rahim cotton mills-internship

Internship Report on Rahman Cotton Mills Limited

CHAPTER 1:

INTRODUCTION TO THE REPORT

1.1 BACK GROUND OF THE STUDY:

MBA requires to undergo an internship of two months in a private or

a public sector organization. The purpose of this internship is to

acquaint the students with the practical knowledge of

administration.

This internship report is about Rahman Cotton Mills Limited, Takht–

Bhai, Mardan (NWFP).

In 1950’s late Khan Abdul Rahman Khan established a spinning

unit at Takht-I-Bhai (Mardan). The name of this unit was Yousaf sai

Industry. In late sixties this sick unit was purchased by one of the

well-known industrialist of North West Frontier Province late. Lt.

Gen (Retd) Habibullah Khan Khattak. Later on the name of this mill

was changed and it has been known as Rahman Cotton Mills.

In 1961 this unit was incorporated as a private limited company, but

in 1977 it was converted into public limited. It has always been

engaged in manufacturing and sale of cotton blended yarn.

1.2 PURPOSE OF THE STUDY:

Rahman Cotton mills is a well known organization of the textile

industry in order to set knowledge of this organization for the

student of Master of Business Administration specially for finance

students it is important to know all the financial activities.

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1.3 METHODOLOGY OF THE STUDY:

During internship the most important task was to collect more quality

information about the organization. For this purpose a number of

techniques were adopted to collect the require material and conduct

the report.

Methodology is based on both primary and secondary data.

The primary data consist of discussions, interviews and personal

observation.

The source of secondary data was manuals, relevant books,

monthly economic reports and annual reports.

1.4 SCOPE OF STUDY:

This internship report has been completed in Rahman Cotton Mills,

a textile mill. Being a student of finance, my focus was mainly on

the finance department and accounts department. The focus of the

report was to learn how they finance their activities, recording

transactions, what are their books of journals and many other

finance activities. So this report covers all aspects of RCM.

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1.5 SCHEME OF THE REPORT:

This internship report consists of following sections and chapters:

Section 1 Includes one chapter,

It describes the purpose, methodology and scheme of the report.

Section 2 includes two chapters (Chapter 2 & Chapter 3)

Chapter 2 is about the introduction to organization, history of textile

and cotton.

Chapter 3 is about the various departments of the organization.

Section 3 Include only one chapter,

This discusses different activities of the organization.

Section 4.

Includes two chapters (Chapter 5 & Chapter 6)

Chapter 5 is about SWOT analysis and

Chapter 6 is about findings and recommendations.

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CHAPTER_2

INTRODUCTION TO THE ORGANIZATION

2.1 INTRODUCTIO TO RAHMAN COTTON MILLS:

In 1950’s late Khan Abdul Rahman Khan established a spinning

unit at Takht-I-Bhai (Mardan). The name of this unit was Yousaf Zai

industry. Late Khan had no experience to run a textile mill, so as a

result it became bankrupt. In late sixties this sick unit was

purchased by one of the well-known industrialist of North West

Frontier Province late. Lt. Gen (Retd) Habibullah Khan Khattak.

Later on the name of this mill was changed and it has been known

as Rahman Cotton Mills. From 1973 to 1975 this unit was run by a

team of experts from Faisalabad. Later on some of the members of

this team resigned. In result mill’s profitability tend to decrease year

by year.

In 1984, the Executive Director Technical Muhammad Ismail

Khurram recalled the same team. A hardworking manager named

Alam Din Niazi supervised the technical team. When this manager

took the charge the condition of the mill was very poor but with

passage of time it improved the production as well as quality of the

yarn with the hard working of the team. Upto 1990 the company

had the old machinery of 1960 model but later on this machinery

was changed with the new machinery of China, France and Italy.

Now most of the machinery is new and as a result of this change

there is an increase in the production as well as quality. Now this

unit is producing supper fine count of yarn. The technical staff has

been working since 1984. Nowadays the focus of the management

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is only to capture the local market.

2.2 INTRODUCTIO TO TEXTILE INDUSTRY:

Textile is the second most important industry after agriculture in our

country. It accounts for approximately 40% of manufacturing

employment, over 60% of total exports, and over 30% of value

added production1. Pakistan’s textile’s industry, based on locally

grown cotton, produces cotton yarn, cotton cloth and made up

textile and apparel. The small woolen industry uses mostly

imported fibers to manufacture woolen yarn acrylic yarn, fabrics,

show blankets and carpets. The polyester fiber and yarn industry

has also grown significantly in recent years, and meets over 80% of

country requirements, but viscose and acrylic fibers are imported.

The artificial silk and synthetic weaving industry remains largely in

the unorganized sector. In Pakistan fiscal year (FY) 1998 (Pakistan

Fiscal Year starts July 1st and end June 30th), Pakistan had a total

of 503 spinning mills with an installed capacity of 8,332,000

spindles and 145,000 rooters. The weaving industry has 53

integrated units (composite unite with spinning and weaving in one

unit) with an installed capacity of 14,130 looms; 512 shuttle less

weaving units with an installed capacity of 13,340 looms; and

approximately 30,000 units in the power looms (shuttle room)

sector, with an estimated 225,253 looms. In (FY) 1997 it

additionally had 670 finishing units with a production capacity of

3.460 million Sq. meters of fabrics per annum, 700 knit wear units

1( On-line) Available http://www.bibooje.com

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with 15,000 knitting machines, and 4,000 garments units with

160,000 industrial and 450,000 domestic sewing machines.

2.3 INTRODUCTIO TO COTTON:

It is unknown to say about history of cotton, but there is evidence

that it was cultivated in subcontinent and in Mexico 5000 years

ago .In these two widely separated parts of the world, cotton must

have grown wild. Then people learn to cultivate cotton plants in

their fields. In Europe, wool was the only fibber used to make

clothing. Then from the Far East came tales of plants that grew

“wool”. Traders claimed that cotton was the wool of tinny animals

called Scything lambs that grew on the stalks of plants. The stalks,

each with a lamb as its flower, were said to bend over so the small

sheep could graze on the grass around the plant. These fantastic

stories were shown too untrue when Arabs brought the cotton plant

to Spain in Middle age. Cotton was grown and shipped from

Mediterranean countries to mills in the Netherlands in Western

Europe for spinning and weaving. Until the middle of 18th century,

cotton was not manufactured in England because the wool

manufacturers there did not want it to complete with their own

product. They had managed to pass a law in 1720 making the

manufacture or sale of cotton cloth illegal. When the law was finally

repealed in 1936, cotton mills grew in number. In the United States

though, cotton mills could not be established, as the English would

not allow any of the machinery to leave the country because they

feared the colonies would compete with them. But a man named

Samuel Slater, who had worked in a mill in England, was able to

build an American Cotton mill from memory in 1790.

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CHAPTER :3

ORGANIZATIONAL SETUP

3.1 ORGANIZATIONAL CHART:

Rahman Cotton Mill is headed by chairman, who is the owner of the

mill. He controls all the activities of the organization. Chief

executive is next to chairman, who is responsible for formulating

policies and its implementation, sets standards and procedures to

guide and govern the execution of policies. He is also responsible

for inter divisional coordination and meet various emergencies as

they arise.

Executive director technical and chief financial officers work

directly under the supervision of chief executive. The executive

director technical coordinate and instruct mill manager, manager T

and Q, purchase manager, store officer and admin manager.

Chief financial officer is concerned with all financial activities. He

directly relates to deputy manger finance and internal auditor.

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CHART 3.1 ORGANIZATIONAL CHART2

Rahman Cotton Mills LimitedTakht- Bhai (Mardan)Organizational chart

2Rahman Cotton Mills Limited, (2004), Annual Report. Mardan

Chairman

Chief executive

Executive director (tech) Chief financial officer

Finance department

Production department Admin department

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3.2 DEPARTMMENTALIAZATION OF RAHMAN

COTTON MILLS LIMITED:

There are mainly five departments in Rahman Cotton Mills Limited,

which involves the organizational activities.

Administrative Department

Production Department

Finance Department

Human Resource Department

Accounting Department

3.2.1 ADMINISTRATION DEPARTMENT:

This department works as a communication bridge among the

executives and workers. This also solves the conflicts among the

top level and low level staff due to miss understanding of

communication. It formulates and implements policies for the

organization and also provides control to the organization.

Manager administration is responsible for all the activities of this

department. He facilitates general officer, security supervisor and

labor officer; all of these three instruct their own subordinates to

facilitate them and are responsible to maintain the law and order

situation in their respective sub departments of the organization.

Administration manager is directly responsible to report about all

concerns activities of the department to Executive Director

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Technical. The recruitment of all fresh labors and other staff

members is also the responsibility of this department. Manager

administration is the head of this department. Hierarchy of

administration department is given in the chart 3.2.

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Chart: 3.2

Rahman Cotton Mills LimitedTakht-Bhai (Mardan)

Hierarchy of Administration Department3

33 Rahman Cotton Mills Ltd. (2005), Annual Report, Mardan.

Chairman

Chief Executive

Executive Director (Tech)

Manager (Admin)

Security Supervisor

Office Asstt. / Time Keeper

Labor Officer

Gate Clerk

General Office

Watch / Ward Men Record Keeper

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3.2.2 PRODUCTION DEPARTMENT

Production department receives raw material from purchasing

department and convert them into finished product. Different types

of machinery are used in this department. The Technical director

directly controls this department as shown in chart 3.3- The

executive director technical runs this department who provide

guidance and instruction to the store officer, purchase officer,

manager technical and quality and mill manager. Mill manager is

responsible for his own sub department taken from spinning master

to the jobbers. Manger Technical & Quality is responsible for quality

production. Manger purchase is responsible for purchasing of raw

material, at a reasonable cost for production purposes.

Store officer is responsible for proper maintenance of the stock

and to inform high level management about the stock.

Production department is divided into sub departments, which are

designed as follows:

THE PRODUCTION PROCESS:

During this process fiber is converted into yarn, it may be natural

fibers such as cotton or man made fibers such as polyester.

Importance of spinning in the make up of the finished garment

cannot be elaborated enough due to the fact that all the later

stages of value addition i.e. weaving, processing and stitching are

dependent upon the outcome of the entire value chain till the

substandard stitched garments.

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Following steps are taken while converting fiber into yarn.

• BLOW ROOM OPERATIONS:

In the first step of spinning, cotton is converted into laps. Cotton

bales are opened up and fed in to flakers, which open up the cotton

fiber through tearing action. From here it is sent to blow room,

different lots of opened up cotton are mixes to achieve

homogeneity and then passes through different stages of blow

room and thrashing to remove trash and open it up further (usually,

eight stages are used), if required, blending of fibers is also carried

out in the blow room. In the end we get straightened layers of

cotton wrapped in the form of rolls called laps. In chute feed system

laps formation is eliminated and clean and bended cotton fibers

passes directly to the carding machine by pneumatic controls.

• CARDING:

The laps from blow room are fed in to the carding machines to get

uniform slivers, which are in the form of loss continuous stands of

cotton staple. Another purpose of carding is to further clean the

impurities that are left during the blow room operations. Some short

fibers and any other foreign matters are also removed in the

process. The slivers are kept in especially made lightweight drums.

Slivers from carding section can go either to finisher drawing

through breakers drawing or through uni-lap / comber to finisher

drawing.

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DRAWING:

Purpose of drawing is to straight the fibers and removes any curls.

This take place by passing the livers through different sets of rollers

that are revolving at different speeds. The speed of the rollers

increase as the sliver moves from one stage to the next. The

progressive attenuation reduces the size and weight of single

slivers. The final sliver has been fed. The final sliver that comes out

of drawing is of the same weight and size as the number of slivers,

which are fed, compensating for the attenuation of the individual

slivers. In the drawing section, it is first passed through breaker

drawing process to mix sliver from different laps, again to achieve

homogeneity. The same process is repeated at the finisher drawing

stage.

COMBING:

Combing is a process that is usually required for production of high

value added yarns. This process serves three important purposes.

Firstly, it separates the short fibers from the long fibers;

Secondly, it straightens the fibers, and

Thirdly, it removes any foreign matters and neps. (NEP is a small

knot of entangled fibers which in case of cotton usually comprises

of dead or immature cotton hairs) the resulting product is a smooth

more uniform and stronger yarn. For combing sliver from the

carding, it is passed through pre-comber drawing and then through

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the uni-lap to get smaller lap of cotton. These laps are then fed to

combers to get sliver, which has 14 % to 18 % of shorter staples

removed from it.

• ROVING:

Slivers from the drawing stage are passed to the roving frame. The

purpose is to further reduce the size of the sliver and to impart a

little twist to enable it to withstand the tension in the ring spinning

frame. The product from this operation is also called roving and is

spun around big sized bobbins.

• RING SPINNING:

Ring spinning is the stage from which yarn is obtained in its proper

count and twist. Four actions take place in this stage.

First is roving delivery.

Second is drafting that is the process in which the liner density of

the roving is decreased by controlling the surface speed of the input

and output machine components.

Thirdly, twist insertion in to yarn and final action is winding. All

these operations take place continuously in a relative order.

Product of ring spinning is the yarn of given; twist type (S or Z) draft

and (TPI) twist per inch.

CONE WINDING:

Yarn from ring frames is the input for cone winding machine. Here

yarn is wound on cones, which is the final product to be sold in the

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market. If 2-Ply yarn is a needed cone from this section are taken to

double winding machine with twist two single yarn standards to give

2- Ply yarn on cones.

• CONDITIONING:

Before packing in polyethylene bags, conditioning is done by

storing the cones in a controlled moisture environment for 24 hours.

This allows the yarn to absorb moisture to a certain level that is

necessary for keeping its strength.

Production staff is totally concerned with the quantity of the yarn.

Maintenance staff is responsible for repair and maintenance of the

machinery;

The most important staff of production department is quality staff.

They are only responsible for the best quality of the yarn.

The production department is further divided in to two departments:

Production

Technical

• PACKING:

After the cones are made, then they are transferred to the last

department called "PACKING".

In this department first of all, all of the cones of the different counts

are segregated on the basis of their different colors. Then cones

are weighted and then they are transferred for packing. Then the

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cones are packed into plastic bags or into the polythene bags. More

labor is required and work there as compare to any step of the

packing.

In the next step these packed cones are placed into big corrugated

boxes or simply called carton boxes. Then they again packed into

another big "polypro line" bags. These are the big hard plastic bags

like we have seen in market where flour is packed in those bags.

This step-by-step packing, weighting and care are made in order to

ensure the safety of the yarn and the protection of the yarn, from

the weather, transportation, and from other conditions which harm

the quality of the yarn.

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Chart: 3.3

Rahman Cotton Mills LimitedTakht-Bhai (Mardan)

Hierarchy of Production DepartmentChairman

Executive e Director (Tech.)

Mills Manager

Spinning Master

Deputy Spinning Master

Asstt. Spinning Master

Shift Incharge

Manager (T & Q)

A,S,M ( quality ) For men

Lab. Incharge Asstt. For rmen

Head Fitter

Purchase Officer

Asstt. Purchase Officer

Purchase Asstts.

Store Officer

Asstt. Store Officer

Store assett

Electric Engineer

Line SuPer Visor

Skilled Workers

Quality checker

Lab asset Fitter

Chief executive

Jobers Unskilled Workers

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3.2.3 FINANCE DEPARTMENT

Finance department of the RCM is responsible to arrange funds for

working capital as well as for purchase of assets and raw materials

etc. Finance department is responsible to maintain books of

accounts conducting internal and external Audits, interaction with

Income Tax, Sales Tax Authorities and Financial Institutions.

Dealing with company suppliers, agents and other government

institutions are also the responsibilities of this department. Senior

manager (Finance & Marketing) is the head of this department. The

hierarchy of the finance department is given in chart 3.4.

Finance department is run by executive director technical who is

responsible to instruct and guide senior manager finance and F &

C. senior manager finance is responsible to guide Deputy Manager

Finance, who then facilitates finance executive and senior account

store, these two will further manage and guide their subordinates.

Senior manager F & C facilitates Deputy manager who is

responsible to manage, guide and control the chief accountant,

Deputy chief accountant and senior cost accountant, sale

supervisor and costing assistant are also lead by the senior

manager F & C.

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Rahman Cotton Mills Limited

Chart 3.4 Takht-i-Bhai (Mardan)

Hierarchy of Finance Department4

4 Rahman Cotton Mills,(2001), Annual Report ,Mardan.

Chairman

Chief Executive

Executive Director (Tech)

Sr. Manager Finance Sr. Manager (F & C)

Dy. Manager (CCC / DMR) Dy. Manager (Finance / MR)

Finance/Account Executive

Sr. Accountant Store Dy. Chief Accountant Sr. Cost Accountant

Sr. Account Sr. Accountant Wages

Computer Section Godown Clerk

Account Asstt. Head Cashier

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3.2.3(a) FINANCE DEPARTMENT STAFF:

Senior Deputy Chief Accountant:

Senior deputy chief accountant is responsible to find the cost of the

production and to check the production efficiency report of the

company.

Assistant Accountant:

This person is responsible for all cash transactions. Customer

ledger, cashbook and sales journals are maintained by him,

preparation of cash payment vouchers and cash receipt vouchers

are also the responsibilities of assistant accountant.

Senior Accountant:

This person is responsible for bank transaction for journal

vouchers, bank payment vouchers, bank receipt vouchers,

maintaining of bankbook, supplier payment ledger and journal.

Moreover he is liable to prepare bank reconciliation statement,

supplier trial balance at the end of the month and submit it to the

chief accountant.

Chief Accountant:

The chief accountant is responsible for account section. He

maintains the general ledger and sales register. He is also

responsible for submitting final account / report to the management

on monthly basis. He is the person who conducts the audit. He

looks after the sales tax affairs.

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Store Accountant:

Store accountant handles all store requisitions, goods receipt notes

inward gate pass and outward gate pass. He maintains the

store ledger

Fixed asset ledger

Electric items ledger

Raw materials ledger

His additional responsibility is to conduct stocktaking at the end of

each month.

3.2.4 HUMAN RESOURSE DEPARTMENT

Human resource department is the most important department of

any organization. This department deals with one of the most

important resource of the organization that is human, or the labors.

No machine can work without the help of human .It is the human

who made these machines and performance of the machines

directly depends upon motivation of the labor; this discussion

shows the importance of the selection of good and motivated

employees and their effect on the performance of the organization.

The human resource department in Rahman Cotton Mills is known

as the "Labor and personal department "Although the labor and

personal department perform many important functions, however,

we will discuss some of the most important and routinely performed

operations. They are discussed below:

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Worker welfare programs

Employee evaluation

Recruitment of employees

Daily attendance

3.2.4(a) WORKERS WELFARE PROGRAMES

HRM department of RCM is indulged in the following programs

related to the welfare of the workers, they are as under.

Educational allowances

Marriage grants

EOBI

ESSI

Eid incentives

Ramzan incentives

Muharram incentives

loan sanctioning

Entertainment of the employees

Refreshment of the employees

Educational allowances

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Rahman Cotton Mill has the scheme to give educational allowances

to all those workers who are matriculate and above qualification.

This step not only provides the opportunity to induce the literate

employees to the mill but also motivate others too, to give

concentration to the study.

Marriage grants

Sufficient amount of the money is granted to poor employees for

the marriage of their daughters. . It is usually about Rs 40,000.

EOBI (Employee old age benefit institution)

Employee old age benefit institution fund financially helps the old

employees after attaining the age of 60. It provide the kind of

pension to them .So a person who have worked for seven years in

any of the mill/factory, he is eligible for the pension.

ESSI (Employee's social security institution)

Employee's social security institution protects the employees from

any kind of the accidents. Further more, that fund also provide the

medical facilities to employees and their families.

Loan sanctioning

Employees of RCM are eligible to take loans equal to one pay after

the employee pass the minimum one year in the mill.

Employee’s entertainment and refreshment

A beautiful canteen is situated in the mill where employees can

have their dinner, lunch in nominal amount. The labor department is

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to ensure the control prices and maintains good standard of the

food, places & strict check on them.

3.2.4(b) PERFORMANCE EVALUATION AND REWARD

H.R department continuously evaluates the performance of the

employees; it also recommends the reward and promotions to the

deserving employees after a thorough analysis of their past and

present performance.

3.2.4(c) RECRUITMENT OF THE EMPLOYEES:

First and foremost, the most important function of the human

resource department is the recruitment and selection of the

potential employees in the organization. For this purpose Rahman

Cotton Mills dose not advertise the vacancies in any open media.

Most of the posts are filled by the employee’s referrals rather then

the external search.

First of all, when the candidate comes to fill the vacant position, he

is introduced to HRM department, after the initial interview he is

then referred to the mill manager and to the spinning master .After

the recommendation from both of the above, that candidate is again

send to the HRM department, the signature of the M.M and S.M are

must on the application of the new candidate.

After this stage the candidate is send to the department /vacancy

for which he applies to fill .He is given full orientation about the

department and post.

3.2.4(d) DAILY ATTENDANCE

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All employees go to their job. Supervisor of each department is

responsible for the daily attendance of the employees under him.

He sends the daily attendance report to HRM department where

they have update record of all employees. They make computerize

entries in computer and day to day record is then transferred to

accounts department.

3.2.5 ACCOUNTS DEPARTMENT

For every organization accounts department occupies the very

important position. It not only maintains the daily accounts of the

organization but also perform controlling functions of the

organization. Rahman Cotton Mills has also very vast accounts

department both in the factory as well as in the head office. Factory

office deals the following: -

Payroll section

Finances and banks

Main store

costing

3.2.5(a) PAYROLL SECTION:

One of the main sections of the accounts department is the payroll

section. The function of the payroll section, for the sake of

understanding, may be divided into five main functions as under.

Salary

Over Time

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Leave Salary

Bonuses

Final Bills

Salary of the employees:

The main function of the payroll department is preparing the record

of the salaries of the employees. The employee’s salary of the

Rahman Cotton Mills can be broadly divided into two broad

categories.

Salary of the staff

Salary of the workers

In case of the workers, although they are paid fix per month salary,

depends upon the number of days they have worked. In case of the

absentee of the workers, they are punished to the amount of the Rs

250. It prevents workers from unnecessary absentee. In case of the

salary of the staff no such punishment is made to them. All type of

allowances is included to their salary.

Over time of the employees

Another function of the department is making/calculations of the

overtime.

Overtime is also based on the numbers of hours worked .The over

time of the employees depend upon the basic pay of the workers

.As the basic pay of the employees are increased ,the overtime rate

is also increased.

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Leave salary

All of the employees have their own casual and other leaves on

their disposal. Any how, if the employee did not used them in the

prescribed period, then at the end they are given their leave salary,

the leave salary depends upon number of leaves (unutilized).

Bonuses

Without the condition of the mill, weather the mill is going in the

profit or loss, all of the employees are given bonuses. Bonuses are

given on the basic as well as on the full pay of the employees,

Depends upon the decision of the Board of directors.

Final bills / Clearance

In case if the employees leave the organization, it is also

responsibility of the department to make the final bills of those

employees after deduction if any.

3.2.5(b) FINANCES AND BANKS:

Second major function of the accounts department is the

transaction related to finances and banks.

There are also two types of transactions:-

Cash Payments

Banking Transactions

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In order to perform the above two functions, there are three main

types of vouchers are maintained

o Cash vouchers

o Bank vouchers

o General vouchers

Cash vouchers:

All payments are made in the mill premises and record in

maintained in the form of cash vouchers. They are maintained in

the mill and the summery is transferred to the head offices on the

day to day basis.

Bank vouchers:

The cashier is responsible for the bank transactions and

reconciliation statements.

General vouchers:

In case where the company made no payments at the spot, then

this transaction is recorded through general vouchers, for example

salaries of the employees are maintained at the start of or 10th of

every month are recorded there.

3.2.5(c) STORE ACCOUNT:

Another important department of the account department is the

main store of the mill.

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PROCEDURE OF THE MAIN STORE:

Recurring items

Store Officer is responsible to ensure the availability of all items of

recurring nature within the store on authorized demand.

Capital items or non recurring items

All the items of capital nature or non-recurring items if not available

in the main store, the store officer demands from the respective

department to raise purchase indent. Store department coordinate

between the procurement department and the users for timely

availability of the departmental need.

STORE INSPECTION

At the arrival of each item store officer conduct its proper inspection

as per the prevailing practice within three days positively before

entering the same into bin cards .Store department makes it sure

that all the requisitions are authorized by head of department.

Except the new issuance, store department lakes replacement or

evidence of previous consumption like empty packing etc.

Every department demand items from store according to their

requirements and store issue items to all departments after having

authorized store requisitions.

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3.2.5(d) COST DEPARTMENT:

One of the major and important departments of the account section

is costing section. The costing department performs the following

main functions.

o Purchase

o Storage

o Costing

o Sale

• PURCHASE:

Purchase of the raw materials (cotton, viscose, polyester):

First, the entire raw material is purchased from the market; most of

the cotton is purchased from the local market within Pakistan.

Rahman Cotton Mill has a number of offices in different cities within

the country, they facilitate both purchase of the raw materials and

sale of the yarn .How polyester is imported from the European

countries. Some time cotton and viscose are also imported from the

foreign countries.

Inspection of the purchase:

After cotton etc are purchased from market and received from the

suppliers they are then inspected by the concerned professional

32


employees’ If it is according to the sample and requirements, it is

accepted, otherwise, it is rejected and send back to the suppliers.

• STORAGE

Storage of raw materials

After materials are inspected and accepted, it is then transferred to the go down.

Issue of the materials:

Cottons are issued on the daily basis according to the demand of

the internal units.

• COSTING:

Calculation of the material consumed:

Cost of materials issued to the main process is ascertained on the

daily basis. All different materials that are directly related to the

materials are added to the cost.

Receipt of the yarn:

After the yarn is made in the process, it is then again transferred to

the go down. Special care is made in the packing and placement of

the yarn bags.

Calculation for the cost:

At the end of that process, all kind of cost that is

Direct labor

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Direct materials

Factory over head

are added to the cost of finished yarn.

• SALES:

Making of the sales invoices:

In case of sale of yarn, the firm makes sale invoices of the

goods/bags of the yarn sold. These invoices include the detail of

yarn transferred to the party. These invoices sended to the head

office for further action.

Calculations for the sales taxes:

All types of sales taxes are made there. Sales taxes are deducted

from the customer and submitted to the government treasury.

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CHAPTER -4

ACTIVITIES OF THE MILL

4.1 FINANCIAL ACTIVITIES:

Rahman cotton mills purchases their raw material from the local as

will as foreign markets which require a great amount of money. If

the mill is unable to purchase all the raw material then they are

finance by certain banks. National Bank of Pakistan and Habib

Bank Limited are the main financiers of Rahman Cotton Mills

Limited. Firms also get the facility of loan from the Industrial

Development Bank of Pakistan and Bank Al-Falah Limited. The raw

materials are purchased through these banks and these banks

receive the amount of sale through Telegraph Transfer. The above

mentioned banks deduct their amount from the telegraph transfer

and remaining amount is adjusted in the account of Rahman Cotton

Mills Limited. These banks give different types of finances to

Rahman Cotton Mills Limited, which are as follows:

• Cash finance

• Running finance

• Finance against imports of merchandise

Limitations of credit of both banks are as follows5:

Habib Bank of Pakistan 190 millions

5 Rahman Cotton Mills Limited, (2005), Annual Report, Mardan.

35


National Bank of Pakistan 65 millions

Bank Al-Falah Limited 39 millions

Securities against these loans taken by the above mentioned

banks are as follows:

Haibib Bank Limited. Charges: Fixed assets

Pledge: Cotton, manmade fabrics and

yarn Hypothecation: Stock in process,

stores and spares.

Others: Personal guarantees of the

three principal Directors

National Bank of Pakistan Charges: Stock in trade, book

debts and fixed assets of the company

Pledge: Cotton, manmade fabrics and

yarn Hypothecation: Store and spares,

packing materials in working process.

Others: personal guarantees of the

three principal Directors.

Bank Al-Falah Ltd. Charges: Loan on TDRs for Rs.47

millions Hypothecation: Stock and

receivables.

Others: Personal guarantee of the three

principal Directors.

36


Habib Bank Limited:

The facility carries markup @ 0.4384 per thousand per day (i.e.

16% per annum) and expired on the end of every financial year of

the company (i.e. September 30) and renewed on the opening of

every financial year (i.e. October 1)

National Bank of Pakistan:

The facility carries markup @ 0.4384 per thousand per day (i.e.

16% per annum) and expired on the end of every financial year of

the company (i.e. September 30) and renewed on the opening of

every financial year (i.e. October 1)

Bank Al-Falah Ltd:

The facility carries markup @ 0.4658 per thousand per day and

expired on the end of every financial year (i.e. September 30) and

renewed on the opening of every financial year (i.e. October 1)

4.2 OPERATIONAL ACTIVITIES:

As Rahman Cotton Mills Limited perform different type of activities

for manufacturing purposes. They purchase different types of raw

material to produce yarn, which include cotton, viscose and

polyester. Management of RCM purchases these raw materials to

produce yarn for both domestic as will as foreign market.

In production of yarn RCM is using different types of cotton for

manufacturing purposes that is short staple cotton, medium staple

cotton and long staple cotton. By using these three types of cotton

they produce high quality yarn. The brand name of their product is

37


TARZAN. The production department of RCM producing different

types of yarn, 80’s wraps 80’s weft and 10’s cotton. 80’s yarn is the

superior type of yarn and is used in summer clothes, while 10’s

cotton is used and making tents and other rough fabrics.

4.3 SOCIAL ACTIVITIES:

The management of Rahman Cotton Mills Limited is also involved

in social activities of the society. The management makes roads for

the villages and they also give financial support to needy students.

The scholarships for the students are started from class 5th to

M.A/M.Sc and the amount of scholarships is ranged from Rs. 300

to Rs. 1500 per month. They also give financial support to different

widows of the society.

4.4 LOCAL MARKETS FOR COTTON:

The raw material is purchased from different spinning mills and

suppliers from Multan and Karachi, while some of the cotton is

imported from different countries of East Asia. For local market firm

has appointed three persons who check the cotton quality and

confirm the order. In off-season the employees are met bound to go

on site and firm pay them half salary.

Main suppliers of cotton are as follows:

M/s: Progressive cotton Ginners, Multan

M/s: Romie cotton Ginners, Multan

M/s: Punjab cottons Industries, Rajin Pur

M/s: Amir Cotton Ginners, Jampur

38


4.5 FUTURE PROSPECTS6:

Keeping in view the global demand for fabrics and especially of

yarn (it may be forecasted with the demand of yarn for local and

international markets) will increase approximately from 10% to 15%

per annum. However, profitability of the spinning industry very

much depends on the prices of raw materials in the international

and local markets vis-à-vis prices of yarn offered by the buyers in

the foreign and domestic yarn markets. The profitability of the

Company will also be affected with the prices of fabrics available

from Pakistan and other competitors especially India, Turky,

Taiwan, China, South Korea and Hong Kong.

4.6 OPERATING PERFORMANCE

As per directives of the Central Board of Revenue and Securities

and Exchange Commission of Pakistan, The Company has

changed the closing date of financial Year from 30th September to

30th June and therefore; these accounts have now been prepared

for a period of nine months ended 30th June 2005 whereas the

corresponding figures are for full one year:.

The Company’s installed capacity in operation as on 30th June 2005

were 84,456 spindles, out of which 13932 spindles came into

production during the month of April 2005 and 16,560 spindles

started production in June 2005. With this installed capacity, the

Company has produced 2,588,193 Kgs. Of yarn of all counts in 9

months period (as compared to 3008365 Kgs for the year ended 30

6 6 Rahman Cotton Mills Limited, (2005) ,Annual Report , Mardan

39


September 2004). When actual production of yarn is converted into

20s count, the total production works out to be 17,815,152 Kgs. for

nine months period ended 30th June 2005 compared to 21,502,018

Kgs. for the pervious year ended 30th September 2004.

Other factors that can have negative impact on the financial results

of the Company are the markup rates and inflation, which if not

controlled, may erode large part of the profit. Due to increasing

trends in KIBOR rates, cost of financing of the long term loans and

working capital have also increase from 4% during last year to 11%

in July 2005 and this increased amounts to 175%. This

phenomenon will also adversely affect the profitability of the

spinning industry due to huge bank borrowings by the spinning

sector for the installation of new plants and expansion for the

Present capacities. The cotton crop for the coming season is

expected to be around 15 million bales, which is quite encouraging

and will be sufficient for local consumption. The prices of American

ELS cotton has also increased by more than 45% as compared to

the prices prevailing during November/December 2004 whereas the

yarn prices are stagnant at their lowest ebb.

4.7 DIVIDEND

Keeping in view the larger investment in plant and machinery as

reported above amounting to Rs.732.094 million. So the directors

decided not to recommend to paying any cash dividend out of

current year profit. The directors have also decided to transfer RS.

20.000 million Out of unappropriated profit to General Reserve of

40


the company in order to further build up the shareholder’s Equity

base of the company7:

4.8 NEW INVESTMENT IN PLANT AND MACHINERY

In order to meet the WTO era challenges to produce quality goods,

the directors decide in March 2004 to invest for addition of new

independent spinning unit with the capacity of 16560 spindles along

with complete back process and 13932 spindles addition in

existence mills. The new plant is equipped with Reiter-Switzerland,

Japanese and Chinese machinery in order to produce combed and

auto coned yarn of export standard and for consumption on air jet

looms within the country.

The new spinning units has been installed and put into commercial

production in the month of June 2005. Breakup of the project cost is

as under:

7 Rahman Cotton Mills Limited, (2005) ,Annual Report , Mardan

41


Rupees Rupees8:

PARTICULARS in 000 in 000

New Unit:

Construction of main production 58861 _

Plant and machinery, Humidification Plant,

Laboratory equipment, Electric installations

and Water softening plant / Roads 527161 _

586022

Extension in existing Mills:

Construction of main production Hall 29475

Plant and machinery, Humidification plant,

Electric installations and Water softening

plant /Sui Gas Transmission Line 116597

146072

Investment made during the year 732,094

The Company is also adding two Gas Generators valuing

Rs.43.490 million to generate its own electricity. Keeping in view

the cost per unites of generating electricity through Gas at cheaper

rates, shall add about RS. 22.031 million to the generation of the

Company as compared to the cost of electricity being used from

WAPDA supply. Keeping in view the above investments, the

production of quality yarn of super and super fine counts on this

new spinning plant and machinery shall be highly value added as it

will cater for export market and for consumption of air jet looms for

production of export fabrics.

8 Rahman Cotton Mills Limited, (2005) ,Annual Report , Mardan

42


CHAPTER 5:

SWOT ANALYSIS

5.1 SWOT Analysis

SWOT stands for strength, weakness, opportunities and threats.

Strengths and weakness of an organization are internal factors,

while opportunities and threats are the external factors9. It provides

a good overview of whether a company’s business position is

fundamentally healthy or unhealthy. SWOT analysis is grounded in

the basic principle that strategy-making efforts must aim at

producing a good fit between a company’s resource capability and

its external situation. A weakness is something a company lake or

does poorly or a condition that puts it at a disadvantage. A

Company’s internal weaknesses can relate to:

a). Deficiency in competitively important skills or expertise.

b). A lake of competitively important physical, human,

organizational or intangible assets.

c). Missing or weak competitive capabilities in key areas

9 Luthens Fred, (1985), “Organizational Behavior”, McGraw Hill publishing Co.

43


5.2 ANALYSIS:

5.2.1 STRENGTHS:

Rahman Cotton Mills Limited is one of the major investments

of the BIBOJEE group. They have a very vast diversification

of investment in different fields .So they did not rely only on

one unit of the mill, they have very strong financial

background and that is the reason for satisfaction of stock

holders of the mill but as well as the reason of smooth

working.

Rahman Cotton Mills Limited have a strong brand name

TARZEN, it is very popular in customers and have a good

effect on the company’s image.

Rahman Cotton Mills Limited has local employees, some of

them are skilled and others are unskilled. These are cheaper

than the non-local employees because they have no

residence allowances, due to this reason it has strong cost

advantages.

Rahman Cotton Mills Limited has very highly automated

machinery. It is purely computerized .There for it is possible

to increase their production. Their production capacity is

84400 spindles.

Rahman Cotton Mills Limited is proud of being specialized in

all types of count of a thread at a time .It does not rely on

only one count.RCM produces different types of yarn that is

44


10count, 20count, 60count and 80count.So it supports all

type of market situation.

Strong internal communication is the essence of good

performance of the organization. Rahman Cotton Mills

Limited has proud to have a strong internal communication

system inside the organization. Internal telephone system

and the database system in accounts department make it

possible to remove the communication gap.

Rahman Cotton Mills Limited is situated in such a locality

where there is no such other big place of employment, so

due to this reason the mill has strong bargaining position.

General labor is very much cheap as compare to the big

cities.

Rahman Cotton Mills Limited has a strong internal control

system; it has its own internal auditing department inside the

mill premises that has total check on all transactions of the

mill as well as check on the assets and operations, and

working of the Mill. The internal auditor is directly

responsible to the chief executive.

Rahman Cotton Mills Limited does not operate on 100%

installed capacity; it has nearly 84,000 spindles but it work

on 54, 000 spindles.

45


5.2.2 WEAKNESSES:

As there is no much suppliers that provide raw materials, so

the supply of raw material is less than demand of the

company, due to this reason supplies have a strong

bargaining power and prices of raw material are high.

As the mill is situated far from the established area of

Pakistan. The company most of the time finds it difficult to

hire highly professional people, so they have to pay very

high salary to non local people of the N.W.F.P.

Rahman Cotton Mills Limited has no Research and

Development Department, as this is a necessary department

of every organization to survive in the market.

One of the major weaknesses of the Rahman Cotton Mills

Limited is that the mill is situated very far from the market;

company has to pay a very high amount on the acquisition of

the raw materials, and any other purchases that causes

increase of cost of production

There exists no transparent system of selection, recruitment

and promotion of employees. The recruitment of employees

is badly affected by nepotism.

Another important deficiency of RCM is the unawareness of

old employees about computer applications. They don't have

strong hold on the computer.

46


5.2.3 OPPORTUNITIES:

Present age is the age of globalization, where distances are

reducing, when there will be an open market all over the

world, RCM has also opportunity to increase its export to

other countries especially in case when it has highly

automated machinery with ability to boost its production.

Rahman Cotton Mills Limited has recently made a huge

expansion .That expansion has increased the production

capacity to large extant .Now the mill is in position to full fill

not only the domestic requirement of the country, but also in

the position to export its product to other countries .

RCM provide yarn to textile mills of the BIBOOJE group of

industries, so they have permanent buyers of their yarn and

never faces selling problems.

With the current situation where the government of Pakistan

is giving special attention to the export of the textile

products, RCM has the golden opportunity to export its high

quality yarn to Middle East and to European countries.

47


5.2.4 THREATS:

The close competitors of RCM are also making expansion in

their production capacity. This will not only result in increase

of the highly automated machinery but also may capture the

large portion of the market share.

The market share of local firm’s is reducing gradually due to

the import of foreign product from China, USA and KORIA

which is cheaper and of good quality.

Pakistani Rupee is depreciating against its other trading

partners, so it affects the profitability of the firm adversely.

One of the major threats faced by the company is high

inflation in the country. Price of raw materials is increasing

day by day and this causes an increase in the cost of

production .On the other hand, the prices of yarn is not

increasing at that speed.

48


CHAPTER: 6

FINDING AND RECOMMENDATIONS

6.1 FINDINGS:

6.1.1 ABSENCE OF INCENTIVES:

There were no incentives given by the govt. Other estates like

European countries enjoy incentive on the import traffic but textile

industry in our country is not enjoying those types of incentives. So

govt has to give them some facilities like concession in electric

charges and taxes.

6.1.2 ABSENCE OF SKILLED LABOR

The cost of production of the mill is very high; this is because of the

absence of skilled labor. They don’t provide training facilities to their

employees.

6.1.3 PROBLEM OF RAW MATERIAL

There are only few suppliers of raw materials and other accessories

to Rahman Cotton Mills Limited. So the bargaining power of the

suppliers increases which results in the price of the product will also

increase.

6.1.4 MARKET CONSIDERATIONS

In old times no consideration was given to larger markets, where

the raw materials for the manufacturing industry are easily available

at a reasonable price. It is also the case with Rahman Cotton Mills

49


whose local market is Faisalabad and Jhang, but it is situated for

away from its local markets, so the cost of production is increased.

6.1.5 HIGER TRANSPORTATION COST

R.C.M is established at a far flung area from its domestic markets.

Therefore to acquire raw materials for production, they bear high

transportation cost.

6.1.6 ABSENCE OF LOCAL EMPLOYEES

The absence of skilled labor in the local area resulted in hiring labor

from the other areas of Pakistan. These labors are charged higher

wages and accommodation facilities resulting relatively higher

production cost. These labors and office staff are more sensitive

and asked for more careful dealing.

6.1.7 UN AVAILABILITY OF SOCIAL FACILITIES:

Rahman Cotton Mills provide no hospital facilities to their workers.

Also they have no school for the children of the staff. Because of

the absence of school and hospital facilities labor is leaving RCM

for other cities.

6.1.8 LACK OF COMPUTER LITERATE STAFF:

Rahman Cotton Mills Limited has lack of computer knowledge staff

and there for most of their work is manual. The knowledge of

computer will save the time of management and will help them in

getting update information without waste of time.

50


6.1.9 LOW SALARIES OF THE EMPLOYEES:

The salaries of the employees are very low as compare to their

work. Due to this reason organizational commitment of the

employees is decreasing.

51


CHAPTER: 7

RECOMMENDATIONS:

7.1 TO HIRE LOCAL LABOR:

As our labor is unskilled there for RCM hires skilled labor from other

parts of the country which is very costly, so RCM should provide

training to the local labor, so it will decrease their cost and also

improve their image in the locality.

7.2 TECHNICAL TRAINING:

Technical training should be given to the employees to use the

modern machines accurately. This will reduce the repair and

maintenance cost.

7.3 PROVIDE HOSPITAL AND SCHOOL FACILITIES:

Rahman Cotton Mills Limited should provide school and Hospital

facilities for poor employees of the mills, with this they will become

committed and their productivity will be increased.

7.4 COMITMENT OF SUPPLIERS

As the numbers of suppliers of cotton is less in the market, and

Rahman Cotton Mills have a strong financial background so it can

integrate backward, by purchasing or getting control of suppliers to

avoid stock out, however this situation of stock out has never

arisen.

52


7.5 INTRODUCTION OF COMPUTER SYSTEM:

Management must try to computerize their system, this will save

time and cost of the company, so its profitability will be increased.

consequences

7.6 COMPUTER TRAINING:

Proper training should be given to employees to use computer

properly.

7.7 TO CONTROL WASTE OF PRODUCTION:

RCM must control its waste percentage which is increasing

continuously from the last few years, if not controlled it will erase

the profit of the mill.

7.7 CONTROL COSTING:

The mill must control its cost of sale and selling and admin

expenses, it is very important and a challenge for the management

from the last few years.

53


BIBLOGRAPHY:1 Luthens, Fred, (1985), “Organizational Behavior” New Edition. McGraw Hill

Publishing Inc.

2 Kennedy, Ralph Dale, (1973), “Financial Statement Analysis and

Interpretation”, 6th Edition, Homewood; Richard D. Irwin.

3 Meigs B Walter And Meigs F Robert,” Accounting The Basis For Business

Decisions” 9th Edition, McGraw Hill Book Co.

4 David Fred R. (1998), “Strategic Management: Concepts and Cases”, 7th

Edition New Jersey; Prentice Hall, Inc

5 Kotler Philips, (1997), “Management Analysis Planning and Implementation

and Control”. New Jersey, Prentice Hall Inc.

6 Rahman Cotton Mills Limited, (2001-2005), Annual reports, Takht-Bhai,

Mardan.

7 Monthly Magazine of all Pakistan Textile Mills Associations.

8 Article of Memorandum of BIBOJEE Services Private Limited.


ANNEXURE 1a

ASSOCIATED CPMPANIES OF RAHMAN COTTON MILLS

LIMITED 10

a. Babri Cotton Mills Limited

b. Bannue woolen mills Limited

c. Bibojee services (Pvt) Ltd

d. Bibojee investments (Pvt) Ltd

e. Bibojee poultry combine (Pvt) Ltd

f. Consultant and advisors Ltd

g. Century Pharmaceutical Company Ltd

h. General tyre and rubber Co. of Pakistan Ltd

i. Ghandhara industries (Pvt) Ltd

j. Ghandhara Nissan (Pvt) Ltd

k. Ghandhara International Ltd

l. Janana De Malucho Ltd

m. National Motors Ltd

n. Rahman Cotton Mills Ltd

o. Sarmast Technical Services (Pvt) Ltd

p. St.john’s Pharmaceutical (Pvt) Ltd

q. The Universal Insurance Company Ltd.

10 Rahman Cotton Mills Limited, (2005) ,Annual Report ,Mardan.


ANNEXURE 1b

COPMAPNY’S PROFILE 11

BOARD OF DIRECTORS MR. RAZA KULI KHAN KHATTAK

Chairman

MR. AHMAD KULI KHAN KHATTAK

Chief executive

LT. GEN. ( RET ) ALI KULI KHAN KHATTAK

MR. MUSHATAQ AHMAD KHAN, FCA

MRS. SHANAZ SAJJAD AHAMD

MRS. ZEB GOHAR AYUB

DR. SHAHEEN KULI KHAN

AUDIT COMMITTEE MR. RAZA KULI KHAN KHATTAK

Chairman

LT. GEN. ( RET ) ALI KULI KHAN KHATTAK

Member

MR. MUSHTAQ AHMAD KHAN , FCA

Member

COMPANY SECRETARY MR, AMIN-U-RASHEED

Senior Manager Corporate Affairs

CHIEF FINANCIAL OFFICER MR. SHOAIB KHAN

Senior Manager ( Finance & Commercial )

INTERMAL AUDITOR MR, MUHAMMAD ISMAIL

AUDITORS M/S MUNIFF ZIAUDDIN & CO.

Chartered accountants

BANKERS HABIB BANK LIMITED

NATIONAL BANK OF PAKISTAN

PICIC COMMERCIAL BANK LIMITED

REGISTERD OFFICE & MILLS TAKHT-I-BKAI ( MARDAN ) N.W.F.P

Phone : (0937) 552654 , 552716

Fax : (0937) 551568

11 Rahman Cotton Mills Limited ,(2005) ,Annual Report,Mardan


ANNEXURE 1c

Share capital12:The capital of the Company is Rs. 50.000 million divided into 5.000

million ordinary shares of Rs. 10.00 each with powers to increase

or decrease the said capital and to sub-divide the share capital into

different classes consisting of ordinary shares only.

PATTERN OF SHARE HOLDING

AS ON JUNE 30, 2005

Categories of Shareholders Number Share held %

Individuals 42 583,019 21.201

Joint Stock Company 1 2,166,981 78,.799

12 Rahman Cotton Mills Limited ,(2005) ,Annual Report ,Mardan

Number of Share Holding Total ShareS. Holders Held

From To

16 501 1,000 10,000

3 1,001 5,000 13,337

3 5,001 10,000 26,775

3 10,001 15,000 35,750

3 15,001 20,000 45,099

4 20,001 25,000 88,749

3 25,001 30,000 77,311

3 35,001 40,000 109,998

4 40,001 45,000 176,000

1 2,160,001 2,170,000 2,166,981

43 Total 2,750,000

43 Total 2,750,000


TOTAL 43 2,750,000 100.000

rahim cotton mills-internship

Documents

internship report

rahman cotton mills

chapters chapter

s late khan abdul rahman

known organization

finance activities

spinning unit

sale of cotton blended