prtoject report (Repaired)

8/7/2019 prtoject report (Repaired)

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An analysis of working capital of Nova Petrochemical Ltd.

8

I. CHAPTER

1.1 Introduction

Nova Petrochemicals Limited (NPL) was incorporated asa PublicLimited Company

on the 23rd December1993under the company act 1956, in the State ofGujarat. The

Company has been jointly promoted by two companies of the "Gupta" Group of

Surat and twocompaniesof the "Chiripal" Group of Ahmedabad. Both the groups

are engaged in the textiles business for the last two decades and have gained good

experience of manufacturing and selling varicose types of yarns.GSL Nova

Petrochemical is widely held company listed at Bombay Stock Exchange limited,

National Stock Exchange of India Ltd. and Ahmedabad Stock Exchange.Currently

company has facilities for production of Partially Oriented Filament Yarn (POY)

Fully Drawn Yarn (FDY).Textured Yarnsand Draw Twisted Yarns. The company is

also engaged in manufacturing Polyester Chips a backward integration of existing

operations. Polyesterchips in turn are produced from Poly Terephthalic Acid (PTA)

and Mono Ethylene Glycol (MEG). Polyester Chipsare the main raw materials for

production of filament and textured Yarns. Company requires lot of funds and that

work properly maintain the proper flow of fundsand maintain liquidity position of

company.

The manufacturing facilitiesand the registered Office of the company are located at

survey No. 396/403, Moraiya Village Sarkhej Bawala Highway, Dist.

Ahmedabad 382210.

The company had initially put up facilities to manufacture Partially Oriented Filament

Yarn (POY), Micro Filament Yarn, Textured Yarn and Draw Textured Yarn, With An


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installed capacity of 11977 TPA in two phases. The first phase with capacity to

manufactured 7497 TPA was completed in the year 1995-96 and the second phase

with capacity of 4480 TPA was implemented during the year 1996-97. The project

wasfunded by the term loan from state bankofIndia (Rs. 14.25 crores) and banksof

Baroda (Rs. 13.75crores) and the balance through Equity include a public issue the

company maiden public issue ofequity share ofRs, 10 eachforcashat a premium of

Rs. 20 per share, aggregating to Rs. 13.69 crores was completed on 13th February

1995 and public issue wasoversubscribed by three times.

During the year 2001, NPL implemented a backward integration project to

manufacture polyester chips, the basic raw materials for POY/PFY from PTA &

MEG. The lintier production of chips is being used for captive consumption. The

project set up withacapitaloutlay ofRs. 30.50 croreshas been funded by term loan

of Rs. 18.00 crores from UCO Bank, promoters equity RS. 6.00 crores and the

internal accruals Rs 6.50 crores.NPL by putting up this project could shave

substantially (around 6to 8 %) in the raw materials cost. Besides it also ensured

continuousand regularsupply ofraw materials withconsistent quality.

Lastly the company has put facilities to manufacture Fully Drawn Yarn (FDY). FDY

is similar to POY from the end use point of view. However the deference between

POY and FDY is that POY from Draw twisted or textured before it is Owen, but FDY

can be straight way taken to looms thus saving in additional cost for twisting or

texturing. The process of twisting or texturing is done on line in case of FDY. By

putting up the facilitiesfor FDY, the company would avail benefitsofvalue addition,

which is expected to be much more then the cost incurred on the facilities.


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NPL has put up a 7.5 MW solid fuel (lignite/coal/acrobats) based captive power

generation facility. The company is benefiting substantially from saving in cost of

power Thusover the year the company expended itscapacitiesofPOY and installed

facilities for Draw twisting & texturising of Yarn (both the value addition). The

expansions were funded pertly throughfresh debtsfrom Banks / Financial institutions

and partly through internalaccrualsand freshcontribution from the promoters by way

ofequity / unsecured loans.

Nova Petrochemicals derives its primary strength from its roots being firmly

entrenched in the soil. It was withan experience and exposure ofover 20 years in the

processing of fabrics, texturising, sizing, dyeing and exports of fabrics, that Nova

made itsforay into the manufacture ofPOLYESTER YARN - beginning, with POY

(Partially Oriented Yarn).Manufacture of Draw Twisted, Micro Filament and

Texturised yarn followed. The year was 1994.

Installed CapacityProduct Name Unit Install Capacity

Fully Drawn Yarn Metric Tonnes 18,912

Partially Oriented Yarn Metric Tonnes 39,220

Chips Polyester Metric Tonnes 52,800

Twisted Yarn Metric Tonnes 3,282

Texturised Yarn Metric Tonnes 3,011

Job Work(Other) - NA

Cloth - NA

Chips - NA


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1.2 Objective of the Study

Indian economy has witnessed a revolutionary change in present decade. Takeovers,

mergers, strategic alliances and PSU disinvestments have became buzzword in

present business environment as the privatization, globalization and liberalizationsof

the Indian economy gathered momentum. Since independence a wall in the name of

protection was built around the Indian economy, whichcontinued till 1991. However

the new economic policy, which was implemented by government ofIndia, changed

the whole scenario. The changing scenario of financial management in the present

economic conditions plays an important role for any kind of organization. The

condition of the economy ischanging every now and then. The daysof permit Raj,

protection, controls, monopolies regulations etc. of third & fourth five year plan are

gone. After the enunciation of open market economic policies during 1990-91 in

terms of liberalization of controls and globalization of market efforts, the study of

corporate finance in a global context has acquired significant importance . From

1990-91 onward India is witnessing avast change in financialsector (i.e.) relaxation

of interest rates, deregulation of prices, reduction of import dutiesliberalization of

foreign direct and portfolio investment, moves towardsa unified market determined

exchange rate, fully convertibility of rupees and trade accounts unimaginable

improvement in communication sector and tremendous development information

technology, tightening the grip of capital market etc. All these aimed at integrating

Indian economy with international economy. Thuscozy blanket ofprotectionism is no

more and the economy isopen up forforeign investment and MNCsare already in

Indian market in form of joint venture, collaboration etc. and the battle of royals

already exists in the Indian business environment. In other words law of jungle viaa


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survival of the fittest shall prevent in business environment for the years to come.

Such type of integration clearly shifted in favorofmore openness, increased internal

and externalcompetition and greater participation in international exchange ofgoods,

services, technology and capital. Thus the present day business is prevailing with

highly competitive environment where new and brave competitorsare grappling with

a world ofopportunities.

Hence with the changing scenario of present day business environment efficient

utilization of funds and earning of sufficient profit must be the aim of the finance

manager for existence and survival of business. Proper utilization of funds and

earning of sufficient surpluses ultimately depends upon the highly planned smooth

and efficient working capital management and long term investment. This iswhy

working capital management is regarded as the life blood and controlling nerve center

forall type ofbusiness. The role ofworking capital ishighly significant as it affects

both liquidity and profitability aspect of business enterprises. Sufficient amount of

working capital in form ofcash/receivables must be available to met current duesand

obligations. Lackof most liquid current assets may lead to insolvency and as such

may affect the goodwill position of the firm. Any suchsituation ultimately results in

drastic reduction in salesand business may close down. On the otherhand keeping

sufficient liquid funds in form of cash or other liquid assets also hampers the

profitability. This is because acurrent asset does not earn any profit. Profit accrues in

fixed assetsonly earn profit. Thusonly reasonable amount offunds must be invested

in current assets so that both liquidity and profitability position may be maintained

optimally.


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In the present study working capital management in GSL Nova PetrochemicalsLtd.

has been analyses to draw some conclusion on the management of working capital,

utilization offunds, liquidity position and managing various individualcomponentsof

current assetsand current liabilities.

The modern theory offinancial management suggest that the financialfunction must

providesaconceptualand analyticalframeworkforfinancial decision making and the

functionsoffinance coversallaspectsstarting from acquisition offunds toallocation

offundsfor different uses in optimum manner. Thus theobjective ofmodern financial

management to provide aframe worksforoptimum financial decision making. There

are three important financing decisions involved to achieve this objective (i.e.)

investment decisions, financing mix decision and dividend decision. Investment

decision is the most crucial financing function on the part of finance manager as

earning of sufficient surpluses mainly depends upon nature ofinvestment. Thus

procurement of funds at minimum cost and judicious utilization of the funds so

procured in termsofinvestment in fixed assets & working capitalare the basicaim of

financial management toachieve the objective ofwealth maximization. On the whole

the nature ofinvestment broadly falls into two broad groups.

(a) Investment in long term assets which shall yield return overa future period mainly

known ascapital budgeting.

(b) Investment in short term current assets which can be converted into cash usually

within a year termed as working capital management.

In present study attention is given on the role of working capital management for

achieving the overall financial objective and corporate goal. Working capital

management isan important and integral part offinancial management asshort term


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survival isa pre-requisite to long term sources. Further the role of working capital

management cannot be over emphasized on account oftrade offbetween profitability

and risk. Liquidity and profitability are twocontradictory and conflictingobjectives

which must be achieved to be ensured by the modern finance manager. The key

strategiesand consideration is ensuring trade-offbetween profitability and liquidity of

working capital management. On the whole basic ingredients of working capital

management are overviewsofworking capital management asa whole and efficient

management of individual current assets. Further working capital has considerable

impact on profitability. Though there is a considerable on the context ofacademic

debate about the impact ofworking capitalon the profitability ofafirm one schoolof

thought argues that only fixed capital playsavital role in profit generating process.

The otherschoolof toughargues that unless there isa minimum levelof investment

in working capital which providesa promising vehicle for increasingoutput and sales,

profitability cannot be maintained. Thus working capital acts as an explanatory

variable in the profit function of acompany. In this sense a firms profitability is

determined in part by way its working capital managed. An efficient management of

working capital can do much to ensure the success of an enterprise while its

inefficient management can lead tolossofprofit.

Furthercapital resourcesare scarce & limited by virtue of its nature. Being limited in

nature it arrests the pace ofdevelopment. An effective utilization ofcapital resources

is the vital aspect of our development policy and urgent to accelerate the pace of

development. Unfortunately in our country, industries do not make best use of

financial resources. The earlier emphasis is based only on long term financial decision

making. However it is seen that inefficient management of short term financial

decision making (i.e.) working capital management hascaused many business tofail


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and in many cases has arrest their growth. Lack of an efficient and effective

utilization of working capital either does not permit a business enterprise to earn

plausible rate of return on capital employed on compel it tosustain continual losses.

The need for skilled working capital management thus becomes greater in recent

years. In view ofthe above the present study devoted to working capital management

may be quite rewarding one.

Furthersample unit taken intoconsideration in the present study isa petrochemical

company. In general the company hasalways given enoughattention to the problems

ofworking capital planning. The assured availability ofeven current finance through

budgetary support makes them lax. Not only there working capital policy in

determinate planned levels of individual current assets is not always subjected to

rigorous exercises.

The present study also points out that a very important reason for slow

progressofthe organization is inefficiency in working capital management. Moreover

the study also indicates the factors responsible for slow progress of hydro power

development in India and some measures for solution to those problems &

constraints. It is worthy to mention here that the vast petrochemicals resources in our

country are yet to be tapped.

In the context ofthe above discussion the objectivesofthe present study are

mentioned below specifically.

1. Tohave some clear ideaabout variousaspectsof working capital management (i.e.)

concept of working capital, role and importance of working capital, concept of

working capital cycle, working capital forecasting, dimensionsof working capital

management, determinant ofworking capital etc.


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2. Tohave some concept about variousaspectsofcash management (i.e.) objective of

cash management, motives for holding cash, determining optimum cash balance,

techniquesofcash management , cashturnover ratio etc.

3. To have some idea about different aspects of receivable management and credit

policy.

4. To have some concept on aspect of inventory management(e.g.) various type of

inventory, determining optimum inventory, technique of inventory management, such

as ABC,VCD,FSN analysis , inventory turnover ratio & opportunities on inventory

management.

5. Toanalysis the working capital position ofsample unit.

6. Toknow the efficiency of working capital management throughanalysisofvarious

working capital ratio, trend analysis, growthofnet working capital etc.

7. Toanalyses the impact ofworking capitalon liquidity and profitability.

8. To analysis the various factors responsible for slow progress of polyester yarn

industry in India. And the solution ofthese problem.

9. Tostudy the constraintsofthe sample unit and remedies toovercome them.

10.Tostudy the future prospectsofsample unit and polyester yarn industry as well.

11.Toassess / commentson the overall working capital management ofthe sample unit.

The scope ofthe study restricted to twelve yearson the present case.


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1.3 Research Methodology

Research methodology isa way tosystematically solve the research problem. Itmay

be understood asa science ofstudying now research is donesystematically. In that

various steps, those are generally adopted by a researcher in studying his problem

along with the logic behind them.

It is important for research to know not only the research method but also know

methodology. The procedures by which researchers goabout their workofdescribing,

explaining and predicting phenomenon are called methodology.Methods comprise

the procedures used for generating, collecting and evaluating data. All this means that

it is necessary for the researcher to design his methodology for his problem as the

same may differfrom problem to problem.

Data collection is important step in any project and success of any project willbe

largely depend upon now muchaccurate you will be able tocollect and how much

time, money and effort will be required to collect that necessary data, this is also

important step.

Data collection plays an important role in research work. Without proper data

available foranalysis you cannot do the research workaccurately. The report is the

result of a survey which was undertaken in GSL NOVA PETROCHEMICALS

LIMITED. The objective ofthe project has been fulfilled by getting response from the

Employee's associated to these segments through a secondary data in finance

department. The responses available through the balance sheet and personal

Knowledge are used to evaluate the working capitalofthe company.


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The Research problem

The problem formulation is the first step to a successful research process. In the

summer training times the problem ofanalyzing the Working Capital management of

GSL Nova as a Proper evaluations of the company and to find out the different

analysis of company. The key strategies and consideration is ensuring trade-off

between profitability and liquidity ofworking capital management.

The Research Hypothesis

The researchhypothesis isan important step of research process. It providesa proper

and authentic base for resist ofbiasness. A formulation ofhypothesis becomescritical

process. The research hypothesis is ensuring trade-off between profitability and

liquidity ofworking capitalofGSL Nova petrochemicals Ltd.

The Research Design

The research design used in the project is Descriptive Research. The investigation is

carried upon the expansion project inNOVA Ahmadabad. The reason forchoosing

this design is to get responsesfrom the companys Balance sheet.

Methods of data collection

There are two typesofdatacollection methodsavailable.

1. Primary datacollection

2. Secondary datacollection

1) Primary data

The primary data is that data which iscollected freshorfirst hand, and forfirst time

which is original in nature. Primary data can collect through personal interview,

questionnaire etc. tosupport the secondary data.

2) Secondary data collection method


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The secondary dataare those whichhave already collected and stored.Secondary data

easily get those secondary datafrom records, journals, annualreportsofthe company

etc. It willsave the time, money and efforts tocollect the data. Secondary dataalso

made available through trade magazines, balancesheets, books etc.

This project is based on primary datacollected through personal interview ofhead of

account department, head ofSQC department and otherconcerned staffmemberof

finance department. But primary data collection had limitations such as matter

confidential information thus project is based on secondary information collected

through five years annual report of the company, supported by various books and

internet sides. The datacollection wasaimed at study ofworking capital management

ofthe company

The datahas been taken from Primary and secondary sources

Primary datasource

Finance & Accounting departments

Personalconsultation

Secondary datasource

Secondary data wascollected from following sources

Balance sheets

Websites

Books

Project is based on

1. Annual report ofNPL 2005-06


3. Annual report ofNPL2007-084. Annual report ofNPL 2008-09



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The Area of Work

The field work isconducted in the GSL NOVA PETROCHEMICALS LIMITED in

finance department. Where, we are studying about working capital management and

its evaluation.

Instruments Used

The analytical tools used are mostly graphical in nature which include.

Bar Charts

Line chart

Column chart

Table showing percentage

The Analytical Tools Used

Ratios Analysis

Important Balance Sheet Ratios measure liquidity and solvency (a business'sability to

pay its bills as they come due) and leverage (the extent to which the business is

dependent on creditors' funding). They include the following ratios:

Liquidity Ratios

These ratios indicate the ease of turning assets into cash. They include the Current

Ratio, QuickRatio, and Working Capital.

Current Ratios

The Current Ratio is one of the best known measures of financial strength. It is

figured asshown below:

Total Current Assets

Current Ratio = ____________________Total Current Liabilities


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The main question this ratioaddresses is: "Does your businesshave enoughcurrent

assets to meet the payment schedule ofitscurrent debts witha margin ofsafety for

possible losses in current assets, suchas inventory shrinkage orcollectable accounts?"

A generally acceptable current ratio is 2 to 1. But whetheror not aspecific ratio issatisfactory dependson the nature ofthe businessand the characteristicsofitscurrent

assetsand liabilities. The minimum acceptable current ratio isobviously 1:1, but that

relationship is usually playing it tooclose forcomfort.

Ifyou decide your business'scurrent ratio is toolow, you may be able to raise it by:

y Paying some debts.

y Increasing yourcurrent assetsfrom loansorother borrowings witha maturity ofmore

than one year.

y Converting non-current assets intocurrent assets.

y Increasing yourcurrent assetsfrom new equity contributions.

y Putting profits back into the business.

Quick Ratios

The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best

measuresofliquidity. It isfigured asshown below:

Cash + Government Securities + Receivables

QuickRatio = _________________________________________

Total Current Liabilities

The Quick Ratio is a much more exacting measure than the Current Ratio. By

excluding inventories, it concentrates on the really liquid assets, with value that is

fairly certain. It helps answer the question: "If all sales revenues should disappear,

could my business meet its current obligations with the readily convertible `quick'

fundson hand?"

An acid-test of 1:1 is considered satisfactory unless the majority of your "quick

assets" are in accounts receivable, and the pattern ofaccounts receivable collection

lags behind the schedule for paying current liabilities.


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Working Capital

Working Capital is more a measure ofcashflow than a ratio. The result ofthis

calculation must be a positive number. It iscalculated asshown below:

Working Capital = Total Current Assets - Total Current Liabilities

Bankers lookat Net Working Capitalover time to determine acompany'sability to

weather financial crises. Loans are often tied to minimum working capital

requirements.

A generalobservation about these three Liquidity Ratios is that the higher they are the

better, especially if you are relying to any significant extent on creditor money to

finance assets.

Leverage Ratio

This Debt/Worth or Leverage Ratio indicates the extent to which the business is

reliant on debt financing (creditor money versusowner's equity):

Total Liabilities

Debt/Worth Ratio = _______________

Net Worth

Generally, the higher this ratio, the more risky acreditor will perceive its exposure in

your business, making it correspondingly harder toobtain credit.

Income Statement Ratio Analysis

The following important State ofIncome Ratios measure profitability:

Gross Margin Ratio

This ratio is the percentage ofsales dollarsleft aftersubtracting the cost ofgoodssold

from net sales. It measures the percentage ofsales dollars remaining (afterobtaining

or manufacturing the goods sold) available to pay the overhead expenses of the

company.


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Comparison of your business ratios to those of similar businesses will reveal the

relative strengths or weaknesses in your business. The Gross Margin Ratio is

calculated asfollows:

Gross ProfitGross Margin Ratio = _______________

Net Sales

(Gross Profit = Net Sales - Cost ofGoods Sold)

Net Profit Margin Ratio

This ratio is the percentage ofsales dollars left after subtracting the Cost of Goods

sold and all expenses, except income taxes. It providesa good opportunity tocompare

your company's "return on sales" with the performance of othercompanies in your

industry. It iscalculated before income tax because tax ratesand tax liabilitiesvary

from company tocompany fora wide variety of reasons, making comparisonsafter

taxes much more difficult. The Net Profit Margin Ratio iscalculated asfollows:

Net Profit Before Tax

Net Profit Margin Ratio = _____________________Net Sales

Management Ratios

Other important ratios, often referred toas Management Ratios, are also derived from

Balance Sheet and Statement ofIncome information.

Inventory Turnover Ratio

This ratio revealshow well inventory is being managed. It is important because the

more times inventory can be turned in a given operating cycle, the greater the profit.

The Inventory Turnover Ratio iscalculated asfollows:

Net Sales

Inventory Turnover Ratio = ___________________________

Average Inventory at Cost

Accounts Receivable Turnover Ratio


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This ratio indicateshow wellaccounts receivable are being collected. If receivables

are not collected reasonably in accordance with their terms, management should

rethink itscollection policy. Ifreceivablesare excessively slow in being converted to

cash, liquidity could be severely impaired. The Accounts Receivable Turnover Ratioiscalculated asfollows:

Net Credit Sales/Year

__________________ = Daily Credit Sales365 Days/Year

Accounts Receivable

Accounts Receivable Turnover (in days) = _________________________

Daily Credit Sales

Return on Assets Ratio

This measureshow efficiently profitsare being generated from the assets employed in

the business when compared with the ratiosoffirms in asimilar business. A low ratio

in comparison with industry averages indicatesan inefficient use of businessassets.

The Return on Assets Ratio iscalculated asfollows:

Net Profit Before Tax

Return on Assets = ________________________Total Assets

Return on Investment (ROI) Ratio.

The ROI is perhaps the most important ratioofall. It is the percentage of return on

funds invested in the business by its owners. In short, this ratio tells theowner

whetheror not all the effort put into the businesshas been worthwhile. If the ROI is

less than the rate of return on an alternative, risk-free investment such as a bank

savingsaccount, the owner may be wiser tosell the company, put the money insucha

savings instrument, and avoid the daily strugglesofsmall business management. The

ROI iscalculated asfollows:

Net Profit before TaxReturn on Investment = ____________________

Net Worth


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These Liquidity, Leverage, Profitability, and Management Ratiosallow the business

owner to identify trends in a business and to compare its progress with the

performance of others through data published by various sources. The owner may

thus determine the business's relative strengthsand weaknesses.

SCOPE & LIMITATIONS OF THE STUDY

Scope of study

The scope of the study is identified afterand during the study isconducted.

The study of working capital is based on tools like trend Analysis, Ratio Analysis,

working capital leverage, operating cycle etc. Further the study is based on last5

years Annual ReportsofNova Petrochemicals Ltd. And even factorslike competitors

analysis, industry analysis were not considered while preparing this project.

Limitations of the study

Following limitations were encountered while preparing this project:

1) Limited data:-

This project has completed with annual reports; it just constitutesone part ofdata

collection i.e. secondary. There were limitations for primary datacollection because

ofconfidentiality.

2) Limited period:-

This project is based on five yearannual reports. Conclusionsand recommendations

are based on suchlimited data. The trend oflast five year may or may not reflect the

real working capital position ofthe company

3) Limited area:-

Also it was difficult tocollect the data regarding the competitorsand theirfinancial

information. Industry figures were also difficult to get

It is not possible to remove the limitation ofany investigators. So this project alsohas

certain limitation that is:


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1) Information was gathered through the rating ofthe subject, thus biasness is possible.

2) As the sample size was small it is possible that it may not represent the precise

picture.

3) Employeesofthe organization may hide the fact.

4) The management did not agree to disclose all the confidential data.

5) Numberofrespondents isvery less, soclearconclusion cant be drawn.


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II. CHAPTER

Industry Overview

A simplified industry value chain is depicted in the Diagrambelow:


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Industry Outlook

Partially oriented yarn/ Polyester filament yarn

Demand to accelerate, mainly supported by domestic market

The demand growth for PFY will be mainly supported by the domestic market. The

demand (domesticand derived) for PFY is expected to grow at a CAGRof7.3 percent

from 2008-09 to 2011-12, higher than previous five years CAGR of 4.8 percent

(2003-04 to 2008-09), mainly driven

by: Price competitivenessascompared tospun yarn Overall growth in domestic market.

The delta between cotton yarn and PFY has increased from Rs 10 perkg in 2004-05 to Rs

31 perkg in 2008-09. We expect this gap tofurther widen to Rs 39 perkg in 2009-10 and

2010-11. These widening gaps between PFY and cotton yarn prices will enhance the

competitiveness of PFY, leading to higher growth of the same.The domestic textile (readymade garmentsand home textile) market is expected to grow

at a CAGRof6-7 percent in the next 3 years (2008-09 to 2011-12). Within the domestic

market, growth will be led by rural markets.


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The growth in rural markets can be primarily attributed to rising rural incomes, and

preference for cheaper fabric (100 per cent non cotton fabric). This will support the

demand for PFY.

Utilization rates to improve from FY11 on the back of growing demand

Utilization ratesofPFY producers declined from 72 percent in 2007-08 to 63 percent in

2008-09, as total demand for PFY dropped by 5.5 percent y-o-y in 2008-09, due to the

sharp fall in export demand. In 2009-10, capacity additions by Alok Industries, Bhilosha

and Sumeet are expected to go on stream, which will exert downward pressure on

utilisation rates, causing them tofall to60 percent in 2009-10. However, post-FY10, with

growing demand and not muchcapacity additions expected utilization ratesare expected

toshow improvement.

PFY prices to fall spreads to contract

In 2008-09, PFY pricesaveraged at Rs 76.5. The PFY are expected prices toaverage at

Rs 66.5 per kg in 2009-10, on account of lower raw material cost. Prices are then

expected to recover marginally to Rs 68.5 perkg in 2010-11.

However, spreads of PFY are expected to contract as compared with Rs 16.5 per kg

(average from 2003-04 to2008-09) to Rs 14-15 per kg for 2009-11 on account ofover

capacity situation in the PFY industry.

Polyester chips


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Polyesterchipsare used by small POY/PFY manufacturers, as the continuous processing

plant for manufacture of POY is very capital intensive. There are many small POY

players, in and around Silvassaand Vapi, who buy PET chipsand extrude yarn from it to

sell to the polyestercluster in and around Surat.

India Polyester Demands

Secondary polyester yarn manufacturers increasing capacity, texturisersintegrating

backwards.

New applications increasing PET demand

Slow down in spun yarn exports, Southern Indiaspinners plagued by powershortages

-1%

8%

28%

6%

-0.05

0

0.05

0.1

0.15

0.2

0.25

0.3

POF PFY PET Total

Demand growth FY-O9

POF


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Company Overview

GSLNova Petrochemicals Profile

Nova Petrochemicals derives its

primary strength from its roots being

firmly entrenched in soil.

It was with an experience and

exposure of over 20 years in the

processing of fabrics, texturising,

sizing, dyeing and exportsoffabrics, that Nova made itsforay into the manufacture of

POLYESTER YARN - beginning, with POY (Partially Oriented Yarn).Manufacture

ofDraw Twisted, Micro Filament and Textures yarn followed. The year was 1994.

Wealth of Experience

Withacombined experience of50 years in textile related trade, encompassing in its

fold many and varied visages, the Nova Management has both the feeland the fallof

an industry which is extremely varied and versatile, being the single largest in the

Indian context and the second largest in the world.

Dedicated Management Team

Nova Petrochemicals has

a young and devoted

management team, fullof

enthusiasm,

Who, with their

dedication, leadsfrom the front thus motivating theirteam of professionals

andenabling them to give in their best?

Quality - an ongoing "process"

Novahasn't looked backsince. Six years down the line hasseen Nova products take

off. Reasonsare many and varied, but the prime being - quality at nocompromise.


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Strange is it may sound, to the arithmetically inclined - of quality leading to a

stupendous financial. Little wonder

then that each and every bobbin

comes in for quality checks, for atNova, each and every strand carries

weight and is neverallowed to drift.

Right from the purchase of raw

materials to the final product, Quality checksare carried out at eachand every stage.

Besides, online quality monitoring; checks are also carried out at the stage of post

production

Quality at Nova is therefore, more than a mere seven-letter word. It is a part and

parcelof itsvery existence, and itslongest drawn process; quite simply, because it is

an ongoing one.

That the organisation has grown in a period ofseven years because of itsadhering to

stringent quality controlsonly endorsesNova's decision to move ahead with quality in

tandem.

growth, and, in less than

a decade, but, then that is

what makes Nova

Petrochemicals a

different ball game, Team

spirits with quality being

the leader.

Computer Savvy

Facilitiesat Nova premisesare allcomputerized; not for the reason ofhaving to be,

but for the reason of wanting to be. The Nova philosophy is crisp and clear:

uniformity has to be in conformity with quality; and vice versa; and for that

correlation is the basic ingredient. This is possible iffacilitiesare comprehensive and

parameterscomputerized. Perfection, therefore, comes naturally toNova.


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State of the art Machinery

Going for the best and the largest, Novahas in its fold Barmag A G machinery for

POY spinning imported from Germany and ICBT Texturising machinery from France

- therefore world class manufacturing facilitiesat its plant.

Research & Development

In its quest, for both - defect free products and knowledge enhancement, the

farsighted Nova management attaches great importance to the research and

development function at its plant.

In the year 1999, for the first time in the

world, Nova Petrochemicals Ltd. hasinstalled latest 10 end parallel spinning

lines from Barmag AG, Germany, to

manufacture microfilament yarn.

Packaging

Packaging at Nova is not a mere consignment to

be packed and dispatched. It isan entity that is

wrapped with sensibility, safeguards and surety keeping its world wide standard in

mind.

Strategic Location

Distanced at only 30 kmsfrom Ahmedabad; 250 kmsfrom Surat and 500 kmsfrom

Mumbai, the three flagship towns of textiles and yarn business in India, the Nova

Petrochemicals plant is well connected by road, rail

and airservicesfrom the three metros.

Environment Consciousness

Nova Petrochemicalsattaches great importance related

causes. Always the one to being on asound footing, at

NOVA environment related issues are always taken

care of.


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Customer-CareCustomershave alwaysoccupied a place of pride at Nova. Clientsspecificationsarealways met with and various permutations and combinations carried out to their

satisfaction. Not only that, the Nova techno-marketing team visits the customersandguides them as to their purchase, soas to enable them to deliver maximum benefit.

This is because the Nova management firmly believes in long term association rather

than short term transactions. Customerat Nova is therefore, more than a mere client.

He isa patron.

EXPORTS

Nova today exports its texturised yarn to Turkey, Spain,

Italy, Germany, Peru, Tanzania, Brazil, Israel, France,

Portugaland Middle East, and its POY exports to Egypt,

Turkey, Spain, Portugal and

Nepal. The credit should go

to its quality care and

research and development team for this phenomenal

growth in exports.

Future Plans

Nova does not intend resting on its laurels. In fact, its

future plan includes manufacture ofchipsand backward

integration. Nova in the years tocome sees itselfasa leading supplierofPOY and

texturied yarn meeting the demandsofthe discerning and Quality consciouscustomer.


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HISTORY OF NOVA PETROCHEMICAL

YEAR EVENTS 1993 - Nova Petrochemicals Limited (NPL) was incorporated

asa Public Limited Company on the 23rd December, in the State ofGujarat and

has been issued the Certificate of Commencement of Business by the Registrar of

Companies, Gujarat, Dadara & Nagar Haveli on 5th January, 1994.

- The Company has been jointly promoted by twocompaniesof the "Gupta" Group

and two companies of the "Chiripal" Group. Both the groups are engaged in the

textiles businessfor the last two decades.

- The Company proposes toset-up a Unit to manufacture Partially Oriented Polyester

Filament Yarn at Village-Moraiya, Taluka-Sanand, and Dist - Ahmedabad.

1998 - The Ahmadabad-based Nova Petrochemicals Limited, manufacturing partially

oriented polyesterfilament yarn, plans to nearly double its production capacity from

21,891 tonnes perannum to 42,238 tonsat acost ofRs. 54.50 crores.

- The Company hasalready arranged financial tie-up for its expansion project with

Industrial Development Bankof Indiafor Rs. 15 croresand with State BankofIndia

and BankofBarodafor Rs. 7.50 crores each. The remaining Rs. 24.50 crores would

be found from cashaccrualsand promoterscontributions.

1999 - Nova Petrochemicals Ltd (NPL) has proposed to raise the installed capacity of

its POY Draw Twisting & Texturising plant at its Sanand facility near here from

25,521 TPA to 41,471 TPA by March.

2000 - Nova Petrochemicals Ltd, the Ahmadabad-based polyester yarn manufacturing

company, has tied-up with MS Technologies Inc, US, to diversify into software

development.


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- The Company has entered intoan agreement with MS Technologies Inc. ofUS for

developing software on a job workbasis.

2002-Nova Petrochemicals Ltd has informed that Board ofDirectorsofthe Company

have resolved to cease the appointment of Mr. Jyotiprasad Chiripal as permanent

Chairman of the Board and the Company in view of Corporate Governance

guidelines, howeverhe willcontinue tobe Whole-time Directorofthe Company.

2004 -Delist from Madras StockExchange Ltd (MSE) with effect from December 02,

2004. 2007-Nova Petrochemicals Limited has informed that "There is a change in

Company Secretary and Compliance Officer, Mr. Kalpesh Desai, Company Secretary

isappointed as the new Compliance Officerof the Company w.e.f. August 25, 2007

in place ofShri Kalpesh Oza.

2010-GSL Nova Petrochemicals Ltd hasappointed Shri. Anil Shyamsunder Singhal

asan Additional Director' on the Board ofthe Company in a Board Meeting held on

April 30, 2010.


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PRODUCTION:

During the financial year 2009-10 the GSL Nova Petrochemicals Ltd Production

graphchanged in comparison tolast five year productions.

374.71343.7

278.18

488.29

395.8

0

100

200

300

400

500

600

2005 2006 2007 2008 2009

PRODUCTIONPRODUCTI

YEAR


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SALES Vs PROFIT

During the period 2009-2010, GSL NOVA PETROCHEMICALS LTD had a

Production turnoverof34770.52 lacswithaNet lossof1516.33lacs.

374.71350.58

300.46

500.87

392.31

-15.17 -17.78 -16.37

1.38

-16.86

-100

0

100

200

300

400

500

600

2005 2006 2007 2008 2009

SALES

PROFIT


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GSL NOVA SALES IN THE YEAR 2009-10

You can view the entire product mix with Product names, Sales quantity &

Value along with percentage contribution from each individual product.

Product Name Year Month Sales Quantity UOM Sales Value

(Rs in Cr.)

Product

Mix

Fully Drawn Yarn 2009 12 15486827 Kgs 144.15 39.11

Partially Oriented

Yarn2009 12 18002491 Kgs 128.94 34.98

Chips Polyester 2009 12 7851582 Kgs 42.86 11.62

Twisted Yarn 2009 12 2589960 Kgs 31.65 8.58

Texturised Yarn 2009 12 1350228 Kgs 12.08 3.27

Job Work(Other) 2009 12 0 7.95 2.15

Cloth 2009 12 177057 Metres 0.93 0.2

You can view the entire Raw material mix with Raw material names,

quantity & Value along with percentage contribution from each

individual raw material.

Product Name Year/Month Sales Quantity UOM Sales Value

(Cr)

Product

Mix

Purified Terephthalic Acid (PTA) 0903 27,932,260 Kgs 106.57 47.32

Polyester Chips 0903 12,137,041 Kgs 67.86 30.13

Mono Ethylene Glycol (MEG) 0903 11,028,355 Kgs 40.97 18.19

Others 0903 0 NA 9.81 4.35


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GSL NOVA PETROCHEMICALS LTD.

The mission ofGSLNOVA PETROCHEMICL is to contribute positively to the

Economic Growthof INDIA through businessand industrial pursuits endeavoring to

achieve excellence in all spheres of such activity with effective and efficient

management.

To produce the highest quality products by utilizing the latest technology in

the industry.

Toconduct our business responsibly by fulfilling ourcustomers' expectations

with excellence.

To create a challenging, healthy, and safe working environment for our

employees.

To lead our industry in customer satisfaction, quality of production, and acommitment to excellence.

MMMIIISSSSSSIIIOOONNN /// VVVIIISSSIIIOOONNN


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Authorized Capital Rs.500 Lacs

Value of Assets Rs.1592 Lacs

Paid Up Capital Rs. 270 Lacs

Not available

Projects Under Construction Not available

Projects Awaiting Clearances Not available

Projects Under Survey and Investigation Stage Not available

Joint Venture Projects Not available

Projects on Turnkey Basis Not available

In 2009-2010 (Rs in cr.)

Production 347.70 crores

Capacity Index 64.1%

Sales Turnover 347.70 crores

Net Profit/loss (15.16 crores)

Performance Rating "slight loss"

In 2008-2009 (Rs in cr.)

Production

Net Profits

343.70 crores

-29.89 crores

Capacity Index 60.61%

Sales Turnover 343.70 crores

In 2007-2008 (Rs in cr.)


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Capital Structure

Period nstrument Authorized

Capital

Issued

Capital

- P A I D U P -

rom o (Rs. cr) (Rs. cr) Shares (no

s)

Face Value Capital

2008 2009 quity Share 50 27 27000000 10 27

2007 2008 quity Share 50 27 27000000 10 27

2006 2007 quity Share 50 27 27000000 10 27

2005 2006 quity Share 25 13.5 13500000 10 13.5

2004 2005 quity Share 25 13.5 13500000 10 13.5

2003 2004 quity Share 25 13.5 13500000 10 13.5

2002 2003 quity Share 25 13.5 13500000 10 13.5

2001 2002 quity Share 25 13.5 13500000 10 13.5

2000 2001 quity Share 25 10.1 10100000 10 10.1

1999 2000 quity Share 25 10.1 10100000 10 10.1

1996 1999 quity Share 20 9.5 9499780 10 9.5

1995 1996 quity Share 20 9.5 9499780 10 9.5

1994 1995 quity Share 20 0 80 10 0


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-200.00

300.00800.00

1,300.001,800.002,300.002,800.003,300.003,800.004,300.004,800.005,300.005,800.006,300.00

6,800.007,300.007,800.008,300.008,800.00

Market Cap. (Rs. cr

Sales Turnover

Net Profit


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GSL NOVA Shareholding Pattern (Promoters Holding /Non Promoters Holding)

Share Holding as on : 30 Jun 2010 31 Mar 2010 31 Dec 2009

Face Value 5.00 5.00 5.00

No. Of

Shares

%

Holding

No. Of

Shares

%

Holding

No. Of

Shares

%

Holding

PROMOTER'S HOLDING

Indian Promoters 12,012,880 44.49 12,012,880 44.49 8,491,880 31.45

Sub Total 12,012,880 44.49 12,012,880 44.49 8,491,880 31.45

NON PROMOTER'S HOLDING

Institutional Investors

Banks Fin. Inst. and

Insurance600 0.00 600 0.00 600 0.00

Sub Total 600 0.00 600 0.00 600 0.00

Other Investors

Private Corporate

Bodies8,545,804 31.65 8,727,452 32.32 10,297,622 38.14

NRI's/OCB's/Foreign

Others708,223 2.62 702,022 2.60 601,281 2.23

Others 148,448 0.55 114,414 0.42 287,969 1.07

Sub Total 9,402,475 34.82 9,543,888 35.35 11,186,872 41.43

General Public 5,584,045 20.68 5,442,632 20.16 7,320,648 27.11

GRAND TOTAL 27,000,000 100.00 27,000,000 100.00 27,000,000 100.00


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Board of Directors

S.No Name Designation

1 Mr. Shyam Gupta Chairman / Chair Person

2 Mr. R C Jain Director

3 Mr. Anil Shyamsunder Singhal Additional Director

4 Mr. Sandeep Goyal Director

5 Mr. Sunil Kumar Gupta Managing Director

Key Executives

S.No Name Designation

1 Mr. HarishN Motwani Co. Secretary & Compl. Officer

2 Mr. C. V. Khandelwal President

3 Mr. Rajendra M Mehta Vice President (Finance)

4 Mr. Mukesh Khandelwal Vice President (Technical)


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ORGANIGATION STRUCTURE

Board ofDirectors

Managing Directors

Vice President

(Poly-Condense)

Vice President (Works) General Manager (Fin)

General Manager/D.G.M.

Mechanic Electrical Power Plant Productio

C. S. ManagerA/C

StaffManager

Officers

Staff


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III. CHAPTER

INTRODUCTION

WORKING CAPITAL

Working capital, alsoknown as net working capitalorNWC, isafinancial metric which

representsoperating liquidity available to a business. Along with fixed assets such as

plant and equipment, working capital isconsidered a part ofoperating capital. An entity

hasa working capital deficiency, alsocalled a working capital deficit.

Working Capital = Current Assets Current Liabilities

A company can be endowed withassets 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 isable to continue its operationsand that it has sufficient funds to

satisfy both maturing short-term debt and upcoming operational expenses. The

management ofworking capital involves managing inventories,accounts receivable and

payable and cash.

Calculation

Current assets and current liabilities include three accounts which are of special

importance. These accounts represent the areasof the business where managershave the

most direct impact:

accounts receivable (current asset)

inventory (current assets),

accounts payable (current liabilities)

Accounts receivable

Accounts receivable (A/R) isone ofaseriesofaccounting transactions dealing with the

billing ofcustomers whoowe money toa person, company ororganization forgoodsand

services that have been provided to the customer. In most business entities this is

typically done by generating an invoice and mailing or electronically delivering it to the

customer, who in turn must pay it within an established timeframe called credit or

payment terms.


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Companiescan use theiraccounts receivable ascollateral when obtaining aloan (asset-

based lending) orsell them throughfactoring. Poolsor portfoliosofaccounts receivable

can be sold in the capital markets throughasecuritization.

Bookkeeping for Accounts Receivable

Companieshave two methodsavailable to themfor measuring the net value ofaccount

receivables, which iscomputed by subtracting the balance ofan allowance account from

the accounts receivable account.

The first method is the allowance method, which establishes a liability account,

allowance for doubtful accounts, or bad debt provision, that has the effect of reducing

the balance foraccounts receivable.

The second method, known as the direct write-offmethod, issimpler than the allowance

method in that it allows for one simple entry to reduce accounts receivable to its net

realizable value.

INVENTORY

Inventory isalist for goodsand materials, or those goodsand materials themselves, held

available in stock by a business. It isalso used foralist of the contentsofahouseholdand foralist for testamentary purposesof the possessionsofsomeone whohas died. In

accounting inventory isconsidered anasset.

Handlesall functions related to the tracking and management of material. This would

include the monitoring of material moved intoand out ofstockroom locationsand the

reconciling of the inventory balances. Also may include ABC analysis, lot tracking,

cycle counting support etc.

Management of the inventories, with the primary objective ofdetermining. Controlling

stock levels within the physical distribution function to balance the need for product

availability against the need for minimizing stockholding and handling costs.

Labels: Inventory Management, Procurement, Supply Chain, Supply Chain Management


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Business inventory

The reasonsforkeeping stock

There are three basic reasonsforkeeping an inventory:

1. Time - The time lags present in the supply chain, from supplier to userat every stage,

requires that you maintain certain amount ofinventory to use in this "lead time"

2. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand,

supply and movementsofgoods.

3. Economiesofscale - Idealcondition of"one unit at a time at a place where user needs it,

when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk

buying, movement and storing brings in economiesofscale, thus inventory.

All these stockreasonscan apply toany owneror product stage.

Bufferstock isheld in individual workstationsagainst the possibility that the upstream

workstation may be alittle delayed in long setup orchange-over time. Thisstock is then

used while that change-over is happening. This stock can be eliminated by tools like

SMED.

Typology

1. Buffer/safety stock

2. Cycle stock (Used in batch processes, it is the available inventory excluding buffer

stock)

3. De-coupling (Bufferstockthat isheld by both the supplierand the user)

. Anticipation stock (building up extra stock for periodsof increased demand - e.g. ice

cream forsummer)

5. Pipeline stock (goods still in transit or in the process of distribution - have left the

factory but not arrived at the customer yet)

Inventory examples

Raw materials - materialsand componentsscheduled for use in making a product.

Work in process, WIP - materialsand components that have begun their transformation

tofinished goods.


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Finished goods - goods ready forsale tocustomers.

Goodsfor resale - returned goods that are salable.

Spare parts

For example:

Manufacturing

A canned food manufacturer's materials inventory includes the ingredients to form the

foods to be canned, empty cans and their lids (or coils of steel or aluminum for

constructing those components), labels, and anything else (solder, glue ...) that willform

part ofafinished can. The firm's work in process includes those materialsfrom the time

ofrelease to the workfloor until they become complete and ready forsale to wholesale

or retailcustomers.

Hence high level financial inventory has these two basic formulas which relate to the

accounting period:

1. Cost of Beginning Inventory at the start of the period + inventory purchases within

the period + cost of production within the period = cost of goods

2. Cost of goods cost of ending inventory at the end of the period = cost of goods sold

The benefit of these formulae is that the first absorbsalloverheads of production and

raw material costs in to a value of inventory for reporting. The second formula then

creates the new start point for the next period and givesa figure to be subtracted from

sales price to determine some form ofsales margin figure.

Manufacturing management is more interested in inventory turnover ratio or

average days to sell inventorysince it tells them something about relative inventory

levels.

Inventory turnover ratio (also known as inventory turns) = cost of goods sold /

Average Inventory = Cost of Goods Sold / ((Beginning Inventory + Ending

Inventory) / 2)

and its inverse


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By helping the organization to make better decisions, the accountantscan help the public

sector tochange in avery positive way that delivers increased value for the taxpayers

investment. It can also help to incentivize progress and to ensure that reforms are

sustainable and effective in the long term, by ensuring that success is appropriatelyrecognized in both the formaland informal reward systemsofthe organization.

FIFO VS LIFO ACCOUNTING

When a dealer buys goodsfrom inventory, the value of the inventory is reduced by the

cost ofgoodssold (COGS). This issimple where the COGS have not varied across those

held in stock; but where it has, then an agreed method must be derived to evaluate it.

Two popular methods which normally exist are:FIFO and LIFO accounting (first in -

first out, last in - first out). FIFO regards the first unit that arrived in inventory as the first

one sold. LIFO considers the last unit arriving in inventory as the first one sold.

STANDARD COST ACCOUNTING

Standard cost accounting uses ratios called efficiencies that compare the labourand

materialsactually used to produce a good with those that the same goods would have

required under "standard" conditions. As long assimilaractualand standard conditions

obtain, few problemsarise.

In adverse economic times, firms use the same efficiencies to downsize, right size, or

otherwise reduce theirlaborforce. Workerslaid offunder those circumstanceshave even

lesscontrolover excess inventory and cost efficiencies than their managers.

Theory of Constraints cost accounting

Eliyahu M. Goldratt developed the Theory of Constraints in part to address the cost-

accounting problems in what he calls the "cost world". He offers a substitute, called

throughput accounting, that uses throughput (money for goods sold to customers) in

place of output (goods produced that may sell or may boost inventory) and considers

laborasafixed rather than asavariable cost. He defines inventory simply as everything

the organization owns that it plans to sell, including buildings, machinery, and many

other things in addition to the categorieslisted here.


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NATIONAL ACCOUNTS

Inventories also play an important role in national accounts and the analysis of the

business cycle. Some short-term macroeconomic fluctuations are attributed to the

inventory cycle.

Distressed inventory

Also known as distressed or expired stock, distressed inventory is inventory whos

potential to be sold at a normalcost hasor willsoon pass. In certain industries it could

also mean that the stockisor willsoon be impossible tosell.

Inventory credit

Inventory credit refers to the use of stock, or inventory, ascollateral to raise finance.

Where banks may be reluctant toaccept traditionalcollateral, for example in developing

countries where land title may be lacking, inventory credit isa potentially important way

ofovercoming financing constraints.

ACCOUNTS PAYABLE

(CURRENT LIABILITY)

Accounts payable isafile oraccount that contains money that a person orcompany owes

tosuppliers, but has not paid yet (aform ofdebt). When you receive an invoice you add

it to the file, and then you remove it when you pay.

The IAPP has established a new definition ofaccounts payable:

Accounts payable is a strategic, value-added accounting function that performs the

primary non-payroll disbursement functions in an organization. As such, the AP

operation plays a critical role in the financial cycle of the organization. AP enables an

organization to accomplish its objectives by bringing a systematic, disciplined approach

to evaluate and improve the effectiveness of the entire payables process. In addition to

the traditionalAP activities whereby liabilities to third-party entities (suppliers, vendors,

taxing authorities, etc.) are recognized and paid based on the credit policies agreed to

between the company and its suppliers, today's AP departments have taken on much


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wider roles including fraud prevention, cost reduction, workflow system solutions, cash-

flow management, internal controls and vendor (supply chain) financing.

Heres what Accounts Payable Now & Tomorrow suggests:-

1) Set up a single e-mail address to be used exclusively for the receipt of invoices.

Whoever is responsible for either processing the invoices that come into thisaddressor

forwarding them for approval should have the password, as should their backup and

perhaps the department manager. The important thing is the e-mailaccount not belongs

to one person but several in case of absences etc.

2) Set up a dedicated fax number to be used foraccounts payable invoicesonly. Invoices

can be retrieved throughout the day and integrated into the normal accounts payable

workflow.

3) Set up an e-fax facility to receive faxed invoices intoan e-mailaccount. Thisshould

eliminate the problem of illegible invoices. .

4) Make sure your new e-mail address and fax number are included in all

correspondence withvendors, especially yourNew Vendor Welcome kit.

EXPENSE ADMINISTRATION

Expense administration is usually closely related to accounts payable, and sometimes

those functionsare performed by the same employee. The expense administratorverifies

employees' expense reports, confirming that receipts exist to support airline, ground

transportation, mealsand entertainment, telephone, hotel, and other expenses.

INTERNAL CONTROLS

A variety of checks against abuse are usually present to prevent embezzlement by

accounts payable personnel so that there is no way any one employee even the

controller can singlehandedly make a payment.

Some companies also separate the functions of adding new vendors and entering

vouchers. In addition, most companies require a second signature on cheques whose

amount exceedsaspecified threshold.

Accounts payable personnel must watch for fraudulent invoices. In the absence of a


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purchase ordersystem, the first line ofdefense is the approving manager.

AUDITS OF ACCOUNTS PAYABLE

Auditorsoften focuson the existence ofapproved invoices, expense reports, and other

supporting documentation tosupport checks that were cut. Auditors typically prepare an

ageing structure ofaccounts payable fora better understanding ofoutstanding debtsover

certain periods (30, 60, 90 days, etc). Such structures are helpful in the correct

presentation ofthe balance sheet asofyear end.

An increase in working capital indicates that the business has either increasedcurrent

assets (that is received cash, orothercurrent assets) orhas decreasedcurrent liabilities,

for example has paid offsome short-term creditors.

CASH BALANCE:

Current Assets - Current Liabilities excluding deferred tax assets/liabilities, excess

cash, surplus assets and/or deposit balances.

Itemsoften attract aone-for-one purchase price adjustment.

WORKING CAPITAL MANAGEMENT

Decisions relating to working capitaland short term financing are referred toasworking

capital management. These involve managing the relationship between a firm'sshort-

term assetsand itsshort-term liabilities. The goalofworking capital management is to

ensure that the firm isable tocontinue itsoperationsand that it hassufficient cashflow

tosatisfy both maturing short-term debt and upcoming operational expenses.

Decision criteria

By definition, working capital management entails short term decisions - generally,

relating to the next one year periods - which are "reversible". These decisions aretherefore not taken on the same basisas Capital Investment Decisions (NPV or related,

asabove) rather they will be based on cashflowsand / or profitability.

One measure ofcashflow is provided by thecashconversion cycle - the net numberof

daysfrom the outlay ofcash for raw material to receiving payment from the customer.


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tocash" through "factoring".

Working capital is directly affecting by other management issues, suchas product mix,

supply chain design and business model (for example agent vs. distributor).

Accounting Policies ofGSLNOVA Petrochemicals Ltd.a. BasisofAccounting

The accounts are prepared on historical cost convention on an accrual basis and

materially comply with the mandatory accounting standards issued by the Institute of

Chartered AccountantsofIndia.

b. Fixed Assets

Fixed Assetsare stated at cost, net ofConvert, lessaccumulated depreciation. Allcosts,

including financialcosts tillcommencement ofcommercial production.

c. Depredation

Depreciation on Fixed Assets other than Plant and Machinery has been provided on

"Straight Line Method" at the rates provided in Schedule XIV to the Companies Act,

1956. Depreciation on Plant and Machinery has been provided on "Written down Value

Method" at the rates provided in Schedule XIV to the Companies Act, 1956.

d. Inventories

Inventoriesat year-end are valued at the lowerofcost and net realizable value. The basis

ofdetermining the cost forvariouscategoriesofinventories isasfollows:

(i) In case ofRaw Materials, Stores, Spares, Fueland Packing Materialson FIFO basis.

(ii) In case ofFinished Goodsand Work-in-Progresson FIFO basis.

e. Sales

Salesare accounted foron dispatchofgoods to the customersand are inclusive ofExcise

Duty and Sales Tax but net ofsales returnsand trade discounts.

f. Investments

Long Term Investmentsare stated at itscost.

g. Borrowing Cost

Borrowing Costs that are attributable to the acquisition or construction of qualifying

assetsare capitalized as part of the cost of suchassets. All other borrowing costsare

charged to revenue.


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h. Taxation

) Provision forcurrent tax is made and retained in the accountson the basisof estimated

tax liability as per the applicable provisionsofthe Income Tax Act, 1961.

i) Deferred Tax resulting from timing differences between bookand tax profit isaccounted

for under the liability method, at the current ratesof tax, to the extent that the timing

differencesare expected tocrystallize.

Provisions, Contingent Liabilitiesand Contingent Assets

Provisions involving substantial degree of estimation in measurement are recognized

when there isa present obligation asa result ofpast eventsand it is probable that there

will be an outflow of resources. Contingent liabilities are not recognized but are

disclosed in the notes to accounts. Contingent Assets are neither recognized nor

disclosed in the financialstatement.

j. Employee Benefits

(i) The employee and Company make monthly fixed Contribution to Government of

India Employees Provident fund equal to a specified percentage of the covered

employees salary, Provision for the same is made in the year in which service are

rendered by the employees.

(ii) The Liability for Gratuity to employee, which isa defined benefit plan, is determined

on the basis of actuarial Valuation based on Projected Unit Credit method. Actuarial

gain/Loss in respect ofthe same ischarged to the profit and lossaccount.

(iii) Leave encashment benefit to eligible employee has been ascertained on actuarial

basisand provided for. Actuarial gain/loss in respect ofthesame ischarged to the profit

and lossaccount.


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IV. CHAPTERFindings

Balance Sheet of GSL NovaPetrochemicals ------------------- in Rs. Cr. -------------------

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Sources OfFunds

Total Share Capital 13.50 13.50 27.00 27.00 27.00

Equity Share

Capital13.50 13.50 27.00 27.00 27.00

Share Application

Money 0.00 0.00 0.00 0.00 0.00

Preference Share

Capital0.00 0.00 0.00 0.00 0.00

Reserves 50.27 44.79 13.36 -16.53 -31.70

Revaluation

Reserves0.00 0.00 0.00 0.00 0.00

Net worth 63.77 58.29 40.36 10.47 -4.70

Secured Loans 144.63 129.90 107.95 111.88 112.40

Unsecured Loans 21.21 19.31 27.92 50.55 51.31

Total Debt 165.84 149.21 135.87 162.43 163.71

Total Liabilities 229.61 207.50 176.23 172.90 159.01

Mar 05 Mar '06 Mar '07 Mar '08 Mar '09


Application OfFunds

Gross Block 358.79 359.89 361.29 365.15 366.42

Less: Accum.Depreciation

155.54 180.29 201.75 220.89 237.70

Net Block 203.25 179.60 159.54 144.26 128.72

Capital Workin

Progress3.33 3.04 3.05 1.01 1.09

Investments 0.27 0.27 0.07 0.02 0.03


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Inventories 33.95 26.76 23.30 32.17 26.23

Sundry Debtors 27.34 38.92 34.30 50.14 44.20

Cashand Bank

Balance

1.21 2.13 0.25 1.88 1.55

Total Current Assets 62.50 67.81 57.85 84.19 71.98

Loansand

Advances47.15 43.20 24.88 29.88 21.47

Fixed Deposits 4.29 3.81 3.89 2.18 1.93

Total CA, Loans &

Advances113.94 114.82 86.62 116.25 95.38

Differed Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 90.39 89.35 72.05 87.55 64.95

Provisions 0.80 0.86 1.00 1.10 1.25

Total CL &

Provisions91.19 90.21 73.05 88.65 66.20

Net Current Assets 22.75 24.61 13.57 27.60 29.18

Miscellaneous

Expenses0.00 0.00 0.00 0.00 0.00

Total Assets 229.60 207.52 176.23 172.89 159.02

Contingent

Liabilities19.39 35.33 68.56 43.28 64.50

BookValue (Rs) 47.24 43.17 14.95 3.88 -1.74


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Income statement ofGSL Nova Petrochemicals Ltd. for the last 5 years.

(Rs. in cr)

Mar '

09

Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05

Operating Income 347.71 343.70 278.18 488.29 395.80

ExpensesMaterial Consumed 257.16 271.06 203.95 389.03 317.89

ManufacturingExpenses

36.49 29.03 29.46 29.31 26.66

Personnel Expenses 5.59 5.17 6.46 8.23 7.46

Selling Expenses 26.65 27.47 20.27 17.65 15.48

Administrate Expenses 3.00 4.42 3.99 3.36 5.91

Expenses Capitalized 0.00 0.00 0.00 0.00 0.00

Cost Of Sales 328.89 337.14 264.14 447.58 373.40

Operating Profit 18.82 6.56 14.04 40.70 22.40

Other Recurring

Income

0.97 0.99 1.19 1.26 1.29

Adjusted PBDIT 19.79 7.55 15.24 41.96 23.68

Financial Expenses 17.09 17.05 19.23 19.73 20.07

Depreciation 16.87 19.27 21.51 24.75 28.25

Other Write offs 0.00 0.00 0.00 0.00 0.00Adjusted PBT -14.16 -28.77 -25.50 -2.52 -24.64

Tax Charges 0.27 0.48 -9.58 1.78 -8.42

Adjusted PAT -14.43 -29.25 -15.93 -4.30 -16.22

Non Recurring Items -0.73 -0.53 -0.61 -0.93 -1.24

Other Non Cash

adjustments

0.00 -0.11 -1.40 -0.26 0.60

Reported Net Profit -15.16 -29.89 -16.53 -5.23 -16.86

Earnings Before

Appropriation

-59.99 -44.83 -14.94 2.99 8.48

Equity Dividend 0.00 0.00 0.00 0.00 0.00

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Dividend Tax 0.00 0.00 0.00 0.00 0.00

Retained Earnings -59.99 -44.83 -14.94 2.99 8.48


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Working Capital Statement oflast 5yrs. (Rs. in cr.)

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05

Sales 347.71 350.58 300.46 500.87 392.31

Other Income 0.97 0.80 0.00 0.00 5.16

Stock Adjustment 11.76 -6.81 6.57 11.62 4.26

Raw Material 228.82 269.42 192.73 368.44 294.44

Power And Fuel 0.00 0.00 0.00 0.00 0.00

Employee Expenses 5.59 5.82 6.44 7.89 7.46

Excise 0.00 0.00 21.91 0.00 0.00

Admin And Selling Expenses 0.00 0.00 0.00 0.00 0.00

Research And Development

Expenses

0.00 0.00 0.00 0.00 0.00

Expenses Capitalized 0.00 0.00 0.00 0.00 0.00

Other Expenses 83.57 69.55 58.81 67.74 68.99

Provisions Made 0.00 0.00 0.00 0.00 0.00


Interest 17.09 12.42 18.89 18.74 20.07

Gross Profit 1.85 0.98 -4.89 26.44 2.25

Depreciation 16.87 18.68 21.49 25.04 28.25

Taxation 0.15 0.08 -10.01 0.02 -9.14

Net Profit / Loss -15.17 -17.78 -16.37 1.38 -16.86

Extra Ordinary Item 0.00 0.00 0.00 0.00 0.00

Prior Year Adjustments 0.00 0.00 0.00 0.00 0.00

Equity Capital 27.00 27.00 27.00 13.50 13.50

Equity Dividend Rate 0.00 0.00 0.00 0.00 0.00

Agg.OfNon-Prom. Shares (in

Lacs)

87.77 87.44 93.35 36.22 36.22

Agg.OfNon Promote Holding (%) 32.50 32.38 34.57 26.84 26.84

OPM (%) 5.16 3.59 4.65 9.02 4.37


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Cash Flow ofGSLNova

Petrochemicals------------------- in Rs. Cr. ---------------

Mar

'05

Mar

'06

Mar

'07

Mar

'08

Mar

'09


Net Profit Before Tax -16.86 -5.49 -17.93 -29.89 -15.16

Net Cash From Operating Activities 66.19 38.02 30.97 -5.38 7.97

Net Cash (used in)/from

Investing Activities

-11.69 -0.94 -0.05 -2.47 -1.19

Net Cash (used in)/from Financing

Activities

-54.68 -36.66 -32.72 7.77 -7.35

Net (decrease)/increase In Cashand

Cash Equivalents

-0.18 0.43 -1.80 -0.08 -0.57

Opening Cash & Cash Equivalents 5.68 5.51 5.93 4.14 4.06

Closing Cash & Cash Equivalents 5.51 5.93 4.14 4.06 3.48

GPM (%) 0.53 0.27 -1.62 5.27 0.56

NPM (%) -4.35 -5.06 -5.44 0.27 -4.24

EPS (in Rs.) -2.81 -3.29 -3.03 0.51 -6.24


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Accountsfor the year ended 31st March 2009. (OPERATIONAL & FINANCIALS )

The highlightsare as under:- (Rs. in Lacs)

Particulars 2008-09 2007-08

Net Sales 34770.52 34372.13

Profit before Interest, Depreciation & Tax 1893.67 652.88

Less: Interest & Financial Charges 1708.95 1705.21

Depreciation 1686.55 3395.50 1926.79 3632.00

Profit / (Loss) before Tax (1501.83) (2979.12)

Less: Provision for Tax 14.50 10.00

Add : Provision for Deferred Tax Nil Nil

Profit After Taxation/(Loss) (1516.33) (2989.12)

Add: Balance Brought from Previous Year (4482.85) (1493.73)

Profit Available for Appropriations (5999.18) (4482.85)

Less:

Appropriations

(a) Dividend Nil Nil

(b) General Reserve Nil Nil

Balance Carried to Balance Sheet (5999.18) (4482.85)


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Data analysis

The operational and financial results of the company

Performance:

Despite the downturn in the economy and continuing recession, your company has

achieved Net SalesofRs. 347.70 croresascompared to previous yearsNet SalesofRs.

343.72 crores. The Profit before Interest, Depreciation and Tax (PBDIT) was up by 190

% from Rs 6.53 crores in FY 2007-08 to Rs 18.94 crores in the FY 2008-09. The net loss

during the year under review placed lowerat Rs.15.16 croresascompared to net lossof

Rs. 29.89 crores in the previous year. The major reasonsfor improvement attributed to

decrease in the price of raw material, fuel etc. from a peak in July-August, 2008 and

bettersales realization in last two quartersofthe year under review.

Reference to Boards for Industrial and Financial Reconstruction (BIFR) Under

SICA

In view ofaccumulated losses exceeding entire net worthofthe Company ason 31.03.09

and pursuant tocompliance ofSection 15 of

Sick Industrial Companies (Special Provision) Act,1985 the Company shall make a

reference to Board for Industrial And Financial Reconstruction (BIFR) for the purpose of

enabling the BIFR to take suitable measures for rehabilitation of the Company after

adoption ofaccounts for the year ended 31.03.2009 by the shareholdersat the ensuing

Annual General Meeting.

ReconstructionsofBanks Duse Under CDR Mechanism:

Yourcompany had requested the banksand Corporate Debt Restructuring Cell (CDR)


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for extension ofPeriod ofReliefunder the CDR Mechanism

Approval for other concessions. The CDR-Empowered Group has approved the

reworked proposalfor restructuring on 25th March, 2009. The approval wasconveyed to

all the banks by CDR Cellvide theirletter dated 31.03.09. As per CDR directives, all the

banksare supposed tosanction and implement the same within 45 daysfrom the receipt

ofthe letter by them. Revised financial restructuring package consist ofre-schedulement

ofterm loans installments including extension ofmoratorium, furtherfunding ofinterest,

increasing cover period ofbookdebts up to 90 days etc.

Dividend :

Due toloss incurred by the Company during the year 2008-09, your directors regret their

inability to recommend any dividend on the Equity Share Capital.


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YEARLY RESULTS OF NOVA PETROCHEMICALS ..In Rs Cr

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

Sales Turnover 500.87 278.55 350.58 347.71 293.40

Other Income -- -- 0.80 0.97 0.84

Total Income 500.87 278.55 351.38 348.68 294.24

Total Expenses 455.69 264.55 337.98 329.74 276.88


Profit On Sale OfAssets -- -- -- -- --

Profit On Sale Of

Investments

-- -- -- -- --

Gain/Loss On Foreign

Exchange

-- -- -- -- --

VRS Adjustment -- -- -- -- --

Other Extraordinary

Income/Expenses

-- -- -- -- --

Total Extraordinary

Income/Expenses

-- -- -- -- 2.30

Tax On Extraordinary Items -- -- -- -- --

Net Extra Ordinary

Income/Expenses

-- -- -- -- --

Gross Profit 45.18 14.00 13.40 18.94 17.36

Interest 18.74 18.89 12.42 17.09 13.14

PBDT 26.44 -4.89 0.98 1.85 6.52

Depreciation 25.04 21.49 18.68 16.87 11.35


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Depreciation On

Revaluation OfAssets

-- -- -- -- --

PBT 1.40 -26.38 -17.70 -15.02 -4.83

Tax 0.02 -10.01 0.08 0.15 --

Net Profit 1.38 -16.37 -17.78 -15.17 -4.83

Prior Years

Income/Expenses

-- -- -- -- --

Depreciation for Previous

Years Written Back/

Provided

-- -- -- -- --

Dividend -- -- -- -- --

Dividend Tax -- -- -- -- --

Dividend (%) -- -- -- -- --

Earnings Per Share 1.02 -- -- -- --

BookValue -- -- -- -- --

Equity 13.50 27.00 27.00 27.00 13.50

Reserves 51.65 14.90 -4.42 -31.70 --

Face Value 10.00 10.00 10.00 10.00 5.00


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Reported Return On Net Worth (%) 0.00 -285.61 -40.96 -8.97 -26.43

Return On long Term Funds (%) 2.33 -8.42 -4.36 10.14 -2.45

LEVERAGE RATIOS

Long Term Debt / Equity 0.00 12.29 2.56 1.91 1.92

Total Debt/Equity 0.00 15.52 3.37 2.56 2.60

Ownersfund as % oftotal Source -2.95 6.05 22.90 28.08 27.77

Fixed Assets Turnover Ratio 0.94 0.94 0.76 1.36 1.10

LIQUIDITY RATIOS

Current Ratio 1.44 1.31 1.19 1.27 1.25

Current Ratio (Inc. ST Loans) 0.71 0.74 0.62 0.69 0.63

QuickRatio 1.04 0.94 0.86 0.82 0.67

Inventory Turnover Ratio 20.48 15.42 21.71 30.61 18.37

PAYOUT RATIOS

Dividend payout Ratio (Net Profit) 0.00 0.00 0.00 0.00 0.00

Dividend payout Ratio (Cash Profit) 0.00 0.00 0.00 0.00 0.00

Earning Retention Ratio 0.00 0.00 0.00 0.00 0.00

Cash Earnings Retention Ratio 100.00 0.00 100.00 100.00 100.00

COVERAGE RATIOS


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Adjusted Cash Flow Time Total Debt 67.19 0.00 24.33 7.29 13.78

Financial Charges Coverage Ratio 1.16 0.44 0.79 2.13 1.18

Fin. Charges Cov.Ratio (Post Tax) 1.10 0.37 1.26 1.99 1.57

COMPONENT RATIOS

Material Cost Component(% earnings) 70.57 81.73 71.98 78.46 79.23

Selling Cost Component 7.66 7.99 7.28 3.61 3.91

Exportsas percent ofTotal Sales 0.00 0.00 0.00 0.77 1.39

Import Comp. in Raw Mat. Consumed 5.96 2.28 7.04 4.12 11.28

Long term assets / Total Assets 0.57 0.55 0.65 0.61 0.64

Bonus Component In Equity Capital (%) 50.00 50.00 50.00 0.00 0.00


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PERFORMANCE HIGHLIGHTS

Despite the downturn in the economy and continuing recession, your company has

achieved Net SalesofRs. 347.70 croresascompared toprevious yearsNet SalesofRs.

343.72 crores. The Profit before Interest, Depreciation and Tax (PBDIT) was up by 190

% from Rs 6.53 crores in FY 2007-08 to Rs 18.94 crores in the FY 2008-09. The

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