1

A PROJECT REPORT

ON

Treasury Management at

SUBMITTED BY

GEETA SINDHI

PGDM (FINANCE)

GUIDED BY

Prof. Durga Bansode

SUBMITTED TO

SINHGAD INSTITUTE OF MANAGEMENT, PUNE

2011-2013

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DECLARATION

I GEETA SINDHI hereby declare that the project report entitled

“TREASURY MANAGEMENT” as been written by me on basis of my summer

training at FAG India Ltd, Baroda During 6 June to 23 July and has not been

submitted any where in any manner

It is a report which based on training and observation by me

during my summer training period as a student of post graduate diploma in

management from Sinhgad Institute of Management,pune

GEETA SINDHI

SIOM,PUNE

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Certificate

This is to certify that the project Report entitled “Treasury Management at

FAG” is a bonafide work carried out by GEETA SINDHI student P.G.D.M
Finance of Sinhgad Institute of Management, Pune for fulfillment of a project
report.

He has worked under our guidance and direction. His work is found to be
satisfactory and complete in all respect.

Dr.S.D. AWALE Prof.DURGA BANSODE

Director, SIOM Project Guide

Place- Pune

Date-

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ACKNOWLEDGEMENT

This report would not have been possible without the kind support and expert guidance of
Mr. J.P. Nair (Executive – HRD & Training) FAG India Ltd, Baroda.

The task of understanding the intricacies of Treasury Management Department was made
easy by the generous help extended by all the employees of FAG, especially Mr. Bharat Joshi
(Dy. General Manager, Indirect Tax and Treasury), Mr. Parthiv Mehta (Tax dept., Manager)
and Ms. Amita Mistry (Company Secretary ,Trainee )

I owe a special debt of gratitude. I have had the advantage of their superior knowledge on the
working of FAG India.

I am grateful to my mentor Mrs.Durga.Bansode Professor and Coordinator of Finance for

giving me an opportunity to associate with a prominent organisation like FAG India for my
Internship Project.

Geeta Sindhi

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LIST OF CONTENTS
Chapter Chapter name Contents Page no.
No.

Preliminary pages Acknowledgement i

Company certificate ii
Guide certificate iii

1. Introduction 1.1 Importance 1

1.2 Objectives 1
1.3 Scope 1
1.4 Data collection 2
1.5 Limitation
2
1.6 Chapter scheme
2

2. Review of literature 2.1 Company profile 3

2.2 Treasury Management 19

3. Analysis 3.1 Functions 24

&Interpretation 3.2 Tax Department 29
3.3 Cash Management System 31

4. Findings & 4.1 Findings 32

suggestions 4.2 Suggestions 32
Bibliography

Annexure

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CHAPTER 1

INTRODUCTION

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• IMPORTANCE
Treasury management includes management of an enterprise's holdings, with
the ultimate goal of maximizing the firm's liquidity and mitigating its
operational, financial and reputational risk . Treasury Management includes
a firm's collections, disbursements, concentration, investment and
funding activities. In larger firms, it may also include trading in bonds, currencies,
financial derivatives and the associated financial risk management.
Larger banks have whole departments devoted to treasury management and supporting their
clients' needs in this area. Until recently, larger banks had the stronghold on the provision of
treasury management products and services. However, smaller banks are increasingly
launching and/or expanding their treasury management functions and offerings, because of
the market opportunity afforded by the recent economic environment (with banks of all sizes
focusing on the clients they serve best), availability of (recently displaced) highly-seasoned
treasury management professionals, access to industry standard, third-party technology
providers' products and services tiered according to the needs of smaller clients, and
investment in education and other best practices.
A company’s treasury operations come under the control of the CFO, Vice-President /
Director of Finance or Treasurer, and are handled on a day to day basis by the organization's
treasury staff, controller, or comptroller.

• OBJECTIVE OF THE STUDY

• To study the functions of Treasury Management Department

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• Taxation
• To study the cash management system

• SCOPE The
project concentrated on “Treasury Management Department”. The project was for 56
days. It started on 6 June, 2012 up till 30 July, 2012.

1.4 DATA COLLECTION

Data was collected through Secondary Data by reading Induction book and Annual Report.
Information is also collected by talking to employees in the finance department.

1.5 LIMITATIONS
• Only limited information was provided by the company
• Since the span of time was very short i.e. 56 days, it was not possible to concentrate
deep into the area of study.
• Not allowed to access the information on my own.
• Not allowed to feed information on SAP R3.

1.6 CHAPTER SCHEME

• Introduction
• Review of literature
• Analysis and interpretation
• Finding and suggestions

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CHAPTER 2
REVIEW OF
LITRATURE

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2.1 COMPANY PROFILE

2.1.1 Schaeffler Group

The Schaeffler Group is a leading player in the world bearing industry. It has three strong
brands – FAG, LuK and INA. In 2005, approximately 60,000 employees at over 180
locations worldwide achieved sales working out to nearly 8 billion euros.

• Clutch systems
• Dual mass flywheels
• CVT (continuously variable transmission) components
• Vehicle pumps
• Torque converters
• Founded: 1965

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• Roller and friction bearings

• Linear guides
• Engine elements
• Precision products
• Founded: 1946

 Roller bearings for industry and automotive technology

 High-precision bearings, e.g.
 For air and space travel, tool machinery and the textile industry
 Founded: 1883

The Schaeffler Group is managed as one single unit across its operations in all the countries.
Customer proximity is ensured by sales-subsidiaries and companies in all markets.

The Schaeffler Group is active in three business sectors:

• Automotive

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• Industrial
• Aerospace.

In the business sector Automotive, the Schaeffler Group is a supplier of bearings for
manufacturers of passenger cars and commercial vehicles. In the business sector Industrial,
the Schaeffler Group has the widest product portfolio in the sector with over 160,000
products. The INA-FAG catalogue incorporates around 40,000 standard items and the entire
range comprises of more than 150,000 products. The Schaeffler Group, with its business
sector Aerospace, is a leading manufacturer in high precision bearings for aircraft,
helicopters and spacecraft.

The Schaeffler Group carries out intense Research and Development with over 3500
employees engaged in R&D activities across FAG, LuK and INA.
• They hold the rights to more than 12,000 patents and patent applications.
• They add 500 patents and 1,000 product innovations every year.

The INA, LuK and FAG brands have differing geographical status:
INA – Western and Eastern Europe and North America, LuK – Europe and North America,
FAG – Europe and Asia.

A closely linked network of manufacturing locations ensures customer proximity and high
security of supply, e.g., "just-in-time" deliveries all over the world. This proximity to the
customer is an important factor in the group’s success.

In India, the Schaeffler group has manufacturing capabilities across three locations:
• FAG – Baroda
• INA – Pune
• LuK – Bangalore

Besides, the group has subsidiaries, sales-agencies and dealer-partnerships in all major cities
across the country.

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2.1.2 Owners/Management

Maria-Elisabeth Schaeffler (left),

born in Prague and schooled in Vienna, attended Medical school after University Prep
School. As the owner of Schaeffler Group, she has continued the legacy of the company
founders Dr. Wilhelm Schaeffler and Dr. Georg Schaeffler, by displaying outstanding
business acumen. She has been awarded institutional recognition for her sharp business
practices. Georg F. W. Schaeffler (right) is a partner of the Schaeffler Group. He works as a
business lawyer in one of the largest law firms in the south-western part of the United States
of America. He is Marie-Elizabeth Schaeffler’s son.

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Dr. Jürgen M. Geißinger, a doctor

in engineering from the University of Stuttgart, has been serving as the chairman of the
managing board of Schaeffler Group since 1998. He is also President and CEO.

The era of professional management of family-run businesses has not left FAG untouched.

2.1.3 Mission Statement

2.1.4 Vision

“As a reliable partner to our customers, we strive for a balanced growth between industry,
distribution and the automotive industry with top positions for all products in all important
market-regions worldwide. In doing so, we rely on innovative power, creativity and
consistent customer orientation as well as on flawless performance in all fields.

Qualified and profitable growth is indispensable for making future investments.

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The cooperation in the Schaeffler Group companies is characteristics by performance

orientation, constructive teamwork and the will to achieve continuous improvement of
processes and products.

Our sustainable development is supported by the long term policy of a privately owned group
and the commitment of responsibility to our employees and society.”

2.1.5 Company Overview

FAG is the oldest Ball Bearing manufacturer in the world. It develops, manufactures and
markets bearings, in large volumes, to customers throughout the world. For over 120 years
the name FAG has been synonymous with high quality rolling bearings.

It all began in 1883, when 34-year old Friedrich Fischer made a technological breakthrough.
Fuelled by a fascination with technology, he developed the first ball grinding machine in
Schweinfurt, Germany. Fischer’s invention enabled the process of precise spherical grinding
of large numbers of hardened steel balls, a product that would take the industrial world by
storm. This is the reason why FAG is considered a pioneer in the rolling bearing technology.

Today, FAG is a leading brand for applications in

• machine building
• the automotive industry

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• aviation and aerospace technology

It has companies, subsidiaries and sales agencies in all major industrial countries with 31
manufacturing centres and 92 sales locations.

Since 2001, FAG has been part of the Schaeffler Group. Together with INA’s complementary
product range, FAG has one of the widest product portfolios in the rolling bearing industry
with more than 40,000 products across the breadth of 60 sectors. FAG ball bearings and roller
bearings are manufactured as standard and special bearings in many designs and sizes with
diameters ranging from 3 millimetres to 4.25 meters.
FAG has invested significant amounts in research and development. Modern simulation
methods and testing facilities as well as special laboratories confirm the innovative force of
FAG.

The initials of the words name "Fischer Aktien-Gesellschaft" became the acronym FAG.
Incidentally, FAG shares its acronym with “Fischers Automatische Gußstahlkugelfabrik”
which means “Fischer's automatic casting steel ball factory”.
FAG attributes its success to the following factors:
• Short response times
• Due date reliability
• Great flexibility in distribution, production and logistical processes
• Proximity to the customer
• Keen employee-focus

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2.1.6 Management Philosophy

FAG has adopted a Cooperative Management Style of functioning. It includes the employees
in decision making and information processes to the extent feasible. The degree of
involvement depends upon the complexity and context of the situation and the employees’
experience, and the ability to work independently. This cooperative management style is
bound by clear and unambiguous standards which are detailed below.

2.1.7 Management Standards at FAG

• Following Clear, Unambiguous and Binding Standards
• Managers and executives should adopt transparent and easily understood
behaviour.
• They should make decisions and communicate them in a timely manner.
• Consistent implementation of necessary standards makes management style
predictable.

• Serving as Role Models

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• Exemplary conduct of all executives is required, based on the executives’ clear

understanding of ethics and values
• Abiding by law is necessary.
• The managers and executives should accept responsibility for protecting the
environment.
• They should deal with employees with utmost openness.
• They should act like entrepreneurs, which requires both technical expertise
and excellent interpersonal skills.

• Employee Development
• Employee development is a significant investment for the company’s future.
• The company should make use of tools to identify and promote the abilities,
skills and talents of the employees, both job-related and interpersonal.

• Innovative Thinking
• Employees are granted ample freedom to perform tasks creatively, to find
innovative solutions to satisfy customer demands.
• The executives should encourage communication and allow employees to
voice their perspectives.

• Working Together
• The company needs to consolidate and align all efforts to maintain a
competitive position in the long term.
• It should create team-structures to achieve high efficiency.
• Without effective communication, an individual is deficient in managerial
competencies.

• Work Should Be Fun

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• The managers and executives should maintain an environment in which the

employees enjoy their work.
• They should put forth a special effort to recognise performance.
• They should help the employees to see all changes as business opportunities, a
chance to learn and demonstrate their abilities.

• The Final Decision

• Delegation of responsibility also means delegation of accountability.
• Even when the managers include their employees in decision making, they are
fully responsible for the outcome and reserve the right to make the final
decision when warranted.

•
2.1.8 History and Milestones

1883: For the first time in history, Friedrich Fischer devises the grinding
machine (left) and thus manages to produce, in large quantities, steel balls, which are very
precise and uniform in size. It is a turning point in the industry of ball bearings.

1896: Friedrich Fischer applies for permission to build a new plant near
the train station in Schweinfurt – a step towards a new industrial dimension. The new plant
produces 10 million balls per week. The company is incorporated one year later.

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1899: Friedrich Fischer suffers a stroke and passes away at the age of 50
on October 2. He does not have any children. His 400 employees lose the driving force of the
company. The company’s financial situation worsens. This is also due to the persisting crisis
in the ball industry, which is caused by overproduction, competitive pressure, protective
duties, etc.

1905: On July 29, the FAG brand is registered with the patent office in
Berlin. The registered trademark FAG, which stands for Fischers Aktien-Gesellschaft, is
protected in over 100 countries today.

1909: Georg Schäfer takes over the “First Automated Cast Steel
Factory”, previously Friedrich Fischer, AG”. Georg Schäfer’s strong personal commitment
and hard work make the industrial company internationally renowned. Exports increase to
40% before World War I.

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1929: A struggle for the company’s independence. While nearly all other
German rolling bearing manufacturers are bought up by the Swedish company VKF, FAG
Kugelfischer remains independent. How does FAG survive? Through the large orders from
Russia.

1936: The first foreign subsidiary plant is established in Wolverhampton, UK. The threat of
war however, puts an abrupt end to the plant which was off to a good start. The staff has to be
called back.

1940: Subsidiary plants are established in Eltmann and Ebern, Germany

to which sectors of production are transferred in 1943 and 1944.

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1943: 15 serious bombing raids are carried out on the plant by the Allies from August until
the end of the war. 83 percent of the Schweinfurt plant is destroyed where approximately
12,000 people are employed.

1948: Management is resumed by Georg and Otto Schäfer who

are individually liable shareholders.

1962: FAG comes to India. It is incorporated as Precision Bearings

India Limited.

1986: The company name is changed to FAG Precision Bearings

Limited.

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1993: FAG becomes the first Indian Bearing company to achieve ISO
9001 certification.

1997: EOU (Export Oriented Unit) Project for Cylindrical Roller Bearings
is inaugurated.

1998: FAG becomes the first Indian Bearing Company to achieve QS 9000 certification
(quality certification).

1999: There is a change in name to FAG Bearings India Limited. The

company achieves ISO 14001 certification (environmental certification).

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2000: FAG sets up India's first production facilities to produce hub

bearings.

2001: FAG launches Joint Venture Company FAG Roller

Bearings Private Limited to manufacture taper roller bearings.

The chief products forming the product portfolio of FAG include -

• Deep Groove Ball Bearings
• Four Point Contact Ball Bearings
• Self Aligning Ball Bearings
• Double Row Angular Contact Ball Bearings
• Cylindrical Ball Bearings
• Spherical Ball Bearings
• Special Automotive Bearing
FAG has to its credit a copious array of bearings as listed below:
•
• 245 basic types
• 1032 main types
• 3837 article types

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2.1.9 Clientele

Maruti Udyog Limited, along with the Indian Railways, serves as the largest consumer along
with the following top ten customers:

2.1.10 Organisational Hierarchy

Segment Head DGB
VP, Marketing and Sales
VP, Technical
2.2 TREASURY MANAGEMENT
The treasury department is the financial centre of an organization. The key role of treasury is
the safeguarding and stewardship of an organization’s financial assets and the management of
an organization’s financial liabilities. Treasury’s role is often focused on external

issues: financial markets, investors, creditors, financial institutions, rating

agencies, and debt issuers, for example. Treasury is responsible for
implementing various financial decisions made by management and the board.
Its focus is on the financial assets and liabilities of an organization.
Treasury also has an important role in risk reduction and mitigation . In
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large organizations, a team of professionals might be responsible for various treasury

activities. Although many of the functions are more complex within a large organization,
smaller organizations may have similar functions domiciled within finance or accounting
roles. In a smaller organization, the treasury function may be handled by one or two
individuals. Treasury is an integral part of an organization, functioning as a service area to
other parts of the organization. Although strategic decisions may be made at the executive
level, treasury often plays a key role in advising on alternatives, assessing risk elements, and
execution of decisions. The quality of an organization’s treasury, therefore, impacts the
success of the entire organization.

2.2.1 Role of Key Participants

The role of treasury is primarily a financial management role. The treasurer’s responsibility
encompasses cash management, funding, risk management, and relationships with key
market participants. In most organizations, the treasurer reports to the chief

financial officer (CFO). A related role is that of controller, who typically also reports to
the CFO. However, unlike the treasurer, the controller’s role is more focused on accounting
and reporting, budgeting, credit, and the audit process. Together, the roles of treasurer and
controller provide critical financial support to the business of the organization. The role of the
treasurer and the treasury team has evolved considerably in recent years. Traditionally, the
most visible role of treasury was cash management. However, recent events and regulatory
changes have focused significantly more responsibility on the CFO, putting more pressure on
treasurers.
At the same time, the use of technology to support financial data and reporting has increased
dramatically. Reports often are received in near real-time, even from geographically disparate
locations. The globalization of commerce has also accelerated dramatically, making it more
difficult to view events or situations in isolation. As a result, the treasurer is increasingly seen
as a key member of the strategic management team, the global hub focusing on the
interrelationship between financial markets and the operations of an organization.

2.2.2 Functions of Treasury

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Treasury deals with many of the financial risks of an organization. After all,
treasury is where major decisions (and mistakes) can be made. In addition, treasury advises
on and executes the various strategic decisions of the organization. This responsibility
includes obtaining and managing financing and the effective control of funds once financing
is obtained, as well as the timely execution of financial decisions made by senior
management and the board on behalf of stakeholders. Treasury encompasses the major
functions of cash and liquidity management and financial risk management. Within these two
broad categories are several functions.
Traditional treasury functions include cash management, cash forecasting, hedging of
financial market exposures, investing, and debt issuance. The management of relationships
with financial institutions, such as banks and investment dealers, assessment of acquisitions
and divestitures, and other related types of transactions may also be handled by treasury.
Treasury may also play an important role in liaison with both the board of directors and
senior management.

• Organization
The financial function falls into the area of responsibility managed by the CFO. Reporting
roles may include vice president of finance, sometimes with a subordinate director or
manager of treasury. In large organizations, treasury functions may be handled by several
individuals, each with an area of expertise. Treasury functions vary by industry and
organization but typically include cash management, cash forecasting, investing and
financing, foreign exchange, information management, reporting, financial institution
relationship management, and risk management. In a large organization, these functions may
be handled by different groups within treasury. In a smaller organization, individuals may
manage treasury with other functions. Treasury functions on information, and data and
system requirements are critical from a strategic perspective. The technology infrastructure
permits an organization to have adequate information and reporting to make key financial
decisions.

• Cash Management

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Cash management plays an important role in an organization, and it is the central role for
treasury. Most other treasury functions develop as a result of cash management. Cash

management includes cash flow forecasting, control of cash receipts, and

disbursements. The investment of excess cash and funding or debt issuance to cover cash
shortages are also considered to be under the broad label of cash management, as are the
analysis and control of cash balances. Cash flow forecasting, in particular, is an important
aspect of treasury. There are many benefits to an accurate cash flow forecast, both short term
and long term. Many senior executives consider an accurate cash flow forecast and the
availability of adequate liquidity to be the most valuable contributions that treasury makes to
an organization.

• Risk Management
Financial risk management is the process of dealing with the uncertainties that
arise from financial markets. Although the process of financial risk management
incorporates aspects that are unique to specific industries and organizations, there are some
universal components. These include:
• Identification of key risks, including risks that arise from financial markets, extension of
credit, and the ability to obtain financing
• Procedures for risk measurement
• Development of alternative risk management strategies
• Determination of risk appetite or tolerance
• Formation of, and contribution to, financial risk management Policy
• Implementation of risk management strategies
• Development of infrastructure to monitor risks and report on compliance with policies and
performance reporting
Treasury provides a valuable role in the process of risk management, advising senior
management and the board on whether to hedge, what to hedge, how to hedge, and the
implications of hedging decisions. The most common risk management activities in treasury
include foreign exchange, interest rates, credit, operational issues, and commodity prices.

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• Other Treasury Roles

Other treasury roles include bank and counterparty management, and technology, services,
and infrastructure support. Treasury also acts as a strategic advisor to management, providing
information about financing opportunities, cash flow forecasts, and financial asset valuation.
Because many treasury professionals have financial market expertise, it is not surprising that
treasury often provides market intelligence, both locally and globally. Analysis and
performance benchmarking and reporting are other areas in which treasury contribute to the
long term benefit of an organization.

CHAPTER 3
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ANALYSIS AND
INTERPRETATION

3.1 Functions of Treasury Management Department

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• Collection of Receivables
The Schaeffler Group prescribes that all outstanding accounts should be collected and paid
for, within a 55-60 day period after entering into a transaction. In case the amount is not
collected within the specified time limit, Germany enquires into the matter and the personnel
of the finance department are answerable to Germany. Only the Managing Director can write
off the debts as bad debts. Otherwise, the enquiries will be held. FAG manages to collect the
due amount from the customers within 52-55 days.

The Cash management Schemes provided by ICICI Bank in north, west and east India and
the Deutsche Bank in South India play an important role in speedy collection of dues from
debtors.

Cash Management Scheme (CMS)

CMS has greatly reduced FAG’s receivables and enabled easy collections. Outside India, the
Deutsche Bank’s CMS handles FAG’s accounts with the Schaeffler Group. What CMS does
can be understood by attending to the following points:

• Local Cheque Collections

• A large network spanning over 488 locations, covering all cities of FAG’s
operations.
• Courier pick-up provided in case the area does not have an ICICI/Deutsche
Bank outlet.
• Process flow structured to suit FAG’s requirements.

• Upcountry Cheque Collections

• Coverage of over 3919 locations with tie-ups with correspondent banks,
covering all areas of FAG’s operations.
• Capability to process cheques drawn on any location in India.
• Assured credit given with funds pooled at any ICICI/Deutsche Bank location.
Instrument level tracking of all bank instruments to ensure faster realization of
cheques.
• Cash Collections

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• Cash collection from dealers and business associates on behalf of companies.

• Cash pick-up facility in 28 locations.
• Customised MIS for cash collection.

With the help of the CMS, all accounts are updated as soon as the cheques are collected in the
ICICI/Deutsche network anywhere across India. Every morning the finance executives check
various accounts and find the funds accumulated from customer payments. On the basis of
these figures, they decide upon the utilization of funds – the payments to be made,
investments to be bought, etc. Funds remaining idle even for a day work up an opportunity
loss for the company.

Management of Funds
The Schaeffler Group has a pre-formatted Excel Sheet with rows and columns pertaining to
specific expenses, incomes, assets and liabilities on a monthly basis. The pre-format means
that the figures cannot be manipulated on the Excel-Sheet, as it already has the requisite
formulae fitted into it. Every month, the personnel from the accounts division mail the
balance sheet and the profit and loss account to Germany. The Schaeffler group collates this
data into a consolidated balance sheet and profit and loss account for the entire group. As
soon as the Germany receives the figures, it studies the profit, sales, expenses and incomes. It
analyses the month’s financial performance segment-wise, customer-wise as well as in
totality, and sends prompt effective responses.

The response contains a summary of the month’s financial performance. It lists the top 10
customers of FAG for the concerned month. It details the amount outstanding to be collected
from the customers and the dealers (the debtors). It checks the inventory levels. If the levels
are higher than the accepted standard and the inventory is kept idle, the feedback from
Germany outlines a plan for writing off or selling the excess inventory.

The Schaeffler Group exercises control on aspects other than accounts. E.g., it asks FAG
India to scour the market for the most cost-efficient suppliers, who meet the various
specifications of the Schaeffler Group, and send a list of such suppliers to Germany. The final

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decisions rest with Germany. E.g., The actual decision regarding who should be selected for
supplying FAG India with the materials and other items is taken by the German parent.

The finance department has to submit a sound investment plan to Germany every year. It has
to budget the various costs and plan accordingly to meet the costs through a competitive sales
policy as devised by the sales plan and a healthy investment policy framed by the finance
department. The extent to which the finances are controlled can be understood by the
following example. FAG sometimes finds that the money it withdraws from the bank account
to pay its suppliers exceeds the amount of actual payment. In such case, the excess amount
should be immediately taken care of, by investing it in a public deposit or into a bank account
so that it earns some return and does not remain idle. Otherwise Germany demands an
explanation for the action not taken.

The reason behind such excessive controls is simple. Every organisation today strives to
increase its profits in a highly competitive environment. FAG has succeeded in improving its
profit figure from Rs. 192.2 million to Rs. 1215.0 million, an astounding 532% between 2001
to 2006. Such increments of profit do not arise merely by increasing the volume of sales. The
margin also has to rise to attain higher profits. If margins rise, there are two alternatives:
• Pass the increase in the margin onto the customer
• Reduce costs and overheads
Competition ensures that the increase in margin cannot be passed onto the customer, by
increasing the sales price. This leaves the other option of reducing costs to get more profit. It
is this goal of reducing costs that lies behind the stringent financial controls imposed on FAG
India by the Schaeffler Group. The Schaeffler Group gives a prudent reply to the volume vs.
value debate by combining both these measures and targeting costs as well.

Under cost-control an important area is the cost of interest that is paid for borrowing term
loans for ensuring timely liquidity. The CFO has to select the option that charges the least
interest from the company and which offers the company the most suitable conditions.

FAG is served by a consortium of four banks – Union Bank, State Bank of India, Deutsche
Bank and ICICI. Union bank is the lead bank in the consortium. The total working capital

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limit sanctioned by these banks to FAG is Rs. 35 crores, out of which only 15-20 crores
actually get used for the short term. This working capital is secured by the hypothecation of
current assets. There is no mortgage of fixed assets for term loans. FAG does not issue any
debt instruments like public deposits either.

Working capital ultimately means current assets less current liability. According to the norms
laid down by the banks, the current ratio (current assets: current liabilities) should be at least
1.30 in order to sanction term loans. But FAG has a very high ratio of above 2 which means it
has twice of the assets more than liabilities. This signifies that there is no liquidity crunch and
that the money invested in the current assets will soon be recovered.

There should not be a blockage of current assets. A blockage of current assets means a
blockage of inventory. If inventory is blocked, the money invested in the current assets will
not be recovered. Hence the controlling department monitors inventory level and advises the
management from time to time on how to reduce inventory levels and keep it within
acceptable limits.

• Channel Financing
FAG has a nationwide network of dealers. All the dealers have their accounts with ICICI.
When they make payments for the bearings purchased from FAG in the ICICI account,
the amount is immediately credited in FAG’s account and the figure shows up in the
account of FAG, when checked through the internet from FAG. Such immediate
accumulation of funds ensures immediate liquidity, which is one of the prime concerns of
today’s businesses. FAG will not guarantee the credit-worthiness of the dealers. It is
ICICI that shoulders this burden.

FAG has a scheme of cash discount, which also ensures speedy dealer-payments:
Time of Payment Cash Discount

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Within 15 days 3.2%

Within 30 days 2%
Within 30-60 days 1%

3.50%

3.00%

2.50%

2.00%
Series 1
Series 2
1.50% Series 3

1.00%

0.50%

0.00%
Category 1 Category 2 Category 3 Category 4

The period of counting the days begins from the date of entering into the transaction.

FAG has a very high credit rating with its banks. On account of strict RBI norms pertaining
to non-performing assets, Indian banks have begun to give more value to the credit-
worthiness of the customer rather than the quantum of funds required by the customer. So
banks supply FAG credit at a low rate of 7%-7.5%. FAG takes advantage of this low rate by
lending to its suppliers at this rate. Suppliers also need liquid funds, for which they borrow
from banks. But the rate of interest on the credit supplied by banks to the suppliers is much
higher than 7%-7.5% enjoyed by FAG. Thus suppliers can borrow at a cheaper rate from
FAG itself. This interest is a source of income for FAG.

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• Hedging of Foreign Currency Transaction :

Hedging in FAG is done for 1 year to hedge the risk. It helps the company to know the
notional Profit / Loss. TT selling, Buying liability is done by fixing future contracts.

• Bill Discounting:
Bill Discounting is done in the bank, by FAG, by attaining Letter of Credit. The fund is
assured by opening Letter of Credit account for Bill Discounting with the bank.

• E – Payments:
No manual interventions are done in e-payments. Supplier will get an e-mail of payment by
FAG by raising the invoices.

3.2 Tax Department

The tax department’s chief concern is to comply with the tax authorities according to their
norms. Tax laws are statutory requirements that need to be fulfilled at any cost. The creation
of a separate department is evidence that statutory compliance is a full time job that needs
special attention. Tax is a crucial area, because non-compliance will lead to penalty,
prosecution and litigation.

In India, tax laws change with each year’s budget. FAG has to make room for its changes in
its SAP and ERP every year. This instability in law makes the work of the tax department
tedious.

Payment of tax and fulfilment of norms requires meeting with the officials of the Government
machinery. In a highly computerised world, the government employees lack expertise. On
account of such lax functioning of Government departments, the tax department personnel of
FAG have to put in a lot of extra hours.

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7

An example is the excise duty charged on manufacturing. No product can be taken out of
FAG unless three copies of the excise invoice are prepared. To prepare three copies for every
batch of goods sent out is a cumbersome procedure.

Every law now requires the steady support of an individual employee on account of the
numerous compliances. The employees are burdened with the various laws and compliances,
so to ease their work conditions; FAG has instituted job-rotation in so that the employees do
not face a burn out in the tax department.
Taxes are of two types:
• Direct tax
• Indirect tax
Direct tax: it includes
a) income tax and
b) corporate tax

Corporate tax includes reports of:

• Payments
• Capital expenditure
• Weekly tax report
• Treasury management

Advance tax is paid by FAG Bearing India Ltd. On quarterly basis i.e. 15%, 45%, 75%
(cumulative) & 100%
There is maximum utilization of Cenvet Credit (Excise Law)

Different tax compliances in corporate tax are:

• Withholding of tax

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8

• Employee taxation
• Tax audit
• Transfer prising audit/certificate
• Tax assessment
• Transfer prizing in Ahmedabad regional head
• Liaisoning with the departments
• Appeals and litigation
• Tax provision and advance tax (quarterly & yearly)
• Deferred taxation and group reporting
•

3.3 Cash Management System:

The FAG headquarters in Baroda exercise full control over payments from all branches of
FAG India. Every payment requires authorisation from the Finance Department of Baroda.
The major payments of FAG include:
• Salary
• Government expenditure
• Materials

Salary is paid according to the terms of contract of the employees along with other benefits
like allowances, perquisites, performance bonuses and commission, along with expenditure in
respect of various acts of law like contribution to Provident Fund, Gratuity Fund and other
funds. For the year 2010, salary expenditure amounted to Rs. 799.5 million out of the total
expenses (excluding interest) of Rs. 8599.1 million.

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9

Government expenditure includes payment of direct tax, excise and customs duties, sales tax,
service tax, etc. In the year 2010, expenditure on direct taxes totalled Rs. 137.7 million and
on excise duty Rs. 11.9 million.

Material expenditure also forms a huge chunk of FAG’s payment. When the materials are
received into the premises, the Goods Inward (GI) note is prepared. The materials are sent to
the Quality Department for verification. When the Quality Department passes the “Ok”
remark, the finance department passes the “Ok” invoice with respect to the materials and then
makes the payment through bank, with either the cheque or Demand Draft (DD) through
Electronic Fund Transfers.

Cash flow
Dec ' 11 Dec ' 10 Dec ' 09 Dec ' 08 Dec ' 07

Profit before tax 260.96 181.88 99.58 147.35 124.48

Net cashflow-operating activity 80.79 132.01 163.36 42.91 82.18

Net cash used in investing activity -124.41 -7.43 -44.40 -35.03 -22.38

Netcash used in fin. activity -10.97 -9.64 -9.44 -8.26 -8.16

Net inc/dec in cash and equivlnt -54.59 114.94 109.52 -0.38 51.64

Cash and equivalnt begin of year 288.01 173.07 63.55 63.93 12.29

Cash and equivalnt end of year 233.42 288.01 173.07 63.55 63.93

Balance sheet

39
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0

Dec ' 11 Dec ' 10 Dec ' 09 Dec ' 08 Dec ' 07

Sources of funds
Owner's fund

Equity share capital 16.62 16.62 16.62 16.62 16.62

Share application money - - - - -

Preference share capital - - - - -

Reserves & surplus 711.26 554.61 442.83 386.04 299.07

Loan funds
Secured loans - - - - -

Unsecured loans - - - - -

Total 727.88 571.23 459.45 402.66 315.69

Uses of funds
Fixed assets

Gross block 475.23 418.99 413.21 400.17 363.05

Less : revaluation reserve 2.16 2.23 2.29 2.35 2.41

Less : accumulated depreciation 296.91 277.99 271.60 251.82 231.82

Net block 176.16 138.77 139.32 146.00 128.82

Capital work-in-progress 107.00 8.60 6.83 15.10 11.06

Investments - 0.32 0.32 0.32 1.22

Net current assets

Current assets, loans & advances 718.37 627.64 465.33 389.08 299.92

Less : current liabilities & provisions 273.65 204.10 152.35 147.84 125.33

Total net current assets 444.72 423.54 312.98 241.24 174.59

Miscellaneous expenses not written - - - - -

Total 727.88 571.23 459.45 402.66 315.69

Notes:
Book value of unquoted investments - 1.10 1.10 1.11 1.11

Market value of quoted investments - 0.32 0.32 0.32 1.21

Contingent liabilities 172.48 83.34 91.15 96.62 49.44

Number of equity sharesoutstanding (Lacs) 166.17 166.17 166.17 166.17 166.17

40
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1

Profit loss account

Dec ' 11 Dec ' 10 Dec ' 09 Dec ' 08 Dec ' 07

Income
Operating income 1,304.46 1,042.12 801.73 755.35 648.26

Expenses
Material consumed 788.52 640.92 530.00 435.51 369.93

Manufacturing expenses 51.24 41.98 38.05 29.64 26.93

Personnel expenses 101.18 79.95 63.88 66.74 52.35

Selling expenses 65.01 45.61 29.22 29.54 25.71

Adminstrative expenses 47.03 39.00 34.85 33.66 34.08

Expenses capitalised - - - - -

Cost of sales 1,052.98 847.46 696.00 595.09 509.00

Operating profit 251.48 194.66 105.73 160.26 139.26

Other recurring income 31.46 21.28 10.02 7.97 3.26

Adjusted PBDIT 282.94 215.94 115.75 168.23 142.52

Financial expenses 1.26 0.89 0.70 0.48 -2.16

Depreciation 22.59 20.11 20.08 20.59 19.36

Other write offs - - - - -

Adjusted PBT 259.09 194.94 94.97 147.16 125.32

Tax charges 84.99 60.38 34.04 51.63 45.05

Adjusted PAT 174.10 134.56 60.93 95.53 80.27

Non recurring items 0.35 -11.00 11.91 4.16 -1.16

Other non cash adjustments 1.52 -2.06 -7.30 -3.97 0.42

Reported net profit 175.97 121.50 65.54 95.72 79.53

Earnigs before appropriation 513.72 382.47 294.72 267.93 200.19

Equity dividend 16.62 8.31 7.48 7.48 6.65

Preference dividend - - - - -

Dividend tax 2.70 1.41 1.27 1.27 1.33

Retained earnings 494.40 372.75 285.97 259.18 192.21

41
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2

CHAPTER 4

FINDINGS AND
SUGGESTIONS

42
 4
3

 FINDINGS
• Appoint agents in places where sizeable amount business exists.
• Compare the discounts offered by competitors and make appropriate changes to
attract the buyers.
• Company should explore possibility of getting finance from some other bank at low
rate of interest than the rate of interest charged by existing bank

• SUGGESTIONS

• Company should monitor whether the buyers are making payment as per the terms
agreed in the contract. And, if there is a delay, then a company should charge interest
for additional period.
• The company should explore other banks in order to benefit.

43
 4
4

BIBLOGRAPHY

44
 4
5

B.1 Books
• Business Research Method – Cooper Scindler

• Social Research Technique – P.V. Young

• Thesis and Assignment writing – Anderson, Turston

• Research Methodology – C.R. Kothari

• Foreign Exchange and Risk Management - Jivanandan

• Foreign Exchange – MS Gill

• International Finance - Aapte

B.2 Journals or Magazines

• Indian Management AIMA, New Delhi

• Journal of Finance, New Delhi

• Management Review – IIM, Bangalore

• Vikalpa – IIM Ahmedabad

B.3 Websites
• www.fag.com

• faginfo@schaefller.com

• www.eurojournals.com
45
 4
6

• afponline.org

ANNEXURE

46
 4
7

INTERNSHIP WEEKLY REPORT

Name: Geeta Sindhi

Roll No: SBS110790

Contact No. /Mail ID:

91-8806314850/geet.sindhi24@gmail.com

Internal Guide Name: Durga Bansode

Company Name & Place: FAG Bearings India Limited, Maneja, Vadodara, Gujarat.

Contact No/Mail ID:

Work
Allotted and
Period Things Learnt Other
carried
Remarks

06.06.2012 - Reporting Overview of departments 3 Good

to
- Induction of
12.6.2012 different

47
 4
8

departments

INTERNSHIP WEEKLY REPORT

Name:Geeta Sindhi

Roll No: SBS110790

Contact No. /Mail ID:

91-8806314850/Geet.sindhi24@gmail.com

Internal Guide Name: Durga Bansode

Company Name & Place: FAG Bearings India Limited, Maneja, Vadodara, Gujarat.

Contact No/Mail ID:

Work
Allotted and
Period Things Learnt Other
carried
Remarks

013.06.2012 Project Overview of BR/BP (A/c Payable, Good

to discussion, Imports, Exports, auditor’s report.
Auditor’s

48
 4
9

08.06.2012 report,
BP/BR.

INTERNSHIP WEEKLY REPORT

Name: Geeta Sindhi

Roll No:SBS110790

Contact No. /Mail ID:

91-8806314850 / geet.sindhi24@gmail.com

Internal Guide Name: Durga Bansode

Company Name & Place: FAG Bearings India Limited, Maneja, Vadodara, Gujarat.

Contact No/Mail ID:

Work
Allotted and
Period Things Learnt Other
carried
Remarks

49
 5
0

20.06.2012 Treasury Theory, A/c dept., accounting entries, Good

Management, financial records and minute book,
to
Cash Dept., understanding of board meetings, tax
25.06.2012 Rules and assessment.
regulations of
act, Tax.

INTERNSHIP WEEKLY REPORT

Name: Geeta Sindhi

Roll No: SBS110790

Contact No. /Mail ID:

91-8806314850 / geet.sindhi24@gmail.com

Internal Guide Name: Durga Bansode

Company Name & Place: FAG Bearings India Limited, Maneja, Vadodara, Gujarat.

Contact No/Mail ID:

Work
Allotted and
Period Things Learnt Other

50
 5
1

carried Remarks

27.06.2012 Tax and the Details of direct tax and indirect tax, tax Good
working compliance.
to
02.07.2012

INTERNSHIP WEEKLY REPORT

Name: Geeta Sindhi

Roll No: SBS110790

Contact No. /Mail ID:

91-8806314850/ geet.sindhi24@gmail.com

Internal Guide Name: Durga Bansode

Company Name & Place: FAG Bearings India Limited, Maneja, Vadodara, Gujarat.

Contact No/Mail ID:

51
 5
2

Work
Allotted and
Period Things Learnt Other
carried
Remarks

04.07.2012 Treasury The working of treasury, surplus fund Good

Management management
to
09.07.2012

INTERNSHIP WEEKLY REPORT

Name: Geet Sindhi

Roll No: SBS110790

Contact No. /Mail ID:

91-8806314850 / geet.sindhi24@gmail.com

Internal Guide Name: Durga Bansode

Company Name & Place: FAG Bearings India Limited, Maneja, Vadodara, Gujarat.

Contact No/Mail ID:

52
 5
3

Work
Allotted and
Period Things Learnt Other
carried
Remarks

11.07.2012 Treasury Products offered by bank to FAG – Good

to Management Channel Finance, CMS, Bill Discounting,
Import Export transaction, Hedging of
16.07.2012
Foreign Currency Transaction.

INTERNSHIP WEEKLY REPORT

Name: Geeta Sindhi

Roll No: SBS110790

Contact No. /Mail ID:

91-8806314850 / geet.sindhi24@gmail.com

Internal Guide Name: Durga bansode

Company Name & Place: FAG Bearings India Limited, Maneja, Vadodara, Gujarat.

Contact No/Mail ID:

53
 5
4

Work
Allotted and
Period Things Learnt Other
carried
Remarks

18.07.2012 Treasury Hedging of Foreign Currency Transaction Good

Management and controlling dept.
to
23.07.2012

54