A PROJECT REPORT ON

“WORKING CAPITAL MANAGEMENT IN HCL INFOSYSTEM LIMITED”

SUBMITTED TO
THE UNIVERSITY OF MUMBAI

IN THE PARTIAL FULFILLMENT OF

THE REQUIREMENT FOR

THE DEGREE OF

BACHELOR OF MANAGEMENT STUDIES

BY
NIKHIL SRIVASTAV
UNDER THE GUIDANCE OF
PROF. :-_____________________________
VIVEK COLLEGE OF COMMERCE
ACADEMIC YEAR
2018 - 19
 DECALARATION

I, ALTAMASH KAMANI, student of university of Mumbai B M S course of J.M.PATEL

College of commerce here by submit my project entitle

"WORKING CAPITAL MANAGEMENT IN HCL INFO SYSTEM LTD" In the academic

year 2016 -17

The subject matter contained in this project is researched and the work carried out is original
and under the guidance of

PROF:-_____________________________________, However, this material is developed to

enhance the clarity of hypothesis and has been used for academic purpose only.

Also no part of this project may be used and reproduced by others, either accidently or
commercial without written consent of author and/or her guide

Yours sincerely,

Place: Mumbai

Signature of the student

(ALTAMASH KAMANI)
 ACKNOWLEDGEMENT

I would like to thank the following people without whom this dissertation would not have been
possible

Firstly, I thank my col1ege J.M.PATEL College of Commerce for the facility like lab and
library etc. would like to thank my project guidance Mrs. Monica Chandelle for helping me
completing this project of "WORKING CAPITAL MANAGEMENT IN HCL INFOSYSTEM
LTD" I thank her for her guidance support and encouragement

I would also like to thank my class teacher Prof:-______________________ for his guidance,
support and encouragement throughout the project

I also wish to thank Manager of HCL Info system ltd for giving the precious time for providing
me necessary information regarding my project

Lastly, I thank my parents, brother, sisters and friends for the constant encouragement without
which this assignment would not be possible
 TABLE OF CONTENTS

CHAPTER NO. CONTENTS PG.NO.

ACKNOWLEDGEMENT
ABSTRACT
INTRODUCTION
· THE PROBLEMS
· PURPOSE OF STUDY
1.RESEARCH METHODOLOGY
· SCOPE OF THE STUDY
· DATA SOURCES
· LIMITATIONS
2. HINDUSTAN COMPUTERS LIMITED
3. HCL INFOSYSTEMS – AN OVERVIEW
· COMPANY’S HISTORY
· HCL AT A GLANCE
· ALLIANCES AND PARTNERSHIPS
· MANAGEMENT TEAM
· CORPORATE INFORMATION
4. CONCEPTUAL FRAMEWORK
· INTRODUCTION TO WORKING CAPITAL
MANAGEMENT
· SIGNIFICANCE OF WORKING CAPITAL
MANAGEMENT
· LIQUIDITY VS PROFITABILITY: RISK –
RETURN TRADE OFF
· CLASSIFICATION OF WORKING
CAPITAL
· TYPES OF WORKING CAPITAL NEEDS
· FINANCING OF WORKING CAPITAL
· FACTORS DETERMINING WORKING
CAPITAL REQUIREMENTS
· WORKING CAPITAL CYCLE
· SOURCES OF WORKING CAPITAL
· HCL FINANCIALS
· WORKING CAPITAL POSITION
· INVENTORY MANAGEMENT
· CASH MANAGEMENT
· RECEIVABLES MANAGEMENT
· MANAGING PAYABLES (CREDITORS)
· FINANCING CURRENT ASSETS
· WORKING CAPITAL & SHORT-TERM
FINANCING
5.DATA ANALYSIS& INTERPERTATION
· INDUSTRY ANALYSIS
· FINANCIAL GRAPHS
· CONCLUDING ANALYSIS
· SUGGESTIONS AND
RECOMMENDATIONS
· BIBLIOGRAPHY
.APPENDIX
ABSTRACT
This project is based on the study of working capital management in HCL
Info stems. An insight view of the project will encompass – what it is all about,
What it aims to achieve, what is its purpose and scope, the various methods used
For collecting data and their sources, including literature survey done, further specifying the
limitations of our study and in the last, drawing inferences from the learning so far.

HCL Info systems Limited (HCL), is a leading domestic computer hardware

And hardware services company. HCL is engaged in selling manufactured (like
PCs, servers, monitors and peripherals) and traded hardware (like notebooks,
Peripherals) to institutional clients as well as in retail segment. It also offers
Hardware support services to existing clients through annual maintenance
Contracts, network consulting and facilities management.

The working capital management refers to the management of working capital,

Or precisely to the management of current assets. A firm’s working capital
Consists of its investments in current assets, which includes short-term assets—
Cash and bank balance, inventories, receivable and marketable securities.
This project tries to evaluate how the management of working capital is done in
HCL Info systems through inventory ratios, working capital ratios, trends,
Computation of cash, inventory and working capital, and short term financing.
 INTRODUCTION:

The project undertaken is on “WORKING CAPITAL MANAGEMENT IN

HCL INFOSYSTEMS LIMITED”.

It describes about how the company manages its working capital and the
Various steps that are required in the management of working capital.

Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to
fund operations, reinvest and meet capital requirements
And payments. Understanding a company's cash flow health is essential to
Making investment decisions. A good way to judge a company's cash flow
Prospects is to look at its working capital management (WCM).

Working capital refers to the cash a business requires for day-to-day operations
Or, more specifically, for financing the conversion of raw materials into finished
Goods, which the company sells for payment. Among the most important items
Of working capital are levels of inventory, accounts receivable, and accounts
Payable. Analysts look at these items for signs of a company's efficiency and
Financial strength.

The working capital is an important yardstick to measure the company’s

Operational and financial efficiency. Any company should have a right amount
Of cash and lines of credit for its business needs at all times.

This project describes how the management of working capital takes place at
HCL Info systems.

THE PROBLEMS
In the management of working capital, the firm is faced with two key problems:

1. First, given the level of sales and the relevant cost considerations, what are the
Optimal amounts of cash, accounts receivable and inventories that a firm should
Choose to maintain?

2. Second, given these optimal amounts, what is the most economical way to?
Finance these working capital investments? To produce the best possible
Results, firms should keep no unproductive assets and should finance with the
Cheapest available sources of funds. Why? In general, it is quite advantageous
For the firm to invest in short term assets and to finance short-term liabilities.

PURPOSE OF STUDY
The objectives of this project were mainly to study the inventory, cash and
Receivable at HCL Info systems Ltd., but there are some more and they are –

· The main purpose of our study is to render a better understanding of

The concept “Working Capital Management”.
· To understand the planning and management of working capital at HCL
Info systems Ltd.

· To measure the financial soundness of the company by analyzing various

Ratios.

· To suggest ways for better management and control of working capital at

The concern.

RESEARCH METHODOLOGY

· This project requires a detailed understanding of the Concept – “Working Capital

Management”. Therefore, firstly we need to have a clear idea of what is working Capital,
how it is managed in HCL Info systems, what are?
The different ways in which the financing of working
Capital is done in the company.

The management of working capital involves managing inventories, Accounts receivable

and payable and cash. Therefore one also needs to have a sound knowledge about cash
management, inventory management
And receivables management.

· Then comes the financing of working capital requirement, i.e. how the
Working capital is financed, what are the various sources through which it
Is done.

· And, in the end, suggestions and recommendations on ways for better

Management and control of working capital are provided.
 SCOPE OF THE STUDY

This project is vital to me in a significant way. It does have some

Importance for the company too. These are as follows –

· This project will be a learning device for the finance student.

· Through this project I would study the various methods of the working
Capital management.

· The project will be a learning of planning and financing working capital.

· The project would also be an effective tool for credit policies of the Companies.

· This will show different methods of holding inventory and dealing with Cash and
receivables.

· This will show the liquidity position of the company and also how do them maintain a
particular liquidity position.

DATA SOURCES:
The following sources have been sought for the prep of this report:

· Primary sources such as business magazines, current annual reports, book

On Financial Management by various authors and internet websites the
Imp amongst them being: www.hcl.com, www.indiainfoline.com,
www.studyfinance.com.

· Secondary sources like previous year’s annual reports, reports on working

Capital for research, analysis and comparison of the data gathered.

· While doing this project, the data relating to working capital, cash
Management, receivables management, inventory management and short
Term financing was required.

· This data was gathered through the company’s websites, it’s corporate
Intranet, HCL’s annual reports of the last five years.

· A detailed study on the actual working processes of the company is also

Done through direct interaction with the employees and by timely
Studying the happenings at the company.

· Also, various text books on financial management like ICFAI’s book,

Khan & Jain, Parana Chandra and I.M.Pandey were consulted to equip
Ourselves with the topic.
LIMITATIONS OF THE STUDY:

· We cannot do comparisons with other companies unless and until

We have the data of other companies on the same subject.

· Only the printed data about the company will be available and not
The back–end details.

· Future plans of the company will not be disclosed to the trainees.

· Lastly, due to shortage of time it is not possible to cover all the

Factors and details regarding the subject of study.

· The latest financial data could not be reported as the company’s

Websites have not been updated.

HINDUSTAN COMPUTERS LIMITED:

Type Public (BSE: 500179, BSE: 532281)

Founded 11th August 1976

Headquarters Noida, India

(Delhi metropolitan area), India

Key People Shiv Nadir, Founder, Chairman & CEO

Sanjay Kumar Chaudhary, Viet Near

Industry Information Technology Services

Revenue ▲4.7 billion USD

Employees ~53,000 (as on 31st Dec 2007)

Website www.hcl.in

Hindustan Computers Limited, also known as HCL Enterprise, is one of

India's largest electronics, computing and information Technology Company.
Based in Noida, near Delhi, the company comprises two publicly listed Indian
Companies, HCL Technologies and HCL Info systems.
HCL was founded in 1976 by Shiv Nadir, Aja Chowdhury and four of their
Colleagues. HCL was focused on addressing the IT hardware market in India for
The first two decades of its existence with some sporadic activity in the global
Market. In 1981, HCL seeded a company focused on addressing the computer
Training industry, NIIT, though it has currently divested its stake in the
Company. In 1991, HP took minority stake in the company (26%) and the
Company was known as HCL HP for the five years of the joint venture. On
Termination of the joint venture in 1996, HCL became an enterprise which
Comprises HCL Technologies (to address the global IT services market) and
HCL Info systems (to address the Indian and APAC IT hardware market). HCL
Has since then operated as a holding company.

HCL INFOSYSTEMS LIMITED AN OVERVIEW ABOUT THE COMPANY

HCL Info systems is no flash in the Information Technology pan. Founded in

1976, the firm has climbed into pantheon of India's corporate giants on the
Strength of its IT products and services. HCL Info systems specializes in IT
Hardware (PC's and servers, as well as networking, imaging and
Communications products), and system integration services serving the
Domestic Indian market.

In addition to its consumer products, the company Provides commercial IT products,

facilities management, network services, and IT security services for clients in such
industries as government, financial Services, and education. HCL Corporation owns
significant stakes in HCL Info systems (about 44%) and sister company HCL Technologies.

HCL Info systems Ltd, a listed subsidiary of HCL, is an India-based hardware

And systems integrator.
It claims a presence in 170 locations and 300 service Centers. Its manufacturing facilities are
based in Chennai, Pondicherry and Uttara hand .Its headquarters is in Noida.

HCL Peripherals (A Unit of HCL Info systems Limited) Founded in the year
1983, has established itself as a leading manufacturer of computer peripherals
In India, encompassing Display Products, Thin Client solutions, Information
And Interactive Kiosks. HCL Peripherals has two Manufacturing facilities, one
In Pondicherry (Electronics) and the other in Chennai (Mechanical) .The
Company has been accredited with ISO 9001:2000, ISO 14001, TS 16949 and
ISO 13485.

HISTORY

HCL Info systems Ltd is one of the pioneers in the Indian IT

Market, with its origins in 1976. For over quarter of a century,
We have developed and implemented solutions for multiple
Market segments, across a range of technologies in India. We
Have been in the forefront in introducing new technologies and
Solutions. The highlights of the HCL saga are summarized
Below:

YEARHIGHLIGHTS

1976
- Foundation of the Company laid
- Introduces microcomputer-based programmable calculators with wide
Acceptance in the scientific / education community

1977
- Launch of the first microcomputer-based commercial computer with a ROM
-based Basic interpreter
- Unavailability of programming skills with customers results in HCL developing
Bespoke applications for their customers

1980
- Formation of Far East Computers Ltd., a pioneer in the Singapore IT market, for
SI (System Integration) solutions

1983
- HCL launches an aggressive advertisement campaign with the theme ' even a
Typist can operate' to make the usage of computers popular in the SME (Small &
Medium Enterprises) segment. This proposition involved menu-based applications
For the first time, to increase ease of operations. The response to the advertisement
Was phenomenal.
-HCL develops special program generators to speed up the development of
Applications

1986
- Zonal offices of banks and general insurance companies adopt computerization
- Purchase specifications demand the availability of RDBMS products on the
Supplied solution (Unify, Oracle). HCL arranges for such products to be ported to
Its platform.
- HCL assists customers to migrate from flat-file based systems to RDBMS

1991
- HCL enters into a joint venture with Hewlett Packard
- HP assists HCL to introduce new services: Systems Integration, IT consulting,
Packaged support services (basic line, team line)

1994 - HCL acquires and executes the first offshore project from IBM Thailand
- HCL sets up core group to define software development methodologies

1995 - Starts execution of Information System Planning projects

- Execution projects for Germany and Australia
- Begins Help desk services

1996
- Sets up the STP (Software Technology Park) at Chennai to execute software
Projects for international customers
- Becomes national integration partner for SAP
1997
- Kolkata and Noida STPs set up
- HCL buys back HP stake in HCL Hewlett Packard

1998
- Chennai and Coimbatore development facilities get ISO 9001 certification

1999
- Acquires and sets up fully owned subsidiaries in USA and UK
- Sets up fully owned subsidiary in Australia
- HCL ties up with Broad vision as an integration partner

2000
- Sets up fully owned subsidiary in Australia
- Chennai and Coimbatore development facilities get SEI Level 4 certification
- Bags Award for Top PC Vendor in India
- Becomes the 1st IT Company to be recommended for latest version of ISO 9001
: 2000
- Bags MAIT's Award for Business Excellence
- Rated as No. 1 IT Group in India

2001
-Launched Pentium IV PCs at below Rest 40,000
-IDC rated HCL Info systems as No. 1 Desktop PC Company of 2001

2002
-Declared as Top PC Vendor by Dataquest
-HCL Info systems & Sun Microsystems enters into an Enterprise Distribution
Agreement
- Realigns businesses, increasing focus on domestic IT, Communications &
Imaging products, solutions & related services

2003
- Became the first vendor to register sales of 50,000 PCs in a quarter
- First Indian company to be numeri Uno in the commercial PC market
- Enters into partnership with AMD
- Launched Home PC for Rest 19,999

2004
- 1st to announce PC price cut in India, post duty reduction, offers Ezeebee at Rest.
17990
- Maintains No.1 position in the Desktop PC segment for year 2003
- Becomes the 1st company to cross 1 lac unit milestone in the Indian Desktop PC
Market
- Partners with Union Bank to make PCs more affordable, introduces lowest ever
EMI for PC in India
- Registers a market share of 13.7% to become No.1 Desktop PC Company for
Year 2004
- Crosses the landmark of $ 1 billion in revenue in just nine months

2005
- Launch of HCL PC for India, a fully functional PC priced at Rs.9, 990/-
- Rated as the No.1 Desktop PC Company by IDC India -Dataquest
- 'Best Employer 2005' with five star ratings by IDC India -Dataquest.
- 'The Most Customer Responsive Company 2005'
-IT Hardware Category by The Economic Times -Avaya Global Connect.
-Top 50 fastest growing Technology Companies in India' & 'Top 500 fastest
Growing Technology Companies in Asia Pacific' by 'Deloitte & Touché'. By
'Deloitte & Touché'
-'7th IETE -Corporate Award 2005' for performance excellence in the field of
Computers & Telecommunication Systems by IETE.
-India’s 'No.1 vendor' for sales of A3 size Toshiba Multi-Functional Devices for
The year '04 -'05 by IDC.
-Toshiba 'Super Award 2005 towards business excellence in distribution of
Toshiba Multifunctional products,
-Strategic Partners in Excellence' Award by in focus Corporation for projectors.
-'Most valued Business Partner' Award for projectors by in focus Corporation in
2005

2006 (Till June)

- 75, 000+ machines produced in a single month
- HCL Info systems in partnership with Toshiba expands its retail presence in India
By unveiling 'shop Toshiba'
- HCL Info systems & Nokia announce a long term distribution strategy
- HCL the leader in Desktops PCs unveils India's first segment specific range of
Notebooks brand - 'HCL Laptops'
- IDBI selects HCL as SI partner for 100 branches ICT infrastructure rollout
- HCL Info systems showcases Computer Solutions for the Rural Markets in India
- HCL Support wins the DQ Channels-2006 GOLD Award for Best after Sales
Service on a nationwide customer satisfaction survey conducted by IDC
- HCL Info systems First in India to Launch the New Generation of High
Performance Server Platforms Powered by Intel Dual - Core Xeon 5000 Processor
- HCL Forms a Strategic Partnership with APPLE to provide Sales & Service
Support for iPods in India

VISION STATEMENT:
"Together we create the Enterprises of Tomorrow"

MISSION STATEMENT:
"To provide wox`x`rld-class Information Technology solutions and services
In order to enable our customers to serve their customers better"
CORE VALUES:
· Nothing transforms life like education.
· We shall honor all commitments
· We shall be committed to Quality, Innovation and Growth in every
Endeavor
· We shall be responsible corporate citizens

QUALITY POLICY:
"We shall deliver defect-free products, services and solutions to meet the
Requirements of our external and internal customers, the first time, every time."

OBJECTIVES:
· MANAGEMENT OBJECTIVES –
To fuel initiative and foster activity by allowing individuals, freedom
Of action and innovation in attaining defined objectives.

· PEOPLE OBJECTIVES –
To help people in HCL Info systems Ltd., share company’s success,
Which they make possible; to provide job security based on their
Performance; to
Recognize their individual achievements; and help them gain a sense of
Satisfaction and accomplishment from their work.

ALLIANCES and PARTNERSHIPS:

To provide world-class solutions and services to all our customers, HCL
Info systems have formed Alliances and Partnerships with leading IT companies
Worldwide.
HCL Info systems has alliances with global technology leaders like Intel, AMD,
Microsoft, Bull, Toshiba, Nokia, Sun Microsystems, Ericsson, NVidia,
SAP, Scan soft, SCO, EMC, Veritas, Citrix, CISCO, Oracle, Computer
Associates, Red Hat, in focus, Duplo, Samsung and Novell.
These alliances on one hand give us access to best technology & products as
Well as enhancing our understanding of the latest in technology. On the other
Hand they enhance our product portfolio, and enable us to be one stop shop for
Our customers.

MANAGEMENT TEAM:
Aja Chowdhury
Co-Founder HCL, Chairman and CEO - HCL Info systems.
An engineer by training, Aja Chowdhury is one of the six cofounder
Members of HCL, India’s premier IT conglomerate.

J V Ramamurthy
Chief Operating Officer HCL Info systems Ltd.
J V Ramamurthy has an engineering degree in Electronics &
Communications, from Gundy Engineering College, and a Masters'
Degree in Applied Electronics from the Madras Institute of
Technology, both in Chennai.

Rupendra Kumar
Executive Vice President - Frontline Division HCL Info systems Ltd.
Mr. Rupendra Kumar has been with HCL for over 30 years and has
Seen HCL grow from a startup company to a gigantic conglomerate that it is today.
WORKING CAPITAL MANAGEMENT CONCEPTUAL FRAMEWORK

Introduction

Significance of working capital management

Liquidity Vs profitability: Risk – Return trade off

Classification of working capital

Types of working capital needs

Financing of working capital

Factors determining working capital requirements

Working capital cycle

Sources of working capital

HCL financials

Working capital position

Inventory management

Cash management

Receivables management

Managing payables (Creditors)

Financing current assets

Working capital & short-term financing

Financing Current Assets

Significance of Working Capital Management
The management of working capital is important for several reasons:

· For one thing, the current assets of a typical manufacturing firm account
For half of its total assets. For a distribution company, they account for even
More.

· Working capital requires continuous day to day supervision. Working

Capital has the effect on company's risk, return and share prices,

· There is an inevitable relationship between sales growth and the level of

Current assets. The target sales level can be achieved only if supported by
Adequate working capital inefficient working capital management may lead
To insolvency of the firm if it is not in a position to meet its liabilities and
Commitments.

LIQUIDITY VS PROFITABILITY: RISK - RETURN TRADE OFF

Another important aspect of a working capital policy is to maintain and
Provide sufficient liquidity to the firm. Like the most corporate financial
Decisions, the decision on how much working capital be maintained involves a
Trade off- having a large net working capital may reduce the liquidity risk
Faced by a firm, but it can have a negative effect on the cash flows. Therefore,
The net effect on the value of the firm should be used to determine the optimal
Amount of working capital.
Sound working capital involves two fundamental decisions for the firm. They
Are the determination of?

· The optimal level of investments in current assets.

· The appropriate mix of short-term and long-term financing used to support

This investment in current assets, a firm should decide whether or not it
Should use short-term financing. If short-term financing has to be used, the
Firm must determine its portion in total financing. Short-term financing
May be preferred over long-term financing for two reasons:

· The cost advantage

· Flexibility

CLASSIFICATION OF WORKING CAPITAL

Working capital can be classified as follows:
· On the basis of time
· On the basis of concept

TYPES OF WORKING CAPITAL NEEDS

Another important aspect of working capital management is to analyze the
Total working capital needs of the firm in order to find out the permanent and
Temporary working capital. Working capital is required because of existence of
Operating cycle.
The lengthier the operating cycle, greater would be the need
For working capital. The operating cycle is a continuous process and therefore,

The working capital is needed constantly and regularly. However, the

Magnitude and quantum of working capital required will not be same all the
Times, rather it will fluctuate.

The need for current assets tends to shift over time. Some of these changes
Reflect permanent changes in the firm as is the case when the inventory and
Receivables increases as the firm grows and the sales become higher and
Higher.
Other changes are seasonal, as is the case with increased inventory
Required for a particular festival season. Still others are random reflecting the
Uncertainty associated with growth in sales due to firm's specific or general
Economic factors.
The working capital needs can be bifurcated as:
· Permanent working capital
· Temporary working capital

Permanent working capital:

There is always a minimum level of working capital, which is continuously
Required by a firm in order to maintain its activities.
Every firm must have a Minimum of cash, stock and other current assets, this minimum level
of Current assets, which must be maintained by any firm all the times, is known
As permanent working capital for that firm. This amount of working capital is
Constantly and regularly required in the same way as fixed assets are required.
So, it may also be called fixed working capital.

Temporary working capital:

Any amount over and above the permanent level of working capital is
Temporary, fluctuating or variable working capital. The position of the required
Working capital is needed to meet fluctuations in demand consequent upon
Changes in production and sales as a result of seasonal changes.

The permanent level is constant while the temporary working capital is

Fluctuating increasing and decreasing in accordance with seasonal demands as
Shown in the figure.
In the case of an expanding firm, the permanent working capital line may not
Be horizontal. This is because the demand for permanent current assets might
Be increasing (or decreasing) to support a rising level of activity. In that case
Line would be rising.
FINANCING OF WORKING CAPITAL
There are two types of working capital requirements as discussed above. They
Are:

· Permanent or Fixed Working Capital requirements

· Temporary or Variable Working Capital requirements

Therefore, to finance either of these two working capital requirements, we
Have long-term as well as short-term sources

FACTORS DETERMINING WORKING CAPITAL +REQUIREMENTS

There are many factors that determine working capital needs of an enterprise.

Some of these factors are explained below:

· Nature or Character of Business.

The working capital requirement of a firm is closely related to the Nature of its business.
service firm, like an electricity undertaking or a Transport corporation, which has a short
operating cycle and which sells Predominantly on cash basis, has a modest working capital
requirement. Oh the other hand, a manufacturing concern like a machine tools unit,

Which has a long operating cycle and which sells largely on credit, has a Very substantial
working capital requirement.

HCL Info systems carry on activities related to computer systems. Though they are primarily
an assembling firm they also have Manufacturing facilities in Chennai and Pondicherry. This
requires them To keep a very sizeable amount in working capital.

· Size of Business/Scale of Operations.

HCL is the leader in its segment in both consumer as well as Commercial market share. They
have increased their share in the Consumer segment notably in the last four years. This they
have

Achieved through retail expansion. The scale of operations and the size It Holds in the Indian
IT market makes it a must for them to hold their Inventory and current asset at a huge level
WORKING CAPITAL POSITION:
CURRENT ASSET – TOTAL ASSET

PARTICULARS 2006 2005 2004 2003 2002

CURRENT
ASSETS 100970 81533 54091 45042 55985
NET BLOCK 7970 5329 4925 4954 5552
TOTAL ASSETS 122479 99139 87076 71285 75205
CA/TA 82.44 82.24 62.12 63.18 74.43

The current asset percentage on total asset is the highest over the years. This
Increasing percentage of current assets to the total assets at first might indicate
A preference for liquidity in place of profitability, but a look into the nature of
The business carried on by HCL Info systems reveal the reason behind it. How
Far their preference to current assets has affected the sales is shown below.

NET CURRENT ASSET – SALES

PARTICULARS 2006 2005 2004 2003 2002
NET CURRENT

ASSETS 40343 34742 14301 18752 27065

SALES 238136 199886 154295 166604 127003

WORKING 16.12 142.93 -23.736 -30.7 -0.46

CAPITAL %
INCREASE

SALES % 19.14 29.54 -7.38 31.18 8.7

INCREASE

The sales has increased and the profits risen despite the 16.12% increase in
Working capital. But what is noteworthy here is that the firm has managed to
Maintain the trend of an increase in net current assets. Whether the change has
Worked for the company has to be analyzed in the context of the growth in
Sales as compared to the previous year.
There has been a 19.14% rise in the
Sales or revenue generated. This would automatically suggest towards a very
Efficient working capital management where the assets of the firm which are
Short-term in nature have been utilized optimally in connection to their fixed
Assets. The firm has gone towards such a dramatic shift in their working
Capital position might be because of the tremendous growth witnessed in the
Domestic IT market.
CURRENT ASSET – FIXED ASSET

PARTICULARS 2006 2005 2004 2003 2002

NET CA/NET BLOCK 5.062:1 6.519:1 2.903:1 3.785:1 4.875:1

The ratio of the net current asset to the fixed ones is an indicator as to the
Liquidity position of the firm. This ratio has declined for the firm compared to The previous
year.
There could be an argument as to whether the increased ratio Of working capital to net block
is a conservative policy and whether it would be Detrimental to the interest of the company.
Or, whether it would have been Proper if the company invested more into the capital
expenditure in the form of Plant and machinery or invested in any other form that would have
got them an Internal rate of return. What has to be kept in mind before coming to a
Conclusion as to the policy of the company, is the fact that the firm being Primarily into
assembling, its investment in the fixed asset segment need not be High. A look into the
capacity utilization of the plant would reaffirm this point. It would be ideal for the firm to
continue in the same line and not have Excessive investment in the fixed asset as they can
easily add onto this part.

COMPUTER and MICRO PROCESSOR BASED SYSTEMS`

YEAR INSTALLED ACTUAL % CAPACITY
CAPACITY PRODUCTION UTILIZATION
2006 1150000 581805 50.59
2005 600000 448121 74.69
2004 525000 295192 56.23

DATA GRAPHIC/DISPLAY MONITOR/TERMINALS/HUBS

YEAR INSTALLED 2006 250000 267326 106.9352

CAPACITY
ACTUAL 2005 250000 259617 103.85
PRODUCTION
% CAPACITY 2004 350000 297991 85.14
UTILIZATION

That the fixed assets of the firm are being put to efficient use and the firm is
Trying for optimum capacity utilization is something that can be easily deduced.
Whether the current assets or the working capital of the firm has anything to do
With it is for us to see.

An increased production in normal circumstances means

Better raw material to finished goods conversion rate, i.e. the firm is taking less
Of time in the production process and this happens when the current asset
Employed in relation with the fixed ones are at optimum. The other notable
Feature here is that though the firm has added on to its installed capacity in all
Three years, they were still able to increase the capacity utilization. That they
Have been able to do it shows that the more current assets, especially inventory
Used in relation to the fixed assets, i.e., plant and machinery and their
Management has only helped in increasing their utilization to the maximum.

CURRENT ASSET – CURRENT LIABILITY

PARTICULARS 2006 2005 2004 2003 2002
CURRENT ASSETS 100970 81533 54091 45042 55985
CURRENT LIABILITES 60627 46791 39790 26290 28920
% CURRENT ASSETS
INCREASE 23.84 50.7 20.09 -19.54 8.9
%CURRENT LIABILITES 29.57 17.6 51.35 -9.1 19.45
INCREASE

The 16.12% increase in Net Current assets despite of the fact that there has
Been an increase in the Current Assets by 23.84% and increase in Current
Liability has been by 29.57% over that of the previous year has to be attributed
To the fact that in 2005, the company showed such a high increase in CA, that it
Is still being offset. This is an indication as to the expanding operations of the
Firm. HCL has increased its current assets in order to meet the increasing sales.

The firm’s level of liquidity being high, we need a check on whether it affects
The return on assets.

INVENTORY MANAGEMENT

Inventories

Inventories constitute the most important part of the current assets of large Majority of
companies. On an average the inventories are approximately 60% of the current assets in
public limited companies in India. Because of the large size of inventories maintained by the
firms, a considerable amount of funds is committed to them. It is therefore, imperative to
manage the inventories efficiently and effectively in order to avoid unnecessary investment.

Nature of Inventories
Inventories are stock of the product of the company is manufacturing for sale
And components makeup of the product. The various forms of the inventories
In the manufacturing companies are:

Raw Material:
It is the basic input that is converted into the finished
Product through the manufacturing process. Raw materials are those units
Which have been purchased and stored for future production.
Work-in-progress:
Inventories are semi-manufactured products. They
Represent product that need more work they become finished products for
Sale.

Finished Goods:
Inventories are those completely manufactured
Products which are ready for sale. Stocks of raw materials and work-in progress
Facilitate production, while stock of finished goods is required
For smooth marketing operations. Thus, inventories serve as a link between the production
and consumption of goods.

Inventory Management Techniques

In managing inventories, the firm’s objective should be to be in consonance
With the shareholder wealth maximization principle. To achieve this, the firm
Should determine the optimum level of inventory. Efficiently controlled
Inventories make the firm flexible. Inefficient inventory control results in
Unbalanced inventory and inflexibility-the firm may sometimes run out of stock
And sometimes pile up unnecessary stocks.

Economic Order Quantity (EOQ):

The major problem to be resolved Is how much the inventory should be added when
inventory is?
Replenished. If the firm is buying raw materials, it has to decide lots in Which it has to
purchase on replenishment. If the firm is planning a Production run, the issue is how much
production to schedule. These Problems are called order quantity problems, and the task of
the firm is To determine the optimum or economic lot size. Determine an optimum Level
involves two types of costs:-

Ordering Costs:
This term is used in case of raw material and Includes all the cost of acquiring raw material.
They include the Costs incurred in the following activities:
ª Requisition
ª Purchase Ordering
ª Transporting
ª Receiving
ª Inspecting
ª Storing
Ordering cost increase with the number of orders placed; thus the More frequently inventory
is acquired, the higher the firm’s Ordering costs. On the other hand, if the firm maintains
large Inventory’s level, there will be few orders placed and ordering Costs will be relatively
small. Thus, ordering costs decrease with The increasing size of inventory.

Carrying Costs:
Costs are incurred for maintaining a given level
Of inventory are called carrying costs. These include the following
Activities:
. Warehousing Cost
.Handling
.Administrative cost
.Insurance
.Deterioration and obsolescence carrying costs are varying with inventory size. This
behavior is Contrary to that of ordering costs which decline with increase in Inventory size.
The economic size of inventory would thus depend On trade-off between carrying costs and
ordering cost.

Composition 2006 2005 2004

Raw Material 6349 7749 6127
Stores and Spares 3713 2987 2622
Finished Goods 13374 7245 6506
Work-in-progress 595 784 871

The increasing component of raw materials in inventory is due to the fact That the company
has gone for bulk purchases and has increased Consumption due to a fall in prices and
reduced margins for the year. Another reason might be the increasing sales, which might
have induced Them to purchase more in anticipation of a further increase in demand of
The product. And the low composition of work-in-progress is Understandable as because of
the nature of the business firm is involved In. To the question as to whether the increasing
costs in inventory are Justified by the returns from it the answer could be found in the HCL
Retail expansion. HCL caters to the need of the two separate segments:

a) Institutions for which they manufacture against orders and,

b) Retail segment of the market.

They are more into retail than earlier and at present more than 650 retail Outlets branded with
HCL sign ages and more are in the pipeline The company in order to meet its raw materials
requirements could have Gone for frequent purchases, which would have resulted in lesser
cash Flows for the firm rather than the high expenditure involved when
Procuring in at bulk. The reason why the firm has gone for these bulk Purchases because of
the lower margins and the discounts it availed Because of procuring in bulk quantities.

A negative growth in WIP could be because:

a) The time taken to convert raw materials to finished goods is very
Minimal

b) This is also due to capacity being not utilized at the optimum. ABC System: ABC system
of inventory keeping is followed in the Factories. Various items are categorized into three
different levels in the Order of their importance. For e.g. items such as memory, high
capacity Processors and royalty are placed in the ‘A’ category. Large number of Firms has to
maintain several types of inventories. It is not desirable the Same degree of control all the
items. The firm should pay maximum
Attention to those items whose value is highest. The firm should Therefore, classify
inventories to identify which items should receive the

Most effort in controlling. The firm should be selective in approach to Control investment in
various types of inventories. This analytical Approach is called “ABC Analysis”. The high-
value items are classified As “An items” and would be under tightest control. “C items”
represent Relatively least value and would require simple control. “B items” fall in Between
the two categories and require reasonable attention of Management.

JIT:
The relevance of JIT in HCL Info system can be questioned. This is Because they procure
materials on the basis of projections made at least Two or three months before. Even at the
time of procurement they ensure That they procure much more than what actually is required
by the firm That is they hold significant amount of inventory as safety stock. This is
Done to counter the threat involved in default and accidental Breakdowns. The levels of
safety stock usually vary according to the Usage.

Work-in-progress
Particulars 2006 2005 2004
Cost of Production 191911 159651.19 113500.33
Cost of Production/day 525.78 437.4 310.95
Work in progress inventory 689.5 827.52 679.455
WIP Holding days 1.31 1.89 2.19

The work-in-progress holding time is important for a firm in the sense that it
Determines the rate of time at which the production process will be complete or
The finished goods will be ready for disposal by the firm. The firm as it is in the
Process of assembling should take the least possible time in conversion to finished goods
unlike a hard core manufacturing firm, as any firm would like to have its inventory in the
work-in-progress at the minimum. There would also be
Less of stock out costs as due to better conversion rates the firm is able to meet
The rise in demand situations. More the time it spends lesser its efficiency would
Be in the market. Here the firm has been able to bring down its WIP conversion
Periods.
 Finished Goods
Particulars 2006 2005 2004
Cost of goods sold 228177 178438.8 124768.92
Cost of goods sold/day 625 488.87 341.832
Finished goods inventory 10310 6875.725 5026.505
Finished goods inventory Holding days 16 14.06 14.8

The time taken for the firm to realize its finished goods as sales has increased as
Compared to last year. This growth in sales could be traced back to the growing
Domestic IT market for the commercial as consumer segment in India. HCL has
Around 15% of the market in desktop and it is the market leader in this segment.
So it is only natural that they are able to better their conversion rate of finished
Goods to sales.

Operating Cycle
Particulars 2006 2005 2004
Inventory conversion period 38 42 45
Average collection period 70 63 66
Gross operating cycle 108 105 111
Average payment period 22 23 17
Operating cycle 86 82 94

The operating cycle of the firm reveals the days within which the inventory
Procured gets converted to sales or revenue for the firm. This time period is of
Importance to the firm as a lag here could significantly affect the profitability,
Liquidity, credit terms, and the policies of the firm. All the firms would like to
Reduce it to such extend that their cash inflows are timely enough to meet their
Obligations and support the operations. That the firm has been able to reduce the

Ratio is in itself an achievement as they were having huge stocks of inventory.

But the reduction in the cycle could also be attributed to the boom in the market
And the growth it is expected to reach. This boom automatically ensures the
Demand for the finished goods and thus helping in it to garner sales for the firm.

Raw Material Consumption

Particulars 2005 2004 2003
Imported 92007 70784.27 42129.63
Indigenous 29070 27187.04 15645.51
% Imports 75.99 72.25 72.92

A major chunk of the imports come from Korea and Taiwan and is purchased in
US$. The value of imported and indigenous raw material consumed give a clear
Picture that if there is a change in the EXIM policy of the government it is
Bound to affect the company adversely as more than 70% of their consumption
Is from imports. But this is the scenario witnessed in the industry as a whole
And though HCL is into expanding its operation to Uttaranchal it in the present
State is would be affected by a change in the import duty structure.
A major chunk of their current assets are in the form of inventory and the
Change in technology will invariably be a threat faced by the firm. The question
Of technology applying here like says a certain device going say out of fashion
Or outdated. For e.g. TFT monitors being in demand more than CRT.

CASH MANAGEMENT SOURCES OF CASH:

Sources of additional working capital include the following:

· Existing cash reserves
· Profits (when you secure it as cash!)
· Payables (credit from suppliers)
· New equity or loans from shareholders
· Bank overdrafts or lines of credit.
· Long-term loans
If you have insufficient working capital and try to increase sales, you can
Easily over-stretch the financial resources of the business. This is called
Overtrading.

Early warning signs include:

· Pressure on existing cash
· Exceptional cash generating activities e.g. offering high discounts for
Early cash payment
· Bank overdraft exceeds authorized limit.
· Seeking greater overdrafts or lines of credit
· Part-paying suppliers or other creditors
· Paying bills in cash to secure additional supplies
· Management pre-occupation with surviving rather than managing
· Frequent short-term emergency requests to the bank (to help pay wages,
Pending receipt of a cheese).

CASH MANAGEMENT IN HCL INFOSYSTEMS:

The cash management system followed by the HCL Info systems is mainly
Lock box system.

Cash Management System involves the following steps:

1. The branch offices of the company at various locations hold the
Collection of cheese of the customers.
2. Those cheese are either handed over to the CMS agencies or bank of the
Particular location take charge of whole collection.
3. These CMS agencies or bank send those cheese to the clearing house to
Make them realized. These cheese can be local or outstation.
4. The CMS agencies or bank send information to the central hub of the
Company regarding realization/cheese bounced.
5. The central hub passes on the realized funds to the company as per the
Agreed agreements.
6. The CMS agencies or concerned bank provides the necessary MIS to the
Company as per requirement.
In cash management the collect float taken for the cheese to be realized into
Cash is irrelevant and non-interfering because banks such as Standard
Chartered, HDFC and Citibank who give credit on the basis of these cheese
After charging a very small amount. These credits are given to immediately and
The maximum time taken might be just a day. The amount they charge is very
Low and this might cover the threat of the cheese sent in by two or three
Customers bouncing. Even otherwise the time taken for the cheese to be
Processed is instantaneous. Their Cash Management System is quite efficient.

Cash-Current Liability
Particulars 2006 2005 2004
Absolute Liquid Ratio 0.24:1 0.31:1 0.11:1
The absolute liquid ratio is the best for three years and the cash balances as to
The current liability has improved for the firm. Firm has large resources in cash
And bank balances. While large resources in cash and bank balances may seem
To affect the revenue the firm could have earned by investing it elsewhere as
Maintenance of current assets as cash and in near cash assets and marketable
Securities may increase the liquidity position but not the revenue or profit
Earning capacity of the firm.

Dividend Policy-Cash

Particulars 2004 2005 2006

Dividend Policy% 210 310 400
Shift in Sales 154295 199886 238136
Cash Balance 4463.43 14582.65 14529.29
Cash in Hand 118.33 128.97 128.97
The other notable feature in HCL statements has been the growing dividend Policy of the
firm. The payment of dividend means a cash outflow. Thus cash Position is an important
criterion at the time of paying dividends. There is a Theory that greater the cash position and
ability to pay dividends. The firm has Adopted a policy of disbursing the revenue earned as
profits to the shareholders As dividends as could be seen from the increasing % of dividends
declared.

Particulars 2006 2005 2004

PBIDT 14284 15634 14523
Equity Dividend% 400 310 210

This could mean two things for the firm the amount of cash retained in the Business for
capital expenditure purposes are minimal or nil. But rather than Investing more in plant and
machine which they can at any point in time by Adding on an additional line if need they
would like to optimize their utilization In fixed assets at present. This also means that the
percentage of cash in hand Maintained by the firm as a source of liquidity could be reduced,
i.e. the amount Of idle cash in the business could be made to a level which the firm feels
Optimum.

The firm feels that they should retain cash and it would be in the interest of the Firm as well
as the shareholders. This would automatically mean as decrease in Earning/share (EPS)
(Basic EPS declined from 8 in 2005 to 6.74 in 2006). It Would prompt more of investors
being interested in the shares of the company, Which would boost the purchase of the
securities and increase the market Price/share thus being beneficial for the firm.

Cash Flows
Cash Flows 2006 2005 2004
Net Cash from Operating activities 6924 2675.57 13706.34
Net Cash from Investing activities -3515 15661.29 -2169.16
Net Cash from Financing activities -3512 -8217.68 -11412.1

The firm has disposed of investments worth around 655 Crores to meet its
Growing needs. The other notable feature is decline is the firm’s inflows from
Operations primarily due to the reason that the cash generated from the
Operations is the lowest in three years. And the firm’s growing dividend policy
Has contributed to the outflows in financing activities.
Cash Flow in Operating Activities
Working Capital Changes
Working Capital Changes 2006 2005 2004
Trade and other receivables -14166 -14510.69 -7106.68
Inventories -5221 -2683.92 -7221.11
Trade Payables and other Liabilities 13026 6419.13 14311.5

The cash from the operation has been subject to considerable change due to the Changes that
could be adjusted towards trade receivables and trade payables. The outflows in inventory
have become as low as 37% of what it was last year Despite an increase in the inventory
consumption by 16.64%. The resulting Reduction in the cash outflows might be because of
the inventories being Procured more on credit. That the cash from operations has declined has
Affected the current liability index of the firm.

Cash Flow in Investing Activities

Investments in Mutual Funds 2006 2005 2004
Investments (yearend) 13539 12277.44 28059.88
Purchase of Investment -65992 -53075.99 -59249.81
Disposal/Redemption of Investment 65312 65489.84 52087.36

The investments have reduced from the last year due to the redemption of Investments taken
place to meet various needs such as increasing demand in Stock or inventory and to ensure
better credit and receivables policy.

We can see that the firm has in these three years increased their cash inflow from the
Investing activities by way of disposal of investments when in need. That is the
Firm has redeemed to realize cash as to meet its expanding operations, fund the
Inventory procurement and meet the obligations.

The investments in mutual funds are beneficial to the firm in the context that
They contain interest bearing securities which add up as a source of revenue for
The firm unlike cash which remains idle and unproductive when not in use.
This Reduction of dividend could be attributed to disposal of investments in mutual
Funds and subsidiary. This disposal creates a fund, which can be used by the
Company as and when the need arises.

RECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS:

PARTICULARS 2006 2005 2004 2003

DEBTORS TURNOVER RATIO 5.21 5.80 5.53 6.62
AVERAGE COLLECTION PERIOD 70 63 66 55

A better turnover ratio implies for the firm, more efficiency in converting the
Accounts receivable to cash. A firm with very high turnover ratio can take the
Freedom of holding very little balances in cash, as their debtors are easily
Realizable. In case of HCL, the collection period for the firm is 70 days.
 PARTICULARS 2006 2005 2004
PROVISION FOR DOUBTFUL DEBTS 3 49.85 25
(CASH FLOW)
DEBTS DOUBTFUL 47 134.09 69.8
(EXCEEDING 6 MONTHS)

The debts doubtful have doubled but their percentage on the debts has almost
Become half. This implies a sales and collection policy that get along with the
Receivables management of the firm.

COLLECTION POLICIES:
It refers to the collection procedures such as letters, phone calls and other follow
Up mechanism to recover the amount due from the customers. It is obvious that
Costs are incurred towards the collection efforts, but bad debts as well as average
Collection period would decrease. Further, a strict collection policy of the firm is
Expensive for the firm because of the high cost is required to be incurred by the
Firm and it may also result in loss of goodwill. But at the same time it minimizes
The loss on account of bad debts. Therefore, a firm has to strike a balance between
The cost and benefits associated with collection policies.
The steps usually followed in collection efforts are:

· Sending repeated letters and reminders to the customers

· Personal visits
· Using agencies involved in collection process
· Making telephonic reminders
· Initiating legal actions
· Real Time Gross Settlement (RTGS)

Real Time Gross Settlement as such is a concept new in nature and though the firm
Uses the system with all the members of the consortium, it is still in its primal stage
And will take time before all of the clients of the firm are willing to accept it. The
Firm has made a proposal to the consortium of the banks during appraisal for faster
Implementation of internet based banking facility by all the banks and adoption of
RTGS payment system through net.
The debtor’s turnover ratio is completely dependent upon the credit policy
Followed by the firm. The credit policy followed by the firm should be such that
The threat of bad debts and the default rate involved should be terminated.

PARTICULARS 2006 2005 2004 2003

CREDITORS TURNOVER RATIO 16.44 15.68 21.29 21.14
PAYMENT PERIOD 22 23 17 16

That the creditor’s turnover ratio has declined and payment period has increased
Indicate that the company has got a leeway in making the payment to the creditors
By way of increased time.
With creditors they are having pre-agreements and have undertaken arrangements
With them, which they believe to be the best in the business and these are fixed.
(NOTE: Acceptances are not included in the computation of creditor’s turnover)

MANAGING PAYABLES (Creditors)

Creditors are a vital part of effective cash management and should be managed
Carefully to enhance the cash position.
Purchasing initiates cash outflows and an over-zealous purchasing function can
Create liquidity problems.

Consider the following: -

· Who authorizes purchasing in your company - is it tightly managed or spread

Among a number of (junior) people?

· Are purchase quantities geared to demand forecasts?

· Do you use order quantities, which take account of stock holding and
Purchasing costs?

· Do you know the cost to the company of carrying stock?

· Do you have alternative sources of supply? If not, get quotes from major
Suppliers and shop around for the best discounts, credit terms as it reduces
Dependence on a single supplier.

· How many of your suppliers have a return policy?

· Are you in a position to pass on cost increases quickly through price increases?
To your customers?

· If a supplier of goods or services lets you down can you charge back the cost?
Of the delay?

· Can you arrange (with confidence!) to have delivery of supplies staggered or

On a just-in-time basis?

There is an old adage in business that "if you can buy well then you can sell
Well". Management of your creditors and suppliers is just as important as the
Management of your debtors. It is important to look after your creditors- slow
Payment by you may create ill feeling and can signal that your company is
Inefficient (or in trouble!).
Remember that a good supplier is someone who will work with you to enhance the
Future viability and profitability of your company.
Financing Current Assets:
The firm has to decide about the sources of funds, which can be availed to make
Investment in current assets.

Long term financing:

It includes ordinary share capital, preference share capital, debentures, long term
Borrowings from financial institutions and reserves and surplus.

Short term financing:

It is for a period less than one year and includes working capital funds from
Banks, public deposits, commercial paper etc.

Spontaneous financing:
It refers to automatic sources of short-term funds arising in normal course of
Business. There is no explicit cost associated with it. For example, Trade Credit
And Outstanding Expenses etc.

Depending on the mix of short and long term financing, the company can
Follow any of the following approaches.

Matching Approach
In this, the firm follows a financial plan, which matches the expected life of
Assets with the expected life of source of funds raised to finance assets. When the
Firm Follows this approach, long term financing will be used to finance fixed assets
And permanent current assets and short term financing to finance temporary or
Variable current assets.

Conservative Approach
In this, the firm finances its permanent assets and also a part of temporary current Assets with
long term financing. In the periods when the firm has no need for Temporary current assets,
the long-term funds can be invested in tradable securities To conserve liquidity. In this the
firm has less risk of facing the problem of Shortage of funds.
WORKING CAPITAL & SHORT-TERM FINANCINGCONSORTIUM BASED
FINANCINGCurrent Working Capital Limits

NAME OF THE BANK FUND BASED NON-FUND BASED

STATE BANK OF INDIA 3600 46000

ICICI BANK 1282 19000

HDFC BANK 1200 10000

STANDARD CHARTERED BANK 1200 19000

STATE BANK OF SAURASHTRA 715 7500

STATE BANK OF PATIALA 1300 7700

CANARA BANK 1203 6000

SOCIETE GENERALE 1000 4000

HSBC BANK 1000 18300

TOTAL 12500 137500

In order to finance the working capital needs of the firm in the form of Working
Capital Demand Loan, there is a consortium of nine banks. The consortium if
Banks provide a fund based limit of 125 Crores which comprises of cash credit and
Working capital demand loans and non-fund based limits which has bank guarantee
And letter of credit subject to a limit of 1375 Crores.
The Lead Bank in this Consortium of banks is State Bank of India and the second lead
bank is ICICI. It Is SBI, which fixes the limit on the basis of consortium? They, in
consultation of The company decide the allocation of limit to various member banks. The
Allocation cannot be higher than the limits fixed by it. SBI is the biggest Contributor in the
consortium for both fund and non-fund based limits with about 31.30 In funds and 34.02 in
non-fund limits. The ratio of both limits for the year 2006 is 0.23:0.77
It is on the basis of the accounts receivable that the banks come to an agreement
With regards to the limits imposed. Though it is the fund based limits that finance
The working capital requirements, the non-fund based limits are important for the
Management of the working capital as there might be clients who are not willing to
Sell on open credit and might be demanding letters of credit before any advances.

RENEWAL OF LIMITS
LIMITS 2006 2005 2004
FUND BASED 11500 11500 11500
NON FUND BASED 48500 38500 28500
TOTAL 60000 50000 40000

All banks sanction the limits for a period of one year. Thereafter it is to be renewed
Every year. SBI appraises the limit on the basis of consortium. The individual
Banks appraise for their own individual limit. The non-fund based limits of the firm
In consortium financing has been subjected to change for the past two years as per
The requirements of the firm and the consent of the lead bank to its proposal. It was
Around 385 Crores in 2005 and had been risen to around 485 Crores in 2006.
A proposal has been made by the firm to further appraise the limits by 100
Crores to 585 Crores in view of the growing operations of the firm with full
Interchangeability between letter of credit and bank guarantee limits for
Operational flexibility. Allocation of the fund based and non-based limits among
The banks based on operational convenience rather than allocating the fund based
Andon-fund based on the same ratio is also among the proposals made by the
Firm.
The company needs to provide the following information to bank for appraisals:
· Credit Monitoring Appraisal
· Write Up on company
· Share holding pattern
· List of the directors

CONSORTIUM MEETING:
All the members of the consortium are required to meet to discuss various issues
Relating to the working facilities. As per RBI guidelines, the lead bank, i.e., SBI
Should ensure that one consortium meeting is held every quarter send this meeting
Has to be arranged by HCL.

DOCUMENTATION and JOINT DOCUMENTATION:

There are various documents that need to be signed at the time of renewal or
Inducting any bank to the consortium. The various documents are as follows:
· Loan agreement
· Hypothecation agreement for movable machinery
· Hypothecation agreement for movables and book debts
· Counter Indemnity
The above are the standard agreements asked for by the banks. The common seal
Has to be witnessed by the company secretary and one of the directors of the
Company. As of 2005, no additions or deletions were made to the consortium of the banks.
But over the years the number of banks in the consortium have been reduced.
Indian Banks and State Bank of Hyderabad are the two banks which were earlier a
Part of the consortium.

Joint Documentation is executed between the company and the consortium of

Banks for the working capital facilities extended by the consortium to the
Company. The joint documentation is valid for three years. The documents
Comprising joint documentation are:
· Working Capital consortium agreement
· Joint deed of documentation
· Inter se agreement between bankers
· Letter of authority to lead bank by other consortium banks
· Letter of authority to second lead bank by other consortium banks
· Undertaking to create charge on the assets of the company.

ALLOCATION OF LIMIT BY LEAD BANK

SBI appraises the limit on behalf of the consortium. It in consultation with the
Company decided the allocation of the limit to various member banks. The
Allocation of any member bank cannot be higher than the limit sanctioned by it.
The drawing power for it fund based limits out of the consortium are determined
On the basis of the stock statement submitted by the company. HCL is required to
Submit the stock statement to all member banks in consortium for every month.
FINANCIAL FOLLOW UP REPORTS (FFRI& FFRII):
Every quarterly and half quarterly intervals, the firm submits Financial Follow Up
Reports I and II. FFR I is an extract of the balance sheet. In this report, the
Company is required to submit the details of sales, current assets and current
Liabilities for the quarter and the estimates for the current year. FFR II – the
Company is required to prepare P&L, B/S and Cash Flow in a different format. The
Information is to be provided for the last year (actual), current year half yearly
Results (actual) and the estimates for the next year.

SHORT TERM FINANCING

Other than the investment in current assets, the firm also has to be concerned with
Short-term to long-term debt as this plays a very important role in determining the
Amount of risk undertaken by the firm. That is, the firm not only has to be
Concerned about current assets but also the sources through which they are
Financed. A firm before financing in either of the two, has to take into
Consideration various aspects. While short term might seem the ideal way to
Finance your assets than the long term due to shorter maturity period and also less
Of costs are involved, there is an inherent risk in short term financing due to
Fluctuating interest rates and due to the reason that the firm might be unable to repay
The amount in a shorter span of time.

SECURED LOANS 2006 2005 2004 2003

SHORT TERM 3849 4991.28 6903.7 4987.52
LONG TERM 0 530.07 0 3461.36
TOTAL 3849 5521.35 6903. 8448.88
%SHORT TERM 100 90.4 100 59.03

Under secured loan cash credit, along with non-fund based facilities, foreign
Currency term loan from banks are secured by way of hypothecation of stock-intrude,
Book debts as first charge and by way of second change on all the
Immovable and movable assets of the parent company. Term loan in Indian rupees
From a bank is subject to a prior charge in favor of company’s bankers on book
Debts and stock in trade for working capital facilities.

UNSECURED LOANS 2006 2005 2004 2003

SHORT TERM 15104 2593.39 63.94 76.84
LONG TERM 11 17 169.51 3261.42
TOTAL 15115 2610.39 233.45 3338.26
% SHORT TERM 99.93 99.348 27.38 2.3

Here HCL has a major portion of their financing done through short term financing
Than long term financing. The preference of short term financing to long term as
Such is not the part of any policy employed by the firm but it was due to the reason
That the interest rates in short term were more investor friendly and the cost
Involved in them were also low. At present, we can see that the firm is moving
More towards long term financing as the interest terms in the long term has
Reduced compared to the short term.

YEAR- END COMMERCIAL PAPERS

PARTICULARS 2006 2005 2004 2003
COMMERCIAL PAPERS 4000 2500 --- 3000

The credit rating by ICRA continued at ‘A1+’indicating highest safety to

Company’s commercial paper program of Rest. 75 Crores. It acts as an effective tool
In reducing the interest cost and is used for financing inventories and other
Receivables. As and when the firm issues commercial papers, it sends a letter to the
Leader of the consortium, i.e., SBI to reduce from the fund based limits the amount
It has issued in the form of the commercial papers. Suppose the firm issues 30
Crores as commercial papers and the fund based limits are say 115 Crores. Then
Firm sends a letter to SBI to reduce the existing fund based limits from 115 to 85
Crores.

In terms of desirability, the commercial papers are cheaper and advantageous to

The firm compared to the consortium financing. The main advantage being the
Interest rate which is lower than the bank rates existing under consortium
Financing. But the firm depends on both and for working capital financing, it is
Dependent on the banks for funds such as working capital demand loans and cash
Credits. There is no point in the firm not making use of the fund based limits in the
Consortium banking as their commercial papers are restricted to 75 Crores.

MERITS OF COMMERCIAL PAPERS:

· It is an alternative source of raising short-term finance, and proves to be

Handy during periods of tight bank credit.
· It is a cheaper source of finance in comparison to the bank credit.

DEMERITS OF COMMERCIAL PAPERS:

· It is an impersonal method of financing.

· It is always available to the financially sound and highest rated companies.
· The amount of loanable funds available in the commercial paper market is
Limited to the amount of excess liquidity of the various purchasers of
Commercial paper.

ANALYSIS INDUSTRY ANALYSIS INDUSTRY STRUCTURE AND

DEVELOPMENTS
Industry analysis
>Financial graphs
>Concluding analysis
>Suggestions and recommendations
>Bibliography
Over the past decade, the Information Technology (IT) industry Has become one of the
fastest growing industries in India, Propelled by exports (the industry accounted for more
than a Quarter of India’s services exports in 2004-05). The key segments That have
contributed significantly (96 percent of total) to the Industry’s exports include – Software and
services (IT services) And IT enabled services (ITES) i.e. business services. Over a Period of
time, India has established itself As a preferred global sourcing base in these segments and
they Are expected to continue to fuel growth in the future

FINANCIAL GRAPHS

· Gross Business Income:

Consolidated Revenue for the year grew to Rest. 11855 crores. Services
Revenue grew by 31%, from Rest. 274 crores to Rest. 360 crores in the current
Year. The Compounded Annual Growth Rate (CAGR) for the preceding five
Years is 45%.

· Profit before Tax:

PBT grew by 11% from, Rest. 385 crores in the previous year to Rest. 429 Crores in the
current year. The Compounded Annual Growth Rate (CAGR For the preceding five years is
53%.

· Profit after Tax:

Profit after tax grew by 13%, from Rest. 280 crores in the previous year to Rest. 316 crores.
The Compounded Annual Growth Rate (CAGR) for the Preceding five years is 36%. Profits
for the current year are after a provision ForRs.106 crores for current tax expense, Rest. 3
crores for deferred tax Expense and Rest. 4 crores for Fringe Benefit Tax.

· Earnings per Share:

Basic EPS grew from Rest. 16.7 In the previous year to Rest. 18.7 in the current Year.
Diluted EPS grew from Rest. 16.5 In the previous year to Rest. 18.6 In the Current year.
· Dividend:
The Company distributed dividends @ 100% per share in each of the first Three quarters of
the current year. The company proposes to pay a final Dividend of 100% per fully paid up
equity share of Rest. 2/- each. The interim Dividends paid together with proposed final
dividend total to 400% for the Current year, entailing an outflow of Rest. 156 crores,
including distribution Tax.

· Net worth/ Shareholders Fund:

Net Worth grew from Rest. 698 crores as at previous year-end to Rest. 860 Crores as on June
30, 2007. Share capital as at year-end is Rest. 34 crores Divided into 16.9 crores shares of
Rest. 2/- each. Reserves & surplus as at Year-end are Rest. 826 crores after appropriating
Rest 156 crores for dividends. Book value per share grew from Rest. 41.3 As at June 30,
2006 to Rs.50.8 as at June 30, 2007. During the year, the Company allotted 4.2 lakh shares
under Employee Stock Option Scheme realizing Rest. 4.4 crores.

· Borrowings: Year-end loan balances increased from Rest. 85 crores as on

June 30, 2006 to Rest. 236 crores as on June 30, 2007. The increase in loan
Balances was mainly to fund growth in Computing Business including
System Integration. Debt-Equity ratio [Debt/ (Debt Equity)] is 22%.

· CURRENT ASSET RATIO:

CONCLUDING ANAYSIS
· The working capital position of the company is sound and the various
Sources through which it is funded are optimal.

· The company has used its dividend policy, purchasing, financing and
Investment decisions to good effect can be seen from the inferences made
Earlier in the project.
· The debts doubtful have been doubled over the years but their percentage on
The debts has almost become half. This implies a sales and collection policy
That get along with the receivables management of the firm.

· The returns have been affected by a marked growth in working capital and
Though a 29.75% in 2006 return on investment is good, but it got reduced as
Compared to 39.01% return in 2005.

· The various ratios calculated are an indicator as to the fact that the
Profitability of the firm and sales are on a rise and also the deletion of the
Inefficiencies in the working capital management.

SUGGESTIONS AND RECOMMENDATIONS

The management of working capital plays a vital role in running of a successful

Business. So, things should go with a proper understanding for managing cash,
Receivables and inventory.

HCL Info systems is managing its working capital in a good manner, but still
There is some scope for improvement in its management. This can help the
Company in raising its profit level by making less investment in accounts
Receivables and stocks etc. This will ultimately improve the efficiency of its
Operations. Following are few recommendations given to the company in Achieving its
desired objectives:

· The business runs successfully with adequate amount of the working

Capital but the company should see to it that the cash should not be tied up
In excessive amount of working capital.

· Though the present collection system is near perfect, the company as due
To the increasing sales should adopt more effective measures so as to
Counter the threat of bad debts.

· The over purchasing function should be avoided as it could lead to

Liquidity problems.
· The investment of cash in marketable securities should be increased, as it
Is very profitable for the company.

· Holding of excessive and insufficient stock must be avoided as it creates a

Burden on the cash resources of a business and results in lost sales, delays
For customers, etc. respectively.

BIBLIOGRAPHY

Following sources have been sought for the preparation of this report:

· Corporate Intranet

· Financial Statements (Annual Reports)

· Direct interaction with the employees of the company

· Internet ----www.hclinfosystems.in

· Textbooks on financial management -

I .M .Pandey
Khan and Jain
Prasanna Chandra
 APPENDICES

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

Last 4 year Balance Sheet:
Although debt as a percent of total capital increased at HCL Info systems Ltd. over
The last fiscal year to 21.53%, it is still in-line with the IT Services industry's norm.
Additionally, even though there are not enough liquid assets to satisfy current
Obligations, Operating Profits are more than adequate to service the debt. Accounts
Receivable are among the industry's worst with 28.44 days’ worth of sales
Outstanding. This implies that revenues are not being collected in an efficient
Manner. Last, inventories seem to be well managed as the Inventory Processing
Period is typical for the industry, at 21.29 days.

As
Currency in of: Jun 30 Jun 30 Jun 30 Jun 30
Millions of Indian Rupees 2004 2005 2006 2007
Reclassifie
Restated Restated d

Assets
Cash and Equivalents 1,452.3 2,512.7 2,149.2 1,976.5

Short-Term Investments 114.8 1,573.6 3,137.7 2,939.9

TOTAL CASH AND SHORT TERM

INVESTMENTS 1,567.1 4,086.3 5,286.9 4,916.4

Accounts Receivable 4,390.4 6,103.1 7,691.4 10,520.0

Other Receivables 228.2 400.5 468.1 593.4

TOTAL RECEIVABLES 4,618.7 6,503.6 8,159.5 11,113.4

Inventory 2,804.2 3,493.9 4,696.1 7,918.8

Prepaid Expenses 107.0 163.0 146.0 287.8

Other Current Assets 23.8 56.4 86.8 84.8

TOTAL CURRENT ASSETS 9,120.8 14,303.2 18,375.3 24,321.2

Gross Property Plant and Equipment 1,406.1 1,404.7 1,731.9 2,431.0

Accumulated Depreciation -749.1 -744.9 -852.4 -966.5

NET PROPERTY PLANT AND

EQUIPMENT 657.0 659.8 879.5 1,464.5

Goodwill -- -- 0.2 0.8

Long-Term Investments 2,190.9 -- -- --

Deferred Tax Assets, Long Term 59.1 -- -- --

Other Intangibles -- 95.3 32.4 30.9

Other Long-Term Assets -- 5.1 71.8 16.0

TOTAL ASSETS 12,027.9 15,063.4 19,359.2 25,833.4

LIABILITIES & EQUITY

Accounts Payable 3,390.6 4,100.9 5,964.8 8,298.5

Accrued Expenses 100.4 101.0 140.4 209.8

Short-Term Borrowings -- 307.9 784.9 1,182.4

Current Portion of Long-Term Debt/Capital

Lease 690.4 499.6 0.4 892.5

Current Income Taxes Payable 30.1 80.9 77.4 252.8

Other Current Liabilities, Total 2,914.6 3,377.3 4,687.9 5,216.6

Unearned Revenue, Current 536.4 965.8 557.9 775.2

TOTAL CURRENT LIABILITIES 7,662.6 9,433.4 12,213.7 16,827.8

Long-Term Debt 15.8 7.2 60.1 284.0

Deferred Tax Liability Non-Current 109.0 73.5 107.6 124.8

Other Non-Current Liabilities 13.9 3.8 1.0 --

TOTAL LIABILITIES 7,801.3 9,517.9 12,382.4 17,236.6

Common Stock 328.9 334.4 337.5 338.3

Additional Paid in Capital 673.9 883.7 1,044.5 1,087.9

Retained Earnings 3,193.2 4,297.3 5,565.2 7,141.4

Comprehensive Income and Other 30.6 30.1 29.6 29.2

TOTAL COMMON EQUITY 4,226.6 5,545.5 6,976.8 8,596.8

TOTAL EQUITY 4,226.6 5,545.5 6,976.8 8,596.8

TOTAL LIABILITIES AND EQUITY 12,027.9 15,063.4 19,359.2 25,833.4

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

Last 4 year Cash Flow Statement:
In 2007, cash reserves at HCL Info systems Ltd. fell by 172.7M. However, as a percent of
revenues, this change was similar to the IT Services industry median. By looking at the Cash
Flow Statement, analysts can easily see the sources and use of cash generated throughout the
year.

Currency in As of: Jun 30 Jun 30 Jun 30 Jun 30

Millions of Indian Rupees 2004 2005 2006 2007
Restate Reclassifie
Restated d d

NET INCOME 1,751.1 2,277.0 2,803.6 3,159.5

Depreciation & Amortization 180.1 152.4 124.3 144.0

Amortization of Goodwill and

Intangible Assets -- -- -- 4.1
DEPRECIATION &
AMORTIZATION, TOTAL 180.1 152.4 124.3 148.1

(Gain) Loss from Sale of Asset -0.4 -1.6 0.5 0.6

(Gain) Loss on Sale of Investment -79.6 -84.9 -61.5 -55.2

Asset Write-down & Restructuring Costs 0.0 0.5 -- --

Other Operating Activities 292.8 31.2 79.6 271.8

Provision & Write-off of Bad Debts 14.8 14.4 7.2 9.2

Change in Accounts Receivable -1,593.4 -1,993.4 -1,724.7 -3,158.8

Change in Inventories -423.3 -689.7 -1,202.2 -3,222.7

Change in Accounts Payable 1,471.8 1,561.6 2,759.5 3,112.2

CASH FROM OPERATIONS 1,614.0 1,267.5 2,786.3 264.7

Capital Expenditure -180.7 -267.8 -424.3 -674.5

Sale of Property, Plant, and Equipment 3.5 10.7 80.3 1.6

Investments in Marketable & Equity

Securities 73.7 841.4 -1,453.6 289.0

CASH FROM INVESTING 30.8 622.4 -1,683.3 -231.9

Short-Term Debt Issued 41.1 169.5 -- --

Long-Term Debt Issued 200.8 231.3 200.5 1,837.2

TOTAL DEBT ISSUED 241.9 400.8 200.5 1,837.2

Short Term Debt Repaid -- -- -172.3 -74.7

Long Term Debt Repaid -707.9 -302.7 -- -250.0

TOTAL DEBT REPAID -707.9 -302.7 -172.3 -324.7

Issuance of Common Stock 283.3 215.2 163.9 44.2

Common Dividends Paid -866.2 -1,047.4 -1,526.6 -1,546.1

TOTAL DIVIDEND PAID -866.2 -1,047.4 -1,526.6 -

1,546.1

Other Financing Activities -98.9 -95.4 -132.0 -216.1

CASH FROM FINANCING -1,147.8 -829.5 -1,466.5 -205.5

NET CHANGE IN CASH 497.1 1,060.4 -363.5 -172.7

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

Last 4 year Income Statement:

Year over year, HCL Info systems Ltd. has seen revenues remain relatively flat (113.7B to
116.9B), though the company was able to grow net income from 2.8B to 3.2B. A reduction in the
percentage of sales devoted to cost of goods sold from 93.21% to 92.53% was a key component
in the bottom line growth in the face of flat revenues.

As
Currency in of: Jun 30 Jun 30 Jun 30 Jun 30
Millions of Indian Rupees 2004 2005 2006 2007
Restate Reclassifie
d Restated d

Revenues 43,064.477,478.9 113,683.1 116,853.0

Other Revenues -- -35.7 61.6 63.8

TOTAL REVENUES 43,064.477,443.2 113,744.7 116,916.8

Cost of Goods Sold 38,701.371,496.1 105,964.4 108,121.4

GROSS PROFIT 4,363.1 5,947.1 7,780.3 8,795.4

Selling General & Admin Expenses, Total 2,268.8 3,305.9 3,764.3 4,527.1

Depreciation & Amortization, Total 180.6 152.4 124.3 148.1

Other Operating Expenses -- -84.0 84.8 91.2

OTHER OPERATING EXPENSES, TOTAL 2,449.4 3,374.3 3,973.4 4,766.4

OPERATING INCOME 1,913.7 2,572.8 3,806.9 4,029.0

Interest Expense -82.8 -77.6 -132.6 -214.6

223.8
Interest and Investment Income 132.1 146.1 208.0

NET INTEREST EXPENSE 49.4 68.5 75.4 9.2

Currency Exchange Gains (Loss) 37.9 145.0 -144.4 189.6

Other Non-Operating Income (Expenses) 32.0 -- -- --

EBT, EXCLUDING UNUSUAL ITEMS 2,033.0 2,786.3 3,737.9 4,227.8

Gain (Loss) on Sale of Investments 79.6 85.0 61.5 55.2

Gain (Loss) on Sale of Assets 0.4 1.6 -0.5 -0.6

Other Unusual Items, Total 2.3 87.2 4.0 4.7

Insurance Settlements 2.3 3.7 4.0 4.7

Other Unusual Items -- 84.0 -- --

EBT, INCLUDING UNUSUAL ITEMS 2,115.1 2,960.1 3,802.9 4,287.1

Income Tax Expense 364.0 683.1 999.3 1,127.6

Earnings from Continuing Operations 1,751.1 2,277.0 2,803.6 3,159.5

NET INCOME 1,751.1 2,277.0 2,803.6 3,159.5

NET INCOME TO COMMON INCLUDING

EXTRA ITEMS 1,751.1 2,277.0 2,803.6 3,159.5
NET INCOME TO COMMON
EXCLUDING EXTRA ITEMS 1,751.1 2,277.0 2,803.6 3,159.5