A STUDY ON

DEBTORS MANAGEMENT

AT

TATA STEEL &

IT’S COMPARISONWITH OTHER KEY PLAYERS

A Project Report submitted in partial fulfillment of the requirement for BACHELOR OF BUSINESS ADMINISTRTION

(Affiliated To Ch.Charan Singh University, Meerut)2007-2010

UNDER THE GUIDANCE OF

Internal Supervisior Submitted by Mr.TUSHAR JINDAL(faculty) Rahul IMS Ghaziabad 9351722

External SupervisiorMr. K S M MATHEW

INSTITUTE OF MANAGEMENT STUDIESGHAZIABAD

1

DECLARATION CERTIFICATE

This is to certify that the work presented in the project entitled

“DEBTORS MANAGEMENT in partial fulfilment of the requirement

for the award of degree of ‘BBA, INSTITUTE OF MANAGEMENT

STUDIES,GHAZIABAD, is an authentic work carried out under my

supervision and guidance.

To the best of my knowledge, the content of this project does

not form a basis for the award of any previous degree to anyone

else.

Date: (Guide’s

name &signature)

Department

of Management

BBA IMS, GHAZIABAD

2

CERTIFICATE OF APPROVAL

The foregoing thesis entitled “DEBTORS MANAGEMENT at TATA

STEEL AND ITS COMPARISON WITH OTHER KEY PLAYERS”, is hereby

approved as a creditable study and has been presented in

satisfactory manner to warrant its acceptance as prerequisite

to the degree for which it has been submitted.

It is understood that by its approval, the undersigned do not

necessarily endorse any conclusion drawn or opinion

expressed therein, but approve the project for the purpose for

which it is submitted.

Co-ordinator- BBA Academic Co-ordinator

DirectorIMS-GZB.

3

Acknowledgement

It is my privilege to work on the project “Debtors management at Tata Steel Ltd and its comparison with other key players”. At the very outset, I am obliged to TATA STEEL for the permission to undertake training program and provide me with the basic infrastructure and facilities.

I express my sincere sentiments of gratitude to Mr. K S M MATHEW (Head Sales & EPA A/c) who guided me throughout this project. I would also like to thank Mr. PRANAV JHA (Sr. Manager Sales & EPA A/c) for his continuous assistance without which this project would not have been a success.

It is the spirit of being associated with the Finance and Accounts department particular and Tata Steel in general who inspired me to complete this project successfully.

I am indebted to my mentor Mr. K B SINGH for extending his untiring guidance to me, by constantly discussing the project matter and helping me in clarifying my thinking in several pertinent issues and providing a meaning full insight into the subject.

Last but not the least; I also thank Ms.VANDANA KHEMKA (Manager Sales & EPA A/c) & Ms. PADMA MOHANTY (Accountant) who has been a source of inspiration through their constant guidance, personal interest, encouragement and help

4

& has made my stay in the company such a pleasant memory. In spite of their busy schedule they have always found time to guide me through the project. I am also grateful to them for reposing confidence in my abilities and giving me the freedom to work on my project.

I owe my deep sense of gratitude and sincere thanks to all of them

Thank you.

TABLE OF CONTENTS

EXECUTIVE SUMMARY

1

CHAPTER 1

INTRODUCTION

1.1.1 Account receivable-definition…………………………..….…......

5

1.1.2 Debtors management………………………………………....…….

6

1.1.4 Need for trade credit……………………………………….….….

8

1.1.5 Determinants of size of receivables……………………………….

9

1.1.6 Cost & benefits associated with receivable

management……….... 11

5

1.1.7 Expert view ………………………………………..……………..

13

Company Profile

1.2.1 History of steel………………………………………...…………..

14

1.2.2 Indian Steel Industries ……………………………………...…….

16

1.2.3 Company Overview ……………………………………………..…...

19

1.2.4 Tata steel stand alone ………………………………………...……..

45

1.2.5 Overview of the finance division of Tata steel………………….

……. 57

1.2.6 Sundry debtors section…………………………………………....…..

58

CHAPTER 2

RESEARCH METHODOLOGY

2.1 Type of Research……………………………………………..………

60

2.2 Objective of the study………………………………………………..

60

2.3 Scope of Study …………………………………………………….…

60

2.4 Sources of data collection…………………………………………….

60

2.5 Sampling……………………………………………………………..

60

CHAPTER 3

CREDIT DECISION

3.1 Tata steel’s credit monitoring and control………………………

65

3.2 Operational working at Tata steel for managing

debtors…….…. 68

6

3.3 Channel financing…………………………………………...……

70

3.4 Credit assessment modules…………………………………..……

72

3.5 Understanding the debtor’s process system……………….....

…………… 84

CHAPTER 4

COMPARATIVE ANALYSIS OF TATA STEEL WITH OTHER STEEL COMPANY

4.1Tata steel vs. Steel authority of India limited (sail)………………….....

89

4.2Tata steel vs. Arcelor Mittal (Mittal steel) …………………………… 95

4.3. Tata steel vs. Jindal steel & power ltd …………………..…………… 99

CHAPTER 5

TATA STEEL & RECESSION

5.1 Tata steel’s game plan to beat recession……………………...

……. 108

5.2 After

recession…………………………………………........................ 109

5.3 Articles from the

newspapers……………………………………...... 111

CHAPTER 6

CONCLUSION AND SUGESSTIONS

6.1 Suggestion…………………………………………………………………..

113

6.2 Limitation of the Study…………………………………………….……….

114

6.3 SWOT analysis of debtors management process at Tata

steel…………… 115

6.5 Views of debtor management expertise……………………………...

…… 117

6.4Conclusion………………………………….……………………….………….. 118

REFERENCE

ANNEXURE - Bibliography

7

Executive Summary

The project deals in “DEBTORS MANAGEMENT AT TATA STEEL & ITS

COMPARISON WITH OTHER KEY PLAYERS”. Receivable management is one of the

most important aspects of the organization, as it deals with the management of the

outstanding. The profit of the company mainly depends on the accounts receivables.

Therefore it needs a careful analysis and proper management.

Debtors occupy an important position in the structure of current assets of a firm. They are

the outcome of rapid growth of trade credit granted by the firms to their customers. Trade

credit is the most prominent force of modern business. It is considered as a marketing tool

acting as a bridge for the movement of goods through production and distribution stages to

customers.

Till few years back, Tata Steel had a very strict policy of selling against advance payments.

That was an era of controlled economy. However, with an increasing domestic and

international competition, Tata Steel could no longer afford this policy, in order to maintain

its premium position. Further in order to capture a greater amount of market share, it was

compelled to go by the industry norms and thus it ushered into the new era of credit sales.

This resulted in credit sales going up significantly. A credit limit was sanctioned to every

customer. The customers were required to pay the outstanding amount on the due date.

8

INTRODUCTION

9

1.1What is an account receivable?

Accounts receivable is an accounting transaction which deals with the billing of customer who owes money to a person, company or organization for goods and services that has been provided to the customers. 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.

An example of a common payment term is Net 30, meaning payment is due in the amount of the invoice 30 days from the date of invoice. Other common payment terms include Net 45 and Net 60 but could in reality be for any time period agreed upon by the vendor and the customer.

On a company's balance sheet, accounts receivable is the amount that customers owe to that company. Sometimes called trade receivables, they are classified as current assets assuming that they are due within one year. To record a journal entry for a sale on account, one must debit a receivable and credit a revenue account. When the customer pays off their accounts, one debits cash and credits the receivable in the journal entry. The ending balance on the trial balance sheet for accounts receivable is always debit.

Accounts receivable departments use the sales ledger. Other types of accounting transactions include accounts payable, payroll, and trial balance.

BOOK KEEPING FOR ACCOUNTS RECEIVABLE

10

Companies have two methods available to them for measuring the net value of account receivables, which is computed by subtracting the balance of an 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 for accounts receivable. The amount of the bad debt provision can be computed in two ways - either by reviewing each individual debt and deciding whether it is doubtful (a specific provision) or by providing for a fixed percentage, say 2%, of total debtors (a general provision). The change in the bad debt provision from year to year is posted to the bad debt expense account in the income statement.

The second method, known as the direct write-off method, is simpler than the allowance method in that it allows for one simple entry to reduce accounts receivable to its net realizable value. The entry would consist of debiting a bad debt expense account and crediting the respective account receivable in the sales ledger.

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1.2 Receivable management – CONCEPT

The term receivable management is defined as “debt owed to the firm by customer arising

from the sale of goods/ services in the ordinary course of business.” The receivable

represents an important component of the current assets of the firm. Receivables may be

known as accounts receivables, trade creditors or customer receivable. When a firm its

products / services and does not receive cash for it immediately, the firm has said to be

granted trade credit to the customers. Trade credit thus creates receivable / book debts, which

the firm is expected to collect in near future. Accounts receivable are thus amounts due from

customers, which bear no interest in essence, a company is providing no cost financing to the

customer to encourage the purchase of the company’s product/services.

The extension of credit can be justified only if the increase in the sales and related cash

collections (discounted for the time until collection) exceeds the amount otherwise cash

generated under a “cash only” policy.

These customer from whom receivable or book debt are to be collected in the future are called

as “trade debtors” or simply as “debtor” and represents the firm’s claim on assets. Trade

debtors are expected to be converted into cash within a short period and are included in the

current assets. Since receivables often accounts for the significance portion of total assets, it

requires careful attention and adequate management. It is skill demanding field because the

customer has to be bestowed with trust along with a continuous vigilance.

12

OBJECTIVE OF DEBTORS MANAGEMENT

It is not always possible to sell goods on cash basis only, sometimes other firms in that line

might have establish a practice of selling goods on credit under these circumstances, it is not

possible to avoid credit sales without adversely affecting the sales. Hence the firm is required

to allow the credit sale in order to expand its sales volume. The increase in sales is also

essential to increase profitability. The sales of goods have become an essential part of the

modern competitive economic system. In fact credit sales and receivables are treated as a

marketing tool to aid the sale of goods. Credit sale is generally made in an open account in the

sense that there is no formal acknowledgement of debt obligation through a financial

instrument. As a marketing tool they are indene to promote sales and thereby profits. However

extension of credit involves risk and cost. Management should weigh the benefits as well as the

costs to determine the goals of receivable management.

Thus the objective of receivable management is:

“To promote sales and profit until that point is reached where the return on investment in further funding of receivable is less than the cost of funds raised to finance that additional credit(i.e. cost of capital)”

13

1.4 NEED FOR GRANTING TRADE CREDIT:

Trade credit is an important marketing tool. A policy of trade credit is followed nearly in all capital intensive industries either for sales expansion and /or sales retention. Under any circumstances investment in receivable is growth oriented.

Various factors that favours credit

14

Market factors

CompetitionCustomers’ requirement

Recessionary economic conditions

MarketingTool

MARKET FACTOR: Market factors like price, forces accompany to grant credit. For example, TATA STEEL whose price is comparatively higher is forced to grant credit in order to maintain sale.

COMPETITION: In view of stiff competition from both domestic and international players, the company is left with no option then to grant credit. Competition is another vital factor, which affects the credit policy of a firm, and TATA STEEL is not an exception.

CUSTOMER’S REQUIREMENT: As the market has changed to the buyer’s market, the customers have become kings. If the customer expects credit and is worthy of it, he gets it.

MARKETING TOOL: T o push up sales of slow moving products and encourage bulk purchase of fast moving products, credit plays an effective role in this context.

RESESSIONARY ECONOMIC CONDITIONS: Liquidity crunch forces the company to grant credit.

1.5 DETERMINANT OF SIZE OF RECIEVABLES

Beside sales, a number of factors also influence the size of receivables. The following factors directly or indirectly determine the size accounts receivables.

Level of sales: The most important factor in determining the volume of receivable is the level of firm’s credit sales. With an increase in the size of the sales, it may bring about a proportional increase in the magnitude of receivable.

Credit policies: The firm with the liberal credit policy will have a higher level of receivable than with a conservative or rigid credit policy.

Terms of trade: The size of receivables also depends upon the term of trade. The period of credit allowed and rates of discounts given are linked with receivables. If the credit period allowed is more, the receivable will also be more similarly if the rate of discount are reasonable, then also the size of the receivable will increase.

Profit: The level of receivables increases as a result of increase in sales. When sales increase beyond a certain level, the additional cost incurred are less than the increase in revenue. It will be beneficial to increase sales beyond a point because it will bring more profit. The increase in profit will be followed by an increase in the size of the receivable.

15

Market: It may be necessary for the firm to explore a new market for its products/services. One of the attractive way in which a firm enters a new market is by giving incentives to the customers in the form of credit facilities. In doing so, the size of receivable will increase.

Grant of credit: Size of the receivable depends upon the policies and practices of the firm in determining which customer are to be granted credit.

Paying habit of the customer: The paying habits of the customers also have a bearing on the size of receivables. The customers may be in habit of delaying payments even though they are financially sound. In such case, the firm should remain in constant touch with its customers.

Collection policies: The vigour with which affirm collects its dues from the customers also affects its receivables, for if the amounts due are not collected timely; a firm suffers some financial difficulties, if not losses.

Operating efficiency: The degree of operating efficiency in billing, record keeping and other function also exercise some influence on a firm’s credit policy which in turn influences its receivables.

Credit collection: The collection of credit should be streamlined. Efficient credit collection machinery will reduce the size of receivable. Individual firm of tern set up their own well organised credit collection department.

16

1.6 COSTS AND BENEFITS ASSOCIATED WITH

receivable MANAGEMENT

17

COSTS

COLLECTIONCOST

CAPITAL COST

DELIQUENCY COST

DEFAULT COST

COSTS

COLLECTIONCOST

CAPITAL COST

DELIQUENCY COST

DEFAULT COST

COSTS:

The major categories of cost associated with extension of credit and receivable are:

Collection cost

Capital cost

Delinquency cost

Default cost

COLLECTION COST:

These costs are administrative cost incurred in collecting the receivable from the customers.

This category includes:

1. Additional expenses on the creation and maintenance of a credit department with staff,

accounting, records, stationary, postage and other related items.

2. Expenses involved in acquiring credit information either through outside specialist

agencies or by the staff of the firm itself.

CAPITAL COST:

Accounts receivables, being an investment in current assets, have to be financed involving a

cost. There is a time lag between the sale of goods to, and the payment by, the customers.

Meanwhile the firm has to pay employees and suppliers of raw material i.e. the firm should

arrange for additional funds to meet its own obligations. Thus, the cost on the use of additional

capital to support credit sales is therefore apart of the cost of extending credit.

DELINQUENCY COST:

This cost arises out of the failure of the customer to meet their obligations when payment on

credit sales becomes due after the expiry of the period of credit. Such cost includes:

Blocking up of funds for an extended period.

Cost associated with steps that have to be initiated to collect the overdue, such as

reminders and other collection efforts, legal charges, where necessary , and so on.

DEFAULT COST

In addition of the above cost the firm may not be able to recover the overdue because of

inability of the customers. Such debts are treated as bad debts and have to be written off, as

18

they cannot be realized. Though a concern may be able to reduce bad debts through efficient

collection mechanism, one cannot altogether rule out the possibility of this cost.

BENEFITS:

Apart from the cost, another factor that has a bearing on accounts receivable is the benefit

emanating from credit sales. The benefits are:

“The increased sale and thereby profits”

However, the benefits would depend upon the credit policy adopted by the firm, i.e., a

conservative or liberal credit policy. The impact of liberal credit policy is likely to have two

forms:-

i. Sales expansion

ii. Sales retention

In sales expansion a firm may grant credit either to increase sales or to attract new customer.

This motive is growth oriented; on the other hand the sales retention the firm may grant credit

to protect its current sales against emerging competition. No matter whatever is the motive, the

result the result of increased sales is the increase the profit of the firm.

SOME BASIC DEFINITION

19

When the buying and selling process steps forward and the customer is not able to pay the total

amount, the amount which they are not able to pay at the same time of buying the amount is

known as DEBT.

In the balance sheet of companies those customers are DEBTORS. In their balance sheet

company is a CREDITOR.

On the basis of market performance and credit rating company decides the time period of

payback of the amount. This time period is known as CREDIT PERIOD.

The total amount called as debt is called as OUTSATNDING. When this total outstanding is

not paid within the credit period the amount remained to be collected is called as OVERDUE.

The total overdue is divided in different parts such as overdue within 3months, from 3-6

months, 6-12 months, 1 to 2 yrs, 2-3 yrs, above 3yrs, and above 5 yrs.

When the customer is not able to pay back the due after five years then this amount is known

as BAD DEBTS.

Tata Steel has kept some amount for this type of time of contingencies. This amount use for

decreasing the effect of bad debts is called as PROVISION.

CURRENT ASSETS are those assets which can be converted into cash within the period of

12 months starting from the company’s financial year.

CURRENT LIABILITIES are those liabilities which are repaid within 12 months starting

from company’s financial year.

EXPERT VIEW

20

It is generally believed that credit policy stimulates sales as it helps in retaining

existing customers and winning clients from rivals. Trade debtors represent

amounts owed to the firm as a result of credit sale of goods or services in the

ordinary course of business.

The key function of credit management is to optimize the sales at the minimum

possible cost of credit.

According to Joseph, "The purpose of any commercial enterprise is the

earning of profit. Credit in itself is utilized to increase sales, but sales must

return a profit".

The offer of trade credit should not only optimize sales but also lead to

maximization of overall return on investment. Management of receivables,

therefore, should be based on sound credit policies and practices.

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COMPANY

PROFILE

22

3.1 HISTORY OF STEEL

Steel was discovered by the Chinese under the reign of Han dynasty in 202 BC till 220 AD.

Prior to steel, iron was a very popular metal and it was used all over the globe. Even the time

period of around 2 to 3 thousand years before Christ is termed as Iron Age as iron was vastly

used in that period in each and every part of life. But, with the change in time and technology,

people were able to find an even stronger and harder material than iron that was steel. Using

iron had some disadvantages but this alloy of iron and carbon fulfilled all that iron couldn’t

do. The Chinese people invented steel as it was harder than iron and it could serve better if it

is used in making weapons. One legend says that the sword of the first Han emperor was made

of steel only. From China, the process of making steel from iron spread to its south and

reached India. High quality steel was being produced in southern India in as early as 300 BC.

Most of the steel then was exported from Asia only. Around 9th century AD, the smiths in the

Middle East developed techniques to produce sharp and flexible steel blades. In the 17th

century, smiths in Europe came to know about a new process of cementation to produce steel.

Also, other new and improved technologies were gradually developed and steel soon became

the key factor on which most of the economies of the world started depending.

23

FIG: Stages in Global Production of Steel

• India is one of the world’s top ten steelmakers its domestic output is insufficient to

meet the demand in all segments.

• Consumption of steel is very fast and as a consequence of the prospective dynamic

economic growth.

• Secondly, there is demand for high-quality products which India will not be able to

supply in sufficient quantities for the foreseeable future.

3.2 THE GLOBAL STEEL INDUSTRY

The current global steel industry is in its best position in comparing to last decades. The price

has been rising continuously. The demand expectations for steel products are rapidly growing

for coming years. The shares of steel industries are also in a high pace. The steel industry is

enjoying its 6th consecutive years of growth in supply and demand. And there is many more

merger and acquisitions which overall buoyed the industry and showed some good results.

The subprime crisis has lead to the recession in economy of different countries, which may

lead to have a negative effect on whole steel industry in coming years. However steel

production and consumption will be supported by continuous economic growth.

CONTRIBUTION OF COUNTRIES TO GLOBAL STEEL INDUSTRY

The countries like China, Japan, India and South Korea are in the top of the above in steel

production in Asian countries. China accounts for one third of total production i.e. 419m ton,

Japan accounts for 9% i.e. 118 m ton, India accounts for 53m ton and South Korea is

accounted for 49m ton, which all totally becomes more than 50% of global production. Apart

from this USA, BRAZIL, UK accounts for the major chunk of the whole growth.

3.3 INDIAN STEEL INDUSTRIES

24

The challenges that confront Indian steel industry in the age of globalization are complex in

nature. The secret of sustainable turnaround lies in how Indian steel industry faces the

challenges and develops combative and anticipatory prowess. Problems and solutions may

vary with organizations but there is more a commonality than initially meets the eye. A two-

step strategy is suggested for the sustainable turnaround in the industry. These stages, aimed to

ensure survival and growth have been termed survival strategy and growth strategy. The

survival strategy provides a foundation upon which a potent growth strategy could be

formulated. While the survival strategy would ensure the survival of the ailing steel industry,

the growth strategy would simultaneously take care of its total transformation towards a better

future. Both stages, to be implemented through an integrated plan, are essential to enable the

industry overcome the present imbroglio.

• Indian steel industry is poised for rapid growth.

• India’s share in world production of crude steel increased from 1.5% in 1981 to around

7.3% in 2008.

• The private sector is considered engine of growth in the steel industry and

technological changes and modernization are taking place in both the public and the

private sector integrated steel plants in India.

25

SOME OF THE LEADING COMPANIES IN INDIAN STEEL INDUSTRY

ARE AS FOLLOWS:

Tata Steel: Producer and supplier of wire rods, bars, and steel flats

Steel Authority of India: Manufacturer of steel and iron

Ambica Steel: Producer of carbon steel, alloy, and stainless steel

Bokaro Steel Plant: Steel manufacturer

Central Steel Corporation: Producer of alloy and tool steels

Allied Ferromelt: Producer of non alloy and alloy steel

Anchor Engineers' Files: Producer of steel files for engineers

Essar Steel: Producer of sponge iron, steel and iron ore pellets

ColdFab: Producer of pre-fabricated buildings of steel

Hisar Metal: Producer of strips and stainless cold rolled steel coils

Buyao Info: Producer of steel products and re-rolled iron

Jindal Iron & Steel: Producer of galvanized steel products

Kanoi Group: Dealer of corrugated sheets and steel coils

Jindal Steel & Power: Manufacturer of mild steel slabs and sponge iron

Metalman Industries: Producer of tubular and flat steel items

26

3.3 Company overview

Backed by 100 glorious years of experience in steel making, Tata Steel is the world’s 6th

largest steel company with an existing annual crude steel production capacity of 30 Million

Tons Per Annum (MTPA). Established in 1907, it is the first integrated steel plant in Asia

and is now the world`s second most geographically diversified steel producer and a Fortune

500 Company Tata Steel has a balanced global presence in over 50 developed European and

fast growing Asian markets, with manufacturing units in 26 countries.

Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA

which is slated to increase to 10 MTPA by 2010. The Company also has proposed three

Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with

additional capacity of 23 MTPA and a Greenfield project in Vietnam.

Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel

Holdings, Singapore, Tata Steel has created a manufacturing and marketing network in

Europe, South East Asia and the pacific-rim countries. Corus, which manufactured over 20

MTPA of steel in 2008, has operations in the UK, the Netherlands, Germany, France,

Norway and Belgium. Tata Steel Thailand is the largest producer of long steel products in

Thailand, with a manufacturing capacity of 1.7 MTPA. Tata Steel has proposed a 0.5 MTPA

mini blast furnace project in Thailand. NatSteel Holdings produces about 2 MTPA of steel

products across its regional operations in seven countries.

Tata Steel, through its joint venture with Tata BlueScope Steel Limited, has also entered the

steel building and construction applications market.

The iron ore mines and collieries in India give the Company a distinct advantage in raw

material sourcing. Tata Steel is also striving towards raw materials security through joint

ventures in Thailand, Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata

Steel has signed an agreement with Steel Authority of India Limited to establish a 50:50 joint

27

venture company for coal mining in India. Also, Tata Steel has bought 19.9% stake in New

Millennium Capital Corporation, Canada for iron ore mining.

Exploration of opportunities in titanium dioxide business in Tamil Nadu, Ferro-chrome plant

in South Africa and setting up of a deep-sea port in coastal Orissa are integral to the Growth

and Globalisation objective of Tata Steel.

Tata Steel’s vision is to be the global steel industry benchmark for Value Creation and

Corporate Citizenship.

Tata Steel India is the first integrated steel company in the world, outside Japan, to be

awarded the Deming Application Prize 2008 for excellence in Total Quality Management.

MILESTONes

Jamshedji Nauserwanji TATA

started a private trading firm,

laying the foundation of the

TATA Group.

The central INDIA spinning,

weaving and manufacturing

company is set up, marking

the group entry into textiles.

The Indians hotels

company is incorporated

to set up the Taj Mahal

Palace and Tower, India's

first luxury hotel, which

opened in 1903.

The TATA Iron and Steel

Company (now TATA Steel)is

established to set up India's

first iron and steel plant in

Jamshedpur.

The first of the three TATA

Electric Companies, The Tata

Hydro-Electric Power Supply

Company, (now TATA Power)

is set up.

The Indian Institute of

Science is established in

Bangalore to serve as a

centre for advanced

learning.

28

18681868 18741874 19021902

19071907 1911191119101910

TATA Steel introduces eight-

hour working days, well

before such a system was

implemented by law in much

of the West.

The TATAs entered the

consumer goods industry, with

the TATA Oil Mills Company

being established to make

soaps, detergents $ cooking

oils.

TATA airlines, a division

of TATA sons, is

established to opening up

the aviation sector in

India.

TATA Chemicals, now the

largest producer of soda ash

in the country, is established.

TATA engeneering and

Locomotive (renamed as

TATA MOTORS) is

established to manufacture

locomotive and engeneering

products.

Jawahar lal Nehru India’s

first prime minster

requested the TATA

Group to manufacture

cosmetics in India,

leading to satting up the

LAKME.

TATA finlat (now TATA

tea), one of the largest tea

producers is estblished.

TATA export is

established. Today the

company renamed as

TATA International, is

TATA consultancy services

(TCS) India’s first software

services company is

established as a division of

TATA sons.

TATA McGraw-Hill

Publishing Company is

created to publish

educational and technical

books.

29

19121912 19171917 19321932

19391939 19451945 19521952

19621962 19681968 19701970

one of the leading export

houses in india.

TITAN Industries- a joint

venture between TATA Group

and Tamil Nado Industrial

Development corporation is

set up to manufacture watches.

TATA Teleservices (TTSL) is

established to spearhead the

Group's foray into the telecom

sector.

TATA Indica – India's

first indigenously

designed and

manufactured car – is

launched by TATA

MOTORS, spearheading

the Group's entry into the

passenger car segment.

The TATA Group acquires a

controlling stake in VSNL,

India's leading international

telecommunications service

provider.

TATA Consultancy Services

(TCS) becomes the first

Indian software company to

cross one billion dollars in

revenues.

Titan launches Edge, the

slimmest watch in the world.

TATA MOTORS acquires

the heavy vehicles unit of

Daewoo Motors, South

Korea.

TCS goes public in July

2004 in the largest private

sector initial public offering

(IPO) in the Indian market,

raising nearly $1.2 billlion.

TATA Steel acquires

Singapore-based steel

company NatSteel by

subscribing to 100

per cent equity of its

subsidiary, NatSteel

Asia.

VSNL acquired

30

2004200420022002 20052005

19841984 19961996 19981998

Idea Cellular, the cellular

service born of a tie-up

involving the TATA Group,

the Birla Group and AT&T,

is launched.

TATA Indicom, the

umbrella brand for telecom

services from the TATA

Teleservices stable, starts

operations.

TATA steel acquires CORUS

thus becoming the sixth

largest steel maker of the

world.

TATA Group acquires

JAGUAR & LAND ROVER

from FORD MOTERS.

 

31

20072007 20082008

 

 

We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship.

We make the difference through:

Our people, by fostering team work, nurturing talent, enhancing leadership capability and

acting with pace, pride and passion.

Our offer, by becoming the supplier of choice, delivering premium products and services,

and creating value with our customers.

Our innovative approach, by developing leading edge solutions in technology, processes

and products.

Our conduct, by providing a safe working place, respecting the environment, caring for

our communities and demonstrating high ethical standards

.

GROUP VISION

32

We aspire to be the global steel industry benchmark for

Value Creation and

Corporate Citizenship.

We make the difference through:

Our PEOPLE, by fostering team work, nurturing talent, enhancing leadership capability and

acting with pace, pride and passion.

Our OFFER, by becoming the supplier of choice, delivering premium products and services

and creating value with our customers.

Our INNOVATIVE APPROACH, by developing leading edge solution in technology,

process and products.

Our CONDUCT, by providing a safe working place respecting the environment, caring for

our communities and demonstrating high ethical standards.

33

34

Products

Tata Steel`s Jamshedpur Works produces hot and cold rolled coils and sheets, galvanized

sheets, tubes, wire rods, construction rebars and bearings. In an attempt to 'decommoditise'

steel, Tata Steel has introduced brands like Tata Steelium (the world's first branded Cold

Rolled Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata

Bearings, Tata Agrico (hand tools and implements), Tata Wiron (galvanized wire products),

Tata Pipes (pipes for construction) and Tata Structura (contemporary construction

material).Apart from these product brands, the company also has in its folds a service brand

called “steel junction”.

Corus’ main operating divisions comprise Strip Products, Long Products and Distribution &

Building Systems Division.

The NatSteel group produces construction grade steel such as rebars, ‘cut-and-bend’ cages for

construction, mesh, precage bore pile, PC wires and PC strand.

Tata Steel Thailand produces round bars and deformed bars for the construction industry.

35

Corporate Sustainability

Regarded globally as a benchmark in corporate social responsibility, Tata Steel's

commitment to the community remains the bedrock of its hundred years of sustainability. Its

mammoth social outreach programme covers the company-managed city of Jamshedpur and

over 800 villages in and around its manufacturing and raw materials operations through uplift

initiatives in the areas of income generation, health and medical care, education, sports, and

relief.

The Company, fully conscious of its responsibilities to the future generations, has always

taken pro-active measures to ensure optimum utilization of natural resources. This is

reflected in the ISO-14001 certification that all its operations have achieved for environment

management. The SA 8000 certification for work conditions and improvements in the

workplace at the steel works in Jamshedpur, along with its Ferro Alloys and Minerals

Division, is a reiteration of its commitment towards the Company's employees. Tata Steel has

pioneered numerous employee welfare measures such as the 8 hours working day and the

three tier joint consultation system of management which have been the platform for nearly

80 years of industrial harmony in its Steel Works in Jamshedpur.

INVESTMENTS OF TATA STEEL

In INDIA

12 MTPA plant in Jharkhand

6 MTPA plant in Orissa

5 MTPA plant in Chhattisgarh

Jamshedpur steel works became a 7 MTPA unit in 2008

OVERSEAS

VIETNAM

SOUTH AFRICA

AUSTRALIA

MOZAMBIQUE

IVORY COST

OMAN

36

AWARDS AND RECOGNITIONS

37

Awards and Recognitions

Tata Steel India awarded the Deming Application Prize 2008 for excellence in Total

Quality Management. It is the first integrated steel company in the world, outside

Japan to get this award.

World Steel Dynamics has ranked Tata Steel as the world's best steel maker (for two

consecutive years) in its annual listing in February 2006.

Tata Steel has been conferred the Prime Minister of India's Trophy for the Best

Integrated Steel Plant five times.

It has been awarded Asia's Most Admired Knowledge Enterprise award five times in

2003, 2004, 2006, 2007 and 2008.

Conferred the prestigious Global Business Coalition Award for Business Excellence

in the Community in recognition of its pioneering work in the field of HIV/ AIDS

awareness.

Tata Steel works has been conferred the prestigious social accountability (SA) 8000

certification by social. Accountability international (SAI), USA. It is the first steel

company in the world to receive this certificate.

Corporate Sustainability Report of Tata Steel hailed by United Nations Environment

Programme (UNEP) and Standard and poor as strongest, submitted by any corporate

house from emerging economies.

Best governed company Award 2006 for setting high standards in governance

practices.

38

 

(As on 7th May, 2009)

Mr. B Muthuraman Managing Director

Mr. H M Nerurkar Executive Director, India and South East Asia Operations

Mr. A D Baijal Vice President & Tata Steel Group Director, Global Mineral Resources

Mr. R P Singh Vice President, Engineering Services & Projects

Mr. Koushik Chatterjee Group CFO, Tata Steel

Mr. Anand Sen Vice President, Flat Products & TQM

Mr. Abanindra M. Misra Vice President, Raw Materials & CSI

Mr. Varun K Jha Vice President, Chhattisgarh Project

Mr. Om Narayan Vice President, Shared Services

Mr. Radhakrishnan Nair Chief Human Resource Officer

Mr. Partha Sengupta Vice President, Corporate Services

Mr. H Jha Vice President, Safety & Long Products

Mr. N K Misra Vice President & Tata Steel Group Head, M&A

Mr. B K Singh Vice President, Orissa Project

Mr. J C Bham Company Secretary

39

40

41

42

43

44

Strategic Business Units OF TATA STEEL

45

Corus: Europe’s second largest steel maker with operations in the UK and mainland Europe and over 40,000 employees worldwide. Its long and strip products cater to the construction, automotive, packaging, engineering and other markets worldwide. Corus is implementing major investments at its plants at IJmuiden, in the Netherlands and at Scunthorpe in the UK as part of its drive to strengthen product differentiation, improve operational efficiency and reinforce existing competitive position, particularly in the construction and automotive sectors, including the development of new advanced high strength steels.

(www.corusgroup.com)

Tinplate Company of India Limited (TCIL): With a market share of over 35%, it is the industry leader in India. It has the capability to supply all tinning line products including electrolytic tinplate / tin-free steel and cold-rolled products.

(www.tatatinplate.com) 

Tayo Rolls Limited: India's leading roll manufacturer and supplier, the company produces rolls which find application in integrated steel plants, power plants, the paper, textile and food processing sectors, and the government mint.

(www.tayo.co.in)  

46

Tata Ryerson Limited (TRYL):

TRYL Is in the business of steel processing and distribution. It offers hot and cold rolled flat steel products in customised sizes and quantities through processing services and materials management services.

(www.tataryerson.com)  

Tata Refractories Limited (TRL): It produces High Alumina, Basic, Dolomite, Silica and Monolithic Refractories and offers design, procurement and re-lining applications services. It is one of the few companies worldwide to produce silica refractories for coke ovens and the glass industry. The Company has a basic bricks manufacturing unit in China.

(www.tataref.com)  

Tata Sponge Iron Limited (TSIL):

TSIL is the first Indian sponge iron plant based on Tata Steel's Direct Reduction Technology. Its major product lines are sponge iron lumps and fines.

(www.tatasponge.com)  

Tata Metaliks: Amongst the top wealth creating companies (EVA+) in the country, Tata Metaliks is engaged in the business of manufacturing and selling foundry grade pig iron.

(www.tatametaliks.com)  

Tata Pigments Limited: TPL's range of products includes oxides of iron, dry cement paint, exterior emulsion paint and distemper. Its products are used in paints, emulsion, cement floors, plastic etc.

(www.tatapigments.com)  

47

Jamshedpur Injection Powder Limited (Jamipol): JAMIPOL manufactures carbide de-sulphurising compounds which are used for de-sulphurising hot metal for the production of low-sulphur, high-quality steel.

(www.jamipol.com)  

TM International Logistics Limited (TMILL):TMILL provides material handling and port operation services at Haldia and Paradip Ports in addition to providing freight forwarding and chartering services.

(www.tmilltd.com)  

mjunction services limited : mjunction, operating at the cutting edge of Information Technology, is a 50:50 venture of SAIL and Tata Steel. It is India's largest eCommerce company and the world's largest eMarketplace for steel. Mjunction offers a wide range of selling, sourcing and knowledge services that empower businesses with greater process efficiencies.

(www.mjunction.in)  

TRF Limited : TRF, one of India's leading companies in the business of design, manufacture, supply, installation and commissioning of engineered-to-order equipment and systems in the areas of bulk material handling, processing, reclaiming and blending. TRF has also made its mark in the fields of coke oven equipment, coal dust injection systems for blast furnaces and coal beneficiation systems.

(www.trfltd.com)  

48

Jamshedpur Utility and Service Company Limited (JUSCO) : Re-engineered out of Tata Steel's town services, JUSCO is a wholly owned subsidiary of Tata Steel and is the country's first enterprise that provides municipal and civic services for townships. JUSCO is the only EMS 14001 civic services provider in the country.

(www.juscoltd.com)  

The Indian Steel and Wire Products Limited (ISWP) : Recently acquired by Tata Steel, ISWP has two units - a wire unit comprising wire drawing mills, wire rod mills and a fastener division and a steel roll manufacturing unit named Jamshedpur Engineering and Machining Company - JEMCO.

    

Tata BlueScope Steel Limited: A joint venture with BlueScope Steel Limited, Australia, Tata BlueScope Steel Limited offers a comprehensive range of branded steel products for building and construction applications. The Company is constructing a state-of-the-art metallic coating and painting facility at Jamshedpur.

(www.tatabluescopesteel.com)  

Dhamra Port Company, Orissa: A JV between Larsen & Toubro Ltd. and Tata Steel Ltd., the company will build a deep-draft (18 metres) all weather port on the east coast of India. The port will handle 80 million tonnes per annum of cargo.  

(www.dhamraport.com)  

49

Hooghly Met Coke & Power Company: A joint venture with West Bengal Industrial Development Corporation Ltd., HMC&PC envisages an annual met coke production capacity of 1.2 million tonnes and 90 MW of electric power.

(www.hooghlymetcoke.com)  

Lanka Special Steel Limited: The only unit in Sri Lanka manufacturing galvanised wires.

   

Sila Eastern Company Limited: Established to develop limestone mines in Thailand, mainly for the captive use of Tata Steel.

   

NatSteel Holdings (NSH) : A leading supplier of premium steel products for the construction industry. NatSteel Holdings became a 100% subsidiary of Tata Steel in February 2004. NSH produces about 2 MT of steel products annually across its regional operations in seven countries.

(www.natsteel.com.sg)  

Tata Steel Thailand: The company is the dominant steel producer in Thailand. The company has the capacity to produce 1.7 million tonnes of steel for the construction industry per year.

(www.tatasteelthailand.com)  

Tata Steel KZN: Proposes to set up high

 

50

carbon ferrochrome plant in South Africa. The plant is slated to be commissioned by October 2007 with an annual production capacity of 135,000 tonnes during Phase 1.

Tata NYK: A joint venture with Nippon Yusen Kabushiki Kaisha (NYK Line) for setting up a shipping company to cater to dry bulk and break bulk cargo. Tata Steel and NYK will each hold 50% stake in the joint venture company.

 

 

51

National International

Jharkhand

Chhattisgarh

Orissa - Kalinganagar

            - Dhamra Port

Tamil Nadu

Vietnam

South Africa

Australia

Mozambique  Ivory Coast (West Africa)

Oman 

The Company has set itself the objective of expanding its capacities and becoming globally

competitive in its business. as a part of its growth strategy, the Company believes in adopting

the ‘best practices’ that are followed in the area of Corporate Governance across various

geographies. The Company emphasises the need for full transparency and accountability in

all its transactions, in order to protect the interests of its stakeholders. The Board considers

itself as a Trustee of its Shareholders and acknowledges its responsibilities towards them for

creation and safeguarding their wealth.

52

Tata groups Diversified area of business

Information systems and communications: The Tata group has well-established enterprises

in the fields of software and other information systems, telecommunications and industrial

automation.

Engineering: The Tata group has a robust presence in engineering, with operations in

automobiles and auto components and a variety of other engineering products and services.

Materials: The Tata group is among the global leaders in this business sector, with

operations in steel and composites.

Services: The Tata group has widespread interests in the hospitality business, as also in

insurance, realty and financial and other services.

Energy: The Tata group is a significant player in power generation and is also involved in

the oil and gas segment.

SOME OF WHICH ARE:

Tata Tele Services

Tata Power

Tata Consultancy Services

Tata Chemicals

Tata Assets Management

Tata Motors

Tata Capital

Titan Industries

Tanishq

Taj Group of Hotels

53

Products of Tata group

54

TATA

STEEL

STAND

ALONE55

TREND OF SALES

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

SALES 11920.96 15876.87 17144.22 19762.57 22191.8

56

PRODUCT WISE NET SALES ARE AS FOLLOWS

Figures in Rs (crs)

FY 2006-07

FY 2007-08

STEEL 14858 16541TUBES 1099 1217FERRO ALLOYS AND MINERALS 1454 1808BEARINGS 140 127

Analysis:

The increase in the net sales of Tubes division was due to the increase in both the volume

as well as prices. The Ferro Alloys and Minerals division of the company registered a

growth of 24% in terms of value though there was a decline in terms of quantity due to the

company’s decision during the year to stop the sale of ores. There was a decline in the net

57

sales of the Bearings division of the company mainly due to lower off -take by the

automotive sector, which is a major customer sector of the division.

58

TREND OF DEBTORS

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

DEBTORS 756.06 581.82 539.4 631.63 543.48

Analysis:There has been decrease in the trend of debtors in last five years, from Rs.756.6crores to

Rs.543.48 crores. This decrease in debtors shows a more profit to the company. The increase

in the debtors during 2006-07year might be due to the acquisition of CORUS.

59

DIVISION/PROFIT CENTRE WISE DEBTORS IN TATA STEEL FOR FY 07-08

PROFIT CENTERS For the FY 06-07 For the FY 07-08STEEL 509.09 397.84WIRE DIVISION 43.82 33.30TUBES 37.01 31.13BEARINGS 7.01 7.29F.A.M.D 70.44 107.59TOTAL DEBTORS 667.37 577.15

60

TRENDS OF DEBTORS IN TATA STEEL

Debtors Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

FY 06-07 614 688 756 663 658 753 680 670 731 709 774 667

FY 07-08 694 687 662 683 669 767 733 636 677 691 716 577

61

TREND OF CURRENT RATIO

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

CURRENT RATIO 1.03 1.1 1.1 2.18 0.9

ANALYSIS:

The ratio is constant. An ideal current ratio is 1:1. In the year 2006-07 the ratio is very high

which is not desirable since it means there was less efficient use of funds which was lowering

down the profitability of the concern. In year 2007-08, the ratio has quite improved to 0.9

from 1.03 in the year 2003-04 and is coming closer to the ideal ratio.

62

TREND OF DEBTORS TURNOVER RATIO

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

Debtors Turnover Ratio 13.38 23.81 28.73 31.9 35.66

ANALYSIS:

Debtors' turnover rate indicates how quickly receivables or debtors are converted into cash .

The liquidity of debtors, therefore, is measured through the debtors' turnover rate. A higher

debtors turnover coupled with quick average collection of debtors enables the firm to transact

a larger volume of business without corresponding rise in the investment in debtors. From the

above chart it is clear that the debtors turnover has been kept on increasing from 2003-04,

where it was 13.38times to 35.66 times in the year 2007-08.

63

TREND OF AVERAGE COLLECTION PERIOD

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

AVERAGE COLLECTION PERIOD 27.27 15.33 12.7 11.44 10.23

ANALYSIS:

The turnover rate converted into average collection period is a significant measure of the

collection activity of debtors. An average collection period is a measure of how long it takes

from the time the sales is made to the time the cash is collected from the customers.

Lesser the period better the situation for the company. In case of TATA STEEL there is a

continuous fall in average collection period from 27.7 days in 2003-04 to 10.23 days in 2007-

08, which is a good sign for the company.

64

TREND OF AVERAGE DEBTORS TO TURNOVER RATIO

YEARSFY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

Debtors Turnover Ratio 13.38 23.81 28.73 31.9 35.66

ANALYSIS:

The analysis of the trends in sales and trade debtors shows the effectiveness of the credit policy in activating sales. An uninterrupted upward trend in sales accompanied by downward trend in debtors indicates that the credit policy implemented by the company is very effective in stimulating more sales. This can be easily seen in case of TATA STEEL where the average debtors to turnover has been decreased from 6.75% in 2003-04 to 2.65% in 2007-08.Further, if the pace of increase in sales is more than the pace of increase in debtors, it is also a symptom of fairly favorable credit policy.

65

PROVISION OF BAD DEBTS TO NET DEBTORS IN LAST FIVE YEARS

year 03-04 04-05 05-06 06-07 07-08

Debtors 651 582 539 632 543

Provision for

doubtful debt

61

39

32

36

34

66

ASSET TURNOVER RATIO IN LAST FIVE YEARS

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08ASSET TURNOVER RATIO (%) 100.78 110.41 108.76 77.02 106.25

ANALYSIS:

This ratio indicates the extent to which the investments in fixed assets contribute towards sales. When compared with a previous period, asset turnover ratio indicates whether the investment in fixed assets has been judicious or not. There has been an increase in the Fixed Assets Turnover Ratio; this might be due to increase in net sales or due to the acquisition of CORUS during the year2007.

67

1.2.5 OVERVIEW OF THE FINANCE DIVISION OF TATA STEEL

The whole finance and accounts department of Jamshedpur is divided in different groups and

sections. These were:

1.CASH OFFICE

2.FINANCE AND COSTS

3.PAYROLL ACCOUNTS

4.PURCHASE AND CAPITAL GROUP

5.SALES AND INDIRECT TAXATION

This project is related to DEBTORS MANAGEMNET, which is dealt by sales and indirect

taxation group. Everything related to debtors is termed as sundry debtors work.

Sales and indirect taxation group is responsible for accounting for activities such as:

FREIGHT- OUTWARD & INWARD (ROAD AND RAIL)

INVOICE

INDIRECT TAXATION MATTERS (EXCISE AND SALES)

It is also related to post sales activities like debtors and town accounting. It comprises of the

following sections:

EXCISE SECTION

FREIGHT SECTION

TOWN DEBTOR’S SECTION

OUTWARD INVOICE SECTION

SUNDRY DEBTORS SECTION

68

SUNDRY DEBTORS SECTION

As the name suggests, this section is responsible for the consolidated reporting of all the debts due to the company and related information to the management. The section plays a major role in monitoring the movements of debts & advising recoveries from the bills of those vendors who are also the defaulting customer of the company. Notes are often put up to the concerned profit centres to highlight probable cases of default.

ACTIVITIES OF SUNDRY DEBTORS SECTION:

Inter office collection (on behalf of other divisions/ profit centres /sales offices).

69

Updating of debtors ledger and preparation of reviews for reconciliation of debtors ledger balances with the corresponding balances as per financial accounts

Updating of advance ledger maintained for tender sales and for preparation of reviews of advance ledger

Updating of auction ledger and preparation of monthly review foe auction ledger Maintenance of security deposit ledger for the purpose of refund of security deposits and for

payments of interest on security deposits. Preparation of reports:

Board note on debtors (Tata steel debtors)

Associated company’s outstanding debtor’s report.

VP (F) Report (Gives the detailed outstanding of all major parties).

Preparation of the outstanding report for secondary products, Rings, Agrico & town.

Annual Business Plan Report

The Memorandum of understanding of sundry debtors section and continuous monitoring of the performance against targets set.

OTHER ACTIVITIES:

Inputs for the credit control meeting Preparation of the minutes of the CCCM. Updating the status of the minutes of the CCCM

70

RESEARCH METHODOLOGY

2.1 Type of Research

The study is descriptive in nature in the sense that it focuses basically on analyzing the debtors management at TATA STEEL.

2.2 OBJECTIVE OF THE STUDY

The process of debtors management in TATA STEEL how the outstanding debtors are

accounted & what steps and actions are taken and should be taken to recover these

dues on time.

Comparison of Tata Steel with other key players with respect to the debtors.

Position of debtors in different industries.

2.3 SCOPE OF THE STUDY The scope of this study is limited to the study of Debtors Management at TATA STEEL. The

scope encompassed with the debtors section of the company which is a part of finance and

accounting department.

2.4 sources of data Collection

Primary data are collected by interviewing customers and employees of TATA

STEEL.

Secondary data are collected by using internet, magazines and text books.

2.5 Sampling

The study was done by using the age wise analysis of debtors.

71

CREDIT DECISION

PROCEDURE OF CREDIT DECISION

72

WHAT IS CREDIT POLICY?

The credit policy provides the yardstick for measurement of credit level of receivables and is

the indentified and compared monthly, as per the requirements. The policy is influenced by the

nature of market and strength of the competition. The policy clearly defines the standard for

target debtor level, which in turn is a significant influence both ion payment terms and on the

whole of the credit control operation, since it determines how much tolerance, if any, is to be

shown to slow paying customer.

CREDIT POLICY OF TATA STEEL

TATA STEEL has a body known as credit control committee, which formulates and gives the

final approval for many credit policy matters. The credit guidelines as they have emerged today

are combined efforts of finance and marketing department.

The credit control committee is headed by Sr.V.P & E.D (F&A) and consists of all product

and sales manager from various divisions along with G.M (F&A) and other concerned

executives as its members. The committee meets at least in two months.

The annual limit of credit sale is provided by Sr.V.P (F&A) in consultation with other

management officials. The committee then discusses in detail about the breakup of the above

lump into the credit limits for different sales offices and also for various customers i.e. both

regional and party wise credit limit is set by the body.

Hence the basic purpose this committee is to set the standard and also have the overall control

of the credit situation, thereby keeping the financing of the working capital cost effective and

preventing any liquidity problems from arising.

As a general rule, credit is allowed to customer who takes large and repeated orders. One time

customers are not entertained for credit.

CREDIT TERMS

Credit terms refer to the terms and conditions on which the trade credit will be made available.

Thus the stipulations under which the goods are sold on credit are referred to as credit terms.

These relate to the repayment of the amount under the credit sale. These terms can be

finalalized after the scrutiny of number of factors. The various factors which must be taken into

account are:

The seller company’s place in the market and the credit terms on which it is buying from

its own suppliers.

73

The availability of the capital it needs to finance its own credit sales and whether this is to

be borrowed and if so at what cost; also the availability of capital to finance the payment

of other overheads.

The existence of buyer and seller’s market

The volume of sales planned and how these will be spread over the range of customers.

The profit margin to be obtained.

The competitive factors.

The character of the market

A. The period the buyer will have the goods i.e. the buying company’s inventory turnover

and average collection period will ultimately decide the selling company’s credit terms.

B. The condition of the customer finances and the degree of the credit risk, which the credit

sale will involve.

CREDIT TERMS HAS THREE COMPONENTS

i. Credit period

ii. Credit limit

iii. Cash discount

CREDIT PERIOD: is the duration of time for which trade credit is extended. During this

period the customers must pay the overdue amount.

CREDIT LIMIT: is decided by the top management and varies according to the market

condition. This total amount is broken up into regional limits, which is further segregated into

monthly limits within which the different parties have to accommodate. This function is

performed by the credit control committee as discussed above.

CASH DISCOUNT: is offered to induce the customers to make prompt payments. The

customers can take advantage of discount if they pay the amount within the stipulated time.

These credit terms usually written in abbreviation for e.g. 2/10net 30 where:

2 signifies the rate of cash discounts (2%)

10 represent the time duration (10days)within which a customer must pay to be entitled

to the discount

30 represent the credit period.

74

Credit terms of Tata steel

The credit terms, i.e. the credit period and cash discount, followed by TATA STEEL are as

follows:

CREDIT PERIOD: the credit period is decided on the basis of the type of the product

and is generally of fixed nature. However, special customer may be allowed a variance in the

set credit period depending upon the volume of sales and customer relationships.

INTEREST CHARGED: interest free credit is allowed for 30 days in most cases. A

every 30 days extension there is a 1% rise in interest rate for secured credits. The rate of

interest for unsecured credit is1% more than the corresponding rate under secured credit .

there is a penal interest of 3% over the applicable rate of interest.

Time period Secured credit Unsecured credit

After 30 days 18.5% 19.5%

After 60 days 19.5% 20.5%

After 90 days 20.5% 21.5%

CASH DISCOUNT:

Cash discount of 2% has also been allowed for certain products in different division. The

discounts had a positive response from certain customers who had working capital problems

i.e. whose inventory turnover have also ignored the discounts and debtor’s turnover is low or

whose operating cycle is long

COLLECTION EFFORT:

A constant touch with the customers is the best way of reminding him about his payment

schedule in a polite but firm manner. A daily, weekly and monthly report regarding the total

sale is done to keep a track on debtors and cash position. Tata steel ‘s collection efforts were

not up to the mark that is the reason why outstanding of greater than six months were

increasing continuously which has now improved to a great extent.

75

4.1TATA STEEL’S CREDIT MONITORING AND CONTROL

As the most of the credit is unsecured, keeping a timely vigilance on the debtors is important

from the safety and the liquidity position of the firm. This primarily requires an efficient

collection process because slackness in the collection efforts lengthens the average collection

period, and increase the % of bad debt, for monitoring the debtors TATA STEEL is using

some steps. These steps are:

Preparation of a ageing schedule

Calculation of days sales o/s

Calculation of ACP

With the help of these, monthly reports are generated and are sent for review to credit control

committee chaired by V.P (F&A).

In case of secured credit where Tata Steel is also a debtor of its customers, it uses its accounts

payable as tool to realize its accounts receivables. In cases, which have the symptoms of

becoming the bad, a reconciliation statement is prepared and the mutual agreement arrived at.

However in the worst case legal action is pursued and bad debts are not written off before

five year.

FOLLOW UP

Proper follow up is done for the timely collection of debts. A daily, weekly, monthly report

regarding the sales is done to keep track on debtors and the cash position. Efficient and

capable Customer’s Accounts Managers are appointed for this purpose. Customer’s Accounts

Managers is responsible for the collection of debts and follow up of the customers. Now

TATA STEEL has adopted many ways to follow-ups:

Phone

Fax

E-mail

Letters

Personal visit

76

TATA STEEL PROVISION POLICY

DEBTORS STATUS AS ON ……………… SUMMARY AS ON…………………

DEBTORS PROVISION

GUIDELINE %Age Provisions required

Amount of outstanding

Provision required

1) BIFR CASES a) Above three years

I. RecoverableII. Non Recoverable

Totalb) Below three years

I. RecoverableII. Non Recoverable

Total

100%100%

100%100%

TOTAL

2) LEGAL CASEc) Above three years

I. RecoverableII. Non Recoverable

Totald) Below three years

I. RecoverableII. Non Recoverable

Total

100%100%

100%100%

TOTAL

3) GOVT./TOWN DUESe) 6 month-1 year

I. RecoverableII. Non Recoverable

Total f) 1-2 Years

I. RecoverableII. Non Recoverable

Total

0%100%50% 100%100%100%

77

g) Above 2 yearsI. Recoverable

II. Non Recoverable Total TOTAL

4)SUBSIDUARY COMPANIESh) 6 months-2 years

I. RecoverableII. Non Recoverable

Total i) Above 2 years

I. Recoverable II. Non Recoverable

Total

0%100%

100%100%

TOTAL

5)OTHERSj) 6 months-three years

I. RecoverableII. Non Recoverable

Total k) 3 years-5 years

I. RecoverableII. Non Recoverable

Totall) Above 5 years

I. RecoverableII. Non Recoverable

Total

0%100%100%100%100%100%

TOTAL

GRAND TOTAL

4.3 OPERATIONAL WORKING AT TATA STEEL FOR

MANAGING DEBTORS

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OVERVIEW

Managing the debtors for Tata steel is an important and chief function of the sales accounts

division of finance and accounts. All the transactions of commercial nature are dealt with by

this department in a detailed outline frame of working. The debtors arise each month out of

the sales made on credit and suitable feeding of the required figures has to be made once in a

month. This function is very much a difficult task owing to the various subsidiaries and

associate companies being controlled by TISCO itself.

The activities of each of the companies are diverse in operations and require different policy

formulations and strategies for complying with the existing market requirements. But they are

controlled in a centralized manner so that they give an actual overview of the standing of the

company. The profitability of each of the above is equally important to arrive at a consensus

for finding out the actual earnings and future prospects. As such each of the company under

subsidiary and associate is incorporated under distinct centres as Profit Centre.

To flatten the organizational structure and developed authority and responsibility for the

quicker responsiveness to changing market conditions and greater initiative in dealing with

different target markets, Tata steel has brought in the concept of profit centre. For all

practical purpose, each profit centre functions as a separate company within the hold of Tata

steel. From the debtors management point of view also each profit centre has the

responsibility of appraising and dealing with its customers. However the overall control is

centralized and is in the hands of the finance department. The main function which lies at the

hands of Tata steel, Jamshedpur is to report such standings of the actual debtors as on a

particular date to the MD in the form of a monthly report. The figures thus arrived at give an

overview of which profit centres contribute the most to the debtor’s standing and the specific

reasons for the same.

Being a steel manufacturing concern, Tata steel is mainly concerned with the actual debtors

arising for the following profit centres:

STEEL

WIRE DIVISIONS

FERRO ALLOYS AND MINERALS DIVISION

TUBES DIVISION

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BEARINGS

Each of the above profit centers have debtors of their own which are handled and managed in

a centralized manner. For an example, tubes division is one of the most important division

which has the maximum contribution to the total sales taking together all the profit centers at

a point of time. It has various parties of its own as debtors such as ESSAR STEEL

LIMITED, BLUE STAR LIMITED, TATA CHEMICALS LIMITED,

MECHATRONICS and many debtors. A database relating to the different parties is

maintained in a pre specified format which helps in understanding the actual standing of the

debtor from the point of view of the actual sale being made to the party on credit till date.

This format helps in maintaining the records in a form which helps in judging the actual

ageing of the debtors and the amount being recovered from the total debt. By ageing we mean

to give an actual definition to the debtors in terms of how old has the debt been to him and

thereby categorizing him for the purpose. A same prescribed format is used by all the profit

centers for managing their respective debtors.

EXPLANATION

Through this preparation we get to know the actual total debtors figures and the major parties

that have contributed to the increase and decrease in the debtors as when compared with the

previous financial period. It mainly emphasizes upon the total debtors figures and the overdue

debtors and their major contributors in the form of party names and figures. It also gives all

list of indications for the debtors whose standing are for periods beyond six months. This

reporting is crucial for the reason that it gives the management the indicative areas for focus,

the reasons for a rise in debtors and suitable control for future standing which is profitable to

the company as a whole.

4.3 CHANNEL FINANCING

80

The core objective of channel financing is to provide integrated commercial and financial

solutions to the supply and distribution channels of a given industry. Channel finance gives

support to the commercial relationship between our clients and their suppliers and customers.

The commercial aim of the channel finance is to add value supply and distribution channels

by providing unique solutions that meet our customer’s demand.

By providing short term lending to clients utilizing qualified receivables as collateral, value is

added to the client by way of working capital support, reduced account receivables and

improved control of the sales/ distribution channels. In addition, payables discounting serves

to add value by improving supplier relationships and enhancing cash flow management.

Forward and backward linkages in a business organisation play a significant role in the

success or failure of the business entity. For,(say) a manufacturing or trading firm, while the

suppliers of the raw material are important as they provide input for production, equally

important is the role of its distributors which sell products manufactured by the firm through

retailers to the ultimate consumers. Channel financing relates to ensuring that integrated

financial and commercial solutions are available to the entire chain of supply and distribution

that could ensure health of the firm, financed by the bank.

How channel financing is different from conventional lending?

Channel financing is different from the conventional lending since in conventional lending

the financing banks are generally not concerned as how the suppliers of the firm and dealers

of teh product of the firm are financing their activity. The weak financials of the

supplier(leading to delay in supply and non availability of market credit)or the dealers of the

product (delay in receipt of payments leading to higher book debts) could adversely impact

the top line sales and bottom line profits of the financed firms. In the channel financing, the

financing bank may have to find the ways and means as to how the suppliers and the

buyers(dealers of the product) can be financed through various instruments/facilities. Hence,

the channel financing adds value to the transaction for all the parties concerned, be it the

manufacturer/trader , the supplier of the inputs or the dealer/ buyer or the financing bank.

METHODOLOGY

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Through channel financing the business firms can outsource a major part of their working

capital needs thereby reducing their dependence on bank finance. For instance, it need not

avail of credit from the bank to pay off the supplier, if the supplier gets the finance in his own

name from the bank for raw materials supplied on credit in the form of say, drawee bills

financing. The bank can also allow loan to the dealer for credit term that has been fixed

between the firm and the dealer in the form of receivable finance or finance against book

debts or factoring of receivables. This enables the manufacturing firm to get the cash

immediately for the finished goods supplied. This firm functions as the principal customer

which suggests the names of its suppliers and dealers to the bank. Thereafter the bank makes

the a due diligence assessment of the suppliers/dealers standing credit worthiness and decides

to provide finance on merit.

BENEFITS TO THE FINANCED CONCERN, THE SUPPLIER

AND THE DEALERS/BUYERS

The pre and post sale of working capital requirement of the manufacturing concern would be

scaled down. Such firms can concentrate more on their core competence area of production

and marketing their products besides saving time and costs involved in arranging creditors

and monitoring recovery. As regards the suppliers and the dealers, the major benefit is that

they get payments promptly, which improve their liquidity position and cost. This also helps

them as well as bank to cut level of counter party risks.

GAINS TO BANKS

The bank also gain substantially from the process of channel financing which include

increased customer base, effective due diligence and smoothness of lending activity and loan

origination process. Besides, the banks will be able to ensure better credit discipline. Since

the risk is diversified through finance to supplier, manufacturer and the dealers, the credit

exposure norms are better observed. Hence the channel financing is a very convenient tool in

managing their assets portfolio.

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Credit assessment modules

Cam-1(solvency)Cam-2(financials)Cam-3(technology and commercial)

Cam-4(quality and credibility)

4.4 Credit assessment policy

Credit management module (based on lotus notes)

Behind every credit decision there is an inherent potential for loss informed credit decision

will minimize the risk, enhance the profitability and lead to better structuring of credit. For

83

credit appraisal and risk assessment customers are broadly classified into three groups

namely

ORGANISED SECTOR (public and private ltd, companies including govt.

undertakings)

UNORGANISED SECTOR (traders, partnership firms, SIS units etc)

GOVERNMENT DEPARTMENT (defence , irrigation, power , railways, PWD,

CPWD)

Credit risk assessment of the customer is assessed based on the following parameters:

ABILITY TO PAY- It is easy to assess the ability of the customer to pay and is applicable to the organized sector

Solvency Financial viability

Technological soundness Commercial feasibility

WILLINGNESS TO PAY- it is based on the judgement and is applicable to both

organised and unorganised sectors. This is the only criterion adopted for assessing the customers in the unorganised sectors.

The assessment criteria are: Quality of management Credibility Past performance

Health of group companies

CREDIT DECISION: Risk classification of the entry i.e. low/medium/ high

Should we extend credit to this entity?

If yes, the recommended credit limit

The structure of the credit i.e.Secured (%)Unsecured (%)

Recommend credit as per % of the net worth Sanctioned credit limit(specify the structure and the amount)

Individual firm / company wise credit limits(in case the entity has different firms or

companies)

Sales centre wise allocation of the sub limits

84

The assessment criteria are:

1. SOLVENCY

2. FINANCIAL VIABILITY

3. TECHNOLOGICAL SOUDNESS

4. COMMERCIAL FEASIBILITY

Depending upon the above basis Tata steel have developed a module for assessing the risk

associated with each and every accounts and to judiciously take a decision based on the

information available

This system is based on the lotus notes applications, which have been described as below:

Credit assessment module-1

SolvencyCorporate bankruptcy prediction (“Z”)

ratios description result Coefficient “Z

”

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X1 Working capital/ total assets

A1 -Z1

X2 Retained earnings/ total assets

A2 - Z2

X3 EBIT/ total assets

A3 - Z3

X4 Net worth/ total liabilities

A4 - Z4

TOTAL (Z1+Z2+Z3+Z4)

CREDIT DECISION (tick the appropriate column)

LOW RISK MEDIUM RISK HIGH

RISK

NOTE:

“Z” SCORE ABOVE4.00 TO BE CONSIDERED AS LOW RISK

“Z” SCORE BETWEEN 4.00 & 2.60 TO BE CONSIDERED AS MEDIUM RISK

“Z” SCORES LESS THAN 2.60 TO BE CONSIDERED AS HIGH RISK

“Z” SCORE LESS THAN 1.60 IS A SIGN OF BANKRUPTCY

CREDIT ASSESMENT MODULE -2

RATIOS DESCRIPTION

Structural ratio

Debt equity ratio Debt/ equityinterest coverage ratio PBIT/interest on debt

86

Liquidity ratioCurrent ratio Current asset/ current

liabilitiesAcid test ratio Quick asset/ current

liabilities

Turnover ratioAssets turnover ratio Sales/ total assetsInventory turnover ratio Sales/ inventoryReceivables turnover ratio Sales /receivables

Profitability ratioGross profit ratio PBIT/salesNet profit ratio PAT /sales

Credit decision (tick the appropriate column)

LOW RISK MEDIUM RISK HIGH RISK

Note: 1& 2 year are immediately preceding financial years

A high debt equity ratio and increasing trend of this ratio is a common trait among the failing companies.

No ratio should be interpreted in isolation and the credit decision should be taken after reviewing the ratios in totality.

FINANCIAL VIABILITY: Understanding the ratio

87

88

Liquidity ratio

Liquidity or the short term solvency means ability of the business to pay its short term liabilities. Inability to payoff short term liabilities affects its credibility as well as credit rating. Continuous default on the part of business leads to commercial bankruptcy. Eventually such commercial bankruptcy may lead to its sickness and dissolution. Creditors are very much interested to know its state of liquidity because of their financial stake.

CURRENT RATIO:

Current ratio of the business concern indicates the availability of its current assets to meet its current liabilities. Higher the ratio better is the coverage. A relatively higher current ratio indicates that the firm is liquid and has the ability to fulfill its current obligation on time. An increase in the current ratio represents an improvement in the liquidity position and vice versa.

A ratio equal to 1:1 is considered to be satisfactory.

ACID TEST RATIO: A high acid test ratio is an indication that the firm is liquid and has ability to meet its current or liquid liabilities in time and vice versa. As convection, a ratio of 1:1 is considered to be satisfactory.

WORKING CAPITAL RATIO: Working capital ratio establishes the relationship between sales

and working capital. It measures the efficiency of utilization of working capital. The higher is

the ratio, lower is the investment in working capital & greater are the profits.

89

TURNOVER RATIO

STRUCTURAL RATIO:It measures the long term stability of the firm. These ratios indicate the mix off funds provided by owners and lenders and assures the lenders of the long term funds with regard to:

Periodic payment of interest during the period of loan and

Repayment of principal amount on maturity

dc

DEBT EQUITY RATIO

These ratios provide an insight into the financing technique used by the business and focus, as a consequence on the long term solvency position. This ratio indicates the proportion of debt fund in relation to equity. It indicates proportionate claim of owners and outsiders against the firm’s assets. Creditors are very keen to know this ratio since it shows the relative weight of debt and equity. A ratio of 1:1 is considered to be a satisfactory ratio. However the creditor would prefer the lower one.

INTEREST COVERAGE RATIO

It indicates the firm’s ability to interest obligations. Long term creditors of the firm are interested in knowing the firm’s ability to pay interest on long term borrowing. Generally, higher the ratio safer is the creditor because even if the earnings fall, the firm will be able to meet its commitment of fixed interest charge. A lower ratio indicates excessive use of debt and inefficient operations.

DEBTORS TURNOVER RATIO: Indicates the relation between net credit sales & average

accounts receivables of the year. The ratio indicates the efficiency of the concern to collect the

amount due from the debtors. Higher the ratio, better it is as it proves that debts are collected

quickly.

INVENTORY TURNOVER RATIO: It indicates that how fast inventory is used/ sold. It

measures the efficiency of the firm in selling its products. A high ratio indicates efficient

management of inventory because more is frequency of selling the stock. Low inventory

turnover ratio indicates over investment in inventory, slow business, poor quality of good,

stock accumulation, accumulation of obsolete slow moving stock and low profit compared to

total investment.

DEBT COLLECTION PERIOD: Indicates the average time taken to collect trade debts. In

other words, a reducing period of time is an indicator of increasing efficiency. It enables the

enterprise to compare the real collection period with the granted/theoretical credit period

CREDIT ASSESSMENT MODULE -3

TECHNOLOGICAL AND COMMERCIAL

STRONG MEDIUM WEAKTechnological

Product quality

Product mix

Technological know how

Power availability

Process suitability

90

Plant / equipment

Credit decision (tick the appropriate one)

LOW RISK MEDIUM RISK HIGH RISK

CREDIT ASSESMENT MODULE -4

Quality and credibility of management(Willingness to pay)

strong medium WeakQuality of management

Track record Market reputation Experience in field Ownership dispute Technical competence

Credibility of management

Ethical in business dealings

91

Commitment level Relationship with

regulatory authorities Relation with bank Relation with

competitors

Past performance with us

Length of sound dealing Promptness in payment Honouring commitments Payment patterns &

adherence to credit terms

Willingness s to furnish information

Capacity to hold stocks Ability to absorb supply

spikes Avoidance of over

trading

Health of group companies

Financial soundness of group companies

Possible diversion of funds to new business ventures

Bank rating

Credit decision (tick the appropriate column)

LOW RISK MEDIUM RISK HIGH Risk

CREDIT DECISION MODULE

92

Module Criteria Low Risk Medium Risk High Risk

CAM-1 solvency

CAM-2 Financials

CAM-3 Technical & commercial

CAM-4 Quality & credibility

Notes:

Maximum weight age should be given to criteria no 1 & 2 for customers in organised

sector

In case of a new company, financial data’s may not be available and hence it is

suggested that the promoters past record and performance of the group companies

should be considered as guide.

In case customers in organized sector, criteria 1 & 2 are relevant

In case of government department past performance, repayment patterns and

adherence to credit. Discipline should be considered as guide as others criteria are not

relevant.

3.5 Understanding the debtor’s

process systemDuring this project I got an opportunity to become a part of an ongoing project

“understanding the debtor’s process system” &“Recovery of Outstanding” of TATA

MAIN HOSPITAL (medical services provided by TATA STEEL to its employees and to

93

its other associates). This project is basically to get in touch with the customers and finding

out the reason for their default of payment. Four trainees. (Nidhi Kedia, Shital Verma,

Abhinav Kumar, Binita Gupta) were selected as a part of this ongoing project at Tata steel,

finance & A/c s dept, guided by Mr. K.S.M. Mathew (Head Sales & EPA a/c)

TATA MAIN HOSPITAL (TMH) was introduced in 1908 and restructured in 1909 and as

the days passed, TMH is now a days the biggest hospital in the city with most appropriate

and valuable services to the city. This hospital has the most sophisticated equipments for the

investigation of medical purposes with well experienced Doctors, Specialists, Surgeons,

Facilities & sufficient no. of Medical and non Medical Staff.

TATA STEEL and its associates provide free services to their employees and their

dependants through TATA MAIN HOSPITAL, for these services companies are paying to

hospital. In this process TMH has accumulated a huge outstanding from its corporate

customers, even after TATA STEEL’S reminder calls customers are not paying their

outstandings. So TMH has stopped its services for a day, for that company whose books of

accounts showed outstandings for a long period.

The GURU MANTRA of the project was DMAIC (Determine, Measure, Analysis,

Implementation and check/control).

The whole process consisted of eight steps:

Step 1.Take out Customer wise Statement

Step 2. Collect the Outstanding list

Step 3. Reconcile and identify the bills pending

Step 4. Take Print outs of Bills - As duplicate copy

Step 5. Fix an appointment with the Customer

Step 6.Finalise Reconciliation with customer

Step 7. Collect MoneyStep 8.Make documents for write off proposals if

required

94

PROJECT ACTIVITY CHART

95

96

THREE MAJOR AREAS AND THEIR RESPECTIVE ACTIVITIES:

The project is still in progress and yet to complete the last three steps. The report submitted

by our team was appreciated by everyone at TMH and TATA STEEL.

We prepared a detailed report of our findings and made Management System Chart for all the

organizations to show how their work flow is going on and who is responsible for any

particular work done in concerned company related to medical services.

A copy of detailed report we have submitted in the company. After this we are asked by our

guide to give a presentation (related to customers complains and suggestions) before

MANAGING DIRECTOR (Dr. Ray) of TMH and the management. On the basis of

management system chart, which we had made, concerned persons of associated companies

will be called for a meeting with all their records and TATA STEEL accounts and finance

division also will be ready with their records to cross check the bills and records. When the

cross check will be done a signature will be taken from the concerned person and dues will be

collected.

97

Comparative analysis

of Tata steel with

other

STEEL companies

98

5.1 STEEL AUTHORITY OF INDIA LIMITED (SAIL)

Steel Authority of India Limited (SAIL) is a company registered under the Indian Companies

Act, 1956 and is an enterprise of the Government of India. It has five integrated steel plants at

Bhilai (Chhattisgarh), Rourkela (Orissa), Durgapur (West Bengal), Bokaro (Jharkhand) and

Burnpur (West Bengal). SAIL has three special and alloy steel plants viz. Alloy Steels Plant

at Durgapur (West Bengal), Salem Steel Plant at Salem (Tamil Nadu) and Visvesvaraya Iron

& Steel Plant at Bhadravati (Karnataka). In addition, a Ferro Alloy producing plant

Maharashtra Elektrosmelt Ltd. at Chandrapur is a subsidiary of SAIL. SAIL has Research &

Development Centre for Iron & Steel (RDCIS), Centre for Engineering & Technology (CET),

SAIL Safety Organisation (SSO) and Management Training Institute (MTI) all located at

Ranchi; Central Coal Supply Organisation (CCSO) at Dhanbad; Raw Materials Division

(RMD), Environment Management Division (EMD) and Growth Division (GD) at Kolkata.

The Central Marketing Organisation (CMO), with its head quarters at Kolkata, coordinates

the country-wide marketing and distribution network.

SAIL’s steady ascent has been facilitated by all round improvement in performance. SAIL

today presents a picture of dynamic and buoyant business entity moving ahead to maintain

and

Consolidate its leadership position in the fast growing Indian steel sector. “SCOPE Gold

Trophy for Excellence and Outstanding Contribution to the Public Sector Management”–

institutional category for the year 2004-05,“Businessworld-FICCI–SEDF Corporate Social

Responsibility Award – 2006”, and several other awards to SAIL, bear testimony to the

organization’s efforts towards improving efficiencies.

99

Tata steel vs. SAIL

OPERATING MARGIN

OPERATING MARGIN (%)YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL 32.47 41.1 38.88 39.61 41.94SAIL 20.71 36.53 23.24 28.09 28.19

ANALYSIS:

From the above graph, it is clear that TATA STEEL has been always in a better position in

terms of operating margin profit (%) when compared to SAIL. From 32.47% in 2003-04 to

41.94% in 2007-08 TATA STEEL has proved itself. Whereas SAIL‘s operating margin

profit% has been just 20.71% in year 2003-04 to 28.19% in 2007-08.

TREND OF CURRENT RATIO IN LAST FIVE YEARS

100

CURRENT RATIO

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL 0.68 0.71 0.72 1.77 3.92SAIL 0.91 1.18 1.23 1.59 1.73

ANALYSIS:

An ideal current ratio is 1:1. When compared to SAIL, current ratio of TATA STEEL is not a

desirable one. In the year 2007-08 the ratio is very high which is not desirable since it means

there was less efficient use of funds which was lowering down the profitability of the

concern. In case of SAIL the ratio is almost coming closer to the ideal ratio.

QUICK RATIO

101

QUICK RATIO

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL 0.39 0.33 0.29 1.37 3.52SAIL 0.57 0.76 0.72 1.01 1.23

ANALYSIS:

Quick ratio shows short-term solvency of a business in a true manner. It is also called acid-test ratio and liquid ratio. It is calculated in order to know how quickly current liabilities can be paid with the help of quick assets. Quick assets mean those assets, which are quickly convertible into cash. While comparing TATA STEEL with SAIL it can be clearly seen that TATA STEEL is in a better position. SAIL’s ratio as on 2003-04 was 0.57 which increased to 1.23 in 2007-08. When compared to TATA STEEL it is clear that the increase in the ratio is more than that of SAIL.

DEBTORS TURNOVER RATIO

102

DEBTORS TURNOVER RATIO

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL 12.47 15.73 16.52 17.32 12.74SAIL 13.64 16.64 15.12 16.77 15.52

ANALYSIS:

Debtors turnover ratio indicates the relation between net credit sales and average accounts

receivables of the year. This ratio is also known as Debtors’ Velocity.

This ratio indicates the efficiency of the concern to collect the amount due from debtors. It

determines the efficiency with which the trade debtors are managed. Higher the ratio, better it

is as it proves that the debts are being collected very quickly. TATA STEEL and SAIL both

has an increasing trend in debtors turnover ratio when compared to last five years.

TREND AVERAGE COLLECTION PERIOD IN LASTFIVE YEARS

103

AVERAGE COLLECTION PERIOD

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL 29.24 23.19 22.089 21.06 28.64SAIL 26.75 21.93 24.12 21.75 23.51

ANALYSIS:

This ratio indicates how quickly and efficiently the debts are collected. The shorter the period

the better it is and longer the period more the chances of bad debts. Although no standard

period is prescribed anywhere, it depends on the nature of the industry. In case of TATA

STEEL & SAIL, the average collection period has decreased when compared to 2003-04 to

2007-08, but SAIL has less chance of bad debt since its average collection is 23.51 days as&

when compared to TATA STEEL’s average collection period of 28.64 days.

104

5.2 Arcelor Mittal

ArcelorMittal is the world's leading steel company, with operations in more than 60

countries.

ArcelorMittal is the leader in all major global steel markets, including automotive,

construction, household appliances and packaging, with leading R&D and technology, as

well as sizeable captive supplies of raw materials and outstanding distribution networks. With

an industrial presence in over 20 countries spanning four continents, the Company covers all

of the key steel markets, from emerging to mature.Through its core values of sustainability,

quality and leadership, ArcelorMittal commits to operating in a responsible way with respect

to the health, safety and wellbeing of its employees, contractors and the communities in

which it operates. It is also committed to the sustainable management of the environment and

of finite resources. ArcelorMittal recognises that it has a significant responsibility to tackle

the global climate change challenge; it takes a leading role in the industry's efforts to develop

breakthrough steelmaking technologies and is actively researching and developing steel-

based technologies and solutions that contribute to combat climate change. In 2008,

ArcelorMittal had revenues of $124.9 billion and crude steel production of 103.3 million

tonnes, representing approximately 10 per cent of world steel output. ArcelorMittal is listed

on the stock exchanges of New York (MT), Amsterdam (MT), Paris (MT), Brussels (MT),

Luxembourg (MT) and on the Spanish stock exchanges of Barcelona, Bilbao, Madrid and

Valencia (MTS).

Tata steel vs. ARCELOR MITTAL (MITTAL STEEL)

105

TREND OF CURRENT RATIO IN LAST FIVE YEARS

CURRENT RATIO

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL 0.68 0.71 0.72 1.77 3.92MITTAL STEEL 1.54 2.02 1.6 1.41 1.44

Analysis:Current ratio shows the short-term financial position of the business. The current ratio of

ARCELOR MITTAL is better when compared to TATA STEEL. The ideal current ratio is

1:1.this signifies the ability of the company to pay off its current liabilities. More the ratio

indicates idleness of working capital.

106

DEBTORS TURNOVER RATIO

Debtors Turnover Ratio

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL 12.47 15.73 16.52 17.32 12.74MITTAL STEEL 13.53 11.71 10.04 10.99 14.64

Analysis:

Debtors turnover ratio indicates the relation between net credit sales and average accounts

receivables of the year. This ratio is also known as Debtors’ Velocity.

This ratio indicates the efficiency of the concern to collect the amount due from debtors. It

determines the efficiency with which the trade debtors are managed. Higher the ratio, better it

is as it proves that the debts are being collected very quickly. TATA STEEL and ARCELOR

MITTAL both have an increasing trend in debtors turnover ratio when compared to last five

years. But MITTAL has a better turnover ratio than TATA STEEL.

AVERAGE COLLECTION PERIOD

107

Average Collection Period

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL 29.24 23.19 22.089 21.06 28.64MITTAL STEEL 26.97 31.14 36.34 33.21 24.91

Analysis:

This ratio indicates how quickly and efficiently the debts are collected. The shorter the period

the better it is and longer the period more the chances of bad debts. Although no standard

period is prescribed anywhere, it depends on the nature of the industry. In case of TATA

STEEL & SAIL, the average collection period has decreased when compared to 2003-04 to

2007-08

4.3 JINDAL STEEL AND POWER LTD.

108

It has been a momentous journey for the O P Jindal Group from its small beginnings to

becoming one of the most respected business and industrial houses today. In 1952, O.P.

Jindal wondered why steel pipes could not be made in India when he spotted one with foreign

markings. He got working on the idea and started a small pipe unit at Liluah in Howrah

district of West Bengal. No one at that point of time dreamt where this visionary would take

this humble beginning. Today, O P Jindal Group is a US$ 10 billion conglomerate.

Jindal Power Limited (JPL), a subsidiary of JSPL, has set up a 1000 MW

power project at Raigarh, the first Mega Power Project of India in private

sector. JPL has planned more hydro and thermal power projects and has

an aggressive blueprint to increase domestic power production to help in

contributing towards achieving Government of India's goal of 'affordable

power for all by 2012'.

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TATA STEEL vs. JINDAL STEEL & POWER LTD

OPERATING MARGIN PROFIT

OPERATING MARGIN PROFIT (%)YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL LTD. 32.47 41.1 38.88 39.61 41.94JINDAL STEEL AND POWER LTD 37.42 40.65 40.26 40.01 42.76

Analysis:

The trend shows there is an almost stagnant range for JSP. From 37.42% in the year 2003-

04,it increased to 42.76% in 2007-08. In case of TATA STEEL there was a steep increase in

2004-05 but then the operating margin profit decreased for two consecutive years and finally

in the year 2007-08 it reached to 41.94%.from 32.47% in year 2003-04,it increased more than

9% till 2007-08.

110

TREND OF SALES IN LAST FIVE YEARS

SALES FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL 12372.53 17414.52 22272.14 27437.29 134089.02JSPL 1550.24 2775.32 3273.93 4338.54 6822.42

ANALYSIS:

The trend of sales of TATA STEEL AND JINDAL STEEL AND PWER LTD. has been

increasing year after year, but when both are compared, the increase in sales of TATA STEEL

is more than JINDAL. From Rs.12372.53 crores in year 2003-04, TATA STEEL ‘sales has

reached Rs.134089.02 crores in 2007-08.whereas in case of JINDAL STEEL AND POWER

LTD. the sales wasRs.1550.24 crores in 2003-04 which increased only toRs.6822.42 crores.

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DEBTORS TREND IN LAST FIVE YEARS

DEBTORS TREND

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL 810.23 1402.94 1292.81 1874.55 19169.05JSPL 212.65 174.67 300.71 324.34 359.19

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TREND OF CURRENT RATIO

CURRENT RATIO FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

TATA STEEL LTD. 0.68 0.71 0.72 1.77 3.92

JINDAL STEEL AND POWER LTD 1.21 1.35 1.26 1.13 1.56

Analysis:

This ratio is also called working capital ratio. This ratio explains the relationship between

current assets and current liabilities of a business, where current assets are those assets which

are either in the form of cash or easily convertible into cash within a year. Similarly,

liabilities, which are to be paid within an accounting year, are called current liabilities.

Current ratio shows the short-term financial position of the business. This ratio measures the

ability of the business to pay its current liabilities.

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DEBTORS TURNOVER RATIO

DEBTORS TURNOVER RATIO FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL LTD. 12.47 15.73 16.52 17.32 12.74

JINDAL STEEL AND POWER LTD 8.19 14.33 13.77 13.87 19.96

Analysis:

Debtors turnover ratio indicates the relation between net credit sales and average accounts

receivables of the year. This ratio is also known as Debtors’ Velocity.

This ratio indicates the efficiency of the concern to collect the amount due from debtors. It

determines the efficiency with which the trade debtors are managed. Higher the ratio, better it

is as it proves that the debts are being collected very quickly. TATA STEEL and JSPL both

have an increasing trend in debtors turnover ratio when compared to last five years. But JSPL

has shown a better performance in last five years.

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AVERAGE COLLECTION PERIOD

Average Collection PeriodYEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08TATA STEEL 29.24 23.19 22.089 21.06 28.64JSPL 44.55 25.46 26.49 26.3 18.28

ANALYSIS:

This ratio indicates how quickly and efficiently the debts are collected. The shorter the period

the better it is and longer the period more the chances of bad debts. Although no standard

period is prescribed anywhere, it depends on the nature of the industry. In case of TATA

STEEL & JSPL, the average collection period has decreased when compared to 2003-04 to

2007-08.but Jindal has decreased more than half of the average period from 2003-04, which

was 44.55days to 18.28 days in 2007-08. Whereas in case of TATA STEEL, the average

collection period was 29.24 days in2003-04 which reduced to 28.64 days only in 2007-08.

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Recession is the economy

shrinking for two consecutive quarters (=6 months) with a decrease in the GDP (=Gross

Domestic Product). GDP = Value of all the reported goods and services produced by the

people operating in the country.

GDP is a good indicator of economy; other indicators could be;

Unemployment Rate

Consumption Rate

Actual Personal Income etc...

If GDP is growing, then market is growing due to increased demand;

In economics, a recession is a general slowdown in economic activity over a sustained

period of time, or a business cycle contraction. During recessions, many macroeconomic

indicators vary in a similar way. A recession has many attributes that can occur

simultaneously and can include declines in coincident measures of activity such as

employment, investment, and corporate profits.

A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as

an economic depression, although some argue that their causes and cures can be different.

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Tata steel & recession

The steel industry has not been spared with the impacts of the financial crises. The subprime

crisis has lead to the recession in economy of different countries, which may lead to have a

negative effect on whole steel industry in coming years. However steel production and

consumption will be supported by continuous economic growth.

India’s share in world production of crude steel increased from 1.5% in 1981 to around 7.3%

in 2008. The private sector is considered engine of growth in the steel industry and

technological changes and modernization are taking place in both the public and the private

sector integrated steel plants in India.

“Recession will have a positive effect”: Tata Steel MD

NewKerla.com reported that TATA Steel MD gave tips to defeat the deadly slowdown, which

has created a slowdown in not only the Industrial sector but all walks of life. Mr.

Muthuraman said that “The year 2008 has been an unprecedented one in recent history

starting on a very high note and ending with a deep and wide global economic downturn. The

year 2009 will be a challenging one for all of us. I urge all of you to take the New Year as an

opportunity rather than threat.”

World's sixth largest steelmaker Tata Steel Managing Director B Muthuraman claimed that

despite global slowdown in the steel sector, the company in India would increase its total

production this year.

Talking to reporters here after participating in Dr. J J Irani award for excellence in education

programme, Mr. Muthuraman said, ''The recession has a positive impact on us. We are going

to increase our production this year. We are also going to pay more salary to our employees.''

Later, Tata Steel vice president (corporate-services) Partho Sengupta said the company was

selling its products at premium rates and there was no order shortage. ''We are moving ahead

with our expansion plans as scheduled. By the year-end, our production capacity in India will

increase to 6.4 MT from 5 MT. The recession is not a new thing to us. This time also, we will

tide it over as we have done in the past.'' He said there was no plan for production cut or

employee reduction due to slowdown.

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5.1 Tata Steel’s game plan to beat recession

Beating the recessionary trends in the market, Tata Steel plans to make and sell 20 per cent

more steel in the current fiscal, its Managing Director B. Muthuraman said. He said he was not

happy with the steel prices, but he was hopeful of a marginal recovery in prices by the third

quarter.

Addressing a press meet, he said Europe and the U.S. were badly hit by the global meltdown

and the company’s operations in Europe had responded to the market place in a swift and

efficient manner effecting cost-savings and tuning itself fast to customer requirements. The

measures taken had translated into cost savings of 650 million pound in fiscal 2009, which

were expected to increase to one billion pound in 2009-10, he said. Mr. Muthuraman also

revealed the company’s plans on securing raw material supplies for its European operations

through partnerships in South Africa, Canada and Mozambique. “Our strategy is to look at

small mines so that major capital outlay is not required,” he said.

Mr. Muthuraman said the Rs. 15,000-crore Jamshedpur expansion plan, involving a new blast

furnace, would be ready by April 2010, while work on the new project in Orissa would

commence after the elections and as soon as it got iron ore allocation from State Government.

He admitted that the project had been delayed by over two years but said that this was mainly

because the company was waiting for iron ore allocation from the Government. In Seraikela in

Jharkhand, the company was beginning to get land and had applied for iron ore allocation,

although there seems to be little activity on that front.

On the current year’s sales plan, the Managing Director said the company was planning

capacity exploitation above its nameplate capacity and sales were being targeted at 6.4 million

tonnes against 5.2 million tonnes in the previous year. Elaborating on the programme to

develop overseas mines, he said there were three projects on the anvil — A two million tonne

iron ore project in South Africa, being developed through a partnership, a four million tonne

iron ore project in Canada and a coal block in Mozambique with estimated reserves of one

billion tonnes. Production from these projects would commence between 2010 and 2011, he

said.

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5.2 AFTER

RECESSION………………………………………….!!!

26 June 2009,

"The recession in world demand looks deeper than what we thought six months ago,"

Managing Director B.Muthuraman told a news conference.

Global steel production has tumbled this year, as demand in key steel consuming sectors such

as construction and automotive shrank, forcing steelmakers such as Arcelor Mittal to sharply

reduce capacity.

In April, the World Steel Association forecast steel demand would tumble 15 percent in 2009,

its steepest fall since World War II.

Tata Steel reported a net profit after minority interest and share of profit of associates of 49.5

billion rupees ($1.02 billion) in 2008/09, compared to a consolidated net profit of 123.5 billion

rupees reported a year ago.

Consolidated net sales for the year rose to 1.46 trillion rupees from 1.31 trillion rupees

reported a year earlier.

That compared with a forecast for net profit of 84.23 billion rupees, on net sales of 1.5 trillion

in a Reuters poll of six brokerages.

Tata Steel did not release quarterly figures. A Reuters calculation showed it suffered a

consolidated loss of about 45.4 billion rupees in the January-March quarter.

Nine month consolidated profit stood at 94.86 billion rupees, on net sales of 1.2 trillion.

Tata Steel it took a restructuring and impairment charge of $805 million in the year for its

Europe operations.

It said profits would have been lower by 54.97 billion rupees had it charged changes in its

actuarial valuations on its European employee pension plan to the profit and loss account

instead of the reserves and surplus account.

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Tata Steel, which last month won approval from banks to ease conditions on 3.7 billion

pounds of loan it took to buy Corus, said it had strong liquidity and no material repayment

obligations or refinancing for the next 12 months.

It said it had cash and equivalents of $2.1 billion on June 20 and an undrawn bank facility of

$1.3 billion.

Shares in Tata Steel ended down 2.1 percent at 397.95 rupees, ahead of the results, in a

Mumbai market that fell 0.5 percent.

The shares are up 85 percent so far in 2009 after tumbling 77 percent in 2008.

Tata Steel it took a restructuring and impairment charge of $805 million in the year for its

Europe operations.

It said profits would have been lower by 54.97 billion rupees had it charged changes in its

actuarial valuations on its European employee pension plan to the profit and loss account

instead of the reserves and surplus account.

Tata Steel, which last month won approval from banks to ease conditions on 3.7 billion

pounds of loan it took to buy Corus, said it had strong liquidity and no material repayment

obligations or refinancing for the next 12 months.

It said it had cash and equivalents of $2.1 billion on June 20 and an undrawn bank facility of

$1.3 billion.

Shares in Tata Steel ended down 2.1 percent at 397.95 rupees, ahead of the results, in a

Mumbai market that fell 0.5 percent.

The shares are up 85 percent so far in 2009 after tumbling 77 percent in 2008.

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Articles from the newspapers

India aiming to double steel production by 2011-12

Sunday, 14 December 2008

India is aiming to more than double its steel production to 124 million tonnes by 2011-12 and

further raise it to 280 million tonnes by 2020, Steel Minister Ram Vilas Paswan told Rajya

Sabha today. Replying to supplementary during Question Hour, Paswan said India ranked

eighth in world steel production when UPA Government took office in 2004 and has today

climbed to 5th spot with 54 million tonnes of annual steel production. "Our National Steel

Policy had targeted 124 million tonnes of steel production by 2020. But we have now brought

the target forward to 2011-12 and for 2020 we are aiming to raise production capacity to 280

million tonnes," he said. Steel Ministry, he said, was of the view that high quality iron ore,

the reserves of which in the country are very limited, should not be exported or their export

discouraged through high export duties.

The exports cannot be fully stopped as iron ore mines employ some 500,000 people and their

employment cannot be risked, he said adding export duty on iron ores has already been

levied. The global economic slowdown has seen growth in steel consumption in the country

fall to 1.75 per cent from a high of 13 per cent. Also, prices of steel products have fallen since

June. Paswan said his Ministry has been holding consultations with the industry and recently

the Government rolled back export duty on all categories of steel items, except melting sap,

to help producers tide over fall in consumption levels in the country.

STEEL IMPORT STRENGTHEN 70% IN NOV

(Source-economic times 13th December)

India’s steel imports jumped more than 70% to 1.4 mn tonnes last month against 8 lakh tonne

in the same month a year ago. The sharp rise in imports was due to low-priced shipments

coming from China, Thailand and Ukraine into India at $450-500 per tonne, 25% cheaper

than the international price, then ruling at $600-700 per tonne.  The steel ministry’s Joint

Planning Committee that collects data on iron and steel on a monthly basis shows that steel

imports dipped 10.7% to 5.25 million tonnes in April-October against 5.88 million tonnes in

the corresponding period a year ago. Availability of low-priced imports from some countries

resulted in huge imports in November. This happened when domestic steel makers were

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cutting production due to lower demand. Last month, the government imposed 5% import

duty on steel products to protect domestic industry against cheap imports. But steel producers

feel the move is insufficient to bring down imports as china as withdrawn export tax on some

steel products to get rid of surplus stock. The government has also initiated investigation into

dumping from China but steel firms feel it’s a lengthy process and will take at least 8-9

months to complete.

SUGGESTIONS

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1. Though SAP is implemented in the company, it is not fully implemented in town

division, because of which lot of manual work is done. If SAP is implemented then this

problem would be solved.

2. The state government & other government departments are another problem area in town

division. The company must send frequent reminders, ex-once in 15 days that they have

to pay their dues. The company must negotiate with the government about their

repayment of dues.

3. The company is facing problem in collecting the medical bills from corporate customers.

The company must make the list of defaulter in medical bills, which must be kept with

the concern authority. The person in charge must see that the defaulter must not be

entertained, even though it is an emergency case, until he pays his old dues.

4. The selection of customer must be done carefully, by properly checking the company’s

background, its repayment capacity etc. The company should rate the parties by seeing

its past performances. These ratings must be updated every year.

5. Channel financing is a way through which problems of dues can be controlled to a great

extent but it should be taken care that the company won’t be liable for any default made

by the middle person.

6. Now a day, it has become a normal practice of appointing a third party for collection of

dues which should be taken into account as it removes the burden of collection for the

company. Proper agreement between the third party and the company should be

formulated in which all the terms and conditions must be mentioned. It should be

without recourse and a third party should be legally appointed, thus not hampering the

goodwill of the company and also taking care of the collection process.

6.2 LIMITATION OF THE STUDY

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1) The time horizon is very short, so in depth analysis could be done only of few schemes.

2) The project is dependent on the relevance of the secondary data (e.g. Annual reports of various companies) collected from the internet which might not be correct.

3) The study has been done on only a handful of data so it cannot be generalized to the entire industry.

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6.3 SWOT ANALYSIS OF DEBTORS MANAGEMENT

PROCESS AT TATA STEEL

STRENGTHS:

With the implementation of ERP (enterprise resource planning) system SAP in

November ’99 the credit control methodology at TATA STEEL, JAMSHEDPUR has

become a centralized function which has given a several advantage to the company like,

integrated work culture, accurate results, quick updates and many more. The most

important of them is it facilitates better control over debtors.

The company has classified its customers into well defined categories and has laid down

guideline for evaluating their credit worthiness on an individual basis. The SAP

integration helps the company n classifying each debtor into specific business areas for

tracking the records of various parties regarding amounts due to them and receipts made

from time to time. This facilitates the controlled and systematic process of evaluation of

the current state of debtors. The entire debtors management process at TATA STEEL is

aimed at finding out the state of affairs of debtors of steel products of the company

including FAMD (FERRO ALLOYS AND MINERAL DIVISION) TUBES

DIVISION, WIRE DIVISION AND BEARING DIVISION. This enables the reporting

authorities in focussing their attention in one common direction and as such they strive to

improve the performance in each category.

The reporting authorities at Tata Steel prepare a monthly report of the current debtors

standing to be presented to the higher officials. This enables the company to track the

party status regarding the payments made, in a constant manner. This report is presented

to the Chief Operating Officer and VP’s of the related areas like flat and long products.

The credit management group does an in-depth analysis on the debtors arising. The

company also has a well defined policy for provision for bad and doubtful debts and

initiation of legal action. This enables the company to keep a better control on the

overdue.

The responsibility of reviewing the collection process lies with the credit management

group. This reduces the burden of marketing executives.

The sales of the company have been increasing year by year while the debtors have

decreased as compared to it. The company has also been able to increase its receivable

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turnover ratio. All these practices indicate that the credit management at Tata steel is

highly efficient and flexible enough to meet the future changes.

The company tries all the possible options for recovery of the debt before initiating legal

action. It adopts such policies of recovering the amounts, which otherwise would have not

been possible had company gone for legal action.

WEAKNESS:

An entire transaction with a party is a combination of sales and credit period. The credit

period is generally fixed but there are deviations in few cases.

The parties to whom sales have been made on credit have to be given constant reminders

although the financial state of the concern is sound to pay off the debt. As such the credit

worthiness of the parties has to be judged rigours terms which affect the party concerned.

In the current market scenario, when the demand for the steel is in a boom phase, credit

sales form a major percentage of the total sales being made by Tata steel .Hence the

company should formulate norms or policies which facilitate cash and carry business in

this market situation to sustain a worthy competition.

OPPORTUNITY

Following the success story of Tata steel, its other divisions and subsidiaries are also

following the process of credit evaluation similar to that of the steel division .But extreme

level of competency is required to derive the maximum benefits as they are unable to

exercise the same kind of control on the overdue.

The company should try to implement SAP in this division as well. This will highly

benefit the performance of the entire company as a whole.

The employees should be encouraged and motivated to contribute their ideas and

suggestions towards using the system more effectively.

The Company should make continuous efforts to increase their volume of exports because

credit given in the international market is better secured and the risks too are minimal as

compared to domestic market.

THREATS

The company should ensure that the employees don’t develop the feeling of complacency

due to good performance in credit management after the implementation of SAP.

They must be encouraged to keep themselves well informed about the practices being

followed by the competitors and be receptive to new idea.

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6.5 Views of Debtor Management Expertise

Paul Bailey, Managing Director

Cash Flow Doctors Ltd

Debtor management: Paul’s top tips for a thriving business in 2009

1. Ask for payment. It’s surprising how many people don’t actually ask for the money.

2. If you’re giving credit, have a written contract – your Terms of Trade – in place.

3. Use a third party for the right reasons. Your third party should be a normal part of your

debtor management process rather than the collection means of last resort.

4. Take action early. When an account comes overdue move your company up the debtor’s

priority list. The squeakiest wheel gets the most oil.

5. When you first sign up a new client always ask for their full name. We recommend you

have some sort of form to capture these details. You are unable to list debtors as

defaulters unless a full name is given. If you don’t have a full name, it turns the big stick

of the threat of an adverse credit rating into an ineffective twig. Professional, and

unethical debtors are aware of listing requirements and will take full advantage of the fact

that their full names are not known.

6. Use your diary or electronic calendar in Outlook to remind yourself to follow up on

payments.

7. Register on the Personal Properties Securities Register. This is a government website

that collects security interests onto a single register and allows you to retain a financial

interest in goods you sell.

8. Keep records of debtor contacts. Whilst they need to be persistently and consistently

recorded they don’t need to be flash and fancy. They should be simple and practical

enough for you to use every day.

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Conclusion

Working capital cycle, also known as the asset conversion cycle, operating cycle, cash

conversion cycle or just cash cycle, is used in the financial analysis of a business. Each

component of working capital (namely inventory, receivables and payables) has two

dimensions TIME and MONEY. When it comes to managing working capital, TIME IS

MONEY. If you can get money to move fester around the cycle (collect monies due from

debtors more quickly) or reduce the amount of money tied up (i.e., reduce inventory level

relative to sales). The business will generate more cash or it will need to borrow less money

to fund working capital. In the same way that stock control is a vital aspect of working capital

management, so too is debtors' control. Many businesses need to sell their goods on credit,

otherwise they might find it difficult to survive if their competitors provide such credit

facilities; this could mean losing customers to the opposition.

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Nevertheless, since industries do provide credit, they do so as optimally as possible. The

word used is 'optimal' before and let me confirm that it doesn't necessarily mean the best

possible, but the best possible under the circumstances.

A key strategy in lowering bad debt is reducing the time to recover the invoiced

amounts.Together with stock days; debtor and creditor days are a crucial link between the

company's income statement, its balance sheet and its cash-flow.

While in the income statement a company can book sales and profits to its heart's content, if

it is slower than before at collecting its bills and suppliers demand faster payment, then cash

receipts will not reflect the trend in profits. It is this divergence between profits and cash that

is often the biggest and best signal that a company might be in trouble.

As with some other ratios, the absolute level of debtor and creditor days is less important than

the trend over time and how the company compares with its competitors, particular the leader

in the industry.

If a company's performance in this area is inferior to its competitors (that is, it collects its

overdue invoices slower and is forced to pay its own debts faster) it is a sign of weakness.

Deterioration in credit control over time is a worrying trend in any business. It merits closer

monitoring by investors than it sometimes gets.

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BIBLIOGRAPHYWebsites

www.tatasteel.com

www.tatasteel100.com

www.economywatch.com

www.businesslink.gov.uk

www.studyfinance.com

www.financialexpress.com

www.worldsteel.org/?action=programs&id=64

www.indianindustry.com

http://steel.nic.in/

http://en.wikipedia.org/wiki/steel

www.newssteel.com

Magazines

TATA SEARCH, 2007, VOLUME-2

TATA REVIEW, MAY-2008

ECONOMIC TIMES, EXIM NEWSLETTER

ANNUAL REPORT OF TATA STEEL

Books

Financial management – KHAN & JAIN

Working capital management – HRISHIKES BHATTACHARYA

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