A REPORT

ON
WORKING CAPITAL MANAGEMENT IN
HCL INFOSYSTEMS LIMITED

BY

(Submitted in partial fulfillment of the requirements of

MBA program at
ICFAI Business School, Chandigarh)

ACKOWLEDGEMENT
Achievement is finding out what you would be then doing, what you have to do.
The higher the summit, the harder is the climb. The goal was fixed and we
began with a determined resolved and put in ceaseless sustained hard work.
Greater challenge, greater was our effort to overcome it.
This project work, which is my first step in the field of professionalization, has
been successfully accomplished only because of my timely support of wellwishers. I would like to pay my sincere regards and thanks to those, who
directed me at every step in my project work.
I would also like to thank the faculty members and the staff members of HCL
Infosystems Ltd. for their kind support and help during the project.

TABLE OF CONTENTS

Chapter No.

Title

Page No.

ListofGraphs

ListofTables

ListofCharts

ExecutiveSummary

ObjectiveoftheStudy

ResearchMethodology

LimitationOfstudy

ReviewofLiterature

IntroductionofWorkingCapital

6.1

WorkingCapitalinPresentScenario

6.2

ConceptofWorkingCapital

6.3

ObjectivesofWorkingCapital

6.4

SourcesofWorkingCapital

6.5

ImportanceofworkingCapital

6.6

MethodsofDeterminingWorkingCapital
Requirement
CompanyProfile(HCLINFOSYSTEMSLTD)

7
7.1

HCLInfosystemsLimitedAnOverview

7.2

History

7.3

Objectives

7.4

AlliancesandPartnership

7.5

ManagementTeam

7.6

CorporateInformation

Working Capital Management

8.1

Significance

8.2

Classification of Working Capital

8.3

Types Of Working Capital

8.4

Financing of Working Capital

HCL Financials

9.1

Working Capital Position

InventoryManagement

10
10.1

Introduction

10.2

InventoryManagementTechniques

11

Conversion Periods

12

CashManagement

12.1

SourcesofCash

12.2

Cashvs.MarketableSecurities
ReceivablesManagement

13
13.1

ReceivablesManagementinHCL

13.2

CollectionPolicies

14

Managing Payables(Creditors)

15

Financing Current Assets

16

Short Term Financing

17

Analysis

17.1

Industry Analysis

17.2

FinancialGraphs

18

ConclusionAnalysis

19

Suggestions and Recommendations

20

Bibliography

21

Appendices

LIST OF GRAPHS
Serial
No.
1
2
3
4
5
6
7

Name Of Graphs

7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8

Commercial Market Share

Consumer Market Share
Dividend Policy
Cash Balance
Shift in Sales
Level of Current Assets
Financial Graphs
Gross Business Income
Profit Before Tax
Profit After Tax
Earnings Per Share
Dividend
Net Worth
Borrowings
Current Asset Ratio

Page
No.

LIST OF TABLES
Serial
No.
1
2
3

4
5
6
7
8
9
10
11
12
13
14
15
16

Name of Table
Rate of Growth

Consolidated Financial Performance

Working Capital Position
Current Asset - Total Asset
Net Current Asset Sales
Current Assets Fixed Assets
Current Assets Current Liabilities
Carrying Cost
Raw Material
Work in progress
Finished Goods
Operating Cycle
Raw Material Consumption
Cash-Current Liability
Dividend Policy-Cash
Cash Flows
Cash Flows in Operating Activities
Cash Flows in Investing Activities
Receivable Management
Current Working Capital Limits
Renewal of Limits
Short Term Financing

Page
No.

LIST OF CHARTS

Serial No.
1
2
3
4

Name of Charts
Current Assets vs. Current Liabilities
Sources of Working Capital
Working Capital Cycle
Classification of Working Capital

Page No.

EXECUTIVESUMMARY

WorkingCapitalManagementistheprocessofplanningandcontrollingthelevel
andmixofcurrentassetsofthefirmaswellasfinancingtheseassets.

The project undertaken is on WORKING CAPITAL MANAGEMENT IN

HCL INFOSYSTEMS LIMITED.
It describes about how the company manages its working capital and the various
steps that are required in the management of working capital.
Todaythemostofthecompanysaretryingtoincreasetheirproductionatlowcost
andmakingmoreprofits.Theyconcentratetheirmanagerialeffortoncontrolling
profitsbycontrollingoverheadsonly.Balancessheet,operationalbudget,etcare
drawnup,standardcostsaresetandconsiderableeffortsarespendonidentifying
andrectifyingvariancesofactualagainstthesebudgetandstandards.

Astudyofworkingcapitalisofmajorimportancetointernalexternalanalysis
becauseofitscloserrelationshiptocurrentdaytodayoperationalrequirementsof

10

workingcapitalareveryessential.Theimportanceofworkingcapitalmanagement
is reflected in the fact that financial managers spend a great deal of time in
managingcurrentassetsandcurrentliabilities.
Arranging short term financing, negotiating favorable credit terms, controlling
cash movement, managing accounts receivable, and monitoring investments in
inventoriesconsumeagreatdealoftimeoffinancialmanagers.Theobjectiveof
theprojectwastofindoutthevariousaspectsofworkingcapitalmanagement.
Thepurposeofthereportistogettheindepthunderstandingoftheprocessof
workingcapitalmanagement.

Which are the factors that affect the management of working capital in
manufacturingconcern?Whatarethevariousmethodsorwaytomanageworking
capitalinanefficientmanner?
Theprojectgavemeanoverviewofimportantareaofaffectingworkingcapital.I
acquiredthebriefknowledgeofdifferentdepartments.Igotachancetointeract
withdifferentpeoplethatbenefittomyknowledge.Lastbutnottheleastiscould
understandthenecessityofthetheoreticalknowledgeaswellastheimportanceof
practicalexperienceincrucialdecisionmaking.

Working capital refers to the cash a business requires for day-to-day operations
or, more specifically, for financing the conversion of raw materials into finished
goods, which the company sells for payment. Among the most important items
of working capital are levels of inventory, accounts receivable, and accounts
payable. Analysts look at these items for signs of a company's efficiency and

11

financial strength.
The working capital management refers to the management of working capital,
or precisely to the management of current assets. A firms working capital
consists of its investments in current assets, which includes short-term assets
cash and bank balance, inventories, receivable and marketable securities.
This project tries to evaluate how the management of working capital is done in
HCL Infosystems through inventory ratios, working capital ratios, trends,
computation of cash, inventory and working capital, and short term financing.

OBJECTIVESOFTHEPROJECT

12

Working capital management is very important in modern business. The

analysisofworkingcapitalisalsoveryusefulforshorttermmanagementoffunds.
Thefollowingareobjectiveofstudy:

The main purpose of our study is to render a better understanding of

the concept Working Capital Management.
To understand the planning and management of working capital at HCL
Infosystems Ltd.

13

 To measure the financial soundness of the company by analyzing various

ratios.
To suggest ways for better management and control of working capital at
the concern.
Tostudyreasonforchangesinworkingcapital.
Tosuggestalternativewaysandmeanstoimprovethemethodsofmanaging
variouscomponentsofworkingcapitalmorespecificallyi.e.managementof
inventory,receivable,cash,currentliabilitiesmoreefficiently.

RESEARCHMETHODOLOGY

14

Astheprocessofanalysisthefinancialstatementisathoughtprovoking
process,itistotallybasedonthesecondarydatathatisbeingobtainedfromthe

15

auditedbalancesheetofthedivisionandthenthisdataisbeingprocessedusing
various techniques of analysis. Research methodology describes the research
procedure.

1.PRIMARYDATA

There are various methods of collecting the primary data i.e. Interview
Method,QuestionnaireMethod,ObservationMethod,etc.Butintheseprojects,the
data is collected through discussion, interview and observation. Primary data
whicharecollectedasafreshandforthefirsttimeandthushappentobeoriginal
incharacter.

2.SECONDARYDATA

Secondarydatameansdatathatarealreadyavailable.Thesecondarydata
thosewhichhavebeencollectedbysomeoneelseandwhichhavebeenpassed
throughstatisticalprocess.Thesecondarydataconsistsof
Journals,reports,governmentpublicationandvariousbooksavailableinthe
library.
AnnualreportoftheHCLINFOSYSTEMSLIMITEDforthelasttwoyears.

Variouswebsitesandthecompanywebsite.
LIMITATIONOFTHEPROJECT

16

Thescopeofthestudyisidentifiedafterandduringthestudyisconducted.

17

The study of working capital is based on tools like operating cycle etc. Even
factors like competitors analysis, industry analysis were not considered while
preparing this project. And detailed interaction with various Departments like
finance,Marketing,Productions,Salesandsooninthecompany.
LIMITATION
Followinglimitationswereencounteredwhilepreparingthisproject:
1)LimitedData:
Thisprojecthascompletedwithannualreports;itjustconstitutesonepartof
datacollectioni.e.secondary.Therewerelimitationsforprimarydatacollection
becauseofconfidentiality.
2)LimitedArea:
Alsoitwasdifficulttocollectthedataregardingthecompetitorsandtheir
financialinformation.Industryfigureswerealsodifficulttoget.
3)Thestudyisalsodependingonthepastannualreportandinformationreceived
isinteractionwiththeeffectofthecompany.
4) We cannot do comparisons with other companies unless and until we have the data of
other companies on the same subject.
5) Only the printed data about the company will be available and not the backend details.
6) Future plans of the company will not be disclosed.
7) Lastly, due to shortage of time it is not possible to cover all the factors and details
regarding the subject of study.

18

REVIEWOFLITERATURE

19

MANAGEMENT ACCOUNTING
IM PANDEY (3RD EDITION)
VIKAS PUBLICATION HOUSING PRIVATE LIMITED

Financial analysis is the process of identifying the firms

strengths and weaknesses by properly establishing
relationship between the items of the balance sheet and
profit and loss accounts. Financial analysis can be
undertaken by management of the firm via owner,
creditors, investors and others. The nature of analysis will
differ depending on the purpose of analysis. Finally
management of the firm would be interested in every
aspect of the financial analysis. It is their overall
responsibility to see that the resources of the firm are
used more efficiently and effectively that the firms
financial position is sound.

ESSENCE
OF
MANAGEMENT

THE

FINANCIAL

STATEMENT

IM PANDEY
VIKAS PUBLICATION HOUSING PRIVATE LIMITED

20

A financial analysis is a relationship between two

financial variables. It helps to ascertain the financial
condition of the firm. Ratio analysis is a process of
identifying the financial strength and weaknesses of the
firm. This may be accomplished either through a trend
analysis of the firms ratio over a period of time or
through a comparison of the firms ratios with its nearest
competitors and with the industry averages. The four
most important dimension which a like to analyze are

Liquidity
Leverage
Activity
Profitability

MANAGEMENT ACCOUNTING M.Y. KHAN, P.K.

JAIN
TATA MCGRAW HILL PUBLICATION COMPANY
LIMITED

The focus of financial analysis is one key figure in the

financial statements and significant relationship that
exist between them. The analysis of financial statement
is a process of evaluating relationship between
component parts of financial statement to obtain better
understanding of firms position and performance. The
first task of financial analyst is to select the interest

21

relevant to the decision under the consideration from

total information contained in the financial statement.
The second step is interpretation and drawing of
interface and conclusion. In short, the financial analysis
is the process of relation and evaluation.

FINANCIALACCOUNTINGAMANAGERIALEMPHASIS
ASHOKBANJEREE,SECONDEDITION,EXCELBOOK

InthisMr.AshokBanjereehasgiventhatfinancialnumberisindependentand
they convey more meaningful information when independence is explored and
interdependencearecompared.

Ratio refers to the relationship between two variables expressed either in

percentageorinmultipleorinperiods.Thevariablescanbetakenfromfinancial
statementorfromexternalsourcescapitalmarket.

22

MANAGEMENTACCOUNTINGCONCEPT&APPLICATION

RAJESHKOTHARI,ABHISHEKGODHA,MACMILAN,2006
In this Mr. Rajesh Kothari and Mr. Abhishek Godha have given that a
financialstatementisacomplicationoffinancialaccountingdatawhichislogically
and consistently organized according to some generally accepted accounting
principles. Financial statement analysis is an important essential step towards
gaininganindepthunderstandingofabusiness.Ithelpsindoingthefinancial
SWOTanalysisofthebusiness

INTRODUCTION TO WORKING CAPITAL

MANAGEMENT

23

6.1WORKINGCAPITALINPRESENTSCENARIO
Thechallengeofglobalizationhasmagnifiedtheeconomyofmostofthe
developedanddevelopingnations.Globalizationhascreatednewcomplexitiesin
everyindustryandthusrequiresnewstrategiesanduniqueapproaches.Whysome
industries grow at a faster pace and more constantly than any other industry?
Perhaps the answer could be they all believed in constant changes for better
improvementinordertosurviveagainstthecompetition.
Thebusinessworldhaschangeddramaticallyinthelastcoupleofyearsand
thebiggestchallengethatmostbusinessmanagers/entrepreneuroranybusiness
arefacingthesedaysistoimplementoradoptnewworkingcapitalprograms.The
businesshasbecomemorecompetitiveandnoonecandenyfromthefactthat
today the requirement of working capital is one of the priorities in business

24

management.
Manyorganizationsthatareprofitableonpaperareforcedtoceasetrading
duetoaninabilitytomeetshorttermdebtswhentheyfalldue.Inordertoremain
inbusinessitisessentialthatanorganizationsuccessfullymanagesitsworking
capital. Too often however, thisis an area which is ignored.The itemswhich
comprise working capital and using live examples will consider the level of
workingcapitalrequiredbybusinessesoperatingindifferentindustries.
Theproblemsfacedbysmallormediumsizeindustriesbeforereviewing
some of the ways in which an organization can improve its management of
workingcapital.Almostasbadistoomuchworkingcapitalorovercapitalization.
Poormanagementofworkingcapitalwillresultinexcessiveamountstiedupin
current assets. Such a scenario will lead to a business earning a lower than
expectedreturn.
6.2CONCEPTOFWORKINGCAPITAL

The term working capital refers to Net working capital, i.e., current
assetslesscurrentliabilities.Thelevelofnetworkingcapitalhasabearingon
theprofitabilityaswellastheriskinthesenseoftheinabilityofthecompanyto
meetanobligationas&whentheybecomedue.Thereforetradeoffbetween
profitabilityariskisanimportantelementinevaluationoftheNetworking
capital

Workingcapitalmayberegardedasthelifebloodofbusiness.Working
capitalisofmajorimportancetointernalandexternalanalysisbecauseofitsclose

25

relationshipwiththecurrentdaytodayoperationsofabusiness.Everybusiness
needsfundsfortwopurposes:
Long term funds are required to create production facilities through
purchaseoffixedassetssuchasplants,machineries,lands,buildings&
etc.

Shorttermfundsarerequiredforthepurchaseofrawmaterials,payment
of wages, and other daytoday expenses. . It is otherwise known as
revolvingorcirculatingcapital.Itisnothingbutthedifferencebetween
currentassetsandcurrentliabilities.i.e.

WorkingCapital=CurrentAssetCurrentLiability.

Businesses use capital for construction, renovation, furniture, software,

equipment,ormachinery.Itisalsocommonlyusedtopurchaseinventory,orto
makepayroll.Capitalisalsousedoftenbybusinessestoputadownpaymentdown
onapieceofcommercialrealestate.Workingcapitalisessentialforanybusiness
tosucceed.Itisbecomingincreasinglyimportanttohaveaccesstomoreworking
capitalwhenweneedit.

WORKINGCAPITAL

26

 GrossWorkingCapital=TotalofCurrentAsset
NetWorkingCapital=ExcessofCurrentAssetoverCurrentLiability

Chart:

CurrentAssets

CurrentLiabilities

Cashinhand/at

BillsPayable

bank

SundryCreditors

BillsReceivable

OutstandingExpenses

SundryDebtors
Shorttermloans
Investors/stock
Temporary
27

investment
Prepaidexpenses
Accruedincomes

6.3OBJECTIVESOFWORKINGCAPITAL
Theobjectivesofworkingcapitalcanbesummarizedasunder
1. Tominimizetheamountofcapitalemployedinfinancingcurrentassets.
2. Tomanagethecurrentassetsinsuchawaythatthemarginalreturnon
investmentsinthoseassetsisnotlessthanthecostandcapitalacquiredto
financethem.
3.

Tomaintaintheproperbalancebetweentheamountofcurrentassetsand
currentliabilitiesinsuchawaythatthefirmisalsoabletomeetitsfinancial
obligations.

28

Thustheobjectivesaretoensurethemaintenanceofsatisfactorylevelof
workingcapitalinsuchawaythatitisneitherinadequatenorexcessive.Itshould
notbeonlysufficienttocovertheliabilitiesbutensureareasonablemarginof
safetyalso.

6.4SOURCESOFWORKINGCAPITAL

Mainlytherearetwosourcesofworkingcapital:
1. PermanentorFixedworkingcapital
2. Temporaryorvariablesworkingcapital

Inanyconcern,apartoftheworkingcapitalinvestmentsareasinvestment
infixedassets.Thisissobecausethereisalwaysaminimumlevelofcurrent

29

assets,whicharecopiouslyrequiredbytheenterprisetocarryoutitsdaytoday
businessoperationandthisminimum,cannotbeexpectedtoreduceatanytime.
Thisminimumlevelofcurrentassetsneedlongtermworkingcapital,whichis
permanentlyblocked.

Similarly, some amount of working capital may be required to meet the

seasonaldemandsandsomespecialexigenciessuchasriseinprices,strikes,etc.
this gives rise to short term working capital which is required for day to day
transactionalso.

Thefixedproportionofworkingcapitalshouldbegenerallyfinancedfrom
the fixed capital sources while the temporary or variable working capital
equipmentmaybemetfromtheshorttermsourcesofcapital.

Inthisproject,theorganizationistakingfollowingsourceforworking
capital.
Chart:

SourcesofWorkingCapital

LONG TERM SOURCES

SHORT TERM SOURCE

30

1) Shares

1) Banks

2) Public Deposits

2) Traders

3) Loans From Financial

3) Advances

Institutions.

4) Accounts Receivable.

4) Loans from Directors.

HCL Infosystems has the following sources available for the fulfillment of its
working capital requirements in order to carry on its operations smoothly:

Banks:
These include the following banks
State Bank of India
Canara Bank
HDFC Bank Ltd.
ICICI Bank Ltd.
Societe Generale
Standard Chartered Bank

31

 State Bank of Patiala

State Bank of Saurashtra
Commercial Papers:
Commercial Papers have become an important tool for financing
working capital requirements of a company.
Commercial Paper is an unsecured promissory note issued by the
company to raise short-term funds. The buyers of the commercial
paper include banks, insurance companies, unit trusts, and
companies with surplus funds to invest for a short period with
minimum risk.
HCL issues Commercial Papers and had 4000 commercial papers
in the year 2013.

6.5IMPORTANCEOFWORKINGCAPITAL

The degree to which an enterprises can meet its current obligation a

measuresofitsshorttermliquidity.Liquidityimpliesthereadyabilitytoconvert
assetsintocash.
Therearenumberofaspectsofworkingcapitalmanagementtomakeit
importance.

32

1.Timedevotedtoworkingcapital:

Thelargestportionfinancetodevotetheirtimetoworkingcapitaldecisions

2.Investmentincurrentassets:

Thefinancialmanagersarecarefullyanattentionlargeinvestmenttendstobe
relativelyvolatilecurrentassets.
3.

Relationshipbetweensalesgrowthandcurrentassets:

Therelationbetweensales,growthandcurrentassetsisclosetodirect.
4.

Importancetosmallfirms:

Thesmallfirmsminimizetheinvestmentintofixedassetsbyremittingor
leasing.
6.6METHODSOFDETERMININGWORKINGCAPITAL
REQUIREMENT
Themethodsofdeterminingworkingcapitalrequirementsofanycompany
orbusinessunitareasfollows:

WORKINGCAPITALCYCLE

33

Theworkingcapitalcycleisalsoknownasoperatingcycle.Itreferstothe
duration between the firms payment of cash for raw material, entering into
productionandinflowofcashfromdebtorsandrealizationofreceivables.Simply
speaking,operatingcycleisthedurationbetweentheoutflowofcashandinflowof
cashandthismaybeevidencedfromthefollowingworkingcapitalcycle.

CASH

RAW MATERIAL

DEBTORS &

OPERATING CYCLE

BILLS
RECEIVABL
ES

WORK IN
PROGRES
S

SALES

FINISH GOODS

Theaboveandnetworkdiagrammayofferaclearpictureofacomplete
workingcapitali.e.itisacashphenomenon.Intheproject,rawmaterial,stock
referstomaterialonly.Inworkinprocess,componentsinvolvearerawmaterial,
wages,andoverheadmorespecificallymanufacturingoverheads.Finishedstock
consistscomponentsofmaterial,wagesandoverheadsinclusiveoffactory,office
andadministrationandsellinganddistribution.Debtorsincludematerial,wages,
overheadsandprofits.Creditinvolvesforthecomponentsofrawmaterial,etc.
34

somethingacontingencymarginisalsogivenwhileestimatingtheworkingcapital
requirement.

The operating cycle consists of following events, which continues

throughouthislifeofafirmremainingengagedincommercialactivities.

35

COMPANY PROFILE

HINDUSTAN COMPUTERS LIMITED:

36

Type

Public
(BSE: 500179,BSE: 532281)

Founded

11th August 1976

Headquarters

Noida, India
(Delhi metropolitan area), India

Key People

Shiv Nadar, Founder, Chairman

Sanjay Kumar Choudhary , Vineet Nayar

Industry

Information Technology Services

Revenue

&

CEO

4.7 billion USD

Employees

~53,000 (as on 31st Dec 2007)

Website

www.hcl.in

Hindustan Computers Limited, also known as HCL Enterprise, is one of

India's largest electronics, computing and information technology company.
Based in Noida, near Delhi, the company comprises two publicly listed Indian
companies, HCL Technologies and HCL Infosystems.

HCL INFOSYSTEMS AN OVERVIEW

37

HCL Infosystems is no flash in the Information Technology pan. Founded in

1976, the firm has climbed into pantheon of India's corporate giants on the
strength of its IT products and services. HCL Infosystems specializes in IT
hardware (PC's and servers, as well as networking, imaging and
communications products), and system integration services serving the domestic
Indian market. In addition to its consumer products, the company provides
commercial IT products, facilities management, network services, and IT
security services for clients in such industries as government, financial services,
and education. HCL Corporation owns significant stakes in HCL Infosystems
(about 44%) and sister company HCL Technologies.
HCL Infosystems Ltd, a listed subsidiary of HCL, is an India-based hardware
and systems integrator. It claims a presence in 170 locations and 300 service
centres. Its manufacturing facilities are based in Chennai, Pondicherry and
Uttarakhand .Its headquarters is in Noida.
HCL Peripherals (A Unit of HCL Infosystems Limited) Founded in the year
1983, has established itself as a leading manufacturer of computer peripherals in
India, encompassing Display Products, Thin Client solutions, Information and
Interactive Kiosks. HCL Peripherals has two Manufacturing facilities, one in
Pondicherry (Electronics) and the other in Chennai (Mechanical) .The Company
has been accredited with ISO 9001:2000, ISO 14001, TS 16949 and ISO 13485.

HISTORY

38

HCL Infosystems Ltd is one of the pioneers in the Indian IT

market, with its origins in 1976. For over quarter of a century,
we have developed and implemented solutions for multiple
market segments, across a range of technologies in India. We
have been in the forefront in introducing new technologies and
solutions. The highlights of the HCL saga are summarized
below:

Y E AR H I G H L I G H T S
1976

- Foundation of the Company laid

- Introduces microcomputer-based programmable calculators with wide
acceptance in the scientific / education community

1977

- Launch of the first microcomputer-based commercial computer with a ROM

-based Basic interpreter
- Unavailability of programming skills with customers results in HCL developing
bespoke applications for their customers

1980

- Formation of Far East Computers Ltd., a pioneer in the Singapore IT market, for
SI (System Integration) solutions

1983

- HCL launches an aggressive advertisement campaign with the theme ' even a
typist can operate' to make the usage of computers popular in the SME (Small &
Medium Enterprises) segment. This proposition involved menu-based
applications for the first time, to increase ease of operations. The response to the
advertisement was phenomenal.
-HCL develops special program generators to speed up the development of
applications

1986

- Zonal offices of banks and general insurance companies adopt computerization

- Purchase specifications demand the availability of RDBMS products on the
supplied solution (Unify, Oracle). HCL arranges for such products to be ported to
its platform.
- HCL assists customers to migrate from flat-file based systems to RDBMS

1991

- HCL enters into a joint venture with Hewlett Packard

- HP assists HCL to introduce new services: Systems Integration, IT consulting,
packaged support services ( basic line, team line )

1994

- HCL acquires and executes the first offshore project from IBM Thailand
- HCL sets up core group to define software development methodologies

39

1995

- Starts execution of Information System Planning projects

- Execution projects for Germany and Australia
- Begins Help desk services

1996

- Sets up the STP ( Software Technology Park ) at Chennai to execute software

projects for international customers
- Becomes national integration partner for SAP

1997

- Kolkata and Noida STPs set up

- HCL buys back HP stake in HCL Hewlett Packard

1998

- Chennai and Coimbatore development facilities get ISO 9001 certification

1999

- Acquires and sets up fully owned subsidiaries in USA and UK

- Sets up fully owned subsidiary in Australia
- HCL ties up with Broadvision as an integration partner

2000

- Sets up fully owned subsidiary in Australia

- Chennai and Coimbatore development facilities get SEI Level 4 certification
- Bags Award for Top PC Vendor In India
- Becomes the 1st IT Company to be recommended for latest version of ISO 9001
: 2000
- Bags MAIT's Award for Business Excellence
- Rated as No. 1 IT Group in India

2001

-Launched Pentium IV PCs at below Rs 40,000

-IDC rated HCL Infosystems as No. 1 Desktop PC Company of 2001

2002

-Declared as Top PC Vendor by Dataquest

-HCL Infosystems & Sun Microsystems enters into a Enterprise Distribution
Agreement
- Realigns businesses, increasing focus on domestic IT, Communications &
Imaging products, solutions & related services

2003

- Became the first vendor to register sales of 50,000 PCs in a quarter

- First Indian company to be numero uno in the commercial PC market
- Enters into partnership with AMD
- Launched Home PC for Rs 19,999

2004

- 1st to announce PC price cut in India, post duty reduction, offers Ezeebee at Rs.
17990
- Maintains No.1 position in the Desktop PC segment for year 2003
- Becomes the 1st company to cross 1 lac unit milestone in the Indian Desktop PC
market
- Partners with Union Bank to make PCs more affordable, introduces lowest ever
EMI for PC in India
- Registers a market share of 13.7% to become No.1 Desktop PC company for

40

year 2004
- Crosses the landmark of $ 1 billion in revenue in just nine months

2005

- Launch of HCL PC for India, a fully functional PC priced at Rs.9,990/- Rated as the No.1 Desktop PC company by IDC India -Dataquest
- 'Best Employer 2005' with five star ratings by IDC India -Dataquest.
- 'The Most Customer Responsive Company 2005'
-IT Hardware Category by The Economic Times -Avaya Global Connect.
-Top 50 fastest growing Technology Companies in India' & 'Top 500 fastest
Growing Technology Companies in Asia Pacific' by 'Deloitte & Touche'. by
'Deloitte & Touche'
-'7th IETE -Corporate Award 2005' for performance excellence in the field of
Computers & Telecommunication Systems by IETE.
-India 's 'No.1 vendor' for sales of A3 size Toshiba Multi Functional Devices for
the year '04 -'05 by IDC.
-Toshiba 'Super Award 2005 towards business excellence in distribution of
Toshiba Multifunctional products,
-Strategic Partners in Excellence' Award by In focus Corporation for projectors.
-'Most valued Business Partner' Award for projectors by In focus Corporation in
2005

2006

- 75, 000+ machines produced in a single month

- HCL Infosystems in partnership with Toshiba expands its retail presence in
India by unveiling 'shop Toshiba'
- HCL Infosystems & Nokia announce a long term distribution strategy
- HCL the leader in Desktops PCs unveils India's first segment specific range of
notebooks brand - 'HCL Laptops'
- IDBI selects HCL as SI partner for 100 branches ICT infrastructure rollout
- HCL Infosystems showcases Computer Solutions for the Rural Markets in India
- HCL Support wins the DQ Channels-2006 GOLD Award for Best After Sales
Service on a nationwide customer satisfaction survey conducted by IDC
- HCL Infosystems First in India to Launch the New Generation of High
Performance Server Platforms Powered by Intel Dual - Core Xeon 5000
Processor
- HCL Forms a Strategic Partnership with APPLE to provide Sales & Service
Support for iPods in India

2007

-HCL Introduces eco-efficient Notebook PCs.

- Kodak and HCL ink agreement to distribute digital cameras in India.
- Launches NETMAX suite of networking products & solutions expanding its
portfolio for emerging enterprises.

2008

-Unveils the future of personal computing next generation, ultra portable, sub
Rs. 1,400/- laptops for the first time in India.

41

- Equips Delhi Police with technology to fight crime.

- Announces a pioneering initiative in the India ICT sector to further strengthen
its Customer Care Services

2009

-Awarded Best Telecom Support Services Company at the 5th National Telecom Award by
CMAI Association of India.
-HCL awarded Electronics Company of the Year 2009.
-Nokia Corporation announces a joint venture with HCL Infosystems to sell mobile value added
services directly to consumers in India.

2010

-Bags BSNL IT deal a system integration project worth Rs 240 cr. for
implementation and support
-Announces a tie-up with Korean major Nautilus Hyosung, to provide complete
ATM solutions for Indian banks across the country
-Wins DQ: IDC Best Employer Award 2009

2011

-'No. 1 Employer of the Year by DQ-CMR Best Employer Survey 2011

-Wins Skoch Digital Inclusion Award in the Technology in Service Delivery
category for successful implementation of Kohlapur Municipal Corporation eGovernance Project
-Launches its new sleek Next-Gen ME Tablet, the X1

2012

-HCL Desktops rated No. 1 in the Dataquest Channels CyberMedia Research

Channel Satisfaction Survey.
-HCL Infosystems ranked No.1 for IT Services in DQ-CMR CSA 2012
-HCL Digischool wins 'Best ITC Enabeled Content for K 12 Education' at
National Education Awards presented by Star News
-HCL Institute Management System awarded the 'Best Cloud based Education
Institute Management System', at the B-School Excellence Awards 2012

2013

-HCL Digischool wins Best Smart Classroom Solution Provider at the

prestigious Shiksha Ratan Award - State Education Summit 2013
-Office Automation (OA) Business bagged the Silver Award for Technical
Proficiency in Color Category at the 15th Quality Service Campaign conducted
by Toshiba-APAC among 29 participants from various countries.
-Won eINDIA Public Sector Enterprises Award 2013 for the
project eProcurement by Indian Railways.HCL was honored for automating the
tendering process of Indian Railways which reduced the procurement cycle time
of material from 23 days to instantaneous .

42

VISION STATEMENT:
"Together we create the Enterprises of Tomorrow"

MISSION STATEMENT:
"To provide world-class Information Technology solutions and services
in order to enable our customers to serve their customers better"

CORE VALUES:
Nothing transforms life like education.
We shall honor all commitments
We shall be committed to Quality, Innovation and Growth in every
endeavor
We shall be responsible corporate citizens

QUALITY POLICY:
"We shall deliver defect-free products, services and solutions to meet the
requirements of our external and internal customers, the first time, every time."

43

OBJECTIVES:

MANAGEMENT OBJECTIVES
To fuel initiative and foster activity by allowing individuals, freedom
of action and innovation in attaining defined objectives.

PEOPLE OBJECTIVES
To help people in HCL Infosystems Ltd., share companys success,
which

they make possible; to provide job security based on their

performance; to
recognize their individual achievements; and help them gain a sense of
satisfaction and accomplishment from their work.

ALLIANCES and PARTNERSHIPS:

To provide world-class solutions and services to all our customers, HCL

Infosystems have formed Alliances and Partnerships with leading IT companies
worldwide.
HCL Infosystems has alliances with global technology leaders like Intel, AMD,
Microsoft, Bull, Toshiba, Nokia, Sun Microsystems, Ericsson, nVIDIA,
SAP, Scansoft, SCO, EMC, Veritas, Citrix, CISCO, Oracle, Computer

44

Associates, RedHat, Infocus, Duplo, Samsung and Novell.

These alliances on one hand give us access to best technology & products as
well as enhancing our understanding of the latest in technology. On the other
hand they enhance our product portfolio, and enable us to be one stop shop for
our customers.

45

MANAGEMENT TEAM:

Ajai Chowdhry
Co-Founder HCL, Chairman and CEO - HCL Infosystems.
An engineer by training, Ajai Chowdhry is one of the six cofounder members of HCL, India 's premier IT conglomerate.
J V Ramamurthy
Chief Operating Officer HCL Infosystems Ltd.
J V Ramamurthy has an engineering degree in Electronics &
Communications, from Guindy Engineering College, and a Masters'
degree in Applied Electronics from the Madras Institute of
Technology, both in Chennai.
Rajendra Kumar
Executive Vice President - Frontline Division HCL Infosystems Ltd.
Mr. Rajendra Kumar has been with HCL for over 30 years and has
seen HCL grow from a startup company to a gigantic conglomerate
that it is today.

46

CORPORATE INFORMATION:
BOARD OF DIRECTORS

Chairman & Chief Executive Officer

Ajai Chowdhry
Whole-time Director
J.V. Ramamurthy
Directors
S. Bhattacharya
D.S. Puri
R.P. Khosla
E.A. Kshirsagar
Anita Ramachandran
T.S. Purushothaman
Narasimhan Jegadeesh
V.N. Koura

COMPANY SECRETARY

Sushil Kumar Jain

AUDITORS

Price Waterhouse, New Delhi

BANKERS

State Bank of India

Canara Bank
HDFC Bank Ltd.
ICICI Bank Ltd.
Societe Generale
Standard Chartered Bank
State Bank of Patiala
State Bank of Saurashtra

REGISTERED OFFICE

806, Siddharth,
96, Nehru Place, New Delhi - 110 019.

47

CORPORATE OFFICE

WORKS

E - 4, 5, 6, Sector XI, Noida - 201 301 (U.P.)

R.S. Nos: 34/4 to 34/7 and part of 34/1,

Sedarapet, Puducherry - 605 111.
R.S. Nos: 107/5, 6 & 7, Main Road,
Sedarapet, Puducherry - 605 111.
Plot No 78, South Phase, Ambattur
Industrial
Estate,Chennai - 600 058.
Plot No SPL. A2, Thattanchavadi, Industrial
Area, Puducherry - 605 009.
Plot Nos. 1, 2, 27 & 28, Sector 5, 11E,
Rudrapur, Distt. - Udham Singh Nagar,
Uttarakhand - 263 145.

48

WORKING CAPITAL MANAGEMENT

49

Working Capital is the Life-Blood and Controlling Nerve Center of a

business
The working capital management precisely refers to management of
current assets. A firms working capital consists of its investment in current
assets, which include short-term assets such as:
Cash and bank balance,
Inventories,
Receivables (including debtors and bills),
Marketable securities.
Working capital is commonly defined as the difference between current assets
and current liabilities.

50

WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES

There are two major concepts of working capital:

Gross working capital
Net working capital

Gross working capital:

It refers to firm's investment in current assets. Current assets are the assets,
which can be converted into cash with in a financial year. The gross working
capital points to the need of arranging funds to finance current assets.

Net working capital:

It refers to the difference between current assets and current liabilities. Net
working capital can be positive or negative. A positive net working capital
will arise when current assets exceed current liabilities. And vice-versa for
negative net working capital. Net working capital is a qualitative concept. It
indicates the liquidity position of the firm and suggests the extent to which
working capital needs may be financed by permanent sources of funds. Net
working capital also covers the question of judicious mix of long-term and
short-term funds for financing current assets.

51

Significance Of Working Capital Management

The management of working capital is important for several reasons:

For one thing, the current assets of a typical manufacturing firm account for
half of its total assets. For a distribution company, they account for even
more.
Working capital requires continuous day to day supervision. Working
capital has the effect on company's risk, return and share prices,

52

 There is an inevitable relationship between sales growth and the level of

current assets. The target sales level can be achieved only if supported by
adequate working capital Inefficient working capital management may lead
to insolvency of the firm if it is not in a position to meet its liabilities and
commitments.

53

CLASSIFICATION OF WORKING CAPITAL

Working capital can be classified as follows:
On the basis of time
On the basis of concept

54

TYPES OF WORKING CAPITAL NEEDS

Another important aspect of working capital management is to analyze the

total working capital needs of the firm in order to find out the permanent and
temporary working capital. Working capital is required because of existence of
operating cycle. The lengthier the operating cycle, greater would be the need
for working capital. The operating cycle is a continuous process and therefore,
the working capital is needed constantly and regularly. However, the
magnitude and quantum of working capital required will not be same all the
times, rather it will fluctuate.

The need for current assets tends to shift over time. Some of these changes
reflect permanent changes in the firm as is the case when the inventory and
receivables increases as the firm grows and the sales become higher and
higher. Other changes are seasonal, as is the case with increased inventory
required for a particular festival season. Still others are random reflecting the
uncertainty associated with growth in sales due to firm's specific or general
economic factors.

The working capital needs can be bifurcated as:

Permanent working capital
Temporary working capital

55

Permanent working capital:

There is always a minimum level of working capital, which is continuously
required by a firm in order to maintain its activities. Every firm must have a
minimum of cash, stock and other current assets, this minimum level of current
assets, which must be maintained by any firm all the times, is known as
permanent working capital for that firm. This amount of working capital is
constantly and regularly required in the same way as fixed assets are required.
So, it may also be called fixed working capital.

Temporary working capital:

Any amount over and above the permanent level of working capital is
temporary, fluctuating or variable working capital. The position of the required
working capital is needed to meet fluctuations in demand consequent upon
changes in production and sales as a result of seasonal changes.

56

FINANCING OF WORKING CAPITAL

There are two types of working capital requirements as discussed above. They
are:
Permanent or Fixed Working Capital requirements
Temporary or Variable Working Capital requirements
Therefore, to finance either of these two working capital requirements, we
have long-term as well as short-term sources.

57

FACTORS DETERMINING WORKING CAPITAL

REQUIREMENTS

There are many factors that determine working capital needs of an enterprise.
Some of these factors are explained below:
Nature or Character of Business.
The working capital requirement of a firm is closely related to the nature
of its business. A service firm, like an electricity undertaking or a
transport corporation, which has a short operating cycle and which sells
predominantly on cash basis, has a modest working capital requirement.
Oh the other hand, a manufacturing concern like a machine tools unit,
which has a long operating cycle and which sells largely on credit, has a
very substantial working capital requirement.
HCL Infosystems carry on activities related to computer systems.
Though they are primarily an assembling firm they also have
manufacturing facilities in Chennai and Pondicherry. This requires them
to keep a very sizeable amount in working capital.
Size of Business/Scale of Operations.
HCL is the leader in its segment in both consumer as well as
commercial market share. They have increased their share in the
consumer segment notably in the last four years. This they have
achieved through retail expansion. The scale of operations and the size it
holds in the Indian IT market makes it a must for them to hold their
inventory and current asset at a huge level.

58

59

 Rate of Growth of Business.

The rate of growth of sales indicates a need for increase in the working
capital requirements of the firm. As the firm is projected to increase
their sales by 80% from what it was in 2013, it is required to guard them
against the increasing requirements of the net current asset by way of
efficient working capital management. The sales and projected sales
level determine the investment in inventories and receivables.

HCL

Infosystems

2015

2014

2013

2012

2011

2381

1967.37

1522.03

Limited
PROJECTE
Gross
Sales/Income
from Operations

D
3400

2833

Price Level Changes.

Changes in the price level also affect the working capital requirements.
It was the reduced margins in the price of the raw materials that had
prompted them to go for bulk purchases thus making on additions to
their net current assets. They might have gone for this large-scale
procurement for availing discounts and anticipating a rise in prices,
which would have meant that more funds are required to maintain the
same current assets.

HCL FINANCIALS:

60

CONSOLIDATED FINANCIAL PERFORMANCE

2013

WORKING CAPITAL POSITION :

61

2012

CURRENT ASSET TOTAL ASSET

PARTICULARS
CURRENT

2013
100970

2012
81533

2011
54091

2010
45042

2009
55985

ASSETS
NET BLOCK
TOTAL ASSETS
CA/TA

7970
122479
82.44

5329
99139
82.24

4925
87076
62.12

4954
71285
63.18

5552
75205
74.43

The current asset percentage on total asset is the highest over the years. This
increasing percentage of current assets to the total assets at first might indicate
a preference for liquidity in place of profitability, but a look into the nature of
the business carried on by HCL Infosystems reveal the reason behind it. How
far their preference to current assets has affected the sales is shown below.

NET CURRENT ASSET SALES

PARTICULARS
NET CURRENT
ASSETS
SALES
WORKING

2013
40343

2012
34742

2011
14301

2010
18752

2009
27065

238136
16.12

199886
142.93

154295
-23.736

166604
-30.7

127003
-0.46

62

CAPITAL %
INCREASE
SALES %
INCREASE

19.14

29.54

-7.38

31.18

8.7

The sales has increased and the profits risen despite the 16.12% increase in
working capital. But what is noteworthy here is that the firm has managed to
maintain the trend of an increase in net current assets. Whether the change has
worked for the company has to be analysed in the context of the growth in
sales as compared to the previous year. There has been a 19.14% rise in the
sales or revenue generated. This would automatically suggest towards a very
efficient working capital management where the assets of the firm which are
short-term in nature have been utilized optimally in connection to their fixed
assets. The firm has gone towards such a dramatic shift in their working capital
position might be because of the tremendous growth witnessed in the domestic
IT market.

CURRENT ASSET FIXED ASSET

PARTICULARS
NET CA/NET BLOCK

2013
5.062:1

2012
6.519:1

63

2011
2.903:1

2010
3.785:1

2009
4.875:1

The ratio of the net current asset to the fixed ones is an indicator as to the
liquidity position of the firm. This ratio has declined for the firm compared to
the previous year. There could be an argument as to whether the increased ratio
of working capital to net block is a conservative policy and whether it would be
detrimental to the interest of the company. Or, whether it would have been
proper if the company invested more into the capital expenditure in the form of
plant and machinery or invested in any other form that would have got them an
internal rate of return. What has to be kept in mind before coming to a
conclusion as to the policy of the company, is the fact that the firm being
primarily into assembling, its investment in the fixed asset segment need not be
high. A look into the capacity utilization of the plant would reaffirm this point.
It would be ideal for the firm to continue in the same line and not have
excessive investment in the fixed asset as they can easily add onto this part.

COMPUTER and MICRO PROCESSOR BASED SYSTEMS

YEAR
2013
2012
2011

INSTALLED
CAPACITY
1150000
600000
525000

ACTUAL
PRODUCTION
581805
448121
295192

% CAPACITY
UTILIZATION
50.59
74.69
56.23

DATA GRAPHIC/DISPLAY MONITOR/TERMINALS/HUBS

YEAR
2013

INSTALLED
CAPACITY
250000

ACTUAL
PRODUCTION
267326

64

% CAPACITY
UTILIZATION
106.93

2012
2011

250000
350000

259617
297991

103.85
85.14

That the fixed assets of the firm are being put to efficient use and the firm is
trying for optimum capacity utilization is something that can be easily deduced.
Whether the current assets or the working capital of the firm has anything to do
with it is for us to see. An increased production in normal circumstances means
better raw material to finished goods conversion rate, i.e. the firm is taking less
of time in the production process and this happens when the current asset
employed in relation with the fixed ones are at optimum. The other notable
feature here is that though the firm has added on to its installed capacity in all
three years, they were still able to increase the capacity utilization. That they
have been able to do it shows that the more current assets, especially inventory
used in relation to the fixed assets, i.e., plant and machinery and their
management has only helped in increasing their utilization to the maximum.

CURRENT ASSET CURRENT LIABILITY

PARTICULARS
CURRENT ASSETS
CURRENT LIABILITES
% CURRENT ASSETS
INCREASE
%CURRENT LIABILITES
INCREASE

2013
100970
60627
23.84

2012
81533
46791
50.7

2011
54091
39790
20.09

2010
45042
26290
-19.54

2009
55985
28920
8.9

29.57

17.6

51.35

-9.1

19.45

The 16.12% increase in Net Current assets despite of the fact that there has been
an increase in the Current Assets by 23.84% and increase in Current Liability
has been by 29.57% over that of the previous year has to be attributed to the fact
that in 2005, the company showed such a high increase in CA, that it is still
being offset. This is an indication as to the expanding operations of the firm.
HCL has increased its current assets in order to meet the increasing sales. The

65

firms level of liquidity being high, we need a check on whether it affects the
return on assets.

66

INVENTORY MANAGEMENT

Inventories

67

Inventories constitute the most important part of the current assets of large
majority of companies. On an average the inventories are approximately 60% of
the current assets in public limited companies in India. Because of the large size
of inventories maintained by the firms, a considerable amount of funds is
committed to them. It is therefore, imperative to manage the inventories
efficiently and effectively in order to avoid unnecessary investment.

Nature of Inventories
Inventories are stock of the product of the company is manufacturing for sale
and components make up of the product. The various forms of the inventories in
the manufacturing companies are:
Raw Material: It is the basic input that is converted into the finished
product through the manufacturing process. Raw materials are those units
which have been purchased and stored for future production.
Work-in-progress: Inventories are semi-manufactured products. They
represent product that need more work they become finished products for
sale.
Finished Goods: Inventories are those completely manufactured products
which are ready for sale. Stocks of raw materials and work-in-progress
facilitate production, while stock of finished goods is required for smooth
marketing operations. Thus, inventories serve as a link between the
production and consumption of goods.

68

Inventory Management Techniques

In managing inventories, the firms objective should be to be in consonance
with the shareholder wealth maximization principle. To achieve this, the firm
should determine the optimum level of inventory. Efficiently controlled
inventories make the firm flexible. Inefficient inventory control results in
unbalanced inventory and inflexibility-the firm may sometimes run out of stock
and sometimes pile up unnecessary stocks.

Economic Order Quantity (EOQ): The major problem to be resolved is

how much the inventory should be added when inventory is replenished. If the
firm is buying raw materials, it has to decide lots in which it has to purchase on
replenishment. If the firm is planning a production run, the issue is how much
production to schedule. These problems are called order quantity problems, and
the task of the firm is to determine the optimum or economic lot size. Determine
an optimum level involves two types of costs:
Ordering Costs: This term is used in case of raw material and includes
all the cost of acquiring raw material. They include the costs incurred in the
following activities:

Requisition

Purchase Ordering

Transporting

Receiving

Inspecting

Storing
Ordering cost increase with the number of orders placed; thus the more
frequently inventory is acquired, the higher the firms ordering costs. On the
other hand, if the firm maintains large inventorys level, there will be few orders
placed and ordering costs will be relatively small. Thus, ordering costs decrease
with the increasing size of inventory.

69


Carrying Costs: Costs are incurred for maintaining a given level of
inventory are called carrying costs. These include the following activities:

Warehousing Cost

Handling

Administrative cost

Insurance

Deterioration and obsolescence

Carrying costs are varying with inventory size. This behavior is contrary to that
of ordering costs which decline with increase in inventory size. The economic
size of inventory would thus depend on trade-off between carrying costs and
ordering cost.

Composition
Raw Material
Stores and Spares
Finished Goods
Work-in-progress

2013
6349
3713
13374
595

2012
7749
2987
7245
784

2011
6127
2622
6506
871

The increasing component of raw materials in inventory is due to the fact that
the company has gone for bulk purchases and has increased consumption due to
a fall in prices and reduced margins for the year. Another reason might be the
increasing sales, which might have induced them to purchase more in
anticipation of a further increase in demand of the product. And the low
composition of work-in-progress is understandable as because of the nature of
the business firm is involved in.
To the question as to whether the increasing costs in inventory are justified by
the returns from it the answer could be found in the HCL retail expansion. HCL
caters to the need of the two separate segments:

a)
b)

Institutions for which they manufacture against orders and,

Retail segment of the market.

70

They are more into retail than earlier and at present more than 650 retail outlets
branded with HCL sign ages and more are in the pipeline
The company in order to meet its raw materials requirements could have gone
for frequent purchases, which would have resulted in lesser cash flows for the
firm rather than the high expenditure involved when procuring in at bulk. The
reason why the firm has gone for these bulk purchases because of the lower
margins and the discounts it availed because of procuring in bulk quantities.
A negative growth in WIP could be because:
a)
b)

The time taken to convert raw materials to finished goods is very minimal
This is also due to capacity being not utilized at the optimum.

ABC System: ABC system of inventory keeping is followed in the factories.

Various items are categorized into three different levels in the order of their
importance. For e.g. items such as memory, high capacity processors and
royalty are placed in the A category. Large number of firms has to maintain
several types of inventories. It is not desirable the same degree of control all the
items. The firm should pay maximum attention to those items whose value is
highest. The firm should therefore, classify inventories to identify which items
should receive the most effort in controlling. The firm should be selective in
approach to control investment in various types of inventories. This analytical
approach is called ABC Analysis. The high-value items are classified as A
items and would be under tightest control. C items represent relatively least
value and would require simple control. B items fall in between the two
categories and require reasonable attention of management.
JIT: The relevance of JIT in HCL Info system can be questioned. This is
because they procure materials on the basis of projections made at least two or
three months before. Even at the time of procurement they ensure that they
procure much more than what actually is required by the firm that is they hold
significant amount of inventory as safety stock. This is done to counter the
threat involved in default and accidental breakdowns. The levels of safety stock
usually vary according to the usage.

71

Conversion Periods

72

Raw Material

Particulars
Raw Material Consumption
Raw Material Consumption/day
Raw Material Inventory
Raw Material Holding Days

2013
121077
332
7072
21

2012
97971.31
268.41
6960.275
25.93

2011
57775.14
158.28
4364.735
27.57

The raw material conversion period or the raw material holding cost has
reduced from 26 to 21. This is despite an increase in its consumption. This
indicates that the firm is able to convert the raw material at its disposal to the
work-in-progress at a lesser time as compared to the last year. It would be to the
benefit of the firm to reduce the production process and increase the conversion
rate still as the firm is required to meet the increasing demand.

Work-in-progress
Particulars
Cost of Production
Cost of Production/day
Work in progress inventory
WIP Holding days

2013
191911
525.78
689.5
1.31

2012
159651.19
437.4
827.52
1.89

2011
113500.33
310.95
679.455
2.19

The work-in-progress holding time is important for a firm in the sense that it
determines the rate of time at which the production process will be complete or
the finished goods will be ready for disposal by the firm. The firm as it is in the
process of assembling should take the least possible time in conversion to
finished goods unlike a hard core manufacturing firm, as any firm would like to
have its inventory in the work-in-progress at the minimum. There would also be

73

less of stock out costs as due to better conversion rates the firm is able to meet
the rise in demand situations. More the time it spends lesser its efficiency would
be in the market. Here the firm has been able to bring down its WIP conversion
periods.
Finished Goods
Particulars
Cost of goods sold
Cost of goods sold/day
Finished goods inventory
Finished goods inventory Holding days

2013
228177
625
10310
16

2012
178438.85
488.87
6875.725
14.06

2011
124768.92
341.832
5026.505
14.8

The time taken for the firm to realize its finished goods as sales has increased as
compared to last year. This growth in sales could be traced back to the growing
domestic IT market for the commercial as consumer segment in India. HCL has
around 15% of the market in desktop and it is the market leader in this segment.
So it is only natural that they are able to better their conversion rate of finished
goods to sales.
Operating Cycle
Particulars
Inventory conversion period
Average collection period
Gross operating cycle
Average payment period
Operating cycle

2013
38
70
108
22
86

2012
42
63
105
23
82

2011
45
66
111
17
94

The operating cycle of the firm reveals the days within which the inventory
procured gets converted to sales or revenue for the firm. This time period is of
importance to the firm as a lag here could significantly affect the profitability,
liquidity, credit terms, and the policies of the firm. All the firms would like to
reduce it to such extend that their cash inflows are timely enough to meet their
obligations and support the operations. That the firm has been able to reduce the
ratio is in itself an achievement as they were having huge stocks of inventory.
But the reduction in the cycle could also be attributed to the boom in the market

74

and the growth it is expected to reach. This boom automatically ensures the
demand for the finished goods and thus helping in it to garner sales for the firm.

Raw Material Consumption

Particulars
Imported
Indigenous
% Imports

2013
92007
29070
75.99

2012
70784.27
27187.04
72.25

2011
42129.63
15645.51
72.92

A major chunk of the imports come from Korea and Taiwan and is purchased in
US$. The value of imported and indigenous raw material consumed give a clear
picture that if there is a change in the EXIM policy of the government it is
bound to affect the company adversely as more than 70% of their consumption
is from imports. But this is the scenario witnessed in the industry as a whole and
though HCL is into expanding its operation to Uttaranchal it in the present state
is would be affected by a change in the import duty structure.
A major chunk of their current assets are in the form of inventory and the
change in technology will invariably be a threat faced by the firm. The question
of technology applying here like says a certain device going say out of fashion
or outdated. For e.g. TFT monitors being in demand more than CRT.

75

CASH MANAGEMENT

76

SOURCES OF CASH:
Sources of additional working capital include the following:

Existing cash reserves

Profits (when you secure it as cash!)
Payables (credit from suppliers)
New equity or loans from shareholders
Bank overdrafts or lines of credit.
Long-term loans

If you have insufficient working capital and try to increase sales, you can
easily over-stretch the financial resources of the business. This is called
overtrading.
Early warning signs include:
Pressure on existing cash
Exceptional cash generating activities e.g. offering high discounts for
early cash payment
Bank overdraft exceeds authorized limit.
Seeking greater overdrafts or lines of credit
Part-paying suppliers or other creditors

77

 Paying bills in cash to secure additional supplies

Management pre-occupation with surviving rather than managing
Frequent short-term emergency requests to the bank (to help pay wages,
pending receipt of a cheque).

CASH MANAGEMENT IN HCL INFOSYSTEMS:

The cash management system followed by the HCL Infosystems is mainly
lock box system.
Cash Management System involves the following steps:
1. The branch offices of the company at various locations hold the
collection of cheques of the customers.
2. Those cheques are either handed over to the CMS agencies or bank of the
particular location take charge of whole collection.
3. These CMS agencies or bank send those cheques to the clearing house to
make them realized. These cheques can be local or outstation.
4. The CMS agencies or bank send information to the central hub of the
company regarding realization/cheque bounced.
5. The central hub passes on the realized funds to the company as per the
agreed agreements.
6. The CMS agencies or concerned bank provides the necessary MIS to the
company as per requirement.
In cash management the collect float taken for the cheques to be realized into
cash is irrelevant and non-interfering because banks such as Standard Chartered,
HDFC and CitiBank who give credit on the basis of these cheques after
charging a very small amount. These credits are given to immediately and the
maximum time taken might be just a day. The amount they charge is very low
and this might cover the threat of the cheque sent in by two or three customers

78

bouncing. Even otherwise the time taken for the cheques to be processed is
instantaneous. Their Cash Management System is quite efficient.

79

Cash-Current Liability
Particulars
Absolute Liquid Ratio

2013
0.24:1

2012
0.31:1

2011
0.11:1

The absolute liquid ratio is the best for three years and the cash balances as to
the current liability has improved for the firm. Firm has large resources in cash
and bank balances. While large resources in cash and bank balances may seem
to affect the revenue the firm could have earned by investing it elsewhere as
maintenance of current assets as cash and in near cash assets and marketable
securities may increase the liquidity position but not the revenue or profit
earning capacity of the firm.

Dividend Policy-Cash
Particulars
Dividend Policy%
Shift in Sales
Cash Balance
Cash in Hand

2011
210
154295
4463.43
118.33

80

2012
310
199886
14582.65
128.97

2013
400
238136
14529.29
128.97

81

The other notable feature in HCL statements has been the growing dividend
policy of the firm. The payment of dividend means a cash outflow. Thus cash
position is an important criterion at the time of paying dividends. There is a
theory that greater the cash position and ability to pay dividends. The firm has
adopted a policy of disbursing the revenue earned as profits to the shareholders
as dividends as could be seen from the increasing % of dividends declared.

Particulars
PBIDT
Equity Dividend%

2013
14284
400

2012
15634
310

2011
14523
210

This could mean two things for the firm the amount of cash retained in the
business for capital expenditure purposes are minimal or nil. But rather than
investing more in plant and machine which they can at any point in time by
adding on a additional line if need they would like to optimize their utilization
in fixed assets at present. This also means that the percentage of cash in hand
maintained by the firm as a source of liquidity could be reduced, i.e. the amount

82

of idle cash in the business could be made to a level which the firm feels
optimum.
The firm feels that they should retain cash and it would be in the interest of the
firm as well as the shareholders. This would automatically mean as decrease in
Earning/share (EPS)(Basic EPS declined from 8 in 2012 to 6.74 in 2013).It
would prompt more of investors being interested in the shares of the company,
which would boost the purchase of the securities and increase the market
price/share thus being beneficial for the firm.

Cash Flows
Cash Flows
Net Cash from Operating activities
Net Cash from Investing activities
Net Cash from Financing activities

2013
6924
-3515
-3512

2012
2675.57
15661.29
-8217.68

2011
13706.34
-2169.16
-11412.1

The firm has disposed of investments worth around 655 Crores to meet its
growing needs. The other notable feature is decline is the firms inflows from
operations primarily due to the reason that the cash generated from the
operations is the lowest in three years. And the firms growing dividend policy
has contributed to the outflows in financing activities.

Cash Flow in Operating Activities

Working Capital Changes

Working Capital Changes
Trade and other receivables
Inventories
Trade Payables and other Liabilities

2013
-14166
-5221
13026

83

2012
-14510.69
-2683.92
6419.13

2011
-7106.68
-7221.11
14311.5

The cash from the operation has been subject to considerable change due to the
changes that could be adjusted towards trade receivables and trade payables.
The outflows in inventory have become as low as 37% of what it was last year
despite an increase in the inventory consumption by 16.64%. The resulting
reduction in the cash outflows might be because of the inventories being
procured more on credit. That the cash from operations has declined has
affected the current liability index of the firm.

Cash Flow in Investing Activities

Investments in Mutual Funds
Investments (year end)
Purchase of Investment
Disposal/Redemption of Investment

2013
13539
-65992
65312

2012
12277.44
-53075.99
65489.84

2011
28059.88
-59249.81
52087.36

The investments have reduced from the last year due to the redemption of
investments taken place to meet various needs such as increasing demand in
stock or inventory and to ensure better credit and receivables policy. We can see
that the firm has in these three years increased their cash inflow from the
investing activities by way of disposal of investments when in need. That is the
firm has redeemed to realize cash as to meet its expanding operations, fund the
inventory procurement and meet the obligations.
The investments in mutual funds are beneficial to the firm in the context that
they contain interest bearing securities which add up as a source of revenue for
the firm unlike cash which remains idle and unproductive when not in use. This
reduction of dividend could be attributed to disposal of investments in mutual
funds and subsidiary. This disposal creates a fund, which can be used by the
company as and when the need arises.

84

Cash vs. Marketable Securities

The investment in marketable securities rather than having large cash balances
in something that has been given thought for by the firm. This is because while
a firm gets revenue in the form of interests by investments, it actually has to
pays certain amount money to the banks for maintaining current accounts and
fixed deposits usually have a longer maturity period. That is, the problem with
high investments is that the opportunity to earn is lost, thus a firm has to
maintain an optimal cash balance. But the investment in mutual funds or other
marketable securities might create a problem of investment, as they might not
be readily realizable as say liquid cash or the amount deposited in the current
account. The investments in say fixed assets say may earn a fixed rate of interest
but they have a maturity period attached to them.
In HCL, Standard Chartered is the concentration bank in which all the inflows
from the deposit banks are concentrated and passed on to the disbursement
banks for further disbursement.

Liquid Cash Balance

The liquid cash maintained in the business is only that much as is required to
satisfy the daily requirements of the firm and not more. The rest of the cash is
invested into mutual funds and also held in fixed deposits and current accounts.
Instruments Used
The instrument used here are primarily cheques comprising of around 97% of
what is used in. The rest 2-3% comprise of the letters of credit.
Thus working capital is the lifeline for every business. The main advantages of
sufficient working capital are:

It helps in prompt payment

Ensures high solvency in the company and good credit standing.
Regular supply of material and continuous production.
Ensures regular payment of salaries and wages and day to day
commitments.

85

RECEIVABLES MANAGEMENT

86

Cash flow can be significantly enhanced if the amounts owing to a business

are collected faster. Every business needs to know.... who owes them money....
how much is owed.... how long it is owing.... for what it is owed.

Late payments erode profits and can lead to bad debts.

Slow payment has a crippling effect on business; in particular on small

businesses whom can least afford it. If you don't manage debtors, they will
begin to manage your business as you will gradually lose control due to
reduced cash flow and, of course, you could experience an increased incidence
of bad debt.

The following measures will help manage your debtors:

1.Have the right mental attitude to the control of credit and make sure that it
gets the priority it deserves.
2.Establish clear credit practices as a matter of company policy.
3.Make sure that these practices are clearly understood by staff, suppliers and
customers.
4.Be professional when accepting new accounts, and especially larger ones.
5.Check out each customer thoroughly before you offer credit. Use credit
agencies, bank references, industry sources etc.
6.Establish credit limits for each customer and stick to them.

87

7.Continuously review these limits when you suspect tough times are coming
or if operating in a volatile sector.
8.Keep very close to your larger customers.
9.Invoice promptly and clearly.
10. Consider charging penalties on overdue accounts.
11. Consider accepting credit /debit cards as a payment option.
12. Monitor your debtor balances and aging schedules, and don't let any debts
get too old.

Recognize that the longer someone owes you, the greater the chance you will
never get paid. If the average age of your debtors is getting longer, or is
already very long, you may need to look for the following possible defects.
Poor collection procedures.
Lax enforcement of credit terms.
Slow issue of invoices or statements.
Errors in invoices or statements.
Customer dissatisfaction.
Weak credit judgment.

88

Debtors due over 90 days (unless within agreed credit terms) should generally
demand immediate attention. Look for the warning signs of a future bad debt. For
example
1. Longer credit terms taken with approval, particularly for smaller orders.
2. Use of post-dated checks by debtors who normally settle within agreed terms.
3. Evidence of customers switching to additional suppliers for the same goods.
4. New customers who are reluctant to give credit references.
5. Receiving part payments from debtors.

Profits only come from paid sales.

The act of collecting money is one, which most people dislike for many reasons
and therefore put on the long finger because they convince themselves that there
is something more urgent or important that demand their attention now. There is
nothing more important than getting paid for your product or service. A customer
who does not pay is not a customer.

HERE ARE FEW WAYS IN COLLECTING MONEY FROM DEBTORS: Develop appropriate procedures for handling late payments.
Track and pursue late payers
Get external help if you own efforts fail.
89

 Dont feel guilty asking for money .. its yours and you are entitled to
it.
Make that call now. And keep asking until you get some satisfaction.
In difficult circumstances, take what you can now and agree terms
for the remainder, it lessens the problem.
When asking for your money, be hard on the issue but soft on the
person. Dont give the debtor any excuses for not paying.
Make that your objective is to get the money, not to score points or
get even.

RECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS:

PARTICULARS

2013

2012

2011

2010

DEBTORS TURNOVER RATIO

5.21

5.80

5.53

6.62

AVERAGE COLLECTION PERIOD

70

63

66

55

A better turnover ratio implies for the firm, more efficiency in converting the
accounts receivable to cash. A firm with very high turnover ratio can take the
freedom of holding very little balances in cash, as their debtors are easily
realizable. In case of HCL, the collection period for the firm is 70 days.

PARTICULARS

2013

2012

2011

PROVISION FOR DOUBTFUL DEBTS(CASH FLOW)

49.85

25

DEBTS DOUBTFUL(EXCEEDING 6 MONTHS)

47

134.09

69.8

90

The debts doubtful have doubled but their percentage on the debts has almost
become half. This implies a sales and collection policy that get along with the
receivables management of the firm.

COLLECTION POLICIES:
It refers to the collection procedures such as letters, phone calls and other follow
up mechanism to recover the amount due from the customers. It is obvious that
costs are incurred towards the collection efforts, but bad debts as well as average
collection period would decrease. Further, a strict collection policy of the firm is
expensive for the firm because of the high cost is required to be incurred by the
firm and it may also result in loss of goodwill. But at the same time it minimizes
the loss on account of bad debts. Therefore, a firm has to strike a balance between
the cost and benefits associated with collection policies.
The steps usually followed in collection efforts are:

Sending repeated letters and reminders to the customers

Personal visits
Using agencies involved in collection process
Making telephonic reminders
Initiating legal actions
Real Time Gross Settlement (RTGS)

Real Time Gross Settlement as such is a concept new in nature and though the firm
uses the system with all the members of the consortium, it is still in its primal stage
and will take time before all of the clients of the firm are willing to accept it. The
firm has made a proposal to the consortium of the banks during appraisal for faster
implementation of internet based banking facility by all the banks and adoption of
RTGS payment system through net.
The debtors turnover ratio is completely dependent upon the credit policy
followed by the firm. The credit policy followed by the firm should be such that
the threat of bad debts and the default rate involved should be terminated.
91

PARTICULARS

2013

2012

2011

2010

CREDITORS TURNOVER RATIO

16.44

15.68

21.29

21.14

PAYMENT PERIOD

22

23

17

16

That the creditors turnover ratio has declined and payment period has increased
indicate that the company has got a leeway in making the payment to the creditors
by way of increased time.
With creditors they are having pre-agreements and have undertaken arrangements
with them, which they believe to be the best in the business and these are fixed.

92

MANAGING PAYABLES (Creditors)

Creditors are a vital part of effective cash management and should be managed
carefully to enhance the cash position.
Purchasing initiates cash outflows and an over-zealous purchasing function can
create liquidity problems.

Consider the following: Who authorizes purchasing in your company - is it tightly managed or spread
among a number of (junior) people?
Are purchase quantities geared to demand forecasts?
Do you use order quantities, which take account of stock holding and
purchasing costs?
Do you know the cost to the company of carrying stock?
Do you have alternative sources of supply? If not, get quotes from major
suppliers and shop around for the best discounts, credit terms as it reduces
dependence on a single supplier.
How many of your suppliers have a return policy?
Are you in a position to pass on cost increases quickly through price increases
to your customers?
If a supplier of goods or services lets you down can you charge back the cost
93

of the delay?

There is an old adage in business that "if you can buy well then you can sell
well". Management of your creditors and suppliers is just as important as the
management of your debtors. It is important to look after your creditors- slow
payment by you may create ill feeling and can signal that your company is
inefficient (or in trouble!).
Remember that a good supplier is someone who will work with you to enhance the
future viability and profitability of your company.

94

Financing Current Assets

The firm has to decide about the sources of funds, which can be availed to make
investment in current assets.
Long term financing:
It includes ordinary share capital, preference share capital, debentures, long term
borrowings from financial institutions and reserves and surplus.
Short term financing:
It is for a period less than one year and includes working capital funds from
banks, public deposits, commercial paper etc.
Spontaneous financing:
It refers to automatic sources of short-term funds arising in normal course of
business. There is no explicit cost associated with it. For example, Trade Credit
and Outstanding Expenses etc.

95

Depending on the mix of short and long term financing, the company can
follow any of the following approaches.

Matching Approach
In this, the firm follows a financial plan, which matches the expected life of assets
with the expected life of source of funds raised to finance assets. When the firm
follows this approach, long term financing will be used to finance fixed assets and
permanent current assets and short term financing to finance temporary or
variable current assets.
Conservative Approach
In this, the firm finances its permanent assets and also a part of temporary current
assets with long term financing. In the periods when the firm has no need for
temporary current assets, the long-term funds can be invested in tradable securities
to conserve liquidity. In this the firm has less risk of facing the problem of shortage
of funds.
Aggressive Approach
In this, the firm uses more short term financing than warranted by the matching
plan. Under an aggressive plan, the firm finances a part of its current assets with
short term financing.
Relatively more use of short term financing makes the firm more risky.

96

Current asset to fixed asset ratio:

The financial manager should determine the optimum level of current assets so
that the wealth of shareholders is maximized. A firm needs fixed and current
assets to support a particular level of output.
The level of current assets can be measured by relating current assets. Dividing
current assets by fixed assets gives CA/FA ratio. Assuming a constant level of
fixed assets, a higher CA/FA ratio indicates a conservative current assets policy
and a lower CA/FA ratio means an aggressive current assets policy assuming
other factors to be constant.
A conservative policy i.e. higher CA/FA ratio implies greater liquidity and lower
risk; while an aggressive policy i.e. lower CA/FA ratio indicates higher risk and
poor liquidity. The current assets policy of the most firms may fall between these
two extreme policies.
The alternative current assets policies may be shown with the help of the
following figure.

97

In this figure the most conservative policy is indicated by alternative A, where as

CA/FA ratio is greatest at every level of output. Alternative C is the most
aggressive policy, as CA/FA ratio is lowest at all levels of output. Alternative B
lies between the conservative and aggressive policies and is an average policy.

98

WORKING CAPITAL & SHORT-TERM FINANCING

CONSORTIUM BASED FINANCING

Current Working Capital Limits

NAME OF THE BANK
STATE BANK OF INDIA
ICICI BANK
HDFC BANK
STANDARD CHARTERED BANK
STATE BANK OF SAURASHTRA
STATE BANK OF PATIALA
CANARA BANK
SOCIETE GENERALE
HSBC BANK
TOTAL

FUND BASED

3600
1282
1200
1200
715
1300
1203
1000
1000
12500

NON-FUND BASED

46000
19000
10000
19000
7500
7700
6000
4000
18300
137500

In order to finance the working capital needs of the firm in the form of Working
Capital Demand Loan, there is a consortium of nine banks. The consortium if
banks provide a fund based limit of 125 Crores which comprises of cash credit and
working capital demand loans and non-fund based limits which has bank guarantee
and letter of credit subject to a limit of 1375 Crores. The Lead Bank in this
consortium of banks is State Bank of India and the second lead bank is ICICI. It
is SBI, which fixes the limit on the basis of consortium. They, in consultation of
the company decide the allocation of limit to various member banks. The
allocation cannot be higher than the limits fixed by it. SBI is the biggest
contributor in the consortium for both fund and non-fund based limits with about
99

31.30 in funds and 34.02 in non-fund limits. The ratio of both limits for the year
2013 is 0.23:0.77

It is on the basis of the accounts receivable that the banks come to an agreement
with regards to the limits imposed. Though it is the fund based limits that finance
the working capital requirements, the non-fund based limits are important for the
management of the working capital as there might be clients who are not willing to
sell on open credit and might be demanding letters of credit before any advances.

RENEWAL OF LIMITS
LIMITS
FUND BASED
NON FUND BASED
TOTAL

2013
11500
48500
60000

2012
11500
38500
50000

2011
11500
28500
40000

All banks sanction the limits for a period of one year. Thereafter it is to be renewed
every year. SBI appraises the limit on the basis of consortium. The individual
banks appraise for their own individual limit. The non fund based limits of the firm
in consortium financing has been subjected to change for the past two years as per
the requirements of the firm and the consent of the lead bank to its proposal. It was
around 385 Crores in 2012 and had been risen to around 485 Crores in 2013.
A proposal has been made by the firm to further appraise the limits by 100
Crores to 585 Crores in view of the growing operations of the firm with full
interchangeability between letter of credit and bank guarantee limits for
operational flexibility. Allocation of the fund based and non based limits among the
banks based on operational convenience rather than allocating the fund based and
non fund based on the same ratio is also among the proposals made by the firm.

100

The company needs to provide the following information to bank for appraisals:

Credit Monitoring Appraisal

Write Up on company
Share holding pattern
List of the directors

CONSORTIUM MEETING:
All the members of the consortium are required to meet to discuss various issues
relating to the working facilities. As per RBI guidelines, the lead bank, i.e., SBI
should ensure that one consortium meeting is held every quarter snd this meeting
has to be arranged by HCL.

DOCUMENTATION and JOINT DOCUMENTATION:

There are various documents that need to be signed at the time of renewal or
inducting any bank to the consortium. The various documents are as follows:

Loan agreement
Hypothecation agreement for movable machinery
Hypothecation agreement for movables and book debts
Counter Indemnity

The above are the standard agreements asked for by the banks. The common seal
has to be witnessed by the company secretary and one of the directors of the
company.
As of 2012, no additions or deletions were made to the consortium of the banks.
But over the years the number of banks in the consortium have been reduced.
Indian Banks and State Bank of Hyderabad are the two banks which were earlier a
part of the consortium.

101

Joint Documentation is executed between the company and the consortium of

banks for the working capital facilities extended by the consortium to the company.
The joint documentation is valid for three years. The documents comprising joint
documentation are:

Working Capital consortium agreement

Joint deed of documentation
Inter se agreement between bankers
Letter of authority to lead bank by other consortium banks
Letter of authority to second lead bank by other consortium banks
Undertaking to create charge on the assets of the company.

ALLOCATION OF LIMIT BY LEAD BANK

SBI appraises the limit on behalf of the consortium. It in consultation with the
company decided the allocation of the limit to various member banks. The
allocation of any member bank cannot be higher than the limit sanctioned by it.
The drawing power for it fund based limits out of the consortium are determined
on the basis of the stock statement submitted by the company. HCL is required to
submit the stock statement to all member banks in consortium for every month.

FINANCIAL FOLLOW UP REPORTS ( FFRI & FFRII):

Every quarterly and half quarterly intervals, the firm submits Financial Follow Up
Reports I and II. FFR I is an extract of the balance sheet. In this report, the
company is required to submit the details of sales, current assets and current
liabilities for the quarter and the estimates for the current year. FFR II the
company is required to prepare P&L, B/S and Cash Flow in a different format. The
information is to be provided for the last year (actual), current year half yearly
results (actual) and the estimates for the next year.

102

SHORT TERM FINANCING

Other than the investment in current assets, the firm also has to be concerned with
short-term to long-term debt as this plays a very important role in determining the
amount of risk undertaken by the firm. That is , the firm not only has to be
concerned about current assets but also the sources through which they are
financed. A firm before financing in either of the two, has to take into
consideration various aspects. While short term might seem the ideal way to
finance your assets than the long term due to shorter maturity period and also less
of costs are involved, there is an inherent risk in short term financing due to
fluctuating interest rates and due to the reason that the firm might be unable to
repay the amount in a shorter span of time.

SECURED LOANS

2013

2012

2011

2010

SHORT TERM
LONG TERM
TOTAL

3849
0
3849

4991.28
530.07
5521.35

6903.7
0
6903.7

4987.52
3461.36
8448.88

%SHORT TERM

100

90.4

100

59.03

Under secured loan cash credit, along with non fund based facilities, foreign
currency term loan from banks are secured by way of hypothecation of stock-intrade, book debts as first charge and by way of second change on all the
immovable and movable assets of the parent company. Term loan in Indian rupees
from a bank is subject to a prior charge in favor of companys bankers on book
debts and stock in trade for working capital facilities.

103

UNSECURED LOANS
SHORT TERM
LONG TERM
TOTAL
% SHORT TERM

2013
15104
11
15115
99.93

2012
2593.39
17
2610.39
99.348

2011
63.94
169.51
233.45
27.38

2010
76.84
3261.42
3338.26
2.3

Here HCL has a major portion of their financing done through short term financing
than long term financing. The preference of short term financing to long term as
such is not the part of any policy employed by the firm but it was due to the reason
that the interest rates in short term were more investor friendly and the cost
involved in them were also low. At present, we can see that the firm is moving
more towards long term financing as the interest terms in the long term has
reduced compared to the short term.

YEAR- END COMMERCIAL PAPERS

PARTICULARS

2013

2012

2011

2010

COMMERCIAL PAPERS

4000

2500

---

3000

The credit rating by ICRA continued at A1+indicating highest safety to

companys commercial paper program of Rs. 75 Crores. It acts as an effective tool
in reducing the interst cost and is used for financing inventories and other
receivables. As and when the firm issues commercial papers, it sends a letter to the
leader of the consortium, i.e., SBI to reduce from the fund based limits the amount
it has issued in the form of the commercial papers. Suppose the firm issues 30
Crores as commercial papers and the fund based limits are say 115 Crores. Then
firm sends a letter to SBI to reduce the existing fund based limits from 115 to 85
Crores.

104

In terms of desirability, the commercial papers are cheaper and advantageous to the
firm compared to the consortium financing. The main advantage being the interest
rate which is lower than the bank rates existing under consortium financing. But
the firm depends on both and for working capital financing, it is dependent on the
banks for funds sich as working capital demand loans and cash credits. There is no
point in the firm not making use of the fund based limits in the consortium banking
as their commercial papers are restricted to 75 Crores.

MERITS OF COMMERCIAL PAPERS:

It is an alternative source of raising short-term finance, and proves to be
handy during periods of tight bank credit.
It is a cheaper source of finance in comparison to the bank credit.

DEMERITS OF COMMERCIAL PAPERS:

It is an impersonal method of financing.
It is always available to the financially sound and highest rated
companies.
The amount of loan able funds available in the commercial paper market
is limited to the amount of excess liquidity of the various purchasers of
commercial paper.

105

ANALYSIS

106

INDUSTRY ANALYSIS
INDUSTRY STRUCTURE AND DEVELOPMENTS

Over the past decade, the Information Technology (IT) industry

has become one of the fastest growing industries in India,
propelled by exports (the industry accounted for more than a
quarter of Indias services exports in 2004-05). The key segments
that have contributed significantly (96 percent of total) to the
industrys exports include Software and services (IT services)
and IT enabled services (ITES) i.e. business services. Over a
period of time, India has established itself
as a preferred global sourcing base in these segments and they
are expected to continue to fuel growth in the future.

107

2013
2009

2012

2011

2010

FINANCIAL GRAPHS

Gross Business Income:

Consolidated Revenue for the year grew to Rs. 11855 crores. Services
revenue grew by 31%, from Rs. 274 crores to Rs. 360 crores in the current
year. The Compounded Annual Growth Rate (CAGR) for the preceding five
years is 45%.

108

2013
2009

2012

2011

2010

Profit before Tax:

PBT grew by 11% from, Rs. 385 crores in the previous year to Rs. 429
crores in the current year. The Compounded Annual Growth Rate (CAGR)
for the preceding five years is 53%.

2013
2009

2012

2011

109

2010

 Profit after Tax:

Profit after tax grew by 13%, from Rs. 280 crores in the previous year to Rs.
316 crores. The Compounded Annual Growth Rate (CAGR) for the
preceding five years is 36%. Profits for the current year are after a provision
for Rs. 106 crores for current tax expense, Rs. 3 crores for deferred tax
expense and Rs. 4 crores for Fringe Benefit Tax.

2013
2009

2012

2011

2010

Earnings Per Share:

Basic EPS grew from Rs. 16.7 in the previous year to Rs. 18.7 in the current
year. Diluted EPS grew from Rs. 16.5 in the previous year to Rs. 18.6 in the
current year.

110

2013
2009

2012

2011

2010

Dividend:
The Company distributed dividends @ 100% per share in each of the first
three quarters of the current year. The company proposes to pay a final
dividend of 100% per fully paid up equity share of Rs. 2/- each. The interim
dividends paid together with proposed final dividend total to 400% for the
current year, entailing an outflow of Rs. 156 crores, including distribution
tax.

2013
2009

2012

2011

111

2010

 Net worth/ Shareholders Fund:

Net Worth grew from Rs. 698 crores as at previous year-end to Rs. 860
crores as on June 30, 2014. Share capital as at year-end is Rs. 34 crores
divided into 16.9 crores shares of Rs. 2/- each. Reserves & surplus as at
year-end are Rs. 826 crores after appropriating Rs 156 crores for dividends.
Book value per share grew from Rs. 41.3 as at June 30, 2013 to Rs.50.8 as at
June 30, 2014.

During the year, the Company allotted 4.2 lakh shares under Employee
Stock Option Scheme realizing Rs. 4.4 crores.

Borrowings: Year-end loan balances increased from Rs. 85 crores as on

June 30, 2013 to Rs. 236 crores as on June 30, 2014. The increase in loan
balances was mainly to fund growth in Computing Business including
System Integration. Debt-Equity ratio [Debt/(Debt+Equity)] is 22%.

112

2013
2010

2012
2009

2011

CURRENT ASSET RATIO:

2013
2010

2012
2009

113

2011

CONCLUDING ANAYSIS

The working capital position of the company is sound and the various
sources through which it is funded are optimal.
The company has used its dividend policy, purchasing, financing and
investment decisions to good effect can be seen from the inferences made
earlier in the project.
114

 The debts doubtful have been doubled over the years but their percentage on
the debts has almost become half. This implies a sales and collection policy
that get along with the receivables management of the firm.
The returns have been affected by a marked growth in working capital and
though a 29.75% in 2013 return on investment is good, but it got reduced as
compared to 39.01% return in 2012.
The various ratios calculated are an indicator as to the fact that the
profitability of the firm and sales are on a rise and also the deletion of the
inefficiencies in the working capital management.
The firm has not compromised on profitability despite the high liquidity is
commendable.
HCL Infosystems has reached a position where the default costs are as low
as negligible and where they can readily factor their accounts receivables for
availing finance is noteworthy.

SUGGESTIONS AND RECOMMENDATIONS

115

The management of working capital plays a vital role in running of a successful

business. So, things should go with a proper understanding for managing cash,
receivables and inventory.
HCL Infosystems is managing its working capital in a good manner, but still
there is some scope for improvement in its management. This can help the
company in raising its profit level by making less investment in accounts
116

receivables and stocks etc. This will ultimately improve the efficiency of its
operations. Following are few recommendations given to the company in
achieving its desired objectives:
The business runs successfully with adequate amount of the working
capital but the company should see to it that the cash should not be tied up
in excessive amount of working capital.
Though the present collection system is near perfect, the company as due
to the increasing sales should adopt more effective measures so as to
counter the threat of bad debts.
The over purchasing function should be avoided as it could lead to
liquidity problems.
The investment of cash in marketable securities should be increased, as it
is very profitable for the company.
Holding of excessive and insufficient stock must be avoided as it creates a
burden on the cash resources of a business and results in lost sales, delays
for customers, etc respectively.

BIBLIOGRAPHY

117

Following sources have been sought for the preparation of this report:
Corporate Intranet
Financial Statements (Annual Reports)
Internet ----www.hclinfosystems.in
Textbooks on financial management I.M.Pandey
Khan and Jain
Prasanna Chandra

118

APPENDICES

119

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

Last 4 year Balance Sheet:

Although debt as a percent of total capital increased at HCL Infosystems Ltd. over
the last fiscal year to 21.53%, it is still in-line with the IT Services industry's norm.
Additionally, even though there are not enough liquid assets to satisfy current
obligations, Operating Profits are more than adequate to service the debt. Accounts
Receivable are among the industry's worst with 28.44 days worth of sales
outstanding. This implies that revenues are not being collected in an efficient
manner. Last, inventories seem to be well managed as the Inventory Processing
Period is typical for the industry, at 21.29 days.
120

(Rs crore)
Jun ' 14

Jun ' 13

Jun ' 12

Jun ' 11

Jun ' 10

Sources of funds
Owner's fund
Equity share capital

140.00

139.37

138.66

137.74

135.76

Share application money

7.65

5.01

2.77

1.00

2.01

Preference share capital

15,605.61

10,093.36

6,465.15

5,720.41

4,798.09

532.66

698.87

847.40

1,030.51

56.70

82.48

366.88

15,809.96

10,852.88

7,305.45

6,706.55

6,333.25

4,489.56

3,764.05

3,153.74

2,600.22

2,293.37

Less : accumulated depreciation

2,040.99

1,809.87

1,540.03

1,304.29

1,349.54

Net block

2,448.57

1,954.18

1,613.71

1,295.93

943.83

518.50

488.19

549.55

518.69

477.20

4,116.01

4,055.70

3,297.95

2,653.28

2,233.20

Reserves & surplus

Loan funds
Secured loans
Unsecured loans
Total
Uses of funds
Fixed assets
Gross block
Less : revaluation reserve

Capital work-in-progress
Investments

121

Jun ' 14

Jun ' 13

Jun ' 12

Jun ' 11

Jun ' 10

Net current assets

Current assets, loans & advances

14,731.42

9,461.26

5,415.82

4,596.90

4,836.63

Less : current liabilities & provisions

6,004.54

5,106.45

3,571.58

2,358.25

2,157.61

Total net current assets

8,726.88

4,354.81

1,844.24

2,238.65

2,679.02

15,809.96

10,852.88

7,305.45

6,706.55

6,333.25

3,559.72

3,961.36

3,203.31

2,558.35

2,233.20

92.36

91.54

91.80

744.45

4,186.27

3,644.36

2,701.38

2,505.21

6999.76

6968.70

6932.83

6886.89

6787.84

Miscellaneous expenses not written

Total
Notes:
Book value of unquoted investments
Market value of quoted investments
Contingent liabilities
Number of equity sharesoutstanding (Lacs)

122

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

Last 4 year Cash Flow Statement:

In 2014, cash reserves at HCL Infosystems Ltd. fell by 172.7M. However, as a
percent of revenues, this change was similar to the IT Services industry median. By
looking at the Cash Flow Statement, analysts can easily see the sources and use of
cash generated throughout the year.
(Rs crore)
Jun ' 14

Jun ' 13

Jun ' 12

Jun ' 11

Jun ' 10

Profit before tax

7,397.66

4,451.20

2,360.74

1,289.88

1,152.82

Net cashflow-operating activity

6,147.22

4,170.15

2,160.10

1,519.39

739.26

Net cash used in investing activity

-4,655.54

-2,985.48

-1,342.76

-535.03

-1,399.11

Netcash used in fin. activity

-1,397.67

-1,175.37

-837.12

-882.58

583.38

123

Jun ' 14

Jun ' 13

Jun ' 12

Jun ' 11

Jun ' 10

Net inc/dec in cash and equivlnt

84.92

-0.48

-33.01

102.86

-79.16

Cash and equivalnt begin of year

155.81

156.29

167.70

64.84

144.00

Cash and equivalnt end of year

240.73

155.81

134.69

167.70

64.84

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

Last 4 year Income Statement:

Year over year, HCL Infosystems Ltd. has seen revenues remain relatively flat
(113.7B to 116.9B), though the company was able to grow net income from 2.8B
to 3.2B. A reduction in the percentage of sales devoted to cost of goods sold from
93.21% to 92.53% was a key component in the bottom line growth in the face of
flat revenues.
(Rs crore)
Jun ' 14

Jun ' 13

Jun ' 12

Jun ' 11

Jun ' 10

Income
Operating income

16,497.37

124

12,517.82

8,907.22

6,794.48

5,078.76

Jun ' 14

Jun ' 13

Jun ' 12

Jun ' 11

Jun ' 10

Expenses
Material consumed

410.12

259.49

206.36

165.31

85.47

Manufacturing expenses

205.15

201.30

521.70

5,123.95

4,628.61

3,923.06

3,259.09

2,137.82

19.85

3,447.26

2,837.69

2,267.58

1,853.71

900.27

Cost of sales

9,186.48

7,927.09

6,397.00

5,278.11

3,665.11

Operating profit

7,310.89

4,590.73

2,510.22

1,516.37

1,413.65

659.12

378.84

300.86

166.27

155.26

7,970.01

4,969.57

2,811.08

1,682.64

1,568.91

81.65

76.46

97.27

101.39

101.36

490.70

441.91

353.07

291.37

274.03

Adjusted PBT

7,397.66

4,451.20

2,360.74

1,289.88

1,193.52

Tax charges

1,413.04

840.02

410.32

91.60

100.01

Adjusted PAT

5,984.62

3,611.18

1,950.42

1,198.28

1,093.51

93.54

-40.70

Personnel expenses
Selling expenses
Adminstrative expenses
Expenses capitalised

Other recurring income

Adjusted PBDIT
Financial expenses
Depreciation
Other write offs

Non recurring items

125

Jun ' 14
Other non cash adjustments
Reported net profit
Earnigs before appropriation
Equity dividend
Preference dividend
Dividend tax
Retained earnings

Jun ' 13

Jun ' 12

Jun ' 11

Jun ' 10

3.43

5,984.62

3,704.72

1,950.42

1,198.28

1,056.24

12,581.74

7,722.30

4,386.14

3,449.42

2,977.21

586.88

695.54

830.58

514.49

270.20

113.39

139.82

134.74

84.39

45.40

11,881.47

6,886.94

3,420.82

2,850.54

2,661.61

126