Training Report(cash Management) 2g3d

LOVELY PROFESSIONAL UNIVERSITY DEPARTMENT OF MANAGEMENT Report on Summer Training

[CASH MANGEMENT TECHNIQUES USED BY HAVELLS INDIA LTD.]

Submitted to HAVELLS INDIA LTD. In partial fulfilment of the Requirements for the award of Degree of Master of Business istration

Submitted by:

Gurmeet Singh Regd No. 10905776

DEPARTMENT OF MANAGEMENT

LOVELY PROFESSIONAL UNIVERSITY, PHAGWARA 1|Page

PREFACE Someone has rightly said that practical experience is far better and closer to the real world than mere theoretical exposure. The practical experience helps the student to view the real business world closely, which in turn widely influences his/her perceptions and understanding of the real situation. Finance constitutes the backbone of any business organisation. Every person has to manage finance quite frequently during his entire life span. The research work entitled “Cash Management Technique used by HAVELLS INDIA LTD.” aims to know cash management by Havells. The present report is a part of the project that contains the work done by me during the training period at Havells India Ltd. True to the core, a properly and executed industrial training helps a lot in providing linkage between the student and the industry. It develops the awareness of industrial approach to problem solving based on a board understanding of the mode of operation of industrial organization. This project has offered me an opportunity to put all my efforts and the theoretical knowledge to practice and enhance my knowledge, and at the same time, given me practical experience in the field of s. It is surely going to help me in my future projects too. In the preparation of this report, I have made every effort to ensure that all steps involved in development of this project are adequately covered and the report be completed in it. Any suggestions for improvement, if rendered, will be gratefully accepted. I sincerely hope that this project will prove pure knowledge imparting, through provoking and thus stimulating future research work on these guideline.

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ACKNOWLEDGEMENT I owe a great many thanks to a great many people who helped and ed me during the writing of this book.

My deepest thanks to Ms. Nitika Sehgal [Faculty of lovely school of management] the Guide of the project for guiding and correcting various documents of mine with attention and care. He has taken pain to go through the project and make necessary correction as and when needed.

I express my thanks to the Mr. Sanjay Modi Snr. Dean of, [LOVELY PROFESSIONAL UNIVERSITY & JALANDHAR], for extending his .

My deep sense of gratitude to Mr. Sanjay Johri,[G.M in Finance, Company Secretary, Havells India ltd. ], Mr. Anand kumar [Finance and s, Havells India Ltd.], and guidance. Thanks and appreciation to the helpful people at [HAVELLS INDIA LTD.], for their . I would also thank my Institution and my faculty without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.

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TABLE OF CONTENT PREFACE ACKNOWLEGEMENT

CONTENT

CHAPER NO.

1

EXECUTIVE SUMMARY

2

OBJECTIVE OF STUDY

3

INTRODUCTION TO COMPANY

4

LITERATURE REVIEW

5

RESEARCH METHODOLOGY LIMITATIONS OF THE PROJECT

6

ANALYSIS AND INTERPRETATION

7

FINDINGS AND RECOMMENDATIONS BIBLIOGRAPHY

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PAGE NO.

Abstract Summary Finance constitutes the backbone of any business organisation. Every person has to manage finance quite frequently during his entire life span. The research work entitled “Cash Management Technique used by HAVELLS INDIA LTD.” aims to know cash management by Havells. The present report is a part of the project that contains the work done by me during the training period at Havells India Ltd. Under the study main focus is to put light on the working of the company related to cash management. In this report it has been studied that how company manages its cash by managing its receivable and payables. In order to manage its receivables company uses to give cash discount to its customers. In order to maintain the record of its receivables company is in contract with IDBI bank. Bank also provides factoring service to the company by charging some amount to the company. In order to maintain records of its receivables bank provides the facility of CMS (Cash Management System). In order to reduce the risk arising from the receivables company is incurring cost of collection from debts. Company is paying large amount of money in order to maintain its cash. It has been observed through cash flow statement that major flow of cash is from its operating activities and company is investing its surplus cash for investment purpose which is beneficial for the company’s growth. Company cash requirement and surplus cash is manage by the bank.

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Objectives of Study

§

To Study Cash management of the company.

§

To study cash budgeting technique used by the company.

§

To study factors affecting cash budget of the company.

§

To study bank charges charged by the bank for cash management.

§

To study various services provided by bank to company for cash management.

§

To analyse and give suggestions for better management of cash.

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CHAPTER 3: INTRODUCTION

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Company History 1958: Commenced trading operations in Delhi 1971: Bought HAVELLS Brand 1976: Set up the first manufacturing plant for Rewire able Switches and Changeover Switches at Kirti Nagar, Delhi.

Havells in the year 1976.

1979: 1980:

Set

up

Started

a

manufacturing

manufacturing high

plant

for

HBC

Fuses

quality Energy Meters

at

at

Badli,

Delhi.

Tilak

Nagar,

Delhi.

1983: Acquired Towers and Transformers Ltd. and turned it into a profitably manufacturing Energy Meters company

in

one

year.

1987: Started manufacturing MCBs at Badli, Delhi in a t Venture with Geyer, . 1990: Set up a manufacturing plant at Sahibabad, UP for Changeover Switches. 1993: Set up another manufacturing plant at Faridabad, Haryana for Control Gear Products. 1996: Acquired a manufacturing plant at Alwar, Rajasthan for Power Cables & Wires. Entered into a t venture with Electrum, UK for manufacturing Dorman Smith MCCBs and Crabtree Modular PlateSwitches. 1997: Acquired Electric Control & Switchboards at NOIDA for manufacturing customized packages. 1998: Introduced high-end Ferraris Meters in t Venture with DZG, . 2000: Acquired controlling stake in Duke Arnics Electronics (P) Limited engaged in manufacturing of Electronic Meters-Single Phase, Three Phase, Multi Function, Tri-Vectors. Acquired 8|Page

controlling

interest

in

an

industry

major-Standard

Electricals

Ltd.

2001: Acquired business of Havells Industries Ltd, MCCB of Crabtree India Limited and merged ECS

Limited

in

the

company

to

consolidate

its

area

of

core

competence.

2002: Standard Electrical Company becomes a 100% Subsidiary of the company attained the IEC certification for Industrial switchgear and CSA certification for all manufacturing plants. 2003: Set up manufacturing plant at Baddi (H.P.) for manufacturing of Domestic Switchgear. Set up a manufacturing plant for manufacturing of CFL at existing manufacturing plant in Faridabad,

Haryana.

2004: Set up a manufacturing plant for manufacturing of Ceiling Fans at Noida, UP. Set-up their own marketing office in London through their wholly owned subsidiary company Havells U.K. Ltd. In December 2004, placed 235 fully convertible debentures of Rs. 10 lakhs on M/s. Shine Ltd., Mauritius and the debenture got converted in June, 2006 Attained CE certificate CFLs. 2005: Set up manufacturing plant in Haridwar, Uttaranchal for manufacturing Fans. Awarded the KEMA certification by The Dutch Council for Accreditation, making QRG the only group to attain this certification. Set up of R&D Centre in Noida H.O.

2006: Crabtree India merged with Havells India. Added CFL production unit in Haridwar manufacturing plant. Expansion at Alwar manufacturing plant for increase of production capacity. Expansion at Baddi manufacturing plant and set-up of an Export Oriented Unit. 2006: First Company to get the ISI Certification for complete range of CFLs. Started mid-day meal program at Alwar, Rajasthan caters to 10,000 students from 77 schools. 2007: Set-up of Capacitor manufacturing plant in Noida, UP with the capacity of 6, 00,000 KVAr per month.

Acquired the Lighting business of a Frankfurt based company "Sylvania", a global leader in lighting business and now the company's turnover crosses US$ 1 Billion.

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Company Profile Havells India Ltd. is a billion-dollar-plus organization, and is one of the largest & India's fastest growing electrical and power distribution equipment manufacturer with products ranging from Industrial & Domestic Circuit Protection Switchgear, Cables & Wires, Motors, Fans, Power Capacitors, CFL Lamps, Luminaries for Domestic, Commercial & Industrial applications, Modular Switches, then tire gamut of household, commercial and industrial electrical.

Havells owns some of the prestigious global brands like Crabtree, Sylvania, Concord, Luminance, Linolite , & SLI Lighting. With 91 branches / representative offices and over 8000 professionals in over 50 countries across the globe, the group has achieved rapid success in the past few years. Its 11 state-of-the-art manufacturing plants in India located at Haridwar, Baddi, Noida, Sahibabad, Faridabad, Alwar, Neemrana, and 8 state-of-the-art manufacturing plants located across Europe, Latin America & Africa churn out globally acclaimed products. Havells is a name synonymous with excellence and expertise in the electrical industry. Its 20000 strong global distribution network is prompt to service customers. The company has acquired a number of International certifications, like BASEC, CSA, KEMA, CB, CE, ASTA, A, SEMKO, SIRIUM (Malaysia), SPRING (Singapore), TSE (Turkey), SNI (Indonesia) and EDD (Bahrain) for various products. Today, Havells and its brands have emerged as the preferred choice of electrical products for discerning individuals and industrial consumers both in India and abroad. In an attempt to transform itself from an industrial product company to a consumer products company, Havells launched consumer electrical products such as CFLs, Fans, Modular Switches & Luminaires. The company has been consistent in its brand promotion with sponsorship of

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Cricket events like T20 World Cup, Cu India-Australia Australia Series and IPL Season 1 and 2. The company has also taken the initiative to reach directly to the consumers through "Havells Galaxy" – a one stop shop for all electrical and lighting needs. Social and environmental responsibility has been been at the forefront of Havells operating philosophy and as a result the company consistently contributes to socially responsible activities. For instance, the company is providing mid-day mid day meal in government schools in Alwar district, covering 15000 students ts per day. Besides this company has acquired land for constructing a larger kitchen with all the modern facilities to serve freshly cooked food to 50000 students in the area. Havells runs a mobile Medical Van, equipped with a trained doctor and necessary medicines in the rural areas of Delhi & NCR for the very poor and needy villagers. We also set up free medical check-up up camps. In the past also, the company has generously contributed to the society during various national calamities like the Bihar Flood, Tsunami and Kargil National Relief Fund etc.

Founded

1958 in Delhi, India

Founder(s)

Mr. Qimat Rai Gupta

Products

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Electrical equipments Power Distribution Equipments

Divisions

Lighting Sector, Power Distribution Sector

Website

Havells.com

Vision: "To be a globally recognized corporation that provides best electrical & lighting solutions, delivered by best-in-class people."

Mission: To achieve our vision through fairness, business ethics, global reach, technological expertise, building long term relationships with all our associates, customers, and partners.

Location: Branch offices / Zonal offices / Manufacturing plants

Location

Products Manufactured Products manufactured: Fans and CFLs

Haridwar, Uttaranchal Baddi, Himanchal Pradesh

Products manufactured: MCBs, CFLs and Switches

Samepur Badli, Delhi

Products manufactured: MCBs, ELCBs and DBs

Tilak Nagar, Delhi Products manufactured: Energy Meters NOIDA, UP

Product manufactured: Fans

· Alwar, Rajasthan

Products manufactured: Cables & Wires

Faridabad, Haryana

Products manufactured: CFLs and Industrial Products. Luminaries and Lighting fixtures

Gurgaon, Haryana Jalandhar

Products manufactured: MCBs, ELCBs, DBs, Wires and Industrial Switchgear

Gurgaon, Haryana

Products manufactured: Modular Plate Switches & Accessories

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· Sahibabad, UP

Products manufactured: Trajectory Meters, Reference Standard Meters

Hyderabad, AP

Products manufactured: Energy Meters

Certifications / Approvals · ISO-9001: 2000 (all manufacturing units) · KEMA KEUR · CE · S–mark · CSA · CB · SEMKO · SIRIUM (Malaysia) · SPRING (Singapore) · TSE (Turkey) · SNI (Indonesia) · EDD (Bahrain)

Major Clients of Havells India Ltd.

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Company Management

Qmit Rai Gupta (Chairman and managing director)

Anil Gupta (t managing director)

S.B Mathur (Director)

Surjit Gupta (Director)

Dr. Abid Hussian (Director)

Rajesh Gupta (Director)

A P Gandhi (Director)

. Niten Malhan

Maj.Gen. DN Khurana

(Director)

(Director)

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V.K Chopra (Director)

Product Range MCB Features • 10kA short circuit breaking capacity for ‘B’ and ‘C’ curve • Low power consumption, thus cost effective & energy saving o Suitable for DC application • “Finger Safe” terminals - IP 20 degree of protection • Dual termination facility • 15 Plate Arc Chute for effective arc quenching Accessories - Auxiliary Switch - Shunt Trip

•

RCCB

Features • Simple and robust operating mechanism. • Rotary handle with on/off indication in 4P • Dual termination for Bus Bar as well as cable • Advance neutral • Test button for regular inspection

Distribution Board Features Aesthetically superior DBs to suit the style of your home decor Choice of multiple incomer MCB, Isolator, MCB + RCCB, Changeover + RCCB, Isolator + RCCB • When Per Phase Isolation DBs is in use, only that phase where the Earth leakage faults exist gets isolated • Complete range of DBs with detachable gland plates at the top and Bottom with knockouts on the sides of DB to increase the flexibility of cables / conduit entry from all directions • •

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Digital MCCB Features

• True RMS sensing - Accurate and close protection. • High repeat accuracy - reliable protection. • friendly multiple adjustment option - flexibility

F

• Time delay on overload & short circuit faults. • Built in adjustable overload / short circuit sensing. • No external power required for basic functioning release. • Built in operation-check function with Field Testing .

Motor Starter

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Features •

Protection against overload & single phasing.

•

For agricultural application with wide voltage band

•

Ambient temperature compensated (-5oC to 55oC).

•

Deep drawn / fabricated sheet steel enclosure duly phosphatised

Industry Overview and Competition India is the fifth largest economy in the world and has the second largest GDP among emerging economies. Owing to its large population, the potential consumer demand is almost unlimited and consequently under appropriate conditions, strong growth performance can be expected. In fact, the liberalization of the economy in 1991 has led to rapid growth. The electronics industry, in particular, is emerging as one of the most important industry in the Indian market.

The electronics industry has recorded very high growth in subsequent years. By 1991, private investments - both foreign and domestic - were encouraged. The easing of foreign investment norms, allowance of 100 percent foreign equity, reduction in custom tariffs, and deli censing of several consumer electronic products attracted remarkable amount of foreign collaboration and investment. The domestic industry also responded favourably to the politic policies of the government. The opening of the electronics field to private sector enabled entrepreneurs to establish industries to meet hitherto suppressed demand.

The consumer electronics industry in India aims a 20% growth per annum to reach $160 billion from the existing $ 22 billion (Rs 95,700 crore) in 2005. Electronic industry in India is fastest growing industry. Demand for electronic goods is increasing at rapid rate. Havells India Ltd holds 18% share in the Industry market.

Switchgear Segment: 22% Building Products (Competitor's Position)

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1.

Havells.

2.

Legrand.

3.

Indo Asian.

4.

Schneider.

Industrial Products (Competitor’s Position) 1. L & T. 2. Siemens. 3. Schneider. 4. Havells.

Cables and Wire Segment: 18% Cables Competitor’s Position 1. PolyCab 2. Havells 3. Golster Wires Competitor’s Position 1. Finolex 2. Havells 3. Anchor

Electrical Consumer Durable Segment: 13% 1. CFLs: i.

Phillips.

ii.

Havells.

iii.

Osram.

iv.

Surya Roshni

2. Fans: i. Crompton ii. Orient iii. Usha iv. Bajaj v. Havells 18 | P a g e

Lighting Fixtures:

1. Phillips 2. Bajaj 3. Crompton

4. Havells

Havells Market Share

Market share

18% Havells others

72%

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CHAPTER 4: Literature Review

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Cash Management Cash flow is the oxygen that brings your business to life. As surely as you cannot live without

air,

a

business

will

grind

to

a

halt

if

starved

for

cash.

Cash Management is concerned with the management of collections and disbursement of cash, determination of optimum level of cash and investment of surplus cash into securities. Cash management includes management of cash inflow, cash outflow, estimation of cash requirement, ascertaining cost of managing cash, techniques of managing cash. Cash management also includes management of cash as well as cash equitant i.e. Bank s etc. Cash management is done because all the transactions in the business in done in cash, so there is need for estimation of cash in future for smooth running of the business. So cash management is very important for every organization. If at any time, because of a lack of cash, a corporation fails to pay an obligation when it is due, the corporation is insolvent. Insolvency is the primary reason firms go bankrupt. Obviously, the prospect of such dire consequence compels companies to manage their cash with care. Moreover, efficient cash management means more than just preventing bankruptcy. It improves the profitability and reduces the risk the firm is exposed to. A successful business rests on sound recordkeeping practices and solid cash flow. Without good records it is impossible to determine the financial condition or profitability of a business. Similarly, in order to survive a small business must achieve a positive cash flow in the long term. This Financial Guide provides the basic information the owner of a small business need to establish good recordkeeping practices in your business and to minimize cash flow problems.

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Objectives of Cash Management n To make payment according to the payment schedule. n To meet cash disbursement needs of the firm on a continuous & regular basis. n To minimize funds in the form of cash balance which remains idle. n To prevent bankruptcy n Good relation with bank n Good relation with trade creditors & suppliers. n To lead strong credit rating n To meet unexpected cash expenditure n To maintain balance level n To identify surplus cash n To identifying the points of shortfalls & to plan & arrange adequate cash n To improve the profitability of the firm n To keeps the bank overdraft limit under control n To strike a balance between liquidity & profitability n To make instant cash payments & avail of the facilities of cash discounts. n To take advantage of speculative opportunities

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Importance of Cash Management Cash management also includes management of cash as well as cash equitant i.e. Bank s etc. Cash management is done because all the transactions in the business in done in cash, so there is need for estimation of cash in future for smooth running of the business. So cash management is very important for every organization. Following are the importance of managing cash for the organization. n It helps in maintaining adequate cash balance. n It helps in identifying surplus cash & investing them in marketable securities. n It helps in identifying the points of shortfalls & to plan & arrange adequate cash. n It helps in improving the profitability of the firm. n It helps in keeping the bank overdraft limit under control.

Factors Affecting Level of Cash Level of cash depends upon many factors. Fluctuation in cash is due to many factors which should be forecasted before hand in order to have proper cash proper cash management. n Matching of cash flows n Non recurring expenses n Cash short cost n Cost of excessive cash balance n Payment of loans n Firms capacity to borrow in emergency

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Techniques of Cash Management

COLLECTION MANAGEMENT PAYMENT MANAGEMENT CASH FLOW STATEMENT CASH ESTIMATION SHORT TERM INVESTMENT

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RECEIVABLE MANAGEMENT

Receivables represent amounts owed to the firm as result of sales of goods and services in normal course of time of business. These are claims of the firm against its customers and form parts of its current assets receivable are also known as receivable, trade receivable, customer receivable. The period of credit and extend of receivables depends upon credit policy followed by the firm. The purpose of maintaining or investing in receivable is to meet competition to increase the sale and profit.

PAYABLE MANAGEMENT

Payables represent amounts owed by the firm as result of purchase of goods and services in normal course of time of business. These are claims of the supplier against its purchase and form parts of its current liabilities Payables are also known as Payables, trade Payables, customer Payables. The period of credit and extend of Payables depends upon credit policy followed by the suppliers. The purpose of maintaining or investing in Payables is to meet competition to increase the sale and profit.

CASH FLOW STATEMENT

Cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet and income affect cash and cash equitant, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.

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CASH BUDGET

Cash budget is extremely important, especially for small businesses, because it allows a company to determine how much credit it can extend to customers before it begins to have liquidity

problems.

For individuals, creating a cash budget is a good method for determining where their cash is regularly being spent. This awareness can be beneficial because knowing the value of certain expenditures can yield opportunities for additional savings by cutting unnecessary costs. For example, without setting a cash budget, spending a dollar a day on a cup of coffee seems fairly unimpressive. However, upon setting a cash budget to for regular annual cash expenditures, this seemingly small daily expenditure comes out to an annual total of $365, which may be better spent on other things. If you frequently visit specialty coffee shops, your annual expenditure will be substantially more.

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CHAPTER 5:

RESEARCH METHODOLOGY

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RESEARCH METHODOLOGY Research methodology is a way to systematically solve the research problem. The research methodology included various methods and techniques for conducting a research. “Marketing Research is a systematic design, collection, analysis, and reporting of data and finding relevant solution to a specific marketing situation or problem.” Sciences define research as “ the manipulation of things, concepts or symbols for the purpose of generalizing to extend, correct or knowledge, whether that knowledge aids in construction of theory or in practice of an art.” Research is thus, an original contribution to the existing stock of knowledge marketing for its advancement, the purpose of research is to discover answers to the questions through the application of scientific procedure. My research project has a specified framework for collecting the data in an effective manner. Such framework is called “Research Design”. The research process which was followed by me consisted following steps.

Defining the problem & Research Objectives It is said, “A problem well defined is half solved”. The step is to define the project under study and deciding the research objective. The definition of problem includes study of cash management techniques used by the Havells India Ltd.

Developing the Research Plan: The second stage of research calls for developing the efficient plan for gathering the needed information. Deg a research plan calls for decision on the data sources, research approach, research instruments, and s methods. The research is descriptive in nature and is aimed at analyzing techniques used by the company for cash management.

The development of Research plan has the following Steps: a.) Data Sources Two types of data were taken into consideration i.e. Primary data and Secondary data. My major emphasis was on gathering the primary data. The secondary data has been used to make things

more clear.

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1. Primary Data: Direct collection of data from the source of information, including personal interviewing from the General Manager in finance and other finance officers in the company etc. 2. Secondary Data: Indirect collection of data from sources containing past or recent information like, Annual Publications, Books, Newspaper and Magazines etc.

Research instrument A questionnaire was constructed for my queries. A Questionnaire consisting of a set of questions was presented to respondents for their answers. a.) Sampling Plan The sampling plan calls for three decisions. 1. Sampling unit: Who is to be interviewed? The target person must be defined that has to be interviewed. It is necessary so as to gather information so that person interviewed has full knowledge about the information. 2. Methods Once the person to be interviewed is determined, the question is how the subject should be contracted i.e. by telephone, mail or personal interview. Here in this research, I have ed the respondents through personal interviews.

Collecting the information The collection of data is a tedious task. For conducting any sort of research data was needed. So for my research, there was plenty of primary data and for increasing the validity of information collected, some books, journals, pamphlets, information about the company were studied and taken into considerations. After this, I have collected the information from the respondents with the help of questionnaire. a.) Collection of Primary Data: Primary Data is the data collected from the original source. In my survey and study, there was optimum availability of primary data because every aspect was witnesses carefully at each point. Questionnaire and personal interviews were the main instruments, which were used for collecting primary data. b.) Collection of Secondary Data: Secondary Data is the one which has already been collected by someone else and some other person is using that information. The source of secondary data

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was, some related books and websites related to the company. The competent staff of the company helped me a lot in providing information about the company. C) Analyze the Information The next step is to extract the pertinent findings from the collected data. I have tabulated the collected data and developed frequency distributions. Thus the whole data was grouped aspect wise and was presented in tabular form. Thus, frequencies, comparison and percentages were prepared to render impact of the study. Presentation of findings: This is the last and important step in the research process. The findings are presented in the form of graphs, pie charts, conclusions, suggestions and recommendations after data analysis.

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LIMITATIONS OF THE STUDY 1) There are various methods of analysing the same data.

2) Limited access to secondary data pertaining to Havells performance in other regions or any other information was another problem in finding a correct response.

3) Difficulty in getting meaningful data as data is confidential.

4) Most of the times people don’t give appropriate information.

6) The data is analysed for limited period of time.

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CHAPTER 6: ANALYSIS AND INTERPRETATION

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CASH MANAGMENT BY HAVELLS INDIA LTD. Company is having contract with • • • • • • • • • •

which provide various facilities like:-

Collection of funds Payment of fund Providing guarantees Issuing letter of credit Bill discounting facility istration of credit sales Maintenance of sales Credit control Protection from bad debts Provision of Finance

• Rendering advisory services OF CONTRACT OF HAVELLS INDIA LTD. WITH IDBI

Credit Facility of Rs.318 Crores. Individual Facility Purchase bill discounting Export Bill Discounting Bill Discounting under letter of credit Buyers Credit Letter Of Credit Treasury Receivable Buyout Receivable Buyout(Pool Wise limit) Overall Limit

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Individual Facility Limit Forming Part of the overall limit Existing Revised Rate of Interest 35 23 Bank rate -10 -10 BPLR -250bps p.a(monthly) 10 10 Bank Rate -45 -33 0.5% p.a plus service tax nil 25 0.5% p.a + service tax 10 10 Documentation charges 250 250 Bank rate -100 -100 Bank rate 305 318

Rates for Cash Management Service From IDBI Bank Product Express Hv (All IDBI Location) Express MICR(All IDBI Location) Swift(outstanding at IDBI Loc) Maxreach(Outstanding at corr Bank) Remote (outstanding at remote areas)

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Day Arrangement

Pricing

Min Per Cheque

Per Cheque Return

Day 0 Day 1 Day 1

.05/1000 .05/1000 Rs.1.60/- Per Thousand

Rs. 3 Rs. 3 Rs. 10

Rs. 10/Rs. 10/Rs.10/-

Day 1

Rs.2/- Per Thousand 1.00+Other bank Charges

Rs. 25

Rs.50/-

Rs. 25

Rs.50/-

Clear Funds

Receivable Management by Havells India Ltd.

1. Average Collection period Average collection period measures the quality of debtors. A short collection period implies prompt payment by debtors. It reduces the chances of bad debts. Similarly, a longer collection period implies too liberal and inefficient credit collection performance. It is difficult to provide a standard collection period of debtors. Higher period is always beneficial for the company. Company always prefers prefer advance payment from customers which reduces the risk of bad debts .For advance Payment Company provide cash discount. Calculation of the average collection period of the company A = (Days)*(Average s Receivable) / (Credit Sales)

Year

2008

2009

Sales

2231.89

2333.82

Average Debtors/Closing Debtors Debtors Turnover Ratio

66.07

86.74

33.78

26.90

11 Days

14 days

Average Collection Period

Analysis & Interpretation Average collection period for 2008 is 11 days and 14 days in 2009. Company is mainly focusing on advance payment collection and providing cash discounts to the customers. Increase in Average collection period is due to increase in credit sales. Since the company is providing 21 days period to customers even than customers are average collection period is quite low that means most of payments are done on cash basis.

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Credit Policy of Company Though most consumers expect to pay cash or use a credit facility while making a purchase, commercial customers typically want to be billed for any products and services they buy. Company need to decide how much credit you're willing to extend them and under what circumstances. There's no one-size-fits-all credit policy--your policy will be based on your particular business and cash-flow circumstances, industry standards, current economic conditions, and the degree of risk involved. As company create its policy, consider the link between credit and sales. Easy credit can be an excellent way to boost sales, but they can also increase losses if customers default. A typical credit policy will address the following points: •

Credit limits. Credit limit means an amount (limit) is fixed up to which customer can avail credit facility. After the limit is over customer cannot make billing more than its credit limit. To do more billing he has to make payment.

•

Credit . If you agree to bill a customer, you need to decide when the payment will be due. Your may also include early-payment discounts and late-payment penalties.

Havells India Ltd. Provides no credit limit to its customers. Customer can avail credit facility up to any limit it initiate increase in sale. To manage its receivables company is using good credit policy in which it is giving 45 day credit to its customers. In order to initiate early payment from customers company is providing cash discount. In order to cover the risk of non-payment from customer company receives blank cheques from the customer under the company name signed by the party. In case of cheque bouncing company debits customer with Rs.500 per cheque. For early payment i.e. advance payment by the customer company credits customer with Interest for the particular period at 18% interest rate.

Product

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No of Days

Non channel Finance

45 days

Channel Finance

20 days

Factoring Services by IDBI Bank Meaning of Factoring Receivables constitute a significant portion of current assets of a firm. Firm has to incur certain cost such as cost of financing receivables and cost of collection from receivable and cost of collection from receivables. Further there is a risk of bad debts also. It is very essential to have a proper control on management of receivables. Small firms may handle the problem of receivable management of its own, but it may not be possible for large firms to do so efficiently as it may be exposed to the risk of more and more bad debts. A factor is financial institution which offers services relating to management and financing of funds arising out of credit sales.

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Factor services provided by bank: 1. Bill Discounting Facility: IDBI is providing bill discounting facility. Company is discounting bills of exchange received from customers. Discounting of bill worked as short term finance for the company. IDBI Bank is discounting under following and conditions for purchase bill discounting limits. 1 2 3 4 5 6 7 8 9 10

Individual Facility Limit/Amount Purpose Rate of Interest/Discount Other Charges Margin Security Tenure Method of payment Documentation

Purchase Bill Discounting Limit Rs. 23,00,00,000/Working Capital To be decided at the time of drawn down Documentation charges and out of pocket Nil Unsecured Max.90 days/payable at due date out of internal accruals Bill Schedule

2. Bank Guarantee/ letter of credit: Letters of credit ensure that a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn't go as planned. A letter of credit is an obligation taken on by a IDBI bank to make a payment once certain criteria are met. Once these are completed and confirmed, the bank will transfer the funds. This ensures the payment will be made as long as the services are performed. A bank guarantee, like a line of credit, guarantees a sum of money to a beneficiary. Unlike a line of credit, the sum is only paid if the opposing party does not full fill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to non performance by the other party in a contract.

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and conditions under which IDBI is providing guarantee: Sno. 1 2 3 4 5 6 7 8 9 10

Particulars Individual Facility Limit/Amount Purpose Usage/other charges Other Charges Security Documentation Margin Tenure of Individual facility Methods of repayment

and conditions L c /bank Guarantee Rs. 25,00,00,000 Working capital LC/BG:0.50% + Service Tax Documentation charges and out of pocket underlying goods L C: Stamped LC Application Nil 180 days/ 12 months out of internal accruals

Cost of providing Guarantee

Nature Bank Charges Bank guarantee

Jan 55303.14

Havells India Ltd. Feb 180573.87

Mar

Grand Total

53930.88

7312493.66

CMS (Cash Management Service)

Cash management service is provided by IDBI bank. Under this facility proper record of receivables is maintained by the bank. Thousands of cheques are received by the company in a day. This is very difficult practice for company to make records of all receivables. So bank is providing the facility of managing receivables from various customers. Bank prepares CMS report for every month which contains following information client code, transaction date, transaction date, deposit number, product code, Dr, Cr amount, Drawer name, Drawer Bank, Remarks.

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CMS REPORT Havell s India Ltd Mr. Pradeep Gupta Manager Havells India Ltd 1 7 Ram Kishore Road, Civil Lines, Delhi - 110 054 No : 011655100000107 Product Code

4109585

Deposit Dt. 01-01-2010 01-01-2010

01-01-2010 01-01-2010 01-01-2010

58354 64486 3407

01-01-2010 01-01-2010 31-12-2009

EXPHV EXPHV EXPRESS

0 0 0

15,63,486.00 32,291.00 12,64,611.00

01-01-2010

3568

31-12-2009

EXPRESS

0

1,66,202.00

01-01-2010

3601

31-12-2009

EXPRESS

0

91,627.00

01-01-2010

3603

31-12-2009

EXPRESS

0

80,000.00

01-01-2010

3603

31-12-2009

EXPRESS

80,000.00

0

Tran Date 01-01-2010 01-01-2010

Deposit. No.

EXPHV

Debit Amt 1,95,340.00 0

Credit Amt

Drawer

0 14,112.00

VORA ELECT Bharti Enterprises city trade R K TRADERS KUMAR ELECTRIC BHAWNA DISTRIBUTOR AGARWAL ELECTRICAL AGARWAL ELECTRICAL

Transaction Date: Transaction date is the date on which transaction is made. Deposit no: Deposit no is the number of bank voucher when deposit is made. Deposit date: Deposit date is the on which cheque is presented with the bank. Product Code: Product Code is the code of the bank according to which charges are charged by the bank. Debit Amount: Debit amount is the amount with customer is debited. Credit Amount: It is the amount of cheque received by the bank and amount credit to our . Drawer: Drawer is the name of the party by which cheque is drawn.

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Discount policy of Havells India Ltd. Discounting policy is very important source of making cash sale. If company is having good discount policy for its customers it can improve its debtor’s turnover ratio as well as flow of cash during the year. Good discount policy initiates customers to make early cash payment which helps benefit both the customer as well as company. Discount policy generally includes two types of discounts.

Types of Discounts • Cash Discount • Trade Discount Cash Discount: An incentive that a seller offers to a buyer in return for paying a bill owed before the scheduled due date. The seller will usually reduce the amount owed by the buyer by a small percentage or a set dollar amount. If used properly, cash discounts improve the days-sales-outstanding aspect of a business's

cash

conversion

cycle.

Company is providing different rates of cash discount for different products. By providing cash discount company is inviting early cash payment by its customers. Following are the rates of discount which company is providing for different products.

PRODUCTS Cables Aure Motor Others

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HAVELLS INDIA LTD FOR CHANNEL FINANCE DAYS RATE OF C.D DAYS OF PAYMENT 7 NIL 0 to 10 11 to 30 0 to 10 11to 30

2.25% Nil 1.50% 0.75% 3% 1.50%

45 days payment 45 days payment 45 days payment 45 days payment 45 days payment 45 days payment

Cost incurred by the Company for collection of debts Receivables constitute a significant portion of current assets of a firm. Firm has to incur certain cost such as cost of financing receivables and cost of collection from receivable and cost of collection from receivables. Further there is a risk of bad debts also. It is very essential to have a proper control on management of receivables. Company incur following cost for collection of receivables. 1. Legal Procedure Cost 2. Bad debts cost 3. Bank charge (CMS charges)

Legal Procedure Cost: Company is following procedure for collection of debts. In Case of bounce back of cheque of the customer the customer is credited with Rs. 500 for each cheque. In case of non payment a notice is sent to the party for non payment with cost the company Rs. 550 for every notice. In case of no response from the party a complaint is filed against the party with cost Rs. 4400 and other expenses incurred are Rs. 1000. In case the party is making payment number of persons is sent to the party for collection of payment whose cost depends upon number of person sent, cost per person and number of days person is sent.

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Bad Debt Cost: When credit sales are made there is always a risk of bad debts involved. Risk of bad debts is very high in case company use liberal credit policy. So amount of bad debts depends upon credit policy credit sales in order to have a proper cash flow company must use short credit period for its customers. Company made provision of doubtful debts each year. HAVELLS INDIA LTD. assumes debts as doubtful after six months in case of non payment. In 2008 company considered 1.46 as doubtful and 2.12 in 2009. This is 2.444% of total Debtors in 2009 and 2.20% of total debtors in 2008. 100 90 80 70 60 50 40 30 20 10 0

Good Doubtful

2008

2009

Bank Charges (CMS charges): IDBI bank provides factor services under which it has to it maintain receivable . Bank maintains record of all cheques received from different parties. Bank charges some amount for maintaining these receivable. Following are the and condition under which IDBI works.

Rates for Cash Management Service From IDBI Bank Product Express Hv (All IDBI Location) Express MICR(All IDBI Location) Swift(outstanding at IDBI Loc) Max reach(Outstanding at corr Bank) Remote (outstanding at remote areas) 43 | P a g e

Day Arrangement

Pricing

Min Per Cheque

Per Cheque Return

Day 0 Day 1 Day 1

.05/1000 .05/1000 Rs.1.60/- Per Thousand

Rs. 3 Rs. 3 Rs. 10

Rs. 10/Rs. 10/Rs.10/-

Day 1

Rs.2/- Per Thousand 1.00+Other bank Charges

Rs. 25

Rs.50/-

Rs. 25

Rs.50/-

Clear Funds

CMS Charges Nature

April

May

Jun

Jul

Aug

Sep

CMS

1032282

822194

1030071

910749

844983

910740

Nature

Oct

Nov

Dec

Jan

Feb

Mar

998556

928208

978913

842034

834342

1150161

CMS

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Cash flow statement Meaning of Cash Flow Statement: Cash flow statement, also known as statement of cash flows or funds flow statement is a financial statement that shows how changes in balance sheet s and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International ing Standard 7 (IAS 7) is the International ing Standard that deals with cash flow statements.

Purpose of Cash Flow Statement The cash flow statement reflects a firm's liquidity. The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time, and the income statement summarizes a firm's financial transactions over an interval of time. These two financial statements reflect the accrual basis ing used by firms to match revenues with the expenses associated with generating those revenues. The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These noncash transactions include depreciation or write-offs on bad debts or credit losses to name a few. The cash flow statement is a cash basis report on three types of financial activities: operating activities, investing activities, and financing activities. Noncash activities are usually reported in footnotes. The cash flow statement is intended to: 1. Provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances. 2. Provide additional information for evaluating changes in assets, liabilities and equity 3. Improve the comparability of different firms' operating performance by eliminating the effects of different ing methods 4. Indicate the amount, timing and probability of future cash flows

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Year Ended 2009

Year Ended 2008

A. Cash Flow From Operating Activities Net Profit before tax and extra ordinary items Adjustments for Depreciation loss on sale of fixed assets Profit on sale of Assets Income on sale of Investment Interest Income Interest paid Miscellaneous expenditure written off Operating Profit before working capital changes Adjustment for: Trade and other receivables Inventories Trade and payables Others liabilities Cash generated from operations Direct Tax Paid Cash flow before Extraordinary Items Net Cash receivables(+)/used (-)from Operating Activities B. Cash from Investing activities Purchase of Fixed assets Addition in Capital Work in progress Investment in shares sale of investment sale of fixed assets Interest Received Net Cash used in Investing activities C. Cash flow from Financing Activities Proceeds from issue of Equity Warrants Proceeds from issue of preferential equity shares Receipt of share short term borrowing Repayment of long term borrowings Repayment of motor car loan Proceeds from unsecured advances Interest paid dividend paid Net Cash receivables(+)/used (-)from financing Activities Net increase(+)/decrease(-)in cash and cash equitant cash and cash equivalents at the beginning of the year cash and cash equivalents at the end of the year 46 | P a g e

167.27

166.25

17.86 1 -0.13 -0.08 -0.89 19.34 0.05 204.42 -41.95 222.76 76.26 12.64 296.33 -23.16 273.17 273.17

13.06 0.8 -2.39

-91.22 -10.87 -226.25 3.25 1.85 0.89 -322.35

1.12 138.61 1.7 -8.44 0.38 41.6 -19.34 -14.48 140.39 91.21 64.22 155.43

-0.77 20.65 0.04 197.64 -40.2 -190.79 171.56 14.77 152.98 -23.96 129.02 129.02 -45 -116.29 -161.3 6.82 0.77 -315 17.94 2.08 257.92 1.2 -15 0.65 -5.81 -20.65 -13.44 223.59 37.62 26.61 64.22

Graphical presentation of Cash Flow Statement 400 300 200 100 2008 0 -100 -200

Operating Activities

Investing Activities

Financing Activities

Net cash received

2009

-300 -400

Figure 1

Analysis and Interpretation Operating Activities •

Company’s major cash flow is from Operating Activities

•

Cash flow from Operating activities is increased from 129.02 to 273.17 crore due to conversion of stock into cash.

•

Company has opted immediate payment policy to trade creditor in 2009. which resulted in decrease in trade creditors from Rs 171.59cr to (76.26).

Investing Activities •

Company has used its funds for investment purpose which was 315 cr. in 2008 and 322.35 cr. in 2009

•

Company invested almost double amount for investment in fixed assets in 2009 as compared to 2008.

•

Company has invested huge funds for investment in shares.

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Financing Activities •

Company has received cash from financing activities which was 223.59 cr. in 2008 and 140.39 cr. in 2009.

•

Major cash is received due to receipt of share on preferential allotment which was 257.92 cr. in 2008 and 138.61 cr. in 2009.

•

Cash is received from unsecured advances to meet short term requirements.

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Forecasting Technique used by Havells India Ltd.

Cash forecasting is very important aspect of managing cash. Insufficient funds may lead to disturbance in smooth running of the business. Excess cash can be invested in short term securities ie. Excess holding of cash may lead to loss of income. So in order to get maximum benefit neither there should be excess cash nor insufficient cash. An expert knowledge is required in forecasting cash. Cash can be managed by forecasting the receivables since we know amply number of cheque are received by the company during the period . On the other payment side all the expenses due on average basis and the amount of payments are forecasted with the minimum balance required cash required is forecasted and insufficient funds should be deposited and excess amount should be invested in short term securities. HAVELLS INDIA LTD. is in contract with IDBI for forecasting their cash. Company receives post-dated cheque from its customers in advance and record of all the cheques received is maintained through CMS report by IDBI bank. And record of all the cheques to be presented with the bank given to the vendor by the company is also kept. Day cash requirement is forecasted by forecasting the day expenses at the end of the day if there are sufficient funds these are invested in short term securities and if there are insufficient funds bank overdraft facility is activated for short term. Company is having limit of 200 cr. which is not been fully utilized by the company so major forecasting is not required by the company. In case of major investment i.e. Long term investment projects cash is forecasted by the IDBI bank. Cost of funds to be raised is forecasted and cheaper source is accepted.

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Bank Reconciliation Statement A businessman maintains several books of s out of which cash book is an important book. By cash book, we refer to three column cash book having bank column on both the sides. For traders or customer bank is an asset and therefore it is debited whenever money is deposited and debits all the withdrawals. Thus the transactions appearing on the debit sides of the bank column of cash book will be shown by the bank in the deposit column of book and entries on the credit side of cash book will appear in the withdrawal column of book further it can be inferred that the debit balance of bank in the book of trader should be equal to credit balance of traders in the books of trader should be equal to credit balance of bank in the book of trader should be equal to debit balance of book. Reasons for difference 1. Cheque deposited but not credited by bank. 2. Cheque issued but not yet presented. 3. Bank Charges. 4. Direct receipt by the bank. 5. Interest charged by bank. 6. Interest allowed by bank. 7. Direct payment by bank. 8. Bill discounted but dishonoured. 9. Error on the part of trader. 10. Errors committed by bank. Bank reconciliation statement is maintained on daily basis by Havell's India Ltd. Since there are thousands of transactions every day. Numbers of cheques are deposited and large amount of charges are debited by bank. So it creates difference in cash book and book. In order to cover this difference bank reconciliation statement is prepared. Online access is made every morning to reconcile previous day statement. Bank reconciliation statement helps in proper cash management. It helps to know exact cash balance in the bank and also helps in rectifying our cash . Customer will credited only if bank has credited the amount to our companies bank .

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SWOT Analysis of Cash Management Service Providers

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SWOT ANALYSIS OF HAVELLS INDIA LTD.

STRENGHTS International approvals World class infrastructure Leveraging upon Sylvinia network (10000 distributor). Global presence (Latin America, UK, Europe) Largest manufacturing capacity in the country for motors R & D facilities Tax benefits in Uttaranchal

WEAKNESS High debt ratio. Globally small Market share Slowdown of real estates Delays in execution of power projects

SWOT

OPPERTUNITIES Global opportunities. Acquisition of Chinese firms for low cost manufacturing. Vertical integration into Havells retail outlets. Leveraging upon motor business in India

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THREATS •Unorganized market. •Unrelated diversification •Global slowdown effected business adversely as is largely dependent on Sylvinia

CHAPTER 7: FINDINGS AND RECOMENDATIONS

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Findings and Recommendations Findings 1. Company is managing its cash well and spending large amount of funds for its cash management system.

2. In spite of having credit of period of 45 days average collection period is 11 days. That means cash discount provided to the customers is helpful to the company for collecting of funds.

3.

Company is investing its funds in long term investment which will be helpful to company for long further growth.

4. Major cash management is done on contract basis by IDBI bank which includes maintaining receivable management records through CMS. Bank also provides factoring service to the company.

5. Company is on growth and the is further scope of future growth.

6. Company is not using its cash sources of short term financing sources from outside which reduce carrying cost of cash.

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Recommendations/ Suggestions 1. Company can review existing service providers for cash management and other service providers, making initial presentations and discussions with banks and providers. Companies can shortlist potential providers for further in-depth discussions and presentations. It helps in reducing carrying cost of cash.

2. Company can reduce its inventory to maximum extend .So that there should be less blockage of funds in Inventory.

3. In order to reduce average collection period company can liberalize its cash discount policy. This will initiate the customers to make early payment and help in better flow of funds.

4. Company can invest idle funds wisely may help you to generate income from your working capital, increasing your yields while maintaining liquidity. There are a wide variety of investment instruments available to companies seeking a return on excess cash. However, there are ways company may be able to improve yields on our idle working capital.

5. For better cash management or in order to find minimum cash balance required for the company can use control charts with the help of this company will able to invest its excess amount of funds in short term securities and can reduce bank charges charged by the bank for overdraft purpose.

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BIBLIOGRAPHY BOOKS Shashi K Gupta, R. k Sharma. (2010), Financial Management, 6th Edition. New Delhi: Kalyani Publisher. PP 23.1-23.20 William J Stevenson. (2010), Operation Management, 9th Edition. New Delhi: Tata McGraw-Hill Publishing Co. PP 446-447.

Journals 26th Annual Report 2008– 2009 Havells India Ltd.

Web Sites http://www.havells.com http://www.thehindubusinessline.com/2005/09/30/stories/2005093002590200.htm http://www.toboc.com/1/570340/Exporter.aspx http://www.efytimes.com/efytimes/fullnews.asp?edid=25052&magid=13 http://www.domainb.com/companies/companies_h/havells_India/20080331_expansion_plans.ht ml http://www.domainb.com/companies/companies_h/havells_India/20070314_lighting.

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