(A GOVT.

OF INDIA UNDERTAKING UNIT)

“SUMMER INTERNSHIP PROJECT ON WORKING

CAPITAL MANAGEMENT OF SAIL WITH SPECIAL
REFERENCE TO BOKARO STEEL PLANT (BSL)”

SUBMITED TO:- SUBMITED BY:-

[Link] VARMA MITHILESH YADAV

Roll No. – 0907070022

MBA 2nd year(3rd Sem)

Session – 2009-11

1
 ACKNOWLEDGEMENT

At the very outset, I wish to express my heartiest gratitude to all those who
extended their help, guidance and Suggestion and without their help it was
not possible for me to complete this Project Report.
I am deeply indebted to my guide Mr.
R.B Sharma (Jr. Manager) (Accounts & administration), Mr. S. K. Roy
(D M Finance & Accounts) for their valuable and enlightened guidance as
well as freedom they had offered to me during the project work. I can’t
forget the contribution and helped extended to me by Mr. Krishn Chand
(Manager) , (Sales Tax & Excise) Mr. U. S. Bhaskar (Dy. Manager) &
Mr. P. C. Mishra (Sr. Manager) (Operation Finance) . They ever
prepared to feed Necessary information and guidance.
I can not forget the contribution and helped extended to me by Anurag
Gupta ([Link], Main a/c) Jitendra Kumar ([Link]) (Project
Finance) D . Kumar (Dy. Manager) (P.F. section) Mrs. Poonam (Dy.
Manager) K.C. Gajrai ([Link]) [Link] ([Link] Raw
Materials).

I am also thank full to all the employee who provide the practical
information about the production process, practical show the working
criteria of the plant & those employee who give the lift to me at the time of
plant visit because with out them I can’t visit the plant easily.
MITHILESH YADAV
Roll No. – 0907070022
MBA 2nd Year
Session-2009-11

2
 CERTIFICATE

This is to certify that the project entitled “WORKING CAPITAL

MANAGEMENT” at BOKARO STEEL PLANT has been carried out by
Mr. MITHILESH YADAV from 5TH July10 to 31st July 10, under my
supervision in partial fulfillment of his MBA 2nd year at
COLLEGE OF ENGINEERINGAND RURAL TECHNOLOGY
MEERUT.

I am satisfied with his sincere performance and study conducted by him in

BOKARO STEEL PLANT.

I recommend to submit the project report. I wish him all success in life.

This is also certified that the project work is original and has not been
submitted to any other place.

DATE: Mr. R.B. Sharma

(Jr. Manager, F& A)
Bokaro Steel Plant
SAIL

3
 DECLARATION

I hereby declare that the following documented project report titled

“Working Capital Management " is an authentic work done by me as a
part of my study on finance.

I also further state that the project has been prepared by my own with the
secondary data provided in the reports of the company, which were essential
for the completion of the project. The project was undertaken as a part of the
course curriculum of MBA, UTTAR PRADESH TECHNICAL
UNIVERSITY, LUCKNOW.

MITHILESH YDAV

COLLEGE OF ENGEINEERING AND RURAL

TECHNOLOGY MEERUT,

4
 INDEX

Contents: page no.

Chapter - 1

1.1 Executive summary 06

1.2 Introduction
Global Steel Scenario and Indian Steel Industry 09
SAIL 11
BSL 17

1.3 Review of literature 28

1.4 Objective of study 29

Chapter – 2

2.1 Nature of product 30

2.2 process 34

2.3 Analysis 39

Chapter -3

3.1 Strategies 42

3.2 policies 48

Chapter - 4

4.1 Research Methodology 51

4.2 Types of Data 55

4.3Working Capital – Overall View 57

Cash Managemeni

4.4Inventory Management 60

5
 4.5Receivable Management 62

4.6 Financial Statements and Ratio Analysis 44

4.7 Flow chart of sales process followed in BSL 46

Chapter - 5

5.1Conclusions 49

5.2Suggestion 50

5.3Bibliography ` 51

6
Chapter - 1

1.1 Executive summary

1.2 Introduction
Global Steel Scenario and Indian Steel Industry
SAIL
BSL

1.3 Review of literature

1.4 Objective of study

7
1.1 EXECUTIVE SUMMARY

Steel Authority of India Limited (SAIL) is the leading steel making

company in India. It is fully integrated iron and steel maker, producing both
basic and special steel for domestic construction engineering, power,
railway automotive and defense industries and for safe in export markets.
Bokaro Steel Plant – The fourth integrated plant in the public sector taking
shape in 1965 in collaboration with the Soviet Union.
It was originally
incorporated as a limited company on 29thJanuary 1964, and was later
merged with SAIL first as a subsidiary and then as a unit through the public
sector iron & steel companies act1978. Working capital management is
concerned with the problem that arises in attempting to manage the current
assets, current liabilities and the interrelationship between them. Its
operational goal is to manage the current assets and current liabilities in
such a way that a satisfactory level of working capital is maintained.

The working capital ratio is calculated as:

Positive working capital means that the company is able to pay off its short-
term liabilities. Negative working capital means that a company currently is
unable to meet its short-term liabilities with its current assets (cash,
accounts receivable and inventory).

Working capital also gives investors an idea of the company’s underlying

operational efficiency. Money that is tied up in inventory or money that
customers still owe to the company cannot be used to pay off any of the
company’s obligations.

8
To measure efficiency we have used ratio analysis as a technique and the
main ratio we have used are liquidity ratio and activities ratio. One more
tool we have used is calculation of operating cycle which shows\how
effectively the firm is using its resources or how much time its take to
convert its investment back into cash. By looking previous data we came to
know BSL have done a great job in this field operating cycle by 30% in just
three financial years.

1.2 INTRODUCTION
GLOBAL STEEL SCENARIO AND INDIAN STEEL
INDUSTRY :-

Though evidences indicate that iron and steel have been used by for almost
6000 years, the modern form of iron and steel industry came into being only

during the 19th century. The growth and development of Iron and Steel
Industry in the world until the Second World War was comparatively
slower. But the industry has grown very rapidly after the Second War was.
World production of steel, which was only 28.3 million tones (MT) in 1900,
rose to 695 MT by 1992. The oil crisis of the seventies affected the entire
economy of the world including the steel industry. The position started
improving after 1983 and peaked at 780 MT in 1989. It starred declining till
1994 (723MT), picked up again to 755.8 in 1995. The World Steel
production is around 1132 MT in 2005, registering a growth of 6% over
2004.

9
HISTORICAL BACKGROUND

The antiquity of man’s use of iron attested by references to that metal both
in fragmentary writing & inscriptions that survived ancient civilization of
Babylon, Mexico, Egypt, China, India, Greece & Rome. However, it is
believed that most of the iron used by pre–historic people might have been
obtained by fragment of meteorites and it remained a rare metal for many
centuries.

For many years after man learned how to extract iron from its ores, the
product probably was so relatively soft and unpredictable, that bronze
continued to be preferred for many tools and weapons. Eventually iron
replaced the non–ferrous metal for these purposes when man learned how to
master the difficult arts of smelting, forging, hardening and tempering iron.
Archeological findings in Mesopotamia and Egypt have proved that iron or
steel has been in the service o mankind for nearly 6000 years. The origin of
the methods used by early man for extracting iron from its ores is unknown.
Some have suggested that many learned the method accidentally.

Iron, in the beginning was smelted by charcoal made from wood. Later coal
was discovered as a great source of heat. Subsequently, it was converted
into coke, which was found to be ideal for smelting of iron. Iron kept its
dominant place for 200 or more years after the Saugus works that was the
first successful Iron Works in America founded in 1646, with the advance of
Industrial Revolution, iron formed the rails for newly invented railroad
trains. It was also used to amour the sides of the fighting ships. About the

mid 19th century the new age of steel began with the invention of Bessemer
process (1856) making steel available in large quantities at reasonable cost.

10
INDIAN HISTORY
Indian history is also replete with references to the usage of iron and steel.
Some of the ancient monuments like the famous iron pillar near New Delhi
or the massive beams used in the Sun Temple at Konark bear ample
testimony to the technological excellence of the Indian metallurgists.

The history of iron in India goes back to the ancient era. Our ancient literary
sources like Rig Veda, the Atharva Veda, the Puranas and other Epics are
full of references to iron and its uses in peace and war. According to one of
the studies, iron has been produced in India for over 3000 years.

OUTLOOK FOR THE INDIAN ECONOMY

After witnessing rapid strides during the years after the liberalization
process was set in motion, India’s GDP grew at an average rate of 5.2 %
during the period 1998–99 to 2002–03. However, there was a break from
the trend in 2003–04, during which the economy is estimated to have grown
at more than 8%. The economy of India, measured in USD exchange – rate
terms, is the twelfth largest in the world, with a GDP of around $1 trillion
(2008). It recorded a GDP growth rate of 9.0% for the fiscal year 2007 –
2008 which makes it the second fastest high emerging economy, after
China, in the world. The economy is expected to continue on a high growth
path with continued macroeconomic stability.

Over the years there has been a downward trend in interest rates
accompanied by moderate inflation and adequate liquidity in economy. In
April 2003, the Bank Rate was reduced to 6%, which was a 30 – years low.
Commercial Banks have also resorted to sub–PLR lending. With sub PLR
lending and reduction in maximum spread over PLR, lending rates have

11
effective come down Infrastructure development has been a focus area for
the Government in recent years. In the road and highway network, India is
witnessing development of multiple–lane, safe and well designed interstate
highways. Recently the Government has announced a planned outlay for the
rural road and highway network development. The Golden Quadrilateral
Project is an ambitious project that would connect the four major metros via
state of the art highways. The East–West and North – South corridors would
link up the remotest parts of the country. The Government is also planning
to facilitate investments in seaports and airports in a major way.

STEEL DEMAND SCENARIO

India’s steel production is likely to surpass the domestic requirement by

2011–12, easing pressure on prices of the alloy, which has been adding to
the spiraling inflation.
“We shall achieve 124 million tons of steel capacity by 2011–12, well
exceeding the requirement that would be to the tune of about 110 million
tons at that point of time,” Steel Minister Paswan said.

Steel prices shot up by over 50 percent since January, adding to the woes of
the UPA government, which is battling a seven–year high inflation of 8.75
percent in its last year. The annual demand for steel in India has been rising
by about 13 per cent, but production is growing by over 6 percent, according
to official sources. Last fiscal, the country’s crude steel production stood at
53.9 million tons, of which about 5 million tons were exported. To bridge
the demand – supply mismatch, India had to import nearly 7 million tons of
steel. Steel Secretary R S Pandey while endorsing India becoming a net steel
importer from being a net exporter till a few years ago, said the trend is

12
likely to continue for some time as increase in capacity takes at least three to
four years.
As per official figures, country’s finished steel import went up by over 300
percent from 1.6 million tons in 2002–03 to nearly 7 million tons in 2007–
08 (provisional). In view of the growing demand, the government plans to
scale up steel production to over 290 million tons by 2020. It has also
envisaged that the sector will see an investment of Rs. 8, 70,640crore by
that time.

Going by an estimate of Rs. 4,000-crore outlay per million tones of

additional capacity, an investment of Rs. 2, 76,000crore is likely to take
place by 2012 and Rs. 8,70,000crore by 2020. As of now, both domestic and
foreign steel players have signed 193 memoranda of understanding with
states for setting up new units with a total planned capacity of around 243
million tons and a total proposed investment of over Rs. 5,14,000crore.

Private and public sector steel companies have also embarked on capacity
expansion, Steel Authority of India Limited plans to take up its hot metal
production to 26.13 million tons by 2010 from the present 12.84 million
tons. Private steel majors including Tata, JSPL, ISPAT and JSW Steel have
also lined up expansion of their existing production strength.

13
  

Satisfaction Customer

Aspiration Unlimited

Improvement Continual

Leadership Market

VISION

To be a respected world class corporation and the leader in Indian steel business in
quality, productivity, profitability and customer satisfaction.

14
CREDO

We build lasting relationships with customers based on trust and mutual

benefit.

We uphold highest ethical standards in conduct of our business.

We create and nurture a culture that supports flexibility, learning and is

proactive to change.

We chart a challenging career for employees with opportunities for

advancement and rewards.

We value the opportunity and responsibility to make a meaningful

difference in people's lives.

BACKGROUND & HISTORY

AN INTRODUCTION:

Steel Authority of India Limited (SAIL) is one of the leading Steel

manufacturing companies in India. It is fully integrated iron and steel
maker, producing both basic and special steel for domestic consumption,

15
engineering, power, railway, automotive and defense industries and for sale
in export market.
Ranked in top ten public sector companies in India in terms of turnover,
SAIL manufactures a broad range of steel products, including hot and cold
rolled sheets and coils, galvanized sheets, electrical sheets, railway products,
structural, plates, bars and rods, stainless steel and other alloy steel. SAIL
produces iron and steel at five integrated plants, and three special steel
plants, located principally in eastern and central region of India and situated
close to domestic sources of raw material, including the company’s iron ore,
limestone and dolomite mines. The company has distinction of being India’s
largest producer of iron ore and of having the country’s second largest
mines network. This gives SAIL a competitive edge in term of captive
availability of iron ore, dolomite, and limestone which are major inputs for
steel making.
SAIL’s wide range of long and flat steel products is much in demand in
domestic as well as International market. This vital responsibility is carried
out by SAIL’s own Central Marketing Organization (CMO) and the
International Trade Division. CMO encompasses a wide network of 34
branch offices and 54 stockyards located in major cities and towns
throughout India.
With technical and managerial expertise and know-how in steel making
gained over four decades, SAIL’s Consultancy Division (SAILCON) at
New Delhi offers services and consultancy to clients world-wide.
SAIL has a well equipped Research and Development Centre for Iron and
Steel (RDCIS) at Ranchi which helps to produce quality steel and develop
new technologies for the steel Industry. Besides SAIL has its own in house
Centre for Engineering and Technology (CET), Management Training
Institute (MTI) and safety Organization at Ranchi. Its captive mines are
under the control of the Raw Material Division in Kolkata. The
Environment Management Division and Growth Division of SAIL operate
from their head Office in Kolkata. Besides SAIL has a capacity for 700MW
of captive power generation. The steel plants of SAIL also produce
fertilizers and chemicals.

16
A BRIEF HISTORY OF SAIL:

SAIL was established as a holding company at New Delhi on 24thJanuary

1973 with authorized share capital of Rs.2000 crores. This holding company
was formed with four public sector steel plants and the input industries in
iron ore, coking coal and scrap. The companies were Hindustan Steel Ltd,
Hindustan Steelworks Construction Ltd, Bokaro steel Limited, Salem Steel
Ltd, Bharat Coking Coal Ltd, National Mineral Development Corporation.
The shares of these companies were held by the President of India and were
transferred in March 1973 to SAIL. The paid up capital as on 31 st March
1974 was Rs.1326 crores.

It was converted into a into a unitary company in 1978 and is now

responsible for the management of the five integrated steel plants at Bhilai
in Chattisgarh, Bokaro in Jharkhand, Durgapur and Burnpur in West Bengal
and Rourkela in Orissa. It is also responsible for the management of four
alloy steel plants at Salem in Tamil Nadu, Durgapur in West Bengal,
Bhadravati in Karnataka and Chandrapur in Maharastra.

1960

The Alloys steel plant was installed at Durgapur in W. Bengal with

Japanese assistance . The plant with an installed capacity of 1 lakh TPA of
ingot steel has capacity to produce 2.60 TPA of liquid steel with modern
facilities such as VAD, VOD and continuous casting. Special steels were
produced such as armour plate, grade steel and many special grade alloys to
meet vital and strategic needs of the country in areas of nuclear energy,
defence, space.

1968
- SAIL took over the management of Maharashtra Elektrosmelt Ltd. a small
compact company, at Chandrapur, Maharashtra for utilising some of its

17
facilities for R&D works as well as maximising its production of ferro
manganese for use in SAIL plants. The unit produces several goods of
special steels. The Company proposed to diversify into manufacture of ferro
alloys, low carbon pig iron etc.

1973
- Pursuant to a decision taken by the Government of India in January the
Steel Authority of India, Ltd. was formed on 24th January, as a holding
company for Steel and Associated input industries.

- CEDB was converted into a separate company in the name of

Metallurgical Engineering & Consultants (India), Ltd., Bolani Ores Ltd.,
Metal Scrap Trade Corporation and Mysore Iron & Steel Co. Ltd. became
subsidiaries of SAIL. Maharashtra Eleckrosmelt Ltd., Visvesvaraya Iron and
Steel Ltd., Indian Iron & Steel Co., Ltd., IISCO-Ujjain Pipe & Foundry Co.,
Ltd. are all subsidiaries of the Company.

- The Bhilai Steel Plant was set up in the late fifties at Madhya Pradesh with
a capacity to manufacture 1 million TPA of ingot steel, with Russian
Collaboration. The products include heavy rails, heavy structurals, squares,
merchant sections besides semis like blooms and billets and pig iron for
sale.

- The Durgapur Steel Plant was erected in W. Bengal in the late fiftees with
British collaboration. Set up as a 1 million TPA ingot steel capacity plant, it
was subsequently expanded to 1.6 million TPA in 1960. The plant is a major
producer of railway materials like wheels and axles, fish plates and sleepers.
It also manufactures light and medium sections, merchant sections and
skelp. The plant underwent continuous expansion in stage to 1.6 million
TPA of ingot steel and 1.239 million TPA of saleable steel.

- The Rourkela Steel Plant was commissioned in the late fifties with the
assistance of Federal Republic of Germany. Situated in Orissa, the plant was
the first of its kind of integrated steel plant in India and was designed to
produce only flat products. It was the first plant to introduce basic oxygen
furnace process. It also has a fertilizer plant with a capacity to produce
4,60,000 TPA of calcium ammonium nitrate.

18
1974

- SAIL International Ltd., was incorporated to coordinate the export and

import business.

1976

- Durgapur Mishra Ispat Ltd., Bhiali Ispat Ltd., an Rourkela Ispat Ltd., were
formed as fully owned subsidiaries of SAIL for taking over the running
business of Alloy Steels Plants, Bhilai steel Plant and Rourkela Steel Plant
on tranfer from HSL.

1978
- On 1st May, Metallurgical & Engineering Consultants (India), Ltd.,
Hindustan Steel Works Construction Ltd., National Mineral Development
Corporation Ltd., Bharat Refractories Ltd., India Firebricks & Insulation
Co. Ltd., and Bharat Cooking Coal Ltd. (1974), were delinked from SAIL.

- The Indian Iron & Steel Co. Ltd. became a subsidiary of SAIL. The Kulti
Works of this company, with an annual capacity of 1.57 lakh tonnes is the
largest producer of cast iron and spun pipes.

1980
- 273,32,471 shares allotted to the President of India (124,43,829 shares
allotted for consideration other than cash).

1981
- 44,39,100 No. of shares allotted to the President of India.

1982
- The Salem Steel Plant was inagurated at Salem in Tamil Nadu in March. It
represents the dispersal of industries and balance regional development
bringing the latest sophistication in cold rolling. The products find
application in major industries viz., nuclear, petroleum, chemicals,
fertilisers, food processing, Pharmaceuticals, dairy, household appliances,
cutlery etc.

19
- The Salem Steel Plant designed to roll 32,000 TPA of cold rolled stainless
steel strips and wider sheet was expected to be increased to 70,000 TPA by
the installation of a Sendzimir mill.

- On 21st May, MSTC ceased to be a subsidiary of the Company.

- 4,39,300 No. of Shares allotted to the President of India.

1983
- 20,16,442 No. of shares allotted to the President of India.

1984
- 16,05,800 No. of shares allotted to the President of India.

1985
- A number of technological improvement schemes were undertaken, the
most notable being the conversion of open hearth furnace No. 10 into twin
hearth furnace.
- 28,83,360 No. of shares allotted to the President of India.

1986
- All the Phase-I units under the plants' 4 million tonne expansion
programme were commissioned. A vacuum arc degassing unit was started in
the converter shop and a second normalising furnace in plate mill was
added.
- 5,23,100 No. of shares allotted to the President of India.

1987
- 3,95,200 No. of shares allotted to the President of India.

1988
- The Visvesvaraya Irons & Steel Co. Ltd. became a subsidiary of SAIL
with SAIL acquiring 60% of the shares of the Company. It has an installed
capacity of saleable steel to the tune of 77,000 TPA of alloy and special
steel and 48,000 TPA of mild steel. It produces 200 varieties of
sophisticated alloy steel and ferro alloys.

20
- The Bhilai Steel Plant set up a blast furnace bell-less top charging system.

- 90,000 No. of shares allotted to the President of India.

1990
- A modernisation programme was started to revamp and technologically
upgrade the plant. After the modernisation the plant is slated for a crude
steel capacity of 1.9 million TPA.

- 90,000 No. of shares allotted to the President of India.

1991
- 19,90,75,400 No. of equity shares of Rs 10 each transferred by Govt. of
India (President) to Financial Institutions/Banks and Mutual Funds.

1992
- The Company produce various qualities and grades of iron and steel i.e.,
mild steel, alloy steel, special steel, stainless steel, ferro alloys, ERW pipes,
spirally welded pipes, etc. The Company's activities include planning,
promoting and organising an integrated and efficient development of the
iron and steel and its associated input industries such as iron ore, cooking
coal, manganese, limestone etc. It has a well equipped Research &
Development Centre for Iron & Steel (RDCIS).

- The Company's R&D unit at Ranchi was set up with a view to promote
continuous improvement in critical performance indices of the steel plant in
order to increase productivity, reduce production cost and improve quality
by production optimisation or by introduction of new technologies. The
centre undertook various collaborative ventures with agencies both in India
and abroad.

- 4384,445 No. of shares allotted to the President of India.

21
1993

- Government approval for modernisation of BSL stage-I were received.

- The Company launched the consultancy division with a view to harness

the resources and expertise in steel related areas and market engineering,
technical, managerial and training services.

- The Company undertook to float a joint venture company in collaboration

with USX Engineers & Consultants Inc., Pittsburg, USA for development
and execution of technology and system integration for computer
applications in basic industries such as those engaged in steel mining and
metallurgy.

- The Company issued bonds valuing Rs 795 crores by way of private

placement to various financial institutions and banks.

1994

- Two major schemes viz. new sinter plant III and expansion of oxygen
plant II were taken up for implementation. C.O. Battery No. 10 was
commissioned.

- A number of production units like new sinter plant, basic oxygen furnace
shop continuous casting plant were commissioned. At Rourkela steel plant,
five of phase II modernisation packages viz. power distribution, mobile
equipment for RMHS - II sizing plant at Satara, Tarkera intake facilities and
make-up water pump houses for Tarkera works were commissioned.

1995

- Under the modernisation programme, the new units like Basic Oxygen
Furnace Shop (BOF), Continuous Casting Plant (CCP) and New Sinter Plant
were stabilised.

- The operation of hot rolling mill was stabilised in April 1996. The mill
would enable rolling of stainless steel and carbon steel slabs at Salem itself.

22
- SAIL has ventured into setting up a power project at Bhilai in joint venture
with M/s. Larsen & Toubro and CEA, USA Inc.

- The Company issued non-convertible bonds valuing Rs 710 crores through

private placements to various financial institutions, banks, trusts, etc.

1996

- Government clearances were obtained. Other joint venture options were at

various stages of consideration in the area of manufacturing of slag cement
and marketing of Romelt technology.

- For Romelt technology, Government approval for investment by SAIL &

Russian partners were received and joint venture agreement was signed with
the promoters.

- To augment availability of iron ore for Bhilai steel plant, the company
planned to develop Rowghat iron ore mines for which MP Government
recommenced clearance of Rowghat project subject to signing of MOU
between Ministry of Railways, MP Government, SAIL and NMDC for
construction of Railway line from Dalli Rajhara to Jagdalpur from both end
simultaneously.

- In March, the company launched an Euro Issues of US $125 million

offering 96,33,90 Global Depository Receipts representing 14,45,08,500
equity shares (1 GDR = 15 share) at an issue price of US $12.975 per GDR.

1997
- Major production facilities of modernisation like both continuous casting
machines, steel refining unit and coiler-4 were installed.

- The Modernisation of rail & structural mill (stage 1-phase) was

commissioned.

- A Steel rolling mill will be set up by Steel Authority of India Limited

(SAIL) at Da-gaon, 60 km north-west of Guwahati.

23
- The hot rolling mill complex of the public sector Salem Steel Plant, a
subsidiary of the Steel Plant, a subsidiary of the Steel Authority of India
Limited (SAIL), has been awarded the ISO-9002 certification in a record
period of one year within its commissioning.

- The Company has proposed a joint venture with CIL for running the
collieries and washeries to improve the quality and quantity to cooking coal.

- Sailcon, the SAIL Consultancy Division, has entered into an agreement

with USX Engineers and Consultants Inc of the US (UEC) to assist UEC in
providing technical consultancy for its client Tisco for the installation of the
galvanising lines at the Gopalpur complex.

- The SAIL has signed an agreement with National Securities Depository

Limited for admission of its shares eligible for trading on depository system
through electronic mode.

- SAIL is all set to hike its global presence through joint ventures and
technological upgradation. The joint venture was set up early last year to
develop and market computer systems with specific reference to the steel,
mining and metallurgical industries, based on the technology already
implemented by its joint venture partners.

- SAIL is already the lowest quoted scrip (Rs.21) on the Mumbai Stock
Exchange's 30-share Sensex.

- Steel behemoth Steel Authority of India is currently considering a joint

venture for setting up two finishing mills at Durgapur Steel Plant to covert
huge number of semis which constitute 50 per cent of the plant's total
production even after the Rs 5,000 crore modernisation.

- Public Sector Steel major Steel Authority of India has signed up TRF
(formerly Tata Robins Fraser) for providing technology for the blast furnace
upgradation project at its Bhilai steel plant in Madhya Pradesh. TRF will
provide the coal dust injection technology to improve the efficiency of the
blast furnaces.

24
1998

- The largest steel conglomerate in the country, Steel Authority of India

(SAIL), is offering deposit schemes - fixed and cumulative - for one, two
and three years respectively.

- In view of Steel Authority of India Ltd's (SAIL's) rising demand for

cooking coal, Coal India Ltd (CIL) is contemplating a joint venture with
SAIL for opening new mines.

- SAIL is also looking for marketing tie-ups in the overseas market. Some
SAIL products like plates and intermediate steel products (semis) are well
received in the international market.

- In an effort to help the country save foreign exchange, Coal India Ltd
(CIL) and Steel Authority of India Ltd (SAIL) have entered into an
agreement for the supply of coal.

- Steel Authority of India Ltd (SAIL) is taking up development of new iron

ore, coal and limestone mines through joint ventures in the wake of
increasing steel output and fast-depleting reserves of these inputs.

- Romelt-SAIL India Ltd (RSIL), a joint venture between Steel Authority of

India and three Russian companies offering the Romelt technology, has
been signed up with the Jindal group flagship, Jindal Strips, for preparing a
feasibility report for setting up a 300,000-tonne capacity Romelt plant in
Raigarh, Madhya Pradesh.

- The Bhilai Steel Plant (BSP) of Steel Authority of India Ltd (SAIL) has
been awarded the prestigious national quality award for the sixth time by the
Indian Institute of Metals (IIM) for the year 1997-98.

- SAIL's research and development centre for iron and steel (RDCIS) which
decided to undertake research work for the private sector, signed an MoU
with Usha Martin Industries to carry out investigation of patented steel wire-
rod and wire samples of the company.

25
1999

- The Steel Authority of India Ltd (SAIL) has forged a marketing tieup with
Tyazpromexport (TPE) of Russia to sell the entire range of castings and pig
iron produced by Kulti Works, a division of Indian Iron and Steel Company
(Iisco).

- The SAIL is all set to finalise a major power deal with Enron Power
Corporation of the United States. The deal envisages formation of a joint
venture with the global power major acquiring 51-per cent equity in the new
company. The new company will take over Sail's captive power plants at
Bokaro, Rourkela and Durgapur which have a combined capacity of about
550 MW.

- Indian steel major SAIL has joined the Ulsab-AVC (ultra-light steel auto
body-advanced vehicle concepts) consortium, a grouping of 28 steel
producing companies around the world formed to support the automotive
industry's search for steel-based solutions to its long-term challenges.

- Sail is considering setting up an additional steel making facility at Salem,

through a joint venture or hiving off the entire SSP to create a separate
subsidiary with it holding a majority stake.

- The management and trade unions of Steel Authority of India Ltd (SAIL)
have joined hands to make the public sector steel giant's loss-making
subsidiary alloy steels plant (ASP) at Durgapur in West Bengal viable.

2000
- Steel Authority of India's Rourkela Steel Plant is planning to increase its
saleable steel production from 1.2 million tonne to 1.7 million tonne per
annum by 2001-02.

- The Company signed a MoU with Egypt's public sector Metallurgical

Industries Corporation (Micor) for the establishment of a modern technical
and management training centre for the Egyptian steel industry.

26
- Crisil has upgraded rating of company's Bond programme from BBB to
BB and FD Programme from FB+ to FA-.

- SAIL has proposed to convert lisco into a joint venture with the company
having a minority shareholding.

- The Company signed a memorandum of understanding with the ministry

of steel, as directed by the cabinet, for the implementation of business
restructuring with detailed milestones.

- Steel Authority of India is increasing the capacity of hot-rolled coils

(HRC) at Bokaro Steel plant to meet growing demand in the domestic
market.

- The Company has set up an office of restructuring at its corporate

headquarters to facilitiate coordination on all aspects of the detailed
business restructuring exercise it is currently engaged in.

- The Company is expanding its marketing network by appointing

wholesale dealers for medium and heavy structurals in select cities like
Mumbai, Delhi and Chennai and plant locations like Bhilai and Durgapur.

- The Company had received a good response to its global tender for a joint
venture with its subsidiary, Indian Iron and Steel Company Ltd.

- The Company would introduce the next round of voluntary retirement in

the next two to three months.

- The Company has launched a new millennium special media campaign to

hardsell its wide range of products.

- The Company has shortlisted Avesta Sheffield (UK) and Tata Steel/Usinor
combine from the four parties which had expressed interest in being joint
venture partners for its Salem Steel Plant.

- Durgapur Steel Plant of Steel Authority of Indian Ltd will set up a slag
granulation plant on build-own-operate basis to generate more revenue
through better waste utilisation.

27
- The Company will undertake the modernisation of the cold-rolled mill at
its Bokaro steel plant.

- The Durgapur Steel Plant of SAIL, has commissioned the computerised

integrated production planning and control (PPC) system that helps in
practically every aspect of plant operation and despatch.

- The Company has formed a joint venture with Calcutta-based Bansal

Mechanical Works to set up a steel service centre at Bokaro.

- Private sector steel majors Tisco, Kalyani Steel and the public sector Steel
Authority of India are all set to form a three-way joint venture for
undertaking e-commerce activities in the steel sector.

- Steel Authority of India Ltd., Tata Steel and Kalyani Steels Ltd. entered
into an agreement for creation of an Internet-based global, independent B2B
Steel Market place.

- SAIL is likely to kick off a fresh round of voluntary retirement scheme on

October to separate 10,000 of its worers during the current financial year.

- Steel Authority of India Ltd's Research & Development Centre for Iron
and Steel has signed a memorandum of understanding with MECON to
enable complementary of strengths in Iron & Steel and allied areas.

- Steel Authority of India Ltd and the National Thermal Power Corp. are set
to begin for a joint venture for three captive power plants and associated
units of SAIL.

- Steel Authority of India has prioritised the hive-off of non-core activities

over internal restructuring due to scarcity of funds.

- The Company has deferred its Voluntary Retirement Scheme to reduce

workforce by 10,000 until the next financial year.

28
- Steel Authority of India Ltd, Tata Steel and Kalayani Steels Ltd signed a
joint venture agreement for the formal creation of [Link] Pvt.
Ltd, to manage their e-marketplace, [Link].

- Steel Authority of India have to sell-off its power plants to National

Thermal Power Corporation at a heavy discount.

- The Company has entered into a joint venture with Tata Iron and Steel Co
and Kalayani Steel for the creation of a company to manage their steel e-
commerce venture, [Link].

- The Steel Authority of India and National Thermal Power Corporation

may float two separate joint ventures for hiving off SAIL's power
generation business.

2001
- The Company has finally launched a new voluntary retirement scheme for
its employees, which will begin from 20th February.

-The Alloy Steel Plant (ASP), a company from the Steel Authority of India
Ltd (SAIL) stable, may witness another voluntary retirement scheme (VRS)
before it is sold off to a joint venture partner.

- The Government has served a notice to the Steel Authority of India run
Bhilai Steel Plant for recovery of dues to the tune of Rs 7 crore towards
water charges by July 8.

2002
- Steel Authority of India Ltd has informed that on the nomination by
Government of India, the Board of Directors of the Company at its meeting
held on December 26, 2001 has approved the appointment of Shri
[Link] IAS (Retd) as Part-time Non-Official Director on the SAIL
Board.

- Steel Authority of India Ltd (SAIL) has informed BSE that Mr. Deepak
Parekh, Director, SAIL has resigned from the Board of Directors of the
Company.

29
- Steel Authority of India Ltd (SAIL) has informed that Government of
India (GOI) has appointed Mr. [Link], as Director on the Board.

- Steel Authority of India Ltd has informed that on superannuation Shri M K

Moitra Director, Sail has ceased to be a Director on the Board of Directors
of Steel Authority of India.

-Steel Authority of India Ltd has informed BSE that Dr Isher Judge
Ahluwalia has resigned from the Board of Directors of the Company.

- Steel Authority of India Ltd has informed BSE that on nomination by

Government of India, the Board of Directors of the company has approved
the appointment of Dr Sanak Mishra as Managing Director, Rourkela Steel
Plant, SAIL on the SAIL Board.

-Steel Authority of India Ltd has informed BSE that on superannuation of

Shri Arvind Pande from the services of the Company, Shri V S Jain has
taken over the charge of Chairman, SAIL with effect from September 30,
2002 (AN).

-Steel Authority of India Ltd has informed BSE that on superannuation Shri
R C Jha Director Sail has ceased to be a Director on the Board of Directors
of the company wef October 31, 2002 (A/N).

2003
-Steel Authority Of India Ltd. has informed that Govt. of India has
nominated after approval of the BoD of Steel Authority of India Ltd (SAIL),
Mr. Ashis Das has joined as Director (Personnel) on the Board of SAIL,
w.e.f. June 18, 2003.

-A K Singh ceases to be a Director of SAIL

30
-Approves appointment of nominee directors Shri V K Agarwal, Shri P K
Sengupta, Dr Amit Mitra and Shri A H Jung as Part time Non Official
Directors on the Board

-Mr. Amit Mitra, secretary general of FICCI, appointed as director on the

board

-SAIL e-business achieves Rs 100-cr business mark

-Losses slide down by 70% in 2002-03 compared to 2001-02

-Bhilai Steel Plant (BSP) developes a special grade steel for the country's
naval warships in collaboration with the Defence Metallurgical Research
Laboratory, Hyderabad

-Durgapur Steel Plant (DSP) developes target steel for ballistic testing used
in defence sector with stringent specifications

-SAIL 2003-04 Exports jumps by 40 pc

-Share price hits 52-week high of Rs 31.90 on 11/08/2003

-SAIL gets new Bloom Caster for its DSP in West Bengal

-Breaks into top ten in Marketcap chart, occupies 7th slot

-D P Singh ceases to be director on the Board of SAIL

-Government of India appoints Shri S Y Quraishi, additional secretary &
financial advisor, Ministry of Steel, as director on the Board of Directors of
Steel Authority of India Ltd on September 11, 2003

-Shri Suresh Pandey has ceased to be a Director on Board of Directors of

the Company wef November 30, 2003 (A/N). Further Shri UP Singh has
been appointed as Director on the Board From December 1, 2003.

31
-Mr U.P. Singh is the new Managing Director of SAIL's Bokaro Steel Plant.
He took over charge of office from Mr Suresh Pandey, who superannuated
on November 30.

-Bhilai plant records Rs 320 crore steel exports

2004

-SAIL pays back Rs 3,000 crore to FIs

-Mr. R P Singh inducted as the Managing Director of Bhilai Steel Plant

(BSP)

-Metaljunction (MJ)- the online trading and procurement joint venture of

Tata Steel and Steel Authority of India (SAIL)- has roped in UTI Bank to
start off own equipment for Tata Steel.

-SAIL forges alliance with CIL to develop coal mines in Mozambique

-SAIL R&D division gets Golden Peacock Innovation Award

-SAIL ties up with Kudremukh Iron Ore

-SAIL signs strategic agreement with BHP Billiton

-SAIL ties up with Durgapur Projects

-SAIL ties up with BHP Billiton

2005
-GAIL ties up with SAIL

-Delist equity shares from The Stock Exchange, Ahmedabad (ASE) with
effect from January 28, 2005.

32
-Steel Authority of India Ltd's Bhilai Steel Plant has been adjudged the best
performing steel plant in the country for 2003-04.

-Steel Authority of India Ltd (SAIL) delists shares of the Company from
The Calcutta Stock Exchange Association Ltd (CSE) with effect from
December 21, 2005.

2006
-SAIL join hands BCCL to develop Moonidih mine

-Steel Authority of India Ltd (SAIL) has informed that on nomination by

Government of India, the Board of Directors of the Company has approved
the appointment of Shri. P K Sengupta, Prof. Javaid Akhtar and Dr.
Vinayshil Gautam as Part-time Non-official Directors on the Board of the
Company.

2007
-Steel Authority Of India Ltd. has informed that On nomination by
Government of India, the Board of Directors of Steel Authority of India
Limited (SAIL) has approved the appointment of Shri S Bhattacharya,
Executive Director, SAIL as Director (Finance), on the Board of Directors
of SAIL.

-Steel Authority of India Ltd (SAIL) has informed that on nomination by

Government of India, the Board of Directors of the Company has approved
the appointment of Shri. S S Ahmed, Executive Director, of the Company as
Director (Commercial), on the Board of Directors of the Company.

- Steel Authority of India Ltd (SAIL) has informed that the Company is
signing on June 26, 2007 a Memorandum of Understanding (MOU) with
Manganese Ore India Ltd (MOIL) for setting up of a Joint Venture
Company (JVC) to produce ferro-manganese and silico-manganese.
-SAIL has appointed Shri. V K Gulhati as Director (Technical) on the Board
of Directors of the Company w.e.f. October 01, 2007.

- Steel Authority of India Ltd's Management Training Institute (MTI) has

inked a memorandum of understanding (MoU) with the Indian Institute of
Management (IIM) Indore for conducting programmes together for various
organisations in areas of mutual interest.

33
- Steel Authority of India Ltd (SAIL) has inked a traffic guarantee pact with
Rail Vikas Nigam Ltd (RVNL) under the Ministry of Railways, for
transportation of 5 lakh tonnes of imported coking coal per year using the
Paradip-Haridaspur railway line.

-Steel Authority of India Ltd (SAIL) has informed that Government of India
has appointed Shri. B S Meena, Additional Secretary & Financial Adviser,
Ministry of Steel as director on the Board of Directors of the Company

2008
-Steel Authority of India Ltd (SAIL) has informed that the Board of
Directors of the Company has approved the appointment of Shri. S P Rao,
Executive Director, SAIL as Managing Director, IISCO Steel Plant and
Director on the Board of Directors of SAIL.

-Steel Authority of India Ltd (SAIL) has informed that the Company on
February 21, 2008 has signed a Joint Venture Agreement with M/s.
Jaiprakash Associates Limited (JAL) for formation of a Joint Venture
Company (JVC) to set up a cement plant for producing 2 million tonnes of
Cement at Bokaro (Jharkhand) by using slag generated at Bokaro Steel Plant
of SAIL.
-Steel Authority of India Limited and Larsen and Toubro Limited (L&T)
has signed a Memorandum of Understanding (MoU) to jointly set up,
develop, manage and own captive/independent power plants at suitable
location/s to meet future power requirements of SAIL.

2009
- SAIL signed a Joint Venture Agreement with Coal India Ltd, Rashtriya
Ispat Nigam Ltd, NMDC Ltd and NTPC Ltd for setting up of a Special
Purpose Vehicle i.e. International Coal Ventures Pvt. Ltd (ICVL) for
acquisition of coal mines/block overseas for securing coal supplies.

- Steel Authority of India (SAIL) will make an investment of more than Rs

10,000 crore mainly on expansion in this fiscal.

- SAIL stated that it is open to partnering NMDC in setting up a steel plant

in Karnataka, mainly catering to sectors like the automobile and consumer
durables while NMDC, has proposed setting up a 5-MTPA steel plant in a
joint-venture format.

34
Expanding Horizon (1959-1973)

Hindustan Steel (HSL) was initially designed to manage only one plant that
was coming up at Rourkela. For Bhilai and Durgapur Steel Plants, the
preliminary work was done by the Iron and Steel Ministry. From April
1957, the supervision and control of these two steel plants were also
transferred to Hindustan Steel. The registered office was originally in New
Delhi. It moved to Calcutta in July 1956, and ultimately to Ranchi in
December 1959.

A new steel company, Bokaro Steel Limited, was incorporated in January

1964 to construct and operate the steel plant at Bokaro. The 1 MT phases of
Bhilai and Rourkela Steel Plants were completed by the end of December
1961. The 1 MT phase of Durgapur Steel Plant was completed in January
1962 after commissioning of the Wheel and Axle plant. The crude steel
production of HSL went up from .158 MT (1959-60) to 1.6 MT. The second
phase of Bhilai Steel Plant was completed in September 1967 after
commissioning of the Wire Rod Mill. The last unit of the 1.8 MT phase of
Rourkela - the Tandem Mill - was commissioned in February 1968, and the
1.6 MT stage of Durgapur Steel Plant was completed in August 1969 after
commissioning of the Furnace in SMS. Thus, with the completion of the 2.5
MT stage at Bhilai, 1.8 MT at Rourkela and 1.6 MT at Durgapur, the total
crude steel production capacity of HSL was raised to 3.7 MT in 1968-69
and subsequently to 4MT in 1972-73.

Holding Company
The Ministry of Steel and Mines drafted a policy statement to evolve a new
model for managing industry. The policy statement was presented to the
Parliament on December 2, 1972. On this basis the concept of creating a
35
holding company to manage inputs and outputs under one umbrella was
mooted. This led to the formation of Steel Authority of India Ltd. The
company, incorporated on January 24, 1973 with an authorized capital of
Rs. 2000 crore, was made responsible for managing five integrated steel
plants at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel
Plant and the Salem Steel Plant. In 1978 SAIL was restructured as an
operating company.

Since its inception, SAIL has been instrumental in laying a sound

infrastructure for the industrial development of the country. Besides, it has
immensely contributed to the development of technical and managerial
expertise. It has triggered the secondary and tertiary waves of economic
growth by continuously providing the inputs for the consuming industry.

JOINT VENTURES

SAIL has promoted joint ventures in different areas ranging from power
plant to e-commerce. The important joint ventures of the company, among
others, are:-

COMPANY LOCATI JV EQU- PROFILE

ON PARTNER ITY
NTPC-SAIL NEW NTPC 50:50 Operates & manages the
Power Co. DELHI captive power plants of
Pvt. Ltd durgapur, Rourkela & Bhilai
Bokaro BOKARO DVC 50:50 Manages 302MW power
Power supply generation 660tonnes per

36
 company Pvt. hour steam generation
Ltd facilities at Bokaro steel
plant.
M- Junction KOLKAT TATA Steel 50:50 Promotes e-commerce
services Ltd. A activities in steel and related
areas.
SAIL & BHILAI MANGANE 50:50 Production of ferro
MOIL Ferro SE ORE -manganese and silicon –
Alloys Pvt. (INDIA) Manganese at Bhilai with
Ltd. LIMITED furnace operation at Nandini/
Bhalai
Bhilai jaypee SANTNA Jaiparkash 26:74 To set up and operate a
cement & cement plant of 2.2 million
Associates
limited BHILAI tones per annum capacity at
Ltd.
split location at satna &
Bhilai , using slag generated
during blast furnace .
Bokaro BOKARO Jaiparkash 26:74 To set up and operate a
jaypee cement plant of 2.1 million
Associates
cement Ltd. tones per annum capacity,
Ltd.
utilizing generated slag
during Blast furnace
operation at BSL.

MEMORANDUM OF UNDERSTANDINGS

to set up, develop, manage and own captive/independent

power plant (s) at suitable location/s to meet future power
Larsen & Toubro Ltd.
requirements of SAIL. The scope of agreement also

37
 includes exploration of opportunities to own captive
thermal coal blocks to cater the power plant requirements.
Shipping corporation to promote a Joint Venture Company, which shall
of India. primarily provide shipping related services to SAIL for
imported coking coal and also participate in world wide
dry bulk shipping trade.
Government of Kerala to increase production from the existing facilities at Steel
Complex Limited (SCL), Calicut and also set up, develop
& manage a 50,000 TMT Rolling Mill along with its
balancing facilities and auxiliaries at SCL, Calicut.
POSCO to collaborate in a wide range of strategic business and
commercial areas of mutual interest.
Rashtriya Ispat Nigam to jointly explore and develop low silica limestone mines
Ltd. (RINL) in the Sultanate of Oman.
Mineral Exploration for exploration by MECL at all SAIL mines for assessing
Corporation Ltd. the reserves and quality of ore available. It has already
started exploratory work in Gua and Chiria mines.
Bharat Earth Movers for supply of crucial equipment.
Limited (BEML)
Rajasthan State Mines for long-term supply of low-silica limestone.
& Minerals Ltd.
IIM, Ahmedabad and knowledge sharing.
MDI, Gurgaon
Indian Railways for procurement of high power locomotives

STEEL AUTHORITY OF INDIA LIMITED (SAIL)

38
SAIL Today
SAIL today is one of the largest industrial entities in India. Its strength has
been the diversified range of quality steel products catering to the domestic,
as well as the export markets and a large pool of technical and professional
expertise.

Today, the accent in SAIL is to continuously adapt to the competitive

business environment and excel as a business organisation, both within and
outside India.

SAIL - Into the Future

39
Modernisation and Expansion Plan of SAIL Corporate Plan-Expansion Plan,
2010

The Corporate Plan, 2012 was reviewed by Hon’ble Minister of Steel in

Jul’06, wherein it was decided to take up the Expansion of Integrated Steel
Plants and Special Steel Plant in one go based on Composite Project
Feasibility Report (CPFR).

By that time Expansion of IISCO Steel Plant and Salem Steel Plant was
already approved “in-principle” based on the Techno-Economic Feasibility
Report (TEFR) of MECON. For the Expansion of other four integrated Steel
Plants, MECON was assigned the job of Preparation of CPFR in Aug’06.
The CPFR for the four integrated steel plants was prepared by MECON.

‘In principle’ approval has been accorded by SAIL Board for the expansion
plans of  IISCO

BOKARO STEEL PLANT - A PARTNER IN NATION BUILDING

40
Bokaro Steel Plant - the fourth integrated plant in the Public Sector - started
taking shape in 1965 in collaboration with the Soviet Union. It was
originally incorporated as a limited company on 29th January 1964, and was
later merged with SAIL, first as a subsidiary and then as a unit, through the
Public Sector Iron & Steel Companies (Restructuring & Miscellaneous
Provisions) Act 1978. The construction work started on 6th April 1968.

The Plant is hailed as the country’s first Swadeshi steel plant, built with
maximum indigenous content in terms of equipment, material and know-
how. Its first Blast Furnace started on 2nd October 1972 and the first phase
of 1.7 MT ingots steel was completed on 26th February 1978 with the
commissioning of the third Blast Furnace. All units of 4 MT stage have
already been commissioned and the 90s' modernization has further upgraded
this to 4.5 MT of liquid steel.

The new features added in modernization of SMS-II include two twin-strand

slab casters along with a Steel Refining Unit. The Steel Refining Unit was
inaugurated on 19th September, 1997 and the Continuous Casting Machine
on 25th April, 1998. The modernization of the Hot Strip Mill saw addition
of new features like high pressure de-scalers, work roll bending, hydraulic
automatic gauge control, quick work roll change, laminar cooling etc. New

41
walking beam reheating furnaces are replacing the less efficient pusher type
furnaces.

A new hydraulic coiler has been added and two of the existing ones
revamped. With the completion of Hot Strip Mill modernization, Bokaro is
producing top quality hot rolled products that are well accepted in the global
market.
Bokaro is designed to produce flat products like Hot Rolled Coils, Hot
Rolled Plates, Hot Rolled Sheets, Cold Rolled Coils, Cold Rolled Sheets,
Tin Mill Black Plates (TMBP) and Galvanized Plain and Corrugated
(GP/GC) Sheets. Bokaro has provided a strong raw material base for a
variety of modern engineering industries including automobile, pipe and
tube, LPG cylinder, barrel and drum producing industries.

People - The moving force

Bokaro Steel values its people as the fulcrum of all organizational activities.
The saga of Bokaro Steel is the story of Bokaro erecting a gigantic plant in
the wilderness of Chhotanagpur, reaching milestones one after another,
staving off stiff challenges in the liberalized era, modernizing its facilities
and innovating their way to the top of the heap.

Directions

Bokaro Steel is working towards becoming a one-stop-shop for world-class

42
flat steel in India. The modernization plans are aimed at increasing the
liquid steel production capacity, coupled with fresh rolling and coating
facilities. The new facilities will be capable of producing the most premium
grades required by the most discerning customer segments.

Brand Bokaro will signify assured quality and delivery, offering value for
money to the customers.

BOKARO STEEL PLANT – FACILITIES

Raw Materials & Material Handling Plant

The Raw Materials and Material Handling Plant receives, blends, stores and
supplies different raw materials to Blast Furnace, Sinter Plant and
Refractory Materials Plant as per their requirements. It also maintains a
buffer stock to take care of any supply interruptions.

Some 9 MT of different raw materials viz. Iron ore fines and lumps,
Limestone (BF and SMS grade), Dolomite lumps and chips, hard Coal and
Manganese ore are handled here every year.

Iron ore and fluxes are sourced from the captive mines of SAIL situated at
Kiriburu, Meghahataburu, Bhawanathpur, Tulsidamar and Kuteshwar.

43
Washed coal is supplied from different washeries at Dugda, Kathara,
Kargali and Giddi, while raw coal is obtained from Jharia coalfields.

Coke Ovens & By-product Plant

The Coke Oven Complex at Bokaro converts prime coking coal from Jharia,
Dugda and Moonidih and medium coking coal form Kargali, Kathara and
Mahuda, blended with imported coal, into high quality coke for the Blast
Furnaces, recovering valuable by-products like Anthracene Oil, Benzene,
Toluene, Xylene, Light Solvent Naphtha, Ammonium Sulphate and Extra-
hard Pitch in the process. Bokaro is situated in the prime coal belt of the
country.

The Coke Oven battery has 8 batteries with 69 ovens each, maintained
meticulously in terms of fugitive emission control, use of phenolic water
and other pollution control measures.

Blast Furnaces

Bokaro has five 2000-cubic metre Blast Furnaces that produce molten iron -
Hot Metal - for steel making. Bell-less Top Charging, modernised double
Cast Houses, Coal Dust Injection and Cast House Slag Granulation
technologies have been deployed in the furnaces. The process of iron-
making is automated, using PLC Charging System and Computer
Controlled Supervision System. The wastes products like Blast Furnace slag
and gas are either used directly within plant or processed for recycling / re-
use.

Steel Melting Shops

Hot Metal from the Blast Furnaces is converted into steel by blowing 99.5%

44
pure Oxygen through it in the LD converter. Suitable alloying elements are
added to produce different grades of steel.
Bokaro has two Steel Melting Shops - SMS-I and SMS-II. SMS-I has 5 LD
converters of 130T capacity each. It is capable of producing Rimming steel
through the ingot route. SMS-II has 2 LD converters, each of 300 T
capacities, with suppressed combustion system and Continuous Casting
facility. It produces various Killed and Semi-Killed steels.

Continuous Casting Shop

The Continuous Casting Shop has two double-strand slab casting machines,
producing high quality slabs of width ranging from 950 mm to 1850 mm.
CCS has a Ladle Furnace and a Ladle Rinsing Station for secondary refining
of the steel. The Ladle Furnace is used for homogenizing the chemistry and
temperature. The concast machines have straight moulds, unique in the
country, to produce internally clean slabs.

Argon injection in the shroud and tundish nozzle prevent re-oxidation and
nitrogen pick-up, maintaining steel quality. The eddy current based
automatic mould level control, unique in the country, gives better surface
quality. The air mist cooling and continuous straightening facilities keep the
slabs free from internal defects like cracks. The casters are fully automated
with dynamic cooling, on-line slab cutting, de-burring and customized
marking. The shop is equipped with advanced Level-3 automation and
control systems for scheduling, monitoring and process optimization.
CCS produces steel of Drawing, Deep Drawing, Extra Deep Drawing,
Boiler and Tin Plate quality. It also produces low alloy steels like LPG,
WTCR, SAILCOR and API Grade.

45
Slabbing Mill
Slabbing Mill transforms ingots into slabs by rolling them in its 1250 mm
Universal Four-High Mill. The rolling capacity of the Mill is 4 MT per
annum. The shop has Hot and Cold Scarfing Machines and 2800 T Shearing
Machine. Controlled heating in Soaking Pits, close dimensional accuracy
during rolling and hot and cold scarfing help produce defect-free slabs.
Hot Strip Mill
Slabs from CCS and Slabbing Mill are processed in the state-of-the-art Hot
Strip Mill. The fully automatic Hot Strip Mill with an annual capacity of
3.363 million tonnes has a wide range of products - thickness varying from
1.2 mm to 20 mm and width from 750 mm to 1850 mm. The mill is
equipped with state-of-the-art automation and controls, using advanced
systems for process optimisation with on-line real time computer control,
PLCs and technological control systems.
Walking Beam Reheating Furnaces provide uniform heating with
reduction in heat losses, ensuring consistency in thickness throughout the
length. High-pressure De-scaling System helps eliminate rolled-in scale.
Edger in the roughing group maintain width within close tolerance. The
roughing group has a roughing train of a Vertical Scale Breaker, one 2-high
Roughing Stand and four 4-high Universal Roughing Stands. The finishing
group consists of a Flying Shear, Finishing Scale Breaker and seven 4-high
Finishing Stands. Hydraulic Automatic Gauge Control system in the
finishing stands ensures close thickness tolerance. The Work Roll Bending
System ensures improved strip crown and flatness. The rolling speed at the
last finishing stand is between 7.5-17.5 meters per second. The Laminar
Cooling System is a unique feature to control coiling temperature over a
wide range within close tolerance. The Hydraulic Coilers maintain perfect
coil shape with On-line Strapping system.

46
Hot Rolled Coil Finishing
All the Hot Rolled coils from the Hot Strip Mill are received in HRCF for
further distribution or dispatch. HR Coils rolled against direct shipment
orders are sheared and finished to customer-required sizes and dispatched to
customers. The material is supplied as per Indian specifications and many
international/ foreign specifications. The shop has two shearing lines with
capacities of 6, 45,000 Tonnes/ year and 4, 75,000 Tonnes/ year
respectively.

Cold Rolling Mill

The Cold Rolling Mill at Bokaro uses state-of-the-art technology to produce
high quality sheet gauge material, Tin Mill Black Plate and Galvanized
Products. Cold rolling is done to produce thinner gauge strips of very
smooth and dense finish, with better mechanical properties than hot rolling
strips. Rolling is done well below re-crystallization temperature without any
prior heating of the material. The products of CRM are used for deep
drawing purposes, automobile bodies, steel furniture’s, drums and barrels,
railway coaches, other bending and shaping jobs and coated steels. The
CRM complex comprises of two Pickling Lines (including a high speed
Hydrochloric Acid Pickling Line with re-generation facilities), two Tandem
Mills, an Electrolytic Cleaning Line, a Continuous Annealing Line, Bell
Annealing Furnaces, two Skin-Pass Mills, a Double Cold Reduction Mill
(DCR), Shearing Lines, Slitting Lines and a packaging and dispatch section.
The 5-stand Tandem Mill is capable of rolling sheet gauges upto 0.15 mm
thickness. It has sophisticated Hydraulic Automatic Gauge Control,
computerised mill regulation and optimisation control.

Hot Dip Galvanizing Complex

The Hot Dip Galvanizing Complex integrated with the CRM produces zinc-
47
coated Cold Rolled strips resistant to atmospheric, liquid and soil corrosion.
The Continuous Coil Corrugation Line in the HDGC produces corrugated
sheets and the Galvanized Sheet Shearing Line produces galvanized plain
sheets for a variety of applications. The first shop of Bokaro Steel to get the
ISO-9001 certification way back in 1994, this complex has maintained a
high-standard of coating quality and its SAILJYOTI branded products enjoy
a loyal market.
This complex made certain innovations for higher productivity to help re-
build earthquake ravaged Gujarat.

Services - a valuable support network

The service departments like Traffic, Oxygen Plant, Water Management and
Energy Management provide invaluable support to this gigantic plant.
Bokaro Steel has a vast networked of railway tracks and over 40 diesel locos
to smoothly run its operations. The Oxygen Plant provides Oxygen,
Nitrogen and Argon for processes like steelmaking and annealing. Water
Management looks after the huge water requirements of the plant and the
township, providing different grades of water and taking care of recycling
needs. Energy Management juggles the supply and demand of by-product
gases and their demand as process fuel.

Maintenance Departments
Bokaro has centralised maintenance departments for large-scale electrical
and mechanical maintenance, in addition to shop-based maintenance wings
for running repairs and maintenance. These facilities are capable of
executing massive capital repairs, supported by the fabrication facilities of
the auxiliary shops.

48
Auxiliary Shops
To meet its needs for maintenance and repairs, Bokaro has a cluster of
engineering shops such as Machine Shop, Forge Shop, Structural Shop,
Steel Foundry, Ingot Mould Foundry, Cast Iron and Non-Ferrous Foundry,
Electrical Repair Shop and Power Facilities Repair Shop in addition to
shop-specific Area Repair Shops. Most of the repairs and maintenance
requirements of the plant are met in-house.
The auxiliary shops and
maintenance wings of Bokaro Steel, aided by in-house design teams, have
executed a number of highly sophisticated procurement-substitution,
productivity enhancement and quality improvement jobs, saving revenues
and enhancing equipment availability.

BOKARO STEEL PLANT - Community

Peripheral Development

Bokaro Steel is striving to reach the glow and warmth of its furnaces to
people living at the periphery of this thriving steel city. All villages and
residential settlements within a radius of 20 kilometers are covered under

49
the peripheral development programmes that benefit some 3 lakh persons. In
recent years, the stress has been on developing basic and infrastructure
facilities like roads, bridges, schools, primary health centre’s, wells, pumps
etc. and renovating the existing facilities.
Regular health camps are organised to reach
immunisation and free medicines to people. Free medicines are also
supplied to Asha Dan, a hospital for the lepers, and to government hospitals
in the event of natural calamities.
Bokaro
Steel pitched in with its share in the relief of victims of natural calamities
like the Orissa cyclone, Gujarat earthquake and Bihar floods.
For a number of years, Bokaro Steel has been sponsoring a First Aid camp
during Shravani Mela for the Kanwariyas walking with holy water from
Sultanganj in Bihar to Deoghar in Jharkhand - a holy journey of some 100
kilometers.

Community Care
In a uniquely sensitive gesture of social care, Bokaro Steel has adopted
children belonging to the primitive Birhor tribe that has a very limited
population. These children live under the love and care of Bokaro Steel,
getting free board, lodging, dresses and education. They are getting
developmental opportunities of the modern world, without having to shun
their own cultural moorings.

Encouraging Ancillaries
The ancillaries under the Bokaro Industrial Area Development Authority
symbolise the spill-over of economic activities due to Bokaro Steel. The
Plant aids these industrial units by providing testing facilities, technical

50
support for modernisation and upgradation, and preferential procurement
orders in their areas of strength that match Bokaro Steel's requirements.
To keep them abreast of the prevailing quality assurance standards, Bokaro
Steel has been giving free consultations to these units for developing their
ISO 9001 QA Systems.

Bokaro Mahila Samiti

Founded in 1964, Bokaro Mahila Samiti is a leading philanthropic

organisation of the spouses of steelmen, giving succour to needy people and
creating opportunities for skill enhancement and self-employment. The
Samiti runs a number of schools for poor children and for uneducated
elderly and a children's library. The training centre and Udyog Kendra with
wings for making spices, flour, safety gloves, soap, shawls, apparel and
embroidered clothes, provide livelihood to a number of women. Free
medical consultation for neonates and their mothers and mobile dispensary
play a key role in providing primary healthcare to needy persons. The
Samiti organises aid drives for lepers, victims of natural calamities, children
from poor families and other resource-constrained people.

BOKARO STEEL PLANT - PRODUCT BASKET

Mill Capabilities

Shop Products Facility Annual Thickness Width Length

51
 Capacity range range (metre)
(,000 (mm) (mm)
Tonnes)
HSM HR Coils/ Continuous 3955 1.6 -16 900-  
Sheets/  Plates Mill 1850
HRCF HR Sheets/  Shearing - 5-10 1800 2.5-12
Plates Line-I
  HR Sheets/  Shearing   1.6-4 1500 1.5-4.5
Plates Line-II
  HR Coil Slitting Line        
CRM     1660      
  CR Coils/ CRM-I   0.63-2.5 700-  
Sheets complex 1850
  CR Coils/ CRM-II   0.63-1.6 650-  
Sheets complex 1250
  CR Coils/ DCR Mill 100 0.22-0.8 650-  
Sheets, TMBP 1040
  GP Coils & HDGL 170 0.3-1.6 650-  
Sheets GC 1250
Sheets

By-products

Nitration-grade Benzene Anthracene Oil Pitch Creosote

Nitration-grade Toluene Extra-hard Pitch Mixture
Light Solvent Naphtha Hard-medium Pitch (solid/ BF Granulated Slag
Still Bottom Oil liquid) Liquid Nitrogen
Hot Pressed Naphthalene Ammonium Sulphate Phenol Fraction

52
Special Grades of Steel

Special Steel Grades Application

SAE 1541 Automobile Industry
MC 11 Cycle Industry
SPC 370/390 Cycle Industry
C 15 Cycle Industry
API  X-42, X-46, X-52, X-56, X-60 Pipe Line  
(SAILAPI)
SAILCOR (corrosion resistant) Railways
SAILMEDSi (Medium Silicon Steel) Heavy Electrical Winding
SAILPROP Propeller Shaft
Strapping Steel (for internal use only) Strapping Finished Products
Full-hard Galvanised Coil Extra hard roof of houses
Cold Rolled Medium Electrical Steel Transformer core
Extra-low Carbon Extra Deep Drawing White goods
(HR & CR)
DMR 249A Grade Steel Defence Research Development
Organisation (DRDO) for fabrication
of Submarine parts (import
substitution)
E460/E500/E550 Floating bridges for Defence. For M/S
BEML; for making. (import
substitution)
IS8500 Fe 540B high strength low alloy Kolkata fly-over
steel with UTS value in excess of 540
Mpa
Low Carbon, Low Manganese, High Structural purposes. Thermo-

53
 Strength Structural Steel without mechanically Controlled Processing.
microalloying (Carbon 0.10%)

1.3 REVIEW OF LITERATURE

Working Capital management is the management of assets that are current

in nature. Current assets, by accounting definition are the assets normally
converted in to cash in a period of one year. Hence working capital
management can be considered as the management of cash, market
securities receivable, inventories and current liabilities. In fact, the
management of current assets is similar to that of fixed assets in the sense
that is both in cases the firm analyses their effect on its profitability and risk
factors, hence they differ on three major aspects:

1. In managing fixed assets, time is an important factor discounting and

compounding aspects of time play an important role in capital
budgeting and a minor part in the management of current assets.

2. The large holdings of current assets, especially cash, may strengthen

the firm’s liquidity position, but is bound to reduce profitability of the
firm as ideal car yield nothing.

54
3. The level of fixed assets as well as current assets depends upon the
expected sales, but it is only current assets that add fluctuation in the
short run to a business.

To understand working capital better we should have basic knowledge about

the various aspects of working capital. To start with, there are two concepts
of working capital:

 Gross Working Capital

 Net working Capital

Gross Working Capital:

Gross working capital, which is also simply known as working capital,
refers to the firm’s investment in current assets: Another aspect of gross
working capital points out the need of arranging funds to finance the current
assets. The gross working capital concept focuses attention on two aspects
of current assets management, firstly optimum investment in current assets
and secondly in financing the current assets. These two aspects will help in
remaining away from the two danger points of excessive or inadequate
investment in current assets. Whenever a need of working capital funds
arises due to increase in level of business activity or for any other reason the
arrangement should be made quickly, and similarly if some surpluses are
available, they should not be allowed to lie ideal but should be put to some
effective use.

Net Working Capital:

The term net working capital refers to the difference between the current
assets and current liabilities. Net working capital can be positive as well as
negative. Positive working capital refers to the situation where current assets
exceed current liabilities and negative working capital refers to the situation
where current liabilities exceed current assets. The net working capital helps
in comparing the liquidity of the same firm over time. For purposes of the
working capital management, therefore Working Capital can be said to
measure the liquidity of the firm. In other words, the goal of working capital
55
management is to manage the current assets and liabilities in such a way that
a acceptable level of net working capital is maintained.

Importance of working capital management:

Management of working capital is very much important for the success of
the business. It has been emphasized that a business should maintain sound
working capital position and also that there should not be an excessive level
of investment in the working capital components. As pointed out by Ralph
Kennedy and Stewart MC Muller, “the inadequacy or mis-management of
working capital is one of a few leading causes of business failure.

Current assets, in fact, account for a very large portion of the total
investment of the firm.

Determinants of Working Capital:

There is no specific method to determine working capital requirement for a
business. There are a number of factors affecting the working capital
requirement. These factors have different importance in different businesses
and at different times. So a thorough analysis of all these factors should be
made before trying to estimate the amount of working capital needed. Some
of the different factors are mentioned here below:-

Nature of business:
It is an important factor in determining the working capital
[Link] businesses require a very nominal amount to be invested
in fixed assets but a large amount in working capital, such as trading and
financing type and are some businesses which require large investment in
fixed assets and normal investment in the form of working capital.

Size of business:
56
It is another important factor in determining the working capital
requirements of a business. Size is usually measured in terms of scale of
operating cycle. The amount of working capital needed is directly
proportional to the scale of operating cycle i.e. the larger the scale of
operating cycle the large will be the amount working capital and vice versa.

Business Fluctuations:
Most business experience cyclical and seasonal fluctuations in demand for
their goods and services. These fluctuations affect the business with respect
to working capital because during the time of boom, due to an increase in
business activity the amount of working capital requirement increases and
the reverse is true in the case of recession. Financial arrangement for
seasonal working capital requirements are to be made in advance.

Production Policy:
As stated above, every business has to cope with different types of
fluctuations. Hence it is but obvious that production policy has to be
planned well in advance with respect to fluctuation.

Firm’s Credit Policy:

The credit policy of a firm affects working capital by influencing the level
of book debts. Hence a firm should always frame a rational credit policy
based on the credit worthiness of the customer.

Availability of Credit:
The terms on which a company is able to avail credit from its suppliers of
goods and devices credit/also affects the working capital requirement. If a
company in a position to get credit on liberal terms and in a short span of
time then it will be in a position to work with less amount of working
capital.

Growth and Expansion activities:

The working capital needs of a firm increases as it grows in term of sale or

fixed assets. There is no precise way to determine the relation between the

57
amount of sales and working capital requirement but one thing is sure that
an increase in sales never precedes the increase in working capital but it is
always the other way round.

Price Level Changes:

Generally increase in price level makes the commodities dearer and it

increases the requirement of working capital too. The companies which are
in a position to alter the price of these commodities in accordance with the
price level changes will face fewer problems as compared to others.

1.4 OBJECTIVES OF THE STUDY

BROAD OBJECTIVES:
 To find out the efficiency of working capital management in
Durgapur Steel Plant and selected other major plants of Steel
Authority of India.

 To have a first hand experience of the functioning of a large PSU

Steel Plant.

 To have a practical experience of the functioning of the Finance

Department of a steel producing company.

 To study how working capital management practices plays an

important role in supporting other activities of an integrated steel
plant.

58
SPECIFIC OBJECTIVES:
 To gain familiarity with the various components of working capital in
Durgapur Steel Plant.

 To judge the success of the management in carrying on the daily

transactions of the company.

 To gain an in-depth knowledge of the tricks of managing the daily

financial activities of DSP.

 To find out the difference between the theoretical and practical

aspect of working capital management.

 To study and come out with any solution for improvement of working
capital management at Durgapur Steel Plant.

Chapter – 2

2.1 Nature of product

2.2 process

2.3 Analysis

59
2.1 Nature of product

BOKARO STEEL PLANT - PRODUCT BASKET

Mill Capabilities

Shop Products Facility Annual Thickness Width Length

Capacity range range (metre)
(,000 (mm) (mm)
Tonnes)
HSM HR Coils/ Continuous 3955 1.6 -16 900-  
Sheets/  Plates Mill 1850
HRCF HR Sheets/  Shearing - 5-10 1800 2.5-12
Plates Line-I
  HR Sheets/  Shearing   1.6-4 1500 1.5-4.5
Plates Line-II
  HR Coil Slitting Line        
CRM     1660      

60
   CR Coils/ Sheets CRM-I   0.63-2.5 700-  
complex 1850
  CR Coils/ Sheets CRM-II   0.63-1.6 650-  
complex 1250
  CR Coils/ Sheets, DCR Mill 100 0.22-0.8 650-  
TMBP 1040
  GP Coils & HDGL 170 0.3-1.6 650-  
Sheets GC Sheets 1250

Special Grades of Steel

Special Steel Grades Application

SAE 1541 Automobile Industry
MC 11 Cycle Industry
SPC 370/390 Cycle Industry
C 15 Cycle Industry
API  X-42, X-46, X-52, X-56, X-60 Pipe Line
(SAILAPI)  
SAILCOR (corrosion resistant) Railways
SAILMEDSi (Medium Silicon Steel) Heavy Electrical Winding
SAILPROP Propeller Shaft
Strapping Steel (for internal use only) Strapping Finished Products
Full-hard Galvanised Coil Extra hard roof of houses
Cold Rolled Medium Electrical Steel Transformer core
Extra-low Carbon Extra Deep Drawing (HR White goods
& CR)
DMR 249A Grade Steel Defence Research Development
Organisation (DRDO) for fabrication
of Submarine parts (import
substitution)

61
 E460/E500/E550 Floating bridges for Defence. For M/S
BEML; for making. (import
substitution)
IS8500 Fe 540B high strength low alloy steel Kolkata fly-over
with UTS value in excess of 540 Mpa
Low Carbon, Low Manganese, High Strength Structural purposes. Thermo-
Structural Steel without microalloying mechanically Controlled Processing.
(Carbon 0.10% )

By-products

Nitration-grade Benzene Anthracene Oil Pitch Creosote

Nitration-grade Toluene Extra-hard Pitch Mixture
Light Solvent Naphtha Hard-medium Pitch (solid/ BF Granulated Slag
Still Bottom Oil liquid) Liquid Nitrogen
Hot PressedNaphthalene Ammonium Sulphate Phenol Fraction

2.2 Process:-

BSL Process flow

62
PRODUCTION PROCESS:_

RAW MATERIALS

Fe scraps, Fe ore, Ferro silicon, Bauxite, Fluorspar, Coke powder,

FerroManganese, graphite electrodes, etc are the main raw materials used
for theconstruction steels.

1. Coal dust injection in Blast furnace –1, 3, 4

Coal dust is a substitute of COKE in Blast Furnace as a auxiliary fuel.
Thereplacement ratio is 1:1.2 aprox. Using coal dust in Blast furnace
directly throughtuyers reduces the requirement of Coke. In Coke Ovens 1.8
gcal energy consume forconverting Coal to coke, this energy is saved.

2. VVVF drive commissioned in ID fan motor of SMS-

63
The ID fan motor( 1200 kw) capacity for convertor –C was running
continuously atrated speed during process and as well as during idle time.
After installation of VVVfdrive during idle period, the motor run at
42 % of the rated speed. Thereby saving of 7500 kwh/day.

3. Development of low power dedicated Ventilation system for

leveler-2 ( 75 kw by 3 kw) in Plate Mill.
75 KW ventilation system had been installed for leveller-2 cooling system.
But due tolow loading on leveller-2 it was observed that the requirement is
very [Link] 75 KW system has been replaced by 3.75 kw
ventilation system.

4. Coal Tar Injection in Blast Furnace

Coal Tar is a by-product of coke making process. The year when severe coal
crisiswas experienced by all Indian steel [Link] was decided by Bhilai
management toinject coal tar as a measure to conserve coke consumption in
Blast [Link] was developed with in-house know how and
required installation waserected in Blast Furnace # 3. At present about 30-
40 liter of coal tar is injectedthrough tuyers of the furnace and it is observed
that the replacement ratio is about 1.4kg of BF coke per liter of coal tar.
Encouraged by the result obtained, managementhas decided to extended to
Blast furnace # 2 also. Plant scale trial is going on toestablish the obtained
result.

5. Modifying the field of Vertical stand and Finishing stand Screw

Down to low voltage system ( 220 V to 145 V) in Plate Mill.

64
The 230 V supply of Vertical & Finishing stand motor were fed through
resistance.
The 230 V supply of Vertical & Finishing stand motor were fed through
resistance
boxes. It was observed that actual field supply requirement is only 145 V
and 75 V is
being dropped in resistance box. That is why only 145 V direct fed to field
winding
without resistance box by changing incoming supply from 11 KV to 6.6 KV
of CVDC
transformer.

6. Extension of Unloading bay for reducing unloading time of LSHS

The time taken for unloading a rake of LSHS fuel ( 70 wagons) was about
65 hrs , thiswas due to insufficient unloading points. It was observed that if
6 no of unloadingpoints are increased the time for unloading can be reduced
to 40 hrs. After thismodification ( in house) total steaming time was reduced
.

7. Utilization of waste Lubrication oil in Lime Kiln.

The waste lubrication oil( used) about 100 KL per year earlier was disposed
at lowprice . A unit is commissioned to reclaim this oil by mixing in LSHS
fuel in a ratio of1 to 1.5 % and successfully consumed in Lime Kiln with out
any major effect.

8. Blast Furnace gas firing in Boiler No-6 of Power and Blowing

65
Station.
The Boiler No –6 of PBS was commissioned with out BF gas firing system
and wasconsuming coal . In Bhilai Steel Plant BF gas is available in excess
and was flared inthe atmosphere , to use this gas Boiler No-6 was modified
by providing Burners , andafter this about 60000 M3 /hr BF gas is able to
consume in Boiler . This has savedBoiler coal about 240 Tones per day

2.3 SWOT ANALYSIS OF THE COMPANY

1] STRENGTH:-

The main strength are:-

 The company has got a monopoly market condition for it in

manufacturing of steel in Indian market.

 The strength of the company (Bhilai Steel Plant) is its iron mines
situated near to the plants which reduce transportation cost and help to
increase the profit of BSL.

  The another strength of company is due to its central government

holding so its primary/ major customer is the government itself like
Indian railways and so on which gives large orders for its requirements.

2] WEAKNESS:-
66
 The main weakness are:-

 As a central government organization as BSP cannot fix a price of its

own as there are pressure from the government.

 The other weakness is some timesBSP is not able to fulfill the rising
supply as the demand exceeds production capacities.

3] OPPORTUNITIES:-

The main opportunities are:-

 As demand for the steel in the local market as well as in international

market is increasing day by day

 Manufactures are less and demand is on the rise.

4] THREATS:- .

The main threats are:

Non availability of coke in the domestic market which is considered as a

raw material in the manufacturing of iron and steel products as it is mainly
imported from Australia, USA and Middle East due to which price of steel
increases.

67
 Chapter – 3

3.1 Strategies

3.2 Policies

68
3.1 Strategies :-

The strategy in the 7s framework includes purposes, missions, objectives,

goals and Major action plans and policies of the company. Through out the
past decade, the corporate world has given close attention to the interplay
between strategy and structure. Certainly clear ideas about the strategy make
the job structural design rational. By “strategy” we mean those actions that a
company plans in response tour anticipation to or changes in its external
environment-its consumers, its competitors.

Strategies applied by BSL:-

The main aim of the company will be producing good quality of Iron and
steel product to the public as well as providing more number of employment
and increase the standard of living of the people.

The Bokaro steel plant business strategies are based of three core values;
they are operational excellence, Customer’s focus and product leadership.

69
The business strategy emphasizes the following:-

1. Increase their market shares.

2. Reduced cost of production.

3. Increase company performance.

4. Produce always quality product.

5. To meet social responsibilities.

6. Provide employment opportunity to the people of the area.

7. Meet the national and regional demand of iron and steel products.

8. Reduce the import of iron & steel from the foreign market.

The key to succeed in this environment is to develop that acumen to

perceive these challenges as opportunities. The opportunities for leadership
always come in disguise of challenges and the path to future is full of them
BSL”s leadership has evolved a multi pronged strategy to excel in face of
multitude of these challenges right from growth oriented capacity
investment, an aggressive marketing plan, thrust on new products
development, investment in raw material projects to strategic social
responsibility measures.

70
3.2 Policies :-

Corporate Social Responsibility Policy

SAIL recognizes that its business activities have direct and indirect
impact on the society. The Company strives to integrate its business
values and operations in an ethical and transparent manner to demonstrate
its commitment to sustainable development and to meet the interests of its
stakeholders.

The Company is committed to continuously improving its social

responsibilities, environment and economic practices to make positive
impact on the society.

Guiding Principles

Toward this commitment, the Company shall:

Create a positive footprint within the society to make a meaningful

difference in the lives of people by continually aligning its initiatives
to the goals for sustainable development.

Maintain commitment to quality, health and safety in every respect of

the business and people.

71
Undertake ethical business practices across the supply chain.

Make positive impact on the environment and promote good

environmental practices.

Promote equality of opportunity and diversity of workforce throughout

its business operations.

Safety Policy

 Safety of its employees and the people associated with it including

those living in the neighbourhood of its plants, mines and units.

 Pursue efforts in sustained and consistent way by establishing safety

goals, demanding accountability for safety performance and providing
resources to make safety programmes work.

Guiding Principles

 Excellenc in health & supports excellent business result.

 All accidents can and must be prevented.

 Safety standards to be incorporate in all work procedures.

 All employees are responsible and accountable for maintaining safety

standards.

72
 Quality policy

We shall build and sustain a world-class organization, where quality is the

hallmark of every process and activity.
With the involvement and dedication
of our human resource, we are commited to achieve satisfaction of all our
stakeholders, through innovation and continual improvement.

Corporate Environment Policy :-

 SAIL reaffirms its commitement to contributing towards a clean and

sustainable environment and continually enhancing its environmental
performance as an integral part of its business philosophy and values.

Towards this commitment, we shall :

 Integrate sound environmental management practices in all our activities.

 Progressively adopt cleaner and energy efficient technologies.

 Minimise waste generation and promate recovery, recycle and reuse.

 Increase greenery in and around our plants and mines.

 Enhance environment awareness amongst employees working for and on

 behalf of us and the general populace around plants and mines.

 Encourage our business associates to adopt similar approach for

environmental protection.

73
Human Resource Policy of SAIL Personnel Directorate :-

SAIL Personnel Diractorate shall ensure competent and committed team

engaged in building a culture of learning to achive excllance in performance

and employee satisfaction through innovation and continual improvement.

Information Technology Security Policy :-

The information Technology Security policies are intended to help users of

IT system to determine as to how the IT systems are to be used.

All employees shall familiarize

themselves with these policies and ensure their adherence.

The policies covered in the information security system include :

 Information sensitivity policy

 Acceptable use policy

 Electronic mail use, retention & forward policy

 Server security policy

 Network infrastructure security policy

 Password policy

 Database password policy

 Extranet policy

74
 Acceptable encryption policy

 Dial-in access security policy

 Antivirus policy

Chapter - 4

4.1 Research Methodology

4.2 Types of Data

4.3 Working Capital – Overall View Cash Management

4.4 Inventory Management

4.5 Receivable Management

4.6 Financial Statements and Ratio Analysis

4.7 Flow chart of sales process followed in BSL

75
4.1 RESEARCH METHODOLOGY

Research Design:
Data Collection: Data has been collected through secondary approach.

Data Sources
The research involved gathering Secondary data. Lot of data has been
pooled from Bokaro Steel Plant to use in the study.

4.2 Types of data

The data which I have collected for making this project is combination of
both primary and secondary data.

PRIMARY DATA:

This data had been collected through meetings and interviews with various
managers and employees of the finance department located in the
administrative building (ISPAT BHAWAN) of Durgapur Steel Plant. At the
same time I had visited various departments for collection of data. The
departments that had been visited are as follows:-
 Main Cash Department

76
  Billing and Operation Department
 Budget Department
 Pay Section
 Excise Department.
 Welfare & Miscellaneous Bill Section
 Sales Department
 Project Management Department

SECONDARY DATA:

Apart from the primary data certain secondary data were required for this
project. Following are the sources of secondary data:-
 Annual Reports
 Cost & Budget Reports
 Creditors Reports
 Debtors Reports
 Inventory Reports
 Cash Report
 Raw Materials Report
 Production Reports
 Sales Reports

Scope of the Study

The data has been collected from the secondary sources comprising Annual
Reports of the firm, other journals and periodicals.

Apart from conducting this research work on the basis of this information,
various techniques of financial management e.g., comparative statement and
ratio analysis etc. were used in the present study. To present a broad view so
far the purpose of the analysis and to make it easy to understand the
problem/concept of a few graphs and tables shall also be presented. In each
chapter, the analysis has been compared with actual management practices

77
of the company under study. The project is strictly on financing the
companies for their day to day transactions. The broad parameters being
current assets ratio, quick test ratio etc.

78
4.3 WORKING CAPITAL- OVERALL VIEW

Working capital means the funds which are required to meet the daily
transactions of the business .In other words it refers to that part of the firm’s
capital which is required for financing current assets such as cash,
marketable securities, debtors and inventories. Thus working capital is very
significant facet of financial management. Every business concern should
have adequate working capital to run its operations smoothly. It should have
neither excess working capital nor inadequate working capital because both
of these have adverse effects on firm’s profitability and liquidity positions.
Therefore, business concerns should maintain adequate working capital. The
basic objective of working capital is to manage the firm’s current assets and
current liabilities in such a way that that a satisfactory level of working
capital is maintained.

Working capital policies have a great effect on a firm’s liquidity and

profitability. Therefore, the working capital should be managed in such a
way which will ensure higher profitability and proper liquidity to the
business concern.

The significance of working capital management is to ensure that the

organization maintains a ‘good fit’ with the changing environment and
strives to build the capability to cope with challenge.

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:

 Balance sheet concept or traditional concept.

 Operating cycle concept.

79
BALANCE SHEET CONCEPT OR TRADITIONAL
CONCEPT
It shows the position of the firm at a certain point of time. It is calculated on
the basis of balance sheet prepared at a specific date. In this method there
are two types of working capital.

 Gross working capital

 Net working capital

GROSS WORKING CAPITAL

It refers to a firm’s investment in current assets. The sum of the current

assets is the working capital of the business. The sum of the current is
quantitative aspect of working capital which emphasizes more on quantity
than on its quality, but it fails to reveal the true picture of the financial
position of the business because every increase in current liabilities will
decrease the gross working capital.

NET WORKING CAPITAL

It is difference between the current assets and current liabilities or the

excess of total current assets over total current liabilities. It can also be
defined as that part of a firm’s current asset which is financed with long
term funds. It may be either negative or positive. When the current assets
exceed the current liabilities, the working capital is positive and vice-versa.

80
 OPERATING CYCYE CONCEPT
The duration or time required to complete the sequence of events right from
the purchase of raw materials for cash to the realization of sales in cash is
called operating cycle or working capital cycle. The operating cycle consists
of three phases:

In phase 1, cash gets converted into inventory. This would include purchase
of raw materials, conversion of raw materials into work-in-progress,
finished goods and terminate in the transfer of goods to stock at the end of
the manufacturing process. In the case of trading organization, this phase
would be shorter as there would be no manufacturing activity and cash will
be converted into inventory directly. The phase will, of course, be totally
absent in case of service organizations.

In phase 2 of the cycle, the inventory is converted into receivables as credit

sales are made to customers. Firms which do not sell on credit will
obviously not have phase 2 of the operating cycle.

The last phase, phase 3, represents the stage when receivables are collected.
This phase completes the operating cycle. Thus, the firm has moved from
cash to inventory, to receivables and to cash again.

81
FIXED/PERMANENT WORKING CAPITAL

To carry on business, a certain level of working capital is necessary on a

continuous and uninterrupted basis, for all practical purpose, the
requirement has to be met as with other fixed assets. Permanent working
capital represents the minimum level of raw materials, work-in-progress,
finished goods, stores, accounts receivables and cash which are in
circulation to ensure continuity of production.

Permanent working capital is again divided into two parts: regular working
capital and reserve working capital. The portion of fixed working capital
which is utilized to carry out the cyclical operation of current assets in the
form of conversion of liquid cash into raw materials, raw materials into
finished goods, finished goods into debtors and debtors into liquid cash in a
continuous manner is known as regular working capital. On the other hand,
the portion of fixed working capital, which is preserved for meeting
uncertain and emergent working needs (like sudden price hike, abnormal
scarcity in times of war, natural calamity, etc) is known as reserve working
capital.

VARIABLE/TEMPORARY WORKING CAPITAL

Besides fixed working capital, a business may need additional working

capital to meet the growing demands of busy seasons at stated intervals. If
the demand for the products of the business goes up at any time it needs
additional funds to pay for more materials, labour and other expenses and to
meet the requirement of cash balance to be maintained in the changed
situation. This additional working capital needed to feed the operating cycle
in busy business periods is known as variable or temporary working capital.
It is called variable or temporary because the business does not need it
always but it is required according to the need of the situation.

Generally the importance of variable working capital is more acute in

business concern having seasonal market demands. Variable or temporary
working capital may be further sub- divided into (a) seasonal working
capital and (b) special working capital.

82
The additional working capital required by a concern to carry out its
operating activities in busy seasons of high market demands is known as
seasonal working capital. Businesses which mostly have seasonal demands
of their products like ice- cream, cold drinks, wool and likely products
manufacturing concern may need huge amount of seasonal working capital.
In other business concerns too the market may rise to the peak in some
particular time period. So in all types of business a portion of working
capital may be preserved for meeting seasonal needs. On the other hand, the
portion of working capital that is needed by a concern to meet the
extraordinary requirements of special situations is known as special working
capital. This is called special working capital because it is needed in special
situations and not in normal circumstances.

(Diagrammatic representation of the concept of working capital )

83
 IMPORTANCE OF WORKING CAPITAL

 The adequate reserve of working capital ensures a steady flow of raw

materials to the production process.

 The adequate reserve of working capital indicates the good solvency

position of the concern and helps it to get loan from the market at
favorable terms.

 The adequate stock of working capital makes it possible for a concern

to purchase the trading goods in cash and cash purchase always
carries the benefit of getting cash discount.

 A strong working capital base is probably the only remedy to

overcome the odd situations like dull market conditions, scarcity of
raw materials and other components in case of any emergency,
sudden market fluctuations, etc.

 A business concern can exploit the market opportunities with the

help of adequate working capital.

 The regular flow of adequate working capital makes possible efficient

use of fixed assets, reduces wastage, ensures quick replying of current
assets, and establish a well- tuned working environment.

 A quick rotation of working capital cycle and an efficient

management of working capital reduce cost and increases production
and sales. The combined effect of all these favorably add to the
profitability of the concern.

 The adequate amount of working capital and its quick rotation

increases profit. The rate of dividend of the shareholders also
increases as a result of such increase in profit.

84
  Sufficient working capital helps in research and development to face
the present era of cut throat competition and quick technological
advancement

DETERMINANTS OF WORKING CAPITAL

The total working capital requirement is determined by a wide variety of

factors. It should be, however, noted that these factors affect different
enterprises differently. They also vary from time to time. In general, the
following factors are involved in a proper assessment of the quantum of
working capital required.

GENERAL NATURE OF BUSINESS:

The working capital requirements of an enterprise are basically related to

the conduct of the business. According to the nature of business they have to
maintain a sufficient amount of cash, inventories and book debts. The
industrial concerns require fairly large amounts of working capital though it
varies from industry to industry depending on their assets structure.

PRODUCTION CYCLE:

Another factor which has a bearing on the quantum of working capital is the
production cycle. The term “production or manufacturing cycle” refers to
the time involved in the manufacture of goods. It covers the time-span
between the procurement of raw materials and the completion of the
manufacturing process leading to the production of finished goods. To
sustain such activities the need of working capital is obvious.

BUSINESS CYCLE:

The working capital requirements are also determined by the nature of the
business cycle. The variations in business conditions may be in two
directions: (i) upward phase when boom conditions prevail, and (ii)

85
downward phase when economic activity is marked by a decline. During the
upswing of the business activity the need of working capital is more as
opposed to the downward phase of the business.
PRODUCTION POLICY:

The requirement of working capital also depends on the production policy

of the firm. In manufacturing concerns having mostly seasonal demand for
the product the production policy is a significant determinant of working
capital.

CHANGES IN PRICE LEVEL:

General increase in price level increases working capital need of a firm

because the firm has to pay more for maintaining the previous level on
working capital.

GROWTH AND EXPANTION:

As a company grows, it is logical to expect that a larger amount of working

capital will be required. The critical fact is however, is that the need for
increased working capital funds does not follow the growth in business
activities but precedes it.

AVAILABILITY OF RAW MATERIALS:

In case raw materials are easily available on soft terms the firm does not
require maintaining a huge inventory of raw materials. Such a firm does not
require blocking up huge amount of working capital for this purpose. On the
contrary if raw materials are scarce and its supply is irregular and seasonal
in nature the firm needs to store a reasonable quantity of raw materials in
hand. The working capital need of such a firm is significantly high.

DIVIDEND POLICY:

86
The payment of dividend consumes cash resources and, thereby, affects
working capital to that extent. Conversely, if the firm does not pay dividend
but retains the profits, working capital will increase.

DEPRECIATION POLICY:

Depreciation policy also exerts an influence on the quantum of working

capital. Depreciation charges do not involve any cash outflow. The effect of
depreciation policy on working capital is, therefore indirect.
At DSP depreciation is provided on straight line method at the rates
specified in schedule- XIV to the companies act, 1956. However where the
historical cost of the depreciable asset undergoes a change, the depreciation
on the revised amortized depreciable amount is provided prospectively over
the residual useful life of the asset based on the rates specified in schedule-
XIV to the companies act, 1956. Depreciation on assets installed/ disposed
off during the year is provided with respect to the month of addition/
disposal thereof.

STRUCTURE OF WORKING CAPITAL

The structure of working capital includes a study of the components of

current assets and current liabilities.

CURRENT ASSETS:

The list of current assets comprises inventories (including raw materials,

work-in-progress and finished goods and spares), sundry debtors including
receivables, readily realizable securities and tax reserve certificates, short-

87
term investments, accrued incomes, prepaid expenses (not in the nature of
deferred charge), cash at bank, and cash in hand.

In Bokaro Steel Plant current assets are:

 Inventories (stores & spares, raw materials, semi-finished products)

 Sundry debtors

 Cash & bank balances

 Interest receivable/accrued

 Loans & advances etc.

CURRENT LIABILITIES:

The list of liabilities includes trade creditors, accounts payable, outstanding

or accrued expenses, bank overdraft, outstanding liabilities, short-term loans
and borrowings and certain obligations including different provisions, i.e.,
provision for taxation, proposed dividend etc.

In Bokaro Steel Plant current liabilities are:

 Sundry creditors

 Advances from customers

 Security deposit

 Other liabilities etc.

88
FACTORS TO BE CONSIDERED WHILE ESTIMATING
WORKING CAPITAL REQUIREMENT

 Total costs incurred on materials, wages and overheads.

 The length of time for which raw materials remain in stores before
they are issued to production.

 The length of the production cycle or work-in-progress, i.e., the time

taken for conversion of raw materials into finished goods.

 The length of the Sales Cycle during which finished goods are to be
kept waiting for sales.

 The average period of credit allowed to customers.

 The amount of cash required to pay day-to-day expenses of the

business.
 The amount of cash required for advance payments if any.

 The average period of credit to be allowed by suppliers.

 Time-lag in the payment of wages and other overheads.

SOURCE OF WORKING CAPITAL FOR BOKARO STEEL PLANT

89
The allocated amount by the registered office of SAIL in New Delhi gets
transferred into the cash credit account of Durgapur Steel Plant in State
Bank of India, Durgapur. This cash credit account is the source of working
capital for DSP. The plant uses this amount to meet its daily expenditure. At
the end of the day the balance of this account is transferred back into
account of SAIL, New Delhi. This practice is done on a daily basis.
IMPORTANCE OF WORKING CAPITAL RATIOS :-
Ratio analysis can be used by financial executives to check upon the efficiency with which
working capital is being used in the enterprise. The following are the important ratios to
measure the efficiency of the working capital. The following, easily calculated, ratios are
important measures of working capital utilization.
RATIOS Formulae Result Interpretation

Current Ratio Total Current =X It is the relationship between the

Assets/Total times amount of current assets and the
Current amount of current liabilities. It
Liabilities measures the short-term liquidity
position of the firm.
Acid-Test Ratio Total Current =X Similar to the Current Ratio but
Assets- times takes account of the fact that it
Inventories/ may take time to convert inventory
into cash.
Total Current
Liabilities
Working Capital Sales/Working =X A Higher Working Capital Ratio
Turnover Ratio Capital times means lower investment in
working capital and better
profitability.
Stock Turnover Sales/Inventory =X On average, you turn over the
Ratio(in days) days value of your entire stock every x
days. You may need to break this
down into product groups for
effective stock management.

Current Assets Sales/Current =X It reflects the efficiency in

Turnover Ratio Assets times generating sales by Current assets.

90
4.4 Inventory Management
Inventories are the stock of the product made for sale by the company or
semi finished goods or raw materials. Inventory of finished goods which are
ready for sale is required to maintain smooth marketing operation. The
inventory of raw material and work in progress is required in order to
maintain an unobstructed flow of material in the production line. These
inventories serve as a link between the production and consumption of
goods.

The aspect of management of inventory is especially important in respect to

the fact that in country like India, the capital block in terms of inventory is
about 70% of the current assets. It is therefore, absolutely imperative to
manage efficiently and effectively in order to avoid unnecessary investment
in them. Although to maintain low inventories may prove to be profitable
but to maintain very low inventories may prove risky on the contrary.

This aspect of management if tackled in a proper way may prove to be a

boon its effective and efficient management would result in the maintaining
of optimum level of inventories. At this level the profitability of the
organization will not be jeopardized at the cost of inventory.

Now from the above stated facts it is clear that maintaining of optimum
level of inventory involves huge cost, so why should keep the inventories at
all. Basically there are three main reasons for which inventories are stocked
and they are:-

1. Transaction Motive: This motive lays emphasis on maintaining of

inventories in order to maintain a smooth and unobstructed supply of
materials for the sales and production operations.

2. Precautionary Motive: This motive emphasizes on the stocking goods

in order to guard against the uncertainties of future i.e. unpredictable
changes in the forces of demand, supply and other forces.

91
3. Speculative Motive: This motive influences the decisions
regarding the increase or decrease in the level of inventory in order to take
advantage of price fluctuations.

Raw Materials:-
A company should maintain adequate stock of materials for a continuous
supply to the factory for an uninterrupted production. It is not possible for a
company to procure raw material instantaneously whenever needed. The
procurement of materials may be delayed because of factors beyond
company’s control e.g. transport disruption, strike etc. Therefore, the firm
should keep a sufficient stock of raw material at a time.

Work-in-Progress:-
The work in process inventory builds up because of the production cycle.
Production cycle is the time span between the introduction of raw material
in to the production and the emergence of finished goods at the completion
of production cycle. Till the production cycle completes, the stock of work
in process has to be maintained.

Finished Goods:-
The stock of finished goods has to be held because production and sales are
not instantaneous. A firm cannot produce immediately when goods are
demanded by customers. Therefore to supply finished goods on regular
basis, their stock has to maintain for sudden demand of customers, Failure
to supply products to customer, when demanded, would mean loss of the
firm’s sales to the competitors.

The basic objective in holding raw material inventory is separate purchase

and production activities and in holding finished goods inventory is to
separate production and sales activities

The excessive investment in the inventory has the following drawbacks:

 Unnecessary tie up of firm’s fund and loss of profit.

 Excessive carrying cost.
 The risk of liquidity.

92
The over investment of funds in inventory eat up the precious funds which
could have been put to some profitable use. The carrying cost incurred, can
not be ignored, this is the cost of storage, handling insurance, recording and
inspecting. These all costs incurred in order to have large inventories impair
the profitability of the firm. Another danger of carrying excessive inventory
is the deterioration, obsolescence and pilferage of raw materials.

Before discussing the inventory control technique, here is the discussion of

the various terms such as economic order quantity, carrying cost etc.

1. Economic Order Quantity:

It is the inventory level which minimizes the total of ordering and carrying
cost

2. Ordering Cost:

This is used especially in the case of raw materials and is included in the
cost incurred in acquiring the raw material. It is proportional to the number
of orders and inversely proportional to the size of inventory

3. Carrying Cost:

There are the costs which are incurred for holding a given amount of
inventory, they include opportunity cost of funds invested is inventories
insurance, taxes, storage cost and the cost of deterioration and obsolescence

4. Reorder Points:

Reorder point is the inventory level at which an order must be placed to

replenish the inventory and evade the risk of running out of raw material

5. Safety Stocks:

Therefore in order to guard against the stock out, the company may keep
some buffer stock as a cushion against expected increased and/or delay in
delivery .This buffer stock is called as safety stock.

93
RECEIVABLES
The term receivables are defined as ‘debt owed to the firm by customers
arising from sale of goods or services in the ordinary course of businesses’.
Trade credit, the tool which as a bridge for movement of goods through
production and distribution stages to customer, is a force in the present day
business and an essential device. Trade credit is granted with a motive of
protecting the sale from ones, competitors and attaching more of the
potential customers. Trade credit is said to be extended to a customer when
a firm sell its services or goods and does not receive the payment for them
immediately. Thus trade credit creates receivable which refer to the amount
which a firm is expected to collect in near future.

The book debt or receivable which arise a result of trade credit have the
following features:

 It involves a element of risk and hence should never to be fiddled

with. As credit sale leave a sum to be recovered in future and future can
never be the certainty, hence it is risky.

 It is based on economic value, while for the buyer, the economic

value in goods passes immediately at the time of purchase, while the
seller expects an equivalent value to be received later on.

 It represents futurity. The cash payments for the goods or services

received by the buyer will be made in future.

In order to maximize the wealth of the firm, the cost involved in the credit
and its management has to be controlled within the acceptable limits. These
costs can brought to zero level but that would adversely affect the sales,
therefore the objective should be to kept receivable to the minimum level. A
dynamic credit policy and its management will help to optimize the sale at a
minimum cost.
94
Debtors involve funds, which have an opportunity cost. Therefore the
investment in debtors should be never be excessive. Extending liberal credit
pushes the sale and results in higher profitability but the increase in level of
investment in debtors result in increased cost. Thus we are to bring the
investment at a optimum level by doing trade off between the costs and
benefits. The level of debtors to a large extent depends on external factors
such an industry norms, level of activity, seasonal variations etc. But there
are lot of internal factors which affects the firm’ credit policy. These factors
include credit terms, standard, limits and collection procedures. The internal
factors should be well administered to optimize the investment in debtors.

A good and well administered

credit means profitable credit accounts. The whole set of decision variables
that affects the investment in receivable is termed as credit policy.

Generally, we can divide the credit policy into two types

 Lenient Credit Policy

 Stringent Credit Policy

Lenient Credit policy- The firms following Lenient Credit Policy tend to sell
on credit to its customers very readily, without even knowing the credit
worthiness of the customers. The firms with lenient credit policy will have
more sales and higher profits. But they can also incur high bad debts losses
and face the problem of liquidity.

Stringent Credit Policy-

The firm which follows Stringent Credit policy are very selective in
extending credit, and credit is extended to those customer only whose credit
worthiness is well proven. These firms follow tight credit standards and
terms as a result, minimize cost and chances of bad [Link] stringent
credit policy never poses the problem of liquidity but restrict the sale and
profit margins.

95
Extension of credit increases the sale of the firm. The number of customers
purchasing the firm’s goods and services increases as it makes its credit
policy liberal. If the cost do not increase at a greater rate, the increased
revenue will increase the profit of the firm. As a consequence, the market
value of firm’s share will rise.

The extent to which the sales will be affected by pursuing a particular credit
policy can not be gauged with accuracy. Sales forecast with respect to a
particular credit policy can be made with regards to prevailing economic
condition. However, cost benefit analysis has to be done in order to
anticipate the acceptability of a credit policy.

Credit extension involves cost, the incurred cost can be of many types such
as bad debt losses, production and selling costs, administrative expenses,
cash discounts, opportunity cost [Link] debt losses are incurred when a
firm is unable to collect the book debts. Bad debt losses are more if the
credit policy is lenient.

The additional sales resulting from the relaxed credit policy will increase the
production and selling costs. Only the incremental production or selling
costs should be estimated. Similarly, the expenses incurred in the
administration of credit should be included in the costs of extending credit.
The cost of administration generally includes the credit supervision costs
and collection costs. Again, these costs will be nil if the credit policy simply
utilize the idle capacity of the credit department.

The opportunity cost is the cost of foregone profits of the amount blocked as
trade credit to customers in order to sustain or increase sales. As a result of
the funds tied up in credit accounts often the firms have to go in for credit
from banks in order to sustain their operations.

In order to collect the trade credits at an early date, often cash discounts
have to be extended. As a result of these cash discounts firms are not in a
96
position to collect the remuneration for their sales in full. This is essentially
a tool to bring the trade credit to an optimum level.

Aspects of Credit Policy:

The important aspects of credit policy should be identified before
establishing an optimum credit policy. The important decision variables of
the credit policy are:

 Credit Terms: Credit terms are the conditions or stipulations under

which the firm extends credit. The terms and conditions can be
clubbed according to the period for which they are extended and
according to the amount of discount offered thereby there are two
important components of trade credit namely cash period and cash
discounts. Credit terms can be effectively used as a tool to boost
sales. If the action of relaxation of the credit terms is followed by the
competitors. Then the firm may have to pay instead of gaining
anything.
The time duration for which the credit is
extended to the customers is referred to as credit period. Usually the
credit period of the firm is governed by the industry norms, but firms
can extend credit duration to stimulate its sales.

 Credit Standards: The credit standards followed by the firm have an

impact on sales and receivable. The sales and receivable levels are
likely to be high if the credit standards of the firm are relatively loose.
The credit standards are governed by various aspects such as the
willingness of customer to pay, the ability of customer to pay in the
economic conditions etc.

 Collection Policy: The need to collect the payments early gave rise to
a policy regarding it, called as the collection policy. It aims at the
speed recovery from slow payers and reduction of bad debts losses.

97
Credit Procedure
A clear cut guiding policy regarding the granting of credit to individual
customers and the collection from individual account should be laid down.
The collection procedure of the firm differs from customer to customer.

The credit evaluation procedure before extending of credit is done in the

following ways:

1) Credit Information: In extending credit to customers, the firm would

ensure that the receivable are collected in full and on due date. To ensure
this, the firm should have credit information concerning each customer to
whom credit is given. Collection of credit information involves expenses.
The cost of collecting information should therefore be less than the potential
profitability. In addition to the cost, the time required to collect information
should be considered. This information can be collected from financial
statement, bank references, trade references, credit bureau reports etc.

2) Credit Investigation: After the collection of credit information the

firm needs to go in for further investigation. These investigations are
different for different people and depend upon the type of customers,
customer’s background, nature of our product, size of the other, firm’s
credit policy etc.

Credit investigations involve cost. But a credit decision without adequate

investigations can be more expensive in terms of excessive collection costs
and possible bad debts losses. Therefore credit investigations should be
cared so long as the savings, in terms of speedy collection and prevention of
bad debts losses, from it exceed the cost incurred in the process.

3) Credit Analysis: In the credit procedure, the next step is of credit

analysis. The appraisals regarding the financial strength, nature of business,
type of management with respect to the other party are to be considered.
The decision to extend credit to the customers will basically depend upon
the judgment of the credit analyst, although numerical, credit evaluation
98
systems exist, if it is expected that more and more of qualitative systems
will evolve in near future.

4) Credit Limits: Once the decision regarding the extending of credit has
been taken then the decision regarding the duration and the amount of credit
are to be taken. The credit limit is to be periodically reviewed and
alterations, continuously done. The decision on the magnitude of credit will
depend upon the amount of contemplated sale and the customer’s financial
strength.

5) Collection Procedure: A clear cut and well administered collection

procedure will speed up the rate of dues collection if collection is delayed
then the chances of bad debts also increases. The procedure of collection
can not be same for everyone, it has to down according to the relation of the
firm with its customer the responsibility of follow up and collection should
be clearly designated. To speed up the process of collection after we use
discount schemes etc.

99
 100%

90%

80%

70%
Other Current
Assets

Loans &
60% Advantages

Sundary Debtors
Current Assets

50% Finished/Semi-
Finished
Products
Stores & Spare
Parts
40%
Raw Material

Cash & Bank

30% Balances

20%

10%

0%
2005-06 2006-07 2007-08 2008-09

Year

Figure 1: Four year comparative studies between current assets

composition

100
 100%

90%

80%

70%
Provisions

Other Liabilities
60%
Current Liabilities

Advances Received

Securities & Others

50% Deposites
Sundary Creditors

40%

30%

20%

10%

0%
2005-06 2006-07 2007-08 2008-09

Years

Figure 2: Four year comparative studies between current liabilities

composition

CALCULATION OF WORKING CAPITAL FOR –

101
BOKARO STEEL PLANT

(In crores)
YEAR 2004-05 2005-06 2006-07 2007-08
CURRENT ASSETS:
INVENTORIES 953.87 1365.56 1407.49 1185.74
SUNDRY DEBTORS 11.13 12.51 8.95 7.74
CASH & BANK 35.77 37.9 41.08 44
INTEREST RECEVIABLE 23.14 18.96 14.02 10.95
LOANS & ADVANCES 255.87 391.18 390.9 587.45

TOTAL CURRENT ASSETS 1279.78 1826.11 1862.44 1835.88

CURRENT LIABILITIES:
CURRENT LIABILITIES 656.07 761.14 800.47 917.47
PROVISIONS 99.22 94.82 53.99 48.27

TOTAL CURRENT LIABILITIES 755.29 855.96 854.46 965.74

NET WORKING CAPITAL 524.49 970.15 1007.98 870.14

CHART SHOWING WC OF BSL:

1200
970.15 1007.98
1000
870.14
800
600 524.49
400
200
0
2004-05 2005-06 2006-07 2007-08

ANALYSIS OF
NETVARIOUS COMPONENTS
WORKING CAPITAL OF WORKING
OF BOKARO STEEL PLANT
CAPITAL

102
INVENTORY ANALYSIS:
Inventory in Bokaro Steel Plant is composed of the following three
things:
Raw Materials
Stores and Spares
Finished and Semi-finished products

POSITION OF RAW MATERIALS IN BOKARO STEEL PLANT

(In
crores)
YEAR 2004-05 2005-06 2006-07 2007-08
RAW MATERIALS
CONSUMED 2539.49 3548.09 3765.56 3672.82
RAW MATERIALS
INVENTORY 253.48 256.21 251.13 168.28
DAILY
CONSUMPTION* 6.96 9.72 10.32 10.03
HOLDIND PERIOD(in
days)* 36 26 24 17

ANALYSIS THROUGH CHART:

40
36
35
30
26
25 24
20 17
15
10
5
0
2004-05 2005-06 2006-07 2007-08

*Daily consumption = Raw materials consumed/No. of days in a year

RAW MATERIAL HOLDING PERIOD IN BOKARO STEEL PLANT

*Holding period = Raw materials inventory/ Daily consumption

103
INTERPRETATION:

The holding period in Bokaro Steel Plant is decreasing year after year with
the increase in consumption. It is the lowest in the year 2007-08 though the
consumption has dipped as compared to the previous year. Decreasing trend
will help Bokaro Steel Plant in having a good liquidity position.

POSITION OF STORES AND SPARES IN BOKARO STEEL PLANT

(In
crores)
YEAR 2004-05 2005-06 2006-07 2007-08
STORES AND SPARES
CONSUMED 614.88 682.57 814.8 845.37
STORES AND SPARES
INVENTORY 245.97 341.29 378.46 467.96
DAILY CONSUMPTION* 1.68 1.87 2.23 2.31

HOLDING PERIOD(in
days)* 146 182 170 202

ANALYSIS250
THROUGH CHART:
202
200 182 170
150 146

100
50
0
2004-05 2005-06 2006-07 2007-08
104

STORES AND SPARES HOLDING PERIOD IN BOKARO STEEL

PLANT
*Daily consumption=Raw materials consumed/No. of days in a year
*Holding period=Raw materials inventory/ Daily consumption

INTERPRETATION:

Bokaro Steel Plant shows a similar situation as displayed by Rourkela Steel

Plant. While the management was able to bring down the holding period in
the year 2006-07 as compared to the previous year but it couldn’t bring it
further down in the year 2007-08 when it again rose though the
consumption had gone up. Immediate control steps are required to be taken
by the company.

POSITION OF FINISHED AND SEMI-FINISHED PRODUCT IN BOKARO STEEL PLANT

(In
crores)
YEAR 2004-05 2005-06 2006-07 2007-08
TURNOVER 9732.84 9537.37 11004.7 12037.6
SEMI/FINISHED PRODUCT
INVENTORY 454.42 768.06 777.9 549.48
DAILY
CONSUMPTION* 26.66 26.13 30.15 32.88
HOLDING PERIOD(in days)* 17 29 26 17

105
ANALYSIS THROUGH CHART:

30 29
26
25
20 17 17
15
10
5
0
2004-05 2005-06 2006-07 2007-08

FINISHED & SEMI-FINISHED PRODUCT HOLDING PERIOD IN

BOKARO STEEL PLANT
*Daily consumption= Turnover/No. of days in a year
*Holding period=Semi & finished product inventory/Daily consumption

INTERPRETATION:
After studying the above table and chart we find that in each year the
holding period has decreased than the previous year except in the year
2005-06 where the turnover has gone down resulting in the increase of
holding period. The poor performance of the company and the market
demand are both the reasons for lower turnover and thereby higher holding
period. The year 2007-08 where the turnover is the highest, had the least
holding period.

SUNDRY DEBTORS ANALYSIS:

POSITION OF SUNDRY DEBTORS IN BOKARO STEEL PLANT

(In
crores)
YEAR 2004-05 2005-06 2006-07 2007-08
DEBTS OVER SIX MONTHS 37.59 36.38 35.44 36.64
OTHER DEBTS 4.92 7.01 6.32 7.03

106
 42.51 43.39 41.76 43.67
LESS:PROVISIONS
FOR
DOUBTFUL
DEBTS 31.38 30.88 32.81 35.93

TOTAL 11.13 12.51 8.95 7.74

CHANGE IN
AMOUNT ……. 1.38 -3.56 -1.21

ANALYSIS THROUGH CHART:

14
12.51
12 11.13
10 8.95
8 7.74
6
4
2
0
2004-05 2005-06 2006-07 2007-08

SUNDRY DEBTORS IN BOKARO STEEL PLANT

INTERPRETATION:
There has been a marginal increase in sundry debtors in the year 2005-06
due to increase in other debts after which there has been a continuous
decline in sundry debtors which reflects lesser amount of blockage of cash.
The plant should try to maintain the same situation in future. The year
2006-07 and 2007-08 shows recovery from debtors and this is quite positive
for the plant.

CASH AND BANK ANALYSIS:

POSITION OF CASH AND BANK BALANCE IN BOKARO STEEL

PLANT

(In
107
 crores)
YEAR 2004-05 2005-06 2006-07 2007-08
CASH AND STAMP IN HAND 0.19 0.21 0.19 0.25
CHEQUES ON HAND 0 0 0 0.03
WITH SCHEDULED BANK:
TERM
DEPOSIT 35.58 37.69 40.89 43.72

TOTAL 35.77 37.9 41.08 44

CHANGE IN
AMOUNT .... 2.13 3.18 2.92

ANALYSIS THROUGH CHART:

50
44
41.08
40 35.77 37.9

30

20

10

0
2004-05 2005-06 2006-07 2007-08

CASH AND BANK BALANCE IN BOKARO STEEL PLANT

INTERPRETATION:
The table shows that the position of cash and bank balance in BSL is similar
to the position of previous three years of the plant. The liquidity position
shows an improvement year after year. It is both positive as well as
negative. Positive because it means good liquidity position and negative
because it means unnecessary cash lying with the company. Thus, a
balanced level of cash and bank balance should be maintained.

108
INTEREST RECEIVABLE ANALYSIS:
POSITION OF INTEREST RECEIVABLE IN BOKARO STEEL
PLANT

(In
crores)
2007-
YEAR 2004-05 2005-06 2006-07 08
INTEREST RECEIVABLE 0R
ACCURED:
EMPLOYEES 22.72 17.89 13.48 10.41
OTHERS 0.42 1.07 0.54 0.54

23.14 18.96 14.02 10.95

LESS:PROVISION FOR DOUBTFUL

INTEREST 0 0 0 0

TOTAL 23.14 18.96 14.02 10.95

CHANGE IN
AMOUNT …… -4.18 -4.94 -3.07

ANALYSIS THROUGH CHART

25 23.14
20 18.96

15 14.02
10.95
10

0
2004-05 2005-06 2006-07 2007-08

INTEREST RECEIVABLE IN BOKARO STEEL PLANT

INTERPRETATION:-

109
By analyzing the above table we find that there is a decreasing trend in
interest receivable. It displays the fact that the management of the company
has been quite effective in lowering the amount of interest receivable. It can
be said that the amount of interest receivable would come down more in
future which will mean reduction in the blockage of funds.

LOANS AND ADVANCES ANALYSIS:

POSITION OF LOAN AND ADVANCES IN BOKARO STEEL

PLANT

(In crores)

YEAR 2004-05 2005-06 2006-07 2007-08

LOANS:
EMPLOYEES 39.56 59.09 80.94 95.26
STORES ISSUED 0 0 0 0
OTHERS 7.81 5.96 5.23 5.15
ADVANCE RECEIVABLE IN CASH OR IN
KIND OR VALUE TO BE RECEIVED:
CLAIMS RECOVERABLE 74.79 98.64 142.02 143.71
CONTRACTORS AND SUPPLIERS 39.62 57.93 42.02 62.91
EMPLOYEES 3.35 7.35 1.99 3.15
INCOME TAX RECEVORABLE 0 0 0 0.62
OTHERS 53.09 82.97 77.34 121.01
DEPOSITS:
PORT TRUST, EXCISE DEPT, RAILWAYS 41.99 77.41 37.92 80.43
OTHERS 32.75 35.48 39.4 105.25

292.96 425 426.86 617.4

LESS: PROVISION FOR DOUBTFUL
LOAN AND ADVANCES 37.09 33.82 35.96 29.95

TOTAL 255.87 391.18 390.9 587.45

CHANGE IN AMOUNT …… 135.31 -0.28 196.55

110
ANALYSIS THROUGH CHART:

600 587.45

500
400 391.18 390.9

300 255.87
200
100
0
2004-05 2005-06 2006-07 2007-08

LOAN AND ADVANCES IN BOKARO STEEL PLANT

INTERPRETATION:

Bokaro Steel Plant has an uneven trend in loan and advances. There has
been a negative change in the amount of loan and advances in the year
2006-07 and this means recovery of loan and advances which can be useful
for the company in other business activities. The continuous decrease in
provision for doubtful debt and advances is a positive sign for the plant.

111
CURRENT LIABILITIES ANALYSIS:
POSITION OF CURRENT LIABILITIES IN BOKARO STEEL
PLANT

(In
crores)
YEAR 2004-05 2005-06 2006-07 2007-08
SUNDRY
CREDITORS:
MICRO AND SMALL
ENTERPRISES 0 0 0 0
SMALL SCALE INDUSTRIAL
UNITS 6.95 1.95 0 0
SUBSIDIARY COMPANY 7.83 0 0.5 0
OTHER 328.39 303.77 324.57 432.68
ADVANCES FROM:
CUSTOMER 35.35 24.16 25.57 30.2
OTHERS 0.04 0.11 0.11 73.84
SECURITY
DEPOSITS 29.45 42.91 67.68 23.69
STORES RECEIVED ON
LOAN 0 0 0 0
LESS: INVESTMENT
RECEIVED AS
SECURITY DEPOSIT 0 0 0 0
OTHER LIABILITIES 248.06 388.24 382.04 357.06

112
TOTAL 656.07 761.14 800.47 917.47
CHANGE IN …
AMOUNT ….. 105.07 39.33 117

ANALYSIS THROUGH CHART:

1000 917.47
800 761.14 800.47
656.07
600

400

200

0
2004-05 2005-06 2006-07 2007-08

CURRENT LIABILITIES IN BOKARO STEEL PLANT

INTERPRETATION:

After a detained analysis of the above table, we can find that the current
liabilities in Bokaro Steel Plant also follow an increasing trend. Its current
liabilities increased by 16% in 2005-06, 5% in 2006-07 and 15% in 2007-08
mainly due to the growth in other liabilities. Its sundry creditors showed a
significant decline in the year 2005-06, after which it started rising in the
next two years.

113
PROVISIONS ANALYSIS:
POSITION OF PROVISIONS IN BOKARO STEEL PLANT

(In
crores)
2007-
YEAR 2004-05 2005-06 2006-07 08
VOLUNTARY RETIREMENT
SCHEME 25.28 19.27 14.63 10.12
EMPLOYEE FAMILY BENEFIT
SCHEME 23.65 24.28 25.3 24.66
OTHERS 50.29 51.27 14.06 13.49

TOTAL 99.22 94.82 53.99 48.27

CHANGE IN
AMOUNT ….. -4.4 -40.83 -5.72

ANALYSIS THROUGH CHART:

100 99.22 94.82

80

60 53.99
48.27
40

20

0
2004-05 2005-06 2006-07 2007-08
114

PROVISIONS IN BOKARO STEEL PLANT

INTERPRETATION:
The provisions in Bokaro Steel Plant show a consistent decrease over the
four years. More amount of provisions means blockage of funds. So, a
lower amount of provisions is always a good sign for the plant. At the same
time a balanced level of provisions should be made for the employees and
other parties.

WORKING CAPITAL RATIOS

CURRENT RATIO:

This ratio reflects the firm’s ability to pay its current liabilities and the
strength of its working capital. The standard of the normal ratio is 2:1 but in
most of the companies, standard is taken according to Tandon Committee
which is 1.33:1.

Current Ratio= Current Assets/Current Liabilities.

Year 2004-05 2005-06 2006-07 2007-08

Durgapur 1.66:1 1.98:1 2.09:1 2.14:1

Steel Plant

Bhilai Steel 1.31:1 1.88:1 1.97:1 1.78:1

Plant

115
Rourkela 1.61:1 2.04:1 2.13:1 1.95:1
Steel Plant

Bokaro Steel 1.69:1 2.13:1 2.18:1 1.90:1

Plant

INTERPRETATION:

If we analyze the four’s data it can be said that Durgapur Steel Plant has
shown an increasing trend. Its financial position has improved in every year
and is better than the other plants of SAIL being considered here.
Bhilai Steel Plant, Rourkela Steel Plant and Bokaro Steel Plant hold a good
position as reflected by the ratios except in the year 2007-08 where the ratio
has gone down but is greater than the standard ratio of 1.33:1.

ACID-TEST RATIO:
Acid test ratio is a refinement of current ratio. As it excludes inventory from
current assets, it can more effectively measure the short term debt paying
ability. The conventional ratio is 1:1 (i.e. every rupee of short term
liabilities must be backed by equivalent liquid assets.
Acid-Test Ratio= Total Current Assets-Inventories/Total Current Liabilities

YEAR 2004-05 2005-06 2006-07 2007-08

Durgapur 0.31:1 0.31:1 0.30:1 0.30:1

Steel Plant

Bhilai Steel 0.26:1 0.30:1 0.40:1 0.43:1

Plant

Rourkela 0.50:1 0.52:1 0.49:1 0.47:1

Steel Plant

Bokaro Steel 0.43:1 0.54:1 0.53:1 0.67:1

116
Plant

INTERPRETATION:

From the above table it is clear that Durgapur Steel Plant does not meet
with the standard ratio but it can be said that its liquidity position on an
average is stable and the company is required to improve the current
position.
The liquidity position of Bhilai Steel Plant, Rourkela Steel Plant and
Bokaro Steel Plant is sound as well and is on an increasing trend except for
the year 2006-07 and 2007-08 when there is a slight fall in the liquidity
position of Rourkela Steel Plant.

WORKING CAPITAL TURNOVER RATIO:

This ratio indicates the relationship between sales and working capital.
Higher the ratio lower is the investment in working capital and higher is the
profitability. On the other hand, a low working capital ratio indicates that
the working capital is not efficiently utilized.

Working Capital Turnover Ratio= Sales/Net Working Capital

YEAR 2004-05 2005-06 2006-07 2007-08

Durgapur 17.48 11.91 10.16 10.83

Steel Plant

Bhilai Steel 36.90 13.33 14.06 16.74

Plant

117
Rourkela 16.95 9.31 10.47 12.94
Steel Plant

Bokaro Steel 18.56 9.83 10.92 13.83

Plant
(Note:-Figures are in times)

INTERPRETATION:

A detailed analysis of above table reveals that Durgapur Steel Plant follows
an uneven trend in these four years of study. Working capital ratio has been
the highest in the year 2004-05 which came down in later years. The
company needs to make better use of its working capital.
On the other hand Bhilai, Rourkela and Bokaro Steel Plants show an
increasing trend after 2005-06 which means that their investment in
working capital is lower and these companies are utilizing more of its
profits.

INVENTORY TURNOVER RATIO:

This ratio tells the story by which stock is converted into sales. Usually, a
high inventory turnover ratio reveals the liquidity of the inventory, i.e., how
many times on an average, inventory is sold during the year. Needless to
say that if a firm maintains minimum stock level in order to maximize sales
by quick rotation of inventory, no doubt, the profit will be maximized since
the holding cost of inventory will be minimal.
Inventory Turnover Ratio= Sales/Average Inventory

YEAR 2004-05 2005-06 2006-07 2007-08

Durgapur 9.41 7.42 6.96 7.25

Steel Plant

Bhilai Steel 11.50 8.80 8.83 10.10

Plant

118
Rourkela 9.66 7.52 7.94 8.37
Steel Plant

Bokaro Steel 11.68 8.22 7.93 9.28

Plant
(Note:-Figures are in times)

INTERPRETATION:

From the above table it is clear that Durgapur Steel Plant has a very
inconsistent inventory turnover ratio. While in the year 2004-05 it was the
highest, 2006-07 shows the lowest ratio. But in the year 2007-08 the ratio
increased by 4% and reached 7.25 times. As there is no standard inventory
turnover ratio, it can be concluded that Durgapur Steel Plant on an average
is efficient in converting its stock into sales.
Bhilai Steel plant, Rourkela Steel Plant and Bokaro Steel Plant also displays
a similar inconsistency in their ratios. The management of these plants
needs to take steps to establish a better efficiency in managing their
inventories.

CURRENT ASSETS TURNOVER RATIO:

This ratio measures the degree of efficiency in utilizing the current assets.
Higher the ratio, the better is the utilization of current assets. In other
words, it indicates how much rupee of investment in current assets
generates sales. Hence, a lower ratio is not desirable.
Current Assets Turnover Ratio=Sales/Current Assets

YEAR 2004-05 2005-06 2006-07 2007-08

Durgapur 6.93 5.88 5.30 5.77

Steel Plant

Bhilai Steel 8.78 6.25 6.93 7.31

Plant

Rourkela 6.43 4.75 5.55 6.30

Steel Plant

119
Bokaro Steel 7.61 5.22 5.91 6.56
Plant
(Note:-Figures are in
times)

INTERPRETATION:

After analyzing the figures of the four years, it can be said that Durgapur
Steel Plant has made a much better utilization of current assets than the
other three plants of SAIL. Durgapur Steel Plant had a very much stable
ratio as compared to Bhilai Steel Plant, Rourkela Steel Plant and Bokaro
Steel Plant which had fluctuations in the current assets turnover ratio over
the four years. Its ratio of 6.93 was the highest in the year 2004-05.

120
TRADE-OFF BETWEEN PROFITABILITY AND RISK
In evaluating a firm’s NWC position, an important consideration is the
trade-off between profitability and risk. The term profitability used in this
context is measured by profit after expenses. The term risk is defined as the
probability that a firm will become technically insolvent so that it will not
be able to meet its obligations when they become due for payment.

In evaluating the profitability-risk trade-off related to the level of NWC,

three basic assumptions, which are: (a) that we are dealing with
manufacturing firm; (b) that current assets are less profitable than fixed
assets; and (c) that short-term funds are less expensive than long-term funds.

Effect of the level of current assets on the profitability-risk trade-off

This effect can be shown by using the ratio of current assets to total assets.

Effect of increase/higher ratio:

An increase in the ratio of current assets to total assets will lead to a decline
in profitability because current assets are assumed to be less profitable than
fixed assets. A second effect of the increase in the ratio will be that the risk
of technical insolvency would also decrease because the increase in current
assets, assuming no change in current liabilities, will increase NWC.

Effect of decrease/lower ratio:

A decrease in the ratio of current assets to total assets will lead to an

increase in profitability as well as risk. The increase in profitability will
primarily be due to the corresponding increase in fixed assets which are

121
likely to generate higher returns. Since the current assets decrease without a
corresponding reduction in current liabilities, the amount of NWC will
decrease, thereby increase risk.

Effect of the level of current liabilities on the profitability-risk trade-off

Effect of increase/higher ratio:

An increase in the ratio of current liabilities to total assets will lead to a

increase in profitability. The reason for the increased profitability lies in the
fact that current liabilities, which are a short term sources of finance will be
reduced. As short term sources of finance are less expensive than long-run
sources, increase in the ratio will, in effect, mean substituting less expensive
sources for more expensive sources of financing. There will, therefore, be a
decline in cost and a corresponding rise in profitability.

The increase in the ratio will also increase the risk. Any increase in current
liabilities, assuming no change in current assets, would adversely affect the
NWC. A decrease in NWC leads to an increase in risk. Thus, as the current
liabilities-total assets ratio increases, profitability increases, but so dose risk.

Effect of decrease/lower ratio:

A decrease in the ratio of current liabilities to total assets will lead to

decrease in profitability as well as risk. The use of more long term funds
which, by definition, are more expensive will increase the cost; by
implication, profits will also decline. Similarly, risk will decrease because of
the lower level of current liabilities on the assumption that current assets
remain changed.

122
 Rs. In lakh

year 2008-09 2009-10

Current Assets 231202.00 2134.26
Fixed Assets 342467.00 4528.31

Total Assets 573669.00 6662.57

Current
Liabilities 201312.00 1453.31

Current
Assets/Total
Assets (% age) 40.30 47.13

Current
Liabilities/Total
Assets (% age) 35.09 21.81

RATIO ANALYSIS:-

LIQUIDITY RATIO:

Liquidity ratio shows the firm’s short term solvency and its ability to pay
off the liabilities. It has been devised to keep a track of their firm’s exposure
the risk that it will not be able to meet its short term obligations. It provides
a quick measure of liability of the firm by establishing a relationship
between its current assets and its current liabilities.
123
Some of the liquidity ratio:

a) Current ratio:
The current ratio gives the margin by which the value of the current assets
may go down without creating and payments the firms. The total current
assets include prepaid expenses and short term investments. Whereas the
current liability includes all types of liability which will mature for
payments within a period of one year e.g. bank overdraft, bills payable,
trade creditor, outstanding etc.
The current ratio is compared with the standard ratio of two times for 2: 1

b) Quick ratio / Acid test ratio / Liquid ratio:

This ratio establishes relationship between quick current assets and current
liabilities. A current assets is considered to be liquid if it I convertible into
cash without loss of time and value. Therefore,
Liquid assets = currents assets – (inventory + prepaid expenses)
Generally a quick ratio of 1:1 is considered to be satisfactory because this
mean that the quick assets of the firm are just equal to the quick liability and
there has not been seen to be a possibility of default in payments by the
firm.

c) Net Working Capital Ratio:

It indicates the firms’ potential reservoir of fund.
Net Working Capital Ratio= Net Working Capital/ Net Assets

ACTIVITY / TURNOVER / PERFORMANCE RATIO:-

It is measure of movement and thus indicates as to how frequently an

account has moved over during a period. It shows as to how efficiently and
effectively the assets of the firm are being utilized. These ratios are usually
calculated with references to sales / cost of goods sold and its expressed in
terms of rate or times.

a) Working capital turnover ratio:

124
The WCT ratio studies the velocity or utilization of the working capital of
the firm during a year. The WC here refers to the net working capital which
is equal to the total current assets less total current liabilities.

The higher the WCT ratio the lower is the investment in the working capital
and higher would be the profitability. A high WCT ratio reflects the better
utilization of the WC of the firm. However, a high WCT ratio implies a low
net working capital in relation to the sales volume and therefore implies
over trading by the firm in relation to its net WC.

b) Fixed assets turnover ratio:

This ratio shows the contribution of average fixed assets to net sales. Higher
the ratio better will be the sales per unit of fixed assets.
FA turnover ratio = (net sales) / average fixed assets

c) Capital turnover ratio:

Capital turnover ratio = (net sales) / average capital employed.

II. Ratio Analysis Calculations (2008–09)

Liquidity position:

a) Current ratio:
Current assets = Rs. 2134.26 crore
Current liability = Rs 1453.31 crore
Current ratio = current assets / current liabilities
= 2134.26 / 1453.31
= 1.47 times

b) Quick Ratio:
Inventory = Rs. 1583.10 crore
Quick ratio = (total CA – inventory) /total current liabilities
= [2134.26 – 1583.10]/1453.31
= (551.16)/ 1453.31
= 0.38 times

125
c) Net Working Capita Ratio:
Net Working Capital = 680.95
Total Assets = Fixed Assets + Current Assets =4528.31+ 2134.26
=6662.57
Net Assets = Total Assets - Current Liabilities = 6662.57-
1453.31=5209.26
Net Working Capital Ratio= Net Working Capital/ Net Assets
=680.95 /5209.26
=0.13

Activity Ratio:

a) Capital turnover ratio:

Net sales = Rs. 10414.35crore
Working capital = total CA – Total CL
= Rs. 680.95 crore
Net capital employed = Net block + working capital
= 2276.26 + 680.95
= Rs. 2957.21 crores

Capital turnover Ratio = net sales / net capital employed

= 10414.35/ 2957.21
= 3.52 times

b) Working capital turnover ratio:

Net sales = Rs. 10414.35crore
Working capital = Rs. 680.95
Working capital turnover ratio = net sales / W.C
= 10414.35/ 680.95
= 15.29 times

c) Fixed turnover ratio:

Net sales = Rs. 10414.35crore
Net fixed assets = RS. 4528.31
Fixed turnover ratio = Net sales / net fixed assets
= 10414.35/4528.31
= 2.30 times

126
YEAR 2008-09 2009-10

CURRENT RATIO 1.15 1.47

QUICK RATIO 0.28 0.38

NET WORKING CAPITAL RATIO 0.08 0.13

CAPITAL TURNOVER RATIO 4.66 3.52

WORKING CAPITAL TURNOVER 39.67 15.29

RATIO

FIXED TURNOVER RATIO 3.46 2.30

Interpretation
 Current ratio with respect to previous year, current ratio is [Link]
shows better position of current assets over current liabilities, and it is
going towards the standard current ratio which is 2:1
 Quick ratio: With respect to previous year it also shows better
[Link] standard is 1:[Link] increased from last year which shows
better financial position of BSL Plant for Current financial
requirement.
 With respect to previous year W C Ratio shows the positive sign , It
indicates, since:-
(a)working capital is used for smooth running of the organistion.
(b)for meeting rutine requirements of the organization easily.
(c) for fulfillment of future quick requirements of the organization.
(d)It shows the strength of the organization
And increasing working capital shows better strength of BSL Plant.
 Capital turnover is calculated with respect to turnover and current
year’s turnover is 10414.35 and last year’s turnover is [Link] it
is not in better position.
 Working Capital turnover Ratio is Calculated with respect of turnover
,as turnover of current year is decreased so this ratio is negative.
 Fixed assets turnover ratio is calculated by comparing net fixed assets
with respect to turnover. this ratio is also declining this year, It shows
the under utilization of fixed assets with respect to turnover.

127
  Fixed turnover ratio is decreasing because of huge investment in fixed
assets.

SALES PROCESS OF PRODUCTS MANUFACTURED IN BOKARO

STEEL PLANT

PLANT

Sales Stock Transfer

Export Sales Stockyard Transfer

Direct Sales

Plant Direct Sales CMO Direct Sales

IPT Transfer

Sales of Primary Product

Sales of Secondary Products

CMO

BSO A, B, C ……….. Sister Plants A, B …...

Party A, B, C, D ……………………

128
CMO: Central Marketing Organization
IPT: Inter Plant Transfer
BSO: Branch Sales Office (there are total 45 BSO of SAIL situated in
different States of India)
Primary Product: Product made or manufactured as per specification.
Secondary Product: These are effective items but not meeting the
specification.

129
 Chapter – 5

5.1 Limitation of study

5.2 Conclusions

5.3 Suggestion

5.4 Bibliography `

5.1 Limitation of study

130
 The present study is limited to Bokaro Steel Plant.

 The authenticity of the suggestions and recommendations

depend upon the rationality of the data provided to me.

 Have to rely upon the data supplied.

 Executives are not ready to part with the information beyond a

limit.

5.2 CONCLUSIONS

131
Summer internship has given lot of practical experiences from on the job

culture to theoretical implications at different levels. There is a great

learning in financing to corporate.

 The profitability of the plant is getting affected due to the holding of

cash as idle which is increasing year after year.

 The company has an excellent short-term liquidity position and it

should look forward to improve it in the future.

During 2009–10, profit before tax of Bokaro Steel Plant is Rs. 1286.50
which is less as compared to profit before tax of 2007-08 that is Rs.1286.50,
although production has been increased. It is because of decrease in price of
flat product in domestic and global market due to recession. Although the
market is dull, BSL is able to make profit which shows the continuous
strengthening of the company’s financial fundamentals. This was the
outcomes of multi-pronged strategy – including increase in production and
sales volume, improvement in product mix, cost reduction major, reduction
in borrowing coupled with buoyancy in the steel market.

132
5.3 SUGGESTION
In view of the analysis and with the change in industrial scenario it is felt
that a company must reorient its policies for betterment. BSL produces flat
product and now a days there is tough competition in the market of flat
product. Hence company needs certain best policies for competition with its
competitor in domestic as well as global market.

In brief the following suggestions are:-

 Company use perpetual inventory, which is very costly. Hence the

company should use both perpetual and periodic inventory.
 Besides automatic procurement items there is no specific system for
calculating reorder level, minimum and maximum level. A proper
system for different items should be developed.
 Lead time for receipt of stores and spare items is around 6 months,
which is very high. The lead time should be brought down by
decreasing the time duration in paper work.
 As understand from the explanation of the management, there is huge
volume of non-moving and obsolete stores and spare items which are
yet to be disposed of.

133
5.4 BIBLIOGRAPHY

BOOKS& REFERENCES:

 I.M. Pandey Financial Management

 Annual Reports 09-10

 Purchase/ Contract Procedure-2009

 Annual Statistics-Steel Authority of India(2004-05, 2005-06, 2006-07,

2007-08)

 Financial Management by [Link] and [Link]

 Financial Management by [Link]

 Financial Statement Analysis by [Link]

WEBSITES:
[Link]

[Link]

[Link]

[Link]
[Link]

134
135
Thank You

136