Chapter- 1
Working Capital Management
1.1.1 Introduction:
As we know that Working Capital comprise of two words 1st Working
which means to engages in work & 2"d capital which means fund. Thus Working
Capital management is management of funds for day today working. But before
going to such deep study we try to describe Working Capital in the terms of
layman.
We are not aware of the fact that instead of business, Working Capital is
also related to various parts of society, Daily life of peoples, etc. The question
arises how. This can be explained through various examples.
•!• From Students point of view.
¢ Students deposits fee at time of Admission, which is quite a heavy amount,
can be treated as a capital. But during their studies they need money for
expenses on notes, Writing material & other, which can be termed as
Working Capital. Similarly regular students give time for his regular studies
& extra efforts applied at the time of exams can be treated as Working
Capital.
•!• From the House wives point of view.
¢ In Indian family maximum Husbands give a lumsum amount at beinging of
the month to their house wives for Home expenditure. A fixed portion
(Capital) is incurred by housewife in fixed expenses like Rason, Electricity
Bill, fee etc. But she manage some funds if any additional expenses occurs
because of illness to any member of family or any other as the case may be,
can be treated as Working Capital management by House Wives.
•!• From service man point of view.
¢ A man on service gives a fixed portion of his salary for his home
expenditure. He retain a portion for his daily expenses which can be treated
as Working Capital.
- 1 -
Working Capital Management is all time a crucial matter. Approach of
Working Capital is made understood able to a layman because if each and every
person understood the concept of Working Capital then it will became easier for
industries to manage & maintain its Working Capital Efficiently & Effectively.
1.1.2 Meaning :
Working Capital Management plays very important role because the capital
invested by a firm at the time of its establishment they had to manage it & it's
impossible without Working Capital.
Capital can be treated in a two way in any firm. Firm, which used the capital
for its establishment, can be termed as fixed capital. This capital is used to
purchase of land, construction of building, purchase of machinery are all other
necessary integrants for setup an industry. But just to setup is not a motto, when
one has incurred a lots of capital in setting up an industrial unit his main emphasis is
to run it. For its smooth functioning it requires day to day expenses like expenses
on wages, freight of raw material, fund needed to manage the difference between
payment to supplies & receipts form debtors & other like some additional fund
required at the time of some emergency like cash purchase of raw material, lag in
payments, Healy advance etc. If above expenses are not taken care off then the
possibilities for survival of any industrial unit may go in vain. The funds that
require maintain its daily expenses in termed as Working Capital and efficient
management of that capital is Working Capital management.
- 2 -
1.1.3 Definitions :
"Working Capital management is a decision about mix of the current assets
of the firm as well as financing assets."
As there is no universally accepted definition of Working Capital but some
thinker express their view on Working Capital.
According to Gilbert Harold\ "Un fortunately there is so much
disagreement among financiers, accountants, businessmen & economist as
to the exact meaning of term Working Capital".
The accounting principles board of the American Institute of
certified Public Accountants, USA2
has defined Working Capital as follows.
"Working Capital sometime called networking, is represented by the exceres
of current assets aver current liabilities & identities the relatively liquid
portion of total enterprise capital which constitutes a masgin of buffer for
maturing obligation within ordinary operating cycle of business."
Bernstein3
specifies that the basic concept of Working Capital is
excess of current assets over current liabilities."
4 Gerstenberg defines it as "Circulating capital means current assets
of a company that are changed in the ordinary course of business form one
from to another."
According to Guthman5, "It is always current assest over current
lia b iii ties"
Some thinker believes that Working Capital is sent related to CutTent assets.
I. (Gilbert Harold. Corporation Finance P.l32)
2. (Joumel of US Institute ofPublic Accountant quoted by Roy B.Chawdhary "'Practical Financial Statement Analysis P-2)
3. (B.A. Leopard, Financial statement Analysis, theory Application & Interpretation P-442) 4. (Gerstenbery C. W Financial Organisation & Management P-282) 5. (Guthman H.G. ··Analysis of Financial Statement P-63)
- 3-
According to Adam smith 6
"Inventory If a business man does not
provide any profit to him until it converted into capital. He also specifies
that there must to be inflow & outflow of capital in a manner so that he can
receives profit."
7 Walker approaches that " A good current ratio may mean a good
umberclla for creaditors rainy day but to the management it reflects buulty
financial planning."
8 "V.L.Gole observed thinking about Working Capital, fund strikes
current assest minag current libilites in mind"
These from the above approach use can conclude that it's not an easier job
to protect the misuse of heavy amount of capital invested in a firm at the time of its
establishment and to get return form the fund invested. We need some additional
fund for day-to-day expenditure is termed as Working Capital.
While discussing on the matter Working Capital it get a crucial turn into the
concept of Gross Working Capital & Net Working Capital.
"Gross Working Capital as enumerated by the thinkers of financial
management is the items of current assets i.e. the capital inverted in total
current currents of the enterprise"9
"Concept of Net Working emphasis on excess of current assets over
current liabilities i.e.; current assets - current liabilities.10
Further we can conclude of that Working Capital is a capital which in not fixed.
6. (Smith Adam" The wealth of nation P-262- 263 quoted by Roy B Chawdhary "Practical Financial Statement Analysis P-71)
7. (Walker E.W. Essentials ofFinancial Management P-54) 8. (Gole V.L. Op. Cit P-319) 9. (Backer. John. Mallot; lnroduction to Corporate Finance. P-92. Dewing A.S the Financial policy
of Corporation P-686. Sen.A.K. Working Capital in Indian economy P-I 25. Pandey l.M tinancial management P-799-80 I)
I 0. (Adwand. E. Applied Business Finance P-212)
- 4 -
1.1.4 Type ofWorking Capital :
On Time Basis
Permanent we
Variable we
Working Capital
On Balance sheet Concept
Gross Net we we
l+wcl
- 5-
1-WC
On Basic of Operating Cycle
Cash we
1.1.5 Permanent or Fixed Working Capital :
Some companies try to maintain a smooth line of production every time.
Due to this they require a fixed amount of fund for its Working Capital. For this
company fix a target of annual production by taking into consideration Past sales
data, Future demand etc. Also company has to maintain a fixed current asset to
carry its normal business operation. Further it is divided into Regular & Reserve
Working Capital. Permanent/Fixed WORKING CAPITAL may increase at fixed
percentage. Reserve Working Capital is for unwarned situation like strikes,
Inflation, etc.
Temporary
Permanent
Time
£
1.1.6 Temporary or Variable Working Capital :
Temporary/Variable WORKING CAPITAL as its nature denotes it is not
fixed. It fluctuates according to its requirement, which may be seasonal or special.
Variable WORKING CAPITAL may rise due to increase in demand for seasonal
industries. For example if a firm is manufacturing umbrella then it require high
WORKING CAPITAL form May to October in compare to November to April.
Temporary WORKING CAPITAL may rise to upwards as fixed WORKING
CAPITAL.
Temporary
Time
- 7 -
1.1.7 Cash or Operating cycle of WORKING CAPITAL:
Cash or Operation cycle WORKING CAPITAL implies trom the fact within
how much time resources in converted into cash. This start with purchase of Raw
material, Working in progress, Finished goods, Sundry Debtors, Cash Collection
& Payment to creditor. Cash conversion cycle represents cash receipt form debtor
in leiu of credit sales & the cash payments for the company for various resource
purchase.
Sundry Credetior
0 ~ Cash Collection RAWMaterial
D Sundry Debtors WIP
Finished good
1.1.8 Importance ofWORKING CAPITAL:
Working Capital is treated as life blood and liver system of any business.
As a baby need proper care within the first five year from its birth & so on,
Working Capital is very essential for uninterrupted running of business. Lack of
Working Capital lay down hurdles in path of successful run of business enterprise.
1. Solvency of Business : Every one-start business with a capital amount
with an objective to get returns from capital invested. Proper Working Capital
management helps in smooth running of business with proper flow of production
& helps in maintaining its,solvency.
2. Goodwill: If company will run successfully then only it will able to give the
returns to the investors. Proper returns on investment will make an image (Good
will) in market, which is not possible without adequate Working Capital.
3. Easy availability of Finances: It's a myth that one can invest in a running
work. Handicapped are not cared. If a company is running successfully by Work
ing Capital Management then company can returns finance from market easily for
new ventures.
4. Discount : Supplier if get timely payment in lieu of goods sold then they
will provides various facility like discounts schemes on purchase & hence it
reduce cost.
5. Regularity in resources : A product gets its final shape through various
process of production like material, man, money, etc. Material is supplied by
creditors that are converted in finished good with the help of labor with other
attributable expenditures. we paid wages to Labours in lieu of their help. Working
Capital Management helps in regularly in resource through timely payments of
resources.
6. Favoring Market Condition : Proper arrangement of Working Capital
help is making favorable market condition like one can purchase Raw Material in
bulk if available at low price.
n
7. Help to Face Crisis: Market conditions are always in certain. One cannot
make an accurate prediction of market. Working Capital Management provides an
assistance to face crisis of market if occurs any time.
8. High Moral : Adequate Working Capital help in continuity in production,
supply, and payments to all the resource of production. Thus it helps in creating an
environment of security, confidence, satisfaction & high morale as well as helps in
creasing overall efficiency of business.
- 10-
1.1.9 Factor determining WORKING CAPITAL of Business:
I. Nature of Business: The frist and for most factor which determine Working
capital of business is its nature. I fa business enterprises deals in cash only then its
requirement of WORKING CAPITAL is less and vice versa. Public service
undertakings like Railway, Post, Electricity, Water Supply, Television etc. requires
less Working Capital. But firm like Financial Institutions, Banks, Financial
Corporation requires more Working Capital.
2. Size of Business : When the size of Business unit is large or big the
requirement ofWorking Capital is more in compare to small business organization.
3. Production Policy: It is also an important factor in detennination of Working
Capital. It concern produce more to meet the demand of peak season then the
requirement ofWorking Capital for that term will rise.
4. Length of Production Cycle: Length of production cycle determines the
requirement of Working Capital because longest the process of manufacturing,
more will be requirement of Working Capital. For shortest production cycle there
would be less requirement of Working Capital.
5. Seasonal Variation : Raw material are not available for some industries
throughout the year therefore they had to purchase bulk raw material at its
availability. At that time the requirement of Working Capital increases. Demand can
also be a constitute of seasonal variation. For example paper industries had to
produce more at the beginning of educational term there fore there may be rise in
Working Capital.
6. Working Capital Cycle : It consists of conversation of Raw material to
finished goods and there sales. If credit sales then its collection too. How fast the
cycle is complete the requirement of Working Capital is less.
7. Credit Policy : It effects the requirement of Working Capital too much.
As the firm sales its goods on credit and purchases are made on cash then the
requirement of Working Capital is quite large in compared to opposite firm .
. II .
8. Rate of Stock turnover: Time when keeps high rate of stock turn requires
less Working Capital in compare so those who keeps low stock turn over.
9. Rate of Growth of Business : If a Business is in growing stage then
requirement of Working Capital Increases because of expansion of Business.
10. Economic Environment/Business cycle : If there are favorable
environment of business (i.e. boom period) then to meet the needs of market they
had to do more i.e. requirement of Working Capital increases but there is good
supply of capital too. But if conditions are not favorable then large amount of
Working Capital lay idle.
11. Changes in price level or Income level : If the flow of money in the
market is sufficient then there is increase in the earning capacity of firm. At that
time requirement of Working Capital is less.
12. Management Efficiency & Operation: If the operations performed by it
at its maximum and its management is well enough in then work then the
requirement of Working Capital is less.
Thus with the help of above factor a finn can able to visualize its
requirement of Working Capital accurately. But one can also remember that future
is always uncetiain.
- 12-
1.1.1 0 Calculation of Working Capital (Standard Format): -Various authors
Gurus of Financial Management Working Capital Management like V.K Bhalla,
R.K.Sharma & B.N.Gupta, Gerlord, Gilberth and other has given the format
of calculation of Working Capital.
Statement of Working Capital Requirement Particulars Amount Amount
(Rs.) (A) Current Assests --
(i) Stock of Raw Material --(ii) Working in progress --
(a) Raw Material (1 00 %) --(b) Labor (1 00% or 50% as given
in Question) --(c) Overhead --
(iii) Finished goods --(a) Raw Material --(b) Labor --(c) Overheads --
(iv) Debtors --(v) Advance/Prepaid --(vi) Cash (if any) --
Total Current Assets (A) -- --(B) Current Liabilities --
(i) Sundry Creditors --(ii) Lag in payments (outstanding) --
(a) Wages --(b) Over head --(c) Others --
Total Current Liabilities (B) -- --Working Capital (A-B) --Add :-Provision for contingency --Net Working Capital Requirement -- --
Notes:
I. Protits are always ignored while calculation Working Capital
2. Debtors & stocks are calculated as requirement of problem .
• 13-
1.2 Cement Industry Introduction
Of late, Cement companies have been doing well. Most of the companies
have posted a healthy bottom line growth during the financial year 2003-04
piggy backing higher sales, improved price realization and lower interest costs.
This fact is well illustrated by rise in the IlL Cement index. On the full year basis,
IlL Cement index has outperformed the Nifty comfortably. This trend is expected
to continue in the future as well considering the Governments commitment to boost
infrastructure and economic reforms. The efforts here are to help expansion in
GDP that has been growing at faster pace, second only to China.
Cement demand is expected to grow considering its correlation with GDP
growth, which is estimated to enhance by 7.5-8% during FY05.
Ill CfM Vs NIIIW
JQOil
2500
mo mn mu ~UD
0 s ~ ,. ;;.;. (;! "' E1 E! !;) ~ e ~ ~ ~
" Q " " $ ~ iii ~ ~ ;:; ~ ;; ~ i,i ~
1~1\i.ceM -Ndtr 1
Financial performance of select cement companies:
~Figures in Rs mn)
jCompany FY04 FY03 (%) I FY04 I FY03 1 (%) I l IACC 1s 2642J 13S1j 961
-~--
32845 28604 (11)
iGrasim 24199[ 21885 11 2957 2213j 331 (14),
llnd1a Cement '
I 10169 8516 19 (1366) (3072)! 56 -------(3aT - '
!Madras Cement 6946 6261 11 541J 2331 132 (25)1 ··---·!
IDalm1a Cement (5)! 309j 256! 211 {3~--iShreeCem;;;-----· ::-:-::l!----:::(2:+)J-2:::1-::-8ll123[-77!-·---·i4j ___ _
lf.::G-uJa'"'ra""t7Am"'b'""u-=-Ja":---+=:::+---:-~ 8 22561 17221 Jif·------(1oi] ___ - · ----r---·-
BIIrla Corp 10 416 521 (20)1 -'-'-
161 (6)
5! (7) .T
3 51
51 5
• 9 months
Source: India Jnfoline
- 14-
l.2(a) Current Industry Scenario :
In terms of volume, during FY04, cement dispatches increased by 5.5% to
II 7mn ton from Ill mn ton. Increased emphasis on infrastructure development
pushed up the demand. Cement prices too, on a yoy basis, increased substantially.
Cement prices rose by almost 6% to 21%, in different regions, over previous year
levels. The surge in the sales has also resulted into higher capacity utilization.
These factors had positive impact on cement companies performance during FY04.
Higher price realisation has also provided leg up in the over all showing.
Cement firms in the southern regions fared better than their counter parts in
northern and western regions. Southern firms' price realisation stood between 7%
and 11%, while that of northern and western firms hovered between 4.5% and
5 .5%. Shree Cement had a negative realisation.
Tight cost control measures are primarily responsible for improved
efficiency. Captive power consumption, market realignment efforts and good
Working Capital management jacked up cement companies profitability. Low inter
est regime have also aided in lower interest cost and, in turn, improved bottomline.
1.2(b) Individual Companies Performance:
Two cement majors, Grasim Industries and UltraTech Cemco (erstwhile
L&T) saw a huge increase in cement sales and despatches. For Grasim sales were
up 11% and despatches yoy were up 118%. Ultratech Cemco sales were up 7.1%
despatches were up marginally by 0.7%. Both these companies saw a 5% and 2%
increase in operating margins respectively. Now that Grasim has taken over the
management control in UltraTech Cemco, it has emerged as a biggest player in
India and the seventh largest in the world.
A 14.8% rise in sales turnover helped ACC, another cement major, to record
second-highest net profit in its history. The company's net profit skyrocketed by
92.74% to Rs2,bn. Its sales turnover rose to Rs3.3bn in FY04 from Rs2.9bn in
FY03. The company's operating margins was up by 200bps to I 1.7%. This was
possible through higher sales realisation, at 3.5%, and improved operating
efficiencies and Working Capital management.
- 15-
Gujarat Ambuja, for the nine months period has reported 8.1% yoy increase
in net sales to Rs 13. 7bn as against Rs 12.6bn during the same period last year. Net
profit of the company increased by 53% yoy to Rs2.2bn as against Rs 1.4bn in the
corresponding period last year. Its sales realisation stood at 3%
Among the other listed firms such as India Cement, Chettinad Cement, Birla
Corp and Madras Cement have clocked a double-digit growth in sales. On an
average, sales turnover of the cement firms rose by II% during FY04.
1.2(c)
•
Outlook:
Cement industry recorded a growth of5.5% in FY04 and is likely to
grow by 8-9% in the next 1-2 years. This translates into an
incremental demand of 1 Omn ton per year.
• The increasing road and house construction activity across India,
coupled with the growing demand and rising prices augurs well for
cement companies.
• With no major capacity coming up in 2004-05, the higher demand will
be met through de-bottlenecking and an increase in the blending rate,
thereby pushing up the industry operating rates.
• Limited capacity expansion plans combined with price and volume
growth and unaltered freight rates, in the Railway budget, would lead
to higher operating rates and boost cement majors profitability.
- 16-
1.2(d) Cement Sector Update January 2004 :
• Cement consumption rose by 5.8% yoy to I 0.2mn ton in January 2004.
• South remained the largest cement consuming region with 28%
consumption share (26.3mn ton in Apr-Jan 2003-04) and 27% in the month
of January 2004 (2.6mn ton). North was the second largest cement
consuming region with 20.1% consumption share ( 18. 7mn ton in Apr-Jan
2003-04) and 19.7% in the month of January 2004 (2mn ton).
• Cement export declined sharply by 35% yoy in January 2004 to 0.24mn ton
from 0.37mn ton in the corresponding month last year.
Clinker exports grew by 38% yoy in January 04 to 0.4mn ton from 0.29mn
ton in the same month last year.
Despatches of Key Players :
~ ..
---1~~;;. yoy r·-,.,p;::~~.;-o.;· T ·;j;;::iano3·r %·;c;y-·; · ---T 1. 1.19 ·-mi'i"[-·-··-1TsT···-1o:i2l·-·--u:d ' I
GACL 1.16 1.14 2.36J 10.76i 9.45 13.88 I ,- ' IL&T 1.16 1.02 13.671 9.92! 10 04 (1.19)
~'~--------0.391
y---···--------------jBirla Corp 0.40 2.991 3.891 3.72 4.61
IShree Cement + 0.24 0.22 12.141 2.33i 2 27 2.68
!Madras Cement ' 2891--2~85 027 02611 2.59 1.49 -~-~"-"'"-' -·--------
India Cement 0.47 0.45;1 3281 5.151 4.91 4.91f ' I
Total Domestic Consumption 5.11 4.68l 9.181 47.521 43.351 9.641 --·-···---.,~-
Source: CMA
- 17-
1.2(e) Company wise Performance:
ACC outnumbered the industry by growing at 24.4% yoy to 12.6mn ton
during Apr-Jan 2003-04 as against the industry growth rate of 9.6% yoy in the same period. While for the month of January 2004, ACC grew by 17% yoy to
l.4mn ton as against the industry growth rate of 9.2% yoy in the month under
review.
Gujarat Ambuja group registered a growth of 13.9% yoy in despatches to
10.8mn ton during Apr-Jan 2003-04 as against the industry growth rate of9.6%
yoy in the same period. The company registered a growth of 2.4% yoy in
despatches at 1.2mn ton for January 2004 compared to the industry growth rate of
9.2% yoy.
L & T registered 14% yoy growth at l.2mn ton in despatches in January
2004, however during Apr-Jan 2003-04 despatches declined by 1.2% yoy to 9. 9mn
ton. Despatches oflndia Cement have shown 3.3% yoy growth in January 2004 &
a cumulative growth of 4.9% yoy to 5.2mn ton in Apr-Jan 2003-04.
Cement despatches ofBirla Corp and Madras Cement registered growth of
3% yoy (0.4mn ton) and 2.6% yoy (0.3mn ton) respectively in January 2004.
Despatches ofShree Cement increased by 12% yoy to 0.24mn ton in January 2004
while cumulative sales grew by 2. 7% yoy to 2.3mn ton.
1.2(f) Monthly consumption trend :
l2
!Q
e j 6
~ 4
2
0
Source: CMA
'· ·I\ ,,
'
' t--J\
•
l
3(1
15 20 1S ~ 10 ~ $ 1-0 .$
-10
Domestic cement consumption in January 2004 grew by 5.8% yoy to
I 0.2mn ton as compared to 9.64mn ton in the con·esponding month last year.
During the first ten months of FY04, cement sector grew by 3.2% yoy.
Domestic consumption has increased from 92.2mn ton in Apr-Jan 2002-03 to
95mn ton in Apr-Jan 2003-04.
- 18-
1.2(g) Regional consumption trends:
Apr -Jan 2003-04
Central North 17% 20%
~;:~~:: South 28%
r:J North liil East D South D West Iii Central
January 2004
Central Not1h 17% 20%
~ ~ West , , East
21% 15% South 27%
D North iii East D South D West liil Central
Source: CMA(Cement Manufacturing Association)
South remained the single largest region with a 28% consumption share at
26.3mn ton during Apr-Jan 2003-04 and 27% share at 2.6mn ton in the month of
Janumy 2004.
North was the second largest cement consuming region with 20.1% con
sumption share at 18. 7mn ton in Apr-Jan 2003-04 and 19.7% share at 1.96mn ton
in the month of January 2004.
- 19-
Regionwise production & despatches (mn ton)
~~i~nn) Jan-04 iro~~~~~3n I %mom ~-04 Drffe:~~~:r% ~0~ I [North ___ [
, ____ -·--
3.02 (2.2)
ceniffir 1.49[ D4-s}---- -1:4or-----3~2 ]"ot~I ___ :]_ ___ _!_0.22l ~ 1~:3~[~~~ -~~~s[:_=-~-~~6
----2.10 (1.8) 1.49 0.1:1
10.06 ~·~1 __ ·-
Source: CMA
Price scenario in key cities
Source: India Infoline
In February 2004, the cement prices in Ahmedabad have increased sharply
by 13.7% mom to Rs158 from Rs139 in January. However, in Hyderabad the
prices have declined by 5.4% mom to Rs123 per bag from Rs130 and in Mumbai
by 1.8% mom toRs 168 per bag as against Rs 171 in the previous month. In Calcutta
and Delhi the prices have remained constant at Rs 165 and Rs 145 per bag
respectively.
- 20-
1.2(h) Trend in cement exports :
0.40
2 0.35 0
~ 0.30
';; 0.25 t: g_ 0 20 olj
015
0.10 "'
Source: CMA
/
/, r---- I 'I\ ' '
. ' "' -"""~-..
80
60
40
20 ~ "' 0
-20
-40
On yoy basis cement export in Apr-Jan 2003-04 grew marginally by
0.4% yoy to 2.77mn ton from 2.76mn ton in the corresponding period last
year. However, in January 2004, cement exports declined sharply by 35%
yoy to 0.24mn ton as against 0.37mn ton in January 2003. Nepal, Sri Lanka
and Iraq have been the major contributors to exports.
Cement exports (mn ton)
2003 04 2002 03 i---·--....... ____ .. -- .. ~.-- - -. -· --- ---~"'~- """"-"·~~-~-- --- ·-· ___ .. _. _________ , ___ -~~- .... ... .. -~··
April 0.31 0.30[
~ay~~--· 0.27 ------+H:~---. ------~----
June 0.26 July 0.27 0.201 ..
0.21·1 iAug 0.25 ['------ -- __ .. __ ... ______ 0.-2sr· .. ----rsept 0.25 lOct 0.26 0.26 Nov 0.36 0.21-r----·;r--------Dec 0.30 0.36
[!otal t= 0.241
Source: CMA
- 21 -
l.2(i) Trend in clinker exports :
Clinker exports grew by 38% yoy to 0.4mn ton from 0.29mn ton in the
corresponding month last year. During the first ten months ofFY04 clinker exports
recorded a sharp growth of 72.6% yoy to 4.59mn ton compared to 2.66mn ton in
Apr-Jan 2004. U.A.E, Nepal, Bangladesh and Qatar have been the major
contributors to exports.
Clinker Exports
0.49 0.50 0.52 0.52
0.32
"' "' .,
"' "' "' 0 0 0 0 0 0
l:i ,._ c 3 0) Q.
" ::! - " •• <( :2 - <( (f)
DApr-Jan 04
Source: CMA
Clinker exports (mn ton)
Source: CMA
0.59
"' 0
u 0
0.63
"' 0 > 0 z
1i1Apr-Jan 03
0.41
"' 0 u
" Cl
1.2(j) CEMENT PRODUCTION AND DESPATCHES
APRIL 2005
l. Analytical Review
(a) Cement Production and Despatches
During April 2005, Cement Production was 11 .41 Mn.T, showing a
growth of7.24% as compared to 10.64 Mn.T in April 04.
Cement Despatches grew by 9.25% from 10.49 Mn.T in April 04 to
11.46 Mn.T in April 05.
(b) Cement/Clinker Export
During April 2005, Cement Export showed a growth of 20% (from
0.40 Mn.T in April 04 to 0.48 Mn.T). Clinker Export showed a decline of 12.24%
(from 0.49 Mn.T in April 04 to 0.43 Mn.T ).
Capacity at the beginning of the year 2005-2006 is 152.09 Mn.T.
Capacity as on date - 152.09 Mn.t.
1. Cement:
Apr 2005 Mar 2005 Apr 2004 2005-2006 2004-2005
{Apr)
(a) Production 11.41 12.02 10.64 11.41 10.64
(b) Despatches 11.46 12.12 10.49 11.46 10.49 (Including Export)
(c) Export 0.48 0.44 0.40 0.48 0.40
(d) Closing Stocks 0.97 1.07 1.12
(e) Cap. Uti. (%) 90 95 87 90 87
2. Clinker (Mn. T.)
Apr 2005 Mar 2005 Apr 2004 2005-2006 2004-2005
(Apr)
(a) Production 9.34 9.79 8.62 9.34 8.62
(b) Sale 0.20 0.24 0.22 0.20 0.22
(c) Export 0.43 0.62 0.49 0.43 0.49
(d) Closing Stocks 4.37 4.51 4.46
- 23-
3. Coal
Apr 2005 Mar 2005 Apr 2004 2005-2006 2004-2005
(Apr)
(a) Coal Receipts 1.16 (P) 1.24 (P) 1.14 1.16 1.14 (Mn. T.)
(b) Coal Loading 1156 1197 896 (FW/Day)
4. Varietywise Cement Production- 2004-2005 (Apr-Mar)
Region OPC PPC PBFS
North 49 50 -
East 12 46 41
South 46 48 5
West 76 21 2
Centre 24 75 -
All India 43 48 8
5. Wagon & Rail-Road Despatches
(b) %age Rail to Total Desp.
33
70
32
- 24-
(Percentage) Others Total
1 100
1 100
1 100
1 100
1 100
1 100
(Apr-Mar)
63 77
35 33 34
6. % growth in Cement Production- (2005-2006/2004-2005) (Apr)
State %age State %age Change Change
Northern Region Western Region
Punjab 24 Gujarat 10
Rajasthan -0.3 Maharashtra -4
Himachal Pradesh 4
Northern Region 4 Western Region 3
Eastern Region Central Region
Bihar 38 Uttar Pradesh 29
Jharkhand 11 Madhya Pradesh 9
Orissa 23
West Bengal -3
Chhattisgarh 3
Eastern Region 7 Central Region 13
Southern Region
Andhra Pradesh 10
Tamil Nadu 17
Karnataka 1
Southern Region 10
All India 7
Note : Fzgures only for maJOr cement producmg states are gzven.
-25-
7. %growth in Cement Consumption- (2004-2005/2003-2004) (Apr-Mar)
State %age State %age Change Change
Northern Region Southern Region
Uttranchal 8 Andhra Pradesh -3
Haryana 14 Tamil Nadu -1
Punjab -3 Karnataka -7
Rajasthan 5 Kerala 3
Himachal Pradesh 5
Delhi 11
Northern Region 6 Southern Region -2
Eastern Region Western Region
Bihar 21 Gujarat 11
Jharkhand 14 Maharashtra 8
Orissa 14
West Bengal 8
Chhattisgarh 45
Eastern Region 16 Western Region 9
Central Region
Uttar Pradesh 5
Madhya Pradesh 13
Central Region 8
All India 6
Note : Figures only for maJor cement consummg states are given
-'" -
1.2.1 COMPANY PROFILE
The present unit of Grasim Cement and Ultra Tech Cement at Raipur is a
part of Cement division of Aditya Birla Group. The profiles of Aditya Birla Group
and that ofGrasim and UltraTech Cement are discussed below-
A PROFILE OF ADITYA BIRLA GROUP:
The Aditya Birla Group is India's first truly multinational corporation.
Global in vision, rooted in Indian values, the Group is driven by a performance
ethic pegged on value creation for its multiple stakeholders. A US$ 6.5 billion
conglomerate, with a market capitalisation of US$ 7 billion, it is anchored by an
extraordinary force of 72,000 employees belonging to over 20 different
nationalities. Over 30 per cent of its revenues flow from its operations across the
world. The Group's products and services offer distinctive customer solutions.
Its 66 state-of-the-art manufacturing units and sectoral services span India,
Thailand, Indonesia, Malaysia, Philippines, Egypt, Canada, Australia and China.
A premium conglomerate, the Aditya Birla Group is a dominant player in all
of the sectors in which it operates. Such as viscose staple fibre, non-ferrous
metals, cement, viscose filament yarn, branded apparel, carbon black, chemicals,
fertilisers, sponge iron, insulators and financial services.lt is:
·· The world no. I in viscose staple fibre
·· The world's largest single location palm oil producer
·· Asia's largest integrated aluminium producer
·· A globally competitive, fast-growing copper producer
·· The world's third largest producer of insulators
·· Globally, the fifth largest producer of carbon black
.. The world's eight largest producer of cement, and the largest in a single geography
.. India's premier branded garments player
.. Among India's most energy efficient private sector fertiliser plants
.. India's second largest producer of viscose filament yarn
.. The no. 2 private sector insurance company, and the fourth largest asset management company in India
The Group has also made successful forays into the IT and BPO sectors.
-27-
Vision ofthe Group: To be a premium global conglomerate with a clear focus on each
business.
Group's Mission:
To deliver superior value to our customers, shareholders, employees
and society at large.
Group's Values:
• Integrity
• Commitment
• Passion
• Seamlessness
• Speed
Grasim Industries Limited, a flagship company of the Aditya Birla Group,
ranks among India's largest private sector companies, with a turnover ofRs. 624 7.10
crore for Fy 2005. Starting as a textiles manufacturer in 1948, Grasim's businesses
today comprise Viscose Staple Fibre (VSF), cement, sponge iron, chemicals and
textiles. The Company holds a dominant position in its businesses:
Viscose staple fibre :
The Aditya Birla Group is the world's largest producer of VSF,
commanding a 24 per cent global market share. The Company meets over 98 per
cent oflndia's domestic VSF requirements
Cement:
Grasim is the world's eighth largest cement producer, and the largest in a
single location With a total grey cement capacity of 13.12 million tonnes per annum
(tpa), Grasim is among the largest producers of grey cement in India. All its plants
are located close to sizeable limestone mines and are fully automated to ensure
consistent quality. All the company's cement units are equipped with state-of-the
art equipment and are ce11ified with ISO 900 I for quality systems, and ISO 14001
- 2!1 -
for environment management systems. Its national brands are Birla Plus, Birla Su
per and Birla Ready Mix concrete.
Sponge iron :
It is the largest merchant producer of sponge iron in India
Chemicals:
Grasim has India's second largest caustic soda unit
Textiles:
Its premium brands, the 'Grasim' and 'Graviera' range of fabrics, have
distinctively positioned themselves as 'the power of fashion'.
All of Grasim's units have earned ISO 9002 and 14001 certifications.
Product quality, innovation and ceo-friendliness are a hallmark of all
the Company's divisions
Capacities Division
Viscose Staple Fibre (VSF)
Grey cement
Grasim Industries
Shree Digvijay Cement
Total
White cement
Sponge iron
Chemicals
Textiles
Vikram Cement :
2,51,850 tpa
12.92 million tpa
1.08 million tpa
13 .12 million tpa
400,000 tpa
900,000 tpa
190,800 tpa
Capacity
18 million metres a year
The first production line of this unit at Jawad (Madhya Pradesh) went on
stream in 1985, with a capacity of0.5 million tpa. Today, with a capacity of a 4.20
million TPA, Vikram Cement has emerged as a premium regional brand,
well-reputed for its strength and consistently superior performance.
The Vikram Cement unit is one of the few plants to have its own Central
-29-
Research and Development Centre. The first ISO 900 I cement plant in the coun
try, Vikram Cement has also taken the lead in innovative raw mix designs and
process conditions.
Vikram Cement has won several accolades at the national and international
level for its quality, efficiency and environmental initiatives. These include:
• The first Indian unit to win the coveted TPM award from the Japan Institute of
Plant Maintenance, Tokyo in 1995
• The Ramakrishna Bajaj National Quality Award in 1998
• The first cement unit in the world to receive IQRS - Level 6 rating from DNV,
Netherlands.
• The first cement unit in India to receive IS0-14001 (EMS certification from
DNV, Rotterdam, Netherlands) in 1997 and the Occupational Health and Safety
Assessment series- 18001 (certification from DNV, Rotterdam, Netherlands) in
2001.
Aditya Cement :
Commissioned in a record time of 22 months as a Greenfield 1.0 MTPA
plant in 1995 in Shambupura, Rajasthan, its current capacity is about 1.50 million
TPA.
Some of the prestigious awards won by this unit include:
:: Aditya Limestone Mines wins the following awards at the Mines Safety Week
2004, Udaipur:
• Mines machinery and maintenance: first
• Safety, occupational health and VTC: first
• Mine working: second
• Environment protection, publicity, propaganda
and housekeeping: second
-30-
• Overall performance: second
.. Best Productivity Award by National Productivity Council for 1999
:: The National Energy Conservation Award by Ministry of Power, Government
oflndia, and Best Energy Efficient Unit Award by CII for the year 2000
:: IQRS level rating from DNV, Netherlands, in the year 2000
:: First in India to achieve Certification ISO 900 I :2000 by DNV, Netherlands,
2001
.. TPM Excellence Award- first category by JIPM, Tokyo 200 I
Rajashree and Birla Super cement :
Commissioned in 1984, Rajashree Cement has a capacity of 4.20 million TPA.
The salient facts about Rajashree Cement are:
·• Coal-based thermal power plant with a 38.5 MW capacity
:: Modern dry process technology from KhD, Germany, with a state-of-the-art
process control system
.. The only cement plant in India with a captive coal washery
.. First in India to achieve Certification ISO 9001:2000 by DNV, Netherlands,
2001
:: Cement varieties catering to different segments: Rajashree Cement for
residential and commercial construction; Birla Super Cement for multi-storeyed
buildings, dams and bridges; Birla Plus for mass concrete laying and non
structural applications, Birla Coastal for foundation work and for use in coastal
areas as well as sugar and fertiliser plants, and OPC 53 - S (sleeper grade
cement)
Some of the awards won by this unit are:
:: National Award for 'Quality Excellence in the Indian Cement Industry' by the
National Council for Cement and Building Materials, for the year 2000-01
:: IMC Ramakrishna Bajaj National Quality Award (certificate of merit) in 1999
.. Jamnalal Bajaj Uchit Vyavahar Puraskar for Fair Business Practices in 1995
.. Rajiv Gandhi National Quality Award in 1993
Grasim South :
Grasim acquired Dharani Cements (since merged with the company) in April
1998. The company has a cement plant at Ariyalur, Tamil Nadu. In April 2000, a
state-of-the-art cement plant, among the most modern in Asia, was commissioned
at Reddipalayam, Tamil Nadu. This unit now has a capacity of 1.16 million TPA.
This is the only plant to be equipped with an auto/ robot lab system for
consistent quality and optimising cost. Apart from these, the auto/ robot lab
assures:
.. quality cement of world class standard
:: accuracy and consistency
Kamal Cement
Acquired by Grasim in 1998, Shree Digvijay Cement Company Ltd (SDCC)
is situated at Sikka (Gujarat). It has an annual capacity of about 1.08 million TPA.
All of SDCC 's products are marketed under the brand name 'Kamal'.
The company has ISO 9002 certifications for its clinker and cement
production and its oil well cement has been authorised for the use of the
monogram of the American Petroleum Institute.
The company has a captive jetty with a dry cargo capacity of3 million TPA.
This jetty is used to export cement and clinker and to import coal for captive use.
Grasim Cement :
Grasim Cement was set up as a greenfield cement plant at Raipur,
Chhatisgarh, in 1995. Based on the most advanced technologies, this plant has an
annual installed capacity of2.06 million TPA.
The plant's unique features include :
.. .. Asia's first gamma ray belt analyser from Gamma Matrix (USA) ensuring
the highest standards in online quality control.
India's first polycom (blast furnace slag grinder) with a dynamic air
separator from Krupp Polysius Germany, which helps to generate the
desired homogeneous particle size distribution.
-32-
.. One of the few single kiln cement plants producing more than eight
varieties of cement. .. .. Its captive power generation ensures a reliable power supply. The plant is
also an ISO 14001, ISO 9001, and IQRS L-5 certified unit.
Plant
Rajashree Cement
Vikram Cement
Grasim Cement
Aditya Cement
Cement Division South
Total
Shree Digvijay Cement
Total (incl subsidiary)
• Location
Malkhed and Hotgi grinding unit
Jawad and Bhatinda grinding unit
Raipur
Shambhupura
Reddipalayam
Sikka, Gujarat
Capacity (m m1ll1on tonnes)
4.20
4.20
2.06
1.50
1.16
12.92
1.08
14.00
Grasim was incorporated on August 25, 194 7, just 10 days after India
became independent, manufacturing textiles made from imported raw materials. It
is now a global leader in viscose staple fibre (VSF), the country's largest merchant
producer of sponge iron and the second-largest caustic soda maker in India; and
poised to be India's largest cement manufacturer.
-33-
History Of Grasim Industries Ltd.
2004 .. Completion of the implementation process to demerge the cement business of L&T
and completion of open ofter by Grasim, with the latter acquiring controlling stake in the newly formed company Ultra Tech
.. Board reconstituted with Mr. Kumar Mangalam Birla taking over as Chairman
2003 .. Grasim's Chemical Division receives the SA 8000 (Social Accountability) and
OHSAS 18001 certifications.
.. The board of engineering major Larsen & Toubro Ltd (L&T) decides to demerge its cement business into a separate cement company (CemCo ). Grasim will acquire an 8.5 per cent equity stake from L&T and then make an open offer for 30 per cent of the equity ofCemCo, to acquire management control of the company.
2002 . . VSF Research & Application Centre set up at Kharach in Gujarat
.. The Grasirn Board approves an open offer for purchase of up to 20 per cent of the equity shares of Larsen & Toubro Ltd (L&T), in accordance with the provisions and guidelines issued by the Securities & Exchange Board of India (SEBI) Regulations, 1997.
.. Grasirn increases its stake in L&T to 14.15 per cent
.. Grasim divests its Gwalior unit to Melodeon Exports Ltd, and consolidates all textile operations at the Bhiwani unit, which will manufacture both the 'Grasim' and 'Graviera' brands at a single location.
2001 .. Grasim acquires 10 per cent stake in L&T. Subsequently increases stake to 15.3 per
cent by October 2002
.. Four ready-mix concrete plants commissioned, with an aggregate capacity of one million cubic metres per annum.
.. Divests holding in Birla Technologies to PSI Data Systems.
2000 .. The Lawson Competency Centre is set up as a division of Birla Consultancy &
Software Services, the software ann of Grasim, following a tie up with Lawson Software (USA), among Fortune's top five private software companies.
. . Consultancy and software services are spun off as a separate entity. called Birla Technologies Ltd.
-34-
1998 .. Grasim's tirst major acquisition overseas- the Atholville Pulp Mill in Canada.
. . Grasim acquires Dharani Cements Ltd.
· · Grasim acquires Shree Digvijay Cements Ltd.
.. The cement business of group company, Indian Rayon and Industries Ltd (IRIL), is transferred to Grasim in a corporate restructuring exercise.
1996 :: The first phase ofGrasirn's fourth VSF plant commissioned at Kharach, Gujarat.
1995 .. Grasim commissions two greenfield cement plants - Grasirn Cement at Raipur
(Madhya Pradesh) and Aditya Cement at Shan1bhupura (Rajasthan).
.. Grasirn sets up two new spinning units- Elegant Spinners at Bhiwani (Haryana) and Vikram Woollens at Malanpur (Madhya Pradesh) .
. -·~ 1994 .. Second issue of GDRs on June 15, 1994 for US $100 million.
Nos: 4,878,048
1993 :: Vikram I spat, India's third-largest gas-based sponge iron plant, is commissioned.
.. Birla Consultancy & Software Services is set up, to provide IT consulting services and for software development
1992 .. Grasirn sets up Birla International Marketing Corporation (BIMC), a merchant
exporter. .. First GDR ISSUe on December 2, 1992 for US$ 90 million. ..
Nos: 6,933,745
1991 :: A third production line is added at Vikram Cement.
1987 :: Vikram Cement's second production line is commissioned.
-35-
1985 . . Vikram Cement - Grasim's first cement plant - goes on stream at Jawad, Madhya
Pradesh.
1977 :: Grasim's third rayon plant- at Harihar, Karnataka- goes into production.
1972 · · A completely indigenous plant based on Grasim's own engineering and know-how,
begins production at Harihar, Kamataka.
· • Grasim commences production of rayon grade caustic soda - a major raw material for VSF production - at Nagda; another step towards becoming self-reliant
1968 :: Rayon production commences at Mavoor, Kerala.
1963 · · Grasim sets up its first rayon grade pulp plant at Mavoor, Kerala; the first to make
rayon grade pulp from bamboo and other hardwoods.
• · Grasim purchases a composite textile mill at Bhiwani, Haryana.
1962 .• Grasim starts an engmeermg division to provide plant and machinery for VSF
production.
1954 :: Grasin1 begins rayon production at Nagda.
1950 • • Grasim launches production of fabrics at Gwalior using imported rayon - a man-made
cellulose fibre.
1947 :: Grasim Industries Ltd is incorporated.
-36-
1.2.1.2 ULTRA TECH CEMENTS
Ultra Tech Cement Ltd., a Grasim subsidiary, has an annual capacity of 17
million tpa. It manufactures and markets ordinary portland cement, portland blast
furnace slag cement, portland pozzolana cement and grey portland cement.
UltraTech Cement has five integrated plants, five grinding units, and four
terminals-three in India and one in Sri Lanka.
Integ rated plants
location
Gujarat Cement Works (Pipara)
Andhra Pradesh Cement Works, Andhra Pradesh (Tadpatri)
Hirmi Cement Works, Chhattisgarh
Awarpur Cement Works, Maharashtra
Jafrabad Cement Works, Gujarat
Grinding units
Jharsuguda Cement Works, Orissa
Arakonam Cement Works, Tamil Nadu
West Bengal Cement Works, West Bengal
Magdalla Cement Works, Gujarat
Ratnagiri Cement Works, Maharashtra.
Total
Exports:
Capacity (million tpa)
5.3
2.3
1.6
3.3
0.4
0.8
1.2
1.0
0.7
0.4
17.0
Ultra Tech Cement is the country's largest exporter of cement and clinker.
The Company exports over three million tones per annum, which is about 4 7 per
cent of the country's total exports. Cement and clinker is exported to countries
around the Indian Ocean, Africa, Europe and the Middle East. Europe and UAE
are the major markets for Ultra Tech Cement.
Narmada Cement Company Ltd. is a subsidiary of the Company
-37-
1.2.1.3 Corporate Principles :
Since the founding of this group, it has collectively endeavored to steer the
Group companies on the growth path through practice of sound moral, ethical and
business principles that are crucial to sustainable performance.
It believes that its employees provide it with cutting edge and help to deliver
values for its shareholders, its customers and society at large. The employees are
encouraged to grow professionally and personally to their highest capabilities,
regardless of nationality, caste, religion, colour to sex. It strives to provide an
environment that promotes achievement orientation and self esteem. Integrity, trust,
fairness and honesty are the basics that guide its strategies, behavior and
relationships it builds with them.
The Aditya Birla Group is cmmnitted to its customers to fulfilling their present
needs and anticipating their unmet needs. It makes continuous efforts towards
improving the quality, usefulness and value of its products and services that help
the customers to enhance their performance. In addition to this, it respects the
Government, Laws and Institutions in the nations in which it operates.
Respect for the environment is the part and parcel of everything it does. As
an environment responsive group, its ongoing endeavourer is to manufacture its
product through processes that have as little impact on the environment as
possible.
-38-
1.2.2 ORGANIZATION STRUCTURE OF A.V. BIRLA GROUP:
Cement has been identified as a focus area in this group. It has been
recognized to make headway and achieve the vision of becoming industry leaders
and capitalize on its product quality, cost effective technology and people.
In order to become the market leader, Aditya Birla Group have divided
Organisational Structure into:
l. Manufacturing
2. Marketing
3. Central Cells
Manufacturing- All the cement manufacturing units will be a part of Grasim
with a total capacity of 10.65 MTPA, are the second largest in the industry, having
state-of-the-art technology plants, which are environment sensitive. The aim is to
remain the lowest cost cement producer with the ability to make every cement
blend necessary to fulfill the customer's unmet need.
Marketing - A single dynamic, cohesive marketing force will help increase
customer responsiveness with a deeper market penetration. The mission is to
create and sustain the brand equity and emerge a leader in the cement market.
Central Cells - Procurement, Commercial, Coordination and Planning,
Marketing and Exports, Sales Accounting and Logistic are working to bring in
synergy and effectiveness.
The above given division is shown in the Figure. 1.2.2.1.
-39-
Fig. 1.2.2.1 Organization Structure of Aditya Vikram Birla Group
Manufacturing
Grasim
Cement
East
Zone
Regional Office.
Raipur
Head Office (Cement Division)
Vikram
Cement
West
Zone
Central Cells
Grasim
South
Aditya
Cement
North
Zone
Regional Office
Ran chi
-40-
Marketing
Rajashree Birla
Cement Cement
,. South
Zone
Regional Office
Calcutta
1.2.2.2 PROFILE OF GRASIM AND ULTRATECH CEMENT:
Grasim Cement Plant at Rawan, District Raipur is a new venture ofGrasim
Industries Limited. The project was launched in the year 1989 and the production
started in the year 1995. This plant is situated in the Chhattisgarh state. Grasim
Cement has adopted the most modern and latest dry process pre-calcinations
technology with sophisticated process control instruments obtained from
internationally renowned firms.
1.2.2.2.1 Plant Location (Grasim Cement):
Grasim Cement is located in Village Rawan, The. Simga, Distt, Raipur which
is 25 k.m. from the nearest Railway Station Bhatapara and 70 kms from Raipur on
S.E. Railway. This place is well connected by all weather motor able road to
Raipur.
There are 276 employees in this plant and there is good co-ordination
between employees of different departments. They tend to work in harmony for
the achievement of common objectives.
- 41 -
Ultra Tech Cement Plant at Hirmi, District Raipur is a new venture ofErstwile
L&T Industries Limited. The project was launched in the year 1987 and the
production started in the year 1993. This plant is situated in the Chhattisgarh State.
Ultra Tech Cement has adopted the most modern and latest dry process
pre-calcinations technology with sophisticated process control instruments
obtained from internationally renowned firms. This Plant is handed over to
Ultra Tech Cement in 2004
1.2.2.2.2 Plant Location (Ultra Cement):
Grasim Cement is located in Village Hirmi, Thehsil Simga, Distt, Raipur
which is 35 k.m. from the nearest Railway Station Bhatapara and 63 kms from
Raipur on S.E. Railway. This place is well connected by all weather motor able
roads to Raipur.
There are 376 employees in this plant and there is good co-ordination
between employees of different departments. They tend to work in harmony for
the achievement of common objectives.
-42-
Fig. Performance of Indian Cement Industry for the period April 2003 to
March 2004.
2500 2000
1500
1000 500 li!ICapacity
0 • Production c: ~ E 1::! ..c: <G 1::! :I (.) ·~
E :I "iii ~ Cll :I ~ .... <G <G 1- ..0 <G <G c: ... ...J E ...J .., Cll (.!) !!! <( - 0 0 ~ 0 ::J <(
Fig. Performance (Unit wise): Bilaspur Cluster Plants for the period April2003 to
September 2004
• Production
t:! ..c t:! E:J Capacity
c: ~ E <G :I <J ·~
:I ·u; ... :I ~ E .... - .. ..0 ... ... 1- ... ... c: ... ...J E ...J ...., .. <.? ... - (J ... < (J .:: (J :::> <
Fig. Dispatches to other states during April 2004 to September 2004.
18001()0-( 160000 ;-...::..:.......::..:.......:~~:..:.......:_;_
140000 li:J-..;..-..;..-..;..-..;..-..;..-;::.., 120000 100000 80000 60000 li'~..;..-40000 20000
0 a. Cl ::::1 J:
0
I ~ Dispatch I
Fig. General Export during April. 2004 to September 2004
.s::. Ill <II
"C ..!!! Cl c: co
Cll
co Q. <II z
llill Export I
-44-
1.2.3 CEMENT MANUFACTURING PROCESS:
Grasim Cement has adopted the latest technology of manufacture of cement
by dry process with suspension per-heaters and precalcinatin. Her, they selected
the dry process for the manufacturing of cement because the fuel consumption in
dry process is much less than the other processes of cement manufacturing. The
present worldwide trend in cement industry is to put up all plants with dry process
mainly because of the overall economy, lesser need of water resources and high
production capacities.
RAW MATERIALS USED Limestone Iron Ore, Coal, Chemical Gypsum
Granulated Blast Furnace, Slag, Fly-Ash
STAGES OF MANUFACTURING PROCESS
STAGE I- MINING & CRUSHING:
Cement grade limestone is mined from Captive Mines situated about 4 kms
away from the plant. Then limestone is taken to the crusher hopper by dumpers.
Then crushed limestone is transported to the plant through cross country belt
conveyor.
STAGE II- STACHERIRECLAIMER:
The stacker - reclaimed is used for pre-blending of crushed limestone,
Re-claimer picks up the required quantity of the raw material from the stockpiles
and feeds them into the raw mill hopper through belt conveyor.
STAGE- III- RAW MILL HOPPER:
There are different hoppers for storing crushing limestone and iron ore
before being fed into the raw mill.
STAGE -IV- RAW MILL:
The raw mix is put into the grinding mills and then finely ground material is
stored in storage silo.
-45-
STAGE V -COAL SECTION:
The Bituminous coal from the stockyard is fed into the coal crusher from
where the crushed coal is stored in the coal stacker and reclaimed. This coal (to be
used as fuel for the burning) is crushed, pulverized in vertical roller mills and fed
into the kiln along with primary air.
STAGE VI- KILN :
The powdered homogenized raw meal from the silo is fed to the kiln through
airlifts in conjunction with solid flow feeder. The hot gases form the kiln pass
through pre-heaters where raw meal gets partly claimed and is converted into
clinker at a temperature of about 1400 degree (Celsius) in the sintering zone of the
kiln. After the coal is fired into the kiln and the raw meal undergoes chemical
reactions, the product which emerges is called the clinker.
STAGE VII-CLINKERSTORAGE:
The clinker obtained from the kiln is cooled and transported to the clinker
storage yard through pan-conveyors.
STAGE VIII- CEMENT MILL:
The clinker stored in clinker hopper and gypsum is stored in the gypsum
hopper. The predetermined proportion of clinker and gypsum is sent to the cement
mill which converts it into fine powder which is called cement. The percentage of
raw materials in different grades of cement is given in Table No. 1.2.3.1
STAGE IX-SLAG GRINDING:
In case of Portland Slag Cement, it is manufactured by intermixing in a
paddle mixer, the ground clinker and gypsum (2-3%) in ball mill with ground slag
stored separately in different silos. The slag is ground separately in a roller press in
conjunction with hot air generator and separator. The desired particle size
distribution of PSC is obtained which provides higher slag utilization and
exceptionally high ultimate compressive strength, compared to conventional
intergrading system.
-46-
STAGE X- PACKING & DESPATCH:
The cement from the mill is transported to storage silo from where it is
packed in polypropylene (PP) bags by rotary packing machine and then directly
loaded into trucks.
The complete process is controlled by a most modern process control in
strumentation system. There is a well equipped laboratory for controlling the qual
ity of product at various stages in its manufacture.
The Flow Diagram is given in Annexure A-1.
- .J7-
TABLE 2.1
Percentage of Raw Materials in Different Grades of Cement for the Year 2003-04
Raw Materials % Consumption Crushed Limestone 99.53 Iron ore 0.47
Raw Mill Production 100.00 Consumption Factor 1.49 OPC Grade
Clinker 97.35 Gypsum 2.65
100.00 PPC Grade
Clinker 78.73 Gypsum 2.49 Fly ash 18.78
100.00 Ground Clinker for PSC
Clinker 97.57 Gypsum 2 43
100.00 PSC Grade
Ground Clinker 57.83 Ground Slag 42.17
100.00
-48-
1.3 Object of Study
OBJECTIVE OF WORKING CAPITAL MANAGENENT
The financial management of business firms involve: the management of
long term assets, long term capital and short term assets and liabilities. The last one
deals with Working Capital management and forms its integral part.
Working Capital management is the process of planning and controlling the
level and mix of current assets of the firm as well as financial these assets.
Specially, Working Capital management requires financial managers to decide what
quantities of cash, other liquid assets, accounts receivable and inventories the firm
will hold at any point in time. In addition, financial mangers must decide how their
current assets are to be financed. Financing choices include the mix of current as
well as long term liabilities.
This high degree of divisibility has two important implications for the
management of Working Capital. First, if the management so chooses, Working
Capital can be acquired piecemeal to meet immediate needs as they arises. Such
hand-to-mouth policy has advantage of reducing the average investment in
Working Capital there by minimizing the interest charges, insurance expenses and
storage fees necessary to carry the investment. However, a hand-to-mouth policy
has these disadvantages, there will be increased ordering costs associated with
greater likelihood that the firm may experience a shortage in Working Capital,
because there is no buffer stock to absorb unexpected fluctuations in requirement.
The second implication of divisibility concerns the appropriate methods of
financing Working Capital investments. The fact that Working Capital only amounts
to a few months supply means that the Working Capital cycle is measured in
months rather than years which allows the management a cmTesponding flexibility
in its financing decisions.
The management of Working Capital is concerned mainly with the optimal
amounts of cash assets, accounts receivable and inventories that a firm should
-49-
choose to maintain given the level of sales and other cost considerations.
Secondly, given these optimal amounts, of find out the most economical way to
finance these Working Capital investments.
The management ofWorking Capital plays an important role in maintaining
the financial health of the finn during the normal course of business. A firm aiming
at maximization of shareholder's wealth should earn sufficient return from its
operations. Earning a steady amount of profit requires successful sales activity.
The firm has to invest enough funds in current assets for generating sales. Current
assets are needed because sales do not convert into cash instantaneously. The
Figure portrays the flow of resources through the finn. The loop starts at the cash
and marketable securities account, goes through the current accruals account as
direct labour and materials are purchased and used to produce inventory, which is
in turn sold and generates accounts receivable which are finally collected to replen
ish cash.
This cycle is critically important to the firm's survival where the major flow
is Working Capital cycle, as long as the firm has cash or marketable securities on
hand, It can pay bills and thus survive. But if for some reason the resources stop
flowing in, the firm has to take relatively costly action such as, raising new external
funds, reducing dividend outflows or postponing capital expenditures, In the lack
of these measures the resources will also drain out, the firm will be unable to pay
bills and financial embarrassment will occur. Thus, it is rightly said that the
Working Capital is the lifeblood of the firm.
-50-
Use in
I Production
Process
Generates
Inventory
Via Sales Generates
l Accounts
Receivable
Accured Direct Labor &Material
Working Capital Cycle
Collection Process
Use in
Used to Purchase
Marketable Securities
Return to Capital
External Financing
Suppliers of Capital
FIGURE RESOURCE FLOWS FOR A
18/1111111 -51 -T21791
·r- G? I ~71
Accured Fixed
Operating Expenses
Used to Purchase
Used to Purchase
Fixed Assets
1.4 RESEARCH METHODOLOGY :
Research methodology is a way to systematically solve the research prob
lem. It may be understood as a science of studying how research is done scientifi
cally. For, preparing this report both primary and secondary data were collected
and then data analysis and interpretation has been done.
DATA SOURCE:
(i) Primary Data :
Primary data are those, which are colleted afresh and for the first time and
thus happen to be original in character. This is more accurate and gives detailed
information according to the requirement. It is more reliable and less prone to
errors.
Primary data has been collected for knowing the procedure of cash
management, inventory management, stores and spares management
carried out in Grasim Cement, Raipur. Detailed discussions were held with the
concerned personnel in respective dept. like Materials, Stores, etc. to gain the
needed data.
(ii) Secondary Data :
The secondary data are those which have already been collected by
somebody else and which have already passed through the statistical
process. In this case the nature of data collection work is merely that of
compilation.
Data regarding current assets like inventories, cash and bank
balances, sundry debtors and current liabilities and provisions were
collected from annual report of the company. Further such data as sales and
purchases etc. were also obtained from annual reports. Cost of
production of cement was obtained from cost sheet. Many useful data were also
collected from budget or purta like percentage of raw materials, desired product
etc.
-52-
CONTACT METHOD:
Personal interview has been used to collect relevant data form executives in
various departments. Personal interview method requires a person known as
interviewer asking questions generally in a face-to- face contact to the other person.
This is in the form of direct personal investigation where the information was
collected personally forms the concerned sources by being on the spot and
meeting people. It is particularly suitable in this case where intensive investigation
is required.
DATA ANALYSIS AND INTERPRETATION:
The data after collection has to be processed and analysed in accordance
with the outline laid down for the purpose at the time of developing the research
plan. The term analysis refers to the computation of certain measures along with
searching for patterns of relationship that exist among data-groups. Requirement
of Working Capital was calculated and analysed using such data as current assets
and current liabilities. Interpretation was made with the help of analysis. Based on
these, finally, suggestions were made.
-53-
1.5 Limitation of Research :
Chhattisgarh is the richest State in terms of mineral wealth, with 28 varieties
of major minerals, including diamonds.
Chhattisgarh, alongwith two other Indian States has almost alit he coal
deposits in India, which has led to its 'power hub' strategy. All the tin ore in India
is in Chhattisgarh. A fifth of iron ore in the country is here, and one of the best
quality iron deposites in the world is found in the Bailadial mines in south
Chhattisgarh, from where it is exported to Japan. Rich deposits of Bauxite,
Limestone, Dolomite and Corundum are found in the State. The State is lucky to
have large deposits of coal, iron ore and limestone in close proximity, making it the
ideal location for the lowest cost of production.
There is great scope for private participation in the mining sector in
Chhattisgarh. The State's Mineral Policy. 2001 has created a conducive business
environment to attract private investment in the State. both domestic and international.
Procedures have been simplified and there is complete transparecy of large
technically qualified humar resources, having trained in tailormade programmes in
geology, geophysics, geochemistry, mineral benefications, mining engineering and
environmental science. The state is ensuring a minimum lease area with secured
land rights so that investors can safely commit large resources to mining projects.
For surmounting the long-drawn our process of getting mineral related leases, at
the state level, quick processing of applications is given top priority. For major
minerals under the Mines & Minerals (Development & Regulation) Act, where
approvals are required from Government of India, the State Government would
help in strong advocacy to get such approvals quickly.
The State is also encouraging establishment of Gems and Jewellery Park to
attrack new investment in the sector Chhattisgarh has the right geological set up to
host a number of economic mineral deposits. It comprises patts of the Bastar and
Singhbhum cratons, that are SUITounded by the Middle Proterozoic circum mobile
belts and major rifts.
The other intra-cratonic Supra-crustal belts include rocks of the Middle to
-54-
Upper proterozoic, Carboniferous, Permian, Cretaceous and sub-recent to recent
periods. The area has observed multiple major tectonic and thermal events of
various episodes. The rock types of principal metallogenic and mineralogenic
episodes are prevailing in the State, which confirms the high potential for the search
of new mineral deposits. Simply put, such geological environment is conducive for
the formation of various mineral deposits of excellence.
Placer diamonds in the State led to the discovery of proterozoic
diamondiferous kimberlites in Main pur, Raipur district, which invited global attention.
Further kimberlite discoveries in Tokapal, Bastar have added another potential
field. Incidence of diamonds is also known from Ib river in Raigarh district. It
seems that in the non-coal areas, Chhattisgarh is nestling atop the world's largest
kimberlite area. Eight blocks have been demarcated for diamond exploration in the
State, and are on offer. Eight international companies have already applied for
reconnaissance permits for diamond, base metal and gold deposits. Chhattisgarh's
potential diamond mines would emerge in the top bracket of the select group of22
economical diamond mines in the world. once full production starts.
Apart from diamond, four blocks of gold exploration and five blocks for
base metal investigation have been demarcated. Deposits of Alexandrite, one of
the rarest gemstones, are found in Deobhog area ofRaipur. Workable deposits of
Corundum are widespread in South Chhattisgarh. Corundum includes semi-precious
varieties of Ruby and Blue Sapphire, and possibilities of finding precious varieties
exist as well. Other semi-precious minerals like Beryl, Gamet, Amethyst and Rock
Crystal are found in other parts of the State.
A few major mineral deposits are: (all figure in million tonnes)
Coal : 35000
Iron Ore : 2336
Lime Stone: 3580
Dolomite: 606
Bauxite :96
Cassiterite: 29
-55-
As from the above we come to know that our region of chhattisgarh is
covered through full of mineral resources. It constitute around Rupees 500 crores
income per annum for the Government in Budget. Limestone, which is treated as a
major raw material for manufacturing cement, is found in bulk. Availability of raw
material attracts companies to invest here & get good returns.
The area of chhattisgarh is also known as region of cement belt (Map
enclosed indicating location cement industries). This cement belt consist ofTen( I 0)
National, International & Multi Nationals Companies with public enterprises too.
This belt starts with Go pal Nagar Cement Works and ends with ACC jamul.
l. Gopal Nagar Cement Works headed by Lafarze (formerly Raymods
Cement ofSinghania group).
2. Sonadih Cement Works headed by Lafarze (formerly Tata Cement ofTata
Steel.)
3. Ambuja Cements Works (Rawan) (formerly Modi Cement of Modi Group.)
4. Grasim Cement (Ravan) of Aditya Vikram Birla Group.
5. Ultratech Cement Works of Aditya Vikram Birla Group (Formerly L&T.)
6. Century Cement Works, Baikunt ofG.D. Birla Group.
7. C. C. I., Mandher and Akaltara a Government Enterprises.
8. Jamul Cement Works of Associated Cement Companies.
The above listed Cement Companies comprises of High Technology and
establish with investment ofRs 1500- 2000 crore at its prime. The above cement
companies have their production capacity more or less same. Its tough job for
collection of data from all industries, there fore my study is limited to any one of
below enlisted firm (as per availability of data.)
I. Ultratech Cement Ltd. (A.V. Group)
2. Grasim Cement (Ravan) by A.V Birla Group.
-56-
MINERAL MAP OF
fHHATTISGARHI
I
-57-
. i
1.6 Hypothesis :
After the selection of research problem, the researcher formulates the
testable propositions to obtain a tentative solution of the problem, which is
technically known as hypothesis. According to Mcguigan( 1990), A hypothesis is
a testable statement of variable". It's a conjectural statement of the relation
between two or more variable in declarative sentence form & relates either
generally or specifically variable (kerlinger, 1986). A good research hypothesis
should be conceptually clear, testable, parsimonious logical comprehensive,
general and related to the existing body of theory. Keeping in the mind above
characteristic of the research hypothesis researcher have suggested to frame a
hypothesis in a logically derived manner, which is based on the previous finding
obtained by other researcher, and is directly or indirectly related to the present
reseach problem.
Hypothesis of the Present Study:
Keeping in the view Audited Data made available by the cement industries
the hypothesis framed for future prospects are one the fixed percentage upwards
and downwards as per growth of past data.
-58-
Top Related