OBJECTIVE OF THE STUDY To have the brief knowledge about the Jindal Saw Ltd. Company. To know the Financial Position of the company. To analyse the past five years performance of the Company To know the market position of the Company. To do the comparison with other competitors. To know the turnover of the company. To know the product details and export of the Company. To have the Jindal Industries overview. To know the Growth Plans of the Company. To have the practical knowledge about working capital management. To calculate the working capital cycle of the company. RESEARCH METHODOLOGY The research report is done through the Secondary data only which includes, Annual Reports of the Company, Company’s websites, journals and other research papers. Research type is a Descriptive type of Research. LIMITATIONS OF THE STUDY Time constraints. Lack of knowledge. Lack of availability of accurate Data. 1
Transcript
OBJECTIVE OF THE STUDY
To have the brief knowledge about the Jindal Saw Ltd. Company. To know the Financial Position of the company. To analyse the past five years performance of the Company To know the market position of the Company. To do the comparison with other competitors. To know the turnover of the company. To know the product details and export of the Company. To have the Jindal Industries overview. To know the Growth Plans of the Company. To have the practical knowledge about working capital management. To calculate the working capital cycle of the company.
RESEARCH METHODOLOGY
The research report is done through the Secondary data only which includes, Annual Reports of the Company, Company’s websites, journals and other research papers.
Research type is a Descriptive type of Research.
LIMITATIONS OF THE STUDY
Time constraints.
Lack of knowledge.
Lack of availability of accurate Data.
JINDAL SAW LTD.
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Literature Review
SAW Pipes (SPL), a member of the Jindal Group, is the only company in India that manufactures UOE pipes in technical collaboration with UEC Pittsburgh of USA. It manufactures UOE submerged arc welded steel tubes and cold rolled strips of various grades. The products manufactured by the company find use in critical high pressure applications like oil and gas distribution.
Jindal SAW Ltd. is a part of the USD 18 billion O.P. Jindal Group, one of the country's top most industry houses and the foremost indigenous steel producers and exporters. It started operation in the year 1984, when it became the first company in India to manufacture Submerged Arc Welded (SAW) Pipes using the internationally acclaimed U-O-E technology.Jindal SAW Ltd. is in a commanding position in India’s tubular market, being the undisputed leader.With integrated facilities at multiple locations and an ever expanding market opportunity, Jindal SAW Ltd. has diversified from a single product company to a multi-product company, manufacturing large diameter submerged arc pipes and spiral pipes for the energy transportation sector; carbon, alloy and stainless steel seamless pipes and tubes manufactured by conical piercing process used for industrial applications; and Ductile iron (DI) pipes for water and wastewater transportation. Besides these, the company also provides various value added products like pipe coatings, bends and connector castings to its clients.Over the years Jindal SAW has continued to gain the confidence and trust of its stakeholders - from employees, associates, shareholders and people whose lives have benefitted by the company's endeavours. With its vision of sustainable development firmly in place, Jindal SAW has played a leading role in developing livable cities across the world - that in turn has helped transform the lives of people staying in them.
Ensuring timely transportation of oil, gas and water, Jindal SAW helps residents and organizations in numerous cities function efficiently. The pipes produced by the company are energy efficient; reduce dependence on fossil fuels, and help conserve natural resources like water.
At the very core of Jindal SAW is imprinted the conviction of never being content with the success attained and it is constantly striving for newer horizons. New boundaries, new challenges and new opportunities keep the company driven to surge ahead. Venturing forward into different areas of businesses with Jindal ITF, a subsidiary of Jindal SAW, the company is making rapid progress in urban services sectors with:
Water, Wastewater and Solid Waste Management Domestic Transport and Logistics Transportation Equipment Fabrication
Having identified the immense potential offered by these sectors for the future, JITF has diversified into five business verticals in these areas: JITF Ecopolis, JITF Aquasource, JITF Vector, JITF Shipyards, and Jindal Rail Infrastructure.
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MILESTONES
1984 Founded in 1984
1986 Commissioning of first and only UOE Pipe Mill manufacturing LSAW Pipes in Kosi Kalan, India with a capacity of 250,000 M.T P.A, located about 1200 Kms from nearest west coast port of India
1988 API Line Pipe production commences
1989 First order for ONGC casing Pipe completed
1992/93 Three major offshore projects awarded by ONGC under international competitive bidding - Italian and Japanese being L2 and L3 bidders
1994 Seamless Pipes and Tubes Division commissioned at Nashik. First Coating plant commissioned at Kosi Kalan
1995 Received first export order
1998 First Induction bending plant commissioned at Kosi Kalan
2000 Commissioning of second LSAW pipe manufacturing facility as 100% export oriented unit using JCO forming process at Nanakapaya, Mundra to meet the export market with a capacity of 300,000 MT per annum close to Port Mundra – The first major private port on west coast of India. Internal coating plant commissioned at Kosi Kalan Commissioning of second Coating plant at Nanakapaya – Port Mundra
2002 Concrete weight coating plant commissioned at Nanakapaya – Port Mundra
2003 Commissioning of third Coating plant at Samaghogha, Mundra
2004 Commissioning of third Pipe mill manufacturing LSAW Pipe using JCO forming process in Samaghogha, Mundra with a capacity of 250,000 MT per annum.
2005 Commissioning of fourth Pipe mill manufacturing HSAW (Spiral) Pipe at Samaghogha, Mundra with capacity of 150,000 MT per annum
2005 Start up of Integrated Pipe Unit Ductile Iron Pipe manufacturing plant of
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200,000 capacity along with Blast Furnace of 250,000 MT per annum capacity and a Coke Oven plant
2008 Commissioning of fifth & sixth Pipe mill manufacturing HSAW (Spiral) pipe at Bellary - Karnataka and Samaghogha-Mundra with a combined capacity of 390,000 MT per annum. Second Induction bending plant commissioned at Samaghogha, Mundra
2009 Commissioning of seventh Pipe mill manufacturing LSAW using JCO forming in Nanakapaya - Port Mundra with capacity of 300,000 MT per annum
2011 Commissioning of 8th Pipe mill manufacturing HSAW (Spiral) pipe at Kosi Kalan, Mathura, U.P. with capacity of 150,000 MT per annum This mill is commissioned to cater to the water sector
PRODUCTS
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Product Outside Diameter (D) (mm)
Wall Thickness(t) (mm)
Annual Capacity
Hot Finished Carbon/ Alloy Steel Seamless Tubes and Pipes.
33.40 to 177.80 3.38 to 25.00 80000 MT
Seamless Casing and Tubing conforming to API 5CT.
60.30 to 177.80 4.00 to 19.05
120000 MTSeamless Drill Pipes & Greens conforming to API 5D.
60.30 to 168.30 6.45 to 12.70
Cold Finished Carbon/ Alloy Steel Seamless Tubes and Pipes.
19.05 to 140.00 1.50 to 19.05 20000 MT
Anti Corrosion 3 LPE / FBE Coating.
2 to 14 as per DIN 306701million SQM
LOCATIONSMundra I & II Country : India
State : GujaratBy Rail Nearest railway station at Ghandhidham, Gujarat - 50 Kms.By Road 15 Kms from the Gujarat State Highway.By Sea 6 Kms from Mumdra Port (Gujarat)Products LSAW Pipes (J-C-O Process)
Kosi-Kalan Country : India
State : Uttar PradeshBy Rail Through Mathura – 40 KmsBy Road On the National Highway No.2Products LSAW Pipes (J-C-O Process) Large Radius Bends & related Anti-corrosion
coatings
Nashik Country : IndiaState : MaharashtraBy Rail 50Kms. From Rail Head.By Road 25 Kms. From the National Highway (NH 8)
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By Sea 200 Kms. From Mumbai Port (Maharashtra)Products SEAMLESS Pipes and Tubes
LOCATIONAL ADVANTAGE
The plants are spread over strategic geographical locations in India. Being close to the ports gives them an additional locational advantage.
Operational Performance:During 2nd Quarter ended 30th September 2013:
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Saw Pipe Strategic Business Unit: The segment witnessed lower production and sales due to customer’ delivery schedules, lower order book and heavy rains. The Company executed more of domestic orders and export constitutes 25% of LSaw Pipes sales. Company expects additional orders and improvement in business and operations in subsequent quarters.
DI and Pig Iron Strategic Business Unit: Company produced app. 61,000 MT of DI pipes and 26000 MT of Pig Iron. The production and sales of DI pipes is ramping up with stabilization of second DI plant. DI exports in this quarter were app. 15%.
Seamless Strategic Business Unit: The activities in seamless pipes & tubes segment improved in second quarter. During this quarter, the company also catered to some drill pipe orders and as a result the EBITDA in this segment has improved. Company expect the situation to improve gradually. The production of seamless pipes in 2nd quarter was app.34,000 MT and exports sale was app. 57%.
Iron Ore Mines and Pellet Strategic Business Unit: Production and sales of Pellet have increased in 2nd quarter. The same could have been higher but got impacted to some extent due to extended monsoons. Company expect the operations to improve quarter by quarter.
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Order Book Position The current order book is app. 475 million (app. Rs 3,000 Crores), the break up is as
The orders for Large Diameter Pipes are slated to be executed by March 2014 and in case of Ductile Iron Pipes the same are slated to be executed over next 12-18 months or more. Company has participated in various bids and likely to get orders in phases. The current order book includes export of app 25%. The major exports orders are from Middle East, Gulf region and South East Asia and Far East.
Financing and Liquidity
a) As at 30th Sep 2013, net debt in the Company (standalone) was app. Rs 36,400 mio (app. USD 588 mio.) including ECB/ long term loans and fund based working capital and other unsecured loans. The loan includes buyer’s credit of app. Rs 9,100 mio (app. USD 146 Mio). The loans have increased marginally in this quarter as compared to 1st Quarter ended 30th June 2013 due to
(i) Rupee depreciation and
(ii) Capital expenditures and some increase in working capital.
b) To meet the long term funds requirements, the Company intends to raise additional long term funds.
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STATUS OF NEW PROJECTS/ CAPITAL EXPENDITURES
a) Small Dia DI Pipe Plant: Ductile Iron Plant (small dia DI pipe plant) with blast furnace capacity of app. 200,000 MTPA was put to commercial operation in the quarter ended 31st March 2013. Production has started and the capacity is being gradually ramped up as the production process gets stabilized. The Coke Oven facility and the incremental captive power generation facility related to the Ductile Iron Plant has now been commissioned. These facilities are expected to stabilize fully in the coming months.
b) Greenfield Ductile Iron pipe facility in United Arab Emirates: The Greenfield Ductile Iron Pipe facility in UAE is now commercially operational. The facility has received necessary product and quality approvals. With the concerted efforts its product has been approved in four countries in the region and the efforts to get pre approval in other countries are on way. The current book stands at app. 60,000 MT and company expects the same to improve gradually. The facility has reached to breakeven level.
c) Iron Ore Concentrate and Pellets: The Pellet plant in Bhilwara has stabilized and its products are being well accepted in the market. The production of concentrate and Pellet will ramp up gradually in the coming months.
d) Additional Projects/ new Capital Expenditures: To meet the requirements of the Lease agreement as well as for maximum utilization of iron ore concentrate, Company is adding a Sponge iron and Steel Ingot plant with capacity of app. 250,000 in Rajasthan. These plants should be in place in FY 14-15.
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PROJECT TOPIC INTRODUCTION
What is Working Capital?
Working capital (abbreviated WC) is a financial metric which represents operating
liquidity available to a business, organization or other entity, including governmental entity.
Along with fixed assets such as plant and equipment, working capital is considered a part of
operating capital. Gross working capital equals to current assets. Net working capital (NWC)
is calculated as current assets minus current liabilities It is a derivation of working capital,
that is commonly used in valuation techniques such as DCFs (Discounted cash flows). If
current assets are less than current liabilities, an entity has a working capital deficiency, also
called a working capital deficit.
A company can be endowed with assets and profitability but short of liquidity if its assets
cannot readily be converted into cash. Positive working capital is required to ensure that a
firm is able to continue its operations and that it has sufficient funds to satisfy both
maturing short-term debt and upcoming operational expenses. The management of working
capital involves managing inventories, accounts receivable and payable, and cash.
Calculation
The basic calculation of the working capital is done on the basis of the gross current assets of
the firm.
Inputs
Current assets and current liabilities include three accounts which are of special importance.
These accounts represent the areas of the business where managers have the most direct
impact:
accounts receivable (current asset)
inventory (current assets), and
accounts payable (current liability)
The current portion of debt (payable within 12 months) is critical, because it represents a
short-term claim to current assets and is often secured by long term assets. Common types of
short-term debt are bank loans and lines of credit.
An increase in net working capital indicates that the business has either increased current
assets (that it has increased its receivables, or other current assets) or has decreased current
liabilities—for example has paid off some short-term creditors, or a combination of both.
RELATION BETWEEN CURRENT ASSETS & CURRENT LAIBILITIES
A measure of both company’s efficiency and its short-term financial health. The working capital is calculated as:
The working capital ratio (Current Assets/Current Liabilities) indicates whether a company has enough short term assets to cover its short term debt. Anything below 1 indicates negative W/C (working capital). While anything over 2 means that the company is not investing excess assets. Most believe that a ratio between 1.2 and 2.0 is sufficient.
If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. For example, it could be that the company's sales volumes are decreasing and, as a result, its accounts receivables number continues to get smaller and smaller.
Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company cannot be used to pay off any of the company's obligations. So, if a company is not operating in the most efficient manner (slow collection), it will show up as an increase in the working capital. This can be seen by comparing the working capital from one period to another; slow collection may signal an underlying problem in the company's operations.
Things to Remember If the ratio is less than one then they have negative working capital.
A high working capital ratio isn't always a good thing, it could indicate
that they have too much inventory or they are not investing their excess
cash.
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Main Factors Affecting Working Capital
Main factors affecting the working capital are as follows:
(1) Nature of Business:
The requirement of working capital depends on the nature of business. The nature of business
is usually of two types: Manufacturing Business and Trading Business. In the case of
manufacturing business it takes a lot of time in converting raw material into finished goods.
Therefore, capital remains invested for a long time in raw material, semi-finished goods and
the stocking of the finished goods.
Consequently, more working capital is required. On the contrary, in case of trading business
the goods are sold immediately after purchasing or sometimes the sale is affected even before
the purchase itself. Therefore, very little working capital is required. Moreover, in case of
service businesses, the working capital is almost nil since there is nothing in stock.
As per RBI Master circular on External Commercial Borrowing and Trade Finance 1 July
2011, the all-in cost ceiling for interest is now six month L + 200 bps(bps is Basis Points . A
unit that is equal to 1/100th of 1%) for buyer's credit arrange for tenure up to three years. All
cost ceiling includes arranger fee, upfront fee, management fee, handling and processing
charges, out-of-pocket and legal expenses, if any.
The above ceiling go revised on 15/11/2011 to 6 Month Libor + 350 bps and got further
extended on 30/03/2012 till 30/09/2012. From 01-10-2012 Maximum cap of 6 Month Libor +
350 bps has been extended till further review.
About vendor bills
A vendor bill is an invoice received for products and services that your company purchases. You can create a new vendor bill, or you can create a vendor bill from a purchase order or an item receipt. There are several ways to handle vendor bills.
Manage vendor bills
Work with vendor bills to make processing your financial transactions easier and more efficient. To learn more about different ways you can manage vendor bills, click the following links.
INVOICE DISCOUNTING
Invoice discounting is a form of short-term borrowing often used to improve a
company's working capital and cash flow position.
Invoice discounting allows a business to draw money against its sales invoices before the
customer has actually paid. To do this, the business borrows a percentage of the value of
its sales ledger from a finance company, effectively using the unpaid sales invoices
as collateral for the borrowing.
Although the end result is the same as for debt factoring (the business gets cash from its sales
invoices earlier than it otherwise would) the financial arrangement is somewhat different.
Features
When a business enters into an invoice discounting arrangement, the finance company will
allow the business to draw down a percentage of the outstanding sales invoices - usually in
the region of 80%. It is possible to achieve a full 100% advance rate but this is typically only
seen within the recruitment industry. As customers pay their invoices, and new sales invoices
are raised, the amount available to be advanced will change so that the maximum drawdown
remains at the agreed percentage of the sales ledger.
The finance company will charge a monthly fee for the service, and interest on the amount
borrowed against sales invoices. In addition, the finance company may refuse to lend against
some invoices, for example if it believes the customer is a credit risk, sales to overseas
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companies, sales with very long credit terms, or very small value invoices. The lender will
require a fixed charge over the book debts (trade debtors) of the business as security for the
funds it lends to the business under the invoice discounting arrangement.
Responsibility for raising sales invoices and for credit control stays with the business, and the
finance company will often require regular reports on the sales ledger and the credit control
process.
Benefits
By receiving cash as soon as a sales invoice is raised, the business will find that its cash
flow and working capital position is improved.
The business will only pay interest on the funds that it borrows, in a similar way to
an overdraft, which makes it more flexible than debt factoring.
Invoice discounting arrangements often have a simplified due diligence process
Invoice financing can be arranged confidentially, so that customers and suppliers are
unaware that the business is borrowing against sales invoices before payment is received.
PRESHIPMENT FINANCE
Pre Shipment Finance is issued by a financial institution when the seller want the payment of the goods before shipment. The main objectives behind preshipment finance or pre export finance is to enable exporter to:
Procure raw materials. Carry out manufacturing process. Provide a secure warehouse for goods and raw materials. Process and pack the goods. Ship the goods to the buyers. Meet other financial cost of the business.
Types of Pre Shipment Finance
Packing Credit Advance against Cheques/Draft etc. representing Advance Payments.
Preshipment finance is extended in the following forms :
Packing Credit in Indian Rupee Packing Credit in Foreign Currency (PCFC)
Requirment for Getting Packing Credit
This facility is provided to an exporter who satisfies the following criteria
A ten digit importerexporter code number allotted by DGFT. Exporter should not be in the caution list of RBI.
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If the goods to be exported are not under OGL (Open General Licence), the exporter should have the required license /quota permit to export the goods.
Packing credit facility can be provided to an exporter on production of the following evidences to the bank:
1. Formal application for release the packing credit with undertaking to the effect that the exporter would be ship the goods within stipulated due date and submit the relevant shipping documents to the banks within prescribed time limit.
2. Firm order or irrevocable L/C or original cable / fax / telex message exchange between the exporter and the buyer.
3. Licence issued by DGFT if the goods to be exported fall under the restricted or canalized category. If the item falls under quota system, proper quota allotment proof needs to be submitted.
The confirmed order received from the overseas buyer should reveal the information about the full name and address of the overseas buyer, description quantity and value of goods (FOB or CIF), destination port and the last date of payment.
Eligibility
Pre shipment credit is only issued to that exporter who has the export order in his own name. However, as an exception, financial institution can also grant credit to a third party manufacturer or supplier of goods who does not have export orders in their own name.
In this case some of the responsibilities of meeting the export requirements have been out sourced to them by the main exporter. In other cases where the export order is divided between two more than two exporters, pre shipment credit can be shared between them
Quantum of Finance
The Quantum of Finance is granted to an exporter against the LC or an expected order. The only guideline principle is the concept of Need Based Finance. Banks determine the percentage of margin, depending on factors such as:
The nature of Order. The nature of the commodity. The capability of exporter to bring in the requisite contribution.
Different Stages of Pre Shipment FinanceAppraisal and Sanction of Limits
1. Before making any an allowance for Credit facilities banks need to check the different aspects like product profile, political and economic details about country. Apart from these things, the bank also looks in to the status report of the prospective buyer, with whom the exporter proposes to do the business. To check all these information, banks can seek the help of institution like ECGC or International consulting agencies like Dun and Brad street etc.
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The Bank extended the packing credit facilities after ensuring the following"
a. The exporter is a regular customer, a bona fide exporter and has a goods standing in the market.
a. Whether the exporter has the necessary license and quota permit (as mentioned earlier) or not.
b. Whether the country with which the exporter wants to deal is under the list of Restricted Cover Countries(RCC) or not.
Disbursement of Packing Credit Advance
2. Once the proper sanctioning of the documents is done, bank ensures whether exporter has executed the list of documents mentioned earlier or not. Disbursement is normally allowed when all the documents are properly executed.
Sometimes an exporter is not able to produce the export order at time of availing packing credit. So, in these cases, the bank provide a special packing credit facility and is known as Running Account Packing.
Before disbursing the bank specifically check for the following particulars in the submitted documents"
a. Name of buyerb. Commodity to be exportedc. Quantityd. Value (either CIF or FOB)e. Last date of shipment / negotiation.f. Any other terms to be complied with
The quantum of finance is fixed depending on the FOB value of contract /LC or the domestic values of goods, whichever is found to be lower. Normally insurance and freight charged are considered at a later stage, when the goods are ready to be shipped.
In this case disbursals are made only in stages and if possible not in cash. The payments are made directly to the supplier by drafts/bankers/cheques.
The bank decides the duration of packing credit depending upon the time required by the exporter for processing of goods.
The maximum duration of packing credit period is 180 days, however bank may provide a further 90 days extension on its own discretion, without referring to RBI.
Follow up of Packing Credit Advance
3. Exporter needs to submit stock statement giving all the necessary information about the stocks. It is then used by the banks as a guarantee for securing the packing credit in advance. Bank also decides the rate of submission of this stocks.
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Apart from this, authorized dealers (banks) also physically inspect the stock at regular intervals.
Liquidation of Packing Credit Advance
4. Packing Credit Advance needs be liquidated out of as the export proceeds of the relevant shipment, thereby converting preshipment credit into postshipment credit.
This liquidation can also be done by the payment receivable from the Government of India and includes the duty drawback, payment from the Market Development Fund (MDF) of the Central Government or from any other relevant source.
In case if the export does not take place then the entire advance can also be recovered at a certain interest rate. RBI has allowed some flexibility in to this regulation under which substitution of commodity or buyer can be allowed by a bank without any reference to RBI. Hence in effect the packing credit advance may be repaid by proceeds from export of the same or another commodity to the same or another buyer. However, bank need to ensure that the substitution is commercially necessary and unavoidable.
Overdue Packing
5. Bank considers a packing credit as an overdue, if the borrower fails to liquidate the packing credit on the due date. And, if the condition persists then the bank takes the necessary step to recover its dues as per normal recovery procedure.
Preshipment Credit in Foreign Currency (PCFC)
3. Authorised dealers are permitted to extend Preshipment Credit in Foreign Currency (PCFC) with an objective of making the credit available to the exporters at internationally competitive price. This is considered as an added advantage under which credit is provided in foreign currency in order to facilitate the purchase of raw material after fulfilling the basic export orders.
The rate of interest on PCFC is linked to London Interbank Offered Rate (LIBOR). According to guidelines, the final cost of exporter must not exceed 0.75% over 6 month LIBOR, excluding the tax.
The exporter has freedom to avail PCFC in convertible currencies like USD, Pound, Sterling, Euro, Yen etc. However, the risk associated with the cross currency truncation is that of the exporter.
The sources of funds for the banks for extending PCFC facility include the Foreign Currency balances available with the Bank in Exchange, Earner Foreign Currency Account (EEFC), Resident Foreign Currency Accounts RFC(D) and Foreign Currency(NonResident) Accounts.
Banks are also permitted to utilize the foreign currency balances available under Escrow account and Exporters Foreign Currency accounts. It ensures that the requirement of funds by the account holders for permissible transactions is met. But the limit prescribed for maintaining maximum balance in the account is not exceeded. In addition, Banks may
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arrange for borrowings from abroad. Banks may negotiate terms of credit with overseas bank for the purpose of grant of PCFC to exporters, without the prior approval of RBI, provided the rate of interest on borrowing does not exceed 0.75% over 6 month LIBOR.
Packing Credit Facilities to Deemed Exports
4. Deemed exports made to multilateral funds aided projects and programmes, under orders secured through global tenders for which payments will be made in free foreign exchange, are eligible for concessional rate of interest facility both at pre and post supply stages.
Packing Credit facilities for Consulting Services
5. In case of consultancy services, exports do not involve physical movement of goods out of Indian Customs Territory. In such cases, Preshipment finance can be provided by the bank to allow the exporter to mobilize resources like technical personnel and training them.
Advance against Cheque/Drafts received as advance payment
6. Where exporters receive direct payments from abroad by means of cheques/drafts etc. the bank may grant export credit at concessional rate to the exporters of goods track record, till the time of realization of the proceeds of the cheques or draft etc. The Banks however, must satisfy themselves that the proceeds are against an export order.
Drawing Power
Drawing Power is the amount of Working Capital funds the borrower is allowed to draw from the Working Capital limit allotted to him. Because the working capital limit is usually allotted to a borrower against security of Stock and Book Debts, the amount of funds a borrower is allowed to draw is calculated by considering the total value of Stock plus total value of Book Debts for the month after deducting the margin. Margin is the component of funds raised from long term sources such as Share Capital and Term Finance (Long Term Loans). It is for this purpose that the borrower must regularly submit Stock and Book Debts Statement and Statement of Trade Creditors.
Drawing Power is calculated on the stock and book debt by reducing the margins as per banks norm. Drawing Power calculation sounds to be simple by definition. but it requires number of adjustment to be made before arriving at real Drawing Power of borrowers.
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Three Important Sources of Short-Term Financing
Important sources of short term financial planning are as follows:
First of all short-term financial planning must make a forecast of future cash flows. It has two
objectives – first, to decide whether the company will have surplus cash or cash deficit; and
second, whether it is of temporary or permanent nature. Firms normally examine cash flow at
quarterly intervals.
In nutshell, a company may require short-term financing on account of seasonality, negative
cash flows, and positive cash flow shocks.
Short-Term FinancingBank Loans Commercial Paper Secured financing
Following are the sources of short-term financing:
1. Bank Loans:
For short-term financing need of a small business, commercial banks are a good choice.
Banks provide three kinds of loans – Single, End-of-period Payment Loan (firms pay fixed or
variable interest on the loan and payback the principal sum in lump sum at the end of the
loan); lines of credit (a bank agrees to lend a company any amount up to a stated maximum –
it may be committed or uncommitted line of credit.
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In India the line of credit is usually in the form of cash credit and banks charge interest only
on the actual balance utilized; and floating charge is created in favor of the bank); and bridge
loans (to bridge the gap until a firm can arrange for long-term financing – the lender deducts
interest in the beginning from the loan proceeds). If the loan amount is too large for a single
bank, the loans may be arranged by one or more lead banks from a syndicate of banks, known
as syndicated loans.
2. Commercial Paper:
It is a short-term, unsecured debt used by large companies, and is cheaper than a short-term
bank loan. The average maturity of commercial paper is 30 days and the maximum maturity
is 270 days. Commercial paper may be direct paper (firm selling security directly to
investors) or dealer paper (dealers selling for a fee for their services).
In the US the minimum face value is $ 25,000 and most commercial paper has a face value of
minimum $ 1, 00,000. The Reserve Bank of India has introduced commercial papers in India
in 1989. Highly rated companies (with a minimum rating of P2 from rating agencies) can
issue commercial paper in India. Maturity period ranges between 15 days and 1 year.
Working Capital Cycle = 127 days + 82 days – 33 days
= 176 days
= 5 months 26 days.
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LAST FOUR YEARS OF WORKING CAPITAL CYCLE OF JINDAL SAW LTD.
Year Inventory Conversion
Period
(A)
Receivables Conversion
Period
(B)
Payables Conversion
Period
(C)
Working Capital Cycle
(A + B - C )
2009-10 93 Days 53 Days 20 Days 126 Days
2010-11 137 Days 88 Days 30 Days 195 Days
2011-12 148 Days 89 Days 29 Days 208 Days
2012-13 127 Days 82 Days 33 Days 176 Days
Jindal Saw Ltd.
Years
Working Capital Cycle
in Months2009-10 126 Days
(4 Months 6 Days)
2010-11 195 Days
(6 Months 15 Days)
2011-12 208 Days
(6 Months 28 days)
2012-13 176 Days
(5 Months 26 Days)
Four Years Analysis
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2009-10 2010-11 2011-12 2012-130
50
100
150
200
250
126
195208
176
Chart Title
Series1
ANALYSIS
It can be analysed from the above graph that the working capital cycle was of minimum days in the year 2009-10 and it was of maximum days in the year 2010-11.
In the year 2012-13 the working capital cycle was of 176 days which is of fewer days than its previous year and it is a good sign of working capital management system in the company.
FINDINGS
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The Company is India’s most diversified manufacturer and supplier of pipe products for the energy, water industry and other industrial applications.
Their customers include most of the world’s leading oil and gas companies, municipal corporations as well as engineering companies engaged in constructing oil and gas gathering, water transportation system, power and automobiles facilities.
Their principal products include (a) large diameter SAW pipes (Longitudinal Submerged Arc Welded (LSAW) and Helically Submerged Arc Welded (Spiral/ HSAW), (b) Seamless Tubes, and (c) Ductile Iron (DI) pipes.
Company’s manufacturing facilities are located in various parts in western, northern and southern part of India.
They are one of the largest global producers of Ductile Iron pipes with manufacturing facilities in India, UAE and Europe.
As at 30th Sep 2013, Net debt of the Company (standalone) was app. Rs 36,400 mio (app. USD 588 mio.) including ECB/ long term loans and fund based working capital and other unsecured loans.
The current order book includes export of app 25%. The major exports orders are from Middle East, Gulf region and South East Asia and Far East.
They have got major share in the Market. Company have location advantage as their competitive advantage. Company’s major competitors are Welspun Corp, Mahrashtra Seamless, Ratnamani
Metal & APL Apollo. The working capital cycle was of minimum days in the year 2009-10 and it was of
maximum days in the year 2010-11. In the year 2012-13 the working capital cycle was of 176 days which is of fewer days
than its previous year and it is a good sign of working capital management system in the company.
