1

INTRODUCTION

1

1.INTRODUCTION OF THE INDUSTRY

EDIBLE OIL INDUSTRY SCENARIO IN INDIA

India is the fourth largest oilseed producing country in the world, next only to

USA, China and Brazil, harvesting about 25 million tons of oilseeds against the

world production of 250 million tons per annum. Since 1995, Indian share in

world production of oilseeds has been around 10 percent. Although, India is a

major producer of oilseeds, per capita oil consumption in India is only 10.6

kg/annum which is low compared to 12.5 kg/annum in China, 20.8 kg/annum in

Japan, 21.3 kg/annum in Brazil and 48.0 kg/annum in USA.

Many varieties of oilseeds along with tree origin oilseeds are cultivated in India.

Among these, the major oilseeds are Soybean, Cottonseed, Groundnut,

Sunflower, Rapeseed, Sesame seed, Copra, Linseed, Castor seed and Palm

Kernels. India occupies the place of pride as the world's largest producer of

Groundnuts, Sesame seeds, Linseeds and Castor seeds. In India, oilseeds are

grown in an area of nearly 27 million hectares across the length and breadth of

the country. Depending on the period of cultivation, the oilseeds are classified as

'Kharif Crop' and 'Rabi Crop'. The Kharif Crop that is dependent on the Monsoon

is harvested around October-November each year. On the other hand, the Rabi

Crop is harvested around March-April each year. The edible oil industry of the

country comprises of 50,000 Expellers, 600 Solvent Extraction Plants, 300

Vegetable Oil Refineries, and 175 Hydrogenation Plants. The edible oil sector

occupies a distinct position in Indian economy as it provides job to millions of

people, achieves on an average a domestic turn over of US $ 10 Billion per

annum and earns foreign exchange of US $ 90 Million per annum.

Climatic conditions in India favor growing a variety of oilseeds. On the demand

side, a growing population and vastly varied dietary habits have ensured a

thriving market for edible oil in the country. In fact, there is a substantial demand

overhang, which is expected to continue for some years. At present, this is offset

2

by imports that cater to almost half of the total domestic consumption. With

cheap imports threatening to cripple the domestic industry, the government is

walking a tightrope between filling the demand

supply gap and the political need to keep the domestic industry in good health.

Unorganized, medium and small players dominate the industry. Hence, quality

remains a concern. There is need for better regulatory control to protect

consumers.

Oilseeds in India account for around 5.0 percent of the Gross National Product

(GNP) and 14.0 percent of the country's area under cultivation of crops. Castor,

Groundnut, Linseed, Niger, Rapeseed, Mustard, Safflower, Sesame and

Sunflower are some of the major oilseeds grown. India produces 10 percent of

the world's oilseeds, but has a low productivity of around 850-900 kg per hectare

(compared to a world average of around 1,100-1,350 kg per hectare).

The amount of oil extracted from the seed varies with the type and quality of

seed. In many cases, the oil recovery rate is upwards of 30.0 percent with

Sesame accounting for a high 45.0 percent.

Domestic consumption of edible oils has been growing at 4.0-5.0 percent a year.

The consumption in 2001-02 was around 25.75 million tons. Non-packaged oils

account for nearly 50.0 percent of consumption in both urban and rural markets.

In the remaining 50.0 percent contributed by packaged oils, branded oils

constitute a small portion of approximately 10.0-15.0%.  

3

2

INTRODUCTION

OF

ORGANIZATION

4

2. INTRODUCTION OF ORGANIZATION

2.1 GROUP PROFILE The Data Group has been founded by Shri Niranjan Lal Data who is the present

Chairman of the Group. He has built up the Group by his simplicity and hard

work. He believes that the society is best served by useful and quality products.

His vision has led to the growth of a well diversified group with a powerful

synergy. He is presently helped in managing the day to day affairs by his sons

Shri.Vijay Data and Shri Daya kishan Data.

The Group is likely to achieve a turnover of Rs 1000 crores in 2007-08 and this

is likely to go up to Rs 1150 crores in 2008-09.

The Group consists of the following companies which are engaged in the

following activity

Vijay Solvex Limited - Integrated Edible Oil Complex, Vanaspati,Wind power

Jaipur Glass & Potteries - Fine Bone China Tableware ; Insulators

Deepak Vegpro (P) Ltd - Mustard Oil , Cake, Vanaspati and Wind Power

Data Impex Ltd - Import/,Export, Marketing of Fine Bone

China Crockery in th U.K.

Raghuvar (India ) - Integrated Edible Oil Complex, Vanaspati

Data Arcade - Shopping Complex

Data Foods P limited - Intergrated Plant for Bakery Shortning and

Palm Fatty Acid in Sri Lanka

The brief details of some of the companies is given below Vijay Solvex Ltd

The present capacity is as follows

Vanaspati 100 Tons per Day

Refined Oil 50 Tons per Day

Solvent Extraction Plant 350 Tons per Day

5

Oil Mill 200 Tons per Day

Raghuvar ( India) Ltd

The plant was acquired from the Turner Morrison Group and has well known

rand Hanuman. The present capacity is:

Vanaspati 100 Tons per Day

Refined Oil 50 Tons per Day

Solvent Extraction Plant 300 Tons per Day

Oil Mill 125 Tons per Day

Deepak Vegpro (P) Ltd

Vanaspati 100 Tons Per Day

Oil 100 Tons Per Day

Jaipur Glass and Potteries

The unit was acquired by Vijay Solvex Ltd and under the supervision and control

of the Data Group the company is exporting tableware and insulators to

countries like U.K.,Europe, Germany, Hungary, Middle East,Sri Lanks, etc.

Data Impex Ltd is located at Birmingham U.K.. The company is active in the

markets of U.K. and Europe and is a prestigious vendor to leading retail chain

stores.

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2.2 COMPANY PROFILE

a. Name of the CompanyVIJAY SOLVEX LTD.

b. Registered Office Bhagwati Sadan,S.D.Marg,Alwar-301001

Factory / Project : Old Industrial Area, Itarana Road,Alwar-301001

c. Group to which belongs Not a Recognized Group. However controlling rights are within the Data Family.

d. Date of Incorporation29.12.87

e. Line of activity Manufacture of edible oil and oil cakes, ceramic and generation of wind power.

f. Dealing with the bank since 1993

g. Ownership and

management

Board of Directors 1.Shri Niranjan lal Data - CEO 2.Shri Babu lal Data

3.Shri Daya Kishan Data 4. Shri Vijay Data - M.D.

h. Date of Last sanction 28.03.2006

i. Date of Last Review _______________

j. Constitution Public Limited

k. CRA RatingSBBJ-3 (As on 31.03.2006)

l. Pricing WC: 3% below BPLR minimum 9.00%

p.a

TL : 3.50 % below BPLR min. 9.00 %

p. a

m. IRAC Code Standard

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2.3 COMPANY HISTORY

Vijay Solvex Limited ,set up in 1987 ,has been promoted by Shri Niranjan Lal

Data and his family. Initially the company was engaged in the activity of oil

manufacturing only. In October, 1992, the Company diversified into

manufacturing Ceramics and allied activities by taking over Jaipur Glass and

Potteries Works Ltd.(JGPWL).The Company further diversified into the field of

Wind power generation in March,02.At present the Company has three divisions

viz: Vegetable Oil Division(VOD) at Alwar and Jobner, Ceramic Division and

Wind Mill Division.

In September 2005 the Company Goenka Products Pvt Ltd was amalgamated

with the Vijay Solvex ltd. as per order of Hon’ble High Court ,Rajasthan . Oil

Division Alwar of the Company is a fully integrated with seed crushing, solven

textraction, refinery and vanaspati manufacturing plant and Company’s refined oil

and vanaspati ghee is marketed in the brand name of ‘SCOOTER’ well

responded by customers.

Jaipur Glass & Potteries Works Ltd incorporated on 20.04.1942 was

originally promoted by one Jaipuria family to manufacture. Ceramic

potteries glazed tiles. The Management of the company was taken over by

Vijay Solvex Limited in October 1992 and was merged with Vijay Solvex

Limited as approved by Hon’ble High Court, Rajasthan. Presently the

Company is manufacturing Bone-china crockery and insulators.

In March 2002 the Company has installed 1.380 MW Wind Power Plant at

Jaisalmer District and the plant is performing well and the commercial

production/generation commenced in March 2002. The Company has

increased capacity of Wind Power Plant from 1.38 MW to 2.3 MW by

installing four machines of 230 KVA capacity.

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All the Group Companies /industries are working satisfactorily. In February 2004

the group acquired 100% financial stake in M/S Raghuvar (India) Ltd., Jaipur

from Turner Morrison Group of Delhi.In 2005 the Company along with Group

companies Deepak Vegpro Pvt. Ltd and Raghuvar India ltd. has acquired a Sri

Lankan Company M/S V Com Advance Engineering Technology Pvt. Ltd.

(VCAET) with registered office at 21,Deal Place ,Colombo-3 Sri Lanka and have

set up a Bakery Shortening plant with a total investment of Rs 1434.95 lacs.

In October 2005, the Company made a bid to purchase land, building & plant and

machinery of Sriganganagar Co-opertive Cotton Complex Limited Sriganganagar

(Ginning & Spinning Mill) for Rs.801 Lacs. The Company was declared as hihest

bidder in the sale process of the same. Govt. of Rajasthan has award in our

favour to purchase the property Land, Building and Plant & Machinery for

Rs.801.00. The Company has deposited entire amount of bid, however the

company has not taken possession of above assets. The Company has not

incorporated financial data of Cotton Complex.

2.4 PROMOTERS

The Promoter Directors namely Shri Niranjan Lal Data, Vijay Data, Babulal Data

and Daya Kishan Data are established industrialists having rich experience in the

line. Other Directors on the Board as on 31.03.06 were Sh. Ramesh Chand

Gupta, Sh. Ram Babu Jhalani, Sh. Om Prakash Gupta and Sh. Ram Kishore.

2.5 SHARE HOLDING PATTERN

Category No. of shares held

value in Rs. % Holding

1. Indian Promoters Holding

1872019 18720190 58.45

2. Private Corporate bodies

503386 5033860 15.72

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3. Indian Public 827158 8281580 25.83

Total 3202563 32025630 100.00

2.6 Directors Profile

Directors:

Niranjan Lal Data ChairmanVijay Data Managing DirectorDaya Kishan Data Wholetime DirectorMukesh Sethi Wholetime Director Ramesh sharma Wholetime Director Ram Babu Jhalani Wholetime Director

Secretary:

A.L. Khandelwal

Auditors:

K.L. Datta & Co. Chartered Accountants

Corporate Advisors

V M & Associates

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Company Secretaries, Jaipur

Introduction

Niranjan Lal Data, ChairmanNiranjan Lal Data is the 70 year old patriarch of Data Group. His achievements have to be seen in light of India's recent economic resurgence. Leadership according to him means motivating others and he inspires awe and respect though his simplicity. As visionary, he encompasses his 48 years of rich experience in oil industry. He has been awarded the National Citizens Award 92 by Hon'ble Vice President of India, and the Industrial Excellency Award by the then Chief Minister of Rajasthan. He is the President of Rajasthan Oil Industries Association. He is also a nominated Director of RIICO, a reputed finance and investment agency of the Rajasthan government.

Vijay Kumar Data, DirectorVijay Data is the Managing Director of Vijay Solvex Ltd., a division of Data Group. He guides the Group with intense intellect and sense of pioneering zeal. His 26 years of experience in the field of Production, Marketing, Finance, Purchase and General Administration is thrusting the Group towards new heights. As a social person, he is an active participant in community development and welfare programs and heads various social and welfare institutions. He is the Zonal Chairman of Solvent Extractors Association of India for west zone. He is also the National President of All India Vaish Youth Federation.

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Daya K. Data, DirectorD.K. Data is a Mechanical Engineer from with 10 years experience in oil milling and over a decade experience in ceramic industry. He is independently looking after the ceramic division of the group. He has widely travelled all over the world and has a great business acumen which has assisted the company in achieving new heights. He has single headedly established the UK office and looks after its day to day operations. He is an active member of AIPMA (All India Pottery Manufacturers Association) and is a life member of the Indian Ceramic Society. It is his foresightedness that in spite of tough competitions, Data Bone China remains the favourite brand of tableware for elites in India & abroad.

Saurabh Data, DirectorSaurabh Data is Director of Vijay Solvex Ltd. and is currently assisting Shri Vijay Data in day to day operations of the company. He completed his BSc. (Hons) Computing from University of Leeds, U.K. He is a youth icon in the expanding Data Group and stands strong as a promising entrepreneur.

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2.7 Divisions of Vijay Solvex EDIBLE OIL DIVISION:

Data Group has several distinctive edible oil processing complexes. They can be

classified as Integrated oil seed processing complexes and Oil Mills.

Vijay Solvex Ltd (VSL) and Raghuvar India Ltd (RIL) are the group’s two modern

integrated oil seed processing complexes. Several modifications and expansion in

production capacity of VSL has been made over the years. Seeing the demand and

supply, RIL was acquired in 2004 from Turner Morrison group. Products of both

complexes include Vanaspati Ghee, Soyabean/Mustard Refined oil, Mustard Oil

and De oiled Cake (DOC). Data Foods (Srilanka) produces Bakery Shortening and

Vanaspati Ghee. The group is the largest producer of mustard DOC in India.

The group has two independent oil mills located in the mustard growing belt of

Rajasthan. The mills produce high quality mustard pungent oil which is rich in

aroma and flavour. The group is one of the largest producers of mustard oil in India.

 

Data Group has been smart in as

sessing the edible oil consumption

pattern in the country. Considering the

ever increasing per capita edible oil

consumption, it’s planning to further

enhance the production capacity.

Current consolidated production

capacity:

Vanaspati Ghee | 300TPD

Refined Oil | 100TPD

Solvent Extraction | 700TPD

Oil Mill | 150TPD

 

In India, most brands are regional in nature and serve the local market. We at Data

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Group, see this as an opportunity to grow at national level. Efforts are being made

to market our brand nation wide with strong focus on creating a robust distribution

network.

 

Vijay Solvex Ltd is the flagship company of Edible Oil Division of Data Group of

Industries. The major products which it manufactures and markets are Mustard

Oil (Kachchi Ghani and Pakki Ghani), Vanaspati Ghee, Refined

Soyabean/Mustard oil under the famous SCOOTER brand. The products are

synonymous with excellent quality and are available nationwide.

Data Group of Industries (turnover exceeding Rs 9000 million; US$ 200m) is

well diversified into Bone China Crockery, Ceramic Gift items, High tension

Porcelain Insulators an Wind Power along with Edible oils.

The synergy lies in corporate philosophy of serving the society through quality

products and services at competitive price. Long term planning and seeing the

market well ahead of time are the corner stones to DATA Group’s success in this

globally competitive economy.

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CERAMIC DIVISION

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In 1992, DATA Group’s flagship company M/S Vijay Solvex Ltd. took over “The Jaipur Glass & Potteries Works Ltd” located centrally in Jaipur, Rajasthan. Once merged, it came to be known as M/S Jaipur Glass & Potteries (an ISO 9001-2000 certified company). This is the only company in India that manufacturers and exports both H.T Insulators and premium range of Fine Bone China tableware under one roof.

The Division is engaged in manufacturing and exporting of Fine bone china tableware, Decorative Ceramic Items, Grey Insulators, H.T Porcelain Insulators etc. These insulators are type tasted from E.R.D.A, CPRI & well-equiped High-voltage testing laboratory to carry-out tests as per relevant ISS/IEC/BS/Din standards

It is one of the leading players in the emerging Indian Retail sector and is a preferred supplier to major retail stores in India. It is exporting its products to countries like U.K, Germany, Hungary, Middle East, Srilanka, US etc.To extend its presence over seas, Data Group established Data Housewares Limited, at Birmingham .U.K.

The company is engaged in import and distribution of Fine Bone china Tableware, Ladies hand bags, Ladies shoes, Cotton towels and household products manufactured by various other group factories.

Data Housewares Limited today is a prestigious vendor to leading retail chain stores in U.K.

HORTICULTURE DIVISION

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To encourage the Agro activities, Data Group is engaged in horticulture, agriculture and social forestry at modern farms located in Alwar and Madhya Pradesh. The group is now planning to go for biodiesel through Jetropha plantation.

POWER GENERATION

Data Group is commited to snergic advantage and operating cost economy to compete to the global competition. Under this vision in March 2002, the groups flagship co. M/s Vijay Solvex Ltd installed wind energy generators in Jaisalmer (Rajasthan) district. The power generation through windmill has contributed for the exploitation of natural resources without burning any fuel and therefore maintains pollution free environment. Subsequently, the group has commissioned more energy generators which as of today has 16 generators producing 3.68 MW of electricity. By investing in environment preservation in commissioning its wind power station, the group demonstrated its commitment as a responsible corporate citizen.

REAL ESTATE

Under another diversification program, the group took over a project of shopping complex called DATA ARCADE in the heart of Alwar (the city of Parks). Mosts shops have been sold as offices and shops for MNCs

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3

PROFILE

VIJAY

SOLVEX

LIMITE

D

18

Financial Management of the Company

The financial Management of the Vijay Solvex Limited is in the hand

of Board of Directors. All the policy decisions regarding arranging of

funds, distributing of dividends, raising loans and other financial

decisions are taken in the Board of director.

Capital Structure

Total Share Capital

Mar

04Mar 05 Mar 06 Mar 07 Mar 08

Equity Share Capital 3.15 3.15 3.20 3.20 3.20

Share Application Money 0.00 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 28.57 31.84 34.62 41.90 49.06

Revaluation Reserves 1.83 1.81 1.78 1.76 0.00

Sources of Finance working Capital

There are various sources of Finances of Working Capital as

(A) Trade Credit

(B) Accounts Receivable Credit

(C) Advances

(D) Finances by Commercial Banks etc.

List of Commercial Banks financing Working Capital

requirements:

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o CORPORATION BANK

o HSBC

o EXPORT-IMPORT BANK OF INDIA

o ICICI BANK

o CANARA BANK

Accounting System Followed by Vijay Solvex Limited

The AGM (Finance & Accounts), who is directly responsible through

the Managing Director of the Board of Directors for Maintaining and

Controlling the Accounts of the unit, heads the Accounting

System/Department. The Structure of the Accounts Department is

as follows: -

AGM (FINANCE)

CHIEF ACCOUNT

OFFICER

ACCOUNTANT

ACCONTANT

(PURCHASES)

(SALES)

ASSISTANT

ASSISTANT

ACCOUNTANT

ACCOUNTANT

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ACCOUNTS ACCOUNTS ACCOUNTS ACCOUNTS

ACCOUNTS

CLERK CLERK CLERK CLERK

CLERK

The internal audit is not compulsory, still the orgnisation conduct

internal audit and send his own auditors for checking at any time. The

monthly statement of Cash Flow and Fund Flow are prepared which

are duly checked by the Chief account Officer. The Purchasing

Committees look after the purchases of the unit which is guided by

the AGM. For store items tenders are floated and comparative

statements prepared and then the work order is given when the

supply is made in the store total verification procedure is adopted

both quantity and quality is checked and then the bill is sent to the

Account department. The Board of director through Executive

Committee also screens all the purchase approval and also ensures

that all the rules regulations and policies are totally followed both in

letter and spirit.

The Managing Director has the purchasing power of one Lac. All the

transactions of the accounts are done through the banks. The

payment of and seeds and soyubean is made on three month credit

21

system. The petty expenses are paid in cash. For this purpose a

balance of Rs. 10 lac is monthly given to the cashier.

4

PRODUCT

PORTFOLIO

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4.1 Products of Vijay Solvex

1. Mustard oil

2. Vanspati ghee

3. Soyabean Refined oil

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4. Mustard Refined oil

5. Ground nut oil

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4.2 Brands of Vijay Solvex

ScooterThe voyage of Scooter brand began in 1978 and since then it has become synonymous with excellent quality. The oil is extracted from traditional kolhus which gives “Kachchi Ghani” flavor and provide natural pungency. Scooter brand Mustard oil contains right ratio of Omega 3 and omega 6 which is considered good for the human body. Low in saturated fats enables to maintain good health. Vitamin E helps in rejuvenation of skin.

 

Neeraj GoldPresenting Neeraj Gold for quality conscious customers! Every drop of this pungent oil is as pure as gold which will provides excellent health to your loved ones. Neeraj Gold Mustard oil contains right ratio of Omega 3 and omega 6 which is considered good for the human body. Low in saturated fats enables to maintain good health. Vitamin E helps in rejuvenation of skin.

Hanuman

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Hanuman Brand mustard oil is low in fat and rich in essential nutrients that will provide perfect health for your loved ones. This oil is cold pressed which make your food delicious as its natural pungency will add rich flavour to your food. This oil is extracted from premium quality seeds in our modern hygienic plant. This oil is good source of natural antioxidants found in form of Vitamin E important for normal growth and development of human beings.

NeerajNeeraj Brand mustard oil is extracted from traditional kolhus which gives “Kachchi Ghani” flavor and provide natural pungency. Neeraj Brand mustard oil contains right ratio of Omega 3 and omega 6 which is considered good for the human body. Low in saturated fats enables to maintain good health. Vitamin E helps in rejuvenation of skin.

4.3 Plant LocationsYear of  Establishment

Name of the Company

Division Place Products

2008

ROM Industries(Being Commissioned)

Edible OilKanota(Jaipur, Raj.)

Integrated Edible oil processing complex:Solvent Extraction: De Oiled cake (DOC), Vanaspati, Refined oil, Mustard oil

2007

Deepak Vegpro (P)Ltd, Vanaspati Division

Edible OilDurgawati(Kaimur, Bihar)

Vanaspati

2005Data Foods (P) Ltd

Edible Oil SrilankaBakery Shortening / Vanaspati

2004 Raghuvar India Ltd

Edible Oil Jaipur (Raj.) Integrated Edible oil processing complex: Solvent Extraction: De Oiled cake (DOC), Vanaspati, Refined oil, Mustard oil and Wind

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Power

2003Goenka Products(a unit of VSL)

Edible OilJobner (Jaipur, Raj.)

Oil Mill: Groundnut oil, Mustard oil and cake

2002Data Housewares Ltd

Ceramics Birmingham, UKImport / Export and marketing of FINE Bone China Crockery

1999Deepak Vegpro (P) Ltd

Edible Oil Alwar (Raj.)Oil Mill: Mustard oil and cake; Wind Power

1992Jaipur Glass & Potteries(a unit of VSL)

Ceramics Jaipur (Raj.)Fine Bone China Tableware and H.T. Insulators

1989Vijay Solvex Ltd

Edible Oil Alwar (Raj.)

Integrated Edible Oil Complex : Solvent Extraction (DOC), Vansapati, Refined oil, Mustard Oil/Cake and Wind Power

4.4 Three Dimensions Of Growth

1.CAPACITY EXPANSION :-

Vijay solvex ultimate aim to expansion of capacity . So that company fully satisfied the demand of customers.

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1. CAPACITY EXPANSION 2. GLOBALIZATION

3. DIVERSIFICATION

2.GLOBALIZATION:-

Globalization Globalization breaks the traditional barriers of national boundaries and Allows the most competitive value addition, thus rewarding and enhancing efficiencies.

3. DIVERSIFICATION:-

Vijay solvex and its associate companies and businesses, collectively, Are seeking to broaden the scope of operations in their traditional Domains, increasingly occupying adjacent domains. The high potential Of the oil sector and opportunities from globalization converge To offer tremendous opportunities as never before.

5

28

WORKING

CAPITAL

MANAGEMENT

5.1 INTRODUCING WORKING CAPITAL:

It involves managing the relationship between a firm's short-term assets and its

short-term liabilities. The goal of Working capital management is to ensure that

the firm is able to continue its operations and that it has sufficient cash flow to

satisfy both maturing short-term debt and upcoming operational expenses.

A revolutionary change has taken place with new trends and new policies of the

Government in the wake of WTO; economic liberalization and competitive

business market. This has stressed the need of effective, efficient and proper

financial management of investment of funds in business.

29

To run a business funds and finances are required. A large amount is required

for acquiring the fixed facilities like land, building, plant and machinery etc. and

also for production and uninterrupted day to day operations investment is needed

for inventories of raw materials, semi finished goods and other related production

operation.

Two vital aspects of corporation like are liquidity and profitability. The Profitability

depends on the liquidity and due to thus important aspect, the working capital

management of short terms assets and short run sources of finances is

becoming an integral part of planning of the business. Total Capital can be

divided into Fixed Capital and working Capital. The Capital can also be divided at

fixed assets or long-term financing and current assets or short term financing.

The adequate funds must be available for investment in current assets for

procuring new supplies of raw materials and paying of wages and services. The

funds required for day to day operating costs are known as Working Capital.

These costs are met out of Current Assets like cash, bank balance, debtors and

inventories. In layman terms, the Current Assets are called Working Capital.

Usually current assets are not retained for longer period in the business and are

converted into some other forms.

Current assets are known as ‘Gross Working capital ‘. This is a going concern

concept that enables to provide current amount of Working Capital at the right

time, so that business operations sail uninterruptedly and to bring about

productivity from other assets. This concept is also known as Current Capital or

Circulating capital. The size of investment in the Current assets of the business

does not show or indicate current financial position, but for true assessment of

financial strength, these must be focused in relation with firms ‘Current

Liabilities’. The difference between Current assets and Current Liabilities is

known as Net working Capital.

Net Working Capital = Current Assets – Current Liabilities

30

While Gross Working Capital is a Going Concern concept, and Net working

Capital is an Accounting Concept of Working capital.

The goal of Working Capital Management is to manage firm’s current assets and

current liabilities in such a way that satisfactory level of Working Capital is

maintained. It has been emphasized that a firm should maintain a sound Working

Capital position and there should be optimum investment in working Capital. The

proper management of Working Capital also aims at protecting the purchasing

power of assets and maximizing return on investment.

The Net Working Capital is also known as Net Current assets. This concept

helps in knowing the additional capital required for financed the Current Assets

over and above what is financial by the Current Liabilities. This also indicates the

position of the firm and weather the firm has to finance either from long-term

funds or bank borrowing. The consideration of the level of investment in current

assets should avoid two danger points; Excessive and Inadequate in current

assets. Excessive investment means, an idle investment, which earn nothing and

inadequate investment firms solvency is threatened. Therefore, the management

should be vigilant and should have knowledge of the sources of funds in

emergency and possible investment avenues to temporarily invest the idle funds.

For efficient management of Working capital, both gross and net concepts of

working capital are important. There is no precise way to determine the exact

amount of gross or net Working Capital for any firm. There is also no specific rule

to how current assets should be financial. In practice, it is not feasible to finance

current assets should be financial. In practice, it is not feasible to finance current

assets by short-term sources only. Keeping in view, the constraints of the

individual organization, a judicious mix of long and short-term finance should be

invested in current assets. The current assets should be put to productive use,

since they involve cost of funds.

31

It is also very important that Working capital should be classified on the basis of

time factor as either permanent or temporary.

There is always a minimum level of current of current assets, which is

continuously required by the firm to carry on its business operation. This is

referred to as Permanent or Fixed Working Capital. Depending upon the changes

in production and sales plan, the need for Working Capital will fluctuate. This

extra Working Capital needed to support the changing pattern of production and

sale activities is referred as Variable or Temporary Working Capital. The variable

or Temporary Working Capital should be obtained from the sources that will allow

its return when not in use. This classification can be depicted through two

diagrams.

Temporary Working capital is created to meet the liquidity requirement that will

last only temporarily. The above diagram illustrates between Permanent and

Temporary Working Capital. It is shown that Permanent working Capital is stable

in case of over-time; while Temporary working Capital is fluctuating sometime

increasing and sometime decreasing.

32

In the second diagram depict that if the firms requirement for permanent capital is

increasing or decreasing over a period of time, then Permanent working Capital

line need not be horizontal. The difference between Permanent and Temporary

working Capital for the growing firm has been shown in the above Figure.

5.2 Components of Working Capital:

33

Working capital has two components. Working Capital in current use of Current

Liabilities with the amount of Current assets is shown in the Balance Sheet. In

some Balance Sheets all items classified, as Current Liabilities and Current

assets are given in a consolidated Form.

Constituents of Current Assets:

The following items constitute the current assets.

Cash In Hand

Cash in Bank

Fixed Deposits

Advances to Vendors, Loan to Employees etc.

Bill Receivable

1) For sale of finished products

2) For sale of capital goods

3) For sale of non-trading items

4) Finished and Semi-finished products

Work-In-Process and Work-In-Progress

Raw Material stock

Stores of spares including loose tools etc.

Investments in Government or Corporate Securities.

Constituents of Current Liabilities.

The following items constitute the current Liabilities

Bills Payable for

1) Supplies of material, store etc.

2) Non-trading items as rent taxes etc.

3) Administrative charge, if any

Income Tax payable during the following years.

Dividends payable during the coming year

Provision for specific purposes

Short-terms Loans including bank overdrafts.

34

When Current Liabilities are more than Current Assets, Working Capital results in

negative.

5.3 Operating Cycle:

Current assets of a firm that are changed in the ordinary course of business from

one form to another, as for example from Cash to Inventories, Inventories to

Receivable and Receivable to Cash etc.

Working Capital is required because of the time gap between production and

actual realization in cash. This time-gap is technically termed as “Operating

Cycle” of the business. This is also known as “Cash Cycle‘’ of the Working

Capital.

OPERATING CYCLE OR CASH CYCLE

35

We can illustrate this, by quoting an example, suppose, we have a Current

Liabilities of Rs. 70,000-00 and Current Assets of Rs. 1,00,000. The difference

between Current Assets and current Liabilities is Rs. 30,000. Now Rs. 70,000

should be raised from Long-term Loan in order to make business operating

successfully. Therefore, the objective of working capital Management is also to

maintain a smooth and rapid flow of funds over the Cash Cycle and to increase

the Working Capital efficiency and profitability of the firm. Controlling the Cycle

Time involved in the Activities does this. Working Capital known as ‘blood’ of the

firm. This blood can be seen flowing through the organization in the following

pattern;

Cash is needed to start with- Current Assets.

Cash is used to buy Raw Material- Current Assets.

Raw Material can be bought on credit-Creditors or Current Liabilities.

To pay in advance for Raw Material- Loans & Advances are current

assets.

Raw Material is converted in process – A Current assets.

Stock or Work in progress.

Work In Progress is converted to – A Current Assets

Finished Products.

Finished Products can be sold on – Credit sale generate debtor- A Current

Credit or on cash assets.

When debtors pay-up, cash is generated- A Current Assets.

36

To finance this cycle, money may be – a Current Liabilities.

May be borrowed from creditors.

More cash is generated at every rotation then that was first needed to buy the

raw material and add value to product. This added value cover all manufacturing

and trading expenses and also leaves a margins, it earn profit or surplus.

OP = M + W + F + D – C

Where,

OP = Operation Cycle Period

M = Material Storage Period

W = Work-in-Progress

F = Finished Goods

D = Debtors Collection Period

C = Creditors Payment Period

(a) Material Storage Period

Material Storage Period= Average Stock Raw Material

Average Per day Consumption of Raw Material

Average Stock = Opening Stock + Closing Stock

2

Average Per day Consumption = Raw Material Consumed × 365

during the year

37

(b) Work-in-Progress

Work-in-Progress = Average Stock in Work-in-Progress

Daily Average Production Cost

(c) Finished Goods Storage Period

Finished Goods Storage Period = Average Stock of Finished Goods

Daily Average cost of Goods Sold

= (Opening Stock + Closing Stock)/2

Total cost of Goods Sold /365

(d) Debtors Collection Period

Debtors Collection Period = Average Debtors +B/R

Credit Sales per day

OR

= Average Debtors +B/R

Net Credit Sales for the year ×365

(e) Creditors Payment Period

Creditors Payment Period = Average Creditors + B/P

Credit Purchases for the year ×365

OR

= Average Creditors + B/P

Net Credit Purchases for the year ×365

38

(2)Number of Operating Cycles = 365

Net Operating Cycle

5.4 Importance and Advantages of Working Capital:

When we symbolize working Capital with ‘Blood or Oxygen ‘ for a business

organization, there lies the total Growth and survival of the business

organization. Some of the advantages and importance of Working capital in

business organization are discussed here.

39

Solvency of the business: Optimum and adequate Working Capital in

business organization helps in maintaining solvency of the business by

providing uninterrupted flow of production. Excessive and inadequate

Working Capital threatened the very basis of solvency of business

organization. It also increases the organization financial soundness.

Goodwill of the organization: There are many benefits both seen and

unseen to a business organization which are based on goodwill. Sufficient

and adequate Working Capital enables the business organization to make

prompt payments and this helps in maintaining and creative positive

goodwill.

Raise easy loan: An adequate Working Capital ensures law rates of

interest on bank Loans. Sources of funds and finances for any business

venture can be easily arranged on favorable terms. Due to the effective

and sound management of the Working Capital the financial lending

institutions always came forward to have business with this organization.

Continuity, Uninterrupted and Regular supply:

An adequate Working Capital ensures regular supply of raw material for

manufacturing and production and this further helps in uninterrupted

manufacturing and continuity in production.

Motivate Work Force: An organization with sound Working Capital can

make regular payments of salaries, wages and meet other day to day

commitment, which help in motivating and raises the morale of the

employees Working in the organization. It also increases the efficiency,

reduces wastage, pilferage and cost of production and increases

productivity.

Purchasing Power: An adequate Working Capital enables and increases

the purchasing power of the business organization. It is always in a better

40

position to avail the advantages of any favorable opportunity either to

purchase raw material and avail cash discounts or to execute a special

order or to avail better options and market position. This help in reducing

cost of production.

Power to Face Crises: Adequate Working Capital enables a business

organization to face business crises in emergencies such as depression,

because during such period generally there is much demand and pressure

on the Working Capital. During slumps the demand for going down goes

up. A large amount is booked in inventories and the receivable. Firms

having ample Working Capital tide over and have power to face crises

during the period of depression.

So, keeping in view all the above points, we can very easily confirm the

statement that should, optimum and adequate Working Capital Works as

blood and oxygen in the life of business organization.

5.5 STATEMENT OF PROBLEM

Statement of problem is a first step in any research. Unless or until there is no

problem one cannot conduct any research. As this is a manufacturing concern

working capital is very vital for its functioning. By going through the Financial

Statements of last 5 years it has been observed that there are wide fluctuations

41

in the working capital from one year to other & that has affected the profits

significantly. So I have chosen Working Capital Management as the topic of the

research study.

6

OBJECTIVE

OF

42

STUDY

The major objectives of this study are as follows: -

1. Working capital aim to protecting the purchasing power and maximizing return on investment

2. To study the size and composition of Working Capital of the unit

3. To study the effectiveness of utilization of investment and evaluate the process and procedures of managing different Current assets.

4. To analyses and evaluate the efficiency and profitability of Working Capital management techniques.

5. To suggest a few pragmatic measures and techniques for possible Improvement in the management of Working Capital.

6. It has sufficient cash flow

43

7

RESEARCH

METHODOLOGY

44

Research Methodology:

Research in common parlance refers to a search for knowledge. One can also

define research as a scientific and systematic search for pertinent information on

a specific topic.

The word research has been derived from French word Researcher means to

search.

FRANCIES RUMMER defined Research:

“ It is a careful inquiry or examination to discover new information or

relationship and to expand or verify existing knowledge.”

Research is the solution of the problem, whether created or already generated.

When research is done, some new outcome, so that the problem (created or

generated) to be solved.

Research methodology here includes:

Type of research.

Data Collection.

Sampling.

7.1 Type of Research

In preparation of this project report, the research design is “Descriptive” in nature.

The Conventional method of data collection was used.

45

7.2 Methods of Data Collection:

The Secondary data on is characterized by the data being collected exactly for

the project writing, but have to drive-it-out from the record, books organization

appraisal, documents, financial statement, working capital statement of Vijay

Solvex Ltd. and other published material available.

The following steps of research methodology were taken in preparation of this

work.

Collection of Data

The first step in the process is to collect the data for this work. The data can be

collected through primary as well as secondary sources. The data collection is

the foundation of any study.

Data pools and record, communication methods and personal interviews etc. are

some of the ways to collect the data.

The main objective is to collect comprehensive data so that relevant data or

maximum information can be easily driven-out, keeping in view the constraints

regarding time; organizational policies, environment and secrecy are properly

adhered.

7.3 SAMPLINGSampling may be defined as the selection of some part of the aggregate or

totality on the basis of which judgment about the aggregate or totality is made. In

other words it is the process of obtaining information about an entire population

from which the samples are taken. It includes:

Sample size

Annual accounts of last 5 years

46

8

SCOPE

OF

STUDY

47

Scope of study here means the things or area covered . The study includes the

following:

1. Cash Management.

2. Receivable Management

3. Inventory Management.

4. Ratio Analysis

SCHEME OF STUDY

Cauterization Scheme is used in the research. The project includes total of five

chapters, which are as follows:

1. CHAPTER-1 Introduction

2. CHAPTER-2 Research Design

3. CHAPTER-3 Company’s Profile

4. CHAPTER-4 Analysis & Interpretation of Financial Statements

5. CHAPTER -5 Findings & Recommendations

8.1 IMPORTANCE OF STUD Y

The project is concerned with the “Working Capital Management at The Vijay

Solvex Limited, This study is very useful, as working capital is essential for every

manufacturing unit, to fulfill the daily requirements & for good management of

working capital.

It is also important to manage the firm’s current assets and liabilities in such a

way that a satisfactory level of working capital is maintained and thus ensure its

solvency.

48

Each of current assets must be managed to maintain liquidity.

Working capital management tries to avoid two-danger points excessive and

inadequate investments in current assets.

8.1 LIMITATIONS:

Limitations of the study are all those which a student has to face while

completing such project. However, following are the main limitations:

1. Only five-year data is analyzed, so desired conclusion is not been found.

2. Although the staff of Vijay Solvex Limited was very efficient and highly

cooperative and they devoted enough of their valuable time for us but

because of time constraint we were not able to devote as much time with

their employees.

3. Due to non-availability of data of other manufacturing units is not able to

compare the data of one unit with another.

49

1. Cash Management:

Cash is the most crucial component of Working Capital of a firm. Cash is like

Blood stream in a human body gives vitality and strength to a business firm.

Cash is both the beginning and the end of the working Capital Cycle. The

problem of Working Capital Management is in fact the problem of Cash

Management itself.

The term cash with reference to Cash Management is used in two senses i.e.

narrow and broad. In Narrow sense it includes Cash (Currency) and generally

acceptable equivalents of cash as cheques, draft and demand deposit in banks.

However, in the broader sense Cash and near cash items such as marketable

securities and time deposits in banks also included in the Cash. In the present,

the term cash has been used in the broader sense.

This however, also supported by management scholars and experts as they

observed, “Cash Management includes management of marketable securities

also, because, in modern terminology money comprise marketable securities and

actual cash in hand with bank.

Motives for Holding Cash

There are following four main motives of holding cash: -

Transaction Motive

Precautionary Motive

Speculative Motive

Compensation Motive

Transaction Motive

One of the important reasons for maintaining Cash is to facilitate

business transactions. Business needs cash for various payments

in ordinary course of its operation. Sometime outflows of Cash are

more than its inflows. Then the firm needs the cash so that liabilities

could be paid. If cash receipts match with the cash payments,

business does not need cash for the transactional purposes.

50

Precautionary Motive

Firm needs cash to combat some contingencies. Some of the

contingencies for which additional Cash is required include: -

Strikes, Floods, Failure of important customers.

Slow of cash collection

Rejection of orders by customers due to their dissatisfaction

Rise in cost of raw material etc.

Speculative Motive

It means to make use of profitable opportunities by firm.

Sometimes, the firm wants to make use of such profitable

opportunities, which are outside the operation of the business. For

this purpose, firm retains some Cash. Some of these opportunities

are:-

1. Opportunity to purchase raw material at low price by payment of

cash immediately

2. Opportunity to purchase securities at falling prices.

3. Purchasing raw material at a time when its prices are the

lowest.

Compensation motive

One more objective to maintain cash is to compensate for

providing free services by bank to the business. Bank provides a

number of services to its customers, like clearance by cheques,

credit information about other customers. For these services bank

charges commission, but some of the services are provided by

them are free of cost, for which they require indirect compensation.

51

For this purpose they wish their customers to maintain minimum

cash balance. The firm for its business transaction can’t use this

bank balance, but bank can use it to earn profit and thus

compensate itself for the cost to services to the customers.

Objective of Cash Management:

To follow Payment Schedule Strictly

To make payment according to payment schedule is the core

objective of the Cash Management. This not only strengthened the

Solvency of the firm but also of the firm.

The basic objective of Cash Management is to meet the Cash

requirement of business i.e. to pay its liabilities in time. In other

words, firm needs Cash to meet its routine expenses including

wages, salary, interest, dividends, taxes etc.

To Minimize cash Balance

The second objective of Cash Management is to minimize Cash

balance. In order to minimize the cash balance, there is need to co-

ordinate with two contradictory aspects. Excessive amount of cash

balance helps in quicker payment and all advantages relating to

such payments can be taken. But it would mean that a large

amount of Cash fund will remain unused. It will reduce profitability

of business. Contrarily, when Cash available with the firm is unable

to pay its liabilities in time, it threatened the basic solvency and

goodwill of the firm. Therefore, the level of Cash in time should be

optimum. Firm should therefore determine its cash requirement

considering all the factors.

52

Cash planning and Cash Forecasting

Cash planning is crucial in developing the overall operating plans of

the firm. The Cash planning and Cash forecasting must be

coordinated to get effective overall cash control.

Optimal Investment of surplus cash

Optimal level of Cash must be maintained. Any Cash more than

this level is called Surplus. The objective of the Cash Management

is to effectively utilize the Surplus Cash. This Surplus Cash should

be invested in Short-term obligation To reduce loans outstanding

and thus obtain interest saving Purchase of own securities To

develop new products and improve old ones etc.

Devices of Cash Management:

The following are the main devices of Cash Management:-

Cash Budget

Cash Flow Statement

Cash Flow Ratio

Cash Management Models.

Cash Management at Vijay Solvex LIMITED :-

The Cash Management at the Vijay Solvex Limited is controlled by the Top

Management of the Unit. The amount to be invested in securities or other

investment is determines by the top management.

The Cash Flow statements are prepared on a monthly basis so to have the track

and control over the cash. The Cash Flow statement is prepared to project

weather the Unit have sufficient cash to meet its requirement or not. The

53

Managing Director has the disbursements power up to one Lac and for any

disbursement over and above, the matter is refereed to the Board of Director.

The Chief Account Officer is directly responsible for the Cash Management of the

Unit. The Board of Directors and the Senior General Manager of Vijay Solvex

Group has the power to check the Units any time.

2. INVENTORY MANAGEMENT

A large part of total assets of business is found in the form of inventory. To

observe that investment in inventory is not unnecessarily high and management

should keep proper control on the amount and structure of inventory. Because

among all the current assets of the business, inventory is the least liquid and any

wrong in the management of inventory cannot be corrected easily and it can be

ever costly for the firm. Funds of the firm which are procured from internal as well

as external sources need to be managed inventory and for this purpose inventory

should be aware of all the factors affecting the level of management and the

methods to control it.

The main objective of inventory management is to determine the level for each

type of inventory. For this purpose the purchasing and carrying costs should be

compared with their benefits. For example, when a firm purchase in bulk quantity,

it’s out of stock risk decrease but in case it continues to purchase, it reaches a

point where it’s carrying costs exceeds its benefits. Therefore, the management

should maintain only a proper level of inventory. Not only the financial manager is

concerned with inventory management but it also affects marketing and

production managers. For determining an optimum level of inventory proper co-

ordination among all of them is essential.

In manufacturing concerns inventory may includes: -

Inventory or raw material

Inventory of work-in-progress

54

Inventory of finished goods

Stores and supplies

The management of inventory is very important because it affects the whole

production policy and ultimately finances are affected. There are many risk and

cost of holding inventory. These are discussed below: -

Risk of Price Decline

There is always a risk of reduction in the prices of inventories by

the suppliers. This may be due to competition or depression in the

market.

Capital cost

Maintaining of inventories results in blocking of the firms financial

resources. The firm has therefore to arrange for additional funds to

meet the costs of the inventories.

Risk of Obsolete

The inventories may become obsolete due to improved technology,

changes in requirement etc. In Vijay Solvex ltd there is also a risk of

obsoletion because of chance of Fashion.

Storage and Handling Costs

Holding of inventories also involve cost of storage as well as

handling of materials. The storage costs include the rental of the

Godowns, Insurance charge etc.

55

Objectives of Inventory Management:

To ensure that the supply of raw material and finished goods will remain

continues so that production process is not halted and the demand of the

customers is duly met.

To minimize the carrying costs of the optimum level.

To keep investment in inventory at the optimum level.

To reduce the losses of theft, obsolescence and wastage etc.

To minimize inventory ordering costs.

56

Management of Inventory at Vijay Solvex LIMITED

Raw Material

Without raw material, the production is not possible. Raw Materials are those

basic inputs that are converted into finished products through the manufacturing

process. Raw Material inventories are those units which have been purchased

and stored for future productions.

Work in Progress

Work in Progress is that stage of stock, which is between the raw material and

finished goods. In Vijay Solvex Limited the Work in Progress is valued at costs

including appropriate overheads.

Management of Stores and spares

To manage spares and stores forecasting is essential. The forecasting is based

on the past experience. Like other inventory, the firm has to maintain a minimum

level of stock and spares. The main techniques of inventory management are

these stores as follows:-

Reorder Point

EOQ

Reorder point means the point of inventory level at which the new order is

places. For determining reorder point two information are needed.

Lead Time

The Usage Rate

Lead-time is the time period between the date of placing order and the date of

receiving delivery.

Average Usage is that quantity of new material, which used daily in business.

Reorder Point = Lead Time * Average Usage

57

Economic Order Quantity or EOQ

EOQ means the quantum of material, which is to be purchased by each order so

that the sum of ordering costs of material and its carrying costs are minimum.

One issue in the inventory management is that at one point of time or by each

order how much quantity should be purchased.

In Vijay Solvex Limited, the inventory of stock and spares is very closely verified

and proper procedure is adopted.

EOQ = √[2RO/C]

EOQ = Economic Order Quantity

R = Total cost per order of that item

O = Ordering cost per order of that item

C = Carrying cost per unit per annum

Management of Finished Goods

Finished Goods are goods, which are ready for sale. Almost every firm maintains

a minimum level of finished goods in order to make continuous supply of goods

to the consumers.

3. Management of Receivable

A major part of firm’s assets is in the form of receivable. Receivables are created

due to credit sales. A firm sells goods on credit to save itself from its competitors

and to attract potential customers. Firm’s funds are blocked during the period

between the date of actual sales and the date of payment arising from credit sale

and thereby creation of receivable.

58

Meaning of Receivable

Hampton has defined receivable as under:-

“ Receivable are assets accounts representing amounts Owned to the firm as a

result of the sales of goods or Services in the ordinary course of business’’.

Receivable are also termed as trade receivable, account receivable, customer

receivable, book debt trade acceptances, sundry debtors, bills receivable etc.

Management of Receivable- is also called management of trade credit. The

Receivable arising from credit sales contain risk element. In cash sales, such risk

does not exist. The amount of credit sales is realizes in future.

Characteristics of Receivable:

It involves as element of risk, which should be carefully analyzed. Cash

sales are realized at time of sales. But contrary to it, on credit sales as the

cash payment has yet to be received, so it involves risk of non-recovery.

It is based on Economic Value. To the buyer the economic value in the

goods or services passes immediately at the time of sales, while the seller

expects an equivalent value to be received latter on.

It implies futurity. The cash payment for goods and services received by

the buyer will be made by him in future period.

59

Purpose of Receivable

There are following three purpose of investing in or maintaining receivable:-

(1) Growth in Sales

In comparison to cash sales, firm can make high sales by selling on credit,

because, many customer do not want to pay cash. Also according to the rules

stated by the buyer in the early contract forces the company to supply on credit.

The final payment is made after the physical inspection by the buyer in his

country with the sample shown.

(2) Increased Profits

Due to credit sales of goods and services, the total sales of business can

increases. As a result, its profits also start increasing.

(3) Response to Competition

Various firms sell goods on credit to their customers only because their

competitors are doing so. If the firm does not follow credit policy of its

competitors, its total sales will decrease because its customers will be attracted

towards other firms.

4. Ratio Analysis

60

CURRENT RATIO

Meaning

The ratio reveals the relationship between current assets and current liabilities

.This ratio also reveals that how efficiently the working capital of the firm is used.

Particular Formula 2007 2008

Current ratio Current Assets/Current Liabilities 1.56 1.26

It shows the relationship between current assets and current liabilities. It is a

measure of general liquidity. It is also called as Working Capital Ratio. The Ideal

current ratio is 2 : 1. The Current Ratio of Vijay Solvex limited is meets the

required level of efficiency and represents the good image of the company.

61

Inventory Turnover Ratio

Meaning:-

This ratio indicates that the stock has been utilized efficiently or not. Also it is

used to check up that the required minimum stock has been invested or not. Only

proper inventory turnover enables the business to earn a reasonable margin of

profit.

Particular Formula 2007 2008

Inventory turnover

ratio

Cost of Goods

Sold/Average

stock

8.59 7.79

The Inventory Turnover Ratio indicates the efficiency of the firms in

producing and selling its products. It is calculated by dividing Sales by

Average Stock.

Every firm has to maintain a certain level of inventory of finished goods so as

to be able to meet the requirements of the business. But the level of inventory

should neither be too high or too low. It is harmful to hold more inventories.

Inventory Turnover Ratio would indicate whether inventory has been efficiently

used or not. The purpose is to see whether only require the minimum funds

have been locked in inventory. It measures the velocity of conversion of the

stock into sales. Usually high inventory turnover ratio indicates efficient

management of inventory because more frequently the stocks are sold, the

lesser money will be required to finance the inventory. A low inventory

turnover ratio indicates an inefficient management of the inventory.

There are no thumb rules or standard inventory turnover ratio for interpreting

the inventory turnover ratio. The norms may be different for different firms

depending upon the nature of the industry and business conditions.

As the inventory turnover ratio of Vijay solvex Limited is7.79, it shows the

greater efficiency of the company.

62

Debtors Turnover Ratio

Meaning:-Debtor turnover ratio is calculated to measure the collect ability of accounts

receivable and tell about how the credit policy of the company is enforced.

Particular Formula 2007 2008

Debtor turnover

ratio

Net Credit Sales / 18.48 18.90

It indicates the number of times the debtors are turned over during the year.

The higher the value of debtor’s turnover the more efficient is the

management of the debtors or more liquid is the debtors. But a precaution is

needed while interpreting a very high debtors turnover ratio because very

high ratio may impel a firm inability due to the lack of resources to sell on

credit thereby losing sale and profits.

63

9

ANALYSIS

AND

INTERPECTION

64

Factors Determining The Working Capital Requirements:

(1) Nature or Character of the business

The Working Capital requirement of a firm depends on the nature

of its business. Public utility undertakings like electricity, water supply,

telecom and railway etc. require very limited working capital because they

offer cash sales only supply the services and do not have creditors or

debtors.

(2) Size of the business

Working Capital requirements of a concern are directly

influenced by the size of the business. Greater the size of a business unit,

larger will be the requirement of the Working capital.

(3) Manufacturing Process

In manufacturing business, the requirement of working Capital

increases in direct production to the length of the manufacturing process.

The longer, the manufacturing process, the raw material and other

supplies have to be carried out long before the finished product is finally

obtained.

(4) Credit Policy

The credit policy of concern in dealing with its debtors and creditors

influences the requirement of Working Capital. Some concern purchases

its product on credit for three months and sell its product and services on

one credit needs lesser amount of Working Capital. In Vijay Solvex limited,

the credit period for purchases is 90 days and normally sales is done on

credit basis as it does only export.

65

(5) Business Cycle

Business Cycle also determines the amount of the Working

Capital. In the period of boom, when the business is prosperous, there is

need for layer Working Capital due to increase in sales, rise in prices,

increase in production etc. On the contrary, in the times of depression,

when there is a down swing of the cycle business needs less working

Capital because a lot of the capital lies idle.

(6) Other Factors

Certain other factors such as operation efficiency,

management ability, irregularity of supply, import and export policies also

influence the requirement of Working Capital.

66

Working Capital Assessment:

a). Fund Based Limits : M/s Vijay Solvex Limited is continuously-earning

profits and classified standard assets as on 31.03.2008. Working Capital Limit is

for whole company

INVENTORY/RECEIVABLE NORMS (WHOLE COMPANY)

(Rs. In Lacs/level in months)

Accepted (level

of F.Y. 2006-07

2004-05 2005-06 2006-07 2007-08

R.M. 1147.00(0.56 M)

590.01(0.35M)

572.87(0.29M)

2460.00(0.94M)

1672.50(0.62 M)

WIP 90.00(0.04M)

49.48(0.03M)

51.75(0.02M)

90.00(0.03M)

90.00(0.03)

F.G. 880.75(0.35 M)

605.56(0.29M)

1163.98(0.47M)

1139.75(0.34M)

1139.75(0.33M)

Trading Goods 600.00(2.00 M)

188.43(0.85M)

979.06(2.19M)

800.00(1.63M)

800.00(1.55M)

Receivable 1938.00(0.71 M)

2037.14(0.90 M)

2416.38(0.89 M)

2348.00(0..64M)

2468.00(0.65M)

Sundry Creditors 230.00(0.10 M)

186.57(0.10M)

334.28(0.14M)

280.00(0.09M)

280.00(0.09M)

From the above, it is observed that projected levels of raw materials, trading

goods & finished goods and receivables are near about the accepted level for fi-

nancial year 2007-08 by the bank. In the year 2007-08 the level of raw material

is higher side due to build up of inventory by short term corporate loan of

Rs.1000 Lacs.

67

ASSESSMENT OF M.P.B.F./A.B.F. (WHOLE COMPANY)

(AMOUNT RS. IN LACS)

S.N. Particulars 31.03.05 31.03.06 31.03.07 31.03.08

1 Total Current Assets 4892.85 6427.55 8121.85 7474.35

2 Other Current Liabilities (Other than Bank Borr.)

1412.51 2631.53 3093.32 1759.44

3 Working Capital Gap 3480.34 3796.02 5028.53 5714.914 Actual/projected net working capital 1707.52 1914.17 2028.53 2714.915 Assessed Bank Finance 1772.82 1881.65 3000.00 3000.006 Bank Finance to total Current Assets (%) 36.23 29.27 36.94 40.147 Net Working Capital to Total Current Assets

(%)34.90 29.78 24.98 36.32

8 Sundry Creditors to Total Current Assets (%) 3.81 5.20 3.45 3.759 Outside Current Liabilities to Total Current

Assets (%)28.87 40.94 38.09 23.54

10 Total Current Liabilities including Bank Finance

3185.33 4513.18 6093.32 4759.44

b. Non Fund Based Limits:

68

The company at present is availing L/C and B/G limits of Rs.400 lacs and Rs.100

lacs respectively which were assessed for achieving estimated sales of Rs.32957

lacs for the financial year 2007-08 For the financial year 2007-08, the Company

has achieved net sales of Rs.32742..25 lacs and estimated/ sales for the year

2006-07 /2007-08 at Rs.44108 lacs/ Rs.45285 lacs respectively and has

requested for renewal of L/C limit and Bank Guarantee Limit at existing level

which is recommended for sanction.

GROSS WORKING CAPITAL =TOTAL CURRENT ASSETS

GROSS WORKING CAPITAL =7474.35 Lac.

NET WORKING = CURRENT ASSETS – CURRENT LIABILITIES

NET WORKING CAPITAL = 7474.35 - 1759 = 5714Lac.

69

10

FINDINGS

The Company has set itself the task of consolidating and enhancing its position

in Indian edible oil market, both in terms of volumes as well as customer

70

satisfaction, in the medium term. The company is executing various initiatives in

terms of process and product improvement to achieve this goal.

Results of operation:

The Company generated profit from operations after tax of Rs.5.42 corers. After

meeting working capital requirements and extraordinary item payments the

Company earned net cash inflow of Rs 17.83 corers. From its operations in

2007-08. Profit before tax and extra-ordinary items improved by Rs 7.47 corers in

2007-08. After providing for taxes at Rs 2.06 corers (Including deferred tax and

fringe benefit tax), profit after tax for the current year improved by 5.42 corers.

Revenues:The Company was able to earn revenue through the following streams of business activities:

1. Current Assets in 2008 is Rs.7474.35 Lacs,which was Rs.8121.85Lacs in

2007.

2. Current liability in 2008 is Rs.1759.40Lacs, which was Rs.3093.32 in

2007.

3. Working Capital gap in 2008 is Rs. 5714.91Lacs, which was

Rs.5028.53,Lacs in 2007.

4. Total operating cycles period is 60 days

Liquidity:

71

As at March 31, 2008, Creditors are Rs. 280 Lac. During the year the Company in 2008 take the inventory by short term corporate loans of Rs. 1000 Lac. Debtors are Rs. 2468 Lac the year the company in 2008. Company’s current ratio is 3.95. the current assets & current liabilities of company are Rs.152.85 & Rs. 38.72 corers in 2008.principal sources of liquidity are:

Existing cash and cash equivalents

Cash generated by operations

secured & unsecured debts.

Funds from short term liabilities.

Capital expenditure and Investments:

During the year, the Company incurred Rs 3.62 corers. Towards capital expenditure. E.g. in gross block & 1 corer in investments related to capacity expansion in the existing plants.

Staff costs :

The staff costs in 2008 is Rs.6.22 corers, which was Rs.5.60 corers in 2007.The increase is mainly due to full year impact of salary revision made in the previous year and incremental manpower for ongoing activities at VSL and Product Development initiatives.

Material Cost:

The materials cost in 2008 is Rs.523.07 corers, which was Rs.388.02 corers in 2007.Raw materials the major input material, witnessed a steep increase during the year (42% increases on point to point basis compared to March 2007). The Company also managed to secure from global sources, components at lower costs to offset the materials price induced input cost increases.

72

11SWOT ANALYSIS

73

STRENGTH:

Strength captures the positive aspects internal to your object that add value or

offer you a competitive advantage. This is your opportunity to remind yourself of

the value existing your object.

Excellent Market Coverage.

Quality – Conscious Organization; the Company is always able to

compete on Quality.

Experienced work force.

The employees are satisfied with their present job profile.

Licenses renewed

Access to best Technology

Company is making full utilization of their potentials.

WEAKNESS:

Weakness capture the negative aspects internal to your object that detract from

the value you offer or place you at a competitive disadvantage. These are areas

you need to enhance in order to compete with your best competitor.

The Price of Company Product is high than the Competitors.

Employee’s turnover.

Narrow product range.

Unorganized labour contractors

74

Lack of HR development

Lack of liquidity Management

OPPORTUNITY:

Opportunities reflect the potential you can realize through implementing things.

Opportunities may be the result of growth, lifestyles changes, and resolution of

problems associated with current situations.

There so many opportunities to make better utilization of the work force if the

management gives better cash reward to the employee’s than worker will work

hardly.

New product development.

Increasing the export of the Products in Foreign.

Company should replace the old machine so that workers may able to

give more production.

Benchmarking HR practices

Sharing HR practices with other locations.

THREATS:

Threats include factors beyond your control that could place your things at risk.

These are also external –you have no control over them, but you may benefit by

having contingency plans to address them if they should occur.

Surrounded by the sick industries.

75

New Domestic & MNCS are ready for entry in Edible Oil Business in near

Future. So this will increases Competition in the oil business. So Potential

Entrant will Propose Threat to the existing Company.

Problem of labour turnover.

As the company is in working since January 1987 hence there is threat to

the company that it should replace the old machine and to install the new

machinery

There is need of development in technology change and to change the

present market policy.

12SUGGESTIONS

76

Recommendations & Suggestions

After studying the Working capital Management of vijay solvex ltd., I would

like to give few suggestions to the company so that it can run smoothly in

future. These are as follows:

Efforts should be made to achieve it’s target, so that company can run

smooth.

Introduces new production policy to helps to reducing cost of production

There should be timely check of the customer’s problems for smooth

functioning of the company.

The company should enter into other oil market to increase its profits.e.g.

Petroleum refining.

One way to reduce man power cost is to complete one job in one stretch.

Relation between the management and the employees should be made

more effective so that there may not be any communication barrier which

can affect the enter price in any way.

77

Company can introduce more brands & products in it’ product line.

Company should purchases the raw material from different-2 suppliers to

take the benefit of price differentiation and to reduce cost of production.

Traveling expenses can be reduced as:-

Local transportation: combining the activities of different dep’t at one place.

Outside travel: - proper justification

13

CONCLUSION

78

Conclusion

The study work has been done on the project topic “Working capital

Management of vijay solvex ltd.” Vsl has a key role as a producer of edible

oil in Indian market. Company has agreed position in the market. Company

does not spend much on advertisement, after it the demand for the

company products is increasing.

The company is increasing the no. of it’s dealers. A number of initiatives

put forward by the cross functional team of Young Executives (YEs) as part

of their annual business plan is on their way to implementation.

After robust growth over the past few years, Indian economy witnessed a

slowdown during 2007-08. GDP growth for 2007-08 as projected by the

Government at 8.7% shows a deceleration from the high growth of 9.4%

and 9.6%, respectively, in the previous two years. With the economy

79

modernizing, globalizing and growing rapidly, some degree of cyclical

fluctuation is to be expected.

Since then Vsl. has been a major presence in India's edible oil industry with

a tradition of technological leadership, achieved through tie-ups with

international technology leaders and through vigorous in-house R&D.

The Vsl. Also takes partnership with government agencies, local

communities, NGOs and academic institutions to enhance their strengths

and help us leverage their expertise, reach and resources.

APPENDIX80

APPENDIX-1 Assessment of WC facilities-

[If the assessment of the WC limits is based on any other parameters, please

specify them along with an explanation]

a. Inventory & receivable levels: (WHOLE COMPANY)

(Rs. In Lacs/level in months)

Accepted (level of F.Y. 2006-07

2004-05 2005-06 2006-07 2007-08

R.M. 1147.00(0.56 M)

590.01(0.35M)

572.87(0.29M)

2460.00(0.94M)

1672.50(0.62 M)

WIP 90.00(0.04M)

49.48(0.03M)

51.75(0.02M)

90.00(0.03M)

90.00(0.03)

F.G. 880.75(0.35 M)

605.56(0.29M)

1163.98(0.47M)

1139.75(0.34M)

1139.75(0.33M)

Trading Goods 600.00(2.00 M)

188.43(0.85M)

979.06(2.19M)

800.00(1.63M)

800.00(1.55M)

Receivable 1938.00(0.71 M)

2037.14(0.90 M)

2416.38(0.89 M)

2348.00(0..64M)

2468.00(0.65M)

Sundry Creditors 230.00(0.10 M)

186.57(0.10M)

334.28(0.14M)

280.00(0.09M)

280.00(0.09M)

81

b. Assessed Bank Finance (Rs. In lacs)

S. No.

Particulars 31.03.05 31.03.06 31.03.07 31.03.08

1 Total Current Assets 4892.85 6427.55 8121.85 7474.352 Other Current Liabilities (Other than Bank

Borr.) 1412.51 2631.53 3093.32 1759.44

3 Working Capital Gap 3480.34 3796.02 5028.53 5714.914 Actual/projected net working capital 1707.52 1914.17 2028.53 2714.915 Assessed Bank Finance 1772.82 1881.65 3000.00 3000.006 Bank Finance to total Current Assets (%) 36.23 29.27 36.94 40.147 Net Working Capital to Total Current Assets

(%)34.90 29.78 24.98 36.32

8 Sundry Creditors to Total Current Assets (%) 3.81 5.20 3.45 3.759 Outside Current Liabilities to Total Current

Assets (%)28.87 40.94 38.09 23.54

10 Total Current Liabilities including Bank Finance

3185.33 4513.18 6093.32 4759.44

c. Assessment of EPC/FBD limits: - NIL -

d. Computation of LC limits for WC : Rs.400.00 Lacs

Annual RM Consumed under LC 15 % Rs.6121 LacsMonthly RM purchases Rs.510 Lacs approx.Usance --Lead time 30 DaysL/C Limit required Rs.510 LacsRecommended LC limit Rs.400.00 Lacs

e. Assessment of BG limits: Rs.100.00 Lacs

Outstanding BGs as on 31.12.2006. Rs. NilAdd: BGs required during the period………

Rs. Nil

Less: Estimated maturity/cancellation of BGs during the period …………….

NIL

Requirements of BGs Rs. 100.00 lacs (contingency reqt.)Recommended BG limit Rs. 100.00 lacs

f. Efficiency ratio:

Particulars 31.03.05

31.03.06

31.03.07 31.03.08

Net sales to Total Tangible Assets [times]

3.39 3.40 3.68 4.06

PBT to total Tangible Assets [%] 5.45 4.06 8.07 9.57

82

Operating cost of Sales [%] 91.26 90.98 90.44 90.20Bank Finance to Current Assets [%] 36.23 29.27 36.94 40.14Inventory + Receivables to Net Sales [days]

51 61 59 52

APPENDIX-2 VIJAY SOLVEX LTD.CREDIT RISK ASSESSMENT (CRA) SYSTEMSET - I RISK RATING SUMMARY FOR WORKING CAPITAL LIMITS AND TERM LOAN.

Financial Risk parameters Value Score SCORE RATINGA. STATIC RATIOS >90 SBBJ-1CURRENT RATIO (out of 5) 1.49 3 <90>75 SBBJ-2TOL / TNW (out of 5) 0.84 2 <75>65 SBBJ-3PBDIT / INTT. ( Times) (out of 5) 3.89 5 <65>50 SBBJ-4PAT / NET SALES (%) (out of 10)

1.27 0 <50>45 SBBJ-5

ROCE (%) (out of 5) 10.59 3 <45>35 SBBJ-6(INV. + REC.) / NET SALES ( Days )(out of 5)

47 DAYS 5 <35>25 SBBJ-7

TOTAL SCORE OUT OF 35 23 <25 SBBJ-8Trends in Performance 3 1TOTAL SCORE OUT OF 38 24B. FUTURE PROSPECTSProjected Profitability (0 TO 3) 0Non Achievement of Projected Profitability (0 to -3)

-1

Sub - Total Score (Out of 3) -1 C. RISK MITIGATION :

83

COLLATERAL SECURITY FINANCIAL STANDINGSub - Total Score (Out of 6) 6 6AGGREGATE FIN. RISK SCORE out of 47

47 29

Qualitative Risk Factors (Score from -1 to -10)BUSINESS RISK PARAMETERS Max.

ScoreTechnology 4 2Capacity Utilisation v/s Break Even Point 2 2Compliance of Environment Regulations 2 2User/Product Profile 2 2Consistency in Quality 4 4Distribution Network 2 2Consistency if Cash-flows 4 2Aggregate Business Risk Score 20 16INDUSTRY RISK PARAMETERS Max.

ScoreCompetition 2 2Industry Outlook 2 1Regulatory Risk 2 1Contemporary Issues like WTO, etc. 2 2Aggregate Industry Risk Score 8 6MANAGEMENT RISK PARAMETERS Max.

ScoreIntegrity 3 3Track Record 3 2Managerial Competency /Commitment 3 2Expertise 2 2Structure & Systems 2 1Experience in the Industry 2 2Credibility : Ability to meet Sales Projections 2 2Credibility : Ability to meet Profit (PAT) 2 2Payment Records 2 2Strategic Initiatives 2 2Length of relationship with the Bank 2 2Aggregate Management Score 25 22

OVERALL SCORE 73OVERALL RISK RATING SBBJ-3

TREND IN PERFORMANCE

PARAMETER Score

2001

Score

2003

Score

2004

Score

2005

84

C R 1.48(5) 1.47(5) 1.50(5) 1.49(5)

TOL/TNW 0.60(5) 0.93(5) 0.91(5) 0.84(5)

PAT/NET SALES

1.08(0) 1.76(0) 1.39(0) 1.27(0)

ROCE 7.61(0) 6.63(0) 11.87(3) 10.59(3)

10 10 13 13

APPENDIX-3

SET -II RISK RATING SUMMARY FOR TERM LOAN. - Financial Risk parameters Value Score SCORE RATIN

GA. STATIC RATIOS >90 SBBJ-1CURRENT RATIO (out of 5) 1.49 5 <90>75 SBBJ-2TOL / TNW (out of 5) 0.84 5 <75>65 SBBJ-3PBDIT / INTT. ( Times) ( out of 5) 3.89 0 <65>50 SBBJ-4PAT / NET SALES (%) (out of 10) 1.27 0 <50>45 SBBJ-5Gross average DSCR for all loans (out of 10) - - <45>35 SBBJ-6TOTAL SCORE OUT OF 25 normalised out of 35

14 <25 SBBJ-8

Trends in Performance 3 1TOTAL SCORE OUT OF 38 15B. FUTURE PROSPECTSProjected Profitability (0 TO 3) 0Non Achievement of Projected Profitability (0 to -3)

-1

Sub - Total Score (Out of 3) -1C. RISK MITIGATION : COLLATERAL SECURITY FINANCIAL STANDINGSub - Total Score (Out of 6) 6 6AGGREGATE FIN. RISK SCORE out of 47 20

Qualitative Risk Factors (Score from -1 to -

85

10)BUSINESS RISK PARAMETERS Max. Score Co.'s ScoreTechnology 4 4Capacity Utilisation v/s Break Even Point 2 2Compliance of Environment Regulations 2 2User/Product Profile 2 2Consistency in Quality 4 4Distribution Network 2 2Consistency if Cash-flows 4 2Aggregate Bus. Risk Score 20 18

INDUSTRY RISK PARAMETERS Max. Score Co.'s ScoreCompetition 2 2Industry Outlook 2 2Regulatory Risk 2 1Contemporary Issues like WTO, etc. 2 2Aggregate Ind. Risk Score 8 7

MANAGEMENT RISK PARAMETERS Max. Score Co.'s ScoreIntegrity 3 3Track Record 3 2Managerial Competency /Commitment 3 2Expertise 2 2Structure & Systems 2 2Experience in the Industry 2 2Credibility : Ability to meet Sales Projections 2 2Credibility : Ability to meet Profit (PAT) 2 2Payment Records 2 2Strategic Initiatives 2 2Length of relationship with the Bank 2 2Aggregate Management Score 25 23

OVERALL SCORE 68OVERALL RISK RATING SBBJ- TL- 3

86

APPENDIX-4

Details about Associate Concerns / subsidiaries as per Audited results of

31.03.2005

PARAMETERS/

COMPANY

Saurabh

Agrotech Pvt

Ltd

Deepak Veg Pro Pvt Ltd

Raghuvar India Ltd

Vijay Industries

ACTIVITYOil Industry

Electricity

Generation

Oil Industry Electricity

Generation

Oil Industry Oil MillingElectricity

Generation

CONSTITUIONPvt Ltd

Company

Pvt Ltd Company Ltd Company Firm

DIRECTORS /

PARTNERS

Sh SaurabhData Smt Mohini Devi

Smt Neelima Sh Deepak

Data Smt

Sh NL Data Sh

BL Data Sh

Sh DK Data

NL Data –

87

DataMohini Devi

Smt Neelima

Data

Vijay Data

Sh DK Data

HUF BL Data

– HUF

Gangadeen

Vijay Kumar

HUF

BANKERS / FIsSBBJ, Alwar

SBBJ, Alwar SBBJ, Tilak

Marg, Jaipur

SBBJ,

Khairthal

OPINION OF BANKS /

FIs

Reputed Customer Reputed

Customer

Reputed

Customer

Reputed

Customer

FB LIMITS* (Rs. In Lacs)

Existing

1275.001475.00 1900.00 350.00

NFB LIMITS (Rs. In

Lacs) Existing

10.0010.00 25.00 --

TOTAL LIMITS (Rs. In

Lacs) Existing

1285.001485.00 1925.00 350.00

ASSETS

CLASSIFICATION

StandardStandard Standard Standard

CRA RATINGSBBJ-3

SBBJ-3 SBBJ-3 SBBJ-3

NET SALES / INCOME

(Rs. In Lacs)

7446.839994.38

NET PROFIT / LOSS

(Rs. In Lacs)

151.35225.59

TNW (Rs. In Lacs)670.25

1189.98

88

NET BLOCK (Rs. In

Lacs)

352.35

TOL / TNW2.22

1.92

CR1.34

1.24

INTER LOCKING OF

FUNDS, IF ANY

*Including term loan sanctioned to the company/firm for wind power project

89

BIBLIOGRAPHY

90

Books :

KHAN & JAIN, FINANCIAL MANAGEMENT

PRASSAN CHANDRA , FINANCIAL MANAGEMENT

I M PANDEY , FINANCIAL MANAGEMENT

Manuals: Annual Reports 2007-08, 2006-07…

News paper: Economic times

Websites:

www.dataoils.com

www.vsl.in

www.Investorpedia.com/vsl/balance sheet

91