A PROJECT REPORT

ON

“WORKING CAPITAL MANAGEMENT “WORKING CAPITAL MANAGEMENT ATAT

HCL INFOSYSTEMS LIMITED”HCL INFOSYSTEMS LIMITED”

BY:DEEPAK BHATIABY:DEEPAK BHATIA

BATCH:BATCH: FW 10-12 FW 10-12

STUDENT ID:STUDENT ID: (DEL-2-DB-2154) (DEL-2-DB-2154)

INDIAN INSTITUTE OF

PLANNING AND MANAGEMENT

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ACKOWLEDGEMENT

Achievement is finding out what you would be then doing, what you have to do.

The higher the summit, the harder is the climb. The goal was fixed and we

began with a determined resolved and put in ceaseless sustained hard work.

Greater challenge, greater was our effort to overcome it.

This project work, which is my first step in the field of professionalization, has

been successfully accomplished only because of my timely support of well-

wishers. I would like to pay my sincere regards and thanks to those, who

directed me at every step in my project work.

I would also like to thank the faculty members and the staff members of HCL

Infosystems Ltd. for their kind support and help during the project.

DEEPAK BHATIA

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TABLE OF CONTENTS

EXECUTIVE SUMMARY

1. HCL Infosystems – An Overview Company’s history HCL at a glance Alliances and partnerships Management team Corporate information

2. Conceptual Framework Introduction to Working Capital Management Significance of working capital management Liquidity vs Profitability: Risk – Return trade off Classification of working capital Types of working capital needs Financing of working capital Factors determining working capital requirements Working capital cycle Sources of working capital HCL financials Working capital position

3. Reaearch done The problems Purpose of study Research methodology

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Scope of the study Data sources Limitations

4. Analysis Industry analysis Financial graphs Concluding analysis Suggestions and recommendations

5. Appendix6. Bibliography

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EXECUTIVE SUMMARY

This project is based on the study of working capital management in HCL

Infoystems. An insight view of the project will encompass – what it is all about,

what it aims to achieve, what is its purpose and scope, the various methods used

for collecting data and their sources, including literature survey done, further

specifying the limitations of our study and in the last, drawing inferences from

the learning so far.

HCL Infosystems Limited (HCL), is a leading domestic computer hardware

and hardware services company. HCL is engaged in selling manufactured ( like

PCs, servers, monitors and peripherals) and traded hardware ( like notebooks,

peripherals) to institutional clients as well as in retail segment. It also offers

hardware support services to existing clients through annual maintenance

contracts, network consulting and facilities management.

The working capital management refers to the management of working capital,

or precisely to the management of current assets. A firm’s working capital

consists of its investments in current assets, which includes short-term assets—

cash and bank balance, inventories, receivable and marketable securities.

This project tries to evaluate how the management of working capital is done in

HCL Infosystems through inventory ratios, working capital ratios, trends,

computation of cash, inventory and working capital, and short term financing.

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HCL INFOSYSTEMS – AN OVERVIEW

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Company’s history

HCL at a glance

Alliances and partnerships

Management team

Corporate information

HCL INFOSYSTEMS LIMITED

AN OVERVIEW ABOUT THE COMPANY

HCL Infosystems is no flash in the Information Technology pan. Founded in

1976, the firm has climbed into pantheon of India's corporate giants on the

strength of its IT products and services. HCL Infosystems specializes in IT

hardware (PC's and servers, as well as networking, imaging and

communications products), and system integration services serving the domestic

Indian market. In addition to its consumer products, the company provides

commercial IT products, facilities management, network services, and IT

security services for clients in such industries as government, financial services,

and education. HCL Corporation owns significant stakes in HCL Infosystems

(about 44%) and sister company HCL Technologies.

HCL Infosystems Ltd, a listed subsidiary of HCL, is an India-based hardware

and systems integrator. It claims a presence in 170 locations and 300 service

centres. Its manufacturing facilities are based in Chennai, Pondicherry and

Uttarakhand .Its headquarters is in Noida.

HCL Peripherals (A Unit of HCL Infosystems Limited) Founded in the year

1983, has established itself as a leading manufacturer of computer peripherals in

India, encompassing Display Products, Thin Client solutions, Information and

Interactive Kiosks. HCL Peripherals has two Manufacturing facilities, one in

Pondicherry (Electronics) and the other in Chennai (Mechanical) .The Company

has been accredited with ISO 9001:2000, ISO 14001, TS 16949 and ISO 13485.

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HISTORY

HCL Infosystems Ltd is one of the pioneers in the Indian IT market, with its origins in 1976. For over quarter of a century, we have developed and implemented solutions for multiple market segments, across a range of technologies in India. We have been in the forefront in introducing new technologies and solutions. The highlights of the HCL saga are summarized below:

Y E AR H I G H L I G H T S

1976

- Foundation of the Company laid- Introduces microcomputer-based programmable calculators with wide acceptance in the scientific / education community

1977

- Launch of the first microcomputer-based commercial computer with a ROM -based Basic interpreter - Unavailability of programming skills with customers results in HCL developing bespoke applications for their customers

1980 - Formation of Far East Computers Ltd., a pioneer in the Singapore IT market, for SI (System Integration) solutions

1983

- HCL launches an aggressive advertisement campaign with the theme ' even a typist can operate' to make the usage of computers popular in the SME (Small & Medium Enterprises) segment. This proposition involved menu-based applications for the first time, to increase ease of operations. The response to the advertisement was phenomenal. -HCL develops special program generators to speed up the development of applications

1986 - Zonal offices of banks and general insurance companies adopt computerization- Purchase specifications demand the availability of RDBMS products on the supplied solution (Unify, Oracle). HCL arranges for such products to be ported to its platform.

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- HCL assists customers to migrate from flat-file based systems to RDBMS

1991

- HCL enters into a joint venture with Hewlett Packard - HP assists HCL to introduce new services: Systems Integration, IT consulting, packaged support services ( basic line, team line )

1994 - HCL acquires and executes the first offshore project from IBM Thailand- HCL sets up core group to define software development methodologies

1995 - Starts execution of Information System Planning projects - Execution projects for Germany and Australia - Begins Help desk services

1996 - Sets up the STP ( Software Technology Park ) at Chennai to execute software projects for international customers - Becomes national integration partner for SAP

1997- Kolkata and Noida STPs set up- HCL buys back HP stake in HCL Hewlett Packard

1998 - Chennai and Coimbatore development facilities get ISO 9001 certification

1999 - Acquires and sets up fully owned subsidiaries in USA and UK- Sets up fully owned subsidiary in Australia - HCL ties up with Broadvision as an integration partner

2000

- Sets up fully owned subsidiary in Australia- Chennai and Coimbatore development facilities get SEI Level 4 certification- Bags Award for Top PC Vendor In India- Becomes the 1st IT Company to be recommended for latest version of ISO 9001 : 2000- Bags MAIT's Award for Business Excellence- Rated as No. 1 IT Group in India

2001-Launched Pentium IV PCs at below Rs 40,000-IDC rated HCL Infosystems as No. 1 Desktop PC Company of 2001

2002

-Declared as Top PC Vendor by Dataquest-HCL Infosystems & Sun Microsystems enters into a Enterprise Distribution Agreement- Realigns businesses, increasing focus on domestic IT, Communications & Imaging products, solutions & related services

2003- Became the first vendor to register sales of 50,000 PCs in a quarter- First Indian company to be numero uno in the commercial PC market- Enters into partnership with AMD- Launched Home PC for Rs 19,999

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2004

- 1st to announce PC price cut in India, post duty reduction, offers Ezeebee at Rs. 17990- Maintains No.1 position in the Desktop PC segment for year 2003- Becomes the 1st company to cross 1 lac unit milestone in the Indian Desktop PC market- Partners with Union Bank to make PCs more affordable, introduces lowest ever EMI for PC in India- Registers a market share of 13.7% to become No.1 Desktop PC company for year 2004- Crosses the landmark of $ 1 billion in revenue in just nine months

2005

- Launch of HCL PC for India, a fully functional PC priced at Rs.9,990/-- Rated as the No.1 Desktop PC company by IDC India -Dataquest- 'Best Employer 2005' with five star ratings by IDC India -Dataquest.- 'The Most Customer Responsive Company 2005' -IT Hardware Category by The Economic Times -Avaya Global Connect.-Top 50 fastest growing Technology Companies in India' & 'Top 500 fastest Growing Technology Companies in Asia Pacific' by 'Deloitte & Touche'. by 'Deloitte & Touche'-'7th IETE -Corporate Award 2005' for performance excellence in the field of Computers & Telecommunication Systems by IETE.-India 's 'No.1 vendor' for sales of A3 size Toshiba Multi Functional Devices for the year '04 -'05 by IDC.-Toshiba 'Super Award 2005 towards business excellence in distribution of Toshiba Multifunctional products,-Strategic Partners in Excellence' Award by In focus Corporation for projectors.-'Most valued Business Partner' Award for projectors by In focus Corporation in 2005

2006

(till June)

- 75, 000+ machines produced in a single month- HCL Infosystems in partnership with Toshiba expands its retail presence in India by unveiling 'shop Toshiba'- HCL Infosystems & Nokia announce a long term distribution strategy- HCL the leader in Desktops PCs unveils India's first segment specific range of notebooks brand - 'HCL Laptops'- IDBI selects HCL as SI partner for 100 branches ICT infrastructure rollout- HCL Infosystems showcases Computer Solutions for the Rural Markets in India - HCL Support wins the DQ Channels-2006 GOLD Award for Best After Sales Service on a nationwide customer satisfaction survey conducted by IDC- HCL Infosystems First in India to Launch the New Generation of High Performance Server Platforms Powered by Intel Dual - Core Xeon 5000 Processor- HCL Forms a Strategic Partnership with APPLE to provide Sales & Service

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Support for iPods in India

VISION STATEMENT:

"Together we create the Enterprises of Tomorrow"

MISSION STATEMENT:

"To provide world-class Information Technology solutions and services in order to enable our customers to serve their customers better"

CORE VALUES:

Nothing transforms life like education.

We shall honor all commitments

We shall be committed to Quality, Innovation and Growth in every

endeavor

We shall be responsible corporate citizens

QUALITY POLICY:

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"We shall deliver defect-free products, services and solutions to meet the

requirements of our external and internal customers, the first time, every time."

OBJECTIVES:

MANAGEMENT OBJECTIVES –

To fuel initiative and foster activity by allowing individuals, freedom

of action and innovation in attaining defined objectives.

PEOPLE OBJECTIVES –

To help people in HCL Infosystems Ltd., share company’s success,

which they make possible; to provide job security based on their

performance; to

recognize their individual achievements; and help them gain a sense of

satisfaction and accomplishment from their work.

ALLIANCES and PARTNERSHIPS:

To provide world-class solutions and services to all our customers, HCL

Infosystems have formed Alliances and Partnerships with leading IT companies

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worldwide.

HCL Infosystems has alliances with global technology leaders like Intel, AMD,

Microsoft, Bull, Toshiba, Nokia, Sun Microsystems, Ericsson, nVIDIA,

SAP, Scansoft, SCO, EMC, Veritas, Citrix, CISCO, Oracle, Computer

Associates, RedHat, Infocus, Duplo, Samsung and Novell.

These alliances on one hand give us access to best technology & products as

well as enhancing our understanding of the latest in technology. On the other

hand they enhance our product portfolio, and enable us to be one stop shop for

our customers.

     

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MANAGEMENT TEAM:

Ajai ChowdhryCo-Founder HCL, Chairman and CEO - HCL Infosystems.An engineer by training, Ajai Chowdhry is one of the six co-founder members of HCL, India 's premier IT conglomerate. J V RamamurthyChief Operating Officer HCL Infosystems Ltd.J V Ramamurthy has an engineering degree in Electronics & Communications, from Guindy Engineering College, and a Masters' degree in Applied Electronics from the Madras Institute of Technology, both in Chennai.

Rajendra Kumar Executive Vice President - Frontline Division HCL Infosystems Ltd. Mr. Rajendra Kumar has been with HCL for over 30 years and has seen HCL grow from a startup company to a gigantic conglomerate that it is today.

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CORPORATE INFORMATION:

BOARD OF DIRECTORS Chairman & Chief Executive Officer Ajai Chowdhry Whole-time Director J.V. Ramamurthy

Directors S. Bhattacharya D.S. Puri R.P. Khosla E.A. Kshirsagar Anita Ramachandran T.S. Purushothaman Narasimhan Jegadeesh V.N. Koura

COMPANY SECRETARY Sushil Kumar Jain

AUDITORS Price Waterhouse, New Delhi

BANKERS State Bank of India Canara Bank

HDFC Bank Ltd.

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ICICI Bank Ltd. Societe Generale Standard Chartered Bank State Bank of Patiala State Bank of Saurashtra

REGISTERED OFFICE 806, Siddharth, 96, Nehru Place, New Delhi - 110 019.

CORPORATE OFFICE E - 4, 5, 6, Sector XI, Noida - 201 301 (U.P.)

WORKS ♦ R.S. Nos: 34/4 to 34/7 and part of 34/1, Sedarapet, Puducherry - 605 111.

♦ R.S. Nos: 107/5, 6 & 7, Main Road, Sedarapet, Puducherry - 605 111. ♦ Plot No 78, South Phase, Ambattur Industrial Estate,Chennai - 600 058. ♦ Plot No SPL. A2, Thattanchavadi, Industrial Area, Puducherry - 605 009. ♦ Plot Nos. 1, 2, 27 & 28, Sector 5, 11E,

Rudrapur, Distt. - Udham Singh Nagar, Uttarakhand - 263 145.

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WORKING CAPITAL MANAGEMENT

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CONCEPTUAL FRAMEWORK

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Introduction

Significance of working capital management

Liquidity Vs profitability: Risk – Return trade off

Classification of working capital

Types of working capital needs

Financing of working capital

Factors determining working capital requirements

Working capital cycle

Sources of working capital

HCL financials

Working capital position

INTRODUCTION TO WORKING CAPITAL

“Working Capital is the Life-Blood and Controlling Nerve Center of a business”

The working capital management precisely refers to management of current assets. A firm’s working capital consists of its investment in current assets, which include short-term assets such as:

Cash and bank balance,

Inventories,

Receivables (including debtors and bills),

Marketable securities.

Working capital is commonly defined as the difference between current assets

and current liabilities.

WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES

There are two major concepts of working capital:

Gross working capital

Net working capital

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Gross working capital:

It refers to firm's investment in current assets. Current assets are the assets,

which can be converted into cash with in a financial year. The gross working

capital points to the need of arranging funds to finance current assets.

Net working capital:

It refers to the difference between current assets and current liabilities. Net

working capital can be positive or negative. A positive net working capital

will arise when current assets exceed current liabilities. And vice-versa for

negative net working capital. Net working capital is a qualitative concept. It

indicates the liquidity position of the firm and suggests the extent to which

working capital needs may be financed by permanent sources of funds. Net

working capital also covers the question of judicious mix of long-term and

short-term funds for financing current assets.

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Significance Of Working Capital

Management

The management of working capital is important for several reasons:

For one thing, the current assets of a typical manufacturing firm account for

half of its total assets. For a distribution company, they account for even

more.

Working capital requires continuous day to day supervision. Working

capital has the effect on company's risk, return and share prices,

There is an inevitable relationship between sales growth and the level of

current assets. The target sales level can be achieved only if supported by

adequate working capital Inefficient working capital management may lead

to insolvency of the firm if it is not in a position to meet its liabilities and

commitments.

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LIQUIDITY VS PROFITABILITY: RISK - RETURN TRADE OFF

Another important aspect of a working capital policy is to maintain and provide

sufficient liquidity to the firm. Like the most corporate financial decisions, the

decision on how much working capital be maintained involves a trade off- having

a large net working capital may reduce the liquidity risk faced by a firm, but it

can have a negative effect on the cash flows. Therefore, the net effect on the value

of the firm should be used to determine the optimal amount of working capital.

Sound working capital involves two fundamental decisions for the firm. They are

the determination of:

The optimal level of investments in current assets.

The appropriate mix of short-term and long-term financing used to support

this investment in current assets, a firm should decide whether or not it should

use short-term financing. If short-term financing has to be used, the firm must

determine its portion in total financing. Short-term financing may be preferred

over long-term financing for two reasons:

The cost advantage

Flexibility

But short-term financing is more risky than long-term financing. Following table

will summarize our discussion of short-term versus long-term financing.

Maintaining a policy of short term financing for short term or temporary assets

needs (Box 1) and long- term financing for long term or permanent assets needs

(Box 3) would comprise a set of moderate risk –profitability strategies. But what

one gains by following alternative strategies (like by box 2 or box 4) needs to

weighed against what you give up.

CLASSIFICATION OF WORKING CAPITAL

Working capital can be classified as follows:

On the basis of time

On the basis of concept

TYPES OF WORKING CAPITAL NEEDS

Another important aspect of working capital management is to analyze the total

working capital needs of the firm in order to find out the permanent and

temporary working capital. Working capital is required because of existence of

operating cycle. The lengthier the operating cycle, greater would be the need for

working capital. The operating cycle is a continuous process and therefore, the

working capital is needed constantly and regularly. However, the magnitude and

quantum of working capital required will not be same all the times, rather it will

fluctuate.

The need for current assets tends to shift over time. Some of these changes reflect

permanent changes in the firm as is the case when the inventory and receivables

increases as the firm grows and the sales become higher and higher. Other

changes are seasonal, as is the case with increased inventory required for a

particular festival season. Still others are random reflecting the uncertainty

associated with growth in sales due to firm's specific or general economic factors.

The working capital needs can be bifurcated as:

Permanent working capital

Temporary working capital

Permanent working capital:

There is always a minimum level of working capital, which is continuously

required by a firm in order to maintain its activities. Every firm must have a

minimum of cash, stock and other current assets, this minimum level of current

assets, which must be maintained by any firm all the times, is known as

permanent working capital for that firm. This amount of working capital is

constantly and regularly required in the same way as fixed assets are required. So,

it may also be called fixed working capital.

Temporary working capital:

Any amount over and above the permanent level of working capital is temporary,

fluctuating or variable working capital. The position of the required working

capital is needed to meet fluctuations in demand consequent upon changes in

production and sales as a result of seasonal changes.

The permanent level is constant while the temporary working capital is

fluctuating increasing and decreasing in accordance with seasonal demands as

shown in the figure.

In the case of an expanding firm, the permanent working capital line may not be

horizontal. This is because the demand for permanent current assets might be

increasing (or decreasing) to support a rising level of activity. In that case line

would be rising.

FINANCING OF WORKING CAPITAL

There are two types of working capital requirements as discussed above. They

are:

Permanent or Fixed Working Capital requirements

Temporary or Variable Working Capital requirements

Therefore, to finance either of these two working capital requirements, we have

long-term as well as short-term sources.

FACTORS DETERMINING WORKING CAPITAL

REQUIREMENTS

There are many factors that determine working capital needs of an enterprise.

Some of these factors are explained below:

Nature or Character of Business.

The working capital requirement of a firm is closely related to the nature of

its business. A service firm, like an electricity undertaking or a transport

corporation, which has a short operating cycle and which sells

predominantly on cash basis, has a modest working capital requirement. Oh

the other hand, a manufacturing concern like a machine tools unit, which

has a long operating cycle and which sells largely on credit, has a very

substantial working capital requirement.

HCL Infosystems carry on activities related to computer systems. Though

they are primarily an assembling firm they also have manufacturing

facilities in Chennai and Pondicherry. This requires them to keep a very

sizeable amount in working capital.

Size of Business/Scale of Operations.

HCL is the leader in its segment in both consumer as well as commercial

market share. They have increased their share in the consumer segment

notably in the last four years. This they have achieved through retail

expansion. The scale of operations and the size it

holds in the Indian IT market makes it a must for them to hold their

inventory and current asset at a huge level.

Rate of Growth of Business.

The rate of growth of sales indicates a need for increase in the working

capital requirements of the firm. As the firm is projected to increase their

sales by 80% from what it was in 2006, it is required to guard them against

the increasing requirements of the net current asset by way of efficient

working capital management. The sales and projected sales level determine

the investment in inventories and receivables.

HCL Infosystems Limited 2008 2007 2006 2005 2004

PROJECTED

Gross Sales/Income from Operations

3400 2833 2381 1967.37 1522.03

Price Level Changes.

Changes in the price level also affect the working capital requirements. It

was the reduced margins in the price of the raw materials that had

prompted them to go for bulk purchases thus making on additions to their

net current assets. They might have gone for this large-scale procurement

for availing discounts and anticipating a rise in prices, which would have

meant that more funds are required to maintain the same current assets.

WORKING CAPITAL CYCLE

The upper portion of the diagram above shows in a simplified form the chain of

events in a manufacturing firm. Each of the boxes in the upper part of the diagram

can be seen as a tank through which funds flow. These tanks, which are concerned

with day-to-day activities, have funds constantly flowing into and out of them.

The chain starts with the firm buying raw materials on credit.

In due course this stock will be used in production, work will be carried out

on the stock, and it will become part of the firm’s work-in-progress.

Work will continue on the WIP until it eventually emerges as the finished

product.

As production progresses, labor costs and overheads need have to be met.

Of course at some stage trade creditors will need to be paid.

When the finished goods are sold on credit, debtors are increased.

They will eventually pay, so that cash will be injected into the firm.

Each of the areas- Stock (raw materials, WIP, and finished goods), trade debtors,

cash (positive or negative) and trade creditors – can be viewed as tanks into and

from which funds flow.

Working capital is clearly not the only aspect of a business that affects the amount

of cash.

The business will have to make payments to government for taxation.

Fixed assets will be purchased and sold

Lessors of fixed assets will be paid their rent

Shareholders (existing or new) may provide new funds in the form of cash

Some shares may be redeemed for cash

Dividends may be paid

Long-term loan creditors (existing or new) may provide loan finance, loans

will need to be repaid from time-to-time, and

Interest obligations will have to be met by the business

Unlike, movements in the working capital items, most of these ‘non-working

capital’ cash transactions are not every day events. Some of them are annual events

(e.g. tax payments, lease payments, dividends, interest and, possibly, fixed asset

purchases and sales). Others (e.g. new equity and loan finance and redemption of

old equity and loan finance) would typically be rarer events.

SOURCES OF WORKING CAPITAL

HCL Infosystems has the following sources available for the fulfillment of its

working capital requirements in order to carry on its operations smoothly:

Banks:

These include the following banks –

State Bank of IndiaCanara BankHDFC Bank Ltd.ICICI Bank Ltd.Societe GeneraleStandard Chartered BankState Bank of PatialaState Bank of Saurashtra

Commercial Papers: Commercial Papers have become an important tool for financing working capital requirements of a company.Commercial Paper is an unsecured promissory note issued by the company to raise short-term funds. The buyers of the commercial paper include banks, insurance companies, unit trusts, and companies with surplus funds to invest for a short period with minimum risk.HCL issues Commercial Papers and had 4000 commercial papers in the year 2006.

HCL FINANCIALS:

CONSOLIDATED FINANCIAL PERFORMANCE

WORKING CAPITAL POSITION :

CURRENT ASSET – TOTAL ASSET

PARTICULARS 2006 2005 2004 2003 2002

CURRENT

ASSETS

100970 81533 54091 45042 55985

NET BLOCK 7970 5329 4925 4954 5552

TOTAL ASSETS 122479 99139 87076 71285 75205

CA/TA 82.44 82.24 62.12 63.18 74.43

The current asset percentage on total asset is the highest over the years. This

increasing percentage of current assets to the total assets at first might indicate a

preference for liquidity in place of profitability, but a look into the nature of the

business carried on by HCL Infosystems reveal the reason behind it. How far

their preference to current assets has affected the sales is shown below.

NET CURRENT ASSET – SALES

PARTICULARS 2006 2005 2004 2003 2002NET CURRENT ASSETS

40343 34742 14301 18752 27065

SALES 238136 199886 154295 166604 127003WORKING CAPITAL % INCREASE

16.12 142.93 -23.736 -30.7 -0.46

SALES % INCREASE

19.14 29.54 -7.38 31.18 8.7

The sales has increased and the profits risen despite the 16.12% increase in

working capital. But what is noteworthy here is that the firm has managed to

maintain the trend of an increase in net current assets. Whether the change has

worked for the company has to be analysed in the context of the growth in sales

as compared to the previous year. There has been a 19.14% rise in the sales or

revenue generated. This would automatically suggest towards a very efficient

working capital management where the assets of the firm which are short-term in

nature have been utilized optimally in connection to their fixed assets. The firm

has gone towards such a dramatic shift in their working capital position might be

because of the tremendous growth witnessed in the domestic IT market.

CURRENT ASSET – FIXED ASSET

PARTICULARS 2006 2005 2004 2003 2002

NET CA/NET BLOCK 5.062:1 6.519:1 2.903:1 3.785:1 4.875:1

The ratio of the net current asset to the fixed ones is an indicator as to the liquidity position of the firm. This ratio has declined for the firm compared to the previous year. There could be an argument as to whether the increased ratio of working capital to net block is a conservative policy and whether it would be detrimental to the interest of the company. Or, whether it would have been proper if the company invested more into the capital expenditure in the form of plant and machinery or invested in any other form that would have got them an internal rate of return. What has to be kept in mind before coming to a conclusion as to the policy of the company, is the fact that the firm being primarily into assembling, its investment in the fixed asset segment need not be high. A look into the capacity utilization of the plant would reaffirm this point. It would be ideal for the firm to continue in the same line and not have excessive investment in the fixed asset as they can easily add onto this part.

COMPUTER and MICRO PROCESSOR BASED SYSTEMS

YEAR INSTALLED CAPACITY

ACTUAL PRODUCTION

% CAPACITY UTILIZATION

2006 1150000 581805 50.592005 600000 448121 74.692004 525000 295192 56.23

DATA GRAPHIC/DISPLAY MONITOR/TERMINALS/HUBS

YEAR INSTALLED CAPACITY

ACTUAL PRODUCTION

% CAPACITY UTILIZATION

2006 250000 267326 106.932005 250000 259617 103.852004 350000 297991 85.14

That the fixed assets of the firm are being put to efficient use and the firm is trying for optimum capacity utilization is something that can be easily deduced. Whether the current assets or the working capital of the firm has anything to do with it is for us to see. An increased production in normal circumstances means better raw material to finished goods conversion rate, i.e. the firm is taking less of time in the production process and this happens when the current asset employed in relation with the fixed ones are at optimum. The other notable feature here is that though the firm has added on to its installed capacity in all three years, they were still able to increase the capacity utilization. That they have been able to do it shows that the more current assets, especially inventory used in relation to the fixed assets, i.e., plant and machinery and their management has only helped in increasing their utilization to the maximum.

CURRENT ASSET – CURRENT LIABILITY

PARTICULARS 2006 2005 2004 2003 2002CURRENT ASSETS 100970 81533 54091 45042 55985CURRENT LIABILITES 60627 46791 39790 26290 28920% CURRENT ASSETS INCREASE

23.84 50.7 20.09 -19.54 8.9

%CURRENT LIABILITES INCREASE

29.57 17.6 51.35 -9.1 19.45

The 16.12% increase in Net Current assets despite of the fact that there has been an increase in the Current Assets by 23.84% and increase in Current Liability has been by 29.57% over that of the previous year has to be attributed to the fact that in 2005, the company showed such a high increase in CA, that it is still being offset. This is an indication as to the expanding operations of the firm. HCL has increased its current assets in order to meet the increasing sales. The firm’s level of liquidity being high, we need a check on whether it affects the return on assets.

RESEARCH DONE

The problems

Purpose of study

Research methodology

Scope of the study

Data sources

Limitations

INTRODUCTION:

The project undertaken is on “WORKING CAPITAL MANAGEMENT IN HCL

INFOSYSTEMS LIMITED”.

It describes about how the company manages its working capital and the various

steps that are required in the management of working capital.

Cash is the lifeline of a company. If this lifeline deteriorates, so does the

company's ability to fund operations, reinvest and meet capital requirements and

payments. Understanding a company's cash flow health is essential to making

investment decisions. A good way to judge a company's cash flow prospects is to

look at its working capital management (WCM).

Working capital refers to the cash a business requires for day-to-day operations or,

more specifically, for financing the conversion of raw materials into finished

goods, which the company sells for payment. Among the most important items of

working capital are levels of inventory, accounts receivable, and accounts payable.

Analysts look at these items for signs of a company's efficiency and financial

strength.

The working capital is an important yardstick to measure the company’s

operational and financial efficiency. Any company should have a right amount of

cash and lines of credit for its business needs at all times.

This project describes how the management of working capital takes place at

HCL Infosystems.

THE PROBLEMS

In the management of working capital, the firm is faced with two key problems:

1. First, given the level of sales and the relevant cost considerations, what are the

optimal amounts of cash, accounts receivable and inventories that a firm should

choose to maintain?

2. Second, given these optimal amounts, what is the most economical way to

finance these working capital investments? To produce the best possible results,

firms should keep no unproductive assets and should finance with the cheapest

available sources of funds. Why? In general, it is quite advantageous for the firm

to invest in short term assets and to finance short-term liabilities.

PURPOSE OF STUDY

The objectives of this project were mainly to study the working capital

management at HCL Infosystems Ltd., but there are some more and they are -

The main purpose of our study is to render a better understanding of

the concept “Working Capital Management”.

To understand the planning and management of working capital at HCL

Infosystems Ltd.

To measure the financial soundness of the company by analyzing various

ratios.

To suggest ways for better management and control of working capital at the

concern.

RESEARCH METHODOLOGY

This project requires a detailed understanding of the concept – “Working

Capital Management”. Therefore, firstly we need to have a clear idea of

what is working capital, how it is managed in HCL Infosystems, what are the

different ways in which the financing of working capital is done in the

company.

The management of working capital involves managing inventories,

accounts receivable and payable and cash. Therefore one also needs to have

a sound knowledge about cash management, inventory management and

receivables management.

Then comes the financing of working capital requirement, i.e. how the

working capital is financed, what are the various sources through which it is

done.

And, in the end, suggestions and recommendations on ways for better

management and control of working capital are provided.

SCOPE OF THE STUDY

This project is vital to me in a significant way. It does have some importance

for the company too. These are as follows –

This project will be a learning device for the finance student.

Through this project I would study the various methods of the working capital

management.

The project will be a learning of planning and financing working capital.

The project would also be an effective tool for credit policies of the

companies.

This will show different methods of holding inventory and dealing with cash

and receivables.

This will show the liquidity position of the company and also how do they

maintain a particular liquidity position.

DATA SOURCES:

The following sources have been sought for the prep of this report:

Primary sources such as business magazines, current annual reports, book on

Financial Management by various authors and internet websites the imp

amongst them being : www.hcl.com, www.indiainfoline.com,

www.studyfinance.com .

Secondary sources like previous years annual reports, reports on working

capital for research, analysis and comparison of the data gathered.

While doing this project, the data relating to working capital, cash

management, receivables management, inventory management and short

term financing was required.

This data was gathered through the company’s websites, its corporate

intranet, HCL’s annual reports of the last five years.

A detailed study on the actual working processes of the company is also

done through direct interaction with the employees and by timely studying

the happenings at the company.

Also, various text books on financial management like ICFAI’s book, Khan

& Jain, Prasanna Chandra and I.M.Pandey were consulted to equip ourselves

with the topic.

LIMITATIONS OF THE STUDY:

We cannot do comparisons with other companies unless and until we

have the data of other companies on the same subject.

Only the printed data about the company will be available and not the

back–end details.

Future plans of the company will not be disclosed to the trainees.

Lastly, due to shortage of time it is not possible to cover all the factors

and details regarding the subject of study.

The latest financial data could not be reported as the company’s

websites have not been updated.

ANALYSIS

Industry analysis

Financial graphs

Concluding analysis

Suggestions and recommendations

Bibliography

INDUSTRY ANALYSIS

INDUSTRY STRUCTURE AND DEVELOPMENTS

Over the past decade, the Information Technology (IT) industry

has become one of the fastest growing industries in India,

propelled by exports (the industry accounted for more than a

quarter of India’s services exports in 2004-05). The key segments

that have contributed significantly (96 percent of total) to the

industry’s exports include – Software and services (IT services)

and IT enabled services (ITES) i.e. business services. Over a

period of time, India has established itself

as a preferred global sourcing base in these segments and they

are expected to continue to fuel growth in the future.

FINANCIAL GRAPHS

Gross Business Income:

Consolidated Revenue for the year grew to Rs. 11855 crores. Services revenue grew by 31%, from Rs. 274 crores to Rs. 360 crores in the current year. The Compounded Annual Growth Rate (CAGR) for the preceding five years is 45%.

Profit before Tax:

PBT grew by 11% from, Rs. 385 crores in the previous year to Rs. 429 crores in the current year. The Compounded Annual Growth Rate (CAGR) for the preceding five years is 53%.

Profit after Tax:

Profit after tax grew by 13%, from Rs. 280 crores in the previous year to Rs. 316 crores. The Compounded Annual Growth Rate (CAGR) for the preceding five years is 36%. Profits for the current year are after a provision for Rs. 106 crores for current tax expense, Rs. 3 crores for deferred tax expense and Rs. 4 crores for Fringe Benefit Tax.

Earnings Per Share:

Basic EPS grew from Rs. 16.7 in the previous year to Rs. 18.7 in the current year. Diluted EPS grew from Rs. 16.5 in the previous year to Rs. 18.6 in the current year.

Dividend:

The Company distributed dividends @ 100% per share in each of the first three quarters of the current year. The company proposes to pay a final dividend of 100% per fully paid up equity share of Rs. 2/- each. The interim dividends paid together with proposed final dividend total to 400% for the current year, entailing an outflow of Rs. 156 crores, including distribution tax.

Net worth/ Shareholders Fund:

Net Worth grew from Rs. 698 crores as at previous year-end to Rs. 860 crores as on June 30, 2007. Share capital as at year-end is Rs. 34 crores divided into 16.9 crores shares of Rs. 2/- each. Reserves & surplus as at year-end are Rs. 826 crores after appropriating Rs 156 crores for dividends. Book value per share grew from Rs. 41.3 as at June 30, 2006 to Rs.50.8 as at June 30, 2007.

During the year, the Company allotted 4.2 lakh shares under Employee Stock Option Scheme realizing Rs. 4.4 crores.

Borrowings: Year-end loan balances increased from Rs. 85 crores as on June 30, 2006 to Rs. 236 crores as on June 30, 2007. The increase in loan balances was mainly to fund growth in Computing Business including System Integration. Debt-Equity ratio [Debt/(Debt+Equity)] is 22%.

CURRENT ASSET RATIO:

CONCLUDING ANAYSIS

The working capital position of the company is sound and the various

sources through which it is funded are optimal.

The company has used its dividend policy, purchasing, financing and

investment decisions to good effect can be seen from the inferences made

earlier in the project.

The debts doubtful have been doubled over the years but their percentage on

the debts has almost become half. This implies a sales and collection policy

that get along with the receivables management of the firm.

The returns have been affected by a marked growth in working capital and

though a 29.75% in 2006 return on investment is good, but it got reduced as

compared to 39.01% return in 2005.

The various ratios calculated are an indicator as to the fact that the

profitability of the firm and sales are on a rise and also the deletion of the

inefficiencies in the working capital management.

The firm has not compromised on profitability despite the high liquidity is

commendable.

HCL Infosystems has reached a position where the default costs are as low

as negligible and where they can readily factor their accounts receivables for

availing finance is noteworthy.

SUGGESTIONS AND RECOMMENDATIONS

The management of working capital plays a vital role in running of a successful

business. So, things should go with a proper understanding for managing cash,

receivables and inventory.

HCL Infosystems is managing its working capital in a good manner, but still

there is some scope for improvement in its management. This can help the

company in raising its profit level by making less investment in accounts

receivables and stocks etc. This will ultimately improve the efficiency of its

operations. Following are few recommendations given to the company in

achieving its desired objectives:

The business runs successfully with adequate amount of the working

capital but the company should see to it that the cash should not be tied up

in excessive amount of working capital.

Though the present collection system is near perfect, the company as due

to the increasing sales should adopt more effective measures so as to

counter the threat of bad debts.

The over purchasing function should be avoided as it could lead to

liquidity problems.

The investment of cash in marketable securities should be increased, as it

is very profitable for the company.

Holding of excessive and insufficient stock must be avoided as it creates a

burden on the cash resources of a business and results in lost sales, delays

for customers, etc respectively.

APPENDICES

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

L ast 4 year Balance Sheet:

Although debt as a percent of total capital increased at HCL Infosystems Ltd. over

the last fiscal year to 21.53%, it is still in-line with the IT Services industry's norm.

Additionally, even though there are not enough liquid assets to satisfy current

obligations, Operating Profits are more than adequate to service the debt. Accounts

Receivable are among the industry's worst with 28.44 days worth of sales

outstanding. This implies that revenues are not being collected in an efficient

manner. Last, inventories seem to be well managed as the Inventory Processing

Period is typical for the industry, at 21.29 days.

Currency inMillions of Indian Rupees

As of: Jun 302004

Restated

Jun 302005

Restated

Jun 302006

Reclassified

Jun 302007

Assets        

Cash and Equivalents 1,452.3 2,512.7 2,149.2 1,976.5

Short-Term Investments 114.8 1,573.6 3,137.7 2,939.9

TOTAL CASH AND SHORT TERM INVESTMENTS 1,567.1 4,086.3 5,286.9 4,916.4

Accounts Receivable 4,390.4 6,103.1 7,691.4 10,520.0

Other Receivables 228.2 400.5 468.1 593.4

TOTAL RECEIVABLES 4,618.7 6,503.6 8,159.5 11,113.4

Inventory 2,804.2 3,493.9 4,696.1 7,918.8

Prepaid Expenses 107.0 163.0 146.0 287.8

Other Current Assets 23.8 56.4 86.8 84.8

TOTAL CURRENT ASSETS 9,120.8 14,303.2 18,375.3 24,321.2

Gross Property Plant and Equipment 1,406.1 1,404.7 1,731.9 2,431.0

Accumulated Depreciation -749.1 -744.9 -852.4 -966.5

NET PROPERTY PLANT AND EQUIPMENT 657.0 659.8 879.5 1,464.5

Goodwill -- -- 0.2 0.8

Long-Term Investments 2,190.9 -- -- --

Deferred Tax Assets, Long Term 59.1 -- -- --

Other Intangibles -- 95.3 32.4 30.9

Other Long-Term Assets -- 5.1 71.8 16.0

TOTAL ASSETS 12,027.9 15,063.4 19,359.2 25,833.4

       

LIABILITIES & EQUITY        

Accounts Payable 3,390.6 4,100.9 5,964.8 8,298.5

Accrued Expenses 100.4 101.0 140.4 209.8

Short-Term Borrowings -- 307.9 784.9 1,182.4

Current Portion of Long-Term Debt/Capital Lease 690.4 499.6 0.4 892.5

Current Income Taxes Payable 30.1 80.9 77.4 252.8

Other Current Liabilities, Total 2,914.6 3,377.3 4,687.9 5,216.6

Unearned Revenue, Current 536.4 965.8 557.9 775.2

TOTAL CURRENT LIABILITIES 7,662.6 9,433.4 12,213.7 16,827.8

Long-Term Debt 15.8 7.2 60.1 284.0

Deferred Tax Liability Non-Current 109.0 73.5 107.6 124.8

Other Non-Current Liabilities 13.9 3.8 1.0 --

TOTAL LIABILITIES 7,801.3 9,517.9 12,382.4 17,236.6

Common Stock 328.9 334.4 337.5 338.3

Additional Paid in Capital 673.9 883.7 1,044.5 1,087.9

Retained Earnings 3,193.2 4,297.3 5,565.2 7,141.4

Comprehensive Income and Other 30.6 30.1 29.6 29.2

TOTAL COMMON EQUITY 4,226.6 5,545.5 6,976.8 8,596.8

TOTAL EQUITY 4,226.6 5,545.5 6,976.8 8,596.8

TOTAL LIABILITIES AND EQUITY 12,027.9 15,063.4 19,359.2 25,833.4

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

L ast 4 year Cash Flow Statement:

In 2007, cash reserves at HCL Infosystems Ltd. fell by 172.7M. However, as a

percent of revenues, this change was similar to the IT Services industry median. By

looking at the Cash Flow Statement, analysts can easily see the sources and use of

cash generated throughout the year.

Currency inMillions of Indian Rupees

As of: Jun 302004

Restated

Jun 302005

Restated

Jun 302006

Reclassified

Jun 302007

NET INCOME 1,751.1 2,277.0 2,803.6 3,159.5

Depreciation & Amortization 180.1 152.4 124.3 144.0

Amortization of Goodwill and Intangible Assets -- -- -- 4.1

DEPRECIATION & AMORTIZATION, TOTAL 180.1 152.4 124.3 148.1

(Gain) Loss from Sale of Asset -0.4 -1.6 0.5 0.6

(Gain) Loss on Sale of Investment -79.6 -84.9 -61.5 -55.2

Asset Writedown & Restructuring Costs 0.0 0.5 -- --

Other Operating Activities 292.8 31.2 79.6 271.8

Provision & Write-off of Bad Debts 14.8 14.4 7.2 9.2

Change in Accounts Receivable -1,593.4 -1,993.4 -1,724.7 -3,158.8

Change in Inventories -423.3 -689.7 -1,202.2 -3,222.7

Change in Accounts Payable 1,471.8 1,561.6 2,759.5 3,112.2

CASH FROM OPERATIONS 1,614.0 1,267.5 2,786.3 264.7

Capital Expenditure -180.7 -267.8 -424.3 -674.5

Sale of Property, Plant, and Equipment 3.5 10.7 80.3 1.6

Investments in Marketable & Equity Securities 73.7 841.4 -1,453.6 289.0

CASH FROM INVESTING 30.8 622.4 -1,683.3 -231.9

Short-Term Debt Issued 41.1 169.5 -- --

Long-Term Debt Issued 200.8 231.3 200.5 1,837.2

TOTAL DEBT ISSUED 241.9 400.8 200.5 1,837.2

Short Term Debt Repaid -- -- -172.3 -74.7

Long Term Debt Repaid -707.9 -302.7 -- -250.0

TOTAL DEBT REPAID -707.9 -302.7 -172.3 -324.7

Issuance of Common Stock 283.3 215.2 163.9 44.2

Common Dividends Paid -866.2 -1,047.4 -1,526.6 -1,546.1

TOTAL DIVIDEND PAID -866.2 -1,047.4 -1,526.6 -1,546.1

Other Financing Activities -98.9 -95.4 -132.0 -216.1

CASH FROM FINANCING -1,147.8 -829.5 -1,466.5 -205.5

NET CHANGE IN CASH 497.1 1,060.4 -363.5 -172.7

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

Last 4 year Income Statement:

Year over year, HCL Infosystems Ltd. has seen revenues remain relatively flat

(113.7B to 116.9B), though the company was able to grow net income from 2.8B

to 3.2B. A reduction in the percentage of sales devoted to cost of goods sold from

93.21% to 92.53% was a key component in the bottom line growth in the face of

flat revenues.

Currency inMillions of Indian Rupees

As of: Jun 302004

Restated

Jun 302005

Restated

Jun 302006

Reclassified

Jun 302007

Revenues 43,064.4 77,478.9 113,683.1 116,853.0

Other Revenues -- -35.7 61.6 63.8

TOTAL REVENUES 43,064.4 77,443.2 113,744.7 116,916.8

Cost of Goods Sold 38,701.3 71,496.1 105,964.4 108,121.4

GROSS PROFIT 4,363.1 5,947.1 7,780.3 8,795.4

Selling General & Admin Expenses, Total 2,268.8 3,305.9 3,764.3 4,527.1

Depreciation & Amortization, Total 180.6 152.4 124.3 148.1

Other Operating Expenses -- -84.0 84.8 91.2

OTHER OPERATING EXPENSES, TOTAL 2,449.4 3,374.3 3,973.4 4,766.4

OPERATING INCOME 1,913.7 2,572.8 3,806.9 4,029.0

Interest Expense -82.8 -77.6 -132.6 -214.6

Interest and Investment Income 132.1 146.1 208.0

223.8

NET INTEREST EXPENSE 49.4 68.5 75.4 9.2

Currency Exchange Gains (Loss) 37.9 145.0 -144.4 189.6

Other Non-Operating Income (Expenses) 32.0 -- -- --

EBT, EXCLUDING UNUSUAL ITEMS 2,033.0 2,786.3 3,737.9 4,227.8

Gain (Loss) on Sale of Investments 79.6 85.0 61.5 55.2

Gain (Loss) on Sale of Assets 0.4 1.6 -0.5 -0.6

Other Unusual Items, Total 2.3 87.2 4.0 4.7

Insurance Settlements 2.3 3.7 4.0 4.7

Other Unusual Items -- 84.0 -- --

EBT, INCLUDING UNUSUAL ITEMS 2,115.1 2,960.1 3,802.9 4,287.1

Income Tax Expense 364.0 683.1 999.3 1,127.6

Earnings from Continuing Operations 1,751.1 2,277.0 2,803.6 3,159.5

NET INCOME 1,751.1 2,277.0 2,803.6 3,159.5

NET INCOME TO COMMON INCLUDING EXTRA ITEMS 1,751.1 2,277.0 2,803.6 3,159.5

NET INCOME TO COMMON EXCLUDING EXTRA ITEMS 1,751.1 2,277.0 2,803.6 3,159.5

BIBLIOGRAPHY

Following sources have been sought for the preparation of this report:

Corporate Intranet

Financial Statements (Annual Reports)

Direct interaction with the employees of the company

Internet ----www.hclinfosystems.in

Textbooks on financial management -

I.M.Pandey

Khan and Jain

Prasanna Chandra