135
SUMMER TRAINING PROJECT REPORT ON “WORKING CAPITAL MANAGEMENT” OF PUNJAB TRACTOR LIMITED Submitted in partial fulfillment of MASTER OF BUSINESS ADMINISTRATION 1
SUMMER TRAINING
PROJECT REPORT
ON
“WORKING CAPITAL MANAGEMENT”
OF
PUNJAB TRACTOR LIMITED
Submitted in partial fulfillment of MASTER OF BUSINESS ADMINISTRATION
Presented By Deepak Kapoor
1
PREFACE
Theoretical knowledge without practical knowledge is of little value. In order to achieve
positive & concrete results along with theoretical concept the exposure of real life
situation existing in corporate is very much needed. To fulfill this need the management
course has a provision for the practical training program. I thank my institute to provide
us such opportunity having training period in our course so that students can have real
feeling of industrial life.
I took my summer training in Punjab Tractor Ltd Mohali, Punjab. It was my fortune to
get training in very healthy atmosphere. I got ample opportunity to views the overall
working of the evaluation of finance program of HMT Ltd. (Tractor Division).
In the coming pages an attempt has been made to present a comprehensive report is
concerning different aspects.
2
ACKNOWLEDGEMENT
With deep consent and pleasure, I would like to express my gratitude to all those who
helped me in the preparation of this project. Without their co-operation the work would
not have been possible.
First of all I wish to express my profound gratitude and sincere thanks to Mr. Grewal
(Head of Finance Department of PTL), and Mr. Mahesh Gupta who gave me an
opportunity to undertake my summer training in Punjab Tractor Ltd.
I am thankful to my project guide Mr. C.L.Singla and Mr. Neeraj Sharma for providing
me guidance and the necessary information to complete my project. I will always be
obliged to him for the knowledge that he shared with me and experience that I gained by
working with him.
Last but not the least I am thankful to all the employees of Punjab Tractor Ltd. For their
wholehearted and mobilizing behavior in making my training a real success.
Thanks to all of them.
3
Deepak Kapoor.
EXECUTIVE SUMMARY
In this report of mine I have made an effort to study and analyze various aspects related
to working capital of PUNJAB TRACTORS LTD.
Efforts have been made to determine the various components of current liabilities
of the company and to study how the company manages and controls the components of
working capital. I have also tried to analyze the current working capital and liquidity
positions of the company.
4
Table Of Contents-:INDEX PAGE NUMBER
Chapter 1 1.i Introduction and 6-17 Industry Profile. 1.ii Company Profile. 18-40
Chapter 2 Objectives of Study 41-42
Chapter 3 Research Methodology. 43-44
Chapter 4 Introduction to Working Capital. 45-88
Chapter 5 Conclusions and Recommendations. 89-93
Bibliography. 94-95
5
Chapter-I(i) INDIAN TRACTOR INDUSTRY -AN OVERVIEW
6
7
BACKGROUND
Earlier, most of the population of India was engaged in agriculture (about 90%)
this was in 1950’s and the Indian agriculture was mainly dependent on rains for irrigation
except a few isolated pockets being irrigated through canals and tubewells. People hardly
used chemicals and pesticides and even the major agricultural operations life ploughing,
planking, etc. were carried down by million of bullocks. As a result, India could not
produce enough to feed its 370 million people, despite 135 million hectares of land under
cultivation. To meet the excessive demand, heavy expenditure was incurred on import of
food grains. Import of food grains proved a compulsive drain on scarce foreign exchange
reserves of our country. All this initiated Indian government to give highest priority to
development of agriculture in its five-year plan programme.
Irrigation, being the key operation in agriculture, was accorded great important in
the Five Year Plans. A stress was laid on the improvement in agricultural output through
use of advanced technology. Importing tractors made extensive use of effective and
improved equipments. All these developments made mechanization mandatory for
agriculture. This also increased demand for tractors. Our Government encouraged
manufacturing of tractors in India to save its foreign currency reserves. As a result, a few
plants were set up but Indian technology at that time was not in a position to design and
manufacture indigenous tractors. So the plants were mainly set up for manufacturing
tractors with the help of some foreign collaboration.
8
INDIAN TRACTOR INDUSTRY
THE BEGINNING.
Indian Tractor Industry took birth in 1959-60 when the first tractor-manufacturing
unit was established. However, this industry found a firm footing only after the turbulent
period of 1968-74, during which the acceleration which should have emerged from the
upsurge in demand generated by the Green Revolution was navigated by large-scale
imports of fully built tractors and screw-driver assembly of CKD (Completely Knocked
Down) kit by a number of operators who entered with de-licensing in 1968 for making a
quick buck. By 1973-74 when imports were banned, 22 manufacturers remained.
It is in an environment of intense competition between 11 manufacturers that our
tractor industry has grown during the last 30 years. During this period, it has become not
only a major segment of our engineering industry but with a population of 1,30,000
tractors in 1990, our country became the second largest tractor producer in the world.
There could be no better index of the intensity of competition than the fact that all makes
of tractors have been available off-the-shelf for the last 2 decades and market share of no
single manufacturer exceeds 20%.
The development of tractors industry from the very beginning i.e. 1959-60 till date can be
divided into the following four phases:
1. First phase of development (1959-68)
9
Demand for tractors was low till late sixties. There was a sudden upsurge in the
demand of tractors after 1967 and it started multiplying at an annual rate of nearly 50%.
A natural consequence of this sharp upsurge and upsurge and consequent shortage was
heavy price of premium on tractors. Five tractors manufacturing units came up in this
decade:
Eicher Tractors Ltd. (1959)
Tractors and Builders Ltd. (1964)
International Tractors Ltd. (1965)
Government policies in respect of the development of tractor industry in the first phase
were dictated by their anxiety to promote mechanization of agriculture encouraging local
manufacturer of tractors along with the import of tractors from Eastern Europe. At, the
same time, government protected the interests of the farmers by making tractors available
to them at reasonable prices.
2. Second phase of development:
The government decision to freely invite new entrepreneurs to tractor
manufacture in 1968 backed by Green Revolution, led to the establishment of six more
units in this industry. They were:
Escorts Tractors Ltd. (1971)
Hindustan Machine Tools Ltd. (1971)
Kirloskar Tractors Ltd. (1974)
Punjab Tractors Ltd. (1974)
Pittie tractors Ltd. (1974)
10
Harsha Tractors. Ltd. (1975)
The combined output of 11 units has risen to 32,000 by 1975. In the Second phase of
development of tractor industry, emphasis was on indigenization of tractors, so
government deli censed the tractor industry in 1968 and then banned import of fully built
tractors in 1974. There was expansion in rural branches of banks and rural lending
increased. The pace of irrigation facilities also increased and government extended full
support to old and new manufacturers to speedily establish them.
3. Third phase of development.
The boom in the tractor industry in the late seventies led to the setting up of two
more units for the manufacture of tractors. These were:
Auto Tractors Ltd. (A.U.P. Government enterprise) (1981)
Partap Steel Rolling Mills Ltd. (Tractor Division) (1983)
Banning of imports and increased competition due to increase in number of tractor
manufacturers led to the growth in local production. The tractor industry saw a rapid
growth of 6% from 1982-87.
4. Fourth Phase of development.
After 1987 the tractor industry further picked up because of the priority given by
the Government to agriculture. The excise was exempted on tractors below 1800cc and
financing norms were also relaxed in 1986. The minimum land holding was also reduced
from 10 acres to 8 acres and repayment period was increased from 7 to 9 years. After
11
this, average growth of 15% was experienced fro 1988-92 which was due to green
revolution. After six years of rapid growth demand for tractors showed a decline of 4% in
1992-93 and 3.8% in 1994-95. Sales dropped from 1.51 lacs in 1991-92 to 1.38 lacs in
1993-94. The decline was due to the following factors:-
Land development bank, an important source of finance, collapsed.
Depression in market due to credit squeeze.
Decrease in production of cash crops.
Political uncertainty.
But after that tractor industry again started growing and tractor sales went to 1.64 lakhs in
1994-95 and further to 1996-97.
12
CRITICAL PARAMETERS FOR GROWTH OF
TRACTOR INDUSTRY
AGRICULTURAL CREDIT
Nearly 90-95% tractors are purchased with the help of bank credit. It plays an important
role in determining the demand for tractors.
PRICING OF TRACTORS.
The financial inability of the Indian farmers makes the pricing a critical parameter.
Companies that managed to keep their costs low are the ones that managed to survive
during the reversionary period.
MONSOONS AND CROP PRICES.
The farmers have to pay say 15% of the total price of the tractor, in cash, at the booking
stage; Consequently, if the farmer is faced with bad monsoons and low crop prices, he
will not be able to make the initial down payments.
GOVERNMENT POLICIES
To enable a farmer to purchase a tractor against these odds, the government introduced
subsidies in this sector. During the union budget of 1994-95 the government exempted
excise on small HP tractor I. e. below 1800 cc. In the budget of 2004 all the tractors were
exempted from excise duty.
13
IMPORTS
The industry has managed to reduce its dependence on imports, as many players have
indegenised their inputs, which were earlier Imported.
PRIORITY TO RESEARDCH & DEVELOPMENT
Even though all tractor-manufacturing units, except the Swaraj, were initially set up with
foreign collaboration, tractor industry has been on its own for the last decade. Al tractors
have been nearly 100% indigenous and almost all product improvement and new
products have come through indigenous Research and Development (R&D). Capital R &
D investment by industry today exceeds Rs. 22 crores and the recurring annual
expenditure is at the level of Rs. 7 crores. Emphasis on R & D is in the steady increase in
the number and price range of competing models available to customers to choose from.
Reflection of emphasis on R & .D in the line with national priorities is the steady
improvement in the Fuel efficiency ensured on the basis of the average of fuel efficiency
figures of tractors in different power ranges during mandatory tests at Government of
India’s Testing Station at Bundi in Madhya Pradesh.
WIDENING RANGE FOR CUSTOMER CHOICE
Intense competition in tractor industry all through the last 44 years, has naturally led to a
steady increase in the variety of models for farmers to choose from. Industry today offers
43 models, and special variants to suit regional needs and special usage are often
available in many models. Tractors offered cover a horsepower range from 15-60 and
prices cover the entire spectrum from Rs. 1,00,000 to Rs. 4.5 lacs per tractors.
14
EMERGING MARKETS
In the total mature markets, which include Punjab, Haryana and U.P., sales proportion
has fallen from 55.4% in FY 93 to 37.8% in FY 97. With sales in these markets
plateauing, tractor manufacturers are now zeroing in on the central and
Southern markets in the country. These are the areas with enormous potential and are
called emerging markets. The share of these emerging markets like Madhya Pradesh,
Maharashtra, Gujarat, Tamil Nadu, Karnataka, Andhra Pradesh and Rajasthan has
increased from 41% in 1992-93 to 55.9% in 1996-97. Among these markets, states like
Madhya Pradesh, Andhra Pradesh and Maharashtra have the highest growth. Some of the
tractor manufacturers have entered the exports area; M & M has increased exports from
132 tractors in 1993-94 to 1853 in 2002-03. Emerging export markets potential are
America, Nepal, Sri Lanka, Malaysia and Bangladesh.
In order to be competitive, the players in Indian Tractor Industry will have to reset to
manufacturing after cutting out many of the frills in their lower HP tractors.
15
TRACTOR MARKET – A CYCLICAL TREND
Contours of the crash in the farm income due to unprecedented stretch of poor monsoons
have slowed down the sales of domestic tractor industry. As a result, our tractor industry
after its milestone of 273,000 tractors in FINANCIAL YEAR 1999-2000 nose-dived
below 1,60,000 in 2002-03. Capping a down cycle that began in July-Sept. 1999, last
year’s fall of 60,000 tractors even from the 2001-2002 shrunken base of 2,18,000 shows
the steepest annual fall in the tractor industry’s chequered 40 years history
Signaling the widespread nature of the draught and reflecting the broad spectrum of
depressed market environment, demand slow down was noticed in all states including the
bigger markets of U.P., M.P., Punjab, Haryana, Rajasthan, and Gujarat, accounting for
more than 80% of the fall in tractor sales. In direct pointer towards reduced buying
power, + 40 HP segment of the tractors market witnessed a much grater drop. For PTL,
because of its stronger position in both the larger states and in the higher HP segments,
the impact was all the more severe. In the event, PTL’s tractor volumes for the year 2002-
03 sided down to 24200 fro 40100 in 2001-02. Not withstanding this slowdown, several
industry players maintained production to match the large growth of the recent past. This
raised inventory in the system to high levels further compounding the problem. Monsoon
in 2002-03 had been timely, well spread and also adequate in quantum. This had raised
the expectation of a bumper kharif crop resulting in a significant rebound in far income.
Industry observers believe that these are hopeful signs for the Tractor industry.
Indian Tractor industry today comprises of 14 players, 3 of whom are
multinational corporations. Given the size of farm holdings and geo-climatic conditions,
31 to 40 HP segment is the largest one, accounting for around 49% of total sales while
16
below 30 HP segment represents some 19% of total sales. Balance 32% comes from the
+40 HP range. While the demand pattern during the 1970s and 1980s was heavily skewed
in favour of northern states (principally Punjab, Haryana and western parts of Uttar
Pradesh), since late 1990s the pattern has shifted towards Central, Southern, Western and
Eastern states.
Demand Drivers for Tractor Sales.
It has observed that there are three important determinants of tractors sales:
Infrastructure creation in agricultural sector.
Availability of credit to the agricultural sector.
Crop prices.
17
Chapter –I(ii)
PUNJAB TRACTORS LIMITED.
- A COMPANY PROFILE
18
19
PRICEPRICE QUALITYQUALITY
SERVICESERVICE
MOTTO OF PTL
“CORE BELIEFS”
1. WE HAVE A LONG – STANDING RELATIONSHIP WITH THE FARM &
FARMING COMMUNITY THE NATIONAL HERTAGE AS WELL AS THE
NATIONAL AGENDA, WHICH PROVIDES US WITH IMMENSE GROWTH
OPPORTUNITES.
2. OUR STRENGTH IS THE INVOLVEMENT OF OUR PEOPLE, TEAM SPIRIT,
And THEIR INTEGRITY ABIDING LOYALITY & LIFE TIME COMMITMENT TO
THE SWARAJ ENTERPRISE.
3. WE SEEK COPRPORATE EXCELLENCE AND PROFITS THROUGH ETHICS
PASSION AND PERSERVERANCE.
4. WE CONSIDER OUTSELVES CUSTODIANS AND TRUSTERS OF ALL OUR
CONSTITUENCIES – OUR CUSTOMERS, EMPLOYEES, BUSINESS ASSOCIATES,
SHAREHOLERDRS AND SOCITY AND PURSUE THE RESPONSIBILITY ROR
CREATION OF WEALTH FOR THEM WITH MISSIONARY ZEAL.
20
PUNJAB TRACTORS LTD.
BOARD OF DIRECTORS
P.D. NARANG (Chairman)
S.K. TUTEJA
DONALD PECK
STEVEN ENDERBY
N. MOHANRAJ
M. RAGHAVENDRA
HARDEEP SINGH
DALJIT MIRCHANDANI
P. SIVARAM (Chief Operating Officer)
A.M. SAWHNEY (Director – Marketing)
MEMBERS OF THE EXECUTIVE BOARD
P.L. SHARMA
R.K. MANRAO
P.K. NANDA
VICE PRESIDENT – FINANCE & COMPANY
SECRETARY
M.N.KAUSHAL
21
AUDITORS
M/S. S. TANDON & ASSOCIATES,
CHARTERED ACCOUNTANT
BANKERS
INDIAN OVERSEAS BANK
CANARA BANK
STATE BANK OFINDIA
REGISTERED OFFICE
PHASE – IV, INDUSTRIAL S.A.S. NAGAR (MOHALI),
PUNJAB – 160055.
22
COMPANY PROFILE
PUNJAB TRACTORS LIMITED (PTL)
A joint sector company, of the Punjab Government, which went into commercial
promotion in the early 70’s, is a unique example of technological self-reliance in a high
technology area like the automotive sector in the country. The Punjab State Industrial
Development Corporation (PSIDC) promoted it.
In 1965, Central Mechanical Engineering Institute (CMERI, Durgapur) a national
Laboratory of the Govt. of India took the bold step of taking up the design &
Development of totally Indian know-how for 26.5 H.P. agricultural tractors. The go
ahead signal given by Indian government to indigenous automobile manufacturers for
collaboration with foreign units had developed over whelming national prejudice against
the Indian technology. The Swaraj technology, coming in the wake of such national
prejudice, was totally rejected at the highest level of national decision making despite all
and pronouncements for not only serious mental blocks but also a number of financial
adds working against the development & introduction of the Swaraj tractors.
However, undeterred the Punjab Govt. decide to take up the challenge through its
state industrial development corporation and despite all hurdles and constraints the
projects was completed in March 1974.
The development of tractor industry from the very beginning i.e. 1959-60 till date can be
divided into the following five phases:
23
1. First Phase of Development (1959-68): -
Demand for tractors was low late sixties. There was a sudden upsurge in the
demand of tractors after 1967 and demand started multiplying at an annual rate of nearly
50%. A natural consequence of this sharp upsurge and consequent shortage was heavy
price premium of tractors.
Five Tractor Manufacturing units came up this decade:
Eicher Tractors Ltd.(1959)
Tractors and builders Ltd (1963)
Tractors and Farm Equipment Ltd. (1963)
Escorts Ltd. (1964)
International Tractors Ltd. (1965)
Government policies, in respect of the development of tractor industry in the first phase
were dictated by their anxiety to promote mechanization of agriculture by encouraging
local manufacturers of tractors along with the import of tractors from Eastern Europe. At
the same time. Government protected the interests of the farmers by making tractors
available to them at reasonable prics
2. Second Phase of Development (1968-80): -
The Government decision to freely invite new entrepreneurs to tractor manufacture in
1968 backed by Green Revolution, led to the establishment of six more units in this
industry.
24
They were.
Escort Tractors Ltd.(1971)
Hindustan Machine Tools Ltd. (1971)
Kirlosker Tractors Ltd. (1974)
Punjab Tractors Ltd. (1974)
Pittie Tractors Ltd. (1974)
Harsha Tractors Ltd. (1974)
The combined out put of 11 units had risen to 32000 by 1975. In the second phase of
development of tractor industry, emphasis was on indigenization of tractors, so
government de-licensed the tractor industry in 1968 and then banned import of fully built
tractors in 1974. There was expansion in rural branches of banks and rural lending
increased. The pace of irrigation facilities also increased and government extended full
support to old and new manufacturers to speedily establish them.
3. Third Phase of Development (1981-86): -
The boom it the tractor industry in the late seventies led to the setting up of two
more units for the manufacture of tractor.
These were:
Auto Tractors Ltd. (A.U.P. Government enterprise) (1981)
Partap Steel rolling Mills Ltd. (Tractor Division) (1981)
Banning of imports and increased competition due to increase of tractor manufacturers
led to growth in local production. The tractor industry saw a rapid growth of 6% from
1982-87.
25
4. Fourth Phase of Development (1987-2000): -
After 1987 the tractor industry further picked up because of the priority given by the
government to the agriculture. The excise was exempted on tractors below 1800cc and
the financing norms were also relaxed in 1986. The minimum land was also increased
from 7 to 9 years. After this, average growth of 15% was experienced from 1988-92,
which was due to green revolution. After six years of rapid growth demand for tractors
showed a decline of 4% in 1992-93 and of 3.8% in 1994-95. Sales dropped firm 1.51 lacs
in 1991-92 to 1.38 lacs in 1993-94. The decline was due to the following factors:
Land development bank, an important source of finance, collapsed.
Depression in market due to credit squeeze.
Decrease in production of cash crops.
Political uncertainty.
But after that tractor industry again started growing and tractors sales went to 1.64 lacs in
1994-95 and further to 2.21 lacs in 1996-97.
5. Fifth Phase of Development (2001 onwards): -
This phase has seen a downfall in the tractor industry sales. The main reasons behind it
being, drought conditions in many agri-states, poor price realization of farm produce by
farmers and over supply by major players
26
SWOT ANALYSIS
STRENGTHS:
Due to strong consumer preference and the potential for expansion, the industry in
bound to record growth.
Being a cash rich company, PTL should have no obstacle for further expansions.
The management of PTL is very efficient and effective.
The company mainly has medium horsepower tractor in its product portfolio,
which hold a good growth potential thereby leading to an increase in the market
share.
The company has an excellent distribution network along with established brand
equity of the company can capitalized upon.
Strong Research and development set up.
WEAKNESSES:
The company has a weak presence in southern and eastern India as compared to
northern India.
The company is addressing this problem by going in for capacity expansion and
increasing dealer network.
The company has not leveraged its brand and product varies in the exports
market.
Being agro-based product, company’s fortune depends on the vagaries of the
monsoon.
Major market share in Punjab & Haryana could stagnate as the market mature.
27
OPPORTUNITIES:
By launching high horse power tractors, the company can enjoy more high growth
rate.
The core rural market is untapped and lots of opportunity exists there any finance
companies, along with banks have gone for innovative schemes to woo buyers.
Largest second market of Gujarat and Madhya Pradesh with low cost economy
tractors.
Good brand name, product quality and cost advantage to increase exports in low
value markets of Sri Lanka, Bangladesh and African countries.
THREATS:
The entry of international and new domestic players would intensify competition
significantly. This could put pressure on the sale growth and the merging of the
company.
The contained increase in price of inputs relative to price of final product could
effect badly.
Number of technically superior new models likely to be launched in the market in
the next two years.
The evitable increase in petroleum prices including diesel, will naturally bring
down the spirit of a prospective tractor purchasers.
ORGANIZATION CHART
28
Board of Directors
V. C. & M. D.
ED-MFG ED-MS ED-FIN
SVP-MKT&IBD
V. P-MS
GM-HR
AVP-F&CS
V. P.-SCD WORKS V. P. R&D
AVP-PROD AVP-SFD
Swaraj Sales on 2005-2006
29
DOMESTIC TERRITORIAL MARKET SHARE AND DEALER NETWORK
Territory
Swaraj Market Share No. of
Dealers as
on 31-03-06
North (Punjab, Haryana & Uttar Pradesh)
Central (Madhya Pradesh & Rajasthan)
East (Bihar, West Bengal, Orissa & Assam)
West (Gujarat & Maharashtra)
South (Andhra Pradesh, Tamil Nadu, Karnataka & Kerala)
13.5%
8.4%
13.0%
13.8%
11.1%
169
86
53
60
65
Total 11.8% 433
SEGMENTWISE
HP Range No. of
Models
%age of
Swaraj Sales
Swaraj Share
in Segment
Upto 30 HP
31 - 40 HP
Above 40 HP
4
2
3
25%
53%
22%
15%
12%
7%
PROMOTION OF PTL
Punjab Tractors Limited (PTL) a joint sector company of the Punjab Government, which
went into commercial promotion in the early seventies, is a unique example of
30
technological self-reliance in a high technology area like the automotive sector in the
country. It is promoted by Punjab State Industrial Development Corporation (PSEDC),
which was set up by Punjab Government in 1996 for setting up new projects.
In 1965 when the entire industrial growth of India relied upon foreign technology and
know-how for setting up industrial ventures in India, the Central Mechanical Engineering
Research Institute (CMERI, Durgapur), a national Laboratory of the Government of
India, took the bold step of taking up the design and development of totally Indian know
how for 26.5 H.P. agricultural tractors.
LOCATION
The plant of Punjab Tractors Limited is located in Mohali Focal Point Estate near
Chandigarh on Chandigarh-Ludhiana Highway (Phase IV, Sahibzada Ajit Singh Nagar,
(Mohali) Punjab State) on a campus of 17 hectares. Punjab Govt. in the developing
Mohali to add to the vigorous effects to make it a progressive Industrial Centre allotted
the land. The location of plant is very suitable because it is quite near to the capital of
Punjab. This fact has been advantageous to the company in its initial stage of growth.
However, the inadequacy of railway facilities is a serious drawback to the location of the
plant.
PTL’s BRAND NAME ‘SWARAJ’
The word SWARAJ in Indian language means freedom from bondage. Since PTL was
the first large-scale project in India based totally on Indian know how and technology,
31
Swaraj was appropriately chosen as its brand name. With more than 5 Lac tractors and
harvest combines operating in Indian farms, now Swaraj is also an internationally
recognized name in the developing world Viz. East Africa, West Africa, Middle East and
South East Asia, etc.
SWARAJ-STAGES OF GROWTH
A study of PTL history from project stage to its present position of eminence makes a
very interesting reading. It is a fascinating tale of inspiration, dedication, perseverance
and a strong to succeed against all odds and prejudice. All these years could be divided
into different phases.
CONCEPTION STAGE (1970-74)
This project for manufacture of 5000 tractors per year was set up at an outlay of Rs. 3.70
crores during November 1972- March 1974. Despite all hurdler and constraints, the
project was completed within the estimated costs and well ahead of 24 months time
schedule. The engineers for Swaraj tractors were procured fro M/s Kirloskar Oil Engines
Ltd. A pioneer in Indian Engineering Industry. PTL went into commercial production
with the introduction of its first Model Swaraj 742 in April 1974.
TEETHING YEARS (1974-78)
In the intensely competitive domestic market and conditions prevailing In 1974 when
well known international brands such as Ford, Massey, Ferguson, etc were available, it
32
was difficult establish a new tractor. Thus to establish Swaraj against this severe
competition, the following strategy was adopted.
Intensive and close marketing.
District- wise distribution.
Limited introduction and slow extension of distribution network.
PTL’s own serving group.
Strict uniformity of product performance and quality.
PTL’s first launch SWARAJ 724 received quite favorable response and encouraged by
this response and also by taking into account the preference of large segments of farmers
for higher HP tractor, development work on a 35 HP tractor was started in January 1975.
PTL introduced its second model SWARAJ 735 in November 1975, which is now the
most popular tractor. Then a low cost tractor SWARAJ 720 was introduced in 1978 for
small farmers.
THE EXPANSIONS (1978-82)
PTL started growing and increased its production capacity to 12,000 tractors at a capital
outlay of Rs. 9.2 crores. During this time PTL became multi-divisional by installing
Swaraj Foundry Division for manufacturing castings at a rate of 5,000 MT/year at a
capital outlay of Rs. 1.80 crores. This division started supplying casting to PTL in 1980.
In 1983, PTL introduced SWARAJ 855 and became the first manufacturing organization
to have the widest product range.
BREAK PERIOD (1982-86)
33
With encouraging past records Punjab Tractors Ltd. Decided to increase its production to
24000 per annum at an additional capital outlay of Rs. 10 crores. But the RBI’s credit
squeeze policy to curb inflation vehemently affected the tractor industry, as more then
95% of the tractor sales are through banks. PTL’s sale dipped from 10000 tractors to
around 5500 tractors in 1982-83. During 1982-86, PTL’s efforts were directed towards
training its work force, reducing wastage, cutting down scrap, inventory control, up
gradation of quality, expanding dealer network in new areas and widening product
variants. Thus PTL worked on ‘man’ rather than ‘machines’.
STAGE OF GROWTH SINCE 1987.
In contrast to the depressed situation that prevailed during 1982-83, market since 1987
had been showing growth trend. The demand for Swaraj in the last two decades has
increased tremendously. Now consumer prefers to wait and pay the entire amount in
advance to buy a Swaraj tractor rather than buying any other tractor. Production capacity
has increased presently to 33000 tractors per year and will further increase to 36000
tractors per year by 2000.
THE DECADE OF NINETIES- IN RETROSPECT.
The decade of 90’s has been a rewarding one for all the constituents of Swaraj enterprise-
through generation of wealth for its customers, its business associates, its employees, its
shareholders and the society.
Sales Turnover of PTL in 1999-2000.
ANOTHER MILESTONE of 50,000 tractors reached in the company’s core business
Tractors volumes rose from a modest level of 14,300 in 1989-90 (market share 11.8%) to
34
50700 in the year 1999-2000 (market share 18.9%). This sale performance, which
represents a compound annual growth rate of 13.5% for the decade against corresponding
industry CARG of 8.2% was achieved on the strength of expanded dealer network from
234 to 320 enlarging of product portfolio from 3 models to 6, backed up by continuous
product up gradation. It is a matter great pride that Punjab tractors has managed to
outperform the industry and its peers in the 1990s with its Swaraj Brand, on the strength
of sound policies, customers caring practice, and by empowerment to a highly
committed, professional team. In recognition of this performance and sharing of
information,
PTL has been privileged to receive several accolades in this eventful decade, notable
amongst them being:
Nomination by the Economic Times- best company of the year 1998.
Listed by FII in the jewels of Asia category 1999.
Nomination of UTI institute of Capital Markets for excellence in corporate
governance.
Listed by Hong Kong based ‘Asia Money’ among top 5 best managed companies
in India 1999.
Listed by “Business Today’ among top 3 Economics value generators in India
ASSOCIATE UNITS OF PTL
SWARAJ FOUNDARY DIVISION.
35
It was established in 1980 at a capital outlay of Rs. 1.80 crores to provide gray iron
castings to PTL. Initial production was 5000 MT/year. It is situated in village Majari in
Ropar district. In FY 2005-06 production of castings was 10600 MTS, representing a
value of nearly Rs. 52 crores.
SWARAJ COMBINE DIVISION (SCD).
Recognizing the pioneering role of PTL, Punjab government requested PTL for the
development and manufacture of self-propelled. Harvester combines to curtail the
harvesting season and save the crops from natural calamities. As a result Swaraj Combine
Division was set up in 1980 at Chappencheri to produce 250 combines per annum at an
initial investment of Rs. 2.65 crores. In 1981, first SWARAJ 8100 rolled out. In 1985,
production of diesel forklift also started in collaboration with KOMATSU Fork- Lift
Company of Japan. Over last 26 years, the company has sold nearly 3000 combines
including 153 in 2005-06.
SWARAJ AUTOMOTIVES LTD.
Earlier it was Punjab Scooters Ltd. But now it has become Swaraj Automotives Ltd. In
1979, PTL took up the rehabilitation of this terminally sick unit and adopted a radically
new technology for it.
SWARAJ MAZDA LTD.
36
In 1984 PTL set up Swaraj Mazda Ltd. A 40 million US $ project in collaboration with
the world famous MAZDA MOTORS CORPORATION OF JAPAN for the manufacture
of light commercial vehicles. PTL’s equity in it is 29% and Mazda and its associate
SUMI TOMO Corporation hold 26% of the equity. The Indian Public subscribed the
remaining equity.
SWARAJ ENGINES LTD. (SEL).
In 1986 PTL established Swaraj Engines Ltd. A joint venture among PTL, PSIDC and
Kirloskar Oil Engines Ltd. (KOEL) for the manufacture of diesel engines per year, PTL
holds 33% of the equity. KOEL’s share is only 18%.
OVERVIEW OF VARIOUS FRONTS OF PTL
37
1. MANUFACTURING. Today the product range of PTL consists of
1. Tractors. Swaraj 722 Swaraj 834
Swaraj 733 Swaraj 939
Swaraj 724 Swaraj 744
Swaraj 735 Swaraj 855
Swaraj 855 Swaraj 978
2. Forklifts: Swaraj Komatsu Electrical Forklifts. (FB-15, FB-20, FB-255)
Swaraj Diesel Forklifts.(FD-15, FD-20, FD-25)
Swaraj Rough Terrain Diesel Forklifts.
(FS-15, RT, FD-20, RT, Fd-25 RT)
Harvester/ Combine: Swaraj 8100
Light Commercial Vehicles.
Diesel Engines.
Automotive Castings.
PTL is now in the process of launching a new tractor Swaraj 922, which ranges between
its 720 & 724 model. It also manufactures tractors such as South Special (856) ‘Haryana
Special (726) and Gujarat Special. These tractors are manufactured to meet the special
soil needs of these stages
II.TECHNOLOGY
38
PTL is the first manufacturer of tractors in the country. To have a conveyerised assembly
line, PTL has totally indigenous technology unlike other manufacturers who have
technical collaborations with foreign manufacturers.
The relative advantages of PTL over the other manufacturers are:
All the models can be made on single assembly where the others like M & M like
different lines for different models.
The assembly line is conveyerised.
Capacity addition will let it tap the current upsurge for the tractors. PTL has been
operating close to 100% utilization levels for the past 6 years. The added capacity will
improve its production capacity to meet the strong demand. Against the high market
share in the 30-40 HP segment capacity constraints have restricted PTL’s share in <30
HP and > 40 HP segment, PTL is expected to gain market share in these segments once
the added capacity is in the place.
III.RESEARCH AND DEVELOPMENT
Ever since the beginning R & D has been the basic strength of PTL. The long list of new
products, which have been introduced and established in the short time span of 28 years
of PTL’s existence, proves the emphasis that is placed in PTL on Research and
Development.
The expenditure on R & D has increased over the years. It was .47% of total turnover in
2000, .64% in 2001 and 1.46% in 2004. Computer Aided Designs Facilities for design
and development of products as well technology and tool design have also been
strengthened.
39
IV.QUALITY OF PRODUCTS
Quality in the vital area where the company refuses to compromise. By putting Dr.
Juran’s total quality management techniques into practice, the company has not only
managed to give the customer value for money but Quality in the vital area where the
company refuses to compromise. By putting Dr. Juran’s total quality management
techniques into practice, the company has not only managed to give the customer value
for money but
Has managed to reduce wastage as well. To double upon, the company has also been
building long-term relationship with its vendors and dealers.
40
Chapter-III
OBJECTIVES OF THE STUDY
OBJECTIVES OF THE STUDY
41
To study the various components of financial statements of PTL for 5 years
and analyze them to identify the financial strength of the company.
To analyze the effect of current assets on the company’s return and risk.
To study the effect of current assets and current liabilities on the profitability
and liquidity position of the company.
To analyze the working capital position of the company in previous 4 years.
To analyze the market performance of the PTL.
To help the management in financial planning of the organization.
To suggest remedial measures for the improvement of the company’s
performance
42
Chapter-IV
RESEARCH METHODOLOGY
43
The basic task of research is to generate accurate information for use in decision-making.
Research can be defined as the systematic and objective process of gathering, recording
and analyzing data for aid in making business decisions. As the project involves
analyzing of financial structure, the research is exploratory in nature, covering financial
parameters and come of the important ratios to carry out research. There are basically two
techniques adopted for obtaining information:
Primary Data.
Secondary Data.
Primary Data is gathered specifically for the project at hand through personal interviews
with the accounts officers.
Secondary data is previously collected and assembled for some project other than the one
at hand. It is gathered and recorded by someone else prior to current needs of the
researcher. It is less expensive than the primary date.
Secondary Data can be obtained from both external and internal sources.
External data may be collected from books and periodicals, government sources, media
and other commercial sources.
Internal data is that secondary data, which is created, recorded or generated by the
organization.
As the project is explanatory in nature secondary data is collected from the reports of the
company, books, journals and interest. Secondary data is gathered from annual reports,
official records and standing orders of the units.
44
Chapter –V
FINANCIAL PERFORMANCE
OF PTL
45
FINANCIAL PERFORMANCE OF PTL
A financial statement is a systematic collection of data according to some logical
and consistent accounting procedures. Its purpose is to convey an idea about some
important financial aspects of a business firm. It may show a position at a moment of
time as in the case of the balance sheet, or may reveal a series of activities over a given
period of time as in the case of income statement.
Various interested parties like management, creditors, investors, government and others
to form judgement about the operative performance and financial position of the firm use
the information contained in these financial statements. The users of financial statements
can get better insight about financial strengths and weaknesses of the firm if they
properly analyze the information given in these statements.
The process of identifying the financial strengths and weaknesses of the firm by properly
establishing relationship between the items of balance sheet and profit and loss account is
called financial analysis. Such analysis is the starting point for making affective plans.
Forecasting, which is an important pre-requisite of effective planning, requires
understanding of the past to anticipate the future. Financial data can be used to analyze a
firm’s past performance and assess its present financial strength. The nature of analysis
will differ depending upon the purpose of the analyst. The present analysis is undertaken
to evaluate performance of PTL.
In the present study, the financial and social performance of PTL is measured. For this
purpose, an analysis of following aspects is done:
Profitability analysis.
Working capital management.
46
Key Financials of PTL
(Rs. In Lacs)
Particulars 2003 2004 2005 2006 2007
Share
Capital
607
6
607
6
607
6 6076
607
6
Reserve &
Surplus
41576
42695 45167 56902 58624
Sales 54721 59735 85510 95944 95034
Net Profit 4312 4202 6290 17045 10951
EPS 7.10 6.92 10.35 21.29 12.84
47
PROFITABILITY ANALYSIS
Profit is the ultimate output of a company and the company will have no future if it fails
to make adequate profits. P.F. Drucker has rightly commented on importance of
profitability of a concern for its survival when he writes, profits are a condition of
survival. It is the cost of future. It is the cost of staying in the business. If an undertaking
does not earn profit it cannot expand or diversify, it cannot pay handsome rewards to
various factors of production and it is doomed to fail at last. In fact, profit is a yardstick
by which efficiency of a business unit is measured. The higher the profit, the more
efficient is the business considered. Though changes in total profits may indicate changes
in efficiency, they will not indicate true state of efficiency of a business or profitability
unless profits are related with the size of investments. Therefore overall efficiency of the
business can be measured in terms of profits related to investments made in the business.
The profitability is also evaluated in terms of return on capital contributed by creditors
and owners because if the company is unable earn a satisfactory return on investment, its
vary survival is threatened. To comment on the overall financial performance of PTL,
following two important profitability ratios are calculated.
Profits in relation to sales.
Profits in relation to investments.
Relevant financial information, which has been used for conducting profitability analysis,
is as follows:
48
Profitability in relation to sales
A company should be able to produce adequate profit on each rupee of its sales. If sales
do generate sufficient profits, it would be very difficult for the firm to cover operating
expenses and interest charges. To measure the profitability in relation to sales, following
ratios are calculated.
Gross Profit Ratio
Operating Ratio
Operating profit Ratio
Net Profit Ratio.
49
Gross Profit Ratio:
This ratio measures the relationship of gross profit to net sales. It reflects the efficiency
with which a firm produces its products. So higher the gross profit ratio better the result.
Gross Profit =Gross Profit *100
Net Sales
Years Gross
Profit
Net Sales Ratio
2003 29422.17 54678.33 53.8%
2004 19629.77 59734.03 32.8%
2005 23161.79 85509.37 27.08%
2006 25533.86 95944.81 26.6%
2007 26259.22 95033.90 27.63%
50
Operating Profit Ratio:
This ratio establishes the relationship between cost of goods sold and other operating
expenses on the one hand and sales on the other hand. In other words, it measures the
cost of operations per rupee of sales.
Operating Profit Ratio= Operating cost * 100
Net Sales
Years Operating Cost Net Sales Ratio
2003 45750.62 54678.33 83.6%
2004 52166.20 59734.03 87.3%
2005 74119.38 85509.37 86.6%
2006 83339.27 95033.90 86.8%
2007 83975.08 95944.81 88.3%
51
Operating Ratio:
This ratio is calculated by dividing operating profit by sales.
This ratio can also be calculated as:
Operating Ratio= 100 – Operating Profit Ratio
Operating Profit Ratio of PTL
Years Operating Profit
Ratio
Ratio
2003 83.6% 16.4%
2004 87.3% 12.7%
2005 86.6% 13.4%
2006 86.8% 13.2%
2007 88.3% 11.7%
52
Net Profit Ratio:
This ratio establishes a relationship between net profit and sales and indicates
management’s efficiency in manufacturing and selling the products. It is the overall
measure of a firm’s ability to turn each rupee of sales into net profit. This ratio also
indicates the firm’s capacity to withstand adverse economic conditions. The following
table shows the net profit margin ratio of PTL.
Net Profit Ratio= Net profit after tax * 100
Net Sales
Years Net Profit Net Sales Ratio
2003 4511.80 54678.33 8.25%
2004 3927.23 59734.03 6.57%
2005 6289.68 85509.37 7.35%
2006 12933.66 95944.81 13.48%
2007 7798.23 95033.90 8.20%
53
Operating Expenses Ratio-:
Expenses ratio are calculated to ascertain the relationship that exists between operating
expenses and volume of sales.
OperatingExpensesRatio=Officeand Administration Expenses*100
Net Sales
OperatingExpensesRatio= Selling and Distribution Expenses*100
Net Sales
Years Expenses Net Sales Ratio
2003 11071.05 54678.33 20.24%
2004 12361.94 59734.03 20.69%
2005 11771.80 85509.37 13.76%
2006 12928.32 95944.81 13.47%
2007 15200.40 95033.90 15.99%
54
PROFITABILITY IN RELATION TO INVESTMENTS
The profitability of the firm is also measured in relation to its investment. The term
investment may refer to capital employed in the business or the owner’s equity.
Accordingly, return on capital employed (ROCE) and return on Shareholders equity
(ROSE) are calculated to give a broad idea about the overall return on the funds invested
in the business.
Return on capital employed (ROCE) is the best tool, which is used by the owners to
know how well the management has used the funds supplied by them and other parties. A
higher ratio will satisfy the owners that their funds earn a handsome return. To get a true
idea about the operating efficiency of a firm ROCE is calculated for a number of years
and the firm’s ratio should be compared with industry average. In other words both intra-
firm and inter-firm comparisons should be made. This ratio helps management in the
formulation of the proper debt policy by comparing the cost of raising debt with the rate
of return on capital employed. ROCE is calculated by dividing net profit after tax plus
interest by total capital employed i.e.
ROCE = Profit Before Tax *100
Capital Employed
(Here capital employed =Shareholders Fund+ Reserves and Surplus +Loans Fund)
55
ROCE of PTL (Rs. In Lacs)
Years Profit Before tax Capital Employed Ratio
2003 6223.93 60099.48 10.35%
2004 5535.71 54763.42 10.10%
2005 9717.12 58374.06 16.6%
2006 17045.40 70061.61 24%
2007 10950.88 68372.17 16%
Return on Equity Analysis:
ROE is the relationship between net profits (after interest and taxes) and the proprietors’
funds. As the primary objective of business is to maximize its earnings, this ratio
indicates the extent to which this primary objective of business is being achieved. This
ratio is of great importance to the present and prospective shareholders as well as the
management of the company. As this ratio reveals how well the resources of the firm are
being used, higher the ratio, better the result.
56
Return On Equity = Profit After Tax*100
Shareholders fund.
Years Profit After Tax Shareholders Fund Ratio
2003 4311.80 47651.49 9.04%
2004 3927.23 48769.69 8.05%
2005 6289.68 51242.05 12.27%
2006 12933.66 56901.65 22.72%
2007 7798.23 64699.88 12.05%
57
Earning Per Share-:
EarningPerShare = ProfitAfterTax-PreferenceDividend
Years EPS
2003 7.10
2004 6.92
2005 10.35
2006 21.29
2007 12.84
58
WORKING CAPITAL MANAGEMENT
Working capital refers to the excess of current assets over current liabilities. Management
of working capital is concerned with the problems that arise in attempting to manage the
current assets, the current liabilities and the interrelationship that exists between them. In
other words, it refers to all aspects of administration of both current assets and current
liabilities.
The basic current assets are cash, marketable securities, accounts receivable and
inventory. The basic current liabilities are accounts payable, bills payable, bank
overdraft, outstanding expenses.
The goal of working capital management is to manage the firm’s current assets and
current liabilities in such a way that a satisfactory level of working capital is maintained.
The reason behind this is if the firm cannot maintain a satisfactory level of working
capital, it is likely to become insolvent and may even be forced into bankruptcy.
PRINCIPLES OF WORKING CAPITAL
MANAGEMENT
The following are the main principles of a sound working capital management policy:
1.Principal of Risk Variation
Risk in this context, refers to inability of a firm to meet its obligations as and when they
become due for payment. Larger investment in current assets with less dependence on
short-term borrowing increases liquidity reduces risk and thereby decreases the
opportunity for a loss. To the contrary, less investment in current assets with greater
dependence on short-term borrowings increases risk, reduces liquidity as well as
59
profitability. Thus there is a definite and inverse relationship between the degree of risk
and profitability. A conservative management prefers to minimize the risk maintaining a
higher level of current assets or working capital while a liberal management assumes
greater risk by reducing working capital. However the goal of management should be to
establish a suitable tradeoff between profitability and risk.
2. Principle of Cost of Capital.
Cost of raising capital is different for different sources of raising working capital finance.
It is generally dependent on the degree of risk involved in raising capital from a particular
source. Higher the risk, higher is the cost and lower the risk, lower is the cost. A sound
working capital management should always try to achieve a proper balance between these
two.
3. Principle of Equity Position.
This states that the amount of working capital invested in each component should be
adequately justified by a firm’s equity position. Every rupee invested in the current asset
should contribute to the net worth of the firm. Thus this principle is concerned with
planning the total investment in current assets. The level of current assets may be
measure with the help of two ratios.
Current assets as a percentage of total assets.
Current assets as a percentage of total sales.
While deciding about the composition of the current assets, the financial manager may
consider the relevant industrial average.
60
4. Principle of Maturity of Payment.
This principle states that a firm should make every effort to relate maturities of payment
to its flow of internally generated funds. It is concerned with planning the sources of
finance for working capital. Maturity pattern of various current obligations is an
important factor in risk assumptions and risk assessments. Generally, shorter the maturity
schedule of current liabilities in relation to expected cash inflows the greater is the
inability to meet its obligations in time.
There are two concepts under working capital-:
Gross Working Capital.
Net Working Capital.
The term Gross Working Capital, also referred to as working capital, means the total
current assets.
The term Net Working Capital can be defined in two ways: mostly Net working Capital
refers to the difference between the current assets and current liabilities.
And second definition of Net Working Capital is that portion of current assets which is
financed with long-term funds.
61
Need for Working Capital-:
The objective of financial decision making to maximize the shareholders wealth, it is
necessary to generate sufficient profits. The extent to which profits can be earned will
depend upon the volume of sales of a firm. However, sales do not convert into cash
immediately there is a time lag between the sale of a goods and the receipt of cash.
Therefore, a need of Working Capital in the form of current assets to deal with the
problem arising out of the lack of immediate realization of cash against goods sold. That
is why a sufficient amount of working capital is needed in the firm.
Technically, this is referred to as the operating or cash cycle. The operating cycle can be
said to be the heart of the need for working capital. The continuing flow from cash to
suppliers, to inventory, to accounts receivables, and then back into cash is operating
cycle.
Debtors and bill
Receivable
62
Cash
Operating cycle
Nature of Working Capital Requirements
The working capital requirements of a concern can be classified as:
Permanent or fixed or regular working capital requirements.
Temporary or variable working capital requirements.
Permanent or fixed working capital
Finished
goods
Work in
progress
Raw Material
63
Permanent or fixed working capital is the minimum amount, which is required to ensure
effective utilization of fixed facilities and for maintaining the circulation of current
assets. There is always minimum level of current assets, which is continuously required
by the enterprise to carry out its normal business operations. A company maintains
minimum level of raw materials, finished goods and cash balances. Amount of capital
blocked in these assets is called as permanent or fixed working capital.
Temporary or variable working capital
Temporary or variable working capital is the amount of working capital, which is
required to meet the seasonal demands and some contingencies.
FORMAT OF WORKING CAPITAL :-
64
Schedule of change in working capital
Particulars Current Year
(2007)
Previous Year
(2006)
Increase Decrease
Current Assets:-
Stock
Debtors
Cash
Total C.A. (A)
Current
Liabilities:-
Total C.L. (B)
Working capital
(A-B)
Increase or
Decrease in
Working capital
FINANCING OF WORKING CAPITAL
65
Permanent working capital should be financed in such a manner that the enterprise may
have its uninterrupted use for a sufficiently long period. Important sources are:
Shares:
Issue of shares is the most important source for raising the long-term capital. Raising of
permanent capital through the issue of shares has certain advantages like there is no fixed
burden on the resources of the company and, moreover, no charge is created on the assets
of the company.
Debentures:
A debenture is an instrument issued by the company acknowledging its debt to its holder.
Debentures carry a fixed rate of interest, which is a legal charge against revenue of the
company. The debentures are generally given floating charge on the assets of the
company. The firm issuing debentures also enjoy a number of benefits such as trading on
equity, retention of control, tax benefit, etc.
Public deposits:
Public deposits are the fixed deposits accepted by a business enterprise directly from the
public. This source of raising finance became popular because of the imperfect
development of banking system in the country. This mode of financing has a large
number of advantages such as very simple and convenient source of finance, taxation
benefits, trading on equity, and inexpensive source of finance.
4. Retained Earnings:
66
It refers to reinvestment by a concern of its surplus earnings in its business. It is an
internal source of finance and it often referred to as self-financing or ploughing back of
profits. It is most suitable for an established firm for its expansion, modernization,
replacement, etc. But excessive resort to ploughing back of profits may lead to
monopolies, misuse of funds, over capitalization, manipulation in the value of the shares,
etc.
5.Loans from Financial institutions:
Financial institutions such as Commercial Banks, Life Insurance Corporation, State
Financial Corporation of India, Industrial Development Bank of India, etc. also provide
short term, medium term and long term loans.
Temporary/Variable working capital is financed through;
Commercial Banks.
Commercial banks are the most important source of short-term capital. They provide a
wide variety of loans tailored to meet the specific requirements of a concern.
Trade Credit.
The trade credit arrangement of a concern with its suppliers is an important source of
short-term finances. The use of trade credit depends upon the buyer’s need for it and the
willingness of the sources of supply to extend it.
Advances.
67
A company can meet its short-term working capital requirements by getting advances
from their customers and agents against orders. This source of finance is especially
suitable for those industries, which have long production cycles.
Commercial Papers:
Commercial papers are unsecured promissory notes sold by the issuers to investors
through agents like Merchant bankers and security houses. Commercial papers provide an
avenue for short-term borrowings to highly rated corporate borrowings at cheaper rates of
interest as compared to bank borrowings. The rating of the company by any rating agency
is a pre-requisite for issuing commercial papers.
In a nutshell, working capital is the lifeblood and controlling nerve center of the business.
No business can be successfully run without an adequate amount of working capital.
Whether a particular business is managing its working capital properly or not can be
judged by analyzing the liquidity position of that unit and the concerned information (like
debtors analysis, creditors analysis etc).
To comment upon the working capital management in PTL, the technique of ratio
analysis is adopted.
The following ratios have been calculated for the said purpose.
1.Liquidity ratio.
2.Efficiency ratio.
3.Solvency ratio.
4. Leverage Ratio.
1.Liquidity Ratio-:
68
Current Ratio-:
This ratio is used to assess the short-term financial position of the firm. In other words, it
is an indication of the firm’s ability to meet its short –term obligations. It matches the
current assets of the firm against its current liabilities.
Current Ratio = Current assets
Current liabilities
5 Yearly Trend of Current ratio of PTL
Years Current Assets Current
Liabilities
Ratio
2003 60787.37 12041.83 5:1times
2004 63484.12 18953.99 3.3:1times
2005 67392.42 21431.92 4.5:1times
2006 75579.18 16565.46 4.5:1times
2007 72458.42 13940.70 5.19:1times
Quick Ratio or liquidity Ratio-:
69
Liquid ratio is worked out to test the short-term liquidity of the firm.
Liquidity Ratio=Liquid Assets (Current Assets- Stock)
Current liabilities
5 Yearly Trend of quick ratio of PTL
Years Liquid Assets Current Liabilities Ratio
2003 53738.19 12041.83 4.4:1times
2004 54699.52 18953.99 2.88:1times
2005 56198.32 21431.92 2.62:1times
2006 66763.14 16565.46 4.03:1times
2007 59031.81 13940.70 4.23:1times
Absolute Quick Ratio -:
Cash + Marketable securities
Current liabilities
5 Yearly Trend of quick ratio of PTL
Years Absolute Assets Current
Liabilities
Ratio
2003 3896.15 12041.83 0.32:1times
2004 847.05 18953.99 0.04:1times
2005 462.73 21431.92 0.02:1times
2006 2398.11 16565.46 0.144:1times
2007 5733.42 13940.70 041:1times
2.Efficiency Ratio -:
70
Debtors Turnover Ratio-:
This ratio establishes the relationship between net credit sales and average debtors of the
year.
Debtors turnover ratio = Net credit sales
Average accounts receivable
Average Collection Period = Months in a year
Debtors Turnover Ratio
5 Yearly Trends D.T.R. of PTL-:
Years Net Credit
Sales
Sundry Debtors Debtors
Turnover Ratio
Average
Collection
Period
2003 54678.33 47168.77 1.15:1times 10.4months
2004 59734.03 52125.59 1.14:1times 10.5months
2005 85509.37 53814.29 1.58:1times 7.5months
2006 95944.81 61775.60 1.55:1times 7.7months
2007 95033.90 50364.01 1.88:1times 6.3months
Creditors Turnover Ratio -:
71
The analysis of creditors turnover is basically the same as of debtor’s turnover ratio
except that in place of trade debtors, the trade creditors are taken as one of the
components of the ratio and in place of average daily sales, average daily purchases are
taken as the other component of the ratio.
It can be calculated as:
Creditors Turnover Ratio = Net Credit Annual Purchases
AverageTradeCreditors
Average Payment Period Ratio = Average Trade Creditors
Average Daily Purchases
Creditors Turnover Analysis of PTL in 5 Years
Year Purchases Sundry
Creditors
Creditors
Turnover
Payment Period
(months)
2003 42079.26 7738.86 5.43:1times 2.2months
2004 35111.63 13795.69 2.54:1times 4.7months
2005 64064.28 14615.02 4.38:1times 2.7months
2006 67474.22 9442.76 7.14:1times 1.6months
2007 72573.53 10271.71 7.06times 1.6months
Inventory Turnover Analysis:
72
Every firm has to maintain a certain level of inventory of finished products so as to able
to meet the requirements of the business and ensure an uninterrupted production. This
analysis is done by calculating inventory turnover ratio. Inventory turnover ratio, which is
calculated by dividing sales by average inventory, indicates the number of times the stock
has been turned over during the year. It also evaluates the efficiency with which a firm is
able to manage its inventory. A lower inventory turnover is an indicator of higher
efficiency in managing the inventory.
Inventory Turnover Ratio = Net Sales
Inventory
Inventory Turnover of PTL in 5Years
Years Net Sales Inventory Ratio
2003 54678.33 7049.18 7.75:1times
2004 59734.03 8784.60 6.79:1times
2005 85509.37 11194.10 7.63:1times
2006 95944.81 8816.04 10.88:1times
2007 95033.90 13426.61 7.07:1times
Net Working Capital Turnover Ratio-:
73
The amount of working capital is sometimes used as a measure of a firm’s liquidity. It is
considered that between the two firms, the one having the larger amount of working
capital has the greater ability to meet its current obligations. Working capital turnover
analysis is, therefore, used to measure the efficiency with which the firms are using their
working capital. For this purpose, working capital turnover ratio, which indicates the
velocity of the utilization of net working capital, is worked out. A higher ratio indicates
efficient utilization of working capital. In the following lines a comparative statement of
working capital turnover ratio of PTL is produced.
Net Working Capital =Net Sales
Net Working Capital
Net Working Capital of PTL in 5Years (Rs. In Lacs)
Year Current Assets Current Liabilities Net Working
Capital
2003 60787.37 12041.83 48745.54
2004 63484.12 18953.99 44530.13
2005 67392.42 21431.92 45960.50
2006 75579.18 16565.46 59013.72
2007 72458.42 13940.70 58517.72
Working Capital Turnover Ratio of PTL in 5Years (Rs. In Lacs)
74
Years Sales Net W. C. W.C. Turnover
Ratio
2003 54678.33 48745.54 1.12:1times
2004 59734.03 44530.13 1.34:1times
2005 85509.37 45960.50 1.86:1times
2006 95944.81 59013.72 1.62:1times
2007 95033.90 58517.72 1.62:1times
3.Solvency Ratio -:
75
Equity Ratio -:
Equity Ratio =Shareholders Fund *100
Total Assets (Fixed assets+Current assets+Investments)
Years Shareholders
fund
Total assets Equity Ratio
2003 47651.49 75851.16 62.8%
2004 48769.60 77255.74 63%
2005 51242.05 79805.98 64%
2006 56901.65 56901.65 64.2%
2007 64699.88 82312.87 78.6%
Debt –Equity Ratio -:
76
Outsiders fund (Unsecured loan+secured loan)
Shareholders fund
Years Outsiders
fund
Shareholders
fund
Ratio
2003 12447.99 47651.49 0.26
2004 5993.82 48769.60 0.12
2005 3936.24 51242.05 0.07
2006 10297.95 56901.65 0.18
2007 1073.67 64699.88 0.016
77
Funded Debt to Total Capitalization-:
Funded debt (Unsecured loan+secured loan)*100
Total Capitalization (Shareholders fund+ Funded Debt)
Years Funded debt Total
Capitalization
Ratio
2003 12447.99 60099.48 20.7%
2004 5993.82 54763.42 10.9%
2005 3936.24 55178.29 7.13%
2006 10297.95 67199.60 15.32%
2007 1073.67 65773.55 1.63%
78
Solvency Ratio -:
=100 - Equity Ratio
Years
2003 100-62.8% 37.2%
2004 100-63% 37%
2005 100-64% 36%
2006 100-64.2% 35.8%
2007 100-78.6% 21.4%
79
4.Leverage Ratio-:
Capital Gearing Ratio-
=Equity Share Capital +Reserves and Surplus
Preference Capital +Long Term Loans
Years Equity
Shareholders
Capital +Reserves
and Surplus
Preference Capital
+Long Term Loans Ratio
2003 47651.49 12447.99 3.82:1times
2004 48769.60 5993.82 8.13:1times
2005 51242.05 3936.24 13.01:1times
2006 56901.65 10297.95 5.52:1times
2007 64699.88 1073.67 60.2:1times
80
Ratio Of Reserves
=Reserves
Equity Share Capital
Years Reserves Equity Share
Capital Ratio
2003 42694.03 6075.57 7.02:1times
2004 41575.92 6075.57 6.84:1times
2005 58624.31 6075.57 9.64:1times
2006 50826.08 6075.57 8.36:1times
2007 58624.31 6075.57 9.64:1times
81
After analyzing the Working Capital Management of
Punjab Tractors Ltd.
On he basis of selected ratios it has been found that current assets in the FY 2006 have
decreased compared to the last year and current liabilities also decreased up to the certain
level. So net working capital is increased. This also made affect on working capital
turnover ratio. The Gross Block and Net Block of assets stood at Rs. 288.6 crores (last
year Rs. 286.7 crores) Rs. 100.5 crores (last year Rs. 112.7 crores) respectively. These
assets represent a double shift annual production capacity of 60000 tractors. In brief, by
analyzing all the ratios relating to working capital, the FY 2006 is the profitable year for
the company.
82
Comparative Balance -Sheet Of PTL
Particulars Previous
Year
(2006)
Current Year
(2007)
Increase
/Decrease
Percentage
Increase/Decrease
Shareholders
Fund 6075.57 6075.57
Reserves and
surplus 50826.08 58624.31 7798.23 15.3
Loan Funds
Secured Funds
Unsecured
Funds 10297.95 1073.67 (224.28) (2.17)
Deferred
Liabilities 2862.01 2598.62 (263.39) (9.20)
Current
Liabilities and
Provisions 16565.46 13940.70 (2624.76)
(15.8)
83
86627.07 82312.87
Assets
Fixed assets 10050.82 9352.58 (698.24) 6.94
Capital Work-in-
Progress
/Advances and
Construction
Stores in hand 65.97 52.32 (13.65)
(20.69)
Capital Spares 8.42 6.51 (1.91) (22.68)
Investments 922.68 443.04 (479.64) (51.98)
Current Assets
75579.18 72458.42 (3120.76) (4.12)
86627.07 82312.87
84
MARKET PERFORMANCE
A constant increase in the installed capacity of major players in the tractor industry is due
to the tough competition given by the new entrants in the industry. A host of new players
such as Greaves, Bajaj Tempo, Larsen & Turbo etc., are leaping in either alone or in
collaboration with leading international tractor makers. Thus as competition hots up, the
existing players are adding capacities, moving into new segments and new markets and
tapping the overseas markets.
10 Yearly Sales Trend of PTL vs. Industry (1997- 2006)
(No. Of Tractors)
Year No. of Tractors sold
by the Ind.
No. of Tractors sold
by PTL
%age of Sales
1997 2,21,000 33034 14.9%
1998 2,54,000 40425 15.9%
1999 2,62,000 48336 18.4%
2000 2,73,000 50705 18.6%
2001 2,53,000 45712 18.5%
2002 2,18,000 40100 18.4%
2003 1,61,000 24200 15.1%
2004 1,89,000 25600 13.5%
2005 2,46,000 30330 12.3%
2006 2,91,000 31396 10.8%
85
Market share: in the table from the analysis of last 10 years data from 1996 to 2006.
The Market share of PTL up to 2001-02 show an increasing trend. But after this period,
its Market share shows decreasing pattern. In this period PTL also reduces the number of
tractors and the total no. Of tractors produced by industry also goes down due to many
reasons like reduction in farm’s income etc.
Financial year 2006-07 has begun with sales of tractors showing improvement. It
is also gratifying that, demand for company’s models in the +30 HP range continuous to
display strength. After seeing the trend of growth in various segments, it can be
concluded that highest growth recorded by PTL was in 35 HP, which accounted for 90%
of Swaraj sales in 2003-04. PTL’s share in its range will improve in the near future
because of its Rs. 100 crores expansion plan, which has increased its capacity from 36000
to 60000 tractors per annum. On its strength of wide distribution network and proven
competitiveness, PTL is the only tractor company with a waiting period for its product.
For PTL, marketing was never a problem rather its capacity constraints to increase its
volumes were a problem. As a result of capacity expansion and strategic move into
higher HP tractors, PTL can be expected to maintain higher than industry growth levels.
86
Strong consumer preference for PTL’s tractors is evident from company’s ability to
collect advances. This fact insulates PTL from any slow down in the industry.
Capacity Utilization and Expansion Activities to Enhance Market Share. Since the tractor
industry is expected to enjoy robust growth in the coming years, there is need for
enhancement of production capacities on the part of tractor players to progressively
increase their market share. Almost all the players have increased their production
capacity over the years.
In fact, in the tractor industry, many new foreign companies are coming with the new
liberal policy of the government. With most of new companies in the tractor market in
over drive, existing players are compelled to quickly move to protect their turf. Almost
all of them are expanding capacities and moving into new segments. With a host of new
companies driving in, market leader M & M has also increased its production capacity
from 57,500 to 85,000 tractors by the end of 1999. The capacity will not be enhanced in
the lower HP segment but in the higher HP segment, the area where the action is the
hottest.
It is interesting to note here that while its competitors are meeting competition by
stepping into the higher HP segment, PTL has widely decided to expand capacity in all
segments. At present its annual installed capacity is 60,000 tractors.
But now when every manufacturer is planning to increase its production capacity in the
light of serving competition from foreign companies, its only the major giants like PTL
that will get major benefit because of its pricing strategy. It has planned to produce
60,000 tractors per annum at the lowest capital cost per tractor (Rs. 34000).
87
Swaraj has also been focusing on development of overseas markets and is currently
making supplies to African/SAARC countries. A beginning has been made on export of
auto components. Exports during fiscal year 2005-06 reached Rs. 49.9 crores (last year
41.1 crores)
Thus after analyzing the sales as well as production capacities of PTL, it is clear that PTL
is well established in the market. Given its strong brand value, PTL is expected to
increase market share further in the coming financial years by making inroads into
growing markets of South and West India.
88
Chapter-VI
CONCLUSIONS AND
RECOMMENDATIONS
89
CONCLUSION
On the basis of financial performance of Punjab Tractors Limited made in the previous
chapters, following conclusions are drawn:
General Profile: The plant of PTL is ideally located in the Mohali Focal Point
Estate near Chandigarh, the capital of Punjab, on a campus of 17 hectares. The working
environment of the company is very healthy. The visitors feel happy after the campus.
Indigenous Technology: PTL is the only tractor manufacturing company based on purely
indigenous technology. Swaraj was appropriately chosen as the brand name as self
reliance and building up of Indian Engineering capabilities remain the guiding spirit of
PTL.
Financial structure: PTL is a low debt company signifying its dependence
mainly on its internal accruals for its financial requirements. PTL continues to strengthen
its financial position by channelising these internal accruals to fund its expansion
programmes.
Working results: PTL has registered a handsome and constant growth in its
profits because of a brisk demand for Swaraj Tractors. None of the other three players has
shown such a steady growth. PTL has recorded the lowest current ratio. However, with
this lowest current ratio, PTL still enjoys minimum payment period and highest velocity
of creditors and debtors.
90
Marketing Performance: PTL is ranked at number three so far as its
marketing performance is concerned, PTL has recorded the highest growth in 35 HP
segment. While its competitors are meeting competition by stepping into the higher HP
segment, PTL has decided to expand capacities in all segments.
Social Performance: PTL’s contribution towards industry and research and technology
has received national recognition. However, it has not sponsored any programmed or
established any educational or medical institution for the general public or its employees.
No housing facility is provided to the employees. Though PTL has not done much for the
welfare of the general public, but still the farmers have a craze for Swaraj tractors mainly
due to its promising quality and reasonable price. PTL has become a rich bonanza for its
investors, as it pays the highest amount of dividend to its shareholders.PTL is far ahead
of its competitors as regards on capital employed returns on equity capital. This fact
removes illusions of the general public about the preference of public sector
companies.Excellent financial performance exhibited by PTL is the result of an efficient
and responsible management, which establishes the fact that performance of a company
depends on the caliber of its managers and not on the nature of sector to which it belongs.
91
RECOMMENDATIONS
PTL should increase its capacity utilization. It should work at full capacity to
minimize its cost of production. With this increase in capacity utilization, the total
cost will spread over more units thereby decreasing the per unit cost.
PTL should increase the credit facilities provided to its consumers. Earlier, it was
selling its main product i.e. tractor either against advance payments or cash
payments. This sales policy, no doubt, shows the high preference for Swaraj
Tractors on the part of the customers, but in the wake of neck-to-neck competition
due to emergence of new players in the industry, it has changed this policy to
maintain and improve its market share. It should extend more credit facilities to
attract more and more buyers.
PTL must move into higher HP segment to capture more market. PTL’s highest
share is in the 35 HP segment (Approximately 19%) Its contribution to higher HP
segment is almost negligible because of which It can not export its tractors to
Africa and Middle East, where there is demand for 70 HP tractors. It is therefore,
suggested that in order to be competitive in the international market also, PTL
should reset to manufacturing after cutting out many of the frills in its lower HP
tractors.
PTL should make efforts to capture emerging markets in South. Swaraj Tractors
are, no doubt, very popular with the farmers of the Northern market (Punjab,
92
Haryana and U.P.) but with the plateauing of sales in these markets, there is
strong need for zeroing in on the central and southern markets.
PTL should undertake such activities that can add value to Society. PTL, as a
good corporate citizen, should sponsor programmes related to environment
protection, rural upliftment and welfare or general public. It should spend a
crunch of its profits on the social activities, which will further improve its image
in the society.
PTL should take advantage of India’s second position in low and medium HP
tractor segment, in which PTL is a leader, by exporting its product to Asian,
African and to some extend Latin American Markets.
93
BIBLIOGRAPHY
94
BIBLIOGRAPHY
BOOKS
KHAN & JAIN, Financial Management.
C.Mohan Juneja Rajesh Bagga, Accounting for Management.
MaheshwariS.N“ManagementAccounting&Financialcontrol”
Gupta Shashi K & Sharma R.K. “Financial Management”.
Annual Reports of PUNJAB TRACTORS LTD. From 2003-2007
INTERNET WEB SITES
www.swarajenterprise.com
www.sebiedifar.nic.in
www.investorwords.co
www.planware.org/workingcapital.htm
95
96
