HINDALCO WC PROJECT

WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES LTD.

PREFACE

The report has been intended to reflect some of the basic issues covered under the “Working Capital Management” of Hindalco Industries Ltd., a first truly MNC in India. All the aspects have been formulated and presented on the basis of the ideas and information gathered by the investigator during the span of project training. This gives a practical exposure of the content under topic, what has already been studied in classroom in theoretical form.

This report has been written in response to comprehensive studyconducted on the topic. The reports mentions and evaluates various aspects, pertaining to the working capital management of the company. After a thorough analysis of various facts and stand figures, a set of conclusion has been given the prime considerations, while compiling the report and are authoritative and authentic. We make sure that anyone who goes through the report will learn how much we have learnt so for, and can get the benefit of the same.

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ACKNOWLEDGEMENT

In an organization, be it an industry, a school or society, no outcomes can be achieved by one man working in isolation. It’s always a group working and achieving the outcome in totality. It is the outcome of all the guidance and support that I received from this organization. I would take this opportunity to acknowledge a debt of deep gratitude to many people for their valuable assistance and continuous support during the course of my Summer Internship Program.

We convey our sincere thanks to Mr. S. K. Das, General Manager (Training) for allowing us to pursue summer training in this prestigious organization.

We are also thankful to Mr. Ajay Joshi, Vice President (Finance & Account), and other members of the accounts department for providing necessary help whenever required for the completion of the project.

We are thankful to our guide Mr. Vimal Raheja, for his valuable guidance and his precious time he devoted for mentoring us, without which this project would not have been successful.

We are also thankful to the librarian for allowing us access to valuable journals and reports which gave life-blood to our project.

Last, but not the least, we would like to thank our institute for providing us an opportunity to work with such a prestigious organization.

KAMLESHWAR POKHRAIL(NEW DELHI INSTITUTE OF MANAGEMENT)

VIKRAM SINGH(NEW DELHI INSTITUTE OF MANAGEMENT)

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Hindalco Industries Pvt. Ltd.

Mr. G. D. Birla and Mr. Aditya Birla, Our founding fathers.We live by their values.

Integrity, Commitment, Passion, Seamlessness and Speed.

Table of Content 3


Chairman’s Foreword 6

Profile of the company Introduction 7 History 8

Vision, Mission & Values 10 Awards and Recognitions 12

Product Profile Indian Roots 14 Joint Venture 15 International Companies 15 Aluminium 18 Copper 19 Mines 20 Production Capacity 21 Share Of Net Sales 22

Structure of Finance Department 24 Management Team 25

Accounting policy 27

Working Capital Current Assets 32 Current Liabilities 33 Purpose Of Working Capital 33 Classification of Working Capital 34

Gross Working Capital 35 Net Working Capital 35 Permanent Working Capital 35 Temporary Working Capital 36

Working Capital Cycle 37 Trade Off Between Profitability & Risks 38 Determinants of Working Capital at Hindalco 39 Estimating Working Capital Requirement

Estimation of component of WC 42 Percentage of Sales method 44

Working Capital Finance 45 WC Financing at Hindalco 51 Statement Working Capital 52

Ratio Analysis

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Liquidity Ratio 54 Leverage Ratio 57 Turnover Ratio 61 Profitability Ratio 65

Conclusion 72 References 73

CHAIRMAN’S FOREWORD

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“Time and again, the supremacy of the human element cannot be over emphasized. The success or failure of an organization depends on people, on human beings, on their talent, on their initiative, on their ability to lead and coordinate with others, to work as a team. It also depends on the ability of the organization, to motivate them to greater heights.

We carry forth this vision of the people.”

(KUMAR MANGALAM BIRLA)

PROFILE OF THE COMPANY

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Introduction

The Aditya Birla group is India’s first truly multinational corporation with global in vision and rooted in India’s value. The group is driven by a performance ethic pegged on value creation for its multiple stake holders. A US $29.2 billion corporation, the Aditya Birla Group is in the league of Fortune 500. It is anchored by an extraordinary force of 130,000 employees, belonging to 30 different nationalities. A premium conglomerate, the Aditya Birla Group is a dominant player in all of the sectors in which it operates. Such as viscose staple fiber, non-ferrous metals, cement, viscose filament yarn, branded apparel, carbon black, chemicals, fertilizers, sponge iron, insulators and financial services.In India the Group has been adjudged “The Best Employer in India and among the top 20 in Asia" by the Hewitt-Economic Times and Wall Street Journal Study 2007. Over 50% of its revenues flow from its overseas operations.The Group operates in 25 countries — India, UK, Germany, Hungary, Brazil, Italy, France, Luxembourg, Switzerland, Australia, USA, Canada, Egypt, China, Thailand, Laos, Indonesia, Philippines, Dubai, Singapore, Myanmar, Bangladesh, Vietnam, Malaysia and Korea.

The foundation stone of the Aditya Birla Group was laid down by the great visionary and the founding father of Indian Industry Late. Shri Ghanshyam Das Birla. The success ion torch was successfully carried on by his son, Late. Shri Basant Kumar Birla. In the year 1943, Aditya Vikram Birla, the man behind the Birla Empire was born. It was A. V. Birla who made the Birla group everywhere. In the words of A. V. Birla:

“Density beckons that we do something that we continue to create not just for our country, but globally. Not just for today but for prosperity as well.”

A.V. Birla (as he was popularly known) translated his words into outstanding accomplishments. He thrived on challenges and possessed a great vision. His perseverance enabled him to succeed against all odds. His numerous qualities inspired those who were associated with him. He always believed in teamwork. He died on 1st October 1995 leaving behind Birla Empire. Kumar Manglam Birla, son of Late. A. V. Birla took over the charges as the Chairman of the group. Kumar Manglam Birla, a Chartered Accountant, and an M.B.A from Harvard University, is the chairman of the Aditya Birla Group which includes a number of companies within and outside the country.

History

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1958Incorporation of Hindalco Industries Limited.

1962Commencement of production at Renukoot (Uttar Pradesh) with an initial capacity of 20,000 MTPA of aluminum metal and 40,000 MTPA of alumina.

1965Downstream capacities commissioned (rolling and extrusion mills at Renukoot).

1967Commission of Renusagar Power Plant- a strategic and farsighted move.

1991Beginning of major expansion programme.

1995Mr. Kumar Mangalam Birla takes over as chairman of Indal board.

1998Foil Plant at Silvassa goes on stream.Hindalco attains ISO 14001 EMS certification.

1999Aluminium alloy wheels production commenced at Silvassa.Brownfield expansion of metal capacity at Renukoot to 242,000 TPA.

2000 Acquisition in controlling stake in Indian Aluminium Company Limited (Indal) with 74.6% equity holding.

2002The amalgamation of Indo Gulf Corporation Limited copper business, with Birla Copper, with Hindalco with the effect of 1st April 2002.

2003Hindalco acquires Nifty Copper Mine in March 2003 through Aditya Birla Minerals Ltd. (ABML, formally Birla Minerals Pvt. Ltd.)ABML acquires the Mount Gordon Copper Mines in November 2003.Equity stake in Indal increased to 96.5% through an open offer.Brownfield expansion of aluminium smelter at Renukoot to 345,000 TPA.

2004Copper smelter expansion to 2,50,000 TPA

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2005All business of Indal, except for the Kollur Foil Plant in Andhra Pardesh, merged with Hindalco Industries Ltd.MoUs signed with state government of Orissa and Jharkhand for setting up Greenfield alumina refining, smelter and power plant.Commissioned Copper III expansion, taking capacity to 5,00,000 TPA.

2006Hindalco announces 10:1 stock split. Each share with face value of Rs. 10 per share split into 10 shares of Re. 1 each. Hindalco completes largest Right issue in the history of Indian capital market with total size of Rs.22,266 million.Equity offering and subsequent listing of Aditya Birla Minerals Ltd. on Australia Stock Exchange.Signed an MoU with the Government of Madhya Pradesh for Greenfield aluminium smelter in Siddhi district of the state.Joint venture with Almex USA for manufacture of high strength aluminium alloys for application in aerospace , sporting goods and surface transport industries.

2007Successful acquisition of Novelis, making Hindalco the largest in aluminium rolling and among the global top five metals major, with a presence in 11 countries outside India.Acquisition of Alcan’s 45% equity stake in the Utkal Alumina project, thereby making Hindalco the 100% project owner.

VISION, MISSION & VALUES

VISIONTo be a premium metals major, global in size and reach, excelling in everything we do, and creating value for its stakeholders.

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MISSIONTo relentlessly pursue the creation of superior shareholder value, by exceeding customer expectation profitably, unleashing employee potential, while being a responsible corporate citizen, adhering to our values.

VALUES

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AWARDS AND RECOGNITIONS

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International Asia pacific quality award, Asia pacific quality organization in 2009.

Green tech gold award for environment, Green tech. foundation, New Delhi 2009. Golden Peacock Environment Management award, Institute of Directors, 2009.

IMC Ram Krishna Bajaj National Quality Award Trophy, Indian merchant’s Chamber Ram Krishna National Quality Award Trust, Mumbai, 2008.

Golden Peacock National Quality Award, institute of directors, 2008.

Green tech gold award for environment, Green tech. foundation, New Delhi 2008. Hindalco won the prestigious “D.L. Shah National Award for Economics of Quality given by Quality Council of India, presented by President of India, Hon. Dr. A.P.J. Abdul Kalam, on 9 February 2007.

National Energy Conservation Award -2006 was presented by the ministry of power, Government of India.

Hindalco Hirakud Complex earned the Pollution Control Appreciation Award presented by the Orissa state Pollution Control Board.

The IT department of Hindalco received prestigious IT certificate BSI15000 (IT services), ISO 9001Software Development) and BS7799 (Information security). Hindalco’s Renukoot IT functions is the first in the group as well as in India to be recommended for all these certification in an integrated manner.

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The Company’s fabrication plant’s hot mill team won the prestigious Qualtch Award for their project “reduction of time in work role change in time.”

Hindalco, Renukoot has won the National Award for Excellence in Water Management 2006 organized by CII.

Hindalco Hirakud Power Plant team bagged second prize at the state level CII Orissa Award 2006 for best practices in environment, safety and health.

Hindalco Hirakud, s Quality Circle ‘jagruti’ bagged national level honors at the 20th National Convection of Quality Circles, organized by quality Circle Forum of India.

Hirakud Power Plant team received the State Safety Award 2006 for their act of bravery in saving lives and preventive a disaster by their proactive initiative to arrest the chlorine leakage at the railway Colony in Sambalpur.

Renukoot Complex named the winner of National Safety Award 2005 for the second consecutive year.

Bauxite and coal mines, in all regions (Jharkhand, Maharashtra, Chhattisgarh and Orissa) have won a host of award in safety, environment, pollution control and overall performance during the Mines Safety Week.

“ICWAI National Award for Excellence in Cost Management -2005” presented by the Institute of Cost and Work Accountants of India.

Product Profile

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Indian Roots

COMPANY PRODUCTS/SERVICESGRASIM Viscose staple fiber, Rayon grade

pulp, cement, Chemicals, Sponge iron, Textiles.

ULTRA TECH CEMENT LTD. Ordinary Portland Cement, Portland blast furnace slag cement, Portland pozzolana cement and grey Portland cement.

SHREE DIGVIJAY CEMENT Cement and ClinkerHINDALCO INDUSTRIES LTD. Aluminium and copperINDIAN ALUMINIUM COMPANY LTD. Aluminium foilBIHAR CAUSTIC AND CHEMICALS LTD. Caustic soda

ADITYA BIRLA NUVO Garments, Viscous filament yarn, Carbon Black, Textiles

IDEA CELLULAR LTD. Cellular TelecommunicationADITYA BIRLA INSULATOR LTD. InsulatorsBIRLA SUN LIFE INSURANCE CO. LTD. InsuranceBIRLA SUN LIFE ASSET MANAGEMENT COMPANT LTD.

Mutual Funds

TANFAC INDUSTRIES LTD. Fluorine ChemicalsBIRLA SUN LIFE DISTRIBUTION COMPANY LTD.

Investment Planning Services

PSI DATA SYSTEMS Application development, Maintenance & Enhancement Solutions

TRANS WORKS Customer Relationship Management (CRM) services (inbound & outbound)

BIRLA GLOBAL FINANCE LTD. Asset-based finance, corporate finance and investment banking

BIRLA INSURANCE ADVISORY SERVICES LTD.

Non-life Insurance Advisory Services

ADTYA BIRLA RETAIL Multi-Format StoresHI-TECH CARBON Carbon BlackMADURA GARMENTS Garments

Joint Venture

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COMPANY PARTNERS PRODUCTS

Birla Sun Life Insurance Company Ltd.

Sun Life (CANADA) Insurance Solutions

Tanfac Industries Ltd. (TIDCO) Tamil Nadu Industrial Development Corporation

Fluorine

Birla Sun life Asset Management Company Ltd.

Sun Life (CANADA) Mutual Funds

Birla Sun Life Distribution Company Ltd.

Sun Life (CANADA) Investment Planning Solution

International companies

Thailand Thai Rayon Indo Thai Synthetics Thai Acrylic fiber Thai Carbon Black Aditya Birla Chemicals (Thailand) Ltd. Thai Peroxide

Philippines Indo Phil Textile Mills Indo Phil Cotton Mills Indo Phil Acrylic Mfg. Corp. Pan Century Surfactant Inc.

Indonesia PT Indo Bharat Rayon PT Elegant Textile Industry PT sunrise Bumi Textile PT Indo Liberty Textile PT Indo Raya Kimia Egypt Alexandria Carbon Black Company S.A.E Alexandria Fiber Company S.A.E

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China Liaoning Birla Carbon Birla Jingwei fiber Company Ltd. Aditya Birla Grasun Chemical (Fangchenggang) Ltd.

Canada AV Cell Inc. Av Nakawick Inc.

Australia Aditya Birla Minerals Ltd.

Laos Birla Laos Pulp and Paper Plantation Company Ltd. North and South America, Europe and Asia Novelis Inc.

HINDALCO’S PRODUCT PROFILE

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Hindalco is a leading domestic player in two metal business segments Aluminium & Copper.

The Aluminium division’s product range includes alumina chemicals, primary aluminum ingots, and billets, wire rods, rolled products, extrusions, foils and alloy wheels.

This company has significant market share in all the segments in which it operates. It enjoys domestic market share of 42% in primary aluminum, 63% in rolled products, 20% in extrusions, 44% in foils & 31% wheels.

As a step towards expanding the market for value-added products and services, Hindalco has launched several brands in recent years, which include Aura for alloy wheels, Freshwrapp for kitchen foils and ever last for roofing sheets. Our exclusive showroom, the aluminum gallery, seeks to promote Hindalco products to its customers. It is a platform for the company to showcase quality products to a quality audience in an appropriate ambience. The exhibits include products like windows, doors, furniture’s, ladders, roofing sheets & ceilings &cladding panels.

Hindalco’s products are well received not only in the domestic market but also in the international market. The company’s metal is accepted for delivery under the high-grade aluminum contract on the LONDON METAL EXCHANGE (LME). The company exports about 17% of its total sales volume of aluminum.

The company’s alumina chemical business is a leader in manufacturing and marketing of specialty alumina and alumina hydrate products in the country. These specialty products find wide range in diversified industries including water treatment chemicals, refractories, ceramics, croyloite, glass, fillers & plastics, conveyor belts and cables, among others. The company also exports these alumina chemicals to over 30 countries covering North America, Western Europe & the Asian region.

Birla copper, Hindalco’s copper division at Dahej in Gujarat, enjoys a leadership position in India, having built over 40% of the domestic market shares within 3 years it’s commissioning.

It has also made successful forays in to the export markets of the Middle East, Southeast Asia, China, Korea and Taiwan.

The Copper plant produces world-class copper cathodes, continues cast copper rods and precious metals. Sulphuric acid, phosphoric acid, di-ammonium phosphate, other phosphoric fertilizers and phosphor-gypsum are also produced at this plant.

ALUMINUM17


Hindalco is the world’s largest aluminum rolling company and one of the biggest producers of primary aluminum in Asia. In India, Hindalco enjoys a leadership position in specialty alumina, primary aluminum and downstream products.

Hindalco’s major products include standard and specialty grade aluminaand hydrates, aluminum ingots, billets, wire rods etc.

The integrated facility at Renukoot (Uttar Pradesh) houses an alumina refinery and an aluminum smelter along with facilities for production of semi-fabricated products, namely, redraw rods, flat rolled products and extrusions. A co-generation plant and a 770 mw captive power plant at Renusagar to ensure continuous and consistent supply of power for smelter and other operations back the plant.

Other facilities include an aluminum smelter at Hirakud (Orissa) with a captive power plant, alumina refineries at Muri (Jharkhand) and Belgaum (Karnataka) and rolling mills at Belur (west Bengal) and Taloja, Mouda (Maharashtra) etc. The foil plant at Kollur, Andhra Pradesh is the only remaining entity with the erstwhile Indal after the merger of Indal with Hindalco.

The aluminum alloy wheels plant is located at Silvassa (Dadar and Nagar Haveli). Hindalco was among the first few alloy wheels companies to have obtained the ISO/TS 16949 certification to meet the stringent standard of the automobile industry. All Hindalco units are ISO 9001:2000 and 14001 certified, and several have attained the OHSAS 18001 – the occupational health and safety certification.

The company has two R&D centers: the Belgaum Research and Development center in Taloja, Maharashtra. These have been recognized by the government of India’s Department of Scientific and Industrial Research (DSIR).

A strong presence across the value chain and synergies in operations have been given Hindalco a dominant share of the domestic value-added products market. In India, the company enjoys a leadership position in specialty alumina and hydrates as well as primary aluminum and downstream semi-fabricated products. As a step towards expanding the market for value-added products and services, Hindalco has launched several brands in recent years. These include the Aura aluminum Alloy wheels for cars, ever last roofing sheets & Freshwrapp and Freshpakk household foils for packaging.

Apart from being a dominant player in the domestic market, Hindalco’s products are well accepted in international markets. Exports account for more than 20% of total sales of aluminum products.

UTKAL ALUMINA INTERNATIONAL LIMITED, ORRISA

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A Rs.44 billion ($1 billion) Greenfield joint venture with Alcan Inc. of Canada in which Hindalco holds 55 % equity. The proposed 1.5 million-tone alumina refinery is to be set up in Doragurha, Rayagada district of Orissa, sourcing Bauxite from the rich reserves of Baphlimali in Rayagada.

MADHYA PRADESH

A Rs. 77 billion ($ 1.7 Billion) project for a smelter-power complex in the Siddhi district of Madhya Pradesh. Aluminum smelter capacity of 325,000 TPA supported by a 750 mw coal based captive power plant. The coal for the power plant will be sourced from Mahan Coal Company ltd., a joint venture between Hindalco and Essar Group for mining of coal from the Mahan Coal block.

JHARKAND

A Rs. 78 billion ($1.7billion) project for a smelter-power complex in the Latehar district. Aluminum smelter capacity of 325,000 TPA supported by captive thermal power of 750 mw.

COPPER

Hindalco’s Birla Copper unit at Dahej in Gujarat is the world’s largest single location custom copper smelter with 500,000 TPA capacities. The plant is backed by captive power plants, oxygen plants, as also by product facilities for the fertilizers and precious metals. A captive jetty with cargo handling capacity of over 4 million TPA facilities easy input of copper concentrate and other imported raw material.

In 2005, the Dahej copper plant was accredited with OHSAS-18001 certification by KPMG, Netherland.

Unlike aluminum, India has limited proven copper reserves. Hence, Birla copper sources copper concentrate from various countries, including Australia, and Indonesia and South America. The division also owns two copper mines in Australia- Birla Nifty Pvt. Ltd. In Western Australia and Birla Mount Gordon Pvt. Ltd. In Queensland through its 51 % subsidiary – Aditya Birla Minerals Ltd. Copper concentrates are imported through a captive jetty at Dahej.

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The copper business segment comprises primarily production (through copper smelting, converting, and refining) and sale of copper, in the form of cathodes and continuous cast rods and by-products, precious metals (gold, silver, selenium and platinum group mix) and DAP and NPK complexes, as well as operating jetty services and other logistical activities related to sales and distribution of products. Power is generated for in house use. Revenues are derived primarily from the sale of copper, DAP and NKP complexes and precious metals.Hindalco Birla copper cathodes is a trusted brand, known for high purity(99.99%) and consistent quality, these are largely used in the manufacture of copper rods for the wire and cable industry, and copper tubes for consumer durable Goods. Effective 30th Jan. 2003, the London metal exchange had listed Birla copper as A grade copper brand. Birla copper is an ISO 9001 company and has also received the ISO 14001 and OSHAS 18001 certification.

The Precious Metal Refinery at Dahej produces gold, silver and selenium. The residues after extraction of these precious metals contain traces of platinum and palladium that are sold as Platinum Group Metals mix, commonly known as PGM.

MINES

Two copper mines in Australia were acquired in 2003. Birla Nifty mine consist of an open- pit mine, heap leach pads and a solvent extraction and electro winning (SEXW) processing plant, which produces copper cathodes. Birla Nifty’s copper cathodes capacity is 25,000 TPA.

A copper sulphide deposit is located at the lower levels of the Nifty open pit mine and an underground mine and concentrator have been developed to mine & process ore from this deposit. The Nifty sulphide operation commenced ore production from stopping in December 2005 and concentrate production in March 2006. With the start up of the NIFTY sulphide operation and its progressive ramp up during FY 2007, Aditya Birla Minerals (ABML) is entering a period of rapid growth is continues in nature.

Birla Mt. Gordon operations consist of Mammoth underground and Esperanza open pit mines it has ability to produce both coppers in concentrate through a standard floatation plant and copper cathodes through a ferric leach plant.

Aditya Birla Minerals Limited (ABML) also has exploration rights in the Patterson province of Western Australia, framed for its rich copper ore deposits.

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PRODUCTION CAPACITY

Division Capacity Location

Alumina Chemicals 1,160,000 TPA700,000 TPA (Renukoot)110,000 TPA (Muri)350,000 TPA (Belgaum)

Primary Aluminium 489,000 TPA373,000 TPA (Renukoot)102000 TPA (Hirakud)14000 TPA (Alupuram)

Extrusion27,700 TPA

19,700 TPA (Renukoot)8,000 TPA (Alupuram)

Rolled Product 2,00,000 TPA

80000 TPA (Renukoot)30000 TPA (Mouda)45000 TPA (Belur & Taloja)

Wire rods 64000 TPA40000 TPA (Renukoot)10000 TPA (Alupuram)14400 TPA ( Mouda)

Aluminium foils 11000 TPA Silvassa

Aluminium wheels 300,000pcs Silvassa

Power 1087.2 MWRenukootRenusagarHirakud

Copper cathodes 5,00,000 TPA Dahej

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Share of Net Sales Value 2007-08

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STRUCTURE OF FINANCE DEPARTMENT

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MANAGEMENT TEAM

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JOINT EXECUTIVE PRESIDENT (FINANCE

& COMMERCE)

VICE PRESIDENT (FINANCE & A/C)

GENERAL MANAGER

MANAGER

DEPUTY MANAGER

ASSISTANT MANAGER

ACCOUNT OFFICER

ASSISTANT A/C OFFICER

SR. ASSISTANT

ASSISTANT


BOARD OF DIRECTORSMr. Kumar Manglam Birla, ChairmanMrs. Rajashree BirlaMr. A. K. AgarwalaMr. C. M. ManiarMr. E. B. DesaiMr. S. S. KothariMr. M. M. BhagatMr. K. N. BhandariMr. N. J. Jhaveri

EXECUTIVE DIRECTORMr. Debu Bhattacharya, Managing Director

CHIEF FINANCIAL OFFICERMr. S. Talukdar, Group Executive President & CFO

ADVISORMr. R.K. Kasliwal

CORPORATEMr. R. Ram Senior President (Corporate Project)Mr. Vineet Kaul, Chief People Officer

COMPANY SECRETARYMr. Anil Malik

KEY EXECUTIVES

ALUMINIUM BUSINESSMr. Shashi K. Maudgal, Chief Marketing Officer (Primary Metal, Rolled Products, Extrusions)Mr. Vinod Sood , Joint President Chemicals & International Trade Mr. S.M. Bhatia, President (Foil & Alloy Wheels) Mr. R. S. Dhulkhed, President (Operations) Mr. Anil Kumar Sinha, President (Human Resource)

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Mr. Shankar Ray, President (Business Projects)

RENUKOOT UNITMr. D.K. Kohly, Chief Officer – Operations, RenukootMr. Ashok Machher, Joint Executive President (F & C)Mr. Vijay Sapra, Vice-President Alumina PlantMr. G. M. Pandey, Unit Head (Renusagar Power Division)

Aditya AluminiumMr. S. N. Botha, CEOMr. S. N. Jena, Chief Operating Officer

Copper BusinessMr. Dilip Gaur, Group Executive President Mr. Shambhu Sharma, President & Chief Operating OfficerMr. N. M. Patnaik, Joint President (Finance and Commercial)Mr. J. P. Paliwal, Joint Executive President (Commercial)Mr. B. M. Sharma, Chief Marketing Officer

AuditorsSinghi & Co., Kolkatta

Cost AuditorsR. Nanabhoy & Co., MumbaiMani & Co., Kolkatta

Accounting Policy

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1. Accounting Convention The financial statements are prepared under the historical cost convention, on an accrual basis and in accordance with the generally accepted accounting principles in India, the applicable mandatory Accounting Standards as notified by the Companies (Accounting Standard) Rules, 2006 and the relevant provisions of the Companies Act, 1956 of India. 2. Use of Estimates The preparation of financial statements require estimates and assumptions to be made that affect the reported amount of assets and liabilities on the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Difference between the actual results and estimates are recognized in the period in which the results are known / materialized. 3. Fixed Assets (a) Tangible Assets are stated at cost less accumulated depreciation and impairment loss, if any. Cost comprises of purchase price and any attributable cost of bringing the assets to its working condition for its intended use. (b) Intangible Assets are stated at cost less accumulated amortization. Cost includes any directly attributable expenditure on making the asset ready for its intended use. (c) Machinery spares which can be used only in connection with an item of Fixed Asset and whose use is not of regular nature are written off over the estimated useful life of the relevant asset. 4. Depreciation and Amortization (a) Depreciation on Tangible Fixed Assets has been provided using Straight Line Method at the rates and manner prescribed under Schedule VI of Companies Act,1956 of India. (b) Mining Rights and leasehold land are amortized over the period of lease on straightline basis. (c) Intangible assets are amortized over their estimated useful lives

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on straight line basis. 5. Impairment An asset is treated as impaired when the carrying cost of the asset exceeds its recoverable value being higher of value in use and net selling price. Value in use is computed at net present value of cash flow expected over the balance useful life of the assets. An impairment loss is recognized as an expense in the Profit and Loss Account in the year in which an asset is identified as impaired. The impairment loss recognized in prior accounting period is reversed if there has been an improvement in recoverable amount. 6. Leases Lease payments under an operating lease are recognized as expense in the statement of profit and loss account as per terms of lease agreement. 7. Investments (a) Long term Investments are carried at cost after deducting provision, if any, for diminution in value considered to be other than temporary in nature. (b) Current investments are stated at lower of cost and fair value. 8. Inventories (a) Inventories of stores and spare parts are valued at or below cost after providing for cost of obsolescence and other anticipated losses, wherever considered necessary. (b) Inventories of items other than those stated above are valued ‘A t cost or Net Realizable Value,whichever is lower’. Cost is generally determined on weighted average cost basis and wherever required, appropriate overheads are taken into account. Net Realizable Value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale. (c) Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in

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which they will be incorporated are expected to be sold at or above cost. 10. Employee benefits Employee benefits of short-term nature are recognized as expense as and when it accrues. Long term employee benefits (e.g. long-service leave) and post employments benefits (e.g. gratuity), both funded and unfunded, are recognized as expense based on actuarial valuation at year end using the Projected unit credit method. Actuarial gain and losses are recognized immediately in the Profit & Loss account. 11. Employee Stock Option Scheme In respect of stock option granted pursuant to the company’s stock option schemes, the intrinsic value of the options (excess of market price of the share over the exercise price of the option) is treated as employee compensation cost and is charged over the vesting period of the option. 12. Revenue Recognition Sales revenue is recognized on transfer of significant risk and rewards of the ownership of the goods to the buyer and stated at net of trade discount and rebates. Dividend income on investments is accounted for when the right to receive the payment is established. Export incentive, certain insurance, railway and other claims where quantum of accruals can not be ascertained with reasonable certainty, are accounted on acceptance basis. 13. Borrowing Cost Borrowing costs directly attributable to the acquisition or construction of qualifying assets are capitalized. Other borrowing costs are recognized as expenses in the period in which they are incurred. In determining the amount of borrowing costs eligible for capitalization during a period, any income earned on the temporary investment of those borrowings is deducted from the borrowing costs incurred. 14. Taxation Provision for current income tax is made in accordance with the

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Income-tax Act, 1961. Deferred tax liabilities and assets are recognized at substantively enacted tax rates, subject to the consideration of prudence, on timing difference, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Fringe benefit tax (FBT) is accounted for on the estimated value of fringe benefits for the period as per the related provisions of the Income-tax Act. 15. Derivative Instruments (a) Risks associated with fluctuations in the price of the Company’s products (copper, alumina, aluminium and precious metals) are minimized by hedging on futures market. The results of metal hedging contracts /transactions are recorded at their settlement as part of raw material cost or sales as the case may be. Portion of the cash flow to the extent of underlying physical transactions having not been completed is carried in Raw Materials Inventory till the completion of the underlying physical transaction. (b) The Company uses derivative financial instruments such as forward exchange contracts and currency swaps and options to hedge its risks associated with foreign currency fluctuations.In respect of transactions covered by Forward Exchange Contracts, the difference between the forward rate and the exchange rate at the inception of contract is recognized as income or expense over the life of the contract. (c) Transactions covered by cross currency swap and option contracts to be settled on future dates are recognized at the year end rates of the underlying foreign currency. Effects arising out of swap contracts are adjusted on the date of settlement. 16. Research and Development Expenditure incurred during research phase is charged to revenue when no intangible asset arises from such research. Assets procured for research and development activities are generally capitalized.

17. Government Grants Government Grants are recognized when there is a reasonable assurance

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that the same will be received. Revenue grants are recognized in the Profit and Loss Account. Capital grants relating to specific fixed assets are reduced from the gross value of the respective fixed assets. Other capital grants are credited to Capital Reserve. 18. Provisions, Contingent Liabilities and Contingent Assets Provision is recognized when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. Disclosure for contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. No provision is recognized or disclosure for contingent liability is made when there is a possible obligation or a present obligation and the likelihood of outflow of resources is remote. Contingent Asset is neither recognized nor disclosed in the financial statements. (a) The provision for excise duty and sales tax are on account of legal matters, where the Company anticipates probable outflow. The amount of provision is estimated by the Company considering the facts and circumstances of each case for which cash flow will be determined on settlement of these matters. (b) Provision for others is on account of dispute pertaining to non-supply of material to a customer. (III) The Company has given undertakings to various Financial Institutions and Banks, as relevant, for- i) Non disposal of equity shares of Aditya Birla Chemicals (India) Limited (Formerly known as, Bihar Caustic & Chemicals Ltd) till the Institutional Loans are repaid in full in addition to finance the cost over run, if any, in respect of an on-going project of the Company for which the loan has been taken. ii) Non disposal of equity shares of IDEA Cellular Ltd. till the Institutional loans are repaid in full.

WORKING CAPITAL

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Working capital refers to the amount of capital which is readily available to an organization. It is required for day-to-day operations, or more specifically, for financing the conversion of raw material into finished goods. Among the most important items of Working Capital are levels of inventory, accounts receivable and accounts payable. In simple words, Working Capital refers to that part of the firm’s capital, which is required for financing short- term or current assets such as cash, marketable securities, debtors and inventories.

Funds are also needed for short-term purposes, for the purpose of raw materials, payment of wages and other day-to-day expenses, etc. These funds are known as Working Capital. Working capital is also known as Operating Capitals.In a department’s statement of financial position, these components of working capital are reported under the following headings:

CURRENT ASSETS: This is any cash or asset that can be quickly converted into cash. This includes prepaid expenses, account receivables, most securities and your inventory. Liquid Assets (cash and bank deposits) Bill Receivables Sundry Debtors (Less provision for bad debts) Short terms Loans & Advances Inventories of stocks

Raw Material Work in Process Stores and Spares Finished Goods Coal & Fuel

Temporary Investments of Surplus Funds Prepaid Expenses Accrued Income

Characteristics of current assets:In the management of working capital two characteristics of current assets must be in born in mind. Short Life Span Swift Transformation into other assets forms.Current assets have a short life span. Cash balance may be held idle for a week or account receivables may have a life span of 30 to 60 days, and investments may be held for 30 to 100 days. The life of current assets depends upon the time required in the activities of procurement, production, sales and collections and degree of

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WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIESWORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES


synchronization among them. Each current asset is used for acquiring raw material, raw materials are transformed in to finished goods, finished goods generally sold on credit or cash.

Current liabilities: Current Liabilities are those claims of outsiders which are expected to mature for payment within the accounting year. This is a liability in the immediate future. Bank Overdraft Bills Payables Sundry Creditors or Accounts Payable Short Term Loans, Advances & Deposits Dividend Payable Provision for Taxation, if it is does not amount to appropriation of profits. Other short term liabilities

Purpose of working capital For the purchase of raw materials, components and spares. To incur day-to-day expenses and overheads costs such as fuel, power etc. To meet the selling cost as packaging, advertising etc. To provide credit facility to the customers. To maintain the inventories of raw materials, work-in –progress, stores and spares and finished goods. To pay wages and salaries.

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ReserveWC


CLASSIFICATION OF WORKING CAPITAL

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ON THE BASIS OF CONCEPTThere are two concepts of working capital – Gross Working Capital Net Working Capital

GROSS WORKING CAPITALGross working capital refers to the firm’s investment in current assets. Current

assets are assets, which can be converted into cash within an accounting year. The main components of current assets are cash, debtors, marketable securities and stock.The Gross Working Capital concept focuses attention on two aspects of current assets management. Optimum investment in current assets. Financing of current assets.

NET WORKING CAPITALNet working capital refers to the difference between current assets and current

liabilities. Current liabilities are those claims of outsiders, which are expected to mature for payment with in an accounting year. It can be positive or negative. It is a qualitative concept. It indicates the liquidity position of the firm and suggest the extent to which working capital needs may be financed by permanent source of funds such as shares, debentures, long term debts etc. It concerns the question of judicial mix of long and short-term funds for financing current assets. In order to protect their interests, short-term creditors like a company to maintain a positive NWC. Conventionally the ratio of CA and CL is 2:1. A negative NWC means a negative liquidity, which may prove to be harmful to company, reputation. It poses a threat on the company’s solvency and makes it unsafe and unsound.

ON THE BASIS OF TIMEOn the basis of time it may be classified as: Permanent Working Capital Temporary Working Capital

Permanent Working CapitalPermanent or fixed working capital is the minimum amount, which is required to

ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a minimum level of current assets which is continuously required by the enterprise to carry out normal business operation. Every firm has to maintain a minimum level of raw material, WIP, finished goods and cash balance. This minimum level of current assets is called Permanent or Fixed Working Capital as this part of capital is permanently blocked in current assets.

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TEMPORARY OR VARIABLE WORKING CAPITALTemporary working capital is the extra WC needed to support the changing

production and sales activity. Temporary working capital depends upon the changes in production and sales, over and above permanent working capital. It represents additional assets required at different items during the operation of the year.

Temporary current assets financed from short term sources

Total assets

Permanent Current Assets

Fixed Assets Long term Finance

0Time

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WORKING CAPITAL CYCLE

Working capital cycle indicates the length of time between a company’s paying for materials, entering into stock and receiving the cash from sales of finished goods. It can be determined by adding the number of days required for each stage in the cycle. For example, Hindalco Company holds raw-material on an average for 120 days; it gets credit from supplier for 30 days, production process needs 30 days, finished goods for held for 60 days and credit extended to debtor. The total of all these, 240days, i.e., 120+30+30+60days is the total working capital cycle. The determination of working capital cycle helps in the forecast, control and management of working capital. The duration of working capital cycle may vary depending on the nature of business.The operation cycle (working capital) consists of the following events, which continue throughout the life of business.

Conversion of cash into raw materials; Conversion of raw materials into work –in-progress; Conversion of work-in-progress into finished goods; Conversion of account receivables into cash; and Conversion of finished goods stock into account receivables through

sales.

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Cash

Debtors(Receivable)

Finished Goods

Work-in-progress

Raw Materials,Labor, Overheads


Trade-off between Profitability and RiskIn evaluating the firm’s working capital position an important consideration is the trade-off between profitability and risk. In other words the level of NWC has a bearing on profitability as well as risk.The term profitability use in the context is measured by profit after expenses. The term risk is defined as the profitability that a firm will become technically insolvent so that it will not able to meet its obligation when they due for payment. It is assured that greater the amount of NWC, the less risk prone the firm is, or greater the NWC the more liquid is the firm and therefore the less likely it to become technically insolvent. Conversely lower level of NWC and liquidity are associated with increasing level of risk. A firm must have adequate WORKING CAPITAL. It should neither be excessive nor inadequate. Excessive WC means the firm has idle funds, which earn no profit for the firm. This situation decreases both risk and profitability of the firm. Inadequate W.C. means the firm does not have sufficient fund for running its operations, which ultimately results in production interruptions, and lowering down the profitability. Lower level of WC increase the risk but have the potentiality of increasing the profitability also.

Effect of quantum Current Assets on Profitability & Risk:-If we want to know effect of level of current assets at profitability, for that we check the ratio of CA/TA. If the ratio is high then profitability is minimum and risk is also minimum. If the ratio of CA/TA is lower than profitability is high as well as risk is high.

Effect of quantum Current Liability at the Profitability and Risk:-The effect of current liability at the profitability and risk can be shown by the ratio of CL/TA. If this ratio is low then profitability is high and risk is low. If this ratio is high then profitability is low and risk is high.

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Determinants of Working Capital at Hindalco

Nature of Business

Company business is manufacturing of Aluminum and aluminum product so this firm needed –A good amount of investment in working capital. Hindalco’s investment in working capital are as follows:

Current Asset = 7,739.91Total Assets = 17016.51CA to TA Ratio = (CA×100)/TA = (7739.91*100)/17016.51 = 31.19

NWC = CA-CL = 7739.91 – 1868.91 = 5871.00

NET WORKING CAPITAL TO TOTAL ASSETS RATIO

= (NWC×100)/TA

= (5871.00 * 100)/17061.51

=34.50% High level of investment in working capital due to a lot of investment in raw materials like Bauxite, Coal, Fuel, Work –in- progress and stores of finished goods.

Production CycleProduction cycle is concern with procurement of raw materials to the completion of

manufacturing process leading to the production of finished goods. Funds have to be necessarily ties up during the process of manufacturing necessitating enhanced to working capital. The longer time span production cycle will be longer, fund will be tie up for a longer span of time, therefore larger working capital needed. The production cycle of Hindalco Industries Ltd. is near about 30 days. It breaks up in following ways:Raw material Storage period = 21 daysWork-in-progress period = 05 daysFinished Goods storage period = 04 days

Total = 30 days

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Business Cycle Fluctuations in economy or business may lead quantum of working capital. There are two economic conditions, which affect quantum of working capital –

(1) If there is boom condition in economy, due to purchase of additional raw material and machinery to complete the increasing demand of product and for the cover the lag between sales and receipt of cash, more working capital will be needed.

(2) If there is recession condition in economy it leads a fall in the quantum of working capital, due to decrease in level of inventories and book of debts.

Note: - This situation will also follow for the Hindalco Industries.

Production Policy A production policy is also determining the quantum of working capital. Production policy may be of two types –

(1) Speedy production policy(2) Variable production policy

In case of Hindalco demand for aluminum and aluminum product manufactured by Hindalco is prevailing throughout the year. The company produce primary product continuously and semi products and extrusions are produced as the order of customers. So there is no question of seasonal demand of product, hence production continues throughout the year thereby no extra working capital is involved.

Credit PolicyCredit policy is relating to sales and purchase of product, which also affect the working capital. The policies influence the requirements for the working capital in two ways –

(1) Through credit terms granted to customers/ buyer of goods I. If give more credit to customer/ buyer, then needed more working capital

II. If give less credit to customer/ buyer, then needed less working capital(2) Credit terms available to a firm

I. If this is liberal then needed less working capital.II. If this is not liberal then needed more working capital.

The prevailing trade policies are as well as the changing economic condition affect the credit terms fixed by an enterprise. In Hindalco credit period as follows:

Buyers Product (Primary) Product (Semi fabricated)Direct Customer Nil 45 days

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Agent/ Stockiest 15 days 45 days

Credit period received asRaw materials 15- 30 daysStores and spares 30 days

Growth and ExpansionGrowth and Diversification of business call for larger volume of working fund. The need for increased working capital does not follow the growth of business operation but precedes it. Working capital need is in fact assessed in advance in reference to the business plan.

Availability of Raw MaterialIf availability of raw material is irregular then a larger amount of working capital is needed because a lot of amount invested in the raw material for the smooth production process and vice-versa.

Profit LevelIn the Hindalco maximum working capital is arranged by the internal source. So the change in profit level is not affected by the working capital level.

Price Level ChangeChanges in the price level also affect the requirement of working capital. Rising price necessitates the use of more funds for maintaining the existing level of activity. However the price rise does not have uniform affect on all commodities.The implication of changing price level on working capital position varies from company to company depending on nature of its operations, standing in the market and their relevant considerations.Change in the price level of crude oil also make a deep impact on working capital of Indian industries, so it’s also affect the working capital of Hindalco Industries.

Operating EfficiencyThe operating efficiency of the management is also an important determinant of the level of working capital, though management cannot control rise in price, it can ensure the efficient utilization of recourses by eliminating waste, improving co-ordination etc. Efficiency of operations accelerates the pace of cash cycle and improves the working capital turnover.

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Estimating Working Capital RequirementThere is no set of rules or formula to determine working capital requirements of the firm. The Quantum of working capital requirement of a company largely depends upon aforesaid factors. A finance manager in order to estimate the working capital requirement of the firm has to keep in mind few factors. Besides, he can apply any of the following techniques for assessing working capital requirement –

1. Estimation of component of working capital2. Percentage of sales method 3. Operating Cycle approach.

Estimation of component of working capitalSince working capital is the excess of current assets over current liability, estimating amount of different constituents of working capital can make an assessment of the working capital requirement. For example inventories, account receivables, cash account payable etc.Inventories: The term inventories include stock of raw materials, work-in-progress and finished goods. The estimation of each of these as follow –

I. Stock of raw materials: The average amount of raw material to be kept in stock will depend upon quantity of raw material required for production during in a particular period and average time taken in obtaining a fresh delivery. Suitable adjustment may have to be made provide for in contingency and seasonal factor. It can be calculated by following formula:

Budgeted Production ×Material Cost × Raw Material holdings period

p.a. (Units) (Per Unit) (Month or days)

12 months or 365 days

II. Work-in-progress: The cost of work-in-progress includes raw materials, wages and other overheads in determining the amount of work-in-progress the time period for which goods will be in process, is most important. Work-in-progress is normally equivalent is 50% of total cost of production. Symbolically

Budgeted production ×Cost of material 100% ×WIP periodp.a (Unit) (Per Unit) (Months or days)

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12 or 365 days

Finished goods - The period for which finished goods have to remain in the warehouse before is an important factor determining the amount locked up in finished goods. It is summed up as:

Budget Production × Cost of goods produced × Finished goods holding period(Unit) excluded Dep. (Per Unit) (Months or days)

12 or 365 days

Sundry debtors: The amount of funds locked up in sundry debtors will be computed on basis of credit sales and time lag in collection payment. It should be estimated in relation to total cost price as follows: -

Budgeted credit sales × Cost of sales × Average collection period(Units) Excl. Dep. (Per Unit) (Months or days)

12or 365 days

1. Cash and Bank Balance: The required cash balance can be determined with the help of preparation of cash budget. Proper cash budget should be prepared and continuous monitoring of the same is required. It should be kept in view that cash balance are the most liquid asset and temporary cash surplus should be properly invested in short term marketable investments to maximize the return on capital employed. For meeting the day to day expenses it is necessary to maintain certain amount of cash balance for smooth flow of operation.

2. Sundry Creditors: The lag in payment of suppliers of raw materials, goods etc. and the likely credit purchases made during the to help in estimating the amount of creditors –

Budgeted Creditors × Raw material requirement × Credit period allowed by suppliers(Units) (Units) (Months or days)

12 or 365 days Outstanding Expenses: The time lag in payment of wages and other expenses will help in estimating amount of outstanding expenses as follows

Budgeted production × labor & Oh. Cost × Time lag in payment of Exp.(Units) (Per Unit) (Months or days)

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12 or 365 days

Percentage of Sales MethodIt is a traditional and simple method of determining the level of working capital and its components. In this method, working capital is determined on the basis of past experience. If, over the years, the relationship between sales and working capital is found to be stable, then this relationship may be taken as a base for determining the working capital for future. This method is simple, easy to understand and useful for projecting relatively short-term changes in working capital. However, this method cannot be recommended for universal application because the assumption of linear relationship between sales and working capital may not hold well in all cases.For example, if the past experience show that working capital has been 30% of sales and if sales for the next year would amount to Rs.1,00,000, the amount of working capital can be estimated to Rs. 30,000 the basic criticism of this method is that its presumes a linear relationship between sales and working capital. This is neither true in all cases nor the method is universally accepted.

Items Rs in millions % Of salesNet Sales 192,010.27Inventories 40701.4 21.00Sundry Debtors 12012.2 0.60Cash and Bank Balances 8437.2 0.40Other Current Assets 517.8 0.03Loans and advances 15730.5 0.81Total 77399.1 40.03Less:Liabilities 18689.1 0.97Provisions 8031.6 0.42Total 26720.7 1.39Net Current assets 50678.4 2.64

Miscellaneous Expenditure

60 --

Analysis: -From this method we can conclude the data, how much working capital (in percentage) Hindalco needs in next year. This helps to control the working capital level. This is an important aspect to control the cost of finished goods through reduce the cost of inventories.

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Working Capital FinanceAfter determination the quantum of working capital the firm has to decide how it is to be financed. The need for financing arises mainly because investment in working capital/ current assets, i.e. Raw materials, WIP, finished goods and receivables critically fluctuates during the year. Although long-term fund partly finance current assets and provide the margin money for working capital, such assets/ working capital is virtually exclusively supported by sort term sources. The working capital requirement of concern can be classified as:

Permanent or Long-term working capital requirements Temporary or Short-term working capital requirements

Financing of Permanent or Long-term working capital Permanent working capital should be financed in such a manner that the

enterprise may have its uninterrupted use for a sufficiently long period. There are five important sources of working capital:

Share Debenture Public Deposit Ploughing back of profits Loan from financial institutions

SharesA company can issue various types of shares such as equity shares, preference shares, and deferred shares. According to the Companies Act 1956, however a public company cannot issue deferred shares. Preference shares carry preferential rights in respect of dividend at a fix rate and in regard to the repayment of capital at the time of winding of the company. Equity shares do not have any fixed commitment charged and dividend on these shares to be paid subject to the availability of sufficient profits. As for the possible a company should raise the maximum amount of permanent capital by the issue of shares.

DebentureA debenture is an instrument issued by the company. It is also an important method of raising long term or permanent working capital. The debenture holder is the creditor of the company, fix rate of interest paid on debenture. The interest on debenture is against profit and loss account. The debentures are generally given floating charge on the assets of the company. When the debentures are secure they are paid on priority to other creditors.

Public DepositPublic deposit is the fixed deposit accepted by a business enterprise directly from the public. This is source of short term financing.

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Ploughing Back of ProfitsPloughing back of profits means the reinvestment by concern of its surplus earnings in its business. It is an internal source of finance and is most suitable for an established firm for its expansion modernization and replacement etc. this method of finance has a number of advantages as it is the cheapest rather than cost free source of finance.

Loan from Financial InstitutionsFinancial institution is such as Commercial Bank, L.I.C., Industrial Finance Corporation of India, State Financial Corporation, State Industrial development corporations, Industrial Development Corporation of India etc. These institutions also provide medium-term and short-term loans. This source of finance is more suitable to meet the medium-term demand of working capital.

Financing of Temporary or Short-term Financing Trade credit Bank Credit Factoring and commercial paper

Trade creditTrade credit refers to the credit extended by the suppliers of goods and services in the normal course of business sales of the firm according to the trade practices, cash is not paid immediately for purchase that after and agreed period of time. Thus deferral of payment represents a source of finance for credit purchases.Features of Trade Credit Trade credit is an informal arrangement between buyer and seller. There are no legal instrument/acknowledgements of debt, which are granted an open account basis. Such credit appears in the record of buyer as sundry creditor/ account payable. A variant of accounts payable is bills/ notes payables. It represents documentary evidence of credit purchases. Bills payable can be rediscounted and the seller does not necessarily have to hold it till maturity to receive payment. Bills payable create a legally enforceable on the buyer to pay on maturity obligation. The availability and magnitude of trade credit is related to the size of operation of the firm in terms of sales and purchases.

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Advantages Trade credit is easily almost automatically available. It is flexible and spontaneous source of finance. Trade credit is an informal source of finance. Not requiring negotiations and formal agreement, credit is free from the restriction associated with formal/-negotiated source of finance/ credit.

Bank CreditBank credit is primary institutional source of working capital finance in India. In fact, it represents the most important source for financing of current assets.

Forms of bank creditBank provides working capital finance in five ways – Cash credit/ overdrafts Loans Purchase and discount bills Letter of Credit Working capital term loans

Cash credit/ overdrafts: Under this the bank specifies a predetermined borrowing/ credit limit. The borrower can draw up to the stipulated credit/overdrafts limit. Within the specified limit any numbers of drawls/drawing are possible to the extent of his requirement periodically. Similarly the payment can be made when ever desired during the period. The interest is determined on the basis of the running balance accentually utilized by the borrowers and not on the sanctioned limit. This form of bank financing of working capital is highly attractive to the borrower because: It is flexible in that although borrowed funds repayable on the demands The borrower has freedom to draw the amount in advance as and when required while the interest liabilities only on the amount actually outstanding.

Loans: Under these arrangements the entire amount of borrowing is credited to the current account of the borrower or released on cash. The borrower pays interest on the total amount. Loans are repayable on demand or in periodic installments. They can also be renewed from time to time.

Bills Purchased/ discounted: The cash credit arrangement give rise to the unhealthily practices. It also leads to double financing. For example, buying goods on credit from supplier raising cash credit from by hypothecating the same goods. The bill financing is intended to link credit with sale and package of goods and thus eliminates the cope for misuse or diversion of credit to other purpose.

The amount made available under this arrangement is covered by the cash credit and over draft limit. Before discounting the bill, the bank satisfied itself about the credit

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worthiness of drawer and the genuineness of the bill. The discounting banker asks the drawer of the bill to have his bill accepted by the drawer (buyer) bank before discounting it. The later grant accepting again the cash credit limit, earlier fixed by it on basis of borrowing value of stocks. Therefore the buyer who buys goods on credit cannot issue the same goods as a source of obtaining additional bank credit.

Term Loan of working capital: Under this arrangement bank advance loans for 3-7 years payable to yearly or half yearly installments.

Letter of Credit: This is an indirect form of working capital financing and a bank assumes only the risk, the credit being provided by supplier itself. The purchaser of goods on credit obtains the letter of credit from a bank. The bank undertakes the responsibility to make payment to the suppliers in cash the buyer fails to meet his obligations. Thus, the modus operandi of letter of credit is the supplier sell goods on credit/ extend credit (financed) to the purchased, the bank give guarantee and bears risk only in case of default by the purchaser.

Modes of SecurityBanks provide credit on the basis of following modes of securities –

I. HypothecationII. PledgeIII. LienIV. MortgageV. Charge

1. Hypothecation: Under this bank provide credit to borrower against security of movable property usually inventory of goods. Although the bank does not have physical possession of goods, it has legal right to sell the goods to realize the outstanding loan.

2. Pledge: Unlike hypothecation under pledge the goods are in the custody of bank the borrower offers the security is called a ‘Pawnor’, while the bank is called ‘Pawnee’, the Pawnor would be responsible for any loss or damage if he uses the pledge goods for his own purpose. In case of non-payment of lone, the bank enjoys right to sales the goods.

3. Lien: It refers to the right of a party to retain goods belonging to other party until a debt due to him is paid. It can be of two types –

Particular Lien General Lien

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4. Mortgage: It is the transfer of interest in any immovable property for the purpose of securing the amount given as loan.

5. Charge: Where immoveable property of one person is by the act of party or by the operation of law need security for payment of money to another and the transaction does not amount to mortgage, the later person is said to have a charge on the property and all the provision of simple mortgage will apply to such a charge.

Commercial PapersCommercial paper is short term unsecured negotiable instrument, consisting of promissory notes with affix maturity, it is issued on a discount on face value basis but it can also be issued in interest bearing form commercial paper when issued by a company directly to the investor is called a direct paper. The companies announce current rates of commercial papers of various maturities, and investors select those maturities, which closely approximate there holding period.

Advantages:A commercial paper has several advantages for both the issuers and the investor as follows:

It is simple instrument and hardly involves any documentation. It is flexible in term of maturity, which can be tailored to match the cash flow of

the issuer. The investor can get higher returns than what they can get from the banking

system. As negotiable and transferable instruments, they are highly liquid.

FactoringFactoring provide resource to finance receivables as well as facilities the collection of receivable. Factoring can be defined as an arrangement in which receivables arising out of sale of goods/ service or sold by a firm to a factor (a financial intermediary). Henceforth the factor becomes responsible for all credit, sales accounting and debt collection from the buyers. If any of the debtors fails to pay the dues as a result of his financial inability/insolvency/ bankruptcy, the factor has to absorb the losses.

Mechanism

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Realization of credit sales is the main function of factoring services. The factor work between sellers and buyers and sometimes with the sellers banks together.Functions:The main function of the factor can be classified into five categories – Financing facilities/ Trade debts Maintenance/ administration of sales ledger Collection facilities of account receivables Assumption of credit risk/ credit control and credit restrictions Provision of advisory services Advantages: Impact on balance sheet Off balance sheet financing Reduction in current liabilities Improvement in current ratio Higher credit standing Improved efficiency More time for planning and production Reduction of cost and expenses Additional source.

Working Capital Financing at Hindalco50


In Hindalco working capital requirement is finance basically through following sources – Internal funds Short term securities and interest thereon Bank loan

(1) An internal fund denotes the funds generated through operation of the firm i.e., through sales turnover. This is major source of financing working capital requirement of the firm.(2) On account of uncertainties attached with generation of funds through sales, the company has invested in several short-term securities to meets its day-to-day requirements of funds. The maturity of these securities is from source of financing WCR. Hindalco has Short-term Investment in:

Debenture of HPCL. Unit of UTI, HDFC, ICICI, IDBI, Franklin Templeton Funds, Birla Mutual Funds, GIC

Mutual funds and Alliance Mutual Funds, DSP Merrill Lynch Mutual Funds, Standard Chartered Mutual Funds, Zurich India Mutual Funds.

The total current investment of the company at the year ended 31.03.08 amount to Rs. 40,508.81 Lacs.Besides above, the company has various credit arrangements with banks to finance the daily WCR. These are of following types:

Cash credit Purchase/ discounting of bills Working capital term loan Letter of credit

Cash CreditThe Company has cash credit facilities with various banks. The administrative of this is done at the principal office at Renukoot. However, it’s Regional and Area offices are authorized to utilize the cash credit facilities up to the limit described by the principal office.

Purchase/ Discounting of BillsThe company also purchases and discounts the bills issued by its customers to meet the daily requirements.

Working Capital Term Loan

Letter of CreditThe company’s Export/ Import operations are done through LOC.

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Statement of Working Capital

As per financial records of Hindalco Industries Ltd up to 31st March 2009.

Rs. in millionParticulars 2004 2005 2006 2007 2008 2009(A) Current AssetsInventories 11,913.43 23,745.18 40,950.88 43,153.14 50,979.06 40701.4Sundry Debtors

5,611.13 7,873.67 12,484.01 15,045.02 15,650.22 12012.2

Cash & Bank Balance

2,279.02 4,009.69 9,172.85 6,655.96 1,469.77 8437.2

Other C.A. 236.42 422.22 2,447.34 1,188.08 623.04 517.8

Loan & advances

8,822.57 8,713.49 7,972.41 11,742.20 9,794.60 15730.5

Total 28,862.57 44,764.25 73,027.49 77,783.40 78,516.69 77399.1

(B) Current LiabilitiesLiabilities 8,963.95 16,782.95 21,995.62 27,527.44 28,947.79 18689.1

Provisions 1,573.23 8,398.98 9,531.66 12,841.41 9,060.09 8031.6

Total 10,537.18 25,181.93 31,527.28 40,368.85 38,007.88 26720.7

Working Capital

18,325.39 19,582.32 41,500.21 37,414.55 40,508.81 50678.4

Increase/ (Decrease) W.C.

1,256.93 21,917.89 (4,085.66) 3,094.26 1016.96

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RATIO ANALYSIS

A Ratio is a quotient of two numbers and the relation expressed between two accounting figures is known as accounting ratio. Ratio analysis is a very powerful analytical tool useful for measuring performance of an organization. Ration analysis concentrates on the interrelationship among the figures appearing in the financial statements. Ratio analysis facilitates the presentation of the information of financial statement in simplified, concise and summarized from ratio are the systematic numerical calculation of the relationship of one fact with other to measure the profitability, operational efficiency and financial soundness of the business. The ratio analysis helps the management to analyze the past performance of the firm and to make further projection. Ratio analysis allows interested parties like shareholders, investors, creditors etc. to make an evaluation of certain aspects of the firm’s performance. Ratio analysis is a process of comparison of one figure against another, which make a ratio. The calculation of ratio is a relatively easy and simple task but the proper analysis and interpretation of the ratio can be made only by the skilled analyst.Ratios normally pinpoint a business firm’s strengths and weakness in two ways:

Ratio provide an easy way to compare present performance with past. Ratios depict the areas in which a particular business is competitively

advantaged or disadvantaged through comparing ratio to those of other businesses of the same size within the same industry.

The following ratio may be calculated for the purpose of analyzing the working capital of Hindalco:

Liquidity Ratio Leverage Ratio Turnover Ratio Profitability Ratio

Liquidity RatioLiquidity is defined as the ability to realize value in money, the most liquid of assets. It refers to the ability to pay in cash, the obligation that are due. The corporate liquidity has two dimension viz., quantitative and qualitative concepts. The quantitative aspect includes the quantum, structure and utilization of liquid assets and in the qualitative aspects, it is the ability to meet all present and potential demands on cash from any source in a manner that minimizes cost and maximizes the value of the firm.

Current RatioThis ratio measures the solvency of the company in the short term. Current assets are those assets which can be converted into cash within a year. Current liabilities and

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provisions are those liabilities that are payable within a year. A current ratio of 2:1 indicates a highly solvent position. A current ratio of 1.33:1 is considered by banks as the minimum acceptable level for providing working capital finance.

Current Assets Current Ratio =

Current Liability

Year Current Assets Current Liability Ratio(CA/CL)2004 28,862.57 10,537.18 2.742005 44,764.25 25,181.93 1.782006 73,027.49 31,527.28 2.322007 77,783.40 40,368.85 1.932008 78,516.69 38,007.88 2.07

InterpretationThe ideal current ratio is 2: 1. Hence the liquidity position of the Hindalco for the three years (2004, 06, & 08) is gone well and satisfactory. In year 2005 and 2007 the current ratio is 1.78 and 1.93 which is unsatisfactory for Hindalco.

Quick RatioQuick ratio is used as a measure of the company’s ability to meet its current obligations. Since bank overdraft is secured by the inventories, the other current asset must be sufficient to meet other current liabilities.

Liquid Assets Quick Ratio =

Current Liability

Liquid Asset = Current Assets- Inventories

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Year Liquid Assets Current Liability Ratio(LA/CL)2004 16,949.14 10,537.18 1.612005 21,019.07 25,181.93 0.832006 32,076.61 31,527.28 1.022007 34,630.26 40,368.85 0.862008 27,537.63 38,007.88 0.72

Interpretation

The ideal liquidity Ratio is 1. Hence, Liquidity position of Hindalco for two years is quite satisfactory. But, in year 2005, 2007 and 2008, the quick ratio is 0.83, 0.86 and 0.72 which is not satisfactory figure. This does not show a good sign for the enterprise because it shows that company is not able to meet its current liabilities on time.

Cash RatioCash ratio is the relationship between cash and current liabilities since cash is the most liquid asset. Trade investment or marketable securities are equivalent of cash; therefore, they may be included in the computation of the cash ratio.

Cash + Marketable Security Cash Ratio =

Current Liabilities

Year Cash +Marketable

Security

Current Liability Ratio(CMS/CL)

2004 23,698.39 10,537.18 2.252005 14,562.42 25,181.93 0.582006 21,389.67 31,527.28 0.682007 20,183.43 40,368.85 0.502008 46,623.40 38,007.88 1.23

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InterpretationThe cash position of the company for the year 2004 and 2008 is marvellous but if we see for the year 2005, 2006 & 2007 are not good. This shows that company is not able to meet its current liability but there is nothing to be worried about the small amount of cash available with the Industry as in India, firms have credit limits sanctioned from banks, financial institution and can easily draw cash.

Leverage RatioLeverage refers to the use of debt finance. While debt finance is a cheaper source of finance but it is riskier also. These ratios help in assessing the risk arising from the use of debt capital. A leverage ratio reveals the firm’s ability to meet its obligations in long run. The short term creditor, like bankers and raw material suppliers, are more concern with the firm’s current debt paying ability. On the other hand, long term creditors, like debenture holders, financial institutions etc. are more concern with the firm’s long term financial strength. In fact, a firm should have a strong short as well as long term financial position.

Debt Equity RatioThis ratio indicates the relationship between loan funds and net worth of the company, which is known as ‘gearing’. If the proportion of debt to equity is low, a company is said to be low geared, and vice-versa. A debt-equity ratio of 2:1 is the norm accepted by financial institutions for financing of projects. Higher debt-equity ratio of 3:1 may be permitted for highly capital intensive industries like petrochemical, fertilizer, power etc. The higher the gearing, the more volatile the return to the shareholders.

Long Term Debt Debt Equity Ratio =

Shareholders Fund

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Year Long –term debt Shareholders Fund

Ratio(LTD/SF)

2004 17,259.35 68,579 0.252005 29,523.38 76,665.75 0.392006 28,480.47 96,062.52 0.32007 64,102.03 124,180.37 0.522008 62,054.23 174,358.15 0.36

Interpretation

From the year 2004 to 2008 the debt equity ratio is good, it means that Hindalco Industries Ltd. has good borrowing power.

Total Assets to Debt RatioTotal assets to debt equity ratio establishes a relationship between total assets and total long term debt it measures the safety of margin available to the providers of long term debt and extend to which debt is covered by the assets. A higher ratio represents higher security to lenders for extending long term loans to the business on the other hand a low ratio represents a risky financial position as it mean that the business depends heavily on the outside loans for its existence. In other words, investment by the proprietors is low.

Total Asset Total Asset to Debt ratio =

Long Term debt

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Year Total Assets Long Term Debt Ratio(TA/LTD)2004 114,713.43 17,259.35 6.652005 151,144.66 29,523.38 5.122006 188,957.77 28,480.47 6.632007 249,399.59 64,102.03 3.892008 308,888.61 62,054.23 4.98

Interpretation

In the FY 2004 to 2008, the ratio reveals that the Hindalco Industry Ltd. has a good safety margin available to the creditors.

Proprietary RatioIt expresses the relationship between shareholder’s net worth and total assets. Reserves earmarked specifically for a particular purpose should not be included in calculation of net worth. A high proprietary ratio is indicative of strong financial position of the business. The higher the ratio, the better it is.

Shareholder Fund Proprietary Ratio =

Total Assets

Year Shareholder Fund

Total Assets Ratio(SF/TA)

2004 68,579 114,713.43 0.602005 76,665.75 151,144.66 0.512006 96,062.52 188,957.77 0.512007 124,180.37 249,399.59 0.502008 174,358.15 308,888.61 0.24

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Interpretation

In the FY 2004- 2008, ratio reveals that the Hindalco Industry Ltd. has strong financial position for the business.

Equity RatioIt is the relationship between capital employed and total assets.

Capital Employed Equity ratio =

Net Worth

Year Capital Employed

Net Worth Ratio(CE/NW)

2004 104,176.25 68,579 1.522005 125,962.73 76,665.78 1.642006 157,370.49 96,062.52 1.642007 209,030.74 124,180.37 1.682008 270,880.73 174,358.15 1.55

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Interpretation

In the FY 2004 to 2008, the ratios are 1.52, 1.64, 1.64, 1.68 & 1.55 respectively, which shows a consistency in past five years.

Activity or Turnover RatioAsset management ratios measure how effectively the firm employs its resources. These ratios are also called as ‘activity or turnover ratio’ which involve comparison between the level of sales and investments in various accounts- inventories, debtors, fixed assets etc. Asset management ratios are used to measure the speed with which various accounts are converted into sales or cash. Higher turnover ratio means, better use of resources, which in turn means better profitability ratio.

Inventory Turnover RatioA considerable amount of a company’s capital may be tied up in the financing of raw material, work-in-progress and finished goods. It is important to ensure that the level of stock s is kept as low as possible, consistent with the need to fulfill customers’ orders in time. The higher the stock turnover rate or the lower the stock turnover period the better, although the ratio vary between companies.

Net Sales Inventory Turnover ratio =

Average Inventory

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Year Net Sales Average Inventory

Ratio(NS/AI)

2004 62,083.52 10,967.83 5.662005 95,232.51 17,829.31 5.342006 113,964.76 32,348.03 3.522007 183,129.88 42,052.01 4.352008 192,010.27 47,066.10 4.08

Interpretation

A high inventory turnover ratio indicates brisk sales. There is fluctuation in the inventory turnover ratio. Hindalco should pay more attention to maintain the stability of this ratio.

Debtor Turnover RatioIt measures whether the amount of resources tied up in debtors is reasonable and whether the company has been efficient in converting debtors into cash. The higher the ratio, the better the position.

Net sales Debtor turnover ratio =

Sundry Debtor

Year Net Sales Sundry Debtor Ratio(NS/SD)2004 62,083.52 5,611.13 16.972005 95,232.51 7,873.67 7.882006 113,964.76 12,484.01 9.132007 183,129.88 15,045.02 12.172008 192,010.27 15,650.22 12.27

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The higher the ratio it is better for the company and shows the efficiency of management. The company shows the fluctuating order of this ratio from the year 2004-2008 but in year 2004 it shows more satisfactory collection of debt.

Average Collection PeriodIt establishes the relationship between number of days in a year (360 days) and debtor turnover ratio. The shorter the collection period the better it is and vice-versa.

360Average Collection Period =

Debtor turnover Ratio

Year No. of days Debtors Turnover Ratio

Ratio(360/DTR)

2004 360 16.97 21 days2005 360 7.88 46 days2006 360 9.13 39 days2007 360 12.17 30 days2008 360 12.27 29 days

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InterpretationThe Average collection period is approximately one month from 2004 to 2008 except in the FY 2006. One month collection period is short duration hence, it is good and satisfactory.

Working Capital Turnover RatioThis ratio indicates the extent of working capital turned over in achieving sales of the firm. Higher the ratio better it is. But a very high ratio may indicate over trading- working capital being inadequate for the scale of operation. It shows the efficiency or inefficiency in the use of the entire working capital and not merely a part of it viz. capital invested in stock- it is the whole of the working capital that leads to sales.

Net SalesWorking Capital Turnover Ratio =

Working Capital

Year Net Sales Working Capital Ratio(NS/WC)2004 62,083.52 18,325.39 3.392005 95,232.51 19,582.32 4.862006 113,964.76 41,500.21 2.752007 183,129.88 37,144.55 4.932008 192,010.27 40,508.81 4.74

InterpretationWorking Capital turnover ratio in years’ (2004 & 06) is satisfactory because it is under control but in year 2005, 07 & 08 it was higher. So profitability of these years is lower than other years.

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Profitability RatioThe purpose of study and analysis of profitability ratios are to help assessing the adequacy of profit earned by the company and also to discover whether profitability is increasing or declining. The profitability ratio shows the combined effects of liquidity, asset management and debt management on operating results. Profitability ratio are measured with reference to sale, capital employed, total asset employed, shareholders fund etc.

Gross Profit RatioThe gross profit represents the excess of sales proceeds during the period under observation over their cost, before taking into account administration, selling and distribution and financing charges.

Gross Profit Gross Profit Ratio = x100

Net Sales

Year Gross Profit Net Sales Ratio(GPx100/NS)2004 12,456.69 62,083.52 20%2005 19,132.86 95,232.51 20%2006 21,026.75 113,964.76 18%2007 35,046.25 183,129.88 19%2008 30,256.06 192,010.27 16%

InterpretationIn the FY 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08 the gross profit ratio are 20%, 20%, 18%, 19% and 16% respectively. It is continuously decreasing because cost of goods sold is continuously increasing in the same period. This is not good for the enterprise. As the raw material consumption has increased, the sale does not increase with the same proportion.

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Net Profit RatioThe ratio is designed to focus attention on the net profit margin arising from business operations before interest and tax is deducted. The convection is to express profit after tax and interest as a percentage of sales. A drawback is that the percentage which result varies depending on the source employed to finance business activity, interest is charged above the line while dividends are deducted below the line.

Net Profit Net profit Ratio = x100

Net Sales

Year Net Profit Net Sales Ratio(NPx100/NS)2004 8,389.29 62,083.52 14%2005 13,293.57 95,232.51 14%2006 16,555.50 113,964.76 15%2007 25,643.25 183,129.88 14%2008 28,609.39 192,010.27 15%

InterpretationIn the FY 2003-04 to 2007-08 net profit ratios are almost constant in each 5 years. This is because the raw material consumption has increased, but the sales didn’t increase in the same proportion.

Operating Profit RatioIt shows the percentage of operating profit earned on the sales. It is the indicator of overall efficiency of the business. Higher the operating profits ratio, better the position of the business. It helps in determining the operational efficiency of the business.

Operating profit Operating Profit Ratio = x100

Net Sales

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Year Operating Profit Net Sales Ratio(OPx100/NS)2004 15,003 62,083.52 24%2005 22,765 95,232.51 24%2006 26,051 113,964.76 23%2007 40,150 183,129.88 22%2008 34,011 192,010.27 18%

InterpretationIn the FY 2003-04 to 2007-08 the operating profit ratios are 24%, 24% 23%, 22% and 18% respectively. This shows the operational efficiency of the enterprise as it keeps on going downward.

Return on Total AssetThe profitability of the firm is measured by establishing relation of net profit with the total assets of the organization. This ratio indicates the efficiency of utilization of asset in generating revenue.

Net Profit Return on Total Assets = x100

Total Assets

Year Net Profit Total Assets Ratio(NPx100/TA)2004 8,389.29 114,713.43 7%2005 13,293.57 151,144.66 9%2006 16,555.50 188,957.77 9%2007 25,643.25 249,399.59 10%2008 28,609.39 308,888.61 9%

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InterpretationIn the FY 2003-04 to 2007-08 Return on Total assets are7%, 9%, 9%, 10% & 9% respectively. This seems good for the enterprise as the capital is employed very efficiently.

Return on InvestmentThis ratio is also called as Return on capital Employed (ROI). The strategic aim of business enterprise is to earn a return on capital. If in any particular case, the return in the long-run is not satisfactory, then the deficiency should be corrected or the activity be abandoned for a more favorable one.

Net Profit Return on Investment =

Capital employed

Year Net Profit Capital Employed

Ratio(NPx100/CE)

2004 8,389.29 104,176.25 8%2005 13,293.57 125,962.73 11%2006 16,555.50 157,370.49 11%2007 25,643.25 209,030.74 12%2008 28,609.39 270,880.73 11%

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InterpretationIn the FY 2004 to 2008 the ratios are 8%, 11%, 11%, 12% & 11% respectively. The ratio shows that the sources are being utilized efficiently.

Return on EquityThis ratio is an important yardstick of performance for equity shareholders since it indicates the return on the funds employed by them. However, the measure is based on historical net worth and will be high for old plants and low for new plants. The factor which motivates shareholders to invest in a company is the expectation of an adequate rate of return on their funds and periodically, they want to assess the rate of return in order to decide whether to continue with their investment.

Net Profit Return on Equity = x100

Net Worth

Year Net Profit Net Worth Ratio(NPx100/NW)2004 8,389.29 68,579 12%2005 13,293.57 76,665.78 17%2006 16,555.50 96,062.52 17%2007 25,643.25 124,180.37 21%2008 28,609.39 174,358.15 16%

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InterpretationFrom the FY 2003-04 to 2007-08 the ratio reveals that the shareholder’s funds are being utilized very efficiently year by year.

Earnings per Share (EPS)The objective of financial management is wealth or value maximization of a corporate entity. The value is maximized when market price of equity share is maximized. A higher EPS means better capital productivity. EPS is one of the major factors affecting the dividend policy of the firm and the market price of the company. Growth in EPS is more relevant for pricing of shares from absolute EPS. A steady growth in EPS year after year indicates a good track of profitability.

Net Profit after Tax Earnings per Share =

No. Of Equity Shares

YearNet Profit after

Tax and Preference Dividend

No. of Equity Shares

Ratio(NP/No.of equity share)

2004 8,839.29 92,774,797 90.432005 13,293.57 92,774,797 143.292006 16,555.50 985,628,228 16.802007 25,643.25 1,043,508,486 24.572008 28,609.39 1,227,130,192 23.31

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InterpretationFrom the FY 2003-04 to 2007-08, ratios are 90.43, 143.29, 16.80, 24.57 and 23.31 respectively. It is due to increase in net profit. It seems to be strengthening the shareholders faith to the enterprise.

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SUGGESTIONS

Following suggestions can be drawn from the study made:

1. The terms and conditions on which the company has given guarantees for loans taken by its Subsidiaries and joint ventures from banks and financial institutions are not prima facie prejudicial to the interest of the company.

2.

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CONCLUSION

Hindalco has shown robust top line growth over the past 5 years. The growth in 2007-08 looks particularly impressive because of the acquisition of Novelis Inc., a foreign subsidiary, acquired by the Company on 16.05.2007 through its wholly-owned overseas subsidiaries. With the acquisition of Novelis, Hindalco has also become the world’s largest rolling company. Hindalco Industries Limited has shown a sterling performance. Its net consolidated revenue registered a quantum leap, touching US$ 15 billion (Rs.60,013 crores), up by 211% and EBITDA at US$ 1.8 billion (Rs.7,291 crores) rose by 50%. Of the revenues, over US$ 12 billion (Rs.47,000 crores) came from aluminium business while copper accounted for US$ 3 billion (Rs.12,340 crores).

Hindalco industries ltd. has shown a continuous increment in the profit from the FY 2005-06 to FY 2007-08. It has good liquidity position to meet it current dues. It also has good leverage ratios as it has debt equity of 0.36 in the FY 2007-08, which means Hindalco industries ltd. has a very good borrowing capacity to meet its long term financing problems. Turnover ratios are also good which shows that the resources are being utilized properly. The profitability ratios are also good, although there are some fluctuations in last 5 years.

To sum up, company recorded a commendable performance in a very difficult year fraught with several challenges such as- adverse currency movement, reduced duty protection, acute cost push and increasing competition. This performance is testimony to the sound business models of our Aluminium and Copper business, the underlying strength of business operations and project management capabilities, stable and capable processes, and successful implementation of a well thought out strategic plan for quantum growth supported by a strong balance sheet and robust cash flow from existing operations. Going forward, the Novelis acquisition as well as the thrust on increasing value added domestic sales is expected to de-risk the overall business model and improve predictability and sustainability of profit and cash flow.

Despite falling alumina prices in the international market, Hindalco Industries Ltd. was able to maintain high realization largely because it focuses on specialty business as well as prudent makes of forward contract and spot sales.Reducing the raw material conversion period can better control Inventories.

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REFERENCE

WEBSITES:Moneycontrol.comHindalco.comAdityabirla.comGoogle.com

BOOKS: Financial Management, I. M PandeyFinancial Management, Prasanna ChandraIntroduction to Financial Accounting, S N Maheshwari

ANNUAL REPORTS:2008-09 of Hindalco

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HINDALCO WC PROJECT

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