ACKNOWLEDGEMENT

Every person I have known who has been truly happy, Has learned how to serve others Nothing concrete can be achieved without an optimal combination of inspiration and perspiration. No work can be accomplished without taking the guidance of the import. It is only the critiques for the ingenious intellectual that helps transform a product into a quality product. This work is a synergistic product of many minds. I would like to thanks to my Internal Guide Prof. Sumanta Sharma and Prof. Vijay Boddu and I would also thanks to my External Guide Mr. N.S. Verma for the inspiration; encouragement information and wisdom who helped me bring this report into life. I owe my sincere gratitude towards following personnel for their endeavors, guidance and sustained help extended to us during the course of this work. Last but not least I am thankful to all the respondents and individuals who filled up very honestly.

Teachers open the door, but you must enter by yourself

EXECUTIVE SUMMARY

I DEEPAK VARSHNEY, student of INDIAN INSTITUTE OF PLANNING AND MANAGEMENT, NEW DELHI, have completed my Thesis Report in

the National Fertilizers Ltd, which are a mini navratan company & the second largest producer of UREA The project that I worked upon during the tenure of my summer training is titled as THE WORKING CAPITAL MANAGEMENT. The intent of the project was to research and analyze the financial system, Capital Structure and Working Capital of the organization. A complete methodology was adopted to reach to the final analysis of the research done .It started with the study and the understanding of the last five year annual reports of Company as a whole, then getting the in depth knowledge about the subsidy & working capital as a whole. This data so obtained was further analyzed by applying various analytical tools to get the authenticated results. The analysis of the result led to several findings which gave a final conclusion that the reason behind the increase in working capital was due in increase sundry debtors which was due to blockage of funds by FICC as a subsidy during the month from December to March, which resulted in the increase of cash credit utilization along with the interest loss which they incur. The findings so deduced led to some recommendations for organization which could prove beneficial for them, I have also analyzed the past data with the help of regression analysis, which resulted in the formation of equation. Y=139105.2-0.205X

Y=Working Capital X=Net Sales This equation resulted very beneficial for the company in finding the approximate working capital in the future.

INRODUCTION TO NATIONAL FERTILIZERS LIMITED

NFL

was incorporated on 23rd August 1974 with two manufacturing Units at Bathinda and Panipat.

Subsequently, on the reorganization of Fertilizer group of Companies in 1978, the Nangal Unit of Fertilizer Corporation of India came under the NFL fold. The Company expanded its installed capacity in 1984 by installing and commissioning of its Vijaipur gas based Plant in Madhya Pradesh.

NFL Corporate office: Noida

ROLE OF NFL

India is traditionally agro-based country where 70% of the population is dependent on agriculture. The basic requirement of a human being is food, cloth and shelter. Out of the three main basic requirements, food is more important in the society. Due to increase of population of India, the consumption of food has increased tremendously. So the increased in food production can be achieved by increasing the irrigated land or bye using the modern technique and method of agriculture. One of the important input for agricultural growth is fertilizer and one of the major player in fertilizer industry is NFL. Along with the production of fertilizer, one of the important activity is working capital management. NFL is a multi-unit company having five plants and is involved with the production of nitrogenous fertilizers. It has wide network of dealers and customers. Moreover it procures raw materials from a large no. of suppliers. A huge amount of funds is involved which includes both receipts and payments. A proper working capital management is necessary to handle efficiently and effectively all these activities.

Our project basically dealt with understanding NFLs system and giving recommendations for improving upon it.

The areas, which we emphasized upon were the cash management where we studied the various cash management techniques being followed by the organization, understand its workings and tried to improve upon it. Our findings revealed that NFL follows a very efficient &effective cash management system.

FERTILIZER INDUSTRY

Definition of Fertilizers Fertilizers are defined as those chemicals which when added to soil, supply the essential nutrients required for plant growth in the soil.

Need for Fertilizers Fertilizer is an essential input in modern agricultural practice because it helps in maintaining the fertility of the soil. Whenever land is used continuously for farming, its organic matter gets reduced. Therefore, it is essential that some extra nutrients be provided to the soil to get maximum returns from the money invested in the land. Chemical fertilizers increase fertility of the soil by providing chemical inputs to the soil. The pressure of increasing population and shrinking land resources has had an adverse effect on agriculture activities, which results in multiple cropping systems for different agro-climate conditions. Multiple cropping systems drain the soil very heavily; therefore fertilizers are a must to increase the fertility of the soil. Although the production of fertilizers is continuous throughout the year, yet its use is seasonal. The requirement is limited to a very short period of months i.e. Kharif season and Rabi season. Kharif season starts from April 1 and ends on September 30. The peak time of use of fertilizers during Kharif is June and July.

The other season is Rabi, which is from October 1 to March 31, and here the peak time for the use of fertilizers is November & December. The attention of both the government and the industry is focused toward achieving the objectives of reducing the cost of fertilizers for farmers so that it is affordable to them, and at the same time improve productivity of the system to optimize return from heavy investment. It will therefore be appropriate to have a hard look at the current situation identifying gaps and development guidelines and specific plans of action to achieve these objectives.

Types of Fertilizers: Mainly there are three types of fertilizers: 1. Nitrogenous fertilizers, 2. Phosphoric fertilizers and 3. Potash fertilizers

Salient features of the Indian Fertilizer industry: Though much euphoric services sector growth in Indian economy has drawn the attention over the globe, still its importance brings confusion when we come

across the parameters like increasing inequality and a stalemate in poverty condition. Agriculture the backbone of Indian Economy still holds its relative importance for more than a billion peoples. The Government Of India from time to time has taken considerable steps for the upliftment of Agriculture Sector. Here we have analyzed the performance of Fertilizer Industry being one of the vital parts in agricultural production and Government's policy initiatives for the same. Fertilizer in the agricultural process is an important area of concern. Fertilizer industry in India has succeeded in meeting the demand of all chemical fertilizers in the recent years. The Fertilizer Industry in India started its first manufacturing unit of Single Super Phosphate (SSP) in Ranipet near Chennai with a capacity of 6000 MT ayear. India's green revolution in late sixties gave a positive boost to the sector. The sector experienced a faster growth rate and presently India is the third largest fertilizer producer in the world. According to Given Statistics, total capacity of the industry as on 30.01.2003 has reached a level of 121.10 lakh MT of nitrogen (inclusive of an installed capacity of 208.42 lakh MT of urea after reassessment of capacity) and 53.60 lakh MT of phosphatic nutrient. Presently there are 57 large fertilizers plants in the country producing urea, DAP, Complex fertilizer, Ammonium Sulphate (AS) and Calcium Ammonium Nitrate (CAN).

Fertilizer

Companies:

-Public

Sector

Fertilizer

Companies:

1.NATIONAL FERTILIZERS LIMITED (NFL) 2.BRAHMPUTRA VALLEY FERTILIZERS LIMITED (BPVFL) 3.FERTILISERS & CHEMICALS TRAVANCORE LTD (FACT) 4.MADRAS FERTILIZERS LIMITED (MFL) 5.RASHTRIYA CHEMICAL FERTILIZERS (RCF)

Features:

Fertilizer sector is very crucial for Indian economy because it provides a very important input to agriculture. It is regulated by government policies administering the price of fertilizer and the production Urea production is an energy intensive process Natural gas, naphtha, LSLS/fuel oil are used as feedstock for producing urea Cost of energy varies from 65% to 87% of production costs Specific energy consumption of sample plants covered under this study varies between 5.53 Gcal/MT of urea and 10.2 Gcal/MT Majority of the industry is energy conscious and focuses on energy management

Quantitative details: Urea plants are very energy intensive and therefore, cost of energy is the most critical factor in the cost of production. The cost of energy varies from 65% to 87% of production. Production of ammonia is the most intensive process and accounts for around 80% of total energy consumption. The difference in energy consumption per ton of urea can be explained by factors related to feedstock/fuel used and vintage of technology. The new generation plants commissioned recently use state-of-the-art technology and are therefore more energy efficient compared to the older generation plants. The type of feedstock/fuel used also has a bearing on the energy consumption. For fertilizer manufacturing, natural gas is the most preferred and efficient feedstock because energy consumption of all gas based plants is lower than that of plants based on other heavier feedstock/fuels. The overall trend of energy consumption over the years has been declining. Even the old plants have improved their energy consumption over the years through revamp/retrofits and continuous investments towards reducing energy consumption.

Capacity Utilization: The domestic fertilizer industry has attained the level of capacity utilization that compares favorably with others in the world. The capacity utilization during 2006-07 and 2007-08 was 87.2% and 88.6% for nitrogen and 72.8% and 67% for phosphate respectively.

The capacity utilization of the fertilizer industry is expected to improve through revamping, modernization of the existing plants and closure of unviable capacity of sick fertilizer units.

Strategy of Growth: The fertilizer industry has adopted the following strategies to increase fertilizer production:

Expansion / retrofitting / revamping of existing fertilizers plants. Setting up for less than 30% of urea production and the balance capacity is based on fuel oil and LSHS as feedstock. The two coal based plants at Ramagundam, Andhra Pradesh and Talcher, Orissa were closed down due to technological obsolescence and non-viability. Natural gas has been the preferred feedstock for the manufacture of urea over other feedstock viz. naphtha and FO/LSHS, firstly, because it is a clean and efficient source of energy and secondly, it is cost effective and internationally competitive in terms of the manufacturing cost of urea. However, pricing of feedstock also becomes a very important factor in the production of urea due to the fact that the cost of feedstock constitutes about 60 to 75% of the total cost of production of urea. For gas based units, cost of feedstock accounts for 60% of cost of production, whereas for naphtha based and FO / LSHS based units, it accounts for about 75% of the cost of production.

Although natural gas is the preferred feedstock for production of urea, due to the dwindling supplies of natural gas, even the gas based units have been forced to partially use naphtha for feedstock. The burgeoning demand for natural gas by sectors such as fertilizer, power, transports etc. has resulted in efforts to increase domestic gas supply, mainly from fields being developed by private companies/joint ventures as well as development of new gas reserves recently discovered, through step up in exploration. It is expected that by the last year of the tenth Five-Year Plan, 4-5 LNG terminals may be operational at different coastal locations in the country. The Dahej LNG terminal of Petronet LNG Ltd. (PLL) has already been commissioned. The fertilizer industry is in negotiations with the prospective LNG suppliers on the issues of pricing and availability of LNG. An InterMinisterial Group, under the Deputy Chairman, Planning Commission has been constituted to deliberate on these issues.

OBJECTIVE

PRIMARY OBJECTIVE:

The project has been done with a prime objective of analyzing, understanding & interpreting the dynamic nature & position of the Working Capital along with the analysation of receivables and inventory of National Fertilizers Limited and the main factors behind its dynamic nature, along with its effect on the over all performance of the company.

INTERMIDIATERY OBJECTIVES:

In the process I was always focused on my intermediate objectives of understanding the Financial System of the organization. During the project period as well as in the project report I was always committed to make some required recommendations (if any) to the organization in order to make the objective of the project a real success.

COMPANY PROFILE

National Fertilizers Limited (NFL) is a profitable public sector undertaking which operates under the administrative control of the Department of Fertilizers, Ministry of Chemicals & Fertilizers. It is a Schedule-A & MiniRatna Category-I company, and is among one of the major players in the fertilizer industry in India with 16.6% share in urea production during 2007-08. The company manufactures nitrogenous fertilizers, mainly urea. It also produces and markets bio-fertilizers and various industrial products like Methanol, Sodium Nitrite, Sulfur, Liquid Oxygen and Liquid Nitrogen. National Fertilizers Limited was incorporated on 23rd August, 1974 for implementation of fertilizers plants, based on gasification technology of feed stock/LSHS at Bathinda, Punjab and Panipat, Haryana having an installed capacity of 5.11 lakh tons of Urea each. In April 1978, the Nangal group of plants of Fertilizer Corporation of India (FCI) was transferred to NFL consequent upon recognition of FCI. The Govt. of India in the year 1984 entrusted the company to execute its first inland gas based fertilizer project of 7.26-lakh tons urea capacity in Guna district of Madhya Pradesh. On completion of this project received the First Prize for Excellence in Project Management from the Ministry of Programme Implementation, Govt. of India. Subsequently, a second plant at Vijaipur was installed in the year 1993 for doubling its current annual production capacity. NFLs registered office is at

Scope Complex, Core III, 7 Institutional Area, Lodhi Road, New Delhi 110003 and its corporate office is at A-11, Sector-24, Noida, UP. All NFL plants have been certified ISO 9002 for conforming to international quality standards and International Environmental Standard i.e. ISO 14001. With the certification of Corporate Office / Marketing operations under ISO 9001:2000, NFL has become the first fertilizer company in the country to have its total business covered under ISO 9001 certification. The company has an installed capacity of 35.49 lakh MT nitrogenous fertilizers and has recorded an annual sales turnover of Rs 3591 crores during 2007-08. The companys strength lies in its sizeable presence, professional marketing and strong distribution network nationwide.

Products and Services:

NFL manufactures and markets nitrogenous fertilizers and a wide range of industrial products which are used in industries like steel, rubber, glass, paint & dyes and many more.

Two most popular brands of NFL are Kisan Urea and Kisan Khad, which have a substantial market across the country.

KISAN UREA

Kisan Urea is a high concentrated, solid, nitrogenous fertilizer. It is completely soluble in water hence Nitrogen is easily available to crops. Kisan Urea is ideally suitable for all types of crops and for foliar spray, which instantly removes nitrogen deficiency. Carbonic acid present in Kisan Urea helps in absorption of other nutrients like phosphate and Potash by roots of crop. The Company has developed Neem-coated urea, which on demonstration has improved the crop yield by 4-5%. The company is focusing on widening the marketing operations of Neem-coated urea.

NEEM- COATED UREA

NFL is the first fertilizerer manufacturer in the country which has developed Neem Coated Urea and the process for its manufacture on large scale. It is based upon the research work conducted by the scientists of Indian Agricultural Research Institute, New Delhi, towards the unique property of neem in regulating release of Nitrogen in urea and developing the process of making Neem coated Urea on large scale in fertilizer plants. It is a well known fact that Urea is richest in nitrogen(46%N) but when applied to crops like paddy, requiring standing water, nitrogen use efficiency is hardly 30-40% and most of nitrogen is lost due to process like leaching, ammonia volatilization and denitrification.

BIO-FERTILIZERS NFL also manufacturers and markets three types of Bio-fertilizers: Rhizobium, Phosphate Solubilising Bacteria (PSB) and Azetobactor. These Bio-fertilizers are used to supplement chemical fertilizers and also to maintain soil fertility. Starting with a mere 23 MT production in 1995-96, the production has risen to 200 MT (Approx) in 2007-08. The Company presently markets its biofertilizers in Madhya Pradesh, Maharashtra, Uttar Pradesh, Uttrakhand,

Chattisgarh, Bihar, Jharkhand, Himachal Pradesh, Jammu & Kashmir, Punjab, Haryana & Rajesthan. Bio-fertilizers are used to supplement chemical fertilizers as also to maintain soil fertility; besides the following: Bio-Fertilizers are Supplement to Chemical Fertilizers. Bio-Fertilizers are cheap and can reduce the cost of cultivation. Fix Biological Nitrogen in the soil, which is readily available to the plant. Increase crop yield by 4-5% on an average. Improve soil properties and sustain soil fertility. Provides plant nutrient at low cost and useful for the consecutive crops.

Services Offered:

In addition to its core activity of fertilizer manufacturing, NFL also offers some specialized services in the areas of Project Management, Plant operations and maintenance both in India and abroad.

NFL takes assignments in the following fields:

Commissioning activities of plant/equipments Heavy equipment erection supervision Complete operation of Chemical plants on a continuous basis Overall maintenance of plants, specialized maintenance and repair services / shutdown / turn around jobs Special maintenance & repair services for rotatory equipment, like pumps, compressors, turbines etc Training of technical manpower in Operations Maintenance and Safety Management Consultancy in Project Management

PLANT SPECIFICATION

NANGAL UNIT

1. Location:Naya Nangal, District: Ropar (Punjab) 2. Production: Can: 3, 18,160 MT (production of can is dropped now days)

Urea: 4, 78,500 MT Methanol: 16,500 MT 3. Raw Material and Utilities: Power for can & Heavy Water: Power of urea plant: Water: Line stone: Fuel oil/ LgHs: Coal: 4. Project cost: 5. Land: 6. Sources of foreign exchange: Old plant: Nangal Expansion: Free Foreign Exchange World Bank Loan 164 MV 18 MV 80 MGD 272 TPD 720 TPD 900 TPD Rs.283.11 crores 1800 Acres

PANIPAT UNIT

1. Location: 2. Production: Urea:

Panipat, District: Karnal (Haryana)

5,11,500 MT

3. Raw Material and Utilities: Power: Water: Fuel oil/ LgHs: Coal: 4. Project cost: currency Rs.55.79 crores) CPP cost: 5. Land: Factory: Township + Low lying: 6. Sources of foreign exchange: Ammonia & Urea plant: Captive power plant: Yen credit World Bank Loan 442 Acres 131 Acres Rs.110.43 crores 25 MV 12.5 MGD 990 TPD 1600 TPD Rs.223.50crores (Foreign

BHATINDA UNIT 1. Location: 2. Production: Urea: 5,11,500 MT Bhatinda, District: Bhatinda (Punjab)

3. Raw Material and Utilities: Power: Water: Fuel oil/ LgHs: Coal: 4. Project cost: (Foreign currency Rs.67.87 crores) CPP cost: 5. Land: Rs.109.66 crores 25 MV 12.5 MGD 990 TPD 1600 TPD Rs.239.30 crores

Factory: Township: 6. Sources of foreign exchange: Ammonia & Urea plant: Captive power plant:

450 Acres 285 Acres

Yen credit World Bank Loan

VIJAYPUR UNIT-1

1. Location: 2. Production: Urea:

Vijaypur, District: Guna (M.P)

7,26,000 TPA

3. Raw Material and Utilities: Power: Water: As Fuel: As Feed stock: 4. Project cost: currency Rs.185.2 crores) 5. Land: 6. Sources of foreign exchange: World Bank Loan OECF Loan DANIDA Loan 1250 Acres 16 MV 12.5 MGD 1,75,000,000 NM3/Hr 4,35,000,000 NM3/Hr Rs.533 crores (Foreign

VIJAYPUR UNIT-2 1. Location: Vijaypur, District: Guna (M.P)

2. Production: Urea: 3. Commissioned: 4. Project cost: currency Rs.431 crores) Vijaypur 1 & 2 has been re-assessed by Ficc w.e.f. 1.4.2005 Capacity increased to 8,64,600 MT 7,26,000 MT 31.03.1997 Rs.1071 crores (Foreign

CLASSIFICATION OF NFL UREA UNITS

i. ii. iii. iv. v.

Pre-1992 Gas based units Post-1992 Gas based units Pre-1992 Naptha based units Post-1992 Naptha based units FO/ LSHS based units

NFL(Vijaypur Unit-1) :NFL(Vijaypur Unit-2) : : :NFL Bhatinda unit :NFL Panipat unit :NFL Nangal unit

vi.

Mixed Energy Based units

: -

SWOT ANALYSIS

STRENGTHS:

NFL is the second largest producer of UREA in India with 16.7% share in the total urea production. NFL is the Zero Debt company from the last four years.

WEAKNESS/THREATS:

Increasing input costs of feed stock i.e fuel oil/lshs/naptha/ng Single nutrient product base

 Slow growth in urea consumption during last 7-8 years Energy intensive i.e fuel oil/lshs based plants would require large investment for revamp/replacement & change over of feedstock to RLNG/NG Uncertainty in the availability and pricing of RLNG/NG for change over of feedstock of Panipat ,Bhatinda & Nangal plants.

OPPORTUNITIES

Once the gas is available at Panipat,Nangal & Bathinda, the company would be able to produce Urea at competitive price at these 3 units. Revival of urea projects at barauni and Ramagundam would enable the company to add value. Setting up of joint ventures in India/Abroad. Locational advantage as the production units is located in the main consumption area. Scope for growth in industrial products and bio fertilizers Good demand for neem-coated urea.

FINANCIAL PERFORMANCE:

NFL has been the market leader for manufacturing and marketing of Urea. The capacity utilization during the year 2007-2008 has been 103.7%

FINANCIAL ANALYSIS:- FINANCIAL RESULTS (Rs. In Crores)

PARTICULARS Turnover

2007-08 3865.68

2006-07 3590.53

Profit Before Interest & 387.27 Depreciation 106.86 Depreciation 16.74 Interest 263.74 Net Profit Before Tax (106.74) Provision for 19.17

312.21

124.51

8.40

179.30

(85.19)

Taxation(including FBT)

22.29

Deferred Tax[Assets](net)

176.10

116.40

Profit After Tax

488.88

430.57

Brought Forward from last 664.98 year

546.97

Profit

available

for 52.83 40.74

appropriation

Appropriations: Dividend(proposed)

8.98

5.71

 Paid-Up-Capital: Paid-up share capital during the year remained the same at Rs.490.58 creres. Reserves & Surplus: Reserve and surplus as at March 31,2008 stood at Rs.880.17 crores against Rs.765.84 crores as at March 31,2007. Revenue: The sales turnover of the year under review was Rs.3865.68 crores against Rs.3590.53 crores of the previous year. The sales turnover of the year also include subsidy of Rs.2217.02 crores.

 Loan Funds: Loan funds increased from Rs.227.39 crores in the previous year to Rs.327.13 crores as at 31.03.2007 showing an increase of Rs.99.74 crores on account of availing of short-term-loan of Rs.100 crores for meeting the working capital requirements. Sundry Debtors: Sundry Debtors including FICC have increased from Rs.824.47 crores as at 31.03.2007 to Rs.1205.72 crores as at 31.03.2008 indicating an increase of Rs.381.25 crore. The outstanding dues from FICC have increased from Rs.771.38 crores as on 31.03.2007 to Rs.1138.68 crores, against which Rs.448.24 crores have been received from FICC upto 15.06.2008. Net Profit: The net profit after tax was Rs.176.10 crores as compared to Rs.116.40 crores for the previous year. Fixed Assets Gross Block: The Gross Block as at 31.03.2008 increased to Rs.2903.38 crores from Rs.2897.13 crores as at 31st March,2007. Liquidity Position: As on date, the company does not have any long term debts. The liquidity position is comfortable and can improve with the realization of outstanding dues from FICC.

ISSUES & CHALLENGES FACING THE ORGANISATION

Various issues and challenges are faced by the organization Feedstock availability. Investment by foreign investors as well as government. RPC recommendation Not availability of Natural gas. Lower consumption of fertilizers Subsidy not paid by the government in cash

RESEARCH METHODOLOGY

For the achievement of the above specified objective it was very essential to have a very systematic approach, so that we cover each & every relevant point and can make a correct interpretation & conclusion. For this these points were essential: -

1. To have a good understanding of the current financial System of the organization. Reason: - A good understanding of the current financial System of the organization can only give the correct idea of the financial potential of the company, the flow of the liquidity in the system as well as the flaws (if any) in the system. Available opportunities: - Working in the organization for two months.

2. To have sufficient information for the analyzation. Reason: - We can make a correct interpretation & conclusion only after analyzation of sufficient required information, analyzation of in complete information may lead to wrong interpretation as well as conclusion. Available opportunity: - Balance Sheets, Directors Report, and Internet etc.

3. To have a pool of experienced & analytical brain. It is always nice to have a pool of analytical brain because, diversity in the way of thinking leads to a conclusion having a diverse acceptance. Available opportunities: - Pool of highly experienced faculty, experienced trainee, friends etc.

4. To have sufficient resources for depth understanding of the financial functionality of the organization.

Reason: - One of the most important things for any project is availability of its relevant resources, in absence of which the conclusion may vary from the actual facts & position.

DESCRIPTION OF DATA

As per the required objective, the most important is collection of relevant data on which the whole analysis can be performed. It was equally important that data should be relevant and correct. Required Data: Annual Report of National Fertilizers Limited 2007-2008 Annual Report of National Fertilizers Limited 2006-2007 Types of Data: On the basis of sources data can be classified into Secondary data and Primary Data. 1. Primary Data: a) Personal Interview b) Annual Report 2. Secondary Data:

a) National Fertilizers Limited Website (http://nationalfertilizers.com) b) Text book Nature of Data required: As per the objective there was a requirement of mostly quantitative data, that too of financial nature, i.e. the data of the past performance of the company. Sources Of Data: As per the nature of the required data, the main source of it was the companys past performance records. And the most reliable sources were companys Annual financial reports (2002-2003 to 2007-2008). Directors report (2002-2003 to 2007-2008). Balance sheet (2002-2003 to 2007-2008).

Profit & Loss Account (2002-2003 to 2007-2008). Website etc. Based on the source of the data we can consider the data used in the project to be Secondary Data

CONCEPT OF SUBSIDY

A subsidy (also known as a subvention) is a form of a financial assistance paid to a business or economic sector. A subsidy can be used to support business that might otherwise fail, or to encourage activities that would otherwise not take place. Subsidies can be regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. Subsidies may distort markets, and can impose large economic costs. Financial assistance in the form of a subsidy may come from one's government, but the term subsidy may also refer to assistance granted by others, such as individuals or non-governmental institutions, although these would be more commonly described as charity. In standard supply and demand curve diagrams, a subsidy will shift either the demand curve up or the supply curve down. A subsidy that increases production will result in a lower price while a subsidy that increases demand will tend to result in an increase in price. Both cases result in a new Economic equilibrium. Therefore it is essential to consider elasticity when estimating the total costs of a planned subsidy: it equals the subsidy per unit (difference between market price and subsidized price) times the new equilibrium quantity. Subsidy may also be used to refer to government actions which limit competition or raise the prices at which producers could sell their products, for example, by means of tariff protection. Although economics generally holds that subsidies may distort the market and produce inefficiencies, there are a

number of recognized cases where subsidies may be the most efficient solution i.e. in case of Fertilizer industry as it would be impossible to buy the urea which is one of the most important raw material in the agricultural sector without the subsidy provided on it. It can be analyzed from the fact that the Cost of Production of one tone urea is around Rs.11000/- which is of gas based plant and it is sold at a rate of around Rs.4680/- to the dealers or Rs. 4800/-(approx) to the farmer after including the margin of dealer. The balanced amount i.e. Rs.6320 (11000-4680) is a subsidy provided by the FICC to the manufacturer of urea.

SUBSIDY ON FERTILIZERS: The sale price of controlled fertilizers is fixed by the Government of India (Department of Agriculture & Cooperation) under the Fertilizer (Control) Order, 1985 issued under the Essential Commodities Act, 1955. At present, only urea, which is the main nitrogenous fertilizer constituting about 60% of the total fertilizer consumption in the country, is under statutory price control. With effect from 29.1.99, the farmgate price of urea has been fixed at Rs.4000 per tonne excluding local levies. Notwithstanding this increase, the farmgate price of urea is amongst the lowest in the region and is heavily subsidised. Payment

of subsidy in respect of controlled fertilizers is regulated through the mechanism of Retention Price-cum-Subsidy Scheme (RPS). RPS enables the manufacturers of controlled fertilizers to recover their normative cost of production along with a reasonable return on net worth (12% post-tax return). The cost of production of various fertilizer units differ from unit to unit and even from month to month, depending upon the health and vintage of the plant, the feedstock used, the levels of capacity utilization, energy consumption, distance from the source of feedstock/raw materials, cost of inputs etc. At present, urea, being the only controlled fertilizer, is covered under RPS. The RPS provides for fixation of retention price of each controlled fertilizer after taking into account the normative capacity utilization prescribed by the Government and a combination of norms and actuals in respect of various cost elements and expenses. Pre-tax return on net worth corresponding to post-tax return of 12% is given as a part of the retention price after covering various elements of cost. 7.4 The retention prices of controlled fertilizers are normally fixed once in three years after scrutinizing the cost data of the units for three years for which audited accounts are available. During the currency of the pricing period, escalations/reductions are provided to reflect variations in the prices of major inputs. Escalations are also allowed in respect of certain other items of cost (viz. salaries and wages, chemicals and consumables, repairs and maintenance,

overheads etc.) where there is a significant variation during the currency of the pricing period due to unavoidable factors. In addition to the retention price subsidy, equated freight subsidy is paid to the manufacturers of controlled fertilizers to cover the cost of transportation from the production points to the consumption centers. Since the consumer prices of both indigenous and imported fertilizers are fixed uniformly, subsidy is also paid on imported fertilizers in order to bridge the difference between the cost of imports and the statutorily fixed consumer price. The various cost elements taken into account for fixation of retention price of individual unit fall under the following three broad categories:(A) Variable Cost: Comprises of the cost of raw materials and utilities. (B) Conversion Cost: Comprises of salaries and wages, repairs and

maintenance, selling expenses and other overheads. (C) Capital Related Charges: Comprises of depreciation, interest on loans and 12% post tax return on net-worth. (Net worth = equity + free reserves) During the currency of a given pricing period of three years, escalations / de-escalations are provided to reflect variations in the prices of major inputs. Escalations are also provided in respect of certain other items of cost (viz. Salaries and wages, chemicals and consumables, repairs and maintenance,

overheads etc.) where there is a significant variation during the currency of the pricing period due to unavoidable factors. Variable Cost is revised on quarterly basis (every three months) whereas Conversion Cost is revised every three years.

FINANCIAL REPORT ANALYSIS

DECLARATION: This is to be taken in to consideration that the source of every financial data used in the analysis is .the Directors Reports of NATIONAL FERTILIZERS

LIMITED released in different financial year (mentioned in the bibliography in the last of the project report). All the figures used in the Project Report are in Lakhs. SOURCES OF INCOME Sales Subsidy from Government of India Other Income Rent Received, Interest on bank deposits and others, Miscellaneous Income, Profit on Sale of Assets, Recovery of Penalty/Liquidated damages Stock: accretion (+)/discretion (-) MAJOUR CONSTITUENTS OF EXPENDITURE Raw Materials (Feed Stock), Packing Material etc Salaries & Allowances

Repairs & Maintenance

Power & Fuel

Other Manufacturing Expenses

PARTICULARS 2005-06

2006-07

Percentage 2007-08 Change

Percentage Change

Sales

172647.8 8

163392.9 6 195660.2 0 359053.1 6 3664.52 7544.25 370261.9 3

-5.36

164866.0 0

0.90

Subsidy

174758.3 4

11.96

221702.2 5

13.30

TOTAL

347406.2 2

3.35

386568.2 5

7.66

Other Income Closing Stock TOTAL INCOME

3308.80 9685.88 360400.9 0

10.75 -22.11 2.73

2817.18 7716.60 397102.0 3

-23.12 2.28 7.24

ANALYSATION OF MAJOR SOURCE OF INCOME OF LAST THREE YEARS:

OUTCOME: By analyzing the above table we can conclude that there is an increase in an sale of around 7.66% in the year 2007-08 as compared to that of 2006-07 of around 3.35% which includes the increase in subsidy of around 13.30% . The increase in sale is inevitable as demand of urea has been increased in agricultural sector due to the increase in population. There is a decrease in the other income in the year 2007-08 which is mainly due to the decrease in the bank deposits of Rs. 1232.92 lakhs(1585.94353.02)and decrease in the recovery of penalty/liquidated damages of Rs.152.67 lakhs(318.46-165.79).

 There is an increase in finished goods which is Rs.6495.09 lakhs in the year 2007-08 as compared to that of Rs.6228.16 lakhs in the year 2006-07 which results in the increase in the closing stock. Overall there is an increase in the total income of 7.24%

EXPENDITURE OF LAST THREE YEARS :

PARTICULARS

2005-06

2006-07

Percentage 2007-08 Change

Percentage Change

Opening Stock

13011.89

9685.88 445.56

-25.56

7544.25 77.98

-22.11 -82.49

Purchase of Semi & finished Goods Material Consumed 172460.1 8 Salaries,Wages,Bonus and Other Benefits Power & Fuel 85506.59 17528.16

201124.8 2 17077.48

16.62

217451.22 8.11

-2.57

16792.79

-1.66

75506.42 18897.14

-11.69 -0.17

81150.52 20411.69

7.47 8.01

Freight and Handling 18930.31 Charges Repairs & Maintenance 6661.14 Other Expenses Interest Charges Depreciation Amortisation DRE-(VRS) TOTAL EXPENDITURE 1001.27 338760.5 8 & 12057.06 & 9381.50 Finance 2222.48

6328.52 8982.90 839.71

-4.99 -4.24 -621.5

5896.99 8311.28 1673.62

-6.91 -7.47 99.30

12451.06

3.26

10685.66

-14.17

1003.41 352342.9 0

0.21 4.00

677.77

-32.45

370673.77 5.20

OUTCOME: By analyzing the above table , we can conclude that there is an regular increase in the consumption of materials which comprises of increase in the raw material consumption from Rs. 162870.27 lakhs in the year 2005-06, Rs. 186364.92 lakhs in the year 2006-2007 and Rs. 207138.99 lakhs in the year 2007-08. There was an increase in the consumption of packing materials of about 1.25% in the year 2006-07 and 10% in the year 2007-08 along with an increase in the stores and spares which resulted in the increase in the consumption of materials by 8.11% in the year 2007-08. There was a decrease in the contribution to Provident Fund and Gratuity Fund from Rs.2381.43 Lakhs to Rs.1270.52 Lakhs and Rs.488.35 Lakhs to Rs.108.90 Lakhs respectively in the year 2007-08 which resulted in the decrease in the salaries, wages, bonus & other benefits of the year 2007-08 by 1.66%.

ANALYSATION OF FINANCIAL PERFORMANCE OF NFL:

NET PROFIT 04 200328627.17 05 20048503.70 -70.29 -1.50 -10.47 336801.56 354799.53 351504.64 396329.47

CONCLUSION:

and loss account) I found EXPENDITURE INCOME PARTICULARS %Change 06 200516090.63 89.21 0.58 1.57 338760.58 360400.90 ge 07 %Chan 11640.05 -27.65 4.00 352342.90 370261.93 2.73 ge 08 2006- %Chan 200717610.01 51.28 370673.77 5.20 397102.03 7.24 nge %Cha

By analyzing both income and expenditure along with the net profit(Profit

 An increase in the total income by 7.24% in the year 2007-08 as compared to that of 2.73% in 2006-07. An overall increase of 5.20% in the expenditure of the company, which was 4% and 0.58% during the year 2007and 2008. An overall increase in the net profit by 51.28%, which was satisfactory as compared to that of previous year.

420000 360000 300000 240000 180000 120000 60000 0

396329.47 397102.03

370673.77
354799.53 360400.9 370261.93 352342.9

351504.64

336801.56

338760.58

28627.17 8503.7 16090.63 11640.05

17610.01

200304 INCOME

200405

200506

200607

200708

EXPENDITURE

NET PROFIT/LOSS

ANALYSATION OF SOURCES OF FUND:

TOTAL

DEFERRED TAX LIABILITY

LOAN FUNDS -04 2003 75401.25 05 200461661.45 nge 108044.21 102697.62

SHARE HOLDERS FUND

PARTICULARRS

CONCLUSION:

209098.01 25827.40

30999.14

195533.06

%Cha

-6.48 23795.39 -7.86 21565.94 -9.36 19649.43 -8.88 32713.26 43.86 282.20 22739.06 -90.35 9.81 125641.72 5.89 137074.41 9.09 5949.46 118647.06

-16.68

-18.22

5.20

06

2005-

148489.29

ge

-24.05

-07

%Chan 2006

169946.72

nge

%Cha

14.45

08

2007-

189437.10

nge

%Cha

11.46

 Shareholders funds are increasing each year, which is mainly due to increase in the reserve & surplus every year. Loan Funds have increased by 43.86% this year, which is due to the unsecured loan of Rs.10070.91 Lakhs as a short-term loan from HDFC Bank. Overall there is an increase of 11.46% in the shareholders fund.

140000
118647.06 125641.72

137074.41

120000 100000 80000 60000 40000 20000 0

102697.62 108044.21

75401.25 61661.45

30999.14 25827.4 23795.39 22739.06 21565.94

32713.26 19649.43

5949.46

200304

200405

200506

200607

200708

SHAREHOLDERS FUND DEFFERED TAX LIAB

LOAN FUNDS

ANALYSATION OF SHAREHOLDERS FUND:

RESERVE & SURPLUS CAPITAL PARTICUL ARS

2003- 200404 49057.84 05 49057.84

%Cha nge 0

200506 49057.84

%Cha nge 0

2006- %Chan 07 49057.84 ge 0

2007- %Chan 08 49057.84 88016.57 137074.41 ge 0 9.09 14.92

53639.78

58986.37

69589.22

76583.88 125641.72

9.96

17.97

102697.62

108044.21

118647.06

5.20

9.81

CONCLUSION: Capital fund is absolutely equal every year, i.e. there is no any change in it. There is an increase in the reserve & surplus every year due to the profit in the previous years. Overall there is an increase of 9.09% in the shareholders fund during 2007-08, which is due to an increase of 14.92% in the reserve & surplus.

TOTAL

5.89

10.05

ANALYSATION OF LOAN FUNDS:

SECURED LOANS PARTICULA RS

2003- 200404 05

%Chan 2005ge 06

%Cha nge

2006- %Chan 2007- %Chan 07 ge 08 ge -0.42

7040 1.25

56661. 45

5949.4

89.49

2273 9.06

282.20

2264 2.35

19.51 6

UNSECURED LOANS

5000. 5000.0 00 0

97.38

98.05

100

1007 0.91

100

TOTAL

7540 1.25

61661. 45

6046.8

90.19

2273 9.06

276.04

3271 3.26

43.86

18.22 4

CONCLUSION: Loan funds has been increased by 43.86% in the year 2007-08 which was mainly due to introduction of the short term loan from HDFC Bank 0f Rs.10070.91 Lakhs.

ANALYSATION OF APPLICATION OF FUND:

PARTICULARS

2003- 2004- %Chan 04 05 ge

200506

%Cha nge

2006- %Chan 2007- %Cha 07 ge 08 nge

FIXED ASSETS

1323

1154

-12.79 10614 2.78

-8.04 9736 9.05

-8.26

8932 7.44

-8.25

57.12 26.70

CA, LOANS & ADVANCES

1476

1146

-22.32 10072 9.59

12.16

1271 73.00

26.25 1693

33.12

44.10 82.25

02.19

CL & PROVISIONS

7459 5.59

3726 6.92

-50.04 60067. 48

61.18

5527 3.82

-7.98

6919 3.25

25.18

170000 147644.1 150000 127173 130000 114682.25 106142.78 100729.59 110000 97369.05 89327.44 74595.59 90000 69193.25 60067.48 70000 55273.82 37266.92 50000 30000 13237.1211526.7 10000 FIXED ASSETS CL&PROVISIONS CA,LOANS&ADVANCES

169302.19

FIXED ASSETS:

PARTICULARS

200 304

2004- %Ch 05 ange

2005- %Ch 06 ange

2006- %Ch 07 ange

200708

%Chan ge

0.24

0.56

1.21

283927.11

284628.89

286225.18

289712.86

GROSS BLOCK

290338.09

0.21

151697.99

169331.42

181273.67

193410.43

203259.76

11.62

7.05

6.69

LESS: DEPRECI ATION

132229.12

115297.47

104951.51

96302.43

87078.33

-12.80

-8.97

-8.24

NET BLOCK CAPITAL WORK IN PROGRES S

128.00

129.23

1191.27

1066.62

821.82

2249.11

0.96

-10.46

132357.12

115426.70

106142.78

97369.05

89327.44

-12.79

-8.04

-8.26

TOTAL

CONCLUSION: There is a regular increase in the depreciation of the assets of the company. Due to the regular increase in the depreciation of the assets there is a regular decrease in the net block of the company. There is an sudden increase in the capital work in progress in the year 2005-06 due to an increase in investment in Plant & Machinery of Rs.470.97 Lakhs and an increase in advance for capital expenditure by suppliers of Rs.330.99 Lakhs. The increase of 110.86% in work in progress in the year 2007-08 is due to an

-8.25

110.86

-9.57

5.09

increase in the investment in plant & machinery from Rs.222.97 Lakhs to Rs.1643.07 Lakhs.

WORKING CAPITAL ANALYZATION WHAT IS WORKING CAPITAL? Working capital is a financial metric which represents the amount of day-byday operating liquidity available to a business. Also known as operating capital, it is calculated as current assets minus current liabilities. A company can be endowed with assets and profitability, but short of liquidity, if these assets cannot readily be converted into cash. So we can say that Working Capital is the area from which the performance of any firm can be manipulated in short run, so it becomes a subject of great attention & efficient management for a firm. Thus we can illustrate it like this
WORKING CAPITAL = CURRENT ASSETS

Current assets and current liabilities include three accounts which are of special importance. These accounts represent the areas of the business where managers have the most direct impact:

Accounts Receivable (Current Asset) Inventory (Current Assets), and Accounts payable (Current Liability)

In addition, the current (payable within 12 months) portion of debt is critical, because it represents a short-term claim to current assets. Common types of short-term debt are bank loans and lines of credit. A positive change (increase) in working capital indicates that the business has either increased Current Assets (that is received cash, or other current assets) or has decreased Current Liabilities, for example has paid off some short-term creditors.

TYPES OF WORKNG CAPITAL:

WORKING CAPITAL

1. GROSS WORKING CAPITAL

2. NET WORKING CAPITAL

1. GROSS WORKING CAPITAL

WORKING CAPITAL = CURRENT ASSETS

Gross Working Capital refers to the firms investment in Current Assets. Current Assets are the assets which can be converted into cash within an accounting year and include cash, short term securities, debtors, (account receivable or book debts), bills receivable and stock (inventories).

2. NET WORKING CAPITAL

NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES

Net Working Capital refers to the difference between current assets and current liabilities. Current Liabilities are those claims of outsiders which are expected to mature for payment within an accounting year an include creditors (accounts payable), bills payables and outstanding expenses.

Net Working Capital can be positive or negative i.e.

NET WORKING CAPITAL

1. POSITIVE WORKING CAPITAL

2. NEGATIVE WORKING CAPITAL

1. POSITIVE WORKING CAPIATAL A Positive Net Working Capital will Arise when current assets exceeds current liabilities. How a Positive Working Capital exists

PRACTICAL APPROACH
RMCP WIPCP FGCP DCP

CASH OPERATING CYCLE CREDIT PURCHASE CASH OUT FLOW CASH IN FLOW

OPERATING CYCLE

> CASH CYCLE

2. NEGATIVE WORKING CAPIATAL A Negative Net Working Capital occurs when current liabilities are in excess of current assets. How negative working capital is achieved

AGGRESSIVE ( NEGATIVE) WORKING CAPITAL APPROACH

RMCP WIPCP FGCP DCP -VE Wk.Cp.

CREDIT PURCHASE

CASH IN FLOW

CASH OUT FLOW

OPERATING CYCLE > CASH CYCLE

FLOW OF FUNDS AND WORKING CAPITAL CHANGES

SOURCES OF FUNDS Funds generated from operations, issue of shares, raising of term loans, sale of fixed assets, sale of investments, nonoperating income, etc

Working capital at the begining

APPLICATION OF FUNDS Loss from operations, dividend and taxes paid, purchase of fixed assets, repayment of term loans, redemption of preference shares, debentures, etc

Increase/Decrease in working capital

Working capital at the end

OPERATING CYCLE The phrase operating cycle refers to the period of time that a companys cash is tied up in inventory and/or receivables before recovering the initial investment or realizing a profit or ROI.

A short operating cycle is one in which the time between purchasing inventories and recovering the investment is brief. The company recovers its investment and/or realizes profits quickly.

With a long operating cycle, cash may be tied up in inventory and/or receivables for an extended period of time before the business is able to recover its initial

investment. Investments with a long operating cycle can be sound, as long as the organization has sufficient access to capital to meet its short-term obligations.

SUMMARY OF OPERATING CYCLE PARTICULARS 1) INVENTORY CONVERSION PERIOD RAW MATERIAL WORK IN PROGRESS FINISHED GOODS 2) RECIEVABLES PERIOD 3) GROSS OPERATING CYCLE (1+2) 4) PAYMENT DEFERRAL PERIOD 5) NET OPERATING CYCLE (3-4) COLLECTION

(in days) 2006-07 2007-08

10.89 1.35 8.21 64.01

15.34 1.56 5.67 95.84

84.46 81.58 2.88

118.41 77.85 40.56

INTERPRETATION:

The net

operating cycle comes to be 40.56 days in 2007-08 in comparison to days in 2006-07,

therefore the increase in operating cycle refers that the firm has d efective

credit policy and

slack collection policy as average collection period had increased by 49.72% which is not a good indicator as it is directly effecting the net operating cycle of the firm. The reason behind the increase in the collection period is the increase in the recoverable from FICC as the funds got blocked during the month starting from December to March due to lack of funds with Govt. and it is the month of march when the annual reports are prepared.

CALCULATIONS: Raw Material Conversion Period = Average Raw Material * 365 Raw Material Consumed

2007

2008

(3158.74+7371.93)/2*365

(7371.93+10044.70)/ 2*365

186364.92 10.89 days

207138.99 15.34 days

CONCLUSION:

The Raw material conversion period refers to the time period by which the raw material is kept in the stores before it is sent to production department. Therefore the lowest values of RMCP indicate good demand of the raw materials for the purpose of production. More the RMCP, less will be the efficiency of the firm. Moreover large storage of raw materials may also indicates that the firm is keeping such storage for the emergent requirements but at the same time if it is not used early, the raw material will remain idle, and the firm has to bear its cost of purchase. During 2007 the company had 11 days as RMCP which states that due to less requirements in the firm, companies tries to keep the raw material as low as possible. But certainly the sales increased to a larger extent, therefore to meet the demand, the raw material is increased and so the RMCP.

 W.I.P. Conversion Period =

Average W.I.P. * 365 Total Cost of Production

2007 (1191.27+1066.62)/2*365 303693.63

2008 (1066.62+2249.11)/ 2*365 386740.60

1.35 days

1.56 days

CONCLUSION:

The work in progress conversion period indicates that the time period by which the products which are in process of production converts to finished goods. This period involves the cost of production, the larger the time period, more will be the cost of production. The cost involved in the process increases with time. Therefore a firm tries to minimize the period. During 2008 WIP is almost same i.e 2 days and it could be said that the firm is working hard in order to maintain its efficiency of converting WIP to finished products.

 Finished Goods conversion Period =

Average Finished goods * 365 Total Cost of goods sold

2007 (8045.66+6230.67)/2*365 317030.83 8.21 days

2008 (6230.67+6498.87)/ 2*365 409386.18 5.67 days

CONCLUSION:

The finished goods conversion period refers to the period by which the finished products remain in the stores before it is being sold to the customers. Therefore, it predicts the idle time where finished goods remain in the stores, The firm always tries to reduce the FGCP to minimum by working on its marketing strategies. And during 2007 the FGCP was 8 days and it is reduced to6 days in 2008, therefore the firm have improved its efficiency over sales after production.

 Receivable Conversion Period =

Average Debtors * 365 Total Credit Sales

2007 (43505.61+82447.16)/2*365 359053.16

2008 (82447.16+120571.60)/2*365 386568.25

64.01 days

95.84 days

CONCLUSION:

The receivables conversion period refers to the time period required to convert credit sales into cash realization. The firm is trying to reduce its RCP by making its credit policy more stricter, and tighten the process of collection of receivables but due to the blockage of funds with FICC there was an increase in the recoverable by 46.24% during the year 2007-08 which had increases the RCP though the problem was only for four months from December to March when there was a shortage of funds with Govt. The RCP during 2007 was 64 days and it has increased to 96 days.

 Deferral Period =

Average Creditors * 365 Total Credit Purchase

2007 (43768.25+40772.99)/2*365 189103.57

2008 (40772.99+48731.43)/2*365 209811.76

81.58 days

77.85 days

CONCLUSION:

Deferral Period is the period by which the firm enjoys the delayed payments of its purchase. The firm tries to maximize its deferred payments to longer so that the firm could retain its cash for longer, which may be beneficial to the firm if it goes for investments. But at the same time it must not increase its deferral period to larger extent on the cost of its goodwill. During 2008 the deferral period comes to 78 days, which seems to be slightly low as compared to that of 2007. Therefore the firm should try to improve its policies over deferral period without affecting its goodwill.

 Operating Cycle = 61.85 days ~ 62 days

2007 2.88~3 days

2008 40.56~41 days

CONCLUSION:

Though the operating cycle comes to be 41 days during 2008, which is quite high as compared to that of 2007 and its all due to increase in the RCP which can only be improved when the firm gets the recoverable from FICC on time and can also manage to raise funds through interest.

WORKING CAPITAL ANALYSIS OF LAST FIVE YEAR:

WORKING CAPITAL

CURRENT LIABILITIES & PROVISIONS

CURRENT ASSETS, LOANS & PARTICULAR ADVANCES S

3-

04

73048.51 37266.92 -50 114682.25 -100.22

74595.59

147644.10

05

200 2004-

77415.33

ge

%Chan

6.00

06

2005-

40662.11

60067.48

100729.59

ge

%Chan

-47

61

-12

-07

71899.18

55273.82 -8

127173.00 26

ge

2006 %Chan

77

-08

100108.94

69193.25 25

169302.19 33

nge

2007 %Cha

39

CONCLUSION: There is an increase of 25% in the current liabilities & provisions in the year 2007-08 as compared to decrease of 8% during the previous year 2006-07. There was an increase of 77% in the working capital in the year 2006-07 which was mainly due to an increase of 26% in the current assets & liabilities and again there is an increase of 33% in the current assets & liabilities in the year 2007-08 which resulted in an increase of working capital by 39%.

BREAK-UP OF CURRENT ASSETS:

CASH & BANK BALANCES

SUNDRY DEBTORS INVENTORIES

PARTICULARS

-04

1815.82 19645.33 981.89 -43.51 -26.97 46378.35 39258.13

82113.72

53761.30

2003 2004 -05 ge 06

%Chan 2005-

13347.89 -32.05 1183.22 -91.13 1338.92 13.15 -6.19 82447.16 89.50 120571.60 46.24

43505.61

35078.10 -10.64 32449.46 -7.49 34820.15 7.30

nge -07 nge -08 nge

%Cha 2006 %Cha 2007 %Cha

26.08

9953.26

9400.44

8797.99

11093.16

LOANS & ADVANCES

26.25

12571.52 169302.19

-5.55

-6.40

-22.32

TOTAL

147644.10

114682.25

100729.59

-12.16

CONCLUSION: The inventory was decreasing each and every year from 2003-04 till 2006-07 but has increased by 7.30% during the year 2007-08. There was a sudden increase in the sundry debtors by 89.50% in the year 2006-07 and than by 46.24% in the year 2007-08 which is the major contributor to increase in the working capital of the firm. There was a drastic increase in the cash & bank balance by 981.89% in the year 2004-05 which decreased by 32% in the next year and increased by 13.15% during 2007-08. The loans & advances has increased by 13.32%.

127173.00

33.12

13.32

14000 12000 10000 8000 6000 4000 2000 0 200304 200405

1815.82

13347.89

1183.22

1338.92

200506

200607

200708

INVENTORIES SUNDRY DEBTORS CASH & BANK BALANCES LOANS & ADVANCES

SHED ODS

LESS: Provision for Stores & Spares

STORES & SPARE & PACKING MATERIALPARTS

RAW MATERIALS (including in transit)

PARTICULARS

-04

574.43 21909.91 -0.84 4547.82 20

69.53

22096.46

3788.88 05

4-

554.65

230.82

ge

56.51

231.97

06

2003 200 %Chan 2005-

036.13 1.55 12514.89 -43.75 16865.13 34.76

629.17

22251.10

3758.74 -17.35 7371.93 96.12 10044.70 36.25

nge

%Cha

30.45

172.58

-07

228.16

5018.39

nge

22.49

697.62

-08

495.09

193.72

nge

2006 %Cha 2007 %Cha

4.28 -96.13

BREAK-UP OF INVENTORIES:

CONCLUSION: There was an increasing trend in the raw materials including in transit from the year 2003-04 till 2007-08 though there was a decrease of 17.35% during the year 2005-06. There was an increase in the stores & spares and packing material by

34.76% in 2007-08. After a regular decrease in the finished goods it has been increased by 4.28% in the year 2007-08 and is mainly due to increase in the demand of urea in the agriculture sector. Overall there was an increase of 7.30% in the inventory in the year 2007-08 which is mainly due to increase in the raw materials by 36.25%, Finished goods by 4.28% which has the contribution in the increase in the working capital of the company.

28000 24000 22096.46 21909.91 22251.1 16865.13 20000 12514.89 16000 11554.65 12000 8036.13 10044.7 6495.09 8000 3788.88 4547.82 3758.74 7371.93 6228.16 4000 0 2003- 2004- 2005- 2006- 200704 05 06 07 08 RAW MATERIALS STORES-SPARE & PACKING MATERIAL FINISHED GOODS SEMI-FINISHED GOODS BY-PRODUCT SULPHUR

26574.43

BREAK-UP OF SUNDRY DEBTORS:

PARTICUL ARS

2003 2004 %Chan 2005-04 198.48 -05 314.15 ge 58.27 06 249.98

%Cha nge -20.42

2006 %Cha 2007 %Cha -07 171.44 nge -31.41 -08 279.08 nge 62.78

SECUREDCONSIDE RED GOODS

ED-

RED

Less:

FICC FOR

ABLE

FROM

TOTAL

GOODS

L DEBTS

CONSIDE

PROVISIO

UNSECUR

RECOVER

DOUBTFU

CONCLUSION: 82113.72 46378.35 -43.51 -44.09 -16.40 38428.00 2703.36 68738.20 3233.69 1641o.73 10339.58 -36.99

a decreasing trend in the previous years. 43505.61 -6.19 82447.16 89.50 120571.60 46.24 107.09 113867.71 47.61 77138.15 -3.07 37247.09 1328.63 -50.85 1283.82 -3.37 1270.27 -1.05 7337.17 -29.03 6421.69 -12.47 7695.08 19.82

The secured debtors have been increased by 62.78% in the year 2007-08 after

 The unsecured debtors have been increased by 19.82% in the year 2007-08 after a continuous decreasing trend in the past years. Recoverable from FICC is the major and main contributor to the increased working capital in the year 2006-07 and 2007-08 but on the other hand if we go in depth it can be concluded that FICC recoverable is only due to the shortage of funds with Govt. during December to march when the annual accounts are prepared and is back to normal position in the month of june or july. The increase in the recoverable from FICC is by 107.09% in the year 2006-07 and by 47.61% in the year 2007-08 and is not the healthy sign for the firm. The good thing is provision for doubtfull debt is decreasing every year.

136050 128050 120050 112050 104050 96050 88050 80050 72050 64050 56050 48050 40050 32050 24050 16050 8050 50

16410.73 10339.58 7337.17 3233.69 2703.36 198.48 1328.63 249.98 314.15 171.44

6421.69 1283.82 279.08

7695.08 1270.27

2003- 2004- 2005- 2006- 200704 05 06 07 08 SECURED CONSIDERED GOODS UNSECURED CONSIDERED GOODS PROVISION FOR DOUBTFUL DEBTS RECOVERABLE FROM FICC TOTAL

BREAK-UP OF CASH & BANK BALANCES:

PARTICU LARS

2003 2004 -04 61.41 & -05 11.12

%Chan 2005ge -81.89 06 7.85

%Cha nge -29.40

2006 %Cha -07 9.85 nge 25.47

2007 %Cha -08 12.27 995.74 0 330.91 1338.92 nge 24.56 13.15 -25.43 0 36.47

CASH CHEQUE

IN HANDS 11.43 957.81 1067.34 703.14 -34.12 729.61 O 1183.22 443.76 IN CURRENT ACCOUNT 3.76 -91.13 -33.34 -100

346.82

17668.26

4994.36

11971.17 665.73 13347.89

IN

FIXED

DEPOSIT ACCOUNT

449.78

898.61

99.78

REMITTA NCE IN

TRANSIT 1815.82 19645.33 981.89 TOTAL -32.05

CONCLUSION: The cash & bank balances have been increased by 13.15% in the year 2007-08 as compared to decrease of 91.13% in the previous year.

-25.91

-32.24

 The increase in the cash & Bank balance is due to the increase in the Net Profit Before Tax from Rs. 17929.73 Lakhs to Rs.26367.23 Lakhs, Increase in the cash flow from sale of fixed assets from Rs.20.63 Lakhs to 186.30 Lakhs, increase in the closing balance by 13.15%.

17668.26

11971.17

2000 1900 1800 1700 1600 1500 1400 1300 1200 1100 1000 900 800 700 600 500 400 300 200 100 0

1067.34 957.81 729.61 703.14

995.74

346.82

61.41 11.12 7.85 9.85 0 12.27

2003- 2004- 2005- 2006- 200704 05 06 07 08 CASH CHEQUE IN HAND IN CURRENT ACCOUNT IN FIXED DEPOSITS REMITTANCE IN TRANSIT TOTAL

BREAK-UP OF LOANS & ADVANCES:

N PARTICULARS IN -04 1546.33 873.64 -43.50 9.2 -16.38 6390.47 2136.33 5852.06 2554.87 -05 ge

d)

cured

ABLE

CASH

9953.26

9400.44

2003 2004 %Chan 2005-

CONCLUSION: 798.97 -8.54 874.59 9.46 0 -100 40.39 11258.14 30.41 8632.71 -3.77 6149.05 1850.37 -13.38 1585.86 -14.29 1313.38 -17.18

-5.55

8797.90

%Cha

-6.40

11093.16

26.08

12571.52

2006 %Cha 2007 %Cha

13.32

TOTAL 06 nge -07 nge -08 nge

TAXATIO

LOANS(se

&Unsecure

RECOVER

ADVANCE

 Loans are showing a decreasing trend year after year which is a good sign. Advances recoverable in cash have been increased by 30.41% in the year 2007-08 as compared to a increase of 40.39% last year. Overall there was a increase of 13.32% in the loans & advances which was mainly due to increased in the interest accrued and due from employees from Rs.136.57 Lakhs to Rs.145.24 Lakhs in the year 2007-08, increase in the advances recoverable in cash from contractors from Rs.24.36 Lakhs to Rs.262.17 Lakhs and from others by 21.21%, refunds from IT Deptt has also increased from Rs.798.70% Lakhs to Rs.2983.10 Lakhs.

13000 12000 11000 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 200304 200405 200506 200607 200708
2554.87 2136.33 1546.33 1850.37 873.64 1585.86 798.97 1313.38 874.59 0 5852.06 6390.47 6149.05 8632.71 11258.14

LOANS(SECURED & UNSECURED) ADVANCES RECOVERABLE IN CASH TAXATION TOTAL BY-PRODUCT SULPHUR
BREAK-UP OF CURRENT LIABILITIES:

RS

ON

ION

FUND

TRADE

OTHER FROM & 937.62 871.63 -7.03 7.49 3776.66 3513.48 26315.97 05 17360.63 -34.03 1148.99 31.82 965.81 -15.94 1168.51 20.98 4011.74 6.22 3903.23 -2.70 4037.01 3.42 43768.25 152.11 40772.99 -6.84 48731.43 19.51 1.78

ES(from

OTHERS

DEPOSIT

DEPOSIT

CONTRA

SUNDRY

INVESTO

ADVANC

CREDITO

EDUCATI

PROTECT

LIABILITI

Customers)

PARTICULARS

CTORS &

&

200

3-04 4-

1618.74

0.26

200

1039.29

1.49

ge

-35.79

473.07

06

1331.93

1.32

nge

%Chan 2005- %Cha 200

28.15

-11.40

6-07 nge

509.37

2.24

-61.75

69.69

08

1125.99

2.28

ge

%Cha 2007- %Chan

121.05

CONCLUSION: After a decrease of 34.03% in the year 2004-05 the sundry creditors have been increased by 152.11% in the year 2005-06 and is mainly due to increase in the other than small scale industries creditors which include taking fuel and other raw materials on credit from IOC & GAIL which has increased by 152.04%.Similarly there was a increase of 21.36% in the other creditors in the year 2007-08. Deposit from contractors has been increased from Rs.3903.23 Lakhs in the year 2006-07 to Rs.4037.01 Lakhs in the year 2007-08. Trade deposits and advances from customers have been increased by 20.98% during the year 2007-08. Overall there was a increase of 19.30% in the current liabilities during the year 2007-08.

BREAK-UP OF PROVISIONS:

PARTICULAR S

2003- 2004 %Chan 04 -05 ge

200506

%Cha 2006 nge -07

%Cha 2007nge 08

%Ch ange

BLE

Less:

42209.52 3090.60 13.69 6.94 -91.32 -14.96 6039.42 333.40 2551.11

14217.22

-66.31

9805.25

-31.03 3802.84 -12.04 4219.92 0 10.96 NIL NIL

9120.18

-6.98

14128.03

54.91

TOTAL FOR 2718.35 5647.03 3843.80 30000.34 NIL 5977.31 NIL 8180.00 4323.50 NIL 436.20 3110.17 6436.56 7547.00 39.89 30.83 571.38 30.99 897.85 57.13 21.91 4074.02 30.99 5283.00 29.67 8392.68 11448.00 NIL -7.73 NIL

LEAVE

NIL

NIL

824.94

671.94

-18.54

671.94

OTHERS

ION TAX

TAX/TDS

PROVISIO

ENCASHA

ADVANCE

DIVIDEND

DIVIDEND

PROPOSED

GRATUITY

TAXATION

DISTRIBUT

CONCLUSION: Proposed Dividend has been increased by 29.67% in the year 2007-08 which is slightly less as compared to that of in the year 2006-07 which is due to increase in profit after tax of the firm. Dividend distribution tax had also been increased which is quite normal with increase in the proposed dividend. Encashable leave is increased by 10.96% in the year 2007-08. Overall there was a increase of 54.91% in the provision during the year 200708 which was quite high as compared to last year and is not a healthy sign for the firm but as the profit of the firm is increasing, the increase in the liabilities is inevitable.

80000 70000 60000

74595.59 69193.25

60067.48 55273.82 55065.22 50262.23

50000
42209.52

46153.64 37266.92 32386.07

40000 30000 20000 10000 0

23049.7 14217.22 9805.25 9120.18 14128.03

2003- 2004- 2005- 2006- 200704 05 06 07 08 CURRENT LIABILITIES PROVISIONS TOTAL

REASONS FOR THE INCREASE IN WORKING CAPITAL:

PARTICULARS SUNDRY DEBTORS LOANS & ADVANCES

2007-08 120571.60 12571.52

2006-07 82447.16 11093.16

DIFFERENCE 38124.44 1478.36

CASH&BANKBALANCE INVENTORIES

1338.92 34820.15

1183.22 32449.46

155.7 2370.69

1. There is a huge increase in the sundry debtors from Rs.82447.16 Lakhs in the year 2006-07 to Rs.120571.60 Lakhs in the year 2007-08. The details are as follows: The secured debtors have been increased by 62.78% in the year 2007-08 after a decreasing trend in the previous years. The unsecured debtors have been increased by 19.82% in the year 2007-08 after a continuous decreasing trend in the past years. The increase in the recoverable from FICC is by 107.09% in the year 2006-07 and by 47.61% in the year 2007-08 and is not the healthy sign for the firm. The good thing is provision for doubtful debt is decreasing every year. NOTE:-The increase in the debtors is due to the increase in the recoverable from FICC which had increased by 47.61% and remains in the books of account for only around three months from December to march as there was a shortage of funds with Government during this time and after that situation comes to normal position in the month of June when the dues are recovered leaving behind the interest loss which the firm has to bear.

2. There is also an increase in the loans & advances from Rs.11093.16 Lakhs in the year 2006-07 to Rs.12571.52 Lakhs in the year 2007-08. The reasons are: Increase of 13.32% in the loans & advances which was mainly due to Increased in the interest accured and due from employees from Rs.136.57 Lakhs to Rs.145.24 Lakhs in the year 2007-08 Increase in the advances recoverable in cash from contractors from Rs.24.36 Lakhs to Rs.262.17 Lakhs Increase in the advances recoverable in cash from others by 21.21% Refunds from IT Deptt has also increased from Rs.798.70% Rs.2983.10 Lakhs. 3.There is also an increase in the inventories from Rs.32449.46Lakhs in the year 2006-07 to Rs.34820.15 Lakhs in the year 2007-08. The reasons are: There was an increase in the stores & spares and packing material by 34.76% in 2007-08 with the deduction of Rs.193.72 Lakhs as a provision. After a regular decrease in the finished goods it has been increased by 4.28% in the year 2007-08 and is mainly due to increase in the demand of urea in the agriculture sector. Lakhs to

 Overall there was an increase of 7.30% in the inventory in the year 200708 which is mainly due to increase in the raw materials by 36.25%, Finished goods by 4.28% which has the contribution in the increase in the working capital of the company. NOTE: - Value of stores & spares not moved for more than two years and upto five years is reduced at 5% per annum (on straight line basis), further, the value of stores and spares not moved for more than five years and of stores and spares specifically identified as surplus/obsolete is taken as certified by Engineering Valuer. Provision/such diminution in value of inventory of stores and spares is debited to Profit & Loss Account. Stocks of finished and semi-finished goods are valued at lower of cost or net realizable value based on the Group Retention Price/Sale price/Import parity Price (IPP), as applicable. 4.There is also an increase in the cash & bank balance from Rs.1183.22Lakhs in the year 2006-07 to Rs.1338.92Lakhs in the year 200708. The reasons are: Increase in the Net Profit Before Tax from Rs. 17929.73 Lakhs to Rs.26367.23 Lakhs, Increase in the cash flow from sale of fixed assets from Rs.20.63 Lakhs to 186.30 Lakhs, Increase in the closing balance by 13.15%.

WORKING CAPITAL ESTIMATION Working Capital of a firm can be estimated with the help of Regression Analysis. It is a useful statistical technique which can be applied for forcasting working capital requirements of a firm. It helps in making working capital requirement projections afyer establishing the average relationship between sales and working capital and its various components in the past years. The method of least square is used in this regard. The relationship between sales and working capital is given by the equation: Y = a + bX , Where, X = Sales (independent variable) , Y = Working capital level

(dependent variable) a = Intercept of the least square line , b = Slope of the line The data relating to level of working capital and its corresponding sales during past 5-6 years is used in the establishment of trend relationship.

Year

Sales(x)

Working Capital(y)

Xy

2003- 294312.74

81801.92

2.40*10^10

.86*10^11

04 2004- 365371.38 05 2005- 338762.32 06 2006- 347406.22 07 2007- 359052.89 08 x=1704905.55 y=344827.05 xy=11.68*10^10 x=5.84*10^11 y = na + bx xy = ax + b x Using this formula we get the values of a & b as follows a = 139105.2, b=-0.206 Y=139105.2-0.206X Note: the data of 2007-08 has not been included as it was an unexceptional year with working capital of Rs.100108.94 Lakhs which was due to increase in the sundry debtors(recoverable from FICC). 71899.18 2.58*10^10 1.29*10^11 40662.11 1.41*10^10 1.20*10^11 77415.33 2.62*10^10 1.15*10^11 73048.51 2.67*10^10 1.33*10^11

WORKING CAPITAL CONSORTIUM AGREEMENT:

Bank SBI OBC BOI SBH PNB SBP UBI BOI Noida TOTAL 450.00

Cash Credit limit (Rs in Effective Interest Rate Crores) 96.00 10.00 72.00 50.00 116.00 5.00 100.00 1.00 10.75% 10.25% 11.75% 11.25% 11.75% 11.00% 11.50% 11.75%

FUND-BASED SOURCES OF WORKING CAPITAL IN NFL:

1. Cash Credit:-NFL can rise up to Rs. 450 crores from the consortium of banks, as shown in the table above. Each banks individual limit and the effective rates of interest are also shown. 2. Working Capital Demand Loan (WCDL):-It is part of the cash credit limit. NFL can either avail the full amount of Rs. 450 crores as cash credit or partly as WCDL and partly as cash credit. For NFL, the interest rate of WCDL is around 9.75% - 10.00% pa. Here, no documentation is required. 3. Short-term loan:-After exhausting the working capital limit, if NFL requires extra funds, it can raise additional funds through short-term loans. It can procure short-term loans up to a limit of Rs.100 crores for a maximum period of 6 months. The interest rate for short-term loans is 9.75% to 10.00%. It is also called Clear loan since it is unsecured. No paper work is involved and it is issued in the form of a Promissory Note. 4. Commercial Paper (CP):- NFL has currently stopped using Commercial Paper for financing, as it involves a lot of paper work and it has higher interest cost too. As NFLs financial position is sound and it has a very strong repaying capacity, so CRISIL has rated NFL as P1 for short-term loans and as A1 for long-term loans. The following are the steps for issuing a commercial paper in NFL:

Step 1: NFL appoints an agent

Step 2: Submit the following documents to a regulatory authority like National Securities Depository Limited (NSDL) i. Letter of Intent.

ii. Letter to issue CP in demat from iii. Master creation form for CP iv. Corporate action information. Step 3: Information required from bank: i. Depository Participant ID ii. CP allotment number. iii. CP redemption number. iv. CP redemption certificate after maturity. Step 4: Information and documents to be submitted to Bank by NFL: i. Offer letter Annexure VI

i. Deal confirmation Annexure VII ii. Jumbo commercial paper Annexure V iii. Agreement in stamp paper (Rs. 100) Annexure IV iv. CRISIL rating Annexure III v. Performa for submitting to RBI Annexure II vii. Board Resolution Annexure I viii.Confirmation compliance with RBI requirement Annexure II & VII

NON- FUND BASED SOURSES OF WORKING CAPITAL IN NFL 1. Letter of Credit (L/C):-Letter of credit is commonly used in international trade. It is now also used in domestic trade. The bank on behalf of NFL issues a L/C to the seller. As per the document, the bank agrees to honour drafts/cheques drawn on it for the supplies made to NFL if the seller fulfills the condition laid down in the L/C. The benefits of issuing L/C to NFL are as under:

i. It eliminates the credit risk if the bank has a good standing ii. It reduces uncertainty, as the seller knows the conditions that should be fulfilled to receive payments iii. If offers safety to NFL, as it will be making payment only in conformity with conditions laid down in L/C A foreign L/C requires the following documents along with it - Bills of Entry, Bills of Exchange, bank advice copy, foreign message, Bill of Lading (airway/shipping), and certificates. An inland L/C requires the following documents - Bills of Exchange, bank advice copy and certificate.

2. Bank Guarantee:-When NFL takes a loan from any party, then a banker of NFL (like SBI) takes the responsibility i.e. if the company defaults or is unable to repay the amount, then the bank guarantees the creditors that it will pay the stipulated amount on behalf of NFL. Apart from the above sources, a huge amount of funds are also sourced through i.The Central Marketing Office (CMO) i.e. through the sale of fertilizers. ii.Subsidies from the Fertilizer Industry Coordination Committee (FICC).

CURRENT RATIO OF NFL:

S.No 1 2 3 4 5

YEAR 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004

CURRENT RATIO 2.45 2.30 1.67 3.09 1.98

3.5 3 2.5 2 1.5 1 0.5 0

2003-04

3.09 1.98 2.3 1.67 2.45

2004-05 2005-06

2006-07 2007-08

CURRENT RATIO

CURRENT ASSETS VS. CURRENT LIABILITIES

169303 180000 147644 160000 127173 140000 114682 100732 120000 100000 80000 55065 50360 46154 60000 32385 22930 40000 20000 0 2003-04 2004-05 2005-06 2006-07 2007-08
CURRENT ASSETS CURRENT LIABILITIES

FINDINGS

Currently NFL requires no long-term loan but the govt. wants them to convert the non- gas plants (Bhatinda unit, panipat unit & Nangal unit) to gas based plants for which they require long-term loan. NFL is using RTGS system to transfer funds through internet (e-payment system), which has reduced the work to a great extent.

 NFL is efficiently utilizing its cash credit limit (Rs.450 crore) in a working capital management as a working capital demand loan (WCDL). NFL has additional option of Rs.100 crore as a short-term loan (STL) which is over and above the CC Limit. NFL had stoped using Commercial paper (CP) as a source of finance to working capital as it requires many formalities to be fulfilled. Sales are managed by the four zones (chandigarh, Lucknow, Bhopal) from where all the sales collected through different areas is transferred to collection account at Noida which is under the control of CMO. The liquidity position is comfortable which has increased from 2.3 to 2.45 which is mainly due to the outstanding dues from FICC and can be improved as soon as it get realized. Daily Cash Report is prepared with the help of which balance funds is analysed. It gives the detail of total funds collected from different sources i.e. Marketing, FICC, others and short-term loans received by different consortium banks. Details of the Funds transferred to all the units and other payment details i.e.IOC,GAIL,COAL,Rail freight,dividend,etc.

Overall, the cash management is upto the mark maintaining the appreciable liquidity of 2.45 during 2007-2008 as compare to 2.30 during 2006-2007.

THEORY OF CASH MANAGEMENT: Cash is the most liquid and critical assets of the business. Skillful management of cash is necessary for efficient functioning of the business. A business, which ignores it, may be trapped in and ultimately falls in to bankruptcy. In a business any thing done financially affects cash eventually cash is to business what blood is to a living body. A business cant operate without its life-blood cash and without cash management. There may remain no cash to operate. Its a two-way traffic. The in flow and outflow of cash never coincides. Due to non-synchronicity of cash in flow and out flow, the inflow may be more then the outflow and vice versa. This needs regulation. Cash flow is apt to follow mono-sonic pattern and showers of cash may be heavy scanty or just normal. Hence there is a direct need to control its movement through skillful cash management.

Cash management is concerned witha) PAST: - Analyzing cash movement historically so as to figure out the trends of such movements. After analyzes it provides vital information regarding cash needs during season or off-season. Actual receipt of cash inflow from the customers viz a Vis projection made, quantum and periodicity of various cash expenses. Depending on it the company makes it present and future operations. b) PRESENT: - It is relevant for monitoring cash movements so that it is efficiently regulated and controlled. It helps in identifying areas, which requires immediate attention. An efficient cash management program is capable of making itself a profitable by judicious development of surplus short-term funds. c) FUTURE: - It is relevant for forecasting the anticipated cash movements of cash in budget period. Cash forecasting is most effective instrument of cash control and is the most important tool of management. Cash forecasting reveals the time and extent of probable cash deficits and surpluses in future period and company can take action in advance for replenishing cash. Cash forecasting helps management to appreciate cash implications of long term policies it has envisaged in its corporate plan.

Factors Determining Cash Balance:

It has already been said that the financial manager has to achieve a trade-off between liquidity and profitability and in doing so he should note that there are various factors, which will determine the amount of cash balance to be kept by the firm. Some of these factors are as follow:

Good credit position of the firm Required amount of stock Strict & efficient collection policy Effective terms of purchase and sales Nature of the product Size and area of operation Good relation with bank Effective managerial policy Capacity to take loan in difficult times Objectives of Cash Management:

Cash management is needed for the efficient utilization of cash resources.

 It is required to minimize the idle cash held by the firm. It aims at reduction in interest in costs of the company in short term loan and long-term loan. It aims at ensuring that there is enough cash available with the firm to meat its demand as and when it arises.

Cash Systems:

The cash system in a firm aims at providing linkage between cash flows. The financial manager has the task of developing and maintaining the policies and procedures necessary to achieve an efficient flow of cash for the firms operations. The external system of cash includes a collection system for getting cash into the firm and disbursement system for paying the suppliers and other receivers of cash. The internal system of cash includes a concentration system to more cash from the entry level in the firm of concentration banks and disbursement bank in order to make the payments in due time. A financial manager is also required to be responsible for maintaining banking relations to ensure smooth flow of cash

into through and out of the firm, as banks are the main institution involved in the payment system.

Concentration Banking: It is the means of accelerating the flow of funds of a firm by establishing strategic & multiple collection centers instead of a single collection center located at company head quarters. The purpose is to shorten the period between the times a customer mails in his payment and the time when the company has used the funds. Customers in particular geographical area are instructed to remit the payment to collection center of that area. When payments are received, they are deposited in the collection center of local bank. Surplus funds are then transferred from these local bank accounts to a concentration bank or banks. A concentration bank is one, which the company has a major account usually a disbursement account; in case of NFL it is SBI & PNB. In concentration banking customers usually receive their bills earlier then if the bills were mailed from the head office, which in return makes the customers pay their bills to the near collection center, which reduces the time required for the typical remittances deposited in collection centers local bank, usually are drawn on banks in the geographical area. By speeding up the process of collection of customers cheques would result in release of funds for investment elsewhere.

STRATEGIES OF CASH MANAGEMENT :

The company is required to formulate strategies regarding the utilization of cash more efficiently by the following methods:

To manage cash efficiently and effectively budgets are prepared to give an estimate of future inflow and outflow of cash over a specified period of time. This enables the management in taking decision regarding the investment of surplus cash if any in various short-term securities. Firm can utilize its cash by following a collection policy which would enable it adopt to the changing situation and must delay their payments till the last date without damaging the firms credit rating. Cash management in NFL aims at evolving strategies for delaying with various factors of cash management, which includes the following:

Optimum utilization of operating cash flow-implementation of a sound management program is based on rapid generation, efficient utilization and effective conservation of its resources. The cash flow in a circle, therefore the quantum and speed of the flow can be regulated through prudent financial planing facilitating the running of the bus with minimum cash balance. This is

achieved by making a proper analysis of operative cash flow cycle and forecasted cash flow statement. Cash forecasting- it is the backbone of cash planning. It forwards NFL

regarding expected cash problems, which it may encounter, thus regulating future cash flow movements. The instrument that is used is cashing budget and daily cash reports. Liquidity analysis- liquidity of the organization depends upon the efficient utilization of cash, which in turn helps in obtaining an optimum level of liquidity. For effective cash management we must know how much cash we have & whether it is adequate to meet the requirement or not. To know the adequacy of cash we calculate: Current ratio Quick ratio

Cash Management in PSUs:

PSUs have come of age and have to function like other business systems. They must ensure that they have an effective bottom line. Globalization of Indian economy necessitates these enterprises to be sound in terms of profitability and earnings per share.

The management of working capital is a vital element in PSUs. The Board of Directors in the case of each PSU is expected to determine the reasonable level of working capital, and review the position from time to time to ensure that the total investment in working capital is kept as low as possible. PSUs can approach the State Bank of India, or any other nationalized banks to finance their working capital requirements. The requirement can be met by one bank alone or through a consortium of banks. To hedge risk, generally a single bank alone does not provide the whole requirement of working capital. Whenever the total requirement of working capital cannot be met banks alone, the PSU may approach the Government for short-term loans. Such requests are examined vis-vis the position of internal resources of the undertaking. If a PSU wishes to transfer its entire amount from one public sector bank to another, or make a change in the membership of the consortium of banks financing it, it is open to it to settle the matter in consultation with the banks concerned.

CASH MANAGEMENT IN NFL

Cash is the lifeline of any business and without sufficient cash it may hamper the day-to-day workings of the business. A business should have an efficient

and effective cash management system in order to manage cash to its optimum so that the business does not find any shortage in cash. In NFL whatever sales are made are being done through zonal offices and regional offices are being forwarded to SBI on the same day. They have 45 collection centers throughout India. Collection is carried out in these centers and forwarded to the centers in New Delhi.

Sources of Cash:

When NFL has to procure working capital, a Board resolution has to be passed to resolve the cash credit limit of the company to meet the working capital requirements. The board also has to decide upon the following issues.

How much funds to be procured? Who will be the signing authority? How power has to be delegated?

After the resolution has been passed, the Finance department will decide upon the Consortium of Banks and meet the bank officials.

All the banks in the consortium have to sign the agreements shown below:

1. Working capital consortium agreement (CF 1) 2. Joint deed of hypothecation (CF 2) 3. Inter Se Agreement among consortium of banks. (CF 3) 4. Letter regarding the grant of individual limits within the overall limit (CR 5)

CASH MANAGEMENT AUTHORISATION DATA: Like many other activities of bank, method and quantum of finance that can be granted to a corporate was mandated by reserve bank of India. This control was exercised on the lines suggested by the recommendation of a study group headed by the Shri Prakash Tandon. Method of lending used in NFL :- In this method it was thought that the borrower should provide for a maximum of 25% of total current assests out of long term funds i.e. owned funds plus term borrowings a certain level of borrowing, a certain level of credit for the purchases and other current liabilities will be available to fund the build up of current assets and the bank will provide the balance(MPBF) ,Consequently total current liabilities inclusive of bank borrowings could not exceed 75% of current assets .RBI stipulated that the

working capital needs of all the borrowers enjoying funds based on credit facilities of more than 10 lakh should be appraised under this method. The basic foundation of all bank appraisal of the need of creditors is the level of creditors the classification of assets and the balance sheet analysis therefore assume a lot of importance the requirement of this breakup of current assets & liabilities differs slightly from that mandated by the company law board. To analysis of balance sheet in the cma data is said to give amore detailed and accurate picture of the affairs of a corporate. To prepare CMA Data, one must have at least basic knowledge of accounts and analytical skills and most important, must be able to think from the point of view of the bank. First we should put the audited (or provisional, as the case may be), in the format. Then we have to do the projections for the current year , as per the so-far performance of the business organization. Then, if bankers require, we have to do projections for the next year taking into account the performance of the past years. For cma data for wc requirement following details are required.

1.

Details

of

individual

Costing

2. Details of Sales ( showing % and amount in a number of Years) 3. 4. Cost Provisional of Project Balance and Sheet as Means on of current Finance. date.

5. Projected Profit & Loss estimates, Projected Cash Flow / Fund Flow and Projected Balance Sheet for a number of years.

6. Repayment Shedule fo Working Capital Loan showing interest figures for a number of years.

7. Calculation Sheet showing Debt-Service Coverage ratio for projection years.

THEORY OF RECEIVABLE MANAGEMENT

The finance manager has an operating responsibility for the management of investment in receivables, in addition to his role of supervising the administration of credit, the finance manager in a particular, strategic position to contribute to top management decision relating to the best credit policies of the firm. The basic objectives of management of sundry debtors is to optimize the return on investment on this asset it is obvious that if there are large amount tied up in sundry debtors, working capital requirements and consequently interest charges will be high.

Also in such a case the bad debts and the cost of collection of debts would be high. On the other hand if the investment in sundry debtors is low, the sales may be restricted, since the competitors may offer more liberal credit terms. Therefore, management of sundry debtors is an important issue and requires proper policy and efficient execution of such policies.

ASPECTS OF MANAGEMENTS OF DEBTORS:

There are basically three aspects of management of sundry debtors

1) Credit Policy: The credit policy is to be determined. It involves a trade Off between the profits on additional sales the arise due to credit being extended on the one hand and the cost of carrying those debtors and bad debts on the other. 2) Credit analysis: This requires the finance manager to determine as to how risky it is to advance credit to a particular party 3) Control of receivable: This requires the finance manager to follow up debtors and decide about suitable credit collection policies

RECEIVABLE MANAGEMENT IN NFL:

FORMING OF CREDIT POLICY Credit is an important marketing tool but at the same time should not be extended as a matter of routine. Every time, credit is extended, NFL has to examine whether it needs any one of following objectives: Off season placement of stocks Increased volume of sale i.e. part cash & part credit Preempt competition NFL gives credit to its customers according to the credit policy set by the top management i.e. Board of Directors. They solely take this decision along with the marketing department & CMO has to execute the decisions. It includes appointment of dealers credit terms cash discounts etc .It is reviewed time to time and necessary modifications

TYPES OF CREDIT:

Secured Credit: Secured credit is the best form of credit as it totally eliminates risk .This may be against BG/LC . In such an event it will worthwhile for NFL to absorb the BG/LC establishment charges, to be decided season wise based on the market condition. Negotiation charges however have to be borne by the dealer Systems should be involved to keep track of expiry dates of LC/BG & also prefer claim if any within the claim period stipulated in the BG.

Partly Secured credit: This is system under which margin money deposit is collected from the dealers. Clean credit is extended to such dealers to the extent of times the deposit depending on the credit need , financial health and track record of the dealers. Interest will be allowed on deposit, which would be reviewed once every year. Promissiory note is another avenue open to NFL as an additional safeguard.

Clean Credit: Though risky, extension of open credit by NFL appears to be inevitable in the emerging competitive scenario & sale of around 3 million tones annually, NFL however should venture into this type of credit only after enforcing strictly.

CREDIT ADMINISTRATION PROCEDURE:

The zonal office committee will draw up the credit limits for each dealer .ZOC must ensure that the dealer should have provided one or more of the following as security: 1) Cash deposits on which interest does management take payable by at the rate as par prevailing FDR rates of commercial banks/bank rates/ decision. F&A has to inform CMO about interest rate applicable every year. 2) BG/LC issued by scheduled Indian bank. 3) Hypothecation of documents stating that the NFL will have right the dispose off the property in case of default by the party in payment of dues to NFL.Letter of hypothecation is not required if dealer give BG for extra credit

Procedures of fixing one time maximum credit limit: Procedures of for fixing one time maximum credit limit shall be arrived at by calculating 18 months average of collection / realization par month from the party. This maximum credit limit shall be upto maximum 3 times this average collection per month.

OVER DUE INTEREST: As a deterrent against delaying payment, panel interest, rate for which for each season shall be notified in advance, will be charged for the number of days beyond the due date this interest will be on the basis of 2% over bank rate of interest. For this purpose, the invoice should clearly indicate the due date of

payment. Cheque facility is often misused by delaying the realization and remittance of procedures.

To discourage this practice, local cheques if not realized in 48 hrs of presentation will entail over due interest from the date of presentation, out station cheque should be realized within in a week. If realization does not materialize on or before the due date, OD interest should be charged from the due date to the date of credit in NFLs account.

CASH DISCOUNT: If customers want to avail the cash discount & pay within 30 days from the day of purchase then they will be offered a cash discount at a max. of Rs 36 PMT. The top management has decided the distribution margin of Rs 180 flat to all dealers. Dealers are appointed in the following categories as central stockist (Based seasonal committed quantity)

Category A B C D E F G H

Quantity(MT) 6000 5000 4000 3500 3000 2500 2000 1500

Rate(Rs) 60 55 50 45 40 40 35 30

I J K L

1000 750 500 250

30 25 20 20

Additional freight at max. of Rs 50/PMT.

EXECUTION OF THE COLLECTION POLICY: The marketing staff has a job of visiting the customers, taking orders from them, Reminding them for the amounts due, accessing the credit worthiness and reporting to the marketing department The steps usually taken are: a) Letters including reminders to expedite payment b) Telephone calls c) Visiting person d) Legal action

The concern prepares the Aging schedule / Analysis. It is prepared to know the percentage of debtors and outstanding amount by them at different periods and to make the follow the party, it is made for less than 6 months, more than six months, less than 1 yr,less than 2 yr, less than 3 yr,and more than 3 yrs.Those with more than three yrs have legal disputes with NFL. The contract with the dealer is terminated when the party is a non working i.e having legal disputes for a long time, the field staff is going daily to the party

for money but is unable to recover the dues or is unable to meet the officials, by an order by the management , by an agreement with the party and when the party stops or doesnt take the stipulated amount of goods from the godowns of NFL

EVALUATION OF RECEIVABLES: An analysis of receivables should me made to know whether the rigrous policy for the collection of receivables is being followed An analysis of receivables can be made into various sections

DEBTORS TURNOVER RATIO: This ratio gives an idea about granting credit an efficiency of collecting past due accounts, the speed with which receivables are collected affects the liquidity of the firm, this ratio establish the relationship between annual credit sales and receivables at the end of year. The higher the ratio the more favorable it is as it indicates better liquidity of firm. Receivables Turnover Ratio=Credit sales/Avg. account receivables

Particular Credit Sales Avg. Debtors Debtors turnover Ratio

2003-04 365371.38 66749.245 5.47

2004-05 338762.32 64246.035 5.27

2005-06 347406.22 44941.98 7.73

2006-07 359053.16 62976.385 5.70

2007-08 386568.25 101509.38 3.80

CONCLUSION:

The decrease in debtors turnover ratio from 5.70 in yr 2006-07 to 3.80 in the yr 2007-08 is due to increase in debtors from Rs. 82447.16 lakh to Rs.

120571.60 lakh and is all due to increase in the recoverable from FICC against subsidy which is increased by 49.52% in 2007-08.

8.4 7.7 7 6.3 5.6 4.9 4.2 3.5 2.8 2.1 1.4 0.7 0

7.73 5.47 5.27 5.7 3.8

2003-04 2004-05 2005-06 2006-07 2007-08 DEBTORS TURNOVER RATIO

AVERAGE COLLECTION PERIOD:

It represents the average number of days for which a firm has to wait before its receivables are converted into cash. Generally, The shorter the avg. collection period the better the quality of debtors as a short collection period implies quick payment by debtors, Similarly higher collection period implies an inefficient collection performance which in turn adversely affects the liquidity or short term paying capacity of a firm out of its current liability. A very short collection period may imply a firms conservative policy on credit or its inability to allow credit to its customers (Due to lack of Resources) and thereby losing sales and profit. Avg Collection Priod=Avg Account Receivables/Avg Daily Cr. Sales Avg Daily Cr. Sales= Credit Sales/365

Particulars 2003-04 Avg. Debtors 66749.245 Avg. Daily 1001.017 Credit Sales Avg. Collection Period (days) 66.68

2004-05 64246.035 928.11 69.22

2005-06 44941.98 951.79 47.21

2006-07 62976.385 983.70 64.01

2007-08 101509.38 1059.09 95.84

CONCLUSION:

We analyzed that NFLs credit and collection policy is very lenient & so it is having a large amount of debtors amounting Rs. 120571.60 Lakhs which is mainly due to increase in Recoverable from FICC of Rs.113776.08 Lakhs and is the only reason behind the increase in the average collection period though the problem is only for three months from December to March when there was a lack of funds with FICC as a subsidy.

THEORY OF INVENTORY MANAGEMENT:

Inventories are assets of the firm and require investment and hence involve the commitment of firms resources. The inventories need not be viewed as an idle assets rather these are an integral part of firms operations. If the inventories are too big, they become a strain on the resources, however if they are too small the firm may loose the sales. Therefore the firm must have an optimum level of inventories. Managing the level of inventories is like maintaining the level of water in a bathtub with a open drain. The water is flowing out continuously. IF

water is let in too slowly the tub is soon empty. If the water is let in too fast, the tub overflows. Like the water in the tub the particular item in inventory keeps changing, but the level may remain the same.

OBJECTIVES OF INVENTORY MANAGEMENT:

1) To reduce cost of holding stock so that investment in stock remains minimal. 2) To reduce the stock out so that production cycle operates smoothly. 3) To ensure continuous supply of materials spares& finished goods so that production should not suffer at any time & the customers demand should also be met. 4) To avoid both over-stocking & under stocking of inventory. 5) To investments in inventories at the optimum level as required by the operational & sales activities. 6) To keep material cost under so that they contribute in reducing cost & thus overall cost. 7) To eliminate duplication in ordering or replenishing stocks. 8) To minimize losses through deterioration, pilferage, wastages & damages. 9) To design proper organization for inventory management. A clear-cut accountability should be fixed at various levels of the organization. 10) To ensure right quality goods at reasonable prices.

INVENTORY MANAGEMENT OF NFL:

NFL uses five types of raw materials such as coal, fuel oil, heavy petroleum, natural gas and naphtha. These are kept in stock for fifteen days. Seen these items are needed daily so they quickly used up. These five materials take 85% of the total revenue expenditure of NFL. The rest comprises of spare parts and chemicals. For natural gas and for stock of semi-finished goods no stock is required and is supplied in regular fashion. Similarly for finished goods no stock is kept. After production it is immediately handed over to dealers and the dealers are responsible for the distribution of the finished goods. Still in rare circumstances a maximum period of one month is taken for stocking purposes. There are two types of spares available in NFL: 1) Insured spares: These are highly critical and are major items for the production with a very high cost. These are normally imported goods i.e. motors and pumps etc. And these are normally not forecasted. 2) Regular consumption spares:

Examples are seals, packing materials, castings etc. here some level is to be maintained and for that safety level is two months. For raw materials a perpetual control system is followed i.e. long-term contracts with the suppliers. For finished goods production is hundred percent and is controlled by government of India. The urea comes under ECA and the government fixes the pric. Sometime the demand for the urea fluctuates due to seasonal variations and April, May, June is the worst period. July and august are the consumption periods whereas December to march are the peak materials.

INVENTORY MANAGEMENT TECHNIQUES USED IN NFL:

1) FSN F stands for fast moving inventory These items are required daily in a large amount and are crucial to production process. Example bearings, seals used up within two years. S stands for slow moving inventory These are those, which are required often and used up within three years. N stands for non moving inventory These are those items that are not used for more than three years. the

2) VED Analyses: V stands for vital

These are items are very critical to production process without which manufacturing cannot go on. Example insurance spares, coal, fuel etc. E stands for essential These items are also necessary but their stocks may be kept at low figures i.e. recorders, pressure systems, and electrodes. D stands for desirable These items may be avoided at times. If the lead time of these spares are less then stocking can be avoided. Example packing materials, sheets etc. Codification of stock is also done to facilitate quick identification and management and it all depends on the nature of items. As all this is computerized therefore specific codes are required to identify the various stock available with an organization. The codification done is in alpha-numeric system where the code used is of nine digits out of which two are alphabets and numeric.

Rarely in case of raw material there Is delay in the supply and if there is, then the contingency plan is prepared and the problem is eliminated quickly. There is hardly any damage to the finished goods but still there may be some damage as the goods are hygroscopic in nature and the damage is 1%-1.5% of the total product, which is negligible. All the stocks of NFL are hypothecated the banks. So that the bank can finance them required.

NFL have an excellent system for monitoring inventory. The different units send monthly inventory reports to the cooperate office for records and maintenance. Where they are analyzed for any discrepancies and immediately corrected. The document used are material receipt notes, daily transfer registers, bin-cards, issue slips, stock ledgers etc. The technique that is applied for the evaluation of inventory is weighted average method. In this method the total cost of all the materials is divided by the total no. of items of stock. The price calculated in this way will be used for issue of materials upto the time a fresh purchase has not been made. After a fresh purchase the quantity will be added to the earlier balance quantity and the material cost will be added to the earlier cost. A fresh price is calculated by dividing the changed total cost by the no. of units in stock after the purchase. This method recovers the whole cost of materials. This method is suitable when the price fluctuations are frequent, as it smoothens out the fluctuations by taking into the account total cost and total quantity of the materials. Sometimes problem of stock out arises in case of coal, which gets moist and wet during transit and in case of supply delay at oil refineries. But these problems are not that acute to hamper the production process.

INVENTORY TURNOVER RATIO:

Inventory Turnover Ratio=Cost of Good Sold/Avg. inventory Particular Cost of Good Sold Avg. Inventory Inventory turnover Ratio CONCLUSION: As the ratio is increasing year after year showing a good sign of inventory management. The higher ratio indicates efficient management of inventory because more frequently the stocks are sold, the lesser amount of money is required to finance the inventory. 2003-04 365371 64978 5.68 2004-05 338762 46509.71 7.28 2005-06 347406 37168.1 2 9.34 2006-07 359053 33766.81 10.65 2007-08 386568 33634.85 11.49

12 11.2 10.4 9.6 8.8 8 7.2 6.4 5.6 4.8 4 3.2 2.4 1.6 0.8 0

9.34 7.28 5.68

10.65

11.49

2003-04

2004-05

2005-06

2006-07

2007-08

INVENTORY TURNOVER RATIO

FINDINGS:

1). Sometimes there is over procurement of raw materials than necessary & this leads to over stocking & consequently cost increases. 2). Frequently duplicity of items occurs which also leads to increase in cost. 3). There are a large number of items, which are more than 5 years old under the non-moving category, which only add to the inventory, cost of NFL.

4). There are many items like usable surplus & disposal surplus, which sometimes become difficult to distinguish & manage.

RECOMMENDATIONS

1). To avoid duplicity NFL should adopt a control system in which the reports related to the item must be prepared which includes the details like when the product is being sent when ordered etc. this requires efficient functioning of the control staff. 2). The organization has to fix up a set quantity for each raw material to be procured as the production level is being set by the government. If the quantity exceeds that level, reasons should be specified while making the order & should be approved by the higher authority. 3). There should be stricter control & monitoring of items, which are nonmoving for 5 years the unit should conduct 100% physical verification of stores & spares every year in order to eliminate the discrepancies.

4) The materials department can generate a list of items, which are non-moving or have become obsolete & a proper procedure should be adopted for disposal so that its loss is kept minimum by fixing a proper salvage value. 5). Proper aging classification should be done which detailed age classification of items, their values & percentage of cost.

CONCLUSION

NFL is having Right quantity and Right quality of liquidity which can be further improved with the realization of outstanding dues from FICC. The use of concentration banking system is a best way to manage cash in a optimum way. Under this system the company has different collection centres opened near the plants and hence reducing the time in dispatch, collection etc. The company is maintaining minimum cash balance in order to maintain its current account. NFL is not keeping their funds idle even for a single day by proper estimation of the time to utilize it and making FDR for that particular time period. The Govt. had issued a bonds in place of subsidy this time due to the shortage of funds which has created a problem in managing production and day to day expenses but due to the excellent management of CC limit and STL , NFL is overcoming this problem though have to sell the bonds on loss.

BIBLIOGRAPHY

SOURCES OF DATA Annual Report of NFL 2003-04. Annual Report of NFL. 2004-05 Annual Report of NFL. 2005-06 Annual Report of NFL. 2006-07 Annual Report of NFL.2007-08 BOOKS REFFERED Fundamentals of Financial Management Financial Management by Rastaugi by Taxman

ANNEXURE

Title:-Current Status of the Fertilizer Industry In India - Policy Environment and Implications for the future ABSTRACT

Mounting pressure of subsidy on fiscal deficit of the country has compelled Government of India to take a decision to gradually withdraw the subsidy, heading towards total decontrol in a phased manner. A long term policy for fertilizer sector is under consideration, covering the problems of feedstock, fertilizer pricing, total decontrol, WTO related issues etc. The present policy environment is not investment friendly and viability of several existing units will also be adversely affected. A switch over in feedstock from naphtha to LNG for urea is contemplated, however, its availability and price is still uncertain. High energy cost do not permit further expansions in urea capacity within the country, joint ventures abroad are likely to be developed.

Introduction Economic liberalisation and reforms are the two key notes of the Government's political philosophy today which has embraced almost all sectors of the economy. Even in the case of the fertilizer sector, an attempt to introduce liberalisation has been made since.It is obvious that the fertilizer sector has to fall in line with the rest of the economy and a total decontrol would therefore have to be ultimate goal for this sector. With a view to reducing the subsidy, all the phosphatic and potassic fertilizers were decontrolled. Consequently the prices of these fertilizers increased sharply leading to fall in their consumption and distorting the ratio of fertilizer consumption. The retention pricing scheme (RPS) which was introduced in 1977 thus got confined to urea only. The

nineties remained a decade of uncertain policies. To review the existing system of subsidisation of urea and suggest an alternative broad-based scientific and transparent methodology a High Powered Fertilizer Pricing Policy Review Committee (HPC) under the Chairmanship of Professor C.H. Hanumantha Rao, was set up. The Committee has explored a number of options for determining producer price such as the existing RPS with some modification, group retention price, uniform administered price and market oriented system. Government of India is drawing a long term policy for fertilizer industry which is to ensure that the transition to total decontrol is achieved in a phased manner.

KEY ISSUES

Investment in Fertilizer Industry Fertilizer production is capital intensive and presently the cost of production of indigenous material is high and returns on investment are low. The Indian fertilizer industry which achieved phenomenal growth in eighties, witnessed decline in the growth rate during the nineties. In the recent past, the fertilizer industry has not attracted any significant investment. No multinational has invested in fertilizer sector in India Lack of availability of natural gas in the country has prompted investors to collaborate for joint ventures abroad for urea production. Gulf countries, due to abundant availability of gas, nearness to

Indian shores and investment friendly environment, are becoming the first choice for joint ventures.

Feed Stock Option Natural gas is the most efficient and economical feed stock for urea. However, limited availability of domestic natural gas has resulted in expansions of urea capacities with alternate feed stock Naphtha which is a costly option. Most urea plants are based on natural gas as feedstock followed by naphtha

LNG as Feed Stock A consortium of fertilizer companies have chalked out a pioneering Rs.200 billion mega plan for import and distribution of LNG for use as feed stock for their existing and future urea plants

Feed Stock Pricing Attention need be focused on taking appropriate measures for reducing the cost of feedstock and reducing energy consumptions. All out efforts have to be made to protect naphtha and fuel oil based plants, which have fully paid back their investment

Affordable Cost of Feed Stock

In a recent study on Naphtha market by Tata Energy Research Institute (TERI) it is reported that the price of LNG for fertilizer plants in northern India as indicated by Gas Authority of India Ltd. (GAIL) will be in the range of US $ 4.5 - 5.0 per million BTU, which is quite high compared to the agreed gas price of US $ 0.77 per million BTU for Indo-Oman Fertilizer Project. Expenditure Reform Committee (ERC) of Government of India have recommended the farm gate price of urea at Rs.7000 per MT along with a concession of Rs.1900 per MT for a gas based plant. With this pricing a new gas based urea plant having an energy consumption of 5.4 G Cal/MT urea can afford an energy price of US $ 3.73 per million BTU and a new naphtha based urea plant having energy consumption of 8 G Cal/MT urea can afford energy price of US $ 2.39 per million BTU. Thus, considering a more energy efficient naphtha based urea plant having an affordable energy cost of US $ 3.1 per million BTU the corresponding price of feed stock naphtha will be US $ 118 per MT FOB Arabian Gulf (AG) compared to prevailing naphtha price of US $ 233 fob AG in Feb. 2001. This affordable naphtha price of US $ 118/MT fob AG can be achieved at a crude price of US $ 11 per barrel which is quite unrealist compared to prevailing crude price around US $ 30 per barrel. This makes the urea production highly uneconomical compared to the International gas/urea prices . There is wide gap between urea price and energy price in international market as compared to Indian situation

Subsidy on Fertilizers The union budget for 2000-01 raised urea prices by 15 percent, DAP by 7 percent and that of MOP by 15 percent. This move enabled the Government of India (GOI) to prune the subsidy bill to some extent. However, there was no increase in urea price in the union budget for 2001-02. In the long term policy, the subsidy withdrawal in a phased manner has been proposed. However, modalities to phase out the subsidy has not been clearly mentioned. With the withdrawal of subsidy and concessions the prices of fertilizers will increase. In the totally decontrolled scenario, the stability and uniformity of fertilizer prices is not likely to be achieved. Indian farmers who were getting fertilizers almost at the uniform price throughout the country may not continue to avail this opportunity. They may also witness fluctuating market price of a fertilizer within a short span of one crop season. Such price variation may affect farmers purchase decision as well.

Research and Development Efforts Fertilizer use in India is mainly limited to urea, DAP, MOP and SSP. Else where in the world the specialty products such as completely soluble solid fertilizers for drip irrigation and efficient products like USG, Coated urea etc. are used. New research and development activities are required to be encouraged in the areas of new product, energy saving, alternate feedstock etc.

Without R & D efforts Indian fertilizer industry will continue to employ stereo type operation and there will be little innovation.

Distribution Network of Industry Fertilizer distribution of urea and its interstate movement is under Government control and is regulated under the Essential Commodity Act (ECA). Under ECA, supply plan for urea is formulated by the Government in consultation with the State Departments of Agriculture and Fertilizer Industry during "Zonal Conferences" held twice a year. The objectives of such exercises has been to minimise transportation cost by avoiding criss-cross movement of material and to ensure availability as per requirement all over the country. Removal of distribution control on urea under ECA is proposed in the phase I of the long term policy for the fertilizer sector. Apart from fixing ex-factory price based on High Power Committee (HPC) formula, Government will continue to regulate the MRP till 2004-05. The distribution cost has to come out of the ex-factory uniform Normative Retention Price (NRP) which may impair the viability of domestic producers. Phosphatic and Potassic fertilizers were decontrolled since August, 1992 and their distribution is taken over by the manufacturer importers. Government is, however, still fixing the MRP and giving an adhoc concession on per ton of product sold.

General Health of the Industry

It is feared that several fertilizer units will be closed down in thecprocess of switch over from the present administered pricing mechanism to a market based regime. This would mean substantial loss of domestic fertilizer production and corresponding increase in import of urea to meet the demand. Even under the present circumstances health of industry is not good and several units have become loss making. According to Expenditure Reform Committee (ERC) recommendation, instead of unit-wise retention price there will be a group-wise lump sum concession per ton of urea based on feed stock which will harm some units and benefit others and there will be wide spread sickness in the urea industry.

Fertilizer Consumption Urea and DAP are the most popular fertilizers, accounting for 57.0 and 15.5 percent respectively, of the total fertilizer material consumed in the country. NPK grades which can help in promoting balanced fertilisation, constitute only 5.5 percent of the total fertilizer materials. During 2000-2001 urea price was raised by 15%. The year has witnessed a fall in urea consumption marginally. The per hectare consumption of fertilizer nutrients in India around 100 kg/ha which is low almost 1/4 - 1/3 to of Nether land, Korea, Japan and Belgium. Even, Within the country, there is large variation in fertilizer use amongst different States. The ideal N : P : K ratio, aggregated for the country as a whole, is 4:2:1, however, during 1992-93 after decontrol of phosphatic and potassic

fertilizers the NPK consumption ratio distorted to 9.5:3.2:1 and still continues to be quite wide at 7.0:2.7:1 in 2000-01 compared to 5.9:2.4:1 before decontrol of phosphatic and potassic fertilizers in 1991-92. Such imbalanced application of fertilizer is bound to affect the crop productivity and soil fertility in the long run. Besides imbalanced use of NPK, deficiencies of other secondary and micro-nutrients are also becoming apparent now. The concept of balanced fertilizer application therefore has to consider these elements, particularly sulphur, zinc and iron. Low organic matter content in Indian soils and lack of adequate sources for micro-nutrients make it imperative to increase use of organic sources like FYM, green manure, bio-gas slurry etc. There is a need to practice Integrated Plant Nutrient Supply System (IPNS) to bring back the balance in soil fertility and fertilizer use. Innovative Approaches in Increasing Nutrient Use.

Efficiency The low efficiency of fertilizer use in India is a matter of concern. Nitrogen use efficiency in rice crop is only 30-35 percent, with an overall efficiency level at 50 percent. Phosphatic fertilizers are the costliest on Rs./kg of nutrient basis but their use efficiency is 20-25 percent only. Efficiency of potash is around 70-80 percent. Efficient utilisation of fertilizer, therefore, is key to economics of fertilizer application and environment friendly sustainable agriculture. Adoption of the best time, method and dose of fertilizer application by the farmers is

essential to achieve higher efficiency of fertilizer use. Soil testing to determine the fertilizer need, suitable fertilizer drills for placement of fertilizers, promotion of slow release materials, IPNS and other improved agronomic practices will certainly help in increasing efficiency of applied fertilizers. Use of coated urea, USG, precision farming using GIS for decision support system in efficient use of fertilizer will become necessary to enhance the Fertiliser Use Efficiency.

Analysis The current scenario of fertilizer industry is not good because of various factors like: i)Feedstock availability. ii)Investment by foreign investors as well as government. iii)RPC recommendation iv)Not availability of Natural gas. v)Lower consumption of fertilizers

CONCLUSION OF CASE STUDY

-Government is contemplating complete decontrol in phased manner . -Quantitative restrictions on fertilizer imports have been removed.

-The implications of present policy environment for fertilizer sector in India is not promising. There are possibilities that domestic production and consumption of fertilizers may decline. -The policy considerations which are likely to be implemented may result in making the domestic production of fertilizers unviable. -At present there is no demand-supply gap in urea. -A switch over in feed stock from naphtha to LNG for urea is envisaged depending on its availability and price. -High energy cost do not permit further expansion in urea capacity within the country, joint ventures abroad are likely to be developed. - For phosphate/potash also, joint ventures abroad are likely to be developed as there is no potential reserve within the country.

REFRENCE www.iffco.com www.nfl.com

Thesis Response sheet Response sheet number: 1 Thesis Topic: Analysis of Working Capital Management in National Fertilizer Limited Date: 22 July 2009

 Details of the student ( Name ,Batch ,Alumni Id ,Phone No and Email Id ) Deepak Varshney FW- 07-09, DF79-F-0384, 09412723304, deepakvarshneyagra@gmail.com ,

Thesis synopsis ( Attach thesis synopsis [ if response sheets are emailed] with every response sheet )

Date when the guide was consulted: 19 July 2009

Progress of the work :

INTRODUCTION TO NFL NFL

was incorporated on 23rd August 1974 with two manufacturing Units at Bathinda and Panipat.

Subsequently, on the reorganization of Fertilizer group of Companies in 1978, the Nangal Unit of Fertilizer Corporation of India came under the NFL fold. The Company expanded its installed capacity in 1984 by installing and commissioning of its Vijaipur gas based Plant in Madhya Pradesh.

Definition of Fertilizers:-Fertilizers are defined as those chemicals which when added to soil, supply the essential nutrients required for plant growth in the soil. Need for Fertilizers:-Fertilizer is an essential input in modern agricultural practice because it helps in maintaining the fertility of the soil. Whenever land is used continuously for farming, its organic matter gets reduced. Therefore, it is essential that some extra nutrients be provided to the soil to get maximum returns from the money invested in the land. Chemical fertilizers increase fertility of the soil by providing chemical inputs to the soil.

primary research on the topic as discussed with the guide, like analyzing, understanding & interpreting the dynamic nature & position of the Working Capital along with the analyzation of receivables and inventory of National Fertilizers Limited and the main factors behind its dynamic nature, along with its effect on the over all performance of the company and understanding the Financial System of the organization.

Comments from internal/external guide:

Signature of the external guide: Mr. N.S.Verma

Signature of the internal guide: Mr. VIJAY BODDU Signature of the Student: Deepak Varshney

Response sheet number: 2 Thesis Topic: Analysis of Working Capital Management in National Fertilizer Limited Date: 03 Aug 2009

Details of the student ( Name ,Batch ,Alumni Id ,Phone No and Email Id ) Deepak Varshney FW- 07-09, DF79-F-0384, 09412723304, deepakvarshneyagra@gmail.com ,

Thesis synopsis ( Attach thesis synopsis [ if response sheets are emailed] with every response sheet )

Date when the guide was consulted: 22 July 2009

Progress of the work : COMPANY PROFILE

National Fertilizers Limited (NFL) is a profitable public sector undertaking which operates under the administrative control of the Department of Fertilizers, Ministry of Chemicals & Fertilizers. It is a Schedule-A & MiniRatna Category-I company, and is among one of the major players in the fertilizer industry in India with 16.6% share in urea production during 2007-08.

PLANT SPECIFICATION: Nangal Unit Panipat Unit Bhatinda Unit Vijaypur Unit-1 Vijaypur Unit-2

CONCEPT OF SUBSIDY

A subsidy (also known as a subvention) is a form of a financial assistance paid to a business or economic sector. A subsidy can be used to support business that might otherwise fail, or to encourage activities that would otherwise not take place.

Subsidies can be regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. Subsidies may distort markets, and can impose large economic costs.

Comments from internal/external guide:

Signature of the external guide: Mr. N.S.Verma Signature of the internal guide: Mr. VIJAY BODDU Signature of the Student: Deepak Varshney

Response sheet number: 3 Thesis Topic: Analysis of Working Capital Management in National Fertilizer Limited Date: 12 Aug 2009

Details of the student ( Name ,Batch ,Alumni Id ,Phone No and Email Id ) Deepak Varshney FW- 07-09, DF79-F-0384, 09412723304, deepakvarshneyagra@gmail.com ,

Thesis synopsis ( Attach thesis synopsis [ if response sheets are emailed] with every response sheet )

Date when the guide was consulted: 28 July 2009

 Progress of the work : FINANCIAL REPORT ANALYSIS This is to be taken in to consideration that the source of every financial data used in the analysis is .the Directors Reports of NATIONAL FERTILIZERS LIMITED released in different financial year (mentioned in the bibliography in the last of the project report). All the figures used in the Project Report are in Lakhs. ANALYSATION OF MAJOR SOURCE OF INCOME OF LAST THREE YEARS: EXPENDITURE OF LAST THREE YEARS : ANALYSATION OF FINANCIAL PERFORMANCE OF NFL: ANALYSATION OF SOURCES OF FUND: ANALYSATION OF SHAREHOLDERS FUND: ANALYSATION OF LOAN FUNDS: ANALYSATION OF APPLICATION OF FUND: FIXED ASSETS: Working capital is a financial metric which represents the amount of day-byday operating liquidity available to a business. Also known as operating capital,

it is calculated as current assets minus current liabilities. A company can be endowed with assets and profitability, but short of liquidity, if these assets cannot readily be converted into cash.