Jaypee Business School

A constituent of Jaypee Institute of Information Technology (Deemed University)

A-10, Sector 62, Noida (UP) India 201 307 www.jbs.ac.in

Working Capital Management

Corporate Internship Report

Internship Report submitted as a partial requirement for the award of the two year Master of Business Administration Programme MBA 2011-13

Shashank Shekhar

(HCL Infosystem,Sector-11,Noida) Corporate Internship Supervisor Name: Gautav Mittal

JBS-Faculty Supervisor: Mr. Siddharth Mishra

Start Date for Internship: th 18 April 2012 End Date for Internship: th 18 June 2012 Report Date:

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SELF CERTIFICATE This is to certify that the Project Report titledWorking Capital Management for (HCL Infosystem) is a bona fide work carried out by (Shashank Shekhar) of Jaypee Business School for fulfillment of MBA course of Jaypee Institute Of Information Technology,Noida.

(Name of Guide) Date: Place: pg. 2

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ACKOWLEDGEMENT
Achievement is finding out what you would be then doing, what you have to do. The higher the summit, the harder is the climb. The goal was fixed and we began with a determined resolved and put in ceaseless sustained hard work. Greater challenge, greater was our effort to overcome it. This project work, which is my first step in the field of professionalization, has been successfully accomplished only because of my timely support of well- wishers. I would like to pay my sincere regards and thanks to those, who directed me at every step in my project work. I would also like to thank the corporate trainer and the staff members of HCL Infosystems Ltd. for their kind support and help during the project.

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TABLE OF CONTENTS
S.No
1 2 3 4 5 6 7 7.1 7.2 7.3 7.4 7.5 8 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 9

Topic
Cover Page Self Certificate Certificate From Organization Acknowledgement Executive Summary Introduction And Objective Company Profile HCL Enterprise HCL Infosystem HCL Infosystem Net Strategy Global Customer Intergration Solution And Services Industry Analysis Key Segment in Indian Electronics Hardware Sector Pest Analysis Industry Structure Product Life Cycle Analysis Segmentation,Targeting And Positioning Porter Five Force Model Competition Analysis Swot Analysis Financial Analysis

Page No.
1 2 3 4 6 7 8 9 10 11 12 13 18 20 23 25 26 27 28 29 31 32

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9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10 9.11 9.12 9.13 10 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13

Current Ratio Quick Ratio Cash Ratio Net Profit Margin Return On Assets Return On Equity Working Capital Turnover Ratio Fixed Assets Turnover Ratio Debtors Turnover Ratio Cash Turnover Ratio Debt Equity Ratio Interest Coverage Ratio Debt Ratio Detailed Study Introduction To Working Capital Significance Of Working Capital Management Classification Of Working Capital Types Of Working Capital Financing Of Working Capital Factors Determination Of Working Capital Requirement Sources Of Working Capital Working Capital Position Inventory Management Conversion Period Cash Management Receivable Management Managing Creditors

35 35 36 36 37 38 38 39 39 40 41 42 42 43 43 44 45 46 47 48 50 51 54 55 61 66 71

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10.14 11 12 13 14

Working Capital And Short Term Financing Concluding Analysis Suggestion And Recommedation Annexure References

74 80 82 83 90

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EXECUTIVE SUMMARY
This project is based on the study of working capital management in HCL Infoystems. An insight view of the project will encompass what it is all about, what it aims to achieve, what is its purpose and scope, the various methods used for collecting data and their sources, including literature survey done, further specifying the limitations of our study and in the last, drawing inferences from the learning so far. HCL Infosystems Limited (HCL), is a leading domestic computer hardware and hardware services company. HCL is engaged in selling manufactured ( like PCs, servers, monitors and peripherals) and traded hardware ( like notebooks, peripherals) to institutional clients as well as in retail segment. It also offers hardware support services to existing clients through annual maintenance contracts, network consulting and facilities management. The working capital management refers to the management of working capital, or precisely to the management of current assets. A firms working capital consists of its investments in current assets, which includes short-term assets cash and bank balance, inventories, receivable and marketable securities. This project tries to evaluate how the management of working capital is done in HCL Infosystems through inventory ratios, working capital ratios, trends, computation of cash, inventory and working capital, and short term financing.

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INTRODUCTION:
The project undertaken is on WORKING CAPITAL MANAGEMENT IN HCL INFOSYSTEMS LIMITED. It describes about how the company manages its working capital and the various steps that are required in the management of working capital. Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital management (WCM). Working capital refers to the cash a business requires for day-to-day operations or, more specifically, for financing the conversion of raw materials into finished goods, which the company sells for payment. Among the most important items of working capital are levels of inventory, accounts receivable, and accounts payable. Analysts look at these items for signs of a company's efficiency and financial strength. The working capital is an important yardstick to measure the companys operational and financial efficiency. Any company should have a right amount of cash and lines of credit for its business needs at all times. This project describes how the management of working capital takes place at HCL Infosystems.

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TH E PR OB LE MS
In the management of working capital, the firm is faced with two keyproblems: 1. First, given the level of sales and the relevant cost considerations, what are the

optimal amounts of cash, accounts receivable and inventories that a firm should choose to maintain? 2. Second, given these optimal amounts, what is the most economical way to finance these working capital investments? To produce the best possible results, firms should keep no unproductive assets and should finance with the cheapest available sources of funds. Why? In general, it is quite advantageous for the firm to invest in short term assets and to finance short-term liabilities.

OBJECTIVE
The objectives of this project were mainly to study the inventory, cash and receivable at HCL Infosystems Ltd., but there are some more and they are The main purpose of our study is to render a better understanding of the concept Working Capital Management. To understand the planning and management of working capital at HCL Infosystems Ltd. To measure the financial soundness of the company by analyzing various ratios. To suggest ways for better management and control of working capital at the concern.

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HINDUSTAN COMPUTERS LIMITED

Type Founded Headquarters Key People Industry Revenue Employees Website

Public 11th August 1976

Noida, India (Delhi metropolitan area), India Shiv Nadar, Founder, Chairman & Sanjay Kumar Choudhary , Vineet Nayar

CEO

Information Technology Services

6.2 billion USD 90,000

www.hclinfosystem.in Table7.1

Hindustan Computers Limited, also known as HCL Enterprise, is one of India's largest electronics, computing and information technology company. Based in Noida, near Delhi, the company comprises two publicly listed Indian companies, HCL Technologies and HCL Infosystems. HCL was founded in 1976 by Shiv Nadar, Ajai Chowdhry and four of their colleagues. HCL was focused on addressing the IT hardware market in India for the first two decades of its existence with some sporadic activity in the global market. In 1981, HCL seeded a company focused on addressing the computer training industry, NIIT, though it has currently divested its stake in the company. In 1991, HP took minority stake in the company (26%) and the company was known as HCL HP for the five years of the joint venture. On termination of the joint venture in 1996, HCL became an enterprise which comprises HCL Technologies (to address the global IT services market) and HCL Infosystems (to address the Indian and APAC IT hardware market).

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HCL INFOSYSTEMS
AN OVERVIEW ABOUT THE COMPANY
HCL Infosystems, India's premier information enabling and integration company offers its customers technology solutions across multiple platforms. It has partnerships with some leading global player like Intel, Toshiba, Ericsson, Microsoft, Nokia and Sun Microsystems among others. HCL Infosystems has direct customer services center across 260+ locations and two ISO 9001 certified state-of-the-art manufacturing facilities. With a mission to provide worldclass information technology solutions and services to enable its customers to serve their customers better, HCL Infosystems is forever setting new standards of IT in the country. HCL Infosystems Limited is Indias technology integration company. Over the years, HCL Insys has positioned its business operations to fulfill its vision statement: Together we create enterprises of tomorrow. The overarching theme for the Companys swift progression into the software and services arena, in India and globally, is evolving. Signifying a state of constant growth, the evolve theme is visible in the many ways that HCL Infosystems has undergone a transformation for becoming a complete IT solutions company. Within this, the company has conceptualized the Net. Strategy to address the ecommerce market. HCL Infosystems has added both Internet-focused solution and skill sets. For this, it has acquired critical expertise in e-commerce development tools. It has also developed the ability to integrate e-commerce infrastructure with enterprise application such as SAP, CRM and SCM.

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HCL Infosys NET.STRATEGY

DOMAIN KNOWLEDGE BUSINESS MODELLING TOOLS PRODUCTS APPLICATION

SERVICES TELECOM INDUSTRY

BANKING & INSURANCE

MANUFACTURING

GOVT

JAVA, MICROSOFT E.COM SAP,CRM,SCM/INTEGRATION & POST IMPLEMENTATION SUPPORT KNOWLEDGE MANAGEMENT-E.COM.,INTERNET,BANKING FILENET SECURITY NETWORK ARCHITECTURE FACILITIES MGMT.

INFRASTRUCTURE

NETWORK MGMT.SOLUTIONS

Table7.2 Yet another significant movement in the Company was globalization. To become a dominant player in providing global IT services, HCL Infosystems has reorganized and consolidated its hardware and services business. The first step towards this was the acquisition of the assets of HCL Info solutions and HCL Peripherals, and the customer support activities, related products and human resources of HCL Office Automation in mid-1998. In 1999, HCL Infosystems completed acquisition of FEC Singapore Pvt. Ltd. The Companys acquisition strategy, too, maps into building a longterm and sustainable growth path based on the high- margin, high value-add IT services sector. for development. This also includes a complete portfolio of systems and network services for Facilities Management, Helpdesks, Systems Supports and network and Internet Implementation. HCL Infosystems global customers include the following: In fiscal 2000, the companys focus was on organic growth as well as acquisitions. The next step was expanding its reach globally. For this, HCL Infosystems has set up five overseas subsidiaries-in the US, the UK, Singapore, Australia and Malaysia. The menu of HCL Infosystems global services broadly covers IT consulting and professional services in the area of vertical applications, technology integration, ERP implementation and software development.

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This also includes a complete portfolio of systems and network services for development. This also includes a complete portfolio of systems and network services for Facilities Management, Helpdesks, Systems Supports and network and Internet Implementation. HCL Infosystems global customers include the following: Samsung Government of Singapore AMAL insurance Jurong Port in Singapore Malaysians BSN commercial bank SIA DBS bank Maybank life assurance

Charted semiconductors Asia Matsushita Shell Malaysia

Some of its global customer in the government sector is Inland Revenue authority of Singapore, civil aviation authority of Singapore, Singapore power, ministry of education, health and national development, telecom authority of Singapore and Penang state govt. HCL Infosystems chosen platform of total technology integration lends itself to some very significant alliances with the global leaders. Among its partner are HP for high end AISCE/UNIX services and workstation and HP Open view network management solution; Intel for PC and PC server building blocks; Microsoft ,Novell and SCO AG solutions; Red hat ;Linux; Samsung; Pivotal for CRM solution and ORACLE Sybase and Informix for RDBMS platform. Today the company has aligned its operations into six entities that offer seamless linkages for the customers seeking entry into the wired world through total the Integration solution and services. A brief profile of each of these is as below:

1. Professional Services Organisation

Established in 1994 the PSO is a key growth driver for the company with the onset of the E- commerce revolution, the PSO forms the most critical component of HCL Infosystems strategy. The PSO operates in 4 major areas of high level IT consulting, technology integration projects, turnkey software development projects for both domestic as well as

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foreign markets, and functional consulting and implementation services for ERP projects. With the task force of over 914 software specialists 3 software export factories in Chennai, Noida andCalcutta and dedicated center of excellence, the PSO has garnered domain knowledge of a wide spread of industries telecom banking etc. PSO has added a range of e- business services in its portfolio namely, development of portals, ecommerce. Enabled store fronts enterprise application integration for ERP CRM and SCM solutions. Today the PSO has won the TWIN laurels of the coveted SEI (software engineering institute) Level 4 on the capability maturity model (CMM) scale and ISO certification on its software developments processes.

2.Systems Support Organisation

HCL Infosystems SSO is the most extensive direct support network in the country. It operates from 151 locations, with a 921 member support force-a unique pool of trained manpower,With the collective experience of working on a broad and diverse range of operating systems, hardware systems, and middleware, networking and peripheral products. Besides its resource pool, the SSO has the infrastructure and processes to enable it to deliver a range of world class support services to a wide cross-section of industries, both in India and Overseas. Its services include annual maintenance contracts and value-added services like network consulting and implementation, Facilities management, helpdesks, tele-supports and test and repair services. The SSO is a critical piece in the Companys eCommerce tapestry and implementation complex LANs and WANs. Moreover, SSO has honed its knowledge of third party networking technologies such as Remote Access Services, ATM and Frame Relay and its expertise in firewall security, network management and managing facilities for large customers.

3. Direct Sales Organization

The direct sales organization (DSO) of HCL Infosystems is by far the most admired direct sales force in the Indian IT industry. The DSO addresses the vertical markets of finance, banking, telecom, ISPs and manufacturing. It also targets the government, education, power and utilities segments. With a nationwide footprint through a presence in nine major cities, the DSO gives a face to the company. It has been a Prime deliverer of enterprise solution in India and has built long-standing relationships with customers across industries, over the last two decades.

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The DSO as a flag bearer of the Company has had a tradition of creating and opening up unknown and nascent markets in the country. Be it the markets for office computing way back in 1981, UNIX based computers in 1988, or CAD CAM computing in 1989, the DSO has carried on the tradition of breaking barriers. This year saw a series of successful initiatives including www.ow, which covered a broad range of ISP solutions and Linux expertise (telephonic and email support for Linux, the now famous open source operating systems). The DSO has also been instrumental in making Hewlett Packard a brand of choice in the Indian RISC/Unix marketplace. Within HCL Infosystems internet thrust, DSO will offer a range of related services to its customers.

4. Office Automation
HCL Infosystems Office Automation Division (OA Division) is poised to leverage the convergence between IT, communication and office automation through its products and service offerings. The OA Division has an exclusive sales and support partnership with Toshiba Corporation, Japan for its photocopier products. Its products portfolio covers a range of other office automation and communication products through alliances with the world from Nokia, Duprints from Duplo, and telecommunication solution from Samsung and Ericsson. Its network has 65 independent dealers, who stock and sell consumables for peripherals and devices, It also offers direct field support spanning 85 locations, through 15 regional offices and 20 area offices assisting 74 service locations. The service is also extended a large base of installed products through its Test and Repair Centers (TRCs). These TRCs are manned by 450 customer engineers and 68 managers located across India, with a head office at Noida and a Spares TRC at Chennai. The centers also provide upgrades to existing customers, keeping them abreast of cutting edge technology at all time. Finally, the division also offers Bring-In-Maintenance services for a range of products such as Nokia mobile phones and accessories, and HP peripherals.

5. Frontline
The pioneer in value-added offerings to personal computer (PC) users, Frontline Division is the distribution arm of HCL Infosystems. The division focuses on providing solutions and value added services to small, and medium corporate, the office/home office and the home buyer chain of over 100 HCL Stores, and 205 partners across 100 cities, termed the Support Net. The Division has also made a significant foray into the packaged software market by

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setting up the Info soft Group. Frontline also offers innovative support services such as Tele Support for HCL hardware products from Microsoft, Novell and Linux; and hardware maintenance services technology upgrades, helpdesk and messaging solutions.

6. Infinet
HCL Infinet Limited is HCL Infosystems new Internet initiative. HCL Infinet aims to leverage the immense existing resources of its parent company, in reach, relationship, infrastructure and expertise, to become a dominant Internet service provider in the country. Its portfolio of services includes consumer Internet access, Virtual Private network (VPN) solution, Application Service Provider (ASP), hosting and co-location solution and B2B e-commerce exchanges. Besides, HCL Infinet will also host an exciting horizontal portal at www.hclinfinet.com. HCL Infinet has set up a state-of-art ATM / Frame relay network covering 42 cities across the country and has made significant investments in network management solution and a 24 hour customer helpdesk. Hence it has the capability to offer a Committed Information Rate (CIR) and Quality of Services (QoS) to its customers. The division has translated companys e-Commerce focus by setting up shop on the Web at www.hclshop.com. This is fast on the way to becoming a virtual one-stop supermarket. Through its Cyber cafe and the Info Kiosk solution, the Division has succeeded in spawning a new generation on the net. 7.Manufacturing HCL Infosystems Manufacturing Organization is the largest manufacturing organization in the country with two ISO 9001 certified factories, for computer and peripherals at Pondicherry. Recognizing the challenges posed by the changing IT environment, HCL Manufacturing has consistently and continuously evolved and improved its processes and guided the development and transition to the fastest technology and products for its customers, both internal and external. As information technology needs mature, the IT industry has witnessed a continual evolution through a progressive finer segmentation of the markets. Design and delivery of solution across diverse hardware platforms and the ability to respond to the rapid penetration and usage of PCs, fast changing roadmaps, convergence in technology, turbulence in supply chain are key determinants for success in the current IT environment. HCL Manufacturing has developed a strong combination of competent people and technologies. Currently the HCL Manufacturing

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factories have a capacity to manufacture 15,000 PCs per month per shift.

8. Quality
The history of structured quality implementation in HCL Infosystems began in the late 1980s with a high focus on improving quality of its products by using QC Tools, FRACAS (failure reporting & corrective active systems), concurrent engineering practices including design reviews and rigorous reliability testing to uncover latent design defects. In the early 90s the focus was not merely on quality of products but also the process quality systems. As a result HCL were certified for ISO 9002 by BVQI in 1994 (for quality assurance in production, design/development, production, installation and servicing). In early 1995, a major quality initiative was launched across the company based on Philip B. Crosbys methodology of QIPM (Quality Improvement Process Management). The purpose of selecting this model was that it not only took into account the organizations need/commitment to improve but also the individuals need towards better quality in his personal life. Under our Quality Education System program, HCL trains all their Employees on the basic concepts & tools of quality. A number of improvement projects have been undertaken by the employees themselves where they have identified process deficiencies or bottlenecks and undertaken Corrective Action Projects (CAPs) to reduce defect rates and improve cycle times in various processes including personal quality. By 1995 the Software Solutions group had already developed a robust quality system. As HCL execute a number of projects for HCLs overseas clients, HCL has adopted both ISO 9001 And SEI CMM Level 4 assessed processes. This means that along with the systems, procedures and requirement trace-ability that ISO 9000 offers HCL also works towards optimizing their process efficiency. This brings added benefits to the clients. HCL Infosystems quest for excellence has resulted in its adopting the EFQM excellence model European Foundation for Quality Management for gaining quality leadership & business competitiveness. This model falls in line with HCLs belief that People, Policy & Strategy and Partnerships & Resources are the enablers and Quality of offerings to HCLs employees, customers and society the motive of HCLs

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services. 9.Human Resources As the time is ripe for HCL Infosystems to make its claim on destiny, it is equipped with the rich human resources. HCL does not treat them as mere resources but looks as the valuable asset to the organization. They are the backbone of our business and the key ingredient for the overall success and sustenance of the company. Its prime focus is to provide services that would create an environment enabling each employee to maximize his/her contribution. It has already created a climate where their skills and potentials can be explored to the fullest. It always tries to have the right mix of talent and experience. For this it is continuously developing strategies for Human Resource Development. It has defined career path laid for everybody and which is groomed with right kind of training inputs. The typical features of an HCL Infosystem employee are: Quick change artist Committed fully to the assignment / organization Speeds up in all situations Has a high need of achievement Accepts ambiguity and change and then works towards the same. Behaves as if doing his/her own business and contributes fully Adds value to the assignment Sees himself/herself as a service centre He/She is a problem solver rather than a finger pointer The bulk of HCLs manpower joins straight from college campuses and undergoes a very comprehensive induction programme. HCLs commitment to technical training enables us to keep in tune with the latest in the industry as it is. The ratio of managers to employees is 1:3.73. 76% of these employees are professionally qualified. The average age of the employee is 28.51 years. Currently the manpower strength of the company is approx. 2400, out of which around 87% are in technical functions while 13% are in support functions.

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INDUSTRY ANALYSIS
Overview of Indian Electronics and IT Hardware sector
The evolution of Indias Electronics Industry from its initial forays into production of valves and space technologies, till date, is presented below. The consumption of Electronics was US $ 28 billion in 2005. It is estimated that the demand for electronics (consumption) in India will be US $ 126 billion in 2010 and US $ 363 billion in 2015.1 Out of this, the Indian Electronics and IT Hardware2 sector production amounted to Rs. 947 billion in 20093 and has grown at a CAGR of 16.4% since 2002.
Figure 8.1: Evolution of Indian Electronics and IT Hardware Industry

Source: IMaCS analysis

1 2

Council of Electronics Hardware Associations (CEHA)

Henceforth, the use of the terms Electronics and/or IT Hardware Industry in the Indian context refers to production in India during the course of this report, i.e., domestic production for local consumption and exports. 3 Annual Report 2008-09 of Department of Information Technology, Government of India

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The high growth rate has been supported by healthy Foreign Direct Investment (FDI) inflows. FDI in Electrical Equipments (which includes Electronics) has varied between 17% to 22% of total inflows and is estimated to be US $ 4.2 billion in 2007.

Table 8.1: Production and growth of Indian Electronics and IT Hardware Industry (in Rs. billion)
2002 Consumer Electronics Computers
7

2003 138 43 48 25 66 56 375

2004 152 68 54 28 76 61 438

2005 168 88 48 30 88 83 505

2006 180 108 70 32 88 88 566

2007 200 128 95 45 88 104 660

2008 226 159 187 57 96 119 844

2009 CAGR 260 135 260 68 96 128 947 10.8% 20.8% 28.5% 20.9% 7.7% 16.1% 16.4%

127 36 45 18 57 45 328

Telecom Equipment Strategic Electronics Components Others

8

TOTAL

Table-8.1
Source: Annual Report 2008-09 of Department of Information Technology, Government of India

India exports around 17% of its total electronics hardware production. Exports in FY2008 were Rs.127 billion . Indian Electronics Hardware exports have shown steady growth rates of 15% (CAGR, between FY 2001 to 2008), yet India remains a net importer with electronics imports of over Rs.700 billion in FY 2008.
6

4 5

Also referred to as IT Hardware Mainly consists of the Industrial Electronics 6 ELCINA, Annual Report 2007-08, Department of IT, Government of India

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14 0 120 100 80 60 40 20 0

Electronics Hardware Export in Rs. Billion

Category 1 2006 2007 2008 2009 2010 2011 2012

Graph8.1 Sources: Elcinia

Key segments in the Indian electronics hardware sector

The Indian Electronics and IT Hardware sector has 6 key segments, namely Consumer Electronics, Industrial Electronics, IT Hardware, Telecommunication Equipment, Electronic Components, and Strategic Electronics. Consumer Electronics and Telecom Equipments are the largest segments with about 27% share each in total production. The table in the previous section gives the size and growth rates of individual segments. As can be seen from the figure below, while Consumer Electronics has traditionally been the largest segment, Computers and Telecommunication Equipment have increased their share in the industry in recent times.

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Changing structure of the Indian Electronics and IT Hardware Industry

Graph-8.2 Source: Department of IT and IMaCS analysis

Telecommunication Equipment and IT Hardware are the fast growing segments with CAGR (FY 2002 to 2008) of 21% and 29% respectively. These segments have witnessed high growth rates due to the advent of IT and growth in the Indian Telecom Industry.

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Growth rates of key segments CAGR (FY 2002 to FY 2008)

30 % 25 % 20 % 15 % 10 % 5% 0%

Graph-8.3 Source: IMaCS analysis

The share of the segments in exports has remained largely unchanged from 2003. Electronic components constitute the major proportion of exports with a share of 45% in FY 2008.
Export contribution from various segments

Export 20022003
100%=56 Billion

Componen ts 43 %

Consum er Electroni cs 13 %

Industri al Electroni cs 25% Compute rs 10 %

Communicatio n& Broadcasting Eqpt 9%

Graph-8.4

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Export 20092010

Consum er Electroni cs 12 %

Components 45% Industrial Electroni cs 25 %

Compute rs 13 %

Communicatio n& Broadcasting Eqpt 5%

Graph-8.5

Source: ELCINA

PEST Analysis of Indian Software Industry

The business environment of an industry consists of all the external influences that affect its decisions and performance. Given the vast number and range of external influences, Political, Economic, Social, and Technological or PEST analysis framework provides a system for organizing information regarding external forces that affect the business.

Political:
A. Tax rates in India for the hardware sector is 20%- 30% plus which creates obvious possibilities for the further reform and faster growth. B.10Year Special Economic Zones programs and tariffs change to promote the hardware production. C. 26 new projects as a part of a national E- Government Plan. D. Tax initiative by government to ask state government to fix VAT at 4% in the hope of attracting investors.

E. Manufacturing Associations of IT(MAIT) an Electronic Industry Association of India(ELSINA) are also pressing for reduction in land acquisitions rights by stamp duty

exemptions.

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F. The Indian government as well as the government owned companies have decided to award more IT Projects to Indian IT companies

Economical:
1. Global IT Spending - The recent financial crisis and ensuing recession has led to major firms and banks cut down their IT Spending affecting Industry growth Negative 2. Domestic IT Spending - Indian domestic market grew by 20 % to reach USD 20 billion in 2008 and is poised to maintain this growth rate owing to most government and governmental agencies going in for digitization - Positive 3. Currency Fluctuation - As most of software services are exported, strengthening of Indian Rupee vis-? -vis major currencies such as US Dollar, UK Pound leads to a decrease in profits and vice-versa for companies - Negative 4. Real Estate Prices - There has been a sharp decline in real estate prices, resulting in reduction in Rental expenditure - Positive 5. Attrition - Owing to recession, layoffs and job-cuts have resulted in low attrition rate - Positive 6. Labour Cost - Indian Programming costs are among the lowest in the world, giving a cost advantage - Postive. 7. Government Support - Indian government sees software exports as a major foreign exchange earner, hence provides plenty of support - Positive. 8. In last 18months there is growth in sales in PCs and computer hardware, mainly due to lower prices. 9. But as per the trade cycle rotation there will be a possible slowdown in demand. 10. IT plays a important role in bringing 50% of rural household to the banking innovation. 11. IBM, Dell, Lenovo has announced new investment to expand capacity 12. Compound Annual Growth Rate is 15% between 2005-2010. 13. Due to the depreciation of the Rupee in comparison to Dollar the software an outsourcing has suffered negatively due poor exchange rate . 14. Industry contributes upto 7% in GDP.

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Social:
1. Language Spoken - Indian software staff is comfortable in English language and in doing business in English. 2. Education - large number of technical institutes, colleges and universities all over the country provide IT education. 3. Working age - easy availability of young computer literate staff. 4. Only 1.3% of people in India own a computer. 5. Age Distribution:- 45% of the population is under 25. 6. Regional imbalance and low incomes. 7. Inward Investment can lead to better job opportunities. 8. Still Abroad is the fascination among the IT professionals to work. 9. Major IT companies IBM, Wipro and Infosys recruit 15000-20000 graduates each year. 10. .Business practices varies region wise.

Technological
st 1.Plans by AMD to set up the countrys 1 chip fabrication (an investment upto US$3bn) to stimulate local production and lower prices. 2. Multimedia features and Entertainment to bring bollywood among the masses. 3. Lenovo to built in TV tuner cards capable of connecting to a TV antenna. 4.During the year Satyam entered into an agreement with US based G-LOG, to offer a supply chain management and supply chain execution solutions to its customer.

Industry Structure
The main players - the Indian software industry is dotted with numerous players however, the large firms with more than USD 1 billion of annual revenue are 1.TCS 2.Infosys Technologies 3.Wipro Technologies 4.HCL Technologies 5. Tech Mahindra. These can also be denoted as the Big 5 of Indian software industry landscape.

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Next come the mid-tier firms those whose revenue have been between 500 million to 1 billion dollars. These are 1.EDS Mphasis 2.Patni Computers etc. At the next rung are firms with revenues between 250 million and 500 million dollars. However, the industry landscape is dotted with numerous small firms who perform tasks outsourced by the big 5 firms. These organizations are also the producers of software services.

Customers
The main customers of Indian software industry are United States based Fortune 500 firms, Fortune 5000 firms, companies based in UK, Japan and from other geographies as well. Other big customers include the Indian government and other Indian firms, and agencie s.

Product life cycle analysis

Indian IT Exports - billion so Indian IT market has been able to capture only % in 2009. There Revenue of Indian IT firms have been increasing at Compounded Annual Growth Rate (CAGR) of % from 2001 - 2009. However, as the Total World IT market is - trillion, there is a lot of scope for growth both within the domestic as well as export markets. Hence, we can conclude that the Indian IT industry is in a growth phase .

The Structure of Competition in Industry

The Indian IT industry is in a state of perfect competition with thousands of companies dotting across the country. There are no Entry and Exit barriers. It is easy to enter this industry and exit if the need arises. Product differentiation is low as most players offer similar services, which can be taken to be homogenous. There are no impediments to information flow.

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Segmentation Targeting and Positioning Analysis of Indian Software Industry Segmentation

Market segmentation is a process that segments a market into smaller sub-markets called segments. Segments are to be homogenous or have similar attributes. Purchasing patterns and trends can appear prominently in certain segments. Good market segmentation is to create segments where prominent patterns can emerge. Market segmentation can be used to analyze the following:

Market Responsiveness analysis: useful in direct marketing since responsiveness of

product offerings can be readily available.

Market Trend analysis: Analyzing segment-by-segment changes of sales revenues

can reveal market trends. Trending information is vital in preparing for ever changing markets. Segmentation offers deal with a specific function within the enterprise such as data processing, accounting, human resources, etc. this is the most likely domain for a product or service but must recognize that other domains may also get involved if the purchase of the product or services becomes a high profile decision.

Targeting
The dynamics of IT industry is changing and IT firms are now preparing to meet new challenges. Traditionally Indian ITfirms have been sales from the Americas and Europe but going forward, the CAGRs of these regions will be low whereas the Asian market is expected to grow at a very fast pace and approach the market size of European markets by 2011. The emerging Latin American and Middle East / African markets, though smaller in size are also expected to have a higher CAGR. The growth in Asia-Pacific region is expected to be higher mainly on account of growth in spends in India and China.

pg. 30

Positioning
India has firmed up its position in the Global software industry and global software biggies too are setting up huge R&D facilities in the country. However, as per NASSCOM, India still accounts for only about 2.5% of the global IT market. Over the years, Indian IT companies have established firmly on the global stage. More than two-thirds of fortune 500 companies turn to them for part of their IT and business process outsourcing needs. Some such as Tata Consultancy Services, Infosys Technologies, and Wipro Technologies have become global brands, competing head on with multinational IT service providers.

Porter's 5 Forces Model: I. Threat of Substitutes: MEDIUM

1. Other Software locations such as Eastern Europe, the Philippines and China are emerging and are posing threat to Indian IT Industry owing to their cost advantage. However, this should have an impact from medium to long term. 2. Price quoted for projects is a major differentiator, the quality of products being the same
.

II. Barriers to Entry: LOW

1. Low capital requirements. 2. Large value chain space for small enterprises. 3. MNCs are ramping up capacity and employee strength.

III. Rivalry among firms: HIGH

1. Commoditized offerings. 2. Low-cost, little differentiation positioning. 3. High industry growth. 4. Strong competitors.

pg. 31

IV. Bargaining power of Suppliers: Shift from High to Low

1. Due to slowdown, the job-cuts, the layoffs, and bleak IT outlook. 2. Demand and Supply of IT professionals no longer that favorable to employees. 3. Availability of vast talent pool - freshers and experienced.

V. Bargaining power of Customers: Very High

1. Large number of IT companies vying for IT Projects - resulting in high competition for projects. 2. Huge decline in IT expenditure - Indian IT companies are dependent on United States and on BFSI sector in particular for majority of its revenues, and with the recent financial crisis, new spending from this source has reduced considerably. 3. For existing products and services, the clients continue with the old companies .

Competition Analysis Of IT Industry

Every company seems to be into everything that happened yesterday, today or will happen in the future. All companies are generally present in all geographies, across all industry sectors etc. To top up the challenge, the "asset" of such IT companies are their people, but the employees keep hopping between the competitors and there is hardly anything preventing them from doing so. Some of the factor on which competition can be analyzed in the IT Industry are given below:

1.ENTRY BARRIER - No. 1 Factor deciding industry profitability

Moderate to high switching costs Barriers due to economies of scale especially in the volume business Some barriers due to vertical based competency (BCM / Insurance )

pg. 32

2.Asset specificity:Low. Mainly buildings and facilities. 3.Economies of Scale: Economies of scale important in recruitment, training and staffing,
especially for outsourcing

4.Proprietary Product difference: None - IPR / knowledge base for vertical is the
only differentiator

5.Brand Identity: To a small extent for specific verticals. However not too critical 6.Switching cost: High 7.Capital Requirement: High now, especially for the mid-size and large deals 8.Distribution strength: NA 9.Cost Advantage: High - but available to all. Scale adds to this advantage 10.Government Policy: NA 11.Expected Retaliation: High 12.Production scale:NA 13.Anticipated payoff for new entrant: Moderate at the low end 14.Precommitted contracts: High 15.Learning curve barriers:Moderate 16.Network effect advantages of incumbents:None 17.No. of competitors - Monopoly / oligopoly or intense competition (concentration ratio ): Intense competition
The above analysis clearly shows 2-3 main sources of competitive advantage. Scale is critical in this business as the larger companies tend of have cost advantages due to economies of scale and can also provide the requisite resources for large engagements. In addition, these companies can afford to spend higher amounts on marketing and sales. The second source of advantage is customer relationships (long term contracts). This advantage is not set in stone, but it a very critical asset. For ex: After the scandal, the key value in satyam, was existing client relationships and Mahindra paid for that. Ofcourse this asset does not have as much life as fixed assets and can be lost much more easily.

pg. 33

Figure-8.2

Swot Analysis
1. STRENGTHS
A. Wide Range of Products and Services like Bpos, Software Services, Infrastructure Management which cater into both large and medium size companies. B. Global Coverage in countries like U.S, Europe, Japan etc C. Strong employees base of upto 50000Pax. D. Support sales activities by understanding the customer business better. E. Keep uptodate on what competition is doing. F. Its revenue has increased from 60.7bn in 2007 from 114bn in2009 which shows its increasing trend.

pg. 34

1. WEAKNESS
A.One of the key weakness of HCL is that it has lost projects in continuation like recently BFSI cuts projects. B. HCL has always a weakness in TIER1 sectors. C. Total asset turnover is one of the weakness of HCL as they has always failed to materialize its assets in right direction. D. Lack of innovation and distribution network especially in case of laptops has reflected HCLs weakness.

1. OPPORTUNITIES
A. Acquisitions:-HCL has already done 3 major acquisitions like Liberta. This enables them to expand and create opportunity for them to wide there spectrum. B. Key opportunities lies in the countries like Eastern Europe and APAC(Asia-Pacific Region). C. Mid Market segment is the opportunity area as against fortune200 companies. D. Opportunity of doing better on return on equity from 21.42% by beating satyam(26.08%) E. Increasing its market share from 9.8% vs 19.7%(HP)

1. THREATs
A. One of key threat for HCL and the industry as a whole is the ban of outsourcing from India due to new regulations from U.S B. Dip in quarterly Sales by 5% can lead to loss of market share and product depreciation. C. Small Players and manufactures are trying to enter into the segment where they can provide much cheaper products then HCL which will be a rising competition for HCl to stand.

pg. 35

INTER COMPANY RATIO ANALYSIS OF ANSALS HOUSING & CONSTRUCTION LTD. AND OMAXE LTD. 1) CURRENT RATIO CURRENT RATIO = current assets / current liabilities

CURRE NT Ratio
Hcl Infosystem Hewlet tPackar

2011 1.8 1.01

2010 2.02 1.1

2009 1.79 1.22

1.5 1 0.5 0 2011 2010 2009 2008 2007

HCL Infosyste m Hewlett Packard

Graph-9.1 Table-9.1 INTERPRETATION: Hcl Infosystem has too high current ratio; which may mean that the co. is unable to utilize its current assets efficiently. Whereas,HP. has been successful in maintaining an ideal current ratio; somewhere between 1 and 1.5. In Hp, the change in ratio is entirely due to change in cash balances, but HCL Infosystem is going for a radical change in all the areas of current assets i.e. inventories, debtors, cash, going for all kind of experimentations which shows management is effectively valuing effect of every component. 2.QUICK RATIO QUICK RATIO = (current assets- stock- prepaid expenses) / current liabilities
2

Quick Ratio Hcl Infosystem Hewlet tPackar

2011 2010 2009 2008 2007

1.5 1

1.46

1.2

1.01

1.05

0.92

0.5 0

HCL Infosyste m Hp 2011 2010 2009 2008 2007

0.58

0.98

1.11

0.88

1.09

Table-9.2

Graph-9.2

INTERPRETATION: For HCL Infosystem the Quick Ratio is always greater than 1. This

shows that the most liquid assets of the company are just not enough to pay off its debt. If

pg. 36

we compare the ratio for HP its decreasing from 2007 to 2011 but for HCL Infosystem its keeps on increasing in each passing year from 2007-2011. 3.CASH RATIO

CASH RATIO = cash & cash equivalents / current liabilities

0.08 0.06 2011 2010 2009 Hcl Infosystem Hp

2011 HCL Infosystem HP 0.01 1 0.02 Table-9.3 0

2010 0.02 7 0.07 5

2009 0.018 0.134 4

0.04 0.02 0

Graph-9.3

INTERPRETATION: As such, there are no common norms for cash ratio but a cash ratio of more than 0.2 is considered to be good. However, it should not be very high as it would mean that the company is holding excess cash which may make the co. lose out on its profitability. Here, both the cos. don't have enough cash resources with them, but HP would still be a better choice than HCL Infosystem as its position in terms of the cash ratio is better among the two and it also shows an increasing trend. Current liabilities of both the companies are increasing which means no special change in the strategies for maintaining liabilities. 4.NET PROFIT MARGIN NET PROFIT MARGIN = (Profit after tax / Net Sales)*100

pg. 37

15

2011 HCL HP 7.623 % 11.132 %

2010 9.494 % 8.612 %

2009 8.819 % 5.294 %

10 5 0 2011 2010 2009 HC L HP

Table-9.4

Graph-9.4

INTERPRETATION: If we talk of 2009, the position of HP was better than HCL But gradually, the net profit margin of HP declined to a great extent whereas HCL showed improvements in its net profit margin. Also, the reason for this sharp decline after 2010 can be attributed to the ripple effect of the economic slowdown of 2007-08, but still HCL stands to be at a better position in 2011.Inspite of decreasing administrative expenses & interest expenses, HP net profit margin is shrinking which means that sales have increased but profit margin has decreased showing they are trying to survive competition and reducing prices as strategy. Whereas HCL net profit margin has increased inspite of increased selling expenses which means they are going for effective management strategies. 5.RETURN ON ASSETS ROA = (EBIT / average total assets)*100
15

2009 HCL HP 9.332 % 6.345 %

2010 12.987 % 6.097 %

2011 12.311 % 6.380 %

10 5 0 HCL HP

2009 2010 2011

INTERPRETATION: There have not been significant changes in the return on assets in case of HP But if we see HCL ,it stands at a better position because of its increasing ROA. Its ROA increased due to increasing EBIT and another reason can be the reduction in the maintenance cost of the assets.

pg. 38

6.RETURN ON EQUITY ROE = (Profit after tax / shareholders' funds)*100

2009

2010

2011

10 8 6 4 2 0 HCL HP 2009 2010 2011

HCL

6.686 % 6.251 %

7.580 % 5.120 %

8.973 % 4.285 %

HP

Table-9.6

Graph-9.6

INTERPRETATION:Returns on equity shares are increasing in case of HCL which is a good sign as it would be easier for the co. to raise additional funds if need be, and also it is profitable for the equity shareholders. Whereas, HP needs to worry as the equity

shareholders can quit their shares and question the company's management for decreasing ROA. 7.WORKING CAPITAL TURNOVER RATIO WORKING CAPITAL TURNOVER RATIO = Net Sales / Average working capital

2009

2010

2011

HCL

0.45 3 0.26 Table-9.7 7

0.41 3 0.30 0

0.538

0.6 0.5 0.4 0.3 0.2 0.1 0 HCL H

2009 2010 2011

HP

0.449

Graph-9.7

INTERPRETATION: The working capital turnover ratio for HP. has been on an increasing trend which shows that the co. has been able to utilize its working capital o r net current assets efficiently.HCL ., though at a better position in terms of this ratio, has not shown an improvement as good as HP and therefore may need to worry as its competitor might outperform it in the future. P P

pg. 39

8.FIXED ASSETS TURNOVER RATIO FIXED ASSETS TURNOVER RATIO = Net Sales / Average net fixed assets
50

2009 HCL HP 7.86 1 27.46 9

2010 6.82 8 31.77 3

2011 8.038 43.82 1

40 30 20 10 0 HCL Hp 2009 2010 2011

Table-9.8

Graph-9.8 INTERPRETATION: HCL has shown a stable trend in terms of the turnover from its fixed assets. But HP far outperforms it as its fixed assets turnover ratio is not only much higher than HCL but is also increasing; which means that the co. is managing its fixed assets really efficiently. On the other hand, HCL may be lacking in this respect; with its fixed assets either remaining idle or the management not being able to generate maximum benefit from their usage. 9.DEBTORS TURNOVER RATIO

DEBTORS TURNOVER RATIO = Net credit sales / average debtors

2009 HCL HP 3.13 1 14.30 5

2010 3.51 0 6.98 0

2011 4.627 4.494 4

20 10 0 2009 2010 2011 HC L HP

Table-9.9

Graph-9.9

INTERPRETATION:The efficiency of HP is decreasing drastically in terms of its collections from receivables. On the other hand,HCL shows an increasing trend in terms of the debtors turnover ratio; which means that their ability to collect money from their debtors is gradually increasing (a good sign). This also reduces its chances to depend on outside financing as the funds required would already be available by means of collections

pg. 40

from debtors. Also, they may have funds with them for a longer period of time; which can be used for financing their day-to-day operations. 10.CASH TURNOVER RATIO CASH TURNOVER RATIO = Net sales / average cash & cash equivalents
20 15 10 5 0 HCL HP

Mar-09 HCL HP 10.86 8 4.76 1

Mar-10 16.09 9 6.09 8

Mar-11 17.25 3 7.989

2009 2010 2011

Table-9.10

Graph-9.10

INTERPRETATION:Both HCL and HP have shown an increasing trend in terms of the cash turnover ratios; which means that the ability of the companies in terms of efficiently utilizing its cash resources is increasing. But, HCL stands at a better position when the two companies are compared. Also, the turnover from cash for HP., inspite of increasing, is not as good as its competitor; the reason for which might be idle cash resources which are not being put into the most profitable channels. 11.DEBT-EQUITY RATIO DEBT EQUITY RATIO = total debt / shareholders' funds
1.5

2009 HCL HP 1.16 1 1.26 Table-9.11 1

2010 1.13 7 1.13 3

2011 1.06 2 0.89 4

1 0.5 0 HCL HP

2009 2010 2011

Graph-9.11 INTERPRETATION:The debt-equity ratio of both HCL and HP are decreasing; showing that the dependence of the companies on debt finance is decreasing and consequently

pg. 41

reduced interest payments; which can be the result of the cos. paying their debt gradually. But if both the companies are compared, HP has a better debt equity ratio with each passing year. 12.INTEREST COVERAGE RATIO

INTEREST COVERAGE RATIO = EBIT / Interest expenses

2

2009 2010 2011 HCL HP

Mar-09 Mar-10 Mar-11

0

HCL HP

1.85 1 1.74 3

1.57 5 1.76 3

1.921 1.783

Table-9.12

Graph-9.12

INTERPRETATION: When a company's interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1.0 indicates the business is having difficulties generating the cash necessary to pay its interest obligations. This ratio for both the cos. has been good enough. But, the interest coverage ratio for HCL has been better than HP except for the year 2009-10. 13.DEBT RATIO DEBT RATIO = Total debt / Total assets
0.6

2009

2010

2011

0.55 0.5 2009 2010 2011 HC L HP

HCL

0.53 7 0.55 8

0.53 2 0.53 1

0.515

0.45 0.4

HP

0.472

Table-9.13

Graph-9.13

INTERPRETATION: If the ratio is less than 0.5, most of the company's assets are financed through equity. If the ratio is greater than 0.5, most of the company's assets are

financed through debt.

pg. 42

Maximum normal value is 0.6-0.7. Here, for both the companies, this ratio has been around 0.5; showing that most of the assets of both the companies have been financed through equity and thus, also indicates an opportunity to borrow in the future at no significant risk.

IN T RO DUCTIO N T O WO RKING CA PITA L

Working Capital is the Life-Blood and Controlling Nerve Center of a business
The working capital management precisely refers to management of current assets. A firms working capital consists of its investment in current assets, which include shortterm assets such as:

Cash and bank balance Inventories Receivables (including debtors and bills) Marketable securities Working capital is commonly defined as the difference between current assets and current liabilities. WORKING CAP ITAL = CUR RE NT ASSE TS-CURRE NT LIABILITIE S There are two major concepts of working capital: 1.Gross working capital 2.Net working capital

Gross working capital:

It refers to firm's investment in current assets. Current assets are the assets, which can be converted into cash with in a financial year. The gross working capital points to the need of arranging funds to finance current assets.

pg. 43

N et capital:

working

It refers to the difference between current assets and current liabilities. Net working capital can be positive or negative. A positive net working capital will arise when current assets exceed current liabilities. And vice-versa for negative net working capital. Net working capital is a qualitative concept. It indicates the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of funds. Net working capital also covers the question of judicious mix of longterm and short-term funds for financing current assets.

Significance Of Working Capital Management

The management of working capital is important for several reasons:
For one thing, the current assets of a typical manufacturing firm account for half of its total assets. For a distribution company, they account for even more. Working capital requires continuous day to day supervision. Working capital has the effect on company's risk, return and share prices.There is an inevitable relationship between sales growth and the level of current assets. The target sales level can be achieved only if supported by adequate working capital Inefficient working capital management may lead to insolvency of the firm if it is not in a position to meet its liabilities and commitments.

L IQU IDITY V S PROFITABIL ITY: RIS K - RETU RN TRADE OFF

Another important aspect of a working capital policy is to maintain and provide sufficient liquidity to the firm. Like the most corporate financial decisions, the decision on how much working capital be maintained involves a trade off- having a large net working capital may reduce the liquidity risk faced by a firm, but it can have a negative effect on the cash flows. Therefore, the net effect on the value of the firm should be used to determine the optimal amount of working capital. Sound working capital involves two fundamental decisions for the firm. They are the determination of:

pg. 44

1.The optimal level of investments in current assets. 2.The appropriate mix of short-term and long-term financing used to support this investment in current assets, a firm should decide whether or not it should use short-term financing. If short-term financing has to be used, the firm must determine its portion in total financing. Short-term financing may be preferred over long-term financing for two reasons: The cost advantage Flexibility But short-term financing is more risky than long-term financing. Following table will summarize our discussion of short-term versus long-term financing.

Figure-10.1

Maintaining a policy of short term financing for short term or temporary assets needs (Box 1) and long- term financing for long term or permanent assets needs (Box 3) would comprise a set of moderate risk profitability strategies. But what one gains by following alternative strategies (like by box 2 or box 4) needs to weighed against what you give up.

pg. 45

CLASSIFICATION OF WORKING CAPITAL

Working capital can be classified as follows: 1.On the basis of time 2.On the basis of concept

TYP E S O F W O RK I NG CA PIT A L NE E DS
Another important aspect of working capital management is to analyze the total working capital needs of the firm in order to find out the permanent and temporary working capital. Working capital is required because of existence of operating cycle. The lengthier the operating cycle, greater would be the need for working capital. The operating cycle is a continuous process and therefore, the working capital is needed constantly and regularly. However, the magnitude and quantum of working capital required w i l l not be same al l the times, rather it will fluctuate.The need for current assets tends to shift over time. Some of these changes reflect permanent changes in the firm as is the case when the inventory and receivables increases as the firm grows and the sales become higher and higher. Other changes are seasonal, as is the case with increased inventory required for a particular festival season. Still others are random reflecting the uncertainty associated with growth in sales due to firm's specific or general economic factors. The working capital needs can be bifurcated as: 1.Permanent working capital 2.Temporary working capital

Permanent working capital:

There is always a minimum level of working capital, which is continuously required by a firm in order to maintain its activities. Every firm must have a minimum of cash, stock and other current assets, this minimum level of current assets, which must be maintained by any firm a l l the times, is known as permanent working capital for that firm. This amount of working capital is constantly and regularly required in the same

pg. 46

way as fixed assets are required. So, it may also be called fixed working capital.

Temporary working capital:

Any amount over and above the permanent level of working capital is temporary, fluctuating or variable working capital. The position of the required working capital is needed to meet fluctuations in demand consequent upon changes in production and sales as a result of seasonal changes.

Figure-10.2 The permanent level is constant while the temporary working capital is fluctuating increasing and decreasing in accordance with seasonal demands as shown in the figure.

In the case of an expanding firm, the permanent working capital line may not be horizontal. This is because the demand for permanent current assets might be increasing (or decreasing) to support a rising level of activity. In that case line would be rising.

FINANCING OF WORKING CAPITAL

There are two types of working capital requirements as discussed above. They are: 1.Permanent or Fixed Working Capital requirements 2.Temporary or Variable Working Capital requirements Therefore, to finance either of these two working capital requirements, we have

pg. 47

long-term as well as short-term sources.

FACTORS DETERMINING WORKINGCAPITAL REQUIREMENTS

There are many factors that determine working capital needs of an enterprise. Some of these factors are explained below:

Nature or Character of Business.

The working capital requirement of a firm is closely related to the nature of its business. A service firm, like an electricity undertaking or a transport corporation, which has a short operating cycle and which sells predominantly on cash basis, has a modest working capital requirement. Oh the other hand, a manufacturing concern like a machine tools unit, which has a long operating cycle and which sells largely on credit, has a very substantial working capital requirement. HCL Infosystems carry on activities related to computer systems. Though they are primarily an assembling firm they also have manufacturing facilities in Chennai and Pondicherry. This requires them to keep a very sizeable amount in working capital.

Size of Business/Scale of Operations.

HCL is the leader in its segment in both consumer as well as commercial market share. They have increased their share in the consumer segment notably in the last four years. This they have achieved through retail expansion. The scale of operations and the size it holds in the Indian IT market makes it a must for them to hold their inventory and current asset at a huge level.

pg. 48

Graph-10.1 Rate of Growth of Business.

The rate of growth of sales indicates a need for increase in the working capital requirements of the firm. As the firm is projected to increase their sales by 80% from what it was in 2006, it is required to guard them against the increasing requirements of the net current asset by way of efficient working capital management. The sales and projected sales level determine the investment in inventories and receivables.

pg. 49

HCL Infosystems Limited

2008

2007

2006

2005

2004

Gross Sales/Income from Operations in Rs Crore Price Level Changes.

3400

2833

2381

1967.37 1522.03

Table-10.1

Changes in the price level also affect the working capital requirements. It was the reduced margins in the price of the raw materials that had prompted them to go for bulk purchases thus making on additions to their net current assets. They might have gone for this large-scale procurement for availing discounts and anticipating a rise in prices, which would have meant that more funds are required to maintain the same current assets.

SOURCES OF WORKING CAPITAL

HCL Infosystems has the following sources available for the fulfillment of its working capital requirements in order to carry on its operations smoothly:

Banks:
These include the following banks State Bank of India Canara Bank HDFC Bank Ltd. ICICI Bank Ltd. Societe Generale Standard Chartered Bank State Bank of Patiala State Bank of Saurashtra

Commercial Papers:
Commercial Papers have become an important tool for financing working capital

pg. 50

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

WORKING CAPITAL POSITION

CURRENT ASSET TOTAL ASSET PARTICULARS CURRENT ASSETS in Crore NET BLOCK In Crore TOTAL ASSETS in Crore CA/TA 7970 122479 82.44 5329 99139 82.24 4925 87076 62.12 4954 71285 63.18 5552 75205 74.43 2006 100970 2005 81533 2004 54091 2003 45042 2002 55985

Table-10.2
The current asset percentage on total asset is the highest over the years. This increasing percentage of current assets to the total assets at first might indicate a preference for liquidity in place of profitability, but a look into the nature of the business carried on by HCL Infosystems reveal the reason behind it. How far their preference to current assets has affected the sales is shown below.

NET CURRENT ASSET SALES PARTICULARS NET CURRENT ASSETS in Crores SALES in crores 2006 40343 2005 34742 2004 14301 2003 18752 2002 27065

238136

199886

154295

166604

127003 pg. 51

WORKING in Crores 16.12 Sales % increase 19.14

142.93 29.54
Table-10.3

-23.736 -7.38

-30.7 31.18

-0.46 8.7

The sales has increased and the profits risen despite the 16.12% increase in working capital. But what is noteworthy here is that the firm has managed to maintain the trend of an increase in net current assets. Whether the change has worked for the company has to be analysed in the context of the growth in sales as compared to the previous year. There has been a 19.14% rise in the sales or revenue generated. This would automatically suggest towards a very efficient working capital management where the assets of the firm which are short-term in nature have been utilized optimally in connection to their fixed assets. The firm has gone towards such a dramatic shift in their working capital position might be because of the tremendous growth witnessed in the domestic IT market.

CURRENT ASSET FIXED ASSET PARTICULARS NET CA/NET BLOCK 2006 5.062:1 2005 6.519:1 2004 2.903:1 2003 3.785:1 2002 4.875:1

Table-10.4 The ratio of the net current asset to the fixed ones is an indicator as to the liquidity position of the firm. This ratio has declined for the firm compared to the previous year. There could be an argument as to whether the increased ratio of working capital to net block is a conservative policy and whether it would be detrimental to the interest of the company. Or, whether it would have been proper if the company invested more into the capital expenditure in the form of plant and machinery or invested in any other form that would have got them an internal rate of return. What has to be kept in mind before coming to a conclusion as to the policy of the company, is the fact that the firm being primarily into assembling, its investment in the fixed asset segment need not be high. A look into the capacity utilization of the plant would reaffirm this point. It would be ideal for the firm to continue in the same line and not have excessive investment in the fixed asset as they can easily add onto this part.

pg. 52

COMPUTER and MICRO PROCESSOR BASED SYSTEMS YEAR 2006 2005 2004 INSTALLED CAPACITY 1150000 600000 525000 ACTUAL PRODUCTION 581805 448121 295192 Table-10.5 % CAPACITY UTILIZATION 50.59 74.69 56.23

DATA GRAPHIC/DISPLAY MONITOR/TERMINALS/HUBS YEAR 2006 2005 2004 INSTALLED CAPACITY 250000 25000 35000 ACTUAL PRODUCTION 267326 259617 297991 % CAPACITY UTILIZATION 106.93 103.85 85.14

Table-10.6 That the fixed assets of the firm are being put to efficient use and the firm is trying for optimum capacity utilization is something that can be easily deduced. Whether the current assets or the working capital of the firm has anything to do with it is for us to see. An increased production in normal circumstances means better raw material to finished goods conversion rate, i.e. the firm is taking less of time in the production process and this happens when the current asset employed in relation with the fixed ones are at optimum. The other notable feature here is that though the firm has added on to its installed capacity in all three years, they were still able to increase the capacity utilization. That they have been able to do it shows that the more current assets,

especially inventory used in relation to the fixed assets, i.e., plant and machinery and their management has only helped in increasing their utilization to the maximum.

pg. 53

CURRENT ASSET CURRENT LIABILITY PARTICULARS CURRENT ASSETS in Crores CURRENT LIABILITES in Crores % CURRENT ASSETS INCREASE %CURRENT LIABILITES INCREASE Gross Working Capital Net Working Capital 2006 100970 60627 23.84 29.57 100970 40343
Table-10.7 The 16.12% increase in Net Current assets despite of the fact that there has been an increase in the Current Assets by 23.84% and increase in Current Liability has been by 29.57% over that of the previous year has to be attributed to the fact that in 2005, the company showed such a high increase in CA, that it is still being offset. This is an indication as to the expanding operations of the firm. HCL has increased its current assets in order to meet the increasing sales. The firms level of liquidity being high, we need a check on whether it affects the return on assets.

2005 81533 46791 50.7 17.6 81533 34742

2004 54091 39790 20.09 51.35 54091 14301

2003 45042 26290 -19.54 -9.1 45042 18752

2002 55985 28920 8.9 19.45 55985 27065

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

Nature of Inventories:Inventories are stock of the product of the

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

pg. 54

Raw Material: It is the basic input that is converted into the finished product through
the manufacturing process. Raw materials are those units which have been purchased and stored for future production.

Work-in-progress: Inventories are semi-manufactured products. They represent

product that need more work they become finished products for sale.

Finished Goods: Inventories are those completely manufactured products which are
ready for sale. Stocks of raw materials and work-in- progress facilitate production, while stock of finished goods is required for smooth marketing operations. Thus, inventories serve as a link between the production and consumption of goods.

Inventory Management Techniques

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

Economic Order Quantity (EOQ): The major problem to be resolved is how

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

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

pg. 55

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

Carrying Costs: Costs are incurred for maintaining a given level of inventory are
called carrying costs. These include the following activities: Warehousing Cost Handling Administrative cost Insurance Deterioration and obsolescence Carrying costs are varying with inventory size. This behavior is contrary to that of ordering costs which decline with increase in inventory size. The economic size of inventory would thus depend on trade-off between carrying costs and ordering cost.

Composition Raw Material Stores and Spares Finished Goods Work-in-progress

Table-10.8

2006 6349 3713 13374 595

2005 7749 2987 7245 784

2004 6127 2622 6506 871

The increasing component of raw materials in inventory is due to the fact that the company has gone for bulk purchases and has increased consumption due to a fall in prices and reduced margins for the year. Another reason might be the increasing sales, which might have induced them to purchase more in anticipation of a further increase in demand of the product. And the low composition of work-in-progress is understandable as because of the nature of the business firm is involved in. To the question as to whether the increasing costs in inventory are justified by the returns from it the answer could be found in the HCL retail expansion. HCL caters to

pg. 56

the need of the two separate segments: a) Institutions for which they manufacture against orders and, b) b) Retail segment of the market. They are more into retail than earlier and at present more than 650 retail outlets branded with HCL sign ages and more are in the pipeline The company in order to meet its raw materials requirements could have gone for frequent purchases, which would have resulted in lesser cash flows for the firm rather than the high expenditure involved when procuring in at bulk. The reason why the firm has gone for these bulk purchases because of the lower margins and the discounts it availed because of procuring in bulk quantities. A negative growth in WIP could be because: a) The time taken to convert raw materials to finished goods is very minimal b) This is also due to capacity being not utilized at the optimum.

ABC System: ABC system of inventory keeping is followed in the factories.

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

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

pg. 57

The levels of safety stock usually vary according to the usage.

Conversion Periods
Raw Materia l

Particulars Raw Material Consumption Raw Material Consumption/day Raw Material Inventory Raw Material Holding Days
Table-10.9

2006 121077 332 7072 21

2005 97971.31 268.41 6960.275 25.93

2004 57775.14 158.28 4364.735 27.57

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

Work-in-progress Particulars Cost of Production Cost of Production/day Work in progress inventory WIP Holding days
Table-10.10 The work-in-progress holding time is important for a firm in the sense that it determines the rate of time at which the production process will be complete or the finished goods will be ready for disposal by the firm. The firm as it is in the process of assembling should take the least possible time in conversion to finished goods unlike a hard core manufacturing firm, as any firm would like to have its inventory in the work-in-progress at the minimum. There would also be less of stock out costs as due to better conversion rates the firm is able to meet the rise in demand situations. More the time it spends lesser its efficiency would be in the market. Here the firm has been able to bring down its WIP conversion periods.

2006 191911 525.78 689.5 1.31

2005 159651.19 437.4 827.52 1.89

2004 113500.33 310.95 679.455 2.19

pg. 58

Finished Goods Particulars Cost of goods sold Cost of goods sold/day Finished goods inventory Finished goods inventory Holding days
Table-10.11 The time taken for the firm to realize its finished goods as sales has increased as compared to last year. This growth in sales could be traced back to the growing domestic IT market for the commercial as consumer segment in India. HCL has around 15% of the market in desktop and it is the market leader in this segment. So it is only natural that they are able to better their conversion rate of finished goods to sales.

2006 228177 625 10310 16

2005 178438.85 488.87 6875.725 14.06

2004 124768.92 341.832 5026.505 14.8

Operating Cycle Particulars Inventory conversion period Average collection period Gross operating cycle Average payment period Operating cycle
Table-10.12 The operating cycle of the firm reveals the days within which the inventory procured gets converted to sales or revenue for the firm. This time period is of importance to the firm as a lag here could significantly affect the profitability, liquidity, credit terms, and the policies of the firm. All the firms would like to reduce it to such extend that their cash inflows are timely enough to meet their obligations and support the operations. That the firm has been able to reduce the ratio is in itself an achievement as they were having huge stocks of inventory. But the reduction in the cycle could also be attributed to the boom in the market and the growth it is expected to reach. This boom automatically ensures the demand for the finished goods and thus helping in it to garner sales for the firm.

2006 38 70 108 22 86

2005 42 63 105 23 82

2004 45 66 111 17 94

pg. 59

Raw Material Consumption Particulars Imported Indigenous % Imports

Table-10.13 A major chunk of the imports come from Korea and Taiwan and is purchased in US$. The value of imported and indigenous raw material consumed give a clear picture that if there is a change in the EXIM policy of the government it is bound to affect the company adversely as more than 70% of their consumption is from imports. But this is the scenario witnessed in the industry as a whole and though HCL is into expanding its operation to Uttaranchal it in the present state is would be affected by a change in the import duty structure. A major chunk of their current assets are in the form of inventory and the change in technology will invariably be a threat faced by the firm. The question of technology applying here like says a certain device going say out of fashion or outdated. For e.g. TFT monitors being in demand more than CRT.

2006 92007 29070 75.99

2005 70784.2 7 27187.0 4 72.25

2004 42129.63 15645.51 72.92

CASH MANAGEMENT
SOURCES OF CASH: Sources of additional working capital include the following:
Existing cash reserves Profits (when you secure it as cash!) Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit. Long-term loans If you have insufficient working capital and try to increase sales, you can easily over-stretch the financial resources of the business. This is called overtrading.

pg. 60

Early warning signs include:

Pressure on existing cash Exceptional cash generating activities e.g. offering high discounts for early cash payment Bank overdraft exceeds authorized l imi t . Seeking greater overdrafts or lines of credit Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies Management pre-occupation with surviving rather than managing Frequent short-term emergency requests to the bank (to help pay wages, pending receipt of a cheque).

CASH MANAGEMENT IN HCL INFOSYSTEMS:

The cash management system followed by the HCL Infosystems is mainly lock box system. Cash Management System involves the following steps: 1. The branch offices of the company at various locations hold the collection of cheques of the customers. 2. Those cheques are either handed over to the CMS agencies or bank of the particular location take charge of whole collection. 3. These CMS agencies or bank send those cheques to the clearing house to make them realized. These cheques can be local or outstation. 4. The CMS agencies or bank send information to the central hub of the company regarding realization/cheque bounced. 5. The central hub passes on the realized funds to the company as per the agreed agreements. 5. The CMS agencies or concerned bank provides the necessary MIS to the company as per requirement. In cash management the collect float taken for the cheques to be realized into cash is irrelevant and non-interfering because banks such as Standard Chartered, HDFC and

pg. 61

CitiBank who give credit on the basis of these cheques after charging a very small amount. These credits are given to immediately and the maximum time taken might be just a day. The amount they charge is very low and this might cover the threat of the cheque sent in by two or three customers bouncing. Even otherwise the time taken for the cheques to be processed is instantaneous. Their Cash Management System is quite efficient.

Cash-Current Liability Particulars Absolute Liquid Ratio

Table-10.14 The absolute liquid ratio is the best for three years and the cash balances as to the current liability has improved for the firm. Firm has large resources in cash and bank balances. While large resources in cash and bank balances may seem to affect the revenue the firm could have earned by investing it elsewhere as maintenance of current assets as cash and in near cash assets and marketable securities may increase the liquidity position but not the revenue or profit earning capacity of the firm.

2006 0.24:1

2005 0.31:1

2004 0.11:1

Dividend Policy-Cash Particulars Dividend Policy% Shift in Sales Cash Balance Cash in Hand
Table-10.15

2004 210 154295 4463.43 118.33

2005 310 199886 14582.65 128.97

2006 400 238136 14529.29 128.97

pg. 62

Graph-10.2

Graph-10.3

The other notable feature in HCL statements has been the growing dividend policy of the firm. The payment of dividend means a cash outflow. Thus cash position is an important criterion at the time of paying dividends. There is a theory that greater the cash position and ability to pay dividends. The firm has adopted a policy of disbursing the revenue earned as profits to the shareholders as dividends as could be seen from the increasing % of dividends declared.

pg. 63

Particulars PBIDT Equity Dividend%

Table-10.16

2006 14284 400

2005 15634 310

2004 14523 210

This could mean two things for the firm the amount of cash retained in the business for capital expenditure purposes are minimal or nil. But rather than investing more in plant and machine which they can at any point in time by adding on a additional line if need they would like to optimize their utilization in fixed assets at present. This also means that the percentage of cash in hand maintained by the firm as a source of liquidity could be reduced, i.e. the amount of idle cash in the business could be made to a level which the firm feels optimum. The firm feels that they should retain cash and it would be in the interest of the firm as well as the shareholders. This would automatically mean as decrease in Earning/share (EPS)(Basic EPS declined from 8 in 2005 to 6.74 in 2006). It would prompt more of investors being interested in the shares of the company, which would boost the purchase of the securities and increase the market price/share thus being beneficial for the firm.

Cash Flows Cash Flows Net Cash from Operating activities Net Cash from Investing activities Net Cash from Financing activities
Table-10.17 The firm has disposed of investments worth around 655 Crores to meet its growing needs. The other notable feature is decline is the firms inflows from operations primarily due to the reason that the cash generated from the operations is the lowest in three years. And the firms growing dividend policy has contributed to the outflows in financing activities.

2006 6924 -3515 -3512

2005 2675.57 15661.29 -8217.68

2004 13706.34 -2169.16 -11412.1

pg. 64

Cash Flow in Operating Activities Working Capital Changes Working Capital Changes Trade and other receivables Inventories Trade Payables and other Liabilities 2006 -14166 -5221 13026 2005 -14510.69 -2683.92 6419.13 2004 -7106.68 -7221.11 14311.5

Table-10.18 The cash from the operation has been subject to considerable change due to the changes that could be adjusted towards trade receivables and trade payables. The outflows in inventory have become as low as 37% of what it was last year despite an increase in the inventory consumption by 16.64%. The resulting reduction in the cash outflows might be because of the inventories being procured more on credit. That the cash from operations has declined has affected the current liability index of the firm.

Cash Flow in Investing Activities Investments in Mutual Funds Investments (year end) Purchase of Investment Disposal/Redemption of Investment 2006 13539 -65992 65312 2005 12277.44 -53075.99 65489.84 2004 28059.88 -59249.81 52087.36

Table-10.19 The investments have reduced from the last year due to the redemption of investments taken place to meet various needs such as increasing demand in stock or inventory and to ensure better credit and receivables policy. We can see that the firm has in these three years increased their cash inflow from the investing activities by way of disposal of investments when in need. That is the firm has redeemed to realize cash as to meet its expanding operations, fund the inventory procurement and meet the obligations. The investments in mutual funds are beneficial to the firm in the context that they contain interest bearing securities which add up as a source of revenue for the firm unlike cash which remains idle and unproductive when not in use. This reduction of dividend could be attributed to disposal of investments in mutual funds and subsidiary. This disposal creates a fund, which can be used by the company as and when the need arises.

Cash vs. Marketable Securities

The investment in marketable securities rather than having large cash balances in

pg. 65

something that has been given thought for by the firm. This is because while a firm gets revenue in the form of interests by investments, it actually has to pays certain amount money to the banks for maintaining current accounts and fixed deposits usually have a longer maturity period. That is, the problem with high investments is that the opportunity to earn is lost, thus a firm has to maintain an optimal cash balance. But the investment in mutual funds or other marketable securities might create a problem of investment, as they might not be readily realizable as say liquid cash or the amount deposited in the current account. The investments in say fixed assets say may earn a fixed rate of interest but they have a maturity period attached to them. In HCL, Standard Chartered is the concentration bank in which all the inflows from the deposit banks are concentrated and passed on to the disbursement banks for further disbursement.

Liquid Cash Balance

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

Instruments Used
The instrument used here are primarily cheques comprising of around 97% of what is used in. The rest 2-3% comprise of the letters of credit. Thus working capital is the lifeline for every business. The main advantages of sufficient working capital are: It helps in prompt payment

Ensures high solvency in the company and good credit standing.

Regular supply of material and continuous production. Ensures regular payment of salaries and wages and day to day commitments.

RECEIVABLES MANAGEMEN T
Cash flow can be significantly enhanced if the amounts owing to a business are collected faster. Every business needs to know.... who owes them money.... how much is owed.... how long it is owing.... for what it is owed.

pg. 66

Late payments erode profits and can lead to bad debts.

Slow payment has a crippling effect on business; in particular on small businesses whom can least afford it. If you don't manage debtors, they will begin to manage your business as you w il l gradually lose control due to reduced cash flow and, of course, you could experience an increased incidence of bad debt.

The following measures will help manage your debtors:

1. Have the right mental attitude to the control of credit and make sure that it gets the priority it deserves. 2. Establish clear credit practices as a matter of company policy. 3. Make sure that these practices are clearly understood by staff, suppliers and customers. 4. Be professional when accepting new accounts, and especially larger ones. 5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank references, industry sources etc. 6. Establish credit limits for each customer and stick to them. 7. Continuously review these limits when you suspect tough times are coming or if operating in a volatile sector. 8. Keep very close to your larger customers. 9. Invoice promptly and clearly. 10. Consider charging penalties on overdue accounts. 11. Consider accepting credit /debit cards as a payment option. 12. Monitor your debtor balances and aging schedules, and don't let any debts get too old. Recognize that the longer someone owes you, the greater the chance you w i l l never get paid. If the average age of your debtors is getting longer, or is already very long, you may need to look for the following possible defects. Poor collection procedures. Lax enforcement of credit terms. Slow issue of invoices or statements. Errors in invoices or statements.

pg. 67

 Customer dissatisfaction. Weak credit judgement.

Debtors due over 90 days (unless within agreed credit terms) should generally demand immediate attention. Look for the warning signs of a future bad debt. For example.. 1. Longer credit terms taken with approval, particularly for smaller orders. 2. Use of post-dated checks by debtors who normally settle within agreed terms. 3. Evidence of customers switching to additional suppliers for the same goods. 4. New customers who are reluctant to give credit references. 5. Receiving part payments from debtors.

Profits only come from paid sales.

The act of collecting money is one, which most people dislike for many reasons and therefore put on the long finger because they convince themselves that there is something more urgent or important that demand their attention now. There is nothing more important than getting paid for your product or service. A customer who does not pay is not a customer.

HERE ARE FEW WAYS IN COLLECTING DEBTORS: 2.Track and pursue late payers 3.Get external help if you own efforts fail.

MONEY

FROM

1.Develop appropriate procedures for handling late payments.

Dont feel guilty asking for money .. its yours and you are entitled to it. Make that call now. And keep asking until you get some satisfaction. In difficult circumstances, take what you can now and agree terms for the remainder, it lessens the problem. When asking for your money, be hard on the issue but soft on the person. Dont

pg. 68

give the debtor any excuses for not paying. Make that your objective is to get the money, not to score points or get even.

RECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS:

PARTICULARS DEBTORS TURNOVER RATIO AVERAGE COLLECTION PERIOD 2006 5.21 70 2005 5.80 63 2004 5.53 66 2003 6.62 55

Table-10.20 A better turnover ratio implies for the firm, more efficiency in converting the accounts receivable to cash. A firm with very high turnover ratio can take the freedom of holding very little balances in cash, as their debtors are easily realizable. In case of HCL, the collection period for the firm is 70 days. PARTICULARS PROVISION FOR DOUBTFUL DEBTS(CASH FLOW) DEBTS DOUBTFUL(EXCEEDING 6 MONTHS) Table-10.21 The debts doubtful have doubled but their percentage on the debts has almost become half. This implies a sales and collection policy that get along with the receivables management of the firm. 2006 3 47 2005 49.85 134.09 2004 25 69.8

COLLECTION POLICIES:
It refers to the collection procedures such as letters, phone calls and other follow up mechanism to recover the amount due from the customers. It is obvious that costs are incurred towards the collection efforts, but bad debts as well as average collection period would decrease. Further, a strict collection policy of the firm is expensive for the firm because of the high cost is required to be incurred by the firm and it may also result in loss of goodwill. But at the same time it minimizes the loss on account of bad debts. Therefore, a firm has to strike a balance between the cost and benefits associated with collection policies. The steps usually followed in collection efforts are: Sending repeated letters and reminders to the customers

pg. 69

 Personal visits Using agencies involved in collection process Making telephonic reminders Initiating legal actions Real Time Gross Settlement (RTGS) Real Time Gross Settlement as such is a concept new in nature and though the firm uses the system with all the members of the consortium, it is still in its primal stage and will take time before all of the clients of the firm are willing to accept it. The firm has made a proposal to the consortium of the banks during appraisal for faster implementation of internet based banking facility by all the banks and adoption of RTGS payment system through net. The debtors turnover ratio is completely dependent upon the credit policy followed by the firm. The credit policy followed by the firm should be such that the threat of bad debts and the default rate involved should be terminated. PARTICULARS CREDITORS TURNOVER RATIO PAYMENT PERIOD Table-10.22 That the creditors turnover ratio has declined and payment period has increased indicate that the company has got a leeway in making the payment to the creditors by way of increased time. With creditors they are having pre-agreements and have undertaken arrangements with them, which they believe to be the best in the business and these are fixed. (NOTE: Acceptances are not included in the computation of creditors turnover) 2006 16.44 22 2005 15.68 23 2004 21.29 17 2003 21.14 16

pg. 70

MANAGING PAYABLES (Creditors)

Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position.
Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. Consider the following: Who authorizes purchasing in your company - is it tightly managed or spread among a number of (junior) people? Are purchase quantities geared to demand forecasts?

Do you use order quantities, which take account of stock holding and purchasing costs? Do you know the cost to the company of carrying stock? Do you have alternative sources of supply? If not, get quotes from major suppliers and shop around for the best discounts, credit terms as it reduces dependence on a single supplier. How many of your suppliers have a return policy? Are you in a position to pass on cost increases quickly through price increases to your customers? If a supplier of goods or services lets you down can you charge back the cost of the delay? Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-time basis? There is an old adage in business that "if you can buy well then you can sell well". Management of your creditors and suppliers is just as important as the management of your debtors. It is important to look after your creditors- slow payment by you may create ill feeling and can signal that your company is inefficient (or in trouble!). Remember that a good supplier is someone who will work with you to enhance the future viability and profitability of your company.

pg. 71

Financing Current Assets

The firm has to decide about the sources of funds, which can be availed to make investment in current assets.

Long term financing:

It includes ordinary share capital, preference share capital, debentures, long term borrowings from financial institutions and reserves and surplus.

Short term financing:

It is for a period less than one year and includes working capital funds from banks, public deposits, commercial paper etc.

Spontaneous financing:
It refers to automatic sources of short-term funds arising in normal course of business. There is no explicit cost associated with it. For example, Trade Credit and Outstanding Expenses etc.

Depending on the mix of short and long term financing, the company can follow any of the following approaches. Matching Approach
In this, the firm follows a financial plan, which matches the expected life of assets with the expected life of source of funds raised to finance assets. When the firm follows this approach, long term financing will be used to finance fixed assets and permanent current assets and short term financing to finance temporary or variable current assets.

Conservative Approach
In this, the firm finances its permanent assets and also a part of temporary current assets with long term financing. In the periods when the firm has no need for temporary current assets, the long-term funds can be invested in tradable securities to conserve liquidity. In this the firm has less risk of facing the problem of shortage of funds.

Aggressive Approach
In this, the firm uses more short term financing than warranted by the matching plan. Under an aggressive plan, the firm finances a part of its current assets with short term financing. Relatively more use of short term financing makes the firm more risky.

pg. 72

Current asset to fixed asset ratio:

The financial manager should determine the optimum level of current assets so that the wealth of shareholders is maximized. A firm needs fixed and current assets to support a particular level of output. The level of current assets can be measured by relating current assets. Dividing current assets by fixed assets gives CA/FA ratio. Assuming a constant level of fixed assets, a higher CA/FA ratio indicates a conservative current assets policy and a lower CA/FA ratio means an aggressive current assets policy assuming other factors to be constant. A conservative policy i.e. higher CA/FA ratio implies greater liquidity and lower risk; while an aggressive policy i.e. lower CA/FA ratio indicates higher risk and poor liquidity. The current assets policy of the most firms may fall between these two extreme policies. The alternative current assets policies may be shown with the help of the following figure.

Figure-10.3 In this figure the most conservative policy is indicated by alternative A, where as CA/FA ratio is greatest at every level of output. Alternative C is the most aggressive policy, as CA/FA ratio is lowest at all levels of output. Alternative B lies between the conservative and aggressive policies and is an average policy.

pg. 73

WORKING CAPITAL & SHORT-TERM FINANCING

CONSORTIUM BASED FINANCING Current Working Capital Limits
NAME OF THE BANK
STATE BANK OF INDIA ICICI BANK HDFC BANK STANDARD CHARTERED BANK STATE BANK OF SAURASHTRA STATE BANK OF PATIALA CANARA BANK SOCIETE GENERALE HSBC BANK TOTAL

FUND BASED

NON-FUND BASED

Table-10.23

3600 1282 1200 1200 715 1300 1203 1000 1000 12500

46000 19000 10000 19000 7500 7700 6000 4000 18300 137500

In order to finance the working capital needs of the firm in the form of Working Capital Demand Loan, there is a consortium of nine banks. The consortium of banks provide a fund based limit of 125 Crores which comprises of cash credit and working capital demand loans and non-fund based limits which has bank gurantee and letter of credit subject to a limit of 1375 Crores. The Lead Bank in this consortium of banks is State Bank of India and the second lead bank is ICICI. It is SBI, which fixes the limit on the basis of consortium. They, in consultation of the company decide the allocation of limit to various member banks. The allocation cannot be higher than the limits fixed by it. SBI is the biggest contributor in the consortium for both fund and non-fund based limits with about 31.30 in funds and 34.02 in non-fund limits. The ratio of both limits for the year 2006 is 0.23:0.77 It is on the basis of the accounts receivable that the banks come to an agreement with regards to the limits imposed. Though it is the fund based limits that finance the working capital requirements, the non-fund based limits are important for the management of the working capital as there might be clients who are not willing to sell on open credit and might be demanding letters of credit before any advances.

pg. 74

RENEWAL OF LIMITS
LIMITS FUND BASED NON FUND BASED TOTAL 2006 11500 48500 60000 Table-10.24 All banks sanction the limits for a period of one year. Thereafter it is to be renewed every year. SBI appraises the limit on the basis of consortium. The individual banks appraise for their own individual limit. The non fund based limits of the firm in consortium financing has been subjected to change for the past two years as per the requirements of the firm and the consent of the lead bank to its proposal. It was around 385 Crores in 2005 and had been risen to around 485 Crores in 2006. A proposal has been made by the firm to further appraise the limits by 100 Crores to 585 Crores in view of the growing operations of the firm with full interchangeability between letter of credit and bank guarantee limits for operational flexibility. Allocation of the fund based and non based limits among the banks based on operational convenience rather than allocating the fund based and non fund based on the same ratio is also among the proposals made by the firm. The company needs to provide the following information to bank for appraisals: Credit Monitoring Appraisal Write Up on company 2005 11500 38500 50000 2004 11500 28500 40000

Share holding pattern List of the directors

CONSORTIUM MEETING :
All the members of the consortium are required to meet to discuss various issues relating to the working facilities. As per RBI guidelines, the lead bank, i.e., SBI should ensure that one consortium meeting is held every quarter snd this meeting has to be arranged by HCL.

DOCUMENTATION DOCUMENTATION:

and

JOINT pg. 75

There are various documents that need to be signed at the time of renewal or inducting any bank to the consortium. The various documents are as follows:

Loan agreement Hypothecation agreement for movable machinery Hypothecation agreement for movables and book debts Counter Indemnity The above are the standard agreements asked for by the banks. The common seal has to be witnessed by the company secretary and one of the directors of the company. As of 2005, no additions or deletions were made to the consortium of the banks. But over the years the number of banks in the consortium have been reduced. Indian Banks and State Bank of Hyderabad are the two banks which were earlier a part of the consortium. Joint Documentation is executed between the company and the consortium of banks for the working capital facilities extended by the consortium to the company. The joint documentation is valid for three years. The documents comprising joint documentation are: Working Capital consortium agreement Joint deed of documentation Inter se agreement between bankers Letter of authority to lead bank by other consortium banks Letter of authority to second lead bank by other consortium banks Undertaking to create charge on the assets of the company.

ALLOCATION OF LIMIT BY LEAD BANK

SBI appraises the limit on behalf of the consortium. It in consultation with the company decided the allocation of the limit to various member banks. The allocation of any member bank cannot be higher than the limit sanctioned by it. The drawing power for it fund based limits out of the consortium are determined on the basis of the stock statement submitted by the company. HCL is required to submit the stock statement to

pg. 76

all member banks in consortium for every month.

FINANCIAL FOLLOW UP REPORTS ( FFRI & FFRII):

Every quarterly and half quarterly intervals, the firm submits Financial Follow Up Reports I and II. FFR I is an extract of the balance sheet. In this report, the company is required to submit the details of sales, current assets and current liabilities for the quarter and the estimates for the current year. FFR II the company is required to prepare P&L, B/S and Cash Flow in a different format. The information is to be provided for the last year (actual), current year half yearly results (actual) and the estimates for the next year.

SHORT TERM FINANCING

Other than the investment in current assets, the firm also has to be concerned with shortterm to long-term debt as this plays a very important role in determining the amount of risk undertaken by the firm. That is , the firm not only has to be concerned about current assets but also the sources through which they are financed. A firm before financing in either of the two, has to take into consideration various aspects. While short term might seem the ideal way to finance your assets than the long term due to shorter maturity period and also less of costs are involved, there is an inherent risk in short term financing due to fluctuating interest rates and due to the reason that the firm might be unable to reay the amount in a shorter span of time. SECURED LOANS SHORT TERM LONG TERM TOTAL %SHORT TERM 2006 3849 0 3849 100 2005 4991.28 530.07 5521.35 90.4 2004 6903.7 0 6903.7 100 2003 4987.52 3461.36 8448.88 59.03

Table-10.25 Under secured loan cash credit, along with non fund based facilities, foreign currency term loan from banks are secured by way of hypothecation of stock-in- trade, book debts as first charge and by way of second chanrge on all the immovable and movable assets of the parent company. Term loan in Indian rupees from a bank is subject to a prior charge in favour of companys bankers on book debts and stock in trade for working capital facilities.

UNSECURED LOANS SHORT TERM

2006 15104

2005 2593.39

2004 63.94

2003 76.84 pg. 77

LONG TERM TOTAL % SHORT TERM

11 15115 99.93
Table-25

17 2610.39 99.348

169.51 233.45 27.38

3261.42 3338.26 2.3

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

YEAR- END COMMERCIAL PAPERS

PARTICULARS COMMERCIAL PAPERS 2006 4000 Table-26 The credit rating by ICRA continued at A1+indicating highest safety to companys commercial paper program of Rs. 75 Crores. It acts as an effective tool in reducing the interst cost and is used for financing inventories and other receivables. As and when the firm issues commercial papers, it sends a letter to the leader of the consortium, i.e., SBI to reduce from the fund based limits the amount it has issued in the form of the commercial papers. Suppose the firm issues 30 Crores as commercial papers and the fund based limits are say 115 Crores. Then firm sends a letter to SBI to reduce the existing fund based limits from 115 to 85 Crores. In terms of desirability, the commercial papers are cheaper and advantageous to the firm compared to the consortium financing. The main advantage being the interest rate which is lower than the bank rates existing under consortium financing. But the firm depends on both and for working capital financing, it is dependent on the banks for funds sich as working capital demand loans and cash credits. There is no point in the firm not making use of the fund based limits in the consortium banking as their commercial papers are restricted to 75 Crores. 2005 2500 2004 --2003 3000

MERITS OF COMMERCIAL PAPERS:

1.It is an alternative source of raising short-term finance, and proves to be handy

pg. 78

during periods of tight bank credit. 2.It is a cheaper source of finance in comparison to the bank credit.

DEMERITS OF COMMERCIAL PAPERS:

1.It is an impersonal method of financing. 2.It is always available to the financially sound and highest rated companies. 3.The amount of lonable funds available in the commercial paper market is limited to the amount of exces liquidity of the various purchasers of commercial paper.

pg. 79

CONCLUDING ANAYSIS
1.

The current asset percentage on total asset keeps on increasing from 2002-2006. This increasing percentage of current assets to the total assets at first might indicate a preference for liquidity in place of profitability, but a look into the nature of the business carried on by HCL Infosystems reveal the reason behind it.(Table-10.2)

2.

There has been a 19.14% rise in the sales or revenue generated from 2002-2006. This would automatically suggest towards a very efficient working capital management where the assets of the firm which are short-term in nature have been utilized optimally in connection to their fixed assets. The firm has gone towards such a dramatic shift in their working capital position might be because of the tremendous growth witnessed in the domestic IT market.(Table-10.3)

3.

The fixed assets of the firm are being put to efficient use and the firm is trying for optimum capacity utilization . An increased production in normal circumstances means better raw material to finished goods conversion rate, i.e. the firm is taking less of time in the production process and this happens when the current asset employed in relation with the fixed ones are at optimum. The other notable feature here is that though the firm has added on to its installed capacity in all three years(2004-2006), they were still able to increase the capacity utilization.(Table10.6)

4.

There has been regular increase in Net working capital from 2002-2006 but in 20042005 the increase is around 43%.This is an indication as to the expanding operations of the firm. HCL has increased its current assets in order to meet the increasing sales.(Table-10.7)

5.

The large component of Raw material in 2005 as compared to 2004 and 2006 shows that the company has gone for bulk purchases and has increased consumption due to a fall in prices and reduced margins for the year. Another reason might be the increasing sales, which might have induced them to purchase more in anticipation of a further increase in demand of the product.(Table-10.8)

6.

The raw material conversion period or the raw material holding cost has reduced from 2004 to 2006 from 26 to 21. This is despite an increase in its consumption. This indicates that the firm is able to convert the raw material at its disposal to the work-in-progress at a lesser time as compared to the last year. It would be to the

pg. 80

benefit of the firm to reduce the production process and increase the conversion rate still as the firm is required to meet the increasing demand.(Table-10.9)
7.

The time taken for the firm to realize its finished goods as sales has increased in 2006 as compared to 2004 . This growth in sales could be traced back to the growing domestic IT market for the commercial as consumer segment in India. HCL has around 15% of the market in desktop and it is the market leader in this segment. So it is only natural that they are able to better their conversion rate of finished goods to sales.(Table-10.11)

8.

The absolute liquid ratio is the best for 2004,2005,2006 years and the cash balances as to the current liability has improved for the firm. Firm has large resources in cash and bank balances. While large resources in cash and bank balances may seem to affect the revenue the firm could have earned by investing it elsewhere as maintenance of current assets as cash and in near cash assets and marketable securities may increase the liquidity position but not the revenue or profit earning capacity of the firm.(Table-10.14)

9.

The amount of cash retained in the business for capital expenditure purposes are minimal or nil for three years 2004,2005 and 2006. But rather than investing more in plant and machine which they can at any point in time by adding on a additional line if need they would like to optimize their utilization in fixed assets at present. This also means that the percentage of cash in hand maintained by the firm as a source of liquidity could be reduced, i.e. the amount of idle cash in the business could be made to a level which the firm feels optimum.(Table10.16)

10. The investments in Mutual Fund have reduced from the 2004-2006 due to the

redemption of investments taken place to meet various needs such as increasing demand in stock or inventory and to ensure better credit and receivables policy. (Table-10.19)
11. A better turnover ratio implies for the firm, more efficiency in converting the

accounts receivable to cash. A firm with very high turnover ratio can take the freedom of holding very little balances in cash, as their debtors are easily realizable.But the turnover retio for HCL keeps on decreasing from 2003-2006 so it has to maintain high cash.(Table-10.20)
12. The debts doubtful have doubled during 2004-2006 but their percentage on

pg. 81

the debts has almost become half. This implies a sales and collection policy that get along with the receivables management of the firm.(Table-10.21)
13. The creditors turnover ratio has declined and payment period has increased

during 2003-2006 indicate that the company has got a leeway in making the payment to the creditors by way of increased time.(Table-10.22)
14. The consortium of banks provide a fund based limit of 125 Crores which

comprises of cash credit and working capital demand loans and non-fund based limits which has bank gurantee and letter of credit subject to a limit of 1375 Crores. The Lead Bank in this consortium of banks is State Bank of India and the second lead bank is ICICI.(Table-10.23)

pg. 82

SUGGESTIONS AND RECOMMENDATIONS

1.The management of working capital plays a vital role in running of a successful business. So, things should go with a proper understanding for managing cash, receivables and inventory. 2.HCL Infosystems is managing its working capital in a good manner, but still there is some scope for improvement in its management. This can help the company in raising its profit level by making less investment in accounts receivables and stocks etc. This w i l l ultimately improve the efficiency of its operations. Following are few recommendations given to the company in achieving its desired objectives: 3.The business runs successfully with adequate amount of the working capital but the company should see to it that the cash should not be tied up in excessive amount of working capital. 4.Though the present collection system is near perfect, the company as due to the increasing sales should adopt more effective measures so as to counter the threat of bad debts. 5.The over purchasing function should be avoided as it could lead to liquidity problems. 6.The investment of cash in marketable securities should be increased, as it is very profitable for the company. 7.Holding of excessive and insufficient stock must be avoided as it creates a burden on the cash resources of a business and results in lost sales, delays for customers, etc respectively.

pg. 83

Annexur e
List of Tables S.No
Table7.1 Table-7.2 Table-8.1 Table-9.1 Table-9.2 Table-9.3 Table-9.4 Table-9.5 Table-9.6 Table-9.7 Table-9.8 Table-9.9 Table-9.10 Table-9.11 Table-9.12 Table-9.13 Table-10.1 Table-10.2 Table-10.3 Table-10.4 Table-10.5 Table-10.6 Table-10.7

Name of the Table

HCL Enterprises HCL Infosystem Net Strategy Production and Growth of Indian Electronics And Hardware Industry Current Ratio Quick Ratio Cash Ratio Net Profit Margin Return On Assets Return On Equity Working Capital Turnover Ratio Fixed Assets Turnover Ratio Debtors Turnover Ratio Cash Turnover Ratio Debt Equity Ratio Interest Coverage Ratio Debt Ratio Rate Of Growth Of Business Current Asset-Total Asset Net Current Assets-Sales Net Current Assets-Fixed Assets Computer And Microprocessor Based System Data Graphic/Display Monitor Current Assets-Current Liablity

Page No.
11 13 21 35 35 36 37 37 38 38 39 39 40 40 41 41 49 50 51 51 52 53 53

pg. 84

Table-10.8 Table-10.9 Table10.10 Table-10.11 Table-10.12 Table-10.13 Table-10.14 Table-10.15 Table-10.16 Table-10.17 Table-10.18 Table-10.19 Table-10.20 Table-10.21 Table-10.22 Table-10.23 Table-10.24 Table-10.25

Raw Material Raw Material Consumption Work In Progress Finished Gooda Operating Cycle Raw Material Consumption Cash Current Liablity Dividend Policy Cash Equity Dividend % Cash Flow Working Capital Changes Cash Flow In Investing Activites Debtor Turnover Ratio Provision for doubtful debt Creditor Turnover Ratio Current Working Capital Limit Renewal Of Limit Short Term Financing

55 57 57 58 58 59 61 61 63 63 63 64 68 68 69 73 74 76

pg. 85

List Of all the Graphs S.No

Graph-8.1 Graph-8.2 Graph-8.3 Graph-8.4 Graph-8.5 Graph-9.1 Graph-9.2 Graph-9.3 Graph-9.4 Graph-9.5 Graph-9.6 Graph-9.7 Graph-9.8 Graph-9.9 Graph-9.10 Graph-9.10 Graph-9.11 Graph-9.12 Graph-10.1 Graph-10.2 Graph-10.3

Name of the Graph

Electronics Hardware Export Changing Structure Of Indian Electronics And IT Hardware Growth Rate of Key Segment CAGR Export Contribution from various segment Export 2009-2010 Current Ratio Quick Ratio Cash Ratio Net Profit Margin Return On Assets Return On Eqity Working Capital Turnover Ratio Fixed Asset Turnover Ratio Debtor Turnover Ratio Cash Turnover Ratio Debt Equity Ratio Interest Coverage Ratio Debt Ratio Consumer Market Share Dividend Policy % Cash Balance

Page No.
22 23 24 24 24 35 35 36 37 37 38 38 39 39 40 40 41 41 48 62 62

pg. 86

Hcl Infosystem
Balance Sheet (in rs crore) Mar '11 Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets 19.4 6 19.4 6 2.1 0 277.0 4 6.73 305.3 3 236.5 187.6 9 324. 2 629.5 3 55.3 3 15.4 7 39.8 6 0 20.3 9 533.5 865.5 76.11 605.2 6 292.0 511.8 5 909.1 6 0 275.3 364.5 4 339.8 7 569.2 9 0 629.5 4 Mar '10 18.5 6 18.5 6 0.9 0 243.8 3 6.9 270.1 9 227.9 379.1 8 307.1 1577. 3 46.3 13.3 1 32.9 9 0 25.0 4 482.4 260.9 97.34 550.7 5 231.3 9 8.64 790.7 8 0 216. 3 55.2 1 271.5 1 519.2 7 0 577. 3 Mar '09 17.6 6 17.6 64.31 0 216.3 4 7.06 245.3 7 246.5 838.2 9 284.8 7 530.2 4 38.3 8 11.0 827.3 0 25.2 2 416.4 756.2 72.79 475.5 3 260.9 7 6.8 743. 3 0 212.5 952.9 8 265.5 7 477.7 3 0 530.2 5 Mar '08 17.66 17.66 8.69 0 196.9 5 7.23 230.5 3216.7 48.21 264.9 1 495.4 4 38.67 12.87 25.8 0 25.21 335.2 177.06 24.46 436.7 3 239.2 8 4.36 680.3 7 0 180.6 855.26 235.9 4 444.4 3 0 495.4 4

pg. 87

Profit and loss account (in rs. Crore) INCOME: Sales Turnover Excise Duty NET SALES Other Income TOTAL INCOME EXPENDITURE: Manufacturing Expenses Material Consumed Personal Expenses Selling Expenses Administrative Expenses Expenses Capitalised Provisions Made TOTAL EXPENDITURE Operating Profit EBITDA Depreciation Other Write-offs EBIT Interest EBT Taxes Profit and Loss for the Year Non Recurring Items Other Non Cash Adjustments Other Adjustments REPORTED PAT Cash Flow (in rs. Crore) Net Profit Before Tax Net Cash From Operating Activities Net cash (used in)/ from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents & Cash Equivalents Opening Cash Closing Cash & Cash Equivalents Mar Mar Mar Mar '11 '10 '09 43.2 26.3 21.9 '0882.5 1 1 4 13.9 13.4 -8.09 -34.41 4 3.3 8 -7.21 -3.13 14.6 0.12 -8.01 34.99 15.26 1.98 6.39 15.18 19.23 15.9 9.59 28.8 13.64 8 29.59 17.9 15.9 28.82 6 8 Mar11 292.7 8 0 292.7 8 4.05 296.8 3 170.8 4 -3.4 17.1 5 13.0 3 22.2 8 0 0 219. 9 72.8 8 76.9 42.64 0 74.2 9 38.6 7 35.6 39.81 25.8 27.59 -1.03 0 32.3 7 Mar10 205.8 2 0 205.8 221.0 5 226.8 7 110.4 6 -2.91 14.5 6 11.4 3 19.1 7 0 0 152.7 1 53.1 74.1 62.24 0 71.9 2 45.6 6 26.2 66.72 19.5 40.05 2.62 0 22.2 1 Mar09 208.7 2 0 208.7 2 1.23 209.9 5 124.3 1 0.11 15.6 80.87 19.2 1 0 0 160.1 848.5 4 49.7 71.91 0 47.8 6 25.8 5 22 6.09 15.9 1 0 0.18 -0.1 15.8 5 Mar08 249.8 7 0 249.8 7 1.04 250.9 1 127.0 3 -0.3 14.48 0.7 14.5 -22.4 0 133.9 2 115.9 5 117 1.42 0 115.5 833.74 81.83 27.14 54.69 0.67 0 0 55.36

pg. 88

Hewlett Packard
Balance Sheet (in rs. Crore) Mar11 173.5 7 173.5 7 0 0 1,266.6 7 0 1,440.2 4 1,198.2 1 88.9 6 1,287.1 7 2,727.4 1 53.7 4 26.1 1 27.6 31.66 265.4 1 2,099.2 7 347.3 3 136.3 7 2,582.9 7 868.3 8 0 Mar10 173.5 7 173.5 7 0 0 1,205.5 2 0 1,379.0 9 1,497.4 9 65.5 3 1,563.0 2 2,942.1 1 50.7 7 26.3 2 24.4 50.21 Mar09 173.5 7 173.5 7 0 0 1,121.7 8 0 1,295.3 5 1,557.6 3 76.4 3 1,634.0 6 2,929.4 1 46.8 1 21.2 2 25.5 9 0 260.0 5 2,060.5 6 67.2 8 14.3 1 2,142.1 5 1,103.3 2 97.1 4 3,342.6 1 0 Mar08 173.5 7 173.5 7 0.75 0 1,022.9 3 0 1,197.2 5 1,586.3 8 192.7 5 1,779.1 3 2,976.3 8 43.5 618.2 25.3 6 0 346.5 4 2,152.9 6 30.5 6 96.6 5 2,280.1 7 821. 1 85.8 7 3,187.1 4 0

Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets

265.1 1 2,288.1 5 160.4 961.9 4 2,510.5 8 879.6 687.3 5 3,451.3 3,477.5 5 0 9 0 1,012.0 820.0 2 6.6 9 5.17 1,018.6 825.2 2 6 2,432.7 2,652.3 3 0 3 0

693. 523.5 35.53 7 59.1 698.8 582.6 3 7 2,643.7 2,604.4 8 0 7 0 2,727.4 2,942.1 2,929.4 2,976.3 3 0 2 7

Profit and loss account (in rs. Crore) INCOME: Mar11 Mar10 Mar09 Mar08

pg. 89

Sales Turnover Excise Duty NET SALES Other Income TOTAL INCOME EXPENDITURE: Manufacturing Expenses Material Consumed Personal Expenses Selling Expenses Administrative Expenses Expenses Capitalised Provisions Made TOTAL EXPENDITURE Operating Profit EBITDA Depreciation Other Write-offs EBIT Interest EBT Taxes Profit and Loss for the Year Non Recurring Items Other Non Cash Adjustments Other Adjustments REPORTED PAT Cash Flow (in rs. Crore) Net Profit Before Tax Net Cash From Operating Activities Net cash (used in)/ from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents & Cash Equivalents Opening Cash Closing Cash & Cash Equivalents

1,141. 09 0 1,141.0 9 16.4 8 1,157.5 7 899. 80.00 34.6 8 59.6 1 34.6 -5 56.16 0 972.5 9168. 5 184.9 8 4.13 0 180.8 5 101.4 5 79.4 18.9 9 60.4 11.08 1.01 0 62.5

794.9 7 0 794.9 712.3 4 807.3 1 571.9 2 0 20.8 7 31.3 9 28.8 -1 28.77 0 624.2 2 170.7 5183. 14.12 0 178.9 8 101.5 277.4 6 9 68.4 60.02 22.3 0 90.7 7 Mar '10 77.4 9 395.2 8 0.25 357.68 37.8 5 111.4 4 149.2 9

699.7 8 0 699.7 856.5 4 756.3 2 485.4 6 0 33.2 4 39.5 243.8 -37.9 0 564.1 2 135.6 6 192.1 9 4.83 0 187.3 6 107.4 879.8 91.99 77.9 0.81 10.9 -8 11.56 78.1 2 Mar '09 81.2 7 245.0 2 133.5 -8 449.68 71.08 182.5 2 111.4 4

1,789. 50 0 1,789.5 0 22.49 1,811.9 9 1,187.5 2 0.00 55.12 65.58 57.97 232.05 0.00 1,134.1 5 655.3 5 677.8 5 5.25 0.00 672.6 0 199.8 0 472.8 093.69 379.1 1 -0.20 19.65 0.27 398.8 0 Mar '08 472.8 -4 823.51 303.31 1182.5 9 55.77 126.7 5 182.5 2

Mar '11 81.4 9 509.0 2 0.68 522.61 12.92 149.2 9 136.3 7

pg. 90

Refrence s
1.National Skill Development Corporation 2.Department of Information Technology, Government Of India 3.www.crisil.com 4.CMIE Database 5.Hclinfosystem.co.in 6.HCLInfosystem Library 7.www.ibef.org 8.www.credai.org 9.www.scribid.com 10.www.moneycontrol.com 11.www.economicstimes.com

pg. 91

pg. 92