Analysis Of Working Capital Management

Corporate Internship Report

Internship Report submitted as a partial requirement for the award of the two year

Master of Business Administration Programme

MBA 2010-12

Submitted By:- Submitted To:-

CERTIFICATE

This is to certify that the project work done on ” Working Capital

Management Of Jaiprakash Associates Limited ”, Submitted to

Rajkumar Goel Institute Of Technology in partial fulfillment of the

requirement for the award of PG Degree in Business Management, is a

bonafide work carried out by her under my supervision and guidance.

This work has not been submitted anywhere else for any other degree.

Date: 25th july 2011 Address:

Sector 128, Noida-

201304, U.P.

DECLARATION

I hereby declare that this Project Report entitled “Working Capital

Management Of Jaiprakash Associates Limited” submitted in the

partial fulfillment of the requirement of Raj Kumar Goel Institute

Of Technology is based on primary & secondary data found by me

in various departments, books, magazines and websites collected

by me under the guidance of Mr. Mahesh kukreja ji

Date: 25th july 2011

Ankit Dadu

ACKNOWLEDGEMENT

With regard to my Project, I would like to thank each and every one

who offered help, guideline and support whenever required. First and

foremost I would like to express gratitude to Mr. Mahesh Kukreja ji,

Vice President Finance Department and other staff of account

department for their support and guidance in the Project work. I am

extremely grateful to my guide, S.N JHA Deputy General Manager

Finance for their valuable guidance and timely suggestions. I would

like to thank all the members of Jaiprakash Associates Limited for the

valuable guidance & support.

I convey my thanks to Ashish Kumar Singh and college faculty who

significantly contributed their knowledge to complete my training

report. Their valuable suggestions considerably helped me in the final

drafting of this report.

I would also like to extend my thanks to my friends for their

continuous help and support. And lastly, I would like to express my

gratefulness to the parents and guardian for seeing me through it all.

CONTENTS

1. Cover Page2. Self Certificate3. Declaration4. Acknowledgement5. Company Profile Industry Analysis

6. Financial Analysis

7. Working Capital 8. Inventory Management

9. Conclusions and\or Recommendations 10. Bibliography

COMPANY PROFILE

GENERAL PROFILE OF JAYPEE ORGANISATION

JAYPEE

The established names in India. The profile of the company is

quite impressive, which Ever since its inception four decades ago,

Jaypee Group has proven itself as one of boasts of having business

in diversified fields. It has shown its presence in engineering and

constructions, while its business is flourishing in power, cement

and hospitality. The company has entered the real estate business

and is providing world-class facilities through its township, which

is the first ever golf-centric real estate development in India.

Check out more information on the profile of the Indian real estate

company, Jaypee Group.

HISTORY

BACKGROUND

Jaypee Group is five decade old conglomerate based in Noida,

India.involved in various industries that include Engineering,

construction , Cement, Power, Hospitality, Real Estate, Expressways,

Highways, Education and Social Commitment. Shri. Jaiprakash Gaur,

Founder Chairman of Jaiprakash Associates Limited after acquiring a

Diploma in Civil Engineering in 1950 from the University of Roorkee,

had a stint with Govt. of U.P. and branched off on his own, to start as a

civil contractor in 1958, group is the 3rd largest cement producer in the

country. The groups cement facilities are located in the Satna Cluster

(U.P), which has one of the highest cement protion growth rates in

India.

With a single minded focus in mind, to achieve pioneering myriads of

feat in civil engineering Shri. Jaiprakash Gaur, Founder Chairman of

Jaiprakash Associates Limited after acquiring a Diploma in Civil

Engineering in 1950 from the University of Rookies, had a stint with

Govt. of U.P. and with steadfast determination to contribute in nation

building, branched off on his own, to start as a civil contractor in 1958,

group is the 3rd largest cement producer in the country. The groups

cement facilities are located in the Satna Cluster (U.P), which has one

of the highest cement production growth rates in India.

TIMELINE/ MILESTONES

1979 - Jaiprakash Associates Pvt Ltd formed and sets foot in Iraq.

1981 - Commenced Hotel Business with first hotel in Delhi -

Siddharth

1982 - Hotel Vasant Continental was set up

1986 - Commissioning of 1st unit of 1 MTPA Jaypee Rewa Plant

(JRP) in District Rewa, MP Formation of Jaiprakash Industries

Ltd (JIL)

1987 - JIL listed on Bombay Stock Exchange

1991 - Commissioning of 2nd unit of 1.5 MTPA Jaypee Rewa

Plant

1992 - Jaiprakash Hydro Power Ltd established to operate 300

MW Baspa II HE Project, Jaiprakash Power Ventures Ltd

established to operate 400 MW Vishnuprayag HE project

1993 - JIL signs MOU to develop & operate 1000 MW Karcham

Wangtoo HE Project

1995 - Bela Cement Ltd incorporated to establish 3rd Cement

Plant at Bela, Hotel Jaypee Residency Manor set up

1996 - Commissioning of the 3rd cement plant 1.7 MTPA Jaypee

Bela Plant in District Rewa, MP.

1999 - Hotel Jaypee Palace, Agra set up

2000 - Jaypee Greens Ltd – 458 acre golf centric real estate

company comes into being

2001 - Jaypee Institute of Information Technology (deemed

University since Nov 1 2004) set up at NOIDA

2002 - Jaypee Karcham Hydro Corporation Ltd established to

operate 1000 MW Karcham Wangtoo HE Project, Jaypee

University of Information Technology (State university),

Waknaghat set up

2003 - Jaypee Institute of Engineering Technology (Constituent

Centre of JUIT, Waknaghat) set up at Raghogarh, Guna. Later

this institute was declared first private state university of Madhya

Pradesh as Jaypee University of Engineering & Technology. Also

1st Captive Thermal Power Plant of 25 MW commissioned at

JRP. Formation of Jaiprakash Associates Ltd (JAL) by merging

JIL with Jaypee Cement Ltd

2004 - Commissioning of 2nd Captive Power Plant of 25 MW at

Jaypee Bela Plant1999 - Hotel Jaypee Palace, Agra set up

2005 - Shares of JHPL listed on BSE/NSE. First hydropower

company to be listed in the country

2006 - Setting up of Madhya Pradesh Jaypee Minerals

Corporation Ltd (MPJMCL) in JV with MP State *2007 -

Signing of a joint venture agreement with Steel Authority of India

Ltd for setting up a 2.0 MTPA slag based cement plant at Bhilai

2007 - Singing of a joint venture agreement with a steel

authority of india Ltd for sitting up a 2.0 MTPA slag based

cement plant at Bhilai. Himalyan expressway Ltd incorporated

for implementation of 27.14 km Zirakpur parwanoo expressway

awarded by NHAI. Mandla north coal block in chindwara allotted

to company for captive requirement of cement business. Jaypee

greens launched a ‘ Wish Town’ a historic residentional

township in india. Slated to be the india’s largest township

development in over 1162 acers.

2008 – jaypee greens infrastructure corporation Ltd for

incorporated implementation of 1047 km long 8 lane access

controlled expressway between greater noida and ballia in up,

chunar and dalla cement plants(UPPCL) in UP commissioned.

1.5 MTPA grinding unit at panipath Haryana, commissioned.

Brokaro. Jaypee cement Ltd incorporated for implementation of

2.1 MTPA slag based cement plant at Brokaro, Jharkhand in JV

with SAIL.

2009 - Amalgamation of four Group Companies, namely, Jaypee

Cement Limited, Gujarat Anjan Cement Limited, Jaypee Hotels

Limited and Jaiprakash Enterprises

Limited with flagship company JAL. Acquired Sangam Power

Generation Company Ltd. Signing of MOU for setting up a 2.0

million tonnes per annum capacity cement plant in joint venture

with Assam Mineral Development Corporation Limited

(AMDC). Group is setting up a Jaypee Hitech Casting Centre.

Amalgamation of Jaiprakash Power Ventures Ltd. with

Jaiprakash Hydro-Power Ltd.; the name of the Company i.e.

Jaiprakash Hydro-Power Ltd. changed to Jaiprakash Power

Ventures Ltd.

2010 - Commissioning of 1.75 MnTPA Jaypee Himachal

Cement Grinding and Blending Plant, Bagheri (H.P.)., 2.2

MnTPA Bhilai Jaypee Cement Ltd., Satna (Madhya Pradesh).,

1.2 million tonnes Jaypee Roorkee Cement Grinding Unit

(JRCGU) at Roorkee, Uttarakhand.

2011-Amalgamation of Jaypee Karcham Hydro Corrporation Limited(JKHCL) and Bina Power Supply Company Limited(BPSCL) With Jaiprakash Power Ventures Limited(JPVL) With effect From April 1,2010, being the Appointed Date.

INFORMATION ON JAYPEE GROUP INDIA

The Corporate Information section imbibes the vision and the mission

statements of the group. It provides a comprehensive list of the Board

of Directors, along with policies on Corporate Governance and Code of

Conduct. The Quality Policy covers aspects pertaining to customer

satisfaction and the efficient use of the vital resources. The efforts of

the group are highlighted by the achievement section which depicts the

various awards that are bagged by the group over the various years.

The Group has “CT -1” and “CR 1” grading to its credit.

Business Areas

Jaypee Group is a renowned company, accredited for the construction

of multi-purpose river valley and hydropower projects in India. The

company has also shown interest in the fields of power and cement. It

boasts of having the largest market share in the Indian hydropower

sector. It has gained the distinction of being the third largest cement

producer in India. The company is the owner of four 5-star hotels and a

state-of-the-art resort. With its Jaypee Greens projects, it has marked

its presence in the Indian real estate business as well.

Major Project

Jaypee Greens, a luxurious fully integrated complex, is one of the

major projects of Jaypee Group. Located in Greater Noida (Uttar

Pradesh), the complex is India's first ever golf-centric project. It

comprises of an 18-hole Greg Norman Golf Course. Spreading over

450 acres, the complex is set amidst lush green surroundings, with

commercial spaces, corporate park, entertainment spaces and

residences.

The project was kick-started in 2002, with an aim to bring about a

revolutionary change in people's perception of the real estate business

in India. The company brought the concept of golf homes to India,

which was already a hit in the US, Middle-East, Australia and Europe.

The concept was accepted wholeheartedly by the customers in India,

because of the flawless plan and complete dedication in the

construction, shown by Jaypee Group. The idea was to provide a

feeling of luxurious living in a resort, to the India consumers, through

the residential complex. Motivated by the appreciation shown by its

customers for Jaypee Greens and success received from the same,

Jaypee Group announced its second project, four years later. The

second project in Noida proved to be four times bigger and luxurious

than the previous one.

The second project, launched in 2007, was named as India's First Wish

Town and located in Noida. Stretching over 1162 acres of land, the

integrated township consists of one 18-hole and two 9-hole golf

facility. In addition to this, it offers a commercial complex, medical

facilities and educational facilities, with a host of recreational facilities

such as entertainment zone and social club.

New Ventures

Jaypee Greens AMAN is the new residential project of Jaypee Group.

Stretching over 70 acres of land, the complex is located at sector 151,

Noida, on the Noida-Greater Noida expressway. The project is

something to look forward to, as it consists of as many as 3300

apartments, with world-class and luxurious facilit

MANAGEMENT

Board of Directors

The Board of Directors of the company have envisioned the

organisation to new heights. The company is well managed under

the foray of these individuals :

Shri Jaiprakash Gaur, Founder Chairman

Shri Manoj Gaur, Executive Chairman & CEO

Shri Sunil Kumar Sharma, Executive Vice Chairman

Shri S K Jain, Vice Chairman

Shri A K Sahoo (LIC Nominee)

Shri K P Rau (IDBI Nominee)

Shri R N Bhardwaj

Shri B K Goswami

Shri B K Taparia

Shri S C Gupta

Shri S C Bhargava

Shri M S Srivastava

Dr. B. Samal

Shri V.K. Chopra

Shri Pankaj Gaur, Jt. Managing. Director (Construction)

Shri Sunny Gaur, Managing. Director (Cement)

Shri R K Singh, (Whole-time)

ACHIEVEMENTS

Year 2010

The garbage processing plant of Jaiprakash Associates Ltd. located in

Dadumajra, Chandigarh was awarded “Excellence for the best solid

waste management plant in the country” by Confederation of Indian

Industry (CII).

"Lifetime Achievement Award" being conferred to Shri Jaiprakash

Gaur, Founder Chairman by Merchants’ Chamber of Uttar Pradesh,

Kanpur for creating new milestones in Infrastructure development and

his achievement in Corporate Social Responsibility for the year 2010.

“Infrastructure Leader of the Year ” award being conferred to Shri

Jaiprakash Gaur, Founder Chairman by Shri Kamal Nath, the Union

Minister of Road Transport and Highways during the Essar Steel

Infrastructure Excellence Awards 2010 in association with CNBC

TV18. 400 MW Vishnuprayag Hydropower Project of Jaiprakash

Power Ventures Ltd (JPVL) was awarded 1st Prize in the category

“Energy & Power’’ by the Essar Steel Infrastructure Excellence

Awards 2010 in association with CNBC TV18.

300 MW Baspa – II Hydropower project being awarded with “Silver

Shield” by Shri Sushil Kumar Shinde, Union Minister of Power along

with Shri Bharatsinh Solanki, Union Minister of State for Power in the

prestigious National Awards for Meritorious Performance in Power

Sector by the Ministry of Power for 2008-09.

Year 2009

Jaypee Rewa Plant, Jaypeenagar and Jaypee Bela Plant, Jaypeepuram

(Both Units of Jaiprakash Associates Limited) were awarded Five Star

Rating by the British Safety Council, London, U.K. for Health and

Safety Management System.

11th F L Smidth Energy Award 2009 for reduction in Thermal Energy

in clinker (Jaypee Bela Plant); Minimum auxiliary power consumption

in thermal generation (Jaypee Bela Plant – CPP); Minimum Plant heat

rate in thermal generation (Jaypee Rewa Plant - CPP); Minimum

auxiliary power consumption in thermal generation (Jaypee Rewa Plant

- CPP) were awarded by Chhattisgarh and Madhya Pradesh Cement

manufacturers Associations to Jaiprakash Associates Limited (Cement

Division).

400 MW Vishnuprayag Hydropower Project of Jaiprakash Power

Ventures Ltd (JPVL) was awarded 1st Prize in the category

"Excellence in Fast Track Power Project Execution - Hydro" by the

Indian Electrical and Electronics Manufacturers Association (IEEMA)

Power Awards 2008.

300 MW Baspa – II Hydropower project being awarded with “Gold

Shield” by Hon’ble President of India Smt. Pratibha Devisingh Patil in

the prestigious National Awards for Meritorious Performance in Power

Sector by the Ministry of Power for 2007-08.

Year 2009

“Entrepreneur of Year Award” being conferred to Shri Jaiprakash

Gaur, Founder Chairman for his exceptional contribution in

Infrastructure & Construction sector by Ernst & Young. Award

presented for Overall Performance, 'Use of Explosives & Dust

Suppression and Safety Education during Metalliferous Mines Safety

Week Celebration (Jabalpur Region) to Naubasta Limestone Mine of

Jaiprakash Associates Limited. FLS (F.L. Smidth) Energy Award 2007

for Maximum percentage reduction in Thermal Energy (Kcal)

consumption per kg of Clinker production over year 2005-06 (Jaypee

Rewa Plant) & Minimum % of Auxiliary power consumption with

respect to Thermal power generation in M.P. ,Chhattishgarh states in

the year 06-07 (Jaypee Bela Unit, Captive Power Plant, 2006-

07)National Safety Award for the year 2006 to Jaypee Rewa Plant for

longest Accident Free Period.

Year 2007

PHDCCI Good Corporate Citizen Award 2007 awarded by Shri.

Montek Singh Ahluwalia, Deputy Chairman, Planning Commission,

Government of India.  FLS (F.L. Smidth) Energy Award 2007 for

Maximum percentage reduction in Thermal Energy (Kcal)

consumption  per kg of Clinker production over year 2005-06 (Jaypee

Rewa Plant) & Minimum % of Auxiliary power consumption with

respect to Thermal power generation (Jaypee Bela Unit, Captive Power

Plant, 2005-06) Narmada Award for Overall Performance, Sonebhadra

Award for Community Development & Award for Waste Dump

Management, Water Quality Management, Publicity & Propaganda

received by Naubasta Limestone Mine of Jaiprakash Associates

Limited during Mines Environment & Mineral Conservation week

Award for Management of Sub- Grade Mineral received by Jaypee

Limestone Mine of Jaiprakash Associates Limited during Mines

Environment & Mineral Conservation Week.

Year 2006

National Energy Conservation Award 2005, for cement sector

conferred by Govt. of India, Ministry of Power. Award for Overall

Performance, Water Quality management and Community

Development received by Naubasta Limestone Mines during Mines

Environment and Mineral Conservation week. Award for Waste Dump

management received by Jaypee Limestone Mines during Mines

Environment and Mineral Conservation week.

FLS (Fuller Smidth) Energy Award for Reduction in Electrical Energy

in Clinker (Jaypee Rewa plant unit), Lowest Thermal energy in Clinker

(Jaypee Bela plant) and Minimum plant Heat Rate Kcal/Kwh in

Thermal Generation (Captive Power plant).

Year 2005

Lifetime Achievement Award conferred upon Shri. Jaiprakash Gaur by

Builders Association of India in recognition of outstanding

contribution to Indian Construction Industry.

FIMI’s Environment Award “Abheraj Baldota Environment Award”

for Naubasta Limestone Mine.

Award Presented by Indian Bureau of Mines During Mines

Environment & Mineral Conservation Week (Jabalpur Region) to

Jaypee Rewa Plant for Overall Performance, Afforestation and Water

Quality Management.

Award Presented by Director General Mines Safety During

Metalliferous Mines Safety Week Celebration (Jabalpur Region) to

Jaypee Rewa Plant for Transport of & overburden etc.

Award Presented by Director General Mines Safety During miners

Metalliferous Mines Safety Week Celebration (Jabalpur Region) to

Jaypee Bela Plant for Overall Performance, Standard of working &

House Keeping.

Indian Economic Development and Research Association National

Award for outstanding contribution in the field of mining by Jaiprakash

Associated Limited.

Year 2004

F.L. Smidth Energy Award, Presented by MP Manufacturer’s

Association to Jaypee Bela Plant for Lowest Thermal Energy

Consumption. National Award for Meritorious Performance in

recognition of the outstanding performance of the 300 MW Baspa II-

Hydro Power Station was awarded by Hon’ble Prime Minister of India,

Dr. Manmohan Singh. National Award for Environmental Excellence

in Limestone mines associated with Jaypee Rewa plant. National

Safety Award, Presented by Govt. of India, Ministry of Labour to

Jaypee Rewa plant for Longest Accident Free Period.

INDUSTRY ANALYSIS

Companies in the Industry

The cement industry comprises of 125 large cement plants with an installed capacity of 148.28 million tonnes and more than 300 mini cement plants with an estimated capacity of 11.10 million tonnes per annum.

The Cement Corporation of India, which is a Central Public Sector Undertaking, has 10 units. There are 10 large cement plants owned by various State Governments. The total installed capacity in the country

as a whole is 159.38 million tonnes. Actual cement production in 2002-03 was 116.35 million tonnes as against a production of 106.90 million tonnes in 2001-02, registering a growth rate of 8.84%.Major players in cement production are Ambuja cement, Aditya Cement, J K Cement and L & T cement.

Apart from meeting the entire domestic demand, the industry is also exporting cement and clinker. The export of cement during 2001-02

and 2003-04 was 5.14 million tonnes and 6.92 million tonnes respectively. Export during April-May, 2003 was 1.35 million tonnes. Major exporters were Gujarat Ambuja Cements Ltd. and L&T Ltd.

Cement industry has been decontrolled from price and distribution on 1st March 1989 and de-licensed on 25th July 1991. However, the performance of the industry and prices of cement are monitored regularly. Being a key infrastructure industry, the

constraints faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary (Coordination). The Committee on Infrastructure also reviews its performance.

Technological change

Continuous technological upgrading and assimilation of latest technology has been going on in the cement industry. Presently 93 per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only 7 per cent of the capacity is based on old wet and semi-dry process technology. There is tremendous scope for waste heat recovery in cement plants and thereby

reduction in emission level. One project for co-generation of power utilizing waste heat in an Indian cement plant is being implemented with Japanese assistance under Green Aid Plan. The induction of advanced technology has helped the industry immensely to conserve energy and fuel and to save materials substantially.

India is also producing different varieties of cement like Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC),

Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement etc. Production of these varieties of cement conform to the BIS Specifications. Also, some cement plants have set up dedicated jetties for promoting bulk transportation and export.

MARKET SIZE OF CEMENT INDUSTRIES

India is the second-largest cement producer in the world, with an installed capacity of about 236 million tonnes (MT) in 2009–2010. The sector is expected to add an additional capacity of 92.3 MT by 2013.

As a result, the industry will have a total installed capacity of 383.5 MT by March 2013.

During January 2011, the cement production touched 14.52 MT, while the cement despatches quantity was 14.47 MT during the month. The total cement production for April-January 2010-11 reached 136.51 MT as compared to 130.85 MT over the corresponding period last fiscal. Further, cement despatches also witnessed an upsurge from 130.09 MT

during April-January 2009-10 to 135.56 MT during April-January 2010-11.

According to latest research report “Indian Cement Industry Forecast to 2012”, produced by RNCOS, cement production in India has grown at a brisk pace during the last few years. Despite recession, Indian cement industry performed incredibly well amid recent boom in the infrastructure and housing markets. In view of the upcoming massive

infrastructure projects, manufacturers are aggressively increasing their production capacities and the study foresees a 10.5 per cent CAGR growth in cement production during FY 2010-FY 2014.

According to a press release, the push in cement demand during the last fiscal was attributed to revival of infrastructure and real estate projects, especially in rural areas.

Government Initiatives

The cement industry is pushing for increased use of cement in highway and road construction. The Ministry of Road Transport and Highways has planned to invest US$ 354 billion in road infrastructure by 2012.

Housing, infrastructure projects and the nascent trend of concrete roads would continue to accelerate the consumption of cement.

Increased infrastructure spending has been a key focus area. Finance Minister Pranab Mujherjee has proposed to earmark US$ 47 billion for infrastructure development during fiscal 2011-12.

The infrastructure sector has received an impetus in the form of increased funds and tax related incentives offered to attract investors for tapping the infrastructure opportunities around the country. Introduction of tax free bonds, creation of infrastructure debt funds, formulating a comprehensive policy for developing public private partnership projects are some announcements which will give a fillip to the infrastructure sector which is the backbone of any economy.

GROWTH OF INDUSTY

Jaiprakash Associates Ltd. announces 51.85% growth in total revenue forQ1FY11

Competitive Analysis-

Market ShareThe continued growth of key world economies results in an increasing demand for construction materials. As a consequence, the global production of cement in 2030 is projected to grow to a level roughly five times higherthan its level in 1990, with close to 5 billion tonnes worldwide This has a significant impact on the overall level of .

anthropogenic greenhouse gas (GHG) emissions as the production of each tonne of cement leads to emissions of roughly 0.89 tonnes of carbon dioxide As a consequence, the emissions of the global cement sector alone are very . likely to surpass the total amount of CO2 emissions of the EU before 2030. This report attempts to identify the drivers of

this process and explore options to mitigate emissions

Rapid expansion of production in developing countriesthe rapid expansion of global cement production since 1990, which mainly stems from production increases in China. The viewgraph also

shows projected future increases of cement production. Many new cement plants are going to be built in the next decade, especially in developing countries. Their lifespan will probably exceed 40 years. In a

future carbon constrained world, the profitability of individual plants will depend on their CO2 intensity. Significant emissions reductions at existing plants by improving the technology and operating practices are

achievable. The accelerated closure of outdated plants with low efficiency can also make substantial contributions to emission reductions.

Indian cement industry comprises 130 large cement plants and 365 mini-cement plants. The total installed capacity in the country is estimated at 240 million tons per annum making India the second largest cement producer in the world after china......

It is estimated that there is 75% capacity utilization in this industry

which means the annual industry volume is 180 MT per year. The industry is growing at 8% CAGR every year.

Generally, the size, scheduling and complexity of large scale projects precludes the participation by smaller and less sophisticated engineering and construction companies, and whilst there are many qualified competitors, there are only a few Indian engineering and

construction companies with the requisite capacity and experience to complete large industrial or infrastructure works on demanding schedules. Among those companies, which are able to execute such major projects, competition is largely based on the proven ability to complete work on time, as well as price. The company has experience and proven track record for timely completion of large projects in India

spanning over 30 years, together with its in-house design and engineering expertise and capacity for in-house fabrication of large scale hydro-mechanical equipment.

PURPOSE -

VISION

“As a group, we are committed to strategic business

development in infrastructure, as the key to nation building in

the 21st century.

We aim to achieve perfection in everything we undertake with

a commitment to excel.

It is the determination to transform every challenge into

opportunity; to seize every opportunity to ensure growth and to

grow with a human face.”

The company group focus on always believes in Growth with a

Human face and to fulfill its obligations.

MISSION

“It is our dream of a brighter India that gives us the courage to

brave the odds and emerge successful. It`s no small dream. But

then, it`s not toobig either”.

Our solitary Mission is to achieve Excellence in every sector that

we operate in - be it Engineering & Construction, Cement, Real

Estate or Consultancy.

To augment our core competencies and adopt the most

comprehensive modern technology to overtake the obstacles in

our path of achievement.

To obtain sustainable development and simultaneously enhancing the shareholders value and fulfilling our obligations towards building a better India".

Corporate Governance

Corporate Governance is a concept in the heart of which lies the

immutable principles which dictates the essence on which a

company should ethically conduct the affairs of the business.

Ethics connote the commitment of the company towards its

shareholders / stakeholders, creditors, business associates, the

state and the employees at large. Strong Corporate Governance is

indispensable to a resilient and vibrant corporate entity. The

principles on which the good corporate governance is based are

simple principles of fairness, transparency and accountability.

A Broadly speaking, Corporate Governance denotes the following:

SECTOR & MARKET SEGMENT

Transforming challenges into opportunities has been the hallmark of the Jaypee Group, ever since its inception four decades ago. The Group is a diversified infrastructure conglomerate and has a formidable presence in Engineering & Construction along with interests in the

Power, Cement and Hospitality. The infrastructure conglomerate has also expanded into Real Estate & Expressways.

ENGINEERING & CONSTRUCTION

The Engineering and Construction wing of the Group is an acknowledged leader in the construction of multi-purpose River Valley

and Hydropower projects. It has the unique distinction of having simultaneously executed 13 Hydropower projects spread across 6 states and the neighboring country Bhutan for generating 10,290 MW power.

The Group has been assigned “CR1” grade by ICRA Ltd. indicating very “strong contract execution capacity with best prospects of timely

completion of projects, without cost overruns for projects with average value of Rs. 2500 crore.” It is the only Group in India, which pre -qualifies on its own for the bidding of various projects that are awarded in the country.

A leader in Engineering and Construction of Hydropower projects in India, the Group has the largest market share in the Indian

Hydropower, E&C and EPC sector having participated in 54% of Hydropower projects developed in 10th 5-Year Plan in different capacities.

JAL is the only integrated solution provider for Hydropower projects in the country with a track record of strong project implementation in

different capacities and has participated in projects that have added over 8840 MW of Hydroelectricity to the National grid between 2002 to 2009. (AN UNPARALLEL FEATURE IN INDIAN POWER SECTOR)

The Group also has the distinction of executing three out of five Hydropower projects contracted on an EPC basis in the country till

March 2009. Two of these, 300 MW Chamera - II and 520 MW Omkareshwar, have been completed ahead of schedule.

The 900 MW Baglihar (Stage-I and II) Hydroelectric project in Jammu & Kashmir, has been set up in the challenging environment of the State with 22 million cubic meters of concrete, has been the largest EPC project executed in the country in Hydropower sector, so far.

The key non-EPC projects completed across India are -

1450 MW Sardar Sarovar Project, the largest water resource project in India,

1000 MW Tehri Dam, Asia's highest rockfill dam.,

1000 MW Indira Sagar Power House, second largest surface power house in the country.

1500 MW Nathpa Jhakri Power House, the largest underground power house in the country.

The in-house Design and Consultancy Company, Jaypee Ventures Pvt. Ltd. (JVPL), gives JAL a competitive edge over its rivals. The design and engineering arm has been awarded “CT1” grade by ICRA with CIDC (The Construction Industry Development Council). This is the highest rating assigned to consultants in the field of Engineering.

POWER

The Group with its operational projects of 300 MW Baspa-II (Himachal Pradesh) and 400 MW Vishnuprayag (Uttarakhand) is India’s largest private sector Hydropower producer.

Besides this, 1000 MW Karcham Wangtoo project (Himachal Pradesh)

is under advanced stage of implementation. In addition, with 3200 MW projects (2700 MW Lower Siang & 500 MW Hirong ) coming up in Arunachal Pradesh and 720 MW (270 MW Umngot and 450 MW Kynshi Stage –II) in Meghalaya, the Group will have total Hydropower generation capacity of over 5600 MW by 2019. After having established a strong presence in the Hydropower sector the Group has initiated its entry into Thermal Power Generation, Power

Transmission and also forayed into Wind Power.

The Group is in the process of implementing 2 x 660 MW pit head based Nigrie Thermal Power plant in district Singrauli of M.P. and 5x 250 MW Thermal Power plant at Bina M.P. JAL has been awarded LOIs for 1980 MW (3 x 660 MW) Karchana Thermal Power Project and 3300 MW (5 x 660 MW) Bara Thermal Power project in UP.

Besides this, 49 MW of Wind Power plant is operational in Maharashtra and Gujarat.

The Group is also implementing a Transmission system associated with 1000 MW Karcham Wangtoo Hydro-electric project. The Transmission project will consist of a 217 km long transmission line between Wangtoo in Himachal Pradesh and Abdullapur in Haryana.

CEMENT

Jaypee Group is the 3rd largest cement producer in the country. The group produces special blend of Portland Pozzolana Cement under the

brand name ‘Jaypee Cement’ (PPC). Its cement division currently operates modern, computerized process control cement plants with an aggregate capacity of 21.30 MnTPA*. The company is in the midst of capacity expansion of its cement business in Northern, Southern, Central, Eastern and Western parts of the country and is slated to be 37.55 MnTPA by FY12 (expected) with Captive Thermal Power plants totaling 702 MW.

(* includes 2.2 MnTPA capacity in Joint Venture with SAIL)

HOSPITALITY

The Group owns and operates 4 Five Star Hotels, two in New Delhi

and one each in Agra and Mussoorie with a total capacity of 644 rooms. Another state-of-the-art resort and SPA is being set up in collaboration with SIX SENSES at Greater Noida.

REAL ESTATE AND EXPRESSWAYS

The Group is a pioneer in the development of India’s first golf centric Real Estate. Jaypee Greens - a world class fully integrated complex consists of an 18 hole Greg Norman Golf Course. Stretching over 452 acres, it also includes residences, commercial spaces, corporate park, entertainment and nature in abundance.

The Group is constructing 165 km long 6 lane Yamuna Expressway project from Noida to Agra and ribbon development on 6175 acres at five or more locations along the expressway for commercial, industrial, institutional, residential and amusement purposes, will also be undertaken as an integral part of the project. In addition to this, 1047 km long 8 lane Ganga Expressway from Greater Noida to Ballia

(Eastern Uttar Pradesh) will also be developed by the Group which will be the largest private sector infrastructure project in India.

EDUCATION

“People of resources must contribute towards making a better

tomorrow for all”. Shri Jaiprakash Gaur ji, Founder Chairman of the Group firmly believes that quality education on an affordable basis is the biggest service which, as a corporate citizen, we can provide. Education is the cornerstone to economic development and the strength of 1 billion Indians can be channelized by education alone to build India into a developed nation.

The Group currently provides education across all spectrum of the learning curve through 19 schools, 3 ITI's, 2 colleges and 3 universities catering to over 20,000 students. The Jaypee education system plans to take the vision of service to society through quality education to another plane by expanding its infrastructure to provide education to a universe of 200,000 students in less than a decade from now.

SOCIAL COMMITMENTS

The Group has always believed in “growth with a human face” and to fulfill its obligations it has set up Jaiprakash Sewa Sansthan (JSS), a ‘not-for-profit trust’ which primarily serves the objectives of socio – economic development, reducing the pain and distress in society.

For over 4 decades now, Jaypee Group has supported the socio-economic development of the local environment in which it operates and ensured that the economically and educationally challenged strata around the work surroundings are also benefited from the Group’s growth by providing education, medical and other facilities for local development.

The Group also undertakes Comprehensive Rural Development Programme (CRDP) which covers a wide range of projects such as free medical camps, health check-ups for village school children, literacy campaigns like Balwadi’s for young boys and girls, safe drinking water supply, creating huge water reservoirs in different villages, self

employment which includes tailoring classes for women and animal husbandry. Some other important activities undertaken include the renovation of old temples, other schools and hospital buildings in the adjoining adopted villages.

ENVIRONMENT

“Every time we borrow from nature, we return it with interest.”

We at Jaypee believe that harmony between the man and his environment is the prime essence of healthy life and living. The sustenance of our ecological balance is therefore of paramount importance.

Efforts are made to conserve ecological balance without any harm done to the local flora and fauna. The Group has also taken green initiatives, afforestation drives, resources conservation, water conservation, air quality control and noise pollution control and created a “green oasis’’ amidst the limestone belt at the cement complex in Rewa.

Last but not the least, “as a Group we remain committed to strategic business development in infrastructure, as the key to nation building in the 21st century. We aim for perfection in everything we undertake and we have a commitment to excel. It is the determination to transform every challenge into opportunity; to seize every opportunity to ensure growth and grow with human face; that

drives us”.

Financial AnalysisFinancial ratios are useful indicators of a firm’s performance & financial situation. Most ratios can be calculated from information provided by the financial statement. Financial statement can be use to

analysis trends & to compare the firm financial to those of other firms. IN some cases, ratio analysis can predict future bankruptcy.

Financial ratio can be classified according to information they provide. There are following types of ratios-

Ratio Analysis Liquidity ratios Profitability ratios Activity ratios Leverage ratios

Liquidity ratio-

Current Ratio

current ratio measures the company's ability to pay its short-term liabilities from short-term assets.

Current ratio = Current Assets / Current Liabilities

Current Ratio

<= 1 Going bankrupt!

1 <  Current Ratio <= 2 May experience difficulties in facing short term commitments.

2 <  Current Ratio

<= 5 Normal, depending on the industrystandards for companies of similar size and activity.

5 <  Current Ratio Very little short term debt!

Current ratio of JAL is greater than its competitor ACC that means JAL is facing more difficulties in short term commitments than ACC.

QUICK RATIO

The quick ratio, defined also as the acid test ratio, reveals a company's ability to meet short-term operating needs by using its liquid assets. It is similar to the current ratio, but is considered a more reliable indicator of a company’s short-term financial strength. The difference between these two is that the quick ratio subtracts inventory from current assets and compares the quick asset to the current liabilities. Similar to the current ratio, value for the quick ratio analysis varies widely by

company and industry. In theory, the higher the ratio is, the better the position of the company is. However, a better benchmark is to compare the ratio with the industry average.

Quick Ratio: Quick Assets

Current Liabilities.

Interpretation and Analysis-

This is obviously a good position for the firm to be in. It can meet its short-term debt obligations with no stress. If the quick ratio was less

than 1.00X, then the firm would have to sell inventory to meet its obligations So, a quick ratio great than 1.00X is better than a quick ratio of less than 1.00X with regard to maintaining liquidity and not being forced into the position of having to sell inventory.

CASH RATIO

Cash ratio measure the ability of a business to meet short term obligations. It measures to the extent which current obligations can be paid from cash or near cash assets.

Cash ratio = (Cash and Cash equivalents) / Current Liabilities

Cash Ratio

<= 1Dangerous Zone. Very low liquidity. 

1 <  Cash Ratio

  Short term debt can be paid in full with cash and near cash items.

2 <  Cash Ratio

  Bad management of short term liquidity ? Cash could be invested in longer term assets earning a higher return.

We see that the JAL maintains substantial cash and bank balances for each of the years and moreover, the cash ratio has shown constant improvement over the years that is 18% for FY 08-09 and 13% for FY 09-10. In case immediate cash is demanded, JAL is in the position to

meet 49% of the current liabilities at the end of FY 07-08, 58% at the end of FY 08-09, and 66% at the end of FY 09-10. This heralds very positive message to the short time creditors who can invest their fund in the company. Whereas in ACC cash ratio is lower than JAL and is fluctuating too, this creates a risky image infront of the investors for the company.

Profitability ratios-

Gross profit margin

Return on assets

Return on equiety

Gross Profit Ratio: It measures the percentage of each sales rupee remaining after the firm has paid for its goods. We will calculate gross profit by

subtracting manufacturing & factory expenses by total income. It is expressed as:

Gross Profit Margin: Gross Profit

Net Sales

Year 2007-08 2008-09 2009-10

Gross Profit 230662 316339 586272

Net Sales 427389 614799 1167178

Gross Ratio 53% 51% 50%

In case of JAL the fraction is less and almost constant for the three years, this means that there is not very vast difference between PAT and EBIT. This is a good indicator for shareholders because there is less tax imposed. Whereas in the case of ACC the ratio is more and not profitable for shareholders.

Interpretation of ratio: The gross profit ratio shows the profit made by the firm after meeting its cost of production expenses. The trend

shows that gross profit is increasing and firm is reducing its cost of operation continuously.

Return On Assets:

The profitability ratio in terms of the relationship between net profit & assets. The ROA may also be called profit to assets.

Assets here mean total assets. The real return on assets is the net earnings available to owners & interest to lenders as owners as well as creditors. This equation correctly reports the operating efficiency of firms. The ROA is expressed as:

Net Profit After Taxes

Total Assets

Year 2007-08 2008-09 2009-10

PBT 427389 614799 1167178

/Total Assets 195616 2480058 3183152

ROA 21.8% 24.78% 36.66%

Interpretation of ratio: The trend is increasing one which means that for same assets employed in the firm return is increasing. This is a good sign for firm as its efficiency is increasing continuously.

c) ROE (return on equity)

The Return on Equity ratio is perhaps the most important of all the financial ratios to investors in the company. It measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company. The calculation is: Net Income/Stockholder's Equity =

_____%. Net income comes from the income statement and stockholder's equity comes from the balance sheet. In general, the higher the percentage, the better, with some exceptions, as it shows that the company is doing a good job using the investors' money.

ACTIVITY RATIO

1) Inventory Turnover Ratio

2) Debtors Turnover Ratio

3) Assets Turnover Ratio

a) Inventory Turnover Ratio

Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet the requirements of the business. But the level of inventory should neither be too high nor too low.

A too high inventory means higher carrying costs and higher risk of stocks becoming obsolete whereas too low inventory may mean the

loss of business opportunities. It is very essential to keep sufficient stock in business.

Inventory Turnover Ratio= Net Sales / Avg. Inv. at Cost

b) Debtors Turnover Ratio

Indicates the velocity of debt collection of a firm. In simple words it indicates the no. of times average debtors (receivables) are turned over during a year. Trade debtors are expected to convertible into cash within a short period of time.

Debtors Turnover Ratio= Total Sales / Debtors

c) Assets Turnover Ratio

the fixed assets turnover ratio measures the company’s effectiveness in generating sales from its investments in plant,property, and equipment. The total assets turnover ratio measures the company’s effectiveness in generating sales from all its funds employed.

Total Assets Turnover = Total sales / Total Assets

LEVERAGE RATIO;

1) Proprietary ratio or Equity Ratio2) Fixed Assets to Proprietor’s Fund Ratio

3) Current Assets to Proprietor’s Fund Ratio

Proprietary ratio or Equity Ratio

This ratio relates the shareholder's funds to total assets. Proprietary / Equity ratio indicates the long-term or future solvency position of the business.

Proprietary or Equity Ratio = Shareholders funds / Total Assets

Interpretation

This ratio throws light on the general financial strength of the company. It is also regarded as a test of the soundness of the capital structure. Higher the ratio or the share of shareholders in the total capital of the company, better is the long-term solvency position of the

company. A low proprietary ratio will include greater risk to the creditors.

B) Fixed Assets to Proprietors Fund Ratio

Fixed assets to proprietor's fund ratio establishes the relationship between fixed assets and shareholders funds.

The purpose of this ratio is to indicate the percentage of the owner's funds invested in fixed assets.

Fixed Assets to Proprietors Fund = Fixed Assets / Proprietors Fund

Significance:

The ratio of fixed assets to net worth indicates the extent to which shareholder's funds are sunk into the fixed assets. Generally, the purchase of fixed assets should be financed by shareholder's equity including reserves, surpluses and retained earnings. If the ratio is less than 100%, it implies that owners funds are more than fixed assets and

a part of the working capital is provide by the shareholders. When the ratio is more than the 100%, it implies that owners funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance the fixed assets. There is no rule of thumb to interpret this ratio by 60 to 65 percent is considered to be a satisfactory ratio in case of industrial undertakings

C) Current Assets to Proprietor’s Fund Ratio

Ratio establishes the relationship between current assets and shareholder's funds.

The purpose of this ratio is to calculate the percentage of shareholders funds invested in current assets.

Current Assets to Proprietors Funds = Current Assets / Proprietor's Funds

YEAR JAL ACC

2008 1.64 0.60

2009 1.59 0.40

2010 1.74 0.45

Significance:

Different industries have different norms and therefore, this ratio should be studied carefully taking the history of industrial concern into consideration before relying too much on this ratio.

Ratio’s Conclusion-

This table show downwards trend of liquidity of the company. Current

ratio of the company is 2.24 . it is not bad because company meet his

current liabilities without selling there product. Company’s quick ratio

is 1.97 times that show company has sufficient cash liquidity to meet

there liabilities. Quick ratio of 1:1 is considered to represent

satisfactory and company has satisfactory level.

WORKING CAPITAL AN INTRODUCTION

Working Capital-

Working capital is a financial metric which represents the amount of

day-by-day operating liquidity available to a business. The goal of

Working capital is to ensure that the firm is able to continue its

operations and that it has sufficient cash flow. Working capital is the

single best method of determining the position of a company. When all

is said and done, the company's working capital is what makes it

profitable or not profitable. The more working capital a company has

the better that company is doing, financially. Many potential investors

and others in the public sphere will scrutinize a balance sheet to find

the working capital calculation of a company.

Decisions relating to working capital and short term financing are

referred to as working capital management. These involve managing

the relationship between a firm's short-term assets and its short-term

liabilities. The goal of Working capital management is to ensure that

the firm is able to continue its operations and that it has sufficient cash

flow to satisfy both maturing short-term debt and upcoming operational

expenses.

Decision criteria of Working Capital-

By definition, working capital management entails short term decisions

- generally, relating to the next one year periods - which are

"reversible". These decisions are therefore not taken on the same basis

as Capital Investment Decisions (NPV or related, as above) rather they

will be based on cash flows and / or profitability. Hence working

capital management can be considered as the management of cash,

market securities receivable, inventories and current liabilities.

In fact, the management of current assets is similar to that of fixed

assets the sense that is both in cases the firm analyses their effect on its

profitability and risk factors, however differ on three major aspects.

1. In managing fixed assets, time is an important factor discounting

and compounding aspects of time play an important role in capital

budgeting and a minor part in the management of current assets.

2. The large holdings of current assets, especially cash, may strengthen

the firm’s liquidity position, but is bound to reduce profitability of

the firm as ideal cash yield nothing.

3. The level of fixed assets as well as current assets depends upon the

expected sales, but it is only current assets that are adjusted with the

fluctuation in the short run in a business.

Types of Working Capital-

To understand working capital better we should have basic knowledge

about the various aspects of working capital .There are 2 types of

working capital:

1. Gross Working Capital

2. Net Working Capital

Gross Working Capital-

Gross working capital simply called as working capital. It is refers to

the firm’s current assets. Current assets include cash, debtors, bills

receivable and stock. Gross working capital, which is also simply

known as working capital, refers to the firm’s investment in current

asset. Another aspect of gross working capital points out the need of

arranging funds to finance the current assets. The gross working capital

concept focuses attention on two aspects of current assets management,

firstly optimum investment in current assets and secondly in financing

the current assets. These two aspects will help in remaining away from

the two danger points of excessive or inadequate investment in current

assets. Whenever a need of working capital funds arises due to increase

in level of business activity or for any other reason the arrangement

should be made quickly, and similarly if some surpluses are available,

they should not be allowed to lie ideal but should be put to some

effective use.

Net working Capital-

Net working capital refers to the difference between current assets and

current liabilities less Short-term borrowing. Current liabilities include

creditors, bills payable and outstanding expenses. Net working capital

can be positive as well as negative. Positive working capital refers to

the situation where current assets exceed current liabilities and negative

working capital refers to the situation where current liabilities exceed

current assets. The net working capital helps in comparing the liquidity

of the same firm over time. For purposes of the working capital

management, therefore, Net Working Capital can be said to measure

the liquidity of the firm.

Calculation of Working Capital of J.P. Cement-

Year2007-08

2008-09

2009-

10

Inventories 98130 122862 155363

Sundry Debtors 58618 102204 228503

Cash & Bank 181544 290859 387918

Other Current Assets 3190 1282 3038

Loans & Advances 222194 330810 399472

Total Current Assets 563676 848017 1174294

Current Liabilities 334909 455439 520143

Provisions 30605 48231 65146

Total Current Liabilities 365514 503670 585289

Working Capital 198162 344347 589005

Dimensions of Working Capital of J.P. Cement-

Working Capital management refers to the administration of all aspect

of current assets and current liabilities. The management must

determine levels and composition of current assets. Managers see the

right sources are tapped to finance current assets. It is necessary to

manage working capital in the best possible way to get maximum

benefit. Manage Current Assets is the best way to control working

capital. Management of current assets gives a right dimension of

working capital.

Dimensions of working capital

Determinants of Working Capital-

There is no specific method to determine working capital requirement

for a business. There are a number of factors affecting the working

capital requirement. These factors have different importance in

different businesses and at different times. So a thorough analysis of all

these factors should be made before trying to estimate the amount of

working capital needed. Some of the different factors are mentioned

here below:

Nature of business-

Nature of business is an important factor in determining the working

capital requirements. There are some businesses which require a very

nominal amount to be invested in fixed assets but a large chunk of the

total investment is in the form of working capital. There businesses, for

example, are of the trading and financing type. There are businesses

which require large investment in fixed assets and normal investment

in the form of working capital.

Size of business-

It is another important factor in determining the working capital

requirements of a business. Size is usually measured in terms of scale

of operating cycle. The amount of working capital needed is directly

proportional to the scale of operating cycle i.e. the larger the scale of

operating cycle the large will be the amount working capital and vice

versa.

Manufacturing Cycle -

As is evident from the very word, manufacturing cycle means the

starting of the cycle with the purchase of raw material and ends when

finished products are churned out. An extended manufacturing time

span means larger tie ups and hence more working capital. So the

shortest manufacturing cycle should be chosen.

Business Fluctuations-

Most business experience cyclical and seasonal fluctuations in demand

for their goods and services. These fluctuations affect the business with

respect to working capital because during the time of boom, due to an

increase in business activity the amount of working capital requirement

increases and the reverse is true in the case of recession. Financial

arrangement for seasonal working capital requirements are to be made

in advance.

Production Policy-

As stated above, every business has to cope with different types of

fluctuations. Hence it is but obvious that production policy has to be

planned well in advance with respect to fluctuation. No two companies

can have similar production policy in all respects because it depends

upon the circumstances of an individual company.

Firm’s Credit Policy -

The credit policy of a firm affects working capital by influencing the

level of book debts. The credit term is fairly constant in an industry but

individuals also have their role in framing their credit policy. A liberal

credit policy will lead to more amount being committed to working

capital requirements whereas a stern credit policy may decrease the

amount of working capital requirement appreciably but the

repercussions of the two are not simple. Hence a firm should always

frame a rational credit policy based on the credit worthiness of the

customer.

Availability of Credit -

The terms on which a company is able to manage its credit also affects

the working capital requirement. If a company in a position to get

credit on liberal terms and in a short span of time then it will be in a

position to work with less amount of working capital. Hence the

amount of working capital needed will depend upon the terms a firm is

granted credit by its creditors.

Growth and Expansion activities-

The working capital needs of a firm increases as it grows in term of

sale or fixed assets. There is no precise way to determine the relation

between the amount of sales and working capital requirement but one

thing is sure that an increase in sales never precedes the increase in

working capital but it is always the other way round. So in case of

growth or expansion, the aspect of working capital needs to be planned

in advance.

Price Level Changes-

Generally increase in price level makes the commodities dearer. Hence

with increase in price level the working capital requirements also

increases. The companies which are in a position to alter the price of

these commodities in accordance with the price level changes will face

fewer problems as compared to others. The changes in price level may

not affect all the firms in same way. The reactions of all firms with

regards to price level changes will be different from one other

MANAGEMENT OF INVENTORY

Inventory Management-

Inventories are the stock of the product made for sale by the company

or semi finished goods or raw materials. Inventory of finished goods

which are ready for sale is required to maintain smooth marketing

operation. The inventory of raw material and work in progress is

required in order to maintain an unobstructed flow of material in the

production line. These inventories serve as a link between the

production and consumption of goods.

The aspect of management of inventory is especially important in

respect to the fact that in country like India, the capital block in terms

of inventory is about 70% of the current assets. It is therefore,

absolutely imperative to manage efficiently and effectively in order to

avoid unnecessary investment in them. Although to maintain low

inventories may prove to be profitable but to maintain very low

inventories may prove risky on the contrary.

This aspect of management if tackled in a proper way may prove to be

a boom; its effective and efficient management would result in the

maintaining of optimum level of inventories. At this level the

profitability of the organization will not be jeopardized at the cost of

inventory.

Now from the above stated facts it is clear that maintaining of optimum

level of inventory involves huge cost, so why should keep the

inventories at all.

Basically there are three main reasons for which inventories are

stocked and they are:-

1.Transaction Motive : This motive lays emphasis on maintaining of

inventories in order to maintain a smooth and unobstructed supply

of materials for the sales and production operations.

2.Precautionary Motive : This motive emphasizes on the stocking

goods in order to guard against the uncertainties of future i.e.

unpredictable changes in the forces of demand, supply and other

forces.

3. Speculative Motive: This motive influences the decisions

regarding the increase or decrease in the level of inventory in order

to take advantage of price fluctuations.

A company should maintain adequate stock of materials for continues

supply to the factory for an uninterrupted production. It is not possible

for a company to procure raw material instantaneously whenever

needed. A time lag exists between demand and supply of material.

Also, there exists an uncertainty in procuring raw material in time at

many occasions. The procurement of materials may be delayed because

of factors beyond company’s control e.g. transport disruption, strike

etc. Therefore, the firm should keep a sufficient stock of raw material

at a time to have streamline production. Other factors which may incite

us to keep stock of inventories is the quantity discounts, expected rise

is price.

The work in process inventory builds up because of the production

cycle. Production cycle is the time span between the introduction of

raw material in to the production and the emergence of finished goods

at the completion of production cycle. Till the production cycle

completes, the stock of work in process has to be maintained. Efficient

firms constantly try to make the production cycle smaller by improving

their production techniques.

The stock of finished goods has to be held because production and

sales are not instantaneous.

A firm can not produce immediately when goods are demanded by

customers. Therefore to supply finished goods on regular basis, their

stock has to maintain for sudden demand of customers.

In case the firm sales are seasonal in nature, substantial finished goods

inventory should be kept to meet the peak demand. Failure to supply

products to customer, when demanded, would mean loss of the firm’s

sales to the competitors.

The basic objective in holding raw material inventory is separate

purchase and production activities and in holding finished goods

inventory is to separate production and sales activities. If raw material

inventory is not held, purchase would have to be made regularly at the

time of usage. This would means production interruptions and high

cost of ordering.

A sufficiently large inventory has to be maintained of finished goods so

as to meet the fluctuating demands. If a close link is maintained

between the sales and the production department then an organization

can do with a small inventory also. In the process inventory is also

necessary because production can not be instantaneous. But it should

be seen that the size of production cycle should be small.

Objectives of Inventory Management-

In the modern business world there is practically nothing that is done

without objective. The objective is also one that would help the

organization in reaching its goals in a better way. Hence it can be

inferred that the importance given to management of inventory in the

business world is not devoid of a concrete reasons behind it.

The two main reasons behind all this are, firstly, to maintain a

inventory big enough that the production and sales operation are

carried on without any hindrance and secondly, to minimize the

investment in inventory, in order to maximize the profits. Both,

excessive as well as inadequate inventory level is not good. They are

the two danger points that a company should try to avoid and should

always try to maintain optimum level of inventory.

The excessive investment in the inventory has the following

drawbacks:

# Unnecessary ties up of firm’s fund and loss of profit.

# Excessive carrying cost.

# The risk of liquidity.

The over investment of funds in inventory eat up the precious funds

which could have been put to some profitable use. The carrying cost

incurred, can not be ignored, this is the cost of storage, handling

insurance, recording and inspecting. These all costs incurred in order to

have large inventories impair the profitability of the firm. Another

danger of carrying excessive inventory is the deterioration,

obsolescence and pilferage of raw materials.

Maintaining inadequate inventory is also dangerous. The consequences

of under investment in inventory are:

# Production holds ups;

# Failure to meet commitment

If the inventory of finished goods is not adequate than the demand of

customer is peak periods may not be left unmet and it the under

investment is in the area of raw materials that is likely that the

production process may be held up frequently.

The aim of inventory management thus should be to avoid excessive

and inadequate level of inventory and to maintain sufficient inventory

for smooth production and sales operation. Efforts should be made to

place an order at the right time to right source to acquire right amount

at the right price and for right quantity.

The aspects of a effective inventory management should take care of

are as:

Ensure continues supply of material to facilitate uninterrupted

production.

To maintain sufficient stocks of raw material in the periods of short

supply and evident price rise.

To maintain sufficient inventory of finished goods for smooth sales

operation.

Minimize carrying cost and time.

Control investment and keep it to the optimum level.

COMPOSITION OF INVENTORY-

Inventories

31-03-2010 Rs.

In Lacs

% of Total

Inventory

Stores, Spare parts 61252 59

etc. .46

Goods-in process 23918 23.22

Finish Goods 13280 12.89

Raw Material 2390 2.32

Material-in-Transit 2167 2.1

Total 103007 100

Trend Analysis of Inventory-

Inventories 31-03-2010 31-03-2009 31-03-2008

Stores, Spare

parts etc. 59.46 43.79 41.34

Goods-in-

process 23.22 49.83 51.66

Finish Goods 12.89 3.14 3.156

Raw Material 2.32 .070 1.076

Material-in-

Transit 2.1 2.52 2.76

Total 100 100 100

Trend of Inventories

Techniques of Inventory Control-

There are many techniques to inventory. Control over inventory is very

important for company because it is involved lost of money. Some

techniques are:

Economic Order Quantity-

It is the inventory level which minimizes the total of ordering and

carrying cost. Determining economic order quantity involves two types

of costs i.e. ordering cost and carrying cost. Here we find the economic

order quantity with the help of the formula:

EOQ = (2AO/C) ^1/2

Where, A -> -Total Annual Requirement

O -> per order cost

C -> per unit carrying cost

1. ABC Analysis-

ABC analysis is a technique of selective control of inventory by

classifying all items of stores into three categories namely-

Category A- A few items accounting for substantial usage in

term of total monetary value (10% of items covering 75%

value).

Category B- In between items A and C (20% items

representing 15% value).

Category C- Large number of items of small value (70% items

covering 10% value).

2. Just-In-Time Purchasing-

In this technique company are reducing stock levels to a minimum

by creating closer relationship with suppliers and arranging more

frequent deliveries of small quantities. The objective of just-in-time

purchasing is to purchase goods so that delivery immediately

precedes their use.

3. VED Analysis-

Vital, Essential and Desirable (VED) analysis is done mainly for

control of spare parts keeping in view the criticality to production.

Vital spare are spares the stock-out of which even for a short time

will stop production for quite some time. The stock-out cost of vital

items is very high. Essential spare are spare the absence of which

cannot be tolerated for more then a few hours a day and cost of lost

production is high. Desirable spare are those which are needed but

their absence for even a week or so will not lead to stoppage of

production.

4. FSN Analysis-

In this technique items are classified according to Fast-moving (F),

Slow-moving (S), and Non-moving (N) on basis rate of

consumption. The non-moving items are items not consumed for a

long period say 24 months. The classifications of fast and slow

moving items are determined on the basis of storage turnover and it

helps in proper arrangement of stocks in stores and distribution and

handling methods.

Conclusion-

This table shows that company has improving his inventory turnover

and sales there finished good quickly. Inventory turnover ratio

increased by 17.98% in 3years. This shows that company has turn

there inventory 17.98% more than previous years. Company turn there

inventory 12.73 times in a years. This means company turn there

inventory in to cash 12.73 times. Company holds there inventory

28.27 days. This is show that company has good sales over previous

years.

SUGGESTIONS

SUGGESTION

Keeping in view of detailed analysis for the 5 years of study and our

findings mentioned in above paragraphs, the following suggestions

shall be helpful in increasing the efficiency in working capital

management

J.P. Cement’s working capital is less then 25% of its Current

assets. Company has to improve ther working capital.

In case of inventory management ABC analysis, FSN technique,

VED technique should be adopted to increase the efficiency of

inventory management.

Company should be focused on his Capital Structure.

CONCLUSION

Conclusion-.

Company has 548014 lacs working capital which is 41.84 % of his

current assets. So company has to increase his working capital for

day to day operation. Company’s working capital should have to

25% 0f his current assets.

J.P. Cement has 62.74% current assets of total assets this is low

percentage of current assets. Company utilizes his cash properly and

maintaining his sundry debtors. Company is increasing his

inventory. Company is also increasing his prepaid expenses.

J.P. Cement has good liquidity position. Current ratio of the

company is 2.24 times. It is 0.24 times more than satisfactory

level. Company’s quick ratio is 1.97 times. Net working capital

ratio is 0.37 times of his total assets.

J.P. Cement manage there cash properly. Company has 0.74 time

cash to his current liabilities. Company has ability to meet his more

than 50% current liabilities without converting inventory and

debtors in to cash.

Debtors turnover in 2009 is 1.72 time. It is increase to 2.20 in FY

2010. It has increased by 27.91% in 2010.

Company turn there inventory in to cash 8.39 times. Company

holds there inventory 44 days. Inventory turnover ratio increased by

7.39% in 3years. J.P.Cement has good sales over previous years.

In Inter-firm comparison J.P. Cement has good position but ACC

Cement has better sales and manage there finance.

BIBLIOGRAPHYBIBLIOGRAPHY

Pandey I.M. Financial Management

Annual Report – J.P.Cement

www.J.P.cement.com

www.jalindia.com

www.jaypeegroup.com

www.investorpidia.com

www.wikkipidia.com