WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES

LTD.

PREFACE
The report has been intended to reflect some of
the basic issues covered under the “Working Capital
Management” of Hindalco Industries Ltd., a first truly
MNC in India. All the aspects have been formulated
and presented on the basis of the ideas and
information gathered by the investigator during the
span of project training. This gives a practical
exposure of the content under topic, what has already
been studied in classroom in theoretical form.

This report has been written in response to

comprehensive study
conducted on the topic. The reports mentions and
evaluates various aspects, pertaining to the working
capital management of the company.

After a thorough analysis of various facts and

stand figures, a set of conclusion has been given the
prime considerations, while compiling the report and
are authoritative and authentic.

We make sure that anyone who goes through

the report will learn how much we have learnt so for,
and can get the benefit of the same.

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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ACKNOWLEDGEMENT
In an organization, be it an industry, a school or society,
no outcomes can be achieved by one man working in
isolation. It’s always a group working and achieving the
outcome in totality. It is the outcome of all the guidance and
support that I received from this organization.
I would take this opportunity to acknowledge a debt of deep
gratitude to many people for their valuable assistance and
continuous support during the course of my Summer
Internship Program.
We convey our sincere thanks to Mr. S. K. Das,
General Manager (Training) for allowing us to pursue
summer training in this prestigious organization.
We are also thankful to Mr. Ajay Joshi, Vice President
(Finance & Account), and other members of the accounts
department for providing necessary help whenever required
for the completion of the project.
We are thankful to our guide Mr. Vimal Raheja, for his
valuable guidance and his precious time he devoted for
mentoring us, without which this project would not have
been successful.
We are also thankful to the librarian for allowing us
access to valuable journals and reports which gave life-blood
to our project.
Last, but not the least, we would like to thank our
institute for providing us an opportunity to work with such a
prestigious organization.

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WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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KAMLESHWAR POKHRAIL
(NEW DELHI INSTITUTE OF MANAGEMENT)
VIKRAM SINGH
(NEW DELHI INSTITUTE OF MANAGEMENT)
RANA PRATAP SINGH
INSTITUTE OF MANAGEMENT TECHNOLOGY
GAYASUDDIN
R. R. INSTITUTE OF MODERN TECHNOLOGY

Hindalco Industries Pvt. Ltd.

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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Mr. G. D. Birla and Mr. Aditya Birla, Our

founding fathers.
We live by their values.
Integrity, Commitment, Passion, Seamlessness
and Speed.

Table of Content
Chairman’s Foreword 6
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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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Profile of the company

 Introduction 7
 History 8

 Vision, Mission & Values 10

 Awards and Recognitions 12
Product Profile
• Indian Roots 14
• Joint Venture 15
• International Companies 15
• Aluminium 18
• Copper 19
• Mines 20
• Production Capacity 21
• Share Of Net Sales 22
Structure of Finance Department 24
Management Team 25
Accounting policy 27

Working Capital
 Current Assets 32
 Current Liabilities 33
 Purpose Of Working Capital 33
 Classification of Working Capital 34
 Gross Working Capital 35
 Net Working Capital 35
 Permanent Working Capital 35
 Temporary Working Capital 36
 Working Capital Cycle 37
 Trade Off Between Profitability & Risks 38
 Determinants of Working Capital at Hindalco 39
 Estimating Working Capital Requirement
 Estimation of component of WC 42
 Percentage of Sales method 44

 Working Capital Finance 45

 WC Financing at Hindalco 51
 Statement Working Capital 52

Ratio Analysis
 Liquidity Ratio 54
 Leverage Ratio 57

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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 Turnover Ratio 61
 Profitability Ratio 65

Conclusion 72
References 73

CHAIRMAN’S FOREWORD

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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“Time and again, the supremacy of the human

element cannot be over emphasized. The success
of failure of an organization depends on people, on
human beings, on their talent, on their initiative,
on their ability to lead and coordinate with others,
to work as a team. It also depends on the ability of
the organization, to motivate them to greater
heights.

We carry forth this vision of the

people.”

(KUMAR MANGALAM BIRLA)

PROFILE OF THE COMPANY

Introduction
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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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The Aditya Birla group is India’s first truly multinational

corporation with global in vision and rooted in India’s value. The group
is driven by a performance ethic pegged on value creation for its
multiple stake holders. A US $29.2 billion corporation, the Aditya
Birla Group is in the league of Fortune 500. It is anchored by an
extraordinary force of 130,000 employees, belonging to 30
different nationalities. A premium conglomerate, the Aditya Birla
Group is a dominant player in all of the sectors in which it operates.
Such as viscose staple fiber, non-ferrous metals, cement, viscose
filament yarn, branded apparel, carbon black, chemicals, fertilizers,
sponge iron, insulators and financial services.
In India the Group has been adjudged “The Best Employer in India
and among the top 20 in Asia" by the Hewitt-Economic Times and
Wall Street Journal Study 2007. Over 50% of its revenues flow
from its overseas operations.
The Group operates in 25 countries — India, UK, Germany,
Hungary, Brazil, Italy, France, Luxembourg, Switzerland,
Australia, USA, Canada, Egypt, China, Thailand, Laos,
Indonesia, Philippines, Dubai, Singapore, Myanmar,
Bangladesh, Vietnam, Malaysia and Korea.
The foundation stone of the Aditya Birla Group was laid
down by the great visionary and the founding father of Indian Industry
Late. Shri Ghanshyam Das Birla. The success ion torch was
successfully carried on by his son, Late. Shri Basant Kumar Birla.
In the year 1943, Aditya Vikram Birla, the man behind the Birla
Empire was born. It was A. V. Birla who made the Birla group
everywhere. In the words of A. V. Birla:
“Density beckons that we do something that we continue to
create not just for our country, but globally. Not just for today but for
prosperity as well.”
Very early in his carrier, long before the word Globalization came
into or everyday lexicon, he had foreseen the winds of the change and
stacked the future of his business on a competitive, b free market
driven economic order. At a time when India’s economy was glued with
bureaucracy and taped with controls, his was a rather lone voice. But it
was a voice that not only spoke, but also acted decisively and with
conviction.
A.V. Birla (as he was popularly known) translated his
words into outstanding accomplishments. He thrived on challenges and
possessed a great vision. His perseverance enabled him to succeed
against all odds. His numerous qualities inspired those who were
associated with him. He always believed in teamwork. He died on 1st
October 1995 leaving behind Birla Empire. Kumar Manglam Birla, son
of Late. A. V. Birla took over the charges as the Chairman of the group.

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Kumar Manglam Birla, a Chartered Accountant, and an M.B.A from
Harvard University, is the chairman of the Aditya Birla Group which
includes a number of companies within and outside the country.

History
1958
Incorporation of Hindalco Industries Limited.

1962
Commencement of production at Renukoot (Uttar Pradesh) with an
initial capacity of 20,000 MTPA of aluminum metal and 40,000 MTPA of
alumina.

1965
Downstream capacities commissioned (rolling and extrusion mills at
Renukoot).

1967
Commission of Renusagar Power Plant- a strategic and farsighted
move.

1991
Beginning of major expansion programme.

1995
Mr. Kumar Mangalam Birla takes over as chairman of Indal board.

1998
Foil Plant at Silvassa goes on stream.
Hindalco attains ISO 14001 EMS certification.

1999
Aluminium alloy wheels production commenced at Silvassa.
Brownfield expansion of metal capacity at Renukoot to 242,000 TPA.

2000
Acquisition in controlling stake in Indian Aluminium Company Limited
(Indal) with 74.6% equity holding.

2002
The amalgamation of Indo Gulf Corporation Limited copper business,
with Birla Copper, with Hindalco with the effect of 1st April 2002.

2003
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Hindalco acquires Nifty Copper Mine in March 2003 through Aditya
Birla Minerals Ltd. (ABML, formally Birla Minerals Pvt. Ltd.)
ABML acquires the Mount Gordon Copper Mines in November 2003.
Equity stake in Indal increased to 96.5% through an open offer.
Brownfield expansion of aluminium smelter at Renukoot to 345,000
TPA.

2004
Copper smelter expansion to 2,50,000 TPA

2005
All business of Indal, except for the Kollur Foil Plant in Andhra Pardesh,
merged with Hindalco Industries Ltd.
MoUs signed with state government of Orissa and Jharkhand for setting
up Greenfield alumina refining, smelter and power plant.
Commissioned Copper III expansion, taking capacity to 5,00,000 TPA.

2006
Hindalco announces 10:1 stock split. Each share with face value of Rs.
10 per share split into 10 shares of Re. 1 each.
Hindalco completes largest Right issue in the history of Indian capital
market with total size of Rs.22,266 million.
Equity offering and subsequent listing of Aditya Birla Minerals Ltd. on
Australia Stock Exchange.
Signed an MoU with the Government of Madhya Pradesh for Greenfield
aluminium smelter in Siddhi district of the state.
Joint venture with Almex USA for manufacture of high strength
aluminium alloys for application in aerospace , sporting goods and
surface transport industries.

2007
Successful acquisition of Novelis, making Hindalco the largest in
aluminium rolling and among the global top five metals major, with a
presence in 11 countries outside India.
Acquisition of Alcan’s 45% equity stake in the Utkal Alumina project,
thereby making Hindalco the 100% project owner.

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VISION, MISSION & VALUES

VISION
To be a premium metals major, global in size and reach, excelling in
everything we do, and creating value for its stakeholders.

MISSION
To relentlessly pursue the creation of superior shareholder value, by
exceeding customer expectation profitably, unleashing employee
potential, while being a responsible corporate citizen, adhering to our
values.

VALUES

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AWARDS AND RECOGNITIONS

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 International Asia pacific quality award, Asia

pacific quality organization in 2009.

 Green tech gold award for environment, Green

tech. foundation, New Delhi 2009.

 Golden Peacock Environment Management

award, Institute of Directors, 2009.

 IMC Ram Krishna Bajaj National Quality Award

Trophy, Indian merchant’s Chamber Ram Krishna
National Quality Award Trust, Mumbai, 2008.

 Golden Peacock National Quality Award, institute

of directors, 2008.

 Green tech gold award for environment, Green

tech. foundation, New Delhi 2008.

 Hindalco won the prestigious “D.L. Shah National

Award for Economics of Quality given by Quality
Council of India, presented by President of India, Hon.
Dr. A.P.J. Abdul Kalam, on 9 February 2007.

 National Energy Conservation Award -2006 was

presented by the ministry of power, Government of
India.

 Hindalco Hirakud Complex earned the Pollution

Control Appreciation Award presented by the Orissa
state Pollution Control Board.

 The IT department of Hindalco received

prestigious IT certificate BSI15000 (IT services), ISO
9001Software Development) and BS7799 (Information
security). Hindalco’s Renukoot IT functions is the first
in the group as well as in India to be recommended
for all these certification in an integrated manner.

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 The Company’s fabrication plant’s hot mill team

won the prestigious Qualtch Award for their project
“reduction of time in work role change in time.”

 Hindalco, Renukoot has won the National Award

for Excellence in Water Management 2006 organized
by CII.

 Hindalco Hirakud Power Plant team bagged

second prize at the state level CII Orissa Award 2006
for best practices in environment, safety and health.

 Hindalco Hirakud, s Quality Circle ‘jagruti’

bagged national level honors at the 20th National
Convection of Quality Circles, organized by quality
Circle Forum of India.

 Hirakud Power Plant team received the State

Safety Award 2006 for their act of bravery in saving
lives and preventive a disaster by their proactive
initiative to arrest the chlorine leakage at the railway
Colony in Sambalpur.

 Renukoot Complex named the winner of National

Safety Award 2005 for the second consecutive year.

 Bauxite and coal mines, in all regions (Jharkhand,

Maharashtra,
Chhattisgarh and Orissa) have won a host of award in
safety, environment, pollution control and overall
performance during the Mines Safety Week.

 “ICWAI National Award for Excellence in Cost

Management -2005” presented by the Institute of
Cost and Work Accountants of India.

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Product Profile
Indian Roots

COMPANY PRODUCTS/SERVICES
GRASIM Viscose staple fiber,
Rayon grade pulp,
cement, Chemicals,
Sponge iron, Textiles.
ULTRA TECH CEMENT LTD. Ordinary Portland Cement,
Portland blast furnace
slag cement, Portland
pozzolana cement and
grey Portland cement.
SHREE DIGVIJAY CEMENT Cement and Clinker
HINDALCO INDUSTRIES LTD. Aluminium and copper
INDIAN ALUMINIUM Aluminium foil
COMPANY LTD.
BIHAR CAUSTIC AND Caustic soda
CHEMICALS LTD.
ADITYA BIRLA NUVO Garments, Viscous
filament yarn, Carbon
Black, Textiles
IDEA CELLULAR LTD. Cellular
Telecommunication
ADITYA BIRLA INSULATOR Insulators
LTD.
BIRLA SUN LIFE INSURANCE Insurance
CO. LTD.
BIRLA SUN LIFE ASSET Mutual Funds
MANAGEMENT COMPANT
LTD.
TANFAC INDUSTRIES LTD. Fluorine Chemicals
BIRLA SUN LIFE Investment Planning
DISTRIBUTION COMPANY Services
LTD.
PSI DATA SYSTEMS Application development,
Maintenance &
Enhancement Solutions
TRANS WORKS Customer Relationship

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Management (CRM)
services (inbound &
outbound)
BIRLA GLOBAL FINANCE LTD. Asset-based finance,
corporate finance and
investment banking
BIRLA INSURANCE ADVISORY Non-life Insurance
SERVICES LTD. Advisory Services
ADTYA BIRLA RETAIL Multi-Format Stores
HI-TECH CARBON Carbon Black
MADURA GARMENTS Garments

Joint Venture

COMPANY PARTNERS PRODUCTS

Birla Sun Life Sun Life (CANADA) Insurance

Insurance Solutions
Company Ltd.
Tanfac (TIDCO) Tamil Nadu Fluorine
Industries Ltd. Industrial Development
Corporation
Birla Sun life Sun Life (CANADA) Mutual Funds
Asset
Management
Company Ltd.
Birla Sun Life Sun Life (CANADA) Investment
Distribution Planning
Company Ltd. Solution

International companies

Thailand
• Thai Rayon
• Indo Thai Synthetics
• Thai Acrylic fiber
• Thai Carbon Black
• Aditya Birla Chemicals (Thailand) Ltd.
• Thai Peroxide

Philippines
• Indo Phil Textile Mills

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• Indo Phil Cotton Mills
• Indo Phil Acrylic Mfg. Corp.
• Pan Century Surfactant Inc.

Indonesia
• PT Indo Bharat Rayon
• PT Elegant Textile Industry
• PT sunrise Bumi Textile
• PT Indo Liberty Textile
• PT Indo Raya Kimia
• Egypt
• Alexandria Carbon Black Company S.A.E
• Alexandria Fiber Company S.A.E

China
• Liaoning Birla Carbon
• Birla Jingwei fiber Company Ltd.
• Aditya Birla Grasun Chemical (Fangchenggang) Ltd.

Canada
• AV Cell Inc.
• Av Nakawick Inc.

Australia
• Aditya Birla Minerals Ltd.

Laos
• Birla Laos Pulp and Paper Plantation Company Ltd.
• North and South America, Europe and Asia
• Novelis Inc.

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HINDALCO’S PRODUCT PROFILE

• Hindalco is a leading domestic player in two metal business

segments Aluminium & Copper.
• The Aluminium division’s product range includes alumina
chemicals, primary aluminum ingots, and billets, wire
rods, rolled products, extrusions, foils and alloy wheels.
• This company has significant market share in all the segments in
which it operates. It enjoys domestic market share of 42% in
primary aluminum, 63% in rolled products, 20% in
extrusions, 44% in foils & 31% wheels.
• As a step towards expanding the market for value-added
products and services, Hindalco has launched several brands in
recent years, which include Aura for alloy wheels, Freshwrapp
for kitchen foils and ever last for roofing sheets. Our exclusive
showroom, the aluminum gallery, seeks to promote Hindalco
products to its customers. It is a platform for the company to
showcase quality products to a quality audience in an
appropriate ambience. The exhibits include products like
windows, doors, furniture’s, ladders, roofing sheets & ceilings
&cladding panels.
• Hindalco’s products are well received not only in the domestic
market but also in the international market. The company’s
metal is accepted for delivery under the high-grade aluminum
contract on the LONDON METAL EXCHANGE (LME). The
company exports about 17% of its total sales volume of
aluminum.
• The company’s alumina chemical business is a leader in
manufacturing and marketing of specialty alumina and
alumina hydrate products in the country. These specialty
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products find wide range in diversified industries including water
treatment chemicals, refractories, ceramics, croyloite, glass,
fillers & plastics, conveyor belts and cables, among others. The
company also exports these alumina chemicals to over 30
countries covering North America, Western Europe & the Asian
region.
• Birla copper, Hindalco’s copper division at Dahej in Gujarat,
enjoys a leadership position in India, having built over 40% of the
domestic market shares within 3 years it’s commissioning.
• It has also made successful forays in to the export markets of the
Middle East, Southeast Asia, China, Korea and Taiwan.
• The Copper plant produces world-class copper cathodes,
continues cast copper rods and precious metals. Sulphuric
acid, phosphoric acid, di-ammonium phosphate, other
phosphoric fertilizers and phosphor-gypsum are also
produced at this plant.

ALUMINUM

• Hindalco is the world’s largest aluminum rolling company and

one of the biggest producers of primary aluminum in Asia. In
India, Hindalco enjoys a leadership position in specialty alumina,
primary aluminum and downstream products.
• Hindalco’s major products include standard and specialty grade
alumina
and hydrates, aluminum ingots, billets, wire rods etc.
• The integrated facility at Renukoot (Uttar Pradesh) houses an
alumina refinery and an aluminum smelter along with facilities
for production of semi-fabricated products, namely, redraw rods,
flat rolled products and extrusions. A co-generation plant and a
770 mw captive power plant at Renusagar to ensure continuous
and consistent supply of power for smelter and other operations
back the plant.
• Other facilities include an aluminum smelter at Hirakud
(Orissa) with a captive power plant, alumina refineries at
Muri (Jharkhand) and Belgaum (Karnataka) and rolling
mills at Belur (west Bengal) and Taloja, Mouda
(Maharashtra) etc. The foil plant at Kollur, Andhra Pradesh
is the only remaining entity with the erstwhile Indal after the
merger of Indal with Hindalco.

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• The aluminum alloy wheels plant is located at Silvassa
(Dadar and Nagar Haveli). Hindalco was among the first few
alloy wheels companies to have obtained the ISO/TS 16949
certification to meet the stringent standard of the automobile
industry. All Hindalco units are ISO 9001:2000 and 14001
certified, and several have attained the OHSAS 18001 – the
occupational health and safety certification.
• The company has two R&D centers: the Belgaum Research
and Development center in Taloja, Maharashtra. These have
been recognized by the government of India’s Department of
Scientific and Industrial Research (DSIR).
• A strong presence across the value chain and synergies in
operations have been given Hindalco a dominant share of the
domestic value-added products market. In India, the company
enjoys a leadership position in specialty alumina and hydrates as
well as primary aluminum and downstream semi-fabricated
products. As a step towards expanding the market for value-
added products and services, Hindalco has launched several
brands in recent years. These include the Aura aluminum Alloy
wheels for cars, ever last roofing sheets & Freshwrapp and
Freshpakk household foils for packaging.
• Apart from being a dominant player in the domestic market,
Hindalco’s products are well accepted in international markets.
Exports account for more than 20% of total sales of aluminum
products.

UTKAL ALUMINA INTERNATIONAL

LIMITED, ORRISA

A Rs.44 billion ($1 billion) Greenfield joint venture with

Alcan Inc. of Canada in which Hindalco holds 55 % equity. The
proposed 1.5 million-tone alumina refinery is to be set up in
Doragurha, Rayagada district of Orissa, sourcing Bauxite from
the rich reserves of Baphlimali in Rayagada.

MADHYA PRADESH
A Rs. 77 billion ($ 1.7 Billion) project for a smelter-power
complex in the Siddhi district of Madhya Pradesh. Aluminum
smelter capacity of 325,000 TPA supported by a 750 mw coal

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based captive power plant. The coal for the power plant will be
sourced from Mahan Coal Company ltd., a joint venture
between Hindalco and Essar Group for mining of coal from the
Mahan Coal block.

JHARKAND
A Rs. 78 billion ($1.7billion) project for a smelter-power complex
in the Latehar district. Aluminum smelter capacity of 325,000
TPA supported by captive thermal power of 750 mw.

COPPER
Hindalco’s Birla Copper unit at Dahej in Gujarat is the world’s
largest single location custom copper smelter with 500,000
TPA capacities. The plant is backed by captive power plants,
oxygen plants, as also by product facilities for the fertilizers and
precious metals. A captive jetty with cargo handling capacity of over
4 million TPA facilities easy input of copper concentrate and other
imported raw material.

In 2005, the Dahej copper plant was accredited with OHSAS-

18001 certification by KPMG, Netherland.

Unlike aluminum, India has limited proven copper reserves. Hence,

Birla copper sources copper concentrate from various countries,
including Australia, and Indonesia and South America. The division
also owns two copper mines in Australia- Birla Nifty Pvt. Ltd.
In Western Australia and Birla Mount Gordon Pvt. Ltd. In
Queensland through its 51 % subsidiary – Aditya Birla Minerals
Ltd. Copper concentrates are imported through a captive jetty at
Dahej.

The copper business segment comprises primarily production

(through copper smelting, converting, and refining) and sale of
copper, in the form of cathodes and continuous cast rods and by-
products, precious metals (gold, silver, selenium and platinum
group mix) and DAP and NPK complexes, as well as operating jetty
services and other logistical activities related to sales and
distribution of products. Power is generated for in house use.

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Revenues are derived primarily from the sale of copper, DAP and
NKP complexes and precious metals.
Hindalco Birla copper cathodes is a trusted brand, known for
high purity(99.99%) and consistent quality, these are largely
used in the manufacture of copper rods for the wire and cable
industry, and copper tubes for consumer durable Goods.

Effective 30th Jan. 2003, the London metal exchange had

listed Birla copper as A grade copper brand. Birla copper is an
ISO 9001 company and has also received the ISO 14001 and
OSHAS 18001 certification.

The Precious Metal Refinery at Dahej produces gold, silver and

selenium. The residues after extraction of these precious metals
contain traces of platinum and palladium that are sold as Platinum
Group Metals mix, commonly known as PGM.

MINES

Two copper mines in Australia were acquired in 2003. Birla Nifty

mine consist of an open- pit mine, heap leach pads and a solvent
extraction and electro winning (SEXW) processing plant, which
produces copper cathodes. Birla Nifty’s copper cathodes capacity is
25,000 TPA.

A copper sulphide deposit is located at the lower levels of the Nifty

open pit mine and an underground mine and concentrator have
been developed to mine & process ore from this deposit. The Nifty
sulphide operation commenced ore production from stopping in
December 2005 and concentrate production in March 2006. With
the start up of the NIFTY sulphide operation and its progressive
ramp up during FY 2007, Aditya Birla Minerals (ABML) is entering a
period of rapid growth is continues in nature.

Birla Mt. Gordon operations consist of Mammoth underground and

Esperanza open pit mines it has ability to produce both coppers in
concentrate through a standard floatation plant and copper
cathodes through a ferric leach plant.

Aditya Birla Minerals Limited (ABML) also has exploration rights in

the Patterson province of Western Australia, framed for its rich
copper ore deposits.

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PRODUCTION CAPACITY

Division Capacity Location

700,000 TPA
Alumina Chemicals 1,160,000 TPA (Renukoot)
110,000 TPA
(Muri)
350,000 TPA
(Belgaum)
373,000 TPA
Primary Aluminium 489,000 TPA (Renukoot)
102000 TPA
(Hirakud)
14000 TPA
(Alupuram)

Extrusion 19,700 TPA

27,700 TPA (Renukoot)
8,000 TPA
(Alupuram)

80000 TPA
Rolled Product 2,00,000 TPA (Renukoot)
30000 TPA
(Mouda)
45000 TPA (Belur
& Taloja)
40000 TPA
Wire rods 64000 TPA (Renukoot)
10000 TPA
(Alupuram)
14400 TPA
( Mouda)

Aluminium foils 11000 TPA Silvassa

Aluminium wheels 300,000pcs Silvassa

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Renukoot
Power 1087.2 MW Renusagar
Hirakud

Copper cathodes 5,00,000 TPA Dahej

Share of Net Sales Value 2007-08

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STRUCTURE OF FINANCE DEPARTMENT

JOINT
EXECUTIVE
PRESIDENT
(FINANCE &

VICE
PRESIDENT
(FINANCE &
GENERAL
MANAGER

MANAGER

DEPUTY
MANAGER

ASSISTANT
MANAGER

ACCOUNT
OFFICER
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ASSISTANT
A/C OFFICER

SR.
ASSISTANT

ASSISTANT
MANAGEMENT TEAM

BOARD OF DIRECTORS
Mr. Kumar Manglam Birla, Chairman
Mrs. Rajashree Birla
Mr. A. K. Agarwala
Mr. C. M. Maniar
Mr. E. B. Desai
Mr. S. S. Kothari
Mr. M. M. Bhagat
Mr. K. N. Bhandari
Mr. N. J. Jhaveri

EXECUTIVE DIRECTOR
Mr. Debu Bhattacharya, Managing Director

CHIEF FINANCIAL OFFICER

Mr. S. Talukdar, Group Executive President & CFO

ADVISOR
Mr. R.K. Kasliwal

CORPORATE
Mr. R. Ram Senior President (Corporate Project)
Mr. Vineet Kaul, Chief People Officer

COMPANY SECRETARY
Mr. Anil Malik

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KEY EXECUTIVES

ALUMINIUM BUSINESS
Mr. Shashi K. Maudgal, Chief Marketing Officer (Primary Metal,
Rolled Products, Extrusions)
Mr. Vinod Sood , Joint President Chemicals & International
Trade
Mr. S.M. Bhatia, President (Foil & Alloy Wheels)
Mr. R. S. Dhulkhed, President (Operations)
Mr. Anil Kumar Sinha, President (Human Resource)
Mr. Shankar Ray, President (Business Projects)

RENUKOOT UNIT
Mr. D.K. Kohly, Chief Officer – Operations, Renukoot
Mr. Ashok Machher, Joint Executive President (F & C)
Mr. Vijay Sapra, Vice-President Alumina Plant
Mr. G. M. Pandey, Unit Head (Renusagar Power Division)

Aditya Aluminium
Mr. S. N. Botha, CEO
Mr. S. N. Jena, Chief Operating Officer

Copper Business
Mr. Dilip Gaur, Group Executive President
Mr. Shambhu Sharma, President & Chief Operating Officer
Mr. N. M. Patnaik, Joint President (Finance and Commercial)
Mr. J. P. Paliwal, Joint Executive President (Commercial)
Mr. B. M. Sharma, Chief Marketing Officer

Auditors
Singhi & Co., Kolkatta

Cost Auditors
R. Nanabhoy & Co., Mumbai
Mani & Co., Kolkatta

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Accounting Policy
1. Accounting Convention

The financial statements are prepared under the historical cost

convention, on an accrual basis and in accordance with the generally
accepted accounting principles in India, the applicable mandatory
Accounting Standards as notified by the Companies (Accounting Standard)
Rules, 2006 and the relevant provisions of the Companies Act, 1956 of
India.

2. Use of Estimates

The preparation of financial statements require estimates and

assumptions to be made that affect the reported amount of assets and
liabilities on the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Difference
between the actual results and estimates are recognized in the period
in which the results are known / materialized.

3. Fixed Assets

(a) Tangible Assets are stated at cost less accumulated depreciation

and impairment loss, if any. Cost comprises of purchase price and any
attributable cost of bringing the assets to its working condition for
its intended use.

(b) Intangible Assets are stated at cost less accumulated amortization.

Cost includes any directly attributable expenditure on making the asset
ready for its intended use.

(c) Machinery spares which can be used only in connection with an item
of Fixed Asset and whose use is not of regular nature are written off
over the estimated useful life of the relevant asset.

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4. Depreciation and Amortization

(a) Depreciation on Tangible Fixed Assets has been provided using

Straight Line Method at the rates and manner prescribed under Schedule
VI of Companies Act,1956 of India.

(b) Mining Rights and leasehold land are amortized over the period of
lease on straightline basis.

(c) Intangible assets are amortized over their estimated useful lives
on straight line basis.

5. Impairment

An asset is treated as impaired when the carrying cost of the asset

exceeds its recoverable value being higher of value in use and net
selling price. Value in use is computed at net present value of cash
flow expected over the balance useful life of the assets. An impairment
loss is recognized as an expense in the Profit and Loss Account in the
year in which an asset is identified as impaired. The impairment loss
recognized in prior accounting period is reversed if there has been an
improvement in recoverable amount.

6. Leases

Lease payments under an operating lease are recognized as expense in

the statement of profit and loss account as per terms of lease
agreement.

7. Investments

(a) Long term Investments are carried at cost after deducting

provision, if any, for diminution in value considered to be other than
temporary in nature.

(b) Current investments are stated at lower of cost and fair value.

8. Inventories

(a) Inventories of stores and spare parts are valued at or below cost
after providing for cost of obsolescence and other anticipated losses,
wherever considered necessary.

(b) Inventories of items other than those stated above are valued ‘A t
cost or Net Realizable Value,whichever is lower’. Cost is generally

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determined on weighted average cost basis and wherever required,
appropriate overheads are taken into account. Net Realizable Value is
the estimated selling price in the ordinary course of business less the
estimated cost of completion and the estimated costs necessary to make
the sale.

(c) Materials and other supplies held for use in the production of
inventories are not written down below cost if the finished products in
which they will be incorporated are expected to be sold at or above
cost.

10. Employee benefits

Employee benefits of short-term nature are recognized as expense as and

when it accrues. Long term employee benefits (e.g. long-service leave)
and post employments benefits (e.g. gratuity), both funded and
unfunded, are recognized as expense based on actuarial valuation at
year end using the Projected unit credit method. Actuarial gain and
losses are recognized immediately in the Profit & Loss account.

11. Employee Stock Option Scheme

In respect of stock option granted pursuant to the company’s stock

option schemes, the intrinsic value of the options (excess of market
price of the share over the exercise price of the option) is treated as
employee compensation cost and is charged over the vesting period of
the option.

12. Revenue Recognition

Sales revenue is recognized on transfer of significant risk and rewards

of the ownership of the goods to the buyer and stated at net of trade
discount and rebates. Dividend income on investments is accounted for
when the right to receive the payment is established. Export incentive,
certain insurance, railway and other claims where quantum of accruals
can not be ascertained with reasonable certainty, are accounted on
acceptance basis.

13. Borrowing Cost

Borrowing costs directly attributable to the acquisition or

construction of qualifying assets are capitalized. Other borrowing
costs are recognized as expenses in the period in which they are
incurred. In determining the amount of borrowing costs eligible for
capitalization during a period, any income earned on the temporary

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investment of those borrowings is deducted from the borrowing costs
incurred.

14. Taxation

Provision for current income tax is made in accordance with the

Income-tax Act, 1961. Deferred tax liabilities and assets are
recognized at substantively enacted tax rates, subject to the
consideration of prudence, on timing difference, being the difference
between taxable income and accounting income that originate in one
period and are capable of reversal in one or more subsequent periods.
Fringe benefit tax (FBT) is accounted for on the estimated value of
fringe benefits for the period as per the related provisions of the
Income-tax Act.

15. Derivative Instruments

(a) Risks associated with fluctuations in the price of the Company’s

products (copper, alumina, aluminium and precious metals) are minimized
by hedging on futures market. The results of metal hedging contracts /transactions
are recorded at their settlement as part of raw material
cost or sales as the case may be. Portion of the cash flow to the
extent of underlying physical transactions having not been completed is
carried in Raw Materials Inventory till the completion of the
underlying physical transaction.

(b) The Company uses derivative financial instruments such as forward

exchange contracts and currency swaps and options to hedge its risks
associated with foreign currency fluctuations.In respect of
transactions covered by Forward Exchange Contracts, the difference
between the forward rate and the exchange rate at the inception of
contract is recognized as income or expense over the life of the
contract.

(c) Transactions covered by cross currency swap and option contracts to

be settled on future dates are recognized at the year end rates of the
underlying foreign currency. Effects arising out of swap contracts are
adjusted on the date of settlement.

16. Research and Development

Expenditure incurred during research phase is charged to revenue when

no intangible asset arises from such research. Assets procured for
research and development activities are generally capitalized.

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17. Government Grants

Government Grants are recognized when there is a reasonable assurance

that the same will be received. Revenue grants are recognized in the
Profit and Loss Account. Capital grants relating to specific fixed
assets are reduced from the gross value of the respective fixed assets.
Other capital grants are credited to Capital Reserve.

18. Provisions, Contingent Liabilities and Contingent Assets

Provision is recognized when there is a present obligation as a result

of a past event that probably requires an outflow of resources and a
reliable estimate can be made of the amount of the obligation.
Disclosure for contingent liability is made when there is a possible
obligation or a present obligation that may, but probably will not,
require an outflow of resources. No provision is recognized or
disclosure for contingent liability is made when there is a possible
obligation or a present obligation and the likelihood of outflow of
resources is remote. Contingent Asset is neither recognized nor
disclosed in the financial statements.

(a) The provision for excise duty and sales tax are on account of legal
matters, where the Company anticipates probable outflow. The amount of
provision is estimated by the Company considering the facts and
circumstances of each case for which cash flow will be determined on
settlement of these matters.

(b) Provision for others is on account of dispute pertaining to

non-supply of material to a customer. (III) The Company has given
undertakings to various Financial Institutions and Banks, as relevant,
for- i) Non disposal of equity shares of Aditya Birla Chemicals (India)
Limited (Formerly known as, Bihar

Caustic & Chemicals Ltd) till the Institutional Loans are repaid in
full in addition to finance the cost over run, if any, in respect of an
on-going project of the Company for which the loan has been taken.

ii) Non disposal of equity shares of IDEA Cellular Ltd. till the
Institutional loans are repaid in full.

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WORKING CAPITAL

Working capital refers to the amount of capital which is readily

available to an organization. It is required for day-to-day operations, or
more specifically, for financing the conversion of raw material into
finished goods. Among the most important items of Working Capital
are levels of inventory, accounts receivable and accounts payable. In
simple words, Working Capital refers to that part of the firm’s capital,
which is required for financing short- term or current assets such as
cash, marketable securities, debtors and inventories.

WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES

Funds are also needed for short-term purposes, for the purpose
of raw materials, payment of wages and other day-to-day expenses,
etc. These funds are known as Working Capital. Working capital is also
known as Operating Capitals.
In a department’s statement of financial position, these components of
working capital are reported under the following headings:

CURRENT ASSETS:
This is any cash or asset that can be quickly converted into cash. This
includes prepaid expenses, account receivables, most securities and
your inventory.
• Liquid Assets (cash and bank deposits)
• Bill Receivables
• Sundry Debtors (Less provision for bad debts)
• Short terms Loans & Advances
• Inventories of stocks
 Raw Material
 Work in Process
 Stores and Spares
 Finished Goods
 Coal & Fuel
 Temporary Investments of Surplus Funds
 Prepaid Expenses
 Accrued Income

Characteristics of current assets:

In the management of working capital two characteristics of current
assets must be in born in mind.
 Short Life Span

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 Swift Transformation into other assets forms.
Current assets have a short life span. Cash balance may be held idle
for a week or account receivables may have a life span of 30 to 60
days, and investments may be held for 30 to 100 days. The life of
current assets depends upon the time required in the activities of
procurement, production, sales and collections and degree of
synchronization among them. Each current asset is used for acquiring
raw material, raw materials are transformed in to finished goods,
finished goods generally sold on credit or cash.

Current liabilities:
Current Liabilities are those claims of outsiders which are expected to mature for
payment within the accounting year. This is a liability in the immediate future.
• Bank Overdraft
• Bills Payables
• Sundry Creditors or Accounts Payable
• Short Term Loans, Advances & Deposits
• Dividend Payable
• Provision for Taxation, if it is does not amount to appropriation of
profits.
• Other short term liabilities

Purpose of working capital

• For the purchase of raw materials, components and spares.
• To incur day-to-day expenses and overheads costs such as fuel,
power etc.
• To meet the selling cost as packaging, advertising etc.
• To provide credit facility to the customers.
• To maintain the inventories of raw materials, work-in –progress,
stores and
spares and finished goods.
• To pay wages and salaries.

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Reserve
WC

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CLASSIFICATION OF WORKING CAPITAL

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ON THE BASIS OF CONCEPT

There are two concepts of working capital –
• Gross Working Capital
• Net Working Capital

GROSS WORKING CAPITAL

Gross working capital refers to the firm’s investment in current
assets. Current assets are assets, which can be converted into cash
within an accounting year. The main components of current assets are
cash, debtors, marketable securities and stock.
The Gross Working Capital concept focuses attention on two aspects of
current assets management.
• Optimum investment in current assets.
• Financing of current assets.

NET WORKING CAPITAL

Net working capital refers to the difference 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. It can be positive or negative. It is a qualitative
concept. It indicates the liquidity position of the firm and suggest the
extent to which working capital needs may be financed by permanent
source of funds such as shares, debentures, long term debts etc. It
concerns the question of judicial mix of long and short-term funds for
financing current assets. In order to protect their interests, short-term
creditors like a company to maintain a positive NWC. Conventionally
the ratio of CA and CL is 2:1. A negative NWC means a negative
liquidity, which may prove to be harmful to company, reputation. It
poses a threat on the company’s solvency and makes it unsafe and
unsound.

ON THE BASIS OF TIME

On the basis of time it may be classified as:
• Permanent Working Capital
• Temporary Working Capital

Permanent Working Capital

Permanent or fixed working capital is the minimum amount,
which is required to ensure effective utilization of fixed facilities and
for maintaining the circulation of current assets. There is always a
minimum level of current assets which is continuously required by the
enterprise to carry out normal business operation. Every firm has to
maintain a minimum level of raw material, WIP, finished goods and
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cash balance. This minimum level of current assets is called Permanent
or Fixed Working Capital as this part of capital is permanently blocked
in current assets.

TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary working capital is the extra WC needed to support the
changing production and sales activity. Temporary working capital
depends upon the changes in production and sales, over and above
permanent working capital. It represents additional assets required at
different items during the operation of the year.

Temporary current assets financed

from short term sources

Total assets

Permanent Current Assets

Fixed Assets Long term Finance

0
Time

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WORKING CAPITAL CYCLE

Working capital cycle indicates the length of time between a company’s paying
for materials, entering into stock and receiving the cash from sales of finished
goods. It can be determined by adding the number of days required for each
stage in the cycle. For example, Hindalco Company holds raw-material on an
average for 120 days; it gets credit from supplier for 30 days, production process
needs 30 days, finished goods for held for 60 days and credit extended to debtor.
The total of all these, 240days, i.e., 120+30+30+60days is the total working
capital cycle. The determination of working capital cycle helps in the forecast,
control and management of working capital. The duration of working capital cycle
may vary depending on the nature of business.
The operation cycle (working capital) consists of the following events, which
continue throughout the life of business.
 Conversion of cash into raw materials;
 Conversion of raw materials into work –in-progress;
 Conversion of work-in-progress into finished goods;
 Conversion of account receivables into cash; and
 Conversion of finished goods stock into account receivables through
sales.

Cash

Debtors Raw Materials,

(Receivable) Labor, Overheads

Finished Work-in-progress
Goods

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Trade-off between Profitability and Risk

In evaluating the firm’s working capital position an important
consideration is the trade-off between profitability and risk. In other
words the level of NWC has a bearing on profitability as well as risk.
The term profitability use in the context is measured by profit after
expenses. The term risk is defined as the profitability that a firm will
become technically insolvent so that it will not able to meet its
obligation when they due for payment. It is assured that greater the
amount of NWC, the less risk prone the firm is, or greater the NWC the
more liquid is the firm and therefore the less likely it to become
technically insolvent. Conversely lower level of NWC and liquidity are
associated with increasing level of risk.
A firm must have adequate WORKING CAPITAL. It should neither be
excessive nor inadequate. Excessive WC means the firm has idle
funds, which earn no profit for the firm. This situation decreases both
risk and profitability of the firm. Inadequate W.C. means the firm does
not have sufficient fund for running its operations, which ultimately
results in production interruptions, and lowering down the profitability.
Lower level of WC increase the risk but have the potentiality of
increasing the profitability also.

Effect of quantum Current Assets on Profitability & Risk:-

If we want to know effect of level of current assets at profitability, for
that we check the ratio of CA/TA. If the ratio is high then profitability is
minimum and risk is also minimum. If the ratio of CA/TA is lower than
profitability is high as well as risk is high.

Effect of quantum Current Liability at the Profitability and Risk:-

The effect of current liability at the profitability and risk can be shown
by the ratio of CL/TA. If this ratio is low then profitability is high and
risk is low. If this ratio is high then profitability is low and risk is high.

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Determinants of Working Capital at Hindalco

Nature of Business

Company business is manufacturing of Aluminum and aluminum product so this

firm needed –
A good amount of investment in working capital. Hindalco’s investment in
working capital are as follows:

Current Asset = 7,739.91

Total Assets = 17016.51
CA to TA Ratio = (CA×100)/TA
= (7739.91*100)/17016.51
= 31.19
NWC = CA-CL
= 7739.91 – 1868.91
= 5871.00

NET WORKING CAPITAL TO TOTAL ASSETS RATIO

= (NWC×100)/TA
= (5871.00 * 100)/17061.51

=34.50% High
level of investment in working capital due to a lot of investment in raw materials
like Bauxite, Coal, Fuel, Work –in- progress and stores of finished goods.

Production Cycle
Production cycle is concern with procurement of raw materials to the
completion of manufacturing process leading to the production of
finished goods. Funds have to be necessarily ties up during the process
of manufacturing necessitating enhanced to working capital. The
longer time span production cycle will be longer, fund will be tie up for
a longer span of time, therefore larger working capital needed.

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The production cycle of Hindalco Industries Ltd. is near about 30 days.
It breaks up in following ways:
Raw material Storage period = 21 days
Work-in-progress period = 05 days
Finished Goods storage period = 04 days

Total = 30 days

Business Cycle
Fluctuations in economy or business may lead quantum of working
capital. There are two economic conditions, which affect quantum of
working capital –
(1)If there is boom condition in economy, due to purchase of
additional raw material and machinery to complete the
increasing demand of product and for the cover the lag between
sales and receipt of cash, more working capital will be needed.
(2)If there is recession condition in economy it leads a fall in the
quantum of working capital, due to decrease in level of
inventories and book of debts.
Note: - This situation will also follow for the Hindalco Industries.

Production Policy
A production policy is also determining the quantum of working capital.
Production policy may be of two types –
(1)Speedy production policy
(2)Variable production policy

In case of Hindalco demand for aluminum and aluminum product

manufactured by Hindalco is prevailing throughout the year. The
company produce primary product continuously and semi products and
extrusions are produced as the order of customers. So there is no
question of seasonal demand of product, hence production continues
throughout the year thereby no extra working capital is involved.

Credit Policy
Credit policy is relating to sales and purchase of product, which also
affect the working capital. The policies influence the requirements for
the working capital in two ways –
(1)Through credit terms granted to customers/ buyer of goods
I. If give more credit to customer/ buyer, then needed more
working capital

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II. If give less credit to customer/ buyer, then needed less
working capital
(2)Credit terms available to a firm
I. If this is liberal then needed less working capital.
II. If this is not liberal then needed more working capital.

The prevailing trade policies are as well as the changing economic

condition affect the credit terms fixed by an enterprise. In Hindalco
credit period as follows:

Buyers Product (Primary) Product (Semi

fabricated)
Direct Customer Nil 45 days
Agent/ Stockiest 15 days 45 days

Credit period
received as
Raw materials 15- 30 days
Stores and spares 30 days

Growth and Expansion

Growth and Diversification of business call for larger volume of working
fund. The need for increased working capital does not follow the
growth of business operation but precedes it. Working capital need is
in fact assessed in advance in reference to the business plan.

Availability of Raw Material

If availability of raw material is irregular then a larger amount of
working capital is needed because a lot of amount invested in the raw
material for the smooth production process and vice-versa.

Profit Level
In the Hindalco maximum working capital is arranged by the internal
source. So the change in profit level is not affected by the working
capital level.

Price Level Change

Changes in the price level also affect the requirement of working
capital. Rising price necessitates the use of more funds for maintaining
the existing level of activity. However the price rise does not have
uniform affect on all commodities.
The implication of changing price level on working capital position
varies from company to company depending on nature of its
operations, standing in the market and their relevant considerations.

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Change in the price level of crude oil also make a deep impact on
working capital of Indian industries, so it’s also affect the working
capital of Hindalco Industries.

Operating Efficiency
The operating efficiency of the management is also an important
determinant of the level of working capital, though management
cannot control rise in price, it can ensure the efficient utilization of
recourses by eliminating waste, improving co-ordination etc. Efficiency
of operations accelerates the pace of cash cycle and improves the
working capital turnover.

Estimating Working Capital Requirement

There is no set of rules or formula to determine working capital
requirements of the firm. The Quantum of working capital requirement
of a company largely depends upon aforesaid factors. A finance
manager in order to estimate the working capital requirement of the
firm has to keep in mind few factors. Besides, he can apply any of the
following techniques for assessing working capital requirement –
1. Estimation of component of working capital
2. Percentage of sales method
3. Operating Cycle approach.

Estimation of component of working capital

Since working capital is the excess of current assets over current
liability, estimating amount of different constituents of working capital
can make an assessment of the working capital requirement. For
example inventories, account receivables, cash account payable etc.
Inventories: The term inventories include stock of raw materials, work-
in-progress and finished goods. The estimation of each of these as
follow –

I. Stock of raw materials: The average amount of raw

material to be kept in stock will depend upon quantity of
raw material required for production during in a
particular period and average time taken in obtaining a
fresh delivery. Suitable adjustment may have to be
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made provide for in contingency and seasonal factor. It
can be calculated by following formula:

Budgeted Production ×Material Cost × Raw Material holdings period

p.a. (Units) (Per Unit) (Month or days)

12 months or 365 days

II. Work-in-progress: The cost of work-in-progress includes

raw materials, wages and other overheads in
determining the amount of work-in-progress the time
period for which goods will be in process, is most
important. Work-in-progress is normally equivalent is
50% of total cost of production. Symbolically

Budgeted production ×Cost of material 100% ×WIP period

p.a (Unit) (Per Unit) (Months or days)

12 or 365 days

Finished goods - The period for which finished goods have to remain in
the warehouse before is an important factor determining the amount
locked up in finished goods. It is summed up as:

Budget Production × Cost of goods produced × Finished goods holding

period
(Unit) excluded Dep. (Per Unit) (Months or
days)

12 or 365 days

Sundry debtors: The amount of funds locked up in sundry debtors will

be computed on basis of credit sales and time lag in collection
payment. It should be estimated in relation to total cost price as
follows: -

Budgeted credit sales × Cost of sales × Average collection

period
(Units) Excl. Dep. (Per Unit) (Months or days)

12or 365 days

1. Cash and Bank Balance: The required cash balance can be

determined with the help of preparation of cash budget. Proper
cash budget should be prepared and continuous monitoring of

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the same is required. It should be kept in view that cash balance
are the most liquid asset and temporary cash surplus should be
properly invested in short term marketable investments to
maximize the return on capital employed. For meeting the day to
day expenses it is necessary to maintain certain amount of cash
balance for smooth flow of operation.

2. Sundry Creditors: The lag in payment of suppliers of raw

materials, goods etc. and the likely credit purchases made during
the to help in estimating the amount of creditors –

Budgeted Creditors × Raw material requirement × Credit period

allowed by suppliers
(Units) (Units) (Months or days)

12 or 365 days

Outstanding Expenses: The time lag in payment of wages and

other expenses will help in estimating amount of outstanding expenses
as follows

Budgeted production × labor & Oh. Cost × Time lag in payment of

Exp.
(Units) (Per Unit) (Months or days)

12 or 365 days

Percentage of Sales Method

It is a traditional and simple method of determining the level of
working capital and its components. In this method, working capital is
determined on the basis of past experience. If, over the years, the
relationship between sales and working capital is found to be stable,
then this relationship may be taken as a base for determining the
working capital for future. This method is simple, easy to understand
and useful for projecting relatively short-term changes in working
capital. However, this method cannot be recommended for universal
application because the assumption of linear relationship between
sales and working capital may not hold well in all cases.
For example, if the past experience show that working capital has been
30% of sales and if sales for the next year would amount to
Rs.1,00,000, the amount of working capital can be estimated to Rs.
30,000 the basic criticism of this method is that its presumes a linear
relationship between sales and working capital. This is neither true in
all cases nor the method is universally accepted.

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Items Rs in millions % Of sales

Net Sales 192,010.27
Inventories 40701.4 21.00
Sundry Debtors 12012.2 0.60
Cash and Bank Balances 8437.2 0.40
Other Current Assets 517.8 0.03
Loans and advances 15730.5 0.81
Total 77399.1 40.03
Less:
Liabilities 18689.1 0.97
Provisions 8031.6 0.42
Total 26720.7 1.39
Net Current assets 50678.4 2.64

Miscellaneous Expenditure 60 --

Analysis: -
From this method we can conclude the data, how much working capital
(in percentage) Hindalco needs in next year. This helps to control the
working capital level. This is an important aspect to control the cost of
finished goods through reduce the cost of inventories.

Working Capital Finance

After determination the quantum of working capital the firm has to
decide how it is to be financed. The need for financing arises mainly
because investment in working capital/ current assets, i.e. Raw
materials, WIP, finished goods and receivables critically fluctuates
during the year. Although long-term fund partly finance current assets
and provide the margin money for working capital, such assets/
working capital is virtually exclusively supported by sort term sources.
The working capital requirement of concern can be classified as:
 Permanent or Long-term working capital requirements
 Temporary or Short-term working capital requirements

Financing of Permanent or Long-term working capital

 Permanent working capital should be financed in such a manner
that the enterprise may have its uninterrupted use for a

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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sufficiently long period. There are five important sources of
working capital:
 Share
 Debenture
 Public Deposit
 Ploughing back of profits
 Loan from financial institutions

Shares
A company can issue various types of shares such as equity shares,
preference shares, and deferred shares. According to the Companies
Act 1956, however a public company cannot issue deferred shares.
Preference shares carry preferential rights in respect of dividend at a
fix rate and in regard to the repayment of capital at the time of
winding of the company. Equity shares do not have any fixed
commitment charged and dividend on these shares to be paid subject
to the availability of sufficient profits. As for the possible a company
should raise the maximum amount of permanent capital by the issue
of shares.

Debenture
A debenture is an instrument issued by the company. It is also an
important method of raising long term or permanent working capital.
The debenture holder is the creditor of the company, fix rate of
interest paid on debenture. The interest on debenture is against profit
and loss account. The debentures are generally given floating charge
on the assets of the company. When the debentures are secure they
are paid on priority to other creditors.

Public Deposit
Public deposit is the fixed deposit accepted by a business enterprise
directly from the public. This is source of short term financing.

Ploughing Back of Profits

Ploughing back of profits means the reinvestment by concern of its
surplus earnings in its business. It is an internal source of finance and
is most suitable for an established firm for its expansion modernization
and replacement etc. this method of finance has a number of
advantages as it is the cheapest rather than cost free source of
finance.

Loan from Financial Institutions

Financial institution is such as Commercial Bank, L.I.C., Industrial
Finance Corporation of India, State Financial Corporation, State

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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Industrial development corporations, Industrial Development
Corporation of India etc. These institutions also provide medium-term
and short-term loans. This source of finance is more suitable to meet
the medium-term demand of working capital.

Financing of Temporary or Short-term Financing

• Trade credit
• Bank Credit
• Factoring and commercial paper

Trade credit
Trade credit refers to the credit extended by the suppliers of goods
and services in the normal course of business sales of the firm
according to the trade practices, cash is not paid immediately for
purchase that after and agreed period of time. Thus deferral of
payment represents a source of finance for credit purchases.
Features of Trade Credit
• Trade credit is an informal arrangement between buyer and
seller.
• There are no legal instrument/acknowledgements of debt, which
are granted an open account basis. Such credit appears in the record
of buyer as sundry creditor/ account payable.
• A variant of accounts payable is bills/ notes payables. It
represents documentary evidence of credit purchases.
• Bills payable can be rediscounted and the seller does not
necessarily have to hold it till maturity to receive payment.
• Bills payable create a legally enforceable on the buyer to pay on
maturity obligation.
• The availability and magnitude of trade credit is related to the
size of operation of the firm in terms of sales and purchases.

Advantages
• Trade credit is easily almost automatically available.
• It is flexible and spontaneous source of finance.
• Trade credit is an informal source of finance.
• Not requiring negotiations and formal agreement, credit is free
from the restriction associated with formal/-negotiated source of
finance/ credit.

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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Bank Credit
Bank credit is primary institutional source of working capital finance in
India. In fact, it represents the most important source for financing of
current assets.

Forms of bank credit

Bank provides working capital finance in five ways –
• Cash credit/ overdrafts
• Loans
• Purchase and discount bills
• Letter of Credit
• Working capital term loans

• Cash credit/ overdrafts: Under this the bank specifies a

predetermined borrowing/ credit limit. The borrower can draw up to
the stipulated credit/overdrafts limit. Within the specified limit any
numbers of drawls/drawing are possible to the extent of his
requirement periodically. Similarly the payment can be made when
ever desired during the period. The interest is determined on the basis
of the running balance accentually utilized by the borrowers and not on
the sanctioned limit. This form of bank financing of working capital is
highly attractive to the borrower because:
• It is flexible in that although borrowed funds repayable on the
demands
• The borrower has freedom to draw the amount in advance as
and when required while the interest liabilities only on the amount
actually outstanding.

• Loans: Under these arrangements the entire amount of

borrowing is credited to the current account of the borrower or
released on cash. The borrower pays interest on the total amount.
Loans are repayable on demand or in periodic installments. They can
also be renewed from time to time.

• Bills Purchased/ discounted: The cash credit arrangement give

rise to the unhealthily practices. It also leads to double financing. For
example, buying goods on credit from supplier raising cash credit from
by hypothecating the same goods. The bill financing is intended to link
credit with sale and package of goods and thus eliminates the cope for
misuse or diversion of credit to other purpose.

The amount made available under this arrangement is covered by the

cash credit and over draft limit. Before discounting the bill, the bank
satisfied itself about the credit worthiness of drawer and the

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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genuineness of the bill. The discounting banker asks the drawer of the
bill to have his bill accepted by the drawer (buyer) bank before
discounting it. The later grant accepting again the cash credit limit,
earlier fixed by it on basis of borrowing value of stocks. Therefore the
buyer who buys goods on credit cannot issue the same goods as a
source of obtaining additional bank credit.

• Term Loan of working capital: Under this arrangement bank

advance loans for 3-7 years payable to yearly or half yearly
installments.

• Letter of Credit: This is an indirect form of working capital

financing and a bank assumes only the risk, the credit being provided
by supplier itself. The purchaser of goods on credit obtains the letter of
credit from a bank. The bank undertakes the responsibility to make
payment to the suppliers in cash the buyer fails to meet his
obligations. Thus, the modus operandi of letter of credit is the supplier
sell goods on credit/ extend credit (financed) to the purchased, the
bank give guarantee and bears risk only in case of default by the
purchaser.

Modes of Security
Banks provide credit on the basis of following modes of securities –
I. Hypothecation
II. Pledge
III. Lien
IV. Mortgage
V. Charge

1. Hypothecation: Under this bank provide credit to borrower against

security of movable property usually inventory of goods. Although the
bank does not have physical possession of goods, it has legal right to
sell the goods to realize the outstanding loan.

2. Pledge: Unlike hypothecation under pledge the goods are in the

custody of bank the borrower offers the security is called a ‘Pawnor’,
while the bank is called ‘Pawnee’, the Pawnor would be responsible for
any loss or damage if he uses the pledge goods for his own purpose. In
case of non-payment of lone, the bank enjoys right to sales the goods.

3. Lien: It refers to the right of a party to retain goods belonging to

other party until a debt due to him is paid. It can be of two types –
 Particular Lien
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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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 General Lien

4. Mortgage: It is the transfer of interest in any immovable property

for the purpose of securing the amount given as loan.

5. Charge: Where immoveable property of one person is by the act

of party or by the operation of law need security for payment of money
to another and the transaction does not amount to mortgage, the later
person is said to have a charge on the property and all the provision of
simple mortgage will apply to such a charge.

Commercial Papers
Commercial paper is short term unsecured negotiable instrument,
consisting of promissory notes with affix maturity, it is issued on a
discount on face value basis but it can also be issued in interest
bearing form commercial paper when issued by a company directly to
the investor is called a direct paper. The companies announce current
rates of commercial papers of various maturities, and investors select
those maturities, which closely approximate there holding period.

Advantages:
A commercial paper has several advantages for both the issuers and
the investor as follows:
 It is simple instrument and hardly involves any documentation.
 It is flexible in term of maturity, which can be tailored to match
the cash flow of the issuer.
 The investor can get higher returns than what they can get from
the banking system.
 As negotiable and transferable instruments, they are highly
liquid.

Factoring
Factoring provide resource to finance receivables as well as facilities
the collection of receivable. Factoring can be defined as an
arrangement in which receivables arising out of sale of goods/ service
or sold by a firm to a factor (a financial intermediary). Henceforth the
factor becomes responsible for all credit, sales accounting and debt
collection from the buyers. If any of the debtors fails to pay the dues as
a result of his financial inability/insolvency/ bankruptcy, the factor has
to absorb the losses.

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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Mechanism
Realization of credit sales is the main function of factoring services.
The factor work between sellers and buyers and sometimes with the
sellers banks together.
Functions:
The main function of the factor can be classified into five categories –
• Financing facilities/ Trade debts
• Maintenance/ administration of sales ledger
• Collection facilities of account receivables
• Assumption of credit risk/ credit control and credit restrictions
• Provision of advisory services
Advantages:
• Impact on balance sheet
• Off balance sheet financing
• Reduction in current liabilities
• Improvement in current ratio
• Higher credit standing
• Improved efficiency
• More time for planning and production
• Reduction of cost and expenses
• Additional source.

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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Working Capital Financing at Hindalco

In Hindalco working capital requirement is finance basically through
following sources –
• Internal funds
• Short term securities and interest thereon
• Bank loan

(1) An internal fund denotes the funds generated through operation of

the firm i.e., through sales turnover. This is major source of financing
working capital requirement of the firm.
(2) On account of uncertainties attached with generation of funds
through sales, the company has invested in several short-term
securities to meets its day-to-day requirements of funds. The maturity
of these securities is from source of financing WCR.

Hindalco has Short-term Investment in:

 Debenture of HPCL.
 Unit of UTI, HDFC, ICICI, IDBI, Franklin Templeton Funds, Birla
Mutual Funds, GIC Mutual funds and Alliance Mutual Funds, DSP
Merrill Lynch Mutual Funds, Standard Chartered Mutual Funds,
Zurich India Mutual Funds.
The total current investment of the company at the year ended
31.03.08 amount to Rs. 40,508.81 Lacs.
Besides above, the company has various credit arrangements with
banks to finance the daily WCR. These are of following types:
 Cash credit
 Purchase/ discounting of bills
 Working capital term loan
 Letter of credit

Cash Credit
The Company has cash credit facilities with various banks. The
administrative of this is done at the principal office at Renukoot.
However, it’s Regional and Area offices are authorized to utilize the
cash credit facilities up to the limit described by the principal office.

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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Purchase/ Discounting of Bills
The company also purchases and discounts the bills issued by its
customers to meet the daily requirements.

Working Capital Term Loan

Letter of Credit
The company’s Export/ Import operations are done through LOC.

Statement of Working Capital

As per financial records of Hindalco Industries Ltd up to 31st March

2009.

Rs. in million
Particulars 2004 2005 2006 2007 2008 2009
(A) Current
Assets
Inventories 11,913.43 23,745.18 40,950.88 43,153.14 50,979.06 40701.4
Sundry 5,611.13 7,873.67 12,484.01 15,045.02 15,650.22 12012.2
Debtors
Cash & 2,279.02 4,009.69 9,172.85 6,655.96 1,469.77 8437.2
Bank
Balance
Other C.A. 236.42 422.22 2,447.34 1,188.08 623.04 517.8
Loan & 8,822.57 8,713.49 7,972.41 11,742.20 9,794.60 15730.5
advances
Total 28,862.57 44,764.25 73,027.49 77,783.40 78,516.69 77399.1

(B) Current
Liabilities
Liabilities 8,963.95 16,782.95 21,995.62 27,527.44 28,947.79 18689.1
Provisions 1,573.23 8,398.98 9,531.66 12,841.41 9,060.09 8031.6
Total 10,537.18 25,181.93 31,527.28 40,368.85 38,007.88 26720.7

Working 18,325.39 19,582.32 41,500.21 37,414.55 40,508.81 50678.4

Capital
Increase/ 1,256.93 21,917.89 (4,085.66) 3,094.26 1016.96
(Decrease)
W.C.

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WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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ChartTitle
90,000.00
80,000.00
70,000.00
60,000.00
50,000.00 Current Assets
40,000.00 Current Liability
30,000.00 WorkingCapital
20,000.00
10,000.00
-
1 2 3 4 5

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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RATIO ANALYSIS
A Ratio is a quotient of two numbers and the relation expressed
between two accounting figures is known as accounting ratio. Ratio
analysis is a very powerful analytical tool useful for measuring
performance of an organization. Ration analysis concentrates on the
interrelationship among the figures appearing in the financial
statements. Ratio analysis facilitates the presentation of the
information of financial statement in simplified, concise and
summarized from ratio are the systematic numerical calculation of the
relationship of one fact with other to measure the profitability,
operational efficiency and financial soundness of the business. The
ratio analysis helps the management to analyze the past performance
of the firm and to make further projection. Ratio analysis allows
interested parties like shareholders, investors, creditors etc. to make
an evaluation of certain aspects of the firm’s performance. Ratio
analysis is a process of comparison of one figure against another,
which make a ratio. The calculation of ratio is a relatively easy and
simple task but the proper analysis and interpretation of the ratio can
be made only by the skilled analyst.
Ratios normally pinpoint a business firm’s strengths and weakness in
two ways:
 Ratio provide an easy way to compare present performance with
past.

 Ratios depict the areas in which a particular business is

competitively advantaged or disadvantaged through comparing
ratio to those of other businesses of the same size within the
same industry.

The following ratio may be calculated for the purpose of analyzing the
working capital of Hindalco:
 Liquidity Ratio

 Leverage Ratio

 Turnover Ratio

 Profitability Ratio

Liquidity Ratio

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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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Liquidity is defined as the ability to realize value in money, the most
liquid of assets. It refers to the ability to pay in cash, the obligation
that are due. The corporate liquidity has two dimension viz.,
quantitative and qualitative concepts. The quantitative aspect includes
the quantum, structure and utilization of liquid assets and in the
qualitative aspects, it is the ability to meet all present and potential
demands on cash from any source in a manner that minimizes cost
and maximizes the value of the firm.

Current Ratio
This ratio measures the solvency of the company in the short term.
Current assets are those assets which can be converted into cash
within a year. Current liabilities and provisions are those liabilities that
are payable within a year. A current ratio of 2:1 indicates a highly
solvent position. A current ratio of 1.33:1 is considered by banks as the
minimum acceptable level for providing working capital finance.

Current Assets
Current Ratio =
Current Liability

Year Current Assets Current Liability Ratio(CA/CL)

2004 28,862.57 10,537.18 2.74
2005 44,764.25 25,181.93 1.78
2006 73,027.49 31,527.28 2.32
2007 77,783.40 40,368.85 1.93
2008 78,516.69 38,007.88 2.07

Current Ratio for the Year

2004-2008
3
2
1
im
s
eT

0 Ratio(CA/CL)
1 2 3 4 5

Year

Interpretation
The ideal current ratio is 2: 1. Hence the liquidity position of the
Hindalco for the three years (2004, 06, & 08) is gone well and

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satisfactory. In year 2005 and 2007 the current ratio is 1.78 and 1.93
which is unsatisfactory for Hindalco.

Quick Ratio
Quick ratio is used as a measure of the company’s ability to meet its
current obligations. Since bank overdraft is secured by the inventories,
the other current asset must be sufficient to meet other current
liabilities.

Liquid Assets
Quick Ratio =
Current Liability

Liquid Asset = Current Assets- Inventories

Year Liquid Assets Current Liability Ratio(LA/CL)

2004 16,949.14 10,537.18 1.61
2005 21,019.07 25,181.93 0.83
2006 32,076.61 31,527.28 1.02
2007 34,630.26 40,368.85 0.86
2008 27,537.63 38,007.88 0.72

Quick Ratio for the Year

2004-2008
2.00
1.50
1.00
im
s
eT

0.50
Ratio(CA/CL)
-
1 2 3 4 5

Year

Interpretation
The ideal liquidity Ratio is 1. Hence, Liquidity position of Hindalco for
two years is quite satisfactory. But, in year 2005, 2007 and 2008, the
quick ratio is 0.83, 0.86 and 0.72 which is not satisfactory figure. This
does not show a good sign for the enterprise because it shows that
company is not able to meet its current liabilities on time.

Cash Ratio
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 WORKING CAPITAL MANAGEMENT OF HINDALCO INDUSTRIES
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Cash ratio is the relationship between cash and current liabilities since
cash is the most liquid asset. Trade investment or marketable
securities are equivalent of cash; therefore, they may be included in
the computation of the cash ratio.
Cash + Marketable Security
Cash Ratio =
Current Liabilities

Year Cash Current Liability Ratio(CMS/CL)

+Marketable
Security
2004 23,698.39 10,537.18 2.25
2005 14,562.42 25,181.93 0.58
2006 21,389.67 31,527.28 0.68
2007 20,183.43 40,368.85 0.50
2008 46,623.40 38,007.88 1.23

Cash Ratio for the Year

2004-2008
2.50
2.00
1.50
1.00
im
s
eT

0.50 Ratio(CMS/CL)
-
1 2 3 4 5

Year

Interpretation
The cash position of the company for the year 2004 and 2008 is
marvellous but if we see for the year 2005, 2006 & 2007 are not good.
This shows that company is not able to meet its current liability but
there is nothing to be worried about the small amount of cash available
with the Industry as in India, firms have credit limits sanctioned from
banks, financial institution and can easily draw cash.

Leverage Ratio
Leverage refers to the use of debt finance. While debt finance is a
cheaper source of finance but it is riskier also. These ratios help in
assessing the risk arising from the use of debt capital. A leverage ratio
reveals the firm’s ability to meet its obligations in long run. The short
term creditor, like bankers and raw material suppliers, are more

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concern with the firm’s current debt paying ability. On the other hand,
long term creditors, like debenture holders, financial institutions etc.
are more concern with the firm’s long term financial strength. In fact, a
firm should have a strong short as well as long term financial position.

Debt Equity Ratio

This ratio indicates the relationship between loan funds and net worth
of the company, which is known as ‘gearing’. If the proportion of debt
to equity is low, a company is said to be low geared, and vice-versa. A
debt-equity ratio of 2:1 is the norm accepted by financial institutions
for financing of projects. Higher debt-equity ratio of 3:1 may be
permitted for highly capital intensive industries like petrochemical,
fertilizer, power etc. The higher the gearing, the more volatile the
return to the shareholders.

Long Term Debt

Debt Equity Ratio =
Shareholders Fund

Year Long –term debt Shareholders Ratio(LTD/SF)

Fund
2004 17,259.35 68,579 0.25
2005 29,523.38 76,665.75 0.39
2006 28,480.47 96,062.52 0.3
2007 64,102.03 124,180.37 0.52
2008 62,054.23 174,358.15 0.36

D e b t E q u ity R a tio fo r th e Y e a r
2 0 0 -42 0 0 8
0.60
0.50
0.40
0.30
Tim

0.20
es

Ratio(LTD/ SF)
0.10
-
1 2 3 4 5

Year

Interpretation

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From the year 2004 to 2008 the debt equity ratio is good, it means
that Hindalco Industries Ltd. has good borrowing power.

Total Assets to Debt Ratio

Total assets to debt equity ratio establishes a relationship between
total assets and total long term debt it measures the safety of margin
available to the providers of long term debt and extend to which debt
is covered by the assets. A higher ratio represents higher security to
lenders for extending long term loans to the business on the other
hand a low ratio represents a risky financial position as it mean that
the business depends heavily on the outside loans for its existence. In
other words, investment by the proprietors is low.
Total Asset
Total Asset to Debt ratio =
Long Term debt

Year Total Assets Long Term Debt Ratio(TA/LTD)

2004 114,713.43 17,259.35 6.65
2005 151,144.66 29,523.38 5.12
2006 188,957.77 28,480.47 6.63
2007 249,399.59 64,102.03 3.89
2008 308,888.61 62,054.23 4.98

Total Assets to Debt Ratio for the Year

2004-2008
7.00
6.00
5.00
4.00
3.00
im
s
eT

2.00 Ratio(TA/LTD)
1.00
-
1 2 3 4 5

Year

Interpretation

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In the FY 2004 to 2008, the ratio reveals that the Hindalco Industry Ltd.
has a good safety margin available to the creditors.

Proprietary Ratio
It expresses the relationship between shareholder’s net worth and total
assets. Reserves earmarked specifically for a particular purpose should
not be included in calculation of net worth. A high proprietary ratio is
indicative of strong financial position of the business. The higher the
ratio, the better it is.

Shareholder Fund
Proprietary Ratio =
Total Assets

Year Shareholder Total Assets Ratio(SF/TA)

Fund
2004 68,579 114,713.43 0.60
2005 76,665.75 151,144.66 0.51
2006 96,062.52 188,957.77 0.51
2007 124,180.37 249,399.59 0.50
2008 174,358.15 308,888.61 0.24

Proprietary Ratio for the Year

2004-2008
0.80
0.60
0.40
im
s
eT

0.20
Ratio(SF/TA)
-
1 2 3 4 5

Year

Interpretation
In the FY 2004- 2008, ratio reveals that the Hindalco Industry Ltd. has
strong financial position for the business.

Equity Ratio
It is the relationship between capital employed and total assets.

Capital Employed
Equity ratio =

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Net Worth

Year Capital Net Worth Ratio(CE/NW)

Employed
2004 104,176.25 68,579 1.52
2005 125,962.73 76,665.78 1.64
2006 157,370.49 96,062.52 1.64
2007 209,030.74 124,180.37 1.68
2008 270,880.73 174,358.15 1.55

Equity Ratio for the year

2004-2008
1.70

1.60
im

1.50
s
eT

Ratio(CE/NW)
1.40
1 2 3 4 5

Year

Interpretation
In the FY 2004 to 2008, the ratios are 1.52, 1.64, 1.64, 1.68 & 1.55
respectively, which shows a consistency in past five years.

Activity or Turnover Ratio

Asset management ratios measure how effectively the firm employs its
resources. These ratios are also called as ‘activity or turnover ratio’
which involve comparison between the level of sales and investments
in various accounts- inventories, debtors, fixed assets etc. Asset
management ratios are used to measure the speed with which various
accounts are converted into sales or cash. Higher turnover ratio
means, better use of resources, which in turn means better profitability
ratio.

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Inventory Turnover Ratio
A considerable amount of a company’s capital may be tied up in the
financing of raw material, work-in-progress and finished goods. It is
important to ensure that the level of stock s is kept as low as possible,
consistent with the need to fulfill customers’ orders in time. The higher
the stock turnover rate or the lower the stock turnover period the
better, although the ratio vary between companies.

Net Sales
Inventory Turnover ratio =
Average Inventory

Year Net Sales Average Ratio(NS/AI)

Inventory
2004 62,083.52 10,967.83 5.66
2005 95,232.51 17,829.31 5.34
2006 113,964.76 32,348.03 3.52
2007 183,129.88 42,052.01 4.35
2008 192,010.27 47,066.10 4.08

Inventory turnover Ratio for the Year

2004-2008
6.00
5.00
4.00
3.00
im

2.00
s
eT

1.00 Ratio(NS/AI)
-
1 2 3 4 5

Year

Interpretation
A high inventory turnover ratio indicates brisk sales. There is
fluctuation in the inventory turnover ratio. Hindalco should pay more
attention to maintain the stability of this ratio.

Debtor Turnover Ratio

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It measures whether the amount of resources tied up in debtors is reasonable
and whether the company has been efficient in converting debtors into cash. The
higher the ratio, the better the position.

Net sales
Debtor turnover ratio =
Sundry Debtor

Year Net Sales Sundry Debtor Ratio(NS/SD)

2004 62,083.52 5,611.13 16.97
2005 95,232.51 7,873.67 7.88
2006 113,964.76 12,484.01 9.13
2007 183,129.88 15,045.02 12.17
2008 192,010.27 15,650.22 12.27

Debtors Turnover Ratio for the Year

2004-2008
20.00
15.00
10.00
im
s
eT

5.00
Ratio(NS/SD)
-
1 2 3 4 5

Year

Interpretation
The higher the ratio it is better for the company and shows the
efficiency of management. The company shows the fluctuating order of
this ratio from the year 2004-2008 but in year 2004 it shows more
satisfactory collection of debt.

Average Collection Period

It establishes the relationship between number of days in a year (360
days) and debtor turnover ratio. The shorter the collection period the
better it is and vice-versa.
360
Average Collection Period =
Debtor turnover Ratio

Year No. of days Debtors Turnover Ratio(360/DTR)

Ratio
2004 360 16.97 21 days

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2005 360 7.88 46 days
2006 360 9.13 39 days
2007 360 12.17 30 days
2008 360 12.27 29 days
Average Collection period for the Year
2004-2008
50
40
30
20
D
s
y
a

10 Ratio(360/DTR)
0
1 2 3 4 5

Year

Interpretation
The Average collection period is approximately one month from 2004
to 2008 except in the FY 2006. One month collection period is short
duration hence, it is good and satisfactory.

Working Capital Turnover Ratio

This ratio indicates the extent of working capital turned over in
achieving sales of the firm. Higher the ratio better it is. But a very high
ratio may indicate over trading- working capital being inadequate for
the scale of operation. It shows the efficiency or inefficiency in the use
of the entire working capital and not merely a part of it viz. capital
invested in stock- it is the whole of the working capital that leads to
sales.
Net Sales
Working Capital Turnover Ratio =
Working Capital

Year Net Sales Working Capital Ratio(NS/WC)

2004 62,083.52 18,325.39 3.39
2005 95,232.51 19,582.32 4.86
2006 113,964.76 41,500.21 2.75
2007 183,129.88 37,144.55 4.93
2008 192,010.27 40,508.81 4.74

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Working Capital Turnover Ratio fot the

Year 2004-2008
6.00
5.00
4.00
3.00
im
s
eT 2.00
1.00 Ratio(NS/WC)
-
1 2 3 4 5

Year

Interpretation
Working Capital turnover ratio in years’ (2004 & 06) is satisfactory
because it is under control but in year 2005, 07 & 08 it was higher. So
profitability of these years is lower than other years.

Profitability Ratio
The purpose of study and analysis of profitability ratios are to help
assessing the adequacy of profit earned by the company and also to
discover whether profitability is increasing or declining. The
profitability ratio shows the combined effects of liquidity, asset
management and debt management on operating results. Profitability
ratio are measured with reference to sale, capital employed, total
asset employed, shareholders fund etc.

Gross Profit Ratio

The gross profit represents the excess of sales proceeds during the
period under observation over their cost, before taking into account
administration, selling and distribution and financing charges.
Gross Profit
Gross Profit Ratio = x100
Net Sales

Year Gross Profit Net Sales Ratio(GPx100/NS)

2004 12,456.69 62,083.52 20%
2005 19,132.86 95,232.51 20%
2006 21,026.75 113,964.76 18%
2007 35,046.25 183,129.88 19%
2008 30,256.06 192,010.27 16%

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Gross Profit Ratio for the Year

2004-2008
25%
20%
15%
10%
5% Ratio(GP*100/NS)
gn
taP
rc
e
0%
1 2 3 4 5

Year

Interpretation
In the FY 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08 the gross
profit ratio are 20%, 20%, 18%, 19% and 16% respectively. It is
continuously decreasing because cost of goods sold is continuously
increasing in the same period. This is not good for the enterprise. As
the raw material consumption has increased, the sale does not
increase with the same proportion.

Net Profit Ratio

The ratio is designed to focus attention on the net profit margin arising
from business operations before interest and tax is deducted. The
convection is to express profit after tax and interest as a percentage of
sales. A drawback is that the percentage which result varies depending
on the source employed to finance business activity, interest is
charged above the line while dividends are deducted below the line.
Net Profit
Net profit Ratio = x100
Net Sales

Year Net Profit Net Sales Ratio(NPx100/NS)

2004 8,389.29 62,083.52 14%
2005 13,293.57 95,232.51 14%
2006 16,555.50 113,964.76 15%
2007 25,643.25 183,129.88 14%
2008 28,609.39 192,010.27 15%

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Net Profit Ratio for the Year

2004-2008
16%
15%
14%
13%
Ratio(NP/NS)
12%
gn
taP
rc
e

1 2 3 4 5

Year

Interpretation
In the FY 2003-04 to 2007-08 net profit ratios are almost constant in
each 5 years. This is because the raw material consumption has
increased, but the sales didn’t increase in the same proportion.

Operating Profit Ratio

It shows the percentage of operating profit earned on the sales. It is
the indicator of overall efficiency of the business. Higher the operating
profits ratio, better the position of the business. It helps in determining
the operational efficiency of the business.

Operating profit
Operating Profit Ratio = x100
Net Sales

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Year Operating Profit Net Sales Ratio(OPx100/NS)

2004 15,003 62,083.52 24%
2005 22,765 95,232.51 24%
2006 26,051 113,964.76 23%
2007 40,150 183,129.88 22%
2008 34,011 192,010.27 18%

Operating Profit Ratio for the Year

2004-2008
30%

20%

10%
Ratio(OP*100/NS)
gn
taP
rc
e

0%
1 2 3 4 5

Year

Interpretation
In the FY 2003-04 to 2007-08 the operating profit ratios are 24%, 24%
23%, 22% and 18% respectively. This shows the operational efficiency
of the enterprise as it keeps on going downward.

Return on Total Asset

The profitability of the firm is measured by establishing relation of net
profit with the total assets of the organization. This ratio indicates the
efficiency of utilization of asset in generating revenue.
Net Profit
Return on Total Assets = x100
Total Assets

Year Net Profit Total Assets Ratio(NPx100/TA)

2004 8,389.29 114,713.43 7%
2005 13,293.57 151,144.66 9%
2006 16,555.50 188,957.77 9%
2007 25,643.25 249,399.59 10%
2008 28,609.39 308,888.61 9%

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Return on Total Assets for the Year

2004-2008
12%
10%
8%
6%
4%
2% ratio(NP/TA)
gn
taP
rc
e

0%
1 2 3 4 5

Year

Interpretation
In the FY 2003-04 to 2007-08 Return on Total assets are7%, 9%, 9%,
10% & 9% respectively. This seems good for the enterprise as the
capital is employed very efficiently.

Return on Investment
This ratio is also called as Return on capital Employed (ROI). The
strategic aim of business enterprise is to earn a return on capital. If in
any particular case, the return in the long-run is not satisfactory, then
the deficiency should be corrected or the activity be abandoned for a
more favorable one.
Net Profit
Return on Investment =
Capital employed

Year Net Profit Capital Ratio(NPx100/CE)

Employed
2004 8,389.29 104,176.25 8%
2005 13,293.57 125,962.73 11%
2006 16,555.50 157,370.49 11%
2007 25,643.25 209,030.74 12%
2008 28,609.39 270,880.73 11%

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Return on Investment for the Year

2004-2008
14%
12%
10%
8%
6%
4% Ratio(NP/CE)
gn
taP
rc
e

2%
0%
1 2 3 4 5

Year

Interpretation
In the FY 2004 to 2008 the ratios are 8%, 11%, 11%, 12% & 11%
respectively. The ratio shows that the sources are being utilized
efficiently.

Return on Equity
This ratio is an important yardstick of performance for equity
shareholders since it indicates the return on the funds employed by
them. However, the measure is based on historical net worth and will
be high for old plants and low for new plants. The factor which
motivates shareholders to invest in a company is the expectation of an
adequate rate of return on their funds and periodically, they want to
assess the rate of return in order to decide whether to continue with
their investment.
Net Profit
Return on Equity = x100
Net Worth

Year Net Profit Net Worth Ratio(NPx100/NW)

2004 8,389.29 68,579 12%
2005 13,293.57 76,665.78 17%
2006 16,555.50 96,062.52 17%
2007 25,643.25 124,180.37 21%
2008 28,609.39 174,358.15 16%

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Return on Equity for the Year

2004-2008
25%
20%
15%
10%
5% Ratio(NP/NW)
gn
taP
rc
e
0%
1 2 3 4 5

Year

Interpretation
From the FY 2003-04 to 2007-08 the ratio reveals that the
shareholder’s funds are being utilized very efficiently year by year.

Earnings per Share (EPS)

The objective of financial management is wealth or value maximization
of a corporate entity. The value is maximized when market price of
equity share is maximized. A higher EPS means better capital
productivity. EPS is one of the major factors affecting the dividend
policy of the firm and the market price of the company. Growth in EPS
is more relevant for pricing of shares from absolute EPS. A steady
growth in EPS year after year indicates a good track of profitability.
Net Profit after Tax
Earnings per Share =
No. Of Equity Shares

Net Profit after

Year Tax and No. of Equity Ratio(NP/No.of
Preference Shares equity share)
Dividend
2004 8,839.29 92,774,797 90.43
2005 13,293.57 92,774,797 143.29
2006 16,555.50 985,628,228 16.80
2007 25,643.25 1,043,508,486 24.57
2008 28,609.39 1,227,130,192 23.31

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EPS for the Year

2004-2008
200.00
150.00
100.00

im
s
eT
50.00 Ratio(NP/No. of
- Equity Shares)

1 2 3 4 5

Year

Interpretation
From the FY 2003-04 to 2007-08, ratios are 90.43, 143.29, 16.80,
24.57 and 23.31 respectively. It is due to increase in net profit. It
seems to be strengthening the shareholders faith to the enterprise.

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CONCLUSION
Hindalco has shown robust top line growth over the past 5 years.
The growth in 2007-08 looks particularly impressive because of the
acquisition of Novelis Inc., a foreign subsidiary, acquired by the
Company on 16.05.2007 through its wholly-owned overseas
subsidiaries. With the acquisition of Novelis, Hindalco has also become
the world’s largest rolling company. Hindalco Industries Limited
has shown a sterling performance. Its net consolidated revenue
registered a quantum leap, touching US$ 15 billion (Rs.60,013
crores), up by 211% and EBITDA at US$ 1.8 billion (Rs.7,291
crores) rose by 50%. Of the revenues, over US$ 12 billion
(Rs.47,000 crores) came from aluminium business while copper
accounted for US$ 3 billion (Rs.12,340 crores).
Hindalco industries ltd. has shown a continuous increment in the
profit from the FY 2005-06 to FY 2007-08. It has good liquidity
position to meet it current dues. It also has good leverage ratios as
it has debt equity of 0.36 in the FY 2007-08, which means Hindalco
industries ltd. has a very good borrowing capacity to meet its long
term financing problems. Turnover ratios are also good which
shows that the resources are being utilized properly. The profitability
ratios are also good, although there are some fluctuations in last 5
years.
To sum up, company recorded a commendable performance in a
very difficult year fraught with several challenges such as- adverse
currency movement, reduced duty protection, acute cost push and
increasing competition. This performance is testimony to the sound
business models of our Aluminium and Copper business, the underlying
strength of business operations and project management capabilities,
stable and capable processes, and successful implementation of a well
thought out strategic plan for quantum growth supported by a strong
balance sheet and robust cash flow from existing operations. Going
forward, the Novelis acquisition as well as the thrust on increasing
value added domestic sales is expected to de-risk the overall business
model and improve predictability and sustainability of profit and cash
flow.
Despite falling alumina prices in the international market,
Hindalco Industries Ltd. was able to maintain high realization largely
because it focuses on specialty business as well as prudent makes of
forward contract and spot sales.
Reducing the raw material conversion period can better control
Inventories.

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REFERENCE

WEBSITES:
Moneycontrol.com
Hindalco.com
Adityabirla.com
Google.com

BOOKS:
Financial Management, I. M Pandey
Financial Management, Prasanna Chandra
Introduction to Financial Accounting, S N Maheshwari

ANNUAL REPORTS:
2008-09 of Hindalco

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