A STUDY ON INVENTORY MANAGEMENT

INHINDUSTAN SHIPYARD LIMITED

VISAKHAPATNAM

A Project report submitted to AMBEDKAR UNIVERSITY

In partial fulfillment for the award of degree of

MASTER OF BUSINESS ADMINISTRATION SUBMITTED

M.KALYANI

Regd. No: 1109502013

Under the Esteemed Guidance of Mr. V.MAHESH

Head of the Department of Management Studies

GAYATHRI COLLEGE FOR P.G COURSES(Affiliated To AMBEDKARUNIVERSITY)

Munasabpeta Srikakulam

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DECLARATION I hereby declare that this project report entitled “A STUDY INVENTORY MANAGEMENT” with reference to “HINDUSTAN SHIPYARD LIMITED, VISAKHAPATNAM” has been prepared by year 2012 in the month of MAY and JUNE and JULY is partial fulfillment for award of degree of MASTER OF BUSINESS ADMINISTRATION OF AMBEDKAR UNIVERSITY I also declare that this project is a result of my own effort and that it has not been submitted to any other university for the award of any degree or diploma. M.KALYANI

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ACKNOWLEDGEMENT

I would like to express my sincere thanks to Mr.V.MAHESH, Head Of The Department for his constructive co-operation and valuable guidance throughout the course and also during the project work. I am grateful to my project counselor Mr. MADHU, MBA lecturer for his valuable guidance and suggestions to complete this project report successfully. I am grateful to Mr.U.S.PRAKASH RAO, M.com, P.G.D.P.A (Account officer),HINDUSTAN SHIPYARD LIMITED, VISAKHAPATNAM for giving me an opportunity to work on this project. I express my thanks to our parents and friends who helped and supported to us to a great extent to complete this project and last but not least we thankful to all mighty.

M.KALYANI

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CONTENTS

CHAPTER 1 .

INTRODUCTION SCOPE OF THE STUDY

NEED FOR THE STUDY OBJECTIVES OF THE STUDY METHODOLOGY LIMITATIONS CHAPTERISATION

CHAPTER 2

INDUSTRIAL PROFILE ORGANIZATIONAL PROFILE

CHAPTER 3

CONCEPTUAL FRAME WORK OF INVENTORY MANAGEMENT

INVENTORY MANAGEMENT TECHNIQUES

CHAPTER 4

AN OVER VIEW ANALYSIS AND INTERPRETATION

CHAPTER 5

SUMMARY FINDINGS

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SUGGESTIONS CONCLUSION

BIBLIOGROPHY ANNEXURES

CHAPTER – I

INTRODUCTION SCOPE OF THE STUDY NEED FOR THE STUDY OBJECTS OF THE STUDY METHODOLOGY LIMITATIONS CHAPTERISATION

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INTRODUCTION

Inventory is the most important asset in any company. The term inventory

refers to the stockpile of the products a firm is offering for sale and the components

that make up the product. The word inventory was first recorded in 1601. The

French term inventaire, or “detailed of goods,” dates back to 1415. In other words,

inventory is composed of assets that will be sold in future in the normal course of

business operations. The assets which firms store as inventory in anticipation of

need are (i) raw materials, (ii) work-in-progress (semi-finished goods) and (iii)

finished goods. The raw material inventory contains items that are purchased by

the firm from others and are converted into finished goods through the

manufacturing (production) process. They are an important input of the final

product. The work-in-process inventory consists of items currently being used in

the production process. They are normally semi-finished goods that are at various

stages of production in a multi-stage production process. Finished goods represent

final or completed products, which are available for sale. The inventory of such

goods consists of items that have been produced but are yet to be sold. Inventory

allocation and mix presents the biggest risks and potential rewards for company

perform an Inventory management means keeping track of goods, which the

company buys, or purchase, process and store as a part of their business. The cost

of buying or purchasing and holding inventory can be very high. It can account for

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up to 80% of the final price of goods or services in some industries. Good

inventory management involves minimizing inventory costs. It will also help in

determining whether a company is working profitably or is it making a loss. By

keeping a poor track of inventory a company can make a loss in some areas of

operations without even knowing it. Inventory management involves more than

just record keeping as it affects the operational structure of any business.

The views concerning the appropriate level of inventory would

differ among the different functional areas. The job of the financial manager is to

reconcile the conflicting viewpoints of the various functional areas regarding the

appropriate inventory levels in order to fulfill the overall objective of maximizing

the owner’s wealth.

In the ancient days, the business process used to take place by the exchange

of goods that is the goods that are needed urgently was taken from other business

people by giving our goods, which are required for them. The business process of

exchanging that is importing and exporting of goods and services is done by means

shipping because other transport such as trains and carriage aircrafts were not

available, at that time. As the world became globalization, shipping transport plays

a major source and vital role in the shipping industry. Business in this world has

taken a major role in the life of human beings. Progress and growth of every

human being depends upon the business, by this we know how important it is. In

the olden days the business was carried out by exchange of goods and services

from one country to another country is done through ships

Hindustan Shipyard Limited was the pioneer ship building industry

situated in the eastern coast of Visakhapatnam, harbor almost midway between

Calcutta and Chennai.

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The main activities of Hindustan Shipyard Limited are:

1. Ship Building

2. Ship Repair

3. Off shore platform construction

Hindustan Shipyard Limited is a tailored made company .it makes

products according to the customer’s requirements or specifications. Inventory

constitute the main significant part of the current assets in majority of companies in

India .On an average, inventories are approximately 60% of current assets in public

limited companies in India .As large size inventory are maintained by the firms, a

considerable amount of funds in the firm is neglected, the management of

inventories will be jeopardizing in its long run profitability and may fail

ultimately .It is possible for a company to reduce its levels of inventories to a

considerable degree. Example 10%-20% without any adverse effect or production

and sales. By using simple inventories it carries a favorable impact on company’s

profitability.

Meaning and Definition of Inventory Management: -

Every enterprise needs inventory for smooth running of its activities. It

serves as a link between production and distribution processes .The greater the

time lag, the higher the requirement for inventory, it also provides a caution for

future price fluctuations. Inventory management is required at different locations

within a facility or within multiple locations of a supply network to protect the

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regular and planned course of production of production against the random

disturbance of running out of materials or goods.

Involves a retailer seeking to acquire and maintain a proper merchandise

assortment while ordering, shipping, handling, and related costs are kept in

check.

Systems and processes that identify inventory requirements, set targets,

provide replenishment techniques and report actual and projected inventory

status.

Handles all functions related to the tracking and management of material.

This would include the monitoring of material moved into and out of

stockroom locations and the reconciling of the inventory balances. Also may

include ABC analysis, lot tracking, cycle counting support etc.

Management of the inventories, with the primary objective of determining.

controlling stock levels within the physical distribution function to balance

the need for product availability against the need for minimizing stock

holding and handling costs.

Inventory Management objectives

To Find and track down all the processing data's in an inventory system

repository.

Define a procedure by which assets are identified and maintained in the

Inventory System.

Provide all necessary personnel (data entry, update and deletion).

Restrict access of certain members

Complete range of reports that will satisfy informational requirements.

To file the Inventory Management System within the Standards and

Procedures Manual.

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To provide coaching to personnel responsible for supporting the Inventory

Management System

The investment in inventories constitutes the most significant part of current

assets and working capital in most of the undertakings. Thus it is very essential to

have proper control and management of inventories .The purpose of inventory

management is to ensure availability of materials in sufficient quantity as and

when required and also to minimize investment in inventories. The investment in

inventory is very high in most of the undertakings engaged in manufacturing

wholesale and retail trade. The amount of investment is sometimes more in

inventory than in other assets.

Advantages of Inventory Management: -

1. Inventory allows customers to be served quickly and conveniently.

2. Inventory can be used so that a company can buy in bulk, which is

usually cheaper.

3. Inventory allows operations to meet unexpected surges in demand.

4. Inventory is insurance, if there is an unexpected interruption in supply

from outside the operation or with in the operation.

5. Inventory allows different parts of the operations to be decoupled. This

means that they can operate independently to suit their own constraints

and convenience while the stock of items between them absorbs short-

term differences between supply and demand.

6. Reduces cost and provide detailed reports for reference or checking

purposes

7. Increase Account Saturation and Maintenance

8. Provides a flexibility to suit individual needs of customers

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9. Customer’s profitability improvement and demonstrating that product

price is only part of the cost of doing business with a supplier.

10. Manages item specifications and stock levels

11. Management of cycle and physical counting

12. Multiple warehouse support

13. Support a multi-bin system

14. Serial/Lot trace ability from raw materials to finished product

15. Item/document note system

16. Auto create purchase orders for reorder point items

Disadvantages of Inventory Management: -

1. It is expensive.

2. Keeping inventory means the company has to fund the gap between

paying for the stock to be produced and getting revenue by selling it.

This is known as working capital. There is also the cost of keeping the

stock in warehouses or containers.

3. Items can deteriorate while they are being kept; clearly this is

significant for the food industry whose products have a limited life.

However it is also an issue for any other company because stock could

be accidentally damaged while it is being stored.

4. Products can become obsolescent while they are being stored. Fashion

might change or commercial rivals may introduce better products.

5. Stock is confusing, large piles of inventory around the place need to be

managed. They need to be counted, looked after and so on.

In India a study of 29 major industries has received that the average

cost of materials is 64 paisa and the cost of labor and overheads is 36 paisa in

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rupee. About 90% of working capital is invested in inventories. An efficient

system of inventory management will determine

a) What to purchase?

b) How to purchase?

c) From where to purchase?

d) Where to store?

The purpose of inventory management is to keep the stock in such a way

that neither it is overstocking nor under stocking. The overstocking will mean a

reduction of liquidity and starving of other production processes under stocking

will result in stoppage of work. The investments in inventory should be kept in

reasonable limits.

Nature of inventories: -

The dictionary meaning of inventory is “stock of goods or list of goods”. In

accounting language it may mean “stock of finished goods only”.

1. Raw material: -

Raw material from a major input in the organization, they are required to

carry and production activities uninterruptedly. The quantity of raw materials

required will be determined by the rate of consumption and the time required for

replenishing the supplies. The factors like the availability of raw materials and the

government regulations etc to affect the stock of raw materials.

2. Work in process: -

The work in process is that stage of stock, which is in between raw materials

and finished goods. The raw materials enter the process of manufacturing but they

are yet to attain final shape of finished goods.

3. Finished goods: -

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These are the goods, which are ready for the consumers. The stock of

finished goods provides a buffer between production and market.

SCOPE OF INVENTORY MANAGEMENT

1. To obtain the materials and suppliers in the required quantity at the

2. Lower cost at the proper time and to meet the continuous production

program.

3. To keep the inventories as low as possible, consistent with the market

Conditions.

4. Forecast market and economic conditions of supply and availability of

Materials.

5. Work with the potential suppliers for finding new materials.

6. Product research and development.

7. Participation in the make or buy decision of the company.

8. Maintain proper records.

9. Ensure a continuous supply of materials to facilitate uninterrupted

10.Production.

11.Minimize the company cost and time.

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NEED OF INVENTORY MANAGEMENT

1. To study the basic concepts of inventory management.

2. To study the detail description of how inventory management is being

implement in companies.

3. To analyze the effect of inventory management in organization.

4. To study the step-by-step process of inventory management and its

practical application in organizations.

5. It is the responsibility of the firm’s management to reduce the cost of

inventory management.

6. To know the areas from where the high turnover can be achieved.

7. To access various techniques in order to analyze the inventory

managements in organizations.

8. To study how supply continuity can be maintained.

9. To study how quality of purchases can be maintained.

10. To know how cordial relations can be maintained with suppliers.

11. To study how actually are the scenario of inventory management in

organizations.

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OBJECTIVE OF THE STUDY

1. To give an overview on Inventory Management.

2. To give brief details about organization and company.

3. To study the theoretical frame work of Inventory Management with

reference to HSL.

4. To analyze and interpret the Inventory turnover, Work in progress turnover,

Inventory to Working Capital, and Inventory holding Periods by using ratios.

5. To come up with the suggestions and recommendations on Inventory

Management.

Need to hold inventory Management: -

The question of managing inventories arises only when the company’s

holding inventories, maintaining inventories involves tying up of the company

funds incurrence of storage and handling cost. If it is expensive to maintain

inventories, then, why do companies hold inventories?

There are three general motives of holding inventories: -

1. Transitive motive: -

It emphasizes the need to maintain inventories to facilitate smooth

production and sales operations.

2. Precautionary motive: -

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It necessities holding of inventory to guard against the risk of

unpredictability changes in demand and supply force and other factors.

3. Speculative motive: -

It influences the decision to increase and reduce inventory level to take advantage

of price fluctuations. A company should maintain adequate stock of materials for

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

for a company to produce raw materials whenever it is needed. A time lag exists

between demand for materials and its supply. Also there exists uncertainty in

procuring raw materials.

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METHODOLOGY

The methodology of collecting data is an important part of the study. The sources

of data can be divided into two parts.

1. Primary Data:

Information of the primary data for the study is collected by

personal interaction with the officers and persons of various levels who involved

the inventory management of M/s. Hindustan Shipyard Limited Visakhapatnam.

2. Secondary Data:

The secondary data is required for the study of annual report

published by M/s. Hindustan shipyard limited, Visakhapatnam from. And also data

required for the study is collected from magazines, newspapers and Internet.

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LIMITATIONS OF THE STUDY

The limitations of this study are as follows:

1. The study is conducted with the limited data available and analysis was done

accordingly.

2. The study is conducted with the time period and analysis made accordingly.

3. As the data provided to using very limited and then department of matter is not

possible.

4. Most of the data collected was historical

5. There was no scope for gathering the entire financial information as it is

confidential.

6. Keeping inventory mean the company has to find the gap between pain for the

stock to be produced and getting revenue by selling it

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CHAPTER – II

INDUSTRIAL PROFILE COMPANY PROFILE

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CHAPTER-2

INDUSTRIAL PROFILE-SHIP BUILDING INDUSTRY

INTRODUCTION TO INDUSTRY

ECONOMIC CONDITIONS

MAJOR SHIP BUILDERS

GROWTH OF SHI BUILDING

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INTRODUCTION TO INDUSTRY

The shipbuilding industry is involved in the construction and modification of ships. This is carried out in a specialized facility called a shipyard. The industry builds ships for commercial as well as military purposes.

History:-The shipbuilding industry can be traced back

to 2,500 BC, when ancient Egyptians assembled wooden planks to build ships. Greeks started using multiple masts for increasing the speed. The shipbuilding industry across the world progressed during the ‘Middle Ages.’ Chine was home to some of the biggest seaports of the world, including Guangzhou and Guangzhou.

During the nineteenth century, the use of iron in shipbuilding increased. In 1843, Islamabad Brunel built the ‘Great Britain,’ the first ship made completely of iron. Steel replaced wrought iron in the latter part of the century due to its easy availability. However, the use of wood for building decks continues until today.

Modern shipbuilding manufacturing techniquesModern shipbuilding makes considerable use

of prefabricated sections. Entire multi-deck segments of the hull or superstructure will be built elsewhere in the yard, transported to the building dock or slipway, and then lifted into place. This is known as “block construction”. The most modern shipyards pre-install equipment, pipes, electrical cables, and any other components within the

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blocks, to minimize the effort needed to install components deep within the hull once it is welded together. This was first introduced by Alstom chantiers de I’Atlantique when they built the largest ocean liner in the world canard’s RMS Queen Mary 2.

Ship design work, also called naval architecture, may be conducted using a ship model basin. Modern ship, since roughly 1940, have been produced almost exclusively of welded steel. Early welded steel ships used steels with inadequate fracture toughness, which resulted in some ships suffering catastrophic brittle fracture structural cracks. Since roughly 1950, specialized steels such as ABS steels with good properties for ship construction have been used. Although it is commonly accepted that modern steel has eliminated brittle fracture in ships, some controversy still exists. Brittle fracture of modern vessels continues to occur from time to time because grade A and grade B steel of unknown toughness or fracture appearance transition temperature (FATT) in ships’ side shells can be less than adequate for all ambient conditions.

ACTIVITES OF SHIPYARD:-

SHIP BUILDING

SHIP BREAKING

SHIP REPAIRING

Ship Building

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Global ship building is estimated to be a USD 20billion industry and is presently dominated by Korea, Japan and China, which together account for around 75 per cent of the world output.

Fortunes of shipping and shipbuilding industries to be linked to each other or at least move in tandem. For nearly three decades in the post world war 11 era, both the industries were dominated by European nations and united states. However, high labor costs in the yards of Europe and USA, one of the major determinants in this cost competitive industry, has led to a gradual shift of the center of shipbuilding to these Asian nations over the last two decades.

Similar progress was observed in Indian shipbuilding industry, as per the research carried out by i-maritime Consultancy the order book of the Indian shipyards, which was hovering around Rs 1,500Crores in 2002, has reached a value close to Rs 13,700crores by September 2006, with nine times increase in just four years.

The Indian shipbuilding, which was totally domestic till late 90’s, has become export oriented. ABG shipyard was the first to build and export a newsprint carrier for a Norwegian client in 2000 and established India’s competitiveness in building and delivering ships of the International standards. Today six years down, out of the 199 ships on the order book, close to 124 are for exports.

India has a long history and tradition of shipbuilding that can be traced back to the Harappa civilization. However, since the beginning of the 20th century, it had been on a declining scale and presently, rated capacity of country’s shipbuilding yards is minuscule vis-à-vis world’s capacity.

However, some private sector yards are showing increasingly better performance. ABG shipyards, one of the leading private sector shipyards of the country, has recently executed an order of newsprint carriers for Norway-based Lys lines and got another order of delivering five 10,000-dwt dry cargo vessels from a German ship-owner. Both Norwegians

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and Germans are known to demand the best of quality products.

Looking at the prospects of Indian shipbuilding industry, it has been observed that cost competitiveness remains the significant advantage of domestic shipbuilding industry considering the two major parameters of shipbuilding Viz. Steel fabrication and labor. China is emerging as a major shipbuilding nation leveraging on these advantages and posing serious threats to Korea and Japan. Considering this, it can be said that a proper strategy taken in the right direction could leverage the competitive benefit and lead the Indian shipbuilding industry towards better prospects.

Ship Breaking

Ship Breaking or ship demolition involves breaking up of aged ships for scrap. Ships purchased on the basis of their light displacement tonnage (LDT) are demolished in ship breaking yards and sent to steel re-rolling mills for reuse as raw-material for production of steel. Currently, the international ship demolition market is centered on the Indian subcontinent. While a large number of tankers find their way to scrap yards in Pakistan and Bangladesh, Indian ship breaking yards attract mostly dry and general cargo vessels.

Ship breaking industry in India is mostly concentrated at Along in Gujarat, Which the world’s largest ship is breaking yard catering to nearly 90 per cent of India’s ship breaking activity. However, sporadic activity also takes place in other locations like Sachana, Gujarat, Mumbai and Calcutta. The ship breaking activity at Along includes a total of 170 yards of which 50-70 are operational and around 50,000 people are involved directly in the business of scrapping. The total tonnage of ships broken in India has varied from a low of 0.65 million 1dt in 1991-92 to a high of 2.79 million 1dt in 1997-98.Financing is an important aspect of the industry as scrapping normally involves an intermediary ‘cash buyer’. Earlier state Bank of Saurashtra

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and Dena Bank took active role in the ship breaking industry, However, of late; Most banks have become reluctant to finance ship scrapping projects.

Ship scrapping industry in India suffers from government apathy. In spite of the fact that re-rolling accounts for about 60 per cent of the national production of bars, rods and structural and ship scrapping supplies nearly 200,000tons of scrap every year to the re-rolling mills, the sector remains largely disorganized as well as unrecognized.

In the recent past, the ship scrapping industry attracted considerable attention on the issues relating to environmentalists across the world particularly Greenpeace and Basel Action Network have drawn international attention to the poor working environment prevailing at the Indian ship scrapping yards particularly at Along and opened up fronts everywhere by calling for legal action against scrappers, building up public opinion against scrapping and physically blocking the ships meant for scrapping. The environmental issue could become the single largest factor that could determine the structure of the ship breaking industry in future.

Looking at the prospects of the breaking industry in India it has been observed that competition from neighboring countries is expected to become tough in the near future. China has also come back to the scrapping industry in recent years with a bang by capturing a significant volume of tonnage sent for scrapping. Pakistan and Bangladesh are likely to pose serious threat to Indian ship scrapping yards. Considering all the hurdles faced by the Indian ship scrapping industry, ample scope for improvement has remained and Indian ship scrapping industry is expected to take all possible actions to keep the industry vibrant.

Ship RepairShip repairing is a service, consisting of a number

of smaller services on various parts and components of the

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ship. While the repairing activity is adjunct to shipyards and ports, the extent and complexity of these services vary.

Ship repairing in India started long back. The first dry dock was built at Bombay port in 1750 and second at Calcutta port in 1781. For about two decades immediately after the Independence, the Indian ship repair industry made a booming business. The potential size of the ship repair industry in India is around Rs.44 billion, Which includes repairing by Indian and foreign vessels calling at Indian ports.

However, only a small percentage of this business equivalent to Rs 10-12 billion is executed by the Indian ship repairing industry.

In India, major shipyard carry out both ship repair and ship building activities. The industry is controlled by 10 large and 30 to 40 medium and small sized shipyards apart from Naval Dock yards and Defense shipyards. The attempts to set up exclusive ship repair facilities in the private sector failed to perform.

The growing fear of pollution and stricter norms and regulations, ship repairing services are in demand. Indian shipyards have the competitive advantage like low labor costs, Availability of trained and skilled labor force and proximity to international shipping routes required for getting success in the business. However, the industry is in a dismal state, not withstanding such advantages and has not been able to cater to the needs of the Indian merchant fleet adequately due to following reasons.

Lack of new investments in machinery/equipment

Deterioration of existing machinery/equipment

Usage of obsolete methods and systems

Lack of suitable training for up gradation of skills

Life emphasis on professional management techniques

Supply bottlenecks for raw-material and spares

Over dependence on public sector

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Cumbersome government procedures

Extremely low labor productivity

While there has been success in the field of ship breaking and ship building industry in India both of which are labor intensive, ship repairing industry can also replicate the scenario provides it utilizes its inherent competitive advantage.

The ship building industry –riding the economic wave

The global economic recession and the decline in sea-borne trade led to over-capacity of ships globally ultimately affecting the performance of the shipbuilding industry during 2009. The global shipbuilding order book declined from 367.2 million GT as on December 31,2008 to 303.5 million GT as on December 31,2009 primarily led by the slow growth of new-build orders aggregating 18.2 millions GT during CY09 as against 90.7 million GT during CY08. The vessels delivered during CY09 compared to 64.2 million GT of deliveries during CY08.

The record scrapping volume particularly in the dry vessel segment and y-o-y decline in vessel prices in the range of 20-30% provides no respite to the Dwindling global shipbuilding order book, especially in case of major shipbuilding nations such as South Korea, China and Japan thereby requiring their respective governments to take corrective measures in terms of restructuring of yards facing financial crisis and also offering monetary and non-monetary incentives to boost the industry’s prospects. However, the Asian shipbuilders continue to dominate the global order book accounting for 95.1% of the total as on December 31,2010. Of the same, in continuation of the trend during 2008, the market share of the South Korean shipbuilders remained the highest at 37%. The share of the Chinese and Japanese shipbuilders stood at 36.1% & 16.8% respectively.

The Indian shipbuilders occupied 5th rank globally accounting for 1.44% of the global order book with 2.2

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million GRT of vessels on order as on December 31,2009. The Indian shipbuilders specialize in the construction of offshore vessels. However, the expansion of shipyards to the extent of constructing bigger vessels such as dry bulk carriers has enabled the Indian shipbuilders to attract new-build orders in the said vessel segment. Importantly, the Indian yards reported no major instance of order cancellation during CY09 as compared to their peers in South Korea and China, primarily owing to no speculative orders being placed with the Indian yards and majority of the orders being received from repetitive clients.

We expect the shipping fleet to be in over-capacity during CY10-CY13 based on a combined mix of factors such as world fleet size, world GDP-current prices and the historical trend of sea-borne trade. In spite of the new-build vessel prices declining by 20-30% on y-o-y basis, we expect increased demand for second-hand vessels as compared to new-builds. The said demand is expected to be driven by relatively lower prices of second-hand vessels with younger fleet on offer.

Major ship Builders

The world shipbuilding industry is largely dominated by Asian players, such as South Korea, China and Japan. In 2008, South Korea’s production level was higher than that of entire world combined. The nation’s top shipbuilding companies include Hyundai Heavy Industries, Daewoo shipbuilding and Marine Engineering and Samsung Heavy Industries. The world’s biggest shipyard launches a new vessel every four days.

The shipbuilding industry is $100 billion. The industry is vital to the economy as it supports trade and other ancillary services.

South Korea is the world’s largest shipbuilding nation with a global leader in the production of advanced high-tech vessels such as cruise liners, super tankers, LNG carriers, drill ships, and large-sized container ships. In the 3rd

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quarter of 2011, South Korea won all 18 orders for LNG carriers, 3 out of 5 drill ships and 5 out of 7 large-sized container ships.

South Korea’s shipyards are highly efficient, with the world’s largest shipyard in Ulsan operated by Hyundai Heavy Industries slipping a newly-built, $80 million vessel into the water every four working days. South Korea’s “big three” shipbuilders, Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo shipbuilding & Marine Engineering, dominate global shipbuilding, with STX shipbuilding, Hyundai samho heavy Industries, Hanjin Heavy Industries, and Sungdong shipbuilding & Marine Engineering also ranking among the top ten shipbuilders in the world. In 2007, STX shipbuilding further strengthened South Korea’s leading position in the industry by acquiring Aker yards, The largest shipbuilding group in Europe. In the first half of 2011, South Korean shipbuilders won new orders to build 25 LNG carriers, out of the total 29 orders placed worldwide during the period. China is an emerging shipbuilder that briefly overtook South Korea during the 2008-2010 global financial crises as they won new orders for medium and small-sized container ships based on their cheap prices, although its current production is limited mainly to basic vessels.

Japan lost it’s once industry leading position to South Korea in 2003 and its market share has since fallen sharply. The European nations combined output has fallen to a tenth of South Korea’s, and the output of the United States and rest of the world have become negligible.

Indian ship building Industry

Shipbuilding, which includes shipyards, marine equipment manufacturers, and large number of service and knowledge providers, is an important and strategic industry in a number of countries around the world. Shipbuilding is a

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globalized, technology-based, and capital intensive industry. The industry is influenced by developments in the shipping industry and the market dynamics. One of the unique factors of the shipbuilding industry is sold before the construction begins and each ship is custom made for the owner. it may take around 1 to 3 years for the delivery of a new ship. The buyer orders a ship in anticipation of its future use and sometimes it is done with an advance charter agreement which makes it important for the shipyard to deliver the ship within the specified time. This feature makes delays in shipbuilding unacceptable at times, and thus the buyers prefer to place order with established shipyard that have a good track record.

Major shipyards in IndiaS.no

NAME YEARS OF FOUNDATION

YEARS OF REGISTRATION

1 HSL-VIZAG 19 19562 CSL-COCHIN 19 19733 HOOGLY SHIPYARD

KOLKATA19 1901

4 MDL-MUMBAI 19 19345 GRES-KOLKATA 1984 19316 GOA SHIPYARD-GOA 1857 1967

INDIA PORTS, MARITIME TRASPORTATION, AND INLAND WATERWAYS

The linkages between international trade and the transport network are obvious. An efficient transport system can boost trade and greater volume of trade can, in turn, create demand for investment in the transport network. It is now widely acknowledged that efficiency in the transport sector has major spillover effects on the competitiveness of both goods and services. Competition and increased efficiency in maritime

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transport services, resulting in lower freight rates, contribute directly to a country’s international competitiveness. Similarly, the development of air transport services is crucial for the sustainable development of trade and tourism. This sector acts as an economic catalyst by opening up new market opportunities, moving products and services with speed and efficiency. The quality of the transport network has direct implications for the inflow of foreign direct investment

In the past, the requirement of large-scale investment, long gestation periods, uncertain returns, associated externalities together with social objectives such as consumer protection, welfare and equity have resulted in government monopoly in transport services. In many developing countries, the government owned, operated and financed the transport sector and success and failure in the provision of such services was largely a story of government’s performance. This picture is rapidly changing with globalization and the liberalization of national economies.

Increased commercialization and growth of international trade has led to considerable pressure on the operating environment of the existing transport infrastructure, forcing it to adapt new, improved and more reliable technology. Commercialization has also enhanced competition among trading nations to increase their share in the world’s trade. For instance, with increasing size and sophistication of ships, container ships now make only a few calls in three or four harbors at each end of the trade while the rest of the traffic is served by small feeder ships.

This has increased the competition among neighboring harbors to develop as “hub” ports catering to large container ships. Governments all over the world are finding it increasingly difficult to finance the investment required to sustain the growth of transport infrastructure. On the other hand, globalization has given birth to large multinational corporations and alliances that have the willingness.

Financial strength and technical know-how to operate and manage t advanced transport network. This has created a unique situation where by countries, which were once closed-door, are opening-up their corridors for privatization and

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foreign investment. The Indian aviation and maritime transport sectors have not been an exception to this trend. Prior to the 1990s, The Government was the main provider of these services and there were various restrictions on private participation.

During that period, the performance of these sectors was marked by monopoly-induced in efficiency and low productivity. In fact, in both of these transport services, India’s share in world trade had been steadily declining. In the 1990s, When India embarked upon an ambitious reform programmed, the demand-supply gap in transport infrastructure became more pronounced. The need of the hour was to rectify the infrastructural bottlenecks to sustain the reform programmed. It is at this juncture that the Government announced various reform measures in air and maritime transport services, including privatization.

It was expected that privatization would increase efficiency through competition, reduce the financial constraints and speed up the process of adaptation of new technologies. The following section will provide a broad overview of maritime and air transport services in India. It will critically analyze the policies and developments in these sectors since the 1990s. The subsequent section will suggest various regulatory, fiscal and other reforms which could facilitate the privatization process and improve the overall efficiency, productivity and global competitiveness of the sectors.

Growth of ship Building in India

Ship building is a branch of heavy engineering industry It is an assembly industry. It draws boilers, engines, electrical goods, glass, rubber, nuts and bolts etc. manufactured by other industries.

The industry manufactures ship of a variety of sizes and for a variety of purposes ranging from fishing vessels, cargo ships, oil tankers, cruise liners to ferries. Boats, sailing boats, etc. are also made by this industry.

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The industry also manufactures naval ships ranging from mine layers, mine sweepers, destroyers, destroyers, frigates, tugs to air craft carriers, gun boats, submarines etc.

Ship building is a highly expensive, Technical, time consuming, scientific and sophisticated industry. It exists in a few economically sound and technically advanced countries only the industry has developed on account of:

Growing international trade relationships among the countries of the World

Development of Iron and Steel and various other industries connected with fitting and trimming of the ships.

National security and race for naval supremacy in the world has boosted construction of ships of different sizes and for different purposes for the use of the navy.

Availability of capital.

Advancement in marine architecture and marine technology.

Kolkata, Visakhapatnam, Mumbai, Kochi and Moraga are ship building centers. In these shipyards, ships of a variety of sizes and purpose are built. These include boats, fishing boats, fishing vessels, barges, cargo ships and warships.

1. The Hindustan shipyard Ltd. Visakhapatnam set up by M/S Scindia Steam Navigation company in 1941 was taken over by the Indian Government in 1952 and named Hindustan Shipyard.

The yard has constructed over 150 ships so far.

2. The Cochin Shipyard Ltd. Kochi started work in 1976.3. The Garden Reach factory, Kolkata has specialized in

the construction of naval boats, harbor crafts, tugs,

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barges, dredgers etc. It is on the eastern bank of Hooghly.

4. Hooghly Dock and port Engineers Ltd. Was set up in 1984. It has 2 units in Howrah district in West Bengal.

(a) Salkia(b) Nazirganj

These units manufacture a variety of ships like dredgers, tugs, fishing trawlers, offshore platforms for the ONGC etc.

5.The Meagan Dock, Mumbai constructs dredgers, frigates, destroyers etc. for the Indian Navy. Besides there are three dozen small ship yards in the country engaged in manufacturing of small sized vessels for the domestic shipping companies. Goa shipyard makes fiber glass boats, trawlers, barges and dredgers. Repair shipyards. These are 17 such yards in India. They carry out ship repair work.

CHAPTER 2

34

COMPANY PROFILE-HINDUSTAN SHIPYARD LIMITED

HISTORY AND BACKGROUND

VISION AND MISSION

OBJECTIVES

MILESTONE ACHIEVEMENTS OF HSL

ACTIVITES OF HSL

HISTORY AND BACKGROUND

One of the important components of Visakhapatnam economy, the Hindustan Shipyard limited, Visakhapatnam is credited with the establishment of one of the most significant shipyards in the city. The first president of India Dr. Rajendra Prasad laid the foundation of the shipyard in 1941. The shipyard was nationalized in 1961, and renamed Hindustan Shipyard limited. In 2009, HSL was transferred from the Ministry of shipping to the Ministry of Defense. The shipyard played a critical role in the development of nuclear-powered.

One of the major shipbuilding establishment of the country, HSL is an ISO 9001:2000 organization. It maintains a separate safety department to ensure safe working environment and a training centre to impart human resource development lesson’s and technical trainings. The esteemed organization

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provides housing, medical and educational facilities not only for its employees but for the general public as well.

A government of India undertaking, HSL was built to facilitate an efficient shipyard to serve customers better. Mr. Ajit Thiwari is the current managing director of HSL Visakhapatnam. Covering a sprawling area of 46.2 hectares, the Hindustan Shipyard is equipped with latest technologies. The shipyard has top of the line storage and logistic facilities plasma cutting machines, modern cranes, separate quality checking department, vigilant cell, welding machines and every other necessary components required to run a modern shipyard. The ship repairing unit of the shipyard has facilities like water jet cleaning, grit blasting, dynamic balancing, hydraulic elevators etc.,

The shipyard is relatively compact at 46.2 hectares(0.462 km2). It is equipped with the plasma cutting machines steel processing and welding facilities, material handling equipment, cranes logistics and storage facilities. It also has testing and measuring facilities. It also conducts major overhauls of Indian Navy Submarines, and is being equipped to construct nuclear powered submarines.

VISION: To become a world class defence shipyard to construct naval ships and submarines for the Indian navy and coast guard and to meet the repair requirements of such vessels and other government vessels.

MISSION: To upgrade the shipyard, acquire advanced technologies in war ship and submarine construction in a phased manner from 2010to2025 and take up projects planned by Indian navy and Indian coast guard for meeting its long terms needs.

OBJECTIVES:

To incorporate “Best practices” in all key activities of the yard such as production, efficiency, customer satisfaction, marketing, Human Resources, purchasing and planning.

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To develop the technological capabilities in the area of ship design and ship construction and render ‘Ship Building’ more viable.

To secure new ship building orders from indigenous and export market & construct vessels for National Maritime and Defense Sector.

To expand ship repair facilities.

To undertake retrofitting of normal refit, short refit & medium refit and modernization of special class sub marines such as 877 EKM submarine.

To work out cost effective funding arrangement for ship building and major ship projects.

To effect economy in expenditure.

Board of directors

1. RA dm. N.K.MISHRA,NM,IN(Retd.) Chairman & Managing director

2. Shri RAKESH MAHAJAN director Finance & Commercial

3. Cmde. K.S.SUBRAMANIAN,NM,IN(Retd) Director(shipbuilding)

4. Dr. DEVISINGH Independent director

5. Shri GYANESH KUMAR, IAS Director

6. VAdm. N.N.KUMAR,AVSM,VSM,IN Director

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HSL being an old & premier shipyard of the country has been striving towards better productivity and optimum utilization of resources. The total income of the company during the year is Rs. 637.87 Crores as compared to Rs. 651.16 Crores for the previous year. your company recorded a profit of Rs. 54.99 Crores as against Rs. 2.32 Crores of previous years due to accounting of Rs. 452.68 Crores grant in aid received from Government of India as financial Restructuring Package. The major highlights of the year 2010-11 are as follows The Ministry has sanctioned RS.824.90 Crores as financial Restructuring package and the same has been implemented successfully. The company concluded contracts for an order value approx. Rs. 798 Crores with Coast Guard, Indian Navy and Kandla port Trust. However the order value is not sufficient for the yard to sustain. The company desperately needs to secure high value orders from Indian Navy after its transfer of Administrative control from Ministry of shipping to Ministry of Defence. Some of the noteworthy achievements during the year are as follows

1. Two 53 K bulker vessels were delivered to M/s. GML.

2. Six vessels of different categories were launched /floated.

3. Keels were laid for five new vessels.

4. Repair of ONGC jack up rig is at advanced stage of completion and targeted to be delivered by the end of Nov 2011.

5. Repair of twenty three vessels was undertaken during the year 2010-11 including two warships viz. INS KUMBHIR & INS SANDHAYAK.

The present shipbuilding order book position comprises 24 vessels out of which 14 vessels are at various stages of their construction. The focus of the yard during the next

38

couple of years will be on completion of the orders of M/s. GML & five IPVs for Indian Coast Guard. The other orders would also be attended to with renewed planning & production norms to keep the workshops & workmen optimally utilized. However, I regret to inform that with present order book most workshops will remain idle in near future unless some high value orders are secured by HSL.

Grading vide memorandum of understanding The performance of the company for the year, based

on self appraisal is “GOOD” in terms of the MOU signed with the Ministry of Defense.

TRANSFER TO MINISTRY OF DEFENCE Considering the strategic location of HSL and

requirements of defence, the president of India transferred the administrative control of Hindustan Shipyard limited from the ministry of shipping to the Ministry of Defence with effect from 22nd February, 2010 under Government of India (Allocation of Business) Rules, 1961 vide notification No.1/22/1/2010-Cab, Dated 22nd February,2010. The shipyard would now play a major role as a Defence yard and undertake construction of Hi-tech Warships and Submarines.

Corporate GovernanceYour company constantly endeavors to adopt and

maintain the highest standards of ethics in all spheres of its business activities. Your company firmly believes in the fundamental principles of corporate Governance like honesty, integrity, accountability, transparency and legal/statutory compliances, to protect, promote and safe guard the interests of all stakeholders. It also strives to carry out its business obligation with good corporate values duly discharging its duties for maximum level of transparency in decision making to avoid conflict of interests. It also accords due importance to adherence of adopted corporate values and objectives and discharging social responsibilities as a responsible corporate citizen.

Infrastructure up gradation & modernization

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The yard infrastructure is required to be upgraded to increase its capacity and efficiency for construction of sophisticated defense vessels in future. This up gradation has been planned to be undertaken in two phases. In first phase the existing infrastructure facilities would be refurbished and or renewed. Budget estimates for the phase-1 modernization is Rs. 457.36 Crores. In the second phase the yard infrastructure would be augmented so as to make the yard capable of constructing modern warship, submarines and amphibious vessels etc. Both the proposals are under active consideration at Ministry of Defense.

Future outlook:- HSL is strategically located on the east coast of

India. The yard has been transferred from ministry of shipping to ministry of defense in february2010.The yard has been identified for construction of war ships and submarines. The present order book will be completed by Aug 2013 and thereafter HSL will construct mainly defense vessels. The surplus capacity, If any, available would be utilized for commercial vessels.

In coming years there is a plan to modernize the infrastructure in order to make this yard viable for construction of high value orders from navy vizag, warship, submarines and other amphibious ships. with the capacity improvement and modernization of the yard HSL will grow as one of the major defense shipyard in the country.

Human resource development Considering the large attrition rate of the existing

workforce of the company in coming years, Your company has started inducting the young workforce to fill up the organizational gaps. Your company has inducted 15 management trainees recently and will continue to induct more in coming years depending upon the requirements. The skill development is one of the high priority areas to hone the skills required for construction of complex warships and submarines. Hence, your company continues to impart training to new entrants and existing employees as well to increase the productivity. Further, recently your company has revised the pay scales of the staff and

40

workmen of the company in order to boost their morale which will result in higher productivity. However while approving the wage revision: Your Company could not arrange the payment of arrears due to staff & workmen as the financial health of the company did not permit such payments. This is a major issue of the Unions as the wage for Officers was undertaken prior to wage revision of staff & workmen and their arrears have been paid.

Capital Structure:- The authorized equity share capital of the

company as on 31 March2011 stood at Rs 304.00crores against which the paid up equity share capital as on 31 March2011 is Rs 301.99Crores

Financial Restructuring:-The ministry has sanctioned Rs824.90Crores towards

financial restructuring package as mentioned below: An amount of Rs 452.68 crores (rupees four hundred fifty

two crores and sixty eight lakhs)has been given as grants in aid for clearance of old outstanding liabilities towards banks ,employee arrears tax arrears and other liabilities

The existing government loan with interest and government guarantee fee against loan from SBI amounting to Rs.372.22crores (Rupees three hundred seventy two crores and twenty two lakhs)has been converted as loan in perpetuity without interest.

PERFORMANCE HIGHLIGHTS:

financial parameters:-The directors are pleased to inform that the company

has recorded a profit before tax (PBT)of Rs.165.18crores during the year 2010-2011.This increase in PBT is due to accounting of grant-in-aid of Rs.452.68crores as income which has been received from government of India towards financial restricting. Value of production :-

The Company achieved a value of production of Rs.603.84crores during the financial year 2010-2011.

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MEMORANDUM OF UNDERSTANDING:-In term of the parameters finally arrived at the

memorandum of understanding signed with government for the year 2010-2011,performance of the company is expected to be rated as “GOOD”.DIVISION WISE PERFORMANCESHIP BUILDING:-

Your Company had achieved a turnover of Rs.258.49 Crores during the year 2008-09 on the shipbuilding front. Your Company had achieved a production of 63772 DWT during the year 2008-09 which is 85% of the installed capacity. The shipbuilding Division of your company achieved a value of production of Rs. 243.08 Crores for 2009-10 as against Rs.258.49 Crores of the previous year. The shipbuilding division of your company achieved a value of production of Rs.243.19crores for 2010-2011 as against Rs243.08crores of the previous year. MAIN EVENTS:-

Following are the major events recorded by the shipbuilding division during the year2010-2011

SI. no

Events Date Descriptions of vessel

Owner

1 Fresh contracts concluded

27Aug2010

3 no 50 TBP Tugs Indian navy

23 Mar2011

8 no. inshore patrol vessel

Coast Guard

24Mar2011

2 no.50-TBP Tugs Kandla port trust

2 Delivery 12Apr2010

First (of 6 no)53000 DWT Bulker

GML, Chennai

05-Feb2011

Second(of 6 no)53000 DWT Bulker

GML, Chennai

3 Floating/Launching

03May2010

Floating of second (of 6 no)53000 DWT Bulker

GML, Chennai

15May20 Launching of Coast Guard

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10 third (of 5 no)inshore patrol vessel

14Jul2010

Launching of first (of 2 no)50 TBP Tug

Visakhapatnam port trust (VPT)

04Nov2010

Launching of second (of 2 no)50 TBP Tug

VSP port trust (VPT)

06Nov2010

Launching fourth (of 5 no)inshore petrol vessel

Coast Guard

31Mar2011

Floating of third (of 6 no)53000 DWT Bulker

GML, Chennai

4 Keel Laying 27Dec2010

First(of 3 no)50-Ton BP Tug

Indian navy

27 Dec2010

Second (of 3 no)50-Ton BP Tug

Indian navy

30Dec2010

Fourth(of 6 no)53000DWT Bulker

GML, Chennai

30Dec2010

Fifth (of 6 no)53000DWT Bulker

GML, Chennai

05Mar2011

Third(of 3 no)50-TBP Tug

Indian navy

Order book position as on 31 May2011 :- HSL is presently having an order book

of 24 vessels of which,14 vessels are under various stages of construction the value of the above shipbuilding order is Rs 1108.21 crores.

The details of order book position are as follows:-SI.no

Yard no Type of the vessel

No. of vessels(

Owner (Rs in c r)Balance

Contractual delivery date

Anticipated Delivery

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qty) contract value

date

1 11138to11141

53000 DWT Diamond series bulk carriers

4 GML, Chennai

237.29

Jul2009-Jan2011

Sep2011-Aug2013

2 11154to11158

Inshore patrol vessels

5 Indian coast guard

34.07 Mar2008-Mar2009

Aug2011-Jul2012

3 11160&11161

50-T bollard pull Tugs

2 VSP port trust

39.13 Mar2011-Jul2011

Aug2011-Oct2011

4 11162to11164

50-Ton bollard pull Tugs

3 Indian navy

155.40

Oct2012-Jun2013

Oct2012-Jun2013

5 11165to11172

Inshore patrol vessels

8 Indian coast guard

551.12

Aug2013-May2015

Aug2013-May2015

6 11173to11174

50-T bollard pull Tugs

2 Kandla port trust

91.20 Mar2013-Jun2013

Mar2013-Jun2013

Total 24 1108.21

Production physical performance:- The ship building production in DWT and capacity

utilization achieved during the year 2010-11 are presented below. The figures for same parameters for previous year are also shown for comparison.

SI.n

Description unit 2010-11

2009-10

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o1 Installed capacity(at 3.5

standard pioneer ships per annum)

DWT 75250 75250

2 Actual production achieved

DWT 61853 67572

3 Capacity utilization percentage

82% 90%

4 Productivity achieved M.hrs/DWT

42.5 27.20

SHIP REPAIRS:-

During the year, the ship-repair division undertook repairs on 53 vessels of various types belonging to Indian Navy, Dredging Corporation of India Ltd., shipping Corporation of India Ltd., Visakhapatnam port trust and 27 foreign vessels and also miscellaneous repair works. The ship repair division achieved a Turnover of Rs.201.65 Crores inclusive of the repair works on INS Sindhukirti. The ship repair turnover has increased by 32.88% in 2008-09. This could be achieved by utilizing the Dock facilities to the optimum level. The ship Repairs Division of against Rs.144.13 Crores of the previous year. Ship repair division has undertaken belonging to Indian Navy, DCI, SCI, ONGC, VPT etc.

During the year ship repair division has undertaken repairs of 22 vessels (including 8 foreign flag)of various types belonging to Indian navy, DCI,SCI,ONGC,VPT etc. and also miscellaneous works. The repair dock was utilized to its optimum level. Your company achieved a ship repair turnover of Rs277.38crores during the year2010-11and is committed to increase its revenue from ship repairs in coming years.

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Ship repair income (Rs in crores)

RETROFITYour company has signed a contract on 3rd October,

2005 with Indian Navy for MR-cum-modernization of INS sindukirti and the total refit is jointly undertaken by HSL, naval Dockyard (Visakhapatnam) & Rosoboron export (ROE).

Subsequently 8 contracts were concluded with ROE for logistic support and material supply to carry out the medium refit.

The major works on submarine that were completed under this refit contract is enumerated below:

Defect survey on entire hull structure completed and pressure hull repairs commenced.

Chemical cleaning & defect survey on piping spools of various systems completed & pipe manufacturing commenced.

Spares & yard material to take up repair works on Engineering equipment and hull structure have been received.

HSL welders were trained to take up pressure hull repairs and welding of Titanium piping spools.

Basic design for modification of keel block for leveling of Submarine has been completed.

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Sonar Dome insulation renewal undertaken first time in India.

Major infrastructure for submarine repairs has been set up.

The value of production on account of submarine Repairs was Rs. 99.31 Crores for 2009-10 as against Rs.57.52 crore of the previous years. The value of production on account of submarine repairs at the retrofit Division was Rs.83.27 crores.MAJOR WORKS DURING THE YEAR 2010-11

Repair contract of Jack up Rig “SAGAR RATNA” of ONGC, worth Rs 450 Crores is at an advanced stage of completion and targeted to be delivered by the end of Nov 2011.

INS Sandhayak and INS kumbhir repair orders of Rs 75 crores is presently in progress.

MODERNISATION:-

The yard is required to be modernized to increase its capacity and efficiency for construction of sophisticated defense vessels in future. The modernization is planned in two phases.(a)Phase-1-in the first phase, the existing infrastructure facilities need to be refurbished/renewed as identified.(b)Phase-2-in the second phase of modernization in order to construct sophisticated naval vessels.

DRAWING &DESIGN OFFICE:

The design works for ongoing projects such as inshore patrol vessel, yard crafts, Dry dock gate and bulk carriers etc. Have been carried out using Tribon M3 software in the CAD/CAM center. The capacity of design office is also planned to be augmented to cater for design of warships and submarines.

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IMPLEMENTATION OF INFORMATION TECHNOLOGY

Your company has successfully implemented the following tasks under IT:

Database holding various enterprise data pertaining to the ERP application i.e., purchase, inventory,Finance, HR & payroll etc., was upgraded with higher version to enhance the security, scalability, reliability of the data.

To enrich the network facility in the yard, various technical recommendations were obtained by conducting the survey in association with various reputed network firms.

The following jobs were undertaken during the year 2008-09 is under progress:

1. The applications i.e., provident fund loan, provident fund contribution, pay arrears, family pensions, medical reimbursements etc lying under payroll application which are placed on the legacy system platforms are being customized and migrated to ERP package for enhanced level of usage in terms of ease of use, online interface and integration with enterprise modules.

2. Introduction of web-enabled employee attendance regulation system with RFID readers at various yard entry points which enables centralized and real-time storage of attendance data and enquiry of the same from all computers which are connected over yard LAN for effective monitoring of time keeping management for effective usage of production man days.

3. Provides of internet for more no. of employees in the yard and for customers in customer servicing centre by placing the highly network security unified threat tools and proper

48

analyzer tools to monitor the security and usage of internet service.

4. Enrichment of HINDI version in HSL website with more content which is in English version.

OPERATING RESULTS:The summarized financial results of the company for the year 2010-2011 are

presented below. The profit shown is due to receipt of Rs.452.68crores.Grant-in-aid from government of India for clearing old outstanding liabilities reflected as extra-ordinary items in the statement given below.

Description Rs.in croresShip Buildings

Ship Repairs

Retrofit

Un Allocation

Total

Total income 247.85 286.02

91.18 12.83 637.88

Profit/loss before depreciation, interest &incometax&extra-ordinary items(PBDIT)

(170.02)

64.07 (28.20)

(131.32)

(265.47)

Depreciation 5.07 0.46 1.35 0.80 7.68Interest & finance charges

2.39 5.29 0.42 6.25 14.35

Extra-ordinary items(grant in aid from )GOI

- - - 452.68 452.68

Profit/loss before tax(PBT)

(177.48)

58.32 (29.97)

314.31 165.18

Deferred tax asset written off

110.19

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Net profit after tax 54.99

CONTRIBUTION TO CENTRAL EXCHEQUER:-

Your company’s contribution to the national exchequer during the year 2010-2011 by way of income tax, customs duty & excise duty is Rs.104.64crores.

QUALITY ASSURANCE:-

The 3rd surveillance audit transition to ISO 9001:2008 standards was satisfactorily carried out during 19May 2010,21-May2010 and a new certificate of approval of ISO 9001:2008hasbeen issued by LRQA, The 4th surveillance audit was satisfactorily conducted during 08Nov2010,10Nov2010.The Quality management system of ISO9001:2008 is being maintained through periodical internal quality audits. The 5th

surveillance audit was last undertaken between21Jun2011to23Jun2011.

INDUSTRIAL RELATIONS

The industrial relations situation in the company during the year was cordial and harmonious. HS staff and workers union elections were held on 14-11-09. Management has accorded recognition to the union for a period of 3 years. In order to motivate employees, HSL has implemented new promotion policy for both staff and workman to streamline promotions. The wage revision for staff & workmen is due from 1-1-2009. The management has constituted a wage negotiation committee and the negotiations have been completed. The MOU is being processed further for the Board and Government sanction. The industrial relations were cordial and harmonious during the year 2010-11.

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The company under takes the following ship repair activities:

Oil tankers, general cargo vessels, bulk carriers, passenger’s vessels, port crafts, hand mix bulker, survey vessels, off shore patrol vessels, drill shifts, off shore supply vessels and drilling platforms for oil sector.

ORGANIZATIONAL STRUCTURE

The department can be mainly categorized as follows:-1. PRODUCTION DEPARTMENT2. ADMINISTRATION DEPARTMENT3. SERVICE DEPARTMENT

1. PRODUCTION DEPARTMENT

The production department mainly consists of following sectionsHULL SHOP:-

It deals with material preparation like plates used for the construction of ship.

PRE-FABRICATION:-It deals with ship parts like the funnel, wheel house and

engine roots.

FRECTION DEPARTMENT:-Assembling the ship parts to make complete ship work

BLACK SMITH DEPARTMENT:-It deals with railing work, flooring work etc.

STEEL METAL DEPARTMENT:-It deals with air conditioned works.

RIGGING DEPARTMENT:-Holding the ship with repairs.

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PAINTING DEPARTMENT:-Plumbing works in trappers.

ENGINEERING DEPARTMENT:-Facilitating and assembling the main engine.

ADMINISTRATION DEPARTMENT

The Administration department consists of the following sections.

a) ACCOUNTS DEPARTMENTb) PERSONAL DEPARTMENTc) INTERNAL AUDIT DEPARTMENTd) GENERAL AUDIT DEPARTMENT

ACCOUNT DEPARTMENT:-The following are the sections in accounts department

COST ACCOUNTS BILLS AND INSURANCE PROVIDENT FUND SALARIES SECTION

Cost accounts deals with compilation of final accounts, budgets and cost report to ministry, direct and indirect taxation that is central excise, income tax and sales tax. Bill and insurance deals with payments bills is passing of bills and insurance of materials etc. Pay account deals with the payment of wages, salaries, provident fund and gratuity and V.R provident fund is allowed.

PERSONAL DEPARTMENTIt consists of the following cells:

STAFF CELL WORKMEN CELL EXCUTIVE CELL

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Acts which are present in the HSL are: Promotions leave management, medical

requirements, visitors man agent facilities, general administration shifts, time keeping etc.

INTERNAL AUDIT DEPARTMENT

The department checks the value of inventories and bills different branches of accounts are a waited annually.GENERAL DEPARTMENT

This responsible for procurement of the stationary and functional goods others incidental items.

SERVICE DEPARTMENT

The service department consists of the following sections:-

a. Design officeb. Production, planning departmentc. Quality control departmentd. Purchase departmente. General storesf. Bond storeg. Clearance departmenth. Maintenance departmenti. Civil engineering departmentj. Medical and health departmentk. Transport departmentl. Security department

INFORMATION TECHNOLOGY

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In the field of information Technology your company has successfully implemented the following tasks during the year

Action is initiated for introduction of e-procurement in HSL and likely to be implemented by Mar 2012

Initiated National informatics Center (NIC) mail service in view of more confidentiality & security for all HSL official correspondence.

Implemented the network security using group policy.

ENVIRONMENTAL ASPECTS

Your company continues to be environmental friendly and has fulfilled all the statutory requirements of central and state pollution control boards. The company is committed to meet all the stipulated for maintaining and protecting the environment

MILESTONE EVENTS OF HINDUSTAN SHIPYARD LIMITED

1941 DR.RAJENDRA PRASAD, the then president of Indian National congress laid the Foundation stone on 21-06-1941 for scindia shipyard at Visakhapatnam

1946 Keel for the first steam ship “JALA USHA” was laid on 22.06.1946.

1948 First steam ship of 8000 DWT, JALA USHA was launched by pandit JAWAHARLAL NEHRU the first prime minister of India on 14-03-1948

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1953 Switch over of the construction of steam ship to Diesel ships

1958 Achievement of 100000 GRT 1961 HSL becomes a fully owned Govt. of India enterprise in

July, 1961. 1962 Awarded certificate of Honour by president of India for

1961-62. 1971 Commission of dry dock for ship repairs 1972 Training ship “RAJENDRA” handed over to Smt. Indira

Gandhi, P.M. 1976 Commissioning of wet basin adjacent to dry dock for

afloat repairs. 1983 Laying of foundation stone for building dock on 28-08-

1983. 1983 Inauguration of stage-11 development programmed by

MoS & t. 1985 Inauguration of off-shore platform construction yard by

Hon’ble sri glani zall singh, the president of India on 17-07-1985

1987 Inauguration of new covered building dock for construction of ships upto 50,000 DWT by president of India on 05-04-1987

1987 Delivery of highly sophisticated drill ship “SAGAR BHUSHAN” to ONGC.

1992 Float out of the first biggest vessel of 42,750 DWT bulker from the building dock on 23-09-1992.

1993 First time oil flown from K.G.basin, through HSL built platforms.

1993 Delivery of the 100th vessel-M.V.LOK PRATAP on 28-06-1993.

1999 first biggest 1200 passenger-cum-cargo vessel “M.V.Swaraj Dweep” to A&N Admin.

2000 Delivery of first biggest bulker of 42,750 DWT.

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2004 First major repair of jack up oil rig ‘sagar praghati’ for ONGC

2005 modernization &medium refit of INS sindhukirti,877 EKM submarine

2006 INS vagli for Indian navy was successfully completed. 2007 Launching/floating and delivery of 2 nos. 30,000 DWT

bulk carriers. 2008 second biggest 700 passenger vessel delivered to union

territory of Lakshadweep 2009 commencement of hi-tech major lay up repairs on jack

up oil rig “sagar ratna” for ONGC 2010 Transfer of administrative control from MOS to MOD 2010 Delivery of the first biggest 53,000 DWT bulk carrier

M.V. Good pride to GML 2011 Delivery of the second biggest 53,000 DWT bulk carrier

M.V. Good precedent to GML 2011 Modernization of the yard is in progress.

Main engine installation Out fittinA SHIP IS BORNBasic design

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Detailed design

Working plans

Marking and cutting

Fabrications

Sub-assemblyMain assemblyKeel lyingBlock erectionLaunching

Dock and sea trails

Delivery of ship

CHAPTER - III

57

THEORETICAL FRAME WORK OF INVENTORY MANAGEMENT

INVENTORY MANAGEMENT TECHNIQUES

CONCEPTUAL FRAMEWORK

58

Inventory in a wider sense is defined as an idle source of all

enterprises. However, it is commonly used to indicate raw material in process,

finished, packaging spares and others, stocked in order to meet an expected

demand and distribution in future. Even though inventory of material is an idle

resource in the sense it is not meant for the most immediate use, it is almost

necessary to maintain some inventories for the smooth functioning of the

organization.

The benefit of inventory can be best understood if one imagines of

an organization is working on no inventories at all this organization on receiving a

sales order would have to order out the quality of materials required for computer

this order wait till this arrives and start production.

One will think of various disadvantages of this way of fluctuating

customers would invariable have to part every high price meal buy inch. The

production cost would also be high because of facilities to take advantage of

patching. Incase there is excessive receiving at either receipts or at any of the

manufacturing stages, long waiting be inevitable to get fresh suppliers. The load on

the manufacturing shop would vary from the period depending upon the order on

hand in should show a come put would not be able to provide satisfactory

customers service and would fail to take advantage of economics in bulk

procurement and batch manufacturing and this would not stand long in completion

both in the matter of price and customers.

In many organizations materials from the largest used

expenditure items analyze of the financial start of a large number of private and

public sector organization indicates that materials account of nearly 60% of total

expenditure. The various firms in which inventories exist in manufacturing

companies are raw materials work-in-progress (semi finished goods) and finished

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goods. Raw materials are those basic input materials that are converted in to

finished products.

Working process inventories are semi-manufactured products that need

more work before they become finished products for sale, stocks of raw materials

and work-in-processes facilities production which stock of finished goods is

required for smooth marketing operations. These inventories serve as link between

the production and consumption of goods. A manufacturing firm will have

subsequently high levels of all three kinds of inventories which retail of whole

sales, firms will have a very high level of finished goods inventories and no raw

materials and work-in-process inventories, inventories constitute that most

significant part of current assets of a large majority of countries in India. For

example, are an organization inventories are approximately 60% of current assets

in public limited companies in India.

NATURE OF INVENTORIES: -

Inventories are stock of the product a company is manufactured for sale and

components that make up the product. The various forms in which inventories exist

in a manufacturing company are raw materials, work-in-progress and finished

goods.

Raw materials are those basic inputs that concerted in to finished products

through the manufactured process. Raw materials inventory those units, which

have been purchased and stored for future production. Work-in-process inventories

are semi-manufactured products. They represent products the need more work

before they become finished productivity for sale. Finished goods inventories are

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those completely manufactured products, which are ready for sale Stock of raw

materials and work-in-process facilities production while stock finished goods are

required for smooth marketing operational. These inventories serve as a link

between the production and consumption or goods with in manufacturing firms

there will be difference. Large heavy engineering companies produce long

production cycle products on the other hand inventories of the consumer product

companies will not be large become of short production cycle and fast turn over.

Objectives of Inventory Management:

In the context of the inventory management the firm is face with the

problem of meeting two confliction needs:

1. To maintain a large size of inventory for efficient and smooth production

and sales operations.

2. To maintain a minimum investment inventories to maximize profitability.

Both excessive and inadequate inventories are not desirable, there

are two danger points with in which the firm should be determined and maintain

optimum level of inventory investment. The optimum level of inventory will be the

level between the two degree points of excessive and inadequate inventory. The

firm should always avoid a situation of over investment or under investment in

inventories.

The major dangers of over investment are:

1. Unnecessary tie up of the firm funds and loss of profit.

2. Excessive carrying cost.

3. Risk of liquidity.

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The excessive level of inventories consumes funds of the firms, that

cannot be used for any other purpose, this involves opportunities cost. The

carrying cost such as the cost of storage, handling insurance, recording and

inspection also increase in proportion to the volume of inventory. These costs will

impair the firms’ profitability further. Excessive inventories carried out for long

period increases chance of loss of liquidity. This is possible under constitution of

inflation and scarcity, work-in-process is far more difficult to sell. Similarly

difficulties may be faced to dispose off finished goods inventories as time length.

The downward shifts in market and the seasonal factors may be because finished

goods to be sold at low price another danger of carrying excessive inventories is

the physical determination of inventory while in shortage facilities, thus factors are

with in the control of managing unnecessary inventory in inventories can be cut

down maintain as inadequate level of inventories is also dangerous. The

consequences of under investment in inventories are:

1. Production hold upper

2. Failure to meet delivery commitment.

Inadequate raw materials and Work-in-process inventories will result in

frequent production interruption. Similarly it finished goods inventories are not

sufficient to meet the demand of customers regularly they may shift to competition

which will amount to a permanent loss to the firm.

An effective inventory management should be:

1. Ensure continuous raw materials of facilities.

2. Uninterrupted production.

3. Maintain sufficient stock of raw materials in period of short supply and

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Anticipate price changes.

4. Maintain sufficient finished goods inventory for smooth sale operation

and efficient customer service.

5. Minimize the carrying cost and time.

6. Control investment in inventories and keep it at optimum level.

Types of Inventories: -

Raw materials: To hold stock of materials, an organization deploys its primary

production section and process to obtain raw material from manufacture stockiest.

Work-in-progress: Work in progress inventories are some manufacture products

that need more work before they become finished products for sale.

Finished Goods: The stock of finished goods provides a buffer between customer

and demand and manufacturing supplies.

Flabby Inventories: It comprises finished goods, raw materials and stores held

because of poor working capital management and inefficient distribution.

Profit Making Inventories: It represents stocks of raw materials and finished

goods held for realizing stock profit.

Safety Inventory: It provides for failure in suppliers unexpected spent in demand

etc., although there may be an insurance cover.

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Normal Inventory: Based on a production plan, lead time of suppliers and

economic levels. Normal inventories fluctuate primarily with change in production

plan.

Excessive Inventory: Even an efficient management may be compelled to build

up excessive inventory for reasons beyond its control as in the case of strategic

impact as a measure of government price support of a commodity.

ADVANTAGES OF INVENTORY MANAGEMENT: -

QUICK SERVICE: Customers desire a prompt fulfillment of orders. A girl will

have to make goods available for sale. In the event of its not being able to office

quick service to customers, the latter are likely to get then orders executed the

competition, a firm is in a position to the advantage of trade discount by placing

bulk orders with suppliers.

REDUCTION IN ORDER COST: Each other increase certain cost if the number

of orders is reduced it is possible to economize on these costs or the procedure

involves each other need not be repeated each time.

EFFICIENT PRODUCTION RUNS: Inventories help a firm to make sufficient

long runs and these by achieve efficient production, which increase in the

production run, is possible to reduce the run it is possible procedure the set up

costs of operations.

PROTECTION AGAINST SHORTAGE: Adequate inventory protect a firm

against shortage that would result in production stoppage and considerable losses.

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INVENTORY MANAGEMENT CONTROL: -

In management inventories the fill objective should be in consonance with

the shareholders wealth maximization principle. To achieve this, the firm should

determine the optimum level of inventory make the firm feasible inefficient

inventory control results in unbalanced inventory and inflexibility the firm may

some time run out of stock and sometimes may file up unnecessary stocks. This

increases the level of investments and makes the firm unprofitable. To manage

inventories efficient answers should be sought to the following two questions:

1. How much should be ordered?

2. When should it be ordered?

The first question is how much to order, relates to the problem if determining

economic order quantity and is answered with an analysis of costs to maintain

certain level of inventories. The second question when to order arises became of

uncertainness and is a problem of determining the order points.

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INVENTORY MANAGEMENT TECHNIQUES

RE-ORDERING LEVEL:

It is the point at which if stock of a particular material in store approaches,

the storekeeper should initiate the purchase requisition for fresh supplies of that

material. This level is fixed somewhere between the maximum and minimum

levels in such a way that the difference of quantity of the material between the re-

ordering level and the minimum level will be sufficient to meet the requirements

of production up to the time the fresh supply of the material is received.

Re-ordering level = Minimum level + Consumption during the time required

to get the fresh delivery. (Or)

Re-ordering level = Maximum consumption x Maximum re-order period

MINIMUM LEVEL OR SAFETY STOCK LEVEL:

This represents the minimum quantity of the material which must be

maintained in hand at all times. The quantity is fixed so that production may not be

held up due to shortage of the material.

Minimum stock level = Re-ordering level – (Normal

Consumption x Normal Re-order Period)

MAXIMUM LEVEL:

It represents the maximum quantity of an item of material which can be held

in stock at any time. Stock should not exceed this quantity. The quantity is fixed so

that there may be no overstocking.

Maximum stock level = Re-ordering level + Re-ordering quantity –

(Minimum consumption x Minimum re-ordering period)

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DANGER LEVEL:

This means a level at which normal issues of the material are stopped and

issued are made only under specific instructions. The purchase officer will make

special arrangements to get the materials which reach at their danger levels so that

the production may not stop due to shortage of materials.

Danger level = Average consumption * Max. Re-order period for emergency

purchases

AVERAGE STOCK LEVEL:

Average stock level = Minimum stock level + ½ of re-order quantity

ECONOMIC ORDER QUANTITY:

One of the major inventory management problems to be involved in how

much inventory should be ordered when inventory is replenished. If the firm is

buying raw materials it has to decide lots in which it has to be purchased on each

replenishment. If the firm is planning are called order quantity problems and the

task of the firm is to determine the optima or economic order quantity. Determine

are optimum inventory levels involves two types of cost:

1. Ordering cost:

The term ordering is used in case of raw materials include the entire costs

of acquiring raw materials, they include costs incurred in the following activities,

requisition purchases ordering, transportation, receiving, inspecting and storing,

ordering cost increases in proportion to the number of orders place. The clerical

and staff cost how ever do not have to vary in proportion to the number of orders

placed. Alternatively, as the number of orders increases the clerical and staff costs

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also increases. Ordering cost increases with the number of orders. Thus the more

frequently inventories acquired, the higher the firm ordering cost on the other hand

if the firm maintains large inventory levels, they will be few orders placed and

ordering cost will be relatively small. Thus ordering costs decreases with

increasing size of inventories.

2. Carrying cost:

Cost incurred for maintaining a given level of inventory is called

carrying cost. They include storage insurance taxes, determination and obsolesce.

The storage cost comprises cost of shortage costs of storage space incurred in

recording and providing special facility such as fencing lines and racks.

TABLE -3.1

The following table provides summary or ordering and carrying costs

ORDERING COSTS CARRYING COSTS

Requisition Ware housing

Order placing Handling

Transportation Clerical and staff

Receiving and inspecting and storing Insurance

Clerical and staff Deterioration and obsolescence

Carrying cost vary with inventory sizes. This behavior is contrary to that

of ordering cost, which declines with increase in inventory size. The economic size

of inventory would thus depend on trade off between carrying costs and ordering

costs.

ABC ANALYSIS:

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ABC analysis is a basis analytical technique for inventory

management, which enables top management to direct the effort where the result

will be the highest. This tool is popularly known as “always better control”.

This analysis classifies the inventories according to the importance of

each component. All components are not off equal importance. The firm should

therefore classify inventories to identify which item should receive major

attention. The high value items are classified as an items and would be under

highest control. “B” items fall in between these two categories and require

reasonable attention of management. “C” items represent relatively least value and

would be under simple control. The normal items in most of the organizations

show the following pattern:

1. Category “A” generally consists of 15-25% of inventory, which is of highest

value.

2. Category “B” consists of 20-30% of inventory and accounts for 20-30% of

annual usage value.

3. Category “C” consists of 40-60% of inventory and accounts for 10-15% of

annual usage value.

4. The purpose of ABC analysis: the object of carrying out ABC analysis is to

develop policy guidelines for selective control.

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CHAPTER – IV

AN OVERVIEW

FUNCTIONS OF INSPECTION DEPARTMENT

FUNCTIONS OF STORES DEPARTMENT

FUNCTIONING OF MATRIALS

ACCOUNTING SECTIONS IN

ACCOUNTING DEPARTMENT

INVENTORY NORMS

ANALYSIS AND INTERPRETATION

AN OVERVIEW

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Each item has a bin card posting are done manually at present monthly

consumption statement are prepared and circulated to all concerned pre-order

levels based on 3 years history has been fixed for 70% of the items. The material

plans and places his order correspondingly, a minimum-maximum system is being

operated and a minimum stock of 6 months is aimed for B and C category items.

Usually high value items are ordered on the basis of EOQ quantities or as in the

case of regular order are placed and delivery schedule is given to these suppliers.

The delivery may be daily or weekly or monthly depending upon the quantity

consumed. For instance hydrochloric acid is delivered on daily basis. For B and C

class items minimum-minimum systems are adhered to strictly, while as stated

before B & C items are operated on nil stock bases. Usually C items are ordered

manually or capitalizing the spare parts received along with the equipment.

All the indents that are raised by user departments come to the

interruption. Similarly if finished goods inventories are not sufficient to meet the

demand of customers regularly they may shift to competition, which will amount

to a permanent loss to the materials planning section. The indents are checked for

specifications substitute and availability and then cleared for necessary purchase

actions. Capital items are not process through the material planning or

maintenance sections but directly by the process through operation plant executive

after clearance by the finance and the top management. The chairman reviews the

approved budgets frequently and the consumed departments responsible for

adverse variances and questioned.

The follow up actions is required to get the materials as per the

delivery scheduled inspections department will inspect the materials is technical

and quality aspects of the material received. After receiving the materials receipts

report (MMR) along as its inspection report the purchase department will advice

the finance department to arrange the payment for the materials received. If any

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irregularities in supplying of materials the actions are sought according to the

terms and conditions of the purchases order. For and rejected materials the

purchase department will have to correspondence with the suppliers and make

necessary arrangements to replacement against the damaged materials.

FUNCTIONS OF INSPECTION DEPARTMENT

The Hindustan shipyard limited materials inspection department is functioning

under the control division, which is directly reported to directory (technical).

Inspection department is equipped with the technically known ledged group

persons to inspect materials per the requirement. The incoming materials is

received and brought the clearance owner. The store personnel will change for the

inspection of the materials with coordination of the inspection department.

Inspection department will inspect the materials specifications as per the purchases

order/technical/specifications mentioned by used department drawing and design

office and the classifications certify if any.

The following methods while inspecting the materials are followed:

1. Bulk quantity like bolts and bulbs, paint and consumable etc are inspected at

random only

2. For steel 100% verification is done for above 4.5 mm thickness the

inspection is done at random only.

3. For timber 100% inspection is done.

4. For pipes 100% inspection is done.

Inspection is considered in the following areas

a. Quality as per specifications.

b. Quality as per purchase order of suppliers packing list.

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c. Condition of material such as shelf life expiry/working/serviceable

conditions. Etc.

After inspecting the materials the inspection report (IR) which is

containing all details of the material with reasons. Inspection report is prepared is 5

copies which are prepared and submitted to the following departments.

Purchase Department:

For taking necessary arrangements adjustments on the basis of IR

purchases department will correspond the matter with the supplier’s relations,

adjustments, short suppliers, etc., and follow up actions as curtained.

1. Stores Department:

For preparing material receipt report (MRR) for the accepted

quantity and accounting the material.

2. Drawing office /user department /project:

Who raised the purchase indent for the intimation about the

procurement?

3. Account Department:

For arranging the payment /adjustments for the accepted quantity

self-office copy for record purpose.

FUNCTIONS OF STORE DEPARTMENT

In Hindustan shipyard limited, store department is sub divided on the

basis of material wise. The organization chart encloses here will give clear view

about the total stores organization in Hindustan Shipyard limited. Normally the

functioning of all stores is similar. The main function is to maintain the proper

stock levels of various stores items for smooth run of the production schedule.

And at the same time the store function should see the huge amount of capital is

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not are locked up in the form of inventories. The proper documents, which are

using for the materials in stores, are as follows:

MATERIAL RECEIPT REPORT (MRR):

This is normally prepared by the concerned stores on the basis of

inspection report. MRR has all the details of the materials such as MRR no,

date, material code, description code, unit of measurement, quantity received,

quantity accepted & p. o no suppliers, name of code, IR no & date etc, MRR

will be prepared in 5 copies for:

a. Concerned Stores: Concerned for the store is bin card.

b. Cost accounts (material section): Cost accounts for accounting the receipts in

precise stores ledger (PSL).

c. Account bills: Account bills for arrangement the payment/ adjustments.

d. Purchase Department: For information and to take necessary follow up

actions as per the purchase order.

Material Requisition (MR):

This is normally written in a prescribed format be the materials user

department. This is prepared in triplicate. Three copies are prepared and sent to

stores department for issue of materials. MR is having the details of materials

code, job no. and signature of the authorized drawer etc. After the issue then

materials the first two copies are taking by the stores department and sending

the third copy along with the issued materials to the user department. Store

department will enter the issued quantity on requisition and in bin cards. The

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original MR is sent to cost account department for changing the issue to the

work order.

MATERIAL RETURN NOTES (MRN):

This is similar as material requisition written by the user production

department the MRN is for returning the unusual materials to the store, the

MRN is also containing all the details as MR but it is normally printed in

different colors. In Hindustan Shipyard Limited MR is pink/red color and MRN

is yellow color.

FUNCTIONING OF MATRIALS ACCOUNTING SECTIONS IN

ACCOUNTING DEPARTMENT:

The material accounting section is dealing with the maintenance of

inventory record with values. The main functions are as follows:

Receive the MRR and enter in the period stores ledger with providing

the values on the basis of purchase orders. This is done with providing the co-

operation of date processing departments (computer) periodically i.e. for

monthly. The necessary receipts entries will be passed to make the receipt into

the books of accounts while considering the receipts clues. There are some pre-

determined rates as applied for freight, insurance and material handling charges

wherever necessary. These pre-determined rates are on the basis of last year

actually.

VALUATION OF ISSUES:

Receiving and consolidation of all the materials stores and

arranging for issue valuation with the help of data processing departments

(computer).

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In Hindustan Shipyard Limited all the issues of all the stores

except bond stores are valued in weighted average systems. For bond stores the

issues are based on the percentage of competition report from production

planning material accounting system passing necessary entries for consumption

to make the issues into account.

MAINTENANCE OF PRICE STORED LEDGERS:

Periodically Prices Stored Ledgers are maintained if any

discrepancies noticed in accounting if receipts and issue adjusting the same

after the intimation received from the concerned stores.

ATTENDING PERPETUAL INVENTORY DISCREPANCIES:

If any discrepancies noticed Perpetual Inventory section, the

necessary physical adjustments are passed yearly.

INVENTORY NORMS

Maintain the inventory balance and intimating to the higher levels

for taking necessary steps wherever required intimating to the other level of

management about the non-moving insisting for reducing the non mobbing

surplus materials.

With the entry about department co-ordination the inventory control

management is organization of Hindustan Shipyard Limited. In order to supervise

the endues of the funds and to check in projections the bands are required to get

from the borrowing quietly management information report pertaining operating

system, funds flow statements, peak level balance sheets for the ensuring year in as

much as only 10% variance between actual and projected figures are allowed the

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information system will ensure in disciplined and planned approach to credit

planning for inventory control. The maximum level of norms has been given as 4-

10m weeks for raw materials now to 5 weeks for semi finished goods, 3-8 weeks

for finished goods and 3-9 weeks for accounts receivable, depending upon the

nature of industry. In a few cases the finished goods are account receivable has

been combined and variation allowed depending on location of factories, type of

input etc, the norms are to apply by the lending institutions with a flexible

approach. Hindustan shipyard limited is following the inventory norms of BPE

since 1985 approved total inventory norms is Rs.1910 lakhs. The following is the

break up to each store wise.

However the above norms are outdated norms. These norms were fixed for the

full capacity since the ship construction activity to reduce the norms to be

evaluated a fresh. If in a relationship between costs of goods expressing that how

many times stock is purchased during this year. High inventory turnover is more

profit for the organization. It means the efficient utilization of working capital and

the stock inventory in fresh and non-obsolete such company can operate on a small

profit margin with a large-scale volume on low turnover indicates a poor quality of

marketing efficiency and poor management of working capital. Executive

inventory is also for low turnover resulting in heavy loss due to obsolesce. The

problem of spares and management which are different from other classes are

initially presented the categorized of spares, cost of spares, role of maintenance

budget are brought in the content of solving the spares parts problems.

INVENTORY OF VARIOUS NORM

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The entire store organization is subdivided in to 4 stores as

1. Bond stores.

2. Steel stores

3. Timber stores.

4. General stores

The functions of different stores are as follows:

Bond stores:

Bond stores are dealing with all the imported materials and specific

materials particularly for ship construction activities. The materials consumption

of bond stores is contributing major share about 660% to 70% of the total material

cost of each ship. These materials are not meant for stocks. They are meant for

immediate consumption, This material tailor made items according to the size and

design of the ship. The imported materials are like main engine, diesel generator

sets, electrical equipment main shafts and propellers, radar and communication

equipment were those equipment. In Hindustan shipyard limited premises there is

a customers office to look after all the matters recipes and issue of imported

materials, customers vigilance is required on the ship building materials since they

are all exempted from customs duty they should used for specifies purpose.

Steel stores:

For the procurement of steel there are two indenting departments

1. Drawing design office:

For the material for vessel construction higher value and higher quality

material such as “A” class plates and sections. The material may be both

indigenous and imported.

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2. Steel Store:

For the materials of “B” class and “c” class, lesser close items such as flat

etc., this type items is called as standard stock items for these items the steel and

stores is not only raise the purchases indent but fixes the level of maximum,

minimum and recording. The levels are fixed on the basis of present and future

consumption pattern out of total stores around 80% materials is “A” category for

which the design and drawing office will be purchased indent for procurement

according to the ordered vessel. Remaining 205 material is standard stock items

for which steel stores reaps the purchase indent steel stores rises the purchase

indent steel is identified by specific codifications as A, B, C and D, the

international standards specific graded steel is required for the construction of

ocean going vessels and it should by at the grades certified by

1. LRS-Lloyds Register of shipping

2. ABS-American Bureau of shipping

Generally still is received in standard sizes of thickness, length, and breadth.

But it is accounted in weightiest i.e. in metric tones; the main suppliers are sail

and foreign countries like Japan, Korea. Etc., and same times very few

materials are procured from local suppliers. If any rejected materials noticed

while inspecting the, material that material is kept separately, on the advice of

purchase department drawing office, that material is handed over to the

suppliers by the steel stores.

Timber Stores:

Timber store is dealing with procurement storing and issue of

timber material such as blue pine, teak Sal wood, pine wood, staging plant,

supporting board, bale wood and also for maintenance work as per the norms of

drawing office estimates and production department requirements. Timber

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stores are assisting the purchase department in finalization of the tenders by

study of the following.

1.Quality

2. Delivery period

3. Specification size and standards

4.Sample…etc.,

General Stores:

The function of the general stores is sub divided in to various groups

because it deals with various items of more those 40,000 items. There is a well-

organized procedure for accounting of imported materials customs office pro

available with in the premises of Hindustan Shipyard Limited to look after the

matters of imported materials. Since the imported materials for ship

construction is accepted from the customs duty. Hindustan Shipyard Limited is

adopted weighted average cost method for the inventory as well as for the

consumption of steel, timber and general stores. Bond stores material is

accounted specific accounting.

The total functions is divided in the following manner:

1. Receipt section

2. Groups (concerned stores)

3. Inventory control cell

Receipt Section:

Receipts of all the materials of incoming from clearance department of

from suppliers directly. Enter all the details in a separate register as per the

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delivery challans. Keep the materials in safe unsteady till the material is

inspected. Intimate and arrange for the inspiring of the materials at the earlier.

The preparation of MMR for accepted quantity as per the inspection report.

Handling over the material along with MRR to the concerned group (store).

Regarding the rejected materials entered in a separate register and kept them

under safe conditions, registered material is handed over to the suppliers on the

advice(rejected return advice) of purchase department.

Group (concerned stores):

The entire general stores activity stocking and issuing is looking after

by 10 groups, general stores items are also given 8-digit code starting with 3, 4,

6&7.

materials and issuing the materials to the user department. The bin balance are

verified with the priced stores ledgers periodically and if any discrepancies noticed

that will be corrected by intimating sections will pass necessary consumption

statements groups personnel are extending their cooperation to conduct the physical

stock verification of per capital inventory section.

SIZE OF STORES

Hindustan shipyard limited is maintained in 4 board’s heads and their

sizes available for the last 5 years for 1995-1996 to 1999-2000 in the following

statement.

Accumulation of inventory:

The question of managing inventory areas only when the company

accumulates on inventory maintaining inventories involves typing important of the

company funds and storage and handling costs if it expensing to maintain

inventories why do companies accumulate of inventories.

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1. “The transaction motive” emphasizes the to maintain inventories to

fascinated smooth production and sales operations.

2. “The precautionary motive” which emphasizes the need to maintain

inventories to guard against the risk of unpredictable changing in demand supplier

force and other factors.

3. “The speculation motive” which influences the decisions in increases or

decrease inventory levels to take advantage of price fluctuating.

At times the industry would like to accumulate raw materials in

anticipation of price rise “A” category consists of highest consumption value of

lesser percentage of items “B” category of moderate values with modern at

consumption of items but the quantity is more in consumption.

Non-moving and Surplus materials analysis:

In Hindustan Shipyard Limited the year period is considered as a period

for non-moving. Surplus materials is the materials which is not having any

requirements in present raw consumption and in after consumption.

The following are the main reason for the surplus inventories in Hindustan

Shipyard Limited:

Excess procurement:

Normally steel and other consumable are procured at 5% excess to the

requirements to the production damages.

Extra procurement of separates for general maintenance of plant and machinery

subsequently, which is outdated.

Due to change of design of the product (i.e., shop construction)

Spare parts of outdated assets etc.,

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All the above surplus material is unused raw material. The identification of

surplus material is the important part inventory control cell is reducing disposing

the surplus and non-moving inventory.

STAGE-1:

Searching for alternative use/users. Keeping them in stock to meet the

future requirements. This can be done with coordinates of design and drawing

office/ship repairs department.

STAGE-2:

Intimate to the other public sectors under standing publicity.

STAGE-3:

By calling public tenders and auctions for disposal. Before calling public

tenders the reserve prices are to be fixed for the surplus non-moving items by the

experts committee the fixed reserves prices are to be approved by the chairman and

managing director.

Disposal activities:

Disposal activity is looking after by disposal sector which is under the

control of managers (materials) the main activity of the disposal sections is to

dispose the unwanted materials codependent stores, scrap materials and etc.,

PROBLEMS IN INVENTORY

1. Ship building material is tailor made items. Hence the lead-time is differing

from items.

2. Majority of the materials for shipbuilding are imported and international

standardized material. Hence the procurement this may be more due to

various reports and involvement of various authorities.

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3. Because of Hindustan shipyard limited is being a public sector the decision

making of inventory is late through they are arrest.

PROBLEMS IN STORAGE

1. Regarding prevention of steel, steel is keeping in open yard, ship building

activities should be carried out at the sea coast, the required steel is exposed

to the nature and moisture is reads to natural decay such as rust etc., (more

decay due to salty atmosphere)

2. It is required a periodic maintenance through scald balding and anti

corrosion, painting.

3. Requiring imported machinery items those are to be maintained in air

condition stores up till installation.

4. The material is not available indigenously. It is to be stored in water. Hence

separate storage facilities are required.

5. High-grade electrodes (standard materials for ship building under ISO 9001)

are to be preserved as standard temp.

6. Materials like “rock wool lap pins” is kept in a separate closed area (away

from other materials)

7. Huge materials in size like main engine, lifeboats etc may not possible to

store under any stores. Hence they are to be properly covered with fireproof

trampoline etc.

8. Hindustan Shipyard limited is having closed general stores and conditional

boned stores and other stores.

PROBLEMS IN FINANCE AND ACCOUNTS: -

1. Due to majority of materials are imported all the payments for imported

materials are to be in advance because of the losses Hindustan Shipyard

84

Limited is facing accurate shortage of working capital to meet the

requirements in items.

2. Regarding accounting of imported materials along with other stock records

it is to be maintained additional register for the statutory requirements with

customs

85

TABLE

ANALYSIS INVENTORY MANAGEMENT

86

Particulars 2006-07 2007-08 2008-09 2009-10 2010-11

Steel 1199.53 7864.16 8569.50 4156.12 4932.79

Store spares 1227.84 2507.47 2481.22 7882.26 7507.81

Timber 50.57 49.72 51.06 38.01 45.09

Goods in transit,

loose tools, under

inspection etc.

1550.31 1502.60 6222.65 16999.0

4

6619.82

Steel cut pieces 87.35 104.80 130.47 104.82 290.21

Total 4115.60 12028.7

5

17450.9

0

29180.2

5

19395.72

Less: provision

between bin cards &

PSL balance

246.49 233.81 233.81 233.81 233.81

Less: Provision for

obsolesce of

material

101.32 23.72 21.86 19.96 130.44

Work in progress at

cost

3767.79 11781.2

2

17209.2

3

28936.4

8

19041.47

Ship building under

construction

9437.94 13574.0

0

20006.0

8

18953.2

8

14123.77

BALANCE 13205.7

3

25355.2

2

37215.3

1

47889.7

6

33165.24

INVENTORY LEVEL AT THE END OF FIVE TEARS

Inventory Control

Interpretation:-

With reference to the above chart it can be inferred that there was an increase

during the year 2006-07(13205.73) to 2009-10 (47889.76), then it decreased in the year 2010-11

to (33165.24) at end of the year.

87

Inventory Turn over Ratio:

The ratio indicates the efficiency of the firm of selling its product. It is

calculated by dividing the cost of goods sold by the average inventory.

The cost of goods sold is known then the inventory turn over ratio and can be

computed by dividing sales by average inventory of the year-end inventory. The

inventory turn over shows how rapidly the inventory is turning in to receivables

through sales. This ratio signifies the liquidity of inventory. It is used to measure and

discover the possible trouble in the form of over stocking or over valuation.

Inventory turnover ratio= Net sales/Average inventory =

31413.84/14371.72=2.18

TABLE

ITR

88

Year Sales Inventory ITOR

2006-07 31413.84 14371.72 2.18

2007-08 38452.02 19280.47 1.99

2008-09 39581.38 31285.26 1.26

2009-10 61896.05 42552.53 1.45

2010-11 65214.30 40527.50 1.61

Interpretation:-

With reference to the above chart it can be inferred that there was an decrease of the

inventory turnover ratio from the year 2006-07 (2.18) to 2008-09 (1.26), than it increase from

the year 2009-10 (1.45) to 2010-11 (1.61) at end of the year.

COMPONENTS OF INVENTORY

Inventory consists of two more components 1. Raw material

2. Work in progress

The raw material inventory should be related to materials consumed and work in

progress to the cost of production, materials consumed can be found out as opening

balance of raw materials plus purchase minus closing balance of raw materials. Cost of

production is determined as material consumed plus other manufacturing expenses

plus opening balance and closing balance of work in progress may be related to sales

to know the efficiency with which the firm converts raw materials in to work process

and work in process in to finished goods.

89

RAW MATERIAL INVENTORY TURN OVER RATIO

The ratio indicates the efficiency of the firms raw material

consumed. It is calculated by material consumed. It is calculated by material consumed

divided by average material inventory.

Inventory turnover ratio= material consumed/Average inventory = 19019.22/14371.72

=1.32

TABLE

Year MATERIAL

CONSUMED

INVENTORY RMITOR

2006-07 19019.22 14371.72 1.32

2007-08 22255.48 19280.47 1.15

2008-09 26466.04 31285.26 0.85

2009-10 34457.31 42552.53 0.80

2010-11 44151.76 40527.50 1.08

90

Interpretation:-

With reference to the above chart it can be inferred that there was a

decrease of the raw material turns over from the year 2006-07 (1.32) to 2009-10 (0.80),

then it increased in the year 2010-11 to (1.08) at end of the year.

INTERPRETATION: From the above analysis it is clear that the conversion process

of raw material into inventory is very slow. It leads to the delay of inventory

conversion into final sales.

INVENTORY HOLDING PERIOD:

The inventory holding period indicates of inventory and finished goods into

sales in a year another words it holds average inventory for some months or days.

Inventory holding period=365/ITR=365/1.453=251.204

TABLE

YEARS Inventory turnover ratio Inventory holding

period in days

2006-07 1.485 365

2007-08 0.524 365

2008-09 0.466 365

2009-10 0.558 365

2010-11 1.453 365

I.H.P

91

INTERPRETATION: From the above analysis it is observed that the high Inventory

holding period indicating the poor management of inventories to converting into final

product.

WORK IN PROGRESS TO TURNOVER RATIO

The work in progress is the difference between the current assets and the current

liabilities. When it is negative current liabilities exceed current assets. Raw material

consists of inventory. The efficient management of inventory indicates firm’s efficient

performance. The ratio calculated from inventory divided by the net working capital.

Work in progress=cost of production/average work in

progress=89524.53/16538.525=5.413

TABLE

year Avg. inventory Work in progress Inventory work in

progress

2006-07 7157.855 46218.16 6.456

2007-08 19280.475 47386.55 2.457

2008-09 16790.04 55189.35 3.287

92

2009-10 19479.68 66912.24 3.434

2010-11 16538.525 89524.53 5.413

INTERPRETATION: From the above it is clear that the HSL is suffering with low

Working Capital. It is remarkable problem to overcome by managing inventory in an

efficient manner.

93

CHAPTER – V

SUMMARY FINDINGS SUGGESTIONS CONCLUSION BIBLIOGRAPHY ANNEXURES

94

SUMMARY

Hindustan Shipyard Limited Visakhapatnam was established in 1941 in private

sector as SCINDIA’S steam ship navigation company. Its placement is very favorable

to ship construction. It is established adjacent to the natural report to have the

important facilities of the required materials from various countries. Hindustan

Shipyard Limited launches its first vessel “JALA USHA” in 1948.

After building eight ships of the “JALA” series, scindia’s the owner of

Hindustan Shipyard Limited found it difficult to run the shipyard with out the financial

assistance from the government and appealed the government in 1948 for payment of

construction different subsidy. Finally it was decided by the government that it would of

ahead with the cooperation designation of the Hindustan Shipyard Limited was

registered on 21st January 1952 with the government holding is one-third scindia’s

signed on as agree for the above sale on 23rd February 1952. In July 1961 the

government of India also acquired the shares held by the scindia’s because the realized

that it could not keep the industry going since then the Hindustan Shipyard continues to

be fully owned and controlled as Government Company.

Hindustan Shipyard Limited’ s trust towards diversifications into

other fields is evident from its achievements is undertaking turkey projects for off

shore requirements for all sector audits capacity to meet the needs of on-shore projects

95

like process industries, oil refineries, petro chemicals etc. Manufacture of selected

equipment is associated with specialist in the field is one the anvil.

Hindustan Shipyard Limited is having a very good skilled labour force because

equally work generated in the past 50 years Hindustan Shipyard Limited could get the

quality certificate ISO-9001 from CRQA London.

Hindustan Shipyard Limited from the beginning is a non-profit organization but

it was established only with the national interest, it was facing different types of

problems from its inception. Now ship-building activities is indeed depression stage

due to heavy subsidy offered the various countries like Japan, Korea etc the

international shipping price is not compatible by the India Ship builders. To awake the

situation the Indian government is also extended support to the Indian ship builders

through pan passu clauses and subsidy.

Pan Passu clause is the permission of the Indian ship owner for acquiring at

least one ship form the Indian ship builders along with the import and the government

provided subsidy at 30% on the international price for every constructed ship in India

from 1990 to 1994 this subsidy and pan passu clasues were with drawn by the

government due to the implementation of economies reforms with the internal pressure

(political) against 20% subsidiary was provided from 1994 and revised to 30%. It

provides by Hindustan Shipyard Limited is not in position to get the ordered at

international process since 1994.

Hindustan Shipyard Limited is suffering with financial crisis and working

capital shortage. The capital of Hindustan Shipyard Limited is Rs. 115545.70 crores on

31-03-2004. By implementing voluntary retirement scheme Hindustan Shipyard

Limited is reduced the employees by observing that is 31-12-2003 there are 3600

employees and there reduces as 3583 employees as on date. The heavy investment

96

rewired industries like ship building are always requited the financial support from the

government. Hindustan shipyard limited should be view with national interest and with

national unimportance but not with profit or losses. The worldwide commerce not

closed or privatized because of its losses it may be of its private sector. Hindustan

shipyard Limited is the case traveled from private sector to public sector. Hence the

government should take suitable steps to up life the industry. It is not possible to

implement the management techniques to inventory to reduce the cost of tailor made

items regarding other standardized material, Hindustan Shipyard Limited is adopted

the various inventory control techniques such as economic ordering quantity (EOQ)

fixing of various levels of maximum, minimum and reorder levels, ABC analysis and

perpetual inventories to reduce the costs of inventory and material costs.

The entire stores organization is sub divided in to four stores as:

1. Bond stores

2. Steel stores

3. Timber stores

4. General stores

There is a well organized procedure for accounting of import materials customs

office is also available with in the premises of Hindustan Shipyard Limited to look

after all the matters of imported materials. Since the imported materials for ship

construction is exempted from customs duty. Inventory control may be defined as

optimum utilization of materials of production of goods and services. It is further

defined as “The process of deciding what and how much of various items are to be

kept in stock and the time are to been quantity are to be processed Hindustan Shipyard

Limited us getting loss is due to the flack of order under utilization of capacity, excess

man power etc., How ever Hindustan Shipyard Limited is implemented some

diversifications activity such as off shore platform from ONGC and intensified ship

repairs activity including sub marine repairs etc, to reduce the losses.

97

Problems in procurement:-

Ship building material is tailor made items. Hence the lead-time is differing

from items, majority of the materials for shipbuilding are imported and international

standardization materials. Hence the procurement this may haven ore due to various

reports and involvement of various authorities. Because Hindustan Shipyard Limited is

being public sector the decision making inventories are late through they are corrected.

Problems in storage:-

1. Regarding prevention of steel, steel is keeping in open yard, Ship building

activities should be carried out at the sea coast, the required steel is exposed to the

nature and moisture is needs to natural decay such as rust etc. (more decay due to salty

atmosphere).

2. It is required a periodic maintenance through sold balding and anti corrosion,

painting.

3. Requiring imported machinery items those are to be maintained in air condition

stores up till installation.

4. The material is not available indigenously. It is to be stored in water. Hence

separate storage facilities are required.

5. High-grade electrodes (standard material for ship building under ISO 9001) are

to be preserved as standard temp.

6. Materials like “rock wool lapinus” are kept in a separate closed area (away from

other materials).

7. Huge materials in size like main engine, lifeboats etc may not possible to store

under any stores. Hence they are to be properly covered with fire proof trampoline etc.,

8. Hindustan Shipyard Limited is having closed general stores and conditional

boned stores and other stores.

9.

98

Problems in finance and accounts:-

1. Due to majority of materials are imported all the payments for imported materials are

to in advance because of the losses. Hindustan Shipyard Limited is facing accure

shortage of working capital to meet the requirements in item.

2. Regarding accounting of imported material along with other stock records it is to be

maintained additional register for the statutory requirements with customs.

Reasons for achieving lower target:-

Shipbuilding is a “complex” assembly industry. It handles, shapes,

assembles and welds large masses of steel to precision shapes and standards to achieve

a sequential production flow. The industry combines in itself almost all the processes

and technologies of the engineering spectrum and calls for high standards of

engineering practices involving inspection, handling, and installation and proving of a

variety of engines, machinery, electrical and electronic equipment, control systems and

computes.

It involves a complex combination of technology, materials and labor

intensive processes which require highly skilled labor/technicians to work in terms and

undertaken technologically sophisticated tasks to roll out of a final ship. Ships are

building against specific orders place by the shipping companies/owners. Even when

the basic requirements of the ship owners in terms of cargo-carrying capacity, draught,

speed and other characteristics are common there can be large variations in a ship

design as well as in the specifications of ship-borne equipment and systems. Ships

cannot be mass-produced unless they ate of same series, sizes, capacities etc, each

ships are to treat as a separate project. For this reason, ship builders cannot be expected

to achieve complete standardization though attempts ate being made all over the world

to standardize ships to reduce costs. The ship builders have to keep his facilities and

equipment ready to build ships of various types and sizes, according to the owner’s

99

requirements and preferences. The maximum size of a ship that can be built in a

particular yard is governed by physical factors such as dimensions and capacity of the

slip ways, building docks, where as access to sea and entrance channel dimension of

port. The hull is fabricated out of steel plates and sections obtained from the steel

mills. All the equipment, machinery and systems in a ship are also brought out. Since

construction of a ship can commence only after reaching complete understanding on

design and construction feature as well as specifications of all ship borne equipment

and systems, shipyard is not in a position to keep ready stock materials. They have to

bring after the contract with the owners is signed. The nature of ship building materials

including steel is such that they cannot be bought off the shelf. The ship builders has to

place orders and avail of the materials. The lead-time is inevitable in Indian conditions.

Another factor which has a bearing on the “lead time” is whether a slipway or dock is

occupied or vacant, on the basis of orders already in hand. Thus forward delivery with

“Lonf lead time” is an important feature of shipbuilding contractors. It is not an

unusual phenomenon to sign a contract for one or more ships with deliveries extending

up to 3 or 4 years in to the future.

All these factors make the ship building industry susceptible to several

problems particularly in the areas of planning and scheduling, cost estimate and cost

control, formulating market strategies, diversifications plans and development

programmers on the basis of long range projections, which may go hay wire due to

unforeseen factors. Apart from the above targets are set after discussions with ministry

and ad-hoc task forces, appointed by department of public enterprises base don market

conditions, constraints capacity etc and this an MOU is signed between ministry of

shipping and Hindustan Shipyard Limited. Other factors with play role in non-

achievements of targets:

1. Lack of adequate working capital for completions projects on hand.

2. Lack of adequate series orders

100

3. Low technology design charges.

4. Delayed procurement / receipts of materials.

5. Low productivity.

FINDINGS

The following are the findings of my study:

It is observed that the capacity utilization is increasing year-on-year.

HSL is suffering with funds paucity for working capital.

HSL is suffering with sales tax on the constructed ship.

They implemented ERP but lack of end user training inventory

documentation is not in an efficient manner.

It is observed that the company is increasing in its financial position year –

on-year from 2007-08 on wards with 628.11 Crs.

The inventory levels are in an increasing trend till 2010 and then started

decreasing and now they were at 33165.24 lks for the financial year 2010-11

The net working capital is negative because the current liabilities are more

than currents assets during 2006-07 to 2009-10. But at end with the positive

note increased to 112.03 during the year 2010-11

The raw material turnover ratio which is having a decrease in the last two

years has increased to 1.05 from 0.80 in 2010-11.

The inventory holding period has an increase till 2010 to reach 248.27 and it

end up with 223.60 in 2010-11.

It has been found that due to lack of orders the inventory levels are piling up.

101

SUGGESTIONS

To improve the returns on investments any business organization has either to

increase its sales revenue or to reduce its capital investment. It is not easy to improve

the sales revenue as well as not easy to reduce the fixed capital investment. The

inventory should be utilized in an optimal way. The following are the suggestions for

improvement for performance of Hindustan Shipyard Limited.

To the management of Hindustan Shipyard Limited: -

1. It is observed that the capacity utilization is very low. Hence the management

may search for other avenues for diversified activities to utilize the capacities

optimally.

2. It is observed that the documentation of inventory management through ERP is

not that much of efficient due to lack of end user training to the employees. So

management may concentrate to reduce the overhead expenditure by using the

cost reduction method so as to reduce the losses. Open steel stores may caused

for rusting of plats and iron rods.

3. Whatever the remaining or closing inventory of one project should be utilized

for the next projects.

To the government: -

1. Hindustan Shipyard Limited is suffering with lack of funds for working capital.

The government may provide working capital to meet the day-to-day expenditure.

2. Hindustan Shipyard Limited is suffering with sales tax contributed to further

losses, so the government should take the good decision to reduce sales tax ship

building activity is to be maintained with the national interest subsidy for shipping

should be maintained.

102

CONCLUSIONS

Government should give helping hand to uplift the shipping industry by

providing adequate financial support of facilities to place domestic ship building

orders in Indian shipyards. In the absence of Government help or subsidy the Indian

Shipyard may have to close down. And the not only suppresses industrial growth in the

country, but also the huge investment made in infrastructure and large manpower

engaged in the shipping and ship building industry directly or indirectly will become

idle and pose social, economical and political problems.

BIBLIOGRAPHY

The study gives the valuable input of eminent authors and contains authentic

statements and graphs.

1. Fundamentals of FM - Prasanna Chandra &

I.M.Panday.

2. F.M text & problems - M.Y.Khan & P.K.Jain.

3. ANNUAL REPORTS OF H.S.L. FOR LAST FIVE YEARS.

103

4. OTHER PRINTED LEAFLETS OF H.S.L

5. GENERAL ARTICLES ABOUT THE SHIP BUILDING INDUSTRY.

6. H.S.L WEBSITE

ANNEXURES

Profit & loss account for the year ended 31st March2007

104

Particulars schedule

Year ended 31st

March 2007Year ended 31st

march2006

INCOME:From works other service 8 32762.

7824357. 73

Less: Service Tax & VAT collections

1348. 94

31413. 84

(799. 28)

Other income 9 2653. 69

4696. 72

Accretion to/(Decretion)in work in progress

10 4560. 17

2829. 08

Total 38627. 70

31084. 25

EXPENDITURE:Material consumed 11 19019.

2214453. 49

Sub-contract&off-loaded jobs and other direct expenses

12 8016. 49

4360. 30

Pay and benefits to employees

13 9264. 29

8293. 92

Other expenses 14 1911. 96

1556. 33

Interest&finance charges 15 3469. 67

505. 55

Depreciation 406. 35 407. 15Provisions and losses 16 4514.

711292.

5446602.

6930869.

28(less)Transfer to other accounts

384. 53 221. 58

46218. 16

30647. 70

Profit/(loss) before extra-ordinary & prior period

(7590. 46)

436. 55

105

itemsEXTRA-ORDINARY ITEMSExpenditure under V. R scheme(net of grant-in-aid from Govt. Of. India

4130. 99

0. 00

Prior period adjustment 17 (38739. 86)

(191. 86)

Profit before taxation 27018. 41

628. 41

PROVISION FORFringe benefit tax 18. 03 8. 92Income tax for earlier year(MAT)

3810. 99

0. 00

Interest on MAT of earlier year

3997. 61

0. 00

Deferred tax (assets) (10901. 31)

0. 00

Profit after taxation 30093. 09

619. 49

Balance of loss brought forward from previous year

115715. 94

116335. 43

Balance of loss carried over to next year

85622. 85

115715. 94

Significant accounting policies and notes to accounts schedule 8to17 from integral part of profit and loss account

18

Profit & loss account for the year ended 31st March2008 Particulars sche

duleYear ended 31st March 2008

Year ended 31st

march2007

INCOME:

106

From works & other service

8 38452. 02

32762. 78

(Less) service tax & VAT collections

2036. 96

36415. 06

(1348. 94)

Other income 9 5663. 57

2653. 69

Provisions with drawn 16 2761. 93

44. 79

Accretion to/(Decretion)in work in progress

10 4136. 07

4560. 17

Total 48976. 63

38672. 49

EXPENDITURE:Material consumed 11 22255.

4819. 19.

22Subcontract & off-loaded jobs and other direct expenses

12 8988. 34

8016. 49

Pay and benefits to employees

13 8090. 62

9264. 29

Other expenses 14 2590. 58

1911. 96

Interest & finance charges

15 4450. 96

3469. 67

Depreciation 582. 31 406. 35Provisions and losses 16 873. 48 4559.

5047831.

7746647.

48(less)Transfer to other accounts

445. 22 384. 53

47386. 55

46262. 95

Profit/loss before extra-ordinary & prior period items

1590. 08

(7590. 46)

EXTRA-ORDINARY ITEMSExpenditure under V. R 7. 72 4130.

107

scheme (net of grant-in-aid from Govt. Of. India

99

Prior period adjustment

17 (765. 83)

(38739. 86)

Profit before taxation 2348. 19

27018. 41

PROVISION FORFringe benefit tax 20. 80 18. 03Current year MAT 28. 00 0. 00Less MAT credit entitlement(refer note no. 15)

(28. 00) 0. 00

Income tax for earlier year(MAT)

0. 00 3810. 99

Interest on MAT of earlier year

528. 13 3997. 61

Deferred tax (liability) 665. 72 (10901. 31)

Profit after taxation 1133. 54

30093. 09

Balance of loss brought forward from previous year

85622. 85

115715. 94

Provision liability sick leave as per as 15

252. 38 0. 00

Balance of loss carried over to next year

84741. 69

85622. 85

Nominal value of equity share in Rupees

1000. 00

1000. 00

Earning per share (diluted)in Rupees

41. 00 2088. 00

Significant accounting policies and notes to accounts schedule 8to17 from integral part of profit and loss account

18

108

Profit & loss account for the year ended 31st March2009

Particulars schedule

Year ended 31st

March 2009Year ended 31st

march2008

INCOME:From works & other service

8 39581. 39 38452. 02

(Less) service tax &VAT collections

2867. 68 36713. 71

(2036. 96)

Other income 9 3240. 65

5663. 57

Provisions with drawn

16 574. 03

2761. 93

Accretion to/(Decretion)in work in progress

10 6432. 08

4136. 07

Total 46960. 47

48976. 63

EXPENDITURE:Material consumed 11 26466.

0422255.

48Subcontract & off-loaded jobs and other direct expenses

12 6210. 04

8988. 34

Pay and benefits to employees

13 12693. 05

8090. 62

109

Other expenses 14 3102. 79

2590. 58

Interest & finance charges

15 5049. 13

4450. 96

Depreciation 692. 67

582. 31

Provisions and losses

16 1407. 36

873. 48

55621. 08

47831. 77

(less)Transfer to other accounts

431. 73

445. 22

55189. 35

47386. 55

Profit/loss before extra-ordinary & prior period items

(8228. 88)

1590. 08

EXTRA-ORDINARY ITEMSExpenditure under V. R scheme(net of grant-in-aid from Govt. Of. India

0. 00 7. 72

Prior period adjustment

17 5443. 79

(765. 83)

Profit before taxation

(13672. 67)

2348. 19

PROVISION FORFringe benefit tax 28. 00 20. 80Current year MAT 0. 00 28. 00Less MAT credit entitlement(refer note no. 15)

0. 00 (28. 00)

Interest on MAT of earlier year

656. 77

528. 13

Deferred tax Assets (liability)

(356. 49)

665. 72

Profit after taxation (14000. 95)

1133. 54

Balance of loss 84741. 85622.

110

brought forward from previous year

69 85

Provision liability sick leave as per as 15

0. 00 252. 38

Balance of loss carried over to next year

98742. 64

84741. 69

Nominal value of equity share in Rupees

1000. 00

1000. 00

Earnings per share (diluted)in Rupees

(485) 41. 00

Significant accounting policies and notes to accounts schedule 8to17 from integral part of profit and loss account

18

Profit &loss account for the year ended 31st March2010

Particulars schedule

Year ended 31st

March 2010Year ended 31st

march2009

INCOME:From works &other service

8 61896. 05

39581. 39

(Less) service tax &VAT collections

2325. 50

59570. 55

(2867. 68)

Other income 9 3804. 38 3240. 65Provisions with drawn

16 1555. 82 574. 03

Accretion to/ 10 (1052. 6432. 08

111

(Decretion)in work in progress

80)

Total 63877. 95

46960. 47

EXPENDITURE:Material consumed 11 34457.

3126466.

04Sub-contract & off-loaded jobs and other direct expenses

12 9438. 82 6210. 04

Pay and benefits to employees

13 12989. 27

12693. 05

Other expenses 14 2784. 95 3102. 79Interest & finance charges

15 5241. 55 5049. 13

Depreciation 645. 75 692. 67Provisions and losses

16 1866. 70 1407. 36

67424. 35

55621. 08

(less)Transfer to other accounts

512. 11 431. 73

66912. 24

55189. 35

Profit/loss before extra-ordinary & prior period items

(3034. 29)

(8228. 88)

EXTRA-ORDINARY ITEMSPrior period adjustment

17 345. 98 5443. 79

Profit/loss before taxation

(3380. 27)

(13672. 67)

PROVISION FORFringe benefit tax 0. 00 28. 00Current year MAT - - MAT liability written back

(3186. 15)

0. 00

Interest on MAT of 0. 00 656. 77

112

earlier yearDeferred tax Assets (liability)

(426. 55) (356. 49)

Profit /loss after taxation

232. 43 (14000. 95)

Balance of loss brought forward from previous year

98742. 64

84741. 69

Balance of loss carried over to next year

98510. 21

98742. 64

Nominal value of equity share in Rupees

1000. 00 1000. 00

Earning per share (diluted)in Rupees

8 (485)

Significant accounting policies and notes to accounts schedule 8to17 from integral part of profit and loss account

18

Profit & loss account for the year ended 31st March2011

Particulars schedule

Year ended 31st

March 2011Year ended 31st

march2010

INCOME:From works & other service

8 65214. 44

61896. 05

(Less) service tax &VAT collections

2450. 16

62764. 28

(2325. 50)

113

Other income 9 3403. 15

3804. 38

Provisions with drawn

16 0. 00 468. 93

Accretion to/(Decretion)in work in progress

10 (4829. 50)

(1052. 80)

Total 61337. 93

62791. 06

EXPENDITURE:Material consumed 11 44151.

7634457. 31

Subcontract & off-loaded jobs and other direct expenses

12 7978. 43

9438. 82

Pay and benefits to employees

13 25748. 32

12989. 27

Other expenses 14 2682. 07

2784. 95

Interest & finance charges

15 1434. 64

5241. 55

Depreciation 767. 73 645. 75Provisions and losses

16 7189. 43

779. 81

89952. 38

66337. 46

(less)Transfer to other accounts

427. 85 512. 11

89524. 53

65825. 35

Profit/loss before extra-ordinary & prior period items

(28186. 60)

(3034. 29)

EXTRA-ORDINARY ITEMSGrant-in-aid from Govt. Of. India

45268. 00

0. 00

Prior period adjustment

17 562. 78 345. 98

114

Profit/loss before taxation

16518. 62

(3380. 27)

PROVISION FORCurrent year MAT - - MAT liability written back

0. 00 (3186. 15)

Income tax for the year

4482. 60

0. 00

MAT credit entitlement

(4482. 60)

0. 00

Deferred tax Assets (liability)

0. 00 (426. 55)

Deferred tax (assets)written off

11018. 63

0. 00

Profit /loss after taxation

5499. 99

232. 43

Balance of loss brought forward from previous year

98510. 21

98742. 64

Balance of loss carried over to next year

93010. 22

98510. 21

Nominal value of equity share in Rupees

1000. 00

1000. 00

Earning per share (diluted)in Rupees

182 8

Significant accounting policies and notes to accounts schedule 8to17 from integral part of profit and loss account

18

Balance sheet as at 31st March 2007

115

Particulars schedule

As At 31st

march2007As At 31st

March20061. SOURCES OF FUNDS(1)Shareholders funds(a)Capital 1 14931.

2214431.

22(b)Reserves and surplus

2 9. 50 9. 50

14940. 72

(2)Loans funds(a)Secured loans 3 7046.

84683. 24

(b)Unsecured loans 4 61069. 02

68115. 86

98169. 04

Total

83056. 58

113293. 00

11. APPLICATION OF FUNDS(1)Fixed assets: - 5(a)Gross Block 17754.

9216928.

96(b)Depreciation 13302.

1912998.

54(c)Net Block 4452.

733930.

42(d)capital works in progress

401. 51 52. 29

4854. 24

3982. 71

(2)Deferred tax asset (Refer note no. 11 of schedule 18 B)

10901. 31

0. 00

(3)Current assets, loans & advances

6

(a)Inventories 13205. 73

15537. 71

(b)Sundry debtors 14054. 91

5149. 30

116

(c)cash and bank balances

28169. 94

18419. 69

(d)Other current assets

8191. 36

8979. 83

(e)loans and advances

17198. 20

13813. 79

80820. 14

61900. 32

Current liabilities & provisions

7

(a)current liabilities 82163. 37

61510. 88

16978. 59

6795. 09

99141. 96

68305. 97

Net current assets (18321. 82)

(6405. 65)

(4)Debit balance in profit & loss account

85622. 85

115715. 94

Total 83056. 58

113293. 00

Significant accounting policies and notes to accounts schedules 1 to7 from as integral part of balance sheet

Balance sheet as at 31st March 2008

Particulars schedule

As At 31st

march2008As At 31st

March20071. SOURCES OF FUNDS(1)Shareholders funds(a)Capital 1 28101. 22 14931

. 22(b)Reserves and surplus 2 9. 50 9. 50

117

28110. 72

(2)Loans funds: -(a)Secured loans 3 8977. 54 7046.

84(b)Unsecured loans 4 52472. 47 61450.

0161069

. 02 Total

89560. 73

83056. 58

11. APPLICATION OF FUNDS5

19214. 45

17754. 92

13786. 80

13302. 19

(c)Net Block 5427. 65 4452. 73

(d)capital works in progress

622. 57 401. 51

6050. 22 4854. 24

(2)Deferred tax asset (Refer note no. 11 of schedule 18 B)

10235. 59

10901. 31

(3)Current assets, loans & advances

6

(a)Inventories 25355. 22 13205. 73

(b)Sundry debtors 14805. 34 14054. 91

(c)cash and bank balances

21183. 74 28169. 94

(d)Other current assets 7169. 86 8191. 36

(e)loans and advances 13357. 83 17198. 20

81871. 99 80820. 14

Current liabilities & 7

118

provisions(a)current liabilities 78160. 39 81844

. 9315178. 37 17297

. 0393338. 76 99141

. 96Net current assets (11466.

77)(18321. 82)

(4)Debit balance in profit & loss account

84741. 69

85622. 85

Total 89560. 73

83056. 58

Significant accounting policies and notes to accounts schedules 1

to7 from as integral part of balance sheet

18

Balance sheet as at 31st March 2009

Particulars schedule

As At 31st

march2009As At 31st

March20081. SOURCES OF FUNDS(1)Shareholders funds(a)Capital 1 30199.

2228101.

22(b)Reserves and surplus 2 9. 50 9. 50

30208. 72

(2)Loans funds: -(a)Secured loans 3 6824. 13 8977.

54(b)Unsecured loans 4 55914.

6462738.

7752472.

47 Total

92947. 49

89560. 73

11. APPLICATION OF FUNDS

119

(1)Fixed assets: - 5(a)Gross Block 20860.

8819214.

45(b)Depreciation 14473.

0313786.

80(c)Net Block 6387. 85 5427.

65(d)capital works in progress

515. 96 622. 57

6903. 81 6050. 22

(2)Deferred tax asset (Refer note no. 11 of schedule 18 B)

10592. 08

10235. 59

(3)Current assets, loans & advances

6

(a)Inventories 37215. 31

25355. 22

(b)Sundry debtors 11722. 32

14805. 34

(c)cash and bank balances

11547. 09

21183. 74

(d)Other current assets 3308. 29 7169. 86

(e)loans and advances 12909. 02

113357. 83

76702. 03

81871. 99

Current liabilities & provisions

7

(a)current liabilities 83329. 48

78160. 39

16663. 59

15178. 37

99993. 07

93338. 76

Net current assets (23291. 04)

(11466. 77)

(4)Debit balance in 98742. 84741.

120

profit & loss account 64 69 Total

92947. 49

89560. 73

Significant accounting policies and notes to accounts schedules 1 to7 from as integral part of balance sheet

18

Balance sheet As At 31st March 2010Particulars sched

uleAs At 31st

march2010As At 31st

March20091. SOURCES OF FUNDS(1)Shareholders funds(a)Capital 1 30199. 22 30199.

22(b)Reserves and surplus 2 9. 50 9. 50

30208. 72

(2)Loans funds: -(a)Secured loans 3 9639. 67 6824.

13(b)Unsecured loans 4 59383. 79 69023.

4655914.

64 Total 99232.

1892947.

4911. APPLICATION OF FUNDS(1)Fixed assets: - 5(a)Gross Block 21270. 60 20860.

88(b)Depreciation 14393. 45 14473.

03(c)Net Block 6877. 15 6387.

85(d)capital works in progress

1247. 05 515. 96

8124. 20

6903. 81

121

(2)Deferred tax asset (Refer note no. 11 of schedule 18 B)

11018. 63

10592. 08

(3)Current assets, loans & advances

6

(a)Inventories 47889. 76 37215. 31

(b)Sundry debtors 11006. 61 11722. 32

(c)cash and bank balances

6031. 56 11547. 09

(d)Other current assets 6354. 28 3308. 29

(e)loans and advances 13474. 99 12909. 02

84756. 70 76702. 03

Current liabilities & provisions

7

(a)current liabilities 90317. 83 83329. 48

12859. 73 16663. 59

103177. 56

99993. 07

Net current assets (18420. 86)

(23291. 04)

(4)Debit balance in profit & loss account

98510. 21

98742. 64

Total

99232. 18

92947. 49

Significant accounting policies and notes to accounts schedules 1 to7 from as integral part of balance sheet

18

Balance sheet As At 31st March 2011

122

Particulars schedule

As At 31st

march2011As At 31st

March20101. SOURCES OF FUNDS(1)Shareholders funds(a)Capital 1 30199. 22 30199.

22(b)Reserves and surplus 2 9. 50 9. 50

30208. 72

(2)Loans funds: -(a)Secured loans 3 9319. 82 9639.

67(b)Unsecured loans 4 62767. 25 72087.

0759383.

79 Total

102295. 79

99232. 18

11. APPLICATION OF FUNDS(1)Fixed assets: - 5(a)Gross Block 22636. 81 21270.

60(b)Depreciation 14953. 04 14393.

45(c)Net Block 7683. 77 6877.

15(d)capital works in progress

1240. 07 1247. 05

8923. 84

8124. 20

(2)Deferred tax asset (Refer note no. 11 of schedule 18 B)

0. 00 11018. 63

(3)Current assets, loans & advances

6

(a)Inventories 33165. 24 47889. 76

(b)Sundry debtors 13960. 24 11006. 61

(c)cash and bank balances

30586. 20 6031. 56

123

(d)Other current assets 11050. 27 6354. 28

(e)loans and advances 25401. 88 13474. 49

114163. 83

84756. 70

Current liabilities & provisions

7

(a)current liabilities 85719. 40 90317. 83

28082. 70 12859. 73

113802. 10

103177. 56

Net current assets 361. 73 (18420. 86)

(4)Debit balance in profit & loss account

93010. 22

98510. 21

Total

102295. 79

99232. 18

Significant accounting policies and notes to accounts schedules 1 to7 from as integral part of balance sheet

18

124

125