131205574 Credit Risk Management

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INTRODUCTION

Trade credit arises when a firm sells in products or services on Credit and does

not receive cash immediately. It is an essential marketing tool, acting for the moment of

goods through production and distribution stages to customer. Affirm grants trade credit.

To protect is sales form the competitors and to attract the potential customers to by its

products at favorable terms. Trade creates Accounts receivable or trade debtors that

the firm is expected to in the near futures. The customers from whom receivable or book

debits have to be collected in the future is called trade debtors or simply as debtors and

represent the firms clime or asset.

A credit sale has characteristics:

i) It involves an element of risk that should be carefully analyzed. Cash sales are totally

risk less, but not the credit sales as the cash sales as the cash payment are yet too

received.

ii) It is based on economic value to the buyer, the economic value goods services passes

immediately at the time of sales while the seller expects on the equivalent value to be

received later on.

iii) It implies futurity the buyer will make the cash payment for goods services received

by him in future period.

Debtors constituted a substantial portion of customer assets several firms. For

e.g.:- In India, traders Debtors after inventories are the major components of current

assets. They

From 1/3rd of current assets in India. Granting credit and creating Drs amount to the

blocking of the firms founds.

Thus trade debtors represent investment as substantial amount are tide-up in trade

debtors it needs careful analysis and proper management.

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Need and importance of the study

Credit risk management is one of the key areas of financial decision-making. It is

significant because, the management must see that an excessive investment in current

assets should protect the company from the problems of stock-out. Current assets will

also determine the liquidity position of the firm.

The goal of Credit risk management is to manage the firm current assets and

current liabilities in such a way that a satisfactory level of working capital is maintained.

If the firm cannot maintain a satisfactory level of working capital, it is likely to become

insolvent and may be even forced into bankruptcy.

Scope of the study

The scope of the study is limited to collecting financial data published in the

annual reports of the company every year. The analysis is done to suggest the

possible solutions. The study is carried out for 4 years (2007-11).

OBJECTIVES OF THE STUDY:

1. To analysis the credit policies of Kesoram cement

2. To find out debtor turnover ratio and average collection period.

3. To suggest measures to increase profits.

4. How all areas of business are influenced by Credit Risk Management?

5. How to manage information to create a volume driven business.6. To find out whether. It is profitable to extend credit period or reduce credit .

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RESEARCH METHODOLOGY

1. The data used for analysis and interpretation from annual reports of the company.

2. That is secondary forms of data. DDR, ACP and Increase in credit period

analysis are the

3. Techniques used for calculation purpose.

4. The project is presented by using tables, graphs and with their interpretations.

SOURCE OF DATA

Primary data:

Primary data is collected from the Execute of the organization

Secondary data:

Secondary data obtained from the annual reports, books, magazines and websites.

LIMITATIONS

The study is based on only secondary data.

The period of study was 2007-11 financial years only. Another limitation is that of standard ratio with which the actual ratios may be

compared generally there is no such ratio, which may be treated as standard for

the purpose of comparison because conditions of one concern differ significantly

from those of another concern.

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The accuracy and correctness of ratios are totally dependent upon the reliability of

the data contained in financial statements on the basis of which ratios are

calculated.

Why Manage Risk?

Good risk management at a strategic level helps protect an organizations reputation,

safeguard against financial loss, minimize disruption to services and increase the

likelihood of achieving business objectives successfully.

This also gives assurance on how an organizations business is managed and at the same

time will satisfy any compliance requirements of the organization, where an internal

control mechanism is established. Internal control includes:

The establishment of clear business objectives, standards, processes and

procedures

Clear definition of responsibilities

Measurement of inputs, outputs and performance outcomes in relation to

objectives

Performance Management

Financial controls over expenditure and budget.

What does it require?

The establishment and understanding of a risk management policy and framework

The identification, assessment and judgment of threats to the achievement of clear

business objectives

Effecting the right action to anticipate and mitigate against risk - this includes

establishing effective internal controls to counter key risks

Where necessary, to take reasonable and calculated risks based on well informed

management decisions

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Balancing risks by design control to give reasonable assurance to contain risks

and offer value for money

Monitoring risks and reviewing progress

Quantifying risks by assessing any potential costs or benefits arising from

possible impact

Reporting on the above.

How to identify risks?

Step 1 - Clarity of Objectives

Be clear first of all about the overall objectives of the organisation and understand how

departmental objectives are aligned to the delivery of same. Think about:

What needs to be done

By when

Who is accountable for delivery?

Step 2 - Identify Risks

With your objectives in mind, ask the following questions:

1. What can go wrong?

2. How and why can it happen?

3. What do we depend on for continued success?

4. What could happen?

Consult with staff and others as appropriate and consider a range of possible scenarios

including the best and worst cases. Be as creative with this process as possible. Consider

the 'cause and effect' and scope of the risk and state as clearly as possible to avoid

misunderstanding and misinterpretation. Try to quantify where possible based on what

the effect might be.

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Go back to Step 1 above and do the same for external risks by considering the

relationship between the organization and its wider environment and follow the steps

above. Consider potential external cause of business disruption, issues affecting

relationship with partners, suppliers and any possible changes in government policy and

legislation.

Step 3 - Assess Risks

Identify existing controls and their effectiveness

Assess what other controls may be necessary

Determine likelihood / impact - use a bespoke template:

o Likelihood of risk occurring is used as a qualitative description of

probability or frequency

o Impact is the outcome of the risk impacting and is expressed qualitatively

or quantitatively, i.e. being a loss, injury, disadvantage or gain. NB - there

may be a range of possible outcomes.

Set out a realistic timeframe for managing / mitigating risk.

Step 4 - Address Risks

This involves practical steps to managing and controlling risks. Think about:

what actions or responses are required to control risks

what are the associated cost of these actions

are the costs proportionate to the risk that it is controlling

What information is needed to make an informed decision to accept, manage,

avoid, transfer or reduce the risks

Is it better to work to eliminate or innovate through taking reasonable calculated

risks.

Step 5 - Review, Quantify and report Risks

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Although policy may dictate a review and half yearly update should be enacted, risk

owners need to regularly review to ensure there is ongoing relevant management of risks

Advice should be sought where quantification / confirmation is needed, i.e. Finance or

Audit Department

Build into the current reporting structure via the business planning round. Where key

risks need to be considered, ensure it is given priority within the agreed framework.

Risk Defined

Risk: is the actual exposure of something of human value to a hazard and is often

regarded as the product of probability and loss - Source: Smith K 2001; Environmental

Hazards Assessing Risk and Reducing Disaster: London: Rout ledge: 6 -7.

Risk Assessment: The evaluation of a risk to determine its significance, either

quantitatively or qualitatively.

Risk Management: Determines the levels at which risk acceptability is set and methods

of risk reduction are evaluated and applied.

Resilience: The ability at every relevant level to detect, prevent and, if necessary handle

disruptive challenges. Source: CCS Resilience

Business Continuity: A proactive process which identifies the key functions of an

organisation and the likely threats to those functions; from this information plans and

procedures which ensure that key functions can continue, whatever the circumstances,

can be developed.

CREDIT POLICIES:

The first decision area is credit policies;-

The credit policy of a firm provides the frame work to determine

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We have divided the overall standards into

a) Tight or restrictive and

b) Liberal or non- restrictive i.e., to say our aim is to show what happens to the trade-off

when standards are relaxed or alternatively, tighten.

The trade off with reference to credit standards covers

i) The collection cost

ii) The average collection period or investment in receivables

iii) Levels of bad debts losses and

iv) Level of sales.

These factors should be considered while deciding whether to relax credit

standards

or not.

If standards are relaxed, it means more credit will be extended while. If credit

Standards are tightened. Less credit will be extended.

The implication of four factors are elaborated below

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Figure. 1

COLLECTION COST:

The implication of relaxed credit standards are

i) more credit

ii) A large credit department to service accounts receivables and related matters

iii) Increase in collection cost

The effect of tightening of credit standards will be exactly the opposite. These

costs

are likely to be semi-variable.

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This is because up to a certain point the existing staff will be able to carry on the

Increased workload but beyond that, additional staff would be required these are

assumed to be included in the variable cost per unit and need not be separately

identified.

INVESTMENT IN RECEIVABLE OR AVERAGE COLLECTION

PERIOD

The investment in accounts receivable involves a capital cost as funds have to be

arranged by the firm to finance them till customers make payment. Moreover, the higher

the average accounts receivables; the higher is the capital or carrying cost. a change in the

credit standards relaxation or tightening leads to a change in the level of accounts

receivables either

a) Through a change in sale,

b) Through a change in collection.

A relaxation in credit standards as already stated, implies an increase in sales

which in turn would lead to higher average accounts receivables? further relaxed

standards would mean that credit is extended liberally so, that it is available to even less

credit worthy. Customers who will take a longer period to pay over dues. The extension

of trade credit to slow paying customers would result in a higher level of accounts

receivables.

A tightening of credit standards would signify

A decrease in sales and lower average accounts receivables / ACP and

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an extension of credit limited to more credit worthy customers who can promptly

pay their bills and thus, a lower average level of accounts receivables.

Thus a change in sales and change in collection period together with a relaxation in

Standards would produce a higher carrying cost, while changes in sales and collection

period result in lower costs when credit standards are tightened. These basic reactions

also occur when changes in credit terms or collection procedures are made.

BAD DEBTS EXPENSES

Another factor which is expected to be affected by changes in the credit standards

is bad debts (default) expenses. They can be expected to increase with relaxation in credit

standards and decreases if credit standards become more restrictive.

SALES VOLUME:-

Changing credit standards can also be expected to be change the volume of sales. As

standards are relaxed, sales are expected to increase; conversely a tightening is expected

to cause a decline in sales.

The basic changes and effects on profits arising from a relaxation of credit standards

are summarized in exhibit

If the credit standards are tightening, the opposite effects, as shown in the

brackets

would follow-

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EFFECT OF STANDARDS

ITEM

Direction of change

(Increase = I

Decrease = D)

Effect on profits

(positive +

Negative - )

1 SALES VOLUME I (D) + (-)

2 AVG COLLECTION PERIOD I (D) - (+)

3 BAD DEBTS I (D) - (+)

Table.1

Item Direction of change

(I = increase D = decrease)

Effect on profits

( positive + or Negative - )BAD DABTS D +

ACP D +

SALES VOLUME D -

COLLECTION

EXPENDITURE

I -

Table. 2

CREDIT ANALYSIS

Credit standards influence the quality of the firms customers. There are two aspects

of the quality of customers

The time taken by customers to repay credit obligations,

The default rate.

The ACP determines the speed of payment by customers. It measures the

number of days for which credit sales remains outstanding. The longer the ACP, the

higher the firms investment in accounts receivables.

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DEFAULT RATE - Can be measured in terms of bad debts losses ratios the proportion

collected receivable. Bad debts loss ration indicates default risk.

DEFAULT RISK - Is the likelihood that a customer will fail to repay the credit

obligation. On the basis of past practice and experience, the financial or credit manager

should be able to form a reasonable judgment regarding the chance of default. To

estimate the probability of default, the financial or credit manager should consider

3 cs

a) Character b) capacity and c) Conditions

CHARACTER:-

Refers to the customers willingness to pay the financial or credit manager should

Judge whether the customer will make honest efforts to honor their credit obligation.

the moral factor is considerable importance in credit evaluation in practice.

CAPACITY: -

Refers to the customers ability to pay can be judged by assessing the customers

capital and assets which he may offer as security capacity is evaluated by the financial

position of the firms as indicated by analysis of ratios and trends in firms cash and

working Capital position. The financial position or credit manager should determine the

real worth of assets offered as collateral (security ).

CONDITIONS:-

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Refers to the prevailing economy and other conditions which may effects the customers

ability to pay. Adverse economic conditions can affect the ability or willingness of a

customer to pay. An experienced financial or credit manager will be able to judge the

extent and genies ness to which the customers ability to pay is effected by the economic

conditions.

Information on these variables may be collected from the customers themselves,

their published financial statement and outside agencies which may keeping credit

information about customers. A firm should use this information in preparing categories

of customers according to their credit worthiness and default risk. This would be an

important input for the financial or credit manager in formulating its credit standards.

The firm may categorized its customers at least, in the following 3 categories:

GOOD ACCOUNTS : that is financially strong customers.

BAD ACCOUNTS : that is financially very weak, high risk customers.

MARGINAL ACCOUNTS : that is customers with moderate financial health and risk

(falling between good and bad accounts ).

The firm will have no difficulty in quickly deciding about the extension of credit

to Good accounts and Rejecting the credit request of bad accounts. Most of the firms

time will be taken in evaluating marginal accounts. i.e., customers who are not financially

very strong but are also not so bad to be rightly rejected. A firm can expand its sales by

extending credit to marginal accounts but the firms cost and bad debts losses may also

increases. Therefore credit standards should be relaxed upon the point where incremental

return equals incremental cost ( IR = IC ).

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Figure. 2

CREDIT TERMS:-

The 2nd decision area in accounts receivable management is the credit terms.

After the credit standards have been established and the worthiness of the customers has

been assessed the management of a firm must determine the terms and conditions on

which trade credit terms. These relate to the repayment of the amount under the credit

sale. Credit term is the stipulation under which the firm sells on credit to customers are

called credit terms.

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These stipulations include;-

A) the credit period

B) Cash discount

B) Cash discount period

A) CREDIT PERIOD;-

The length of time which credit is to customers is called the credit period.

It is generally stated in net terms of a net date. A firms credit period may governed by the

industry norms. But depending on its objective the firm can lengthen the credit period.

On the other hand, the firm may lengthen its credit period if customers are defaulting to

frequently and bad debts losses are building up.

A firm lengthens to credit period to increases its operating profit through expanding

sales however, there will be net increases in operating profit when the cost of extended

credit period is less than the incremental operating profit. With increased sales andextended credit period receivable would increases.

a) incremental sales result in incremental receivables and

b) excising customer will take more time to repay credit obligations i.e. the average

c) Collection period will increase.

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The 2nd component of credit terms is the credit period.

The expected effect of an increase in the credit period is summarized in table bellow.

EFFECT OF INCRESE IN CREDIT PERIOD

Item Direction of change

I=increases

D=decreases

Effect on profit

+vet or vet

Sales volume 1 +

ACP 1 -

Bad debts expenses 1 -

Table. 3

A reduction in the credit period is likely to have an opposite effect. The above

table indicates the credit period decision.

B) CASH DISCOUNT:-

A cash discount is a payment offered to customers to induce them to repay credit

obligations with in a specified period of time which is less than the normal credit

period.It is usually expressed as a percentage of sales cash discount terms indicate the

rate of discount and the period for which it is available. It the customer does not avail

the offer, he must make payment with in the normal credit period. Credit term would

include.

Rate of cash discount

The cash discount period.

The net credit period

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A firm uses cash discount as a tool to increases sales & accelerates collections form

customers. Thus the level of receivable & associated costs may be reduced the cost

involved in the discounts taken by customers. The effects of increasing the cash

discounts are summarized in below table.

The effect of decreasing cash discount will be exactly opposite.

EFFECTS OF INCREASE IN CASH DISCOUNT

ITEM

Direction of change

( I = increase, D = decrease)

Effect on profits

( + value, - value)

SALES VOLUME I +

ACP D +

BAD DEBTS EXPENSES D +

PROFIT PER UNIT D -

Table. 4

The above table indicates cash discount decision

CASH DISCOUNT PERIOD:

Which refers to the duration during which the discount can be availed of these

terms are usually written in abbreviation for instance 2/10 net 30 i.e. 2% 10 days (time

available) 30 days (maxi)

COLLECTION POLICY & PROCEDURES:

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A collection policy is needed because all customers do not pay the firms bill in

time, some customers are slow payers while some are non payers. The collection effort

should, therefore aim at accelerating collections from slow payers and reducing bad debts

losses. A collection policy should ensure prompt and regular collection. Prompt

collection is needed for fast turn over or working capital keeping collection costs & bad

debts within limits & maintaining collection efficiencys. Regularity in collection keeps

drs alert & they tend to pay their dues promptly.

The collection policy should lay down clear cut collection procedures. The

collection procedures for past dues or delinquent accounts should also be establish in

unambiguous terms. The slow paying customers should be handled very tactfully, some

of them maybe permanent customers the collection process initiated quickly. With out

giving any chance to them may antagonize them, and the firm may loss them to

competitors.

The accounting dept maintains the credit records and information it is

responsible for collection, it should consult the sales dept before initiating an action

against non paying customers similarly the sales dept must obtain past information about

customers from the Accounting dept before granting credit to him.

Through collection procedure should be firmly established, individual cases

should be dept with on their merits. Some customers may be temporarily in tight financial

position and in spite of their best intention may not be able to pay on due date this may be

due to recessionary conditions, or other factors beyond the contract of the customers,

such cases need special consideration. The collection procedure against them should be

initiated only after they have over come their financial difficulties and do not intend to

pay promptly.

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Figure. 3

CREDIT GRANTING DECISION:-

Once a firm has assessed the credit worthiness of a customer, it has to decide

whether or not. Credit should be granted. The firm should use the NPV (net present

value) rule to make the decision, if the NPV is positive, credit should be granted. If the

firm chooses not to grant any credit, the firm avoids the possibility of any losses but

losses the opportunity of increasing its profitability. On the other hand if it grants credit

then it will benefit if the customer pays. There is some profitability that a customer will

default, and then the firm may lose its investment. The expected net pay-off of the firm is

the differences between the present values of net benefit and present value of the

expected loss.

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CREDIT GRANTING DECISIONS

Figure. 4

CREDIT LIMIT:-

A credit limit is a maximum amt of credit which the firm will extend at a point it

indicates the extent of risk taken by the firm by supplying goods on credit to a customer.

Once the firm has taken a decision to extend credit to the applicant, the amount and

duration of the credit has to be decided. The decision on the magnitude of credit will

depend upon the amount of contemplated scale and the customers financial strength in

case of customers who are frequent buyers of the firms goods, a credit limit can be

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establish. This would avoid the need to investigate each order from

thecustomers.Depending on the regularity of payment; the line of credit for a customer

can be fixed on the basis of his normal buying pattern...The credit limit must be reviewed

periodically. If tendencies of slow paying are found. the credit can be revised downward.

WHY DO COMPANIES GRANT IN INDIA;-

Companies in practice feel the necessity of granting credit reason;-

COMPETITION:-

Generally the higher the degree of competition, the more the credit granted by a

firm however, there are exceptions such as firms in the electronics industry in India.

COMPANIES BARGAINING POWER :-

If A Company has higher bargaining power vis--vis its buyers, no or less credit. The

company will have a string bargaining power if it has a strong product, monopoly, and

brand image, large size or strong financial position.

BUYER REQUIREMENT ;-

In a number of business sectors buyers or dealers are not able to operate with

extend credit this is particularly so, in the case of industrial products.

BUYERS STATUS ;-

Large buyers demand easy credit terms because bulk purchasers and higher

bargaining power some companies fallow a policy of not giving much credit to small

retailers since it is quite difficult to collect dues from them.

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RELATIONSHIP WITH DEALERS:-

Companies some times extend credit to dealers to build long term relationship

with or to reward them for their loyalty.

MARKETING TOOL:-

Credit is used as a marketing tool, particularly when a new product is launched or

when a new company wants to push its week products.

INDURSTRY PRACTICE:-

Small companies have been found guided by industry practice or norm more

than the large companies. Some times companies continue givining credit because of

past practice rather than industry practice.

TRYNIST DELAY :-

This is a forced reason for extended credit in the case of a number of companies

in India most companies evolved systems to minimize the impact of such delays some of

them take the help of banks to control cash flows in such situations.

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The graph represents the optimum level of receivables :

Optimum level of receivables

Figure.5

NATURE OF CREDIT POLICY:-

A firms investment in accounts receivable depends on

a) The volume of credit sales, and

b) The collection period

For example; if a firms credit sales are Rs. 30, 00,000 per day and customers, on an

Average, take 45 days to make payment then the firms average investment in accounts

receivable is:Daily credit sales x ACP

30, 00,000 x 45 = 1, 350, 00,000

The investment in receivables may be expressed in terms of cost of sales instead of

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sales value.

The volume of credit sales is a function of the firms total sales and the % of

credit sales to total sales. Total sales depends on market size, firms share, product

quality, intensity of competition, economic condition etc.The financial manager hardly

has any control over these variables. The % of credit sales to total sales are mostly

influence by the nature of the business and industry norms.

For example: Car manufacture in India, until recently, was not selling cars on credit.

They required the customers to make payments at the time of delivery. Some of

them even asked for the payment to be made in advance this were so, because of the

absence of genuine competition and a wide gap between demands for and supply of cars

in India. This position changed after economic liberalization which led to intense

competition. In contrast, the textile manufacture sold 2/3 rd of their total sales on credit to

the wholesale dealers. The textile industry is still going through a difficult phase.

GOALS OF CREDIT POLICY:-

A firm may follow a Lenient or a stringent credit policy. The firm follow a lenient

credit policy tend to sell on credit to customers on very liberal terms and standards,

credits are granted for longer period even to those customers whose credit worthiness is

not fully known or whose financial position is doubtful.

A firm follow a stringent credit policy sells on credit on a highly selective basis

only to those customers who have proven credit worthiness and who are financially

strong. In practice firms follow credit policies ranging between stringent to lenient.

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This graph indicates cost of credit policy :

Figure. 6

COST OF CREDIT POLICY

1) If the credit policy is loose, bad debts are more.

2) If the credit policy is tight, bad debts are less.

3) If the credit policy is tight, opportunity cost is more.

4) If the credit policy is loose, opportunity cost is less-optimum credit policy.

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RESEARCH ON CREDIT MANAGEMENT

Business have receivables i.e. dues from credit customers. To increase sales, to

earn more, to meet the competitors, to achieve break even volumes, to gain a foot hold in

the market, to help the customers on whom the business fortune is intimately in nexus

and to develop a strong brand, receivables, i.e. credit sales, are vital. Maintaining

accounts receivables involves cost. Administration cost, capital cost, collection cost, and

bad-debt cosset. are diverse costs involved. As in any financial decision matching costs

with benefits is needed here too. And what is the optimum level of accounts receivables

is to be decided. Too little of accounts receivable, that is very limited credit ales reduced

sales, loss of customer to the competitors camp, reduced profit and so on. Of course no

bad debt, less capital locked up in accounts receivables resulting lower capital cost etc.,

are benefits. But, a little more risk can be taken and profits can be inflated. Too much of

accounts receivables lead to scale advantage and hence more profit can be inflated. Too

much of accounts receivables lead to scale advantage and hence mire profit, but costs of

added bad debts, capital cost etc. are involved. Perhaps by reducing accounts receivables

costs can be steeply reduced, while benefits are not similarly

decreasing.Thereforeoptimum investment in accounts receivable has to be planned and

achieved.

Figure. 7

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CREDIT POLICY

Policy is a guideline to action. Policy establishes guideposts or limits for actions.Credit policy, therefore, refers to guide lines regarding credit sales, size of accounts

receivables etc. Credit policy has a few variables. Credit standard, Credit period, Credit

terms and collection policies are the policy variables. Credit standards refers to

classification of customers on the basis of their Credit standards and stipulation of Credit

eligibility of different classes of customers. The high rated customers may be extended

unlimited Credit, the moderate Credit standards class may be extended a limited credit

facility and the rest may not be given any Credit facility .credit period refers to how long

credit is allowed. Longer credit period might help drawing more customers and vice-

versa. Credit terms refer to discount incentive for prompt payments by offering cash

discount can be ensured. 2/30,net 45 means.2% cash discount for payment with in 30

days ,failing which full payment by the 45 th day of truncation. Collection policy refers the

seriousness or otherwise with which collection is dealt with, especially the delinquent

customers. It may be harsh or warm. Credit policy can be liberal or stringent. Liberal

credit policy adopts a lenient credit Standards ,i.e. almost all are extended credit; longer

Credit period, higher cash discount for a longer entitlement period and informal and

accommodative collection procedure. Stringent credit policy does the opposite. Both

policies have advantages and accompanying costs .hence, choice must be exercised by

individual firms after assessing the net effect of liberalizing or tightening up the Credit

policy.

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LENINET VS STRINGENT CREDIT POLICY

An analysis of effects of lenient credit policies is depicted below in a table form:

Factors Lenient policy Stringent policy

Sales More less

Capital locked up More less

Customer base More less

Competitive edge More less

Profit More less

Customer goodwill More less

Capital cost More less

Bad debt loss More lessAdministrative cost More less

Collection cost More less

Discount allowed More less

Talbe. 5

Lenient credit policy enhances benefits as well as costs. Stringent policy reduces

both benefits and costs. Hence the problem of choice. Hence the need for detailed

evaluation for decision-making. Evaluation needs to be done in respect of each and every

credit policy variable.

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Figure. 8

The investment in accounts should be with in accepted level. To achieve this,

control measures are needed so that when actual fall outside the prescribed range,

CONTROL ON CREDIT MANAGEMENT

Corrective actions can be taken. In controlling accounts receivables certaintechniques are adopted. Three such techniques are described below. These are Debtors

turnover ratio (DTR) Debtors turn over ratio refers to ratio of sales to accounts receivable

(sundry debtors plus bills receivables). The accounts receivables may be closing figure,

or average of year beginning and year-end figures or average of monthly opening and

closing figures. An acceptable range for the ratio is within this band, is all right. if the

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actual DTR is less than 5,it means more money is locked up in accounts receivables.

Either sales have slumped relative to size of debtors, or debtors have risen to sales. If the

ratio exceeds the upper hand, it means customers promptly pay willingly or buy over

force. It is good.

Debtors velocity:

Debtors velocity refers to how much many days sales are outstanding with the

customers. This is given by: accounts receivables/ per day credit sales. If fact, debtors

velocity indicates the average collection period allowed, every thing is fine. If it exceeds

the credit period allowed, which should be corrected. If ACP is less than credit allowed, it

can be considered as good, debtors velocity can be computed ,this vary also, that: number

of working days in the year/DTR.

Age of debtors:

Age of debtors refers how long debts are outstanding. Say 10% of accounts

receivables is 6 months old,15% is 5 months old,25% is 4 months old,25% is 3% months

old,15% is 2 months i.e., 15% is 2 months old and 10% is 1 month old. The average age

of debtors comes to: 6+75+100+75+3+1=3.5 months. An ideal break up of accounts

receivables can be establishes and actual position is monitored accordingly. The idle

average age and actual average age of accounts receivables can be compared and control

is exercised on accounts receivables.

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RESEARCH ON CREDIT MANAGEMENT

The objectives of research non credit management could be:

To study the credit policies adopted across firms/ industries or in a firm/ industry.

To study the extent of impact of lenient and stringent credit policies on sales, capital

cost, profit, bad debts ,etc.

To study the influence of different factors like credit allowed by suppliers, credit

allowed by companies, etc. on credit policy.

Credit Management is a branch ofaccountancy, and is a function that falls under the

label of "Credit and Collection' or 'Accounts Receivable' as a department in many

companies and institutions. They will usually deal with the credit vetting of customers,

the resolution of any invoice queries or disputes, allocations of payments or cash

application, internal fund movements, reconciliations and also maintaining positive

working relationships with customer during the debt collection or credit review and

approval process.

A key requirement for effective revenue and receivables management is the ability to

intelligently and efficiently manage customer credit lines or credit limits. In order to

minimize exposure to bad debt, over-reserving, and bankruptcies, companies must have

greater insight into customer financial strength, credit score history and changing

payment patterns. Likewise, the ability to penetrate new markets and customers hinges on

the ability of a company to quickly make well informed credit decisions and set

appropriate lines of credit.

Credit Management has evolved now from being a pure accounting function into afront-end customer facing function. It involves screening of customers and only those

who are credit worthy are allowed to do business. A sound review of the financial

position of the customer, and understanding of their business model is the first step in

ensuring that the company does not end up selling to a customer who ends up seriously

delinquent or in default.

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Hence, before the sales function commences its business with the particular customer,

the credit management role begins. Later as the customer starts dealing with the

company, the accounts receivable function is used to ensure recovery as per agreed terms

of credit is followed.

CREDIT ANALYSIS

Is the method by which one calculates the creditworthiness of a business or

organization. The audited financial statements of a large company might be analyzed

when it issues or has issuedbonds. Or, abankmay analyze the financial statements of a

small business before making or renewing a commercial loan. The term refers to either

case, whether the business is large or small.

Credit analysis involves a wide variety of financial analysis techniques, including

ratio and trend analysis as well as the creation of projections and a detailed analysis of

cash flows. Credit analysis also includes an examination ofcollateral and other sources of

repayment as well as credit history and management ability.

Before approving a commercial loan, a bank will look at all of these factors with

the primary emphasis being the cash flow of the borrower. A typical measurement of

repayment ability is the debt service coverage ratio. A credit analyst at a bank will

measure the cash generated by a business (before interest expense and excluding

depreciation and any other non-cash or extraordinary expenses). The debt service

coverage ratio divides this cash flow amount by the debt service (both principal and

interestpayments on all loans) that will be required to be met. Bankers like to see debt

service coverage of at least 120 percent. In other words, the debt service coverage ratio

should be 1.2 or higher to show that an extra cushion exists and that the business can

afford its debt requirements.

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CREDIT CONTROL:-

Policies aimed at serving the dual purpose of (1) increasing sales revenue by

extending credit to customers who are deemed a good credit risk, and (2) minimizing risk

of loss frombad debtsby restricting or denying credit to customers who are not a good

credit risk. Effectiveness of credit control lies in procedures employed for judging a

prospect's creditworthiness, rather than in procedures used in extracting the owed money.

Also called credit management. People have become increasingly dependent on credit.

Therefore, it's crucial that you understand personal credit reports and your credit rating

(or score). Here we'll explore what a credit score is, how it is determined, why it is

important and, finally, some tips to acquire and maintain good credit.

What is a Credit Rating?

When you use credit, you are borrowing money that you promise to pay back

within a specified period of time. A credit score is a statistical method to determine the

likelihood of an individual paying back the money he or she has borrowed. The credit

bureaus that issue these scores have different evaluation systems, each based on different

factors. Some may take into consideration only the information contained in your credit

report, which we look at below. The primary factors used to calculate an individuals

credit score are his or her credit payment history, current debts, time length of credit

history, credit type mix and frequency of applications for new credit. Because the scoring

systems are based on different criteria which are weighted differently, the three major

credit bureaus in the U.S. (Equifax, TransUnion, and Experian) may issue differing

scores for an individual, even though the scores are based on the same credit report

information.

You may hear the term FICO score in reference to your credit score - the terms are

essentially synonymous. FICO is an acronym for the Fair Isaacs Corporation, the creator

of the software used to calculate credit scores. Scores range between 350 (extremely high

risk) and 850 (extremely low risk). Here is a breakdown of the distribution of scores for

the American population in 2003:

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Figure. 9

What about a Credit Rating?

In addition to using credit (FICO) scores, most countries (including the U.S. and

Canada) use a scale of 0-9 to rate your personal credit. On this scale, each number is

preceded by one of two letters: "I" signifies installment credit (like home or auto

financing), and "R"stands for revolving credit (such as a credit card). Each creditor will

issue its own rating for individuals. For example, you may have an R1 rating with Visa

(the highest level of credit rating), but you might simultaneously have an R5 from

MasterCard if you've neglected to pay your MasterCard bill for many months. Although

the "R" and "I" systems are still in use, the prevailing trend is to move away from this

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multiple rating scale toward the single digit FICO score. Nevertheless, here is how the

scale breaks down.

How to manage Credit?

When you borrow money, your lender sends information to a credit bureau which

details, in the form of a credit report, how well you handled your debt. From the

information in the credit report, the bureau determines a credit score based on five major

factors: 1) previous credit performance, 2) current level of indebtedness, 3) time credit

has been in use, 4) types of credit available, and 5) pursuit of new credit. Although all

these factors are included in credit score calculations, they are not given equal weighting.

Here is how the weighting breaks down:

Figure. 10

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As you can see by the pie graph, your credit rating is most affected by your

historical propensity for paying off your debt. The factor that can boost your credit rating

the most is having a past that shows you pay off your debts fairly quickly. Additionally,

maintaining low levels of indebtedness (or not keeping huge balances on your credit

cards or otherlines of credit), having a long credit history, and refraining from constantly

applying for additional credit will all help your credit score. Although we would love to

explain the exact formula for calculating the credit score, the Federal Trade Commission

has a secretive approach to this formula. Credit is a Fragile Thing being aware of your

credit and your credit score is very important, especially since you can harm your credit

without even being aware of it.

Here's a true story of what can happen: Paul applied for a travel reward miles card,

but never received any response from the credit card company. Since it was a high-limit

travel card, Paul just assumed that he'd been declined and never thought about it

again. More than a year later, Paul goes to the bank to inquire about a mortgage. The

people at the bank pull up Paul's credit report and find a bad debt from the credit card

company. According to the credit report, the company tried to collect for a year but

recently wrote it off as a bad debt, reporting it asan R9, the worst score you can get. Of

course, all this is news to Paul.

Well, it turns out there was a clerical error, and Paul's apartment suite number was

missing from the address the credit card company had on file. Paul had been approved for

the card but never actually received it, and any subsequent correspondence didn't get

through either.

So the credit card company still charged Paul the annual fee, which he didn't pay,

because he didn't know the debt existed. The annual fee collected interest for a year until

the credit card company wrote it off. In the end, after jumping though several fiery hoops,

Paul was able to get the problem rectified, and the card company admitted fault and

notified the credit-reporting agency.

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The point is, even though it was a small balance due (about $150), the

administration error almost got in the way of Paul getting a mortgage. Nowadays, since

all data goes through computers, incorrect information can easily get onto your credit

report.

Tips to Improve or Maintain a High Credit Score:

Make loan payments on time and for the correct amount.

Avoid overextending your credit. Unsolicited credit cards that arrive by mail

maybe tempting to use, but they won't help your credit score.

Never ignore overdue bills. If you encounter any problems repaying your debt,

call your creditor to make repayment arrangements. If you tell them you are

having difficulty, they may be flexible.

Be aware of what type of credit you have. Credit from financing companies can

negatively affect your score.

Keep your outstanding debt as low as you can. Continually extending your credit

close to your limit is viewed poorly.

Limit your number of credit applications. When your credit report is looked at, or

"hit," it is viewed as a bad thing. Not all hits are viewed negatively (such as those

for monitoring of accounts, or prescreens), but most are.

Credit is not built overnight. It's better to provide creditors with a longer historical

time frame to review: a longer history of good credit is favored over a shorter

period of good history.

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CREDIT POLICIES:-

Credit policies are decided by zonal manager and credit will be given to dealers

based Up on track record, history and credit worthiness of the distributors. It is depends

on the management and under control of the credit controller (zonal Manager and one of

the directors).

CREDIT STANDARDS:-

Depends on the credit market position if the position is down. The zonal manager

or Credit controller is looking (i.e., to extend the credit period or limit).Credit standards

are determined based on the economic conditions. If the economy is in the recession

more credit will be extended and if the economy is in boom less credit will be extended.

CREDIT PERIOD:-

The length of time for which credit is extended to customers.

Credit period = 90 days

CASH DISCOUNT PERIOD:-

A cash period is a reduction in payment offered to customers to induce them to

repay credit obligation within a specified period of time, which will be less than the

normal credit period.

Cash discount period = 30 days

Cash discount = 3%

Credit discount = 40% on MRP

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CREDIT LIMIT:-

Credit limit is a maximum amount of credit which the firm will extend at a point of

time.

Credit limit is depending on the dealers deposit amount.

for example: if he deposit = 500,000 The credit limit = 25, 00,000 will be given.

ELIGIBILITY FOR TAKING DEALERSHIP:-

5 years Bank statement

2 cheques for security

1 DD for the dealer deposit amount

He should have the Tin number ( wholesaler, retailer )

THREE TYPES OF CUSTOMERS:-

1) Builders of contractors-sales:-

Company is giving discount depends on the volume of goods taking by the

builders.

2) Institutions-sales :-

Up to 6% giving.

3) ordinary dealers :-

Company standards discount.

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Payment terms 30 days for every sale.

Credit Risk Management

The basic system allows us to look at expected return and particularly

expected losses only, without regard to the variability of the losses over time

(the volatility). A good basic system assumes:

A well functioning classification (grading) system with preferably around

10 classes. The classification should be based on controllable quantitative

and qualitative factors. Different classes should indicate different

probabilities of default only. The typical probability of default should be

estimated for each class.

For each customer the estimated loss in case of default should be

calculated. Normally the most important factor in this calculation would

be the estimated value of possible collateral in a default situation.

These two factors will give a satisfactory basis for the calculation of expected loss for

the total credit portfolio. The expected loss represents a fairly good guidance for

pricing, and for assessing the quality of the total portfolio. However, it does not give

any indication of concentrations of risks in the portfolio. Are the losses likely to be

nicely spread over time, or do we risk huge losses during a limited period of time

(which means high volatility)?

The advanced system builds on the same basic factors, but should include

at least two additional factors:The correlation of groups of credits (such as different industries) and also

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of individual credits with the total credit portfolio of the enterprise is

important in assessing the volatility of losses. Preferably the correlation

with other activities of the enterprise should also be considered.

Big individual credit exposures often contribute a lot to the volatility of

the losses of the portfolio, especially if these credits are also somewhat

weak.

The latter approach gives a better basis for internal allocation of equity capital, for

pricing, for calculating the maximum loss that can be expected and the need for

general/unspecific loan loss reserves. Important elements of Credit Risk Management

are illustrated below. The upper three boxes represent the basic system.

Figure.11

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ABOUT THE KESORAM COMPANY

Kesoram Cement Industry is one of the leading manufacturers cement in India,

incorporated by the promoters of Birla Group Company. It is a dry process cement plant.

The plant capacity is 8.26 lakh tones per annum; it is located at Basanthnagar in

Karimnagar Dist. Of Andhra Pradesh which is 8 kms away from the Ramagundam

Railway station, linking Chennai to New Delhi.

The companys first unit Basanthnagar with a capacity or 2.1 lakh tones per

annum. Humbolds suspension preheated system was commissioned during the year 1969.

The second unit was set up in the year 1971 with a capacity 2.1 lakh tones per annum and

the third unit with a capacity of2.5 lakh tones per annum went on stream in the year 1978.

The coal for this company is being supplied by Singareni Collieries and the power is

obtained from APSEB. The power demand for the factory is about installed in the year

1987.

Kesoram Cement Industry distinguished itself all the cement factories in India by

bagging the National Productivity Award Consecutively for two years i.e., for the year

1985-86 and 1986-87.

The Federation of Andhra Pradesh Chamber of commerce and

industries(FAPCCI) also conferred on Kesoram Cement, an Award for Best Industrial

promotion / expansion efforts in the state for the year 1984. Kesoram also bagged

FAPCCI award for Best Family Planning Effort in the state for the year 1987-88.

One among the industrial giants in the country today, serving the nation on

industrial front, Kesoram Industries Ltd., has a chequered and eventful history dating

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back to the twenties when the Industrial House of Birla acquired it. With only a Textile

Mill under its banner in 1924, it grew from strength and spread its activities to newer

fields Rayon, spun pipes transparent paper, pulp, Tyres, Refectories and other products.

Cement, which plays an important role in Nation building activity, the Govt. of India, had

de-licensed the cement industry in the year 1966 with a view to attract private

entrepreneurs to argument the cement production. Then Kesoram decided to set up a few

Cement plants in the Country.

Birla supreme is popular brand of Kesoram Cement from its prestigious plant of

Basanthnagar, in A.P., which has outstanding track record in performance and

productivity, serving the Nation for the last two and half decades. It has proved its

distinction by bagging several national awards and state awards. It also has the distinction

of achieving optimum capacity utilization.

Kesoram offers a choice of top quality Portland cement for light, heavy

constructions and allied applications. Quality is built to every fact of the operations. As is

the preference for quality, so is the demand for the product.

The limestone is rich in calcium carbonate, a key factor that influences the quality

of the final product. The dry process technology used in the late computerized monitoring

overseas the manufacturing process. Samples are sent regularly to the bureau of Indian

Standards, National Council of Construction and Building Material for certification of

derived quality norms.

The company has actively undertaken promotional measures for promoting their

product through different media, which includes the use of hoardings, Compliment,

Newspapers etc.,

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Kesoram Cement is undertaking the marketing activities extensively in the states

of Andhra Pradesh, Karnataka, Tamilnadu, Kerala, Maharashtra and Gujarat. In Andhra

Pradesh sales depots are located in different areas like Karimnagar, Warangal, Nizambad,

Vijayawada and Nellore. In other estates it has opened around 10 depots.

The market share of Kesoram Cement in the all India Cement market is 1.19% in

A.P., it is a 7.05%.

Kesoram cement industry is one of the leading manufacturers of cement in India

Kesoram cement is a division of Kesoram Industries Limited. The latter is a 6 decades

old company belonging to the house of Birlas. It is a dry process cement plant. The plant

capacity is 8.26 lakh tones per annum. It is located at Basanthnagar in Karimnagar

District Andhra Pradesh. The chairman of the company is Syt. B.K. BIRLA.

The first unit at Basanthnagar with a capacity of 2.1 lakh tones per annum in

corporating suspensions preheated system was commissioned during the year 1969.

The second unit was set up in year 1991 with a capacity of 2.1 lakh tones per

annum and third unit with a capacity at 2.5 lakh tones per annum went stream in the year

1978.the coal for this company is being supplied by singareni collieries and the power is

obtained from APSEB.

Kesoram Cement Industry distinguished it self among on the cement factories in

India by bagging the National productivity Award consecutively for two years i.e., for the

year 1985-86 and 87. The Federation of A.P chambers and commerce and industries

(FAPCCI) also conferred on K.C. an award for the Best Industrial promotion lekpanasian

Efforts in the state for the year 1984. Kesoram also bagged FAPCCI award for Best

family planning effort in the state for the 1987-88.

The company being a continuous process industry works around the clock and has

an excellent record of performance achieving over 100% capacity utilization. Kesoram

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cement belongs to the Birla group of companies, one of the industrial giant in the

Country.

The company takes care of the employees welfare facilities during the work like

as well as outside the work life. The company has provided housing facilities to the

workers, co-operatives stores, canteen, schools, pays 20% bonus every year, conducts

sports and games for republic day and Independence Day, Swimming pool, recreation

clubs with facilities for Indoor and outdoor games.

Family planning camps are conducted regularly with the help of the District

medical and Health Authorities at the Government. The company propagates the

importance of family welfare to its employees and in the neighboring villages through

their medical officer and rural development officer.

Not only the employees of the factory are well taken care of, but the company

pays lot of attention towards the rural development activities. Twelve villages are

adopted and the company has extended help in constructing temples, roads, schools,

buildings, conducting training programmers to the farmers, eye surgical camps, health

check up camps etc.,

Kesoram Cement Industry distinguished it self among on the cement factories in

India by bagging the national productivity Award consecutively for two years i.e., for the

year 1985-86 and 87. The Federation of A.P chambers and commerce and Industries/

Kesoram Cement is undertaking the marketing activities extensively in the states

of Andhra Pradesh, Karnataka, Tamilnadu, Kerala, Maharashtra and Gujarat. In Andhra

Pradesh sales depots are located in different areas like Karimnagar, Warangal, Nizambad,

Vijayawada and Nellore. In other estates it has opened around 10 depots.

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The company has planted about 5 lakh trees in and around Basantnagar and near

by villages there by contributing a lot for eliminating the pollution. The greenery here

keeps the temperature low about 2 to 3 degrees (CG) less when compared to other areas.

The company contributes about 12.5 crore rupees to the state economy and 26

crore rupees to the national economy per annum.

One among the industrial giants in the country to day serving the nation on the

industrial front, Kesoram industries limited. Has an acquired and eventful history dating

back to the twenties when the industrial House of Birlas acquired it. With only textiles

mill under its banner in 1924, it grew from strength to strength and spread its activities t

newer fields like Rayon, Pulp, Transparent Paper, Spun Pipes, Refractory, Tyres and

other products.

Looking to wide gap between the demand and supply, of a vital commodity

cement, which plays an important in National building activity the government of India

de-licensed the cement industry in the year 1966 with a view to attract private

entrepreneur to augment the cement production. Kesoram rose to the occasion and

decide to set up a few cement plants in the country.

Kesoram cement in one of the prestigious units on the renowned Kesoram

industries group that is one of Indias leading industrial conglomerate, under the

stewardship of Syt. B.K.Birla, the doyen of Indian Industry.

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Production

Table No: 1 last 20 years production of Kesoram cement industry, Basantnagar

Year Production(in tones)

1991-1992 6014531992-1993 643307

1993-1994 643663

1994-1995 748258

1995-1996 685596

1996-1997 731177

1997-1998 784555

1998-1999 782383

1999-2000 731049

2000-2001 746474

2001-2002 688605

2002-2003 777092

2003-2004 692424

2004-2005 727447

2005-2006 735012

2006-2007 746418

2007-2008 754834

2008-2009 1046166

2009-2010 1056742

2010-2011 1199445

2011-2012 1211223

Table.6

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Note; production including internal consumption also.

Cement and clinker production were lower than the previous year mainly because

of low dispatches of cement due to recession prevailing in cement industry with

slowdown in demand during the year under review, this section had to curtail production

due to accumulation of large stocks of clinker. However, sales realization during the

second half of the year has improved and it is hoped that prices will stabilize at some

reasonable levels

DIRECTORS OF KESORAM INDUSTREIS LTD.

Chairman:

Sri B.K. Birla

Directors:

Smt.K.G. Maheshwari

Sri.Pramod khaitan

Sri.B.P. Bajoria

Sri.P.K.Chokesy

Smt.Neeta Mukerji

(Nominee of I.C.I.C.I)

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Sri.D.N.Mishra

(Nominee of L.I.C)

Sri. Amitabh Ghosh

(Nominee of U.T.I)

Sri.P.K.Malic

Smt.Manjushree Khaitan

Secretary:

Sri.S.K.Parik

Senior Executives:

Sri.K.C.Jain(Manager of the company)

Sri.J.D.Poddar

Sri.O.P.Poddar

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Sri.P.K.Goyenka

Sri.D.Tandon

Auditors:

Messrs price waterhouse

Subsidiary companies of Kesoram industries

Bharat General & Textile Industries Limited

KICM Investment Limited

Assam Cotton Mills Limited

Softer Estates Limited

Supreme Heritage:

Kesoram cement needs no introduction, as the name,Kesoram its synonymous

with cement, rather Kesoram is a household name throughout the country today. Kesoram

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is a household name throughout the country today. Kesoram cement is one of the

prestigious units of the renowned Kesoram industries group.

Which is one of Indias leading industrial conglomerate, under the stewardship of

Syt.B.k.Birla, the doyen of Indian industry.

Supreme Performance:

One of the largest cement plants in A.P the plant incorporates the latest

technology in cement making.

It is professionally managed and well-established cement manufacturing company

enjoying the confidence of the consumers. Kesoram has outstand track record in

performance and productivity with a quite a few national and state Awards to its credit.

Birla supreme the 43 Grade cement, is widely accepted and popular in the market,

commanding a premium.

However to meet the specific demands of the consumers, Kesoram brought out

the 53 grade BIRLA SUPREME GOLD, which has special qualities like higher fineness,

quick-setting, high compressive strength and durability.

Supreme Strength:

Kesoram cement has huge captive lime stone deposits which make it possible of

feed high grade limestone consistently. Its natured gray color is an inborn ingredient and

gives good shade.

Both the products offered by Kesoram, I.e. BIRLA SUPREME 43 grade and

BIRLA SUPREME GOLD 53 grade cement are outstanding much higher compressive

strength and durability.

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Supreme Process:

BIRLA SUPREME is manufactured by closed circuit cement grinding process

involving high efficiency separators. This ensures uniform and high quality in cement,

which in turn contributes to its superior strength and optimum setting time.

Process & Quality Control:

It has been the endeavor of Kesoram to incorporate the worlds latest technology

in the plant and today has the most sophisticated, state of the art technology in its process.

X-Ray Analyzers:

Fully computerized XRF and XRD x-ray analysis keep a constant round the clock

vigil on quality.

Distributed Control System:

Clinker making process is a key step in the over all cement making process. In the

case of BIRLA SUPREME GOLD, the clinker making process is totally computer

controlled.

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The Distributed Control System (DSC) constantly monitors the process and

ensures operating efficiency. The eliminates variation and ensures consistency in the

quality of the clinker.

Supreme Expertise:

The best technical teams, exclusive to Kesoram, man the plant and monitor the

process, to blend the cement in just the required proportions, to make BIRLA SUPREM

GOLD of rock strength.

Eco Friendly:

Kesoram has been doing its best for protecting the environment and maintain the

ecological balance in the area. Appropriate pollution control equipment has been installed

in the plant. Lot of afforestation measures have been taken green belts developed and

lakhs of trees have been planted in and around the factory, mines township and in the

near by areas. Basanthnagar has become a paradise with lush greenery, beautiful

landscapes and avenues. The tree plantation is so dense that it has virtually drowned the

township. Its but natural that the ambient temperature in the town ship is now less by 3-4

degree cells, compared to the near by Ramagundam, one of the hottest spots in the

country.

Its in the fitness of things that Kesorams senior president shri K C Jain has been

recommended by the state government to the central government for the prestigious

Vrishamithra National award.

ISO 9002 Certification:

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All quality systems of Kesoram have been certified under ISO9002/ISI4002

which proves the worldwide acceptance of the products. All quality systems in

production and marketing of the products have been certified by B.I.S under

ISO9002/IS14002.

Feathers in Kesorams cap

Kesoram has outstanding track record, achieving over 100% capacity utilization

in productivity and energy conservation. It has proved its distinction by bagging several

national and state awards note worthy being.

AWARDS:

Kesoram cement bagged prestigious awards including national awards for

productivity technology conservation and several state awards for the year 1984,

Kesoram bagged Best family planning effort in his state of the Federating of A.P

chamber of commerce and industry. Also national awards for two successive years, 1985

and 1986 and national awards for mines safety for two year 1985-1986 and 1986-1987.

it has also bagged in the national award for energy efficiency for three year 1989-1990

for the performance among all cement plants in India. Thus award installed by national

council for cement and building material (NCCBM) is association with government of

India.

Kesoram bagged the prestigious A.P state productivity awards in 1987-1988 also

Best Industrial Promotion Expansion Effort in the state and Yajamanyza Ratna and

Best effort of an industrial unit in the state to development Rural Economy

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development programs for the year 1991 its bagged May Day Award of the

government of Andhra Pradesh for the Management and the Pandit Jawaharlal Nehru

Silver Rolling Trophy for the Government of Andhra Pradesh for the year 1993.

During the last three years the government of Andhra Pradesh has given the following

Best awards for the year 1933. Best industry relation award for 1995 environments and

mineral conservation award for 1995. to keep the ecological balance they have also

undertake massive tree plantation in factory and government of Indian has nominated

township areas and them for VRIKSHAMITRA AWARD Best effort of an industrial

unit in the state for rural development 1994-1995 presented by chief minister in march,

1996 best family welfare award 1996-1997.

Kesoram cement industry has been awarded ISO14001 certificate for its effective

implementation of environment schemes. For improving the standard relating to health

and safety Kesoram cement industry has started implementation of OSHAS18001 which

is still under progress. Kesorams Basanthnagar limestone mines won tree first prize for

environment and pollution control, transport and dust suppression and welfare amenities

and two second prizes for overall performance and operation and maintenance of

machines.

Kesoram cement industry has also won the award for workers welfare including

family planning for the year 2000-01 of the federations of Andhra Pradesh chambers of

commerce and industry, which was presented by the Honble Chief Minister of Andhra

Pradesh Shri N. Chandra Babu Naidu.

ADVANTAGES:

Helps in designing sleeker and more elegant structures, giving greater

flexibility in design concept.

Due to its fine quality, super fine construction can be achieved.

It gives maximum strength at minimum use for cement with water in

the water cement ratio, especially the 53 grade BIRLA SUPREME GOLD.

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Improved durability is achieved the permeability reduces and the

volumetric changes are also reduced.

Better water proofing is achieving due to low heat of hydration as

the shrinkage will be less which means less cracks.

Better finish is achieved due to fineness and hence better workability.

This plastering becomes easier with better finish.

Faster construction possible as both BIRLA SUPREME GOLD

achieve their high easy strength in just 24 hours and hence the form

work can easily can be removed thus improving the efficiency and

saving in cost and time.

KESORAM GROUP OF INDUSTRIES

a) Textiles : Kesoram Industries Ltd.,

42, garden reach road, Calcutta 700 024.

b) Rayon : Kesoram Rayon Triennia (po),

Dist. Hoogly, West Bengal.

c) Spun Pipes : Kesoram Spun Pipe & Foundries,

Bansberia (po), Dist. Hoogly, West Bengal.

d) Cement : Vasavadatta Cement, Sedam-585 222,

Dist: Gulbargah, Karnataka.

e) Cement : Kesoram cement, Basanthnagar-505 187,

Dist. Karimnagar, A.P.

f) Tyres : Birla Tyres, Shivam Chambers,

53, Syed Amir Ali Avenue, Calcutta-700019.

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SWOT ANALYSIS

STRENGHTS:

Cement industry is the core industry in India and it has been given prime

importance by the Government.

India stands second in world Population and their exists a high untapped market.

The Cement industry yield high return on investment (ROI)

The present level of supply and growing demand of cement clearly indicate that

the prices are tending to rise.

WEAKNESS:

The per capital consumption of the cement in India is every now.

The transport cost in India is very high.

The cement industry is facing with acute power shortage and raw material

problems.

The industry is also facing major packaging problems.

OPPORTUNITIES:

The industry has tremendous potential for growth in India.

In near future cement is going to replace in a large scale for the construction of

road.

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There are good prospects or exports with cement export promotion council.

(CEPC)

The government policies of reduction in excise duty and exempting from jute

packaging may a born to the industry.

THREATS:

The surplus levels are increasing as the production of the cement is much greater

than the consumption. In the present scenario of stiff competition there is a demanding trend of price.

The performance of the smaller unit is badly hit by the major takeovers.

The crisis situation in south East Asian Countries may create problems to the

exports of the industry

Cement is the basic construction material used extensively all over the world.

The per capital consumption of cement is universally acknowledged as one of the

measure of the country. The per capital consumption of cement in India is estimated at

approximately Rs. 57 lakh, and India is the third lowest consumer in the world. Thus

there is a excellent potential growth of cement industry in India.

Cement was first patented in 1824 in England. In India, the first cement plant

was established by Indian cement industrial growth was continuously increased. By 1961,

cement production in the country achieved self sufficiency and import of cement was

stopped. In August, 1965 the Government accepted the principle to decontrol the prices

and distribution of cement. A scheme of decontrol drawn and brought into effect from

January, 1996 and a cement allocation and coordination organization (CACO) was

formed. As the decontrol scheme did not prove to the satisfaction of the government,

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CACO was abolished and its functions over by the cement controller attached by the

government Corporation of India Limited. Prices of cement are revised by the

government from time to time based on studies and reports of Bureau of Industrial cost

and prices.

The company was incorporated at Calcutta. The main object of the company is

to manufacture textiles, rayon yarn, cement, spun pipes and fire bricks. 1984-16,00,000

No. of equity shares issued in prop. 2:1 in March.

1951-8,00,000 bonus equity shares of Rs. 2.50 each issued in prop. In july,

shares consolidated into Rs 15 each.

1954 - In march, 8 lakh bonus shares issued in prop,1:1. Shares then

consolidated into Rs.10 each.

1956 One lakh right 2nd pref. shares offered at par. Only 10,000 shares take

up. Balance offered to public.

1961 The name of the company was changed to Kesoram industries &Cotton

Mills Limited on August 30, and the same has further changed to Kesoram industries

limited on the 9th July, 1986.

The plant for manufacture of transparent paper was set up at the same location

at Tribeni in June. It has the capacity to manufacture 3,600 tpa of transparent paper.

1965 The company took on long lease one refractory unit at Kulti, West

Bengal, for a period of five years.

1969 The company established its, first cement plant known as Kesoram

cement at Basanthnagar, District Karimnagar, Andhra Pradesh.

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Two more cement plants were put up at the same site and the aggregate capacity

of all the three cement plants is 8, 26,000tpa.

1980 There was a loss of production of 37 days in cement division due to

break-down in one of the kilns. Cyclones with heavy rains and power crisis affected

production.

1982 The company had to declare a lock out because of labor unrest. The

lock out was lifted on 20th may, but the workmen did not return on duty as the

suggestions made were not acceptable too them. After making fresh suggestions with

modifications, the strike was withdrawn from 29th June. Normal working was resumed by

the end of July.

The company secured MRTP clearance to set up another cement unit at Sedam

in Karnataka State with an annual capacity of 5 lakh tones. A new plant and equipment

were being installed to improve the quality of production.

Kesoram cement has set up a 15MW capacity power plant to facilitate for

uninterrupted power supply for manufacturing of cement, which starts on 24th

august,1977.

THE ORIGIN

The South India industries Ltd. Produced cement for the first time in India in

1904 near Chennai with a capacity of 30 tones per day. However this venture is failed. In

October 1914 another enterprise, India cement company limited commissioned 100 tones

per day rotary kiln at probander(Gujarat). The next couple of years saw the emergence of

two factories when plants at Kant (Madhya Pradesh) and Katani (Rajasthan) were

commissioned.

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The First World War gave a fillip to the cement industry and by 1918; the tree

factories together were able to produce about 85,000 tones per year. In 1857, an

American named David Saylor improved the mix design of limestone and clay resulting

in a much more superior quality of cement. He also called his cement by the same name

viz., Portland Cement.

PER CAPITA CONSUMPTION

Indias per capita consumption of cement is just over 65 kgs. An extremely low

figure compared to the world avg. of over 210kgs. The experience of other developing

countries like Argentina, South Korea, Brazil etc., shows that cement consumption

increases as the economy grows and the purchasing power of people goes up.

PRODUCTION OF CEMENT

India ranks fourth biggest cement producing country after China, Japan and

United States. In early 90s only India achieved this significant position in world cement

scenario. The Indian cement industry consists of 57 companies operation about 116 large

plants and around 300 mini plants having installed capacity of 109.3 million tones.

COMPOSITION OF THE CEMENT

The chemical analysis of the cement is as follows:

Limestone : 80%

Coke breeze : 12%to 13%

Clay : 6% to 9%

Addictives : 2%

Gypsum : 5%

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FUNCTIONS OF CEMENT INGREDIENTS

LIMESTONE

This is the important composition of cement and its proportion is to be carefully

maintenance. Limestone is excess make the cement unsound and causes the cement to

expand and disintegrate. On the other hand, if lime is in deficiency strength of cement is

decreased and it causes cement to set quickly.

Calcium Sulphate:

his ingredient imparts color, hardness and strength to cement.

Coke Breeze:

t is a fuel, helps to burn the nudels in the kiln.

Types of Cement:

India is currently produces many variables cement like

1. Ordinary Portland cement

his is mixture of calcareous (limestone, marble,chalk,etc.,) and argillaceous

(clay, shale etc.,)to which other materials like silica, alumna or iron oxide are added.

There are burnt at a clinking temperature and the resulting clinker is then ground. After

burning ,only gypsum or air entering agent is added.

2. Portland Blast Furnace Slag Cement

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A fine mixture Portland cement clinker and granulated blast furnace slag makes

Portland blast furnace slag makes Portland slag cement. The clinker for this form is

manufactured in the same manner as for ordinary Portland cement. The granulated blast

furnace slag is a non-metallic product obtained by rapidly chilling or dipping in water

stream or aid. The molten slag cement to comply with the requirement under IS :455-

1976. It highly suitable for marine structure involving large masses o concrete such as

such drams, retaining was bridge abutments, for municipal works such as sewers and

structures exposed to sulfate bearing such as founda

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