Professional Documents
Culture Documents
Purchase CAPITAL
Wages OF BSP,
Cash/ Bhilai
Bank
Wages-II Zonal
A STUDYStock ON
Excise Sales tax ledger
WORKING
Stores
CAPITAL
Wages 1 A/BMANAGEMENT
and
ports township
OF THE BHILAI STEEL PLANT, BHILAI,
wages
CHHATTISGARH
Project Operation
Raw expansion miscellaneou
Store bills materials Imports Costing s
and
budgeting
Certificate
This is to certify that the project work entitled
DECLARATION
Acknowledgement
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
I sincerely feel that the credit of the project work could not be narrowed down to only one
individual. The work is an integrated effort of all those concerned with it, thorough whose able
cooperation and effective guidance I could achieve its completion.
I would like to express my sincere gratitude to Dr. VERGHESE MATHEW B.Sc. (Engg),
MBA, Ph.D., DGM (Germany), FIIE, the Director, Guruvayurappan Institute of
Management and Dr.THOMAS T. THOMAS, B.Sc., MBA, PGDPR&J, Ph.D. the
Principal, Guruvayurappan Institute of Management, for their active support and guidance
during the course of my studies in the Institute.
I am greatly indebted to my guide Ms. C. VINOTHA MBA, M.Phil, for his kind cooperation,
help, guidance and encouragement for preparing this project report.
I would like to thank my family, friend and well wisher for their encouragement in completing
the project work
I take this opportunity to extend my sincere thanks to all who have helped me and encouraged
me all through out in bringing the best of project.
Vishal keshri
CONTENT
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
PAGE
CHAPTER CONTENT NO.
LIST OF TABLES
LIST OF CHARTS
I INTRODUCTION
1.1 Industry Profile 1-13
1.2 Company Profile 14-51
1.3 Introduction to the topic 52-64
1.4 Objective of the study 65
1.5 Scope of the study 65
II REVIEW OF LITERATURE 66
III Design of the study
3.1 Research Methodology 67
3.2 Limitation of the study 68
IV ANALYSIS AND INTERPRETATION 69-88
V FINDINGS, SUGGESTIONS &
CONCLUSION
5.1 Finding 89
5.2 Suggestions 89
5.3 Conclusion 90-91
BIBLIOGRAPHI 92
ANNEXURE 93
TABLE PAGE
NO. LIST OF TABLES NO.
Table showing Asia- pacific steel market value 4
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
CHAPTER I
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
INTRODUCTION
“STEEL is the basic framework which has built nations, and it is on this strength that
nation stand apart. This man-made metal has an extraordinary quality of contributing to every
aspect of life while it keeps the wheels of industry turning. It also lends ever-lasting quality to
all kinds of structure and infrastructure.”
Many students may have done work on this project in different ways/styles. I have also tried to
work on this project in a different way. It was for the first time I got the opportunity to work in
such a prestigious and well-known organization and things which I have experienced in my
training period are going to help me through out my life time. I have worked on this project
with great enthusiasm and zeal. I have tried to cover almost all the things, which I have
experienced and learned during the training period. To run a giant organization each and every
department has to play its role effectively. In this era of cut-throat competition there is no
room for complacency. Steel is the basic framework which has built nation, it contributes
every aspect of life.
The main goal of my project is the “A Study on working capital management of the Bhilai
Steel Plant, Bhilai. It would be my great pleasure, if this project can help this company to
achieve its goal higher. This project has been undertaken to study the procedures and practices
followed in Finance and Accounts department. The Finance & Accounts Department of Bhilai
Steel Plant is divided into various sections and each section specializes in different activities.
This report is prepared on the basis of the extensive study carried out at Finance & Accounts
Department of SAIL, Bhilai Steel Plant.
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Industry profile
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
The global steel industry has been going through major shifts in focus. Not only has a new
steel making giant emerged the entire geographical focus of steel production has been
undergoing major changes. Such changes have been taking place on a critical scale since the
Second World War but have completely taken many by surprise in the last quarter of a
century.
Steel is a strong material. The strength of steel reflects the strength of nation. It is reflected in
two ways, economic and military. The quantum of steel consumed has been the barometer for
measuring development & economic progress. Whether it is construction or industrial goods,
steel is the basic raw material.
Global steel production grew enormously in the 20th century from a mere 28 MT at the
beginning of the century to 780 MT at the end. That was the period when the steel industry
developed in Western Europe & the USA followed by the Soviet Union, Eastern Europe &
Japan. However, steel consumption in the developed countries has reached a high stable level
& growth has tapered off.
Attention has now shifted to the developing regions. In the West, steel referred to as a sunset
industry. In the developing countries, the sun is still rising, for most it is only a dawn. Towards
the end of the last century, growth of steel production was in the developing countries such as
China, South Korea, Brazil & India.
World crude steel production reached 1,220 million metric tons for the year of 2009. This is a
decrease of -8.0% compared to 2008.
Steel production declined in nearly all the major steel producing countries and regions
including the EU, North America, South America and the CIS in 2009. However, Asia,
in particular China and India, and the Middle East showed positive growth in 2009.
China’s crude steel production in 2009 reached 567.8 MMT, an increase of 13.5% on 2008.
This is a record annual crude steel production figure for a single country. China’s share of
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
world steel production continued to grow in 2009 producing 47% of world total crude steel,
an increase of 9 percentage points compared to 2008.
Asia produced 795.4 MMT of crude steel in 2009, an increase of 3.5% compared to 2008. Its
share of world steel production increased to 65% in 2009 from 58% in 2008. Japan produced
87.5 MMT in 2008, a decrease of -26.3% on 2008. India’s crude steel production was 56.6
MMT in 2009, 2.8% growth on 2008. South Korea showed a decrease of -9.4%, producing
48.6 MMT in 2009.
In 2008 International Iron & Steel Institute (IISI) changed its name to World Steel Association
(world steel) and launched the Safety and Health Excellence Recognition Award, given to
Arcelor Mittal Dofasco Inc, BlueScope Steel, Corus Group, Nucor Corporation and Subic-
Saudi Basic Industries Corporation.
The World Steel Association (world steel) is forecasting that apparent steel use will contract
worldwide by -8.6% to 1,104 MMT in 2009 after declining by -1.4% in 2008. This is an
improved figure over the spring forecast issued in April 2009 which predicted a decrease of
-14.1%. The improvement is largely due to the exceptionally strong growth in steel demand in
China. With signs, from the beginning of the second half of 2009, of a recovery across the
world now apparent, global steel demand in 2010 is forecast to grow by 9.2% to 1,206 MMT
which is a recovery to the level of 2008.
The healthy world economic growth & demand in emerging market countries, notably in Asia,
where major infrastructure projects were under way, acted as the key trigger to the significant
production rise. But this trend seems rather transitory.
During 2009, the world crude steel production reached 1,220 million metric tons
Its shows a decrease of -8.0% compared to 2008.
China retained it’s No.1 position by producing around 567 Million Tonnes, followed
by Japan with production of 87.5 Million Tones & USA with production at around
59.9 Million Tonnes.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
India with production of 56.6 Million Tones ranked 5th amongst world steel
producing countries.
Steel Production in India is expected to reach 124 million tons by 2012 and 275
million tons by 2020 which could make it the second largest steel maker.
China is expected to account for 47.7% of world steel apparent use and excluding
China, potential world steel demand would have fallen by -24.4%.
The president of the China Iron and Steel Association (CISA), Deng Qilin, stated on
February 5 that apparent consumption of crude steel in China is expected to grow by
8-10 percent in 2010.
During the year 2005, USA ranked No.1 as net importer country at 20.8 Million
Tonnes followed by Thailand at 10.8 Million Tonnes & Iran at 6.9 Million Tonnes.
In 2010, Russia produced 5.2 million metric tons of crude steel, up 33 percent year
on year,
Global steel production at 1,200 million tons in 2009. This represents a 9.5 percent
reduction on the outturn in the previous twelve month period.
In January, China's crude steel production totaled 48.7 million metric tons, an
increase of 18.2 percent, while Japan produced 8.7 million metric tons of crude steel,
up 36.8 percent, both compared to the same month last year. South Korea showed an
increase of 32.4 percent from January 2009, producing 4.5 million metric tons of
crude steel in January 2010.
In the EU, Germany's crude steel production for January 2010 was 3.4 million metric
tons, with an increase of 27.7 percent compared to January 2009.
The steel market consists of the production of crude steel in the stated country or region.
Crude Steel Production refers to production of first solid steel product upon solidification of
liquid steel. It includes Ingots (in conventional mills) and Semis (in modern mills with
continuous casting facility).
Crude Steel also includes liquid steel which goes into production of steel castings. Market
values have been calculated using appropriate regional annual average steel prices. Market
shares reflect revenues earned in this market during the last year for which financial data was
available for all companies listed.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Any currency conversions used in this report have been calculated using constant exchange
rates.
For the purpose of this report the Americas comprises Argentina, Brazil, Canada, Chile,
Colombia, Mexico, the US, and Venezuela.
Western Europe comprises Belgium, Denmark, France, Germany, Italy, Netherlands, Norway,
Spain, Sweden, and the UK.
Eastern Europe comprises the Czech Republic, Hungary, Poland, Romania, Russia and
Ukraine. Europe is the sum of Eastern and Western Europe. Asia-Pacific comprises Australia,
China, Japan, India, Singapore, South Korea and Taiwan. The global figure comprises the
Americas, Asia-Pacific and Europe.The Asia-Pacific steel market generated total revenues of
$382.9 billion in 2008, representing a compound annual growth rate (CAGR) of 14.5% for the
period spanning 2004-2008.Market consumption volumes increased with a CAGR of 10.8%
between 2004-2008, to reach a total of 755.6 million metric tons in 2008.
The performance of the market is forecast to accelerate, with an anticipated CAGR of 21.9%
for the five-year period 2008-2013, which is expected to drive the market to a value of
$1,030.2 billion by the end of 2013.
Table1.1.3
The Asia-Pacific steel market shrank by -6.8% in 2008 to reach a value of $383 billion.
The compound annual growth rate of the market in the period 2004-2008 was 14.5%.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Table 1.1.2
Page6
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
MARKET VOLUME
The Asia-Pacific steel market grew by 1.7% in 2008 to reach a volume of 755.6 million metric
tons.
The compound annual growth rate of the market volume in the period 2004-2008 was 10.8%.
Table 1.1.3
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
MARKET SEGMENTATION
China generates 63.4% of the Asia-Pacific steel market's value.
Japan accounts for a further 20.9% of the steel market's value.
Table 1.1.4
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
MARKET SHARE
Arcelor Mittal generates 16% of the Asia-Pacific steel market's revenue.
In comparison, POSCO accounts for a further 7.7% of the market's value.
Table1.1.5
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
The steel market will be analyzed taking steel makers as players. The key buyers will be taken
as end-users come from numerous industries, but mainly include automotive, construction and
engineering firms that utilize metals in the production of their goods, and producers of raw
materials, such as iron ore and coal as the key .
The Indian Steel Industry is almost100 years old now. Till 1990, the Indian Steel industry
operated under a regulated environment with insulated markets & large scale capacities
reserved for the public sector. Production & Prices were determined & regulated by the
Government, while SAIL & Tata Steel were the main producers, the latter being the only
player. In 1990, the Indian steel Industry had a production capacity of 23 MT. 1992 saw the
onset of liberalization & the Indian economy was opened to the world. Indian Steel Sector also
witnessed the entry of several domestic private players & large private investments flowed
into the sector to add fresh capacities.
The last decade saw the Indian Steel Industry integrating with the global economy & evolving
considerably to adopt world-class production technology to produce high quality steel. The
total investment in the Indian Steel since 1990 is over Rs. 19,000 crores mostly in plant
equipments, which have been installed after 1997 & 2001 when there was a downturn in the
global steel industry. The progress of the industry in terms of capacity additions, production,
consumption, exports & profitability plateaued off during this phase. But the industry
weathered the storm only to recover in 2002 & is beginning to get back on its feet given the
strong domestic economic growth & revival in global markets.
With a current capacity of 35 MT the Indian Steel Industry is today the 8th largest producer in
the world. India produces international standard steel of all most all grades/ varieties & has
been net exporter for the last few years, underling the growing acceptability of its product in
the global market.
Steel is a highly capital intensive industry & cyclical in nature. Its growth is intertwined with
growth of economy at large & in particular the steel consuming industries such as
manufacturing, housing & infrastructure. Steel given its backward and forward linkages has its
large multiplier effect.
With capital investments of over Rs.100, 000 crores, the Indian Steel Industry currently
provides direct/indirect employment to over 2 Million people. As India moves ahead in the
new millennium, the Steel Industry will play a critical role in transforming India into an
economic superpower.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Current
Scenario:
11. With due focus on infrastructure development & strong economic indicators, the
demand for Steel in India shall to remain
robust.
Page13
Company profile
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
The company established Durgapur Steel Plant (DSP) in the late 1950s with an initial annual
capacity of one million tons of crude steel. The capacity of DSP was later expanded to 1.6
million tons during the 1970s.
Over the years, SAIL established various steel plants. Bokaro Steel Plant (BSP), which was
originally incorporated as a limited company in 1964, was merged with SAIL, first as a
subsidiary and then as a business unit. Salem Steel Plant (SSP) was commissioned, in 1981.
The Indian Iron and Steel Company (IISCO), a subsidiary of SAIL, was declared a sick
industrial company by the Board for Industrial and Financial Reconstruction (BIFR), in 1994.
NTPC SAIL Power Company was established as a joint venture with National Thermal Power
Corporation (NTPC), in 2001. In the following year, SAIL established the Bokaro Power
Supply Company with Damodar Valley, and the Bhilai Electric Supply Company with the
NTPC.
In 2005, the Board of Directors of SAIL gave approval for two projects: the revamping of
Sinter Plant-2 in Bhilai Steel Plant and the installation of an air turbo compressor and an
oxygen turbo compressor at the Oxygen Plant in Bokaro Steel Plant.
IISCO was amalgamated with the parent company, in the first quarter of 2006. The foundation
stone of the INR96,000 million (approximately $2,384.6 million) greenfield modernization
and expansion program of IISCO Steel Plant (ISP) of SAIL was laid at Burnpur in West
Bengal, in the last quarter of 2006.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
In March 2007, the company signed a joint venture agreement with Jaypee Associates (an
India-based cement producer) for producing 2.2 million tonnes cement per annum from the
slag generated during the blast furnace operations at SAIL’s Bhilai Steel Plant.
In April 2007, the company’s board approved a proposal for modernization and capacity
expansion of Bhilai Steel Plant to 7 million tonnes of crude steel per annum at an indicative
cost of INR112,620 million (approximately $2,797.5 million). In the same month, SAIL,
Rashtriya Ispat Nigam (RINL, an India-based steel company), and National Mineral
Development Corporation (NMDC, an India-based company engaged in the exploration of a
range of minerals) agreed to enter into a strategic business relationship by forming a joint
venture company for setting up of an integrated iron and steel plant of four million tonnes
annual capacity in the state of Chhattisgarh (a state in India) initially.They also planned to take
this process further to other states of India as well.
In June 2007, SAIL signed a MOU with Manganese Ore India (MOIL, a public sector
company with large resources of manganese) for setting up of a joint venture company to
produce ferro-manganese and silico-manganese.
In August 2007, SAIL and POSCO, a South Korea-based steel company, signed a MOU to
establish a strategic alliance for aligning and cooperating with each other in a range of
strategic business and commercial interest areas. The MOU stated that the alliance partners
had agreed to cooperate in the areas of business which included information sharing in the
area of corporate strategy planning;
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
joint usage of each other's existing marketing and warehousing network; and co-ordination in
procurement of coking coal, nickel, and ferro-alloys and engagement of transportation vessels.
Further in August 2007, SAIL, NMDC, and RINL, signed a MOU for jointly setting up a 4
million tonne per annum capacity integrated steel plant in Chhattisgarh, a state in India.
In September 2007, SAIL signed a MOU with IL&FS Infrastructure Development Corporation
(IIDC, an infrastructure development and finance company) for formation of a special purpose
vehicle (SPV) to develop, operate, and maintain a steel sector special economic zone (SEZ) at
Salem in the state of Tamil Nadu in India.
In January 2008, SAIL and Tata Steel, an India-based steel company, signed an agreement to
establish a fifty-fifty joint venture company for coal mining in India. The joint venture would
identify, acquire, and develop coal blocks in India. In the same month, foundation stone for
the modernization and expansion of Rourkela Steel Plant (located in the state of Orissa in
India) of SAIL was laid.
In April 2008, the foundation stone for INR110,000 million (approximately $2,732.4 million)
modernization and expansion project of the Bokaro Steel Plant of SAIL was laid.
In May 2008, SAIL signed a MOU with the government of Kerala (a state in India) for revival
of the loss-making Steel Complex, a 50,000 tonnes per annum company producing continuous
cast billets used by re-rollers for producing thermo mechanically treated (TMT) bars for the
construction industry.
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EXPANDING HORIZON (1959-1973)
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Hindustan Steel (HSL) was initially designed to manage only one plant the Rourkela. For
Bhilai and Durgapur Steel Plants, the preliminary work was steel ministry. From April 1957,
the supervision and control of these two transferred to Hindustan Steel. The registered office
was originally in New Calcutta in July 1958, and ultimately to Ranchi in December1959.
A new Steel company, Bokaro Steel Limited, was incorporated in January operate the steel
plant at Bokaro. The 1 MT phases of Bhilai and Rourkela completed by the end of December
1961. The 1 MT phase of Durgapur Steel completed in January 1962 after commissioning of
the wheel and axis plant production of HSL went up from .158 MT (1959-60) to 1.6 MT. T he
second plant was completed in September 1967 after commissioning of the wire of the 1.8 MT
phase of Rourkela- the Tandem Mill –was commissioned the 1.6 MT stage of Durgapur Steel
Plant was completed in August 1969 the Furnace in SMS. Thus with the completion of the 2.5
MT stage at Bhilai and 1.6 MT at Durgapur, the total crude steel production capacity of HSL
1968-69 and subsequently to 4 MT in 1972-73.
Key Facts:
Table No.-1.2.1
Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a
fully integrated iron and steel maker, producing both basic and special steels for domestic
construction, engineering, power, railway, automotive and defense industries and for sale in
export markets.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL
manufactures and sells a broad range of steel products, including hot and cold rolled sheets
and coils, galvanized sheets, electrical sheets, structural, railway products, plates, bars and
rods, stainless steel and other alloy steels.
SAIL produces iron and steel at five integrated plants and three special steel plants, located
principally in the eastern and central regions of India and situated close to domestic sources of
raw materials, including the Company's iron ore, limestone and dolomite mines. The company
has the distinction of being India’s largest producer of iron ore and of having the country’s
second largest mines network. This gives SAIL a competitive edge in terms of captive
availability of iron ore, limestone, and dolomite, which are inputs for steel making.
The Environment Management Division and Growth Division of SAIL operate from their
headquarters in Kolkata. Almost all our plants and major units are ISO Certified.
SAIL VISION:
To be a respected world-class corporation and leader in India steel business in
quality, productivity, profitability, and customer satisfaction.
CREDO:
We build lasting relationships with customers based on trust and mutual benefit.
We uphold highest ethical standards in conduct of our business.
We create and nurture a culture that supports flexibility, learning and is proactive to
change.
We chart a challenging career for employees with opportunities for advancement and
rewards.
We value the opportunity and responsibility to make a meaningful difference in
people's lives.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
SAIL Today:
SAIL today is one of the largest industrial entities in India. Its strength has been the diversified
range of quality steel products catering to the domestic, as well as the export markets and a
large pool of technical and professional expertise.
Today, the accent in SAIL is to continuously adapt to the competitive business environment
and excel as a business organization, both within and outside India.
EXPANSION PLAN 2012: Table No.-1.2.2
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Much has happened ever since SAIL’s Corporate Plan was announced in 2004. Investment
plans for the three specialty steel plants have been firmed up. Company has grown in size with
the amalgamation of IISCO (now renamed as IISCO Steel Plant). Production targets have been
revised from 19 million tonnes (MT) of steel to about 24 MT. Estimated investments has
increased from Rs 25,000 crore to around Rs 40,000 crore. And the time period has been
squeezed by two years, bringing the targeted year of completion of major projects from 2012
to 2010.
Table No.-1.2.3
Saleable Steel Capacities (MT)
PLANT 2010
Bhilai Steel Plant 6.21
Durgapur Steel Plant 2.85
Rourkela Steel Plant 2.90
Bokaro Steel Plant 6.50
IISCO Steel Plant 2.37
Alloy Steels plant 0.43
Salem Steel Plant 0.36
Visvesvaraya Iron & Steel Plant 0.22
7
6
Million Tonne
2.3
5 2.7
4
3
4.2 1.9 3.8
2 1.2
1 1.6 1.9 2.0
0 0.4
LA
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O
A
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R
IL
E
P
II S
K
H
K
B
R
G
O
U
R
B
O
U
R
D
Page21
MAJOR UNITS
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Joint Ventures
SAIL has promoted joint ventures in different areas ranging from power plants to e-commerce.
NTPC SAIL Power Company Pvt. Ltd: A 50:50 joint venture between Steel
Authority of India Ltd. (SAIL) and National Thermal Power Corporation Ltd. (NTPC
Ltd.), it manages the captive power plants at Rourkela, Durgapur and Bhilai with a
combined capacity of 314(MW).
Bokaro Power Supply Company Pvt. Limited: This 50:50 joint venture between
SAIL and the Damodar Valley Corporation formed in January 2002 is managing the
302-MW power generation and 1880 tonnes per hour steam generation facilities at
Bokaro Steel Plant.
Mjunction Services Limited: A joint venture between SAIL and Tata Steel on 50:50
basis, this company promotes ecommerce activities in steel and related areas.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
SAIL-Basel Service Center Ltd: SAIL has formed a joint venture with BMW
industries Ltd. on 40:60 basis to promote a service center at Bokaro with the objective
of adding value to steel.
Bhilai JP Cement Ltd: SAIL has also incorporated a joint venture company with M/s
Jaiprakash Associates Ltd to set up a 2.2 MT cement plant at Bhilai.
SAIL has signed an MOU with Manganese Ore India Ltd (MOIL) to set up a joint
venture company to produce Ferro-manganese and silico-manganese at Bhilai.
North Bengal Dolomite Limited: A joint venture between SAIL and West Bengal
Mineral Development Corporation ltd on 50:50 basis was formed for development of
Jayanti Dolomite Deposit, Jalpaiguri for supply of Dolomite to DSP and other plants.
SAIL today is one of the largest industrial entities in India. Its strength has been the diversified
range of quality steel products catering to the domestic, as well as the export markets & a large
pool of technical & professional expertise.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
OTHER UNITS:
SAIL Consultancy Division.
Center of Engineering & Technology.
Management Training Institute.
Safety Organization.
Environmental Management Division.
Raw Material Division.
Growth Division.
Central Power Training Institute.
Central Marketing Organization.
Major Capital Schemes:
Bhilai Steel Plant:
Rebuilding of Coke O
Coke oven batteries.
Modernization of BFs (including Gas Cleaning Plant).
Installation of new Slab Caster, RH Degsser & Ladle Furnace ().
Revamping of existing Slab Casters in phased manner.
New Pipe Plant of 0.2 million tonnes capacity
New Bar & Rod Mill (1 million tonnes).
AMR (Additions, Modifications & Replacements) & other Schemes including.
Logistics & infrastructure.
Installation of new Steel Melting Shop (SMS) – (3.9 million tonnes capacity).
Durgapur Steel Plant:
Bloom Caster & associated facilities.
New 0.7 mtpa Bar & Rod Mill & 0.4 mtpa Medium Structural Mill.
Up gradation of BFs & CDI (Coal Dust Injection) in BFs.
Rebuilding of Coke Oven battery.
Installation of a new Billet Caster.
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
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WEAKNESS
Concern in obtaining new mining leases and renewal of old leases.
Low liquidity in Stock Exchange (85.82% shares is held by GOI itself).
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Page26
ORGANISATION STRUCTURE OF
SAIL
CHAIRMAN
DIRECTOR (TECH) MANAGING DIRECTOR, BSP
DIRECTOR
PERSONNEL MANAGING DIRECTOR, BSL
CHIEF VIGILANCE
MANAGING DIRECTOR, DSP
EXE. DIR
(OPERATION)
EXECUTIVE DIRECTOR VISL
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Company vision:
India 2020 – a vision for the new Millennium
“We still have a number of persons in our country in steel Authority of India Limited
(SAIL)…….. They have the will to excel and transform the country, given a long term
vision”
- Dr. A.P.J.ABDUL KALAM -
Bhilai Steel Plant, a unit of Steel Authority of India Limited - a public sector undertaking
was conceived under aegis of Indo - USSR Treaty in the 2nd Five year plan. This was in
accordance with erstwhile government policy for strengthening economy and self reliance
through development of core sector.
Nine - time winner of Prime Minister’s Trophy for best Integrated Steel Plant in the country,
Bhilai Steel Plant (BSP) is India’s sole producer of rails and heavy steel plates and major
producer of structural. The plant is the sole supplier of the country's longest rail tracks of 260
meters. With an annual production capacity of 3.153 MT of saleable steel, the plant also
specializes in other products such as wire rods and merchant products. Since BSP is accredited
with ISO 9001:2000 Quality Management System Standard, all saleable products of Bhilai
Steel Plant come under the ISO umbrella.
At Bhilai IS0: 14001 has been awarded for Environment Management System in the Plant,
Township and Dalli Mines and it is the only steel plant to get certification in all these areas.
The Plant is accredited with SA: 8000 certification for social accountability and the OHSAS-
18001 certification for Occupational health and safety. These internationally recognized
certifications add value to Bhilai’s products and helps create a place among the best
organizations in the steel industry.
Bhilai Steel Plant is a flag ship unit of Steel Authority of India Limited. SAIL, a fully
integrated iron and steel maker, produces both basic and special steels for domestic
construction, engineering, power, railway, automotive and defense industries and for sale in
export markets. In terms of annual production SAIL is the 18th largest steel producer in the
world.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Living up to the description by Jawaharlal Nehru as significant symbol of a new age in India,
Bhilai Steel Plant has been performing consistently despite many odds and has achieved
profits for the 18th consecutive year. It broke its own record of highest ever profit of Rs 1932
crore by any steel plant in 2003-04 and registered a profit of Rs 4042 crores in 2004-05. In the
year 2005-06 also it earned a handsome profit of Rs. 2781 Crores despite input price
escalation. The true testimony to BSP’s status of a world class steel plant is that BSP’s
EBITDA margin of 33% is quiet comparable to many International steel players like POSCO
(30%), NIPPON (19%), MITTAL STEEL (16%0, ARCELOR (16%), etc. Its Gross Margin to
average capital employed at 182% is a Global Benchmark. Maintaining the track record, BSP
continued to operate above the rated capacity in production of the three main items viz. Hot
Metal, Crude Steel and Saleable Steel. BSP is the first steel plant in India to have crossed the
annual production of 5MT crude steel in the year 2005-06.
In order to meet the challenges of Corporate Plan 2012 and to maintain the leadership position
of BSP in Indian steel industry, the leadership has taken bold steps to make significant
investments for breakthrough improvements in efficiency, resource management, knowledge
and skill by deploying world class tools. This year is a milestone in BSP journey when new
tools have been introduced viz. ERP, Knowledge Management, Six Sigma, Multi-skilling etc.
BSP is on its way to equip itself with assets required by 21st century. New state of the art
technologies for improvement in productivity, yield, quality and operational costs have been
planned under Corporate Plan 2012. The plant capacity will be 7 MT of hot metal by 2012.
The key goals of CP-2012 are capacity enhancement, 100% Comcast production, reduction in
semis, achieving international benchmarks in eight selected parameters, higher percentage of
value added products and essentially to become a true world class steel plant. Apart form
investing in plant, technology and machinery, BSP has taken bold steps to make significant
investments to leverage its most precious and differentiating resource, the human resource by
deploying ERP, Knowledge Management, Six Sigma, and Multi-skilling and other
performance enhancing tools.
Page29
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
“The principal products and key customers of Bhilai Steel Plant along with key segments; key
competitors and market share in that segment are given as per the format specified in”
“A glimpse of product portfolio and targeted market share after proposed implementation of
unit perspective Plan 2012 is given in” Table No.-1.2.4
The Beginning
This Leadership of free, India took a visionary decision to set up integrated steel plants under
the exclusive responsibility of the state owing to the massive investment needed for creating
additional Steel capacity, which private industry would not be able to mobilize and the
cardinal role steel would play in rapid economic advancement as a major step towards this
goal, government of INDIA and USSR entered into an agreement signed at New Delhi on 2nd
march 1955, for the establishment of an integrated Iron and Steel works at Bhilai with an
initial capacity of one million tonnes of ingot steel.
The main consideration which responsible for setting up the plant at Bhilai, was the
availability of Iron ore at Delhi-Rajhara at a distance of about 90 Km from the site limestone
from Nandini at 22 km and dolomite at HIRRI at 41 km. The plant was commissioned with the
inauguration of the first blast furnace by the then president of India. Dr. Rajendra Prasad on 4th
February 1959. The plant was soon expanded to 2.5 Million tonnes in September 1967 and in
further expansion to 4 MT was completed in 1988. The main focus in the 4 MT stage was on
the continuous casting unit and the plate mill, a new technology in steel casting and shaping
for any integrated steel plant to India during those time
Page30
The Organization
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Bhilai Steel Plant functions as a unit of SAIL with its corporate office at New Delhi. SAIL is
governed by a Board consisting of function Directors, Managing Directors and government
nominee Directors, 85.62% of the shares of SAIL are with Indian Government and balance are
with financial institutions, mutual funds, Indian Public and others, corporate office formulate
Policies, strategies and overall guidelines for its unit, central organization like CMO (Central
Marketing Organization) RDCIS (Research and Development Center for Iron & Steel ) CET
( Center for engineering and Technology ) look after the relevant activities for the plates under
SAIL.
Over the years, Bhilai Steel Plant has developed an organizational culture that run forces its
commitment to values and stimulates continuous improvements and higher levels of
performance.
Page31
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Product Profile
Bhilai Steel Plant (BSP) has mainly three types of products:-
1. Semis Product
2. Long Products
3. Flat Products
Table No.:1.2.6
PRODUCT-MIX TONNES/ANNUM
Semis 5,33,000
Rail & Heavy Structural 7,50,000
Merchant Products
5,00,000
(Angles, Channels, Round & TMT bars)
Wire Rods (TMT, Plain & Ribbed) 4,20,000
Plates (up to 3600 mm wide) 9,50,000
Total Saleable steel 31,53,000
Page31
Captive mines:
Iron-Ore - Dalli-Rajhara Iron Ore Complex, 80 kms from Bhilai
Limestone - Nandini, 23 kms from Bhilai
Dolomite - Hirri, 150 kms from Bhilai
Page32
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Coke Ovens:-
Blast Furnaces:
3 of 1033 Cu m capacity each.
3 of 1719 Cu m capacity each.
1 of 2350 Cu m capacity.
3 converters of 110/130 T.
VAD unit, RH degasser, Ladle furnace.
3 Slab Casters, 1 bloom caster, 1 Combi caster.
Products:
Page33
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Products:
Rails - R52 Kg/m & R60 Kg/m specifications according to Euro norms and
international standards.
Thick web asymmetric rail
Beams
Channels
Angles
Crossing Sleeper.
Crane Rails
Bhilai is the sole supplier of the country's longest rail tracks of 260 metres.
Bhilai Rails:
Capacity - 4, 20,000 T
Wire Rods (Plain, Electrode Quality & TMT) in 5.5, 6, 7, 8 & 10 mm plain and ribbed,
and 12 mm plain in coil form
8, 10, and 12 mm TMT
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Page34
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Plate Mill:
Capacity - 9,50,000 T
Plates thickness - 8-120 mm
Width - 1500-3270 mm
Length - 5-12.5 M
Page35
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Major buyers:
1. Indian railways.
2. Vizard profiles limited.
3. High pressure boiler plant BHEL Trichy.
4. NTPC super thermal power project.
5. Jindal steel and power limited Raigarh.
6. NTPC limited New Delhi.
7. Chandigarh industrial journalism and development corporation Chandigarh.
8. Cropro international Italy.
9. Sangyong Corporation Japan.
Competitors:
1. Ispat industries limited.
2. Lloyds steel limited.
3. Essar steel limited.
4. Jindal steel and power limited.
5. Jindal strips limited.
6. National steel industries limited.
7. Bhusan steel and strips limited.
Page36
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Environment Management: A conscious corporate citizen, BSP has gone in for ISO-
14001 certification for its Environment Management System.
• Environment Management System established at Plate Mill, Rail & Structural Mill,
Wire Rod Mill, Merchant Mill and Steel Melting Shop-1.
• Reduction in noise levels.
• Conservation of electricity and lubricants.
• Environment Management System established at Dalli Mines.
The plant has introduced environment friendly coal dust injection system in the Blast
Furnaces, de-dusting system and electrostatic precipitators in other units and has planted lakhs
of trees in a concerted afforestation drive that has seen Bhilai transform into one of the ten
cleanest industrial townships in the country.
Green City:
Contrary to the popular perception about industrial townships being dirty and polluted, the city
of Bhilai is characterized by blue skies, clean air and green expanses. A green-fingered
population and a management aware of its obligations as a corporate citizen have come
together for a massive tree-plantation drive over a period of years that has resulted in the
township that stands starkly green in a dry regional backdrop. About 48.4 lakhs saplings have
been planted so far with a survival rate of 90%. The sprawling Maitri Bagh has the biggest
musical fountain in the country, a zoo with a variety of quadrupeds and birds, an artificial lake
with boating facilities, a toy train etc. A number of small and large parks in the residential
sectors of the steel city are maintained by the Plant's Town Administration Department which
also undertakes the civic amenities such as street lighting, cleaning and maintenance of the
tree-lined carpeted roads inside the steel township.
Page37
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
The water to the township is supplied from the Maroda water treatment plant having a
capacity of 30 million gallons per day. Water is distributed throughout the township through a
system of underground reservoirs and overhead tanks.
Energy Consumption:
Continuous monitoring
Regular inspections:
All major production units and marketable products in Bhilai Steel Plant are covered under
ISO 9001:2000 Quality Management Systems. This includes manufacture of blast furnace
coke and coal chemicals, production of hot metal and pig iron, steel making through twin
hearth and basic oxygen processes, manufacture of steel slabs and blooms by continuous
casting, and production of hot rolled steel blooms, billets and rails, structural, plates, steel
sections and wire rods.
Page38
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Bhilai's products come with a complete assurance of quality. Right from selection of input
material for steel making, the process parameters are kept under close control. Intensive
checking of all quality parameters continues throughout the subsequent operations of casting,
reheating and rolling. Express analysis with the help of sophisticated, direct-reading
spectrograph and gas analyzer ensures a narrow range of chemical composition. Intensive
metallographic investigation with modern instruments like Scanning Electron Microscope,
Image Analyzer and Micro Hardness Tester is carried out to assess the quality of the product.
• The primary function of Bhilai Steel Plant are derived from the functions of the mother
organization SAIL. As a production unit of SAIL, BSP carries out the specific
functions and task assign to it from time to time, both with regards to production and
execution of other functions of SAIL, such as design consultancy, training and
development etc. The primary analysis of any organization begins with the SWOT
Analysis.
Page39
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
SWOT
Strengths:
Capacity of plant,
Product Mix,
Quality of Products,
Human Resource & Management.
Weakness:
Supply of Raw Materials,
Demurrages,
Rigidity of Labor Law compared to other countries.
Opportunities:
Upsurge in Indian Economy,
Technological Edge,
Human Resource Management.
Threats:
Effect of Custom Duty,
International Competition,
Domestic Competition,
Increase in Oil Prices,
Depleting Mines.
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Page40
ORGANISATIONAL STRUCTURE OF
BHILAI STEEL PLANT
MANAGING DIRECTOR
ED (F&A)
ED
ED (PROJECTS) ED (P&A) ED (MM)
(WORKS)
90
GM (F&A) GM (TS)
GM (PROJECTS) GM (MM)
GM (PERS)
GM (M&SP)
GM (PP&E & BEDB)
GM (HRD)
GM (IA) GM I/C (SERVICES)
GM (SAFETY) GM (MS)
GM I/C
(MINES)
GM I/C (M&U) (REFR) DGM (L & A)
Page41
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
2000
0
2004-05 2005-06 2006-07 2007-08 2008-09
Page42
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
5000
4287.29
4042
4000
3367.14 3266
3000 2781.07 3048.89 9 Months
2365.64
2000 2175.52
1000 Yearwise
0
2004-05 2005-06 2006-07 2007-08 2008-09
Record production of 7.46 MT of Total Sinter, surpassing the previous best of 7.23 MT in 07-
08 and registering a growth of 3.2% over previous Year.
6100 5741
5400
4700
4000
2004-05 2005-06 2006-07 2007-08 2008-09
Page43
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Record production of 5.39 MT of Hot Metal, exceeding previous best of 5.27 MT in 07-08 and
registering a growth of 2.3% over the previous Year.
4900 4816.8
4600 4511.2
4300
4000
2004-05 2005-06 2006-07 2007-08 2008-09
Record production of 5.2 Million Tonnes of Total Crude Steel, surpassing the previous best of
5.1 Million Tonnes in 07-08 and registering a growth of 2.6% over the previous Year.
4960
4798.4
4720
4581.7
4480
4240
4000
2004-05 2005-06 2006-07 2007-08 2008-09
Page44
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Record production of 4.49 Million Tonnes of Saleable Steel, surpassing the previous best of
4.43 T achieved in 07-08 and registering a growth of 1.4% over the previous Year.
4285.6
4300 4222.9
4100
3935.1
3900
3700
3500
2004-05 2005-06 2006-07 2007-08 2008-09
940 916.1
880.9
880 868.4
855.2
820
760
700
2004-05 2005-06 2006-07 2007-08 2008-09
Page45
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Record production of 3604.6 Thousand Tonnes Finished Steel, surpassing the previous best
of 3603.1 Thousand Tonnes in 2007-08.
700
650
610
592.7 582.7
600
550
500
2004-05 2005-06 2006-07 2007-08 2008-09
“Plate Mill completed 25 years in March ’08 with cumulative output of about 18.13 MT”.
Best-ever Energy rate at 6.503 G Cals/TCS against previous best of 6.503 G Cals/TCS in
2007-08.
Highest ever production of Special Steel & value-added products at 2.85 MT surpassing the
previous best of 2.17 MT in 07-08 and registering a growth of 31.1% over previous year.
2600
2170.9
2200
1800
1555.7
1444.2
1358.2
1400
1000
2004-05 2005-06 2006-07 2007-08 2008-09
Page46
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Best ever production of 430,494 Tonnes of TMT Bars from Merchant Mill, surpassing the
previous best of 417,591 Tonnes in 07-08, registering a growth of 3.1% over previous year.
400
300
210.6
187.1
200 156.7
100
0
2004-05 2005-06 2006-07 2007-08 2008-09
Best ever production of 403,175Tonnes of TMT Rods from Wire Rod Mill, surpassing the
previous best of 277,488Tonnes in 07-08, registering a growth of 45.3% over previous year.
300 277.5
200
109.5 107.2 109.8
100
0
2004-05 2005-06 2006-07 2007-08 2008-09
Best ever production of 814,805 Tonnes of UTS-90 Rails, surpassing the previous best of
791,541 Tonnes in 07-08, registering a growth of 2.9% over previous year.
Page47
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Best ever loading of 213,652 Tonnes of 26 metre rails and 106,284 T of 130 & 260 metre
rails, surpassing the previous best of 197,708 Tonnes and 101,104 T, respectively in 2007-08.
90
60
30
0
2004-05 2005-06 2006-07 2007-08 2008-09
NEW PROJECTS:-
A Capital Expenditure exceeding Rs 800 crore was incurred by BSP during the
Financial Year 2008-09.
During the year 2008-09, Turnkey projects of Rs 3959 crore, projects under Capital
Budget of Rs 67.43 crore & projects under Revenue of Rs 2.87 crore have been signed.
Project Website and Online Contract Billing & Accounting System have been
launched.
Page48
MAJOR PROJECTS COMMISSIONED:-
Hot Metal Desulphurisation Unit in SMS-II.
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
ONGOING PROJECTS:-
COB-11, New Coal Handling Plant, CDCP.
Rebuilding of COB-6 (Battery Proper).
Augmentation of Plate Mill capacity.
Basic Oxygen Furnace Shop – SMS-III.
MSDS-7.
Compressed Air Station-4.
Ore Handling Plant – Plant-A.
Electro Magnetic Stirrer in Bloom Caster in SMS-II.
Implementation of ERP.
Installation of 30 MLD Sewerage Treatment Plant with Recycling facilities at
Township. This will enable recycling of sewerage water from 10 residential sectors
and Indira place Market area for industrial use.
Hot Metal Desulphurization for SMS-III.
Installation of MSDS-V.
Up gradation of Nitrogen Network.
6.6 KV Switchgear for Substation 21 of SP-II.
Enabling works for 7 MT expansions.
Repl. Of DN 3000 Blast Furnace Header from BF-1 to BF-6.
Repl. Of Main Drives MG sets by Thyristor Converters at Plate Mill.
700 TPD (ASU 4) Unit with associated facility at OP-2.
2*150 T capacity in-motions Weigh Bridge in Peripheral Yard 7 Raw Material Station.
SPU at Ujjain, Hoshangabad & Gwalior.
Page49
UPCOMING PROJECTS:-
Implementation of Manufacturing Executing System.
Augmentation of Coal Grinding facility for CDI unit at BF-6 & BF-7.
7 numbers WDS-6 Loco & 1 no WDG-3A Loco.
Installation of 2nd Sinter M/c in Sinter Plant-III (320 m2).
New Blast Furnace – 8 (4060 cu m).
Continuous Casting Shop –SMS III.
o 2*6 Strand Billet Casters.
o 1*4 Strand Bloom-cum-Billet Casters.
o 183 Strand Beam Blank Caster.
New Bar 7 Rod Mill (0.90 MT Capacity).
New Universal Rail Mill (1.2 MT Capacity).
Universal Beam Mil (1.0 MT Capacity).
New 2 *1250 TPD Oxygen Plant on BOO basis.
Page50
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
ORGANISATIONAL STRUCTURE OF
FINANCE AND ACCOUNT DEPARTMENT OF BHILAI
STEEL PLANT
Finance and
accounts
department
Invoici
ng
ng
Page51
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Chapter 1.3
Finance is considered the life blood of any business. It is defined as “the provision of money at
the time it is wanted”. All the plans of a businessperson would remain mere dreams unless
adequate money is available to convert them into reality. It has given birth to “Financial
management” as a separate subject.
Financial management refers to that part of managerial activity concerned with procurement
and utilization of funds for business purpose. In other words it involves the application of
general management principles to financial operations. Thus financial management is
concerned with estimation of a fixed and working capital and management of earnings.
Finance management, also referred to as corporate finance, emerged as a distinct field of study
at the turn of the 20th century. Financial management is that management activity which is
concerned with the planning and controlling of the firm’s financial resources.
Financial management involves the procurement and use of funds. Its fundamental objective is
to use business funds in the most profitable manner. But it must contribute towards the
accomplishment of organizational goals. Although the importance of financial functions
largely on the size of the firm, financial management is an integral part of the overall
management of the firm.
Page52
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Working Capital is the capital available for conducting the day-to-day operations of an
organization, normally, the excess of current assets over current liabilities.
In accounting terms this is a static balance sheet concept referring to the excess at a particular
moment in time of permanent capital plus long-term liabilities over the fixed assets of the
business. As such it depends on accounting rules, such as what is capital and what is revenue,
what constitutes a retained profit, the cut-off between long term and short term (12 months
from the balance sheet date), and when revenue should be recognized.
A business must be able to generate sufficient cash to meet its immediate obligations and
therefore continue trading. Unprofitable business can survive for quite some time if they have
access to sufficient liquid resources, but even the most profitable business will quickly go
under without adequate liquid resources. Working capital is therefore essential to the
company’s long-term success and development, and the greater the degree to which current
assets cover the current liabilities, the more solvent the company. Efficient managing of
working capital is important from the points of view of both liquidity and profitability.
It refers to the firm’s investment in current assets. Current assets are the assets, which can be
converted into cash within an accounting year or within an operating cycle. You can include
here cash, short-term securities, debtors (accounts receivable & book debts), and bills
receivable and stock.
Page53
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Working capital
Current assets Current liabilities
Cash Accounts Payable
Accounts receivable Notes payable
Notes receivable Accrued expenses
Marketable securities Taxes payable
Inventory Short term loans
Prepaid expenses Bank overdraft
Total current assets Total current liabilities
Net working capital = CA-CL
Page54
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Page55
IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Easy loans: Adequate working capital leads to high solvency and credit standing can
arrange loans from banks and other on easy and favorable terms.
Cash Discounts: Adequate working capital also enables a concern to avail cash
discounts on the purchases and hence reduces cost.
Ability To Face Crises: A concern can face the situation during the depression.
Page56
Every business concern should have adequate amount of working capital to run its
business operations. It should have neither redundant or excess working capital nor
inadequate nor shortages of working capital. Both excess as well as short working capital
positions are bad for any business. However, it is the inadequate working capital which is
more dangerous from the point of view of the firm.
1. Excessive working capital means ideal funds which earn no profit for the firm and
business cannot earn the required rate of return on its investments.
3. Excessive working capital implies excessive debtors and defective credit policy
which causes higher incidence of bad debts.
5. If a firm is having excessive working capital then the relations with banks and
other financial institution may not be maintained.
6. Due to lower rate of return n investments, the values of shares may also fall.
Page57
Every business needs some amounts of working capital. The need for working capital arises
due to the time gap between production and realization of cash from sales. There is an
operating cycle involved in sales and realization of cash. There are time gaps in purchase of
raw material and production; production and sales; and realization of cash.
• To maintain the inventories of the raw material, work-in-progress, stores and spares
and finished stock.
For studying the need of working capital in a business, one has to study the business under
varying circumstances such as a new concern requires a lot of funds to meet its initial
requirements such as promotion and formation etc. These expenses are called preliminary
expenses and are capitalized. The amount needed for working capital depends upon the
size of the company and ambitions of its promoters. Greater the size of the business unit,
generally larger will be the requirements of the working capital.
The requirement of the working capital goes on increasing with the growth and expensing
of the business till it gains maturity. At maturity the amount of working capital required is
called normal working capital.
Page58
• Nature of business:
• Terms of sales and purchases:
• Manufacturing cycle:
• Rapidity of turnover:
• Business cycle:
• Changes in technology:
• Seasonal variation:
• Market conditions:
• Seasonality of operation:
• Dividend policy:
Page59
If working capital thus defined exceeds net current operating assets (stocks plus debtors less
creditors) the company has a cash surplus (usually represented by bank deposits and
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
investments); otherwise it has a deficit (usually represented by a bank loan and/or overdraft).
On this basis, therefore, the control of working capital can be sub divided into areas dealing
with stocks, debtors, creditors and cash.
Poor managing of working capital means that the funds are unnecessarily tied up in idle
assets, hence reducing liquidity, and also reducing the ability to invest in productive assets as
plant and machinery, so affecting the profitability.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Working capital decisions involve the determination of the mix of long term versus short-term
debt. When the yield curve is upward sloping, short-term debt costs less than long term debt.
A firm with an aggressive financing policy finances part of its permanent asset base with
short-term debt (which generally provides the highest expected return but is very risky) while
a firm with a conservative finance policy has permanent financing (long term debt plus equity)
more than its permanent base of assets. This has much lower returns but also is much safer.
Current Assets
It consists of cash of cash, investments, inventory and receivables and other market securities.
Current assets are normally converted into cash within a year.
These assets consist of:
1) Cash and bank balances
2) Investments
b) Fixed deposits of banks, which are not earned, marked for any specific purpose,
maturing within one year.
3) Receivables
b) Bills discounted.
4) Inventory
Page61
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Inventories- They consist of tangible assets held for sale in business, for process of
production, or currently consumed in the production of goods or services for sale. Raw
materials are basically used in manufacture of the project, finished goods are final goods for
sale and semi finished goods are goods in process of production.
The constituents of inventory carrying cost are interest, storage, insurance, physical
deterioration and obsolescence. Inventory procurement also involves ordering cost consisting
of number of deliveries multiplied by the cost of delivery. These two costs make up the total
cost of inventory. The economic order quantity or lot size is to be found where the total
inventory cost is minimal.
Cash-Cash is the important component of current assets, which is kept to meet running
expenses and meet expenses and meet emergencies. It is the most liquid of current assets and
its level is determined by the liquidity of other assets. Cash is kept in the bank deposits or
readily convertible temporary investments.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
a) From banks
b) From other
• Others:
a) Unsecured loans
• Statutory liabilities:
a) Provident fund dues
b) Provision for tax.
c) Sales taxes, excise etc
Current Liabilities
They comprise of borrowing from banks, trade credits, assessed tax and unpaid dividends. The
share of each constituent to total current liabilities partly determines the availability of
working capital. There is very little scope of maneuvering current liabilities.
The normal rule for investment in fixed assets – invest in it if its NPV is positive cannot be
applied to current assets because the useful life of current asset cannot be determined. The
level and nature of current assets depend on product types, operating cycle, level of sales,
operating expenses, management and pricing. Current assets provide the liquidity necessary to
support the realization of the expected returns from long time investment. It is also true that
different assets have different type of liquidity. In terms of assets liquidity means the time
necessary to covert the asset into money and the degree of certainty associated with such
conversions.
Working capital is also necessary to synchronize cash flows from long-term assets that are
uncertain and irregular.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
• To study and to analyze the various financial statements using ratio analysis.
To analyze the working capital position of BSP, Bhilai on the basis of calculation and
interpretation of some important parameters of liquidity such as current ratio quick ratio,
inventory turnover ratio & profitability ratio.
To give an overview of the company in which the project was carried out.
Page65
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Chapter II
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
REVIEW OF LITERATURE
Working cpital is a firm’s capacity in raising, handling and using money. Otherwise, it can be
said as a company’s ability to generate new sources, form day to day operation, over a given
period. Financial analysis is a powerful tool for the studying the working capital of a
company. Ti is the process of identifying the strengths and weakness of the company with
help of accounting information provided by profit & loss account and & balance sheet. It make
use of various tools like ratio analysis, trend analysis etc.
In attempt has been made to study the available literature in the area of “working capital” of
enterprises. The review mainly concentrated on the working capitalof the company up & down
of enterprises & current assets & liabilities etc. Review of literature shows that the majority of
the studies were conducted based on published dataof the companies & similar line of to other
studies. The related studies referred are presented below:
Rupesh gupta (2006) made “A study on the working capital management with reference to
Jindal steel industries raigarh”. The objective of the study was to analyze & evaluate the
working capital management, to analyze the liquidity position of the company, inventory
management of the company, to receivables, payables & cash management & suggest ways &
means to improve the present state of working capital. The author suggested the proper
management of inventory.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
CHAPTER III
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
DATA COLLECTION
The study is based on the secondary data obtained from published accounts and annual reports
of Bhilai Steel Plant.
2. Journals
3. Plant visit
The study covers a period of 5 years from 2006 to 2010. The research design adopted for the
purpose of working capital analysis was analytical and descriptive in nature.
Percentage analysis
Ratio analysis
Trend analysis
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
• The limitation of the data given in the annual reports is also applicable for the data
used in the study.
• Non monetary factors like human behavior, their relationship etc are not considered.
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CHAPTER IV
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Current Assets
It consists of cash of cash, investments, inventory and receivables and other market securities.
Current assets are normally converted into cash within a year.
Particulars
2005-2006 2006-2007 2007-2008 2008-09 2009-10
Inventories:
Stores and
417.62 444.12 465.75 570.51 592.19
Spares
Raw materials
353.99 342.95 284.73 484.18 588.77
Stock
Semi/Finished
734.15 769.59 962.42 1828.45 1430.96
goods
Total 1505.76 1556.66 1712.90 2883.14 2611.92
Interpretation
Inventories are a major part of current asset. The inventories has increased by 68% in the
year 2008-2009 but for the accounting year 2009-2010 the inventories has decreased by 9.4%.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Interpretation
There is a nominal increase of 6% in the year 2009-2010 in current asset with respect to a
increase of 51% in the year 2008-2009. This slow increase is due to decrease of level of
inventories by 9.5% in the year 2009-2010 with respect to year 2008-2009.Although a
nominal increase , but increase in current asset shows the liquidity soundness of company.
Current Liabilities
Current liabilities consist of estimated or accrued amounts, which are anticipated to cover
expenditure within a year, for known obligation.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
WORKING CAPITAL
(In Rs. Crores) Table No: 4.4
Working
Total current Total current
Year capital
assets liabilities
(F-G=H)
2005-2006 1795.09 879.52 915.57
2006-2007 1951.26 1042.66 908.6
2007-2008 2259.79 1810.88 448.91
Interpretation
Working capital is required to finance day to day operations of a firm. There should be an
optimum level of working capital. It should not be too less or not too excess. In the company
there is increase in working capita by 18% with respect to 2008-2009. The increase in working
capital arises because the company has expanded its business.
Analysis of working capital is significant for both management and short-term creditors.
Managements can assess the efficiency of the working capital employed in the business.
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Such an analysis helps management to detect trends and initiate corrective measures. It helps
the shareholders and creditors to determine the prospects of payment of dividend and interest.
The analysis of Working Capital helps in determining the ability of the company to repay its
current debt promptly, assess the effectiveness of management of working capital, adequacy of
working capital and to undertake credit ratings. Analysis of working capital relates to an
examination of circulation, liquidity, level and structural aspects of working capital. In
analysis of working capital the tools used are ratio analysis and funds flow analysis of the
company.
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Ratio Analysis
To analyze the current financial position of a company, ratios computed on the basis of the
figure appearing in the balance sheet are compared with norms set for the ratios. Depending
upon the purpose, various ratios are used. The ratio discussed here relate to liquidity,
circulation level and structure of working capital.
Liquidity Ratios
Net working capital is sometime used as a measure of firm’s liquidity.
1. Net working capital to total assets: It is the ratio between net
working capital and the total assets of a company.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Interpretation
Liquidity refers to the ability of a firm to meet its current obligations as and when these
become due. The short-term obligations are met by realizing amounts from current, floating or
circulating assets. The current assets should either be liquid or near about liquidity. These
should be convertible in cash for paying obligations of short-term nature. The sufficiency or
insufficiency of current assets should be assessed by comparing them with short-term
liabilities. If current assets can pay off the current liabilities then the liquidity position is
satisfactory. On the other hand, if the current liabilities cannot be met out of the current assets
then the liquidity position is bad.
1. CURRENT RATIO
2. QUICK RATIO
1) Current ratio: It is the ratio between a firm’s current assets and its current
liabilities. It is the most frequently used ratio also called working capital ratio. It
is considered as an index of solvency of a company. It indicates the ability of a
company to meet its current obligations. Changes in current ratio can be
misleading. If a company raises money through commercial paper and invests the
amount in marketable securities, net working capital is unaffected but the current
ratio changes.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
a) Current Ratio:
Interpretation
As we know that the ideal current ratio for any firm that ideal current ratio is 2:1. If we see
the current ratio of the company for last three years it is less than the ideal ratio. This signifies
that the company does not have a sound liquidity position. .It’s current assets is less than that
of its current liabilities.
A high ratio is an indication that the firm is liquid and has the ability to meet its current
liabilities in time and on the other hand a low quick ratio represents that the firms’ liquidity
position is not good. As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally
thought that if quick assets are equal to the current liabilities then the concern may be able to
meet its short-term obligations. However, a firm having high quick ratio may not have a
satisfactory liquidity position if it has slow paying debtors. On the other hand, a firm having a
low liquidity position if it has fast moving inventories.
The liquidity arises because finished goods cannot be sold for more than production cost.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
The interval expressed in number of days measures the ability of the company to finance its
daily expenditure with the current assets in its position even if it receives no further cash.
Quick Ratio:
Quick Ratio = (Cash + Marketable Securities + Receivables) /
Current Liabilities
Interpretations
A quick ratio is an indication that the firm is liquid and has the ability to meet its current liabilities
in time. The ideal quick ratio is 1:1. Company’s quick ratio is less than ideal ratio. This shows
company may have liquidity problem. However, a firm having high quick ratio may not have a
satisfactory liquidity position if it has slow paying debtors
2. Although receivables, debtors and bills receivable are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately
or in time. So absolute liquid ratio should be calculated together with current ratio and
acid test ratio so as to exclude even receivables from the current assets and find out the
absolute liquid assets. Absolute Liquid Assets includes :
CURRENT LIABILITES
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Table no:4.8
Interpretation
These ratio shows that company carries a small amount of cash. But there is nothing to be worried
about the lack of cash because company has reserve, borrowing power & long term investment. In
India, firms have credit limits sanctioned from banks and can easily draw cash.
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Inventory turnover ratios: Inventory turnover ratios show the extent of use of working funds in
different types of inventory. These ratios include
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Turnover of raw materials inventory: this ratio shows the number of times the raw
materials were replaced during a year. It is obtained by dividing raw materials issued
to the factory by raw materials in ending inventory. A low ratio indicates that
excessive raw materials have been procured and a high ratio indicates that more raw
materials are required.
Turnover of current assets: This ratio measures the turnover of total current assets used in
business operations. The ratio is obtained by dividing cost of goods sold by total current
assets. A lower turnover indicates utilization of working capital. .
C.A.T.R = sale
Avg. Current asset
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Table no.4.9
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Interpretation Funds
are invested in various assets in business to make sales and earn profits. The efficiency with which
assets are managed directly affects the volume of sales. The better the management of assets, large is
the amount of sales and profits
Current assets movement ratios measure the efficiency with which a firm manages its resources. These
ratios are called turnover ratios because they indicate the speed with which assets are converted or
turned over into sales.
Every firm has to maintain a certain amount of inventory of finished goods so as to meet the
requirements of the business. But the level of inventory should neither be too high nor too low.
Because it is harmful to hold more inventory as some amount of capital is blocked in it and some cost
is involved in it. It will therefore be advisable to dispose the inventory as soon as possible.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Inventory turnover ratio measures the speed with which the stock is converted into sales. Usually a
high inventory ratio indicates an efficient management of inventory because more frequently the stocks
are sold; the lesser amount of money is required to finance the inventory. Where as low inventory
turnover ratio indicates the inefficient management of inventory. A low inventory turnover implies
over investment in inventories, dull business, poor quality of goods, stock accumulations and slow
moving goods and low profits as compared to total investment.
I.C.P = 360
Inventory turnover
Table no.:4.10
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Interpretations:
This ratio shows how rapidly the inventory is turning into receivable through sales.
In 2008-09 the company has high inventory turnover ratio but in 2009-2010 it has
reduced to 5.8 times. This shows that the company’s inventory management
technique is less efficient as compare to last year.
Inventory conversion period shows that how many days’ inventories take to convert from raw material
to finished goods. In the company inventory conversion period is fluctuating. This shows the
inefficiency of management to convert the inventory into cash.
A concern may sell its goods on cash as well as on credit to increase its sales and a liberal
credit policy may result in tying up substantial funds of a firm in the form of trade debtors.
Trade debtors are expected to be converted into cash within a short period and are included in
current assets. So liquidity position of a concern also depends upon the quality of trade
debtors. Two types of ratio can be calculated to evaluate the quality of debtors.
Debtor’s velocity indicates the number of times the debtors are turned over during a year.
Generally higher the value of debtor’s turnover ratio the more efficient is the management of
debtors/sales or more liquid are the debtors. Whereas a low debtors turnover ratio indicates
poor management of debtors/sales and less liquid debtors. This ratio should be compared with
ratios of other firms doing the same business and a trend may be found to make a better
interpretation of the ratio.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Table showing forecasting working capital for the next five financial years
using least square trend method
∑Y=na+b∑x ∑xy =
a ∑ x+ b∑x2
4229.68= 5a + bx 0 5738.39 = 0 + b x 10
a = 845.94 b = 573.84
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Table no.4.12
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Table no.4.13
10132.03
PBT 4270.48
3377.66
LESS : TAX
6754.37
PAT 4270.48
Interpretation
The company SAIL has achieved a profit of Rs6754.37crs (profit after tax) in SAIL profit the
Bhilai Steel Plant comprises for 63% of profit, contributing the most.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Interpretation
Adding depreciation to the profit after tax the cash profit of SAIL is found to be Rs.
11469.27crs. The bhilai steel plant alone contributes a cash profit of Rs.4539.59crs. i,e
approximately 40%.of the total cash profit.
Operating profit
Table no :4.15
Gross margin
Table no.4.16
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Profitability ratios
• Gross profit / Margin ratio = Gross margin / turnover *100
• Net Profit Ratio = Operating profit / Turnover * 100
• Operating Ratio = Operating profit / turnover * 100
Profitability ratios
Table no.4.17
Particulars SAIL (Rs./Crs.) B.S.P (Rs./Crs.)
Turn Over (Sales)
43934.70 15874.30
Gross Margin
11871.28 4672.60
Operating Profit
10534.04 4403.49
Profit Before tax
10132.03 4270.48
(PBT)
Gross Margin
27.02% 29.43%
Ratio
Operating Ratio
23.98% 27.74%
23.06%
Net Profit Ratio 26.90%
Interpretations
The net profit as seen in the calculations above is seen to be 23.06% of SAIL of which B.S.P
contributes of about 26.90%.
Turnover of BSP
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
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Profit of B.S.P
Interpretations
6000
As seen in the graph the net profit has increased by 25% in the year 2007-08(base year 2006-
07), but later the profit has started to decline. In the year 2008-09 the profit declined by 7.4%.
Further in the year 2009-2010 the profit declined by 14%.
5000 4042
This decline in profit is due to decrease in turnover by 14%. Resulting in decrease of sales.
A good co-ordination between raw material conversion period and finished goods conversion
4000
period has to be maintained by the organization.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
Note: - BSP doesn’t go for the calculation of DCP & CDP as both the things are dealt in
corporate office, hence due to this reason working capital management is not done at BSP.
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CHAPTERV
ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
1. In BSP the coordination among the various sections of the Finance & Accounts
department is very nice, as the Finance & Accounts department is a big department
consisting of near about 32 sections. It is the work force of the Finance & Accounts
department, which makes it possible.
2. In the BSPs there not to create debtors they generally deal with first to receive the
cash or cheque, and then they supply the finished material.
3. In the BSPs there working capital management is very good, they use the MMIS &
SAP system to manage the over all activity.
4. During the study I find that their is no huge variation in budget decided and the
actual one.
5. Bills of store handling contracts and freights payments are not processed through
MMIS. As a result records of these payments are not available in the system, which
makes task tedious and hence ERP is to be implemented to resolve the problem.
6. Government is not having the commercial approach regarding the implementation
of taxes.
7. The taxation policy is to be made flexible because of which bulkiness of the work is
to be removed.
8. The tendering process time is to be minimized so that the current market price
benefits if any can be availed.
9. Monthly return filling is not on line process, hence sales and excise department face
problem.
10. Online inventory valuation can be implemented
11. The departmental policies is to made flexible which leads to decrease in the work
flow process as well as it leads in better profits.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
5.2 Conclusion
Bhilai Steel Plant a major unit of sail has been generating continuous profits as compared to
previous year with current year. To summaries, working capital at a plant level, this mainly
involves forecasting and monitoring of various components, which is done systematically.
Whereby major portions of receivables are managed by central marketing organization for all
plants level. Other important components of working capital are bill payables and borrowings
of funds monitored by corporate level.
Finance Department of Bhilai Steel Plant and various individual units decides the amount of
funds requirement during the preparation of operation budget, and then requirement of fund is
intimated to corporate office. Cash inflows and outflows are estimated in budget.
The marketing of all SAIL’s prime products are done by the central marketing organization
and the receipts of sale are directly sent into the inner unit current account which is centrally
controlled by the corporate office allocates the funds as per intimation to individual units.
Cash is monitored every day and intimated to the top management as well as fortnightly to the
company.
Inventory is monitored differently for raw materials, work in progress, finished goods and
stores. Monthly inventory report is sent to chairman through the finance department to
corporate office, but the major portion of debtor are dealt by central marketing organization.
Bhilai Steel Plant (BSP) is an enormous unit and hence the evaluation of its working capital
management cannot be done thoroughly but in our brief stay we have at our best tried to
present a general idea of the working capital management at BSP.
The two main ratios we used for our analysis were the quick ratio or the acid test ratio and the
current ratio, both of which have been explained earlier. The current ratio is the indication of
the amount of money that a company has in comparison to what it owes and it is generally
considered adequate to have a current ratio of more than 2:1. Post observing the ratios for the
last five years it can be observed that the ratio in nearly all cases is more than one which
indicates that BSP always has money at hand.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
It is also noticeable that the ratio for most of the years is very close to two and it ascertains
that BSP is in very good health and also that the working capital management of this
behemoth is exceptionally good.
The quick ratio is a measurement of the liquid assets that the unit in question has at hand.
Basically if one takes out inventories from the calculation of current ratios we get the quick
ratio. It is usually expected that the quick ratio be more than 1:1 but in case of BSP it has
remained at an even level of nearly 0.3. This is because the expected quick ratio is for
industries where inventories are not as important as they are in the steel industries. It is said
that if even one blast furnace has to be cooled the BSP suffers losses of up to 10 crores. So an
adequate stock of inventory is maintained this affects the level of the liquid assets and cash at
hand. Besides the company that is as big as BSP the liquid assets still amount to nearly 300
crores which is adequate for all transactions that may need to be carried out.
Bhilai Steel Plant (BSP) is one of the few public sector units that make a profit on the scale of
nearly 4,000 crores. The reasons behind these are excellent management of the finances. This
statement can easily be supported by the statistics of the years 2003-04 in which one can see
that BSP made a profit of nearly 4000 crores with a working capital of -93.14 crores.
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ASTUDY ON WORKING CAPITAL OF BSP, Bhilai
BIBLIOGRAPHY
The above report has been prepared from the following sources of data and information:
1. Web Sites:
1.2. www.indiansteelalliance.org,
1.3. www.sail.co.in.
2. Books:
2.1. Financial Management, I M Pandey,
3. Other Reference:
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Annexure
LIST OF ABBREVIATIONS :
ACVO : Additional Chief Vigilance Officer
AP : Automatic Procurement
BG : Bank Guarantee
CA : Competent Authority
CE : Chief Executives
CEC : Commercial Evaluation Committee
CVC : Central Vigilance Commission
CVO : Chief Vigilance Officer
CMMG : Corporate Materials Management Group
CPA : Centralized Procurement Agency
DGS&D : Director General of Supplies & Disposal
DOP : Delegation of Power
DRO : Direct Reporting Officer
EMD : Earnest Money Deposit
FIFO : First In First Out
GARN : Goods Acceptance/Rejection Note
GCC : General Conditions of Contract
HOMM : Heads of Material Management
HOD : Head of the Department
IPSS : Inter Plant Steel Standards
ISO : International Organization for Standards
LCNS : Landed Cost Net of Set Off
LTE : Limited Tender Enquiry
MD : Managing Director
MM : Materials Management
NIT : Notice Inviting Tender
OEM : Original Equipment Manufacturer
OTE : Open Tender Enquiry
HOP : Head of Personnel
LD : Liquidated Damage
OA : Operating Authority
PAN : Permanent Account Number
P2K : Purchase/Contract Procedure 2000
PCP-06 : Purchase/Contract Procedure 2006
PS : Post Script
PGB : Performance Guarantee Bond
PO : Purchase Order
sPSU : Public Sector Units
RA : Reverse Auction
SSI : Small Scale Industries
STE : Single Tender Enquiry
TC : Tender Committee
TC/GC : Test Certificate/Guarantee Certificate
s
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