A Project Report on Debtors Managment

A PROJECT REPORT ON DEBTORS MANAGMENT

UNDER THE GUIDENCE OF MR. KSM MATHEW SUBMITTED BY:

SUBMITTED TO:

SARIKA CHOUDHARY

MR. KSM MATHEW

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JAMSHEDPUR WOMEN’S COLLEGE. (A constituent autonomous college of Ranchi university)

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DECLARATION I,SARIKA CHOUDHARY pursuing my MBA from Kolhan university here by state that this summer internship project report titled “Debtors Management for steel division” carried out at TATA STEEL Ltd. Jamshedpur is an original work carried out by me under the guidance and supervision of ms. Vandna khemka and it has neither been submitted to any other organization nor published at anywhere before . The findings and conclusion of this report are based on my personal study and experience during the tenure of my summer internship.

NAME –SARIKA CHOUDHARY MBA.(2009-2010) ROLL NO-40 DATE-3/05/2010-30/06/2010

Signature: Sarika Choudhary

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ACKNOWLEDGEMENT

The fundamental characteristic of the summer internship Program lies not just in the successful completion of a given assignment but also in the positive expansion of the professional business person inside the student who undertakes such an assignment. I would like to pay my gratitude to the following people for guiding me throughout my association with them. I would like to extend my gratitude to Mr. M.S.M. MATHEW(Head, Sales & EPA Accounts) for his continuous help and guidance throughout the project duration in spite of his busy work schedule. I would also like to thank Mr. Raviner prakash (Sr. Manager, Sales & EPA Accounts) Miss. Vandana Khemka (Manager, Sales & EPA Accounts Section) MRS.VIDHI TANEZA(Manager Sales & EPA), MRS. SAPNA GUHA & MRS. PETER, for their valuable support, cooperation and vital and valuable feedback without which this project would not have been successful. I am immensely thankful to Mr. G.Ghosh, in Tata management & Development Centre (TMDC) for providing me an opportunity to do a project in their esteemed organization and for the guidance and cooperation by officials of Tata Steel in the course of our interface with them.

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PREFACE

It has been a fruitful summer project. The summer training has been a greater into the Corporate Culture and has enriched my knowledge about conducting my business. Having spent some precious time in the corporate world I have returned as a lot more mature individual, prepared to take on the pressure of the business world.

This report added immensely to my knowledge how a corporate world actually works as a team to achieve its goals, the spirit and the enthusiasm of the leading ahead from its competitors and the above all true and fair view as the main motto and the most of all various techniques used to maximize efficiency and increase production.

I will be grateful to TATA STEEL for giving me the opportunity to be part of this repudiated organization and help me throughout in understanding some of the important facts concerned with this prestigious institution.

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INDEX

1. Executive summary………………………………..6 2. Introduction…………………………………………...7 3. Indian steel Industries…………………………….9 4. Domestic Industry Overview………………...17 5. History of Tata steel……………………………….18 6. Company Profile…………………………………….21 7. Overview of Finance division Of Tata steel…………………………………….…...36 8. Introduction to Debtors management....37 9. Credit Assessment Module…………………..53 10.

Recommendations/Findings:…..…….88

11.

Limitation………………………………….…….88

12.

Conclusion………………………………………89

13.

References……………………………..………90

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EXECUTIVE SUMMARY

The steel industry, in general, is on the upswing, due to strong growth in demand propelled particularly by the demand for steel in China. The world scenario coupled with strong domestic demand had benefited the Indian Steel Industry.

Steel is the most important engineering and construction material in the modern world. It has an essential role in meeting the challenges of development in the country. The first Indian integrated steel plant was set up; TATA IRON AND STEEL COMPANY (TISCO) in 1907 to be followed by the Mysore Iron and Steel Works in 1936 and Steel Company of Bengal (SCOB) in 1939.

This project helped me understand the inner workings of the organization in terms of its working capital. The various techniques used by Tata Steel to maximize its efficiency and increase production. With the acquisition of Corus; Tata Steel’s production has grown tremendously. It is now the fifth largest producer of steel bringing India to the ninth position in steel manufacturers. Tata Steel is capable of producing almost all grades and sizes of excellent quality steel products.

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INTRODUCTION OVERVIEW OF STEEL INDUSTRY HISTORY OF STEEL Steel was discovered by the Chinese under the reign of Han dynasty in 202 BC till 220 AD. Prior to steel, iron was a very popular metal and it was used all over the globe. Even the time period of around 2 to 3 thousand years before Christ is termed as Iron Age as iron was vastly used in that period in each and every part of life. But, with the change in time and technology, people were able to find an even stronger and harder material than iron that was steel. Using iron had some disadvantages but this alloy of iron and carbon fulfilled all that iron couldn’t do. The Chinese people invented steel as it was harder than iron and it could serve better if it is used in making weapons. One legend says that the sword of the first Han emperor was made of steel only. From China, the process of making steel from iron spread to its south and reached India. High quality steel was being produced in southern India in as early as 300 BC. Most of the steel then was exported from Asia only. Around 9th century

AD, the smiths in the Middle East developed techniques to produce sharp and flexible steel blades. In the 17th century, smiths in Europe came to know about a new process of cementation to produce steel. Also, other new and improved technologies were gradually developed and steel soon became the key factor on which most of the economies of the world started depending.

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FIG: Stages in Global Production of Steel

GLOBAL STEEL INDUSTRY The current global steel industry is in its best position in comparison to last decades. The price has been rising continuously. The demand expectations for steel products are rapidly growing for coming years. The shares of steel industries are also in a high pace. The steel industry is enjoying its 6th consecutive years of growth in supply and demand. There are many more mergers and acquisitions which overall buoyed the industry and showed some good results. The subprime crisis has lead to the recession in economy of different countries, which may lead to have a negative effect on whole steel industry in coming years. However steel production and consumption will be supported by continuous economic growth. China, Japan, India and South Korea are the leading steel producing countries in Asia. China accounts for one third of total production i.e. 419 million tonnes, Japan accounts for 9% i.e. 118 million tonnes, India accounts for around 53 million tonnes and South Korea is accounted for 49 million tonnes, which when combined accounts for more than 50% of global production. Apart from this USA, BRAZIL, UK account for the major chunk of the world steel production.

13%

18%

EUROPE 8% 3%

37%

9% 8%

4%

USA BRAZIL JAPAN CIS INDIA CHINA OTHERS

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INDIAN STEEL INDUSTRIES

The challenges that confront Indian steel industry in the age of globalization are complex in nature. The secret of sustainable turnaround lies in how Indian steel industry faces the challenges and develops combative and anticipatory prowess. Problems and solutions may vary with organizations but there is more a commonality than initially meets the eye. A twostep strategy is suggested for the sustainable turnaround in the industry. These stages, aimed to ensure survival and growth have been termed survival strategy and growth strategy. The survival strategy provides a foundation upon which a potent growth strategy could be formulated. While the survival strategy would ensure the survival of the ailing steel industry, the growth strategy would simultaneously take care of its total transformation towards a better future. Both stages, to be implemented through an integrated plan, are essential to enable the industry overcome the present imbroglio. •

Indian steel industry is poised for rapid growth.

•

India’s share in world production of crude steel increased from 1.5% in 1981 to around 10% in 2010.

•

The private sector is considered engine of growth in the steel industry and

technological changes and modernization are taking place in both the public and the private sector integrated steel plants in India. 10

Size of the Indian Steel Industry

The steel industry is one of the major industries of India. It has also gained considerable importance in the global steel industry. This century old industry of India was mostly a regulated

one.till.1990.

The economic reforms undertaken in India in the early 1990s gave a major boost to the steel industry and it grew considerably in terms of investment, production capacity and number of producers. The industry faced a downturn during the late nineties but revived again by 2002. The size of India's steel industry has increased considerably in recent years. According to latest available estimates, India ranks eighth among the top steel producers of the world with a production capacity of 35 MT. The steel industry of India has capital investments of more than Rs 100, 000 crores. The total employment in the industry is more than two million (including direct and indirect employment). Some of the major reasons that have led to the growth in the size of India's steel industry a. Abundant availability of iron-ore in India. b. Good facilities for steel production. c. Increased consumption of steel in the sectors like construction, automobile and infrastructure.

FOREIGN DIRECT INVESTMENT The foreign direct investment in India being made in the steel industry of India has been picking up in the recent years as a result of the immense growth potential of the country's steel industry. In the Asian continent India is second only to China in terms of growth potential. The gross domestic product of India has increased in the recent times. This has sparked off the demand for production of steel in the country and the production has increased as well. In the recent times India has been among the top producers of crude steel of the world. All these factors are supposed to be important for attracting foreign direct investment in the Indian steel industry. 11

The Indian national government also has been pretty liberal with their approach to the foreign direct investment being made in the country. The Indian government has also relaxed the various

Foreign investment laws. This has led to more international steel giants coming to India to tap the abundant resources present in the country. Steel projects. These projects have been funded by the Indian national government, as well as, a number of companies that are forces to reckon with in the context of the Indian the increased interest shown by such companies has led to a growth in the steel industry of India. Research and studies have shown that Orissa and Jharkhand would be the steel junctions of India. In the recent times these two states, which are located in the eastern part of India, have been experiencing.a.number.of.steel.industry. Since, the government has also been taking steps to make sure that the production and demand for Indian steel remains high in the international market; it may be assumed that an increasing number of companies from around the world would be interested in the Indian steel industry

STEEL INDUSTRY TRENDS

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Steel Industry trends are not at all static but are rather very dynamic. The country that is producing the maximum amount of steel may not be in the first position in the coming years. Analysis of the Steel Industry trends show that from the period starting from 1910 till the year 1960, the first position in terms of producing the largest amount of steel in the whole world was captured by United States of America. During this period it was observed that almost half of the total steel production around the globe was produced in USA. But the scenario started to change after the countries like Japan and China came to the fore. Again, in the recent years, India as well as Brazil has shown tremendous performance in the steel production side. According to the recent Steel Industry trends, China is the largest steel producing nation. But it has also been seen that the production of quality steel in China is very low. Thus, they have to import large quantities of the same from the foreign countries, especially Brazil. Very recently, the Indian Steel company called TATA Steel has acquired the fifth largest steel company of the world called Corus and consequently came up from 65th to 5th position. Merger and acquisition is becoming a Steel Industry trend in the recent times. The biggest M&A venture that took place recently was the one where the Rotterdam (Netherlands) based steel company called Mittal Steel bought the erstwhile steel giant Arcelor. This acquisition has led to the formation of the largest steel company of the recent times called Arcelor-Mittal Steel Company. Steel Industry trends also show that a downsizing in the steel industry is a common phenomenon all round the globe. This phenomenon has arisen due to the fact that this industry has shifted from its earlier stance of being a labor intensive one to a capital intensive one. The recent trend of M&A has enhanced its pace. Steel Industry trends in the case of prices have also shown high rate of growth and the main factor acting behind it is excess demand for steel generated by the construction, automobile and infrastructure industries. This increase in the price of steel can be observed along all the categories. The different categories of steel are Hot as well as Cold Rolled Coil of steel, Hot rolled plate of steel and rod made up of steel wire. The price of medium steel type has increased from US $ 666 to US $ 815 between May 2006 and May 2007.

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SWOT ANALYSIS OF INDIAN STEEL INDUSTRY

STRENGTHS

WEAKNESS

Availability of iron ore and coal

Unscientific mining

Low labour wage rates

Low R&D investments

THREATS

OPPORTUNITIES

Unexplored rural market

China becoming net exporter

Growing domestic demand

Protectionism in the West

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INDIA’S PRODUCTION IN GLOBAL CRUDE STEEL PRODUCTION

Since independence, the Indian government has concentrated on promoting the development of different industries in the country and the steel industry has always remained in the priority list. The Indian steel industry enjoys a significant position in the global arena and the importance of India in global crude steel production has grown significantly over the years. The efforts to develop the steel industry in India started during the first five year plan but the real developments started happening from 1980s onwards. Although the Indian steel industry increased its production, in the nineties India imported huge quantity of steel to meet the growing demand of steel in the country. This scenario was totally changed in 2004 when India stood at the ninth position in terms of crude steel production in the whole world and in 2006, India was at the seventh place among the crude steel producing companies. According to the released data by the International Iron and Steel Institute, contribution of India in global crude steel production was about 40.9 million tonnes in 2005. This quantity was increased by 7.6% in 2006 and the country produced nearly 44 million tonnes of steel. In 2007, the total production of crude steel increased to nearly 50 million tonnes. This growth in the production has also helped the country to gain the fifth position among global crude steel producing countries. There are different factors that are responsible for this development. Firstly, the Indian government has taken some reformatory steps that have helped the Indian steel industry to grow at a good pace. The Indian government has set a target to increase the crude steel production and till 2019-20, the Indian steel industry is expected to produce nearly 110 million tones of crude steel. Another important reason of this development is the deregulation factor. The national as well as state governments in India are playing the role of a facilitator. At the same time, the national policies regarding the steel industry are also reformed and this has encouraged investments in the industry. 15

CHALLENGES BEFORE INDIAN STEEL INDUSTRY The experts are also of the opinion that not enough policies or measures have been adopted to amend the situation in of the infrastructural facilities available in the steel sector. Even though India is capable of producing steel at a good rate and also increase the volume of production there is not enough land available to support such activities. One of the major reasons for such problems is the consistently increasing population of India. The design institutions in India have not been successful at recruiting the best of engineers and metallurgists in India. This has affected the technological aspect of the Indian steel industry. The experts are of the opinion that this issue has to be countered in order to reduce the dependence on the overseas technological assistance. The steps taken by Tata Steel are instructive in such a context. The company has been increasing public awareness about the steel industry through books and educational sessions at the Indian Institute of Technology at Kharagpur.

PRESENT SCENARIOOF THE STEEL IND

PRESENT SCENARIO OF THE STEEL INDUSTRY India is a reputed name in the world steel industry. The industry has gained strength from the strong Indian economy, and strong sectors like infrastructure, construction and automobile. India has been ranked as the 5th largest producer of crude steel in the world in 2008. Thus, the country offers vast scope for the steel industry in future. Indian Steel Producers are increasingly looking for overseas acquisitions in steel as well as raw materials. Mittal Steel acquired Arcelor to become the largest steel producer in the world. Similarly, Tata Steel acquired Corus to become the 5th largest producer of steel in the world. 16

However, the current market turmoil has dented the growth curve of various industries such as auto-mobile and construction, which, in turn, has hit the Indian steel industry hard. The government’s plans to boost up the economy by injecting funds in various industries like infrastructure, construction, automobile and power, near future is expected to see growth. Although the Indian steel industry is experiencing a slow but steady growth, the steel industry in India has huge scopes in the future with massive scale of infrastructural development happening all across the country. The Indian steel industry caters to many other industrial sectors such as construction industry, mining industry, transportation industry, automobile industry, engineering industry, chemical industry, etc. The steel industry of India has further plans for development. Plans are being chalked out for setting up of 3 pig iron manufacturing units of a combined capacity of 6 lakh tons per year and a steel manufacturing unit of the capacity of producing 1 million tons yearly in West Bengal, with the technical and financial support from China. With all these developments, the Steel Industry of India is all set to become one of the most reputed industries in the international market. The world crude steel output reached 1,344 million tonnes in 2007, up by around 100 million tonnes over 2006. This increase of 7.5% was driven mainly by China where the crude steel production grew by 60 million tonnes over 2006 (an increase of 14%). While China’s production constitutes 34% of the world production, the country’s consumption constitutes almost 31% of the world consumption. The crude steel production in India was higher by 8% in 2007 over 2006. The increase primarily was due to a sustained demand momentum in key-end use segments like construction, capital goods and automobiles. The supply side has not been able to keep pace with the strong demand resulting in India becoming a net importer of steel. Steel production in the European Zone remained stable, with year-end figures of 210 million tonnes, a growth of around 2% over 2006. The imports in the European Union also remained at a high level during 2007. The latest global steel consumption forecast predicts 6.77% year on year increase in steel consumption in the current year. The additions in the capacity are likely to be around 90 million tonnes. The greatest concern of the steel industry is the availability of raw materials at a competitive price. There have been unprecedented cost increases in iron ore by around 65% and coking coal by around 200% in 2008, which would have an impact on the steel prices. 17

Indian steel industry also experienced a strong growth in demand, propelled particularly by the demand for steel in China. The production of crude steel at 53 million tonnes in 2007 was more than double the production level a decade back in 1998 (23 million tonnes) portraying the significant growth in the Indian Steel Industry. India now ranks fifth in terms of crude steel production among the top six crude steel producing nations in the world, the others being China, Japan, United States, Russia and South Korea. The Finished Steel production in India in the current financial year stands at 48 million tonnes registering an increase of 9% over the previous year.

DOMESTIC INDUSTRY OVERVIEW “We still have a number of persons in our country in SAIL, TISCO and other big and small steel plants who have the capabilities. They have the will to excel and transform the country, given a long term vision.” “We should be ready to compete in outside markets…..If our steel industry gears up in about 3 to 4 years, Indian steel can be both in Indian and foreign markets. Our vision should be towards this.” - Indian 2020: A vision for the new millennium by APJ AdbulKalam and YS Rajan The Government envisions India becoming a developed nation by 2020 with a per capita GDP of $1540. For a nation that is economically strong, free of the problems of underdevelopment and plays a meaningful role in the world as befits a nation of over one billion people, the groundwork would have to begin right now. The Indian Steel Industry will be required and is willing to play a critical role in achieving this target. With abundant iron ore resources and well-established base for steel production in the country, steel is poised for growth in the coming decades. Production has increased from 17 MT in 1990 to 36 MT in 2003 and 66 MT is targeted for 2011. While steel will continue to have a stronghold in traditional sectors such as construction, housing, ground transportation, special steels will be increasingly used in hi-tech engineering industries such as power generation, petrochemicals, fertilizers etc. Steel will continue to be the most popular, versatile and dominant material for wide ranging applications. While India may not become a leader in world steel market, it can become a powerful force. 18

HISTORY OF TATA STEEL The origins and ascent of Tata Steel, which has culminated into the century long history of an industrial empire, emerge from the illustrious efforts of India's original iron man and the remarkable people who thereafter, have kept the fire burning. Etched with the visions and hardships of a single man, the story has flowed through ages to redefine steel in every way. The saga, which started in 1907, completes a century of trust in 2007. Over the years this one company has exposed the various shapes and forms in which steel can be applied for effective utilization.

THE PIONEERS OF TATA STEEL JamsetjiNusserwanji Tata:

The founder of the Tata Group began

with a textile mill in central India in the 1870s. Born on 3rd March, 1839 into a family descended from Parsi priests in Navsari, a centre for age-old Parsi culture, he was educated at Elphinstone College, Bombay.He however realized that India’s real freedom depended upon her self-sufficiency in scientific knowledge, power and steel, and thus devoted the major part of his life, and his fortune to three great enterprises – The Indian Institute of Science at Bangalore, the hydro-electric schemes, and the Iron & Steel Works at Jamshedpur. Sir Dorabji Tata: Through his endeavors in setting up Tata Steel and Tata Power, this elder son of Jamsetji Tata was instrumental in transforming his father's grand vision into reality. It was also under his leadership that the Sir, the premier charitable endowment of the Tata’s, was created, propelling the Tata tradition of philanthropy.

Sir Ratan Tata:Jamsetji

Tata's younger son had a personality that

reflected his sensitivity to the struggles of ordinary people and his desire to utilize his considerable wealth to enhance the quality of public life. A philanthropist all his life, he created a trust fund for "the advancement of learning and for the relief of human suffering and other works of public utility". 19

JehangirRatanjiDadabhai Tata (JRD Tata): He assumed Chairmanship of Tata Sons Limited at the young age of 34. The late chairman of the Tata Group pioneered civil aviation on the subcontinent in 1932 by launching the airline now known as Air India.The 100% successful family welfare schemes at Tata Steel and the various educational programmes for all, directly emanate from JRD Tata’s insight. Government of India conferred the highest civilian award of the land, Bharat Ratna to JRD Tata in 1992.

Ratan Tata:

He is the present chairman of TATA

STEEL LTD.

Withhis efficient leadership TATA GROUP issoaring new heights.

MILESTONES OF TATA STEEL Below is a chronological list of major business decisions in the history of Tata Steel Ltd.:

1907 The Tata Iron and Steel Company Limitedwas formed in 1907 at Mumbai.

1917 During the year 1, 50,000equity shares were issued at par and 26,250 deferred shares were issued at a premium of Rs.370 per share.

1973 With effect from 1st April, the wholly owned subsidiary, West Bokaro Ltd., was amalgamated with the company.

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1983 During the year Indian Tube Company Limited was amalgamated with the company.

1992 During the year company privately placed with UTI, LIC, Army Group Insurance Fund and GIC and its subsidiaries 17.5% non-convertible debentures worth Rs.185 crore. These debentures are redeemable at a premium of 5% at the end of 7 years from the date of allotment of the debentures.

1997 Tata Steel’s international trading division was awarded the prestigious ISO-9002 certification by the Indian Register Quality Systems (IRQS).

2004 Tata Steel ranked among global companies in the world's most respected companies survey, 2003 for corporate social responsibility. Tata Steel buys Singapore's NatSteel

2005 Tata Iron and Steel Company Ltd signs Joint Venture Agreements with Iranian Mines and Mining Industries Development and Renovation Organization to join them in proposed steelmaking projects and mining operations in Iran. Corporation of Japan for its proposed 6 million tonne per annum steel plant in Kanagar, inaling Jajpur district of Orissa.

2006 Tata steel sets up Jiggling and hydro-cyclone plant. Tisco establishes processing unit at Noamundimine.

2007 Tata Steel’s hard-fought, 6.2-billion-pound acquisition of Corus, the seven-year-old AngloDutch company formerly known as the mighty British Steel, has created the world’s fifth largest steelmaker, the second most global steel company and dramatically put India on the corporate world’s takeover map. Tata Steel completed 100 years of glorious existence on August 26, 2007. 21

COMPANY PROFILE TATA STEEL LTD

Background Tata Steel, formerly known as TISCO (Tata Iron and Steel Company limited), is the world’s sixth largest steel company, with an annual crude steel capacity of 30 Million Tonnes Per Annum (MTPA). It is the second largest private sector steel company in India in terms of domestic production. Ranked 315th on Fortune Global 500, it is based in Jamshedpur, Jharkhand, India. It is part of Tata Group of companies in private sector with consolidated revenues of Rs.1,32,110crores and the net profit of over Rs.12,350 crores, during the year ended March 31st, 2008. Its main plant is located at Jamshedpur in Jharkhand. With its recent acquisition of the Corus, Nat Steel and Millennium Steel it has become a multinational company with operations in various countries. The registered office of Tata Steel is in Mumbai. The company was also recognized as the world’s best steel producer by the World Steel Dynamics in 2005. The company is listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Tata Steel is backed by 100 glorious years of experience in steel making. Established in 1907, it is the first integrated steel plant in Asia and is now the world`s second most geographically diversified steel producer and a Fortune 500 Company. 22

Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets, with manufacturing units in 26 countries. It was the vision of the founder; JamshedjiNusserwanji Tata., that on 27th February, 1908, the first stake was driven into the soil of Sakchi. His vision helped Tata Steel overcome several periods of adversity and strive to improve against all odds. Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA which is slated to increase to 10 MTPA by 2010. The Company also has proposed three Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with additional capacity of 23 MTPA and a Greenfield project in Vietnam. Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings, Singapore, Tata Steel has created a manufacturing and marketing network in Europe, South East Asia and the pacific-rim countries. Corus, which manufactured over 20 MTPA of steel in 2008, has operations in the UK, the Netherlands, Germany, France, Norway and Belgium. Tata Steel Thailand is the largest producer of long steel products in Thailand, with a manufacturing capacity of 1.7 MTPA. Tata Steel has proposed a 0.5 MTPA mini blast furnace project in Thailand. NatSteel Holdings produces about 2 MTPA of steel products across its regional operations in seven countries. Tata Steel has lined up a series of Greenfield projects in India and outside which includes: a) 6 million tonne plant in Orissa (India). b) 12 million tonne plant in Jharkhand (India). c) 5 million tonne plant in Chhattisgarh (India). d) 3 million tonne plant in Iran. e) 5

million

tonne

capacity

expansion

at

Jamshedpur (India). f) 4.5 million Plant in Vietnam (feasibility study underway).

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MISSION Consistent with the vision and values of the founder Jamsetji Tata, Tata Steel strives to strengthen India’s industrial base through the effective utilization of staff and materials. The means envisaged to achieve this are high technology and productivity, consistent with modern management practices.

Tata Steel recognizes that while honesty and integrity are the essential ingredients of a strong and stable enterprise, profitability provides the main spark for economic activity.

Overall, the Company seeks to scale the heights of excellence in all that it does in an atmosphere free from fear, and thereby reaffirms its faith in democratic values.

VISION

Tata steel Ltd, enters the new millennium with the confidence of a learning knowledge based and happy organization. We will establish ourselves as the supplier of choice by delighting our customer with our service and products in the coming decade; we will become the most competitive steel plant and so serve the community and nation.

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VALUE

     

Trusteeship Integrity Respect for the individual Credibility Excellence Our people, by fostering team work, nurturing talent, enhancing leadership capability and acting with pace, pride and passion.  Our offer, by becoming the supplier of choice, delivering premium products and services, and creating value with our customers.  Our innovative approach, by developing leading edge solutions in technology, processes and products.  Our conduct, by providing a safe working place, respecting the environment, caring for our communities and demonstrating high ethical standards.

REALISING VISION 2009

Co-created by thousands of our employees, our Vision embodies what we ASPIRE to achieve. Each and every employee has made a personal commitment to achieve this vision. All our resources, strengths and strategies are focused on this one single agenda that will take us to unprecedented growth and success. Building on the competitive edge of global cost leadership, we are charting the path to sustainable growth. Our focus is on realising our vision which will create long term value for our stakeholders. Pillared on carefully laid out strategies and strategic goals, our vision has set the mood of excitement, ownership, commitment and spirited participation at Tata Steel.

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We make the difference through:  Our people, by fostering team work, nurturing talent, enhancing leadership capability and acting with pace, pride and passion.  Our offer, by becoming the supplier of choice, delivering premium products and services, and creating value for our customers.  Our innovative approach, by developing leading edge solutions in technology, processes and products.  Our conduct, by providing a safe working place, respecting the environment, caring for our communities and demonstrating high ethical standards.

CORPORATE OBJECTIVES 

EVA positive core business



Sustainable Growth



Invest in attractive new business



Dives, merge, acquire



Move from commodities to brand



Value creating partnership with customers



Value creating partnership with suppliers



Continue to be the lowest cost producer of steel



Outsource strategically



Encourage innovation and allow the freedom to fail



Ensure safety and environmental stability



Excel at TBEM



Manage knowledge



Enthused and happy employees



Improve the quality of life of the employees



Unleash people’s potential and create leaders who will build the future



Improve the quality of life of the communities we serve

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SWOT ANALYSIS OF TATA STEEL

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BUSINESS AREAS

The activities of the enterprises promoted by TATA’S are classified in 12 sectors: 

Metal and Associated Industries



Automobiles



Energy



Engineering



Chemical and Pharmaceuticals



Consumer Products



Services



Agro Industries



Information Technical and Communication



Exports and Overseas Operations



Finance



Construction

SUBSIDIARY/ ASSOCIATIONS/ JOINT VENTURES



Tinplate Company of India Ltd (TCIL)



Tayo Rolled Ltd.



Tata Ryerson Ltd. (TRYL)



Tata Refractories Ltd. (TRL)



Tata Sponge Iron Ltd.(TSIL)



Tata Metaliks



Tata Pigments Ltd.



Jamshedpur Injection Powder Ltd. (Jamipol)

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

TM International Logistics Ltd. ( TMILL)



MetalJunction.com Pvt. Ltd. (MJ)



Tata Rabin Fraser Ltd. (TRFL)



Jamshedpur Utility and Service Company Ltd. (JUSCO)



The Indian Steel and Wire Ltd. (ISWP)



Lanka Special Steel Ltd.



Sila Eastern Company Ltd.

Tinplate Company of India Limited (TCIL): With a market share of over 35%, it is theindustry leader in India. It has the capability to supply all tinning line product includingelectrolytic tinplate / tin-free steel and cold-rolled products.

Tayo Rolls Limited: The country's leading roll manufacturer and supplier, the companyproduces rolls which find application in integrated steel plants, the paper, textile and foodprocessing sectors, and the government mint. It also produces special castings for use inpower plants.

Tata Ryerson Limited (TRYL): Is in the business of steel processing and distribution. Itoffers hot and cold rolled flat steel products in customized sizes and quantities throughprocessing services. It also provides materials management services.

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Tata Refractories Limited (TRL): Produces High Alumina Refractory, Basic Refractory, Dolomite Refractory, Silica and Monolithic Refractories. It is one of the fewcompanies worldwide to produce silica refractory for coke ovens and the glass industry.TRL offers Total Refractory Solutions, which include design, procurement, re-liningapplications etc. (www.tataeref.com)

Tata Sponge Iron Limited (TSIL): Has the first Indian sponge iron plant based onindigenously developed Direct Reduction Technology. Its major product lines are spongeiron lumps and fines.(www.tatasponge.com)

Tata Metaliks: Is among the top wealth creating companies (measured in terms of EVA)in the country. Tata Metaliks is engaged in the business of manufacturing and sellingfoundry grade pig iron (www.tatametaliks.com)

Tata Pigments Limited: Its range of products includes synthetic iron oxide pigmentsused to lend colour to paints, emulsions, cement floors, plastics etc. Its three mainproducts Tata Red, Tata Yellow and Cemplus enjoy premium positioning.

Jamshedpur Injection Powder Limited (Jamipol): Manufactures carbide andmagnesium-based de-sulphurising compounds which are used for de-sulphurising hot metal for the production of low-sulphur, high-quality steel.

TM International Logistics Limited (TMILL): Provides material handling and portoperation services at Haldia and Paradip Ports in addition to freight forwarding and chartering services to Tata Group companies and other enterprises.

MetalJunction.com Private Limited (MJ): A joint venture company between SAIL and Tata Steel, it is in the business of providing e-business services and solutions to Indian industry. MJ has two divisions--metaljunction.com (e-selling business unit) and commercejunction.com (e-procurement business unit). It also offers complete e-sourcing services

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TRF Limited: It is one of India's leading companies in the business of design, manufacture, supply, installation and commissioning of engineered-to-order equipment and systems in the areas of bulk material handling, loading and unloading, processing, reclaiming and blending of bulk materials. With world-class technical associates, TRFhas also made its mark in the fields of coke oven equipment, coal dust injection systems for blast furnace and coal beneficiation systems.

Jamshedpur Utility and Service Company Limited (JUSCO): Reengineered out of Tata Steel's town services, JUSCO a wholly owned subsidiary of Tata Steel and is the country's first enterprise that provides municipal and civic services for townships. JUSCO is the only EMS 14001 civic services provider in the country.

The Indian Steel and Wire Products Limited (ISWP): Recently acquired by Tata Steel, ISWP has two units-a wire unit comprising wire drawing mills, wire rod mills and fastener division and a steel roll manufacturing unit named Jamshedpur Engineering and Machining Company (JEMCO).

Lanka Special Steel Limited: The only unit in Sri Lanka manufacturing galvanized wires.

Sila Easten Company Limited: Established to develop limestone mines in Thailand, mainly for the captive use of Tata Steel.

Environment Management: Jamshedpur was India's first planned industrial township. In more recent times, Tata Steel has received ISO 14000 certification for environment management for its steel works. Most of its other, mines and collieries also have been accredited with ISO certification.

Corporate Social Responsibility The welfare of its employees and the upliftment of the communities in which it operates are critical part of Tata Steel's guiding values and principles, inextricably interlocked with productivity at the steel 31

plant .This belief has resulted in a mammoth social outreach programme covering the town of Jamshedpur (population 0.65 million) and over 600 villages in and around its manufacturing and raw materials operations. The company-run town of Jamshedpur has India's only ISO 14001 certified municipal services and is also amongst the six participating cities of the UN Global Compact Cities Pilot programme for addressing intractable social, economic and environmental issues in the urban context. The company has dedicated agencies for community welfare work in diverse areas such as education, community health and HIV/AIDS awareness, income generation for economic well-being, environment management, relief, sports, art and culture, etc. Regarded globally as a benchmark in corporate social responsibility coupled with its record of 75 years of industrial harmony, Tata Steel's commitment to its employees and the community remains the bedrock of continued sustainability.

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PRODUCTS Long Products

Wire Rods, Rebars

Flat Products

Hot and Cold Rolled Sheets, Hot and Cold Rolled Coils, Galvanized Coils and Sheets, Hot Rolled Plates

Semi Finished Steel Products

Billets and Slabs

Tubes

Standard Pipes, ERW Precision Tubes, Cold Structural Bearing Wires, Rolled Rings, Forged Rings, Machine Rings, Bearings, Plain and Coated Steel Wires

Minerals Concentrate

Coal and Coke, Iron Ore, Dolomite, Chrome Ore, Chrome

Others

Ferro Alloys, Agricultural Implements, Services like Project Studies, Design and Engineering, personnel and Technical Training, Automation, Information Technology, Power and Water.

Branded Products

Branded products include Tata Shaktee GC Sheets, Tata Steelium Cold Rolled Steel, and Tata Tiscon construction rods, Tata Pipes, Tata Bearings, Tata Wiron and Tata Agrico.

ASPIRE ASPIRE is a programme launched in May 2003, which amalgamates the aspirations of all of us to face the truth and take us to a height we aspire for. This programme revolves around the following concepts by Creating Urgency (Aspiration), Building the Team, Effective Communication, Empowering Action, creating short term wins to facilitate momentum, and ultimately imbibing ASPIRE as a culture. ASPIRE programme has been evolved incorporating the best practices of different improvement initiatives.

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CORPORATE SOCIAL RESPONSILIBITY

“Every company has a special continuing responsibility towards the people of the area in which it is located. The company should spare its engineers, doctors, managers to advice the people of the villages & supervise new development undertaken by cooperative efforts between them and the company.”

JRD TATA (1969) Tata Steel has always taken the initiative to improve the quality of life of the employees and the people of Jamshedpur in various ways. The company has its thrust as a good corporate citizen and responsibly carrying all the activities concerning: 

Relief in parts of India, which are affected by natural calamities.



Community and rural development.



Greening.



Sports.

34

The company’s social commitments involve a network of development programmes. As a good corporate citizen, the company has identified itself with the growth and development of the nation, aiding it in times of natural calamities and providing benefits to the needy. Tata Steel is one of the few Indian companies to be invited to join the UN-sponsored Global Compact. It has also been conferred the prestigious Global Business Coalition Award (GBC) for Business Excellence in the Community in view of its outstanding work in the field of HIV / AIDS awareness.

STRATEGIC BUSINESS UNITS

Apart from the main steel division, Tata Steel’s operations are grouped under the following strategic business units:



Bearing Division



Ferro Alloys and Minerals Divisions



Rings and Agrico Division



Tata Growth Shop (TGS)



Tubes Division



Wire Division

RESEARCH METHODOLOGY TYPE OF RESEARCH The study is descriptive in nature in the sense that it focuses basically on analyzing the debtor management at TATA STEEL.

SIGNIFICANCE OF THE STUDY Debtors Management is one of the most important aspects of an organization as it deals with the amount outstanding with the debtors and its proper collection to sustain the profitability 35

of the concern. A proper eye on the debtor’s standings gives the organization the required information to review not only its own credit terms but also to formulate a flexible policy for future. It is also important for the fact that the profits of the company depend upon its accounts receivables and therefore it needs careful analysis and proper Management.

OBJECTIVE OF THE STUDY In this project an attempt has been made to understand the importance of receivable management, to know the process of debtors management in TATA STEEL LIMITED how the outstanding debtors are accounted for in different categories like “over three months, over six months, over a year, over two years, over three years and above,” and what steps and actions are taken and should be taken to recover these dues on time. The main focus of the project is on “Overdue, Outstanding debtor” and finding out the reasons for the same.

To analyze the debtors management of Tata Steel

SCOPE OF THE STUDY The scope of this study is limited to the study of Debtors Management at TATA STEEL LIMITED. The scope encompassed with the debtors section of the company which is a part of Finance and Accounting Department.

TOOLS FOR COLLECTION OF DATA

Primary data’s are collected by interviewing customers and employees of TATA STEEL LIMITED.

Secondary data’s are collected by using internet, magazines and text books.

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Overview of finance division of TATA STEEL

The whole finance and accounts division of TATA STEEL, Jamshedpur is divided in different groups and section. These are:     

CASH OFFICE FINANCE AND COST ACCOUNTING GROUP WAGES GROUP PURCHASE AND CAPITAL GROUP SALES AND INDIRECT TAXATION GROUPS

Sales and indirect taxation group is responsible for accounting for activities such as:    

FREIGHT-OUTWARD & INWARD(ROAD AND RAIL) INVOICE INDIRECT TAXATION (EXCISE AND SALES TAX) SUNDRY DEBTORS AND EPA A/C

It is also related to post sales activities like debtors and town accounting. It comprises the following section, debtors section related to the followings:

 OUTWARD INVOICE SECTION  SUNDRY DEBTORS SECTION  TOWN DEBTORS SECTION 37

ANALYSIS DESIGN For analysis, percentages, ratios, trends and pivot charts have been used.

INTRODUCTION TO DEBTORS MANAGEMENT Concept of Receivables management The term receivable management is defined as “debt owed to the firm by customer arising from the sale of goods/services in the ordinary course of business.”The receivables represent an important component of the current assets of the firm. Receivables may be known as accounts receivables, trade creditors or customer receivables. When a firm sells its product services and does not receive cash immediately the firm has to grant trade credit to the customers. Trade credit thus creates receivables/book debts, which the firm is expected to collect in its for the near future. Accounts receivables are thus amounts due from customers, which bear no interest in essence, a company is providing no cost financing to the customer to encourage the purchase of the company’s product/services.

The extension of credit can be justified only if the increase in the sales and related cash collections (discounted for the cash until collection/0 exceeds the amount otherwise cash generated under a “cash only” policy. These customers from whom receivables or book debt are to be collected in the future are called as “trade debtors “or simply as “debtors “and represents the firm’s claim on assets. Trade debtors are expected to be converted to be cash within a short period and are included in the current assets. Since receivables often accounts for the significant portion of total assets, it requires careful attention and adequate management. It is skill demanding field because the customer has to be bestowed with trust along with a continuous vigilance.

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AREAS COVERED UNDER RECEIVABLE MANAGEMENT CUSTOMER PLACES ORDER

ESTABLIS-H CREDIT STATUS

CHECK CREDIT LIMIT

CASH RECEIVED

ISSUE DELIVERY NOTE

TELEPHONE CALLS

REMINDER LETTERS

GOODS DELIVERED

STATEMENT SENT

INVOICE RAISED CUSTOMER RECEIVES INVOICES

Areas covered under receivable management can be explained with the following credit. Thus it can be seen that the credit cycle begins when customer places the order. The whole cycle can be divided into two parts from the time when customer places the order, till the time when invoice is raised; this stage is called “ customer order processing stage” and stage after which customer receives invoice till cash is received is called the “ Credit collection process”.

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DEBTORS MANAGEMENT – CONCEPT

The term debtor is defined as “debt owed to the firm by customer arising from the sale of goods/services in the ordinary cores of business.” A person, company or agent who receives goods or services from the Council but has not yet paid the full amount owing for them. Debtors’ management by standard financial definition involves a designated third party assisting a debtor with repayment of his or her debt. The objective to recover all debts with a consistent and effective approach dictates that if an employee has an outstanding debt. In many cases, a third party service will attempt to settle some debt amounts and exclude or lower any interest charged during the repayment period. The debtors represent an important component of the current asset of the firm. Debtors may be known as account receivables, trade debtors or customer receivable. When the firm sells its products and services it does not receive cash immediately the firm is said to have granted trade credit to the customers. Trade credit does create receivables which the firm is expected to collect in near future. Account receivables are those accounts due from customers which bear no interest. In essence accompany is providing no cost financing to the customer to encourage the purchase of the company’s product/services. Receivables balance as shown in the balance sheet of a company relates to sales made on credit for which payment has not yet received. They arise from the sales of goods and services on credit basis. The extension of credit can be justified only if the increase in sales and related cash collection (discounted for the time until collection) exceeds the amount otherwise generated under a cash only policy. These customers from who book debt are to be collected in future are called as trade debtors or simply debtors and represent the firms claim on asset. To increase the sales volume, generally the credit facility will be offered to the customers, which result in investment in receivable to maximize return on capital employed.

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OBJECTIVE OF DEBTORS MANAGEMENT As we know that the firm has some part of its transaction on cash and some on credit therefore the firm is required to allow credit sales in order to expand its sales volume. The increase in sales is also essential to increase profitability. The objective of debtor’s management is to achieve tradeoff between risk and profitability. The sale of goods on credit has become an essential part of the modern competitive economic system. In fact, credit sales and therefore, receivables are treated as marketing tool to aid the sale of goods. The credit sale is generally made on open account in the sense that there are no formats of debt obligation through financial instrument. As a marketing tool they are intended to promote sales and there by profits. However, extension of credit involves risk and cost. Management should weigh the benefits as well as cost to determine the goal of debtor’s management. Therefore the basic objective in short is “to promote sales and profit until that point is reached where the return of investment in further funding of receivables is less than the cost of funds raise to finance that additional credit.”

The Book Debt has Three Characteristics:1. It involves element of risk 2. It based on economic value 3. The cash payment or equivalent made in future

41

NEED FOR GRANTING TRADE CREDIT: Trade credit is an important marketing tool. A policy of trade credit is followed nearly in all capital intensive industries either for sales expansion and/or sales retention. The various factors that favour credit are:

Market factors

Customers’ Requirement

Competition

Recessionary economic conditions

Marketing Tool

 Market factor – Market factors like prices, forces a company to grant credit. Like if a company’s prices are higher comparatively then it is forced to grant credit in order to maintain sales.  Competition – Keeping in mind the stiff competition from both domestic and international players, the companies are left with no option than to grant credit. Competition is another vital factor which effects the credit policy of the firm, and Tata Steel is not an exception.  Customer’s Requirement – As the market has changed to the buyer’s market, the customer has become a king. If the customer s expects credit and is worthy of it, he gets credit .  Marketing Tool – To push up sales of slow moving products and encourage bulk purchase of fast moving products, credit plays an effective role in this context .  Recessionary Economic Condition – Liquidity crunch forces the company to grant credit. 42

DETERMINANT OF SIZE OF RECEIVABLES The following are the factors directly or indirectly determine the size of debtors: 1. Level of Sales – The most important factors in determining the volume of receivables in the level of firm’s credit sales with an increase in the size of sales, it may bring about the proportion increase in the magnitude. 2. Credit Policies – The firm with the liberal credit will have a higher level of receivables than with conservative or rigid credit policy. 3. Terms of Credit – The size of debtors also depends upon the trade. The period of credit allowed is more, than the debtor will also be more and vice-versa 4. Profit – The level of debtors increases as a result of increase in sales. When sales increase beyond a certain level the additional cost incurred is less than the increase in revenue. It will be beneficial o increase sales beyond a point because it will bring more profit. The increase in profit will be followed by an increase in size of debtors 5. Market – It may be necessary to a firm to explore a new market for its products/ services. One of the attractive way in which a firm enters a new market is by giving incentives to the customers in the form of credit facilities. This way the size of the receivables will increase. 6. Grant of Credit – Size of receivables depends upon the policies and practices of a firm in determining which customer are to be granted credit. 7. Paying Habits of Customers – The paying habits of the customer also have a bearing on the size of receivables. The customer maybe in the habit of delaying payments even though they are financially sound. In such cases, the firm should remain in constant touch with their customer 8. Collection Policy – The vigour which a firm collects its due from customers also affects the debtors. If the payment due are not collected timey the firm suffers some financial difficulties 9. Operating Efficiency – The degree of operating efficiency in billing record keeping and other functions also exercise some influence on a firm credit policy which in turn influences it receivables. 10. Credit Collection – The collection of credit should be streamlined. Efficient credit collection missionary will reduce the size of debtors. Individual firm often set up their own well organize credit collection department.

43

COST AND BENEFITS ASSOCIATED WITH RECEIVABLE MANAGEMENT:There different types of cost associated with debtors. Those costs are as follows:  Collection Cost – These costs are administrative cost incurred in collecting the receivables from the customers. This category of cost includes:  Additional expenses on the creation and expenses on the creation and maintenance of a credit department with staff, accounting, record stationary, postage and other related items.  Expenses involved in acquiring credit information either through outside specialist agencies or by staff of the firm itself.  Capital Cost – Accounts receivables being short term investment in current asset have to be financed involving a cost. There is a time lag between the sale of goods and payment of it by the customer. Mean while the firm has to pay employees and suppliers of raw materials i.e the firm should arrange for additional credit sales is therefore a part of cost of extending credit.  Delinquency Cost - This cost arises out of failure of the customers to meet their obligations when payment on credit sales become due after the expiry of the period of credit, such cost includes :  Blocking up of funds of extended period.  Cost associated its steps that have to be initiated to collect the overdue, such as reminders and other collection efforts, legal charges were necessary and so on.  Default Cost – In addition to the above cost, the form may not be able to recover the overdue because of inability of the customers. Such debts are treated as bad debts and have to be written off, as they cannot be realised. Though a concern may be able to reduce bad debts through efficient mechanism, one cannot all together rule out the possibility of this cost.

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BENEFITS: Apart from the costs, another factor that has a bearing on accounts receivables is the benefit emanating from credit sales. The benefits would depend upon the credit policy adopted by the firm, i.e. a conservative or a liberal credit policy. The impact of liberal credit policy is likely to have forms :  SALES EXPANSION  SALES RETENTION In sales expansion a firm may grant credit either to increase sales or to attract new customer. This motive is growth oriented, on the other hand in case of sales retention the firm may grant credit to protect its current sales against emerging competition. No matter what ever may be the motive, the result of increased sales is to increase the profit of the firm.

Activities of Sundry Debtors Section     

Inter office collections (on behalf of other divisions/profit centres/sales offices) Maintains a full report on every debtors Categorize the overdue debtors as per their overdue period It analyses its debtors through Credit Assessment Modules (CAM) Preparation of report and to send it to the marketing and sales department

PREPARATION OF REPORTS:    

Board Notes On Debtors (Tata Steel Debtors) Associated Company’s Report VP (F) Report (Gives The Detailed Outstanding Of All The Major Parties) Preparation Of The Outstanding Report For Secondary Products, Rings & Agrico Town

45

Some top Customers of TATA STEEL: AUTO SECTOR       

Hyundai motors India Ltd. Mahindra & Mahindra. Tata Motors-Pune Ford India Ltd. Toyota kirlosker motors Ltd. Ashok Lyland India Ltd. Maruti Udyog Ltd.

TWO WHEELERS   

Honda motors & scooters India Ltd. T.V.S. Motors. Bajaj auto.

AUTO ANCILIARIES      

ASAL Rasandik Thyseen krupp Ltd. Caparo maruti ALGI Yeshahree

DRUMS AND BARRELS  

Balmer & lawrie Indian oil corporation

WHITE GOODS   

Whirlpool LG VOLTAS

TUBES  Tubes product of India

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GRAPH AND INTERPRETATION

LIQUIDITY RATIO QUICK RATIO

CURRENT RATIO

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Debtors’ turnover ratio and average collection period of TATA Steel Year Debtor ( Rs. Crs) Sales ( Rs. Crs) DTR ACP ( Fig. in Days)

2005

2006

2007

2008

2009

581

539

631

543

635

15876.87

17144.22

19762.57

22189.55

26843.73

27.33

31.81

31.32

40.86

42.27

13

11

12

9

9

ANALYSIS So from the table we can clearly see that the debtors’ turnover ratio of Tata steel has been increasing for the last five years except for the year 2007 i.e. 31.32 . This indicates that Tata steel has adopted effective measures of collecting back their dues. Tata steel average collection period has decreased over the last five years except for the year 2007 showing that there is less of default made by the customer and they pay their debts on time. This can be attributed to better brand image and credibility of the company.

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Debtors’ turnover ratio and average collection period of JINDAL Steel Year

2005

2006

2007

2008

2009

266

229

245

337

398

Sales ( Rs. Crs)

7036

6802

9297

12629

15179

DTR

26.45

29.7

37.94

37.47

38.13

14

12

10

10

10

Debtor ( Rs. Crs)

ACP ( Fig. in Days)

ANALYSIS From the table we can see that the debtors’ turnover ratio of Jindal steel has been increasing over the last five years except for the year 2008 which is the year of recession. In spite of slowdown Jindal’s debtors’ turnover for the year 2008 was similar to the year 2007. Their average collection period is also decreasing and for the last three years its remaining at 10 days. So, Jindal is getting back their dues in 10 days.

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Debtors’ turnover ratio and average collection period of SAIL Year

2005

2006

2007

2008

2009

Debtor ( Rs. Crs)

1908

181

1720

3048

3024

Sales ( Rs. Crs)

31805

32279

29153

45555

48681

DTR

16.66

17.16

16.94

14.94

16.09

22

21

22

24

23

ACP ( Fig. in Days)

ANALYSIS From the table we can see that the debtors turnover ratio of sail has been fluctuating indicating that the company does not follow a consistent policy of collecting back their debts. Some years they are increasing and some other years they are decreasing and the highest was seen the year 2006. Sail’s collection period is also seen to be fluctuating and the lowest was seen in the year 2006. So in the year 2006 they had the most efficient collection of their debts and the highest was seen in the year 2008.

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Debtors’ turnover ratio and average collection period of ARCELLOR MITTAL Year Debtor ( Rs. Crs) Sales ( Rs. Crs) DTR ACP ( Fig. in Days)

2005

2006

2007

2008

2009

10145

38899

42288.1

29885

25506.8

1247927

261145.5

466735

554212

288826

12.3

6.71

11.03

18.54

11.32

30

54

33

20

32

ANALYSIS The debtors turnover ratio of Arcellor Mittal is seen to be fluctuating over the last five years with the highest seen in the year 2008. Arcellor Mittal is one of the most renowned companies internationally. Still it does not have an efficient system of collecting back their dues. The average collection period is also very high with the highest seen in the year 2006 i.e. 54 days which means that the company recovers their dues on an average after 33 days which is supposedly very high. By looking at the time lag we can even presume that there are chances of bad debts made by the debtors of Arcellor Mittal which could be attributed to poor debtors policy followed by the company.

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Debtors’ turnover ratio and average collection period of NIPPON STEEL Year Debtor ( Rs. Crs) Sales ( Rs. Crs) DTR ACP ( Fig. in Days)

2005

2006

2007

2008

2009

21968.60

13506.00

8336.00

28473.70

26946.00

160716.40

122961.36

121609.55

229039.90

226328.00

7.31

9.10

14.58

8.04

8.39

50

40

25

45

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ANALYSIS: The debtors turnover ratio of Nippon steel is seen to be increasing for the first three years except for the year 2008 and 2009 i.e. 8.04 and 8.39. so in the year 08 and 09 the debtors ratio was less compared to other years. Nippon steel’s average collection period is seen to be decreasing except for the year 2008 and 2009 indicating that during these two years the company had recovered their dues very late which can be attributed to the economic slowdown.

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Comparison of Tata Steel internationally

ANALYSIS On comparing Tata Steel, an Indian company internationally with Arcellor Mittal and Nippon Steel we can see that the debtor’s turnover ratio of Tata Steel is the highest indicating that the company follows an effective and efficient policy of collecting back their dues. The average collection period of Tata Steel is also the lowest when compared to Arcellor Mittal and Nippon Steel. We can see that over the five years its only for Tata Steel that the collection period has been decreasing but in case of Mittal the collection period has been fluctuating and in case of Nippon the collection period is very high. So, we can infer that the debtor’s management of Tata Steel, an Indian company is functioning better than Arcellor Mittal and Nippon which are international companies.

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Comparison of Tata Steel domestically

ANALYSIS When Tata Steel is compared with Jindal Steel and Sail which are both Indian companies we can see that the debtors turnover ratio of only Tata Steel has shown a steady increase for the last five years except for the year 2007, Jindal Steel has also been functioning comparatively well except for the year 2008 where there was a decrease of approximately 1.2% which can be attributed to the global slowdown i.e. recession. The debtor’s turnover ratio of sail has been fluctuating for the last five years. The average collection period of Tata steel has also decreased for the past five years. However for Jindal Steel also it’s been decreasing, and for sail the collection period has not been consistent and on an average it was more than 22 days.So we can infer that domestically also the collection of debtors has been better in Tata Steel and it could function well even in the times of recession which can be attributed to the proper monitoring of debtors management section of Tata Steel.

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Credit Terms Credit terms refer to the terms and condition on which trade credit will be made available .Thus, the stipulations under which goods are sold on the credit are referred to as credit terms. These relate to the repayment of the amount under the credit sale. These terms can be finalized only after a scrutiny of a number of factors. The various factor, which must be taken into account are:The seller company’s place in the market and the credit terms on which it is buying from its own suppliers. The availability of the capital it needs to finance its own credit sales and whether this is to be borrowed and if so at what cost; also the availability of capital to finance the payment of other overheads.

    

The existence of buyer or seller’s market. The volume of sales planned and how these will be spread over the range of customers. The profit margin to be obtained. The competitive factors. The character of the market.

The period the buyer will have the goods i.e. the buying company’s inventory turnover and average collection period will ultimately decide the selling company’s credit terms.

The condition of the customer finances and the degree of the credit sale will involve.

Credit Terms Has Three Components

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Credit Period It is the duration of time for which trade credit is extended. During this period the customers must pay the overdue amount.

Credit Limit It is decided by top management and varies according to market condition. This total amount is broken up into regional limits within which the different parties have to be accommodated. The credit control committee as discussed above performs this function.

Cash Discount It is offered to induce the customers to make prompt payments. The customers can take advantage of discount if they pay the amount within the stipulated time. These credit terms are usually written in the abbreviations, for e.g. 2/10 net 30,where:-2 signifies the rate of cash discount(2%).10 represent the time duration ( 10 days ) within which a customer must pay to be entitled to the discount.30 represents the credit period.

Credit Terms of Tata Steel The credit terms i.e. the credit period and cash discount, followed by Tata Steel are as follows:

Credit period:

The credit period is decided on the basis and of type of the product and is generally of fixed nature. However, special customer may be allowed a variance in the set credit period depending upon the volume of sales and customer relationships.

Interest charged: Interest free credit is allowed for 30 days in most cases .After every 30 days extension there is a 1 % rise in interest rate for secured credit. The rate of interest for unsecured credit is 1 % more than the corresponding rate under secured credit. There is a penal interest of 3 % over the applicable rate of interest.

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Time period

Secured Credit

Unsecured Credit

After 30 days

18.5%

19.5%

After 30 days

19.5%

20.5%

After 30 days

20.5%

21.5%

Cash discount:

Collection efforts:

Cash discount of 2 % has also been allowed for certain products in different division .The discounts have had a positive response from certain customers, who are cash rich, and customers who had working capital problems i.e. whose inventory turnover have also ignored the discounts and debtor’s turnover is low or whose operating cycle is long.

A constant touch with the customer is the best way of reminding him about his payment schedule in a polite but firm manner. A daily, weekly and monthly report regarding the total sale is done to keep a track on debtors and cash position.

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Tata Steel Credit Monitoring And Control As most of the credit is unsecured, keeping a timely vigilance on the debtors is important from the safety and liquidity position of the firm. This primarily requires an efficient collection process because slackness in the collection efforts lengthens the average collection process period and increases the percent of bad debts.

For monitoring the debtors TATA STEEL is using some steps, these are as follows:  Preparations of an aging schedule.  Strict control over the overdue debtors  Analysis of overdue debtors  Collection of reasons for overdue and devising an action plan to reduce them  Appraising the management with reasons  Periodical analysis and assessment of debtors at various higher echelons of management.  Calculations of days outstanding  Calculations of average collection period. With the help of these monthly reports are generated and are sent for reviews to credit control committee chaired by V.P (F&A) In case of secured credit the company is also the debtors of its customers, it uses its accounts payable as a tool that realizes its accounts receivables. In cases, which have the symptoms of becoming bad then a reconciliation statement is prepared and a mutual agreement arrived at. However in the worst case legal action is pursued and bad debt are not off before 5 years

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Credit Decision Procedure of Credit Decision RISK CLASSIFICATION OF THE ENTRY

SHOULD WE EXTEND CREDIT TO THIS ENTITY?

IF YES, THE RECOMMENDED CREDIT LIMITS

THE STRUCTURE OF CREDIT i.e. secured (%) OR UNSECURED (%)

RECOMMENDED CREDIT AS PER PERCENTAGE OF NET WORTH

SANCTIONED CREDIT LIMIT (SPECIFYING THE STRUCTURE AND AMOUNT

INDIVIDUAL FIRM/COMPANY WISE CREDIT LIMIT (IN CASE THE ENTITY HAS DIFFERENT FIRMS OR COMPANIES)

SALES CENTRE WISE ALLOCATION OF SUBLIMITS

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PROVISION FOR DEBTOR TATA STEEL DEVISION NAME:………………………………………….…………. DEBTROS STATUS AS ON…………………..SUMMARY AS ON………………….

DEBTORS PROVISION

Guideline

% of Provision Amount of Provision Required Outstanding Required

1. BIFR CASES a) Above three years I. Recoverable II. Non Recoverable Total

100% 100%

b) Below three years I. II.

Recoverable Non Recoverable Total

100% 100%

Total 2. LEGAL CASES c) Above three years I. II.

Recoverable Non Recoverable Total

100% 100%

d) Below three years I. II.

Recoverable Non Recoverable Total

100%

60

100%

Total 3. Govt. Or Town Dues e) 6 Months – 1 year I. II.

Recoverable Non Recoverable Total

0% 100%

f) 1 – 2 years I. II.

Recoverable Non Recoverable Total

50% 100%

g) Above 2 years I. II.

Recoverable Non Recoverable Total

100% 100%

Total

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4. Others h) 6 Months – 3 year I. II.

Recoverable Non Recoverable Total

0% 100%

i) 3-5 years I. II.

Recoverable Non Recoverable Total

100% 100%

j) above 5 years I. II.

Recoverable Non Recoverable Total 100% 100% Total

5. Grand Total

FORMAT OF DEBTORS REPORT OF TATA STEEL

OVERALL OUTSTANDING A

B

C

31.03.09

30.04.09

31.05.09

C-A PROFIT CENTRES Steel Flat – HR CRC – East

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C-B

CRC – West TCIL (CRM/ETP) Steel Long Wire Division – Borivili Steel Exports Tubes Bearing Ferro Alloy & Minl. Incl Fap Growth Shop Secondary Products Ring and Agrico TMILL OMQ Collieries – WBC Collieries – Jhraria Export Incentives – Steel Town – Jusco Town – Steel Division OTHERS Total Gross Debtors

63

AGEWISE FORMAT OF DEBTORS AGEWISE FORMAT OF DEBTORS OVERDUE Division Profit Centre

Total Gross 5

Within credit Period

Total Overdue

Within Between 3 N3-6 Month Months s

Steel Flat – HR CRC- East CRC-West TCIL (CRM/EPT) Steel Long Wire Division Borivili Steel Exports Tubes Bearings Ferro Alloy &

Minl.

Division Growth Shop

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Betwee Betwee Betwee Over 3 n N6 n 1-2 n 2-3 years Months years years -1 years

Secondary Products Rings

&

Agrico TMILL OMQ Collieries Jharia Export Incentives Steel Town-Jusco Town-Steel Division Others Total Gross Debtors Less: Provision for

Bad

Debts

Net debtor

65

CREDIT ASSESSMENT MODULE

1. CAM 1- SOLVENCY

2. CAM 2- FINANCIAL VIABILITY

3. CAM 3- TECHONOLOGY & COMMERCIAL

4. CAM 4- QUALITY AND CREDIBILITY OF MANAGEMENT

CREDIT ASSESSMENT POLICY

Credit Management Module

Behind every credit decision there is inherent potential for loss informed. Credit decisions will minimize the risk, enhance the profitability and need to better structuring of credit. For credit appraisal and risk assessment customers are broadly classified into three groups, namely.



Organized Sector- Private and Public Ltd. Companies including government undertaking.



Un-Organized Sector- Traders, Partnership Firm, SIS units etc.



Government Department- Defence, irrigation, power, railways, PWD, CPWD etc.

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Credit Risk Assessment of the Customer is assessed based on the following parameters.



Ability to Pay: It is easy to assess the ability of the customer to pay and is applicable the organized sector. The following factors affect the above. i.

Solvency

ii.

Financial Viability

iii.

Technological Soundness

iv.

Commercial Feasibility

 

Willingness to Pay: It is based on the judgment and is applicable to both organized and unorganized sector. This is the only criterion adopted for assessing the customers in the unorganized sectors. The assessment criterions are. i.

Quality of Management

ii.

Credibility

iii.

Past Performances

iv.

Health of Group Companies

Credit Assessment Module – 1 CREDIT ASSESSMENT MODULE-1 CAM-1 Solvency Corporate Bankruptcy Prediction(“Z” score) Ratios

Description

Result

Co-efficient

“Z” score

X1

Working capital/total assets

-

6.560

Z1

X2

Retained earnings/total assets

-

3.260

Z2

X3

EBIT/total assets

-

6.720

Z3

X4

Net worth/total liabilities

-

1.050

Z4

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Total

(Z1+Z2+Z3+Z4)=”Z” score

Credit Decisions (Tick the appropriate column) LOW RISK

MEDIUM RISK

HIGH RISK



NOTE: “Z” score above 4.00 to be considered as low risk. “Z” score between 4.00 and 2.60 to be considered as medium risk. “Z” score less than 2.60 is to be considered as high risk. “Z” score less than 1.10 is a sign of bankruptcy.

THE SOLVENCY MODEL: Z-SCORE TECHNIQUE  The Z-score technique has the ability to measure both, the profitability and the balance sheet strength, simultaneously and hence is a powerful index of financial performance.  Z-score model is very accurate and highly reliable because of its very nature of development. CREDIT ASSESSMENT MODULE-2 CAM-2 FINANCIAL VIABILITY RATIOS

DESCRIPTION

Year 1

Year 2

(2009)

(2008)

1.STRUCTURAL RATIO

a) Debt-Equity Ratio

DEBT/EQUITY

1.08

1.34

b) Interest Coverage Ratio

PBIT/INTEREST ON DEBT

8.35

5.71

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2. LIQUIDITY RATIO

a) Current Ratio

b) Acid Test Ratio

CURRENT ASSETS / CURRENT LIABILITIES

1.12

0.90

3.52

0.57

QUICK ASSETS / CURRENT LIABILITIES

3. TURNOVER RATIO

a) Assets Turnover Ratio

SALES / TOTAL ASSETS

0.992

1.05

b) Inventory Turnover Ratio

TOTAL INVENTORY/ SALES

43.00

42.00

9.00

11.00

SALES / RECEIVABLES c) Receivables Turnover Ratio 4. PROFITABILITY RATIO

a) Gross Profit Ratio

PBIT / SALES

0.42

0.38

b) Net Profit Ratio

PAT / SALES

0.234

0.211

Credit Decisions (Tick the appropriate column) LOW RISK

MEDIUM RISK

HIGH RISK

 NOTE: Year-1 and Year-2 are the immediately preceding financial years.  A high Debt-Equity ratio and increasing trend of this ratio is a common trait among the failing companies.  No ratio should be interpreted in isolation and a credit decision should be taken after reviewing the ratios in totality.

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LIQUIDITY RATIO Liquidity or short-term solvency means ability to the business to pay its short-term liabilities. Inabilities to pay off short term liabilities affect its credibility as well as credit rating. Continuous default on the part of the business leads to commercial bankruptcy. Eventually such commercial bankruptcy may leads to its sickness and dissolution. Creditors are very much interested to know its state of liquidity because of their financial stake.

STRUCTURAL RATIO Structural ratios are those financial ratios, which measures the long-term stability of the firm. These ratios indicate the mix of funds provided by owners and lenders and assure the lenders of the long-term funds with regard to:

 Periodic payment of interest during the period of loan and  Repayment of principal amount on maturity

DEBT-EQUITY RATIO These ratios provide an insight into the financial technique used by the business and focus, as a consequence, on the long term solvency position. This ratio indicates the proportion of debt fund in relation to equity. It indicates the proportionate claim of owners and outsiders against the firms’ assets. Creditors are very keen to know this ratio since it shows relative weight of debt and equity. A ratio of 1:1 is considered to be satisfactory ratio. However, the creditors would prefer a lower one.

INTEREST COVERAGE RATIO It indicates the firm’s ability to interest obligation. Long-term creditors of the firm are interested in knowing the firm’s ability to pay interest on their long-term borrowings. Generally, higher the ratio safer is the creditors because even if the earning falls, the firm will be able to meet its commitment of fixed interest charge. A lower ratio indicates excessive use of debt or inefficient operation.

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TURNOVER RATIO

WORKING CAPITAL RATIO



DEBTORS TURNOVER RATIO

INVENTORY TURNOVER RATIO

WORKING CAPITAL RATIO

Working capital ratio established the relationship between sales and working capital. It measures the efficiency of utilization of working capital. The higher is the ratio, lower is the investment in working capital & greater are the profits.

 DEBTORS TURNOVER RATIO Indicates the relation between net credit sales & average accounts receivables of the year. The ratio indicates the efficiency of the concern to collect the amount due from the debtors. Higher the ratio, better it is as it proves that debts are collected quickly.

 INVENTORY TURNOVER RATIO It indicates that how fast inventory is used/ sold. It measures the efficiency of the firm in selling its products. A high ratio indicates efficient management of inventory because more is frequency of selling the stock. Low inventory turnover ratio indicates over investment in inventory, slow business, poor quality of good, stock accumulation, accumulation of obsolete slow moving stock and low profit compared to total investment.

 DEBT COLLECTION PERIOD Indicates the average time taken to collect trade debts. In other words, a reducing period of time is an indicator of increasing efficiency. It enables the enterprise to compare the real collection period with the granted /theoretical credit period.

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CREDIT ASSESSMENT MODULE-3

TECHNOLOGICAL AND COMMERCIAL VIABILITY

TECHNOLOGICAL

STRONG

1.PRODUCT QUALITY



2.PRODUCT MIX



3.TECHNOLOGICAL KNOW HOW



4.PROCESS SUITABILITY



MEDIUM

WEAK

 5.PLANT/EQUIPMENT

Credit Decisions (Tick the appropriate column) LOW RISK

MEDIUM RISK

HIGH RISK



Explanation A party or firm may be analyzed on the basis of above parameters while making the credit decision. At TATA STEEL, all the said standards are duly studied and observed over a period of time for making a valid decision regarding grant of credit as may be needed by the party. If all the parameters of the party are found to be strong or a combination of strong and medium as it may feel suitable, the credit decision for the party may be positive

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CREDIT ASSESSMENT MODULE-4

Quality and Credibility of Management (Willingness to pay)

STRONG

PARAMETERS

MEDIUM

WEAK

QUALITY OF MANAGEMENT



1. Track Record 2. Market Reputation



3. Experience In Field 4. Ownership Disputes

 5. Technical Competence CREDIBILITY OF MANAGEMENT





1. Ethics In Business Dealings 2. Commitment Level 3. Relationship With Creditors 4. Relationship Authorities

With

Regulatory 

5. Relation With Banks 

6. Relation With Competitors 7. Past Performance With Us



8. Length Of Sound Dealings 9. Promptness In Payment

 10. Honoring Commitments 11. Payment Patterns And Adherence To 73

Credit Terms 12. Willingness To Furnish Information



13. Capacity To Stocks 14. Ability To Absorb Supply Spikes 

15. Avoidance Of Over Trading



HEALTH OF GROUP COMPANIES

1. Financial Soundness Companies

Of

Group 

2. Possible Diversion Of Funds To New  Business Ventures 3. Bank Rating 











74







Credit Decisions (Tick the appropriate column) LOW RISK

MEDIUM RISK

HIGH RISK



CREDIT DECISION MODULE MODULE

CRITERIA

LOW RISK

CAM 1

SOLVENCY



CAM 2

FINANCIALS



CAM 3

TECHNICAL & COMMERCIALS



CAM 4

QUALITY AND CREDIBILITY



75

MEDIUM RISK

HIGH RISK

NOTES:  

 

Maximum weight age should be given to criteria number 1 and 2 customers in organized sector. In case of a new company, financial data may not be available and hence it is suggested that the promoter’s past records and performance of the group companies should considered as guide. In case of customers in organized sector, criteria 1 and 2 are relevant. In case of government departments past performance, repayment patterns and adherence to credit discipline should be considered as a guide as other criteria are nonrelevant.

DECISION: THE ABOVE MODULES GIVE US A CLEAR OUTCOME OF HOW GOOD A CUSTOMER IS FOR TATA STEEL.

Meaning of outstanding and No. of day’s sales

Outstanding: It is the total amount of Debit which stands in the Customer’s Account. In other words it is the amount still owed by the customer.

Number of days sales: It represent the sales made for number of days which accounts to the outstandings total due from the customers) credit sales made by the company. For example if the outstanding is Rs 200 crore and no. of day’s sales is 20, it means Rs 200 crore is 20 days sale. This means that if the credit period is for 1 month, then 10 days sales are realized and 20 days sales are outstanding.

Calculation of number of days Sales It is computed by dividing the net accounts receivable at end of year by the average daily credit sales. The average daily credit sale is compute by another “shortcut”. Simply divide net credit sales by 365 days. The answer is in “days 76

TREND OF OVERALL DEBTORS (GROSS) 2008-09 VIS-A VIS 2009-10

Analysis 1. The average debtors for the year 2008-2009 are Rs 748 crores. 2. The average debtors for the year 2009-2010 is Rs 698 crores which is less than previous year. 3. In the month of September 08-09 the debtors showed a sudden increase of Rs 291 crores. 4. In the year 2008-09 the major increase in debtors were found the month of May and January. 5. In the month of October 08-09the debtors showed a decrease from 1005 crores to 755 crores i.e. increase of Rs 250 crores which can be attributed to the debtors payment after their credit period. 6. The year 09-10 the debtors were mostly in the same rang except for the year October and November where the debtors rose by Rs 132 crores and Rs 180 crores respectively.

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TREND OF SALES HOLDING OF TOTAL DEBTORS 2008-09 VIS-A-VIS 2009-10

Analysis 1. The average sales day holding of total debtors for the year 08-09 was 10 days. 2. The average sales day holding of total debtors for the year 09-10 was also 10 days. 3. For the year 08-09, the maximum number of sales day holding was seen in the month of January (13 days). 4. In the year 08-09 the sales day holding is within the range of 9 to 13 days. 5. For the year 09-10, the maximum number of sales day holding was seen in the month of November (14 days.) 6. For the year 09-10 the sales day holding is within the range of 8 to 14 days.

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PROCESS OF DEBTOR MANAGEMENT IN TATA STEEL LIMITED THE CATEGORIES ARE:1. End user a) Public Limited Company & Public Undertaking b) Govt Departments/Semi-government Agencies c) Tata Group of Companies d) Private Limited Companies/Partnerships/Customer who do not give their Balance Sheet 2. Trader/Agent/Dealer 3. Distributor Some important abbreviations 1. CAM- customer account manager 2. RFM- regional finance manager. 3. CMG – credit management group. 4. COMS- chief of marketing and sales. 1. End User

A) Public Limited Company & Public Undertaking These companies have published Balance Sheet, which can be relied upon (basically a widely held company – Public Ltd. Companies). Based on their Balance Sheet assessment, credit will be extended for a period of time, with maximum exposure specified. In order to extend credit under the above category, following steps will need to be followed:1. Whenever any new customer approaches for credit facility, CAM needs to enter the data of customer for Customer Profile, copies of two preceding years Balance Sheet assessment and forwards the same to the RFM for updating on the Customer Profile. 2. RFM shall enter financial details of the customer in the Customer Profile on Lotus Notes.

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3. To initiate the credit sanction, CAM will need to update basic data on the customer on a pre-defined template in CMG Module on Lotus Notes. Once completed, this is forwarded to RFM, who in turns fills the financial of the company. CAM updates /enters all non-financial data and RFM updates/enters the financial data. 4. CAM now initiate credit request, by filling details regarding the product to be sold, share of spends, credit period and nature of credit to be extended to the customer. These details are forwarded to the RFM for his vetting. The RFM can Reject/Approve a given proposal. Once approved by the RFM the same is forwarded to CMG for final vetting.CMG can also Reject/Approve a given Credit Request. 5. After vetting of the above proposal by the RFM, the above information is conveyed to CMG for sanction. Based on the financial information, recommendation made by the RFM, CMG assigns and approve credit limit. Once the credit limit is approved, it is saved in to the customer database and would form the basis for future credit transactions with the customer. In case RFM/CMG rejects a Credit Request, CAM may request directly to COMS for sanction of credit by giving proper justification. Every approved credit sanction will have drop down requesting for modification. CAM can request for modification of sanctioned credit limit giving reasons for it.

B) Govt Departments This category will include Government Departments (Examples: - Railways, PWD, Project Engineer etc.). These customers do not have a published Balance Sheet hence the requirement for the same is done away with. Credit is extended to these customers without any financial analysis since dues with the Government are considered as secured. Credit is extended for a period of time, with maximum exposure specified. In order to extend credit under the above category, following steps will need to be followed:1. Any new customer approaches for credit facility CAM is to enter data of customer in the Customer Profile on Lotus Notes. 2. To initiate the credit sanction, CAM will need to update basic data on the customer on a pre-defined template in CMG Module on Lotus Notes.

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3. CAM now initiate credit request, by filling details regarding the product to be sold, share of spends, credit period and nature of credit to be extended to the customer. Since the proposal is being assessed without any financial details hence the RFM will automatically give his vetting to the proposal. RFM can reject the proposal if he/she has any prior information of the customer market outstanding or poor payment record or existing dues in other branch. Once approved by the RFM the same is forwarded to CMG for final vetting.CMG can also Reject/Approve a given Credit Request. 4. After vetting of the above proposal by the FM, the above information is conveyed to CMG for sanction. Based on the financial information, recommendation made by the FM, CMG assigns and approve credit limit. Once the credit limit is approved, it is saved in to the customer database and would form the basis for future credit transactions with the customer. 5. In case FM/CMG rejects a Credit Request, CAM may request directly to COMS for sanction of credit by giving justification. 6. Every approved credit sanction will have drop down requesting for modification. CAM can request for modification of sanctioned credit limit giving reasons for it.

C) Tata Group of Companies This category relates to credit sanction for Tata Group of Companies. In recent past, the company has come across situations where either the CAM has not been able to get the Balance Sheet from the company, or if the company’s financials were weak, Tata Steel have still gone ahead and given credit to the company primarily because it is a TATA concern. 1. Under the revised process, Tata companies will be considered at par with Govt. Departments and no financials will be required to approve credit limit for the same. We shall follow same route of approving credit to these companies as done for Govt. Bodies/Departments. 2. CAM shall enter the details of the customer in the Customer Profile on Lotus Notes. 3. To initiate the credit sanction, CAM will need to update basic data on the customer on a pre-defined template in CMG Module on Lotus Notes. 4. CAM now initiate credit request, by filling details regarding the product to be sold, share of spends, credit period and nature of credit to be extended to the customer. Since 81

the proposal is being assessed without any financial details hence the RFM will automatically give his vetting to the proposal. RMF can reject the proposal if he/she has any prior information of the customer market outstanding or poor payment record or existing dues in other branch. Once approved by the RFM the same is forwarded to CMG for final vetting.CMG can also Reject/Approve a given Credit Request. 5. After vetting of the above proposal by the RFM, the above information is conveyed to CMG for sanction. Based on the financial information, recommendation made by the RFM, CMG assigns and approve credit limit. Once the credit limit is approved, it is saved in to the customer database and would form the basis for future credit transactions with the customer. 6. In case RFM/CMG rejects a Credit Request, CAM may request directly to COMS for sanction of credit by giving justification. 7. Every approved credit sanction will have drop down requesting for modification. CAM can request for modification of sanctioned credit limit giving reasons for it. 8. Refer End-User (Type-C) Customer Flowchart for the route. D) Private Limited Companies/Partnerships/Customer who do not give their Balance Sheet These will account for those companies where the Balance Sheet cannot be relied upon (basically a closely held company i.e. Pvt. Ltd., Partnership). 1. These will be cases where the customer has a Balance Sheet, which either he does not want to part with or the same is felt to be window dressed. For examples: - Forging Industry, Auto Direct and Auto Ancillary Industry. 2. Following information will be required to be filled in the CAM on a template design in Lotus Notes  Name of the Customer  Payer code and business area of the customer where credit limit is desired  Credit Limit desired and the payment terms with the customer  Products to be sold and monthly lifting  Share of spend (in Percentage) and (in MT)  Future expected monthly business potential (in MT)  Price negotiated, Credit NR, Cash NR (Comparative Distributor NR).

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 Any comfort letter from the customer’s Banker/Sister Company already dealing with Tata Steel.  Past data (max 6 previous month) on Credit, Overdue > 6 month, Sales and Collection of the customers.  Market Information on customers turnover, PAT for the last three years.  Any other information to make the case strong for sanction.

2. Traders Customers are being categorized as Traders to whom we sell materials such as defective material. Dealings are purely based on the availability of the desired material and the same is routed to the customer offerings the highest price. In course of month to month dealing, it could be possible that we don’t have continuous transaction with the same customer. Trader is a customer whose credit worthiness cannot be judged by his Balance Sheets/ Financials (in many cases, the Balance Sheets are not available). Credit to a trader is given for specific sale and a period. After the sales are complete, the credit continues for the allotted period and thereafter it is reversed. In order to extend credit to a Trader, following steps needs to be followed:1. Trader Profile will be Updated/Created by the CAM and since no financial details are required, the CAM can directly initiate the credit request and submit it to in Lotus Notes as per CMG Module. However, s o obtain views of RFM on the Profile of the Trader before sanctioning the proposal. 2. All Credit sanctions will be approved by the respective /COMS subject to their individual customer sanctioning power. 3. Distributors Customers who are appointed as authorised Distributors by the company fall under this category. These Customers enjoys a special status and the intention of the company is to have the long-term relationship with such customers. For these customers Credit Limit is done once in year and management approval for release of these Limits will be taken and

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will remain valid for the financial year. Any upward movement for a short period will be entertained on case to case basis. 1. Sanctioning of the Credit Limit for all Authorized Distributors will be based on their agreed average lifting during the year. 2. Any temporary modification of the Distributors Credit Limit will be entertained on written in Lotus Notes mail, on Request/Recommendation of the /COMS subject to their individual credit sanctioning powers.

Notes 1. Upload of Credit Limit in SAP System 2. Approval has to be obtained for both Secured & Unsecured Credit mentioned in CMG Module. However, once the credit limit is approved, only the unsecured part is to be entered manually by CMG in the SAP system. These limits function as the upper limit up to which delivery orders can be released for lifting steel materials. 3. In all cases of approval secured credit, FMs will verify whether the necessary security has been obtained, as per CMG’s approval. In case of any Non-compliance the same should be reported by FMs directly to CMG. Guidelines for FM’s in vetting Proposal 1. FM’s should calculate Z score using Dr. Altman’s Module. 2. Based on the Z score he should decide the Risk Category i.e. if Z score = 4

-

Medium Risk -

Low Risk

- In case of High Risk the appropriate securities to be recommended. - FM should decide the quantum of credit based on the customers’ working capital and Cash Generation capacity.

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Validity of the Credit Limit 1.

All Credits granted and updated in SAP by CMG must have a validity period as per

the terms of the sanction. According the expiry date should be entered in SAP. On the date of expiry the system will automatically invalidate the credit limit and stop all transaction. 2. In the Lotus Notes Module there is an early warning signal which sends an automated mail to CMG & concerned CAM before expiry of the credit limit. Action should be taken during the warning period to obtain fresh approval by the concerned CAM so that at the expiry date transactions is to be held up.

Process of Debtors reconciliation at Tata Steel TATA STEEL also ensures that 1. Correct accounting entries are made in the customer ledger. 2. Clear and accurate depiction of each customer’s account, thereby ensuring faster collection and customer satisfaction. 3. Timely debtor’s reconciliation and resolution of differences / disputes with customer. (Reconciliation of accounts is a continuous process and confirmation on balances is a legal requirement and hence should be obtained from customers at regular intervals.)

Intimation to Customer & CAM 1. At the beginning of each quarter, Sales Accounts / Finance Manager will send the Accounts Statement to each customer and CAM, for confirmation of balances. 2. In case of overdue, the analysis of overdue should also be sent to indicate the age of the overdue. 3. For credit customers, collection to be set off against invoices, by Sales Accounts / Finance Manager, on the basis of information provided by the customer. On A/c payment, if at all received, will be kept in Advance A/c. The same cannot be adjusted without the instruction from the customers. 1. Details of advances, partial payments also to be clearly identified in the account. 2. However, reconciliation can be required at any point of time during the process of various settlements.

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Process of debtors control at Tata Steel Timely follow-up for collection of outstanding is undertaken at TATA STEEL and they take preventive action on those outstanding becoming overdue. 1. For each credit customer, CAM should get the credit limit approved through CMG Module. 2. At the beginning of each quarter, for each customer, FM should send Accounts Statements indicating the receivables and overdue status of the party. Confirmation of balances should be obtained once in a quarter by respective CAMs for all EA customers. 3. In case overdue reaches 50% of the outstanding, system stops any further delivery orders thereby stopping further sales. 4. In case DO is required to be released, the same should be requested to CMG. After necessary Sanctions are obtained the DO in SAP shall be released only by CMG. 5. The approval for such release will be obtained from COMS where the Credit Limit exceeds the sanctioned Limit. 6. In case where customer’s total outstanding has become overdue > 2months, while releasing Dos – COMS will decide on the applicable ratio on the basis of which supplies will be effected (70:30, 90:10 etc) as per Credit Control Committee’s directive as may be applicable from time to time. 1. All Non-Moving outstanding more than 1 year where transactions have also created, should be separately reviewed by COMS for initiating legal action.

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Process of interest collection for delayed payment Interest is also charged for all the Delayed payment made by the customers. At the time of collecting interest from customer, customer deducts tax on the Interest they pay to us as per IT Act. 1. The Sales Order/MOU with credit customers’ should clearly specify the credit terms and the interest rate chargeable for delay in making payments. The customer’s acceptance should be obtained for the interest terms. 2. On collection of Interest, a Debit Note should first be raised through FI route. While preparing the money receipt for interest collected, the debit note reference should be given to enable the system to set off against the same. 3. Whenever any rebate becomes payable to a customer for his sales performance, effort should be made to adjust it against his interest dues, if any.

Process for rebates and discounts of Tata Steel Tata Steel ensures that Discounts and Rebates are given accurately and are given sanctioned powers.

Discounts- A price concession extended to the customer up-front. These discounts should be entered into SAP system before raising a sale order on the customer.

Rebates- Rebate is a special discount, which is paid retrospectively to a customer. This discount is based on the customer’s sales volume over a specified time period. 1. CAM / Head of Sales to raise credit advice for payment of discounts on a regular basis (periodicity as per defined in the terms of the contract) to the Sales Accounts. 2. HOS to verify and approve requests for payment of discounts / rebates, based upon terms of the agreement 3. Sales Accounts to verify credit advices against Sales transactions & terms as entered in the Order Acceptance prior to execution of the contract 4. Any deviation from the terms as available in the Order Acceptance will need to be sanctioned by COMS.

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SWOT ANALYSIS OF DEBTORS MANAGEMENT PRACTICES IN TATA STEEL

STRENGHTS:  The company has an ERP system SAP in November 1999 and this has lead to credit control becoming a centralized function and has given several advantages to the company the most important of them is facilitating better control  The company has classified its customer into well – defined categories and has laid down guidelines for evaluating their credit worthiness. The company has allocated the responsibility of credit worthiness. The company allocated the responsibility of credit management of the steel division based on the product category into flat and long. This will enable the managers to focus their attention in one direction and will strive to improve performance in each category.  The credit management group does in dept analysis on debtors. The company also has well defined policy of provisions of bad debts and initiation of legal action. These enable the company to keep better control overdue.  The responsibility of reviewing the collection process lies with credit management group. This reduces the burden of marketing executives.  The sales of the company have increased by 27.95% in 2002-2003 while debtors have increased by 10.73%.(according to the company website). The company also been able to increase its receivables turnover ratio. All these indicate that their credit management efficient.  The company tries all other option before initiations of legal action. Their policy to continue transaction with customer on a 7:3 basis has been successful in several cases. They have been able to recover their dues with other such policies, which would not have been possible with legal action.

WEAKNESS:  Total exposure is a product of sales and credit period. The credit period is generally fixed but there is also deviation in some cases.  In the market scenario, the demand for steel is enormous. Hence, company should go for cash and carry business in this market situation instead of credit sales.

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OPPORTUNITIES:  The other divisions are following the process of credit evaluation similar to that of the steel divisions but they are unable to exercise the same kind of control on the overdue.  The company should try to implement SAP in this division as well. This will benefit the performance of the entire company.  The company should encourage its employees contribute their ideas and suggestions towards using the system more effectively.  The company should try to increase its volume of exports because in the international market credit given is secure and the risks are minimal as compare to domestic market.

THREATS:  The company should ensure that the employees don’t develop the feeling of complacency due to good performance in credit management after the implementation of SAP. They must be encouraged to keep themselves informed about the practices being followed by the competitors and be receptive to new idea

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FINDINGS:

1. The debtors management of Tata Steel is the highest when compared to other steel industries (SAIL, NIPPON, ARCELLOR MITTAL, JINDAL) 2. Town Steel Division is the problem area among the profit centers of Tata Steel. 3. Medical branch requires the most attention in Town Steel Branch of Tata Steel.

RECOMMENDATIONS: 1. Proper verification should be done before entering the data in SAP and regular training should be given to the employees working on SAP. 2. The disputes between Town Steel division (municipal branch) and their customers like LAFARGE should be settled as early as possible to get a better analysis of debtors. 3. Feedback of Tata Steel’s customers should be taken at regular intervals (period of 3- 6 months). 4. Tata Steel is facing difficulty in collecting medical bills, hence the defaulter should not be entertained for further treatments till the dues have been paid. 5. Customer selection should be done carefully on the basis of their background and repayment capacity etc. 6. Companies should be segregated on the basis of their volume, so that Tata Steel accordingly communicates with those categorized companies. For e.g. kingfisher being a big company can be sent reminders may be once in a month and Air Deccan being a small company can be sent reminders once in fifteen days as per the requirements.

LIMITATIONS

1. Due to constraint of time, an in depth analysis of all the areas was not possible. 2. This project mostly depends on secondary data (e.g. annual reports, websites) 3. The study has been done on only a handful of data so it cannot be generalized to the entire industry. 90

CONCLUSION This study was an endeavor to explore the Debtors of Tata steel Ltd. It can be concluded that the debtors management of Tata Steel is the best when compare to other steel industries. Particularly Town Steel Division requires the most attention and in that branch the most concentration was needed in the medical department (TMH).

Many businesses need to sell their goods on credit, otherwise they might find it difficult to survive if their competitors provide such credit facilities; this could mean losing customers to the opposition. Nevertheless, since industries do provide credit, they do so as optimally as possible. The word used is 'optimal' before and let me confirm that it doesn't necessarily mean the best possible, but the best possible under the circumstances.

A key strategy in lowering bad debt is reducing the time to recover the invoiced amounts. Stock days, debtor and credit days are a crucial link between the company's income statement, its balance sheet and its cash-flow.

So if a company's performance in this area is inferior to its competitors (that is, it collects its overdue invoices slower and is forced to pay its own debts faster) it is a sign of weakness. Deterioration in credit control over time is a worrying trend in any business.

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ANNEXURES: Finance & Accounts

Debtors

Sales & EPA

In debtors our section are Sales & EPA: Responsibility: 1. Making DM(Daily management) Check list.

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References: 1. www.tatasteel.com 2. www.tatasteel100.com 3. www.economywatch.com 4. www.businesslink.gov.uk 5. www.studyfinance.com 6. www.financialexpress.com 7. www.worldsteel.org 8. www.indianindustry.com 9. http://steel.nic.in/ 10. www.newssteel.com 11. www.moneycontrol.com 12. www.nipon.com 13. www.sail.com Magazines ANNUAL REPORT OF TATA STEEL Books Financial management – I M PANDEY

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