TABLE OF CONTENTS

Topic
Chapter I- Introduction o Background/ Area of the study o Significance of the present study o Scope & Objective of the study Chapter II- Organizational Profile of HCL Infosystems o Introduction o History o Our Values o Objectives o Alliances & Partnership o Management Team o Corporate Information Chapter III- Presentation of Data & Analysis o The Problems o Research Methodology o Data Sources o Limitations of the study Working Capital Management Conceptual Framework o Introduction o Significance o Liquidity VS Profitability o Classification o Types o Financing o Factors o Working Capital Cycle o Sources of Working Capital o HCL Financials o Working Capital Position o Inventory Management o Conversion Periods o Cash Management o Receivables Management o Managing Payables o Working Capital & Short Term Financing o Analysis o Financial Graphs

Page Number
5 6 7

10 13 17 18 19 20 21 23 24 25 26

27 29 30 32 33 35 36 39 41 42 43 47 51 54 62 67 71 78 79
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Chapter IV- Findings & Conclusions o Concluding Analysis o Suggestions and Recommendations Annexure o Financial Statements for HCL Infosystems Ltd. Bibliography

86 87 88 94

LIST OF FIGURES AND TABLES

Topic
Figure 1: Company Profile Figure: 2: HCL- A Snap Shot Figure 3: Short Term VS Long Term Financing Figure 4: Kinds Of Working Capital Figure 5: Amount Of Working Capital Figure 6: Commercial Market Share Figure 7: Consumer Market Share Figure 8: Dividend Policy % Figure 9: Cash Balance Figure 10: Shift In Sales Figure 11: Alternative Current Assets Policies Figure 12: Indian IT Industry & Growth Of Indian IT-ITes Export Figure 13: Revenue Figure 14: Profit Before Tax Figure 15: Profit After Tax Figure 16: Basic EPS Figure 17: Dividend % Figure 18: Book Value Of Share & Return On Net worth

Page Number
10 11 31 32 34 37 37 57 57 58 70 78 79 80 80 81 82 83
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Figure 19: Debt Equity Ratio Figure 20: Current Ratio Figure 21: Revenue & Profitability (Consolidated) Figure 22: Assets & Liabilities (Consolidated) Figure 23: 4 Year Balance Sheet Figure 24: 4 Year Cash Flow Statement Table 1: Yearly Highlights Table 2: Gross Sales Table 3: Consolidated Financial Performance Table 4.1 4.6: Working Capital (2006-2007) Table 5: Inventory Management Table 6: Raw Material Table 7: Work In Progress Table 8: Finished Goods Table 9: Operating Cycle Table 10: Raw Material Consumption Table 11: Cash- Current Liability Table 12: Dividend Policy- Cash Table 13: PBIDT & Equity Dividend % Table 14: Cash Flow Table 15: Working Capital- Changes Table 16: Cash Flow In Investing Activities Table 17.1-17.3: Receivables Management At HCL Infosystems Table 18: Working Capital Limits Table 19: Renewal Of Limits Table 20.1-20.2: Short Term Financing Table 21: Year End Commercial Papers

83 84 88 89 90 92 13-16 38 42 43-46 49 51 51 52 52 53 56 56 58 59 59 60 65-66 71 72 75 76

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CHAPTER I

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BACKGROUND/ AREA OF THE STUDY

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

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SIGNIFICANCE OF THE PRESENT STUDY

The internship undertaken is on WORKING CAPITAL MANAGEMENT IN HCL INFOSYSTEMS LIMITED. It describes about how the company manages its working capital and the various steps that are required in the management of working capital. Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital management (WCM).

Working capital refers to the cash a business requires for day-to-day operations or, more specifically, for financing the conversion of raw materials into finished goods, which the company sells for payment. Among the most important items of working capital are levels of inventory, accounts receivable, and accounts payable. Analysts look at these items for signs of a company's efficiency and financial strength. The working capital is an important yardstick to measure the companys operational and financial efficiency. Any company should have a right amount of cash and lines of credit for its business needs at all times.

This project describes how the management of working capital takes place at HCL Infosystems.

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SCOPE & OBJECTIVE OF THE STUDY

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

This project is vital to me in a significant way. It does have some importance for the company too. These are as follows This project will be a learning device for the finance student. Through this project I would study the various methods of the working capital management. The project will be a learning of planning and financing working capital. The project would also be an effective tool for credit policies of the companies. This will show different methods of holding inventory and dealing with cash and receivables.

This will show the liquidity position of the company and also how do they maintain a
particular liquidity position.

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CHAPTER II

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Organizational Profile of HCL Infosystems

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HINDUSTAN COMPUTERS LIMITED

Type Founded Headquarters Key People Industry Revenue Employees Subsidiaries Private 11th August 1976 Noida, India Shiv Nadar, Founder, Chairman & CEO Sanjay Kumar Choudhary , Vineet Nayar Information Technology Services 6.2 billion USD (2012) 90000 (2012) HCL Technologies HCL Infosystems Website www.hcl.com

Fig.1 Hindustan Computers Limited, also known as HCL Enterprise, is one of India's largest electronics, computing and information technology company. Based in Noida, near Delhi, the company comprises two publicly listed Indian companies, HCL Technologies and HCL Infosystems. HCL was founded in 1976 by Shiv Nadar, Ajai Chowdhry and four of their colleagues. HCL was focused on addressing the IT hardware market in India for the first two decades of its existence with some sporadic activity in the global market. In 1981, HCL seeded a company focused on addressing the computer training industry, NIIT, though it has currently divested its stake in the company. In 1991, HP took minority stake in the company (26%) and the company was known as HCL HP for the five years of the joint venture. On termination of the joint venture in 1996, HCL became an enterprise which comprises HCL Technologies (to address the global IT services market) and HCL Infosystems (to address the Indian and APAC IT hardware market). HCL has since then operated as a holding company.
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Fig. 2

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HCL INFOSYSTEMS LIMITED

An overview about the company

HCL Infosystems is no flash in the Information Technology pan. Founded in 1976, the firm has climbed into pantheon of India's corporate giants on the strength of its IT products and services. HCL Infosystems specializes in IT hardware (PC's and servers, as well as networking, imaging and communications products), and system integration services serving the domestic Indian market. In addition to its consumer products, the company provides commercial IT products, facilities management, network services, and IT security services for clients in such industries as government, financial services, and education. HCL Corporation owns significant stakes in HCL Infosystems (about 44%) and sister company HCL Technologies. HCL Infosystems Ltd, a listed subsidiary of HCL, is an India-based hardware and systems integrator. It claims a presence in 170 locations and 300 service centres. Its manufacturing facilities are based in Chennai, Pondicherry and Uttarakhand .Its headquarters is in Noida. HCL Peripherals (A Unit of HCL Infosystems Limited) Founded in the year 1983, has established itself as a leading manufacturer of computer peripherals in India, encompassing Display Products, Thin Client solutions, Information and Interactive Kiosks. HCL Peripherals has two Manufacturing facilities, one in Pondicherry (Electronics) and the other in Chennai (Mechanical) .The Company has been accredited with ISO 9001:2000, ISO 14001, TS 16949 and ISO 13485.

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HISTORY

HCL Infosystems Ltd is one of the pioneers in the Indian IT market, with its origins in 1976. For over quarter of a century, we have developed and implemented solutions for multiple market segments, across a range of technologies in India. We have been in the forefront in introducing new technologies and solutions. The highlights of the HCL saga are summarized below:

Y E AR 1976

HIGHLIGHTS - Foundation of the Company laid - Introduces microcomputer-based programmable calculators with wide acceptance in the scientific / education community - Launch of the first microcomputer-based commercial computer with a ROM -based Basic interpreter - Unavailability of programming skills with customers results in HCL developing bespoke applications for their customers - Formation of Far East Computers Ltd., a pioneer in the Singapore IT market, for SI (System Integration) solutions - HCL launches an aggressive advertisement campaign with the theme ' even a typist can operate' to make the usage of computers popular in the SME (Small & Medium Enterprises) segment. This proposition involved menu-based applications for the first time, to increase ease of operations. The response to the advertisement was phenomenal. -HCL develops special program generators to speed up the development of applications - Zonal offices of banks and general insurance companies adopt computerization - Purchase specifications demand the availability of RDBMS products on the supplied solution (Unify, Oracle). HCL arranges for such products to be ported to its platform. - HCL assists customers to migrate from flat-file based systems to RDBMS - HCL enters into a joint venture with Hewlett Packard - HP assists HCL to introduce new services: Systems Integration, IT consulting, packaged support services ( basic line, team line ) - HCL acquires and executes the first offshore project from IBM Thailand - HCL sets up core group to define software development methodologies - Starts execution of Information System Planning projects - Execution projects for Germany and Australia - Begins Help desk services
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1977

1980 1983

1986

1991 1994 1995

1996

1997 1998 1999

2000

2001 2002

- Sets up the STP ( Software Technology Park ) at Chennai to execute software projects for international customers - Becomes national integration partner for SAP - Kolkata and Noida STPs set up - HCL buys back HP stake in HCL Hewlett Packard - Chennai and Coimbatore development facilities get ISO 9001 certification - Acquires and sets up fully owned subsidiaries in USA and UK - Sets up fully owned subsidiary in Australia - HCL ties up with Broadvision as an integration partner - Sets up fully owned subsidiary in Australia - Chennai and Coimbatore development facilities get SEI Level 4 certification - Bags Award for Top PC Vendor In India - Becomes the 1st IT Company to be recommended for latest version of ISO 9001 : 2000 - Bags MAIT's Award for Business Excellence - Rated as No. 1 IT Group in India -Launched Pentium IV PCs at below Rs 40,000 -IDC rated HCL Infosystems as No. 1 Desktop PC Company of 2001 -Declared as Top PC Vendor by Dataquest -HCL Infosystems & Sun Microsystems enters into a Enterprise Distribution Agreement - Realigns businesses, increasing focus on domestic IT, Communications & Imaging products, solutions & related services - Became the first vendor to register sales of 50,000 PCs in a quarter - First Indian company to be numero uno in the commercial PC market - Enters into partnership with AMD - Launched Home PC for Rs 19,999 - 1st to announce PC price cut in India, post duty reduction, offers Ezeebee at Rs. 17990 - Maintains No.1 position in the Desktop PC segment for year 2003 - Becomes the 1st company to cross 1 lac unit milestone in the Indian Desktop PC market - Partners with Union Bank to make PCs more affordable, introduces lowest ever EMI for PC in India - Registers a market share of 13.7% to become No.1 Desktop PC company for year 2004 - Crosses the landmark of $ 1 billion in revenue in just nine months - Launch of HCL PC for India, a fully functional PC priced at Rs.9,990/- Rated as the No.1 Desktop PC company by IDC India -Dataquest - 'Best Employer 2005' with five star ratings by IDC India -Dataquest. - 'The Most Customer Responsive Company 2005' -IT Hardware Category by The Economic Times -Avaya Global Connect. -Top 50 fastest growing Technology Companies in India' & 'Top 500 fastest Growing Technology Companies in Asia Pacific' by 'Deloitte & Touche'. by 'Deloitte & Touche' -'7th IETE -Corporate Award 2005' for performance excellence in the field of Computers & Telecommunication Systems by IETE. -India 's 'No.1 vendor' for sales of A3 size Toshiba Multi Functional Devices for the
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2003

2004

2005

2006 (till June)

2007

2008

year '04 -'05 by IDC. -Toshiba 'Super Award 2005 towards business excellence in distribution of Toshiba Multifunctional products, -Strategic Partners in Excellence' Award by In focus Corporation for projectors. -'Most valued Business Partner' Award for projectors by In focus Corporation in 2005 - 75, 000+ machines produced in a single month - HCL Infosystems in partnership with Toshiba expands its retail presence in India by unveiling 'shop Toshiba' - HCL Infosystems & Nokia announce a long term distribution strategy - HCL the leader in Desktops PCs unveils India's first segment specific range of notebooks brand - 'HCL Laptops' - IDBI selects HCL as SI partner for 100 branches ICT infrastructure rollout - HCL Infosystems showcases Computer Solutions for the Rural Markets in India - HCL Support wins the DQ Channels-2006 GOLD Award for Best After Sales Service on a nationwide customer satisfaction survey conducted by IDC - HCL Infosystems First in India to Launch the New Generation of High Performance Server Platforms Powered by Intel Dual - Core Xeon 5000 Processor - HCL Forms a Strategic Partnership with APPLE to provide Sales & Service Support for iPods in India - HCL Infosystems rated as number one Desktop PC Company by IDC, sixth year successively - HCL Infosystems sustains its commercial Desktop PC leadership for the fifth consecutive year - HCL launches trusted ICT infrastructure platforms for the BPO-ITeS segment - HCL launches Indias first High Performance Enterprise server platforms powered by dual core intel itanium processor - HCL creates Dual Core Xeon Server at a price of Rs 43900 - HCL completes 30 years in India - HCL in assosication with The Music Academy, Madras brings HCL Concert Series to Chennai city - Enters into partnership with Casio - HCL establishes its manufacturing facility at Uttarchal - HCL introduces eco-efficient Notebook PCs complying with RoHS directive - HCl unveils initiative to create industry ready ICT professionals launches HCL career development centers - HCL launches datacenter in a box a simplified IT infrastructure solution in a box targeted at a small and medium enterprises - HCL breaks the one terabyte storage barrier in computers launches indias first one terabyte personal computer - Kodak and HCL ink agreement to distribute digital camera in india - HCL launches indias first multilingual POS printer HCL star TSP 700, designed exclusively for the needs of the rural retailers - HCL unveils enterprise class 16 core server indias first server with 16 computing cores in a 7-inch (4 u) form factor - HCL announces launch of its work station 2008 for MCAD and DCC professionals - HCL Infosystems announces a pioneering initiative in the ICT sector to further strengthen its customer care services -HCL Introduces Safe State the launch of a 100% subsidiary to provide system
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2009

2010

2011

2012

Integration solution for security and surveillance - HCL introduces Leaptop Series 39 with excellent thermals, Energy Star 4.0 compliance and imprint designs customized for Indian consumers - HCL Equips Delhi Police with Technology to Fight Crime - HCL launches MiLeap MH 04 -HCL strengthens its BFSI System Integration Portfolio- Acquires a niche Banking Software Product Company - HCL Infosystems Kick Start Green Bag Campaign to Facilitate eWaste collection - HCL Infosystems Bags Large BSNL IT Deal- A System Integration Project worth Rs. 240 Crs for Implementation and Support - HCL Infosystems wins DQ: IDC Best Employer Award 2009 - HCL infosystems bags 5th position in Indias Best Companies to work for Surveys, 2011 (IT Category) : Study by Economic Times Great Place to work - HCl Infosystems awarded Best Telecom Support Service Company at the 5th National Telecom Award by CMAI Association of India - HCL Desktops rated No.1 in the Dataquest channels Cyber Media Research Channel Satisfaction Survey - HCL infosystems was selected as Business Superbrands of India - Globally HCL Notebook stood 8th in position with 4.04 points in Green Electronic Survey of Greenpeace released in January 2011 - HCL Infosystems launches first Made in india PVC free notebook - HCL Infosystems launches Cloud Enabled Services Suite to provide end-to-end solutions to its customers - HCL Infosystems launches BFR-free HCL ME series 40to celebrate Earth Hour 2010 - HCL Infosystems launches first Made in India PVC free notebook - HCL Infosystems: No. 1 Employer of the Year by DQ-CMR Best Employer Survey 2011 - HCL Infosystems rated No. 20 in the Great Place to Work Survey - HCL Infosystems launches its new sleek Next-Gen ME Tablet- the X1 - HCL Infosystems launches Indias first BEE-star compliant laptops - First ever HCL Flagship Store launched in Delhi-NCR - HCL Infosystems Ranked #1 for IT Services in DQ-CMR CSA 2012 - HCL Digischool wins Best Technology Based Solutions for Higher Education @ the National Education Awards presented by Star News - HCL Digischool wins Best ICT Enabled Content for K 12 Education @ National Education Award presented by Star News - HCL Learning wins the 7th eINDIA Jury Award for the Best Open and Distance Learning Practices in Higher Education

Table. 1

(Source: http://www.hclinfosystems.in/op_history.htm )

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VISION STATEMENT
"Together we create the Enterprises of Tomorrow"

MISSION STATEMENT
"To provide world-class Information Technology solutions and services in order to enable our customers to serve their customers better"

CORE VALUES
Nothing transforms life like education. We shall honor all commitments We shall be committed to Quality, Innovation and Growth in every endeavor

We shall be responsible corporate citizens

QUALITY POLICY
"We shall deliver defect-free products, services and solutions to meet the requirements of our external and internal customers, the first time, every time."

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OBJECTIVES
Management objectives To fuel initiative and foster activity by allowing individuals, freedom of action and innovation in attaining defined objectives.

People objectives To help people in HCL Infosystems Ltd., Share Companys success, which they make

possible; to provide job security based on their performance; to recognize their individual achievements; and help them gain a sense of satisfaction and accomplishment from their work.

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ALLIANCES & PARTNERSHIPS

To provide world-class solutions and services to all our customers, HCL Infosystems have formed Alliances and Partnerships with leading IT companies worldwide. HCL Infosystems has alliances with global technology leaders like Intel, AMD, Microsoft, Bull, Toshiba, Nokia, Sun Microsystems, Ericsson, nVIDIA, SAP, Scansoft, SCO, EMC, Veritas, Citrix, CISCO, Oracle, Computer Associates, RedHat, Infocus, Duplo, Samsung and Novell. These alliances on one hand give us access to best technology & products as well as enhancing our understanding of the latest in technology. On the other hand they enhance our product portfolio, and enable us to be one stop shop for our customers.

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MANAGEMENT TEAM

Ajai Chowdhry
Co-Founder HCL, Chairman and CEO - HCL Infosystems. An engineer by training, Ajai Chowdhry is one of the six co-founder members of HCL, India 's premier IT conglomerate.

J V Ramamurthy
Chief Operating Officer HCL Infosystems Ltd. J V Ramamurthy has an engineering degree in Electronics & Communications, from Guindy Engineering College, and a Masters' degree in Applied Electronics from the Madras Institute of Technology, both in Chennai.

Rajendra Kumar
Executive Vice President - Frontline Division HCL Infosystems Ltd. Mr. Rajendra Kumar has been with HCL for over 30 years and has seen HCL grow from a startup company to a gigantic conglomerate that it is today.

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CORPORATE INFORMATION
BOARD OF DIRECTORS
Chairman & Chief Executive Officer Ajai Chowdhry Whole-time Director J.V. Ramamurthy Directors S. Bhattacharya D.S. Puri R.P. Khosla E.A. Kshirsagar Anita Ramachandran T.S. Purushothaman Narasimhan Jegadeesh V.N. Koura

COMPANY SECRETARY AUDITORS BANKERS

Sushil Kumar Jain Price Waterhouse, New Delhi State Bank of India Canara Bank HDFC Bank Ltd. ICICI Bank Ltd. Societe Generale Standard Chartered Bank State Bank of Patiala State Bank of Saurashtra 806, Siddharth, 96, Nehru Place, New Delhi - 110 019. E - 4, 5, 6, Sector XI, Noida - 201 301 (U.P.) R.S. Nos: 34/4 to 34/7 and part of 34/1, Sedarapet, Puducherry - 605 111. R.S. Nos: 107/5, 6 & 7, Main Road, Sedarapet, Puducherry - 605 111. Plot No 78, South Phase, Ambattur Industrial Estate,Chennai - 600 058. Plot No SPL. A2, Thattanchavadi, Industrial Area, Puducherry - 605 009. Plot Nos. 1, 2, 27 & 28, Sector 5, 11E, Rudrapur, Distt. - Udham Singh Nagar, Uttarakhand - 263 145.
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REGISTERED OFFICE

CORPORATE OFFICE WORKS

CHAPTER III

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THE PROBLEMS

IN THE MANAGEMENT OF WORKING CAPITAL, THE FIRM IS FACED WITH TWO KEY PROBLEMS:

1. First, given the level of sales and the relevant cost considerations, what are the optimal amounts of cash, accounts receivable and inventories that a firm should choose to maintain?

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

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RESEARCH METHODOLOGY

This project requires a detailed understanding of the concept Working Capital Management. Therefore, firstly we need to have a clear idea of what is working capital, how it is managed in HCL Infosystems, what are the different ways in which the financing of working capital is done in the company.

The management of working capital involves managing inventories, accounts receivable and payable and cash. Therefore one also needs to have a sound knowledge about cash management, inventory management and receivables management.

Then comes the financing of working capital requirement, i.e. how the working capital is financed, what are the various sources through which it is done.

And, in the end, suggestions and recommendations on ways for better management and
control of working capital are provided.

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DATA SOURCES
The following sources have been sought for the preparation of this report:

Primary sources such as internet websites the important amongst them being: www.hclinfosystems.in Secondary sources like previous years annual reports, reports on working capital for research, analysis and comparison of the data gathered. While doing this project, the data relating to working capital, cash management, receivables management, inventory management and short term financing was required. This data was gathered through the companys websites, its corporate intranet, HCLs annual reports of five years. A detailed study on the actual working processes of the company is also done through direct interaction with the employees and by timely studying the happenings at the company.

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LIMITATIONS OF THE STUDY

We cannot do comparisons with other companies unless and until we have the data of other companies on the same subject. Only the printed data about the company will be available and not the backend details. Future plans of the company will not be disclosed to the trainees.

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WORKING CAPITAL MANAGEMENT CONCEPTUAL FRAMEWORK

Introduction to Working Capital

Working Capital is the Life-Blood and Controlling Nerve Center of a business The working capital management precisely refers to management of current assets. A firms working capital consists of its investment in current assets, which include short-term assets such as: Cash and bank balance, Inventories, Receivables (including debtors and bills), Marketable securities.

Working capital is commonly defined as the difference between current assets and current liabilities.

Working Capital = Current Assets-Current Liabilities

There are two major concepts of working capital: Gross working capital Net working capital

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Gross working capital:

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

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

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SIGNIFICANCE OF WORKING CAPITAL MANAGEMENT

The management of working capital is important for several reasons: For one thing, the current assets of a typical manufacturing firm account for half of its total assets. For a distribution company, they account for even more.

Working capital requires continuous day to day supervision. Working capital has the effect on company's risk, return and share prices,

There is an inevitable relationship between sales growth and the level of current assets. The
target sales level can be achieved only if supported by adequate working capital Inefficient working capital management may lead to insolvency of the firm if it is not in a position to meet its liabilities and commitments.

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LIQUIDITY VS PROFITABILITY: RISK - RETURN TRADE OFF

Another important aspect of a working capital policy is to maintain and provide sufficient liquidity to the firm. Like the most corporate financial decisions, the decision on how much working capital be maintained involves a trade off - having a large net working capital may reduce the liquidity risk faced by a firm, but it can have a negative effect on the cash flows. Therefore, the net effect on the value of the firm should be used to determine the optimal amount of working capital. Sound working capital involves two fundamental decisions for the firm. They are the determination of: The optimal level of investments in current assets. The appropriate mix of short-term and long-term financing used to support this investment in current assets, a firm should decide whether or not it should use short-term financing. If short-term financing has to be used, the firm must determine its portion in total financing. Short-term financing may be preferred over long-term financing for two reasons: The cost advantage Flexibility

But short-term financing is more risky than long-term financing. Following table will summarize our discussion of short-term versus long-term financing.

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

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CLASSIFICATION OF WORKING CAPITAL

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

KINDS OF WORKING CAPITAL

ON THE BASIS OF CONCEPT

GROSS WORKING CAPITAL NET WORKING CAPITAL
PERMANENT/ FIXED WORKING CAPITAL

ON THE BASIS OF TIME

TEMPORARY/ VARIABLE WORKING CAPITAL

REGULAR WORKING CAPITAL

RESERVE WORKING CAPITAL

SEASONAL WORKING CAPITAL

SPECIAL WORKING CAPITAL

Fig. 4

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TYPES OF WORKING CAPITAL NEEDS

Another important aspect of working capital management is to analyze the total working capital needs of the firm in order to find out the permanent and temporary working capital. Working capital is required because of existence of operating cycle. The lengthier the operating cycle, greater would be the need for working capital. The operating cycle is a continuous process and therefore, the working capital is needed constantly and regularly. However, the magnitude and quantum of working capital required will not be same all the times, rather it will fluctuate.

The need for current assets tends to shift over time. Some of these changes reflect permanent changes in the firm as is the case when the inventory and receivables increases as the firm grows and the sales become higher and higher. Other changes are seasonal, as is the case with increased inventory required for a particular festival season. Still others are random reflecting the uncertainty associated with growth in sales due to firm's specific or general economic factors.

The working capital needs can be bifurcated as: Permanent working capital

Temporary working capital

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

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firm. This amount of working capital is constantly and regularly required in the same way as fixed assets are required. So, it may also be called fixed working capital.

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

Fig. 5

The permanent level is constant while the temporary working capital is fluctuating increasing and decreasing in accordance with seasonal demands as shown in the figure. In the case of an expanding firm, the permanent working capital line may not be horizontal. This is because the demand for permanent current assets might be increasing (or decreasing) to support a rising level of activity. In that case line would be rising.

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FINANCING OF WORKING CAPITAL

There are two types of working capital requirements as discussed above. They are: Permanent or Fixed Working Capital requirements Temporary or Variable Working Capital requirements

Therefore, to finance either of these two working capital requirements, we have long-term as well as short-term sources.

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FACTORS DETERMINING WORKING CAPITAL REQUIREMENTS

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

Nature or Character of Business:

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

Size of Business/Scale of Operations:

HCL is the leader in its segment in both consumer as well as commercial market share. They have increased their share in the consumer segment notably in four years (20032006). This they have achieved through retail expansion. The scale of operations and the size it holds in the Indian IT market makes it a must for them to hold their inventory and current asset at a huge level.

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COMMERCIAL MARKET SHARE

14% 12% 10% 8% 6% 4% 2% 0% HCL HP IBM 2006 2005 2004

Fig. 6

CONSUMER MARKET SHARE

16% 14% 12% 10% 8% 6% 4% 2% 0% HCL HP ZENITH

2006 2005 2004

Fig. 7

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 Rate of Growth of Business:

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

HCL Infosystems Limited

2008

2007

2006

2005

2004

PROJECTED Gross Sales/Income from Operations Table. 2

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

3400

2833

2381

1967.37

1522.03

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WORKING CAPITAL CYCLE

The upper portion of the diagram above shows in a simplified form the chain of events in a manufacturing firm. Each of the boxes in the upper part of the diagram can be seen as a tank through which funds flow. These tanks, which are concerned with day-to-day activities, have funds constantly flowing into and out of them.

The chain starts with the firm buying raw materials on credit. In due course this stock will be used in production, work will be carried out on the stock, and it will become part of the firms work-in-progress. Work will continue on the WIP until it eventually emerges as the finished product. As production progresses, labor costs and overheads need have to be met. Of course at some stage trade creditors will need to be paid. When the finished goods are sold on credit, debtors are increased. They will eventually pay, so that cash will be injected into the firm.

Each of the areas- Stock (raw materials, WIP, and finished goods), trade debtors, cash (positive or negative) and trade creditors can be viewed as tanks into and from which funds flow.

Working capital is clearly not the only aspect of a business that affects the amount of cash. The business will have to make payments to government for taxation. Fixed assets will be purchased and sold Lessors of fixed assets will be paid their rent

Shareholders (existing or new) may provide new funds in the form of cash Some shares may be redeemed for cash Dividends may be paid

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Long-term loan creditors (existing or new) may provide loan finance, loans will need to be repaid from time-to-time, and Interest obligations will have to be met by the business

Unlike, movements in the working capital items, most of these non-working capital cash transactions are not every day events. Some of them are annual events (e.g. tax payments, lease payments, dividends, interest and, possibly, fixed asset purchases and sales). Others (e.g. new equity and loan finance and redemption of old equity and loan finance) would typically be rarer events.

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SOURCES OF WORKING CAPITAL

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

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

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

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HCL FINANCIALS

CONSOLIDATED FINANCIAL PERFORMANCE

Table. 3

(Source: Annual report of year 2006-2007)

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WORKING CAPITAL POSITION

CURRENT ASSET TOTAL ASSET

PARTICULARS CURRENT ASSETS NET BLOCK TOTAL ASSETS CA/TA Table. 4.1

2006 100970 7970 122479 82.44

2005 81533 5329 99139 82.24

2004 54091 4925 87076 62.12

2003 45042 4954 71285 63.18

2002 55985 5552 75205 74.43

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

NET CURRENT ASSET SALES

PARTICULARS NET CURRENT ASSETS SALES WORKING CAPITAL % INCREASE SALES % INCREASE Table. 4.2 2006 40343 238136 16.12 2005 34742 199886 142.93 2004 14301 154295 -23.736 2003 18752 166604 -30.7 2002 27065 127003 -0.46

19.14

29.54

-7.38

31.18

8.7

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

CURRENT ASSET FIXED ASSET

PARTICULARS NET CA/NET BLOCK Table. 4.3 The ratio of the net current asset to the fixed ones is an indicator as to the liquidity position of the firm. This ratio has declined for the firm compared to the previous year. There could be an argument as to whether the increased ratio of working capital to net block is a conservative policy and whether it would be detrimental to the interest of the company. Or, whether it would have been proper if the company invested more into the capital expenditure in the form of plant and machinery or invested in any other form that would have got them an internal rate of return. What has to be kept in mind before coming to a conclusion as to the policy of the company, is the fact that the firm being primarily into assembling, its investment in the fixed asset segment need not be high. A look into the capacity utilization of the plant would reaffirm this point. It would be ideal for the firm to continue in the same line and not have excessive investment in the fixed asset as they can easily add onto this part. 2006 5.062:1 2005 6.519:1 2004 2.903:1 2003 3.785:1 2002 4.875:1

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COMPUTER and MICRO PROCESSOR BASED SYSTEMS

YEAR 2006 2005 2004 Table. 4.4 INSTALLED CAPACITY 1150000 600000 525000 ACTUAL PRODUCTION 581805 448121 295192 % CAPACITY UTILIZATION 50.59 74.69 56.23

DATA GRAPHIC/DISPLAY MONITOR/TERMINALS/HUBS

YEAR 2006 2005 2004 Table. 4.5 That the fixed assets of the firm are being put to efficient use and the firm is trying for optimum capacity utilization is something that can be easily deduced. Whether the current assets or the working capital of the firm has anything to do with it is for us to see. An increased production in normal circumstances means better raw material to finished goods conversion rate, i.e. the firm is taking less of time in the production process and this happens when the current asset employed in relation with the fixed ones are at optimum. The other notable feature here is that though the firm has added on to its installed capacity in all three years, they were still able to increase the capacity utilization. That they have been able to do it shows that the more current assets, especially inventory used in relation to the fixed assets, i.e., plant and machinery and their management has only helped in increasing their utilization to the maximum. INSTALLED CAPACITY 250000 250000 350000 ACTUAL PRODUCTION 267326 259617 297991 % CAPACITY UTILIZATION 106.93 103.85 85.14

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CURRENT ASSET CURRENT LIABILITY

PARTICULARS CURRENT ASSETS CURRENT LIABILITES % CURRENT ASSETS INCREASE %CURRENT LIABILITES INCREASE Table. 4.6

2006 100970 60627 23.84 29.57

2005 81533 46791 50.7 17.6

2004 54091 39790 20.09 51.35

2003 45042 26290 -19.54 -9.1

2002 55985 28920 8.9 19.45

The 16.12% increase in Net Current assets despite of the fact that there has been an increase in the Current Assets by 23.84% and increase in Current Liability has been by 29.57% over that of the year 2006 has to be attributed to the fact that in 2005, the company showed such a high increase in CA, that it is still being offset. This is an indication as to the expanding operations of the firm. HCL has increased its current assets in order to meet the increasing sales. The firms level of liquidity being high, we need a check on whether it affects the return on assets.

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INVENTORY MANAGEMENT

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

Nature of Inventories
Inventories are stock of the product of the company is manufacturing for sale and components make up of the product. The various forms of the inventories in the manufacturing companies are: Raw Material: It is the basic input that is converted into the finished product through the manufacturing process. Raw materials are those units which have been purchased and stored for future production.

Work-in-progress: Inventories are semi-manufactured products. They represent product that need more work they become finished products for sale.

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

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Inventory Management Techniques

In managing inventories, the firms objective should be to be in consonance with the shareholder wealth maximization principle. To achieve this, the firm should determine the optimum level of inventory. Efficiently controlled inventories make the firm flexible. Inefficient inventory control results in unbalanced inventory and inflexibility-the firm may sometimes run out of stock and sometimes pile up unnecessary stocks. Economic Order Quantity (EOQ): The major problem to be resolved is how much the inventory should be added when inventory is replenished. If the firm is buying raw materials, it has to decide lots in which it has to purchase on replenishment. If the firm is planning a production run, the issue is how much production to schedule. These problems are called order quantity problems, and the task of the firm is to determine the optimum or economic lot size. Determine an optimum level involves two types of costs: Ordering Costs: This term is used in case of raw material and includes all the cost of acquiring raw material. They include the costs incurred in the following activities: Requisition Purchase Ordering Transporting Receiving Inspecting Storing Ordering cost increase with the number of orders placed; thus the more frequently inventory is acquired, the higher the firms ordering costs. On the other hand, if the firm maintains large inventorys level, there will be few orders placed and ordering costs will be relatively small. Thus, ordering costs decrease with the increasing size of inventory.

Carrying Costs: Costs are incurred for maintaining a given level of inventory are called carrying costs. These include the following activities: Warehousing Cost Handling Administrative cost Insurance Deterioration and obsolescence

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Carrying costs are varying with inventory size. This behavior is contrary to that of ordering costs which decline with increase in inventory size. The economic size of inventory would thus depend on trade-off between carrying costs and ordering cost.

Composition Raw Material Stores and Spares Finished Goods Work-in-progress Table. 5

2006 6349 3713 13374 595

2005 7749 2987 7245 784

2004 6127 2622 6506 871

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

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

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

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

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CONVERSION PERIODS
Raw Material

Particulars Raw Material Consumption Raw Material Consumption/day Raw Material Inventory Raw Material Holding Days Table. 6

2006 121077 332 7072 21

2005 97971.31 268.41 6960.275 25.93

2004 57775.14 158.28 4364.735 27.57

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

Work-in-progress
Particulars Cost of Production Cost of Production/day Work in progress inventory WIP Holding days Table. 7 The work-in-progress holding time is important for a firm in the sense that it determines the rate of time at which the production process will be complete or the finished goods will be ready for disposal by the firm. The firm as it is in the process of assembling should take the least possible time in conversion to finished goods unlike a hard core manufacturing firm, as any firm would like to have its inventory in the work-in-progress at the minimum. There would also be less of stock out costs as due to better conversion rates the firm is able to meet the rise in demand situations. More the time it spends lesser its efficiency would be in the market. Here the firm has been able to bring down its WIP conversion periods. 2006 191911 525.78 689.5 1.31 2005 159651.19 437.4 827.52 1.89 2004 113500.33 310.95 679.455 2.19

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Finished Goods
Particulars Cost of goods sold Cost of goods sold/day Finished goods inventory Finished goods inventory Holding days Table. 8 The time taken for the firm to realize its finished goods as sales has increased as compared to last year. This growth in sales could be traced back to the growing domestic IT market for the commercial as consumer segment in India. HCL has around 15% of the market in desktop and it is the market leader in this segment. So it is only natural that they are able to better their conversion rate of finished goods to sales. 2006 228177 625 10310 16 2005 178438.85 488.87 6875.725 14.06 20004 124768.92 341.832 5026.505 14.8

Operating Cycle
Particulars Inventory conversion period Average collection period Gross operating cycle Average payment period Operating cycle Table. 9 The operating cycle of the firm reveals the days within which the inventory procured gets converted to sales or revenue for the firm. This time period is of importance to the firm as a lag here could significantly affect the profitability, liquidity, credit terms, and the policies of the firm. All the firms would like to reduce it to such extend that their cash inflows are timely enough to meet their obligations and support the operations. That the firm has been able to reduce the ratio is in itself an achievement as they were having huge stocks of inventory. But the reduction in the cycle could also be attributed to the boom in the market and the growth it is expected to reach. This boom automatically ensures the demand for the finished goods and thus helping in it to garner sales for the firm. 2006 38 70 108 22 86 2005 42 63 105 23 82 2004 45 66 111 17 94

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Raw Material Consumption

Particulars Imported Indigenous % Imports Table. 10 A major chunk of the imports come from Korea and Taiwan and is purchased in US$. The value of imported and indigenous raw material consumed give a clear picture that if there is a change in the EXIM policy of the government it is bound to affect the company adversely as more than 70% of their consumption is from imports. But this is the scenario witnessed in the industry as a whole and though HCL is into expanding its operation to Uttaranchal it in the present state is would be affected by a change in the import duty structure. A major chunk of their current assets are in the form of inventory and the change in technology will invariably be a threat faced by the firm. The question of technology applying here like says a certain device going say out of fashion or outdated. For e.g. TFT monitors being in demand more than CRT. 2006 92007 29070 75.99 2005 70784.27 27187.04 72.25 2004 42129.63 15645.51 72.92

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CASH MANAGEMENT

Sources of cash:
Sources of additional working capital include the following: Existing cash reserves Profits (when you secure it as cash!) Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit. Long-term loans

If you have insufficient working capital and try to increase sales, you can easily over-stretch the financial resources of the business. This is called overtrading. Early warning signs include: Pressure on existing cash Exceptional cash generating activities e.g. offering high discounts for early cash payment Bank overdraft exceeds authorized limit. Seeking greater overdrafts or lines of credit Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies Management pre-occupation with surviving rather than managing

Frequent short-term emergency requests to the bank (to help pay wages, pending receipt
of a cheque).

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CASH MANAGEMENT IN HCL INFOSYSTEMS

The cash management system followed by the HCL Infosystems is mainly lock box system. Cash Management System involves the following steps: 1. The branch offices of the company at various locations hold the collection of cheques of the customers. 2. Those cheques are either handed over to the CMS agencies or bank of the particular location take charge of whole collection. 3. These CMS agencies or bank send those cheques to the clearing house to make them realized. These cheques can be local or outstation. 4. The CMS agencies or bank send information to the central hub of the company regarding realization/cheque bounced. 5. The central hub passes on the realized funds to the company as per the agreed agreements. 6. The CMS agencies or concerned bank provides the necessary MIS to the company as per requirement. In cash management the collect float taken for the cheques to be realized into cash is irrelevant and non-interfering because banks such as Standard Chartered, HDFC and CitiBank who give credit on the basis of these cheques after charging a very small amount. These credits are given to immediately and the maximum time taken might be just a day. The amount they charge is very low and this might cover the threat of the cheque sent in by two or three customers bouncing. Even otherwise the time taken for the cheques to be processed is instantaneous. Their Cash Management System is quite efficient.

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Cash-Current Liability
Particulars Absolute Liquid Ratio Table. 11 The absolute liquid ratio is the best for three years and the cash balances as to the current liability has improved for the firm. Firm has large resources in cash and bank balances. While large resources in cash and bank balances may seem to affect the revenue the firm could have earned by investing it elsewhere as maintenance of current assets as cash and in near cash assets and marketable securities may increase the liquidity position but not the revenue or profit earning capacity of the firm. 2006 0.24:1 2005 0.31:1 2004 0.11:1

Dividend Policy-Cash
Particulars Dividend Policy% Shift in Sales Cash Balance Cash in Hand Table. 12 2004 210 154295 4463.43 118.33 2005 310 199886 14582.65 128.97 2006 400 238136 14529.29 128.97

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Dividend Policy %
450 400 350 300 250 200 150 100 50 0 2004 2005 2006 Dividend Policy %

Fig. 8

CASH BALANCE
16000 14000 12000 10000 8000 6000 4000 2000 0 2004 2005 2006 Cash Balnce Cash in hand

Fig. 9

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Shift in Sales
300000 250000 200000 2004 150000 100000 50000 0 2004 2005 2006 2005 2006

Fig. 10 The other notable feature in HCL statements has been the growing dividend policy of the firm. The payment of dividend means a cash outflow. Thus cash position is an important criterion at the time of paying dividends. There is a theory that greater the cash position and ability to pay dividends. The firm has adopted a policy of disbursing the revenue earned as profits to the shareholders as dividends as could be seen from the increasing % of dividends declared.

Particulars PBIDT Equity Dividend% Table. 13

2006 14284 400

2005 15634 310

2004 14523 210

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

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The firm feels that they should retain cash and it would be in the interest of the firm as well as the shareholders. This would automatically mean as decrease in Earning/share (EPS)(Basic EPS declined from 8 in 2005 to 6.74 in 2006). It would prompt more of investors being interested in the shares of the company, which would boost the purchase of the securities and increase the market price/share thus being beneficial for the firm.

Cash Flows
Cash Flows Net Cash from Operating activities Net Cash from Investing activities Net Cash from Financing activities Table. 14 The firm has disposed of investments worth around 655 Crores to meet its growing needs. The other notable feature is decline is the firms inflows from operations primarily due to the reason that the cash generated from the operations is the lowest in three years. And the firms growing dividend policy has contributed to the outflows in financing activities. 2006 6924 -3515 -3512 2005 2675.57 15661.29 -8217.68 2004 13706.34 -2169.16 -11412.1

Cash Flow in Operating Activities

Working Capital Changes Working Capital Changes Trade and other receivables Inventories Trade Payables and other Liabilities Table. 15 The cash from the operation has been subject to considerable change due to the changes that could be adjusted towards trade receivables and trade payables. The outflows in inventory have become as low as 37% of what it was last year despite an increase in the inventory consumption by 16.64%. The resulting reduction in the cash outflows might be because of the inventories being procured more on credit. That the cash from operations has declined has affected the current liability index of the firm. 2006 -14166 -5221 13026 2005 -14510.69 -2683.92 6419.13 2004 -7106.68 -7221.11 14311.5

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Cash Flow in Investing Activities

Investments in Mutual Funds Investments (year end) Purchase of Investment Disposal/Redemption of Investment Table. 16 The investments have reduced from the last year due to the redemption of investments taken place to meet various needs such as increasing demand in stock or inventory and to ensure better credit and receivables policy. We can see that the firm has in these three years increased their cash inflow from the investing activities by way of disposal of investments when in need. That is the firm has redeemed to realize cash as to meet its expanding operations, fund the inventory procurement and meet the obligations. The investments in mutual funds are beneficial to the firm in the context that they contain interest bearing securities which add up as a source of revenue for the firm unlike cash which remains idle and unproductive when not in use. This reduction of dividend could be attributed to disposal of investments in mutual funds and subsidiary. This disposal creates a fund, which can be used by the company as and when the need arises. 2006 13539 -65992 65312 2005 12277.44 -53075.99 65489.84 2004 28059.88 -59249.81 52087.36

Cash vs. Marketable Securities

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

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Liquid Cash Balance

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

Instruments Used
The instrument used here are primarily cheques comprising of around 97% of what is used in. The rest 2-3% comprise of the letters of credit. Thus working capital is the lifeline for every business. The main advantages of sufficient working capital are: It helps in prompt payment Ensures high solvency in the company and good credit standing. Regular supply of material and continuous production. Ensures regular payment of salaries and wages and day to day commitments.

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RECEIVABLES MANAGEMENT

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

Late payments erode profits and can lead to bad debts.

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

The following measures will help manage your debtors:

1. Have the right mental attitude to the control of credit and make sure that it gets the priority it deserves. 2. Establish clear credit practices as a matter of company policy. 3. Make sure that these practices are clearly understood by staff, suppliers and customers. 4. Be professional when accepting new accounts, and especially larger ones.

5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank references, industry sources etc. 6. Establish credit limits for each customer and stick to them. 7. Continuously review these limits when you suspect tough times are coming or if operating in a volatile sector. 8. Keep very close to your larger customers.

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9. Invoice promptly and clearly. 10. Consider charging penalties on overdue accounts. 11. Consider accepting credit /debit cards as a payment option. 12. Monitor your debtor balances and aging schedules, and don't let any debts get too old.

Recognize that the longer someone owes you, the greater the chance you will never get paid. If the average age of your debtors is getting longer, or is already very long, you may need to look for the following possible defects. Poor collection procedures. Lax enforcement of credit terms. Slow issue of invoices or statements. Errors in invoices or statements. Customer dissatisfaction. Weak credit judgment.

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

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Profits only come from paid sales

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

Here are few ways in collecting money from debtors:

Develop appropriate procedures for handling late payments. Track and pursue late payers Get external help if you own efforts fail. Dont feel guilty asking for money. Its yours and you are entitled to it. Make that call now and keep asking until you get some satisfaction. In difficult circumstances, take what you can now and agree terms for the remainder, it lessens the problem. When asking for your money, be hard on the issue but soft on the person. Dont give the debtor any excuses for not paying. Make that your objective is to get the money, not to score points or get even.

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RECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS

PARTICULARS DEBTORS TURNOVER RATIO AVERAGE COLLECTION PERIOD Table. 17.1

2006 5.21 70

2005 5.80 63

2004 5.53 66

2003 6.62 55

A better turnover ratio implies for the firm, more efficiency in converting the accounts receivable to cash. A firm with very high turnover ratio can take the freedom of holding very little balances in cash, as their debtors are easily realizable. In case of HCL, the collection period for the firm is 70 days.

PARTICULARS PROVISION FOR DOUBTFUL DEBTS(CASH FLOW) DEBTS DOUBTFUL(EXCEEDING 6 MONTHS) Table. 17.2

2006 3 47

2005 49.85 134.09

2004 25 69.8

The debts doubtful have doubled but their percentage on the debts has almost become half. This implies a sales and collection policy that get along with the receivables management of the firm.

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

Real Time Gross Settlement as such is a concept new in nature and though the firm uses the system with all the members of the consortium, it is still in its primal stage and will take time before all of the clients of the firm are willing to accept it. The firm has made a proposal to the consortium of the banks during appraisal for faster implementation of internet based banking facility by all the banks and adoption of RTGS payment system through net. The debtors turnover ratio is completely dependent upon the credit policy followed by the firm. The credit policy followed by the firm should be such that the threat of bad debts and the default rate involved should be terminated.

PARTICULARS CREDITORS TURNOVER RATIO PAYMENT PERIOD Table. 17.3

2006 16.44 22

2005 15.68 23

2004 21.29 17

2003 21.14 16

That the creditors turnover ratio has declined and payment period has increased indicate that the company has got a leeway in making the payment to the creditors by way of increased time. With creditors they are having pre-agreements and have undertaken arrangements with them, which they believe to be the best in the business and these are fixed. (NOTE: Acceptances are not included in the computation of creditors turnover)
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MANAGING PAYABLES (CREDITORS)

Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems.

Consider the following:

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

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Financing Current Assets

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

Long term financing:

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

Short term financing:

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

Spontaneous financing:
It refers to automatic sources of short-term funds arising in normal course of business. There is no explicit cost associated with it. For example, Trade Credit and Outstanding Expenses etc. Depending on the mix of short and long term financing, the company can follow any of the following approaches.

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

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

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

Current asset to fixed asset ratio:

The financial manager should determine the optimum level of current assets so that the wealth of shareholders is maximized. A firm needs fixed and current assets to support a particular level of output.

The level of current assets can be measured by relating current assets. Dividing current assets by fixed assets gives CA/FA ratio. Assuming a constant level of fixed assets, a higher CA/FA ratio indicates a conservative current assets policy and a lower CA/FA ratio means an aggressive current assets policy assuming other factors to be constant. A conservative policy i.e. higher CA/FA ratio implies greater liquidity and lower risk; while an aggressive policy i.e. lower CA/FA ratio indicates higher risk and poor liquidity. The current assets policy of the most firms may fall between these two extreme policies. The alternative current assets policies may be shown with the help of the following figure.

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Fig. 11 In this figure the most conservative policy is indicated by alternative A, where as CA/FA ratio is greatest at every level of output. Alternative C is the most aggressive policy, as CA/FA ratio is lowest at all levels of output. Alternative B lies between the conservative and aggressive policies and is an average policy.

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WORKING CAPITAL & SHORT-TERM FINANCING

CONSORTIUM BASED FINANCING

Working Capital Limits NAME OF THE BANK STATE BANK OF INDIA ICICI BANK HDFC BANK STANDARD CHARTERED BANK STATE BANK OF SAURASHTRA STATE BANK OF PATIALA CANARA BANK SOCIETE GENERALE HSBC BANK TOTAL Table. 18 In order to finance the working capital needs of the firm in the form of Working Capital Demand Loan, there is a consortium of nine banks. The consortium if banks provide a fund based limit of 125 Crores which comprises of cash credit and working capital demand loans and non-fund based limits which has bank gurantee and letter of credit subject to a limit of 1375 Crores. The Lead Bank in this consortium of banks is State Bank of India and the second lead bank is ICICI. It is SBI, which fixes the limit on the basis of consortium. They, in consultation of the company decide the allocation of limit to various member banks. The allocation cannot be higher than the limits fixed by it. SBI is the biggest contributor in the consortium for both fund and non-fund based limits with about31.30 in funds and 34.02 in non-fund limits. The ratio of both limits for the year 2006 is 0.23:0.77 FUND BASED 3600 1282 1200 1200 715 1300 1203 1000 1000 12500 NON-FUND BASED 46000 19000 10000 19000 7500 7700 6000 4000 18300 137500

It is on the basis of the accounts receivable that the banks come to an agreement with regards to the limits imposed. Though it is the fund based limits that finance the working capital requirements, the non-fund based limits are important for the management of the working capital

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as there might be clients who are not willing to sell on open credit and might be demanding letters of credit before any advances.

RENEWAL OF LIMITS
LIMITS FUND BASED NON FUND BASED TOTAL Table. 19 All banks sanction the limits for a period of one year. Thereafter it is to be renewed every year. SBI appraises the limit on the basis of consortium. The individual banks appraise for their own individual limit. The non fund based limits of the firm in consortium financing has been subjected to change for the past two years as per the requirements of the firm and the consent of the lead bank to its proposal. It was around 385 Crores in 2005 and had been risen to around 485 Crores in 2006. A proposal has been made by the firm to further appraise the limits by 100 Crores to 585 Crores in view of the growing operations of the firm with full interchangeability between letter of credit and bank guarantee limits for operational flexibility. Allocation of the fund based and non based limits among the banks based on operational convenience rather than allocating the fund based and non fund based on the same ratio is also among the proposals made by the firm. The company needs to provide the following information to bank for appraisals: 2006 11500 48500 60000 2005 11500 38500 50000 2004 11500 28500 40000

Credit Monitoring Appraisal Write Up on company Share holding pattern

List of the directors

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

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Documentation and joint documentation:

There are various documents that need to be signed at the time of renewal or inducting any bank to the consortium. The various documents are as follows: Loan agreement Hypothecation agreement for movable machinery Hypothecation agreement for movables and book debts Counter Indemnity

The above are the standard agreements asked for by the banks. The common seal has to be witnessed by the company secretary and one of the directors of the company. As of 2005, no additions or deletions were made to the consortium of the banks. But over the years the number of banks in the consortium has been reduced. Indian Banks and State Bank of Hyderabad are the two banks which were earlier a part of the consortium.

Joint Documentation is executed between the company and the consortium of banks for the working capital facilities extended by the consortium to the company. The joint documentation is valid for three years. The documents comprising joint documentation are: Working Capital consortium agreement Joint deed of documentation Inter se agreement between bankers Letter of authority to lead bank by other consortium banks Letter of authority to second lead bank by other consortium banks Undertaking to create charge on the assets of the company.

ALLOCATION OF LIMIT BY LEAD BANK

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

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FINANCIAL FOLLOW UP REPORTS ( FFRI & FFRII):

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

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SHORT TERM FINANCING

Other than the investment in current assets, the firm also has to be concerned with short-term to long-term debt as this plays a very important role in determining the amount of risk undertaken by the firm. That is , the firm not only has to be concerned about current assets but also the sources through which they are financed. A firm before financing in either of the two, has to take into consideration various aspects. While short term might seem the ideal way to finance your assets than the long term due to shorter maturity period and also less of costs are involved, there is an inherent risk in short term financing due to fluctuating interest rates and due to the reason that the firm might be unable to reay the amount in a shorter span of time.

SECURED LOANS SHORT TERM LONG TERM TOTAL %SHORT TERM Table. 20.1

2006 3849 0 3849 100

2005 4991.28 530.07 5521.35 90.4

2004 6903.7 0 6903.7 100

2003 4987.52 3461.36 8448.88 59.03

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

UNSECURED LOANS SHORT TERM LONG TERM TOTAL % SHORT TERM Table. 20.2

2006 15104 11 15115 99.93

2005 2593.39 17 2610.39 99.348

2004 63.94 169.51 233.45 27.38

2003 76.84 3261.42 3338.26 2.3

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

YEAR- END COMMERCIAL PAPERS

PARTICULARS COMMERCIAL PAPERS Table. 21 The credit rating by ICRA continued at A1+indicating highest safety to companys commercial paper program of Rs. 75 Crores. It acts as an effective tool in reducing the interest cost and is used for financing inventories and other receivables. As and when the firm issues commercial papers, it sends a letter to the leader of the consortium, i.e., SBI to reduce from the fund based limits the amount it has issued in the form of the commercial papers. Suppose the firm issues 30 Crores as commercial papers and the fund based limits are say 115 Crores. Then firm sends a letter to SBI to reduce the existing fund based limits from 115 to 85 Crores. 2006 4000 2005 2500 2004 --2003 3000

In terms of desirability, the commercial papers are cheaper and advantageous to the firm compared to the consortium financing. The main advantage being the interest rate which is lower than the bank rates existing under consortium financing. But the firm depends on both and for working capital financing, it is dependent on the banks for funds such as working capital demand loans and cash credits. There is no point in the firm not making use of the fund based limits in the consortium banking as their commercial papers are restricted to 75 Crores.

MERITS OF COMMERCIAL PAPERS:

It is an alternative source of raising short-term finance, and proves to be handy during periods of tight bank credit.

It is a cheaper source of finance in comparison to the bank credit.

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DEMERITS OF COMMERCIAL PAPERS:

It is an impersonal method of financing. It is always available to the financially sound and highest rated companies. amount of excess liquidity of the various purchasers of commercial paper.

The amount of lonable funds available in the commercial paper market is limited to the

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ANALYSIS

INDUSTRY ANALYSIS INDUSTRY STRUCTURE AND DEVELOPMENTS

Over the past decade, the Information Technology (IT) industry has become one of the fastest growing industries in India, propelled by exports (the industry accounted for more than a quarter of Indias services exports in 2004-05). The key segments that have contributed significantly (96 percent of total) to the industrys exports include Software and services (IT services) and IT enabled services (ITES) i.e. business services. Over a period of time, India has established itself as a preferred global sourcing base in these segments and they are expected to continue to fuel growth in the future.

Fig. 12

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FINANCIAL GRAPHS

Gross Business Income:

Consolidated Revenue for the year grew to Rs. 11855 crores. Services revenue grew by 31%, from Rs. 274 crores to Rs. 360 crores. The Compounded Annual Growth Rate (CAGR) for the preceding five years is 45%.

Fig. 13

Profit before Tax:

PBT grew by 11% from, Rs. 385 crores in 2006 to Rs. 429 crores in 2007. The Compounded Annual Growth Rate (CAGR) for the preceding five years is 53%.

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Fig. 14

Profit after Tax:

Profit after tax grew by 13%, from Rs. 280 crores in 2006 to Rs. 316 crores in 2007. The Compounded Annual Growth Rate (CAGR) for the preceding five years is 36%. Profits for the year 2007 are after a provision for Rs. 106 crores for current tax expense, Rs. 3 crores for deferred tax expense and Rs. 4 crores for Fringe Benefit Tax.

Fig. 15

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 Earnings Per Share:

Basic EPS grew from Rs. 16.7 in 2006 to Rs. 18.7 in 2007. Diluted EPS grew from Rs. 16.5 in 2006 to Rs. 18.6 in 2007.

Fig. 16

Dividend:
The Company distributed dividends @ 100% per share in each of the first three quarters of the year 2007. The company proposes to pay a final dividend of 100% per fully paid up equity share of Rs. 2/- each. The interim dividends paid together with proposed final dividend total to 400% for the year 2007, entailing an outflow of Rs. 156 crores, including distribution tax.

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Fig. 17

Net worth/ Shareholders Fund:

Net Worth grew from Rs. 698 crores as at 2006 year-end to Rs. 860 crores as on June 30, 2007. Share capital as at year-end is Rs. 34 crores divided into 16.9 crores shares of Rs. 2/- each. Reserves & surplus as at year-end are Rs. 826 crores after appropriating Rs 156 crores for dividends. Book value per share grew from Rs. 41.3 as at June 30, 2006 to Rs.50.8 as at June 30, 2007.

During the year, the Company allotted 4.2 lakh shares under Employee Stock Option Scheme realizing Rs. 4.4 crores.

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Fig. 18

Borrowings: Year-end loan balances increased from Rs. 85 crores as on June 30, 2006
to Rs. 236 crores as on June 30, 2007. The increase in loan balances was mainly to fund growth in Computing Business including System Integration. Debt-Equity ratio [Debt/(Debt+Equity)] is 22%.

Fig. 19

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 CURRENT ASSET RATIO:

Fig. 20

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CHAPTER IV

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CONCLUDING ANAYSIS

The working capital position of the company is sound and the various sources through which it is funded are optimal. The company has used its dividend policy, purchasing, financing and investment decisions to good effect can be seen from the inferences made earlier in the project. The debts doubtful have been doubled over the years but their percentage on the debts has almost become half. This implies a sales and collection policy that get along with the receivables management of the firm.

The returns have been affected by a marked growth in working capital and though a 29.75% in 2006 return on investment is good, but it got reduced as compared to 39.01% return in 2005.

The various ratios calculated are an indicator as to the fact that the profitability of the firm and sales are on a rise and also the deletion of the inefficiencies in the working capital management.

The firm has not compromised on profitability despite the high liquidity is commendable.

HCL Infosystems has reached a position where the default costs are as low as negligible
and where they can readily factor their accounts receivables for availing finance is noteworthy.

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SUGGESTIONS AND RECOMMENDATIONS

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

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ANNEXURE Financial highlights

Fig. 21

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Fig. 22

(Source: Annual Report 2010-2011)

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FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

4 years Balance Sheet:
Although debt as a percent of total capital increased at HCL Infosystems Ltd. over the last fiscal year to 21.53%, it is still in-line with the IT Services industry's norm. Additionally, even though there are not enough liquid assets to satisfy current obligations, Operating Profits are more than adequate to service the debt. Accounts Receivable are among the industry's worst with 28.44 days worth of sales outstanding. This implies that revenues are not being collected in an efficient manner. Last, inventories seem to be well managed as the Inventory Processing Period is typical for the industry, at 21.29 days. Currency in Millions of Indian Rupees Assets Cash and Equivalents Short-Term Investments TOTAL CASH AND SHORT TERM INVESTMENTS Accounts Receivable Other Receivables TOTAL RECEIVABLES Inventory Prepaid Expenses Other Current Assets TOTAL CURRENT ASSETS Gross Property Plant and Equipment Accumulated Depreciation NET PROPERTY PLANT AND EQUIPMENT Goodwill Long-Term Investments 1,452.3 114.8 1,567.1 4,390.4 228.2 4,618.7 2,804.2 107.0 23.8 9,120.8 1,406.1 -749.1 657.0 -2,190.9 2,512.7 1,573.6 4,086.3 6,103.1 400.5 6,503.6 3,493.9 163.0 56.4 14,303.2 1,404.7 -744.9 659.8 --2,149.2 3,137.7 5,286.9 1,976.5 2,939.9 4,916.4 As of: Jun 30 Jun 30 Jun 30 2004 2005 2006 Restated Restated Reclassified Jun 30 2007

7,691.4 10,520.0 468.1 593.4

8,159.5 11,113.4 4,696.1 146.0 86.8 7,918.8 287.8 84.8

18,375.3 24,321.2 1,731.9 -852.4 879.5 0.2 -2,431.0 -966.5 1,464.5 0.8 -90 | P a g e

Deferred Tax Assets, Long Term Other Intangibles Other Long-Term Assets TOTAL ASSETS

59.1 --12,027.9

-95.3 5.1 15,063.4

-32.4 71.8

-30.9 16.0

19,359.2 25,833.4

LIABILITIES & EQUITY Accounts Payable Accrued Expenses Short-Term Borrowings Current Portion of Long-Term Debt/Capital Lease Current Income Taxes Payable Other Current Liabilities, Total Unearned Revenue, Current TOTAL CURRENT LIABILITIES Long-Term Debt Deferred Tax Liability Non-Current Other Non-Current Liabilities TOTAL LIABILITIES Common Stock Additional Paid in Capital Retained Earnings Comprehensive Income and Other TOTAL COMMON EQUITY TOTAL EQUITY TOTAL LIABILITIES AND EQUITY Table. 23 3,390.6 100.4 -690.4 30.1 2,914.6 536.4 7,662.6 15.8 109.0 13.9 7,801.3 328.9 673.9 3,193.2 30.6 4,226.6 4,226.6 12,027.9 4,100.9 101.0 307.9 499.6 80.9 3,377.3 965.8 9,433.4 7.2 73.5 3.8 9,517.9 334.4 883.7 4,297.3 30.1 5,545.5 5,545.5 15,063.4 5,964.8 140.4 784.9 0.4 77.4 4,687.9 557.9 8,298.5 209.8 1,182.4 892.5 252.8 5,216.6 775.2

12,213.7 16,827.8 60.1 107.6 1.0 284.0 124.8 --

12,382.4 17,236.6 337.5 1,044.5 5,565.2 29.6 6,976.8 6,976.8 338.3 1,087.9 7,141.4 29.2 8,596.8 8,596.8

19,359.2 25,833.4 (Source: Annual Reports)

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4 years Cash Flow Statement:

In 2007, cash reserves at HCL Infosystems Ltd. fell by 172.7M. However, as a percent of revenues, this change was similar to the IT Services industry median. By looking at the Cash Flow Statement, analysts can easily see the sources and use of cash generated throughout the year.

Currency in Millions of Indian Rupees NET INCOME Depreciation & Amortization Amortization of Goodwill and Intangible Assets DEPRECIATION & AMORTIZATION, TOTAL (Gain) Loss from Sale of Asset (Gain) Loss on Sale of Investment Asset Writendown & Restructuring Costs Other Operating Activities Provision & Write-off of Bad Debts Change in Accounts Receivable Change in Inventories Change in Accounts Payable CASH FROM OPERATIONS Capital Expenditure Sale of Property, Plant, and Equipment

As of:

Jun 30 Jun 30 Jun 30 2004 2005 2006 Restated Restated Reclassified 1,751.1 180.1 -180.1 -0.4 -79.6 0.0 292.8 14.8 -1,593.4 -423.3 1,471.8 1,614.0 -180.7 3.5 73.7 30.8 2,277.0 152.4 -152.4 -1.6 -84.9 0.5 31.2 14.4 -1,993.4 -689.7 1,561.6 1,267.5 -267.8 10.7 841.4 622.4

Jun 30 2007

2,803.6 3,159.5 124.3 -124.3 0.5 -61.5 -79.6 7.2 -1,724.7 -1,202.2 144.0 4.1 148.1 0.6 -55.2 -271.8 9.2 3,158.8 3,222.7

2,759.5 3,112.2 2,786.3 -424.3 80.3 -1,453.6 -1,683.3 264.7 -674.5 1.6 289.0 -231.9
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Investments in Marketable & Equity Securities CASH FROM INVESTING

Short-Term Debt Issued Long-Term Debt Issued TOTAL DEBT ISSUED Short Term Debt Repaid Long Term Debt Repaid TOTAL DEBT REPAID Issuance of Common Stock Common Dividends Paid TOTAL DIVIDEND PAID Other Financing Activities CASH FROM FINANCING NET CHANGE IN CASH Table. 24

41.1 200.8 241.9 --707.9 -707.9 283.3 -866.2 -866.2 -98.9 -1,147.8 497.1

169.5 231.3 400.8 --302.7 -302.7 215.2 -1,047.4 -1,047.4 -95.4 -829.5 1,060.4

--

--

200.5 1,837.2 200.5 1,837.2 -172.3 --172.3 163.9 -1,526.6 -1,526.6 -132.0 -1,466.5 -363.5 -74.7 -250.0 -324.7 44.2 1,546.1 1,546.1 -216.1 -205.5 -172.7

(Source: Annual Reports)

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BIBLIOGRAPHY

Following sources have been sought for the preparation of this report:

BOOKS REFFERED
Khan and Jain, Financial Management

OFFICE REFFRENCES)
Corporate intranet Financial Statements(Annual Report)

www.hclinfosystems.in http://en.wikipedia.org/wiki/HCL_Infosystems , HCL Infosystems , Unknown, 30th May 2012 http://en.wikipedia.org/wiki/Working_capital , Working capital, Unknown, 2nd June 2012 http://education.svtuition.org/2011/08/working-capital-management-notes.html , Working Capital Management Notes, Prof. Vinod Kumar, 10th June 2012

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