CERTIFICATE

This is to certify that Moni Ram a student of +3 final year commerce bearing Exam Roll
no:-3116070 and class Roll no:-BC16-244 has carried out her seminar work entitled
““CRITICAL ANALYSIS OF WORKING CAPITAL MANAGEMENT AT RELIANCE
INFRASTRUCTURS Ltd.” an effective report for partial fulfillment of her Bachelor Degree
in Commerce which is an original one embodying the result work done by her under my
supervision and Guidance.

Signature of the Guide

(Mr Ashutosh p. Dash )

Lect. In Commerce

(i)
 DECLARATION

I, Moni Ram, Exam Roll No 3116070, a student of M.P.C.(Auto)College

, TakhatPur, Baripada (2016-2019) hereby declare that the Project Report entitled

“CRITICAL ANALYSIS OF WORKING CAPITAL MANAGEMENT AT RELIANCE

INFRASTRUCTURS Ltd.” is an original work and the same has not been submitted to

any other Institute for the award of any other degree.

Place: Baripada Signature of the student

Date:10th March 2019 Exam Roll No3116070

(ii)
 ACKNOWLEDGEMENT

I have taken efforts in this project; however it wouldn’t have been possible without the
kind support and help of many individuals and organizations. I would like to extend my
sincere thanks to all of them.

I would like to express my deepest gratitude to my Honorable Head of the Department

and guide Dr P.K.Upadhya for giving me permission, valuable suggestion and
inspiration for conducting such project work.

I would also like to express my sincere gratitude to my honourable guide Mr. Ashutosh
P. Dash for his guidance and moral support for the completion of this project.

I am highly indebted to the faculty member of commerce for their kind cooperation
which help me in completion of this project.

At last I would also like to express my deepest appreciation to

parent, friends, relatives those who provided me the possibility and encouragement to
complete this report.

Thanking you

Moni Ram

(iii)
 TABLE OF CONTENTS

CERTIFICATE……………………………………………….…………………i
DECLARATION………………………………………….…………………… ii
ACKNOWLEDGEMENT……………………………………………………… iii

CHAPTER--I

INTRODUCTION
1.1MEANING OF WORKING CAPITAL………………………………………..1

CHAPTER-II

2.1.OBJECTIVE OF THE STUDY ……………………………………………..4

2.2 SIGNIFICANCE OF THE PROJECT……………………………..…………4
2.3 CONCEPTUALIZATION………………………………………………………5

CHAPTER--III
LITERTURE REVIEW
WORKING CAPITAL MANAGEMENT
3.1 INTRODUCTION TO WORKING CAPITAL MANAGEMENT……………6
3.1.1 Meaning of working capital………………………….……………………6
3.1.2 Scope of working capital:……………………..………………………… 7
3.1.3 Receivable Management…………….……………………………………7
3.1.4 Inventory Management……………………………………………………8
3.1.5 Liquidity and Cash Management….……………………………………9
3.1.6 Need of WCM………………………………………..……………………. 11
CHAPTER-IV
COMPANY PROFILE…………………………………………………………….14
4.1 The Vision……………………………………………………………………. 14
4.2 The Mission – Excellence in Infrastructure……….….…………………14
4.3 Statement of Values…………………………………….………………….15
4.4 Background…………………………………………………………………15
4.6 BUSINESS OVERVIEW………………………………………………….. 16
4.7 SUBSIDIARY & ASSOCIATE COMPANIES…………………………….16
4.8 BUSINESS PROFILE……………………………………………………….17
4.8.1 Generation:…………………………..……………………………………17
4.8.2 Transmission:……………………………………………………………18
4.8.3 Distribution:………………………………………………………………18
4.8.4 Infrastructure……………………………………………………………19
4.8.5 EPC (Engineering, Procurement and Construction) Divisio………20
4.9 ORGANIZATIONAL STRUCTURE:………………………….……………17
4.10 CURRENT SCENARIO……………………………………..……………..22
4.11 COMPETITORS……………………………………………………………26
CHAPTER-V
5.1 Scope of the study…………………………………………………………29…
5.2.Limitation of the Study……………………………………………………..29

CHAPTER--VI

6.1 RESEARCH METHODOLOGY………………………………………………30

6.2 RELEVANCE OF THE PROJECT………………………………………….. 31

CHAPTER--VII

ANALYSIS AND INTERPRETATION

7.1.1 WORKING CAPITAL RATIO……………………………………………32
7.1.2 CURRENT RATIO………………………………………………………… 33
7.1.3 ACID RATIO TEST (Liquid/Quick Ratio……………………………….35
7.1.4 CASH RATIO………………………………………………………………. 36
7.1.5 INVENTORY TURNOVER RATIO……………..…………………………37
7.1.6 DEBTOR’S TURNOVER……………………………………………………..38
7.1.7 CREDITORS TURNOVER……………………………..……………………..40
7.1.8 CURRENT ASSETS TO TOTAL ASSETS RATIO…………………….. 42
7.1.9 WORKING CAPITAL TURNOVER RATIO………………….…………..44
7.1.10 WC TO SALES………………………………………………………..….. 45
7.1.11 WORKING CAPITAL TO NET WORTH RATI…………………………. 46
7.2.1 COMPETITOR ANALYSIS…………………………………………………. 46

CHAPTER--VIII

RESULTS & THE WAY FORWARD

8.1 RESULTS AND CONCLUSIONS………………………………………….. 50
8.2 RECOMMENDATIONS AND THE WAY FORWARD……………………..51

CHAPTER-IX

9.1. BIBLIOGRAPHY………………………………………………………….. 53
 CHAPTER-I

INTRODUCTION

1.1 MEANING OF WORKING CAPITAL

Working capital (abbreviated WC) is a financial metric which represents operating

liquidity available to a business, organization or other entity, including governmental
entity. Along with fixed assets such as plant and equipment, working capital is
considered a part of operating capital. Net working capital is calculated as current
assets minus current liabilities. It is a derivation of working capital that is commonly
used in valuation techniques such as DCFs (Discounted cash flows). If current assets
are less than current liabilities, an entity has a working capital deficiency, also called a
working capital deficit. A company can be endowed with assets and profitability but
short of liquidity if its assets cannot readily be converted into cash. Positive working
capital is required to ensure that a firm is able to continue its operations and that it has
sufficient funds to satisfy both maturing short-term debt and upcoming operational
expenses. The management of working capital involves managing inventories, accounts
receivable and payable, and cash.

Current assets and current liabilities include three accounts which are of special
importance. These accounts represent the areas of the business where managers have
the most direct impact:
• Accounts receivable (current asset)
• inventory (current assets), and
• accounts payable (current liability)
The current portion of debt (payable within 12 months) is critical, because it represents
a short-term claim to current assets and is often secured by long term assets. Common
types of short-term debt are bank loans and lines of credit. An increase in working
capital indicates that the business has either increased current assets (that it has
increased its receivables, or other current assets) or has decreased current liabilities,
for example has paid off some short-term creditors.

Implications on M&A:

The common commercial definition of working capital for the purpose of a working
capital adjustment in an M&A transaction (i.e. for a working capital adjustment
mechanism in a sale and purchase agreement) is equal to Current Assets – Current
Liabilities excluding deferred tax assets/liabilities, excess cash, surplus assets and/or
deposit balances. Cash balance items often attract a one-for-one purchase price
adjustment.
1
Working capital management

Decisions relating to working capital and short term financing are referred to as working
capital management. These involve managing the relationship between a firm's short-
term assets and its short-term liabilities. The goal of working capital management is to
ensure that the firm is able to continue its operations and that it has sufficient cash flow
to satisfy both maturing short-term debt and upcoming operational expenses.
A popular measure of working capital management is the cash conversion cycle, that is,
the time span between the expenditure for the purchases of raw materials and the
collection of sales of finished goods for example, found that the longer the time lag, the
larger the investment in working capital. A long cash conversion cycle might increase
profitability because it leads to higher sales. However, corporate profitability might
decrease with the cash conversion cycle, if the costs of higher investment in working
capital rise faster than the benefits of holding more inventories and/or granting more
trade credit to customers.

For many manufacturing firms the current assets account for over half of their total
assets. The management of working capital may have both negative and positive
impact of the firm‟s profitability, which in turn, has negative and positive impact on the
shareholders‟ wealth. The present study seeks to explore in detail these effects. Firms
may have an optimal level of working capital that maximizes their value. Large inventory
and generous trade credit policy may lead to high sales. The larger inventory also
reduces the risk of a stock-out. Trade credit may stimulate sales because it allows a firm
to access product quality before paying . Another component of working capital is
accounts payables. It is believed that delaying payment of accounts payable to
suppliers allows firms to access the quality of bough products and can be expensive if a
firm is offered a discount for the early payment. By the same token, uncollected
accounts receivables can lead to cash inflow problems for the firm.
By definition, working capital management entails short term decisions - generally,
relating to the next one year period - which is "reversible". These decisions are
therefore not taken on the same basis as Capital Investment Decisions (NPV or related,
as above) rather they will be based on cash flows and / or profitability.

• One measure of cash flow is provided by the cash conversion cycle - the net number
of days from the outlay of cash for raw material to receiving payment from the customer.
As a management tool, this metric makes explicit the inter-relatedness of decisions
relating to inventories, accounts receivable and payable, and cash. Because this
number effectively corresponds to the time that the firm's cash is tied up in operations
and unavailable for other activities, management generally aims at a low net count.

• In this context, the most useful measure of profitability is Return on capital (ROC). The
result is shown as a percentage, determined by dividing relevant income for the 12
months by capital employed; Return on equity (ROE) shows this result for the firm's
2
shareholders. Firm value is enhanced when, and if, the return on capital, which results
from working capital management, exceeds the cost of capital, which results from

capital investment decisions as above. ROC measures are therefore useful as a

management tool, in that they link short-term policy with long-term decision making. See
Economic value added (EVA).

• Credit policy of the firm: Another factor affecting working capital management is credit
policy of the firm. It includes buying of raw material and selling of finished goods either
in cash or on credit. This affects the cash conversion cycle.

Management of working capital

Guided by the above criteria, management will use a combination of policies and
techniques for the management of working capital. The policies aim at managing the
current assets (generally cash and cash equivalents, inventories and debtors) and the
short term financing, such that cash flows and returns are acceptable.

• Cash management.

Identify the cash balance which allows for the business to meet day to day expenses,
but reduces cash holding costs.

• Inventory management.

Identify the level of inventory which allows for uninterrupted production but reduces the
investment in raw materials - and minimizes reordering costs - and hence increases
cash flow. Besides this, the lead times in production should be lowered to reduce Work
in Process (WIP) and similarly, the Finished Goods should be kept on as low level as
possible to avoid over production - see Supply chain management; Just In Time (JIT);
Economic order quantity (EOQ); Economic quantity

• Debtors management.

Identify the appropriate credit policy, i.e. credit terms which will attract customers, such
that any impact on cash flows and the cash conversion cycle will be offset by increased
revenue and hence Return on Capital (or vice versa); see Discounts and allowances.

• Short term financing

. Identify the appropriate source of financing, given the cash conversion cycle: the
inventory is ideally financed by credit granted by the supplier; however, it may be
necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through
"factoring".
3
 CHAPTER-II

2.1. OBJECTIVE OF THE STUDY

To study and analyse working capital management at Reliance Infrastructure Ltd. which
includes

Inventory management

Receivable management

Cash management

The aim is to learn how to manage working capital needs of the organization and to
learn the different ways through which theoretical learning is applied practically in the
organization. The project is aimed to learn and gain knowledge of the day to day
working of the organization as to how does the different decision are taken and on what
basis. The project will help in gaining the knowledge of different steps of raising the
short term funds and their effective management so as to ensure adequate availability
of funds. The various analyses will help the management to assess the efficiency of the
working capital management of the company.

2.2 SIGNIFICANCE OF THE PROJECT

Financial Analysis is the process of identifying the financial strengths and weaknesses
of the firm by properly establishing relationships between the items of the balance sheet
and the profit & loss account. Financial analysis can be undertaken by management of
the firm, viz. Owners, creditors, investors and others. Ratio analysis is a powerful tool of
financial analysis. A ratio is defined as “the indicated quotient of two mathematical
expressions” and as “the relationship between two or more things”.
Ratios help to summaries large quantities of financial data and to make qualitative
judgment about the firm’s financial performance.
4
WORKING CAPITAL MANAGEMENT:- deals with the management of current assets.
The management of current assets is similar to that of fixed assets in the sense that in
both cases firm analyses their effect on their return and risk profile. The management of

fixed assets and current assets, however, differ in three aspects. First, in managing
fixed assets, time is a very important factor; consequently, discounting and
compounding techniques play a significant role in capital budgeting. Second, the large
holding of current assets, especially cash, strengthens the firm's liquidity position (and
reduces risk). Third, levels of fixed as well as current assets depend upon expected
sales, but it is only current assets that can be adjusted with sales fluctuations in the
short run.

Thus with such importance attached, a due diligence should be given to proper
management of the working capital.

2.3 CONCEPTUALIZATION

There are two concepts of working capital- gross and net.

Gross Working Capital refers to the firm's investment in current assets. Current assets
are the assets which can be converted into cash within an accounting year and include
cash, short-term securities, debtors, (accounts receivable or book debts) bills
receivables and stock (inventory).

Net Working Capital refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors (accounts payable), bills
payable, and outstanding expenses. Net working capital can be positive or negative. A
positive net working capital will arise when current assets exceed current liabilities.Also,
negative net working capital will arise when current liabilities exceed current assets.

5
 CHAPTER-III

REVIEW OF LITERATURE

3.1 INTRODUCTION TO WORKING CAPITAL MANAGEMENT

Working Capital Management is a significant fact of financial management due to the

fact that it plays a pivotal role in keeping the wheels of a business enterprise running.
Working capital management is concerned with short term financial decisions that have
been relatively neglected in the literature of finance. The „non-ideal‟ production
technology and imperfect market and distribution systems are responsible for the
generation of current assets which block the funds of an enterprise. Working capital is
needed to release such blockage of funds.

3.1.1 Meaning of working capital

The concept of working capital is, perhaps, one of the most misunderstood issues in the
literature of finance. The reason is that it is subject to multiple connotations. Some
define it as excess of current assets over current liabilities. These net concepts are
based on „gone concern‟ approach. A „going concern‟ approach takes a total view of
the business and considers gross current assets as the gross working capital
requirement of a business, and management of working capital as management of
current assets and current liabilities to ensure dynamic stability between generation of
current assets and their funding operations.

Gross working capital:-It refers to the firm‟s investment in current assets. The sum of
total current assets is called gross working capital. Current assets are the assets, which
can be converted into cash within a one accounting year or operating cycle, & include
cash short-term securities, debtors, receivable, & stock.

Net working capital:-It is the difference between the current assets & current liabilities.
Current liabilities are those claim of outside which are expected to mature for payment
within one accounting year. Net working capital is positive & negatives both. If a current
asset is more than current liabilities, it will call positive net working capital & Current
liabilities is more than current assets, it will call negative working capital.

6
3.1.2 Scope of working capital:

Maintain the adequate level of working capital, always to meet the rising turnover, this
way peak needs can be taken care of.

Sufficient liquidity to meet short-term obligation & when they arise also to avail market
opportunities like purchase of raw material at low prices or at attractive discount.

Proper interdepartmental co-ordination to minimize working capital investment. I.e.

co-ordination between the marketing department & production department.

Selection of appropriate sources of working capital viz trades credit, bank finance, or
other short-term finance as well as long term finance.

It becomes easy to avail finance for the working capital if the firm banker relationship
are good and built on strong good faith.

For the purposes of optimizing working capital, the most important factors are:

Accounts receivables management

Inventory management

Liquidity and Cash management

Accounts payable management

3.1.3 Receivable Management

Trade credit arises when a firm sells its product or services on credit and does not
receive cash immediately. It is an essential marketing tool, acting as a bridge for the
movement of goods through production and distribution stages of customers. A firm
grants trade credit:

To protect its sales from the competitors and,

To attract the potential customers to buy its product at favourable terms.

Trade credit creates account receivable. The customers from whom receivables or book
debt have to be collected in near future are called as trade debtors or simply as debtors
and represent the firm‟s claim or asset. The credit sales have three characteristics:-

It involves an element of risk that should be carefully analyzed

Credit sales is based on economic value

7
 The buyer will make the cash payment for good or services received by him in a
future period

Debtors constitute a substantial portion of current assets of several firms. Trade debtors
are the major part of current assets. The interval between the date of sale and the
payment has to be financed out from working capital of an organization. This
necessitates the firm to get funds from banks or other sources. Thus, trade debtors
represent investment. If substantial amounts are tied-up in trade debtors; it needs
careful analysis and proper management.

3.1.4 Inventory Management

“Inventory refers to the stockpile of the products a firm is offering for the sale and the
components that make up the product”.

In other words, inventory management is a process of maintaining the raw materials

when entered in the company till it is converted into finished goods.

The importance of keeping the right level of inventory lies in the fact that a maximum
proportion of working capital remains blocked in the inventory until it is completely sold
off and debtors realized.

Objectives:

To minimize investments in inventory

To meet a demand for the product by efficiently organizing the production and sales
operations

Thus the objective of the inventory management is to maintain an optimum level of

inventory at right place with minimum of cost to avoid a stock out option.

Maintaining optimum level of inventory also has other benefits like:

Meeting the market demand when it arises

Meeting the unexpected demand when it arises

Handling seasonal or cyclical fluctuations

Customer satisfaction

Minimizing cost of sales so that affordability of sales remainsCost of holding

inventory:

8
 Those cost that arise due to storing of inventory (Carrying Cost)

The opportunity cost of fund

Benefits of holding inventory:

There are various benefits of holding inventory-

Benefits in Purchasing

Benefits in Production

Benefits in Work in Process

Benefits in Sales

Inventory includes all types of stocks. For effective working capital management,
inventory needs to be managed effectively. The level of inventory should be such that
the total cost of ordering and holding inventory is the least. Simultaneously, stock out
costs should also be minimized. Business, therefore, should fix the minimum safety
stock level, re-order level and ordering quantity so that the inventory cost is reduced
and its management becomes efficient.

The basic responsibility of the finance manager is to make sure the firm‟s cash flows
are managed efficiently. Efficient management of inventory should ultimately result in
the maximization of the owner‟s wealth. In order to minimize cash requirements,
inventory should be turned over as quickly as possible, avoiding stock-outs that might
result in closing down the production line or lead to loss of sales.

3.1.5 Liquidity and Cash Management

Cash is the lifeline of an organization. A sustained growth of an organization depends

on the cash ability of the profit, not the profit per se as reflected in the income
statement. The rising profit curve of an organization may mislead managers into high
rates of growth, which are unsustainable due to the actual cash position of the
company. This leads to continuous erosion of liquidity and may even make a company
sick.

There has not been much of cash management in Indian enterprises due to easy
availability of working capital finance from banks. However, recently, cash management
as a discipline is emerging in the country.

9
Three main activities contribute to the cash flow:

Operating activities cover cash flows relating to all revenue generating activities of the
organisation.

Investing activities cover cash flows arising from investments.

Financing activities cover cash flows arising out of all capital and debt issues of the
organisation.

3.1.6 Need of WCM

Historically, infrastructure companies have managed with very little capital.

The economics of this sector are interesting. It is not capital intensive, but working
capital intensive. It does not need huge capital expenditure to set up manufacturing
plants, etc., but it needs a lot of free cash to keep the projects going. In this business,
one could implement a Rs 1,000-crore project with a net worth of only Rs 25 crore.
Approximately 15-20 per cent of the billing value of a project is locked up as working
capital.

To implement orders worth Rs 5,000 crore, the cos. need at least Rs 1,000 crore in
working capital. While working capital can be funded through borrowings, they still need
a substantial net worth against which they can borrow.

The size of projects a company can bid for is determined by its net worth, among other
things. This urgent need for net worth has forced companies to take some rather
peculiar decisions. In December 2004, Gammon India raised about Rs 140 crore
through a preferential allotment of shares to foreign institutional investors (FIIs). In
normal course, this Rs 140 core could be added to its net worth only when accounts
were finalized after 31 March 2005 (its financial year-end). But Gammon was bidding for
a few big projects and it needed to increase its net worth. So, it closed its financial year
in December 2004, drafted a balance sheet with the higher net worth and managed to
qualify for the bid!

Similarly, when Nagarjuna Construction raised $105 million, it kept off the FCCB
(foreign currently convertible bond) route and opted for a GDR (global depositary
receipt) issue instead. Now, FCCBs are corporate India’s most popular fund raising
instruments. A big chunk of capital raised by Indian industry recently has come through
this route. So,Nagarjuna‟s choice of a GDR issue puzzled many. The reason, though,
was not far to seek. FCCBs are treated as debt on the balance sheet till converted into
shares. So, they do not add to the net worth immediately. But GDR issues do.

11
 Most of the time, the cash generated from operations is eaten up by working capital
needs, leaving little or no free cash. As a result of the capital-intensive, negative free
cash nature of the construction business, there is constant pressure to raise capital.
What adds to the misery is that these companies don’t earn much on capital, hence the
sustainable growth rate is low. This magnifies the need for additional capital on a near-
permanent basis,” observes a recent report by First Global. CHAPTER-III

3.1.7 LITERATURE REVIEW

Strategies for improving working capital management by Dorothy Rule, Director and
Global Head of Liquidity and Investments, Citigroup Global Transaction Services: The
article explains the importance of information integration and the need for liquidity
management. It also discusses contrasting approaches to maximising liquidity like
concentrating funds worldwide, Asian subsidiaries funding each other and global
treasury or moving excess balances directly to global treasury.

Trends in Working Capital Management and its Impact on Firms’ performance by

Kesseven Padachi: The paper examines the trend in working capital needs and
profitability of firms to identify the causes for any significant differences between the
industries. The dependent variable, return on total assets is used as a measure of
profitability and the relation between working capital management and corporate
profitability is investigated for a sample of 58 small manufacturing firm.

Liberating cash- Reducing working capital levels by Laura Greenberg: The paper
discusses that well-capitalized companies are positioned not only to survive the
financial crisis today, but also to emerge victorious and thrive when skies turn blue
again. Establishing and adhering to tight working capital standards enables a firm to
continue its operations with sufficient funds to both satisfy maturing short-term debt and
meet upcoming operational expenses.

Best practices for treasury and working capital management: The

PricewaterhouseCoopers‟ Global Best Practices team researches and writes about
leading business practices in today‟s global marketplace. Best practices are the means
by which leading companies have achieved top performance, and they serve as goals
for other companies striving for excellence. Best practices are not the definitive answer
to a business problem but should serve as a source of creative insight for business
process improvement.

The new liquidity paradigm: Focus on working capital: The article focuses on the
efforts of corporate treasurers to improve working capital management in line with the
emergence of the new liquidity paradigm brought about by the recent economic crisis. It

12
outlines some of the common misperceptions about working capital optimization
initiatives. It presents the findings of an in-depth analysis of working capital-intensive
industries conducted by Citi's Financial Strategy Group. It discusses the components of
working capital such as procure to pay and order to cash. KPMG report: Working
capital management

This report tells us how companies in Europe manage their Working capital. It also tells
us about the relevance of Working capital management for a firm.corporate world as a
whole.

13
 CHAPTER IV

COMPANY PROFILE

4.1 The Vision

To be amongst the most admired and most trusted integrated utility companies in the
world, delivering reliable and quality products and services to all customers at
competitive costs, with Inter-national standards of customer care – thereby creating
superior value for all stakeholders.
―To set new benchmarks in standards of corporate performance and governance
through the pursuit of operational and financial excellence, responsible citizenship, and
profitable growth.”

4.2 The Mission – Excellence in Infrastructure

To attain global best practices and become a world-class utility.

To provide uninterrupted, affordable, quality, reliable and clean power to millions of

customers.

To achieve excellence in service, quality, reliability, safety and customer care.

To earn the trust and confidence of all customers and stakeholders and by exceeding
their expectations, make the company a respected household name.

To work with vigor, dedication and innovation, towards achieving the ultimate goal of
total customer satisfaction.

To consistently achieve high growth with the highest levels of productivity.

To be a technology driven, efficient and financially sound organization.

To be a responsible corporate citizen, nurturing human values and concern for

society, the environment and above all, people.

To contribute towards community development and nation building.

To promote a work culture that fosters individual growth, team spirit and creativity to
overcome challenges and attain goals.

To encourage ideas, talent and value systems.

To uphold the guiding principles of trust, integrity and transparency in all aspects of
interactions and dealings.
14
4.3 Statement of Values

RIL believes that any business conduct can be ethical only when it rests on the nine
core values of Honesty, Integrity, Respect, Fairness, Purposefulness, Trust,
Responsibility, Citizenship and Caring. These values are not to be lost sight of by
anyone at RELIANCE INFRASTRCUTURE LIMITED. Under any circumstances
irrespective of the goals that are intended to be achieved.
To them, means are as important as the ends.

4.4 Background

RInfra, formerly known as Reliance Energy Ltd, with a market cap of more than $3
billion, was incorporated in 1929 and ranks amongst top performing Indian private
sector companies in the country. The company operates in three business segments:
Infrastructure, Engineering, Procurement and Contracts (EPC) and Power. The
company is the largest private sector infrastructure developer on ownership basis and is
having presence in all high growth sectors viz; Roads, Metro, Sea Link, Cement and
Airports.

The company is having 11 8 roads projects worth `120 billion under its portfolio.
Further, it is also having 3 Metro projects worth `170 billion, 1 sea link project of `46
billion, 2 cement projects in Maharashtra and Madhya Pradesh worth `47 billion and 5
airports projects worth `5 billion. Reliance Infrastructure has also emerged as the
leading player in India in the Engineering, Procurement and Construction (EPC)
segment of the power sector. RInfra is having a healthy EPC order book of `212 billion
spread across power, Roads and Transmission projects. In addition to this, RInfra has
also emerged as the largest private sector player in the utility sector. Currently, it is
having power generation capacity of 941 MW and 37,000 MW through Reliance Power.
It is having the power distribution license in Mumbai and Delhi serving over 5.4 million
customers and distributes over 5,000 MW of power. Under its Transmission segment,
RInfra is having 5 projects worth `66 billion.

RInfra also owns 38% stake in Reliance Power (R Power) with an aggregate investment
of `17.2 billion. R Power is likely to develop all future power generation assets in India
and overseas with having 600 MW of operational capacity and over 20,000 MW under
execution. Further, the company is targeting 5,000 MW of operating capacity by 2012. R
Power is also having largest coal resources of ~ 4 billion tonnes.

15
 4.6 BUSINESS OVERVIEW

Reliance infrastructure RPower(38%)

Infrastructure EPC(100%) POWER(100%)

(100%)

Roads Metros Airport Sea link Cement

s

Trading Distribution Transmission Generation

4.7 SUBSIDIARY & ASSOCIATE COMPANIES

• BSES Kerala Power Ltd.

• BSES Rajdhani Power Ltd.
• BSES Yamuna Power Ltd.
• Reliance Energy Trading Ltd.
• Reliance Energy Transmission Ltd.
• Utility Powertech Ltd.
• North Eastern electricity Supply Company of Orissa Ltd. (NESCO)
• Western Electricity Supply Company of Orissa Ltd. (WESCO)
• Southern Electricity Supply Company of Orissa Ltd. (SOUTHCO)
• Reliance Natural Resource Ltd.
• Reliance Power ltd

16
4.8 BUSINESS PROFILE

4.8.1 Generation:

As the integrated power utility RIL has setup; a full-fledged generation division having
proven expertise in designing, engineering, erection, installation, commissioning,
operations and maintenance of power projects. The division implements project plans
for in house power projects and supports ventures undertaken by other affiliate
companies. The division is fully integrated and has in house capabilities to address
every aspect of power projects including:

Mechanical

Civil

Electrical

Instrumentation

Environmental

The division also provides engineering consultancy to external agencies and projects.

The 941 MW Generation capacity of the Division comes from five projects:

• Dahanu TPS - the 2x250 MW multi fuel based thermal power station at Dahanu near
Mumbai.

• 8 MW Wind Farm Project at Jogimatti in the district of Chitradurga in Karnataka.

• BSES Kerala Limited: The 165 MW combined cycle power station at Kochi, Kerala.

• BSES Andhra Power Limited: The 220 MW combined cycle power plant at Samalkot
in Andhra Pradesh.

• Goa Power Station: The 48 MW naphtha based combined cycle power plant at Goa
Reliance Infrastructure distributes more than 36 billion units of electricity to over 30
million consumers across different parts of the country including Mumbai and Delhi in an
area that spans over 1, 24,300 sq. kms. It also generates 941 MW of electricity, from its
power stations located in Maharashtra, Andhra Pradesh, Kerala, Karnataka and Goa.
Reliance Infrastructure has emerged as the leading player in India in the Engineering,
Procurement and Construction (EPC) segment of the power sector.
17
In the last few years, Reliance Infrastructure has expanded its foot-print much beyond
the power sector. Currently, Reliance Infrastructure group is engaged in the
implementation of projects not only in the fields of generation, transmission, distribution
and trading of power but also in other key infrastructural areas such as highways, roads,
bridges, metro rail and other mass rapid transit systems, special economic zones, real
estate, airports, cement, etc

4.8.2 Transmission:

The Transmission department has successfully implemented and operated a 2 x 220 kV

transmission system. It has been responsible for the laying of the double circuit
transmission system from Dahanu to Mumbai. It has planned, constructed and
commissioned two modern 200kV receiving stations having a capacity of 300 MVA each
at Ghodbunder, & Versova . It has also commissioned a 400 MVA station at Aarey for
receiving power from the Dahanu plant. It is one of the select few electricity companies
to commission a network of 4 circuit transmission towers for economical and efficient
power transmission. The Engineering cell of the department coordinates the
engineering activities of the company's transmission network.
The Transmission Division is an intermediary between Generation & Distribution
Division
and is responsible for transmission of power at 220 kV from DTPS to the company's
area of supply in Mumbai Suburbs. RInfra is presently working in the development of
five power transmission projects across the North-western part of the country. Of which,
the WRSS (Western Region System Strengthening) project is likely to see completion
by the end of 2012, providing higher revenue visibility for FY13. Meanwhile, the six EHV
stations commissioned in Mumbai also ensure hassle free power transmission in the
city

4.8.3 Distribution:

Distribution is the key to efficient and reliable power supply. Seven decades of
experience and continuous investment in modernizing its distribution infrastructure have
helped the company achieve the enviable distinction of operating its network with
99.93% reliability!

The efforts made towards achieving higher levels of efficiency have reduced distribution
losses to 12.01% - The lowest in the country!
Reliance Energy Limited's Mumbai operations cover a population of 9.0 million within an
area of about 384 sq. kilometers .Reliance Infrastructures Limited continually upgrades
its distribution network. This is accomplished through a process of decentralized
operation in supply management to maintain very high on-line reliability

18
Fig 2: RELIANCE Generation Presence in Distribution
4.8.4 Infrastructure

Road
It is the largest developer of road and highway projects for the National Highways
Authority of India (NHAI) under the build, own, transfer (BOT) scheme. With an
investment involving Rs 3150 crores, the company is developing 5 major road projects
in Tamil Nadu totaling over 400 kms of length. Financial closure of all the projects is
done and the projects are currently under construction.

Urban Infrastructure

It is also the country‟s first and only private sector builder and operator for Metro
System. It is already into construction of the first line of Mumbai‟s Metro system
stretching 12 kms from Versova to Ghatkopar.
Specialty Real Estate

It is also the country‟s first and only private sector builder to build India‟s first 100
storied building, a trade tower and business district in 80 acres of land in Hyderabad,
The total investment for this project is Rs 6,500 crores.

Special Economic Zones

It is also developing over 180 mn sq ft of SEZ for IT/ITES, retail hospitality in Mumbai
and Noida with an investment worth Rs 31,000 crores.

4.8.5 EPC (Engineering, Procurement and Construction) Division

Reliance Energy has significant presence in the field of execution of the Power projects
on EPC basis with a strong track record of the execution and commissioning of projects
on time. Reliance Energy has received wide acclaim for the initiatives in corporate
governance. These awards and recognition's greatly motivates and envisages the
Reliance Energy team to set fresh benchmarks in corporate governance, particularly in
the Indian Power Sector. Reliance Energy with its affiliates and sister companies in the
Reliance group, own and operate over 2,000 MW of Generating capacities in the
country. These comprise conventional thermal plants; gas turbine based combined
cycle power plants, Cogeneration plants and wind electric generators. Most of its
Projects have been executed by Reliance Energy through its EPC division. The EPC
division of Reliance Energy was set up in 1966 and was undertaking engineering,
procurement and construction contracts on a turnkey basis and other value added
services for major public and private sector projects both in India and Abroad. The
Division has to-date undertaken the total engineering, supply of electrical and
mechanical equipment, installation and commissioning services and civil works for the
following range of projects:

20
 thermal, hydro, Co-generation and gas based power generating stations;

400/132 KV transmission lines and switch yards;

overhead and underground electrical networks;

industrial electrification works for petrochemicals, fertilizers, steel, cement plants,

refineries, ports and hotels;

pre-molded accessories for extra high voltage electrical cables;

Renovation and Modernization of Delhi distribution network; and

Experience and Achievements:

EPC division has undertaken and successfully commissioned the following major
projects:

Its first ever IPP, 2 x 250 MW Coal based Thermal Power Station at Dahanu,
Maharashtra

Reliance Energy Limited-Samalkot Power Station: 220 MW Dual Fuel based

(Natural gas & Liquid Fuel) Combined Cycle Power Plant at Samalkot, Andhra Pradesh.
The Power Plant is already operational and supplying power to the State Grid of Andhra
Pradesh.

165 MW liquid-fuels based combined cycle power project for its subsidiary, Reliance
Energy Limited - Kochi Power Station at Kochi in Kerala with an aero-derivative unit of
40 MW along GE's LM6000 module, completed on 15 June 2001. .

106 MW Combined Cycle Power Plant of Gujarat State Electricity Corporation Ltd. at
Dhuvaran, Gujarat
24 MW Bagasse based Co-generation Power Plant for Godavari Sugar Mills Limited
at Sameerwadi, Karnataka.

20 MW Diesel based D.G.Sets for Surya Chakra Power Ltd. at Islands of Andaman
and Nicobar.

12.5 MW Lignite Based Power Project for Grasim Industries Limited at Ariyalur,
Tamil Nadu

21
 10.5 MW (5 x 2 MW + 1 x 0.5 MW) Diesel based captive power project for IT-Park
for TIDEL- Chennai.

7.5 MW Thermal Power Plant for Monnet Power Ltd. at Raipur, Madhya Pradesh.

3 x 2.5 M DG based Power Plant for National Institute of Biological, Noida.

5 MW Bagasse based Thermal Power Plant for Global Energy Ltd. Belgundi,
Karnataka,

3 MW Captive Power Project for Alok Industries Limited at Vapi, Gujarat.

2.5 MW D.G. set based Captive Power Plant for ITC, Bangalore.

2x250 MW Tau Devilal Thermal Power Station for Haryana Power Generation
Corporation Haryana- Balance of Plant, Civil and Structural works.

Renovation and Modernization of Delhi Distribution System

4.9 CURRENT SCENARIO

RInfra, the infrastructure development arm of the Anil Ambani-led Reliance Group
reported a 66.3% growth in its net sales on consolidated basis to `61,302.5 million in
Q3FY‟12, driven by higher sales from its engineering and construction (EPC) business
and electrical segment. The EPC business clocked revenue of `29,405.9 million, up
177.1% on YoY basis, as it largely undertakes construction of in-house projects and is
benefiting from a large number of projects that are under construction. On contrary,
operating profit margin (OPM) depreciated by 220bps to 13.0% on YoY basis, due to
193.6% rise in material cost & sub contract charges, which in turn capped the operating
profit growth of the company to 42.5% YoY at `795.5 million. Owed to 109.5% rise in
interest charges and 13% rise in taxation charges, the PAT before share of profit from
associate and minority interest reported a decline of 8% in Q3FY‟12 on YoY basis at
`3,186.5 million as against `3,468.8 million in Q3FY‟11.. As a result, the NPM
depreciated by 410bps YoY to 6.5%. RInfra‟s EPC business reported income of
`29,405.9 million in Q3FY‟12, up 177.1% YoY driven by better execution in RPower
projects. As on December 2011, EPC segment had an order book position of `215,550
million. The order book comprises of 6 power projects of over 9,900 MW, one
transmission

22
RInfra‟s EPC Division undertakes the Engineering, Procurement and Construction
(EPC) turnkey contracts for power generation projects in coal based thermal and gas,
transmission, distribution and road projects. During Q3FY12, the EPC segment
outperformed the other business divisions of the Indian conglomerate with 177% growth
in its business turnover at `29.4 billion against `10.6billion in the same period prior year.
The unit‟s operating profits also skyrocketed 212% to `3.50 billion, keeping margins
elevated at 10% level. The division is currently working on 11 projects that comprises of
6-power projects at an aggregate of 9,900 MW, 1 transmission project of 1500 kms and
6 road projects of 570 kms. Equipped with high state-of-the-art technology in
engineering, design and project management, the EPC division‟s order book stays
elevated at `211.5 billion at the end of the first nine month of the fiscal. With persistent
efforts to develop a strong foothold in engineering, construction and technology for the
effective execution of mega and ultra-mega power projects, the EPC division is well
positioned for building large power projects. We expect RInfra‟s turnover from the
segment to stay buoyant for the coming 12 months horizon, larger part of which is
expected to be driven by the 6 x 660 MW Sasan Ultra Mega Power Project and 2,400
MW Samalkot Combined Cycle Power Plant.

EPC order book at a glance

ROAD PROJECTS
RPOWER ITERNAL POWER
PROJECTS

3960 MW Sasan UMPP Gurgaon Faridabad Toll Road

600 MW Butibori Thermal power Jaipur Reengus Toll Road

project

2400 MW Samalkot power project Pune Satara Toll Road

Western Region Strengthening Kandla Mundra Toll Road

System project

23
 Besides, the advertising properties at its stations both inside and outside the train
have also got huge demand and top retailers like Pepsi, Volkswagen, and

McDonald have all shown great interest and are taking up these properties.

RInfra, in association with Mumbai Metropolitan Region Development Authority

(MMRDA) is also working to build the metro connectivity in Mumbai to give the much
needed east to west connectivity to about 6 lakh commuters in the city through the
implementation of Versova-Andheri-Ghatkopar (VAG) Corridor Mass Rapid Transit
System (MRTS) project. With all approvals in hand, the company has completed around
90% of the civil work of the Mumbai Metro Line I and has also received a funding of `4
billion from MMRDA for the timely commissioning of the project, scheduled on 2012.
Meanwhile, for Mumbai Metro Line II, the company has completed the Topographical
Survey of the alignment. The company has also qualified for Jaipur Metro Rail project
Phase-I, along with other three bidders

CRITICAL ASSESSMENT AND EVALUATION OF THE ORGANIZATION (SWOT

ANALYSIS)

Strengths:

Leadership

Enormous amount of civic pride

One of the most successful Private Power Utility in the Country

Responsive Governance (Across the Board: Cooperation across management).

Maintains good relation with high profile people in the country.

Infrastructure

High Capital sustenance.

Sound and state of the art Physical Infrastructure.

Human Recourse

Human resource is among the best in the industry.

Numerous Training Courses for the employees

Others

24
 Long experience in creation of world class assets at competitive schedules and costs.

Transparent Management System

Weaknesses:

Human Recourse

High employee turnover.

Sharing Information

Still some departments work in isolation.

Financial

Increase in debt to cover operating expenses.

Decrease in number of full paying client.

Opportunities:

Economic Opportunities

To compete economically with anybody in the country as well as in the world.

Optimizing size and strong enough base of wealth for quality of life.

Competitive advantage and bringing money into our county.

Take advantage of technological revolution

Others

Ultra Mega Power Projects.

Mergers and acquisitions.

Open access implementation.

Parallel distribution for distribution companies.

Opportunity of power trading.

Threats:

Non Sustainable Energy

25
 Escalating Energy and fuel costs.Labour

Inability to plan to manage growth: Erosion of high tech highly skilled labour force.

Deteriorating work ethic.

High competition from other companies.

Change in Govt. policies.

SUGGESTION AND RECOMMENDATION TO THE ORGANIZATION

The Employee turnover is quite high. Many productive man hours are wasted in order to
get the new employee get accustomed to the working environment of the organization.
The company can look at the root cause of this issue and try to reduce their employee
turnover. No doubt that retaining the talent is not an easy task for the private companies
but a little appreciation and remuneration can really boost the morale of the employees.
With the rapid change in the business environment and to keep its position in the sector,
Reliance Infrastructure Limited should focus on these key success factors: -

Organizational efficiency improvements through cost reductions.

Wrestling growth opportunities in power sector business and.

Organizational transformation for meeting the challenges due to changed

environment.

4.11 COMPETITORS

Though there are many power generation companies in India but some major
competitors of Reliance Infrastructure in power generation sector are:

ESSAR Power ltd

Kirloskar Electric Company

National Thermal Power Corp (NTPC)

Tata Power

Jaiprakash Hydro Power ltd

Some major players in power transmission sector in India are:

26
 GMR Group

KPTCL

PCI Limited

Some major players in power distribution sector are:

Brihanmumbai electricity supply & transport

Calcutta electricity supply corporation

Damodar valley corporation

Karnataka power corporation ltd

National thermal power corporation

Torrent power

Some major players in Infrastructure sector are:

L&T Ltd

Punj Lloyd

LANCO INDIA

GMR Infrastructure

Maytas Infra Limited

Patel Engineering

HR POLICIES

The liberalization of the power sector in India has paved way for new business
opportunities. It has also redefined the nature of the power business.

Envisioning future and to make the power sector credit worthy and capable of funding
future investment needs, these reforms have opened arenas for new technologies.

In this new environment of opportunities, RIL with its competitive edge of resources is
playing a key role in the transformation process and aims to emerge as a world class
power utility offering uninterrupted, affordable, quality, products and services to all
customers at competitive costs, with international standards of customer care - thereby
creating superior value for all stakeholders.27
To achieve this vision we at RIL believe that investment in people and their potential is
one of the greatest investments we can make. For this, we are constantly in search of
talent that can perform excellently with determination and win.

Our HR systems and policies are thereby designed to unleash the latent capability of
our people by fostering a continuous learning and performance based culture where our
people have the opportunity to grow and succeed and realize their true potential while
delivering high quality services.

To achieve these objectives our HR Policy is pivotal and aims to:

# Achieve organizational and business goals with firm belief that "Our Employees are
our Future".

# Have empowered and accountable employees to take decisions in response to

emerging challenges and opportunities in a competitive environment.

# Endeavour to make our employees "The Best" with an urge for and commitment to
excellence.

In the past one year, HR team has recruited 862 employees, making this organization a
strong group of 1527 high calibre, multifunctional professionals with an average age of
31 years.

Many initiatives taken by ESG/SAP team are:

Mentoring: The in-house mentoring initiative named “Sankalp-2009”

RIPE: A major initiative named RIPE has been rolled out to capture functional
competencies and skill matrix of all employees.

Employee service automation: The entire gamut of employee services was automated
by linking it with SAP. The bio-metric attendance system was brought online and linked
with payroll.

Employee database maintenance through SAP: SAP modules have been

implemented for Organisation Management, Personnel Administration, Pay roll and
leave and attendance management

28
 CHAPTER-V

5.1.SCOPE OF THE STUDY

It is worth noting that the study was limited to Reliance Infrastructure Ltd. Because of
proximity and cost saving. Selection was also based on the fact that it is one of the
leading industries in India.

The study design was a little bit analytical survey. It was chosen in view of the fact that
this study is of short duration and it involves the data analysis of only few years of data.

It was aimed at getting relevant information related to working capital management

practices of the said company.

5.2. Limitations OF THE STUDY

The study and analysis is based on the figures available in the annual report of the
organization and quarterly results published by the company. Only some figures which
are used by different departments will be made available as they are confidential and
cannot be provided by the organization. The availability of time was limited for the
analysis of the huge power project.Recent data is not available

29
 CHAPTER-VI

6.1. RESEARCH METHODOLOGY

The previous chapter discussed the objectives of this study and in this chapter I will
discuss about the research methodology which is followed to carry out this project i.e.
the universe, locale of our study, Sample selection, Data Collection, data analysis and
field experience.

As in organizations like RIL, working capital constitute a major portion of its resources, a
thorough study of its working capital management has been done broadly covering:
Receivables Management, Cash Management, and Inventory Management.

Universe of study: The universe of the study is power sector.

Locale of study: Locale of study is Reliance infrastructure ltd EPC division which mainly
deals in power sector projects.

6.2. Data collection:

The secondary data used is collected from the articles on WCM published in
magazines and from the various papers by Ernst and Young and Price WaterHouse
Coopers.

The secondary data is collected from the employees working in RIL‟s finance
department. An Interview was conducted with number of people working in Finance
Department particularly in Accounts and tax department.

Visits were also done to accounts department of another office to get details on
required documents.

30
Analysis of Data

The study is qualitative in nature and not much primary data is there. So no analytical
tools have been used in the preparation. The report has been prepared after doing a
qualitative analysis of the data collected. Some bar charts, graphs and pie charts are
used to make the data more understandable to the reader.

Field Experience

The research was a positive and enriching experience as it provided useful insights
about the current practices in working capital management and the process through
which it is handled in the real world. Besides this, there was immense learning about
other facets of the organization and

6.3 RELEVANCE OF THE PROJECT

The working capital management is crucial for some industries as the capital
required/blocked is different in each case. When a company has too little working
capital, it can face financial difficulties and may even be forced toward bankruptcy. This
is true of both very small companies and billion-dollar organizations. A company with
this problem may pay creditors late or even skip payments. It may borrow money in an
attempt to remain afloat. If late payments have affected the company‟s credit rating, it
may have difficulty obtaining a loan at an affordable interest rate.

In some types of businesses, it isn‟t as much of a problem to have a lower amount of

working capital. Companies that are operated on as cash basis, have fast inventory
turnovers, and can generate cash quickly don‟t necessarily need as much working
capital. For example, a grocery store might meet these requirements and do well with
less working capital.

RIL being a working capital intensive company requires knowing the effect of its current
methods. The company made a team to study the working capital management and to
conduct a financial analysis of RIL. And in the process we also determine
creditworthiness of the company as well as study its position with respect to its
competitors.

31
 CHAPTER-VII

ANALYSIS AND INTERPRETATION

In order to determine the performance of reliance infrastructure on the front of working

capital management, we have accumulated data for the last five years and tried to
analyze the going of reliance infra on various fronts of working capital. In this way, we‟ll
be able to better understand the nature of change (if any) in the working capital situation
of the organization.

So first we’ll look at various working capital ratios for the past five years and examine
the findings.

7.1.1 WORKING CAPITAL RATIO

The difference between current assets and current liabilities excluding short term bank
borrowing is called net working capital (NWC). Net Working Capital is sometimes used
as a measure of a firm’s liquidity.

Net working Capital=Current Asset –Current Liability

Net Working Capital Ratio= Net working Capital

Net Asset

Net working capital measures the firm’s potential reservoir of funds.

Analysis:
As it is shown in the graph, the following observations can be made:

A company having a higher NWC ratio has a greater ability to meet its current
obligations. From a conservative position of 2013 where the ratio was as high as 0.42,it
is now settled at 0.10 which is slightly on the lower side As this ratio represents a

32
Firm’s potential reservoir of funds, a declining trend should be taken seriously and
appropriate remedial measures need to be taken so as to avert a more troubled
situation.

0.45

0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
20013 2014 2015 2016 2017

NET WC RATIO

7.1.2 Current ratio:

Current Ratio=Current Asset/Current Liabilties

Current assets include cash and those assets that can be converted into cash within a
year, such as marketable securities, debtors, inventories, loans and advances. All the
obligations maturing within a year are included in current liabilities.

Current liabilities include creditors, bills payable, accrued expenses, short term bank
loan, income tax liability and long-term debt maturing in the current year.

33
Significance

It indicates the availability of current assets in rupees for every one rupee of current
liability. A ratio of greater than one means that the firm has more current assets than
current claims against them. In India, the conventional rule is to have a ratio of
1.33(internationally it is 2).

The current ratio represents the margin of safety for the creditors. The higher the
current ratio, the greater the margin of safety; the larger the amount of current assets in
relation to current liabilities, the more the firm’s ability to meet its current obligations.

Analysis

CURRENT RATIO
3.5

2.5

1.5

0.5

0
2013 2014 2015 2016 2017

For the year 2013, Reliance Infra had a current ratio of 2.99 which got offset during the
subsequent years reaching as low as 0.95 in 2015.The situation got better in 2016 with
a ratio of 1.49 but again it has become critical with a ratio of 1.09 at the end of FY 11.A
company with a falling current ratio needs to take strict actions otherwise in longer run,
the firm can found themselves in a difficult situation to clear their current liabilities

34
.

7.1.3 ACID RATIO TEST (Liquid/Quick Ratio)

This ratio establishes the relationship between quick or liquid assets and current
liabilities.

An asset is liquid if it can be converted into cash immediately without a loss of value.
e.g. Cash, Debtors, Bills receivable and marketable securities. Inventories are
considered to be less liquid as it requires time for realizing into cash, their value also
has tendency to fluctuate.

ACID TEST RATIO

3.5

2.5

1.5

0.5

0
2013 2014 2015 2016 2017

Significance

Generally a quick ratio of 1:1 is considered to represent a satisfactory current financial

condition. This test is more significant as compare to current ratio to fulfill the firm‟s
obligations.

35
Reliance Infra has a quick ratio of 1.06 at the end of FY11 which is consistent with the
current ratio for the same year. Generally a quick ratio of 1:1 is considered to represent
a satisfactory current financial situation, but it does not imply a sound financial position.

It should be kept in mind that all debtors may not be liquid, and cash may be
immediately needed to pay operating expenses. Thus a company with a high value of
quick ratio can suffer from shortage of funds if it has slow paying, doubtful and long
duration outstanding debtors. On other hand, a company with a low value of quick ratio
may really be operating with prosperity and paying its obligations in time if it has been
turning over its inventories efficiently.

7.1.4 CASH RATIO

It shows the relationship between absolute liquid or super quick current assets and
liabilities. Absolute liquid assets include cash, bank balances, and marketable
securities. Since cash is the most liquid asset, a financial analyst may examine cash
ratio and its equivalent to current liabilities. Trade investments or marketable securities
are equivalent of cash; therefore, they may be included in the computation of cash ratio.

CASH RATIO= CASH+MARKETABLE SECURITIES

CURRENT LIABILITIES

36
 CASH RATIO
70%

60%

50%

40%

Series 1
30%

20%

10%

0%
2013 2014 2015 2016

1) The situation of2013 is never recommended to have that much cash sitting idle with
the company. In the subsequent years the company has put the cash up to use by
investing it in different projects thus maintaining a cash ratio of 4-5%.

2) There is nothing to be worried about the lack of cash if the company has reserve
borrowing power. In India, firms have credit limits sanctioned from banks, and can easily
draw cash.

7.1.5 INVENTORY TURNOVER RATIO

Inventory turnover is calculated by dividing the cost of goods sold by the average
inventory. This ratio indicates the efficiency of the firm in producing and selling its
product, by indicating the number of times the inventory has been converted into sales
during the period.

Average Inventory=Inventory at the beginning of the year Inventory at end of the year

37
Inventory Turn over ratio=Cost of goods Sold /Average Inventory

INVENTORY TURNOVER RATIO

40

35

30

25

20
Series 1
15

10

0
2013 2014 2015 2016 2017

1. This ratio indicates the efficiency of the firm with which it manages and utilises its
assets, the speed with which the assets are converted into sales. As is evident from the
graph, RInfra has managed to outperform its previous year performances consistently.

2. This comes out as a good sign of the efficiency of the management in converting its
assets into sales. The ratio also implies continuous improvement in the operations of
the company.

7.1.6 DEBTOR’S TURNOVER

A Firm sells goods for cash and credit. Credit is used as a marketing tool by a no. of
companies. When the firm extends credits to its customers, debtors (accounts
receivables) are created. Debtors are convertible into cash over a short period of time,
therefore included in the current assets.

Debtor‟s turnover is found by dividing credit sales by average debtors. Average debtors
are nothing but the average of the opening and closing balances of debtors.

38
Average Trade debtor=Debtor at the beginning +debtor at the end

Debtor Turnover Ratio=Net Credit Sale/Average Trade Debtor

Net credit sales consist of gross credit sales minus sales return.

When the information about credit sales, opening and closing balances of trade debtors
is not available then the ratio can be calculated by dividing total sales by closing
balances of trade debtors.

Debtor Turnover Ratio= Total Sale

Sundry Debtor

Significance:

Debtors Turnover indicates the number of times debtors turnover each year. Generally,
the higher the value of debtors turnover, the more efficient the management of the
company.

Analysis:

1)As stated earlier, the higher the value of debtors turnover, the more efficient
the management of the company. But as it is evident from the graph that the ratio
is dipping with each successive year, it serves as a sign of caution for the
management to look after.

2) Also, this ratio must be seen in conjunction with the creditors‟ turnover ratio. Being a
capital intensive company, it is still considered if your debtors‟ turnover is fairly good in
comparison with creditors‟ turnover. But nonetheless the management should keep a
vigil eye.

39
 DEBTOR TURNOVER RATIO
12

10

6
Series 1

0
2013 2014 2015 2016 2017

7.1.7 CREDITORS TURNOVER

Creditors‟ turnover ratio indicates the number of times sundry creditors have been paid
during a year. It is calculated to judge the requirements of cash for paying sundry
creditors. It is calculated by dividing the net credit purchases by average creditors.

Creditor Turnover= Total credit Purchase

Average Creditors

Average trade Creditor =Trade Creditor at Beginning +Trade Creditor at the end

Net credit purchases consist of gross credit purchases minus purchase return.

When the information about credit purchases, opening and closing balances of trade
creditors is not available then the ratio is calculated by dividing total purchases by the
closing balance of trade creditors. 40
Creditor Tunover Ratio= Total Purchase

Total Creditor

Significance:

A high creditor’s turnover ratio or a lower credit period ratio signifies that the creditors
are being paid promptly. This situation enhances the credit worthiness of the company.
However a very favorable ratio to this effect also shows that the business is not taking
the full advantage of the credit facilities allowed by the creditors. We can interpret this
ratio in exactly the same way as the debtors‟ turnover ratio.

Analysis:

As is evident, the company has tried to maintain a moderate creditor‟s ratio so as to

avail the full advantage of the credit facility as well as to maintain its rapport with its
creditors. The ratio at the end of FY11 stands at 4.23 as compared to the debtors‟
turnover ratio of 2.58 in the same financial year.

CREDITOR TURNOVER RATIO

12

10

6
Series 1

0
2013 2014 2015 2016 2017

COMPARISON OF THE COLLECTION AND PAYMENT PERIOD

41
A comparison is made between the collection period and the payment period which can
help us to better understand the credit policy being followed at Reliance Infra.
160

140

120

100

80 COLLECTION PERIOD
PAYMENT PERIOD
60

40

20

0
2013 2014 2015 2016 2017

(In Days)

The comparison shows the divergence between the no. of days taken by RInfra to pay
its creditors and receive payment from its debtors. During the last two years, the
collection period has exceeded the payment period which is not an encouraging sign.
As its debtors are taking more time to pay their debts while the credit period is almost
half, it proves to be a great threat to the current assets of the company.

7.1.8 CURRENT ASSETS TO TOTAL ASSETS RATIO

This ratio depicts the relationship between the current assets and the total assets. The
total assets of a company comprises of both net fixed assets and current assets.

Total Asset =Net Fixed Asset+Current Asset

Significance: 42
As the working capital management of a company depends upon its current assets, it is
of great significance to know how much of the total assets are current. The level of
current assets helps us to keep our business afloat

Analysis:

CURRENT ASSETS TO TOTAL ASSETS RATIO

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
2013 2014 2015 2016 2017

1) RInfra during the last five years has managed to keep a pretty healthy current assets
ratio with an average of 50%. For an infrastructure company such levels of current
assets help to carry on daily operations without any difficulty and projects completed
without such glitches also results in huge cost savings thus ultimately resulting in higher
profits.

1) A high ratio also guarantees that the company would never default on its current
obligations thus maintaining a steady relationship with its suppliers.
43
7.1.9 WORKING CAPITAL TURNOVER RATIO

It shows the relationship between the working capital and sales.

Working Capital Turn over Ratio= Sales

Working Capital

Analysis:-

WORKING CAPITAL TURNOVER RATIO

0
2013 2014 2015 2016 2017

44
The firm should maintain a steady working capital position. It should have adequate
working capital to run its business operations. Both excessive and inadequate working
capital positions are dangerous from a firm‟s point of view excessive working capital
means holding costs and idle funds which earns no profits for the firms. Paucity of
working capital not only impairs firm‟s profitability but also results in production
inefficiencies and interruptions and also sales disruptions

7.1.10 WC TO SALES:

1.2

0.8

0.6

0.4

0.2

0
2013 2014 2015 2016 2017

From the above two graphs, the relationship between working capital and net sales is
depicted. If we look at the results of the second graph, for FY 11 the ratio of WC to
sales is 0.24 i.e. for one rupee of sales, the company needs Rs 0.24 of net current
assets (working capital). This gap will be met from bank borrowings and long term
sources of funds.

45
7.1.11 WORKING CAPITAL TO NET WORTH RATIO

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
2013 2014 2015 2016 2017

Similar to the previous ratio, WC to Net Worth ratio is used to represent the relationship
between the shareholder‟s money and the net worth. Similar to previous ratio, for FY11
the ratio of 0.15 shows that for each rupee of net worth, the company needs Re. 0.15 of
working capital. This gap will be met from bank borrowings and long term sources of
funds

7.2 COMPETITOR ANALYSIS

Top infrastructure companies of India

1) L & T CONSTRUCTION: Larsen & Toubro (L&T) is India‟s largest technology,

engineering, manufacturing and construction organization with a record of over
70 years. L&T is also adjudged India‟s best managed and most respected
company on various attributes of customer delight and shareholder value. L&T
46
 2) Construction is the largest construction organization in the country. It figures
among the World‟s 77th Top
3) Contractors and ranks 29th in global ranking as per the survey conducted by the
reputed international construction magazine Engineering News Record, USA
(August 2013). L&T Construction‟s cutting edge capabilities cover every
discipline of construction – civil, mechanical, and electrical and instrumentation
engineering and services extend to large industrial and infrastructure projects
from concept to commissioning. L&T Construction has played a prominent role in
India‟s industrial and infrastructure development by executing several projects
across length and breadth of the country and abroad. For ease of operations and
better project management, in-depth technology and business development as
well as to focus attention on domestic and international project execution, entire
operations of L&T Construction are structured into four Independent Companies.

PARTICULARS Year ended 31 march Year ended 31 march

,2017 ,2016

TURNOVER 53,204.46 46,563.51

NET PROFIT/LOSS 4079.67 5,243.59

2) LANCO INFRATECH : As one of India's leading business entities, LANCO Infratech

Limited has been driving growth in the domains of Engineering, Procurement and
Construction (EPC), Power, Solar, Natural Resources and Infrastructure over the last
two-and-a-half decades. Its continuous focus on innovation and expansion together with
its commitment to quality and excellence has contributed significantly to the progress
that the company has made over a short span of time. The 25-year-old LANCO group
is, today, uniquely poised to attain leadership position in its areas of operation.
LANCO's gross revenue before elimination as on March 2017 was over Rs. 11,265
crores (USD 2.56 billion).

PARTICULARS Year ended 31 Mar, Year ended 31 Mar,

2017 2016

TURNOVER 8,041.93 8,291.50

NET PROFIT/LOSS 446.06 458.54

47
 2) PUNJ LLOYD: This Company is a diversified conglomerate, which has forayed
into aviation, defense, real estate and marine. With integrated design, and
management services for infrastructure projects like roads, highways, flyovers,
bridges, elevated railroads, metro rail, underground tunnels, seaports and airport
terminals, this company has stood up the test of time.

PARTICULARS Year ended 31 Mar, Year ended 31 Mar,

2017 2016

TURNOVER 8,187 10,874.78

NET PROFIT/LOSS (59.52) (108.40)

3) GMR INFRASTRUCTURE: GMR Group is one of the fastest growing

infrastructure enterprises in the country with interests in Airports, Energy,
Highways and Urban Infrastructure sectors. Employing the Public Private
Partnership model, the Group has successfully implemented several iconic
infrastructure projects in India. The Group also has a global presence with
infrastructure operating assets and projects in several countries including Turkey,
South Africa, Indonesia, Singapore and the Maldives. GMR Infrastructure
Limited is the infrastructure holding company formed to fund the capital
requirements of various infrastructure projects across the sectors. It undertakes
the development of the infrastructure projects through its various subsidiaries.
With interests in the Airports, Energy, Highways and Urban infrastructure
(including SEZ) sector, GMR Group has been the pioneer in the core
infrastructure areas.

PARTICULARS Year ended 31 Mar, Year ended 31 Mar,

2017 2016

TURNOVER 6,085.08 4,857.85

NET PROFIT/LOSS (929.64) 158.4

48
 CHAPTER-VIII

RESULTS & THE WAY FORWARD

8.1 RESULTS AND CONCLUSIONS

After doing the individual as well as comparative analysis, we now are in a stage to
provide a clear picture of how well or worse the company is doing individually as well as
in comparison to other players of the industry.

The following table provides us with information regarding the results in a tabulated
manner.

COMPANY RINFRA GMR PUNJ L&T LANCO

LLOYD
TURNOVER 16102.90 6085.08 8187 53204 468041.93
(IN CRORES)
PAT 2510.29 (929.64) (59.52) 4079.67 446.06
(IN CRORE)
CAGR 15.6% 20.8% (11.9%) 8.9% 9.88%

CURRENT RATIO 1.09 0.96 1.57 1.14 1.10

LIQUID RATIO 1.06 0.94 0.76 1.06 0.86

INVENTORY TURNOVER 33.44 28.08 1.57 16.18 3.13

CASH RATIO 4% 43.33% 20% 11% 14%

DEBTOR TURNOVR 2.58 5.29 3.58 3.82 3.57

CREDITORS TURNOVER 4.23 1.92 3.40 3.20 2.21

D:E RATIO 0.52 2.54 1.52 1.31 3.31

 ROTA 3.67% (3%) 0.13% 13% 4%

ROCE 3.75% (2.84%) 0.21% 11% 5%

WC TO SALES 0.24 0.36 0.62 0.17 0.49

NET WC RATIO 0.10 0.06 0.63 0.26 0.17

WC TO NET WORTH 0.15 0.22 1.64 0.36 0.83

DIH(in days) 11 13 230 22 115

PAYMENT PERIOD(days) 85 187 106 112 163

INTERVAL MEASURE(days) 487 633 227 333 530

CURRENT ASSET 0.83 0.77 0.84 1.31 0.76

TURNOVER
COLLECTION PERIOD(days) 139 68 101 94 101

EPS 62.05 (2.04) (1.79) 73.56 1.92

DPS 7.18 _ 0.15 14.6 1.92

The results for the first quarter of FY‟13 are out and present a pretty healthy picture in
front of us. Some of the major highlights for the quarter ended 30 JUNE 2012 are:

Consolidated total operating income of ` 5,383 crore(~$ 1 billion) for the quarter – an
increase of 4%

Consolidated net profit of ` 412 crore (us$ 74 million) for the quarter – an increase of
2%

Consolidated earnings per share of Rs 15.7 (us$ 0.3) for the quarter– an increase of
3%

consolidated net worth of ` 24,650 crore ($ 4.4 billion) and book value of ` 937 ($ 17)
per share 50
 The Company is conservatively financed with debt to equity ratio of 0.74 as on June
30, 2012.

Total Operating Income of ` 5,383 crore (US$ 1.0 billion), against ` 5,176 crore in the
corresponding quarter of previous year, an increase of 4%

8.2 RECOMMENDATIONS AND THE WAY FORWARD

The following recommendations are made to the authorities at reliance infrastructure in

order to maintain and improve on their current performance. The recommendations
made are based purely on my understanding of the situation. Some of the major things
which I would like the authorities to take notice of include:

Current ratio is slightly on a lower side against the industry standard of 1.33 followed
in India. Current ratio indicates the ability of a company to stay afloat irrespective of the
prevailing market situations. Internationally, a current ratio of 2:1 is accepted. The
investors also seek this ratio in order to examine whether the company has adequate
current resources so that it does not default on its obligations and is able to generate
sufficient returns to maximize shareholder’s money.

Debtor’s turnover ratio needs a tune up as against creditor’s turnover. This ratio helps
to examine whether the management of the concerned organization is not being
complacent in recovery of its debts on time. Generally it is required that debtors
turnover ratio be high as compared to creditors turnover which implies that the firm is
generating sales adequate enough to cover its production cost. If we look at the
situation for reliance infra, the ratios were fine enough until FY09 but then afterwards
the debtor‟s turnover took a dip but because of adequate liquidity the management is
able to take care of its obligations as for now. But if a proper solution is not formulated
then it can become a huge problem which will affect not only the performance of the firm
but may also deteriorate the confidence of the investors in the company.

The inventory turnover ratio for reliance infra has been a success story for the last
couple of years so the management should do everything possible thing to maintain this
inclination in the coming years and try to encourage its human resources to keep up the
good work.

With many a projects in line and at different levels of execution, it is required that all
the aspects are dealt with equal importance whether it is the case of long term ratios or

51
the short term ratios. The company has so many projects in line for which it will require
funds. With stellar performance in various sectors it has the confidence of investors. So
the management just need to continue on the good work.

Up to now the Company enjoys the top end ratings of ‘AA+’ and ‘AA’ from CRISIL and
FITCH respectively. So the management must make sure that investor‟s confidence
remains the same.

Some of the recent initiatives of reliance infra are:

The company is likely to merge five wholly-owned subsidiaries with it in order to

reduce the administrative costs, remove multiple-layer inefficiencies and to achieve
operational as well as management efficiency. Further, the company is also mulling to
raise funds worth `3.6 billion via non-convertible debentures.

In the metro segment, RInfra intends to increase the frequency of trains at the Airport
express metro link in Delhi and thereby increase the number of daily commuters to
50,000 passengers per day by the end of FY13E and to around 100,000 by FY15-16E.
Besides, the company has also qualified for Jaipur Metro Rail project Phase-I, along
with other three bidders.

RInfra is presently working in the development of five power transmission projects

across the North-western part of the country. Of which, the WRSS project is likely to see
completion by the end of 2012, providing higher revenue visibility for FY13. Meanwhile,
the six EHV stations commissioned in Mumbai also ensure hassle free power
transmission in the city

52
 CHAPTER -IX

9.1. BIBLIOGRAPHY

INTERNET SITES

www.rinfra.com

www.moneycontrol.com

www.businessworld.in

www.lancogroup.com

www.gmrgroup.com

www.larsentoubro.com

www.lntecc.com

www.punjlloydgroup.com

www.wikipedia.org

www.money.rediff.com

NEWSPAPERS

Financial express

Economic Times

9.2.BOOKS, JOURNALS and REFERENCES:-

Hrishikesh Bhattacharya, Working capital management - Strategies and techniques,

Nov. 2013, published by Prentice Hall India

53
 Financial Management – I.M Pandey

RP Rustagi’s ― Financial Management

Trends in working capital management & its impact—K Padachi(2012)

Impact of working capital management policies on profitability of a firm—S

Vishnanai(2013)

An analysis of working capital management—V Ganeshan(2013)

Effects of working capital management on SME profitability—PJ Gareia Tervel(2007)

International Journal of Economics and Finance—K Anagnostopoulos(2013)

Relationship between working capital management and profitability—Amarjeet

Gill,Nahum Biger,Neil Mathur(2010)

African Journal on Finance and Management—WM Visemith(2004)

Journal of Corporate Finance—Elsevier

Asian Journal of Finance—K Saleem(2012)

54