WORKING CAPITAL MANAGEMENT AND ANALYSIS IN NALCO

Summer Internship Project

Submitted by

SANKHA CHAKRA MAHAPATRA

For the award of the

POSTGRADUATE DIPLOMA IN MANAGEMENT

LOYOLA INSTITUTE OF BUSINESS ADMINISTRATION LOYOLA COLLEGE, CHENNAI JUNE, 2013

ACKNOWLEGEMENTS
Words are indeed inadequate to convey my deep sense of gratitude to all those who have helped me in completing this summer project to the best of my ability. Being a part of this project has certainly been a unique and a very productive experience on my part. I am really thankful to Mr B.K Dash, Assistant General Manager (Finance), at corporate office, NALCO, Bhubaneswar, for making all kinds of arrangements to complete the project successfully and for guiding and helping me to solve all kinds of queries regarding the project work. His systematic way of working and guidance has inspired the pace of the project to a great extent. I would also like to thank my mentor and project coordinator, Mr P.V Alexander, Professor (Finance) for his extended guidance, encouragement, support and reviews without whom this project would not have been a success. This project would not have been successful without the help of Mr S.C Mohanty, AGM (Materials, ERP) and Mr Sudesh Patnaik, Assistant Manager (Materials, ERP) of NALCO for their valuable insights on NALCOs operations.

Last but not least I would like to thank all the employees of NALCO, who have directly or indirectly helped me with their moral support for the completion of my project.

Sankha Chakra Mahapatra

BONAFIDE CERTIFICATE
This is to certify that the Summer Project entitled Working Capital Management at NALCO submitted by SANKHA CHAKRA MAHAPATRA to Loyola Institute of Business Administration (LIBA), Chennai for the award of the Post Graduate Diploma in Business Management is a bonafide record of the work carried out by his under our supervision. The contents of this report in full or in parts have not been submitted to any other Institute or University for the award of any degree or diploma.

The project work has been carried out at NATIONAL ALUMINIUM COMPANY, Bhubaneswar

Date: June 2, 2013 Research Guide

Professor P.V. Alexander

Research Co-ordinator

Mr B.K Dash, Assistant General Manager (Finance), NALCO

EXECUTIVE SUMMARY
KEYWORDS: Working Capital, Inventory, Cash, Inventory forecasting, Cash Budgeting

The project on Working Capital Management has been a very good experience. Every manufacturing company faces the problem of Working Capital Management in their day-today processes. An organizations cost reduced and the profits increased only if it is able to manage its Working Capital efficiently. At the same time, the company can provide customer satisfaction and hence can improve their overall productivity and profitability. The project entitled Working Capital Management and analysis in NALCO deals in this segment. This project is a sincere effort to study and analyse the Working Capital of National Aluminium Company Limited, a Navratna Company. The project focused on making a financial overview of the company by conducting a Working Capital analysis of NALCO group for the years 2007 to 2012 and Ratios & its various components.

Much of the focus has been given to two major components of working capital i.e. inventory and cash. Techniques of inventory planning like inventory forecasting, Reorder level has been studied to understand the criticalities, stocks have in a manufacturing firm. Cash management techniques like cash budgeting has been worked out based on companys past records to understand the importance of having liquid funds.

The internship is a bridge between the institute and the organization. This made me to be involved in a project that helped me to employ my theoretical knowledge about the myriad and fascinating facets of finance. The experience that I gathered over the past eight weeks has certainly provided the orientation, which I believe will help me in shouldering any responsibility in future.

TABLE OF CONTENTS
ACKNOWLEGEMENTS .......................................................................................................... 2 BONAFIDE CERTIFICATE ..................................................................................................... 3 EXECUTIVE SUMMARY ....................................................................................................... 4 LIST OF TABLES ..................................................................................................................... 9 CHAPTER 1: AN INTRODUCTION TO WORKING CAPITAL MANAGEMENT ........... 12 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 WORKING CAPITAL: - .......................................................................................... 12 CONCEPT OF WORKING CAPITAL .................................................................... 14 COMPONENTS OF WORKING CAPITAL ........................................................... 15 DETERMINANTS OF WORKING CAPITAL ....................................................... 16 WORKING CAPITAL IN TERMS OF FOUR COMPONENTS ............................ 17 IMPORTANCE OF WORKING CAPITAL: ........................................................... 18 OPERATING CYCLE OF WORKING CAPITAL .................................................. 19 FINANCING OF WORKING CAPITAL................................................................. 21 Permanent or Fixed Working Capital: ............................................................... 21 Temporary or Variable Working Capital: .......................................................... 21 Security required in Bank Finance ..................................................................... 22

1.8.1 1.8.2 1.8.3 1.9

ESTIMATION OF WORKING CAPITAL MANGEMENT ................................... 23

1.10 IMPORTANCE OF WORKING CAPITAL RATIOS ............................................. 25 CHAPTER 2: COMPANY ANALYSIS ................................................................................. 27 2.1 2.2 2.3 NATIONAL ALUMINIUM COMPANY-AN OVERVIEW ................................... 27 HISTORICAL BACKGROUND .............................................................................. 28 OPERATIONS .......................................................................................................... 29 Bauxite Mines: ................................................................................................... 30 Alumina refinery ................................................................................................ 30 Aluminium Smelter Plant .................................................................................. 31 Captive Power Plant ........................................................................................... 32

2.3.1 2.3.2 2.3.3 2.3.4

2.3.5 2.4 2.5 2.6 2.7 2.8 2.9

Port facility......................................................................................................... 33

PRODUCT MIX OF NALCO .................................................................................. 33 RECENT MILESTONES ......................................................................................... 35 VISION OF NALCO ................................................................................................ 35 MISSION OF NALCO ............................................................................................. 35 NALCO STRATEGIES ............................................................................................ 35 NALCOS PERFORMANCE AT A GLANCE........................................................ 36 Mines.................................................................................................................. 36 Alumina Refinery............................................................................................... 36 Smelter Plant ...................................................................................................... 37 Power ................................................................................................................. 38 Financials ........................................................................................................... 38

2.9.1 2.9.2 2.9.3 2.9.4 2.9.5

2.10 ONGOING EXPANSION PROJECTS .................................................................... 40 2.11 MAJOR PLAYERS .................................................................................................. 41 2.12 TYPE OF MARKET ................................................................................................. 42 CHAPTER 3: OUTLINE OF THE STUDY ............................................................................ 44 3.1 3.2 3.3 3.4 OBJECTIVES OF THE STUDY .............................................................................. 44 SCOPE OF THE STUDY ......................................................................................... 44 TOOLS FOR ANALYSIS: ....................................................................................... 44 LIMITATIONS OF THE STUDY: ........................................................................... 45

CHAPTER 4: ANALYSIS OF WORKING CAPITAL AT NALCO ..................................... 46 4.1 ANALYSIS THROUGH COMPONENTS OF CURRENT ASSETS ..................... 46 Inventory Analysis ............................................................................................. 46 Analysis of Sundry Debtors ............................................................................... 48 Analysis of Cash & Bank Balances ................................................................... 49 Analysis of Loans and Advances ....................................................................... 52 Analysis of Current Investments ........................................................................ 53

4.1.1 4.1.2 4.1.3 4.1.4 4.1.5

4.2

ANALYSIS THROUGH COMPONENTS OF CURRENT LIABILITIES ............. 54 Position of Trade Payables................................................................................. 54 Provision Analysis ............................................................................................. 55

4.2.1 4.2.2 4.3 4.4

ANALYSIS THROUGH NET WORKING CAPITAL OF NALCO ....................... 56 ANALYSIS THROUGH FINANCIAL RATIOS..................................................... 57 Current Ratio ...................................................................................................... 57 Quick Ratio ........................................................................................................ 58 Inventory Turnover Ratio .................................................................................. 59 Creditors Turnover Ratio ................................................................................... 60

4.4.1 4.4.2 4.4.3 4.4.4

CHAPTER 5: INVENTORY MANAGEMENT IN NALCO ................................................. 62 5.1 5.2 5.3 5.4 5.5 5.6 5.7 MATERIAL CLASSIFICATION ............................................................................. 62 SYSTEM OF CODIFICATION................................................................................ 63 SELECTIVE METHODS OF INVENTORY ANALYSIS: ..................................... 64 MATERIALS PLANNING....................................................................................... 68 INVENTORY FORECASTING ............................................................................... 70 RECEIPT OF MATERIALS ..................................................................................... 77 OPERATING CYCLE ANALYSIS OF NALCO .................................................... 78 Raw Material Holding Period ............................................................................ 80 Work In Progress Conversion Period ................................................................ 82 Finished Goods Holding Period ......................................................................... 84 Debtors Conversion Period ................................................................................ 86 Payment Deferral Period .................................................................................... 86 Gross Operating Cycle For Nalco ...................................................................... 87 Cash Cycle of Nalco .......................................................................................... 88

5.7.1 5.7.2 5.7.3 5.7.4 5.7.5 5.7.6 5.7.7

CHAPTER 6: CASH MANAGEMENT SYSTEM IN NALCO ............................................. 90 6.1 6.2 CASH BUDGETING ................................................................................................ 91 NALCOS INVESTMENT OF SURPLUS FUNDS ................................................ 93

6.3 6.4

CASH COLLECTION SYSTEM OF NALCO ........................................................ 94 CASH DISBURSEMENT SYSTEM OF NALCO ................................................... 97

CONCLUSION ...................................................................................................................... 101 RECOMMENDATIONS & SUGGESTIONS ...................................................................... 102 BIBLIOGRAPHY .................................................................................................................. 103 CURRICULUM VITAE ........................................................................................................ 104

LIST OF TABLES
Table 1: Working Capital Ratios ............................................................................................. 26 Table 2: Captive Power Plant Performance, NALCO ............................................................. 38 Table 3: NALCO's Financials for 5 years ................................................................................ 39 Table 4: Major Aluminium Companies in India ...................................................................... 42 Table 5: Inventories, NALCO.................................................................................................. 47 Table 6: Sundry Debtors, NALCO .......................................................................................... 48 Table 7: Cash & Bank Balances, NALCO............................................................................... 50 Table 8: Loans & Advances, NALCO ..................................................................................... 52 Table 9: Investments, NALCO ................................................................................................ 53 Table 10: Trade Payables, NALCO ......................................................................................... 54 Table 11: Provision Analysis, NALCO ................................................................................... 55 Table 12: Net Working Capital of NALCO ............................................................................. 56 Table 13: Current Ratio, NALCO ............................................................................................ 57 Table 14: Quick Ratio, NALCO .............................................................................................. 59 Table 15: Inventory Turnover Ratio ........................................................................................ 60 Table 16: Creditors Turnover Ratio ......................................................................................... 61 Table 17: Master Production Schedule .................................................................................... 71 Table 18: Materials Resource Planning, Caustic Soda ............................................................ 72 Table 19: Production for 2012-13, NALCO ............................................................................ 73 Table 20: Bills of Materials, NALCO...................................................................................... 74 Table 21: Production Target for 2013-14, NALCO................................................................. 74 Table 22: Materials Estimate for 2013-14, NALCO ............................................................... 75 Table 23: Raw Materials Holding Period, M&R ..................................................................... 80 Table 24: Raw Material Holding Period (days) ....................................................................... 81 Table 25: Work in Progress Conversion Period, Alumina Refinery ....................................... 83 Table 26: Work in Progress Conversion Period, Smelter ........................................................ 84 Table 27: Finished Goods Holding Period, Refinery............................................................... 85 Table 28: Finished Goods Holding Period, Smelter ................................................................ 85 Table 29: Payment Deferral Period.......................................................................................... 86 Table 30: Gross Operating Cycle ............................................................................................. 88 Table 31: Cash Conversion Cycle, NALCO ............................................................................ 89 Table 32: Cash Budgeting ........................................................................................................ 93

LIST OF FIGURES

Figure 1: Types of Working Capital ........................................................................................ 14 Figure 2: Operating Cycle........................................................................................................ 20 Figure 3: Aluminium Process Flowchart ................................................................................. 29 Figure 4: Bauxite Mines at Panchpatmali Hills ....................................................................... 30 Figure 5: Alumina Refinery Unit of NALCO .......................................................................... 31 Figure 6: Smelter Unit of NALCO .......................................................................................... 32 Figure 7: Captive Power Plant Unit of NALCO ...................................................................... 32 Figure 8: Ingots ........................................................................................................................ 34 Figure 9: Rolled Aluminium .................................................................................................... 34 Figure 10: 5 years Bauxite Production of NALCO ................................................................. 36 Figure 11: Calcined Alumina sales (MT) of NALCO ............................................................. 37 Figure 12: Aluminium Production and Sales (MT) ................................................................. 37 Figure 13: Inventories, NALCO .............................................................................................. 47 Figure 14: Sundry Debtors, NALCO ....................................................................................... 48 Figure 15: Cash & Bank Balances, NALCO ........................................................................... 50 Figure 16: Term Deposits, NALCO......................................................................................... 51 Figure 17: Current A/C, NALCO ............................................................................................ 51 Figure 18: Loans & Advances, NALCO.................................................................................. 52 Figure 19: Current Investments, NALCO ................................................................................ 53 Figure 20: Sundry Creditors, NALCO ..................................................................................... 54 Figure 21: Provision Analysis, NALCO .................................................................................. 55 Figure 22: Net Working Capital, NALCO ............................................................................... 56 Figure 23: Current Ratio, NALCO .......................................................................................... 58 Figure 24: Quick Ratio, NALCO ............................................................................................. 59 Figure 25: Inventory Turnover Ratio ....................................................................................... 60 Figure 26: Creditors Turnover Ratio........................................................................................ 61 Figure 27: Usage Value for Raw Materials in SAP ................................................................. 65 Figure 28: ABC Analysis ......................................................................................................... 65 Figure 29: Consolidated XYZ Analysis in SAP ...................................................................... 66 Figure 30: XYZ Analysis in SAP ............................................................................................ 66

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Figure 31: Bills of Material for Aluminium metal................................................................... 71 Figure 32: Reorder level .......................................................................................................... 76 Figure 33: Operating Cycle of NALCO................................................................................... 78 Figure 34: Refinery Process flow (Bauxite to Alumina) ......................................................... 79 Figure 35: Smelter Process Flow (Alumina to Aluminium) .................................................... 79 Figure 36: Raw Material Holding Period (days)...................................................................... 81 Figure 37: Raw Material Holding Period, Smelter .................................................................. 82 Figure 38: Work in Progress Conversion Period, Refinery ..................................................... 83 Figure 39: Work in Progress Conversion Period, Smelter....................................................... 84 Figure 40: Finished goods Holding Period, NALCO .............................................................. 85 Figure 41: Payments Deferral Period, NALCO ....................................................................... 87 Figure 42: Gross Operating Cycle ........................................................................................... 88 Figure 43: Cash Conversion Cycle, NALCO .......................................................................... 89 Figure 44: SBI Functioning, NALCO ...................................................................................... 97 Figure 45: Cheque Issue System, NALCO ............................................................................ 100

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CHAPTER 1: AN INTRODUCTION TO WORKING CAPITAL MANAGEMENT

Working capital means that part of the total assets of the business that changes from one form to another form in the ordinary course of business operations. In corporate financial management, the term Working capital management defined as the excess of current assets over current liabilities.

The word working capital is made of two words

1. Working and, 2. Capital

The word working means day to day operations of a business, whereas the word capital means monetary value of all assets of a business.

1.1 WORKING CAPITAL: -

Working capital may be regarded as the life blood of a business. Working capital is of prime importance to internal and external analysis because of its close relationship with the current day-to-day operations of a business. Every business needs funds basically for two purposes. Long term funds are required to create production facilities through purchase of fixed assets such as lands, plants, machineries, buildings, etc. Short term funds are required for the purchase of raw materials, payment of wages, and other day-to-day expenses. It is otherwise known as revolving circulating or capital

In layman terms, it is nothing but the difference between current assets and current liabilities. Working Capital = Current Asset Current Liability.

Businesses use capital for construction, equipment, renovation, machinery, furniture or software. It is also commonly used to purchase inventory and pay wages. Working capital is
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essential for any business to succeed. It is becoming increasingly important to have access to more working capital at times of requirement. If it is weak business cannot prosper and fails to survives. Cash is the lifeline of a company. If this lifeline deteriorates, so does the companys ability to fund operation. Understanding Companys cash flow health is essential to making investment decision. A good way to judge any companys cash flow prospects is to look at its working capital management. The company must have sufficient working capital as needed by the company. It should neither be excessive nor inadequate. Excessive working capital cuisses for idle funds without earning any profit, where as inadequate working capital shows that the company doesnt have enough funds for financing its daily needs. Working capital management involves study of the relationship between firms current assets and current liabilities. The goal of working capital management is to ensure that a firm is able to continue its operation and that it has sufficient ability to meet obligations i.e. both maturing short term debt and upcoming operational expenses. The better a company manages its working capital, the less the company needs to borrow. Even companies with cash surpluses need to manage working capital to ensure those surpluses are invested in ways that will generate suitable returns for investors.

The primary objective of working capital management is to ensure that sufficient cash is available to

Meet day to day cash flow requirements. Pay wages and salaries when they fall due. Pay creditors to ensure continued supplies of goods and services. Pay government taxes and dividends on time. Ensure the long term survival of the business entity.

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1.2 CONCEPT OF WORKING CAPITAL

Figure 1: Types of Working Capital GROSS WORKING CAPITAL: Total current assets Gross working capital refers to the firms investment in current assets. Current assets are the assets which can be converted into cash within an accounting year and includes cash, debtors, short term securities and stock (inventory).

NET WORKING CAPITAL: Change in current assets and current liabilities. Thus, Net Working capital= current assets- current liabilities Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsider which are expected to mature for payment within an accounting year and includes creditors (account payable), outstanding expenses and short term provisions. Net working capital can be positive or negative. A positive net working capital will arise when current assets exceeds current liabilities. A negative net working capital occurs when current liabilities are in excess of current assets. The two concepts of working capital i.e. gross and net are not exclusive. Rather, they have equal significance from the management viewpoint.

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Permanent or fixed working capital: It is the minimum amount which is required to ensure effective utilization of fixed assets and maintaining the circulation of current assets. For example, every firm has to maintain a minimum level of raw material, work-in-progress, finished goods and cash balance. This minimum level of current asset is called permanent or fixed working capital, as this part of capital is permanently blocked in current asset.

Temporary or variable working capital: It is the amount of working capital which is required to meet the seasonal demand and some exigencies. Variable working capital can further be classified as Seasonal working capital: The capital required to meet the seasonal needs of the enterprises is called as seasonal working capital. Special working capital: That part of working capital which is required to meet special exigencies. E.g.: - launching of extensive marketing campaigns for conducting research, etc. Regular working capital: This type of working capital remains always with the enterprise for a successful operation. It supplies the funds required to meet the current working expenses i.e. for purchasing raw material and supplies, payment of wages, salaries and other sundry expenses. Reserve margin working capital: Reserve margin working capital represents the amount utilized at the time of contingencies. Unpleasant events may occur at any time in the life of the business such as inflation, recession, flood, fire, earthquakes, strike, lay off and unavoidable competition, etc. In this case greater amount of capital is required for maintenance of the business.

1.3 COMPONENTS OF WORKING CAPITAL

Current Assets This is any cash equivalents or assets that can be quickly turned into cash. Current assets are assets, which can be converted into cash within an accounting year. Constituents of Current Assets:

Cash in hand and bank balance

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Inventories Trade Receivables Current/Short-term Investments Short term loans and advances

Current Liabilities Current liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year. Constituents of Current Liabilities: Sundry Creditors/ Trade Payables Provisions

1.4 DETERMINANTS OF WORKING CAPITAL

Working capital requirements of a firm depend on a number of factors, each of these should be considered carefully for determining the proper amount of working capital. It may however be added that these factors affect differently to the different units and these keeps changing from time to time. In general, the determinants of working capital which are common to all organizations can be summarized as under: Nature of business Need for working capital is highly dependent the type of business. There are trading firms, which needs to invest a lot in inventories, bills receivables, liquid funds, etc. Public utilities like railways, electricity, etc., need much less inventories and cash. Manufacturing concerns stands in between these two extends. Working capital requirement for manufacturing firms depend on various factors like the products, technologies, marketing policies. Production policies Production policies of an organization effects working capital requirements in a significant way. Seasonal industries, which produces in specific season requires more working capital. Some industries which produce round the year but sale mainly done in some special seasons also need to keep more working capital.

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Size of business Size of business is another factor to determine the need for working capital Length of operating cycle Operating cycle of the firm also influence the working capital in a significant way. Longer the operating cycle, the higher will be the working capital requirement of the organization and vice versa.

Credit policy Companies that follows liberal credit policy needs to keep more working capital with them. Efficiency of debt collection machinery is also relevant in this matter. Credit availability from suppliers also effects the companys working capital requirements. A company which doesnt enjoy a liberal credit policy from its suppliers will have to keep more working capital.

Business fluctuation Cyclical changes in the economy also influence the level of working capital. During boom period, the tendency of management is to pile up inventories of raw materials and finished goods to avail the advantage of rising cost. Similarly, during depression when the prices and demand for manufactured goods constantly fall, the industrial and trading activities reduces. Thus, lowering the demand for working capital.

Current asset policies. The quantum of working capital of a company is significantly determined by its current assets policies. A company with conservative assets policy may operate with relatively high level of working capital than its sales volume. A company pursuing an aggressive amount assets policy operates with a relatively lower level of working capital.

1.5 WORKING CAPITAL IN TERMS OF FOUR COMPONENTS

1. Cash and equivalents: - It is the most liquid form of working capital that requires constant supervision. A good cash budgeting and forecasting system provides answers to key questions such as: Is the cash level adequate to meet current expenses as they come due?, What is the timing relationship between cash inflow and outflow? , When will peak cash needs occur?, When and how much bank borrowing will be

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needed to meet any cash shortfalls?, When will repayment be expected and will the cash flow cover it?.

2. Accounts receivable: - Many businesses extend credit to their customers. If you do, is the amount of account receivables reasonable relative to sales? How rapidly are receivables being collected? Which customers are slow to pay and what should be done about them?

3. Inventory: - Inventory is often as much as 50 % of a firm's current assets, so naturally it requires constant scrutiny. Is the inventory level reasonable compared with sales and the nature of your business? What is the rate of inventory turnover compared with other companies in your type of business?

4. Accounts payable: - Financing by suppliers is common in small business; it is one of the major sources of funds for small businesses. Key questions include, Is the amount of money owed suppliers reasonable relative to what you purchase? , What is your firm's payment policy doing to enhance the credit rating? .

1.6 IMPORTANCE OF WORKING CAPITAL: Working Capital is the life blood and nerve system of any business organization. Just as circulation of blood is necessary in human body to maintain life, working capital is very essential to the business organization for smooth running of the business. No business can run successfully without an adequate working capital. The main advantages of maintaining adequate amount of working capital is as follows:1. Solvency of the business: Adequate working capital helps in maintaining solvency of a business by providing uninterrupted flow of production. 2. Goodwill: Sufficient working capital enables a business concern to make prompt payments to suppliers and hence helps in creating and marinating goodwill. 3. Easy Loans:

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A concern having adequate working capital, high solvency and good credit standing can arrange loans from banks and other financial institutions on easy and favourable terms. 4. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchase and hence it reduces cost. 5. Regular Supply of Raw Materials: Sufficient working capital ensures regular supply of raw materials and continuous production. 6. Regular Payment of Salaries, Wages and Day-to-Day Commitments: A company which has ample working capital can make regular payment of salaries, increase their efficiency, reduces wastage costs and enhances production and profile. 7. Exploitation of Favourable Market Conditions: Firms with adequate working capital can exploit favourable market condition such as purchasing its requirements in bulk when the prices are lower and by holding its inventories during price hikes. 8. Ability to Face Crises: Adequate working capital enables a concern to face business crisis in emergencies such as recession because during such periods, the requirement of working capital escalates. 9. Quick and Regular Return On Investment: Every investor wants a quick and regular return on his investments. Sufficient working capital enables a concern to pay quick dividends to its investors. This gains the confidence of its investors and creates favourable market conditions to raise additional funds in future. 10. High Morale: Adequate working capital creates an environment of securities, confidence and high morale and creates overall efficiency in business.

1.7 OPERATING CYCLE OF WORKING CAPITAL Operating cycle/Cash cycle can be as the heart of the working capital requirement. Cash/operating cycle is the length of time necessary to complete following event. Conversion of cash into raw materials. Conversion of raw materials into work in process. Conversion of work in process into finished goods. Conversion of finished goods into bills receivables through sales.

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Conversion of debtors and bills receivables into cash.

The cycle is a continuous process Each component of working capital (namely inventory, receivables and payables) has two dimensions i.e. TIME and MONEY. When it comes to managing working capital, TIME IS MONEY. If you can get money to move faster around the cycle (collect money due from debtors more quickly) or reduce the amount of money tied up (i.e. reduce inventory level relative to sales). The business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you will have additional idle money available to support additional sales or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you festively create freed finance to help fund future. Cash flows in cycle in and around of a business and every managers primary task is to help, keep it flowing and use the cash flow to generate profits. The shorter the period of operating cycle the larger will be the turnover of the funds invested in various purposes.

Figure 2: Operating Cycle

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1.8 FINANCING OF WORKING CAPITAL 1.8.1 Permanent or Fixed Working Capital: Shares: Issue of shares is the most important source for raising long term capital. A company can issue various types of shares such as equity or preference shares. A company should try to raise the maximum amount by issue of shares. Debentures: A debenture is an instrument issued by a company acknowledging its debt to its holders. The firm issuing debentures enjoys a number of benefits such as trading on equity, retention of benefits, tax controls, etc. Public Deposits: Public Deposits are the fixed deposits by a business enterprise directly from the public. According to The Reserve Bank of India, a non-banking concern cannot borrow by the way of public deposits more than 25% of the paid up capital. Ploughing back of profits: It means the investment by a firm from its surplus earnings in the business. It is an internal source of finance and is more suitable for an established firm for its expansions. Loans: Financing Institutions like commercial banks, Life Insurance Corporation provide short term, long term loans. This source of finance is more suitable to meet the medium term demands of the working capital. 1.8.2 Temporary or Variable Working Capital:

Commercial banks: The different forms of loans provided by commercial banks are as follows: 1. Loans 2. Cash Credit 3. Over-Drafts 4. Purchasing and Discounting of bills.

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Indigenous Bankers: It refers to private money lenders and other country bankers. The interest rates are very high in such cases. Trade Creditors: It refers to the credit extended by the suppliers of goods in the normal course of business. When a firm delays payment beyond the due date, it is called Stretching. Instalment Credit: It is a method by which assets are purchased and the possession of goods is taken immediately but the payment is made in instalment over a period of time. Factoring: A commercial bank may provide finance by discounting the bills or invoice to its customers. Thus a firm gets immediate payment for sale made on credit. A factor is a financial institution, which offers services relating to management and financial debts arising out of credit sales. Commercial Papers: It represents unsecured promissory notes issued by the firms to raise short term funds. The Reserve Bank of India introduced commercial paper on recommendations from VAGHUL COMMITTEE.

1.8.3 Security required in Bank Finance Following are the most important modes of security requirements Hypothecation: Under this agreement, bank provides working capital against the security of moveable property usually inventories. The borrower does not give the possession of the property to the bank. Pledge: Under this agreement the borrower is required to transfer the possession of the property or goods to the bank as security. Mortgage: It is a transfer of a legal or equitable interest in a specific immovable property for the payment of debt. The possession of the property remains with the borrower but the total legal title is transferred to the lender.

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1.9 ESTIMATION OF WORKING CAPITAL MANGEMENT

As discussed above a number of factors are responsible for determining the amount of working capital required by affirm. Let us know discuss the various methods/ technique used in assessment of firms working capital requirements. These methods are:

i.

Estimation of components of working capital method.

This method is based on the basic definition of working capitalizes, excess of current assets over the current liabilities. In other word the amount of different constituent of the working capital such as debtors, cash inventories, creditors, etc. are estimated separately and the total amount of working capital requirement is worked out accordingly.

ii.

Percentage sales method

This is the most simple and widely used method in combination with other scientific methods. According to this method a ratio is determined for estimating the future working capital requirement. This is the generally based on the past experience of management as the ratio varies from industry to industry. For example if the past experience shows that the amount of working capital has been 20% of sales and projected amount of sales for the next year is Rs 10 lakhs, the required amount of working capital shall be Rs 2 lakhs. The above method is merely an estimation based on past experience. Therefore, a lot depends on the efficiency of decision maker, which may not be correct in all circumstances. Moreover, the basic assumptions regarding linear relationship between sales and the working capital may not hold well in all the cases. Therefore this method is not dependable and not universally acceptable. At best, this method gives a rough idea about the working capital.

iii.

Operating cycle approach

The need of working capital arises mainly because of them gap between the production of goods and their actual realization after sales. This gap is technically referred as the operating cycle or the cash cycle of the business. If it were possible to complete the entire job instantaneously, there would be no need for current asset (working capital) but since it is not possible, every business organization is forced to have current asset and hence operating cycle. It may be divided into four stages. 1. Raw materials and stores storage space.

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2. Work in process stage. 3. Finished goods inventory stage. 4. Debtors collection stage. The duration of the operating cycle is equal to sum of the duration of these stages less the credit period allowed by the suppliers of the firm. In symbol OC= R+W+F+DC WHERE OC= Duration of the Operating Cycle R= Raw materials storage periods W= work in process periods. F= finished goods storage periods D= debtor collection period C= Creditors collection period.

Average stock of raw material R= ---------------------------------------------------Average raw material consumption per day

Average work in process inventory W= ---------------------------------------------------Average cost of production per day

Average stock of finished goods F= -----------------------------------------------Average cost of sales per day

Average accounts receivables D= --------------------------------------------------Average credit sales per day

` C=

Average trade creditors -----------------------------------------------------Average trade credit purchase per day

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1.10

IMPORTANCE OF WORKING CAPITAL RATIOS

Ratio analysis can be used by financial executives to check upon the efficiency with which working capital is being used in the enterprise. The following are the important ratios to measure the efficiency of working capital. The following, easily calculated, ratios are important measures of working capital utilization.

Ratios

Formula

Result

Stock Turnover (in days)

Average Stock * 365/ Cost of Goods Sold x days

Receivable s Ratio (in Debtors * days) 365/ Sales x days

Creditors * Payables 365/ Cost Ratio (in of Sales (or days) Purchases) x days

Total Current Assets / Total Current Current Ratio Liabilities x days (Total Current Assets Inventory)/ Total Current Quick Ratio Liabilities x days

Interpretation On average, the firm turns over the value of your entire stock every x days. It may need to break this down into product groups for effective stock management. Obsolete stock, slow moving lines will extend overall stock turnover days. Faster production, fewer product lines, just in time ordering will reduce average days. It takes the firm on average x days to collect money due to firm. If official credit term is 45 day and it takes the firm 65 days. One or more large or slow debts can drag out the average days. Effective debtor management will minimize the days. On average, the firm pays its suppliers every x days. If it negotiates better credit terms this will increase. If it pays earlier, say, to get a discount this will decline. If it simply defers paying your suppliers (without agreement) this will also increase - but the firms reputation, the quality of service and any flexibility provided by suppliers may suffer. The ideal current ratio is 2:1. It indicates that current assets double the current liabilities which are considered to be satisfactory. The higher the current ratio represents that the more liquid and greater the ability of the firm to meet its current liabilities. On the other hand, low current ratio indicates that the liquidity position is not good and it may face difficulties in paying its current liabilities.

The ideal quick ratio is 1:1. As the quick assets are equal to current liabilities then the firm can easily meet all current obligations. Quick assets include all current assets except inventory and prepaid expenses.

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Working Capital Ratio

(Inventory + Receivable s Payables)/ As % A high percentage means that working capital needs Sales Sales are high relative to your sales. Table 1: Working Capital Ratios

26

CHAPTER 2: COMPANY ANALYSIS

2.1 NATIONAL ALUMINIUM COMPANY-AN OVERVIEW Incorporated in the year 1981, NALCO is considered as a critical juncture in the history of Indian Aluminium Industry. NALCO has emerged as a star performer not only in production, export of alumina and aluminium but also in propelling a self-sufficient growth in Indian Aluminium Industry. Started as a Public sector undertaking of the Government of India (87.15% stake), it also holds the crown of Asias largest integrated aluminium complex, congregating bauxite mining, alumina refining, aluminium smelting, aluminium casting, power generation, rail and port facilities. It has units in Odisha at places like Angul (Smelter & Power plant Complex) and Damanjodi (Mining & Refinery Complex). The Bauxite mines known as the Panchpatmalli Mines are situated at the top of set of five mountains called Panchpatmalli. These are open cast mines. The refinery complex for processing and producing bauxite is located in Damanjodi. The smelter plant of NALCO is located at Nalconagar, Angul. The company's headquarters are located in Bhubaneswar, which is the capital of Odisha. NALCO has undertaken a capital expenditure programme of Rs.41 billion to expand aluminium production capacity from 345,000 tonnes to 460,000 tonnes, and also to expand the capacity of its mining, refining and power generation units.

Nalco has also spent more than Rs. 100 crores towards various corporate social responsibility activities. Creation of infrastructure in the peripheral villages for health care, communication, education and drinking water gets priority in the periphery development plans of the company. Community participation in pisciculture, innovative farming, social forestry and sanitation programmes apart, encouragement to arts, culture, sports and literature are all a part of Nalco's involvement with the life of the community. Successful operational units of the company have led to employment and income generation for the localities in many significant ways. NALCO had bagged numerous prestigious awards and recognitions to its credit. One of them was achieved in the field of afforestation and wasteland development i.e. Indira Priyadarshini Vrikshamitra Award from Govt. of India. The 1200 MW Captive Thermal Power Plant of the
27

Company also received the prestigious Indira Gandhi Paryavaran Puraskar ,2000 from Govt. of India for its remarkable contributions in the field of environment management. Besides these, the Company and its plants have received distinct National, State and Institutional awards for excellence in Safety & Environment practices. Nalco has also received ISO 9001:2000 awards and OHSAS 140001 for its eminence in production technology & occupational health & safety systems respectively.

2.2 HISTORICAL BACKGROUND The history of NALCO is deep rooted with the benevolence of benign mother earth and in the indomitable spirit of man. It took years for the prospectors to discover over 1000 million tonnes of bauxite reserve in the hostile wilderness of Eastern Ghats in 1975. India moved forward to the 5th rank in the world bauxite with a total estimation of 2900 million tons. The Government of India on 28th March, 1978 went into contract with Aluminium Pechiney of France to produce a feasibility report on commercial exploitation of bauxite for foundation of an integrated Aluminium complex. Feasibility report focuses on Panchapatmali (which means five flat-top hills in local dialect), located at 30 km east of Koraput district of Orissa and 130 km north of Vishakhapatnam port, containing the single largest reserve of 310 million tonnes of bauxite of enormous potential. In May 1980, Bharat Aluminium Company Limited (BALCO), the forerunner in public sector Aluminium industry, put forward the Orissa Aluminium proposal to the Government of India. The Government takes the ponderous investment decision on 1 November 1980. Thus National Aluminium Company, truly a national venture gets incorporated on 7 January 1981 to implement one of the largest multilocation integrated Aluminium projects of the world with its own captive power unit and port facilities. With the technical collaboration of aluminium Pechiney of France, Euro Dollar loan from a consortium of international banks and the special provision of the govt. of India and the govt. of Orissa helped the company to implement the project within the budgeted expenditure of Rs 2408 crores, under very difficult logistics of project management. Different units of the company went into production in a phased manner starting from November 1985. Within a short duration of time, the company has emerged as a leader in the field of aluminium production in the country and also has made significant impact abroad. In a major leap forward, Nalco has not only addressed the need for self-sufficiency in aluminium, but
28

also given the country a cutting edge technology in producing this strategic metal to the best of world standards. 2.3 OPERATIONS Registered officeBhubaneswar Bauxite mine..Panchpatmali Aluminium refinery............................Damonjodi Aluminium smelter..Angul Captive power power plant.Angul Port facilities....Visakhapatnam Rolled product unit......Angul

Figure 3: Aluminium Process Flowchart

Raw Materials: The primary raw materials required for the manufacture of aluminium includes Bauxite Caustic soda Calcined petroleum coke Coal tar pitch and
29

LS/FS furnace oil.

The mined bauxite ore is mixed in proportionate with caustic liquor and is refined to produce alumina. This is then smelted (through electrolysis in a smelter) to produce aluminium. Depending on the quality of bauxite, generally 3 tonnes are required for manufacture of 1 tonne of alumina. In general, 2 tonnes of alumina are required to manufacture 1 tonne of aluminium. 2.3.1 Bauxite Mines:

Nalco has an estimated 1,600 million tonnes of bauxite reserves located at only 20 kms from its alumina refinery, enabling it to become one of the most economical bauxite manufacturers in the world. A fully mechanized open-cast mine of 4800000 MT, on Panchpatmali hills of Koraput district in Odisha, serves as a feed-stock to the Alumina Refinery located at Damanjodi, situated 16 km downhill. The transportation is done through a 14.6 km multi-curved cable conveyor belt of 1800 tph capacity. The mining capacity has been expanded to 6300000 MT.

Figure 4: Bauxite Mines at Panchpatmali Hills

2.3.2 Alumina refinery

The 15,75,000 MT Alumina Refinery, consisting of three parallel streams of equal capacity, is located in the quaint valley of Damanjodi in Koraput district. It is in operation since

30

September, 1986, the Refinery is setup to provide Alumina to the Company's Smelter unit at Angul and export the balance Calcined Alumina to overseas markets via Visakhapatnam Port.

Presently, the capacity has been expanded to 21,00,000 MT. The salient features:

Digestion process with atmospheric pressure. Higher productivity with Pre-desilication and inter-stage cooling. Reduced energy consumption with fluidised bed calciners. Co-generation of 3 x 18.5 MW power by usage of back pressure turbine in steam generation plants.

Figure 5: Alumina Refinery Unit of NALCO

2.3.3 Aluminium Smelter Plant

The 3450,000 MT capacity Aluminium Smelter is situated at Angul, Orissa. Based on energy efficient cutting edge technology of smelting and pollution control, the Smelter Plant is under operation since 1987. Presently, the capacity is under expansion to 4600,000 MT. With the acquisition and eventually merger of International Aluminium Products Limited (IAPL) with Nalco, the 50,000 MT export-oriented Rolled Products Unit is all set to produce foil stock, can stock, fin stock, coil stock, circles, cable wraps, standard sheets and coils. The salient features :

Digestion process with atmospheric process.

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Inter-stage cooling to achieve higher productively.

Co-generation of 3818.5 MW power by using back pressure turbine in steam generation plant.

Figure 6: Smelter Unit of NALCO 2.3.4 Captive Power Plant

Situated close to Aluminium Smelter at Angul, a Captive Power Plant with 960 MW capacity, comprising of 8 x 120 MW clusters, has been commissioned for firm supply of power to the Smelter unit. Presently, the capacity is under expansion to 1200 MW.

Figure 7: Captive Power Plant Unit of NALCO

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The water required for the plant is drawn from Brahmani river through a 7 km long twin circuit pipeline. The coal requirement is met from a mine of 3.5 MT capacity commissioned for Nalco at Bharatpur in Talcher by authorities of Mahanadi Coalfields Ltd. The Power Plant is inter-connected with the State grid power supply. Nalcos production costs are one of the lowest globally and it has the advantage of 100% captive power, essential in a power intensive industry and in a power deficit nation like India.

The salient features: Optimal thermal efficiency by Micro-processor based burner Management system. On-line monitoring by Computer controlled data acquisition system. Automatic turbine run-up system. Specially designed turbine with high pressure.

2.3.5 Port facility

On the Northern phase of inner Harbor of Vishakhapatnam port located on the Bay of Bengal, Nalco has setup mechanized storage & ship handling facilities for exporting Alumina in bulk & importing Caustic Soda from overseas market.

The salient features: Maximum ship size- 35000 DWT Alumina reception- 48*53 tone pay-load wagons Alumina storage- 3*25000 tonnes RCC silos Ship loading rate- 2200tph

2.4 PRODUCT MIX OF NALCO CAST ALUMINIUM METAL Sows ingots Billets Wire rods Cast strips

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Figure 8: Ingots ALUMINA Calcined Alumina Alumina Hydrate ZEOLITE-A SPECIAL PRODUCTS Speciality hydrate/alumina (alumina chemicals) Rolled products Aluminium rolled products

Figure 9: Rolled Aluminium

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2.5 RECENT MILESTONES 2004: Nalco open offer to acquire 20% stake for Ondeo Nalco India. 2005: Agreement with NMDC. 2006: 2nd Best Practice in Environment, Safety & Health in industries of Odisha award by CII-ER to CPP -2006. 2007: Best Environment Management Award to CPP for 2007. Best Performance in Safety management, Accident Prevention & communication System to CPP for 2007. 2008: Pollution Control Excellent Award 2008 to Panchpatmali Bauxite Mines from State Pollution Control Board, Bhubaneswar. 2009: 2nd Best Practice in Environment Management instituted by Confederation of Indian Industry (CII) to Alumina Refinery for 2008-09. Pollution Control Excellence Award, 2009, by OSPCB to Alumina Refinery. 2011: Nalco signs JV agreement with NPCIL for nuclear plant. 2012: NALCO Bags Dun & Bradstreet Best PSU Award. 2013: NALCO Achieves Highest-Ever Turnover & Foreign Exchange Earnings 2.6 VISION OF NALCO To be a reputed global company in the metals and energy sectors

2.7 MISSION OF NALCO To achieve growth in business with global competitive edge providing satisfaction to the customers, employees, shareholders and community at large. 2.8 NALCO STRATEGIES To bring in committed personnel with growth potential and develop their skills and capabilities in congenial work and social environment through opportunity for training, development, career advancement and incentives.

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To develop the favourable attitude among the employees and to obtain their best construction to the organization by providing stable employment, safe working conditions job satisfaction, reduce grievance through good pay and welfare amenities commensurate with company capacity to spend in accordance with government guidelines. To promote fellowship and sense of belongingness among all section of employees through closer association of employees with the management and by encouraging healthy trade union practices. 2.9 NALCOS PERFORMANCE AT A GLANCE 2.9.1 Mines The National Aluminium Company Ltd. (Nalco) has achieved the highest-ever bauxite production of 50.03 lakh tonnes in 2011-12, against the earlier best of 48.79 lakh tonnes in 2009-10.
5100 5000 4900 4800 4700 4600 4500 2007-08 2008-09 2009-10 Production in MT 2010-11 2011-12 4684 4700

Bauxite Production (MT)

4878 4824

5002

Figure 10: 5 years Bauxite Production of NALCO

2.9.2 Alumina Refinery

The Alumina refinery of NALCO produced 16.87 lakh tonnes of alumina hydrate against 15.56 lakh tonnes produced previous financial year. The unit achieved the alumina hydrate sale of 842,396 tonnes, against 681,917 in the year 2010-11.

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Calcined Alumina Performance (MT)

Production Sales Internal Consumption

1575

1576

1591

1556

1687

871.3 703.7

872.9 703.1

862.96 728.04

888.5 667.5

858.9 828.1

2007-08

2008-09

2009-10

2010-11

2011-12

Figure 11: Calcined Alumina sales (MT) of NALCO 2.9.3 Smelter Plant

During the year, the metal production of the company dropped marginally from 4.44 lakh tonnes to 4.13 lakh tonnes. Besides coal shortage, the dwindling LME (London Metal Exchange) prices of metal, forced the company to slump its production of metal to some extent. Nalco also recorded 415,916 tonnes of cast metal sale, against 438,952 tonnes in the year 2010-11. Aluminium export by the company was recorded at 98,399 tonnes this year, against 98,200 tonnes accounted in the last financial year.

Aluminium Production (Metric Tonnes)

500 400 300 200 100 0 431 360 252 101.7 2007-08 361 271 82.3 2008-09 Production 289 146.9 2009-10 Export sales

443 341

413 317 98.4 2011-12

98.2 2010-11 Domestic sales

Figure 12: Aluminium Production and Sales (MT)

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2.9.4 Power

Year Production (MU) Sales (MU) Internal Consumption(MU)

2007-08 5609 129 5480

2008-09 5541 81 5460

2009-10 6293 15 6278

2010-11 6608 56 6552

2011-12 6200 16 6184

Table 2: Captive Power Plant Performance, NALCO The energy-intensive aluminium production at Nalco's facilities dropped as annual power generation fell to 6,200 million units from the last year's 6,608 million units. Power generation and subsequently metal production were down due to lower than contractually linked supply of coal, resulting in shut down of 10 % of smelting capacity. 2.9.5 Financials

The current aluminium price of around $2100 a tonne on LME allows the company to recover all its variable costs in full. In the domestic market, Nalco charges a premium over LME-linked (between $90 and $100 per tonne) and currency-adjusted price for aluminium. Despite increase in the income from Rs. 5,959 Crores during 2010-11 to Rs.6,500 Crores during 2011-12, the profit after tax (PAT) has gone declined from RS. 1,069 Crores (201011) to Rs 850 Crores (2011-12) due to increase in operating cost. The operating expenses were more by about RS. 1,003 Crores during the year over the previous year mainly because of increase in prices of various raw materials, impact of non-executive pay revision and rise in volume of production at Refinery. The details of financial performance is provided below: (Rs. in Crores)

Sl. A 1 2 3 4 5

Particulars (in Crores) Income Statement: Exports Domestic Sales Gross Sales (1+2) Less: Excise Duty Net Sales (3-4)

2007-08

2008-09

2009-10

2010-11

2011-12

2134 3340 5474 485 4989

2085 3446 5531 423 5108

2209 3101 5310 256 5054

2065 4305 6370 411 5959

2569 4358 6927 427 6500

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6 7 8 9 10 11 12 13 14 15 16 17 18

Other Income: Operating Non-operating Operating expenses Operating Profit (5+7-9) Exceptional Expenditure Earnings before interest, dep. & taxes(EBIDT)(10+8-11) Interest & Financing Charges Earnings before dep. & taxes(EBDT)(12-13) Depreciation and Amortisation Profit before tax(PBT)(14-15) Provision for tax Net Profit (PAT)(16-17) 2754 2 2752 285 2467 835 1632 2204 4 2200 273 1927 655 1272 1476 2 1474 319 1155 341 814 1946 422 1524 455 1069 1946 146 441 2822 2313 123 400 3427 1804 119 374 4071 1102 98 353 4464 1593 112 542 5467 1145 22 1665 1 1664 467 1198 348 850

B 19 20 21 22 23 24 25

Balance Sheet Equity Capital Reserves & Surplus Net worth (19+20) Loans Net Fixed Assets Working Capital Capital Employed (23+24) 3531 3500 7031 4032 2596 6628 644 8230 8874 644 9126 9770 644 9751 10395 9 4836 2998 7834 1289 9876 11165 15 5494 3304 8798 6612 4193 10805 1289 10426 11715

C 26 27 28 29 30

Ratios: Operating Profit Margin (OPM) (%)(10/5*100) Net Profit Margin (%) (18/5*100) Return on Capital Employed (ROCE) (%) (18/25*100) Return on Net Worth (RONW) (%) (18/21*100) Debt Equity (21/20) 46.36 32.71 23.21 18.39 35.32 24.9 19.19 13.02 21.8 16.11 10.39 7.83 26.73 17.94 12.15 9.57 17.62 13.07 7.86 7.25

D 31 32 33

Others Book value per share of Rs 5 each (in Rs.) Earnings per share (in Rs.) Dividends (Rs. Per Share) 34.43 6.33 6 37.91 4.94 5 40.34 3.16 2.5 43.32 4.15 2.5 45.46 3.3 1

Table 3: NALCO's Financials for 5 years

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Dividends and Appropriations: NALCO paid an Interim Dividend for the year 2011-12 @ Rs. 0.90 per share (18%) in March, 2012. The Board of Directors have recommended payment of final dividend @ Rs. 0.10 per share (2%) making aggregate of RS. 1.00 per share (20%) for the year 2011-12 as against Rs. 2.50 per share (Rs.2 per pre-split and bonus share of Rs. 10 each (10%) as interim dividend and Rs.0.50 per post-split and bonus share of Rs. 5 each (10%) as final dividend) paid for the previous year 2010-11. The Directors have recommended a lower rate of dividend keeping in view the falling profit margins due to slow down of global economy affecting industrial growth and also keeping in view the requirement of funds for the growth projects under consideration by your Company. The final dividend will be paid after shareholders approval in the Annual General Meeting.

2.10

ONGOING EXPANSION PROJECTS

1. Alumina Refinery- Upgradation Project

Capacity expansion of 4th Stream of Alumina Refinery from 5.25 lakh tonnes/year to 7.0 lakh tonnes/year and that of Bauxite Mines from 6.3 million tonnes/year to 6.825 million tonnes/year at an estimated project expenditure of Rs. 409 Crores is in progress. Total progress up to 81% has been achieved. The project is scheduled to start during the duration of current financial year.

2. Utkal- E Coal Block

Utkal- E Coal Block project at an estimated cost of Rs. 337.61 Crores is in progress, it contains reserve of around 67.49 million tonnes. Almost all statutory permissions have been cleared. Activities for acquisition of Government as well private land and construction of rehabilitation colony are at hand.

3. 3rd Phase Expansion Project

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NALCO has initiated activities for 3rd Phase brown field expansion at existing facilities at Angul and Damanjodi, in Odisha at a capital investment of Rs. 7,500 Crores.

4. 50 MW Wind Power Plant

In pursuit of endeavour to harness the potential in renewable energy sources, company has approved the investment of RS. 274 Crores for setting up 50 MW Wind Power Plant in Andhra Pradesh. Equipments manufacturing has been completed and has reached the site. Stage-2 Forest Clearance for the Project is being pursued with Ministry of Environment & Forests for commissioning of the unit.

5. Nuclear Power Plant in Joint Venture

Your Company has entered into joint venture with Nuclear Power Corporation of India Ltd. for setting up of 1400 MW nuclear power plant in Gujarat at an estimated cost of Rs. 11,459 Crores. NALCOS present equity share is 26% and the same would be increased to 49% after approval of the Government of India.

2.11

MAJOR PLAYERS

India is considered to be the fifth largest producer of Aluminium in the world. It accounts to around 5% of the total deposits and produces about 0.8 million tons of aluminium. India has confirmed 3 billion tonnes of Bauxite reserves out of the global reserve of 65 billion tonnes. The worldwide alumina production competence is around 58 million tonnes in which India has 2.7 million tonnes. Most of the bauxite mines lie in Bihar, Karnataka and Orissa. The Indian aluminium sector is characterised by large integrated players like HINDALCO and National Aluminium Company (NALCO). The other producers of primary aluminium include Indian Aluminium (INDAL), now merged with Hindalco, Bharat Aluminium (BALCO) and Madras Aluminium (MALCO) the erstwhile PSUs, which have been acquired by Sterlite Industries. Consequently, there are only three main primary metal producers in the sector namely Balco (Vedanta), National Aluminium Company (Nalco) and Hindalco (Aditya Birla Group).

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Companies HINDALCO STERLITE INDUSTRIES NALCO

Capacity (Ktpa) 471 385 345

Market Share 42% 23% 21%

Table 4: Major Aluminium Companies in India Hindustan Aluminium Company (HINDALCO) Hindalco Industries Limited, a flagship company of the Aditya Birla Group, is structured into two strategic businesses aluminium and copper with annual revenue of US $14 billion and a market capitalization in excess of US $ 23 billion. Established in 1958, Hindalco commissioned its aluminium facility at Renukoot in eastern U.P. in 1962 and has today grown to become the country's largest integrated aluminium producer and ranks among the top quartile of low cost producers in the world. The aluminium division's product range includes alumina chemicals, primary aluminium ingots, billets, wire rods, rolled products, extrusions, foils and alloy wheels. It enjoys a domestic market share of 42 per cent in primary aluminium, 63 per cent in rolled products, 20 per cent in extrusions, 44 per cent in foils and 31 per cent in wheels. Sterlite Industries Ltd (Vedanta) Sterlite Industries Aluminium business comprises of two operating companies, BALCO and MALCO. BALCO is a partially integrated aluminium producer with two bauxite mines, one refinery, two smelters, a fabrication facility and two captive power plants at Korba in central India. MALCO is a fully integrated producer with two bauxite mines, a captive power plant and refining, smelting and fabrication facilities at Mettur in southern India. The primary products are aluminium ingots, rods and rolled products. The smelters at BALCO and MALCO produced 380,000 tonnes in FY 2007, marginally higher than the rated capacity. The parent company Vedanta is coming up with a 5 lakh ton smelter in Jharsuda, Orissa. The project is in advance state and is expected to be operational by the year 2009.

2.12

TYPE OF MARKET

The primary Aluminium production market in India is an oligopolistic market. The primary aluminium is a homogenous product. As the product is homogenous we can term the market as Pure Oligopoly. Though there are some grades in aluminium based on aluminium concentration like EC (Electrical conductivity) Grade, etc. but there are very less difference

42

in the quality of the product. There is little or no gap between the demand and supply as the supply just matches the demand. Moreover there is a huge demand from countries like china hence there is no constraint on the number of consumers. There are only 3 players in the aluminium market in India with total production of 1450 KT in 2013. The entry into market is possible but not easy due to the heavy initial capital that is required to setup the plant. As aluminium is a homogenous product there is no price war between the three players and these firms are price takers. Though the company sells the product at price which is decided by them, the firms mostly go by the price on the London Metal Exchange (LME). In the Indian aluminium industry all the firms are price takers and there is no clear leader as all the 3 firms have almost equal market share. The price is decided by demand and supply in the commodity market.

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CHAPTER 3: OUTLINE OF THE STUDY

The management of working capital is very important. It involves the study of day-to-day affairs of the company. The motive behind the study is to develop an understanding about the working capital management in the running business organization and to help the company in developing the efficient working capital management. Therefore, it helps in future planning and control decisions.

3.1 OBJECTIVES OF THE STUDY The objectives of the study are as follows: To analyse the working capital of the company. To determine the gross and net operating cycle of each units at NALCO. To know the future needs of working capital in the running organization. To render recommendations for the effective management of working capital.

3.2 SCOPE OF THE STUDY The study is conducted at NALCO, Corporate Office, Bhubaneswar for a period of 8 weeks. The study of Working Capital management is purely based on secondary data and all the information is available within the company itself in the form of records. To get proper understanding of this concept, I have done the study of NALCOs last 5 years annual report. I have also conducted the interviews with employees of finance, accounts, materials and ERP department. So, scope of the study is limited up to the availability of official records and information provided by the employees.

3.3 TOOLS FOR ANALYSIS: The following tools have been used for analysing the data. 1) Analysis through Working capital ratios. 2) Analysis through Gross operating cycle & Net Operating cycle. 3) Analysis through various components of working capital.
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4) Inventory Forecasting 5) Cash Budgeting 3.4 LIMITATIONS OF THE STUDY: Following are the limitations of this project:

1. The company has not finalized accounts for the financial year 2012-2013 during period of study as a result of which the present year figures of the balance sheet and profit and loss accounts are not available. 2. It is mainly a secondary data based report and secondary data has its own limitations. 3. The company does not show their cost & operating accounts to any research students. 4. The interpretations of ratios require great caution and expertise as it misleading in some cases. 5. Due to the tight schedule of managers, there are some difficulties for trainees to get cooperation and attention.

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CHAPTER 4: ANALYSIS OF WORKING CAPITAL AT NALCO

4.1 ANALYSIS THROUGH COMPONENTS OF CURRENT ASSETS 4.1.1 Inventory Analysis Inventories constitute the most significant part of current assets of a large majority of companies in India. On an average, inventories are approximately 60 % of current assets in public limited companies in India. Because of the large size of inventories maintained by firms, a considerable amount of funds is required to be committed to them. It is, therefore very necessary to manage inventories efficiently and effectively in order to avoid unnecessary investments. 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 at considerable degrees, without any adverse effect on production and sales, by using simple inventory planning and control techniques.

Need to Hold Inventories:-

There are three general motives for holding inventories:1) Transaction motive emphasizes the need to maintain inventories to facilitate smooth production and sales operation. 2) Precautionary motive necessities holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. 3) Speculative motive influences the decision to increases or reduce inventory levels to take advantage of price fluctuations and also for saving in re-ordering costs and quantity discounts, etc. Inventory is total amount of goods and materials. Inventory means stock of Raw materials Semi-finished goods. Finished goods. Stores & Spares Scrapes & Unserviceable materials

46

Particulars(in Crs.) Raw materials W.I.P Finished goods Stores & Spares Scraps Materials Inventory (all items) Inventory (RM, WIP, FG) & Unserviceable

2007-08 65.59 164.89 102.04 338.44

2008-09 64.96 230.99 131.91 430.69

2009-10 64.57 208.94 142.06 511.54

2010-11 105.3 219.71 214.72 522.4

2011-12 125.42 270.83 169.63 629.98

15.69 686.65 332.52

14.95 873.5 427.86

17.81 944.92 415.57

8.87 1071 539.73

16.84 1212.7 565.88

Table 5: Inventories, NALCO

Inventory (in Crs.)

1400 1200 1000 800 600 400 200 0 2007-08 2008-09 2009-10 Inventory (all items) 2010-11 2011-12 686.65 873.5 944.92 1071 1212.7

Figure 13: Inventories, NALCO Inventory forms 15% to 20% of working capital for all the 5 years. By analysing the 5 years data we see that the inventories have increased year by year. By looking at the graph, we can say that inventories have grown by 70% from 2007 to 2011. By this growth we can say that NALCO is growing very rapidly in aluminium sector. A company uses inventory when they have demand in market and NALCO is having a great demand in aluminium sector. There was a great demand for aluminium globally in the year 2008 due to which there was an increasing trend in sales which was the biggest reason for increase in inventories. From other point of view we can say that the liquidity of firm is blocked in inventories but to stock is very good due to uncertainty of availability of raw material in time. This has been proved

47

because in the year 2009, due sharp fall in global economy there was a decrease in demand for alumina and aluminium and thus there was a marginal fall in inventories compared with the previous year 2008. Economic Conditions and markets for most of commodities improved considerably in comparison to pre-global recession levels in 2009 showing an increase in demand for aluminium and alumina. 4.1.2 Analysis of Sundry Debtors

Debtors or an account receivable is an important component of working capital and fall under Current assets. Debtors will arise only when credit sales are made.

Particulars(in Crs.) Sundry Debtors

2007-08 60.5

2008-09 26.5

2009-10 181.78

2010-11 112.4

2011-12 139.09

Table 6: Sundry Debtors, NALCO

Sundry Debtors (in Crs.)

200 150 100 50 0 2007-08 2008-09 2009-10 2010-11 2011-12 60.5 26.5 181.78 139.09 112.4

Sundry Debtors

Figure 14: Sundry Debtors, NALCO

Sundry debtors occupy very small portion of the working capital. It is nearby 1% to 2% for the last 5 years. In the table and figure, we see that there are continuous variations in the debtors of NALCO in five successive years. A simple logic is that debtors increase only when

48

sales increase and if sales increases it is good sign for growth. We can see that in the year 2008 the Debtors are at minimum level and the company has invested this money in 2nd and third expansion. We can say that it is a good sign as well as negative also. Company policy of debtors is very good as a risk of bad debts is always present in high debtors Moreover, in next year in 2009 the debtors has increased more than 500%, this was because of slowdown in global economy and inability of consumers to pay money. Although the company is able to decrease its debtors in the next successive years which is very good for NALCO.

4.1.3 Analysis of Cash & Bank Balances

Cash is the important current asset for the operation of the business. Cash is the basic input needed to keep the business running in the continuous basis, it is also the ultimate output expected to be realized by selling or product manufactured by the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firms manufacturing operations while excessive cash will simply remain ideal without contributing anything towards the firms profitability. Thus a major function of the financial manager is to maintain a sound cash position. Cash is the money, which a firm can disburse immediately without any restriction. The term cash includes coins, currency and cheques held by the firm and balances in its bank account. Sometimes near cash items such as marketing securities or bank term deposits are also included in cash. Generally when a firm has excess cash, it invests it is marketable securities. This kind of investment contributes some profit to the firm. The firms need to hold cash may be attributed to the following three motives: The Transaction Motive: The transaction motive requires a firm to hold cash to conduct its business in the ordinary course. The firm needs cash primarily to make payments for purchases, wages and salaries, other operating expenses, taxes, dividends, etc. The Precautionary Motive: A firm is required to keep cash for meeting various contingencies. Though cash inflows and outflows are anticipated but there may be variations in these estimates. For example a debtor who pays after 7 days may inform of his inability to pay, on the other hand a supplier who used to give credit for 15 days may not have the stock to supply or he may not be in opposition to give credit at present.

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Speculative Motive: - The speculative motive relates to the holding of cash for investing in profit making opportunities as and when they arise. The opportunities to make profit changes. The firm will hold cash, when it is expected that interest rates will rise and security price will fall.

Particulars In Current A/C Term Deposits Unpaid Dividend Account Unpaid Debenture Interest Cash on Hand including stamps Cheques, Drafts in Hand Cash & Bank (Total)

2007-08 38.06 3476.33 0.93 0.39 0.13 0.62 3516.46

2008-09 12.96 2854.41 0.92 0.34 0.18 0.23 2869.04

2009-10 5.1 3144.6 2.17 0.31 0.17 0 3152.35

2010-11 2.47 3791.63 0.85 0.11 0.17 0 3795.23

2011-12 3.18 4161.18 3.82 0 0.17 0 4168.35

Table 7: Cash & Bank Balances, NALCO

Cash & Bank (in Crs.)

5000 4000 3000 2000 1000 0 2007-08 2008-09 2009-10 Cash & Bank 3516.46 2869.04 3152.35

3795.23

4168.35

2010-11

2011-12

Figure 15: Cash & Bank Balances, NALCO

Cash and bank balances occupy a major part of the working capital. It is 70% of the working capital in the year 2007, 63% in the year 2008, it is 61% in the year 2009 & it is 63% in the year 2010. NALCO maintains a centralized cash management system so the cash

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management is very good in NALCO. NALCO has a certain good amount of cash and bank balances at hand throughout 5 years, and the company is utilizing this fixed cash for exploding the Projects of 2nd and 3rd expansion in the year that is good for growth.

Term Deposits (in Crs.)

5000 4000 3000 2000 1000 0 2007-08 2008-09 2009-10 3476.33 2854.41 3144.6

3791.63

4161.18

2010-11

2011-12

Term Deposits

Figure 16: Term Deposits, NALCO

Current A/C (in Crs)

38.06 40 30 20 10 0 2007-08 2008-09 2009-10 2010-11 2011-12 In Current A/C 12.96 5.1 2.47 3.18

Figure 17: Current A/C, NALCO

There was an increase in term deposits and decrease in current accounts which has resulted in increase of interest income.

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4.1.4 Analysis of Loans and Advances

In their day-to-day activities companies are required to make advance payments of expenses, pay to the suppliers in advance, provide loans and advances to associate, subsidiary or holding companies, subscribe to investments in securities pending allotment, extend advances and loans to their employees (known as Advances Recoverable in Cash or in Kind or for Value to be Received), provide securities to various government departments like excise, pay advance income tax which may exceed the actual provision, or park their short-term surplus in call money or inter-corporate deposits, which are included here and known as loans and advances. They can be secured as well as unsecured which need to be disclosed.

Particulars Loans & Advances

2007-08 541.1

2008-09 616.02

2009-10 785.59

2010-11 1227.29

2011-12 1680.49

Table 8: Loans & Advances, NALCO

Loans & Advances (Cr.)

2000 1500 1000 500 0 2007-08 2008-09 2009-10 2010-11 2011-12 541.1 616.02 785.59 1227.29 1680.49

Loans & Advances

Figure 18: Loans & Advances, NALCO

If we analyse the table and the chart we can see that it follows an increasing trend which is a good sign for the company. The increasing pattern shows that company is giving advances

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for the expansion of plants and machinery which is good sign for better production of cement and other goods. Although companys cash is blocked but this is good that company is doing modernization of plants in time to compete with other competitors in market. Nalco, apart from strengthening its business as usual, its major thrust is on diversification of sectorial, geographical and capacity addition. Nalco is planning to set up smelter plants internationally and locally. Apart from this Nalco is also planning to set up new power plants and other development projects. In the year 2008 it tried to venture into independent Power production. 4.1.5 Analysis of Current Investments

Particulars Current Investments Non-current Investments

2007-08 0 115.03

2008-09 135.9 760.03

2009-10 516.721 470.03

2010-11 1215.65 116.02

2011-12 753.24 1.02

Table 9: Investments, NALCO

Current Investments
1400 1200 1000 800 600 400 200 0 1215.65 753.24 516.721 135.9

0 2007-08

2008-09

2009-10

2010-11

2011-12

Current Investments

Figure 19: Current Investments, NALCO NALCO's current investment was exponentially increasing until 2010. From 2011 its current investments showed a downward trend due to decrease in PAT because of increase in operational expense.

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4.2 ANALYSIS THROUGH COMPONENTS OF CURRENT LIABILITIES 4.2.1 Position of Trade Payables

A trade payable is an amount billed to a company by its suppliers for goods delivered to or services consumed by the company in the ordinary course of business. These billed amounts, if paid on credit, are entered in the accounts payable module of a company's accounting software, after which they appear in the accounts payable aging report until they are paid. In the accounting system, trade payables are recorded in a separate accounts payable account, with a credit to the accounts payable account and a debit to whichever account most closely represents the nature of the payment, such as an expense or an asset. Particulars Trade Payables 2007-08 1155.62 2008-09 1297.26 2009-10 1588.5 2010-11 2062.42 2011-12 2337.15

Table 10: Trade Payables, NALCO

Trade Payables (in Crs.)

2500 2000 1500 1000 500 0 2007-08 2008-09 2009-10 2010-11 2011-12 Trade Payables 1155.62 1297.26 1588.5 2337.15 2062.42

Figure 20: Sundry Creditors, NALCO

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The Creditors of the company has increased year by year, and the increment is more than 25%. This shows that the company is having a good will near the suppliers side; they have confidence on the company. In working Capital management the buying firms do not have to pay cash immediately for the purchases made. The deferral of payments is a short term financing otherwise called trade credit, and it is mostly an informal agreement and is granted on an open account to pay cash immediately for the purchases made. This open account trade credit appears as sundry creditors on the companys balance sheet. Hence this shows that the company is having a good name in the market, but it is losing in terms of Cash discount. 4.2.2 Provision Analysis

An amount from profits that has been put aside in a company's accounts to cover a future liability is called a provision. Particulars Provisions 2007-08 222.557 2008-09 329.84 2009-10 369.98 2010-11 386.49 2011-12 283.27

Table 11: Provision Analysis, NALCO

Provisions (in Crs)

400 300 200 100 0 2007-08 2008-09 2009-10 Provisions 2010-11 2011-12 222.557 369.98 329.84 283.27 386.49

Figure 21: Provision Analysis, NALCO

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From the above table we can see that provision shows an increasing trend and the huge amount is being kept in these provisions. In the year 2007 and 2008 there was a huge provision for bad debts, it can be due to economic slowdown in the year 2009. But for the year 2010 and 2011, provisions was kept for income tax and employee and public benefits which shows that the company is earning profits and trying to earn goodwill in the market. Still it being a liability it should be kept in control. The position is currently improving from the year 2011 and 2012.

4.3 ANALYSIS THROUGH NET WORKING CAPITAL OF NALCO Net Working Capital (which is also known as Working Capital or the initials NWC) is a measurement of the operating liquidity available for a company to use in developing and growing its business. The working capital can be calculated very simply by subtracting a companys total current liabilities from its total current assets. Particulars (in Crs.) NWC 2007-08 3500.45 2008-09 2627.17 2009-10 2998.32 2010-11 3304.32 2011-12 4345.44

Table 12: Net Working Capital of NALCO

Net Working Capital (in Crs.)

5000 4000 3000 2000 1000 0 2007-08 2008-09 2009-10 NWC 2010-11 2011-12 3500.45 2627.17 2998.32 3304.32 4345.44

Figure 22: Net Working Capital, NALCO

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The Net Working Capital has increased and decreased year by year, but it has increased by 25% from 2007 to 2011.Though there was an increase in sales in 2008 the net working capital decreased because the company tried to invest low in current assets. In the year 2009, 2010, and 2011 increase in current assets was more than current liabilities, because the company decided to follow a conservative approach for financing the current assets which was possible as NALCO had cash surplus.

4.4 ANALYSIS THROUGH FINANCIAL RATIOS Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making decisions. It only means of better understanding of financial strengths and weaknesses of a firm. The main emphasis has been on calculating the ratios related to a working capital management. 4.4.1 Current Ratio

It may be defined as the relationship between current assets and current liabilities. This ratio measures the ability of the firm to meet current liabilities. High current ratio indicates firm is liquid and has the ability to pay its current obligations in time as and when they become due. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is considered to be satisfactory.

Current Assets Current Ratio = -------------------------------------------------Current Liabilities Particulars Current Assets Current Liabilities Current Ratio 2007-08 5041.33 1540.88 3.27 2008-09 4696.31 1933.24 2.43 2009-10 5726.361 2211.32 2.59 2010-11 6805.08 2821.23 2.41 2011-12 7022.33 2676.89 2.62

Table 13: Current Ratio, NALCO

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Current Ratio
4.00 3.27 2.00 0.00 2007-08 2008-09 2009-10 Current Ratio 2010-11 2011-12 2.43 2.59 2.41 2.62

Figure 23: Current Ratio, NALCO The current ratio lies above the required margin of safety for all the five years which means it is liquid and has the ability to pay its current obligations in time as and when they become due and it is a comfortable situation for creditors. In the above calculation we can observe that the liquidity position is more satisfactory with higher current ratio. 4.4.2 Quick Ratio

This ratio is also known as quick ratio or acid test ratio. It is a more rigorous test of liquidity than the current ratio. It is based on those current assets which are highly liquid. Inventory and prepaid expenses are excluded because they are deemed to be least liquid component of current assets. A high quick ratio is the indication that the firm is liquid and has the ability to meet its current liabilities in time and on the other hand low ratio represents liquidity position is not good.

Current Assets- Inventory- Prepaid Expenses Quick Ratio = ------------------------------------------------------------Current Liabilities- Overdraft

Particulars Current Assets Inventory Prepaid Expenses Quick Assets

2007-08 5041.33 686.65 1.35 4353.33

2008-09 4560.41 873.5 0.99 3685.92

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2009-10 5209.64 944.92 1.35 4263.37

2010-11 6805.08 1071 1.5 5732.58

2011-12 7022.33 1212.7 1.63 5808

Current Liabilities Bank Overdraft Liquid Liabilities Quick Ratio

1540.88 0 1540.88 2.83

1933.24 0 1933.24 1.91

2211.32 8.61 2202.71 1.93

2821.23 0 2821.23 2.03

2676.89 0 2676.89 2.17

Table 14: Quick Ratio, NALCO

Quick Ratio
3.00 2.50 2.00 1.50 1.00 0.50 0.00 2007-08 2008-09 2009-10 Quick Ratio 2010-11 2011-12 2.83 1.91 1.93 2.03 2.17

Figure 24: Quick Ratio, NALCO

According to rule of thumb, it should be 1:1. For NALCO, the quick ratio has been above standard for last 4 years, which means NALCO is sufficiently liquid i.e. the companys liquidity position is good and it has the ability to meet the current liabilities in time. But high ratio is not recommendable. 4.4.3 Inventory Turnover Ratio Inventory Turnover ratio measures how many times the company has sold and replaced its inventory during a period. To compute this ratio, sales is divided by average inventory at cost. Following formula is used for the calculation of this ratio:

Net Sales Inventory Turnover Ratio = -----------------------------------Avg. Stock

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Particulars Net Sales Average Inventory ITOR

2007-08 5474.45 686.65 7.97

2008-09 5517.52 764.275 7.22

2009-10 5311.4 909.21 5.84

2010-11 6369.88 1001.695 6.36

2011-12 6926.93 1141.85 6.07

Table 15: Inventory Turnover Ratio

Inventory Turnover Ratio

10.00 7.97 5.00 0.00 2007-08 2008-09 2009-10 ITOR 2010-11 2011-12 7.22 5.84 6.36 6.07

Figure 25: Inventory Turnover Ratio Stock velocity is an indicator of firms activeness. It directly influences the profitability of firm. The calculated ratio of NALCO for the last 4 years is very poor when compared to industry average which is 9.5 which signifies excessive inventory or over investment in inventory. It may be result of inferior quality goods, over valuation of closing inventory, stock of obsolete goods (Non-moving). 4.4.4 Creditors Turnover Ratio Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers throughout the year. Generally a low creditors turnover ratio implies favourable since the firm enjoys lengthy credit period. Net Credit Purchase Creditors Turnover Ratio = --------------------------------------Average Creditors

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Particulars Net Purchase Average Creditors Creditors Turnover Ratio

2007-08 2008-09 2009-10 2010-11 2011-12 1956.76 2394.16 3189.81 3589.9 4207.493 262.52 271.13 516.21 619.54 789.85 7.45 8.83 6.18 5.79 5.33

Table 16: Creditors Turnover Ratio

Creditors Turnover Ratio

10.00 8.00 6.00 4.00 2.00 0.00 2007-08 2008-09 2009-10 Creditors Turnover Ratio 2010-11 2011-12 8.83 7.45 6.18 5.79 5.33

Figure 26: Creditors Turnover Ratio

Now if we analyse the five years data we find that in the year 2007 and 2008 the ratio was high which means that creditors are being paid 7-8 times a year which was a good sign for the creditors and hence is not able to utilize credit facilities available to the NALCO, but in the next three years it is seen that it has followed a decreasing trend which is not good sign for the company. So we can say it enjoys a very good credit facility from the suppliers, and generates short term funds from them.

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CHAPTER 5: INVENTORY MANAGEMENT IN NALCO

Inventory is defined as an idle resource which has got an economic value. In an industry, inventory comprises of raw materials, process materials, general stores, consumables and spare parts, semi-finished and finished goods. Inventory of input materials are carried to support production and maintenance activities so that the same is available in right quantity, at right point of time. Carrying excessive inventory not only results in blocking up of working capital but also adds inventory carrying cost to it. Inventory carrying cost consists of interest on locked working capital, cost of storage, obsolescence and deterioration. On an average it works out to 20% to 25% per annum of the value of the locked up inventory. The objectives of inventory control are: (i) To keep required stock of materials so that production and maintenance activities do not suffer. (ii) Minimum blockage of funds in inventory. Optimization can be achieved and efforts need to be made to improve input-output ratio of materials by scientific methods of determining. To achieve these objectives it is necessary to analyse the inventory and to classify the items in to different categories. 5.1 MATERIAL CLASSIFICATION Logical grouping of materials is called classification, which facilitates Codification. Materials can be broadly classified into following groups: (i) Raw Materials: They are the materials which are used for making the finished product. For example for Alumina Refinery:-Bauxite, Caustic Soda, Lime, CGM, Wheat Bran etc. Smelter Plant:-Alumina, CP Coke, CT Pitch, Al. Fluoride, etc. (ii) Fuel: HFO, LDO, LSHS, Coal etc. (iii) Explosives: Used for mining. (iv) General Stores, P.O.L & Consumables Lubricants, hardware, transmission belts, ropes and yarn, bearings, packing and jointing materials, welding consumables and accessories, industrial and calibration gases, rubber goods, pipes & fittings, paints, electrical stores, grinding media, refractory items, tools and tackles, laboratory chemicals & reagents, safety items etc. (v) Spare Parts (Classified Area Wise)

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(vi) Liveries (vii) Medicines and Hospital Stores (viii) Horticulture (ix) Printing & Stationeries (including Computer Stationeries and consumables) (x) Building Materials like Steel & Cement (xi) Capital items -Plant & Machinery -Furniture & Fixture -Office Equipment

5.2 SYSTEM OF CODIFICATION The items are codified Area-wise in eleven digit numeric system. The first three digits represent the area, the next two digits represent the equipment, the next four digits represent materials for the equipment, the tenth one is a check digit. The check digit is given to ensure that the same material code is not repeated elsewhere and the last one represents the source code (Indigenous or Imported). Example: Description of item: Ball Mill Feed Spout seal Material Code allotted: 125 06 0810 5 0 Here:125 - Area Secondary crusher 06 - Equipment - Ball Mill 0810 - Feed spout seal of XYZ specification 5 - Check digit Procedure to find Check Digit :125 06 0810 xxx xx xxxx 713 57 1357 Logic 7+2+15+0+42+0+24+5+0 = 95 !10 Remainder = 5 is the check digit 0 is the Source code for Indigenous Materials and 1 is for Imported Materials.

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Although this system of codification is obsolete and a new standard similar to the previous one is being currently used in SAP.

5.3 SELECTIVE METHODS OF INVENTORY ANALYSIS: Any effective approach to inventory control, where thousands of items are procured, stored and consumed, must be on the basis of selectivity. It is not possible to control each item of inventory in the same way to meet the above two objectives. The below theories are based on 80:20 principle which says 80% of the profit margin comes from only 20% of goods and hence more focus needs to be given to those 20% of goods. The following analytical concepts are some of the selective methods to manage and control inventory. The analysis will apply to items other than raw material, capital and insurance.

i) ABC ANALYSIS: Here the selection is on the basis of annual consumption value. A few items will have large proportion of annual consumption value while a large number of items will have small proportion of annual consumption value. These two categories of items are called A and C class respectively. The middle range is called B class. While A and B class items require tight and moderate control respectively, the C class items require least control. A class - 70% of total consumption value in a year B class - 20% of total consumption value in a year C class - 10% of total consumption value in a year

ABC Analysis is generally used for controlling A & B class items. With the support of Systems Department, Store will arrange ABC analysis report after the final Inventory/PSL of the previous year is prepared. This report is to be circulated amongst the user departments. Also A,B & C class indication is to be made available on the indents before submitting it to the Indent Screening Committee. Below is a sample report generated from NALCOs SAP reporting tool.

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Figure 27: Usage Value for Raw Materials in SAP

Figure 28: ABC Analysis ii) XYZ ANALYSIS: The selection is on the basis of stock holding value of items. There will be few items of high value and large number of items of low value. These are called X and Z class respectively. The middle range is called Y class.

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Figure 29: Consolidated XYZ Analysis in SAP X class - 70% of stock value Y class - 20% of stock value Z class - 10% of stock value

Figure 30: XYZ Analysis in SAP

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XYZ analysis is generally used for perpetual stock verification and controlling high value items. With the support of Systems Department, Store will arrange XYZ analysis report after the final Inventory/PSL of the previous year is prepared. This report is to be circulated amongst the user departments.

iii) FSN ANALYSIS: Here items are analysed on the basis of frequency of issue as stated below: a) Fast Moving: Item issued at least once in each of the last three years. b) Slow Moving: Item issued at least once in one or two of the last three years. c) Non Moving: Item not issued at all for last three years. Non-moving items falling in the category of three years, up to five years are required to be reviewed by the concerned user department quarterly so as to find out their alternate use with some modifications or in capital repairs / overhauling in future. Items which have not moved for more than five years are reviewed once in a year by a committee of Senior Technical Officers not below the rank of DGM of technical department to identify the items which will not be used in future, and submit a report to the unit Head for approval for disposal. Items falling under Non-moving category are also required to be blocked to avoid raising of further indents. With the support of Systems Department, Store shall arrange reports on Non-moving items after the final Inventory/PSL of the previous year is prepared. This list is to be circulated amongst the user department and Indent Screening Committee. The above report shall also be made available at least once in a year to other units. Insurance items and capital items are excluded for the purpose of review of Non-moving items.

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5.4 MATERIALS PLANNING Planning of material is an important aspect. Although the exact future requirement cannot be accurately forecasted as factors beyond control may influence the procurement planning. However, without proper planning events are left to many uncertainties. The objective of materials planning is to ensure timely availability of materials for trouble free operation of the plant. Besides timely availability of materials, deciding right quality and quantity of materials, is equally important, otherwise it may lead to high inventory. For the purpose of planning, the materials are grouped into following categories on the basis of nature of items, storage capacity, cost and logistics. i) Raw materials, process materials & fuel ii) Spares (Insurance, Critical & General spares) iii) General Stores & Consumables iv) Automatic Procurement items v) Construction materials and Capital items vi) Stationeries, liveries and items for township maintenance

RAW MATERIALS, PROCESS MATERIALS & FUEL

These materials account for more than 75% of the cost of the total materials consumed in the plant and therefore require utmost attention for procurement planning and follow-up. One or more factors, which can be taken into consideration for procurement and scheduling of deliveries for these items are as follows: i) Annual consumption ii) Cost iii) Storage capacity iv) Location of sources v) Number of suppliers and their dependability as per past experience vi) Lead time vii) Mode of transport and escape route in the event of failure of Regular mode viii) Market condition.

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SPARES

Spare Parts account for 15 - 25% of the cost of the material consumed in the plant, but covers more than 90% of items required for plant maintenance and operation. Identification of Various Categories of Spares. All Spares have been segregated into 3 categories i.e. Insurance, Critical and General category of spares: 1. Insurance Spares: Insurance Spares are defined as those machinery spares; a) that are specific to a particular item and fixed assets i.e. they can be used only in connection with a particular item of the fixed assets. b) Whose use is expected to be irregular and c) Whose unit value is high (more than Rs. 1 lakh). 2. Critical Spares; Critical Spares are those spares; a) Which are installed on equipment on the critical path of production. b) Which do not normally wear-out. c) Which are not easily available and have long lead time. d) Whose failure / damage / breakdown can lead to stoppage and production loss. The critical spares which satisfy the definition of Insurance Spares are also to be treated as Insurance Spares and not as critical spares. 3. General Spares; Spares not falling under any of the above two definition will be treated as general spares. Procedure for Identification & Accounting of Insurance Spares. The standing committee for indent screening at each unit, comprising of representative of Technical, Materials and Finance, shall record the type of spare i.e. Insurance, Critical or General, on the body of the indent at the time of clearing the indent. The technical member of the screening committee will indicate the fixed asset to which the insurance spare relates to. The SRV of insurance spare shall have a reference of the fixed asset to which it belongs. The Store shall send a list of insurance spares annually to the Indentor, Finance & Unit Head.

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ITEMS UNDER THE AUTOMATIC PROCUREMENT (AP) LIST

Common items (other than Shelf Life items) used by different departments, and those having more or less regular / rhythmic consumption pattern are kept under AP list. This list may be revised once in a year on the basis of past three year consumption pattern with the approval of Unit Head of Materials. Based on the recommendations of HOD, User Department and duly approved by the Head of Unit Materials/GM (Materials), consumable items may be added to AP List, provided they are common items used by different departments, and such items more or less have regular / rhythmic pattern of consumption for a period of 3 years. Items which are under AP list, but do not follow rhythmic /regular pattern of consumption or not issued once in a year shall stand deleted from AP list. In the beginning of every financial year, the list of AP items giving their stock with details of movement of preceding year will be circulated to the concerned User Department through Email/Online. Any addition or deletion of items from AP list will be communicated to the concerned user department by Store from time to time. Indents for AP items are to be raised by Store on the basis of stock review. Items of one class code are to be included in one indent. Supplementary indents can be raised on the basis of periodic stock review of items under different class codes. AP items are multi-user and fast moving items. The annual consumption of these items may therefore go beyond the highest annual consumption of any of the preceding three years (basis for raising an indent).

5.5 INVENTORY FORECASTING As a part of my analysis I have made a hypothetical inventory forecast which is done to understand the basics of the procedure. Following are the steps involved in inventory forecasting i.e. MRP (Material requirements planning): 1) The whole procedure starts with demand forecasting done by the marketing department. Some of the techniques involved are Delphi, data mining, etc. Most of the job is now being done through SAP at NALCO.

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2) Master Production schedule is decided based on previous commitments, inventory onhand, production capacity and supplies availability. Quantities are included both at aggregate and detailed levels. Aggregate may refer to monthly production and detailed may refer to weekly or daily production. The master production schedule (MPS) states how much of a given item will be produced in each time period. We need to enter the beginning inventory, forecasted demand, customer orders booked for each time period, and master schedule amounts as decided by the management. The formulas built into the spreadsheet will then calculate the projected on-hand inventory and amount available to promise to customers. Below is a hypothetical MPS based on NALCO production schedule.
Beginning Inventory(Calcined Alumina) Month Week Forecast demand Customer orders booked Projected on-hand inventory Master schedule Available to promise November 45 19907 13203 32089 39884 26448

12112 December 49 16623 13452 111910 38213 15753

Master Production Schedule for Calcined Alumina

46 19907 12345 51400 39218 11699 47 19907 12987 71493 40000 12481 48 19907 14532 90320 38734 10750 50 16623 9008 129299 34012 1592 51 16623 23412 140100 34213 -802 52 16623 11603 157711 34234 22631

Table 17: Master Production Schedule

3) Bills of materials which list the raw materials and other supplies required to manufacture each product are estimated. Below is a sample Bill of materials for Aluminium.

Figure 31: Bills of Material for Aluminium metal

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4) Production cycle time and the raw materials need at each stage of the production cycle time is estimated. The same has been shown during the calculation of operating cycle of NALCO. 5) Suppliers are identified for each raw materials and the lead time is known for delivery of supplies to the store. The above steps are explained in a simpler fashion, but in real situation a lot of work is being done in the background which involves the efforts from NALCOs Marketing, Finance, Materials, Production and ERP department. Below is a sample MRP for caustic soda. Raw Materials: Caustic Soda Week Number Gross Requirements Scheduled Receipts On Hand Net Requirements Planned Order Receipts Planned Order Releases

Overdue

1 3928 6234 2134 1794 6234 0 0

2 3928 0 4440 -9813 6234 6234

Lead Time = 60 days 3 4 5 3928 3928 3928 0 0 0 8468 8468 8468 -7675 -6543 -4231 0 0 0 0 0 0

6 3928 0 8468 -3212 0 0

7 3928 0 8468 -1234 0 0

8 3928 7234 8468 1794 0 0

Table 18: Materials Resource Planning, Caustic Soda

Thus, for each of the raw materials under the bills of materials, there need to be a MRP schedule for timely procurement of raw materials in order to avoid production delays. As the whole MRP is being done through SAP and other tools like MRPII, it was not possible to look at the exact happening of the whole process. But the same can be planned as per the steps mentioned above. Below is the yearly estimate of raw materials as per each units production capacity. The below data may be helpful in giving a rough idea about NALCOs huge production capacity and raw materials requirement. Production for 2012-13 Item Bauxite Excavation Alumina Hydrate

Unit Mines MT Refinery MT

Annual production 6300000 2100000

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Calcined Alumina Special Hydrate Zeolite Special Alumina Power Generation

MT MT MT MT MU Smelter Standard Ingot(including Alloy ingots) MT SOWS/T-Ingots MT Billets/Bus Bar/Anode Stem MT Wire Rods(including alloy wire rod) MT Rolled Products MT Total Casted Aluminium MT Captive Power Plant Net generation MU Table 19: Production for 2012-13, NALCO

2074000 10068

390 226776 56592 18340 78000 14400 394108 6842

Specific Consumption Item Explosive Diesel Oil Lubricants OMS Bauxite(wet) Bauxite(dry) Caustic Soda Power Fuel Oil for Calciners Fuel Oil for SGP Coal(SGP) CGM Lime Alumina CP Coke CT Pitch Net Carbon AC Power DC Power Fuel Oil

Unit GM/MT Lt/MT Lt/MT MT kg/MT kg/MT kg/MT Kwh/MT Lt/MT Lt/MT Kg/MT kg/MT kg/MT kg/T kg/T kg/T kg/T Kwh/T Kwh/T kg/T

Bills of materials Norm (2012-13) Avg for 2012-13 Mines 165 166 0.65 0.63 0.022 0.011 40 33 Refinery 3000 3257 2970 72 95 335 324 77 76.9 4 3.25 620 592 0.125 0.073 34 31.55 Smelter 1932 2095 383 387 91 93 430 430 14850 15366 13580 13507 90 76

Remarks More Less Less Less More More Less Less Less Less Less Less More More More Same More Less Less

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Al. Fluoride Oil Coal

kg/T

22 Captive Power Plant ML/Kwh 1.2 Kg/Kwh 0.785 Table 20: Bills of Materials, NALCO

21 Less 0.97 Less 0.79 Same

Production Plan for 2013-14 Item Bauxite Excavation Calcined Alumina Aluminium Production Net Generation

Unit Mines MT Refinery MT Smelter MT Captive Power Plant MU

Target Production 6450000 2150000 405000 6341

Table 21: Production Target for 2013-14, NALCO

Materials Forecast(Annual) Item Explosive Diesel Oil Lubricants OMS Bauxite(wet) Caustic soda(100%) Power Fuel Oil for calciners Fuel oil for SGP Coal (SGP) CGM Lime Alumina CP Coke CT Pitch Net Carbon

Unit Mines MT KL KL MT Refinery MT MT MU KL KL MT Kg MT Smelter MT MT MT MT

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Total Estimate per annum 1070.7 4063.5 709.5 40 7002550 204250 696.5 165335 6987.5 1272800 156950 67832.5 848475 156735 37665 174150

AC Power DC Power Fuel Oil Al. Fluoride Oil Coal

MU MU MT MT Captive Power Plant ML Kg/Kwh

6223.23 5470.34 30780 8505 6150.77 5009.39

Table 22: Materials Estimate for 2013-14, NALCO Reorder Level The re-order level is the level of inventory at which the fresh order for the item must be placed to procure fresh supply. The re-order point depends on Lead time, Average usage, Economic Order Quantity. Lead time is the time normally taken between the placement of an order and receiving the supply. Average usage is the rate at which the inventory is being used up.

Re-order level = (Lead Time x Average Usage) + Safety Stock Safety stock: safety stock is the minimum level of inventory desired for an item given the expected usage rate and the expected time to receive an order. If an order is placed when the inventory reaches 150 units instead of 100 units, the additional 50 units constitute the safety stock. The firm expects to have 50 units in stock when the new order arrives. The safety stock protects the firm from stock outs due to unanticipated demand for the item or to slow deliveries. The level of inventory investment is increased by the amount of the safety stock. The safety level is ascertained and introduced as a part of inventory management because there is always an uncertainty involved with respect to the time lag, usage rate or any other factor. The unexpected variations in both the time lag and the demand for the product affect the level of safety. The more certain are the patterns of movement of stock, the less will be the safety stock required. In NALCO, Lead time has 2 sets: Internal Lead Time: - It is the time taken for raising indent from line manager to purchase department through purchase request. Generally it takes 3 months.

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External Lead Time: - It is the time taken from the point purchase department sends request to the supplier till the stock reaches the store. Generally it takes 2 months for raw materials, 3 months for Consumables and 6 months for Spares.

Figure 32: Reorder level For better stock/inventory control: Review the effectiveness of existing purchasing and inventory systems. Know the stock turn for all major items of inventory. Apply tight controls to the significant few items and simplify controls for the trivial many. Sell off out-dated or slow moving merchandise - it gets more difficult to sell the longer you keep it. Consider having part of your product outsourced to another manufacturer rather than make it yourself. Review your security procedures to ensure that no stock is going out the back door.

STOCK LEVELS FOR AP ITEMS: When the stock of an item shall reach to Re-ordering Level (ROL), the Indent shall be raised as per the following formula: IQ = k x AC - (S + POQ + PIQ) Where;
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IQ = Indented quantity AC = Highest of last three years annual consumption. S = Stock in hand POQ = Pending Order Quantity PIQ = Pending Indent Quantity k = Constant which can be taken as: 1.5 for imported items 1.3 for spares (other than imported items) 1.2 for other items

5.6 RECEIPT OF MATERIALS The Receipt Section of Store is the central agency to receive and account for both Indigenous and Imported materials purchased for use in the Company. The main functions of the Receipt Section are given below: 1) To receive all Railway Receipts (RR)/Lorry Receipts (LR) and other dispatch documents directly from the supplier and Finance Department. 2) To collect & receive materials from Railways and other carrier go-downs and suppliers. 3) To receive the materials delivered at Store. 4) To arrange inspection of the materials. 5) To account for materials received. 6) To handover accepted materials to the Custody section along with Stores Receipt Voucher (SRV). 7) To deal with claim arising out of over, short, reject and damage (OSRD) with suppliers, carriers and underwriters. 8) Fixation of handling and transportation contracts. 9) To certify bills of materials handling contractor and freight bills of transporters. To send the SRV copies to respective departments.

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5.7 OPERATING CYCLE ANALYSIS OF NALCO Operating cycle refers to the time period which starts from the raw material purchases and ends with realization of receivable. So it is total time gap between raw material purchases to total debtors collection. This is also known as working capital cycle. The higher the operating cycle period, higher will be the working capital requirement. The basic reason for calculating operating cycle is to find out the means for reducing the duration of operating cycle because if duration of operating cycle will be less than working capital requirement will be less. NALCOS operating cycle is not a simple process as found in simple manufacturing business. It consists of 2 operational cycles. One cycle is the production of alumina and selling it in the market. The other is the production of alumina and then producing aluminium to be sold in the market. Thus the half the production of alumina goes for sale and half is used in production of aluminium. Thus in this process the total operating cycle comes to around 38 days. The same is depicted in simple layman terms without any technical details. The figure was generated out of the experience of line managers of NALCO. Below is the figure.

Figure 33: Operating Cycle of NALCO

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Figure 34: Refinery Process flow (Bauxite to Alumina)

Figure 35: Smelter Process Flow (Alumina to Aluminium)

OC = R + W + F + D C Where, R = raw material conversion period W = work in process period F = finished goods conversion period
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D = debtor collection period C = creditors payment period

5.7.1 Raw Material Holding Period

RMHP=ARMS*365/ARMC

ARMS=Average Raw Material Stock ARMC=Average Raw Materials consumed during the year

Raw material holding period is the time period between receiving the raw material and sending them for production. It is the period of stocking the raw materials for usage. It is known that not all the raw materials would take the same number of days to get converted to WIP. For a company like NALCO which is having four production units i.e. Mines & Refinery, Aluminium Smelter and CPP, it requires different raw materials for each process and each of it has different RMHP. The following are the details which was collected for M & R and Smelter unit
Mines & Refinery Average Raw Materials Bauxite Caustic Soda Coal Fuel Oil Lime 2757.02 80883.1335 5243.92 4251.57 157456.089 1153566 147696.5 57944.716 6.30 25.24 12.78 26.41 19.47 days material stock(A)(MT) 301034.4 Raw Average Raw material consumed(B)(MT) 5565480 RMHP RMHP(days)=A*360/B for M&R 19.47

Table 23: Raw Materials Holding Period, M&R

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Raw Material Holding Period (days)(M&R)

30.00 25.00 20.00 15.00 10.00 5.00 0.00 25.24 19.47 12.78 6.30 26.41

Bauxite

Caustic Soda

Coal

Fuel Oil

Lime

RMHP(days)=A*360/B

Figure 36: Raw Material Holding Period (days)

Bauxite being the primary raw material for Alumina Production takes 20 days from the time it is excavated till the time it goes to production. Due to the large volume of excavation, calculating bauxite holding period was challenging. Caustic soda which is required for removing residual particles is used to produce slurry takes about 7 days to get used in grinding mills. Coal which is required for generating high temperature and electricity generation takes 25 days to enter production run. This is because coal being used in generating power is required frequently and hence large amount of coal stock is maintained at the factory to reduce the chance of running out of stock. Fuel oil being used as a subsidiary of coal is also used for the same purpose of steam generation required during the digestion process takes 13 days for moving to production. Lime being used in causticization in big tanks takes 26 days to enter production due to its slow reactivity.
Smelter Raw Materials Alumina CP Coke CT Pitch Al Fluoride HFO 1840.5 122.6 7462 2845.6 88.79 15.51 14.25 days Average Raw material Average stock(MT) 31330.5 13782.5 805 Raw material RMHP(days) 14.25 31.77 7.74 RMHP for Smelter

consumed(MT) 791244 156163 37445

Table 24: Raw Material Holding Period (days)

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Raw Material Holding Period (days)(Smelter)

88.79 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00

31.77 14.25 15.51 7.74

Alumina

CP Coke

CT Pitch RMHP(days)

Al Fluoride

HFO

Figure 37: Raw Material Holding Period, Smelter

Alumina is the major raw material required for Aluminium production. It is the only raw material that stays in the process for the whole production cycle. Alumina takes on average 14 days to enter production run after arriving from Damanjodi. Raw materials like CP Coke and CT Pitch which are required for anode production in electrolysis process, takes substantial days (32 days) to enter into potline. This is because NALCO have a separate unit for making anodes and there are 16 anodes in each pot. There are 4 potlines containing a total of 900 pots and each anode is replaced after 20-30 days and recycled. Aluminium Fluoride used to reduce the melting point in potline takes 89 days to enter production. This is because very little cryolite is lost in the process and can be replenished.

5.7.2

Work In Progress Conversion Period

WIPCP=ASP*365/COP

ASP=Average stock in progress COP=Cost of Production= Salaries + Repairs + Stores/Spares expense + Other Manufacturing Expense + Rent + Admin Expense + Raw Material purchase + Power & Fuel + Opening WIP- Closing WIP

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Work in progress conversion period is the time it takes for the raw materials to get converted to finished goods. This is product specific and we cannot find out the average WIPCP for the whole company. For a company like NALCO having two operating cycles, it has many products from refinery unit and Smelter unit. Hence, calculations are made specific to each category of product.
Alumina Refinery Average inventory Cost Products Alumina Hydrate Calcined Alumina of WIP (Cr.) 275.31 279.21 (Cr.) 3887.23 3891.35 of production WIPCP(days) 25.50 25.83 25.83 WIPCP for M&R

Table 25: Work in Progress Conversion Period, Alumina Refinery

Work in progress Conversion Period(days)(Refinery)

15.00 14.90 14.80 14.70 14.60 Alumina Hydrate 14.75

14.92

Calcined Alumina

WIPCP(days)

Figure 38: Work in Progress Conversion Period, Refinery

From the above figures it can be interpreted that it takes 15 days on average for 1MT of bauxite to get converted to Calcined Alumina. Calcined Alumina being the major product despatched from Refinery is taken into consideration for calculating operating cycle of NALCO.

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Smelter Products Smelter Cast Aluminium Anodes from Average value of WIP (Cr.) 21.23 67.09 Cost (Cr.) 4383.6 1640.53 of production WIPCP for WIPCP(days) Smelter 1.74 14.72 1.74 days

Table 26: Work in Progress Conversion Period, Smelter

Work in progress conversion period (days)(Smelter)

14.72 15.00 10.00 5.00 0.00 Cast Aluminium Anodes 1.74

WIPCP(days)

Figure 39: Work in Progress Conversion Period, Smelter Smelter Unit of NALCO takes 32 hours to produce casted metal from alumina. This is because the electrolysis process is quick and it takes just 4 hours in cast house to form different shapes of the metal. Anodes are prepared at Bake oven unit where CP Coke and CT Pitch are mixed at high temperature to produce carbon based anodes which are utilized in the Hall-Heroult process for producing molten aluminium. This whole anode production process takes on average 14 days to complete.

5.7.3 Finished Goods Holding Period

FGHP=AFGS*365/COGS

AFGS=Average finished goods stock

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COGS=Cost of Goods sold= Cost of Production + Opening FG Stock Closing FG Stock

Finished Goods Holding Period is the time of storage of finished goods in the warehouse until they are sold. As NALCO have different products from each manufacturing units (Refinery & Smelter). Hence, FG Holding Period will vary across all the products. Below are the calculations.
Alumina Refinery Average value of FG stock Cost Finished goods Alumina Hydrate Calcined Alumina (Cr.) 39.63 90.19 of goods FGHP 3.04 6.51

sold(Cr.) 4692.23 4782.12

Table 27: Finished Goods Holding Period, Refinery

Smelter Average value of FG stock Cost Finished goods Aluminium (Cr.) 79.67 of goods FGHP 5.32

sold(Cr.) 5392.23

Table 28: Finished Goods Holding Period, Smelter Finished Goods Holding Period(in days)
6.51 3.04

8 6 4 2 0

5.32

Aluminium

Alumina Hydrate
FGHP

Calcined Alumina

Figure 40: Finished goods Holding Period, NALCO

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From the above figures it can be interpreted that Alumina Hydrate inventory is maintained for a period of 3 days (approx.). Calcined Alumina which is produced as the end product after calcination of Alumina Hydrate takes 6.5 days (approx.) to sell from the inventory storage area. Throughout the year the Zeolite and Special Alumina plant was stopped as per management decision due to high stock and poor off-take.

5.7.4 Debtors Conversion Period

NALCO sales policy doesnt encourage credit sales i.e. all sales are made in advance by Advance cell. In this way NALCO has substantially reduced its operating cycle and thereby its working capital requirements. This also shows the goodwill and faith customers have for NALCOs product in terms of quality and timely delivery. Hence, Debtors conversion period is not included for calculating operating cycle. 5.7.5 Payment Deferral Period

PDP=AC*365/TCP AC=Average Trade Payables TCP = Total Credit Purchase The Payments Deferral period is the length of time the firm is able to defer payments on various resources purchases.
Particulars Average Creditors Total credit purchase PDP Refinery 92.98 1041.76 32.13 Smelter 81.72 953.52 30.85

Table 29: Payment Deferral Period

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Payments Deferral Period (in days)

33.00 32.00 31.00 30.00

32.13 30.85

Refinery PDP

Smelter

Figure 41: Payments Deferral Period, NALCO

Since the payments deferral Period for Refinery and Smelter are 32 days and 31 days. Hence, the suppliers have a good faith with NALCO and they provide ample time for making payments. In spite of that NALCO makes much of its payments in advance to maintain a good will in the market.

5.7.6 Gross Operating Cycle For Nalco The gross operating cycle calculation does not take creditor deferral periods into account.

GOC= RMHP+WIPCP+FGHP+DCP
Mines Particulars From Mines to Refinery Transport Raw Material Holding Period Work in Progress Conversion Period Finished Goods Holding Period Debtors Conversion Period Transport to Angul Raw Material Holding Period Work in Progress Conversion Period NA 1.74 25.83 6.51 0 NA NA NA NA NA 3 14.25 Refinery 0.08 19.47 & Smelter NA NA

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Finished Goods Holding Period Debtors Conversion Period Gross Operating Cycle

NA NA 51.89

5.32 0 24.31

Table 30: Gross Operating Cycle

Gross Operating Cycle (days)

51.89 60.00 40.00 20.00 0.00 Mines & Refinery Smelter Gross Operating Cycle 24.31

Figure 42: Gross Operating Cycle The Gross Operating Cycle is the average length of time for a company to acquire materials, produce the products, sell the products and collect the proceeds from customers. The gross operating cycle of Refinery unit is much higher than the smelter unit because of operational delays. To be specific the precipitation of Sodium Aluminate in rows of big six storey building takes the maximum period of 19 days. This is what can be called as a bottleneck for Refinery unit. The following are the process flow for each unit. 5.7.7 Cash Cycle of Nalco

The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sales to customers. This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties. CC= GOC-CDP

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Particulars Gross Operating Cycle Payments Deferral Period Cash Cycle

Refinery 51.81 32.13 19.68

Smelter 21.31 30.85 -9.54

Table 31: Cash Conversion Cycle, NALCO

Cash Cycle (in days)

19.68 20 10 0 Refinery -10 Smelter -9.54 Cash Cycle

Figure 43: Cash Conversion Cycle, NALCO The operating cycle is the length of time or a company to acquire materials, produce the product, sell the products and collect the proceeds from customers. Working Capital is required to meet the time gap between the raw materials and actual realization of stocks. NALCO is able to decrease the cash cycle by applying techniques like inventory control through SAP and latest technology in production. NALCO could achieve a negative CCC in Smelter unit by collecting from customers before paying suppliers, a policy of strict collections and lax payments. Majorly the negative cash cycle for the period 2011-2012 is due to increase in creditors deferred payments. This is a good sign for the company because if the operating cycle requires a longer time span between cash to cash, the requirement of working capital will be more because of huge funds required in the whole process. Hence NALCO has to make less investment in working capital.

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CHAPTER 6: CASH MANAGEMENT SYSTEM IN NALCO

NALCO has accumulated cash surplus over last several years & it has to generate required funds from within the organization i.e. from internal sources. After surveying the annual report of NALCO it has been seen that opening balance of cash flow statement in the year ended march 31, 2012 is Rs. 3795.23 Crores & closing balance is Rs 4168.35 Crores which is more than the previous year 2011. The key areas of effective cash management in NALCO are: Identifying the requirement of funds in various units. Investment of surplus funds productively. Repayment of loans Proper capital expenditure. Standardized reporting system.

Centralised cash management system of Nalco NALCO has chosen State Bank of India (SBI) as its sole banker for its centralized cash management system. The transactions are transmitted to the central cash account at the corporate office on a day to day basis. Similarly an account is also maintained by NALCOs corporate office for proper reconciliation. NALCO has its sound reconciliation with SBI having 25 accounts in total (5 in Orissa & 20 outside the state). NALCO is making transaction of crores of rupee with SBI. In return SBI makes free of exchange fee or commotion fee for NALCOs any type of transaction. NALCO has even a cash credit arrangement with SBI though there has never been any excess withdrawal during last 8 years. As NALCO has the centralized cash management system, the company is also using ECS (Electronic Clearing System) & EFT (Electronic Fund Transfer). Besides NALCO also has cash collection centres at different branches & realization of sales credited & transferred to the central cash amount daily. This ensures timely & quick realization of cash. Moreover optimum levels of funds are readily available with the company by maintaining balances at different branches of SBI. NALCO is exercising strict control over the payments made by its various branches & it issues the payment through letter of credit. Though the manufacturing units are authorized to issue cheques, they are required to

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obtain clearance from the corporate office for all payments exceeding a prescribed limit before the actual realization of such cheques. NALCO being a cash rich company by nature the extent of success lies in how quick the company has identified its surplus funds & invested the same in short term investments for optimization of wealth. Reporting system in NALCO:The reporting system is the key factors for the success of an organization. It occurs in proper manner in NALCO. NALCO is introduced a strict management information system to ensure functioning of control mechanism of fulfilment of objectives. The reporting system of NALCO mainly includes: 1. Forecasting of daily cash flows/ operating performance. 2. Reporting of actual vis--vis forecasted cash flows on daily basis. 3. Reporting of receipts & payments at different units on daily basis. The monthly forecasts of cash flows are flexible in nature. While reporting the weekly cash flows the units have a scope to revise submitting them to the corporate office from the beginning of every month. Based on these reports the corporate office prepares a consolidated cash flow statement and it forms the basis for planning the fund flows for the coming month & this is a continuous process. In other hand the daily report enables the company to know the latest surplus cash balance available & it also helps the company in taking various investment decisions. NALCO has even a cash credit arrangement with SBI though there has never been any excess withdrawal during latest 8 years. Below is cash budgeting done on the basis of previous annual reports and the experience of senior staff members of NALCO. 6.1 CASH BUDGETING Cash Budget is an estimation of the cash inflows and outflows for a business or individual for a specific period of time. Cash budgets are often used to assess whether the entity has sufficient cash to fulfil regular operations and/or whether too much cash is being left in unproductive capacities. By creating a cash budget - wherein a firm develops a summary of the anticipated revenues, operating expenditures, purchase and sale of assets, and settlement

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or admission of debt one can determine when there will be a need for more cash resources, and when there will be an excess of cash.
Months Opening Balance Cash 4168.35 4359.14 4554.92 4663.63 4727.94 4844.19 5549.14 5241.66 5218.17 5107.63 4689.20 4775.62 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13

EXPECTED CASH RECEIPTS

Income operations Interest income Income Investments Miscellaneous Income Total Cash Receipts 1.76 666.13 1.76 666.13 1.76 666.13 1.76 612.26 1.76 612.26 1.76 612.26 1.76 558.36 1.76 558.36 1.76 558.36 1.76 668.69 1.76 668.69 1.76 668.69 on 8.21 8.21 8.21 8.21 8.21 8.21 8.21 8.21 8.21 8.21 8.21 8.21 from

621.00 35.16

621.00 35.16

621.00 35.16

567.13 35.16

567.13 35.16

567.13 35.16

513.23 35.16

513.23 35.16

513.23 35.16

623.56 35.16

623.56 35.16

623.56 35.16

EXPECTED CASH PAYMENTS

Raw Materials Coal and Fuel Purchased Power Indirect tax Corporate tax Interest charges Repayment of loan Capital Expenditure Employee Benefits Repairs Stores & Spares Miscellaneous manufacturing expense Freight expense Rent Insurance Puja Bonus Security expense Admin Expenses Selling Distribution Expenses Interim Dividends Final Dividend Total payments Cash Surplus/Deficit &

85.90 159.69 11.35 41.77 0.00 0.00 0.00

85.90 159.69 11.35 41.77 0.00 0.00 0.00

85.90 159.69 11.35 41.77 87.06 0.00 0.00

85.90 159.69 11.35 41.77 0.00 0.00 0.00

85.90 159.69 11.35 41.77 0.00 0.00 0.00

85.90 159.69 11.35 41.77 87.06 0.00 0.00

85.90 159.69 11.35 41.77 0.00 0.04 111.67

85.90 159.69 11.35 41.77 0.00 0.04 111.67

85.90 159.69 11.35 41.77 87.06 0.04 111.67

85.90 159.69 11.35 41.77 0.00 0.25 111.67

85.90 159.69 11.35 41.77 0.00 0.25 111.67

85.90 159.69 11.35 41.77 87.06 0.25 111.67

0.00 86.21 13.22 33.71

0.00 86.21 13.22 33.71

0.00 86.21 13.22 33.71

77.71 86.21 13.22 33.71

0.00 86.21 13.22 33.71

0.00 86.21 13.22 33.71

274.00 86.21 13.22 33.71

0.00 86.21 13.22 33.71

0.00 86.21 13.22 33.71

337.61 86.21 13.22 33.71

0.00 86.21 13.22 33.71

0.00 86.21 13.22 33.71

10.95 11.48 0.11 4.99 0.00 5.08 8.36

10.95 11.48 0.11 0.00 0.00 5.08 8.36

10.95 11.48 0.11 0.00 0.00 5.08 8.36

10.95 11.48 0.11 0.00 0.00 5.08 8.36

10.95 11.48 0.11 0.00 0.00 5.08 8.36

10.95 11.48 0.11 0.00 0.00 5.08 8.36

10.95 11.48 0.11 0.00 10.00 5.08 8.36

10.95 11.48 0.11 0.00 0.00 5.08 8.36

10.95 11.48 0.11 0.00 0.00 5.08 8.36

10.95 11.48 0.11 0.00 0.00 5.08 8.36

10.95 11.48 0.11 0.00 0.00 5.08 8.36

10.95 11.48 0.11 0.00 0.00 5.08 8.36

1.28 0.00 0.00 474.10

1.28 0.00 0.00 469.11

1.28 0.00 0.00 556.17

1.28 0.00 0.00 546.82

1.28 0.00 25.77 494.88

1.28 0.00 0.00 556.17

1.28 0.00 0.00 864.82

1.28 0.00 0.00 580.82

1.28 0.00 0.00 667.88

1.28 167.23 0.00 1085.87

1.28 0.00 0.00 581.03

1.28 0.00 0.00 668.09

192.03

197.02

109.96

65.44

117.38

56.09

-306.46

-22.46

-109.52

-417.18

87.66

0.60

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Minimum

cash

balance in current A/C Investments in term deposits Loans Advances R & D and 0.00 0.00 0.00 0.00 0.00 650.00 0.00 0.00 0.00 0.00 0.00 0.00 4354.14 0.00 0.00 0.00 81.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 10.00 10.00 10.00 10.00

Expenditure(0.2 % of sales) Closing Balance Cash 4359.14 4554.92 4663.63 4727.94 4844.19 5549.14 5241.66 5218.17 5107.63 4689.20 4775.62 4774.97 1.24 1.24 1.24 1.13 1.13 1.13 1.03 1.03 1.03 1.25 1.25 1.25

Table 32: Cash Budgeting 6.2 NALCOS INVESTMENT OF SURPLUS FUNDS As we know the surplus funds can be employed in liquid & risk free securities to earn some interest income. So NALCO has invested its surplus funds in bank fixed deposit. The important managerial decisions are needed for the investment in surplus fund. So it is very important part of NALCOs cash management. As we know NALCO is multi crores organization, therefore it has lot of past experiences to manage cash properly for the smooth running of working capital. Working capital management of NALCO is always enthusiastic to invest its surplus funds for short term time period. Currently, NALCO is earning interest at the rate of 12-15% from various short term investments which contribute substantially towards the annual turnover. NALCO has invested its surplus funds by several investments. These are Fixed deposit with banks Inter-corporate deposits Bill discounting Money market Mutual funds, etc.

NALCO invests term deposits with private & public sector banks & fixed deposits with private & public sector banks which are all guidelines prescribed by the board of directors of NALCO for the investment of surplus fund. These guidelines are evaluating that in which NALCO is going to invest. A mapping is done of the company where NALCO is going to

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invest. They are based on their performances, safety, liquidity, yield, maturity & marketability.

Cheques issued system Voucher is the first step for issuing a cheque. That means all the computerized approved vouchers from different units are received on day to day basis in cash section & computerized cheques are prepared. Every day the bank gives statement showing all NEFT, RTGS and cheques transactions (debit amount) to the finance department, the same debit amount was forecasted in the daily cash expenditure on day to day basis to the corporate office. At the end of every month a debit advice of remittance from corporate offices received by site for necessary accounting adjustment. NALCO finance has got a unique system of centralized bank management system & centralized management of funds are done at corporate office. Due to RBIs Cheque Truncation Project and its restriction on issuance of cheques, NALC O relies more on NEFT and RTGS transactions than on cheques. Cheques accounts for 5 % of NALCOs transaction and it is meant for the business people who dont have online transactional provisions. 6.3 CASH COLLECTION SYSTEM OF NALCO As NALCO is doing most of its business by letter of credit (L/C). But in case of domestic sale business is done through online banking, DD & cheques & also through direct cash payment. But it was seen that almost of 80% of the business is done through L/C. CASH COLLECTION THROUGH LETTER OF CREDIT:A letter of credit is a promise to pay. Banks issue letters of credit as a way to ensure sellers that they will get paid as long as they do what they've agreed to do. Letters of credit are common in international trade because the bank acts as an uninterested party between buyer and seller. For example, importers and exporters might use letters of credit to protect themselves. In addition, communication can be difficult across thousands of miles and different time zones. A letter of credit spells out the details so that everybody's on the same page.

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As we know most of the business is done through L/C. After the shipment of goods, all prerequisite documents specified in L/C is bunched in proper order along with L/C. NALCO cannot supply the goods to the customer if customer doesnt open a L/C. It occurs in different stages. When a customer opens his L/C in bank, then NALCO will receive the order. These documents are then forwarded to SBI, Bhubaneswar branch for negotiation of the L/C. This full set of document is then forwarded by SBI to the opening bank by DHL courier. Opening bank upon receiving these documents sends it to the buyer (customer). The buyer verifies these documents after which the opening bank reimburses the advising bank. After advising bank receives the payment, it transfers the amount to the account of NALCO. Thus in this way realization of sale proceeds is made by NALCO. There are certain time periods for L/C transaction. It means L/C is valid within specified period. If you open a L/C for 1-month, so the validity period is only one month or it is the date of shipment & otherwise L/C is expired. Hence, it should be possible to extend the time or date of shipment in bank. The process is not time taking. If the marketing finance division faces any problem in negotiating the L/C, due to irregularities in documents, immediately export division is to be contacted. Then marketing finance division is to collect the DHL receipt of the documents sent to the opening bank, by SBI. The export division of corporate office looks after the complexities & in turn contact to the party or concerned office or authority & gets the documents regularized. If sometimes such type of complexities arises, then amendment of L/C is done to make the documents negotiable by contacting the buyer. So for cash collection the following persons are involved. Those persons are Seller (NALCO) Customer Advising Bank (SBI, Bhubaneswar) Issuing bank (customer bank)

Stock-yard sales:NALCO also sells its products through stock-yards. There are several stock-yards throughout the country. The stock-yards business transaction is done directly & cash is collected directly

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through online banking, DD or cheques in favour of NALCO, Bhubaneswar payable at SBI commercial branch, Bhubaneswar. The lists of stock-yards are: Faridabad Bengaluru Silvassa Jaipur Damanjodi Kolkata Bhiwandi

STATE BANK OF INDIA (SBI) FAST As SBI is a sole banker of NALCO, so it has introduced a new cash collection system for NALCO. NALCO has opened several accounts in 18-cities within India the customers can herewith deposit the amount in the SBI branches & which is transferred to the central account of NALCO i.e. SBI commercial bank, Bhubaneswar. SBI fast accounts have been opened by NALCO in the following cities: Damanjodi, Kolkata, Bengaluru, Jaipur, Faridabad, Chennai, Mumbai, Rourkela, Indore, New Delhi, Paradip, Hyderabad, Vishakhapatnam, Bhopal, etc. As NALCO has the centralized cash management strategy, so the company is also using ECS (Electronic Clearing System) & EFT (Electronic Fund Transfer). For opening new cash collection strategy SBI is helping NALCO to minimize its float. So NALCO received payment from customers through SBI first by ECS & then by EFT. This SBI fast can be called as the concentration banking system of cash collection. Since NALCO has a lot of stock-yard, so this concentration banking system is possible & smooth going. The concentration banking system or SBI Fast can be explained in the following way:

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Figure 44: SBI Functioning, NALCO The objectives of cash concentration of NALCO are: Minimize transaction cost Administrative cost

Collection centres:Collection centre of NALCOs means from which NALCO is collecting cash. Its collection centres are: New Delhi Mumbai Chennai Bengaluru Visakhapatnam Ahmedabad 6.4 CASH DISBURSEMENT SYSTEM OF NALCO Cash disbursement system is meant to meet all payment obligations in time & cash is described as the lubricant for the ever turning wheel of the business. Therefore disbursement system of NALCO includes the banks & the delivery mechanisms & procedure firm use to facilitate the movement of cash from NALCOs centralized cash pool to disbursement banks & then on to the supplier and other players.

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NALCO issues all the payment through letter of credit, demand draft, NEFT/RTGS and Cheques. In some cases payment is made by cash like allowances, local small vendor payments etc. Cash book is closed everyday with recording of individual denomination of cash held at the end of the day and updated in the SAP database. NALCOs cash disbursement system is of 2-types. International disbursement Domestic disbursement

International Disbursement:In the international disbursement the procedure is same as the export of product which is explained below: As NALCO issues all the payment through letter of credit, DD & cheques. So NALCO opens a L/C for the supplier. L/C is advanced to the supplier through advising Bank i.e. SBI or which bank is specified by supplier. The Party dispatches the material with supporting documents. Supporting documents includes Bills of shipment, Test & inspection certificate, Country origin certificate, packing list, Invoice. Then it is submitted to the advising bank. If documents are ok, then the advising bank makes the payment.

Domestic disbursement:Domestic disbursement means the payment towards supplier of raw material, contractors & other parties from whom NALCO gets goods & services. Supplier bill payment:Supplier bill payment means the payment which is prepared for supplier of raw materials, stores & spares, consumables & capital equipment as per terms & conditions of orders issued by material management department of NALCOs corporate office. It consists of 3 -types of bills. These are: A. General supply bill

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B. Transportation bill C. Raw material bill All these bill payment have a better control by one or more than one person specific to the service area. Again for construction works, contractor bill section has been built. It also works on 3-types. These are A. Repairs & maintenance bill B. Capital addition & modification bill C. Miscellaneous bill Since a large profit making organization NALCO doesnt mind paying earlier or at a time, but always look for getting more discounts for suppliers as well as maintaining quality. It doesnt show much interest in getting credit. Processing of payment through banks:1. Party dispatches supporting documents to the bank on which bank raises amount. 2. Verification of documents in the line with PO. 3. If all the documents are correct, then payment to the bank & collection of dispatched documents after paying 90% of the total payment. 4. Documents which are collected at the bank are sent to stores for materials from transporters. 5. After collection, managements goes for inspection. 6. After inspection if it is ok as per order terms, then materials are stock charged through SRV (Stock Received Voucher) & if not accepted, then OSRD note is raised. 7. SRV is valued at finance. 8. Advance paid, if any is adjusted. Then balance amount is paid through cheques or DD. 9. After SRV the payment is paid directly. Direct Payment:1. Supplier paid the payment directly after SRV. 2. Supplier directly dispatches material with a copy of dispatched documents to finance. 3. Stores collect materials from transporter & arrange inspection, verification and accounting. 4. If materials accepted, then a store raises SRV & if rejected, then OSRD is raised.

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5. Online data transfer is made to SBPS. 6. One hard copy of SRV is sent to finance department. 7. Evaluation of SRV at finance department with dispatch documents received from supplier & PO issued by MMD & then payment to the supplier is made. The disbursement process of NALCO can be explained in following way:-

Figure 45: Cheque Issue System, NALCO

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CONCLUSION

The study involves practical and conceptual over view of decisions concerning current assets like cash and bank balance ,inventories ( like raw materials ,w-i-p, finished goods ), sundry debtors, loans and advances, other current assets and current liabilities like sundry creditors and provisions of NALCO. From the findings, it can be summarized that the inventory is a great concern for NALCO and it needs proper procurement and management. Having a regular sales forecast to determine the amount of raw materials required will help avoid overstocking of raw materials. Techniques of inventory management like ABC, XYZ and FSN will greatly reduce the inventory carrying cost and thereby increase operational efficiency. Thus should be followed with utmost concern. This would in turn ensure funds dont get blocked up in companys operations and in return will reduce raw materials storage costs. Working capital limits would be assessed by frequent cash budget method and projected production method depending on the market condition, scale of operations, nature of activity/enterprise and duration of operating cycle, etc.

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RECOMMENDATIONS & SUGGESTIONS

The recommendation & suggestion for effective management of working capital at NALCO are given below: For inventory, in order to improve the position, NALCO can reduce the level of stocks by resorting to phased production i.e. producing according to requirement and disposing off or recycling the unserviceable inventories. However, the low turnover of stock may also be due to problems with generation of sales. Inventory management is a great concern for NALCO especially stores and spares. The purchase manager should take proper steps for procurement of supplies by optimizing the lead time. The essence of effective working capital management is proper cash flow forecasting. This should take into account the impact of unforeseen events, market cycles, loss of a prime customer and actions by competitors. So, the effect of unforeseen demands of working capital should be factored by company. This was one of its reasons for the variation of its revised working capital projection from the earlier projections. The plant is suggested to maintain a balance in capacities, synchronization of various inputs (raw materials, etc.) which are not easily available. Short term credit period availed must be reduced and sundry creditors should be paid faster. The plant should maintain inventory at an optimum level rather than a very optimistic level. The procurement for materials requisition processing should be reduced so as to minimize the internal lead time.

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BIBLIOGRAPHY

BOOKS M.Y. Khan & P.K. Jain, Financial Management, Tata McGraw-Hills Education, 2007 Dr. P. Periasamy, Working Capital Management, Himalaya Publishing House, 2010 Brigham and Houston, Fundamentals of Financial Management, Cengage Learning, 2011 JOURNALS Annual Reports of NALCO 2007 to 2011. Annual Highlights Report, NALCO 2012-13 Store Manual, NALCO Purchase Manual, NALCO Smelter Performance report, NALCO 2012-13 Refinery Performance report, NALCO, 2012-13 India Infoline, NALCO report, Jan 02, 2009 WEBSITES http://www.rocksandminerals.com/aluminum/process.htm http://www.nalcoindia.com/ http://www.investopedia.com

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CURRICULUM VITAE

NAME: SANKHA CHAKRA MAHAPATRA

DATE OF BIRTH: 16 MAY 1987

EDUCATIONAL QUALFICATIONS 2009, Bachelor in Technology (B. Tech.), Institution: Vellore Institute of Technology, Vellore Specialization: Bioinformatics

WORK EXPERIENCE Tenure: - Dec, 2009 to Apr, 2012 Organization: Tata Consultancy Services Ltd. Last Designation: Systems Engineer

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