Hindalco Working Capital Internship Report PDF

Working Capital Analysis of Hindalco Industries 2013-2014
Working Capital and Balance sheet Analysis of Hindalco

Industries Ltd, 2013-14
Submitted by
Ankur Sharma
(Roll No. 17 /Batch 15)
In partial fulfillment for the award of the degree of
POST GRADUATE DIPLOMA IN MANAGEMENT

INSTITUTE FOR FINANCIAL MANAGEMENT AND RESEARCH
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Ankur Sharma
CERTIFICATE
This is to certify that this project report ―Working Capital and Balance Sheet
Analysis of Hindalco Industries Ltd”. is the bona fide work of Ankur Sharma
who carried out the project work under my supervision.
(Signature)
Mr. Kumar Rahul.
Senior Officer (Finance and Accounts),
Hindalco Industries Ltd.
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Ankur Sharma
ACKNOWLEDGEMENT
A
t the outset, I am grateful Hindalco Industries Ltd for giving me the
opportunity to do my summer internship with them. A sense of gratitude is
not enough to express my sincere thanks towards my project guide, Mr.
Kumar Rahul (senior officer, Accounts and Finance) who guided me with his
insights and knowledge. I am also thankful to Mr. Hemraj ( Training Head,
TTMDC), Mr. Mayank Srivastava ( Senior General Manager, Fuel Management)
for helping me in this project.
I take this opportunity to thank Mr Surender Rao (Faculty at IFMR). He gave me

his valuable time and guided me at each step with his expertise and provided me all
the information required for my project.
My sincere thanks to Mr. Shreyans Kavdia (Head of Finance and Accounts

Department).
I duly acknowledge with gratitude the help and cooperation received from the entire
staff at Hindalco Industries Ltd., Renusagar.
Ankur Sharma
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Ankur Sharma
EXECUTIVE SUMMARY
W
orking capital management involves managing the different components of the
current assets, managing the current liabilities and financing the current assets. Not
only this, it has to be managed around an optimal level in order to keep it low at
maximum profitability possible. There is tradeoff between liquidity and profitability which has to
be managed through effective working capital management. A well designed and implemented
working capital management is expected to contribute positively to the creation of a firm‘s value.
.
The purpose of this project is to examine the trends in working capital management (WCM), how
is it being managed and its impact on the performance of Hindalco Industries Ltd. during the
period of 2011-2014, followed by comparative study Nalco during 2013-14.
The in depth analysis include study of various financial ratios like liquidity ratios, solvency ratios,
Turnover ratios etc. helps in understanding the current financial situation. Apart from these ratios
operating cycle and cash conversion cycle analysis provide insights of current working capital
scenario.
The project throws light on how Hindalco has performed during this four financial years and what
is its position today. In the end the project helps giving some findings and recommendations to the
readers of the report.
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Ankur Sharma
TABLE OF CONTENTS
Chapter 1
Part A
1 Introduction 1
1.1) Major Division of Operations for Hindalco 2
1.2) Subsidiaries and associate companies of Hindalco Industries 5
1.3) Operations 6
1.3.1) Operations in India 6
1.3.2) Global Operations 7
1.4) Hindalco's strategy 11
1.5) Vision of Hindalco 13
1.6) Mission of Hindalco 14
1.7) Management team 14
1.8) Current Scenario and Recent Developments 15
1.9) Global Aluminum Industry Analysis 18
1.10) Opportunities and challenges 20
1.11) Aluminium Analysis in Q1 2015 21
Part B
Working Capital 24
1.12) Classification of Working Capital 25
1.13) Balanced Working Capital Position 26
1.14) Determinants of Working Capital 28
1.15) Tradeoff between Liquidity and Profitability. 29
1.16) Management of working capital: 30
1.16.1 Inventory management 30
1.16.2 Cash management 31
1.16.3 Management of receivables 33
1.17) Financing Of Working Capital 34
1.17.1) Matching Approach 35
1.17.2) Conservative Approach 36
1.17.3) Aggressive Approach 36
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Ankur Sharma
Chapter 2
2.1) The Objectives of the project study 37
2.2) The Research method followed 37
2.3) Scope of the study 37
2.4) Collection of data 38
2.5) Tools for Analysis of the data 38
2.6) Period covered under study 38
2.7) Limitations of the study 38
Chapter 3
3 Analysis of Data and Interpretation 39
3.1) Liquidity Ratios 39
3.1.1) Current ratio 39
3.1.2) Quick Ratio 40
3.1.3) Cash ratio 42
3.2) Solvency ratios 43
3.2.1) Debt Equity Ratio 43
3.2.2) Interest Coverage Ratio 44
3.2.3) Proprietary Fund Ratio 45
3.3) Profitability ratios 46
3.3.1) Gross profit ratio 46
3.3.2) Operating Profit 47
3.3.3) Net profit ratio: 47
3.4) Return Ratios 48
3.4.1) Return on capital employed 48
3.4.2) Return On Equity 49
3.4.3) Return On Assets ( ROA) 50
3.5) Turnover ratios 51
3.5.1) Asset Turnover Ratio 51
3.5.2) Working capital ratio 52
3.5.3) Inventory Turnover 53
3.5.4) Debtors Turnover 54
3.5.5) Creditors turnover ratio: 55
3.6) Operating Cycle and Cash Conversion Cycle 57
3.6.1) Days of Inventory Outstanding (DIO) 59
3.6.2) Days of Sales Outstanding (DPO) 59
3.6.3) Days Payable Outstanding – DPO 59
3.6.4) Observation and Conclusion for Operating Cycle and CCC. 60
Chapter 4
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4 Conclusion and Suggestions 63

4.1) To increase inventory in order to reduce DIO 65
4.2) To increase debtors turnover by increasing collections efficiency 66
4.3) To increase DPO and hence decrease Creditors turnover 66
Annexure 67
References 71
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Table of Figures
Fig 1.1 Classification of Hindalco business divisions 2
Fig 1.2 Classification of Aluminium division brands 3
Fig 1.3: Hindalco global operations 8
Fig 1.4 Hindalco-Novelis downstream strategy 12
Fig 1.5 By-product value 13
Fig 1.6 Global primary aluminium production vs. consumption trend, 2012-2018 18
Fig 1.7 Share of major aluminium produces in the world 19
Fig 1.8 Share of major aluminium consumers in the in the world 19
Fig 1.9 LME Aluminium price in past 10 year 22
Fig 1.10 Classification of Working Capital 25
Fig 1.11 Temporary and permanent working capital 26
Fig 1.12 Balanced Working capital position 27
Fig 1.13 Optimum level of working capital 30
Fig 1.14 Matching approach for financing working capital 35
Fig 1.15conservative approach for financing working capital 36
Fig 1.16 Aggressive approach for financing working capital 36
Fig 3.1 Current Ratios for Hindalco 2011-2014 40
Fig 3.2 Hindalco-Nalco Current ratios comparison 40
Fig 3.3 Quick Ratios for Hindalco 2011-2014 41
Fig 3.4 Hindalco-Nalco Quick ratios comparison 41
Fig 3.5 Structure of current assets for Hindalco in 2014 41
Fig 3.6 Cash Ratios for Hindalco 2011-2014 42
Fig 3.7 Hindalco-Nalco Cash ratios comparison 42
Fig 3.8 Debt to Equity Ratio for Hindalco 2011-2014 43
Fig 3.9 Interest coverage Ratio for Hindalco 2011-14 44
Fig 3.10 Interest expense for Hindalco 2011-14 44
Fig 3.11 Proprietor fund ratio for Hindalco 2011-14 45
Fig 3.12 Hindalco-Nalco Proprietor fund ratio comparison 45
Fig 3.14 Nalco Hindalco Gross Profit comparison 2013-14 46
Fig 3.15 Operating Profit Ratio for Hindalco 2011-2014 47
Fig 3.16 Hindalco –Nalco Operating Profit comparison 47
Fig 3.17Net Profit Ratio for Hindalco 2011-14 48
Fig 3.18 Hindalco-Nalco Net Profit comparison 48
Fig 3.19 ROCE for Hindalco 2011-2014 49
Fig 3.20 Hindalco-Nalco ROCE comparison 49
Fig 3.21 ROE for Hindalco 2011-14 50
Fig 3.22 Hindalco-Nalco ROE comparison 50
Fig 3.23 ROA for Hindalco 2011-14 51
Fig 3.24 Hindalco-Nalco ROA comparison 51
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Fig 3.25 Asset Turnover Ratio for Hindalco 2011-14 52

Fig 3.26 Hindalco-Nalco Asset Turnover Ratio comparison 52
Fig 3.27Working capital for Hindalco 2011-14 53
Fig 3.28 Sale to WC comparison for Hindalco 2011-14 53
Fig 3.29 Inventory Turnover for Hindalco 2011-14 54
Fig 3.30 Hindalco-Nalco Inventory Turnover comparison 54
Fig 3.31 Debtors Turnover for Hindalco 2011-14 55
Fig 3.32 Hindalco-Nalco Debtors Turnover comparison 55
Fig 3.33 Creditors Turnover for Hindalco 2011-14 56
Fig 3.34 Hindalco-Nalco Creditors Turnover comparison 56
Fig 3.35 Cash conversion cycle mechanism 57
Fig 3.36 Cash Flow timeline 58
Fig 3.37 Hindalco-Nalco cash conversion cycle factors’ comparison 60
Fig 3.38 DIO, DPO and DSO for Hindalco 2011-14 60
Fig 3.39 Hindalco-Nalco cash conversion and operating cycle comparison 2013-2014 61
Fig 3.40 Profitability ratios for Hindalco 2011-14 64
List of Tables
Table 1.1 Hindalco Management Team 14

Table 1.2 Current assets and liabilities 24
Table 3.1 Observation table of operating and cash conversion cycle 60
Table 4.1 Common size current assets’ components 63
Table 4.2 Increase/ Decrease in factors affecting the financial position of a company2013-14 65
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CHAPTER 1
Part A
Introduction
Hindalco Industries Limited
H
indalco Industries Limited, the metals Flagship Company of the Aditya Birla Group is
the world's largest aluminium rolling company, an industry leader in aluminium and
copper and one of the biggest producers of primary aluminium in Asia. Its copper
smelter is amongst the largest single location custom smelter globally.
Hindalco story dates back to the young Indian democracy of the 1950s. Ready to take a giant
leap, India was geared to make it big, especially in terms of innovation and industrialization.
Hindalco embarked on its journey in 1958. Its first real contribution to the vision of an industrial
India occurred four years later, when the visionary late Mr. GD Birla set up India's first
integrated aluminium facility at Renukoot, in the eastern fringe of Uttar Pradesh, India. It was
backed by a captive thermal power plant at Renusagar in 1967. Hindalco attained its leadership
position in the aluminium industry under the dynamic leadership of the late Mr.AdityaVikram
Birla — a formidable force in the Indian industry.
And it was through the vision and guidance of Mr. Kumar Mangalam Birla, the Group Chairman
that the business segments of aluminium and copper are consolidated to make Hindalco the non-
ferrous metals powerhouse it is today. This was achieved in part by expansion through mergers
and acquisitions with companies such as Indal and Birla Copper. Hindalco also secured copper
reserves and amplified its operating base by acquiring the Australian Nifty and Mt. Gordon
copper mines.
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Over the years, Hindalco has grown into the largest vertically integrated aluminium company in
the country and among the largest primary producers of aluminium in Asia. Its copper smelter is
today the world's largest custom smelter at a single location.
In 2007, the landmark acquisition of Novelis Inc., the world's largest aluminium rolling
company, placed Hindalco's footprint across the globe, securing it a rank amongst the top five
global aluminium majors and also placing it in the Fortune 500 league.
Today, it is a metals powerhouse present in two of the fastest growing metal segments; aluminium and
copper, with global footprints in 13 countries and with a consolidated turnover of USD 14.8 billion (Rs.
80,193 Crore).
1.1) Major Division of Operations for Hindalco
Hindalco
Businesses
Aluminimum Copper Dry Cargo

Fertilizers Acid Division
Division Division Handling
Fig 1.1 Classification of Hindalco business divisions
1) Aluminium portion:-
The largest integrated primary producer of aluminium in Asia, Hindalco also ranks as one
of the most cost-efficient producers globally. With a pan-India presence that encompasses
the entire gamut of operations, from bauxite mining, alumina refining, aluminium
smelting to downstream rolling, extrusions and recycling, Hindalco enjoys a leadership
position in aluminium and downstream value-added products in India.
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Hindalco‘s India aluminium operations in India are integrated and consist of bauxite
mining, alumina refining, smelting and converting primary metal into value-added
products.
Hindalco‘s finished products include alumina, primary aluminium in the form of ingots,
billets and wire rods, value-added products such as rolled products, extrusions, foils and
alloy wheels and specialty alumina products. Hindalco manufactures intermediate
products required for its own production such as power and carbon anode. Its Indian
aluminium operations are located in 10 states and one union territory in India, with three
refineries and two smelters that are capable of producing over 600 KTPA of aluminium.
Aluminium
Division
Aluminium
Aluminium Aluminium
extrusions
FRP foil brands
brands
Everlast
Hindalco
Maxloader Eternia aluminium Superwrap Freshwrapp
extrusions
roofing sheets
Fig 1.2 Classification of Aluminium division brands
1) Copper division
Hindalco‘s copper division operates one of the largest single location customs copper
smelter in the world with a capacity of 500,000 TPA Copper Cathode through world class
technologies. The Custom Smelter complex at Dahej in state of Gujarat at west coast of
India houses copper smelters, refineries, rod plants, captive power plants, a jetty and
other utilities.
Hindalco produces copper cathodes, continuous cast copper rods in various sizes and also
precious metals like Gold and Silver. The co-product Sulfuric acid is also utilized to
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produce Phosphoric acid and further value-added to fertilizers like di-ammonium

phosphate (DAP). Hindalco is the only manufacturer in India for 19.6mm diameter
copper rod used for railway electrification.
2) Dry cargo handling

Hindalco‘s Dahej Harbour and Infrastructure Limited operates an all-weather jetty in the
Gulf of Khambhat on the west coast of India. DHIL is strategically located at latitude: 21
degrees 42 North and longitude: 72 degrees 31.5 East to cater to the logistics and
transportation needs of its customers. Equipped with skilled and professional workforce,
and customer friendly port DHIL values time, money and cargo of its customers. Reputed
for reliability and high performance, the company enjoys strong relationships in the
marketplace.
3) Fertilizers
Hindalco produces the fertilizers di-ammonium phosphate (DAP) and nitrogen
phosphorus potassium (NPK) complexes as value-added downstream products.
Hindalco‘s DAP plant went on stream in 2000 and has a capacity of 400,000 tpa. It
manufactures DAP and NPK complexes such as 10:26:26, 12:32:16 and 20:20:0.
The products are marketed under the well-known brand Birla Balwan, a brand name that
commands preference among the farmers of Gujarat, Maharashtra, Rajasthan, Madhya
Pradesh, Karnataka, Haryana and Punjab through the established vast network of dealers,
retailers and C&F agents.
Birla Phospho Gypsum marketed in the Agricultural field as a soil conditioner

The popular brand Birla Vishwas also caters to the market of diversified agricultural
inputs.
4) Acids Division
During Hindalco‘s copper production processes, by-products such as sulphuric acid,
copper slag, phospho-gypsum and hydrofluosilicic acid are formed. Hindalco is in the
process of setting up an aluminium fluoride manufacturing facility using its by-product
hydrofluosilicic acid.
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 Sulphuric acid
 Phosphoric acid
 Phospho gypsum
 Phospho
 Copper slag (iron silicate)
1.2) Subsidiaries and associate companies of Hindalco Industries
Novelis Inc.
Acquired by Hindalco in 2007, Novelis is the world leader in rolled aluminum products,
delivering unique solutions for the most demanding global applications, such as beverage cans,
automobiles, architecture and consumer electronics. Our unique material advantage, customer-
focused innovation and unparalleled commitment to sustainability define the Novelis brand.
Aditya Birla Minerals

Aditya Birla Minerals is an Australian mining company with a focus on copper production and
exploration. Based in Perth, West Australia, the company conducts its activities at the Birla Nifty
Copper Operation in the Great Sandy Desert, WA and the Mt Gordon Copper Operation located
in the Mt Isa Block in Queensland. Aditya Birla Minerals is part of the Aditya Birla Group and is
part owned by Hindalco.
Hindalco-Almex Aerospace
Hindalco-Almex Aerospace Limited manufactures high-strength aluminium alloys for
applications in the aerospace, sporting goods and surface transport industries. A joint venture
between Hindalco and Almex Aerospace, Hindalco-Almex operates a first-of-its-kind facility in
India, which is exclusively devoted to high-performance aluminium alloys.
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1.3) Operations
Hindalco operates 51 units in 13 countries and includes a workforce of 34,000 representing 15 different
nationalities.
1.3.1) Operations in India
In India, Hindalco commissioned the Renukoot plant in Uttar Pradesh in 1962. The facility
operates across the aluminium value chain from bauxite mining, alumina refining, aluminium
smelting to downstream rolling and extrusions. The integrated facility houses a 700,000 tpa
alumina refinery and a 345,000 TPA aluminium smelter along with facilities for production of
semi-fabricated products namely conductor redraw rods, sheet and extrusions.
Hindalco's other units in India are located at Muri in Jharkhand, Belur in West Bengal, Kollur in
Andhra Pradesh, Silvassa in the union territory of Dadra and Nagar Haveli, Hirakud in Orissa,
Alupuram in Kerala, Taloja in Maharashtra, Belgaum in Karnataka and Dahej in Gujarat.
Hindalco operates captive bauxite mines in Jharkhand, Chhattisgarh, Maharashtra and Orissa,
which provide the raw material to alumina refineries at Belgaum, Muri and Renukoot.
Hindalco also has two research and development centres in Belgaum and Taloja.
Various manufacturing facilities across India are:
 Renukoot: Hindalco's Renukoot plant was commissioned in 1962 with one potline and a smelter
of 20,000tpa capacity.
 Muri: Muri alumina plant was India's first alumina refinery. It is located on the banks of the
Subarnarekha River in Chhotamuri village, 60 km from the town of Ranchi.
 Alupuram: Located in Ernakulum district of Kerala, Hindalco Alupuram Works was set up in
1938.
 Belur: India's aluminium story begins with the Belur plant, it operates at 45,
 Taloja: The Taloja sheet rolling plant is located in the Raigad district of Maharashtra,
 Belgaum: The Belgaum unit of Hindalco, located in Karnataka,
 Hirakud: The Hirakud smelter and power complex is in Odisha.
 Dahej: Birla Copper, Hindalco's copper unit, is one of the largest single-location copper smelters
in the world with integrated port facilities.
 Mouda: The world class foil production facility at Mouda near Nagpur is now operational.
 Shendra: Operated by Hindalco-Almex Aerospace, this first-of-its-kind facility in Aurangabad
is exclusively devoted to high-performance aluminium alloys.
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1.3.1) Global Operations:
a) Novelis is headquartered in Atlanta, Georgia and operates 25 manufacturing facilities in

nine countries on four continents, with nearly 11,000 employees. Novelis is the world‘s
largest rolled aluminum producer in terms of volume shipped, and the largest purchaser
of aluminum as well.
b) Aditya Birla Minerals is based in Perth, West Australia, and conducts its activities at the
Birla Nifty Copper Operation in the Great Sandy Desert, WA and the Mt Gordon Copper
Operation located in the Mt Isa Block in Queensland.
c) Hindalco-Almex operates a first-of-its-kind facility in India, which is exclusively devoted

to high-performance aluminium alloys. HAAL is located at Shendra, Aurangabad in
western India, around 350 km from Mumbai.
Hindalco's manufacturing locations worldwide include:
Hindalco-Novelis headquartered in Atlanta, Georgia, is the world‘s largest rolled aluminum

producer, operating 25 manufacturing facilities in nine countries on four continents. The
company‘s production sites are spread across Asia, Europe, North and South America
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Fig 1.3: Hindalco global operations
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1. .South Korea
 Yeongju: This is a modern, low-cost facility that has casting, hot rolling, cold rolling, finishing
and recycling facilities.
 Ulsan: This plant is equipped with casting, hot rolling, cold rolling, finishing and recyling
facilities.
2. Malaysia
 Bukit Raja: This mill produces a variety of rolled products, ranging from sheet and coil to
heavy gauge foil products.
3. France
 Voreppe: This facility provides technologies and services in the fields of casting and in-line
molten metal treatment.
4. Germany
 Goettingen: This plant is a specialist supplier of flat-rolled aluminum sheet.
 Luedenscheid: This mill supplies high quality foil for the flexible packaging market.
 Nachterstedt: This facility supplies customers of industrial, packaging, building and automotive
applications worldwide.
 Norf: The mill here is the largest aluminum rolling and casting facility in the world.
 Ohle: This Continental Foil facility specializes in the rolling of high-performance alloys used for
applications such as containers, converter foil and industrial products.

5. Italy
 Bresso: This plant produces pre-painted rolled products and supplies to the building,
distribution, industry and transport markets.
 Pieve: This plant is an integrated recycling, continuous casting, rolling and finishing operation.
6. Switzerland
 Sierre: The site has hot and cold rolling and heat treatment capability. It supplies to the
automotive, building, industrial and transport markets.
7. United Kingdom
 Latchford: This area is home to two of Novelis' major recycling plants.
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8. Canada
 Burnaby, British Columbia: This facility houses aluminum container and aluminum foil
production, and a customer service center to meet the needs of retail and industrial customers
around the region.
 Kingston, Ontario: The site produces specialty and industrial products for marine,
transportation and other industrial applications with cold rolling, finishing and annealing
equipment, uniquely designed to produce automotive sheet and specialty surfaces.
 Montreal, Quebec: Novelis sells and distributes aluminum container and aluminum foil
products for Eastern Canada's industrial and food service customers.
 Toronto, Ontario: This is the primary fabricating facility for aluminum container, aluminum
foil and sheeted foil products distributed in North America and other markets.
9. United States
 Berea, Kentucky: This is the world's largest dedicated aluminum can recycling plant.
 Detroit, Michigan: This site provides sales and engineering technical support for automotive
manufacturers.
 Fairmont, West Virginia: This is an aluminum sheet and heavy gauge foil cold rolling facility
with precision slitting and annealing capability.
 Greensboro, Georgia: The first stand-alone Used Beverage Can Recycling facility in Novelis,
this facility is now responsible for pioneering the majority of Novelis' recycling technologies.
 LaGrange, Georgia: US center of sales, marketing and customer service activities for aluminum
container, aluminum foil and foil products requirements.
 Logan, Kentucky: One of the largest, most technologically advanced aluminum manufacturing
facilities in the world.
 Oswego, New York: The plant produces premium aluminum products used primarily by the
beverage can, building and construction and automotive markets, and in multiple industrial
product applications.
 Terre Haute, Indiana: A world-class light gauge foil rolling plant and a recognized leader in
the production of semi-rigid foil container stock, package foil, wide industrial fin stock and
converter foil.
 Warren, Ohio: The plant applies coating to rolled aluminum sheet which is then used for
production of lids for aluminum beverage cans.
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10. Brazil
 Pindamonhangaba: . The site focuses on the production of aluminum rolled sheets to supply the
packaging, automotive and civil construction segments. And the largest South American
Recycling Center with an 80,000 ton-per-year recycling capacity.
 Utinga: This rolling mill supplies to the automotive and consumer goods segments.
 Ouro Preto: Produces primary aluminum in the form of plates and billets. This location also has
an upcoming specialty alumina facility.
11. Australia
Aditya Birla Minerals is an Australia-based mining company with a focus on copper production
and exploration. It has two operations:
 Birla Nifty: Located in the Great Sandy Desert Region of the East Pilbara in West Australia, this
operation comprises a historical open pit oxide mine and an underground sulphide mine with an
associated concentrator.
 Mt Gordon: Located in northwest Queensland, this operation can produce copper in concentrate
at an annual production rate of approximately 20kt.
1.4) Hindalco's strategy:
a) An integrated approach for Aluminium: The objective is to balance between the

more volatile high-margin upstream products and the steadier low-margin
downstream portfolio. Hindalco's upstream strategies for the aluminium industry
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focuses on continuing existing low-cost operations and progressing on new

Greenfield projects that will further improve cost competitiveness through lowest
production costs; by controlling key resources, such as bauxite mines, refineries,
power plants and coal; and reaping benefits of economies of scale.
. One tonne of aluminium requires over 15,000 Kwh of power. Power constitutes
almost 40 per cent of the total cost of production. Low cost, uninterrupted power
is absolutely vital for the successful aluminium operations. The smelters fully
backed by captive power plants located at the pitheads of the owned coal mines
make us one of the lowest cost producers globally.
Fig 1.4 Hindalco-Novelis downstream strategy
b) Expanding vertically for Copper
Hindalco has the world's largest single-location custom smelters at Dahej facility
in Gujarat, India, along with a power plant and nearby jetty. In pursuit of vertical
expansion, it has extended its presence in copper production across national
borders when we acquired the Nifty and the Mt. Gordon mines in Australia. These
mines secure partial supply of our concentrate
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Fig 1.5 By-product value
Gold and silver have an affinity to copper ore. Hence its extracts them, as well as trace
amounts of platinum and palladium after copper refining. The dispatch of these precious
metals is conducted using special armored vehicles that Hindalco contracts on a long-
term basis through agencies.
Sulfuric acid employed in copper processing by converting it to phosphoric acid and then
using that to produce the fertilizers – di-ammonium phosphate and nitrogen phosphorus
potassium compound.
1.5) Vision of Hindalco

To be a premium metals major, global in size and reach, excelling in everything we
do, and creating value for its stakeholders.
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1.6) Mission of Hindalco

To relentlessly pursue the creation of superior shareholder value, by exceeding customer
expectation profitably, unleashing employee potential, while being a responsible corporate
citizen, adhering to our values.
1.7) Management team
Board of Directors Hindalco Industries Limited: Novelis Inc:
Mr. Kumar Mangalam Birla, Mr. Debnarayan Bhattacharya, Steve Fisher - Interim
Chairman Managing Director President & CEO and CFO
Mr. Debnarayan Bhattacharya, Mr. Satish Pai, Deputy Managing Utkal Alumina
Managing Director Director International Limited:
Mr. Satish Pai, Deputy Managing Mr. J. C. Laddha, Group Executive
Mr. Vijay Sapra, President
Director President, Copper
Mr. Praveen Maheshwari, Chief Aditya Birla Minerals
Mr. AK Agarwala
Financial Officer Limited:
Mr. DK Kohly, Chief Officer
Mr. N M Patnaik, CEO and
Mr. Jagdish Khattar Operations, Renukoot Unit &
MD
Renusagar Units
Mr. Vineet Kaul, Chief Human
Mr. KN Bhandari
Resource Officer
Mr. Sachin Satpute, Chief
Mr. MM Bhagat
Marketing Officer, Aluminium
Mr. BB Jha, Head, Corporate
Mr. NJ Jhaveri
Projects and Procurement Cell
Mr. Sanjay Sehgal, President,
Mrs. Rajashree Birla
Chemicals
Mr. Anil Malik, Company
Mr. Ram Charan
Secretary
Table 1.1 Hindalco Management Team
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1.8) Current Scenario and Recent Developments
An investment of over USD 5 Bn, after facing various unforeseen challenges, got ready for
delivery. The three Greenfield field projects and three brown field projects came on stream
during the course of the year
Profit before interest, depreciation and tax increased by 13% over the previous year
(Standalone). On a consolidated basis, The Company registered a turnover of US$ 14.5 billion
(87,695 Crore) and an EBITDA of US$ 1.5 billion (9,303 Crore).
Novelis, Company‘s 100% subsidiary faced several headwinds in the form of extended winter in
the North American markets that led to sharp deterioration in the can market, rising physical
premium leading to pricing pressures in the Asian markets, etc. Yet, it managed to deliver a
robust adjusted EBITDA of US$ 885 Million.
Business Highlights
Three Greenfield projects (Mahan, Utkal and Aditya) have become operational and are currently
ramping up. These projects, in their fullness, would redefine Company‘s cost competitiveness on
the global compass and significantly enhance the sustainability of its operations.
The highlights for the financial year were:

a) Highest ever Aluminium Metal volumes produced and sold Aluminium Metal
production in India is up 13%
b) Highest ever Alumina production as Utkal started delivering strong volumes
Alumina production up 23%.
c) Three Greenfield projects, with an investment of over Rs. 30,000 crore are now
ramping up and are on course to achieve desired results.
d) In addition, the brownfield projects, viz, Hirakud smelter expansion, Hirakud FRP
Plant and Mouda Foils are also on stream and would strengthen the aluminium
VAP portfolio further.
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e) Novelis too, achieved significant progress on all its strategic expansions. These
include the ramp up of rolling production at the Pinda plant in Brazil, coupled
with the mill expansions in Korea and the start of commercial production at its US
automotive finishing lines.
f) Consolidated revenue stood at Rs. 87, 695 crore as compared with Rs. 80,192
crore in FY13.
g) Profit before depreciation, interest and taxes stood at Rs 9,303 crore as against
Rs 8,849 crore in FY13.
h) Net profit was lower at 2,175 crore as compared with 3,027 crore in FY13 on
account of higher interest, depreciation and certain exceptional items.
i) Of the total annual revenue of 87,695 crore, Aluminium Business contributed
69,218 crore, vs. 62,259 crore last year. Aluminium EBIT for FY14 was 3,764
crore as compared with 4,388 crore posted in FY13.
j) Copper business delivered a robust performance, generating an EBIT of ` 1,025
crore. The copper business‘ performance cushioned the pressure on aluminium
margins, vindicating the virtue of a balanced portfolio of your Company.
k) Standalone revenues increased 7% to 27,851 crore from 26,057 crore in FY13.
Profit before interest, depreciation, tax and exceptional items were 13% higher at
3,616 crore vs. 3,187 crore in FY13. This increase in profit was mainly on
account of strong operational performance by copper business.
l) Net profit for the year stood at ` 1,413 crore as compared with 1699 crore in
FY13. This was primarily due to higher depreciation and finance costs.
m) Depreciation and Finance cost increased as the projects started commercial
production.
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Decreasing Profits……………..
During FY14, multiple projects of

large magnitude and investments were
brought on stream Mahan aluminium,
Utkal alumina refinery and Aditya
Aluminium smelter, with an
investment of over ` 30,000 crore, are
on stream and are now ramping up to
slated capacities.
Due to this debt increased and hence

consolidated Interest expenses
increased from 2,079 crore to 2,702
crore. In standalone business, finance
costs went up from 436 crore to 712
Consolidated and standalone
depreciation increased.
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1.9) Global Aluminum Industry Analysis
Global primary aluminium production vs. consumption trend.

( million tonnes), 2012-2018
58
56
54
52
50
48
46
44
42
2012 2013 2014 2015
Production 47.8 50.8 53.8 56.5
Consumption 47.4 50.4 53.6 56.5
Fig 1.6 Global primary aluminium production vs. consumption trend, 2012-2018
Aluminium is one of the most versatile and essential materials for the global economy. The
commodity‘s extensive properties, including strength, conductivity, recyclability, and
lightweight make it the world‘s second most used metal after steel. Aluminium finds major use
in transportation and construction sectors. China dominates the global aluminium market in both
production and consumption. Boom in the residential and infrastructure markets drive its
aluminium market.
Recent years have seen a continuation of volatility in aluminium market prices, with prices
increasing from US$ 1843 per MT in August 2012, to a high of US$ 2087 per ton in December
2012. Current price of aluminum in international market is US $ 1736 1A few nations have
seen government intervention to absorb losses by aluminium producers, or providing tax breaks
or cheaper energy. This government intervention is resulting in a large quantity of over-supply of
aluminium suppressing prices further.
Worldwide, rising aluminum stocks have hampered production and cut down prices.
Manufacturers have slowed down production to reduce pressure on prices. Industry estimates
1
LME Aluminium Cash-Settlement, 21. May 2015
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reveal that while primary aluminium production is growing at a CAGR of around 3%, the
primary aluminium consumption is estimated growing at around 4% during 2012-2018.
Share of major aluminium Share of major aluminum

producers consumers
China
china 22%
EU
38% russia
40% US
4% 45%
canada
6% Japan
EU
10% India
6% others
7% 9% 14% Others
Fig 1.7 Share of major aluminium produces Fig 1.8 Share of major aluminium consumers in the
In the world. World.
World primary aluminium markets have witnessed nine consecutive years of surplus since 2008.
Amongst key industry verticals, transportation accounts for 25% consumption share, followed by
construction (24%), packaging (17%), power (12%) and machinery (10%).
Regionally, APAC dominates both production and consumption of Aluminium. China alone
accounts for around 40% of global aluminum production and 45% of consumption. In the last ten
years, China has quadrupled its consumption of aluminum. Already accounting for 42% of
global aluminium consumption, China is forecast to boost this share to 52% by 2025. Chinese
growth in aluminium consumption is largely driven by urbanization, goals and strategies of the
Chinese Government has resulted in investments in infrastructure and housing which also
consume large amounts of aluminum. Besides, the continued strong position of China as a
producer of industrial and consumer goods for export result in large investments in the aluminum
industry.
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1.10) Opportunities and challenges
1.10.1) Opportunities
a) Middle east emerging as major market

Looking over the supply-side, the market is shifting towards the Middle East due
to the availability of cheap energy in the region. Aluminium growth in Middle
East further benefits from advantages such as rich bauxite reserves as well as
economical energy. Also, the close proximity of the GCC region to European
countries enables smelter operators to further reduce costs.
b) Enhanced application areas

The new markets for aluminum are found within aviation, solar cells, electronics,
cars and new types of material for construction. Aluminum has already succeeded
in entering part of the copper market since copper is higher priced and is heavier
than aluminum. Therefore manufacturers can save costs and weight in their
production if they are able to exchange copper materials for aluminum materials.
c) Sustainable production technologies

Researchers at the DOE‘s Argonne National Laboratory and Noranda
Falconbridge are developing a way to produce aluminum at significantly reduced
temperatures. The ITP, working with Aleris Inc., among others, has supported the
development of a radically new concept for melting aluminum— isothermal
melting—that can dramatically improve energy efficiency in melting and other
molten metal processes. Alcoa has launched a carbon capture technology at its
Kwinana alumina refinery in Western Australia.
1.10.2) Challenges
a) Price volatility
In the past few years, aluminium prices have become very volatile, especially due
to global economic uncertainties. During 2013, aluminium prices slipped to an
average of US$ 2,053 per MT, down almost 15% compared to 2012.
b) High inventory
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The global aluminium market is set to remain in surplus over the next couple of
years as demand growth failed to keep pace with rising supply. Global inventories
have remained at 7 Million MT since the beginning of the year equating to 60
days of consumption and more than double the levels seen before the financial
crisis in 2008.
c) High energy and carbon cost

Another challenge is the demand to save energy and reduce energy consumption
in all aspects of the primary aluminium production process. Also, challenge is to
reduce the emissions of greenhouse gases from the aluminium production process.
Both the electric power generation from fossil fuels and the smelting process are
major sources of greenhouse gas emissions. Although significant progress has
been made in recent years, this problem is not yet solved, and it will be one of the
biggest technological challenges for the aluminium industry in the years to come.
d) Competition from substitutes

Carbon fiber-reinforced plastic (CFRP), Titanium, Steel and Composite materials
give stiff competition to aluminum. The rivalry between substitutes would
become harsher in the following decades as consumers continuously assessed not
only the functional characteristics of competing materials but also their relative
prices.
1.11) Aluminium Analysis in Q1 2015
Aluminium prices have reversed much of the gains of the second and third quarters last year that
were prompted by the delay to the new LME load-out rates, which in turn saw LME warehouse
queues grow again. High ‗all-in‘ prices and, more recently, weaker energy prices have
encouraged producers to step up output – the fact this has coincided with deterioration in the
economic outlook for the global economy eg US has dampened sentiment, which is leading to
the current price correction. Since oil prices may well remain low for a few quarters and the new
LME load-out rates could increase availability prices are expected to remain range bound.
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Production climbs, helped by lower energy prices – Global aluminium output in November
averaged 151,700 tonnes per day (tpd) compared with 146,100 tpd in October and an average of
142,100 tpd in November 2013. In the first 11 months of 2014, production averaged 144,920 tpd,
which means output in November on an annualized basis was running some 2.5 million tonnes
above the average in the first 11 months of the year. Looking forward, producers now face some
crosscurrents - some will be able to take advantage of lower energy prices to reactivate idle
capacity but lower LME aluminium prices will start to squeeze operating margins at others. So in
the short term lower oil prices are likely to remain a bearish influence, especially if it encourages
more exports of Chinese aluminium semis. But if lower benchmark prices start to prompt talk of
more output cuts, bargain-hunting may well reappear. As always with aluminium, the demand
profile is second to none, so at the first sign of supply restraint consumers and investors are
likely to return as buyers. This in turn could trigger short covering and restocking and another
upward run in prices.
Fig 1.9 LME Aluminium price in past 10 year
New LME rules may have little impact on availability – If the new LME warehousing rules are
implemented this year, leading to a faster outflow of metal, it does not necessarily mean
availability will increase - the metal leaving warehouse could simply just go into off-market
financing deals. We do not think there will be much pick-up in availability in the market until
interest rates rise to a level that makes financing metal economically unviable. Given concerns
over slower global growth, the US Federal Reserve may indeed delay any rate rises or the rate
rises may have a negligible impact on the financing model. The aluminium industry may
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therefore have more time to reduce the stock overhang but to do so it will need to limit
production increases - this will require keeping ‗all-in‘ aluminium prices sufficiently low.
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CHAPTER 1
Part B
Introduction
Working Capital
W
orking capital is a financial metric which represents operating liquidity available to a
business, organization or other entity, including governmental entity. Along with
fixed assets such as plant and equipment, working capital is considered a part of
operating capital.
Net working capital is calculated as current assets minus current liabilities. It is a derivation of
working capital that is commonly used in valuation techniques such as DCFs (Discounted cash
flows). If current assets are less than current liabilities, an entity has a working capital
deficiency, also called a working capital deficit.
Current Assets Current Liabilities

Cash in hand and bank balance Bills payable
Bills receivables Sundry creditors or account
payable
Sundry debtors (provision for bad debts) Short term borrowings
Short term loans and advances Bank overdraft
Inventory Provisions
Prepaid expenses. Outstanding expenses
Accrual incomes. Etc Un-accrued income Etc.
Table 1.2 Current assets and liabilities
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1.12) Classification of Working Capital
Working
Capital
On Concept
Basis On Time basis
Permanent Temporary
Gross Working Net working
Working Working
Capital Capital
Capital Capital
Regular Reserve Seasonal Special

Working Working Working Working
Capital Capital Capital Capital
Fig 1.10 Classification of Working Capital
Working capital can be classified on the basis of concept and on the basis of time.
1) Types of working capital On the basis of concept
a) Gross Working Capital: In broad sense: working capital refers to gross working capital.
It is also defined as financial concept or going concern concept. It means the capital
invested in the current assets of the firm. Current assets mean the assets which can be
converted into cash easily or within one accounting period. It helps in determining the
return on investment in working capital and providing correct amount of working capital
at right time.
b) Net Working Capital: In narrow sense: working capital refers to net working capital. It
is also defined as accounting concept. It means excess of current assets over current
liabilities. It helps in finding out firm‘s capability to meet short term liabilities as well as
indicates the financial soundness of the enterprise. Net working capital = current assets –
current liabilities
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Fig 1.11 Temporary and permanent working capital
2) Types of working capital on the basis of time
a) Permanent working capital: it is also called fixed working capital. It means to carry on
the day to day expenses the firm is required to maintain the minimum amount of working
capital. For example the firm is required to maintain the minimum level of raw material,
finished goods or cash balance etc.
i) Regular working capital- it means the minimum amount which the firm has to keep
with itself to carry on the day to day operation.
ii) Reserve working capital- it means the excess amount over the regular working capital
for uncertain circumstances like strike, lock out, depression etc.
b) Temporary working capital: it is also called variable working capital, which is
required to meet the seasonal demands as well as for special purposes.
i) Seasonal working capital: it is required to meet the seasonal needs of the enterprise.
ii) Special working capital: it is required for some special purposes of the enterprise. For
example advertising the product of the firm requires special working capital.
1.13) Balanced Working Capital Position
The firm should maintain good working capital, both inadequate and excessive working capital
are dangerous for the firm‘s well-being as they could impair the firm‘s profitability due to
production interruptions and inefficiencies and sales disruptions.
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Fig 1.12 Balanced Working capital position
Excessive working capital leads to :
• It results in unnecessary accumulation of inventories thereby increases the chances of inventory

mishandling, waste, theft and losses
• It is an indication of defective credit policy and slack in collection period. Consequently, higher
incidence of bad debts results, which adversely affects profits
• Negligent excessive working capital makes management negligent which degenerates into
managerial inefficiency
• Tendencies of accumulating inventories tend to make speculative profits grow. This may tend
to make dividend policy liberal and difficult to cope with in future, when the firm is unable to
make speculative profits
Inadequate working capital leads to :
• It slows down the growth of the company. It becomes difficult for the firm to undertake
profitable projects for the firm to undertake profitable projects for non-availability of working
capital funds
• It becomes difficult to implement operating plans and achieve the firm‘s profit target
• Operating inefficiencies creep in when it becomes difficult even to meet day-to-day
commitments
• Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the firm‘s
profitability would deteriorate
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• Paucity of working capital funds render the firm unable to avail attractive credit opportunities
etc.
• The firm loses its reputation when it is not in a position to honor its short-term obligations. As a
result, the firm faces tight credit terms for growth. It becomes difficult for the firm to undertake
profitable projects for the firm to undertake profitable projects for non-availability of working
capital funds
1.14) Determinants of Working Capital
A firm‘s working capital can be determined by the following
1. Nature of Business
Working capital requirements of a firm are basically influenced by the nature of its business.
Retail stores have a need for large sum of money to be invested in working capital. Construction
firms need to invest substantially in working capital and a nominal amount in fixed assets.
2. Market and Demand Conditions
Sales forecasts determine the level of production, which in turn determines the level of current
assets. Sales forecasts are based on swings in market conditions. An upward swing in the
economy will create demand thereby an increase in sales, which calls for an increased
deployment of funds in current assets. In such a situation, firms resort to substantial borrowing
whereas the scenario for a downward swing in the market is opposite. The demand for short-term
borrowings during the downward swing, to fuel the working capital requirements goes down.
3. Technology and Manufacturing Policy
The manufacturing cycle comprises the purchase and use of raw materials and the production of
finished goods. Longer the manufacturing cycle, larger will be the firm‘s working capital
requirements.
4. Credit Policy
The credit policy of a firm affects the working capital by influencing the level of debtors. The
credit terms granted to the customers depend upon the norms of the industry to which the firm
belongs.
5. Availability of Credit from Suppliers
The working capital requirements of a firm are also affected by credit terms granted by its
suppliers. A firm will need less working capital, if liberal credit terms are available to it from the
suppliers. Supplier‘s credit finances the firm‘s inventories and reduces the cash conversion cycle
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6. Operating Efficiency
The operating efficiency of the firm relates to the optimum utilization of all its resources at
minimum costs. Operating efficiency can be achieved by controlling operating costs utilization
of current and fixed assets thereby improving the use of working capital and accelerating the
pace of cash conversion cycle.
7. Price Level Changes
Generally, rising price levels will require a firm to maintain higher amount of working capital.
Same level of current assets will need increased investment when price levels are increasing.
Companies, which can revise their product prices immediately in line with increased input costs,
will not face a severe working capital problem.
1.15) Tradeoff between Liquidity and Profitability.
As it is not possible to estimate working capital needs accurately, the firm must decide about
levels of current assets to be carried. Given a firm‘s technology and production policy, sales and
demand conditions, operating efficiency etc., its capital assets holding will depend upon its
working capital policy. These policies involve risk-return trade-offs. A conservative policy
means lower return and risk, while an aggressive policy produces higher return and risk.
. The two important aims of the working capital management are: profitability and Liquidity.
Lenders and creditors expect prompt settlements of their claims as and when due. To ensure this,
the firm should be very liquid, which means larger current assets holdings. If the firm maintains
a relatively large investment in current assets, it will have no difficulty in paying claims of
creditors. However, considerable amount of firm‘s funds will be tied up in current assets, and to
the extent, this investment is idle, the firm‘s profitability will suffer.
To have higher profitability, the firm may sacrifice Liquidity and maintain a relatively low level
of current assets. When the firm does so, its profitability will improve as fewer funds are tied up
in idle current assets, but its solvency would be threatened and would be exposed to greater risk
of cash shortage and stock outs.
In determining the optimum level of current assets, the firm should balance the profitability-
solvency tangle by minimizing total costs- cost of liquidity and cost of illiquidity.
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Fig 1.13 Optimum level of working capital
It is indicated in the figure that with the level of current assets the cost of liquidity increases
while the cost of illiquidity decreases and vice versa. The firm should maintain the current assets
at the level where the sum of these two costs is minimized. The minimum cost point indicates the
optimum level of current assets.
1.16) MANAGEMENT OF WORKING CAPITAL:

Working Capital Management involves management of different components of working capital
such as cash, inventories, accounts receivable, creditors etc. A brief description follows
regarding the various issues involved in the management of each of the above components of
working capital.
A) INVENTORY MANAGEMENT: Inventory management refers to an optimum

investment in inventories. It should neither be too low to effect the production adversely
nor too high to block the funds unnecessarily. Excess investment in inventories is
unprofitable for the business. Both excess and inadequate investment in inventories is not
desirable.
The following are the various measures of selective control of inventory:
1 Economic Ordering Quantity (EOQ) It is important to note that only the correct
quantity of materials is to be purchased. For this purpose, the factors such as
maximum level, minimum level, danger level, re-ordering level, and quantity already
on order, quantity reserved, availability of funds, quantity discount, and interest on
capital, average consumption and availability of storage accommodation are to be
kept in view. Economic Ordering Quantity (EOQ) is the quantity fixed at the point
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where the total cost of ordering and the cost of carrying the inventory will be the
minimum.
2 Fixing levels (Quantity Control) - For fixing the various levels such as maximum,
minimum, etc., average consumption and lead time i.e. the average time taken
between the initiation of purchase order and the receipt of materials from suppliers
are to be estimated for each item of materials.
3 ABC Analysis for value of items consumed- ABC analysis is a method of material
control according to value. The basic principle is that high value items are more
closely controlled than the low value items. The materials are grouped according to
the value and frequency of replenishment during a Period.
‗A‘ Class items: Small percentage of the total items but having higher values.
‗B‘ Class items: More percentage of the total items but having medium values.
‗C‘ Class items: High percentage of the total items but having low values.
4 Just in Time (JIT): The material reaches the points of production process directly
from the suppliers as per the time schedule and the manufacturer does not have to
hold any inventory. Zero inventory helps in lesser working capital and more
profitability. It is possible in the case of companies with respective process. Since, it
requires close coordination between suppliers and the ordering firms, and therefore,
only units with systematic approach will be able to implement it.
B) CASH MANAGEMENT: Cash management is one of the key areas of working capital
management. Cash is the most liquid current assets. Cash is the common denominator to
which all current assets can be reduced because the other major liquid assets, i.e.
receivable and inventory get eventually converted into cash. This underlines the
importance of cash management.
Strategies for cash management are:-
1 Projection of cash flows and planning - The cash planning and the projection of
cash flows is determined with the help of cash budget. The cash budget is the most
important tool in cash management. It is a device to help a firm to plan and control
the use of cash. It is a statement showing the estimated cash inflows and cash
outflows over the firm‘s planning horizon. In other words the net cash position i.e.,
surplus or deficiency of a firm is highlighted by the cash budget from one budgeting
period to another period.
2 Determining optimal level of cash holding in the company -Determining to

optimum level of cash balance influenced by a tradeoff between risk and profitability.
Every business enterprise holding cash balances for transaction purposes and to meet
precautionary, speculative and compensative motives. It is also observed that cash
inflows and cash outflows and cash outflows. With the help of cash budget the
finance manager predicts the inflows and outflows of cash during a particular period
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of time and there by determines the cash requirements of the company. While
determining the optimum level of cash balance (neither excess nor inadequate cash
balances) the finance manager has to bring a tradeoff between the liquidity and
profitability of the firm. The optimum level of cash balances of a company can be
determined in various ways: They are:-
a. Inventory model (Economic Order Quantity) to cash management: Economic

Order Quantity (EOQ) model is used in determination of optimal level of cash of
a company. According to this model optimal level of cash balance is one at which
cost of carrying the inventory of cash and cost of going to the market for
satisfying cash requirements is minimum. The carrying cost of holding cash refers
to the interest foregone on marketable securities whereas cost of giving to the
market means cost of liquidating marketable securities in cash. Optimum level of
cash balance can be determined as follows:
√
Q=
Where Q = Optimum level of cash inventory
A= Total amount of transaction demand
O = Average fixed cost of securing cash from the market (ordering cost of
cash securities)
b. Stochastic model: The basic assumption of this model is that cash balances, are
irregular, i.e., changes randomly over a period of time both in size and direction
and form a normal distribution as the number of periods observed increases. The
model prescribes two control limits Upper control Limit (UCL) and Lower
Control Limit (LCL) when the cash balances reaches the upper limit a transfer of
cash to investment account should be made and when cash balances reach the
lower point a portion of securities constituting investment account of the company
should be liquidated to return the cash balances to its return point. The control
limits are converting securities into cash and the vice – versa, and the cost
carrying stock of cash.
c. Probability model: According to this model, a finance manager has to estimate

probabilistic out comes for net cash flows on the basis of his prior knowledge and
experience. He has to determine what is the operating cash balance for a given
period, what is the expected net cash flow at the end of the period and what is the
probability of occurrence of this expected closing net cash flows. The optimum
cash balance at the beginning of the planning period is determined with the help
of the probability distribution of net cash flows. Cost of cash shortages,
opportunity cost of holding cash balances and the transaction cost.
3 Strategy for economizing cash - Once cash flow projections are made and
appropriate cash balances are established, the finance manager should take steps
towards effective utilization of available cash resources. A number of strategies have
to be developed for this purpose they are:
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a. Strategy towards accelerating cash inflows - In order to accelerate the cash

inflows and maximize the available cash the firm has to employ several methods
such as reduce the time lag between the movement a payment to the company is
mailed and the movement the funds are ready for redeployment by the company.
This includes the quick deposit of customer‘s cheques; establishing collection
centers and lock – box system etc.
i. Quick deposit of customer’s Cheques

ii. Establishing collection
iii. Lock-box method
b. Strategy for slowing cash outflows - In order to accelerate cash availability in

the company, finance manager must employ some devices that could slow down
the speed of payments outward in addition to accelerating collections. The
methods of slowing down disbursements are as flows:
i. Delaying outward
ii. Making pay roll periods less
iii. Solving disbursement by sue of drafts.
iv. Centralized payment system
C) MANAGEMENT OF RECEIVABLES: A firm should establish receivables policies

after carefully considering both benefits and costs of different policies. These policies
relate to.
1 Credit Standards - The firm‘s credit standards are generally determined by the five
―C‘s‖. Character, Capacity, Capital, Collateral and Conditions. Information about the five
C‘s can be collected both from internal as well as external sources. Internal sources
include the firm‘s previous experience with the customer supplemented by its own well
developed information system. External resources include customer‘s references, trade
associations and credit rating organizations such .
2 Credit terms - It refers to the terms under which a firm sells goods on credit to its
customers. As stated earlier, the two components of the credit terms are (a) Credit Period
and (b) Cash Discount. The approach to be adopted by the firm in respect of each of these
components is discussed:
a. Credit period - Extending the credit period stimulates sales but increases the cost on
account of more tying up of funds in receivables. Similarly, shortening the credit
period reduces the profit on account of reduced sales, but also reduces the cost of
typing up of funds in receivables. Determining the optimal credit period, therefore,
involves locating the period where the marginal profits on increased sales are exactly
offset by the cost of carrying the higher amount of accounts receivable.
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b. Cash discount - The effect of allowing cash discount can also be analyzed on the
same pattern as that of the credit period. Attractive cash discount terms reduce the
average collection period resulting in reduced investment in accounts receivable.
Thus, there is a saving in capital costs. On the other hand, cash discount itself is a loss
to the firm. Optimal discount is established at the point where the cost and benefit are
exactly offsetting.
3 Collection procedures- A stringent collection procedure is expensive for the firm

because of high out-of-pocket costs and loss of goodwill of the firm among its customers.
However, it minimizes the loss on account of bad debts as well as increases savings in
terms of lower capital costs on account of reduction in the size of receivables. A balance
has therefore to be stuck between the costs and benefits of different collection procedures
or policies.
1.17) Financing Of Working Capital
A) Policies for Financing Current Assets

A firm can adopt different financing policies vis-à-vis current assets. Three types of
financing may be distinguished as
i) Long Term Financing: The sources of long-term financing include ordinary share
capital, preference share capital, debentures, long-term borrowings from financial
institutions and reserves and surpluses (retained earnings).
ii) Short Term Financing: Short-term financing is obtained for a period less than one
year. It is arranged in advance from banks and other suppliers of short term finance in
the money market. Short-term finances include working capital funds from banks,
public deposits, commercial paper, factoring of receivables etc.
iii) Spontaneous Financing: Spontaneous financing refers to the automatic sources of

short-term funds arising in the normal course of a business. Trade (suppliers), credit,
and outstanding expenses are examples of spontaneous financing. There is no explicit
cost of spontaneous financing. A firm is expected to utilize these sources of finances
fully. The real choice of financing current assets, once the spontaneous sources of
financing have been fully utilized, is between the long term and short-term sources of
finances.
B) Approach for Financing Current Assets

Depending on the long term and short term financing, the approach followed by a
company may be referred to as
• Matching Approach
• Conservative Approach
• Aggressive Approach
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1.17.1) Matching Approach

The firm can adopt a financial plan, which matches the expected life of assets with the expected
of the source of funds raised to finance assets. Thus, a ten-year loan may be raised to finance a
plant with an expected life of ten years; stock of goods to be sold in thirty days may be financed
with a thirty-day commercial paper or a bank loan. The justification for the exact matching is
that, since the purpose of financing is to pay for assets, the source of financing and the assets
should be relinquished simultaneously. Using long term financing for short-term assets is
expensive, as funds will not be utilized for the full period. Similarly, financing long-term assets
with short-term financing is costly as well as inconvenient, as arrangements for the new short-
term financing will have to be made on a continuing basis.
Fig 1.14 Matching approach for financing working capital
When the firm follows a matching approach (hedging 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 are financed with short-term funds and as their level
increases, the level of short-term financing also increases. Under a matching plan, no short-term
financing will be used if the firm has a fixed current assets need only.
1.17.2) Conservative Approach

A firm in practice may adopt a conservative approach in financing its current and fixed assets.
The financing policy of the firm is said to be conservative when it depends more on long-term
funds for financing needs. Under a conservative plan, the firm finances its permanent assets and
a part of temporary current assets with long-term financing.
In the periods when the firm has no need for temporary current assets, the idle long-term funds
can be invested in the tradable securities to conserve liquidity. The conservative plan relies
heavily on long-term financing and, therefore, the firm has less risk of facing the problem of
shortage of funds.
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Fig 1.15conservative approach for financing working capital
1.17.3) Aggressive Approach

A firm may be aggressive in financing its assets. An aggressive policy is said to be followed by
the firm when it uses more short-term financing than warranted by the matching plan. Under an
aggressive policy, the firm finances a part of its permanent current assets with short-term
financing. The relatively large use of short-term financing makes the firm more risky.
Fig 1.16 Aggressive approach for financing working capital
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CHAPTER 2
Objectives and Methodology
2.1) The Objectives of the project study
A) To analyze various working capital ratios for last four years starting from 2011 to
2014.
B) Analysis of Current Asset and Current Liabilities
C) To estimate Working Capital requirement
D) Compare the financial position and performance Hindalco with Nalco on the basis of
various financial ratios
2.2) The Research method followed
A) The major sources of data were secondary data sources i.e. annual financial reports,
finance journals, Research papers etc. while primary data was obtained through
Renusagar Power Division Finance and Accounts Department.
B) Excel solver used for forecasting working capital. Working capital and pertinent data
for past 10 years was obtained through annual reports of past 10 years (2005 to 2014)
C) Industry standard ratios were obtained through primary as well as secondary sources.
D) Suggestions made based on analysis of the financial ratios, comparing them with the
financial scenario of the company and researching standard industry practices to improve
such situation.
2.3) Scope of the study
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The study is confined to the organization, targets the areas of working capital to concentrate on
and suggests steps for optimized levels of working capital.
2.4) Collection of data

Secondary Sources
i) Annual Report of Hindalco Industries from 2005 to 2014.

ii) Annual report of Nalco from 2013 to 2014
iii) International Aluminium Journals 2014
iv) Chatterjee, S. (2012). The impact of working capital on the profitability: Evidence
from the Indian firms.
v) International Mining Journal 2014
Primary Sources
Primary Source of data includes personal discussion with the finance and accounts department
professionals.
2.5) Tools for Analysis of the data
Microsoft Excel was used all through the project for the financial analysis of data, regression
analysis and to create graphs and tables.
2.6) Period covered under study
The period of study was limited to two months during 1 April and 30 May 2015. During this
period all the required data till 2014 was collected through secondary sources and analyzed with
the help of financial tools of analysis.
2.7) Limitations of the study
i) Data available till the last FY, current data not available.
ii) Insufficient data in order to keep the confidentiality of company‘s important information safe.
iii) This analysis is based on secondary data like annual reports and company‘s Balance Sheet.
The scope of the study is limited to that extent.
iv) The time available to carry out this study was limited to two month
38 | P a g e
CHAPTER 3
Analysis of Data and Interpretation

Financial Ratios
F
inancial ratios are mathematical comparisons of financial statement accounts or
categories. These relationships between the financial statement accounts help investors,
creditors, and internal company management understand how well a business is
performing and areas of needing improvement.
3.1) Liquidity Ratios
3.1.1) Current ratio:
Current ratio is calculated by dividing current assets by current liabilities:
Current assets include cash and those assets that can be converted into cash within a year, such as
marketable securities, debtors, inventories, loans and advances. All the obligations maturing
within a year are included in current liabilities. Current liabilities include creditors, bills payable,
accrued expenses, short term bank loan, income tax liability and long-term debt maturing in the
current year.
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It indicates the availability of current assets in rupees for every one rupee of current liability. A
ratio of greater than one means that the firm has more current assets than current claims against
them. In India, the conventional rule is to have a ratio of 1.33(internationally it is 2).
2.500 2.29
Current Ratio 2.07
2.18
2.000 1.74
2.5
2.07 1.500
2.0
1.74
1.64 1.62 1.000
1.5
1.0 0.500
0.5 0.000
2013-14 2012-13
0.0
2014 2013 2012 2011 HINDALCO NALCO
Fig 3.1 Current Ratios for Hindalco 2011-2014 Fig 3.2 Hindalco-Nalco Current ratios comparison
For the year 2011, Hindalco Industries had a current ratio of 1.618, which was lower than the
industry standard of 2:1, which increased by 2013, indicating increase in liquidity situation but
that got offset during the subsequent years reaching 1.745 in 2014 i.e. decreased by 15%. This
decrease is due to disproportionate rise in current liabilities (29%) as compared to current assets
(9%), which is due to pressures on account of declining bauxite quality and rise in freight, a
consequence of diesel price deregulation.
When we compare the current ratio of Hindalco with Nalco over past two years, Nalco comes
out to be in better position, indicating better liquidity.
3.1.2) Quick Ratio:
Quick ratio is given by
Quick assets are those assets which are converted into cash easily. It includes debtors, cash and
bank and current investments. While quick liabilities are the liabilities which are immediately
payable they include Creditors, Outstanding Expenses, Short term Investment.
40 | P a g e
It measures firm‘s capacity to pay off current obligations immediately and it is more rigorous test
of liquidity as compared to current ratio.
HINDALCO NALCO
Quick Ratio
1.20 1.707
1.548
1.00 0.97
0.80 0.970
0.71 0.67 0.68
0.60 0.719
0.40
0.20
0.00
2014 2013 2012 2011 2013-14 2012-13
Fig 3.3 Quick Ratios for Hindalco 2011-2014 Fig 3.4 Hindalco-Nalco Quick ratios comparison
Ideally quick ratio should be 1:1 which is remains lower than it constantly in Hindalco, while it
increased to 0.97 in 2013 which again came down to 0.72. Also huge difference between quick
ratio and current ratio shows high dependency of Hindalco on inventory for liquidity.
3%
15% Current Investment
30%
Inventories
5%
Trade Receivables
6% Cash and Bank Balance
Short-Term Loans and Advnces
Other Current Assets
41%
Fig 3.5 Structure of current asset for Hindalco in 2014
This is supported by the data from Balance sheet. 41% of the total current assets are inventory. In
this, almost 86% of the inventory is either raw material or WIP inventory, which is a standard
practice in aluminium manufacturing industry.
41 | P a g e
In comparison to which Nalco seems to be in much better position in terms of liquidity, with
similarly high inventory.
3.1.3) Cash ratio
The Cash Ratio is a ratio that measures Liquidity and describes how well a company could
handle their current Liabilities with their cash & cash equivalents if current liabilities were to
come due. The cash ratio measures the amount of cash, cash equivalents and invested funds a
company has to pay its current liabilities. The cash ratio is the most conservative of the short-
term solvency measures because it eliminates short-term assets such as Inventory and Accounts
Receivables which involve a lot of uncertainty concerning their true value and the time it takes to
be converted into cash. This is why many creditors look at the cash ratio specifically before
giving credit. They want to see if a company maintains adequate cash balances to pay off all of
their current debts as they come due.
It is calculated as
HINDALCO NALCO
Cash Ratio
0.18 1.25
0.16 1.09
0.14
0.12
0.1
0.08
0.06
0.04 0.15
0.02 0.09
0
2014 2013 2012 2011 2013-14 2012-13
Fig 3.6 Cash Ratios for Hindalco 2011-2014 Fig 3.7 Hindalco-Nalco Cash ratios comparison
The cash ratio of Hindalco is alarmingly low. Creditors prefer higher cash ratios, which is
generally 1 or above for aluminium industry. Now with such low cash ratios, it becomes difficult
to retain creditors or get new credit due for longer time period and hence it reduces days of
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payable outstanding (DPO), which means longer cash conversion cycle which affects working
capital negatively which in turn, results in lower profitability2.
3.2) Solvency ratios
Solvency refers to long-term solvency. It indicates whether the entity will be able to continue in
the long run.
Debt to Equity ratio:
Debt usually has lower cost and hence it is

Debt to Equity Ratio used to improve ROE. Raising finance
0.7 through debt increases fixed liability in
0.6 0.602 0.602 terms of payment of interest. It adds to
0.5 financial risk. Such liability has to be met
0.4
0.347 with even if business is not performing well.
0.3
Entity may suffer loss if ROI is lower than
0.2 0.173 cost of debt (interest); therefore D/E ratio
0.1
should be reasonable. The ratio is important
0.0
2014 2013 2012 2011 as it indicates about risk level of company.
Fig 3.8 Debt to Equity Ratio for Hindalco 2011-2014
The D/E ratio is well under industry standards, it increased by 247% since 2011 to 2013
Company raised 3,000 Crore through secured non-convertible debentures, the single largest
issuance by a private corporate in India to fund the upcoming projects worth 30,000.
As debt is usually cheaper hence while debts increased at a rate of 61.75% annually on average,
more shares were not issued nor equity increased comparable to debt. On the other hand in 2013
to 2014, both debt and equity grew by 8% in 2014 making D/E same as the previous year.
On other hand, Nalco surprisingly is a debt free company and much less riskier.
2
Chatterjee, S. (2012). The impact of working capital on the profitability: Evidence from the Indian firms
43 | P a g e
3.2.1) Interest Coverage Ratio
Interest Coverage Ratio Interest Expense

14 800
12.80 700
12
10.32 600
10
500
8 400
6 5.69 300
4 3.92 200
100
2
0
0 2014 2013 2012 2011
2014 2013 2012 2011 Series1 711.65 435.98 293.63 219.96
Fig 3.9 Interest coverage Ratio for Hindalco 2011-14 Fig 3.10 Interest expense for Hindalco 2011-14
It is calculated as
Interest coverage is a financial ratio that provides a quick picture of a company's ability to pay
the interest charges on its debt. The "coverage" aspect of the ratio indicates how many times the
interest could be paid from available earnings, thereby providing a sense of the safety margin a
company has for paying its interest for any period, may easily fall into bankruptcy if its earnings
suffer for even a single month. For Aluminium manufacturing industry generally the minimum
level for interest coverage ratio is 3.
Though ICR for Hindalco is slightly above the minimum required level but its continuous
decline from past several years indicates poor margin of safety, as large amount of debt taken
during these years and hence interest expense also increased, but since most of the projects are
not operational in full swing, revenues from them and in turn EBIT did not increase
Proportionally. On the other hand Nalco did not pay any interest due to zero borrowings.
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3.2.4) Proprietary Fund Ratio.
The proprietary ratio (also known as the equity ratio) is the proportion of shareholders' equity to
total assets, and as such provides a rough estimate of the amount of capitalization currently used
to support a business. If the ratio is high, this indicates that a company has a sufficient amount of
equity to support the functions of the business, and probably has room in its financial structure to
take on additional debt, if necessary. Conversely, a low ratio indicates that a business may be
making use of too much debt or trade payables, rather than equity, to support operations (which
may place the company at risk of bankruptcy).
It‘s calculated as
HINDALCO NALCO
proprieter fund ratio
73.25%
70%
63.82% 65.17%
60% 57.56%
50% 51.00% 49.79% 51.00%
49.79%
40%
30%
20%
10%
0%
2014 2013 2012 2011 2013-14 2012-13
Fig 3.11 Proprietor fund ratio for Hindalco 2011-14 Fig 3.12 Hindalco-Nalco Proprietor fund ratio
comparison
Observations: proprietor fund ratio which was 63.82% in 2011 came down to 49.8% in 2014
(industry average being 40%) . The continuous decline is due to increase in leverage and
investing heavily in projects which still have to generate cash flows in future e.g. Mahan
smelter.
Though the proprietor ratio is better in NALCO and also has increased from past year, but for
Hindalco it is expected to improve in the upcoming years.
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3.3) Profitability ratios
Profitability ratios are used to assess a business's ability to generate earnings as compared to its
expenses and other relevant costs incurred during a specific period of time.
3.3.1) Gross profit ratio
Gross profit ratio reflects the margin earned by the firm through manufacturing or trading as a
proportion of sales. The gross profit earned should be sufficient to recover all operating expenses
and to build up reserves after paying all fixed interest charges and dividends.
It is calculated as
HINDALCO NALCO
Gross profit ratio
26% 53.70%
48.88%
25% 25.06%
24%
23% 22.88% 22.14% 21.95%
22% 22.14% 21.95%
21%
20%
2014 2013 2012 2011 2013-14 2012-13
Fig 3.13 Gross Profit Ratio for Hindalco 2011-14 Fig 3.14 Nalco Hindalco Gross Profit comparison2013-14
The gross profit ratio has been continuously declining, from 25% in 2011 to 22.14% in 2014
which is slightly more than previous year‘s 21.95%. The decline can be attributed to various
factors like increased cost of raw freight and poor quality bauxite. Nalco on the other hand
maintained a good gross profit ratio much higher that Hindalco, because the cost of raw material
consumed for Nalco is 14.49% of the revenue while for Hindalco it is 64.9%. This is due to
purchase of copper ore by Hindalco, which Nalco does not procure.
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3.3.2) Operating Profit
Operating profit is the excess of sales overs COGS and operating expenses. Operating profit is
earned from normal business operations of the concern.
It is calculated as *100.
HINDALCO NALCO
Operating Profit Ratio
14.26%
14% 13.19%
12% 11.80%
11.39% 10.03%
10% 10.03% 9.53%
9.53%
8%
6%
4%
2%
0%
2014 2013 2012 2011 2013-14 2012-13
Fig 3.15 Operating Profit Ratio for Hindalco 2011-14 Fig 3.16 Hindalco –Nalco Operating Profit comparison
The operating profit declined from 11.8% in 2011 to 9.52% in 2013, which increased slightly to
10.03%. Interestingly the decline in gross profit is more steep than decline in operating profit for
the entire duration which indicates reduction in the proportion of non-production overheads due
to better efficiency of operations. Operating profit margin for Nalco is more than Hindalco; it is
expected to catch up in near future.
3.3.3) Net profit ratio:
Net profit after tax is obtained after deducting all expenses, interest and tax from sales. It is
Calculated as: *100.
47 | P a g e
HINDALCO NALCO
Net Profit Ratio
9.47%
10% 8.57%
8.96%
8% 8.41%
6.52%
6.52% 5.07%
6%
5.07%
4%
2%
0%
2013-14 2012-13 2011-12 2010-11 2013-14 2012-13
Fig 3.17Net Profit Ratio for Hindalco 2011-14 Fig 3.18 Hindalco-Nalco Net Profit comparison
The profit margin ratio directly measures what percentage of sales is made up of net income. In
other words, it measures how much profits are produced at a certain level of sales. This ratio also
indirectly measures how well a company manages its expenses relative to its net sales.
The NPR is like other ratios for Hindalco are constantly declining as compared to Nalco, which
has better NPR and that too improving year after year. This clearly shows Nalco performing
better than Hindalco in profitability.
3.4) Return Ratios:
Return ratios indicate the rate at which the company has generated return over its capital
employed in the business.
3.4.1) Return on capital employed:
Return on capital employed (ROCE) is the ratio of net operating profit of a company to its
capital employed. It measures the profitability of a company by expressing its operating profit as
a percentage of its capital employed. Capital employed is the sum of stockholders' equity and
long-term finance. It is calculated as
48 | P a g e
It indicates how efficiently a company uses its capital employed as well as its long-term
financing strategies. For a company to remain in business over the long term its return on capital
employed should be higher than its cost of capital; otherwise, continuing operations gradually
reduce the earnings available to shareholders. It is commonly used to compare the efficiency of
capital usage of businesses within the same industry.
HINDALCO NALCO
ROCE
8% 8.55% 8.83%
7% 7.03%
6% 6.34%
5%
4.30% 4.16% 4.30% 4.16%
4%
3%
2%
1%
0%
2014 2013 2012 2011 2013-14 2012-13
Fig 3.19 ROCE for Hindalco 2011-14 Fig 3.20 Hindalco-Nalco ROCE comparison
The Return on capital invested for Hindalco declines from 7.032% in 2011 to 4.16% in 2013 and
increased marginally in 2014 to 4.302 which is quite less than that of Nalco‘s 8.546%. Also
WACC for Hindalco is 10.1%3. Now as WACC is more than ROCE, Hindalco proves to destroy
the wealth of in investors.
WACC for Nalco being 15%4, Nalco also destroys wealth for its investors.
3.4.2) Return On Equity:
This ratio indicates how profitable a company is by comparing its net income to its average
shareholders' equity. The return on equity ratio (ROE) measures how much the shareholders
3
Zhumadil, Mariyam. March 11, 2014, Spin-off could unlock value, but devil is in the details, Halyk Finance
Report.
4
http://www.sakalmoney.com/reports/AmbitNationalAluminium.pdf
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earned for their investment in the company. The higher the ratio percentage, the more efficient
management is in utilizing its equity base and the better return is to investors.
It is calculated as
HINDALCO NALCO
ROE
8% 5.299%
5.002% 4.968%
6.984% 7.195%
6% 3.848%
5.002%
4% 3.848%
2%
0%
2014 2013 2012 2011 2013-14 2012-13
Fig 3.21 ROE for Hindalco 2011-14 Fig 3.22 Hindalco-Nalco ROE comparison
Observation: ROE like other financial ratios, too decline continuously since 2011, from 7.195%
to 3.848%, and hence decline in efficiency of investors‘ money being employed. Nalco on the
other hand continues to show higher and improving ROE from past few years. When we see
ROE and ROI together, Nalco seems to be a better option from investors‘ perspective.
3.4.3) Return On Assets ( ROA)
It indicates the profit earned on assets used. Assets include fixed asset, capital work in progress,
investments and total current assets, loans and advances.
It is calculated as follows:
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HINDALCO NALCO
ROA
5%
4.592% 3.882%
3.630%
4% 4.020%
3% 2.551%
2.551% 1.916%
2% 1.916%
1%
0%
2014 2013 2012 2011 2013-14 2012-13
Fig 3.23 ROA for Hindalco 2011-14 Fig 3.24 Hindalco-Nalco ROA comparison
While investment in total assets increased by 11% from 2013 to 14, revenues increased by only
6% in the same period. This resulted in decline in return on total assets declined from 2.55% in
2013 to 1.916% in 2014. There is a continuous decline in ROA since 2011. The reason being
huge investment in projects which yet to start generating cash flows, which has resulted in low
Asset turnover and hence lower ROA. A low ROA indicates inefficient usage of assets, but this
not the cause behind declining ROA here. Nalco on the other hand has slightly increasing ROA
from 3.63% in 2013 to 3.88% in 2014.
3.5) Turnover ratios:
Turnover ratios indicate efficiency in asset use.
3.4.1) Asset Turnover Ratio
Amount of sales or revenues generated per rupee of assets. The Asset Turnover ratio is an
indicator of the efficiency with which a company is deploying its assets. For a specific company,
the trend in the asset turnover ratio over a period of time should also be reviewed to check
whether asset usage is improving or deteriorating. It is calculated as:
51 | P a g e
HINDALCO NALCO
Asset turnover ratio
0.423
0.6
0.513 0.410
0.5 0.478
0.4 0.378 0.391 0.391
0.3 0.378
0.2
0.1
0.0
2014 2013 2012 2011 2013-14 2012-13
Fig 3.25 Asset Turnover Ratio for Hindalco 2011-14 Fig 3.14 Hindalco-Nalco Asset Turnover Ratio
comparison
Asset turnover ratio declined from 0.513 in 2011 to 0.378 in 2014. The reason for decline is
same as decline in ROA. Nalco though, has higher asset turnover ratio, but it is declining too.
Steeper decline in ROA as compared to asset turnover ratio is due to the fact that ROA is product
of Asset turnover and profit margin ratio, both declined in the studied period.
3.4.2) Working capital ratio:
The working capital turnover ratio measures how well a company is utilizing its working capital
to support a given level of sales. It shows how quickly working capital rotates. A high turnover
ratio indicates that management is being extremely efficient in using a firm's short-term assets
and liabilities to support sales. Conversely, a low ratio indicates that a business is investing in too
many accounts receivable and inventory assets to support its sales, which could eventually lead
to an excessive amount of bad debts and obsolete inventory. If it is extremely high, On the
surface, appears that the company is operating at a very high efficiency, but in reality, working
capital level might be dangerously low. Very low working capital can possibly cause the
company to run out of money to fund business.
It is calculates as
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Working Capital Sales

working capital turnover
5 27,851 26,597
26,057
23,859
4 4.13 3.92
3 2.97
2.50
9,370 10,413
2
6,444 6,087
1
0
2014 2013 2012 2011 2014 2013 2012 2011
Fig 3.27 Working Capital for Hindalco 2011-14 Fig 3.28 Sale to WC comparison for Hindalco 2011-14
Working capital though dropped from 3.92 in 2011 to 2.5 in 2013, but it increased marginally in
2014 and expected to increase in future, during 2012-13, sales decreased and working capital
increased, resulting in steep decline in working capital turnover.
Increase in sales while marginally decreased working capital resulted in increased working
capital turnover.
3.4.3) Inventory Turnover
Inventory turnover ratio explains movement of inventories in relation to sales. Lower ratio
indicates slow movement of inventories. Inventory turnover is a measure of how efficiently a
company can control its merchandise, so it is important to have a high turnover. This shows the
company does not overspend by buying too much inventory and wastes resources by storing non-
salable inventory. It also shows that the company can effectively sell the inventory it buys.
This measurement also shows investors how liquid a company's inventory is. Inventory is one of
the biggest assets a retailer reports on its balance sheet. If this inventory can't be sold, it is
worthless to the company. This measurement shows how easily a company can turn its inventory
into cash.
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This ratio is given as follows:
HINDALCO NALCO
Inventory Turnover
2.68 2.73
2.66 2.66 2.63

2.61
2.64
2.63 2.63
2.62 2.46
2.61
2.60
2.58
2014 2013 2012 2011 2013-14 2012-13
Fig 3.29 Inventory Turnover for Hindalco 2011-14 Fig 3.30 Hindalco-Nalco Inventory Turnover
comparison
Inventory turnover did not show any significant changes in this period, showed 0.89% decline in
2014 from the previous year. Hindalco has maintained almost same inventory turnout ratio,
which is a good sign. This performance is better than Nalco, both in stability and absolute value.
It shows better inventory management in Hindalco.
3.4.4) Debtors Turnover
Debtors Turnover indicates the number of times receivables are collected, on average, during the
fiscal year. Generally, higher is the value of debtors turnover, more efficient the debtors
management of the company is.
A high receivables turnover ratio implies either that the company operates on a cash basis or that
its extension of credit and collection of accounts receivable are efficient. Also, a high ratio
reflects a short lapse of time between sales and the collection of cash, while a low number means
collection takes longer.
The ratio is given as
Almost all sales Hindalco made were in credit; hence sales can be takes as credit sales.
54 | P a g e
HINDALCO NALCO
Debtors Turnover
55.38
20.50
20.00 19.90 19.83
19.50
34.58
19.00
18.50 18.49
19.90 17.71
18.00
17.71
17.50
17.00
16.50
2014 2013 2012 2011 2013-14 2012-13
Fig 3.31 Debtors Turnover for Hindalco 2011-14 Fig 3.32 Hindalco-Nalco Debtors Turnover comparison
The debtors turnover ratio show a small fluctuating pattern form 2011 to 2014, which indicates a
stable debtors policy. It increased by 12% from 2013 to 2014, indicating shorter lapse of time
between sales and the collection of cash.
Though Nalco has significantly higher debtors turnover ratio than Hindalco, but it saw a decline
of 37.25%. Though Nalco is yet much above industry standard yet such steep decline rings a
warning bell for debtors management for Nalco.
3.4.5) Creditors turnover ratio:
The accounts payable turnover ratio is shows a company's ability to pay off its accounts payable
by comparing net credit purchases to the average accounts payable during a period. In other
words, the accounts payable turnover ratio is how many times a company can pay off its average
accounts payable balance during the course of a year. If the turnover ratio declines from one
period to the next, this indicates that the company is paying its suppliers more slowly, and may
be an indicator of worsening financial condition
55 | P a g e
It is calculated by dividing the net credit

purchases by average creditors. Hindalco industry maintains a good
policy regarding creditors and debtors.
While the days of purchase outstanding
remain high, it has come down from
last year while days of sales
outstanding a quite lower yet stable
during past four years.
Where, Total purchase = Ending Inventory -
Beginning Inventory + COGS
A higher ratio shows suppliers and creditors that the company pays its bills frequently and
regularly. It also implies that new vendors will get paid back quickly. A high turnover ratio can
be used to negotiate favorable credit terms in the future.
HINDALCO NALCO
Creditors Turnover Ratio
7.00 6.17 6.16
6.00 6.17
5.00 5.26 5.11
4.71 5.64
4.00
3.00 5.26
2.00
1.00
0.00
2014 2013 2012 2011 2013-14 2012-13
Fig 3.33 Creditors Turnover for Hindalco 2011-14 Fig 3.34 Hindalco-Nalco Creditors Turnover comparison
Since 2012 there is a continuous improvement in Creditors turnover, due to increase in purchase
and decrease in payables which suggests vendors are being paid more frequently. This shows
better financial position of the company in terms of liquidity. This situation enhances the credit
worthiness of the company. However a very favorable ratio to this effect also shows that the
business is not taking the full advantage of the credit facilities allowed by the creditors.
56 | P a g e
3.4) Operating Cycle and Cash Conversion Cycle.
Operating cycle is the number of days a company takes in realizing its inventories in cash. It
equals the time taken in selling inventories plus the time taken in recovering cash from trade
receivables. It is called operating cycle because this process of producing/purchasing inventories,
selling them, recovering cash from customers, using that cash to purchase/produce inventories
and so on is repeated as long as the company is in operations.
The duration of time required to complete the following sequence of events, in case of
manufacturing firm, is called the operating cycle:
 Conversion of cash into raw materials.

 Conversion of raw materials into work-in-progress.
 Conversion of work in process into finished goods.
 Conversion of finished goods into debtors and bills receivables through sales
 Conversion of debtors and bills receivables into cash.
Fig 3.35 Cash conversion cycle mechanism
57 | P a g e
The cash conversion cycle is a cash flow calculation that attempts to measure the time it takes a
company to convert its investment in inventory and other resource inputs into cash. In other
words, the cash conversion cycle calculation measures how long cash is tied up in inventory
before the inventory is sold and cash is collected from customers
The cash cycle has three distinct parts. The first part of the cycle represents the current inventory
level and how long it will take the company to sell this inventory. This stage is calculated by
using the days inventory outstanding calculation.
The second stage of the cash cycle represents the current sales and the amount of time it takes to
collect the cash from these sales. This is calculated by using the days sales outstanding
calculation.
The third stage represents the current outstanding payables. In other words, this represents how
much a company owes its current vendors for inventory and goods purchases and when the
company will have to pay off its vendors. This is calculated by using the days payables
outstanding calculation.
Fig 3.26 Cash Flow timeline
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3.4.1) Days of Inventory Outstanding (DIO):
Days Inventory Outstanding (DIO), also known as Days Sales of Inventory (DSI), is an
efficiency metric used to measure the average number of days a company holds inventory before
selling it. A declining ratio over time can indicate that a company is able to sell inventory at a
quicker pace. An increasing ratio, generally a bad sign, can indicate a company held on to its
outstanding inventory for a longer rate than usual.
DIO plays a crucial component in the Cash Conversion Cycle (CCC), which is used to determine
how long cash is tied up in working capital It is calculated as 365/ Inventory turnover.
3.4.2) Days of Sales Outstanding (DPO):
The average numbers of days it takes for a company to collect outstanding receivables. A days
sales outstanding (DSO) of 15 means it takes 15 days to collect on sales. Low DSOs are
favorable; a company is able to quickly collect on sales. Payments can be used for other
purposes.
Companies with a low DSO, for example those have substantial sales and minor receivables
means that the company has sold a lot and only a small amount of customers owe them payments
on those sales. The company is quickly collecting on its sales. Companies with a low amount of
sales and a high amount of customers owing payments on those sales represent a high DSO. This
is a situation where the company is unable to quickly collect on its sales.
DSO is a component of the Cash Conversion Cycle (CCC), which is used to determine how Days
sales outstanding is calculated as: 365/Debtors turnover
3.4.3) Days Payable Outstanding – DPO
Days Payable Outstanding (DPO) is a turnover ratio which represents the average number of
days it takes for a company to pay its suppliers. A high (low) DPO indicates that a company is
paying its suppliers slower (faster In general, high DPOs are looked at favorably; it indicates that
the firm is able to use cash (that would have gone to immediately paying suppliers) to other uses
59 | P a g e
for an extended period of time. Extremely high DPOs potentially highlight liquidity issues or
extensive credit terms that favor the company.
Days Payable Outstanding is a crucial component of the Cash Conversion Cycle (CCC), which is
used to determine how long cash is tied up in working capital. Companies with an extremely
high DPO can lead to a negative CCC. (For the CCC, a ratio where lower is better, that is a good
sign
3.4.4) Observation and Conclusion for Operating Cycle and CCC .
2013-14 2012-13 2011-12 2010-11

Days of inventory Outstanding(DIO) 140 139 137 139
Days of payable outstanding (DPO) 59 69 77 71
Days of sales outstanding (DSO) 18 21 18 20
Operating cycle (OC) 158 159 155 158
Cash Conversion Cycle(CCC) 99 90 78 87
Table 3.1: Observation table of operating and cash conversion cycle
HINDALCO NALCO DSO DPO DIO

148
140 140 139 137 139
65 77
59 69 71
59
18
11 18 21 18 20
Inventory DPO DSO

period 2014 2013 2012 2011
Fig 3.37 Hindalco-Nalco cash conversion cycle Fig 3.38: DIO, DPO and DSO for Hindalco 2011-14
factors’ comparison
The above data shows various factors of operating and cash cycles.
60 | P a g e
a) The days of inventory outstanding for Hindalco remains lower than that of Nalco and it
has maintained the same level in past four years. The constant levels for DIO along with
stable DSO provide a stable operating cycle.
b) From table the operating cycle shows a standard deviation of 1.45 days. For Nalco, on
the other hand it shows more variation, which increased by 19 days from previous year‘s
(2013) 140 days to 159 in 2014. Apart from much stable operating cycle, DIO and DPO
for Hindalco are lesser and hence more efficient than that of Nalco. This suggests that
Inventory and payable management in Hindalco is better than that of Nalco.
Hindalco Nalco
158 159 159

140
99 94 90
81
Operating Cycle (2014) Operating Cycle (2013) Cash Conversion Cycle Cash Conversion
(2014) Cycle(2013)
Fig 3.39 Hindalco-Nalco cash conversion and operating cycle comparison 2013-2014
c) While the operating cycle of Hindalco is slightly shorter and better than that of Nalco for
2014, the cash conversion cycle for Nalco is shorter and hence better than that of
Hindalco‘s. This is due to shorter DPO for Nalco. In 2014, DSO for Hindalco was 18
days while for Nalco it was 11 days. Nalco collects payments from its debtors 39% faster
than Hindalco.
d) Cash conversion cycle for both the companies has got worse from past year. Percentage
wise Nalco saw more increase in Hindalco.
61 | P a g e
e) Hindalco has a quite stable DSO and DIO while it has a decreasing DPO. It has to
concentrate more on getting more credit period in order to have better liquidity and
shorter Cash Conversion Cycle.
f) Steps for better Creditors management are discussed further in this report.
62 | P a g e
CHAPTER 4
Conclusion and Suggestions
Hindalco Nalco
2014 2013 2014 2013
Current Assets 21951.89 20150.03 7426.2 7030.23
Current Investments 30% 32% 17% 19%
Trade Receivables 6% 8% 3% 2%
Cash and Bank Balances 5% 7% 55% 50%
Inventory 41% 38% 16% 20%
Table 4.1: Common size current assets’ components
A) All current assets declined from last years except inventories which increased by 3% of
the total current assets. Hindalco already has very high levels of inventory, mostly WIP
and raw material inventory. Hence it should try to
a) Reduce inventory level, specifically raw material and WIP Inventory.
b) Improve cash and bank balance which are highly undermined in Hindalco.
On the other hand Nalco holds more than appropriate level of cash and bank balance.
Holding cash has opportunity cost associated with it, though it increases liquidity of the
firm.
B) While debt increased by mere 8% finance expense increased by 63% in 2014 from last
year. The finance cost is will increase further due to loans taken in 2014. Since increase
in equity is also 8%, there is no effect over D/E ratio but interest coverage ratio decreased
drastically. From the point of view of investors, Hindalco has become riskier to invest
63 | P a g e
due to higher leverage and hence they expect higher rate of return for their investment as
compared to Nalco which has zero debt and high proprietary ratio.
30.00%
25.00%
20.00%
Gross Profit
15.00%
Operating Profit
10.00% Net Profit
5.00%
0.00%
2014 2013 2012 2011
Fig 3.40 Profitability ratios for Hindalco 2011-14
C) Gross profit ratio for Hindalco is quite less as compared to Nalco‘s GPR, due to high cost
of copper raw material, which Nalco does not deal in. But Operation Expenses for
Hindalco (% of sales) is quite lesser than that of Nalco showing more efficient
operations. Though GPR and Operating profits increased in 2014 from last year, NPR
still decreased, reason being Liability of Rs. 324.36 crore under UP Tax on Entry of
Goods into Local Areas Act, 2007 (UP Entry Tax) and (b) Liability of Rs. 71.62 crore
under Madhya Pradesh Gramin Avsanrachna Tatha Sarak Vikas Adhiniyam
(MPGATSVA) as exceptional expenses.
D) Return ratios have been declining from past four years due to more borrowings, hence
more Capital Employed ( Equity + Loans), for setting up new projects (Assets), but since
those projects (assets) have not started working in full swing and hence generating
expected cash outflow, the profitability is still less. This trend is expected to improve,
hence generating higher ROE for WACC.
64 | P a g e
E)
Sales 6% ↑
Working Capital 10%↓
Assets 11%↑
CA 8%↑
inventory 16%↑
COGS 7%↑
Average Receivables 4%↓
Table 4.2 Increase/ Decrease in factors affecting the financial position of a company2013-14
Hindalco has performed poorly on many fronts due to high debt and partially operational
projects, but it seems to do well at working capital management. With increase in Assets
and sales, the working capital has gone down, indicating better and efficient management
of working capital. It can be further improved by reducing dependency on inventory
which is 12% of the total assets and has increased by 16% from last year while sales has
increased by 6% only. It also seems to do well at debtors and creditors management.
Creditors turnover ratio has improved which can be used to negotiate longer DPO and
hence improving CCC further.
F) Cash conversion period can be shorten in three ways i.e.
i) Reduce DIO (Increase Inventory Turnover)

ii) Reduce DSO (Increase Debtors Turnover)
iii) Increase DPO ( Decrease Creditors turnover)
In order to increase inventory turnover following steps should be taken

Pareto inventory techniques
Reduce replenishment lead times
Revise order cycles/quantities
Improve forecasting
Eliminate obsolete stock
Lower service level
65 | P a g e
To increase debtors turnover by increasing collections efficiency
Make it easy for customers to pay on time by using a lockbox service, pre-
authorized checks or an automatic clearinghouse. Customers drop payments into a
lockbox or post office box in a central location to be collected by the bank.
Preauthorized checks allow the business to draw payments from the customer's
account at regular intervals. Automatic clearinghouses transfer funds
electronically from customers' accounts into the business account.
To increase DPO and hence decrease Creditors turnover
To increase DPO Hindalco has to reduce creditor turnover. The cash ratio of
Hindalco is alarmingly low. Creditors prefer higher cash ratios, which is generally
1 or above for aluminium industry. Now with such low cash ratios, it becomes
difficult to retain creditors or get new credit due for longer time period and hence
it reduces days of payable outstanding (DPO), which means longer cash
conversion cycle which affects working capital negatively which in turn, results in
lower profitability.
Though this Cash ratio and DPO do not show any quantitative evidences for
Hindalco, the correlation coefficient between cash ratio and creditors turnover is
.23, high cash ratios can be used to negotiate longer credit periods.
Higher cash ratio would not only improve the chances of higher DPO but also
improve the liquidity of Hindalco and would make it convenient for a lean
inventory in future.
66 | P a g e
Annexure
Financial Statements
HINDALCO NALCO
2013-14 2012-13 2011-12 2010-11 2013-14 2012-13
Revenue From Operation 30101.34 28069.78 28296.96 25348.12 6780.85 6916.48
Excise Duty 2250.41 2012.85 1700.18 1488.91
Net Revenue 27850.93 26056.93 26596.78 23859.21 6780.85 6916.48
Other Income 1124.42 983.09 615.79 347.49 557.71 511.05
Total Income 28975.35 27040.02 27212.57 24206.7 7338.56 7427.53
Purchase Of Stock In Trade 0.03 0.38 205.98 522.22
Cost Of Material Consumed 18804.28 17136.51 17843.08 15530.94 1063.16 1167.83
Changes I Inventory Of Finished Goods -676.21 127.94 -407.31 -394.67 58.55 -64.25
Employee Benefit Expenses 1346.1 1200.8 1113.35 1040.39 1245.33 1153.93
Power And Fuel 3557.61 3073.04 2870.67 2221.48 2017.67 2432.27
Finance Cost 711.65 435.98 293.63 219.96 7.45
Depreciation And Amortization 823.29 686.95 689.97 687.48 524.73 505.43
Impairment Loss 17.25
Other Expense 2327.24 2314.54 1866.25 1784.16 1461.94 1319.83
Total Expense 26893.99 24993.39 24475.62 21611.96 6371.38 6522.49
Gross Profit 6165.22 5719.06 6084.36 5979.24 3641.47 3380.63
Profit Before Exceptional Items And Tax 2081.36 2046.63 2736.95 2594.74 967.18 905.04
Pbit 2793.01 2482.61 3030.58 2814.7 967.18 912.49
Exceptional Items 395.98 49.37
Profit Before Tax 1685.38 2046.63 2736.95 2594.74 917.81 905.04
Tax Expenses
Current Tax 288.88 381.41 562.68 555.68 264.65 263.3
Differed Tax -16.83 -33.98 -62.93 -97.86 10.81 48.91
Net Profit 1413.33 1699.2 2237.2 2136.92 642.35 592.83
67 | P a g e
2) Balance Sheet
HINDALCO NALCO
2013-14 2012-13 2011-12 2010-11 2013-14 2012-13
Share Capital 206.48 191.48 191.48 191.46 1288.62 1288.62
Reserves And Surplus 36525.97 33239.6 31299.68 29508.64 10833.83 10643.83
Money Received Against Share Warrants 541.31 541.31
Equity 36732.45 33972.39 32032.47 29700.1 12122.45 11932.45
Long Term Borrowings 22108.58 20443.05 11115.13 5147.54
Deferred Tax Liabilities ( Net) 1174.31 1191.14 1224.56 1287.49 910.13 903.13
Other Long Term Liabilities 830.86 974.28 953.1 290.5 54.96 70.82
Long Term Provisions 341.96 300.94 287.32 268.07 218.22 208.62
Non-Current Liabilities 24,455.71 22,909.41 13,580.11 6,993.60 1,183.31 1,182.57
Short Term Borrowings 4,258.37 3,701.72 3,456.78 3,890.35
Trade Payables 4,383.75 3,044.05 4,659.77 4,082.95 531.12 509.17
Other Current Liabilities 2,901.91 1,924.09 998.61 1,053.91 2564.38 2545.75
Short Term Provisions 1,037.76 1,066.90 919.88 815.43 147.25 162.67
Current Liabilities 12,581.79 9,736.76 10,035.04 9,842.64 3,242.75 3,217.59
Total Liabilities 73,769.95 66,618.56 55,647.62 46,536.34 16,548.51 16,332.61
Assets
Tangible Assets 18024.98 7071 7125.95 7560.69 6688.8 6523.8
Intangible Assets 29.73 26.65 24.25 23.69 103.14 105.09
Capital Work In Progress 17277.13 23605.11 16256.7 6030.32 768.74 1001.92
Intangible Assets Under Development 0.1 0.01 0.24 0.09
Fixed Assets 35,331.94 30,702.77 23,407.14 13,614.79 7,560.68 7,630.81
Non-Current Investment 15312.45 14,050.17 13,503.70 13,049.66 1.04 161.04
Long Term Loans And Advances 1,161.15 1,681.08 2249.53 3942.59 1517.27 1474.04
Other Non Current Assets 12.52 34.51 7.81 0.10 43.32 36.49
Non Current Assets 51,818.06 46,468.53 39,168.18 30,607.14 9,122.31 9,302.38
Current Investments 6,595.01 6,431.96 4,583.40 5,197.09 1244 1329.02
Inventories 8,914.58 7,702.62 7,742.86 7,651.40 1173.66 1380.64
Trade Receivables 1,283.65 1,515.04 1,427.45 1,255.49 243.57 148.65
Cash And Bank Balance 1,163.17 1,497.82 722.30 233.39 4048.29 3504.38
Short Term Loan And Advances 3,226.40 2,261.73 1,647.65 1,344.75 481.38 473.76
Current Assets 21,182.81 19,409.17 16,123.66 15,682.12 7190.9 6836.45
Other Current Assets 769.08 740.87 355.78 247.08 235.3 193.78
Current Assets Inc. Other Current Assets 21,951.89 20,150.04 16,479.44 15,929.20 7,426.20 7,030.23
Total Assets 73,769.95 66,618.57 55,647.62 46,536.34 16,548.51 16,332.61
68 | P a g e
3) Common Size
HINDALCO NALCO
2013-14 2012-13 2011-12 2010-11 2013-14 2012-13
Net Revenue 96.12% 96.36% 97.74% 98.56% 92.40% 93.12%
Other Income 3.88% 3.64% 2.26% 1.44% 7.60% 6.88%
Total Income 100% 100% 100% 100% 100% 100%
Expenses
Purchase Of Stock In Trade 0.00% 0.001% 0.75% 2.15%
Cost Of Material Consumed 64.90% 63.37% 65.56% 64.16% 14.49% 15.72%
Employee Benefit Expenses 4.65% 4.44% 4.09% 4.29% 16.97% 15.54%
Power And Fuel 12.28% 11.36% 10.54% 9.17% 27.49% 32.75%
Finance Cost 2.46% 1.61% 1.07% 0.90% 0.10%
Depreciation And Amortization 2.84% 2.54% 2.53% 2.84% 7.15% 6.80%
Other Expense 8.03% 8.56% 6.85% 7.37% 19.92% 17.77%
Total Expense 92.82% 92.43% 89.94% 89.28% 86.82% 87.82%
Gross Profit 21.28% 21.15% 22.35% 24.70% 49.62% 45.51%
PBIT 9.64% 9.18% 11.13% 11.62% 13.18% 12.29%
Profit Before Tax 5.82% 7.56% 10.05% 10.71% 12.51% 12.18%
Net Profit 4.88% 6.28% 8.22% 8.82% 8.75% 7.98%
69 | P a g e
4) Financial Ratios
HINDALCO NALCO
31/03/2014 31/03/2013 31/03/2012 31/03/2011 31/03/2014 31/03/2013
Working Capital 9370.10 10413.27 6444.40 6086.56 4183.45 3812.64
Current Ratio 1.74 2.07 1.64 1.62 2.29 2.18
Cash Ratio 0.09 0.15 0.07 0.02 1.25 1.09
Quick Ratio 0.72 0.97 0.67 0.68 1.71 1.55
CA/FA 0.42 0.43 0.42 0.52 0.81 0.76
D/E 0.60 0.60 0.35 0.17 0.00 0.00
PBIT 2793.01 2482.61 3030.58 2814.70 917.81 905.04
Interest Coverage 3.92 5.69 10.32 12.80 NA 121.48
Net Worth 36732.45 33972.39 32032.47 29700.10 12122.45 11932.45
Proprietary Fund Ratio 49.79% 51.00% 57.56% 63.82% 73.25% 73.06%
GPR 22.14% 21.95% 22.88% 25.06% 53.70% 48.88%
Operating Profit Ratio 10.03% 9.53% 11.39% 11.80% 14.26% 13.19%
NPR 5.07% 6.52% 8.41% 8.96% 9.47% 8.57%
EPS 7.09 8.88 11.68 11.16 2.49 2.30
ROCE 4.30% 4.16% 6.34% 7.03% 8.55% 8.83%
Shareholders' Equity 36732.45 33972.39 32032.47 29700.10 12122.45 11932.45
ROE 3.85% 5.00% 6.98% 7.19% 5.30% 4.97%
ROA 1.92% 2.55% 4.02% 4.59% 3.88% 3.63%
Asset Turnover Ratio 0.38 0.39 0.48 0.51 0.41 0.42
Working Capital Turnover 2.97 2.50 4.13 3.92 1.62 1.81
Creditors Turnover 6.17 5.26 4.71 5.11 5.64 6.16
Inventory Turnover 2.61 2.63 2.66 2.63 2.46 2.73
Days Of Inventory 140 139 137 139 148 134
Debtors Turnover 19.90 17.71 19.83 18.49 34.58 55.38
Collection Period (DSO) 18 21 18 20 11 7
DPO 59 69 77 71 65 59
Operating Cycle 158 159 155 158 159 140
CCC 99 90 78 87 94 81
70 | P a g e
Reference:
Bapat Varadra, Raithatha Mehul (2012), Financial Accounting
Pandey, I. M., Financial Management (10 e)
http://schluetersche.de/international-aluminium-journal/150/1373/38366/
http://www.hindalco.com
http://articles.economictimes.indiatimes.com/2011-06-13/news/29653419_1_aluminium-prices-aluminium-
demand-bl-bagra
http://markets.ft.com/research/Markets/Tearsheets/Forecasts?s=HINDALCO:NSI
http://www.livemint.com/Companies/LSlHtsmxN7jBVLbgaA2ZAM/Kumar-Mangalam-Birla-said-to-target-
record-aluminum-producti.html
http://articles.economictimes.indiatimes.com/keyword/hindalco-industries
http://profit.ndtv.com/stock/hindalco-industries-ltd_hindalco
http://www.investopedia.com
http://www.shelfplus.com/material-handling-hotline/ten-ways-to-reduce-inventory/
http://www.simafore.com/heres-your-copy-of-the-predicting-sales-using-mlr?submissionGuid=50a2f338-
ca94-47bf-8405-11e8b84fae7a
http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=6313052&fileId=S0022109000
019074
http://www.researchgate.net/profile/Haitham_Nobanee/publication/228252601_Optimizing_Working_Capita
l_Management/links/09e41513739f4ed9f8000000.pdf
http://www.jstor.org/stable/3666040?&seq=10#page_scan_tab_contents
http://www.researchgate.net/profile/Haitham_Nobanee/publication/228252595_Working_Capital_Managem
ent_and_Firm's_Profitability_An_Optimal_Cash_Conversion_Cycle/links/09e41513739f5222e1000000.pdf
http://www.wikiwealth.com/wacc-analysis:nlc
http://www.moneycontrol.com/financials/hindalcoindustries/results/quarterly-results/HI#HI
http://www.motilaloswal.com/site/rreports/HTML/634933317759799393/index.htm
http://www.iitk.ac.in/infocell/announce/convention/papers/Colloquium-04-
Aman%20Srivastava,Rakesh%20Gupta%20final.pdf
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Working Capital Analysis of Hindalco Industries 2013-2014

Working Capital and Balance sheet Analysis of Hindalco

In partial fulfillment for the award of the degree of

POST GRADUATE DIPLOMA IN MANAGEMENT

Senior Officer (Finance and Accounts),

Hindalco Industries Ltd.

I take this opportunity to thank Mr Surender Rao (Faculty at IFMR). He gave me

My sincere thanks to Mr. Shreyans Kavdia (Head of Finance and Accounts

4 Conclusion and Suggestions 63

Fig 3.25 Asset Turnover Ratio for Hindalco 2011-14 52

Table 1.1 Hindalco Management Team 14

1.1) Major Division of Operations for Hindalco

Aluminimum Copper Dry Cargo

Fig 1.1 Classification of Hindalco business divisions

Fig 1.2 Classification of Aluminium division brands

produce Phosphoric acid and further value-added to fertilizers like di-ammonium

2) Dry cargo handling

Birla Phospho Gypsum marketed in the Agricultural field as a soil conditioner

1.2) Subsidiaries and associate companies of Hindalco Industries

Aditya Birla Minerals

1.3.1) Operations in India

Various manufacturing facilities across India are:

1.3.1) Global Operations:

a) Novelis is headquartered in Atlanta, Georgia and operates 25 manufacturing facilities in

c) Hindalco-Almex operates a first-of-its-kind facility in India, which is exclusively devoted

Hindalco's manufacturing locations worldwide include:

Hindalco-Novelis headquartered in Atlanta, Georgia, is the world‘s largest rolled aluminum

Fig 1.3: Hindalco global operations

1.4) Hindalco's strategy:

a) An integrated approach for Aluminium: The objective is to balance between the

focuses on continuing existing low-cost operations and progressing on new

Fig 1.4 Hindalco-Novelis downstream strategy

b) Expanding vertically for Copper

Fig 1.5 By-product value

1.5) Vision of Hindalco

1.6) Mission of Hindalco

1.7) Management team

Board of Directors Hindalco Industries Limited: Novelis Inc:

Table 1.1 Hindalco Management Team

1.8) Current Scenario and Recent Developments

The highlights for the financial year were:

During FY14, multiple projects of

Due to this debt increased and hence

1.9) Global Aluminum Industry Analysis

Global primary aluminium production vs. consumption trend.

Share of major aluminium Share of major aluminum

1.10) Opportunities and challenges

a) Middle east emerging as major market

b) Enhanced application areas

c) Sustainable production technologies

c) High energy and carbon cost

d) Competition from substitutes

1.11) Aluminium Analysis in Q1 2015

Fig 1.9 LME Aluminium price in past 10 year

Current Assets Current Liabilities

1.12) Classification of Working Capital

Regular Reserve Seasonal Special

Fig 1.10 Classification of Working Capital

1) Types of working capital On the basis of concept

Fig 1.11 Temporary and permanent working capital

2) Types of working capital on the basis of time

1.13) Balanced Working Capital Position

Fig 1.12 Balanced Working capital position