WORKING CAPITAL MANAGEMENT

MBA Programme

INTRODUCTIONHere we intend to discuss the problems relating to the management of working capital in kesoram industries. The discussion extends to the various issues including the importance of working capital, its size structure and efficiency of the management of the components. Further, an attempt is also made to trace out the significance sources of working capital finance and the problems faced by the kesoram industry in securing funds for meeting working capital management.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT:

Though Working Capital is of vital significance to an understanding in several ways, the management of which did not receive adequate attention until recently. The literature of Finance concentrated more on the infrequent episodic events like mergers and liquidation neglecting completely the management of working capital. Even now the management of the fixed assets is getting precedence over the working capital. There are only few studies that were conducted to know the art of managing this vital component of capital employed in the Indian context with special reference to working capital.

Working capital is the area of financial management that consumes much of time of a finance manager. It plays a greater role in earning maximum return on the investment. That is to say a firms profitability may increased as more working capital is added to the fixed capital when the firm does not exceed cent percent of the capacity.In managing this asset, the finance manager of a company is constantly engaged in endeavoring to maintain a sound working capital position. He is often times confronted with excess and shortages of working capital. While an excessive working capital leads to un remunerative use of scarce funds, inadequate working capital interrupts the smooth flow of business activity and impairs profitability. History is replete with instances where paucity of working capital has posed to be the major contributing factor for business failures.Not only the adequacy of working capital posses a threat to the finance manager but also its abundance. Availability of more than required amount of funds causes on unchecked accumulation of inventories. Further there may be a tendency to grant more and more credit without properly looking into the credentials of the customers. Moreover, idle cash earns nothing and it is unwise to keep large quantities of cash with the firm. Thus the need to have adequate working capital in a firm need not be overemphasized.

Working capital in a business enterprise may compared to the blood of the human body; blood gives life and strength to the human body, and working capital imparts life and strength profits and solvency to the business organization. The need for working capital to run the day to day business activities need not be overemphasized. One hardly finds a business enterprise, which does not require any amount of working capital.

OBJECTIVES OF WORKING CAPITAL MANAGEMENT:

The specific objectives of working capital management as follows:

1) To ensure that the marginal return on investment in working capital assets is equal to or more than the cost of capital of funds utilized to finance working capital.

2) To ensure that adequate working capital is maintained for the operations of the business, which in turn ensures solvency and profitability.

3) To ensure that the mix of working capital components is maintained in optimum manner.

4) Minimize over the long run the cost of capital employed in financing the current assets.

5) To control the flow of funds through working capital in such a way that the firm would always be able to meet its obligations when due.

6) To ensure that working capital management is effective enough to promote profitability and helps in maximizing the wealth of the shareholders.

DEFINITIONS:

An individual to do his daily activities smoothly should have energy, for that he should have an optimum diet. Like that for an organization, to run its day to day activities smoothly there should be a fund that is known as working capital.

Working capital is the amount of financing required to sustain optimal balances of the firms working capital assets. Working capital represents that portion of capital, which circulates from one form to another in the ordinary conduct of business.Working capital is a shot-term source of financing. Working capital management includes managing the current assets. Current assets include cash, inventory, bill receivables, and short-term investments. Current assets are liquid in nature. So the current assets can be convertible into cash very quickly and easily. In managing the current assets time is a minor factor. The level of current assets, which should be maintained, depends upon the expected sales. The current assets can be adjusted with sales fluctuations in the short run.

Working capital management encompasses the administration and control of the current assets, utilization of short-term financing via various current liability sources and control of the amount of networking capital.

Like the most other financial terms, different writers use the concept working capital in different connotations. Working capital is the amount of financing required to sustain optimal balances of the firms working capital assets.

The concept of working capital is built on the three important elements:

a) Financing working capital assets i.e. current assets

b) The amount of cash tied up in working assets.

c) The speed with these assets is converted into cash.

Obviously, it is understood either as the total of current assets or as the excess of current assets over current liabilities. No special distinction is made between the terms total current assets, and working capital by authors like, Mehta, Archu, Bogen, Mead and Baker. According to Mehta, working capital is nothing but total of current assets. For him it is a substitute for working capital, though not a perfect one. Archer expresses similar view and DAmbrosio that working capital is the capital circulating into cash over an operating cycle. Customarily according to them, working capital is equated with all the current assets. Bogen is in complete agreement with this explanation of the term and states that working capital and current assets are interchangeable.CONCEPTS OF WORKING CAPITAL:

There are two concepts of working capital. Viz, gross concept and net concept. The Gross working capital also known as current capital or circulating capital is represented by the sum total of all current assets of the enterprise. On the other hand, the term networking capital refers to the difference between current assets and current liabilities.

Gross working capital refers to the firms investment in current assets. Current assets are the assets which can be converted into cash within an accounting year (or operating cycle) and include cash, short-term securities, Debtors (accounts receivable or book debts) bills receivables and stock (inventory).Networking capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders, which expected to mature for payments within an accounting year and include creditors (accounts payable) bills payable and outstanding expenses. Networking capital can be positive or negative. A positive net working capital will arise when current assets exceed current liabilities. A negative net working capital occurs when current liabilities are in excess of current assets.

Gross working capital focuses attention on two aspects of current assets management. I.e. the consideration of the level of investment in current assets should avoid two-danger points- excessive and inadequate investment in current assets. Investment in current assets should be just adequate, not more, not less, to the needs of the business firm. Excessive investment in current assets should be avoided because it impairs the firms profitability, as idle investment earns nothing. On the other hand, inadequate amount of working capital can threaten solvency of the firm because of its in ability to meet its current obligations.

Another aspect of the gross working capital points to the need of arranging funds to finance the current assets. When ever a need for working capital funds arises due to the increasing level of business activity or for any reason, financing arrangement should be made quickly. Similarly, if suddenly, some surplus funds arise they should not be allowed to remain idle, but should be invested in short-term securities. Thus the financial manager should have the knowledge of the sources of funds of working capital as well as investment avenues where idle funds may be temporarily invested.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. Current assets should be sufficiently in excess of current liabilities to constitute a margin or buffer for maturing obligations within the operating cycle of business.

A negative working capital means a negative liquidity and may prove to be harmful for the companys reputation. Excessive liquidity is also bad. It may be due to mismanagement of current assets.

Networking capital concept also covers the question of judicious mix of long term and short-term funds for financing current assets. For every firm, there is a minimum amount of networking capital, which is permanent. Therefore, a portion of the working capital should be financed with the permanent sources of funds such as equity share capital, debentures, long-term debt, and retained earnings. Management must, therefore decide the extent to which current assets should be financed with equity and /or borrowed capital.

In summary it may be emphasized that both gross and net concepts of working capital are equally important for the efficient management of working capital. There is no precise way to determine the amounts of gross, or networking capital for any firm.

COMPONENTS OF WORKING CAPITAL:

For a proper appreciation of the problems of working capital management a closer look at the individual items of working capital is essential. The components of current assets and current liabilities, which constituents of working capital are:

Current Assets:

The finance literature describes the Current Assets as those Assets, which can be converted into cash within an accounting year or within the operating, cycle which ever is greater. Sometimes these assets may not get converted into cash strictly within this stipulated period, but are still included in the category of current assets. The current assets include basically inventories of all categories, trade debtors, advances investments in marketable securities, cash in hand and at bank and other current assets including prepaid expenses and advance payment of tax.

Current Liabilities:

Current liabilities are those that are payable within the next accounting year or Operating Cycle. Normally al those liabilities that are required to be paid within a period of one year are regarded as Current liabilities. They include Sundry Creditors, Bank Borrowings, advances received from customers; security and other deposits etc and other liabilities including interest accrued on loans. Like the current assets, current liabilities also may not satisfy the time criterion, but the dues are still included in the category of current liabilities.

Exhibit 1.1 Constituent parts of working capital

Current LiabilitiesCurrent Assets

Bank Borrowings

Cash credit and overdrafts

Trade Creditors

Including Sundry Creditors

Or Creditors for purchases

Other Current Liabilities

Advances from Customers

Accrued expenses viz

Salaries, Wages & Other trade dues

Statutory Liabilities

Like Electricity charges,

Municipal rent & rates

Un paid Dividend, O/S dues

Others like Provisions for taxes & Other

Current Provisions

Inventories

Raw materials, components etc

Work-in-progress

Finished goods

Stores & Spares

Sundry Debtors or Trade Creditors

Out standing payments in cash

Cash & Bank balances

Other Current Assets

Advances to suppliers

Others viz, loans & Advances

Debtor Balances

Prepaid expenses

Short-term investments

Govt, Semi-Govt, and Trade Deposits of one year or less, advance of income tax and sales tax.

Thus, the financial analysis that relates to the study of working capital trends involves a searching effort to trace out the supporting details of the summary of classified information available in published financial statements of companies and then to decide which of them can genuinely be recognized as current assets or current liabilities.

Sources of Working Capital Finance:

Financing is important issue in the management of working capital of an enterprise. A closer view of the financial situation of public enterprises in developing countries indicates that many of them suffer from inadequate provisions of working capital. The creation of capacity and procurement of funds for capital expenditures are emphasized but commensurate efforts are not made in planning the availability of working capital. Enterprises that have insufficient working capital suffer from under-utilization of their capacity to use. The period of gestation is lengthened and the break-even point of viability recedes into the future. If the shortage in working capital is to serve as to keep the operations of the enterprise below the break-even point of utilization, the enterprise incurs deficits.

Partly there are various sources from which working capital may be financed, which include bank borrowings, public deposits, trade credit, provisions and various other current liabilities. Apart from those short- term sources, an enterprise can also depend on internal sources and long-term funds to meet its working capital requirements. Theoretically, an undertaking may use these short and long-term sources of funds in any combination as it likes.

Generally, there are two kinds of working capital namely fixed working capital and variable working capital. Though working capital increases and decreases over time, there is always a minimum level of current assets, which is continuously required by the firm to carry on its business operations. This minimum level of current assets is referred to as permanent or fixed working capital. It is permanent in the same way as the firms fixed assets are depending upon the changes in production and sales, the need for working capital over and above the permanent working capital will fluctuate. On the other hand, the extra working capital needed to support the changing production and sales activities is called variable or temporary working capital. However, both the kinds of working capital are necessary to facilitate production and sales.

Thus, the sources of working capital can also be broadly classified into the following two categories:

1. Permanent Sources of Working Capital.

2. Current Sources of Working Capital.

Permanent Sources Of Working Capital Finance:

The Permanent Sources of Working Capital can be both internal and external. Among the internal sources, retained earnings represent the undistributed profits and are considerably dependent upon factors like the rate of the company taxation and the dividend policy. Generally this source is used for financing expansion but can also be used for financing working capital, depending upon the operative stage of the enterprise in addition to the price of policy and the method of appropriation of profit. As regards depreciation, it is a part of the cost of production and is subsequently recovered in cash and gross revenue. Where the life of the plant and machinery is fairly long, depreciation can be utilized as a long-term source of working capital.

Retained earnings and depreciation may prove to be the best source of permanent working capital, but they are not available in the initial stages of an enterprise. Unless an enterprise has operated for a sufficiently long time their share in the working capital is not likely to be much. Further, in the case of state undertakings, the discretion about the use and accumulation of these funds may not be exclusively with the enterprise and reliance on them is, therefore, conditional and subject to the approval of the government. Incase, retained earnings and depreciation are inadequate or are disallowed by the government, public enterprises may be required to resort to external sources to finance permanent working capital needs.

Among the external sources, the government in general, will be the only source, which a public understanding can tap. The government may advance loans or may grant cash subsidies.

Current Sources of Working Capital Finance:

The Sources of Working capital finance may also be internal and external. Among the internal sources, a reference may be made to the tax provisions and unpaid dividends. Taxes are payable at stated intervals subsequent to the receipt of the income on which they are assessed. The enterprise, has, therefore, a chance of using funds kept under tax provision during the intervals? Similarly payments of dividends may be timed so as to suit the requirements of working capital, particularly when they are enhanced by seasonal factors. It is noticeable that provisions of tax and unpaid dividends can be used as sources of current working capital but only occasionally and that too within the limitations in regard to their general inflexibility and in the initial stages of operation to their non-availability.

Thus undoubtedly, public enterprises will have to mobilize other external sources of current working capital finance. The lone and dependable source is the arrangement of cash and credit facilities with banks. Trade creditors may also be look into a source. Generally, banks advance both secured and unsecured loans. Usually, a credit line is agreed upon, implying that there exists an informal undertaking between borrower and the bank as to the maximum amount of credit, which the bank will provide the borrower at any one time.

In conclusion, it can be said that both the permanent and current sources of financing working capital are important, though it is different to say anything categorically about the relative importance. In principle, it is agreeable that the permanent working capital should be financed from out of permanent sources, while the current working capital should be financed out of current sources.NEED FOR ADEQUACY OF WORKING CAPITAL:

It is essential for any business to maintain adequate working capital and to ensure that there is no shortage or excess working capital. The consequences of inadequate working capital or excessive working capital are listed below:

Dangers of inadequate working capital:

1. It fails to take advantages and tap the available market opportunities; there by loosing the sales which results in loss of profits.2. Growth potentials get stagnated. It will not to fulfill the customers requirements.3. Implementation of the operating plans and sales targets get sabotaged.4. The firm would be facing liquidity problem being unable to meet its day-to-day commitments on time.5. The reputation of the firm would be severely affected on account of failure to meet dead lines or payment commitments.6. Fixed assets remain under utilized and therefore the rate of return on investment falls.7. The credit rating of the company is lowered making it difficult for the business to borrow funds for its operations.Dangers of excessive working capital:

1. Inventories get accumulated. The cost of holding inventories increases. The losses in different forms such as theft, breakage, mishandling increases.

2. Receivables get accumulated increasing the risk of defaults. Therefore, a bad debt as a percentage of sales increases.

3. The costs of financing debtors and stock increases; since interest cost is incurred on the amount locked in such assets.

4. It amounts to idle funds and therefore rate on investment falls down.

5. Since more liquidity is available, the company may follow a liberal dividend policy, making it difficult to maintain the stability of dividend in future, when the company may not be doing well.

6. Managerial inefficiency may creep in due to availability of surplus funds.

VARIOUS TYPES OF WORKING CAPITAL:

The various types of working capital are as follows:

1. Permanent Working Capital:

It is found that it is always necessary to hold a minimum amount of working capital in various assets as a permanent feature to ensure smooth running of the business at all items. This minimum level of current assets that must be maintained at all times is known as permanent working capital. It is infact a fixed working capital, which is needed fro business what ever may be the level of operations within given capacity levels.

Features:

a. It constitutes the core current assets, which is needed to maintain at all times.

b. Being of a fixed nature, it is financed normally out of long-term funds.

c. The size of business determines the amount of permanent working capital.

2. Temporary Working Capital:

a. Temporary Working Capital is of a short-term nature and is required depending upon the demand of product in the market.

b. It is variable part of working capital.

c. It will be required by way of additional investment in stock and debtors to support sales in the period and can be withdrawn during the slack period.

d. It is not of a permanent nature and keeps on changing according to the production and sales changing patterns.

3. Gross Working Capital:

It is the total amount of funds invested in various components of current assets taken together. The total of investment in all the individuals current assets is the gross working capital. The level of gross working capital can help in controlling the unproductive investment in various current assets an monitor their effective use.

4. Networking Capital:

It is simply the excess of total current assets over the total current liabilities. Current liabilities refer to short-term liabilities payable within one year. Hence the extent to which funds is available from the current liabilities; the requirement of funds for financing current assets is reduced. In other words, the current assets are partly financed from the current liabilities a balancing amount of current assets represent networking capital. It reflects the liquidity of the business.

5. Negative Working Capital:

When the current liabilities are in excess of the current assets. It gives rise to negative working capital. Negative working capital reflects liquidity Crunch. It indicates that the firm is not bale to meet its short-term obligations on time. It has adverse effect on the operational efficiency.

6. Reserve Working Capital:It is a part of working capital, which is ear marked, for meeting unforeseen contingencies. Shortage of working capital adversely affects operational efficiency of any business. If due to certain unforeseen circumstances, the business is forced into liquidity problems, this reserve can be of help in mitigating any such liquidity problems. A business is always exposed to risks, which can throw the business out of gear, if sufficient reserve is not available. Hence, the importance of keeping a certain amount as reserve working capital.

7. Fluctuating Working Capital:

Fluctuating Working Capital represents the additional working capital required to finance the additional inventory or other current assets due to seasonal nature of the industry. It can also mean extra funds needed to meet contingencies during inflationary situations, recession or a strike or to take advantage of a bulk discount.

FINANCIAL NEEDS OF A FIRM

Fluctuating working capital

Permanent working capital

Assets in Rs

Fixed Assets

Jan Mar June September December

DETERMINANTS OF WORKING CAPITAL:

The amount of working capital depends upon a number of factors; many of which are operating at the same time; theyre by complicating the issue. In certain business requirement of working capital may be meagre while in certain other business, the requirement may be huge, depending entirely on the working conditions and the industry to which the business belongs. Some of the factors are as follows:

1.Nature of Business: A companys working capital requirements are directly related to the type of business it operates. In some industries like public utility services the consumers are generally asked to make payments in advance and the money thus received is used for meeting the requirements of current assets. Such industries, can carry on their business with comparatively less working capital. On the contrary, industries liker cotton, jute may have to be required to purchase raw materials for the whole of the year only during the harvesting season, which obviously increases the working capital needs in the period.

2.Length of manufacturing Cycle: It is said that the longer the manufacturing cycle of a product the greater its cost, and the larger is the requirement of working capital. The reason is that a larger amount of inventory is tied up in its manufacture. A distillery, which has an ageing process, has generally to make heavy investment in inventory. Bread-making units provide the other extreme. These units sell their products daily and therefore, their investment in working capital may not be large. The higher the rate of turnover of inventories the larger is the volume of business which can be transacted with a given amount of circulating assets. Besides, the range of products influences the requirements of working capital.

3. Managements Attitude Towards Risk: Managements attitude towards risk also influence the size of working capital in an undertaking. It is of course, difficult to give a very precise and determinable meaning to the managements attitude towards risk, but as suggested by walker, the following principles involving risk may serve as the basis of policy formulation:

a) If the working capital is varied relative to sales the amount of risk that firm assumes also varied and the opportunity for gain or loss is increased.

b) Capital should be invested in each component of working capital as long as the equity position of the firm increases;

c) The type of capital used to finance working capital directly affects the amount of risk that a firm assumes as well as the opportunity for gain or loss and cost of capital.

d) The greater the disparity between the maturities of a firms short-term debt instruments and flow of internally generated funds, the greater the risk and vice-versa

Briefly these principles imply that the policies governing the size of working capital are determined by the amount of risk which the management is prepared to under take.

4. Growth and Expansion of Business: It is logical to expect that larger amounts of working capital are needed to support the increasing operations of a business concern. But, there is no simple formula to establish the link between growth in the companys volume of business and the growth of working capital. The critical fact is that the need for increased working capital funds does not follow the growth in business activity but preceeds it. Citerus paribus, growth industries require more working capital than those that are static.5. Product Policies: Depending upon the kind of items manufactured by adjusting its production schedules a company may be able to off-set the effects of seasonal fluctuations upon the working capital. The choice rests between varying output in order to adjust inventories to seasonal requirements and maintaining a steady rate of production and permitting stocks of inventories to build up during off-season period. In the first instance, inventories are kept to minimum levels; in the second, the uniform manufacturing rate avoids high fluctuations of production schedules but enlarged inventory stocks create special risks and costs.

6. Position of the Business Cycle: Besides, the nature of business, manufacturing process and production policies, cyclical and seasonal changes also influence the size and behaviour of working capital. During the upswing of the cycle and the busy season of the enterprise, there will be a need for a larger amount of working capital to cover the lag between increased and the receipts. The cyclical and seasonal changes mainly influence the size of working capital through the inventory stock. As regards the behaviour of inventory during the business cycles, there is no unanimity of opinion among economists. A few say that inventory moves in conformity with business activity. While others hold the view that business activity depends upon the behaviour of the inventory of finished goods which is determined by the credit mechanism and short-term rate of interest. What ever be the view points, the fact remains that the cyclical changes do influence the size of the working capital.

7. Terms of Purchase and Sales: The magnitude of the working capital of a business is also affected by the terms of purchase and sales. If, for instance, an undertaking purchases its materials on credit basis and sells its finished goods on cash basis, it requires less working capital over an undertaking which is following the other way of purchasing on cash basis, and selling on credit basis. It all depends on the managements discretion to set credit terms in consideration with the prevailing market conditions.

8.Miscellaneous: A part from the above mentioned factors some others like the operating efficiency, profit levels, managements policies towards dividends, depreciation and other reserves, price level changes, shifts in demand for products competitive conditions, vagaries in supply of raw materials, import policy of the government, hazards and contingencies in the nature of the business, etc., also determine the amount of working capital required by an undertaking.

OPERATING CYCLE OR WORKING CAPITAL CYCLE:Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. The Operating cycle of a manufacturing company involves three phases:

Acquisition of resources is such as raw material, labor, power and fuel etc.

Manufacture of the product, which includes conversion of raw materials into work-in- progress into finished goods.

Sale of the product is either cash or a credit. Credit sales create account receivables for collection.

These phases affect cash flows, which most of the time, are neither are synchronized nor certain. They are not synchronized because cash outflows usually occur before cash inflows. Cash inflows are not certain because sales and collections, which give rise to cash inflows, are difficult to forecast accurately. Cash outflows, on the other hand, are relatively certain. The firm needs to maintain liquidity to purchase raw materials and pay expenses as hardly a matching between cash inflows cash out flows. Cash is also held to meet any future exigencies. Stocks of raw materials and work-in-progress are kept to ensure smooth production and to guard against non-availability of raw materials and other components. The firm holds stock of finished goods to meet the demands of customers on continuous basis and sudden demand from some customers. Debtors are created because goods are soled on credit for marketing and competitive reasons. Thus a firm makes adequate investment in inventories, and debtors, for smooth, un interrupted production and sale.

In any business there is bound to be a time lapse from the time funds are invested in business for buying raw materials and the cash is finally recycles back in business through sales. This time span can split into the following parts comprising the chronological sequence of events.

1. Time required for conversion of cash into raw materials.

2. Time required for conversion of raw materials into work-in-process.

3. Time spent in conversion of work-in-process into finished goods.

4. Time spent in conversion of finished goods into debtors and bills receivables through sales.

5. Finally, time taken to convert debtors and bills receivables into cash.

Purchases Payment Credit sale CollectionRMCP+WIPCP+FGCP

Inventory conversion Period Receivables conversion

period

Payables Net operating cycle

Gross operating Cycle

Length of operating Cycle:

The length of Operating Cycle of a manufacturing firm is sum of:

i. Inventory Conversion Period

ii. Debtors conversion Period

Inventory Conversion Period: The inventory conversion Period is the total time needed for producing and selling the product. Typically it includes:

a) Raw material Conversion Period (RMCP)

b) Work-in-Process Conversion Period (WIPCP)

c) Finished Goods Conversion Period (FGCP)

Debtors Conversion Period: The time required collecting the outstanding amount from the customers .The total of inventory conversion period and debtors conversion period is referred to as Gross Operating Cycle.

In practice, a firm may require resources on credit and temporarily post pone payment of certain expenses. Payables, which the firm can defer, are spontaneous sources of capital to finance investment in current assets. The payables deferral period (PDP) is the length of time the firm is able to defer payments on various resource purchases. The difference between (gross) Operating Cycle and payables deferral period is net operating cycle (NOC). If depreciation is excluded from expenses in the computation of operating cycle, the net operating cycle also represents the cash conversion cycle.

CYCLICAL FLOW OF WORKING CAPITAL AND ITS CHARACTERISTICS:

For every business enterprise there will be a natural cycle of activity. Due to the interaction of the various forces affecting the working capital, it transforms and moves from one to other. The role of the financial manager, then, is to ensure that the flow proceeds through the different working capital stages at an effective rate and at the appropriate time. However, the successive movements in this cycle will be different from one enterprise to another, based on the nature of the enterprises. For example:

i. If the enterprise is a manufacturing concern, the cycle will something like:

Cash(buying)Raw materials(production)Finished Goods(sales on credit)Accounts Receivable(collections)Cash

ii. If the enterprise is purely a relating company and one which has no manufacturing problem the cycle is shortened as:

Cash-(buying)--Merchandise--(sales)Accounts Receivables(collections)Cash

i. If the enterprise is a purely financing enterprise, the cycle is still shorter and it can be shown as:

Cash(sanction of loans)Debtors(Collections)Cash

But in real business situations, the cyclical flow of working capital is not a simple and smooth going as one may be tempted to conclude from the simple flows. Three important characteristics of working capital are namely short life span swift transformation and inter-related asset forms and synchronization of activity levels.

1. Short life Span: Components of working capital are short-lived. Typically their life span does not exceed one year. In practice, however, some assets that violate this criterion are still classified as current assets.

2. Swift Transformation and Inter related Asset Forms: In addition to their short span of life, each component of the current assets is swiftly transformed into the other asset. Thus, cash is utilized to replenish inventories, inventories are diminished when sales occur that augment accounts receivables and collection of accounts receivables increases cash balances. Thus, a natural collary of this transformation is the frequent and repetitive decisions that affect the level of working capital and the closes interaction that exists among the members of the family of working capital. The latter entails the assumption that efficient management of one asset cannot be under taken with out simultaneous consideration of other assets.

3. Assets Forms and Synchronization of activity levels: A third characteristic of working capital components is that their life span depends upon the extent to which the basic activities like production, distribution, and collection are non-instantaneous and unsynchronized. If these three activities were only instantaneous and synchronized, the management of working capital would obviously be a trivial problem. If production and sales were synchronized there would be no need to have inventories. Similarly, when all inventories pay cash, management of accounts receivable would become necessary. NEED OF THE STUDY

The main need of the study is to analyze the financial information of the SAGAR CIMENTS PVT LIMITED. This study further necessitated for the following needs:

To find out the liquidity or short term solvency of the SAGAR CIMENTS PVT LIMITED

It helps to compare what credit period it receives from the supplier and what it offers to the customers.

To express the relationship between different financial aspects in such a way that it allows the users to draw conclusions about the performance, strengths and weaknesses of the company.

To know short term debt serving ability of the company.

OBJECTIVES OF THE STUDY

The main objective of the present study is to analyze and interpret the financial information of the SAGAR CIMENTS PVT LTD. The other objectives of the study are as follows :

To know the performance of the company in different time periods.

To know the financial viability of the SAGAR CIMENTS PVT LTD

To offer suggestions, if any for better financial performance of the company.

To know the future liquidity of the company.

SCOPE OF THE STUDY

An extensive study is done on the financial transactions and the financial information of the SAGAR CIMENTS PVT LTD. The study covers all the transactions of the SAGAR CIMENTS PVT LTD in the Andhra Pradesh. The study covers the historical financial information of the company to find growth, strength and weaknesses of the company. The study covers the measurement of profitability of the firm and its operating efficiency. And the relationship between different financial aspects.

The scope covers all the financial factors such as the current assets current liabilities etc of the SAGAR CIMENTS PVT LTD

The scope covers the information regarding the shares and shareholders and the shareholders funds etc of the organization.

METHODOLOGY:

Methodology is scientific and systematic search for pertinent information on specific topic. The reliability of management decision depends upon the quality of date. Basically we have two types of data:

Primary date.

Secondary date.

PRIMARY DATA :-

Primary data can be collected either through experience of through survey. Those which are collected a fresh and for the first time and thus happen to be original in character that is called primary data. Primary data can be collected in the following ways :

By observations

Through personal interview

Through telephone interviews

By mailing of questionnaires.

Through schedules.

SECONDARY DATA :-

Secondary data means data that are already available that is they refer to the data which have already been collected and analyzed by some one else and which have already been pass through the statistical process is called secondary data. Secondary data may either be published data or unpublished data that data are available.

LIMITATIONS OF THE STUDY

While the study is undertaken with a view to analyze and to interpret the financial information of the SAGAR CIMENTS PVT LTD. These are some limitations encountered during the study. The limitations of the study are as follows :

Due to shortage of the time for overall analysis of the financial information of SAGAR CIMENTS PVT LTD has become difficult.

Since the current year was not completed it is not possible to compare the compare the current year information with the previous year information.

Due to the busy schedule of some managers it was not possible to the information from those meets, So the report may not be accurate

Some of the financial records were with the registered office of the company SAGAR CIMENTS PVT LTD due to some statutory requirements; it became difficult to get the overall information of the company.

Since I was new to the company, the managers of the company were denied to furnish the financial information.

INDUSTRY PROFILE

The Indian Cement industry is the second largest cement producer in the world, with an installed capacity of 144 million tones. The industry has undergone rapid technological up gradation and vibrant growth during the last two decades, and some of the plants can be compared in every respect with the best operating plants in the world. The industry is highly energy intensive and the energy bill in some of the plants is as high as 60% of cement manufacturing cost. Although the newer plants are equipped with the latest state-of-the-art equipment, there exists substantial scope for reduction in energy consumption in many of the older plants adopting various energy conservation measures.

The Indian cement industry is a mixture of mini and large capacity cement plants, ranging in unit capacity per kiln as low as 10 tpd to as high as 7500 tpd. Majority of the production of cement in the country (94%) is by large plants, which are defined as plants having capacity of more than 600 tpd. At present there are 124 large rotary kiln plants in the country. The Ordinary Portland Cement (OPC) enjoys the major share (56%) of the total cement production in India followed by Portland Pozzolana Cement (PPC) and Portland Slag Cement (PSC).

A positive trend towards the increased use of blended cement can be seen with the share of blended cement increasing to 43%. There is regional imbalance in cement production in India due to the limitations posed by raw material and fuel sources. Most of the cements plants in India are located in proximity to the raw material sources, exploiting the natural resources to the full extent. The southern region is the most cement rich region while other regions have almost same cement production capacity.

The Indian cement industry is about 90 years old and its main sources of energy are thermal and electrical energy. The thermal energy is generally obtained from coal, and the electrical energy is obtained either from grid or captive power plants of the individual manufacturing units.

History of Indian Cement Industry

By stating production in 1914 the story of story of Indian cement is a stage of continuous growth. Cement is derived from the Latin word cementam. Egyptians and Romans found the process of manufacturing cement. In England during the first century the hydraulic cement has become more versatile building material. Later on, Portland cement was invented and the invention was usually attributed to Joseph Aspdin of Enland.

India is the worlds 4th largest cement produced after China, Japan and U.S.A. The South Industries have produced cement for the first time in 1904. The company was setup in Chennai with the installed capacity of 30 tonnes per day. Since then the cement industry has progressing leaps and bounds and evolved into the most basic and progressive industry. Till 1950-1951, the capacity of production was only 3.3 million tonnes. So far annual production and demand have been growing a pace at roughly 78 million tonnes with an installed capacity of 87 million tonnes.

In the remaining two years of 8th plan an additional capacity of 23 million tonnes will actually come up. India is well endowed with cement grade limestone (90 billion tonnes) and coal (190) billion tonnes). During the nineties it had a particularly impressive expansion with growth rate of 10 percent.

The strength and vitality of Indian Cement Industry can be gauged by the interest shown and support gives by World Bank, considering the excellent performance of the industry in utilizing the loans and achieving the objectives and targets. The World Bank is examining the feasibility of providing a third line of credit for further upgrading the industry in varying areas, which will make it global. With liberalization policies of Indian Government, the industry is posed for a high growth rates in nineties and the installed capacity is expected to cross 100 million tonnes and production 90 million tonnes by 2003 AD. The industry has fabulous scope for exporting its product to countries like the U.S.A., U.K., Bangladesh Nepal and other several countries. But there are not enough wagons to transport cement for shipment.

Cement The Product

The natural cement is obtained by burning and crushing the stones containing clayey, carbonate of lime and some amount of carbonate of magnesia. The natural cement is brown in color and its best variety is known as ROMAN CEMENT. It sets very quickly after addition of water. It was in the eighteenth century that the most important advances in the development of cement were which finally led to the invention of Portland cement.

In 1756, John Smeaton showed that hydraulic lime which can resist the action of water can be obtained not only from hard lime stone but rom a limestone which contain substantial proportion of clayey.

In 1796, Joseph Parker found that modules of argillaceous limestone made excellent hydraulic cement when burned in the usual manner. After burning the product was reduced to a powder. This started the natural cement industry.

The artificial cement is obtained by burning at a very high temperature a mixture of calcareous and argillaceous material. The mixture of ingredients should be intimate and they should be in correct proportion. The calcined product is known as clinker. A small quantity of gypsum is added to clinker and it is then pulverized into very fine powder, which is known as cement.

The common variety of artificial cement is known as normal setting cement or ordinary cement. A mason Joseph Aspdn of Leeds of England invented this cement in 1824. He took out a patent for this cement called it PORTLAND CEMENT because it had resemblance in its color after setting to a variety of sandstone, which is found abundance in Portland England. The manufacture of Portland cement was started in England around 1825. The first cement factory installed in Tamilnadu in 1904 by South India limited and then onwards a number of factories manufacturing cement were started. At present there are more than 150 factories producing different types of cements.

Composition of Cement:

The ordinary cement contains two basic ingredients, namely, argillaceous and calcareous. In argillaceous materials the clayey predominates and in calcareous materials the calcium carbonate predominates. A good chemical analysis of ordinary cement along with desired range of ingredient

IngredientsPercentRange

Lime (Capo)6262-67

Silica (SiO2)2217-25

Alumina (Al2O3)53-8

Calcium sulphate (CaSO4)43-4

Iron Oxide (Fe2O3)33-4

Magnesia (MgO)21-3

Sulphur (S)11-3

Alkalies10.2-1

Industry Structure and Development:

With a capacity of 115 million tonnes of large cement plants, Indian cement industry is the fourth largest in the world. However per capita consumption in our country is still at only 100 Kgs against 300 Kgs of developed countries and offers significant potential for growth of cement consumption as well as addition to cement capacity. The recent economic policy announcement by the government in respect of housing, roads, power etc., will increase cement consumption.

CURRENT SCENARIO:

The cement industry occupies an important place in the national economy because its strong linking to other sectors such as construction, transaction, coal and power the cement industry as also one of the major contributors to the chequer by way of indirect taxes.

Cement production during April to January 2009-10 was 130.67 MT as compared to 115.52 MT during the same period for the same year 2008-09 over the last few years, the Indian cement industry witness strong growth with demand reporting a compounded annual growth rate of 9.3% and capacity addition a CAGR of 5.6% between 2005-06 and 2008-09.

FDI

Presently 100% FDI is permitted in the Indian cement industry.

ROLE OF CEMENT INDUSTRY IN INDIA GDP-FACTS:

The Indian cement industry is one of the booming sectors of the Indian economy.

He infrastructure development of country in the recent years is the demand.

Drive for the cement industry.

The Indian cement industry is experiencing the entry of many foreign players in the Indian market.

The average monthly capacity utilization during the year 2008 to 2009 was 95%

The cement dispatches in the year 2008-09 was 157 MT

India ranks second in the production.

THE NAME OF VARIOUS CEMENT COMPANIES IN ANDHRA PRADESH:

The KCP ltd (cement unite)

Madras cements ltd

Kesoram cements ltd

Priyadarashini cements ltd

Sri Vishnu cements ltd

Kakatiya cements ltd

NCL industries ltd

Orient cement

Parasakthi cements ltd

Bhavya cements ltd

Sagar cements ltd

Deccan cements ltd

Andhra cements ltd

J.P. cements ltd

Bharathi cements ltd

A.C.C. ltd

The India cements ltd

Zuvari cements ltd

Sri chakra cements ltd

Ultratech cements ltd

CEMENT COMPANIES IN INDIA:

S.NOSTATENO OF CEMENT PLANTS

01ASSAM1

02ANDHRA PRADESH19

03BIHAR7

04DELHI1

05GUJARAT13

06HARYANA2

07HIMACHAL PRADESH4

08JAMMU KASMIR1

09KARNATAKA9

10KERLA1

Problems:The main impediments to the growth of cement industry in India may be broadly listed as follows.

Shortage of capital:

The cement industry is the capital intensive in nature. On the account of its record of declining profitability. It is unable to trace the required finance from the capital market.Power Shortage:

Cement industry is also power intensive frequent power cut effects on the production. Through many units try to tied over the power crisis by installing their own generators, seem to suffer loss due to high cost of such an effort. It is estimated that 50.55% of total manufacturing cost related to power. In 1989-90 merely 17% of total cement production with the country were captive power at high cost.

Location Problem:

Cement industries are mainly situated in the western and southern regions production about 71% of the output while the northern and southern regions. Those factors lead to heavy transport cost.

Shortage of coal:

Coal shortage effects production of cement industry resulting in the capacity and under utilization of capacity. The impurities and low quality of coal affects the furnace and quality of cement. The coal supplied to cement unit has regard an ash content up to 57% and the calorific value of 3000 an even less against the calorific value of 4500-6500 of improved coal.Non availability of Railway wagon:

Non-availability of railway wagons leads to considerable delay in bringing in the raw materials and in dispatching the cement to various potential markets. Sending cement by open railway wagon leads to pilferage and damage by rail and 45% of by roads.

Defective methods of transport:

Methods of cement bagging and its transportation in India are primitive which make marketing in effecting an uneconomically hardly a quality of cement at present is handled in bulk.

Negligible Share in the World Trade:

Indians share in world is negligible currently India exports only about 3.5 lakhs tones in a year.

Technological absolve:

The industry is needed to change in the production process. There is need for conversion from wet process to dry process. It needs an investment exceeding Rs.200/- crows. If the industry tries doesnt learn reasonable profit institutional finance also becomes difficult. The other factors that affect the cost of production and the profitability of the industry a

i. Price inverse in critical emerge inputs such as coal, power, light etc.

ii. Higher wages and lower labor productivity.

iii. Royalty and other levies and public leaves of Royalty and mineral lights as constituted 60-70% of limestone in AP.

iv. Lower capacity utilization where higher capacity utilization has been.

v. High capital and financing cost of the new plants owing to high import duty for plant and machinery as well as high cost of steam and increase in the freight charges over the period.Cement Export Prospects:

Indian cement is exported mainly to Nepal, Bangladesh, and small partition to silence through export enquiries for about one million tone are on hand with Indian with hug. Domestic demand exports have taken a backseat. Substantial export can be achieved if 100% EOW of setup in the coastal area. These units would have the benefit of the projects cost due to the concession import.

Recent Scenario of Cement Industry In India:

The cement industry was one of the industries to be liveried in 1980. The government partially decontrolled the cement industry in 1982 followed by the total decontrol in 1989. The cement industry has witnessed spectacular progress mainly due to the forces of the economic liberalizations and the jettisoning of the price controls of the capacity restrictions.

These act generated tremendous interest with and within decade nearly 30 millions tones capacity works added to the extending cement which checked price raise. To add to the healthy competition among the place improved the quality of cement.

This turn has helped the Indian cement industry to continues its impressive performance over the years. During the fiscal year 1955-56, cement production touched a new peak of 69 million tones as against 62.4 million tones in the previous year representing a remarkable growth of 10%.

The year 1955-56 cement production touched a new peak of 69 million tones as against 62.4 million tones in the previous year representing a remarkable growth of 10%.

He year 1955-56 witnessed a hoping 12% to increase a demand for cement the highest ever in the last decade. In the year 1996-97 the demand had continued to growth at a still high rate. The first quarter has witnessed 14% growth over the previous year. Considering Government emphasis on improving infrastructure in the country and the various plans it has announced in the direction. The upward trend of the cement industry is expected to continue. The Indian cement Industry is the second large in the world after chinas. In terms of quality productivity and efficiency, it compares with the best anywhere, it is almost entirely home grown built indigenously and using locally sourced inputs. In other words, the hardware and software that ruin the industry are mostly India. Baring one or two exception Years, its performance in the last two decades has been quits consistent and commendable in terms of modernization, expansion, growth in production and improvement in the productivity and cost efficiency.

According to the Cement Manufacture Association (C.M.A), the industry has an installed capacity of over 137 million tones from 124 plans of 56 members companies. Most of the company is modern and based on the energy efficient dry process technology.

There are as many as 64 plans of million tones or more capacity. However, the minimum economic size has increased to two million tones a year. The share of the road of transport of cement is nearly 60% while 39% is moved by rail. In the recent year, sea routes are used increased to markets on the western coast.

The Indian cement industries play a key role in national economy, generating substantial revenue for state and central govt. it is third highest country boaters in terms of exercised duty of over Rs. 3500 crows year. Sales tax yield around Rs.3200 crows to state govt, royalties and other cases add another Rs.1500 crows. The industry employs a work face has over of 1.5lakh person and supported father compliment of 12 lakhs people engaged indirectly.

The industry is highly fragmented with a no of flyers by global standards selling price fluctuates from place to and seasonally. Cement is not a product that can be easily differentiated. The last few years have seen notable matches an acquisition in the Indian cement industry. This is slow process. The industry welcomes to the trend in as much as it involves players. Who are generally interested in cement as an ongoing business. Secondly, consolidation can bring about greater efficiency and productivity due to economics of scale that should ultimately benefits of consumers.

Opportunities and Threats

In view of low per capita consumption in India, there is a considerable scope for growth in cement consumption and creation of new capacities in coming years. The cement industry does not appear to have adequately exploited cement consumption in rural segment where damaged where damaged growth is possible. Landed cost of cement (with import duty) continues to be higher than home market prices but with reduced import duty, increasing imports, may pose a serious threat to the domestic cement industry.

Risks and Concerns

Slow down of Indian economy or drop in growth rate of agriculture may adversely affect the consumption. The recent increase in railway freight coupled with diesel / petrol price like will increase the cost of production and distribution, as being bulky, cement is freight intensive increase in Limestone royalty also adds to the cost of production, which is considerably higher than corresponding costs of many other developing countries.

In our country there is a need to undertake a massive programme of house construction activity into the rural and urban areas. It is impossible to construct a house without cement and steel, in other words, cement is one of the basic construction materials and therefore it is one of the vital elements for the economic development of the nation

Salient features of Indian cement industry

Indian cement industry is the second largest in the world with an installed capacity of 135 MTPA. It accounts for nearly 6% of the world production. There are 124 large plants and around 365 mini plants. The industry presents a mixed picture with many new plants that employ state-of-the-art dry process technology and a few old wet process plants having wet process kilns.

Production from large plants (with capacity above 1 MTPA) account for 85% of the total production. The cement industry has achieved significant progress in terms of reducing the overall energy intensity. Dry process plants that the weighted average thermal energy consumption was 734 kCal/kg clinkers, and weighted average electrical energy consumption was 89 kWh/tone of cement. The best energy consumption is 692 kCal/kg. Clinker and 66 kWh/ton of cement.

Quantitative details:

The energy intensity of the all the dry process plants (cost of energy as percentage of total production cost of packed cement) varies from 29 to 61%. This is observed to vary with the vintage of the plant, the technology employed by the plants and the type of cement produced.

Specific thermal and electrical energy consumption for the plants ranges between 692 879 kCal/kg. Of clinker and 66 127 kWh/ton of cement produced (product mix) respectively. The specific electrical energy also includes the energy consumed in packing.

Plant utilities and plant lighting. The reasons for wide range in specific energy consumption can be mainly attributed to the differing equipment configuration employed in different sections of the plants by various cement plants. For example, plants employing ball mills for grinding have reported higher specific electrical energy consumption as compared to plants having vertical roller mills.

In addition, other factors like the plant capacity, its capacity utilization, vintage, product mix, process control system, maintenance aspects, raw material characteristics and above all the managements attitude and operational practices of plant personnel are also important. Besides, various external parameters like quality of coal, raw materials and power supply have their own repercussions. A large number of plants have put in vertical roller mills for raw meal section. The balls mills are still operating in the clinker grinding and coal milling sections in some of the plants. Some of the newer plants have installed roller press and vertical roller mills in the clinker grinding section as well.

Comparison of energy performance of Indian cement industry with other countries reveals that there exists scope for improving the energy performance of the Indian cement industry. The best reported (as per CMA data) energy performance figures in the world re 65 kWh/t of cement and

650 kCal/kg of clinker whereas the best in India is 69 kWh/t of cement and 665 kCal/kg of clinker.

This clearly bring out the fact that although we have some of the best plants in the world in terms of energy performance, there are many plants where there exists scope for reducing energy Consumption.

Present & Future Scenario of Cement Industry

A typical cyclical industry is normally characterized by the boom and bust syndrome. A huge potential market and rapid growth in the early stages lead to a surge in interest and a flurry of research. The buoyant markets and huge profits raked in by players tempt more players into the market. Capacities increase in excess of demand and guilt in capacity is created. Competition increases, prices fall and margins come under the pressure.

Capacity addition comes to a halt weaker players should stop shop or sell off to larger ones. Demand catches up the cyclical industries, the Indian cement industry exhibits this boom and bust cycle

Industry back ground

Cement is the core industry and the product is the basic requirement for the development of housing and infrastructure. India is the largest producer of cement is Asia after china, with an installed capacity of more than 142 million tons per year. This comprises more than 400 major and mini cement plants. However, more than 53% of the installed capacity is controlled by the 6 top players in India. Lime stone is a major raw material used by the cement industry and based on its availability, the industry is concentrated in Madhya Pradesh, Andhra Pradesh and Rajasthan. Thus more than 50% of the installed capacity have come up in 7 cluster with plenty of limestone deposits.

The public sector accounts for only 8% of the capacity, as against the private sector share of 92% of the installed capacity. The southern region had the highest installed capacity, estimated at around 46 million tons per annum where in Andhra Pradesh alone accounted for about 21 mtpa

Demand and Supply

Cement is essential and basic input material for the construction activity. The development of infrastructure is on the top of the Government agenda which assures good growth for the cement industry in the coming years.

Demand for cement is linked to the economic activity in any country. It can be categorized into demand for housing construction and infrastructure and hence cement demand in developing economies is much higher than any developed countries. The demand for cement is proportionately related to the spending on infrastructure including housing. In India, housing accounts for about 55% of cement consumption. After the decontrolling of cement industry, supply and demand situation has become a sensitive and critical factor in determining the over all profitability of the industry. Any small imbalance in demand and supply of the cement results in disproportionate change in the cement prices.

The per capital consumption of cement in India is very low at 99 Kg against the Asian average of 200 kgs. Over the last 15 years, the consumption of cement by the Governments has fallen drastically from 15% to 50% creating stiff competition between the market players. The trend is likely to be reversed in future as the Governments focused in infrastructure development like express highways and other large projects.Cement Industry Future Outlook

The Indian cement industry, which is the second largest producer of cement in the world after China has been resilient even in the face of recession and continues to expand rapidly. The growth of the cement sector in India has led to large capacity addition by major players over the past few months. The growth in the sector is propelled by the boom in the real estate sector, increased government spending in the infrastructure as well as private sector initiatives.

Fitch Ratings said it sees a stable outlook for Indian construction industry in 2010 adding that construction material costs especially steel and cement - will be at the same level as last year. Traditionally, growth of Indian cement industry has remained directly proportional to the growth of the countrys economy. However, in fiscal 2008-09, despite the economic slowdown, India produced around 181 million metric tonnes (mmt) of cement, representing a growth of around 7.8% over the fiscal 2007-08. Consumption also increased at the same pace during the last fiscal.

Cement production reached 160.31 million tonnes during FY 2009-10, up 12.37% from 142.65 million tonnes in FY 2008-09, as per the data released by the Cement Manufacturers Association. Additionally, sales grew by 12% to 159.43 million tonnes from 142.23 million tones.

Analysts have forecast substantial growth in both cement production and consumption during 2009-10 to 2011-12. Additionally, the housing sector, which accounts for more than 50% of the total cement consumption in India, is also on a strong growth path, the trend is expected to continue in coming years.Over-supply a bane for cement companies

The cement sector added 40 million tonnes of fresh capacity in 2009-10, which is 1/5th of the total capacity for 2008-09. This has led to the flooding of the market with supplies way beyond the demand. Going ahead, the problem is likely to be aggravated with the monsoon season setting in, which traditionally is a weak demand period.

In a natural progression in the scheme of things, the month of May saw over-capacity leading to a decline in per bag cement prices by about Rs 5-10 in most regions. Analysts have forecast demand pick up after September on higher government spending on infrastructure projects, as well as investments in the rural and urban housing segments. Even though this is a positive sign, factors like higher input costs (increased coal prices), transportation costs, and the lack of pricing power due to severe competition, are likely to pull down margins for the cement companies. The initial numbers for cement dispatch in the month of June 2010 points to a low 5% yoy growth. Additionally, with sluggish demand and increasing supply, prices per bag are believed to have fallen further.Forecast The Indian cement industry is projected to grow in the coming years. Analysts have forecast cement production to increase at round 11% CAGR between FY 2009-10 and FY 2011-12, to reach nearly 240 mmt. However, for 2QFY11 analysts have forecast a decline in all-India capacity utilization by 800 bps YoY to 72%, which will lead to sharp cuts in cement prices across regions.

Going ahead, the Indian cement industry is forecast to get support from the sustained demand in the form of government support and infrastructure development. However, a low down could come from the increasing prices of key inputs like slag, coal, gypsum, petroleum products and fly ash. The prices are expected to become tougher in the coming years. Additionally, availability of raw material continues to be a challenge, which could result in an unfavorable impact on the Indian cement industry.

INTRODUCTION TO SAGAR GROUP

Sager cements limited is a 20 years old company engaged in the manufacturing of the cement in three mini plants in the state of Andhra Pradesh. The company is promoted by Shri S. Veera Reddy, an agriculturist from Miryalguda, Nalgonda District. Andhra Pradesh, along with other promoters in the year 1983.It went into commercial production on 26th January, 1985 with an installed capacity of 66,000 tons per annum.

The company is managed by a Board of Directors, headed by O. Swaminatha Reddy, Chartered Accountant, and Ex- Chairman Andhra Bank and APSFC limited and presently a well known Management consultant from Hyderabad. The board includes Shri I. Seshagiri GiriRao, G.M of APIDC as its nominee.

Dr S. Anand Reddy, doctor by profession and son of Shri Veera Reddy engaged in the business, is the Executive Director of the Company.

LOCATION

Sager cements limited have located its first mini plant at Mattampally. Huzurnagar, in Nalgonda District, in the year 1985. The plant is located within 35km from national highway no.9 connecting Vijayawada-Hyderabad.The second plant (grinding unit) is located at Kharasalvalasa, near Salur, Vizianagaram District. The plant is located about 130km from Visakhapatnam. Due to unavailability of the project, the operations at Salur unit have been suspended. The company has setup its second grinding unit at Bayyavaram, near Anakapally, Visakhapatnam District on the National Highway connecting Calcutta and Chennai with a capacity of 1.50 lakhs tons with requirements of north coastal area of Andhra PradeshGROWTH & DEVELOPMENT

PRODUCTION CAPACITY

The company has commenced its first mini cement plant at Mattampally with an installed capacity of 66000 tons of ORDINARY PORTLAND CEMENT (OPC) per year and gradually expanded its capacity from 66000 tons to 297000 tons per annum.

The capacity of the grinding unit at Bayyavaram, near Anakapally is 150000 tons per annum. With these measures fructifying, the company hopes to consolidate its position in the state of Andhra Pradesh capacity 6.50 lakhs tons per annum. The capacity of the grinding unit at Bayyavaram is 150000 tons per annum.With these measures fructifying, the company hopes to consolidate its position in the state of Andhra Pradesh with a capacity of 6.50 lakhs tons per annum.

Present Production Capacity

1. Mattampally : 2.97 Lakh tons

2. Salur : 1.98 Lakh tons

3. Anakapally : 1.50 Lakh tons

TECHNOLOGY USED

SAGAR CEMENTS LTD is one of the most successful mini cements units in Andhra Pradesh. The companys project at Mattampally is based on dry process rotator kiln technology widely used all over the world.Thcompany has adopted most modern technology at its Mattampally plant in terms of coolers and material handling and installed Bucket Elevators and IKN kids cooler Imported from Germany for cooling sections and the new six stage pre heating systems. The company has also installed stacker-reclaimed for ensuring high quality. Further, the company has also used OSEPA Separator for its Mattampally unit for maintaining uniform quality of cement. With this Technology up-gradation in its operations, the company was able to reduce power consumption to low of 80 units per ton (2003-2004)

Further, the grinding unit set-up at Bayyavaram in the year 2000 is based in the vertical Roller Mill technology imported from Germany. This technology is most cost effective and Sagar Cements Ltd is a first mini cement plant to use this technology in the country.

PRODUCT RANGE

The company is marketing its product in the brand name of Sagar Priya, which is well known in Andhra Pradesh for the last 16 years and its range of products such as

43 Grade Ordinary Portland Cements(OPC)

53 Grade Ordinary Portland Cements (OPC)

Sulphate Resistant Cement (SRC)

Special Grade OPC used for Railway sleepers; and Portland Blast

Furnace Slag Cement(PBFSC)

Further, the company is also marketing its products in the states of Tamilnadu and Orissa. The companys customers, apart from builders and dealers, include Mazgoan Doc, Mumbai; Rain Calcining, Larsen & Turbo (L&T), Nagarjuna Fertilizers and chemicals Limited (NFCL), Hyderabad Industries Limited (HIL) etc.PUBLIC ISSUE

The company has made the first public issue during the year 1984. During the year 1992, the company has made a Rights-cum-Public issue at a premium of Rs.10/- under CCI guidelines. As at March 1998, the equity of the company stands at Rs.8.10 Crores with a book value of Rs.34/-. The share of the company were listed on Hyderabad Stock Exchange and Mumbai stock Exchange and also traded on National Stock Exchange.

PRESENT STATUS

Sugar cements Ltd has increased the production capacity at its Mattampally plant to 198000 tons per year. Clinker capacity utilization has already crossed 300000 tons giving highest advantage to the company in the terms of cost. The cement capacity utilization at its Salur plant is increasing and expected to touch 80% during the current year.

At Mattampally

The unit consumes about 92 units per ton of cement, which is considered to be lowest among mini cements plants and comparable with major cement plants. The capacity utilization of the Mattampally unit is 122 percent in terms of clinker.

The Company has been concentrating on the cost reduction for the last 5 years and has considerably reduced the cost of production by installing latest equipment and power saving devices.

The unit is supported by 2 DG sets to cover 75 percent of the power requirement in addition to the power received from Sagar power ltd. The unit produces 43 grade, 53grade and Sulphate resistant cement to the requirement of customers.

The cement is sold on SAGAR PRIYA brand, which is known in the market for the last 16 years. The unit has repaid term loans taken up to the year 1995

At Salur

The entire production of the unit is year marked for Orissa, where the prices are good. The unit has availed sales tax deferment. The power consumption has come down from 70 units to 55 units per ton over the last 2 years. The unit has repaid terms loan and has become free from loans.

At Bayyaram (Anakapally)

The unit was set up with modern VRM technology from Germany. The unit is eligible for sales tax deferment of Rs 17.5 Crores. The unit consumes only 38 39 units per ton of cement production. The unit saves transportation cost of clinker and cement as it is located on the national highway. The unit is catering to the needs of north Coastal districts of Andhra Pradesh Where Slag cement is having greater demand.

A.VISION

STRATEGIC THEMES OF THE COMPANY.

To develop its Brand Sagar Priya as a major supply brand in a Market through its Quality products and to become a Major Cement Company in India .Acquire leadership in national and international market.

MISSION:

Sagar cements is a main unit of Progressive growth oriented SAGAR Group of companies, specialist in producing variety of cements which is essential commodity.

AIM:

The aim of the Sagar Marketing department is to penetrate the product Sagar Brand to nook and corner to all nearby markets in Andhra Pradesh to take the product near to customer.to stimulate continue and accelerate efforts to develop and maximize the contribution of infrastructure sector to the economy of the country.

Sophisticated, very efficient operating systems with Advanced Technologies. With Action planning firmly launched for diversification of its business into Power generation projects and Pharmaceutical & Real Estate.

ORGANIZATIONAL STRUCTURECHAIRMAN

MANAGING DIRECTOR

EXECUTIVE DIRECTORBOARD OF DIRECTORS

DIRECTOR TECHNICALCOMPANY SECRETARY

S.G.M(Proj). V.P(Markg) G.M(Finance) SR.V.P(W) Mgr(Adm

Engineers Mkg.Mgr. Mgr(Accounts) Site. Adm .staff .. Executive

Mgr

GROUP OF COMPANIES

SAGAR POWER LIMITED:

Along with Sagar cements Ltd, Shri Veera Reddy has also promoted Rs.40 crier companies viz, M/s Sagar Power Ltd which has two mini Hydel power projects in the state of Andhra Pradesh with a capacity in Mega Watts. The company has made a net profit of Rs.11.33 lakhs on a turnover of Rs. 7.53 Crores for the year ended 31st March 2002. Sagar Power Ltd is a subsidiary of Sagar Cements Ltd.

PANCHVATI POLYFIBRES LIMITED:

Shri S.Veera Reddy has also promoted an Rs.10 Crore company viz, M/s Panchvati polyfibres Ltd, and manufacturing HDPE bags, mainly used for packing by the cement units. Apart from Sagar cements Ltd, Panchvati Polyfibres limited supplies bags to M/s Kakatiya Cements Ltd, M/s Penna Industries Ltd, M/s Priyadarshani Cements, ltd, M/s Penna Industries Ltd etc.PROMOTERS

Chairman

- Sri. O. Swaminatha Reddy

Managing Director

- Sri S. Veera Reddy

Director

- Sri K. Thnu Pillai

Executive Director

- Dr. S. Anand Reddy

Director (Technical)

- Sri S. Srikanth Reddy

Secretary

- Sri R. Soundararajan

General Manger (works) - Sri N. Bhasker Reddy

ACHIEVEMENTS:

SHORT TERM OBJECTIVES

Achieve major reductions in wage expense.

Reduces transportation charges through Putting Our sincere follow up with Railway Authority for developing Railway Line route from Jaggaya to Dammar cherla via our Plant .

The Central Govt proposed the same in Annual Budget.

Acquire full pledged Mineing Lease for meeting Our Plant Raw Material Requirment. Procurement of Quality Coal & other raw material at lower cost. If possible may plan for importing the coal; with cheeper rate

COMPETITORS

KCP Cement

Bharathi cements

Ambuja Cement

Birla Corporation

Kesoram Cements

JK Lakshmi Cement

Shree chakra Cement

UltraTech Cement

POLICIES:

Sagar Cements was built on a strong foundation of fundamental values of responsibility, respect & trust.

We are committed to encouraging our employees to do their best while respecting other employees, agents , customers & others, ensuing highest safety standards , and adhering to local and international standards of manufacturing.

VALUES:

Sagar Cements actively supports skill development programs to train workers to professional level. It will improve their talents, upgrade their skills and add values to Indian masons. This commitment reflects Sagar Cements' concern for the preservation of traditional community values the strong foundation of our society.

Sagar Cements is committed to providing safe and healthy working environments for its employees and also contributing to the enhancement of quality of life of the people residing in and around the plant and other parts of the state by conducting several community programs and contributing to welfare measures.

SWOT ANALYSIS

Strengths

A firm's strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include: Patents

Strong brand names

Good reputation among customers

Cost advantages from proprietary know-how

Exclusive access to high grade natural resources

Favorable access to distribution networks

Weaknesses The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:

Lack of patent protection

A weak brand name

Poor reputation among customers

High cost structure

Lack of access to the best natural resources

Lack of access to key distribution channels

In some cases, a weakness may be the flip side of strength. Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered a strength that competitors do not share, it also may be a considered a weakness if the large investment in manufacturing capacity prevents the firm from reacting quickly to changes in the strategic environment.

Opportunities The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:

An unfulfilled customer need

Arrival of new technologies

Loosening of regulations

Removal of international trade barriers

Threats Changes in the external environmental also may present threats to the firm. Some examples of such threats include:

Shifts in consumer tastes away from the firm's products

Emergence of substitute products

New regulations

Increased trade barriers

TABLE No : 5.0STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEAR ENDING 31-03-2009-2010Particulars20092010IncreaseDecrease

Current Assets

Inventory2020.00266.21640.21

Sundry Debtors3600.004516.97916.97--

Cash & Bank Balances299.41498.61199.27166.82

Loans & Advances1248.519798.43549.92

Total Current Assets (A)7167.929474.22

Less :- Current Liabilities

Sundry Creditors1706.902,206.48499.58

Advances --

Deposits0.721.50 0.78

Other Current Liabilities22.3423.24 0.90

Provisions990.00993.053.05

Total Current Liabilities (B)2719.963,224.27

Net Working Capital (A-B)4447.966249.95

Increase in working capital 1801.991801.99

Total6,249.956,249.952306.302306.30

INTERPRETATION:

From the above e5.0 we can observe the changes of working capital during the year 2006-07 & notice that there is increase working capital of 1801.99 (GCS). The position of working capital better & there is no input on liquidity during the year 2009-10TABLE No 5.1

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEAR ENDING 31-03-2010-2011Particulars20102011IncreaseDecrease

Current Assets

Inventory2,660.213,937.731,277.52

Sundry Debtors4,516.975,327.36810.39

Cash & Bank Balances498.619,503.919005.3

Loans & Advances1,798.432,408.14609.71

Total Current Assets (A)9,474.2221,177.14

Less :- Current Liabilities

Sundry Creditors2,206.481,609.41597.07

Advances

Deposits1.50 1.50

Other Current Liabilities23.2428.815.57

Provisions993.052,239.091,246.04

Total Current Liabilities (B)3,224.273,877.31

Net Working Capital (A-B)6,249.9517,299.83

Increase in Working capital11,049.8811,049.88

Total17,299.8317,299.8312,301.4912,301.49

INTERPRETATION:

From the above table 5.1 we can observe the changes of working capital during the year 2009-10 and observe that there is a increase in working capital of 11,049.88(Lacs) The position of working capital is better & there is no impact on liquidity during the year 2010-2011TABLE No : 5.2

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEAR ENDING 31-03-2011-2012Particulars20112012IncreaseDecrease

Current Assets

Inventory3937.736355.162417.42

Sundry Debtors5327.365191.41 135.95

Cash & Bank Balances9503.912337.09 7166.82

Loans & Advances2408.143618.701210.56

Total Current Assets (A)21,177.1417,502.35

Less :- Current Liabilities

Sundry Creditors1,609.412,280.24 670.83

Advances

Deposits

Other Current Liabilities28.8127.78 1.03

Provisions2,239.091.130.61 1,108.48

Total Current Liabilities (B)3,877.313,438.63

Net Working Capital (A-B)17,299.8314,063.72

Decrease in Working capital3,236.1111,049.88

Total17,299.8317,299.8312,301.4912,301.49

INTERPRETATION:

From the above table 5.2 we can observe the changes of working capital during the year 2011-12. An observe that there is an decrease in working capital of Rs3,236.11(Lacs).The position of working capital shows negative but there is no impact of liquidity during year 2010-11.

TABLE No : 5.3

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEAR ENDING 31-03-2012-2013Particulars20122013IncreaseDecrease

Current Assets

Inventory6355.167,192.65837.49

Sundry Debtors5191.414912.59 278.82

Cash & Bank Balances2337.092,037.45 299.64

Loans & Advances3618.702,963.88657.82

Total Current Assets (A)17,502.3517,106.57

Less :- Current Liabilities

Sundry Creditors2,280.242,2837.16 556.92

Advances

Deposits

Other Current Liabilities27.7831.42 3.64

Provisions1.130.61332.34798.27

Total Current Liabilities (B)3,438.633200.92

Net Working Capital (A-B)14,063.7313.905.65

Decrease in Working capital158.08158.08

Total14,063.7314.063.731,793.841,793.84

INTERPRETATION:

From the above 5.3 we can observe the changes of working capital during the year 2012-13. An observe that there is an decrease in working capital of Rs.158.08 (Lacs). The position of working capital shows negative trend but there is no impact liquidity during the year 2011-12.TABLE No : 5.4

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEAR ENDING 31-03-2013-2014Particulars20132014IncreaseDecrease

Current Assets

Inventory7,192.657,577.03384.38

Sundry Debtors4912.594831.61 80.98

Cash & Bank Balances2,037.45524.87 1512.56

Loans & Advances2,963.883637.27673.39

Total Current Assets (A)17,106.5716,570.80

Less :- Current Liabilities

Sundry Creditors2,2837.163918.07 1080.91

Advances

Deposits

Other Current Liabilities31.4275.62 44.2

Provisions332.34166.48165.55

Total Current Liabilities (B)3,438.633200.92

Net Working Capital (A-B)13.905.6512410.32

Decrease in Working capital1495.331495.33

Total13.905.6513,905.6513,905.652,718.65

INTERPRETATION:

From the above table 5.4 we can observe the changes of working capital during the year 2013-14. An observe that there is an decrease in working capital of Rs.1495.33 (Lacs). The position of working capital shows negative trend but there is no impact of liquidity during the year 2012-13 SHAPE \* MERGEFORMAT

Size of Working CapitalCurrent Assets

Size of Working capital = 100

Total Net AssetsTable No 5.5

YearCurrent AssetsTotal Net AssetsC.A 100

N.A

2009-20109,474.2213,378.7170.815

2010-201121,177.1425,832.2281.979

2011-201217,502.3531,584.1355.415

2012-201317,106.5736,636.8346.692

2013-201416,570.8039,366.7642.093

Total81,831.08146,798.65296.994

Average16,366.2229,359.7359.398

SHAPE \* MERGEFORMAT