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STUDENT DECLARATION


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TABLE OF CONTENTS

SECTION 1ESCORTS - AN OVERVIEW

1.1. COMPANY HISTORY

1.2. MISSION , VISION & VALUE

1.3. BUSINESS SECTORS

1.4. CORPORATE INFORMATION

1.5. FINANCIAL STRUCTURE AND HIGHLIGHTS

RECOMMENDATIONS

BIBLIOGRAPHY


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EXECUTIVE SUMMARY

If development capital is what establishes a business, working capital is what keeps it going. One

of the most common downfalls of business is unexpectedly high running cost. What is important

is not just the size of operating costs, but the cash flows - that is when money has to be paid outin relation to the stream of income arriving in. Thus Working Capital Management is of prime

importance.

This project is a small attempt to study the working capital management in Escorts Agri

Machinery Group. The project work can be divided into two sections.

Analysis of the working capital position of the company using ratio analysis

Study of Working Capital Management Techniques.

Ratio analysis has been done on the basis of three years data. For calculating various ratios 300

days have been taken as number of working days after deducting Sundays and holidays. To

analyze the performance, published Balance sheets of Escorts Limited (and not Escorts

Consolidated) have been used. This project report is based on financial data up to 2010-2011

only, as companys financial year is 1 st October to 30 th September and its accounts for the current

period will close only after 30 th September.

Working Capital Management basically comprises of:

Receivables Management Inventory Management

Cost management is the process by which companies control and plan the costs of doing

business. Individual projects should have customized cost management plans, and companies as

a whole also integrate cost management into their overall business model. There is no singleaccepted definition for this term, because it has such broad applications and possible strategies.

When properly implemented, cost management will translate into reduced cost of production for

products and services, as well as increased value being delivered to the customer.

Cost Management basically comprises of:
http://www.wisegeek.com/what-is-a-business-model.htmhttp://www.wisegeek.com/what-is-a-business-model.htm


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Cost Reduction Cost Control

Escorts is maintaining the following records which is indicative of its professional approach:

Maintaining proper set of accounting records Maintaining an accurate cashbook reconciled with the bank statement Maintaining monthly statement showing profit performance and the working capital

position

Monitoring Receivables daily Making a regular forecast of cash requirements based upon planned sales volume Ageing of debtors/creditors with comparisons to previous months .


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Tractor Market in India: An AnalysisINTRODUCTION

The Indian tractor market is dominated by low price, no frills, rugged, versatile and low to

medium powered tractors. The farmer, a major consumer, is not willing to pay a premium forsophisticated and modern technology, which can reduce fatigue, emission, noise etc. Tractors are

normally categorized on the basis of power of the engine measured in horsepower (HP) as

follow-

Less than 20 HP 20-30 HP (Small Size) 31-40 HP (Medium Size)

41-50 HP (Large sized) 51 HP and above (very large sized).

In India, the popular range of tractors is 20-40 HP compared to 60 Hp in Europe and 90

HP in the USA. The reason being that in India most farms are small and fragmented and

large tractors would work out to be economically unviable. However, over the past few

years, an interesting trend has been the increasing sales of high-powered tractors, particularly

in states of MP, Gujarat, Maharashtra, Punjab, Haryana and UP recently, where farmers link

it to being a status symbol.

Tractors available in developed countries have advanced features and accessories not

found in Indian tractors. However, Indian tractors have an advantage of lower prices.

Currently, there are seven major players controlling about 99% of the market. M&M has

emerged as the leader during the last 3-4 years. A few international players like New

Holland, John Deere and Stey have also set up facilities in India. But hoses players have

entered the higher powered category and, thus, pose little threat to the existing players who

enjoy advantages of established distribution/service network and strong brand equity.

Tractors form an integral part of farm mechanization and have a crucial role to play in

increasing agricultural productivity. In India, 90% of the tractors are financed by bank credit

at concessional rates. Availability of credit, therefore, is the most crucial factor impacting

tractor demand. Increased use of irrigation facilities, shift towards multi-cropping,


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consolidation of lands holdings, promotion of cooperatives and higher investment in

agriculture also contributes to higher tractor demand.

After three years of decline, tractor industry grew by 11.5% in 2003-04 to a level of 1.92

lack tractors. The Indian tractor industry had been growing at an average compounded annualgrowth rate of 8% over the last three decades and attained a peak of 2.70 lacks tractors in

1999-2000. Since then, however the industry declined to a level of 1.72 lacks tractors in the

year 2002-2003, a decline of 33.3% over three years.

Despite the steep decline in the industry, Escort consciously decided to aggressively sell

3500 units in 2003-04 on top of approximately 8500 units reduced in the previous year. This

has not only impacted their revenue and profits but has also enable the company to optimize

its cash flow.

Future of Tractor industry

The tractor industry in India has been on growth trajectory since the second half of 2003-

2004,after going through a bad phase for 4 consecutive years. The key factors driving this

growth are increasing farm incomes, aggressive financing resulting in easy availability of lowcost credit, sharp inventory correction and strong export growth.

The demand in tractor industry is expected to grow mainly due to the agriculture sector,

with the expected increase in agricultural production. Also the shift in trend for demand towards

higher HP tractors is expected to continue. This will be further strengthened by the launch of

new models. In the next 2-3 years demand for the tractors is expected to increase significantly in

the eastern states, where traditionally tractor usage has been low. Export are expected to increase

significantly as several Indian players are targeting the hobby farming segment in the US,which is considerably large. Also, tractors of most Indian manufactures comply with the

emission standards accepted in the US. Most experts are likely to be through overseas

partnership or joint ventures. McKinney has also forecasted tractor population requirement of 75

Lacks over the next 18 years vs. current tractor population of 26 lacks. The extension of the 150


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percent deduction on R&D expenditure up to March 31,2007. In the budget 2005-06 will also

benefit the industry in the terms of new products development besides increase in the area under

irrigation under the Bharat Nirman project and the micro irrigation scheme.

Tractor industry plays an important part as agriculture sector has a major contribution to Indias

GDP. Tractors are part of agricultural machinery industry. Tractors came to India through

imports and later on were indigenously manufactured with the help of foreign collaborations.

The manufacturing process started in 1961-62. Indian tractor industry is relatively young but

now has become the largest market worldwide.

There are currently 14 players in the industry. Mahindra & Mahindra is the leading player in theindustry. Monsoon season is a key driver for sales of tractors. A series of good or bad monsoon

can affect the sales. In recent years the industry has registered a good growth in sales, both

domestic as well as exports. This is also partly because of the initiative of the government to

boost up agriculture and agricultural machinery industry.


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SECTION 1


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ESCORTS LIMITED

1.1 INTRODUCTION

The Escorts Group, with Escorts Limited as its flagship company, is among Indias leadingcorporations operating in the diverse fields of agri-machinery, telecommunications, healthcare,construction and material handling equipment, automotive and railway ancillaries, informationtechnology, and financial services. The group has 12 modern manufacturing facilities and anextensive marketing network spread across the country.The genesis of Escorts goes back to 1944 when two brothers, H P Nanda and Yudi Nanda,launched a small agency house, Escorts Agents Ltd., in Lahore. Over the years, Escorts surgedahead and evolved into one of Indias largest conglomerates. The foundation of Escorts Ltd. waslaid in the formation of Escorts (Agents) Ltd. on October 17, 1944 and Escorts (Agriculture and

Machines) Ltd. in 1948. The two were later merged in 1953 to form Escorts Agents Private Ltd.The companys incorporation in its present name Escorts Ltd. was effected on January 18,1960. Having initially started as a franchisee for Westing House Domestic Appliances, Escortshas come a long way in manufacturing and marketing a range of products. It pioneered farmmechanization in India through import and distribution of agricultural tractors. Themanufacturing operations commenced in 1954 and since then a range of new products has beenintroduced in the country.

Five Decades of Engineering Change

The Decade of Creation: 1944-54

The launch of Escorts Agents Ltd. in Lahore and setting it up again in Delhi after the countryspartition happened during this period. It also marked the beginning of an industry legend Escortstaking up a tractor franchise followed by the setting up of Indias first institute of farm

mechanization and the companys first industrial venture, Goetze (India) Ltd. at Patiala, in equitycollaboration with Goetze of Germany.

The Decade of Setting up Operations: 1955-64


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It was during this phase that Escorts went public. A fullfledged manufacturing establishmenttook roots with the commencement of Escorts own brand of tractors. The next major field of operations was motorcycles. The company also joined hands with Mahle to produce Indias most advanced pistons.

The Decade of Consolidation: 1965-74

This period witnessed the formation of the Ford- Escortsalliance for Indias finest tractors makingthe group the largest tractor manufacturer. Escorts Employees Ancillaries Ltd., a unique venturein industrial democracy, also came into being around this time. Escorts received the FICCI awardfor outstanding contribution to Indian agriculture. The company crossed national boundaries withits first export of 400 tractors to Afghanistan, which it had won through a global tender. Atriumph of Escorts quality and competitiveness, this was also perhaps the worlds largest ever commercial airlift of its kind.

The Decade of Diversification: 1975-84

This decade marked an epoch-making alliance with JCB for Indias first excavator loadersfollowed by one with Knorr Bremse for railway brakes. With the Yamaha collaboration, Escorts

became the countrys largest motorcycle manufacturer.

The Decade of Globalization: 1985-94

During this phase, Escorts entered into joint ventures with buy-back arrangements with Class(harvester combines) and Herion (hydraulic valves) providing an entry into the world markets. Atie-up with Faun powered the company to supremacy in hydraulic mobile cranes. Thecompany fought an epic battle against a corporate raid, the ultimate victory proving theunshakeable confidence of the companys small shareholders countrywide. The Escorts HeartInstitute was also commissioned in this period. In the sunrise telecom sector, it formed allianceswith JS Telecom, a Bosch company, and Hughes Network Systems, the world leaders in V-SAT

networks.

The Decade Ahead

On assuming the Chairmanship of the group in April 1994, Rajan Nanda undertook a majorrestructuring programme to give a sharper focus to the businesses. This involved building


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alliances with global players and improving market capitalization which resulted in eachbusiness becoming an independent entity with defined partnerships, technology, customers, andbusiness economics.

The recent past also witnessed a major shift in Escorts business focus w hen it broke away fromits traditional identity of being a pure engineering company and made its foray into the servicesectors of cellular telephony and healthcare delivery. The group has sincere-evaluated its focus with a thrust on the areas of high growth, namely, agri-machinery, telecom,and healthcare. As Escorts marches forward, it does so with a clear vision, renewed commitment,and the ability to perform, the ultimate objective being to create value for its shareholders.

Presently, the company has sold its stake in the businesses of motorcycles, earth-movingequipments, combined harvesters, and cellular services to its foreign partners. The idea behindrestructuring was that it could focus in areas where it could create value.


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AGRI MACHINERY

The Indian tractor industry is dominated by low priced, rugged, versatile and low to medium

powered tractors. The main reason being the inability of Indian farmer to invest heavily in farm

mechanization. Tractors are categorized on the basis of horse power of engine. In India thepopular range of tractors is 20-40 hp as compared to 60 hp in Europe and 90 hp in USA. Though

large tractors are economically unviable in India but more recently high power tractors are also

being sold in states like Punjab. Tractors available in India are of one fourth hp as compared to

developed countries. Availability of the credit is the most crucial factor impacting tractors

demand. In India 90% of the tractors are financed by bank credit at concessional rate. Increased

use of irrigation facilities, shift towards high investment in agriculture are responsible for higher

tractor demand in India.India is the worlds largest tractor market since 1996.

Escorts have played a pivotal role in the agricultural growth of India for over five decades. It is

one of the leading tractor manufacturers of the country. Escorts produces tractors in the 30-40

HP and above range and has already sold over 6 lac tractors. Its tractors are marketed under three

brand names, viz. Escorts, Powertrac and Framtrac. Escorts brand of tractors are symbolic of

reliability and trust and enjoy the confidence of the farming community for the last 40 years.

Powertarc brand of tractors are the most fuel-efficient tractors in their respective categories that

offer excellent value for money and have helped the farmers improve their respective categories

that offer excellent value for money and have helped the farmers improve their quality of life.

Framtrac brand are the most powerful premium range of tractors that give maximum productivity

to the farmers. Spanning these three brands, the company has a full range of tractors to cater to

the domestic as well as overseas markets.

The company is developing state-of-the-highly fuel efficient engines with the assistance of AVL

of Austria and has also entered into a joint venture with Carraro of Italy for the manufacturing of

transmission and axles.

To understand the tractor industry, one has to first look at the market segmentation based on HP.

The industry can be spilt into five classes on the bases of horse power.

A - 0-25hp


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B - 26-35hp

C - 33-39hp

D - 40-45hp

E - 46hp-Above

. Among the major player M&M, ESCORTS, PUNJAB TRACTOR& EICHER have a presence

across all the major segments. EICHER which was predominantly a player in the 21-30 hp

segment has now moved upward following the shrinking market in the low hp segment.

To sustain the present momentum and to realize the future goals, Escorts is investing heavily for

strengthening new product development programmes and enhancement of R&D capabilities.

Additionally, funds have been invested towards modernization of its manufacturing facilities

bringing them to international standards. The company has one of the most comprehensive

distribution network comprising of over 1212 dealers, sub dealers, distributors and stockists.

Escorts has over 30 area offices spread across the country. It has a manufacturing capacity of

over 100000 tractors per annum. Escorts Agri Machinery Group is looking at forward and

backward integration through food processing, food chains and genetic engineering. It will be

expanding its product range by launching highly specialized tractors and draft implements.

In line to their vision of becoming a major player in sub 100 HP segment in the global markets,

they have increased their reach from a major regional player to major global markets which

stretch from North America to Australia covering all continents. Despite the strict competition by

other major tractor manufacturers they have been able to gain constant volumes in the global

market.

Their products are marketed mainly in USA, central and Easter Europe through Poland, Ghana,

Tanzania, Malaysia, Australia, Tunisia, Chile, turkey, Sri Lanka, Kenya, Bangladesh, South

Africa and many other countries.

To consolidate its presence in the overseas markets, the company has venture in the USA and

Europe (Poland). It has recently acquired a majority stake in a tractor distributing company in

USA.


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Escorts is selling tractors in Turkey, Australia, Bangladesh, Sri Lanka, Nepal, Kenya, Tanzania,

South Africa etc. through its dealers network in these countries. Escorts have very ambitious

plans to expand the dealers networks in other potential countries in the coming years.

Technological and business collaboration with world leaders over the years, globally competitiveindigenous engineering capabilities, over 1600 sales and service outlets and footprints in over 40

countries have been instrumental in making Escorts the Indian multinational. At a time when the

world is looking at India as an outsourcing destination, Escorts is rightly placed to be the

dependable outsourcing partner of world's leading engineering corporations looking at

outsourcing manufacture of engines, transmissions, gears, hydraulics, implements and

attachments to tractors, and shock absorbers for heavy trailers.

Escorts is one of the country`s biggest tractor makers. The company manufactures farm

equipment, automotive components, railway ancillaries, construction machinery, shock absorbers

and telecom equipment. It has a joint venture with Long Manufacturing of North Carolina for the

manufacture, assembly and sale of tractors.


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Background

In 1960, Escorts set up the strategic Agri Machinery Group (AMG) to venture into tractors.

In 1965, rolled out first batch of tractors under the brand name of Escorts.

In 1969 a separate company, Escorts Tractors Ltd., was established with equity participationof Ford Motor Co., Basildon, UK for the manufacture of Ford agricultural tractors in India.

In the year 1996 Escorts Tractors Ltd. formally merged with the parent company, Escorts Ltd.

Since inception, Escorts Ltd has manufactured over 1 million tractors.

MISSION

For an Enterprise business mission embodies of its endeavor, which acts as a guiding light for

continuous development & growth.

Mission of ESCORTS is:

Engineering Changes through core competency for greater synergy reinforcing bonds with

customers & establishing powerful symbiotic relationship with international allies, preparing

global market. The company wants to make a lasting difference to its shareholders, its customers,

its business associates, its employee and the country as a whole. The company also gives better

quality and better technology to customer and treats every customer as special to build respect

for, and loyalty to, Escorts.

QUALITY POLICY


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We shall strive to continuously improve to meet the ever-rising Expectations of our customers at

the lowest cost.

Each one of us must fulfill the need of our customer, both internal and external with the highest

degree of commitment thereby creating a quality organization geared to ensure total customersatisfaction and the sustained health and prosperity of our business.

Customer Orientation : To fulfill the requirement of our internal and external customer.

Process Orientation : To optimize and harmonize interrelated process rather than individual

functions.

Preventive Behavior : To prevent the mistakes to happen

BRAND:

The Escorts brand shall continue to guard its legacy of being a brand that

customers trust; where employees attain their full potential; and where nation

building is a way of life .


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1.2 THE ESCORTS SYMBOL

The ESCORTS symbol means more than what could be seen by the eyes. It has been prepared

with certain objective and is symbolic in more than one way.

The philosophy behind ESCORTS and the E in the ESCORTS is ENTERPRISE the

hexagon is a symbol of craftsmanship and productivity. The work and people in escorts are

represented by the spanner superimposed on the hexagons which form a letter E.

Escorts the single world company describes the character philosophy & success of the company

which grew leaps and bounds for five decades Escorts has been in the core sectors like

agriculture, transportation & resource for engineering change, through optimum product

performance.

In every step of the way, Escorts had inducted the latest technology by forming alliance with the

most advanced engineering suited to Indian need and situation.

To make sure the finished product and service is delivered, the company has an extra ordinary

distribution & service network that stays with the customers.


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1.3 BUSINESS SEGMENT

Escorts India is one of the leading tractor manufacturers of the country. Escorts offers acomprehensive range of tractors, more than 45 variants starting from 25 to 80 HP. Escort,Farmtrac and Powertrac are the widely accepted and preferred brands of tractors from the house

of Escorts. The company is into the business of manufacturing of agricultural-machinery,construction and material handling equipment, railway equipment, auto ancillary and twowheelers. Escort has its manufacturing facility at Faridabad in Haryana. The company marketsits products thru its outlets and area offices across the country. The company also channelizes itsproducts globally in countries like USA, Poland, Ghana, Tanzania, Malaysia, Australia, Tunisia,Chile, Turkey, Sri Lanka, Kenya, Bangladesh and South Africa.

The agricultural machinery division the company manufactures Tractors and Paddy Tran-planters. Tractors of the company are marketed in the brand names Escort, Powertrac and

Farmtrac. The construction and material handling equipment manufactured are Pick-n-CarryCranes, Front End Loaders, 360 Slew Cranes, Articulated Boom Cranes, and Forklifts. With amillion Escorts tractors rolled out and a production capacity of 100,000 tractors per annum,Escorts tractors are amongst the largest selling tractors in India where every third tractor is aEscorts brand. Escorts has led the modernization of major national infrastructure, fromconstruction to creating high speed highways to railways. Escorts is a leading manufacturer of critical railway component for the last 40 years. The railway equipment division, producesrailway equipments at state of the art manufacturing facility located at Faridabad, near NewDelhi. It has facilities for advance product development, design, testing and validation. The in-house R&D has played a critical role in bringing a high level of customer satisfaction, reliabilityand safety.

Escorts Group

Agri Machinery

ConstructionEquipment

Engineering division

Auto SuspensionParts

Railway EquipmentDivision


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Auto Components Business is the leading manufacturer of auto suspension products. It producesshock absorbers, sturts and telescopic front forks for passenger cars, commercial vehicles,motorcycles and scooters through its auto suspension product development plant. TheAutomotive Component Business located in Faridabad, has an annual production capacity of 5million shock absorbers, front forks, and McPherson struts, manufactured at its state of the artmanufacturing facilities. Another step forward in this direction is a comprehensive technicalcollaboration with world leaders Koyaba of Japan.

92%

5% 3%

Segmental Revenue

Agro MachineryDivision

Railway EquipmentDivision

Auto ComponentDivision


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1.4 CORPORATE INFORMATION

CHAIRMAN & MANAGING

DIRECTOR

Mr. Rajan Nanda

JOINT MANAGING DIRECTOR Mr. Nikhil Nanda

DIRECTORS Dr. M.G.K. Menon, Dr. S.A. Dave, Dr. P.S.Pritam, Mr. S.C. Bhargava

VICEPRESIDENT (LAW & COMPANYSECRETARY) Mr. G.B. Mathur

EXEC. VICE PRESIDENT & GROUPCHIEF FINANCIAL OFFICER

Mr. O.K. Balraj

STATUTORY AUDITORS M/s. S.N. Dhawan & Co.

INTERNAL AUDITORS Grant Thorton

ADVISORS KPMG India Pvt. Ltd.

SOLICITORS Crawford Bayley & Co.

BANKERS

Andhra Bank, Citibank, IDBI Bank, PNB,

SBI, State bank of Hyderabad, State bank of

Patiala

State bank of Travancore.


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1.5 RECENT DEVELOPMENTS:

1) The Hon'ble High Court of Punjab and Haryana at Chandigarh has approved the Schemeof Arrangement between Escorts Agri Machinery Inc., USA and Escorts Ltd. and theirrespective shareholders and creditors for merger / amalgamation of EAMI into Escorts.

2) Escorts Construction Equipment Limited has signed an agreement with theChinese Hunan Zoomlion International Trade Co Ltd for marketing the

latter's truck cranes in India.

3) Powertrac 4455 marks the companys entry in the 4 -cylinder tractorsegment.

4) The companys Net sales and PAT is expected to grow at a CAGR of 10%and 126% over FY08 to FY11E.

5) Escorts arm to market Chinese firm's truck cranes Escorts Construction

Equipment Limited (ECEL), part of the Escorts Group, has signed anagreement with the Chinese Hunan Zoomlion International Trade Co Ltd for

marketing the latter's truck cranes in India.ECEL will market a range of

truck cranes of Hunan Zoomlion, including the 'All-Terrain Truck Cranes'.

Currently ECEL has Pick-n-Carry cranes 5T-23T and Rough Terrain Slew

Cranes 17T-40T under its product portfolio.


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FINANCIAL STRUCTURE AND HIGHLIGHTS OFESCORTS FOR 2010-2011

FINANCIAL STRUCTURE

SOURCE AMOUNT(Rs. Crores)

Equity Shares issued, subscribed and paid-up 102.28 Secured Loan 283.78 Unsecured Loan 14.82

FINANCIAL HIGHLIGHTS

Net Sales up 17% {2011: Rs. 3210 crores (2010 : Rs. 2746crores)} EBIDT down 37% {2011 : Rs. 110.11 crores (2010 : Rs. 175.09 crores)} Interest cost down 75% {2011 : Rs. 12 crores (2010: Rs. 47 crores)}

Profit before tax down28% {2011: Rs. 136 crores, 6.8% of sales (2010: Rs.188 crores) Earnings per share down 20% {2011: Rs. 11.74 (2010: Rs. 14.67)} Consolidated Net Sales up 21% {2011:Rs. 3324 crores (2010: Rs. 4050crores)} Consolidated PAT down by 5 times {2011: Rs.125 crores (2010: Rs. 132 crores)} Consolidated EPS down 13% {Rs. 13.72 against Rs. 15.8 last year}

The consolidation of accounts is prepared in accordance with the requirement of AccountingStandard 21 (AS21)Consolidated Financial Statement, Financial Re porting of Interests inJoint Ventures issued by the Institute of Chartered Accountants of India. The consolidatedfinancial statements include the financial statements of Escorts Limited (the Parent Company),its Subsidiary Companies and Joint Ventures.


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MODERNIZATION OF AGRI-MACHINERY GROUP

Escorts Agri Machinery Group (AMG) has invested over US $7.5 million in state of the Art &

Research and Development Center. Virtual prototypes of components and aggregate assemblies

are made and assembled on computer workstations using 3D technology. Their performance ischecked on computers using simulation techniques thus saving a lot of time for the end-user as

well as lowering development costs. The R&D center uses advanced 3D modeling, analysis and

simulation software for engines, transmission and vehicles. Physical prototypes are then

extensively tested for performance, durability and reliability. Facilities include a high

technology engine laboratory featuring fully computerized test-beds with on line control, data

collection, and analysis.


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Indian Domestic Tractor market trend

X Axis -Sales Volume Y Axis -Year

Sales volume and Y-O-Y growth percentage

Year Sales volume Year on year growth(%)

2007-2008 302948 2%

2008-2009 304622 .5%

2009-2010 402608 32%

2010-2011 480600 19.37%

2011-2012(E) 538300 12%

0

100000

200000

300000

400000

500000600000

sales volume

sales volume


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Domestic tractor sales grew by about 20 per cent in 2010-11. The robust growth rate can be

attributed to normal monsoons in most states, strong farm output with high MSPs (Minimum

Support Prices), increase in farm incomes and steady availability of Finance. In addition,

schemes such as NREGA (National Rural Employment Guarantee Act) led to a shortage of

agricultural labor, encouraging tractor use. Besides, Government initiatives like Bharat Nirman

helped in boosting rural infrastructure, thereby encouraging non-farm tractor use. Sustained

income and relatively low penetration led to a strong growth in the southern and western regions.

In the northern region, the growth was subdued due to flood like Situations in Haryana and

Punjab, and relatively high tractor penetration. The Eastern region also witnessed moderate

growth due to delayed monsoon in Bihar, resulting in a drought like situation, impacting tractor

sales. However still the tractor sales have shown an upward trend from 2009 onwards with

growth increasing at the rate of 30-20% for the year 2009-2010 and 2010-2011.

The industry growth index

Year on Year (growth percentage)

Year 2009 2010 2011 2012(E)

Growth 2% 28% 22% 11%

Owing to an increase in farm income, improving MSPs and higher farm output. Credit

availability will also be stable with NBFCs increasing focus on tractor financing. The key drivers

of rural farm incomes are estimated to grow by 11-14% percent in 2011-12, which will lead to

another year of stable growth, further aiding tractor sales. Government initiatives towards rural

development and usage patterns of farmers represent the major drivers that influence rural

demand. For the current fiscal year 2011-2012 the sales is expected to increase at the rate of

11%-14% so the expected sales of the industry will be around 538300 units.


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The Indian tractor industry has 13 national and a few regional participants. The market share is,

however, concentrated amongst the top-five manufacturers, accounting for over 90% of total

volumes. The Indian tractor industry is dominated by three players namely Mahindra &

Mahindra Limited, TAFE and Escorts; together they contribute around 75 per cent of the total

domestic market as of 2010-11. M&M continued to lead the industry in 2010- 11. M&Ms market

share is double that of TAFE, its nearest competitor. However, the entry of strong MNC players

like John Deere (formerly L&T John Deere), New Holland India and Same Deutz Fahr in the

Indian market during the last five years has further intensified competition.

Company 2008 2009 2010 2011 2012(E)

M & M 37.3% 38.6% 40.1% 39.6% 40.1%

TAFE 22.8% 22.2% 22.2% 21% 23.2%

Escorts 13.6% 12.5% 12.2% 12.1% 10.2%

John Deere 8.2% 9.1% 8.6% 9.8% 9.4%

New Holland 6.7% 6.1% 5.2% 5.9% 5.8%

Others 11.4% 11.5% 11.7% 11.6% 11.3%

Total 100% 100% 100% 100% 100%

Escorts contribution to the whole tractor market

The contribution of escorts to the total industry sales of 480600 has been 63420 that is almost

12.1%% of the sales during the year 2010-2011. The sale of tractors increased by 5.5 percent to

63,420 from 60,086 in the previous year. Even after the increase in the units sold the EBIT

(Earnings before interest and tax) stood at 176.56 crores in comparison to 223.36 crores for the

previous year.

The EBIT did not increase in accordance with the increase in sales due to the factor-

Tractor manufacturers are dependent on ancillaries, which are mostly SMEs, for

components such as castings, steering assemblies, gearboxes and brake assemblies.

Increasing commodity cost. Irregular Monsoon


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Factors that affect the Sales of Tractors in India

A lot of factors affect the sales of agricultural produce in India, they are as follow-

Minimum support price for the agricultural produce Irrigation facility Credit availability facility

Effect of Minimum support price for agricultural produce

What is Minimum support price?

It is the minimum price government fixes for items like rice, wheat etc, mainly groceries.

Wherever an organization purchases the items from the farmers it has to be more than this price.

This Price is the minimum return a farmer can get on its produce. The Farmer can sell its

produce to either government organizations or the private players. MSP acts as a base price for

the agricultural produce, if a farmer is unable to sell its produce the government purchases it for

Public Distribution system in this price.

Recent trends in the minimum support price (per quintal)

Crop 2010-2011 2011-2012 ChangeKharif Crop

Paddy 1030 1110 80cotton 2500 2800 300Jowar 880 980 100

Rabi crop

Wheat 1120 1285 165Mustard 1850 2500 650


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The government announces minimum support prices (MSPs) for major agricultural commodities

each season and organizes purchase operations through the Food Corporation of India, and

cooperative and other agencies designated by state governments. The graph showing MSP for

various important products are as follow-

Changes in the Minimum support price over the years

X axis-Price per quintal Y axis-Year

Conclusion

The strong rural liquidity on back of rising income levels and appreciation of land prices has

been a strong demand driver for growth in tractor volumes. The average income levels in the

rural India have been rising on back of growth in minimum support prices (MSP) offered by the

Government. The trend in MSP for major crops has been shown in the above graph and the

MSPs of Wheat, jowar, cotton and paddy have grown at a healthy Growth Rate of 9-11% during

2004-05 to 2010-2011 period. The MSP has increased substantially from 2011 to 2012 so the

industry can expect increase in the sales of tractors.

0

500

1000

1500

2000

2500

3000

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

Paddy

jowar

wheat

cotton


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Effect of irrigation facility

Irrigation is the artificial application of water to the land or soil. It is used to assist in the

growing of agricultural crops, maintenance of landscapes, and revegetation of disturbed soils in

dry areas and during periods of inadequate rainfall. Irrigation is one of the most important inputs

required at different critical stages of plant growth of various crops for optimum production. The

Government of India has taken up augmentation of irrigation potential through public funding

and is assisting farmers to create potential on their own farms. Substantial irrigation potential has

been created through major and medium irrigation schemes.

The timing, spatial distribution and magnitude of rainfall under the South-West monsoon are

some variables that influence the Kharif crop output, and in-turn have a bearing on the domestic

tractor market. While it is intuitive to correlate a good monsoon year with strong tractor sales,

with reducing dependence of on rain-fed farming, the impact of monsoons on tractor industry is

reducing. Although the shift from rain-fed agriculture to irrigated farming has been gradual

(~50% of cultivated area in India is still dependent on rains), the percentage of area under

irrigation is particularly high in states such as the Punjab (98% under irrigation), Haryana

(88.5%), Uttar Pradesh (74.9%) and Bihar (63.1%), which have amongst the largest population

of tractors in the country. Also, a scanty monsoon usually leads to appreciation in the prices of

food grains, thereby reducing the impact on the farmers. Further, in case of delayed monsoon,there is a shift towards other Kharif crops with smaller crop cultivation cycles.


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Trend in Monsoon Rainfall and Domestic Tractor Sales

The Graphs above show that there is a relationship between the level of rainfall and the sales of

tractors in the market. But if we compare the 2009-2010 data the rainfall was scanty but still the

sale of tractors increased, this shows that a direct relationship cannot be established between

rainfall and tractor sale.

0

200

400

600

800

1000Average rainfall(mm)

Averagerainfall(mm)

0

100000

200000

300000400000

500000

600000

sales volume

sales volume


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Trend in Tractor Penetration and Irrigation Levels

No. of tractors per 1000 hectares

Area under irrigation (%)

0

10

20

30

40

50

60Statewise tractor penetration

Statewise tractorpenetration

0%10%

20%30%40%50%60%70%80%90%

100%Area under irrigation

Area underirrigation


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Conclusion

The performance of agriculture, however, continues to depend on the monsoons on account of

low irrigation levels in majority of the states (around 54% of the cultivated area in India is

completely dependent on rains for irrigation) as evident from the above graph and the strongcorrelation between tractor penetration and the irrigation levels in various states. Tractor

industry, thus, continues to remain dependent on monsoon in absence of any substantial increase

in the irrigated area which has increased only to 46.8% in 2007-08 from 35.1% in 1990-91.


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Effect of Credit Availability Facility

There exists a strong correlation between farm mechanization and availability of agri-credit.

While scheduled commercial banks are mandated by the Reserve Bank of India (RBI) to meet a

target of 18% of their net banking credit for the agricultural sector, growth is driven by increased

lending by non-banking finance companies; especially in the southern states. The availability of

credit has not been uniform throughout the country. Better finance penetration in Punjab,

Haryana and Uttar Pradesh has led to higher farm mechanization in these states However; limited

activity of financers in certain pockets like the eastern region has prevented these states from

achieving their potential tractor penetration .

Major participants providing agricultural credit are-

Institutional credit flow to agricultural sector

The above graph shows the level of increase in the flow of credit to the agriculture sector. The

credit is basically required for farm mechanization; tractor usage is one of the medium of

mechanization. Credit flow is expected to increase form Rs 385000 crore to Rs 448000 crore i.e

a 16.5% increase from the previous year.

0

50000

100000150000

200000

250000

300000

350000

400000

450000

500000

Agri-credit


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Credit Facility Provider

Public sector banks Private sector banks Non banking financing corporations (NBFC)

In addition to financing availability from PSU banks, the private banks and non-banking

financing corporations (NBFCs) have also increased their presence in tractor financing which has

improved the credit availability for tractor purchases. The NBFCs charge higher interest rates;

however, the same is compensated through faster turnaround times and lesser documentation

requirements. The NBFC penetration has been particularly significant in Sothern India with

around 50% of the tractors being financed through them.

One more source of credit for farmers is KCC- Kisan Credit Cards. Kisan Credit Card Scheme

(KCC) aims at providing adequate and timely support from the banking system to the farmers for

their short-term credit needs for cultivation of crops. This mainly helps farmer for purchase of

inputs etc., during the cropping season. Credit card scheme proposed to introduce flexibility to

the system and improve cost efficiency. The northern states enjoy high KCC penetration while

the penetration in some of the states including Maharashtra, MP, Karnataka, Rajasthan and Biharremain much lower in line with the lower institutional financing availability in these states.

Credit Availability Differ from State to state.


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Institutional Agri credit Availability across states

Sale of tractors across different states

The above two graphs show the relationship between credit availability and sale of tractor in

2011 in different states in India. From the above graph it can be concluded that there is a direct

relationship between credit availability and sale of tractors.

0

10000

20000

30000

40000

50000

60000

70000

Credit availability

Credit availability

0

10000

20000

30000

40000

50000

60000

70000

sale of tractors

sale of tractors


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Financing availability remains one of the key facilitators for increase in tractor penetration and

going forward, the growth in tractor volumes remains dependent on the improvement in credit

availability in states with lower institutional credit penetration. The Governments policy of supporting agriculture through farm credit under priority lending, however, remains a positive

factor.


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Cash flow Management

MEANING

Cash flow management is a process of monitoring, analyzing, and adjusting ones business cash

flows. The most important aspect of cash flow management is avoiding extended cash shortages,

caused by having too great a gap between cash inflows and outflows. Therefore, one needs to

perform a cash flow analysis on a regular basis, and use cash flow forecasting so that one can

take the steps necessary to head off cash flow problems. Cash management involves the efficient

collection, disbursement and temporary investment of cash. The treasurer department of a

company is usually responsible for t he firms cash management system. A cash budget,

instrumental in the process, tell us how much cash we likely to have it, and for how long.

In cash flow management I studied Cash flow Statement


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Cash Flow analysis

Meaning:

A summary of firms cash receipts and cash payments during period of time.

The purpose of cash flow statement is to report a firms cash inflow and outflows, during a

period of time, segregated in to three categories: operating, investing and financing activities.

The statement of cash flow explains changes in cash and cash equivalent such as treasure bill and

the activities that increase and decrease cash. The cash flow statement may be presented using

either a direct method (Which is encouraged by fin ancial accounting standards board) or an

Indirect Method (which is likely to be the method followed by good majority of firms). The

only difference between the direct and indirect method of presentation concern the reporting of

operating activities; the investing and financing activities section would be identical under either

method. Under the direct method, operating cash flow reported directly by major classes of

operating cash receipts (from customers) and payment (to suppliers and employees). A separate

indirect reconciliation of Net income to net cash flow from operating activities must be provided.

The reconciliation starts with reported net income and adjusts this figure for non-cash income

statement items and related changes in balance sheet items to determine cash provides by

operating activities.

Cash flow statement has three activities like as follow :

Operating Activities : - Shows impact of transactions not defined as investigation or financing

activities. These cash flows are generally the cash effects or transactions that enter into the

determination of net income. Thus, we see items that not all statement users might think of as

operating flows -items such as dividends and interest received, as well as interest paid.

Investing Activities ;- Shows impact of buying and selling fixed assets or equity securities of

other entities.

Financing Activities :- Shows impact of all cash transactions with shareholders and the

borrowing and repaying transactions with lenders.


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Implication Of Cash Flow Statement

Cash flow management plays important role the users gets a reasonably detailed picture of a

companys operating, investing and financing transactions involving cash. This three part

breakdown of cash flow aids in assessing the companys current and potential future strength and

weaknesses. Strong internal generation of operating cash, over time would be considered a

positive sign. Poor operating cash flow should prompt the analyst to check for unhealthy growth

in receivable or inventory, Even strong operating cash flow, is not enough to ensure success,

Even strong operating cash flow, is not enough to ensure success, We need to see the extent to

which operating cash is funding needed investment debt reductions and dividends, Too much

reliance on external financing sources to meet recurring needs may be a danger signal.

In short the cash flow statement is a rich resource of information. The difficulty with thisstatement as with the other financial statements is that it must be used in conjunction with other

statements and disclosures in order to attain any real depth of understanding

Importance of Cash Flow Statement

The effects of cash and non-cash investing and financing transaction

A manager can assess the reason for differences between net income and net cash flowfrom operating activities

It is also helpful for a company to generate future net cash inflows from operations to

pay debts, interest and dividends

It gives indication to a companys need for external financing A cash flow statement is straightforward and easy to Understand. It gives a strong indication of how viable the company will be over time.

The extent of success or failure of cash planning can be known by comparing theactual cash statement with the budgeted cash flow statement and remedial measures

can be taken.

It discloses the volume and the speed at which cash flows in different segments of the

business


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This is why analysis of the company's cash flow is necessary to understand its actual financialposition.

Limitations of cash flow statement

Cash flow statement cannot be treated equivalent to income statement because income

statement takes both cash and non cash items and therefore net cash flow does not

necessarily mean net income of the business.

Cash flow statement is a technique of short-term financial position. It does not help

much in knowing the long-term financial position.

Cash flow statement also does not indicate full information about the liquidity position

because liquidity does not depend upon cash alone.

The cash position as depicted by the cash flow statement may not represent the real

liquid position of the business since it can be easily influenced by postponing

purchases and other payments.


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Cash Flow statement

Rs crore

Particular Year ended30.09.2010

Year ended30.09.2011

A. Cash from operating activity

Net profit before tax

Adjustment for:

Gain on sale of long term investment

Gain on sale of asset

Depreciation

Misc. Expenses

Interest Exp.

Dividend income

Interest income

Operating profit before working capital

changes

Adjustments:

Trade and other receivables

Money on escrow account

Inventories

Trade payable

Mics. Expenditure

100.62

-

(0.99)

37.97

15.11

63.06

-

(45.01)

170.76

(45.06)

-

(37.59)

128.26

(.086)

44.75

188.02

(0.10)

(29.67)

(0.80)

38.54

11.86

43.06

(40.24)

210.67

(11.24)

(17.81)

(96.97)

41.34

(1.46)

(86.14)

Cash generated from operating activities

Direct taxes 215.51

(28.37)

124.53

(39.31)

Net cash from operating activities 187.14 85.22


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B. Cash from investing activities

Purchase of fixed Assets

Proceeds from sale of Fixed Assets

Loans and advances

Sale/purchase of investment

Short term deposit with Banks

Interest received

(95.84)

2.74

(12.31)

-

(1.55)

38.69

(48.37)

3.41

(42.46)

(129.90)

(0.26)

54.49

Net cash from investing activities (38.27) (163.09)

C. Cash from financing activities

Proceeds from share capital

Proceeds from long term borrowings

Proceeds from short term borrowings

Interest paid

Dividend and tax paid

-

67.64

6.35

(63.16)

(18.47)

30.52

107.78

(14.96)

(42.90)

(11.03)

Net cash from financing activities (7.64) 69.41

Net change in cash and cash equivalent 111.23 (8.46)

Opening cash as on 01.10.2010 79.53 87.99

Closing cash as on 30.09.2011 190.76 79.53


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Analyzing the Cash Flow Statement

Cash flow statement explains the reasons for this cash inflow or cash outflow. This statement

helps the management in preparation of immediate future plan. With its help, such cases can be

ascertained which explain why the liquidity position is weak despite adequate profits. Thisstatement highlights the financial position policies adopted by business.

We see that escorts reported net profit for 2010-2011 was Rs188.02crores.

Its cash flow from operating activity was Rs.85.22crores. Company spends Rs.48.37crore on

purchase of fixed assets. Company cannot invest in long-term investment because the

requirement of working capital in the company and blockage of funds in the working capital.

From the reconciliation (net income to net cash provided for operating activities) in table, we see

that decrease in trade &other receivable and decrease in inventory but loss on sale of long- term

investment cannot use proper cash in operating activities.

Net cash used in financing activities was Rs67.41crores. It shows that Company did not pay

proper dividend and interest to shareholders. Company either takes cash from long-term

borrowings and sale of long term investment. Because Company did not have own cash.

We should have notice every time that the cash flow statement gives us much of the same

information gathers from the analysis of sources and use of fund s flow statement.

cash flow management and

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