Finance Project Report on Working Capital Management and its Appraisal

INTRODUCTION: Founded in 1919 by the visionary industrialist, Shri G.D. Birla, at the outskirts of the then Kolkata. Birla Manufacturing Company Ltd was the first company of Birla industrial conglomerate. Under the stewardship of his nephew, Shri M.P.Birla, the company diversified and expanded its business interest beyond cement, jute, PVC goods, steel casting and auto trims. Birla Corporation limited is the flagship company of M.P.Birla group. It has variety in its basket. The core business of Birla Corporation limited is cement, generating 93% of the revenue for the company, 6% jute and 1% from other sectors.

The project entitled “Working Capital Management and its Appraisal in BCL” deals in this segment. The term of study was kept limited to make the title true. The purpose of the report is to get the in depth understanding of the process of working capital management. With the growing Indian economy and the government policies for infrastructure the demand for cement is increasing and seeing this as an opportunity is under taking many new projects for expansion of the production which are under implementation for increasing the capacity of the plants. Working capital has been analyzed in two ways – overall study of the working capital of Birla Corporation Ltd and secondly, plant-wise working capital of Birla Corporation, since the company has seven plants in different region and each plant has its own working capital.

Borrowings are an important ingredient of funding a business entity. The lenders must feel comfortable with their clients and Birla Corporation enjoys this position among their lenders. Borrowing is done for working capital requirement i.e., to meet the day to day requirement for smooth functioning of the production, and term loans for projects of capacity expansion. Major portion of the borrowing is done from banks at better rate of interest.

The performance of the cement division of the company during the year was satisfactory. The production of cement during the year was 52.28 lack tones, compared to production of 5.26 million tones; the highest ever.The Satna unit produced 20.20 lacks tones of clinker during the year. The cement production at Satna and Raebareli was lower at 21.55 lacs tones as compared to 21.87 lack tones during the previous year. The cement dispatches of Satna and Raebareli units where 21.44 lack tones as compared to 21.89 lack tones during last year.

The production of Portland Pozzolana cement (PPC) at Satna, however, recorded on all time high level of 11.77 lack tones as against the previous best of 11.61 lack tones. Jute division of the company produced 37990MT of jute goods during the year as compared to 29289MT in the previous year. During the year the company has total 7 plants with annual capacity of 10 million tones.

The Company has posted yet another impressive for the 2007-08 results, which has surpassed all respective previous levels. It has shown substantial growth in turnover, cash profit, profit before tax and profit after tax. The total turnover of company has registered a growth of 11.27% whereas operating profits for the year where higher by 18.03% mainly on account of increase in the volume of blended cement in the overall cement sales, higher realisation and effective cost control measures taken by the company.

The profit before tax was up by 19.37% at Rs.551.18 crores as against Rs.461.74 crores in the previous year. The profit after tax is 393.58 crores as against Rs. 326.23 crores in the previous year. EPS was 51.11 as against 47.51 in the previous year.

The cash earnings of the company improved substantially to Rs.501.39 crores as against Rs.178.25 crores in the last financial year. With increase in capacity on account of expansion projects being undertaken by the company, it is expected that the Company would be in a position to maintain the growth in future years. Company has recommended a dividend of Rs 4.00 per share (40%) on 7, 70, 05,347 ordinary share compared 3.50 per share (35%) last year.

The objective of this project work is to focus on the working capital of the Birla Corporation and exploring its potential in the company. The project contain the basic postulates of working capital, procedure of analysis of working capital, ratio being used to define the working capital and the impact of working capital in the company in case of excess or inadequacy. Also, the project contains analysis of estimation of working capital requirement and the procedure to estimate working capital requirement in manufacturing and trading concern. and from the data available it can be concluded that it holds a very strong position in the market.

Cement Industry:-

Cement industry is one of the important industries to country development in the light of the main important basis for construction industry and also the important indicator showing domestic economic growth. In the past, the domestic demand of cement used to be up to 36 million tons. But, the severely negative effects from economic crisis in 1997 have caused real estate and construction industry subdued; the domestic demand of cement has shrunk and been in oversupply atmosphere.

Until 2001–2003, the government has launched many economic actuating policies. This has made real estate and construction industry recovered and the demand of cement has been increasing gradually from 21 million tons in 2001 to 25 million tons and 26.82 million tons in 2002 and 2003 respectively; and the price level is higher in line with increased production cost.

Cement Industry originated in India when the first plant commenced production in 1914 at Porbandar, Gujarat. The industry has since been growing at a steady pace, but in the initial stage, particularly during the period before Independence, the growth had been very slow. Since indigenous production was not sufficient to meet the entire domestic demand, the Government had to control its price and distribution statutorily. Large quantities of cement had to be imported for meeting the deficit. The industry was partially decontrolled in 1982 and this gave impetus to its pace of growth. Installed capacity increased to more than double from 27 million tones in 1980-81 to 62 million tones in 1989-90.

The cement industry responded positively to liberalization policy and the Government decontrolled the industry fully on 1st March 1989. From 1991 onwards cement industry got the status of a priority industry in schedule III of the industry policy statement, which made it eligible for automatic approval for foreign investment up to 51% and also for technical collaboration on normal terms of payment of royalty.

After the globalization and liberalization of Indian economy, the cement industry has been growing rapidly at an average rate of 9 per cent. The country is now the second largest producer of cement in the world next only to China with a total capacity of 188.97 million tones. Additionally, in the last two decades, the industry has undergone rapid technological up gradation and growth, and now, some of the cement plants in India are comparable to the world’s best operating plants in all respects.

Till a few years ago India was importing cement from other countries, as the production could not meet the demand for the whole country. Now the tables have turned as India has started exporting large quantities of cement and clinker to Bangladesh, Nepal, Sri Lanka, Maldives, Mauritius, Africa, Seychelles, Burma, UAE, and Singapore etc.

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