Professional Documents
Culture Documents
Submitted by
Ankur Sharma
(Roll No. 17 /Batch 15)
In partial fulfillment for the award of the degree of
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Ankur Sharma
CERTIFICATE
This is to certify that this project report Working Capital and Balance Sheet
Analysis of Hindalco Industries Ltd. is the bona fide work of Ankur Sharma
who carried out the project work under my supervision.
(Signature)
Mr. Kumar Rahul.
Senior Officer (Finance and Accounts),
Hindalco Industries Ltd.
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Ankur Sharma
ACKNOWLEDGEMENT
Ankur Sharma
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EXECUTIVE SUMMARY
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TABLE OF CONTENTS
Chapter 1
Part A
1
Introduction
1.1) Major Division of Operations for Hindalco
1.2)
1.3)
1.4)
1.5)
1.6)
1.7)
1.8)
1.9)
1.10)
1.11)
Operations
1.3.1) Operations in India
1.3.2) Global Operations
Hindalco's strategy
6
6
7
11
Vision of Hindalco
13
Mission of Hindalco
14
Management team
14
15
18
20
21
24
25
26
28
29
Part B
Working Capital
1.12)
1.13)
1.14)
1.15)
1.16)
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Ankur Sharma
Chapter 2
2.1)
2.2)
2.3)
2.4)
2.5)
2.6)
2.7)
Chapter 3
3
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38
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44
45
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Chapter 4
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4.2)
4.3)
Annexure
References
63
65
66
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67
71
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Table of Figures
Fig 1.1 Classification of Hindalco business divisions
Fig 1.2 Classification of Aluminium division brands
Fig 1.3: Hindalco global operations
Fig 1.4 Hindalco-Novelis downstream strategy
Fig 1.5 By-product value
Fig 1.6 Global primary aluminium production vs. consumption trend, 2012-2018
Fig 1.7 Share of major aluminium produces in the world
Fig 1.8 Share of major aluminium consumers in the in the world
Fig 1.9 LME Aluminium price in past 10 year
Fig 1.10 Classification of Working Capital
Fig 1.11 Temporary and permanent working capital
Fig 1.12 Balanced Working capital position
Fig 1.13 Optimum level of working capital
Fig 1.14 Matching approach for financing working capital
Fig 1.15conservative approach for financing working capital
Fig 1.16 Aggressive approach for financing working capital
Fig 3.1 Current Ratios for Hindalco 2011-2014
Fig 3.2 Hindalco-Nalco Current ratios comparison
Fig 3.3 Quick Ratios for Hindalco 2011-2014
Fig 3.4 Hindalco-Nalco Quick ratios comparison
Fig 3.5 Structure of current assets for Hindalco in 2014
Fig 3.6 Cash Ratios for Hindalco 2011-2014
Fig 3.7 Hindalco-Nalco Cash ratios comparison
Fig 3.8 Debt to Equity Ratio for Hindalco 2011-2014
Fig 3.9 Interest coverage Ratio for Hindalco 2011-14
Fig 3.10 Interest expense for Hindalco 2011-14
Fig 3.11 Proprietor fund ratio for Hindalco 2011-14
Fig 3.12 Hindalco-Nalco Proprietor fund ratio comparison
Fig 3.14 Nalco Hindalco Gross Profit comparison 2013-14
Fig 3.15 Operating Profit Ratio for Hindalco 2011-2014
Fig 3.16 Hindalco Nalco Operating Profit comparison
Fig 3.17Net Profit Ratio for Hindalco 2011-14
Fig 3.18 Hindalco-Nalco Net Profit comparison
Fig 3.19 ROCE for Hindalco 2011-2014
Fig 3.20 Hindalco-Nalco ROCE comparison
Fig 3.21 ROE for Hindalco 2011-14
Fig 3.22 Hindalco-Nalco ROE comparison
Fig 3.23 ROA for Hindalco 2011-14
Fig 3.24 Hindalco-Nalco ROA comparison
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13
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41
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List of Tables
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CHAPTER 1
Part A
Introduction
Hindalco Industries Limited
indalco Industries Limited, the metals Flagship Company of the Aditya Birla Group is
the world's largest aluminium rolling company, an industry leader in aluminium and
copper and one of the biggest producers of primary aluminium in Asia. Its copper
smelter is amongst the largest single location custom smelter globally.
Hindalco story dates back to the young Indian democracy of the 1950s. Ready to take a giant
leap, India was geared to make it big, especially in terms of innovation and industrialization.
Hindalco embarked on its journey in 1958. Its first real contribution to the vision of an industrial
India occurred four years later, when the visionary late Mr. GD Birla set up India's first
integrated aluminium facility at Renukoot, in the eastern fringe of Uttar Pradesh, India. It was
backed by a captive thermal power plant at Renusagar in 1967. Hindalco attained its leadership
position in the aluminium industry under the dynamic leadership of the late Mr.AdityaVikram
Birla a formidable force in the Indian industry.
And it was through the vision and guidance of Mr. Kumar Mangalam Birla, the Group Chairman
that the business segments of aluminium and copper are consolidated to make Hindalco the nonferrous metals powerhouse it is today. This was achieved in part by expansion through mergers
and acquisitions with companies such as Indal and Birla Copper. Hindalco also secured copper
reserves and amplified its operating base by acquiring the Australian Nifty and Mt. Gordon
copper mines.
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Over the years, Hindalco has grown into the largest vertically integrated aluminium company in
the country and among the largest primary producers of aluminium in Asia. Its copper smelter is
today the world's largest custom smelter at a single location.
In 2007, the landmark acquisition of Novelis Inc., the world's largest aluminium rolling
company, placed Hindalco's footprint across the globe, securing it a rank amongst the top five
global aluminium majors and also placing it in the Fortune 500 league.
Today, it is a metals powerhouse present in two of the fastest growing metal segments; aluminium and
copper, with global footprints in 13 countries and with a consolidated turnover of USD 14.8 billion (Rs.
80,193 Crore).
Hindalco
Businesses
Aluminimum
Division
Copper
Division
Fertilizers
Dry Cargo
Handling
Acid Division
1) Aluminium portion:The largest integrated primary producer of aluminium in Asia, Hindalco also ranks as one
of the most cost-efficient producers globally. With a pan-India presence that encompasses
the entire gamut of operations, from bauxite mining, alumina refining, aluminium
smelting to downstream rolling, extrusions and recycling, Hindalco enjoys a leadership
position in aluminium and downstream value-added products in India.
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Hindalcos India aluminium operations in India are integrated and consist of bauxite
mining, alumina refining, smelting and converting primary metal into value-added
products.
Hindalcos finished products include alumina, primary aluminium in the form of ingots,
billets and wire rods, value-added products such as rolled products, extrusions, foils and
alloy wheels and specialty alumina products. Hindalco manufactures intermediate
products required for its own production such as power and carbon anode. Its Indian
aluminium operations are located in 10 states and one union territory in India, with three
refineries and two smelters that are capable of producing over 600 KTPA of aluminium.
Aluminium
Division
Aluminium
extrusions
brands
Hindalco
extrusions
Maxloader
Aluminium
FRP
Eternia
Everlast
aluminium
roofing sheets
Aluminium
foil brands
Superwrap
Freshwrapp
1) Copper division
Hindalcos copper division operates one of the largest single location customs copper
smelter in the world with a capacity of 500,000 TPA Copper Cathode through world class
technologies. The Custom Smelter complex at Dahej in state of Gujarat at west coast of
India houses copper smelters, refineries, rod plants, captive power plants, a jetty and
other utilities.
Hindalco produces copper cathodes, continuous cast copper rods in various sizes and also
precious metals like Gold and Silver. The co-product Sulfuric acid is also utilized to
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Sulphuric acid
Phosphoric acid
Phospho gypsum
Phospho
1.2)
Novelis Inc.
Acquired by Hindalco in 2007, Novelis is the world leader in rolled aluminum products,
delivering unique solutions for the most demanding global applications, such as beverage cans,
automobiles, architecture and consumer electronics. Our unique material advantage, customerfocused innovation and unparalleled commitment to sustainability define the Novelis brand.
Aditya Birla Minerals
Aditya Birla Minerals is an Australian mining company with a focus on copper production and
exploration. Based in Perth, West Australia, the company conducts its activities at the Birla Nifty
Copper Operation in the Great Sandy Desert, WA and the Mt Gordon Copper Operation located
in the Mt Isa Block in Queensland. Aditya Birla Minerals is part of the Aditya Birla Group and is
part owned by Hindalco.
Hindalco-Almex Aerospace
Hindalco-Almex Aerospace Limited manufactures high-strength aluminium alloys for
applications in the aerospace, sporting goods and surface transport industries. A joint venture
between Hindalco and Almex Aerospace, Hindalco-Almex operates a first-of-its-kind facility in
India, which is exclusively devoted to high-performance aluminium alloys.
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1.3) Operations
Hindalco operates 51 units in 13 countries and includes a workforce of 34,000 representing 15 different
nationalities.
Renukoot: Hindalco's Renukoot plant was commissioned in 1962 with one potline and a smelter
of 20,000tpa capacity.
Muri: Muri alumina plant was India's first alumina refinery. It is located on the banks of the
Subarnarekha River in Chhotamuri village, 60 km from the town of Ranchi.
Alupuram: Located in Ernakulum district of Kerala, Hindalco Alupuram Works was set up in
1938.
Belur: India's aluminium story begins with the Belur plant, it operates at 45,
Taloja: The Taloja sheet rolling plant is located in the Raigad district of Maharashtra,
Belgaum: The Belgaum unit of Hindalco, located in Karnataka,
Hirakud: The Hirakud smelter and power complex is in Odisha.
Dahej: Birla Copper, Hindalco's copper unit, is one of the largest single-location copper smelters
in the world with integrated port facilities.
Mouda: The world class foil production facility at Mouda near Nagpur is now operational.
Shendra: Operated by Hindalco-Almex Aerospace, this first-of-its-kind facility in Aurangabad
is exclusively devoted to high-performance aluminium alloys.
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1. .South Korea
Yeongju: This is a modern, low-cost facility that has casting, hot rolling, cold rolling, finishing
and recycling facilities.
Ulsan: This plant is equipped with casting, hot rolling, cold rolling, finishing and recyling
facilities.
2. Malaysia
Bukit Raja: This mill produces a variety of rolled products, ranging from sheet and coil to
heavy gauge foil products.
3. France
Voreppe: This facility provides technologies and services in the fields of casting and in-line
molten metal treatment.
4. Germany
Goettingen: This plant is a specialist supplier of flat-rolled aluminum sheet.
Luedenscheid: This mill supplies high quality foil for the flexible packaging market.
Nachterstedt: This facility supplies customers of industrial, packaging, building and automotive
applications worldwide.
Norf: The mill here is the largest aluminum rolling and casting facility in the world.
Ohle: This Continental Foil facility specializes in the rolling of high-performance alloys used for
applications such as containers, converter foil and industrial products.
5. Italy
Bresso: This plant produces pre-painted rolled products and supplies to the building,
distribution, industry and transport markets.
Pieve: This plant is an integrated recycling, continuous casting, rolling and finishing operation.
6. Switzerland
Sierre: The site has hot and cold rolling and heat treatment capability. It supplies to the
automotive, building, industrial and transport markets.
7. United Kingdom
Latchford: This area is home to two of Novelis' major recycling plants.
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8. Canada
Burnaby, British Columbia: This facility houses aluminum container and aluminum foil
production, and a customer service center to meet the needs of retail and industrial customers
around the region.
Kingston, Ontario: The site produces specialty and industrial products for marine,
transportation and other industrial applications with cold rolling, finishing and annealing
equipment, uniquely designed to produce automotive sheet and specialty surfaces.
Montreal, Quebec: Novelis sells and distributes aluminum container and aluminum foil
products for Eastern Canada's industrial and food service customers.
Toronto, Ontario: This is the primary fabricating facility for aluminum container, aluminum
foil and sheeted foil products distributed in North America and other markets.
9. United States
Berea, Kentucky: This is the world's largest dedicated aluminum can recycling plant.
Detroit, Michigan: This site provides sales and engineering technical support for automotive
manufacturers.
Fairmont, West Virginia: This is an aluminum sheet and heavy gauge foil cold rolling facility
with precision slitting and annealing capability.
Greensboro, Georgia: The first stand-alone Used Beverage Can Recycling facility in Novelis,
this facility is now responsible for pioneering the majority of Novelis' recycling technologies.
LaGrange, Georgia: US center of sales, marketing and customer service activities for aluminum
container, aluminum foil and foil products requirements.
Logan, Kentucky: One of the largest, most technologically advanced aluminum manufacturing
facilities in the world.
Oswego, New York: The plant produces premium aluminum products used primarily by the
beverage can, building and construction and automotive markets, and in multiple industrial
product applications.
Terre Haute, Indiana: A world-class light gauge foil rolling plant and a recognized leader in
the production of semi-rigid foil container stock, package foil, wide industrial fin stock and
converter foil.
Warren, Ohio: The plant applies coating to rolled aluminum sheet which is then used for
production of lids for aluminum beverage cans.
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10. Brazil
Pindamonhangaba: . The site focuses on the production of aluminum rolled sheets to supply the
packaging, automotive and civil construction segments. And the largest South American
Recycling Center with an 80,000 ton-per-year recycling capacity.
Utinga: This rolling mill supplies to the automotive and consumer goods segments.
Ouro Preto: Produces primary aluminum in the form of plates and billets. This location also has
an upcoming specialty alumina facility.
11. Australia
Aditya Birla Minerals is an Australia-based mining company with a focus on copper production
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Gold and silver have an affinity to copper ore. Hence its extracts them, as well as trace
amounts of platinum and palladium after copper refining. The dispatch of these precious
metals is conducted using special armored vehicles that Hindalco contracts on a longterm basis through agencies.
Sulfuric acid employed in copper processing by converting it to phosphoric acid and then
using that to produce the fertilizers di-ammonium phosphate and nitrogen phosphorus
potassium compound.
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1.7)
Management team
Board of Directors
Novelis Inc:
Utkal Alumina
International Limited:
Mr. AK Agarwala
Mr. KN Bhandari
Mr. MM Bhagat
Mr. NJ Jhaveri
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e) Novelis too, achieved significant progress on all its strategic expansions. These
include the ramp up of rolling production at the Pinda plant in Brazil, coupled
with the mill expansions in Korea and the start of commercial production at its US
automotive finishing lines.
f) Consolidated revenue stood at Rs. 87, 695 crore as compared with Rs. 80,192
crore in FY13.
g) Profit before depreciation, interest and taxes stood at Rs 9,303 crore as against
Rs 8,849 crore in FY13.
h) Net profit was lower at 2,175 crore as compared with 3,027 crore in FY13 on
account of higher interest, depreciation and certain exceptional items.
i) Of the total annual revenue of 87,695 crore, Aluminium Business contributed
69,218 crore, vs. 62,259 crore last year. Aluminium EBIT for FY14 was 3,764
crore as compared with 4,388 crore posted in FY13.
j) Copper business delivered a robust performance, generating an EBIT of ` 1,025
crore. The copper business performance cushioned the pressure on aluminium
margins, vindicating the virtue of a balanced portfolio of your Company.
k) Standalone revenues increased 7% to 27,851 crore from 26,057 crore in FY13.
Profit before interest, depreciation, tax and exceptional items were 13% higher at
3,616 crore vs. 3,187 crore in FY13. This increase in profit was mainly on
account of strong operational performance by copper business.
l) Net profit for the year stood at ` 1,413 crore as compared with 1699 crore in
FY13. This was primarily due to higher depreciation and finance costs.
m) Depreciation and Finance cost increased as the projects started commercial
production.
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Decreasing Profits..
During FY14, multiple projects of
large magnitude and investments were
brought on stream Mahan aluminium,
Utkal alumina refinery and Aditya
Aluminium smelter, with an
investment of over ` 30,000 crore, are
on stream and are now ramping up to
slated capacities.
Due to this debt increased and hence
consolidated Interest expenses
increased from 2,079 crore to 2,702
crore. In standalone business, finance
costs went up from 436 crore to 712
Consolidated and standalone
depreciation increased.
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2012
2013
2014
2015
Production
47.8
50.8
53.8
56.5
Consumption
47.4
50.4
53.6
56.5
Fig 1.6 Global primary aluminium production vs. consumption trend, 2012-2018
Aluminium is one of the most versatile and essential materials for the global economy. The
commoditys extensive properties, including strength, conductivity, recyclability, and
lightweight make it the worlds second most used metal after steel. Aluminium finds major use
in transportation and construction sectors. China dominates the global aluminium market in both
production and consumption. Boom in the residential and infrastructure markets drive its
aluminium market.
Recent years have seen a continuation of volatility in aluminium market prices, with prices
increasing from US$ 1843 per MT in August 2012, to a high of US$ 2087 per ton in December
2012. Current price of aluminum in international market is US $ 1736 1A few nations have
seen government intervention to absorb losses by aluminium producers, or providing tax breaks
or cheaper energy. This government intervention is resulting in a large quantity of over-supply of
aluminium suppressing prices further.
Worldwide, rising aluminum stocks have hampered production and cut down prices.
Manufacturers have slowed down production to reduce pressure on prices. Industry estimates
1
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reveal that while primary aluminium production is growing at a CAGR of around 3%, the
primary aluminium consumption is estimated growing at around 4% during 2012-2018.
Share of major aluminium
producers
china
38%
40%
EU
7% 9%
EU
russia
canada
6%
China
22%
others
45%
4%
6%
US
Japan
India
10%
14%
Others
World primary aluminium markets have witnessed nine consecutive years of surplus since 2008.
Amongst key industry verticals, transportation accounts for 25% consumption share, followed by
construction (24%), packaging (17%), power (12%) and machinery (10%).
Regionally, APAC dominates both production and consumption of Aluminium. China alone
accounts for around 40% of global aluminum production and 45% of consumption. In the last ten
years, China has quadrupled its consumption of aluminum. Already accounting for 42% of
global aluminium consumption, China is forecast to boost this share to 52% by 2025. Chinese
growth in aluminium consumption is largely driven by urbanization, goals and strategies of the
Chinese Government has resulted in investments in infrastructure and housing which also
consume large amounts of aluminum. Besides, the continued strong position of China as a
producer of industrial and consumer goods for export result in large investments in the aluminum
industry.
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1.10.2) Challenges
a) Price volatility
In the past few years, aluminium prices have become very volatile, especially due
to global economic uncertainties. During 2013, aluminium prices slipped to an
average of US$ 2,053 per MT, down almost 15% compared to 2012.
b) High inventory
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The global aluminium market is set to remain in surplus over the next couple of
years as demand growth failed to keep pace with rising supply. Global inventories
have remained at 7 Million MT since the beginning of the year equating to 60
days of consumption and more than double the levels seen before the financial
crisis in 2008.
c) High energy and carbon cost
Another challenge is the demand to save energy and reduce energy consumption
in all aspects of the primary aluminium production process. Also, challenge is to
reduce the emissions of greenhouse gases from the aluminium production process.
Both the electric power generation from fossil fuels and the smelting process are
major sources of greenhouse gas emissions. Although significant progress has
been made in recent years, this problem is not yet solved, and it will be one of the
biggest technological challenges for the aluminium industry in the years to come.
d) Competition from substitutes
Carbon fiber-reinforced plastic (CFRP), Titanium, Steel and Composite materials
give stiff competition to aluminum. The rivalry between substitutes would
become harsher in the following decades as consumers continuously assessed not
only the functional characteristics of competing materials but also their relative
prices.
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Production climbs, helped by lower energy prices Global aluminium output in November
averaged 151,700 tonnes per day (tpd) compared with 146,100 tpd in October and an average of
142,100 tpd in November 2013. In the first 11 months of 2014, production averaged 144,920 tpd,
which means output in November on an annualized basis was running some 2.5 million tonnes
above the average in the first 11 months of the year. Looking forward, producers now face some
crosscurrents - some will be able to take advantage of lower energy prices to reactivate idle
capacity but lower LME aluminium prices will start to squeeze operating margins at others. So in
the short term lower oil prices are likely to remain a bearish influence, especially if it encourages
more exports of Chinese aluminium semis. But if lower benchmark prices start to prompt talk of
more output cuts, bargain-hunting may well reappear. As always with aluminium, the demand
profile is second to none, so at the first sign of supply restraint consumers and investors are
likely to return as buyers. This in turn could trigger short covering and restocking and another
upward run in prices.
New LME rules may have little impact on availability If the new LME warehousing rules are
implemented this year, leading to a faster outflow of metal, it does not necessarily mean
availability will increase - the metal leaving warehouse could simply just go into off-market
financing deals. We do not think there will be much pick-up in availability in the market until
interest rates rise to a level that makes financing metal economically unviable. Given concerns
over slower global growth, the US Federal Reserve may indeed delay any rate rises or the rate
rises may have a negligible impact on the financing model. The aluminium industry may
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therefore have more time to reduce the stock overhang but to do so it will need to limit
production increases - this will require keeping all-in aluminium prices sufficiently low.
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CHAPTER 1
Part B
Introduction
Working Capital
Current Assets
Cash in hand and bank balance
Bills receivables
Sundry debtors (provision for bad debts)
Short term loans and advances
Inventory
Prepaid expenses.
Accrual incomes. Etc
Current Liabilities
Bills payable
Sundry creditors or account
payable
Short term borrowings
Bank overdraft
Provisions
Outstanding expenses
Un-accrued income Etc.
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Working
Capital
On Concept
Basis
Gross Working
Capital
On Time basis
Permanent
Working
Capital
Net working
Capital
Regular
Working
Capital
Temporary
Working
Capital
Reserve
Working
Capital
Seasonal
Working
Capital
Special
Working
Capital
Working capital can be classified on the basis of concept and on the basis of time.
1) Types of working capital On the basis of concept
a) Gross Working Capital: In broad sense: working capital refers to gross working capital.
It is also defined as financial concept or going concern concept. It means the capital
invested in the current assets of the firm. Current assets mean the assets which can be
converted into cash easily or within one accounting period. It helps in determining the
return on investment in working capital and providing correct amount of working capital
at right time.
b) Net Working Capital: In narrow sense: working capital refers to net working capital. It
is also defined as accounting concept. It means excess of current assets over current
liabilities. It helps in finding out firms capability to meet short term liabilities as well as
indicates the financial soundness of the enterprise. Net working capital = current assets
current liabilities
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Paucity of working capital funds render the firm unable to avail attractive credit opportunities
etc.
The firm loses its reputation when it is not in a position to honor its short-term obligations. As a
result, the firm faces tight credit terms for growth. It becomes difficult for the firm to undertake
profitable projects for the firm to undertake profitable projects for non-availability of working
capital funds
6. Operating Efficiency
The operating efficiency of the firm relates to the optimum utilization of all its resources at
minimum costs. Operating efficiency can be achieved by controlling operating costs utilization
of current and fixed assets thereby improving the use of working capital and accelerating the
pace of cash conversion cycle.
7. Price Level Changes
Generally, rising price levels will require a firm to maintain higher amount of working capital.
Same level of current assets will need increased investment when price levels are increasing.
Companies, which can revise their product prices immediately in line with increased input costs,
will not face a severe working capital problem.
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It is indicated in the figure that with the level of current assets the cost of liquidity increases
while the cost of illiquidity decreases and vice versa. The firm should maintain the current assets
at the level where the sum of these two costs is minimized. The minimum cost point indicates the
optimum level of current assets.
Economic Ordering Quantity (EOQ) It is important to note that only the correct
quantity of materials is to be purchased. For this purpose, the factors such as
maximum level, minimum level, danger level, re-ordering level, and quantity already
on order, quantity reserved, availability of funds, quantity discount, and interest on
capital, average consumption and availability of storage accommodation are to be
kept in view. Economic Ordering Quantity (EOQ) is the quantity fixed at the point
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where the total cost of ordering and the cost of carrying the inventory will be the
minimum.
2
Fixing levels (Quantity Control) - For fixing the various levels such as maximum,
minimum, etc., average consumption and lead time i.e. the average time taken
between the initiation of purchase order and the receipt of materials from suppliers
are to be estimated for each item of materials.
ABC Analysis for value of items consumed- ABC analysis is a method of material
control according to value. The basic principle is that high value items are more
closely controlled than the low value items. The materials are grouped according to
the value and frequency of replenishment during a Period.
A Class items: Small percentage of the total items but having higher values.
B Class items: More percentage of the total items but having medium values.
C Class items: High percentage of the total items but having low values.
Just in Time (JIT): The material reaches the points of production process directly
from the suppliers as per the time schedule and the manufacturer does not have to
hold any inventory. Zero inventory helps in lesser working capital and more
profitability. It is possible in the case of companies with respective process. Since, it
requires close coordination between suppliers and the ordering firms, and therefore,
only units with systematic approach will be able to implement it.
B) CASH MANAGEMENT: Cash management is one of the key areas of working capital
management. Cash is the most liquid current assets. Cash is the common denominator to
which all current assets can be reduced because the other major liquid assets, i.e.
receivable and inventory get eventually converted into cash. This underlines the
importance of cash management.
Strategies for cash management are:1
Projection of cash flows and planning - The cash planning and the projection of
cash flows is determined with the help of cash budget. The cash budget is the most
important tool in cash management. It is a device to help a firm to plan and control
the use of cash. It is a statement showing the estimated cash inflows and cash
outflows over the firms planning horizon. In other words the net cash position i.e.,
surplus or deficiency of a firm is highlighted by the cash budget from one budgeting
period to another period.
of time and there by determines the cash requirements of the company. While
determining the optimum level of cash balance (neither excess nor inadequate cash
balances) the finance manager has to bring a tradeoff between the liquidity and
profitability of the firm. The optimum level of cash balances of a company can be
determined in various ways: They are:a. Inventory model (Economic Order Quantity) to cash management: Economic
Order Quantity (EOQ) model is used in determination of optimal level of cash of
a company. According to this model optimal level of cash balance is one at which
cost of carrying the inventory of cash and cost of going to the market for
satisfying cash requirements is minimum. The carrying cost of holding cash refers
to the interest foregone on marketable securities whereas cost of giving to the
market means cost of liquidating marketable securities in cash. Optimum level of
cash balance can be determined as follows:
Q=
Where Q = Optimum level of cash inventory
A= Total amount of transaction demand
O = Average fixed cost of securing cash from the market (ordering cost of
cash securities)
b. Stochastic model: The basic assumption of this model is that cash balances, are
irregular, i.e., changes randomly over a period of time both in size and direction
and form a normal distribution as the number of periods observed increases. The
model prescribes two control limits Upper control Limit (UCL) and Lower
Control Limit (LCL) when the cash balances reaches the upper limit a transfer of
cash to investment account should be made and when cash balances reach the
lower point a portion of securities constituting investment account of the company
should be liquidated to return the cash balances to its return point. The control
limits are converting securities into cash and the vice versa, and the cost
carrying stock of cash.
c. Probability model: According to this model, a finance manager has to estimate
probabilistic out comes for net cash flows on the basis of his prior knowledge and
experience. He has to determine what is the operating cash balance for a given
period, what is the expected net cash flow at the end of the period and what is the
probability of occurrence of this expected closing net cash flows. The optimum
cash balance at the beginning of the planning period is determined with the help
of the probability distribution of net cash flows. Cost of cash shortages,
opportunity cost of holding cash balances and the transaction cost.
3
Strategy for economizing cash - Once cash flow projections are made and
appropriate cash balances are established, the finance manager should take steps
towards effective utilization of available cash resources. A number of strategies have
to be developed for this purpose they are:
32 | P a g e
Delaying outward
Making pay roll periods less
Solving disbursement by sue of drafts.
Centralized payment system
33 | P a g e
b. Cash discount - The effect of allowing cash discount can also be analyzed on the
same pattern as that of the credit period. Attractive cash discount terms reduce the
average collection period resulting in reduced investment in accounts receivable.
Thus, there is a saving in capital costs. On the other hand, cash discount itself is a loss
to the firm. Optimal discount is established at the point where the cost and benefit are
exactly offsetting.
3 Collection procedures- A stringent collection procedure is expensive for the firm
because of high out-of-pocket costs and loss of goodwill of the firm among its customers.
However, it minimizes the loss on account of bad debts as well as increases savings in
terms of lower capital costs on account of reduction in the size of receivables. A balance
has therefore to be stuck between the costs and benefits of different collection procedures
or policies.
Long Term Financing: The sources of long-term financing include ordinary share
capital, preference share capital, debentures, long-term borrowings from financial
institutions and reserves and surpluses (retained earnings).
ii)
Short Term Financing: Short-term financing is obtained for a period less than one
year. It is arranged in advance from banks and other suppliers of short term finance in
the money market. Short-term finances include working capital funds from banks,
public deposits, commercial paper, factoring of receivables etc.
iii)
When the firm follows a matching approach (hedging 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 are financed with short-term funds and as their level
increases, the level of short-term financing also increases. Under a matching plan, no short-term
financing will be used if the firm has a fixed current assets need only.
1.17.2) Conservative Approach
A firm in practice may adopt a conservative approach in financing its current and fixed assets.
The financing policy of the firm is said to be conservative when it depends more on long-term
funds for financing needs. Under a conservative plan, the firm finances its permanent assets and
a part of temporary current assets with long-term financing.
In the periods when the firm has no need for temporary current assets, the idle long-term funds
can be invested in the tradable securities to conserve liquidity. The conservative plan relies
heavily on long-term financing and, therefore, the firm has less risk of facing the problem of
shortage of funds.
35 | P a g e
36 | P a g e
CHAPTER 2
Objectives and Methodology
37 | P a g e
The study is confined to the organization, targets the areas of working capital to concentrate on
and suggests steps for optimized levels of working capital.
CHAPTER 3
Analysis of Data and Interpretation
Financial Ratios
Current assets include cash and those assets that can be converted into cash within a year, such as
marketable securities, debtors, inventories, loans and advances. All the obligations maturing
within a year are included in current liabilities. Current liabilities include creditors, bills payable,
accrued expenses, short term bank loan, income tax liability and long-term debt maturing in the
current year.
39 | P a g e
It indicates the availability of current assets in rupees for every one rupee of current liability. A
ratio of greater than one means that the firm has more current assets than current claims against
them. In India, the conventional rule is to have a ratio of 1.33(internationally it is 2).
2.500
Current Ratio
2.07
2.000
2.5
1.74
1.64
1.5
2.18
1.74
1.500
2.07
2.0
2.29
1.62
1.000
1.0
0.500
0.5
0.000
2013-14
2012-13
0.0
2014
2013
2012
2011
HINDALCO
NALCO
For the year 2011, Hindalco Industries had a current ratio of 1.618, which was lower than the
industry standard of 2:1, which increased by 2013, indicating increase in liquidity situation but
that got offset during the subsequent years reaching 1.745 in 2014 i.e. decreased by 15%. This
decrease is due to disproportionate rise in current liabilities (29%) as compared to current assets
(9%), which is due to pressures on account of declining bauxite quality and rise in freight, a
consequence of diesel price deregulation.
When we compare the current ratio of Hindalco with Nalco over past two years, Nalco comes
out to be in better position, indicating better liquidity.
3.1.2)
Quick Ratio:
Quick assets are those assets which are converted into cash easily. It includes debtors, cash and
bank and current investments. While quick liabilities are the liabilities which are immediately
payable they include Creditors, Outstanding Expenses, Short term Investment.
40 | P a g e
It measures firms capacity to pay off current obligations immediately and it is more rigorous test
of liquidity as compared to current ratio.
HINDALCO
Quick Ratio
1.707
1.20
1.00
0.80
0.60
NALCO
1.548
0.97
0.71
0.68
0.67
0.970
0.719
0.40
0.20
0.00
2014
2013
2012
2011
2013-14
2012-13
Ideally quick ratio should be 1:1 which is remains lower than it constantly in Hindalco, while it
increased to 0.97 in 2013 which again came down to 0.72. Also huge difference between quick
ratio and current ratio shows high dependency of Hindalco on inventory for liquidity.
3%
15%
Current Investment
30%
5%
Inventories
Trade Receivables
6%
This is supported by the data from Balance sheet. 41% of the total current assets are inventory. In
this, almost 86% of the inventory is either raw material or WIP inventory, which is a standard
practice in aluminium manufacturing industry.
41 | P a g e
In comparison to which Nalco seems to be in much better position in terms of liquidity, with
similarly high inventory.
3.1.3)
Cash ratio
The Cash Ratio is a ratio that measures Liquidity and describes how well a company could
handle their current Liabilities with their cash & cash equivalents if current liabilities were to
come due. The cash ratio measures the amount of cash, cash equivalents and invested funds a
company has to pay its current liabilities. The cash ratio is the most conservative of the shortterm solvency measures because it eliminates short-term assets such as Inventory and Accounts
Receivables which involve a lot of uncertainty concerning their true value and the time it takes to
be converted into cash. This is why many creditors look at the cash ratio specifically before
giving credit. They want to see if a company maintains adequate cash balances to pay off all of
their current debts as they come due.
It is calculated as
HINDALCO
Cash Ratio
NALCO
1.25
0.18
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
1.09
0.09
2014
2013
2012
2011
2013-14
0.15
2012-13
The cash ratio of Hindalco is alarmingly low. Creditors prefer higher cash ratios, which is
generally 1 or above for aluminium industry. Now with such low cash ratios, it becomes difficult
to retain creditors or get new credit due for longer time period and hence it reduces days of
42 | P a g e
payable outstanding (DPO), which means longer cash conversion cycle which affects working
capital negatively which in turn, results in lower profitability2.
3.2)
Solvency ratios
Solvency refers to long-term solvency. It indicates whether the entity will be able to continue in
the long run.
0.602
0.602
0.5
0.4
0.347
0.3
0.2
0.173
0.1
0.0
2014
2013
2012
2011
The D/E ratio is well under industry standards, it increased by 247% since 2011 to 2013
Company raised 3,000 Crore through secured non-convertible debentures, the single largest
issuance by a private corporate in India to fund the upcoming projects worth 30,000.
As debt is usually cheaper hence while debts increased at a rate of 61.75% annually on average,
more shares were not issued nor equity increased comparable to debt. On the other hand in 2013
to 2014, both debt and equity grew by 8% in 2014 making D/E same as the previous year.
On other hand, Nalco surprisingly is a debt free company and much less riskier.
Chatterjee, S. (2012). The impact of working capital on the profitability: Evidence from the Indian firms
43 | P a g e
12
10.32
10
8
6
4
5.69
3.92
2
0
2014
2013
2012
2011
Interest Expense
800
700
600
500
400
300
200
100
0
2014
Series1 711.65
2013
2012
2011
435.98
293.63
219.96
It is calculated as
Interest coverage is a financial ratio that provides a quick picture of a company's ability to pay
the interest charges on its debt. The "coverage" aspect of the ratio indicates how many times the
interest could be paid from available earnings, thereby providing a sense of the safety margin a
company has for paying its interest for any period, may easily fall into bankruptcy if its earnings
suffer for even a single month. For Aluminium manufacturing industry generally the minimum
level for interest coverage ratio is 3.
Though ICR for Hindalco is slightly above the minimum required level but its continuous
decline from past several years indicates poor margin of safety, as large amount of debt taken
during these years and hence interest expense also increased, but since most of the projects are
not operational in full swing, revenues from them and in turn EBIT did not increase
Proportionally. On the other hand Nalco did not pay any interest due to zero borrowings.
44 | P a g e
HINDALCO
73.25%
70%
65.17%
63.82%
60%
50%
NALCO
57.56%
49.79%
49.79%
51.00%
51.00%
40%
30%
20%
10%
0%
2014
2013
2012
2011
2013-14
2012-13
Observations: proprietor fund ratio which was 63.82% in 2011 came down to 49.8% in 2014
(industry average being 40%) . The continuous decline is due to increase in leverage and
investing heavily in projects which still have to generate cash flows in future e.g. Mahan
smelter.
Though the proprietor ratio is better in NALCO and also has increased from past year, but for
Hindalco it is expected to improve in the upcoming years.
45 | P a g e
3.3)
Profitability ratios
Profitability ratios are used to assess a business's ability to generate earnings as compared to its
expenses and other relevant costs incurred during a specific period of time.
HINDALCO
NALCO
53.70%
26%
48.88%
25.06%
25%
24%
23%
22%
22.88%
22.14%
22.14%
21.95%
21.95%
21%
20%
2014
2013
2012
2011
2013-14
2012-13
The gross profit ratio has been continuously declining, from 25% in 2011 to 22.14% in 2014
which is slightly more than previous years 21.95%. The decline can be attributed to various
factors like increased cost of raw freight and poor quality bauxite. Nalco on the other hand
maintained a good gross profit ratio much higher that Hindalco, because the cost of raw material
consumed for Nalco is 14.49% of the revenue while for Hindalco it is 64.9%. This is due to
purchase of copper ore by Hindalco, which Nalco does not procure.
46 | P a g e
*100.
HINDALCO
NALCO
14.26%
11.80%
11.39%
10.03%
2014
9.53%
2013
2012
2011
10.03%
2013-14
13.19%
9.53%
2012-13
The operating profit declined from 11.8% in 2011 to 9.52% in 2013, which increased slightly to
10.03%. Interestingly the decline in gross profit is more steep than decline in operating profit for
the entire duration which indicates reduction in the proportion of non-production overheads due
to better efficiency of operations. Operating profit margin for Nalco is more than Hindalco; it is
expected to catch up in near future.
*100.
47 | P a g e
HINDALCO
NALCO
9.47%
8.57%
10%
8.41%
8%
8.96%
6.52%
6%
6.52%
5.07%
5.07%
4%
2%
0%
2013-14
2012-13
2011-12
2010-11
2013-14
2012-13
The profit margin ratio directly measures what percentage of sales is made up of net income. In
other words, it measures how much profits are produced at a certain level of sales. This ratio also
indirectly measures how well a company manages its expenses relative to its net sales.
The NPR is like other ratios for Hindalco are constantly declining as compared to Nalco, which
has better NPR and that too improving year after year. This clearly shows Nalco performing
better than Hindalco in profitability.
48 | P a g e
It indicates how efficiently a company uses its capital employed as well as its long-term
financing strategies. For a company to remain in business over the long term its return on capital
employed should be higher than its cost of capital; otherwise, continuing operations gradually
reduce the earnings available to shareholders. It is commonly used to compare the efficiency of
capital usage of businesses within the same industry.
HINDALCO
ROCE
8%
7%
6%
5%
4%
3%
2%
1%
0%
NALCO
8.83%
8.55%
6.34%
4.30%
2014
7.03%
4.30%
4.16%
2013
2012
2011
2013-14
4.16%
2012-13
The Return on capital invested for Hindalco declines from 7.032% in 2011 to 4.16% in 2013 and
increased marginally in 2014 to 4.302 which is quite less than that of Nalcos 8.546%. Also
WACC for Hindalco is 10.1%3. Now as WACC is more than ROCE, Hindalco proves to destroy
the wealth of in investors.
WACC for Nalco being 15%4, Nalco also destroys wealth for its investors.
Zhumadil, Mariyam. March 11, 2014, Spin-off could unlock value, but devil is in the details, Halyk Finance
Report.
4
http://www.sakalmoney.com/reports/AmbitNationalAluminium.pdf
49 | P a g e
earned for their investment in the company. The higher the ratio percentage, the more efficient
management is in utilizing its equity base and the better return is to investors.
It is calculated as
HINDALCO
ROE
5.299%
8%
6.984%
7.195%
NALCO
5.002% 4.968%
3.848%
6%
5.002%
4%
3.848%
2%
0%
2014
2013
2012
2011
2013-14
2012-13
Observation: ROE like other financial ratios, too decline continuously since 2011, from 7.195%
to 3.848%, and hence decline in efficiency of investors money being employed. Nalco on the
other hand continues to show higher and improving ROE from past few years. When we see
ROE and ROI together, Nalco seems to be a better option from investors perspective.
50 | P a g e
HINDALCO
ROA
5%
3.882%
4.592%
4%
3.630%
4.020%
2.551%
3%
2.551%
2%
NALCO
1.916%
1.916%
1%
0%
2014
2013
2012
2011
2013-14
2012-13
While investment in total assets increased by 11% from 2013 to 14, revenues increased by only
6% in the same period. This resulted in decline in return on total assets declined from 2.55% in
2013 to 1.916% in 2014. There is a continuous decline in ROA since 2011. The reason being
huge investment in projects which yet to start generating cash flows, which has resulted in low
Asset turnover and hence lower ROA. A low ROA indicates inefficient usage of assets, but this
not the cause behind declining ROA here. Nalco on the other hand has slightly increasing ROA
from 3.63% in 2013 to 3.88% in 2014.
3.5)
Turnover ratios:
51 | P a g e
HINDALCO
NALCO
0.423
0.6
0.5
0.4
0.378
0.410
0.513
0.478
0.391
0.391
0.3
0.378
0.2
0.1
0.0
2014
2013
2012
2011
2013-14
2012-13
Asset turnover ratio declined from 0.513 in 2011 to 0.378 in 2014. The reason for decline is
same as decline in ROA. Nalco though, has higher asset turnover ratio, but it is declining too.
Steeper decline in ROA as compared to asset turnover ratio is due to the fact that ROA is product
of Asset turnover and profit margin ratio, both declined in the studied period.
It is calculates as
52 | P a g e
Working Capital
5
4.13
4
3
26,057
Sales
26,597
23,859
3.92
2.97
2.50
9,370
10,413
6,444
6,087
1
0
2014
2013
2012
2011
2014
2013
2012
2011
Working capital though dropped from 3.92 in 2011 to 2.5 in 2013, but it increased marginally in
2014 and expected to increase in future, during 2012-13, sales decreased and working capital
increased, resulting in steep decline in working capital turnover.
Increase in sales while marginally decreased working capital resulted in increased working
capital turnover.
53 | P a g e
HINDALCO
Inventory Turnover
NALCO
2.73
2.68
2.66
2.66
2.64
2.62
2.60
2.63
2.61
2.63
2.63
2.46
2.61
2.58
2014
2013
2012
2011
2013-14
2012-13
Inventory turnover did not show any significant changes in this period, showed 0.89% decline in
2014 from the previous year. Hindalco has maintained almost same inventory turnout ratio,
which is a good sign. This performance is better than Nalco, both in stability and absolute value.
It shows better inventory management in Hindalco.
Almost all sales Hindalco made were in credit; hence sales can be takes as credit sales.
54 | P a g e
HINDALCO
Debtors Turnover
20.50
20.00
19.50
19.00
18.50
18.00
17.50
17.00
16.50
NALCO
55.38
19.90
19.83
34.58
18.49
19.90
17.71
17.71
2014
2013
2012
2011
2013-14
2012-13
The debtors turnover ratio show a small fluctuating pattern form 2011 to 2014, which indicates a
stable debtors policy. It increased by 12% from 2013 to 2014, indicating shorter lapse of time
between sales and the collection of cash.
Though Nalco has significantly higher debtors turnover ratio than Hindalco, but it saw a decline
of 37.25%. Though Nalco is yet much above industry standard yet such steep decline rings a
warning bell for debtors management for Nalco.
55 | P a g e
A higher ratio shows suppliers and creditors that the company pays its bills frequently and
regularly. It also implies that new vendors will get paid back quickly. A high turnover ratio can
be used to negotiate favorable credit terms in the future.
HINDALCO
7.00
6.00
NALCO
6.16
6.17
5.26
5.00
5.11
4.71
4.00
5.64
3.00
5.26
2.00
1.00
0.00
2014
2013
2012
2011
2013-14
2012-13
Since 2012 there is a continuous improvement in Creditors turnover, due to increase in purchase
and decrease in payables which suggests vendors are being paid more frequently. This shows
better financial position of the company in terms of liquidity. This situation enhances the credit
worthiness of the company. However a very favorable ratio to this effect also shows that the
business is not taking the full advantage of the credit facilities allowed by the creditors.
56 | P a g e
57 | P a g e
The cash conversion cycle is a cash flow calculation that attempts to measure the time it takes a
company to convert its investment in inventory and other resource inputs into cash. In other
words, the cash conversion cycle calculation measures how long cash is tied up in inventory
before the inventory is sold and cash is collected from customers
The cash cycle has three distinct parts. The first part of the cycle represents the current inventory
level and how long it will take the company to sell this inventory. This stage is calculated by
using the days inventory outstanding calculation.
The second stage of the cash cycle represents the current sales and the amount of time it takes to
collect the cash from these sales. This is calculated by using the days sales outstanding
calculation.
The third stage represents the current outstanding payables. In other words, this represents how
much a company owes its current vendors for inventory and goods purchases and when the
company will have to pay off its vendors. This is calculated by using the days payables
outstanding calculation.
58 | P a g e
for an extended period of time. Extremely high DPOs potentially highlight liquidity issues or
extensive credit terms that favor the company.
Days Payable Outstanding is a crucial component of the Cash Conversion Cycle (CCC), which is
used to determine how long cash is tied up in working capital. Companies with an extremely
high DPO can lead to a negative CCC. (For the CCC, a ratio where lower is better, that is a good
sign
2012-13
2011-12
2010-11
140
139
137
139
59
69
77
71
18
21
18
20
158
159
155
158
99
90
78
87
HINDALCO
140
NALCO
DSO
148
140
59
Inventory
period
DPO
18
21
139
137
77
69
59
11
DIO
139
65
18
DPO
18
71
20
DSO
2014
2013
2012
2011
The above data shows various factors of operating and cash cycles.
60 | P a g e
a) The days of inventory outstanding for Hindalco remains lower than that of Nalco and it
has maintained the same level in past four years. The constant levels for DIO along with
stable DSO provide a stable operating cycle.
b) From table the operating cycle shows a standard deviation of 1.45 days. For Nalco, on
the other hand it shows more variation, which increased by 19 days from previous years
(2013) 140 days to 159 in 2014. Apart from much stable operating cycle, DIO and DPO
for Hindalco are lesser and hence more efficient than that of Nalco. This suggests that
Inventory and payable management in Hindalco is better than that of Nalco.
Hindalco
158
159
Nalco
159
140
99
94
90
81
Cash Conversion
Cycle(2013)
Fig 3.39 Hindalco-Nalco cash conversion and operating cycle comparison 2013-2014
c) While the operating cycle of Hindalco is slightly shorter and better than that of Nalco for
2014, the cash conversion cycle for Nalco is shorter and hence better than that of
Hindalcos. This is due to shorter DPO for Nalco. In 2014, DSO for Hindalco was 18
days while for Nalco it was 11 days. Nalco collects payments from its debtors 39% faster
than Hindalco.
d) Cash conversion cycle for both the companies has got worse from past year. Percentage
wise Nalco saw more increase in Hindalco.
61 | P a g e
e) Hindalco has a quite stable DSO and DIO while it has a decreasing DPO. It has to
concentrate more on getting more credit period in order to have better liquidity and
shorter Cash Conversion Cycle.
f) Steps for better Creditors management are discussed further in this report.
62 | P a g e
CHAPTER 4
Conclusion and Suggestions
Hindalco
Nalco
2014
2013
2014
2013
Current Assets
21951.89
20150.03
7426.2
7030.23
Current Investments
30%
32%
17%
19%
Trade Receivables
6%
8%
3%
2%
5%
7%
55%
50%
Inventory
41%
38%
16%
20%
A) All current assets declined from last years except inventories which increased by 3% of
the total current assets. Hindalco already has very high levels of inventory, mostly WIP
and raw material inventory. Hence it should try to
a) Reduce inventory level, specifically raw material and WIP Inventory.
b) Improve cash and bank balance which are highly undermined in Hindalco.
On the other hand Nalco holds more than appropriate level of cash and bank balance.
Holding cash has opportunity cost associated with it, though it increases liquidity of the
firm.
B) While debt increased by mere 8% finance expense increased by 63% in 2014 from last
year. The finance cost is will increase further due to loans taken in 2014. Since increase
in equity is also 8%, there is no effect over D/E ratio but interest coverage ratio decreased
drastically. From the point of view of investors, Hindalco has become riskier to invest
63 | P a g e
due to higher leverage and hence they expect higher rate of return for their investment as
compared to Nalco which has zero debt and high proprietary ratio.
30.00%
25.00%
20.00%
Gross Profit
15.00%
Operating Profit
10.00%
Net Profit
5.00%
0.00%
2014
2013
2012
2011
C) Gross profit ratio for Hindalco is quite less as compared to Nalcos GPR, due to high cost
of copper raw material, which Nalco does not deal in. But Operation Expenses for
Hindalco (% of sales) is quite lesser than that of Nalco showing more efficient
operations. Though GPR and Operating profits increased in 2014 from last year, NPR
still decreased, reason being Liability of Rs. 324.36 crore under UP Tax on Entry of
Goods into Local Areas Act, 2007 (UP Entry Tax) and (b) Liability of Rs. 71.62 crore
under Madhya Pradesh Gramin Avsanrachna Tatha Sarak Vikas Adhiniyam
(MPGATSVA) as exceptional expenses.
D) Return ratios have been declining from past four years due to more borrowings, hence
more Capital Employed ( Equity + Loans), for setting up new projects (Assets), but since
those projects (assets) have not started working in full swing and hence generating
expected cash outflow, the profitability is still less. This trend is expected to improve,
hence generating higher ROE for WACC.
64 | P a g e
E)
Sales
Working Capital
Assets
CA
inventory
COGS
Average Receivables
6%
10%
11%
8%
16%
7%
4%
Table 4.2 Increase/ Decrease in factors affecting the financial position of a company2013-14
Hindalco has performed poorly on many fronts due to high debt and partially operational
projects, but it seems to do well at working capital management. With increase in Assets
and sales, the working capital has gone down, indicating better and efficient management
of working capital. It can be further improved by reducing dependency on inventory
which is 12% of the total assets and has increased by 16% from last year while sales has
increased by 6% only. It also seems to do well at debtors and creditors management.
Creditors turnover ratio has improved which can be used to negotiate longer DPO and
hence improving CCC further.
F) Cash conversion period can be shorten in three ways i.e.
i)
ii)
iii)
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66 | P a g e
Annexure
Financial Statements
HINDALCO
2013-14
Revenue From Operation
Excise Duty
Net Revenue
Other Income
Total Income
Purchase Of Stock In Trade
Cost Of Material Consumed
Changes I Inventory Of Finished Goods
Employee Benefit Expenses
Power And Fuel
Finance Cost
Depreciation And Amortization
Impairment Loss
Other Expense
Total Expense
Gross Profit
Profit Before Exceptional Items And Tax
Pbit
Exceptional Items
Profit Before Tax
Tax Expenses
Current Tax
Differed Tax
Net Profit
2012-13
30101.34
2250.41
27850.93
1124.42
28975.35
0.03
18804.28
-676.21
1346.1
3557.61
711.65
823.29
28069.78
2012.85
26056.93
983.09
27040.02
0.38
17136.51
127.94
1200.8
3073.04
435.98
686.95
17.25
2327.24 2314.54
26893.99 24993.39
6165.22 5719.06
2081.36 2046.63
2793.01 2482.61
395.98
1685.38 2046.63
288.88
-16.83
1413.33
381.41
-33.98
1699.2
2011-12
NALCO
2010-11
2013-14
2012-13
28296.96 25348.12
1700.18 1488.91
26596.78 23859.21
615.79
347.49
27212.57 24206.7
205.98
522.22
17843.08 15530.94
-407.31
-394.67
1113.35 1040.39
2870.67 2221.48
293.63
219.96
689.97
687.48
6780.85
6916.48
6780.85
557.71
7338.56
6916.48
511.05
7427.53
1063.16
58.55
1245.33
2017.67
1167.83
-64.25
1153.93
2432.27
7.45
505.43
1866.25 1784.16
24475.62 21611.96
6084.36 5979.24
2736.95 2594.74
3030.58
2814.7
1319.83
6522.49
3380.63
905.04
912.49
263.3
48.91
592.83
524.73
2736.95
2594.74
1461.94
6371.38
3641.47
967.18
967.18
49.37
917.81
562.68
-62.93
2237.2
555.68
-97.86
2136.92
264.65
10.81
642.35
905.04
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2) Balance Sheet
HINDALCO
2013-14
Share Capital
Reserves And Surplus
Money Received Against Share Warrants
Equity
Long Term Borrowings
Deferred Tax Liabilities ( Net)
Other Long Term Liabilities
Long Term Provisions
Non-Current Liabilities
Short Term Borrowings
Trade Payables
Other Current Liabilities
Short Term Provisions
Current Liabilities
Total Liabilities
Assets
Tangible Assets
Intangible Assets
Capital Work In Progress
Intangible Assets Under Development
Fixed Assets
Non-Current Investment
Long Term Loans And Advances
Other Non Current Assets
Non Current Assets
Current Investments
Inventories
Trade Receivables
Cash And Bank Balance
Short Term Loan And Advances
Current Assets
Other Current Assets
Current Assets Inc. Other Current Assets
Total Assets
2012-13
2011-12
NALCO
2010-11
206.48
36525.97
191.48
191.48
191.46
33239.6
31299.68 29508.64
541.31
541.31
36732.45 33972.39 32032.47 29700.1
22108.58 20443.05 11115.13 5147.54
1174.31
1191.14
1224.56
1287.49
830.86
974.28
953.1
290.5
341.96
300.94
287.32
268.07
24,455.71 22,909.41 13,580.11 6,993.60
4,258.37
3,701.72
3,456.78 3,890.35
4,383.75
3,044.05
4,659.77 4,082.95
2,901.91
1,924.09
998.61
1,053.91
1,037.76
1,066.90
919.88
815.43
12,581.79 9,736.76 10,035.04 9,842.64
73,769.95 66,618.56 55,647.62 46,536.34
18024.98
29.73
17277.13
0.1
35,331.94
15312.45
1,161.15
12.52
51,818.06
6,595.01
8,914.58
1,283.65
1,163.17
3,226.40
21,182.81
769.08
21,951.89
73,769.95
7071
26.65
23605.11
0.01
30,702.77
14,050.17
1,681.08
34.51
46,468.53
6,431.96
7,702.62
1,515.04
1,497.82
2,261.73
19,409.17
740.87
20,150.04
66,618.57
7125.95
24.25
16256.7
0.24
23,407.14
13,503.70
2249.53
7.81
39,168.18
4,583.40
7,742.86
1,427.45
722.30
1,647.65
16,123.66
355.78
16,479.44
55,647.62
7560.69
23.69
6030.32
0.09
13,614.79
13,049.66
3942.59
0.10
30,607.14
5,197.09
7,651.40
1,255.49
233.39
1,344.75
15,682.12
247.08
15,929.20
46,536.34
2013-14
2012-13
1288.62
10833.83
1288.62
10643.83
12122.45
11932.45
910.13
54.96
218.22
1,183.31
903.13
70.82
208.62
1,182.57
531.12
2564.38
147.25
3,242.75
16,548.51
509.17
2545.75
162.67
3,217.59
16,332.61
6688.8
103.14
768.74
6523.8
105.09
1001.92
7,560.68
1.04
1517.27
43.32
9,122.31
1244
1173.66
243.57
4048.29
481.38
7190.9
235.3
7,426.20
16,548.51
7,630.81
161.04
1474.04
36.49
9,302.38
1329.02
1380.64
148.65
3504.38
473.76
6836.45
193.78
7,030.23
16,332.61
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3) Common Size
HINDALCO
Net Revenue
Other Income
Total Income
Expenses
Purchase Of Stock In Trade
Cost Of Material Consumed
Employee Benefit Expenses
Power And Fuel
Finance Cost
Depreciation And Amortization
Other Expense
Total Expense
Gross Profit
PBIT
Profit Before Tax
Net Profit
NALCO
2013-14
96.12%
3.88%
100%
2012-13
96.36%
3.64%
100%
2011-12
97.74%
2.26%
100%
2010-11
98.56%
1.44%
100%
0.00%
64.90%
4.65%
12.28%
2.46%
2.84%
8.03%
92.82%
21.28%
9.64%
5.82%
4.88%
0.001%
63.37%
4.44%
11.36%
1.61%
2.54%
8.56%
92.43%
21.15%
9.18%
7.56%
6.28%
0.75%
65.56%
4.09%
10.54%
1.07%
2.53%
6.85%
89.94%
22.35%
11.13%
10.05%
8.22%
2.15%
64.16%
4.29%
9.17%
0.90%
2.84%
7.37%
89.28%
24.70%
11.62%
10.71%
8.82%
2013-14
92.40%
7.60%
100%
2012-13
93.12%
6.88%
100%
14.49%
16.97%
27.49%
15.72%
15.54%
32.75%
0.10%
6.80%
17.77%
87.82%
45.51%
12.29%
12.18%
7.98%
7.15%
19.92%
86.82%
49.62%
13.18%
12.51%
8.75%
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4) Financial Ratios
HINDALCO
Working Capital
Current Ratio
Cash Ratio
Quick Ratio
CA/FA
D/E
PBIT
Interest Coverage
Net Worth
Proprietary Fund Ratio
GPR
Operating Profit Ratio
NPR
EPS
ROCE
Shareholders' Equity
ROE
ROA
Asset Turnover Ratio
Working Capital Turnover
Creditors Turnover
Inventory Turnover
Days Of Inventory
Debtors Turnover
Collection Period (DSO)
DPO
Operating Cycle
CCC
NALCO
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Reference:
Bapat Varadra, Raithatha Mehul (2012), Financial Accounting
Pandey, I. M., Financial Management (10 e)
http://schluetersche.de/international-aluminium-journal/150/1373/38366/
http://www.hindalco.com
http://articles.economictimes.indiatimes.com/2011-06-13/news/29653419_1_aluminium-prices-aluminiumdemand-bl-bagra
http://markets.ft.com/research/Markets/Tearsheets/Forecasts?s=HINDALCO:NSI
http://www.livemint.com/Companies/LSlHtsmxN7jBVLbgaA2ZAM/Kumar-Mangalam-Birla-said-to-targetrecord-aluminum-producti.html
http://articles.economictimes.indiatimes.com/keyword/hindalco-industries
http://profit.ndtv.com/stock/hindalco-industries-ltd_hindalco
http://www.investopedia.com
http://www.shelfplus.com/material-handling-hotline/ten-ways-to-reduce-inventory/
http://www.simafore.com/heres-your-copy-of-the-predicting-sales-using-mlr?submissionGuid=50a2f338ca94-47bf-8405-11e8b84fae7a
http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=6313052&fileId=S0022109000
019074
http://www.researchgate.net/profile/Haitham_Nobanee/publication/228252601_Optimizing_Working_Capita
l_Management/links/09e41513739f4ed9f8000000.pdf
http://www.jstor.org/stable/3666040?&seq=10#page_scan_tab_contents
http://www.researchgate.net/profile/Haitham_Nobanee/publication/228252595_Working_Capital_Managem
ent_and_Firm's_Profitability_An_Optimal_Cash_Conversion_Cycle/links/09e41513739f5222e1000000.pdf
http://www.wikiwealth.com/wacc-analysis:nlc
http://www.moneycontrol.com/financials/hindalcoindustries/results/quarterly-results/HI#HI
http://www.motilaloswal.com/site/rreports/HTML/634933317759799393/index.htm
http://www.iitk.ac.in/infocell/announce/convention/papers/Colloquium-04Aman%20Srivastava,Rakesh%20Gupta%20final.pdf
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