You are on page 1of 73

A

PROJECT REPORT
ON

WORKING CAPITAL MANAGEMENT IN HCL


INFOSYSTEMS LIMITED
SUBMITED BY

MR.KAPARE ABHILASH PRAKASH


SUBMITED TO

UNIVERSITY OF PUNE
UNDER GUIDENCE OF

PRO. NIMBOLKAR.V
IN PARTIAL FULFILMENT OF THE
REQUIREMENT FOR THE

BACHOLOR OF BUSIN0ESS ADMINISTRATIO


(BBA Sem VI)
FOR THE ACADMIC YEAR

(2013-2014)

SGGP COLLEGE
BBA/BCA/B.C&B .COM JATEGAON BK.

ACKOWLEDGEMENT
Achievement is finding out what you would be then doing, what you have to do. The higher
the summit, the harder is the climb. The goal was fixed and we began with a determined
resolved and put in ceaseless sustained hard work. Greater challenge, greater was our effort
to overcome it.
This project work, which is my first step in the field of professionalization, has been
successfully accomplished only because of my timely support of well-wishers. I would like
to pay my sincere regards and thanks to those, who directed me at every step in my project
work.
I would also like to thank the faculty members and the staff members of HCL Infosystems
Ltd. for their kind support and help during the project.

TABLE OF CONTENTS
Acknowledgement
Exicutive summary
1. Introduction
The problems
Objective of the project
2. HCL Infosystems An Overview
Companys history
Management team
Corporate information
3. Conceptual Framework
Introduction to Working Capital Management
Inventory management
Cash management
Receivables management
Managing payables (Creditors)
Financing current assets
Working capital & short-term financing
4. Analysis
Industry analysis
Financial graphs
Concluding analysis
Suggestions and recommendations
Bibliography
5. Appendices

EXECUTIVE SUMMARY
This project is based on the study of working capital management in HCL Infoystems. An
insight view of the project will encompass what it is all about, what it aims to achieve,
what is its purpose and scope, the various methods used for collecting data and their sources,
including literature survey done, further specifying the limitations of our study and in the
last, drawing inferences from the learning so far.
HCL Infosystems Limited (HCL), is a leading domestic computer hardware and hardware
services company. HCL is engaged in selling manufactured ( like PCs, servers, monitors and
peripherals) and traded hardware ( like notebooks, peripherals) to institutional clients as well
as in retail segment. It also offers hardware support services to existing clients through
annual maintenance contracts, network consulting and facilities management.
The working capital management refers to the management of working capital, or precisely
to the management of current assets. A firms working capital consists of its investments in
current assets, which includes short-term assetscash and bank balance, inventories,
receivable and marketable securities.
This project tries to evaluate how the management of working capital is done in HCL
Infosystems through inventory ratios, working capital ratios, trends, computation of cash,
inventory and working capital, and short term financing.

INTRODUCTION

The problems
Objective of the prpject

INTRODUCTION:

The project undertaken is on WORKING CAPITAL MANAGEMENT IN HCL


INFOSYSTEMS LIMITED.
It describes about how the company manages its working capital and the various steps that
are required in the management of working capital.
Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to
fund operations, reinvest and meet capital requirements and payments. Understanding a
company's cash flow health is essential to making investment decisions. A good way to judge
a company's cash flow prospects is to look at its working capital management (WCM).
Working capital refers to the cash a business requires for day-to-day operations or, more
specifically, for financing the conversion of raw materials into finished goods, which the
company sells for payment. Among the most important items of working capital are levels of
inventory, accounts receivable, and accounts payable. Analysts look at these items for signs
of a company's efficiency and financial strength.
The working capital is an important yardstick to measure the companys operational and
financial efficiency. Any company should have a right amount of cash and lines of credit for
its business needs at all times.
This project describes how the management of working capital takes place at
HCL Infosystems.

OBJECTIVE OF THE PROJECT

The objectives of this project were mainly to study the inventory, cash and receivable at
HCL Infosystems Ltd., but there are some more and they are The main purpose of our study is to render a better understanding of
the concept Working Capital Management.
To understand the planning and management of working capital at HCL Infosystems
Ltd.
To measure the financial soundness of the company by analyzing various ratios.
To suggest ways for better management and control of working capital at the concern.

HCL INFOSYSTEMS AN OVERVIEW

Companys history
Management team
Corporate information

HCL INFOSYSTEMS LIMITED

AN OVERVIEW ABOUT THE COMPANY


HCL Infosystems is no flash in the Information Technology pan. Founded in 1976, the firm
has climbed into pantheon of India's corporate giants on the strength of its IT products and
services. HCL Infosystems specializes in IT hardware (PC's and servers, as well as
networking, imaging and communications products), and system integration services serving
the domestic Indian market. In addition to its consumer products, the company provides
commercial IT products, facilities management, network services, and IT security services
for clients in such industries as government, financial services, and education. HCL
Corporation owns significant stakes in HCL Infosystems (about 44%) and sister company
HCL Technologies.
HCL Infosystems Ltd, a listed subsidiary of HCL, is an India-based hardware and systems
integrator. It claims a presence in 170 locations and 300 service centres. Its manufacturing
facilities are based in Chennai, Pondicherry and Uttarakhand .Its headquarters is in Noida.
HCL Peripherals (A Unit of HCL Infosystems Limited) Founded in the year 1983, has
established itself as a leading manufacturer of computer peripherals in India, encompassing
Display Products, Thin Client solutions, Information and Interactive Kiosks. HCL
Peripherals has two Manufacturing facilities, one in Pondicherry (Electronics) and the other
in Chennai (Mechanical) .The Company has been accredited with ISO 9001:2000, ISO
14001, TS 16949 and ISO 13485.
9

HISTORY
HCL Infosystems Ltd is one of the pioneers in the Indian IT market, with
its origins in 1976. For over quarter of a century, we have developed and
implemented solutions for multiple market segments, across a range of
technologies in India. We have been in the forefront in introducing new
technologies and solutions. The highlights of the HCL saga are
summarized below:

Y E AR

H IG HLI GHTS

1976

- Foundation of the Company laid


- Introduces microcomputer-based programmable calculators with wide
scientific / education community

1977

- Launch of the first microcomputer-based commercial computer with a ROM -based Basic
interpreter
- Unavailability of programming skills with customers results in HCL developing bespoke
applications for their customers

1980

- Formation of Far East Computers Ltd., a pioneer in the Singapore IT market, for SI
(System Integration) solutions

1983

- HCL launches an aggressive advertisement campaign with the theme ' even a typist can
operate' to make the usage of computers popular in the SME (Small & Medium Enterprises)
segment. This proposition involved menu-based applications for the first time, to increase
ease of operations. The response to the advertisement was phenomenal.
-HCL develops special program generators to speed up the development of applications

1986

- Zonal offices of banks and general insurance companies adopt computerization


- Purchase specifications demand the availability of RDBMS products on the supplied
solution (Unify, Oracle). HCL arranges for such products to be ported to its platform.
- HCL assists customers to migrate from flat-file based systems to RDBMS

1991

- HCL enters into a joint venture with Hewlett Packard


- HP assists HCL to introduce new services: Systems Integration, IT consulting, packaged
support services ( basic line, team line )

1994

- HCL acquires and executes the first offshore project from IBM Thailand
- HCL sets up core group to define software development methodologies

1995

- Starts execution of Information System Planning projects


10

acceptance in the

- Execution projects for Germany and Australia


- Begins Help desk services
1996

- Sets up the STP ( Software Technology Park ) at Chennai to execute software projects for
international customers
- Becomes national integration partner for SAP

1997

- Kolkata and Noida STPs set up


- HCL buys back HP stake in HCL Hewlett Packard

1998

- Chennai and Coimbatore development facilities get ISO 9001 certification

1999

- Acquires and sets up fully owned subsidiaries in USA and UK


- Sets up fully owned subsidiary in Australia
- HCL ties up with Broadvision as an integration partner

2000

- Sets up fully owned subsidiary in Australia


- Chennai and Coimbatore development facilities get SEI Level 4 certification
- Bags Award for Top PC Vendor In India
- Becomes the 1st IT Company to be recommended for latest version of ISO 9001 : 2000
- Bags MAIT's Award for Business Excellence
- Rated as No. 1 IT Group in India

2001

-Launched Pentium IV PCs at below Rs 40,000


-IDC rated HCL Infosystems as No. 1 Desktop PC Company of 2001

2009

-Declared as Top PC Vendor by Dataquest


-HCL Infosystems & Sun Microsystems enters into a Enterprise Distribution Agreement
- Realigns businesses, increasing focus on domestic IT, Communications & Imaging
products, solutions & related services

2010

2011

2012

- Became the first vendor to register sales of 50,000 PCs in a quarter


- First Indian company to be numero uno in the commercial PC market
- Enters into partnership with AMD
- Launched Home PC for Rs 19,999
- 1st to announce PC price cut in India, post duty reduction, offers Ezeebee at Rs. 17990
- Maintains No.1 position in the Desktop PC segment for year 2010
- Becomes the 1st company to cross 1 lac unit milestone in the Indian Desktop PC market
- Partners with Union Bank to make PCs more affordable, introduces lowest ever EMI for
PC in India
- Registers a market share of 13.7% to become No.1 Desktop PC company for year 2011
- Crosses the landmark of $ 1 billion in revenue in just nine months
- Launch of HCL PC for India, a fully functional PC priced at Rs.9,990/- Rated as the No.1 Desktop PC company by IDC India -Dataquest
- 'Best Employer 2012' with five star ratings by IDC India -Dataquest.
- 'The Most Customer Responsive Company 2012'
-IT Hardware Category by The Economic Times -Avaya Global Connect.
-Top 50 fastest growing Technology Companies in India' & 'Top 500 fastest Growing
Technology Companies in Asia Pacific' by 'Deloitte & Touche'. by 'Deloitte & Touche'
-'7th IETE -Corporate Award 2012' for performance excellence in the field of Computers &
11

Telecommunication Systems by IETE.


-India 's 'No.1 vendor' for sales of A3 size Toshiba Multi Functional Devices for the year '04
-'05 by IDC.
-Toshiba 'Super Award 2012 towards business excellence in distribution of Toshiba
Multifunctional products,
-Strategic Partners in Excellence' Award by In focus Corporation for projectors.
-'Most valued Business Partner' Award for projectors by In focus Corporation in 2012

2013
(till
June)

- 75, 000+ machines produced in a single month


- HCL Infosystems in partnership with Toshiba expands its retail presence in India by
unveiling 'shop Toshiba'
- HCL Infosystems & Nokia announce a long term distribution strategy
- HCL the leader in Desktops PCs unveils India's first segment specific range of notebooks
brand - 'HCL Laptops'
- IDBI selects HCL as SI partner for 100 branches ICT infrastructure rollout
- HCL Infosystems showcases Computer Solutions for the Rural Markets in India
- HCL Support wins the DQ Channels-2013 GOLD Award for Best After Sales Service on a
nationwide customer satisfaction survey conducted by IDC
- HCL Infosystems First in India to Launch the New Generation of High Performance Server
Platforms Powered by Intel Dual - Core Xeon 5000 Processor
- HCL Forms a Strategic Partnership with APPLE to provide Sales & Service Support for
iPods in India

12

OBJECTIVES:
MANAGEMENT OBJECTIVES
To fuel initiative and foster activity by allowing individuals, freedom of action and
innovation in attaining defined objectives.

PEOPLE OBJECTIVES
To help people in HCL Infosystems Ltd., share companys success, which

they

make possible; to provide job security based on their performance; to


recognize their individual achievements; and help them gain a sense of satisfaction
and accomplishment from their work.

MANAGEMENT TEAM:

Ajai Chowdhry
Co-Founder HCL, Chairman and CEO - HCL Infosystems.
An engineer by training, Ajai Chowdhry is one of the six co-founder members
of HCL, India 's premier IT conglomerate.
J V Ramamurthy
Chief Operating Officer HCL Infosystems Ltd.
J V Ramamurthy has an engineering degree in Electronics & Communications,
from Guindy Engineering College, and a Masters' degree in Applied Electronics
from the Madras Institute of Technology, both in Chennai.

13

Rajendra Kumar
Executive Vice President - Frontline Division HCL Infosystems Ltd. Mr.
Rajendra Kumar has been with HCL for over 30 years and has seen HCL grow
from a startup company to a gigantic conglomerate that it is today.

CORPORATE INFORMATION:
BOARD OF DIRECTORS

Chairman & Chief Executive Officer


Ajai Chowdhry
Whole-time Director
J.V. Ramamurthy
Directors
S. Bhattacharya
D.S. Puri
R.P. Khosla
E.A. Kshirsagar
Anita Ramachandran
T.S. Purushothaman
Narasimhan Jegadeesh
V.N. Koura

COMPANY SECRETARY

Sushil Kumar Jain

AUDITORS

Price Waterhouse, New Delhi

BANKERS

State Bank of India


Canara Bank
HDFC Bank Ltd.
ICICI Bank Ltd.
Societe Generale
Standard Chartered Bank
14

State Bank of Patiala


REGISTERED OFFICE

806, Siddharth,
96, Nehru Place, New Delhi - 110 019.

CORPORATE OFFICE

E - 4, 5, 6, Sector XI, Noida - 201 301 (U.P.)

WORKS

R.S. Nos: 34/4 to 34/7 and part of 34/1,


Sedarapet, Puducherry - 605 111.
R.S. Nos: 107/5, 6 & 7, Main Road,
Sedarapet, Puducherry - 605 111.

15

WORKING CAPITAL MANAGEMENT


CONCEPTUAL FRAMEWORK

Introduction

Classification of working capital

Types of working capital needs

Working capital cycle

Sources of working capital


Working capital position
Inventory management
Cash management
Receivables management
Managing payables (Creditors)
Financing current assets
Working capital & short-term financing

16

INTRODUCTION TO WORKING CAPITAL


Working Capital is the Life-Blood and Controlling Nerve Center of a business
The working capital management precisely refers to management of current assets. A
firms working capital consists of its investment in current assets, which include shortterm assets such as:
Cash and bank balance,
Inventories,
Receivables (including debtors and bills),
Marketable securities.
Working capital is commonly defined as the difference between current assets and current
liabilities.
WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES
There are two major concepts of working capital:
Gross working capital
Net working capital
Gross working capital:
It refers to firm's investment in current assets. Current assets are the assets, which can be
converted into cash with in a financial year. The gross working capital points to the need
of arranging funds to finance current assets.
Net working capital:
It refers to the difference between current assets and current liabilities. Net working
capital can be positive or negative. A positive net working capital will arise when current
assets exceed current liabilities. And vice-versa for negative net working capital. Net
working capital is a qualitative concept. It indicates the liquidity position of the firm and
suggests the extent to which working capital needs may be financed by permanent sources
17

of funds. Net working capital also covers the question of judicious mix of long-term and
short-term funds for financing current assets.

18

CLASSIFICATION OF WORKING CAPITAL


Working capital can be classified as follows:
On the basis of time
On the basis of concept

KINDS OF WORKING
CAPITAL
ON THE
BASIS
OF
CONCEP
T
GROSS
WORKIN
G
CAPITAL

ON THE
BASIS
OF TIME

NET
WORKIN
G
CAPITAL

PERMAN
ENT/FIXE
D
WORKIN
G
CAPITAL

REGULAR
WORKING
CAPITAL

19

RESERVE
WORKING
CAPITAL

TEMPOR
ARY/VARI
ABLE
WORKIN
G
CAPITAL
SEASONA
L
WORKING
CAPITAL

SPECIAL
WORKING
CAPITAL

TYPES OF WORKING CAPITAL NEEDS

The working capital needs can be bifurcated as:


Permanent working capital
Temporary working capital

Permanent working capital:


There is always a minimum level of working capital, which is
continuously required by a firm in order to maintain its activities. Every
firm must have a minimum of cash, stock and other current assets, this
minimum level of current assets, which must be maintained by any firm
all the times, is known as permanent working capital for that firm. This
amount of working capital is constantly and regularly required in the
same way as fixed assets are required. So, it may also be called fixed
working capital.

Temporary working capital:


Any amount over and above the permanent level of working capital is
temporary, fluctuating or variable working capital. The position of the
20

required working capital is needed to meet fluctuations in demand


consequent upon changes in production and sales as a result of seasonal
changes.

WORKING CAPITAL CYCL


The tanks, which are concerned with day-to-day activities, have funds
constantly flowing into and out of them.
The chain starts with the firm buying raw materials on credit.
In due course this stock will be used in production, work will be
carried out on the stock, and it will become part of the firms workin-progress.
Work will continue on the WIP until it eventually emerges as the
finished product.
As production progresses, labor costs and overheads need have to
be met.
Of course at some stage trade creditors will need to be paid.
When the finished goods are sold on credit, debtors are increased.
They will eventually pay, so that cash will be injected into the firm.
The business will have to make payments to government for
taxation.
Fixed assets will be purchased and sold
Lessors of fixed assets will be paid their rent
Shareholders (existing or new) may provide new funds in the form
of cash
21

Some shares may be redeemed for cash


Dividends may be paid
Long-term loan creditors (existing or new) may provide loan
finance, loans will need to be repaid from time-to-time, and
Interest obligations will have to be met by the business

SOURCES OF WORKING CAPITAL


HCL Infosystems has the following sources available for the fulfillment
of its working capital requirements in order to carry on its operations
smoothly:
Banks:
These include the following banks
State Bank of India
Canara Bank
HDFC Bank Ltd.
ICICI Bank Ltd.
Societe Generale
Standard Chartered Bank
State Bank of Patiala
State Bank of Saurashtra
Commercial Papers:
Commercial Papers have become an important tool for
financing working capital requirements of a company.
Commercial Paper is an unsecured promissory note issued
by the company to raise short-term funds. The buyers of the
commercial paper include banks, insurance companies, unit
22

trusts, and companies with surplus funds to invest for a short


period with minimum risk.
HCL issues Commercial Papers and had 4000 commercial
papers in the year 2013.

WORKING CAPITAL POSITION :

CURRENT ASSET TOTAL ASSET

PARTICULARS
CURRENT

2013
100970

2012
81533

2011
54091

2010
45042

2009
55985

ASSETS
NET BLOCK
TOTAL ASSETS
CA/TA

7970
122479
82.44

5329
99139
82.24

4925
87076
62.12

4954
71285
63.18

5552
75205
74.43

The current asset percentage on total asset is the highest over the years.
This increasing percentage of current assets to the total assets at first
might indicate a preference for liquidity in place of profitability, but a
look into the nature of the business carried on by HCL Infosystems
reveal the reason behind it. How far their preference to current assets
has affected the sales is shown below.

23

NET CURRENT ASSET SALES


PARTICULARS
NET CURRENT
ASSETS
SALES
WORKING
CAPITAL %
INCREASE
SALES %
INCREASE

2013
40343

2012
34742

2011
14301

2010
18752

2009
27065

238136
16.12

199886
142.93

154295
-23.736

166604
-30.7

127003
-0.46

19.14

29.54

-7.38

31.18

8.7

The sales has increased and the profits risen despite the 16.12% increase
in working capital. But what is noteworthy here is that the firm has
managed to maintain the trend of an increase in net current assets.
Whether the change has worked for the company has to be analysed in
the context of the growth in sales as compared to the previous year.
There has been a 19.14% rise in the sales or revenue generated.
CURRENT ASSET FIXED ASSET
PARTICULARS
NET CA/NET BLOCK

2013
5.062:1

2012
6.519:1

2011
2.903:1

2010
3.785:1

2009
4.875:1

The ratio of the net current asset to the fixed ones is an indicator as to the
liquidity position of the firm. This ratio has declined for the firm
compared to the previous year. There could be an argument as to whether
the increased ratio of working capital to net block is a conservative policy
and whether it would be detrimental to the interest of the company. Or,
whether it would have been proper if the company invested more into the
capital expenditure in the form of plant and machinery or invested in any
other form that would have got them an internal rate of return.
COMPUTER and MICRO PROCESSOR BASED SYSTEMS
YEAR

INSTALLED
CAPACITY

ACTUAL
PRODUCTION
24

% CAPACITY
UTILIZATION

2013
2012
2011

1150000
600000
525000

581805
448121
295192

50.59
74.69
56.23

DATA GRAPHIC/DISPLAY MONITOR/TERMINALS/HUBS


YEAR
2013
2012
2011

INSTALLED
CAPACITY
250000
250000
350000

ACTUAL
PRODUCTION
267326
259617
297991

% CAPACITY
UTILIZATION
106.93
103.85
85.14

That the fixed assets of the firm are being put to efficient use and the firm
is trying for optimum capacity utilization is something that can be easily
deduced. Whether the current assets or the working capital of the firm has
anything to do with it is for us to see. An increased production in normal
circumstances means better raw material to finished goods conversion
rate, i.e. the firm is taking less of time in the production process and this
happens when the current asset employed in relation with the fixed ones
are at optimum. The other notable feature here is that though the firm has
added on to its installed capacity in all three years, they were still able to
increase the capacity utilization. That they have been able to do it shows
that the more current assets, especially inventory used in relation to the
fixed assets, i.e., plant and machinery and their management has only
helped in increasing their utilization to the maximum.

CURRENT ASSET CURRENT LIABILITY

PARTICULARS
CURRENT ASSETS
CURRENT LIABILITES
% CURRENT ASSETS
INCREASE

2013
100970
60627
23.84
25

2012
81533
46791
50.7

2011
54091
39790
20.09

2010
45042
26290
-19.54

2009
55985
28920
8.9

%CURRENT LIABILITES
INCREASE

29.57

17.6

51.35

-9.1

The 16.12% increase in Net Current assets despite of the fact that there
has been an increase in the Current Assets by 23.84% and increase in
Current Liability has been by 29.57% over that of the previous year has to
be attributed to the fact that in 2012, the company showed such a high
increase in CA, that it is still being offset. This is an indication as to the
expanding operations of the firm. HCL has increased its current assets in
order to meet the increasing sales. The firms level of liquidity being
high, we need a check on whether it affects the return on assets.

INVENTORY MANAGEMENT
Inventories
Inventories constitute the most important part of the current assets of
large majority of companies. On an average the inventories are
approximately 60% of the current assets in public limited companies in
India. Because of the large size of inventories maintained by the firms, a
considerable amount of funds is committed to them. It is therefore,
imperative to manage the inventories efficiently and effectively in order
to avoid unnecessary investment.

Nature of Inventories
Inventories are stock of the product of the company is manufacturing for
sale and components make up of the product. The various forms of the
inventories in the manufacturing companies are:

26

19.45

Raw Material: It is the basic input that is converted into the


finished product through the manufacturing process. Raw materials
are those units which have been purchased and stored for future
production.
Work-in-progress: Inventories are semi-manufactured products.
They represent product that need more work they become finished
products for sale.
Finished Goods: Inventories are those completely manufactured
products which are ready for sale. Stocks of raw materials and
work-in-progress facilitate production, while stock of finished
goods is required for smooth marketing operations. Thus,
inventories serve as a link between the production and
consumption of goods.

Inventory Management Techniques


In managing inventories, the firms objective should be to be in
consonance with the shareholder wealth maximization principle. To
achieve this, the firm should determine the optimum level of inventory.
Efficiently controlled inventories make the firm flexible. Inefficient
inventory control results in unbalanced inventory and inflexibility-the
firm may sometimes run out of stock and sometimes pile up unnecessary
stocks.
Economic Order Quantity (EOQ): The major problem to be
resolved is how much the inventory should be added when
inventory is replenished. If the firm is buying raw materials, it has
to decide lots in which it has to purchase on replenishment. If the
firm is planning a production run, the issue is how much
production to schedule. These problems are called order quantity
problems, and the task of the firm is to determine the optimum or
economic lot size. Determine an optimum level involves two types
of costs:27

Ordering Costs: This term is used in case of raw material


and includes all the cost of acquiring raw material. They
include the costs incurred in the following activities:
Requisition
Purchase Ordering
Transporting
Receiving
Inspecting
Storing
Ordering cost increase with the number of orders placed;
thus the more frequently inventory is acquired, the higher the
firms ordering costs. On the other hand, if the firm
maintains large inventorys level, there will be few orders
placed and ordering costs will be relatively small. Thus,
ordering costs decrease with the increasing size of inventory.

Carrying Costs: Costs are incurred for maintaining a given


level of inventory are called carrying costs. These include
the following activities:
Warehousing Cost
Handling
Administrative cost
Insurance
Deterioration and obsolescence
Carrying costs are varying with inventory size. This
behavior is contrary to that of ordering costs which decline
with increase in inventory size. The economic size of
28

inventory would thus depend on trade-off between carrying


costs and ordering cost.

Composition
Raw Material
Stores and Spares
Finished Goods
Work-in-progress

2013
6349
3713
13374
595

2012
7749
2987
7245
784

2011
6127
2622
6506
871

The increasing component of raw materials in inventory is due to


the fact that the company has gone for bulk purchases and has
increased consumption due to a fall in prices and reduced margins
for the year. Another reason might be the increasing sales, which
might have induced them to purchase more in anticipation of a
further increase in demand of the product. And the low
composition of work-in-progress is understandable as because of
the nature of the business firm is involved in.
To the question as to whether the increasing costs in inventory are
justified by the returns from it the answer could be found in the
HCL retail expansion. HCL caters to the need of the two separate
segments:

a) Institutions for which they manufacture against orders and,


b) Retail segment of the market.
They are more into retail than earlier and at present more than 650
retail outlets branded with HCL sign ages and more are in the
pipeline
The company in order to meet its raw materials requirements could
have gone for frequent purchases, which would have resulted in
lesser cash flows for the firm rather than the high expenditure
involved when procuring in at bulk. The reason why the firm has

29

gone for these bulk purchases because of the lower margins and the
discounts it availed because of procuring in bulk quantities.
A negative growth in WIP could be because:
a) The time taken to convert raw materials to finished goods is
very minimal
b) This is also due to capacity being not utilized at the
optimum.

ABC System: ABC system of inventory keeping is followed in


the factories. Various items are categorized into three different
levels in the order of their importance. For e.g. items such as
memory, high capacity processors and royalty are placed in the A
category. Large number of firms has to maintain several types of
inventories. It is not desirable the same degree of control all the
items. The firm should pay maximum attention to those items
whose value is highest. The firm should therefore, classify
inventories to identify which items should receive the most effort
in controlling. The firm should be selective in approach to control
investment in various types of inventories. This analytical
approach is called ABC Analysis. The high-value items are
classified as A items and would be under tightest control. C
items represent relatively least value and would require simple
control. B items fall in between the two categories and require
reasonable attention of management.

JIT: The relevance of JIT in HCL Info system can be questioned.


This is because they procure materials on the basis of projections
made at least two or three months before. Even at the time of
procurement they ensure that they procure much more than what
30

actually is required by the firm that is they hold significant amount


of inventory as safety stock. This is done to counter the threat
involved in default and accidental breakdowns. The levels of
safety stock usually vary according to the usage.

Conversion Periods Analysis


Raw Material
Particulars
Raw Material Consumption
Raw Material Consumption/day
Raw Material Inventory
Raw Material Holding Days

2014
1176.73
3.32
129.29
40.15

2015
682.05
1.86
184.53
99.20

2016
592.92
1.62
340.08
209.92

The raw material conversion period or the raw material holding


cost has increased from 40 to 100 days, because in e an increase in its
consumption. This indicates that the firm is able to convert the raw
material at its disposal to the work-in-progress at a lesser time as
compared to the last year. It would be to the benefit of the firm to reduce
the production process and increase the conversion rate still as the firm is
required to meet the increasing demand.

Work-in-progress
Particulars
Cost of Production
Cost of Production/day
Work in progress inventory
WIP Holding days

2013
191911
525.78
689.5
1.31
31

2012
159651.19
437.4
827.52
1.89

2011
113500.33
310.95
679.455
2.19

The work-in-progress holding time is important for a firm in the sense


that it determines the rate of time at which the production process will be
complete or the finished goods will be ready for disposal by the firm. The
firm as it is in the
process of assembling should take the least possible time in conversion to
finished goods unlike a hard core manufacturing firm, as any firm would
like to have its inventory in the work-in-progress at the minimum. There
would also be less of stock out costs as due to better conversion rates the
firm is able to meet the rise in demand situations. More the time it spends
lesser its efficiency would be in the market. Here the firm has been able
to bring down its WIP conversion periods.

Finished Goods
Particulars
Cost of goods sold
Cost of goods sold/day
Finished goods inventory
Finished goods inventory Holding days

2013
228177
625
10310
16

2012
178438.85
488.87
6875.725
14.06

2011
124768.92
341.832
5026.505
14.8

The time taken for the firm to realize its finished goods as sales has
increased as compared to last year. This growth in sales could be traced
back to the growing domestic IT market for the commercial as consumer
segment in India. HCL has around 15% of the market in desktop and it is
the market leader in this segment. So it is only natural that they are able
to better their conversion rate of finished goods to sales.
Operating Cycle
Particulars
Inventory conversion period
Average collection period
Gross operating cycle
Average payment period
Operating cycle

2013
38
70
108
22
86
32

2012
42
63
105
23
82

2011
45
66
111
17
94

The operating cycle of the firm reveals the days within which the
inventory procured gets converted to sales or revenue for the firm. This
time period is of importance to the firm as a lag here could significantly
affect the profitability, liquidity, credit terms, and the policies of the firm.
All the firms would like to reduce it to such extend that their cash inflows
are timely enough to meet their obligations and support the operations.
That the firm has been able to reduce the ratio is in itself an achievement
as they were having huge stocks of inventory. But the reduction in the
cycle could also be attributed to the boom in the market and the growth it
is expected to reach. This boom automatically ensures the demand for the
finished goods and thus helping in it to garner sales for the firm.
Raw Material Consumption
Particulars
Imported
Indigenous
% Imports

2013
92014
29070
75.99

2012
70784.27
27187.04
72.25

2011
42129.63
15645.51
72.92

A major chunk of the imports come from Korea and Taiwan and is
purchased in US$. The value of imported and indigenous raw material
consumed give a clear picture that if there is a change in the EXIM policy
of the government it is bound to affect the company adversely as more
than 70% of their consumption is from imports. But this is the scenario
witnessed in the industry as a whole and though HCL is into expanding
its operation to Uttaranchal it in the present state is would be affected by
a change in the import duty structure.

CASH MANAGEMENT
SOURCES OF CASH:
Sources of additional working capital include the following:

33

Existing cash reserves


Profits (when you secure it as cash!)
Payables (credit from suppliers)
New equity or loans from shareholders
Bank overdrafts or lines of credit.
Long-term loans
If you have insufficient working capital and try to increase sales, you
can easily over-stretch the financial resources of the business. This is
called overtrading.
Early warning signs include:
Pressure on existing cash
Exceptional cash generating activities e.g. offering high discounts
for early cash payment
Bank overdraft exceeds authorized limit.
Seeking greater overdrafts or lines of credit
Part-paying suppliers or other creditors
Paying bills in cash to secure additional supplies
Management pre-occupation with surviving rather than managing
Frequent short-term emergency requests to the bank (to help pay
wages, pending receipt of a cheque).

CASH MANAGEMENT IN HCL INFOSYSTEMS:

34

The cash management system followed by the HCL Infosystems is


mainly lock box system.
Cash Management System involves the following steps:
1. The branch offices of the company at various locations hold the
collection of cheques of the customers.
2. Those cheques are either handed over to the CMS agencies or bank
of the particular location take charge of whole collection.
3. These CMS agencies or bank send those cheques to the clearing
house to make them realized. These cheques can be local or
outstation.
4. The CMS agencies or bank send information to the central hub of
the company regarding realization/cheque bounced.
5. The central hub passes on the realized funds to the company as per
the agreed agreements.
6. The CMS agencies or concerned bank provides the necessary MIS
to the company as per requirement.
Cash-Current Liability
Particulars
Absolute Liquid Ratio

2013
0.24:1

2012
0.31:1

2011
0.11:1

The absolute liquid ratio is the best for three years and the cash balances
as to the current liability has improved for the firm. Firm has large
resources in cash and bank balances. While large resources in cash and
bank balances may seem to affect the revenue the firm could have earned
by investing it elsewhere as maintenance of current assets as cash and in
near cash assets and marketable securities may increase the liquidity
position but not the revenue or profit earning capacity of the firm.
Dividend Policy-Cash
Particulars
Dividend Policy%
Shift in Sales
Cash Balance

2011
210
154295
4463.43
35

2012
310
199886
14582.65

2013
400
238136
14529.29

Cash in Hand

118.33

128.97

Dividend Policy %
450
400
350
300

Dividend Policy %

250
200
150
100
50
0
2011

2012

2013

CASH BALANCE
16000
14000
12000
Cash Balnce

10000

Cash in hand

8000
6000
4000
2000
0
2011

2012

2013

36

128.97

Shift in Sales
300000
250000
200000
Shift in Sales
150000
100000
50000
0
2011

2012

2013

The other notable feature in HCL statements has been the growing
dividend policy of the firm. The payment of dividend means a cash
outflow. Thus cash position is an important criterion at the time of paying
dividends. There is a theory that greater the cash position and ability to
pay dividends. The firm has adopted a policy of disbursing the revenue
earned as profits to the shareholders as dividends as could be seen from
the increasing % of dividends declared.

Particulars
PBIDT
Equity Dividend%

2013
14284
400

2012
15634
310

2011
14523
210

This could mean two things for the firm the amount of cash retained in
the business for capital expenditure purposes are minimal or nil. But
rather than investing more in plant and machine which they can at any
point in time by adding on a additional line if need they would like to
optimize their utilization in fixed assets at present. This also means that
the percentage of cash in hand maintained by the firm as a source of
liquidity could be reduced, i.e. the amount of idle cash in the business
could be made to a level which the firm feels optimum.
37

The firm feels that they should retain cash and it would be in the interest
of the firm as well as the shareholders. This would automatically mean as
decrease in Earning/share (EPS)(Basic EPS declined from 8 in 2012 to
6.74 in 2013). It would prompt more of investors being interested in the
shares of the company, which would boost the purchase of the securities
and increase the market price/share thus being beneficial for the firm.

Cash Flows
Cash Flows
Net Cash from Operating activities
Net Cash from Investing activities
Net Cash from Financing activities

2013
6924
-3515
-3512

2012
2675.57
15661.29
-8217.68

2011
13706.34
-2169.16
-11412.1

The firm has disposed of investments worth around 655 Crores to meet
its growing needs. The other notable feature is decline is the firms
inflows from operations primarily due to the reason that the cash
generated from the operations is the lowest in three years. And the firms
growing dividend policy has contributed to the outflows in financing
activities.

Cash Flow in Operating Activities

Working Capital Changes


Working Capital Changes
Trade and other receivables
Inventories
Trade Payables and other Liabilities

2013
-14166
-5221
13026

2012
-14510.69
-2683.92
6419.13

2011
-7106.68
-7221.11
14311.5

The cash from the operation has been subject to considerable change due
to the changes that could be adjusted towards trade receivables and trade
38

payables. The outflows in inventory have become as low as 37% of what


it was last year despite an increase in the inventory consumption by
16.64%. The resulting reduction in the cash outflows might be because of
the inventories being procured more on credit. That the cash from
operations has declined has affected the current liability index of the firm.

Cash Flow in Investing Activities


Investments in Mutual Funds
Investments (year end)
Purchase of Investment
Disposal/Redemption of Investment

2013
13539
-65992
65312

2012
12277.44
-53075.99
65489.84

2011
28059.88
-59249.81
52087.36

The investments have reduced from the last year due to the redemption of
investments taken place to meet various needs such as increasing demand
in stock or inventory and to ensure better credit and receivables policy.
We can see that the firm has in these three years increased their cash
inflow from the investing activities by way of disposal of investments
when in need. That is the firm has redeemed to realize cash as to meet its
expanding operations, fund the inventory procurement and meet the
obligations.
The investments in mutual funds are beneficial to the firm in the context
that they contain interest bearing securities which add up as a source of
revenue for the firm unlike cash which remains idle and unproductive
when not in use. This reduction of dividend could be attributed to
disposal of investments in mutual funds and subsidiary. This disposal
creates a fund, which can be used by the company as and when the need
arises.

39

RECEIVABLES MANAGEMENT

Cash flow can be significantly enhanced if the amounts owing to a


business are collected faster. Every business needs to know.... who owes
them money.... how much is owed.... how long it is owing.... for what it
is owed.

Late payments erode profits and can lead to bad debts.


Slow payment has a crippling effect on business; in particular on small
businesses whom can least afford it. If you don't manage debtors, they
will begin to manage your business as you will gradually lose control
due to reduced cash flow and, of course, you could experience an
increased incidence of bad debt.
The following measures will help manage your debtors:
1.Have the right mental attitude to the control of credit and make sure
that it gets the priority it deserves.
2.Establish clear credit practices as a matter of company policy.
3.Make sure that these practices are clearly understood by staff,
suppliers and customers.
4.Be professional when accepting new accounts, and especially
largerone.
5.Establish credit limits for each customer and stick to them.
6.Continuously review these limits when you suspect tough times are
coming or if operating in a volatile sector.
7.Keep very close to your larger customers.
8.Invoice promptly and clearly.
40

Recognize that the longer someone owes you, the greater the chance you
will never get paid. If the average age of your debtors is getting longer,
or is already very long, you may need to look for the following possible
defects.
Poor collection procedures.
Lax enforcement of credit terms.
Slow issue of invoices or statements.
Errors in invoices or statements.
Customer dissatisfaction.
Weak credit judgement
Debtors due over 90 days (unless within agreed credit terms) should
generally demand immediate attention. Look for the warning signs of
a future bad debt. For example..
Longer credit terms taken with approval, particularly for smaller
orders.
Use of post-dated checks by debtors who normally settle within
agreed terms.
Evidence of customers switching to additional suppliers for the same
goods.
New customers who are reluctant to give credit references.
Receiving part payments from debtors.

41

Profits only come from paid sales.


The act of collecting money is one, which most people dislike for many
reasons and therefore put on the long finger because they convince themselves
that there is something more urgent or important that demand their attention
now. There is nothing more important than getting paid for your product or
service. A customer who does not pay is not a customer.

HERE ARE FEW WAYS IN COLLECTING MONEY FROM DEBTORS:


Develop appropriate procedures for handling late payments.
Track and pursue late payers
Get external help if you own efforts fail.
Dont feel guilty asking for money .. its yours and you are entitled to it.
Make that call now. And keep asking until you get some satisfaction.
In difficult circumstances, take what you can now and agree terms for the
remainder, it lessens the problem.
When asking for your money, be hard on the issue but soft on the person.
Dont give the debtor any excuses for not paying.
Make that your objective is to get the money, not to score points or get
even.
RECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS:

PARTICULARS

2013

2012

2011

2010

DEBTORS TURNOVER RATIO

5.21

5.80

5.53

6.62

AVERAGE COLLECTION PERIOD

70

63

66

55

39

A better turnover ratio implies for the firm, more efficiency in converting the
accounts receivable to cash. A firm with very high turnover ratio can take the
freedom of holding very little balances in cash, as their debtors are easily
realizable. In case of HCL, the collection period for the firm is 70 days.

PARTICULARS

2013

2012

2011

PROVISION FOR DOUBTFUL DEBTS(CASH


FLOW)
DEBTS DOUBTFUL(EXCEEDING 6 MONTHS)

25

47

49.8
5
134.
09

69.8

The debts doubtful have doubled but their percentage on the debts has almost
become half. This implies a sales and collection policy that get along with
the receivables management of the firm.
COLLECTION POLICIES:
It refers to the collection procedures such as letters, phone calls and other
follow up mechanism to recover the amount due from the customers. It is
obvious that costs are incurred towards the collection efforts, but bad debts
as well as average collection period would decrease. Further, a strict
collection policy of the firm is expensive for the firm because of the high
cost is required to be incurred by the firm and it may also result in loss of
goodwill. But at the same time it minimizes the loss on account of bad debts.
Therefore, a firm has to strike a balance between the cost and benefits
associated with collection policies.
The steps usually followed in collection efforts are:
Sending repeated letters and reminders to the customers
Personal visits
Using agencies involved in collection process
Making telephonic reminders

Initiating legal actions


Real Time Gross Settlement (RTGS)

40

MANAGING PAYABLES (Creditors)


Creditors are a vital part of effective cash management and should be
managed carefully to enhance the cash position.
Purchasing initiates cash outflows and an over-zealous purchasing function
can create liquidity problems.
Consider the following: Who authorizes purchasing in your company - is it tightly managed or
spread among a number of (junior) people?
Are purchase quantities geared to demand forecasts?
Do you use order quantities, which take account of stock holding and
purchasing costs?
Do you know the cost to the company of carrying stock?
Do you have alternative sources of supply? If not, get quotes from major
suppliers and shop around for the best discounts, credit terms as it reduces
dependence on a single supplier.
How many of your suppliers have a return policy?
Are you in a position to pass on cost increases quickly through price
increases to your customer.
There is an old adage in business that "if you can buy well then you can
sell well". Management of your creditors and suppliers is just as important
as the management of your debtors. It is important to look after your

creditors- slow payment by you may create ill feeling and can signal that
your company is inefficient (or in trouble!).

Remember that a good supplier is someone who will


work with you to enhance the future viability and
profitability of your company.

Financing Current Assets


The firm has to decide about the sources of funds, which can be availed to
make investment in current assets.
Long term financing:It includes ordinary share capital, preference
share capital, debentures, long term borrowings from financial institutions and
reserves and surplus.
Short term financing:It is for a period less than one year and includes
working capital funds from banks, public deposits, commercial paper etc.
Spontaneous financing:It refers to automatic sources of short-term
funds arising in normal course of business. There is no explicit cost associated
with it. For example, Trade Credit and Outstanding Expenses etc.
Depending on the mix of short and long term financing, the company
can follow any of the following approaches.
Matching Approach:In this, the firm follows a financial plan, which
matches the expected life of assets with the expected life of source of funds
raised to finance assets.
Conservative Approach:In this, the firm finances its
permanent assets and also a part of temporary current

assets with long term financing. In this the firm has


less risk of facing the problem of shortage of funds.
Aggressive Approach:In this, the firm uses more short term financing
than warranted by the matching plan. Under an aggressive plan, the firm
finances a part of its current assets with short term financing.Relatively more
use of short term financing makes the firm more risky.

WORKING CAPITAL & SHORT-TERM FINANCING

CONSORTIUM BASED FINANCING

Current Working Capital Limits


NAME OF THE BANK

INDIAN BANK

SYNDICATE BANK

TOTAL

FUND BASED

300
200
500

NON-FUND
BASED

250
100
350

In order to finance the working capital needs of the firm in the form of
Working Capital Demand Loan, there is a consortium of nine banks. The
consortium if banks provide a fund based limit of 125 Crores which
comprises of cash credit and working capital demand loans and non-fund
based limits which has bank gurantee and letter of credit subject to a limit of
1375 Crores. The Lead Bank in this consortium of banks is State Bank of
India and the second lead bank is ICICI. It is SBI, which fixes the limit on
the basis of consortium. The allocation cannot be higher than the limits fixed
by it. SBI is the biggest contributor in the consortium for both fund and
non-fund based limits with about

31.30 in funds and 34.02 in non-fund limits. The ratio of both limits for
the year 2013 is 0.23:0.7

RENEWAL OF LIMITS

LIMITS
FUND BASED
NON FUND
BASED
TOTAL

2013
11500
48500

2012
11500
38500

2011
11500
28500

60000

50000

40000

All banks sanction the limits for a period of one year. Thereafter it is to be
renewed every year. SBI appraises the limit on the basis of consortium. The
individual banks appraise for their own individual limit. The non fund based
limits of the firm in consortium financing has been subjected to change for
the past two years as per the requirements of the firm and the consent of the
lead bank to its proposal. It was around 385 Crores in 2012 and had been
risen to around 485 Crores in 2013.
The company needs to provide the following information to bank for
appraisals:

Credit Monitoring Appraisal


Write Up on company
Share holding pattern
List of the directors

CONSORTIUM MEETING :
All the members of the consortium are required to meet to discuss various
issues relating to the working facilities. As per RBI guidelines, the lead bank,
i.e., SBI should ensure that one consortium meeting is held every quarter snd
this meeting has to be arranged by HCL.

DOCUMENTATION and JOINT DOCUMENTATION:

There are various documents that need to be signed at the time of renewal or
inducting any bank to the consortium. The various documents are as follows:

Loan agreement
Hypothecation agreement for movable machinery
Hypothecation agreement for movables and book debts
Counter Indemnity

The above are the standard agreements asked for by the banks. The common
seal has to be witnessed by the company secretary and one of the directors of
the company.
As of 2012, no additions or deletions were made to the consortium of the
banks. But over the years the number of banks in the consortium have been
reduced. Indian Banks and State Bank of Hyderabad are the two banks
which were earlier a part of the consortium.

Joint Documentation is executed between the company and the consortium


of banks for the working capital facilities extended by the consortium to the
company. The joint documentation is valid for three years. The documents
comprising joint documentation are:

Working Capital consortium agreement


Joint deed of documentation
Inter se agreement between bankers
Letter of authority to lead bank by other consortium banks
Letter of authority to second lead bank by other consortium banks
Undertaking to create charge on the assets of the company.

ALLOCATION OF LIMIT BY LEAD BANK


SBI appraises the limit on behalf of the consortium. It in consultation with
the company decided the allocation of the limit to various member banks.
The allocation of any member bank cannot be higher than the limit

sanctioned by it. The drawing power for it fund based limits out of the
consortium are determined on the basis of the stock statement submitted by
the company. HCL is required to submit the stock statement to all member
banks in consortium for every month.

FINANCIAL FOLLOW UP REPORTS ( FFRI & FFRII):


Every quarterly and half quarterly intervals, the firm submits Financial
Follow Up Reports I and II. FFR I is an extract of the balance sheet. In this
report, the company is required to submit the details of sales, current assets
and current liabilities for the quarter and the estimates for the current year.
FFR II the company is required to prepare P&L, B/S and Cash Flow in a
different format. The information is to be provided for the last year (actual),
current year half yearly results (actual) and the estimates for the next year.

SHORT TERM FINANCING


Other than the investment in current assets, the firm also has to be concerned
with short-term to long-term debt as this plays a very important role in
determining the amount of risk undertaken by the firm. That is , the firm not
only has to be concerned about current assets but also the sources through
which they are financed. A firm before financing in either of the two, has to
take into consideration various aspects. While short term might seem the
ideal way to finance your assets than the long term due to shorter maturity
period and also less of costs are involved, there is an inherent risk in short
term financing due to fluctuating interest rates and due to the reason that the
firm might be unable to reay the amount in a shorter span of time.

SECURED LOANS
SHORT TERM
LONG TERM
TOTAL

2013
3849
0
3849

2012
4991.28
530.07
5521.35

2011
6903.7
0
6903.7

2010
4987.52
3461.36
8448.88

%SHORT TERM

100

90.4

100

59.03

Under secured loan cash credit, along with non fund based facilities, foreign
currency term loan from banks are secured by way of hypothecation of
stock-in-trade, book debts as first charge and by way of second chanrge on
all the immovable and movable assets of the parent company. Term loan in
Indian rupees from a bank is subject to a prior charge in favour of companys
bankers on book debts and stock in trade for working capital facilities.
UNSECURED
LOANS
SHORT TERM
LONG TERM
TOTAL
% SHORT TERM

2013

2012

2011

2010

15104
11
15115
99.93

2593.39
17
2610.39
99.348

63.94
169.51
233.45
27.38

76.84
3261.42
3338.26
2.3

Here HCL has a major portion of their financing done through short term
financing than long term financing. The preference of short term financing to
long term as such is not the part of any policy employed by the firm but it
was
due to the reason that the interest rates in short term were more investor
friendly and the cost involved in them were also low.

RESEARCH METHODOLOGY

This project requires a detailed understanding of the


concept Working Capital Management. Therefore,
firstly we need to have a clear idea of what is working
capital, how it is managed in HCL Infosystems, what are
the different ways in which the financing of working capital
is done in the company.


The management of working capital involves managing inventories,
accounts receivable and payable and cash. Therefore one also needs to
have a sound knowledge about cash management, inventory management
and receivables management.

Then comes the financing of working capital requirement, i.e. how the
working capital is financed, what are the various sources through which it
is done.
And, in the end, suggestions and recommendations on ways for better
management and control of working capital are provided.

SCOPE OF THE STUDY


This project is vital to me in a significant way. It does have some
importance for the company too. These are as follows


This project will be a learning device for the finance student.
Through this project I would study the various methods of the working
capital management.
The project will be a learning of planning and financing working capital.
The project would also be an effective tool for credit policies of the
companies.
This will show different methods of holding inventory and dealing with
cash and receivables.
This will show the liquidity position of the company and also how do they
maintain a particular liquidity position.

LIMITATIONS OF THE STUDY:

We cannot do comparisons with other companies unless and until


we have the data of other companies on the same subject.
Only the printed data about the company will be available and not
the backend details.
Future plans of the company will not be disclosed to the trainees.
Lastly, due to shortage of time it is not possible to cover all the
factors and details regarding the subject of study.
The latest financial data could not be reported as the companys
websites have not been updated.

ANALYSIS

Industry analysis
Financial graphs
Concluding analysis
Suggestions and recommendations
Bibliography

INDUSTRY ANALYSIS
INDUSTRY STRUCTURE AND DEVELOPMENTS

Over the past decade, the Information Technology (IT)


industry has become one of the fastest growing industries in
India, propelled by exports (the industry accounted for more
than a quarter of Indias services exports in 2011-05). The
key segments that have contributed significantly (96 percent
of total) to the industrys exports include Software and
services (IT services) and IT enabled services (ITES) i.e.
business services. Over a period of time, India has
established itself
as a preferred global sourcing base in these segments and
they are expected to continue to fuel growth in the future.

FINANCIAL GRAPHS

Gross Business Income:

Consolidated Revenue for the year grew to Rs. 11855 crores.


Services revenue grew by 31%, from Rs. 274 crores to Rs. 360 crores in
the current year. The Compounded Annual Growth Rate (CAGR) for the
preceding five years is 45%.

Profit before Tax:

PBT grew by 11% from, Rs. 385 crores in the previous year to Rs.
429 crores in the current year. The Compounded Annual Growth Rate
(CAGR) for the preceding five years is 53%.

Profit after Tax:

Profit after tax grew by 13%, from Rs. 280 crores in the previous
year to Rs. 316 crores. The Compounded Annual Growth Rate (CAGR)
for the preceding five years is 36%. Profits for the current year are after a
provision for Rs. 106 crores for current tax expense, Rs. 3 crores for
deferred tax expense and Rs. 4 crores for Fringe Benefit Tax.

Earnings Per Share:


Basic EPS grew from Rs. 16.7 in the previous year to Rs. 18.7 in
the current year. Diluted EPS grew from Rs. 16.5 in the previous year to
Rs. 18.6 in the current year.

Dividend: The Company distributed dividends @ 100% per share in each


of the first three quarters of the current year. The company proposes to
pay a final dividend of 100% per fully paid up equity share of Rs. 2/each. The interim dividends paid together with proposed final dividend
total to 400% for the current year, entailing an outflow of Rs. 156 crores,
including distribution tax.

Net worth/ Shareholders Fund:


Net Worth grew from Rs. 698 crores as at previous year-end to Rs.
860 crores as on June 30, 2014. Share capital as at year-end is Rs. 34
crores divided into 16.9 crores shares of Rs. 2/- each. Reserves & surplus
as at year-end are Rs. 826 crores after appropriating Rs 156 crores for
dividends. Book value per share grew from Rs. 41.3 as at June 30, 2013
to Rs.50.8 as at June 30, 2014.

Borrowings: Year-end loan balances increased from Rs. 85 crores as on


June 30, 2013 to Rs. 236 crores as on June 30, 2014. The increase in loan
balances was mainly to fund growth in Computing Business including
System Integration. Debt-Equity ratio [Debt/(Debt+Equity)] is 22%.

CURRENT ASSET RATIO:

CONCLUDING ANAYSIS

The working capital position of the company is sound and the various
sources through which it is funded are optimal.
The company has used its dividend policy, purchasing, finance
ing and investment decisions to good effect can be seen from the inferences
made earlier in the project.

The debts doubtful have been doubled over the years but their percentage
on the debts has almost become half. This implies a sales and collection
policy that get along with the receivables management of the firm.
The returns have been affected by a marked growth in working capital
and though a 29.75% in 2013 return on investment is good, but it got
reduced as compared to 39.01% return in 2012.
The various ratios calculated are an indicator as to the fact that the
profitability of the firm and sales are on a rise and also the deletion of the
inefficiencies in the working capital management.
The firm has not compromised on profitability despite the high liquidity
is commendable.
HCL Infosystems has reached a position where the default costs are as
low as negligible and where they can readily factor their accounts
receivables for availing finance is noteworthy.

SUGGESTIONS AND RECOMMENDATIONS

The management of working capital plays a vital role in running of a


successful business. So, things should go with a proper understanding for
managing cash, receivables and inventory.
HCL Infosystems is managing its working capital in a good manner, but still
there is some scope for improvement in its management. This can help the
company in raising its profit level by making less investment in accounts

receivables and stocks etc. This will ultimately improve the efficiency of its
operations. Following are few recommendations given to the company in
achieving its desired objectives:
The business runs successfully with adequate amount of the working
capital but the company should see to it that the cash should not be tied
up in excessive amount of working capital.
Though the present collection system is near perfect, the company as
due to the increasing sales should adopt more effective measures so as
to counter the threat of bad debts.
The over purchasing function should be avoided as it could lead to
liquidity problems.
The investment of cash in marketable securities should be increased, as
it is very profitable for the company.
Holding of excessive and insufficient stock must be avoided as it creates
a burden on the cash resources of a business and results in lost sales,
delays for customers, etc respectively.

BIBLIOGRAPHY

Following sources have been sought for the preparation of this report:
Corporate Intranet
Financial Statements (Annual Reports)
Direct interaction with the employees of the company
Internet ----www.hclinfosystems.in
Textbooks on financial management -

I.M.Pandey
Khan and Jain
Prasanna Chandra

APPENDICES

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

Last 4 year Balance Sheet:

Currency in
Millions of Indian Rupees

As
of:

Jun
30
2011
Restat
ed

Assets

Cash and Equivalents

1,452.3

2,512
.7

Jun 30
2013
Reclassif
ied

Resta
ted

Jun
30
2012

2,149.2

Jun
30
2014

1,976
.5

114.8

1,573
.6

3,137.7

2,939
.9

1,567.1

4,086
.3

5,286.9

4,916
.4

4,390.4

6,103
.1

7,691.4

10,52
0.0

228.2

400.5

468.1

593.4

4,618.7

6,503
.6

8,159.5

11,11
3.4

2,804.2

3,493
.9

4,696.1

7,918
.8

107.0

163.0

Short-Term Investments

TOTAL CASH AND SHORT TERM


INVESTMENTS

Accounts Receivable

Other Receivables

TOTAL RECEIVABLES

Inventory

Prepaid Expenses

Other Current Assets

TOTAL CURRENT ASSETS

9,120.8

14,30

3.2

Gross Property Plant and Equipment

1,406.1

1,404
.7

Accumulated Depreciation

NET PROPERTY PLANT AND EQUIPMENT

146.0

287.8

23.8

-749.1

657.0

56.4

744.9

659.8

86.8

84.8

18,375.3

24,32
1.2

1,731.9

2,431
.0

-852.4

879.5

966.5

1,464
.5

Goodwill

--

--

Long-Term Investments

Deferred Tax Assets, Long Term

Other Intangibles

--

Other Long-Term Assets

--

TOTAL ASSETS

2,190.9

--

--

--

59.1

--

--

--

0.2

0.8

95.3

32.4

30.9

5.1

71.8

16.0

12,027.
9

15,06

3.4

19,359.2

25,83
3.4

LIABILITIES & EQUITY

Accounts Payable

Accrued Expenses

Short-Term Borrowings

Current Portion of Long-Term Debt/Capital Lease

4,100
.9

100.4

101.0

--

307.9

690.4

499.6

3,390.6

8,298
.5

140.4

209.8

784.9

1,182
.4

0.4

892.5

5,964.8

Current Income Taxes Payable

Other Current Liabilities, Total

Unearned Revenue, Current

TOTAL CURRENT LIABILITIES

Long-Term Debt

Deferred Tax Liability Non-Current

Other Non-Current Liabilities

TOTAL LIABILITIES

Common Stock

328.9

334.4

Additional Paid in Capital

673.9

883.7

Retained Earnings

4,297
.3

Comprehensive Income and Other

30.1

3,377
.3

536.4

965.8

2,914.6

80.9

77.4

252.8

5,216
.6

557.9

775.2

16,82
7.8

60.1

284.0

107.6

124.8

4,687.9

7,662.6

9,433

.4

12,213.7

15.8

7.2

109.0

73.5

13.9

7,801.3

3.8

9,517

.9

1.0

--

17,23
6.6

337.5

338.3

1,044.5

1,087
.9

5,565.2

7,141
.4

12,382.4

3,193.2

30.6

30.1

29.6

29.2

TOTAL COMMON EQUITY

4,226.6

5,545
.5

6,976.8

8,596
.8

TOTAL EQUITY

4,226.6

5,545
.5

6,976.8

8,596
.8

TOTAL LIABILITIES AND EQUITY

12,027.
9

19,359.2

25,83
3.4

15,06

3.4

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

Last 4 year Cash Flow Statement:


In 2014, cash reserves at HCL Infosystems Ltd. fell by 172.7M. However, as
a percent of revenues, this change was similar to the IT Services industry
median. By looking at the Cash Flow Statement, analysts can easily see the
sources and use of cash generated throughout the year.

Currency in
Millions of Indian Rupees

As
of:

Jun
30
2011
Resta
ted

Jun
30
2012

NET INCOME

1,751.
1

2,27
7.0

Depreciation & Amortization

180.1

152.
4

Amortization of Goodwill and Intangible Assets

DEPRECIATION & AMORTIZATION, TOTAL

(Gain) Loss from Sale of Asset

(Gain) Loss on Sale of Investment

Asset Writedown & Restructuring Costs

Other Operating Activities

--

Jun
30
2014

2,803.6

3,15
9.5

124.3

144.
0

Reclassifi
ed

--

152.
4

-0.4

-1.6

180.1

Jun 30
2013

Resta
ted

--

124.3

4.1

148.
1

-79.6

0.0

292.8

-84.9

31.2

0.6

-61.5

0.5

0.5

--

79.6

-55.2

--

271.
8

14.8

Provision & Write-off of Bad Debts

Change in Accounts Receivable

Change in Inventories

-423.3

Change in Accounts Payable

1,471.
8

1,56
1.6

2,759.5

3,11
2.2

CASH FROM OPERATIONS

1,614.
0

1,26
7.5

2,786.3

264.
7

Capital Expenditure

-180.7

Sale of Property, Plant, and Equipment

Investments in Marketable & Equity Securities

CASH FROM INVESTING

Short-Term Debt Issued

Long-Term Debt Issued

TOTAL DEBT ISSUED

Short Term Debt Repaid

Long Term Debt Repaid

1,593.
4

14.4

7.2

1,99
3.4

-1,724.7

689.
7

-1,202.2

267.
8

-
3,15
8.8

3,22
2.7

-424.3

10.7

73.7

841.
4

-1,453.6

30.8

622.
4

-1,683.3

41.1

169.
5

200.8

231.
3

200.5

1,83
7.2

241.9

400.
8

200.5

1,83
7.2

--

-707.9

--

302.
7

80.3

-
674.
5

3.5

9.2

--

--

289.
0

-172.3

1.6

-
231.
9

--

-74.7

250.
0

TOTAL DEBT REPAID

Issuance of Common Stock

Common Dividends Paid

-866.2

TOTAL DIVIDEND PAID

-866.2

Other Financing Activities

CASH FROM FINANCING

NET CHANGE IN CASH

-707.9

283.3

-98.9

1,147.
8

497.1

215.
2

163.9

1,04
7.4

-1,526.6

1,04
7.4

-1,526.6

-95.4

829.
5

1,06
0.4

-132.0

-1,466.5

-172.3

302.
7

-363.5

-
324.
7

44.2

1,54
6.1

-
1,54
6.1

216.
1

-
205.
5

-
172.
7

FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.

Last 4 year Income Statement:

Year over year, HCL Infosystems Ltd. has seen revenues remain relatively
flat (113.7B to 116.9B), though the company was able to grow net income
from 2.8B to 3.2B. A reduction in the percentage of sales devoted to cost of
goods sold from 93.21% to 92.53% was a key component in the bottom line
growth in the face of flat revenues.

Currency in
Millions of Indian Rupees

As
of:

Jun
30
2011

Jun
30
2012

Jun 30
2013

Jun 30
2014

116,85
3.0

Reclassif
ied

Restat
ed

Restat
ed

43,064.
4

77,47
8.9

Revenues

Other Revenues

TOTAL REVENUES

43,064.
4

77,44
3.2

Cost of Goods Sold

38,701.
3

71,49
6.1

GROSS PROFIT

4,363.1

Selling General & Admin Expenses, Total

2,268.8

Depreciation & Amortization, Total

Other Operating Expenses

OTHER OPERATING EXPENSES, TOTAL

2,449.4

OPERATING INCOME

113,683
.1

--

-35.7

61.6

63.8

116,91
6.8

105,96
4.4

108,12
1.4

5,947
.1

7,780.3

8,795.
4

3,305
.9

3,764.3

4,527.
1

180.6

152.4

124.3

148.1

--

-84.0

3,374
.3

3,973.4

4,766.
4

1,913.7

2,572
.8

3,806.9

4,029.
0

113,744
.7

84.8

91.2

Interest Expense

-82.8

-77.6

-132.6

-214.6

Interest and Investment Income

132.1

146.1

223.8

208.0

NET INTEREST EXPENSE

49.4

68.5

Currency Exchange Gains (Loss)

37.9

145.0

Other Non-Operating Income (Expenses)

32.0

EBT, EXCLUDING UNUSUAL ITEMS

Gain (Loss) on Sale of Investments

Gain (Loss) on Sale of Assets

0.4

Other Unusual Items, Total

2.3

Insurance Settlements

2.3

Other Unusual Items

EBT, INCLUDING UNUSUAL ITEMS

Income Tax Expense

75.4

9.2

2,033.0

-144.4

--

2,786
.3

79.6

189.6

--

3,737.9

--

4,227.
8

85.0

61.5

55.2

1.6

-0.5

-0.6

87.2

4.0

4.7

3.7

4.0

4.7

--

84.0

2,960
.1

364.0

683.1

2,115.1

--

--

3,802.9

4,287.
1

999.3

1,127.
6

Earnings from Continuing Operations

1,751.1

2,277
.0

2,803.6

3,159.
5

NET INCOME

1,751.1

2,277
.0

2,803.6

3,159.
5

NET INCOME TO COMMON INCLUDING EXTRA

ITEMS

1,751.1

2,277
.0

2,803.6

3,159.
5

NET INCOME TO COMMON EXCLUDING EXTRA

ITEMS

1,751.1

2,277
.0

2,803.6

3,159.
5