A REPORT

ON

“WORKING CAPITAL MANAGEMENT IN“WORKING CAPITAL MANAGEMENT IN

HCL INFOSYSTEMS LIMITED”HCL INFOSYSTEMS LIMITED”

BY

AakankshaYogita Godara

Vaishali RustagiKamalpreet kaur

1

ACKOWLEDGEMENT

Achievement is finding out what you would be then doing, what you have to do.

The higher the summit, the harder is the climb. The goal was fixed and we

began with a determined resolved and put in ceaseless sustained hard work.

Greater challenge, greater was our effort to overcome it.

This project work, which is our first step in the field of professionalization, has

been successfully accomplished only because of our timely support of well-

wishers. We would like to pay our sincere regards and thanks to those, who

directed us at every step in our project work.

We would also like to thank the faculty members and the staff members of

HCL Info systems Ltd. for their kind support and help during the project.

2

TABLE OF CONTENTS

Acknowledgement

Abstract

1. Introduction The problems Purpose of study Research methodology Scope of the study Data sources Limitations

2. Hindustan Computers Limited3. HCL Infosystems – An Overview

Company’s history HCL at a glance

4. Conceptual Framework Introduction to Working Capital Management Significance of working capital management Classification of working capital Types of working capital needs Financing of working capital Factors determining working capital requirements Working capital cycle Sources of working capital Working capital position Inventory management Cash management Receivables management

3

Financing current assets Working capital & short-term financing

5. Analysis Concluding analysis Suggestions and recommendations Bibliography

6. Appendices

4

ABSTRACT

This project is based on the study of working capital management in HCL

Infosystems. An insight view of the project will encompass – what it is all

about, what it aims to achieve, what is its purpose and scope, the various

methods used for collecting data and their sources, including literature survey

done, further specifying the limitations of our study and in the last, drawing

inferences from the learning so far.

HCL Infosystems Limited (HCL) is a leading domestic computer hardware

services company. HCL is engaged in selling manufactured (like PCs, servers,

monitors and peripherals) and traded hardware (like notebooks, peripherals) to

institutional clients as well as in retail segment. It also offers hardware support

services to existing clients through annual maintenance contracts, network

consulting and facilities management.

The working capital management refers to the management of working capital,

or precisely to the management of current assets. A firm’s working capital

consists of its investments in current assets, which includes short-term assets—

cash and bank balance, inventories, receivable and marketable securities.

This project tries to evaluate how the management of working capital is done in

HCL Infosystems through inventory ratios, working capital ratios, trends,

computation of cash, inventory and working capital, and short term financing.

5

INTRODUCTION

6

The problems

Purpose of study

Research methodology

Scope of the study

Data sources

Limitations

INTRODUCTION:

The project undertaken is on “WORKING CAPITAL MANAGEMENT IN

HCL INFOSYSTEMS LIMITED”.

It describes about how the company manages its working capital and the various

steps that are required in the management of working capital.

Cash is the lifeline of a company. If this lifeline deteriorates, so does the

company's ability to fund operations, reinvest and meet capital requirements and

payments. Understanding a company's cash flow health is essential to making

investment decisions. A good way to judge a company's cash flow prospects is

to look at its working capital management (WCM).

Working capital refers to the cash a business requires for day-to-day operations

or, more specifically, for financing the conversion of raw materials into finished

goods, which the company sells for payment. Among the most important items

of working capital are levels of inventory, accounts receivable, and accounts

payable. Analysts look at these items for signs of a company's efficiency and

financial strength.

The working capital is an important yardstick to measure the company’s

operational and financial efficiency. Any company should have a right amount

of cash and lines of credit for its business needs at all times.

This project describes how the management of working capital takes place at

7

HCL Infosystems.

THE PROBLEMS

In the management of working capital, the firm is faced with two key problems:

1. First, given the level of sales and the relevant cost considerations, what are the

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

choose to maintain?

2. Second, given these optimal amounts, what is the most economical way to

finance these working capital investments? To produce the best possible

results, firms should keep no unproductive assets and should finance with the

cheapest available sources of funds. Why? In general, it is quite advantageous

for the firm to invest in short term assets and to finance short-term liabilities.

8

PURPOSE OF STUDY

The objectives of this project were mainly to study the inventory, cash and

receivable at HCL Infosystems Ltd., but there are some more and they are -

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

The concept “Working Capital Management”.

To understand the planning and management of working capital at HCL

Infosystems Ltd.

To measure the financial soundness of the company by analyzing various

ratios.

To suggest ways for better management and control of working capital at

the concern.

9

RESEARCH METHODOLOGY

This project requires a detailed understanding of the concept –

“Working Capital Management”. Therefore, firstly we need to have a

clear idea of what is working capital, how it is managed in HCL

Infosystems, what are the different ways in which the financing of

working capital is done in the company.

The management of working capital involves managing inventories,

accounts receivable and payable and cash. Therefore one also needs to

have a sound knowledge about cash management, inventory management

and receivables management.

Then comes the financing of working capital requirement, i.e. how the

working capital is financed, what are the various sources through which it

is done.

And, in the end, suggestions and recommendations on ways for better

management and control of working capital are provided.

10

SCOPE OF THE STUDY

This project is vital to us in a significant way. It does have some

importance for the company too. These are as follows –

This project will be a learning device for the finance student.

Through this project we would study the various methods of the working

capital management.

The project will be a learning of planning and financing working capital.

The project would also be an effective tool for credit policies of the

companies.

This will show different methods of holding inventory and dealing with

cash and receivables.

This will show the liquidity position of the company and also how do they

maintain a particular liquidity position.

11

LIMITATIONS OF THE STUDY:

We cannot do comparisons with other companies unless and until

we have the data of other companies on the same subject.

Only the printed data about the company will be available and not

the back–end details.

Future plans of the company will not be disclosed to us.

Lastly, due to shortage of time it is not possible to cover all the

factors and details regarding the subject of study.

The latest financial data could not be reported as the company’s

websites have not been updated.

12

HINDUSTAN COMPUTERS LIMITED:

Type Public

(BSE: 500179,BSE: 532281)

Founded 11th August 1976

Headquarters Noida, India(Delhi metropolitan area), India

Key People Shiv Nadar, Founder, Chairman & CEOSanjay Kumar Choudhary , Vineet Nayar

Industry Information Technology Services

Revenue▲4.7 billion USD

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

Website www.hcl.in

13

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

India's largest electronics, computing and information technology company.

Based in Noida, near Delhi, the company comprises two publicly listed Indian

companies, HCL Technologies and HCL Infosystems.

HCL was founded in 1976 by Shiv Nadar, Ajay Chowdhry and four of their

colleagues. HCL was focused on addressing the IT hardware market in India for

the first two decades of its existence with some sporadic activity in the global

market. In 1981, HCL seeded a company focused on addressing the computer

training industry, NIIT, though it has currently divested its stake in the

company. In 1991, HP took minority stake in the company (26%) and the

company was known as HCL HP for the five years of the joint venture. On

termination of the joint venture in 1996, HCL became an enterprise which

comprises HCL Technologies (to address the global IT services market) and

HCL Infosystems (to address the Indian and APAC IT hardware market). HCL

has since then operated as a holding company.

14

HCL Infosystems – An Overview

15

HCL INFOSYSTEMS LIMITED

AN OVERVIEW ABOUT THE COMPANY

16

Company’s history

HCL at a glance

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

1976, the firm has climbed into pantheon of India's corporate giants on the

strength of its IT products and services. HCL Infosystems specializes in IT

hardware (PC's and servers, as well as networking, imaging and

communications products), and system integration services serving the domestic

Indian market. In addition to its consumer products, the company provides

commercial IT products, facilities management, network services, and IT

security services for clients in such industries as government, financial services,

and education. HCL Corporation owns significant stakes in HCL Infosystems

(about 44%) and sister company HCL Technologies.

HCL Infosystems Ltd, a listed subsidiary of HCL, is an India-based hardware

and systems integrator. It claims a presence in 170 locations and 300 service

centre. Its manufacturing facilities are based in Chennai, Pondicherry and

Uttarakhand .Its headquarters is in Noida.

HCL Peripherals (A Unit of HCL Infosystems Limited) Founded in the year

1983, has established itself as a leading manufacturer of computer peripherals in

India, encompassing Display Products, Thin Client solutions, Information and

Interactive Kiosks. HCL Peripherals has two Manufacturing facilities, one in

Pondicherry (Electronics) and the other in Chennai (Mechanical) .The Company

has been accredited with ISO 9001:2000, ISO 14001, TS 16949 and ISO 13485.

HISTORY

17

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

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

1976

- Foundation of the Company laid- Introduces microcomputer-based programmable calculators with wide acceptance in the scientific / education community

1977

- Launch of the first microcomputer-based commercial computer with a ROM -based Basic interpreter - Unavailability of programming skills with customers results in HCL developing bespoke applications for their customers

1980 - Formation of Far East Computers Ltd., a pioneer in the Singapore IT market, for SI (System Integration) solutions

1983

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

1986

- Zonal offices of banks and general insurance companies adopt computerization- Purchase specifications demand the availability of RDBMS products on the supplied solution (Unify, Oracle). HCL arranges for such products to be ported to its platform.- HCL assists customers to migrate from flat-file based systems to RDBMS

1991

- HCL enters into a joint venture with Hewlett Packard - HP assists HCL to introduce new services: Systems Integration, IT consulting, packaged support services ( basic line, team line )

1994 - HCL acquires and executes the first offshore project from IBM Thailand

18

- HCL sets up core group to define software development methodologies

1995 - Starts execution of Information System Planning projects - Execution projects for Germany and Australia - Begins Help desk services

1996 - Sets up the STP ( Software Technology Park ) at Chennai to execute software projects for international customers - Becomes national integration partner for SAP

1997- Kolkata and Noida STPs set up- HCL buys back HP stake in HCL Hewlett Packard

1998 - Chennai and Coimbatore development facilities get ISO 9001 certification

1999 - Acquires and sets up fully owned subsidiaries in USA and UK- Sets up fully owned subsidiary in Australia - HCL ties up with Broadvision as an integration partner

2000

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

2001-Launched Pentium IV PCs at below Rs 40,000-IDC rated HCL Infosystems as No. 1 Desktop PC Company of 2001

2002

-Declared as Top PC Vendor by Dataquest-HCL Infosystems & Sun Microsystems enters into a Enterprise Distribution Agreement- Realigns businesses, increasing focus on domestic IT, Communications & Imaging products, solutions & related services

2003- Became the first vendor to register sales of 50,000 PCs in a quarter- First Indian company to be numero uno in the commercial PC market- Enters into partnership with AMD- Launched Home PC for Rs 19,999

2004 - 1st to announce PC price cut in India, post duty reduction, offers Ezeebee at Rs. 17990- Maintains No.1 position in the Desktop PC segment for year 2003- Becomes the 1st company to cross 1 lac unit milestone in the Indian Desktop PC market- Partners with Union Bank to make PCs more affordable, introduces lowest

19

ever EMI for PC in India- Registers a market share of 13.7% to become No.1 Desktop PC company for year 2004- Crosses the landmark of $ 1 billion in revenue in just nine months

2005

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

2006

(till June)

- 75, 000+ machines produced in a single month- HCL Infosystems in partnership with Toshiba expands its retail presence in India by unveiling 'shop Toshiba'- HCL Infosystems & Nokia announce a long term distribution strategy- HCL the leader in Desktops PCs unveils India's first segment specific range of notebooks brand - 'HCL Laptops'- IDBI selects HCL as SI partner for 100 branches ICT infrastructure rollout- HCL Infosystems showcases Computer Solutions for the Rural Markets in India - HCL Support wins the DQ Channels-2006 GOLD Award for Best After Sales Service on a nationwide customer satisfaction survey conducted by IDC- HCL Infosystems First in India to Launch the New Generation of High Performance Server Platforms Powered by Intel Dual - Core Xeon 5000 Processor- HCL Forms a Strategic Partnership with APPLE to provide Sales & Service Support for iPods in India

20

WORKING CAPITAL MANAGEMENT

CONCEPTUAL FRAMEWORK

21

Introduction

Significance of working capital management

Classification of working capital

Types of working capital needs

Financing of working capital

Factors determining working capital requirements

Working capital cycle

Sources of working capital

Working capital position

Inventory management

Cash management

Receivables management

Financing current assets

Working capital & short-term financing

INTRODUCTION TO WORKING CAPITAL

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

The working capital management precisely refers to management of current assets. A firm’s working capital consists of its investment in current assets, which include short-term assets such as:

Cash and bank balance,

Inventories,

Receivables (including debtors and bills),

Marketable securities.

Working capital is commonly defined as the difference between current assets

and current liabilities.

WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES

There are two major concepts of working capital:

Gross working capital

Net working capital

22

Gross working capital:

It refers to firm's investment in current assets. Current assets are the assets,

which can be converted into cash with in a financial year. The gross working

capital points to the need of arranging funds to finance current assets.

Net working capital:

It refers to the difference between current assets and current liabilities. Net

working capital can be positive or negative. A positive net working capital

will arise when current assets exceed current liabilities. And vice-versa for

negative net working capital. Net working capital is a qualitative concept. It

indicates the liquidity position of the firm and suggests the extent to which

working capital needs may be financed by permanent sources of funds. Net

working capital also covers the question of judicious mix of long-term and

short-term funds for financing current assets.

23

Significance Of Working Capital

Management

The management of working capital is important for several reasons:

For one thing, the current assets of a typical manufacturing firm account for

half of its total assets. For a distribution company, they account for even

more.

Working capital requires continuous day to day supervision. Working

capital has the effect on company's risk, return and share prices,

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

current assets. The target sales level can be achieved only if supported by

adequate working capital, inefficient working capital management may lead

to insolvency of the firm if it is not in a position to meet its liabilities and

commitments.

24

CLASSIFICATION OF WORKING CAPITAL

Working capital can be classified as follows:

On the basis of time

On the basis of concept

25

TYPES OF WORKING CAPITAL NEEDS

Another important aspect of working capital management is to analyze the

total working capital needs of the firm in order to find out the permanent and

temporary working capital. Working capital is required because of existence of

operating cycle. The lengthier the operating cycle, greater would be the need

for working capital. The operating cycle is a continuous process and therefore,

the working capital is needed constantly and regularly. However, the

magnitude and quantum of working capital required will not be same all the

times, rather it will fluctuate.

The need for current assets tends to shift over time. Some of these changes

reflect permanent changes in the firm as is the case when the inventory and

receivables increases as the firm grows and the sales become higher and

higher. Other changes are seasonal, as is the case with increased inventory

required for a particular festival season. Still others are random reflecting the

uncertainty associated with growth in sales due to firm's specific or general

economic factors.

The working capital needs can be bifurcated as:

Permanent working capital

Temporary working capital

26

Permanent working capital:

There is always a minimum level of working capital, which is continuously

required by a firm in order to maintain its activities. Every firm must have a

minimum of cash, stock and other current assets, this minimum level of current

assets, which must be maintained by any firm all the times, is known as

permanent working capital for that firm. This amount of working capital is

constantly and regularly required in the same way as fixed assets are required.

So, it may also be called fixed working capital.

Temporary working capital:

Any amount over and above the permanent level of working capital is

temporary, fluctuating or variable working capital. The position of the required

working capital is needed to meet fluctuations in demand consequent upon

changes in production and sales as a result of seasonal changes.

27

The permanent level is constant while the temporary working capital is

fluctuating increasing and decreasing in accordance with seasonal demands as

shown in the figure.

In the case of an expanding firm, the permanent working capital line may not

be horizontal. This is because the demand for permanent current assets might

be increasing (or decreasing) to support a rising level of activity. In that case

line would be rising.

28

FINANCING OF WORKING CAPITAL

There are two types of working capital requirements as discussed above. They

are:

Permanent or Fixed Working Capital requirements

Temporary or Variable Working Capital requirements

Therefore, to finance either of these two working capital requirements, we

have long-term as well as short-term sources.

29

FACTORS DETERMINING WORKING CAPITAL

REQUIREMENTS

There are many factors that determine working capital needs of an enterprise.

Some of these factors are explained below:

Nature or Character of Business.

The working capital requirement of a firm is closely related to the nature

of its business. A service firm, like an electricity undertaking or a

transport corporation, which has a short operating cycle and which sells

predominantly on cash basis, has a modest working capital requirement.

Oh the other hand, a manufacturing concern like a machine tools unit,

which has a long operating cycle and which sells largely on credit, has a

very substantial working capital requirement.

HCL Infosystems carry on activities related to computer systems.

Though they are primarily an assembling firm they also have

manufacturing facilities in Chennai and Pondicherry. This requires them

to keep a very sizeable amount in working capital.

Size of Business/Scale of Operations.

HCL is the leader in its segment in both consumer as well as

commercial market share. They have increased their share in the

consumer segment notably in the last four years. This they have

achieved through retail expansion. The scale of operations and the size it

holds in the Indian IT market makes it a must for them to hold their

inventory and current asset at a huge level.

30

Price Level Changes.

Changes in the price level also affect the working capital requirements.

It was the reduced margins in the price of the raw materials that had

prompted them to go for bulk purchases thus making on additions to

their net current assets. They might have gone for this large-scale

procurement for availing discounts and anticipating a rise in prices,

which would have meant that more funds are required to maintain the

same current assets.

31

WORKING CAPITAL CYCLE

32

The upper portion of the diagram above shows in a simplified form the chain of

events in a manufacturing firm. Each of the boxes in the upper part of the

diagram can be seen as a tank through which funds flow. These tanks, which are

concerned with day-to-day activities, have funds constantly flowing into and out

of them.

The chain starts with the firm buying raw materials on credit.

In due course this stock will be used in production, work will be carried

out on the stock, and it will become part of the firm’s work-in-progress.

Work will continue on the WIP until it eventually emerges as the finished

product.

As production progresses, labor costs and overheads need have to be met.

Of course at some stage trade creditors will need to be paid.

When the finished goods are sold on credit, debtors are increased.

They will eventually pay, so that cash will be injected into the firm.

Each of the areas- Stock (raw materials, WIP, and finished goods), trade

debtors, cash (positive or negative) and trade creditors – can be viewed as

tanks into and from which funds flow.

Working capital is clearly not the only aspect of a business that affects the

amount of cash.

The business will have to make payments to government for taxation.

Fixed assets will be purchased and sold

33

Lessors of fixed assets will be paid their rent

Shareholders (existing or new) may provide new funds in the form of

cash

Some shares may be redeemed for cash

Dividends may be paid

Long-term loan creditors (existing or new) may provide loan finance,

loans will need to be repaid from time-to-time, and

Interest obligations will have to be met by the business

Unlike, movements in the working capital items, most of these ‘non-working

capital’ cash transactions are not every day events. Some of them are annual

events (e.g. tax payments, lease payments, dividends, interest and, possibly,

fixed asset purchases and sales). Others (e.g. new equity and loan finance and

redemption of old equity and loan finance) would typically be rarer events.

34

SOURCES OF WORKING CAPITAL

HCL Infosystems has the following sources available for the fulfillment of its

working capital requirements in order to carry on its operations smoothly:

Banks:

These include the following banks –

State Bank of IndiaCanara BankHDFC Bank Ltd.ICICI Bank Ltd.Societe GeneraleStandard Chartered BankState Bank of PatialaState Bank of Saurashtra

Commercial Papers: Commercial Papers have become an important tool for financing working capital requirements of a company.Commercial Paper is an unsecured promissory note issued by the company to raise short-term funds. The buyers of the commercial paper include banks, insurance companies, unit trusts, and companies with surplus funds to invest for a short period with minimum risk.HCL issues Commercial Papers and had 4000 commercial papers in the year 2006.

35

WORKING CAPITAL POSITION:

CURRENT ASSET – CURRENT LIABILITY

PARTICULARS 2008 2007 2006 2005 2004CURRENT ASSETS 1211801 1048285 100970 81533 54091CURRENT LIABILITES 513195 286093 60627 46791 39790% CURRENT ASSETS INCREASE

15.6 938.21 23.84 50.7 20.09

%CURRENT LIABILITES INCREASE

79.39 371.89 29.57 17.6 51.35

The 16.12% increase in Net Current assets despite of the fact that there has been an increase in the Current Assets by 23.84% and increase in Current Liability has been by 29.57% over that of the previous year has to be attributed to the fact that in 2005, the company showed such a high increase in CA, that it is still being offset. This is an indication as to the expanding operations of the firm. HCL has increased its current assets in order to meet the increasing sales. The firm’s level of liquidity being high, we need a check on whether it affects the return on assets. In 2007 there has been a rapid expansion in current assets (938.21) which have been off set to an extent by current liabilities (371.89%). There has been a marginal increase in current assets of 2008 (15.6%) and in case of liabilities there has been a significant increase of 79.39%

36

INVENTORY MANAGEMENT

Inventories

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

Nature of Inventories

Inventories are stock of the product of the company is manufacturing for sale and components make up of the product. The various forms of the inventories in the manufacturing companies are:

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

37

Inventory Management Techniques

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

Economic Order Quantity (EOQ): The major problem to be resolved is how much the inventory should be added when inventory is replenished. If the firm is buying raw materials, it has to decide lots in which it has to purchase on replenishment. If the firm is planning a production run, the issue is how much production to schedule. These problems are called order quantity problems, and the task of the firm is to determine the optimum or economic lot size. Determine an optimum level involves two types of costs:-

Ordering Costs : This term is used in case of raw material and includes all the cost of acquiring raw material. They include the costs incurred in the following activities:

Requisition Purchase Ordering Transporting Receiving Inspecting Storing

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

38

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

Warehousing Cost Handling Administrative cost Insurance Deterioration and obsolescence

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

Composition 2006 2005 2004Raw Material 6349 7749 6127Stores and Spares 3713 2987 2622Finished Goods 13374 7245 6506Work-in-progress 595 784 871

The increasing component of raw materials in inventory is due to the fact that the company has gone for bulk purchases and has increased consumption due to a fall in prices and reduced margins for the year. Another reason might be the increasing sales, which might have induced them to purchase more in anticipation of a further increase in demand of the product. And the low composition of work-in-progress is understandable as because of the nature of the business firm is involved in.

To the question as to whether the increasing costs in inventory are justified by the returns from it the answer could be found in the HCL retail expansion. HCL caters to the need of the two separate segments:

39

a) Institutions for which they manufacture against orders and,b) Retail segment of the market.

They are more into retail than earlier and at present more than 650 retail outlets branded with HCL sign ages and more are in the pipeline

The company in order to meet its raw materials requirements could have gone for frequent purchases, which would have resulted in lesser cash flows for the firm rather than the high expenditure involved when procuring in at bulk. The reason why the firm has gone for these bulk purchases because of the lower margins and the discounts it availed because of procuring in bulk quantities.

A negative growth in WIP could be because:

a) The time taken to convert raw materials to finished goods is very minimal

b) This is also due to capacity being not utilized at the optimum.

ABC System: ABC system of inventory keeping is followed in the factories. Various items are categorized into three different levels in the order of their importance. For e.g. items such as memory, high capacity processors and royalty are placed in the ‘A’ category. Large number of firms has to maintain several types of inventories. It is not desirable the same degree of control all the items. The firm should pay maximum attention to those items whose value is highest. The firm should therefore, classify inventories to identify which items should receive the most effort in controlling. The firm should be selective in approach to control investment in various types of inventories. This analytical approach is called “ABC Analysis”. The high-value items are classified as “A items” and would be under tightest control. “C items” represent relatively least value and would require simple control. “ B items” fall in between the two categories and require reasonable attention of management.

40

JIT: The relevance of JIT in HCL Info system can be questioned. This is because they procure materials on the basis of projections made at least two or three months before. Even at the time of procurement they ensure that they procure much more than what actually is required by the firm that is they hold significant amount of inventory as safety stock. This is done to counter the threat involved in default and accidental breakdowns. The levels of safety stock usually vary according to the usage.

41

Conversion Periods

Raw Material

Particulars 2006 2005 2004Raw Material Consumption 121077 97971.31 57775.14Raw Material Consumption/day 332 268.41 158.28Raw Material Inventory 7072 6960.275 4364.735Raw Material Holding Days 21 25.93 27.57

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

Work-in-progress

Particulars 2006 2005 2004Cost of Production 191911 159651.19 113500.33Cost of Production/day 525.78 437.4 310.95Work in progress inventory 689.5 827.52 679.455WIP Holding days 1.31 1.89 2.19

The work-in-progress holding time is important for a firm in the sense that it determines the rate of time at which the production process will be complete or the finished goods will be ready for disposal by the firm. The firm as it is in the

42

process of assembling should take the least possible time in conversion to finished goods unlike a hard core manufacturing firm, as any firm would like to have its inventory in the work-in-progress at the minimum. There would also be less of stock out costs as due to better conversion rates the firm is able to meet the rise in demand situations. More the time it spends lesser its efficiency would be in the market. Here the firm has been able to bring down its WIP conversion periods.

Finished Goods

Particulars 2006 2005 20004Cost of goods sold 228177 178438.85 124768.92Cost of goods sold/day 625 488.87 341.832Finished goods inventory 10310 6875.725 5026.505Finished goods inventory Holding days 16 14.06 14.8

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

Operating Cycle

Particulars 2006 2005 2004Inventory conversion period 38 42 45Average collection period 70 63 66Gross operating cycle 108 105 111Average payment period 22 23 17Operating cycle 86 82 94

43

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

Raw Material Consumption

Particulars 2006 2005 2004Imported 92007 70784.27 42129.63Indigenous 29070 27187.04 15645.51% Imports 75.99 72.25 72.92

A major chunk of the imports come from Korea and Taiwan and is purchased in US$. The value of imported and indigenous raw material consumed give a clear picture that if there is a change in the EXIM policy of the government it is bound to affect the company adversely as more than 70% of their consumption is from imports. But this is the scenario witnessed in the industry as a whole and though HCL is into expanding its operation to Uttaranchal it in the present state is would be affected by a change in the import duty structure.

A major chunk of their current assets are in the form of inventory and the change in technology will invariably be a threat faced by the firm. The question of technology applying here like says a certain device going say out of fashion or outdated. For e.g. TFT monitors being in demand more than CRT.

44

CASH MANAGEMENT

SOURCES OF CASH:

Sources of additional working capital include the following:

Existing cash reserves

Profits (when you secure it as cash!)

Payables (credit from suppliers)

New equity or loans from shareholders

Bank overdrafts or lines of credit.

Long-term loans

If you have insufficient working capital and try to increase sales, you can

easily over-stretch the financial resources of the business. This is called

overtrading.

Early warning signs include:

Pressure on existing cash

Exceptional cash generating activities e.g. offering high discounts for

early cash payment

Bank overdraft exceeds authorized limit.

Seeking greater overdrafts or lines of credit

Part-paying suppliers or other creditors

Paying bills in cash to secure additional supplies

Management pre-occupation with surviving rather than managing

Frequent short-term emergency requests to the bank (to help pay wages,

pending receipt of a cheque).

45

CASH MANAGEMENT IN HCL INFOSYSTEMS:

The cash management system followed by the HCL Infosystems is mainly lock box system.

Cash Management System involves the following steps:

1. The branch offices of the company at various locations hold the collection of cheques of the customers.

2. Those cheques are either handed over to the CMS agencies or bank of the particular location take charge of whole collection.

3. These CMS agencies or bank send those cheques to the clearing house to make them realized. These cheques can be local or outstation.

4. The CMS agencies or bank send information to the central hub of the company regarding realization/cheque bounced.

5. The central hub passes on the realized funds to the company as per the agreed agreements.

6. The CMS agencies or concerned bank provides the necessary MIS to the company as per requirement.

In cash management the collect float taken for the cheques to be realized into cash is irrelevant and non-interfering because banks such as Standard Chartered, HDFC and CitiBank who give credit on the basis of these cheques after charging a very small amount. These credits are given to immediately and the maximum time taken might be just a day. The amount they charge is very low and this might cover the threat of the cheque sent in by two or three customers bouncing. Even otherwise the time taken for the cheques to be processed is instantaneous. Their Cash Management System is quite efficient.

46

Cash-Current Liability

Particulars 2006 2005 2004Absolute Liquid Ratio 0.24:1 0.31:1 0.11:1

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

Cash vs. Marketable Securities

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

In HCL, Standard Chartered is the concentration bank in which all the inflows from the deposit banks are concentrated and passed on to the disbursement banks for further disbursement.

47

Liquid Cash Balance

The liquid cash maintained in the business is only that much as is required to satisfy the daily requirements of the firm and not more. The rest of the cash is invested into mutual funds and also held in fixed deposits and current accounts.

Instruments Used

The instrument used here are primarily cheques comprising of around 97% of what is used in. The rest 2-3% comprise of the letters of credit.

Thus working capital is the lifeline for every business. The main advantages of sufficient working capital are:

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

commitments.

48

RECEIVABLES MANAGEMENT

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

are collected faster. Every business needs to know.... who owes them money....

how much is owed.... how long it is owing.... for what it is owed.

Late payments erode profits and can lead to bad debts.

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

businesses whom can least afford it. If you don't manage debtors, they will

begin to manage your business as you will gradually lose control due to

reduced cash flow and, of course, you could experience an increased incidence

of bad debt.

The following measures will help manage your debtors:

1.Have the right mental attitude to the control of credit and make sure that it

gets the priority it deserves.

2.Establish clear credit practices as a matter of company policy.

3.Make sure that these practices are clearly understood by staff, suppliers and

customers.

4.Be professional when accepting new accounts, and especially larger ones.

49

5.Check out each customer thoroughly before you offer credit. Use credit

agencies, bank references, industry sources etc.

6.Establish credit limits for each customer and stick to them.

7.Continuously review these limits when you suspect tough times are coming

or if operating in a volatile sector.

8.Keep very close to your larger customers.

9.Invoice promptly and clearly.

10.Consider charging penalties on overdue accounts.

11.Consider accepting credit /debit cards as a payment option.

12.Monitor your debtor balances and aging schedules, and don't let any debts

get too old.

Recognize that the longer someone owes you, the greater the chance you will

never get paid. If the average age of your debtors is getting longer, or is

already very long, you may need to look for the following possible defects.

Poor collection procedures.

Lax enforcement of credit terms.

Slow issue of invoices or statements.

Errors in invoices or statements.

Customer dissatisfaction.

Weak credit judgement.

50

Debtors due over 90 days (unless within agreed credit terms) should generally

demand immediate attention. Look for the warning signs of a future bad debt. For

example…..

1. Longer credit terms taken with approval, particularly for smaller orders.

2. Use of post-dated checks by debtors who normally settle within agreed terms.

3. Evidence of customers switching to additional suppliers for the same goods.

4. New customers who are reluctant to give credit references.

5. Receiving part payments from debtors.

Profits only come from paid sales.

The act of collecting money is one, which most people dislike for many reasons

and therefore put on the long finger because they convince themselves that there

is something more urgent or important that demand their attention now. There is

nothing more important than getting paid for your product or service. A customer

who does not pay is not a customer.

HERE ARE FEW WAYS IN COLLECTING MONEY FROM DEBTORS: -

Develop appropriate procedures for handling late payments.

Track and pursue late payers

Get external help if you own efforts fail.

Don’t feel guilty asking for money .. its yours and you are entitled to it.

Make that call now. And keep asking until you get some satisfaction.

In difficult circumstances, take what you can now and agree terms for the

remainder, it lessens the problem.

When asking for your money, be hard on the issue – but soft on the person.

Don’t give the debtor any excuses for not paying.

Make that your objective is to get the money, not to score points or get even.

RECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS:

PARTICULARS 2006 2005 2004 2003

DEBTORS TURNOVER RATIO 5.21 5.80 5.53 6.62

AVERAGE COLLECTION PERIOD 70 63 66 55

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

COLLECTION POLICIES:

It refers to the collection procedures such as letters, phone calls and other follow up mechanism to recover the amount due from the customers. It is obvious that costs are incurred towards the collection efforts, but bad debts as well as average collection period would decrease. Further, a strict collection policy of the firm is expensive for the firm because of the high cost is required to be incurred by the

firm and it may also result in loss of goodwill. But at the same time it minimizes the loss on account of bad debts. Therefore, a firm has to strike a balance between the cost and benefits associated with collection policies.

The steps usually followed in collection efforts are:

Sending repeated letters and reminders to the customersPersonal visitsUsing agencies involved in collection processMaking telephonic remindersInitiating legal actionsReal Time Gross Settlement (RTGS)

Real Time Gross Settlement as such is a concept new in nature and though the firm uses the system with all the members of the consortium, it is still in its primal stage and will take time before all of the clients of the firm are willing to accept it. The firm has made a proposal to the consortium of the banks during appraisal for faster implementation of internet based banking facility by all the banks and adoption of RTGS payment system through net.

The debtor’s turnover ratio is completely dependent upon the credit policy followed by the firm. The credit policy followed by the firm should be such that the threat of bad debts and the default rate involved should be terminated.

PARTICULARS 2006 2005 2004 2003

CREDITORS TURNOVER RATIO 16.44 15.68 21.29 21.14

PAYMENT PERIOD 22 23 17 16

That the creditors turnover ratio has declined and payment period has increased indicate that the company has got a leeway in making the payment to the creditors by way of increased time.

With creditors they are having pre-agreements and have undertaken arrangements with them, which they believe to be the best in the business and these are fixed.

(NOTE: Acceptances are not included in the computation of creditors turnover)

Financing Current Assets

The firm has to decide about the sources of funds, which can be availed to make

investment in current assets.

Long term financing:

It includes ordinary share capital, preference share capital, debentures, long term

borrowings from financial institutions and reserves and surplus.

Short term financing:

It is for a period less than one year and includes working capital funds from

banks, public deposits, commercial paper etc.

Spontaneous financing:

It refers to automatic sources of short-term funds arising in normal course of

business. There is no explicit cost associated with it. For example, Trade Credit

and Outstanding Expenses etc.

Depending on the mix of short and long term financing, the company can

follow any of the following approaches.

Matching Approach

In this, the firm follows a financial plan, which matches the expected life of assets

with the expected life of source of funds raised to finance assets. When the firm

follows this approach, long term financing will be used to finance fixed assets and

permanent current assets and short term financing to finance temporary or

variable current assets.

Conservative Approach

In this, the firm finances its permanent assets and also a part of temporary current

assets with long term financing. In the periods when the firm has no need for

temporary current assets, the long-term funds can be invested in tradable securities

to conserve liquidity. In this the firm has less risk of facing the problem of shortage

of funds.

Aggressive Approach

In this, the firm uses more short term financing than warranted by the matching

plan. Under an aggressive plan, the firm finances a part of its current assets with

short term financing.

Relatively more use of short term financing makes the firm more risky.

Current asset to fixed asset ratio:

The financial manager should determine the optimum level of current assets so

that the wealth of shareholders is maximized. A firm needs fixed and current

assets to support a particular level of output.

The level of current assets can be measured by relating current assets. Dividing

current assets by fixed assets gives CA/FA ratio. Assuming a constant level of

fixed assets, a higher CA/FA ratio indicates a conservative current assets policy

and a lower CA/FA ratio means an aggressive current assets policy assuming

other factors to be constant. A conservative policy i.e. higher CA/FA ratio implies

greater liquidity and lower risk; while an aggressive policy i.e. lower CA/FA ratio

indicates higher risk and poor liquidity. The current assets policy of the most

firms may fall between these two extreme policies. The alternative current assets

policies may be shown with the help of the following figure.

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

CA/FA ratio is greatest at every level of output. Alternative C is the most

aggressive policy, as CA/FA ratio is lowest at all levels of output. Alternative B

lies between the conservative and aggressive policies and is an average policy.

SHORT TERM FINANCING

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

SECURED LOANS 2006 2005 2004 2003

SHORT TERM 3849 4991.28 6903.7 4987.52

LONG TERM 0 530.07 0 3461.36

TOTAL 3849 5521.35 6903.7 8448.88

%SHORT TERM 100 90.4 100 59.03

Under secured loan cash credit, along with non fund based facilities, foreign currency term loan from banks are secured by way of hypothecation of stock-in-trade, book debts as first charge and by way of second chanrge on all the immovable and movable assets of the parent company. Term loan in Indian rupees

from a bank is subject to a prior charge in favour of company’s bankers on book debts and stock in trade for working capital facilities.

UNSECURED LOANS 2006 2005 2004 2003

SHORT TERM 15104 2593.39 63.94 76.84

LONG TERM 11 17 169.51 3261.42

TOTAL 15115 2610.39 233.45 3338.26

% SHORT TERM 99.93 99.348 27.38 2.3

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

YEAR- END COMMERCIAL PAPERS

PARTICULARS 2006 2005 2004 2003

COMMERCIAL PAPERS 4000 2500 --- 3000

The credit rating by ICRA continued at ‘A1+’indicating highest safety to company’s commercial paper program of Rs. 75 Crores. It acts as an effective tool in reducing the interest cost and is used for financing inventories and other

receivables. As and when the firm issues commercial papers, it sends a letter to the leader of the consortium, i.e., SBI to reduce from the fund based limits the amount it has issued in the form of the commercial papers. Suppose the firm issues 30 Crores as commercial papers and the fund based limits are say 115 Crores. Then firm sends a letter to SBI to reduce the existing fund based limits from 115 to 85 Crores.

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

ANALYSIS

CONCLUDING ANAYSIS

Concluding analysis

Suggestions and recommendations

Bibliography

Appendices

The working capital position of the company is sound and the various

sources through which it is funded are optimal.

The company has used its dividend policy, purchasing, financing and

investment decisions to good effect can be seen from the inferences made

earlier in the project.

The debts doubtful have been doubled over the years but their percentage on

the debts has almost become half. This implies a sales and collection policy

that get along with the receivables management of the firm.

The returns have been affected by a marked growth in working capital and

though a 29.75% in 2006 return on investment is good, but it got reduced as

compared to 39.01% return in 2005.

The various ratios calculated are an indicator as to the fact that the

profitability of the firm and sales are on a rise and also the deletion of the

inefficiencies in the working capital management.

The firm has not compromised on profitability despite the high liquidity is

commendable.

HCL Infosystems has reached a position where the default costs are as low

as negligible and where they can readily factor their accounts receivables for

availing finance is noteworthy.

SUGGESTIONS AND RECOMMENDATIONS

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

business. So, things should go with a proper understanding for managing cash,

receivables and inventory.

HCL Infosystems is managing its working capital in a good manner, but still

there is some scope for improvement in its management. This can help the

company in raising its profit level by making less investment in accounts

receivables and stocks etc. This will ultimately improve the efficiency of its

operations. Following are few recommendations given to the company in

achieving its desired objectives:

The business runs successfully with adequate amount of the working

capital but the company should see to it that the cash should not be tied up

in excessive amount of working capital.

Though the present collection system is near perfect, the company as due

to the increasing sales should adopt more effective measures so as to

counter the threat of bad debts.

The over purchasing function should be avoided as it could lead to

liquidity problems.

The investment of cash in marketable securities should be increased, as it

is very profitable for the company.

Holding of excessive and insufficient stock must be avoided as it creates a

burden on the cash resources of a business and results in lost sales, delays

for customers, etc respectively.

BIBLIOGRAPHY

Following sources have been sought for the preparation of this report:

Corporate Intranet

Financial Statements (Annual Reports)

Direct interaction with the employees of the company

Internet ----www.hclinfosystems.in

Textbooks on financial management -

I.M.Pandey

Khan and Jain

Prasanna Chandra

HCL TECHNOLOGIES LIMITED

APPENDICES

CONSOLIDATED BALANCE SHEETS

(Thousands of US Dollars except per share data and as stated otherwise)

As of June 30,

2007 2008

ASSETS

Current assets

Cash and cash equivalents $88,049 $108,154

Short term deposit with banks 73,295 125,505

Restricted cash 645 936

Accounts receivables, net of allowances 265,445 364,303

Unbilled revenue 33,933 72,994

Investment securities, available for sale 396,610 335,564

Due from related parties 2,003 2,815

Inventories 11,074 17,668

Employee receivables 9,008 13,958

Deferred income taxes 21,948 13,384

Other current assets 146,275 156,520

Total current assets 1,048,285 1,211,801

Employee receivables 870 304

Deferred income taxes 7,690 70,027

Investment securities, held to maturity 2,946 2,788

Investments in affiliates 2,356 2,354

Property and equipment, net 257,606 309,453

Intangible assets, net 8,011 8,472

Goodwill 189,857 214,246

Other assets 34,738 47,323

Total assets $1,552,359 1,866,768

HCL TECHNOLOGIES LIMITED

CONSOLIDATED BALANCE SHEETS

(Thousands of US Dollars except per share data and as stated otherwise)

As of June 30,

2007 2008

LIABILITIES, MINORITY INTEREST AND

STOCKHOLDERS' EQUITY

Current liabilities

Current portion of capital lease obligations $2,029 $2,393

Accounts payable 28,264 43,607

Due to related parties 2,944 1,446

Short term loans 8,681 4,962

Accrued employee costs 39,016 63,953

Deferred revenue 22,133 45,074

Deferred income taxes 2,208 1,255

Taxes payable 76,611 128,187

Other current liabilities 104,207 222,318

Total current liabilities 286,093 513,195

Long term debt - 1,390

Capital lease obligations, excluding current portion 8,123 4,040

Deferred income taxes 54 3,272

Other liabilities 23,544 131,138

Total liabilities 317,814 653,035

Commitments and Contingencies (refer note 26)

Minority interest 3,566 1,313

Stockholders’ equity

Equity shares, 750,000,000 and 750,000,000 shares authorized

Issued and outstanding 663,683,116 and 666,340,272

Shares as of June 30, 2007 and 2008 respectively 33,036 33,166

Additional paid-in capital 516,466 548,072

Share application money pending allotment - 397

Retained earnings 581,204 682,627

Accumulated other comprehensive income / (loss) 100,273 (51,842)

Total stockholders' equity 1,230,979 1,212,420

Total liabilities, minority interest and

stockholders' equity $1,552,359 $1,866,768

The accompanying notes are an integral part of these consolidated financial statements.

ANALYSIS OF CONSOLIDATED BALANCE SHEET

The consolidated balance sheet of HCL Info System shows that in 2007 the total current assets of the HCL Info System was $1,048,285 and in 2008 it increases to $1,211,801 i.e. an increase of 15.08%. This change is due to increase in cash and cash equivalents, short term deposits with bank, accounts receivables, unbilled revenues, due from related parties, inventories, other current assets and decrease in investment securities available for sale .

In 2007 the total assets was $1,552,359 and in 2008 it increases to $1,866,768 i.e. there was an increase of 20.25%. This change is due to increase in deferred income tax, property and equipments net, intangibles assets net, goodwill and other assets and decrease in employee receivables, investment securities held for maturity, and investment in affiliates. In 2007 the current liabilities was $286,093 and in 2008 it increases to $513,195 i.e. there was an increase of 791.49%. This change is due to increase in accounts receivables, accrued employee costs, deferred revenue, taxes payable and other current liabilities and decrease in due to related parties, short term loans and deferred income taxes.

In 2007 total liabilities was $317,814 and in 2008 it increases to $653,035 i.e. there was an increase of 105.48%. This change is due to increase in long term debt, deferred income taxes and other liabilities and decrease in capital lease obligation. Also the minority interest decreases from $3,566 to $1,313. The total stockholder’s equity decreases from $1,230,979 to $1,212,420.

HCL TECHNOLOGIES LIMITED

CONSOLIDATED STATEMENTS OF INCOME

(Thousands of US Dollars except per share data and as stated otherwise)

Year ended June 30

2006 2007 2008

Revenues $976,030 $1,389,577 $1,878,865

Cost of revenues (exclusive of depreciation and 622,915 874,915 1,163,144

amortization shown separately below)

Selling, general and administrative expenses 151,837 230,265 323,573

Depreciation and amortization 42,624 58,316 74,612

Income from operations 158,654 226,081 317,536

Other income, net (645) 101,870 (29,323)

Income before income taxes, share of equity in 158,009 327,951 288,213

Earnings of affiliates and minority interest

Income taxes 13,403 32,939 29,453

Income before share of equity in earnings of

affiliates and minority interest 144,606 295,012 258,760

Equity in earnings/(losses) of affiliates (139) (229) 130

Minority interest (352) (1,263) (647)

Net income $144,115 $293,520 $258,243

Earnings per equity share

Basic $0.22 $0.45 $0.39

Diluted $0.21 $0.43 $0.38

Weighted average number of equity shares used

in computing earnings per equity share

Basic 642,788,960 652,626,782 664,424,330

Diluted 684,311,714 675,290,388 682,748,596

The accompanying notes are an integral part of these consolidated financial statements.

ANALYSIS OF CONSOLIDATED STATEMENT OF INCONE

The comparative income statement of HCL Info System shows that in 2007 the income from operation was $226,081 and in 2008 it is increased to $317,536 i.e. there is an increase of 40.45%. Further the income before income tax and income after income tax decreases by $114,738 and $36,252 respectively i.e.

(12.12%) and (12.29%) decrease respectively. The net

income were increased by $35,277 i.e. 12.02% decrease in net income. The result of this was a decrease in EPS from .88 to .77 (in corers)