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Working Capital Management

INDUSTRY PROFILE

Cement Industry in India:

South India Industries Limited. Madras, produced cement for the first time in

India in1904. This unit, which had an installed capacity of 30 tones/day since the

partial decontrol in 1989. The cement industry has witnessed spectacular progress

mainly due to the force economic liberalization and the jettisoning of price controls

and capacity restriction.

The foundation of a stable Indian cement industry was laid in 1914 2h3n

Indian Cement Company Limited started manufacturing cement at Porbander in

Gujarat. By the end of March 1988 there were 20 large and 136 small cement plants

with a total installed capacity of 57 million tones.

In 1936, all the Cement companies (with exception of Song Valley Portland

Co. Ltd.) merged to form the Associated Cement Companies Ltd., this facilitated cost

education ads as well as uniformity in quality. By 1947 the installed capacity of the

industry rose to 2.2 million tones per annum.

After partition, five cement-producing units in the country went to Pakistan

and the total installed capacity of the eighteen units that remained in India was 1.5

million tones/annum. This increased to 3.8 million tones/annum 1950-51.

During sixty plan period, government approved 33 million tones to additional

capacity and about two third of this was expected to materialize during this plan

period target set intercept to additional capacity generation was realized with the

impulse given by the partial decontrol announced in 1982, several units looked up to

projects for expansion to capacity and modernization which contributed towards

increased production.

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Cement industry is under going rapid transformation due to the merges and

acquisitions over the past few years. Some half a dozen dominant players now

account for about half of the total output that there are still as many as 51 companiesand 117 cement plants in country.

A large number of small cement plants that come up during the 80s have

disappeared. The large and efficient players have effected cost reduction through use

of captive power bulk transportation, investing in port infrastructure and reduction of

work force.

For Indias industrial economy, the 90s have been a period of transition and

structural changes. Since the economic reforms in 1991 and the gradual opening up to

extension competition, the economic environment transformed dramatically.

Following the virtual dismantling of licensing and easing of production, pricing and

distribution controls, there has been transition form a controlled to a market-oriented

economy.

While this gave the industry of greater freedom of operation External

competition took away the high level of protection it enjoyed since independence.

Now cement industry has been facing problems with indigenous coal with

large scale open east mining affecting the quality of coal marked by high content and

non-uniform quality and it includes high price and transportation cost and loss of

weight in transit.

The focus of Mr. Jaswanth Singhs Union Budget 2003-04 in an infrastructure

development with a proposed investment of Rs. 60,000 crore through public and

private participation. A chunk of this investment (Rs. 40,000Cr) has been proposed

for development of 48 new Road projects involving 10,000 km with 25% of this mode

of cement and concrete which will result in double digital growth in cement industry.

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As on now India cement industry has been marked by significant growth in

last few years, ranking 2nd after China today with a production of 108.40 million tones

last fiscal, which is expected to touch the 113 million tones mark by the end of currentfiscal. The union budget 2003-04 has given a scope for it. It, in the words of senior

meaner, Cement manufacturers Association (CMA).

And only disappointing factor is the increase in excise duty already it is 24-

25% and will now increase by a further 4-5%. It must be released that already the

total tax at state and center amounts to one third of the price amounts to one third of

the price the consumers pay affecting the revenue of the cement companies.

Types of Cement in India:

The types of cement in India have increased over the years with the

advancement in research, development, and technology. The Indian cement industry

is witnessing a boom as a result of which the production of different kinds of cement

in India has also increased.

By a fair estimate, there are around 11 different types of cement that are being

produced in India. The production of all these cement varieties is according to the

specifications of the BIS.

Some of the various types of cement produced in India are:

Clinker Cement

Ordinary Portland Cement Portland Blast Furnace Slag Cement

Portland Pozzolana Cement

Rapid Hardening Portland Cement

Oil Well Cement

White Cement

Sulphate Resisting Portland Cement

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In India, the different types of cement are manufactured using dry, semi-dry,

and wet processes. In the production of Clinker Cement, a lot of energy is required. It

is produced by using materials such as limestone, iron oxides, aluminum, and siliconoxides. Among the different kinds of cement produced in India, Portland Pozzolana

Cement, Ordinary Portland Cement, and Portland Blast Furnace Slag Cement are the

most important because they account for around 99% of the total cement production

in India.

The Portland variety of cement i0s the most common one among the types of

cement in India and is produced from gypsum and clinker. The Ordinary PortlandCement and Portland Blast Furnace Slag Cement are used mostly in the construction

of airports and bridges. The production of while cement in the country is very less

for it is very expensive in comparison to grey cement. In India, while cement is

usually utilized for decorative purposes, marble foundation work, and to fill up the

gaps between tiles of ceramic and marble.

The different types of cement in India have registered an increase in

production in the last few years. Efforts must be made by the cement industry in

India and the government of India to ensure that the cement industry continues

innovation and research to come up with more and more varieties in the near future.

For more information click on following links.

Ordinary Portland Cement

Portland Pozzolana Cement

Portland Blast Furnace Slag Cement

Oil well Cement

Rapid Hardening Portland Cement

Sulphate Resisting Portland Cement

White Cement

Clinker Cement

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Ordinary Portland Cement:

Ordinary Portland Cement (OPC) is manufactured in the form of different

grades, the most common in India being Grade 53, Grade 43, and Grade - 33.

OPC is manufactured by burning siliceous materials like limestone at 1400 degreeCelsius and thereafter grinding it with gypsum.

Tata Chemicals Limited is a major producer of OPC Grade 43 and 53. The

value of each of these grades of cement has been briefly mentioned below:

Ordinary Portland Cement Grade 43: Having been certified with IS

8112:1989 standards, Grade 43 is in high demand in India and is largely used forresidential, commercial, and other building construction purposes. It has a

compressive strength of 560 kg per square cm. Today OPC 43 is most widely

available in Gujarat through an extensive distribution network.

Ordinary Portland Cement Grade 53: Having been certified with IS

12269:1987 standards, Grade 53 is known for its rich quality and is highly

durable. Hence it is used for constructing bigger structures like building

foundations, bridges, tall buildings, and structures designed to withstand

heavy pressure. Expert opinions and directions from technicians and

engineers are a must in this regard. With a good distribution network this

cement is available most abundantly in Gujarat.

As such, Ordinary Portland Cement is used for quite a wide range of

applications. Some of the Ordinary Portland applications are in pre-stressed

concrete, dry-lean mixes, durable pre-cast concrete, and ready mixes for

general purposes. The chemical components of Ordinary Portland Cement are

Magnesium (MgO), Allumina (AL203), Silica (SiO2), Iron (Fe2O3), and

Sulphur trioxide (SO3).

Some of the big names involved in OPC manufacture are Tata Chemicals,

Ultratech Cement, and ACC cement. Ordinary Portland Cement is in great

demand in India and will continue to be used in Indian infrastructural

upgradation and other constructions.

Portland Pozzolana Cement:

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Portland Pozzolana Cement is manufactured by blending pozzolanic materials,

OPC clinker, and gypsum either grinding them together or separately. Today

Portland Pozzolana Cement is widely in demand for industrial and residential

buildings, roads, dams, and machine foundations.

Pozzolana is an important ingredient in PPC which is commonly used in the

form of:

Fly ash

Volcanic ash

Silica fumes

Calcined clay

PPC is resistant to harsh water attacks and prevents the formation of calcium

hydroxide at the time of cement setting and hydration. It withstands aggressive

gases, thermal cracks, wet cracking etc. the BIS quality specifications for Pozzolana

materials used in PPC have been mentioned below:

Fly ash IS 3812: 1981

Calcined clay IS 1344:1981

PPC is used in heavy load infrastructure and constructions such as marine

structures, hydraulic structures, mass concreting works, plastering, masonry mortars,

and all applications of ordinary Portland Cement. One of the top Indian brands of

Portland Pozzolana is Shudh Cement manufactured by Tata Chemicals Limited.

Shudh cement has 5 percent of the market share and is available abundantly inGujarat, penetrating all 3- primary, secondary, and tertiary markets. Some of the

other big names in the Portland Pozzolana manufacture are Ultratech, Ambuja, ACC

cements, Star Cement, and Birla group Portland Pozzolana Cement is highly popular

in India and with many cement plants setting up jetties for transportation, initial costs

would gradually decrease as well.

Portland Blast Furnace Slag Cement:

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In recent years, there has been a significant growth in the production of

Portland Blast Furnace Slag Cement and its sales have also increased considerably

over the last few years. This has given a major boos to the Indian cement industry.

The Slag Cement of the Portland Blast Furnace is a type of cement tat is

hydraulic and is manufactured in a blast furnace where iron ore is reduced to iron. The

molten slag which is tapped is quickly drenched with water, and then grounded to a

fine powder. This fine powder that is produced is commonly known as the Portland

Blast Furnace Slag Cement.

The manufacture of Portland Blast Furnace Slag Cement requires 75% lessenergy than that needed for the production of the Portland cement. The low cost of

production of Portland Blast Furnace Slag Cement makes it cheaper than Portland

cement. It is for this reason that in recent years, the sales of Portland Blast Furnace

Slag Cement have increased.

Portland Blast Furnace Slag Cement has a typical light color and an easier

Finish ability. Its concrete workability is better and it has a higher flexural and

compressive strength. It is resistant to chemicals and also has more hardened

consistency. This is the reason that Portland Blast Furnace Slag Cement is used in the

construction of dams, bridges, buildings complexes, and pipes.

The various raw materials required for the production of Portland Blast

Furnace Slag Cement are:

Limestone

Iron Ore

Iron Scrap

Coke

The Major companies producing Portland Blast Furnace Slag Cement in India

are:

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JK Cement

Grasim Industries and Ultra Tech

ACC

India Cement Ltd

Gujarat Ambuja Cement Ltd

The Major Countries where Portland Blast Furnace Slag Cement is exported

from India are:

South Africa

UAE

Srilanka

Nepal

Bangladesh

Australia

Doha-Qatar

The production and use of Portland Blast Furnace Slag Cement have increased

over the years. The Indian government has undertaken several investments in the

production of the Portland Blast Furnace Slag Cement so that its quality and

durability can be improved.

Oil Well Cement:

Oil well cement as the name suggest, is used for the grouting of the oil wells,

also known as the cementing of the oil wells. This is done for both, the off-shore and

on-shore oil wells.

As the number of oil wells in India is increasing steadily, the sales of Oil Well

Cement have also increased. This has boosted the Indian cement industry to a large

extent.

Oil well Cement is manufactured from the clinker of Portland cement and also

from cements that have been hydraulically blended. Oil well Cement can resist high

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pressure as well as very high temperatures. Oil Well Cement sets very slowly

because it has organic Retarders which prevent it from setting too fast. It is due to

all these characteristics that it is used in the building of the oil wells where the

pressure is around 20,000 PSI and the temperature is around 500 degreesFahrenheit.

There are 3 grades of Oil Well Cements. Grades O is ordinary and is used

commonly. HSR is high sulphate resistant. Each grade is used where it is applicable

at a particular range of oil well sulphate environments, temperatures, pressures, and

depths. Oil Well Cement has proved to be very beneficial for the petroleum industry

due to its characteristics. For it is duet o the Oil Well Cement that the oil wellsfunction properly.

The various raw materials required for the production of Oil Well Cement are:

Limestone

Iron Ore

Coke

Iron Scrap

The Major companies manufacturing Oil Well Cement in India are:

ACC

Gujarat Ambuja

India Cement Ltd.,


JK Cement

Rapid Hardening Portland Cement:

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Rapid Hardening Portland Cement (RHPC) is a type of cement that is used for

special purpose when a faster rate of early high strength is require. RHPC has a

higher rate of strength development than the Normal Portland Cement (NPC).

The Rapid Hardening Portland Cements better strength performance isachieved by increasing the refinement of the product. This is the reason that its use

in increasing in India.

Rapid Hardening Portland Cement is manufactured by fusing together

limestone (which has been finely grounded) and shale, at extremely high temperatures

to produce cement clinker. To this cement clinker, gypsum is added in small

quantities and then finely grounded to produce Rapid Hardening Portland Cement. It

is usually manufactured using the dry process technology.

Rapid Hardening Portland Cement is used in concrete masonry manufacture,

repair work which is urgent, concreting in cold whether, and in pre-cast production of

concrete. Rapid Hardening Portland Cement has proved to be a boon in the places

where quick repairs are required such as airfield and highway pavements, marine

structures, and bridge decks.

The Rapid Hardening Portland Cement should be stored in a dry place, or else

its quality deteriorates due to premature carbonation and hydration. As the Indian

cement industry produces Rapid Hardening Portland Cement in large quantities, it is

able to meet the domestic demand and also export to other countries. The cement

industry in India exports cement mainly to the West Asian countries.

The raw materials required for the manufacture of Rapid Hardening Portland

Cement are:

Limestone

Shale

Gypsum

Coke

The major companies producing Rapid Hardening Portland Cement in India

are:

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ACC

Gujarat Ambuja

JK Cement

Grasim Industries

Indian Cement Ltd.

Sulphate Resisting Portland Cement:

Sulphate Resisting Portland Cement (SRC) is a type of Portland cement in

which the quantity of tricalcium alumiante is less than 5%. It can be used for

purposes wherever Portland Pozzolana Cement, Slag, Cement, and Ordinary Portland

Cement are used.

The use of Portland Sulphate Resisting Cement has proved beneficial,

particularly in conditions where there is a risk of damage to the concrete from

sulphate attack. The use of Sulphate Resisting Portland Cement is recommended in

places where the concrete is in contact with the soil, ground water, exposed to

seacoast, and sea water. In all these conditions, the concrete is exposed to attack

from sulphates that are present in excessive amounts, which damage the structure.This is the reason that the use of the Sulphate Resisting Portland Cement have

increased in India.

The Sulphate Resisting Portland Cement should be kept in a place which s dry

otherwise through premature hydration and carbonation the quality of cement

deteriorates. The cement industry in India manufacturers Sulphate Resisting Portland

Cement in large quantities so that it is able to meet the domestic demand and alsoexport to other countries as well. The Indian cement industry exports cement chiefly

to the West Asian Countries.

The various uses of Sulphate Resisting Portland Cement are:

Underground and basements structures

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Works in coastal areas

Piles and foundations

Water and sewage treatment plants

Sugar, chemical, and fertilizers factories

Petrochemical and food processing industries

The raw materials required for the production of Sulphate Resisting Portland

Cement are:

Coke

Limestone

Iron Ore

Iron Scrap

The major companies manufacturing Sulphate Resisting Portland Cement in

India are:

ACC

JK Cement

Indian Cement Ltd

Grasim Industries

Gujarat Ambuja

Sulphate Resisting Portland Cement has proved beneficial for construction

purposes in India due to its climatic conditions. The cement industry in India must

take steps in order to ensure that its quality is improved and to ensure that it is readily

available in the market.

The Sulphate Resisting Portland Cement should be stored in a dry place, or

else its quality deteriorates due to premature carbonation and hydration. As the

Indian cement industry produces Sulphate Resisting Portland Cement in large

quantities, it is able to meet the domestic demand and also export to other countries.

The cement industry in India exports cement mainly to the West Asian Countries.

White Cement:

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White Cement has registered growth in production and sale in India in the

last few years. The White Cement sector has been growing at the rate of 11% per

year. This has given the Indian Cement Industry a major boost.

White Cement is much like the ordinary grey cement except that it is whit in

color. In order to get this color of the White Cement, its method of production is

different from that of the ordinary cement. However, this modification in its

production method makes White Cement far more expensive then the ordinary

cement.

The production of White Cement requires exacts standards and so it is aproduct which is used for specialized proposes. White Cement is produced at

temperatures that hover around 1450 1500 degrees Celsius. This temperature is

more than what is required by the ordinary grey cement. As more energy is required

during the manufacture of White Cement, it goes to make it more expensive than the

ordinary grey cement.

White Cement is used in architectural projects the sue of white cement has

been specified. It is used in decorative works and also wherever vibrant colors are

desired. White Cement is used to fill up the gaps between marble and ceramic tiles

for a smoother and more beautiful finish.

The various raw materials required for the production of White Cement are:

Limestone

Sand

Iron Ore

Nickel

Titanium

Chromium

Vanadium

The major companies producing White Cement in India are;

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ACC

JK Cement

Gujarat Ambuja Cement Ltd.,

India Cement Ltd


The major countries where White Cement is exported from India are:

UAE

Australia

South Africa

Srilanka

Doha Qatar

Bangladesh

Nepal

Clinker Cement:

Clinker Cement has registered a growth over the last few years in India. The

Indian cement industry is growing at a rapid pace and this has given major boost to

the production and sale of Clinker Cement in India.

The cement industry in India is highly technologically intensive and as a

result, the quality of clinker cement that is produced in India is of a very high grade

and is often considered among the best in the world. The production of Clinker

Cement requires a lot of energy because it needs to be manufactured at the

temperature of around 1400-1450 degree Celsius.

The various raw materials required for the production of Clinker Cement are:

Iron Ore

Bauxite

Clay

Limestone

Quartz

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Clinker Cement in India is produced in such large quantities that it is able to

meet the domestic demand and is also exported. In 2001-2002, 1.76 million tons of

clinker cement were exported. In 2002-2003, that figure stood at 3.45 million tons,

and in 2003-2004, 5.64 million tons of clinker cement was exported from India. Thisshows that the export of clinker cement from India has been increasing gradually but

steadily.

Clinker Cement is usually ground with calcium sulphate so that it becomes

Portland cement. It is also ground with other ingredients to produce Pozzolanic

Cement, Blast Furnace Slag Cement, and Silica Fume Cement. If Clinker Cement is

kept in a dry condition, it can be stored for a long period of time without any loss of

its quality. It is for this reason that Clinker Cement is preferred in the construction ofhouses, bridges, and complexes.

The major companies producing Clinker Cement in India are:

ACC

Gujarat Ambuja Cement Ltd.

JK Cements

Grasim Industries and Ultra Tech India Cements Ltd.

COMPANY PROFILE

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ESTABLSHMENT

Lanco Industries Limited (LIL) was incorporated on 1st Novermber, 1991 by

Lanco Group of Companies to manufacture Pig Iron using Korf (German)

Technology and Cement. The unit is located at Rachaguneri Village on Tirupati - /Srikalahasthi road which i0s about 30 kms from Tirupati and 10 kms from

Srikalahasthi. The installed capacity of Pig Iron was 90,000 TPA and with similar

capacity 90,000 TPA for cement.

The LANCO Group of companies was seeded in 1998. When it is started,

founded by two young technocrats it was with a vision and solution to aspire for

youth and synergies that would make LANCO a leader in the core sector.

The study foundation of the company is constituted of a dynamic term of

managers; young technocrats who are in turn fortified with the expertise of a term of

highly experienced professionals. Three youthful technocrats Sri L.Rajagopal, Sri

L.Madhusudhan Rao and Sri G.Bhaskar Rao over the last decade have partnered and

promoted all the ventures of LANCO Group.

LOCATION

LANCO Industries limited is a rural based factory sprawling over many areas

of land with deep resources and congenial soil. It is located in RACHAGUNNERI

Village near TIRUPATHI. Nearly 50% of the consumption of electrical power is

supplied by APSEB, Government of Andhra Pradesh and other 50%of power is

maintained by the company owned DG sets and power plants. Since it is a rural area

labor potential is available an also company is enjoying the subsidies from state

Government.

The LANCO group is a diversified multifaceted conglomerate, with business

interests in pig iron, cement, power graded castings, spun pipes, real estate

development, information technology a past from infrastructure use development

prompted by entrepreneurial skills and the agenda to put the group on the global

corporate map during the next 10 years.

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LANCO Industries limited established in the year of 1993. As ISO 9002

company, it had set up a state of the art, integrated manufacturing facility for pig iron

through mini blast. Furnace route conforming to the latest international technology

with initial capacity of 1,00,000 TPA. Its quality products of SG-Grade pig iron arebeing supplied to foundries in the south. As a forward integration, it has utilized the

slag produced in the pig iron manufacturing of 90,000 TPA. The uninterrupted power

requirement for the energy intensive plant is being met through 2.5 mw co-generation

power plant.

LANCO CONSTRUCTIONS LIMITED

This group company was established in the year 1993 and has executed mostdemanding and difficult projects in the field of civil construction engineering on

schedule essaying repute as a world class construction company in a very short time

span. The company is mainly executing prestigious work in the fields of irrigation,

pipeline projects compared several housing complexes roads, irrigation canals,

bridges and industrial complexes at LANCO diverse dimensions of growth is

achieved through converging rays of vision rays of vision creating dimensions.

KALAHASTI CASTING LIMITED

Establish in 1997 and strategically located in alone proximity to the mini blast

furnace of the pig iron plants it has a clear economics mileage over other castings

sites. The molten metal from the blast cone is directly loosed as basic raw material to

produce graded castings. Cast iron span pipes and iron spun gradually expanded

further to meet the scaring demand of the products. The UPS to the pipe plant will be

met through 10 MW capture power plant.

PIG IRON DIVISION

Established in the year of 1993.An ISO-9002 Company, with a state of the art,

integrated manufacturing facility for pig iron through mini blast furnace route

conforming to the latest international technology with initial capacity of 1,00,000

TPA and subsequently expanded and modernized to 1.75 LTPA. Its quality products

of SG-Grade pig iron are being supplied to foundries in the southern India. The

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uninterrupted power requirement for the energy intensive plant is being met through a

2.5 MW co-generation power plant.

CEMENT DIVISIONEstablished in the year of 1996 the basic raw materials is slag produced in the

pig iron manufacturing process to install the cement plant with a capacity of 90,000

TPA.

SPUN PIPE DIVISION

Established in 1997 and strategically located in lose proximity to the mini

blast furnace of the pig iron plant, it has a clear economic mileage over other castings

sites. The molten metal from the blast furnace is directly used as basic raw material to

produce graded castings, cast iron pipes and ductile iron pipes with a capacity of

90,000 TPA.

COKE OVEN DIVISIONEstablished in 2005 the basic raw materials for the mini blast furnace , the

coke oven plant capacity of 9,000 plant.

POWER PLANT DIVISIONIt has proposed to setup a power plant of 12 MW. Power plant will be setup in

the existing land coke oven plant.

Waste heat of flue gas from coke oven will be utilized in waste heat recovery

boiler to produce steam.

Steam produced in the above process will be utilized to run on T.G. Set for

generating power.

Power generated from the power plant will be used for in house

consumption and balance power will be fed into the APSEDB grid.

If a firm wants to increase its profitability, it must also increase its risk. If it is

to decrease risk, it must decrease its profitability. The trade off between these

variables is that regardless of how the firm increases its profitability through the

manipulation of working capital. The consequence is a corresponding increase in risk

as measured by the level of working capital.

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Working capital in simple terms is the amount of funds which business

concerns have to finance its day-to-day operations. It can also be regarded as that

proportion of companys total capital which is employed in short-term operations.

ABOUT LANCO

With its headquarters in Hyderabad, US$500 million asset based LANCO

Group is one of the leading business houses in India. It has operations in the United

Sates as well. LANCO is diversified into Power Generation, Power Trading

Information Technology, Engineering and Construction, Property Development and

Manufacturing.

Power Generation: Thermal Power

Wind Power

Biomass Power

Hydro Power

Information Technology

Civil Construction:

Water Infrastructure Road and Building

IT Parks

Property Development

Manufacturing:

Pig Iron

Slag Cement

Ductile Iron Spun Pipes

Metallurgical Coke

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FOUNDER & CHAIRMAN

L.Rajagopal, a technocrat-turned industrialist, is the Founder Chairman of

LANCO Group Established in 1989, the Groups activities range from Power

Generation, Engineering and Construction, Manufacturing to Information

Technology. Under his dynamic leadership, the Groups capacity outlay has touched

US$450 million and his recognized as one of the leading players in the infrastructure

sector in India.

Service to Society:

In additional to his entrepreneurial spirit, Rajagopal has a strong sense of

social responsibility. He established LANCO Institute of General Humanitarian Trust

(LIGHT) a Charitable Trust, in 200 to reach out to the needy and has been involved

in various philanthropic activities.

Member of Parliament:

After one-and a-half decades of outstanding contribution to the industry,

Rajagopal chose to enter public life in 2003. he contested the recent elections to the

Lower House of Parliament from Vijayawada constituency and won a landslide

victory. As a member of Parliament his avowed mission is to make a difference in

public life.

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COMMITTEE OF LANCO EXECUTIVES AND DIRECTORS (COLEAD) IS

THE APEX REVIEW AND DECISION MAKING BODY OF LANCO

GROUP:

L.MADHUSUDHAN RAO : Chairman, LANCO Group of Companies

G.BHASKAR RAO : Vice Chairman, Lanco Group of Companies

L.SRIDHAR : Director, LANCO Group

G.VENKATESH BABU : Joint Managing Director, LANCO Group

J.SURESH KUMAR : Chief Financial Officer, LANCO Group

P.PANDURANGA RAO : Director and Chief Executive Officer, LANCO

Kondapalli Power Private Limited and ABAN

Power Company Limited.

D.V.RAO : Director and Chief Executive Officer LANCO

Green Power Private Limtied.

K.RAJA GOPAL : Director and Chief Executive Officer LANCO

Amarkantak Power Private Limited

D.N.REDDY : Director Operations, LANCO Infratech

Limited

K.K.V.NAGA PRASAD : Director and Chief Executive Officer Rithwik

Energy Systems Limited and Clarion Power

Corporation Limited.

V.SREENIVAS : Director Corporate Affairs LANCO Group

Limited

M.N.RAVI SHANKAR : Executive Director LANCO Electric Utility

Limited

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GROUP OF COMPANIES

POWER PROJECTS:

With operational experience in gas, wind and biomass based power projects

and a strong foothold in coal and hydropower generation, LANCO is emerging as a

key player in the Indian Power Sector.

INFORMATION TECHNOLOGY:

LGS is a strategic initiative to provide world-class Information Technology

Solutions to global customers, delivering them maximum business value through

continuous innovation.

CIVIL CONSTRUCTION:

Power Projects, Industrial Structures, Institutional facilities, mass housing ,

water supply projects, flyovers and bridges such varied operations serve to explicate

the diversification roadmap of LANCO.

PROPERTY DEVELOPMENT:

Being a Pioneer in Civil Construction and Infrastructure Development,

LANCO is venturing into Property Development with the winning of the bid for IT

Parks cum-Commercial and Residential Complex in Hyderabad and Visakhapatnam

of Andhra Pradesh.

MANUFACTURING:

Being one of the largest integrated foundries in India with Ductile Iron Spun

Pipes, Metallurgical Coke, Pig Iron and Slag Cement as productions, LANCO has a

towering presence in the Indian manufacturing sector.

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LANCO GLOBAL SYSTEMS LTD (LGSL)

ABOUT LGS

Information Technology services is a strategic initiative of LANCO Group of

Provide world-class Information Technology solutions to global customers, delivering

them maximum business value through continuous innovation.

IT solution and services are delivered to global customers through Lanco

Global System Inc (LGSI) Headquartered in Atlanta, GA the US and Lanco Global

Systems Limtied (LGSL) based in Hyderabad, India. The organization specializes in

designing and implementing IT solutions and services aligned to business needs of

customers.

LGS delivers a portfolio of services and solutions that help clients embrace

speed, transform their enterprises, respond quickly to opportunities, protect their

physical and digital assets and go to market ahead of their competitors. The array of

offering includes.

Technology Strategy Consulting

Application Development

Conversion and Migration

Tools / Technology Based Implementation Services

Business Intelligences Solutions

Application Management Services

IT Infrastructure Services

Optimized Offshore Solution Frameworks

The varied services are backed by decades of experience of the Groups

business in servicing clients worldwide in major industries, including Energy.

Manufacturing and Engineering and Infrastructure Development.

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The organizations Functional and Technical Strengths, Flexible Business

Models, Human and Structural Capital are all focused on maximizing Business Value

to customers worldwide.

LANCO INSTITUTE OF GENERAL HUMANITARIANT TRUST

(LIGHT):

Beyond capital investments, the operations of any corporate do entail social

costs as well as social benefits. Social responsibility begins with good governance,

efficient utilization of resources and protection of stakeholder and consumer interests.

It is for a successful corporate to take initiatives for social relevant activities and

causes.

It is this realization that has led LANCO Group to set up LANCO Institute of

General Humanitarian Trust (LIGHT) in 2000, in a short time, the Trust has

succeeded in making its presence felt in the social service sector through its various

programmes.

LANCO INFRATECH LTD:

LANCO INFRATECH Limited was established in 1993 with an annualturnover of about Rs.200 crores (US $ 40 million). The company is a leader in

infrastructure sector in roads, Water & also undertake large housing & industrial

projects.

Areas of Specialization:

Mass Housing

Institutional Buildings Industrial Structures

Water Supply

Flyovers and Bridges

Roads

Water Treatment Plant

Sewage Treatment Plant

Interiors

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Infrastructural Developments

Hydro / Thermal Power Projects

Dams & Irrigation Projects

Marine Works

LANCO KONDAPALLI POWER PVT.LTD.,

Lanco Kondapalli Power Project (IPP) located at Kondapalli Industrial

Development Area near Vijayawada in Krishna District (A.P) India. The project cost

is Rs.11,000 million (US$ 275 Million). The plant is 368.144 MW Combined Cycle

Power Project operating Natural Gas.

LKPPL is Co-promoted by NRG Energy Corporation USA, Common WealthDevelopment Corporation (CDC), UK & Dosan Heavy Industrial & Construction

Company Ltd., (Korea).

The Project has 2 Gas Turbines of GE Grame 9E., 2 Heat Recovery Stream

Generators & 1 Stream Turbine.

The company supplies Power to Transmission Corporation of Andhra Pradesh

Limited (AP TRANSCO) & has entered into a Power Purchase Agreement (PPA) for15 years. The plant can also operate on liquid fuels like Naphtha, speed Diesel (HSD),

etc.

PROMOTERS & EQUITY PARTNERS:

LANCO Kondapalli Power Pvt., Limited has set up the power project at

Kondapalli Industrial Development Area (IDA), Krishna Dist in the State of Andhra

Pradesh, India, at a cost of Rs.11,000 Millions (US$ 275 Millions at 1 USD = Rs.

40). This power project is promoted by LANCO Group of India and is co-promoted

by NRG Energy Inc., USA (Worlds 5th largest Power Generation Company). United

Kingdom and Doosan Heavy Industries & Construction Co., Ltd (DOOSAN)

(erstwhile HASNUNG), Korea are the other equity partners.

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POWER DISTRIBUTION:Lanco Power Group is very serious of exploiting the lucrative emerging

business opportunity of Distribution of Electric Power i.e., formation /takeover of

Electric Utilities in India.The aggressively reforming state of Andhra Pradesh is on the way of

privatization of all the four Power Distribution Companies in its fold.

The Lanco Group with its rich experience in power sector, with first hand

local knowledge, connections, and strong local presence in the state of Andhra

Pradesh is advantageously positioned it self to take over the Distribution Companies.

Lanco Group power division is interested to have tie up with experienced

foreign partners to exploits this emerging and growing business opportunity.

RITHWIK ENERGY SYSTEMS LTD:

Rithwik Energy Sysems (RESL) is a 6 MW non-conventional power project

using biomass as its fuel. The plant is located next to industrial complex of Lanco

Industries near Sri Kalahasthi, Chittoor Dist, A.P. India

The Biomass fuels used in this plant are:

Woody Biomass

Rice Husk

Ground Shell

The plant supplies power to AP Power Transmission Company (AP

TRANSCO) through a power purchase agreement for 10 years.

CLARION POWER CORPORATION LTD:

Clarion Power Corporation Ltd. Is a 12 MW non-conventional power project

using biomass as its fuel. The plant is located near Tangutur Village, Prakasham

Dist, Andhra Pradesh, India.

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The biomass fuels used in this plant is woody biomas like:

Juliflora

Casurina

Subabul &

Eucalyptus

LANCO PROJECTS LTD:

Lanco Projects commenced operations in 1995. The companys main focus is

on building commercial & residential complexes in metros like Hyderabad, Bangalore

& Chennai. It is also into developing shopping malls consisting of multiplexes

bowling alleys, food courts and other family entertainment centers.LANCO INDUSTRIES LTD:

Lanco Industries Ltd is a public limited company, listed on Mumbai Stock

Exchange and Promoted by Lanco Group in 1993.

The company is engaged in the manufacture of Pig Iron and Cement and is

accredited with ISO 9002 Certification. Lanco Group has become second largest

share holder in Lanco Industries Ltd., after strategic partner ship with Kolkata basedElectronic Steel Castings Limited in the year 2002.

Manufacturing facility of LANCO Industries Ltd., is located near Sri

Kalahasthi Chittoor Dist, Andhra Pradesh, India.

LANCOs one-of-its kind integrated Pig Iron Smelting and Cement Plant sets

the trend in the countrys modern day technological innovations. This plant hascapacity of 90,000 TPA, producing quality Foundry & SG grade Pig Iron.

Supplying to major foundries all over India.

LANCO Industries Ltd., Consists of Pig Iron division with State of the Mini

Blast Furnace with a production capacity to 90,000 TPA of Portland slag cement.

The resultant slag from the Pig Iron Plant is used for manufacture of cement

through a down stream process, with capacity of 90,000 TPA.

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SALIENT FEATURES:

Power Generation through D.G.Sets

Well connected by major rail & road.

Modern vertical shaft kiln

Nearness to Chennai & Bangalore Markets

Value addition of B.F.Slag A by product from MBF

High energy conservation through slag drying waste gases from MBF

Usage of coke fines available from MBF

Own fleet for fast transportation.

LANCO CEMENT

Lanco Cement is the result of a unique blend of slag and clinker with the

following destructive characteristics.

Progressively increasing later stage strength.

100% no leakage & no honey combing on application.

Low heat of hydration, very low pore volume in concrete, high

impermeability, resulting in structures of high strength & long life.

Crack free structure & walls, result of low thermal stresses and absence of

differential volume change.

Super resistance to sulphate in concrete, resultant low corrosion, less alkali

aggregate reaction, and final outcome of long lasting super finish surfaces.

East workability with high concentration of fines.

MANUFACTURING PROCESS CEMENT:

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Cement is manufactured at LIL to profitably make use of the slag from the

MBF. Hence a mini cement manufacturing facility has been conceived. Out of

various processes available for mini cement plants, Vertical Shaft Kiln (VSK)

process is found to be more viable & economical, hence it is more popular.

Accordingly VSK process has been chosen.Crushing and Grinding:

Limestone obtained from the mine in boulders form of 8 to 10 inch size is

crushed in crushers to 10 mm size. The same, along with coke fines (15 to 20% of

clinker), clay and iron ores are fed into a raw mill (usually a ball mill) & ground into

power & stored in silos. Chemical composition of all materials & size distribution are

checked at every stage.

Nodulizing:

In VSK technology of cement manufacturing, nodulizing is the most important

step. Nodulization means agglomeration of all uniform small size particles to form

large nodules. Since fuel is inter ground in the raw meal, for uniform sintering

(clinkering) nodulization is very important & critical. Nodulization is done in a

specially designed dish revolving at an angle. Ground rawmeal is fed to the dish

which is revolving & water is sprayed to convert the powder into globules called

nodules. Perfect nodulization is achieved by having proper size of fuel, size of dish,

angle of inclination of dish & the spread of water jets sprayed.

Clinkering:

Nodules made, called the black meal, are fed into the vertical shaft kiln. The

nodules are converted into clinker by sintering of the meal by blowing control air

supplies by root blower. Clinker thus made is stacked in hoppers, using belt

conveyors.

Slag Drying:

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Usually, the slag coming out of slag granulation plant of a blast furnace or

MBF has a moisture content of 20 to 25%. It needs to be dried before grinding. A

rotory dryer is installed for this purpose which uses hot flue gas from the air

preheaters of MBF.

Cement Grinding:

Clinker, gypsum & slag are fed into the cement mill (ball mill), after passing

through proper weighing & feeding mechanism. The grinding steel balls grind the

cement to required fineness. Over size materials will return for regrinding. Gypsum

is added in the range of 23 to 3% to regulate the setting property of cement.

Packing:

The cement stored in silos is packed in bags of 50 Kgs using an automatic

double sprouted packing machine.

Quality Control:

Tests are carried out at every stage for required chemical & physical

properties such as composition, strength, fuel value, setting properties, nodulization,

roundness etc. Cement is manufactured to national standards.

Dust Control:

Since fine material is handled after crushing, bag dust filters are installed at

raw mill grinding, slag drying, clinker transporting, cement grinding & cement

packing.

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MISSION & VISION

MISSION:

We aim to be world class committed to customer satisfaction and to encourage

the spirit of leadership amongst our dedicated team by creating a healthy

environment for continuous growth, profit and prosperity.

VISION:

We are in the business of manufacturing pipes for conveying safe drinking

water and other fluids for domestic and overseas market.

We will maintain our dominant position in the domestic pipe market and

enhance our presence in the overseas market by setting up multi-locational units as

per business potential.

For sustained growth we intend to venture into related business in the area of

Suitable horizontal and vertical integration projects.

Turnkey projects

Engineering & Consultancy

Build own-operate-transfer projects and diversify into new areas of business

including infrastructure related projects.

We will achieve the above through:

Continuous technological up-gradation & adsorption of new technology

Effective team based working

Continuous training & human resources development

Developing ancillary unit

Cost competitiveness

REVIEW OF LITERATURE

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INTRODUCTION:The term Working Capital refers to firms investment in short term assets such

as short-term securities, accounts receivables and inventories.

Working capital is the fund available for meeting the Day-to-day requirements

of an enterprise.

CONCEPTS OF WORKING CAPITAL:

There are two concepts of Working Capital. They are:

Gross Working Capital.

Net Working Capital.

GROSS WORKING CAPITAL:

It refers to firms investment in total current (or) circulating assets. This

concept focuses attention on two aspects of current assts management.

Optimum Investment in Current Assets.

Financing of Current Assets.

NET WORKING CAPITAL:

The term Net Working Capital has been defined in two different ways:

1. It is the excess of current assets over current liabilities.

Net Working Capital can be Positive (or)Negative:

A Positive Net Working Capital will arise when Current Assets

exceeds Current Liabilities.

A Negative will arise when current liabilities exceed Current assets.

2. It is that portion of firms Current Assets which is financed by long-term

funds.

KINDS OF WORKING CAPITAL:

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Working Capital can be classified under the following heads:

Permanent of Regular and Variable Working Capital:

The need for current assets arises because of the operating cycle. The

operating cycle is a continuous process, and therefore, the need for current assets isfelt constantly. But the magnitude of current assets needed is not always same it

increases over time. However, there is always a minimum level of current assets,

which is continuously required by the firm to carry on its business operations. This

minimum level of current assets is refereed to as permanent of fixed working capital.

Depending upon changes in production and sales, the need for working capital, over

and above permanent working capital, will fluctuate.

Short-term or Temporary or Variable Working Capital is the amount of

working.

Capital which is required to meat the seasonal demand and some special

exigencies. Variable working capital can be further classified as seasonal working

capital and special working capital. Most of the enterprises have to provide additional

working capital to meet the seasonal an special needs. The capital required to meet

the seasonal needs of the enterprise is called seasonal working capital. Special

working capital is that part of working capital which is required to meet special

exigencies.

Permanent working capital stables over time, while temporary working capital

fluctuate according to the volume of production and sales. But permanent working

capital need not be fixed always; when the firm is continuously growing fixed

capital needs may also increase. The position with regard to the permanent working

capital and variable working capital can be shown with the help of the following

figures.

33

Temporary

AmountofW

orking

Time

Permanent


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Balance Sheet Working Capital:

The balance sheet Working Capital is calculated from the items appearing in

the balance sheet. Gross Working Capital is represented by current assets, and the

excess of current assets over current liabilities represents net working capital.

Cash Working Capital:

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Temporary

A

mountofWorking

Time

Permanent and Temporary Working

Permanent


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Cash Working Capital is calculated form the items appearing in the profit and

loss account. It shows the real flow of money or value at a particular time and is

considered to be the most realistic approach in working capital management.

Negative Working Capital:

When current liabilities exceed current assets, such a situation is termed a

deficit of Working Capital. Kennedy and MuMullen observe. A working Capital

deficit exists if current liabilities exceed current assets.

Nature of Working Capital:

Working Capital Management is connected with its problems that arise inattempting to manage the current assets, the current liabilities and the interrelation

ship that exists between them the term current assets refer to those assets, which in

the ordinary course of business can be converted into cash with in one year with the

undergoing of the firm. The major.

Current Assets are: Cash, Marketable Securities, Accounts receivables, Inventory,

prepaid expenses etc.Current Liabilities are: Accounts payable, bills payable, Bank overdraft, out

standing expenses etc.

The goal of working capital management is to manage the firms current

assets, and liabilities in such a way that a satisfactory level of working capital is

maintained. This is so because if the firm cannot maintain a satisfactorily level of

working capital, it is likely to become and may even be forced into bankruptcy. The

current assets should be large enough to cover its current liabilities in order to ensurea reasonable margin of safety. Each of the current assets must be managed efficiently

in order to maintain the liquidity of the firm while not keeping too high a level of any

one of them. Each of the short-term sources of financing must be continuously

managed to ensure that they are obtained and used in the best possible way.

Therefore the main theme of the theory of working management.

The basic ingredients of the theory of working capital management may be

said to include its definition, need, and optimum level of current assets. The trade off

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between profitability and risk, which is associated with the level of current assets and

liabilities, financing, mix strategies and so on.

NEED FOR WORKING CAPITAL:

The need for working capital cannot be over emphasized. Every business

needs some amount of working capital. The need for working capital arises due to the

time gap between production and realization of cash from sales. There is an operating

cycle involved in the sales and realization of cash. There are time gaps in purchase

of raw materials and production; production and sales; sales and realization of cash.

Thus, working capital is needed for the following purposes:

1. For the purchase of raw materials, components spare.

2. To pay wages and salaries.

3. To incur day-to-day expense and overhead costs such as fuel, power and office

expenses etc.,

4. To meet the selling costs as packing and advertising etc.

5. To provide credit facilities to the customers.6. To maintain the inventories of raw materials, work in progress, stores and

spare and finished stock.

CONCEPT OF OPERATING CYCLE:

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Operating cycle is a process of investing cash in raw materials and converting

them into semi finished goods them finished goods then into receivable through sale

and transforming receivable into cash as illustrated in the following diagram:

The operating cycle of a manufacturing company involves 3 phases:

1. Acquisition of Resources: Such as raw material, labor, power etc.

2. Manufacturing of the Product: Conversion of raw material into work into

work in progress into finished goods.

3. Sale of the Product: Time required t convert raw material into finished foods

and to convert receivable into cash determines the amount of working capital

required Time.

FACTORS DETERMINING WORKING CAPITAL

37

Cash

Raw Material

Work in Process

Receivables

Finished Goods


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Nature of Industry: Based on the size of the industry, a company requires assets.

Small companies have smaller amounts of inventory and have smaller proportions of

cash than large companies.

Demand of Industry: Creditors want that their demands be taken care of as the

fluctuating nature of demand of the industry.

Cash requirements: Cash is one of the current assets, which is essential for

successful operating of the production cycle. Hence, cash should be utilized

properly.

Nature of business: Working capital requirements very much demand upon the

general nature or type of business.

Time: The level of working capital is depending upon the time required to

manufacturing goods. If the time is longer, the size of working capital will increase.

Volume of Sales: The volume of sales and size of working capital are directly related

to each other. As volume of sales increases, investment in working capital increases.

Inventory Turnover: A better inventory control will help the firm reduce its

working capital requirements.

Receivable Turnover: Prompt collection of receivables and good facilities for

settling payables results into low working capital requirements.

Business Cycle: Working capital requirements increase when the business is doing

well or on a use and less during periods of depression.

Attitude of Risk: The greater the amount of working capital, the lower the risk of

liquidity.

Size of the firm: Bigger firms, with many sources of funds, may need less working

apital as compared to their total assets or sales.

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Operational and Financial Efficiency: Working capital turnover is improved with

better operational and financial efficiency of a firm with more turnover, working

capital requirements can be reduced.

Seasonal fluctuation: Seasonal fluctuations increase or decrease the working capital

requirement.

Inflation: As inflation uses, working capital size is increased in order for firms to

achieve better cash inflows.

TYPES OF WORKING CAPITAL

Working capital can be divided into two categories on the basis of time.

1. Permanent (or) Fixed Working Capital

2. Temporary (or) Variable Working Capital

Working Capital

Permanent (or) Fixed Temporary (or) Variable

1. PERMANENT WORKING CAPITAL

This refers to that minimum amount of investment in all current assets which

is required at all times to carry out minimum level of business activities. In other

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Regular SpecialSeasonalReserve


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words, it represents the current assets required on a continuing basis over the entire

year.

A. Regular Working Capital:

It is the minimum amount of working capital required to ensure circulation of

current assets from cash to inventories, from inventories to receivables and

receivables to cash and so on.

B. Reserve Working Capital:

It is the excess amount over the requirement for the regular working capital

which may be provided for contingencies that may arise at unstated periods such asstrikes, arise in prices, depression etc.,

2. TEMPORARY WORKING CAPITAL

The amount of working capital keeps on fluctuating from time to time on the

basis of business activities. In other words, it represents additional current assets

required at different times during the operating year.

A. Seasonal Working Capital

The capital require to meet the seasonal needs of the enterprise is called

seasonal working capital.

B. Special Working Capital

Special working capital is that part of working capital which is required to

meet special exigencies such as launching of extensive marketing companies for

conducting research etc.,

ESTIMATION OF WORKING CAPITAL REQUIREMENTS

Estimation of working capital requirements is not an easy task and a large

number of factors have to be considered before starting this exercise. For a

manufacturing organization, the following factors have to be taken into consideration

while making an estimate of working capital requirements.

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1. Total cost incurred on materials, wages and overheads.

2. The length of time for which raw materials are to remain in stores before they

are issued for production.3. The length of the production cycle or work-in-process, i.e., the time taken for

conversion of raw materials into finished goods.

4. The length of sales cycle during which finished goods are to be kept waiting

for sales.

5. The average period of credit allowed to customers.

FINANCING OF WORKING CAPITAL

The working capital requirements of a concern can be classified as:

a. Permanent of Fixed working capital requirements.

b. Temporary or Variable Working Capital requirements.

The various sources for the financing of working capital are as follows:

SOURCES OF WORKIING CAPITAL

Permanent or Fixed Temporary or Variable

ESTIMATION OF CURRENT ASSETS

Raw Material Inventory: The investment in raw materials inventory is estimated

on the basis of the following formula.

Budgeted Cost of Raw Material Average InventoryProduction Per Unit Holding Period (Month/Days)

_____________________________________________________________________

41

1. Shares2. Debentures3. Public Deposits4. Plugging back of profits5. Loans from Financial

Institutions

1. Commercial Banks2. Trade Credits3. Installment Credit4. Advances Accounts

receivable credit


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12 Months / 365 Days

Work in Process (W-I-P) Inventory: The relevant costs to determine work-in-

progress, inventory are the proportionate share of cost of raw materials and

conversion cost labour charges and manufacturing overheads excluding depends.

Budgeted Production Estimated work- in-progress Average Time

(Units) Cost per Unit Work-in-Progress

Inventory (Month / Days)

___________________________________________________________________

12 Months / Days

Finished Goods Inventory: Working Capital Required to finance the finished goods

inventory is given by the following equation.

Budgeted Cost of goods Product Finished Goods

Production (Units) Per Unit (Excluding Depression) Holding Period (Month/days)

_____________________________________________________________________


Debtors: The Working Capital tied up in debtors should be estimated in relation to

total price (excluding depression) symbolically.

Budgeted Cost of Sales Average Debt Collection

Credit Sales Per unit excluding Period (Months / Days)

Depression____________________________________________________________________


Cash and Bank Balances

A part from working capital needs for financing inventories and debtors,

firms also find it useful to have some minimum cash balances with them. It is

different to lay down the exact procedure of determining such an amount this would

primarily be based on the motives for holding cash balances of the business firm,

attitude of management towards risk, the access to the borrowing sources in time of

need and past experience, and so on.

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DESTIMATION OF CURRENT LIABILITIES

The working capital needs of business firms are met through. The current

liabilities (Other than Bank Credit) arising in the ordinary course of business. Theimportant current liabilities, in this context are creditors, wages and overheads.

Trade Creditors

Budgeted Yearly Raw Material Credit Period allowed

Production Requirement per unit by Creditors (Months / Days)

_____________________________________________________________________12 Months / 365 Days

Direct Wages

Budgeted Yearly Direct Labour Average time lay in

Production Cost per unit Payment of wages (Month / Days)

_____________________________________________________________________12 Months / Days

The average credit period for the payment of wages approximates to a half-a-

month in the case of monthly wage payment.

CONSTITUENTS OF WORKING CAPITAL

Working Capital has two constituents i.e.,

1. Current Assets and

2. Current Liabilities

CURRENT ASSETSCurrent assets refer to those assets, which are easily convertible into cash

within a year.

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Examples of Current Assets Are:

1. Cash in Hand

2. Bills Receivable

3. Cash & Bank Balances4. Short-term loans and advances

5. Sundry Debtors

6. Inventories of Stocks

a. Raw Materials

b. Work-in-Progress

c. Stores and Spares

d. Finished Goods7. Temporary Investments of Surplus funds

8. Prepaid Expenses

9. Accrued Incomes

CURRENT LIABILITIES

Current Liabilities are those liabilities, which are due to payable within a year.

EXAMPLES OF CURRENT LIABILITIES

1. Bills Payable2. Sundry Creditors (or) Accounts Payable

3. Accrued (or) Outstanding Expenses

4. Short-term loans, Advances and Deposits

5. Dividends payable

6. Bank overdrafts

7. Provision for taxation if it does not amount to appropriation of profits.

RECEIVABLES MANAGEMENT

CONCEPT AND MEANING

Trade credit arises when a firm sells its products or services on credit and does

receive cash immediately. It is an essential marketing tool. Acting as a bridge for

the movement of goods through production and distribution stages to customers. A

firm grants trade credit to protect its sales from the competitors and attract the

potential customers to buy its products as favorable terms. Trade credit policy

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creates receivable or book debts, which the firm is expected to collect in near future.

The book debts or receivable arising out of credit has three characteristics.

1. It involves as element of risk, which should be carefully analyzed.2. It is based on economic value.

3. It implies futurity the customers from whom receivables have to be collected

in the near future are called debtors and represents the firms claim or asset.

Credit Policy: Nature and Goals

A firms investment in accounts receivables depends on

a. The volume of credit sales.

b. The collection period

The volume of credit sales is a function of the firms total sales and the

percentage of credit sales to total sales. Total sales depends on market size, market

share, product quality, intensity of competition, economic condition etc., There is one

way in which the financial manager can affect the volume of credit sale and

collection period consequently investment in account receivables. That is through

the changes in credit policy. The term credit policy is used to refer to the combination

of three decision variables.

1. Credit standards are criteria to decide the types of customers to whom goods

could be sold on credit.

2. Credit terms specify duration of credit and terms of payments of customers.

3. Credit efforts determine the actual collection period.

Optimum Credit Policy: A cost benefit analysis

The firms operation profit is minimized for the given levels of revenue. But

it is not necessarily the optimum credit policy. It is one which maximizes firms

value. The value of the firm is maximizes when the incremental rate of return of an

investment. The incremental rate of return can be calculated as increment operation

profit divided by the incremental investment in receivables. Note that the required rate

of return is not to the borrowing rate. Higher the risk of investment higher the rate

returns.

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The sum we state that the goal of firms credit policy is to maximize the value

of the firm to achieve the goal. The evaluation of investment in accounts receivables

should involved in the following 4 steps: Estimation of incremental operating profit.

Estimation of incremental investment in accounts receivables.

Estimate the incremental rate of return of investment.

Comparison of the incremental rate of return with the required rate of return.

Credit Policy Variables:

In establishing an optimal credit policy, the financial manager must consider

the important decision variables. Which influences the levels of receivables as stated

in the preceding section. The major controllable decision variables include the

following.

Credit Standards

Credit Terms

Collection Policy and Procedure

CASH MANAGEMENT

CONCEPT AND MEANING

Cash is the important current assets for the operation. Its efficient

management is crucial to the solvency of the business because cash is the focal point

of funds flow in a business. It is referred to as Life Blood of a Enterprise.

There are 2 primary reasons for a firm to hold cash:

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1. To meet the needs of day-to-day transactions.

2. To protect the firms against uncertainties.

While cash serves these functions, it is an idle resources which has an opportunitycost. The liquidity provided by case holding is at the expense of profits sacrificed by

foregoing alternative investment opportunities. Hence, the financial manager should

carefully plan and control cash.

MOTIVES OF HOLDING CASH

There are 4 primary motives for maintaining cash balances.

1. Transaction Motive: This refers to the holding of cash to meet routine cashrequirements to finance the transactions, which a firm carries on in the

ordinary course of business to accomplish its objectives. They may be cash

payments for purchases, wages, inters, taxes, and individual etc. This motive

refers to the holding of cash to meet anticipated obligations whose timing is

not perfectly synchronized with cash receipts.

2. Precautionary Motive: The cash balance held in reserve for random and

unforeseen fluctuations in cash flows are called are called as precautionarybalances. Eg: Bills may be presented for settlement earlier than expected,

sharp increased in cost of raw materials, floods, strikes, failure of important

customers.

3. Speculative Motive: It refers to the desire of a firm to take advantage of

opportunities which present themselves at unexpected movements and which

are typically outside the normal course of business. It represents appositive

and aggressive approach. Firms aim to exploit profitable opportunities an

keep cash in reserve to do so. Eg: Make purchase at favorable prices buying

securities when interest rates are expected to decline in order to speculate on

interest rate movements.

4. Compensating Motive: It is compensating banks for providing certain

services loans. Banks provide a variety of services to business firms such as

clearance of cheque, supply of credit information while for some of these

services banks charge a commission. Usually clients are required to maintain

a minimum balance of cash at the bank.

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Compensating balances are also required by some loan agreement between a

Bank & its Customers.

CASH MANAGEMENT MODELS:

The financial manager need not necessarily follow cash management models

exactly but a familiarity with them provides an insight into the normative framework

as to how cash management should be conducted.

1. BAUMOL MODEL: The purpose of this model is to determine the minimum

cost amount of cash that a financial manger can obtain by converting securities tocash, considering the cost of conversion & the counter balancing cost of keeping

idle cash balances which otherwise could be invested in securities.

The total cost associated according to this model has 2 elements.

1. Cost of converting marketable securities into cash.

2. The lost opportunity cost.

The optimal conversion amount = 2BT/IWhere T = Projected cash requirement during planning period.

B = Cost of conversion into cash per lot / transaction.

I = Interest rate that could be earned per planning period.

This model is not able to realistically reflect to the actual situation in any firm.

Also, the model is concerned with only transaction balances and not precautionary

balances. The model can only be used in certainty and regularity conditions.

2. MILLER - ORR MODEL: The objective is to determine the optimum cash

balance level, which minimizes the cost management. This model assumes that cash

balances randomly fluctuate between an upper bound (H) and a lower bound (O).

When cash balances hit:

(1) Upper bound, the firm has too much cash and should buy enough marketable

securities to bring cash balances back to optimal bound (Z).

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(2) Lower bound, (zero), the financial manager should sell / convert securities

into cash to return to optimal bound.

So, the optimal cash balance (z) can be

Z = 32br2 / 4i

R2 = the variance of daily changes in cash balance.

I = lost opportunity costs.

B = fixed cost per conversion.

Thus, there are economics of scale in cash management and the 2 basic cost ofconversion and interest that have to be minimized.

This model also specifies the optimum upper boundary as 3 times optima; cash

balance level (h=3z).

FACTS OF CASH MANAGEMENT

Cash management is concerned with the managing on

a. Cash flows into and out of the firm.b. Cash flows with in the firm and

c. Cash balance held in the at a point of time & financing deficit or investing

surplus cash.

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Business Operations

Information andControl

CashPayments

CashCollection

DeficitSurplus BorrowInvest


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CASH MANAGEMENT CYCLE

The cash management cycle as shown in the above figure. It can be

represented by the sales generation cash, with has to be disbursed out. The surplus

cash has to be invested while deficit has to borrow. Cash management seeks to

accomplish this cycle at a minimum cost. At the same time, it also seeks to achieve

liquidity and control. Cash management assumes more important that the current

assets because cash is the most significant and the less productive asset that a firm

hold. It is significant because it is used to pay the firms obligations. However cash is

unproductive. Unlike fixed assets or inventories, it does not produce goods for sale.

Therefore the aim of cash management is to maintain adequate control over cash

position to keep the firm sufficiently liquidity and to use excess cash in one profitable

way.

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NEED FOR THE STUDY

Working capital is considered to be lifeblood of a business organization.

Success and failure of a business depends on the management of firms working

capital.

The study is on internal financing pattern of the working capital management

which deals with determining size of working capital needs to achieve certain long-

term operating goals. Therefore an analysis is to be made to know the reasons & find

out the measures to be taken to make successful.

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SCOPE OF THE STUDY

The contests of the evaluation of current assets and current liabilities and their

percentage contribution in the total turnover. The yearly increase or decrease of

currents assets or current liabilities in the budget of LANCO industries limited is

being reviewed. From this one would be in a position to glance the performance of

current assets and current liabilities of the company.

This project greatly deals with the working capital requirements of LANCOcements LTD & emphasizes on the yearly composition of working capital in the total

turn over of the company. This also deals with key ratios to obtain a clearer picture

of different resources available and at the disposal of the organization, which will

enable one to give appropriation suggestion to the company to improve is

performance, if any.

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OBJECTIVES OF THE STUDY

The main objectives of the study of working capital management in LANCO

cements Ltd. are as follows:

To understand the structure of working capital.

To study the financial position the company.

To examine the overall working capital analysis of the firm.

To give suggestions to the company to improve its performance, if any.

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RESEARCH METHODOLOGY

Source of Data:

The data required for the project work is collected from the period 2007-2012.

Primary Data:First hand information was collected from experts of financial department, on

the basis of which actual position of the company is identified.

Secondary Data:The secondary data is collected from the following sources:

Annual financial reports of the company. Internal reports of the company.

Broachers and Books of the company.

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LIMITATIONS OF THE STUDY

Considering the information provided by the company to be true and the

correct the study works conducted.

Some of the needed secondary data were not provide by the company.

Primary Data is collected only in Finance and Accounts Department of the

LANCO Industries Limited.

The information available in the balance sheets has been taken from the

published Annual Reports, so it has its own limitation in form of non-

availability of information of exceptional transaction.

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DATA ANALYSIS & INTERPRETATION

STATEMENT OF CHANGES IN WORKING CAPITAL

Table: 4.1

Particulars 2007-08 2008-09 Changes in Working Capital

Increase Decrease

Current Assets (CA)Inventories 2752.55 1193.25 - 1559.29Sundry Debtors 2619.99 2011.67 - 608.32Cash and Bank Balances 1669.88 629.03 - 1040.85

Loans and advances 332.21 338.81 6.59 -Total Current Assets 7374.65 4172.77 - -Current Liabilities (CL)Current Liabilities 3536.64 2828.57 708.07 -Provisions 40.39 66.55 - 26.15Total Current Liabilities 3577.04 2879.51 - -Working Capital (CA-CL) 3797.61 1277.65 - -

Net Working Capital - 2519.95 2519.95 -3797.62 3797.62 3234.63 3234.63

Net Decrease in Working Capital 2519.95

INTERPRETATION:

From the above table is observed that the networking capital of the company

shows decreasing trend. The total current assets of the company have decreased from

Rs.7374.65 in 2007-2008 to Rs.4172.77 in 2008-09.


Table: 4.2


Increase Decrease

Current Assets (CA)

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Inventories 1193.26 5294.05 4100.79 -Sundry Debtors 2011.67 4098.66 2086.99 -Cash and Bank Balances 629.04 447.49 - 181.55Loans and advances 338.81 1462.76 1123.95 -

Total Current Assets 4172.78 11302.96 - -Current Liabilities (CL)Current Liabilities 2828.58 5052.57 - 2223.99Provisions 66.55 527.72 - 506.17Total Current Liabilities 2895.13 5625.29 - -Working Capital (CA-CL) 1277.65 5677.67 - -

Net Working Capital 4400.02 - - 4400.025677.67 5677.67 7311.73 7311.73

Net increase in the working capital is 4400.02

INTERPRETATION:


shows increasing trend. The total current assets of the company have increased from

Rs.4172.78 in 2008-09 to Rs.11302.96 in 2009-10.

But the bank balance decreased from Rs. 629.04 to Rs.447.49 i.e., 181.55.

The total current liabilities decreased from Rs.2828.58 to Rs.5052.57. The net

working capital increases Rs. 4400.02.


Table: 4.3


Increase Decrease

Current Assets (CA)Inventories 5294.05 7075.18 1781.13 -Sundry Debtors 4098.66 7197.89 3099.23 -Cash and Bank Balances 447.49 247.72 - 199.77Loans and advances 1462.76 1616.75 153.99 -Total Current Assets 11302.96 16137.54 - -

Current Liabilities (CL)Current Liabilities 5052.57 8090.45 - 3037.88

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Provisions 527.72 586.14 - 13.42Total Current Liabilities 5625.29 8676.59 - -Working Capital (CA-CL) 5677.67 7460.95 - -

Net Working Capital 1783.28 - - 1783.28

7460.95 7460.95 5034.35 5034.5


INTERPRETATION:



Rs.11302.96 in 2009-10 to Rs.16137.54 in 2010-11.

But the bank balance decreased from Rs.447.49 to Rs.247.72 i.e., 199.77. The

total current liabilities increased from Rs. 5677.67 to Rs.8676.59. The net working

capital increases Rs.1783.28.


Table: 4.4


Increase Decrease

Current Assets (CA)Inventories 7075.18 9194.08 2118.9 -Sundry Debtors 7197.89 6706.59 - 491.3Cash and Bank Balances 247.72 350.67 102.95 -Loans and advances 1616.75 2070.42 453.67 -Total Current Assets 16137.54 18321.76 - -Current Liabilities (CL)Current Liabilities 8090.45 9202.11 - 1111.66Provisions 586.14 354.42 231.72 -Total Current Liabilities 8676.59 9556.53 - -Working Capital (CA-CL) 7460.59 8765.23 - -

Net Working Capital 1304.48 - - 1304.48

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8765.23 8765.23 2907.24 2907.24


INTERPRETATION:



Rs.16137.54 in 2010-11 to Rs.18321.76 in 2011-12.

But the bank balance increased from Rs.247.72 to Rs.350.67 i.e., 102.95. The

total current liabilities increased from Rs.8676.59 to Rs.9556.53. The net working

capital increases Rs.1304.48.

THE STATEMENT SHOWING THE WORKING CAPITAL

FROM 2008-09 TO 2011-12TABLE: 4.5

YEAR INCREASE DECREASE

2008-09 - - 2519.952009-10 4400.02 -2010-11 1783.28 -2011-12 1304.48 -

GRAPH: 4.1

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INTERPRETATION:

The above diagram clearly shows that the net working capital of the LIL

showing an increase with a decreasing trend. As the net working capital for the year

2008-09 is -2519.95 it is decrease in the net working capital but for the years after

2008-09 the net working capital of the firm was increasing at a decreasing rate i.e.,4400.02, 1783.28, 1304.48 respectively for the years 2009-10, 2010-11, 2011-12.

1. CURRENT RATIO

The current ratio is a measure of the firms short-term solvency. It indicates

the availability of current assets in rupees for every one rupee of current liability. A

ratio of greater than one means that the firm has more current assets than current

claims against them.Current Ratio = Current Assets

Current Liabilities

TABLE: 4.6YEARS CURRENT

ASSETS

CURRENT

LIABILITIES

RATIO

2007-08 161.36 96.25 1.682008-09 183.22 95.57 1.92

2009-10 261.97 107.26 2.442010-11 266.16 100.3 2.65

CHANGES IN WORKING CAPITAL

-2519.95

4400.02

1783.28

1304.48

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

2008-09 2009-10 2010-11 2011-12

YEARS

NWC

INCREASE

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2011-12 359.74 108.83 3.31

GRAPH: 4.2

INTERPRETATION:

The firms current ratio is almost 1:1 in years 2007-08, 2008-09. This refers

that the companys current assets are almost equal to current liabilities it is not a very

good position of short-term solvency. But in 2009-10 to 2011-12 the ratio is too low

then the standard ratio 2:1.

2. QUICK RATIO

Quick Ratio, also called acid-test ratio, establishes a relationship betwee

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