Construction Industry
The construction industry has grown to be a very important sector in India because of the infrastructure development it needs.
Over the past five years, the construction sector has grown faster than overall GDP. While the GDP growth rate has been in the range of 6 to 7 per cent, the construction industry has been
growing at a rate between 10% and 15 % annually. The sector is also second biggest in terms of employment
opportunities. It employs almost 14% of the total employable population of India.
Further, the construction industry creates a multiplier effect on core industries such as steel, cement, aluminum and petroleum etc.
Nature of the industry
It is an unorganized sector Traditionally, the sector has been dominated by small and
medium enterprises (SMEs) It’s a highly competitive market There are three major types of segments in this industry
infrastructure, real estate and industrial. Business in the construction industry is mainly tender based. At
times if not tender based, there can be negotiated contracts.
Financial Issues In this Industry
The majority of investments come from the public sector. Public- private partnership (PPP) projects have been identified as
the most suitable mode for the implementation of projects. The current budget has given a lot of importance to this sector. Finance here is of two types: fund based and non-fund based. In this industry a contract between the owner and the contractor
defines the financial matters of the project. The working capital depends largely, on the contractual terms &
conditions.
Contract
Contract is considered the most important document in this industry.
The execution of the project is defined by the contract. The flow of working capital largely depends on the type of
contract that the company has entered into. The following are the types of contract seen in this industry:5. Lump sum contract6. Item rate (Normal, basic rate, formula)7. Fixed price contract The contractor had to follow the BOQs, if given in the contract
purchasing materials, and execution of other work.
JMC Projects (India) Ltd.
"It is about commitment for customer satisfaction through engineering excellence and quality construction."
Founded in 1982 as a construction company, JMC has successfully defined its objectives & positioned itself as one of the leading organizations in the construction industry. Today,
JMC has well equipped autonomous offices at strategic locations to effectively & efficiently serve it's customers spread across the nation. JMC got listed on NSE/BSE in
1994.KALPTARU POWER TRANSMISSION LTD. TOOK 51% stake of JMC in feb’05.
Areas Covered by JMC
Infrastructure• Roads I Highways• Bridge & Flyover• Underpass• Transportation Projects• Airport• Drainage Work
Industrial• Agrochemical• Automobile• Engineering I Cement• Chemical I Petrochemical Paint• Electronics / Consumer Good• Pharmaceutical• Sugar / Food Products• Textile
Buildings• Commercial Complex• Institutional Building• ITPark• Hospitals & Health Centre• Research &Development Centre• Hotel & Hostel• Housing
Power• Thermal Power Plant• Gas based Power Plant• Coal &Material Handling Plant• Captive Power Plant
Major Repeat Orders
Asian Paints
Bajaj Auto
Digital
EI Dupont
Prestige Estate
Alstom
Mantri Group
Elecon
Videocon
Welspun
Wipro
Zydus Cadila
IIM-Ahmedabad
Infosys Technologies
RGA Software
BHEL
Nirma
Tata Telecom
India’s 6th Largest Growing Small Cap. Company
237 261
502
921
1319
0
200
400
600
800
1000
1200
1400
2004-05 2005-06 2006-07 2007-08 2008-09
Financial Performance Turnover(Rs.In crore)
Financial Performance
3637
124
171202
0
50
100
150
200
250
2004-05 2005-06 2006-07 2007-08 2008-09
Net Worth (Rs. In Crore)
Working Capital Management
The goal of working capital management is to ensure that the firm is able to continue its operations and that is has sufficient cash flow to satisfy both maturing short term debt and upcoming operational expenses.
The current assets of particular construction industry accounts for around half of its total assets.
Excessive levels of current assets can easily result in a firm realizing a standard return on investment & too few current assets may incur shortage and difficulties in maintaining smooth operations.
Working Capital Cycle Site Information and Mobilization Expenses
Raw Materials, Components, Stores etc. Work-InProcess
AccountsPayable Wages, Salaries and
Construction Costs
Cash
Marketing Costs, GeneralAdministration & Financial Costs
Transfer ofProperty in
Goods
Sundry Debtors OR AccountsReceivable
Mobilization Advance fromClient
Flow Of Money
Tender (Earnest Money Deposit) Letter Of Intent/ Work Order Mobilization Advance Performance Guarantee Running Account Bills (Bill Of Quantity) Retention Money Liquidity Damages Defect Liability Period Final Completion
Inventory Management at JMC
Use of Integrated Software iPMS for all functions of inventory.
Co-ordination between construction, indent, purchasing, receiving testing, storage, handling, issue & scrap sale.
Centralized purchasing under direction and authority of competent procurement authority.
Communication between Planning dept., site, purchasing and vendors.
Proper storage and physical verification of materials & supplies.
Receivable Management at JMC
At JMC Account Receivables are one of the major component of working capital.
But from the debtors turnover ratio we can see that is not as good as it should be. The reason for same are:
1. Delay in certification of the final bills. 2. execution of items in anticipation of collection from
clients. 3. Change of circumstances & financial condition of client JMC is trying to minimize their ave. collection period &
increase their ave. payment period.
Conclusion
The strength of the company is good reputation with finance providers and customer focus approach.
It has order backlog of Rs. 25000 mn, thus there will be healthy growth next year.
This industry has complicated tax structure, but introduction of GST will solve the problem to an extent.
Problems of high volatility in steel & cement prices & Shortage of manpower.
It has to compete with giants like L & T , HCC, B.L.Kashyap & simplex.
JMC can increase their debt-equity ratio is 0.97 indicating strong capital structure.
JMC interest coverage ratio declined from 6.12 to 3.52 which critical for the company, so its ability to meet interest expense is questionable.
Fixed assets turnover ratio is continuously increasing reflecting new investments
Importance is given to the infrastructure industry in the current union budget thus, an opportunity.