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SUMMER TRAINING REPORT

ON
“FINANCIAL PERFORMANCE AND WORKING CAPITAL
MANAGEMENT”
OF KALPATARU POWER TRANSMISSION LIMTED”

In Partial Fulfilment of the Requirements for the Degree of


MASTERS OF BUSINESS ADMINISTRATION
(2016-2018)

Faculty of Commerce & Management Studies


Lachoo Memorial College of Science and Technology
(Autonomous)
Submitted By:
Khushboo lohiya

1
PREFACE
As a part of the course curriculum, an MBA(Master of business
administration) students are required to undergo for a summer training.
The objective behind preparing this summer training is to relate the
management subjects taught in the classroom to their practical
application.
“Practice makes man perfect.” A very good and appropriate proverb said
by someone very well fits for each and every MBA student who is going
to face the real world after completing MBA.
Summer training and summer project which is mandatory for each and
every MBA student helps them a lot to practice many things which they
are learning theoretically. Summer project helps them in applying their
theoretical knowledge practically. It gives them an exposure to the real
working of the industry.
Today in the era of the cut throat competition, it has become very
important for any person to be a master in the field they are. There are
many existing fields across the world to become a master, but one has to
choose only one field in which she thinks she can go further deep. If she
chooses one field to go deep, other field are automatically subdue.

2
EXECUTIVE SUMMARY

Any business unit engage either in trading or production activity


requires some amount of investment in day to day activity of the
business known as investment in working capital. To finance the
requirement of the working capital a firm may have many
sources like trade credit, commercial papers, public deposit,
inter corporate deposit, commercial bank etc. Among those
sources borrowing from commercial bank is mostly used by
firms to finance their working capital’s requirement. Borrowing
from the bank is not an easy task; a borrower has to go through a
specific procedures, to get advances from the bank for working
capital purpose.
This project report is on FINANCIAL PERFORMANCE AND
WORKING CAPITAL MANAGEMENT required by the KPTL,
covers most of the aspect related to the working capital
management required by the industry.

3
ACKNOWLEDGEMENT

I would like to thank Mr. Kamal Kishore Jain (Director finance and
chief Financial officer) for giving me an opportunity of taking internship
at “Kalpataru power Transmission Limited” (KPTL).
Mr. Shreyan Shah (VP) and Mr. Amrit Jain (AGM Finance) for
sparing valuable time to monitor my work and progress. He has been a
constant source of inspiration throughout the internship.
I am also grateful to my Professor Akhil Mathur (HOD) and Ms.
Aarti Khanchandani (Assistant Professor) Department of
Management, lachoo memorial college of science and Technology,
jodhpur for their continuous mentoring and feedback.
I would also like to thanks to Mr. Satvik Trivedi, AGM (Human
Resource), KPTL for providing me this valuable opportunity to learn
one of the elite organizations in the best possible environment.
Moreover, I would like to thank the employee at KPTL, Gandhinagar for
their constant guidance and help to learn various aspect of the corporate
world.

Khushboo lohiya
Lachoo memorial college of science and Technology, Jodhpur

4
Index

Particulars Page no.


Industry profile 6-7
Company profile 8-9
Awards and recognition 10-12
Business segments 13-16
Board of directors 17-20
Financial Performance 21-30
Working capital management 31-60
Observation & Learning 61
Annexure -
1. P&L 62
2. Balance sheet 63-64

5
INDUSTRY PROFILE

BRIEF INTRODUCTION TO POWER INDUSTRY


Power industry is consist of three major sub-category i.e. power
generation, power transmission and last is power distribution.

Power generation
Electricity generation is the process of generating electric power from
other sources of primary energy. During the 1820s and early 1930s, the
fundamental principles of electricity generation were discovered by
British Scientist Michael Faraday. The basic method is still used today ;
Electricity is generated by the movement of a loop of wire, or disc of
copper between the poles of a magnet. Electricity is most often
generated at power station by electromechanical generators primarily
driven by heat engines fuelled by chemical combustion or nuclear
fission but also by other means such as the kinetic energy of flowing
water and wind.

Power transmission
Electric power transmission is the bulk movement of electrical energy
from a generating site, such as power plant, to an electrical substation.
The interconnected lines which facilitate this movement are known as a
transmission network.
The combined transmission and distribution network is known as the
“power grid” in North America, or just “the grid”. In the United
Kingdom, the network is known as the “National Grid”.

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A wide area synchronous grid, also known as an “Interconnection” in
North America, directly connects a large number of generators
delivering AC power with same relative frequency, to a large number of
consumers.
For Example, there are 4 major interconnections in North America (the
western interconnection, the eastern interconnection, the Quebec
interconnection and the electric reliability council of Texas [ERCOT]
grid), and one large grid for most of Continental Europe.
Earlier, the transmission and distribution lines were owned by the same
company, but starting in the 1990s, many countries have been liberalized
the regulation of the electricity market in the ways that have led to the
separation of regulation of the electricity transmission business from the
distribution business.

Power distribution
An electric power distribution system in the final stage in the delivery of
electric power, it carries electricity from the transmission system to
individual consumers. Distribution substations connect to the
transmission system and lower the transmission voltage to medium
voltage ranging between 2kv and 35kv with the use of transforms.
Primary distribution lines carry this medium voltage power to
distribution transformers located near the customer’s premises.
Distribution transformers again lower the voltage to the utilization
voltage of household appliances and typically feed several customers
through secondary distribution lines at this voltage. Commercial and
residential customers are connected to the secondary distribution lines
through service drops. Customers demanding a much larger amount of
power may be connected directly to the primary distribution level or the
sub-transmission level.

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Company profile

Brief introduction of KPTL

K = Knowledge
A = Action
L = Loyalty
P = Positive attitude
A = Achievement
T = Trust
A = Affirmative
R = Responsibility
U = Unity

 Background
The Company was incorporated in the State of Gujarat on April 23,
1981 as H.T. Power Structure Private Limited under the Companies
Act. The name of the Company was changed to H.T. Power Structure
Limited by way of a shareholders resolution dated November 22,
1993 and a fresh certificate of incorporation consequent on change of
name was issued by the Registrar of Companies, Gujarat on
December 20,1993. The name of the Company was changed to
Kalpataru Power Transmission Limited by way of a shareholders
resolution dated December 20, 1993 and a fresh certificate of
incorporation consequent on change of name was issued by the
Registrar of Companies, Gujarat on January 4, 1994. The Company
made its initial public offering in December 1994 and its shares are
currently listed on the BSE Limited and the National Stock Exchange

8
of India Limited. KPTL is one of the Kalpataru Group of companies,
which also has interests in, among others, real estate and property
development businesses in India. The Group also has interests in civil
contracting and infrastructure services businesses in India, through
JMC, of which KPTL owns 67.19% equity stake and in Agri-
warehousing and allied activities, through Shree Shubham Logistics
Limited (SSLL), of which KPTL owns 71.52% equity stake as on 31
March 2017. JMC constructs factories and buildings, as well as
infrastructure projects, such as roads, flyovers and metro stations. For
the year ended March 31, 2017, JMC had Net Sales of Rs. 2328
crores. As of March 31, 2017 JMC had an order book position of
approx. Rs. 7000 crores. Company has three production units, 2 at
Gandhinagar, Gujarat and 1 at Raipur, Chhattisgarh. Company has
various project offices in India and overseas. Brief summary of the
business/ activities and its line of business Kalpataru Power
Transmission Limited (KPTL) is a leading diversified global EPC
player in power transmission & distribution (T&D) sector and also
operates in oil & gas pipeline, railways, infrastructure development,
civil contracting & Agri-logistics and warehousing business. Over the
years, it has expanded its footprints in 40 countries across the globe
including India, Africa, Middle East, SAARC, USA, Europe, Canada,
Australia, North America, Rwanda, Egypt, Zambia, CIS region and
Far East. As on 31st March, 2017, the Company has consolidated
order book of INR 16,000 crore and standalone order book of INR
9,000 crore.

9
Awards and Recognition
2017
Power Grid Corporation of India Limited (PGCIL), one of the major
client of KPTL declared awards for 2017 and KPTL received “Best
Performance award - 2017” for early completion of 765 kV D/C
Wardha-Nizamabad Line and “Runners up award - 2017” for
maximum capitalization in Transmission line category. 2016-2017
Your Company has received Certificate of Honour in the category of
Leading RE Developers – Biomass at Renewable Energy India
awards – 2016.
2016
Raipur plant of KPTL has been selected for ‘Silver Certificate of
Merits -2016’ for India Manufacturing Excellence Award by Frost &
Sullivan for the consecutive 2nd year. 2016 Company awarded status
of ‘Three Star Export House Certificate’ under Foreign Trade Policy
2015-16
Company was awarded following awards by PGCIL:
a. ‘Best Transmission Line EPC player in the Country’
b. Runner up in ‘Maximum volume of work in 2015/16 on PGCIL
Projects’
c. ‘Best safety norms on PGCIL Projects’
2015-16
Company has received Certificate of Conformity of the Factory
Production Control for the construction product “Structural Steel
Transmission Line Towers” in compliance with Regulation
305/2011/EU of the European Parliament and of the Council of 9
March 2011 (the Construction Products Regulation or CPR) from
SGS United Kingdom Limited.
2015-16

10
Company has received Certificate of Appreciation from Ministry of
Energy and Coal Industry of Ukraine for successful completion of
“750 kV Rivne NPP – Kiev Substation Transmission Line” project,
one of the biggest projects of its type constructed in Ukraine which
was completed at least nine months ahead of scheduled date.

2015
KPTL’s project Satpura–Ashta Transmission Line undertaken for
M.P. Power Transmission Co. Ltd. awarded 8th INDIA POWER
AWARDS 2015 for its valued contribution to Energy Sector
2015
Raipur Plant of company has participated in India Manufacturing
Excellence Awards (IMEA), 2015 conceptualized by Frost & Sullivan
and received the silver certificate.
2014
Jhajjar KT Transco P. Ltd. has been selected for Silver Shield for
Early Completion of Transmission Project for the year 2011-12 by
Central Electricity Authority under Comprehensive Award Scheme of
Ministry of Power. 2013 SSLL awarded trophy by CII – Supply chain
and logistics excellence (SCALE) Award-2013 for its exemplary
performance in Agri Sector.
2013
KPTL, UAE got recognition from Health Authority-Abu Dhabi for
the successful implementation of “Working in heat program” at our
various sites for last four years. 2012 KPTL awarded trophy for the
3rd highest volume of Export containers at ICD Khodiyaar,
Ahmedabad by CONCOR for 2012-13 (2470 Containers).
2011

11
Received Runner up of the 2011 Corporate Social Responsibility
Award in recognition of exemplary success in voluntarily improving
the quality of life for the local community and society at large by
IPLOCA for Infra Division.
2010
Received certificate of honour (3 million safe hours) from Gujarat
Safety Council in association with Dir. of Industrial Safety & Health,
Govt. of Gujarat for year 2010.

2007
NDTV Profit Awards - Kalpataru Power Transmission Ltd., has been
adjudged “The Best emerging value creator” (Mid-Size Companies)
runner up for Outlook Money 2007 Business Today - Kalpataru
Power Transmission Ltd. has been listed in “India's most investor-
friendly companies” 2007 Business Today - Business Today rates
Kalpataru Power Transmission Ltd as “Fastest growing Mid-Cap
Company of India”
2006-07
D&B- ECGC Indian Exporters Excellence Award - Kalpataru Power
Transmission Ltd has been awarded as the “Top Exporter in the
Engineering Goods Sector”.
2002-03, 2001-02, 1998-99, 1995-96
Engineering Export Promotion Council - Kalpataru Power
Transmission Ltd has been awarded a “Certificate of Export
Excellence”.
2000-01, 1999-00, 1997-98
Container Corporation of India Limited, Sabarmati (Ahmedabad)-
Kalpataru Power Transmission Ltd has been awarded the certificate
for “Exporting maximum number of Containers”.

12
 Business Segments
 Engineering, Procurement and Construction Services (EPC)
1. Transmission & Distribution Division
As an industry leader in the power transmission business, KPTL
provides end-to-end solution ranging from in-house designs, testing,
procurement and fabrication to erection, installing and
commissioning of transmission lines. With state-of-the-art testing
facility and a production capacity of more than 1,80,000 MT of
transmission towers, KPTL is among the trusted names in the
industry. The Company has installed over 18,000 kms of transmission
lines and supplied over 1.60 million tons of towers across the globe
supported by its strong and dedicated human resource pool of more
than 2200 professionals. During the year 2016-17, the Company
strengthened its leadership position in the Indian market by
displaying on-time project execution and maintaining highest safety
standards. Continuous expansion into overseas markets to diversify
and de-risk its business led to addition in new market(s) during the
year. Share of international orders is 52% of the overall order book
as on 31 March 2017. By choosing international projects, which are
normally funded by global multi-lateral funding agencies such as
World Bank, International Monetary Fund (IMF), African
Development Bank, Asian Development Bank, etc., the Company
significantly reduces its credit risk. The Company has expanded its
manufacturing capacity to over 180,000 MT per annum by setting up
a green-field tower manufacturing plant of 55,000 MT at Raipur,
Chhattisgarh. This plant would support domestic operations by
providing cost synergies due to close proximity with project locations
and raw material sources. Also, existing two plants at Gandhinagar,
Gujarat, shall focus on international orders, which being closer to
ports, bring operational efficiency in serving international projects.

13
2. Civil Construction (JMC projects (India) Ltd.)
JMC Projects India Limited (JMC), a subsidiary of Kalpataru Power
Transmission Limited (KPTL), is a leading contracting company that
undertakes Civil & Structural works for Factories and Buildings, Roads
and Bridges, Power Plants, Water pipelines, Rail and Metro
Infrastructure projects in India and abroad. Incorporated in 1982, it
has a professionally qualified workforce of over 3,200 people. The
Company is one of the fastest growing Indian Constructions
Company and has a strong order book of over INR 7,000 crore as on
31.03.2017. The Company has expanded its footprints outside India
by pocketing its first road EPC contract in Ethiopia in Africa. Company
has also bagged its second road project in Ethiopia and also a water
pipeline project in Sri Lanka. The Company plans to leverage on
strong global understanding of its parent company and strengthen its
international portfolio going forward.

3. Oil &Gas Infrastructure


KPTL undertakes EPC contracting for cross-country pipelines,
terminals and gas gathering stations for oil & gas sector across
diverse territories. The Company has a well qualified engineering and
designing team for successful completion of projects and provides
end-to-end solutions. Over the years, KPTL has catered to some of
the major players in the oil & gas sector and has been involved with
setting up of more than 108 oil & gas stations and laying of over
2,550 kms of pipeline across the country. It is presently executing 8
projects of GAIL, Indian Oil Corporation Limited (IOC), Cairn India
Ltd., Reliance Gas Pipeline Ltd., Oil India Limited (OIL) & Hindustan
Petroleum Company Limited (HPCL).

14
4. Railways Infrastructure
A High Growing portion of the Company’s business, KPTL diversified
into railway EPC business which leverages on with KPTL’s skills for
track electrification and JMC Projects for its civil infrastructure work.
The Company offers an entire range of services including tracklaying,
signaling & telecommunication, and overhead electrifications works
on turnkey basis in railway infrastructure projects globally and is
geared up for various more such bids across geographies. The
Company is executing an international turnkey project in Bangladesh.

5. Biomass Power Plant


KPTL has two operational biomass plants in Rajasthan, a 7.8 MW in
Ganganagar district and an 8 MW plant in Tonk District of Rajasthan.
Kalpataru Power is one of the few companies around the globe to
get registered with United Nations Framework Convention on
Climate Change in 2005 and has benefited from CERs (Certified
Emission Reduction) generated from its both the plants.

6. Power Transmission BOOT


With the advent of the Public Private Partnership (PPP) mode, KPTL
has expanded its business portfolio by executing the first
Transmission Line Design, Build, Finance, Operate and Transfer
(DBFOT) project at Jhajjar (Haryana), which was commissioned in
FY’12. The project was completed in a record time of 15 months and
the Company shall own the project for 25 years which can further be
extended to 10 years. KPTL has also completed its second
transmission project on PPP basis, a 240 km 400 kV Twin Moose
conductor line under Viability Gap Funding for concession period of
25 years with optional extension of 10 years on annuity basis
through its wholly owned subsidiary Kalpataru Satpura Transco Pvt

15
Ltd (KSTPL) under DBFOT model in a record time of 15 months. KSTPL
is currently operating at almost 100% availability. The Company has
successfully secured another Build, Own, Operate and Maintain
(BOOM) Project , a 327 Km 400 kV D/c line (2nd) with quad moose
conductor for initial concession period of 25 years and with provision
for extension for 10 years through its wholly owned subsidiary
Alipurduar Transmission Limited. Company has obtained Financial
Closure and Construction of transmission line has now commenced.

7. Road BOOT
JMC Projects (I) Ltd. is executing four Road BOOT Projects, all
projects are operational on full toll and full length basis.

8. Agri-warehousing (Shree Shubham Logistics Limited)


Shree Shubham Logistics Limited, a subsidiary of Kalpataru Power
Transmission Limited (KPTL), undertakes an array of activities in the
post-harvest value chain for agri-commodities. The activities include
warehousing, procurement, primary processing, collateral
management, funding facilitation, funding, testing & certification,
and pest management in relation to agricommodities. The activities
are aimed at a wide spectrum of market participants dealing in Agri-
commodities, including farmers, traders & aggregators, government
agencies, banks and electronic.

16
 Board of directors
Mr. Mofatraj P. Munot, Chairman
He is the promoter and chairman of Kalpataru Power Transmission
Ltd. He also serves as the Chairman of Kalpataru Ltd., the flagship
real estate arm of the Group. He has a vast industry experience of
close to five decades in Real Estate and Property Development, Civil
Contracting and EPC across the industry spectrum. He founded the
Kalpataru Group in 1969 and has been the guiding force behind the
Group’s stellar success.

Mr. Parag Munot Promoter, Director


He is the Managing Director of Kalpataru Ltd., the flagship real estate
arm of the Group. He is responsible for Group’s Real Estate and
Property Development business. At Group level, he provides strategic
support and drives new business initiatives. He holds a degree in
Bachelor of Commerce and is a M.B.A. from the Carnegie Mellon
University, USA
.
Mr. Sajjanraj Mehta, Independent Director
He is a renowned senior professional and expert in the field of
Accounting, Tax and Corporate law. He has over 40 years of
experience and serves as consultant in the field of Foreign Exchange,
Taxation and Corporate laws to well-known companies.
He is a Chartered Accountant by profession and has an independent
consultancy firm.

Mr. Vimal Bhandari, Independent Director


He has over 28 years of experience in financial services industry. He
is currently serving as the Managing Director and Chief Executive
Officer of Indostar Capital Finance Ltd., prior to which he was the
17
Country Head of AEGON N.V. He has also served as an Executive
Director of IL&FS Ltd. for a period of 12 years and is also on the
Board of many prominent Indian companies.
He is a Commerce Graduate from Mumbai University and a
Chartered Accountant by qualification. He attended Advanced
Management Programs at the International Institute of Management,
Lausanne, Switzerland, as a part of his continuing professional
education.

Mr. Narayan K. Seshadri, Independent Director


He has over 28 years of consulting experience in the field of finance,
accounts, tax and business strategy.
He was KPMG India’s Managing Partner heading Business Advisory
practice. He is the founder of Tranzmute Capital & Management Pvt.
Ltd., established with objective of providing new ideas, management
and capital to first generation entrepreneurs and family businesses. He
is also on the Board of many prominent Indian companies.
He is a Science Graduate and a Chartered Accountant.

Mr. Mahendra G. Punatar, Independen8t Director


He is an industry veteran with a career spanning over 53 years in
transmission line business. He has been instrumental in the growth of
KPTL in its initial years from 1986 to 2001 having served as the
Managing Director. From 2001 till 2009 he has served as a Vice
Chairman (Executive and Non Executive) of KPTL.
He is also an Independent Director of JMC Projects (India) Ltd. since
January, 2006. He holds Masters in Structural Engineering from
University of Michigan, U.S.A.

18
Mr. K. V. Mani, Director, Independent Director
He is a seasoned professional in Transmission & Distribution business
with more than four decades of unparalleled experience in
Construction, Project Management and Overseas Marketing. He has
been associated with the Company for over a decade and has served
as the Managing Director from 2001 to 2009.
Since June 2009, he has served the Company as a Non-Executive
Director and from January 2014 he has been serving as an
Independent Director.
He holds a degree in Engineering and is a MBA from IMD,
Switzerland.

Ms. Anjali Seth, Director


She has a rich and diverse experience of over 26 years including as a
professional lawyer. She has advised and consulted with top banks,
financial institutions and corporates on a range of matters including
M&A, PE Investments, industrial and employees relations, corporate
governance, real estate negotiation, legal matters, statutory issues,
litigations etc. She has associated in various positions includes
International Finance Corporation, SwaadharFinserve and ANZ
Grindlays Bank. She had the opportunity to work in UAE with real-
estate company, Emmar Properties. She has served Standard
Chartered Bank as their Legal Head in India.
She holds bachelor degree in Law and advising and consulting with
banks, financial institutions and corporates as a legal consultant.

Mr. Manish Mohnot, Managing Director


He has more than two decades of experience in areas related to power,
oil & gas, infrastructure, consulting, banking and business
development. He has also been associated with reputed multinational
banks and consulting firms.
19
He serves on the Board of various subsidiaries of the Company,
namely JMC Projects (India) Ltd. and Shree Shubham Logistics Ltd.
He is a qualified Chartered Accountant and a Cost Accountant. He has
also done an advanced management program from Harvard
University, U.S.A.

Mr. Imtiaz Kanga, Additional Director (w.e.f. March 8, 2016)


He has a rich experience of over 35 years in various industries. In
past, he was also a Director on the Board of the Company. Currently,
he serves on the Board of various Kalpataru Group Companies.
He is a Chartered Accountant by profession.

Key Management Personnel:


Mr. Kamal K. Jain Director (Finance) & CFO
Mr. Dinesh B. Patel Director (Operations)
Mr. Sanjay Dalmia Director (International Business)
Mr. Gyan Prakash President & CEO (Infrastructure Projects)
Mr. Subhasish Mukherjee President (International Business)
Mr. M A Baraiya President (HR & Admin)
Mr. Rajeev Dalela President (TLD & SAARC)
Mr. Prasun Kumar Dutta Sr. Vice President (Substation Division)
Mr. Anil Kumar Sr. Vice President (Railways

20
Financial Performance of KPTL

No. 2011-12 2012-13 2013-14 2014-15 2015-16

1. Sales (Rs Cr) 3092.2 3421.4 4176.8 4493.8 4471.4

2. PBDIT (Rs 329.2 322.1 386.2 426.8 466.9


Cr)

3. PBDT (Rs 272.2 247.8 288.6 338.1 390.2


Cr)

4. PAT (Rs 164.9 137.6 146.4 165.6 199.5


Cr)

5. Net worth 1742.6 1846 1953.9 2070.5 2258.3

6. Order book 6100 6800 6500 5150 8300

7. Earning per 10.7 9.0 9.5 10.8 13.0


share (Rs
Cr

8. Book value 113.6 120.3 127.3 134.9 147.2


(Rs Cr)

9. Production 127331 151772 177583 151480 144887


capacity
(MTs)

21
FINANCIAL PERFORMANCE HIGHLIGHTS OF KPTL

1. Net Sales
Net Sales = Total sales – excise duty

Net Sales

2011-12 2012-13 2013-14 2014-15 2015-16


Rs.(Cr.) 3092.2 3421.4 4176.8 4493.8 4471.4
Change 100 110.6 135.0 145.3 144.6

5000
4500
4000
3500
3000
2500 rs. Cr.
2000 change
1500
1000
500
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION
 From above chart, we can say that sales was growing till
2014-15 after it starts declining in 2015-16.
 As we can see that, current sales of KPTL is 1.44 times of
a year ended on march-11. Sales of KPTL were increased
from Rs 3092.2 in 2011-12 cr. to 4471.4 cr. in year 2015-
16.

22
2. PBDIT
PBDIT = Net Sales – Operating expenses

PBDIT

2011-12 2012-13 2013-14 2014-15 2015-16


Rs.(Cr.) 329.2 322.1 386.2 426.8 466.9
Change 100 97.8 117.3 129.6 141.8

500
450
400
350
300
250 rs. Cr.
200 change
150
100
50
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION
 From the above chart, we can say that profit before
depreciation, interest and tax is increase year by year . The
reason for it is decrease in value of raw material which has
increase the PBDIT of KPTL.

23
3. PBDT
PBDT = PBDIT – Interest

PBDT

2011-12 2012-13 2013-14 2014-15 2015-16


Rs. Cr. 272.2 247.8 288.6 338.1 390.2
Change 100 91.03 106.02 124.21 143.35

450

400

350

300

250
rs. Cr.
200
change
150

100

50

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION
 From the above graph we can say that KPTL’S PBDT is
decreasing in 2012-13 .After this year PBDT is increased.

24
4. PAT
PAT = PBT – Tax

PAT

2011-12 2012-13 2013-14 2014-15 2015-16


Rs. Cr. 164.9 137.6 146.4 165.6 199.5
Change 100 83.4 88.7 100.6 120.6

250

200

150
rs. Cr.
100 change

50

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION
 From the above graph we can say that PAT is decreases from
164.9 cr. in 2011-12 to 137.6 cr. in 2012-13 and after 2012-13 ,
company catch the string of upward rising .

25
5. Net Worth
Net Worth = Share Capital + Reserve & Surplus

Net Worth

2011-12 2012-13 2013-14 2014-15 2015-16


Rs. Cr. 1742.6 1846 1953.9 2070.5 2258.3
Change 100 105.9 112.1 118.8 129.5

2500

2000

1500
rs. Cr.

1000 change

500

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION
 Net worth is an internal sources of funds, which use in the
expansion of the industry.
 The company has a policy to declared a steady rate of dividend,
as result Net worth of company was stood at Rs. 2258.3 cr. in
2015-16 as compared to Rs.1953.9 cr. in 2013-14.

26
6. Order Book

Order book

2011-12 2012-13 2013-14 2014-15 2015-16


Rs. Cr. 6100 6800 6500 5150 8300
Change 100 111.4 106.5 84.4 136

9000

8000

7000

6000

5000
rs. Cr.
4000
change
3000

2000

1000

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION
 From the above chart we can say that KPTL has order
book of Rs.8000+crores which saw almost 60% increase
from the last year which was around Rs.8300crores at the
end of 2015-16. This saw company future prospect and
growth story.

27
7. Earning per share

Earning per share

2011-12 2012-13 2013-14 2014-15 2015-16


Rs. Cr. 10.7 9.0 9.5 10.8 13.0
Change 100 84.1 88.7 100.9 121.4

140

120

100

80
rs. Cr.
60 change

40

20

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION
 Earning per share means profit available to each equity
share. It shows the good parameter for investment in a
company.
 EPS of company stood at Rs 9 cr. in 2012-13 as compared
to Rs.10.7 cr. in 2011-12, which saw a sharp decrease in a
profit available to each equity share .

28
8. Book value

Book Value

2011-12 2012-13 2013-14 2014-15 2015-16


Rs. Cr. 113.6 120.3 127.3 134.9 147.2
Change 100 105.8 112 118.7 129.5

160

140

120

100

80 rs. Cr.
change
60

40

20

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION
 Book value per share means price of share as per the book of the
accounts of the company.
 Book value per share of KPTL was Rs. 134.9 cr. in 2014-15,
which was Rs. 127.3 cr. in 2013-14 .

29
9. Production capacity

Production capacity

2011-12 2012-13 2013-14 2014-15 2015-16


Capacity 127331 151772 177583 151480 144887
in MT
Change 100 119.1 139.4 118.9 113.7

200000
180000
160000
140000
120000
100000 rs. Cr.
80000 change
60000
40000
20000
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION
 KPTL has 2 fabrication units and the production capacity of
these plants is around 151712 MT per year , which was increase
from 127331MTs in last year . company had added 24381 MT
capacity in 2012-13 .

30
WORKING CAPITAL MANAGEMENT

Definition
Working capital management involves relationship between short
term assets and its short term liabilities. The goal of working capital
management is to ensure that a firm is able to continue its operations
and that it has sufficient ability to satisfy both maturing short term
debt and its upcoming operational expenses. The management of
working capital involves managing inventories, accounts receivable
and payable, and cash.
Firms need cash to pay their day to day activities. They have to pay
wages, pay for raw materials, pay bills and so on. The money
available to them to do this is known as the firm’s capital
management. The main source of working capital is the current assets
as these are the short term assets that the firm can use to generate
cash. However, the firm also has the current liabilities and so these
have to be taken account of when working out how much working
capital a firm has at its disposal.

So, Working capital is:-

WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

Working capital is said to be the life blood of business. Working


capital signifies funds required for day to day operations of the firm.
In financial literature, there exist two concepts of working capital,
namely Gross concept and Net concept.
According to Gross Concept, Working capital refers to current assets
i.e., cash, marketable securities, inventories of raw materials, work-in-
progress, finished goods and receivables. According to net concept,

31
working capital refers to the difference between current assets and
current liabilities.
Ordinarily, working capital can be classified as fixed / permanent or
flexible / variable parts. The minimum level of investment in current
assets regularly employed in business is, called fixed or permanent
working capital and the extra working capital needed to support the
changing business activities is called variable or fluctuating working
capital.
Sometimes working capital is also referred as operating cycle, it is a
valuation of the amount of liquidity a business or organization has for
running and building of the business. Generally speaking, companies
with higher amounts of working capital are better positioned for
success. They have the liquid assets needed to extend their operations
as desired.
Working capital can be expressed as a positive or negative number.
When a company has more debts then current assets, it has negative
working capital. When current assets outweigh debts, a company has
positive working capital.

Why there is a need for effective working capital


management?

Working capital is among the many important things that contribute


to the success of a business. Without it, a business may cease to
function properly or at all. Not only does a lack of working capital
render a company unable to build and grow, but it may also leave a
company with too little cash to pay its short term obligations. Simply
put, a company with a very low amount of working capital may be a
risk of running out of money.
In some type of businesses, it isn’t as much a problem to have a lower
amount of working capital. Companies that are operated on as cash

32
basis, have fast inventory turnovers, and can generate cash quickly
don’t necessarily need as much working capital.
Thus the need of working capital arises from the prevalence of credit
in business transactions, need to fund manufacturing and support and
to account for the variations in the supply of raw material and demand
for finished goods.
The length of the operating cycle of a manufacturing firm is sum of:-
 Inventory Conversion Period (ICP)
 Debtors Conversion Period (DCP)
 Raw Material Conversion Period (RMCP)
 Work-In-Progress Conversion Period (WIPCP)
 Finished Goods Conversion Period (FGCP)
 The total of inventory conversion period and debtor’s
conversion period is referred as Gross Operating Cycle
(GOC).
 Creditor’s Deferral Period (CDP)
 The difference between operating cycle and payables is Net
Operating Cycle (NOC).
 Cash Conversion Cycle (CCC) is net time interval between
cash collections from sale of the product and cash payments for
resources acquired by the firm.

Calculation of Operating Cycle of KPTL for year 2015-2016


 Raw Material conversion period (RMCP): it is the time
period between receiving the raw material and sending them for
production. It is the period of stocking the raw material for
usage.
RMCP (2015-16) = (average raw material / sales)*365
= (19700/436458)*365
= 16.47 days

33
RMCP (2014-15) = (21070/442225)*365
=17.39 days
 Work in progress conversion period (WIPCP): once
materials are issued to production, it again involves time gap
between issue of materials and production of finished product.
This time gap is called work in progress conversion period.
WIPCP (2015-16) = (average WIP / sales)*365
= (6274/436458)*365
=6.97 days
 Finished goods conversion period (FGCP): the company
produces according to the demand in the market. Till the
demand for finished product materializes, the product would
remain in the store (factory). This period is termed as finished
goods conversion period.
FGCP (2015-16) = (average finished goods / sales)*365
= (13282/436458)*365
= 11.10 days
FGCP (2014-15) = (15821/442225)*365
= 13.05 days
 Debtor’s Conversion period (DCP): the company because of
the competitive or other reasons extend the credit facilities for
its customers. This time gap between sales and realisation of
cash is known as collection period from debtors.
DCP (2015-16) = (average debtors / purchases)*365
= (238430/436485)*365
= 199.39 days
DCP (2014-15) = (220801/442225)*365
= 182.24 days
 Creditor’s (payables) Deferrals period (CDP): the company
receives credit in the purchase of raw materials from suppliers.
34
It refers to the average time taken for payment to suppliers from
the date of purchase.
CDP (2015-16) = (average creditors / purchases)*365
= (142668/436485)*365
=120.69 days
Statement of Operating Cycle of KPTL
(Figures in days)
Particulars 2015-16 2014-15
RMCP 16.47 17.39
WIPCP 5.24 6.97
FGCP 11.10 13.05
DCP 199.39 182.24
Gross operating 232.2 219.65
Cycle
Less: CDP 120.69 113.39
Net operating Cycle 111.51 106.25

Objectives of Working Capital

1. To minimise the amount of capital employed in financing the


current assets. This will also lead to improvement in the
“Return on Capital Employed”.
2. To manage the current assets in such a way that the marginal
return on investment in these assets is not less than the cost
of capital acquired to finance them. This ensures the
maximisation of the value of the business units.
3. To maintain the proper balance between the amount current
assets and liabilities in such a way that the firm is always
able to meet its financial obligation whenever due.

35
4. To ensure smooth working of the units without any
production held-ups due to paucity of funds.
5. To ensure easy and cheapest availability of resources at the
time of growth and expansion activities.

Determinants of Working Capital:-


The following factors should be considered carefully while
determining the amount required for working capital:-

1. Nature of Business: the amount of working capital is basically


related to the nature and the volume of the business. Firms
engaged in public utility services require moderate amount of
working capital whereas firms producing luxury goods require
large amount of working capital.
2. Size Of Business: size is also a determining factor in estimating
working capital requirements. The size may be measured either
in terms of scale of operations or in terms of assets or sales.
3. Changes in Technology: changes in technology may lead to
improvement in processing of raw material, saving in wastage,
higher productivity and more speedy production.
4. Length of operating Cycle: the amount of working capital
depends upon the length or duration of operating cycle is
completed, determines the amount of working capital.
5. Terms of purchase and sales: a firm buying raw materials and
other services on credit and selling on cash basis will require
less investment in current assets as compared to a firm which
purchases on cash basis and sells on credit.
6. Inventory: some concerns are forced to hold large inventories
in terms of raw materials or finished goods due to the reason of
seasonal nature of availability, long distances, scarcity etc., in
such cases the working capital require is more.

36
7. Business cycles: Business cycle refers to the alternate
expansion and contraction in general business activities. In a
period of boom when the business is prosperous, there is need
for larger amount of working capital due to increase in sales and
rise in prices of raw materials. The contrary happens in the
period of depression.
8. Profit margin: A high rate of profit margin due to quality of
products or good marketing management or monopoly power in
the market, reduces the working capital requirements of the
firm, as profit earned in cash is a source of working capital.

Significance of adequate Working Capital


Adequate working capital is a source of energy to any business
organisation. It provides the following advantages to business
enterprise:

1. It enables a firm to make Prompt Payment to Its Suppliers


and thus it can also avail the advantage of cash discount by
paying cash for the purchase of raw material.
2. If a firm has adequate working capital, it can Declare and
Distribute enough Dividends when there are sufficient
Profits. This creates satisfaction among the shareholders.
3. In business, promptness to third parties creates Goodwill and
increases the debt capacity of the concerned firm. This in
turn uninterrupted flow of production.
4. A firm having adequate working capital and liquid assets can
arrange can arrange loans from the banks on easy and

37
favourable terms, as it provides good security for the
unsecured loans.
5. Adequate working capital has psychological effect on the
directors and executives of the firm as it motivates them to
work vigorously. It creates an environment of security,
confidence, high morale and increases overall efficiency of
the business.
6. It promotes profits of speculative nature by stock piling it
results in liberal dividend policy but the management has to
face the difficulties in future when there are no speculative
profits.

Forms of Working Capital

On the basis of Balance Sheet concept:

According to this concept working capital is calculated on the basis of


the balance sheet prepared at a specific date it is further classified in
further two forms:

1. Gross working capital: it refers to the firm’s investment in


current assets. The sum of current assets is a quantitative
aspect of working capital which emphasizes more on
quantity than on its qualities.
2. Net working capital: it is the difference between current
assets and the current liabilities or the excess of the total
current assets and total current liabilities.

It may also be defined as, that part of firm’s current assets which is
financed with long term funds. The Net Working Capital may either
be positive or negative.

When current assets exceeds current liabilities then working capital is


positive and vice-versa.
38
On the basis of Time:

Working capital is the amount required in different successive stages


of operation during the net operating cycle period of an enterprise.

The duration or time required to complete the sequence of events right


from purchase of raw materials/goods for cash to the realization of
sales in cash is called as operating cycle or working capital cycle.

On the basis of time working capital is classified as:

1. Permanent or Regular working capital: it represents the


irreducible minimum amount that is permanently blocked in
the business and cannot be converted into cash in the normal
course of business.
2. Variable or Temporary working capital: any amount over
and above the permanent working capital is variable or
temporary working capital. It fluctuates as per the change in
the production and sale activities. It can further be classified
in two forms:
 Seasonal working capital: the capital required to meet
the seasonal demands of the enterprise is called
seasonal working capital. It is of short term and thus
has to be financed from short term sources like bank
loan etc.
 Specific working capital: it is that part of working
capital which is required to meet unforeseen
contingencies like slump, strike, flood, war, etc.

39
Components of Working Capital
Current Assets:

 Inventories
 Sundry Debtors
 Bills Receivables
 Cash and Bank Balances
 Short term Investment
 Advances

Current Liabilities:

 Sundry Creditors
 Bills Payable
 Creditors for Outstanding Expenses
 Provision for Taxation
 Other provisions of liabilities payable within a period
of 12 months.

40
Working Capital Financing
As KPTL is engaged into production and export of power
transmission, it requires huge amount of Working Capital for doing
day to day operations smoothly without any interruption.

There are two ways of working capital financing:

1. Fund based Working Capital Financing.


2. Non Fund based Working Capital Financing.

 Fund Based Financing


In fund based working capital financing bank actually provides
cash to the company for daily transactions
RBI has issued various guidelines related to financing of working
capital. Bank need to follow these guidelines for approval of
proposals and decides how much financing can be approved to
company.
As per RBI Guidelines bank need to find out Maximum
Permissible Bank finance and Drawing Power avail to company.

Maximum Permissible Bank Finance

Depending on the size of credit required, two methods are in


practice to fund the working capital needs of the corporate.

Method l:

For Corporate whose credit requirement is less than Rs. 10Lakhs,


banks can find the working capital required. Working capital is
calculated as difference of Total Current Assets and Current
Liabilities other than Bank Borrowings (called Maximum
41
Permissible Bank Finance or MPBF). Banks can finance a
maximum of 75% of the required amount and the rest of the
balance has to come out of long term funds.

Method II:

For corporate with credit requirement of more than Rs. 10Lakhs


this method is used. In this method, the bank borrower finances
minimum of 25% of its total current assets out of long term funds.
This rest will be provided by bank the bank through MPBF. Thus,
total current liabilities inclusive of bank borrowings could exceed
75% of current assets.

Method III:

In this method, the borrower’s contribution from long term funds


will be the extent of the entire Core Current Assets. Bank will
finance 75% of current Assets exclusive of cash and then
deducting Current Liability.

In Brief MPBF:

 Method I: 0.75(CA-CL)
 Method II: 0.75(CA) - CL
 Method III: 0.75(CA-CCA) – CL

42
Drawing Power (DP)
Drawing Power is the Amount of working capital funds the borrower
is allowed to draw from the working capital limit allotted to him.
Because the working capital limit is usually allotted to a borrower
against security of stock and book debts, the amount of fund a
borrower is allowed to draw is calculated by considering the total
value of stock plus total value of book debts for the month after
deducting the margin. For this purpose the borrower must regularly
submit stock and book debts Statement and Statement of Trade
Creditors.

Calculation of Drawing Power (amount in Lakhs)

Stocks 100

Add: Debtors 300

Current Assets 400

Less: Margin of Bank (25%) 100

Less: Creditors 100

Drawing Power 200

On the above criteria, bank decides the fund base limit For
KPTL.

There are various instruments available for fund based


financing. But in KPTL Fund Based working capital can be
financed through following ways:

Cash Credit, Vendor Financing, Packing Credit, Pre Shipment


Credit in Foreign Currency (PCFC), Bill Discounting,
Commercial Paper, Working Capital Demand Loan, Buyer’s
Credit
43
CASH CREDIT

 Cash credit is a facility to withdraw the amount from the cash


credit account even though the account may not have enough
credit. The limit of the amount that can be withdrawn is sanctioned
by the bank based on the drawing power of the company. The
drawing power is determined, based on the book debts and stock
statements submitted by the company at monthly intervals against
the security by hypothecating of stock of commodities and book
debts.
 The excess withdrawal of cash is made generally on demand from
the company and the company has to pay interest on the excess
amount that has been withdrawn.
 Company has to pay interest on daily withdrawn amount.
 Interest rate = Base rate + Spread
 The percentage of Spread is depended on negotiation by company
and bank.
 As interest rate is calculated on daily basis, it should be match with
month end Interest calculated by bank in their Product Sheet.

KPTL has Cash Credit Account with following banks:

1. Indian Bank (Gandhinagar)


2. Indian Bank (Mumbai)
3. ICICI Bank
4. Oriental Bank of Commerce
5. State Bank of India
6. IDBI
7. HSBC
8. Union Bank of India.

44
Vendor Financing

Vendor financing is the facility given by bank to make payment to


vendor of the company on completion of the credit period provided by
the vendor. So company needs not to make payment to vendor within
the time period. But bank is providing credit of more days to company
for making payment.

In KPTL vendor is providing 30 days of credit to make payment of


purchases and banks are providing 90 days of credit to KPTL. So
ultimately, company gets 120 days of credit to make payment.

KPTL has to pay interest @10% (Approx) for 90 days (which is lower
than cash credit interest).

KPTL is doing Vendor Financing with following banks.

1. HDFC Bank
2. HSBC Bank
3. DEUTSCHE Bank

Following Documents needs to be prepared for Vendor Financing.

1. Request Letter: to bank for making request of vendor


financing.
2. Invoice Copy: it contains description of the raw material
which company has purchased from the vendor.
3. Lorry Receipt: LR contains details regarding
transportation of goods.
4. Annexure: it contains letter of approval for authorised
signature.

45
Packing Credit
As per Reserve Bank by the instruction of Government, no exporter
shall suffer for want of funds for exports. Government promotes all
exporters to earn foreign exchange and extend maximum support to
encourage exports.

Packing credit is a pre shipment finance given by bank to procure raw


materials and arranging goods ready for export. Banks provide
packing credit against the stock of raw materials or finished goods
also in certain cases.

The packing credit is a separate finance given to exporters not


connected with any limit of other loans given by bank. A separate
packing credit loan account is opened for each exporter separately if
needed. Once the amount of shipment received from the overseas
buyer, the said packing credit amount will be adjusted by bank and
close the loan under the said export order.

In order to obtain packing credit facility, the exporter has to approach


their bank with export order.

The main objectives behind reshipment finance or pre export finance


are to enable exporter to:

 Procure raw materials.


 Carry out manufacturing process.
 Provide a secure warehouse for goods and raw materials
 Process and pack the goods.
 Ship the goods to the buyers.
 Meet other financial cost of business.

46
Different Stages of Pre Shipment Finance:

1. Appraisal and Sanction Limits: before making any allowance for


credit facilities banks need to check the different aspects like
product profile, political and economic details about the country.
2. Disbursement of packing credit advance: once the proper
sanctioning of documents is done, bank ensures whether an
exporter has executed the list of documents mentioned earlier or
not. Disbursement is normally allowed when all the documents are
properly executed.
3. Follow up of Packing Credit Advance: exporter needs to submit
stock statement giving all the necessary information about the
stocks. It is then used by the banks as a guarantee for securing the
packing credit in advance.
4. Liquidation of Packing Credit Advance: packing credit needs to
be liquidated out of as the export proceeds of the relevant
shipment, thereby converting pre shipment credit into post
shipment credit.
5. Overdue Packing: bank considers a packing credit as an overdue,
if the borrower fails to liquidate the packing credit on the due date.
And, if the condition persists then the bank takes the necessary step
to recover its dues as per normal recovery procedure.

47
Pre Shipment Credit in Foreign Currency (PCFC)

Authorized dealers are permitted to extend Pre Shipment Credit in


Foreign Currency (PCFC) with an objective of making the credit
available to the exporters at internationally competitive price. This is
considered as an added advantage under which credit is provided in
foreign currency in order to facilitate the purchase of raw material
after fulfilling the basic export orders.

The exporter has freedom to avail PCFC in convertible currencies like


USD, Pound, Sterling, Euro, Yen etc. However, the risk associated
with the cross currency truncation is that of the exporter.

Bill Of Exchange

Bills Of Exchange are similar to checks and promissory notes. They


can be drawn by individuals or banks and are generally transferable
by endorsements.

It is a non-interest-bearing written order used primarily in


international trade that binds one party to pay a fixed sum of money to
another party at a predetermined future date.

Bill Discounting also known as a discounting of bill, a bill


discounting is a process that involves effectively selling a bill to a
bank or similar entity for an amount that is slightly less than the par
value and before the maturity associated with the bill of exchange.

This approach allows the issuer of the bill to receive cash before the
actual due date associated with the bill.

48
Commercial Paper

A Commercial paper is an unsecured promissory note issued with a


fixed maturity by a company approved by RBI, negotiable by
endorsement and delivery, issued in bearer form and issued at such
discount on the face value as may be determent by the issuing
company.

Features of Commercial Paper

1. Commercial paper is a short term money market instrument


comprising promissory note with a fixed maturity.
2. It is a certificate evidencing an unsecured corporate debt of short
term maturity.
3. Commercial paper is issued at a discount to face value basis but it
can be issued in interest bearing form.
4. The issuer promises to pay the buyer some fixed amount on some
future period, but pledge no assets, only his liquidity and
established earning power, to guarantee that promise.
5. Commercial paper can be issued directly by a company to its
investors or through banks/ merchant Banks.
6. Commercial paper can be issued in multiple of Rs. 500000.

In KPTL for issuing Commercial Paper below Process is


followed:

1) Company appoints broker for financing of working capital, after


negotiating with broker rate is decided at which company can
borrow the amount.
2) If KPTL wants to issue CP then it has to fill Master File Creation
Form, for getting ISIN number.
3) KPTL is issuing CP with Earmarking Certificate.

49
4) Earmarking Certificate:
In this type of CP, company has to give statements of Drawing
Power available to company (amount of CP). Company has to
freeze the fund equals to amount of CP in Banks of the company,
till Maturity of CP. After maturity company can unfreeze the
amount.
The objective of issuing this type of CP is that if company is not
able to repay the amount the bank can withdraw the amount from
Company’s Account.
5) KPTL has to appoint issuing and paying agent for issue of CP.
Independent Practitioner Association of KPTL is Indian Bank
(Gandhinagar). Each and Every Transaction of CP has to be done
through IPA (Issuing and Paying Agent).
6) While issuing and redemption of CP, KPTL has to inform the
following entities:
 Reserve Bank of India.
 IPA (Indian Bank)
 NSDL IPA: Monitoring and controlling the depository of CP
in D’mat Account.

Documents Required:

1. CP in D’mat Form
2. IPA Certificate on Letter Head of IPA.
3. Letter of Earmarking. (Specify investor’s name, Name,
Amount, Tenor & issue Date)
4. Certified True copy of Credit Rating letter.

50
Working Capital Demand Loan

A company may sometimes require accommodation of fund for


meeting short term liability. Banks provide such accommodation
through demand loan account or separate cash credit account.

In KPTL Banks are providing short term loan at lower interest rate as
compared cash credit rate.

Cash Credit Rate: 11.25%

WCDL Rate: 10.15%

Benefit to the company: 1.1%

Generally short term loans are available for 90 days or 180 days.
Time period for this loan is depended on economic scenario, as during
that time period interest rate is fixed.

If in industry interest rates are supposed to increase the company may


take loan 180 days. If in industry interest rates are supposed to
decrease the company may take loan for 90 days.

51
Buyer’s Credit

Buyer’s credit is Short term credit availed to an importer (buyer) from


overseas lenders such as banks and other financial institution for
goods they are importing. The overseas banks usually lend the
importer (buyer) based on the letter of comfort (a bank guarantee)
issued by the importer’s bank or buyer’s credit consultant charges a
fee called an Arrangement Fee.

The duration of buyer’s credit may vary from country to country, as


per the local regulations. For Example in India, buyer’s credit can be
availed for one year in case the import is for tradable goods and for
three years if the import is for capital goods. Every six months, the
interest on buyer’s may get reset.

Steps involved:

1. The customer will import the goods either under LC, collections
or open account.
2. The customer requests the Buyer’s Credit Arranger to arrange
the credit before the due date of the bill.
3. Arrange to request overseas bank branches to provide a buyer’s
credit offer letter in the name of the importer. Best rate of
interest is quoted is quoted to the importer.
4. Overseas bank to fund importer’s bank for the required amount.
5. Importer’s bank to make import bill payment by utilizing the
amount credited (if the borrowing currency is different from the
currency of imports then a cross currency contract is utilized to
effect the import payment).
6. Importer’s bank will recover the required amount from the
importer and remit the same to overseas bank on due date.
7. It helps importer in working capital management.

52
Cost involved:

1. Interest cost is charged by overseas bank as a financing cost.


2. Letter of Comfort / undertaking: Your existing bank would
charge this cost for issuing letter of comfort / undertaking.
3. Forward Booking cost / Hedging cost.
4. Arrangement fee: charged by person who is arranging buyer’s
for buyer.
5. Risk Premium: Depending on the risk perceived on the
transaction.

53
 Non-Fund Based Working capital Financing

In Non Fund based Working capital financing bank does not


give any kind of fund to the company directly but it will pay to
third party, in case company is not able to pay its client.

In KPTL there are two instrument of a Non Fund based


Working Capital Financing.

1. Letter of Credit.
2. Letter of Guarantee / Bank Guarantee.

Letter of Credit

A Letter of Credit is a document issued by a financial institution, or a


similar party, assuring payment to a seller of goods and/or services
provided certain documents have been presented to the bank. These
are the documents that acts as a prove that seller has performed the
duties under an underlying contract (e.g. Sale of goods contract) and
the goods have been supplied as agreed.

In return for these documents, the beneficiary receives payment from


the financial institution that issued the letter of credit. The letter of
credit serves as a guarantee to the seller that it will be paid regardless
of whether the buyer ultimately fails to pay. In this way, the risk that
the buyer will fail to pay is transferred from the seller to the letter of
credit’s issuer. The letter of credit can also be used to ensure that all
the agreed upon standards and quality of goods are met by the
supplier, provided that these requirements are reflected in the
documents described in the letter of credit.

Letter of Credit are primarily used in International Trade for

54
transactions between a supplier in one country and a customer in
another.

The parties to Letter of Credit are:

1. Supplier – usually called the beneficiary (seller of goods).


2. The Issuing Bank – Buyer’s Client.
3. An Advising Bank – Beneficiary’s Client.
4. Buyer – Usually called Applicant (Purchaser of Goods)

Flow chart of Letter of Credit Transactions:

Step1: Buyer and Seller conclude the sales contract and agreed
to use an LC as the method of payment.

Step2: Buyer approaches the issuing bank to issue an LC on his


behalf in favour of the seller with all the terms and conditions
specified.

Step3: Issuing bank issues the LC and requests the advising


bank to advise or confirm the credit to the LC beneficiary
(seller).

Step4: Seller prepares and dispatches the goods to the buyer’s


country.

Step5: Seller presents the drafts or documents to the advising


bank.

Step6: Advising bank checks documents presented against the


LC terms and Conditions.

Step7: Advising bank forwards the drafts or documents to the


advising bank.

55
Step8: If issuing bank is satisfied with all the documents then it
make payment to the advising bank and advising bank will make
payment to the seller.

Step9: The issuing bank gives all documents to the company


and makes it account debit.

Step10: Company uses the documents to claim for the goods.

In KPTL Below process is followed for purchase of goods


through Irrevocable LC.

Issuing bank of KPTL is State Bank of India.

1. KPTL sends request letter to SBI for issuing LC to seller.


2. SBI issues LC in favour of seller.
3. Within 21 days, presentation has to be made for documents
by seller, otherwise LC will be expired.
4. Within 30 days of issuing LC, goods have to be dispatched
from seller’s place to buyer’s place.
5. Company’s client will do inspection of goods and check
quality of the goods.
6. After completion of credit period bank will debit the account
of company to make payment to advising bank.
7. The bank charges commission @0.4% for issuing LC.
8. At the time of payment if company’s bank account does not
have sufficient amount then bank will make payment and
charges interest from company.
9. Seller can discounts the LC before completion of credit
period from any bank, but he has to bear discounting charges.

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Bank Guarantee

A bank guarantee is a written contract given by a bank on the behalf


of a customer. By issuing this guarantee, a bank takes the
responsibility for payment of a sum of money in case, if it is not paid
by the customer on whose behalf the guarantee has been issued. In
return, the bank gets some commission for issuing the guarantee.

In case of any changes or cancellation during the transaction process,


a bank guarantee remains valid until the customer duly releases the
bank from its liability.

In the situations, where a customer fails to pay the money, the bank
must pay the amount within three working days.

Types of Bank Guarantees

1. Direct or Indirect Bank Guarantee:

A bank guarantee can be either direct or indirect.

Direct bank guarantee is issued at applicant’s bank (issuing


bank) directly to the guarantee’s beneficiary without concerning
a correspondent bank. This type of guarantee is less expensive
and is also subject to the law of the country in which the
guarantee is issued unless otherwise it is mentioned in the
guarantee documents.

Indirect bank guarantee with an indirect guarantee, a second


bank is involved, which is basically a representative of the
issuing bank in the country to which beneficiary belong this
involvement of a second bank is done on the demand of the

57
beneficiary. This type of bank guarantee is more time
consuming and expensive too.

2. Confirmed Guarantee:

It is a cross between direct or indirect bank guarantee. This type


of bank guarantee is issued directly by a bank after which it is
send to a foreign bank for confirmations. The foreign banks
confirm the original documents and thereby assume the
responsibility.

3. Tender Bond:

This is also called bid bonds and is normally issued in support of


a tender in international trade. It provides beneficiary with a
financial remedy, if the applicant fails to fulfil any kind of the
tender conditions.

4. Performance bond:

This is one of the most common types which is used to secure


the completion of the contractual responsibilities of delivery of
goods and as a security of penalty payment by the supplier in
case of Non Delivery of Goods.

5. Advance payment of guarantees:

This mode of guarantee is used where the applicant calls for the
provision of a sum of money at an early stage of the contract
and an recover the amount paid in advance, or a part thereof, if
the applicant fails to fulfil the agreement.

6. Payment Guarantee:

This type of bank guarantee is used to secure the responsibilities


to pay goods and services. If the beneficiary has fulfilled his
contractual liabilities after delivering the goods or services but

58
the debtor fails to make the payment, then after written
declaration the beneficiary can easily obtain his money from the
guaranteeing bank.

7. Loan Repayment Guarantees:

This type of guarantee is given by a bank to the creditor to pay


the amount of loan interests in case of no fulfilment by the
borrower.

8. B/L Letter of Indemnity:

This is also called letter of indemnity and is a type of guarantee


from the bank making sure that any kind of loss of goods will
not be suffered by the carrier.

9. Rental Guarantee:

This type of bank guarantee is given under a rental contract.


Rental guarantee is either limited to rental payments only or
includes all payments due under the rental contract including
cost of repair on transmission of the rental contract.

10. Credit Card Guarantee:

This guarantee is issued by the credit card companies to its


customer as a guarantee that the merchant will be paid on
transactions regardless of whether the consumer pays their
credit.

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Kalpataru Power Transmission Limited needs Bank Guarantee as
every stage of Tender Process.

 KPTL needs tender guarantee to submit the tender issues by


clients.
 As a part of contract client has to give some advance amount to
company, so client need advance guarantee against advance
money.
 KPTL has to give Performance guarantee to clients because as a
part of contract between two parties if performance is not as per
contract then client can recover money from company.
 KPTL has to give retention guarantee to its vendor because
company keeps some proportion of amount as retention money.
Company also asks for retention guarantee from its clients.

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Observations & Learnings

During this Training period my observations about the KPTL are as


follows-
Culture at KPTL is very creative- it absorbs influences from all over
the world. All the employees of KPTL are very enthusiastic. Human
resource department of KPTL is managing employees like Assets.
They are doing various activities for employees like Celebration of
birthday on first day of month, HR help desk etc.
They strive for a “One-Family” feeling among the employees.
Attitude of each and every employee is positive. And they are always
ready to help others.
They expect from employees that office decorum is maintained by all
of them and interpersonal behaviour, language and all are befitting to
a professionally managed decent organization. All are expected to
conduct themselves in a subdued and professional manner, without
being boisterous.
There is a pattern of making daily activity report, and to submit it to
the Respective authority. The purpose is to know what we have done
in a day and what time each activity has taken, we can evaluate our
self from this type of report.
During my training period I have learned the whole procedure of
Working capital management. The process of financing short term
fund, Documents required for financing etc.
All the employees at KPTL were treating me like a colleague not a
trainee, and helped me to complete my report.

61
ANNEXURE

Consolidated Statement of Profit and Loss Account

Particulars 31st March 2016 (in Crores)

Income
7291.74
Revenue from operations- gross
18.13
Other Income
7309.87
Total Income

Expenses:
2714.01
Cost of materials consumed
143.84
(Increase) / Decrease in Stocks
106.85
Excise Duty on Sale of Goods
2259.40
Erection, Sub-contracting & other project expenses
551.76
Employee Benefits Expense
414.03
Financial cost
186.16
Depreciation and amortization Expenses
725.99
Other expenses
7102.04
Total Expenses
207.83
Profit Before Tax and Extra Ordinary Items and share of Profit/(Loss) of Joint
Ventures
-36.58
Share of Profit/(Loss) of Joint Ventures
171.25
Profit Before Tax and Extra Ordinary Items
-
Extra Ordinary Items
171.25
Profit Before Tax
95.44
Tax Expense
75.81
Net Profit for the year

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Standalone Balance Sheet

Particulars 31st March 2016 (in


Crores)

EQUITY AND LIABILITIES

Equity
30.69
(a) Equity Share Capital
2184.21
(b) Other Equity
2214.90

LIABILITIES

Non-Current Liabilities

(a) Financial Liabilities


271.61
(i) Borrowings
36.94
(ii) Trade Payable
20.89
(b) Provisions
1.59
(c) Other non-current Liabilities
333.03

Current Liabilities

(a) Financial Liabilities


286.99
(i) Borrowings
1479.06
(ii) Trade Payables
61.17
(iii) Other financial liabilities
236.04
(b) Provisions
635.71
(c) Other Current Liabilities
2698.97

5244.91
Total

63
ASSETS

Non-current Assets
535.10
(a) Property, Plant and Equipments
4.12
(b) Capital work in progress
--
(c) Investment Property
3.34
(d) Other Intangible assets

(e) Financial Assets


517.77
(i) Investments
90.04
(ii) Trade receivables
481.61
(iii) Loans
36.04
(iv) Others
25.91
(f) Deferred tax assets (net)
61.44
(g) Other Non Current assets
1755.37

Current Assets
424.40
(a) Inventories

(b) Financial Assets


-
(i) Investments
2214.54
(ii) Trade receivables
-
(iii) Loans
100.73
(iv) Cash and cash equivalents
5.50
(v) Other Balances with Banks
21.13
(vi) Others
5.52
(c) Current Tax Assets (net)
717.34
(d) Other current assets
3489.16

5244.91
Total

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