Final KEC Report

Improvement of Working Capital Management by bringing efficiency in billing process [Year]I

Improvement of Working Capital Management by bringing

efficiency in billing process

BYAnand Kumar

FMS-IRM, JaipurEmail id – [email protected]

A project reportSubmitted to

Ms. Reena DanielFaculty- FMS-IRM

In partial fulfillment of the requirementsfor the award of the Post Graduate Diploma

in

BUSINESS MANAGEMENT

INSTITUTE OF RURAL MANAGEMENTJAIPUR- 302020

mailto:[email protected]

2009

Improvement of Working Capital Management by bringing efficiency in billing process

July, 2009

K E C I N T E R N AT I O N A L LT D . P a g e 4 0

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CANDIDATE’S DECLRATION

I hereby declare that this project Report entitled “Improvement of Working Capital

Management by bringing efficiency in billing process “is a bonafide record of work done by

me during the course of summer project work and that it has not previously formed the basis

for the award to me for any degree/diploma, associate ship, fellowship, or other similar title

of any other institute/society.

Date: __________________________

____________________________

Anand Kumar


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PREFACE

Finance is the lifeblood of an industry. The subject matter of Financial Management has been

changing at rapid pace. About a decade ago, the scope of Financial Management was circumscribed

to the raising of funds, whenever needed, the financial decision making, and problem solving. But

now it has become an integral part of any business enterprise and growth of any business enterprise

depends largely on their financial strategy and how finance is being managed.

The summer training program is designed to give the future managers the feel of the corporate

happenings and work culture. Theses real life situation are entirely different from the stimulated

exercise enacted in an artificial environment inside the classroom and it is precisely because of this

reason that this summer training has been designed, so that managers of tomorrow does not fill ill in

the case when the times comes to shoulder responsibilities. The summer training is a bridge between

the institution and organization to make us understand how theoretical knowledge will be applied in

the practical field.

It was exactly in this context that I was privileged to join KEC International Ltd. (Finance and

Accounts Division) as a summer trainee. Established in 1945 as Kamani Engineering Corporation, it

was taken over by RPG Groups in 1982 and renamed to KEC International Ltd. in 1984. It is one of

the largest EPC Company in transmission and distribution sector. The experience that I have

gathered over the past 45 days has certainly provided me with an orientation, which I believe, will

help me shoulder any assignment successfully in future.


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ACKNOWLEDGEMENT

First of all I would like to express my whole hearted thanks and deep gratitude to our parents who

have always been my source of inspiration for any challenging work, project or assignment.

Any work is not perfect and complete without the help and guidance from other people. This project

work of mine “Improvement of Working Capital Management by bringing efficiency in billing

process” would not have reached its fulfillment, hadn’t it been the guidance given to me by various

people directly or indirectly related to this project.

At first, I deeply express my gratitude to Brig. S.K.Gaur, Director- FMS-IRM and Ms Reena Daniel

my faculty Guide for giving necessary instruction and guidance on how to pursue this summer

project. I really found your guidance extremely helpful at every step of the research and in analyzing

the various facts and figures.

I would also extend my sincere thanks to Mr. N.K. Sharma (Head of KEC Finance department) for

providing me an opportunity to do a project work in their esteemed organization.

I whole heartedly acknowledge the intellectual stimulation of my esteem Corporate Project Guide,

Mr. N.K.Rathi, (Senior Manager) for his continuous help and guidance throughout the project

duration in spite of his busy schedule. I also like to thank Mr. Atul Agrawal and Mr. Rajesh

Vijayvarigya for helping me whenever I was faced with any difficulty during project.

Finally in this chain I am also thankful to Mr. Yogesh Joshi, (HR department) for providing Extra &

useful knowledge, which helped me to have a deep insight of the Theoretical aspects of the project

and all the officers and Staff of KEC, without their help my project, would not have been successfully

completed.


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Executive Summary

Working Capital Management is one of the most crucial issues for the transmission and

distribution sector companies like other construction companies. There are various reasons

behind this. Firstly, the projects are awarded following a bidding process where the lowest

bidder is awarded the project. Hence every rupee saved through better working capital

management helps to offset the escalation in cost due to various factors, time overrun and

etc. Like any other construction projects these projects also require a large capital

investment. Secondly, the traditional method of credit analysis such as the heuristic method,

deterministic method or the probabilistic method does not hold good in determining the

credit worthiness of the credit applicant. To compound this problem, since most of the clients

have monopolistic stronghold in the sector hence the inefficiencies in the working capital

management can largely be attributed to the clients and inefficiency becomes a compliance

issue. So judging the efficiency of working capital management of T&D sector companies

cannot be pitted and compared against other industry benchmarks like the FMCG or

electronic goods.

All the three major players in the transmission and distribution sector, KEC International,

Jyoti Structures and Kalpataru have adopted different business models to address the issue of

working capital management. Of the top three companies KEC International has the highest

ROCE (Return on Capital Employed) and working capital turnover primarily due to its

outsourced business models. The tower accessories and line accessories are outsourced and

procured from the client pre-approved sub-vendors.

During this study, I got an opportunity to study the business model of KEC International and

its billing cycle in particular. In a company which has shown tremendous top line growth

over the years and a relatively lower bottom line growth due to nature of business being


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market driven and competition climbing up, many problems can be solved by bringing

efficiency in the working capital management. This is an attempt to study the inefficiencies

in

the working capital management on the debtor’s side and how it can be improved by

improving the billing cycle.

It has been a conscious attempt to segregate the inherent inefficiencies in the system from the

inefficiencies occurring primarily due to compliance issue. At the end some inefficiencies

has been identified which are in-built in the process or can be negotiated with the client and

based on them some recommendations have been suggested.


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Table of Content

TITLE PAGE NO.

Title Page………………………………………………………………..........................1

Certificate………………………………………………………………………………..2

Declaration……………………………………………………………………………….3

Preface……………………………………………………………………………………4

Acknowledgement……………………………………………………..............................5

Executive Summary………………………………………….............................................6

Contents………………………………………………………………..………………….7

Design of the Study……………………………………………………………………...8-25

o Research Problem………………………………………………………

o Objective of the study…………………………………………………...

o Methodology………………………………………………………………10

o Need for the project………………………………………………………..11

o Limitations of the Study…………………………………………………..12

o Review of Literature: Working Capital Management…….....................13-25

Organizational Profile………………………….……………...……………………….26-54

o RPG Groups……………………………………………………………


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o Transmission Sector……………………………………………………

o KEC International Ltd…………………………………………………

o Financial Performance…………………………………………………

Data Analysis………………………………………………………………………….55-77

Major Findings and Suggestions………………………………………………………

SWOT Analysis……………………………………………………………………….

Bibliography…………………………………………………………………………..

Appendix……………………………………………………………………………..


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Chapter 1

Research Design


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Research ProblemAnalyzing the Operating cycle of the billing process of N-97 (Sasaram-Fetehpur, 765 KV)

project and working on it to shorten the operating cycle by bringing efficiency in the billing

process. There by improving Working Capital Management.

RESEARCH TYPE

Diagnostic research type

OBJECTIVE OF THE RESEARCH

Analyzing the operating cycle of the billing process of N-97 project (Sasaram-

Fatehpur, 765 KV).

Improvement of working capital management

Bringing efficiency in the billing system

Reducing the billing cycle time on the client side.


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DATA COLLECTION APPROACH

1) Secondary Data –

A) Internal Secondary Data- Annual Reports, Files and office documents.

B) External Secondary Data- Various books, Reports and Internet.

2) Primary Data –

A) Discussions with concerned persons.

Methodology

The following methods were adopted to prepare this report.

1. Literature Review

2. Understanding the industry

3. Understanding the business of KEC

4. Understanding the pilot contracts

5. Understanding the billing cycle time

6. Visiting Jothwara factory to collect data and gain a comprehensive view of the billing

cycle.


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7. Having a discussion with site personnel on his visit to factory, understanding the problems

faced by the site personnel

Need for the Project

The power transmission sector is growing at a tremendous space. The Eleventh Plan is likely

to see an investment of around Rs 2,47,500 crore for the expansion of the transmission

infrastructure. Consequently, the addressable market for the power transmission tower

industry from this opportunity is likely to be Rs 25,000 crore over the Eleventh Plan period.

KEC International is the largest company operating in the transmission tower space and has

observed tremendous top line growth over the past few years but the major concern in the

company (as it is also true for the entire industry) has been its working capital management.

Due to large requirement in the working capital, there is always a propensity for the

transmission and distribution companies to go for frequent dilution. Poor working capital

turnover has a negative impact on the margin which as a chain effect, that affects the Return

on Capital Employed (ROCE).

In a scenario (like todays) where the domestic demand is well supplemented by demands

from the outside, KEC International has a huge order-book. As top-line is no longer a major

issue for the company, there has been a continuous effort from the management to strengthen

the bottom line which can only be done with proper flow of cash and utilization resources.

Though Working Capital Management is a huge topic by itself and encompasses cash

management, inventory management, debtor’s management, short term financing and

their various aspects in great depth, this study was primarily focused on better debtor

management by finding the inefficiencies in the billing processes, initiatives that can be

taken to improve the billing process, identify whether the inefficiencies are inherent to the

system or is it a compliance issue and etc.


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LIMITATIONS OF THE PROJECT

The Data has been restricted to available data from secondary data (annual reports,

various journals, Data Sheets, publications etc.)

It is assumed that the bill once prepared reaches the site within two days.

The authenticity of secondary data is subject to errors and omissions.

The delay causes and analysis of the erections bills are based on the information

collected from site personnel on his visit to site and not from the site.


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Working Capital Management: Definition &

Basic Concepts

Introduction

In a perfect world, there would be no necessity for current assets and liabilities

because there would be no uncertainty, no transaction costs, information search costs,

scheduling costs, or production and technology constraints. The unit cost of production

would not vary with the quantity produced. Borrowing and lending rates shall be same.

Capital, labour, and product market shall be perfectly competitive and would reflect all

available information, thus in such an environment, there would be no advantage for

investing in short term assets.

However the world we live is not perfect. It is characterized by considerable amount

of uncertainty regarding the demand, market price, quality and availability of own products

and those of suppliers. These real world circumstances introduce problem’s which

require the necessity of maintaining working capital.

For example, an organization may be faced with an uncertainty regarding availability of

sufficient quantity of crucial imputes in future at reasonable price. This may necessitate the

holding of inventory, current assts. Similarly an organization may be faced with an

uncertainty regarding the level of its future cash flows and insufficient amount of cash may

incur substantial costs. This may necessitate the holding of reserve of short term marketable

securities, again a short term capital asset. In corporate financial management, the term

Working capital management” (net) represents the excess of current assets over current

liabilities.


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1.1 WORKING CAPITAL

In simple words working capital is the excess of current Assets over current

liabilities. Working capital has ordinarily been defined as the excess of current assets over

current liabilities. Working capital is the heart of the business. If it is weak business cannot

proper and survives. It is therefore said the fate of large scale investment in fixed assets is

often determined by a relatively small amount of current assets. As the working capital is

important to the company is important to keep adequate working capital with the company.

Cash is the lifeline of company. If this lifeline deteriorates so does the company’s ability to

fund operation, reinvest do meet capital requirements and payment. Understanding

Company’s cash flow health is essential to making investment decision. A good way to judge

a company’s cash flow prospects is to look at its working capital management. The company

must have adequate working capital as much as needed by the company. It should neither be

excessive or nor inadequate. Excessive working capital cuisses for idle funds laying with the

firm without earning any profit, where as inadequate working capital shows the company

doesn’t have sufficient funds for financing its daily needs working capital management

involves study of the relationship between firm’s current assets and current liabilities. The

goal of working capital management is to ensure that a firm is able to continue its operation.

And that is has sufficient ability to satisfy both maturing short term debt and upcoming

operational expenses. The better a company managers its working capital, the less the

company needs to borrow. Even companies with cash surpluses need to manage working

capital to ensure those surpluses are invested in ways that will generate suitable returns for

investors.

The primary objective of working capital management is to ensure that sufficient cash

is available to”

Meet day to day cash flow needs.

Pay wages and salaries when they fall due


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Pay creditors to ensure continued supplies of goods and services.

Pay government taxation and provider of capital – dividends and

Ensure the long term survival of the business entity.

1.2 Need for working capital

The prime objective of the company is to obtain maximum profit thought the business. The

amount of profit largely depends upon the magnitude of sales. However the sale does not

convert into cash instantaneously. There is always a time gap between sale of goods and

receipt of cash. The time gap between the sales and their actual realization in cash is

technically termed as operating cycle. Additional capital required to have uninterrupted

business operations, and the amount will be locked up in the current assets.

Regular availability of adequate working capital is inevitable for sustained biasness

operations. If the proper fund is not provided for the purpose, the business operations will be

effected. Hence this part of finance is to be managed well.

1.3 Working capital cycle


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Each component of working capital (namely inventory, receivables and payables) has

two dimensions TIME and MONEY. Managing working capital TIME IS MONEY. If you

can get money to move fester around the cycle (collect monies due from debtors more

quickly) or reduce the amount of money tied up (reduce inventory level relative to sales).

The business will generate more cash or it will need to borrow less money to fund working

capital. As a consequence, you could reduce the cost of bank interest or you will have

additional freee4 money available to support addition sales growth or investment. Similarly,

if you can negotiate improved terms with suppliers e.g. get longer credit or an increased

credit limit; you festively create freed finance to help fund future sales.

A perusal of operational cycle reveals that the cash invested in operations are

recycled back in to cash. The shorter the period of operating cycle, the larger will be the

turnover of the funds invested in various purposes.

Receivables

SALES

OVERHEADS

Etc.

PAYABLES

INVENTORY

CASH

Equity & loan


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1.4 Determinants of working capital

Working capital requirements of a concern depends on a number of factors, each of which

should be considered carefully for determining the proper amount of working capital. Some

of them are:

Nature of business

Need for working capital is highly depends on what type of business, the firm in. there are

trading firms, which needs to invest a lot in stocks, ills receivables, liquid cash etc. public

utilities like railways, electricity, etc., need much less inventories and cash. Manufacturing

concerns stands in between these two extends. Working capital requirement for

manufacturing concerns depends on various factors like the products, technologies,

marketing policies.

Production policies

Production policies of the organization effect the working capital requirements very highly.

Seasonal industries, which produces only in specific season requires more working capital.

Some industries which produces round the year but sale mainly done in some special seasons

are also need to keep more working capital.

Size of business

Size of business is another factor to determines the need for working capital

Length of operating cycle.

Operating cycle of the firm also influence the working capital. Longer the operating cycle,

the higher will be the working capital requirement of the organization.


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Credit policy

Companies; follows liberal credit policy needs to keep more working capital with them.

Efficiency of debt collecting machinery is also relevant in this matter. Credit availability

form suppliers also effects the company’s working capital requirements. A company doesn’t

enjoy a liberal credit from its suppliers will have to keep more working capital

Business fluctuation

Cyclical changes in the economy also influence level of working capital. During boom

period, the tendency of management is to pile up inventories of raw materials and finished

goods to avail the advantage of rising prove. This creates demand for more capital. Similarly,

during depression when the prices and demand for manufactured goods. Constantly reduce

the industrial and trading activities show a downward termed. Hence the demand for working

capital is low.

Current asset policies.

A company with conservative assets policy may operate with relatively high level of working

capital than its sales volume. A company pursuing an aggressive amount assets policy

operates with a relatively lower level of working capital.

Fluctuations of supply and seasonal variations

Some companies need to keep large amount of working capital due to their irregular sales

and intermittent supply. Similarly companies using bulky materials also maintain large

reserves’ of raw material inventories. This increases the need of working capital. Some

companies manufacture and sell goods only during certain seasons. Working capital

requirements of such industries will be higher during certain season of such industries period.


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Other factors.

Effective co ordination between production and distribution can reduce the need for working

capital. Transportation and communication means. If developed helps to reduce the working

capital requirement.

1.5 Working capital concepts.

There are two thoughts that are currently accepted about working capital. They are

Gross working capital concept.

Net working capital concept.

Gross working capital concept

This thought says that total investment in current assets is the working capital of the

company. This concept does not consider current liabilities at all. Reasons given for the

concept.

1) When we consider fixed capital as the amount invested in fixed assets. Then the

amount invested in current assets should be considered as working capital.

2) Current asset whatever my be the sources of acquisition, are used in activities related

to day to day operations and their forms keep on changing. Therefore they should be

considered as working capital.

Net working capital


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It is narrow concept of working capital and according to this, current assets minus

current liabilities forms working capital. The excess of current assets over current liabilities

is called as working capital. The reasons for the net working capital method are:

1) The material thing in the long fun is the surplus of current assets over current liability

2) Financial health can easily be judged by with this concept particularly from the view

point of creditors and investors.

3) Excess of current assets over current liabilities represents’ the amount which is not

liable to be returned and which can be relied upon to meet any contingency.

4) Intercompany comparison of financial position may be correctly done particularly

when both the companies have the same amount of current assets.

If the current assets are higher than current liability it is considered the financial position of

the company is sound. If both current assets and liabilities are equal, the company has

resorted to short term funds for financing the working capital and long term sources of funds

have been used to finance the acquisition of fixed assets. It does not indicate the financial

soundness for the company. If the current assets are lesser than current liabilities there is

negative working capital which indicates financial crisis.

1.6 Kinds of working capital

Working capital can be put in two categories:

1) Fixed or permanent working capital and

2) Fluctuating or temporary working capital

Fixed or permanent working capital


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The volume of investment in current assets an change over a period of time. But

always there is minimum level of current assets that must be kept in order to carry on the

business. This is the irreducible minimum amount needed for maintaining the operating

cycle. It is the investment in current assets, which is permanently locked up in the business,

and therefore known as permanent working capital.

Variable/temporary working capital

It is the volume of working capital, which is needed over and above the fixed

working capital in order to meet the unforced market changes and contingencies. In other

words any amount over and about the permanent level of working capital is variable or

fluctuating working capital. This type of working capital is generally financed from short

term souse of finance such as bank credit because this amount is not permanently required

and is usually paid back during off season or after the contingency.

1.7 Sources of working capital


Sources of Fund

Long term funds

Issue of Shares

Retained earnings

Issue of Debentures

Long term debt

Commercial Bank

Public depositsVarious Credits

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The company should meet its working capital needs through both long term and short

term funds. It will be appropriate to meet at least 2/3 of the permanent working capital

equipments form long term sources, whereas the variables working capital should be

financed from short term sources. The working capital financing mix should be designed

in such a way that the overall cost of working capital is the lowest, and the funds are

available on time and for the period they are really required.

1.8 Adequate working capital

The term adequate working capital refuters to the amount of working capital to be kept with

the organization to met its daily operations. Large investments in fixed assets are not

sufficient to run a business successfully. Adequate working capital is equally important.

Without working capita fixed assets are like a gun, which cannot shoot, as there are no

cartridges.

1.8 (a) Advantages of adequate working capital

Adequate working capital provides certain benefits to the company they are:

Increase in debt capacity and goodwill


Short term funds

Reserves and other funds

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Increase in production inefficiency

Exploitation of favorable opportunities

Meeting contingencies adverse changes:

Available cash discount

Solvency and efficiency fixed assets.

Attractive dividend to shareholders

1.8 (b) Dangers of inadequate working capital

Having inadequate working capital les to so many of dangers as it doesn’t fulfill its

purpose. Some are given below:

Loss of goodwill and creditworthiness

Firm can’t make use of favorable opportunities

Adverse effects of credit opportunities

Operational inefficiencies

Effects on financial capacity

Non achievement of profit target

1.9 Dangers of redundant working capital

As the inadequate working capital is dangerous to the firm, redundant working capital

also brings hazardous condition in to the company. Let us discuss the dangers of

redundant working capital to the company.

Low rate of return on capital

Decline in capital and efficiency


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Loss of goodwill and confidence.

Evils of over capitalization

Destruction of turnover ratio

It is evident from the foregoing discussion that a company must have adequate working

capital pursuant to its requirements. It should neither be excessive not inadequate. Both

situations are dangerous. While inadequate working capital adversely affects the business

operations and profitability. Excessive working capital remains idle and earns no profits

for the company. So company must assure its working capital is adequate for its

operations.

1.10 Blueprint for a good working capital management policy

General action

Have a set planning standard for stock days. Debtor days and creditors days.

Action on stocks

Keep stock levels as low as possible, consistent with not running out of stock and

not ordering stock in uneconomically small quantities. “Just in time” stock

management is fine, as long as it is “just in time” and never fails to deliver on

time.


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Action on debtors /customers

Assess ALL significant new customers for their ability to pay. Take references,

examine account, and ask around. Try not to take on new customers who would

be poor payers.

Action on creditors

Do NOT pay invoices too early take advantage of credit offered by suppliers it’s

free!!

ESTIMATION OF WORKING CAPITAL MANGEMENT

As discussed above a number of factors are responsible for determining the amount of

working capital required by a firm. The various methods/ technique used in assessment of

firm’s working capital requirements are:

Estimation of components of working capital method.

This method is based on the basic definition of working capitalizes, excess of current

assets over the current liabilities.

Percent sales method


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This is the most simple and widely used method in combination with other scientific

methods. According to this method a ratio is determined for estimating the future

working capital requirement. This is the generally based on the past experience of

management as the ratio varies from industry to industry. For example if the past

experience shows that the amount of working capital has been 20% of sales and

projected amount of sales for the next year is Rs 10 lakes, the required amount of

working capital shall be Rs Two lakh.

Operating cycle approach

o The need of working capital arises mainly because of them gap between the

production of goods and their actual realization after sales. This gap is

technically referred as the “operating cycle” or the “cash cycle” of the

business. If it were possible to complete the entire job instantaneously, there

would be no need for current asset (working capital). But since it is not

possible, every business organization is forced to have current asset and hence

operating cycle. It may be divided into four stages.

Raw materials and stores storage space.

Work in process stage.

Finished goods inventory stage.

Debtor’s collection stage,

Duration of operating cycle

The duration of the operating cycle is equal to sum of the duration of these stages less

the credit period allowed by the suppliers of the firm. In symbol

OC= R+W+F+D—C

WHERE

OC= Duration of the Operating Cycle


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R= Raw materials and storage space periods

W= work in process periods.

F= finished goods storage periods

D= debtor collection period

C= Creditors collection period.

The component of the operating cycles has already been calculated in “ratio

Analysis” which is as follow.

R = Average stock of raw material

---------------------------------

Average raw material consumption per day

S = Average stock of stores

---------------------------------------------

Average stores consumption per day

W = Average work in process inventory

---------------------------------------------------

Average cost of production per day

D = Average book debts

---------------------------------------------------

Average credit sales per day

C = ` Average trade credit

----------------------------------------------------

Average trade credit purchase per day


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Chapter 2

Organization

Profile



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RPG Group of Companies

RPG Enterprises is one of the India’s largest business conglomerates with a turnover

close to US$ 3 billion. Since its inception in 1979, RPG Enterprises has been one of the

fastest growing groups in India with more than 20 companies operating successfully in

six business sectors power, types, transmission, technology, retail, entertainment. The

group have over 40,000 employees and over 4, 00,000 shareholders. RPG Enterprises is

an exciting place to work, where excellence performance and entrepreneurship are

valued.

VISION

Vision of the group is to focus on market capitalization through:

Leadership in profitability and revenue growth in our chosen business.

Being a customer centric organization.

Being the most exciting workplace.

Pillars of RPG

Three pillars of the group are Respond, Perform and Grow. These pillars

imply:

Respond to business opportunities and harness the finest resources.

Perform by inspiring people to come together and work as a team.

Grow to be successful.


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History of RPG

1979: Mr. Rama Prasad Goenka starts RPG Enterprises with Phillips Carbon Black,

Asian Cables, Agarpara Jute and Murphy India.

1980’s: The 80s see further acquisitions by the RPG group. First being CEAT Tyres of

India in 1981. The group then went on to acquire KEC (1982); Searle India, now RPG

Life Sciences (1983); Dunlop (1984); HMV (1988); and finally CESC, Harrisons

Malayalam, Spencer & Co. and ICIM in 1989.

1990: RP Goenka’s sons Harsh (Chairman) and Sanjeev (Vice-Chairman) spearhead the

group’s management from 1990.

RP Goenka currently oversees the group’s affairs as “Chairman Emeritus”. Today, RPG

has more than twenty companies across seven business sectors, with a turnover nearing

USD$ 3 billion.


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Companies under RPG Group

Transmission – 24%

Power – 22%

Information Technology – 6%

Retail – 11%


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Entertainment – 1%

Tyres – 21%

Carbon Black – 9%

Specialty – 5%


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Transmission Sector

Expansion of power transmission and distribution (T&D) capacity in India has fuelled growth of the

power T&D EPC industry in the last two years of the Tenth Plan period (FY02-07); growth in the

power T&D EPC industry was below average in the initial years of the Tenth Plan period.

Fortunes of the power T&D EPC industry are governed by the capacity expansion plans of Power

Grid Corporation of India (PGCIL) to a large extent, as it is the central transmission utility in India.

PGCIL added more than twice the transmission capacity in FY07 compared to FY03, which has

directed the revenue growth pattern of the industry.

Historical Growth and EBITDA Growth

Average FY2001-04 Average FY2005-07

Company Revenues growth

(%)

EBITDA Growth

(%)

Revenues growth

(%)

EBITDA Growth

(%)

Kalptaru Power

Transmission

29.4 27.0 67.8 104.5

KEC International 15.8 NM 28.8 45.1

Jyoti Structures 4.1 0.4 51.2 74.8

From FY05 onwards, the industry started posting robust growth with Kalpataru Power Transmission

(KPP) posting a revenue growth of ~81%, KEC (KECI) of ~18%, and Jyoti Structures (JYS) of ~39%

in FY07.

Historically, activity levels are much higher in the later years of five year plans. PGCIL is likely to

invest INR 65 bn in FY08E (~INR 20 bn in Q4FY08E), ~INR 85 bn in FY09E, and ~INR 300 bn

from FY10-12E to upgrade India’s power transmission network. Hence, in the Eleventh Plan period,

we are likely to see heightened activity in the sector in FY11E and FY12E.


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Besides PGCIL, Damodar Valley Corporation (DVC) and various state electricity boards (SEBs) also

undertake transmission capacity expansion in India. However, their plans are less dependable than

PGCIL’s, as most of the SEBs is crunched for funds. Further, their poor payment record does not

make them preferred customers.

Besides transmission projects initiated by PGCIL and others, power T&D EPC companies are also

present in power distribution up-gradation projects for which the nodal agencies are Power Finance

Corporation (PFC) and Rural Electrification Corporation (REC). Also, some distribution up-gradation

projects are initiated by SEBs. The outlay for distribution up-gradation projects is ~INR 800 bn,

equally divided between rural electrification (Rajeev Gandhi Grameen Viduytikaran Yojana) and

Accelerated Power Development Reform Program.

While power transmission EPC primarily involves transmission lines and substations, power

distribution EPC entails strengthening of the distribution network. Transmission lines entail tower

and conductor supplies, civil construction, engineering, and testing. Substation projects include

procurement of electrical equipment, civil construction, engineering and testing.


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KEC International Ltd.

Introduction

KEC International is one of the largest Power Transmission EPC companies in the

world. KEC has made an indelible mark on the world map by constantly and consistently re-

engineering itself to retain its position of leadership in the areas of quality, technology,

capacity and capability. KEC's strengths lie in the areas of Design, Manufacture, supply and

Construction of Turnkey Projects of Power Transmission lines of voltages up to 800 KV and

in the execution of Railway Electrification projects, setting up Sub-stations and power

Distribution Networks, Optical Fiber Cable (OPGW) installations, Turnkey Telecom

Infrastructure Services and maintenance of Power Transmission Lines.

KEC has gone from strength to strength successfully exporting towers to over 20 countries

and widening its client base across the world. The company has an increasingly strong

presence in Argentina, Brazil, Canada, Egypt, Ethiopia, Ghana, India, Indonesia, Iran, Iraq,

Kenya, Kuwait, Lebanon, Malaysia, New Zealand, Nepal, Nigeria, Philippines, South Africa,

Sri Lanka, Saudi Arabia, Sudan, Syria, Thailand, Tunisia, USA, UAE and Vietnam.

Vision:

To be a global leader in Power Transmission EPC business and a significant player in

other related businesses, providing superior value to all stakeholders.

Mission:

To be a global player in the power transmission and distribution industries.


2009


To meet customers’ requirements in terms of quality and time.

To employ state of the art technology and instutionalize processes and to be the most

cost effective contraction and manufacturing company.

To providing a challenging and fulfilling work culture to employees.

History

Established in 1945 as Kamani Engineering Corporation for manufacturing,

enameling and trading of Hollowware.

In 1950 fabrication plant started in Bombay in collaboration with Ms R Foures,

France for supply Bhankra Nangal Dam Project and transmission projects.

In 1960, first international order was received from New Zealand.

Railway Electrification department set up. First Indian company to get the order of

railway electrical of south eastern railways in 1961.

In 1966 second manufacturing plant in Jaipur was started.

In 1968, full turnkey project was awarded to design manufacturing, supply and erect

transmission line in Sudan.

In 1969 government of India recognized it as the Export house.

After taken over by RPG groups in 1982, company inaugurated tower testing station

at Vashi, Mumbai in 1983. This was the largest in the country and third of its kind in

the world.

In 1984 name changed to KEC International limited and in 1987 turnover of the

company crosses Rs. 100 crores.


2009


In 1996, third manufacturing plant in Nagpur was setup.

In 2007, RPG Transmission Ltd. and NITEL merged with KEC International.

Telecom business was also started in this year.

KEC’s Background:

One of the leading Power Transmission EPC companies and the largest power

transmission company in Asia

A more than 60 year old company with expertise in:

o Design, manufacture, supply and construction of Power

o Transmission projects up to 800 KV.

o Execution of Railway Electrification projects.

o Setting up Sub-stations and power Distribution Networks.

o Optical Fibre Cable (OPGW) installations

o Turnkey Telecom Infrastructure Services

Manufacturing plants at Jaipur, Nagpur, Jabalpur and Associated plants at Nagpur &

Tarapur

Plants, specifically designed for towers and structural, production are capable of

producing all types of Tower structures


2009


All three plants have ISO 9001 & ISO 14001 certifications. Nagpur plant is certified

for OHSAS 18001

Supplied over 2 million metric tons of towers till date, for constructing over 53,000

kms of transmission lines globally.

Team KEC International Ltd.

R. D. Chandak(Managing Director) Vardhan V Dharkar(CFO)

Mr Chandak is the most well known figure in Mr. Dharker is a CA with rich exper-

the power transmission EPC space in India. He -ience in finance. Associated with KEC

has been associated with textile, edible oil and International since 2007.

Engineering Industries.

Anant Goenka(ED-Supply Chain) K Ramkumar(V

President)Special Projects

Mr. Goenka holds a good experience with Mr. Ram Kumar brings with him 30 years of

HUL, Accenture Mumbai, & Morgan Stanley experience across precision manufacturing,

Hong Kong. Associated with KEC International Consumer Durables & Project Management

since 2007. Industries. Associated with KEC since 1993.


2009


Deepak Lakhpati (VP) Eng. Services Vimal Kejeriwal(Ex.

Director)Int. Business

Dr. Lakhapati brings with him 33 years of Mr. Kejriwal is a CA. He has more than

experience in engineering transmission lines two decades of experience in corporate

across the globe. As a member of CIGRE, Paris, finance. Joined KEC in 2002 as CFO and

he is associated with KEC since 1998. was elevated to Ex Director, IB in 2006.

Some Salient Points of KEC Business

model:

KEC International has a distinct business model as compared to its competitors in the

industry. The salient points of its business models and key competitive advantage are as

follows:

Play on global power T&D EPC space

Substantial investments have been planned in emerging markets, primarily Africa and

Middle East, in the power T&D EPC space. KEC International (KECI), with significant


2009


presence in Africa, Central Asia, and the Middle East, apart from India, is likely to be one of

the beneficiaries of the global power T&D expansion.

Strong project management capabilities

KECI has executed projects in diverse terrains—across Kazakhstan, Saudi Arabia, Iraq, and

Afghanistan. While this kind of project profile does raise the risk profile of the business, we

believe, over the years, KECI has acquired the necessary skills to manage projects in difficult

terrains. It is currently working on ~60 projects simultaneously, which denotes its superior

project management capabilities.

Diversifying into EPC for railways

In the Eleventh Plan, Indian Railways has an ~INR 430 bn outlay for expanding capacity.

KECI has pre qualifications from Indian Railways as the company was earlier been involved

in setting up infrastructure for it. KECI has recently bagged two railway electrification

projects from Northern and Central Railways. We believe entry into EPC for railways is

likely to further raise revenue visibility for the company.

Upside from telecom business

Merger with NITEL gives KECI presence in the high-growth telecom towers market.

NITEL provides EPC solutions in building communication networks and owns 384 telecom

towers in four clusters of Mizoram, Meghalaya, and Chattisgarh. Simply put, it is a play on

telecom infrastructure in India.

Aggressive order accretion

In the past two quarters, KECI has had a higher order accretion than peers. This can be

attributed to the company’s significant presence in international markets compared to peers,


2009


who are more active in the domestic market. Higher order accretion lends KECI higher

revenue visibility compared to JYS and KPP.

Major Risks:

Economic Slowdown

The infrastructure spending by the government is the most important key to economic

growth.

However economic slowdown would lead to government funds being diverted towards

priority sectors such as social services which could adversely affect spending on power.


2009


Competition

With the rapidly expanding Indian market presenting a host of opportunities, there are many

players who are venturing in this business. In addition there is a threat from the unorganized

players to capture a minor share of the market as these players have low overhead they put

pressure on margin (18-20 active players)

Political Scenario

Every year the political scenario keeps changes. During the course of project if the

government changes there is a possibility of changes in rules and regulations and delay in

public policy adversely affecting the projects.

Delay in Contracts execution

EPC contracts accounting generally follows a percentage completion method, where the

revenue is proportional to the percentage of the contracts being executed. The delays in the

completion of the contracts could affect top line growth, delaying revenue booking.

Commodity Risk

Increase or decrease in price of raw materials is generally passed on to the client. Since little

these price variation over last year has been significant it has put a huge pressure on margins.

Currency Risk


2009


Some contracts being partly compensated in local currency of the respective countries, any

significant movement in exchange rate leads to currency risk thereby imparting the margins

for KEC.

Shortfall in meeting FIVE year plan targets

GOP could complete only 56% of 10th five year plan target of 41000 MW.11th plan target has

been increased to 76000 MW. It is feared that there may be a shortfall of funds to the extent

of Rs 45000 crs if target have to be met.

Plans for Future

Consolidation in business - Enhances KEC’s resource base, service offerings and

geographical reach.


2009


Cost efficiency – Achieve cost synergies through rationalization of administrative

functions. Pursue operational synergies in project management, asset management,

equipment and workforce utilization and procurement cost savings.

Increase presence in the international market by looking into newer markets.

Commercial benefits - Largest manufacturing capacity in world for transmission and

telecom towers

Continuously improve in design capability through continuous focus of R&D.

Industry trends - Optimally positions KEC to take advantage of positive industry trends

Diversification into high growth telecom infrastructure business

Create share holder values.

KEC International Ltd., Jaipur

In 1982 Kamani Engineering Corporation was taken over by RPG Groups and in

1984 it was renamed to KEC International Ltd. In Jaipur it was established in 1985. It


2009


is situated in 14 -15, Jhotwara Ind. Area; Jaipur, Rajasthan with a factory area of 47

acres. The major activities at jaipur plant are Proto finalization, Tower testing and

Manufacturing of tower parts with a capital investment of 13 million US$. The

current manpower consists of 89 Managers, 40 Supervisors, 295 Workmen and 103

Contractor approximately.

TEAM KEC JAIPUR

Rajesh Koolwal - Chief Manager

D S Shekhawat - Div. Manager – Material

- Sr. Manager Production

C M Sharma - Sr. Manager – Plant Engg.

Rohit Jhalani - Sr. Manager Projects

S S Naruka - Sr. Manager - IT

M C Dixit - Manager - Galvanizing

Manish Agarwal - Manager – Procurement

Atul Agarwal - Manager – F & Accounts

R C Saxena - Manager - HR

- Manager – Quality Assurance

R M Gupta - Manager – Material Mgmt.

KEY STRENGTH OF JAIPUR WORKS


2009


Fabrication Process


2009


Galvanizing Process


2009



2009



2009


FINANCE & ACCOUNTS

The term finance and accounts is totally different. Finance is the arrangement of the funds for

the smooth running operations of the organizations whereas Accounts is the bookkeeping or

keeping record of funds for the organizations. Accounts provide a good platform for the

organizations in taking decisions and in maintaining cash. In each every organization both of

them plays a role of heart i.e. central control of the organization. It controls and checks the

outgoing and incoming transactions and provides a good worth to the companies. In the

KECIL the finance part is only of 5%and accounts portion is of 95%. While rest part of the

finance is being handled and overall control by Mumbai Head-office.

Finance /Accounts

Audit

Budgeting Taxation

MIS Information System

Payroll Billing


2009


Objectives of Finance & Accounts

100% statutory payment compliances on scheduled dates.

Timely & error free payments to employees.

A/R Bills submission to customers-2 days on getting – full set of documents.

Cost reduction through feedback to all concerned over previous year.

Prompt and proper response to all internal and external customers and processing of

supplies bills before due dates for timely payment.

Finalization of Accounts

Monthly with 5 days

Quarterly within- 10 days.

Annual within 15 days

Preparation & submission of all types of reports & returns to corporate & various

government departments on scheduled dates.

Prompt response to corporate office & other unit offices of KECIL.


2009


MAIN INPUTS/ OUTPUTS TO THE

ACCOUNTS & FINANCE

DEPARTMENT

INPUTS

Production Management Dept- Production, Dispatch, Inventories Data.

Purchase/General Stores- Consumer Bills, P.O, GRN

Mass Production- Purchase Order of Steel & Zinc

Raw Yard- Steel received GRN

Finished Yard- third Party Fabricator (GRN), Dispatch Advice Note

Time Office- Attendance Records

OUTPUTS

Payments to Suppliers

Maintaining The Financial Records


2009


Statutory Compliance [Sale Tax, Income tax, P.F, ESIC (Employees State Insurance

Corporation), Excise Duty, Service tax, TDS].

Employees Salaries & Wages.

Domestic Billing

Functional Areas Covered By Finance &

Account Department

ACCOUNTS /FINANCE

COMMERCIALS

BUDGET/MIS

PAYROLL

TAXATION

AUDIT

BILLING

At Jaipur only 5% of Finance part is being taking place and rest of the responsibilities is

being taking care by the Mumbai Head Office. They provide Jaipur KECIL sufficient funds

as they give the requirements.


2009


FINANCIAL PERFORMANCE

Financial year 2008-2009 was a year of challenges and uncertainty for businesses across

various segments of industries, with the financial crises, volatile commodity prices, sharp

movements in the currency, crashing stock market and server liquidity crises. KEC was also

not insulated from the above changes, even though the company continued its focus on

delivering quality products and services on time with prudent project execution and

management of resources.

Prominent workforce and management resulted in achieving a net turnover of Rs

3427.39 crores and net profit Rs 116.29 crores in the current financial year, against

net turnover of Rs 2814.47 crores and net profit of Rs 172.16 crores in 2007-08.

The EBITDA is 8.77% as against 12.60% in last year. The EPS in the current

financial year is Rs 23.57 as against Rs 39.56 in 2007-08.

During the year operation performance of the company has generated a positive net

cash flow of the Rs 369.80 crores as against Rs. 4.34 crores in the previous year.

Debt equity ratio has improved to 1.11:1 as compare to 1.20:1 during the previous

year.


2009


As on 31 March the aggregated paid up equity shares capital of the co. consisted of

for 93,44,606 equity shares of Rs. 49.34 crores.

As of July 15th 2009, the market price of share in BSE 406 & NSE 404.35

Total expenditure in R&D was 202.48 lakhs, approximately .06% of total turnover.

Total Foreign exchange earned Rs 2,11,721.76 lakhs and used Rs 140586.88 lakhs in

2008-09.

FINANCIAL STATEMENT

Rs in Crores

For the year ended 31st March 09

For the year ended 31st March 08

Gross Sales 3,481.34 2,853.88EBITDA 300.57 354.57Interest 99.98 67.65Profit before Non-Cash items/Tax

200.59 286.92

Depreciation and Amortization 22.75 25.07Profit before tax 177.84 261.85Provision for taxation 61.55 89.69Profit after taxation 116.29 172.16Appropriations:Balance as per last account 239.45 117.25Capital redemption Reserve 10.40 3.88Transfer to general Reserve 11.63 17.22Proposed dividend 24.67 24.67Tax Dividend 4.19 4.19Balance transferred to balance sheet

304.85 239.49

Categories of Shareholders as on 31 st March 2009


2009


Category No. of Shares held Percent of Shareholdings

Promoters 2,06,04,739 41.76Mutual Funds /UTI 1,56,49,578 31.71Financial Institutions, Insurance Companies and banks including (Foreign Banks)

30,80,352 6.24

Foreign institutional investors 24,00,880 4.87General public 57,42,158 11.62NRI & Foreign Companies 2,07,833 0.42Other Companies 14,99,153 3.04Clearing Members 1,22,732 0.25Director and Relatives 37,001 0.07Total 4,93,44,606 100.00

Shareholders as on 31 st March 2009


2009


Performance of KEC

International Ltd.


2009


Performance of KEC International,

Jaipur


2009


Investment Highlights

Strong order book gives the growth visibility in long run


2009


KEC has a strong order book of Rs 51.63 bn which is 1.5x FY09 net sales and has grown at

23% over last year’s order backlog. The fresh order intake in FY09 has grown at little lower

rate of 9.4% over last year. But with the easing liquidity scenario, the expenditure for the

11th FYP is expected to pick up its pace. We expect the order backlog to grow 24.2% in

FY09-11E. The growth would be driven by new order inflows from T&D space and the new

areas such as telecom and railways. Strong order inflows are expected in telecom segment.

Order book from domestic market picking up

The first three quarters of FY09 has seen lower order inflows from PGCIL. But in Q4FY09

the order inflows witnessed a rising trend with KEC bagging over Rs 1.02 bn of orders from

PGCIL. As a result contribution of domestic order book increased to 50% in FY09 as against

30% in the last year. The order visibility from domestic market is expected to remain robust

in FY10E also as PGCIL targets to spend Rs 120 bn in the year and Rs 280 bn in FY11-

FY12. With this Rs 60 bn of transmission lines tenders is expected from PGCIL in FY10E.


2009


Further order inflows are expected from state utilities as they are coming up with the

investments in 400KV transmission lines.

Diversifying business mix with telecom and railways infrastructure

KEC is diversifying its business mix by targeting other infrastructure space like telecom and

railways. In FY09 these segments contributed merely 6.2% to the revenue and contribution is

expected to increase as the segment has immense growth opportunity.

Targeting asset ownership in telecom space on BOO basis

India has low telecom density of below 20% and the telecom sector is expected to be on high

growth path on increasing subscriber base. To meet the capacity and coverage requirement,

the telecom infrastructure would also be ramped up from current 120000 towers to 270000

towers in the next three years. KEC is targeting large BSNL tenders for setting up telecom

infrastructure. It is also looking at international opportunity in telecom space in Africa and

South East Asia. KEC merged NITEL in 2007 which had bagged orders worth Rs1bn from

USO Fund for setting up about 400 telecom towers on BOO basis in India.


2009


Expanding horizon in railways projects

KEC is currently carrying out railways electrification project. Going forward KEC plans to

target new areas like track laying and signaling.


2009

Chapter 3

Data Analysis



2009


Types of Bills in KEC:

A typical transmission tower project can be sub-divided into two major parts.

i) Supply of the tower material and its accessories

ii) Erection of the towers.

The supply contracts generally include the fabrication, galvanizing and supply of various

type of tower & tower parts, tower extensions, stubs, hangers, D-Shackles, pack washers,

bolts and nuts, cleats, earthing and various other tower and line accessory materials for

aviation requirements, wind measuring equipments, and etc.

KEC International has a distinct business model. It manufactures and galvanizes only the

tower materials at its three factories at Jaipur, Butibourri and Jabalpur and outsources the

tower and line accessories to various small and medium sub-vendors.

The bills generated by the factories towards the materials manufactured, galvanized and

supplied from the three factories are known as supply bills. The bills are generated by the

factories and sent to the site for approval of the client before payment realization.

The bills generated by the sub-vendors for the manufacturing, galvanizing and supply of

tower accessories and line accessories are known as bought out bills.


2009


The third kind of bill is known as erection bill and generated at the site and encompasses

activities like survey (both detailed survey and check survey), soil investigation, constructing

the tower foundations (excavation of soil, concreting, supply and reinforcement of placement

steel, transportation and installation of stub including bolts and nuts), benching protection of

tower footings, transportation and installation of earthing of towers, transportation and

installation of the following tower accessories (like danger plate, number plate, phase cut,

circuit plate, anti-climbing device, bird guard), transportation of GS Earthwire, hardware

fittings and etc.

Supply bills are generated once the client issues the MICC, erection bills are generated as

soon as the JMC s are be obtained.

From the above diagram it is evident that there are bills have been broadly classified under

two heads.

i) The progress bills are those bills which are raised as and when the work is completed

ii) The price variation bills are those bills those are raised to compensate for the

escalation.

Say the contracts are floated on Jan1, 2006 and the contractor bids for the tender based on the

current value that is as the prices in January.

However the when the contract is executed say during June 2008 already thirty months have

passed and the prices of petrol, diesel, steel, cement, labour and zinc( used for galvanizing)

increases due to inflation. To compensate for this increase in price of steel, cement, labour,

zinc and petrol/diesel, there is a provision of price variation bills.

Like progress bills, price variation bills also have three components namely supply bills,

erection bills and bought out bills.


2009


We will cover and analyze the inefficiencies in the individual billing cycle later.

Every billing process requires some documents to be enclosed with the original bills for

client approval and payment process. Missing enclosures are the biggest contributor to the

delay in the billing process. It was one of my deliverables to create a checklist of all the

enclosures so which can be sent at sites and factories and so as to minimize the delay due to

missing enclosure.


2009


Brief Definition of the Bills

Supply Bills:

Supply Bills are generated at the factories at Butibori, Jaipur, and

Jabalpur of the tower materials like the tower members, stubs and etc. All the factories

generate progress supply bills but only Butibori factory generate the price variation bills.

Before we dig deep into the supply billing process let us jot down the enclosures that we

must submit with the supply bills. The enclosures with the supply billing process are as

follows:

MICC/CIP

Dispatch Note/Packing List

Guarantee Certificate

Insurance Certificate

Receipted L/R

Invoice Original/ Excise Invoice

TCC Certificate

Commercial Invoice

MRC Certificate


2009


MRHOV Certificate

FLOW CHART REPRESENTATION OF

SUPPLY BILLS

Approves the bill & clears the bill

After material dispatch the bill isprepared and the following docsare enclosed( dispatch note+Insurance Certificate+ GuaranteeCertificate+ Tax Invoice+ ExciseInvoice + MICC + CIP)

After the material reaches the site,they are unloaded and stacked. Client checks the bills, annexure and the Client issues the MRC & MRHOV enclosures and sends the bill/bills forCertificate which are enclosed with payment to Regional HQthe bills along with the LRCertificates


KEC FactoryKEC Factory

KEC Site OfficeKEC Site Office

KEC H.O.KEC H.O.

Client Site OfficeClient Site Office

Client Regional H.O.Client Regional H.O.

2009


Inefficiencies in the Supply Billing Cycle:

Let us cite some MICC wise bill details from N-97 contract and through that we can identify

the inefficiency.

Contract

No.

Bill No. MICC

No.

E.CIP L.CIP MICC

Date

Bill

Date

Bill

Receiving

Date

Payment

Realized

N-97 1,3 36307 2Dec08 24Dec08 26Dec08 26Dec08 28Dec08 19Feb09

5,6 36905 18Dec08 15Jan09 31Jan09 31Jan09 02Feb09 28feb09

8,9 37057 18Dec08 25Jan09 06Feb09 13Feb09 15Feb09 27Feb09

28,29 37358 18Dec08 06Feb09 23Feb09 28Mar09 30Mar09 31Mar09

19,20 37540 18Dec08 23Feb09 03Mar09 25Mar09 27Mar09 30Mar09

30,31,32 38113 14th Jan 09 06Mar09 24Mar09 25Mar09 28Mar09 31Mar09

From the above table we have categorized the total billing cycle in five stages. The first stage

is the period between the date at which the first CIP was issued and the last CIP was issued

under a particular MICC. The second stage is the period between the last CIP issued and the

date on which the MICC certificate was issued. The third stage represents the period between

the date on which MICC was issued and the Bill was raised. Though at the site the date of

receiving the bill is not registered but on an average it has been assumed that the bill takes

two days to reach the site after being dispatched from the factory. The fourth stage depicts

the proportion of time that the bills take in reaching the site from the factory. The fifth stage

is the payment realized stage, i.e. payment received by the company.


2009


Some Major Questions Unanswered:

Looking at the above table one can observe that the total time between the date of

issuance of the last CIP and the date of issuance of MICC certificates are 16, 13, 17,

8, 18 days respectively. Technically the client should be issuing the MICC certificate

on the same day or within one or two day from the date of issuance of CIP.

Again the period between the day on which the first CIP under that particular MICC

was issued and the day on which the last CIP was issued is a major area of concern.

For example as per MICC No. 2009-3118 and MICC No. 2009-37358 the stage 1

seems to be 50 days. If we look at the following pie charts

As per MICC No. 2009-38113


2009


Stage 1 seems to be the most extended one. In case of MICC No.38113 stage 1 seems to be a

staggering 50 days or 68% of the total 75 days. In case of MICC No. 37358, the number of

days between the first CIP and the last CIP is 50 days or 49 % of the total cycle time.

As per MICC No. 2009-37358


2009


Numerical Analysis of Loss as per Supply Bill No: 30 of N-97 Contract:

Bill Value = Rs.1,81,13,474

Earliest CIP Date= 23/1/09

Latest CIP Date= 6/3/09

MICC Date= 24/3/09

CIP Delayed Time = 42days

MICC Delayed Time = 18 days

Considering that the ideal CIP Date= 30 days and MICC Date = 4 days

And 10% as the rate of interest;

We get interest loss per day = (18113474 * 0.1)/365 = Rs 4963

As there had been an excess time taken to get the last CIP hence loss incurred = (12*4963) =

Rs 59544

And there had been an excess time taken to get the MICC hence the loss incurred = (14*4963) =

Rs 69842

So when the two losses are coupled together the opportunity lost = (59544 + 69842) =

Rs 129386

As we can see that supply forms the biggest portion of the revenues hence a delay in supply bills has much more detrimental effect than anticipated.


2009


Erection Bills:

Erection Bills are generated by the site and generally includes heads like survey, foundation,

erection, supply and placement of reinforcement steel, soil investigation and etc.

Enclosures with the erection bills:

Original Bills & Annexure

Joint Measurement Certificate

Measurement Book

Abstract Book


2009


FLOW CHART FOR ERECTION BILLS

Bill forwarded to the DGM (1day)

DGM marks the bill and forwards it to the manager (3days)

Manager marks the bill and forwards it to the site engineer (2days) Manager receives

Site engineer checks the bills, the enclosures & sends the signed bill to the manager (transit time=2 days)

Manager signs the bill & forwards the bill to the DGM (2 days)

DGM approves the bill (2days) + Transit by Courier or reserved post ( 2days)


Bill is prepared

Fin Dept. receives the signed & approved bill

DGM receives the signed bill

Manager receives the signed bill

Site engineer receives the bill

DGM receives the Bill

Manager receives the bill

Erection Billing CycleTime = 30days

Assuming 2 Saturdays&2 Sundays in a billing cycle

2009


The bills remain in queue(5days) + checking the bills and approving the bills(3days)

The Joint Measurement Certificate is the common measurement taken by the site engineer of

the client and the site engineer of KEC. JMCs are issued after major activities. Once the site

JMC is obtained then it is approved by the head of the department, in most cases the DGM

and countered signed by the authorized signatory of KEC.

All the measurements approved by the client are then filled in a measurement book.

Measurement books are filled once a month and the quantities are updated each month and

the cumulative quantity is added monitored. Measurement books can run into pages as all the

items in the bills have to be filled in since the starting of the project. For example, even if

there is no work under foundation head in a particular month and the same item has been

done and noted in any of the previous month hence the up to date quantity under the

foundation head has to be entered in the Measurement Book.

As measurement books are generally lengthy and runs into pages hence a synopsis of the

measurement book is prepared which is known as abstract book. Both measurement books

and abstract books are client’s document but are generally filled up by the contractor’s

representative and then verified and approved by the client.

But the quantity mentioned in measurement books and abstract books are sometimes with

held for certain reasons, or their might be some error in the calculation by the KEC personnel

or incase the quantity exceeds the quantity mentioned in the LOA and therefore the client

manager restricts the with held or restricted quantity and issues a payment advice note for the

finance department.


Releases the payment

2009


All the enclosed documents are absolute mandatory documents to be enclosed with the

erection bills.

Marking Process:

As shown in the flow chart after the bill is prepared it is initially sent to the DGM of the

client who then marks the name of the manager who would look in to the bill and assign the

name of the site engineer. Once the manager receives the bill from the DGM, he marks the

name of the engineer on the bill and forwards it to the respective engineer. The site engineer

on the client side receives the bill, checks it alongside the enclosures. After verifying he signs

and approves the bill and forwards it to the manager. The manager again rechecks the bill

and the enclosures and after his approval the bill reaches the DGM. After getting approval

from the DGM then only the bills are forwarded to the finance department for the approval

and payment process. This entire marking and the reverse marking process on an average

eats up around 15-16 days which should have been ideally been completed within 4-5 days.

But as this is a client system hence this process is more of a compliance issue.

FLOW CHART OF MARKING PROCESS

Bill Preparation & Forwarding (1day)


KECOffice

KECOffice

Client DGMClient DGM Client Mgr.Client Mgr.

Client Site Engg

Client Site Engg

Client MgrClient MgrClientDGM

ClientDGM

Total No. of days

16

Total No. of days

16

Marking &Forwarding the

Bill (3days)

Marking &Forwarding the

Bill(3days)

Checking Bills, Enclosures, Signing, Forwarding (4days)

Signing & Forwarding the

Bill (3days)

2009


Major Causes of Delay at Site:

Delay in obtaining JMC:

Generally the JMC should be signed by the client at the time of taking measurement

but the JMCs are generally signed after completion of all the works for a particular

tower. The major conflict takes place between the client and the contractor in terms of

the state of the soil strata encountered during excavation for the tower foundation.

This conflict arises as there are different rates for different types of soil strata. Say,

for example in project N-36, the unit rate of excavation in dry soil is Rs.141 per cum,

Rs.195 for Wet soil, Rs.510 for dry fissured rock and Rs. 1176 for hard rock.

Marking System:

Marking system as mentioned earlier eats up 15-16 days. The DGM, manager and the

site engineer are unavailable for signing and approving the bills and this causes the

main delay in the marking process.

Abstract Book and Measurement Books do not reach site at time:


Client R.H.QClient R.H.Q

Client R.H.QClient R.H.Q KEC H.OKEC H.O

Signing the approved

bill(2days)

Awaited in the queue (5days)

+ Bill Processing (3days)

2009


The abstract books and the measurement books seldom reach site from the client

finance department once it has been put up for approval and payment realization. This

problem generally occurs incase of the Price variation Bills.

Enclosures & Test Reports:

Though there are fewer enclosures with erection bills as compared to the supply and

the boughtout bills, but the client can ask for various other test reports and documents

such as quality plan documents, metal reconciliation, manufacturer’s test report, test

report of re-bars, test report of cement and etc. If we cannot produce those documents

immediately the billing approval process gets delayed.

Bill Processing:

When the bills finally reach the finance department for final checking and approval

they are processed in a queued manner. The person entrusted with the responsibility

of checking and approving the bill might be looking after bills of several companies

and hence the processes the bills in first cum first served manner.

Unavailability of client representative:

It has been one of the major complains from the site billing personnel that often the

signatory authority from the client’s side is unavailable for signing the crucial

documents. This might happen during the marking process or the reverse marking

process.

Quantity Amendment:

Quantity amendment is a major cause of delay in the billing process. If the quantity of

a bill exceeds the quantity mentioned in the Letter of Award, the contractor usually


2009


has to get the quantity amended. If contractor is not proactive or fail to anticipate

quantity amendment then quantity amendment can also contribute in the delay of the

bill getting approved.

Time extensions:

Say, the completion date of the project is 31-12-2008 and for any reason the project

gets extended for three more months. Unless the time extension is approved from the

client, client can exercise its right and deduct liquidated damages from the bill

quantity.

If later proved that the time extension was due to some delay from on part of the

client, they release the deducted amount but in this process the working capital gets

tied

Deductions in Erection Bills:

Difference due to billed amount and the bill passed.

Error in calculation.

There is a mismatch in the claim and what the client has approved. For

example: while excavating for the tower foundations we might have claimed

wet soil, but the client site engineer approves the soil strata as dry soil. As the

excavation rate for the wet soil is much higher than the dry soil hence there is

a mismatch in the bill value as per the client and as per our site engineer.


2009


Brought out bills

Bought-Out bills are raised by our sub-vendors. Tower accessories like bolts, nuts,

spring washers, circuit plates, earthings, sign-plates are delivered by our sub-vendors and

these bills are monitored and controlled by our head office. After the initial processing they

are forwarded to the site for the final processing and payment realization.

Similar to the supply bills, there are many enclosures to the bought-out bills. The enclosures

with the bought-out bills are:

Original MICC/CIP

Dispatch Note/Packing List



Receipted L/R


2009


Invoice Original/ Excise Invoice

MR Certificate

MRHOV Certificate

The particulars, and significance of the enclosure on the billing cycle has been furnished as

Annexure-I.

FLOW CHART OF BROUGHTOUT BILLS

Approves the bill & clears the bill (5days in queue +3-4 days for bill processing and payment) Sends Bill+ CIP+MICC+ Test Reports+ Challan + Packing List+ G. Certificate+ Ins. Certificate+ Tax Invoice + Excise Invoice(15 days from date of dispatch)

Attaches Dispatch Note/Packing List+ Insurance Certificate+ G. Certificate+ Tax Sends material Invoice + Excise Invoice+ LR(7 days)


SUB-VENDORSUB-VENDOR

KEC H.O.KEC H.O.

KEC Site Office.

KEC Site Office.

Client R. H.Q.Client R. H.Q.

2009


Attaches MRC, MRHOV Certificates

Total Bought-Out Billing cycletime = 45 days(approximately) Checks the bill & annexure and the enclosures

and sends the bill for payment to Regional HQ(7

In the bought-out billing process as head office is responsible for procuring the material from

the sub-vendors. They place an order to the sub-vendors already approved by the client. As

soon as the material is prepared or anticipated to be prepared, the sub-vendor generates a call

for inspection through the client’s inspection management system. The client representative

comes and inspects the material and issues an interim report. This is known as CIP. When

materials as per all the CIPs are prepared and the client have inspected material for all the

batches they issue material inspection and clarification certificate or MICC.

The sub-vendors prepare sends the material along with copies of packing certificate and

dispatches the bill, the guarantee certificate, the insurance certificate, the invoices the

MICCs, the CIPs, the test reports and all the other enclosures along with the bills and send

the bills to the head office. The head office again prepares the bills, attaches the guarantee

certificate, the insurance certificates, the tax invoices, LRs, the excise invoice and sends the

bills to the site. Site receives the bills and attaches the MRC and the

MRHOV Certificate and sends them to the site client office. The client office then processes

the bills in a manner similar to that of a supply or erection bill.

Analysis of Brought-out bills

Let us try to look at some bought-out bills from project N-97.


Client Site OfficeClient Site Office

2009


Bill no. MICC no. CIP date MICC date Bill date Bill

receiving

date

Payment

realized

date

5 36905 18/12/08 31/1/09 31/1/09 2/2/09 28/2/09

8 37057 18/12/08 6/2/09 13/2/09 15/2/09 27/2/09

19 37540 18/12/08 3/3/09 25/3/09 27/2/09 30/3/09

30 38113 18/12/08 24/3/09 25/3/09 28/3/09 31/3/09

As per MICC No: 37540 the entire billing cycle has been classified into 4 stages. The 1st

stage is the period between the date of issuance of CIP and the date of issuance of MICC.

Stage 2 depicts the duration between the date of issuance of MICC and the date on which the

bills were raised. The third stage is the transit period from the office to the site. And the final

stage is the duration of time taken in processing and approving the bill.

As per MICC No. 37540


2009


Even as per MICC No. 37540 it is evident that the first stage that is the stage depicting the

duration between the CIP and MICC is the most prolonged. Even in the supply bills we have

seen the same trend of extended delay in obtaining MICC after CIP.

Price Variation Bills:

Price variation bills are majorly bills to compensate for the increase in price of steel, cement,

zinc, labor and aluminum.

There are three kinds of price variation bills. The supply price variation bills, the erection

price variation bills, and the bought-out price variation bills.


2009


Price Variation Bills for Concreting:

Price Variation formula for Concerting:

P= P0/100 (20 + 20HSD/HSD0 + 30C/C0 + 20SC/SC0 + 10W/W0)

Price Variation Bills for Reinforced and other steel works:

P= P0/100 (20 + 65IS/IS0 + 10HSD/HSD0 + 05W/W0)

Price Variation formula for Erection (excluding Reinforced and other steel works and

concerting:

P= P0/100 (20 + 22HSD/HSD0 + 58W/W0)

P – Price payable as adjusted in accordance with the above formula

P0 – Price quoted/confirmed

HSD0 – Wholesale price index number for ‘High Speed Diesel Oil’ The index number is as

applicable one month prior to the date of tendering

C0 – Wholesale price index number for Cement

SC0- Wholesale price index number for ‘Structural Clay products’

IS0- Wholesale price index for ‘Iron & St’

Price Variation Formula for Supply Portion:


2009


Transmission line tower using both heavy and light angles:

P=P0/100 (15 + 18HA/HA0 + 40LA/LA0 + 16Zn/Zn0 + 11W/W0)

Transmission line tower using heavy angles:

P= P0/100 (15 + 58HA/HA0 + 16Zn/Zn0 + 11W/W0)

Transmission line tower using light angles:

P= P0/100 (15 + 58LA/LA0 + 16Zn/Zn0 + 11W/W0)

Transmission line accessories and hardware containing both aluminium and steel

P= P0/100 (20 + 40Al/Al0 + 5Zn/Zn0 + 20Fe/Fe0 + 15W/W0)

Transmission line accessories and hardware containing aluminium

P= P0/100 (20 + 65Al/Al0 + 15W/W0)

Transmission line and accessories and hardware containing steel

P= P0/100 (20 + 58Fe/Fe0 + 7Zn/Zn0 + 15 W/W0)

P - Price payable as adjusted in accordance with the above appropriate formula.

P0 - Price quoted/confirmed.

HA0 - Price of heavy angles (refer notes). This price is as applicable on the first working day of the

month, one month prior to the date of tendering.

LA0 - Price of lighter angles (refer notes). This price is as applicable on the first working day of the

month, one month prior to the date of tendering.

Zn0 - Price of electrolytic high grade zinc (refer notes). , This price is as applicable on the first

working day of the month, one month prior to the date of tendering.

W0 - All India average consumer price index number for industrial workers, as published by the

Labor Bureau, Ministry of Labor, Govt. of India (Base 1982 =100)


2009

Chapter 4Major

Findings&

Suggestions


Fe0 - Wholesale price index number for iron and steel (refer notes). This index number is as

applicable on the 1st Saturday of the month, three months prior to the date of tendering.

So all the price variation are based on this formula which has been developed by IEEMA in

consultation with its member, which are fixed over the period. The total manufacturing cost

was studied along with process. Then the total inputs which are raw materials, labour,

machinery cost, margin and transportation were found out. Based on that the total weightage

was calculated and further the ratio was developed.

Now if we see the transmission line tower with only light angle is seen we can say that the

cost break in manufacturing of tower is 58% steel, 16% Zinc, 11% labour contribution and

15% is margin and others expenses. Any variation in steel, zinc and labour price will be paid

by PGCIL, SEB’s and others. No price variation will be given for the margin factor.

Enclosures with Price Variation Bills:

• Bar Chart details together with bill-wise claim of structures

• Computation with Price variation rates

• A copy each of price circulars referred in the statement such as IEEMA Bulletins

• Statement bill wise & challan wise dispatch details

• Statement of Computation of Price Variation bills


2009


FINDINGS

General:

Revenue growth of 43.2% year on year largely due to higher tower sales.

Operating margins decline 620 bps year on year to 7% due to lower margins on tower

sales business and losses on Forex fluctuation.

Healthy order book worth Rs 47 billion executable within 18 months.

Net profit plummets 47.5% year on year on the back of lower operating profit and

higher interest costs

Management Information System is the major area of concern.

High carrying cost of the finished goods.

Supply Bills:

Total time between the date of issuance of the last CIP and the date of issuance of

MICC certificates is 15 days on an average.

The time period between the day on which the first CIP under that particular MICC

was issued and the day on which the last CIP was issued is a major area of concern.


2009


Erection bills:

JMC (Joint Material Certificate) issuance is delayed due to the conflicts arising

between client and contactor.

Marking process eats up 15-16 days, due to unavailability of the DGM, Engineer and

Manager for signing and approving the bills.

Billing process delayed due to the unavailability of the test reports and other

documents demanded immediately by the client.

Unavailability of the client’s side representative for signing crucial documents.

Quantity amendment is a major cause of delay in the billing process.

Brought-out bills:

Duration between the CIP and MICC generation for a particular batch is the major

area of concern.


2009


Suggestions

An automated system is recommended where in as soon as the last CIP is done and

entered into the system, automatically a call for the MICC would be generated though

the client inspection management system.

For time extension case, proper documentation (client correspondence) should be

maintained from the beginning of the project. Every project has to mandatorily keep

records of the proper documentation and this can be properly monitored through

internal control systems. There should be a movement register for the bills and should

be maintained at the site.

After factories dispatches bills to the site it generally takes 2-3 days for the parcel to

each the site. After the bills along with the enclosures reach the site it takes around 2-

3 days for the site people to compile the challans and the respective LRs before

checking the calculations and the other enclosures. As the bills are prepared mostly in

excel format therefore if they can be mailed to the site from the factories so that by

the time the dispatched material reaches the site, the site people are ready with all the

challans, LRs, MRCs and the MRHOVs and a proper checklist is done.

For a particular lot when the manufacturing is done inspector is called upon for the

CIP on an average the inspector visit, the company after 7days of receiving the call.

In this case we can give a call when the 60 % of manufacturing of particular lot is

done so that rest of the manufacturing is done by the time inspector visits the

company thereby reducing the timeframe for which they kept finish goods at finish

yard and also reducing the carrying cost of finished inventory.


2009


One major problem that the site people face is the unavailability of Abstract Books

and Measurement Books for billing purpose esp. for PV Billing. However, if the idea

of multiple ABs and MBs can be properly sold to the clients it would increase

efficiency in the billing process. The common belief is that it would become more

difficult to monitor the bills but the client as well as the contractor both maintains

databases of the updated bills in softcopy format hence in current scenario the

recommendation of multiple Abs and MBs can be pushed forward.

Proper transportation system (i.e. good terms with truck operators), so that the

finished goods are dispatched as soon as possible, so that the carrying cost of finished

inventory is reduced.


2009

SWOT Analysis



2009


Strength:

One of the leading Power transmissions EPC Company in Asia.

Excellent vendor relationships & Volumes based Procurements.

Six Decades of Experience working in all types of terrains, excellent project management capabilities.

Three tower testing stations- Jabalpur, Jaipur and Vashi. Capable of tower testing upto 1200 KV.

Dedicated skilled workforce with cross country project execution capability.

Diversified Portfolio: Transmission Distribution, Telecom and Railways.

Large capacity for Tower manufacturing & supply with ISO 9001 | ISO 14001 | OHSAS 18001.

Global footprint with client base spread over 40 countries, with approximately 50% international projects of Australia, Kenya, Afghanistan, South Africa etc.

Weakness:

Billing process, deals with lots of paper work, which takes a lot of time.

Jaipur plant does not have efficient Management Information System.

Authorities in certain part are very centralized which can be decentralized to increase the efficiency by reducing the time which is consumed in communication from one level to another and so on.

High debt capital in the business


2009


Opportunities:

Strong order book gives the growth visibility in long run.

Positive outlook of power transmission sector to drive future order book (PGCIL targets to spend Rs 120 billion in the year and rest Rs 280 billion in FY11-FY12)

Opportunities in countries where it is not yet present. (Diversified its presence in 20 Countries).

Likelihood of increased government spending in infrastructure projects like railways, telecom.

Ease in raw material prices to improve margins

Threats:

Turmoil in World Economy

Delay in Government spending on Power

Volatile Commodity prices (steel, zinc, aluminum, cement)

Volatile US dollar

Liquidity constraints

Fund Shortage likely to impact fresh investments by private sector

Availability of adequate and quality manpower to cater to growth in business


2009

Chapter 5

Bibliography



2009



2009



2009

Chapter 6

Appendix



2009


Supply Bills: MICC/CIP, Dispatch Note/Packing List, Guarantee Certificate, InsuranceCertificate, Receipted L/R, Invoice Original/ Excise Invoice, MRC Certificate, MRHOVCertificateErection Bills: Original Bills & Annexure, Joint Measurement Certificate, MeasurementBook, Abstract Book, Payment Advice NoteBought-out Bills: Original MICC/CIP, Dispatch Note/Packing List, GuaranteeCertificate, Insurance Certificate, Receipted L/R, Invoice Original/ Excise Invoice, MRCCertificate, MRHOV Certificate

Supply Bills

Documents Particulars Significance

CIP (Customer Inspection Point)

Issued by : Client

Issued at: Factory

The CIP consist the Call ID, date, time, LOA No, contract name, manufacturer CIP no, Contractor IC no, inspection date, name of contractor and manufacturer,Material Quality Plan and itemized details.

The CIP is an interim report and signifies that client inspection and satisfaction with the quality of material. During billing the client checks whether the material was inspected and approved by the client inspectors. Missing CIP as anenclosure or any mismatch of data in the CIP leads to delay in the payment process.

MICC (Material Inspection and Clearance Certificate)

Issued by: Client

Issued at: Factory

Many CIPs constitute a single MICC. It contains the LOA No, manufacturer MICC No, Contract Name, contractor, and item description in a tabulated manner. It also contains a certificate which bears the CIP ID, CIP Date, Call ID, Mfr CIP NO, Manufacturer and the issuing authority

MICC signifies that the material offered had been inspected, the test certificates reviewed and authorized for dispatch as per the CIPs mentioned. Any mismatch of information or absence of MICC leads to hold up of the approval of bill.

Dispatch Note/Packing list/Challan

Issued by : Factory

Issued at : Factory

This document contains the name and the address of the consignee, the name and the address of thereceiver, the contract code and the date of the issue of LOA,

Dispatch list is the document containing the list of documents that we have dispatched. Duringthe billing process the client checksthe materials sent that have been


2009


name of the line, mode of dispatch, the wagon/lorry number, the Challan number, and the destination. This document tabulates the materialsdispatched in an item wise manner mentioning the sections,quality(HT/MS), weight, number of pieces, quantity dispatched, CIP number and Work Order Number

mentioned in the dispatch list withother enclosures such as MRC,MRHOV, MICC, CIPs and etc. If the quantity mentionedin dispatch list is greater than thequantity mentioned in the CIP andMICC this indicates we haven’t inspected the entire lot of material and leads to delay in the payment process.

InsuranceCertificate

Issued by :

Issued at : Factory

Contains the transporter name andtransit policy no., date, description of goods, marks and no., quantity of material, sum insured for cargo value, basis of valuation, Bill no and date and the details of the journey. Thisdocument ensures that in case of any damage of the goods during transportation the consignee shall obtain a cargo survey as per the terms of the bill of lading and/or other contract of affreightment and shall lodge an immediate claim against the cargo concerned. Loss or damage certificate to be obtained from the carriers and immediate notice in writing should be given to the insurance company and the insurance company will pay against any payable claim.

This is an assurance that the client generally demands from KEC and hence if this document is not attached to the final bill the clientcan exercise its right of not approving the bill.

GuaranteeCertificate

Issued by : Factory

Issued at: Factory

This document contains the LOA no and date, the contract code, the bill numbers to which this certificate is an enclosure and an declaration by the company that in case any member/parts of the towers and line material are found to be defective in terms of material or workmanship then thecompany will be obligated to replace such parts found defective within 12 months of

Guarantee certificate is a compulsory enclosure with the bill as per the contract document. If not enclosed with the bill the client can exercise its right to not approve the bill.


2009


commissioning of the line sans any additional cost

Tax Invoice

Issued by : Factory

Issued at : Factory

Contains the consignee address, the consignor address, invoice no. & date, contract code & number, excise invoice no., and description of material with qty, price per unit, amount

The tax invoice is a collection of multiple consignments and the client pays according to this invoice.

ExciseInvoice

Issued by : Factory

Issued at : Factory

Consists the Consignee details, the contract reference with date, destination, dispatch note reference, Date & Time of removal, Mode of Transport,Lorry no, and details of the material prepared and transported net the central excise duty, education cess, secondary and higher secondary education cess, central sales tax

While dispatching the material from the factory it is mandatory to issue an excise invoice. The client reimburses the excise duty as per the excise invoice.

Lorry Receipt

Issued by: Transporter

Issued at: Factory

The name and address of the consignee and the consignor, theconsignment note as in consignment no and date, the source and the destination ofthe consignment, mode of packing, invoice No., Consignor’s sales tax no and central sales tax no., excise gate pass details, service tax and education cess, and the description of consignment( packages, the details of the materials, weights)

The factory is the original obtains the original LR from the transporter and sends to the site for receipt which the client matches the quantity of the material mentioned in the LR receipt with the details of the material mentioned in the dispatch note, packing list, MRC, MRHOV and in case of any mismatched data or missing LR receipt the client can exercise its right to with-held the payment.

MRC (Material ReceiptCertificate)

Issued by: Client

Issued at: Site (after receiving the material)

MRC consist contract code, the contract no., the consignee address, bill no., the MRC No., and a statement of completed tower parts in tabular fashion furnishing the following details like MICC No. & Date, MICC Quantity, Dispatch Note no.,Excise Invoice no., L/R No., L/R Date, Excise Duty, Edu cess, L/R Qty., Billable Quantity

Client issues MRHOV based on the quantity mentioned in Material Receipt Certificate

MRHOV (Material Receipt Hand Over &Voucher Certificate)

Location of Store, Name and address of supplier, name of work, name & address of

Client approves the bill based on the amount in the MRHOVCertificate.


2009


Issued by: Client

Issued at: Site (After formal handling of the material to the client)

executing agency, control no., LOA No. & date, and the description of material furnishing the following details: code of material, description, unit, quantity received, rejected and take-instock (for each HT,MS, B&N), value as per LOA, Stock Ledger reference, Mode of dispatch viz. Carrier name & RR/GR/LR with date

Bought-out Bills:

DOCUMENTS PARTICULARS SIGNIFICANCECIP

Issued by : Client

Issued at: Sub Contractor Factory

Contains Call ID No., Call date & time, LOA No., Manufacturer CIP No., Contract Name, Contractor IC No., Contractor details, Inspection date, Manufacturer details, Inspection date, Material Quality Plan, Details of annexure, Manual CIP Details, and details of total qty ordered, qty offered, qty accepted in a tabular format

The CIP is an interim report and signifies that client inspection and satisfaction with the quality of material. During billing the client checks whether the material was inspected and approved by the client inspectors. Missing CIP as an enclosure or any mismatch of data in

the CIP leads to delay in the payment process.

MICC

Issued by: Client

Issued at: Sub Contractor Factory

Contains LOA No., Manufacturer MICC No., Contract name, contractor details, details of item inspected, CIP Details, MICC Details

The client certifies that the material offered is inspected/test certificates reviewed and authorized for dispatch as per CIP details. Though this certificate doesn’t absolve the contractor of his contractual responsibilities yet this document is a mandatory enclosure with the bill for payment of billable items as per the LOA.

Dispatch Note/Packing List Contains the name & address of the consignee & consignor, LOA No. & date, CST No,

Client matches the items dispatched mentioned in the


2009


Issued by: KEC H.O

Issued at: KEC H.O

details of item materials to be dispatched. packing list with the details

furnished in MRC , MRHOV,

CIP, MICC and approves the billed amount only if there

is no mis-match in all the documents


Issued by: KEC H.O

Issued at: KEC H.O

This document contains Policy

Issuing office, broker agent, certificate number, policy number, name of the insured, details of the insured, period of insurance, receipt details, the details of the cargo insured, transshipment destination, number of units, the details of the L/R copies (AWB,B/L,C/N No. and date),packing details, basis of

valuation(ex-works + % escalation), marks and numbers, deductibles, mode of transit, sum insured, voyage details(source and destination), premium, port

details( source and destination), service tax, and amount payables

The insurer agrees to provide insurance against loss damage liability or expense to the extent mentioned in this document. Insurance certificate is a mandatory enclosure with the bill which hence mismatch or missing insurance certificate leads to the client not approving the bill.


Issued by: KEC H.O

Issued at: KEC H.O

Contains the Invoice No. & date and the name of the material

This document signifies that KEC is guaranteeing against

the manufacturing defect for a period of 12 months from the date of dispatch

Tax Invoice

Issued by: Suppliers

Issued at: Supplier’s Office

This document contains the manufacturer’s name, the buyer’s name the consignee’s name, and the invoice no. & date, delivery note & terms/mode of payment, supplier’s ref, buyer’s order

This document provides the information regarding the taxes payable like excise duty, excise duty cess, higher education cess, CST payable, Freight Outward. This


2009


no. & date, dispatch document no. & date, dispatch through and destination, and terms of delivery, description of goods dispatched along with qty, rate and amount, company’s VAT TIN, Company’s CST No., Buyer’s VAT TIN/Sales Tax no.

document is a compulsory enclosure with the bills and if found missing the client can exercise its right of not approving the bill.

Excise Invoice/ Challan

Issued by: Suppliers


Contains the name and factory address and also the head office address of the supplier, the TIN no, UPTT no., CST no., the central excise registration no., name 7 excisable commodity tariff no sub heading no., No. & dt. Of notification under which any concessional rates of duty claimed, PLA No., the P.O. no & date, the challan no., date, and the description of the material dispatched ( incl. no. of packages, total qty net, total price of goods, detail of deductions/additions, assessable value (both per unit and total), rate of ED, total ED paid, serial no. & date of debit entry for duty, consignee CST No, LR/GR/Truck no., Mode of transportation, Date & time of preparation of challan, date & time of removal,

This document shows the client the calculations against

UPTT/CST, and taxes payable against C-Form, freight Charges.

LR Receipt

Issued by: Transporter


Contains the transporter’s name& address, the consignor’s name & address, the consignee’s name and address, the consignment

note & code no., the booking

branch address & the code, the

This document signifies that the materials have been

transported and the client generally matches the material

list from the LR receipt with other documents like

MICC, CIP, Challan and etc


2009


origination and the destination of the journey, person liable to pay service tax, description of

material that have been transported, the weight declared and the weight charged, details regarding the place of payment of the bill, the details of packing, private mark, consignor CST No., Consignee CST No., ST

No., Bill No., Value, Consignor value, the lorry no.

and based on this issues the MRC and the MRHOV subsequently.

Material Receipt Certificate

Issued by: Client

Issued at: Site (after receiving the material)

MRC consist contract code, the contract no., the consignee

address, bill no., the MRC No., and a statement of completed tower parts in tabular fashion furnishing the following details like MICC No. & Date, MICC Quantity, Dispatch Note no., Excise Invoice no., L/R No., L/R Date, Excise Duty, Edcess, L/R Qty., Billable Quantity

Client issues MRHOV based on the quantity mentioned in

Material Receipt Certificate

Material Receipt Handling

Over & Verification

Certificate

Issued by: Client

Issued at: Site (after formal

Handing over of the material to the client)

Location of Store, Name and address of supplier, name of work, name & address of executing agency, control no., LOA No. & date, and the description of material furnishing the following details: code of material, description, unit, quantity received, rejected and take-in-stock (for each HT,MS, B&N), value as per LOA, Stock Ledger reference, Mode of dispatch viz. Carrier name & RR/GR/LR with date

Client issues MRHOV based on the quantity mentioned in

Material Receipt Certificate. Client approves the bill based on the amount in the MRHOV

Certificate

Test Certificate This document contains the name of the supplier, the title

This document signifies that the materials received at the


2009


Issued by: Supplier

Issued at: Supplier’s Factory

containing the name of the material on which the test has been carried out, LOA no. &

date, CIP Inspection call request no & date, name of contractor and contractor’s P.O., the details of test reports in a tabular fashion, the limiting values, the name and signature of the witness from the client’s side and the name & address of the supplier’s representative who prepared the bill

site have been tested by the subcontractor in the presence of a client’s representative. This is a mandatory enclosure and not attaching the test report violates the contractual clauses hence attracts delay in the billing procedure.

Erection Bills

Bill & Annexure

Issued by: Site Office

Issued at: KEC Site Office

This document contains the name & the address of the bill approving official from the client’s side, the invoice no & date, the project no, the contract agreement no and date, description of the billing period, the gross bill value, the retention, the advance, and the net payable. The annexure contains the detailed break-up of the bill and contains the RA Bill No & date, the description of items billed, the number of

units, the unit erection charges, quantity (up to previous month, during the month, and up to date), and the amount(up to previous month, during the month, and up to date)

The bill contains the amount of work executed and the total amount billed. The annexure contains the detailed break up of the bill and is mainly for reference by the client. The client matches this qty with the JMC and based on this approves the billed amount.

Joint Measurement Certificate

This document contains the name of the client, the Running Bill no & date, name

This document certifies that the measurement recorded in the JMC are from such and


2009


of work, Agreement/LOA/Work Order no. & date, number & date of previous bill, date of measurement, Actual date of completion, the item no. of bill of quantity, description of work, quantity executed( up to date and since previous), unit and total amount( up to date & since previous)

such Measurement Book and also furnishes the names of the client’s and the contractor’s representatives. This document also certifies that quantity of work shown in the JMC has been executed as per the schedules mentioned in the contract and there is no outstanding against the contractor. Failing to enclose the JMC definitely delays the bill approval process and hence ties up working capital


Date post:	18-Nov-2014
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