working capital management, receivable management,

8/13/2019 working capital management, receivable management,

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The report focus on working capita !anage!ent" recei#a$e

!anage!ent" in#entor% !anage!ent" sources of ong ter! &

short ter! finance e!po%ed $% the co!pan%. The report

pro#ides a co!prehensi#e ana%sis of Indian construction industr%

as we as of the co!pan%. It pro#ides the suggestions to the

co!pan% to i!pro#e their financia position in the !arket in

reation to #arious eading construction co!panies in India. It aso

gi#es suggestions on how to !a'i!ie their cash fow" !ini!ie

their working capita reuire!ent" !aintain their opti!u! e#e of

in#entor% and !anage their accounts recei#a$e.

1.2 OBJECTIVES

The o$jecti#e $ehind the present stud% incudes*

understanding the nature of working capita

stud%ing the #arious co!ponents of working capita

deter!ination if the factors which affects the !ost in

deciding the working capita reuire!ents.

thorough stud% of how co!pan% can !aintain the opti!u!

working capita

suggestions to the co!pan% to rectif% the pro$e!s

encountered.

1. !ETHO"O#O$%

1.3.1 Economic and Competitive analysis of the construction

industry

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Stud% of the current econo!ic scenario of construction

industr% incuding recession and its i!pact on construction

industr% in India.

Poitica. econo!ica" socia" technoogica and seg!enta

ana%sis of Indian construction industr%.

1.3.2 Industry analysis in relation to the company

Seection of co!petitors under the guidance of co!pan%

!entor.

reading of annua report of e#er% co!pan%

cacuation of financia ratio with the hep of financia

state!ents

preparation of co!parati#e ana%sis of the co!pan% with its

co!petitors

1.3.3 Working capital management of the company

The o$jecti#e of working capita !anage!ent is the !anage!ent

of current assets in tune with attitude of !anage!ent towards

risk and arri#ing at a satisfactor% e#e of current assets that

$aances the iuidit% and profita$iit% criteria. The !ethodoog%

incudes*

preparation and cacuation of operating c%ce and working

capita reuire!ents

in#entor% !anage!ent of the co!pan%

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creditors ana%sis and de$tors !anage!ent of the co!pan%

1.3.4 Financial ratio analysis of the company

-eading of the %ears of annua report of the co!pan%

Cacuation of financia ratio with the hep of financia

state!ents

Preparation of co!parati#e ana%sis of the co!pan% with its

co!petitors

1.3. !ethod of data collection

Secondar% sources to $e used for this stud% incudes*

Interaction with ke% personne

nnua report of the co!pan% as we as the co!petitors

Magaines ike infrastructure toda%" Indian infrastructure"

construction week" etc

/ewspapers ike 0usiness Standard and cono!ic Ti!es.

Co!pan% data" we$sites" artices" $ooks" thesis" e'pert

co!!ents and !an% !ore.

1.& #I!IT'TIO( OF THE STU"%

The financia ana%sis of the co!pan%" a resuts are !ost%

dependent on the annua reports gi#en $% the co!pan%

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The %ear +445 has co!e haf its wa%. The Indian !arket was fu

of ups and downs this %ear. Sense' touched a 13444 !ark due to

a sta$e go#ern!ent ca!e into power and it ca!e down to a1,444 points after the decaration of $udget fro! our finance

!inister(Mr. Prana$ Mukherjee). Sti the go$a recession affects

our countr% arge%. 6e see our !arket in red when go$a

!arkets are weak.

7or the financia %ear +448945" o#era gross do!estic product

(:;P) growth rate of India was whereas fisca deficit was

.. The construction sectoras a whoe grew at =.+> during

the financia %ear +448945 as co!pared to 14.1 > during financia

%ear +44=948. ?owe#er" the econo!ic sur#e% suggests that worst

is $ehind us and the sector is ike% to i!pro#e in financia %ear

+445914. ;espite the sowdown" the Indian construction industr%

is e'pected to attract 2+> of tota in#est!ent in infrastructureproposed of around @S; 344 $iion in period +44=9+41+. Much of

the in#est!ent sha $e state or pu$ic supported.

JMC Projects (India) Ltd. L.J.I.M.S


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:o#ern!ents usua% respond to recessions $% adopting

e'pansionar% !acroecono!ic poicies" such as increasing !one%

supp%" increasing go#ern!ent spending and decreasing ta'ation.

2.1.1 What causes it"

n econo!% which grows o#er a period of ti!e tends to sow

down the growth as a part of the nor!a econo!ic c%ce. n

econo!% t%pica% e'pands for


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The housing !arket soared on the $ack of eas% a#aia$iit% of

oans. The reat% sector $oo!ed $ut coud not sustain the

!o!entu! for ong" and it coapsed under the gargantuan

weight of cripping oan defauts. 7orecosures spread ike widfire

putting the @S econo!% on shak% ground. This" couped with

rising oi prices at B124 a $arre" sowed down the growth of the

econo!%.

2.I)pact o/ an ')erican Rece,,ion on India

The rippes of cru!$ing @S !arket can $e witnessed a o#erthe word. Indian econo!% is no e'ception. 7inancia giants a

o#er the word ike Leh!an 0rothers" 0ear Sterns" I:" Merri

L%nch" etc ha#e face $ankruptc%. The worst hit of the crisis are

@S" urope and Japan.

India on the other hand is far !ore fortunate. Man% factors are

responsi$e for reati#e% ess negati#e i!pact on the Indian

econo!%. The sow pace of financia refor!s taking pace in India"

cautious approach towards per!itting foreign in#est!ent in

Indian $usiness" nu!erous $ureaucratic hurdes and reguator%

constraints ha#e turned out to $e an ad#antage for India. Indian

has awa%s $een criticie for its sow speed in econo!ic growth

$ut in hindsight its that #er% turte speed has pro#ed to $e a

$essing in disguise.

India wi $e affected in certain aspects ike ow in#est!ent $%

foreign co!panies. Man% 7IIs (7oreign Institutiona In#estors) are



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during the %ear +44=948 co!pared to -s ,.2< triion in +44 share and pri#ate sector for +5>. part fro! infrastructure"

industria acti#it% accounts for a$out , and the rest for

residentia and co!!ercia acti#ities.

In the past fi#e %ears" the sector has seen !an% new trends.

Project sies ha#e increased" euip!ent and !anpower are $eing

ra!ped up and $etter technoog% has $een depo%ed.

$a#le 2.1 !acro%economic Indicators

ear

Particuars

+4419

4+

+44+9

4,

+44,9

42

+4429

43

+4439

4.

Centra assistance for stor!9water drainage project

increased to -s344 crore fro! -s+44 crore in the interi!

$udget.

Thus" et us hope that the positi#e features in the $udget

regarding the infrastructure and de#eop!ent coud do so!e

$etter to this industr%.

JMC Projects (India) Ltd. L.J.I.M.S 1,


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Chapter-

Indu,tr+ 'na*+,i,

.1 I(TRO"UCTIO(



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3.1.1 $ypes of construction

The construction sector is !ade up of three ma&or types of

services" i.e. infrastructure" industria" rea estate. Infrastructure

segment($ridges" f% o#er" raiwa% stations" water supp%

treat!ents) constitutes near% of the tota construction

acti#ities foowed $% industrial segment(factories" pants" etc.)

which is appro'.,4> and $aance $% real%estate segment

(residentia and co!!ercia $uidings)

Major construction work incudes setting up of road and highwa%

projects" power pants" raiwa%s" airports" f%o#ers" !inera pants"

da!s" irrigation" water supp% & station and ur$an infrastructure

projects. These works are undertaken through !an% entities

incuding construction contractors" euip!ent suppiers" !ateria

suppiers and soution pro#iders.

3.1.2 'ature of the Industry

Construction industr% is high% co!petiti#e sti attracti#e to enter"

reasons for that are

It is an unorganied sector

/o :o#t. icenses G appro#a are reuired.

ow entr% G e'it $arriers

no su$stitutes are a#aia$e



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deterioration of econo!% eads to deterioration of the

construction industr%. Thus" its a c%cic process.

3.1.4 Risk Factors in the Industry.

3.1.4.1 (ro&ect )elated risks*

1) $nor!a G unprecedented increase in prices of raw !aterias"

a$or" etc of the co!pan%.

+) 7i'ed price contracts and its cost o#erruns.

,) ;ea% in co!petion of contracts.

2) 7aiure in joint #entures contract $% the other partner.

3) Su$9contract so!eti!es eads in dea% of co!petion of

project. so" the co!pan% oses the contro o#er the project su$9contracted.


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+) :o#ern!ent poicies

,) interest rates

2) :o$a recession.

3) 'change rates.

.2I(VEST!E(T I( THE I("USTR%

The construction sector consu!es 24934 > of panned outa%. The

annua in#est!ent is e'pected to dou$e to near% -S.


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. EFFECT OF RECESSIO( O( I(VEST!E(T I( THE

I("USTR%.

;espite the industria sowdown in the second haf of +448945

fisca" there has $een an o#era rise of ,=.2 per cent in ter!s of

fresh in#est!ent and +5 per cent in ter!s of nu!$er of projects

as co!pared to ast %ear. s of ,1 March +445" there were +5"


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9 su! of -s +4"444 !iion aocated to -ura ?ousing 7und"

which wi $oost the resource $ase of /ationa ?ousing 0ank for

their refinance operations in rura housing sector.

. B#OO!I($ OPPORTU(ITIES I( I("I'

CO!!O(E'#TH $'!ES - 21 in (e3 "e*hiThe

Co!!onweath :a!es 9 +414 in /ew ;ehi throws !ega

opportunities for 0uiding Materia Co!panies" Construction

uip!ents & Technoogies co!panies.

4Co!!onweath :a!es Eiage project worth @SB 24 !n.

4e#ated -ing -oad" 6idening and -edesigning of -oads in

and around ;ehi.

4More Su$wa%s and 13 9 +4 7%o#ers.

4Sports Speciat% ?ospita.

4Setting up of a Cutura Centre.4The ;ehi ;e#eop!ent uthorit% (;;) has $een asked to

ear!ark eight to nine pots for 7i#e Star ?otes.

RO'"S

4The go#ern!ent has announced four aning of 28 new

projects with an esti!ated cost of @SB 1+ $n. ;e#eop!ent

and up gradation of roads wi reuire an in#est!ent of @SB

+2 $n. ti +448. Pri#ate sector participation in road projects

wi grow significant%.

4HThe :oden uadriatera PanH (3834 !s.) for inking the

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four !etropoitan cities of ;ehi" Mu!$ai" Chennai and

okata with an esti!ated cost of @SB 3.3 $n.

R'I#'%S

4The raiwa% sector wi need an in#est!ent of @SB ++ $n. for

new coaches" tracks and co!!unications and safet%

euip!ent o#er the ne't ten %ears.

4 14 %ear Corporate Safet% Pan of the Indian -aiwa%s

en#isaging an e'penditure of @S B =.+2 $n. $esides

de#eop!ent of appropriate technoog% for higher e#e of

safet% in train operation.

4Metro -ai Corporation projects worth @S B 1+.82 $n in cities

ike ;ehi" 0angaore" ?%dera$ad" Chennai" h!eda$ad and

!an% other cities are on target.

'IRPORTS

4@p gradation and !oderniation of airports wi reuire @SB

,, $n. in#est!ent in the ne't ten %ears.

SPECI'# ECO(O!IC 5O(ES 66SE5,7

4Projects are co!ing up to de#eop Specia cono!ic Kones

worth @S B +.3 $n.

URB'( IFR'STRUCTURE - To3n,hip 8 !a**, 8 O//ice

Bui*din0, Etc.4India has a arge and growing !idde cass popuation of ,44

!n peope" out of which a arge section is need on new

houses. It is esti!ated that there is a nationa housing storage

of 21 !n. units.

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Econo!ic

Socia

Technoogica

Thus" PST ana%sis is deri#ed fro! the initias of these factors. It

wi hep us understand hindrances and opportunities hidden in

the outside word.

3./.1 (olitical Factors

Poitica factors incude go#ern!ent reguations and ega issues

that defines $oth for!a and infor!a rues under which the fir!

!ust operate. So!e of these factors are*

SK ct to $oost Infrastructura de#eop!ent

SPE(Specia Purpose Eehice) through go#ern!ent $onds

and 7A- reser#es

7;I i$eraiation to push the industria growth

-ITs (-ea state In#est!ent Trusts) to $oost rea estate

$usiness

PPP(Pu$ic and Pri#ate Partnership) to increase the funding

sources

Increase in finance in the industr% through II7CI" as stated in

the atest $udget.

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3./.3 0ocial Factors

It incudes de!ographic and cutura aspects of a countr%. These

factors affect the $u%erDs needs and sie of potentia $u%ers. The%

are*

Career attitudes (affecting the attrition rate)

-ising ur$aniation

Popuation growth rate

Lack of ski and professionais! in the workers and the

e!po%ees reduces the producti#it%.

!phasis on safet% & securit%

3./.4 $echnological Factors

Technoog% arge% affects the production e#es. 0etter the

technoog% higher the production e#e. The% are*

-esearch & ;e#eop!ent

-ate at which the technoog% is changing

uto!ation

Low technoog% adoption to hinder the growth in the

Industr%.



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The -MC (-ead%9!i'9Concrete) is $eing e'peri!ented to

reduce the ti!e of co!petion of the projects.

Chapter-&

Co)pan+ 'na*+,i,



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&.1 VISIO( : !ISSIO( OF THE CO!P'(%

To $e a eader and !ode corporate participant in the

de#eop!ent of the construction industr%.

To $uid" !aintain and perpetuate a o%a and continuing

reationship with e#er% custo!er through tota co!!it!ent to

uait%" transparent deaings" ti!e% co!petion" there$%

enhancing the #aues for our stakehoders

&.2 'BOUT THE CO!P'(%

;It i, aua*it+ con,truction



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7ounded in 158+ as a construction co!pan%" JMC has successfu%

defined its o$jecti#es & positioned

itsef as one of the eading

organiations in the construction

industr%. Toda%" JMC has we euipped

autono!ous offices at strategic

ocations to effecti#e% & efficient%

ser#e its custo!ers spread across the

nation. JMC got isted on 0S G /S in

1552. LPT-@ PA6- T-/SMISSIA/ LT;. took 31> stake ofJMC in 7e$D43 . Toda% JMC is fastest growing construction

co!pan% congo!erate as a part of di#ersified LPT-@

:-A@P and na!e to reckon with in the construction industr%.

JMC has to its credit !an% prestigious projects in Industria"

Power" Institutiona & Infrastructure sectors and is awa%s

acknowedged as a reia$e & professiona construction co!pan%

$% discerning & uait% conscious !arket.

4.2.1 !C (ro&ects India td. Working 5rea

Indu,tria*

N groche!ica

N uto!o$ie

N ngineering I Ce!ent

N Che!ica I Petroche!ica IPaint

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N ectronics G Consu!er :ood

N Phar!aceutica

N Sugar G 7ood Products

N Te'tie

Bui*din0,

N Co!!ercia Co!pe'

N Institutiona 0uiding

N ITPark

N ?ospitas & ?eath Centre

N -esearch &;e#eop!ent Centre

N ?ote & ?oste

N ?ousing

In/ra,tructure

N -oads I ?ighwa%s

N 0ridge & 7%o#er

N @nderpass

N Transportation Projects

N irport

N ;rainage 6ork

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N 6ater Supp% 6ork

Po3er

N Ther!a Power Pant

N :as $ased Power Pant

N Coa &Materia ?anding Pant

N Capti#e Power Pant

!anpo3er at a $*ance - Tota* 2& (o,.

6ith strong workforce of professiona% uaified construction

!anagers" engineers and super#isors $acked up with atest

construction euip!ent & technoogica% ad#anced work


14%

18%

58%

10%

Supporting Staff Administration &

commercial

P&M Staff

Managers

Engineers & Supervisors

,2


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en#iron!ent" JMC offers !ost custo!ised ser#ices to !eet the

e#o#ing needs of indi#idua custo!ers.

In addition to custo!er satisfaction" achie#ed $% ti!e% e'ecuting

projects of desired uait%" we stri#e towards $uiding ong ter!

reationships with our #aued custo!ers. Toda%" JMC is one of the

few construction co!panies certified under ISA 5441*+444 uait%

!anage!ent s%ste! $% T@E Manage!ent Ser#ices of :er!an%.

J!C?S Arder $ook as on June +448 was -s. +2+3 crore pro#iding

strong re#enue #isi$iit% o#er the ne't two %ears. It has securedorders fro! 0?L" /TPC" sto! and -eainceG;: group in the

power sector and !utipe funded orders fro! !unicipaities of

h!eda$ad" 0hopa and Indore for 6ater & sewerage sector and

fro! /?I " MP-;C and Pune !unicipait% in road & $ridges

sector. JMC has e'e!pari% turned around fro! $eing in osses ti

743. The turnaround has $een possi$e on the $ack of an

e'tre!e% strong order $ook enjo%ed $% the co!pan%. The

co!pan% posted a net oss of -s.11.2 crore in 743 " which turned

around to a profit of ,4.= crore in 748.



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4.2.1 !56) (5'$0 7 E89I(!E'$ 5:5I5,E 7 6W'E;

E>uip)ent (o,

.

Capacit+

'ca#ator & Loader ,4 A.,94.5!,

-oer


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(ET ORTH

JMC Projects (India) Ltd. L.J.I.M.S ,=


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4.2.3 5W5);0 7 CI$5$I6'

ward for H 3"44"444 accident free !anhoursH on ;upontDssa#i II project.

Citation for H 'ceence in construction in high rise

$uidingsH presented $% association of consuting ci#i

engineers (India) for JMC house at ah!eda$ad.

ward for HPerfection in Ti!e & uait%H $% h!eda$ad

Manage!ent association 9 M. ward for Hachie#ing + !iion safe !anhoursH fro! :

capita internationa ser#ice.

Citation for H'e!par% Ser#icesH fro! Prestige :roup of

Inte India ;esign Center.

Safet% award for H 'ceptiona 6ork ;one H $% 0o#is Land

Lease.

4.2.4 5';!5)< ()6EC$0

(ir)a #td.

Ci#i & Structura 6orks of 1+44 TP;

Soda sh Pant Project near

0ha#nagar.

http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=49http://www.jmcprojects.com/landmark_proj_details.php?idip=49http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=49


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'*,to) Pro@ect, India #td.

Construction of :enera Ci#i"

Structura and rchitectura 6orks for++8 M6 Jegurupadu Phase II Co!$ined

C%ce Power Pant Project for MGs. :E

Industries Ltd.

'rAind !i**, #td.

Construction of Te'tie 7actor% for

Shirting ;i#ision at #i. hatraj /ear

h!eda$ad

"!RC - "e*hi !etro Rai*Corporation (e3 "e*hi

Construction of Three e#ated

Stations 9 ,C2+ and ,C2+0 for ;M-C

at /ew ;ehi

Ea,t India Hote*, #td.

Main Ci#i & Site ;e#eop!ent 6orks

http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=105http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=50http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=99http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=99http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=19http://www.jmcprojects.com/landmark_proj_details.php?idip=19http://www.jmcprojects.com/landmark_proj_details.php?idip=99http://www.jmcprojects.com/landmark_proj_details.php?idip=50http://www.jmcprojects.com/landmark_proj_details.php?idip=105http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=105http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=50http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=99http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=99http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=19


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for = Star ?ote at @daipur.

Hindu,tan !otor, #td.

Ci#i Structura and Sanitar% 6orks for

OMitsu$ishiF Lancer Car Project /ear

Chennai

Indian In,titute o/ !ana0e)ent

Construction of /ew Ca!pus for IIM

h!eda$ad

Indian Ra+on : Indu,trie, #td.

Construction of Co9:eneration Capti#e

Power Pant of 15.3 M6 and Coa

?anding Pant of 134 TP? at Eera#a

Indore !unicipa* Corporation

;esign & Construction of -aiwa% A#er

0ridge at Indore

http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=34http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=3http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=104http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=97http://www.jmcprojects.com/landmark_proj_details.php?idip=104http://www.jmcprojects.com/landmark_proj_details.php?idip=3http://www.jmcprojects.com/landmark_proj_details.php?idip=34http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=34http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=3http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=104http://www.jmcprojects.com/landmark_proj_details.php?icat=0&idip=97


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In/o,+, Techno*o0ie, #td

Ban0a*ore.

Construction of Software co!pe' at

ectronics Cit%" ?osur -oad"

0angaore

#ar,en : Tou


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Paa) at 0hopa

!'RUTI U"%O$ #I!ITE"

Construction Af Car Manufacturing @nit

for Maruti @d%og Ltd.

!ini,tr+ o/ Hea*th : Fa)i*+ e*/are

!ini,tr+ BhaAan (e3 "e*hi

Construction of Eardh!an Maha#ir

Medica Coege and Li$rar% 0uiding

(Package I) at Safdarjung ?ospita

Co!pe'" /ew ;ehi

Sie)en, #td. !u)


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&. STRE($HT OF THE CO!P'(%

4.3.1 =9!5' )E069)CE

JMC is professiona% !anaged construction co!pan% with

e!po%!ent poicies and s%ste!s radiate fro! a singe

principe Q0eie#e in peope. Peope are our !ost #aued asset

& strength. JMC" therefore" created a OcutureF" which is

distincti#e in industr%. !po%ees gain a e#e of freedo!"

which pro#ides securit%" satisfaction" and" !ost i!portant%" a

sense of jo$ satisfaction.

t JMC" earning is a continuous process. Aur Training

;epart!ent offers training progra!s for e!po%ees right

through their career. good $end of ski de#eop!ent"

$eha#iora and core progra!s pro#ide e'ce for our growth.

Courses are designed to keep e!po%ees in touch with the

atest trends in !anage!ent. !phasis is aid on creati#it%"

inno#ation" achie#e!ent !oti#ation for e'ceence"

e!power!ent" aug!enting co!!unication and interpersona

skis" de#eoping initiati#e and eadership uaities and

pro#iding knowedge of co!puter appications.



44/170

4.3.2 895I$>

JMC has $uit its i!age on the strong foundation of Quait%

construction. The Manage!ent reaied i!portance of uait%

construction and i!pe!ented a d%na!ic and #i$rant uait%

assurance progra! at #er% ear% stage. uait% Manage!ent

S%ste! in the co!pan% is now upgraded as per the reuire!ent

of ISA 5441 * +444. MCFs satisfied Cient ist incudes we known

M/Cs" /ationa giants and PS@s. JMC has $agged !an% awards

for dei#ering $est uait% constructions.

4.3.3 05FE$>

strong wied dri#e to continuous% i!pro#e safet% i!pe!entation

at work sites" keep incident indices to we $eow the industr%

indices. Aur we constituted safet% poic% and rues shows right

direction to e#er% indi#idua in the co!pan%. Manage!ent sees

each !inor incident aso as a scope for i!pro#e!ent in the safet%

nor!s i!$i$ed in the poic%. Safet% standard in the co!pan% is

!oti#ationa rather than puniti#e which needs constant

super#ision and enforce!ent.

s a Safet% cuture of the co!pan%" a workers are pro#ided with

necessar% (persona protecti#e euip!ent) PP and with the

training to adhere to standard safet% nor!s and rues.

4.3.4 (5'$ 5'; !5C=I'E)>



45/170


46/170

In#o#e!ent of Top Manage!ent G Pro!oters in the projects

undertaken.

6ide e'perience and a strong infrastructure to e'ecuteprojects throughout india.

capa$iit% & co!petence to transfor! the cientDs #ision into

reait%"Eaue addition to the designs" specification & project

reuire!ents using our strong project panning & e'ecution

skis.

fe'i$e project specific working st%es considering

/eed of contract

/eed of cient

/eed of PC contractor

Ather #endors

&.& OPPORTU(ITIES

India has $een one of argest growing econo!% o#er ast few

%ears and it has grown at increasing rate especia% in the ast

three %ears. Pri!ar% and Secondar% capita !arkets ha#e

witnessed significant increase in !arket capitaiation and ha#e



47/170

pro#ided !ajor $oost to fresh capita in#est!ent in industria as

we as ser#ice sectors. Increase in per capita inco!e and

i!pro#e!ent in i#ing standards of peope ha#e infuenced

de!and for !ore housing" educations" and other ur$an

infrastructure faciities which in turn ha#e propeed construction

acti#ities.

The infow of funds in ter!s of foreign in#est!ent has $een

consistent% i!pro#ing which is going to contri$ute to the further

de#eop!ent of Indian econo!%. Construction and !oderniation

of airports" water !anage!ent s%ste!s" Mass rapid transit

s%ste! (M-TS) in a !etro G !ega cities" upco!ing Power

projects etc. are aso ike% to open up #ast opportunities for

Construction Industr%.

&. CO(CER(S

Man% issues affect s!ooth functioning of this industr%.

Contracting issues" financing issues" stiff co!petition eading to

price9cuts and ow operating !argins" high #oatiit% in prices of

!ajor inputs such as stee" ce!ent" $uiding !aterias

and petroeu! products" stringent adherence to safet%" uait%

consciousness" adapting to technoogica changes" de#eoping

and using new construction !aterias and disparities and

a!$iguities in indirect ta' structure in respect of ET G Ser#ice

JMC Projects (India) Ltd. L.J.I.M.S 2=


48/170


49/170

for Mutipurpose ir9conditioned

Indoor Stadiu! with reuired

faciities for /et$a (Co!petition

& Training Eenue) and 244 !

8 ane S%nthetic thetic Track

with reuired faciities (Training

Eenue) at Th%agaraj Sports

Co!pe' at Th%agaraj /agar"

/ew ;ehi

-eha$iitatio

n &

-etrofitting

;i#ision" C69

1,, /ew

;ehi

+. ;esign & construction ofco!pete Ci#i Package reuired

for Coa ?anding Pant (C?P)

Package for /TPC" Stage9II" ;adri

(@P) (+ ' 254 M6)

econngineering

Co. Ltd.

Eaa$h

Eidh%anagar"

:ujarat.

5444

,. :enera Ci#i 6orks9 Package I

(:C61) & Package IE (C?P Ci#i

6orks) for +


50/170


51/170

Spinning" wea#ing" Processing &

arn ;%eing at 0udhni" ;istt.

Sehore" M.P. Eardh!an 7a$rics"

Mis Ltd)

/ew ;ehi

4./.2 ,9I;I'? ()6EC$0

Pro@ectC*ient

Contra

ct

Va*ue

6R,. in

#ac,71. Ci#i 6orks for the project

Pritech Park Phase +"

Marathahai 9 Sarjapura Auter

-ing -oad" 0angaore

MGs -:

Software

S%ste!s P#t.

Ltd." 0angaore

1


52/170

(Phase9I) & Star Courts (Phase9

II) at Ja%pee :reens" :reater

/oida (@.P.)

( ;i#ision of

Ja%prakash

ssociates

Ltd.) /oida

3. Ci#i 6orks at Saarpuria

S%!phon% Sur#e% /o 8G+"

0etrana gara Eiage

Saturn :riha

/ir!an P#t.

Ltd. 0angaore

381E; $6 )5$I6

The capita e!po%ed turno#er ratio tes us the state of the

reationship $etween the sharehodersD in#est!ent in the

$usiness and the turno#er that the !anage!ent of the $usiness

ha#e $een a$e to generate fro! it.

Conc*u,ion

The working capita turno#er ratio is 2.8< ti!es" 2.


91/170

ratio has gone up fro! ,.


92/170

7igure 11 de$tors tGo ratio of peer co!pan%

The a#erage coection period !easures the uait% of de$tors

since it indicates the speed of their coection. The shorter the

a#erage coection period" the $etter the uait% of de$tors" as a

short coection period i!pies the pro!pt pa%!ent $% de$tors.

n e'cessi#e% ong coection period i!pies a #er% i$era and

inefficient credit and coection perfor!ance. The dea% in

coection of cash i!pairs the fir!Fs iuidit%. An the other hand"

too ow a coection period is not necessari% fa#ora$e" rather it

!a% indicate a #er% restricti#e credit and coection poic% which

!a% curtai saes and hence ad#erse% affect profit.

The ratio thus" indicates the efficienc% to coect the de$ts in the

%ear +445 as co!pared to the pre#ious %ear and the %ear +44="

indicates that de$ts are $eing coected ess uick% and this

pro!pt coection of $ook de$ts wi not reease funds which can

not $e put to so!e other use as co!pared to the pre#ious %ear.

Su00e,tion,

The co!pan% shoud $e efficient to coect the de$ts on ti!e

which wi hep the! in using the a!ount in so!e other use. The

co!pan% shoud i!pro#e their credit poicies i.e. credit

standards" coection progra!s which wi aso hep the! in

reduction of $ad de$ts which resuts in decrease in working

capita reuire!ents.

JMC Projects (India) Ltd. L.J.I.M.S 5+


93/170

/.3./ ?)6W$= I' 05E0

Conc*u,ion

The growth in contract receipts is 2,.4" 8+.5+> & = in

the %ear +445"+448 & +44=. s we can see sharp growth in

contract receipts for JMC in 748 co!pare to 74= and its

$ecause of aggressi#e $idding in the aied sectors in the

construction industr%. 0ut in the 745 that growth !o!entu! is

not sustained $ecause of rising co!petition" econo!ic recession

" increase in price of raw !aterias and wages" higher e'penses

etc. /e't %ear is e'pected to perfor! we as new refor!s taken

$% go#ern!ent to $oost up construction industr%.

9.& I(TERSET COVR'$E R'TIO



94/170

ratio used to deter!ine how easi% a co!pan% can pa% interest

on outstanding de$t. The ower the ratio" the !ore the co!pan%

is $urdened $% de$t e'pense. 6hen a co!pan%Ds interest

co#erage ratio is on% 1.3 or ower" its a$iit% to !eet interest

e'penses !a% $e uestiona$e.

The a$iit% to sta% current with interest pa%!ent o$igations is

a$soute% critica for a co!pan% as a going concern. 6hie the

non9pa%!ent of de$t principa is a serious% negati#e condition"

a co!pan% finding itsef in financiaGoperationa difficuties can

sta% ai#e for uite so!e ti!e as ong as it is a$e to ser#ice its

interest e'penses. Interest e'penses affect a co!pan%Ds

profita$iit%" so the cost9$enefit ana%sisdictates that $orrowing

!one% to fund a co!pan%Ds assets has to ha#e a positi#e effect.

n a!pe interest co#erage ratio woud $e an indicator of this

circu!stance" as we as indicating su$stantia additiona de$t

capacit%

Conc*u,ion

Interest co#erage ratio is ,.3+"


95/170


96/170

it is the a!ount of profit (at the gross" operating" preta' or net

inco!e e#e) generated $% the co!pan% as a percent of the

saes generated. The o$jecti#e of !argin ana%sis is to detect

consistenc% or positi#eGnegati#e trends in a co!pan%Ds earnings.

Positi#e profit !argin ana%sis transates into positi#e

in#est!ent uait%. To a arge degree" it is the uait%" and

growth" of a co!pan%Ds earnings that dri#e its stock price.

/..1 6perating (rofit )atio

7igure 1, operating profit ratio of peer co!pan%

The ratio a$o#e shows the increasing trend in the operating

profit since the ratio has i!pro#ed fro! 8.,5 in +448 to 8.=, in

+445. This indicates that the rate in increase in cost of goods

sod are ess than the rate of increase in saes" hence the

increased efficienc%.


Operating >rofit Ratio

8!"

155" 15#81!"8

000

500

1000

1500

2000

'M( )*+ ,(( -((

Copan!"#$$%&$'(

5


97/170

/..2 'et (rofit )atio

7igure 12 net profit ratio of peer co!pan%

The net profit ratio shows that the !argin is not fair% sta$e

o#er ti!e. To know how fir! is perfor!ing one has to co!pare

this ratio with the industr% a#erage or a fir! deaing in a si!iar

$usiness. JMC has co!parati#e% ow profit !argin due to high

operating e'penses (high fi'ed cost). JMC has in#ested ots of

!one% in construction euip!ents and that at a fi'ed interest

cost and depreciation which is pressuriing on their !argin.so

there was a rise in wage $is " indirect ta'es and financia

charges $ut rise in these e'penses coud $e justifia$e on $ack

of rising co!petiti#eness and shortage of skied personne.

Su00e,tion

Co!pan% shoud put !ajor e!phasis on reducing the e'penses

of cost of !aterias and construction e'penses. Co!pan% shoud

aso consider assets of the co!pan% as we as interest and ta'


3et >rofit Ratio

!!$

#48

40# 4$$

000200400$00800

'M( )*+ ,(( -((

Copan!"#$$%&$'(

5=


98/170

structure of the co!pan%. 0% considering a these aspects"

co!pan% can increase their gross profit as we as net profit.

9.9 RETUR( O( I(VEST!E(T R'TIO

/./.1 )E$9)' 6' $6$5 500E$0

Return On Total a00et0 "?(

"41

1"#4

"1$ 8$5

000

1000

2000

!000

'M( )*+ ,(( -((

Copan!"#$$%&$'(

Ratio

7igure 13 return on tota assets ratio of peer co!pan%

This ratio indicates how profita$e a co!pan% is reati#e to its

tota assets. The return on assets(-A) ratio iustrates how we

!anage!ent is e!po%ing the co!pan%Ds tota assets to !ake a


Return On In=e0tent Ratio OF JMC

#95$4

895


99/170

profit. The higher the return" the !ore efficient !anage!ent is

in utiiing its asset $ase.

Conc*u,ion

The return on tota assets is 14.,8" 5.21 and 5.81 in the %ear

+445" +448 & +44=.It appears that the acti#it% of the $usiness is

reati#e% constant" with a sight upward trend. The ratio" thus

indicates that efficient !anage!ent in the utiiation of tota

assets of the co!pan% during the three %ears. Co!pan% can to

see a !ajor i!pro#e!ent in this ratio ne't %ear.

Su00e,tion

Co!pan% shoud increase the saes and reduce the e'penses

which in turn increase 0IT which resuts in the increase in

return on tota assets.

/./.2 )E$9)' 6' C5(I$5 E!(6>E;

Return On Captail +plo!e: "?(

210$

!$#1

108! 128$

000

1000

2000

!000

4000

'M( )*+ ,(( -((

Copan!"#$$%&$'(

Rati

o

7igure 1< return on cap e!po%ed ratio of peer co!pan%



100/170

The return on capita e!po%ed (-AC) ratio" e'pressed as a

percentage" co!pe!ents the return on euit% (-A) ratio $%

adding a co!pan%Ds de$t ia$iities" or funded de$t" to euit% to

refect a co!pan%Ds tota Hcapita e!po%edH. This !easure

narrows the focus to gain a $etter understanding of a co!pan%Ds

a$iit% to generate returns fro! its a#aia$e capita $ase.0%

co!paring net inco!e to the su! of a co!pan%Ds de$t and euit%

capita" in#estors can get a cear picture of how the use of

e#erage i!pacts a co!pan%Ds profita$iit%. 7inancia ana%sts

consider the -AC !easure!ent to $e a !ore co!prehensi#eprofita$iit% indicator $ecause it gauges !anage!entDs a$iit% to

generate earnings fro! a co!pan%Ds tota poo of capita.

Conc*u,ion

The return on capita e!po%ed is +1.15" +1.4< & 15.41 in the

%ear +445"+448 and +44= respecti#e%. The ratio thus" indicates

that co!pan% has effecti#e% use a the sources entrusted with

it has earned !ore profit $efore interest" ta' and di#idend which

!ini!ie the increase in the capita e!po%ed i.e. ong ter!

funds and sharehoderFs fund in the %ear +44=948.

Su00e,tion

Co!pan% shoud pa% its creditors on ti!e due to which thecapita e!po%ed decreases which in turn increases the return

on capita e!po%ed. Co!pan% can to see a !ajor i!pro#e!ent

in this ratio ne't %ear.

http://www.investopedia.com/terms/r/roce.asphttp://www.investopedia.com/terms/r/returnonequity.asphttp://www.investopedia.com/terms/r/roce.asphttp://www.investopedia.com/terms/r/returnonequity.asp


101/170

/./.3 )E$9)' 6' 5:E)5?E 'E$ W6)$=

Return On +.uit! "?(

!15"

500#

1#24 200#

000

2000

4000

$000

'M( )*+ ,(( -((

Copan!"#$$%&$'(

Ratio

Series1

7igure 1= return a#e net worth ratio of peer co!pan%

-eturn on /et 6orth (-A/6) is used in finance as a !easure of

a co!pan%Fs profita$iit%. It re#eas how !uch profit a co!pan%

generates with the !one% that the sharehoders has in#ested.

Therefore" it is aso caed Oreturn on euit%F(-A). This !eans

tat for each rupee in#ested $% sharehoders" > was returned in

the for! of earrings. So" -A/6 !easures how !uch return the

co!pan% !anage!ent can generate for its euit% sharehoders.

-A/6 is a !easure for judging the returns that a sharehoder

gets on his in#est!ent.

Conc*u,ion

The return on a#e. net worth is in the %ear +445"+448

&+44=.The ratio " thus" indicates that efficient and effecti#e



102/170

utiiation of funds $% !anage!ent. Co!pan% can further

i!pro#e!ent in ne't %ear.

9. E'R(I($ PER SH'RE

arnings per share is genera% considered to $e the singe

!ost i!portant #aria$e in deter!ining a shareDs price. It is aso a

!ajor co!ponent used to cacuate the price9to9earnings

#auation ratio. JMC has good track record of PS & sows

co!pan%Fs contant growth.



103/170


104/170

n understanding of working capita is crucia to understanding

and ana%ing the financia position of construction contractors.

The uestions posed when e'a!ining this su$ject are*

6h% ana%e working capita

6hat is working capita

6hat are the co!ponents of working capita

6hat are the factors affecting working capita

6hat is the significance of working capita

?ow does the co!pan% i!pro#e their working capita

position or financia ratio

?ow !uch working capita is enough" and how is that

deter!ined

Is there a consistent !anner of co!puting working capita

?ow does a co!pan% enhance working capita



105/170

6h% ana%e working capita 6orking capita" and current ratio

ana%sis" are considered to $e !easures of iuidit%. Liuidit% is

one of the ke% financia state!ent ana%sis !easures. The ke%

financia state!ent ana%sis !easures are genera% considered to

$e as foows*

N Profita$iit%

N sset utiiation and efficienc%

N Liuidit%

N Capita structureN -eturn on in#ested capita

Liuidit% refers to a co!pan%Fs a$iit% to !eet its short9ter!

o$igations. It is i!portant that a co!pan% ha#e sufficient working

capita or access to funds to !eet its short9ter! o$igations.

.1 ORDI($ C'PIT'# !'('$E!E(T- '( I(TRO"UCTIO(

7inancia !anage!ent does perfor! !ajor aspects #i" necessar%

procure!ent at !ini!u! cost of capita and effecti#e and

judicious utiiation of the fund so procured" in the process of

e'ecution of econo!ics acti#ities of a fir!. More specia%

procured fund is utiied for financing working capita and fi'ed

assets. The principa o$jecti#e of the write up is to portra% #arious

issues reating to the process of working capita !anage!ent of a

$usiness entit%.



106/170

The ke% difference $etween ong ter! financia !anage!ent and

short ter! financia !anage!ent (aso referred to as working

capita !anage!ent) is in ter!s of the ti!ing of cash. 6hie ong

ter! financia decisions ike $u%ing capita euip!ents or issuing

de$entures in#o#e cash fows o#er an e'tended period of ti!e (3

to 13 %ears" or e#en !ore) short ter! financia decisions t%pica%

in#o#e cash fows within a %ear or within the operating c%ce of

the fir!.

A.1.1 C6'CE($0 6F W6)


107/170

In#est!ent in current assets and the e#e of current

ia$iities ha#e to $e geared uick% to changes in saes. To

$e sure" fi'ed asset in#est!ent and ong ter! financing are

aso responsi#e to #ariation in saes. ?owe#er" this

reationship is not as i!!ediate as it is in the case of

working capita co!ponents.

The goa of working capita !anage!ent is to ensure that the fir!

is a$e to continue its operations and that it has sufficient cash

fow to satisf% $oth !aturing short9ter! de$t and upco!ing

operationa e'penses. It is $asica% associated with deter!ining

the opti!a e#es of in#est!ent in #arious current assets. It is to

ensure that neither e'cessi#e nor under esti!ate working capita

forecast. ach ee!ent of working capita shoud $e periodica%

e'a!ined and it shoud ensure that the intrinsic #aue of a

ee!ents of current assets is !aintained intact.

Manage!ent wi use a co!$ination of poiic*es and techniues for

the !anage!ent of working capita. These poicies ai! at

!anaging the current assets (genera% cash and cash

eui#aents" in#entories and de$tors) and the short ter!

financing" such that cash fows and returns are accepta$e.

Ca,h )ana0e)ent* Identif% the cash $aance which aows for

the $usiness to !eet da% to da% e'penses" $ut reduces cash

hoding costs.

InAentor+ )ana0e)ent* Identif% the e#e of in#entor% which

aows for uninterrupted production $ut reduces the in#est!ent in

JMC Projects (India) Ltd. L.J.I.M.S 14=


108/170

raw !aterias 9 and !ini!ies reordering costs 9 and hence

increases cash fow.

Short ter) /inancin0* Identif% the appropriate source of

financing" gi#en the cash con#ersion c%ce* the in#entor% is idea%

financed $% credit granted $% the suppierR howe#er" it !a% $e

necessar% to utiie a $ank oan (or o#erdraft)" or to Hcon#ert

de$tors to cashH through HfactoringH.

.2 ORDI($ C'PIT'#

The ter! working capita is co!!on% used for the capita

reuired for da%9to9da% operations of a $usiness. positi#e net

working capita arises when current assets e'ceed current

Lia$iities and a negati#e net working capita arises when current

Lia$iities e'ceed current assets. 0oth aspects ha#e eua

i!portance for !anage!ent 9 the first focuses the attention on

the opti!u! in#est!ent in and financing of the current assetswhereas the second indicates the iuidit% position of the fir! and

suggests the e'tent to which working capita needs !a% $e

financed $% per!anent sources of funds.

A.2.1 $>(E0 6F W6)


109/170

capita is represented $% the tota current assets and /et working

capita is the e'cess of current assets o#er current Lia$iities.

On the uire)ent,6orking capita

can aso $e cassified into 7i'ed or Per!anent 6orking Capita

and Te!porar% or Earia$e 6orking capita.

a7 Per)anent or Fi=ed orin0 Capita*

It represents that part of working capita which is per!anent%

ocked up in the current assets to carr% out the $usiness s!ooth%

and efficient%. This in#est!ent in current assets is of a

per!anent nature and wi increase as the sie of the $usiness

e'pands. 'a!pes are the in#est!ents reuired to !aintain the

!ini!u! stock of raw !aterias" work in progressGfinished

products" oose toos and euip!ents. It aso reuires !ini!u!

cash $aance to $e kept in reser#e for the pa%!ent of wages"

saaries and a other current e'penditure throughout the %ear.The per!anent fi'ed working capita can again $e su$di#ided into

-eguar working capita and -eser#e Margin or Cushion 6orking

Capita.

Re0u*ar 3orin0 capita* is the !ini!u! a!ount of iuid

capita needed to keep up the circuation of the capita fro! cash

to in#entories" to recei#a$e and again to cash. This woud incudesufficient !ini!u! $ank $aance to discount a $is" !aintain

adeuate supp% of raw !aterias" etc.



110/170

Re,erAe !ar0in or Cu,hion 3orin0 capita* is the e'cess

o#er the needs or reguar working capita that shoud $e kept in

reser#e for contingencies that !a% arise at an% ti!e. These

contingencies incude rising prices" $usiness depression" strikes"

e'peri!ents with new products" etc.


111/170

costs associated with !aking the product (a$our" raw !aterias

and so on) $ut not %et got an% !one% for it. The% !ust therefore

ensure the% ha#e enough cash to do this.

ssets are an%thing which the co!pan% owns or has tite to (in

other words ownership of). Co!pan% !a% ha#e fi'ed assets which

are ong9ter! assets 9 pant" !achiner% and euip!ent" $ut the%

wi aso ha#e assets which can $e reaied (cashed9in) in the

short9ter!. This is genera% taken in accounting ter!s to $e ess

than a %ear. The current assets are therefore ones that can $e

uick% reaied and change freuent%.

ia$iit% is so!ething which a fir! owes to a person or co!pan%.

It !a% $e in the for! of creditors 9 peope or co!pan% who ha#e

sod %ou goods which %ou ha#e not %et paid for" or it !a% $e

!one% $orrowed fro! a financia institution 9 oans or o#erdrafts.

s the tite of the #aria$e suggests" we are ooking in this case

for ia$iities that are owed in the short9ter!. This is genera%

taken in accounting ter!s to $e ess than a %ear. n% !one% that

is owed in !ore than a %earDs ti!e is considered to $e a ong9ter!

ia$iit%.

The iuidit% position of co!pan% is dependent on the in#est!ent

in current assets. In !anaging current assets" the ti!e fra!e of

current assets is on% one accounting period therefore the ti!e

#aue of !one% is ess significant. n% short run" i!!ediate need

of the co!pan% whether that is need for cash or adjust!ents to

fuctuations in saes can $e !ade on% through adjusting the



112/170

e#es of the #arious co!ponents of current assets. This cas for

efficient !anage!ent of current assets which for!s part of

!anage!ent of working capita.

..1 CO(STITUE(TS OF CURRE(T 'SSETS '(" CURRE(T

#I'BI#ITIES

Part ' Current ',,et,

. In#entories

. -aw !aterias and co!ponents . 6ork in process I 7inished

:oods

. Sundr% de$tors

. Loans and ad#ances

. Cash and $ank $aances

Part B Current #ia


113/170


114/170

!atters. The !anage!ent of cash" !arketa$e securities"

accounts recei#a$e" accounts pa%a$e" accruas" and other

!eans of short9ter! financing is the direct responsi$iit% of the

financia !anagerR on% the !anage!ent of in#entories is not.

Moreo#er" these !anage!ent responsi$iities reuire continuous

da%9to9da% super#ision. Thus" working capita !anage!ent is

i!portant $ecause i!pact of working capita decisions ha#e on

the co!pan%Ds risk" return" and share price.

A.4.1 (rofita#ility and )isk

@nder%ing sound working capita !anage!ent ie two

funda!enta decision issues for the co!pan%. The% are the

deter!ination of"

The opti!a e#e of in#est!ent in current assets.

The appropriate !i' of short9ter! and ong9ter! financing

used to support this in#est!ent in current assets.

In turn" these decisions are infuenced $% the trade9off that !ust

$e !ade $etween profita$iit% and risk. Lowering the e#e of

in#est!ent in current assets woud ead to an increase in the

return on the tota assets. To the e'tent that the e'picit costs of

short9ter! financing are ess than those of inter!ediate and the

ong9ter! financing" the greater the proportiona of short9ter!

de$t to tota de$t" the higher is the profita$iit% of the fir!.

.4.2 5;:5'$5?E0 6F W6)


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The ad#antages of working capita or adeuate working capita

!a% $e enu!erated as $eow*

1. Ca,h "i,count* If a proper cash $aance is !aintained" the

$usiness can a#ai the ad#antage of cash discount $% pa%ing cash

for the purchase of raw !aterias and !erchandise. It wi resut in

reducing the cost of production.

2. It create, a Fee*in0 o/ Securit+ and Con/idence The

proprietor or officias or !anage!ent of a concern are uite

carefree" if the% ha#e proper working capita arrange!ents

$ecause the% need not worr% for the pa%!ent of $usiness

e'penditure or creditors. deuate working capita creates a

sense of securit%" confidence and o%at%" not on% throughout the

$usiness itsef" $ut aso a!ong its custo!ers" creditors and

$usiness associates.

. !u,t /or )aintainin0 So*Aenc+ and Continuin0ProductionIn order to !aintain the so#enc% of the $usiness" it

is $ut essentia that the sufficient a!ount of fund is a#aia$e to

!ake a the pa%!ents in ti!e as and when the% are due. 6ithout

a!pe working capita" production wi suffer" particuar% in the

era of cut throat co!petition" and a $usiness can ne#er fourish in

the a$sence of adeuate working capita.

&. Sound $ood3i** and "e


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!arket" purchase goods on credit and $orrow short9ter! funds

fro! $ank" etc. If the in#estor and $orrowers are confident that

the% wi get their due interest and pa%!ent of principa in ti!e.

. Ea,+ #oan, /ro) the Ban,n adeuate working capita

i.e. e'cess of current assets o#er current ia$iities heps the

co!pan% to $orrow unsecured oans fro! the $ank $ecause the

e'cess pro#ides a good securit% to the unsecured oans" 0anks

fa#or in granting seasona oans" if $usiness has a good credit

standing and trade reputation. .

9. "i,tri


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118/170

proper a!ount of working capita of a concern" the foowing

factors shoud $e considered carefu%*

..1 (ature o/


119/170

co!petion of the !anufacturing process eading to the

production of goods. s funds are necessari% tied up during the

production c%ce" the production c%ce has a $earing on the

uantu! of working capita. The onger the ti!e span of

production c%ce" the arger wi $e the funds tied up and

therefore the arger the working capita needed and #ice #ersa.

.. TurnoAer o/ Circu*atin0 Capita** Turno#er !eans the

ratio of gross annua saes to a#erage working assets. In si!pe

words" it !eans the speed with which circuating capita

co!petes its rounds or the nu!$er of ti!es the a!ount in#ested

in working assets ha#e $een con#erted into cash $% sae of the

finished goods and re9in#ested in working assets during a %ear.

The faster the saes" the arger the turno#er. Con#erse%" the

greater the turno#er" the arger the #ou!e of $usiness to $e

done with gi#en working capita.

..9 #a


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tied up in stocks and stores. In certain ines of $usiness where the

!aterias are $uk% and $est purchased in arge uantities such

as ce!ent" stockpiing is usua. Such concerns reuire arger

working capita.

.. Ter), o/ Purcha,e and Sa*e* Ter!s (cash or credit) of

purchase and saes aso affect the a!ount of working capita. If a

co!pan% purchases a goods in cash and ses its finished

product on credit aso natura%" it wi reuire arger a!ount of

working capita. An the contrar%" a concern ha#ing credit faciities

and aowing no credit to its custo!ers wi reuire esser a!ount

of working capita. Ter!s and conditions of purchase and sae are

genera% go#erned $% pre#aiing trade practices and $% changing

econo!ic conditions.

.. ConAer,ion o/ Current ',,et, into Ca,h* The need of

ha#ing cash in hand to !eet the da%9to9da% reuire!ents" e.g.

pa%!ent of wages and saaries" rents" rates" etc. has an

i!portant $earing in deciding the adeuate a!ount of working

capita. The greater the cash reuire!ents" the higher wi $e the

need of working capita.

..1 $ro3th and E=pan,ion:rowing concerns reuire !ore

working capita than those which are static. It is ogica to e'pect

arger a!ount of working capita in a growing concern to !eet its

growing needs of funds for its e'pansion andGor di#ersification

progra!!es though it #aries with econo!ic conditions and

corporate practices.

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..11 Bu,ine,, C+c*e F*uctuation,* 0usiness c%ces affect the

reuire!ent of working capita. t ti!es" when the prices are

going up and $oo! conditions pre#ai" the tendenc% is to pie up a

arge stock of !aterias and to !aintain a arge stock of finished

goods with an e'pectation to earn !ore profits. The other t%pe of

$usiness c%ce" i.e. depression in#o#es in ocking up of a $ig

a!ount in working capita as the in#entories re!ain unsod and

$ook de$ts uncoected.

..12 Pro/it 'ppropriation* So!e fir!s enjo% do!inant

position in the !arket due to uait% product or good !arketing.

An the other hand" a fir! facing e'tre!e% tough co!petition

!a% earn ow !argins of profits. high net profit !argin

contri$utes towards working capita pro#ided it is earned in cash.

The working capita reuire!ent wi $e esti!ated on how the

cash a#aia$e is used rightfu%. The contri$ution towards working

capita is affected $% the wa% in which profits are appropriated

and therefore it is affected $% ta'ation" depreciation" reser#e

poic%" etc.

..1Price #eAe* Chan0e,The financia !anager shoud aso

anticipate the effect of price e#e changes on working capita

reuire!ents of the fir!. :enera%" rising price e#es wi reuire

higher a!ount of working capita since to !aintain the sa!e e#e

of current assets" higher in#est!ent wi $e reuired. The effects

of rising price e#es wi $e different for different fir!s depending

upon their price poicies" nature of the product" a$iit% to pass on

the increase to the custo!er" etc.



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..1& "iAidend Po*ic+There is a we esta$ished reationship

$etween di#idend and working capita in co!panies where

conser#ati#e di#idend poic% is foowed. The changes in working

capita position $ring a$out an adjust!ent in the di#idend poic%.

shortage of cash !a% induce the !anage!ent for reducing

cash di#idend. An the other hand" strong cash position !a% justif%

higher cash di#idend.

..1 Credit Po*ic+The e#e of the working capita is aso

deter!ined $% the credit poic%" as the fir!Ds credit poic%

deter!ines the a!ount of recei#a$es. If the fir! has a i$era

credit poic%" then the fir! needs high working capita and the

fir! needs ow working capita if the co!pan%Ds credit poic% does

not aow it to e'tend credit to the $u%ers.

..19 !aret Condition,The working capita reuire!ents

are aso deter!ined $% the !arket conditions. In case of the high

degree of co!petition pre#aiing in the !arket the fir! has to

!aintain arger in#entories as custo!ers are not incined to wait

for the product. This needs higher working capita reuire!ents. If

there is good de!and for the product and the co!petition is

weak" a fir! can !anage with s!aer in#entor% of finished

goods" as custo!ers can wait for the product if it is not a#aia$e

in the !arket. Thus" a fir! can !anage with ow in#entor% and

wi need ow working capita reuire!ents.

..1 Condition, o/ Supp*+The a#aia$iit% of raw !aterias

and spares aso deter!ine the e#e of working capita. If there is

JMC Projects (India) Ltd. L.J.I.M.S 1++


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read% a#aia$iit% of raw !aterias and spares" a fir! can !aintain

!ini!u! in#entor% and need ess working capita. If the supp% of

raw !aterias is unpredicta$e" then the fir! has to acuire stocks

as and when the% are a#aia$e for ensuring continuous

production. Thus" the fir! needs to !aintain arger in#entor%

a#erage and needs arger reuire!ent of working capita.

..1 Other Factor, In addition to the a$o#e" there are a

nu!$er of other factors which affect the reuire!ent of working

capita. So!e of the! are the production and distri$ution poicies"

a$sence of speciaiation in the distri$ution of products" !eans of

transportation and co!!unication infrastructure" haards and

contingencies inherent in a particuar $usiness" etc.

.9 ORDI($ C'PIT'# C%C#E

The o$jecti#e of financia !anage!ent is to !a'i!ie the

sharehoders weath. So it is needed to generate sufficient profits.The profits generated depend !ain% on saes #ou!e. 6hen the

goods are $eing sod on credit as is the nor!a practice of

$usiness fir!s toda% to cope with increased co!petition" the sae

of goods cannot $e con#erted into cash instant% $ecause of ti!e

ag $etween saes and reaiation of cash.

s there is a ti!e ag $etween saes and reaiation of recei#a$esthere is a need for sufficient working capita to dea with the

pro$e! which arises due to ack of i!!ediate reaiation of cash

against goods sod. The operating c%ce is the ength of ti!e

reuired for con#ersion of non9cash assets into cash. This

JMC Projects (India) Ltd. L.J.I.M.S 1+,


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125/170

The a$o#e network diagra! !a% offer a cear picture of a

co!pete working capita. In the diagra!" -aw !ateria stock

refers to !aterias" co!ponents etc." on%. In 6IP" co!ponents

in#o#e are raw !aterias" wages" o#erheads9 !ore specifica%

construction o#erhead. Transfer of Propert% in :oods consists of

co!ponent of !ateria" wages" construction o#erhead" !arketing

cost" genera ad!inistration and financia costs. ;e$torsrepresent contract re#enue" recei#a$e fro! cients.



126/170

Creditors in#o#e accounts pa%a$e" construction e'penses and

other genera & ad!inistrati#e o#erheads against work e'ecuted

$% the co!pan%.

The diagra! a$o#e shows in a si!pified for! the chain of e#ents

in a construction fir!. ach of the $o'es in the diagra! can $e

seen as a tank through which funds fow. These tanks" which are

concerned with da%9to9da% acti#ities" ha#e funds constant%

fowing into and out of the!.

The chain starts with the co!pan% recei#ing the !o$iiation

ad#anced fro! the cient. The a!ount of !o$iiation

ad#ance #aries fro! 3> to 14> of contract #aue.

In due course" this !o$iiation ad#ance wi $e used in the

!o$iiation and set up of site infrastructure which incudes

setting up of site office" a$our coon%" stores" $ore we"

securit% office" eectrica fittings etc.

The chain continues with the co!pan% $u%ing raw !aterias"

co!ponents etc." on a cash or credit $asis.

In due course this raw !ateria stock wi $e used in

production" work wi $e carried out through #arious a$our

contractors" and it wi $eco!e part of the fir!Ds work in

progress (6IP). 6ork wi continue on the 6IP unti it

e#entua% e!erges as the Transfer of Propert% in :oods. 7or

this purpose" the co!pan% has to !ake pa%!ents towards

wages" saaries and construction cost.



127/170

Af course at so!e stage trade creditors wi need to $e paid

depending upon respecti#e pa%!ent ter!s. The co!pan% is

aso reuired to pa% ad#ance to creditors on so!e specia

ser#ices of $ack to $ack nature.

s construction progresses" these raw !aterias wi $e

con#erted into propert% in goods after undergoing the stage

of work in progress. 7or this purpose" the co!pan% has to

!ake pa%!ents towards !arketing costs" genera"

ad!inistrati#e costs and non9operating costs descri$ed as

financia costs (interest and $orrowed capita).

/or!a%" co!pan% su$!its running account $i in the first

week of !onth after the !onth in which the work is

e'ecuted. This $i is certified $% either PMC of the cient or

$% the cient hi!sef which takes nor!a% + to , weeks. In

so!e cases" co!pan% recei#es ad9hoc pa%!ent within 8 to

14 da%s fro! the date of su$!ission of $i and the $aance

a!ount wi recei#e after certification of $i. @sua% it takes

13 to 23 da%s to recei#e the fu a!ount of $i fro! the date

of su$!ission of $i. s per industr% practice" the cient

deducts 3> to 14> of certified #aue towards retention

a!ount. This a!ount is reeased after the period of 1+ to 18

!onths fro! the date of co!petion of project. So" this is

one of the !ajor co!ponents of working capita. Cient aso

hods so!e of the a!ount for the reason of inco!pete

status" uait%" fufi!ent of so!e of the contractua

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condition etc. There is aso working capita reuired for non9

de#iated" e'tra and non9tendered ite!s as we as for

insurance poicies and $ank guarantees as per the conditions

of contract.

Ance again the cash wi $e used for the purchase of

!aterias andGor pa%!ent to suppiers and the whoe c%ce

repeats itsef.

ach of the areas 9 stocks (raw !aterias" work in progress and

transfer of propert% in goods)" trade de$tors" cash (positi#e or

negati#e) and trade creditors 9 can $e #iewed as tanks into and

fro! which funds fow.

6orking capita is cear% not the on% aspect of a $usiness that

affects the a!ount of cash. Ather aspects are as foows*

The $usiness wi ha#e to !ake pa%!ents to go#ern!ent for

ta'ation

7i'ed assets wi $e purchased and sod

Sharehoders (e'isting or new) !a% pro#ide new funds in

the for! of cash

So!e shares !a% $e redee!ed for cash

;i#idends !a% $e paid

Long9ter! oan creditors (e'isting or new) !a% pro#ide oan

finance" oans wi need to $e repaid fro! ti!e to ti!e" and



129/170

Interest o$igations wi ha#e to $e !et $% the $usiness.

@nike !o#e!ents in the working capita ite!s" !ost of

these Dnon9working capitaD cash transactions are not e#er%

da% e#ents. So!e of the! are annua e#ents (e.g. ta'

pa%!ents" ease pa%!ents" di#idends" interest and" possi$%"

fi'ed asset purchases and saes). Athers (e.g. new euit%

and oan finance and rede!ption of od euit% and oan

finance) woud t%pica% $e rarer e#ents.

The operating c%ce consists of the foowing e#ents whichcontinue throughout the ife of a fir! re!aining engaged in

co!!ercia acti#ities*

Con#ersion of cash into raw !aterias. . Con#ersion of raw

!aterias in 6IP .

Con#ersion of 6IP into Transfer of Propert% in :oods

Con#ersion of Transfer of Propert% in :oods into account

recei#a$e and ;e$tors through saes.

Con#ersion of ccounts recei#a$e into cash.

. OPTI!U! ORDI($ C'PIT'#

It is i!portant to re!e!$er that the opti!u! a!ount of working

capita prefera$% woud $e ero 0ut actua% it doesnDt see! to

$e possi$e. If a co!pan% coud structure its finances so that the

iuidit% risk was so!ehow reduced to ero" there woud $e no



130/170

need for working capita. 7unds in#ested in working capita are

not as producti#e as operating assets. If %ou can !ini!ie

working capita" %ou can !a'i!ie cash fow. The a#aia$e cash

can then $e !ore profita$% in#ested in the $usiness. ?owe#er"

the fact re!ains that working capita is needed to !eet current

o$igations. So the uestion $eco!es" how !uch working capita

does a co!pan% need to account for the iuidit% risk" $ut at the

sa!e ti!e" not in#est e'cess funds in the process

..1 C'#CU#'TIO( OF ORDI($ C'PIT'# C%C#E

This iuidit% !etric e'presses the ength of ti!e (in da%s) that a

co!pan% uses to se in#entor%" coect recei#a$es and pa% its

accounts pa%a$e. The cash con#ersion c%ce (CC:) !easures the

nu!$er of da%s a co!pan%Ds cash is tied up in the construction

and saes process of its operations and the $enefit it gets fro!

pa%!ent ter!s fro! its creditors. The shorter this c%ce" the !ore

iuid the co!pan%Ds working capita position is. The CCC is aso

known as the HcashH or HoperatingH c%ce.

The cash con#ersion c%ce is #ita for two reasons. 7irst" itDs an

indicator of the co!pan%Ds efficienc% in !anaging its i!portant

working capita assetsR second" it pro#ides a cear #iew of a

co!pan%Ds a$iit% to pa%off its current ia$iities. It does this $%

ooking at how uick% the co!pan% turns its in#entor% into saes"

and its saes into cash" which is then used to pa% its suppiers for

goods and ser#ices.

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The onger the duration of in#entor% on hand and of the coection

of recei#a$es" couped with a shorter duration for pa%!ents to a

co!pan%Ds suppiers" !eans that cash is $eing tied up in

in#entor% and recei#a$es and used !ore uick% in pa%ing off

trade pa%a$es. If this circu!stance $eco!es a trend" it wi

reduce" or sueee" a co!pan%Ds cash a#aia$iities. Con#erse%" a

positi#e trend in the cash con#ersion c%ce wi add to a

co!pan%Ds iuidit%.

s a whoe" a shorter CCC !eans greater iuidit%" which

transates into ess of a need to $orrow" !ore opportunit% to

reaie price discounts with cash purchases for raw !aterias" and

an increased capacit% to fund the e'pansion of the $usiness into

new product ines and !arkets. Con#erse%" a onger CCC

increases a co!pan%Ds cash needs and negates a the positi#e

iuidit% uaities just !entioned.

So far we ha#e discussed a$out nature and scope of working

capita c%ce. /ow we !ust ha#e to know the e'act period of

operating c%ce as $ecause we ha#e to pan for ensuring iuidit%

and profita$iit% of the concern. State!ent of Cost for the

ccounting ear +44=948 is as shown $eow.

State!ent of Cost for the ccounting ear +44= 48

P'RTICU#'RS '!OU(T(Lac) '!OU(T(Lac)

Apening stock of -aw Materias" Stores1==2.14

and Spares" etc.



132/170

dd* Purchase 28854.2+

dd* Co!posite work charges ==8+.3,

Less* Cosing stock of -aw Materias"


133/170

II. 6IP G finished :oods ?oding period U #erage 6IP G

7inished :oods

999999999999999999999999999999999999999

#erage Cost of Production per da%

(11+5.88 V ,3+


134/170

U 88.


135/170

/o. of Aperating C%ce per %ear U ,


136/170

forecasting" ph%sica in#entor%" a#aia$e ph%sica space for

in#entor%" uait% !anage!ent" repenish!ent" returns and

defecti#e goods and de!and forecasting. Manage!ent of the

in#entories" with the pri!ar% o$jecti#e of deter!ining controing

stock e#es within the ph%sica distri$ution function to $aance

the need for product a#aia$iit% against the need for !ini!iing

stock hoding and handing costs.

In#entor% can $e defined as an ide resource which has an

econo!ic #aue. It is howe#er" co!!on% used to indicate #arious

ite!s of stores kept in stock in order to !eet future de!ands.

In JMC" there !a% $e foowing four t%pes of in#entor%*

(a) -aw !aterias & parts99 These !a% incude a raw !aterias"

co!ponents and asse!$ies used in the construction

($) Consu!a$es & Spares 99 These !a% incude !aterias

reuired for !aintenance and da%9to9da% operation

(c) 6ork in progress 99 These are ite!s under #arious stages of

construction not %et con#erted as finished goodsR

(d) 7inished Products 7inished goods not %et sod or put into use.

A.B.2 'EE; F6) I':E'$6)> !5'5?E!E'$

Man% of the ite!s co!pan% need for da%9to9da% !aintenance and

operation are reuired to $e specia% !anufactured for the

Construction. The ti!e to procure these !aterias" therefore" is



137/170

onger due to #arious reasons and it is not possi$e to procure

these !aterias when instantaneous% reuired. It is" therefore"

necessar% to keep stocks of such ite!s. #en for those ite!s

which are readi% a#aia$e in the !arket" it !a% not $e

econo!ica to $u% these ite!s e#er% ti!e as $u%ing in piece!ea

in#o#es additiona costs to the ad!inistration. Therefore"

co!pan% !a% find it cheaper to $u% in $uk and to stock so!e of

these ite!s and supp% indenters through such stocks. There are

awa%s so!e fuctuations in de!and as we as fuctuations in the

ti!e within which !ateria can $e procured. It is therefore" notpossi$e to forecast our reuire!ents e'act% and ti!e the

purchases in such a wa% so that the !aterias wi arri#e just

when the% are ph%sica% reuired. It" therefore" $eco!es

necessar% to !aintain stocks of these ite!s.

In the era of industriaiation and go$aiation in#entories co#er a

#er% wide range. The range of in#entor% has $eco!e arger and

!ore di#ersified. There are three !oti#es for hoding in#entories.

Transaction Moti#e e!phasies on faciitating s!ooth

construction and operations.

Precautionar% Moti#e protects against risk of unpredicta$e

changes in de!and and supp% forces and other factors.

Specuati#e Moti#e infuences the decision of !o#e!ent of

in#entor% e#es to take the ad#antage of price fuctuation.

A.B.3 6,EC$I:E (9)(60E 6F I':E$6)> !5'5?E!E'$

JMC Projects (India) Ltd. L.J.I.M.S 1,=


138/170

The purpose of hoding in#entories is to aow the co!pan% to

separate the processes of purchasing" construction and !arketing

of projects

The pri!e o$jecti#e of !aintaining proper in#entor% is to

!anage in#entories effecti#e% and efficient% in order to

a#oid unnecessar% in#est!ent" oss of saes and oss of

profit. It can further reduce the chances of oss of iuidit%.

In#entor% faciitates transit" handing and $uk purchasing

which wi hep in reduction of costs. In#entor% ser#es to isoate the suppier" the producer and

the consu!er. In short" in#entor% ser#es as a ink $etween

the production and consu!ption of goods.

In#entor% pro#ides $etter ser#ices to custo!er" !ini!iing

wastages" econo!% in purchasing" opti!u! in#est!ents

and effecti#e use of capita

nother purpose of hoding in#entories is to reduce !ateria

handing costs" ordering costs and carr%ing costs. Materia

handing cost can $e reduced $% accu!uating parts

$etween operations"

7ina%" in#entories are hed to o$tain an opti!u! utiiation

of peope" pace" ti!e and euip!ents.

A.B.4 )6E 6F I':E'$6)> I' W6)


139/170

In#entories are co!ponent of co!pan%Ds working capita and

represent a current asset. The foowing are so!e characteristics

of in#entor% which are i!portant in working capita !anage!ent.

1) Current sset* In#entories wi $e con#erted to cash in the

current operating c%ce which is nor!a% one %ear.

+) Le#e of Liuidit%* In#entories are #iewed as source of near

cash. The iuidit% aspect of in#entor% $eco!es high% i!portant

to the !anager of working capita in the case of econo!ic

sowdown and changes in the !arket trend. The in#entories are to

$e considered as the east iuid of current assets.,) Circuating cti#it%* In#entories are in a rotating pattern with

other current assets. The% get con#erted in to recei#a$es which

generate cash and in#ested again in in#entor% to continue

operating c%ce.

A.B. F5C$6)0 ;E$E)!I'I'? 6($I!9! E:E 6F I':E'$6)>

The a!ount of in#entor% is deter!ined $% a wide #ariet% of

factors. ach factor has its own i!portance and the i!portance of

factor changes for a co!pan% o#er ti!e. In order to deter!ine

the proper a!ount of in#entor% of a concern" the foowing factors

shoud $e considered carefu%*

/ature of 0usiness

nticipated #ou!e of saes . Aperations Le#e

#aia$iit% of funds



140/170

ttitude of Manage!ent

Length and Technica /ature of Construction process

Ter!s of Purchase . Supp% Conditions

Price e#e #ariations . Ti!e factor

Loan faciit%

Manage!ent poicies

A.B./ ,E'EFI$0 6F I':E'$6)> !5'5?E!E'$ 7 C6'$)6

In#entor% !anage!ent is gi#en such an i!portance $ecause of

high costs in#o#ed in in#entor%. It is aso treated as s%non%!

with DMaterias !anage!entD.

InAentor+ )ana0e)ent in#o#es the de#eop!ent and

ad!inistration of poicies" s%ste!s and procedures" which wi

!ini!ie tota costs reati#e to in#entor% decisions and reated

functions such as custo!er ser#ice reuire!ents and production

scheduing.

InAentor+contro*hods narrower sense and pertains pri!ari%

to the ad!inistration of esta$ished poicies" s%ste!s and

procedures.

In#entor% contro ensures an adeuate supp% of !aterias

and stores !ini!ies stock outs and storages and a#oids

cost% interruptions in operations.



141/170

It keeps down in#est!ent in in#entories" in#entor% carr%ing

costs and o$soescence osses to the !ini!u!.

It faciitates purchasing econo!ies through the

!easure!ent of reuire!ents onthe $asis of recorded

e'perience.

It ei!inates dupication in ordering or in repenishing stocks

$% centraiing the source fro! which purchase reuisition

e!anate.

It pro#ides a check against the oss of !aterias through

careessness or piferage.

A.B.A I':E'$6)> !5'5?E!E'$ 5$ !C

Scheduing of the reuire!ents which !eans how !uch

in#entor% is needed for construction as per panning.

Purchasing the needed in#entor%.

-ecei#ing the purchased in#entor% against the purchase

order.

Inspecting the in#entor% $% app%ing the a$orator% test and

gi#ing the uait% certificates as per ISA nor!s.

Maintaining stock records.



142/170

Stock contro ana%sis" stock e#e" handing and space

!anage!ent.

@se of Integrated software iPMS for a functions of in#entor%

!anage!ent.

Co9ordination $etween construction" indent" purchasing"

recei#ing" testing" storage" handing" issue and scrap sae.

Centraied purchasing under direction and authorit% of

co!petent procure!ent authorit%.

for!s of indent" Purchase order" Materia receipt note etc.

are unifor! for a sites under direction and authorit% of

co!petent

Co!!unication $etween panning depart!ent" site"

purchasing and #endors regarding a changes which !a%

infuence !ateria reuire!ents.

Proper storage and ph%sica #erification of !aterias &

suppies.

-ecord a transactions reated to purchase process and

consu!ption" site transfer" scrap sae etc. :enerating reports reguar%.

A.B.B I':E'$6)> !5'5?E!E'$ C>CE



143/170

The In#entor% Manage!ent C%ce de!onstrates the fow and

reationship $etween the #arious !odues and appications that

affect In#entor% Manage!ent.

.B.B.1 ()6EC$ !5'5?E!E'$ ;E(5)$!E'$

The c%ce starts with the saes and consu!ption projection"

which is done $% the Project Manage!ent depart!ent e#er%

!onth for its e'isting and new !aterias & suppies. It is done after considering the foowing factors ike de!and

of the !aterias & suppies" financia aspects" econo!ic

en#iron!ent" consu!ption of pre#ious !onth and current

!onth" project progress etc.


Project

Manage!e

nt

;ept.


144/170

fter considering a these factors" PM depart!ent con#e%s

the saes and consu!ption projection to the PMC

depart!ent.

A.B.B.2 (!C ;E(5)$!E'$

The PMC stands for Panning and Materia Contro which

refers to the panning of !aterias & spares" acuisition etc.

The need for this depart!ent e'ists in order to ana%e the

specific categor% of !aterias" to deter!ine the !ini!u!

stock to $e !aintained and to deter!ine the reuire!ents

as per project progress" for which raw !ateria has to $e

acuired we in ad#ance.

It cacuates the reuire!ent of the raw !ateria on the $asis

of the saes projection and consu!ption done and paces an

order to the purchasing depart!ent.

A.B.B3 (9)C=50E ;E(5)$!E'$

Purchase depart!ent paces an order to the e'isting

suppiers on the $asis of the credit ter!s as we as ti!e%

dei#er% of the raw !ateria.

If the depart!ent thinks to dea with the new suppiers

whose credit ter!s are !ore fa#ora$e to the e'isting ones

then it first takes the per!ission fro! the top !anage!ent



145/170

and paces a s!a order to the! and if satisfied" the%

gradua% increase the uantu! of the order.

=.8.8., TSTI/:

fter recei#ing the order fro! the purchase depart!ent" the

suppier dispatches the !ateria to the store depart!ent at

the construction site.

/ow the testing process is conceded on the raw !ateria in

order to check whether the raw !ateria is as per the uait%

and specification prescri$ed $% the co!pan% and Gor the

cient at the ti!e of pacing an order.

A.B.B. 895I$> 5009)5'CE 5'; C6'$)6

The construction site is di#ided in to #arious jo$s and Jo$

codes are assigned to respecti#e jo$s. So that" if an%

pro$e! occurs during the construction or an% ater stagethen" the faut can $e easi% detected.

uait% ssurance depart!ent is used to check the uait%

when the construction is going on so that the wastage of

!ateria and energ% is a#oided.

uait% contro depart!ent is used to e'a!ine whether the

uait% of construction is as per the standards or not.

.. COSTS RE#'TE" TO I(VE(TOR% !'('$E!E(T


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