Financial Risk Management

‡ Established in 1940 as ³National Radio & Electronics Company Limited´ A Tata Enterprise.1% Works & Facilities. 50.000sq.75.ft at Mahape. Subsidiary of Tata Power. Navi Mumbai Focus on Complete Automation Project based business ‡ ‡ ‡ ‡ .

ISG LOBs/Business Market Segments Activities y y Strategic Electronics Defense Establishments Homeland Security segment y y y y y Traction Electronics y y y y y y y Indian Railways(CLW & DLW) y y y y y y y y y y Security & surveillance Systems Automated Weather Monitoring Systems Systems Integration for Jammers. Access Control. etc AMC Traction Converters Auxiliary Converters Control Electronics Maintenance & Service SCADA ENMS-SCADA DMS EMS AMC BMS. SEZs Hospitality.Business Segment. Fire Alarm & CCTV Products & Services ENMS-SCADA Power T&D Railways Oil & Gas Water Shopping Malls Commercial Complex. IT Parks. Pharmacy etc BMS .

4. 3. 9. 8. Strategy & growth Human Operations Financial Process R & D or Product/ Service Development Governance Legal & Regulatory . 5. Technology including Information Technology Suppliers Customers/ Markets Competition. 2. 10. 7. 6.Risks ‡ Anything that poses a threat to an organization ‡ Nelco¶s Risks : 1.

6. 5. 2. 4. Foreign Exchange Risks Interest Rate Risks Commodity Price Risks Capital Risks Liquidity Risks Credit Risks .Financial Risks ‡ Probability of loss inherent in financing methods of a firm ‡ Types of Financial Risks: 1. 3.

45.3 & 19th Mar. Economic .000 (9th July. 2009-Rs. Transaction ± Eg: Import of VSAT terminal for $1. 3.000.Rs.48. Translation .effect of exchange rate changes while translating the earnings of Foreign subsidiary .8) 2.arise due to competition within the local industry from foreign MNCs.Foreign Exchange Risks ‡ Arises out of long or short position in a currency ‡ Exposures in Forex Risks: 1.2010.

To hedge the risk arising out of exposure ‡ Risk owners -LOB heads Report net exposures regularly ‡ VaR.calculated to arrive at acceptable levels of unhedged net exposures ‡ .xls .2010.Forex Risk Management Policy ‡ Objective.04..\SUMMERS DOC\IMP SUMMER\FOREX_REPORTS30.

(Consolidated by Treasury Department) Statement showing details of Treasury currencies hedged. Department Monthly entity Treasury Risk Committee Treasury Risk Committee 2 3 Monthly Treasury Risk Committee SBU Accountants 4 Monthly 6 Quarterly Board of Directors . Division wise currency wise Treasury statement for each LOB of Department actual forex exposure materialized during the previous month Report on forex exposure for Treasury the board. . Department amount of exposure hedged etc. 1 Foreign Exchange Policy of Nelco Ltd. Particulars Responsible Frequency Monthly Receiving Department Statement showing VAR and Treasury hedging ratio Department Statements showing net open Business division position of individual business concerned divisions for next 3 months.Report No.tools used.

Suppliers Credit Floating rates based on LIBOR ‡ Impact on Base rates ‡ Use of Interest rate derivatives-Interest rate Swaps. . 2. Floating rates based on BPLR Majority at Fixed rates ‡ 1.Interest Rate Risks ‡ Probability that arises out of changes in interest rates ‡ Short Term loans 1.

Source: Accenture . copper.Commodity Price Risks ‡ Arises from changes in prices of steel. oil etc.

Liquidity Risks ‡ Arises out of non-availability of sources of funding ‡ Inability to sell products to fund short term financing requirements ‡ Altman¶s Z score= 2.45 (2007-08: 2.61) ‡ Interpretation: Grey Zone .

Credit Rating ‡ Nelco¶s Credit rating agency.24 Prior Rating A/ Negative Revised Rating A/ Negative Rating Action Reaffirmed . 1 Facility Cash Credit limit 2 3 4 Term Loan Letter of Credit Bank Guarantee 5 Short Term Loan 45.Negative from Stable ‡Business Risk Profile.30^ 41.22* 84.00@ P1 P1 Enhancement 30.CRISIL ‡ Outlook.Low ‡Financial Risk Profile.61# A/ Negative P1 P1 A/ Negative P1 P1 Enhancement Enhancement Enhancement Rated Amt ( Rs in crore) 29.Weak No.

1.000 .000 2007-08:Rs.Credit Risks ‡ Exposures of potential losses due to counterparty default ‡ Nelco¶s Clientele : 1. 2. 5. Ministry of Defense Tata Motors Indian Railways Siemens Limited Steel Authority of India Limited Tata Power Company Limited ‡ Bad debts : 2008-09:Rs. 4.298. 3.613. 6.7.

g. Strategy plan exercise to enhance product portfolio. Contingency is built at the time of offer. Sticky receivables being rigorously followed up by task team. copper & oil. etc 0.25 Impacting business High High Exposures of all LOBs are monitored periodically & forward covers are taken subject to Board approval.35 risk(impact of slowing economy on paying capacity of our customers & suppliers) Economic Slowdown Medium 5.crs) 0. Tata Power support taken in form of LC. Buyers credit is availed on import purchases to reduce interest cost. power. Alternates like bill discounting after credit period arranged to ensure suppliers payment on due dates Address more on sectors with minimal impact e.35 Low A/C receivable Low 0. Existing requirements tied up.Risks Financial Impact Probability Mitigation plans level Level Value (Rs.35 Low Foreign currency volatility Low Interest Rate Fluctuations Low 0. . Yearly contract with suppliers at fixed price is done for all ongoing contracts& orders(Apr 09) Back to back payment terms being negotiated with vendors. Price rise up to 5% is factored in the quotes. infrastructure. Increase value add/relationship for generating revenue from existing customers.15 Low Fluctuations in Low Commodity prices like steel. Forex consultants are appointed to manage the exposures.

16% 2005 47.01 Profitability Ratios Gross profit margin Net profit margin Return on assets Return on equity Operating margin 2009 36.86% 1.96% 1.27% 0.37 3.21% 2.31% 2.55% 6.71% 13.74% 2.14% 2007 53.13 1.17 2006 2.97 Industry 3.14% 13.56% 0.65 4.00 1.Ratio Analysis Liquidity Ratios Current Ratio Quick Ratio Debt to Equity 2009 1.89 4.13% 0.11% 2006 54.40% 12.73 3.26% 18.14% 10.68 2008 1.12% 9.08 2005 2.44 3.18% 2008 41.67 2007 2.63% 13.42% Industry 11.33% 2.25% 2.14% 1.26% 2.58% 1.19% 0.55% .65% 1.80 1.74 1.36 1.53 3.78% 6.

30 2006 264.38 3.83 2.76 1.86 2008 171.12 9.18 7.47 15.33 2.74 3.19 2.03 92.13 1.63 2007 475.Ratio Analysis Efficiency Ratios Average collection period(DSO) Average payment period(DPO) Age of inventory 2009 137.43 192.69 34.60 128.63 59.94 5.01 209.89 0.13 6.25 513.77 1.05 .74 2005 193.31 Turnover Ratios 2009 2008 2007 2006 2005 Industr y Debtors turnover Inventory Turnover Fixed assets turnover Creditors turnover 2.13 87.29 1.84 2.89 4.71 1.58 1.06 0.42 199.65 10.58 207.

Hedging Instruments ‡ Options ‡ Futures contracts ‡ Forward contracts ‡ Swaps.Interest rate Swaps .

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