Submitted in Partial Fulfillment of the Requirement for the Award of Degree of MBA
Submitted By :Navdeep Singh Mittal Roll No-MBA 2k11 695




Summer Internship Certificate Declaration Acknowledgement Executive Summary

Chapter-1: Introduction Chapter-2: Objective and limitations Chapter-3: Methodology Chapter-4: Literature review

7 27 30 40

Chapter-5: Observations, analysis and findings


Chapter-6: Recommendations And Conclusion


Chapter-7: Appendices


Chapter-8: References



Summer Project Certificate

This is to certify that Mr. / Ms. _____________________________ Roll No. ____a student of PGDM (______________) has worked on a summer project

titled____________________________________ ____________________________________________________ _________________________________after Semester-II in partial fulfillment of at the

requirement for the Post Graduate in Management programme. This is his/her original work to the best of my knowledge.

Date: ____________

Signature ______________

(_____________________) YMCA SEAL Name of Faculty Mentor


I, Navdeep Singh Mittal, a student YMCA University hereby declare that I have worked on a project titled “Management Of Channel Financing Of Escorts Agri Machinery Group” during my summer internship at “Escorts Limited”, in partial fulfillment of the requirement for the Post Graduate in Management program.

I guarantee/underwrite my research work to be authentic and original to the best of my knowledge in all respects of the process carried out during the project tenure.

My learning experience at Company Name, under the guidance of Industry Mentor Name, Designation, and Faculty guide Name, Designation, has been truly enriching.

Date: July 27, 2012 NAVDEEP SINGH MITTAL


I would like to gratefully acknowledge the contribution of all the people who took active part and provided valuable support to me during the course of this project. To begin with, I would like to offer my sincere thanks to “Mr.Vijay Nehra, Team Manager-Finance ”, for giving me the opportunity to do my summer training at “Escorts Agri Machinery”. „Without his guidance, support and valuable suggestions during the research, the project would not have been accomplished. My heartfelt gratitude also goes to the entire “Finance” team ( Mr. Taranjeet singh, Mr Ashok Bhel , Mr Aurobindo Biswas,Head Commercial Finance , Ms Sunpreet Kaur)in Escorts Agri Machinery Channel Finance Department ,for their co-operation and willingness to answer all my queries, and provide valuable assistance. Last, but not least, I would like to thank all Dealers for sharing their experience and giving their valuable time to me during the course of my project.

Navdeep Singh Mittal MBA,Roll No-2K11 695 YMCA University


Escorts Ltd. is the holding company of the Escorts Group. Post restructuring agri-machinery or tractors have become the focus area of operations. Other business that is two- wheelers, IT, Telecom, construction equipment, are controlled through subsidiaries and joint venture. Positive off of its pistons business to a joint venture with a foreign collaborator, Escorts is focusing on its „core competence‟ of tractors. Escorts have strong hands in house engineering skills, a wide distribution/service network and brand franchise. Channel Finance is an innovative option for extending working capital finance to dealers who have business relationships with large companies. Channel Financing is the mechanism through which a financial institution meets the various funds related requirements along the Supply Chain at the suppliers end. This thereby helps the supplier in sustaining a seamless business flow and avoiding Working Capital related difficulties. Channel Finance usually covers discounting of Trade Bills drawn by a company and accepted by its dealers, distributors or Channel Partners. It also provides overdraft facility to the dealers or distributors who have business dealings with large Corporate.


Chapter 1 Introduction
India‟s agricultural sector is one of the most important components of the country‟s economy, although its share in the GDP has decreased substantially over the years. About 60 % of India‟s population is dependent on agriculture for its survival. Performance of the agricultural sector continues to have a crucial impact on the price of essential goods and market demand for various consumer products. Agricultural Equipment industry plays a major role in supporting the performance of the agricultural sector in India. Farming activities are increasingly getting mechanized, and the availability, quality and performance of agricultural equipments have an increasing impact on improving the output and productivity of the agricultural sector. Agriculture provides support for economic growth and social transformation of the country. As one of the world‟s largest agrarian economies, the agriculture sector (including allied activities) in India accounted for 14.5 per cent of gross domestic product (GDP) at 2004-05 prices, in 201011 as compared to 14.7 per cent in 2009-10. In terms of composition, out of the total share of 14.5 per cent that agriculture and allied sectors had in GDP in 2010-11, agriculture alone accounted for 12.3 per cent. Timely and corrective measures taken by the government helped boost agricultural production and growth in agriculture and allied sectors reached 7.0 per cent in 2010-11, the highest growth rate achieved during the last six years. In 2011-12, agriculture and allied sectors are estimated to achieve a growth rate of 2.5 per cent. As a proportion of the value added by agriculture to GDP, Gross Capital Formation (GCF) in agriculture and allied sectors rose to 20.1 per cent in 2010-11 from 13.5 per cent in 2004-05 at 2004-05 prices which is a positive trend.The rates of growth and share of agriculture and allied activities in the GDP of the country are given below:


FIGURES IN PERCENTAGE (%) ITEM Growth in GDP in agriculture & allied sectors Share in GDP-agriculture and allied sectors Source: Agriculture Forestry and logging Fishing 2010-11 7.0 14.5 12.3 1.4 0.7 2011-12 2.5 13.9 Central

Statistical Organization (CSO) and Department Agriculture and Cooperation

Share in GDP of Agriculture and 13.90%


2009-10 2010-11 2011-12*


The above Pie Chart explains that the share of Agriculture and Allied sectors in India has reduced significantly from 14.7% in 2009-10 to 13.9% in 2011-12(as estimated). This means that the focus of India has shifted from Agriculture to Manufacturing and Service sectors but still major revenue is generated from Agriculture Sector only.


INDIAN TRACTOR INDUSTRY Higher productivity and greater output are the two major contributions in farm mechanization. Tractors are an integral part of farm mechanization and play a crucial role in increasing agricultural productivity.Tractor is a highly versatile piece of machinery used in agriculture both for land reclamation and for carrying out various crop cultivation activities. It is also employed for carrying out various operations connected with raising the crops by attaching suitable implements, to provide the necessary energy for performing various crop production operations involved in the production of agricultural crops. Tractors are capital intensive, labor displaying used as a mode of transport, in electricity generation, in construction industry and for haulage operation. It has become an inevitable part of farm structure. The application of tractor for agricultural activities which swept India during the past few years has helped the farmers to improve. Tractor industry is an important part as agriculture sector is one of the main contributors to India‟s GDP. Earlier, they were imported to India and later on were indigenously manufactured with the help of foreign collaborations. The tractor industry in India has made a significant progress in terms of production and capacity as well as indigenization of technology. Tractor market in India is about Rs 6000 crore. On an average around 400000 tractors are produced and their sale is 260000.Uttar Pradesh is the largest tractor market in our country. One out of every four tractor is being purchased here. One third of world‟s Tractor production is in India. The Total Turn Over is 10000 crore and the Total investment is 8000 crore. With Employment of 28000 people directly and 150000 people indirectly the Tractor population is 3000000 compared to 900000 in China.


The Indian tractor industry has experienced strong volume growth during FY10- FY12 (for 9 months) due to favorable cyclical and structural demand drivers. While tractor volumes remained robust throughout FY12 despite macro-economic headwinds, the domestic tractor market has shown some signs of weakness over the last couple of months. VOLUMES FY08 Domestic + Export Source: CMIE Database; ICRA Estimates 346,508 FY09 345,827 FY10 441,174 FY11 545,128 FY12e 605,092

Growth momentum in tractor market continues: After a period of downturn during FY08 and FY09, the up-cycle in the tractor market has extended over the last three years (FY10-9mFY12). Some of the cyclical factors that have contributed to healthy demand side economics are good south-west monsoons supporting farm output, strong rural liquidity sustained by higher minimum support price (MSP) for crops and double digit food inflation, besides adequate credit availability driven by NBFCs and private banks. Structural drivers like scarcity of farm labor in light of alternate employment


opportunities, steady replacement demand and growing non-agricultural use of tractors have also supported tractor volumes.


contribute about approximately 11% to the total tractor sales of India. Volumes saw a decline in FY09-FY10 on account of global economic recession but a recovery was seen in FY11 and the growth momentum continued to be healthy in FY12. While Nepal, Bangladesh, Sri Lanka and the United States remain major export destinations, the expanding footprint of Indian tractor manufacturers in African and new South-East Asian markets is expected to drive export growth further. Export to neighboring countries such as Thailand, Malaysia and Indonesia is supported by the Asian Free Trade Agreement. Further, export volumes are expected to benefit from the introduction of higher HP tractors by Indian manufacturers. TAFE, M&M, and John Deere are the major tractor exporters from India.


The Indian tractor industry has 13 main national participants and some regional players as well. The market share is, however, concentrated amongst the top-five manufacturers which account for over 90% of the total sales volumes. With relaxation of the Foreign Direct Investment in agriculture to boost productivity, large international participants such as AGCO Corporation, CNH Global and John Deere entered the Indian Tractor market few years ago. Most of these international manufacturers have continued to maintain their presence in India either through their wholly-owned subsidiaries, joint ventures or through technical collaborations. As there as relatively low entry barriers in the tractor industry in terms of technology, costs involved in branding, distribution network and spare parts availability act as barriers. The tractor industry has witnessed consolidation in 2005 and 2007 with merger of manufacturers such as Eicher Tractors with TAFE and Punjab Tractors with M&M, respectively.


Agricultural Machinery Marketing and After Sale Services
The large and medium scale manufacturers have well organized distributors and dealers through out the country to undertake advertising and product promotion in their respective territories, conduct product awareness training programmes for the prospective customers, provide after-sales-service to the customers including free services, repair and maintenance, supply of parts, etc. Therefore, this organized sector has the whole of the country as their market due to which their production volumes are large, and their information feed back about their product performance, improvements required in design, production processing or quality, and the new requirements of the farmers to undertake product developments. Very few smallscale industries have established their marketing network and therefore provide service support in their premises. In the absence of standardization of parts and components farmers are compelled to carry their machines to the manufactures for repair and replacement of parts and components. Due to this, their market size is limited to their proximity, and they are not able to develop their businesses. The village artisans on the other hand are located in the villages and therefore provide immediate attention to the needs of the farmers in their immediate neighborhoods. Therefore, the tools and implements, etc. made by them are against specific requirements of individual customers.


Popularization of agricultural machinery
The assimilation of R & D requires an effective technological infrastructure of institutions and services to develop and test prototypes, to set up pilot plants for intensive evaluation and extensive demonstrations besides, training and credit support. New technology also requires network for transfer of technology to the manufactures.Popularization of agricultural machinery in the country is undertaken by the Provincial Governments through Department of Agriculture or Department of Agricultural Engineering. The activities are coordinated by the Department of Agriculture in Cooperation with the Ministry of Agriculture, Government of India. The Ministry of Food Processing promotes technology related to agro-processing. The extension system deals with the first-line extension projects with aview to: (i) (ii) (iii) (iv) (v) (vi) Demonstrating the latest technologies to the farmers as well as the extension agencies; Testing and verifying the technologies on the farmers field Providing opportunities to get firsthand scientific feed-back; Developing extension or technological models for the state extension systems; Providing training and communication support; and Promoting research in transfer of technologies.

India is a large country with wide-agro ecological diversity having predominance of rain fed agriculture, with irrigated agriculture limited to 34% only. Farm holdings are small due to higher population density and land fragmentation will continue due to ‘Laws of Inheritance’ and ‘Hindu Succession Act’. Majority of the farmers have limited surplus money to modernize farms or to invest in improved inputs. Draught animals and increasing agricultural workers population may remain to be the major source of farm power for soil manipulation and for crop handling, particularly in Hill and Mountain regions. Mechanical power for tillage, irrigation, harvesting and threshing will be preferred, including on custom hiring basis. As a result of GATT agreement, prospects of agro-export are likely to increase and product quality standards

stipulated under WTO would encourage more and more farmers to adopt modern agricultural production technologies. The future agricultural mechanization technology package therefore may have to; • be eco-friendly utilizing land water and bioresource catering to the varied group of farm holders, • facilitate farming operations which are arduous and hazardous, • increase productivity and conserve resources through effective utilization of chemical, biological and mechanical inputs, and • modernize commercial agriculture to facilitate agro-export. Keeping above objectives, the mechanization policy may have to be distinctly different to serve hill agriculture, low lying water logged soils; rain fed and irrigated lands and regions having agro export potential.

Equipment for tillage, sowing, irrigation, plant protection and threshing has been widely accepted by the farmers in India. Draught animal and human power in India will continue to be used, but these are inadequate to ensure timeliness of agricultural operations. Even farmers with small holdings utilize selected improved farm equipment, including through custom hiring. The future mechanization strategy may have to be based on agro-ecological diversity and economic disparity of the farmers. The present trend in agricultural mechanization is for high capacity machines to be used on custom hiring and for contractual field operations. Rice mechanization, sugarcane mechanization, cotton mechanization, potato mechanization, horticulture mechanization, green house and covered cultivation, drip and micro irrigation are new emerging areas which need attention of Agricultural Engineering Institutions and industries for their development, production and marketing. Water is a scarce commodity and in future with increasing demand for more irrigation water, concerted efforts will be needed for controlled application of water through drip, sprinkler and microsprinkler systems to economize use of water and improving water use efficiency. With the shift in agriculture towards diversification and agri-business, substantial areas will go under horticultural crops. 15

This will also help to export good quality high value agri-products for better returns to farmers and to earn more foreign exchange. The green house technology offers ample scope for increasing productivity particularly of high value cash crops like exotic fruits, flowers and bio-tech plants. Design of green house with environmental control mechanized cultivation and product-handling technology package will assume greater importance. Presently little effort has been made to mechanize hill agriculture, where there is tremendous potential of growing horticultural crops, flowers etc. In future this calls for developing appropriate technologies for mechanization. In order to enforce quality, reliability and safety in the manufacture of agricultural implements, manufacturing of critical components need to be standardized and encouraged for mass production by medium and large scale manufacturers. Keeping long standing demand of farmers and the Ministry of Agriculture and on the recommendation of the Advisory Committee of the Ministry of Industries, the Union Budget of India 1998-99, announced the exclusion of farm implements and tools from the list of items reserved for manufacture by small scale industries sector to enable the farmers to get benefit of wider range of implements and tools at competitive prices, and with requisite after sale- service. The decision of the Government of India to de-reserve the manufacture of farm machinery will help the organized sector to bring latest farm machinery technology for accelerated adoption by the farmers. The small-scale industries in turn will adopt the technology for local manufacturing at a much lower cost. This will help the small-scale sector to become more competitive and to enlarge their market size. However, the constraints experienced in the growth of farm mechanization so far need to be dealt with so that the farmers are enabled to adopt new methods to produce more, to earn more through gains in productivity, quality of produce, higher prices, etc, for raising their standards of living and better life styles. The critical constraint factors are: • Reliability and quality of agricultural machinery. • Availability of products, spare parts and after sales-services in close proximity. • Availability of Bank credit on terms where currently the farmers have to mortgage both the equipment purchased and his land. • Lack of effective consumer protection in rural areas for redressel of cases of product problems, and poor after-sales- services, etc


The Escorts Group is among the India's leading engineering conglomerates which operate in the high growth sectors of agri-machinery, construction & material handling equipment, railway equipment and auto components.Having pioneered farm mechanization in the country, Escorts has played a pivotal role in the agricultural growth of India for more than five decades. Being one of the leading tractor manufacturers of the country, it offers a comprehensive range of tractors, more than 45 variants starting from 25 to 80 HP. Escort, Farmtrac and Powertrac are the most widely accepted and preferred tractor brands. It has been a leading material handling and construction equipment manufacturer for a diverse range of equipments like cranes, loaders, vibratory rollers and forklifts. Today, Escorts is the world's largest Pick 'n' Carry Hydraulic Mobile Crane manufacturer. Escorts have been a major player in the railway equipment business in India. Their product offering includes brakes, couplers, shock absorbers, rail fastening systems, composite brake blocks and vulcanized rubber parts.In the Auto components segment, Escorts is a leading manufacturer of auto suspension products including shock absorbers and telescopic front forks. Throughout the evolution of Escorts, It has been a harbinger of new technology and a prime mover on the industrial front by introducing wide range of new products and technologies that helped to take the country forward for its betterment.


The major revenue for Escorts (around 74%) comes from its Agri Machinery Division. There are other companies as well which contribute to the overall revenue share like Construction equipment accounts for 17%, Railway equipment 6% and Auto components around 3% approximately.

In 1948, Escorts group launched Escorts Agricultural Machines Limited. Later on in 1958, it started importing MF tractor from Yugoslavia for marketing in India. Then in 1960, a manufacturing plant was set up at Faridabad by the name of Escorts Agri Machinery Group. In 1965, the company acquired Industrial license to manufacture URSUS/ ESCORT tractors. In 1969 a separate company, Escorts Tractors Ltd., was established with equity participation of Ford Motor Co., Basildon, UK for the manufacture of Ford agricultural tractors in India. Later on Escorts signed a contract with Ford Motor Company to manufacture Ford 3000 model tractors and established an Escorts Institute of Farm Mechanization (EIFM) in Bangalore. Then in 1977, Beginning of Escorts Scientific Research Centre at Faridabad by developing its own Engines for E-27 and E-37. In 1979, the sales turnover crossed the Rs. 50 croremarks which was highly applaudable.In 1983, Established state-of-the-art R&D centre to spearhead newer breakthroughs in Farm Mechanization and to maintain industry leadership. Later in 1988, Escort‟s annualized turnover crossed above Rs.100 crores. In 1996, a Disengagement of Joint venture with New Holland took place and the Farmtrac Tractor series were launched. In the same year, Escorts Tractors Ltd. formally merged with its parent company, Escorts Ltd. In 1997, A Joint Venture with an Italian company CARRARO was finalized to establish a company in India for manufacturing and marketing of transmission and axles. A Memorandum of understanding for Joint Venture with a Polish Company POL-MOT was signed for assembly, manufacturing and marketing of Farm Machinery.


In 1999, Escorts launched Powertrac series of tractors. Since inception, Escorts Group has manufactured over 1 million tractors. Escorts Agri Machinery Group has three recognized and well-accepted tractor brands, which are on distinct and separate technology platforms. Today, Escort Agri Machinery Group has a nationwide network with over 600 dealers, 100 parts stockists and 30 area offices. Their national share stands at 20%. The company has developed its own in-house state-of-the-art technology R&D facility. The main focus of the R&D facility is to develop new and better products that can offer improved performance with lower fuel consumption and least maintenance and parts requirements.





“We shall strive to continuously improve to meet the ever rising expectations of our customer sat the lowest cost. Each one of us must fulfill the need of our customers, both internal and external, with the highest degree of commitment, thereby creating a quality organization geared to ensure total customer satisfaction and the sustained health and prosperity of our business

1. The performance of the tractor industry is directly and closely related t o t h e p e r f o r m a n c e o f t h e a g r i c u l t u r a l s e c t o r . E v e n n o w t h e r e i s a heavy dependency on monsoon and a majority of farms are still rained.

2. A part from the dependency on monsoons irrigation infrastructure is also suboptimal. 3.Furthermore, there is a huge pressure on the existing agricultural land. T h e N e t S o w n A r e a a c r o s s S t a t e s h a s e i t h e r r e m a i n e d c o n s t a n t o r changed slightly and efficient land utilization is approaching the peak level in all states.


4.Many farmers still lack access to finance and depend on m o n e y lenders. Escorts continues to focus on creating additional mechanisms for access to cash. 5.All the employees are not allowed to access the internet facility which hinders the cooperation among various departments. 6.To maintain the goodwill of the company in the market. 7.To strive effective strategies and policies in order to s u r v i v e i n business environment

“Escorts Endeavour‟s to transform lives in rural and urban India by leading the revolution in agricultural mechanization, modernization of automotive and railway technology, as well as transformation of Indian construction industry.” The Strategic Values define how the company will achieve its envisioned future. These values must be embedded into their manner of thinking and ways of work.    Customer Centricity Acute sensitivity to the needs and experiences of the customer shall guide all that we do. Excellence We will strive to achieve and surpass world class standards in all that we do. Innovation We will use the power of technology and imagination to deliver solutions to the customer needs.  Agility We will operate in our markets with the ability to change direction and position with nimbleness and speed.


Escorts Limited pioneered farm mechanization in India with foray in tractor manufacturing in1960. Escorts Limited manufactures wide range of tractors (from 27-75 HP). Its brands Farmtrac, Powertrac and Escort are well recognized and widely accepted in the Indian market as well as overseas. The major importers of Escorts tractors are North America, Africa and Europe. Besides tractors, the Agri Machinery division also manufactures implements, trailers and lubricants. It commands an overall market share of 13% (approx) of the total domestic tractor industry.


Thetotal revenue of the Agri Machinery Division has increased over the past few years and it has been ranging between 20000 to 35000 Million Rs (approximately). The growth rate however, increased initially at a steady rate, then declined during the year 2010-11 but has been stable for the last two financial years.

 TRACTORS  Farmtrac: Farmtrac brand are the most powerful premium range of tractors that give maximum productivity to the farmers. These are agricultural tractors with power 60 to 110 HP.They are embedded with cutting edge technology combined with the quality of components used in various elements, their reliability results from using solutions of companies like Carraro and Perkins. These tractors were designed for farms and companies with wide variety of needs. Outstanding comfort in the cabin resulting from good ventilation, available space provide proper working conditions. There are various Farmtrac models as well like FT 670 2 WD, FT 670 4 WD, FT 685 DT , FT 690 DT etc.  Powertrac: Powertrac tractors are built in India by the Escorts Group (Escorts Agri) for sale in India. They are considered the economy-models, and is one of most popular brands built by Escorts Agri Machinery division. 

Escort: Escort brand of tractors are symbolic of reliability and trust and enjoy the confidence of the farming community for the last 40 years. It comes under the economy range and the tractor has 2 cylinders with 27 - 35 Hp.


New inverter tractor: Escorts limited became the pioneer in Indian Tractor Industry by launching India's first-ever Inverter Tractor. This technology offers the farmers an integrated multi-purpose vehicle that can be used as a tractor for Agri-operations and with the help of an in-built battery system, it can generate electricity which is help the farmers in lighting up their homes.This tractor launch reaffirms Escorts commitment towards enhanced value proposition to its customers.Inverter Tractor comes in popular Escorts variants including FT 45, PT 439 & PT 434 and is currently available across the states of Madhya Pradesh, Uttar Pradesh, Haryana, Rajasthan, Maharashtra, Bihar, & West Bengal etc.

New jai kissan series: As the advent of newer applications of tractors across the country, it has become the need of the hour for tractors to be more 'Customized' & 'Specialized' to maximize productivity and efficiency.The product line was launched in the states of Punjab, Haryana, Rajasthan and western UP. The Jai Kissan Series consist of the following range of tractors:-

Valuemaxx: The most popular is the VALUEMAXX tractors which has been designed to cater to all the basic farm applications of their customers and it has a powerful and economical engine. Along with the above features, it also possess Single Clutch, Easy Steer, Diesel Power and dual PTO facility as well. This type of tractor is best suited to be used as a Cultivator, Seed drill, M B Plough, Harrow and Disc Plough.


Under the Jai Kissanseries , the second most popular tractor range is the AGMAXX tractors which are manufactured to cater to the emerging agriculture and PTO operated applications. This range of Tractors has dual clutch and adjustable front axle, that increase productivity and saves customer‟s time and money. Such kind of tractor can be used as Rotavator, Straw Reaper, Potato Digger, Thresher, bailer, Harvester and Potato Planter.


Loadmaxx: Under the Jai Kissan series ,another tractor range is the LOADMAXX tractors which are well equipped to cater to the heavy haulage applications and are built with Oil immersed brakes and cera‐metallic clutch., extra Torque Machine , 3rd Hydraulic Lever with Coupler.It is best suited for Single Axle Trolley, Double Axle Trolley, and Tipping Trolley.

Supermaxx: Under the Jai Kissanseries ,another tractor range is the SUPERMAXX tractors which caters to both, emerging Agri and Heavy Haulage requirement of their customers. It is best suited for Rotavator, Laser Leveller, Reaper, Loaded trolley, and Tipping trolley.It also has extra features like Oil Immersed Brakes, Power Steering, extra Torque Machine, Heavy Hydraulic Lift ,Multi Speed Reverse PTO, Flexi Axle, Bigger Tyre and Dual PTO.

Inframaxx: Under the Jai Kissan series, another tractor range is the INFRAMAXX tractors which has been built to cater to the increasing use of tractor in commercial and construction applications. It is best suited for Loader, Dozer, Backhoe Loader, grader, etc. It also has extra features like Epicyclic Reduction, 24 Speed Synchromesh, Synchro Shuttle.










45000 40000 35000 30000 25000 20000 15000 10000 5000 0 Escorts Mahindra & Mahindra Ltd. TAFE Sonalika LTD. 8946 1844 20116 38292

21-30HP Tractors (2010-11 figures)

Escorts sales are less in the 21-30HP Tractors Category when compared to other manufacturers like Mahindra & Mahindra which has the highest sales in this category.
120000 100000 80000 60000 40434 40000 20049 20000 0 Escorts Ltd. Mahindra & Mahindra Ltd. TAFE Sonalika Ltd. 20146 99062

31-40HP Tractors (2010-11 figures)

Escorts sales are very less in the 31-40HP Tractors Category and Mahindra & Mahindra has the highest sales of 99062 Tractors in this category. Even the sales of TAFE and Sonalika were more than Escorts.

45000 40000 35000 30000 25000 20000 15000 10000 5000 0 Escorts Ltd. 37153


41-50HP Tractors (2010-11 figures)

17377 13336

Mahindra & Mahindra Ltd.


Sonalika Ltd.

Escorts is a major seller of 41-50HP Tractors and contributes to a total market share of 37153 tractor sales which is slightly less than sales of Mahindra & Mahindra Ltd.

40000 35000 30000 25000 20000 15000 10000 5000 0 0 Escorts Ltd.


Above 51HP Tractors (2010-11 figures)

11248 6588

Mahindra & Mahindra Ltd.


Sonalika Ltd.

Mahindra &mahindra is the major player in the indian tractor industry and has sold 37882 tractors in the Above 51Hp tractor category in 2010-11 financial year. Escorts although being a major contributor to the overall tractor industry doesnt have any sales in this category in 2010-11 financial year.


Objectives Of The Study:
 To analyze the process of meeting the short term credit requirement of the company and the dealers  To understand the he financing terms with the banks and the financial institutions of the company and the dealers.  To analyze the retail and channel financing system of Escorts Argi-Machinery Group.  To analyze the short-term financial position (i.e. liquidity and profitability position) of dealers.  To understand the basis on which the channel finance is made available to the dealer.  To evaluate the impact of channel financing on the company.

 The scope of the study is limited to the dealers whose information was available and could be gathered from the company.  Although every effort was made to collect the information through available sources, still some relevant information could not be gathered.  There were restrictions to visit some specific places in Escorts Limited and due to the busy schedules some of the concerned executives were not able to give time .  Due to the limited time duration each and every aspect of chanel financing could not be studied.  As the company on account of confidential report has not disclosed some figures. Moreover in some cases separate account of division are not separately

maintained,leading to restrictions in study.


Often companies with high levels of technical expertise are unable to realize the full potential of their capabilities due to lack of proper working capital. Smart financing can help them to grab new opportunities and manage the huge business growth happening today. Several channel partners sacrifice business opportunities due to working capital constraints. Channel financing can helps tackle this loss of opportunities. Finance options allow more transactions within a single credit cycle, helping the company grow faster. Channel Finance has helped many companies to get aggressive in taking bigger credit exposures. It has also enhanced their ability to service more deals. Distributors too are aware of the need for channel financing and have introduced various programs to enable their key partners with tools to avail more financing options. At present banks prefer larger companies with proper balance sheets for bill discounting. Smaller companies are usually not given priority and have to pay higher interest rates. Vendors too are doing their bit to help channels manage their internal finances better as well as empower them with customer financing schemes.

The following are the major challenges that these products face in India: 1. While there are more options for corporates to raise finances than ever before, only a small segment of the companies is presently availing channel financing options. To be eligible for this facility, borrowers need to have strong financials and transparent reporting which is currently lacking among a large number of companies. 2. Lack of financial planning is another issue compounded by the lack of experienced personnel to manage the finances. 3. There is also a misconception that availing loans will create an interest burden on the already dipping bottom-line. Contrary to this notion, availing finance will allow a company to carry qualified and


out more transactions within a single credit cycle, thus reducing the total effective operating expense incurred per credit cycle. 4. Availment of financing necessitates strong fiscal discipline. Once financing options are availed one has to get smart with the overall finance management. Forecasting of the working capital needs becomes paramount and clients have to ensure that bankers are paid on time lest credibility is lost and the ability to raise future finances is affected. Smart financing enables companies to improve their capabilities to benefit from new opportunities and speed up growth. 5. Even after RBI has given approval for products like channel finance, factoring etc there is a lot of non-cooperation from the banks regarding issuance of letter of disclaimer and Opinion reports. Further, banks offer multiple products as against limited facilities of financing offered by most of the NBFC‟s which acts as a hurdle for the corporate to switch to NBFC‟s for their financing requirement. 6. The corporates don‟t prefer channel financing as NBFC‟s have a higher rate of interest than the banks due to their higher cost of funds. Other working capital products like overdraft facility, cash credit account, letter of credit etc. carry lower rate of interest. 7. Also one of the major challenges which corporate face is non-cooperation from there debtors and creditors. 8. Lack of awareness about the product.



Research Type: The research design is Descriptive as well as Exploratory in nature. Population and Sample Size: The total number of dealers the company deals with is
160(i.e. population size). We have taken a sample of 5 dealers, located in different areas. The sample has been taken on random basis.

Type of Data: Secondary data is used for analysis. The financial statements already prepared
by the dealers have been used.

Sources of Data: The financial reports of the dealers are used as a source of data. The C.A.
Certified provisional financial statements(i.e. income statement and balance sheet) have been analyzed and evaluated. The financial reports of the dealers have been taken from the company, which have been provided by the dealers.

Methods and Techniques: As under:
  Various liquidity, activity and profitability ratios have been used for analyzing the short-term financial position of the dealers. The Calculation norms as per the Tandon and Nayak Committee have been used for calculation of Maximum Bank Permissible Finance Limit.


Channel Financing is an innovative option for extending working capital finance to dealers who have business relationships with large companies. Dealers are now able to leverage their relationship with reputed companies in sourcing low cost funds with support from their counterparts. Channel Financing is the mechanism through which a Bank / Financial Institution meets the various funds related requirements along the Supply Chain at the suppliers end. Therefore it helps the supplier in sustaining a seamless business flow and avoiding Working Capital related difficulties. Channel financing relates to ensuring that integrated financial and commercial solution is available to the entire chain of supply and distribution, that could ensure the health of the firm, financed by the bank. Forward and backward linkages in a business organization play a significant role in the success or failure of the business entity. For example a manufacturing or trading firm, while the suppliers of raw material are important as they provide input for production, equally important is the role of its distributors which sell products manufactured by the firm through retailers to the ultimate consumer. Channel financing relates to ensuring that integrated financial and commercial solution is available to the entire chain of supply and distribution that could ensure the good health of the firm, financed by the bank. Through channel financing, the business firms can out-source a major part of their working capital needs thereby reducing their dependence on bank finance. For instance, it need not avail of credit from its bank to pay off the supplier if the supplier gets the finance in his own name from the bank for the raw materials supplied on credit in the form of say, drawee bills financing. The bank can also allow loan to the dealer for the credit term that has been fixed between the firm and the dealer in the form of receivable finance or finance against book debts or factoring of the receivables. This enables the manufacturing firm to get cash immediately for the finished goods supplied. This firm functions as the principal customer which suggests the names of its suppliers and dealers to the bank. Thereafter, the bank makes a due diligence assessment of the suppliers‟/dealers‟ standing and credit worthiness and decides to provide finance on merit.

The pre and post sale working capital requirement of the manufacturing concern would be scaled down. Such firms can concentrate more on their core competence area of production and marketing their products besides saving time and costs involved in arranging creditors and monitoring recovery. As regards the suppliers and dealers, the major benefit is that they get payments promptly, which improve their liquidity position and cost. This also helps them as well as the bank to cut level of counter party risks. The banks also gain substantially from the process of channel financing which include increased customer base, effective due diligence and smoothness of lending activity and loan origination process. Besides, the banks will be able to ensure better credit discipline. Since the risk is diversified through finance to supplier, manufacturer and the dealers, the credit exposure norms are better observed. Hence channel financing is a very convenient tool in managing their assets portfolio. Channel financing, due to its distinct advantages to the business firms as well as banks, has been suggested for implementation in various forms, by various committees in India such as receivable financing by Tandon Committee, drawee bills financing by Chore Committee and through factoring by Kalyansundram Committee. Channel financing opens up manifold opportunities due to which the banks can make conscious efforts at popularizing this credit delivery mechanism. Channel Financing has two aspects:


Channel Financing

Discounting of Trade Bills

Providing Overdraft Facility

 Discounting of Trade Bills: It includes discounting of trade bills drawn by a company and accepted by its Dealers / Distributors / Channel Partners.  Providing Overdraft facility: It includes providing overdraft facility to the dealers / distributors who have business dealings with large Corporate. Through channel financing, the business firms can out-source a major part of their working capital needs thereby reducing their dependence on bank finance. Channel financing opens up manifold opportunities due to which the banks can make conscious efforts at popularizing this credit delivery mechanism.

To Corporate:  Working Capital Finance can be made available by the corporate to their channel partners at cost lower than current cost of credit.  Release of funds from the balance sheet results in better and improvement in financial ratios.  Channel Finance can be used by corporate as a marketing tool and strengthening their relationship and loyalty towards their channel partners.


 It increases the efficiency of the receivable management and cash management process of the corporate.  It helps in increasing sales through higher purchasing power for channel partners and ability to introduce payment discipline with their channel partners.  Results in improved profitability.

To Dealers/ Distributors (i.e. Channel Partners):  Channel finance is a steady and cheaper source of Working Capital financing for Channel Partners.  Upto certain limits it is a clean facility of financing.  Channel partners can increase their sales through higher purchasing power.  Simplicity of documentation and approval procedures.  By availing cash discounts from corporate channel partners can increase their profitability. To Banks:  Through channel financing process can increase their customer base  It ensures smoothness of lending activity, loan originations process of banks as well as ensures better credit discipline.  As the risk can be diversified through finance to supplier, manufacturer and the dealers, the exposure norms can be better observed.  It is a very convenient tool for banks in managing their asset portfolio.


Channel Partner
1 2






Step1: Supply of goods from Corporate to Channel Partner. Step2: Advise to Bank to make payment for the purchase. Step3: Payment by Bank for goods purchased by Channel Partner. Step4: Repayment by Channel Partner to Bank as per facility term.

Channel finance is the major source for financing working capital requirements of a company. Capital required for any business can be classified under two main categories via,  Fixed Capital  Working Capital Every business needs funds for two purposes for its establishment and to carry out its day- to-day operations. Long terms funds are required to create production facilities through purchase of fixed assets such as plant & machinery, land, building, furniture, etc. Investments in these assets represent that part of firm‟s capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day – to- day expenses etc. These funds are known as working capital. In simple words, working capital refers to that part of the firm‟s capital which is required for financing short- term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assets keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital. Thus,  It is the minimum amount of resources that a company requires, thus it helps to effectively cover the usual costs and expenses necessary to operate the business.  It facilitates smooth functioning of the business.

 It ensures a sound liquidity position of the business. Determining Working Capital Requirement: The basic formula includes two factors:  Current Assets: Current assets are known as short term assets and include cash in hand and cash at bank, bills receivables, sundry debtors, short term loans and advances, inventories of stock, prepaid expenses, accrued incomes and marketable securities.  Current Liabilities: Current liabilities are known as short term obligations of a business and include bank overdraft, outstanding expenses, short term loans, advances and deposits, sundry creditors, bills payable and dividends payable. Working Capital = Current Assets – Current Liabilities Positive working capital means that the company is able to pay off its short-term liabilities whereas, negative working capital means that a company currently is unable to meet its shortterm liabilities with its current assets (cash, accounts receivable and inventory). An increase in working capital indicates that the business has either increased current assets (that is has increased its receivables, or other current assets) or has decreased current liabilities, for example has paid off some short-term creditors. It is also known as „Net working Capital‟. Channel Finance and Working Capital :Channel financing is a major source of working capital finance and provides a unique solution for financing the working capital requirements of the corporate as well as of the channel partners (i.e. dealers/ distributors). Channel financing is adopted to improve the working capital of the company by avoiding inventory pile up and earning speedy collections.

Efforts by Escorts Limited: Escorts Limited facilitated dealer finance tie-ups with banks and financial institutions by leveraging the strengths of its relationships with banks. A dedicated team is appointed to visit dealers in India at regular intervals to conduct this initiative. In the year 2010-11, company has formalized arrangements with two of the major Public Sector Bank(s) who had agreed to extend the drawee bill discounting facility to accredit dealers of Escorts limited with a total programme

size of Rs. 250 crores (State Bank of Patiala Rs. 50 crore and Punjab National Bank Rs. 200 crores). In a span of 5-6 months, the dealer portfolio under channel finance was able to touch 193 dealers. Process of providing Channel Finance adopted by the Escorts Agri-Machinery Group: On the basis of financial soundness and credit worthiness of the dealers the company ensures the channel finance facility to the dealers. It includes following: Selling Process:

Escorts AgriMachinery Group



The basic process of selling by escorts was selling to the distributors and than to the dealers. Whereas, now the company focuses on eliminating the distributors (i.e. middle men) and selling directly to the dealers.

New selling process:

Escorts AgriMachinery Group


Under this selling process the company and the dealer come in direct contact with each other and direct selling is involved, where dealers can directly purchase from the company. There is a limit of finance provided to each dealer and here is the main role of channel financing. In which the Banks provides finance to the dealer against the bill of exchange drawn by the company against the dealer on the invoice amount. The company has appointed area officers at each area, who are in direct contact and interact with the dealers. Steps involved in Channel Financing:  The area officer draws the bill of exchange in the name of the company against the dealer for the units of tractor purchased by the dealer  The dealer accepts the bill of exchange (hundi) and sends it back to the company along with the post dated cheque.  The required or maximum trade of cycle can be 60 days.

 After the bill of exchange is received by the company, it analyses the financial statements of the dealer and sends the analyzed report along with the bill of exchange for discounting.  The bank on the basis of company‟s analyzed report, its terms and conditions and after analyzing the dealer‟s financial statements, discounts the bill of exchange and grants loan to the dealer. During the peak season (i.e. February or June and July) the banks and company increase the limit of channel finance provided by them. Financial Statements required: The dealer need to provide the company with various financial data, that company can analyse and on the basis of dealer‟s financial soundness (i.e. strong liquidity and profitability position), grants finance to the dealer from the bank. Following statements of the dealer are required:  Current quarter balance sheet (i.e. of 3 months)  C.A. certified documents  Last 2 years audited balance sheets  Provisional balance sheet Analysis of dealer’s Financial Statements: The analysis is done basically to analyze the short term financial position of the dealer. The liquidity and profitability position of the channel partner is analyzed. Following calculations and analyses is carried on by the company:  Calculation of Ratios: Ratios are used to compare risk and return of different firms in order to help equity investors and creditors make intelligent investment and credit decisions. Short-term bank and trade creditors are primarily interested in the immediate liquidity of the firm. Ratios provide a profile of a firm, its economic characteristics and competitive strategies, and its unique operating, financial, and investment characteristics. Activity, liquidity and profitability analysis is done of dealer‟s firm to provide it with finance facility.  Activity Analysis: Following ratios are calculated: o Inventory Turnover Ratio o Inventory Conversion Period o Debtors Turnover Period

o Debtors Collection Period o Creditors Turnover Period o Creditors Payable Period  Liquidity Analysis: Following ratios are calculated: o Current Ratio o Quick Ratio o Working Capital Ratio  Profitability Analysis: Following ratios are calculated o Net Profit Margin

Further following analysis is done  Operating Cycle  Cost of Goods Sold Ratio  Interest Coverage Ratio  Consortium Value  Maximum Bank Permissible Finance Limit (MBPF): As per following: o Tandon Committee o Nayak Committee


TiwariRahul 2010, Analysis about the Retail and Channel Finance of Commercial Vehicle Industry with reference to Tata Motors: The objective of the research was to know the awareness about Tata commercial vehicles among customers and its sales people, to analyze the retail and channel finance system of Tata Motors and to analyze the popularity of financing schemes of Tata Motors in comparison to other companies. The primary data for the research was collected through questionnaire method, secondary data was collected through internet, annual reports, magazines etc. A total sample size of 250 respondents on a random basis was taken to study the consumer perception. The research concluded that the Tata Motors has well known schemes which helped its customers in getting financed easily. Tata Motors had offereddifferent schemes of financing for every customer and therefore the customer satisfaction has always been high with their financing schemes as compared to other companies. According to Tata Motors survey, it can be concluded that they are providing better channel financing than other commercial vehicle manufactures. This helped to know how the channel financing facility provides benefits to the company and as the main activities of Escorts is also linked with providing channel finance facility to its dealers , this research paper helped to understand the whole channel finance procedure followed by the companies.

SadanaKumar Sanjay, Impact of Working Capital Management on Profitability with Special reference to Steel Industry:

This working capital paper is a conceptual analysis of working capital and its impact on profitability of an organization. The objective of this research paper was to take selective firms representing private sector and public sector and compare them on the efficient management of the working capital and its components. They had taken two public sector steel majors and eight private sector steel players.The aim was to find out the working capital practices prevalent in public sector majors and private sector to make a comparison and to highlight the importance of

working capital and its impact on profitability. The research was undertaken to gain familiarity with the various components of working capital in Steel Industry and to judge the success of the management in carrying on the daily transactions of the Industry. The main focus was to judge the efficiency in themanagement of short-term liquidity in selected public and private sector Iron and Steel enterprises in India. The research paper concluded that studying the working capital requirements is very important to check the liquidity and profitability position of the company. This research paper has helped to understand what all ratios need to be analyzed with respect to Escorts Ltd in order to check its liquidity position and maintain its long term survival in the overall Tractor Industry.

ChaudhariShekhar (2007) ; This research article is based on an in-depth study of five major manufacturing firms both in the private as well as public sectors.

This paper discussed the process of technology acquisition and assimilation in the tractor industry and has drawn some implications for public policy as well. The study had revealed that there has been an increase in the bargaining power during the period 1960-74 of Indian firms over their foreign collaborators. It had also led to change in the Research and Development focus from production related trouble shooting and indigenization to quality assurance, value engineering and new product development with the onset of competitive forces in the industry. Major data sources for the research were in-depth interviews of some 60 senior company executives and various documents like detailed project, reports, organizational announcements etc.


Analysis Of Various Dealers:
Activity, liquidity and profitability analysis is done of dealer‟s firm to provide it with finance facility. 1. Activity analysis: It evaluates revenue and output generated by firm‟s assets. Activity ratios describe the relationship between the firm‟s level of operations (usually defined as sales) and the assets needed to sustain operating activities. The higher the ratio, the more efficient the firm‟s operations. Under it following analysis is done:  Inventory turnover ratio: It measures the efficiency of the firm‟s inventory management.
Inventory Turnover Ratio= Cost of Goods Sold/ Average Inventory











A higher ratio indicates that inventory does not remain in warehouses or on the shelves but rather turns over rapidly from the time of acquisition to sale. It is further used for calculating: Inventory conversion period: it is defined as average number of days the inventory is in stock. It measures average time period taken to convert the raw material to sales.
Inventory Conversion Period = 360 / Inventory Turnover Ratio










MOTORS CORPORATION 41.57 52.854 58.223 80.31 26.524

Channel Finance is provided to those dealers of the company whose inventory conversion period is upto 60 days. All the above dealers are meeting the required criteria except M/S Shiv Motors which is having an ICP of 80 days.  Debtors turnover / Receivables Turnover ratio: It measures the effectiveness of the firm‟s credit policies and indicates the level of investment in receivables needed to maintain the firm‟s sales level. It is used to evaluate the firm‟s operating performance.
Debtors Turnover Ratio = Sales / Average Debtors(Trade Receivables)











It is further used for calculating: Debtors Collection Period: It is defined as an average number of days the receivables are outstanding.

Debtors Collection Period = 360 / Debtors Turnover Ratio







MOTORS CORPORATION 19.21 23.897 13.418 13.24 59.394

Channel Finance is provided to those dealers of the company whose Debtor Collection Period is upto 60 days. All the above dealers are meeting the required criteria and M/S Shiv Motors has a lowest DCP of 13 days which means that the debtors are collected quickly. 

Creditors turnover / Payables turnover Ratio: A short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. It shows how a firm manages paying its own bills.







Creditors Payable Period: It is defined as an average number of days the payables are outstanding. Defined as:
Creditors Payable Period = 360 / Creditors Turnover Ratio













Channel Finance is provided to those dealers of the company whose Creditors Payable Period is upto 60 days. The above dealers are meeting the required criteria except M/S Shiv Motors and M/S Bhargava Trading Corp. which are exceeding the required limit. 2. Liquidity analysis: It measures the adequacy of a firm‟s cash resources to meet its near-term cash obligations. The short-term lenders assess the ability of a firm to meet its current obligations. That ability depends on the cash resources available as of the balance sheet date and the cash to be generated through the operating cycle of the firm. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover shortterm debts. Under it following analysis is done:  Current Ratio: It defines cash resources as all current assets. It measures the firm‟s ability to meet its current obligations. The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. The higher the current ratio, the more capable the company is of paying its obligations.
Current Ratio = Current Assets / Current Liabilities











The ideal current ratio is 1.5:1. The higher the current ratio, the better will be the liquidity position of the company. M/s Sai Tractors has a current ratio of 7.35 which is the highest. A very


high ratio is also not appropriate because the funds of the company are lying idle as cash. The current ratio of Jatti Tractors is apt.  Quick Ratio: It measures a firm's ability to meet its short-term obligations with its most liquid assets. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets (i.e. prepaid expenses), which are more difficult to turn into cash. Also known as „acid test ratio‟. Defined as: JATTI MODERN M/S SAI TRACTORS M/S SHIV M/S BHARGAVA TRADING






A higher ratio means a more liquid current position and better position of the company. The ideal quick ratio is 0.33:1. M/s Sai Tractors has a current ratio of 2.766 which is the highest. Avery

high ratio is also not appropriate because the funds of the company are lying idle as cash 

Working Capital Ratio: Working Capital is calculated by subtracting current liabilities from current assets.
Working Capital = Current Assets – Current Liabilities Quick Ratio = (Cash+MarketableSecurities+Accounts Receivables) / Current Liabilities







MOTORS CORPORATION 4357799 2825406





Working Capital Ratio is defined as:
Working Capital Ratio = Working Capital / Current Liabilities











Higher the ratio, better it is for the company as it shows stronger liquidity position.M/S Sai Tractors has the highest Working Capital Ratio of 6.349. 3. Profitability analysis: Profitability ratios show firm‟s overall efficiency and performance. It is used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. The objective of this analysis is to detect consistency in the earnings of the firm. Under this following analysis is done:  Net Profit Margin: It is an indication of how effective a firm is at cost control. It measures the overall profit margin net of all expenses.
Net Profit Margin = (Net Profit / Sales) * 100











A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors.Jatti Tractors has the highest Profit margin.


4. Operating Cycle: The average length of time between when a firm purchases items for inventory and when it receives payment for sale of the items. A long operating cycle tends to harm profitability by increasing borrowing requirements and interest expense. Net Operating Cycle = Inventory Conversion Period + Receivables Conversion Period – Payables Deferral Period JATTI MODERN M/S SAI TRACTORS M/S SHIV M/S BHARGAVA TRADING






As per the company norms, the operating cycle of dealer‟s firm should be maximum of 60 days.All the above dealers comply with the requirements except M/S Sai Tractors which has a slightly higher Net Operating Cycle. 5. Cost of Goods Sold Ratio: Itmeasures cost as a percentage of sales. Cost of goods sold refers to the inventory costs of those goods a business has sold during a particular period. It includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good.
Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses – Closing Stock

Cost of Goods Sold Ratio = (Cost of Goods Sold / Sales) * 100












The ratio is expressed in terms of percentage. As per company norms the COGS of the dealer‟s firm should not be less than 90-91 percentage of sales value. 6.Interest Coverage Ratio / Times interest earned: JATTI MODERN M/S SAI TRACTORS M/S SHIV M/S BHARGAVA TRADING






Apart from calculation of ratios, following are considered:  Consortium Value: It involves the value of all the short term borrowings from banks by the dealer. It is the combined value of all the short term finances obtained by the dealer from various banks. It is the sum total of channel finance, cash credit and overdraft facility to the dealer from various banks.  Maximum Permissible Bank Finance Limit (MBPF): The MBPF can be calculated on the basis of two formulas. 1. As per Tondon Committee 2. As per Nayak Committee Tandon Committee: This is an attempt by the central bank to organise the Bank credit. The report of this group is widely known as Tandon Committee report.RBI appointed a working group to study and suggest   Modifications in the Cash Credit system to make it amenable to better management of funds by the Bankers Alternate type of credit facilities to ensure better credit discipline and co relation between credit and production. According to Tondon Committee, Escorts Agri Machinery group follows the following norms.The Maximum permissible banking finance limit for dealers is MIN(x,y) where X= Working Capital of the dealer, i.e Current Asset – Current liabilities

Y= 25 % of the Total Current Assets Nayak Committee: The Nayak Committee report is applicable to units with credit requirements of less than Rs.50 lacs. According to Nayak Committee, Escorts Agri Machinery group follows the following norms:According to RBI, The Working Capital of the dealers should be as follows:Working Capital = 20% of [Projected Turnover of Dealer – ConsortiumValue(short term borrowings)] RBI has also given full freedom to all the Banks to devise their own method of assessing the short term credit requirements of their clients and grant lines of credit accordingly. Most banks, however, continue to be guided by the principles enunciated in Tandon Committee report. Limit Of The Dealers The Channel financing limit for the dealers of Escorts is decided on the basis of the above formula and every dealer is given finance based on its working capital requirements , its profitability and growth position in near future. The Maximum Banking finance limit for the selected Escorts dealers is as follows :JATTI TRACTORS 30 Lacs MODERN TRACTORS 150 Lacs M/S SAI TRACTORS 100 Lacs M/S SHIV MOTORS 30 Lacs M/S BHARGAVA TRADING CORPORATION 100 lacs

Therefore, Jatti tractors and M/S Shiv motors have the lowest Financing limit because of its less strong liquidity position or may be the working capitl requirements of the company may be low. The highest limit is for Modern Tractors around 150 Lacs which means it has a good reputation in the market and has healthy relations with Escorts. The financing limit is decided in such a way that it leads to satisfaction of both, the company as well as the dealers. This limit is provided to the dealers if they comply with the requirements of the company as well as the Bank or Channel partner involved.


Through the analysis we found out: 1. Shareholder‟s wealth is increased by maintaining appropriate value of debt and equity in the capital structure. 2. The increase in interest on 4.25% debentures of Rs1cr (approx) increased the EPS by Rs 2(approx). 3. Here we found that when number of equity shares is reduced and the n u m b e r o f d e b e n t u r e s i s i n c r e a s e d , E P S i n c r e a s e s f r o m R s 9 . 8 9 t o Rs 11.054. It also maintained the Financial Operating Leverage of the company.


Chapter 6 Recommendations And Conclusion
Taking in view the industry analysis it has been observed that Mahindra and Mahindra has the largest share in the Indian tractor industry. Though Escorts is not far behind, having a major share. The main procedure by escorts is channel finance in which there is no direct dealing with customers rather it is with distributors and dealers. The balance sheet of dealers are analyzed and based on various calculated ratios maximum permissible credit limit is decided for the dealers. The company has been able to increase its revenue by approximately 90 crores by providing channel finance facility. It helps in increasing the cash flow due to the timely payment by the dealers thus meeting the short term requirements and improving the liquidity position of escorts ltd.

General Recommendations:
    The strategies followed by Escorts should be more aggressive in order to compete with its competitors like Mahindra and Mahindra, TAFE and Sonalika ltd. The company should hold regular meetings with its dealers and try improve its relationship with them. Stress more on channel financing to improve sales and revenues. It should tie-up with more banks and financial institutions to facilitate the chanel financing process.

Recommendations To Improve Cash Flow:
Escorts current ratio is unusual changing trend over period of time. Earlier the company was having a good of more than 1.5 but it has gradually decreased implying lack of liquidity and shortage of working capital. An attempt to reach, even if not the ideal ratio, 1.5 should be made by making funds. And the funds can be generated by taking various steps, out of which reduction of costs and check on expenses becomes the main area. Quick ratio too has decreased over past years, means the inventory is more which is to utilized efficiently. The company has to balance both debtors collection period as well as creditors payback period by providing some incentives of discounts by paying early.


Escorts do credit analysis of its customers on the basis of financial statements. It should enhance that by introducing credit evaluation form to ensure that credit facility is provided to sound parties. This will help the company in reducing bad debts and hence channelizing the money locked up as bad debts into other productive uses.

A study may be conducted if required by experts to pinpoint reasons behind Escorts high collection period of 90 days. Is it due to quality of products, quality of customers, the segment of customers, marketing effort, distribution pattern or other reasons. A lower turnover or a higher collection period implies excessive blockage of funds as debt, which might result in stagnation of the business. Attempts to reduce down the debtors‟ turnover ratio to 30 days should be made which would ensure better availability of funds for business operations.

Payment policies followed by Escorts should be reviewed time to time and steps should be taken for prompt payments so that the good vendor base can be maintained.

One of the major reasons why the company is facing cash crises is because the actual cash flow differs from the planned cash flow, which results in improper budgeting and incorrect conclusions. Hence the company should take steps to improve the accuracy of cash plans made. Steps should be taken to control the unnecessary cost incurred and by keeping an eye on the expenses like by switching off the lights, fans and monitors when not in use, travelling

and communication expenses can be reduced. Such steps should be taken for a smooth flow of Cash.

There are many financial institutions which provide various services to speed up the collection for the company and thus helping in gearing up the cash cycle. For eg: LOCK BOX, CONCENTRATION BANKING etc. Company should avail such services from financial institutions in order to improve liquidity.


Special efforts should be made to analyse loans & advances which is very high of its current assets. This can be classified between production/operation related and non-

production/operation related. Nonproduction related cases might be financed from other sources like debentures etc. and treated separately.






JATTI TRACTORS 1-C Rajajinagar Industrial suburb NH-4 Tumkur Road Gorugntepalya Yeshwanthapura

To opening stock To Bank charges To Transportation charges To Water Charges Work Shop Maintenance Gross Profit C/d TOTAL RS

2995626.00 21259867.70 238668.00 3700.00 2373.00 2370729.23 26880963.93

By Sales Accounts By service charges received By RTO & Insurance By Closing Stock

24588668.93 109709.00 18000.00 2164586.00



To Advertisement Expenses To Bank Charges To Audit Fees To computer maintainance To courier To Exibitione Expenses To Depriciation To Discount Allowed To Eddal Contribution To Electricity Charges To Frieght Charges To interest Paid To Tractor insurance a/c To loss on sale of assets

47072.00 20826.00 24266.00 25429.00 7873.00 38131.00 78749.31 31630.00 10800.00 24715.00 3870.00 370053.00 8543.00 93467.00

By Gross Profit By Dealer Incentives By Insurance Commission By Trade Discount By Interest on FD By Warranty Claims By Incentive Recd. Spares By Commission Recd.

2370729.00 677315.00 14429.00 231139.00 5515.00 64310.00 4580.00 176168.00


To Rent To Salary & Wages To Office Maintainance To Other Expenses To Printing & Stationary To Rates & Taxes To Registration Charges To Repair & Maintainance To Sales Commision To Sales promotion Expenses To Security Service Charges To Staff Welfare Expenses To Telephone Charges To Tractor Servicing Expenses To Field Inspection Charges To professional Charges To Sales Incentives To Travel & Conveyance To Travel & Conveyance Institutions To Vehical Maintainance To Net Profit Total RS.

405000.00 1130000.00 32180.00 11180.00 30838.00 9850.00 49683.00 49934.00 263500.00 37218.00 126616.00 3140.00 69708.00 9576.00 4000.00 6618.00 5500.00 19000.00 65071.00 16478.00 145327.00 3544185.23 Total RS. 3544185.23




JATTI TRACTORS 1-C Rajajinagar Industrial Suburb NH -4 Tumkur Road Gorugutepia yeshwanthapura BANGALORE-560022 PROVISIONAL BALANCE SHEET AS AT 31.03.2012 Liablities CAPITAL ACCOUNT Opening Capital Add: Additional During the year Add: Net Profit 248142.92 3708876.89 Less: Drawings 369537.00 3339339.89 3430733.97 0.00 Amount(RS.) Assets FIXED ASSETS: (As Per Schedule-1) Advance to Creditors Cash in Hand Cash at Bank Sundry Debtors Closing Stock Deposit & Advance Loans(Liablities) Mahindra Finance Vehical Loan Sundry Creditors Advance From Debtors Vat Payable Provision TOTAL (RS) 2515845.00 0.00 41341.00 81000.00 6295876.73 TOTAL(RS.) 6295876.73 318350.00 (As Per Schedule) 849357.55 757482.13 108495.00 19651.92 1312092.12 2164586.00 1084210.00 Amount(RS.)




To Opening stock To Purchases To transportation charges To gross profit TOTAL To accounting charges To audit free To bank charges To insurance To depreciation To diesel expenses To electricity expenses To legal fee To salesman incentive To postage & courier expenses To salary To staff welfare expenses To telephone expenses To interest paid To net profit TOTAL 54648.00 735037.00 545655.08 10664715.08 TOTAL 10664715.08 1296000 92672.00 7021151.18 100484221.69 540000.00 16000.00 118022.00 891210.00 5855.00 398264.00 72650.00 3530.00 432600.00 72542.00 TOTAL By gross profit By interest on security By incentive By discount received By round off 100484221.69 7021151.18 48380.00 3482640.00 112542.00 1.90

10425274.74 82994943.77 42852.00

By Sales By closing stock

78858133.00 21626088.69




To drawings To balance c/f TOTAL

225000 4299235.46 4524235.46

By balance sheet By balance income TOTAL

3978580.38 543655.08 4524235.46

Capital SBI(C.C limit) Unsecured loans Sundry creditors

4299235.46 6509807.00 199950.00 14225450.00

Furniture Machinery Water purifier Security with LMI Security with Escorts Int.on security VAT input NSC Sundry debtors Closing stock Cash & Bank balances

7065.00 24281.00 10041.00 50000.00 50000.00 4750.00 276305.38 3000.00 2900400.00 21626088.69 282511.39 25234442.46







Capital Account Deepak kumar chhabra Sanjeev kumar chhabra Loan (liablities) Secured loans Unsecured loans Current liailities Provision Sundry creditors Escorts ltd.hundi A/c Profit & loss A/c Opening Balance Current period

Morden tractor G.T Road Mandi provisional balance sheet 1-apr-2011 to 31-mar-2012 AS AT 31-MAR-2011 ASSETS
745,118,934 3582241333 386894801 1,063,291,648 570617796 492673852 48,622,949.04 6342307.00 14072588.04 28208054.00 672,851.31 672851.31

AS AT 31-2011

Fixed asset Accent cor Active conditionar Car indica Active Honda Car maruti Car swift Computer Computer admin Computer(b.o abohar) Computer(b.o bathinda) Cycle Epabx system Epbax Fax machine Filter a/c Furniture a/c Furniture a/c Furniture &fixture Generator Heat convertar Invertor Invertor genush Invetor Jeep Laptop a/c LCD a/c Mobile instrument Motor cycle Motor cycle a/c New a/c Refrigerators a/c Stablizer a/c Tata sky Television Tools Typewriter Water cooler

1646736.83 90515.52 32531.25 173828.44 26551.87 47310.02 527571.39 5983.92 3360.00 13.12 13.92 712.36 200000.00 1261.48 1856.10 7225.00 1765.58 2176.66 341307.73 2224.00 3237.50 9609.25 5760.00 2953.58 6313.93 61355.00 41025.00 652.42 97706.10 113991.00 36000.00 49971.00 5100.00 851.83 9361.43 7214.88 255.76 54.19

Washingmachinea/c Investment Currentasset Other assets Security Total 67379906.17 Total

9065.00 154505.00 6380586.00 25525.00 127000.00 673799061.17





Provisional Balance Sheet 1 April 2011 to 31 March 2012

LIABILITIES Brought Forward

as at 31 mar. 2012 67379906.17

ASSETS Brought Forward

as at 31 mar. 2012 67252906.17



Escort ltd. Security a/c


Force Motors ltd. Security a/c 10000.00 Telephone Security a/c 17000.00








MORDEN TRACTORS GT ROAD MALOUT PROVISIONAL PROFIT &LOSS A/C 1 April 2011 to 31 mar. 2012 Particular 1April2011to31mar.2012 Opening Stock 31660695.00 Particular 1April2011to31mar.2012 Sales Account SALE13.75% SALE5.5% 246591.00 96726408.50 149864837.00

Opening Agri Implements 828172 Opening Jeep A/c Opening Lubricants Opening Motor Parts Opening Part Abohar Opening parts Bhatinda Opening Three Wheelar Opening Tractor part Opening Tractor 7590541 484525 1924690 37560 52074 232530 1279450 19231153

Direct Incomes Trade Discount Escort Trade Discount Force

51.60 6146204.00 14207.00

Closing Stock


Opening Agri Implements 828172.00 Opening Jeep A/C 14411700.00 782800.00 3785700.00 37560.00 52074.00 232530.00 1799700.00 17420500.00

Purchase Account Purchase Jeep13.75% Purchase Jeep Body5.5%

248996148.88 95046250.00

Opening Lubricants Opening Motor Parts

1320000.00 Opening Part Abohar Opening Part Bhatinda Opening Three Wheelar Opening Tractor Part Opening Tractor

Purchase Lubricants13.75% 1121947.38 Purchase Motor Parts13.75% 1252053.07 Purchase Motor Parts C.S.T Purchase Tractor Parts5.5% Purchase Tractor 5.5% 949953.07 953634.96



Purchase Tractor Ass.5.5% Purchase Tractor Part C.S.T

1306794.00 119849.00

Purchase Tractor Parts13.75% 37861.00


529160.00 292102 GROSS PROFIT b/f 10916

Freight & Carrige Exps. 529160.00


10916388.79 292102392.67 Indiret Incomes 6.36 225534.00

INDIRECT EXPS. Advertisement Bank Charges Computer Exps. Courrier Exps. Deepwali Exps. Electrical A/C Frieght & Carriges5.5% Hundi Charges Insurance Charges A/C Interest A/c Company Interest A/c Hundi Interest Bank A/c Legal Fees Milk Exps. Misc. Exps.

10880483.38 24064.00 219900.36 4005.00 3767.00 55000.00 38356.00 3000.00 23500.00 2593816.00 93488.00 2151320.00 1764156.00 10000.00 33930.00 42905.00

Interest Receive a/c

Rebate & Discount a/c 352958.00 Scrap Works Shoop Labour 2650.00 75803.00


Motor Cycle Exps. News Paper Exps. Petrol & Deisal Exps. Printing & Stationary Exps. Refrigerater Rating Off Exps. Salary & Wages A/C Show Room Rent Kotkapura

11693.00 4537.00 402976.00 36327.00 38700.00 -0.44 2112000.00 180000.00




Modern Tractors Provisional Profit and loss account : 1-April-2011 to 31- Mar-2012
Particulars Mar-2012 Show Room Rent Fazika 48,400.00 1-April-2011 to 31Particulars Mar-2012 1-April-2011 to 31-

Show Room Rent Mallout 3,58,000.00 Show Room Rent Bathinda 3,60,000.00 Staff welfare Expenses Subvantion Jeep Expenses Telephone Expenses Tractor Service Expenses Travelling Expenses Water Expenses Workshop Expenses 39,788.00 6,000.00 95,595.00 21,275.00 8,886.00 6,320.00 27,575.00

Net Profit






Place: Mnadi Dabwali Date : 17/04/2011

Compiled from books of account Produced before us FOR: K.SINGHAL & ASSOCIATES CHARTERED ACCOUNTANTS









Capital and Reserves
Proprietors‟ capital Reserves and surplus(P&L A/C) Opening capital


23.89 4.55 28.44

28.44 5.63 34.07

34.07 6.62 40.59

34.07 12.84 46.91

34.07 22.44 56.51

Loans and advances
Secured loans OD Secured loans (cash credit) Unsecured loans 0.00 44.78 58.30 0.00 72.34 67.83 0.00 125.00 70.83 0.00 125.00 78.83 0.00 125.00 86.83

Current liabilities and provision
Sundry creditors Other current liabilities Total….. 44.67 2.24 178.43 29.18 40.63 0.78 215.65 30.84 30.00 2.00 268.52 34.98 35.00 2.00 287.74 33.35 40.00 2.00 310.34 32.02

ASSETS( Fixed assets)

Add: addition (deduction)(net) Less: depreciation


1.88 1.63

1.33 32.02 0.00

1.10 30.92 0.00

30.84 Security deposit Current assets and loans and advances Stock Debtors Other current assets Non current assets Cash and bank balances Misc. expenditure Profit & loss a/c TOTAL……….. 69.17 71.62 0.00 0.00 6.18 0.00 0.00 1 78.43 0.62

34.98 0.00

33.35 0.00

153.46 8.19 1.60 0.00 17.42 0.00 0.00 215.65

180.00 41.00 0.00 0.00 14.17 0.00 0.00 268.52

205.00 45.00 0.00 0.00 5.72 0.00 0.00 287.74

225.00 50.00 0.00 0.00 4.42 0.00 0.00 310.34





ACTUAL ACTUAL PROJECTED By sales and incentive By other income By closing stock of finished goods By closing stock of raw material TOTAL…..(A) Opening stock of finished goods Opening stock of raw material Purchases Direct expenses Direct cost Gross profit b/d ….(A)-(B) To admin. Operating and selling exp. To salary and allowances To financial expenses To deprecistion To miscellaneous expenses w/o Total ….(C) Net Profit Before Tax……(A-B-C) Provision for tax Net profit after tax Withdrawls and (addition)(net) Net profit after tax and withdrawl 780.03 3.09 69.17 0.00 852.29 62.90 0.00 741.77 11.83 816.50 35.79 5.06 7.15 16.68 1.95 0.00 29.84 5.95 0.31 5.64 1.09 4.55 935.82 19.60 153.46 0.00 1108.03 69.17 0.00 965.06 14.81 1049.04 59.84 19.04 15.58 14.75 1.88 0.00 51.25 8.59 0.63 7.96 2.33 5.63


1100.00 3.50 180.00 0.00 1283.50 153.46 0.00 1014.03 17.41 1210.00 72.80 24.00 18.50 18.50 1.63 0.00 62.63 9.97 1.35 8.62 2.00 6.62

1255.00 5.00 205.00 0.00 1475.00 180.00 0.00 1191.49 20.02 1391.51 83.49 27.60 20.00 23.00 1.33 0.00 71.93 11.56 1.84 9.72 3.50 6.22

1400.00 5.00 225.00 0.00 1630.00 205.00 0.00 1311.84 22.16 1539.00 91.00 27.00 22.00 23.00 1.10 0.00 73.10 17.90 3.80 14.10 4.50 9.50


Chapter 8 References
 Journals: article based on an in-depth study of five major ChaudhariShekhar (2007) .A research

manufacturing firms both in the private as well as public sectors.

TV Jayan and Sopan Joshi, August31 2007 . Disconnect Article. Sadana Kumar Sanjay. Impact of Working Capital Management on Profitability with Special reference to Steel Industry:

Tiwari Rahul 2010. Analysis about the Retail and Channel Finance of Commercial Vehicle Industry with reference to Tata Motors  Other sources:

Financial Management By: I MPandey.

Financial Accounting By: Narayanswamy.

Basics of Accounting By: T S Grewal. Company‟s Management Information System(MIS). Company‟s Annual Reports.

Dealers Financial Statements.


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