A

Summer Training Report

ON

WORKING CAPITAL MANAGEMENT

AT

Sarda Energy and Minerals Limited

Submitted for partial fulfillment of requirement for the award of degree

Master of Business Administration

CHHATTISGARH SWAMI VIVEKANAND TECHNICAL UNIVERSTY BHILAI (C.G.)

Submitted byHarsh Shukla

MBA 3rd Semester, Section BSubject Code: 576322(76)

Session 2014-16

Approved By, Guided By, Dr. R Sivarethinamohan Prof. Muklesh TiwariPrincipal Assistant Professor

FACULTY OF MANAGEMENT

DISHA INSTITUTE OF MANAGEMENT AND TECHNOLOGYApproved by AICTE

(Disha Education Society)Satya Vihar, Vidhansabha-Chandrakhuri Marg, Mandir Hasaud, Raipur (C.G.) 492007

DECLARATION

I the undersigned solemnly declare that the report of the project work entitled Working

Capital Management at Sarda Energy and Minerals Ltd., is based my own work carried

out during the course of my study under the supervision of Prof. Muklesh Kumar Tiwari.

I assert that the statements made and conclusions drawn are an outcome of the project

work. I further declare that to the best of my knowledge and belief that the project report

does not contain any part of any work which has been submitted for the award of any other

degree/diploma/certificate in this University or any other University.

___________________

Harsh Shukla Enrollment No : A08894

Roll No. : 5057614021

CERTIFICATE BY ORGANIZATION

Note: In this page you have to put the certificate received from the organization.

CERTIFICATE BY INTERNAL GUIDE

This to certify that the report of the project submitted is the outcome of the project work

entitled Working Capital Management at Sarda Energy and Minerals Ltd. carried out by Harsh

Shukla bearing Roll No.: 5057614021 & Enrollment No.: AO8894 carried by under my guidance

and supervision for the award of Degree in Master of Business Administration of Chhattisgarh

Swami Vivekananda Technical University, Bhilai (C.G), India.

To the best of the my knowledge the report

i) Embodies the work of the candidate him/herself,

ii) Has duly been completed,

iii) Is up to the desired standard for the purpose of which is submitted.

_______________________

Prof. Muklesh Kumar Tiwari

Assistant Professor

ACKNOWLEDGEMENT

It is a matter of great satisfaction and pleasure to present this report on Working Capital

Management of Sarda Energy and Minerals Ltd. I take this opportunity to owe my thanks to all

those involved in my training.

Firstly I would like to thank Sarda Energy and Minerals Ltd. for giving the opportunity to

complete my project in the Organization. I put on record my sincere thanks to my college, Disha

Institute of Management & Technology, Raipur for giving me such an opportunity. I am

extremely grateful to Mr. Yogendra Shukla (AGM, Finance Dept.) for the encouragement,

discussions and critical assessment of the project. I would also like to thanks Mr P. Mohanty for

his support and guidance, without which this project would not have been possible.

It was a good experience for me to work with Sarda Energy and Minerals Ltd., a pioneer in the

steel and minerals industry. I am greatly obliged to Mr. Ajay Singhal (Head, Finance Dept.),

who has shared his expertise and knowledge with me without which the completion of project

wouldn’t have been possible.

I express my gratitude towards staff of Sarda Energy and Minerals Ltd., those who have helped

me directly or indirectly in completing the training.

I also thank Prof. Muklesh Kumar Tiwari (FOM, DIMAT), who has sincerely supported me

with the valuable insights into the completion of this project.

I am grateful to all faculty members of DIMAT and my friends who have helped me in the

successful completion of this project.

Contents Page NoDeclaration by the student 2Certificate from the supervisor/Company 3Certificate from internal guide 4Acknowledgements 5Chapter 1. Introduction to the study 9

Chapter 2. Company Profile 12

Chapter 3. Objective and Relevance of the Study

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Chapter 4. SEML and it’s Working Capital 17

Chapter 5. Findings of the Study 30Chapter 6. Recommendations 31Chapter 7. Conclusion 32Chapter 8. Limitations 33Chapter 9. References 34

Chapter 1. Introduction to the study

Working Capital Management-

What is working Capital?

Working capital refers to the investment by the company in short terms assets such as cash, marketable securities.

Net current assets or net working capital refers to the current assets less current liabilities. Symbolically, it means,

Net Working Capital = Current Assets -Current Liabilities.

In accounting, Working capital is the difference between the inflow and outflow of funds. In

other words, it is the net cash inflow. It is defined as the excess of current assets over current liabilities and

provisions. In other words, it is net current assets or net working capital.

Working Capital Management

Working capital management involves two key issues:

1. What is the appropriate amount and mix of current assets for the firm to hold?

2. How should these current assets be financed

Factors affecting the composition of working capital”

Nature of business

Nature of raw material used

Process technology used

Nature of finished good

Degree of competition in the market

Paying habits of the customers

Degree of synchronization among cash flows

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Easy availability of working capital

Management policy of the firm

Working Capital Strategy and Need for Working Capital

Management:

Financial managers use two types of strategies for current assets investments: flexible and

restrictive.

The flexible strategy has a high percent of current assets to sales, whereas a restrictive policy has

a low percent of current assets to sales. The flexible strategy calls for management to invest large

amounts in cash, marketable securities, and inventory. The strategy also promotes a liberal trade

credit policy for customers, which results in high levels of accounts receivable. The flexible

strategy is perceived be a low-risk and low-return course of action for management to follow.

The advantage of this policy is the large working capital balances the firm holds.

The strategy’s downside is the high carrying cost associated with owning a high level of

inventory and providing liberal credit terms for its customers.

The higher carrying costs result for two reasons:

1) The investment in the low return current assets deprives the higher returns that

management could earn on longer-term assets like plant and equipment.

2) Higher amounts of inventory results in higher warehousing and storage costs.

Current assets are kept to a minimum in the restrictive strategy.

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The firm barely invests in cash and inventory and has tight terms of sale intended to curb credit

sales and accounts receivable. The restrictive strategy is a high-risk high-return alternative to the

flexible strategy. The high risk comes in the form of shortage costs which can be either financial

or operating. Financial shortage costs arise mainly from illiquidity shortage of cash and a lack of

marketable securities to sell for cash. If there are unpaid bills that are due, the firm will be forced

to use expensive external emergency borrowing. If funding cannot be secured, default occurs on

some current liability and the firm runs the risk of being forced into bankruptcy by creditors.

Operating shortage costs result from lost production and sales. If the firm does not hold enough

raw materials in inventory, time may be wasted by a halt in production. If the firm runs out of

finished goods, sales may also be lost, and customer dissatisfaction may arise. Restrictive sale

policies such as allowing no credit sales will also result in lost sales. Overall, operating shortage

costs can be substantial; especially if the product markets are competitive. The optimal current

asset investment strategy will depend on the relative magnitudes of carrying costs versus

shortage costs.

This conflict is often referred to as the working capital trade-off. Financial managers need to

balance shortage costs against carrying costs to find an optimal strategy. If carrying costs are

larger than shortage costs, then the firm will maximize value by adopting a more restrictive

strategy. On the other hand, if shortage costs dominate carrying costs, the firm will need to move

towards a more flexible policy. Overall, management will try to find the level of current assets

that minimizes the sum of the carrying costs and shortage costs. This explains the importance of

working capital management.

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Chapter 2. Company Profile

Executive summary

Sarda Energy & Minerals Limited (SEML) is one of the lowest cost producers of steel (sponge iron, billets, ingots, TMT bars) and one of the largest manufacturers and exporters of Ferro alloys in India. Headquartered in Raipur, Chhattisgarh, the company merged with Chhattisgarh Electricity Company Limited (CECL) in 2007 with a vision to becoming a leading energy and minerals company. 

Over the last three decades the company has continuously diversified its product portfolio to include many customized value added products. The company firmly believes in benchmark product quality, customer centric approach, people focus, ethical business practices and good corporate citizenship. Building on these values, SEML has become the supplier of choice for many domestic and international customers across more than 60 countries. 

SEML differentiates itself from its peers by not being just another steel company. It foresaw the importance and emergence of energy and minerals as two critical ingredients for developing economies and particularly for India. Synergy in Energy became the basis of all its future endeavors. Today, SEML is one of the very few companies to become completely self-sufficient in terms of its energy requirements and is well on its way to achieve self sufficiency in other mineral resources. The company has acquired iron ore, coal and manganese mines in India and is aggressively looking for mineral resources across the globe. 

SEML is listed on Bombay Stock Exchange (504614) and on National Stock Exchange of India

Limited (SARDAEN).

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Company Overview

Products:

Sponge Iron (Iron)

SEML was one of the first companies to install a sponge iron plant in the Siltara, Raipur area. Sponge Iron or Direct Reduced Iron is produced by reducing Iron Ore (in the form of lumps/pellets) using non-coking coal in a rotary kiln. The hot flue gases produced in the reactor during the process are used in Waste Heat Recovery Boilers to produce Steam. This helps us in economizing our power generation costs

Majority of the Sponge Iron produced at SEML is used for its own captive use to produce steel ingots and billets through induction furnace route. Our annual DRI production capacity is 360,000 MT with 2 X 500 MTPD and 2 X 100 MTPD rotary kilns installed at our Siltara works.

Billets

At SEML, billets are produced using continuous casting process. Their annual billet production

capacity is 200,000 MT and we produce billets ranging from 100mmX100mm to 160mmX160mm.

Thermo Mechanically Treated Bars (TMT)

SEML has a 10 year patent to produce High Quality TMT Bars under its brand name, 'Hytech' TMT

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Billets are semi-finished steel products with a square cross section usually up to 160mm x 160mm. This product is either rolled or continuously cast and is then transformed by rolling to obtain finished products like wire rod, merchant bars and other sections.

Eco Bricks

SEML manufactures eco-friendly bricks mainly from the fly ash generated from their captive power plant. The manufactured bricks facilitate substantial consumption of fly-ash, an environmental hazard.

Fly-ash bricks have good compressive strength, low water absorption, high density and low shrinkage value as compared to burnt clay bricks

Ferro Alloys

SEML is one of the largest producers and exporters of manganese based ferro alloys with exports to more than 60 countries. For its contribution to ferro alloys export, SEML has been awarded Star-Export house status from the Government of India. Recently SEML has also been awarded by EEPC- (Engineering Export Promotion Council) by Regional Export award in the category of star performer for the FY 08-09.The ferro alloys division constitutes the bulk of SEMLs top-line as well as bottom-line.

SEML has total installed capacity of 45 MVA at its Siltara, Raipur plant. The installed capacity is being increased by 25% to 60 MVA due to improvements in operational efficiency

Thermal Power

SEML is one of the select companies which is 100% self-sufficient in its energy requirements. Currently, we are operating 81.5 MW thermal power plant at our Siltara plant. The energy generated is captively used in our sponge iron, billet, ingot and ferro alloys plants.

Company has planned for future expansion of an Integrated Steel Plant. In this diversified planning, SEML wish to expand its power generation capacity from its present capacity of 81.5 MW. One more 350MW Thermal power plant is under installation at village Kolam, district Raigarh, Chhattisgarh. SEML is operating one coal mine at village Karwahi in Mand area of Raigarh Coal Field, District Raigarh, Chhattisgarh. At present the Coal available from this mine is utilized for production of sponge iron at Siltara. The company proposes to expand the capacity of Coal Mine by underground mining and the coal available from enhanced capacity will be utilized for the proposed 350 MW capacity Power Plant. Land for the same already acquired. Part of the Power Generated from Power Plant will be used in the expansion project of SEML and balance will be transmitted via Inter State Transmission through Power Trading Agencies for

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selling.Company also proposes to set up 2 x 660 MW merchant thermal power plant in phases, in the state of Chhattisgarh.

SEML firmly believes in utilization of renewable energy and in that respect has commissioned a 4.8 MW hydro power plant in the state of Uttranchal. The construction activity of 96 MW at Sikkim has already commenced from October, 2010. Company also proposes to install four more hydro power projects of 24 MW capacities in the state of Chhattisgarh. The construction of one 24 MW capacity will commence from Oct, 2011.

Solar Power

The company has commissioned 2 MW fully automated solar power plant at Kharora distt. Raipur on Oct 2011 and this plant is running in its full swing. This is 1st one solar power plant in the state of Chhattisgarh and 10th in India under IREDA scheme. Power generation is directly connected with 11 KV grid state and had commissioned within the record period.

It had also installed 2x 100 KW solar power system in Siltara to take first step to use of renewable solar energy in our plant premises and it is backing up power plant.

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Chapter 3. Objective and Relevance of the Study

Whatever may be the organization, working capital plays an important role, as the company needs capital for its day to day expenditure. Good working capital management reveals higher returns of current assets than the current liabilities to maintain a steady liquidity position of a company. Otherwise, working capital is a requirement of funds to meet the day to day working expenses. So a proper way of management of working capital is highly essential to ensure a dynamic stability of the financial position of an organization.

Sarda Energy & Minerals Limited (SEML) is one of the lowest cost producers of steel (sponge iron, billets, ingots, TMT bars) and one of the largest manufacturers and exporters of Ferro alloys in India. Seeing the good opportunity to study financial systems and practices of SEML, it is

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Group Companies

Following is a list of companies under Sarda Group, which is either a Subsidiary/JV or Partners with SEML.

Sarda Energy & Minerals Hong Kong Limited (SEMHL)

Sarda Global Ventures Pte. Ltd. Singapore (SGV)

Sarda Metals & Alloys Limited (SMAL)

Sarda Energy Limited. 

Parvatiya Power Private

Madhya Bharat Power Corporation Limited (MBPCL )

Chhattisgarh Hydro Power LLP

Sarda Hydro Power Pvt Ltd.

Shri Ram Electricity LLP.

Raipur Infrastructure Company Ltd.

Madanpur South Coal Company Ltd.

Chhattisgarh Investments Ltd

relatively important to take up internship assignment on “WORKING CAPITAL MANAGEMENT AT SEML”.

The major purpose of the study is to analyze the working capital management of Sarda Energy and Minerals Limited by considering the annual report of three years. The financial statement explains the trend analyzes and the ratio analyzes along with the comparative balance statements.

The term means a lot of different things to a lot of different people. By definition, working capital is the amount by which current assets exceed current liabilities. It involves the relationship between a firm‘s short term assets and its short term liabilities. Funds needed for short term needs for the purpose like payment of wages and other day to day expenses are known as working capital. Working capital is primarily concerned with inventories management, receivable management, cash management and payable management.

We, in this study shall see what the main constituents of working capital in SEML are and how do they manage and use the same and its execution in practical scenario. We shall see different tools adopted by the company in order to increase its working capital efficiency to on go a smooth and cost effective business.

During the project work, we analyze the working capital position of this organization. Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between firm’s short-term assets and its short-term liabilities.

The study also involved few personal interviews with the financial heads of the company and through observation methods. Company annual reports were being evaluated and working capital management was being analyzed from it. For the purpose of the study convenience sampling technique has been used.

We have also considered the BS and PL statements of few major competitors of SEML and then analyzed it. This analysis both within the company (different years) and with the competitors clearly reflect the trend, changes and deviations if any. This helps the company to look after the same, get reasons for the same and their after take corrective actions to improve its working capital efficiency.

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Chapter 4. SEML and its Working Capital:

Below shows the various components of working capital for Sarda energy and minerals limited

and how the company maintains, procures and uses the same.

Current Assets

Current assets are balance sheet accounts that represent the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business are called current assets.

Current assets usually includes items like cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash.

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In the balance sheet of Sarda energy and minerals limited we find the following items under current assets:

1) Current Investments

It is an account in the current assets section of a company's balance sheet. This account contains any investments that a company has made that will expire within one year. For the most part, these accounts contain stocks and bonds that can be liquidated fairly quickly. 

In 2014-15, SEML has been investing its surplus cash amount in various investment portfolios like Investment in Equity Instruments and investments in mutual funds.However this financial year, SEML has done no investments in property, preference shares, govt or trust securities, Bonds etc.

Companies usually invest in such short term investments when company has surplus liquid cash and is sure to earn a better Profit on these investments than would earn from normal savings account.

The type of investment depends on two major factors, namely:

The rate of return and

The time period

If we want to lock our money, but not more than a couple of days, mutual funds, equity stocks etc are good options. SEML, for the same purpose has been investing in mutual funds and equity stocks.Below shows a small working as to how we compare the rate of return for various mutual funds where we are planning to invest and there after chose the one.

It should be noted that we are considering these investments for a very short period (2-4 days) and thus look into short period.

2) Trade receivables

Trade receivables are amounts billed by a business to its customers when it delivers goods or services to them in the ordinary course of business. These billings are typically documented on formal invoices, which are summarized in an accounts receivable aging report. This report is commonly used by the collections staff to collect overdue payments from customers. In

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the general ledger, trade receivables are recorded in a separate accounts receivable account, and are classified as current assets on the balance sheet if we expect to receive payment from customers within one year.

As Sarda energy and Minerals limited deals with both domestic as well as foreign customers. In the making of balance sheet of Sarda energy and minerals limited, we segregate the receivables from Domestic and export customers.

We also maintain a provision for doubtful debtors (considering their past records, given time period and other details) and then subtract the same from this account.

We also at the end subtract the entire bill discounted.

The process of bill discounting is a way to raise short term finance. It is a Fund based method of financing which shall be explained under the current liability section.

3) Inventories

The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets which are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners. 

Possessing a high amount of inventory for long periods of time is not usually good for a business because of inventory storage, obsolescence and spoilage costs. However, possessing too little inventory isn't good either, because the business runs the risk of losing out on potential sales and potential market share as well.

SEML analyzes its inventory requirements generally by studying past procedures and there after applying certain mathematical formulas on the same.

The past procedure help us to see that we never run out of business, shortage of raw materials, spare parts etc does not let the plants down however Mathematical formulas help us to keep see that we are keeping the cost to its minimum possible level.

A certain level of market fluctuation is also taken into consideration while calculating the inventory level. These calculations are done by costing and operations department, however due to the confidentiality of data; the working on same cannot be shown on this report.Few Major inventories kept at SEML are listed below:

1) Raw Materials

Mn Ore

Mn Ore Slag

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Mn Ore Fines

Mn Ore Briquette

Steaming Coal

Anthracite Coal

Coal

Coal at SECL

Coal at Mines ( Excluding middling & rejects)

Middling & Rejects

Coal & Coke Fines

Coke

Quartz

Iron Ore

Iron Ore Fines

Iron Ore Fines (White Rom, Blue Dust etc)

Iron Ore Fines (At Mines & BFP)

Pellet

Filter Cake

Dolomite

Scrap (Siltara & At Port)

Mill Scale & Ferrous Waste & Other By Products

2) Finished Products

Silico Manganese

Ferro Manganese

Mn Slag

Sponge Iron

Billets

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Wire Rod

 

3) Stores and Repairs

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Of all these stocks, monthly records stating, the number of days in the month, current stock, sale, average stock and no. of holding days are maintained. These records are reviewed to check if any deviations from the standard holding period (calculated from past trends) occur. In case of deviations, the plant is immediately contacted and asked about the same.Most of our materials are captive, that is self consumable and thus maintaining inventory become easier for us.

Another important analysis which was done was to look for non-moving stocks. We studied stocks for two years (month to month) and found out which the stocks which were not moving were and the reasons for the same.

In case of Insurance and critical stocks, we made sure that the cost occurring in keeping these stocks are not exceeding the cost which would occur in case of outsourcing the same.

4) Cash and Bank Balances

It is an item on the balance sheet that reports the value of a company's assets that are cash or can be converted into cash immediately. Examples of cash and cash equivalents are bank accounts, marketable securities and Treasury bills. 

The amount of cash and cash equivalents will be reported on the balance sheet as the first item in the listing of current assets. The change in the amount of cash and cash equivalents during an accounting period is explained by the statement of cash flows.

As we know that Cash is a non earning asset, any company would try to keep the cash balance to minimum, however for certain functions like day to day operations, transactions, small payments etc a company needs to maintain cash balance.

The amount of Cash with a company is a factor of both, opportunity cost of not investing the same in earning assets and the need for liquidity in a company.

SEML has its cash and cash equivalents in the form of cash on hands, current accounts, bank deposits etc.

The five primary bankers of SEML are:

Union Bank of India

Bank of Baroda

UCO Bank

Axis Bank Ltd.

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HDFC Bank Ltd.

Cash is kept in the current accounts of these banks for various purposes. Also with certain banks it is a part of the obligation due to which it provides us various facilities and remedies.Certain day to day operations for which cash is required are wages and salaries which are not paid by cheques, transport payments (T/P), freight charges, and courier charges and other. SEML has a daily requirement of 10 lakhs rupee in the form of cash for its day to day operations. The rest of money as shown in the balance sheet is usually in the current accounts of various banks. SEML also maintains a current account with other bankers like Ratnakar bank, Indus bank, State bank of India etc.

Here at SEML the amount of cash to be kept is usually decided by the need for day to day operations and the minimum current account obligations. SEML do not consider opportunity cost at most of the times as this amount is both sufficient as well as obligatory (in some cases),

5) Short Term Loans and Advances

This refers to the loans and advances that SEML has provided to other business entities, person, or customers. As the company expects the same back in future, this is clubbed under current asset field.

LoansSEML has provided various loans to its related companies (subsidiaries and other group companies) in the year 2013-14. The related companies are newly operating and also quite a few of them have not yet started earning profits, as a matter of this, it becomes difficult for these companies to raise funds from the market.

SEML provides loans to these companies under strict rules from RBI and Companies act.

With certain amendments in the companies act in 2013, loans to subsidiary companies have become very difficult and much stricter. The company also provides loans to its various employees for different purposes; this is also accounted under this section.

Advances

EMD (Earnest Money Deposits) paid to various organizations like SAIL, MOIL etc for tenders and auctions are covered under this section. Advances to vendors for the acquisition for various raw materials/ spares and other goods form a big part of this sub section of current assets. However these advances are paid on the basis of certain bank guarantees, letter of credit etc which shall be discussed in the later section.

It also includes various pre paid expenses that the company has occurred. As these current assets form a huge cost to the company, the company must be careful in investing into them and also shall have adequate facilities to finance the same.

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6) Other Current assets

It includes other assets which are realizable within 1 year like SEML Employees Gratuity Scheme, INR Receivable from Bank in Forex A/c, Dividend Receivable, LC Neg Chr Receivable, Foreign Currency Receivable A/c etc

Current Liabilities

A company's debts or obligations those are due within one year. Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.

Essentially, these are bills that are due to creditors and suppliers within a short period of time. Following are the items which are Sarda energy and mineral’s limited current liability in their Balance sheet of the year 2013-14.

1) Short term borrowings:

It is an account shown in the current liabilities portion of a company's balance sheet. This account is comprised of any debt incurred by a company that is due within one year. The debt in this account is usually made up of short-term bank loans taken out by a company.

These short term borrowings usually include

Loans from banks:

SEML has taken loans to finance its current assets for a period less than 1 year from various banks.These loans are both secured and non-secured and are majorly from its primary bankers as mentioned above.

Hire Purchase Loans:

It is a method of buying goods through making installment payments over time. The term hire purchase originated in the U.K., and is similar to what are called "rent-to-own" arrangements in

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the United States. Under a hire purchase contract, the buyer is leasing the goods and does not obtain ownership until the full amount of the contract is paid.  SEML, in order to delay its payment to suppliers, have taken a few number of hire purchase loans. This helps in increasing the working capital efficiency

Other loans and Advances:

This includes the advances from our customers which creates a liability on us to pay them on future. With a good name and position in the market, SEML holds good hand in negotiation with customers and deals with many of them on advances. This includes down payments from both exports as well as import debtors.

SEML how ever in this financial year has not take any loans from its related companies or any other organization.

Working Capital Loan:

Working capital loan is a loan whose purpose is to finance everyday operations of a company. A working capital loan is not used to buy long term assets or investments. Instead it's used to clear up accounts payable, wages, etc.

Working capital financing is of majorly two types:

Fund based: Fund Base Limit is a limit in which the Company gets the money from bank or financial institution in cash. SEML uses the following product to raise its Fund based limits.

1) Cash Credit (CC) - To meet working capital requirements of the company the bank gives the CC limit against the hypothecation of Stock and Debtors. But while deciding the limit, the bank deducts the Trade Creditors also. Further a monthly stock and debtor’s statement need to be submitted with the bank showing the position of the stock and aging of the debtors.

Client opens the Cash Credit Account which allows the withdrawal up to the limit sanctioned by the bank. Bank charges the prevailing interest and other bank charges as per norms. This facility is sanctioned for a year and need to review at the closing of the year for renewal subject to the requirement of client.

SEML has its CC account with all its primary bankers. Interest rates and other charges for each account are charged as specified in the sanction letter. For giving and deciding the credit limit the bankers usually review our CMA (Credit Monetary assessment). CMA contains our details financials of the past five years along with future projections and their accuracy.As reviewing this CMA is a time taking job, not all but our lead banker does that and thereafter decides the credit limit for each account for each bank.

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We also have secondary banks from which we get this CC facility at a subsidized rate, the two major reasons behind this is excess funds with them and a good credit rating of ours.

2) Working Capital Term loan (WCTL) and Working Capital Demand Loan (WCDL): Some time the borrower fails to bring immediately its own contribution as margin while enjoying the working capital limits. In that case the bank may sanction WCTL and/or WCDL which need to be adjusted as soon as possible. It normally carry higher rate of interest in comparison to working capital limit.

3) Bill Discounting:

When a Sale and Purchase Transaction takes place, the seller issues an Invoice (Bill) to the Purchaser. If this Sale is a Credit Sales, then the seller will get the money from the purchaser only after the expiry of credit period. If the seller does not have extra money, during the period between credit sales and realization of money from debtor, he will not be able to buy more goods and sell again at a profit. To facilitate the business of manufacture, trade etc, banks help you by giving financial resources in the form of Bill Discounting Facility. And the bank's bill finance product helps you bridge the fund gap between the date of sale of products to the receipt of payments. This process is known as the process of bill discounting which is very frequently used in SEML to finance its current assets.

In our case, we usually discount the bill with the help of LC that we receive from our customers along with the necessary documents to discount the same. After we submit the documents to our bank, it forwards the same to applicant’s bank to check if the LC is genuine. It is only after the crosscheck with the applicant’s bank, our bank discounts our bill.

However as a result of having good relations with our banks, our bank discounts the same before an acceptance from applicant’s bank, this saves a huge amount of time as well as interest on the same. We also easily manage to 100% discount our bill because of same.

Below shows a working as to how a bill of Rs 1814145 due for 90 days from party is discounted.The bill is discounted after 6 days i.e. for 84 days. It shows the interest rate that we would pay as a part of bill discounting, that we would have lost on the CC account and the one that we would receive from the party.

amount From Tono of days interest rate

interest amount

profit/loss on interest amount

c/c 1814145 05/14/15 08/12/15 90 12.75 57826 -57826

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bill d/c 1814145 05/20/15 08/12/15 84 10 42330 -42330from party 1814145 05/14/15 08/12/15 90 10 45354 45354

-54802.29688

-12.25115741

Table 2

Other costs like Bill Charge, postage, retirement charge etc are also charged on Bill discounting process and there after considering all these we chose if or if not to discount the bill.

Non Fund Based Limit:

The credit facilities given by the banks where actual bank funds are not involved are termed as 'non-fund based facilities’. Following are the two major facilities used by SEML as a part of Non Fund based Limit.

Letter of Credit:

A standard, commercial letter of credit is a document issued mostly by a financial institution on the request of the buyer in favor of supplier of goods which usually provides an irrevocable payment undertaking. It may be Inland LC or Foreign LC. In this case the buyer bank gives guarantee on behalf of its client to supplier for supplying of material or goods subject to that invoices, bill of lading, shipment documents will come directly to the bank. Bank will mark lien on the goods and will stand as lender/creditor in the books of the client (buyer).

LC could be at sight LC or usance LC.

A 'sight' LC means that payment is made immediately to the beneficiary/seller/exporter upon presentation of the correct documents in the required time frame.

A ‘usance/time’ LC will specify when payment will be made at a future date and upon presentation of the required documents.

Buyers Credit

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Buyer's credit is the credit availed by an Importer (Buyer) from overseas Lenders i.e Banks and

Financial Institutions for payment of his Imports on due date. The overseas Banks usually lend

the Importer (Buyer) based on the letter of Credit (a Bank Guarantee) issued by the Importers

(Buyer's) Bank. In fact the Importers Bank brokers between the Importer and the Overseas lender

for arranging buyers credit by issuing its Letter of Comfort for a fee. Buyer’s credit helps local

importers access to cheaper foreign funds close to LIBOR rates as against local sources of

funding which are costly compared to LIBOR rates.

Below shows two workings, where in the first case we have deferred the payment firstly via and

LC and then after taking a buyer’s credit.

On the second case we pay the amount on the date of bill without any deferments.

the calculation shows a net profit as indicated due to this facilities.

*interest rates and Dollar rates are taken as relevant then.

case 1        

   exchange rate    

  intrest      12/4/2015 12688.18 62.385   791552.10935/15/2015 9101.04 59.4375   540943.065                    principle      5/15/2015 2187617.42 59.4375   130026510.4

     

Total amount paid 130567453.5

case 2          principle      10-Jun-14 2187617.42 57.782   126404909.8

 

interest foregone@12.75%      

15-May-15 12.75% 57.782   15012747.5340.00     Costing 141417657.3

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+ Profit () Loss 10850203.8

Table 3

Bank Guarantee:

In BG the bank guarantees a sum of money to a beneficiary. The sum is only paid if the

opposing party does not fulfill the stipulated obligations under the contract. This can be used to

essentially insure a buyer or seller from loss or damage due to nonperformance by the other party

in a contract.

The real estate companies for example normally need to furnish the BG to the Local Bodies or

Authorities who sanction and approve the land for commercial/residential or industrial use.

Below shows a working as to difference in costing if we take a BG instead of DD.

  amountInterest rate From To

No of days

no of quarters int amnt

b/g17492106 0.56% Feb 8, 15 Jul 31, 15 173 2 195912

dd17492106 12.75% Feb 8, 15 Jul 31, 15 173 2 1057075

            Cost saved 861163Table 4

Trade Payable

Trade payable is an amount billed to a company by its suppliers for goods delivered to or

services consumed by the company in the ordinary course of business. These billed amounts, if

paid on credit, are entered in the accounts payable module of a company's accounting software,

after which they appear in the accounts payable aging report until they are paid.

In their balance sheet, SEML has trade payable to Domestic suppliers, for various imports as

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well as different services like Vendors-Expenses, Vendors-Consultants, Vendors-Contractors etc.

Trade Payables form a major part of working capital management and has a huge effect on the

efficiency of WCM.

Other Current Liabilities

It is a balance sheet entry used by the company to group together current liabilities that are not

assigned to common liabilities such as debt obligations or accounts payable.

We usually group items like Current maturities of Long term Debt Current maturities of Finance

Lease, Interest accrued but not due on borrowings, Unpaid Dividends, Other payables like Excise

duty Payable, Sales Tax liabilities, etc in this section.

It becomes very necessary for both the company as well as investors to look into specific nature and

types of liabilities I this section and not to ignore the same.

Short term Provision

In financial accounting, a provision is an account which records a present liability of an entity to

another entity. When this liability is for a period less than 1 year, it is said to be short term

provision. Following are the entities present in the short term provision section in the BS of

SEML: Provision for Gratuity Liability, Provision for Income Tax and other type of provisions.

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Chapter. 5 Findings of the Study

Statement Showing Difference from Previous Year

Particulars 13-14 14-15

Inventories9962.62

↓ by 33.53%

15196.44

↑ by 52.55%

Sundry Debtors1825.34

↓ by 73.15%

1439.48

↓ by 21.13%

Cash & Bank3525.87

↓by 64.49%

2466.57

↓ by 30.04%

Loans & Advances 19909.81

↑ by 200.98%

9122.22

↓ by 54.18%

Current Liabilities4535.74

↑ by 59.07%

8395.41

↑by 85.09%

Provisions1194.93

↑ by 5.92%

1194.93

0%(no change)

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o Working capital calculation as shown by SEML does not provide a true picture mainly deals

with the inventory part.

o For the ascertainment of the working capital the three main items namely cash, debtors &

creditor is calculated in the central corporate office not in SEML.

o For ascertainment of correct working capital one must study the comparative balance sheet

of SEML.

o The working capital requirement cannot be ascertained as the demand is not uniform & it

deals with different product lines.

o The requirement of working capital is high in case when the raw material is imported & the

raw material is bought in bulks.

Chapter 6. Recommendations

o Speculative measures are being used to meet the unforeseen events like price hikes & so this in turn helps to manage proper working capital in case of high prices to.

o Due to formalized procedure working capital requirement are sent to corporate office then after approval amount was transferred to his account so there is high gap between requirement & its approval so I suggest to take the debtors cash in his account & manage the daily operations & submit report daily to corporate office.

o Small amount of debtors are maintained in SAML and they mainly dealt with government public ltd. Companies; so instead of targeting only to one sector diversify yourself & try to deal with local private institutions which help to increase debtors.

o Ordering procedure of plant & equipment is very lengthy & formalized process try to be flexible with the environment.

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Chapter 7. Conclusion

At the end it is concluded that the working capital management is a part of money invested in the

business. Working capital may be regarded as lifeblood of a business. Its effective provision can

do much to ensure the success of a business. The Working Capital Management contributes

much in the overall management of the organization affairs, efficiency of organization operations

depend on how it manages its short term business dealings. Working Capital management

contributes for the firm efficiency as well as the finance manager is proper utilizing the available

wealth and maintaining the required liquidity. 

Working capital is considered to be an important tool for progress. The working capital contains

the management of Cash, Debtors, and creditors. Working capital management techniques are

playing significant role in assisting the management for decision making. The study of working

capital management at SEML is found to be very effective.

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Chapter 8. Limitations

The analysis is limited to three years of data study (for the year 2014-15, 2013-14, 2012-13) for

financial analysis. The estimation and expectation made in the financial statements may differ

from actual performance due to various economic conditions, government policies and other

related factors. Also all the data accumulated and presented in this project is procured from

secondary sources which may have been subject to stealthy biased nature.

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Chapter 9. References

1) COMPANY REPORT

Annual reports of SEML

o 2012-13

o 2013-14

o 2014-15

2) BOOKS REFERRED

o Khan, M.Y. and Jain, P.K., 2011, Financial Management, Tata McGraw-Hill,

NewDelhi.o Working capital management -strategies & techniques 2ed 2nd edition by

Bhattacharya Hrishikes.

3) WEBLIOGRAPHY

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o http://en.wikipedia.org/wiki/Working_capital

o http://seml.co.in/

o http://www.investopedia.com/

o http://www.moneycontrol.com/

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