kalee project

WORKING CAPITAL MANAGEMENT

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APPENDIXS.NO 1 CHAPTERS CHAPTER-I CONTENT INTRODUCTION NEED OF THE STUDY OBJECTIVES OF THE STUDY SCOPE OF THE STUDY RESEARCH METHODALOGY LIMITATIONS 2 3 4 6 7 CHAPTER II CHAPTER -III CHAPTER -IV CHAPTER -V CHAPTER -VI INDUSTRY PROFILE COMPANY PROFILE CONCEPTUAL FRAMEWORK ANALYSIS CONCLUSIONS FINDINGS SUGGESTIONS 8 CHAPTER -VII GLOSSARY ANNEXTURE BIBLIOGRAPHY PAGE NO. 3-4 5 6 7 8 9 11-17 18-26 27-45 46-72 73 74-75 756-77 78 80 81

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INTRODUCTIONThe concept of working capital is much confusing in the business circles. It is very unfortunate, there is much disagreement among financiers, accountants, businessmen and economists as to the exact meaning of the term working capital. According to a few, working capital means current assists. For some others it is an excess of current assets over current liabilities. Some authorities prefer to call it circulating capital in place of working capital.

MEANING OF WORKING CAPITAL:The term working capital is commonly used for the capital required for day-to-day working in business concern. Such as for purchasing raw material for meeting day-to-day expenditure on salaries, wages, rent rates advertising etc. but there is much disagreement among various financial authorities as to the exact meaning of the term working capital DEFINITION OF WORKING CAPITAL Working Capital refers to that part of the firms capital, which is required for financing short-term or current assets such a cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT: Working capital management includes a number of aspects that make it especially important for the financial health of the firm. Surveys indicate that the largest portion of the financial manager time is devoted to the day-to-day operations of the firm, which fall under the heading o working capital management. Current assets represent the largest proportion i.e. if total assets forms 1% then current assets are generally above 60%. Moreover current assets fluctuate with sales and sales vary over time. Thus managing current asset is the dynamic process and it requires the financial mange to closely monitor sales to ensure that assets in hand are at the right level for actual sales production levels. DEPT OF M.B.A,QCET Page 3


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DETERMINANTS OF WORKING CAPITALy y y y y y y y y y y y y y

Nature of Industry Seasonality of Operations Production Policy Market Conditions Conditions of supply Size of Business Volume of Sales Terms of Purchase and Sales Business Cycle Growth and Expansion of the firm Price Level Changes Operating Efficiency of the firm Profit Appropriation Capital Structure of the firm

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NEED OF THE STUDYCurrent assets must be managed efficiently in order to maintain the liquidity of the firm to know about the financial mixed strategies . Hence forth so far researchers not touched with said topic to knowing the information in organization exactly the working capital wants to know the balances of current assets & current liabilities increases or decreases to know the corrected netprofit of balance and we can know the difference of the year of balance how much it is profit or loss will be there in company.

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SCOPE OF THE STUDY: The study is confined to HERITAGE ltd and analysis of its financial statements . The study period is 2005-2009 The main aim of the study is to assess the proper mgt of current assets & current liabilities . The study concentrates more on the working capital mgt of HERITAGE . Working capital gives only a good basis for quantitative analysis of financial problem.

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OBJECTIVES OF STUDY : To study overall position of HERITAGE. To examine the changes in working capital of HERITAGE. To study existing system of working capital management in HERITAGE. To analyze financial performance of company with reference to its working capital components. To know the financial position of a company.

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Research methodology:The present study is related to working capital management in HERITAGE , more effective and interacted for research work in corporate sectors . for the assessment of working capital management .

T.anitha , jnt university , hyd , researchers evalutated the working capital management on his study on wcm in HERITAGE . That working capital management is consider to involve the administration of current assets and current liabilities . in such a way that an option level of working capital maintained in the business .she also narrated that firm may resist without making profits but it cannot survive with out liquidity . METHODOLOGY: It includes the following COLLECTION OF DATA: To achieve a fore said objective the following methodology has been adopted. The information for this report has been collected through the Primary and Secondary sources.

1. Primary Data Sources 2. Secondary Data Sources PRIMARY DATA SOURCES: It is also called as first handed information the data is collected through the observation in the organization and interviews with the accounts and the persons in the financial department. A part from these, some information is collected through the seminars which were held by ECIL.

SECONDARY DATA SOURCES: These secondary data is existing data which is collected by other sources, i.e. financial journals annual reports of ECIL, website of ECIL and other publication of ECIL.

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LIMITATIONS OF THE STUDY: In present study the analysis is mainly based on secondary data given in annual audited balance sheets , profit and loss a/c and reports of HERITAGE The study does not touch all the units of HERITAGE. Limited span of time is a major limitation of this project. The present study cannot be used for inter firm comparision. The result does not reflect the day to day transactions. The study does not cover the all working capital. Balancing liquidity , profitability and risk in managing working capital .

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Chapter-IIINDUSTYRY PROFILE

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INDUS TRY P ROF I LEIndia is the world's second largest producer of food next to China, and has the potential of being the biggest with the food and agricultural sector. The total food production in India is likely to double in the next ten years and there is an opportunity for large investments in food and food processing technologies, skills and equipment, especially in areas of Canning, Dairy and Food Processing, Specialty Processing, Packaging, Frozen Food/Refrigeration and Thermo Processing. Fruits & Vegetables, Fisheries, Milk & Milk Products, Meat & Poultry, Packaged/Convenience Foods, Alcoholic Beverages & Soft Drinks and Grains are important sub-sectors of the food processing industry. Health food and health food supplements is another rapidly rising segment of this industry which is gaining vast popularity amongst the health conscious. India is one of the worlds major food producers but accounts for less than 1.5 per cent of international food trade. This indicates vast scope for both investors and exporters. Food exports in 1998 stood at US $5.8 billion whereas the world total was US $438 billion. The Indian food industries sales turnover is Rs 140,000 crore (1 crore = 10 million) annually as at the start of year 2000. The industry has the highest number of plants approved by the US Food and Drug Administration (FDA) outside the USA.

India's food processing sector covers fruit and vegetables; meat and poultry; milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups like confectionery, chocolates and cocoa products, Soya-based products, mineral water, high protein foods etc. We cover an exhaustive database of an array of suppliers, manufacturers, exporters and importers widely dealing in sectors like the -Food Industry, Dairy processing, Indian beverage industry etc. We also cover sectors like dairy plants, canning, bottling plants, packaging industries, process machinery etc.

The most promising sub-sectors includes -Soft-drink bottling, Confectionery manufacture, Fishing, aquaculture, Grain-milling and grain-based products, Meat and poultry processing, Alcoholic beverages, Milk processing, Tomato paste, Fast-food, Ready-to-eat breakfast cereals, Food additives, flavors etc.

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Food processing The food industry is the complex, global collective of diverse businesses that together supply much of the food energy consumed by the world population. Only subsistence farmers, those who survive on what they grow, can be considered outside of the scope of the modern foodindustry. Food processing is the methods and techniques used to transform raw ingredients into food for human consumption.Food processing takes clean, harvested or slaughtered and butchered components and uses them to produce marketable food products.there are several different ways in which food can be produced. One Off Production This method is used when customers make an order for something to be made to their own specifications, for example a wedding cake. The making of One Off Products could take days depending on how intricate the design is and also the ability of the chef making the product. today... Batch Production This method is used when the size of the market for a product is not clear, and where there is a range within a product line. A certain number of the same goods will be produced to make up a batch or run, for example at Greggs Bakery they will bake a certain number of chicken bakes. This method involves estimating the amount of customers that will want to buy that product. Mass production This method is used when there is a mass market for a large number of identical products, for example, chocolate bars, ready meals and canned food. The product passes from one stage of production to another along a production line. Just In Time This method of production is mainly used in sandwich bars such as Subway, it is when all the components of the product are there and the customer chooses what they want in their product and it is made for them fresh in front of them.

WHOLESALE AND DISTRIBUTION A vast global transportation network is required by the food industry in order to connect its numerous parts. These include suppliers, manufacturers, warehousing, retailers and the end consumers. There are DEPT OF M.B.A,QCET Page 12


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also those companies that, during the food processing process, add vitamins, minerals, and other necessary requirements usually lost during preparation. Wholesale markets for fresh food products have tended to decline in importance in OECD countries as well as in Latin America and some Asian countries as a result of the growth of supermarkets, which procure directly from farmers or through preferred suppliers, rather than going through markets. The constant and uninterrupted flow of product from distribution centers to store locations is a critical link in food industry operations. Distribution centers run more efficiently, throughput can be increased, costs can be lowered, and manpower better utilized if the proper steps are taken when setting up a material handling system in a warehouse. The Indian food market is estimated at over US$ 182 billion, and accounts for about two thirds of the total Indian retail market. Further, according to consultancy firm McKinsey & Co, the retail food sector in India is likely to grow from around US$ 70 billion in 2010 to US$ 150 billion by 2025, accounting for a large chunk of the world food industry, which would grow to US$ 400 billion from US$ 175 billion by 2025. EXPORTS Exports of agricultural products from India are expected to more than double to top US$ 20.6 billion in the next five years, according to the commerce ministry. According to estimates by the Agricultural and Processed Food Products Export Development Authority (APEDA), the share of India's farm product exports in the global trade will grow from 2 per cent now to over 5 per cent. Exports of fresh and processed vegetables, fruits, livestock and cereals rose 10 per cent to US$ 8.67 billion in 2009-2010.

SPICES Despite a global slowdown, Indian spice exports are growing. India exported 470,520 tonnes of spices valued at US$ 11.68 billionan all-time highin 2009-2010. DEPT OF M.B.A,QCET Page 13


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During the 2009-10, 444,250 tonnes valued at US$ 11.01 billion were exported. Compared with 200910, exports had shown an increase of 19 per cent in rupee value and six per cent in dollar terms.

FOOD PROCESSING The Indian packaged processed foods industry is estimated at US$ 10.87 billion US$ 13.05 billion, including biscuits, chocolates, ice-cream, confectionery, snacks, cheese and butter. Growing at a healthy 14-15 per cent over the past two-three years, major players in the sector include Britannia, Nestle, Amul, ITC Foods, Parle, Kelloggs, GlaxoSmithKline, Wrigley and Frito-Lay, among others. The industry received foreign direct investments (FDI) totalling US$ 143.80 million in 20092010against US$ 5.70 million in the previous fiscal. The cumulative FDI received by the industry from April 2000-August 2009 stood at US$ 878.32 million. However, Indias share in exports of processed food in global trade is only 1.5 per cent; whereas the size of the global processed-food market is estimated at US$ 3.2 trillion and nearly 80 per cent of agricultural products in the developed countries get processed and packaged. In order to further grow the food processing industry, the government has formulated a Vision-2015 action plan under which specific targets have been set. This includes tripling the size of the food processing industry from around US$ 70 billion to about US$ 210 billion, raising the level of processing of perishables from 6 per cent to 20 per cent, increasing value addition from 20 per cent to 35 per cent, and enhancing Indias share in global food trade from 1.5 per cent to 3 per cent. This would require an investment of US$ 20.6 billion. According to an Ernst and Young (E&Y) presentation, the food processing industry in India will grow 30-40 per cent as against the present 15 per cent in the next 10-years. Prime Minister Dr Manmohan Singh on October 6, 2009 laid out a blueprint for rapid growth in the countrys food processing sector. The Prime Minister said that this can be achieved by simplifying the tax structure, formulating a National Food Processing Policy and improving rural infrastructure.

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Moreover, according to Union Minister for Food Processing Industries, Subodh Kant Sahai the central government is envisaging an investment of US$ 21.50 billion in the food processing industry over the next five years, a major chunk of which it plans to attract from the private sector and financial institutions. SNACKS AND CONFECTIONERY The Indian market holds enormous growth potential for snack food, which is estimated to be worth US$ 3 billion, with the branded snack market estimated to be around US$ 1.34 billion, growing at 1520 per cent a year. While the growth rate of the US$ 1.56 billion unorganised sector is 7-8 per cent.

HEALTH FOOD Recognising the growth potential of the branded health food sector in India, fast moving consumer goods (FMCG) majors are foraying into this sector in a big way. As Hindustan Lever Ltd (HUL) is test marketing its health food brand, Kissan Amaze, in three southern states in India, Godrej Hershey Foods & Beverages Ltd (GHFBL), a joint venture between Godrej Beverages & Foods Ltd and Hershey Company, is planning to introduce select brands from its international portfolio in the domestic market. DAIRY According to Dairy India 2009 estimates, the current size of the Indian dairy sector is US$ 62.67 billion and has been growing at a rate of 5 per cent a year. The dairy exports in 200910 rose to US$ 210.5 million against US$ 113.57 last fiscal, whereas the domestic dairy sector is slated to cross US$ 110 billion in revenues by 2011. India continues to be the largest producer of milk in the world. It produced 110 million tonne of milk in 2009-2010. BEVERAGES

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According to industry experts, the market for carbonated drinks in India is worth US$ 1.5 billion while the juice and juice-based drinks market accounts for US$ 0.25 billion. Growing at a rate of 25 per cent, the fruit-drinks category is one of the fastest growing in the beverages market. Sports and energy drinks, which currently have a low penetration in the Indian market, have sufficient potential to grow. The market for alcoholic beverages has been growing consistently. 'The Future of Wine', a report on the state of the wine industry over 50 years, suggests that the market for wine in India was growing at over 25 per cent per year. MAJOR INVESTMENTS Private investment has been one of the key drivers for growth of the Indian food industry. The 'India Food Report 2010', reveals that the total amount of investments in the food processing sector in the pipeline for the next three years is about US$ 23 billion.y

The government has received around 40 expressions of interest (EoI) for the setting up of 10 MFPs with an investment of US$ 514.37 million.

y y

Reliance Industries Ltd has invested US$ 1.25 billion in a dairy project. Focusing on India as a rapidly growing market, US soft drinks giant Pepsico would pump in an estimated US$ 152.30 million to set up four new food and beverages projects by 2012.

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Geneva-based food service chain Global Franchise Architects (GFA) aims to open 250 stores around the world by March 2010, of which 100 will be in India.

GOVERNMENT INITIATIVES The new trade policy places increased focus on agro-based industries.y

Food processing industries have been put in the list of priority sectors for bank lending. The Centre has also announced a series of new initiatives which include a separate policy at the state level, thrust on contract farming and making the sector tax-free.

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The government plans to open 30 mega food parks by the end of the 11th five year plan (20092012).

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Fruit and vegetable processing units have been completely exempted from paying excise duty.

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WORKING CAPITAL MANAGEMENTy

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Automatic approval for foreign equity up to 100 per cent is permitted for most of the processed food items.

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Items like fruits and vegetables products, condensed milk, ice cream, meat production have been completely exempted from Central Excise Duty.

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Excise duty on ready to eat packaged foods and instant food mixes has been brought down to 8 per cent from 16 per cent.

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Excise duty on aerated drinks has been reduced to 16 per cent from 24 per cent. The Ministry of Food Processing Industry would assist in the setting up of more food processing units so that the industry could create 10 million jobs by 2015, according to Mr Subodh Kant Sahai, Union Minister for Food Processing.

LOOKING AHEAD According to the India Food and Drink Report Q3 2010 by research analysis firm Research and Markets, by 2012, Indias processed food output is likely to grow by 44.2 per cent to touch US$ 90.1 billion, while packaged food sales will increase by 67.5 per cent to reach US$ 21.7 billion. On a per capita basis, per capita packaged food spending is expected to grow by 56.5 per cent to US$ 18.06 by 2012. Moreover, according to a FICCI-E&Y study on the Indian food industry, investment opportunities in the Indian food industry are set to shoot up by a huge 42.5 per cent to US$ 181 billion in 2015 and to US$ 318 billion by 2020.

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COM PANY PROF ILEHeritage at a Glance: The Heritage Group, founded in 1992 by Sri Nara Chandra Babu Naidu, is one of the fastest growing Private Sector Enterprises in India, with three-business divisions viz., Dairy, Retail and Agri under its flagship Company Heritage Foods (India) Limited (HFIL), one infrastructure subsidiary - Heritage Infra Developers Limited and other associate Companies viz., Heritage Finlease Limited, Heritage International Limited and Heritage Agro Merine Private Limited. The annual turnover of Heritage Foods crossed Rs.347 crores in 2009-10 and is aiming for Rs.700 crores during 2009-10. Presently Heritages milk products have market presence in Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Maharastra and its retail stores across Bangalore, Chennai and Hyderabad. Integrated agri operations are in Chittoor and Medak Districts and these are backbone to retail operations. In the year 1994, HFIL went to Public Issue to raise resources, which was oversubscribed 54 times and its shares are listed under B1 Category on BSE (Stock Code: 519552) and NSE (Stock Code: HERITGFOOD) About the founder: Sri Chandra Babu Naidu is one of the greatest Dynamic, Pragmatic, Progressive and Visionary Leaders of the 21st Century. With an objective of bringing prosperity in to the rural families through co-operative efforts, he along with his relatives, friends and associates promoted Heritage Foods in the year 1992 taking opportunity from the Industrial Policy, 1991 of the Government of India and he has been successful in his endeavour. At present, Heritage has market presence in all the states of South India. More than three thousand villages and five lakh farmers are being benefited in these states. On the other side, Heritage is serving more than 6 lakh customers needs, employing more than 700 employees and generating indirectly employment opportunity to more than 5000 people. Beginning with a humble

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annual turnover of just Rs.4.38 crores in 1993-94, the sales turnover has reached close to Rs.300 crores during the financial year 2005-2006. Sri Naidu held various coveted and honorable positions including Chief Minister of Andhra Pradesh, Minister for Finance & Revenue, Minister for Archives & Cinematography, Member of the A.P. Legislative Assembly, Director of A.P. Small Industries Development Corporation, and Chairman of Karshaka Parishad. Sri Naidu has won numerous awards including " Member of the World Economic Forum's Dream Cabinet" (Time Asia ), "South Asian of the Year " (Time Asia ), " Business Person of the Year " (Economic Times), and " IT Indian of the Millennium " ( India Today). Sri Naidu was chosen as one of 50 leaders at the forefront of change in the year 2000 by the Business Week magazine for being an unflinching proponent of technology and for his drive to transform the State of Andhra Pradesh . Forward looking statements: We have grown, and intended to grow, focusing on harnessing our willingness to experiment and innovate our ability to transform our drive towards excellence in quality, our people first attitude and our strategic direction. Mission: Bringing prosperity into rural families of India through co-operative efforts and providing customers with hygienic, affordable and convenient supply of " Fresh and Healthy " food products. Vision: To be a progressive billion dollar organization with a pan India foot print by 2012.To achieve this by delighting customers with "Fresh and Healthy" food products, those are a benchmark for quality in the industry. DEPT OF M.B.A,QCET Page 20


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We are committed to enhanced prosperity and the empowerment of the farming community through our unique "Relationship Farming" Model. To be a preferred employer by nurturing entrepreneurship, managing career aspirations and providing innovative avenues for enhanced employee prosperity. Heritage Slogan: When you are healthy, we are healthy When you are happy, we are happy We live for your "HEALTH & HAPPINESS" Quality policy of HFIL: We are committed to achieve customer satisfaction through hygienically processed and packed Milk and Milk Products. We strive to continually improve the quality of our products and services through upgradation of technologies and systems. Heritage's soul has always been imbibed with an unwritten perpetual commitment to itself, to always produce and provide quality products with continuous efforts to improve the process and environment. Adhering to its moral commitment and its continuous drive to achieve excellence in quality of Milk, Milk products & Systems, Heritage has always been laying emphasis on not only reviewing & re-defining quality standards, but also in implementing them successfully. All activities of Processing, Quality control, Purchase, Stores, Marketing and Training have been documented with detailed quality plans in each of the departments. Today Heritage feels that the ISO certificate is not only an epitome of achieved targets, but also a scale to identify & reckon, what is yet to be achieved on a continuous basis. Though, it is a beginning, Heritage has initiated the process of standardizing and adopting similar quality systems at most of its other plants. DEPT OF M.B.A,QCET Page 21

WORKING CAPITAL MANAGEMENT Commitments: Milk Producers: Change in life styles of rural families in terms of: y y y y y y y y y y y Regular high income through co-operative efforts. Women participation in income generation . Saved from price exploitation by un-organized sector . Remunerative prices for milk . Increase of milk productivity through input and extension activities Shift from risky agriculture to dairy farming Heritage Financial support for purchase of cattle; insuring cattle Establishment of Cattle Health Care Centers Supplying high quality Cattle feed

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Organizing "Rythu Sadasu" and Video programmes for educating the farmers in dairy farming

Customers: y y y y y y Timely Supply of Quality & Healthy Products Supply high quality milk and milk products at affordable prices Focused on Nutritional Foods More than 4 lakh happy customers High customer satisfaction 24 hours help lines (

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