -8.0% compared to 2008. St eel production declined in nearly all the major steel producing countries and re gions including the EU, North America, South America and the CIS in 2009. Howeve r, Asia, in particular China and India, and the Middle East showed positive grow th in 2009. Chinas crude steel production in 2009 reached 567.8 MMT, an increase of 13.5% on 2008. This is a record annual crude steel production figure for a si ngle country. Chinas share of Page1

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai world steel production continued to grow in 2009 producing 47% of world total cr ude steel, an increase of 9 percentage points compared to 2008. Asia produced 79 5.4 MMT of crude steel in 2009, an increase of 3.5% compared to 2008. Its share of world steel production increased to 65% in 2009 from 58% in 2008. Japan produ ced 87.5 MMT in 2008, a decrease of -26.3% on 2008. Indias crude steel production was 56.6 MMT in 2009, 2.8% growth on 2008. South Korea showed a decrease of -9. 4%, producing 48.6 MMT in 2009. In 2008 International Iron & Steel Institute (II SI) changed its name to World Steel Association (world steel) and launched the S afety and Health Excellence Recognition Award, given to Arcelor Mittal Dofasco I nc, BlueScope Steel, Corus Group, Nucor Corporation and SubicSaudi Basic Industr ies Corporation. The World Steel Association (world steel) is forecasting that a pparent steel use will contract worldwide by -8.6% to 1,104 MMT in 2009 after de clining by -1.4% in 2008. This is an improved figure over the spring forecast is sued in April 2009 which predicted a decrease of -14.1%. The improvement is larg ely due to the exceptionally strong growth in steel demand in China. With signs, from the beginning of the second half of 2009, of a recovery across the world n ow apparent, global steel demand in 2010 is forecast to grow by 9.2% to 1,206 MM T which is a recovery to the level of 2008. The healthy world economic growth & demand in emerging market countries, notably in Asia, where major infrastructure projects were under way, acted as the key trigger to the significant production rise. But this trend seems rather transitory. Some important points regarding Global Steel Industry are as follows: During 2009, the world crude steel production reached 1,220 million metric tons Its shows a decrease of -8.0% compared to 2008. China retained its No.1 position by producing around 567 Million Tonnes, followed by Japan with production of 87. 5 Million Tones & USA with production at around 59.9 Million Tonnes. Page2

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai

India with production of 56.6 Million Tones ranked 5th amongst world steel produ cing countries. Steel Production in India is expected to reach 124 million tons by 2012 and 275 million tons by 2020 which could make it the second largest steel maker. China i s expected to account for 47.7% of world steel apparent use and excluding China, potential world steel demand would have fallen by -24.4%. The president of the China Iron and Steel Association (CISA), Deng Qilin, stated on February 5 that a pparent consumption of crude steel in China is expected to grow by 8-10 percent in 2010. During the year 2005, USA ranked No.1 as net importer country at 20.8 M illion Tonnes followed by Thailand at 10.8 Million Tonnes & Iran at 6.9 Million Tonnes. In 2010, Russia produced 5.2 million metric tons of crude steel, up 33 p ercent year on year, Global steel production at 1,200 million tons in 2009. This represents a 9.5 percent reduction on the outturn in the previous twelve month period. In January, China s crude steel production totaled 48.7 million metric t ons, an increase of 18.2 percent, while Japan produced 8.7 million metric tons o f crude steel, up 36.8 percent, both compared to the same month last year. South Korea showed an increase of 32.4 percent from January 2009, producing 4.5 milli on metric tons of crude steel in January 2010. In the EU, Germany s crude steel production for January 2010 was 3.4 million metric tons, with an increase of 27. 7 percent compared to January 2009. The steel market consists of the production of crude steel in the stated country or region. Crude Steel Production refers to production of first solid steel product upon solidification of liquid steel. It includes Ingots (in conventional mills) and Semis (in modern mills with continu ous casting facility). Crude Steel also includes liquid steel which goes into pr oduction of steel castings. Market values have been calculated using appropriate regional annual average steel prices. Market shares reflect revenues earned in this market during the last year for which financial data was available for all companies listed. Page3

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Any currency conversions used in this report have been calculated using constant exchange rates. For the purpose of this report the Americas comprises Argentina , Brazil, Canada, Chile, Colombia, Mexico, the US, and Venezuela. Western Europe comprises Belgium, Denmark, France, Germany, Italy, Netherlands, Norway, Spain, Sweden, and the UK. Eastern Europe comprises the Czech Republic, Hungary, Polan d, Romania, Russia and Ukraine. Europe is the sum of Eastern and Western Europe. Asia-Pacific comprises Australia, China, Japan, India, Singapore, South Korea a nd Taiwan. The global figure comprises the Americas, Asia-Pacific and Europe.The Asia-Pacific steel market generated total revenues of $382.9 billion in 2008, r epresenting a compound annual growth rate (CAGR) of 14.5% for the period spannin g 2004-2008.Market consumption volumes increased with a CAGR of 10.8% between 20 04-2008, to reach a total of 755.6 million metric tons in 2008. The performance of the market is forecast to accelerate, with an anticipated CAGR of 21.9% for t he five-year period 2008-2013, which is expected to drive the market to a value of $1,030.2 billion by the end of 2013. Global Crude Steel Production (IISI) (Mi llion Tonnes) Table No.1.1.1 Source: IISI Region Africa Middle East C.I.S. Asia South America North America Other Europe EU-27 Wo rld Year2007 18.8 15.4 119.9 675.6 45.3 131.7 28.1 206.8 1250.2 Year2008 18.8 16.4 124 754.3 48.3 132.1 30.5 210.3 1343.5 %change 0 6.7 3.4 11.6 6.5 0.4 8.5 1.7 7.5 page 4 Top 10 steel producing countries

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Table1.1.3 Rank 1 2 3 4 5 6 7 8 9 10 Country China Japan Russia US India South Korea Germany Ukraine Brazil Turkey 2009 567.8 87.5 59.9 58.1 56.6 48.6 32.7 29.8 26.5 25.3 2008 500.3 118.7 68.5 91.4 55.1 53.6 45.8 37.3 33.7 26.8 %2009/2008 13.5 -26.3 -12.5 -36.4 2.7 -9.4 -28.7 -20.2 -21.4 -5.6

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai CAGR Analysis For Last Five Years: MARKET VALUE The Asia-Pacific steel market shrank by -6.8% in 2008 to reach a value of $383 b illion. The compound annual growth rate of the market in the period 2004-2008 wa s 14.5%. Page5

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Table 1.1.2 Page6

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai MARKET VOLUME The Asia-Pacific steel market grew by 1.7% in 2008 to reach a volume of 755.6 mi llion metric tons. The compound annual growth rate of the market volume in the p eriod 2004-2008 was 10.8%. Table 1.1.3 Page7

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai MARKET SEGMENTATION China generates 63.4% of the Asia-Pacific steel market s value. Japan accounts f or a further 20.9% of the steel market s value. Table 1.1.4 Page8

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Page9

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai MARKET SHARE Arcelor Mittal generates 16% of the Asia-Pacific steel market s revenue. In comp arison, POSCO accounts for a further 7.7% of the market s value. Table1.1.5 Page10

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai FIVE FORCES ANALYSIS The steel market will be analyzed taking steel makers as players. The key buyers will be taken as end-users come from numerous industries, but mainly include au tomotive, construction and engineering firms that utilize metals in the producti on of their goods, and producers of raw materials, such as iron ore and coal as the key . INDIAN STEEL INDUSTRY Page11

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai The Indian Steel Industry is almost100 years old now. Till 1990, the Indian Stee l industry operated under a regulated environment with insulated markets & large scale capacities reserved for the public sector. Production & Prices were deter mined & regulated by the Government, while SAIL & Tata Steel were the main produ cers, the latter being the only player. In 1990, the Indian steel Industry had a production capacity of 23 MT. 1992 saw the onset of liberalization & the Indian economy was opened to the world. Indian Steel Sector also witnessed the entry o f several domestic private players & large private investments flowed into the s ector to add fresh capacities. The last decade saw the Indian Steel Industry int egrating with the global economy & evolving considerably to adopt world-class pr oduction technology to produce high quality steel. The total investment in the I ndian Steel since 1990 is over Rs. 19,000 crores mostly in plant equipments, whi ch have been installed after 1997 & 2001 when there was a downturn in the global steel industry. The progress of the industry in terms of capacity additions, pr oduction, consumption, exports & profitability plateaued off during this phase. But the industry weathered the storm only to recover in 2002 & is beginning to g et back on its feet given the strong domestic economic growth & revival in globa l markets. With a current capacity of 35 MT the Indian Steel Industry is today t he 8th largest producer in the world. India produces international standard stee l of all most all grades/ varieties & has been net exporter for the last few yea rs, underling the growing acceptability of its product in the global market. Ste el is a highly capital intensive industry & cyclical in nature. Its growth is in tertwined with growth of economy at large & in particular the steel consuming in dustries such as manufacturing, housing & infrastructure. Steel given its backwa rd and forward linkages has its large multiplier effect. With capital investment s of over Rs.100, 000 crores, the Indian Steel Industry currently provides direc t/indirect employment to over 2 Million people. As India moves ahead in the new millennium, the Steel Industry will play a critical role in transforming India i nto an economic superpower. Page12

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Current Scenario: 1. world. 2. Industrial production showing encouraging trends. Index of industri al production for Capital goods is growing @ 8.4% CAGR and growth in index for c onsumer durables was @ 10.5% CAGR during 2005-06. 3. 4. 5. 6. China. 7. National Steel Policy, as formulated by Indian Ministry of Steel envisages the 8. 9. 10. Crude Steel production of 110 Million Tonnes by 2019-20 at The demand of Steel by 2020 is likely to be 90 Million Tonnes at Steel exports by 2020 are likely to grow at CAGR of 13.3% from Steel importers to the country by 2020 shall grow of 7.1% from following:CAGR of 7.1% from 2005-06. CAGR of 6.9% from 05-06. 04-05 t o 26 Million Tonnes. 04-05 to 6 Million Tonnes. Lot of Steel projects both Brown field and Greenfield likely to come up and are in As per the news, Steel Ministe r has projected Indias Steel production to be around Due to infrastructure focus, production of long products is gradually increasing & various stage of executio n. 124 Million Tonnes by 2012 and a capacity of around 275 Million Tonnes by 201 9-20. ratio of flat to long products is narrowing. The 10th plan investment in i nfrastructure has been envisaged at around Rs.880, The major sector wise anticip ated investment is likely to be Rs.292000 crores in During 11th plan (2007-08 to 2011-12), the projected investment towards Per capita Steel consumption at 35 k g low as world average of 150 kg & 300 kg for 550 crores. power, Rs.145000 crore s in Roads & Bridges, irrigation Rs.111000 crores. infrastructure is likely to b e Rs.2027000 crores, an increase of 180% over 10th plan. Indian economy growing @ 8 to 9% is of the fastest growing economies in the

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai 11. robust. With due focus on infrastructure development & strong economic indicators, the i n India shall to remain demand for Steel Page13 Company profile

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Page14

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai 1.2 Company profile STEEL AUTHORITY OF INDIA LIMITED (SAIL) HISTORY: Steel Authority of India (SAIL) was established in 1973 to manage the operations of stateowned steel companies Hindustan Steel (established in 1954) and Bokaro Steel (established in 1964). In 1978, SAIL was restructured as an operating company. The company established Du rgapur Steel Plant (DSP) in the late 1950s with an initial annual capacity of on e million tons of crude steel. The capacity of DSP was later expanded to 1.6 mil lion tons during the 1970s. Over the years, SAIL established various steel plant s. Bokaro Steel Plant (BSP), which was originally incorporated as a limited comp any in 1964, was merged with SAIL, first as a subsidiary and then as a business unit. Salem Steel Plant (SSP) was commissioned, in 1981. The Indian Iron and Ste el Company (IISCO), a subsidiary of SAIL, was declared a sick industrial company by the Board for Industrial and Financial Reconstruction (BIFR), in 1994. NTPC SAIL Power Company was established as a joint venture with National Thermal Powe r Corporation (NTPC), in 2001. In the following year, SAIL established the Bokar o Power Supply Company with Damodar Valley, and the Bhilai Electric Supply Compa ny with the NTPC. In 2005, the Board of Directors of SAIL gave approval for two projects: the revamping of Sinter Plant-2 in Bhilai Steel Plant and the installa tion of an air turbo compressor and an oxygen turbo compressor at the Oxygen Pla nt in Bokaro Steel Plant. IISCO was amalgamated with the parent company, in the first quarter of 2006. The foundation stone of the INR96,000 million (approximat ely $2,384.6 million) greenfield modernization and expansion program of IISCO St eel Plant (ISP) of SAIL was laid at Burnpur in West Bengal, in the last quarter of 2006. Page15

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Installation of state-of-the-art environment-friendly and energy-efficient steel making technology was expected to help ISP multiply its crude steel production capacity to 2.5 million tones by the year 2010. In February 2007, SAIL signed a memorandum of understanding (MOU) with Indian Railways for supply of 34 high-pow er locomotives to SAIL over the next three years. These locos would enable faste r movement of materials on full-rake basis, leading to a substantial reduction i n detention time for the railway wagons. In March 2007, the company signed a joi nt venture agreement with Jaypee Associates (an India-based cement producer) for producing 2.2 million tonnes cement per annum from the slag generated during th e blast furnace operations at SAILs Bhilai Steel Plant. In April 2007, the compan ys board approved a proposal for modernization and capacity expansion of Bhilai S teel Plant to 7 million tonnes of crude steel per annum at an indicative cost of INR112,620 million (approximately $2,797.5 million). In the same month, SAIL, R ashtriya Ispat Nigam (RINL, an India-based steel company), and National Mineral Development Corporation (NMDC, an India-based company engaged in the exploration of a range of minerals) agreed to enter into a strategic business relationship by forming a joint venture company for setting up of an integrated iron and stee l plant of four million tonnes annual capacity in the state of Chhattisgarh (a s tate in India) initially.They also planned to take this process further to other states of India as well. In June 2007, SAIL signed a MOU with Manganese Ore Ind ia (MOIL, a public sector company with large resources of manganese) for setting up of a joint venture company to produce ferro-manganese and silico-manganese. In August 2007, SAIL and POSCO, a South Korea-based steel company, signed a MOU to establish a strategic alliance for aligning and cooperating with each other i n a range of strategic business and commercial interest areas. The MOU stated th at the alliance partners had agreed to cooperate in the areas of business which included information sharing in the area of corporate strategy planning; Page16

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai joint usage of each other s existing marketing and warehousing network; and co-o rdination in procurement of coking coal, nickel, and ferro-alloys and engagement of transportation vessels. Further in August 2007, SAIL, NMDC, and RINL, signed a MOU for jointly setting up a 4 million tonne per annum capacity integrated st eel plant in Chhattisgarh, a state in India. In September 2007, SAIL signed a MO U with IL&FS Infrastructure Development Corporation (IIDC, an infrastructure dev elopment and finance company) for formation of a special purpose vehicle (SPV) t o develop, operate, and maintain a steel sector special economic zone (SEZ) at S alem in the state of Tamil Nadu in India. In January 2008, SAIL and Tata Steel, an India-based steel company, signed an agreement to establish a fifty-fifty joi nt venture company for coal mining in India. The joint venture would identify, a cquire, and develop coal blocks in India. In the same month, foundation stone fo r the modernization and expansion of Rourkela Steel Plant (located in the state of Orissa in India) of SAIL was laid. In February 2008, an INR112,620 million (a pproximately $2,797.5 million) expansion program for SAIL was inaugurated in Bhi lai. In the same month, SAIL signed a shareholder s agreement with Jaypee Associ ates to form a joint venture company, Bokaro Jaypee Cement, for setting up a 2.1 million tonne capacity cement plant at Bokaro. In April 2008, the foundation st one for INR110,000 million (approximately $2,732.4 million) modernization and ex pansion project of the Bokaro Steel Plant of SAIL was laid. In May 2008, SAIL si gned a MOU with the government of Kerala (a state in India) for revival of the l oss-making Steel Complex, a 50,000 tonnes per annum company producing continuous cast billets used by re-rollers for producing thermo mechanically treated (TMT) bars for the construction industry. Page17 EXPANDING HORIZON (1959-1973)

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Hindustan Steel (HSL) was initially designed to manage only one plant the Rourke la. For Bhilai and Durgapur Steel Plants, the preliminary work was steel ministr y. From April 1957, the supervision and control of these two transferred to Hind ustan Steel. The registered office was originally in New Calcutta in July 1958, and ultimately to Ranchi in December1959. A new Steel company, Bokaro Steel Limi ted, was incorporated in January operate the steel plant at Bokaro. The 1 MT pha ses of Bhilai and Rourkela completed by the end of December 1961. The 1 MT phase of Durgapur Steel completed in January 1962 after commissioning of the wheel an d axis plant production of HSL went up from .158 MT (1959-60) to 1.6 MT. T he se cond plant was completed in September 1967 after commissioning of the wire of th e 1.8 MT phase of Rourkela- the Tandem Mill was commissioned the 1.6 MT stage of Durgapur Steel Plant was completed in August 1969 the Furnace in SMS. Thus with the completion of the 2.5 MT stage at Bhilai and 1.6 MT at Durgapur, the total c rude steel production capacity of HSL 1968-69 and subsequently to 4 MT in 1972-7 3. Key Facts: Table No.-1.2.1 Steel Authority of India Limited (SAIL) is the leading steel-making company in I ndia. It is a fully integrated iron and steel maker, producing both basic and sp ecial steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets. Page18

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Ranked amongst the top ten public sector companies in India in terms of turnover , SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanized sheets, electrical sheets, structural, railway products, plates, bars and rods, stainless steel and other alloy steels . SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and sit uated close to domestic sources of raw materials, including the Company s iron o re, limestone and dolomite mines. The company has the distinction of being Indias largest producer of iron ore and of having the countrys second largest mines net work. This gives SAIL a competitive edge in terms of captive availability of iro n ore, limestone, and dolomite, which are inputs for steel making. The Environme nt Management Division and Growth Division of SAIL operate from their headquarte rs in Kolkata. Almost all our plants and major units are ISO Certified. SAIL VIS ION: To be a respected world-class corporation and leader in India steel business in quality, productivity, profitability, and customer satisfaction. CREDO: We build lasting relationships with customers based on trust and mutual benefit. We uphold highest ethical standards in conduct of our business. We create and n urture a culture that supports flexibility, learning and is proactive to change. We chart a challenging career for employees with opportunities for advancement and rewards. We value the opportunity and responsibility to make a meaningful di fference in people s lives. Page19

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai CORE VALUES OF SAIL: Customer satisfaction. of Excellence. Concern for people. Consistent Profitability. Commitment

THE SEVEN Cs OF SAIL: Consistent Quality. Committed Delivery. Customized Product Mix. Contemporary Pro ducts. Competitive Price. Complaint Settlement. Culture of Customer Services. SAIL Today: SAIL today is one of the largest industrial entities in India. Its strength has been the diversified range of quality steel products catering to the domestic, a s well as the export markets and a large pool of technical and professional expe rtise. Today, the accent in SAIL is to continuously adapt to the competitive bus iness environment and excel as a business organization, both within and outside India. EXPANSION PLAN 2012: Item Hot Metal Crude steel Saleable Steel Source: SAIL 2006 -07(Actual) 14.61 13.51 12.58 Table No.-1.2.2 Capacity as per Expansions 2010 26.18 24.59 23.13 Page20

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai SAILs Growth Plan 2010 Much has happened ever since SAILs Corporate Plan was announced in 2004. Investme nt plans for the three specialty steel plants have been firmed up. Company has g rown in size with the amalgamation of IISCO (now renamed as IISCO Steel Plant). Production targets have been revised from 19 million tonnes (MT) of steel to abo ut 24 MT. Estimated investments has increased from Rs 25,000 crore to around Rs 40,000 crore. And the time period has been squeezed by two years, bringing the t argeted year of completion of major projects from 2012 to 2010. Table No.-1.2.3 Saleable Steel Capacities (MT) PLANT Bhilai Steel Plant Durgapur Steel Plant Rou rkela Steel Plant Bokaro Steel Plant IISCO Steel Plant Alloy Steels plant Salem Steel Plant Visvesvaraya Iron & Steel Plant 2010 6.21 2.85 2.90 6.50 2.37 0.43 0 .36 0.22 Graph No.- 1 Saleable Steel Production Capacity 7 6 5 4 3 2 1 0 I A IL P B H A G Million Tonne 2.3 2.7 4.2 1.2 1.9 3.8 2.0 1.6 U R 1.9 LA O O II S 0.4 E K K A R C R R O U D U Existing capacity B O R Planned increase Page21 MAJOR UNITS

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Integrated Steel Plants Bhilai Steel Plant (BSP) in Chhattisgarh Durgapur Steel Plant (DSP) in West Beng al Rourkela Steel Plant (RSP) in Orissa Bokaro Steel Plant (BSL) in Jharkhand II SCO Steel Plant (ISP) in West Bengal Special Steel Plants Alloy Steels Plants (ASP) in West Bengal Salem Steel Plant (SSP) in Tamil Nadu isvesvaraya Iron and Steel Plant (VISL) in Karnataka Maharashtra Elektrosmelt Li mited (MEL) in Maharashtra Joint Ventures SAIL has promoted joint ventures in different areas ranging from power plants to e-commerce. NTPC SAIL Power Company Pvt. Ltd: A 50:50 joint venture between Ste el Authority of India Ltd. (SAIL) and National Thermal Power Corporation Ltd. (N TPC Ltd.), it manages the captive power plants at Rourkela, Durgapur and Bhilai with a combined capacity of 314(MW). Bokaro Power Supply Company Pvt. Limited: T his 50:50 joint venture between SAIL and the Damodar Valley Corporation formed i n January 2002 is managing the 302-MW power generation and 1880 tonnes per hour steam generation facilities at Bokaro Steel Plant. Mjunction Services Limited: A joint venture between SAIL and Tata Steel on 50:50 basis, this company promotes ecommerce activities in steel and related areas. Page22 V

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai SAIL-Basel Service Center Ltd: SAIL has formed a joint venture with BMW industri es Ltd. on 40:60 basis to promote a service center at Bokaro with the objective of adding value to steel. Bhilai JP Cement Ltd: SAIL has also incorporated a joi nt venture company with M/s Jaiprakash Associates Ltd to set up a 2.2 MT cement plant at Bhilai. SAIL has signed an MOU with Manganese Ore India Ltd (MOIL) to s et up a joint venture company to produce Ferro-manganese and silico-manganese at Bhilai. North Bengal Dolomite Limited: A joint venture between SAIL and West Bengal Mine ral Development Corporation ltd on 50:50 basis was formed for development of Jay anti Dolomite Deposit, Jalpaiguri for supply of Dolomite to DSP and other plants . Romelt-SAIL (India) Ltd: A joint venture between SAIL, National Mineral Developm ent Corporation (NMDC) and Russian promoters for marketing Romelt Technology dev eloped by Russia for reducing of iron bearing materials, which is carried out wi th carbon in single stage reactor with the use of oxygen. SAIL today is one of t he largest industrial entities in India. Its strength has been the diversified r ange of quality steel products catering to the domestic, as well as the export m arkets & a large pool of technical & professional expertise. Ownership and Management The Government of India owns about 86% of SAIL s equity and retains voting contr ol of the Company. However, SAIL, by virtue of its Navratna status, enjoys signifi cant operational and financial autonomy. Page23

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai OTHER UNITS: SAIL Consultancy Division. Center of Engineering & Technology. Management Traini ng Institute. Safety Organization. Environmental Management Division. Raw Materi al Division. Growth Division. Central Power Training Institute. Central Marketin g Organization. Major Capital Schemes: Bhilai Steel Plant: Rebuilding of Coke O Coke oven batteries. Modernization of BFs (including Gas Cl eaning Plant). Installation of new Slab Caster, RH Degsser & Ladle Furnace (). R evamping of existing Slab Casters in phased manner. New Pipe Plant of 0.2 millio n tonnes capacity New Bar & Rod Mill (1 million tonnes). AMR (Additions, Modific ations & Replacements) & other Schemes including. Logistics & infrastructure. In stallation of new Steel Melting Shop (SMS) (3.9 million tonnes capacity). Durgapur Steel Plant: Bloom Caster & associated facilities. New 0.7 mtpa Bar & Rod Mill & 0.4 mtpa Med ium Structural Mill. Up gradation of BFs & CDI (Coal Dust Injection) in BFs. Reb uilding of Coke Oven battery. Installation of a new Billet Caster.

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Page24

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Rourkela Steel Plant: Rebuilding of Coke Oven battery. New Blast Furnace-2,000 m3. CDI & Reconstructio n of BFs. Revamping of Sinter Plant including Pollution Control Scheme. New Plat e Mill (0.7-1.0 Million Tonnes Capacity Wide width. Bokaro Steel Plant: New 2.5 million tones hot strip mill & 0.6 million tones cold rolling mill. allation of Slab Caster. Installation of New modern BOFs. IISCO Steel Plant: Modernization of Steel Making Facility. l mill. Development of collieries. Inst

New Multi purpose Section mill/ Universa

SWOT Analysis of SAIL STRENGTH Largest player in the Indian Steel industry. Strong backward integratio n like iron ore and power. Very aggressive expansion plans. The single largest r ail manufacturer in the world. Merger with IISCO would boost its profitability, as SAIL would have access to IISCOs underutilized iron ore and coalmines. All its plants are a profit centers. SAIL is a virtually Debt-Free Company. The approve d acquisitions and merger of NINL, NISCO and MEL would result in synergy benefit s, operating efficiencies, cost savings and thus higher profit. WEAKNESS Concern in obtaining new mining leases and renewal of old leases. Low liquidity in Stoc k Exchange (85.82% shares is held by GOI itself).

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Heavily dependent on import of raw materials (coking coal). Page25 OPPORTUNITIES Strong Economy growth (second fastest growing economy after China). Booming inf rastructure sector (Roads, Ports, Airports, SEZs, Power). Strong demand in autom obile sector, consumer durables sector and engineering goods sector. Robust dema nd in construction and retail industry. Low per capita steel consumption offers a higher growth. Rich Geological Resource base. THREAT Steel prices may remain s tumpy on account of over supply from China. Bureaucratic nature of Government Socio-Political interventions (in leasing mines). Rising interest rates could af fect expansion programmed (High cost of Finance). High cost of energy. Big ticke t investment by POSCO and Mittal could swallow the market (specifically export). Cyclical nature of Steel Industry. Deficit infrastructure.

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Page26 ORGANISATION STRUCTURE OF SAIL CHAIRMAN DIRECTOR (TECH) DIRECTOR PERSONNEL DIRECTOR FINANCE CHIEF VIGILANCE EXE. DIR (OPERATION) EXE. DI R (IA) ED (TECH & LEGAL SERVICE) EXE. DIR (PROJECTS) EXE. DIR (CMMG) EXE. DIR. ( CIG) EXE. DIR. (CP) EXECUTIVE DIRECTOR SSP MANAGING DIRECTOR, BSP MANAGING DIREC TOR, BSL MANAGING DIRECTOR, RSP MANAGING DIRECTOR, DSP EXECUTIVE DIRECTOR VISL EXECUTIVE DIRECTOR ASP

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Page27

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Company vision: India 2020 a vision for the new Millennium We still have a number of persons in o ur country in steel Authority of India Limited (SAIL).. They have the will to exce l and transform the country, given a long term vision Dr. A.P.J.ABDUL KALAM Bhilai Steel Plant, a unit of Steel Authority of India Limited - a public sector undertaking was conceived under aegis of Indo - USSR Treaty in the 2nd Five year plan. This was in accordance with erstwhile government policy for strengthening economy and self reliance through development of core sector. Nine - time winner of Prime Ministers Trophy for best Integrated Steel Plant in t he country, Bhilai Steel Plant (BSP) is Indias sole producer of rails and heavy steel plates and major producer of structural. The plant is the sole supplier of the country s longest rail tracks of 260 meters. With an annual production capacity of 3.153 MT of saleable steel, the plant also specializes in other products such as wire rods and merchant products. Since BSP is accredited with ISO 9001:2000 Quality Management System Standard, all saleable products of Bhilai Steel Plant come und er the ISO umbrella. At Bhilai IS0: 14001 has been awarded for Environment Manag ement System in the Plant, Township and Dalli Mines and it is the only steel pla nt to get certification in all these areas. The Plant is accredited with SA: 800 0 certification for social accountability and the OHSAS18001 certification for O ccupational health and safety. These internationally recognized certifications a dd value to Bhilais products and helps create a place among the best organization s in the steel industry. Bhilai steel plant profile Bhilai Steel Plant is a flag ship unit of Steel Authority of India Limited. SAIL , a fully integrated iron and steel maker, produces both basic and special steel s for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets. In terms of annual production SAIL i s the 18th largest steel producer in the world. Page29

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Living up to the description by Jawaharlal Nehru as significant symbol of a new age in India, Bhilai Steel Plant has been performing consistently despite many o dds and has achieved profits for the 18th consecutive year. It broke its own rec ord of highest ever profit of Rs 1932 crore by any steel plant in 2003-04 and re gistered a profit of Rs 4042 crores in 2004-05. In the year 2005-06 also it earn ed a handsome profit of Rs. 2781 Crores despite input price escalation. The true testimony to BSPs status of a world class steel plant is that BSPs EBITDA margin of 33% is quiet comparable to many International steel players like POSCO (30%), NIPPON (19%), MITTAL STEEL (16%0, ARCELOR (16%), etc. Its Gross Margin to avera ge capital employed at 182% is a Global Benchmark. Maintaining the track record, BSP continued to operate above the rated capacity in production of the three ma in items viz. Hot Metal, Crude Steel and Saleable Steel. BSP is the first steel plant in India to have crossed the annual production of 5MT crude steel in the y ear 2005-06. In order to meet the challenges of Corporate Plan 2012 and to maint ain the leadership position of BSP in Indian steel industry, the leadership has taken bold steps to make significant investments for breakthrough improvements i n efficiency, resource management, knowledge and skill by deploying world class tools. This year is a milestone in BSP journey when new tools have been introduc ed viz. ERP, Knowledge Management, Six Sigma, Multi-skilling etc. Building Future Capabilities BSP is on its way to equip itself with assets required by 21st century. New stat e of the art technologies for improvement in productivity, yield, quality and op erational costs have been planned under Corporate Plan 2012. The plant capacity will be 7 MT of hot metal by 2012. The key goals of CP-2012 are capacity enhance ment, 100% Comcast production, reduction in semis, achieving international bench marks in eight selected parameters, higher percentage of value added products an d essentially to become a true world class steel plant. Apart form investing in plant, technology and machinery, BSP has taken bold steps to make significant in vestments to leverage its most precious and differentiating resource, the human resource by deploying ERP, Knowledge Management, Six Sigma, and Multi-skilling a nd other performance enhancing tools. Page29

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai The principal products and key customers of Bhilai Steel Plant along with key seg ments; key competitors and market share in that segment are given as per the for mat specified in A glimpse of product portfolio and targeted market share after pr oposed implementation of unit perspective Plan 2012 is given in Table No.-1.2.4 T able: Main Products & Expected Market Share 2011-12 Expected Domestic Current Ma rket Share Market Share 100% 100% 24% 30% 4.8% Nil Nil 10% 6% 6% Main Products Rails Plates Bars, Rods & Structural. HR Coils / Sheets Pipes The Beginning This Leadership of free, India took a visionary decision to set up integrated st eel plants under the exclusive responsibility of the state owing to the massive investment needed for creating additional Steel capacity, which private industry would not be able to mobilize and the cardinal role steel would play in rapid e conomic advancement as a major step towards this goal, government of INDIA and U SSR entered into an agreement signed at New Delhi on 2nd march 1955, for the est ablishment of an integrated Iron and Steel works at Bhilai with an initial capac ity of one million tonnes of ingot steel. The main consideration which responsib le for setting up the plant at Bhilai, was the availability of Iron ore at Delhi -Rajhara at a distance of about 90 Km from the site limestone from Nandini at 22 km and dolomite at HIRRI at 41 km. The plant was commissioned with the inaugura tion of the first blast furnace by the then president of India. Dr. Rajendra Pra sad on 4th February 1959. The plant was soon expanded to 2.5 Million tonnes in S eptember 1967 and in further expansion to 4 MT was completed in 1988. The main f ocus in the 4 MT stage was on the continuous casting unit and the plate mill, a new technology in steel casting and shaping for any integrated steel plant to In dia during those time Page30 The Organization

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Bhilai Steel Plant functions as a unit of SAIL with its corporate office at New Delhi. SAIL is governed by a Board consisting of function Directors, Managing Di rectors and government nominee Directors, 85.62% of the shares of SAIL are with Indian Government and balance are with financial institutions, mutual funds, Ind ian Public and others, corporate office formulate Policies, strategies and overa ll guidelines for its unit, central organization like CMO (Central Marketing Org anization) RDCIS (Research and Development Center for Iron & Steel ) CET ( Cente r for engineering and Technology ) look after the relevant activities for the pl ates under SAIL. Over the years, Bhilai Steel Plant has developed an organizatio nal culture that run forces its commitment to values and stimulates continuous i mprovements and higher levels of performance. Bsps Organizational Objectives To encage customer satisfaction through: Improvement in productivity and product quality. Skill enhancement of our people by competence commitment and cultureBui lding. Production as per customer requirements. Quality Policy of Bsp Attending market leadership through enhancing customer satisfaction. Achieving c ontinual improvement in productivity, quality and salability of our products. Ac tive involvement of all our people in achieving our goals, objectives and target . Page31

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Product Profile Bhilai Steel Plant (BSP) has mainly three types of products:1. 2. 3. Semis Produ ct Long Products Flat Products MARKET SHARE OF BSPS PRODUCT RANGE: Table No.1.2.5 BARS & RODS STRUCTURALS RAILWAY MATERIALS TOTAL LONG PRODUCT PLAT ES TOTAL FINISHED STEEL TOTAL SEMIS TOTAL SALEABLES STEEL SAIL 08.70% 17.90% 89. 30% 14.80% 52.90% 22.40% 13.00% 20.00% BSP 05.90% 13.90% 85.90% 11.80% 23.90% 07 .70% 06.10% 07.30% Table No.:1.2.6 PRODUCT-MIX Semis Rail & Heavy Structural Merchant Products (Ang les, Channels, Round & TMT bars) Wire Rods (TMT, Plain & Ribbed) Plates (up to 3 600 mm wide) Total Saleable steel Page31 TONNES/ANNUM 5,33,000 7,50,000 5,00,000 4,20,000 9,50,000 31,53,000 PLANT AND FACILITIES: Process Flow of Bhilai Steel Plant:

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Captive mines: Iron-Ore - Dalli-Rajhara Iron Ore Complex, 80 kms from Bhilai Limestone - Nandin i, 23 kms from Bhilai Dolomite - Hirri, 150 kms from Bhilai Page32

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Coke Ovens:BATT NO. NO. OVENS OF OVEN HEIGHT (M) COAL HOLDING USEFUL VOLUME SP.H EAT CONSPN. CAPACITY PER OVEN KCAL/KG PER OVEN CU.M. (T) 1-8 9&10 65 67 4.3 7.0 16.8 32.0 21.6 41.6 625-675 625-675 Blast Furnaces: 3 of 1033 Cu m capacity each. ity. 3 of 1719 Cu m capacity each. 1 of 2350 Cu m capac

Steel Melting Shop: Steel-making through BOF, VAD/Ladle Furnace/RH-Degasser and Continuous casting r oute: 3 converters of 110/130 T. VAD unit, RH degasser, Ladle furnace. 3 Slab Ca sters, 1 bloom caster, 1 Combi caster. Annual Capacity: 1.425 MT Cast steel. Mer chant Mill: Products: Plain Rounds: dia 28, 32, 36,40, 50,53, 56, 63 & 67 TMT Ba rs Angles Page33 Capacity - 5, 00,000 Tonnes.

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Rail & Structural Mill: Products: Capacity - 7, 50,000 T Rails - R52 Kg/m & R60 Kg/m specifications according to Euro norms and internati onal standards. Thick web asymmetric rail Beams Channels Angles Crossing Sleeper . Crane Rails Bhilai is the sole supplier of the country s longest rail tracks o f 260 metres. Bhilai Rails: Largest producer and leading rail maker of the world. Four and a half decades of experience in rail making. Produced over 15 million tonnes of rails; 2.7 lakh k m in length. Indian Railways Worlds second largest rail company moves exclusively on Bhilai rails. Bhilai rails are subjected to worlds highest traffic density a nd axle loads. Rails exported to 10 countries with exports to South Korea, New Z ealand, Argentina, Turkey, Iran, Egypt, Ghana, Bangladesh and Malaysia. Wire Rod Mill: Capacity - 4, 20,000 T Wire Rods (Plain, Electrode Quality & TMT) in 5.5, 6, 7, 8 & 10 mm plain and ribbed, and 12 mm plain in coil form 8, 10, and 12 mm TMT

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Page34

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Plate Mill: Capacity Plates thickness Width Length - 9,50,000 T - 8-120 mm - 150 0-3270 mm - 5-12.5 M Product Mix: Saleable Steel Production: table 1.2.7 Page35

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Major suppliers of Bhilai steel plant: 1. Apollo industrial corporation Mumbai. 2. Ashok Leyland Chennai. 3. BHEL l and Mumbai. 4. Bharat petroleum gas Nagpur. 5. Birla Corporation limited ta. 6. Cimmco Birla limited New Delhi. 7. Dunlop India limited Kolkata. 8. ns casting limited Mumbai. 9. Simplex casting limited Raipur. 10. HMT ltd. i. Bhopa Kolka Sieme Ranch

Major buyers: 1. Indian railways. 2. Vizard profiles limited. 3. High pressure boiler plant BH EL Trichy. 4. NTPC super thermal power project. 5. Jindal steel and power limite d Raigarh. 6. NTPC limited New Delhi. 7. Chandigarh industrial journalism and de velopment corporation Chandigarh. 8. Cropro international Italy. 9. Sangyong Cor poration Japan. Competitors: 1. Ispat industries limited. 2. Lloyds steel limited. 3. Essar steel limited. 4. Jindal steel and power limited. 5. Jindal strips limited. 6. National steel ind ustries limited. 7. Bhusan steel and strips limited. Page36

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Environment Management: A conscious corporate citizen, BSP has gone in for ISO14 001 certification for its Environment Management System. ISO 14001 certification Environment Management System established at Plate Mill, Rail & Structural Mill, Wire Rod Mill, Merchant Mill and Steel Melting Shop-1. Reduction in noise levels. Conservation of electricity and lubricants. Environment Management System established at Dalli Mines. Pollution Control Measures: The plant has introduced environment friendly coal dust injection system in the Blast Furnaces, de-dusting system and electrostatic precipitators in other units and has planted lakhs of trees in a concerted afforestation drive that has seen Bhilai transform into one of the ten cleanest industrial townships in the count ry. Green City: Contrary to the popular perception about industrial townships being dirty and po lluted, the city of Bhilai is characterized by blue skies, clean air and green e xpanses. A green-fingered population and a management aware of its obligations a s a corporate citizen have come together for a massive tree-plantation drive ove r a period of years that has resulted in the township that stands starkly green in a dry regional backdrop. About 48.4 lakhs saplings have been planted so far w ith a survival rate of 90%. The sprawling Maitri Bagh has the biggest musical fo untain in the country, a zoo with a variety of quadrupeds and birds, an artifici al lake with boating facilities, a toy train etc. A number of small and large pa rks in the residential sectors of the steel city are maintained by the Plant s T own Administration Department which also undertakes the civic amenities such as street lighting, cleaning and maintenance of the tree-lined carpeted roads insid e the steel township. Page37

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai The water to the township is supplied from the Maroda water treatment plant havi ng a capacity of 30 million gallons per day. Water is distributed throughout the township through a system of underground reservoirs and overhead tanks. Energy Consumption: Continuous monitoring Apex Committee Inspection by HODs. Quarter review of Safety activities by ED (W) Fixing responsibility of line managers. Contractor workers safety - IPSS proced ure enforcement, contractors audit, safety exhibitions Safety workshops Regular inspections: Inspection of gas pipelines Inspection of structures, equipments and installatio ns Risk Control Grading System implemented in Coke Ovens Battery 9 & 10, Blast F urnace, SMS-1 and extended to BBM, Foundry Shop, and SMS-II. Quality Management System: Facilities relating to quality, ISO 9001 SEAL OF QUALITY All major production un its and marketable products in Bhilai Steel Plant are covered under ISO 9001:200 0 Quality Management Systems. This includes manufacture of blast furnace coke an d coal chemicals, production of hot metal and pig iron, steel making through twi n hearth and basic oxygen processes, manufacture of steel slabs and blooms by co ntinuous casting, and production of hot rolled steel blooms, billets and rails, structural, plates, steel sections and wire rods. Page38

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Bhilai s products come with a complete assurance of quality. Right from selectio n of input material for steel making, the process parameters are kept under clos e control. Intensive checking of all quality parameters continues throughout the subsequent operations of casting, reheating and rolling. Express analysis with the help of sophisticated, direct-reading spectrograph and gas analyzer ensures a narrow range of chemical composition. Intensive metallographic investigation w ith modern instruments like Scanning Electron Microscope, Image Analyzer and Mic ro Hardness Tester is carried out to assess the quality of the product. The key points of control are: Chemical analysis of hot metal, liquid steel and final product. Inspection of su rface and internal quality of the product by visual and ultrasonic inspection. M onitoring and control of heating/reheating parameters. Dimensional and surface c heck during rolling and on finished product. Human Resource Development: Training need assessment is a continuing process. About 19,000 employees are imp arted training every year. The focus is on need-based innovative programmes, suc h as Action Collaboration. SWOT Analysis of BSPs: The primary function of Bhilai Steel Plant are derived from the functions of the mother organization SAIL. As a production unit of SAIL, BSP carries out the spe cific functions and task assign to it from time to time, both with regards to pr oduction and execution of other functions of SAIL, such as design consultancy, t raining and development etc. The primary analysis of any organization begins wit h the SWOT Analysis. Page39

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai SWOT Strengths: Capacity of plant, .

Product Mix,

Quality of Products,

Human Resource & Management

Weakness: Supply of Raw Materials, ntries. Opportunities: Upsurge in Indian Economy,

Demurrages,

Rigidity of Labor Law compared to other cou

Technological Edge,

Human Resource Management. Domestic Competition, Increase

Threats: Effect of Custom Duty, International Competition, in Oil Prices, Depleting Mines.

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Page40 ORGANISATIONAL STRUCTURE OF BHILAI STEEL PLANT MANAGING DIRECTOR ED (F&A) ED (PROJECTS) 90 GM (F&A) ED (WORKS) ED (P&A) ED (MM) GM (PROJECTS) GM (TS) GM (MM) GM (M&SP) GM (PERS) GM (PP&E & BEDB) GM (HRD) GM I/C (SERVICES) GM (SAFETY) GM (MS) GM (IA) GM I/C (MINES) DIR (M&HS) GM I/C (M&U) (REFR) GM (P MILL & MILLS-LP) GM (CO, CCD & SP, OHP) GM I/C (PE, EN & STEEL) DGM (L & A) ACVO COC GM (QUALITY) GM (IT) GM (CCS) - SMS-II Page41

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai PERFORMANCE HIGHLIGHTS 2008-2009 BHILAI STEEL PLANT Item (Unit : MT) Hot Metal Crude Steel Saleable Steel 2007-08 5.27 5.05 4.43 200 8-09 5.18 5.18 4.49 % Rated Capacity 121.0* 132.1 142.5 With respect to BFs in operation TURNOVER 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2004-05 2005-06 2006-07 2007 -08 7557.98 7949.1 11389 11217 9736.08 13526.31 16518 (Rs Crore) 13246 9 Months 10479.41 Yearwise 2008-09 Page42

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai PROFIT (Before Tax) 6000 5000 4042 4000 3000 2000 1000 0 2004-05 2005-06 2006-07 2007-08 2365.64 278 1.07 2175.52 3048.89 5366 4287.29 (Rs Crore) 3367.14 3266 9 Months Yearwise 2008-09 Record production of 7.46 MT of Total Sinter, surpassing the previous best of 7. 23 MT in 0708 and registering a growth of 3.2% over previous Year. Production of Total Sinter ( 000T) 7500 6933 7229 6647 7459 6800 6100 5400 4700 4000 2004-05 2005-06 5741 2006-07 2007-08 2008-09 Page43

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Record production of 5.39 MT of Hot Metal, exceeding previous best of 5.27 MT in 07-08 and registering a growth of 2.3% over the previous Year. Production of Hot Metal ( 000T) 5500 5200 4900 4600 4300 4000 2004-05 2005-06 2006-07 2007-08 2008-09 4511.2 5178.3 5267.7 5387.2 4816.8 Record production of 5.2 Million Tonnes of Total Crude Steel, surpassing the pre vious best of 5.1 Million Tonnes in 07-08 and registering a growth of 2.6% over the previous Year. Production of Total Crude Steel ( 000T) 5200 4960 4798.4 5053.7 5054.6 5183.5 4720 4480 4240 4000 4581.7 2004-05 2005-06 2006-07 2007-08 2008-09 Page44

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Record production of 4.49 Million Tonnes of Saleable Steel, surpassing the previ ous best of 4.43 T achieved in 07-08 and registering a growth of 1.4% over the p revious Year. Production of Saleable Steel ( 000T) 4500 4300 4100 3935.1 4285.6 4222.9 4428.9 4491.6 3900 3700 3500 2004-05 2005-06 2006-07 2007-08 2008-09 "Sinter Plant-3 crossed the 20 MT landmarks in July 08 Record Cast Steel producti on of 2.65 MT from SMS-2. Record production of 756,232 T of Merchant products, su rpassing the previous best of 730,660 T achieved in 07-08 and registering a grow th of 3.5% over the previous Year. Production of Finished Rails ( 000T) 1000 940 880 820 760 700 2004-05 2005-06 2006-07 2007-08 2008-09 868.4 880.9 855.2 916.1 978.7 Page45

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Record production of 3604.6 Thousand Tonnes Finished Steel, surpassing the previ ous best of 3603.1 Thousand Tonnes in 2007-08. Production of Merchant Products ( 000T) 800 756.2 750 700 650 600 550 500 2004-05 2005-06 2006-07 592.7 582.7 610 730.7 2007-08 2008-09 Plate Mill completed 25 years in March 08 with cumulative output of about 18.13 MT. Best-ever Energy rate at 6.503 G Cals/TCS against previous best of 6.503 G Cals /TCS in 2007-08. Highest ever production of Special Steel & value-added products at 2.85 MT surpassing the previous best of 2.17 MT in 07-08 and registering a g rowth of 31.1% over previous year. 3000 2600 2200 1800 1400 1000 Special Quality & Value-added Products ( 000 T) 2845.6 2170.9 1358.2 1444.2 1555.7 2004-05 2005-06 2006-07 2007-08 2008-09 Page46

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Best ever production of 430,494 Tonnes of TMT Bars from Merchant Mill, surpassin g the previous best of 417,591 Tonnes in 07-08, registering a growth of 3.1% ove r previous year. Production of TMT Bars ( 000T) 500 400 300 200 100 0 2004-05 2005-06 2006-07 2007-08 2008-09 187.1 210.6 156.7 Merchant Mill 417.6 430.5 Best ever production of 403,175Tonnes of TMT Rods from Wire Rod Mill, surpassing the previous best of 277,488Tonnes in 07-08, registering a growth of 45.3% over previous year. Production of TMT Wire Rods ( 000T) 500 400 300 200 109.5 107.2 109.8 277.5 Wire Rod Mill 403.2 100 0 2004-05 2005-06 2006-07 2007-08 2008-09 Best ever production of 814,805 Tonnes of UTS-90 Rails, surpassing the previous best of 791,541 Tonnes in 07-08, registering a growth of 2.9% over previous year . Page47

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Best ever loading of 213,652 Tonnes of 26 metre rails and 106,284 T of 130 & 260 metre rails, surpassing the previous best of 197,708 Tonnes and 101,104 T, resp ectively in 2007-08. 150 120 90 60 30 0 2004-05 2005-06 2006-07 2007-08 2008-09 Production of HT (H/S) Plates ( 000T) 122.8 110 106.1 98.2 99.4 NEW PROJECTS: A Capital Expenditure exceeding Rs 800 crore was incurred by BSP du ring the Financial Year 2008-09. During the year 2008-09, Turnkey projects of Rs 3959 crore, projects under Capital Budget of Rs 67.43 crore & projects under Re venue of Rs 2.87 crore have been signed. Project Website and Online Contract Bil ling & Accounting System have been launched. MAJOR PROJECTS COMPLETED: COB-5 (Pkg-I) Battery Proper & Oven Machine. Slab Caste r in SMS-II. Installation of MSDS-VI. End Forging Plant for Thick Web in RSM. Page48 MAJOR PROJECTS COMMISSIONED: Hot Metal Desulphurisation Unit in SMS-II.

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Ladle Furnace in SMS-II. RH Degasser in SMS-II. VVVF Drive for ID fan 1 & 2 of C onverter Shop at SMS-II. VVVF Drive for Booster Fan 1, 2 & 3 at SMS-II. ONGOING PROJECTS: COB-11, New Coal Handling Plant, CDCP. Rebuilding of COB-6 (Bat tery Proper). Augmentation of Plate Mill capacity. Basic Oxygen Furnace Shop SMS -III. MSDS-7. Compressed Air Station-4. Ore Handling Plant Plant-A. Electro Magn etic Stirrer in Bloom Caster in SMS-II. Implementation of ERP. Installation of 3 0 MLD Sewerage Treatment Plant with Recycling facilities at Township. This will enable recycling of sewerage water from 10 residential sectors and Indira place Market area for industrial use. Hot Metal Desulphurization for SMS-III. Installa tion of MSDS-V. Up gradation of Nitrogen Network. 6.6 KV Switchgear for Substati on 21 of SP-II. Enabling works for 7 MT expansions. Repl. Of DN 3000 Blast Furna ce Header from BF-1 to BF-6. Repl. Of Main Drives MG sets by Thyristor Converter s at Plate Mill. 700 TPD (ASU 4) Unit with associated facility at OP-2. 2*150 T capacity in-motions Weigh Bridge in Peripheral Yard 7 Raw Material Station. SPU at Ujjain, Hoshangabad & Gwalior. Page49 OTHER PROJECTS COMPLETED:-

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Procurement of 9 WDS-6 Locos for T&D Organization. Enabling works, Fabrication & Erection of TOPR and Supply of Drawings for COB-6. Replacement of 6.6 KV Switch gear section of S/s 1 of CO & CCD. Diversion of Nallah at outlet no 14 for liqui d slag of BF. 180 + 50 T/15T Ladle Crane in Slab Caster. Replacement of CO Gas P ipeline from column 214 to Plate Mill Gas Booster Station. One Pair Ladle Tiltin g Stand at SMS-II. 4*200 T in motion Weigh Bridge at line 42, 43, 68 & 69 of BF. OTHER PROJECTS COMMISSIONED: Replacement of By-product equipment (Pkg. 4A) at COB -5. Replacement of Exhauster at COB-5. Replacement of 4 numbers Ash Slurry Pipel ine. 11 Numbers Belt Weighing System at Coke Sorting Plant of CO & CCD. UPCOMING PROJECTS: Implementation of Manufacturing Executing System. Augmentation of Coal Grinding facility for CDI unit at BF-6 & BF-7. 7 numbers WDS-6 Loco & 1 no WDG-3A Loco. Installation of 2nd Sinter M/c in Sinter Plant-III (320 m2). Ne w Blast Furnace 8 (4060 cu m). Continuous Casting Shop SMS III. o 2*6 Strand Bill et Casters. o 1*4 Strand Bloom-cum-Billet Casters. o 183 Strand Beam Blank Caste r. New Bar 7 Rod Mill (0.90 MT Capacity). New Universal Rail Mill (1.2 MT Capaci ty). Universal Beam Mil (1.0 MT Capacity). New 2 *1250 TPD Oxygen Plant on BOO b asis. Page50

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai ORGANISATIONAL STRUCTURE OF FINANCE AND ACCOUNT DEPARTMENT OF BHILAI STEEL PLANT Bifurcation and coordination of Finance and Accounts department Finance and accounts department Invoici ng ng Page51

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Introduction of the topic

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Chapter 1.3 Finance is considered the life blood of any business. It is defined as the provis ion of money at the time it is wanted. All the plans of a businessperson would re main mere dreams unless adequate money is available to convert them into reality . It has given birth to Financial management as a separate subject. Financial mana gement refers to that part of managerial activity concerned with procurement and utilization of funds for business purpose. In other words it involves the appli cation of general management principles to financial operations. Thus financial management is concerned with estimation of a fixed and working capital and manag ement of earnings. Finance management, also referred to as corporate finance, em erged as a distinct field of study at the turn of the 20th century. Financial ma nagement is that management activity which is concerned with the planning and co ntrolling of the firms financial resources. Financial management involves the pro curement and use of funds. Its fundamental objective is to use business funds in the most profitable manner. But it must contribute towards the accomplishment o f organizational goals. Although the importance of financial functions largely o n the size of the firm, financial management is an integral part of the overall management of the firm. Page52

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Introduction to WORKING CAPITAL Working Capital is the capital available for conducting the day-to-day operation s of an organization, normally, the excess of current assets over current liabil ities. In accounting terms this is a static balance sheet concept referring to t he excess at a particular moment in time of permanent capital plus long-term lia bilities over the fixed assets of the business. As such it depends on accounting rules, such as what is capital and what is revenue, what constitutes a retained profit, the cut-off between long term and short term (12 months from the balanc e sheet date), and when revenue should be recognized. A business must be able to generate sufficient cash to meet its immediate obligations and therefore contin ue trading. Unprofitable business can survive for quite some time if they have a ccess to sufficient liquid resources, but even the most profitable business will quickly go under without adequate liquid resources. Working capital is therefor e essential to the companys long-term success and development, and the greater th e degree to which current assets cover the current liabilities, the more solvent the company. Efficient managing of working capital is important from the points of view of both liquidity and profitability. Gross working capital: It refers to the firms investment in current assets. Current assets are the asset s, which can be converted into cash within an accounting year or within an opera ting cycle. You can include here cash, short-term securities, debtors (accounts receivable & book debts), and bills receivable and stock. Net working capital: The net working capital refers to the difference between current assets and curr ent liabilities. Current liabilities are those claims of outsider, which are exp ected to mature for payment within an accounting year & include creditors, bills payable & the outstanding expenses. In other words we can say that this is the excess of current assets over current liabilities. Page53

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Working capital Current assets Cash Accounts Accounts receivable Notes receivable Marketable sec urities Inventory Prepaid expenses Total current assets Current liabilities Paya ble Notes payable Accrued expenses Taxes payable Short term loans Bank overdraft Total current liabilities Net working capital = CA-CL 1Kinds of Working Capital: 1. Permanent Working Capital: Permanent working capital is the minimum amount of current assets, which is needed to conduct a business even during the dullest s eason of the year. The minimum level of current assets is called permanent or fi xed working capital as this part is permanently blocked in current Assets. This amount varies from year to year, depending upon the growth of the company and th e stage of the business cycle in which it operates. 2. Temporary Working Capital : Temporary working capital represents a certain amount of fluctuations in the t otal current assets during a short period. These fluctuations are increased or d ecreased and are generally cyclical in nature. Additional current assets are req uired at different times during the operating year. Variable working capital is the amount of additional current asset that are required to meet the seasonal ne eds of a firm, so is also called as the seasonal working capital. For example: a dditional inventory will be required for meeting the demand during the period of high sales When the peak period is over variable working capital starts decreas ing or very little during the normal period. Page54

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Page55 IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai SOLVENCY OF THE BUSINESS: Adequate working capital helps in maintaining the solv ency of the business by providing uninterrupted of production. Goodwill: Suffici ent amount of working capital enables a firm to make prompt payments and makes a nd maintain the goodwill. Easy loans: Adequate working capital leads to high sol vency and credit standing can arrange loans from banks and other on easy and fav orable terms. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence reduces cost. Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw material and continuous production. Regular Payment Of Salaries, Wages And Other Day TO Day Commitments: It leads to the satisfaction of the employees and raises the mo rale of its employees, increases their efficiency, reduces wastage and costs and enhances production and profits. Exploitation Of Favorable Market Conditions: I f a firm is having adequate working capital then it can exploit the favorable ma rket conditions such as purchasing its requirements in bulk when the prices are lower and holdings its inventories for higher prices. Ability To Face Crises: A concern can face the situation during the depression. Quick And Regular Return On Investments: Sufficient working capital enables a concern to pay quick and regular of dividends to its investors and gains confide nce of the investors and can raise more funds in future. High Morale: Adequate w orking capital brings an environment of securities, confidence, high morale whic h results in overall efficiency in a business. Page56 EXCESS OR INADEQUATE WORKING CAPITAL

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Every business concern should have adequate amount of working capital to run its business operations. It should have neither redundant or excess working capital nor inadequate nor shortages of working capital. Both excess as well as short w orking capital positions are bad for any business. However, it is the inadequate working capital which is more dangerous from the point of view of the firm. DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL 1. Excessive working capital means ideal funds which earn no profit for the firm and business cannot earn the required rate of return on its investments. 2. Red undant working capital leads to unnecessary purchasing and accumulation of inven tories. 3. Excessive working capital implies excessive debtors and defective cre dit policy which causes higher incidence of bad debts. 4. 5. It may reduce the o verall efficiency of the business. If a firm is having excessive working capital then the relations with banks and other financial institution may not be mainta ined. 6. 7. Due to lower rate of return n investments, the values of shares may also fall. The redundant working capital gives rise to speculative transactions Page57 DISADVANTAGES OF INADEQUATE WORKING CAPITAL

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Every business needs some amounts of working capital. The need for working capit al arises due to the time gap between production and realization of cash from sa les. There is an operating cycle involved in sales and realization of cash. Ther e are time gaps in purchase of raw material and production; production and sales ; and realization of cash. Thus working capital is needed for the following purp oses: For the purpose of raw material, components and spares. To pay wages and s alaries To incur day-to-day expenses and overload costs such as office expenses. To meet the selling costs as packing, advertising, etc. To provide credit facil ities to the customer. To maintain the inventories of the raw material, work-inprogress, stores and spares and finished stock. For studying the need of working capital in a business, one has to study the business under varying circumstance s such as a new concern requires a lot of funds to meet its initial requirements such as promotion and formation etc. These expenses are called preliminary expe nses and are capitalized. The amount needed for working capital depends upon the size of the company and ambitions of its promoters. Greater the size of the bus iness unit, generally larger will be the requirements of the working capital. Th e requirement of the working capital goes on increasing with the growth and expe nsing of the business till it gains maturity. At maturity the amount of working capital required is called normal working capital. Page58 Determinants Working Capital:

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai We can explain the determinants of working capital as follows: Nature of s: Terms of sales and purchases: Manufacturing cycle: Rapidity of turnover: Busi ness cycle: Changes in technology: Seasonal variation: Market conditions: Season ality of operation: Dividend policy: Working capital cycle: Larger the working capital cycle, more is the requirement of working capital. Page59 If working capital thus defined exceeds net current operating assets (sto cks plus debtors less creditors) the company has a cash surplus (usually represe nted by bank deposits and

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai investments); otherwise it has a deficit (usually represented by a bank loan and /or overdraft). On this basis, therefore, the control of working capital can be sub divided into areas dealing with stocks, debtors, creditors and cash. Poor ma naging of working capital means that the funds are unnecessarily tied up in idle assets, hence reducing liquidity, and also reducing the ability to invest in pr oductive assets as plant and machinery, so affecting the profitability. The Investment Decision All businesses, to one degree or another need working capital. The actual amount of working capital will depend on many factors like age of the firm, the type o f business activity, credit policy and also time of the year. There is no standa rd fixed requirement. It is essential that an appropriate amount of working Capi tal is budgeted to meet anticipated future needs. Failure to budget correctly co uld result in the business being unable to meet its liabilities as the fall due. If a business finds itself in such a situation, it is said to be technically in solvent. In conditions of uncertainty firms must hold some minimal level of cash and inventories based on expected sales, plus additional safety stocks. Firms w ith an aggressive working capital policy hold minimal safety stock. Such a polic y would minimize costs, but it could lower sales because a firm may not be able to respond rapidly to changes in demand. Conversely, a conservative working capi tal policy would call for large safety stocks. Conservative policy has lower ret urns but lesser risk when compared to an aggressive policy. A moderate policy fa lls somewhere between the two extreme policies. Page60

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai The Financing Decision Working capital decisions involve the determination of the mix of long term vers us short-term debt. When the yield curve is upward sloping, short-term debt cost s less than long term debt. A firm with an aggressive financing policy finances part of its permanent asset base with short-term debt (which generally provides the highest expected return but is very risky) while a firm with a conservative finance policy has permanent financing (long term debt plus equity) more than it s permanent base of assets. This has much lower returns but also is much safer. Current Assets It consists of cash of cash, investments, inventory and receivables and other ma rket securities. Current assets are normally converted into cash within a year. These assets consist of: 1) Cash and bank balances 2) Investments a) Government and other trustees securities. b) Fixed deposits of banks, which are not earned, marked for any specific purpose, maturing within one year. 3) Receivables a) Sun dry debtors arising out of sales other deferred receivables. b) Bills discounted . c) Investments of deferred receivables due within one year. 4) Inventory a) Ra w materials and components include those in transit. b) Stock in process includi ng semi finished goods. Page61

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai c) Finished goods including goods in transit. d) Consumable stores and spares. 5 ) Other current assets a) Advanced payment of tax. b) Advance for the purchase of raw materials, components and stores. Inventories- They consist of tangible assets held for sale in business, for proc ess of production, or currently consumed in the production of goods or services for sal e. Raw materials are basically used in manufacture of the project, finished good s are final goods for sale and semi finished goods are goods in process of produ ction. The constituents of inventory carrying cost are interest, storage, insura nce, physical deterioration and obsolescence. Inventory procurement also involve s ordering cost consisting of number of deliveries multiplied by the cost of del ivery. These two costs make up the total cost of inventory. The economic order q uantity or lot size is to be found where the total inventory cost is minimal. Cash-Cash is the important component of current assets, which is kept to meet ru nning expenses and meet expenses and meet emergencies. It is the most liquid of curren t assets and its level is determined by the liquidity of other assets. Cash is k ept in the bank deposits or readily convertible temporary investments. Receivables-It rises out of delivery of goods or rendering of services on credit . They include book accounts, notes and bills and accrued receivables. It represents cl aims against others for future receipt of money, goods and services. They are co nsidered on earning asset because they finance sales. Their values depend upon t he volume of the credit sales and policy of collection of credit. Accounts recei vables are valued at face value after deduction of market rate of discount. Page62

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Market Securities-A portion of current earnings may be invested in government securities, bonds, debentures and shares which are readily marketable and may be converted into cash at short notice. Current Liabilities Current liabilities consist of estimated or accrued amounts, which are anticipat ed to cover expenditure within a year, for known obligation. Current liabilities include: Borrowings: a) From banks b) From other Others: a) Unsecured loans b) Public deposits maturing within one year. c) Sundry creditors for raw materials and stores. d) Interest and other charges accrued but not due for payment. e) Ad vance/progress payments from customers f) Deposits from dealers, selling agents etc. Statutory liabilities: a) Provident fund dues b) Provision for tax. c) Sales tax es, excise etc Miscellaneous current liabilities: a) Dividends b) Liabilities for expenses c) G ratuity payable within one year. Page63

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Current Liabilities They comprise of borrowing from banks, trade credits, assessed tax and unpaid di vidends. The share of each constituent to total current liabilities partly deter mines the availability of working capital. There is very little scope of maneuve ring current liabilities. Working Capital Management It involves the management the administration of current assets liabilities. It consists of optimizing the levels of current assets in a partial equilibrium con text. Investment in current assets should be made in such a manner similar to NV P approach used in making investment decision in fixed assets. Current assets co nstitute a continuously fluctuating level of liquid assets that is rapidly trans formed from one form to another. The normal rule for investment in fixed assets invest in it if its NPV is positive cannot be applied to current assets because the useful life of current asset cannot be determined. The level and nature of c urrent assets depend on product types, operating cycle, level of sales, operatin g expenses, management and pricing. Current assets provide the liquidity necessa ry to support the realization of the expected returns from long time investment. It is also true that different assets have different type of liquidity. In term s of assets liquidity means the time necessary to covert the asset into money an d the degree of certainty associated with such conversions. Working capital is a lso necessary to synchronize cash flows from long-term assets that are uncertain and irregular. Amount of Working Capital The amount of working capital it requires varies from unit to unit and between u nits in different industries current assets are required because the operations do not convert into cash instantaneously there is always an operating cycle whic h converts cash into raw materials, raw material into goods in process, good in process into finished goods and finished good into debtors through credit sales and finally debtors into cash.. Page64

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai 1.4 Objective of the study To evaluate the working capital management of the company. To optimum investment in current assets. To study and to analyze the various financial statements usi ng ratio analysis. To make a comparative analysis of sails financial performance & bsps financial performance. To offer suggestion for better cash management of BSP. To forecast working capit al for future. 1.5 scope of the study To analyze the working capital position of BSP, Bhilai on the basis of calculati on and interpretation of some important parameters of liquidity such as current ratio quick ratio, inventory turnover ratio & profitability ratio. To give an ov erview of the company in which the project was carried out. To find out the liqu idity position of the company. To find out the profitability position of the com pany. Page65

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Chapter II

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai REVIEW OF LITERATURE Working cpital is a firms capacity in raising, handling and using money. Otherwis e, it can be said as a companys ability to generate new sources, form day to day operation, over a given period. Financial analysis is a powerful tool for the st udying the working capital of a company. Ti is the process of identifying the st rengths and weakness of the company with help of accounting information provided by profit & loss account and & balance sheet. It make use of various tools like ratio analysis, trend analysis etc. In attempt has been made to study the avail able literature in the area of working capital of enterprises. The review mainly c oncentrated on the working capitalof the company up & down of enterprises & curr ent assets & liabilities etc. Review of literature shows that the majority of th e studies were conducted based on published dataof the companies & similar line of to other studies. The related studies referred are presented below: A study e ntitles working capital in Korba, Chhattisgarh : A evalution on working capital o f NTPC was conducted by Bumitra Tripathi. The study was undertaken to examine & evaluate the working capital of NTPC. The study which was descriptive was conduc ted using five years financial statement of the company. Rupesh gupta (2006) made A study on the working capital management with reference to Jindal steel industr ies raigarh. The objective of the study was to analyze & evaluate the working cap ital management, to analyze the liquidity position of the company, inventory man agement of the company, to receivables, payables & cash management & suggest way s & means to improve the present state of working capital. The author suggested the proper management of inventory. Page66

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai CHAPTER III

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai 3.1 RESEARCH METHODOLOGY Research in common parlance refers to a search for knowledge. One can also defin e research as a scientific and systematic search for pertinent information on a specific topic. Research methodology is a way to systematically solve the resear ch problem. Research methodology just does not deal research method but also con sider the logic behind the method. It facilitates the researcher with reason for evaluating the research problem. DATA COLLECTION The study is based on the secondary data obtained from published accounts and an nual reports of Bhilai Steel Plant. 1. Annual report for the period from 2005 to 2010 2. Journals 3. Plant visit 4. Personal discussion & interaction The study covers a period of 5 years from 2006 to 2010. The research design adopted for th e purpose of working capital analysis was analytical and descriptive in nature. THE TOOLS USED FOR ANALYSIS Percentage analysis Ratio analysis Page67 Trend analysis

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai 3.2 Limitations of the Study The limitation encountered in the study on working capital management: Detailed a nalysis was not possible due to time constraints. Limitation in non availability of data. The analysis is based on the annual reports of the company. The limita tion of the data given in the annual reports is also applicable for the data use d in the study. Non monetary factors like human behavior, their relationship etc are not considered. Page68

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai CHAPTER IV

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Current Assets It consists of cash of cash, investments, inventory and receivables and other ma rket securities. Current assets are normally converted into cash within a year. Current assets of B.S.P Total inventories Rs.crores) Table No.4.1 Particulars Inventories: Stores and Spares Raw materials Stock Semi/Finished goods Total (in 2005-2006 417.62 353.99 734.15 1505.76 2006-2007 444.12 342.95 769.59 1556.66 2007-2008 465.75 284.73 962.42 1712.90 2008-09 570.51 484.18 1828.45 2883.14 2009-10 592.19 588.77 1430.96 2611.92 Interpretation Inventories are a major part of current asset. The inventories has increased by 68% in the year 2008-2009 but for the accounting year 2009-2010 the inventories has decreased by 9.4%. Page no 69

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Total current assets: (In crores) Table no4.2 Particulars Total inventories Sundry debtors Cash and ba nk balances Other current assets Loans to Others Total 2005-2006 1505.76 20.53 3 3.81 16.55 218.44 1795.09 2006-2007 1556.66 18.82 36.80 16.55 325.12 1951.26 200 7-2008 1712.90 13.7 39.86 12.6 480.73 2259.79 2008-2009 2888.52 13.42 43.14 10 4 73.14 3419.25 2009-2010 2611.92 19.08 51.40 10.11 947.65 3640.16 Interpretation There is a nominal increase of 6% in the year 2009-2010 in current asset with re spect to a increase of 51% in the year 2008-2009. This slow increase is due to d ecrease of level of inventories by 9.5% in the year 2009-2010 with respect to ye ar 2008-2009.Although a nominal increase , but increase in current asset shows t he liquidity soundness of company. Current Liabilities Current liabilities consist of estimated or accrued amounts, which are anticipat ed to cover expenditure within a year, for known obligation. Page70

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Current Liabilities of B.S.P (In Rs. Crores) Table No. 4.3 Particulars Sundry creditors Security deposits Oth er liabilities Provisions Total current liabilities 2005-2006 518.08 42.13 289.9 5 29.36 879.52 2006-2007 521.81 35.07 353.20 132.58 1042.66 2007-2008 771.77 37. 28 446.71 620.29 1810.88 2008-2009 991.52 61.07 658.70 919.01 2433.17 2009-2010 1362.75 63.52 745.47 1001.09 2580.11 Interpretati on Current liabilities shows company short term debts pay to outsiders. In the acco unting year 2009-2010 the current liabilities increases by 6.8%.. Working capital management of BSP The basic goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both matu ring short-term debt and upcoming operational expenses. The management of workin g capital involves managing inventories, accounts receivable, accounts payable a nd cash. Page71

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai WORKING CAPITAL (In Rs. Crores) Table No: 4.4 Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total current assets 1795.09 1951.26 2259.79 3424.25 3640.16 Total current liabilities 879.52 1042.66 1810.88 2527.70 2580.11 Working capital (F-G=H) 915.57 908.6 448.91 896.55 1060.05 Interpretation Working capital is required to finance day to day operations of a firm. There sh ould be an optimum level of working capital. It should not be too less or not to o excess. In the company there is increase in working capita by 18% with respect to 2008-2009. The increase in working capital arises because the company has ex panded its business. Methods of Analysis of Working Capital Analysis of working capital is significant for both management and short-term cr editors. Managements can assess the efficiency of the working capital employed i n the business.

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Such an analysis helps management to detect trends and initiate corrective measu res. It helps the shareholders and creditors to determine the prospects of payme nt of dividend and interest. The analysis of Working Capital helps in determinin g the ability of the company to repay its current debt promptly, assess the effe ctiveness of management of working capital, adequacy of working capital and to u ndertake credit ratings. Analysis of working capital relates to an examination o f circulation, liquidity, level and structural aspects of working capital. In an alysis of working capital the tools used are ratio analysis and funds flow analy sis of the company. Page72 Ratio Analysis To analyze the current financial position of a company, ratios computed on the b asis of the figure appearing in the balance sheet are compared with norms set fo r the ratios. Depending upon the purpose, various ratios are used. The ratio dis cussed here relate to liquidity, circulation level and structure of working capi tal. Liquidity Ratios Net working capital is sometime used as a measure of firms liquidity. 1. Net working capital to total assets: It is the ratio between net working capital and the total assets of a company. Liquidity Ratios of B.S.P Net working capital ratio = Net working capital Net assets Year 2005-2006 2006-2 007 2007-2008 2008-2009 Total current assets 1795.09 1951.26 2259.79 3424.25 Wor king capital 915.56 908.60 448.91 896.55 Table No.4.5 Ratio 0.51001:1 0.46565:1 0.19865:1 0.26182:1

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai 2009-2010 3640.16 1060.05 0.29120:1 Page73

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Interpretation Liquidity refers to the ability of a firm to meet its current obligations as and when these become due. The short-term obligations are met by realizing amounts from current, floating or circulating assets. The current assets should either b e liquid or near about liquidity. These should be convertible in cash for paying obligations of short-term nature. The sufficiency or insufficiency of current a ssets should be assessed by comparing them with short-term liabilities. If curre nt assets can pay off the current liabilities then the liquidity position is sat isfactory. On the other hand, if the current liabilities cannot be met out of th e current assets then the liquidity position is bad. To measure the liquidity of a firm, the following ratios can be calculated: 1. 2. 3. CURRENT RATIO QUICK RATIO ABSOLUTE LIQUID RATIO 1) Current ratio: It is the ratio between a firms current assets and its current liabilities. It is the most frequently used ratio also called working capital ra tio. It is considered as an index of solvency of a company. It indicates the abi lity of a company to meet its current obligations. Changes in current ratio can be misleading. If a company raises money through commercial paper and invests th e amount in marketable securities, net working capital is unaffected but the cur rent ratio changes. Page74

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai a) Current Ratio: Current Ratio = Current Assets Current Liabilities Table no. :4.6 Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Current assets 1795.09 1951.26 2259.79 3424.25 3640.16 Current liabilities 879.52 1042.66 1810.88 2527.70 2580.11 Ratio 2.04099:1 1.87143:1 1.2478:1 1.3546:1 1.4108:1 Interpretation As we know that the ideal current ratio for any firm that ideal current ratio is 2:1. If we see the current ratio of the company for last three years it is less than the ideal ratio. This signifies that the company does not have a sound liq uidity position. .Its current assets is less than that of its current liabilities . b) Quick (or acid-test) ratio: A high ratio is an indication that the firm is liquid and has the ability to mee t its current liabilities in time and on the other hand a low quick ratio repres ents that the firms liquidity position is not good. As a rule of thumb ratio of 1 :1 is considered satisfactory. It is generally thought that if quick assets are equal to the current liabilities then the concern may be able to meet its shortterm obligations. However, a firm having high quick ratio may not have a satisfa ctory liquidity position if it has slow paying debtors. On the other hand, a fir m having a low liquidity position if it has fast moving inventories. The liquidi ty arises because finished goods cannot be sold for more than production cost. Page75

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai The interval expressed in number of days measures the ability of the company to finance its daily expenditure with the current assets in its position even if it receives no further cash. Quick Ratio: Quick Ratio = (Cash + Marketable Securities + Receivables) / Current Liabilities Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Cash +Marketable Securit ies+Receivables 289.33 394.60 546.89 536.11 1028.24 Current Liabilities 879.52 1 042.66 1810.88 2527.70 2580.11 Table no.: 4.7 Ratio 0.32:1 0.37:1 0.30:1 0.21:1 0.40:1 Interpretations A quick ratio is an indication that the firm is liquid and has the ability to me et its current liabilities in time. The ideal quick ratio is 1:1. Companys quick ratio is less than ideal ratio. This shows company may have liquidity problem. H owever, a firm having high quick ratio may not have a satisfactory liquidity pos ition if it has slow paying debtors C) ABSOLUTE LIQUID RATIO 2. Although receivables, debtors and bills receivable a re generally more liquid than inventories, yet there may be doubts regarding the ir realization into cash immediately or in time. So absolute liquid ratio should be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets . Absolute Liquid Assets includes : ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSE TS CURRENT LIABILITES ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES. Page76

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Table no:4.8 Year 2007-2008 2008-2009 2009-2010 Cash& bank 39.86 43.14 51.40 Current liabilities 1810.88 2527.70 2580.11 Ratio 0.022 0.017 0.019 Interpretation These ratio shows that company carries a small amount of cash. But there is noth ing to be worried about the lack of cash because company has reserve, borrowing power & long term investment. In India, firms have credit limits sanctioned from banks and can easily draw cash. Circulation of Working Capital An analysis of circulation aspect throws light on the efficiency with which work ing capital is being utilized in a firm. Various turnover ratios covering each c omponent of current assets have been developed to analyze the efficiency in the use of working capital. The higher the turnover of these components, the lower w ill be the need of working capital. These ratios may be divided into 5 categorie s as Inventory turnover ratios Receivables turnover ratio Current assets turnove r ratio Working capital turnover ratio Page77 Inventory turnover ratios: Inventory turnover ratios show the extent of use of w orking funds in different types of inventory. These ratios include

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Turnover of raw materials inventory: this ratio shows the number of times the ra w materials were replaced during a year. It is obtained by dividing raw materials issued to the factory by raw materials in ending inventory. A low ratio indicate s that excessive raw materials have been procured and a high ratio indicates tha t more raw materials are required. Turnover of goods-in-process: It is obtained by dividing the value of goods prod uced in a year by the value of goods in process at the end of the fiscal year. A high ratio shows less accumulation of inventory. Turnover of finished goods inventory: It is obtained by dividing net sales by fi nished goods inventory. A high turnover indicates that a higher level of sales has been attained with less investment in finished goods inventory. Turnover of aggregate inventory: It is obtained by dividing net sales in a year by the value of aggregate inventory at the end of the year. A high turnover quickens th e flow of funds from inventory. Turnover of current assets: This ratio measures the turnover of total current as sets used in business operations. The ratio is obtained by dividing cost of good s sold by total current assets. A lower turnover indicates utilization of workin g capital. . Current asset turnover ratio: C.A.T.R = sale Avg. Current asset Page78 Table no.4.9

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Year 2005-06 2006-07 2007-08 2008-09 Opening balance 1297.22 1795.09 1951.26 2259.79 Closing balance 1795.09 1951.26 2259.79 3424.25 Average current asset 1546.16 1873.18 2105.52 2842.02 Sales 9564.63 11771.09 14156.35 18496.70 Current asset turnover ratio 6.18times 6.28times 6.72 times 6.5 times 2009-2010 3424.25 3640.16 3532.205 15874.30 4.49times Interpretation Funds are invested in various assets in business to make sales and earn profits. The e fficiency with which assets are managed directly affects the volume of sales. Th e better the management of assets, large is the amount of sales and profits Curr ent assets movement ratios measure the efficiency with which a firm manages its resources. These ratios are called turnover ratios because they indicate the spe ed with which assets are converted or turned over into sales. 1) Inventory Turnover Ratio Every firm has to maintain a certain amount of inventory of finished goods so as to meet the requirements of the business. But the level of inventory should nei ther be too high nor too low. Because it is harmful to hold more inventory as so me amount of capital is blocked in it and some cost is involved in it. It will t herefore be advisable to dispose the inventory as soon as possible. Page79

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Inventory turnover ratio measures the speed with which the stock is converted in to sales. Usually a high inventory ratio indicates an efficient management of in ventory because more frequently the stocks are sold; the lesser amount of money is required to finance the inventory. Where as low inventory turnover ratio indi cates the inefficient management of inventory. A low inventory turnover implies over investment in inventories, dull business, poor quality of goods, stock accu mulations and slow moving goods and low profits as compared to total investment. Inventory turnover ratio = cost of good sold / average inventory Inventory conversion period I.C.P = 360 Inventory turnover Table no.:4.10 Year 2005-06 2006-07 2007-08 2008-09 2009-2010 Opening balance 1041.68 1505.76 1556.66 1712.90 2883.79 Closing balance 1505.76 1556.66 1712.90 2883.79 2611.92 Average inventory 1273.72 1531.21 1634.78 2298.345 2747.855 Inventory turnover ratio 5.33 times 4.9 times 5.31times 6.298 times 5.8 times Inventory holding period 68 days 73 days 62 days 58 days 62 days Page80

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Interpretations: A) Inventory turnover ratio: This ratio shows how rapidly the inventory is turning into receivable through sa les. In 2008-09 the company has high inventory turnover ratio but in 2009-2010 i t has reduced to 5.8 times. This shows that the companys inventory management tec hnique is less efficient as compare to last year. B)Inventory conversion period Inventory conversion period shows that how many days inventories take to convert from raw material to finished goods. In the company inventory conversion period is fluctuating. This shows the inefficiency of management to convert the invento ry into cash. 2) Debtors Turnover Ratio A concern may sell its goods on cash as well as on credit to increase its sales and a liberal credit policy may result in tying up substantial funds of a firm i n the form of trade debtors. Trade debtors are expected to be converted into cas h within a short period and are included in current assets. So liquidity positio n of a concern also depends upon the quality of trade debtors. Two types of rati o can be calculated to evaluate the quality of debtors. a) Debtors Turnover Rati o b) Debtors Collection Period DEBTORS TURNOVER RATIO = TOTAL SALES / AVERAGE DEBTORS Debtors velocity indicates the number of times the debtors are turned over during a year. Generally higher the value of debtors turnover ratio the more efficient is the management of debt ors/sales or more liquid are the debtors. Whereas a low debtors turnover ratio i ndicates poor management of debtors/sales and less liquid debtors. This ratio sh ould be compared with ratios of other firms doing the same business and a trend may be found to make a better interpretation of the ratio. Page81

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Debtors collection period = 360 Debtor Turnover 3) Creditors payment period: Creditor payment period = Avg.trade credit Credit purchase per day NOTE - In B.S .P we do not have debtors and creditor turnover as the finished goods produced in all the plants of SAIL are directly transferred to CENTRAL MARKETING ORGANIZATION (CMO) headquarters were further marketing of these finished goods occurs , so B.S.P has nothing to do with creditors and debtors. Page82

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Table showing forecasting working capital for the next five financial years usin g least square trend method Y=na+bx a x+ bx2 Year ending 31st march 2006 2007 2008 2009 2010 Net working capital (y) 915.57 9 08.60 448.91 896.55 1060.05 y= 4229.68 Deviation from middle year(x) -2 -1 0 1 2 X2 4 1 0 1 4 2= x 10 xy = XY 1813.14 908.60 0 896.55 2120.1 xy= 5738.39 (In crores) table no:4.11 We have n= 5 4229.68= 5a + bx 0 a = 845.94 5738.39 = 0 + b x 10 b = 573.84 Page83 Table showing forecasting working capital using least square method

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Table no.4.12 Year end 2011 2012 2013 2014 X 3 4 5 6 Y=a+bx 845.94 + 573.84*3 = 4259.34 845.94 + 573.84*4= 5679.12 845.94 + 573.84*5= 7098.9 845.94 + 573.84*6= 8518.68 2015 7 845.94 + 573.84*7= 9938.46 Page84

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai A Comparative Study of SAIL, Contribution of B.S.P in SAIL Profit Financial acco unts a) UNDERSTANDING PROFIT & LOSS ACCOUNT PROFIT AFTER TAX (PAT) = Profit before tax Tax. Table no.4.13 Particulars PBT LESS : TAX PAT SAIL (Rs. /Crs.) 10132.03 3377.66 6 754.37 4270.48 BSP (Rs. /Crs.) 4270.48 Interpretation The company SAIL has achieved a profit of Rs6754.37crs (profit after tax) in SAI L profit the Bhilai Steel Plant comprises for 63% of profit, contributing the mo st. CASH PROFIT = Profit before tax (PBT) + Depreciation Depreciation Is added because it s not actual cash outflow, it is an appropriati on of fund Future replacement of old assets with new assets DEPRECIATION IS CHARGED AT THE RATE PRESCRIBED UNDER SCHEDULE XIV OF THE COMPANY ACT, 1956. Table no. 4.14 Particulars Profit Before tax (PBT) Add :Depreciation Cash Profit SAIL (Rs. /Crs.) 10132.03 1337.24 11469.27 BSP (Rs. /Crs.) 4270.48 269.11 4539.59

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Page85

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Interpretation Adding depreciation to the profit after tax the cash profit of SAIL is found to be Rs. 11469.27crs. The bhilai steel plant alone contributes a cash profit of Rs .4539.59crs. i,e approximately 40%.of the total cash profit. Operating profit OPERATING PROFIT = PROFIT BEFORE TAX + INTEREST & FINANCE CHARGES. Table no :4.15 Particulars Profit Before tax (PBT) Add Int.& Fin. Charges Operat ing Profit SAIL (Rs. /Crs.) 10132.03 402.01 10534.04 BSP (Rs. /Crs.) 4270.48 133 .01 4403.49 Gross margin GROSS MARGIN = PROFIT BEFORE TAX + INTERST + DEPRECIATION. Particulars Profit Before tax (PBT) Add Int.& Fin. Charges Depreciation Gross Ma rgin SAIL (Rs. /Crs.) 10132.03 402.01 1337.24 11871.28 BSP (Rs. /Crs.) 4270.48 133.01 269.11 4672.60

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Table no.4.16 Page86

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Profitability ratios Gross profit / Margin ratio = Gross margin / turnover *100 Net Profit Ratio = Op erating profit / Turnover * 100 Operating Ratio = Operating profit / turnover * 100 Profitability ratios Table no.4.17 Particulars Turn Over (Sales) Gross Margin Operating Profit Profit Before tax (P BT) Gross Margin Ratio Operating Ratio Net Profit Ratio SAIL (Rs./Crs.) 43934.70 11871.28 10534.04 10132.03 27.02% 23.98% 23.06% B.S.P (Rs./Crs.) 15874.30 4672. 60 4403.49 4270.48 29.43% 27.74% 26.90% Interpretations The net profit as seen in the calculations above is seen to be 23.06% of SAIL of which B.S.P contributes of about 26.90%. Turnover of BSP

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Page87 Profit of B.S.P Interpretations As seen in the graph the net profit has increased by 25% in the year 2007-08(bas e year 200607), but later the profit has started to decline. In the year 2008-09 the profit declined by 7.4%. Further in the year 2009-2010 the profit declined by 14%. This decline in profit is due to decrease in turnover by 14%. Resulting in decrease of sales. A good co-ordination between raw material conversion perio d and finished goods conversion period has to be maintained by the organization. 4. Debtors conversion period = Debtors 360 Credit sales 6000 5000 4000 3000 2000 4042 2781

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai 5. Creditors deferral period = Creditors 360 Debit sales Note: - BSP doesnt go for the calculation of DCP & CDP as both the things are dea lt in corporate office, hence due to this reason working capital management is not don e at BSP. Page88 CHAPTERV

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Finding, suggestion & conclusion

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai 5.1 SUGGESTIONS & FINDINGS I came across following suggestions and findings during undergoing the project w ork on topic A STUDY ON WORKING CAPITAL MANAGEMENT OF THE BHILAI STEEL PLANT, BHI LAI, CHHATTISGARH 1. In BSP the coordination among the various sections of the F inance & Accounts department is very nice, as the Finance & Accounts department is a big department consisting of near about 32 sections. It is the work force o f the Finance & Accounts department, which makes it possible. 2. 3. 4. 5. In the BSPs there not to create debtors they generally deal with first to receive the cash or cheque, and then they supply the finished material. In the BSPs there wo rking capital management is very good, they use the MMIS & SAP system to manage the over all activity. During the study I find that their is no huge variation i n budget decided and the actual one. Bills of store handling contracts and freig hts payments are not processed through MMIS. As a result records of these paymen ts are not available in the system, which makes task tedious and hence ERP is to be implemented to resolve the problem. 6. 7. 8. 9. 10. 11. Government is not ha ving the commercial approach regarding the implementation of taxes. The taxation policy is to be made flexible because of which bulkiness of the work is to be r emoved. The tendering process time is to be minimized so that the current market price benefits if any can be availed. Monthly return filling is not on line pro cess, hence sales and excise department face problem. Online inventory valuation can be implemented The departmental policies is to made flexible which leads to decrease in the work flow process as well as it leads in better profits. Page89

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai 5.2 Conclusion Bhilai Steel Plant a major unit of sail has been generating continuous profits a s compared to previous year with current year. To summaries, working capital at a plant level, this mainly involves forecasting and monitoring of various compon ents, which is done systematically. Whereby major portions of receivables are ma naged by central marketing organization for all plants level. Other important co mponents of working capital are bill payables and borrowings of funds monitored by corporate level. Finance Department of Bhilai Steel Plant and various individ ual units decides the amount of funds requirement during the preparation of oper ation budget, and then requirement of fund is intimated to corporate office. Cas h inflows and outflows are estimated in budget. The marketing of all SAILs prime products are done by the central marketing organization and the receipts of sale are directly sent into the inner unit current account which is centrally contro lled by the corporate office allocates the funds as per intimation to individual units. Cash is monitored every day and intimated to the top management as well as fortnightly to the company. Inventory is monitored differently for raw materi als, work in progress, finished goods and stores. Monthly inventory report is se nt to chairman through the finance department to corporate office, but the major portion of debtor are dealt by central marketing organization. Bhilai Steel Pla nt (BSP) is an enormous unit and hence the evaluation of its working capital man agement cannot be done thoroughly but in our brief stay we have at our best trie d to present a general idea of the working capital management at BSP. The two ma in ratios we used for our analysis were the quick ratio or the acid test ratio a nd the current ratio, both of which have been explained earlier. The current rat io is the indication of the amount of money that a company has in comparison to what it owes and it is generally considered adequate to have a current ratio of more than 2:1. Post observing the ratios for the last five years it can be obser ved that the ratio in nearly all cases is more than one which indicates that BSP always has money at hand. Page90

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai It is also noticeable that the ratio for most of the years is very close to two and it ascertains that BSP is in very good health and also that the working capi tal management of this behemoth is exceptionally good. The quick ratio is a meas urement of the liquid assets that the unit in question has at hand. Basically if one takes out inventories from the calculation of current ratios we get the qui ck ratio. It is usually expected that the quick ratio be more than 1:1 but in ca se of BSP it has remained at an even level of nearly 0.3. This is because the ex pected quick ratio is for industries where inventories are not as important as t hey are in the steel industries. It is said that if even one blast furnace has t o be cooled the BSP suffers losses of up to 10 crores. So an adequate stock of i nventory is maintained this affects the level of the liquid assets and cash at h and. Besides the company that is as big as BSP the liquid assets still amount to nearly 300 crores which is adequate for all transactions that may need to be ca rried out. Bhilai Steel Plant (BSP) is one of the few public sector units that m ake a profit on the scale of nearly 4,000 crores. The reasons behind these are e xcellent management of the finances. This statement can easily be supported by t he statistics of the years 2003-04 in which one can see that BSP made a profit o f nearly 4000 crores with a working capital of -93.14 crores. Page91

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai BIBLIOGRAPHY The above report has been prepared from the following sources of data and inform ation: 1. Web Sites: 1.1. www.google.co.in (regarding Global Steel Industries), 1.2. www.indiansteela lliance.org, 1.3. www.sail.co.in. 2. Books: 2.1. Financial Management, I M Pandey, 2.2. Project Management and Control (2000 ), Narendra Singh. 3. Other Reference: 3.1. Functional & Finance accounts manual , 3.2. Previous project reports done a t the Finance & Accounts department , 3.3. Previous finance year book, 3.4. SAIL journal, 3.5. BSP news magazine, 3.6. BSP Performance Highlights 20082009 magazine, Page92

ASTUDY ON WORKING CAPITAL OF BSP, Bhilai Annexure LIST OF ABBREVIATIONS : ACVO : AP : BG : CA : CE : CEC : CVC : CVO : CMMG : CPA : DGS&D : DOP : DRO : EM D : FIFO : GARN : GCC : HOMM : HOD : IPSS : ISO : LCNS : LTE : MD : MM : NIT : O EM : OTE : HOP : LD : OA : PAN : P2K : PCP-06 : PS : PGB : PO : sPSU : RA : SSI : STE : TC : TC/GC : s Additional Chief Vigilance Officer Automatic Procurement Bank Guarantee Competent Authority Chief Executives Commercial Evaluation Commit tee Central Vigilance Commission Chief Vigilance Officer Corporate Materials Man agement Group Centralized Procurement Agency Director General of Supplies & Disp osal Delegation of Power Direct Reporting Officer Earnest Money Deposit First In First Out Goods Acceptance/Rejection Note General Conditions of Contract Heads of Material Management Head of the Department Inter Plant Steel Standards Intern ational Organization for Standards Landed Cost Net of Set Off Limited Tender Enq uiry Managing Director Materials Management Notice Inviting Tender Original Equi pment Manufacturer Open Tender Enquiry Head of Personnel Liquidated Damage Opera ting Authority Permanent Account Number Purchase/Contract Procedure 2000 Purchas e/Contract Procedure 2006 Post Script Performance Guarantee Bond Purchase Order Public Sector Units Reverse Auction Small Scale Industries Single Tender Enquiry Tender Committee Test Certificate/Guarantee Certificate page93