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A Training Report submitted in partial fulfillment of the requirements for the award of Degree of the Master of Business Administration (Industry Integrated), Gauhati University on WORKING CAPITAL MANAGEMENT WITH RESPECT TO BHPV.

Under organizational Guidance of:

Under Institutional Guidance of

Prepared And Submitted By: G. Sravan Kumar Sem II MBA G.U. Registration No. 10-01-0419


This is to certify that G.Sravan kumar, a student of sun institute of management and technology has prepared his training report entitled Working capital management with respect to BHPV. under my guidance. he has fulfilled all requirements under the regulations of the MBA (IIP) Gauhati university, leading to the MBA (IIP) degree. This work is the result of his own investigation and the project: neither as a whole nor any part of it was submitted to any other university or educational institution for any research diploma.

I wish him all success in life

Mr. Faculty Guide

Mr. Ch. Raghuram Head of Department


This is to certify that G.Sravan kumar of MBA[ Industry Integrated ] Course of GAUHATI University at Sun Institute of Technology & Management Learning Center has undergone management training in A STUDY ON WORKING CAPITAL MANAGEMENT at our Organization from 15th MARCH 2011 To 16th MAY 2011. His Performance during the Training Period was found to be . and we wish him all the best in his Career ahead.

For BHPV. Visakhapatnam. Authorized Signatory. Manager.







I am extremely grateful and wish to express my profound sense of gratitude with great admiration to Prof. D. Panduranga Rao {CEO}, Mr. Srikanth Jasti {CMD}, Mrs. Asha Jasti {ED}, Mr.Ch. Raghuram {H.O.D}, Mr.. {Faculty Guide}, Mr.yogeshwar {training officer in charge, Niam}, Mr [ Manager In-Charge.] of BHPV, Visakhapatnam and other staff members, colleagues, friends, family members for being a constant source of inspiration and motivation for the successful completion of this project work.


I, sincerely convey my regards to all of them for their encouragement, support, guidance and assistance for undergoing management training and for the successful accomplishment of the project report.

G.Sravan kumar Registration No. 10-01-0419

1.1 1.2 A. B. C.

Industrial Profile
General Introduction about the sector. Industry profile. Origin and development of the industry. Growth and present status of the industry. Future of the industry.

CHAPTER 2 Organizational Profile

2.1 2.2 2.3 2.4 2.5 2.6 2.7 Origin of the Organization. Growth and Development of the Organization. Present status of the Organization. Functional Department of the Organization. Organization structure. Product and Service profile of the Organization. Market profile of the Organization.

3.1 3.2

Discussion on training

Students work profile (Roles and responsibilities), tools and techniques used. Key learnings.

4.1 4.2 4.3

Study of selected research problem

Statement of Research problem. Statement of Research objectives. Research design and methodology.

CHAPTER 5 Analysis
5.1 5.2 Analysis of Data. Summary of Findings.


Summary and Conclusions

6.1 Outcome of Learning Experience & Recommendations.


Industrial Profile

1.1 1.2 A. B. C.

General Introduction about the sector. Industry profile. Origin and development of the industry. Growth and present status of the industry. Future of the industry.


Steel Industry Analysis is an important aspect of steel industries around the globe because the needs and the technologies are subject to rapid change with the passage of time. Steel Industry Analysis is required for maintaining the competitive advantage of a country over the other. The demand for steel is always on the upside because of constant increased want for steel in the following sectors :

Construction sector Infrastructure sector Automobile sector Steel Industry Analysis is mostly concerned about making the steel more user friendly such as making it light weighted, etc. Another important aspect associated with the Steel Industry Analysis is the constant concern for environment. The analysis helps the industry experts to evaluate the aspects for reduction of pollution related with the production of steel. The invention of the recycling process of steel is the outcome of Steel Industry Analysis. This analysis also helps the experts in identifying the market share of each country in the production of steel. It shows that after the end of World War 2, the position of USA in the world arena slid slowly but steadily from the largest single producer of steel. Its place was taken over by China after the 1980s.

Steel Industry Analysis is generally performed by consultancy firms where the

professionals and experts in this field perform all sorts of physical and economic analysis on different forms of steel and alloys. Some of the aspects on which the Steel Industry Analysis is done involve :

Consumption pattern of steel in the domestic as well as foreign market Demand structure of steel in different countries Existence of market for steel for the intermediary goods Existence of market for steel for the final goods Cost of production of steel by each firm on a country wise stratification Prospect of trade in the steel industry all over the world Comparative analysis of the price variation of steel between different Countries Indian Steel Industry is going gaga in the world steel market because of the demand for steel generated around the world especially by the developing countries. There are mainly four industry types which are generating the domestic demand for Indian Steel Industry History Of The Steel Industry dates back to the ancient times in Armenia which is approximately around three thousand and five hundred Before Christ. Steel is nothing but the alloy of iron and carbon. But the History Of The Steel Industry in the modern times was initiated during the medium half of nineteenth century (during 1850s to be precise). The initiator of it was a person named Mr. Henry Bessemer of England. At the same time, another person named Mr. William Kelly, a resident of United States, has also started the production of steel and was completely an independent approach from Mr. Bessemer. The process in which the first ever production of steel was carried out came to be known as

Bessemer Process. This helped the steel industries to produce steel in large quantities and also at comparatively low costs. The global steel industry has been going through major changes since 1970. China has emerged as a major producer and consumer, as has India to a lesser extent. Consolidation has been rapid in Europe. Material for development and war The volume of steel consumed has been the barometer for measuring development and economic progress. Whether it is construction or industrial goods, steel is the basic raw material. Lighter metals and stronger alloys have been developed. Plastics and synthetics have replaced steel in many areas. Steel is made from ores still found in abundance around the world. Technological developments have brought down the time for transformation from iron ore to steel to within a day. Even after decades of use, it can be sent back to the furnaces as scrap, melted and remade into new qualities of steel. It is the most recycled material in the world. In developed countries, recycling accounts for almost half of the steel produced. Another major feature is the continuous improvement of steel grades. Half of todays steel grades were not available ten years ago. Just take the example of the most commonly used steel rods or bars, used as reinforcement material with cement concrete. It used to be plain bars even in the sixties, then came the ribbed bars, followed by the cold twisted deformed bars and now it is thermo mechanically treated bars. Each development

has added to the strength of construction. Older varieties of steel have been improved upon and newer grades introduced. The process continues. Growth of the industry Global steel production grew enormously in the 20th century from a mere 28 million tonnes at the beginning of the century to 781 million tonnes at the end. World Steel Production in the 20th Century Bethlehem Steel in Bethlehem, Pennsylvania was one of the world's largest manufacturers of steel before its 2003 closure. Over the course of the 20th century, production of crude steel has risen at an astounding rate, now fast approaching a production level of 800 million tons per year. Today, it is difficult to imagine a world without steel. During the 20th century, the consumption of steel increased at an average annual rate of 3.3%. In 1900, the USA was producing 37% of the worlds steel. With post war industrial development in Asia that region now (at the turn of the 20th century) accounts for almost 40%, with Europe (including the former Soviet Union) producing 36% and North America 14.5%. Steel consumption increases when economies are growing, as governments invest in infrastructure and transport, and build new factories and houses. Economic recession meets with a dip in steel production as such investments falter. If you were to overlay the above graph with a time sheet showing major historical events, the peaks and dips

become meaningful. Note for example the peaks corresponding to the years of the two World Wars, followed each time by a dip, and soon after by strong climbs as the major economies recovered from the war and entered new periods of prosperity and growth, most notably in the 1950s and 1960s. The trend over the past three decades can also be seen to be in line with cyclical economic trends, with alternating periods of prosperity and recession. That was the period when the steel industry developed in Western Europe and the USA followed by the Soviet Union, Eastern Europe and Japan. However, steel consumption in the developed countries has reached a high stable level and growth has tapered off. After being in the focus in the developed world for more than a century, attention has now shifted to the developing regions. In the West, steel is referred to as a sunset industry. In the developing countries, the sun is still rising, for most it is only a dawn. Towards the end of the last century, growth of steel production was in the developing countries such as China, Brazil and India, as well as newly developed South Korea. Steel production and consumption grew steadily in China in the initial years but later it picked up momentum and the closing years of the century saw it racing ahead of the rest of the world. China produced 220.1 million tonnes in 2003, 272.2 million tonnes in 2004 and 349.36 million tonnes in 2005. That is much above the production in 2005 of Japan at 112.47 million tonnes, the USA at 93.90 million tonnes and Russia at 66.15 million tonnes. For details of country-wise steel production see Steel production by country.

Growth potential of the industry Amongst the other newly steel-producing countries, South Korea has stabilised at around 46-48 million tonnes, and Brazil at around 30 plus million tonnes. This brings the focus of the industry to India. Considering a steel consumption of 300 kg per man per year to be a fair level of economic development, India will have to come up to somewhere around 300 million tonnes, if it is to fulfil its ambitions of being a developed country. That of course is a long journey from the present production level of around 50 million tonnes but one must consider its past before coming to a conclusion about its potential. India was producing only around a million tonnes of steel at the time of its independence in 1947. By 1991, when the economy was opened up steel production grew to around 14 million tonnes. Thereafter, it doubled in the next 10 years, and then it is doubling again, maybe over a slightly longer span. Steel Production in India is expected to reach 124 million tons by 2012 and 275 million tons by 2020 which could make it the second largest steel maker. In the developed countries, the trend is on consolidation of industry. Cross-border mergers have been taking place for several years. The focus is on technological improvements and new products. Globally, the steel industry became a billion tonne industry in 2004. How much more it will grow will depend primarily on how much more steel is consumed in the developing countries.

Reduction in workforce Steel is no more the labour-intensive industry it used to be. Earlier, it was often associated with the image of huge work force living in a captive township. All that has changed dramatically. A modern steel plant employs very few people. In South Korea, Posco employs 10,000 people to produce 28 million tonnes. As a rule of thumb, one can put the direct employment potential at 1,000 per million tonnes. It could be less. However, steel being a basic industry, it generates substantial growth of both upstream and downstream facilities. According to some estimates one person-year of employment in the steel industry generates 3.5 person-years of employment elsewhere. Considering all these, total employment generation will be substantial. The third quarter of the twentieth century witnessed massive growth of the global steel industry. Annual production rose more than three times in 15 years from 1960. In the last quarter of the century, production reached a plateau, rising only by around 100 million tonnes. Increase in production gave way to increases in productivity. See also steel crisis. During the period 1974 to 1999, the steel industry had drastically reduced manpower all around the world. In USA, it was down from 521,000 to 153,000. In Japan, it was down from 459,000 to 208,000. In Germany, it was down from 232,000 to 78,000. In UK, it was down from 197,000 to 31,000. In Brazil, it was down from 118,000 to 59,000. In South Africa, it was down from 100,000 to 54,000. South Korea already had a low figure. It was only 58,000 in 1999. The steel industry had reduced manpower around the world by more than 1,500,000 in 25 years.


Profile of the Organization

2.1 2.2 2.3 2.4 2.5 2.6 2.7 Origin of the Organization. Growth and Development of the Organization. Present status of the Organization. Functional Department of the Organization. Organization structure. Product and Service profile of the Organization. Market profile of the Organization

BHARAT YANTRA NIGAM LIMITED :( Holding company) Bharat Yantra Nigam Limited (BYNL) was incorporated in July, 1986 with corporate office at Allahabad (UP), with the main objective to integrate, monitor and coordinate the activities of the subsidiary companies with a view to secure optimum utilization of resources and to provide package and turnkey services to various core sectors. It has following 6 companies as its subsidiaries. 1. Bharat Heavy Plate & Vessels Limited, Visakhapatnam 2. Bharat Pumps & Compressors Limited, Naini, Allahabad. 3. Bridge & Roof Company (India) Limited, Calcutta. 4. Richardson & Cruddas (1972) Limited, Mumbai. 5. Tungabhadra Steel Products Limited, Hospet, Karnataka. 6. Triveni Structural Limited, Naini, Allahabad.

BHARAT HEAVY PLATES AND VESSELS LIMITED: Bharat Heavy Plates & Vessels Limited, (BHPV) was set up in the year 1966 for catering to the requirement of equipments for core sectors, such is, Fertilizers, Oil Refineries, Petrochemicals, etc. The company has 3 product divisions namely, Process Plant Division, Cryogenics Division, and Boiler Division. The company is radually shifting its emphasis, from mere manufacturing and supply of equipment to system sales. The Company has entered into MOUs, on a case-to-case basis, with world renowned companies for transfer of technology. The production of the Company for the year 1999-2000 is anticipated to be Rs.255 crores. BHARAT PUMPS & COMPRESSORS LIMITED: Bharat Pumps & Compressors Limited, (BPCL) was incorporated in January, 1970 at Naini, Allahabad. The Company is catering to the needs of sectors like, oil, fertilizer, chemicals etc. For various types of pumps & compressors. The Company is likely to end the year 1999-2000 with a production of Rs. 45 crores. BRIDGE AND ROOF COMPANY (INDIA) LIMITED: Bridge & Roof Company (India) Limited (B&R) was initially a subsidiary of Blamer Lawry & Co. Ltd. Subsequently, Government of India directly invested additional equity capital of Rs.174 lakhs in December, 1978 and became a Government company.

INDUSTRY OVERVIEW: ENGINEERING The engineering sector is the largest segment of the overall Indian industrial sector. India has a strong engineering and capital goods base. The important groups within the engineering industry include machinery & instruments, primary and semi finished iron & steel, steel bars & rods, non-ferrous metals, electronic goods and project exports. The engineering sector employs over 4 million skilled and semi skilled workers (direct and indirect) The sector can be categorized into heavy engineering and light engineering segments. Heavy engineering segments forms the majority of the engineering sector in India. In the year 2003-04, out of the total engineering production of US$ 22 billion, the heavy engineering market contributed over 80 percent with the light engineering segment accounting for the remaining. The performance of the engineering sector is linked to the performance of the end user industries for the sector. The user industries for engineering include power utilities, industrial majors (refining, automotive and textiles), government (public investment) and retail consumer (pumps and motors). The engineering sector has been growing, driven by growth in end user industries and the new projects being taken up in the power, railways, infrastructure development, private sector investment being taken up in the power, railways, infrastructure development, private sector investment fields etc. Many factors contribute to growth of engineering sector in India. THE KEY GROWTH DRIVERS ARE:

The growth of the key end user sectors In India. For example, the domestic sales of automobiles have growth at the compounded annual growth rate of around 14 percent over the past four years. Government emphasis on power and construction sector has increased for the past few years and thus increasing the demand for capital goods. Further, India is being preferred by global manufacturing companies as an outsourcing destination due to its lower labour cost and better designing capabilities. Engineering companies thus have a huge potential for direct exports and outsourcing. Among developing countries, India offers the best combination of low costs, availability and skills and capabilities of manpower for the engineering sector. In terms of availability and skills, India produces over 500 phds, 200,000 engineers, 300,000 non-engineering postgraduates and 2,100,000 other graduates each year, thereby ensuring a steady supply of qualified manpower for the sector. In order to leverage Indias intrinsic technology strengths and the vast pool of highly qualified software professionals, ABB has set up a global corporate R&D center in Bangalore, Which focuses on industrial IT development and deployment. It also helps maintain and support a rang of software intensive products and partners with ABB R&D centers as well as business areas within the group. This was the first such center to be established outside outside the US and Europe.


The organizational mission of BHPV is to supply projects, systems, equipment and services to the process industry and help the country in achieving self-advance in this field. Corporate objectives To own core sector plans downstream petrochemical plants to run the business. To develop capability to build equipments like CNC Gas cutting and CNC laser cutting. To develop capability in project consultancy, computer software and other peripheral service. To achieve a leading position in research and development in different filed of engineering and technology in the areas of work related to the business so as to provide adequate Technology backup for the business. To strive for total self-reliance through import substitution by research and development and Indigenization of Equipment. To achieve optimum utilization of capacities installed. To develop export markets for products and services with a view to earn at least to the foreign exchange component of imported materials. To start joint ventures with reputed foreign parties with in India and abroad. To develop export markets for products and services with a view to earn at least to the foreign exchange component of imported materials.

To start joint ventures with reputed foreign parties with in India and abroad. To develop a team of experts consisting of engineering quality control production erection and commissioning to make available consultancy services so as to guide and supervise performance of other companies. To make up overseas operation of the plants by installing, maintaining and requirements BHPV. To develop infrastructure facilities of the fabrication shop to shift to shift to high tech areas by providing the latest CNC machines in all the areas and off-laid low-tech equipments. To earn fair and return of capital employed in order to generate adequate internal Resource to finance growth of the company. HEAD OFFICE: - Visakhapatnam, Andhra Pradesh Branch office: - Mumbai, Calcutta, Chennai, Hyderabad, New Delhi and vadosara Bharat heavy plates and vessels Ltd, it is a public limited company. It is a job order/ shop production industry. According to customer specifications and requirements it produces various products. Fore seeing the countrys need for fabricating of an exclusive factory with the main object of reducing dependence on foreign suppliers and become self sufficient over selves. Thus the birth of BHPV LTD in the year 1966 to meet the demands of process

equipment for core industry like fertilizers, petrochemicals, petroleum and other chemical industries initially. BHPV Ltd using different types of materials manufactured and supplied several built equipments such as pressure vessels, heat exchangers, columns, internal trays etc. After executing some important orders, BHPV Ltd gained full confidence of customers which cleared the way to enter the line of cryogenic filed, pulp cooking plant, evaporation plant and industrial boilers on a total turnkey basis which of later years helped in augmenting turnover of the company and increasing profitability. In India these heavy engineering industries occupy a crucial role in its economic development in view of the huge investment as well as the critical importance to nation. These industries are mostly confines to the sector only. BHPV Ltd is the largest fabricator of process equipment in India for the petroleum, chemical and allied industries. It is fully owned by the government of India and is managed by an autonomous board of directors. Situated in the city of destiny of Visakhapatnam on the western see coast of the Deccan plateau, BHPV Ltd is accessible by road, rail, sea an is well connected to all metropolitan cities by air. M/s BHARAT HEAVY PLATES AND VESSELS LTD Visakhapatnam is a public sector undertaking. M/s BHPV Ltd has been selected for the study. The topic selected is A study on the Industrial Relations with reference to M/s BHPV LTD.


Licensed to start construction of plant at Visakhapatnam in 1966, BHPV confronted many obstacles such as water problems, frequent power cuts both at initial stage as well as the time when construction was going on .In spite of all those obstacles the civil and structural work completed to a major extent by the end of 31st March, 1967. The licensed and installed capacity is 23210MT. The initial capital outlay being Rs.17.5 crores. Later after completion of installation work had received orders for the 1st time from M/s BOKARO steel plant and Fertilizer Corporation of India Ltd., for fabrication and supply of equipment. The factory at initial stages had suffered a loss in fabrication and delivery of factory was scheduled to go into production initially in july, 1967, but due to backlog of some uncompleted construction work the minister of state for steel and heavy engineering inaugurated the initial production in 1970 where some production facilities has already been established by installation of fabricating machinery like bending rolls, welding equipment etc. During the first year production, the company has incurred a loss of Rs 27.47 lakhs mainly due to incidence of fixed expenditure apportion-able to production like establishment, depreciation etc. The same loss position was continued till 1978-1979. The continuous losses put BHPV far from profiteering companies. The existence of excessive accumulated interest on loan taken from GOI resulted in heavy loss to the company. In 1978-1979 the company had suffered a loss of Rs 538 Lakhs due to incidence of delayed delivery of equipment, excessive increase in cost of imported raw materials and other administration costs. PRODUCTION FUNCTION

BHPV supplied quality process plant equipments, turnkey Cryogenic, Combustion, Oil & Gas Systems and services tailor made to the specific requirements of the Customers and to their satisfaction. BHPV has come a long way since its

inception in 1971 to a current turnover of about US $ 26 millions with an eye on US $ 250 million in the near future. This is one company which houses excellent engineering skills, Asia's

biggest fabrication facility, uncompromising quality control, dedicated erection & commissioning team under one roof, a combination reliance. BHPV acquired various National and International ASME, LLOYDS etc. BHPV with ISO 9001 accreditation is the leading EPC Company in South East Asian region serving following sectors : Refineries Petrochemicals Oil & Gas Steel & Metallurgy Power Nuclear Defense Paper & Pulp quality accreditations such as resulting in India's self

Pharmaceuticals Cryogenics Process Plant & Equipment Boiler Plant & Equipment, Systems Production facilities Factory Area Total Covered Area Covered area of Production Shops Power Requirement No. of Ancillary Units : : : : 197 Acres 90,000 sq. Meters 56,000 sq. Meters 3,000 KW from APSEB : 11 Units

IMPORTANT MACHINERY: The factory is provided with comprehensive and modern manufacturing and testing

facilities and suitable material handling equipment. The maximum crane lifting capacity is 120 tones, but loads up to 250 tones can be

lifted with improvised Maximum Rolling capacity is 60mm in cold condition and 170mm in hot


BHPV has the largest heat treatment furnace in India, the size being 5.5 meters

width, 5.5meters height and 36.5 meters long. One more furnace of 200 Ton capacity and 15mtrs. Bogie length has been added. Other critical equipment available with BHPV is Deep Drawing Hydraulic Press of

1600T capacity. Single Spindle CNC Deep hole Drilling Machine with Gun Drilling attachment and

2Nos. CNC drilling machines which can employ conventional drills. Another CNC Deep hole drilling machine has been installed recently by HMT A number of Welding Rotators of capacity up to 250 Tones. Welding equipment such as manual Arc, Sub merged Arc, TIG, MIG, Plasma

including the latest high productive welding equipment such as Twin Head submerged arc welding, and Bi-cathode TIG welding. Tube Fining Machine. A number of vertical and horizontal boring machines with a maximum capacity of

5 meters dia and 200mm spindle dia respectively. Different types of Non-destruction Testing Equipment. Well equipped Physical and Chemical Laboratories.

FUNCTIONS OF HRM DEPARTMENT He looks after all the moments which are related to salary and wage administration of employees. Separate estate administration department working under him. He looks after the time office particulars Legal proceedings which are related to collective bargaining, disciplinary discussions and enquiry proceedings are conducted in present of him. Contract lobour problems, tenders, daily wages negotiation with presence of him. Hindi language cell is to teach Hindi to all employees. Functions of Sr.manager HR: under him five departments are there. He has ultimate control over the departments. P&IR departments deputy manager looks after the industrial relations and workers problems, grievances. Separate hospital in township, which is headed by the medical superintendent. Canteen Administration. Security and five departments. Welfare department administration.

Classification of officers Senior executives : E4 and above

Middle mangt.Executives Executives Classification of supervisors: Senior Supervisors Junior Supervisors Classification of workmen Skilled Semi skilled UN skilled Eligibility:

: E2 and E4 : E1

: S3 : S1 and S2 : HSW-I, HSW-II, HSW-III : WG-III TO WG-VI : WG-II : WG-I

Candidate for appointment must by A citizen of India or

A Tibetan refugee who came over to India before 1st January 1962, with the

intention of prominently setting in India or a repatriate from Burma, srilanka or East Asia, on A person of India who is migrated form Pakistan eight the interim of permanent settling in India.


3.1 Students work profile (Roles and responsibilities), tools and techniques used. 3.2 Key learnings.

Students work profile (Roles and responsibilities), tools and techniques used.
According to Genestenberg, Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another, as for example, from cash to inventories, inventories to receivables, receivables into cash. I have to study the functioning of the working capital management at BHPV.

I have to analyse the balance sheet of the Organization. I have to understand the operations of the finance department.

I have to understand the job descriptions of the finance staff

I have to analyze the roles and responsibilities of the department

I have to understand the applications and sources of funds.

I have to analyse the funding process of the Organization.



4.1 4.2 4.3

Statement of Research problem. Statement of Research objectives. Research design and methodology.

Statement of Research problem.

To study the WORKING CAPITAL MANAGEMENT with respect to BHPV.

In the words Shubin, Working Capital is the amount of funds necessary to cover the cost of operating the enterprise. According to Genestenberg, Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another, as for example, from cash to inventories, inventories to receivables, receivables into cash. Every business needs investment to procure fixed assets, which remain in use for a longer period. Money invested in these assets is called 'Long term funds 'or' fixed capital'. Business also needs funds for short term purposes to finance current operations. Investments in short term assets like cash, inventories, debtors etc., are called 'Short term funds'or 'Working capital'. Working capital can be categorised as funds needed for carrying out day-to-day operations of the business smoothly. The management of the working capital is equally important as the management of long-term financial investment. WORKING CAPITAL CYCLE While managing the working capital, two characteristics of current assets should be kept in mind like (1) short life span, and (2) swift transformation into other form of current asset. Each component of current asset has comparatively very short life span. Investment remains in a particular form of current asset for a short period. The life span of current

assets depends upon the time required in the activities of procurement; production, sales and collection and degree of synchronization among them. A very short life span of current assets results into swift transformation into other form of current assets for a running business. These characteristics have certain implications. Decision regarding management of the working capital has to be taken frequently and on a repeat basis. The various components of working capital are closely related and mismanagement of any one component adversely affects the other components too. The difference between the present value and the book value of profit is not significant. The working capital has the following components, which are in several forms of current assets: CLASSIFICATION OF WORKING CAPITAL: Working capital can be classified into two ways. (a). On the basis of concept (b). On the basis of time Stock of cash Stock of raw material.

DETERMINANTS OF WORKING CAPITAL: The need for working capital is not always the same, it varies from year to year or even month to month depending upon a number of factors. There is no set of rules or formulate to determine the working capital needs of the firm. Each factor has its own importance and the importance of the factors changes for a firm over a time. In order to determine the proper amount of working capital of a concern, the following factors should be considered carefully. Nature of the business: The amount of working capital is basically related to the nature and volume of the business concern where the cost of the raw materials to be used in the manufacturing of a product is very large in proportion to its total cost of manufacturing the requirements of working capital will be very large. Size of the business unit: The size of the business unit has an important impact on its working capital needs. Size may be measured in terms of operations. A firm with large scale of operation will need more working capital then a small firm. Seasonal variation: Seasonal industries require more working capital to stock the raw materials during the season.

CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL: Growth may be stunted. It may become difficult for the enterprise to undertake profitable projects due to non-availability of working capital Implementation of operating plans may become difficult and consequently the profit goals may not be achieved. Cash crisis may emerge due to paucity of working funds. Optimum capacity utilization of fixed assets may not be achieved due to nonavailability of the working capital . The business may fail to honor its commitment in time, thereby adversely affecting its credibility. This situation may lead to business closure. The business may be compelled to buy raw materials on credit and sell finished goods on cash. In the process it may end up with increasing cost of purchases and reducing selling prices by offering discounts. Both these situations would affect profitability adversely. Non-availability of stock due to non-availability of funds may result in production stoppage. While under assessment of working capital has disastrous implications on business, over assessment of working capital also has its own dangers.

CONSEQUENCES OF OVER ASSESSMENT OF WORKING CAPITAL: Over assessment of working capital causes more consequences. Excess of working capital may result in unnecessary accumulation of inventories. It may lead to offer too liberal credit terms to buyers and very poor recovery system and cash management. It may make management complacent leading to its inefficiency. Over investment in working capital makes capital less productive and may reduce return on investment. INVENTORY MANAGEMENT: Every enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution process. There is, generally a time lag between the recognition of a need and its fulfillment. Greater the time lag the higher the requirements for inventory. The unforeseen fluctuations in the demand and supply of goods also necessitate the need for inventory. It also provides a cushion for future price fluctuations CASH MANAGEMENT: Cash is the one of the current assets of a business. It is needed at all times to keep the business going. A business concern should always keep sufficient cash for meeting its obligations. Any shortage of cash will hamper the operations of a concern and any excess of it will be unproductive. Cash is the most unproductive of all the assets. While fixed assets like machinery, plant etc and current assets such as inventory will help the business

in increasing its earning capicity, cash in hand will not add anything to the concern. It is in this context that cash management has assumed much important. RECEIVABLES MANAGEMENT: Given a choice, every business would prefer selling its produce on cash basis. However, due to factors like trade policies, prevailing marketing conditions, etc., businesses are compelled to sell their goods on credit. In certain circumstances, a business may deliberately extend credit as a strategy of increasing sales. Extending credit means creating a current asset in the form of Debtors or Accounts receivables.

PAYABLES MANAGEMENT: Management of accounts payable is as much important as the management of such accounts receivable. How ever there is a basic difference between the approaches adopted by the finance manager in both the cases. The underlying objective in such case of accounts receivables is to maximize the acceleration of collection process while incase of accounts payable it is to slow down the payments process as much as possible. The delay in payments of accounts payable may result in saving of some interests costs but proves very costly to the firm in the form of loss of credit in the market. The finance manager therefore has to ensure that the payments to the credits are made at the stipulated time period after obtaining the best credit term possible.


5.1 5.2 Analysis of Data. Summary of Findings.


Working capital Management is the concept of how effectively holding the current assets and current liabilities of an organization. BHPV is the manufacturing industry. In BHPV production of steel is done in 24 hours continuously. It follows the most effective and perfect methods for holding the working capital. BHPV working capital management seems to be best in the industry with better utilization of available resources. They are taking advantages of cheap working capital credit and investing their funds at a very good rate of returns. Management efforts over the few years have been to inculcate cash consciousness through constant emphasis on working capital, manly inventory and book debtors. In all these, it is to be kept in mind that BHPV is a multi product undertaking, where management decisions affecting working capital is taken at the top managerial level. DETERMINANTS OF WORKING CAPITAL IN RINL :It is understood that working capital is the vital component for future growth of the firm. Financial manager has to maintain adequate level of working capital. There are several factors influence the determinants of working capital. It is necessary to know those factors which identifying the optimum size of working capital. In RINL working capital is generally deter mind by these factors.

They are : 1. Market Coverage 2. Manufacturing Cycle 3. Advances 4. Growth of the firm 5. Seasonal fluctuations 6. Global Market boom 7. Expansion Chances 8. Credit Policy The Management of working capital in BHPV encompasses the following problems :1. To decide upon the optimal level of investment in various current assets. 2. To decide upon the optimal mix of short-term funds high relation to long term capital. 3. To locate the appropriate means of short-term financing. Sources of working capital funds :BHPV raise its working capital from a consortium of 11 Bankers. The following are the 11 banks, where funds for working capital raised. 1. State bank of India 2. State bank of Hyderabad 3. Bank of Baroda 4. Canara bank 5. UCO bank

6. Andhra bank 7. Allahabad bank 8. Indian overseas bank 9. HSBC bank Ltd 10. IDBI bank Ltd 11. Indian bank In BHPV working capital requirement is assessed by Fixing the target production for the year Preparation of Budget (in Rupees) Working capital requirement are prepared taking into account Previous two years actual Projected for the next two years Procedure for procurement of funds : BHPV applies a Credit Monitoring And Appraisal (CMA) Report (a Fourty pages document) consists of historical data about the company and profit and loss account, balance sheet, current assets, current liabilities, working capital assessment, fund flows etc., State Bank of India subscribes the maximum working capital limit (up to extent of 38%) of the entire working capital assessed. The other banks of the under the multiple banking arrangement above provide the rest of working capital limits.

YEAR WISE CHANGES IN WORKING CAPITAL NET GROSS WORKING YEARS CAPITAL Amount (In Lakhs) 2005-06 171378.57 2006-07 2007-08 2008-09 2009-10 2010-11 186360.02 271668.92 604752.10 825200.00 104410.00 8.74 46.31 121.78 36.45 26.61 49279.44 63385.73 149133.81 462336.44 66614.00 834380.00 26.62 135.27 210.01 44.14 25.20 Change percentage CAPITAL Amount (In Lakhs) Change percentage WORKING

Interpretation : The above table indicates that working capital is highest for the year 2010-11. The net working capital has shown a gradual increase from 2009-10. Statement of changes in working capital is done in pages that follow to give the complete picture of variations in working capital. Statement of changes in working capital for the year 2005-06 Particulars 2005 March 2006 Increase Decrease

March Current Assets : Inventories Sundry debtors Cash and bank bal Other current assets Loans and advances Total current assets Current Liabilities Liabilities Provision Total current liabilities Net increase in Working Capital Total Source: Annual reports of BHPV Interpretation: There is a Net increase in working capital of (1.97 Crores) due to the decrease in liabilities and increase in sundry debtors. A Negative is observed in all the current assets excluding sundry debtors. So that the net effect is net increase in working capital. 150.6 1255.1 48.42 1303.52 1143.16 77.83 1220.99 1.97 150.6 111.94 29.41 1207.47 173.83 163.66 6.35 243.03 1794.34 1111.38 212.49 161.12 5.41 223.38 1713.78 38.66 2.54 0.94 19.65 96.09

Statement of changes in working capital for the year 2006-2007 Particulars 2006 March 2007 Increase Decrease

March Current Assets Inventories Sundry debtors Cash and bank bal Other current assets Loans and advances Total current assets Current Liabilities Liabilities Provision Total current liabilities Net Increase in Working Capital Total 407.91 1143.16 77.83 1220.99 1139.04 90.70 1229.74 141.06 407.91 4.12 12.87 1111.38 212.49 161.12 5.41 223.38 1713.78 857.55 217.58 541.57 5.26 241.63 1863.59 18.25 5.09 380.45 0.15 253.83 -

Source: Annual reports of BHPV Interpretation: There is a net increases in working capital of (141.06 crores) due to the cash & bank balances have shown positive with an increase of 380.45 added to this is the decrease in liabilities. This resulted in increases in Net working capital.

Statement of changes in working capital for the year 2007-2008 2007 March 2008 March

Particulars Current Assets Inventories Sundry debtors Cash and bank bal Other current assets Loans and advances Total current assets Current Liabilities Liabilities Provision Total current liabilities Net Increase in Working Capital Total



857.55 217.57 541.57 5.26 241.63 1863.58

706.34 85.62 1359.71 24.31 550.70 2726.68 818.14 19.05 309.07

151.21 131.95

1140.38 90.70 1231.08

1078.84 156.51 1235.35

61.54 65.81

858.83 1207.80 1207.80

Source: Annual reports of BHPV Interpretation: The Increase in net working capital in 2008 over 2007 is 858.83 crores . For the second consecutive year the cash & bank balances have shown an increasing trend. Other four current assets and loan advances have also increased. All these changes have brought about on increase in net working capital. Statement of changes in working capital for the year 2008-2009

Particulars Current Assets Inventories Sundry debtors Cash and bank balance Other current assets Loans and advances Total current assets (A) Current Liabilities Liabilities Provision Total current liabilities (B) Net Increase in Working Capital Total

2008 March

2009 March Increase Decrease

706.34 85.62 1359.71 24.31 550.91 2726.89

1255.31 49.30 3932.61 100.18 710.12 6047.52

548.97 36.31 2572.90 75.86 159.22

1078.84 156.51 1235.35

1154.88 269.27 1424.16

76.05 112.76

3131.82 3356.94 3356.94

Interpretation: There is a significant increase in net working capital, which amounts to 3131.82 crores. There noticeable increase in net working capital is due to increase in cash & bank balances. The increase in cash is 2572.90 (189%). A positive growth is observed in loan & advances and other current assets. The increase is offset by the increase in total current assets. Statement of changes in working capital for the year 2009-2010 Particulars 2009 2010 Increase Decrease

March Current Assets Inventories Sundry debtors Cash and bank bal Other current assets Loans and advances Total current assets Current Liabilities Liabilities Provision Total current liabilities 712.46 269.27 981.73 1257.53 49.30 3932.61 100.18 710.12 6049.74


1216.45 165.65 5621.70 184.36 1063.84 8252.00 116.35 1689.09 84.18 353.72


871.49 716.37 1587.86

159.03 447.10

Net Increase in Working Capital Total 2243.34

1596.13 2243.34

Interpretation: There is a significant increase in net working capital which amounts to 1596.13crores. There noticeable increase in net working capital is due to increase in cash &bank balances. The increase in cash is 1689.09 cores. A positive growth is observed in loans & advances and other current assets. The increase in liabilities is offset by the increase in total current assets. Statement of changes in working capital for the year 2010-2011 2011 March


2010 March



Current Assets Inventories Sundry debtors Cash and bank bal Other current assets Loans and advances Total current assets Current Liabilities Liabilities Provision Total current liabilities Net Increase in Working Capital Total 2211.21 785.77 716.37 1502.14 1011.53 1092.77 2104.3 1593.94 2211.21 225.76 376.4 1218.35 166.27 5621.7 184.36 1061.32 8252 1203.24 216.8 7194.68 314.48 1518.9 10448.1 50.53 1572.98 130.12 457.58 15.11

Interpretation : There is a significant increase in net working capital, which amounts to 1593.94 crores. There noticeable increase in net working capital is due to increase in cash & bank balances. The increase in cash is 1572.98 crores. A positive growth is observed in loan & advances and other current assets. The increase in liabilities is offset by the increase in total current assets. The net effect of the above changes has brought about the increased working capital. Gross Working Capital Year 2005-2006 (Rs.In crores) 1713.79

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

1863.60 2726.69 6047.52 8252.00 10448.10


12000 10000 8000 GWC 6000 4000 2000 0 1 2 3 4 5 6 1 2 3 4 5 6


Net working capital: The net working capital of BHPV shows an increasing trend from 2006-07 to 2010-11. The main reason for the decreasing trend in the years is due to the increasing creditors year after year. If also indicates a weak cash balance to meet the liabilities. The current liabilities of the company is increasing by 200 corers almost every year.

The increase in working capital is due to better sales and full capacity utilization. Which has resulted in reduction of cost of production. The net working capital of BHPV for the past 6 years is depicted in the table.

Net Working Capital Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 (Rs.In crores) 492.79 633.86 1491.34 4623.36 6664.14 8343.80

Net working capital

1 2

3 1 4 2 3 4 5 6

Current ratio: A current ratio of 2:1 is considered to do ideal. The ration is an indicator of the firms commitment to meet its short-term liabilities. It indicates the rupees of current assets available for each rupee of current liability. The higher the current ratio the higher the funds available for a rupee of current liabilities. As a convention rule a current ratio of 2:1 or more is considered satisfactory. The higher the current ratio the higher the funds available for a firm. current assets Current ratio= current liabilities.

YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

CURRENT RATIO 1.4 1.5 2.2 4.2 5.2 5.0

The ratio has started increasing from there on and is at 5.2 in 2009-10. Further there is a little decrease in the year 2010-11

Working capital turn over ratio: Working capital turnover ratio of sales to net working capital. It is indicator of efficiency of working capital management. Higher the ratio greater is the efficiency. The working capital turnover ratio has constantly increased from 2005-06 to 2010-11 his mainly due to increased sales and delay in payment to creditors. Working capital turn over ratio= net sales / average working capital. The turn over ratio for the last 6 accounting periods is as shown:

WORKING CAPITAL YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 TURNOVER RATIO 8.3 8.0 4.1 1.8 1.3 1.02

Working capital turnover ratio



6.1 Outcome of Learning Experience & Recommendations.

Outcome of Learning Experience & Recommendations.

The total sales of BHPV are showing a positive trend despite cut down in steel prices across the globe. The rise in sales is 32.5% in terms of sales turnover during 2010-2011 compared to 2009-2010 and 22.03% during 2008-2009 compared to 2007-2008. The increase in sales by over 20% indicates the excellence achieved by BHPV in spite of over capacity problem in the market. The gross margin of BHPV has increased from Rs 2073 crores in 2006-2007 to Rs503.89 crores in 2005-06 (an increase of 57.79%). The payable turnover ratio is maintained on an average at 3.0 from 1999 onwards.

The consumption at raw material stage has increased from Rs 1394.32 crores in 2001-02 to Rs 2050.44 crores in 2002-03. All units in BHPV have achieved their rated capacity during the year 2001-02 and poised to exceed the same current year. This has resulted in Reduction in cost of production of saleable steel. The cost of production of BHPV 1 following a decreasing trend over the past few years. This is evident from following table given overleaf. The reduction is cost of production has increased the leverage to extend cash discount to push sales. This is one of the major reasons for cap to register impressive sales figures in spite of huge dumping from international players.

BHPV has started making net profits from 2007-08 The net profit during 2008-09 Rs1547 crores while the net profits touched Rs 2000 crores in profit was due to higher cash income than cash net position of BHPV YEAR 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 COST OF PRODUCTION 13075 11921 1127 11697 10234 3238.15 2009-10. The

was net

expenditure. This is also reflected by

For the first time BHPV was able to raise working capital funds at an interest rate of less than 4%. It is in the range of 1.8-3.6% in 2007-08 compared to 8-9% in the previous year. This has resulted in the increase in net working capital significantly. Here current ratio of BHPV is being maintained at 4.2. it shows a very high degree of short term liquidity position of the firm. The dues payment by BHPV is able to pay its dues early. For the past three years BHPV is able to pay its dues early.

SUMMARY AND SUGGESTIONS The concept of working capital is used in two ways i.e., gross and net. Gross working capital refers to the firms investments in current assets. Net working capital means the difference between current assets and current liabilities, and therefore represents the position of current assets, which is financed either from long term funds or banks borrowings. Cash is required to meet a firms transactions and precautionary needs. A firm needs cash to make payments for acquisitions of resources and services for normal conduct of business. Cash is also held to meet emergency situations. Some firms hold cash to take advantage of speculative changes in prices of input and out put. Management of cash involves three things. a) managing cash flows in and out of a firm b) managing cash flows within a firm c) financing deficit or investing surplus cash And thus, controlling cash balance sat any point of time. Firms prepare cash budget to plan and control and cash flows. Cash budget can serve its purpose only when firm can manage its collection and payments with in the allowed limits. A firm should hold optimum amount of cash at any time and invest the temporary excess amount in short term securities.

Trade credit creates book debts accounts receivable. It issued as a marketing tool to expand or maintain the firms sales. A firms sales. A firms investment on account receivable depends on volume of credit sales and collection period through credit policy. Credit policy. Credit policy includes credit terms and collection efforts the firms credit policy will be considered optimum at the three methods monitor book debts. They are: a) b) c) average collection period ageing schedule collection experience matrix

The first two methods are based on the showing payments patterns and hence do not provide meaningful information for collecting book debts. The third approach uses the desegregated data and it is better method than first two methods. Inventories constitute about 60% of current assets to public limited companies of India. The manufacturing companies hold inventories in the form of raw materials work in process and finished goods. They are three motives for holding inventories. They are transaction motive, precautionary motive and speculative motive. BHPV is a multi product manufacturer unit with varying cycle time for each product. The capital required by each manufacturing unit of BHPV depends on the individuals products cycle of each item. The department wise capital whose capital requirement

coupled with their production target for a year invites and effective working capital management. In finance, working capital is synonymous with current assets; BHPV is a multi product large organization with huge capital turnover where the working capital requirement depends on the level of operation and the length of operation cycle. monitoring the duration of the operating cycle is an important aspect of current assets management and control. * Scope of enhancing: During the year 2010-11 the turnover is Rs8181 crores and profit is Rs2008 crores, during the year 2009-10 turnover is rs6174 crores and profit is rs1547 crores. It indicates that the net profit forms nearly 25% of the total sales turnover. During the last financial year average rate is of interest 2-3%. In such situation the company should try to go for expansion, such as production enhancement system, so that the company comes to a position for further increasing its profits. * During the financial year 2010-11 the companys average cost of interest is 3-4%, which the company has acquired by forex funds replacing domestic loans and working capital facilities. If the company utilizes the forex replacing domestic loans and working capital facilities. F the company utilizes the forex funds where ever it is possible i.e. when ever the payment are made in Indian rupees of foreign currency such as ocean freight, other music payments like suppliers. The company will be in position to take a better advantage to increase the profits.

* Currently the companys payables towards raw material are replaced with buyers credit/suppliers credit in the form of forex funds. The company has tried to nullify the exchange risk by going for forward cover considering Indias dependency on other countries in exchange .Better risk monitoring would be required at the expansion stage when the quantum of import rises. * The steel industries are having very good time but BHPV could not able to take full of its advantage due to the constraints, primarily raw materials. Unlike any other steel company, BHPV is not having its own sources of raw material i.e coal mine. These are very basic needs as the company always depends on its supplier for its raw material. Had the company always depends on its supplier for its raw material. Had the company utilized its 2-3 half% of working capital limits for acquisition of mines, purchasing of mines, etc. It could have been a favorable situation. * The company is getting all its funds i.e. day zero(0) when the rates are compared, the company is investing surplus funds at 8-8.5% and paying at 7-8% to get the funds on zero(0) day. This spread should be maintained during the time of expansion also. * The company has already accumulated funds in excess of Rs.5500 Crores and can look forward to bigger investment in building up capacities as compared to the proposed 6.1 Million tons. * BHPV should invest its short investments in short term, low risk and medium return instruments rather than in the fixed deposits which it is presently employing for surplus funds, this would help the company manage its funds better at the time of expansion when the liquidity would be at premium.

CONCLUSIONS 1) The interest rate at which BHPV is producing its working capital is about 14-15% against a normal rate of 9-12% in 2009-10, in 2008-09 it was 12%-14%, in 2007-08 it was 8%-9% and in 2006-07, and it was only 1.8%-3.6% because of forex and exchange credit. Also higher profit realization by selling the produces in higher margins will eventually result in higher cash accrual and hence higher credit rating. Higher credit rating results in reduction in interest rates. Hence the company should either try to enhance the production facilities or better investment opportunities other than fixed deposits what the company currently is using for investing surplus funds. 2) The non moving inventory is one of the gray areas in BHPVs working capital management. They account for 1/3 rd of value total inventory. This is really a critical area where BHPVs management should focus to bring down the level of non moving inventory. BHPV has to identity areas for using inventory to dispose it. Also identification of such items will help in preventing procurement of such items on future. 3) The other main area where BHPV has tremendous scope for improvement is in manufacturing value an added product. This will result in better sales realization and higher profit. 4) The export sales of BHPV are only 30% of total sales during 2009-10. present scenario of steel industry indicates the need for more steel even with the cause of lower production facilities. The company should now give more importance to exports because it provides good net sales realization but also export benefits.

The following table the contribution of export sales to sales and the justification for the above suggestions. Year Export sales Domestic sales Total sales % Export sale to total sale 11 10 9 8 12 12 2471 2762 2678 2973 3114 3436 3710 4081 4433 5059 5406 6174 290 295 314 371 626 768 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Considering the fact that the margins in the export sales are low, but have the potential to rise in the near future, the company can maintain a minimum level of presence in the global market.



Financial management Financial management Working capital Management

I. M. pandey Prasanna Chandra I.M. pandey

Annual Reports Of Rashtrya Ispath Nigam Limited General Articles And Magazines Of Rashtrya Ispath Nigam Limited Website: www.vizagsteel.com, www.indianinfoline.com, BOOKS: Survay of Indian industry-the Hindu Newspapers: Deccan Chronicle, The Hindu.