A PROJECT REPORT ON

COMPARATIVE STUDY ON WORKING CAPITAL MANAGEMENT BETWEEN BHILAI STEEL PLANT & TISCO

SAIL

In Partial Fulfillment of the Requirements For Management Course Of

Bachelor of Business Administration

By

Aakriti srivastava Under the Guidance of Ms. Niti Saxena JIMS, KALKAJI DELHI

ACKNOWLEDGEMENT
I feel honored to thank STEEL AUTHORITY OF INDIA LIMITED that gave me a chance to be a part of it for 2 months and undergo this process of learning. This study is the result of support of many people who have assisted and inspired me at various stages of the project. My special thanks to Mr Sanjeev Sharma, my mentor at SAIL who took out time from his busy schedule and aided me in understanding the working capital management at SAIL. I am equally thankful to Ms Niti Saxena, my internal mentor who acted as project advisor and helped me a lot in doing my project work. My mentors guided me in all possible ways I needed in the study. Their support, encouragement and keen interest in my endeavors gave me confidence to perform to the best of my abilities. Without their support this project would not have been successful. Their support has gone a long way in completion of my project.

CERTIFICATE

This is to certify that Ms. Aakriti Srivastava, pursuing BBA 5th semester from JIMS, Kalkaji, has completed her project on the topic Working Capital Management at SAIL under my guidance.

ORGANISATION STRUCTURE OF SAIL

ORGANISATION STRUCTURE OF BHILAI STEEL PLANT

ORAGANISATION PROFILE
Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. SAIL is also among the five Maharatnas of the country's Central Public Sector Enterprises. SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being Indias second largest producer of iron ore and of having the countrys second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making. SAIL's wide range of long and flat steel products are much in demand in the domestic as well as the international market. This vital responsibility is carried out by SAIL's own Central Marketing Organisation (CMO) that transacts business through its network of 37 Branch Sales Offices spread across the four regions, 25

Departmental Warehouses, 42 Consignment Agents and 27 Customer Contact Offices. CMOs domestic marketing effort is supplemented by its ever widening network of rural dealers who meet the demands of the smallest customers in the remotest corners of the country. With the total number of dealers over 2000 , SAIL's wide marketing spread ensures availability of quality steel in virtually all the districts of

the country. SAIL's International Trade Division ( ITD), in New Delhi- an ISO 9001:2000 accredited unit of CMO, undertakes exports of Mild Steel products and Pig Iron from SAILs five integrated steel plants. With technical and managerial expertise and know-how in steel making gained over four decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and consultancy to clients world-wide. SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training Institute (MTI) and Safety Organisation at Ranchi. Our captive mines are under the control of the Raw Materials Division in Kolkata. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Kolkata. Almost all our plants and major units are ISO Certified.

Major Units Integrated Steel Plants

Bhilai Steel Plant (BSP) in Chhattisgarh Durgapur Steel Plant (DSP) in West Bengal Rourkela Steel Plant (RSP) in Orissa Bokaro Steel Plant (BSL) in Jharkhand IISCO Steel Plant (ISP) in West Bengal

Special Steel Plants

Alloy Steels Plants (ASP) in West Bengal Salem Steel Plant (SSP) in Tamil Nadu Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Ferro Alloy Plant

Chandrapur Ferro Alloy Plant

Subsidiary

SAIL Refractory Company Limited

Joint Ventures

NTPC SAIL Power Company Pvt. Limited (NSPCL): A 50:50 joint venture between Steel Authority of India Ltd (SAIL) and National Thermal Power Corporation Ltd (NTPC Ltd); manages SAILs captive power plants at Rourkela, Durgapur and Bhilai with a combined capacity of 814 megawatts (MW).

Bokaro Power Supply Company Pvt. Limited (BPSCL): This 50:50 joint venture between SAIL and the Damodar Valley Corporation (DVC) is managing the 302-MW power generating station and 660 tonnes per hour steam generation facilities at Bokaro Steel Plant.

Mjunction Services Limited: A 50:50 joint venture between SAIL and Tata Steel; promotes e-commerce activities in steel and related areas. Its newly added services include e-assets sales, events & conferences, coal sales & logistics, publications, etc.

SAIL-Bansal Service Centre Limited: A joint venture with BMW Industries Ltd. on 40:60 basis for a service centre at Bokaro with the objective of adding value to steel.

Bhilai JP Cement Limited: A joint venture company with Jaiprakash Associates Ltd on 26:74 basis to set up a 2.2 million tonne (MT) slag-based cement plant at Bhilai.

Bokaro JP Cement Limited: Another joint venture company with Jaiprakash Associates Ltd on 26:74 basis to set up a 2.1 MT slag-based cement plant at Bokaro.

SAIL & MOIL Ferro Alloys (Pvt.) Limited : A joint venture company with

Manganese Ore (India) Ltd on 50:50 basis to produce ferro-manganese and silico-manganese required in production of steel.

S & T Mining Company Pvt. Limited: A 50:50 joint venture company with Tata Steel for joint acquisition & development of mineral deposits; carrying out mining of minerals including exploration, development, mining and beneficiation of identified coking coal blocks.

International Coal Ventures Private Limited: A joint venture company/SPV promoted by five central PSUs, viz. SAIL, CIL, RINL, NMDC and NTPC (with respectively 28.7%, 28.7%, 14.3%, 14.3% and 14.3% shareholding) aiming to acquire stake in coal mines/blocks/companies overseas for securing coking and thermal coal supplies.

SAIL SCI Shipping Pvt. Limited: A 50:50 joint venture with Shipping Corporation of India for provision of various shipping and related services to SAIL for importing of coking coal and other bulk materials and other shippingrelated business.

SAIL RITES Bengal Wagon Industry Pvt. Limited: A 50:50 joint venture with RITES to manufacture, sell, market, distribute and export railway wagons, including high-end specialised wagons, wagon prototypes, fabricated

components/parts of railway vehicles, rehabilitation of industrial locomotives, etc., for the domestic market.

SAIL SCL Limited: A 50:50 JV with Government of Kerala where SAIL has management control to revive the existing facilities at Steel Complex Ltd, Calicut and also to set up, develop and manage a TMT rolling mill of 65,000 MT capacity along with balancing facilities and auxilliaries.

SHAREHOLDING PATTERN

(As on 31.03.2012)
CATEGORY NUMBER OF EQUITY SHARES HELD Government of India Financial Institutions/Banks Insurance Companies Mutual Funds Foreign Institutional Investors (FIIs) Global Depository Receipts (GDRs) Companies Members) Individuals (including Employees & NRIs) TOTAL 98780934 4130525289 396493 400187 98.78 4130.53 2.28 100.00 (including Trusts & Clearing 3544690285 105380004 184565173 29472697 143413528 590345 23632323 NUMBER OF HOLDERS 1 73 22 96 209 2 3291 AMOUNT (`IN CRORE) 3544.69 105.38 184.57 29.47 143.42 0.59 23.63 85.82 2.55 4.47 0.71 3.48 0.01 0.68 % OF EQUITY

FINANCIALS
2011-12 201011 50348 45654 before depreciation, 47041 42719 200910 43935 40551

(`in crore)

200809 48738 43204

200708 45555 39508

200607 39189 33923

200506 32280 27860

200405 31805 28523

200304 24178 21297

200203 19207 16837

Gross Turnover Net Turnover Earnings

interest, exceptional item & tax (EBIDTA) Depreciation Interest & Finance charges Profit before exceptional items Exceptional items- Gain/loss (-) Profit/Loss(-) before tax (PBT) Provision for tax/Income Tax Refund (-) Profit/Loss (-) after tax (PAT) Dividends Equity Capital Reserves & Surplus (net of DRE) Net Worth (Equity Capital and Reserves & Surplus) Total Loans Net Fixed Assets Capital Work-in-progress Current Assets (including short term deposits) Current Liabilities & Provisions

7658

9030

11871

10946

12955

10966

7381

11097

4652

2165

1567 678 5413 -262 5151

1486 475 7069 125 7194 2289

1337 402 10132 3378

1288 259 9399 3228

1235 251 11469 3932

1211 332 9423 3221

1207 468 5706 1693

1127 605 9365 2548

1123 901 2628 116

1147 1334 -316 -12

1608

3543 826 4131 35680 39811

4905 991 4130 32939 37069

6754 1363 4130 29186 33317

6170 1074 4130 24018 28148

7537 1528 4130 18874 23004

6202 1280 4130 13054 17184

4013 826 4130 8255 12386

6817 1363 4130 5881 10011

2512 4130 529 4659

-304 4130 -2141 1989

16320 17127 28205

19375 15059 22226

16511 13615 14953

7563 12305 6550

3045 11571 2390

4181 11598 1199

4298 12162 758

5770 12485 366

8690 13168 382

12928 14036 361

28431

36544

39154

34676

26318

20379

17384

14187

8075

7282

12225

12172

11073

12277

9439

6500

8108

6608

6025

4777

Working Capital (Current liabilities) Capital Employed (Net Fixed Assets + Working Capital Market price per share (In `) (As at the end of the year) Key Financial Ratios EBDITA to average capital employed (%) PBT to Net Turnover (%) PBT to average capital employed (%) Assets less Current

16206

24372

28081

22398

16879

13879

9276

7579

2050

2505

33333

39431

41696

34704

28450

25476

21438

20064

15218

16541

94

170

253

96

185

113

83

63

32

21.05

21.66

31.11

34.66

48.05

46.41

35.28

62.91

29.30

12.89

11.28 14.16

16.84 17.26

24.99 26.56

21.75 29.77

29.03 42.54

27.78 39.88

20.48 27.27

32.83 53.09

12.34 16.55

-1.88 -1.88 14.35 4.82 -0.74 11.94 -

Return on average net worth (%)

9.22

13.94

21.98

24.13

37.51

41.95

35.84

92.94

75.57

Net worth per share of Rs. 10 (`) Earnings per share of Rs. 10 (`)

96.38 8.58

89.75 11.87

80.66 16.35

68.15 14.94

55.69 18.25

41.60 15.02

29.99 9.72

24.24 16.50

11.28 6.08

Price - earning ratio (times)

10.97

14.32

15.44

6.46

10.12

7.53

8.56

3.81

5.31

Dividend per share of `10 (`) Effective dividend rate (%) Debt - Equity (times) Current ratio (times) Capital employed to turnover ratio (times) Working capital turnover ratio (times) Interest coverage ratio (times)

2.00 2.13 0.41 2.33

2.40 1.41 0.52 3.00

3.30 1.31 0.50 3.54

2.60 2.70 0.27 2.80

3.70 2.00 0.13 2.79

3.10 2.74 0.24 3.14

2.00 2.41 0.35 2.14

3.30 5.24 0.58 2.15

1.87 1.34

6.50 1.52

1.51

1.19

1.05

1.40

1.60

1.54

1.48

1.59

1.59

1.16

3.11 3.77

1.93 7.06

1.56 14.44

2.18 29.00

2.70 46.39

2.82 29.29

3.48 13.07

4.20 16.43

11.79 3.88

7.67 0.76

PRODUCTION
2010Item Main Integrated Steel Plants - Hot Metal - Crude Steel - Pig Iron Saleable Steel - Semi Finished Steel - Finished Steel Saleable Steel Alloy & Special Steel Plants (ASP, SSP & VISP) Total Saleable Steel 12400 12887 12632 2527 9328 11855 2394 9931 12325 2392 9736 12128 13998 12961 97 14757 13453 258 14379 13199 319 2011-12 11 200910

(Thousand Tonnes)

200809

200708

200607

200506*

200405

200304

200203

14317 13148 259

14981 13649 410

14368 13194 452

14398 13177 558

12351 11827 147

12749 11828 278

12080 11087 288

2206 9846 12052

2243 10288 12531

2278 9849 12127

2273 9351 11624

1751 8900 10651

2146 8581 10727

2057 8029 10086

544

562

504

442

513

454

427

379

298

266

12494

13044

12581

12051

11030

11026

10352

INTRODUCTION
Business activity is dynamic in character and subject to wide fluctuations. The movement from working capital to income and profits and back to working capital is one of the most important characteristics of business administration. This operation is concerned with the deployment of funds with the hope that they will generate returns, rendering an additional amount called profit. If the operations of an enterprise are to run smoothly, a proper relationship between fixed capital and current capital must be maintained. Its main aim is to use business funds in which a manner that earnings are maximized. Financial Management provides a frame work for selecting a proper course of action & deciding a viable commercial strategy. This objective can be achieved by

a) Profit maximization b) Wealth maximization

Funds are needed for short term as well long term purposed. In short term we say current operation of the business. For a manufacturing unit, payment for raw materials and wages and for meeting routine expenses. All the goods which are manufactured in a given time may not be sold in that period. Naturally funds are blocked in inventory. It is also the fact that all goods may not be sold on credit basis. The credit sales also involve the blocking of funds till the cash received.

The term working capital is closely related to the term funds and has two meaning. It is used to mean current assets minus current liabilities. In simple words it is the investment needed for carrying out day-to-day operations of the business smoothly. Working capital management thus throws a challenge and should be a welcome opportunity for a financial manager who is ready to play an important role in his organization.

CHAPTER 1 CONCEPTUAL OVER VIEW

1.1 WORKING CAPITAL MANAGEMENT

One of the most important areas in day-to-day management of the firm deals with the management of working capital, which is defined as all the short-term assets used in daily operations. These consist primarily of cash, marketable, securities, account receivable and inventories. Some of the decisions taken in working capital management are: An adequate supply of raw materials. Cash to meet the operation payments. The ability to grant credit to customers. The capacity to wait for market for its finished products. Investment in various current assets. Appropriate sources of fund to finance current assets. Proportion of long term and short term funds to finance current assets.

It may be clear that the objective of working capital management is to maintain a satisfactory level to working capital. In other words, the current assets should not only be sufficient enough o cover the current liabilities but at the same time should also ensure the reasonable amount of safety margin. This is possible only when the different components of working capital are properly balanced.

1.2 WORKING CAPITAL CONCEPTS

There are two concepts of working capital. (i) Gross concepts (ii) Net concepts

Gross working capital concept

Simply called as working capital refers to the firms investment in current assets are the assets which can be converted into cash within an accounting year and include cash short term securities, debtors, bill receivables and stock.

Net working capital concept

Net working capital refers to the differences between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment with in an accounting year. Networking capital can be positive or negative. A negative working capital means a negative liquidity and may prove to be harmful for the company. It occurs when current liabilities are in excess if current assets. It may be due to mismanagement of current assets. In summary it may be emphasized that gross and net concepts of working capital are two important facts of working capital management. The data and problems of each firm is different, so it should be analyzed to determine the amount of working capital and timely action should be taken by management to improve the liquidity position of the firm.

1.3 OBJECTIVE OFWORKING CAPITAL MANAGEMENT

(i) To minimize the amount of capital employed in financing the current assets. This will also lead to an improvement in Return on Capital Employed .

(ii) To manage the current 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 will ensure the maximization of the value of business unit.

(iii) To maintain a proper balance between the amount of current assets & the current liabilities in such a way that a firm is always able to meet its financial obligations whenever due. This will ensure smooth working of the unit without any production held ups due to paucity of funds.

Thus, the objective is to ensure the maintenance of satisfactory level of working capital in such a way that it is neither inadequate nor excessive. In should not only be sufficient to cover the current liabilities but should ensure a reasonable margin of safety also.

1.4 DETERMINANTS OF WORKING CAPITAL

To determine the amount of working capital needed by a firm, the number of factors may be included in analysis.

Nature and size of Business

Trading and financial firms require a large sum of money to be invested in working capital. Some manufacturing businesses like tobacco manufacturing and construction firms also have very limited need for working capital. In contract public utilities have a very limited need for working capital. Their working capital requirements are nominal because they have cash sales only. Size of business also has an important impact on its working capital. A firm with longer scale of operation will need more working capital than a small operation firm.

Availability of Credit
Availability of credit from bank also influences the working capital needs of the firm. A firm, which can get bank credit easily on favorable conditions, will operate with less working capital than a firm such a facility.

Attitude Toward Risk

The greater the amount of capital, lower the risk of liquidity problems. If firm don t want liquidity deficiency, may keep extra cash.

Operating Efficiency
Batter operating efficiency, lower need of working capital. Most firms seek to maintain sufficient working capital to meet their needs for liquidity.

Manufacturing Cycle
Longer the manufacturing cycle larger will be the firms working capital requirements. Manufacturing cycle stands with the purchase and use of raw materials and completes with the production of finished goods. In order to minimize their investment in working capital, some firms, like manufacturing industrial products, have a policy of asking for advances payment from their customers. Above all the amount of working capital that a firm would need is affected not only by the factors associated with the firm itself but is also affected by economic, monetary and general business environment.

CHAPTER-2 CASE STUDY

2.1 BHILAI STEEL PLANT

Ten - times winner of Prime Minister's Trophy for best Integrated Steel Plant in the country, Bhilai Steel Plant (BSP) is India's sole producer of rails and heavy steel plates and major producer of structural. The plant is the sole supplier of the country's longest rail tracks of 260 metres. With an annual production capacity of 3.153 MT of saleable steel, the plant also specializes in other products such as wire rods and merchant products. Since BSP is accredited with ISO 9001:2000 Quality Management System Standard, all saleable products of Bhilai Steel Plant come under the ISO umbrella.

At Bhilai IS0:14001 has been awarded for Environment Management System in the Plant, Township and Dalli Mines. It is the only steel plant to get certification in all these areas. The Plant is accredited with SA: 8000 certification for social accountability and the OHSAS-18001 certification for Occupational health and safety. These internationally recognised certifications add value to Bhilai's products and helps create a place among the best organisations in the steel industry. Among the long list of national awards it has won, Bhilai has bagged the CII-ITC Sustainability award for three consecutive years.

PRODUCT-MIX Semis Rail & Heavy Structural Merchant Products (Angles, Channels, Round & TMT bars) Wire Rods (TMT, Plain & Ribbed) Plates (up to 3600 mm wide) Total Saleable steel

TONNES/ANNUM 5,33,000 7,50,000 5,00,000 4,20,000 9,50,000 31,53,000

Location : Forty kms west of Raipur, the capital city of Chhattisgarh, along the HowrahMumbai railway line and the Great-Eastern highway, stands Bhilai Steel Plant (BSP).

Bhilai steel plant a symbol of indo- soviet techno-economic collaboration, is the one of first three integrated steel plants se up by Government of India to built up a sound base for industrial growth of the country. The agreement for setting up the plant with a capacity of 1 MT of ingot steel was assigned between the Government of the USSR and India on 2nd February 1955. Today the plant has already been expended to the capacity of 4.0 million tone of crude steel & is producing 3.925 million tones of crude steel & 3.153 million tones of saleable steel.

The plant was the 1st to produce wide (3600mm) & heavy plates. A major exporter of steel products, Bhilai specializes in shaped products such as heavy rails, heavy structural merchant products of wore rods. Its coke making & chemicals, hot metal & pig from, entire making facility & Blooming and billet mill and all the finishing mills are armed with ISO-9002 certification. Plate mill of Bhilai Steel Plant has received the ISO14001 certification for its Environment Management System.

Among various SAIL steel plant B.S.P, is only plant, which has been earnings profits continuously. More so when there has been a total loss to the tune of 1707 crore. BSP has individually earned a profit in crore Rs. for the year march 2003 - 732.20 BSP being BSP being one of the plant where modernization has not been fully effected & still B.S.P. is able to isolate itself, by earning profit, is a matter of great pride for the employee at Bhilai Steel Plant.

Bhilai steel plant won the Prime Minister Trophy for the Best Integrated Steel Plant in the country five times out of eight times since the inception of the award.

2.2 STEEL AUTHORITY OF INDIA LIMITED

Steel Authority if India Ltd. (SAIL) is India s largest and one of the world s leading steel producers with a turnover of Rs. 19702.10 crores during 2002-03, which was 24% higher than previous year s turnover.

Vision of SAIL
To be a respected world class corporation and the leader in Indian Steel Business in quality, Productivity, profitability and customer satisfaction SAIL has four integrated steel plants at Bhilai, Durgapur, Rourkela and Bokaro having a total capacity of producing over 11 million tonnes of crude steel. Three plants at salem, Durgapur and Bhadravati produce stainless and alloy steels. A subsidiary at Burnpur produce heavy structural and another at Chandrapur is a bulk producer of Ferro-alloys.

SAILs vast Portfolio of long, flat and tabular products is marketed within and outside India by its central Marketing Organisation (CMO) and the International Trade Division (ITD) respectively steel plants. SAIL s Raw Material Division, head quartered at kolkatta manages India s second largest mines network. To develop new technologies for the steel industry and achieve world standards in steel, SAIL has a well equipped research & Development centre for iron and steel (RDCIS). Besides it has its own in house centre for engineering & Technology (CET), Management Training Institute (MTI) and SAIL safely organization (SSO) at ranchi. SAIL consultancy Division (SAILCON) at New Delhi provides consultancy services garnered over four decades of experience in steel making, to clients word wide.

SAIL s product mix has been reoriented to keep pace with market demand. Higher availability of special grade products like API grade HR Coils/Plates/Pipes, HR Coil for cold Reducing segment etc. It has enabled SAIL to maintain & achieve larger market in value added segment, with a market driven pricing system, key customers are provided special customer services and there is increased product focus and constant review of distribution channels. One of the leading steel producers in the world and the largest steel maker in the country, SAIL occupies a primes places in the industrial scenario of India. Quality steel products from SAIL have craved a niche for themselves in the globlal steel market. The company aims at thinking its global presence felt through export joint ventures and strategic alliances with internationally reputed steel markets.

SAIL is in the midst of organizational restructuring to bring greater focus on its core business of making carbon steel. Making employees aware of market requirements insuring greater involvement of plants in marketing initiatives, achieving cost leadership through rigorous cost cutting drives and rationalizing man power to bring down the total no. of employees to competitive levels are some other facets of the strategy to insure sustained profitability and growth.

SAILs ability to continuously grow in different market conditions reflects the inherent strengths of the company to manage its operations under the varying and fast changing business environment over a long span of time.

In the new millennium there is a strong focus on SAIL s business activities for customer satisfaction, adopting an approach for increased synergy between production capabilities and market needs and ensuring supply of customized products with shorter lead times.

The product mix is being continuously oriented to specific needs of different markets segments. SAIL has been progressively investing in technological up gradation of its facilities to supporting cost reduction, improving products quality and yields and for environment protection. In the new millennium, the accent in SAIL is to accelerate the process of change, adopt to emerging competitive business environment and excel as a business organization both within and out side India.

2.3 MAJOR UNITS OF SAIL

Steel Plan.
a. Bhilai Steel Palnt (BSP) in C.G. b. Durgapur Steel Plant (DSP) in West Bengal. c. Rourkela Steel Plant (RSP) in Orissa. d. Bokaro Steel Palnt (BSP) in Jharkhand.

Special Steel Plants

a. Alloys Steel Plant (ASP) in West Bengal. b. Salem Steel Plants (SSP) in Tamilnadu. c. Vivesvaraya Iron & Steel Plants (VISP) in Karnataka.

Subsidiaries.
a. Indian Iron & Steel Co. Ltd. (IISCO) in West Bengal. b. Maharastra Elektrosmelt Ltd. (MEL) in Maharastra.

Other Units.
a. Raw Material Division (RMD) at Kotkata. b. Central Marketing Organisation (CMO) at Kolkata. c. SAIL Consultancy Division (SAIL CON) at New Delhi. d. Research and Development Centre for Iron and Steel (RDCIS) at Ranchi. e. Centre for Engineering and Technology (CET) at Ranchi. f. Management Training Institute (MTI) at Ranchi. g. Central Power Training Institute (CPTI) at Rourkela, Orissa. h. SAIL Safety Organisation (SSO) at Ranchi. i. Environment Management Division (EMD) at Kolkata. j. Growth Division (G.D.) a Kolkata. k. Central Coal Supply Organisation (CCSO) at Dhanbad.

ORGANISATION STRUCTURE OF FINANCE & ACCOUNTS DEPARTMENT

GM (F&A)

DGM (F&A)

DGM (F&A)

CFM

CFM

CFM

CFM

CASH WAGES 1, CASH WAGES 3 A, INCENTIVE CELL, STORES, FIN ESTABLISHM ENT, ADMINISTR ATION & COORDINAT ION

CENTRAL A/C, MGT A/C, ASSET A/C, OPERATION BUDGET, COST A/C, ENERGY CELL OPERATION A/C, PC, CC

MINES, ZONAL WAGES, WAGES COORDINATI ON

RAW MATERIAL A/C, FREIGHT AND CLAIM STOCK VERIFICATIO N, TOWNSHIP SERVICES, HOSPITAL A/C.

PROJECT FINANCE, CAPITAL BUDGET, WORK FINANCE, ZONAL A/C & WORK COMPLETIO N

SALES EXCISE, SALES TAX, FREIGHT OUTWARDS

STORE ACCOUNTS FUNCTIONS:

A. STORE AND MATERIAL FUNCTIONS
I. To account purchase, issue and inventory of following items:-

1) Stores and spares

2) Minor raw materials, where A/T is placed and store is the custodian of materials.

3) LSHS, where A/T is placed and Energy Management is the custodian.

II. Transfer of capital items to Expansion accounts section.

III. Transfer of Stores and Spares consumed in mines section for booking in Cost of the raw material.

IV. To account for materials issued to Local Fabricators for conversion.

V. To adjust consumption based on the inventory available at shops

VI. To account for consumption of gases, internally produced.

ACCOUNTING PROCEDURES
1) Store accounts books the receipt transactions after the Generation of Receipt Certificate by stores, after inspection by inspection deptt. and transferred to suppliers ledger.

2) Issue transactions are booked cost centre wise, at the time of issue by stores.

3) All the transactions are booked online in the MMIS system, for preparation of monthly accounts.

4) Statement of shop floor inventory is received periodically from shops and consumption is adjusted for the stock after physical verification.

5) Provision, as decided by the management, is being made for nonmoving items where the items is not issued for more than 5 years from the date of receipt.

6) Provision, as decided by the management, is being made for surplus items, declared out of non-moving items, which is no longer usable by shops

AGENCIES INVOLVED
1) Stores, for preparations of RCs, Issue notes & inventory keeping in the bin card.

2) Purchase, for placement of Purchase order.

3) Inspection, for clearance of RCs.

4) MPD, for screening purchase Indents.

5) Planning cell of all shops, for getting custody stock statements.

6) MMIS, for maintenance & development of Material Management Database.

7) EDP, for maintenance & development of Accounting Database.

8) CMMS, for maintenance & development of Shop floor inventory system.

9) INCOS, for maintenance of Plate Mill Dispatch Advice system.

FINANCE SECTIONS INVOLVED

1) Stock ledger, for materials consumed internally out of own production.

2) Store bill accounting, for transfer of RC liability to Supplier Ledger.

3) Expansion finance section, for transfer of capital items.

B. DISPOSAL STORES SALES SYSTEM FUNCTIONS

1) To account for sale of store/steel items through Disposal Store Tender / Auction System.

2) Maintenance of Customer Ledger.

ACCOUNTING PROCEDURES
1) Income is recognized at the time of invoice preparation and Sales & Tax portion is being transferred to sales & sales tax section respectively.

2) Customer ledger is prepared after taking into account sales, refunds & other adjustments.

3) Preparation of receipts, refund and other adjustment vouchers, based on DDs received from CMM (stores) along with Sales, Delivery orders.

AGENCIES INVOLVED
1) DISPOSAL STORES

2) CMM (STORES)

FINANCE SECTIONS INVOLVED

1) Sales Tax 2) Sales 3) Store Bills, for recovery & adjustment.

CASH MANAGEMENT
INTRODUCTION
Cash section is an important section of Finance & Accounts Deptt. It deals with the employees, contractors & suppliers for their payments.

FUNCTIONS The main functional areas of the Cash Section is as follows : Liaison with Bankers Fund Management Daily Fund Monitoring and reporting Vouchers checking & control Preparation & signing of cheques Bank Reconciliation Coordination with EDP Preparation of Cash Book Control of Physical Cash Bank Guarantees control Coordination with other sections and deptts.

Liaison with Bankers:This section is required to closely interact with the bankers at times even on minute-tominute basis to ensure smooth functioning.

Fund Management:Fund allocation are made by SAIL corporate office on time-to-time basis whereas the payments are required to be made evenly through out the month. This is done through rationing, prioritizing and constant monitoring so that all the obligations are met and at the same time all the payments are duly honored.

Daily Fund Monitoring and reporting

This involves constant monitoring the fund availability, project the requirements to the higher authorities based on discussions with the payment section, report the management about the availability & utilization of funds on time to time basis.

Vouchers checking & control

Voucher received in the cash section are as follows : Cash payment vouchers Cash Receipt vouchers Bank payment vouchers Bank receipt vouchers Adjustment vouchers Vouchers with the required supporting documents are sent to the cashsection for making payments and receiving deposits. These vouchers are scrutinized before processing for payment / deposits.

Preparation & signing of cheques

For every bank payment voucher, the output is cheque. Normally around 200-250 cheques are prepared on average per day. These cheques are to be authenticated before issue by 2 officers.

Bank Reconciliation
Bank reconciliation is a very important aspect of finance & accounts function. Through this process the cheques issued & instruments deposited are compared with the payments made and credits given by the bank. Differences if any are sorted out by passing necessary accounting entries.

Coordination with EDP

The acceptance and processing of vouchers, cheques printing, organization of Central Bill Clearance System (CBCS) all such activities are computerized. Necessary hardware & software is supported by our EDP deptt.

Preparation of Cash Book

After all the payments & receipt of cash & cheques are reconciled, a consolidate cash book comprising cash and bank data is prepared.

Control of Physical Cash

This involves dealing with the receipt and payment in terms of hard cash, its custody. Cash deposits into and withdrawals from the bank. Custody of cash and any other specified documents. Operation of a currency chest and a petty cash chest.

Bank Guarantees control

Custodial function of Bank Guarantees sent by various sections.

Coordination with other sections and deptts

Interaction and coordination with related agencies such as CISF, Garage, various branches of the banks.

OPERATION ACCOUNTS OBJECTIVES:

Various work orders / contracts are awarded by contract cell operation for smooth running, maintenance, repair, revamping, transportation & handling, capital work etc. of the plant. This section deals with payments of all such contractors.

Apart from this, section also deals with various types of payments, such as CISF (postage, telephone bills, printing & stationery, library books, advertisement, law charges etc.), canteen, BWCCS, advance out of contingencies, training fees, BMTC/BTI expenses, telephone bills, imprest, NMR,RDCIS,CET,PRO etc various miscellaneous receipts like EMD, ISD, vendor registration charges, refund of unspent advances etc.

FUNCTIONS:To make payments to various contractors working in works / non-works area strictly as per contract / W.O. conditions, miscellaneous payments as per DOP / budget etc.

Accounting of miscellaneous payments as well as receipts and proper maintenance of ledger and other records thereof.

PAYMENTS:Works bills :The type of job got done through contractual agencies inside the plant are mainly :

1. Regular maintenance, repair, revamping to keep the plant in smooth running condition.

2. Contract awarded for handling of Raw materials, pig iron, processing of scrap etc.

3. Civil Engineering Deptt. Undertakes some jobs like additions / alterations, which are normally revenue in nature.

4. Some job capital in nature are also undertaken by Civil Engg. Deptt. / other Deptt s, based on the scope of capital scheme. Expenditures against such type of jobs is capitalized and added to fixed assets.

Running bills duly filled in/recorded and signed MB and relevant documents are sent to this section for making payments. After verifications, payments are released strictly as per contracts terms. Before payments, deductions like SD, IT,WCT etc. are also made.

Final payments / SD refund are made only after completion of contract and on fulfillment of contractual obligation. Capital exp. Amt. is tfd to Expansion a/c sec.

Miscellaneous payments :This section also deals with the payments of entertainment bills, audit expenses, workers education expenses, A/C maintanence, attendant fees engaged at the residence of sr. executive, re-imbursement of cost of brief case and calculator, CET, RDCIS payments, payments of interest/principal against SAIL bonds, payment from PM trophy fund and accounting and payment of CPD bills, NSVA payments, printing payments, administrative deptt. Payments etc.

Bank guarantees:It is submitted by the contractor as SD and/or performance guarantee. These BG s are submitted to operating authority who in turn sends to contract cell. The section receives the BG s from the contract cell. The same are sent to cash section for safe custody. The operating deptt./ contract cell are intimated status of bank guarantee well in advance to take care of the expiry. On request the BG s are returned to contract cell after verifying the fulfillment of contractual obligations.

HSCL Payments:As per the budget allocations, work orders are issued by RVC with approval competent authority. The same taken to the database of CMS. On execution of work, the final bills with the MB s submitted and checked in finance and payments are released / adjustments are made if advances are already released.

RECEIPTS:Earnest money deposit:This amount is taken in the form of DD at the time of opening of tender. Money is refunded back to the parties who are not successful. The EMD of the contractor who bags the order is converted into SD.

Security Deposit:The successful tenderer has to deposit an amount of 2.5% of the total value of the work before the work is actually awarded to him after setting off the EMD. This amount along with EMD is accounted for as SD. The SD is refunded after getting clearance from IR section on successful completion of guarantee period.

Accounting :The accounting of contractors payment is made through CMS system. This system is on line & the status of contracts can be taken at any time. All the vouchers when passed are accounted for immediately against Bank Payment Voucher entry. The accounting for advances is done through advance management system developed by EDP. The accounting for miscellaneous transaction are done through directly in VMS system. TDS when recovered is deposit to the treasury in the following month by 7th of each month.

Journal entries ;1. Adjustments for temporary advances. 2. Clearance of inter sectional transfers. 3. Acceptance of IUCA transactions. 4. Preparation of quarterly/half yearly/annual accounts. 5. Passing of rectification journal entries

CENTRAL ACCOUNTS AND ASSETS A. CENTRAL ACCOUNTS:This section is engaged in the following jobs:-

1. Monthly Closing of Accounts:

Every month the accounts are closed taking into account all the J.E. s passed by all the sections of the Finance Deptt. for that particular month. Central Accounts Section takes special care that all the entries pertaining to any particular month are passed by the sections and are accepted by the Central Accounts Section. For performing this job it takes care that cash book is closed in tme taking into account Resident Office transactions.

This job is done every month by the third week of the month following the month for which the account is being closed.

After the account is closed by running the program prepared by EDP following outputs are taken from EDP:

Five digit all division comparative This output gives the account code wise & in account code section-wise cumulative balances of current year & also the comparative cumulative balances of the previous year. This is available at central accounts section & is very useful for review of balances & checking whether proper booking has been done by all the sections by comparing the balances with that of previous year balances. This output is also useful for audit purpose.

Five digit all division this output gives the account code wise & in account code section wise balances. This output is available at central accounts section & is used for review of balances & is also used by the auditors.

Five digit division-wise this output gives the balances division wise & in division account code wise & section wise.this output is available at central account section for review of division wise balances and checking whether the booking has to be done in proper division.

Seven digit balances :- This output gives the seven digit balances that is with bycodes of all the sections. It is useful to analyse the balance by-code wise. Bycodes are given to identify the various nature of transactions in any particular account code.

Accounts grouping :- This output gives the group wise totals with account code total division wise in the manner in which the balances are carried into B/S & P&L a/c. Thus, the total of any group can be traced & checked with the balance in B/S & P&L a/c depending upon the nature of Account Code & Group Code. It is also used for Audit purpose.

Summarised Grouping :- This output gives the group-wise totals without account codes in the manner in which the balances are carried into the B/S & P&L a/c. It is also used by the auditors.

Cumulative Balances:- This output is in the sequence of section codes & it gives the cumulative balances division wise & in division account code wise. This output is distributed to all the sections of Finance Deptt. & is used by the sections for the review of balances at any particular month. One copy is kept at central accounts for reference.

Account Sequence:- This output gives account code wise & in account code section-wise and in division-wise transactions details for any particular month.

This output contains the details of all the vouchers passed by the section in one particular month. This is useful for tracing the particulars of any transaction. This output is available at Central Accounts Section.

Section Sequence:- This output gives section code-wise and in section account code-wise & in division-wise transactions details for any particular month. This output contains the details of all the vouchers passed by the section in one particular month. This is useful for tracing the particulars of any transaction. This output is available at Central Accounts Section. This output is distributed to all the sections of Finance Deptt. on monthly basis.

Responsibility Analysis:- This output gives the responsibility code-wise booking & is useful for responsibility analysis & MIS reporting. A copy is available at Central Account Section.

ISA Balances:- This output gives the particular of ISA Balances & is helpful for clearance ISA Balances. It gives the details of J.E. s with account code of Raising Sections and the details of J.E. of Responding Section. Review of this output helps to locate un-responded J.E. this output is distributed to all the sections of Finance Deptt. & a copy of this is available at CSA.

IUBA Balances:- This output gives the details of IUBA Balances & is distributed to all the concerned sections. This output contains the transactions between the Rajhara mines, Nandini mines, Hirri mines, Mines Coordination, Store Accounts & Energy Cell. This output helps in clearing the IUBA Balances.

2. Quarterly & Half yearly closing:As per SEBI guidelines all the listed companies have to published unaudited quarterly result this job is carried out by the central accounts section in the same manner as is done in Annual Closing. The program for quarterly & Half yearly closing is decided by corporate office within the time limit provided by SEBI i.e. within 1month from the end of the quarter. Consolidation of accounts is carried out in the last week of the following month at the Corporate Office.

The jobs involved at the time of quarterly & half yearly closing are :Account are closed in various stages from 15th of the following month depending upon the flow of the information from different section and closing of Cash Book. Closing of accounts, its review & preparation of B/S & P&L a/c to be carried to Corporate Office for final consolidation is done within the time scheduled framed by Corporate Office.

IUCA Balances are reconciled at IUCA meetings held at Kolkata as per corporate office program which usually takes place during the second or third week of the following month. All the information collected at Kolkata are then provided to respective sections for its accounting. Central Accounts takes care that all the transactions intimated through DA or CA are accounted for by the respective sections well in time.

Collection of all the necessary information data for Note on Accounts & preparation of additional data are compiled by CAS werll in time for purpose of Consolidation of accounts. Data to comply with all the AS issued by the institute of CA s & applicable to us are also furnished to Corporate Office by CAS.

3. Limited Review of Quarterly and Haly-yearly accounts :As per the SEBI guidelines Quarterly & Half-yearly accounts after consolidation at Corporate Office to be reviewed by the Statutory Auditors. CAS gets the accounts reviewed by the statutory auditors and furnishes all the information and data required for the audit with the help of all the sections of Finance Deptt. this is also a time bound program, which has to be completed as per the time frame of Corporate Office. Finally the Audit Report is prepared & is sent to the Corporate Office for final consolidation at SAIL level by the Main Auditors.

4. Annual Accounts Closing:CAS plays a vital role in the completion of Annual A/c Closing with the help & coordination of all the Sections of Finance Deptt. which is done during the month of April & May. As soon as the program for Annual Closing Accounts is intimated by the Corporate Office, CAS draws time schedule & program for closing of various stages of accounts, flow of information & data for Notes On A/cs, Additional Data & data to comply with all the AS issued by the ICAI applicable to SAIL. CAS monitors that all the sections of Finance Deptt. adheres to the time schedule to enable timely closing of accounts. Review of balances after every stage of accounts is carried out & discrepancies are informed to all the sections to take corrective actions. Al the necessary outputs after closing of every state are sent in time to all the section for review at their level. After the review all the transaction compilation of B/S & P&L a/c is carried out through SAIL a/c preparation system(SAILAPS), a s/w package provided by the Corporate Office and use by all the plants. After preparation of accounts data for Notes on accounts, Additional Data, and all the AS applicable to SAIL are compiled so that the same can be submitted in time. Accounts along with all the data on Notes On Accounts and Additional Data are then placed before the Statutory Auditors for audit.

CAS with the help of EDP has developed its own SAILAPS program which can be prepared B/S & P&L a/c at any point of time after considering all the vouchers accepted upto that point of time.

B. ASSETS SECTION:Section 227 (4A) of the Companies Act, 1956 requires all manufacturing, mining & processing companies to maintain proper records showing full particulars, including quantitative & location of fixed assets.

It is entrusted with the job of maintaining records related to fixed assets and as such our asset register contains the following information in the columnar form :

Location of assets (there are 500 locations in which assets are situated.)

Few of the major locations are as under :BBM, Blast Furnace, CCCS, CEZ, Cokeoven, Compressed air station, DNW, Decoiling & Twisting Units, EDP, Fire Brigade, Health & Medical Services, Instrumentation, Machine Shop, Merchant Mill, Mines, Oxygen Plants, Plate Mill, SMS, T&D, WRM etc.

Group Item code Division Section Asset description Date of capitalization Quantity Original value.(Gross Block) Rate of depreciation(as per schedule XIV) Cumulative depreciation(total depreciation till previous year B/S date) Current depreciation (depreciation for the year) Total depreciation

Net value (Net Block) Scheme No. Record No.

Asset register is prepared on yearly basis after Incorporation & reconciliation of the following asset related activities / transactions during a financial year.

Inter Unit Current Account :

Under the IUCA system, transactions between plants / units inter pertaining to IP transfers of materials, employees & other transactions are accounted for through book adjustment by exchange of debit/credit advices.

Examples of IUCA transactions are mentioned as under:

1)

IP transfer of iron & steel products, by-products, scrap, etc. at

mutually agreed price to & from sister plants.

2) Receipt of indigenous coal from CCSO, imported coal from CMO (T&SIMPORT) & other raw materials received through RMD.

3) Transactions with Corporate Office : Interest & finance charges allocated

by the Corporate Office, Exchange Variation on account of FE loans & interest thereon, Foreign traveling expenses, Operation remittances / Public Deposit Scheme etc.

4.) Transactions with CMO :Direct Sales through CMO, Stockyard Sales, Export Sales, Conversion charges, Warehousing & Handling Charges for fertilizers, under charges/siding charges paid to

railways, demurrage, and wharfage transportation charges, credit for railway claims for shortages in transit, missing wagons.

5.) Transactions common to all units :TA advance, payment of medical bills on behalf of other units, dues from and to employees on transfer, traveling advance/allowance for management trainees. The CAS of the originating plants must ensure that the IUCA debit/credit entries raised by different sections contain complete details before sending DA/CA to the responding plants / units . IUCA activities at BSP are computerized & linked to VMS of EDP.

Incoming Originating DA/CAs :Original DA/CAs raised on BSP are centrally received at the CAS . After scrutiny, these DA/CAs, along with supporting documents, are forwarded to the respective section for acceptance. Unit-wise & Section-wise data are fed into the IUCA module of the VMS.

Outgoing responding DA/CAs :Sections respond to these Debit or Credit through Journal Vouchers. Responding debits & credit advices are prepared through VMS modules before sending them to respective units.

Outgoing Originating DA/CAs :Original debit/credit raised by our sections on various units identified by scrutiny of accounts sequence & sectional journal vouchers. DA/CAs are prepared through IUCA modules of VMS & sent to respective sister units along with supporting details.

Incoming Responding DA/CAs :On receipt of the DA/CAs responding to our originating debits or credits, concerned plants responding DA/CAs are received, fed in the VMS for linking. Section wise / unitwise list of DA/CAs pending for acceptance are prepared periodically and taken up with the concern section for expediting acceptance. Cases of disputes or non-furnishing of

supporting documents by any units are taken up with the respective sister units for early settlement. IUCA balances are drawn periodically through generation of statement accounts w.r.t the VMS and are cross tallied with accounting IUCA ledger balances.

Unrealized profit on unconsumed stock:Unrealized profit on unconsumed stock of IPT from BSP with any other Sister Units worked out and credit, if any, given to the concerned units / plants. For the purpose of knocking of IPT transactions details of product, quantity & value etc. are furnished to the concerned official of the Corporate Office during Accounts Closing.

CHAPTER 3 WORKING CAPITAL MANAGEMENT

MANAGEMENT OF CASH
Cash is the life blood of a business firm needed to acquire supplies, resource, equipment, and other assets used in generating the products and services providing by the firm, cash is the medium of exchange that allows management to carry on the varies activities of the business firm from day to day.

Objective of Cash Management

(i) To meet cash disbursement needs as per the payment schedule.

(ii) To minimize the amount of funds held as cash balance [non earning & lying idle].

Mgt. of Cash in Bhilai Steel Plant

Basically the cash is managed by the corporate office. The corporate office allocates different amounts of each to different steel plant as per requirement. We can say that corporate office acts as a linkage between the SAIL & the main bank i.e. the SBI known as the Corporate Account Group. Here also, the bank has a limit for credit facility for the company known as the Rolling Cash Credit Limit. This limit keeps on changing from year to year depending upon company s position, profitability & inventory position. For this particular year the Rolling Cash Credit Limit For SAIL-> Rs.5000 Crores. For BSP -> Rs. 250 Crores. [including the deferred payments] The corporate office manages the cash & it doesn t provide the money in bulk to the individual steel plants. Therefore BSP priorities its payment depending upon status of the disbursement and send it to the corporate office.

Here also, we can see that BSP is not fully dependent on the corporate office but at first it adjusts fund from collection through sale of scrap & defectives at

plant level and then balance amount is only intimated to the corporate office for payment. After the prioritization intimated, the corporate office releases the cash.

Fund Allocation:
Initially the fund allocation is done by the corporate office. The corporate office allocates the fund for all steel plants & particularly talking about Bhilai Steel Plant the corporate office allocates it for the steel plant, the 3 mines & the 2 resident office. All the three mines and two resident office work independently and all activities are same as that of Bhilai Steel Plant. The mines are situated at:

Rajhara - Iron ore

Nandini - Limestone Hirri Dolomite

Resident office:
Basically there are 3 resident office sat :(i) Delhi - Looked after by the corporate office

(ii) Kolkatta} Both are Looked after

(iii) Mumbai} by Bhilai Steel Plant Here the initial allocation for mine & resident office is done by the corporate office and all supplementary requirements are to be looked by Bhilai Steel Plant.

Fund Utilization:
Funds are generated to different department as per their requirements. It is always seen at BSP that proper utilization of cash should be done. Daily reports on cash transitions is prepared by the cash section to keep a track of all payments made in the day s work. Based on the report sent by cash section another report is prepared which is sent to be management daily for scrutinizing. Every day Bank Statements are received which tells the actual money left with them and the payments actually to be made on that particular day. Every month report is sent to the corporate office showing the working of the plant. Apart from monthly report, the comparison between allocation and the actual utilization of cash is also provided. If the justification is not found convincing then letters of improvement is given by the corporate office. Sometimes the credit note arrangement is also given. This credit note arrangement is a kind of barter system which is a letter of arrangement for lifting the material.

Annual Cash Forecasting:

Annually the forecasting is done by preparation of cash budget. The annual cash requirement is got from cash budget. Again this cash budget is broken into month wise budget where allocation of cash on month wise it becomes easier to allocate the amount. Thus we can say in BSP, the management of cash is not so emphasized as the major allocation of cash is given by the corporate office and the plant just have to follow its working according to the allocated amount.

MANAGEMENT OF INVENTORY
Every enterprise needs inventory for a smooth running of its activities. On an average, inventories are approximately 60% of current assets in public limited companies India. Because of the large size of inventories maintained by firms, a considerable amount of funds is required to be committed to them. It serves as a link between production and distribution processes. The unforeseen fluctuations in demand and supply of goods necessitate need for inventory. The investment in inventories constitute the most signification part of working capital in most of the undertakings. The purpose of inventory management is to ensure availability of material in sufficient quality as when required and also minimizes investment in inventories.

Objective of Inventory Management:

To ensure continuous supply of material, spares and finished goods so that production is not hindered. To maintain investments in inventories at the optimum level as required by operational and sales activities.

Inventory Management in Bhilai Steel Plant:

Here, inventory is divided into 3 parts namely: i. Raw material ii. Stores/Spares iii. Semi finished & Finished Goods Raw Materials: In BSP, basically the raw materials are purchased using Central procurement and regional procurement. From Central procurement, we mean to say the bulk purchases and these bulk purchases are made by the nodal agency of SAIL. As per the requirements of the individual steel plants, the bulk purchase are procured and sent to the place of need. The divisions looking after the bulk purchase are:

Raw Materials Agencies i) Imported Coal Central Market Organization Transport and Shipping ii) Indigenous Coal iii) Sulphur iv) Alloys

Central Coal supply organization Bokaro Steel Plant Durgapur Steel Plant

The regional procurements are the small purchase made by the individual plants as per their requirements and decisions. It can also be said that the total requirements of Bhilai Steel Plants is met by the sum total of bulk purchase and the regional purchase and also from captive mines.

Total procurement = Purchase (Bulk + Regional) + Captive mines of raw material Mainly the bulk purchase are made on global tender basic by SAIL itself whereas the regional purchase are done on limited tender basic by BSP which means limited people are called for tender & they give their offers and tender prices are fixed. While fixing the tender price, a special eye is kept on the specification; quality parameters, rates of taxes by the in tender. These tenders are been seen in 3-bits known as the Technical Bit, The Commercial Bit and The Price Bit. The lower offer party is decided. Negotiation can be done for pricing and acceptance is through the acceptance of Tender which contains all terms and conditions of tender including the specification.

The movement of material is by rail or road. Bhilai Steel Plant is more dependent on railways and for this a special division is there inside the plant known as the Transport and Diesel Division. The main function of this division is to coordinate the movement of material inside the plant. Once the raw materials are inside the plant they are transported to their particular depots near the consuming units by roadways.

The pricing method followed is the weighted average method. For this , periodically norms are setup by the committee of corporate office and these norms acts as a guiding factor for the stock holding at different plants. At the year end, physical stock verification is done and if any surplus is found then it is treated to the profit and loss a/c. In all there are 25 raw materials and the total annual consumption of raw material is of Rs.2000 crores in addition of keeping an inventory of 5 7%. The inventory of bulk material is maintained from 1 week 3 week.

Stores & Spares

Here the inventory is categorized into: a. ABC analysis, b. XYZ analysis, c. Non-moving inventory, d. Surplus inventory.

(i)

ABC Analysis: Items which constitute top 70% of total consumption (of stores & spares) value when arranged in descending order of consumption value will be termed as A Class items. Next 20% of total consumption value will be termed as B class items and the rest 10% as the C items.

(ii)

XYZ Analysis : Items which constitute the top 70% of total stock (of stores & spares) holding value when arranged in descending order of stock holding will be termed as X class items. Next 20% of stock holding value is Y class items & the rest 10% as the Z class items.

(iii)

Non-moving inventory: Items which have not been issued for the last 3 or 5 years shall be considered as non-moving items.

(iv) Surplus inventory: Out of the above non-moving inventory when there is issue made to various shops asking for the requirements of the inventory and if there also it is not needed then transferred to another steel plant and if again not needed there also then sent for disposal through auction sale.

Placement of order:
The procurement of items of common use is done through automatic procurement which means that as these items reach the reorder level the orders are placed for the same. Here again, another department comes into action i.e. the Material Planning Department. This department takes responsibility of floating the purchase of Material and the process of purchasing starts only when it scrutinizes that the orders made are specifically as per the requirements and there is sufficient capital to make the purchase. But at first, the Material Planning Department checks in the stock and see to whether making the item is cost beneficial or not and if the decision is in favour of buying then MPD looks into budget and then the purchase is registered . Again here, the purchase department will issue enquiry letters to different vendors who are registered. The quotations are received from various bidders and the technical analysis are made i.e. the technicalities as well as the price are compared. Here again the discretion is with the purchase department to whom the tender should be given based on their experience.

Procurement
After the purchase order is of delivery whether through rail\road, nature of sharing taxes, the inspection time, the terms and documents needed with the material all the formalities are finalized. Once the material is received then it is examined by visual survey. Then the whole lot is sent to the central store which takes into account the whole documentation process known as the central documentation Cell. After the documentation the wagons are unloaded and materials are sent to those stores which have been allocated to the products as per the nature of material by Central Documentation Cell. The details of stores and materials stored are given below: Bulk Store - Bulk material Central Plant Store Cell - Silicon Mangenese

Borio Store - Capital Items Plant Spare Store - Spare items

When the material is received the consignment control number is provided and when the identification of material with the purchase order is done then the R.N number is given. Here again, the inspection takes place and if the quality received is accepted then receipt is prepared and accounting is done and if the quality is rejected then no receipt is prepared and here again there is a clause that if the quality rejected is accepted to the acceptable level by the Material Review Board then new receipt certificate is prepared by Material Review Board.

Budgetory Control
The budgeting section monitors the shop wise procurement budgets for indents raised by the shop. The amount sanctioned are utilized for the items and quantities. The material Management Department monitors the receipt budget on monthly basis and control the daily receipts. Separate funds are being allocated to the product. Here the inventory pileup is very large i.e., the annual consumption is of Rs.50 crores while the pile up of inventory is of Rs.70 crores which is more than the annual consumption.

Semi/Finished Goods
The entire process of selling steel is quite cumbersome & the dynamics involved mind boggling. The specifications are stringent, operations are complex, the tonnage is staggering and logistics are troublesome. A long chain of activity is configured to make sure that right material reach customer at the right time. At SAIL, the coordination between plant and marketing wing is done through a section of its marketing outfit the

Sales Residence Manager s office better known as SRM s office situated in each of 4 plant locations Bhilai, Bokaro, Durgapur and Rourkela. SRM`s office is the single point of coordination between respective plant and CMO. The plant officials interact with SRM to collect feedback on marketing trend, customer s satisfaction level and the criticalness of the orders. Sales coordination meeting are held every month which becomes a forum for both plant and marketing to meet the customer requirements. The movement plan is issued after the SRM office receives order from the branches. The SRM office has to think globally and act locally. Once the movement plan is prepared it is immediately sent to the Production, Planning and control Department of the plant and to other concerned department. The critical point in production plan is to match the rolling plan with the market requirements so that with the minimum inventory the company satisfies the maximum customers. The movement plan is discussed in the presence of the heads of mills and their planning section.

Accordingly the requirements are communicated to the Steel Melting Shops and Rollling Mills and depending upon the priorities &mill availability the production commences. The movement plan no. now becomes the point of reference for any further communication among the units. Once the material is produced it is dispatched through rail or road. For rail dispatch rake formation is there which means that minimum 35 numbers of wagons are to be filled. Every week a Committee Review Meeting is held. Now at the end of the year while the valuation of stock is done it is seen whether the stock remaining with the plant is Rollable or Saleable. Valuation is done on the basis of cost or NRV whichever is less. At BSP, it is valued at Plant, Stockyard and at export yard. The entire process of movement planning, monitoring and documentation is on line. The smooth and efficient function of SAIL s marketing is a testimony to this harmonious work culture.

MANAGEMENT OF RECEIVABLES
A Sound managerial control requires proper management of liquid assets and inventory. When the firm sells its products and services and does not receive cash for it immediately, the firm is said to have granted trade credit to customers. Trade credit thus creates receivables or book debts which the firm is expected to collect in near future. The purpose of maintaining or investment in receivables is to meet competition and to increase the sales and profit.

Objectives of Receivables Management.

a. To take a sound decision as regards to investment in debtors

b. To promote sales and profit until that point is reached where the return on investment in future funding of receivables is less than the cost funds raised to finance that additional credit.

Management of Receivables in Bhilai Steel Plant

Managing the receivables is basically done by Corporate office and the Central Marketing Organization directly deals with it. The major part of receivables is managed by CMO and the minor part relating to the plant is dealt at the Bhilai Steel Plant. The minor part consists of the recovery of the direct sales of defectives and by products and employee related matters. In most of the cases the due month is 1 month and only in the case of exemployees money is not recovered as the final payment are only due. Mostly the whole of sundry debtors and the 3rd party and debtors like CISF, IT and shopkeepers. The shop keepers are the ones to whom the BSP quarters and shops are

given from whom the money is recovered and that too the credit given is one month s credit. In case of interest which are basically got from house building advances given where 1 month recovery is done. Other debtors are the claims which cannot be controlled. These are got as per the negotiations with the party for freight, raw materials etc.

Sundry Creditors
The creditors are managed at plant level only. Mostly the creditors comprises of contractors to whom payments are to be given and the capital works. This is basically done as per terms and conditions with the respective parties. In the case of small scale industries it is done with in 30 days if the dues are above 1 lakh. There is also a scheme of Earnest Money Deposit for the registered small industries. The scheme allows to have a security deposit which is refundable at the contract. In case of statutory payments i.e. the Income Tax, Sale Tax, Excise Tax one month due is there. The account of receivables are prepared quarterly on estimated basic and finally prepared on the closing date.

Ex- Employees
When the final payment is to be made, it is only done after the file reaches the department as per the individual case. Major chunk is from statutory liabilities which are repaid as per i.e. one month due is given.

Credit Note Facility

According to this facility no outflow of money from the department is made and as such the material is also lifted. Therefore with the facility of credit note we are able to manage funds without actual outflow of cash but through material. Thus we can say that management of receivables in Bhilai Steel Plant is done on minor basis and the major work of managing it is done in the corporate office.

FINANCE DEPARTMENT OF BHILAI STEEL PLANT

Finance Department of BSP is subdivided into various sections. These sections are independently responsible for the duties assigned to them. The major sections are:-

Cash:
This section is responsible for the cost management at the plant. All cash inflows and outflows are managed by this particular section.

Township:
This section is responsible for matters concerning to the township area associated with plant. Township Education and Medical also come under the preview of Township section.

Raw Material Accounts:

This section looks after & everything from the purchase of raw material. This includes maintaining accounts for the raw materials and payment of bill due for the raw material purchased by the plant.

Stores Account:
This section is responsible for accounting of store items and looks after the issue of materials from stores. This section is divided into two:. a. Import Accounts. b. Indigenous Accounts.

a. Import Accounts look after the payment and payment of imported store items.

b. Indigenous Accounts handles only the payments of bills for store items excluding the import items

Sales:
This section is responsible for all sales related matters. This section is further divided into invoicing section, Excise section, sales tax section, Direct sales section and stock ledger. All sections look after their area and the stock ledger section is responsible for accounting of stockyard sales and stock valuation at the end of the year.

Expansion:
This section deals with all the project works and the expansion plans undertaken at Bhilai Steel Plant. This section also prepares the capital budget.

Costing :
This section is responsible for ascertainment of cost of production of various products of produced at Bhilai Steel Plant.

Management Accounting:
This section is responsible for all accounting details. This is done by preparation of various financial reports for providing information to the and middle level management.

Central Accounts:
This section complies of all the accounts including the statutory & legally required statements like accounts manual.

Operation Budget:
This section is responsible for preparation of that to related to the operations.

Provident Fund:
This section is looks after provident fund.

Finance(Mines):
There are three more sections for the captive mines handle the finance requirements of the mines.

CHAPETR 4 OVERVIEW

Overview of W.C. MGT at Bhilai Steel Plant

Working Capital typically means the firms holding of current or short term assets such as cash, receivables, inventory & marketable securities. BSP a major unit of SAIL tries to manage its working capital in the best possible manner.

Forecasting :
The corporate office allocates the funds to various unit of SAIL. The amount of fund required is decided by individual unit during the preparation of operation budget of for the coming year & the amt. is intimated to the corporate office. Cash inflows and outflows are also estimated in the budget. The marketing of all SAIL prime products is done by the Central Marketing Organization and the receipts of sales are directly sent into the Inter Unit Current Account which is centrally controlled by the corporate office and the corporate office allocates the funds as per intimation to individual units. Besides coordinating with Central Marketing Organization, the cash realization is also done by the plant itself through the sale of scrap, defectives & by products.

Monitoring:
In Bhilai Steel Plant, all the three aspects of working capital are monitored separately.

1.Cash:
Cash is monitored every day and intimated to top management as well as fortnightly to the company. The cash report generated daily has all details of cash inflows & outflows. The annual cash budget is again broken into month wise cash budget which tries to estimate the cash inflows & outflows on monthly basis. In the total cash inflow, 12% is from the plant & the rest 88% is from that of Inter Unit Current Account.

2. Inventory:
Inventory is monitored differently for stores, raw materials and finished goods on monthly basis. Every month one report is directly sent to the Chairman through the finance dept. of corporate office known as the 3 rd day report providing the bill details of sales, inventory, working capital position and debtors of the local sales for the previous month. These figures are compared with month wise budgeted figures in this particular report. This report is prepared at plant level. The Production Planning & Control report gives the closing stock of Raw Material and closing stock of finished goods are estimated while preparing the monthly profitability report.

3. Receivables:
The receivables are monitored separately. The major portion of debtors are dealt by the Central Marketing Organization and at the plant level only the debtors concerning the sale of scrap or some of the township debtors are dealt with. As for the creditors, the coal is monitored by corporate office and the individual creditors are monitored by the concerned departments i.e. the Raw Material. Stores & Spares & the Operations accounts department which look after the contracts. In this way the main creditors and debtors are estimated.

To summarize, Working Capital at a plant level of SAIL, mainly involve fore-casting & monitoring of different elements which is done quite systematically. However, decisions regarding borrowing of funds for working capital are done at corporate level. Major portion of Sunday debtors are managed by Central Marketing Organization for all plants & part of Sunday creditors with regard to coal purchase- a major raw material is managed by Central Coal Supply Organization.

CHAPTER 5 RECOMMENDATIONS

RECOMMENDATIONS
Here are some recommendations for improving the working capital health of BSP some of them are implied from the ratio analysis and others are taken from the restructuring plan of SAIL.

1. To further improve the state of liquidation, BSP should increase its liquid assets by maximizing of sales revenue by manufacture and sales of value added products.

2. Cost of sales should be reduced to some extent.

3. Co-Ordination between CMO and plant should be improved. The plant be made well aware about the sale proceeds taking place of their products in right time, currently it is done in one month lag.

4. Though SAIL has online system of data flow but there is need to improve in data updatation especially with regard to credit sales and credit purchase of different CMO branches and regions.

5. Although coaking coal, iron ore and other raw materials for steel industry are natural resources and are necessary, yet BSP and all other steel manufacturing co. should be cautious while the intensive use of these natural resources. They all together should think and develop the alternatives of these raw materials in steel making process.

6. ERP package should be installed.

BIBLIOGRAPHY

BOOKS
The following books have been the source of information. 1. Financial Management by M.Y.Khan and S.P. Jain. 2. Financial Management by Prasana Chandra 3. Financial Management Analysis by John N. Myer. 4. Annual Reports of B.S.P. , TISCO & SAIL. 5. SAIL News.

WEBSITES
The other websites which have been useful are:
www.studyfinance.com en.wikipedia.org www.informationforaccountants.com www.investopedia.com www.qfinance.com www.studyfinance.com www.taxmann.com