A STUDY ON

DEBTORS MANAGEMENT
AT

TATA STEEL
&
IT’S COMPARISON
WITH OTHER KEY PLAYERS

A Project Report submitted in partial fulfillment of the requirement for

BACHELOR OF BUSINESS ADMINISTRTION
(Affiliated To Ch.Charan Singh University, Meerut)
2007-2010
UNDER THE GUIDANCE OF

Internal Supervisior Submitted by

Mr.TUSHAR JINDAL(faculty) Rahul
IMS Ghaziabad 9351722

External Supervisior
Mr. K S M MATHEW

INSTITUTE OF MANAGEMENT STUDIES

GHAZIABAD

1
 DECLARATION CERTIFICATE

This is to certify that the work presented in the project entitled

“DEBTORS MANAGEMENT in partial fulfilment of the requirement
for the award of degree of ‘BBA, INSTITUTE OF MANAGEMENT
STUDIES,GHAZIABAD, is an authentic work carried out under my
supervision and guidance.

To the best of my knowledge, the content of this project does

not form a basis for the award of any previous degree to anyone
else.

Date: (Guide’s
name &signature)
Department
of Management
BBA IMS,
GHAZIABAD

2
 CERTIFICATE OF APPROVAL

The foregoing thesis entitled “DEBTORS MANAGEMENT at TATA

STEEL AND ITS COMPARISON WITH OTHER KEY PLAYERS”, is hereby

approved as a creditable study and has been presented in

satisfactory manner to warrant its acceptance as prerequisite
to the degree for which it has been submitted.

It is understood that by its approval, the undersigned do not

necessarily endorse any conclusion drawn or opinion
expressed therein, but approve the project for the purpose for
which it is submitted.

Co-ordinator- BBA Academic Co-

ordinator

Director
IMS-GZB.

3
 Acknowledgement

It is my privilege to work on the project “Debtors management

at Tata Steel Ltd and its comparison with other key
players”. At the very outset, I am obliged to TATA STEEL for
the permission to undertake training program and provide me
with the basic infrastructure and facilities.

I express my sincere sentiments of gratitude to Mr. K S M

MATHEW (Head Sales & EPA A/c) who guided me throughout
this project. I would also like to thank Mr. PRANAV JHA (Sr.
Manager Sales & EPA A/c) for his continuous assistance without
which this project would not have been a success.

It is the spirit of being associated with the Finance and

Accounts department particular and Tata Steel in general who
inspired me to complete this project successfully.

I am indebted to my mentor Mr. K B SINGH for extending his

untiring guidance to me, by constantly discussing the project
matter and helping me in clarifying my thinking in several
pertinent issues and providing a meaning full insight into the
subject.

Last but not the least; I also thank Ms.VANDANA KHEMKA

(Manager Sales & EPA A/c) & Ms. PADMA MOHANTY
(Accountant) who has been a source of inspiration through their
constant guidance, personal interest, encouragement and help

4
 & has made my stay in the company such a pleasant memory.
In spite of their busy schedule they have always found time to
guide me through the project. I am also grateful to them for
reposing confidence in my abilities and giving me the freedom
to work on my project.

I owe my deep sense of gratitude and sincere thanks to all of

them

Thank you.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
1

CHAPTER 1

INTRODUCTION

1.1.1 Account receivable-definition…………………………..….…......

5

1.1.2 Debtors management………………………………………....…….

6

1.1.4 Need for trade credit……………………………………….….….

8

1.1.5 Determinants of size of receivables……………………………….

9

5
 1.1.6 Cost & benefits associated with receivable
management……….... 11

1.1.7 Expert view ………………………………………..……………..

13

Company Profile

1.2.1 History of steel………………………………………...…………..

14

1.2.2 Indian Steel Industries ……………………………………...…….

16

1.2.3 Company Overview ……………………………………………..…...

19

1.2.4 Tata steel stand alone ………………………………………...……..

45

1.2.5 Overview of the finance division of Tata steel………………….

……. 57

1.2.6 Sundry debtors section…………………………………………....…..

58

CHAPTER 2

RESEARCH METHODOLOGY

2.1 Type of Research……………………………………………..………

60

2.2 Objective of the study………………………………………………..

60

2.3 Scope of Study …………………………………………………….…

60

2.4 Sources of data collection…………………………………………….

60

6
 2.5 Sampling……………………………………………………………..
60

CHAPTER 3

CREDIT DECISION

3.1 Tata steel’s credit monitoring and control………………………

65

3.2 Operational working at Tata steel for managing

debtors…….…. 68

3.3 Channel financing…………………………………………...……

70

3.4 Credit assessment modules…………………………………..……

72

3.5 Understanding the debtor’s process system……………….....

…………… 84

CHAPTER 4

COMPARATIVE ANALYSIS OF TATA STEEL WITH OTHER STEEL COMPANY

4.1 Tata steel vs. Steel authority of India limited (sail)………………….....

89

4.2 Tata steel vs. Arcelor Mittal (Mittal steel) ……………………………

95

4.3 . Tata steel vs. Jindal steel & power ltd …………………..……………
99

CHAPTER 5

TATA STEEL & RECESSION

7
 5.1 Tata steel’s game plan to beat recession……………………...
……. 108

5.2 After
recession…………………………………………........................ 109

5.3 Articles from the

newspapers……………………………………...... 111

CHAPTER 6

CONCLUSION AND SUGESSTIONS

6.1 Suggestion…………………………………………………………………..
113

6.2 Limitation of the Study…………………………………………….……….

114

6.3 SWOT analysis of debtors management process at Tata

steel…………… 115

6.5 Views of debtor management expertise……………………………...

…… 117

6.4Conclusion………………………………….……………………….………….. 118

REFERENCE

ANNEXURE - Bibliography

8
 Executive Summary

The project deals in “DEBTORS MANAGEMENT AT TATA STEEL & ITS

COMPARISON WITH OTHER KEY PLAYERS”. Receivable management is one of the
most important aspects of the organization, as it deals with the management of the
outstanding. The profit of the company mainly depends on the accounts receivables.
Therefore it needs a careful analysis and proper management.

Debtors occupy an important position in the structure of current assets of a firm. They are
the outcome of rapid growth of trade credit granted by the firms to their customers. Trade
credit is the most prominent force of modern business. It is considered as a marketing tool
acting as a bridge for the movement of goods through production and distribution stages to
customers.

Till few years back, Tata Steel had a very strict policy of selling against advance payments.
That was an era of controlled economy. However, with an increasing domestic and
international competition, Tata Steel could no longer afford this policy, in order to maintain
its premium position. Further in order to capture a greater amount of market share, it was
compelled to go by the industry norms and thus it ushered into the new era of credit sales.
This resulted in credit sales going up significantly. A credit limit was sanctioned to every
customer. The customers were required to pay the outstanding amount on the due date.

9
INTRODUCTION

10
1.1What is an account receivable?
Accounts receivable is an accounting transaction which deals with the billing of customer
who owes money to a person, company or organization for goods and services that has been
provided to the customers. In most business entities this is typically done by generating an
invoice and mailing or electronically delivering it to the customer, who in turn must pay it
within an established timeframe called credit or payment terms.

An example of a common payment term is Net 30, meaning payment is due in the amount of
the invoice 30 days from the date of invoice. Other common payment terms include Net 45
and Net 60 but could in reality be for any time period agreed upon by the vendor and the
customer.

On a company's balance sheet, accounts receivable is the amount that customers owe to that
company. Sometimes called trade receivables, they are classified as current assets assuming
that they are due within one year. To record a journal entry for a sale on account, one must
debit a receivable and credit a revenue account. When the customer pays off their accounts,
one debits cash and credits the receivable in the journal entry. The ending balance on the trial
balance sheet for accounts receivable is always debit.

Accounts receivable departments use the sales ledger. Other types of accounting transactions
include accounts payable, payroll, and trial balance.

BOOK KEEPING FOR ACCOUNTS RECEIVABLE

Companies have two methods available to them for measuring the net value of account
receivables, which is computed by subtracting the balance of an allowance account from the
accounts receivable account.

The first method is the allowance method, which establishes a liability account, allowance
for doubtful accounts, or bad debt provision, that has the effect of reducing the balance for
accounts receivable. The amount of the bad debt provision can be computed in two ways -
either by reviewing each individual debt and deciding whether it is doubtful (a specific
provision) or by providing for a fixed percentage, say 2%, of total debtors (a general
provision). The change in the bad debt provision from year to year is posted to the bad debt
expense account in the income statement.

11
The second method, known as the direct write-off method, is simpler than the allowance
method in that it allows for one simple entry to reduce accounts receivable to its net
realizable value. The entry would consist of debiting a bad debt expense account and
crediting the respective account receivable in the sales ledger.

12
 1.2 Receivable management – CONCEPT
The term receivable management is defined as “debt owed to the firm by customer arising
from the sale of goods/ services in the ordinary course of business.” The receivable
represents an important component of the current assets of the firm. Receivables may be
known as accounts receivables, trade creditors or customer receivable. When a firm its
products / services and does not receive cash for it immediately, the firm has said to be
granted trade credit to the customers. Trade credit thus creates receivable / book debts, which
the firm is expected to collect in near future. Accounts receivable are thus amounts due from
customers, which bear no interest in essence, a company is providing no cost financing to the
customer to encourage the purchase of the company’s product/services.
The extension of credit can be justified only if the increase in the sales and related cash
collections (discounted for the time until collection) exceeds the amount otherwise cash
generated under a “cash only” policy.
These customer from whom receivable or book debt are to be collected in the future are called
as “trade debtors” or simply as “debtor” and represents the firm’s claim on assets. Trade
debtors are expected to be converted into cash within a short period and are included in the
current assets. Since receivables often accounts for the significance portion of total assets, it
requires careful attention and adequate management. It is skill demanding field because the
customer has to be bestowed with trust along with a continuous vigilance.

13
 OBJECTIVE OF DEBTORS MANAGEMENT
It is not always possible to sell goods on cash basis only, sometimes other firms in that line
might have establish a practice of selling goods on credit under these circumstances, it is not
possible to avoid credit sales without adversely affecting the sales. Hence the firm is required
to allow the credit sale in order to expand its sales volume. The increase in sales is also
essential to increase profitability. The sales of goods have become an essential part of the
modern competitive economic system. In fact credit sales and receivables are treated as a
marketing tool to aid the sale of goods. Credit sale is generally made in an open account in the
sense that there is no formal acknowledgement of debt obligation through a financial
instrument. As a marketing tool they are indene to promote sales and thereby profits. However
extension of credit involves risk and cost. Management should weigh the benefits as well as
the costs to determine the goals of receivable management.

Thus the objective of receivable management is:

“To promote sales and profit until that point is reached where the return on investment
in further funding of receivable is less than the cost of funds raised to finance that
additional credit(i.e. cost of capital)”

14
1.4 NEED FOR GRANTING TRADE CREDIT:
Trade credit is an important marketing tool. A policy of trade credit is followed
nearly in all capital intensive industries either for sales expansion and /or sales
retention. Under any circumstances investment in receivable is growth oriented.

Various factors that favours credit

Market factors

Customers’ Competition
requirement

Recessionary
Marketing economic
Tool conditions

15
 MARKET FACTOR: Market factors like price, forces accompany to grant credit.
For example, TATA STEEL whose price is comparatively higher is forced to grant credit in
order to maintain sale.

 COMPETITION: In view of stiff competition from both domestic and

international players, the company is left with no option then to grant credit.
Competition is another vital factor, which affects the credit policy of a firm, and
TATA STEEL is not an exception.

 CUSTOMER’S REQUIREMENT: As the market has changed to the

buyer’s market, the customers have become kings. If the customer expects credit and
is worthy of it, he gets it.

 MARKETING TOOL: T o push up sales of slow moving products and

encourage bulk purchase of fast moving products, credit plays an effective role in this
context.

 RESESSIONARY ECONOMIC CONDITIONS: Liquidity crunch forces

the company to grant credit.

1.5 DETERMINANT OF SIZE OF RECIEVABLES

Beside sales, a number of factors also influence the size of receivables. The following factors
directly or indirectly determine the size accounts receivables.

 Level of sales: The most important factor in determining the volume of

receivable is the level of firm’s credit sales. With an increase in the size of the sales,
it may bring about a proportional increase in the magnitude of receivable.

 Credit policies: The firm with the liberal credit policy will have a higher
level of receivable than with a conservative or rigid credit policy.

16
 Terms of trade: The size of receivables also depends upon the term of trade.
The period of credit allowed and rates of discounts given are linked with receivables.
If the credit period allowed is more, the receivable will also be more similarly if the
rate of discount are reasonable, then also the size of the receivable will increase.

 Profit: The level of receivables increases as a result of increase in sales.

When sales increase beyond a certain level, the additional cost incurred are less than
the increase in revenue. It will be beneficial to increase sales beyond a point because
it will bring more profit. The increase in profit will be followed by an increase in the
size of the receivable.

 Market: It may be necessary for the firm to explore a new market for its
products/services. One of the attractive way in which a firm enters a new market is by
giving incentives to the customers in the form of credit facilities. In doing so, the size
of receivable will increase.

 Grant of credit: Size of the receivable depends upon the policies and
practices of the firm in determining which customer are to be granted credit.

 Paying habit of the customer: The paying habits of the customers also have
a bearing on the size of receivables. The customers may be in habit of delaying
payments even though they are financially sound. In such case, the firm should
remain in constant touch with its customers.

 Collection policies: The vigour with which affirm collects its dues from the
customers also affects its receivables, for if the amounts due are not collected timely;
a firm suffers some financial difficulties, if not losses.

 Operating efficiency: The degree of operating efficiency in billing, record

keeping and other function also exercise some influence on a firm’s credit policy
which in turn influences its receivables.

17
 Credit collection: The collection of credit should be streamlined. Efficient
credit collection machinery will reduce the size of receivable. Individual firm of tern
set up their own well organised credit collection department.

18
1.6 COSTS AND BENEFITS ASSOCIATED WITH
receivable MANAGEMENT

COSTS

COLLECTIONCOST
COSTS
CAPITAL COST
COLLECTIONCOST
DELIQUENCY
COST
CAPITAL COST
DEFAULT COST
DELIQUENCY
COST
DEFAULT COST

19
COSTS:

The major categories of cost associated with extension of credit and receivable are:

 Collection cost

 Capital cost

 Delinquency cost

 Default cost

COLLECTION COST:

These costs are administrative cost incurred in collecting the receivable from the customers.
This category includes:
1. Additional expenses on the creation and maintenance of a credit department
with staff, accounting, records, stationary, postage and other related items.

2. Expenses involved in acquiring credit information either through outside

specialist agencies or by the staff of the firm itself.

CAPITAL COST:
Accounts receivables, being an investment in current assets, have to be financed involving a
cost. There is a time lag between the sale of goods to, and the payment by, the customers.
Meanwhile the firm has to pay employees and suppliers of raw material i.e. the firm should
arrange for additional funds to meet its own obligations. Thus, the cost on the use of additional
capital to support credit sales is therefore apart of the cost of extending credit.

DELINQUENCY COST:
This cost arises out of the failure of the customer to meet their obligations when payment on
credit sales becomes due after the expiry of the period of credit. Such cost includes:
 Blocking up of funds for an extended period.

 Cost associated with steps that have to be initiated to collect the overdue, such
as reminders and other collection efforts, legal charges, where necessary , and so on.

DEFAULT COST

20
In addition of the above cost the firm may not be able to recover the overdue because of
inability of the customers. Such debts are treated as bad debts and have to be written off, as
they cannot be realized. Though a concern may be able to reduce bad debts through efficient
collection mechanism, one cannot altogether rule out the possibility of this cost.

BENEFITS:
Apart from the cost, another factor that has a bearing on accounts receivable is the benefit
emanating from credit sales. The benefits are:
“The increased sale and thereby profits”
However, the benefits would depend upon the credit policy adopted by the firm, i.e., a
conservative or liberal credit policy. The impact of liberal credit policy is likely to have two
forms:-
i. Sales expansion

ii. Sales retention

In sales expansion a firm may grant credit either to increase sales or to attract new customer.
This motive is growth oriented; on the other hand the sales retention the firm may grant credit
to protect its current sales against emerging competition. No matter whatever is the motive, the
result the result of increased sales is the increase the profit of the firm.

21
SOME BASIC DEFINITION

When the buying and selling process steps forward and the customer is not able to pay the total
amount, the amount which they are not able to pay at the same time of buying the amount is
known as DEBT.

In the balance sheet of companies those customers are DEBTORS. In their balance sheet
company is a CREDITOR.

On the basis of market performance and credit rating company decides the time period of
payback of the amount. This time period is known as CREDIT PERIOD.
The total amount called as debt is called as OUTSATNDING. When this total outstanding is
not paid within the credit period the amount remained to be collected is called as OVERDUE.

The total overdue is divided in different parts such as overdue within 3months, from 3-6
months, 6-12 months, 1 to 2 yrs, 2-3 yrs, above 3yrs, and above 5 yrs.

When the customer is not able to pay back the due after five years then this amount is known
as BAD DEBTS.

Tata Steel has kept some amount for this type of time of contingencies. This amount use for
decreasing the effect of bad debts is called as PROVISION.

CURRENT ASSETS are those assets which can be converted into cash within the period of
12 months starting from the company’s financial year.

CURRENT LIABILITIES are those liabilities which are repaid within 12 months starting
from company’s financial year.

22
 EXPERT VIEW

It is generally believed that credit policy stimulates sales as it helps in

retaining existing customers and winning clients from rivals. Trade debtors
represent amounts owed to the firm as a result of credit sale of goods or
services in the ordinary course of business.
The key function of credit management is to optimize the sales at the minimum
possible cost of credit.
According to Joseph, "The purpose of any commercial enterprise is the
earning of profit. Credit in itself is utilized to increase sales, but sales must
return a profit".
The offer of trade credit should not only optimize sales but also lead to
maximization of overall return on investment. Management of receivables,
therefore, should be based on sound credit policies and practices.

23
COMPAN
Y
PROFILE

24
3.1 HISTORY OF STEEL

Steel was discovered by the Chinese under the reign of Han dynasty in 202 BC till 220 AD.
Prior to steel, iron was a very popular metal and it was used all over the globe. Even the time
period of around 2 to 3 thousand years before Christ is termed as Iron Age as iron was vastly
used in that period in each and every part of life. But, with the change in time and technology,
people were able to find an even stronger and harder material than iron that was steel. Using
iron had some disadvantages but this alloy of iron and carbon fulfilled all that iron couldn’t
do. The Chinese people invented steel as it was harder than iron and it could serve better if it
is used in making weapons. One legend says that the sword of the first Han emperor was
made of steel only. From China, the process of making steel from iron spread to its south and
reached India. High quality steel was being produced in southern India in as early as 300 BC.
Most of the steel then was exported from Asia only. Around 9th century AD, the smiths in the
Middle East developed techniques to produce sharp and flexible steel blades. In the 17th
century, smiths in Europe came to know about a new process of cementation to produce steel.
Also, other new and improved technologies were gradually developed and steel soon became
the key factor on which most of the economies of the world started depending.

25
 FIG: Stages in Global Production of Steel

• India is one of the world’s top ten steelmakers its domestic output is insufficient to
meet the demand in all segments.
• Consumption of steel is very fast and as a consequence of the prospective dynamic
economic growth.
• Secondly, there is demand for high-quality products which India will not be able to
supply in sufficient quantities for the foreseeable future.

3.2 THE GLOBAL STEEL INDUSTRY

The current global steel industry is in its best position in comparing to last decades. The price
has been rising continuously. The demand expectations for steel products are rapidly growing
for coming years. The shares of steel industries are also in a high pace. The steel industry is
enjoying its 6th consecutive years of growth in supply and demand. And there is many more
merger and acquisitions which overall buoyed the industry and showed some good results.
The subprime crisis has lead to the recession in economy of different countries, which may
lead to have a negative effect on whole steel industry in coming years. However steel
production and consumption will be supported by continuous economic growth.

26
CONTRIBUTION OF COUNTRIES TO GLOBAL STEEL INDUSTRY

The countries like China, Japan, India and South Korea are in the top of the above in steel
production in Asian countries. China accounts for one third of total production i.e. 419m ton,
Japan accounts for 9% i.e. 118 m ton, India accounts for 53m ton and South Korea is
accounted for 49m ton, which all totally becomes more than 50% of global production. Apart
from this USA, BRAZIL, UK accounts for the major chunk of the whole growth.

3.3 INDIAN STEEL INDUSTRIES

The challenges that confront Indian steel industry in the age of globalization are complex in
nature. The secret of sustainable turnaround lies in how Indian steel industry faces the
challenges and develops combative and anticipatory prowess. Problems and solutions may
vary with organizations but there is more a commonality than initially meets the eye. A two-
step strategy is suggested for the sustainable turnaround in the industry. These stages, aimed
to ensure survival and growth have been termed survival strategy and growth strategy. The
survival strategy provides a foundation upon which a potent growth strategy could be
formulated. While the survival strategy would ensure the survival of the ailing steel industry,
the growth strategy would simultaneously take care of its total transformation towards a better
future. Both stages, to be implemented through an integrated plan, are essential to enable the
industry overcome the present imbroglio.
• Indian steel industry is poised for rapid growth.
• India’s share in world production of crude steel increased from 1.5% in 1981 to around
7.3% in 2008.

27
• The private sector is considered engine of growth in the steel industry and
technological changes and modernization are taking place in both the public and the private
sector integrated steel plants in India.

SOME OF THE LEADING COMPANIES IN INDIAN STEEL INDUSTRY

ARE AS FOLLOWS:

 Tata Steel: Producer and supplier of wire rods, bars, and steel flats
 Steel Authority of India: Manufacturer of steel and iron
 Ambica Steel: Producer of carbon steel, alloy, and stainless steel
 Bokaro Steel Plant: Steel manufacturer
 Central Steel Corporation: Producer of alloy and tool steels
 Allied Ferromelt: Producer of non alloy and alloy steel
 Anchor Engineers' Files: Producer of steel files for engineers

28
 Essar Steel: Producer of sponge iron, steel and iron ore pellets
 ColdFab: Producer of pre-fabricated buildings of steel
 Hisar Metal: Producer of strips and stainless cold rolled steel coils
 Buyao Info: Producer of steel products and re-rolled iron
 Jindal Iron & Steel: Producer of galvanized steel products
 Kanoi Group: Dealer of corrugated sheets and steel coils
 Jindal Steel & Power: Manufacturer of mild steel slabs and sponge iron
 Metalman Industries: Producer of tubular and flat steel items

29
3.3 Company overview
Backed by 100 glorious years of experience in steel making, Tata Steel is the world’s 6th
largest steel company with an existing annual crude steel production capacity of 30 Million
Tons Per Annum (MTPA). Established in 1907, it is the first integrated steel plant in Asia
and is now the world`s second most geographically diversified steel producer and a Fortune
500 Company Tata Steel has a balanced global presence in over 50 developed European and
fast growing Asian markets, with manufacturing units in 26 countries.

Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA
which is slated to increase to 10 MTPA by 2010. The Company also has proposed three
Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with
additional capacity of 23 MTPA and a Greenfield project in Vietnam.

Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand) and
NatSteel Holdings, Singapore, Tata Steel has created a manufacturing and marketing
network in Europe, South East Asia and the pacific-rim countries. Corus, which
manufactured over 20 MTPA of steel in 2008, has operations in the UK, the Netherlands,
Germany, France, Norway and Belgium. Tata Steel Thailand is the largest producer of long
steel products in Thailand, with a manufacturing capacity of 1.7 MTPA. Tata Steel has
proposed a 0.5 MTPA mini blast furnace project in Thailand. NatSteel Holdings produces
about 2 MTPA of steel products across its regional operations in seven countries.

Tata Steel, through its joint venture with Tata BlueScope Steel Limited, has also entered the
steel building and construction applications market.

The iron ore mines and collieries in India give the Company a distinct advantage in raw
material sourcing. Tata Steel is also striving towards raw materials security through joint
ventures in Thailand, Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata
Steel has signed an agreement with Steel Authority of India Limited to establish a 50:50 joint

30
venture company for coal mining in India. Also, Tata Steel has bought 19.9% stake in New
Millennium Capital Corporation, Canada for iron ore mining.

Exploration of opportunities in titanium dioxide business in Tamil Nadu, Ferro-chrome plant

in South Africa and setting up of a deep-sea port in coastal Orissa are integral to the Growth
and Globalisation objective of Tata Steel.

Tata Steel’s vision is to be the global steel industry benchmark for Value Creation and
Corporate Citizenship.

Tata Steel India is the first integrated steel company in the world, outside Japan, to be
awarded the Deming Application Prize 2008 for excellence in Total Quality Management.

MILESTONes

1868 1874 1902

Jamshedji Nauserwanji TATA
started a private trading firm,
laying the foundation of the
TATA Group.
1907
The central INDIA spinning, The Indians hotels
weaving and manufacturing company is incorporated
company is set up, marking to set up the Taj Mahal
the group entry into textiles. Palace and Tower, India's
first luxury hotel, which
opened in 1903.
1910 1911

The TATA Iron and Steel
Company (now TATA Steel)is
established to set up India's
first iron and steel plant in
Jamshedpur.
The first of the three TATA The Indian Institute of
Electric Companies, The Tata Science is established in
Hydro-Electric Power Supply Bangalore to serve as a
Company, (now TATA Power) centre for advanced
is set up. learning.

31
 1912 1917 1932

TATA Steel introduces eight- The TATAs entered the TATA airlines, a division
hour working days, well consumer goods industry, with of TATA sons, is
before such a system was the TATA Oil Mills Company established to opening up
implemented by law in much being established to make the aviation sector in
of the West. soaps, detergents $ cooking India.
oils.
1939 1945 1952

TATA Chemicals, now the TATA engeneering and Jawahar lal Nehru India’s
largest producer of soda ash Locomotive (renamed as first prime minster
in the country, is established. TATA MOTORS) is requested the TATA
established to manufacture Group to manufacture
locomotive and engeneering cosmetics in India,
products. leading to satting up the
LAKME.
1962 1968 1970

• TATA finlat (now TATA consultancy services TATA McGraw-Hill

TATA tea), one of the (TCS) India’s first software Publishing Company is
largest tea producers is services company is created to publish
estblished. established as a division of educational and technical
• TATA export is TATA sons. books.
established. Today the
company renamed as

32
 TATA International, is
one of the leading export
houses in india.

1984 1996 1998

TITAN Industries- a joint TATA Teleservices (TTSL) is TATA Indica – India's

venture between TATA Group established to spearhead the first indigenously
and Tamil Nado Industrial Group's foray into the telecom designed and
Development corporation is sector. manufactured car – is
set up to manufacture watches. launched by TATA
MOTORS, spearheading
the Group's entry into the
passenger car segment.
2002 2004 2005

• • The TATA Group • TATA MOTORS acquires • TATA Steel acquires

acquires a controlling stake in the heavy vehicles unit of Singapore-based steel

VSNL, India's leading Daewoo Motors, South company NatSteel by
international Korea. subscribing to 100
telecommunications service • TCS goes public in July per cent equity of its
provider. 2004 in the largest private subsidiary, NatSteel
sector initial public offering Asia.
• • TATA Consultancy
(IPO) in the Indian market, • VSNL acquired
Services (TCS) becomes the
raising nearly $1.2 billlion.
first Indian software
company to cross one billion
dollars in revenues.

33
 • Titan launches Edge, the
slimmest watch in the world.

• • Idea Cellular, the cellular

service born of a tie-up
involving the TATA Group,
the Birla Group and AT&T,
is launched.

• • TATA Indicom, the

umbrella brand for telecom
services from the TATA
Teleservices stable, starts
operations.

2007 2008

TATA steel acquires CORUS TATA Group acquires

thus becoming the sixth JAGUAR & LAND ROVER
largest steel maker of the from FORD MOTERS.
world.

34
 We aspire to be the global steel industry benchmark
for
Value Creation and Corporate Citizenship.

We make the difference through:

• Our people, by fostering team work, nurturing talent, enhancing leadership capability and
acting with pace, pride and passion.
• Our offer, by becoming the supplier of choice, delivering premium products and services,
and creating value with our customers.
• Our innovative approach, by developing leading edge solutions in technology, processes
and products.

• Our conduct, by providing a safe working place, respecting the environment, caring for
our communities and demonstrating high ethical standards

35
 GROUP VISION

We aspire to be the global steel industry benchmark for

Value Creation and

Corporate Citizenship.

We make the difference through:

Our PEOPLE, by fostering team work, nurturing talent, enhancing leadership capability and
acting with pace, pride and passion.

Our OFFER, by becoming the supplier of choice, delivering premium products and services
and creating value with our customers.

Our INNOVATIVE APPROACH, by developing leading edge solution in technology,

process and products.

Our CONDUCT, by providing a safe working place respecting the environment, caring for
our communities and demonstrating high ethical standards.

36
37
Products

Tata Steel`s Jamshedpur Works produces hot and cold rolled coils and sheets, galvanized
sheets, tubes, wire rods, construction rebars and bearings. In an attempt to 'decommoditise'
steel, Tata Steel has introduced brands like Tata Steelium (the world's first branded Cold
Rolled Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata
Bearings, Tata Agrico (hand tools and implements), Tata Wiron (galvanized wire products),
Tata Pipes (pipes for construction) and Tata Structura (contemporary construction
material).Apart from these product brands, the company also has in its folds a service brand
called “steel junction”.
Corus’ main operating divisions comprise Strip Products, Long Products and Distribution &
Building Systems Division.
The NatSteel group produces construction grade steel such as rebars, ‘cut-and-bend’ cages for
construction, mesh, precage bore pile, PC wires and PC strand.
Tata Steel Thailand produces round bars and deformed bars for the construction industry.

38
Corporate Sustainability
Regarded globally as a benchmark in corporate social responsibility, Tata Steel's
commitment to the community remains the bedrock of its hundred years of sustainability. Its
mammoth social outreach programme covers the company-managed city of Jamshedpur and
over 800 villages in and around its manufacturing and raw materials operations through
uplift initiatives in the areas of income generation, health and medical care, education,
sports, and relief.

The Company, fully conscious of its responsibilities to the future generations, has always
taken pro-active measures to ensure optimum utilization of natural resources. This is
reflected in the ISO-14001 certification that all its operations have achieved for environment
management. The SA 8000 certification for work conditions and improvements in the
workplace at the steel works in Jamshedpur, along with its Ferro Alloys and Minerals
Division, is a reiteration of its commitment towards the Company's employees. Tata Steel
has pioneered numerous employee welfare measures such as the 8 hours working day and the
three tier joint consultation system of management which have been the platform for nearly
80 years of industrial harmony in its Steel Works in Jamshedpur.

INVESTMENTS OF TATA STEEL

In INDIA
 12 MTPA plant in Jharkhand

 6 MTPA plant in Orissa

 5 MTPA plant in Chhattisgarh

 Jamshedpur steel works became a 7 MTPA unit in 2008

OVERSEAS
 VIETNAM

 SOUTH AFRICA

 AUSTRALIA

39
 MOZAMBIQUE

 IVORY COST

 OMAN

40
AWARDS AND RECOGNITIONS

41
Awards and Recognitions
• Tata Steel India awarded the Deming Application Prize 2008 for excellence in Total
Quality Management. It is the first integrated steel company in the world, outside Japan to
get this award.

• World Steel Dynamics has ranked Tata Steel as the world's best steel maker (for two
consecutive years) in its annual listing in February 2006.
• Tata Steel has been conferred the Prime Minister of India's Trophy for the Best
Integrated Steel Plant five times.
• It has been awarded Asia's Most Admired Knowledge Enterprise award five times in
2003, 2004, 2006, 2007 and 2008.
• Conferred the prestigious Global Business Coalition Award for Business Excellence
in the Community in recognition of its pioneering work in the field of HIV/ AIDS awareness.
• Tata Steel works has been conferred the prestigious social accountability (SA) 8000
certification by social. Accountability international (SAI), USA. It is the first steel company
in the world to receive this certificate.
• Corporate Sustainability Report of Tata Steel hailed by United Nations Environment
Programme (UNEP) and Standard and poor as strongest, submitted by any corporate house
from emerging economies.
• Best governed company Award 2006 for setting high standards in governance
practices.

42
(As on 7th May, 2009)

Mr. B Muthuraman Managing Director

Mr. H M Nerurkar Executive Director,
India and South East
Asia Operations
Mr. A D Baijal Vice President &
Tata Steel Group
Director, Global
Mineral Resources

Mr. R P Singh Vice President,

Engineering Services
& Projects
Mr. Koushik Chatterjee Group CFO, Tata
Steel
Mr. Anand Sen Vice President, Flat
Products & TQM
Mr. Abanindra M. Misra Vice President, Raw
Materials & CSI
Mr. Varun K Jha Vice President,
Chhattisgarh Project
Mr. Om Narayan Vice President,
Shared Services
Mr. Radhakrishnan Nair Chief Human
Resource Officer
Mr. Partha Sengupta Vice President,
Corporate Services
Mr. H Jha Vice President,
Safety & Long
Products
Mr. N K Misra Vice President &
Tata Steel Group
Head, M&A
Mr. B K Singh Vice President,
Orissa Project
Mr. J C Bham Company Secretary

43
44
45
46
47
Strategic Business Units OF TATA STEEL

48
Corus: Europe’s second largest steel
maker with operations in the UK and
mainland Europe and over 40,000
employees worldwide. Its long and strip
products cater to the construction,
automotive, packaging, engineering and
other markets worldwide. Corus is
implementing major investments at its
plants at IJmuiden, in the Netherlands and
at Scunthorpe in the UK as part of its drive
to strengthen product differentiation,
improve operational efficiency and
reinforce existing competitive position,
particularly in the construction and
automotive sectors, including the
development of new advanced high strength
steels.

(www.corusgroup.com)

Tinplate Company of India

Limited (TCIL): With a market share of
over 35%, it is the industry leader in India.
It has the capability to supply all tinning
line products including electrolytic
tinplate / tin-free steel and cold-rolled
products.
(www.tatatinplate.com)

Tayo Rolls Limited: India's leading roll

manufacturer and supplier, the company
produces rolls which find application in
integrated steel plants, power plants, the
paper, textile and food processing sectors,
and the government mint.
(www.tayo.co.in)

Tata Ryerson Limited (TRYL):

TRYL Is in the business of steel processing
and distribution. It offers hot and cold
rolled flat steel products in customised sizes
and quantities through processing services
and materials management services.
(www.tataryerson.com)

49
Tata Refractories Limited (TRL): It
produces High Alumina, Basic, Dolomite,
Silica and Monolithic Refractories and
offers design, procurement and re-lining
applications services. It is one of the few
companies worldwide to produce silica
refractories for coke ovens and the glass
industry. The Company has a basic bricks
manufacturing unit in China.
(www.tataref.com)

Tata Sponge Iron Limited (TSIL):

TSIL is the first Indian sponge iron plant
based on Tata Steel's Direct Reduction
Technology. Its major product lines are
sponge iron lumps and fines.
(www.tatasponge.com)

Tata Metaliks: Amongst the top wealth

creating companies (EVA+) in the country,
Tata Metaliks is engaged in the business of
manufacturing and selling foundry grade
pig iron.
(www.tatametaliks.com)

Tata Pigments Limited: TPL's range

of products includes oxides of iron, dry
cement paint, exterior emulsion paint and
distemper. Its products are used in paints,
emulsion, cement floors, plastic etc.

(www.tatapigments.com)

Jamshedpur Injection Powder

Limited (Jamipol): JAMIPOL
manufactures carbide de-sulphurising
compounds which are used for de-
sulphurising hot metal for the production of
low-sulphur, high-quality steel.
(www.jamipol.com)

50
TM International Logistics Limited
(TMILL):TMILL provides material
handling and port operation services at
Haldia and Paradip Ports in addition to
providing freight forwarding and chartering
services.
(www.tmilltd.com)

mjunction services limited :

mjunction, operating at the cutting edge of
Information Technology, is a 50:50 venture
of SAIL and Tata Steel. It is India's largest
eCommerce company and the world's
largest eMarketplace for steel. Mjunction
offers a wide range of selling, sourcing and
knowledge services that empower
businesses with greater process efficiencies.
(www.mjunction.in)

TRF Limited :TRF, one of India's

leading companies in the business of
design, manufacture, supply, installation
and commissioning of engineered-to-order
equipment and systems in the areas of bulk
material handling, processing, reclaiming
and blending. TRF has also made its mark
in the fields of coke oven equipment, coal
dust injection systems for blast furnaces and
coal beneficiation systems.
(www.trfltd.com)

Jamshedpur Utility and

Service Company Limited
(JUSCO) : Re-engineered out of Tata
Steel's town services, JUSCO is a wholly
owned subsidiary of Tata Steel and is the
country's first enterprise that provides
municipal and civic services for townships.
JUSCO is the only EMS 14001 civic
services provider in the country.
(www.juscoltd.com)

51
The Indian Steel and Wire Products
Limited (ISWP) : Recently acquired by
Tata Steel, ISWP has two units - a wire unit
comprising wire drawing mills, wire rod
mills and a fastener division and a steel roll
manufacturing unit named Jamshedpur
Engineering and Machining Company -
JEMCO.

Tata BlueScope Steel Limited: A joint

venture with BlueScope Steel Limited,
Australia, Tata BlueScope Steel Limited
offers a comprehensive range of branded
steel products for building and construction
applications. The Company is constructing
a state-of-the-art metallic coating and
painting facility at Jamshedpur.
(www.tatabluescopesteel.com)

Dhamra Port Company, Orissa: A JV

between Larsen & Toubro Ltd. and Tata
Steel Ltd., the company will build a deep-
draft (18 metres) all weather port on the
east coast of India. The port will handle 80
million tonnes per annum of cargo.

(www.dhamraport.com)

Hooghly Met Coke & Power

Company: A joint venture with West
Bengal Industrial Development
Corporation Ltd., HMC&PC
envisages an annual met coke
production capacity of 1.2 million
tonnes and 90 MW of electric power.
(www.hooghlymetcoke.com)

Lanka Special Steel Limited: The only

unit in Sri Lanka manufacturing galvanised
wires.

52
Sila Eastern Company Limited:
Established to develop limestone mines in
Thailand, mainly for the captive use of Tata
Steel.

NatSteel Holdings (NSH) : A leading

supplier of premium steel products for the
construction industry. NatSteel Holdings
became a 100% subsidiary of Tata Steel in
February 2004. NSH produces about 2 MT
of steel products annually across its
regional operations in seven countries.
(www.natsteel.com.sg)

Tata Steel Thailand: The company is

the dominant steel producer in Thailand.
The company has the capacity to produce
1.7 million tonnes of steel for the
construction industry per year.

(www.tatasteelthailand.com)

Tata Steel KZN: Proposes to set up high

carbon ferrochrome plant in South Africa.
The plant is slated to be commissioned by
October 2007 with an annual production
capacity of 135,000 tonnes during Phase 1.

Tata NYK: A joint venture with Nippon

Yusen Kabushiki Kaisha (NYK Line) for
setting up a shipping company to cater to
dry bulk and break bulk cargo. Tata Steel
and NYK will each hold 50% stake in the
joint venture company.

53
 National International

Jharkhand Vietnam

Chhattisgarh South Africa

Orissa - Australia
Kalinganagar
Mozambique
- Dhamra
Port Ivory Coast (West
Africa)
Tamil Nadu
Oman

The Company has set itself the objective of expanding its capacities and becoming globally
competitive in its business. as a part of its growth strategy, the Company believes in adopting
the ‘best practices’ that are followed in the area of Corporate Governance across various

54
geographies. The Company emphasises the need for full transparency and accountability in
all its transactions, in order to protect the interests of its stakeholders. The Board considers
itself as a Trustee of its Shareholders and acknowledges its responsibilities towards them for
creation and safeguarding their wealth.

55
 Tata groups Diversified area of business

Information systems and communications: The Tata group has well-established

enterprises in the fields of software and other information systems, telecommunications and
industrial automation.
Engineering: The Tata group has a robust presence in engineering, with operations in
automobiles and auto components and a variety of other engineering products and services.
Materials: The Tata group is among the global leaders in this business sector, with
operations in steel and composites.
Services: The Tata group has widespread interests in the hospitality business, as also in
insurance, realty and financial and other services.
Energy: The Tata group is a significant player in power generation and is also involved in
the oil and gas segment.

SOME OF WHICH ARE:

• Tata Tele Services

• Tata Power

• Tata Consultancy Services

• Tata Chemicals

• Tata Assets Management

• Tata Motors

• Tata Capital

• Titan Industries

• Tanishq

• Taj Group of Hotels

56
Products of Tata group

57
TATA
STEEL
STAND
ALONE
58
TREND OF SALES

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

SALES 11920.96 15876.87 17144.22 19762.57 22191.8

59
PRODUCT WISE NET SALES ARE AS
FOLLOWS
Figures in Rs (crs)

FY 2006-07 FY 2007-08
STEEL 14858 16541
TUBES 1099 1217
FERRO ALLOYS AND MINERALS 1454 1808
BEARINGS 140 127

Analysis:

60
The increase in the net sales of Tubes division was due to the increase in both the volume
as well as prices. The Ferro Alloys and Minerals division of the company registered a
growth of 24% in terms of value though there was a decline in terms of quantity due to the
company’s decision during the year to stop the sale of ores. There was a decline in the net
sales of the Bearings division of the company mainly due to lower off -take by the
automotive sector, which is a major customer sector of the division.

61
 TREND OF DEBTORS

FY 2003- FY2004- FY 2005- FY 2006- FY 2007-

YEARS 04 05 06 07 08
DEBTORS 756.06 581.82 539.4 631.63 543.48

Analysis:
There has been decrease in the trend of debtors in last five years, from Rs.756.6crores to
Rs.543.48 crores. This decrease in debtors shows a more profit to the company. The increase
in the debtors during 2006-07year might be due to the acquisition of CORUS.

62
DIVISION/PROFIT CENTRE WISE DEBTORS IN TATA
STEEL FOR FY 07-08

PROFIT CENTERS For the FY 06-07 For the FY 07-08

STEEL 509.09 397.84
WIRE DIVISION 43.82 33.30
TUBES 37.01 31.13
BEARINGS 7.01 7.29
F.A.M.D 70.44 107.59
TOTAL DEBTORS 667.37 577.15

63
TRENDS OF DEBTORS IN TATA STEEL
Debtors Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

FY 06-07 614 688 756 663 658 753 680 670 731 709 774 667

FY 07-08 694 687 662 683 669 767 733 636 677 691 716 577

64
 TREND OF CURRENT RATIO

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

CURRENT RATIO 1.03 1.1 1.1 2.18 0.9

ANALYSIS:

The ratio is constant. An ideal current ratio is 1:1. In the year 2006-07 the ratio is very high
which is not desirable since it means there was less efficient use of funds which was lowering
down the profitability of the concern. In year 2007-08, the ratio has quite improved to 0.9
from 1.03 in the year 2003-04 and is coming closer to the ideal ratio.

65
TREND OF DEBTORS TURNOVER RATIO

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

Debtors Turnover Ratio 13.38 23.81 28.73 31.9 35.66

ANALYSIS:

Debtors' turnover rate indicates how quickly receivables or debtors are converted into cash.
The liquidity of debtors, therefore, is measured through the debtors' turnover rate. A higher
debtors turnover coupled with quick average collection of debtors enables the firm to transact
a larger volume of business without corresponding rise in the investment in debtors. From the
above chart it is clear that the debtors turnover has been kept on increasing from 2003-04,
where it was 13.38times to 35.66 times in the year 2007-08.

66
TREND OF AVERAGE COLLECTION PERIOD

FY FY2004- FY FY FY
YEARS 2003-04 05 2005-06 2006-07 2007-08
AVERAGE COLLECTION
PERIOD 27.27 15.33 12.7 11.44 10.23

ANALYSIS:

The turnover rate converted into average collection period is a significant measure of the
collection activity of debtors. An average collection period is a measure of how long it takes
from the time the sales is made to the time the cash is collected from the customers.
Lesser the period better the situation for the company. In case of TATA STEEL there is a
continuous fall in average collection period from 27.7 days in 2003-04 to 10.23 days in 2007-
08, which is a good sign for the company.

67
TREND OF AVERAGE DEBTORS TO TURNOVER RATIO
YEARS
FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08
Debtors Turnover Ratio 13.38 23.81 28.73 31.9 35.66

ANALYSIS:

The analysis of the trends in sales and trade debtors shows the effectiveness of the credit policy
in activating sales. An uninterrupted upward trend in sales accompanied by downward trend in
debtors indicates that the credit policy implemented by the company is very effective in
stimulating more sales. This can be easily seen in case of TATA STEEL where the average
debtors to turnover has been decreased from 6.75% in 2003-04 to 2.65% in 2007-08.Further, if
the pace of increase in sales is more than the pace of increase in debtors, it is also a symptom of
fairly favorable credit policy.

68
PROVISION OF BAD DEBTS TO NET DEBTORS IN LAST
FIVE YEARS

year 03-04 04-05 05-06 06-07 07-08

Debtors 651 582 539 632 543

Provision 6 3 3 3 3
for 1 9 2 6 4
doubtful
debt

69
ASSET TURNOVER RATIO IN LAST FIVE YEARS

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

ASSET TURNOVER
RATIO (%) 100.78 110.41 108.76 77.02 106.25

ANALYSIS:

This ratio indicates the extent to which the investments in fixed assets contribute towards
sales. When compared with a previous period, asset turnover ratio indicates whether the
investment in fixed assets has been judicious or not. There has been an increase in the Fixed
Assets Turnover Ratio; this might be due to increase in net sales or due to the acquisition of
CORUS during the year2007.

70
 1.2.5 OVERVIEW OF THE FINANCE DIVISION OF TATA
STEEL

The whole finance and accounts department of Jamshedpur is divided in different groups and
sections. These were:

1. CASH OFFICE

2. FINANCE AND COSTS

3. PAYROLL ACCOUNTS

4. PURCHASE AND CAPITAL GROUP

5. SALES AND INDIRECT TAXATION

This project is related to DEBTORS MANAGEMNET, which is dealt by sales and indirect
taxation group. Everything related to debtors is termed as sundry debtors work.

Sales and indirect taxation group is responsible for accounting for activities such as:

 FREIGHT- OUTWARD & INWARD (ROAD AND RAIL)

 INVOICE

 INDIRECT TAXATION MATTERS (EXCISE AND SALES)

It is also related to post sales activities like debtors and town accounting. It comprises of the
following sections:

 EXCISE SECTION

 FREIGHT SECTION

 TOWN DEBTOR’S SECTION

 OUTWARD INVOICE SECTION

71
 SUNDRY DEBTORS SECTION

72
 SUNDRY DEBTORS SECTION

As the name suggests, this section is responsible for the consolidated reporting of all the
debts due to the company and related information to the management. The section plays a
major role in monitoring the movements of debts & advising recoveries from the bills of
those vendors who are also the defaulting customer of the company. Notes are often put up
to the concerned profit centres to highlight probable cases of default.

ACTIVITIES OF SUNDRY DEBTORS SECTION:

73
 Inter office collection (on behalf of other divisions/ profit centres /sales offices).

 Updating of debtors ledger and preparation of reviews for reconciliation of debtors

ledger balances with the corresponding balances as per financial accounts

 Updating of advance ledger maintained for tender sales and for preparation of
reviews of advance ledger

 Updating of auction ledger and preparation of monthly review foe auction ledger

 Maintenance of security deposit ledger for the purpose of refund of security deposits
and for payments of interest on security deposits.

 Preparation of reports:

• Board note on debtors (Tata steel debtors)

• Associated company’s outstanding debtor’s report.

• VP (F) Report (Gives the detailed outstanding of all major parties).

• Preparation of the outstanding report for secondary products, Rings, Agrico & town.

• Annual Business Plan Report

The Memorandum of understanding of sundry debtors section and continuous monitoring of

the performance against targets set.

OTHER ACTIVITIES:

 Inputs for the credit control meeting

 Preparation of the minutes of the CCCM.

 Updating the status of the minutes of the CCCM

74
 RESEARCH METHODOLOGY
2.1 Type of Research
The study is descriptive in nature in the sense that it focuses basically on analyzing the
debtors management at TATA STEEL.

2.2 OBJECTIVE OF THE STUDY

 The process of debtors management in TATA STEEL how the outstanding debtors are
accounted & what steps and actions are taken and should be taken to recover these
dues on time.
 Comparison of Tata Steel with other key players with respect to the debtors.
 Position of debtors in different industries.

2.3 SCOPE OF THE STUDY

The scope of this study is limited to the study of Debtors Management at TATA STEEL. The
scope encompassed with the debtors section of the company which is a part of finance and
accounting department.

75
2.4 sources of data Collection

• Primary data are collected by interviewing customers and employees of TATA

STEEL.
• Secondary data are collected by using internet, magazines and text books.

2.5 Sampling

The study was done by using the age wise analysis of debtors.

CREDIT DECISION

PROCEDURE OF CREDIT DECISION

76
WHAT IS CREDIT POLICY?
The credit policy provides the yardstick for measurement of credit level of receivables and is
the indentified and compared monthly, as per the requirements. The policy is influenced by the

77
nature of market and strength of the competition. The policy clearly defines the standard for
target debtor level, which in turn is a significant influence both ion payment terms and on the
whole of the credit control operation, since it determines how much tolerance, if any, is to be
shown to slow paying customer.

CREDIT POLICY OF TATA STEEL

TATA STEEL has a body known as credit control committee, which formulates and gives the
final approval for many credit policy matters. The credit guidelines as they have emerged today
are combined efforts of finance and marketing department.
The credit control committee is headed by Sr.V.P & E.D (F&A) and consists of all product
and sales manager from various divisions along with G.M (F&A) and other concerned
executives as its members. The committee meets at least in two months.
The annual limit of credit sale is provided by Sr.V.P (F&A) in consultation with other
management officials. The committee then discusses in detail about the breakup of the above
lump into the credit limits for different sales offices and also for various customers i.e. both
regional and party wise credit limit is set by the body.
Hence the basic purpose this committee is to set the standard and also have the overall control
of the credit situation, thereby keeping the financing of the working capital cost effective and
preventing any liquidity problems from arising.
As a general rule, credit is allowed to customer who takes large and repeated orders. One time
customers are not entertained for credit.

CREDIT TERMS
Credit terms refer to the terms and conditions on which the trade credit will be made available.
Thus the stipulations under which the goods are sold on credit are referred to as credit terms.
These relate to the repayment of the amount under the credit sale. These terms can be
finalalized after the scrutiny of number of factors. The various factors which must be taken into
account are:
 The seller company’s place in the market and the credit terms on which it is buying from
its own suppliers.

 The availability of the capital it needs to finance its own credit sales and whether this is
to be borrowed and if so at what cost; also the availability of capital to finance the
payment of other overheads.

78
  The existence of buyer and seller’s market

 The volume of sales planned and how these will be spread over the range of customers.

 The profit margin to be obtained.

 The competitive factors.

 The character of the market

A. The period the buyer will have the goods i.e. the buying company’s inventory turnover
and average collection period will ultimately decide the selling company’s credit terms.

B. The condition of the customer finances and the degree of the credit risk, which the credit
sale will involve.

CREDIT TERMS HAS THREE COMPONENTS

i. Credit period

ii. Credit limit

iii. Cash discount

CREDIT PERIOD: is the duration of time for which trade credit is extended. During this
period the customers must pay the overdue amount.

CREDIT LIMIT: is decided by the top management and varies according to the market
condition. This total amount is broken up into regional limits, which is further segregated into
monthly limits within which the different parties have to accommodate. This function is
performed by the credit control committee as discussed above.

CASH DISCOUNT: is offered to induce the customers to make prompt payments. The
customers can take advantage of discount if they pay the amount within the stipulated time.
These credit terms usually written in abbreviation for e.g. 2/10net 30 where:
• 2 signifies the rate of cash discounts (2%)

79
• 10 represent the time duration (10days)within which a customer must pay to be
entitled to the discount

• 30 represent the credit period.

Credit terms of Tata steel

The credit terms, i.e. the credit period and cash discount, followed by TATA STEEL are as
follows:
• CREDIT PERIOD: the credit period is decided on the basis of the type of the product
and is generally of fixed nature. However, special customer may be allowed a variance in the
set credit period depending upon the volume of sales and customer relationships.

• INTEREST CHARGED: interest free credit is allowed for 30 days in most cases. A
every 30 days extension there is a 1% rise in interest rate for secured credits. The rate of
interest for unsecured credit is1% more than the corresponding rate under secured credit .
there is a penal interest of 3% over the applicable rate of interest.

Time period Secured credit Unsecured credit

After 30 days 18.5% 19.5%

After 60 days 19.5% 20.5%

After 90 days 20.5% 21.5%

CASH DISCOUNT:

Cash discount of 2% has also been allowed for certain products in different division. The
discounts had a positive response from certain customers who had working capital problems
i.e. whose inventory turnover have also ignored the discounts and debtor’s turnover is low or
whose operating cycle is long

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COLLECTION EFFORT:

A constant touch with the customers is the best way of reminding him about his payment
schedule in a polite but firm manner. A daily, weekly and monthly report regarding the total
sale is done to keep a track on debtors and cash position. Tata steel ‘s collection efforts were
not up to the mark that is the reason why outstanding of greater than six months were
increasing continuously which has now improved to a great extent.

4.1TATA STEEL’S CREDIT MONITORING AND CONTROL

As the most of the credit is unsecured, keeping a timely vigilance on the debtors is important
from the safety and the liquidity position of the firm. This primarily requires an efficient
collection process because slackness in the collection efforts lengthens the average collection
period, and increase the % of bad debt, for monitoring the debtors TATA STEEL is using
some steps. These steps are:
• Preparation of a ageing schedule

• Calculation of days sales o/s

• Calculation of ACP

With the help of these, monthly reports are generated and are sent for review to credit control
committee chaired by V.P (F&A).

In case of secured credit where Tata Steel is also a debtor of its customers, it uses its
accounts payable as tool to realize its accounts receivables. In cases, which have the
symptoms of becoming the bad, a reconciliation statement is prepared and the mutual
agreement arrived at. However in the worst case legal action is pursued and bad debts are not
written off before five year.

FOLLOW UP

Proper follow up is done for the timely collection of debts. A daily, weekly, monthly report
regarding the sales is done to keep track on debtors and the cash position. Efficient and
capable Customer’s Accounts Managers are appointed for this purpose. Customer’s Accounts

81
Managers is responsible for the collection of debts and follow up of the customers. Now
TATA STEEL has adopted many ways to follow-ups:
• Phone

• Fax

• E-mail

• Letters

• Personal visit

TATA STEEL PROVISION POLICY

DEBTORS STATUS AS ON ……………… SUMMARY AS ON…………………

DEBTORS PROVISION

GUIDELINE %Age Amount of Provision

Provisions outstanding required
required

1) BIFR CASES
a) Above three years 100%
I. Recoverable 100%
II. Non Recoverable
Total

b) Below three years 100%

I. Recoverable
II. Non Recoverable 100%
Total

TOTAL

2) LEGAL CASE
c) Above three years 100%
I. Recoverable

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 II. Non Recoverable 100%
Total
d) Below three years
I. Recoverable
II. Non Recoverable 100%
Total
100%

TOTAL

3) GOVT./TOWN DUES
0%
e) 6 month-1 year
I. Recoverable 100%
II. Non Recoverable
50%
Total
f) 1-2 Years 100%
I. Recoverable
II. Non Recoverable 100%
Total
g) Above 2 years 100%
I. Recoverable
II. Non Recoverable
Total
TOTAL

4)SUBSIDUARY COMPANIES

h) 6 months-2 years 0%
I. Recoverable
II. Non Recoverable 100%
Total
i) Above 2 years
I. Recoverable 100%
II. Non Recoverable
Total 100%

TOTAL

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5)OTHERS

j) 6 months-three years 0%
I. Recoverable
II. Non Recoverable 100%
Total 100%
k) 3 years-5 years
I. Recoverable 100%
II. Non Recoverable
Total 100%

l) Above 5 years 100%

I. Recoverable
II. Non Recoverable
Total

TOTAL

GRAND TOTAL

4.3 OPERATIONAL WORKING AT TATA STEEL FOR

MANAGING DEBTORS

OVERVIEW

Managing the debtors for Tata steel is an important and chief function of the sales accounts
division of finance and accounts. All the transactions of commercial nature are dealt with by
this department in a detailed outline frame of working. The debtors arise each month out of
the sales made on credit and suitable feeding of the required figures has to be made once in a
month. This function is very much a difficult task owing to the various subsidiaries and
associate companies being controlled by TISCO itself.

84
The activities of each of the companies are diverse in operations and require different policy
formulations and strategies for complying with the existing market requirements. But they
are controlled in a centralized manner so that they give an actual overview of the standing of
the company. The profitability of each of the above is equally important to arrive at a
consensus for finding out the actual earnings and future prospects. As such each of the
company under subsidiary and associate is incorporated under distinct centres as Profit
Centre.

To flatten the organizational structure and developed authority and responsibility for the
quicker responsiveness to changing market conditions and greater initiative in dealing with
different target markets, Tata steel has brought in the concept of profit centre. For all
practical purpose, each profit centre functions as a separate company within the hold of Tata
steel. From the debtors management point of view also each profit centre has the
responsibility of appraising and dealing with its customers. However the overall control is
centralized and is in the hands of the finance department. The main function which lies at the
hands of Tata steel, Jamshedpur is to report such standings of the actual debtors as on a
particular date to the MD in the form of a monthly report. The figures thus arrived at give an
overview of which profit centres contribute the most to the debtor’s standing and the specific
reasons for the same.

Being a steel manufacturing concern, Tata steel is mainly concerned with the actual debtors
arising for the following profit centres:

 STEEL

 WIRE DIVISIONS

 FERRO ALLOYS AND MINERALS DIVISION

 TUBES DIVISION

 BEARINGS

Each of the above profit centers have debtors of their own which are handled and managed in
a centralized manner. For an example, tubes division is one of the most important division
which has the maximum contribution to the total sales taking together all the profit centers at

85
a point of time. It has various parties of its own as debtors such as ESSAR STEEL
LIMITED, BLUE STAR LIMITED, TATA CHEMICALS LIMITED,
MECHATRONICS and many debtors. A database relating to the different parties is
maintained in a pre specified format which helps in understanding the actual standing of the
debtor from the point of view of the actual sale being made to the party on credit till date.
This format helps in maintaining the records in a form which helps in judging the actual
ageing of the debtors and the amount being recovered from the total debt. By ageing we
mean to give an actual definition to the debtors in terms of how old has the debt been to him
and thereby categorizing him for the purpose. A same prescribed format is used by all the
profit centers for managing their respective debtors.

EXPLANATION

Through this preparation we get to know the actual total debtors figures and the major parties
that have contributed to the increase and decrease in the debtors as when compared with the
previous financial period. It mainly emphasizes upon the total debtors figures and the
overdue debtors and their major contributors in the form of party names and figures. It also
gives all list of indications for the debtors whose standing are for periods beyond six months.
This reporting is crucial for the reason that it gives the management the indicative areas for
focus, the reasons for a rise in debtors and suitable control for future standing which is
profitable to the company as a whole.

4.3 CHANNEL FINANCING

The core objective of channel financing is to provide integrated commercial and financial
solutions to the supply and distribution channels of a given industry. Channel finance gives
support to the commercial relationship between our clients and their suppliers and customers.
The commercial aim of the channel finance is to add value supply and distribution channels
by providing unique solutions that meet our customer’s demand.

86
By providing short term lending to clients utilizing qualified receivables as collateral, value
is added to the client by way of working capital support, reduced account receivables and
improved control of the sales/ distribution channels. In addition, payables discounting serves
to add value by improving supplier relationships and enhancing cash flow management.
Forward and backward linkages in a business organisation play a significant role in the
success or failure of the business entity. For,(say) a manufacturing or trading firm, while the
suppliers of the raw material are important as they provide input for production, equally
important is the role of its distributors which sell products manufactured by the firm through
retailers to the ultimate consumers. Channel financing relates to ensuring that integrated
financial and commercial solutions are available to the entire chain of supply and distribution
that could ensure health of the firm, financed by the bank.

How channel financing is different from conventional lending?

Channel financing is different from the conventional lending since in conventional lending
the financing banks are generally not concerned as how the suppliers of the firm and dealers
of teh product of the firm are financing their activity. The weak financials of the
supplier(leading to delay in supply and non availability of market credit)or the dealers of the
product (delay in receipt of payments leading to higher book debts) could adversely impact
the top line sales and bottom line profits of the financed firms. In the channel financing, the
financing bank may have to find the ways and means as to how the suppliers and the
buyers(dealers of the product) can be financed through various instruments/facilities. Hence,
the channel financing adds value to the transaction for all the parties concerned, be it the
manufacturer/trader , the supplier of the inputs or the dealer/ buyer or the financing bank.

METHODOLOGY

Through channel financing the business firms can outsource a major part of their working
capital needs thereby reducing their dependence on bank finance. For instance, it need not
avail of credit from the bank to pay off the supplier, if the supplier gets the finance in his own
name from the bank for raw materials supplied on credit in the form of say, drawee bills
financing. The bank can also allow loan to the dealer for credit term that has been fixed
87
between the firm and the dealer in the form of receivable finance or finance against book
debts or factoring of receivables. This enables the manufacturing firm to get the cash
immediately for the finished goods supplied. This firm functions as the principal customer
which suggests the names of its suppliers and dealers to the bank. Thereafter the bank makes
the a due diligence assessment of the suppliers/dealers standing credit worthiness and decides
to provide finance on merit.

BENEFITS TO THE FINANCED CONCERN, THE SUPPLIER

AND THE DEALERS/BUYERS

The pre and post sale of working capital requirement of the manufacturing concern would be
scaled down. Such firms can concentrate more on their core competence area of production
and marketing their products besides saving time and costs involved in arranging creditors
and monitoring recovery. As regards the suppliers and the dealers, the major benefit is that
they get payments promptly, which improve their liquidity position and cost. This also helps
them as well as bank to cut level of counter party risks.

GAINS TO BANKS

The bank also gain substantially from the process of channel financing which include
increased customer base, effective due diligence and smoothness of lending activity and loan
origination process. Besides, the banks will be able to ensure better credit discipline. Since
the risk is diversified through finance to supplier, manufacturer and the dealers, the credit
exposure norms are better observed. Hence the channel financing is a very convenient tool in
managing their assets portfolio.

88
 Credit assessment
modules

Cam-1(solvency)
Cam-2(financials)
Cam-3(technology
and commercial)
Cam-4(quality and
credibility)

4.4 Credit assessment policy

Credit management module (based on lotus notes)

Behind every credit decision there is an inherent potential for loss informed credit decision
will minimize the risk, enhance the profitability and lead to better structuring of credit. For

89
credit appraisal and risk assessment customers are broadly classified into three groups
namely
 ORGANISED SECTOR (public and private ltd, companies including govt.
undertakings)

 UNORGANISED SECTOR (traders, partnership firms, SIS units etc)

 GOVERNMENT DEPARTMENT (defence , irrigation, power , railways, PWD,

CPWD)

Credit risk assessment of the customer is assessed

based on the following parameters:

 ABILITY TO PAY- It is easy to assess the ability of the customer to pay and is
applicable to the organized sector

• Solvency

• Financial viability

Technological soundness

• Commercial feasibility

 WILLINGNESS TO PAY- it is based on the judgement and is applicable to both

organised and unorganised sectors. This is the only criterion adopted for assessing the
customers in the unorganised sectors.

The assessment criteria are:

 Quality of management

 Credibility

 Past performance

 Health of group companies

CREDIT DECISION:
• Risk classification of the entry i.e. low/medium/ high

• Should we extend credit to this entity?

90
 • If yes, the recommended credit limit

• The structure of the credit i.e.

Secured (%)

Unsecured (%)

• Recommend credit as per % of the net worth

• Sanctioned credit limit(specify the structure and the amount)

• Individual firm / company wise credit limits(in case the entity has different firms or
companies)

• Sales centre wise allocation of the sub limits

The assessment criteria are:

1. SOLVENCY

2. FINANCIAL VIABILITY

3. TECHNOLOGICAL SOUDNESS

4. COMMERCIAL FEASIBILITY

Depending upon the above basis Tata steel have developed a module for assessing the risk
associated with each and every accounts and to judiciously take a decision based on the
information available
This system is based on the lotus notes applications, which have been described as below:

91
Credit assessment module-1

Solvency
Corporate bankruptcy prediction (“Z”)

ratios description result Coefficient “

Z

”
X1 Working A1 -
capital/ total Z
assets 1
X2 Retained A2 - Z
earnings/ 2
total assets

X3 EBIT/ total A3 - Z
assets 3

X4 Net worth/ A4 - Z
total 4
liabilities

TOTAL
(Z1+Z2+Z3+Z4)

CREDIT DECISION (tick the appropriate column)

LOW RISK MEDIUM RISK HIGH

RISK

NOTE:
“Z” SCORE ABOVE4.00 TO BE CONSIDERED AS LOW RISK

92
“Z” SCORE BETWEEN 4.00 & 2.60 TO BE CONSIDERED AS MEDIUM RISK
“Z” SCORES LESS THAN 2.60 TO BE CONSIDERED AS HIGH RISK
“Z” SCORE LESS THAN 1.60 IS A SIGN OF BANKRUPTCY

CREDIT ASSESMENT MODULE -2

RATIOS DESCRIPTION

Structural ratio

Debt equity ratio Debt/ equity

interest coverage ratio PBIT/interest on debt

Liquidity ratio
Current ratio Current asset/ current
liabilities
Acid test ratio Quick asset/ current
liabilities

Turnover ratio
Assets turnover ratio Sales/ total assets
Inventory turnover ratio Sales/ inventory
Receivables turnover ratio Sales /receivables

Profitability ratio
Gross profit ratio PBIT/sales
Net profit ratio PAT /sales

Credit decision (tick the appropriate column)

LOW RISK MEDIUM RISK HIGH RISK

Note: 1& 2 year are immediately preceding financial years

93
• A high debt equity ratio and increasing trend of this ratio is a
common trait among the failing companies.

• No ratio should be interpreted in isolation and the credit decision

should be taken after reviewing the ratios in totality.

FINANCIAL VIABILITY: Understanding the ratio

CURRENT RATIO:

Current ratio of the business concern indicates the

availability of its current assets to meet its current
liabilities. Higher the ratio better is the coverage. A
relatively higher current ratio indicates that the firm is
liquid and has the ability to fulfill its current obligation on
time. An increase in the current ratio represents an
improvement in the liquidity position and vice versa.
A ratio equal to 1:1 is considered to be satisfactory.

ACID TEST RATIO:

LiquidityA ratio high acid test ratio is an indication that the
firm is liquid and has ability to meet its current or liquid
liabilitiesor
Liquidity inthe
time andterm
short vicesolvency
versa. As convection,
means ability ofathe
ratio of 1:1
is considered
business to short
to pay its be satisfactory.
term liabilities. Inability to payoff short
term liabilities affects its credibility as well as credit rating.
Continuous default on the part of business leads to commercial
bankruptcy. Eventually such commercial bankruptcy may lead
94
to its sickness and dissolution. Creditors are very much
interested to know its state of liquidity because of their financial
stake.
It measures the long term stability of the firm. These ratios indicate the
mix off funds provided by owners and lenders and assures the lenders of
the long term funds with regard to:
Periodic payment of interest during the period of loan and

Repayment of principal amount on maturity

DEBT EQUITY RATIO

dc
These ratios provide an insight into the financing
technique used by the business and focus, as a
consequence on the long term solvency position. This
ratio indicates the proportion of debt fund in relation
to equity. It indicates proportionate claim of owners
and outsiders against the firm’s assets. Creditors are
very keen to know this ratio since it shows the
relative weight of debt and equity. A ratio of 1:1 is
considered to be a satisfactory ratio. However the
creditor would prefer the lower one.

INTEREST COVERAGE RATIO

It indicates the firm’s ability to interest obligations.

Long term creditors of the firm are interested in
knowing the firm’s ability to pay interest on long term
borrowing. Generally, higher the ratio safer is the
creditor because even if the earnings fall, the firm
will be able to meet its commitment of fixed interest
charge. A lower ratio indicates excessive use of debt
and inefficient operations.

95
 TURNOVER
RATIO

WORKING DEBTORS INVENTORY

CAPITAL TURNOVER TURNOVER
RATIO RATIO RATIO

WORKING CAPITAL RATIO: Working capital ratio establishes the relationship between
sales and working capital. It measures the efficiency of utilization of working capital. The
higher is the ratio, lower is the investment in working capital & greater are the profits.

DEBTORS TURNOVER RATIO: Indicates the relation between net credit sales &
average accounts receivables of the year. The ratio indicates the efficiency of the concern to
collect the amount due from the debtors. Higher the ratio, better it is as it proves that debts are
collected quickly.

INVENTORY TURNOVER RATIO: It indicates that how fast inventory is used/ sold. It
measures the efficiency of the firm in selling its products. A high ratio indicates efficient
management of inventory because more is frequency of selling the stock. Low inventory
turnover ratio indicates over investment in inventory, slow business, poor quality of good,
stock accumulation, accumulation of obsolete slow moving stock and low profit compared to
total investment.

DEBT COLLECTION PERIOD: Indicates the average time taken to collect trade debts.
In other words, a reducing period of time is an indicator of increasing efficiency. It enables
the enterprise to compare the real collection period with the granted/theoretical credit period

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CREDIT ASSESSMENT MODULE -3

TECHNOLOGICAL AND COMMERCIAL

STRONG MEDIUM WEAK

Technological
Product
quality

Product mix
Technological
know how
Power
availability
Process
suitability
Plant /
equipment

Credit decision (tick the appropriate one)

LOW RISK MEDIUM RISK HIGH

RISK

CREDIT ASSESMENT MODULE -4

97
Quality and credibility of management
(Willingness to pay)
strong medium Weak
Quality of
management

• Track record

• Market reputation

• Experience in field

• Ownership dispute

• Technical
competence

Credibility of
management

• Ethical in business
dealings

• Commitment level

• Relationship with
regulatory
authorities

• Relation with bank

• Relation with
competitors

Past
performance
with us
• Length of sound
dealing

• Promptness in
payment

• Honouring
commitments

• Payment patterns &

98
 adherence to credit
terms

• Willingness s to
furnish information

• Capacity to hold
stocks

• Ability to absorb
supply spikes

• Avoidance of over
trading

Health of group
companies
• Financial soundness
of group companies

• Possible diversion of
funds to new business
ventures

• Bank rating

Credit decision (tick the appropriate column)

LOW RISK MEDIUM RISK

HIGH Risk

CREDIT DECISION MODULE

Module Criteria Low Risk Medium Risk High Risk

CAM-1 solvency

CAM-2 Financials

CAM-3 Technical
&
commercia

99
 l
CAM-4 Quality &
credibility

Notes:

• Maximum weight age should be given to criteria no 1 & 2 for customers in organised
sector

• In case of a new company, financial data’s may not be available and hence it is
suggested that the promoters past record and performance of the group companies
should be considered as guide.

• In case customers in organized sector, criteria 1 & 2 are relevant

• In case of government department past performance, repayment patterns and

adherence to credit. Discipline should be considered as guide as others criteria are not
relevant.

3.5 Understanding the debtor’s

process system
During this project I got an opportunity to become a part of an ongoing project
“understanding the debtor’s process system” &“Recovery of Outstanding” of TATA
MAIN HOSPITAL (medical services provided by TATA STEEL to its employees and to
its other associates). This project is basically to get in touch with the customers and finding
out the reason for their default of payment. Four trainees. (Nidhi Kedia, Shital Verma,
Abhinav Kumar, Binita Gupta) were selected as a part of this ongoing project at Tata steel,
finance & A/c s dept, guided by Mr. K.S.M. Mathew (Head Sales & EPA a/c)
TATA MAIN HOSPITAL (TMH) was introduced in 1908 and restructured in 1909 and as
the days passed, TMH is now a days the biggest hospital in the city with most appropriate

100
and valuable services to the city. This hospital has the most sophisticated equipments for the
investigation of medical purposes with well experienced Doctors, Specialists, Surgeons,
Facilities & sufficient no. of Medical and non Medical Staff.
TATA STEEL and its associates provide free services to their employees and their
dependants through TATA MAIN HOSPITAL, for these services companies are paying to
hospital. In this process TMH has accumulated a huge outstanding from its corporate
customers, even after TATA STEEL’S reminder calls customers are not paying their
outstandings. So TMH has stopped its services for a day, for that company whose books of
accounts showed outstandings for a long period.
The GURU MANTRA of the project was DMAIC (Determine, Measure, Analysis,
Implementation and check/control).
The whole process consisted of eight steps:

Step 1.Take out Customer wise Statement

Step 2. Collect the Outstanding list
Step 3. Reconcile and identify the bills pending
Step 4. Take Print outs of Bills - As duplicate copy
Step 5. Fix an appointment with the Customer
Step 6.Finalise Reconciliation with customer
Step 7. Collect Money
Step 8.Make documents for write off proposals if
required

101
PROJECT ACTIVITY CHART

102
103
THREE MAJOR AREAS AND THEIR RESPECTIVE ACTIVITIES:

The project is still in progress and yet to complete the last three steps. The report submitted
by our team was appreciated by everyone at TMH and TATA STEEL.

We prepared a detailed report of our findings and made Management System Chart for all the
organizations to show how their work flow is going on and who is responsible for any
particular work done in concerned company related to medical services.

A copy of detailed report we have submitted in the company. After this we are asked by our
guide to give a presentation (related to customers complains and suggestions) before
MANAGING DIRECTOR (Dr. Ray) of TMH and the management. On the basis of
management system chart, which we had made, concerned persons of associated companies
will be called for a meeting with all their records and TATA STEEL accounts and finance
division also will be ready with their records to cross check the bills and records. When the
cross check will be done a signature will be taken from the concerned person and dues will
be collected.

104
Comparative analysis

of Tata steel with

other

STEEL companies

105
 5.1 STEEL AUTHORITY OF INDIA LIMITED (SAIL)
Steel Authority of India Limited (SAIL) is a company registered under the Indian Companies
Act, 1956 and is an enterprise of the Government of India. It has five integrated steel plants
at Bhilai (Chhattisgarh), Rourkela (Orissa), Durgapur (West Bengal), Bokaro (Jharkhand)
and Burnpur (West Bengal). SAIL has three special and alloy steel plants viz. Alloy Steels
Plant at Durgapur (West Bengal), Salem Steel Plant at Salem (Tamil Nadu) and Visvesvaraya
Iron & Steel Plant at Bhadravati (Karnataka). In addition, a Ferro Alloy producing plant
Maharashtra Elektrosmelt Ltd. at Chandrapur is a subsidiary of SAIL. SAIL has Research &
Development Centre for Iron & Steel (RDCIS), Centre for Engineering & Technology
(CET), SAIL Safety Organisation (SSO) and Management Training Institute (MTI) all
located at Ranchi; Central Coal Supply Organisation (CCSO) at Dhanbad; Raw Materials
Division (RMD), Environment Management Division (EMD) and Growth Division (GD) at
Kolkata. The Central Marketing Organisation (CMO), with its head quarters at Kolkata,
coordinates the country-wide marketing and distribution network.
SAIL’s steady ascent has been facilitated by all round improvement in performance. SAIL
today presents a picture of dynamic and buoyant business entity moving ahead to maintain
and
Consolidate its leadership position in the fast growing Indian steel sector. “SCOPE Gold
Trophy for Excellence and Outstanding Contribution to the Public Sector Management”–
institutional category for the year 2004-05,“Businessworld-FICCI–SEDF Corporate Social
Responsibility Award – 2006”, and several other awards to SAIL, bear testimony to the
organization’s efforts towards improving efficiencies.

106
 Tata steel vs. SAIL
OPERATING MARGIN

OPERATING
MARGIN (%)
YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08
TATA STEEL 32.47 41.1 38.88 39.61 41.94
SAIL 20.71 36.53 23.24 28.09 28.19

ANALYSIS:

From the above graph, it is clear that TATA STEEL has been always in a better position in
terms of operating margin profit (%) when compared to SAIL. From 32.47% in 2003-04 to
41.94% in 2007-08 TATA STEEL has proved itself. Whereas SAIL‘s operating margin
profit% has been just 20.71% in year 2003-04 to 28.19% in 2007-08.

107
TREND OF CURRENT RATIO IN LAST FIVE YEARS

CURRENT RATIO

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

TATA STEEL 0.68 0.71 0.72 1.77 3.92
SAIL 0.91 1.18 1.23 1.59 1.73

108
ANALYSIS:

An ideal current ratio is 1:1. When compared to SAIL, current ratio of TATA STEEL is not a
desirable one. In the year 2007-08 the ratio is very high which is not desirable since it means

109
there was less efficient use of funds which was lowering down the profitability of the
concern. In case of SAIL the ratio is almost coming closer to the ideal ratio.

QUICK RATIO

QUICK RATIO

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

TATA STEEL 0.39 0.33 0.29 1.37 3.52
SAIL 0.57 0.76 0.72 1.01 1.23

ANALYSIS:

Quick ratio shows short-term solvency of a business in a true manner. It is also called acid-
test ratio and liquid ratio. It is calculated in order to know how quickly current liabilities can
be paid with the help of quick assets. Quick assets mean those assets, which are quickly
convertible into cash. While comparing TATA STEEL with SAIL it can be clearly seen that
TATA STEEL is in a better position. SAIL’s ratio as on 2003-04 was 0.57 which increased
to 1.23 in 2007-08. When compared to TATA STEEL it is clear that the increase in the ratio
is more than that of SAIL.

110
DEBTORS TURNOVER RATIO

DEBTORS TURNOVER
RATIO

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

TATA STEEL 12.47 15.73 16.52 17.32 12.74
SAIL 13.64 16.64 15.12 16.77 15.52

ANALYSIS:

Debtors turnover ratio indicates the relation between net credit sales and average accounts
receivables of the year. This ratio is also known as Debtors’ Velocity.
This ratio indicates the efficiency of the concern to collect the amount due from debtors. It
determines the efficiency with which the trade debtors are managed. Higher the ratio, better it

111
is as it proves that the debts are being collected very quickly. TATA STEEL and SAIL both
has an increasing trend in debtors turnover ratio when compared to last five years.

TREND AVERAGE COLLECTION PERIOD IN LASTFIVE

YEARS

AVERAGE COLLECTION
PERIOD

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

TATA STEEL 29.24 23.19 22.089 21.06 28.64
SAIL 26.75 21.93 24.12 21.75 23.51

ANALYSIS:

This ratio indicates how quickly and efficiently the debts are collected. The shorter the period
the better it is and longer the period more the chances of bad debts. Although no standard
period is prescribed anywhere, it depends on the nature of the industry. In case of TATA

112
STEEL & SAIL, the average collection period has decreased when compared to 2003-04 to
2007-08, but SAIL has less chance of bad debt since its average collection is 23.51 days as&
when compared to TATA STEEL’s average collection period of 28.64 days.

5.2 Arcelor Mittal

ArcelorMittal is the world's leading steel company, with operations in more than 60
countries.
ArcelorMittal is the leader in all major global steel markets, including automotive,
construction, household appliances and packaging, with leading R&D and technology, as
well as sizeable captive supplies of raw materials and outstanding distribution networks.
With an industrial presence in over 20 countries spanning four continents, the Company
covers all of the key steel markets, from emerging to mature.Through its core values of
sustainability, quality and leadership, ArcelorMittal commits to operating in a responsible
way with respect to the health, safety and wellbeing of its employees, contractors and the
communities in which it operates. It is also committed to the sustainable management of the
environment and of finite resources. ArcelorMittal recognises that it has a significant
responsibility to tackle the global climate change challenge; it takes a leading role in the
industry's efforts to develop breakthrough steelmaking technologies and is actively
researching and developing steel-based technologies and solutions that contribute to combat
climate change. In 2008, ArcelorMittal had revenues of $124.9 billion and crude steel
production of 103.3 million tonnes, representing approximately 10 per cent of world steel
output. ArcelorMittal is listed on the stock exchanges of New York (MT), Amsterdam (MT),
Paris (MT), Brussels (MT), Luxembourg (MT) and on the Spanish stock exchanges of
Barcelona, Bilbao, Madrid and Valencia (MTS).

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 Tata steel vs. ARCELOR MITTAL (MITTAL STEEL)
TREND OF CURRENT RATIO IN LAST FIVE YEARS

CURRENT RATIO

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

TATA STEEL 0.68 0.71 0.72 1.77 3.92
MITTAL STEEL 1.54 2.02 1.6 1.41 1.44

Analysis:
Current ratio shows the short-term financial position of the business. The current ratio of
ARCELOR MITTAL is better when compared to TATA STEEL. The ideal current ratio is
1:1.this signifies the ability of the company to pay off its current liabilities. More the ratio
indicates idleness of working capital.

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DEBTORS TURNOVER RATIO

Debtors Turnover
Ratio

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

TATA STEEL 12.47 15.73 16.52 17.32 12.74
MITTAL STEEL 13.53 11.71 10.04 10.99 14.64

Analysis:
Debtors turnover ratio indicates the relation between net credit sales and average accounts
receivables of the year. This ratio is also known as Debtors’ Velocity.
This ratio indicates the efficiency of the concern to collect the amount due from debtors. It
determines the efficiency with which the trade debtors are managed. Higher the ratio, better it
is as it proves that the debts are being collected very quickly. TATA STEEL and ARCELOR
MITTAL both have an increasing trend in debtors turnover ratio when compared to last five
years. But MITTAL has a better turnover ratio than TATA STEEL.

AVERAGE COLLECTION PERIOD

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 Average Collection
Period

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

TATA STEEL 29.24 23.19 22.089 21.06 28.64
MITTAL STEEL 26.97 31.14 36.34 33.21 24.91

Analysis:

This ratio indicates how quickly and efficiently the debts are collected. The shorter the
period the better it is and longer the period more the chances of bad debts. Although no
standard period is prescribed anywhere, it depends on the nature of the industry. In case of
TATA STEEL & SAIL, the average collection period has decreased when compared to
2003-04 to 2007-08

4.3 JINDAL STEEL AND POWER LTD.

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It has been a momentous journey for the O P Jindal Group from its small beginnings to
becoming one of the most respected business and industrial houses today. In 1952, O.P.
Jindal wondered why steel pipes could not be made in India when he spotted one with
foreign markings. He got working on the idea and started a small pipe unit at Liluah in
Howrah district of West Bengal. No one at that point of time dreamt where this visionary
would take this humble beginning. Today, O P Jindal Group is a US$ 10 billion
conglomerate.
Jindal Power Limited (JPL), a subsidiary of JSPL, has set up a 1000 MW
power project at Raigarh, the first Mega Power Project of India in private
sector. JPL has planned more hydro and thermal power projects and has
an aggressive blueprint to increase domestic power production to help in
contributing towards achieving Government of India's goal of 'affordable
power for all by 2012'.

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 TATA STEEL vs. JINDAL STEEL & POWER LTD

OPERATING MARGIN PROFIT

OPERATING MARGIN
PROFIT (%)
FY FY2004- FY FY FY
YEARS 2003-04 05 2005-06 2006-07 2007-08
TATA STEEL LTD. 32.47 41.1 38.88 39.61 41.94
JINDAL STEEL AND
POWER LTD 37.42 40.65 40.26 40.01 42.76

Analysis:

The trend shows there is an almost stagnant range for JSP. From 37.42% in the year 2003-
04,it increased to 42.76% in 2007-08. In case of TATA STEEL there was a steep increase in
2004-05 but then the operating margin profit decreased for two consecutive years and finally
in the year 2007-08 it reached to 41.94%.from 32.47% in year 2003-04,it increased more
than 9% till 2007-08.

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TREND OF SALES IN LAST FIVE YEARS

FY 2003- FY2004- FY 2005- FY 2006- FY 2007-

SALES 04 05 06 07 08
134089.0
TATA STEEL 12372.53 17414.52 22272.14 27437.29 2
JSPL 1550.24 2775.32 3273.93 4338.54 6822.42

ANALYSIS:
The trend of sales of TATA STEEL AND JINDAL STEEL AND PWER LTD. has been
increasing year after year, but when both are compared, the increase in sales of TATA STEEL
is more than JINDAL. From Rs.12372.53 crores in year 2003-04, TATA STEEL ‘sales has
reached Rs.134089.02 crores in 2007-08.whereas in case of JINDAL STEEL AND POWER
LTD. the sales wasRs.1550.24 crores in 2003-04 which increased only toRs.6822.42 crores.

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DEBTORS TREND IN LAST FIVE YEARS

DEBTORS
TREND

FY FY2004- FY FY FY 2007-
YEARS 2003-04 05 2005-06 2006-07 08
TATA STEEL 810.23 1402.94 1292.81 1874.55 19169.05
JSPL 212.65 174.67 300.71 324.34 359.19

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TREND OF CURRENT RATIO

FY 2003- FY2004- FY FY FY
CURRENT RATIO 04 05 2005-06 2006-07 2007-08
TATA STEEL LTD. 0.68 0.71 0.72 1.77 3.92
JINDAL STEEL AND
POWER LTD 1.21 1.35 1.26 1.13 1.56

Analysis:
This ratio is also called working capital ratio. This ratio explains the relationship between
current assets and current liabilities of a business, where current assets are those assets which
are either in the form of cash or easily convertible into cash within a year. Similarly,
liabilities, which are to be paid within an accounting year, are called current liabilities.
Current ratio shows the short-term financial position of the business. This ratio measures the
ability of the business to pay its current liabilities.

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DEBTORS TURNOVER RATIO

DEBTORS TURNOVER FY FY2004 FY 2005- FY 2006- FY 2007-

RATIO 2003-04 -05 06 07 08
TATA STEEL LTD. 12.47 15.73 16.52 17.32 12.74
JINDAL STEEL AND
POWER LTD 8.19 14.33 13.77 13.87 19.96

Analysis:

Debtors turnover ratio indicates the relation between net credit sales and average accounts
receivables of the year. This ratio is also known as Debtors’ Velocity.
This ratio indicates the efficiency of the concern to collect the amount due from debtors. It
determines the efficiency with which the trade debtors are managed. Higher the ratio, better it
is as it proves that the debts are being collected very quickly. TATA STEEL and JSPL both
have an increasing trend in debtors turnover ratio when compared to last five years. But JSPL
has shown a better performance in last five years.

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AVERAGE COLLECTION PERIOD

Average Collection
Period
FY 2003- FY2004- FY 2005- FY 2006- FY 2007-
YEARS 04 05 06 07 08
TATA STEEL 29.24 23.19 22.089 21.06 28.64
JSPL 44.55 25.46 26.49 26.3 18.28

ANALYSIS:
This ratio indicates how quickly and efficiently the debts are collected. The shorter the period
the better it is and longer the period more the chances of bad debts. Although no standard
period is prescribed anywhere, it depends on the nature of the industry. In case of TATA
STEEL & JSPL, the average collection period has decreased when compared to 2003-04 to
2007-08.but Jindal has decreased more than half of the average period from 2003-04, which
was 44.55days to 18.28 days in 2007-08. Whereas in case of TATA STEEL, the average
collection period was 29.24 days in2003-04 which reduced to 28.64 days only in 2007-08.

123
124
 Recession is the economy
shrinking for two consecutive quarters (=6 months) with a decrease in the GDP (=Gross
Domestic Product). GDP = Value of all the reported goods and services produced by the
people operating in the country.
GDP is a good indicator of economy; other indicators could be;
 Unemployment Rate

 Consumption Rate

 Actual Personal Income etc...

If GDP is growing, then market is growing due to increased demand;

In economics, a recession is a general slowdown in economic activity over a sustained

period of time, or a business cycle contraction. During recessions, many macroeconomic
indicators vary in a similar way. A recession has many attributes that can occur
simultaneously and can include declines in coincident measures of activity such as
employment, investment, and corporate profits.

125
 A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as
an economic depression, although some argue that their causes and cures can be different.

Tata steel & recession

The steel industry has not been spared with the impacts of the financial crises. The subprime
crisis has lead to the recession in economy of different countries, which may lead to have a
negative effect on whole steel industry in coming years. However steel production and
consumption will be supported by continuous economic growth.
India’s share in world production of crude steel increased from 1.5% in 1981 to around 7.3%
in 2008. The private sector is considered engine of growth in the steel industry and
technological changes and modernization are taking place in both the public and the private
sector integrated steel plants in India.

“Recession will have a positive effect”: Tata Steel MD

NewKerla.com reported that TATA Steel MD gave tips to defeat the deadly slowdown, which
has created a slowdown in not only the Industrial sector but all walks of life. Mr.
Muthuraman said that “The year 2008 has been an unprecedented one in recent history
starting on a very high note and ending with a deep and wide global economic downturn. The
year 2009 will be a challenging one for all of us. I urge all of you to take the New Year as an
opportunity rather than threat.”
World's sixth largest steelmaker Tata Steel Managing Director B Muthuraman claimed that
despite global slowdown in the steel sector, the company in India would increase its total
production this year.
Talking to reporters here after participating in Dr. J J Irani award for excellence in education
programme, Mr. Muthuraman said, ''The recession has a positive impact on us. We are going
to increase our production this year. We are also going to pay more salary to our employees.''
Later, Tata Steel vice president (corporate-services) Partho Sengupta said the company was
selling its products at premium rates and there was no order shortage. ''We are moving ahead
with our expansion plans as scheduled. By the year-end, our production capacity in India will

126
increase to 6.4 MT from 5 MT. The recession is not a new thing to us. This time also, we will
tide it over as we have done in the past.'' He said there was no plan for production cut or
employee reduction due to slowdown.

5.1 Tata Steel’s game plan to beat recession

Beating the recessionary trends in the market, Tata Steel plans to make and sell 20 per cent
more steel in the current fiscal, its Managing Director B. Muthuraman said. He said he was
not happy with the steel prices, but he was hopeful of a marginal recovery in prices by the
third quarter.

Addressing a press meet, he said Europe and the U.S. were badly hit by the global meltdown
and the company’s operations in Europe had responded to the market place in a swift and
efficient manner effecting cost-savings and tuning itself fast to customer requirements. The
measures taken had translated into cost savings of 650 million pound in fiscal 2009, which
were expected to increase to one billion pound in 2009-10, he said. Mr. Muthuraman also
revealed the company’s plans on securing raw material supplies for its European operations
through partnerships in South Africa, Canada and Mozambique. “Our strategy is to look at
small mines so that major capital outlay is not required,” he said.

Mr. Muthuraman said the Rs. 15,000-crore Jamshedpur expansion plan, involving a new blast
furnace, would be ready by April 2010, while work on the new project in Orissa would
commence after the elections and as soon as it got iron ore allocation from State Government.
He admitted that the project had been delayed by over two years but said that this was mainly
because the company was waiting for iron ore allocation from the Government. In Seraikela in
Jharkhand, the company was beginning to get land and had applied for iron ore allocation,
although there seems to be little activity on that front.

On the current year’s sales plan, the Managing Director said the company was planning
capacity exploitation above its nameplate capacity and sales were being targeted at 6.4 million
tonnes against 5.2 million tonnes in the previous year. Elaborating on the programme to
develop overseas mines, he said there were three projects on the anvil — A two million tonne
iron ore project in South Africa, being developed through a partnership, a four million tonne

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iron ore project in Canada and a coal block in Mozambique with estimated reserves of one
billion tonnes. Production from these projects would commence between 2010 and 2011, he
said.

5.2 AFTER
RECESSION………………………………………….!!!

26 June 2009,

"The recession in world demand looks deeper than what we thought six months ago,"
Managing Director B.Muthuraman told a news conference.

Global steel production has tumbled this year, as demand in key steel consuming sectors such
as construction and automotive shrank, forcing steelmakers such as Arcelor Mittal to sharply
reduce capacity.

In April, the World Steel Association forecast steel demand would tumble 15 percent in 2009,
its steepest fall since World War II.

Tata Steel reported a net profit after minority interest and share of profit of associates of 49.5
billion rupees ($1.02 billion) in 2008/09, compared to a consolidated net profit of 123.5
billion rupees reported a year ago.

Consolidated net sales for the year rose to 1.46 trillion rupees from 1.31 trillion rupees
reported a year earlier.

That compared with a forecast for net profit of 84.23 billion rupees, on net sales of 1.5 trillion
in a Reuters poll of six brokerages.

Tata Steel did not release quarterly figures. A Reuters calculation showed it suffered a
consolidated loss of about 45.4 billion rupees in the January-March quarter.

Nine month consolidated profit stood at 94.86 billion rupees, on net sales of 1.2 trillion.

128
Tata Steel it took a restructuring and impairment charge of $805 million in the year for its
Europe operations.

It said profits would have been lower by 54.97 billion rupees had it charged changes in its
actuarial valuations on its European employee pension plan to the profit and loss account
instead of the reserves and surplus account.

Tata Steel, which last month won approval from banks to ease conditions on 3.7 billion
pounds of loan it took to buy Corus, said it had strong liquidity and no material repayment
obligations or refinancing for the next 12 months.

It said it had cash and equivalents of $2.1 billion on June 20 and an undrawn bank facility of
$1.3 billion.

Shares in Tata Steel ended down 2.1 percent at 397.95 rupees, ahead of the results, in a
Mumbai market that fell 0.5 percent.

The shares are up 85 percent so far in 2009 after tumbling 77 percent in 2008.

Tata Steel it took a restructuring and impairment charge of $805 million in the year for its
Europe operations.

It said profits would have been lower by 54.97 billion rupees had it charged changes in its
actuarial valuations on its European employee pension plan to the profit and loss account
instead of the reserves and surplus account.

Tata Steel, which last month won approval from banks to ease conditions on 3.7 billion
pounds of loan it took to buy Corus, said it had strong liquidity and no material repayment
obligations or refinancing for the next 12 months.

It said it had cash and equivalents of $2.1 billion on June 20 and an undrawn bank facility of
$1.3 billion.

Shares in Tata Steel ended down 2.1 percent at 397.95 rupees, ahead of the results, in a
Mumbai market that fell 0.5 percent.

The shares are up 85 percent so far in 2009 after tumbling 77 percent in 2008.

129
 Articles from the newspapers
India aiming to double steel production by 2011-12
Sunday, 14 December 2008

India is aiming to more than double its steel production to 124 million tonnes by 2011-12 and
further raise it to 280 million tonnes by 2020, Steel Minister Ram Vilas Paswan told Rajya
Sabha today. Replying to supplementary during Question Hour, Paswan said India ranked
eighth in world steel production when UPA Government took office in 2004 and has today
climbed to 5th spot with 54 million tonnes of annual steel production. "Our National Steel
Policy had targeted 124 million tonnes of steel production by 2020. But we have now
brought the target forward to 2011-12 and for 2020 we are aiming to raise production
capacity to 280 million tonnes," he said. Steel Ministry, he said, was of the view that high
quality iron ore, the reserves of which in the country are very limited, should not be exported
or their export discouraged through high export duties.

The exports cannot be fully stopped as iron ore mines employ some 500,000 people and their
employment cannot be risked, he said adding export duty on iron ores has already been
levied. The global economic slowdown has seen growth in steel consumption in the country
fall to 1.75 per cent from a high of 13 per cent. Also, prices of steel products have fallen
since June. Paswan said his Ministry has been holding consultations with the industry and
recently the Government rolled back export duty on all categories of steel items, except
melting sap, to help producers tide over fall in consumption levels in the country.

STEEL IMPORT STRENGTHEN 70% IN NOV

(Source-economic times 13th December)

India’s steel imports jumped more than 70% to 1.4 mn tonnes last month against 8 lakh tonne
in the same month a year ago. The sharp rise in imports was due to low-priced shipments

130
coming from China, Thailand and Ukraine into India at $450-500 per tonne, 25% cheaper
than the international price, then ruling at $600-700 per tonne. The steel ministry’s Joint
Planning Committee that collects data on iron and steel on a monthly basis shows that steel
imports dipped 10.7% to 5.25 million tonnes in April-October against 5.88 million tonnes in
the corresponding period a year ago. Availability of low-priced imports from some countries
resulted in huge imports in November. This happened when domestic steel makers were
cutting production due to lower demand. Last month, the government imposed 5% import
duty on steel products to protect domestic industry against cheap imports. But steel producers
feel the move is insufficient to bring down imports as china as withdrawn export tax on some
steel products to get rid of surplus stock. The government has also initiated investigation into
dumping from China but steel firms feel it’s a lengthy process and will take at least 8-9
months to complete.

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 SUGGESTIONS
1. Though SAP is implemented in the company, it is not fully implemented in town
division, because of which lot of manual work is done. If SAP is implemented then this
problem would be solved.

2. The state government & other government departments are another problem area in town
division. The company must send frequent reminders, ex-once in 15 days that they have
to pay their dues. The company must negotiate with the government about their
repayment of dues.

3. The company is facing problem in collecting the medical bills from corporate customers.
The company must make the list of defaulter in medical bills, which must be kept with
the concern authority. The person in charge must see that the defaulter must not be
entertained, even though it is an emergency case, until he pays his old dues.

4. The selection of customer must be done carefully, by properly checking the company’s
background, its repayment capacity etc. The company should rate the parties by seeing
its past performances. These ratings must be updated every year.

5. Channel financing is a way through which problems of dues can be controlled to a great
extent but it should be taken care that the company won’t be liable for any default made
by the middle person.

6. Now a day, it has become a normal practice of appointing a third party for collection of
dues which should be taken into account as it removes the burden of collection for the
company. Proper agreement between the third party and the company should be
formulated in which all the terms and conditions must be mentioned. It should be
without recourse and a third party should be legally appointed, thus not hampering the
goodwill of the company and also taking care of the collection process.

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 6.2 LIMITATION OF THE STUDY

1) The time horizon is very short, so in depth analysis could be done only of few
schemes.

2) The project is dependent on the relevance of the secondary data (e.g. Annual reports
of various companies) collected from the internet which might not be correct.

3) The study has been done on only a handful of data so it cannot be generalized to the
entire industry.

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 6.3 SWOT ANALYSIS OF DEBTORS MANAGEMENT
PROCESS AT TATA STEEL
STRENGTHS:

 With the implementation of ERP (enterprise resource planning) system SAP in

November ’99 the credit control methodology at TATA STEEL, JAMSHEDPUR has
become a centralized function which has given a several advantage to the company like,
integrated work culture, accurate results, quick updates and many more. The most
important of them is it facilitates better control over debtors.

 The company has classified its customers into well defined categories and has laid
down guideline for evaluating their credit worthiness on an individual basis. The SAP
integration helps the company n classifying each debtor into specific business areas for
tracking the records of various parties regarding amounts due to them and receipts made
from time to time. This facilitates the controlled and systematic process of evaluation of
the current state of debtors. The entire debtors management process at TATA STEEL is
aimed at finding out the state of affairs of debtors of steel products of the company
including FAMD (FERRO ALLOYS AND MINERAL DIVISION) TUBES
DIVISION, WIRE DIVISION AND BEARING DIVISION. This enables the reporting
authorities in focussing their attention in one common direction and as such they strive to
improve the performance in each category.

 The reporting authorities at Tata Steel prepare a monthly report of the current debtors
standing to be presented to the higher officials. This enables the company to track the
party status regarding the payments made, in a constant manner. This report is presented
to the Chief Operating Officer and VP’s of the related areas like flat and long products.

134
  The credit management group does an in-depth analysis on the debtors arising. The
company also has a well defined policy for provision for bad and doubtful debts and
initiation of legal action. This enables the company to keep a better control on the
overdue.

 The responsibility of reviewing the collection process lies with the credit management
group. This reduces the burden of marketing executives.

 The sales of the company have been increasing year by year while the debtors have
decreased as compared to it. The company has also been able to increase its receivable
turnover ratio. All these practices indicate that the credit management at Tata steel is
highly efficient and flexible enough to meet the future changes.

 The company tries all the possible options for recovery of the debt before initiating
legal action. It adopts such policies of recovering the amounts, which otherwise would
have not been possible had company gone for legal action.

WEAKNESS:
 An entire transaction with a party is a combination of sales and credit period. The
credit period is generally fixed but there are deviations in few cases.

 The parties to whom sales have been made on credit have to be given constant
reminders although the financial state of the concern is sound to pay off the debt. As such
the credit worthiness of the parties has to be judged rigours terms which affect the party
concerned.

 In the current market scenario, when the demand for the steel is in a boom phase,
credit sales form a major percentage of the total sales being made by Tata steel .Hence the
company should formulate norms or policies which facilitate cash and carry business in
this market situation to sustain a worthy competition.

OPPORTUNITY
 Following the success story of Tata steel, its other divisions and subsidiaries are also
following the process of credit evaluation similar to that of the steel division .But extreme
level of competency is required to derive the maximum benefits as they are unable to
exercise the same kind of control on the overdue.

135
  The company should try to implement SAP in this division as well. This will highly
benefit the performance of the entire company as a whole.

 The employees should be encouraged and motivated to contribute their ideas and
suggestions towards using the system more effectively.

 The Company should make continuous efforts to increase their volume of exports
because credit given in the international market is better secured and the risks too are
minimal as compared to domestic market.

THREATS

 The company should ensure that the employees don’t develop the feeling of
complacency due to good performance in credit management after the implementation of
SAP.

 They must be encouraged to keep themselves well informed about the practices being
followed by the competitors and be receptive to new idea.

6.5 Views of Debtor Management Expertise

Paul Bailey, Managing Director

Cash Flow Doctors Ltd

Debtor management: Paul’s top tips for a thriving business in 2009

1. Ask for payment. It’s surprising how many people don’t actually ask for the money.
2. If you’re giving credit, have a written contract – your Terms of Trade – in place.
3. Use a third party for the right reasons. Your third party should be a normal part of your
debtor management process rather than the collection means of last resort.
4. Take action early. When an account comes overdue move your company up the debtor’s
priority list. The squeakiest wheel gets the most oil.

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5. When you first sign up a new client always ask for their full name. We recommend
you have some sort of form to capture these details. You are unable to list debtors as
defaulters unless a full name is given. If you don’t have a full name, it turns the big stick
of the threat of an adverse credit rating into an ineffective twig. Professional, and
unethical debtors are aware of listing requirements and will take full advantage of the fact
that their full names are not known.
6. Use your diary or electronic calendar in Outlook to remind yourself to follow up on
payments.
7. Register on the Personal Properties Securities Register. This is a government website
that collects security interests onto a single register and allows you to retain a financial
interest in goods you sell.
8. Keep records of debtor contacts. Whilst they need to be persistently and consistently
recorded they don’t need to be flash and fancy. They should be simple and practical
enough for you to use every day.

Conclusion

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Working capital cycle, also known as the asset conversion cycle, operating cycle, cash
conversion cycle or just cash cycle, is used in the financial analysis of a business. Each
component of working capital (namely inventory, receivables and payables) has two
dimensions TIME and MONEY. When it comes to managing working capital, TIME IS
MONEY. If you can get money to move fester around the cycle (collect monies due from
debtors more quickly) or reduce the amount of money tied up (i.e., reduce inventory level
relative to sales). The business will generate more cash or it will need to borrow less money
to fund working capital. In the same way that stock control is a vital aspect of working
capital management, so too is debtors' control. Many businesses need to sell their goods on
credit, otherwise they might find it difficult to survive if their competitors provide such credit
facilities; this could mean losing customers to the opposition.
Nevertheless, since industries do provide credit, they do so as optimally as possible. The
word used is 'optimal' before and let me confirm that it doesn't necessarily mean the best
possible, but the best possible under the circumstances.
A key strategy in lowering bad debt is reducing the time to recover the invoiced
amounts.Together with stock days; debtor and creditor days are a crucial link between the
company's income statement, its balance sheet and its cash-flow.
While in the income statement a company can book sales and profits to its heart's content, if
it is slower than before at collecting its bills and suppliers demand faster payment, then cash

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receipts will not reflect the trend in profits. It is this divergence between profits and cash that
is often the biggest and best signal that a company might be in trouble.
As with some other ratios, the absolute level of debtor and creditor days is less important
than the trend over time and how the company compares with its competitors, particular the
leader in the industry.
If a company's performance in this area is inferior to its competitors (that is, it collects its
overdue invoices slower and is forced to pay its own debts faster) it is a sign of weakness.
Deterioration in credit control over time is a worrying trend in any business. It merits closer
monitoring by investors than it sometimes gets.

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 BIBLIOGRAPHY
Websites
www.tatasteel.com
www.tatasteel100.com
www.economywatch.com
www.businesslink.gov.uk
www.studyfinance.com
www.financialexpress.com
www.worldsteel.org/?action=programs&id=64

www.indianindustry.com

http://steel.nic.in/

http://en.wikipedia.org/wiki/steel

www.newssteel.com

Magazines
TATA SEARCH, 2007, VOLUME-2
TATA REVIEW, MAY-2008
ECONOMIC TIMES, EXIM NEWSLETTER

ANNUAL REPORT OF TATA STEEL

Books
Financial management – KHAN & JAIN
Working capital management – HRISHIKES BHATTACHARYA

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