72677585 Oswal Woolen Mills

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Working Capital Management

Of

SHERPUR CHOWNK, LUDHIANA

Submitted To: Submitted By:

Ms. Simranjeet Kaur ShwetaMalhotra

7NBLU011

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Working Capital Management

Of

SHERPUR CHOWNK, LUDHIANA

By

(Shweta Malhotra)(M.B.A 2007-2009)

A report submitted in partial fulfillment ofthe requirements of

THE MBA PROGRAM

(The Class of 2009)INC

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Preface

The need to acquire knowledge and to develop the skills of

decision making in the field of financial management has never been

great as it is today infact the rapid industrialization that is taking place in

the country has brought an urgency for rapid development of managerial

abilities in graduate post graduate programs.

For such as educational activities it is essential not only to haveteaching material of sufficient depth and breathe of coverage but also to

provide it in a way that lends itself to be adapted to the most effective

pedagogy.

A project entitled Working Capital Management of Oswal

Woolen Mills Ltd. under the guidance of Ms. Simranjeet Kaur

(Project Guide) was undertaken by me in partial fulfillment of

requirement for degree of Master in Business Administration. I hope this

study will be useful for academic as well as practical purpose.

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ACKNOWLEDGEMENT

First and foremost, I would like to express my deep sense of gratitude to

my esteemed supervisor, senior lecturer of Soft Skills Department of

INC, Ludhiana Ms. Simranjeet Kaur under whose competent guidance

and affectionate encouragement, I have been able to complete this

project. She needs a special mention in this project and I am greatly

indebted to her for her kind behaviour, sympathetic attitude, rich

experience and profound learning. Indefatigable fact finding zeal was a

source of constant inspiration.

It is impossible to acknowledge in the words the help, love & affection

that I have received from members of OSWAL WOOLLEN MILLS

LTD. who helped me in endeavour.

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CONTENTS

Chapter No Topics

Chapter 1 Summary of Project

Chapter 2 Objectives of the study

Limitations

Chapter 3 Research Methodology

Chapter 4 Review of Literature

Introduction of Hatchback Cars

Company Portfolio

Chapter 5 Data Analysis & Interpretation

Chapter 6 Recommendations & Suggestions

Chapter 7 Conclusion

Chapter 8 Bibliography

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SUMMARY OF PROJECT

The Nahar Group- A renowned name in Indian industry is heading fast in

future with its wide range of products. Oswal Group started as a sock-knitting unit

in a rented room in Ludhiana. Although the beginning was small but the vision was

big. The burning desire to evolve grows and boundless enthusiasm made them to

achieve heights of success.

The Project undertaken is Working Capital Management and Various

Methods of Funding of Working Capital.

The project various methods of funding of working capital includes the

calculation of working capital for the funding purpose and deciding and opting for

the various funding methods of the working capital of OWM.

This project is done under the Finance department under Mr. R.M. Sood

Finance Controller of the company and is related to major specialization Finance.

In this project well acquaintance with the procedure followed in Oswal

Woollen Mills Ltd. for the management of working capital and different ways and

necessities of funding of working capital. It includes the various loans and funds

that are available for the funding of working capital for the exporters.

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OBJECTIVES OF STUDY

1. Analyze the operating cycle of the company.

2. Analyze the trend in various components of working capital.

3. Analyze the different aspects of funding of working capital.

OBJECTIVES

The basic objective behind this project is to provide an analytical overview of

Working Capital Management at oswal woollen mills limited by bringing into use

various theoretical tools & skills which have been studied. This include studying &

analyzing various financial data over a period of 5 years with the aim of gaining

useful insight into skill needed for the controlling the movement of working capital.

Specific Objective:

The broad areas that have been analyzed are as follows:

1. OPERATING CYCLE:

The operating cycle of the unit has been calculated for the past 3 years with the aim of

studying trends & commenting on the efficiencies achieved & the inefficiencies that

have developed.

2. RATIO ANALYSIS:

The ratios calculated & analyzed have been broadly divided under four parameters

a) Ratio to analyze the liquidity position.

b) Profitability ratios.

c) Ratio to calculate the efficiency of working capital management.

d) Ratios to analyze the structural health of the divisions working capital structure.

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3. CASH MANAGEMENT:

To study the cash management of MIL regarding its collection, lead time like in case

of outstation cheques, payments, facility of CMS and RTGS etc.

4. INVENTORY MANAGEMENT:

To study the Inventory management of MIL regarding its valuation model, tools and

techniques used to measure effectiveness of inventory, system of sourcing etc.

5. FINANCING OF WORKING CAPITAL:

To study the financing of working capital, its components and other short term

sources of funding.

LIMITATIONS

1. Insufficiency of Data

2. Shortage of time is also reasonfor incomprehensiveness.

3. Less cooperation from mill staff.

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RESEARCH METHODOLOGY

Research design:

The research design is a pattern or an outline of research project working. It is a

statement of only essential elements of study, those that provide basic guidelines

for the details of the project. The present study is being conducted followed by

Descriptive Research Design.

Data Collection:

Primary as well as secondary data is used for the project. The research vehicle for

primary data collection is unstructured interview with the managers to get

information regarding all variables for working capital management.

Secondary data is collected from Annual Report, relevant files & records of

Nahar Industrial Enterprise Ltd.

Analysis of Data:

The information gathered are the policies & practices regarding management of the

working capital. Analysis is done in terms of theoretical concepts. Analysis of

working capital performance is done with the help of percentages by showing

graphs, ratios etc.

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REVIEW OF LITERATURE

Introduction of Working Capital Management

Introduction

The developing economies are generally faced with the problem of insufficient

utilization of resources available to them. CAPITIAL is the scarcest productive in

such economies and proper utilization of this resource promote the rate of growth,

cuts down the cost of production and above all beefs up the efficiency of

productive system in any developed policy of such economies financial

management in such field of study that encompasses the detailed analysis of accept

of capital and its management.

Financial management can be divided into two broad area of responsibility as the

management of long-term capital and management of short funds or working

capital. The management of working capital, which constitutes a major area of

decision making for financial manager, is a continuing function, which involves

the control of low financial resources circulating in the enterprise in one form or

the other. It also refers to the management of current assets and current liability.

Efficient management of working capital is an essential pre-requisite for the

successful operation of a business enterprise and improving its rate of return on

capital invested in short term assets. In simple words working capital refers to that

part of the firms capital, which is required for financing short term needs of the

company. These funds keep revolving and are being constantly into cash. Hence it

is also known as revolving or circulating capital or short- term capital.

Management of working capital in a given enterprise has profitability and liquidity

implications. Working capital represented by current assets constitutes a document

and controllable segment of investment particularly in manufacturing enterprise

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effort to prune it or optimize its size must promptly enhance the profitability

besides ensuring saving on avoidable outlays. These efforts would simultaneously

active the flow of funds through the enterprise by focusing attention on stranglers

such as dormant inventories and overdue outstanding and by curbing the long

established tendency of funds to stagnate at different stages in the enterprise

operations. Thus working capital offers a common front for profitability and

liquidity management.

Importance of working capital can further be judge from the fact the many a times

the main cause of the failure of business enterprise has been found to be the

shortage of current assets and their mishandling.

A business enterprise may be conceived as a continuous Stock-to-flow-to-stock

cycle, where each turn of the cycle is expected to add to the real stock of the

enterprise. Given a certain value of stock at the start of the period, the operations of

the company during the period are supposed to bring net positive flows into the

firm. If this not realized then stock tends to be eroded, a major component in

financial management of an enterprise. Working capital is popular name for such

flow of management.

The standard definition of working capital is:

Gross Working capital: - All the assets include cash and balance.

Net Working capital: - All the current assets, including cash and bank balance

minus all current liabilities.

Implication of gross working capital

Working capital is that it is prime facie indictors of cash realizable by the firm at a

given date (excluding cash and bank balance)

Implication of net working capital

Net working capital shows potential realizable cash after meeting cash obligations

on account of current liabilities.

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KINDS OF WORKING CAPITAL

Working capital may be classified into two ways:

On the basis of concepts

On the basis of time

On the basis of concepts working capital is classified as Gross working capital &

Net working capital. On the basis of time working capital is classified as

permanent or fixed working capital & temporary or variable working capital.

Gross Working Capital:

It represents the amount of funds invested in current assets. Thus, working capital

is the capital invested in the total current assets of the gross. Current assets are

those assets which in the ordinary course of business can be converted into cash

within a short period of normally one accounting year.

KINDS OF WORKING CAPITAL

BASIS: CONCEPT BASIS:

TIME

GROSS WORKING CAPITAL

NET WORKING CAPITAL

PERMANENT

WORKING

CAPITAL

TEMPORARY

WORKING

CAPITAL

REGULARW. CAPITAL

RESERVED

W. CAPITAL

SEASONALW. CAPITAL

SPECIAL

W. CAPITAL

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Gross working capital of OWM in F.Y. 2006-2007:-

Current Assets Rs. Lacs

Inventories 11483.13

Sundry Debtors 4908.57

Cash & Bank Balance 556.22Other Current Assets 30.80

Loans & Advances 3011.71

Total 19990.43

Gross Working Capital = Current Assets

Therefore, Gross working Capital of OWM =Rs. 19990.43 (Lacs)

Net Working Capital:

It is the excess of current assets over current liabilities. Net working capital may

be positive or negative. When the current assets exceed the current liabilities the

working capital is positive & the negative working capital results when the

current liabilities are more than the current assets. Current liabilities are those

liabilities which are intended to be paid in the ordinary course of business within

the short period of normally one accounting year out of the current assets or the

income of the business.

Net working capital of OWM, Ludhiana in F.Y. 2006-2007 is:

Current Assets Rs. Lacs Current Liabilities &

Provisions

Rs. Lacs

Inventories 11483.13 Sundry Creditors 7333.45

Sundry Debtors 4908.57 Other Liabilities 1567.22

Cash & Bank

Balances

556.22 Interest accrued but not

due

1.14

Other Current Assets 30.80 Provisions 0

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Loans & Advances 3011.71 Working Capital Loan 11088.62

Total 19990.43 Total 19990.43

Net working capital is = Current Assets - Current Liabilities

Therefore, Net Working Capital Of the unit= Rs.19990.43 8901.81 = Rs. 11088.62 Lacs

Permanent or Fixed working capital:

It is the minimum amount which is required to ensure effective utilization of fixed

facilities & for maintaining the circulation of current assets. There is always a

minimum level of current assets which is continuously required by the enterprise to

carry out its normal business operations. For example, every firm has to maintain a

minimum level of raw-material, work-in-process, finished goods & cash balance.

The minimum level of current assets is called fixed or permanent working capital as

this part of working capital is permanently blocked in current assets. As the

business grows, the requirement of permanent working capital also increases due to

the increase in current assets. The minimum amount of capital varies from

organization to organization. The permanent working capital can further be

classified as regular working capital and reserve working capital.

Regular Working Capital:

It is the minimum amount of working capital required to ensure circulation of current

assets.

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Reserve Working Capital:

It is the excess amount over the requirement for regular working capital, which may

be provided for contingencies that may arise at unstated periods such as strikes, rise in

price etc.

OWM is having a steady production cycle of about 1.5 months which is the regular working

capital. OWM has an open policy for stocking of wool. Its management determines the wool

holding period on regular basis depending upon the wool conditions, its prices, cost-benefit

analysis of storage cost and other factors.

It hardly showed any requirement of reserve working capital and its production has been

stable during the period under study.

Temporary or Variable working capital:

It is that amount of working capital which is required to meet the seasonal

demand & some special exigencies. Variable working capital can further be

classified as seasonal working capital & special working capital. Most of the

enterprises have to provide additional working capital to meet seasonal & special

needs. The capital required to meet the seasonal needs of the enterprise is called

seasonal working capital. Special working capital is that part of working capital

which is required to meet the special exigencies such as launching of extensive

marketing campaigns for conducting research etc.

Seasonal Working Capital:

It is the capital required to meet the seasonal needs of the enterprise.

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OWM, as said earlier, procures WOOL (its basic raw material) which is a seasonal crop and is

imported mainly from Australia. So it needs to store the wool stocks for around six months in

its peak season. Its working capital limits are assessed on the basis of three months stock.

And the remaining is financed by taking a short term loan from its consortium banks.

Special Working Capital:

It is required to meet special exigencies such as launching of extensive marketing

campaigns for conducting research etc.

In OWM permanent working capital is fixed while the temporary fluctuates. But permanent

working capital can also be increased with the passage of time when need arises while

temporary working capital can be increases or decreases.

NEEDS OF WORKING CAPITAL

The need of working capital arises due to time gap between production and realization

of cash from sales. There is an operating cycle involved in the sales and realization of

cash. Thus it is needed for following purposes:

1. For the purchase of raw materials, components and spares.

2. To pay wages and salaries.

3. To incur day to day expense and overhead cost.

4. To meet the selling costs.

5. To provide credit facilities to customers.

6. To maintain the inventories.

Excess or inadequate working capital

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Every business concern should have adequate working capital to run its business

operations. It should have neither redundant or excess working capital nor

inadequate nor shortage of working capital. Both excess as well as short working

capital positions are bad for any business. However, out of the two, it is the

inadequacy of working capital which is more dangerous from the point of view of

the firm.

Disadvantages of excessive working capital

1. Excessive working capital means idle funds which earn no profits for the

business & hence the business earns a proper rate of return on its investments.

2. When there is a redundant working capital, it may lead to unnecessary

purchasing & accumulation of inventories causing more chances of theft,

waste & losses.

3. Excessive working capital implies excessive debtors & defective credit policy,

which may cause higher incidence of bad debts.

4. It may result into overall inefficiency in the organization.

5. When there is excessive working capital, relations with banks & other

financial institutions may not be maintained.

6. Due to low rate of return on investments, the value of shares may also fall.

7. The redundant working capital gives rise to speculative transactions.

Disadvantages of inadequate working capital

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1. A concern, which has inadequate working capital, cannot pay its short term

liabilities in time. Thus, it will lose its reputation & shall not be able to get

good credit facilities.

2. It cannot buy its requirement in bulk & cannot avail of discounts, etc.

3. It becomes difficult for the firm to exploit favorable market conditions &

undertake profitable projects due to lack of working capital.

4. The firm cannot pay day-to-day expenses of its operations & it creates

inefficiencies, increases costs & reduces the profits of the business.

5. It becomes impossible to utilize the fixed assets due to non-availability of

liquid funds.

6. The rate of return on investments also falls with the shortage of working

capital.

DETERMINANTS OF WORKING CAPITAL

1. Nature and size of business.

Working capital requirement of a firm are basically influenced by nature of its

business. Trading and financial firms have a very small investment in fixed assets, but

require a large sum of money to be invested in working capital. In contrast, public

utilities have a very limited need of working capital because they provide services on

cash basis. Hence no funds will be tied up in debtors and stocks. Working capital

needs of most manufacturing concerns fall between two extremes. The size of

business also has an important impact on its working capital needs. Size may be

measured in terms of scale of operations. A big firm will need more working capital

than a small firm will.

The size of the OWM is large enough and generates about 32308 Lacs of sales in 2006-07. It

has undertaken expansion projects which call for increase in requirements of working capital.

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That is the reason by expansion of 4352 worsted spindles and 432 semi worsted spindles,

opening up of new showrooms, its assessed working capital limits (Funds Based) have gone up.

2. Manufacturing cycle

The manufacturing cycle comprises of purchase and use of raw materials and the

production of finished goods. Longer the manufacturing cycle, larger will be the

firms working capital requirements.

Since OWM is a fully integrated plant with using cotton as a raw material and producing

Denim Fabrics and Jeans wear, AND using wool as a raw material and producing sweaters

knitted tops etc. as finished product its manufacturing cycle is longer. Moreover, being raw

material i.e. cotton and wool are a seasonal products, Raw material cycle understandably

needs to be larger keeping in view the storage requirements of about 6-8 months stock in its

peak season.

3. Sales growth

The working capital need of a firm increases as the sale grows. It is difficult to

precisely determine the relationship between the volume of sales and working capital

needs. As sales grow, the firm needs to invest more in inventories and debtors. These

needs become very frequent and fast when sales grow continuously.

The firms sales are growing in the past few years which require increased need of working

capital. It has nearly by 33.33% from 2005-06 to 2006-07 i.e. Rs. 32308 lacs from Rs. 24737

lacs. OWM is in expansionary phase and its working capital limits (fund based) have

increased to Rs. 88 crores and non fund based working capital limits have increased to 80

crores.

4. Price level change

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Generally, rising prices will require a firm to maintain higher amount of working

capital. However, companies, which can immediately revise their product prices with

rising price levels, will not face a severe working capital problem. Effect of rising

prices will be different for different companies. Some will face no working capital

problem, while working capital problems of other may be aggravated.

Increase in cotton costs and other manufacturing inputs has obviously increase the working

capital needs of OWM. The cotton cost has gone from avg. Rs. 44/- per kg to Rs. 55/- per kg

thereby resulting increase by about 25% in raw material costs and the prices of wool have also

increased by 4% as compaired to base year.

5. Operating efficiency and performance

The operating efficiency of a firm relates to the optimum utilization of resources at

minimum cost. Better utilization of resources improves profitability and thus helps in

releasing the pressure on working capital. Firms differ in their capacity to generate

profit from business operations. Some firms enjoy a dominant position due to quality

product or good marketing management or monopoly in the market and earn a high

profit margin and vice-versa can be there. A high net profit margin contributes

towards working capital pool.

Since OWM is operating at about 86% capacity utilization, it has been able to reduce its

unutilized capacity and thereby increasing its production which reduces its operating cycle.

6. Market condition

The degree of competition prevailing in the market place has an important bearing on

working capital needs. When competition is keen, a large inventory of finished goods

is required to promptly meet the needs of customers. Also lenient terms of credit are

to be given to attract the customers.

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Since OWM sells its denim fabrics, sweaters, pullovers and other finished goods only on cash

basis, and it sells yarn at a credit period of 45-60 days, the debtors collection period is very

minimal. Major chunk of cash sales reduces its working capital cycle.

7. Production policy

In certain industries the demand is subject to wide fluctuations due to seasonal

variations. The requirements of working capital, in such cases, depend upon the

production policy. The production could be kept either steady by accumulating

inventories during slack periods with a view to meet high demand during the peak

season or the production could be curtailed during the slack season and increasedduring peak season. If the policy is to keep production steady by accumulating

inventories it will require higher working capital.

OWM keeps normally SIX TO EIGHT month of productions raw material in stock and it

keeps one months stock in process and thereby keeping its production cycle to about 1.5

months.

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A) INDUSTRY PROFILE

Textile Industry Overview

It has been rightly said that 21st Century will belong to Asia. This is getting clearerand holds good even in case of Textile Sector. It is well known that with very high

labor costs in U.S.A and Europe, entire activity from spinning to garmenting will

shift to Asian countries like China, India, Bangladesh, Pakistan, and Sri Lanka etc.

With the abolition of Quota Regime, each country would try to grab maximum

share of world trade in textile and garment sector. Indian Textile Industry will have

to face fierce competition particularly from China, Pakistan, Bangladesh and Sri

Lanka. It is now very clear that China will secure much larger share vis--vis other

competing countries and India will have to settle down to a second position.

If you look at the global clothing scenario, where the textile market stands today is

worth more than $400 billion and it is still growing every year. As a result, the

recent globalization of the textile trade has opened up highly demanding and

evolving requirements for outsourcing in textiles.

Recent studies have highlighted that fabric weaving alone expends around 28

million tons of fiber every year. This figure is parallel to more than half of the

global textile market. It is predicted that global production will grow by 25%

between 2002 and 2010, to reach more than 35 million tons and Asia is one of the

key regions for growth.

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Textile industry in India

The textile industry occupies a unique place in our country. One of the earliest to

come into existence in India, it accounts for 14% of the total Industrial production,

contributes to nearly 30% of the total exports and is the second largest employment

generator after agriculture. Although the development of textile sector was earlier

taking place in terms of general policies, in recognition of the importance of this

sector, for the first time a separate Policy Statement was made in 1985 in regard to

development of textile sector.

India's share in world's textile trade from the current 4% to 8% by 2010 and toachieve export value of US $ 50 billion by 2010 Vision 2010 for textiles envisages

growth in Indian textile economy from the current US $ 37 billion to $ 85 billion

by 2010; creation of 12 million new jobs in the textile sector. Because India has

natural advantages which can be capitalized on strong raw material base - cotton,

man-made fibers, jute, silk; large production capacity (spinning - 21% of world

capacity and weaving - 33% of world capacity but of low technology)

It has a unique position as a self-reliant industry, from the production of raw

materials to the delivery of finished products. It is a major contribution to the

country's economy. Its vast potential for creation of employment opportunities in

the agricultural, industrial organized and decentralized sectors & rural and urban

areas.

A few important facts about Indias textile industry:

The textile industry is the single largest foreign exchange earner for India.

Currently it accounts for about 8 % of GDP, 20 % of the industrial production and

over 30 % of export earnings of India.

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It has only 2-3 % import intensity. About 38 million people are gainfully employed

with the industry making it the second largest employment providing sector after

agriculture. Textiles, alone, account for about 25 percent of India's total for

earnings. The industry is concentrated in Tirupur (Tamilnadu) and Ludhiana

(Punjab). Tirupur produces 60 percent of the country's total knitwear exports.

Knitted garments account for almost 32 percent of all exported garments. India's

textile industry since its beginning continues to be predominantly cotton based

with about 65 percent of fabric consumption in the country being accounted for by

cotton. India can envisage its textile sector becoming $100b industry by 2010. This

will include exports of $50b.

India: One-Stop Solution to Textiles Sourcing

Second largest producer of textile and man-made fiber/yarn.

Second largest produce of Jute contribution 65% to the world.

Second largest produce of silk contribution 19% of the world.

Third largest produce of cotton fiber accounting for15% to the world.

Third largest produce of cotton fabric.

Fifth largest produce of cotton fabric/yarn.

Contributes 23% of the world spindles.

Ministry of finance has added 165 new textile products under duty drawback

schedule. The new products included wool tops, cotton yarn, acrylic yarn, viscose

yarn, various blended yarn/fabrics, fishing nets etc.

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ORGANISATION PROFILE

A) Review of literature on the organization

AN INTRODUCTION

THE NAHAR GROUP

"At Nahar,

excellence is always an ongoing journey

never destination"

The Nahar Group- one of the leading business groups of India came into

existence in 1949 with the initial efforts of three Oswal brothers, Sh. Vidya Sager

Oswal, Sh. Lachman Dass, and Sh. Rattan Chand Oswal. They started a hosiery

factory to manufacture socks only. It was a dynamism vision- hard work,

farsightedness, and co-cooperativeness of Sh. Vidya Sager Oswal that small

factory in the days of II World War bagged a contract from Military.

This was the zoom-up point for the Oswal brothers. On 23 rd June, 1949 the

Oswal hosiery factory spitted into

Oswal Woolen Mills, and

Oswal Spinning and Weaving Mills Ltd.

Sh. Vidya Sager Oswal and Sh Rattan Chand Oswal manage the OWM and

Sh. Lachman Dass headed OS&WM Ltd.

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The initial capacity was 800 spindles. Sh. Vidya Sager Oswal gave a mission

to the company; it was to target three basic needs of Mankind- Food, Cloth and

Shelter, & it was a single minded pursuit of excellence relentless sprit of the

enterprise Nahar group has archived heights of success.

In 1956, the spindle capacity was increased to 2000 and in 1960, a hosiery

unit was attached to OWML and in 1965, the spinning capacity was raised to

12000 a distant memory as the Nahar Group surges ahead to establish itself as a

reputed industrial conglomerate with a wide range portfolio- cotton and woolen

yarns fabric processing, hosiery garments, knitwear sweaters, steel, soaps, sugar,

infrastructure development, information technology.

In the year 1960 the hosiery branch was also attached to OWM. By 1966 the

export market was trapped and during this process Russia was targeted.

It was in 1972 that Mr. Vidya Sagar Oswals vision again came into foreplay

when he concentrates on Backward Integration of the spinning and hosiery unit of

OWM. So a wool combing unit was set up. On the other hand of ROTI part of the

mission four solvent extraction unit two in Ludhiana and two in Madras were set

up.

But unfortunately in 1978 the Darbar brand of vanaspati started incurring losses

due to the inequitable policies of govt. to favor SSIS in this sector. So these

Vanaspati plants and refineries were closed.

The dyeing plant in-housing laboratories etc were also rerouted to make

OWM a composite unit. And at present OWM has a spindle base capacity of

26,248 spindles with other related facilities in house.

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Today they step into the new millennium, those nascent days of 800 spindles

stand up become a distant memory as the Nahar group surged ahead to establish

itself as a reputed and respectful industry conglomerate with a wide ranging

portfolio spinning, knitting, fabrics, processing textile, hosiery, garments knitwear,

infrastructure and information technology. The group include following industrial

company.

Though in many areas Group has achieved market leadership but because of

tough competition it is pulled back to refocus, restructure and realign its corporate

blue print to establish a new and appropriate equation with the new market forces.

It encompass aspiration and consolidates brand equity for the domestic markets

regarding the first groups aggressive and market survey forays have helped, zoom

the export senses contributing to over one third of the present turnover of the

group.

Focusing the second market driven brand extensions pervading to their high

profile and top-line, Monte Carlo has met with resounding success Canterbury

another brand too is not far behind. Both are associated with the woolen Sweaters

and Jerseys.

Today with the brand extension on their mind brand equity as a game plan,

the group board based its range to introduce Monte Carlo cotton garment for Indian

market. To widen the project portfolio the group has recently put two project

spinning unit and denim fabric. The plant will manufacture super fine quality for

inland consumption as well as for export to other country with latest art of

technology in the world.

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In the year the turn over of reach to a new peak at 1800 crore in the year

1999-2000 with a foreign exchange (of Rs 600 crore in it).the group continued

excellence in the export has been recognized by the government as well as the

export council of India and rewarded by several trophies, awards and certifications

by them.

Woolmark Certification on Monte Carlo Products .

Business Super brand Affiliation of Monte Carlo .

More Achievements Monte Carlo and OWM yarns were exhibited as best products at

INTERNATIONAL WOOL SECTRRIAT in INDIA. It has been rated as best in

woolens and fashion.

From 1995 to 1999 Best Exhibited Product by the Wool mark Company

for Monte Carlo woolens.

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NAHAR GROUP OF COMPANIES

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Oswal Woolen Mills Ltd

NAHAR SPINNING MILLS LTD.

NAHAR EXPORTS

NAHAR FIBRES LTD.

NAHAR FABRICS LTD.

OSWAL COTTON MILLS LTD.

NAHAR INTERNATIONAL LTD.

NAHAR IND ENTERPRISES LTD.

NAHAR IND INFRASTRUCTURE LTD

NAHAR SUGAR AND ALLIED IND LTD


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OSWAL WOOLLEN MILLS LTD.

Established in1949, the company is manufacturing all type of blended worsted

yarn, weaving yarns, blankets, Lois ,shawls etc. it also has a facility of wool

combing, low to top converter, acrylic woolen and polyester dyeing and vegetable

oils .The company is proud to have highly popular ,bounded products of knit wear

MONTE CARLO AND CANTERBURY. Company has a turnover of Rs. 225 cr.

The main operations of the company are at Ludhiana. The OWM Ltd. Is a flagship

company of Nahar group OWM LTD. is a name of reckon with, both in the

domestic and international markets research and today the company boasts North

Indias most sophisticated laboratory approved by the INERNATIONAL WOOL

SECRETARIAT (IWS) and is authorized to act as a quality checking center for

other manufactures.

OSWAL COTTON MILLS LTD.

The company was add to groups fleet in October 1989 .It is also an ISO9001

certification holder company manufacturing 100% acrylic, mlange, industrial and

100% EOU unit .Company has a capacity of 55000 spindles. The companys total

turnover is Rs. 120 crores including exports of Rs.15 crores.

NAHAR SPINNING MILLS LTD.

Established in December 1980, the company is now as ISO 9002 certificate holder

company .it is engaged in manufacturing of all type of cotton, acrylic and blended

yarns, as well as knitted fabrics and garments. The company has spindle age

capacity of 66200 spindles including 100% EOU and a full-fledged dyeing unit.

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The companys turnover is around Rs. 398 crores including exports of over Rs. 190

crores.

NAHAR EXPORTER LTD.

Established in November 1988, the company is also an ISO 9002 certification

holder with manufacturing of 100% cotton and polyester cotton yarns. The

companys turnover is Rs. 246.77 crores including of exports of Rs. 217.13 crores.

Company also has 100% EOU / cotton yarns. The companys turnover is Rs.

246.77 crores including of exports of Rs. 217.13 crores. Company also has 100%

EOU.

NAHAR FIBER LTD.

The company was added to groups fleet in October 1989 .It also an ISO 9002

certification holder company manufacturing 100% acrylic, and 100% cotton yarns.

Company has also 100% EOU unit. Company has a capacity of 55000 spindles.

The companys total turnover is 174.20 crores including exports of Rs. 45.31crores.

NAHAR INTERNATIONAL LTD.

The company was incorporated in June 1990. The company has Electric Ace

Furnace manufacturing capacity of 100000MT p.a. and a steel rolling capacity of

85000MT p.a. The company is manufacture of round, square and flat stainlesssteel. In its spinning capacity unit, it is producing regular and high bulk acrylic

cotton yarn in dyed grey forms. It has its full fledged dyeing unit. Spindles age

capacity is about 100000 spindles. Company is also having 100% EOU .The

companys turnover is Rs. 322.03 crores including of exports turnover of Rs.

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18.18crores. Works of the company are located at Ludhiana. Bhiwani and near

Chandigarh at Lalru.

NAHAR INDUSTRIAL ENTERPRISES LTD.

This company was incorporated in September 1983 and is manufacturing Edible

oils, Toilet soap, fatty acid, citric acid. Glycerin Oxygen gas and solvent. Extracted

Rice oil and Vanaspati. The company is also engaged in manufacturing of 100%

EOU. Company has spindle capacity of about 25000 spindles. The works of the

company are located at Village Jalaldineal near Raikot and at Lalru near

Chandigarh in Punjab and other operations are near at Ludhiana.

NAHAR SUGAR & ALLIED INDUSTRIES LTD.

The company was incorporated in February 1993. Mr. Kamal Oswal heads it.

Moreover, are manufacturing white crystal Sugar, molasses, and baggage? The

companys turnover is Rs. 48.62 crores. The works of the company is located at

Amloh near Khanna in Punjab and other operations are at Ludhiana.

GROWTH CHART- FEATURES

1. Total number of units 9.

2. Group turnover is Rs. 2254 crore in 2007.

3. Export Market: U.S.A., United Kingdom, Germany, Russia, Japan,

Australia, New Zealand, Holland, Thailand, Hong Kong, Singapore, Taiwan, South

Africa, Canada, Egypt, Israel and Bangladesh.

4. No strike/accident situation and near zero staff turnover.

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5. Important brand names are MONTE CARLO and CANTERBURRY

OWM were the proud recipient of the Best exhibited Products award from the

international wool Secretariat for these two glamours brands.

6. Product portfolio: Spinning, knitting, fabrics processing, hosiery garments,

knitwear, sugar, infrastructure development and information technology

7. COTTON COUNTY is there emerging ready to wear Brand.

8. Beyond their professional portfolio lies the human group that has always

been deeply enriched in social upliftment at every level like

Jawahar Lal Oswal public charitable Trust

Mohan Dai Oswal Memorial Hospital

GROWTH CHART- ACHIEVEMENTS

The group has also achieved excellence in exports which has also been recognized

by the export council as well as the govt. of India by bestowing several export

rewards and trophies such as:

1. First gold trophy in global exports in 1989.

2. First silver trophy in hosiery exports in1990

3. Export award consecutively for five years (1989 to 1994) for exports of

woolen hosiery garments.

4. International award for excellence performance in exports in 1993.

5. Silver trophy for 2nd highest export performance in 1998 -1999.

6. ISO 9002 received in 2001.

7. NAHAR EXPORTS LIMITED, is the recipient of Best Exporter for the

year 2002-03

8. Also NIEL, GARMENT UNIT is the recipient of State Level Safety Award.

9. Exports to high Quality conscious countries like USA, UK, Germany,

Russia, Japan, Australia, New Zealand, Holland, and many more.

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10. They have successful launched a world-renowned famous brand MONTE

CARLO & CANTERBURY in the sector of T-Shirts, Thermals and Cotton

collection.

Due to its excellent export performance the company continues to enjoy the status

of GOLDEN TRADING HOUSE. The export performance has also enabled

the company to win two trophies for non quota category and the second one

SILVER TROPHY for highest export of cotton yarn in non quota category.

B) COMPANY PROFILE

i) Review of Literature

At OWM, Even the Word

Impossible

Says

Im Possible.

The founder of this organization was Lala Vidya Sager Oswal who hasbrought the entire empire of Oswal. He started his life as a Home-maid servant, he

even used to give physical aid to his employer, and his salary was Rs.18 in 1924.

He was dynamic and was having the quality of Farsightedness.

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He wanted to achieve something in his life so with the initial efforts of he

himself and his brothers Sh Lachman Dass Oswal and Sh. Rattan Chand Oswal, he

started a hosiery factory to manufacture socks only. It was his hard work that his

small Oswal hosiery factory in the days of II World War bagged a contract from

Military.

This was the zoom-up point for the Oswal brothers. On 23 rd June, 1949 the

Oswal hosiery factory spitted into Oswal Woollen Mills, and Oswal Spinning and

Weaving Mills Ltd.

Sh. Vidya Sager Oswal and Sh Rattan Chand Oswal manage the OWM and

Sh. Lachman Dass headed OS&WM Ltd. By the time of Jawaharlal Lal, the

present day owner of OWML, the group has already done five splits. It was in

1993 that after year of infighting Mr. Jawaharlal Lal Oswal split up form his father

Mr. Vidya Sager Oswal taking with him the groups choices companies OWML,

Oswal Fats and Oils, Punjab Comcast, Nahar Fibers and Nahar Exports.

This was called Nahar Group, which at present constitutes nine companies

viz. OWML, Nahar Spinning, Nahar Export, Nahar sugar, Nahar Industry

Enterprises Ltd, Nahar International, Nahar Fibers, Nahar Ind. Infrastructure, and

Nahar Fabrics and is headed by Mr. J.L Oswal. Today the turnover is more than Rs

2250 Crores.

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SEASONS

There are mainly two seasons viz.,

PEAK SEASON: - June to December.

LEAN SEASON: - January to March.

ii) Historical Analysis

HISTORY OF OWM

From 1949 when small hosiery factory was incorporated into a Public Limited

Company, to the present day, constant upward growth has symbolized the charter

of a company called Oswal Woolen Mills Limited. From starting out with 800

spindles to 17200 spindles today, from simple hosiery items to high value added

items like designer knitwear, from a turnover of Rs. 165 laces in 1965 to Rs. 181

crores in the year ended 31.3.2000 all these are no mean achievements, and what

made them possible in so short a time is nothing but a miracle that combinedbrilliant market insight with diversification.

As the company progressively increased spindlage to 2000 in the year 1960,

it had already established a market for itself in the areas of hosiery knitwear &

textile fabrics like blankets and shawls etc. Very soon, it became the first Indian

exporter of woolen garments to Russia and shortly after in 1972, the company set

up its OWM Wool combing Unit the first of several backward integration

measures. Soon began the in house processing for the Woolen Division. With

increasing capacity & demand for its products, Oswal Woolen Mills Limited soon

became a name to reckon with, both in the domestic & international markets.

Research & Development also received focused attention & today the Company

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boasts of North Indias most sophisticated laboratory, approved by the

international wool Secretariat (IWS)& is even authorized to act as a Quality

Checking center for other manufacturers.

Today OWM is the flagship company of the glorious Nahar Empire and a

proud owner of widely loved Super Brand in Knitwear, Monte Carlo and

Recognized Super Brand Canterbury. The product range include diverse types of

Woollen, Acrylic and Synthetic Blended Yarns, Lambs Wool Yarn, Woollen

Viscose & Acrylic Tops, Textile Fabric, Woollen Knitwear, Hosiery & Cotton

Garments.

Recently an ultra modern Lambs wool & Angora Spinning plant has been set

up, of which more than 50% manufacturer is for captive consumption. The balance

meets the requirements of other hosiery knitwear exporters in India. Further a

modernization cum balancing program has been introduced to upgrade its capacity

for manufacturing garments & fabrics for various Government & Defense

departments. In woollen hosiery segment, company start the operations with

import of raw greasy wool mostly from Australia and our products include various

types of specialty yarns, such as, worsted woollen yarn, lamb wool yarn, acrylic

yarn, various types of wool based blended yarn, fancy yarn, hand knitting yarn and

knitted and hosiery garments etc. company subsequently added cotton garments to

our existing product portfolio during Fiscal 2002, which we outsource as per our

requirements and sell under our own brand name. Since March 2006, we have

started manufacture of indigo dyed specialty denim fabric, which has added to our

existing vast range of product portfolios. Currently, we are employing over 4,500

persons and our present manufacturing. Facilities include 26,248 spindles to

manufacture worsted woollen yarn besides machines for weaving, knitting, dyeing

and finishing. Presently, our manufacturing facilities are producing approximately

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2.5 million lbs of wool tops per annum, 750,000 pieces of readymade knitted

garments per annum and 10 million meters of denim fabric per annum.

We are the registered owners of well-known trade name Monte Carlo for

selling our woollen hosiery and cotton garments. Monte Carlo has been

recognized as a Super brand for woollen hosiery garments since Fiscal 2003 by

International Society for Super brands. Our distribution channel comprises of a

mix of Monte Carlo Exclusive Brand Outlets, network of national chain stores

and multi brand outlets. Today, Oswal Woolen Mills Limited is a company that

owes its strength in the market & financial solidity to the foresight of its Chairman,

Jawahar Lal Oswal, the professional inputs of the Board of Directors and able them

of Managers. A closely knit team that keep close to them a formula of tremendous

success.

iii) Management Structure

LIST OF BOARD OF DIRECTORS

Mr. Jawahar Lal Oswal Chairman-Cum-Managing Director

Mr. Amarjeet Singh Director

Mr. Dinesh Oswal Director

Mr. Kamal Oswal Director

Mr. Sandeep Jain Executive Director

Mr. Dinesh Gogna Executive Director

Dr. (Mrs.) H.K. Bal Additional Director

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Mr. O.P. Sahni Additional Director

Mr. K.S. Maini Additional Director

Dr. Suresh Kumar Singla Additional Director

A team of highly qualified, experienced, and professional managers from

various fields assists the Board of Director; Mr. J.L.Oswal is the Chairman-Cum-

Managing Director of the company. He is the B.Com Hons, belongs to illustrious

Oswal family, and has inherited high business sense from his ancestors. Other

directors also are well-experienced persons with high business sense.

Unfortunately, despite of their global ethos, the group is still not convinced about

the needs to professional .The management of its companies, strategic planning,

strategic central and treasury management is still in the hands of the family.

Although the group is building a professional team to take them in to next century,

much of the transformation is seen only at Fier-2 of the management.

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iv) Brands

THE WORLD OF

MONTE CARLO & CANTERBURY

KNITWEARS

MONTE CARLO

(Its the way you make me feel)

There is no other place that is exclusive and a trend-setter like Monte Carlo,

situated on the Rivera, 18 Kilometers E.N.E of France.

There you can see the latest in Fashion Courtesy of the rich and famous. You will

find the same class and luxury in our Scottish Lambs and Australian Merino

Wool.

To ensure an exquisite degree of softness, the wool, which comes from

pedigree Australian Lambs, and Sheeps, is selected and when placed in the hands

of European designers, this exclusive quality wool is transformed into a collectors

item calledMonte Carlo.

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CANTERBURY

(Soft and sensual woolen wear)

It is whisper lite yet incredibly warm goes into it is appealing exclusive cash wool

and skilled fingers weave the yarn into exquisite shapes and patterns, thus

breathing life into designer dreams. Canterbury garment is a promise of warmth

and fascination forever.

C) PRODUCT PROFILE

PRODUCT PROFILE OF OWM: -

A. Wool / acrylic top

B. Yarns

i. Weaving yarns

ii. Hand knitting yarns

iii. Hosiery yarns

C. Textile fabrics

i. Blankets

ii. Scarfs

iii. Gents Lohis

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iv. Woolen shirting (only for defence)

v. Shawl

vi. Woolen suiting

D. Hosiery knitwear productsi. Lady cardigans

ii. Pullovers

MONTE CARLO and CANTERBURY are popular brands of international

quality are segments of OWMs product.

The various types of yarns given below are produced in the range of NE 10 to 40

for application in knitting & weaving. Single and TEO double in the Grey form.

YARNS

A) Cotton yarns

100% cotton yarn both carded & combed.

Blended yarn- Acrylic/Cotton, Cotton/Viscose and Cotton/Acrylic.

Mlange yarn-Polyester/Cotton, Cotton/Viscose and Cotton/Acrylic.

100% Acrylic yarn- Both from wet and dry spun acrylic fibers.

Industrial yarn-Type Cord and Carpet TFO multifold ply.

B) Worsted Yarns

Woolen woolen, woolen, and Acrylic blends

C) Dyed Yarns

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They are also manufacturing dyed yarns. Fiber dyed and yarn dyed cottonAcrylic /Cotton and Polyester/Cotton

D) Fancy Yarns

Manufactures of various types of fancy yarn on SAURFR ALLMA

FABRIC

Grey dyed-100% cotton and polyester/cotton

Knitted and Weaving

Rib Jacquard, Fleece, P.K. sheering, Velour, Single jersey and sinker

Plain-woven twills, Drills, Satin, Poplin, and Mats

GARMENTS

A) Woolen

Under woolen they are manufactures of renowned MONTE CARLO andCANTERBURY range of woolen knitwear i.e. Pullovers, lady cardigans andall types of woolen garments.

B) Cotton

Shirts, t-shirts for internationally known brands like GAP, REEBOK,KOSUGI, SUN MARINO, MIZUNO, CARDIN and CHESTER FIELDMFG CORP. (CMC)

They are also producing Woolen/Acrylic Blankets, mens Lohis &shawls.

STEEL

Alloys, Round and Stainless Steel, Round, Square and Flats.

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VEGETABLES

Edible oils, Soaps, Fatty Acid, Glycerin, Oxygen Gas, Solvent Extracted RiceBran Oil. & Vanaspati.

EXPORT MARKETS

Argentina, Brazil, China, Columbia, Chile, Czech Republic, Israel, Lebanon,

Lithuania, Poland, Portugal, Peru, Turkey.

Competitors and Market Analysis

MAJOR COMPETITORS OF OWM

Woolen products

The textile and apparel industry is highly competitive. No single company

dominates the industry. OWM seek to compete in the domestic and export markets

on the basis of the price, range, quality of their products, delivery times and

customer service capacities. In the woollen hosiery garments range, which is sold

under brand Monte Carlo they do not have any significant competition and enjoy

brand loyalty from their customers.

Major competitors in pullovers and cardigans

o CASABLANCA

o PRINGLE (SCOTLAND)

Competitors of woolen/blended worsted yarn business

Vardhman Textiles Limited

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Jayshree Textiles Limited

Malwa Cotton Mills Limited

Cotton Garment

As regards their branded woven garments primarily cotton shirts and

trousers, they are new entrant in already highly competitive market. They face

competition from many established domestic as well as international brands.

However, the woven cotton textile industry is highly competitive

and no single company dominates the industry. They seek to compete in the

domestic market on the basis of the price, range, and quality of our products, brand

name and our delivery times.Competitors of their Denim Fabric

Arvind Mills Limited , Aarvee Denims Limited, Raymond Limited.

vii) S.W.O.T Analysis

Strengths of the company

1. (Farsightedness of the chairman MR. Jawahar Lal Oswal)

2. Extensive Experience of our Promoters

3. Good brand equity

4. Many persons are working here for more than 50 yrs. This shows commitment

of employees towards their org.

5. Strong dealer network, mutual relations with them.

6. Good training programs by OWM for their employees.

7. Member of wool mark and ISO 9002

8. Automated machines of latest technology

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9. Exclusive designs, good texture and fabrics.

10.Premium range of pullovers manufactured by them which no other co.

produces.

11.Research and Development department

12.Laboratories for testing the quality of the product

13.Exports rising every year

14.Imported yarn from ITALY for premium range

15.The Landed Properties in Gurgaon and Chennai

16.Quality Standards

17.Cost control

Weakness of the company

1. Lack of professionalism

2. Long hierarchy

3. Structure of departments is not fully professional

4. OWM is dependent upon foreign producers for greasy wool.

5. Depend on the third party for sale and the distribution of the product.

6. Expanding the Monte Carlo product range to make it an All Season Brand.

Any inability in repositioning the brand may adversely affect our business.

7. Operating in a highly competitive and fragmented industry.

8. Operations are subject to a variety of environmental laws and regulations

including those covering hazardous materials.9. Risks relating to the price volatility in the import of wool.

10.Risks in relation to outsourcing of cotton segment of the Monte Carlo Products

11.Poor after sales services

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Internal Risk Factors

1. Dependent upon foreign producers for greasy wool. Any interruption in the

supply of quality

2. Import all wool requirements, mainly from producers in Australia and New

Zealand. In addition also import wool from producers in South Africa and a

minor portion from United States of America.

3. Depend on third parties for significant elements of sales and distribution efforts.

4. Expanding Monte Carlo product range to make it an All Season Brand

which is very risky.

5. The success of business is substantially dependent on retaining the services of

key management

6. Personnel and attracting talented professionals. The loss of the services of any

of these persons may adversely affect our business and results of operations.

7. If the number of multi brand outlets and national chain stores continue to

increase or consolidate, Business could be negatively affected

8. Face risks in relation to outsourcing of cotton segment of the Monte Carlo

Products.

9. High working capital requirements.

OPPURTUNITIES

1. With booming retail sector and big players like WALMART, BHARTI enteringinto that field, OWM is also stepping ahead with a mission of opening up of150 retail outlets all over India under a brand name MONTE CARLO.

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2. Fabrication for various companies likes NIKE, MARKS AND SPENCER,GAP, WILLS, etc.

3. Manufacturing of kids garments

4. Best quality goods, can quote for best selling price

5. Expanding the business in Finance sector

6. Oswal can always liquidate stock pressure by slight reduction in prices

7. As brand image is very good and production base is too wide, Oswal can havegood and large amount of customers with whom direct business can beestablished, but with little bit of difficulty as the Oswal will have to better the

quantity and regularity of sales

THREATS

1. Mushrooming and upcoming of small hosieries in Ludhiana

2. Seasonal demand for their major product i.e. pullovers

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ANALYSIS OF WORKING CAPITAL FROM DIFFERENT

ASPECTS

1. COMMON SIZE STATEMENT OF THE UNIT

(Rs. Lacs)

Particulars 2007 %age 2006 %age

Current Assets:

Inventories 11483.13 57.4 9450.95 62.60

Sundry Debtors 4908.57 24.6 4145.89 27.5

Cash & Bank balance 556.21 2.8 101.61 .67

Loan & Advances 3011.71 15.06 1404.81 9.3

OTHER Current Assets 30.8 .15 0

19990.43 100.00 15103.29 100.00

Current Liabilities:

Creditors 7333.45 49.5 5448.32 47.65

Other Liabilities 1567.22 10.57 979.67 8.6Accrued expenses 1.14 .007 1.4 0.012

Provisions and loans 5920 39.94 4903.91 42.9

Total CurrentLiabilities

14821.8 100.00 11433.30 100.00

Thus we see from the common size statement that main components of current assets

are Inventories and Loans & advances. The share of inventories in 2006 was 62.60%

but now it decreased to 57.4% in 2007, which shows large sum of money has been

blocked in inventories. And 76 % of the Loans and advances comprise ofAdvances

made to directors of the company and 20.13% represents advance income tax paid.

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Current liabilities on other hand majorly comprise of creditors. The share of

creditors in total current liabilities was 47.65% in 2006 which has increased to

49.5% in 2006.

2. SCHEDULE OF CHANGES IN WORKING CAPITAL

Thus we see from the above table that the inventory has increased by 21.5% in 2007

from 2006. And further we know that, as discussed earlier, major portion of total

inventory is comprise of raw materials. The main factor of having large raw material

inventory was that the wool has to be imported from Australia. The company has done

cost-benefit analysis regarding storage cost etc. The cash and bank balances have

increased by 447% in 2007 from 2006. The main reason for such a sharp increase was

due to opening up of new showrooms where sales are done on cash basis and increase

in fixed deposits which they give for security purpose to banks. The creditors have

increased by 34.6 in 2007 from 2006 mainly due to sharp increase in amount

PARTICULARS 2007 2006Increase/Decrease(in Rs.)

Increase/Decrease

(in %)

Current assetsInventories 11483.13 9450.95 2032.18 21.5%

Sundry debtors 4908.57 4145.89 762.68 18.4%

Cash & Bank 556.21 101.61 454.6 447.39%

Loan & Advances 3011.71 1404.81 1602.9 114%Other Current Assets 30.8 0 30.8 -Total Current Assets (A) 19990.43 15103.29 4887.14 32.35

Creditors 7333.45 5448.32 1885.13 34.6%

Other liabilities 1567.22 979.67 587.55 59.97%

Accrued expenses 1.14 1.4 (.26) (18.57%)

Provisions 5920 4903.91 1016.09 20.71%

Total Current Liabilities

(B)

14821.8 11433.30 3388.5 29.64%

Working Capital

(A-B)

5168.63 3669.99 1498.64 40.5%

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outstanding to S.S.I Undertakings.The Provisions and loans have increased by 20.71%

in 2007 from 2006, resulting in the net working capital of Rs 5168.63 lacs, an

increase by a meager 40.5% from the previous year.

3. WORKING CAPITAL

(Rs. In 00000)

Particular 2007 2006 2005

Total current

assets

19990.43 15103.29 16793

Total current

liability

14821.8 11433.30 12115

Net working

capital

5168.63 3669.99 4678

56

0

1000

2000

3000

4000

5000

6000

year 2005 2006 2007

working capital

working capital


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It is clear from the above graph that net working capital of OWM is increasing

consistently over the period of 2003-05 but it has decreased for the period 2005-06

and again in 2006-07 it has shown an increase.. It is because of the expansion plans of

the company. Still the company is in their expansionary phases which will results into

more working capital in the coming years.

1. OPERATING CYCLE ANALYSISIn order to understand the length of time which reports are committed to various components of

working capital, operating cycle analysis has been done. The operating cycle of a firm begins with

the acquisition of raw material and ends with the collection of receivable. There are four aspects of

operating cycle, which involves commitment of resources, a material stage, and accounts finished

stage.

But here in OWM, the operating cycle involves the period of conversion of raw material into

work in process; work in process into finished goods and finished goods into sale. As OWMs

policy is to sell on cash basis, they hardly have any Accounts receivables IN FINISHED

GOOD, but OWM sells yarn at 45-60 days credit period. And also, they have to purchase the

raw material i.e. wool on credit l/c basis for a period of 180 days from the international

market, so there is large amount of Accounts payable.

OPERATING CYCLE OF OWM

Operating Cycle 2003 2004 2005 2006 2007

Raw MaterialConversion Period

37.60 44.88 52.68 117.07 183.85

Work in ProgressConversion Period 11.17 13.19 16.04 13.09 13.83

Finished Goods 20.87 32.26 42.74 24.13 30.18

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Conversion Period

Operating Cycle 69.64 90.33 111.46 154.30 227.86

The operating cycle of OWM is increasing year by year, as it is clear from the above table. It is

important to note here is that it is the raw material conversion period which has increased

almost 5 folds from 2003 to 2007, forcing the overall operating cycle of OWM to increase.

As it is said earlier, the company has to store around 6 months of raw material i.e. WOOL,

since its a seasonal crop, in its peak season for steady production run throughout the year.

The company has a steady production cycle ranging from 1 month to 1.5 months throughout

this period.

2. RATIO ANALYSIS

A ratio is an arithmetical relationship between two figures. Financial ratio analysis is a

study of ratios between various items or group of items in financial statement,

turnover ratios have been used for analysis. Ratio analysis is the powerful tool of

financial analysis of accounting data. The relationship of the figures should be

meaningful. Financial analysis & ratio is used as an index or yardstick for measuring

performance of the firm.

Working capital is that part of total capital which is important in current assets, to get

better insights about the working capital position of the OWM, it is better to utilize

ratio analysis. To analyze the working capital position I shall here interpret the

following ratios of OWM for 2 consecutive financial years 2005-06 and 2006-07.

1. Liquidity Ratio

a) Current ratio

b) Quick ratio

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2. Activity Ratios

a) Current asset turnover ratio

b) Working capital turnover ratio

3. Inventory turnover ratio4. Inventory to working capital ratio

1. LIQUIDITY RATIOS: The liquidity aspect is essential for both the creditors as well

as management of a business enterprise. These ratios are used to judge a firms ability

to meet short term obligations. From them much insight can be obtained to present

cash solvency of the firm and its ability to remain solvent in the event of adversities.We wish to compare short-term obligations with the short-term sources available to

meet these obligations.

a) Current ratio: - The current ratio is very popular financial ratio measure as the ability

of the firm to meet current liabilities. Current assets are converted into cash for the

payment of current liabilities. Apparently higher the current ratio the greater the short

term solvency, Current ratio of MIL can be shown as under: -

Current Assets_ _

Current Liabilities

Table showing the Current Ratio

(Rs Lacs)

Particulars 2007 2006

Current assets 19990.43 15103.29

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Current Liabilities 14821.8 11433.30

Current ratio 1.35 1.32

A current ratio of 1.33:1 is generally considered satisfactory. The current ratio of theunit is much in line with the recommended and it ensures the payment of dues in time.

b) Quick ratio: - Although current ratio is a valuable indicator of liquidity yet it may

lead to misleading conclusion, in case of inventories forms a major component of

current assets, the quick ratio is a fairly stringent measure of liquidity. It is based on

those

Current assets which are the highly liquid or which are easily converted into cash.

Inventories and prepaid expenses are excluded from this category, because these are

the best liquid component of and has the ability to pay its current liabilities in time

when these are due, the ratio may be expressed as:-

Liquid assets

Current liabilities

Table showing the Quick ratio

(Rs. Lacs)


Quick assets 8507.3 5652.34Current Liabilities 14821.8 11433.3

Quick ratio 0.57 0.49

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The rule of thumb for quick ratio is 1:1. The ratio of the company is much less than

this. It shows risk on part of creditors to get the return. The ratio is falling

considerably. It is because of the fact that a large portion of current assets comprise of

inventories, a not so liquid asset.

2. ACTIVITY RATIOS : The funds of creditors and owner are invested in various kinds

of assets to generate sales and profits. Activity ratios measure how efficiently the firm

employs the assets. These ratios are based on the relationship between the level of

activity, represented by sales and level of various assets. The important turnover ratios

are:

a) Current assets turnover ratio: The idea of the current assets turnover is to ascertain

the contribution of the current assets to sales. The relationship indicates efficiency or

otherwise of the utilization of current assets to attain the maximum sales. It is a

relative measure as it is compared with previous year. Lower ratio tells us that the

company is employing more current assets for a given level of sales and vice-versa,

the ratio may be expressed as:-

Sales

Current Assets

Table showing current assets turnover ratio

(Rs. Lacs)


Sales 32308.31 24737.58

Current assets 19990.43 15103.30

Turnover ratio 1.62 1.64

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Thus current assets are contributing 1.62 times to sales in 2007 as compared to 1.64

in 2005, which shows the firm adopts the policy of high current assets.

b) Working capital turnover ratio: Net working capital turnover

ratio indicates the velocity of the utilization of working capital. A higher ratio

indicates the effective utilization of working capital and a low ratio indicates

otherwise, the ratio may be expressed as on the following page:-

Sales

Net Working Capital

In the OWM, working capital turnover ratio can be made through following table: -

Table showing working capital

(Rs. Lacs)


Sales 32308.31 24737.58Net working capital 3693.63 3669.99

Working capital turnover ratio 8.75 6.74

The above table shows that the net working capital turnover ratio of the unit is

increasing which means better utilization of funds by the company this year than the

previous year.

3. Inventory turnover ratio is calculated earlier in operating cycle.

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4. Inventory to working capital ratio: It may be defined as the relationship between

inventory and working capital. Here working capital is taken as Net working capital.

Inventory to working capital ratio:

InventoryWorking capital

Table showing inventory to working capital ratio

(Rs. Lacs)


Inventories 11483.13 9450.95

Working capital 3693.63 3669.99

Inventory to working capital ratio 3.11 2.58

The Above table shows that with the increase in Inventories as compares to year 2006,

there is increase in working capital too. As the ratio is more than 1:1, this implies that

there is insufficient working capital available to finance inventories.

3. INVENTORY MANAGEMENT

Inventories form a link between production and sales of a product. Inventories

consisting of raw materials, work-in-progress, and finished goods represent a

significant portion of total assets. 50-60% of the total current assets in Oswal Woollen

Mills Limited (OWM) are constituted by inventories. Because of the substantial

investment in inventory, the inventory management of the firm is highly crucial for

the successful management of its working capital.

Finished goods inventories are completely manufactured products that are ready for

sale. Stock of raw materials, work in progress facilitates production, while stock of

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finished goods is required for smooth marketing operations. Thus, inventories serve as

a link between the production and consumption of goods. The levels of three of these

inventories depend upon the nature of the business. A manufacturing firm will have

substantially high level of all the three kinds of inventories.

Textile companies like OWM having seasonal raw material i.e. Sheep wool, imported

largely from Australia, so has to store large amount of it. On the other hand,

inventories of consumer Product Company will not be large because of short

production cycle and fast turnover.

A fourth kind of inventory, company also maintains is Stores and spares. It includeoffice and plant cleaning materials, oil, fuel, light bulb and the like. These materials

do not directly enter production but are necessary for production process.

Usually, these Stores and spares are small part of the total inventory and do not

involve significant investment. Therefore, a sophisticated system of inventory control

may be maintained for them. The advantages of increased inventory are several but it

has a side i.e. a large amount of funds might be blocked in inventory and would alsorequire holding, handling charges, and other risks which the finance manager has to

look into, are price fluctuations and consumer rates. In dynamic industries the finance

manager also must take the threat of obsolescence into consideration.

Inventories should be increased as long as resulting savings exceed the total cost of

holding the additional inventory. This balance requires coordination between

production, marketing and finance areas of them.

VALUATION OF INVENTORY

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The value of material has a direct bearing on the income of a concern, so it is

necessary that a method of pricing materials should be such that it gives a realistic

value of stock.

There are various methods which are followed by financial management for the

valuation of raw material like FIFO, LIFO, average price method, weighted average

method, standard price method, market price method.

In OWM Ludhiana, they use the Weighted Average Method for valuation and pricing of

inventory. They use the software INGRESS whereby all the data is fed online which generates

monthly consumption report and stock valuation.

TOOLS & TECHNIQUES OF INVENTORY MANAGEMENT

A proper inventory control not only helps in solving the acute problem of liquidity but

also increase profits and causes substantial reduction in the working capital of

concern.

Various tools and techniques are present in financial management like A.B.C.

analysis, VED analysis, just in time, Lead time, etc. for measuring the effectiveness of

inventory.

OWM uses empirical analysis mode as inventory analysis technique. OWM does not do its

production on the basis of demand i.e. they produce on continued basis. So they store inventory on

the basis of annul requirements i.e. they are very well conversant with the level of inventory to be

stored for the given level of production.

BUFFER STOCK

As OWM Ludhiana does its production on the base of regular basis i.e. operating

production so, they maintain its buffer stockat a higher level.

PURCHASES RELATED TO INVENTORY

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OWM Ludhiana purchases most of its chemical from Sandows, BSF, ICI etc in the

domestic market and imports from Wonderful Company of China. This chemical is in

the liquid and as well as in solid forms. Most of the imports are through Letters of

Credits and so their payments periods are pre-determined.

OWM LTD Ludhiana purchases more than 65% wool from Australia and rest 35%

from South Africa, Russia, Argentina and United States Of America etc. MIL has

storage areas in its own warehouse facilities in the unit itself.

It sources its raw material inventory through its own in house operations which work

regularly on this activity which helps in saving a lot of money and time.

Cotton is the other component which is used as a raw material. OWM sources its

cotton requirements from within Punjab as well as outside Punjab from Haryana and

Rajasthan etc. depending upon the requirements of fabric quality.

All the sourcing is made through material dept which is located at OWM head office

in Ludhiana.

SYSTEM OF SOURCING

1. First, the user raises the indent.

2. Then, that Indent is sent to the stores dept.

3. Stores dept. checks the item in inventory, if available, then provides and maintains the

re-order level and sends the requisition to purchase.

4. Purchase dept. sources it after costing and getting quotations from different suppliers.

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CASH MANAGEMENT

Cash management is related to the inflows and outflows of the cash of firm, cash

balance held by the firm, receipt and payment system of firm, cash budget, cash

forecasting techniques.

RECEIPT SYSTEM

1. The firm uses CMS (Cash Management Service) offered by its bankers for collections

within the country.

2. Firm has its tie-up with two banks for its collections. These banks are HDFC, and

ICICI BANK.

3. HDFC AND ICICI does not charge any charges for this service from OWM Ludhiana.

4. Due to credit of outstation cheques in two or three days clearing, it reduces its

financial cost significantly.

The customers also feel easy to make advance payments through CMS facility as they

have to arrange for the payment at their site only instead of sending it to head office of

OWM.

OWM has online internet banking of the following banks:

a) State Bank of Patiala

b) HDFC

c) ICICI

With availability of online internet banking, it can efficiently monitor its cash flow

and without much dependence on banks.

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PAYMENT SYSTEM

a) OWM Ludhiana has a multi city cheque booksystem for its payment system. It hasat par facility for all out station creditors. Creditors are also happy to get prompt

credit of payments done by OWM. With at par facility cheques for all outstation

payments, better rates are negotiated with the suppliers.

b) With the Real Time Gross Settlement (RTGS), payment system has further

facilitated. RTGS facility is now being offered by almost all the member banks like:

(1) State Bank of Patiala (SBop)

(2) Allahabad Bank

(3) HDFC

(4) ICICI

Allahabad bank offers RTGS facility free of charge whereas SBOP charges only upto

upper cap of Rs. 25/- per transaction. With RTGS, funds are electronically transferred

by one bank to another bank (irrespective of its location in India) on the very same

day.

OWM is required to make payments to various raw material suppliers which are not

covered under at par locations. Since SBop has branches at such remote areas. RTGS

is used to make payments where the supplier gets the credit on same day.

CASH BUDGET AND CASH FORECASTING TECHNIQUES

a) OWM Ludhiana prepares its cash budget on yearly basis.

b) Firms forecasting techniques are based upon its experience and previous budget.

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c) Daily cash flow report is also maintained in the firm.

d) At least 15 lacs floating cash is maintained in the firm for daily transactions.

FINANCING OF WORKING CAPITAL

After a firm has decided upon the level of working capital to be maintained it has to

decide the mode of financing. Financing of working capital:

The sources of finance and form of credit

a) Trade credit

b) Bank credit

c) Current provision of non bank short term borrowings

d) Long term sources comprising equity capital and long term borrowings

At OWM Ludhiana there is primarily two sources for financing of working capital

a) Bank credit (including working capital loan), and

b) Long term sources comprising shareholders fund and long term

borrowings.The first source i.e. Bank credit represent the Working Capital Loan given by

bank to OWM Ludhiana and also has an overdraft arrangement with its banks so

that it can withdraw up to a specified amount of money according to its requirements.

OWM has formed a consortium of four banks for financing its working capital

requirements viz.

1 Allahabad Bank, (Leader) (A Bank)

2 State Bank of Patiala (SBOP), (B Bank)

3 Punjab and Sind Bank (P&S) (C Bank)

4 Punjab National Bank (PNB) (D Bank)

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Presently Company is availing following working capital facilities from the

consortium

(Rs. in crores)

Particulars Allahabad

Bank

SBOP P&S PNB Total

Funds Based 52.80 26.40 8.80 0.00 88.00

Total Funds Based 52.80 26.40 8.80 00.00 88.00

Non Funds Based 48.00 24.00 8.00 00.00 80.00

Total Non Funds Based 48.00 24.00 8.00 00.00 80.00

Term Loans 12.21 113.24 00.00 11.80 137.25

Total W.C. Limits 113.01 163.64 16.80 11.80 305.25

Moreover, it raises ad-hoc short term loans for meeting its cotton stock and yarn

requirements from banks.

Secondly, OWM Ludhiana also finances its working capital requirement from Long

term sources comprising shareholders fund and long term borrowin

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SUGGESTIONS

1. OWM should finance a major portion of its requirement of working capital through

short term sources of finance as they are cheaper than the long term sources. It

is financing a part of its working capital from long term sources of finance as it

is clear from the fixed assets to total long term fund ratio.

2. The Company is not adopting proper inventory systems like A.B.C. analysis,

V.E.D. analysis etc. this inventory system can make the inventory management

more result oriented. Since, inventory covers the major potion of OWMs

current assets; it should be given prime attention.

3. The company should do proper Cost-to-Benefit analysis before purchasing the raw

material i.e. wool for following months in light of its storage cost, current

prices, estimated future prices, further demand etc. along with the opportunity

cost of holding such inventory.

4. The short term liquidity of the firm is not satisfactory as it is clear from the quick

ratio which is 0.26 for 2007. The company should take immediate steps towards its

improvement.

5. The surplus fund of the unit should be invested in some short marketable securities,

rather than providing it to its subsidiary free of cost, to improve profitability

along with liquidity.

6. The company should reduce its Production cycle to decrease its working capital

requirement. It can be done by reducing finished goods conversion period. As

OWM does its production on the job basis, it should not be difficult for the

company to reduce this.

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CONCLUSION

OWM has opted for a moderate overall working capital policy. This suggests that it is

risk averse. It wants a reasonable profit with a reasonable amount of risk. If it goes in

for an aggressive policy the profits generated could be high but accompanied with the

high level of profits will come high level of risk, which they feel is not appropriate.

Since with this policy the profits being generated are substantially high a change in

the working capital policy is not called for.

On analyzing the operating cycle it has been found that the operating cycle has

increased by approx. 48% as that of previous year. The operating cycle can be

reduced to a greater degree by trying to get a reduction in the raw materia

72677585 Oswal Woolen Mills

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