navdeep project finance

7/29/2019 Navdeep Project finance

1/81

1

MANAGEMENT OF CHANNEL FINANCING ESCORTS AGRI

MACHINERY GROUP

Submitted in Partial Fulfillment of the Requirement for the Award of

Degree of MBA

Submitted By :-

Navdeep Singh Mittal

Roll No-MBA 2k11 695

Finance

YMCA UNIVERSITY OF SCIENCE AND TECHNOLOGY

,FARIDABAD


2/81

2

Index

Summer Internship Certificate

Declaration

Acknowledgement

Executive Summary

Chapter-1: Introduction 7

Chapter-2: Objective and limitations 27

Chapter-3: Methodology 30

Chapter-4: Literature review 40

Chapter-5: Observations, analysis and findings 42

Chapter-6: Recommendations And Conclusion 52

Chapter-7: Appendices 55

Chapter-8: References 80


3/81

3

Summer Project Certificate

This is to certify that Mr. / Ms. _____________________________ Roll No. ____a student of

PGDM (______________) has worked on a summer project

titled____________________________________

____________________________________________________ at

_________________________________after Semester-II in partial fulfillment of the

requirement for the Post Graduate in Management programme. This is his/her original work to

the best of my knowledge.

Date: ____________ Signature ______________

(_____________________)YMCA SEAL Name of Faculty Mentor


4/81

4

Declaration

I, Navdeep Singh Mittal, a student YMCA University hereby declare that I have worked on a

project titled Management OfChannel Financing OfEscorts Agri Machinery Group during

my summer internship at Escorts Limited, in partial fulfillment of the requirement for the

Post Graduate in Management program.

I guarantee/underwrite my research work to be authentic and original to the best of my

knowledge in all respects of the process carried out during the project tenure.

My learning experience at Company Name, under the guidance of Industry Mentor Name,

Designation, and Faculty guide Name, Designation, has been truly enriching.

Date: July 27, 2012

NAVDEEP SINGH MITTAL


5/81

5

ACKNOWLEDGEMENT

I would like to gratefully acknowledge the contribution of all the people who took active part and

provided valuable support to me during the course of this project. To begin with, I would like to

offer my sincere thanks to Mr.Vijay Nehra, Team Manager-Finance , for giving me the

opportunity to do my summer training at Escorts Agri Machinery. Without his guidance,

support and valuable suggestions during the research, the project would not have been

accomplished.

My heartfelt gratitude also goes to the entire Finance team ( Mr. Taranjeet singh, Mr Ashok

Bhel , Mr Aurobindo Biswas,Head Commercial Finance , Ms Sunpreet Kaur) in Escorts

Agri Machinery Channel Finance Department ,for their co-operation and willingness to answer

all my queries, and provide valuable assistance.

Last, but not least, I would like to thank all Dealers for sharing their experience and giving their

valuable time to me during the course of my project.

Navdeep Singh Mittal

MBA,Roll No-2K11 695

YMCA University


6/81

6

EXECUTIVE SUMMARYEscorts Ltd. is the holding company of the Escorts Group. Post restructuring agri-machinery or

tractors have become the focus area of operations. Other business that is two- wheelers, IT,

Telecom, construction equipment, are controlled through subsidiaries and joint venture. Positive

off of its pistons business to a joint venture with a foreign collaborator, Escorts is focusing on its

corecompetence of tractors. Escorts have strong hands in house engineering skills, a wide

distribution/service network and brand franchise.

Channel Finance is an innovative option for extending working capital finance to dealers who

have business relationships with large companies. Channel Financing is the mechanism through

which a financial institution meets the various funds related requirements along the Supply

Chain at the suppliers end. This thereby helps the supplier in sustaining a seamless business flow

and avoiding Working Capital related difficulties. Channel Finance usually covers discounting of

Trade Bills drawn by a company and accepted by its dealers, distributors or Channel Partners. It

also provides overdraft facility to the dealers or distributors who have business dealings with

large Corporate.


7/81

7

Chapter 1

Introduction

INDUSTRY OVERVIEW

Indias agricultural sector is one of the most important components of the countrys economy,

although its share in the GDP has decreased substantially over the years. About 60 % of Indias

population is dependent on agriculture for its survival. Performance of the agricultural sector

continues to have a crucial impact on the price of essential goods and market demand for various

consumer products. Agricultural Equipment industry plays a major role in supporting the

performance of the agricultural sector in India. Farming activities are increasingly getting

mechanized, and the availability, quality and performance of agricultural equipments have an

increasing impact on improving the output and productivity of the agricultural sector.

Agriculture provides support for economic growth and social transformation of the country. As

one of the worlds largest agrarian economies, the agriculture sector (including allied activities)

in India accounted for 14.5 per cent of gross domestic product (GDP) at 2004-05 prices, in 2010-

11 as compared to 14.7 per cent in 2009-10. In terms of composition, out of the total share of

14.5 per cent that agriculture and allied sectors had in GDP in 2010-11, agriculture alone

accounted for 12.3 per cent. Timely and corrective measures taken by the government helpedboost agricultural production and growth in agriculture and allied sectors reached 7.0 per cent in

2010-11, the highest growth rate achieved during the last six years. In 2011-12, agriculture and

allied sectors are estimated to achieve a growth rate of 2.5 per cent.

As a proportion of the value added by agriculture to GDP, Gross Capital Formation (GCF) in

agriculture and allied sectors rose to 20.1 per cent in 2010-11 from 13.5 per cent in 2004-05 at

2004-05 prices which is a positive trend.The rates of growth and share of agriculture and allied

activities in the GDP of the country are given below:


8/81

8

Source: Central

Statistical Organization (CSO) and Department Agriculture and Cooperation

The above Pie Chart explains that the share of Agriculture and Allied sectors in India has

reduced significantly from 14.7% in 2009-10 to 13.9% in 2011-12(as estimated). This means that

the focus of India has shifted from Agriculture to Manufacturing and Service sectors but still

major revenue is generated from Agriculture Sector only.

FIGURES IN PERCENTAGE (%)

ITEM 2010-11 2011-12

Growth in GDP in agriculture & allied sectors 7.0 2.5

Share in GDP-agriculture and allied sectors 14.5 13.9

Agriculture 12.3 -

Forestry and logging 1.4 -

Fishing 0.7 -

2009-10

2010-11

2011-12*

Share in GDP of

Agriculture and

13.90%14.70%

14.50%


9/81

9

INDIAN TRACTOR INDUSTRY

Higher productivity and greater output are the two major contributions in farm mechanization.

Tractors are an integral part of farm mechanization and play a crucial role in increasingagricultural productivity.Tractor is a highly versatile piece of machinery used in agriculture both

for land reclamation and for carrying out various crop cultivation activities. It is also employed

for carrying out various operations connected with raising the crops by attaching suitable

implements, to provide the necessary energy for performing various crop production operations

involved in the production of agricultural crops. Tractors are capital intensive, labor displaying

used as a mode of transport, in electricity generation, in construction industry and for haulage

operation. It has become an inevitable part of farm structure. The application of tractor for

agricultural activities which swept India during the past few years has helped the farmers to

improve.

Tractor industry is an important part as agriculture sector is one of the main contributors to

Indias GDP. Earlier, they were imported to India and later on were indigenously manufactured

with the help of foreign collaborations. The tractor industry in India has made a significant

progress in terms of production and capacity as well as indigenization of technology.

Tractor market in India is about Rs 6000 crore. On an average around 400000 tractors are

produced and their sale is 260000.Uttar Pradesh is the largest tractor market in our country. One

out of every four tractor is being purchased here. One third of worlds Tractor production is in

India. The Total Turn Over is 10000 crore and the Total investment is 8000 crore. With

Employment of 28000 people directly and 150000 people indirectly the Tractor population is

3000000 compared to 900000 in China.


10/81

10

The Indian tractor industry has experienced strong volume growth during FY10- FY12 (for 9

months) due to favorable cyclical and structural demand drivers. While tractor volumes remained

robust throughout FY12 despite macro-economic headwinds, the domestic tractor market hasshown some signs of weakness over the last couple of months.

VOLUMES

FY08 FY09 FY10 FY11 FY12e

Domestic +

Export

346,508 345,827 441,174 545,128 605,092

Source: CMIE Database; ICRA Estimates

Growth momentum in tractor market continues:

After a period of downturn during FY08 and FY09, the up-cycle in the tractor market has

extended over the last three years (FY10-9mFY12). Some of the cyclical factors that have

contributed to healthy demand side economics are good south-west monsoons supporting farm

output, strong rural liquidity sustained by higher minimum support price (MSP) for crops and

double digit food inflation, besides adequate credit availability driven by NBFCs and private

banks. Structural drivers like scarcity of farm labor in light of alternate employment


11/81

11

opportunities, steady replacement demand and growing non-agricultural use of tractors have also

supported tractor volumes.

Exports

contribute about approximately 11% to the total tractor sales of India. Volumes saw a decline in

FY09-FY10 on account of global economic recession but a recovery was seen in FY11 and the

growth momentum continued to be healthy in FY12. While Nepal, Bangladesh, Sri Lanka and

the United States remain major export destinations, the expanding footprint of Indian tractor

manufacturers in African and new South-East Asian markets is expected to drive export growth

further. Export to neighboring countries such as Thailand, Malaysia and Indonesia is supported

by the Asian Free Trade Agreement. Further, export volumes are expected to benefit from the

introduction of higher HP tractors by Indian manufacturers. TAFE, M&M, and John Deere are

the major tractor exporters from India.


12/81

12

The Indian tractor industry has 13 main national participants and some regional players as well.

The market share is, however, concentrated amongst the top-five manufacturers which accountfor over 90% of the total sales volumes. With relaxation of the Foreign Direct Investment in

agriculture to boost productivity, large international participants such as AGCO Corporation,

CNH Global and John Deere entered the Indian Tractor market few years ago. Most of these

international manufacturers have continued to maintain their presence in India either through

their wholly-owned subsidiaries, joint ventures or through technical collaborations. As there as

relatively low entry barriers in the tractor industry in terms of technology, costs involved in

branding, distribution network and spare parts availability act as barriers.

The tractor industry has witnessed consolidation in 2005 and 2007 with merger of manufacturers

such as Eicher Tractors with TAFE and Punjab Tractors with M&M, respectively.


13/81

13

Agricultural Machinery Marketing and After Sale Services

The large and medium scale manufacturers have well organized distributors and dealers

through out the country to undertake advertising and product promotion in their respective

territories, conduct product awareness training programmes for the prospective customers,

provide after-sales-service to the customers including free services, repair and maintenance,

supply of parts, etc. Therefore, this organized sector has the whole of the country as their

market due to which their production volumes are large, and their information feed back about

their product performance, improvements required in design, production processing or quality,

and the new requirements of the farmers to undertake product developments. Very few small-

scale industries have established their marketing network and therefore provide service

support in their premises. In the absence of standardization of parts and components farmers

are compelled to carry their machines to the manufactures for repair and replacement of parts

and components. Due to this, their market size is limited to their proximity, and they are not

able to develop their businesses. The village artisans on the other hand are located in the

villages and therefore provide immediate attention to the needs of the farmers in their

immediate neighborhoods. Therefore, the tools and implements, etc. made by them are against

specific requirements of individual customers.


14/81

14

Popularization of agricultural machinery

The assimilation of R & D requires an effective technological infrastructure of institutions and

services to develop and test prototypes, to set up pilot plants for intensive evaluation and

extensive demonstrations besides, training and credit support. New technology also requires

network for transfer of technology to the manufactures.Popularization of agricultural

machinery in the country is undertaken by the Provincial Governments through Department of

Agriculture or Department of Agricultural Engineering. The activities are coordinated by the

Department of Agriculture in Cooperation with the Ministry of Agriculture, Government of

India. The Ministry of Food Processing promotes technology related to agro-processing. The

extension system deals with the first-line extension projects with aview to:

(i) Demonstrating the latest technologies to the farmers as well as the extension agencies;

(ii) Testing and verifying the technologies on the farmers field

(iii) Providing opportunities to get firsthand scientific feed-back;

(iv) Developing extension or technological models for the state extension systems;

(v) Providing training and communication support; and

(vi) Promoting research in transfer of technologies.

FUTURE THRUSTS IN AGRICULTURAL MECHANIZATION

India is a large country with wide-agro ecological diversity having predominance of rain fed

agriculture, with irrigated agriculture limited to 34% only. Farm holdings are small due to higher

population density and land fragmentation will continue due to Laws ofInheritance and

Hindu Succession Act. Majority of the farmers have limited surplus money to modernize farms

or to invest in improved inputs. Draught animals and increasing agricultural workers population

may remain to be the major source of farm power for soil manipulation and for crop handling,

particularly in Hill and Mountain regions. Mechanical power for tillage, irrigation, harvesting

and threshing will be preferred, including on custom hiring basis. As a result of GATT

agreement, prospects of agro-export are likely to increase and product quality standards


15/81

15

stipulated under WTO would encourage more and more farmers to adopt modern agricultural

production technologies. The future agricultural mechanization technology package therefore

may have to;

be eco-friendly utilizing land water and bioresource catering to the varied group of farm

holders,

facilitate farming operations which are arduous and hazardous,

increase productivity and conserve resources through effective utilization of chemical,

biological and mechanical inputs, and

modernize commercial agriculture to facilitate agro-export. Keeping above objectives, the

mechanization policy may have to be distinctly different to serve hill agriculture, low lying

water logged soils; rain fed and irrigated lands and regions having agro export potential.

FUTURE PERSPECTIVE IN AGRICULTURAL MACHINERY MANUFACTURE

Equipment for tillage, sowing, irrigation, plant protection and threshing has been widely accepted by the

farmers in India. Draught animal and human power in India will continue to be used, but these

are inadequate to ensure timeliness of agricultural operations. Even farmers with small holdings utilize

selected improved farm equipment, including through custom hiring. The future mechanization strategy

may have to be based on agro-ecological diversity and economic disparity of the farmers. The present

trend in agricultural mechanization is for high capacity machines to be used on

custom hiring and for contractual field operations. Rice mechanization, sugarcane mechanization, cotton

mechanization, potato mechanization, horticulture mechanization, green house and

covered cultivation, drip and micro irrigation are new emerging areas which need attention of

Agricultural Engineering Institutions and industries for their development, production and marketing.

Water is a scarce commodity and in future with increasing demand for more irrigation water, concerted

efforts will be needed for controlled application of water through drip, sprinkler and micro-

sprinkler systems to economize use of water and improving water use efficiency. With the shift in

agriculture towards diversification and agri-business, substantial areas will go under horticultural crops.


16/81

16

This will also help to export good quality high value agri-products for better returns to farmers and to

earn more foreign exchange. The green house technology offers ample scope for increasing productivity

particularly of high value cash crops like exotic fruits, flowers and bio-tech plants. Design of green house

with environmental control mechanized cultivation and product-handling technology package will

assume greater importance.

Presently little effort has been made to mechanize hill agriculture, where there is tremendous potential

of growing horticultural crops, flowers etc. In future this calls for developing appropriate

technologies for mechanization. In order to enforce quality, reliability and safety in the manufacture of

agricultural implements, manufacturing of critical components need to be standardized and encouraged

for mass production by medium and large scale manufacturers. Keeping long standing demand of

farmers and the Ministry of Agriculture and on the recommendation of the Advisory Committee of the

Ministry of Industries, the Union Budget of India 1998-99, announced the exclusion of farm implements

and tools from the list of items reserved for manufacture by small scale industries sector to enable the

farmers to get benefit of wider range of implements and tools at competitive prices, and with requisite

after sale- service. The decision of the Government of India to de-reserve the manufacture of farm

machinery will help the organized sector to bring latest farm machinery technology for accelerated

adoption by the farmers. The small-scale industries in turn will adopt the technology for local

manufacturing at a much lower cost. This will help the small-scale sector to become more competitive

and to enlarge their market size.

However, the constraints experienced in the growth of farm mechanization so far need to be dealt with

so that the farmers are enabled to adopt new methods to produce more, to earn more through gains in

productivity, quality of produce, higher prices, etc, for raising their standards of living and better life

styles.

The critical constraint factors are:

Reliability and quality of agricultural machinery.

Availability of products, spare parts and after sales-services in close proximity.

Availability of Bank credit on terms where currently the farmers have to mortgage both the equipment

purchased and his land.

Lack of effective consumer protection in rural areas for redressel of cases of product problems, and

poor after-sales- services, etc


17/81

17

COMPANY OVERVIEW

ESCORTS LIMITED

The Escorts Group is among the India's leading engineering conglomerates which operate

in the high growth sectors of agri-machinery, construction & material handling equipment,

railway equipment and auto components.Having pioneered farm mechanization in the

country, Escorts has played a pivotal role in the agricultural growth of India for more than five

decades. Being one of the leading tractor manufacturers of the country, it offers a comprehensive

range of tractors, more than 45 variants starting from 25 to 80 HP. Escort, Farmtrac and

Powertrac are the most widely accepted and preferred tractor brands.

It has been a leading material handling and construction equipment manufacturer for a diverse

range of equipments like cranes, loaders, vibratory rollers and forklifts. Today, Escorts is the

world's largest Pick 'n' Carry Hydraulic Mobile Crane manufacturer. Escorts have been a major

player in the railway equipment business in India. Their product offering includes brakes,

couplers, shock absorbers, rail fastening systems, composite brake blocks and vulcanized rubber

parts.In the Auto components segment, Escorts is a leading manufacturer of auto suspension

products including shock absorbers and telescopic front forks.Throughout the evolution of Escorts, It has been a harbinger of new technology and a prime

mover on the industrial front by introducing wide range of new products and technologies that

helped to take the country forward for its betterment.


18/81

18

The major revenue for Escorts (around 74%) comes from its Agri Machinery Division. There are

other companies as well which contribute to the overall revenue share like Construction

equipment accounts for 17%, Railway equipment 6% and Auto components around 3%approximately.

AGRI MACHINERY GROUP

HISTORY OF ESCORTS AGRI MACHINERY

In 1948, Escorts group launched Escorts Agricultural Machines Limited. Later on in 1958, it

started importing MF tractor from Yugoslavia for marketing in India. Then in 1960, a

manufacturing plant was set up at Faridabad by the name of Escorts Agri Machinery Group.In 1965, the company acquired Industrial license to manufacture URSUS/ ESCORT tractors. In

1969 a separate company, Escorts Tractors Ltd., was established with equity participation of

Ford Motor Co., Basildon, UK for the manufacture of Ford agricultural tractors in India. Later on

Escorts signed a contract with Ford Motor Company to manufacture Ford 3000 model tractors

and established an Escorts Institute of Farm Mechanization (EIFM) in Bangalore. Then in 1977,

Beginning of Escorts Scientific Research Centre at Faridabad by developing its own Engines for

E-27 and E-37.

In 1979, the sales turnover crossed the Rs. 50 croremarks which was highly applaudable.In 1983,

Established state-of-the-art R&D centre to spearhead newer breakthroughs in Farm

Mechanization and to maintain industry leadership. Later in 1988, Escorts annualized turnover

crossed above Rs.100 crores.

In 1996, a Disengagement of Joint venture with New Holland took place and the Farmtrac

Tractor series were launched. In the same year, Escorts Tractors Ltd. formally merged with its

parent company, Escorts Ltd.

In 1997, A Joint Venture with an Italian company CARRARO was finalized to establish a

company in India for manufacturing and marketing of transmission and axles. A Memorandum

of understanding for Joint Venture with a Polish Company POL-MOT was signed for assembly,

manufacturing and marketing of Farm Machinery.


19/81

19

In 1999, Escorts launched Powertrac series of tractors. Since inception, Escorts Group has

manufactured over 1 million tractors. Escorts Agri Machinery Group has three recognized and

well-accepted tractor brands, which are on distinct and separate technology platforms.Today, Escort Agri Machinery Group has a nationwide network with over 600 dealers, 100 parts

stockists and 30 area offices. Their national share stands at 20%. The company has developed its

own in-house state-of-the-art technology R&D facility. The main focus of the R&D facility is to

develop new and better products that can offer improved performance with lower fuel

consumption and least maintenance and parts requirements.

Q u a l i t y P o l i c y O f E s c o r t s

We shall strive to continuously improve to meet the ever rising expectations of ourcustomer sat

the lowest cost. Each one of us must fulfill the need of our customers, both internal and external,

with the highest degree of commitment, thereby creating a quality organization geared to ensure

total customer satisfaction and the sustained health and prosperity of our business

ISSUES AND CHALLENGES FACING THEORGANIZATION

1. The performance of the tractor industry is directly and closely related t o th e

p e r fo r ma nce o f t he a gr i cu l t u r a l s ec to r . E ve n n ow t he r e i s a heav y

dependency on monsoon and a majority of farms are still rained.

2. A part from the dependency on monsoons irrigation infrastructure is also

suboptimal.

3.Furthermore, there is a huge pressure on the existing agricultural land. T he Ne t

So wn Ar ea ac ros s S ta te s h as ei t he r r em ai ne d co nst an t o r changed slightly and

efficient land utilization is approaching the peak level in all states.


20/81

20

4 . M a n y f a r m e r s s t i l l l a c k a c c e s s t o f i n a n c e a n d d e p e n d o n

m o n e y lenders. Escorts continues to focus on creating additional mechanisms for access to

cash.5.All the employees are not allowed to access the internet facility which hinders the

cooperation among various departments.

6.To maintain the goodwill of the company in the market.

7 . T o s t r i v e e f f e c t i v e s t r a t e g i e s a n d p o l i c i e s i n o r d e r t o

s u r v i v e i n business environment

COMPANY MISSION AND VISION

Escorts Endeavours to transform lives in rural and urban India by leading the revolution in

agricultural mechanization, modernization of automotive and railway technology, as well as

transformation of Indian construction industry.

The Strategic Values define how the company will achieve its envisioned future. These values

must be embedded into their manner of thinking and ways of work.

Customer CentricityAcute sensitivity to the needs and experiences of the customer shall guide all that we do.

ExcellenceWe will strive to achieve and surpass world class standards in all that we do.

InnovationWe will use the power of technology and imagination to deliver solutions to the customer

needs.

AgilityWe will operate in our markets with the ability to change direction and position with

nimbleness and speed.


21/81

21

Escorts Limited pioneered farm mechanization in India with foray in tractor manufacturing

in1960. Escorts Limited manufactures wide range of tractors (from 27-75 HP). Its brands

Farmtrac, Powertrac and Escort are well recognized and widely accepted in the Indian market as

well as overseas. The major importers of Escorts tractors are North America, Africa and Europe.

Besides tractors, the Agri Machinery division also manufactures implements, trailers and

lubricants. It commands an overall market share of 13% (approx) of the total domestic tractor

industry.


22/81

22

Thetotal revenue of the Agri Machinery Division has increased over the past few years and it has

been ranging between 20000 to 35000 Million Rs (approximately). The growth rate however,

increased initially at a steady rate, then declined during the year 2010-11 but has been stable forthe last two financial years.

PRODUCTS OF ESCORTS AGRI MACHINERY

TRACTORS Farmtrac:

Farmtrac brand are the most powerful premium range of tractors that give maximum

productivity to the farmers. These are agricultural tractors with power 60 to 110 HP.They are

embedded with cutting edge technology combined with the quality of components used in

various elements, their reliability results from using solutions of companies like Carraro and

Perkins. These tractors were designed for farms and companies with wide variety of needs.

Outstanding comfort in the cabin resulting from good ventilation, available space provide

proper working conditions.

There are various Farmtrac models as well like FT 670 2 WD, FT 670 4 WD, FT 685 DT ,

FT 690 DT etc.

Powertrac:Powertrac tractors are built in India by the Escorts Group (Escorts Agri) for sale in India.

They are considered the economy-models, and is one of most popular brands built by

Escorts Agri Machinery division.

Escort:Escort brand of tractors are symbolic of reliability and trust and enjoy the confidence of the

farming community for the last 40 years. It comes under the economy range and the tractor

has 2 cylinders with 27 - 35 Hp.


23/81

23

New inverter tractor:Escorts limited became the pioneer in Indian Tractor Industry by launching India's first-ever

Inverter Tractor. This technology offers the farmers an integrated multi-purpose vehicle thatcan be used as a tractor for Agri-operations and with the help of an in-built battery system, it

can generate electricity which is help the farmers in lighting up their homes.This tractor

launch reaffirms Escorts commitment towards enhanced value proposition to its

customers.Inverter Tractor comes in popular Escorts variants including FT 45, PT 439 & PT

434 and is currently available across the states of Madhya Pradesh, Uttar Pradesh, Haryana,

Rajasthan, Maharashtra, Bihar, & West Bengal etc.

New jai kissan series:As the advent of newer applications of tractors across the country, it has become the need of

the hour for tractors to be more 'Customized' & 'Specialized' to maximize productivity and

efficiency.The product line was launched in the states of Punjab, Haryana, Rajasthan and

western UP. The Jai Kissan Series consist of the following range of tractors:-

Valuemaxx:The most popular is the VALUEMAXX tractors which has been designed to cater to all the

basic farm applications of their customers and it has a powerful and economical engine.

Along with the above features, it also possess Single Clutch, Easy Steer, Diesel Power and

dual PTO facility as well. This type of tractor is best suited to be used as a Cultivator, Seed

drill, M B Plough, Harrow and Disc Plough.

Agmaxx:Under the Jai Kissanseries , the second most popular tractor range is the AGMAXX tractors

which are manufactured to cater to the emerging agriculture and PTO operated applications.

This range of Tractors has dual clutch and adjustable front axle, that increase productivity

and saves customers time and money. Such kind of tractor can be used as Rotavator, Straw

Reaper, Potato Digger, Thresher, bailer, Harvester and Potato Planter.


24/81

24

Loadmaxx:Under the Jai Kissan series ,another tractor range is the LOADMAXX tractors which are well

equipped to cater to the heavy haulage applications and are built with Oil immersed brakes and

cerametallic clutch., extra Torque Machine , 3rd Hydraulic Lever with Coupler.It is best suited for

Single Axle Trolley, Double Axle Trolley, and Tipping Trolley.

Supermaxx:Under the Jai Kissanseries ,another tractor range is the SUPERMAXX tractors which caters to both,

emerging Agri and Heavy Haulage requirement of their customers. It is best suited for Rotavator,

Laser Leveller, Reaper, Loaded trolley, and Tipping trolley.It also has extra features like Oil

Immersed Brakes, Power Steering, extra Torque Machine, Heavy Hydraulic Lift ,Multi Speed

Reverse PTO, Flexi Axle, Bigger Tyre and Dual PTO.

Inframaxx:Under the Jai Kissan series, another tractor range is the INFRAMAXX tractors which has been built

to cater to the increasing use of tractor in commercial and construction applications. It is best suited

for Loader, Dozer, Backhoe Loader, grader, etc. It also has extra features like Epicyclic Reduction, 24

Speed Synchromesh, Synchro Shuttle.


25/81

25

COMPARISION OF ESCORTS WITH OTHER MAJOR TRACTOR

MANUFACTURERS

Escorts sales are less in the 21-30HP Tractors Category when compared to other manufacturers

like Mahindra & Mahindra which has the highest sales in this category.

Escorts sales are very less in the 31-40HP Tractors Category and Mahindra & Mahindra has the

highest sales of 99062 Tractors in this category. Even the sales of TAFE and Sonalika were more

than Escorts.

8946

38292

20116

1844

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Escorts Mahindra &

Mahindra Ltd.

TAFE Sonalika LTD.

21-30HP Tractors

(2010-11 figures)

20049

99062

40434

20146

0

20000

40000

60000

80000

100000

120000

Escorts Ltd. Mahindra &

Mahindra Ltd.

TAFE Sonalika Ltd.

31-40HP Tractors(2010-11 figures)


26/81

26

Escorts is a major seller of 41-50HP Tractors and contributes to a total market share of 37153

tractor sales which is slightly less than sales of Mahindra & Mahindra Ltd.

Mahindra &mahindra is the major player in the indian tractor industry and has sold 37882

tractors in the Above 51Hp tractor category in 2010-11 financial year. Escorts although being a

major contributor to the overall tractor industry doesnt have any sales in this category in 2010-11

financial year.

37153

40739

17377

13336

0

5000

10000

15000

20000

25000

30000

3500040000

45000


Mahindra Ltd.

TAFE Sonalika Ltd.

41-50HP Tractors(2010-11 figures)

0

37882

6588

11248

0

5000

10000

15000

20000

25000

30000

35000

40000


Mahindra Ltd.

TAFE Sonalika Ltd.

Above 51HP Tractors

(2010-11 figures)


27/81

27

Chapter 2

OBJECTIVE AND LIMITATIONS

Objectives Of The Study:

To analyze the process of meeting the short term credit requirement of the company and thedealers

To understand the he financing terms with the banks and the financial institutions of thecompany and the dealers.

To analyze the retail and channel financing system of Escorts Argi-Machinery Group. To analyze the short-term financial position (i.e. liquidity and profitability position) of

dealers.

To understand the basis on which the channel finance is made available to the dealer. To evaluate the impact of channel financing on the company.

Limitations

The scope of the study is limited to the dealers whose information was available andcould be gathered from the company.

Although every effort was made to collect the information through available sources, stillsome relevant information could not be gathered.

There were restrictions to visit some specific places in Escorts Limited and due to thebusy schedules some of the concerned executives were not able to give time .

Due to the limited time duration each and every aspect of chanel financing could not bestudied.

As the company on account of confidential report has not disclosed some figures.Moreover in some cases separate account of division are not separately

maintained,leading to restrictions in study.


28/81

28

SCOPE OF CHANNEL FINANCING:

Often companies with high levels of technical expertise are unable to realize the full potential of

their capabilities due to lack of proper working capital. Smart financing can help them to grab

new opportunities and manage the huge business growth happening today. Several channel

partners sacrifice business opportunities due to working capital constraints. Channel financing

can helps tackle this loss of opportunities. Finance options allow more transactions within a

single credit cycle, helping the company grow faster.

Channel Finance has helped many companies to get aggressive in taking bigger credit exposures.

It has also enhanced their ability to service more deals. Distributors too are aware of the need for

channel financing and have introduced various programs to enable their key partners with tools

to avail more financing options. At present banks prefer larger companies with proper balance

sheets for bill discounting. Smaller companies are usually not given priority and have to pay

higher interest rates.

Vendors too are doing their bit to help channels manage their internal finances better as well as

empower them with customer financing schemes.

CHALLENGES FOR CHANNEL FINANCE:

The following are the major challenges that these products face in India:

1. While there are more options for corporates to raise finances than ever before, only a smallsegment of the companies is presently availing channel financing options. To be eligible for

this facility, borrowers need to have strong financials and transparent reporting which is

currently lacking among a large number of companies.

2. Lack of financial planning is another issue compounded by the lack of qualified andexperienced personnel to manage the finances.

3. There is also a misconception that availing loans will create an interest burden on the alreadydipping bottom-line. Contrary to this notion, availing finance will allow a company to carry


29/81

29

out more transactions within a single credit cycle, thus reducing the total effective operating

expense incurred per credit cycle.

4.

Availment of financing necessitates strong fiscal discipline. Once financing options areavailed one has to get smart with the overall finance management. Forecasting of the

working capital needs becomes paramount and clients have to ensure that bankers are paid on

time lest credibility is lost and the ability to raise future finances is affected. Smart financing

enables companies to improve their capabilities to benefit from new opportunities and speed

up growth.

5. Even after RBI has given approval for products like channel finance, factoring etc there is alot of non-cooperation from the banks regarding issuance of letter of disclaimer and Opinion

reports. Further, banks offer multiple products as against limited facilities of financing

offered by most of the NBFCs which acts as a hurdle for the corporate to switch to NBFCs

for their financing requirement.

6. The corporates dont prefer channel financing as NBFCs have a higher rate of interest thanthe banks due to their higher cost of funds. Other working capital products like overdraft

facility, cash credit account, letter of credit etc. carry lower rate of interest.

7. Also one of the major challenges which corporate face is non-cooperation from there debtorsand creditors.

8. Lack of awareness about the product.


30/81

30

Chapter 3

METHODOLOGY:

METHODOLOGY:

Research Type: The research design is Descriptive as well as Exploratory in nature.

Population and Sample Size: The total number of dealers the company deals with is

160(i.e. population size). We have taken a sample of 5 dealers, located in different areas. The

sample has been taken on random basis.

Type of Data: Secondary data is used for analysis. The financial statements already prepared

by the dealers have been used.

Sources of Data: The financial reports of the dealers are used as a source of data. The C.A.

Certified provisional financial statements(i.e. income statement and balance sheet) have been

analyzed and evaluated. The financial reports of the dealers have been taken from the company,

which have been provided by the dealers.

Methods and Techniques: As under:

Various liquidity, activity and profitability ratios have been used for analyzing the short-termfinancial position of the dealers.

The Calculation norms as per the Tandon and Nayak Committee have been used forcalculation of Maximum Bank Permissible Finance Limit.


31/81

31

CHANNEL FINANCING:

MEANING:

Channel Financing is an innovative option for extending working capital finance to dealers who

have business relationships with large companies. Dealers are now able to leverage their

relationship with reputed companies in sourcing low cost funds with support from their

counterparts.

Channel Financing is the mechanism through which a Bank / Financial Institution meets the

various funds related requirements along the Supply Chain at the suppliers end. Therefore it

helps the supplier in sustaining a seamless business flow and avoiding Working Capital related

difficulties. Channel financing relates to ensuring that integrated financial and commercialsolution is available to the entire chain of supply and distribution, that could ensure the health of

the firm, financed by the bank.

Forward and backward linkages in a business organization play a significant role in the success

or failure of the business entity. For example a manufacturing or trading firm, while the suppliers

of 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

consumer. Channel financing relates to ensuring that integrated financial and commercial

solution is available to the entire chain of supply and distribution that could ensure the good

health of the firm, financed by the bank.

Through channel financing, the business firms can out-source a major part of their working

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

of credit from its bank to pay off the supplier if the supplier gets the finance in his own name

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

The bank can also allow loan to the dealer for the 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

the receivables. This enables the manufacturing firm to get 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 a due diligence assessment of the

suppliers/dealers standing and credit worthiness and decides to provide finance on merit.


32/81

32

The pre and post sale 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 andmonitoring recovery. As regards the suppliers and dealers, the major benefit is that they get

payments promptly, which improve their liquidity position and cost. This also helps them as well

as the bank to cut level of counter party risks.

The banks 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 channel financing is a very convenient tool in managing their assets

portfolio.

Channel financing, due to its distinct advantages to the business firms as well as banks, has been

suggested for implementation in various forms, by various committees in India such as

receivable financing by Tandon Committee, drawee bills financing by Chore Committee and

through factoring by Kalyansundram Committee. Channel financing opens up manifold

opportunities due to which the banks can make conscious efforts at popularizing this credit

delivery mechanism.

Channel Financing has two aspects:


33/81

33

Discounting of Trade Bills: It includes discounting of trade bills drawn by a company andaccepted by its Dealers / Distributors / Channel Partners.

Providing Overdraft facility: It includes providing overdraft facility to the dealers /distributors who have business dealings with large Corporate.

Through channel financing, the business firms can out-source a major part of their working

capital needs thereby reducing their dependence on bank finance. Channel financing opens up

manifold opportunities due to which the banks can make conscious efforts at popularizing this

credit delivery mechanism.

BENEFITS OF CHANNEL FINANCING:

To Corporate:

Working Capital Finance can be made available by the corporate to their channel partners atcost lower than current cost of credit.

Release of funds from the balance sheet results in better and improvement in financial ratios. Channel Finance can be used by corporate as a marketing tool and strengthening their

relationship and loyalty towards their channel partners.

Channel Financing

Discounting of

Trade Bills

Providing Overdraft

Facility


34/81

34

It increases the efficiency of the receivable management and cash management process of thecorporate.

It helps in increasing sales through higher purchasing power for channel partners and abilityto introduce payment discipline with their channel partners.

Results in improved profitability.

To Dealers/ Distributors (i.e. Channel Partners):

Channel finance is a steady and cheaper source of Working Capital financing for ChannelPartners.

Upto certain limits it is a clean facility of financing. Channel partners can increase their sales through higher purchasing power. Simplicity of documentation and approval procedures. By availing cash discounts from corporate channel partners can increase their profitability.To Banks:

Through channel financing process can increase their customer base It ensures smoothness of lending activity, loan originations process of banks as well as

ensures better credit discipline.

As the risk can be diversified through finance to supplier, manufacturer and the dealers, theexposure norms can be better observed.

It is a very convenient tool for banks in managing their asset portfolio.

PROCESS OF CHANNEL FINANCING:

Channel

Partner

Cor orateBank

1

4

2

3


35/81

35

Step1: Supply of goods from Corporate to Channel Partner.

Step2: Advise to Bank to make payment for the purchase.

Step3: Payment by Bank for goods purchased by Channel Partner.Step4: Repayment by Channel Partner to Bank as per facility term.

CHANNEL FINANCE ROLE IN FINANCING:

Channel finance is the major source for financing working capital requirements of a company.

Capital required for any business can be classified under two main categories via,

Fixed Capital Working Capital

Every business needs funds for two purposes for its establishment and to carry out its day- to-day

operations. Long terms funds are required to create production facilities through purchase of

fixed assets such as plant & machinery, land, building, furniture, etc. Investments in these assets

represent that part of firms capital which is blocked on permanent or fixed basis and is called

fixed capital. Funds are also needed for short-term purposes for the purchase of raw material,

payment of wages and other dayto- day expenses etc.

These funds are known as working capital. In simple words, working capital refers to that part of

the firms capital which is required for financing short- term or current assets such as cash,

marketable securities, debtors & inventories. Funds, thus, invested in current assets keep

revolving fast and are being constantly converted in to cash and this cash flows out again in

exchange for other current assets. Hence, it is also known as revolving or circulating capital or

short term capital.

Thus,

It is the minimum amount of resources that a company requires, thus it helps toeffectively cover the usual costs and expenses necessary to operate the business.

It facilitates smooth functioning of the business.


36/81

36

It ensures a sound liquidity position of the business.Determining Working Capital Requirement:

The basic formula includes two factors: Current Assets: Current assets are known as short term assets and include cash in

hand and cash at bank, bills receivables, sundry debtors, short term loans and advances,

inventories of stock, prepaid expenses, accrued incomes and marketable securities.

Current Liabilities: Current liabilities are known as short term obligations of abusiness and include bank overdraft, outstanding expenses, short term loans, advances

and deposits, sundry creditors, bills payable and dividends payable.

Working Capital = Current AssetsCurrent LiabilitiesPositive working capital means that the company is able to pay off its short-term liabilities

whereas, negative working capital means that a company currently is unable to meet its short-

term liabilities with its current assets (cash, accounts receivable and inventory). An increase in

working capital indicates that the business has either increased current assets (that is has

increased its receivables, or other current assets) or has decreased current liabilities, for

example has paid off some short-term creditors. It is also known as Net working Capital.

Channel Finance and Working Capital :Channel financing is a major source of working

capital finance and provides a unique solution for financing the working capital requirements of

the corporate as well as of the channel partners (i.e. dealers/ distributors). Channel financing is

adopted to improve the working capital of the company by avoiding inventory pile up and

earning speedy collections.

CHANNEL FINANCING OF ESCORTS AGRI-MACHINERY GROUP:

Efforts by Escorts Limited:

Escorts Limited facilitated dealer finance tie-ups with banks and financial institutions by

leveraging the strengths of its relationships with banks. A dedicated team is appointed to visit

dealers in India at regular intervals to conduct this initiative. In the year 2010-11, company has

formalized arrangements with two of the major Public Sector Bank(s) who had agreed to extend

the drawee bill discounting facility to accredit dealers of Escorts limited with a total programme


37/81

37

size of Rs. 250 crores (State Bank of Patiala Rs. 50 crore and Punjab National Bank Rs. 200

crores). In a span of 5-6 months, the dealer portfolio under channel finance was able to touch 193

dealers.Process of providing Channel Finance adopted by the Escorts Agri-Machinery Group:

On the basis of financial soundness and credit worthiness of the dealers the company ensures the

channel finance facility to the dealers. It includes following:

Selling Process:

The basic process of selling by escorts was selling to the distributors and than to the dealers.

Whereas, now the company focuses on eliminating the distributors (i.e. middle men) and selling

directly to the dealers.

New selling process:

Under this selling process the company and the dealer come in direct contact with each other and

direct selling is involved, where dealers can directly purchase from the company. There is a limit

of finance provided to each dealer and here is the main role of channel financing. In which the

Banks provides finance to the dealer against the bill of exchange drawn by the company against

the dealer on the invoice amount. The company has appointed area officers at each area, who are

in direct contact and interact with the dealers.

Steps involved in Channel Financing:

The area officer draws the bill of exchange in the name of the company against the dealer forthe units of tractor purchased by the dealer

The dealer accepts the bill of exchange (hundi) and sends it back to the company along withthe post dated cheque.

The required or maximum trade of cycle can be 60 days.

Escorts Agri-

Machiner GrouDistributors Dealers

Escorts Agri-

Machiner Grou

Dealers


38/81

38

After the bill of exchange is received by the company, it analyses the financial statements ofthe dealer and sends the analyzed report along with the bill of exchange for discounting.

The bank on the basis of companys analyzed report, its terms and conditions and afteranalyzing the dealers financial statements, discounts the bill of exchange and grants loan to

the dealer.

During the peak season (i.e. February or June and July) the banks and company increase the limit

of channel finance provided by them.

FinancialStatements required:

The dealer need to provide the company with various financial data, that company can analyse

and on the basis of dealers financial soundness (i.e. strong liquidity and profitability position),

grants finance to the dealer from the bank. Following statements of the dealer are required:

Current quarter balance sheet (i.e. of 3 months) C.A. certified documents Last 2 years audited balance sheets Provisional balance sheetAnalysis of dealers Financial Statements:

The analysis is done basically to analyze the short term financial position of the dealer. The

liquidity and profitability position of the channel partner is analyzed. Following calculations and

analyses is carried on by the company:

Calculation of Ratios:Ratios are used to compare risk and return of different firms in order to help equity investors and

creditors make intelligent investment and credit decisions. Short-term bank and trade creditors

are primarily interested in the immediate liquidity of the firm. Ratios provide a profile of a firm,

its economic characteristics and competitive strategies, and its unique operating, financial, and

investment characteristics. Activity, liquidity and profitability analysis is done of dealers firm to

provide it with finance facility.

Activity Analysis: Following ratios are calculated:o Inventory Turnover Ratioo Inventory Conversion Periodo Debtors Turnover Period


39/81

39

o Debtors Collection Periodo Creditors Turnover Periodo

Creditors Payable Period Liquidity Analysis: Following ratios are calculated:

o Current Ratioo Quick Ratioo Working Capital Ratio

Profitability Analysis: Following ratios are calculatedo Net Profit Margin

Further following analysis is done

Operating Cycle Cost of Goods Sold Ratio Interest Coverage Ratio Consortium Value Maximum Bank Permissible Finance Limit (MBPF): As per following:

o Tandon Committeeo Nayak Committee


40/81

40

CHAPTER 4

LITERATURE REVIEW

TiwariRahul 2010, Analysis about the Retail and Channel Finance of Commercial Vehicle

Industry with reference to Tata Motors:

The objective of the research was to know the awareness about Tata commercial vehicles among

customers and its sales people, to analyze the retail and channel finance system of Tata Motors

and to analyze the popularity of financing schemes of Tata Motors in comparison to other

companies. The primary data for the research was collected through questionnaire method,

secondary data was collected through internet, annual reports, magazines etc. A total sample size

of 250 respondents on a random basis was taken to study the consumer perception. The research

concluded that the Tata Motors has well known schemes which helped its customers in getting

financed easily. Tata Motors had offereddifferent schemes of financing for every customer and

therefore the customer satisfaction has always been high with their financing schemes as

compared to other companies. According to Tata Motors survey, it can be concluded that they

are providing better channel financing than other commercial vehicle manufactures. This helped

to know how the channel financing facility provides benefits to the company and as the main

activities of Escorts is also linked with providing channel finance facility to its dealers , this

research paper helped to understand the whole channel finance procedure followed by the

companies.

SadanaKumar Sanjay, Impact of Working Capital Management on Profitability with

Special reference to Steel Industry:

This working capital paper is a conceptual analysis of working capital and its impact on

profitability of an organization. The objective of this research paper was to take selective firms

representing private sector and public sector and compare them on the efficient management of

the working capital and its components. They had taken two public sector steel majors and eight

private sector steel players.The aim was to find out the working capital practices prevalent in

public sector majors and private sector to make a comparison and to highlight the importance of


41/81

41

working capital and its impact on profitability. The research was undertaken to gain familiarity

with the various components of working capital in Steel Industry and to judge the success of the

management in carrying on the daily transactions of the Industry. The main focus was to judgethe efficiency in themanagement of short-term liquidity in selected public and private sector Iron

and Steel enterprises in India. The research paper concluded that studying the working capital

requirements is very important to check the liquidity and profitability position of the company.

This research paper has helped to understand what all ratios need to be analyzed with respect to

Escorts Ltd in order to check its liquidity position and maintain its long term survival in the

overall Tractor Industry.

ChaudhariShekhar (2007) ; This research article is based on an in-depth study of five

major manufacturing firms both in the private as well as public sectors.

This paper discussed the process of technology acquisition and assimilation in the tractor

industry and has drawn some implications for public policy as well. The study had revealed that

there has been an increase in the bargaining power during the period 1960-74 of Indian firms

over their foreign collaborators. It had also led to change in the Research and Development focus

from production related trouble shooting and indigenization to quality assurance, value

engineering and new product development with the onset of competitive forces in the industry.

Major data sources for the research were in-depth interviews of some 60 senior company

executives and various documents like detailed project, reports, organizational announcements

etc.


42/81

42

CHAPTER 5

OBSERVATIONS, ANALYSIS AND FINDINGS

Analysis Of Various Dealers:

Activity, liquidity and profitability analysis is done of dealers firm to provide it with finance

facility.

1. Activity analysis: It evaluates revenue and output generated by firms assets. Activity ratios

describe the relationship between the firms level of operations (usually defined as sales) and

the assets needed to sustain operating activities. The higher the ratio, the more efficient the

firms operations. Under it following analysis is done:

Inventory turnover ratio:It measures the efficiency of the firms inventory management.

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

8.661 6.811 6.183 4.482 13.57

A higher ratio indicates that inventory does not remain in warehouses or on the shelves but

rather turns over rapidly from the time of acquisition to sale.

It is further used for calculating:

Inventory conversion period: it is defined as average number of days the inventory is in stock.

It measures average time period taken to convert the raw material to sales.

JATTI MODERN M/S SAI M/S M/S BHARGAVA

Inventory Turnover Ratio= Cost of Goods Sold/ Average Inventory

Inventory Conversion Period = 360 / Inventory Turnover Ratio


43/81

43

TRACTORS TRACTORS TRACTORS SHIV

MOTORS

TRADING

CORPORATION

41.57 52.854 58.223 80.31 26.524

Channel Finance is provided to those dealers of the company whose inventory conversion period

is upto 60 days. All the above dealers are meeting the required criteria except M/S Shiv Motors

which is having an ICP of 80 days.

Debtors turnover / Receivables Turnover ratio: It measures the effectiveness of the firmscredit policies and indicates the level of investment in receivables needed to maintain the

firms sales level. It is used to evaluate the firms operating performance.

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

18.74 15.064 26.829 27.188 6.061


Debtors Collection Period: It is defined as an average number of days the receivables are

outstanding.

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

M/S BHARGAVA

TRADING

Debtors Turnover Ratio = Sales / Average Debtors(Trade Receivables)

Debtors Collection Period = 360 / Debtors Turnover Ratio


44/81

44

MOTORS CORPORATION

19.21 23.897 13.418 13.24 59.394

Channel Finance is provided to those dealers of the company whose Debtor Collection Period is

upto 60 days. All the above dealers are meeting the required criteria and M/S Shiv Motors has a

lowest DCP of 13 days which means that the debtors are collected quickly.

Creditors turnover / Payables turnover Ratio: A short-term liquidity measure used toquantify the rate at which a company pays off its suppliers. It shows how a firm manages

paying its own bills.


JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

8.454 17.693 34.67 5.834 5.336

Creditors Payable Period: It is defined as an average number of days the payables are

outstanding. Defined as:

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

Creditors Payable Period = 360 / Creditors Turnover Ratio


45/81

45

42.58 20.34 10.38 61.704 67.459

Channel Finance is provided to those dealers of the company whose Creditors Payable Period is

upto 60 days. The above dealers are meeting the required criteria except M/S Shiv Motors and

M/S Bhargava Trading Corp. which are exceeding the required limit.

2. Liquidity analysis: It measures the adequacy of a firms cash resources to meet its near-term

cash obligations. The short-term lenders assess the ability of a firm to meet its current

obligations. That ability depends on the cash resources available as of the balance sheet date

and the cash to be generated through the operating cycle of the firm. Generally, the higher thevalue of the ratio, the larger the margin of safety that the company possesses to cover short-

term debts. Under it following analysis is done:

Current Ratio: It defines cash resources as all current assets. It measures the firmsability to meet its current obligations. The current ratio can give a sense of the efficiency

of a company's operating cycle or its ability to turn its product into cash. The higher the

current ratio, the more capable the company is of paying its obligations.

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

1.654 1.312 7.35 1.21 1.295

The ideal current ratio is 1.5:1. The higher the current ratio, the better will be the liquidity

position of the company. M/s Sai Tractors has a current ratio of 7.35 which is the highest. A very

Current Ratio = Current Assets / Current Liabilities


46/81

46

high ratio is also not appropriate because the funds of the company are lying idle as cash. The

current ratio of Jatti Tractors is apt.

Quick Ratio: It measures a firm's ability to meet its short-term obligations with its mostliquid assets. The quick ratio is more conservative than the current ratio because it excludes

inventory and other current assets (i.e. prepaid expenses), which are more difficult to turn

into cash. Also known as acid test ratio. Defined as:

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

0.546 0.503 2.766 0.185 0.983

A higher ratio means a more liquid current position and better position of the company. The ideal

quick ratio is 0.33:1. M/s Sai Tractors has a current ratio of 2.766 which is the highest. Avery

high ratio is also not appropriate because the funds of the company are lying idle as cash

Working Capital Ratio: Working Capital is calculated by subtracting current liabilitiesfrom current assets.

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

1724121 15182932 20317000 4357799 2825406

Quick Ratio = (Cash+MarketableSecurities+Accounts Receivables) / Current Liabilities

Working Capital = Current Assets Current Liabilities


47/81

47

Working Capital Ratio is defined as:

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

0.654 0.3122 6.349 0.21 0.2959

Higher the ratio, better it is for the company as it shows stronger liquidity position.M/S Sai

Tractors has the highest Working Capital Ratio of 6.349.

3. Profitability analysis: Profitability ratios show firms overall efficiency and performance. Itis used to assess a business's ability to generate earnings as compared to its expenses and

other relevant costs incurred during a specific period of time. The objective of this analysis is

to detect consistency in the earnings of the firm. Under this following analysis is done:

Net Profit Margin: It is an indication of how effective a firm is at cost control. It measuresthe overall profit margin net of all expenses.

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

1% 0.2% 0.9% 0.69% 0.13%

A higher profit margin indicates a more profitable company that has better control over its costs

compared to its competitors.Jatti Tractors has the highest Profit margin.

Net Profit Mar in = Net Profit Sales * 100

Working Capital Ratio = Working Capital / Current Liabilities


48/81

48

4. Operating Cycle: The average length of time between when a firm purchases items for

inventory and when it receives payment for sale of the items. A long operating cycle tends to

harm profitability by increasing borrowing requirements and interest expense.

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

18.195 56.406 61.257 31.846 18.46

As per the company norms, the operating cycle of dealers firm should be maximum of 60

days.All the above dealers comply with the requirements except M/S Sai Tractors which has a

slightly higher Net Operating Cycle.

5. Cost of Goods Sold Ratio: Itmeasures cost as a percentage of sales. Cost of goods sold refers

to the inventory costs of those goods a business has sold during a particular period. It includes

the cost of the materials used in creating the good along with the direct labor costs used to

produce the good.

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

90.88% 98.1% 93.7% 91.1% 97.6%

Net Operating Cycle = Inventory Conversion Period + Receivables Conversion

PeriodPayables Deferral Period

Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses Closing Stock

Cost of Goods Sold Ratio = (Cost of Goods Sold / Sales) * 100


49/81

49

The ratio is expressed in terms of percentage. As per company norms the COGS of the dealers

firm should not be less than 90-91 percentage of sales value.6.Interest Coverage Ratio / Times interest earned:

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

1.671 1.167 1.538 1.742 40.524

Apart from calculation of ratios, following are considered:

Consortium Value: It involves the value of all the short term borrowings from banks by thedealer. It is the combined value of all the short term finances obtained by the dealer from

various banks. It is the sum total of channel finance, cash credit and overdraft facility to the

dealer from various banks.

Maximum Permissible Bank Finance Limit (MBPF): The MBPF can be calculated on thebasis of two formulas.

1. As per Tondon Committee2. As per Nayak Committee

Tandon Committee:

This is an attempt by the central bank to organise the Bank credit. The report of this group is

widely known asTandon Committee report.RBI appointed a working group to study and suggest

Modifications in the Cash Credit system to make it amenable to better management of fundsby the Bankers

Alternate type of credit facilities to ensure better credit discipline and co relation betweencredit and production.

According to Tondon Committee, Escorts Agri Machinery group follows the following

norms.The Maximum permissible banking finance limit for dealers is MIN(x,y) where

X= Working Capital of the dealer, i.e Current AssetCurrent liabilities
http://www.banknetindia.com/banking/tandon.htmhttp://www.banknetindia.com/banking/tandon.htmhttp://www.banknetindia.com/banking/tandon.htm


50/81

50

Y= 25 % of the Total Current Assets

Nayak Committee:

The Nayak Committee report is applicable to units with credit requirements of less than Rs.50lacs. According to Nayak Committee, Escorts Agri Machinery group follows the following

norms:-

According to RBI, The Working Capital of the dealers should be as follows:-

Working Capital = 20% of [Projected Turnover of Dealer ConsortiumValue(short term

borrowings)]

RBI has also given full freedom to all the Banks to devise their own method of assessing the

short term credit requirements of their clients and grant lines of credit accordingly. Most banks,

however, continue to be guided by the principles enunciated in Tandon Committee report.

Limit Of The Dealers

The Channel financing limit for the dealers of Escorts is decided on the basis of the above

formula and every dealer is given finance based on its working capital requirements , its

profitability and growth position in near future.

The Maximum Banking finance limit for the selected Escorts dealers is as follows :-

JATTI

TRACTORS

MODERN

TRACTORS

M/S SAI

TRACTORS

M/S

SHIV

MOTORS

M/S BHARGAVA

TRADING

CORPORATION

30 Lacs 150 Lacs 100 Lacs 30 Lacs 100 lacs

Therefore, Jatti tractors and M/S Shiv motors have the lowest Financing limit because of its less

strong liquidity position or may be the working capitl requirements of the company may be low.

The highest limit is for Modern Tractors around 150 Lacs which means it has a good reputation

in the market and has healthy relations with Escorts. The financing limit is decided in such a way

that it leads to satisfaction of both, the company as well as the dealers. This limit is provided to

the dealers if they comply with the requirements of the company as well as the Bank or Channel

partner involved.
http://www.banknetindia.com/banking/nayak.htmhttp://www.banknetindia.com/banking/nayak.htm


51/81

51

FINDINGS

Through the analysis we found out:

1. Shareholders wealth is increased by maintaining appropriate value of debt and

equity in the capital structure.

2 . T h e i n c r e a s e i n i n t e r e s t o n 4 . 2 5 % d e b e n t u r e s o f R s 1 c r ( a p p r o x )

increased the EPS by Rs 2(approx).

3 . Her e we f ound t ha t when number o f equ i t y s ha r es i s r educed and t he

numb er of deben tures i s in creased , EP S in creases f rom R s 9 . 89 t o Rs 11.054.

It also maintained the Financial Operating Leverage of the company.


52/81

52

Chapter 6

Recommendations And Conclusion

Taking in view the industry analysis it has been observed that Mahindra and Mahindra has the

largest share in the Indian tractor industry. Though Escorts is not far behind, having a major

share. The main procedure by escorts is channel finance in which there is no direct dealing with

customers rather it is with distributors and dealers. The balance sheet of dealers are analyzed and

based on various calculated ratios maximum permissible credit limit is decided for the dealers.

The company has been able to increase its revenue by approximately 90 crores by providing

channel finance facility. It helps in increasing the cash flow due to the timely payment by the

dealers thus meeting the short term requirements and improving the liquidity position of escorts

ltd.

General Recommendations:

The strategies followed by Escorts should be more aggressive in order to compete with itscompetitors like Mahindra and Mahindra, TAFE and Sonalika ltd.

The company should hold regular meetings with its dealers and try improve itsrelationship with them.

Stress more on channel financing to improve sales and revenues. It should tie-up with more banks and financial institutions to facilitate the chanel

financing process.

Recommendations To Improve Cash Flow:

Escorts current ratio is unusual changing trend over period of time. Earlier the company was

having a good of more than 1.5 but it has gradually decreased implying lack of liquidity and

shortage of working capital. An attempt to reach, even if not the ideal ratio, 1.5 should be

made by making funds. And the funds can be generated by taking various steps, out ofwhich reduction of costs and check on expenses becomes the main area. Quick ratio too

has decreased over past years, means the inventory is more which is to utilized

efficiently. The company has to balance both debtors collection period as well as

creditors payback period by providing some incentives of discounts by paying early.


53/81

53

Escorts do credit analysis of its customers on the basis of financial statements. It should enhance

that by introducing credit evaluation form to ensure that credit facility is provided to sound

parties. This will help the company in reducing bad debts and hence channelizing the moneylocked up as bad debts into other productive uses.

A study may be conducted if required by experts to pinpoint reasons behind Escorts high

collection period of 90 days. Is it due to quality of products, quality of customers, the

segment of customers, marketing effort, distribution pattern or other reasons. A lower

turnover or a higher collection period implies excessive blockage of funds as debt, which mightresult in stagnation of the business. Attempts to reduce down the debtors turnover ratio to 30

days should be made which would ensure better availability of funds for business operations.

Payment policies followed by Escorts should be reviewed time to time and steps should be taken

for prompt payments so that the good vendor base can be maintained.

One of the major reasons why the company is facing cash crises is because the actual cash

flow differs from the planned cash flow, which results in improper budgeting and incorrect

conclusions. Hence the company should take steps to improve the accuracy of cash plans made.

Steps should be taken to control the unnecessary cost incurred and by keeping an eye on the

expenses like by switching off the lights, fans and monitors when not in use, travelling

and communication expenses can be reduced. Such steps should be taken for a smooth flow of

Cash.

There are many financial institutions which provide various services to speed up the collection

for the company and thus helping in gearing up the cash cycle. For eg: LOCK BOX,

CONCENTRATION BANKING etc. Company should avail such services from financial

institutions in order to improve liquidity.


54/81

54

Special efforts should be made to analyse loans & advances which is very high of its

current assets. This can be classified between production/operation related and non-

production/operation related. Nonproduction related cases might be financed from other sourceslike debentures etc. and treated separately.


55/81

55

CHAPTER 7

APPENDICES

Annexure1


56/81

56


57/81

57

JATTI TRACTORS

1-C Rajajinagar Industrial suburb

NH-4 Tumkur Road

Gorugntepalya Yeshwanthapura

BANGALORE-560022

PROVISIONAL PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED 31-03-2012

Particulars Particulars

To opening stock 2995626.00 By Sales Accounts 24588668.93

To Bank charges 21259867.70 By service charges received 109709.00

To Transportation charges 238668.00 By RTO & Insurance 18000.00

To Water Charges 3700.00 By Closing Stock 2164586.00

Work Shop Maintenance 2373.00

Gross Profit C/d 2370729.23

TOTAL RS 26880963.93 TOTAL RS 26880963.93

To Advertisement Expenses 47072.00 By Gross Profit 2370729.00

To Bank Charges 20826.00 By Dealer Incentives 677315.00

To Audit Fees 24266.00 By Insurance Commission 14429.00

To computer maintainance 25429.00 By Trade Discount 231139.00

To courier 7873.00 By Interest on FD 5515.00

To Exibitione Expenses 38131.00 By Warranty Claims 64310.00

To Depriciation 78749.31 By Incentive Recd. Spares 4580.00

To Discount Allowed 31630.00 By Commission Recd. 176168.00

To Eddal Contribution 10800.00

To Electricity Charges 24715.00

To Frieght Charges 3870.00

To interest Paid 370053.00

To Tractor insurance a/c 8543.00

To loss on sale of assets 93467.00


58/81

58

To Rent 405000.00

To Salary & Wages 1130000.00

To Office Maintainance 32180.00

To Other Expenses 11180.00

To Printing & Stationary 30838.00

To Rates & Taxes 9850.00

To Registration Charges 49683.00

To Repair & Maintainance 49934.00

To Sales Commision 263500.00

To Sales promotion Expenses 37218.00

To Security Service Charges 126616.00

To Staff Welfare Expenses 3140.00

To Telephone Charges 69708.00

To Tractor Servicing Expenses 9576.00

To Field Inspection Charges 4000.00

To professional Charges 6618.00

To Sales Incentives 5500.00

To Travel & Conveyance 19000.00

To Travel & Conveyance Institutions 65071.00

To Vehical Maintainance 16478.00

To Net Profit 145327.00

Total RS. 3544185.23 Total RS. 3544185.23


59/81

59

Annexure2


60/81

60

JATTI TRACTORS

1-C Rajajinagar Industrial Suburb

NH -4 Tumkur RoadGorugutepia yeshwanthapura

BANGALORE-560022

PROVISIONAL BALANCE SHEET AS AT 31.03.2012

Liablities Amount(RS.) Assets Amount(RS.)

CAPITAL ACCOUNT FIXED ASSETS:

Opening Capital 3430733.97 (As Per Schedule-1) 849357.55

Add: Additional During 0.00 Advance to Creditors 757482.13

the year Cash in Hand 108495.00

Add: Net Profit 248142.92 Cash at Bank 19651.92

3708876.89 Sundry Debtors 1312092.12

Less: Drawings 369537.00 3339339.89 Closing Stock 2164586.00

Deposit & Advance 1084210.00

Loans(Liablities) (As Per Schedule)

Mahindra Finance 318350.00

Vehical Loan

Sundry Creditors 2515845.00

Advance From Debtors 0.00

Vat Payable 41341.00

Provision 81000.00

TOTAL (RS) 6295876.73 TOTAL(RS.) 6295876.73


61/81

61

Annexure3


62/81

62

M/S SHIV MOTORS

NEW COLONY, PHULERA

PROVISIONAL TRADING AND PROFIT & LOSS ACCOUNT

FOR THE YEAR ENDING 31.03.2012

PARTICULARS AMOUNT PARTICULARS AMOUNT

To Opening stock 10425274.74 By Sales 78858133.00

To Purchases 82994943.77 By closing stock 21626088.69

To transportation

charges

42852.00

To gross profit 7021151.18

TOTAL 100484221.69 TOTAL 100484221.69

To accounting charges 540000.00 By gross profit 7021151.18

To audit free 16000.00 By interest on security 48380.00

To bank charges 118022.00 By incentive 3482640.00

To insurance 891210.00 By discount received 112542.00

To depreciation 5855.00 By round off 1.90

To diesel expenses 398264.00

To electricity expenses 72650.00

To legal fee 3530.00

To salesman incentive 432600.00

To postage & courier

expenses

72542.00

To salary 1296000

To staff welfare

expenses

92672.00

To telephone expenses 54648.00

To interest paid 735037.00

To net profit 545655.08

TOTAL 10664715.08 TOTAL 10664715.08


63/81

63

Annexure4


64/81

64

M/S SHIV MOTORS

NEW COLONY , PHULERA

PROVISIONAL CAPITAL ACCOUNT

AS ON 31.03.2012

PA

navdeep project finance

Documents