Chapter- 1

Working Capital Management

1.1.1 Introduction:

As we know that Working Capital comprise of two words 1st Working

which means to engages in work & 2"d capital which means fund. Thus Working

Capital management is management of funds for day today working. But before

going to such deep study we try to describe Working Capital in the terms of

layman.

We are not aware of the fact that instead of business, Working Capital is

also related to various parts of society, Daily life of peoples, etc. The question

arises how. This can be explained through various examples.

•!• From Students point of view.

¢ Students deposits fee at time of Admission, which is quite a heavy amount,

can be treated as a capital. But during their studies they need money for

expenses on notes, Writing material & other, which can be termed as

Working Capital. Similarly regular students give time for his regular studies

& extra efforts applied at the time of exams can be treated as Working

Capital.

•!• From the House wives point of view.

¢ In Indian family maximum Husbands give a lumsum amount at beinging of

the month to their house wives for Home expenditure. A fixed portion

(Capital) is incurred by housewife in fixed expenses like Rason, Electricity

Bill, fee etc. But she manage some funds if any additional expenses occurs

because of illness to any member of family or any other as the case may be,

can be treated as Working Capital management by House Wives.

•!• From service man point of view.

¢ A man on service gives a fixed portion of his salary for his home

expenditure. He retain a portion for his daily expenses which can be treated

as Working Capital.

- 1 -

Working Capital Management is all time a crucial matter. Approach of

Working Capital is made understood able to a layman because if each and every

person understood the concept of Working Capital then it will became easier for

industries to manage & maintain its Working Capital Efficiently & Effectively.

1.1.2 Meaning :

Working Capital Management plays very important role because the capital

invested by a firm at the time of its establishment they had to manage it & it's

impossible without Working Capital.

Capital can be treated in a two way in any firm. Firm, which used the capital

for its establishment, can be termed as fixed capital. This capital is used to

purchase of land, construction of building, purchase of machinery are all other

necessary integrants for setup an industry. But just to setup is not a motto, when

one has incurred a lots of capital in setting up an industrial unit his main emphasis is

to run it. For its smooth functioning it requires day to day expenses like expenses

on wages, freight of raw material, fund needed to manage the difference between

payment to supplies & receipts form debtors & other like some additional fund

required at the time of some emergency like cash purchase of raw material, lag in

payments, Healy advance etc. If above expenses are not taken care off then the

possibilities for survival of any industrial unit may go in vain. The funds that

require maintain its daily expenses in termed as Working Capital and efficient

management of that capital is Working Capital management.

- 2 -

1.1.3 Definitions :

"Working Capital management is a decision about mix of the current assets

of the firm as well as financing assets."

As there is no universally accepted definition of Working Capital but some

thinker express their view on Working Capital.

According to Gilbert Harold\ "Un fortunately there is so much

disagreement among financiers, accountants, businessmen & economist as

to the exact meaning of term Working Capital".

The accounting principles board of the American Institute of

certified Public Accountants, USA2

has defined Working Capital as follows.

"Working Capital sometime called networking, is represented by the exceres

of current assets aver current liabilities & identities the relatively liquid

portion of total enterprise capital which constitutes a masgin of buffer for

maturing obligation within ordinary operating cycle of business."

Bernstein3

specifies that the basic concept of Working Capital is

excess of current assets over current liabilities."

4 Gerstenberg defines it as "Circulating capital means current assets

of a company that are changed in the ordinary course of business form one

from to another."

According to Guthman5, "It is always current assest over current

lia b iii ties"

Some thinker believes that Working Capital is sent related to CutTent assets.

I. (Gilbert Harold. Corporation Finance P.l32)

2. (Joumel of US Institute ofPublic Accountant quoted by Roy B.Chawdhary "'Practical Financial Statement Analysis P-2)

3. (B.A. Leopard, Financial statement Analysis, theory Application & Interpretation P-442) 4. (Gerstenbery C. W Financial Organisation & Management P-282) 5. (Guthman H.G. ··Analysis of Financial Statement P-63)

- 3-

According to Adam smith 6

"Inventory If a business man does not

provide any profit to him until it converted into capital. He also specifies

that there must to be inflow & outflow of capital in a manner so that he can

receives profit."

7 Walker approaches that " A good current ratio may mean a good

umberclla for creaditors rainy day but to the management it reflects buulty

financial planning."

8 "V.L.Gole observed thinking about Working Capital, fund strikes

current assest minag current libilites in mind"

These from the above approach use can conclude that it's not an easier job

to protect the misuse of heavy amount of capital invested in a firm at the time of its

establishment and to get return form the fund invested. We need some additional

fund for day-to-day expenditure is termed as Working Capital.

While discussing on the matter Working Capital it get a crucial turn into the

concept of Gross Working Capital & Net Working Capital.

"Gross Working Capital as enumerated by the thinkers of financial

management is the items of current assets i.e. the capital inverted in total

current currents of the enterprise"9

"Concept of Net Working emphasis on excess of current assets over

current liabilities i.e.; current assets - current liabilities.10

Further we can conclude of that Working Capital is a capital which in not fixed.

6. (Smith Adam" The wealth of nation P-262- 263 quoted by Roy B Chawdhary "Practical Financial Statement Analysis P-71)

7. (Walker E.W. Essentials ofFinancial Management P-54) 8. (Gole V.L. Op. Cit P-319) 9. (Backer. John. Mallot; lnroduction to Corporate Finance. P-92. Dewing A.S the Financial policy

of Corporation P-686. Sen.A.K. Working Capital in Indian economy P-I 25. Pandey l.M tinancial management P-799-80 I)

I 0. (Adwand. E. Applied Business Finance P-212)

- 4 -

1.1.4 Type ofWorking Capital :

On Time Basis

Permanent we

Variable we

Working Capital

On Balance sheet Concept

Gross Net we we

l+wcl

- 5-

1-WC

On Basic of Operating Cycle

Cash we

1.1.5 Permanent or Fixed Working Capital :

Some companies try to maintain a smooth line of production every time.

Due to this they require a fixed amount of fund for its Working Capital. For this

company fix a target of annual production by taking into consideration Past sales

data, Future demand etc. Also company has to maintain a fixed current asset to

carry its normal business operation. Further it is divided into Regular & Reserve

Working Capital. Permanent/Fixed WORKING CAPITAL may increase at fixed

percentage. Reserve Working Capital is for unwarned situation like strikes,

Inflation, etc.

Temporary

Permanent

Time

£

1.1.6 Temporary or Variable Working Capital :

Temporary/Variable WORKING CAPITAL as its nature denotes it is not

fixed. It fluctuates according to its requirement, which may be seasonal or special.

Variable WORKING CAPITAL may rise due to increase in demand for seasonal

industries. For example if a firm is manufacturing umbrella then it require high

WORKING CAPITAL form May to October in compare to November to April.

Temporary WORKING CAPITAL may rise to upwards as fixed WORKING

CAPITAL.

Temporary

Time

- 7 -

1.1.7 Cash or Operating cycle of WORKING CAPITAL:

Cash or Operation cycle WORKING CAPITAL implies trom the fact within

how much time resources in converted into cash. This start with purchase of Raw

material, Working in progress, Finished goods, Sundry Debtors, Cash Collection

& Payment to creditor. Cash conversion cycle represents cash receipt form debtor

in leiu of credit sales & the cash payments for the company for various resource

purchase.

Sundry Credetior

0 ~ Cash Collection RAWMaterial

D Sundry Debtors WIP

Finished good

1.1.8 Importance ofWORKING CAPITAL:

Working Capital is treated as life blood and liver system of any business.

As a baby need proper care within the first five year from its birth & so on,

Working Capital is very essential for uninterrupted running of business. Lack of

Working Capital lay down hurdles in path of successful run of business enterprise.

1. Solvency of Business : Every one-start business with a capital amount

with an objective to get returns from capital invested. Proper Working Capital

management helps in smooth running of business with proper flow of production

& helps in maintaining its,solvency.

2. Goodwill: If company will run successfully then only it will able to give the

returns to the investors. Proper returns on investment will make an image (Good­

will) in market, which is not possible without adequate Working Capital.

3. Easy availability of Finances: It's a myth that one can invest in a running

work. Handicapped are not cared. If a company is running successfully by Work­

ing Capital Management then company can returns finance from market easily for

new ventures.

4. Discount : Supplier if get timely payment in lieu of goods sold then they

will provides various facility like discounts schemes on purchase & hence it

reduce cost.

5. Regularity in resources : A product gets its final shape through various

process of production like material, man, money, etc. Material is supplied by

creditors that are converted in finished good with the help of labor with other

attributable expenditures. we paid wages to Labours in lieu of their help. Working

Capital Management helps in regularly in resource through timely payments of

resources.

6. Favoring Market Condition : Proper arrangement of Working Capital

help is making favorable market condition like one can purchase Raw Material in

bulk if available at low price.

n

7. Help to Face Crisis: Market conditions are always in certain. One cannot

make an accurate prediction of market. Working Capital Management provides an

assistance to face crisis of market if occurs any time.

8. High Moral : Adequate Working Capital help in continuity in production,

supply, and payments to all the resource of production. Thus it helps in creating an

environment of security, confidence, satisfaction & high morale as well as helps in

creasing overall efficiency of business.

- 10-

1.1.9 Factor determining WORKING CAPITAL of Business:

I. Nature of Business: The frist and for most factor which determine Working

capital of business is its nature. I fa business enterprises deals in cash only then its

requirement of WORKING CAPITAL is less and vice versa. Public service

undertakings like Railway, Post, Electricity, Water Supply, Television etc. requires

less Working Capital. But firm like Financial Institutions, Banks, Financial

Corporation requires more Working Capital.

2. Size of Business : When the size of Business unit is large or big the

requirement ofWorking Capital is more in compare to small business organization.

3. Production Policy: It is also an important factor in detennination of Working

Capital. It concern produce more to meet the demand of peak season then the

requirement ofWorking Capital for that term will rise.

4. Length of Production Cycle: Length of production cycle determines the

requirement of Working Capital because longest the process of manufacturing,

more will be requirement of Working Capital. For shortest production cycle there

would be less requirement of Working Capital.

5. Seasonal Variation : Raw material are not available for some industries

throughout the year therefore they had to purchase bulk raw material at its

availability. At that time the requirement of Working Capital increases. Demand can

also be a constitute of seasonal variation. For example paper industries had to

produce more at the beginning of educational term there fore there may be rise in

Working Capital.

6. Working Capital Cycle : It consists of conversation of Raw material to

finished goods and there sales. If credit sales then its collection too. How fast the

cycle is complete the requirement of Working Capital is less.

7. Credit Policy : It effects the requirement of Working Capital too much.

As the firm sales its goods on credit and purchases are made on cash then the

requirement of Working Capital is quite large in compared to opposite firm .

. II .

8. Rate of Stock turnover: Time when keeps high rate of stock turn requires

less Working Capital in compare so those who keeps low stock turn over.

9. Rate of Growth of Business : If a Business is in growing stage then

requirement of Working Capital Increases because of expansion of Business.

10. Economic Environment/Business cycle : If there are favorable

environment of business (i.e. boom period) then to meet the needs of market they

had to do more i.e. requirement of Working Capital increases but there is good

supply of capital too. But if conditions are not favorable then large amount of

Working Capital lay idle.

11. Changes in price level or Income level : If the flow of money in the

market is sufficient then there is increase in the earning capacity of firm. At that

time requirement of Working Capital is less.

12. Management Efficiency & Operation: If the operations performed by it

at its maximum and its management is well enough in then work then the

requirement of Working Capital is less.

Thus with the help of above factor a finn can able to visualize its

requirement of Working Capital accurately. But one can also remember that future

is always uncetiain.

- 12-

1.1.1 0 Calculation of Working Capital (Standard Format): -Various authors

Gurus of Financial Management Working Capital Management like V.K Bhalla,

R.K.Sharma & B.N.Gupta, Gerlord, Gilberth and other has given the format

of calculation of Working Capital.

Statement of Working Capital Requirement Particulars Amount Amount

(Rs.) (A) Current Assests --

(i) Stock of Raw Material --(ii) Working in progress --

(a) Raw Material (1 00 %) --(b) Labor (1 00% or 50% as given

in Question) --(c) Overhead --

(iii) Finished goods --(a) Raw Material --(b) Labor --(c) Overheads --

(iv) Debtors --(v) Advance/Prepaid --(vi) Cash (if any) --

Total Current Assets (A) -- --(B) Current Liabilities --

(i) Sundry Creditors --(ii) Lag in payments (outstanding) --

(a) Wages --(b) Over head --(c) Others --

Total Current Liabilities (B) -- --Working Capital (A-B) --Add :-Provision for contingency --Net Working Capital Requirement -- --

Notes:

I. Protits are always ignored while calculation Working Capital

2. Debtors & stocks are calculated as requirement of problem .

• 13-

1.2 Cement Industry Introduction

Of late, Cement companies have been doing well. Most of the companies

have posted a healthy bottom line growth during the financial year 2003-04

piggy backing higher sales, improved price realization and lower interest costs.

This fact is well illustrated by rise in the IlL Cement index. On the full year basis,

IlL Cement index has outperformed the Nifty comfortably. This trend is expected

to continue in the future as well considering the Governments commitment to boost

infrastructure and economic reforms. The efforts here are to help expansion in

GDP that has been growing at faster pace, second only to China.

Cement demand is expected to grow considering its correlation with GDP

growth, which is estimated to enhance by 7.5-8% during FY05.

Ill CfM Vs NIIIW

JQOil

2500

mo mn mu ~UD

0 s ~ ,. ;;.;. (;! "' E1 E! !;) ~ e ~ ~ ~

" Q " " $ ~ iii ~ ~ ;:; ~ ;; ~ i,i ~

1~1\i.ceM -Ndtr 1

Financial performance of select cement companies:

~Figures in Rs mn)

jCompany FY04 FY03 (%) I FY04 I FY03 1 (%) I l IACC 1s 2642J 13S1j 961

-~--

32845 28604 (11)

iGrasim 24199[ 21885 11 2957 2213j 331 (14),

llnd1a Cement '

I 10169 8516 19 (1366) (3072)! 56 -------(3aT - '

!Madras Cement 6946 6261 11 541J 2331 132 (25)1 ··---·!

IDalm1a Cement (5)! 309j 256! 211 {3~--iShreeCem;;;-----· ::-:-::l!----:::(2:+)J-2:::1-::-8ll123[-77!-·---·i4j ___ _

lf.::G-uJa'"'ra""t7Am"'b'""u-=-Ja":---+=:::+---:-~ 8 22561 17221 Jif·------(1oi] ___ - · ----r---·-

BIIrla Corp 10 416 521 (20)1 -'-'-

161 (6)

5! (7) .T

3 51

51 5

• 9 months

Source: India Jnfoline

- 14-

l.2(a) Current Industry Scenario :

In terms of volume, during FY04, cement dispatches increased by 5.5% to

II 7mn ton from Ill mn ton. Increased emphasis on infrastructure development

pushed up the demand. Cement prices too, on a yoy basis, increased substantially.

Cement prices rose by almost 6% to 21%, in different regions, over previous year

levels. The surge in the sales has also resulted into higher capacity utilization.

These factors had positive impact on cement companies performance during FY04.

Higher price realisation has also provided leg up in the over all showing.

Cement firms in the southern regions fared better than their counter parts in

northern and western regions. Southern firms' price realisation stood between 7%

and 11%, while that of northern and western firms hovered between 4.5% and

5 .5%. Shree Cement had a negative realisation.

Tight cost control measures are primarily responsible for improved

efficiency. Captive power consumption, market realignment efforts and good

Working Capital management jacked up cement companies profitability. Low inter­

est regime have also aided in lower interest cost and, in turn, improved bottomline.

1.2(b) Individual Companies Performance:

Two cement majors, Grasim Industries and UltraTech Cemco (erstwhile

L&T) saw a huge increase in cement sales and despatches. For Grasim sales were

up 11% and despatches yoy were up 118%. Ultratech Cemco sales were up 7.1%

despatches were up marginally by 0.7%. Both these companies saw a 5% and 2%

increase in operating margins respectively. Now that Grasim has taken over the

management control in UltraTech Cemco, it has emerged as a biggest player in

India and the seventh largest in the world.

A 14.8% rise in sales turnover helped ACC, another cement major, to record

second-highest net profit in its history. The company's net profit skyrocketed by

92.74% to Rs2,bn. Its sales turnover rose to Rs3.3bn in FY04 from Rs2.9bn in

FY03. The company's operating margins was up by 200bps to I 1.7%. This was

possible through higher sales realisation, at 3.5%, and improved operating

efficiencies and Working Capital management.

- 15-

Gujarat Ambuja, for the nine months period has reported 8.1% yoy increase

in net sales to Rs 13. 7bn as against Rs 12.6bn during the same period last year. Net

profit of the company increased by 53% yoy to Rs2.2bn as against Rs 1.4bn in the

corresponding period last year. Its sales realisation stood at 3%

Among the other listed firms such as India Cement, Chettinad Cement, Birla

Corp and Madras Cement have clocked a double-digit growth in sales. On an

average, sales turnover of the cement firms rose by II% during FY04.

1.2(c)

•

Outlook:

Cement industry recorded a growth of5.5% in FY04 and is likely to

grow by 8-9% in the next 1-2 years. This translates into an

incremental demand of 1 Omn ton per year.

• The increasing road and house construction activity across India,

coupled with the growing demand and rising prices augurs well for

cement companies.

• With no major capacity coming up in 2004-05, the higher demand will

be met through de-bottlenecking and an increase in the blending rate,

thereby pushing up the industry operating rates.

• Limited capacity expansion plans combined with price and volume

growth and unaltered freight rates, in the Railway budget, would lead

to higher operating rates and boost cement majors profitability.

- 16-

1.2(d) Cement Sector Update January 2004 :

• Cement consumption rose by 5.8% yoy to I 0.2mn ton in January 2004.

• South remained the largest cement consuming region with 28%

consumption share (26.3mn ton in Apr-Jan 2003-04) and 27% in the month

of January 2004 (2.6mn ton). North was the second largest cement

consuming region with 20.1% consumption share ( 18. 7mn ton in Apr-Jan

2003-04) and 19.7% in the month of January 2004 (2mn ton).

• Cement export declined sharply by 35% yoy in January 2004 to 0.24mn ton

from 0.37mn ton in the corresponding month last year.

Clinker exports grew by 38% yoy in January 04 to 0.4mn ton from 0.29mn

ton in the same month last year.

Despatches of Key Players :

~ ..

---1~~;;. yoy r·-,.,p;::~~.;-o.;· T ·;j;;::iano3·r %·;c;y-·; · ---T 1. 1.19 ·-mi'i"[-·-··-1TsT···-1o:i2l·-·--u:d ' I

GACL 1.16 1.14 2.36J 10.76i 9.45 13.88 I ,- ' IL&T 1.16 1.02 13.671 9.92! 10 04 (1.19)

~'~--------0.391

y---···--------------jBirla Corp 0.40 2.991 3.891 3.72 4.61

IShree Cement + 0.24 0.22 12.141 2.33i 2 27 2.68

!Madras Cement ' 2891--2~85 027 02611 2.59 1.49 -~-~"-"'"-' -·--------

India Cement 0.47 0.45;1 3281 5.151 4.91 4.91f ' I

Total Domestic Consumption 5.11 4.68l 9.181 47.521 43.351 9.641 --·-···---.,~-

Source: CMA

- 17-

1.2(e) Company wise Performance:

ACC outnumbered the industry by growing at 24.4% yoy to 12.6mn ton

during Apr-Jan 2003-04 as against the industry growth rate of 9.6% yoy in the same period. While for the month of January 2004, ACC grew by 17% yoy to

l.4mn ton as against the industry growth rate of 9.2% yoy in the month under

review.

Gujarat Ambuja group registered a growth of 13.9% yoy in despatches to

10.8mn ton during Apr-Jan 2003-04 as against the industry growth rate of9.6%

yoy in the same period. The company registered a growth of 2.4% yoy in

despatches at 1.2mn ton for January 2004 compared to the industry growth rate of

9.2% yoy.

L & T registered 14% yoy growth at l.2mn ton in despatches in January

2004, however during Apr-Jan 2003-04 despatches declined by 1.2% yoy to 9. 9mn

ton. Despatches oflndia Cement have shown 3.3% yoy growth in January 2004 &

a cumulative growth of 4.9% yoy to 5.2mn ton in Apr-Jan 2003-04.

Cement despatches ofBirla Corp and Madras Cement registered growth of

3% yoy (0.4mn ton) and 2.6% yoy (0.3mn ton) respectively in January 2004.

Despatches ofShree Cement increased by 12% yoy to 0.24mn ton in January 2004

while cumulative sales grew by 2. 7% yoy to 2.3mn ton.

1.2(f) Monthly consumption trend :

l2

!Q

e j 6

~ 4

2

0

Source: CMA

'· ·I\ ,,

'

' t--J\

•

l

3(1

15 20 1S ~ 10 ~ $ 1-0 .$

-10

Domestic cement consumption in January 2004 grew by 5.8% yoy to

I 0.2mn ton as compared to 9.64mn ton in the con·esponding month last year.

During the first ten months of FY04, cement sector grew by 3.2% yoy.

Domestic consumption has increased from 92.2mn ton in Apr-Jan 2002-03 to

95mn ton in Apr-Jan 2003-04.

- 18-

1.2(g) Regional consumption trends:

Apr -Jan 2003-04

Central North 17% 20%

~;:~~:: South 28%

r:J North liil East D South D West Iii Central

January 2004

Central Not1h 17% 20%

~ ~ West , , East

21% 15% South 27%

D North iii East D South D West liil Central

Source: CMA(Cement Manufacturing Association)

South remained the single largest region with a 28% consumption share at

26.3mn ton during Apr-Jan 2003-04 and 27% share at 2.6mn ton in the month of

Janumy 2004.

North was the second largest cement consuming region with 20.1% con­

sumption share at 18. 7mn ton in Apr-Jan 2003-04 and 19.7% share at 1.96mn ton

in the month of January 2004.

- 19-

Regionwise production & despatches (mn ton)

~~i~nn) Jan-04 iro~~~~~3n I %mom ~-04 Drffe:~~~:r% ~0~ I [North ___ [

, ____ -·--

3.02 (2.2)

ceniffir 1.49[ D4-s}---- -1:4or-----3~2 ]"ot~I ___ :]_ ___ _!_0.22l ~ 1~:3~[~~~ -~~~s[:_=-~-~~6

----2.10 (1.8) 1.49 0.1:1

10.06 ~·~1 __ ·-

Source: CMA

Price scenario in key cities

Source: India Infoline

In February 2004, the cement prices in Ahmedabad have increased sharply

by 13.7% mom to Rs158 from Rs139 in January. However, in Hyderabad the

prices have declined by 5.4% mom to Rs123 per bag from Rs130 and in Mumbai

by 1.8% mom toRs 168 per bag as against Rs 171 in the previous month. In Calcutta

and Delhi the prices have remained constant at Rs 165 and Rs 145 per bag

respectively.

- 20-

1.2(h) Trend in cement exports :

0.40

2 0.35 0

~ 0.30

';; 0.25 t: g_ 0 20 olj

015

0.10 "'

Source: CMA

/

/, r---- I 'I\ ' '

. ' "' -"""~-..

80

60

40

20 ~ "' 0

-20

-40

On yoy basis cement export in Apr-Jan 2003-04 grew marginally by

0.4% yoy to 2.77mn ton from 2.76mn ton in the corresponding period last

year. However, in January 2004, cement exports declined sharply by 35%

yoy to 0.24mn ton as against 0.37mn ton in January 2003. Nepal, Sri Lanka

and Iraq have been the major contributors to exports.

Cement exports (mn ton)

2003 04 2002 03 i---·--....... ____ .. -- .. ~.-- - -. -· --- ---~"'~- """"-"·~~-~-- --- ·-· ___ .. _. _________ , ___ -~~- .... ... .. -~··

April 0.31 0.30[

~ay~~--· 0.27 ------+H:~---. ------~----

June 0.26 July 0.27 0.201 ..

0.21·1 iAug 0.25 ['------ -- __ .. __ ... ______ 0.-2sr· .. ----rsept 0.25 lOct 0.26 0.26 Nov 0.36 0.21-r----·;r--------Dec 0.30 0.36

[!otal t= 0.241

Source: CMA

- 21 -

l.2(i) Trend in clinker exports :

Clinker exports grew by 38% yoy to 0.4mn ton from 0.29mn ton in the

corresponding month last year. During the first ten months ofFY04 clinker exports

recorded a sharp growth of 72.6% yoy to 4.59mn ton compared to 2.66mn ton in

Apr-Jan 2004. U.A.E, Nepal, Bangladesh and Qatar have been the major

contributors to exports.

Clinker Exports

0.49 0.50 0.52 0.52

0.32

"' "' .,

"' "' "' 0 0 0 0 0 0

l:i ,._ c 3 0) Q.

" ::! - " •• <( :2 - <( (f)

DApr-Jan 04

Source: CMA

Clinker exports (mn ton)

Source: CMA

0.59

"' 0

u 0

0.63

"' 0 > 0 z

1i1Apr-Jan 03

0.41

"' 0 u

" Cl

1.2(j) CEMENT PRODUCTION AND DESPATCHES

APRIL 2005

l. Analytical Review

(a) Cement Production and Despatches

During April 2005, Cement Production was 11 .41 Mn.T, showing a

growth of7.24% as compared to 10.64 Mn.T in April 04.

Cement Despatches grew by 9.25% from 10.49 Mn.T in April 04 to

11.46 Mn.T in April 05.

(b) Cement/Clinker Export

During April 2005, Cement Export showed a growth of 20% (from

0.40 Mn.T in April 04 to 0.48 Mn.T). Clinker Export showed a decline of 12.24%

(from 0.49 Mn.T in April 04 to 0.43 Mn.T ).

Capacity at the beginning of the year 2005-2006 is 152.09 Mn.T.

Capacity as on date - 152.09 Mn.t.

1. Cement:

Apr 2005 Mar 2005 Apr 2004 2005-2006 2004-2005

{Apr)

(a) Production 11.41 12.02 10.64 11.41 10.64

(b) Despatches 11.46 12.12 10.49 11.46 10.49 (Including Export)

(c) Export 0.48 0.44 0.40 0.48 0.40

(d) Closing Stocks 0.97 1.07 1.12

(e) Cap. Uti. (%) 90 95 87 90 87

2. Clinker (Mn. T.)

Apr 2005 Mar 2005 Apr 2004 2005-2006 2004-2005

(Apr)

(a) Production 9.34 9.79 8.62 9.34 8.62

(b) Sale 0.20 0.24 0.22 0.20 0.22

(c) Export 0.43 0.62 0.49 0.43 0.49

(d) Closing Stocks 4.37 4.51 4.46

- 23-

3. Coal

Apr 2005 Mar 2005 Apr 2004 2005-2006 2004-2005

(Apr)

(a) Coal Receipts 1.16 (P) 1.24 (P) 1.14 1.16 1.14 (Mn. T.)

(b) Coal Loading 1156 1197 896 (FW/Day)

4. Varietywise Cement Production- 2004-2005 (Apr-Mar)

Region OPC PPC PBFS

North 49 50 -

East 12 46 41

South 46 48 5

West 76 21 2

Centre 24 75 -

All India 43 48 8

5. Wagon & Rail-Road Despatches

(b) %age Rail to Total Desp.

33

70

32

- 24-

(Percentage) Others Total

1 100

1 100

1 100

1 100

1 100

1 100

(Apr-Mar)

63 77

35 33 34

6. % growth in Cement Production- (2005-2006/2004-2005) (Apr)

State %age State %age Change Change

Northern Region Western Region

Punjab 24 Gujarat 10

Rajasthan -0.3 Maharashtra -4

Himachal Pradesh 4

Northern Region 4 Western Region 3

Eastern Region Central Region

Bihar 38 Uttar Pradesh 29

Jharkhand 11 Madhya Pradesh 9

Orissa 23

West Bengal -3

Chhattisgarh 3

Eastern Region 7 Central Region 13

Southern Region

Andhra Pradesh 10

Tamil Nadu 17

Karnataka 1

Southern Region 10

All India 7

Note : Fzgures only for maJOr cement producmg states are gzven.

-25-

7. %growth in Cement Consumption- (2004-2005/2003-2004) (Apr-Mar)

State %age State %age Change Change

Northern Region Southern Region

Uttranchal 8 Andhra Pradesh -3

Haryana 14 Tamil Nadu -1

Punjab -3 Karnataka -7

Rajasthan 5 Kerala 3

Himachal Pradesh 5

Delhi 11

Northern Region 6 Southern Region -2

Eastern Region Western Region

Bihar 21 Gujarat 11

Jharkhand 14 Maharashtra 8

Orissa 14

West Bengal 8

Chhattisgarh 45

Eastern Region 16 Western Region 9

Central Region

Uttar Pradesh 5

Madhya Pradesh 13

Central Region 8

All India 6

Note : Figures only for maJor cement consummg states are given

-'" -

1.2.1 COMPANY PROFILE

The present unit of Grasim Cement and Ultra Tech Cement at Raipur is a

part of Cement division of Aditya Birla Group. The profiles of Aditya Birla Group

and that ofGrasim and UltraTech Cement are discussed below-

A PROFILE OF ADITYA BIRLA GROUP:

The Aditya Birla Group is India's first truly multinational corporation.

Global in vision, rooted in Indian values, the Group is driven by a performance

ethic pegged on value creation for its multiple stakeholders. A US$ 6.5 billion

conglomerate, with a market capitalisation of US$ 7 billion, it is anchored by an

extraordinary force of 72,000 employees belonging to over 20 different

nationalities. Over 30 per cent of its revenues flow from its operations across the

world. The Group's products and services offer distinctive customer solutions.

Its 66 state-of-the-art manufacturing units and sectoral services span India,

Thailand, Indonesia, Malaysia, Philippines, Egypt, Canada, Australia and China.

A premium conglomerate, the Aditya Birla Group is a dominant player in all

of the sectors in which it operates. Such as viscose staple fibre, non-ferrous

metals, cement, viscose filament yarn, branded apparel, carbon black, chemicals,

fertilisers, sponge iron, insulators and financial services.lt is:

·· The world no. I in viscose staple fibre

·· The world's largest single location palm oil producer

·· Asia's largest integrated aluminium producer

·· A globally competitive, fast-growing copper producer

·· The world's third largest producer of insulators

·· Globally, the fifth largest producer of carbon black

.. The world's eight largest producer of cement, and the largest in a single geography

.. India's premier branded garments player

.. Among India's most energy efficient private sector fertiliser plants

.. India's second largest producer of viscose filament yarn

.. The no. 2 private sector insurance company, and the fourth largest asset management company in India

The Group has also made successful forays into the IT and BPO sectors.

-27-

Vision ofthe Group: To be a premium global conglomerate with a clear focus on each

business.

Group's Mission:

To deliver superior value to our customers, shareholders, employees

and society at large.

Group's Values:

• Integrity

• Commitment

• Passion

• Seamlessness

• Speed

Grasim Industries Limited, a flagship company of the Aditya Birla Group,

ranks among India's largest private sector companies, with a turnover ofRs. 624 7.10

crore for Fy 2005. Starting as a textiles manufacturer in 1948, Grasim's businesses

today comprise Viscose Staple Fibre (VSF), cement, sponge iron, chemicals and

textiles. The Company holds a dominant position in its businesses:

Viscose staple fibre :

The Aditya Birla Group is the world's largest producer of VSF,

commanding a 24 per cent global market share. The Company meets over 98 per

cent oflndia's domestic VSF requirements

Cement:

Grasim is the world's eighth largest cement producer, and the largest in a

single location With a total grey cement capacity of 13.12 million tonnes per annum

(tpa), Grasim is among the largest producers of grey cement in India. All its plants

are located close to sizeable limestone mines and are fully automated to ensure

consistent quality. All the company's cement units are equipped with state-of-the­

art equipment and are ce11ified with ISO 900 I for quality systems, and ISO 14001

- 2!1 -

for environment management systems. Its national brands are Birla Plus, Birla Su­

per and Birla Ready Mix concrete.

Sponge iron :

It is the largest merchant producer of sponge iron in India

Chemicals:

Grasim has India's second largest caustic soda unit

Textiles:

Its premium brands, the 'Grasim' and 'Graviera' range of fabrics, have

distinctively positioned themselves as 'the power of fashion'.

All of Grasim's units have earned ISO 9002 and 14001 certifications.

Product quality, innovation and ceo-friendliness are a hallmark of all

the Company's divisions

Capacities Division

Viscose Staple Fibre (VSF)

Grey cement

Grasim Industries

Shree Digvijay Cement

Total

White cement

Sponge iron

Chemicals

Textiles

Vikram Cement :

2,51,850 tpa

12.92 million tpa

1.08 million tpa

13 .12 million tpa

400,000 tpa

900,000 tpa

190,800 tpa

Capacity

18 million metres a year

The first production line of this unit at Jawad (Madhya Pradesh) went on

stream in 1985, with a capacity of0.5 million tpa. Today, with a capacity of a 4.20

million TPA, Vikram Cement has emerged as a premium regional brand,

well-reputed for its strength and consistently superior performance.

The Vikram Cement unit is one of the few plants to have its own Central

-29-

Research and Development Centre. The first ISO 900 I cement plant in the coun­

try, Vikram Cement has also taken the lead in innovative raw mix designs and

process conditions.

Vikram Cement has won several accolades at the national and international

level for its quality, efficiency and environmental initiatives. These include:

• The first Indian unit to win the coveted TPM award from the Japan Institute of

Plant Maintenance, Tokyo in 1995

• The Ramakrishna Bajaj National Quality Award in 1998

• The first cement unit in the world to receive IQRS - Level 6 rating from DNV,

Netherlands.

• The first cement unit in India to receive IS0-14001 (EMS certification from

DNV, Rotterdam, Netherlands) in 1997 and the Occupational Health and Safety

Assessment series- 18001 (certification from DNV, Rotterdam, Netherlands) in

2001.

Aditya Cement :

Commissioned in a record time of 22 months as a Greenfield 1.0 MTPA

plant in 1995 in Shambupura, Rajasthan, its current capacity is about 1.50 million

TPA.

Some of the prestigious awards won by this unit include:

:: Aditya Limestone Mines wins the following awards at the Mines Safety Week

2004, Udaipur:

• Mines machinery and maintenance: first

• Safety, occupational health and VTC: first

• Mine working: second

• Environment protection, publicity, propaganda

and housekeeping: second

-30-

• Overall performance: second

.. Best Productivity Award by National Productivity Council for 1999

:: The National Energy Conservation Award by Ministry of Power, Government

oflndia, and Best Energy Efficient Unit Award by CII for the year 2000

:: IQRS level rating from DNV, Netherlands, in the year 2000

:: First in India to achieve Certification ISO 900 I :2000 by DNV, Netherlands,

2001

.. TPM Excellence Award- first category by JIPM, Tokyo 200 I

Rajashree and Birla Super cement :

Commissioned in 1984, Rajashree Cement has a capacity of 4.20 million TPA.

The salient facts about Rajashree Cement are:

·• Coal-based thermal power plant with a 38.5 MW capacity

:: Modern dry process technology from KhD, Germany, with a state-of-the-art

process control system

.. The only cement plant in India with a captive coal washery

.. First in India to achieve Certification ISO 9001:2000 by DNV, Netherlands,

2001

:: Cement varieties catering to different segments: Rajashree Cement for

residential and commercial construction; Birla Super Cement for multi-storeyed

buildings, dams and bridges; Birla Plus for mass concrete laying and non­

structural applications, Birla Coastal for foundation work and for use in coastal

areas as well as sugar and fertiliser plants, and OPC 53 - S (sleeper grade

cement)

Some of the awards won by this unit are:

:: National Award for 'Quality Excellence in the Indian Cement Industry' by the

National Council for Cement and Building Materials, for the year 2000-01

:: IMC Ramakrishna Bajaj National Quality Award (certificate of merit) in 1999

.. Jamnalal Bajaj Uchit Vyavahar Puraskar for Fair Business Practices in 1995

.. Rajiv Gandhi National Quality Award in 1993

Grasim South :

Grasim acquired Dharani Cements (since merged with the company) in April

1998. The company has a cement plant at Ariyalur, Tamil Nadu. In April 2000, a

state-of-the-art cement plant, among the most modern in Asia, was commissioned

at Reddipalayam, Tamil Nadu. This unit now has a capacity of 1.16 million TPA.

This is the only plant to be equipped with an auto/ robot lab system for

consistent quality and optimising cost. Apart from these, the auto/ robot lab

assures:

.. quality cement of world class standard

:: accuracy and consistency

Kamal Cement

Acquired by Grasim in 1998, Shree Digvijay Cement Company Ltd (SDCC)

is situated at Sikka (Gujarat). It has an annual capacity of about 1.08 million TPA.

All of SDCC 's products are marketed under the brand name 'Kamal'.

The company has ISO 9002 certifications for its clinker and cement

production and its oil well cement has been authorised for the use of the

monogram of the American Petroleum Institute.

The company has a captive jetty with a dry cargo capacity of3 million TPA.

This jetty is used to export cement and clinker and to import coal for captive use.

Grasim Cement :

Grasim Cement was set up as a greenfield cement plant at Raipur,

Chhatisgarh, in 1995. Based on the most advanced technologies, this plant has an

annual installed capacity of2.06 million TPA.

The plant's unique features include :

.. .. Asia's first gamma ray belt analyser from Gamma Matrix (USA) ensuring

the highest standards in online quality control.

India's first polycom (blast furnace slag grinder) with a dynamic air

separator from Krupp Polysius Germany, which helps to generate the

desired homogeneous particle size distribution.

-32-

.. One of the few single kiln cement plants producing more than eight

varieties of cement. .. .. Its captive power generation ensures a reliable power supply. The plant is

also an ISO 14001, ISO 9001, and IQRS L-5 certified unit.

Plant

Rajashree Cement

Vikram Cement

Grasim Cement

Aditya Cement

Cement Division South

Total

Shree Digvijay Cement

Total (incl subsidiary)

• Location

Malkhed and Hotgi grinding unit

Jawad and Bhatinda grinding unit

Raipur

Shambhupura

Reddipalayam

Sikka, Gujarat

Capacity (m m1ll1on tonnes)

4.20

4.20

2.06

1.50

1.16

12.92

1.08

14.00

Grasim was incorporated on August 25, 194 7, just 10 days after India

became independent, manufacturing textiles made from imported raw materials. It

is now a global leader in viscose staple fibre (VSF), the country's largest merchant

producer of sponge iron and the second-largest caustic soda maker in India; and

poised to be India's largest cement manufacturer.

-33-

History Of Grasim Industries Ltd.

2004 .. Completion of the implementation process to demerge the cement business of L&T

and completion of open ofter by Grasim, with the latter acquiring controlling stake in the newly formed company Ultra Tech

.. Board reconstituted with Mr. Kumar Mangalam Birla taking over as Chairman

2003 .. Grasim's Chemical Division receives the SA 8000 (Social Accountability) and

OHSAS 18001 certifications.

.. The board of engineering major Larsen & Toubro Ltd (L&T) decides to demerge its cement business into a separate cement company (CemCo ). Grasim will acquire an 8.5 per cent equity stake from L&T and then make an open offer for 30 per cent of the equity ofCemCo, to acquire management control of the company.

2002 . . VSF Research & Application Centre set up at Kharach in Gujarat

.. The Grasirn Board approves an open offer for purchase of up to 20 per cent of the equity shares of Larsen & Toubro Ltd (L&T), in accordance with the provisions and guidelines issued by the Securities & Exchange Board of India (SEBI) Regulations, 1997.

.. Grasirn increases its stake in L&T to 14.15 per cent

.. Grasim divests its Gwalior unit to Melodeon Exports Ltd, and consolidates all textile operations at the Bhiwani unit, which will manufacture both the 'Grasim' and 'Graviera' brands at a single location.

2001 .. Grasim acquires 10 per cent stake in L&T. Subsequently increases stake to 15.3 per

cent by October 2002

.. Four ready-mix concrete plants commissioned, with an aggregate capacity of one million cubic metres per annum.

.. Divests holding in Birla Technologies to PSI Data Systems.

2000 .. The Lawson Competency Centre is set up as a division of Birla Consultancy &

Software Services, the software ann of Grasim, following a tie up with Lawson Software (USA), among Fortune's top five private software companies.

. . Consultancy and software services are spun off as a separate entity. called Birla Technologies Ltd.

-34-

1998 .. Grasim's tirst major acquisition overseas- the Atholville Pulp Mill in Canada.

. . Grasim acquires Dharani Cements Ltd.

· · Grasim acquires Shree Digvijay Cements Ltd.

.. The cement business of group company, Indian Rayon and Industries Ltd (IRIL), is transferred to Grasim in a corporate restructuring exercise.

1996 :: The first phase ofGrasirn's fourth VSF plant commissioned at Kharach, Gujarat.

1995 .. Grasim commissions two greenfield cement plants - Grasirn Cement at Raipur

(Madhya Pradesh) and Aditya Cement at Shan1bhupura (Rajasthan).

.. Grasirn sets up two new spinning units- Elegant Spinners at Bhiwani (Haryana) and Vikram Woollens at Malanpur (Madhya Pradesh) .

. -·~ 1994 .. Second issue of GDRs on June 15, 1994 for US $100 million.

Nos: 4,878,048

1993 :: Vikram I spat, India's third-largest gas-based sponge iron plant, is commissioned.

.. Birla Consultancy & Software Services is set up, to provide IT consulting services and for software development

1992 .. Grasirn sets up Birla International Marketing Corporation (BIMC), a merchant

exporter. .. First GDR ISSUe on December 2, 1992 for US$ 90 million. ..

Nos: 6,933,745

1991 :: A third production line is added at Vikram Cement.

1987 :: Vikram Cement's second production line is commissioned.

-35-

1985 . . Vikram Cement - Grasim's first cement plant - goes on stream at Jawad, Madhya

Pradesh.

1977 :: Grasim's third rayon plant- at Harihar, Karnataka- goes into production.

1972 · · A completely indigenous plant based on Grasim's own engineering and know-how,

begins production at Harihar, Kamataka.

· • Grasim commences production of rayon grade caustic soda - a major raw material for VSF production - at Nagda; another step towards becoming self-reliant

1968 :: Rayon production commences at Mavoor, Kerala.

1963 · · Grasim sets up its first rayon grade pulp plant at Mavoor, Kerala; the first to make

rayon grade pulp from bamboo and other hardwoods.

• · Grasim purchases a composite textile mill at Bhiwani, Haryana.

1962 .• Grasim starts an engmeermg division to provide plant and machinery for VSF

production.

1954 :: Grasin1 begins rayon production at Nagda.

1950 • • Grasim launches production of fabrics at Gwalior using imported rayon - a man-made

cellulose fibre.

1947 :: Grasim Industries Ltd is incorporated.

-36-

1.2.1.2 ULTRA TECH CEMENTS

Ultra Tech Cement Ltd., a Grasim subsidiary, has an annual capacity of 17

million tpa. It manufactures and markets ordinary portland cement, portland blast

furnace slag cement, portland pozzolana cement and grey portland cement.

UltraTech Cement has five integrated plants, five grinding units, and four

terminals-three in India and one in Sri Lanka.

Integ rated plants

location

Gujarat Cement Works (Pipara)

Andhra Pradesh Cement Works, Andhra Pradesh (Tadpatri)

Hirmi Cement Works, Chhattisgarh

Awarpur Cement Works, Maharashtra

Jafrabad Cement Works, Gujarat

Grinding units

Jharsuguda Cement Works, Orissa

Arakonam Cement Works, Tamil Nadu

West Bengal Cement Works, West Bengal

Magdalla Cement Works, Gujarat

Ratnagiri Cement Works, Maharashtra.

Total

Exports:

Capacity (million tpa)

5.3

2.3

1.6

3.3

0.4

0.8

1.2

1.0

0.7

0.4

17.0

Ultra Tech Cement is the country's largest exporter of cement and clinker.

The Company exports over three million tones per annum, which is about 4 7 per

cent of the country's total exports. Cement and clinker is exported to countries

around the Indian Ocean, Africa, Europe and the Middle East. Europe and UAE

are the major markets for Ultra Tech Cement.

Narmada Cement Company Ltd. is a subsidiary of the Company

-37-

1.2.1.3 Corporate Principles :

Since the founding of this group, it has collectively endeavored to steer the

Group companies on the growth path through practice of sound moral, ethical and

business principles that are crucial to sustainable performance.

It believes that its employees provide it with cutting edge and help to deliver

values for its shareholders, its customers and society at large. The employees are

encouraged to grow professionally and personally to their highest capabilities,

regardless of nationality, caste, religion, colour to sex. It strives to provide an

environment that promotes achievement orientation and self esteem. Integrity, trust,

fairness and honesty are the basics that guide its strategies, behavior and

relationships it builds with them.

The Aditya Birla Group is cmmnitted to its customers to fulfilling their present

needs and anticipating their unmet needs. It makes continuous efforts towards

improving the quality, usefulness and value of its products and services that help

the customers to enhance their performance. In addition to this, it respects the

Government, Laws and Institutions in the nations in which it operates.

Respect for the environment is the part and parcel of everything it does. As

an environment responsive group, its ongoing endeavourer is to manufacture its

product through processes that have as little impact on the environment as

possible.

-38-

1.2.2 ORGANIZATION STRUCTURE OF A.V. BIRLA GROUP:

Cement has been identified as a focus area in this group. It has been

recognized to make headway and achieve the vision of becoming industry leaders

and capitalize on its product quality, cost effective technology and people.

In order to become the market leader, Aditya Birla Group have divided

Organisational Structure into:

l. Manufacturing

2. Marketing

3. Central Cells

Manufacturing- All the cement manufacturing units will be a part of Grasim

with a total capacity of 10.65 MTPA, are the second largest in the industry, having

state-of-the-art technology plants, which are environment sensitive. The aim is to

remain the lowest cost cement producer with the ability to make every cement

blend necessary to fulfill the customer's unmet need.

Marketing - A single dynamic, cohesive marketing force will help increase

customer responsiveness with a deeper market penetration. The mission is to

create and sustain the brand equity and emerge a leader in the cement market.

Central Cells - Procurement, Commercial, Coordination and Planning,

Marketing and Exports, Sales Accounting and Logistic are working to bring in

synergy and effectiveness.

The above given division is shown in the Figure. 1.2.2.1.

-39-

Fig. 1.2.2.1 Organization Structure of Aditya Vikram Birla Group

Manufacturing

Grasim

Cement

East

Zone

Regional Office.

Raipur

Head Office (Cement Division)

Vikram

Cement

West

Zone

Central Cells

Grasim

South

Aditya

Cement

North

Zone

Regional Office

Ran chi

-40-

Marketing

Rajashree Birla

Cement Cement

,. South

Zone

Regional Office

Calcutta

1.2.2.2 PROFILE OF GRASIM AND ULTRATECH CEMENT:

Grasim Cement Plant at Rawan, District Raipur is a new venture ofGrasim

Industries Limited. The project was launched in the year 1989 and the production

started in the year 1995. This plant is situated in the Chhattisgarh state. Grasim

Cement has adopted the most modern and latest dry process pre-calcinations

technology with sophisticated process control instruments obtained from

internationally renowned firms.

1.2.2.2.1 Plant Location (Grasim Cement):

Grasim Cement is located in Village Rawan, The. Simga, Distt, Raipur which

is 25 k.m. from the nearest Railway Station Bhatapara and 70 kms from Raipur on

S.E. Railway. This place is well connected by all weather motor able road to

Raipur.

There are 276 employees in this plant and there is good co-ordination

between employees of different departments. They tend to work in harmony for

the achievement of common objectives.

- 41 -

Ultra Tech Cement Plant at Hirmi, District Raipur is a new venture ofErstwile

L&T Industries Limited. The project was launched in the year 1987 and the

production started in the year 1993. This plant is situated in the Chhattisgarh State.

Ultra Tech Cement has adopted the most modern and latest dry process

pre-calcinations technology with sophisticated process control instruments

obtained from internationally renowned firms. This Plant is handed over to

Ultra Tech Cement in 2004

1.2.2.2.2 Plant Location (Ultra Cement):

Grasim Cement is located in Village Hirmi, Thehsil Simga, Distt, Raipur

which is 35 k.m. from the nearest Railway Station Bhatapara and 63 kms from

Raipur on S.E. Railway. This place is well connected by all weather motor able

roads to Raipur.

There are 376 employees in this plant and there is good co-ordination

between employees of different departments. They tend to work in harmony for

the achievement of common objectives.

-42-

Fig. Performance of Indian Cement Industry for the period April 2003 to

March 2004.

2500 2000

1500

1000 500 li!ICapacity

0 • Production c: ~ E 1::! ..c: <G 1::! :I (.) ·~

E :I "iii ~ Cll :I ~ .... <G <G 1- ..0 <G <G c: ... ...J E ...J .., Cll (.!) !!! <( - 0 0 ~ 0 ::J <(

Fig. Performance (Unit wise): Bilaspur Cluster Plants for the period April2003 to

September 2004

• Production

t:! ..c t:! E:J Capacity

c: ~ E <G :I <J ·~

:I ·u; ... :I ~ E .... - .. ..0 ... ... 1- ... ... c: ... ...J E ...J ...., .. <.? ... - (J ... < (J .:: (J :::> <

Fig. Dispatches to other states during April 2004 to September 2004.

18001()0-( 160000 ;-...::..:.......::..:.......:~~:..:.......:_;_

140000 li:J-..;..-..;..-..;..-..;..-..;..-;::.., 120000 100000 80000 60000 li'~..;..-40000 20000

0 a. Cl ::::1 J:

0

I ~ Dispatch I

Fig. General Export during April. 2004 to September 2004

.s::. Ill <II

"C ..!!! Cl c: co

Cll

co Q. <II z

llill Export I

-44-

1.2.3 CEMENT MANUFACTURING PROCESS:

Grasim Cement has adopted the latest technology of manufacture of cement

by dry process with suspension per-heaters and precalcinatin. Her, they selected

the dry process for the manufacturing of cement because the fuel consumption in

dry process is much less than the other processes of cement manufacturing. The

present worldwide trend in cement industry is to put up all plants with dry process

mainly because of the overall economy, lesser need of water resources and high

production capacities.

RAW MATERIALS USED Limestone Iron Ore, Coal, Chemical Gypsum

Granulated Blast Furnace, Slag, Fly-Ash

STAGES OF MANUFACTURING PROCESS

STAGE I- MINING & CRUSHING:

Cement grade limestone is mined from Captive Mines situated about 4 kms

away from the plant. Then limestone is taken to the crusher hopper by dumpers.

Then crushed limestone is transported to the plant through cross country belt

conveyor.

STAGE II- STACHERIRECLAIMER:

The stacker - reclaimed is used for pre-blending of crushed limestone,

Re-claimer picks up the required quantity of the raw material from the stockpiles

and feeds them into the raw mill hopper through belt conveyor.

STAGE- III- RAW MILL HOPPER:

There are different hoppers for storing crushing limestone and iron ore

before being fed into the raw mill.

STAGE -IV- RAW MILL:

The raw mix is put into the grinding mills and then finely ground material is

stored in storage silo.

-45-

STAGE V -COAL SECTION:

The Bituminous coal from the stockyard is fed into the coal crusher from

where the crushed coal is stored in the coal stacker and reclaimed. This coal (to be

used as fuel for the burning) is crushed, pulverized in vertical roller mills and fed

into the kiln along with primary air.

STAGE VI- KILN :

The powdered homogenized raw meal from the silo is fed to the kiln through

airlifts in conjunction with solid flow feeder. The hot gases form the kiln pass

through pre-heaters where raw meal gets partly claimed and is converted into

clinker at a temperature of about 1400 degree (Celsius) in the sintering zone of the

kiln. After the coal is fired into the kiln and the raw meal undergoes chemical

reactions, the product which emerges is called the clinker.

STAGE VII-CLINKERSTORAGE:

The clinker obtained from the kiln is cooled and transported to the clinker

storage yard through pan-conveyors.

STAGE VIII- CEMENT MILL:

The clinker stored in clinker hopper and gypsum is stored in the gypsum

hopper. The predetermined proportion of clinker and gypsum is sent to the cement

mill which converts it into fine powder which is called cement. The percentage of

raw materials in different grades of cement is given in Table No. 1.2.3.1

STAGE IX-SLAG GRINDING:

In case of Portland Slag Cement, it is manufactured by intermixing in a

paddle mixer, the ground clinker and gypsum (2-3%) in ball mill with ground slag

stored separately in different silos. The slag is ground separately in a roller press in

conjunction with hot air generator and separator. The desired particle size

distribution of PSC is obtained which provides higher slag utilization and

exceptionally high ultimate compressive strength, compared to conventional

intergrading system.

-46-

STAGE X- PACKING & DESPATCH:

The cement from the mill is transported to storage silo from where it is

packed in polypropylene (PP) bags by rotary packing machine and then directly

loaded into trucks.

The complete process is controlled by a most modern process control in­

strumentation system. There is a well equipped laboratory for controlling the qual­

ity of product at various stages in its manufacture.

The Flow Diagram is given in Annexure A-1.

- .J7-

TABLE 2.1

Percentage of Raw Materials in Different Grades of Cement for the Year 2003-04

Raw Materials % Consumption Crushed Limestone 99.53 Iron ore 0.47

Raw Mill Production 100.00 Consumption Factor 1.49 OPC Grade

Clinker 97.35 Gypsum 2.65

100.00 PPC Grade

Clinker 78.73 Gypsum 2.49 Fly ash 18.78

100.00 Ground Clinker for PSC

Clinker 97.57 Gypsum 2 43

100.00 PSC Grade

Ground Clinker 57.83 Ground Slag 42.17

100.00

-48-

1.3 Object of Study

OBJECTIVE OF WORKING CAPITAL MANAGENENT

The financial management of business firms involve: the management of

long term assets, long term capital and short term assets and liabilities. The last one

deals with Working Capital management and forms its integral part.

Working Capital management is the process of planning and controlling the

level and mix of current assets of the firm as well as financial these assets.

Specially, Working Capital management requires financial managers to decide what

quantities of cash, other liquid assets, accounts receivable and inventories the firm

will hold at any point in time. In addition, financial mangers must decide how their

current assets are to be financed. Financing choices include the mix of current as

well as long term liabilities.

This high degree of divisibility has two important implications for the

management of Working Capital. First, if the management so chooses, Working

Capital can be acquired piecemeal to meet immediate needs as they arises. Such

hand-to-mouth policy has advantage of reducing the average investment in

Working Capital there by minimizing the interest charges, insurance expenses and

storage fees necessary to carry the investment. However, a hand-to-mouth policy

has these disadvantages, there will be increased ordering costs associated with

greater likelihood that the firm may experience a shortage in Working Capital,

because there is no buffer stock to absorb unexpected fluctuations in requirement.

The second implication of divisibility concerns the appropriate methods of

financing Working Capital investments. The fact that Working Capital only amounts

to a few months supply means that the Working Capital cycle is measured in

months rather than years which allows the management a cmTesponding flexibility

in its financing decisions.

The management of Working Capital is concerned mainly with the optimal

amounts of cash assets, accounts receivable and inventories that a firm should

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choose to maintain given the level of sales and other cost considerations.

Secondly, given these optimal amounts, of find out the most economical way to

finance these Working Capital investments.

The management ofWorking Capital plays an important role in maintaining

the financial health of the finn during the normal course of business. A firm aiming

at maximization of shareholder's wealth should earn sufficient return from its

operations. Earning a steady amount of profit requires successful sales activity.

The firm has to invest enough funds in current assets for generating sales. Current

assets are needed because sales do not convert into cash instantaneously. The

Figure portrays the flow of resources through the finn. The loop starts at the cash

and marketable securities account, goes through the current accruals account as

direct labour and materials are purchased and used to produce inventory, which is

in turn sold and generates accounts receivable which are finally collected to replen­

ish cash.

This cycle is critically important to the firm's survival where the major flow

is Working Capital cycle, as long as the firm has cash or marketable securities on

hand, It can pay bills and thus survive. But if for some reason the resources stop

flowing in, the firm has to take relatively costly action such as, raising new external

funds, reducing dividend outflows or postponing capital expenditures, In the lack

of these measures the resources will also drain out, the firm will be unable to pay

bills and financial embarrassment will occur. Thus, it is rightly said that the

Working Capital is the lifeblood of the firm.

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Use in

I Production

Process

Generates

Inventory

Via Sales Generates

l Accounts

Receivable

Accured Direct Labor &Material

Working Capital Cycle

Collection Process

Use in

Used to Purchase

Marketable Securities

Return to Capital

External Financing

Suppliers of Capital

FIGURE RESOURCE FLOWS FOR A

18/1111111 -51 -T21791

·r- G? I ~71

Accured Fixed

Operating Expenses

Used to Purchase

Used to Purchase

Fixed Assets

1.4 RESEARCH METHODOLOGY :

Research methodology is a way to systematically solve the research prob­

lem. It may be understood as a science of studying how research is done scientifi­

cally. For, preparing this report both primary and secondary data were collected

and then data analysis and interpretation has been done.

DATA SOURCE:

(i) Primary Data :

Primary data are those, which are colleted afresh and for the first time and

thus happen to be original in character. This is more accurate and gives detailed

information according to the requirement. It is more reliable and less prone to

errors.

Primary data has been collected for knowing the procedure of cash

management, inventory management, stores and spares management

carried out in Grasim Cement, Raipur. Detailed discussions were held with the

concerned personnel in respective dept. like Materials, Stores, etc. to gain the

needed data.

(ii) Secondary Data :

The secondary data are those which have already been collected by

somebody else and which have already passed through the statistical

process. In this case the nature of data collection work is merely that of

compilation.

Data regarding current assets like inventories, cash and bank

balances, sundry debtors and current liabilities and provisions were

collected from annual report of the company. Further such data as sales and

purchases etc. were also obtained from annual reports. Cost of

production of cement was obtained from cost sheet. Many useful data were also

collected from budget or purta like percentage of raw materials, desired product

etc.

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CONTACT METHOD:

Personal interview has been used to collect relevant data form executives in

various departments. Personal interview method requires a person known as

interviewer asking questions generally in a face-to- face contact to the other person.

This is in the form of direct personal investigation where the information was

collected personally forms the concerned sources by being on the spot and

meeting people. It is particularly suitable in this case where intensive investigation

is required.

DATA ANALYSIS AND INTERPRETATION:

The data after collection has to be processed and analysed in accordance

with the outline laid down for the purpose at the time of developing the research

plan. The term analysis refers to the computation of certain measures along with

searching for patterns of relationship that exist among data-groups. Requirement

of Working Capital was calculated and analysed using such data as current assets

and current liabilities. Interpretation was made with the help of analysis. Based on

these, finally, suggestions were made.

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1.5 Limitation of Research :

Chhattisgarh is the richest State in terms of mineral wealth, with 28 varieties

of major minerals, including diamonds.

Chhattisgarh, alongwith two other Indian States has almost alit he coal

deposits in India, which has led to its 'power hub' strategy. All the tin ore in India

is in Chhattisgarh. A fifth of iron ore in the country is here, and one of the best

quality iron deposites in the world is found in the Bailadial mines in south

Chhattisgarh, from where it is exported to Japan. Rich deposits of Bauxite,

Limestone, Dolomite and Corundum are found in the State. The State is lucky to

have large deposits of coal, iron ore and limestone in close proximity, making it the

ideal location for the lowest cost of production.

There is great scope for private participation in the mining sector in

Chhattisgarh. The State's Mineral Policy. 2001 has created a conducive business

environment to attract private investment in the State. both domestic and international.

Procedures have been simplified and there is complete transparecy of large

technically qualified humar resources, having trained in tailormade programmes in

geology, geophysics, geochemistry, mineral benefications, mining engineering and

environmental science. The state is ensuring a minimum lease area with secured

land rights so that investors can safely commit large resources to mining projects.

For surmounting the long-drawn our process of getting mineral related leases, at

the state level, quick processing of applications is given top priority. For major

minerals under the Mines & Minerals (Development & Regulation) Act, where

approvals are required from Government of India, the State Government would

help in strong advocacy to get such approvals quickly.

The State is also encouraging establishment of Gems and Jewellery Park to

attrack new investment in the sector Chhattisgarh has the right geological set up to

host a number of economic mineral deposits. It comprises patts of the Bastar and

Singhbhum cratons, that are SUITounded by the Middle Proterozoic circum mobile

belts and major rifts.

The other intra-cratonic Supra-crustal belts include rocks of the Middle to

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Upper proterozoic, Carboniferous, Permian, Cretaceous and sub-recent to recent

periods. The area has observed multiple major tectonic and thermal events of

various episodes. The rock types of principal metallogenic and mineralogenic

episodes are prevailing in the State, which confirms the high potential for the search

of new mineral deposits. Simply put, such geological environment is conducive for

the formation of various mineral deposits of excellence.

Placer diamonds in the State led to the discovery of proterozoic

diamondiferous kimberlites in Main pur, Raipur district, which invited global attention.

Further kimberlite discoveries in Tokapal, Bastar have added another potential

field. Incidence of diamonds is also known from Ib river in Raigarh district. It

seems that in the non-coal areas, Chhattisgarh is nestling atop the world's largest

kimberlite area. Eight blocks have been demarcated for diamond exploration in the

State, and are on offer. Eight international companies have already applied for

reconnaissance permits for diamond, base metal and gold deposits. Chhattisgarh's

potential diamond mines would emerge in the top bracket of the select group of22

economical diamond mines in the world. once full production starts.

Apart from diamond, four blocks of gold exploration and five blocks for

base metal investigation have been demarcated. Deposits of Alexandrite, one of

the rarest gemstones, are found in Deobhog area ofRaipur. Workable deposits of

Corundum are widespread in South Chhattisgarh. Corundum includes semi-precious

varieties of Ruby and Blue Sapphire, and possibilities of finding precious varieties

exist as well. Other semi-precious minerals like Beryl, Gamet, Amethyst and Rock

Crystal are found in other parts of the State.

A few major mineral deposits are: (all figure in million tonnes)

Coal : 35000

Iron Ore : 2336

Lime Stone: 3580

Dolomite: 606

Bauxite :96

Cassiterite: 29

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As from the above we come to know that our region of chhattisgarh is

covered through full of mineral resources. It constitute around Rupees 500 crores

income per annum for the Government in Budget. Limestone, which is treated as a

major raw material for manufacturing cement, is found in bulk. Availability of raw

material attracts companies to invest here & get good returns.

The area of chhattisgarh is also known as region of cement belt (Map

enclosed indicating location cement industries). This cement belt consist ofTen( I 0)

National, International & Multi Nationals Companies with public enterprises too.

This belt starts with Go pal Nagar Cement Works and ends with ACC jamul.

l. Gopal Nagar Cement Works headed by Lafarze (formerly Raymods

Cement ofSinghania group).

2. Sonadih Cement Works headed by Lafarze (formerly Tata Cement ofTata

Steel.)

3. Ambuja Cements Works (Rawan) (formerly Modi Cement of Modi Group.)

4. Grasim Cement (Ravan) of Aditya Vikram Birla Group.

5. Ultratech Cement Works of Aditya Vikram Birla Group (Formerly L&T.)

6. Century Cement Works, Baikunt ofG.D. Birla Group.

7. C. C. I., Mandher and Akaltara a Government Enterprises.

8. Jamul Cement Works of Associated Cement Companies.

The above listed Cement Companies comprises of High Technology and

establish with investment ofRs 1500- 2000 crore at its prime. The above cement

companies have their production capacity more or less same. Its tough job for

collection of data from all industries, there fore my study is limited to any one of

below enlisted firm (as per availability of data.)

I. Ultratech Cement Ltd. (A.V. Group)

2. Grasim Cement (Ravan) by A.V Birla Group.

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MINERAL MAP OF

fHHATTISGARHI

I

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. i

1.6 Hypothesis :

After the selection of research problem, the researcher formulates the

testable propositions to obtain a tentative solution of the problem, which is

technically known as hypothesis. According to Mcguigan( 1990), A hypothesis is

a testable statement of variable". It's a conjectural statement of the relation

between two or more variable in declarative sentence form & relates either

generally or specifically variable (kerlinger, 1986). A good research hypothesis

should be conceptually clear, testable, parsimonious logical comprehensive,

general and related to the existing body of theory. Keeping in the mind above

characteristic of the research hypothesis researcher have suggested to frame a

hypothesis in a logically derived manner, which is based on the previous finding

obtained by other researcher, and is directly or indirectly related to the present

reseach problem.

Hypothesis of the Present Study:

Keeping in the view Audited Data made available by the cement industries

the hypothesis framed for future prospects are one the fixed percentage upwards

and downwards as per growth of past data.

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