A PROJECT REPORT ON WORKING CAPITAL MANAGEMENT AT JINDALSTAINLESSLIMITED,HISAR

(Submitted in partial fulfilment for the completion of degree of BACHELOR OF COMMERCE) Under Guidance of: Dr.AjayVerma Assistant Professor SubmittedBy: MamtaDhanda Enrollmentno.110557

FACULTY OF ARTS, SCIENCE &COMMERCE

Mody Institute of Technology & Science Laxmangarh (Rajasthan) 2013-14

PREFACE

This department is intended for the experience gained by us during Summer Training in Jindal Stainless limited, Hissar. While making this project we became familiar with the financial terms that are usually used in a company and the different functions that a Finance Manager has to perform. We have learnt how to analyse ratio. We have also gained confidence to interact with different persons working at reputed positions during the summer training, in preparing the project report. We have tried our level best effort to make it reliable, compact and accurate organization.

Acknowledgement
I take this opportunity to express my profound gratitude &deep regards to my guide Professor Mr.Ajay Verma for his exemplary guidance, monitoring & constant encouragement throughout the course of this project. The blessing, help & guidance given by him time to time shall carry me a long way in the journey of life on which I am about to embark. I also take this opportunity to express a deep sense of gratitude to Mr. Jasu Jain, Manager (Jindal Stainless Ltd), for their cordial support, valuable information & guidance, which helped me in completing this task through various stages. I am obliged to staff members of company, for the valuable information provided by them in their respective fields. I am grateful for their cooperation during the period of my project. Lastly, I thank almighty, my parents, brother, sister & friends for their constant encouragement without which this project would not be possible.

MAMTA DHANDA

DECLARATION

I, Mamta Dhanda , Enrollment No. 110557 a student of Class Bachelor of Commerce (Honours) hereby declare that the Project entitled Working Capital Management at Jindal Steel & Power Ltd. is my original work and the same has not been submitted to any other institution for the award of any other purpose.

Mamta Dhanda

CONTENTS

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Introduction About the topic Work done at JSPL Research Methodology Finding & Analysis Conclusion Limitations of the study Recommendations References Annexure

CHAPTER-1 INTRODUCTION
A. ABOUT THE INDUSTRY :
The global steel industry has seen continued strong demand growth during the year. However, depressed prices have put pressure on margins. During H1FY2007 (April-September 2006), Indias finished steel production increased 7.2% (year on year) to 22.31 million tonnes (mt). By comparison, finished steel production increased 6.5% during FY2006. However, apparent steel consumption increased at a higher rate of 7.9% (yoy) to 19.51 mt, driven by higher demand for long products like bars and rods. High demand growth reflects increased demand from construction, automotive, consumer durables, and general engineering. The domestic prices of steel products have moved in tandem with world prices. After a period of decline during July 2005-March 2006, domestic steel prices have increased significantly during FY2007. At the beginning of July 2006, some of the steel companies announced price hike in the range of Rs. 750-1,000 per tonne. World crude steel production is expected to increase 9% during 2006 to around 1.23 billion tonnes, and is forecast to be the fifth consecutive year that world steel production has exceeded 5%. Steel production has been driven by demand in many developing/emerging countries. Inventory rebuilding has also occurred in several developed countries after the production cuts in 2005. China has dominated steel production growth over the last decade, and Chinas crude steel production is expected to increase 17% during 2006 to around 408 mt. The consumption of finished steel products world-wide increased to over 1 billion tones, an increase of 40 million tonnes. Steel production and consumption in China continued to outstrip global growth rates and now

accounts for 31% of the worlds production and consumption of steel. Security of raw material supply has become a new priority with various global steel manufacturers seeking captive capacities or long-term commitments for iron ore. The Indian economy continued to see robust growth across most sectors and the 8% growth rate appears to be sustainable. The Indian corporate sector has shown its confidence in the countrys economic fundamentals by committing significant amounts of capital towards the creation of new capacity in several sectors. The Indian steel industry has also increased production to cater to the higher consumption levels. Jindal Steels performance in the past year has understandably reflected the trends prevailing in the country. The Company has been able to post its highest-ever output and sales and has continued to focus on enriching its product mix to meet the demands of sophisticated user industries. Domestic steel prices however have weakened, mirroring trends in international markets. Steel consumption is expected to grow at 9-10% per annum during the medium term, driven by higher construction and infrastructure activity. Despite recent strong growth in steel consumption at 38 kgms per person in 2005, consumption in India is still very low by world standards. Steel consumption in China was 270 kgs per person in 2005. The growth is expected to drive by anticipated growth in construction, automobile, oil and gas transportation, and infrastructure sectors of the economy. The rural consumption of steel in India remains at around 2 kg per capita per annum, primarily because steel is perceived to be expensive. The Government has set a target for raising the per capita rural consumption of steel to 4 kg per annum by 2019-20, implying a CAGR of 4.4%.

On the supply side, finished steel production is expected to increase from around 42.6 mt in FY2006 to 63 mt in FY2011. Because of increased demand, Indian producers have announced substantial new capacity in steel. Producers in India have announced plans to add around 60 mt of total capacity by 2008. The NSP envisions overall steel production to grow at 7.3% per annum to 110 mt by 2020. While steel imports will grow at the rate of 7.1% per annum to 6 mt in 2020, exports will grow at the rate of 13.3% per annum to 26 mt. India already exports substantial amounts of steel estimated at around 4.38 mt of finished steel and 0.23 mt of semis. Considering the expected demand growth of 9-10% per annum, the vast majority of Indias new production capacity will be for export. Even if much of this is capacity for producing downstream products, the result will be increased exports of higher value-added products. The steel industry is a highly volatile industry and the movement in steel prices governs the profitability. While low steel prices resulted in extremely poor performance by the steel industry (both domestically and globally), the improvement in steel prices since 2002-03 have resulted in sharp improvement in performance since then, This positive trend is expected to continue in the near-term, because of stable to increasing price outlook in the near-term. However, there seems to be a concern on the sustainability of this trend due to the expected additions of steel capacity worldwide, and possible slowdown in demand because of rising prices. In recent years, steel was regarded as a sunset industry and value destroyer world-wide. Today, the industry is characterized by strong demand growth and consolidation. The per capita consumption of steel in India continues to be extremely low at around 32 kilograms. The large infrastructure projects under implementation in the country are expected to significantly increase the demand for steel in the coming years. If India were to have the same per capita

consumption as China has today, then India could consume more than 260 million tonnes of steel annually.

B. .COMPANY PROFILE
Mr. O.P. Jindal promoted JSPL as Orbit Steel Private Limited (OSPL) in 1979. OSPL became a public limited company in 1998 and its name was changed to the current JSPL (Jindal Steel & Power Limited) Jindal Steel & Power Limited (JSPL), an O.P. Jindal Group Company, was formed by hiving off the Raigarh and Raipur facilities of Jindal Stainless Limited into a separate Company as part of a scheme of arrangement, w.e.f. April 2, 1998. The Company has plant at Raigarh (Chhattisgarh) for manufacture of sponge iron with an installed capacity of 13, 70,000 tons per annum, & it is the only sponge iron producer in the country with its own raw material source and power generation making it one of the most cost effective producers of sponge iron in the country. Power Generation plants with a capacity of 290 MW, Steel Melting plant with a capacity of 24, 00,000 TPA with Blast Furnace of 250,000 TPA capacity.

C. International Collaboration:
JSPL produces rails, H-beams, columns and sheet piles with JFE's technical services assistance. JSPL has entered into technical services assistance agreement with JFE (earlier known as NKK Corporation), Japan for technology transfer to produce superior quality, worlds longest rails of 120m finished length, along with Parallel Flange Beams, Columns and Sheet Piles for the first time in the country. This technical collaboration shall enable production of

long rails requiring far less joints in tracks, ushering a new era in safer railtravel and making introduction of fast trains in India a reality.

D. Awards & Recognition (i)

National Award for Excellence in Cost Management 2005, third prize in the private sector-manufacturing segment, by the Institute of Cost &Work Accountant of India (ICWAI)

(ii)

National Energy Conservation Awards for 2001, 2002, 2003, 2004, and 2005 by the Ministry of Power, Government of India.

(iii) National Safety Awards 2003-2004, by the Minter of Labour. (iv) IIM Quality Award for 2002-03 by the Indian Institute of Metals First
Prize in the IIM Awards 2001 for Quality by the Indian Institute of Metals.

E. Future plans:
Expanding to newer horizons JSPL firmly believes that change is the only constant in life and it shall have to continuously upgrade its existing technologies, embrace new technologies, motivate its personnel and uplift the living standards of those around us. Adhering to these values, major expansion plans are being execute:

1. Raigarh

(i) (ii)

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

(iii) 7.0 Lac TPA Rebar, TMT and Wire Rod Mill. (iv) 25.0 Lac MTPA capacities Sinter Plant. (v)
4.0 Lac MTPA Coke Oven Plant.

(vi) 12.5 Lac MTPA Blast furnaces. (vii) 6 million tonne capacity steel plant in Orissa with an investment
of Rs. 13,500 crores

(viii)5

million tonne capacity steel plant in Jharkhand with an

investment of Rs. 11,500 crores . An MOU has been signed between JSPL and the Government of Chhattisgarh for setting up an additional 7.0 MTPA steel plant in phases and a 1600 MW power plant with an investment of over US $ 5.20 billion (Rs. 260 billion).

2. Jharkhand
An 11 million ton integrated steel plant and 2600 MW captive power plant in phases, with a total investment of US $ 6.00 billion, (Rs. 300 billion).

3. Orissa
A 12.5 million ton integrated steel plant and 2600 MW captive power plant in phases, with a total investment of US $ 8.00 billion (Rs. 400 billion). The first phase of 3 million ton is expected to be commissioned by 2011.

4. Coal to Liquid Petroleum Project

Jindal Steel & Power has been allotted the Ramchandi Promotional Coal Block in Orissa for the proposed Coal to Liquid (CTL) project by the Union Coal Ministry, Government of India. The project cost estimated to be around US $ 8.4 billion (Rs. 420 billion) includes CTL plant, coal mining and power plant. The project to be located in Tehsil Kishore Nagar, Dist. Angul, Orissa will produce 80,000 barrels per day (4.0 MMTPA) crude using environment friendly

Indirect Coal Liquification Technology developed by M/S Lurgi of Germany for the first time in India. The prestigious CTL project is yet another feather in JSPLs cap.

5. Jindal Petroleum Limited

As part of its diversification process, JSPL has recently forayed into the oil and gas sector, operating under the banner of Jindal Petroleum Limited. The company has acquired 7 Oil & Gas blocks in different parts of the world, including 5 in Georgia, 1 in Bolivia and 1 in India. Mr. Naveen Jindal recently led a delegation to Georgia to sign contracts with the Government of Georgia for the exploration and production of the blocks, signifying the importance the company is giving to its petroleum business. The company has so far committed an investment of US $ 200 million (Rs. 10 billion) and is working on several other projects in the sector. 6. Bolivia JSPL plans to invest US $ 2.1 billion (Rs. 105 billion) in Bolivia, South America, in the coming years for mining and setting up of an integrated 1.7 MT steel plant, 450 MW power plant, 6 MT sponge iron and 10 MT iron ore pellet plant.

F. Objective
To develop a pool of technically trained power plant professionals for power utilities ofIndia & Abroad. The course authorizes the pass outs to operate OR undertake Maintenanceof any part or whole of a generating stations of capacity 100 MW & above together with the associated substation.

G. RANGE OF PRODUCTS & SERVICE

Jindal organization has expanded and diversified into core business areas. Ensuring synergy amongst its various business ventures spread over 13 plants at 11 pivotal locations in India. The Jindal team embodies one of the most coveted talent pools of technological acumen available in the country today with expertise that have enabled the organization to put up large-scale projects in record time.

(i) (ii)

Jindal Steel and Power Limited Jindal Strips Limited

(iii) Jindal Saw Limited (iv) Jindal Iron & steel co. (v)
Jindal Power Limited

(vi) Nalwa Sponge Iron Limited (vii) Jindal Stainless Limited (viii)Vijayanagar Minerals Private Limited (ix) JSW Steel Limited H. SWOT ANALYSIS
1.Strength:
(a) One of the largest and lowest cost producers of coal based sponge iron in the country. (b) Total backward integration ensuring steady stream of profits

(i) (ii)

Captive mining of iron ore and coal with coal washery facility Captive power generation

(c) Identifying projects and business opportunities. (d) Expertise in project implementation at low capital cost and within the schedule time.

(e) Lowest cost producer of sponge iron (coal based in the country). (f) JSPL is expanding its operations with the new plants proposed in Orissa and West Bengal. (g) Huge reserve of iron ore and coal in mines. (h) The worlds longest rail developed in the factory brightens companys future outlook.

2. Weakness:
(a) Domestic consumption of steel dependent on infrastructure spending by GOI.

3. Opportunity:
(a) Madhya Pradesh and Chhattisgarh are power deficit states, which would help company in continuous selling of surplus power to MPEB & CSEB on long-term basis. (b) Forward integration into value-added Products, Rails & Universal beams will drive future growth. (c) Association with NKK to create huge export potential for Rails. (d) State of Chhattisgarh encourages the setting up of new power projects. (e) The Governments policy to privatize the power trading leaves new opportunities opened for the company.

(f) Reduced availability of steel scrap (substitute for the sponge iron) will increase demand for the sponge iron. (g) The increasing price of steel in the market will maximize the profitability of the company further.

4. Threats:

(a) Sponge iron prices movements are dependent on international scrap prices, which fluctuate widely. (b) The main competitors like SAIL, TISCO, MITTAL STEEL, etc. of JSPL. (c) The proposed steel plants of Mittal Steels in the state of Jharkhand and of Tata Steel in the district of Bastar in Chhattisgarh, raises further threats for JSPL.

I.MARKET PRESENCE
In the world of business, the Jindal Organization is a celebrity. Ranked sixth amongst the top Indian Business Houses in terms of assets, the group today is a US $ 4 billion conglomerate. Jindal Organization aims to be a global player. For that, it is committed to maintain international quality standards, efficient delivery schedule, competitive price and excellent after sales service. Jindal Organization set up in 1970 by the steel visionary late. Mr. O.P. Jindal has grown from an indigenous single unit steel plant in Hisar, Haryana to present multi-billion, multi-location and multi-product steel conglomerate and the organization is still expanding, integrating, amalgamating and growing. New directions, new objectives, but the Jindal motto remains the same We are the Future of Steel. The group has been technology driven and has a broad product portfolio. Yet, the focus at Jindal has always been steel. From mining of iron-ore to the manufacturing of value added steel products, Jindal has a pre-eminent position in the flat steel segment in India and is on its way to be a major

global player, with its overseas manufacturing facilities and strategic manufacturing and marketing alliances with other world leaders.

J. TECHNOLOGYICAL EDGE
The hallmark of the organizations achievement and growth has been its ability to develop and adopt the latest technology, the match the demands of a dynamic and burgeoning Indian Industry. Seeing doors where others see walls At Jindal, research is a self-imposed discipline; a challenge it has pursued with a pioneers zeal. Exploring new ideas, attempting break through products and processes. For instance, tracking and adopting the latest in world technology, anticipating customer needs with const-efficient, reliable solutions and promoting engineering skill and manpower calibre. Jindals R&D investment, together with its R&D capability has given it a head start over others.

K. HISTORY
1. 1972

(i)

The Comp. was originally incorporated as Piramal Steel Ltd. [PSLs] on 2nd June. The main objectives of Comp. are to manufacture Casting of steel scrap into ingots, slabs, blooms, billets, etc.

(ii)

1,20,000 No. of equity shares subscribed for by promoters, directors, etc. 7,000 Pref. & 1,68,000 No. of equity shares offered at par to the public in April 1973.

2. 1983

(i)

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

(ii)

5, 60,000 Rights Equity shares issued at par in propn. 2:1.

3. 1984

(i)

Meanwhile, the continuous casting machine had arrived & was undergoing modifications. The Comp. had also ordered a large induction furnace to double the steel making capacity to 36,000 tonnes per year.

(ii)

The Comp. also reviewed & deferred the rolling mill project conceived by previous management & the rolling mill equipment already procured was disposed of. The Government of India had turned down the company proposal to instal induction furnace. Hence the Comp. was forced to go in for arc furnace route as desired by Government & the project reports were under preparation.

4. 1985

(i)

8, 40,000 Rights equity shares issued at par in prop. 1:1.

5. 1988

(i) (ii)

Overall recession in stainless steel market coupled with high cost of inputs restricted the production of stainless steel to bare minimum level. 7,000 Pref. shares redeemed on 26.6.1988. 6,950 - 9.5% Pref. shares allotted on 28.9.1988. These Pref. shares redeemable no later than 10 years from 28.9.1988.

6. 1989

(i)

The Comp. undertook to enhance the steel melting capacity to 1,50,000 TPA through installation of 35 tones Ultra High Power Electric Arc furnace & modernization of slab casting machine & other equipments.

7. 1991

(i) (ii)

The plants operated at full capacity & registered considerable improvement in operational efficiency. 2,000 - 11% Pref. & 13, 02,118 No. of equity shares allotted without payment in cash to members of NAL on its merger. Another 1, 15,125 No. of equity shares also allotted without payment in cash.

8. 1992

(i)

The Comp. offered 38, 73,109-12.5% partly convertible debentures of Rs. 110 each on rights basis to the shareholders in the proportion of 5 debentures: 4 equity shares held. Additional 80,966 debentures were allotted to retain oversubscription.

(ii)

Another 1, 93,655-12.5% partly convertible debentures were offered to the employees of Comp. on an equitable basis. Additional 8,045 debentures were allotted to retain oversubscription.

(iii) Part A of Rs. 50 of each debenture will be converted into one equity share
of Rs. 10 each at a premium of Rs. 40 per share on the expiry of 6 months from the date of allotment. Accordingly, a total 46, 55,775 No. of equity shares were allotted.

(iv) The

Comp. revalued its plant & machinery as on 31st March, & the

surplus of Rs. 78, 01,651 arising out of this was credited to revaluation reserve.

9. 1993

(i)

The Comp. embarked on setting up of an integrated steel plant having a capacity of 1.25 million tpa of steel at Bellary, Hospet, Vijayanagar, in Karnataka. As per the promoters agreement with KSIIDC, the Comp. is to undertake its said project in a newly promoted Comp. 'Jindal Vijayanagar Steel Ltd.

(ii)

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

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

(iv) 172,42,080 (v) (vi) (vii) (ix) (x)

- Zero interest fully convertible debentures of Rs. 100 each

were issued through the prospectus as follows on firm allotment basis: 5,00,000 debentures to UTI, 10,00,000 debentures to Financial Institution, 27,00,000 debentures to NRIs on repatriation basis,

(viii) 15,00,000 debentures to shareholders of Group Companies,

5, 00,000 debentures to Indian Mutual Funds. Balance 105, 42,080 debentures were issued to public. Each debenture was to be converted into 1 equity share of Rs. 10 each at a premium of Rs. 90 per share after 12 months from date of allotment.

10. 1994

(i)

During the year, the Comp. proposed to further expand its capacities to remove bottlenecks to become fully integrated steelmaker, hot & cold roller & galvaniser.

(ii)

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

(iii) During

November, the Comp. issued 98, 70,000 - 10.5% secured

redeemable non-convertible debentures of Rs. 500 each with detachable warrants on Rights basis in proportion 23 debentures: 100 equity shares held. [all were taken ups].

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

(v)

Part B of Rs. 60 of each debenture was to be redeemed at par in three equal annual installments on the expiry of 6th, 7th & 8th year respectively from the date of allotment.

(vi) 299,87,080 No. of equity shares of Rs. 10 each allotted as a consequent

to the conversion of zero interest Secured Fully convertible debentures on 12th July.

11. 1995

(i)

The overall margins on total sales declined due to increased cost of imported raw materials coupled with the price collapse in the International market.

(ii)

The Comp. proposed to sell the Aluminum unit, since the unit has no synergy with the mild steel business operations & constitutes a small portion of overall business of company.

(iii) During the year, the Comp. proposed to acquire the cold rolling unit of
150,000 TPA capacity of Jindal Strips Ltd.

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

(i)

The Comp. undertook balance capacity enhancement of 1.5 lakh tonnes per annum. The Comp. also undertook modernization projects essentially involving technological up gradation of manufacturing facilities with the objective of achieving cost effectiveness & product quality improvement at par with the international standards.

(ii)

The Comp. incorporated a joint venture Comp. viz. `BJS Steel Products Pvt. Ltd.' with British Steel Plc. U.K.

(iii) Subject

to necessary approvals being obtained from the High Court of

Mumbai, it was proposed to merge Navin Alloys limited [NALs] with the company.

(iv) The amalgamation was expected to result in a forward integration making

the amalgamated Comp. an integrated steel plant with in-house facilities for melting, slap casting & hot rolling.

(v)

In keeping with the strategy to grow exponentially, the Comp. proposed to forward integrate the operations through amalgamation of two of its group companies namely Nalwa International, limited & Nasrapur Metals, Ltd.

13. 1997

(i)

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

The joint venture will have a capacity to manufacture 1 lakh tonne of color coated steel products and also set up steel service center in India.

(ii)

Jisco is the first major Comp. to earmark funds for buy-back of shares although several managements have acquired powers for buy-back as soon as the law to do so is in place.

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

(iv) Jisco has taken up a forward integration project to manufacture organic

coated steel products in financial collaboration with British Steel Plc.

14. 1998

(i) (ii)

The Comp. is setting up a three lakh tonne per annum galvanized steel unit. The A+ rating assigned to the nonconvertible debenture [NCDs] issues of Jindal Iron & Steel Ltd [Jiscos] aggregating Rs.503.7 crore has been put on rating watch with developing implications by Credit Rating Information Services of India Ltd [Crisils].

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

cater to the customers.

15. 1999

(i) (ii)

The Jindal group has set up overseas projects in Texas, US, through acquisition of Saw pipes & plates manufacturing facilities of US Steel. Jisco holds 9,09,69,100 equity shares of face value Rs 10 each, amounting to Rs 97 crore & 3,57,50,000 equity shares of JVSL acquired from Jindal Strips Ltd [JSLs] amounting to Rs 35.75 crore.

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

(iv) The Comp. has entered into an agreement with

[SAILs] for procurement of slab.

Steel Authority of India

(v)

British Steel of UK has put on hold its investment in a proposed joint venture Comp. -- JBS Steel Products Pvt Ltd -- in association with Jindal Iron and Steel Co [Jiscos].

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

16. 2000

(i) (ii)

Jindal has introduced a range of security doors with features such as fully secure lock-up [16 rods] that prevents forced opening by drilling/prying. ICRA has downgraded Jindal Iron & Steel Comp. limited to `LAA-' from `LAA+'.

(iii) The Sajjan Jindal group flagship Jindal Iron and Steel Co will increase its
holding in Jindal Vijaynagar Steel from 8 per cent to 16.8 per cent through conversion of debt into equity.

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

(v)

The Comp. launched a B2B portal for steel, christened steelmart.com.

(vi) Jindal Iron and Steel Comp. have acquired the 50 per cent equity stake
held by British Steel Benelux in JBS Steel Products Ltd, a joint venture Comp. of British Steel Plc, UK & JISCO.

17. 2002

(i) (ii)

Jindal Iron &Steel appoints Mr. Sajjan Jindal as the Chairman & the Managing Director of the company. Jindal NCD programme is being downgraded to LBB [structured Obligations] from LA-[OSs] by ICRA.

18. 2003

(i) (ii)

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

(iii) Approve

in principle the restructuring envisaging consolidation of its

steel business with that of Jindal Vijaynagar Steel Ltd.

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

(v)

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

19. 2004

(i)

Nissin Steel entering into equity & technology collaboration with Jindal Stainless

(ii)

Jindal Stainless Limited - technical collaboration with the Japanese stainless steel major, Nisshin Steel.

(iii) The

Orissa high court on May 11 directed the state government not to

sign the joint venture agreement with Jindal Stainless Steel Ltd for the exploitation of the Tangarpada chromites mines in the state.

(iv) Launches (v)

a premium range of beverage sets in designer stainless steel

under the brand name Art d'inox. Jindal Stainless signs a stainless steel supply contract for US $ 18.5 million

20. 2006

(i)

Jindal Stainless signs MOU with Steelway s.r.l. Italy Ltd for establishing a Service Centre near Gurgaon, Haryana

21. 2007

(i)

Jindal Stainless Ltd has delisted with effect from March 31, 2007 from Delhi Stock Exchanges Ltd (DSE) in terms of SEBI (Delisting of Securities) Guidelines, 2003 for voluntary delisting.

22. 2008

(i)

Stainless Ltd has informed that the Board of Directors of the Company at its meeting held on January Jindal 21, 2008, inter alia, has appointed Sh. Arvind Parakh as Additional Director w.e.f. January 21, 2008. Jindal Stainless Ltd has informed that the Company has received the certificate dated September 23, 2008, issued by the Registrar of Companies,

NCT of Delhi & Haryana, New Delhi consequent upon change of name of the Company from Jindal Stainless Ltd to JSL

(ii)

Company name has been changed from Jindal Stainless Ltd to JSL Ltd.

23. 2010

(i)

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

(ii)

JSL Ltd has informed that the Board of Directors of the Company has appointed Mr. Jurgen Hermann Fechter and Mr. James Alistair Kirkland Cochrane as Additional Directors w.e.f. Mar JSL Ltd has appointed Mr. Rajeev Bakshi as Additional Director w.e.f. July 01, 2010 by passing the resolution through circulation.

(iii) Company has changed its name from JSL Ltd. to JSL Stainless Ltd. 2011 (iv) JSL (v)
Stainless signs power purchase agreement with GRIDCO.

The names of the Company have been changed from "JSL Stainless Limited" to "Jindal Stainless Limited" with effect from December 07, 2011. Jindal Stainless, Jaipur receives coveted Orissa State Govt.'s

POLLUTION CONTROL AWARD.

24. 2012

(i)

The Rework Package of the Company under the Corporate Debt Restructuring (CDR) Mechanism has been approved by the CDR Empowered Group on August 24, 2012 and the same has been communicated to the Company by CDR Ceil vide its letter dated September 18,2012.

(ii)

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

L.MISSION

To strive to be a world class service centre of stainless steel through constant learning & quality improvement.

M.VISION
We are committed to provide world class ethical & quality service for our customer delight.

1. Treat employees as 'partners' in progress 2. Be a good corporate citizen. 3. Creating value for all stakeholders.

N. TRAINING METHODOLOGY:
(i) Class room lectures for imparting theoretical & technical knowledge (ii) Practical training in different technologies: 4X250, MW, 4X600 MW & 4X135 MW capacity Jindal thermal Power Plants. (iii) Simulator training (JIPT has 4X250 & 4X600 MW Honeywell make simulator which is replica of actual thermal plant) (iv) Case studies /group discussions/ experience sharing/panel discussion (v) Self learning through CBT training packages (vi) Exposure Visits to other power plants

O. Jindal Institute of Power Technology (JIPT) CEA Approved

Jindal Institute of Power Technology is recognized by Central Electricity Authority (CEA), Ministry of Power as category-l Institute, as per provisions of Sub Rule 2A of Rule 3 of Indian Electricity Rules 1956 is promoted by Jindal Education & Welfare Society, located at Jindal Power Limited which is a part of

US$ 12 billion O.P. Jindal Group. The Institute possesses a world class Simulator of 250 MW/600 MW generating units & state of art infrastructure. JIPT is Located inside the 4X250,4X600 MW Jindal Thermal power plant in Tamnar,Raigarh,CG 4961

P.MANAGEMENT:

Name Savitri Jindal Subash Singh Virdi Naveen Jindal T S Bhattacharya James Alistair Kirkland Cochrane Ratan Jindal Jitender P Verma Suman Jyoti Khaitan Rajeev Bakshi Gautam Kanjilal

Designation Chairperson Exe.Director & COO Director Director Director Vice Chairman & Mng.Director Executive Director Director Director Nominee Director

Q. Registered Address:
OP Jindal marg, Hissar ; Haryana,125005

R.COMPETITORS:

COMPANY

SYMBOL

Jindal Stainless Ltd. Elango Industries Ltd. Inducto Steel Ltd. Mahindra Ugine Steel Company Ltd. Mukand Ltd. Panchmahal Steel Ltd. Shah Alloys Ltd. Usha Martin Ltd. Welcast Steels Ltd.

JINDAS ELAIND INDUST

MAHUGI MUKLTD PANSTE SHAALL USHMAL WELSTE

CHAPTER -2 ABOUT THE TOPIC

A. MEANING OF WORKING CAPITAL:

(i)

Working Capital is the amount of Capital that a Business has available to meet the day-to- day cash requirements of its operations

(ii)

Working Capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities)

(iii) It refers to the amount of Current Assets that exceeds Current

(i.e. CA - CL)

Liabilities

(iv) Working Capital refers to that part of the firms Capital, which is required
for Financing Short-Term or Current Assets such as Cash, Marketable Securities, Debtors and Inventories. Working Capital is also known as Revolving or Circulating Capital or Short-Term Capital.

(v)

Working Capital includes the current assets and current liabilities areas of the balance sheet. Working Capital can be called by its alternative name - "Net Current Assets.

(vi) Working Capital includes four balance sheet items:

Stock - stocks of raw materials, partly completed production good awaiting sales Debtors - amounts owed TO the company, mainly from customers in respect of sales made on credit. and finished

Creditors - amounts owed BY the company, mainly to suppliers of raw materials, services (electricity, water, telephone, rent, etc.) but also, possibly, unpaid tax demands, unpaid dividends and other items Cash - bank balances, cash holdings and short-term investments.

B. CLASSIFICATION OF WORKING CAPITAL:

1. On basis of concept: (a) Balance Sheet Concept:
There are two interpretation of working capital under the balance sheet concept:

(i)

Gross working capital: The term working capital refers to the Gross working capital and represents the amount of funds invested in current assets . Thus, the gross working capital is the capital invested in total current assets of the enterprises. Current assets are those assets which are converted into cash within short periods of normally one accounting year. Example of current assets are: Cash in hand and Bank balance Bills Receivable Sundry Debtors Short term Loans and Advances

Inventories or Stock as:

Raw Materials Work in Process Stores and Spaces

Finished Goods

Temporary Investments of Surplus Funds Prepaid Expenses Accrued Incomes

(ii)

Net working capital: The term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities or say:

Net Working Capital = Current Assets Current Liabilities. Net working capital may be positive or negative: When the current assets exceed the current liabilities, the working capital is positive and the negative

working capital results when the current liabilities are more than the current assets. Current liabilities are those liabilities which are intended to be paid in the ordinary course of business within a short period of normally one accounting year of the current assets or the income of the business. Examples of current liabilities are: Bills Payable Sundry Creditors or Account Payable Accrued or Outstanding Expenses Short term Loans, Advances and Deposits Dividends Payable Bank Overdraft Provision for Taxation, If does not amount to appropriation of profits The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital.

(b) Operating cycle concept

Working Capital refers to that part of firms capital which is required for financing short term or current assets such as cash, marketable securities, debtors and inventories. Funds thus invested in current assets keep revolving fast and being constantly converted into cash and these cash flows out again in exchange for other current assets. Hence it is also known as revolving or circulating capital. The circular flow concept of working capital is based upon this operating or working capital cycle of a firm. The cycle starts with the purchase of raw material and other resources

Cash

Finished Goods

Raw Material

Work InProcess

And ends with the realization of cash from the sales of finished goods. It involves purchase of raw material and stores, its conversion into stocks of finished goods through work in progress with progressive increment of labour and service cost, conversion of finished stocks into sales, debtors and receivables and ultimately realization of cash and this cycle continuous again from cash to purchase of raw materials and so on. The speed/ time of duration required to complete one cycle determines the requirements of working capital longer the period of cycle, larger is the requirement of working capital.

The gross operating cycle of a firm is equal to the length of the inventories and receivables conversion periods. Thus, Gross Operating Cycle = RMCP + WIPCP + FGCP + RCP Here, RMCP = Raw Material Conversion Period WIPCP = Work in- Process Conversion Period FGCP = Finished Goods Conversion Period RCP = Receivables Conversion Period However, a firm may acquire some resources on credit and thus defer payments for certain period. In that case, net operating cycle period can be calculated as below: Net Operating Cycle Period = Gross Operating Cycle Period Payable Deferral period Further, following formula can be used to determine the conversion periods. Raw Material Conversion Period = Average Stock of Raw Material. Raw Material Consumption per day Work in process Conversion Period = Average Stock of Work-in-Progress Total Cost of Production per day Finished Goods Conversion Period = Average Stock of Finished Goods Total Cost of Goods sold per day Receivables Conversion Period = Average Accounts Receivables Net Credit Sales per day Payable Deferral Period = Average Payable Net Credit Purchase per day

2. On basis of time
On the basis of concept, working capital is classified as gross working capital and net working capital. The classification is important from the point of view of the financial manager. (a) Permanent or Fixed Working Capital: is the minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a minimum level of current assets which is continuously required by the enterprises to carry out its normal business operations. (b) Temporary or Variable Working Capital: is the amount of working capital which is required to meet the seasonal demands and some special exigencies.Varibles working capital can be further classified as second working capital and special working capital. The capital required to meet the seasonal needs of the enterprises is called the seasonal working capital. Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business

C. IMPORATNCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL:

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

Goodwill Easy Loans Cash discounts Regular supply of Raw Materials Regular payments of salaries, wages & other day to day commitments. Exploitation of favourable market conditions Ability of crisis Quick and regular return on investments High morals

D.THE NEED OR OBJECTS OF WORKING CAPITAL:

The need for working capital cannot be emphasized. Every business needs some amount of working capital. The need of working capital arises due to the time gap between production and realization of cash from sales. There is an operating cycle involved in the sales and realization of cash. There are time gaps in purchase of raw materials and production, production and sales, And sales, and realization of cash, thus , working capital is needed for the following purposes:

(i) (ii)

Payment of daily expenses &for continuity in production. Payment of current liabilities on time.

(iii) Taking advatages of cash discount. (iv) Taking advantages of favourable oppurtunities of the market. E. FACTORS DETERMING THE WORKING CAPITAL REQUIRMENT:
The working capital requirements of a concern depend upon a large number of factors such as nature and size of the business, the characteristics of their

operations, the length of production cycle , the rate of stock turnover and the state of economic situation. However the following are the important factors generally influencing the working capital requirements.

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

capital requirement of enterprises are interlinked. While a manufacturing industry has a long cycle of operation of the working capital, the same would be short in an enterprises involve in providing services. The amount required also varies as per the nature, an enterprises involved in production would require more working capital then a service sector enterprise.

2. Manufacture or production policy :

Each enterprises in the

manufacturing sector has its own production policy, some follow the policy of uniform production even if the demand varies from time to time and other may follow the principles of demand based production in which production is based on the demand during the particular phase of time. Accordingly the working capital requirements vary for both of them.

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

business. The working capital needs of such business may increase considerably during the busy season and decrease during the off season.

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

category then one shall need to offer sops like credit, immediate delivery of goods etc. for which the working capital requirement will be high. Otherwise if there is no competition or less competition in the market then the working capital requirements will be low.

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

need not maintain a large stock of the same thereby reducing the working capital investment in the raw material stock. On other hand if raw material is not readily available then a large inventory stocks need to be maintained, there by calling for substantial investment in the same.

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

business result in enhancement of the working capital requirements. As business growth and expands it needs a larger amount of the working capital. Normally the needs for increased working capital funds processed growth in business activities.

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

investment in the working capital. With increasing prices, the same levels of current assets needs enhanced investments.

F.MANAFACTURING CYCLE:

The manufacturing cycle starts

with the purchase of raw material and is completed with the production of finished goods. If the manufacturing cycle involves a longer period the need for working capital would be more. At time business needs to estimate the requirement of working capital in advance for proper control and management. The factors discussed above influence the quantum of working capital in the business. The assessment of the working capital requirement is made keeping this factor in view. Each constituents of the working capital retains it form for a certain period and that holding period is determined by the factors discussed above. So for correct assessment of the working capital requirement the duration at various stages of the working capital cycle is estimated. Thereafter proper value is assigned to the respective current assets, depending on its level of completion. The basis for assigning value to each component is given below:

COMPONENTS OF WORKING BASIS OF VALUATION CAPITAL Stock of Raw Material Purchase of Raw Material

Stock of Work -in- Process

At cost of Market value which is lower

Stock of finished Goods Debtors

Cost of Production Cost of Sales or Sales Value Working Expenses

G.DANGERS OF REDUDANT WORKING CAPITAL:

(i) (ii) (iii) (iv) (v) Low rate of return on capital Decline in Capital and Efficiency Loss of Goodwill and Confidence Evils of Over-Capitalization Destruction of Turnover Ratio

Company must have adequate working capital pursuant to its requirements. It should neither be excessive nor inadequate. Both situations are dangerous. While inadequate working capital adversely affects the business operations and profitability, excessive working capital remains idle and earns no profits for the company. So company must assure its working capital is adequate for its operations.

I.SOME

DECISION

TAKEN

IN

WORKING

CAPITAL MANAGEMENT:
(i) (ii) An adequate supply of raw materials. Cash to meet the operational payments.

(iii) (iv)

The ability to grant credit to customers. Investment in various current assets and to determine sources of fund to finance.

(v)

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

J. CONTENTS
1. Calculation
Current assets and current liabilities include three accounts which are of special importance. These accounts represent the areas of the business where managers have the most direct impact:

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

The current portion of debt (payable within 12 months) is critical, because it represents a short-term claim to current assets and is often secured by long term assets. Common types of short-term debt are bank loans and lines of credit. An increase in working capital indicates that the business has either increased current assets (that it has increased its receivables, or other current assets) or has decreased current liabilitiesfor example has paid off some short-term creditors, or a combination of both. Implications on M&A: The common commercial definition of working capital for the purpose of a working capital adjustment in an M&A transaction (i.e. for a working capital adjustment mechanism in a sale and purchase agreement) is equal to: Current Assets Current Liabilities excluding deferred tax assets/liabilities, excess cash, surplus assets and/or deposit balances. Cash balance items often attract a one-for-one, purchase-price adjustment.

CHAPTER-3 WORK DONE AT JSPL

A.INVENTORY CONTROL AT JSPL:

Inventory is monitored differently for raw material, work in progress, finished goods and spares. Monthly inventory report is sent to the finance department in the corporate office. Obviously the inventory report is prepared at plant level. Procurement Department gives the data of closing stock of raw materials, finished goods as well as the work in progress There are two components of inventory, Raw Material and Stores & Spares in JSPL. In the Raw material part, JSPL have approximately fifty items. Only five to six of them are belongs to A class, as shown by red colour. Items in blue colour belong to class B and rests belong to class C. Item which come under Class A are:LAW COKE CALCINED PETROLIUM COKE IRON ORE COKING COAL LAM COKE (PARADIP PORT) COKING COAL ( AT PORT/CA) In the case of Store & Spares, total number of items is around forty five. Here also five to six belongs to Class A (shown by red colour), remaining in class B and Class C shown by blue and black colour respectively. Some of the A class items of stores and spares are:ELECTRICAL ITEMS WELD, CUT & RELENQUISHMENT

BEARINGS & ACCESSORIES PETROLIUM PRODUCTS PIPE FIT & NOSELS JUTE AND HDEP GOODS HEAVY M/C & SPARES GEAR BOXES & SPARES HYD, PNUM, & SPARE Consumption of each item is divided by the total value of consumption and on the basis of set standards, items are categorized. Items in red shows the F class or Fast moving goods, where in blue we have slow moving goods and rests are no moving goods. Some of the fast moving raw materials of JSPL are:Iron Ore Law Coke Washed Coal Coking Coal Some of the Fast moving store & Spares of JSPL are:Heavy machinery Electrical & installable items Petroleum products Building material & cement

During a month, there are only three or four items which belong to F class. The whole classification is given in the table no 6. Maximum level, minimum level and reorder level Four basic levels will need to be established for each line/category of stock. There are the: a) Maximum level achieved at the point a new order of stock is physically received; b) Minimum level the level at point just prior to delivery of a new order (sometimes called buffer stocks those held for short term emergencies); c) Reorder level point at which a new order should be placed so that stocks will not fall below the minimum level before delivery is received; and the d) Reorder quantity or economic order quantity the quantity of stock, which must be reordered to replenish the amount held at the point delivery, arrives up to the maximum level. Once these controls are implemented an efficient system of recording receipts and issues is vital to exercise full control of inventories. After ABC analysis, next work is to find out the maximum level, minimum level & reorder level for the materials. As it was already mentioned that JSPL have more than fifty items under its raw material, it is very difficult to find out all the levels for all the materials. So, only Class A items are taken for this classification. To find out maximum level, minimum level & reorder level, we need safety stock, lead time and daily consumption. After getting information related to these things we can find out all levels easily.

SAFET ITEM Y

NORMAL DAILY

MAXIMU M

MINIMUM

DAILY DAILY

NORMAL TIME ITEM ( IN DAYS ) From vend or LAM COKE (PARADIP PORT) COKING COAL ( AT PORT/CA) CALCINED PETROLIUM COKE IRON ORE COKING COAL LIMESTONE LAW COKE 15 6 21 15 21 0 0 6 0 6 0 0 6 0 6 6 0 0 6 0 0

LEAD MAXIMUM TIME ( IN DAYS ) Custom From

LEAD

Custom From clearanc port e

From clearanc vend port e or

20 8 25 20 25

0 0 8 0 8

0 0 7 0 6

STOCK

USAGE (85%)

USAGE (100%)

USAGE (60%)

LAM COKE (PARADIP PORT) COKING COAL ( AT PORT/CA) CALCINED PETROLIUM COKE 500 mt 45000 IRON ORE mt 119.02 mt 16503.65 mt 19415 mt 13408 mt 140 mt 84 mt NA NA NA NA NA NA NA NA

COKING COAL LIMESTONE LAW COKE

2500 mt 2600 mt 2700 mt

1479.73 mt 1283.91 mt 1137.67 mt

1740 mt 1510 mt 1340 mt

1045 mt 900 mt 800 mt

The above table shows that the items of category A, with their lead time, level of safety stock and time period for holding of the safety stock. Calculation Reorder level = Maximum usage x Maximum delivery time Maximum level = Reorder level (minimum usage x Minimum delivery time) + reorder quantity Minimum level time) = Reorder level (Normal usage x Average delivery

Reorder ITEM LAM COKE (PARADIP PORT) COKING PORT/CA) CALCINED PETROLIUM COKE IRON ORE COKING COAL Limestone LAW COKE 2800 MT 155340 mt 69600 mt 30200 mt 44220 mt COAL ( AT N.A. N.A. level

Maximum level

Minimum level

N.A.

N.A.

N.A.

N.A.

N.A. N.A. N.A. N.A. N.A.

1015 mt 56322 mt 20760 mt 10955 mt 6700 mt

Above table shows the minimum level & reorder level of some of the raw materials of the company. As the data related to reorder quantity is not given, therefore maximum level is not calculated.

B. RECEVIABLE CONTROL AT JSPL:

Corporate office and the commercial department in coordination do the management of receivables. The management of receivable is dealt on major part by corporate office and minor part by commercial department of the company. JSPL in matter of granting a credit period to customers tighten their policy and reduce credit period to27 days in 2011 to its debtors. Total Debtors

amounted to Rs. 211.16 lacks by the end of 2011, which further decreased to 172.91 in 2012.

1.Evaluation
Evaluation of the performance of the credit department is a difficult task. There is no standard yardstick to compare with the actual performance. Yet a successful receivable management must ensure a comparatively slow growth of receivable as against sales, as factory collection period and receivable task over minimum bad debts losses and effective use of capital invested in receivable. To what extent the concerns have been successful in their efforts, can be gauged by their actual performance. Accordingly the following criterion has been employed to evaluate the performance of receivable management in JSPL: The broad range of project management and financial advisory services include:

(i) (ii)

Average collection period: To measure the effectiveness of collection efforts. Relationship between debtors and sales: To know growth rate and also co-efficient of correlation and determination.

(iii) Receivable

as percentage of sales ratio: To examine the level of

investment is receivable

2.Debtors Turnover Ratio:

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

JSPL

For the year ended 31 Mar 12 31 Mar 11 31 Mar 10 7.4 times 49 days 31 Mar 09 6.7times 54 days

Debtors Turnover Average Period

12.18times

12.76times 28 days

Collection 29 days

Continuous increase in debtors turnover signifies that the investment in debtors is decreasing over a period of time. And from last two years it is nearby similar. Increase in debtors turnover is a positive sign for the company, because with the increase in debtors turnover amount in investment will decrease and company is realizing its receivables earlier, as companys debtors turnover is increasing its average collection period is decreasing. Therefore, a high debtor turnover and low average collection period is favorable for the company and because of this cash cycle and operating cycle is also decreased. In the year end 2010, debtors turnover was 6.7 times and average collection period was approx. 54 days. But in last few years JSPL showed good improvements and is able to increase its debtors turnover up to 12 .18 times and decreases its average collection period to 29 days.

3. Credit policy of JSPL:

(i)

For domestic customers: Most of the domestic sales of JSPL are based on advance payment. Some part of contract money is received in

advance and than sale is made. Remaining amount is received later on. Generally, the credit period allowed by JSPL is up to 30 days but sometimes it went up to 45 days also (only via prior approval of management). Company also doesnt plan for any bad debts losses, but if any bad debt happen than it has to be written off fully. For obtaining information related to the new applicants only internal sources are used. As company generally deals with either PSUs, or blue chip companies or old customers, it is not a difficult job to obtain information about them. No external source is used by JSPL And for the analysis part, company use both qualitative and quantitative tools. As per qualitative tool, company generally go for market reputation and past record of customer and for quantitative tool, company use the size of order, financial position of customer etc. As far as collection efforts are concerned, company generally uses lenient efforts. But in some cases company also go for strict methods. JSPL normally uses all types of collection efforts like letters including reminders, telephone calls, personal visits & legal actions. But company doesnt take help of collection agencies. The collection cost is very nominal in domestic sales and difficult to determine. Whereas capital cost is equal to the cost of working capital which is not determined because of confidentiality. Management has power to offer a discount up to Rs. 250 per metric ton, but no discount is generally offered to any customer.

(ii)

For Export Sales: From the sale data of JSPL it was found that around 15% of sales are based on exports. Therefore it is very important area for planning. Exports are based on letter of credit. A foreign company who want to purchase the material from JSPL sent an LC first. Than on the basis of that LC, export order is made. Copy of that order is sent to manufacturing plant at Raigarh. From the Raigarh only, the material is

dispatched as per the export order and LC is sent to bank for collection. Banks collects the amount and transfers it to JSPLs account. No other credit policy is present for export sale of JSPL. Collection cost is around 0.5 1 % of export order. Capital cost is here also equal to the working capital cost. 4. Debtors conversion period: It is the time required to collect the outstanding amount from the customers. The total of inventory conversion period and debtors conversion period is referred to as gross operating cycle (GOC).

Gross Operating Cycle = ICP + DCP

C.CASH CONTROL AT JSPL:

Cash management system adopted by Finance Department in JSPL is very reliable and transparent. As cash is a very important activity for a good operation of company here in JSPL cash is monitored every day by Finance Department. The daily cash report includes the all details of cash inflows and outflows. Monthly cash budgets are maintained for the estimated of monthly cash inflows and outflows. Finally the annual cash budget is made by the Finance Department. The corporate office allocates different amount of each to different manufacturing units as per their requirement. Corporate office acts as a linkage between the manufacturing unit and creditors. Corporate office has determined the credit facility for every units of the company and this keeps

on changing from year to year depending up on companys position transactions, profitability and inventory position. Here the initial allocation for manufacturing units is done by corporate office and all supplementary requirements are to look upon by Commercial Department Company operates an annual Cash Budget and a rolling Cash Plan drawn up every month. Although specific forecasting technique is used, funds are deployed to different departments as per their requirements. Daily reports on cash transaction are prepared by Procurement department to keep a track of all payments made in the days work. Every month cash transaction report is sent to Finance department in the corporate office showing all the transaction of cash, (inflow and outflows) actual utilization of cash and allocation of fund is compared. If the utilization of cash is more than the allocation of fund, then the plant has to justify its more utilization.

1. Measuring the efficiency of the total cash usage:

A few important ratios which help to measure the efficiency of cash usage are explained below: RATIOS 2012 2011 2.81 103.51 2010 3.35 67.89 2009 4.27 73.51

Cash in Current Assets in 2.05 % (CCA) Cash turnover (CTS) to sales 77.81

Cash turnover in total funds 137.99 (CTTF) .

109.29

70.82

60.12

150 100 50 0 2012 2011

(CCA) (CTS)

2010
(CTTF)

2009

D. PAYABLE CONTROL AT JSPL:

Mostly the creditor comprises of the bank that is financing the working capital needs and the suppliers to whom payments are to be given. This is basically done as per terms and condition with the respective parties. The company is not able to make proper payment to its creditors as year on year companys creditors are increasing (creditors increased from 51.49 on 2011 to 505.47 in 2012)

1. Evaluation
The evaluation for payable management is done with the help of ratios: Creditors turnover ratio

Average Payment Period

JSPL Payable Management Creditors Ratio

For the year ended 31 Mar 12 31 Mar 11 31 Mar 10 31 Mar 09

4.19 times

4.45 times 42

2.82 times 60

3.77 times 40

Avg. Payment period 50

It is clear from the above data that the major source of cash flow in the company is financing activities. It can be a cause of concern for the company, because company is heavily dependent on financing activities for procurement of funds. It happened in the year 2011-12 only. Before that company is earning mainly from its operating activities. Therefore, there is a strong need to increase inflows from operating activities. Company should improve its operational part to be in to secure position. On the other hand, every year companys outflow in investing activities is increasing. The reason behind this is that company is growing quickly. And for a growing company making investments is necessary. Therefore it is not a cause of worry for the company. In the year 2011-12 JSPL purchases JSPL, for the generation of power. Company is not maintaining high cash balances and is able to grow from many years. It shows how efficiently company is using its funds. It is a policy of company that not to maintain high cash balances. Every time when company received a big sum of money, it invested in to short term investments as soon as possible.

Summary: The analysis shows that the minimum average creditor period is 42 days and maximum is 60 days. By analysis reveals the decreasing and increasing trend in average payment period, which shows company is provided with liberal and strict credit payment period over the year and according to the market situation

E. Operating Cycle Analysis:

The need for working capital to run the day-to-day business activities cannot be overemphasized. We will hardly find a business firm, which does not require any amount of working capital. Indeed, firms differ in their requirements of the working capital. We know that a firm should aim at maximizing the wealth of its shareholders. In its Endeavour to do so, a firm should earn sufficient return from its operations. Earning a steady amount of profit requires successful sales activity. The firm has to invest enough funds in current assets for generating sales. Current assets are needed because sales do not convert into cash instantaneously. There is always an operating cycle involved in the conversion of sales into cash. There is a difference between current and fixed assets in terms of their liquidity. A firm requires many years to recover the initial investment in fixed assets such as plant and machinery or land and buildings. On the contrary, investment in current assets is turned over many times in a year. This very soon realized during the operating cycle. Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. The analysis of the operating cycle helps in determining the delay centers for the company where the working capital of the company has been locked up and due to which the interest costs of the company is increasing. The operation cycle of a manufacturing company involves three phases: (i) Acquisition of resources such as raw material, labor, power and fuel etc. (ii) Manufacture of the product which includes conversion of raw material into work-in-process into finished goods.

(iii) Sale of the product either for cash or on credit. Credit sales create account receivable for collection. These phases affect cash flows, which most of time, are neither synchronized nor certain. They are not synchronized because cash outflows usually occur before cash inflows. The firm is, therefore, required to invest in current assets for a smooth, uninterrupted functioning. It needs to maintain liquidity to

purchase raw materials and pay expenses such as wages and salaries, other manufacturing, administrative and selling expenses and taxes as there is hardly a matching between cash inflows and outflows. Determination of Operating Cycle of JSPL: The determination of length of the operating cycle of a manufacturing firm is the sum of: (i) inventory conversion period (ICP), & (ii) debtors conversion period (DCP) (i) Inventory conversion period: It is the total time needed for producing and selling the product. Typically, it includes: raw material conversion period (RMCP) work-in-process conversion period (WIPCP), and Finished goods conversion period (FGCP).

Inventory Conversion period = RMCP + WIPCP + FGCP

Inventory Conversion period Raw material conversion period Work-in-process conversion period Finished goods conversion period Inventory holding period

2012 69 6 32 107

2011 49 4 17 70

2009 2008 59 6 18 83 70 3 8 81

Inventory Holding Period

100

50

0 2009 2010
RMCP WIPCP

2011
FGCP

2012

(ii) Debtors conversion period: It is the time required to collect the outstanding amount from the customers. The total of inventory conversion period and debtors conversion period is referred to as gross operating cycle (GOC).

Gross Operating Cycle = ICP + DCP

F.Payable Deferral period:

This is very common to get gross operating cycle but in practice, a firm may acquire resources (such as raw materials) on credit and temporarily postpone payment of certain expenses. Payables, which the firm can defer, are spontaneous sources of capital to finance investment in current assets. The payables deferral period (PDP) is the length of time the firm is able to defer payments on various resource purchases.

Net Operating Cycle = GOCPDP

Working capital cycle Holding period Collection period Gross working capital cycle Payment Period Net working capital cycle

2012 107 29 136 50 86

2011 70 28 98 42 56

2010 83 49 133 60 73

2009 81 54 135 40 95

Working Capital Cycle

140 120 100 80 60 40 20 0 2012
IHP ACP

2011
GWCC

2010
APP

2009
NWCC

The above graph shows an increasing trend in IHP, it means that the co. is holding inventory for longer period. This is one of the reasons of increasing cycle time. In year 2009 the GWC is very long but as the co. is availing longer APP so the NWC is coming least. As it is a growing co. so it has to hold inventory but the co. should try to get longer APP from the suppliers to shorten its net working capital cycle.

CHAPTER- 4 RESEARCH METHODOLOGY A. RESEARCH OBJECTIVE

This project was undertaken to analyse the working capital policies, working capital management of the company and to reduce down their problems and finding the solutions with respect to the working capital management of the company. The objective of the study is to provide the solutions for reducing down the duration of the operating cycle, to analyse the working capital position of the company and the liquidity position, finding out the problems that the company is facing in managing the working capital and showing trend of particular ratios in future and at same suggesting them to solve their problems.

(i) (ii)

To study the working capital concept. To see how the day-to-day operations of the company takes place.

(iii) To study the working capital management process in Jindal Steel

& Power Ltd.

(iv) To (v)

see whether the company is prepared with enough working

capital to face any kind of contagious. To compare the performance of W/C for a particular year with previous years position, Long term solvency, operational efficiency, and

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

Providing suggestions to solve the problems of the company.

B. RESEARCH DESGIN
This project would start with understanding the basic financial structure of the company. It would then go on understanding the working capital in detail. This project would also highlight the practical aspects, my experience and key learning derived from it. Key issues found in this practical exposure will be analysed and discussed. The project will help one understand the basics of corporate finance. The readers will come to know about JSPL. The various products and services offered by the company will be discussed. The study of strategic approach to financial success at JSPL will give me wide view of corporate strategies adopted by companies. It will help one in understanding the role of a finance department in the company. The industry comparison & analysis will help one in understanding the key differentiating factors.

C. Value Addition for the company:

A well designed and implemented working capital management is expected to contribute positively to the creation of a firms value The purpose of this project is to examine the trends in working capital management and its impact on firms performance. This project would help JSPL in comparing its stand with its competitors. The in depth analysis might bring out some key issues that may be ignored but may prove significant for the company. Various analyses conducted for analysing the working capital will prove beneficial to the company.

D. DATA SOURCES
There are two methods of collecting data are as follows:-

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

himself. It consumes time and needs trained researchers. It is expensive but, at the same time leads to more accurate results. It includes the demographic or socio-economic characteristics of consumer such as age, sex, income level, education background, marital status, occupation, social class etc. There are three methods of collecting primary data are as:-

(a)

Experimentation In this method, cause and effect relationship of variables is tried to be known. Example:

between various set

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

(b) (c) (i) (ii)

Observation It is an interpretation of consumers behaviour by

direct and indirect method. Survey Collection of data through actually going into the market

is called survey. It is of two types:Census Survey When whole of the population is surveyed than it is called census survey. Sample Survey Choosing some members from the population based upon a particular criteria than it is called sample survey.

2. Secondary Data It is the data which is already present in the record and
is readily and easily available. It is cheap but, may be obsolete and may not suit all applications of the research. There are different ways for collecting secondary data are as:(a) Newspapers (b) Magazines

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

CHAPTER-5 FINDINGS & ANALYSIS

A. FINDINGS
This report includes the in depth analysis of Working Capital. On the basis of the analysis following conclusions has been made:

(i)

JSPL is a growing company and largest producer of sponge iron in India. Production of other items is also increasing because domestic & international demand of steel products is continuously increasing.

(ii)

Profitability ratios of JSPL are high as per industry ratios it means that company is maintaining a good profitability over the years.

(iii)

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

(iv)

Gearing ratio is high which shows that it is more levered firm, it may seem a cause of concern but it affects the overall cost of capital in a positive manner.

(v)

The overall liquidity position is very poor. The companys current ratio is approx. one from last many years which means that company can face liquidity problems by lacking of cash.

(vi)

The correlation shows the impact of various components of Working Capital on Profitability of the company. So, that company can take care of main components.

(vii)

JSPLs Raw Material holding period is increasing due to which its Raw Material turnover is also declining.

(viii)

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

(ix)

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

(x)

Co. has a policy to invest their cash in Short term Investments options like mutual funds. This can help company to arrange cash in a very short period. The co. prepares cash budget on a regular basis.

(xi)

The Inventory Holding Period (IHP) is increasing due to this their Net Working Capital cycle is increasing. Average collection period is also decreasing but not up to that extent.

(xii)

Companys short term financing policy is quite reliable as the Co. uses various techniques like Hedging, use of CC limits, use of LC etc. and also company has very good relations with banks which can help them to arrange loans easily.

B.ANALYSIS
A companys performance can be analysed by various tools available for the finance manager. Some of important tools are ratio analysis, fund flow analysis, cash flow analysis etc. For my analysis Im using ratio analysis because of following reasons:-

(i)

Ratio analysis is defined as systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined.

(ii)

Computing the ratios does not add any information not already inherent in the figures of profit and sales.

(iii) It

reveals the relationship in a more meaningful way so as to enable equity investors, management and lenders make better investment and credit decision.

(iv) It makes related information comparable because a single figure itself is

not comparable. The categories used are:

(i) (ii)

Profitability: has the business made a good profit compared to its turnover? Return Ratios: compared to its assets and capital employed, has the business made a good profit?

(iii) Liquidity: does the business have enough money to pay its bills? (iv) Asset (v)
Usage or Activity: how has the business used its fixed and current assets? Efficiency Ratios

(vi) Ratios related to stocks/creditors/debtors

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

the business. Lord Keyens remarked, Profit is the engine that drives the business enterprise. Bankers financial institutions and other creditor are also keen to measure the operating efficiency of the firm, through profitability ratio as an indicator to the firms ability to make regular payment of interests and the borrowed funds.

Snapshot of Profitability Ratios:

JSPL Basic Ratios Gross profit margin Operating profit margin Net profit margin Retained profit margin 31 Mar 12 37.43 38.86 22.11 20.08

For the year ended 31 Mar 11 37.38 38.79 22.7 20.45 31 Mar 10 32.27 39.57 24.15 21.39 31 Mar 09 23.11 33.77 16.47 13.71

(a) Gross Profit Margin:

The gross profit margin ratio tells us the profit a business makes on its cost of sales, or cost of goods sold. It tells us how much gross profit per Rs.1 of turnover our business is earning.

Gross Profit Margin

Gross Profit/Turnover

* 100

GROSS PROFIT MARGIN

YEAR

JSPL TATA 39 40 32 20

SAIL 24 36 18 5

40 30

31 March 2012 37 31 March 2011 37 31 March 2010 32 31 March 2009 23

20 10 0 2012 2011
JSPL

2010
TATA SAIL

2009

* Rounding off the figures*

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

over the period. Reasons for this are

(ii) (i) Increase in the prices of the steel, (iii) (ii) Increase in the demand of the steel, and (iv) (iii) Decrease in the cost of production. (v) If we compare it with TATA then we find that TATA has equal
GP ratio initially but from last two years, TATAs GP ratio is higher than JSPLs ratio.

(vi) SAIL, which is a PSU is also showing good GP ratio but t is lower
than TATA & JSPL.

(b) Operating Profit Margin:

Operating profit is that profit which is earned by a firm by its operations. Other popular name for it is EBIT (i.e. Earning Before interest and tax). It is generally used for find out whether a firm is making profit by its operations or not.

Operating Profit Operating Profit Margin = Turnover * 100

GROSS PROFIT MARGIN

YEAR

JSPL TATA 38 41 32 23

SAIL 23 36 20 11

40 30

31 March 2012 38 31 March 2011 38 31 March 2010 39 31 March 2009 33

20 10 0 2012 2011
JSPL

2010
TATA SAIL

2003

* Rounding off the figures*

(i) Like GP ratio, same is the case with Operating ratio. Initially the
operating ratios of JSPL were higher than the TATAs, but last year, it was equivalent to TATAs.

(ii) Operating ratio of JSPL is consistent from last three years. They
are able to sustain a good operating profit margin in their operations.

(iii) In the current year SAILs operating profit ratio has improved a lot
but it is still lower than that of TATAs & JSPL.

(c) Net Profit Margin:

After taking account of the cost of sales, the administration costs, the selling and distributions costs and all other costs, the net profit is the profit that is left, out of which they will pay interest, tax, dividends and so on.

Net Profit Margin =

Net Profit / Turnover * 100

Net Profit Margin

25 20 15 10 5 0 2012
JSPL

2011
TATA

2010
SAIL

2003

YEAR 31 March 2012 31 March 2011 31 March 2010 31 March 2009

JSPL 22 22 24 16

TATA 22 23 17 10

SAIL 13 23 10 00

* Rounding off the figures*

(i) Net profit margin for JSPL, from last many years, is either higher
than the TATAs or equal to TATAs. In case of net profit margin also JSPL is maintaining consistency.

(ii) TATA whose net profit margin was low initially, but they are able
to improve their net profit margin by the help of increasing their selling price and reducing their costs.

(iii) SAIL on the other hand was the loss making company initially, but
from last three years it is showing positive signs and able to make profits.

(d) Retained Profit Margin:

Retained profit is that part of profit which a company can not distribute to its shareholders and retain because of growth purpose. Company can use that profit for further extension of its operations. Retained Profit Margin = Retained Turnover Profit / * 100

RETAINED PROFIT MARGIN

YEAR

JSPL TATA 15 16 10 6

SAIL 8 15 9 0

25 20 15 10 5 0 2012 2011
JSPL

31 March 2012 20 31 March 2011 20 31 March 2010 21 31 March 2009 13

2010
TATA SAIL

2009

* Rounding off the figures*

(i) With the figures of retained profit margin one can clearly understand
that, JSPL is retaining more profits in comparison of TATA & SAIL. Reason behind this is JSPLs enhancement in their operations. It is approximately 20% from last three years for JSPL which is much higher than the TATAs (their main competitor).

(ii) Retaining higher profit can help JSPL in the long run because if this
they will not face problem related to deficiency in the reserves. It will also provide liquidity to the company.

(iii) With high back up of reserves company can enlarge its operations by
making investments in making new projects (as did last year by investing in Jindal Power Limited)

2. Rate of Return: Return means the amount which one is getting by

investing some money into some kind of business. Here rate of return means the amount of return; one is getting on his investments. JSPL Basic Ratios For the year ended 31 Mar 12 31 Mar 11 31 Mar 10 Return on capital employed (ROCE) Return on fixed assets (ROFA) Asset turnover Return (ROWC) on working capital -0.69 0.56 -28.02 3.29 0.76 9.77 3.31 0.53 3.27 -5.80 0.53 5.32 3.15 8.20 12.28 31 Mar 09 -9.57

(a) *This ratio is calculated in times and not in percentage

(a) Return on Capital Employed Ratio:

The Return on Capital Employed ratio (ROCE) tells us how much profit can be earn from the investments that shareholders have made in the company.

Operating Profit Return on Capital Employed (ROCE) = Total Capital Employed

RETURN ON CAPITAL EMPLOYED

* 100

YEAR

JSPL TATA 57 70 46 29

SAIL 48 84 41

100 80 60 40 20 0 2012 2011

JSPL TATA

31 March 2012 29 31 March 2011 31 31 March 2010 26 31 March 2009 20

2010
SAIL

2009

18

* Rounding off the figures*

(i) Capital employed refers to the amount of net fixed assets and net current
assets. A companys operating efficiency can be better explained by ROCE ratio.

(ii) JSPL is getting a good return on their capital employed, but it is very low
as compared to TATA & SAIL. The reason behind this is the amount of capital employed for JSPL is comparatively higher than that of TATAs & SAIL. The company JSPL should try to improve their ROCE by either reducing their capital employed or increasing operating profit.

(b) Return on Total Asset Ratio:

The Return on Assets (ROA) percentage shows how profitable a company's assets are in generating revenue. Return on assets is an indicator of how profitable a company is before leverage, and is compared with companies in the same industry. Since the figure for total assets of the company depends on the carrying value of the assets, some caution is required for companies whose carrying value may not correspond to the actual market value.

PBIT Return on Total Assets (ROTA) = Total Assets * 100

YEAR

JSPL TATA 30

SAIL 20

RETURN ON TOTAL ASSETS

31 March 2012 19

40 30

31 March 2011 27 31 March 2010 22 31 March 2009 17

36 20 13

39 16 4

20 10 0 2012 2011 2010 2009

JSPL

TATA

SAIL

* Rounding off the figures*

(i) The above figure shows that the ROTA of JSPL is lower than the TATA
& SAIL from last two years, which signifies that the amount invested by Jindals in their total assets is comparatively higher than the TATA & SAIL.

(ii) Jindals are getting lower ROTA which is a cause of concern for them.
Though their figures are looking impressive but if we compare them with TATA, they are very low.

(c) Return on Fixed Assets:

The Return on Fixed Assets (ROFA) percentage shows how profitable a company's assets are in generating revenue. Return on fixed assets is an indicator of how profitable a company is before leverage, and is compared with companies in the same industry. PBIT Return on Fixed Assets (ROFA) = Gross Fixed Assets * 100

YEAR 31 March 2012 31 March 2011 31 March 2010 31 March 2009

JSPL 29 38 33 29

TATA 38 42 22 13

SAIL 21 36 13 4

RETURN ON FIXED ASSETS

50 40 30 20 10 0 2012 2011
JSPL TATA

2010
SAIL

2009

* Rounding off the figures* Initially, the return on fixed assets for JSPL is better than the TATA & SAIL but last year, due to increase in capital work-in-progress and decrease in depreciation, it declined.

(i) If we take into consideration both, ROFA & ROTA then we will find that
Jindals have high percentage of fixed assets in their total assets.

(ii) Company should try to increase its ROFA to match to the standard level
of the industry. It can be done by increasing the operating profit, which is a positive way or by reducing fixed assets, which is a negative way.

(d) Return on Working Capital:

Working capital, which is an important component for every company, also takes into consideration while determining the Rate of Return ratios. With this ratio, one can find, how much return, a company is getting on its investments on working capital. It is a good short term measure for the financial health of the company.

Return (ROWC)

on

Working

Capital

PBIT / Capital

Working

RETURN ON WORKING CAPITAL

10

*This ratio is

5 0 2012
JSPL

calculated in times

2011

2010

2009
SAIL

TATA

and not in percentage

YEAR 31 March 2012 31 March 2011 31 March 2010 31 March 2009

JSPL 6.58 1.44 2.61 1.60

TATA 0 0 0 0

SAIL 1.90 3.37 0 0

(i) For JSPL, working capital ratio was quite low initially but last year, it rose up. Reason behind that is a sharp decrease in the working capital of the company. From the last years figure, one can say that the company is getting very high rate of return but if we go behind then the return is not that much high. (ii) TATA has negative working capital from the last many years. So return cant be calculated. On the other hand SAIL which had negative working capital initially, but now it has improved rate of return. JSPL should try to stabilize their rate of return on working capital because in the long run this kind of inconsistency can be harmful for the company

3. Turnover Ratios or Asset Usage Ratios:

Assets are used to generate sales. Therefore, a company should manage its assets efficiency to maximize sales. The relationship between sales and assets is called asset turnover. There are two kinds of asset turnover ratios which are given below. JSPL Basic Ratios 31 Mar 12 1.56 0.53 For the year ended 31 Mar 11 1.62 0.74 31 Mar 10 1.40 0.49 31 Mar 09

Current asset turnover Total asset turnover

1.21 0.50

(a) Fixed Asset Turnover:

The Fixed Assets Turnover ratios indicate the number of times the fixed assets have been rotated in the process of doing business. The ratios shows higher turnover and it reveals more judicious and efficient management of assets and vice-versa.

Fixed Asset Turnover =

Turnover Net fixed Assets

FIXED ASSET TURNOVER

3 2 1 0 2012
JSPL

2011
TATA

2010

2009
SAIL

YEAR 31 March 2012 31 March 2011 31 March 2010 31 March 2009

JSPL .95 1.04 .88 1.05

TATA 1.74 2.00 1.51 1.19

SAIL 2.32 2.30 1.65 1.22

(i) Fixed asset turnover ratio for JSPL is just half in comparison with
TATA & SAIL. It means for every one rupee of fixed assets, TATA & SAIL are generating more sales in comparison with Jindal.

(ii) Company should try to improve the ratio simply by increasing their
turnover. No other method is possible to increase this ratio. If another method, say reduction in fixed assets, is adopted, then it is a negative sign for the companys performance.

(b) Current Asset Turnover:

The Current Assets Turnover ratios indicate the number of times the current assets have been rotated in the process of doing business. The ratios shows higher turnover and it reveals more judicious and efficient management of assets and vice-versa.

Current Asset Turnover =

Turnover Current Assets

CURRENT ASSET RATIO

YEAR

JSPL TATA 3.43 3.54 3.06 2.69

SAIL 1.95 2.31 3.10 2.81

4 3

31 March 2012 1.65 31 March 2011 2.13 31 March 2010 1.58 31 March 2009 1.90

2 1 0 2012 2011
JSPL

2010
TATA SAIL

2009

(i) Current asset turnover ratio of JSPL is also lower than the TATA &
SAIL. It also signifies that for every one rupee of current asset, JSPLs turnover is lower than a TATA & SAIL.

(ii) CATR for JSPL is around 2 and for TATA it is around 3. But for
SAIL, it is changing continuously. The reason behind higher CATR of TATA is low current assets.

(iii) If we compare CATR with FATR, then we will find out that,
company is doing more sales on its current assets in comparison with its fixed assets.

(iv) The only method, as prescribed earlier, is to increase the sales. This can be done in many ways.

4. Gearing
Gearing is concerned with the relationship between the long terms liabilities that a business has and its capital employed. The idea is that this relationship ought to be in balance, with the shareholders' funds being significantly larger than the long-term liabilities.

(a) Gearing 1: DEBT-EQUITY RATIO

This ratio shows the relationship between the amount invested by the owner and the borrowers. Or in other words, for 1 rupee of equity shareholders, how much amount of outsiders liabilities is invested in banks.

Long Term Liabilities Gearing = Equity Shareholders Funds

GEARING 1

YEAR

JSPL TATA 0.26 0.39 0.75 1.33

SAIL 0.34 0.56 1.72 5.14

6 5 4

31 March 2012 1.48 31 March 2011 1.13 31 March 2010 1.19 31 March 2009 1.54

3 2 1 0 2012 2011
JSPL

2010
TATA SAIL

2009

(i) The above figures clearly show that JSPL has the high debt-equity
ratio which can be dangerous for them in their future. Though high debt means high risk and high return situation for the equity shareholders but still company also need to think about the risk

involved

in

the

high

debt

financing.

(ii) JSPL should lower down its debt equity so that they can be saved
for the future. It can be done either by issuing fresh equity capital or by repayment of the existing borrowings.

(b) Gearing 2: DEBT RATIO

The company may be interested in knowing the proportion of the interest bearing debt in the capital structure. With the help of the debt ratio company can find out, how much proportion of debt it has in its capital structure.

Long Term Liabilities Gearing = Long Term Liabilities + Equity Shareholders' Funds

YEAR

JSPL TATA 0.19 0.28 0.42 0.55

SAIL .03 0.25 0.35 0.18

0.6 0.5 0.4 0.3 0.2 0.1 0 2012

GEARING 2

31 March 2012 0.59 31 March 2011 0.53 31 March 2010 0.54 31 March 2009 0.60

2011
JSPL

2010
SAIL

2009

TATA

(i) JSPL has more than 50% debt in its capital structure for the last many
years, which means that a very high amount of capital is come

through debt. Though a high debt can reduce the overall cost of capital and increase EPS but it creates problem for the liquidity.

(ii) On the other hand TATA & SAIL are continuously reducing debt
from their capital structure. Reason behind this is that the companies are repaying their loans and their reserves are increasing.

5. Inventory Ratio
(a) Inventory turnover ratio - It indicates the efficiency of the firm in producing and selling its products. It shows how rapidly the inventory is turning in to receivables through sales. Generally, a high inventory turnover is indicative of good inventory management. A low inventory turnover indicates that excessive inventory levels are there in the firm and inventory is moving slowly. It amounts to high funds are blocked in to the inventory which reduce profit and increase cost. (b) Inventory holding period - When we divide number of days in a year (say 365) by inventory turnover ratio, we obtain inventory holding period. Lower the period better are results. A low inventory holding period means company is holding goods for less number of days and stock is quickly converting in to cash. Every company tries to reduce its inventory holding period for early realization of cash and for smaller operating cycle. If inventory turnover is low than inventory holding period is high. Therefore inventory holding period for JSPL is very high. Company should try to reduce this period to avoid various costs related to inventory which were discussed earlier. (c) Work in progress turnover ratio - It indicates how much material is in process in comparison to its cost. Work in progress is a component of inventory. Therefore if one is analyzing the inventory part, he must

take care in to consideration the work in process also. This is related to the time taken by company for manufacturing its products. Calculated by dividing number of days in a year with the raw material holding period. As raw material turnover ratio is low, holding period must be high. But with the increase in this ratio is high for JSPL, which means companys ability of production is fast. Its a good sign for company that the goods are not in process for the long time. (d) Conversion period - It is the time taken by a company to convert its raw material in to finished goods. It is calculated by dividing number of days in a year (say 365) with the work in progress turnover ratio. Conversion period for JSPL is low. It means company is converting its raw material in to finished goods quickly. (e) Raw material turnover ratio - It shows the relation between the raw material consumed and cost of production. Purpose behind this ratio is to determine the average time for which a company is holding its raw materials. This ratio is also low for the company. The reason is holding of high raw material inventory. But from last few years, company is able to increase this ratio. (f) Raw material holding period - It is the average time for which a company is holding its raw materials. It can be raw material turnover ratio, holding period is decreasing, but still it is high. There is need to lower down this period.

SNAPSHOT OF INVENTORY RATIOS OF JSPL:

31 March 2012 2.60 140.38 43.43 8.40 9 40 31 March 2011 4.53 80.57 51.13 7.13 8.44 42.65 31 March 2010 3.87 94.31 38.79 9.40 6.75 53.33 31 March 2009 8.14 44.84 52.92 6.89 6.42 56.07

YEAR Inventory turnover ratio Inventory holding period Work in progress turnover ratio Conversion period Raw material turnover ratio Raw material holding period

6. ANALYSIS OF WORKING CAPITAL MANAGEMENT (a) Liquidity ratios

(i) Current Ratio: The current ratio is also known as the working capital ratio and is normally presented as a real ratio. The current ratio is the measure of whether a company has enough short-term assets to cover its short-term debt and is index of strength of working capital. Anything below 1 indicates negative W/C (working capital). While anything over 2 means that the company is not investing excess assets. A ratio of greater than one means that the firm has more current assets then current claims. Current Asset Current liabilities

Current Ratio

(ii) Acid Test Ratio: The acid test ratio is also known as the liquid or the quick ratio. Acid test ratio is a more rigorous test of liquidity than the current ratio and when used in conjunction with it, gives a better picture of the firm s ability to meet its short-term debts out of short-term assets. This ratio is used to determine risk that is not detected by the Working Capital ratio. A quick or liquid ratio of 1:1 is considered as satisfactory as the firm can easily or readily meets all of its current liabilities. Acid Ratio test = (Current Liabilities Asset Inventories)/ Current

(iii) Cash Ratio: As cash is being the most liquid asset, quoted investment has been taken as marketable securities. In our case the company carries a small amount of cash so it has not a favorable cash ratio. Cash Current Liabilities Snapshot of JSPLs liquidity ratios:

CASH RATIO

YEAR 31 March 2012 31 March 2011 31 March 2010 31 March 2009

CURRENT RATIO 1.08 1.74 1.30 1.51

ACID TEST RATIO 0.68 1.36 0.90 1.16

CASH RATIO 0.02 0.04 0.04 0.06

LIQUIDITY RATIOS

2 1.5

1
0.5 0 2012
CURRENT

2011

2010

2009
CASH

ACID-TEST

(i) The liquidity position of JSPL is not that good. Current ratio is very low for many years. The reason behind this is excessive short term loans in the capital structure of the company. If we compare it with other steel giant TATA than we find out that the liquidity ratios of Jindal is better because TATAs current ratio is less than one.

(ii) Current ratio of JSPL nears to one from last few years. Current ratio equals to one is not a good sign for any company. Company should try to improve its liquidity position. 1.3 will be a better ratio for the company. Because its a manufacturing company and all its trade is based on credit, it requires flexibility in its capital structure.

(iii) Current assets of JSPL consists very high proportion of inventory (more than 40%). That is why acid test ratio of company is very low. A proper planning for inventory control is required in the company because it is cleared from the stock statements that many materials of

JSPL are no moving materials. (This topic will be explain in the inventor management part)

(iv) Company is also maintaining low cash levels from many years. Their cash ratio is continuously decreasing. A proper analysis of cash management will be done later under topic cash management.

7. EFFICIENCY
(a) Working Capital to Gross Sale: Working Capital Working Capital to Gross Sale = Gross Sale

(b) Working Capital to Cost of Sale: Working Capital Working Capital to Cost of Sale = Cost of Sale
0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2006 2005 2004 2003
WCGS WCCS

YEAR 31 2006 31 2005 31 2004 31 2003

WCGS March 0.41

WCCS 0.07

March 0.20

0.36

March 0.11

0.19

March 0.15

0.25

(i) Efficiency ratio indicates how well a company is controlling its cost and how effectively company is utilizing its working capital. As it is clear from the figures that both the ratios are low, it simply means company is incurring high costs in comparison to its working capital.

(ii) The Company was showing a favorable trend as it was showing decline in the financial periods till 2005 but now as the ratio increased to .32 from .12 there is a matter of concern but here also JSPL is far better than the industrys average. Being in previous years JSPLs working capital was very low the ratio was less but now they are trying to improve it for liquidity purposes.

(c) Working Capital structure

SNAPSHOT OF WOKING CAPITAL STRUCTURE RATIOS OF JSPL: YEAR 31 March 31 March 31 March 31 March 2012 Current Asset to Total Asset 0.27 (CATA) Cash (CCA) Inventory to Current Asset 0.38 (ICA) Current Liabilities to Total 0.22 0.21 0.19 0.18 0.21 0.30 0.23 to Current Asset 0.02 0.03 0.03 0.04 2011 0.32 2010 0.27 2009 0.24

Liabilities (CLTL) Finished Goods to Inventory 0.45 (FGI) Raw Material to Inventory 0.33 (RMI) Loan & Advances to 0.39 0.48 0.33 0.34 1.05 0.86 2.24 0.37 0.39 0.23

Current Asset (LACA)

WORKING CAPITAL STRUCTURE

2.5 2 1.5 1 0.5 0 2012
CATA CCA

2011
ICA

2010
CLTL

2009
FGI RMI

(i) Current Asset to Total Assets Ratio: If we analyze the structural health of working capital for JSPL, the proportion of current assets to total assets has been showing almost constant trend continuously over the years, which shows that the company is having certain problems with its current asset management. But as this picture is

showing less declining so its very clear that this can be due to some investment for long-term return. (ii) Cash to Current Assets: The company shows an increasing trend in 2009 & again it decrease in 2010 but as this recovered again the increasing trend of cash in the current assets was observed. However in the year 2011 it decreased drastically to 0.022. We can say that it will effect liquidity position of the firm but on the other hand it is observed that they do not keep any ideal cash with them, which is a positive sign for the company. (iii) Inventory to Current Assets: Here, the company shows an unfavorable trend of increase in the proportion of the inventory to current assets, which represents that the company is locking up the working capital unnecessarily in the inventory. Its hard to comment that company is not working efficiently because company is trying to invest less in current assets than in fixed assets being there are certain projects which are in progress. (iv) Current liabilities to Total liabilities: The company shows an increasing trend in the proportion of the current liabilities in the total liabilities as this shows company is taking more loans to meet its liability and project investments are there, hence this shows a burden on the management of JSPL. This ratio is not the only means of reviewing a company's debt structure. (v) Finished goods to Inventory: With the analysis of this ratio it seems that the position of company is moving to bad management of inventory as in 2008 this was 0.09times than it increases to 0.45 times in 2012, which is a misleading situation for the company. This ratio of the company shows an unfavorable trend of increase

in the finished goods inventory, which means that the working capital is blocked in it till the sales occurs. (vi) Raw material to Inventory: The position of companys raw material locking is changing over the years but after 2009 it is showing decreasing trend which is favorable for the company and hence with the result it shows company is not locking up its working capital unnecessarily in raw material in

CHAPTER -6 CONCLUSION

Working capital management is an important aspect of any business. Every business concern should have adequate working capital to run its business operation. Every concern should have neither redundant of excess working capital nor inadequate or shortage of working capital. Both excess as well as short working capital positions are bad for any business. The three elements of working capital management are cash management receivable management and inventory management. If a finance manager

maintains these three elements of working capital management properly means the concern will get dramatic improvement in their sales volume and also in business. Working capital policies of a firm have a great effect on its

profitability, liquidity and structured health of the organization. Every concern should adopt some new tread management strategies that will help in greater productivity, inventory optimization and also better working capital management. So, it is noted that working capital is a means to run

business smoothly and profitability. Thus, the concept of working capital has its own important in a going concern. Good management of working capital is part of good finance management effective use of working capital will contribute to the operational efficiency of a department; optimum use will help to generate maximum return.

(i)

Liquidity Ratios-

The ideal current ratio & quick ratio is to 2:1 & 1:1

respectively. But current ratio, quick ratio & other liquidity ratio decreasing from ideal ratio. Thus we can say that liquidity position of a company is not satisfactory.

(ii)

Leverage Ratios- All ratios under leverage ratios are increasing which shows that shareholders share in total fund of the company is decreasing & Debt share is increasing. it is not good for company.

(iii)

Activity Ratios- Activity ratios are decreasing rapidly. This shows that company is not using its resources efficiently.

(iv)

Profitability Ratios-

Profitability ratios are showing excellent

performance of the company. Profits of the company the company are increasing at an increasing rate.

(v)

Break-even point Break-even point in year 2012 is quite increasing comparative to year 2011that is showing the working efficiency of production unit.

CHAPTER -7 LIMITATIONS
Availability of the financial data was very limited which is not disclosed due to sensitive nature for the company.

(i) (ii)

The main component of working capital is cost of capital, which is not described in the project because of confidential nature. External environment influence was not considered while doing the theoretical standard rather than the industrial standard because of unavailability of any such specific standard.

(iii) The

scope of the study was limited to only Jindal Steel & Power

Limited.

(iv) Lack of availability of plant related data to finance department which

acted as a limitation for the project.

(v)

The data is mostly secondary in nature

(vi) Data has been recalculated & regrouped wherever necessary (vii) In the absence of sufficient data personnel judgment have been taken on
reasonable assumption.

(viii)In the absence of sufficient data in-depth study of cash, Receivables and
inventory management was not possible

CHAPTER-8 RECOMMENDATIONS

(i)

JSPL should focus on increasing their Operating Profit. It can be done by increasing its sales and decreasing its operating costs. If companys operating profit will increase, than it will help in increasing its overall profitability.

(ii)

Companys return ratios also need a check. Turnover ratios are decreasing but not up to that extant. Other competitors have better turnover ratios which mean that JSPL has scope to lower down its assets to maintain the same level of sales or increase its sales on the same level of assets.

(iii) As it was clear that company have high debt in its capital structure, it
means a close observation is required for the benefits shareholders. Though it reduces the cost of capital but major portion of debt include unsecured loans on which company is paying high interest in comparison of secured loans.

(iv) The

company should try to reduce its inventory holding to lower

down the holding cost & increase its Raw Material Turnover. It can also help in lower down the operating cycle.

(v)

Company can make some improvements in their credit policy. Like they can offer discount on early payments. It can help in early collections. The cost associated with the debtors is low but then also company has the option of factoring. Because banks these days are charging very low interest rates on factoring / bill discounting. It can also solve the liquidity problem of the company.

(vi) As far as the cash management is concerned, its difficult to suggest

anything because I believe that companys cash planning is very good. All the time company looks for new investment opportunities in the market on a reasonable rate of return.

(vii) Company

should try to maintain its Operating Cash flows, because

last year companys operating cash flow decreased. It is not a good sign for the company.

(viii)The company should try to find out the ways to delay the payments to
its creditors. The options available for this purpose are already mentioned in Float portion of this report.

(ix) As companys international sales are low and its

proportion in total

sales is decreasing, company should search for international markets. Like demand for in Asian market steel is decreasing.

(x)

Company is using SAP as a tool, which is really helpful for the company. But it is not that much effective because of some reasons. Company must fill loopholes in this area.

ANNEXURE
REFERENCES Companys Internal Documents
Annual Reports of Last 4 years Financial Follow-up Report & Credit Monitoring Arrangement Report Memorandum & Articles of Association Stock Statements & Export Documents

Text Books & Literature

Khan, M.Y., Jain, PK, Financial Management, Tata McGraw-Hill Publishing Company Ltd., New Delhi, 2003.

Pandey, I.M., Financial Management, Vikas Publishing House Private Limited, New Delhi, 2001.

Bhattacharyya Hrishikes, working capital management strategies & techniques, Prentice Hall of India, 2004.

Chandra Prasanna, Financial Management Theory and Practice, TATA Mcgraw-Hill Publishing Company, 2004.

Websites

www.jindalsteelpower.com www.google.co.in www.jvsl.com

QUESTIONNAIRE
1) Have you heard or read anything about the Jindal Steel Industries? o Yes o No o Cant Say

2)

Would you like to see Mr. Vikrant Gujral, Vice Chairman and CEO, JSPL succeed in organizing the steel industry? o Yes o No o Cant Say

3)

Did you happen to pay any attention to the news about the proposed increase in steel prices? o Yes o No o Cant Say

4)

Have you heard or read anything about the government's seizure, or taking over, of the steel companies? o Yes o No o Cant Say

5)

Do you think the steel industry could or could not afford to give the workers a raise without increasing the price of steel? o Yes o No o Cant Say

6)

From what you know, do you think profits in the steel industry are higher, lower, or about the same as profits made by other industries in this country? o o o o Higher Lower About same Dont know

7) Have you heard or read anything about the possibility of a strike in the steel industries across the country? (1536 answered question) o Yes o No o Cant Say

8) Have you heard or read anything about the recent dispute between the steel industry (companies) and labour unions? o Yes o No o Cant Say 9) In the steel industry strikes, which do you think is more in the right -- the workers or the companies? o o o o 10) Workers Companies Both Cant Say

During the next 50 years, do you think the government in Washington will own and run...The big industries -- like auto, steel, etc.? o Yes o No

o Cant Say 11) Have you heard or read about the new increase of $50 a ton in the price of steel? o Yes o No o Cant Say 12) Should we remove from Germany all heavy industries which make such things as steel, automobiles, ships and the like? o Yes o No o Cant Say 13) Here are some things which will have to be decided when Japan is defeated. Will you give me your opinion on each...Should we destroy their industries which make such things as steel, automobiles, ships, and the like? o Yes o No o Cant Say 14) Have you ever heard or read anything about the "Little Steel Formula?" o Yes o No o Cant Say