The Working Capital Management of National Fertilizers

7/29/2019 The Working Capital Management of National Fertilizers

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ACKNOWLEDGEMENT

Every person I have known who has been truly

happy,

Has learned how to serve others

Nothing concrete can be achieved without an optimal combination of inspiration

and perspiration. No work can be accomplished without taking the guidance of

the import. It is only the critiques for the ingenious intellectual that helps

transform a product into a quality product.

This work is a synergistic product of many minds. I would like to thanks to my

Internal Guide Prof. Sumanta Sharma and Prof. Vijay Boddu and I would

also thanks to my External Guide Mr. N.S. Verma for the inspiration;

encouragement information and wisdom who helped me bring this report into

life.

I owe my sincere gratitude towards following personnel for their endeavors,

guidance and sustained help extended to us during the course of this work.

Last but not least I am thankful to all the respondents and individuals who filled

up very honestly.

Teachers open the door, but you must enter by yourself


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EXECUTIVE SUMMARY

I DEEPAK VARSHNEY, student of INDIAN INSTITUTE OF PLANNING

AND MANAGEMENT, NEW DELHI, have completed my Thesis Report in


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the National Fertilizers Ltd, which are a mini navratan company & the second

largest producer of UREA

The project that I worked upon during the tenure of my summer training is

titled as THE WORKING CAPITAL MANAGEMENT. The intent of the

project was to research and analyze thefinancialsystem, Capital Structure and

Working Capitalof the organization.

A complete methodology was adopted to reach to the final analysis of the

research done .It started with the study and the understanding of the last five

year annual reports of Company as a whole, then getting the in depth knowledge

about the subsidy & working capital as a whole. This data so obtained was

further analyzed by applying various analytical tools to get the authenticated

results. The analysis of the result led to several findings which gave a final

conclusion that the reason behind the increase in working capital was due in

increase sundry debtors which was due to blockage of funds by FICC as a

subsidy during the month from December to March, which resulted in the

increase of cash credit utilization along with the interest loss which they incur.

The findings so deduced led to some recommendations for organization which

could prove beneficial for them, I have also analyzed the past data with the help

of regression analysis, which resulted in the formation of equation.

Y=139105.2-0.205X


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Y=Working Capital

X=Net Sales

This equation resulted very beneficial for the company in finding the

approximate working capital in the future.

INRODUCTION TO NATIONAL FERTILIZERS LIMITED

NFL was incorporated on 23rd August 1974 with two manufacturing Units at Bathinda and Panipat.

Subsequently, on the reorganization of Fertilizer group of Companies in 1978, the Nangal Unit of Fertilizer

Corporation of India came under the NFL fold. The Company expanded its installed capacity in 1984 by

installing and commissioning of its Vijaipur gas based Plant in Madhya Pradesh.

NFL Corporate office: Noida


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ROLE OF NFL

India is traditionally agro-based country where 70% of the population is

dependent on agriculture. The basic requirement of a human being is food, cloth

and shelter. Out of the three main basic requirements, food is more important in

the society. Due to increase of population of India, the consumption of food has

increased tremendously. So the increased in food production can be achieved by

increasing the irrigated land or bye using the modern technique and method of

agriculture. One of the important input for agricultural growth is fertilizer and

one of the major player in fertilizer industry is NFL.

Along with the production of fertilizer, one of the important activity is working

capital management. NFL is a multi-unit company having five plants and is

involved with the production of nitrogenous

fertilizers. It has wide network of dealers and customers. Moreover it procures

raw materials from a large no. of suppliers. A huge amount of funds is involved

which includes both receipts and payments. A proper working capital

management is necessary to handle efficiently and effectively all these

activities.

Our project basically dealt with understanding NFLs system and giving

recommendations for improving upon it.


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The areas, which we emphasized upon were the cash management where we

studied the various cash management techniques being followed by the

organization, understand its workings and tried to improve upon it. Our findings

revealed that NFL follows a very efficient &effective cash management system.


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FERTILIZER INDUSTRY

Definition of Fertilizers

Fertilizers are defined as those chemicals which when added to soil, supply the

essential nutrients required for plant growth in the soil.

Need for Fertilizers

Fertilizer is an essential input in modern agricultural practice because it helps in

maintaining the fertility of the soil. Whenever land is used continuously for

farming, its organic matter gets reduced. Therefore, it is essential that some

extra nutrients be provided to the soil to get maximum returns from the money

invested in the land. Chemical fertilizers increase fertility of the soil by

providing chemical inputs to the soil.

The pressure of increasing population and shrinking land resources has had an

adverse effect on agriculture activities, which results in multiple cropping

systems for different agro-climate conditions. Multiple cropping systems drain

the soil very heavily; therefore fertilizers are a must to increase the fertility of

the soil.

Although the production of fertilizers is continuous throughout the year, yet its

use is seasonal. The requirement is limited to a very short period of months i.e.

Kharifseason and Rabi season. Kharif season starts from April 1 and ends on

September 30. The peak time of use of fertilizers during Kharif isJune and July.


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The other season is Rabi, which is from October 1 to March 31, and here the

peak time for the use of fertilizers is November & December.

The attention of both the government and the industry is focused toward

achieving the objectives of reducing the cost of fertilizers for farmers so that it

is affordable to them, and at the same time improve productivity of the system

to optimize return from heavy investment. It will therefore be appropriate to

have a hard look at the current situation identifying gaps and development

guidelines and specific plans of action to achieve these objectives.

Types of Fertilizers:

Mainly there are three types of fertilizers:

1. Nitrogenous fertilizers,

2. Phosphoric fertilizers and

3. Potash fertilizers

S alient features of the Indian Fertilizer industry:

Though much euphoric services sector growth in Indian economy has drawn the

attention over the globe, still its importance brings confusion when we come


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across the parameters like increasing inequality and a stalemate in poverty

condition.

Agriculture the backbone of Indian Economy still holds its relative importance

for more than a billion peoples. The Government Of India from time to time has

taken considerable steps for the upliftment of Agriculture Sector. Here we have

analyzed the performance of Fertilizer Industry being one of the vital parts in

agricultural production and Government's policy initiatives for the same.

Fertilizer in the agricultural process is an important area of concern. Fertilizer

industry in India has succeeded in meeting the demand of all chemical fertilizers

in the recent years. The Fertilizer Industry in India started its first

manufacturing unit ofSingle Super Phosphate (SSP) in Ranipet near Chennai

with a capacity of 6000 MT ayear.

India's green revolution in late sixties gave a positive boost to the sector. The

sector experienced a faster growth rate and presently India is the third largest

fertilizer producer in the world.

According to Given Statistics, total capacity of the industry as on 30.01.2003

has reached a level of 121.10 lakh MT of nitrogen (inclusive of an installed

capacity of 208.42 lakh MT of urea after reassessment of capacity) and 53.60

lakh MT of phosphatic nutrient. Presently there are 57 large fertilizers plants in

the country producing urea, DAP, Complex fertilizer, Ammonium Sulphate

(AS) and Calcium Ammonium Nitrate (CAN).
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Fertilizer Companies: -Public Sector Fertilizer Companies:

1.NATIONAL FERTILIZERS LIMITED (NFL)

2.BRAHMPUTRA VALLEY FERTILIZERS LIMITED (BPVFL)

3.FERTILISERS & CHEMICALS TRAVANCORE LTD (FACT)

4.MADRAS FERTILIZERS LIMITED (MFL)

5.RASHTRIYA CHEMICAL FERTILIZERS (RCF)

Features:

Fertilizer sector is very crucial for Indian economy because it provides a very

important input to agriculture. It is regulated by government policies

administering the price of fertilizer and the production

Urea production is an energy intensive process

Natural gas, naphtha, LSLS/fuel oil are used as feedstock for producing urea

Cost of energy varies from 65% to 87% of production costs

Specific energy consumption of sample plants covered under this study varies

between 5.53 Gcal/MT of urea and 10.2 Gcal/MT

Majority of the industry is energy conscious and focuses on energy

management
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Quantitative details:

Urea plants are very energy intensive and therefore, cost of energy is the most

critical factor in the cost of production. The cost of energy varies from 65% to

87% of production. Production of ammonia is the most intensive process and

accounts for around 80% of total energy consumption.

The difference in energy consumption per ton of urea can be explained by

factors related to feedstock/fuel used and vintage of technology. The new

generation plants commissioned recently use state-of-the-art technology and are

therefore more energy efficient compared to the older generation plants.

The type of feedstock/fuel used also has a bearing on the energy consumption.

For fertilizer manufacturing, natural gas is the most preferred and efficient

feedstock because energy consumption of all gas based plants is lower than that

of plants based on other heavier feedstock/fuels. The overall trend of energy

consumption over the years has been declining. Even the old plants have

improved their energy consumption over the years through revamp/retrofits and

continuous investments towards reducing energy consumption.

Capacity Utilization:

The domestic fertilizer industry has attained the level of capacity utilization that

compares favorably with others in the world. The capacity utilization during

2006-07 and 2007-08 was 87.2% and 88.6% for nitrogen and 72.8% and 67%

for phosphate respectively.


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The capacity utilization of the fertilizer industry is expected to improve through

revamping, modernization of the existing plants and closure of unviable

capacity of sick fertilizer units.

Strategy of Growth:

The fertilizer industry has adopted the following strategies to increase fertilizer

production:

Expansion / retrofitting / revamping of existing fertilizers plants.

Setting up for less than 30% of urea production and the balance capacity is

based on fuel oil and LSHS as feedstock. The two coal based plants at

Ramagundam, Andhra Pradesh and Talcher, Orissa were closed down due to

technological obsolescence and non-viability.

Natural gas has been the preferred feedstock for the manufacture of urea over

other feedstock viz. naphtha and FO/LSHS, firstly, because it is a clean and

efficient source of energy and secondly, it is cost effective and internationally

competitive in terms of the manufacturing cost of urea. However, pricing of

feedstock also becomes a very important factor in the production of urea due to

the fact that the cost of feedstock constitutes about 60 to 75% of the total cost of

production of urea. For gas based units, cost of feedstock accounts for 60% of

cost of production, whereas for naphtha based and FO / LSHS based units, it

accounts for about 75% of the cost of production.


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Although natural gas is the preferred feedstock for production of urea, due to

the dwindling supplies of natural gas, even the gas based units have been forced

to partially use naphtha for feedstock. The burgeoning demand for natural gas

by sectors such as fertilizer, power, transports etc. has resulted in efforts to

increase domestic gas supply, mainly from fields being developed by private

companies/joint ventures as well as development of new gas reserves recently

discovered, through step up in exploration. It is expected that by the last year of

the tenth Five-Year Plan, 4-5 LNG terminals may be operational at different

coastal locations in the country.

The Dahej LNG terminal of Petronet LNG Ltd. (PLL) has already been

commissioned. The fertilizer industry is in negotiations with the prospective

LNG suppliers on the issues of pricing and availability of LNG. An Inter-

Ministerial Group, under the Deputy Chairman, Planning Commission has been

constituted to deliberate on these issues.


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OBJECTIVE

PRIMARY OBJECTIVE:

The project has been done with aprime objective of analyzing, understanding &

interpreting the dynamic nature & position of the Working Capital along with

the analysation of receivables and inventory of National Fertilizers Limited

and the main factors behind its dynamic nature, along with its effect on the over

all performance of the company.

INTERMIDIATERY OBJECTIVES:

In the process I was always focused on my intermediate objectives of

understanding the Financial Systemof theorganization.

During the project period as well as in the project report I was always

committed to make some required recommendations (if any) to the

organization in order to make the objective of the project a real success.


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COMPANY PROFILE

National Fertilizers Limited (NFL) is a profitable public sector undertaking

which operates under the administrative control of the Department of

Fertilizers, Ministry of Chemicals & Fertilizers. It is a Schedule-A & Mini-

Ratna Category-I company, and is among one of the major players in the

fertilizer industry in India with 16.6% share in urea production during 2007-08.

The company manufactures nitrogenous fertilizers, mainly urea. It also

produces and markets bio-fertilizers and various industrial products like

Methanol, Sodium Nitrite, Sulfur, Liquid Oxygen and Liquid Nitrogen.

National Fertilizers Limited was incorporated on 23rd August, 1974 for

implementation of fertilizers plants, based on gasification technology of feed

stock/LSHS at Bathinda, Punjab and Panipat, Haryana having an installed

capacity of 5.11 lakh tons of Urea each. In April 1978, the Nangal group of

plants of Fertilizer Corporation of India (FCI) was transferred to NFL

consequent upon recognition of FCI. The Govt. of India in the year 1984

entrusted the company to execute its first inland gas based fertilizer project of

7.26-lakh tons urea capacity in Guna district of Madhya Pradesh. On

completion of this project received the First Prize for Excellence in Project

Management from the Ministry of Programme Implementation, Govt. of India.

Subsequently, a second plant at Vijaipur was installed in the year 1993 for

doubling its current annual production capacity. NFLs registered office is at


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Scope Complex, Core III, 7 Institutional Area, Lodhi Road, New Delhi

110003 and its corporate office is at A-11, Sector-24, Noida, UP.

All NFL plants have been certified ISO 9002 for conforming to international

quality standards and International Environmental Standard i.e. ISO 14001.

With the certification of Corporate Office / Marketing operations under ISO

9001:2000, NFL has become the first fertilizer company in the country to have

its total business covered under ISO 9001 certification.

The company has an installed capacity of 35.49 lakh MT nitrogenous fertilizers

and has recorded an annual sales turnover of Rs 3591 crores during 2007-08.

The companys strength lies in its sizeable presence, professional marketing and

strong distribution network nationwide.

Products and Services:

NFL manufactures and markets nitrogenous fertilizers and a wide range of

industrial products which are used in industries like steel, rubber, glass, paint &

dyes and many more.

Two most popular brands of NFL are Kisan Urea and Kisan Khad, which have a

substantial market across the country.


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KISAN UREA

Kisan Urea is a high concentrated, solid, nitrogenous fertilizer. It is completely

soluble in water hence Nitrogen is easily available to crops.

Kisan Urea is ideally suitable for all types of crops and for foliar spray, which

instantly removes nitrogen deficiency. Carbonic acid present in Kisan Urea

helps in absorption of other nutrients like phosphate and Potash by roots of

crop.

The Company has developed Neem-coated urea, which on demonstration has

improved the crop yield by 4-5%. The company is focusing on widening the

marketing operations of Neem-coated urea.


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NEEM- COATED UREA

NFL is the first fertilizerer manufacturer in the country which has developed

Neem Coated Urea and the process for its manufacture on large scale. It is

based upon the research work conducted by the scientists of Indian Agricultural

Research Institute, New Delhi, towards the unique property of neem in

regulating release of Nitrogen in urea and developing the process of making

Neem coated Urea on large scale in fertilizer plants. It is a well known fact that

Urea is richest in nitrogen(46%N) but when applied to crops like paddy,

requiring standing water, nitrogen use efficiency is hardly 30-40% and most of

nitrogen is lost due to process like leaching, ammonia volatilization and de-

nitrification.

BIO-FERTILIZERS

NFL also manufacturers and markets three types of Bio-fertilizers: Rhizobium,

Phosphate Solubilising Bacteria (PSB) and Azetobactor. These Bio-fertilizers

are used to supplement chemical fertilizers and also to maintain soil fertility.

Starting with a mere 23 MT production in 1995-96, the production has risen to

200 MT (Approx) in 2007-08. The Company presently markets its bio-

fertilizers in Madhya Pradesh, Maharashtra, Uttar Pradesh, Uttrakhand,


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Chattisgarh, Bihar, Jharkhand, Himachal Pradesh, Jammu & Kashmir, Punjab,

Haryana & Rajesthan.

Bio-fertilizers are used to supplement chemical fertilizers as also to maintain

soil fertility; besides the following:-

Bio-Fertilizers are Supplement to Chemical Fertilizers.

Bio-Fertilizers are cheap and can reduce the cost of cultivation.

Fix Biological Nitrogen in the soil, which is readily available to the plant.

Increase crop yield by 4-5% on an average.

Improve soil properties and sustain soil fertility.

Provides plant nutrient at low cost and useful for the consecutive crops.

Services Offered:

In addition to its core activity of fertilizer manufacturing, NFL also offers some

specialized services in the areas of Project Management, Plant operations and

maintenance both in India and abroad.


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NFL takes assignments in the following fields:

Commissioning activities of plant/equipments

Heavy equipment erection supervision

Complete operation of Chemical plants on a continuous basis

Overall maintenance of plants, specialized maintenance and repair services /

shutdown / turn around jobs

Special maintenance & repair services for rotatory equipment, like pumps,

compressors, turbines etc

Training of technical manpower in Operations Maintenance and Safety

Management

Consultancy in Project Management

PLANT SPECIFICATION


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NANGAL UNIT

1. Location:Naya Nangal, District: Ropar (Punjab)

2. Production:

Can: 3, 18,160 MT (production of can is dropped now days)


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Urea: 4, 78,500 MT

Methanol: 16,500 MT

3. Raw Material and Utilities:

Power for can & Heavy Water: 164 MV

Power of urea plant: 18 MV

Water: 80 MGD

Line stone: 272 TPD

Fuel oil/ LgHs: 720 TPD

Coal: 900 TPD

4. Project cost: Rs.283.11 crores

5. Land: 1800 Acres

6. Sources of foreign exchange:

Old plant: Free Foreign Exchange

Nangal Expansion: World Bank Loan
http://www.nationalfertilizers.com/panipat_plant.htm


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PANIPAT UNIT

1. Location: Panipat, District: Karnal (Haryana)

2. Production:

Urea: 5,11,500 MT


Power: 25 MV

Water: 12.5 MGD


Coal: 1600 TPD

4. Project cost: Rs.223.50crores (Foreign

currency Rs.55.79 crores)

CPP cost: Rs.110.43 crores

5. Land:

Factory: 442 Acres

Township + Low lying: 131 Acres


Ammonia & Urea plant: Yen credit

Captive power plant: World Bank Loan


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BHATINDA UNIT

1. Location: Bhatinda, District: Bhatinda (Punjab)

2. Production:

Urea: 5,11,500 MT


Power: 25 MV

Water: 12.5 MGD


Coal: 1600 TPD

4. Project cost: Rs.239.30 crores

(Foreign currency Rs.67.87 crores)

CPP cost: Rs.109.66 crores

5. Land:
http://www.nationalfertilizers.com/bathinda_plant.htm


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Factory: 450 Acres

Township: 285 Acres


Ammonia & Urea plant: Yen credit

Captive power plant: World Bank Loan

VIJAYPUR UNIT-1

1. Location: Vijaypur, District: Guna (M.P)

2. Production:

Urea: 7,26,000 TPA
http://www.nationalfertilizers.com/vijaipur_plant.htm


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Power: 16 MV

Water: 12.5 MGD

As Fuel: 1,75,000,000 NM3/Hr

As Feed stock: 4,35,000,000 NM3/Hr

4. Project cost: Rs.533 crores (Foreign

currency Rs.185.2 crores)

5. Land: 1250 Acres


World Bank Loan

OECF Loan

DANIDA Loan

VIJAYPUR UNIT-2

1. Location: Vijaypur, District: Guna (M.P)


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2. Production:

Urea: 7,26,000 MT

3. Commissioned: 31.03.1997

4. Project cost: Rs.1071 crores (Foreign

currency Rs.431 crores)

Vijaypur 1 & 2 has been re-assessed by Ficc w.e.f. 1.4.2005

Capacity increased to 8,64,600 MT

CLASSIFICATION OF NFL UREA UNITS

i. Pre-1992 Gas based units NFL(Vijaypur Unit-1)

ii. Post-1992 Gas based units :NFL(Vijaypur Unit-2)

iii. Pre-1992 Naptha based units : -

iv. Post-1992 Naptha based units : -

v. FO/ LSHS based units :NFL Bhatinda unit

:NFL Panipat unit

:NFL Nangal unit

vi. Mixed Energy Based units : -


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SWOT ANALYSIS

STRENGTHS:

NFL is the second largest producer of UREA in India with 16.7% share in

the total urea production.

NFL is the Zero Debt company from the last four years.

WEAKNESS/THREATS:

Increasing input costs of feed stock i.e fuel oil/lshs/naptha/ng

Single nutrient product base


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Slow growth in urea consumption during last 7-8 years

Energy intensive i.e fuel oil/lshs based plants would require large

investment for revamp/replacement & change over of feedstock to

RLNG/NG

Uncertainty in the availability and pricing of RLNG/NG for change over

of feedstock of Panipat ,Bhatinda & Nangal plants.

OPPORTUNITIES

Once the gas is available at Panipat,Nangal & Bathinda, the company

would be able to produce Urea at competitive price at these 3 units.

Revival of urea projects at barauni and Ramagundam would enable the

company to add value.

Setting up of joint ventures in India/Abroad.

Locational advantage as the production units is located in the main

consumption area.

Scope for growth in industrial products and bio fertilizers

Good demand for neem-coated urea.

FINANCIAL PERFORMANCE:


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NFL has been the market leader for manufacturing and marketing of Urea.

The capacity utilization during the year 2007-2008 has been 103.7%


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FINANCIAL ANALYSIS:- FINANCIAL RESULTS (Rs. In Crores)


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PARTICULARS 2007-08 2006-07

Turnover

Profit Before Interest &

Depreciation

Depreciation

Interest

Net Profit Before Tax

Provision for

Taxation(including FBT)

Deferred Tax[Assets](net)

Profit After Tax

Brought Forward from last

year

Profit available for

appropriation

Appropriations:

Dividend(proposed)

3865.68

387.27

106.86

16.74

263.74

(106.74)

19.17

176.10

488.88

664.98

52.83

8.98

3590.53

312.21

124.51

8.40

179.30

(85.19)

22.29

116.40

430.57

546.97

40.74

5.71


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Paid-Up-Capital: Paid-up share capital during the year remained the same

at Rs.490.58 creres.

Reserves & Surplus: Reserve and surplus as at March 31,2008 stood at

Rs.880.17 crores against Rs.765.84 crores as at March 31,2007.

Revenue: The sales turnover of the year under review was Rs.3865.68

crores against Rs.3590.53 crores of the previous year. The sales turnover of

the year also include subsidy of Rs.2217.02 crores.


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Loan Funds: Loan funds increased from Rs.227.39 crores in the previous

year to Rs.327.13 crores as at 31.03.2007 showing an increase of Rs.99.74

crores on account of availing of short-term-loan of Rs.100 crores for meeting

the working capital requirements.

Sundry Debtors: Sundry Debtors including FICC have increased from

Rs.824.47 crores as at 31.03.2007 to Rs.1205.72 crores as at 31.03.2008

indicating an increase of Rs.381.25 crore. The outstanding dues from FICC

have increased from Rs.771.38 crores as on 31.03.2007 to Rs.1138.68

crores, against which Rs.448.24 crores have been received from FICC upto

15.06.2008.

Net Profit: The net profit after tax was Rs.176.10 crores as compared to

Rs.116.40 crores for the previous year.

Fixed Assets Gross Block: The Gross Block as at 31.03.2008 increased to

Rs.2903.38 crores from Rs.2897.13 crores as at 31st March,2007.

Liquidity Position: As on date, the company does not have any long term

debts. The liquidity position is comfortable and can improve with the

realization of outstanding dues from FICC.


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ISSUES & CHALLENGES FACING THE ORGANISATION

Various issues and challenges are faced by the organization

Feedstock availability.

Investment by foreign investors as well as government.

RPC recommendation

Not availability of Natural gas.

Lower consumption of fertilizers

Subsidy not paid by the government in cash


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RESEARCH METHODOLOGY

For the achievement of the above specified objective it was very essential to have

a very systematic approach, so that we cover each & every relevant point and can

make a correct interpretation & conclusion. For this these points were essential: -


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1. To have a good understanding of the current financial System of the

organization.

Reason: - A good understanding of the current financial System of the

organization can only give the correct idea of the financial potential of the

company, the flow of the liquidity in the system as well as the flaws (if any) in

the system.

Available opportunities: - Working in the organization for two months.

2. To have sufficient information for the analyzation.

Reason: - We can make a correct interpretation & conclusion only after

analyzation of sufficient required information, analyzation of in complete

information may lead to wrong interpretation as well as conclusion.

Available opportunity: - Balance Sheets, Directors Report, and Internet etc.

3. To have a pool of experienced & analytical brain.

It is always nice to have a pool of analytical brain because, diversity in the way

of thinking leads to a conclusion having a diverse acceptance.

Available opportunities: - Pool of highly experienced faculty, experienced

trainee, friends etc.

4. To have sufficient resources for depth understanding of the financial

functionality of the organization.


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Reason: - One of the most important things for any project is availability of its

relevant resources, in absence of which the conclusion may vary from the

actual facts & position.

DESCRIPTION OF DATA

As per the required objective, the most important is collection of relevant data

on which the whole analysis can be performed. It was equally important that

data should be relevant and correct.

Required Data:

Annual Report of National Fertilizers Limited 2007-2008

Annual Report of National Fertilizers Limited 2006-2007

Types of Data:

On the basis of sources data can be classified into Secondary data and Primary

Data.

1. Primary Data:

a) Personal Interview

b) Annual Report

2. Secondary Data:


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a) National Fertilizers Limited

Website (http://nationalfertilizers.com )

b) Text book

Nature of Data required:

As per the objective there was a requirement of mostly quantitative data, that

too of financial nature, i.e. the data of the past performance of the company.

Sources Of Data:

As per the nature of the required data, the main source of it was the companys

past performance records. And the most reliable sources were companys

Annual financial reports (2002-2003 to 2007-2008).

Directors report (2002-2003 to 2007-2008).

Balance sheet (2002-2003 to 2007-2008).

Profit & Loss Account (2002-2003 to 2007-2008).

Website etc.

Based on the source of the data we can consider the data used in the project to

be Secondary Data

CONCEPT OF SUBSIDY
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A subsidy (also known as a subvention) is a form of a financial assistance paid

to a business or economic sector. A subsidy can be used to support business that

might otherwise fail, or to encourage activities that would otherwise not take

place.

Subsidies can be regarded as a form of protectionism or trade barrier by making

domestic goods and services artificially competitive against imports. Subsidies

may distort markets, and can impose large economic costs.

Financial assistance in the form of a subsidy may come from one's government,

but the term subsidy may also refer to assistance granted by others, such as

individuals or non-governmental institutions, although these would be more

commonly described as charity.

In standard supply and demand curve diagrams, a subsidy will shift either the

demand curve up or the supply curve down. A subsidy that increases production

will result in a lower price while a subsidy that increases demand will tend to

result in an increase in price. Both cases result in a new Economic equilibrium.

Therefore it is essential to consider elasticity when estimating the total costs of

a planned subsidy: it equals the subsidy per unit (difference between market

price and subsidized price) times the new equilibrium quantity.

Subsidy may also be used to refer to government actions which limit

competition or raise the prices at which producers could sell their products, for

example, by means of tariff protection. Although economics generally holds

that subsidies may distort the market and produce inefficiencies, there are a


44/169

number of recognized cases where subsidies may be the most efficient solution

i.e. in case of Fertilizer industry as it would be impossible to buy the urea which

is one of the most important raw material in the agricultural sector without the

subsidy provided on it. It can be analyzed from the fact that the Cost of

Production of one tone urea is around Rs.11000/- which is of gas based plant

and it is sold at a rate of around Rs.4680/- to the dealers or Rs. 4800/-(approx)

to the farmer after including the margin of dealer. The balanced amount i.e.

Rs.6320 (11000-4680) is a subsidy provided by the FICC to the manufacturer of

urea.

SUBSIDY ON FERTILIZERS:

The sale price of controlled fertilizers is fixed by the Government of India

(Department of Agriculture & Cooperation) under the Fertilizer (Control)

Order, 1985 issued under the Essential Commodities Act, 1955. At present, only

urea, which is the main nitrogenous fertilizer constituting about 60% of the total

fertilizer consumption in the country, is under statutory price control. With

effect from 29.1.99, the farmgate price of urea has been fixed at Rs.4000 per

tonne excluding local levies. Notwithstanding this increase, the farmgate price

of urea is amongst the lowest in the region and is heavily subsidised. Payment


45/169

of subsidy in respect of controlled fertilizers is regulated through the

mechanism of Retention Price-cum-Subsidy Scheme (RPS). RPS enables the

manufacturers of controlled fertilizers to recover their normative cost of

production along with a reasonable return on net worth (12% post-tax return).

The cost of production of various fertilizer units differ from unit to unit and

even from month to month, depending upon the health and vintage of the plant,

the feedstock used, the levels of capacity utilization, energy consumption,

distance from the source of feedstock/raw materials, cost of inputs etc. At

present, urea, being the only controlled fertilizer, is covered under RPS.

The RPS provides for fixation of retention price of each controlled fertilizer

after taking into account the normative capacity utilization prescribed by the

Government and a combination of norms and actuals in respect of various cost

elements and expenses. Pre-tax return on net worth corresponding to post-tax

return of 12% is given as a part of the retention price after covering various

elements of cost.

7.4 The retention prices of controlled fertilizers are normally fixed once in three

years after scrutinizing the cost data of the units for three years for which

audited accounts are available. During the currency of the pricing period,

escalations/reductions are provided to reflect variations in the prices of major

inputs. Escalations are also allowed in respect of certain other items of cost (viz.

salaries and wages, chemicals and consumables, repairs and maintenance,


46/169

overheads etc.) where there is a significant variation during the currency of the

pricing period due to unavoidable factors. In addition to the retention price

subsidy, equated freight subsidy is paid to the manufacturers of controlled

fertilizers to cover the cost of transportation from the production points to the

consumption centers. Since the consumer prices of both indigenous and

imported fertilizers are fixed uniformly, subsidy is also paid on imported

fertilizers in order to bridge the difference between the cost of imports and the

statutorily fixed consumer price.

The various cost elements taken into account for fixation of retention price of

individual unit fall under the following three broad categories:-

(A) Variable Cost: Comprises of the cost of raw materials and utilities.

(B) Conversion Cost: Comprises of salaries and wages, repairs and

maintenance, selling expenses and other overheads.

(C) Capital Related Charges: Comprises of depreciation, interest on loans

and 12% post tax return on net-worth. (Net worth = equity + free

reserves)

During the currency of a given pricing period of three years, escalations /

de-escalations are provided to reflect variations in the prices of major inputs.

Escalations are also provided in respect of certain other items of cost (viz.

Salaries and wages, chemicals and consumables, repairs and maintenance,


47/169

overheads etc.) where there is a significant variation during the currency of

the pricing period due to unavoidable factors.

Variable Cost is revised on quarterly basis (every three months) whereas

Conversion Cost is revised every three years.

FINANCIAL REPORT ANALYSIS

DECLARATION:

This is to be taken in to consideration that the source of every financial data

used in the analysis is .the Directors Reports of NATIONAL FERTILIZERS


48/169

LIMITED released in different financial year (mentioned in the bibliography in

the last of the project report).

All the figures used in the Project Report are in Lakhs.

SOURCES OF INCOME

Sales

Subsidy from Government of India

Other Income Rent Received, Interest on bank deposits and others,

Miscellaneous Income, Profit on Sale of Assets, Recovery of

Penalty/Liquidated damages

Stock: accretion (+)/discretion (-)

MAJOUR CONSTITUENTS OF EXPENDITURE

Raw Materials (Feed Stock), Packing Material etc

Salaries & Allowances

Repairs & Maintenance

Power & Fuel

Other Manufacturing Expenses


49/169

ANALYSATION OF MAJOR SOURCE OF INCOME OF LAST THREE

YEARS:

PARTICULARS 2005-06 2006-07 Percentage

Change

2007-08 Percentage

Change

Sales 172647.8

8

163392.9

6

-5.36 164866.0

0

0.90

Subsidy 174758.3

4

195660.2

0

11.96 221702.2

5

13.30

TOTAL 347406.2

2

359053.1

6

3.35 386568.2

5

7.66

Other Income 3308.80 3664.52 10.75 2817.18 -23.12

Closing Stock 9685.88 7544.25 -22.11 7716.60 2.28

TOTAL

INCOME

360400.9

0

370261.9

3

2.73 397102.0

3

7.24


50/169

OUTCOME:

By analyzing the above table we can conclude that there is an increase in an

sale of around 7.66% in the year 2007-08 as compared to that of 2006-07 of

around 3.35% which includes the increase in subsidy of around 13.30% . The

increase in sale is inevitable as demand of urea has been increased in

agricultural sector due to the increase in population.

There is a decrease in the other income in the year 2007-08 which is mainly

due to the decrease in the bank deposits of Rs. 1232.92 lakhs(1585.94-

353.02)and decrease in the recovery of penalty/liquidated damages of

Rs.152.67 lakhs(318.46-165.79).


51/169

There is an increase in finished goods which is Rs.6495.09 lakhs in the year

2007-08 as compared to that of Rs.6228.16 lakhs in the year 2006-07 which

results in the increase in the closing stock.

Overall there is an increase in the total income of 7.24%


52/169

EXPENDITURE OF LAST THREE YEARS :

PARTICULARS 2005-06 2006-07 Percentage

Change

2007-08 Percentage

Change

Opening Stock 13011.89 9685.88 -25.56 7544.25 -22.11

Purchase of Semi &

finished Goods

- 445.56 77.98 -82.49

Material Consumed 172460.1

8

201124.8

2

16.62 217451.22 8.11

Salaries,Wages,Bonus

and Other Benefits

17528.16 17077.48 -2.57 16792.79 -1.66

Power & Fuel 85506.59 75506.42 -11.69 81150.52 7.47

Freight and Handling

Charges

18930.31 18897.14 -0.17 20411.69 8.01

Repairs & Maintenance 6661.14 6328.52 -4.99 5896.99 -6.91

Other Expenses 9381.50 8982.90 -4.24 8311.28 -7.47

Interest & Finance

Charges

2222.48 839.71 -621.5 1673.62 99.30

Depreciation &

Amortisation

12057.06 12451.06 3.26 10685.66 -14.17

DRE-(VRS) 1001.27 1003.41 0.21 677.77 -32.45

TOTAL

EXPENDITURE

338760.5

8

352342.9

0

4.00 370673.77 5.20


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OUTCOME:

By analyzing the above table , we can conclude that there is an regular

increase in the consumption of materials which comprises of increase in the

raw material consumption from Rs. 162870.27 lakhs in the year 2005-06, Rs.

186364.92 lakhs in the year 2006-2007 and Rs. 207138.99 lakhs in the year

2007-08.

There was an increase in the consumption of packing materials of about 1.25%

in the year 2006-07 and 10% in the year 2007-08 along with an increase in

the stores and spares which resulted in the increase in the consumption of

materials by 8.11% in the year 2007-08.

There was a decrease in the contribution to Provident Fund and Gratuity Fund

from Rs.2381.43 Lakhs to Rs.1270.52 Lakhs and Rs.488.35 Lakhs to

Rs.108.90 Lakhs respectively in the year 2007-08 which resulted in the

decrease in the salaries, wages, bonus & other benefits of the year 2007-08 by

1.66%.

ANALYSATION OF FINANCIAL PERFORMANCE OF NFL:


54/169

CONCLUSION:

By analyzing both income and expenditure along with the net profit(Profit

and loss account) I found -

PARTICULARS 2003-

04

2004-

05

%Change 2005-

06

%Chan

ge

2006-

07

%Chan

ge

2007-

08

%Cha

nge

INCOME

396329

.47

354799

.53

-10

.47

360400

.90

1.5

7

370261

.93

2.7

3

397102

.03

7.2

4

EXPEN

DITURE

3

51504

.64

3

36801

.56

-1.5

0

3

38760

.58

0.5

8

3

52342

.90

4.0

0

3

70673

.77

5.2

0

NE

TPROFIT

28627

.17

8503

.70

-70

.29

16090

.63

89

.21

11640

.05

-27

.65

17610

.01

51

.28


55/169

An increase in the total income by 7.24% in the year 2007-08 as compared to

that of 2.73% in 2006-07.

An overall increase of 5.20% in the expenditure of the company, which was

4% and 0.58% during the year 2007and 2008.

An overall increase in the net profit by 51.28%, which was satisfactory as

compared to that of previous year.


56/169

396329.47

351504.64

28627.17

354799.53

336801.56

8503.7

360400.9

338760.58

16090.63

370261.93 352342.9

11640.05

397102.03

370673.77

17610.01

0

60000

120000

180000

240000

300000

360000

420000

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

INCOME EXPENDITURE NET PROFIT/LOSS

ANALYSATION OF SOURCES OF FUND:


57/169

CONCLUSION:

PARTICULARRS 2003

-04

2004-

05

%Cha

nge

2005-

06

%Chan

ge

2006

-07

%Cha

nge

2007-

08

%Cha

nge

SHAREHOLDERS

FUND

102697

.62

108044

.21

5.2

0

118647

.06

9.8

1

125641

.72

5.8

9

137074

.41

9.0

9

LOAN

FUNDS

75401

.25

61661

.45

-18

.22

5949

.46

-90

.35

22739

.06

282

.20

32713

.26

43

.86

DEFERREDTAXLIABILITY

30999

.14

25827

.40

-16

.68

23795

.39

-7.8

6

21565

.94

-9.3

6

19649

.43

-8.8

8

TOTAL

209098

.01

195533

.06

-6.4

8

148489

.29

-24

.05

169946

.72

14

.45

189437

.10

11

.46


58/169

Shareholders funds are increasing each year, which is mainly due to increase

in the reserve & surplus every year.

Loan Funds have increased by 43.86% this year, which is due to the

unsecured loan of Rs.10070.91 Lakhs as a short-term loan from HDFC

Bank.

Overall there is an increase of 11.46% in the shareholders fund.


59/169

102697.62

75401.25

30999.14

108044.21

61661.45

25827.4

118647.06

5949.46

23795.39

125641.72

22739.0621565.94

137074.41

32713.26

19649.43

0

20000

40000

60000

80000

100000

120000

140000

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

SHAREHOLDERS FUND LOAN FUNDS

DEFFERED TAX LIAB

ANALYSATION OF SHAREHOLDERS FUND:


60/169

CONCLUSION:

Capital fund is absolutely equal every year, i.e. there is no any change in it.

There is an increase in the reserve & surplus every year due to the profit in the

previous years.

Overall there is an increase of 9.09% in the shareholders fund during 2007-08,

which is due to an increase of 14.92% in the reserve & surplus.

PA

RTICUL

ARS

2003-

04

2004-

05

%Cha

nge

2005-

06

%Cha

nge

2006-

07

%Chan

ge

2007-

08

%Chan

ge

CAPITAL

49057

.84

49057

.84 0

49057

.84 0

49057

.84 0

49057

.84 0

RESERVE&

SURPLUS

53639

.78

58986

.37

9.9

6

69589

.22

17

.97

76583

.88

10

.05

88016

.57

14

.92

TOT

AL

102697

.62

108044

.21

5.20

118647

.06

9.81

125641

.72

5.89

137074

.41

9.09


61/169

ANALYSATION OF LOAN FUNDS:

PARTIC

ULA

RS

2003-

04

2004-

05

%Chan

ge

2005-

06

%Cha

nge

2006-

07

%Chan

ge

2007-

08

%Chan

ge

SE

CUREDLOANS 7040

1.25

56661.

45

-

19.51

5949.4

6

-

89.49

2273

9.06

282.20

2264

2.35

-0.42

UN

SECUREDLOANS 5000.

00

5000.0

0

0 97.38 -

98.05

0 100 1007

0.91

100


62/169

TOTAL 7540

1.25

61661.

45

-

18.22

6046.8

4

-

90.19

2273

9.06

276.04

3271

3.26

43.86

CONCLUSION:

Loan funds has been increased by 43.86% in the year 2007-08 which was

mainly due to introduction of the short term loan from HDFC Bank 0f

Rs.10070.91 Lakhs.


63/169

ANALYSATION OF APPLICATION OF FUND:

PARTICULARS

2003-

04

2004-

05

%Chan

ge

2005-

06

%Cha

nge

2006-

07

%Chan

ge

2007-

08

%Cha

nge

FIXEDASSETS 1323

57.12

1154

26.70

-12.79 10614

2.78

-8.04 9736

9.05

-8.26 8932

7.44

-8.25

CA

,LOANS&

ADVANCES 1476

44.10

1146

82.25

-22.32 10072

9.59

-

12.16

1271

73.00

26.25 1693

02.19

33.12

CL&PROVISIONS 7459

5.59

3726

6.92

-50.04 60067.

48

61.18

5527

3.82

-7.98 6919

3.25

25.18


64/169

13237.12

147644.1

74595.59

11526.7

114682.25

37266.92

106142.78100729.59

60067.48

97369.05

127173

55273.82

89327.44

169302.19

69193.25

10000

30000

50000

70000

90000

110000130000

150000

170000

FIXED ASSETS CA,LOANS&ADVANCES

CL&PROVISIONS

FIXED ASSETS:

PA

RTICULARS 200

3-

04

2004-

05

%Ch

ange

2005-

06

%Ch

ange

2006-

07

%Ch

ange

2007-

08

%Chan

ge

GROSS

BLOCK283927

.11

284628

.89

0.2

4

286225

.18

0.5

6

289712

.86

1.2

1

290338

.09

0.2

1


65/169

LESS:

DEPRECI

ATION

151697

.99

169331

.42

11

.62

181273

.67

7.0

5

193410

.43

6.6

9

203259

.76

5.0

9

NET

BLOCK132229

.12

115297

.47

-12

.80

104951

.51

-8.9

7

96302

.43

-8.2

4

87078

.33

-9.5

7

CAPITAL

WORK IN

PROGRES

S

128

.00

129

.23

0.9

6

1191

.27

821

.82

1066

.62

-10

.46

2249

.11

110

.86

TOTAL

132357

.12

115426

.70

-12

.79

106142

.78

-8.0

4

97369

.05

-8.2

6

89327

.44

-8.2

5

CONCLUSION:

There is a regular increase in the depreciation of the assets of the company.

Due to the regular increase in the depreciation of the assets there is a regular

decrease in the net block of the company.

There is an sudden increase in the capital work in progress in the year 2005-06

due to an increase in investment in Plant & Machinery of Rs.470.97 Lakhs and

an increase in advance for capital expenditure by suppliers of Rs.330.99 Lakhs.

The increase of 110.86% in work in progress in the year 2007-08 is due to an


66/169

increase in the investment in plant & machinery from Rs.222.97 Lakhs to

Rs.1643.07 Lakhs.

WORKING CAPITAL ANALYZATION

WHAT IS WORKING CAPITAL?

Working capital is a financial metric which represents the amount of day-by-

day operating liquidity available to a business. Also known as operating capital,

it is calculated as current assets minus current liabilities. A company can be

endowed with assets and profitability, but short of liquidity, if these assets

cannot readily be converted into cash.

So we can say that Working Capital is the area from which the performance of

any firm can be manipulated in short run, so it becomes a subject of great

attention & efficient management for a firm.

Thus we can illustrate it like this

Current assets and current liabilities include three accounts which are of special

importance. These accounts represent the areas of the business where managers

have the most direct impact:

WORKING CAPITAL = CURRENT ASSETS
http://en.wikipedia.org/wiki/Current_assetshttp://en.wikipedia.org/wiki/Current_liabilitieshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Profithttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Current_assetshttp://en.wikipedia.org/wiki/Current_liabilitieshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Profithttp://en.wikipedia.org/wiki/Liquidity


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Accounts Receivable (Current Asset)

Inventory (Current Assets), and

Accounts payable (Current Liability)

In addition, the current (payable within 12 months) portion of debt is critical,

because it represents a short-term claim to current assets. Common types of

short-term debt are bank loans and lines of credit.

A positive change (increase) in working capital indicates that the business has

either increased Current Assets (that is received cash, or other current assets) or

has decreased Current Liabilities, for example has paid off some short-term

creditors.

TYPES OF WORKNG CAPITAL:

WORKING CAPITAL
http://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Accounts_payablehttp://en.wikipedia.org/wiki/Current_liabilitieshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Accounts_payablehttp://en.wikipedia.org/wiki/Current_liabilities


68/169

1. GROSS WORKING CAPITAL

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 include cash, short term securities, debtors, (account

receivable or book debts), bills receivable and stock (inventories).

2. NET WORKING CAPITAL

1. GROSS WORKING CAPITAL 2. NET WORKING CAPITAL

WORKING CAPITAL = CURRENT ASSETS

NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES


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Net Working Capital refers to the difference between current assets and current

liabilities. Current Liabilities are those claims of outsiders which are expected to

mature for payment within an accounting year an include creditors (accounts

payable), bills payables and outstanding expenses.

Net Working Capital can be positive or negative i.e.

1. POSITIVE WORKING CAPIATAL

A Positive Net Working Capital will Arise when current assets exceeds current

liabilities.

How a Positive Working Capital exists

NET WORKING CAPITAL

1. POSITIVE WORKING CAPITAL 2. NEGATIVE WORKING CAPITAL


70/169

PRACTICAL APPROACH

RMCP WIPCP FGCP DCP

CREDIT

PURCHASE

CASH OUT

FLOW

CASH OPERATING CYCLE

CASH

IN FLOW

OPERATING CYCLE > CASH CYCLE

2. NEGATIVE WORKING CAPIATAL

A Negative Net Working Capital occurs when current liabilities are in excess of

current assets.

How negative working capital is achieved


71/169

AGGRESSIVE ( NEGATIVE) WORKING

CAPITAL APPROACH

RMCP WIPCP FGCP DCP

CASH

OUT

FLOW

CASH

IN

FLOW

-VE

Wk.Cp.

CREDIT

PURCHASE

OPERATING CYCLE > CASH CYCLE

FLOW OF FUNDS AND WORKING CAPITAL CHANGES


72/169

OPERATING CYCLE

The phrase operating cycle refers to the period of time that a companys cash is

tied up in inventory and/or receivables before recovering the initial investment or

realizing a profit or ROI.

A short operating cycle is one in which the time between purchasing inventories

and recovering the investment is brief. The company recovers its investment

and/or realizes profits quickly.

With a long operating cycle, cash may be tied up in inventory and/or receivables

for an extended period of time before the business is able to recover its initial

SOURCES OF FUNDS

Funds generated fromoperations, issue of shares,

raising of term loans, saleof fixed assets, sale ofinvestments, non-operating income, etc

Increase/Decrease inworking capital

Working capital at the end

Working capital at thebegining

APPLICATION OF FUNDS

Loss from operations, dividend andtaxes paid, purchase of fixed assets,repayment of term loans,redemption of preference shares,debentures, etc
http://business.qandas.com/general-business/advertising/what-is-an-roi-or-return-on-investment.htmlhttp://business.qandas.com/general-business/advertising/what-is-an-roi-or-return-on-investment.html


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investment. Investments with a long operating cycle can be sound, as long as the

organization has sufficient access to capital to meet its short-term obligations.

SUMMARY OF OPERATING CYCLE (in days)

PARTICULARS 2006-07 2007-08

1) INVENTORY CONVERSION PERIOD

RAW MATERIAL 10.89 15.34

WORK IN PROGRESS 1.35 1.56

FINISHED GOODS 8.21 5.67

2) RECIEVABLES COLLECTION

PERIOD

64.01 95.84

3) GROSS OPERATING CYCLE (1+2) 84.46 118.41

4) PAYMENT DEFERRAL PERIOD 81.58 77.85

5) NET OPERATING CYCLE (3-4) 2.88 40.56

INTERPRETATION:


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The net operating cycle comes to be 40.56 days in 2007-08 in comparison to days in 2006-07,

therefore the increase in operating cycle refers that the firm has defective credit policy and

slack collection policy as average collection period had increased by 49.72%

which is not a good indicator as it is directly effecting the net operating cycle of

the firm. The reason behind the increase in the collection period is the increase

in the recoverable from FICC as the funds got blocked during the month starting

from December to March due to lack of funds with Govt. and it is the month of

march when the annual reports are prepared.

CALCULATIONS:

Raw Material Conversion Period = Average Raw Material * 365

Raw Material Consumed

2007 2008

(3158.74+7371.93)/2*365 (7371.93+10044.70)/ 2*365


75/169

186364.92 207138.99

10.89 days 15.34 days

CONCLUSION:

The Raw material conversion period refers to the time period by which the raw

material is kept in the stores before it is sent to production department.

Therefore the lowest values of RMCP indicate good demand of the raw

materials for the purpose of production. More the RMCP, less will be the

efficiency of the firm.

Moreover large storage of raw materials may also indicates that the firm is

keeping such storage for the emergent requirements but at the same time if it is

not used early, the raw material will remain idle, and the firm has to bear its cost

of purchase.

During 2007 the company had 11 days as RMCP which states that due to less

requirements in the firm, companies tries to keep the raw material as low as

possible. But certainly the sales increased to a larger extent, therefore to meet

the demand, the raw material is increased and so the RMCP.


76/169

W.I.P. Conversion Period = Average W.I.P. * 365

Total Cost of Production

2007 2008

(1191.27+1066.62)/2*365 (1066.62+2249.11)/ 2*365

303693.63 386740.60

1.35 days 1.56 days

CONCLUSION:

The work in progress conversion period indicates that the time period by which

the products which are in process of production converts to finished goods.

This period involves the cost of production, the larger the time period, more will

be the cost of production. The cost involved in the process increases with time.

Therefore a firm tries to minimize the period.

During 2008 WIP is almost same i.e 2 days and it could be said that the firm is

working hard in order to maintain its efficiency of converting WIP to finished

products.


77/169

Finished Goods conversion Period = Average Finished goods * 365

Total Cost of goods sold

2007 2008

(8045.66+6230.67)/2*365 (6230.67+6498.87)/ 2*365

317030.83 409386.18

8.21 days 5.67 days

CONCLUSION:

The finished goods conversion period refers to the period by which the finished

products remain in the stores before it is being sold to the customers.

Therefore, it predicts the idle time where finished goods remain in the stores,

The firm always tries to reduce the FGCP to minimum by working on its

marketing strategies.

And during 2007 the FGCP was 8 days and it is reduced to6 days in 2008,

therefore the firm have improved its efficiency over sales after production.


78/169

Receivable Conversion Period = Average Debtors * 365

Total Credit Sales

2007 2008

(43505.61+82447.16)/2*365 (82447.16+120571.60)/2*365

359053.16 386568.25

64.01 days 95.84 days

CONCLUSION:

The receivables conversion period refers to the time period required to convert

credit sales into cash realization.

The firm is trying to reduce its RCP by making its credit policy more stricter,

and tighten the process of collection of receivables but due to the blockage of

funds with FICC there was an increase in the recoverable by 46.24% during the

year 2007-08 which had increases the RCP though the problem was only for

four months from December to March when there was a shortage of funds with

Govt.

The RCP during 2007 was 64 days and it has increased to 96 days.


79/169

Deferral Period = Average Creditors * 365

Total Credit Purchase

2007 2008

(43768.25+40772.99)/2*365 (40772.99+48731.43)/2*365

189103.57 209811.76

81.58 days 77.85 days

CONCLUSION:

Deferral Period is the period by which the firm enjoys the delayed payments of

its purchase.

The firm tries to maximize its deferred payments to longer so that the firm could

retain its cash for longer, which may be beneficial to the firm if it goes for

investments. But at the same time it must not increase its deferral period to

larger extent on the cost of its goodwill.

During 2008 the deferral period comes to 78 days, which seems to be slightly

low as compared to that of 2007. Therefore the firm should try to improve its

policies over deferral period without affecting its goodwill.


80/169

Operating Cycle = 61.85 days ~ 62 days

2007 2008

2.88~3 days 40.56~41 days

CONCLUSION:

Though the operating cycle comes to be 41 days during 2008, which is quite

high as compared to that of 2007 and its all due to increase in the RCP which

can only be improved when the firm gets the recoverable from FICC on time

and can also manage to raise funds through interest.

WORKING CAPITAL ANALYSIS OF LAST FIVE YEAR:


81/169

PAR

TICULAR

S

200

3-

04

2004-

05

%Chan

ge

2005-

06

%Chan

ge

2006

-07

%Chan

ge

2007

-08

%Cha

nge

CURRENTASSETS

,LOANS&

AD

VANCES 1

47644

.10

114682

.25

-100

.22

100729

.59 -1

2

127173

.00 2

6

169302

.19

33

CURREN

TLIABILITIES&PROV

ISIONS

7

4595

.59

3

7266

.92

-50

6

0067

.48

61

5

5273

.82

-8

6

9193

.25

25

WORKINGCAPITAL

7

3048

.51

7

7415

.33

6.0

0

4

0662

.11

-47

7

1899

.18

77

10

0108

.94

39


82/169

CONCLUSION:

There is an increase of 25% in the current liabilities & provisions in the year

2007-08 as compared to decrease of 8% during the previous year 2006-07.

There was an increase of 77% in the working capital in the year 2006-07

which was mainly due to an increase of 26% in the current assets & liabilities

and again there is an increase of 33% in the current assets & liabilities in the

year 2007-08 which resulted in an increase of working capital by 39%.

BREAK-UP OF CURRENT ASSETS:


83/169

PARTICULARS 2003

-04

2004

-05

%Chan

ge

2005-

06

%Cha

nge

2006

-07

%Cha

nge

2007

-08

%Cha

nge

INVENTORIES

53761

.30

39258

.13

-26

.97

35078

.10

-10

.64

32449

.46

-7.4

9

34820

.15

7.3

0

SU

NDRYDEBTORS

82113

.72

46378

.35

-43

.51

43505

.61

-6.1

9

82447

.16

89

.50

120571

.60

46

.24

CASH&BANK

BALANCES

1815

.82

19645

.33

981

.89

13347

.89

-32

.05

1183

.22

-91

.13

1338

.92

13

.15


84/169

LOANS&AD

VANCES

9953

.26

9400

.44

-5.5

5

8797

.99

-6.4

0

11093

.16

26

.08

12571

.52

13

.32

TOTAL

147644

.10

114682

.25

-22

.32

100729

.59

-12

.16

127173

.00

26

.25

169302

.19

33

.12

CONCLUSION:

The inventory was decreasing each and every year from 2003-04 till 2006-07

but has increased by 7.30% during the year 2007-08.

There was a sudden increase in the sundry debtors by 89.50% in the year

2006-07 and than by 46.24% in the year 2007-08 which is the major contributor

to increase in the working capital of the firm.

There was a drastic increase in the cash & bank balance by 981.89% in the

year 2004-05 which decreased by 32% in the next year and increased by

13.15% during 2007-08.

The loans & advances has increased by 13.32%.


85/169

1338.921183.22

13347.89

1815.82

0

2000

4000

6000

8000

10000

12000

14000

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

INVENTORIES

SUNDRY DEBTORS

CASH & BANK BALANCESLOANS & ADVANCES


86/169

PARTICULARS 2003

-04

200

4-

05

%Chan

ge

2005-

06

%Cha

nge

2006

-07

%Cha

nge

2007

-08

%Cha

nge

RAW

MATERIALS

(inclu

ding

intransi

t)

3788

.88

4547

.82

20

3758

.74

-17

.35

7371

.93

96

.12

10044

.70

36

.25

STORES&

SPARE&PACKINGMATERIALPARTS

22096

.46

21909

.91

-0.8

4

22251

.10

1.5

5

12514

.89

-43

.75

16865

.13

34

.76

LESS:

Prov

ision

for

Store

s

&Spares

69.53

230.82

231

.97

629.17

172

.58

5018.39

697.62

193.72

-96

.13

SHED

ODS

574

.43

554

.65

56

.51

036

.13

30

.45

228

.16

22

.49

495

.09

4.2

8


87/169

BREAK-UP OF INVENTORIES:

CONCLUSION:

There was an increasing trend in the raw materials including in transit from

the year 2003-04 till 2007-08 though there was a decrease of 17.35% during the

year 2005-06.

There was an increase in the stores & spares and packing material by

34.76% in 2007-08.

After a regular decrease in the finished goods it has been increased by 4.28%

in the year 2007-08 and is mainly due to increase in the demand of urea in the

agriculture sector.

Overall there was an increase of 7.30% in the inventory in the year 2007-08

which is mainly due to increase in the raw materials by 36.25%, Finished goods

by 4.28% which has the contribution in the increase in the working capital of

the company.


88/169

3788.88

22096.46

26574.43

4547.82

21909.91

11554.65

3758.74

22251.1

8036.137371.93

12514.89

6228.16

10044.7

16865.13

6495.09

040008000

1200016000

200002400028000

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

RAW MATERIALS

STORES-SPARE & PACKING MATERIAL

FINISHED GOODS

SEMI-FINISHED GOODS

BY-PRODUCT SULPHUR

BREAK-UP OF SUNDRY DEBTORS:

PARTICUL

ARS

2003

-04

2004

-05

%Chan

ge

2005-

06

%Cha

nge

2006

-07

%Cha

nge

2007

-08

%Cha

nge

SECURED-

CONSIDE

RED

GOODS

198

.48

314

.15

58

.27

249

.98

-20

.42

171

.44

-31

.41

279

.08

62

.78


89/169

UNSECUR

ED-

CONSIDE

RED

GOODS

1641o.7

3

10339

.58

-36

.99

7337

.17

-29

.03

6421

.69

-12

.47

7695

.08

19

.82

Less:

PROVISIO

N FOR

DOUBTFU

L DEBTS

3233

.69

2703

.36

-16

.40

1328

.63

-50

.85

1283

.82

-3.3

7

1270

.27

-1.0

5

RECOVER

ABLE

FROM

FICC

68738

.20

38428

.00

-44

.09

37247

.09

-3.0

7

77138

.15

107

.09

113867

.71

47

.61

TOTAL

82113

.72

46378

.35

-43

.51

43505

.61

-6.1

9

82447

.16

89

.50

120571

.60

46

.24

CONCLUSION:

The secured debtors have been increased by 62.78% in the year 2007-08 after

a decreasing trend in the previous years.


90/169

The unsecured debtors have been increased by 19.82% in the year 2007-08

after a continuous decreasing trend in the past years.

Recoverable from FICC is the major and main contributor to the increased

working capital in the year 2006-07 and 2007-08 but on the other hand if we go

in depth it can be concluded that FICC recoverable is only due to the shortage

of funds with Govt. during December to march when the annual accounts are

prepared and is back to normal position in the month of june or july.

The increase in the recoverable from FICC is by 107.09% in the year 2006-07

and by 47.61% in the year 2007-08 and is not the healthy sign for the firm.

The good thing is provision for doubtfull debt is decreasing every year.


91/169

198.48

16410.733233.69

314.15

10339.582703.36

249.98

7337.171328.63

171.44

6421.69

1283.82279.08

7695.081270.27

508050

160502405032050

4005048050560506405072050800508805096050

104050112050

120050128050136050

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

SECURED CONSIDERED GOODS

UNSECURED CONSIDERED GOODS

PROVISION FOR DOUBTFUL DEBTS

RECOVERABLE FROM FICC

TOTAL

BREAK-UP OF CASH & BANK BALANCES:


92/169

PARTICU

LARS

2003

-04

2004

-05

%Chan

ge

2005-

06

%Cha

nge

2006

-07

%Cha

nge

2007

-08

%Cha

nge

CASH &

CHEQUE

IN HANDS

61

.41

11

.12

-81

.89 7.8

5

-29

.40

9.85

25

.47

12

.27

24

.56

IN

CURRENT

ACCOUNT

957

.81

1067

.34

11

.43

703

.14

-34

.12

729

.61

3.7

6

995

.74

36

.47

IN FIXED

DEPOSIT

ACCOUNT

346

.82

17668

.26

4994

.36

11971

.17

-32

.24 O

-100 0 0

REMITTA

NCE IN

TRANSIT

449

.78

898

.61

99

.78

665

.73

-25

.91

443

.76

-33

.34

330

.91

-25

.43

TOTAL

1815

.82

19645

.33

98

1.8

9

13347

.89

-3

2.0

5

1183

.22

-9

1.1

3

1338

.92

13

.15

CONCLUSION:

The cash & bank balances have been increased by 13.15% in the year 2007-08

as compared to decrease of 91.13% in the previous year.


93/169

The increase in the cash & Bank balance is due to the increase in the Net

Profit Before Tax from Rs. 17929.73 Lakhs to Rs.26367.23 Lakhs, Increase in

the cash flow from sale of fixed assets from Rs.20.63 Lakhs to 186.30 Lakhs,

increase in the closing balance by 13.15%.


94/169

61.41

957.81

346.82

11.12

1067.34

17668.26

7.85

703.14

11971.17

9.85

729.61

0 12.27

995.74

0

0100200300400500600

700800900

10001100120013001400150016001700

180019002000

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

CASH CHEQUE IN HAND

IN CURRENT ACCOUNT

IN FIXED DEPOSITS

REMITTANCE IN TRANSIT

TOTAL

BREAK-UP OF LOANS & ADVANCES:


95/169

CONCLUSION:

PARTIC

ULARS 2003

-04

2004

-05

%Chan

ge

2005-

06

%Cha

nge

2006

-07

%Cha

nge

2007

-08

%Cha

nge

LOANS(se

cured

&Unsecure

d)

2554

.87

21

36

.33

-16

.38

1850

.37

-13

.38

15

85

.86

-14

.29

13

13

.38

-17

.18

ADVANCE

S

RECOVER

ABLE IN

CASH

5852

.06

6390

.47 9

.2

6149

.05

-3.7

7

8632

.71

40

.39

11258

.14

30

.41

TAXATIO

N1

546

.33

873

.64

-43

.50

798

.97

-8.5

4

874

.59

9.4

6 0

-100

TOTAL

9953

.26

9400

.44

-5.5

5

8797

.90

-6.4

0

11093

.16

26

.08

12571

.52

13

.32


96/169

Loans are showing a decreasing trend year after year which is a good sign.

Advances recoverable in cash have been increased by 30.41% in the year

2007-08 as compared to a increase of 40.39% last year.

Overall there was a increase of 13.32% in the loans & advances which was

mainly due to increased in the interest accrued and due from employees from

Rs.136.57 Lakhs to Rs.145.24 Lakhs in the year 2007-08, increase in the

advances recoverable in cash from contractors from Rs.24.36 Lakhs to

Rs.262.17 Lakhs and from others by 21.21%, refunds from IT Deptt has also

increased from Rs.798.70% Lakhs to Rs.2983.10 Lakhs.


97/169

2554.87

5852.06

1546.332136.33

6390.47

873.64

1850.37

6149.05

798.971585.86

8632.71

874.591313.38

11258.14

0

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

13000

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

LOANS(SECURED & UNSECURED)

ADVANCES RECOVERABLE IN CASHTAXATION

TOTAL

BY-PRODUCT SULPHUR

BREAK-UP OF CURRENT LIABILITIES:


98/169

PARTICULARS 200

3-04

200

4-

05

%Chan

ge

2005-

06

%Cha

nge

200

6-07

%Cha

nge

2007-

08

%Chan

ge

SUNDRY

CREDITO

RS

26315

.97

17360

.63

-34.03

437

68

.25

152.11

40772

.99

-6.84

48731

.43

19.51

DEPOSIT

S FROM

CONTRA

CTORS &

OTHERS

3513

.48

3776

.66

7.4

9

4011

.74

6.2

2

3903

.23

-2.7

0

4037

.01

3.4

2

TRADE

DEPOSIT

S &

ADVANC

ES(from

Customers)

937

.62

871

.63

-7.0

3

1148

.99

31

.82

965

.81

-15

.94

1168

.51

20

.98

INVESTO

R

EDUCATI

ON &

PROTECT

ION

FUND

0

.26

1

.49

473.07

1

.32

-11.40

2

.24

6

9.6

9

2

.28

1.7

8

OTHER

LIABILITI 1618

.74

1039

.29

-35

.79

1331

.93

28

.15

509

.37

-61

.75

1125

.99

121

.05


99/169

CONCLUSION:

After a decrease of 34.03% in the year 2004-05 the sundry creditors have been

increased by 152.11% in the year 2005-06 and is mainly due to increase in the

other than small scale industries creditors which include taking fuel and other

raw materials on credit from IOC & GAIL which has increased by

152.04%.Similarly there was a increase of 21.36% in the other creditors in the

year 2007-08.

Deposit from contractors has been increased from Rs.3903.23 Lakhs in the

year 2006-07 to Rs.4037.01 Lakhs in the year 2007-08.

Trade deposits and advances from customers have been increased by 20.98%

during the year 2007-08.

Overall there was a increase of 19.30% in the current liabilities during the year

2007-08.

BREAK-UP OF PROVISIONS:

PARTICULAR

S

2003-

04

2004

-05

%Chan

ge

2005-

06

%Cha

nge

2006

-07

%Cha

nge

2007-

08

%Ch

ange


100/169

TAXATIONNIL

8180

.00

7547

.00

-7.7

3NIL

11448

.00

Less:

ADVANCE

TAX/TDS

NIL

5977

.31

6436

.56

NIL

8392

.68

PROPOSED

DIVIDEND

30000

.34

2551

.11

-14

.96

3110

.17

21

.91

4074

.02

30

.99

5283

.00

29

.67

DIVIDEND

DISTRIBUT

ION TAX

3843

.80

3

Documents

The Working Capital Management of National Fertilizers