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Improvement of Working Capital Management by bringing

I
efficiency in billing process
[Year]

Improvement of Working
Capital Management by
bringing efficiency in billing
process
BY
Anand Kumar
FMS-IRM, Jaipur
Email id – anandmaheshwari007@gmail.com

A project report
Submitted to
Ms. Reena Daniel
Faculty- FMS-IRM

In partial fulfillment of the requirements


for the award of the Post Graduate Diploma

in

BUSINESS MANAGEMENT
Improvement of Working Capital Management by
bringing efficiency in billing process

INSTITUTE OF RURAL MANAGEMENT


JAIPUR- 302020
July, 2009
2009

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CANDIDATE’S DECLRATION
2009

I hereby declare that this project Report entitled “Improvement of Working Capital
Management by bringing efficiency in billing process “is a bonafide record of work
done by me during the course of summer project work and that it has not previously
formed the basis for the award to me for any degree/diploma, associate ship, fellowship,
or other similar title of any other institute/society.

Date: __________________________
____________________________

Anand Kumar

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PREFACE
2009

Finance is the lifeblood of an industry. The subject matter of Financial Management has been
changing at rapid pace. About a decade ago, the scope of Financial Management was
circumscribed to the raising of funds, whenever needed, the financial decision making, and
problem solving. But now it has become an integral part of any business enterprise and growth
of any business enterprise depends largely on their financial strategy and how finance is being
managed.

The summer training program is designed to give the future managers the feel of the corporate
happenings and work culture. Theses real life situation are entirely different from the stimulated
exercise enacted in an artificial environment inside the classroom and it is precisely because of
this reason that this summer training has been designed, so that managers of tomorrow does not
fill ill in the case when the times comes to shoulder responsibilities. The summer training is a
bridge between the institution and organization to make us understand how theoretical
knowledge will be applied in the practical field.

It was exactly in this context that I was privileged to join KEC International Ltd. (Finance and
Accounts Division) as a summer trainee. Established in 1945 as Kamani Engineering
Corporation, it was taken over by RPG Groups in 1982 and renamed to KEC International Ltd.
in 1984. It is one of the largest EPC Company in transmission and distribution sector. The
experience that I have gathered over the past 45 days has certainly provided me with an
orientation, which I believe, will help me shoulder any assignment successfully in future.

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2009

ACKNOWLEDGEMENT

First of all I would like to express my whole hearted thanks and deep gratitude to our parents
who have always been my source of inspiration for any challenging work, project or assignment.

Any work is not perfect and complete without the help and guidance from other people. This
project work of mine “Improvement of Working Capital Management by bringing
efficiency in billing process” would not have reached its fulfillment, hadn’t it been the
guidance given to me by various people directly or indirectly related to this project.

At first, I deeply express my gratitude to Brig. S.K.Gaur, Director- FMS-IRM and Ms Reena
Daniel my faculty Guide for giving necessary instruction and guidance on how to pursue this
summer project. I really found your guidance extremely helpful at every step of the research and
in analyzing the various facts and figures.

I would also extend my sincere thanks to Mr. N.K. Sharma (Head of KEC Finance department)
for providing me an opportunity to do a project work in their esteemed organization.

I whole heartedly acknowledge the intellectual stimulation of my esteem Corporate Project


Guide, Mr. N.K.Rathi, (Senior Manager) for his continuous help and guidance throughout the
project duration in spite of his busy schedule. I also like to thank Mr. Atul Agrawal and Mr.
Rajesh Vijayvarigya for helping me whenever I was faced with any difficulty during project.

Finally in this chain I am also thankful to Mr. Yogesh Joshi, (HR department) for providing
Extra & useful knowledge, which helped me to have a deep insight of the Theoretical aspects of
the project and all the officers and Staff of KEC, without their help my project, would not have
been successfully completed.

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Executive Summary

Working Capital Management is one of the most crucial issues for the transmission and
distribution sector companies like other construction companies. There are various
reasons behind this. Firstly, the projects are awarded following a bidding process where
the lowest bidder is awarded the project. Hence every rupee saved through better
working capital management helps to offset the escalation in cost due to various factors,
time overrun and etc. Like any other construction projects these projects also require a
large capital investment. Secondly, the traditional method of credit analysis such as the
heuristic method, deterministic method or the probabilistic method does not hold good
in determining the credit worthiness of the credit applicant. To compound this problem,
since most of the clients have monopolistic stronghold in the sector hence the
inefficiencies in the working capital management can largely be attributed to the clients
and inefficiency becomes a compliance issue. So judging the efficiency of working
capital management of T&D sector companies cannot be pitted and compared against
other industry benchmarks like the FMCG or electronic goods.

All the three major players in the transmission and distribution sector, KEC
International,
Jyoti Structures and Kalpataru have adopted different business models to address the
issue of working capital management. Of the top three companies KEC International has
the highest ROCE (Return on Capital Employed) and working capital turnover primarily
due to its outsourced business models. The tower accessories and line accessories are
outsourced and procured from the client pre-approved sub-vendors.

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During this study, I got an opportunity to study the business model of KEC International
and its billing cycle in particular. In a company which has shown tremendous top line
growth over the years and a relatively lower bottom line growth due to nature of 2009

business being market driven and competition climbing up, many problems can be
solved by bringing efficiency in the working capital management. This is an attempt to
study the inefficiencies in

the working capital management on the debtor’s side and how it can be improved by
improving the billing cycle.

It has been a conscious attempt to segregate the inherent inefficiencies in the system
from the inefficiencies occurring primarily due to compliance issue. At the end some
inefficiencies has been identified which are in-built in the process or can be negotiated
with the client and based on them some recommendations have been suggested.

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Table of Content

TITLE PAGE
NO.

Title Page………………………………………………………………..........................1

Certificate………………………………………………………………………………..2

Declaration……………………………………………………………………………….
3

Preface……………………………………………………………………………………
4

Acknowledgement……………………………………………………..............................
5

Executive
Summary………………………………………….............................................6

Contents………………………………………………………………..
………………….7

Design of the
Study……………………………………………………………………...8-25

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o Research Problem………………………………………………………
o Objective of the study…………………………………………………...
Methodology………………………………………………………………
2009
o
10
o Need for the
project………………………………………………………..11
o Limitations of the
Study…………………………………………………..12
o Review of Literature: Working Capital
Management…….....................13-25

Organizational Profile………………………….……………...
……………………….26-54

o RPG
Groups……………………………………………………………
o Transmission
Sector……………………………………………………
o KEC International
Ltd…………………………………………………
o Financial
Performance…………………………………………………

Data Analysis………………………………………………………………………….55-
77

Major Findings and Suggestions………………………………………………………

SWOT Analysis……………………………………………………………………….

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Bibliography…………………………………………………………………………..

Appendix……………………………………………………………………………..
2009

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Chapter
1
Research
Design

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Research Problem
Analyzing the Operating cycle of the billing process of N-97 (Sasaram-Fetehpur, 765 2009
KV) project and working on it to shorten the operating cycle by bringing efficiency in
the billing process. There by improving Working Capital Management.

RESEARCH TYPE
Diagnostic research type

OBJECTIVE OF THE RESEARCH

• Analyzing the operating cycle of the billing process of N-97 project (Sasaram-
Fatehpur, 765 KV).

• Improvement of working capital management

• Bringing efficiency in the billing system

• Reducing the billing cycle time on the client side.

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DATA COLLECTION APPROACH

1) Secondary Data –

A) Internal Secondary Data- Annual Reports, Files and office documents.


B) External Secondary Data- Various books, Reports and Internet.

2) Primary Data –

A) Discussions with concerned persons.

Methodology

The following methods were adopted to prepare this report.

1. Literature Review

2. Understanding the industry

3. Understanding the business of KEC

4. Understanding the pilot contracts

5. Understanding the billing cycle time

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6. Visiting Jothwara factory to collect data and gain a comprehensive view of the billing
cycle.
2009

7. Having a discussion with site personnel on his visit to factory, understanding the
problems faced by the site personnel

Need for the Project


The power transmission sector is growing at a tremendous space. The Eleventh Plan is
likely to see an investment of around Rs 2,47,500 crore for the expansion of the
transmission infrastructure. Consequently, the addressable market for the power
transmission tower industry from this opportunity is likely to be Rs 25,000 crore over
the Eleventh Plan period.

KEC International is the largest company operating in the transmission tower space and
has observed tremendous top line growth over the past few years but the major concern
in the company (as it is also true for the entire industry) has been its working capital
management.

Due to large requirement in the working capital, there is always a propensity for the
transmission and distribution companies to go for frequent dilution. Poor working
capital turnover has a negative impact on the margin which as a chain effect, that affects
the Return on Capital Employed (ROCE).

In a scenario (like todays) where the domestic demand is well supplemented by


demands from the outside, KEC International has a huge order-book. As top-line is no
longer a major issue for the company, there has been a continuous effort from the
management to strengthen the bottom line which can only be done with proper flow of
cash and utilization resources.

Though Working Capital Management is a huge topic by itself and encompasses cash
management, inventory management, debtor’s management, short term financing and

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their various aspects in great depth, this study was primarily focused on better debtor
management by finding the inefficiencies in the billing processes, initiatives that can be
taken to improve the billing process, identify whether the inefficiencies are inherent to 2009

the system or is it a compliance issue and etc.

LIMITATIONS OF THE PROJECT

 The Data has been restricted to available data from secondary data (annual
reports, various journals, Data Sheets, publications etc.)

 It is assumed that the bill once prepared reaches the site within two days.

 The authenticity of secondary data is subject to errors and omissions.

 The delay causes and analysis of the erections bills are based on the information
collected from site personnel on his visit to site and not from the site.

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2009

Working Capital Management: Definition


& Basic Concepts

Introduction

In a perfect world, there would be no necessity for current assets and liabilities
because there would be no uncertainty, no transaction costs, information search costs,
scheduling costs, or production and technology constraints. The unit cost of production
would not vary with the quantity produced. Borrowing and lending rates shall be same.
Capital, labour, and product market shall be perfectly competitive and would reflect all
available information, thus in such an environment, there would be no advantage for
investing in short term assets.

However the world we live is not perfect. It is characterized by considerable


amount of uncertainty regarding the demand, market price, quality and availability of
own products and those of suppliers. These real world circumstances introduce
problem’s which require the necessity of maintaining working capital.

For example, an organization may be faced with an uncertainty regarding availability of


sufficient quantity of crucial imputes in future at reasonable price. This may necessitate
the holding of inventory, current assts. Similarly an organization may be faced with an

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uncertainty regarding the level of its future cash flows and insufficient amount of cash
may incur substantial costs. This may necessitate the holding of reserve of short term
marketable securities, again a short term capital asset. In corporate financial 2009

management, the term Working capital management” (net) represents the excess of
current assets over current liabilities.

1.1 WORKING CAPITAL

In simple words working capital is the excess of current Assets over current
liabilities. Working capital has ordinarily been defined as the excess of current assets
over current liabilities. Working capital is the heart of the business. If it is weak business
cannot proper and survives. It is therefore said the fate of large scale investment in fixed
assets is often determined by a relatively small amount of current assets. As the working
capital is important to the company is important to keep adequate working capital with
the company.

Cash is the lifeline of company. If this lifeline deteriorates so does the company’s ability
to fund operation, reinvest do meet capital requirements and payment. Understanding
Company’s cash flow health is essential to making investment decision. A good way to
judge a company’s cash flow prospects is to look at its working capital management.
The company must have adequate working capital as much as needed by the company.
It should neither be excessive or nor inadequate. Excessive working capital cuisses for
idle funds laying with the firm without earning any profit, where as inadequate working
capital shows the company doesn’t have sufficient funds for financing its daily needs
working capital management involves study of the relationship between firm’s current
assets and current liabilities. The goal of working capital management is to ensure that a
firm is able to continue its operation. And that is has sufficient ability to satisfy both
maturing short term debt and upcoming operational expenses. The better a company
managers its working capital, the less the company needs to borrow. Even companies

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with cash surpluses need to manage working capital to ensure those surpluses are
invested in ways that will generate suitable returns for investors.
2009

The primary objective of working capital management is to ensure that sufficient


cash is available to”

 Meet day to day cash flow needs.

 Pay wages and salaries when they fall due

 Pay creditors to ensure continued supplies of goods and services.

 Pay government taxation and provider of capital – dividends and

 Ensure the long term survival of the business entity.

1.2 Need for working capital

The prime objective of the company is to obtain maximum profit thought the business.
The amount of profit largely depends upon the magnitude of sales. However the sale
does not convert into cash instantaneously. There is always a time gap between sale of
goods and receipt of cash. The time gap between the sales and their actual realization in
cash is technically termed as operating cycle. Additional capital required to have
uninterrupted business operations, and the amount will be locked up in the current
assets.

Regular availability of adequate working capital is inevitable for sustained biasness


operations. If the proper fund is not provided for the purpose, the business operations
will be effected. Hence this part of finance is to be managed well.

1.3 Working capital cycle

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Equity & loan

CASH
PAYABLES

OVERHEADS

Etc.

Receivabl
es
INVENTORY

SALES

Each component of working capital (namely inventory, receivables and


payables) has two dimensions TIME and MONEY. Managing working capital TIME IS
MONEY. If you can get money to move fester around the cycle (collect monies due
from debtors more quickly) or reduce the amount of money tied up (reduce inventory
level relative to sales).

The business will generate more cash or it will need to borrow less money to fund
working capital. As a consequence, you could reduce the cost of bank interest or you
will have additional freee4 money available to support addition sales growth or
investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer

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credit or an increased credit limit; you festively create freed finance to help fund future
sales.
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A perusal of operational cycle reveals that the cash invested in operations are
recycled back in to cash. The shorter the period of operating cycle, the larger will be the
turnover of the funds invested in various purposes.

1.4 Determinants of working capital

Working capital requirements of a concern depends on a number of factors, each of


which should be considered carefully for determining the proper amount of working
capital. Some of them are:

 Nature of business

Need for working capital is highly depends on what type of business, the firm in. there
are trading firms, which needs to invest a lot in stocks, ills receivables, liquid cash etc.
public utilities like railways, electricity, etc., need much less inventories and cash.
Manufacturing concerns stands in between these two extends. Working capital
requirement for manufacturing concerns depends on various factors like the products,
technologies, marketing policies.

 Production policies

Production policies of the organization effect the working capital requirements very
highly. Seasonal industries, which produces only in specific season requires more
working capital. Some industries which produces round the year but sale mainly done in
some special seasons are also need to keep more working capital.

 Size of business

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Size of business is another factor to determines the need for working capital

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 Length of operating cycle.

Operating cycle of the firm also influence the working capital. Longer the operating
cycle, the higher will be the working capital requirement of the organization.

 Credit policy

Companies; follows liberal credit policy needs to keep more working capital with them.
Efficiency of debt collecting machinery is also relevant in this matter. Credit availability
form suppliers also effects the company’s working capital requirements. A company
doesn’t enjoy a liberal credit from its suppliers will have to keep more working capital

 Business fluctuation

Cyclical changes in the economy also influence level of working capital. During boom
period, the tendency of management is to pile up inventories of raw materials and
finished goods to avail the advantage of rising prove. This creates demand for more
capital. Similarly, during depression when the prices and demand for manufactured
goods. Constantly reduce the industrial and trading activities show a downward termed.
Hence the demand for working capital is low.

 Current asset policies.

A company with conservative assets policy may operate with relatively high level of
working capital than its sales volume. A company pursuing an aggressive amount assets
policy operates with a relatively lower level of working capital.

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 Fluctuations of supply and seasonal variations

Some companies need to keep large amount of working capital due to their irregular 2009
sales and intermittent supply. Similarly companies using bulky materials also maintain
large reserves’ of raw material inventories. This increases the need of working capital.
Some companies manufacture and sell goods only during certain seasons. Working
capital requirements of such industries will be higher during certain season of such
industries period.

 Other factors.

Effective co ordination between production and distribution can reduce the need for
working capital. Transportation and communication means. If developed helps to reduce
the working capital requirement.

1.5 Working capital concepts.

There are two thoughts that are currently accepted about working capital. They are

 Gross working capital concept.

 Net working capital concept.

Gross working capital concept

This thought says that total investment in current assets is the working capital of
the company. This concept does not consider current liabilities at all. Reasons given for
the concept.

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1) When we consider fixed capital as the amount invested in fixed assets. Then the
amount invested in current assets should be considered as working capital.
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2) Current asset whatever my be the sources of acquisition, are used in activities


related to day to day operations and their forms keep on changing. Therefore
they should be considered as working capital.

Net working capital

It is narrow concept of working capital and according to this, current assets


minus current liabilities forms working capital. The excess of current assets over current
liabilities is called as working capital. The reasons for the net working capital method
are:

1) The material thing in the long fun is the surplus of current assets over current
liability
2) Financial health can easily be judged by with this concept particularly from the
view point of creditors and investors.
3) Excess of current assets over current liabilities represents’ the amount which is
not liable to be returned and which can be relied upon to meet any contingency.
4) Intercompany comparison of financial position may be correctly done
particularly when both the companies have the same amount of current assets.

If the current assets are higher than current liability it is considered the financial position
of the company is sound. If both current assets and liabilities are equal, the company has
resorted to short term funds for financing the working capital and long term sources of
funds have been used to finance the acquisition of fixed assets. It does not indicate the
financial soundness for the company. If the current assets are lesser than current
liabilities there is negative working capital which indicates financial crisis.

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1.6 Kinds of working capital 2009

Working capital can be put in two categories:

1) Fixed or permanent working capital and


2) Fluctuating or temporary working capital

Fixed or permanent working capital

The volume of investment in current assets an change over a period of time. But
always there is minimum level of current assets that must be kept in order to carry on
the business. This is the irreducible minimum amount needed for maintaining the
operating cycle. It is the investment in current assets, which is permanently locked up in
the business, and therefore known as permanent working capital.

Variable/temporary working capital

It is the volume of working capital, which is needed over and above the fixed
working capital in order to meet the unforced market changes and contingencies. In
other words any amount over and about the permanent level of working capital is
variable or fluctuating working capital. This type of working capital is generally
financed from short term souse of finance such as bank credit because this amount is not
permanently required and is usually paid back during off season or after the
contingency.

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1.7 Sources of working capital

Issue of Shares 2009

Retained earnings

Long term funds


Issue of Debentures

Long term debt

Sources of Fund

Commercial Bank

Public deposits

Short term funds


Various Credits

Reserves and other funds

The company should meet its working capital needs through both long term and
short term funds. It will be appropriate to meet at least 2/3 of the permanent working
capital equipments form long term sources, whereas the variables working capital
should be financed from short term sources. The working capital financing mix
should be designed in such a way that the overall cost of working capital is the
lowest, and the funds are available on time and for the period they are really
required.

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1.8 Adequate working capital 2009

The term adequate working capital refuters to the amount of working capital to be kept
with the organization to met its daily operations. Large investments in fixed assets are
not sufficient to run a business successfully. Adequate working capital is equally
important. Without working capita fixed assets are like a gun, which cannot shoot, as
there are no cartridges.

1.8 (a) Advantages of adequate working capital

Adequate working capital provides certain benefits to the company they are:

 Increase in debt capacity and goodwill

 Increase in production inefficiency

 Exploitation of favorable opportunities

 Meeting contingencies adverse changes:

 Available cash discount

 Solvency and efficiency fixed assets.

 Attractive dividend to shareholders

1.8 (b) Dangers of inadequate working capital

Having inadequate working capital les to so many of dangers as it doesn’t fulfill its
purpose. Some are given below:

 Loss of goodwill and creditworthiness

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 Firm can’t make use of favorable opportunities

 Adverse effects of credit opportunities 2009

 Operational inefficiencies

 Effects on financial capacity

 Non achievement of profit target

1.9 Dangers of redundant working capital

As the inadequate working capital is dangerous to the firm, redundant working


capital also brings hazardous condition in to the company. Let us discuss the dangers
of redundant working capital to the company.

 Low rate of return on capital

 Decline in capital and efficiency

 Loss of goodwill and confidence.

 Evils of over capitalization

 Destruction of turnover ratio

It is evident from the foregoing discussion that a company must have adequate
working capital pursuant to its requirements. It should neither be excessive not
inadequate. Both situations are dangerous. While inadequate working capital
adversely affects the business operations and profitability. Excessive working capital
remains idle and earns no profits for the company. So company must assure its
working capital is adequate for its operations.

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1.10 Blueprint for a good working capital management policy

 General action

Have a set planning standard for stock days. Debtor days and creditors days.

 Action on stocks

Keep stock levels as low as possible, consistent with not running out of stock
and not ordering stock in uneconomically small quantities. “Just in time”
stock management is fine, as long as it is “just in time” and never fails to
deliver on time.

 Action on debtors /customers

Assess ALL significant new customers for their ability to pay. Take
references, examine account, and ask around. Try not to take on new
customers who would be poor payers.

 Action on creditors

Do NOT pay invoices too early take advantage of credit offered by suppliers
it’s free!!

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ESTIMATION OF WORKING CAPITAL MANGEMENT

As discussed above a number of factors are responsible for determining the amount
of working capital required by a firm. The various methods/ technique used in
assessment of firm’s working capital requirements are:

 Estimation of components of working capital method.

This method is based on the basic definition of working capitalizes, excess of


current assets over the current liabilities.

 Percent sales method

This is the most simple and widely used method in combination with other
scientific methods. According to this method a ratio is determined for estimating
the future working capital requirement. This is the generally based on the past
experience of management as the ratio varies from industry to industry. For
example if the past experience shows that the amount of working capital has
been 20% of sales and projected amount of sales for the next year is Rs 10 lakes,
the required amount of working capital shall be Rs Two lakh.

 Operating cycle approach

o The need of working capital arises mainly because of them gap between
the production of goods and their actual realization after sales. This gap
is technically referred as the “operating cycle” or the “cash cycle” of the

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business. If it were possible to complete the entire job instantaneously,


there would be no need for current asset (working capital). But since it is
not possible, every business organization is forced to have current asset 2009

and hence operating cycle. It may be divided into four stages.

• Raw materials and stores storage space.


• Work in process stage.
• Finished goods inventory stage.
• Debtor’s collection stage,
 Duration of operating cycle

The duration of the operating cycle is equal to sum of the duration of these stages
less the credit period allowed by the suppliers of the firm. In symbol

OC= R+W+F+D—C

WHERE

OC= Duration of the Operating Cycle

R= Raw materials and storage space periods

W= work in process periods.

F= finished goods storage periods

D= debtor collection period

C= Creditors collection period.

The component of the operating cycles has already been calculated in “ratio
Analysis” which is as follow.

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R= Average stock of raw material


---------------------------------
Average raw material consumption per day 2009

S= Average stock of stores


---------------------------------------------
Average stores consumption per day

W= Average work in process inventory


---------------------------------------------------
Average cost of production per day

D= Average book debts


---------------------------------------------------
Average credit sales per day

C= ` Average trade credit


----------------------------------------------------
Average trade credit purchase per day

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Chapter
2
Organiza
tion KEC INTERNATIONAL LTD.
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Page
Profile
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RPG Group of Companies


RPG Enterprises is one of the India’s largest business conglomerates with a
turnover close to US$ 3 billion. Since its inception in 1979, RPG Enterprises has
been one of the fastest growing groups in India with more than 20 companies
operating successfully in six business sectors power, types, transmission,
technology, retail, entertainment. The group have over 40,000 employees and over
4, 00,000 shareholders. RPG Enterprises is an exciting place to work, where
excellence performance and entrepreneurship are valued.

VISION

Vision of the group is to focus on market capitalization through:

 Leadership in profitability and revenue growth in our chosen business.

 Being a customer centric organization.

 Being the most exciting workplace.

Pillars of RPG

Three pillars of the group are Respond, Perform and Grow. These
pillars imply:

 Respond to business opportunities and harness the finest resources.

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 Perform by inspiring people to come together and work as a team.

 Grow to be successful. 2009

History of RPG

 1979: Mr. Rama Prasad Goenka starts RPG Enterprises with Phillips
Carbon Black, Asian Cables, Agarpara Jute and Murphy India.

 1980’s: The 80s see further acquisitions by the RPG group. First being CEAT
Tyres of India in 1981. The group then went on to acquire KEC (1982); Searle India,
now RPG Life Sciences (1983); Dunlop (1984); HMV (1988); and finally CESC,
Harrisons Malayalam, Spencer & Co. and ICIM in 1989.

 1990: RP Goenka’s sons Harsh (Chairman) and Sanjeev (Vice-Chairman)


spearhead the group’s management from 1990.

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 RP Goenka currently oversees the group’s affairs as “Chairman Emeritus”.


Today, RPG has more than twenty companies across seven business sectors, with a
turnover nearing USD$ 3 billion. 2009

Companies under RPG Group

Transmission – 24%

Power – 22%

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Information Technology – 6%
2009

Retail – 11%

Entertainment – 1%

Tyres – 21%

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Carbon Black – 9% 2009

Specialty – 5%

Transmission Sector

Expansion of power transmission and distribution (T&D) capacity in India has fuelled growth of
the power T&D EPC industry in the last two years of the Tenth Plan period (FY02-07); growth
in the power T&D EPC industry was below average in the initial years of the Tenth Plan period.

Fortunes of the power T&D EPC industry are governed by the capacity expansion plans of
Power Grid Corporation of India (PGCIL) to a large extent, as it is the central transmission
utility in India. PGCIL added more than twice the transmission capacity in FY07 compared to
FY03, which has directed the revenue growth pattern of the industry.

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Historical Growth and EBITDA Growth


Average FY2001-04 Average FY2005-07
Company Revenues growth EBITDA Growth Revenues growth EBITDA Growth
2009
(%) (%) (%) (%)
Kalptaru Power 29.4 27.0 67.8 104.5
Transmission
KEC International 15.8 NM 28.8 45.1
Jyoti Structures 4.1 0.4 51.2 74.8

From FY05 onwards, the industry started posting robust growth with Kalpataru Power
Transmission (KPP) posting a revenue growth of ~81%, KEC (KECI) of ~18%, and Jyoti
Structures (JYS) of ~39% in FY07.

Historically, activity levels are much higher in the later years of five year plans. PGCIL is likely
to invest INR 65 bn in FY08E (~INR 20 bn in Q4FY08E), ~INR 85 bn in FY09E, and ~INR 300
bn from FY10-12E to upgrade India’s power transmission network. Hence, in the Eleventh Plan
period, we are likely to see heightened activity in the sector in FY11E and FY12E.

Besides PGCIL, Damodar Valley Corporation (DVC) and various state electricity boards (SEBs)
also undertake transmission capacity expansion in India. However, their plans are less
dependable than PGCIL’s, as most of the SEBs is crunched for funds. Further, their poor
payment record does not make them preferred customers.

Besides transmission projects initiated by PGCIL and others, power T&D EPC companies are
also present in power distribution up-gradation projects for which the nodal agencies are Power
Finance Corporation (PFC) and Rural Electrification Corporation (REC). Also, some
distribution up-gradation projects are initiated by SEBs. The outlay for distribution up-gradation
projects is ~INR 800 bn, equally divided between rural electrification (Rajeev Gandhi Grameen
Viduytikaran Yojana) and Accelerated Power Development Reform Program.

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While power transmission EPC primarily involves transmission lines and substations, power
distribution EPC entails strengthening of the distribution network. Transmission lines entail
tower and conductor supplies, civil construction, engineering, and testing. Substation projects 2009
include procurement of electrical equipment, civil construction, engineering and testing.

KEC International Ltd.

Introduction

KEC International is one of the largest Power Transmission EPC companies in the
world. KEC has made an indelible mark on the world map by constantly and
consistently re-engineering itself to retain its position of leadership in the areas of
quality, technology, capacity and capability. KEC's strengths lie in the areas of Design,
Manufacture, supply and Construction of Turnkey Projects of Power Transmission lines
of voltages up to 800 KV and in the execution of Railway Electrification projects,

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setting up Sub-stations and power Distribution Networks, Optical Fiber Cable (OPGW)
installations, Turnkey Telecom Infrastructure Services and maintenance of Power
Transmission Lines. 2009

KEC has gone from strength to strength successfully exporting towers to over 20
countries and widening its client base across the world. The company has an
increasingly strong presence in Argentina, Brazil, Canada, Egypt, Ethiopia, Ghana,
India, Indonesia, Iran, Iraq, Kenya, Kuwait, Lebanon, Malaysia, New Zealand, Nepal,
Nigeria, Philippines, South Africa, Sri Lanka, Saudi Arabia, Sudan, Syria, Thailand,
Tunisia, USA, UAE and Vietnam.

Vision:

 To be a global leader in Power Transmission EPC business and a significant


player in other related businesses, providing superior value to all stakeholders.

Mission:

 To be a global player in the power transmission and distribution industries.

 To meet customers’ requirements in terms of quality and time.

 To employ state of the art technology and instutionalize processes and to be the
most cost effective contraction and manufacturing company.

 To providing a challenging and fulfilling work culture to employees.

History

 Established in 1945 as Kamani Engineering Corporation for manufacturing,


enameling and trading of Hollowware.

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 In 1950 fabrication plant started in Bombay in collaboration with Ms R Foures, 2009


France for supply Bhankra Nangal Dam Project and transmission projects.

 In 1960, first international order was received from New Zealand.

 Railway Electrification department set up. First Indian company to get the order
of railway electrical of south eastern railways in 1961.

 In 1966 second manufacturing plant in Jaipur was started.

 In 1968, full turnkey project was awarded to design manufacturing, supply and
erect transmission line in Sudan.

 In 1969 government of India recognized it as the Export house.

 After taken over by RPG groups in 1982, company inaugurated tower testing
station at Vashi, Mumbai in 1983. This was the largest in the country and third
of its kind in the world.

 In 1984 name changed to KEC International limited and in 1987 turnover of the
company crosses Rs. 100 crores.

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 In 1996, third manufacturing plant in Nagpur was setup.

2009

 In 2007, RPG Transmission Ltd. and NITEL merged with KEC International.
Telecom business was also started in this year.

KEC’s Background:

 One of the leading Power Transmission EPC companies and the largest power
transmission company in Asia

 A more than 60 year old company with expertise in:

o Design, manufacture, supply and construction of Power

o Transmission projects up to 800 KV.

o Execution of Railway Electrification projects.

o Setting up Sub-stations and power Distribution Networks.

o Optical Fibre Cable (OPGW) installations

o Turnkey Telecom Infrastructure Services

 Manufacturing plants at Jaipur, Nagpur, Jabalpur and Associated plants at


Nagpur & Tarapur

 Plants, specifically designed for towers and structural, production are capable of
producing all types of Tower structures

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 All three plants have ISO 9001 & ISO 14001 certifications. Nagpur plant is 2009
certified for OHSAS 18001

 Supplied over 2 million metric tons of towers till date, for constructing over
53,000 kms of transmission lines globally.

Team KEC International Ltd.

R. D. Chandak(Managing Director) Vardhan V

Dharkar(CFO)

Mr Chandak is the most well known figure in Mr.


Dharker is a CA with rich exper-

the power transmission EPC space in India. He -ience in


finance. Associated with KEC

has been associated with textile, edible oil and


International since 2007.

Engineering Industries.

Anant Goenka(ED-Supply Chain) K Ramkumar(V

President)Special Projects

Mr. Goenka holds a good experience with Mr. Ram Kumar


brings with him 30 years of

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HUL, Accenture Mumbai, & Morgan Stanley experience


across precision manufacturing,

Hong Kong. Associated with KEC International Consumer 2009


Durables & Project Management

since 2007. Industries.


Associated with KEC since 1993.

Deepak Lakhpati (VP) Eng. Services Vimal Kejeriwal(Ex.

Director)Int. Business

Dr. Lakhapati brings with him 33 years of Mr.


Kejriwal is a CA. He has more than

experience in engineering transmission lines two


decades of experience in corporate

across the globe. As a member of CIGRE, Paris,


finance. Joined KEC in 2002 as CFO and

he is associated with KEC since 1998. was


elevated to Ex Director, IB in 2006.

Some Salient Points of KEC Business


model:

KEC International has a distinct business model as compared to its competitors in the
industry. The salient points of its business models and key competitive advantage are as
follows:

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Play on global power T&D EPC space

2009
Substantial investments have been planned in emerging markets, primarily Africa and
Middle East, in the power T&D EPC space. KEC International (KECI), with significant
presence in Africa, Central Asia, and the Middle East, apart from India, is likely to be
one of the beneficiaries of the global power T&D expansion.

Strong project management capabilities

KECI has executed projects in diverse terrains—across Kazakhstan, Saudi Arabia, Iraq,
and Afghanistan. While this kind of project profile does raise the risk profile of the
business, we believe, over the years, KECI has acquired the necessary skills to manage
projects in difficult terrains. It is currently working on ~60 projects simultaneously,
which denotes its superior project management capabilities.

Diversifying into EPC for railways

In the Eleventh Plan, Indian Railways has an ~INR 430 bn outlay for expanding
capacity.
KECI has pre qualifications from Indian Railways as the company was earlier been
involved in setting up infrastructure for it. KECI has recently bagged two railway
electrification projects from Northern and Central Railways. We believe entry into EPC
for railways is likely to further raise revenue visibility for the company.

Upside from telecom business

Merger with NITEL gives KECI presence in the high-growth telecom towers market.
NITEL provides EPC solutions in building communication networks and owns 384
telecom towers in four clusters of Mizoram, Meghalaya, and Chattisgarh. Simply put, it
is a play on telecom infrastructure in India.

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Aggressive order accretion


2009

In the past two quarters, KECI has had a higher order accretion than peers. This can be
attributed to the company’s significant presence in international markets compared to
peers, who are more active in the domestic market. Higher order accretion lends KECI
higher revenue visibility compared to JYS and KPP.

Major Risks:

Economic Slowdown

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The infrastructure spending by the government is the most important key to economic
growth. 2009

However economic slowdown would lead to government funds being diverted towards
priority sectors such as social services which could adversely affect spending on power.

Competition

With the rapidly expanding Indian market presenting a host of opportunities, there are
many players who are venturing in this business. In addition there is a threat from the
unorganized players to capture a minor share of the market as these players have low
overhead they put pressure on margin (18-20 active players)

Political Scenario

Every year the political scenario keeps changes. During the course of project if the
government changes there is a possibility of changes in rules and regulations and delay
in public policy adversely affecting the projects.

Delay in Contracts execution

EPC contracts accounting generally follows a percentage completion method, where the
revenue is proportional to the percentage of the contracts being executed. The delays in
the completion of the contracts could affect top line growth, delaying revenue booking.

Commodity Risk

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Increase or decrease in price of raw materials is generally passed on to the client. Since
little these price variation over last year has been significant it has put a huge pressure
on margins. 2009

Currency Risk

Some contracts being partly compensated in local currency of the respective countries,
any significant movement in exchange rate leads to currency risk thereby imparting the
margins for KEC.

Shortfall in meeting FIVE year plan targets

GOP could complete only 56% of 10th five year plan target of 41000 MW.11th plan
target has been increased to 76000 MW. It is feared that there may be a shortfall of
funds to the extent of Rs 45000 crs if target have to be met.

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Plans for Future


2009

Consolidation in business - Enhances KEC’s resource base, service offerings and


geographical reach.

Cost efficiency – Achieve cost synergies through rationalization of administrative


functions. Pursue operational synergies in project management, asset management,
equipment and workforce utilization and procurement cost savings.

Increase presence in the international market by looking into newer markets.

Commercial benefits - Largest manufacturing capacity in world for transmission


and telecom towers

Continuously improve in design capability through continuous focus of R&D.

Industry trends - Optimally positions KEC to take advantage of positive industry


trends

 Diversification into high growth telecom infrastructure business

Create share holder values.

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2009

KEC International Ltd., Jaipur

In 1982 Kamani Engineering Corporation was taken over by RPG Groups and in
1984 it was renamed to KEC International Ltd. In Jaipur it was established in
1985. It is situated in 14 -15, Jhotwara Ind. Area; Jaipur, Rajasthan with a
factory area of 47 acres. The major activities at jaipur plant are Proto
finalization, Tower testing and Manufacturing of tower parts with a capital
investment of 13 million US$. The current manpower consists of 89 Managers,
40 Supervisors, 295 Workmen and 103 Contractor approximately.

TEAM KEC JAIPUR

 Rajesh Koolwal - Chief Manager

 D S Shekhawat - Div. Manager – Material

 - Sr. Manager Production

 C M Sharma - Sr. Manager – Plant Engg.

 Rohit Jhalani - Sr. Manager Projects

 S S Naruka - Sr. Manager - IT

 M C Dixit - Manager - Galvanizing

 Manish Agarwal - Manager – Procurement

 Atul Agarwal - Manager – F & Accounts

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 R C Saxena - Manager - HR

 - Manager – Quality Assurance


2009

 R M Gupta - Manager – Material Mgmt.

KEY STRENGTH OF JAIPUR WORKS

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2009

Fabrication Process

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2009

Galvanizing Process

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2009

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2009

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FINANCE & ACCOUNTS


2009

The term finance and accounts is totally different. Finance is the arrangement of the
funds for the smooth running operations of the organizations whereas Accounts is the
bookkeeping or keeping record of funds for the organizations. Accounts provide a good
platform for the organizations in taking decisions and in maintaining cash. In each every
organization both of them plays a role of heart i.e. central control of the organization. It
controls and checks the outgoing and incoming transactions and provides a good worth
to the companies. In the KECIL the finance part is only of 5%and accounts portion is of
95%. While rest part of the finance is being handled and overall control by Mumbai
Head-office.

Finance /Accounts

MIS
Budgeting Taxation Informatio
n System
Audit Payroll Billing

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Objectives of Finance & Accounts 2009

100% statutory payment compliances on scheduled dates.

Timely & error free payments to employees.

A/R Bills submission to customers-2 days on getting – full set of documents.

Cost reduction through feedback to all concerned over previous year.

Prompt and proper response to all internal and external customers and processing of
supplies bills before due dates for timely payment.

Finalization of Accounts

Monthly with 5 days

Quarterly within- 10 days.

Annual within 15 days

Preparation & submission of all types of reports & returns to corporate & various
government departments on scheduled dates.

Prompt response to corporate office & other unit offices of KECIL.

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2009

MAIN INPUTS/ OUTPUTS TO THE


ACCOUNTS & FINANCE
DEPARTMENT

INPUTS

 Production Management Dept- Production, Dispatch, Inventories Data.

 Purchase/General Stores- Consumer Bills, P.O, GRN

 Mass Production- Purchase Order of Steel & Zinc

 Raw Yard- Steel received GRN

 Finished Yard- third Party Fabricator (GRN), Dispatch Advice Note

 Time Office- Attendance Records

OUTPUTS

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 Payments to Suppliers

 Maintaining The Financial Records 2009

 Statutory Compliance [Sale Tax, Income tax, P.F, ESIC (Employees State
Insurance Corporation), Excise Duty, Service tax, TDS].

 Employees Salaries & Wages.

 Domestic Billing

Functional Areas Covered By Finance &


Account Department

ACCOUNTS /FINANCE
COMMERCIALS
BUDGET/MIS
PAYROLL
TAXATION
AUDIT
 BILLING

At Jaipur only 5% of Finance part is being taking place and rest of the responsibilities is
being taking care by the Mumbai Head Office. They provide Jaipur KECIL
sufficient funds as they give the requirements.

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2009

FINANCIAL PERFORMANCE
Financial year 2008-2009 was a year of challenges and uncertainty for businesses across
various segments of industries, with the financial crises, volatile commodity prices,
sharp movements in the currency, crashing stock market and server liquidity crises.
KEC was also not insulated from the above changes, even though the company
continued its focus on delivering quality products and services on time with prudent
project execution and management of resources.

• Prominent workforce and management resulted in achieving a net turnover of Rs


3427.39 crores and net profit Rs 116.29 crores in the current financial year,
against net turnover of Rs 2814.47 crores and net profit of Rs 172.16 crores in
2007-08.

• The EBITDA is 8.77% as against 12.60% in last year. The EPS in the current
financial year is Rs 23.57 as against Rs 39.56 in 2007-08.

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• During the year operation performance of the company has generated a positive
net cash flow of the Rs 369.80 crores as against Rs. 4.34 crores in the previous
year. 2009

• Debt equity ratio has improved to 1.11:1 as compare to 1.20:1 during the
previous year.

• As on 31 March the aggregated paid up equity shares capital of the co. consisted
of for 93,44,606 equity shares of Rs. 49.34 crores.

• As of July 15th 2009, the market price of share in BSE 406 & NSE 404.35

• Total expenditure in R&D was 202.48 lakhs, approximately .06% of total


turnover.

• Total Foreign exchange earned Rs 2,11,721.76 lakhs and used Rs 140586.88


lakhs in 2008-09.

FINANCIAL STATEMENT

Rs in Crores

For the year ended 31st For the year ended 31st
March 09 March 08
Gross Sales 3,481.34 2,853.88

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EBITDA 300.57 354.57


Interest 99.98 67.65
Profit before Non-Cash 200.59 286.92
items/Tax 2009
Depreciation and Amortization 22.75 25.07
Profit before tax 177.84 261.85
Provision for taxation 61.55 89.69
Profit after taxation 116.29 172.16
Appropriations:
Balance as per last account 239.45 117.25
Capital redemption Reserve 10.40 3.88
Transfer to general Reserve 11.63 17.22
Proposed dividend 24.67 24.67
Tax Dividend 4.19 4.19
Balance transferred to 304.85 239.49
balance sheet

Categories of Shareholders as on 31st


March 2009

Category No. of Shares held Percent of


Shareholdings
Promoters 2,06,04,739 41.76
Mutual Funds /UTI 1,56,49,578 31.71
Financial Institutions, Insurance 30,80,352 6.24
Companies and banks including
(Foreign Banks)
Foreign institutional investors 24,00,880 4.87
General public 57,42,158 11.62
NRI & Foreign Companies 2,07,833 0.42
Other Companies 14,99,153 3.04
Clearing Members 1,22,732 0.25
Director and Relatives 37,001 0.07
Total 4,93,44,606 100.00

Shareholders as on 31st March 2009

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2009

Performance of KEC
International Ltd.

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6,000
Net sales PAT 5,292 2009
5,000
4,204
4,000
3,428

3,000 2,815

2,041
2,000 1,728

1,000
172 221 289
49 105 116
0
2005-06 2006-07 2007-08 2008-09 FY-10E FY-11E

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Performance of KEC International,


Jaipur 2009

35000 Production Dispatch


31644
30363 30855 29617
30000
26491 26584
25000 24156 23640
22049 22485

20000

15000

10000

5000

0
2004-05 2005-06 2006-07 2007-08 2008-09

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Investment Highlights
2009

Strong order book gives the growth visibility in long run

KEC has a strong order book of Rs 51.63 bn which is 1.5x FY09 net sales and has
grown at 23% over last year’s order backlog. The fresh order intake in FY09 has grown
at little lower rate of 9.4% over last year. But with the easing liquidity scenario, the
expenditure for the 11th FYP is expected to pick up its pace. We expect the order
backlog to grow 24.2% in FY09-11E. The growth would be driven by new order inflows
from T&D space and the new areas such as telecom and railways. Strong order inflows
are expected in telecom segment.

Order book from domestic market picking up

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The first three quarters of FY09 has seen lower order inflows from PGCIL. But in
Q4FY09 the order inflows witnessed a rising trend with KEC bagging over Rs 1.02 bn 2009

of orders from PGCIL. As a result contribution of domestic order book increased to 50%
in FY09 as against 30% in the last year. The order visibility from domestic market is
expected to remain robust in FY10E also as PGCIL targets to spend Rs 120 bn in the
year and Rs 280 bn in FY11-FY12. With this Rs 60 bn of transmission lines tenders is
expected from PGCIL in FY10E. Further order inflows are expected from state utilities
as they are coming up with the investments in 400KV transmission lines.

Diversifying business mix with telecom and railways infrastructure

KEC is diversifying its business mix by targeting other infrastructure space like telecom
and railways. In FY09 these segments contributed merely 6.2% to the revenue and
contribution is expected to increase as the segment has immense growth opportunity.

Targeting asset ownership in telecom space on BOO basis

India has low telecom density of below 20% and the telecom sector is expected to be on
high growth path on increasing subscriber base. To meet the capacity and coverage

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requirement, the telecom infrastructure would also be ramped up from current 120000
towers to 270000 towers in the next three years. KEC is targeting large BSNL tenders
for setting up telecom infrastructure. It is also looking at international opportunity in 2009

telecom space in Africa and South East Asia. KEC merged NITEL in 2007 which had
bagged orders worth Rs1bn from USO Fund for setting up about 400 telecom towers on
BOO basis in India.

Expanding horizon in railways projects

KEC is currently carrying out railways electrification project. Going forward KEC plans
to target new areas like track laying and signaling.

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2009

Chapte
r3
Data
Analysis

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Types of Bills in KEC:


2009

A typical transmission tower project can be sub-divided into two major parts.

i) Supply of the tower material and its accessories


ii) Erection of the towers.

The supply contracts generally include the fabrication, galvanizing and supply of
various type of tower & tower parts, tower extensions, stubs, hangers, D-Shackles, pack
washers, bolts and nuts, cleats, earthing and various other tower and line accessory
materials for aviation requirements, wind measuring equipments, and etc.

KEC International has a distinct business model. It manufactures and galvanizes only
the tower materials at its three factories at Jaipur, Butibourri and Jabalpur and
outsources the tower and line accessories to various small and medium sub-vendors.
The bills generated by the factories towards the materials manufactured, galvanized and
supplied from the three factories are known as supply bills. The bills are generated by
the factories and sent to the site for approval of the client before payment realization.
The bills generated by the sub-vendors for the manufacturing, galvanizing and supply of
tower accessories and line accessories are known as bought out bills.

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2009

The third kind of bill is known as erection bill and generated at the site and encompasses
activities like survey (both detailed survey and check survey), soil investigation,
constructing the tower foundations (excavation of soil, concreting, supply and
reinforcement of placement steel, transportation and installation of stub including bolts
and nuts), benching protection of tower footings, transportation and installation of
earthing of towers, transportation and installation of the following tower accessories
(like danger plate, number plate, phase cut, circuit plate, anti-climbing device, bird
guard), transportation of GS Earthwire, hardware fittings and etc.
Supply bills are generated once the client issues the MICC, erection bills are generated
as soon as the JMC s are be obtained.
From the above diagram it is evident that there are bills have been broadly classified
under two heads.

i) The progress bills are those bills which are raised as and when the work is
completed
ii) The price variation bills are those bills those are raised to compensate for the
escalation.

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Say the contracts are floated on Jan1, 2006 and the contractor bids for the tender based
on the current value that is as the prices in January.
2009

However the when the contract is executed say during June 2008 already thirty months
have passed and the prices of petrol, diesel, steel, cement, labour and zinc( used for
galvanizing) increases due to inflation. To compensate for this increase in price of steel,
cement, labour, zinc and petrol/diesel, there is a provision of price variation bills.

Like progress bills, price variation bills also have three components namely supply bills,
erection bills and bought out bills.

We will cover and analyze the inefficiencies in the individual billing cycle later.
Every billing process requires some documents to be enclosed with the original bills for
client approval and payment process. Missing enclosures are the biggest contributor to
the delay in the billing process. It was one of my deliverables to create a checklist of all
the enclosures so which can be sent at sites and factories and so as to minimize the delay
due to missing enclosure.

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2009

Brief Definition of the Bills

• Supply Bills:

Supply Bills are generated at the factories at Butibori, Jaipur, and


Jabalpur of the tower materials like the tower members, stubs and etc. All the factories
generate progress supply bills but only Butibori factory generate the price variation bills.
Before we dig deep into the supply billing process let us jot down the enclosures that we
must submit with the supply bills. The enclosures with the supply billing process are as
follows:

 MICC/CIP

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 Dispatch Note/Packing List


2009

 Guarantee Certificate

 Insurance Certificate

 Receipted L/R

 Invoice Original/ Excise Invoice

 TCC Certificate

 Commercial Invoice

 MRC Certificate

 MRHOV Certificate

FLOW CHART REPRESENTATION OF


SUPPLY BILLS

KEC H.O.
KEC Factory

Approves the
bill &
clears the bill

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After material dispatch the bill is


prepared and the following docs
are enclosed( dispatch note+
Insurance Certificate+ Guarantee 2009
Certificate+ Tax Invoice+ Excise
Invoice + MICC + CIP)

KEC Site Office Client Regional H.O.

After the material reaches the site,


they are unloaded and stacked. Client checks the bills, annexure and the
Client issues the MRC & MRHOV enclosures and sends the bill/bills for
Certificate which are enclosed with payment to Regional HQ
the bills along with the LR
Certificates

Client Site Office

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Inefficiencies in the Supply Billing Cycle:


2009

Let us cite some MICC wise bill details from N-97 contract and through that we can
identify the inefficiency.

Contract Bill No. MICC E.CIP L.CIP MICC Bill Bill Payment
No. No. Date Date Receiving Realized
Date

N-97 1,3 36307 2Dec08 24Dec08 26Dec08 26Dec08 28Dec08 19Feb09

5,6 36905 18Dec08 15Jan09 31Jan09 31Jan09 02Feb09 28feb09

8,9 37057 18Dec08 25Jan09 06Feb09 13Feb09 15Feb09 27Feb09

28,29 37358 18Dec08 06Feb09 23Feb09 28Mar09 30Mar09 31Mar09

19,20 37540 18Dec08 23Feb09 03Mar09 25Mar09 27Mar09 30Mar09

30,31,32 38113 14th Jan 09 06Mar09 24Mar09 25Mar09 28Mar09 31Mar09

From the above table we have categorized the total billing cycle in five stages. The first
stage is the period between the date at which the first CIP was issued and the last CIP
was issued under a particular MICC. The second stage is the period between the last CIP
issued and the date on which the MICC certificate was issued. The third stage represents
the period between the date on which MICC was issued and the Bill was raised. Though
at the site the date of receiving the bill is not registered but on an average it has been
assumed that the bill takes two days to reach the site after being dispatched from the
factory. The fourth stage depicts the proportion of time that the bills take in reaching the
site from the factory. The fifth stage is the payment realized stage, i.e. payment received
by the company.

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2009

Some Major Questions Unanswered:

 Looking at the above table one can observe that the total time between the date
of issuance of the last CIP and the date of issuance of MICC certificates are 16,
13, 17, 8, 18 days respectively. Technically the client should be issuing the
MICC certificate on the same day or within one or two day from the date of
issuance of CIP.

 Again the period between the day on which the first CIP under that particular
MICC was issued and the day on which the last CIP was issued is a major area
of concern. For example as per MICC No. 2009-3118 and MICC No. 2009-
37358 the stage 1 seems to be 50 days. If we look at the following pie charts

As per MICC No. 2009-38113

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2009

Stage 1 seems to be the most extended one. In case of MICC No.38113 stage 1 seems to
be a staggering 50 days or 68% of the total 75 days. In case of MICC No. 37358, the
number of days between the first CIP and the last CIP is 50 days or 49 % of the total
cycle time.

As per MICC No. 2009-37358

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2009

Numerical Analysis of Loss as per Supply Bill No: 30 of N-97 Contract:

Bill Value = Rs.1,81,13,474

Earliest CIP Date= 23/1/09

Latest CIP Date= 6/3/09

MICC Date= 24/3/09

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CIP Delayed Time = 42days

MICC Delayed Time = 18 days 2009

Considering that the ideal CIP Date= 30 days and MICC Date = 4 days

And 10% as the rate of interest;

We get interest loss per day = (18113474 * 0.1)/365 = Rs 4963


As there had been an excess time taken to get the last CIP hence loss incurred =
(12*4963) =
Rs 59544
And there had been an excess time taken to get the MICC hence the loss incurred =
(14*4963) =
Rs 69842
So when the two losses are coupled together the opportunity lost = (59544 + 69842) =
Rs 129386

As we can see that supply forms the biggest portion of the revenues hence a delay
in supply bills has much more detrimental effect than anticipated.

• Erection Bills:

Erection Bills are generated by the site and generally includes heads like survey,
foundation, erection, supply and placement of reinforcement steel, soil investigation and
etc.

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Enclosures with the erection bills:

 Original Bills & Annexure 2009

 Joint Measurement Certificate

 Measurement Book

 Abstract Book

FLOW CHART FOR ERECTION BILLS

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Bill is prepared
Bill 2009
forwarded to the DGM (1day)

Assuming 2
Saturdays DGM receives the
& Bill DGM
marks2the bill andinforwards
Sundays a it to the
billing cycle manager (3days)

Manager receives
Mana
ger marks the bill and forwards it to the the bill
site engineer (2days) Manager
receives

Site engineer
Erection Billing
Cycle receives the bill Site
engineer
Timechecks
= 30 the bills, the enclosures
days & sends the signed bill to the
manager (transit time=2 days)

Manager receives the


signed bill

Manager signs the bill & forwards


the bill to
DGM receives the the DGM (2 days)
signed bill

DGM
approves the bill (2days) + Transit by
Courier or reserved post
( 2days)

Fin Dept. receives the


signed & approved bill

The bills remain in queue(5days) +


checking the bills and approving the
bills(3days)

Releases the payment

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The Joint Measurement Certificate is the common measurement taken by the site
engineer of the client and the site engineer of KEC. JMCs are issued after major
activities. Once the site JMC is obtained then it is approved by the head of the 2009

department, in most cases the DGM and countered signed by the authorized signatory of
KEC.

All the measurements approved by the client are then filled in a measurement book.
Measurement books are filled once a month and the quantities are updated each month
and the cumulative quantity is added monitored. Measurement books can run into pages
as all the items in the bills have to be filled in since the starting of the project. For
example, even if there is no work under foundation head in a particular month and the
same item has been done and noted in any of the previous month hence the up to date
quantity under the foundation head has to be entered in the Measurement Book.

As measurement books are generally lengthy and runs into pages hence a synopsis of the
measurement book is prepared which is known as abstract book. Both measurement
books and abstract books are client’s document but are generally filled up by the
contractor’s representative and then verified and approved by the client.

But the quantity mentioned in measurement books and abstract books are sometimes
with held for certain reasons, or their might be some error in the calculation by the KEC
personnel or incase the quantity exceeds the quantity mentioned in the LOA and
therefore the client manager restricts the with held or restricted quantity and issues a
payment advice note for the finance department.

All the enclosed documents are absolute mandatory documents to be enclosed with the
erection bills.

Marking Process:

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As shown in the flow chart after the bill is prepared it is initially sent to the DGM of the
client who then marks the name of the manager who would look in to the bill and assign
the name of the site engineer. Once the manager receives the bill from the DGM, he 2009

marks the name of the engineer on the bill and forwards it to the respective engineer.
The site engineer on the client side receives the bill, checks it alongside the enclosures.
After verifying he signs and approves the bill and forwards it to the manager. The
manager again rechecks the bill and the enclosures and after his approval the bill reaches
the DGM. After getting approval from the DGM then only the bills are forwarded to the
finance department for the approval and payment process. This entire marking and the
reverse marking process on an average eats up around 15-16 days which should have
been ideally been completed within 4-5 days.
But as this is a client system hence this process is more of a compliance issue.

FLOW CHART OF MARKING PROCESS

KEC Client
DGM Client Mgr
Office Bill Marking &
Preparation & Forwarding the
Forwarding (1day) Bill (3days)

Marking &
Forwarding the
Bill(3days)

Total No. of
days Client Site
16 Engg

Checking Bills,
Enclosures, Signing,
Forwarding (4days)
Signing &
Forwarding the
Bill (3days)

Client R.H.Q Client DGM Client Mgr.


Signing the
approved
bill(2days)

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Client R.H.Q KEC H.O 2009


Awaited in the queue
(5days)
+ Bill Processing
(3days)

Major Causes of Delay at Site:

 Delay in obtaining JMC:

Generally the JMC should be signed by the client at the time of taking
measurement but the JMCs are generally signed after completion of all the works
for a particular tower. The major conflict takes place between the client and the
contractor in terms of the state of the soil strata encountered during excavation
for the tower foundation. This conflict arises as there are different rates for
different types of soil strata. Say, for example in project N-36, the unit rate of
excavation in dry soil is Rs.141 per cum, Rs.195 for Wet soil, Rs.510 for dry
fissured rock and Rs. 1176 for hard rock.

 Marking System:

Marking system as mentioned earlier eats up 15-16 days. The DGM, manager
and the site engineer are unavailable for signing and approving the bills and this
causes the main delay in the marking process.

 Abstract Book and Measurement Books do not reach site at time:

The abstract books and the measurement books seldom reach site from the client
finance department once it has been put up for approval and payment realization.
This problem generally occurs incase of the Price variation Bills.

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 Enclosures & Test Reports:


2009

Though there are fewer enclosures with erection bills as compared to the supply
and the boughtout bills, but the client can ask for various other test reports and
documents such as quality plan documents, metal reconciliation, manufacturer’s
test report, test report of re-bars, test report of cement and etc. If we cannot
produce those documents immediately the billing approval process gets delayed.

 Bill Processing:

When the bills finally reach the finance department for final checking and
approval they are processed in a queued manner. The person entrusted with the
responsibility of checking and approving the bill might be looking after bills of
several companies and hence the processes the bills in first cum first served
manner.

 Unavailability of client representative:

It has been one of the major complains from the site billing personnel that often
the signatory authority from the client’s side is unavailable for signing the
crucial documents. This might happen during the marking process or the reverse
marking process.

 Quantity Amendment:

Quantity amendment is a major cause of delay in the billing process. If the


quantity of a bill exceeds the quantity mentioned in the Letter of Award, the
contractor usually has to get the quantity amended. If contractor is not proactive

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or fail to anticipate quantity amendment then quantity amendment can also


contribute in the delay of the bill getting approved.
2009

 Time extensions:

Say, the completion date of the project is 31-12-2008 and for any reason the
project gets extended for three more months. Unless the time extension is
approved from the client, client can exercise its right and deduct liquidated
damages from the bill quantity.

If later proved that the time extension was due to some delay from on part of the
client, they release the deducted amount but in this process the working capital
gets tied

 Deductions in Erection Bills:

• Difference due to billed amount and the bill passed.


• Error in calculation.
• There is a mismatch in the claim and what the client has approved. For
example: while excavating for the tower foundations we might have
claimed wet soil, but the client site engineer approves the soil strata as
dry soil. As the excavation rate for the wet soil is much higher than the
dry soil hence there is a mismatch in the bill value as per the client and as
per our site engineer.

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2009

• Brought out bills

Bought-Out bills are raised by our sub-vendors. Tower accessories like bolts, nuts,
spring washers, circuit plates, earthings, sign-plates are delivered by our sub-vendors
and these bills are monitored and controlled by our head office. After the initial
processing they are forwarded to the site for the final processing and payment
realization.

Similar to the supply bills, there are many enclosures to the bought-out bills. The
enclosures with the bought-out bills are:

 Original MICC/CIP

 Dispatch Note/Packing List

 Guarantee Certificate

 Insurance Certificate

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 Receipted L/R

 Invoice Original/ Excise Invoice


2009

 MR Certificate

 MRHOV Certificate

The particulars, and significance of the enclosure on the billing cycle has been furnished
as Annexure-I.

FLOW CHART OF BROUGHTOUT BILLS

SUB-VENDOR KEC H.O.

Approves the bill & clears the bill


(5days in queue +3-4
days for bill
processing and payment)
Sends Bill+ CIP+MICC+ Test
Reports+ Challan + Packing List+ G.
Certificate+ Ins. Certificate+ Tax
Invoice + Excise Invoice(15 days from date of dispatch)

Atta
ches Dispatch
Note/Packing List+
Insurance Certificate+
G. Certificate+ Tax
Sends material Invoice + Excise Client R. H.Q.

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Invoice+ LR(7 days)

KEC Site
Office.
2009

Attaches MRC, MRHOV


Certificates

Total Bought-Out Billing cycle


time = 45 days(approximately)
Checks
the bill & annexure and the enclosures

and sends the bill for payment to


Regional HQ(7

Client Site Office

In the bought-out billing process as head office is responsible for procuring the material
from the sub-vendors. They place an order to the sub-vendors already approved by the
client. As soon as the material is prepared or anticipated to be prepared, the sub-vendor
generates a call for inspection through the client’s inspection management system. The
client representative comes and inspects the material and issues an interim report. This is
known as CIP. When materials as per all the CIPs are prepared and the client have
inspected material for all the batches they issue material inspection and clarification
certificate or MICC.
The sub-vendors prepare sends the material along with copies of packing certificate and
dispatches the bill, the guarantee certificate, the insurance certificate, the invoices the
MICCs, the CIPs, the test reports and all the other enclosures along with the bills and
send the bills to the head office. The head office again prepares the bills, attaches the
guarantee certificate, the insurance certificates, the tax invoices, LRs, the excise invoice
and sends the bills to the site. Site receives the bills and attaches the MRC and the
MRHOV Certificate and sends them to the site client office. The client office then
processes the bills in a manner similar to that of a supply or erection bill.

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Analysis of Brought-out bills


2009

Let us try to look at some bought-out bills from project N-97.

Bill no. MICC no. CIP date MICC date Bill date Bill Payment
receiving realized
date date
5 36905 18/12/08 31/1/09 31/1/09 2/2/09 28/2/09
8 37057 18/12/08 6/2/09 13/2/09 15/2/09 27/2/09
19 37540 18/12/08 3/3/09 25/3/09 27/2/09 30/3/09
30 38113 18/12/08 24/3/09 25/3/09 28/3/09 31/3/09

As per MICC No: 37540 the entire billing cycle has been classified into 4 stages. The 1st
stage is the period between the date of issuance of CIP and the date of issuance of
MICC. Stage 2 depicts the duration between the date of issuance of MICC and the date
on which the bills were raised. The third stage is the transit period from the office to the
site. And the final stage is the duration of time taken in processing and approving the
bill.

As per MICC No. 37540

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2009

Even as per MICC No. 37540 it is evident that the first stage that is the stage depicting
the duration between the CIP and MICC is the most prolonged. Even in the supply bills
we have seen the same trend of extended delay in obtaining MICC after CIP.

• Price Variation Bills:

Price variation bills are majorly bills to compensate for the increase in price of steel,
cement, zinc, labor and aluminum.
There are three kinds of price variation bills. The supply price variation bills, the
erection price variation bills, and the bought-out price variation bills.

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Price Variation Bills for Concreting: 2009

Price Variation formula for Concerting:

P= P0/100 (20 + 20HSD/HSD0 + 30C/C0 + 20SC/SC0 + 10W/W0)

Price Variation Bills for Reinforced and other steel works:

P= P0/100 (20 + 65IS/IS0 + 10HSD/HSD0 + 05W/W0)

Price Variation formula for Erection (excluding Reinforced and other steel works and
concerting:

P= P0/100 (20 + 22HSD/HSD0 + 58W/W0)

P – Price payable as adjusted in accordance with the above formula

P0 – Price quoted/confirmed

HSD0 – Wholesale price index number for ‘High Speed Diesel Oil’ The index number
is as applicable one month prior to the date of tendering

C0 – Wholesale price index number for Cement

SC0- Wholesale price index number for ‘Structural Clay products’

IS0- Wholesale price index for ‘Iron & St’

Price Variation Formula for Supply Portion:

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Transmission line tower using both heavy and light angles:

P=P0/100 (15 + 18HA/HA0 + 40LA/LA0 + 16Zn/Zn0 + 11W/W0) 2009

Transmission line tower using heavy angles:

P= P0/100 (15 + 58HA/HA0 + 16Zn/Zn0 + 11W/W0)

Transmission line tower using light angles:

P= P0/100 (15 + 58LA/LA0 + 16Zn/Zn0 + 11W/W0)

Transmission line accessories and hardware containing both aluminium and


steel

P= P0/100 (20 + 40Al/Al0 + 5Zn/Zn0 + 20Fe/Fe0 + 15W/W0)

Transmission line accessories and hardware containing aluminium

P= P0/100 (20 + 65Al/Al0 + 15W/W0)

Transmission line and accessories and hardware containing steel

P= P0/100 (20 + 58Fe/Fe0 + 7Zn/Zn0 + 15 W/W0)

P - Price payable as adjusted in accordance with the above appropriate formula.

P0 - Price quoted/confirmed.

HA0 - Price of heavy angles (refer notes). This price is as applicable on the first working day of
the month, one month prior to the date of tendering.

LA0 - Price of lighter angles (refer notes). This price is as applicable on the first working day of
the month, one month prior to the date of tendering.

Zn0 - Price of electrolytic high grade zinc (refer notes). , This price is as applicable on the first
working day of the month, one month prior to the date of tendering.

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W0 - All India average consumer price index number for industrial workers, as published by the
Labor Bureau, Ministry of Labor, Govt. of India (Base 1982 =100)
2009
Fe0 - Wholesale price index number for iron and steel (refer notes). This index number is as
applicable on the 1st Saturday of the month, three months prior to the date of tendering.

So all the price variation are based on this formula which has been developed by
IEEMA in consultation with its member, which are fixed over the period. The total
manufacturing cost was studied along with process. Then the total inputs which are raw
materials, labour, machinery cost, margin and transportation were found out. Based on
that the total weightage was calculated and further the ratio was developed.

Now if we see the transmission line tower with only light angle is seen we can say that
the cost break in manufacturing of tower is 58% steel, 16% Zinc, 11% labour
contribution and 15% is margin and others expenses. Any variation in steel, zinc and
labour price will be paid by PGCIL, SEB’s and others. No price variation will be given
for the margin factor.

Chapte
Enclosures with Price Variation Bills:

• Bar Chart details together with bill-wise claim of structures

r4
• Computation with Price variation rates

• A copy each of price circulars referred in the statement such as IEEMA Bulletins

• Statement bill wise & challan wise dispatch details

Major
• Statement of Computation of Price Variation bills

Findings
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Improvement of Working Capital Management by
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FINDINGS
2009

General:

 Revenue growth of 43.2% year on year largely due to higher tower sales.

 Operating margins decline 620 bps year on year to 7% due to lower margins on
tower sales business and losses on Forex fluctuation.

 Healthy order book worth Rs 47 billion executable within 18 months.

 Net profit plummets 47.5% year on year on the back of lower operating profit
and higher interest costs

 Management Information System is the major area of concern.

 High carrying cost of the finished goods.

Supply Bills:

 Total time between the date of issuance of the last CIP and the date of issuance
of MICC certificates is 15 days on an average.

 The time period between the day on which the first CIP under that particular
MICC was issued and the day on which the last CIP was issued is a major area
of concern.

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2009

Erection bills:

 JMC (Joint Material Certificate) issuance is delayed due to the conflicts arising
between client and contactor.

 Marking process eats up 15-16 days, due to unavailability of the DGM, Engineer
and Manager for signing and approving the bills.

 Billing process delayed due to the unavailability of the test reports and other
documents demanded immediately by the client.

 Unavailability of the client’s side representative for signing crucial documents.

 Quantity amendment is a major cause of delay in the billing process.

Brought-out bills:

 Duration between the CIP and MICC generation for a particular batch is the
major area of concern.

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Suggestions
2009

 An automated system is recommended where in as soon as the last CIP is done


and entered into the system, automatically a call for the MICC would be
generated though the client inspection management system.

 For time extension case, proper documentation (client correspondence) should be


maintained from the beginning of the project. Every project has to mandatorily
keep records of the proper documentation and this can be properly monitored
through internal control systems. There should be a movement register for the
bills and should be maintained at the site.

 After factories dispatches bills to the site it generally takes 2-3 days for the
parcel to each the site. After the bills along with the enclosures reach the site it
takes around 2-3 days for the site people to compile the challans and the
respective LRs before checking the calculations and the other enclosures. As the
bills are prepared mostly in excel format therefore if they can be mailed to the
site from the factories so that by the time the dispatched material reaches the site,
the site people are ready with all the challans, LRs, MRCs and the MRHOVs and
a proper checklist is done.

 For a particular lot when the manufacturing is done inspector is called upon for
the CIP on an average the inspector visit, the company after 7days of receiving
the call. In this case we can give a call when the 60 % of manufacturing of
particular lot is done so that rest of the manufacturing is done by the time
inspector visits the company thereby reducing the timeframe for which they kept

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finish goods at finish yard and also reducing the carrying cost of finished
inventory.
2009

 One major problem that the site people face is the unavailability of Abstract
Books and Measurement Books for billing purpose esp. for PV Billing.
However, if the idea of multiple ABs and MBs can be properly sold to the clients
it would increase efficiency in the billing process. The common belief is that it
would become more difficult to monitor the bills but the client as well as the
contractor both maintains databases of the updated bills in softcopy format hence
in current scenario the recommendation of multiple Abs and MBs can be pushed
forward.

 Proper transportation system (i.e. good terms with truck operators), so that the
finished goods are dispatched as soon as possible, so that the carrying cost of
finished inventory is reduced.

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2009

SWOT
Analysis

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Strength:

 One of the leading Power transmissions EPC Company in Asia. 2009

 Excellent vendor relationships & Volumes based Procurements.

 Six Decades of Experience working in all types of terrains, excellent project


management capabilities.

 Three tower testing stations- Jabalpur, Jaipur and Vashi. Capable of tower
testing upto 1200 KV.

 Dedicated skilled workforce with cross country project execution capability.

 Diversified Portfolio: Transmission Distribution, Telecom and Railways.

 Large capacity for Tower manufacturing & supply with ISO 9001 | ISO 14001 |
OHSAS 18001.

 Global footprint with client base spread over 40 countries, with approximately
50% international projects of Australia, Kenya, Afghanistan, South Africa etc.

Weakness:

 Billing process, deals with lots of paper work, which takes a lot of time.

 Jaipur plant does not have efficient Management Information System.

 Authorities in certain part are very centralized which can be decentralized to


increase the efficiency by reducing the time which is consumed in
communication from one level to another and so on.
 High debt capital in the business

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Opportunities:
2009

 Strong order book gives the growth visibility in long run.

 Positive outlook of power transmission sector to drive future order book (PGCIL
targets to spend Rs 120 billion in the year and rest Rs 280 billion in FY11-FY12)

 Opportunities in countries where it is not yet present. (Diversified its presence in


20 Countries).

 Likelihood of increased government spending in infrastructure projects like


railways, telecom.

 Ease in raw material prices to improve margins

Threats:

 Turmoil in World Economy

 Delay in Government spending on Power

 Volatile Commodity prices (steel, zinc, aluminum, cement)

 Volatile US dollar

 Liquidity constraints

 Fund Shortage likely to impact fresh investments by private sector

 Availability of adequate and quality manpower to cater to growth in business

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Improvement of Working Capital Management by
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2009

Chapte
r5
Bibliogr
aphy

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Improvement of Working Capital Management by
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2009

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Improvement of Working Capital Management by
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2009

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Improvement of Working Capital Management by
bringing efficiency in billing process

2009

Chapte
r6
Appendi
x

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Supply Bills: MICC/CIP, Dispatch Note/Packing List, Guarantee Certificate, Insurance 2009
Certificate, Receipted L/R, Invoice Original/ Excise Invoice, MRC Certificate, MRHOV
Certificate
Erection Bills: Original Bills & Annexure, Joint Measurement Certificate,
Measurement
Book, Abstract Book, Payment Advice Note
Bought-out Bills: Original MICC/CIP, Dispatch Note/Packing List, Guarantee
Certificate, Insurance Certificate, Receipted L/R, Invoice Original/ Excise Invoice,
MRC
Certificate, MRHOV Certificate

Supply Bills

Documents Particulars Significance


CIP (Customer The CIP consist the Call ID, The CIP is an interim report and
Inspection Point) date, time, LOA No, contract signifies that client inspection and
name, manufacturer CIP no, satisfaction with the quality of
Issued by : Client Contractor IC no, inspection material. During billing the client
Issued at: Factory date, name of contractor and checks whether the material was
manufacturer, inspected and approved by the
Material Quality Plan and client inspectors. Missing CIP as
itemized details. an
enclosure or any mismatch of data
in the CIP leads to delay in the
payment process.
MICC (Material Many CIPs constitute a single MICC signifies that the material
Inspection and Clearance MICC. It contains the LOA No, offered had been inspected, the
Certificate)
manufacturer MICC No, test certificates reviewed and
Issued by: Client Contract Name, contractor, and authorized for dispatch as per the
item description in a tabulated CIPs mentioned. Any mismatch of
Issued at: Factory manner. It also contains a information or absence of MICC
certificate which bears the CIP leads to hold up of the approval of
ID, CIP Date, Call ID, Mfr CIP bill.
NO, Manufacturer and the
issuing authority

Dispatch This document contains the Dispatch list is the document


Note/Packing name and the address of the containing the list of documents
list/Challan consignee, the name and the that we have dispatched. During
address of the the billing process the client

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Issued by : Factory receiver, the contract code and checks


the date of the issue of LOA, the materials sent that have been
Issued at : Factory
name of the line, mode of mentioned in the dispatch list with
dispatch, the wagon/lorry other enclosures such as MRC, 2009
number, the Challan number, MRHOV, MICC, CIPs and etc. If
and the destination. This the quantity mentioned
document tabulates the materials in dispatch list is greater than the
dispatched in an item wise quantity mentioned in the CIP and
manner mentioning the sections, MICC this indicates we haven’t
quality(HT/MS), weight, inspected the entire lot of material
number of pieces, quantity and leads to delay in the payment
dispatched, CIP number and process.
Work Order Number
Insurance Contains the transporter name This is an assurance that the client
Certificate and generally demands from KEC and
transit policy no., date, hence if this document is not
Issued by : description of goods, marks and attached to the final bill the client
Issued at : Factory no., quantity of material, sum can exercise its right of not
insured for cargo value, basis of approving the bill.
valuation, Bill no and date and
the details of the journey. This
document ensures that in case of
any damage of the goods during
transportation the consignee
shall obtain a cargo survey as
per the terms of the bill of lading
and/or other contract of
affreightment and shall lodge an
immediate claim against the
cargo concerned. Loss or
damage certificate to be
obtained from the carriers and
immediate notice in writing
should be given to the insurance
company and the insurance
company will pay against any
payable claim.
Guarantee This document contains the Guarantee certificate is a
Certificate LOA no and date, the contract compulsory enclosure with the bill
code, the bill numbers to which as per the contract document. If
Issued by : Factory this certificate is an enclosure not enclosed with the bill the
and an declaration by the client can exercise its right to not
Issued at: Factory
company that in case any approve the bill.
member/parts of the towers and
line material are found to be
defective in terms of material or
workmanship then the

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company will be obligated to


replace such parts found
defective within 12 months of
commissioning of the line sans 2009
any additional cost
Tax Invoice Contains the consignee address, The tax invoice is a collection of
the consignor address, invoice multiple consignments and the
Issued by : Factory no. & date, contract code & client pays according to this
number, excise invoice no., and invoice.
Issued at : Factory
description of material with qty,
price per unit, amount
Excise Consists the Consignee details, While dispatching the material
Invoice the contract reference with date, from the factory it is mandatory to
destination, dispatch note issue an excise invoice. The client
Issued by : Factory reference, Date & Time of reimburses the excise duty as per
Issued at : Factory removal, Mode of Transport, the excise invoice.
Lorry no, and details of the
material prepared and
transported net the central excise
duty, education cess, secondary
and higher secondary education
cess, central sales tax
Lorry Receipt The name and address of the The factory is the original obtains
consignee and the consignor, the the original LR from the
Issued by: consignment note as in transporter and sends to the site
Transporter consignment no and date, the for receipt which the client
source and the destination of matches the quantity of the
Issued at: Factory the consignment, mode of material mentioned in the LR
packing, invoice No., receipt with the details of the
Consignor’s sales tax no and material mentioned in the dispatch
central sales tax no., excise gate note, packing list, MRC, MRHOV
pass details, service tax and and in case of any mismatched
education cess, and the data or missing LR receipt the
description of client can exercise its right to
consignment( packages, the with-held the payment.
details of the materials, weights)
MRC (Material Receipt MRC consist contract code, the Client issues MRHOV based on
Certificate) contract no., the consignee the quantity mentioned in Material
address, bill no., the MRC No., Receipt Certificate
Issued by: Client and a statement of completed
tower parts in tabular fashion
Issued at: Site (after furnishing the following details
receiving the material)
like MICC No. & Date, MICC
Quantity, Dispatch Note no.,
Excise Invoice no., L/R No.,
L/R Date, Excise Duty, Edu
cess, L/R Qty., Billable Quantity

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MRHOV (Material Location of Store, Name and Client approves the bill based on
Receipt Hand Over & address of supplier, name of the amount in the MRHOV
Voucher Certificate) work, name & address of Certificate.
executing agency, control no., 2009
Issued by: Client LOA No. & date, and the
description of material
furnishing the following details:
Issued at: Site (After code of material, description,
formal handling of the
material to the client)
unit, quantity received, rejected
and take-instock (for each
HT,MS, B&N), value as per
LOA, Stock Ledger reference,
Mode of dispatch viz. Carrier
name & RR/GR/LR with date

Bought-out Bills:

DOCUMENTS PARTICULARS SIGNIFICANCE


CIP Contains Call ID No., Call The CIP is an interim report
date & time, LOA No., and signifies that client
Issued by : Client Manufacturer CIP No., inspection and satisfaction
Contract Name, Contractor with the quality of material.
Issued at: Sub Contractor IC No., Contractor details, During billing the client
Factory Inspection date, Manufacturer checks whether the material
details, Inspection date, was inspected and approved
Material Quality Plan, Details by the client inspectors.
of annexure, Manual CIP Missing CIP as an enclosure
Details, and details of total or any mismatch of data in
qty ordered, qty offered, qty
accepted in a tabular format the CIP leads to delay in the
payment process.
MICC Contains LOA No., The client certifies that the
Manufacturer MICC No., material offered is
Issued by: Client Contract name, contractor inspected/test certificates
details, details of item reviewed and authorized for
Issued at: Sub Contractor inspected, CIP Details, MICC dispatch as per CIP details.
Factory Details Though this certificate
doesn’t absolve the
contractor of his contractual
responsibilities yet this
document is a mandatory
enclosure with the bill for
payment of billable items as

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per the LOA.


Dispatch Note/Packing List Contains the name & address Client matches the items
of the consignee & consignor, dispatched mentioned in the
Issued by: KEC H.O LOA No. & date, CST No, 2009
details of item materials to be packing list with the details
Issued at: KEC H.O dispatched. furnished in MRC ,
MRHOV,

CIP, MICC and approves the


billed amount only if there

is no mis-match in all the


documents
Insurance Certificate This document contains The insurer agrees to provide
Policy insurance against loss
Issued by: KEC H.O damage liability or expense
Issuing office, broker agent, to the extent mentioned in
Issued at: KEC H.O certificate number, policy this document. Insurance
number, name of the insured, certificate is a mandatory
details of the insured, period enclosure with the bill which
of insurance, receipt details, hence mismatch or missing
the details of the cargo insurance certificate leads to
insured, transshipment the client not approving the
destination, number of units, bill.
the details of the L/R copies
(AWB,B/L,C/N No. and
date),packing details, basis of

valuation(ex-works + %
escalation), marks and
numbers, deductibles, mode
of transit, sum insured,
voyage details(source and
destination), premium, port

details( source and


destination), service tax, and
amount payables
Guarantee Certificate Contains the Invoice No. & This document signifies that
date and the name of the KEC is guaranteeing against
Issued by: KEC H.O material
the manufacturing defect for
Issued at: KEC H.O a period of 12 months from
the date of dispatch
Tax Invoice This document contains the This document provides the
manufacturer’s name, the information regarding the
buyer’s name the consignee’s taxes payable like excise

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name, and the invoice no. & duty, excise duty cess, higher
Issued by: Suppliers date, delivery note & education cess, CST payable,
terms/mode of payment, Freight Outward. This
Issued at: Supplier’s Office supplier’s ref, buyer’s order 2009
no. & date, dispatch document is a compulsory
document no. & date, enclosure with the bills and if
dispatch through and found missing the client can
destination, and terms of exercise its right of not
delivery, description of goods approving the bill.
dispatched along with qty,
rate and amount, company’s
VAT TIN, Company’s CST
No., Buyer’s VAT TIN/Sales
Tax no.
Excise Invoice/ Challan Contains the name and This document shows the
factory address and also the client the calculations against
Issued by: Suppliers head office address of the
supplier, the TIN no, UPTT UPTT/CST, and taxes
Issued at: Supplier’s Office no., CST no., the central payable against C-Form,
excise registration no., name freight Charges.
7 excisable commodity tariff
no sub heading no., No. & dt.
Of notification under which
any concessional rates of
duty claimed, PLA No., the
P.O. no & date, the challan
no., date, and the description
of the material dispatched
( incl. no. of packages, total
qty net, total price of goods,
detail of
deductions/additions,
assessable value (both per
unit and total), rate of ED,
total ED paid, serial no. &
date of debit entry for duty,
consignee CST No,
LR/GR/Truck no., Mode of
transportation, Date & time
of preparation of challan, date
& time of removal,
LR Receipt Contains the transporter’s This document signifies that
name& address, the the materials have been
Issued by: Transporter consignor’s name & address,
the consignee’s name and transported and the client
Issued at: Supplier’s Office address, the consignment generally matches the

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note & code no., the booking material

branch address & the code, list from the LR receipt with 2009
the other documents like

origination and the MICC, CIP, Challan and etc


destination of the journey, and based on this issues the
person liable to pay service MRC and the MRHOV
tax, description of subsequently.

material that have been


transported, the weight
declared and the weight
charged, details regarding the
place of payment of the bill,
the details of packing, private
mark, consignor CST No.,
Consignee CST No., ST

No., Bill No., Value,


Consignor value, the lorry no.
Material Receipt MRC consist contract code, Client issues MRHOV based
Certificate the contract no., the on the quantity mentioned in
consignee
Issued by: Client Material Receipt Certificate
address, bill no., the MRC
Issued at: Site (after receiving No., and a statement of
the material) completed tower parts in
tabular fashion furnishing the
following details like MICC
No. & Date, MICC Quantity,
Dispatch Note no., Excise
Invoice no., L/R No., L/R
Date, Excise Duty, Edcess,
L/R Qty., Billable Quantity
Material Receipt Handling Location of Store, Name and Client issues MRHOV based
address of supplier, name of on the quantity mentioned in
Over & Verification work, name & address of
executing agency, control Material Receipt Certificate.
Certificate no., LOA No. & date, and the Client approves the bill based
description of material on the amount in the
Issued by: Client furnishing the following MRHOV
details: code of material,
Issued at: Site (after formal description, unit, quantity Certificate
received, rejected and take-
Handing over of the material to the in-stock (for each HT,MS,

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B&N), value as per LOA,


client) Stock Ledger reference,
Mode of dispatch viz. Carrier
name & RR/GR/LR with date 2009
Test Certificate This document contains the This document signifies that
name of the supplier, the title the materials received at the
containing the name of the site have been tested by the
material on which the test has subcontractor in the presence
Issued by: Supplier been carried out, LOA no. & of a client’s representative.
This is a mandatory
date, CIP Inspection call enclosure and not attaching
request no & date, name of the test report violates the
Issued at: Supplier’s contractor and contractor’s contractual clauses hence
Factory P.O., the details of test attracts delay in the billing
reports in a tabular fashion, procedure.
the limiting values, the name
and signature of the witness
from the client’s side and the
name & address of the
supplier’s representative who
prepared the bill

Erection Bills

Bill & Annexure This document contains the The bill contains the amount
name & the address of the bill of work executed and the
approving official from the total amount billed. The
client’s side, the invoice no & annexure contains the
Issued by: Site Office date, the project no, the detailed break up of the bill
contract agreement no and and is mainly for reference
Issued at: KEC Site Office date, description of the billing by the client. The client
period, the gross bill value, matches this qty with the
the retention, the advance, JMC and based on this
and the net payable. The approves the billed amount.
annexure contains the
detailed break-up of the bill
and contains the RA Bill No
& date, the description of
items billed, the number of

units, the unit erection


charges, quantity (up to
previous month, during the

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month, and up to date), and


the amount(up to previous
month, during the month, and 2009
up to date)
Joint Measurement This document contains the This document certifies that
Certificate name of the client, the the measurement recorded in
Running Bill no & date, name the JMC are from such and
of work, such Measurement Book and
Agreement/LOA/Work Order also furnishes the names of
no. & date, number & date of the client’s and the
previous bill, date of contractor’s representatives.
measurement, Actual date of This document also certifies
completion, the item no. of that quantity of work shown
bill of quantity, description of in the JMC has been
work, quantity executed( up executed as per the schedules
to date and since previous), mentioned in the contract and
unit and total amount( up to there is no outstanding
date & since previous) against the contractor.
Failing to enclose the JMC
definitely delays the bill
approval process and hence
ties up working capital

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