ATUL LTD.(GAURAV SHAH)

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<p>A Project Report On THE STUDY OF WORKING CAPITAL MANAGEMENT Prepared at:</p> <p>ATUL LIMITED</p> <p>Project Report OnA member of Lalbhai Group</p> <p>(Aromatics Division)</p> <p>The Study of Working Capital Management Of Atul Ltd</p> <p>A member of Lalbhai Group</p> <p>Our MissionWe are a chemical company committed to creating wealth for all our stakeholders. We will strive for leadership in our chosen products and markets by providing high quality products and services to our customers. We will seek profitable growth by innovative application of science and technology. We will pursue excellence in all that we undertake and take steps to continuously improve. We will take responsible care of the environment around us and improve the quality of life in the communities we operate in.</p> <p>Board of DirectorsThe Board of Directors of Atul Ltd consists of eminent industrialists and professionals whos Chairman is Arvind Lalbhai. Sunil S Lalbhai is the MD &amp; CEO, Samveg Lalbhai is the MD and Jagdish L Shah is the Executive Director. Board of Directors Name Mr A N Lalbhai Status Nonexecutive Chairman Managing Director &amp; CEO Executive Director Independent Nonexecutive Director Chairman Bombay Dyeing &amp; Manufacturing Co Ltd Occupation Chairman, Arvind Mills Ltd</p> <p>Mr S S Lalbhai</p> <p>Mr J L Shah Mr N N Wadia</p> <p>Mr G S Patel</p> <p>Independent Former NonChairman Unit executive Trust of India Director Independent Nonexecutive Director Former Chairman &amp; CEO ICI Companies in India</p> <p>Dr S S Baijal</p> <p>Mr B S Mehta</p> <p>Independent Partner Bansi S NonMehta &amp; Co executive Director Independent Former</p> <p>Mr H S Shah</p> <p>Nonexecutive Director</p> <p>Chairman &amp; Managing Director Indian Petrochemicals Corporation Ltd</p> <p>Mr S A Lalbhai</p> <p>Managing Director Independent Nonexecutive Director Independent Nonexecutive Director Independent Nonexecutive Director Sr Partner of M/s Crawford Bayley &amp; Co., Mumbai Former Chairman Hindustan Lever Ltd</p> <p>Mr S M Datta</p> <p>Mr K Aparajithan</p> <p>Mr R A Shah (Alternate Director)</p> <p>INDEX</p> <p>Sr. No1 2 3 4 5 6 7 8 9 10</p> <p>Description Chemical industry Outlook Over view of Atul Ltd Over vie w of Aromatic Division Human Resource Department Production Department Marketing Department Finance Department Quality Department Objective Of The Study Working capital Management Inventory Management Cash Management Receivable Management Working Capital Finance Findings Recommendation Bibliography Balance Sheet</p> <p>11 12 13 14 15 16 17 18</p> <p>Chemical Industry Outlook The Indian Chemical Industry has grown at a CAGR of 8% during the period from 2001 to 2005. The industry in India is fragmented with few large companies. There are over 6,600 chemical manufacturers &amp; capacity utilization of Indian plants is lower at 70%, when compared to that of China and Japan where it is higher at 85-90%. The sector is a cyclical, capital-intensive where pricing power of the players is under constant threat. Several bilateral Free Trade Agreements (FTAs) with various ASEAN countries have been concluded or are under negotiations. These are aimed at phasing out trade barriers to create a regime of free trade and this may increase the pricing pressure on the Indian Chemical Industry. The bulk chemicals business segment continues to be cyclic in nature. However, the automobile and electronic sectors are witnessing growth and this affords an opportunity for the newer intermediaries' business segment and Indian epoxy market is also growing rapidly. The key success factors pertaining to the industry are economies of scale, product quality and reliability and development of new products and application processes.</p> <p>Industry analysisThe Chemical industry constitutes an important segment of the chemical industry in India. The Indian Chemical industry is today totally self-sufficient with a majority of its inputs manufactured locally. India is currently producing all varieties of synthetic Chemicals and intermediates and has a small presence in the natural Chemical. The subcontinent has emerged as a global supplier of Chemicals and dye intermediates, particularly for reactive, acid, vat and direct dyes. The market for Chemical is dependent on textiles, in particular demand for polyester and cotton determines the demand for certain types of Chemicals. The textile industry is currently buoyant and the market is growing steadily. There is a shift in the usage of polyester and polyester blended fabrics and as a result demand for disperse dyes are at a peak.</p> <p>Market Size and Major PlayersThe market size of the Indian Chemical industry is INR141 billion including the exports of INR52 billion in 2004-05. The exports doubled from INR26 billion 20000'l to INR52 billion in 2004-05. By 2010, the exports are expected to reach INR121 billion. India currently produces 1,30,000 tonnes and 75% of the production is exported to 15 countries like: the USA, Germany, Netherlands, Italy, UK, Spain, Turkey, Switzerland, Indonesia, Korea, Hong Kong, Thailand, Singapore, Japan and Taiwan. The per capita consumption in India is very low 50gm compared to the world average of 400 gm. Textile, cotton and polyester consume more dye compared to the other fabrics and in turn, the growth of disperse, direct and reactive dyes is expected to increase due to the usage of these intermediates in cotton and polyester. By 2010, the contribution of India in the Global Chemical market is expected to reach 810% with an increase of 20% per annum. The major players in the organized sector are Atul Products, Jaysynth Dyechem, Meghmani Organics, Colortex, Sudarshan Chemicals, Colour Chem, Ciba Speciality, BASF, Clariant India, IDI and Metrochem. The Indian companies account for 6% of the world dye production.</p> <p>Opportunities: Constant technology up gradation to provide value added products: Technology is the key to manufacturing and the Indian industry is fragmented with very few players handling the organized sector that is expected to grow. Enhanced quality of products at reduced prices: The Indian manufacturers have to concentrate on the quality of products at competitive prices in order to compete with leading countries like China, Japan, Indonesia and HongKong. The developed countries production share in the market has reduced from 65% to 50% and is expected to further reduce in the future. The adoption of technology will increase the quality of products and production. Improve economies of scale: Due to five decades of expertise in the Chemicals industry, players operating in the field must adopt economies of scale to compete with other countries. Product and service differentiation Develop world class Infrastructure International trade procedures to be implemented Build Indian brand image overseas</p> <p> Developed countries are looking at outsourcing dyes from developing countries due to more and more production facilities are being shifted to Asian countries like India and China. The key success factors pertaining to the industry are: Economies of Scale Products quality and reliability Development of new products and application processes</p> <p>Background of the companyAtul Limited, incorporated in the year 1947 by Mr. Kasturbhai Lalbhai in technical collaboration with American Cyanamid of USA, is engaged in manufacturing of Chemicals, agro chemicals, intermediates, polymers, 'Aromatics, Pharmaceuticals, bulk drugs and specialty chemicals. It is one of the oldest chemical company in the country. The plant of AL is located at Atul in an area of 1243 acres. At present, the company is manufacturing more than 300 products which are mainly used in various industries viz. agriculture, fragrance &amp; flavours, tyre, textiles, paper, Pharmaceuticals, aerospace, construction, paints etc. The Company has mainly six activities viz. Agrochemicals, Aromatics, Bulk Chemicals &amp; Intermediates, Colours, Pharmaceuticals &amp; Intermediates, and Polymers, functioning independently as profit center.</p> <p>Executive SummaryManagement Atul Ltd. belongs to the Lalbhai Group. The company is managed by a team of professionals headed by Mr. Sunil S Lalbhai, who is the Managing Director &amp; CEO of the company. Mr. Sunil Lalbhai has been associated with the chemical industry for over two decades and has guided the company through the structural changes that the chemical industry has undergone during this period. The senior management includes four Presidents holding professional degrees in chemical engineering. The management has been able to proactively change the product mix of the company over years and have been able to sustain the growth of the company during the lean periods that the chemical industry has passed through during the last decade. The promoters are professional and are forward looking and are likely to lead the company to achieve the budgeted results. The company has successfully absorbed technical know-how through its various joint ventures and has been able to carry on the respective businesses profitably</p> <p>Business Model and Competitive Analysis Atul Ltd. is a pioneer in the Chemicals industry and has over five decades of experience in the chemicals industry, which has helped the company to sustain itself through several business cycles. The Company has focused on R&amp;D in order to develop new products and applications and has diversified its product portfolio away from Chemicals over the years. Chemicals now contribute only 33% to the turnover of the company.</p> <p>The company is now in the process of moving up the value chain in each of its business lines. The company has acquired technology for manufacturing phosgene-based agrochemicals where the margins are high. It plans to focus on formulations in agrochemicals where the margins are even better. It has commenced manufacturing Chemicals with higher margins including vat, reactive and disperse dyes. The Company has integrated facilities with in-house generation of power, which enables it to reduce its cost of production. It has built its brand name through consistent quality of products, reliable delivery schedules, good technical service support and post sales service. It has set up a wide marketing network and has set up subsidiaries in foreign countries in order to export to those countries. The company is well placed in terms of technology as it has absorbed the technology from the world leaders through its joint ventures.</p> <p>Financial Analysis The net sales of the company have grown at a CAGR of around 11 % over the last three years, with exports growing at a CAGR of around 13% over the same period. After a downturn in performance in 2003-04, the company has shown consistency in its performance and is likely to maintain the improvement trend in the coming years. The Company has shown significant improvement in operating profit during FY06 mainly driven by improved performance of Aromatics and Bulk Chemicals and intermediates division mainly due to growth in volume and better efficiencies. The performance of Polymers improved due to introduction of value added products. However, the profitability of Agrochemicals and Colours division showed decline mainly due to high costs and pressure on selling prices respectively. As per first 9 months financial for FY07, the operating margins of the company are in line with the estimates as well as the industry average and are likely to follow the same trend.</p> <p>Risks and MitigatesThe Company is in the business of Chemicals. Prices of some of these chemicals are cyclical and remain low for long periods. The Company constantly keeps taking up improvement projects to mitigate the impact of such movements in prices.</p> <p> Exports, which constitute more than 50% of the company's turnover has the inherent risk of fluctuations in the exchange rates. Company is renegotiating with its overseas buyers based in Europe for future sales to be billed in Euro instead of USD. The company is also hedging its USD by cross currency swaps to reduce further losses on account of Rupee appreciation. Product Obsolescence The company has established a state-of-the-art R&amp;D center and is progressively increasing its R&amp;D budget. The company through product diversifications and increased dependence on R&amp;D proposes to mitigate the product obsolescence risk. The company had already introduced various new products in the market and is in the process of expanding the capacities of those products and introducing some more specialized products.</p> <p>Management AnalysisThe company is managed by a team of professionals headed by Mr. Sunil S Lalbhai, who is the Managing Director &amp; CEO of the company. Mr. Sunil Lalbhai has been associated with the chemical industry for over two decades and has guided the company through the structural changes that the chemical industry has undergone during this period. The senior management includes four Presidents holding professional degrees in chemical engineering. They have been able to proactively change the product mix of the company over years and have been able to sustain the growth of the company during the lean periods that the chemical industry has passed through during the last decade. The company has successfully absorbed technical know-how through its various joint ventures and has been able to carry on the respective businesses profitably even after the overseas partners sold their stake to AL and have exited these JVs. The senior management has initiated a number of steps to improve profitability. The company has started manufacturing Vat dyes, where the margins are higher than the other types of dyes like azo and sulphur dyes. The company introduced various new products viz. Resorcinol, DDS, Dapsone, etc to reduce its dependence on the colours division which was earlier major contributor to the turnover of the company. The management is focused on the chemical business and it appears to have a good understanding of the business and has successfully carried out the demerger and consolidation of various businesses during the last few years. The promoters are professional and are forward looking and are likely to lead the company to achieve the budgeted results.</p> <p>Infrastructure at Atul</p> <p>Atul Ltd has made significant contributions to the development of infrastructure in Atul and nearby villages. The Company has already built over 1000 houses, 2 schools, a medical centre, a sports complex, an open air theatre and a community centre. Atul Ltd is self-sufficient in its requirement of electricity achieved through three state-of-the-art captive power plants. The Company is also in the process of renewing its fifty year water agreement with the government of Gujarat.</p> <p>Captive Power Generation:Atul Complex is self sufficient in meeting continuous and uninterrupted steam demand for all its chemical manufacturing processes and it also meets more than 95% of electricity demand for its housing colonies. At Atul Complex, there are three captive power plants consisting of coal/oil fired boilers and turbo generator sets having capacity ranging from 2...</p>