A PROJECT REPORT

ON

WORKING CAPITAL MANAGEMENT

IN

SWARAJ MAZDA LIMITED

(AN INDO-JAPANESE LCVS)

SUBMITTED BY:
NIDHI SRIVASTAVA
ROLL NO: 921DMFS0047
(MBA-FSM)
CHITKARA BUSINESS SCHOOL
CHANDIGARH
PUNJAB TECHNICAL UNIVERSITY

PREFACE
Practical training is an important part of the theoretical studies. It is of an
immense importance in the field of management. It offers the student to
explore the valuable treasure of experience and an exposure to real work
culture followed by the industries and there by helping the students to bridge
gap between the theories explained in the books and their practical
implementations.
Training plays an important role in future building of an
individual so that he/she can better understand the real world in which he has
to work in future. The theory greatly enhances our knowledge and provides
opportunities to blend theoretical with the practical knowledge where trainees
get familiar with certain aspects of industries. I feel proud to get myself
trained at SWARAJ MAZDA that is one of the top most light commercial
vehicle industries in India.
I have taken up training in finance department and have studied
and explained the need for working capital as well as its management and
financing. I am sure I could encash this opportunity to the best of my
encompetence, zeal , perfection and academic knowledge & I am keen to
make it on going journey throughout my life as I strongly believe that
learning is a journey not a destination.

ACKNOWLEDGEMENT
The project management of working capital contained the culmination of
six weeks of my own search, study and practice in the office of swaraj mazda
limited. I present this project to all those who instructed me to write the
project report during summer vacation training programmed at swaraj mazda
limited(an indo-japanese joint venture LCVs)
I am thankful to Mr. Ashok Verma(chief manager-finance) who was not only
my trainer but my mentor and my guide. He has given me chance to have
training in this esteemed organization & for their full cooperation at every
sphere to successfully accomplish my task. He not only imparted me summer
training but he also cultivated seeds of discipline. He made me realized the
importance of time. He not only tried in making me a good manager but also
a good human being.
I thank Mr. Gopal Bansal( vice-president-finance & company secretary) and
his team who has given me this great opportunity to work in SML.
I also thank Mr Arun and all the members of the finance department for cooperating with me in completion of this project.
Last but not the least I am thankful to all my friends and family members,
particularly Mr. Sanjeev, my ideal,

who always guided me on the way

whenever I felt myself in trouble.

This project made possible the effective presentation of ideas, and analysis
which brought remarkable response from the company.
3

SWARAJ MAZDA- AN INTRODUCTION

Swaraj Mazda Limited is a joint venture of Punjab Tractors limited and
Mazda Motors Limited of Japan. The agreement between the two was signed
on 5th October 1984.
As has been pointed out that Swaraj Mazda is a collaboration entity between
two giants in their own rights, is committed to quality and performance and is
progressively showing profound concerns for the welfare & benefits of their
customers, stock holders, business partners and staff.
After the first indigenous tractor, manufactured by PTL in India, was
successfully launched in 1974, it has been on its way to becoming a blue chip
company. Besides tractors, the company also manufactures Swaraj Combine
Harvesters, Agricultural Implements. Automotive Castings, Forklifts. Over
the year, PTL has won national and international acclaim and recognition for
outstanding performance and contribution in many diverse fields.
MOREOVER PTL WAS RATED AS THE BEST COMPANY OF THE
YEAR 1989 BY FINANCIAL EXPRESS.
Mazda Motors Corporation of Japan, established in 1920 is an enterprise of
international repute. Mazda started manufacturing trucks as back in 1931.
Today, this enterprise has the distinction of being the only company in the
world producing reciprocating petrol and diesel engines as well as the
revolutionary rotary engines. Mazda is ever seeking the new areas of product
excellence and innovations. It adheres audaciously to a 2000 checkpoints
inspection before declaring any vehicle road worthy. The use of robots, latest
technology, and world-class production facilities enables Mazda to produce
vehicle of outstanding quality and performance. No wonder Mazda has won

appreciation all over the world for quality products that are rolling out of its
plants.
The factory Swaraj Mazda Limited is located at Village Asron district
Nawanshahar (Punjab) near the city of Ropar and at a distance of 45 km from
the capital city of Chandigarh. The plant has captivating site. It spreads over a
quaint, sprawling 100 acres of land ringed by Shivalik Hills on three of its
sides and river Satluj on the other. The desolate slit hill has been leveled for
construction. Work at the plant began at a great tempo and the first vehicle
rolled out of the production line in a record time of one year of laying the
foundation stone.
The LCV are manufactured in five attractive colours- Santos Red, Nile blue,
Light Beige, White and Golden Yellow. In addition to these, any other colors
can be made on demand. Swaraj Mazda vehicles are not only strong but also
fuel-efficient.
Prominent among the load carriers Swaraj Mazda is also manufacturing:1. 4 wheel drives;
2. Extended wheel- base long- chassis Mini Buses which carry up to 44
passengers.
3. Deluxe Buses carrying to 40 passengers;
4. Ambulances
5. Mobile Reverse- Osmosis and Electro dialysis Units for the Central Salt
and Mineral Chemical Research Institute.
6. CNG Buses with Safety & Eco grades.
7. Integrated Garbage collection and disposal system for urban centers;
8. Hydraulically operated dumpers;
9. Mobile fair priced vans;
10. Sky Lift Vehicles

Swaraj Mazda gives due attention to the marketing part and the employees
are highly qualified and trained to fit the job. Swaraj Mazda has a vast
network of 150 dealers spread throughout the country including A&N
Islands. Zonal offices have been opened in Chandigarh, Lucknow,
Ahmedabad, Mumbai, and Chennai. This helps substantially in sales
promotion, Export promotion, especially for Hi-tech products, is also being
emphasized.
Discipline and its rigid enforcement without discrimination is an important
Hallmark of Swaraj Mazda. It is of great significance in evolving work
culture. All the employees, irrespective of their position and status have to
punch their cards when they report for duty. As a result, strict punctuality has
become a way of life and work with them.
To ensure Industrial peace, i.e. absence of strikes and lockouts, Swaraj
Mazda believes in making a contended labour force with a very low rate of
absenteeism and turnover. Reasonably fair wages and various perks like
subsides uniform and transport, mess facilities go a long way in creating
identification with the job. Earnestness, Sincerity and Spirit of corporation
pervades the entire atmosphere of the company. The happy absence of
Industrial dispute in the enterprise speaks volume for the success of the firm
and cultivation of work culture.

Work culture or work ethos is given very high precedence. It id fully

recognized that the objectives of the concern- higher and higher production,
productivity and indigenization can be attained through commitment into
commonness of GOAL in each and every member of the Swaraj family. The
entire planning is undertaken in such a way so as to inculcate the spirit of
dedication in each member, whether he is skilled or semi-skilled worker or
belongs to the managerial cadre. Many effective steps are taken to bring this
about. Important amongst them are:
1. Common canteen and mess for all. Same meals are served to all and in
identical utensils. Everybody has to stand in a queue to get his or her
meals.
2. Common uniform is there for all the members irrespective of their
status.
3. No separate cabins for the members of higher hierarchy. All the
members of a department or a section therefore sit and work in one
hall with the Manger facing the staff. Every employee carries his or
her files, thus inculcating the spirit of dignity of labour in the staff.

HISTORY OF SWARAJ MAZDA

History of the SWARAJ MAZDA LIMITED (Light Commercial
Vehicle) dates back to as in 1975 when the first efforts were initiated by the
Punjab State Industrial development Corporation Limited (PSIDC) to obtain
a letter of intent from the Government of India. The Govt. of India was
interested in installing the unit and issuing the license for an LCV in order to
save the fuel consumption in the economy. Therefore Govt. decided to
installed indo-Jap LCV units in 3 states Punjab, U.P. & M.P.
The contribution of PSIDC was two fold; firstly in obtaining the letter of
intent in 1981 and subsequently for transferring the same in favour of the
Company in 1983. These moves reflected the thinking in the Punjab Govt.
and the PSIDC, that Punjab Tractors Limited (PTL) would implement this
project taking full advantage of PTLs position, experience, expertise and
resources both financial and managerial.
It was in this background that PTL entrusted with the responsibility for the
LCV project, went ahead promotion of Swaraj Vehicles Limited in July, 1983.
Punjab Tractors Limited and its brand name Swaraj were well known on
the Indian corporate and engineering horizon. They were proven symbols of
Indian Engineering fully competitive against collaboration based technology
and foreign brand names. PTL track record during the period of its existence
is often cited as an example of dedicated and sustained corporate endeavor
and organisation value system, financial performance and systematic growth,
team building perception and response to changing market needs and
resilience against difficulty.

The project in its concept, aims at breaking new ground not only in terms of
product and production technology, but also in building a new culture and
value system in the organisation, which enables it to move forward with
confidence into the era of competitive markets. This guiding philosophy is
dictating every facet of project implementation both in physical facilities and
the human side.

CORPORATE PROFILE
The best way to predict the future is to invest it.
Alan Key

10

CORPORATE PROFILE
SWARAJ GROUP CONSTITUENTS
COMPANY
PUNJAB TRACTORS LTD. -----------------

DIVISION
SWARAJ TRACTORS DIVISION
SWARAJ COMBINE DIVISION
SWARAJ FOUNDRY DIVISION
SWARAJ R&D DIVISION

SWARAJ MAZDA LTD.

SWARAJ ENGINES LTD.
SWARAJ AUTOMOBILE LTD.

11

MILESTONES
1983 Swaraj Vehicles Ltd. (SVL) incorporated (in July)
1984 Joint Venture and Technical Assistance Agreement between
Punjab Tractors Ltd., Mazda Motor Corporation &
Sumitomo Corporation concluded.
SVL renamed Swaraj Mazda Ltd. (SML)
1985 LCV Project capacity - 5,000 vehicles on single shift basis
Capital Outlay
- Rs. 220 Million
Equity Capital
- Rs. 105 Million
1985
Commencement of Trial production and test marketing of
(August) Swaraj Mazda Trucks and Bus.
1986

Commencement of Commercial operations.

1987

Launch of Indigenously developed 26 seater Bus

1990

Launch of Second Truck Model - Super

1993

Launch of Third Truck Model Premium

12

1996

Launch of 4-Wheel Drive Truck

1999

Bharat Stage-I Emission Norms complied

Bharat Stage-II Emission Norms complied

2001

- Launch of 4 Wheel Drive Ambulance

- Launch of Economy Truck - SARTAJ
- Launch of CNG Buses

2004

Launch of Cargo Truck Model SAMRAT with

Air brakes (GVW 10250 Kg)

2006
June

Entry of Isuzu through swaraj mazda

July

Commercial production of buses (LT 134)

August

Commencement of construction of Buildings

for vehicle expansion and new Bus Body Plant.

December

Signing of Second Technical Assistance

Agreement with Isuzu Motors Ltd.

13

2007

Aggregate vehicles sales reach 1, 10,000 Vehicles (March)

In its journey of 23 years, Commercial Vehicle Industry has scaled new

heights from a level of 105000 units in 1986-87, industry volume have
peaked to 518000 in fiscal 2006-07.
The last 6 years in particular have witnessed spectacular growth for the
commercial vehicles industry as a whole volumes have more than tripled
from 2001-02 level of 158000 to 518000 in 2006-07. Segment growth has,
however, been uneven as will be evident from :
2001-02
Up to 3.5 Ton 36300
GVW
Up to 10 Ton 36800
GVW
Plus 10 Ton GVW 85400
Total
158500

2006-07
175700

Growth
(+) 139400

73000

(+) 36100

269000
517700

(+) 183600
(+) 358200

In the SML range the growth has been minimal.

14

OBJECTIVES
The main objectives of my research on management of working capital of
swaraj mazda limited are:1) To study & evaluate the working capital management system of swaraj
mazda limited.
2) To determine the adequate or optimum quantum of investment in
working capitalof swaraj mazda limited.
3) To determine the composition or structure of current assets.
4) To maintain a proper balance between liquidity & profitability.
5) To maintain a proper the policy or means of finance for current assets.

15

SYNOPSIS
INTRODUCTION TO WORKING CAPITAL
Cash is the lifeline of a company. If this lifeline deteriorates, so does the
company's ability to fund operations, reinvest and meet capital requirements
and payments. Understanding a company's cash flow health is essential to
making investment decisions. A good way to judge a company's cash flow
prospects is to look at its working capital management (WCM).

WHAT IS WORKING CAPITAL?

Working capital refers to the cash a business requires for day-to-day
operations, or, more specifically, for financing the conversion of raw
materials into finished goods, which the company sells for payment. Among
the most important items of working capital are levels of inventory, accounts
receivable, and accounts payable. Analysts look at these items for signs of a
company's efficiency and financial strength.

16

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital gross and net.
GROSS WORKING CAPITAL: It refers to the firms Investment in
current assets which can be converted into cash within an accounting
year(or operating cycle) and include cash, short-term securities,
debtors, (accounts receivable or book debts) bills receivable and stock
(inventory)
NET WORKING CAPITAL: It refers to the difference between
Current Assets & Current Liabilities. Current liabilities are those
claims of outsiders which are expected to mature for payment within
an Accounting year and include creditors (accounts payable) ,bills
payable and outstanding expenses. Net working capital can be
positive or negative. A positive net working capital will arise when
Current Assets increase current liabilities. A negative net working
capital will occur when Current Liabilities are in excess of Current
Assets.

17

NATURE OF WORKING CAPITAL

EXCESSIVE AND INADEQUATE WORKING
CAPITAL:
A business enterprise should maintain adequate working capital according to
the needs of its business of its business operations. The amount of working
capital should neither be excessive nor adequate. If the working capital is
excess of its requirements it means idle funds adding to the cost of capital is
short of its requirements, it will result in production interruptions and
reduction of sales and, in turn, will affect the profitability of the business
adversely.

DEFECIENCIES OF EXCESSIVE WORKING

CAPITAL
EXCESSIVE INVENTORY: Excessive working capital results in
unnecessary accumulation of large inventory. It increases the chances of
misuse, waste, theft etc.
EXCESSIVE DEBTORS: Excessive working capital will result in
liberal credit policy which, in turn, will result in higher amount tied up
in debtors and higher incidence of bad debts.
ADVERSE EFFECT ON PROFITABILITY: Excessive working
capital means idle funds in the business which adds to the cost of capital
but earns no profits for the firm. Hence it has a bad effect on
profitability of the firm.
INEFFECIENCY OF MANAGEMENT: Management becomes
careless due to excessive resources at their command. It results in laxity
of control on epenses and cash resources.

18

DEFECIENCIES OF INADEQUATE WORKING

CAPITAL:
DIFFICULTY IN AVALIABILITY OF RAW-MATERIAL:
Inadequacy of working capital results in non-payment of creditors on
time. As a result the credit purchase of goods on favorable terms
becomes increasingly difficult. Also, the firm cannot avail the cash.
FULL UTILISATION OF FIXED ASSETS NOT
POSSIBLE: Due to the frequent interruption in supply of raw
materials and paucity of stock, the firm cant make full utilization of its
machines etc.
DIFFICULTY IN THE MAINTAINENCE OF MACHINERY:
Due to the shortage of working capital, machines are not cared and
maintained properly which results in the closure of production of on
many occasions.
DECRAESE IN CREDIT RATING: Because of inadequacy of
working capital, firm is unable to pay its short term obligations on time.
It decays the firms relation with its bankers and it becomes difficult for
the firm to borrow in case of need.

19

ADVANTAGES OF ADEQUATE WORKING

CAPITAL:
AVAILIABILTY OF RAW MATERIAL REGULARLY: Adequacy of
working capital makes it possible for a firm to pay the suppliers of raw
material in time. As a result it will continue to receive regular supplies
of raw materials and thus there will be no disruption in production
process.
FULL UTILISATION OF FIXED ASSETS: Adequacy of working
capital makes it possible for a firm to utilize its fixed assets fully and
continuously. For eg. , if there is inadequate stock of raw material, the
machines will not be utilized in full and their productivity will be
reduced.
CASH DICOUNT: A firm having the adequate working capital can avail
the cash discount by purchasing the goods for cash or by making the
payment before the due date.
MEETING UNSEEN CONTINGENCIES: Adequacy of working
capital enables a company to meet the unseen contingencies
successfully.

20

NEED OF WORKING CAPITAL

Alongwith the fixed capital almost every business requires working capital
though the extent of working capital requirements differ in different
businesses. Working capital is needed for running the day-to-day business
activities. When a business is started, working capital is needed for
purchasing raw material. The raw material is then converted into finished
goods by incurring some additional costs on it. Now goods sre sold. Sales do
not convert into cash instantly because there is invariably some credit sales.
Thus, there exists a time lag between sales of goods and receipt of cash.
During this period, expenses are to be incurred for continuing the business
operations. For this purpose working capital is needed. Therefore, sufficient
working capital is needed which shall be involved from the purchase of raw
material to the realization of cash. The time period which is required to
convert raw material into finished goods and then into cash is known as
operating cycle or cash cycle. The need for working capital can also be
explained with the help of operating cycle. Operating cycle of a
manufacturing concern involves five phases:
(i)
(ii)
(iii)
(iv)

Conversion of cash into raw material.

Conversion of raw material into work-in-progress.
Conversion of work-in-progress into finished goods.
Conversion of finished goods into debtors by credit sales.
21

(v)
Conversion of debtors into cash by realizing cash from them.
Thus,the operating cycle starts from cash and then again restarts from cash.
Need for working capital depends upon period of operating cycle. Greater the
period, more will be the need of working capital. Period of operating cycle in
a manufacturing concern is greater than a period of operating cycle in a
trading concern because in trading units cash is directly converted into
finished goods.

CASH
DEBTORS & BILLS
RECEIVABLES

RAW MATERIAL

FINISHED GOODS

WORK-INPROGRESS

operating cycle (nature of working

capital)
22

Because of the time involved in a operating cycle, there is a need of working

capital in the form of current assets. Firms have to keep adequate stock of
raw-material to avoid risk of non-avaliabilty of raw materials. Similarly,
concerns must have adequate stock of finished goods to meet the demand in
market on continuous basis and to avoid competition which necessitates the
money tied up in debtors and bills receivables. In addition to al these,
concerns have to necessarily keep cash to pay the manufacturing expenses
etc. and to meet the contingencies.

PERMANENT AND TEMPORARY WORKING

CAPITAL:
Working capital in a business is needed because of operating cycle. But the
need for working capital does not come to an end after the cycle is completed.
Since the operating cycle is continuous process, there remains a need for
continuous supply of working capital. However, the amount of working
capital required is not constant throughout the year, but keeps fluctuating. On
the basis of this concept, working capital is classified into two types:

23

(a)

Permanent working capital: the need for

working capital or current assets fluctuates from time to time.
However, to carry on day-to-day operations of the business without
any obstacles, a certain minimum level of raw materials, work-inprogress, finished goods and cash must be maintained on a
continuous basis. The amount needed to maintain current assets on
this minimum level is called permanent working capital or regular
working capital. The amount involved as permanent working capital
has to be met from long term sources of finance, eg. Capital,
debentures, long term loans etc.

(b)

Temporary working capital: any amount over

and above
the permanent level of working capital is
called is called temporary, fluctuating or variable working capital.
Due to seasonal changes level of business activity is higher than
normal during some months of the year and therefore, additional
working capital will be required along with the permanent working
capital it is so because during peak season demand rises and more
stock is to be maintained to meet the demand. Similarly, the amount
of debtors increases due to excessive sales. Additional working
capital thus needed is known as temporary working capital because
once the season is over; the additional demand will be no more. Need
for temporary working capital should be met from short term of
finance, e.g. Short term loans etc. so that it can be refunded when it is
not required.

24

FACTORS AFFECTING WORKING CAPITAL

OR
DETERMINANTS OF WORKING CAPITAL
A firm should have neither too much or too little working capital. The
working capital requirements is determined by a large number of factors but,
in general, the following factors influence the need of working capital needs
of an enterprise:
1) NATURE OF THE BUSINESS: working capital requirements of an
enterprise are largely influenced by the nature of the business. For eg.
Public utilities such as railways, transport ,water and electricity etc.
have very limited need of working capital because they have to invest
fairly large amount in fixed assets. Their working capital need is
25

minimal because they get immediate payment for their services and do
not have to maintain big inventories. On the other extreme are the
trading and financial enterprises which have to invest less amount in
fixed assets and a large amount in working capital. This is so because
the nature of the business is such that they have to maintain a sufficient
amount of cash, inventories and debtors. Working capital needs of most
of the manufacturing enterprise fall between these two extremes, that is
between public utilities and trading concerns.
2) SIZE OF THE BUSINESS: larger the size of business enterprise,
greater would be the need for working capital. The size of a business
may be measured in terms of scale of its business operation.

3) GROWTH AND EXPANSION: as business enterprise grows, it is

logical to expect that a larger amount of working capital will be required.
Growing industries require more working capital than those that are static
4) PRODUCTION CYCLE: production cycle means the time span
between the purchase of raw material and its conversion into finished
goods. The longer the production cycle the larger will be the need of
working capital because the funds will be tied up for longer period in work
in progress.
5) BUSINESS FLUCTUATIONS: business fluctuations may be in the
direction of boom and depression. During boom period the firm will have
to operate at full capacity to meet the increased demand which in turn,
leads to increase in level of inventories and book debts. Hence, the need
for working capital in boom conditions is bound to increase. The
depression phase of business fluctuations has exactly an opposite effect on
the level of working capital requirement
.
26

6) CREDIT POLICY RELATING TO SALES: if a firm adopts liberal

credit policy in respect of sales, the amount tied up in debtors will also
be higher. Obviously, higher book debts mean more working capital. On
the other hand, if the firms follows tight credit policy, the magnitude of
working capital will decrease.
7) CREDIT POLICY RELATING TO PURCHASE: if a firm purchases
more goods on credit, the requirement for working capital will be less.
In other words, if liberal credit terms are available from the suppliers of
goods, the requirement for working capital will be reduced and viceversa
.
8) AVAILABILITY OF RAW-MATERIAL: If the raw material required
by the firm is available easily on a continuous basis, there will be no need
to keep a large inventory of such materials and hence the requirement of
working capital will be less. On the other hand, if the supply of raw
material is irregular, the firm will be compelled to keep an excessive
inventory of such material which will result in high level of working
capital.
9) AVAILABILITY OF CREDIT FROM BANKS: if the firm can get
bank credit facility in case of need, it will operate with less working
capital. On the other hand, if such facility is not available, it will have to
keep large amount of working capital.
10) VOLUME OF PROFIT: The net profit is a source of working capital
to the extent it has been earned in cash. Higher net profit would generate
more internal funds thereby contributing the working capital pool.

27

11) LEVEL OF TAXES: full amount of cash profit is not available for
working capital purposes. Taxes have to be paid out of profits. Higher
the amount of taxes less will be the profits available for working capital.
12) DIVIDEND POLICY: dividend policy is a significant element in
determining the level of working capital in an enterprise. The payment
of dividend reduces the cash and thereby, affects the working capital to
that extent. On the contrary, if the company does not pay dividend but
retains the profit, more would be the contribution of profits towards the
working capital pool.

13)DEPRICIATION POLICY: although depreciation does not result in

outflow of cash, it affects the working capital indirectly. In the first place,
since the depreciation is allowable expenditure in calculating net profits, it
affects the tax-liability. In the second place, higher depreciation also means
lower disposable profits and ,in turn, a lower dividend payment. Thus,
outgo of cash is restricted to that extent.
14) PRICE LEVEL CHANGES: A change in price level also affects the
working capital requirements. If the price level is rising, more funds
will be required to maintain the existing level of production
15) EFFECIENCY OF MANAGEMENT: efficiency of management is
also a significant factor to determine the level of working capital.
Management can reduce the need for working capital by the efficient
utilization of resources. It can accelerate the pace of cash cycle and
thereby use the same amount working capital again and again very
quickly
28

ANALYSIS OR COMPUTATION OF WORKING

CAPITAL
A Number of methods are used to determine the working capital needs of a
business. The important among them are:
1) OPERATING CYCLE METHOD: operating cycle is the time span the
firm requires in the purchase of raw material, conversion of raw
material in work in progress and finished goods, conversion of finished
goods into sales and in collecting cash from debtors. Larger the time
span of operating cycle, larger the investment in current assets. Hence
the time period for each stage of operating cycle is computed on the
basis of cost of each item. Following factors should be considered
while forecasting working capital requirement on the basis of operating
cycle method:
(i) cost of raw material, wages and overheads

29

(ii) Period during which raw material remains in store before it is issued
for production purpose.
(iii) Period of operating cycle
(iv) Period during which finished goods is stored before sale.
(v) Period of credit allowed to debtors and period of credit allowed by
suppliers.
(vi) Time lag in payment of wages and overheads.
(vii) minimum cash balance required to be maintained.

A certain percentage of contingencies may also be added to the above

estimates to determine the working capital requirements.
On the basis of operating cycle, the working capital can be forecasted in the
following way:

Statement Showing Working Capital Requirements

Current assets:
(i)stock of raw material:
cost of yearly consumption
average inventory period
of raw material
x
(weeks/months)
52weeks/12 months
(ii)work in process:
Cost of yearly consumption
average time span of W-I-P
30

Of raw material

(weeks/months)
52 weeks/12 months
+ yearly wages x 50
x
(weeks/months)
100
52 weeks/12 months
+ yearly manufacturing and administrative overheads(ex. Dep)
average time span of W-I-P
x 50
x
(weeks/months)
100
52 weeks/12 months

(iii)stock of finished goods:

Cost of goods produced (i.e. tearly cost of raw materials + wages
+ manufacturing & administrative overheads excluding
depreciation)
average finished goods holding period
X
(weeks/months)
52 weeks/12 months
(iv)debtors:
Working capital tied up in debtors should be estimated on the basis
of cost of sales(ex. Dep):
Cost of goods produced
(i.e. raw material + wages

average debt collection period

(weeks/months)
31

+ manufacturing, admn.
& selling overhead)

52 weeks/12months

(v)cash and bank balance:

Apart from WC needs for financing inventories and debtors, firms
also find it useful to have some minimum cash balances with them.
It would be based on the motives for holding cash balances of the
business firm, attitude of management towards risk, the access to
the borrowing sources in times of need and past experience etc.

Less: current liabilities:

(i)trade creditors:
Cost of yearly consumption
Of raw material

Credit period allowed by creditors

(weeks/months)
x
52 weeks/12 months

(ii)wages:
Yearly wages

Average time lag in payment of wages

(weeks/months)
32

52 weeks/12months
If wages are paid at the end of each month, the average time lag in
the payment of wages will approximate to half a month. This is so
because 1st days wages are paid on the 30th day of each month,
extending credit for 29 days, the 2nd days wages are, again paid on
the 30th, extending credit for 28 days, and so on. Thus, average time
lag will approximate to half a month.
(iii)overheads:
Yearly overheads average time lag in payment of overheads
(other than dep.)
x
(weeks/months)
52 weeks/12months

WORKING CAPITAL=CURRENT ASSETS-CURRENY

LIABILITIES
ADD: PROVISION FOR CONTINGENCIES
ESTIMATED WORKING CAPITAL
REQUIREMENTS

33

2) FORECASTING OF CURRENT ASSETS AND CURRENT

LIABILITIES METHOD: according to this method, an estimate is
made of forthcoming periods current assets and current liabilities on
the basis of factors like past experience, credit policy, and payment
policy of the previous year. First of all, such estimate is made for each
current assets on the basis of each month and then monthly
requirements are converted into yearly requirements of current assets.
The estimated amount of current liabilities is deducted from this
amount in order to estimate the requirement of working capital. A
certain percentage of contingencies may also be added to this amount.

3) CASH FORECASTING METHOD: under this method estimate is

made of cash receipts and payments for the next period. Estimated cash
receipts are added to the amount of working capital which exists at the
beginning of the year and estimated cash payments are deducted from
this amount. The difference will be the amount of the working capital.
4) PROJECTED BALANCE SHEET METHOD: under this method, an
estimate is made of assets and liabilities for a future date and a
projected balance sheet is prepared for that future date. The difference
in CA and CL shown in projected balance sheet will be the amount of
working capital.

34

MANAGEMENT OF WORKING CAPITAL

Working capital management is concerned with the problems that arise in
attempting to manage the current assets, current liabilities and the inter
relationships between them. Its operational goal is to manage the current
assets and current liabilities in such a way that a satisfactory level of working
capital is maintained. The term working capital refers to the net working
capital i.e. current assets minus current liabilities with reference to the
management of working capital, net working capital represents that part of
the current assets which are financed with the long term funds.
The level of NWC has a bearing on the profitability as well as the risk in the
sense of the inability of the firm to meet obligations as and when they
become due. Therefore, the tradeoff between profitability and risk is an
35

important element in the evaluation of the level of NWC of the firm. In

general, the higher the NWC the lower the risk, as also the lower is the
profitability and vice-versa. Thus, the NWC measures the degree of risk in
the management of working capital.
Apart from the profitability-risk trade-off, the determination of the finance
mix is the second ingredient of the theory of working capital management.
The financing mix refers to the proportion of current assets to be financed by
current liabilities and long term sources. One approach to determine the
financing mix is hedging approach, acc. to which long term funds should be
used to finance the fixed portion of the current assets and the purely
temporary requirements should be met out of short term funds. This approach
is high profit, high risk financing mix. Acc. to the second approach, namely
the conservative approach, the estimate requirements of the current assets
should be financed from long term sources and the short term funds should be
used only in emergency situation.
The conservative approach is a low-profit, low risk combination. Neither of
the two is suitable for efficient working capital management. A trade off
between these two extremes provides a financing plan between these two
approaches, and therefore, an acceptable financing strategy from the view
point of the management of working capital.

CASH MANAGEMENT
Cash management is one of the key areas of working capital management.
There are 4 motives of holding cash
(i)
transaction motive
(ii)
precautionary motive
(iii)
speculative motive
(iv)
compensating motive
36

the transaction motive refers to the holding of cash to meet anticipated

obligations whose time is not perfectly synchronized with cash receipts.
The cash balances held in reserve for random & unforeseen fluctuations in
cash flows are called as precautionary balances.
The speculative motives indicates the desire of a firm to take advantage of
opportunities which present themselves at unexpected moments and which
are typically outside the normal course of business. The compensating motive
means keeping the bank balance sufficient to earn a return equal to the cost of
free service provided by the banks.
The basic objectives of cash management are to reconcile two mutually
contradictory and conflicting tasks: to meet the payment schedule & to
minimize funds committed to cash balances.

Cash budget is probably the most important tol in cash management. It is a

device to help a firm to plan & control the use of cash. The cash position of a
firm as it moves from one period to another period is high lighted by cash
budget. A cash budget has normally three parts, namely, cash collections, cash
payments and cash balances. The major sources of cash receipts and
payments are operating and financial. The operating sources are repetitive in
nature while the financial sources are non-recurring.

MANAGEMENT OF RECEIVABLES
It deals with those transactions which deals with the billing of customers who
owe money to a person, company or organization for goods & services that
37

have been provided to the customers under receivables management, we

consider the position of our debtor. Before extending the credit to him,
personal interaction with him is done & information is is collected like the
refrences, bank account information etc. & if it seems that person is reliable
then he could be extended credit. Then some other factors are also considered
like financial position of the debtor, reputation of the
Debtors in the market, credit paying capacity of the person etc. there should
be proper agreement between the debtor and the company for the repayment
terms. But if the debtor fails to pay the money then the help of law or muscle
power can also be used but the action should be taken within 3 years of
extending credit.

The management of receivables involves crucial decision in three areas: (i)

credit policy (ii) credit terms (iii) collection policies. The credit policies of
the firm provides the framework to determine whether to or not to extend
credit to a customers and how must credit to extend. The two broad
dimensions of credit policy decision of a firm are credit standards and credit
analysis, the term credit standards represent the basic criterion for the
extension of credit to customers. The criterion, and therefore, standards can
be tight /restrictive or liberal/non-restrictive. The credit analysis component
of credit policies includes obtaining credit information from different sources
and its analysis.
The second decision area in receivables management is the credit terms, the
credit terms specify the repayment terms, comprising credit period,cash
discount, if any, and cash discount period.
The third area involved in the management of receivables is collection
policies. It refers to the procedure followed to collect accounts receivable
38

when they become due. The two relevant aspects are the degree of efforts to
collect the over dues and the type of collection effort.
The framework of analysis of all the three decision areas in receivable
management is to secure a trade-off between the costs & benefits of the
measurable effects on the sales volume, capital cost due to change in accounts
receivable, collection costs, and bad debts and so on. The alterantive will be
selected when the benefits exceed the costs.

INVENTORY MANAGEMENT
The term inventory refers to assets which will be sold in future in the normal
course of business operations. The assets which the firm stores as inventory
in anticipation of need are raw materials, work-in-progress, semi-finished
goods, and finished goods.
The objective of inventory management consist of two counter balancing
parts, namely, to minimize investments in inventory and to meet the demand
for products by efficient production and sales operations. In operational
terms, the goal of inventory management is to have a trade-off between costs
and benefits at different levels of inventory.

39

The costs of holding inventory are ordering cost and carrying costs. The
major benefits of holding inventory are in the areas of purchasing, production
and sales.
The non-mathematical inventory management techniques illustrated here are
(i) ABC system
(ii) EOQ
(iii) re-order point
(iv) safety stock

ABC system (Always Better Control system)

The first step in inventory control process is classification of different types
of inventories to determine the type and degree of control required for each.
The ABC system is a widely used classification technique to identify various
items of inventory for purposes of inventory control. This technique is based
on the assumption that a firm should not exercise the same degree of control
on all items of inventory. It should rather keep a more rigorous control on
items that are (i) more costly (ii) slowest turning while items that are less
expensive should be given less control effort.

40

On the basis of the cost involved, the various inventory items are, according
to this system, categorized into three items (1) A (2) B (3) C. the items
included in group A involved the largest investment. Therefore, inventory
control should be most rigourous and intensive and the most sophisticated
inventory control techniques should be applied to these items. C group
consists of items of inventory, which involve relatively small investments
alyhough the number of items is fairly large. These items deserve minimum
attention. B group stands mid way. It deserves less attention than A but more
than C. employing less sophisticated techniques can control it.
The task of inventory management is to properly classify all the inventory
items into one of these three groups. The typical breakdown of inventory
items is shown in following table:

Group
(%)
A
B
C

No. of Items
15
30
55
----

Inventory Value
70
20
10
----

100

41

Some points stand out from above table. While group A is the least important
than in terms of the no. of items, it is by far the most important in terms of
investments involved. With only 15% of the number, it accounts for as much
as 70% of the total value of inventory. The firm should direct most of its
inventory control efforts to the items included in this group. The items
comprising B group accounts for 20% of the investment in inventory. They
deserve less attention than A, but, more than C, which involves only 10% of
the total value although number wise its share is as high as 55%.

ECONOMIC ORDER QUANTITY

After various inventory items are classified on the basis of the ABC analysis,
the management becomes aware of the type of control that would be
appropriate for each of the three categories of the inventory items. The A
group of items wants the maximum attention and the most rigorous control. A
key inventory problem particularly in respect of the group A items relates to
the determination of the size or quantity in which inventory will be acquired.
In other words, while purchasing raw material or finished goods, the question
to be answered are : how much inventory should be bought in one lot under
one order on each replenishment? Should the quantity to be purchased be
large or small? Or, should the requirement of materials during a given period
42

of time (say, six months or one year) be acquired in a lot or should it be

acquired in installments or in several small lots? Such inventory problems are
called order quantity problems.
The determination of the appropriate quantity to be purchased in each lot to
replenish stock as a solution to the order quantity problem necessitates
resolution of conflicting goals. Buying in large quantities implies a higher
inventory level which will assure (1) smooth production / sale operations (2)
lower ordering or set up costs. But it involve higher carrying cost. On the
other hand small orders will reduce the carrying cost of inventory by reducing
the average inventory level but the ordering cost will improve as there is
likelihood of interruption in the operations due to stock-outs. A firm should
place neither too large nor too small orders. On the basis of trade-off between
benefits derived from the avaliabilty of inventory and the cost of carrying that
level of inventory, the appropriate or optimum level of the order to be placed
should be determined. The optimum level ofinventory is popularly referred
as economic order quantity(EOQ). It is also known as economic lot size. The
EOQ may be defined as that level of inventory order that minimizes the total
cost associated with inventory management.

RE-ORDER POINT
The EOQ technique determines the size of an order to acquire inventory so as
to minimize the carrying as well as the ordering costs. In other words, the
EOQ provides an answer to the question: how much inventory should be
ordered in one lot? Another important question pertaunung to efficient
inventory management is : when should the order to procure inventory be
placed? This aspect of inventory management is covered under the order
point problem.
The reorder point is stated in terms of the level of inventory at which an
order should be placed for replenishing the current stock of inventory. In
other words, reorder point may be defined as that level of inventory when
43

fresh order should be placed with the suppliers for procuring additional
inventory equal to the economic order quantity. Although some sophisticated
re-order point formulae are available, it is based on following assumptions:
Constant daily usage of inventory & fixed lead time.
In other words, the formulae assume condition of certainty. The re-order point
= lead time in days x average daily usage of inventory.
The term lead-time refers to the time normally taken in receiving the delivery
of inventory after placing orders with the suppliers. It covers the time span
from the point when a decision to place an order for the procurement of
inventory is made to the actual receipt of the inventory by the firm. Another
way of saying it is that the lead time consists of the number of days required
by the suppliers to receive and process the orders as well as the number of
days during which the goods will be in transit from the supplier. The lead
time may also be called as the procurement time of inventory.
The average usage means the quantity of inventory-consumed daily. We can,
therefore, define re-order point as that inventory level, which should be equal
to the consumption during the lead-time.

OTHER INVENTORY CONTROL SYSTEMS:

There are also other inventory control systems, which are as
follows:
1) just-in-time (JIT)
2) out sourcing
3) computerized inventory control systems

JUST IN TIME SYSTEM

44

JIT is an inventory strategy implemented to improve the return on investment

of a business by reducing in process inventory & its associated costs. JIT can
lead to dramatic improvements in a manufacturing organisations return on
investments quality & efficiency. New stock is ordered when stock drops to
the reorder level. This saves warehouse space & cost. So it requires space
management also. But if, the raw material is ordered so early, when it is not
needed than the company has also to suffer space cost. JIT system is used by
Japanese. It is not implemented in India. If JIT is not used, it can also lead to
wastage bacuse raw material coukd also come befor or after it is needed,
which could be of no use. Also, the inventions and innovations take place
everytime. So it is better to use latest technology in the product. In short JIT
system is all about having the right material at the right time at right place &
in exact amount.

OUTSOURCING
A few years ago there was a tendency on the parts of many companies to
manufacture all components in hours. Now more and more companies are
adopting the practice of out-sourcing. Out-sourcing is a system of buying
parts and components from outside rather than manufacturing them internally.
Many companies have developed a single source of supply, and many others
help developing small and middle sized suppliers of components that they
require. Tata motors has, for example, developed a number of ancilliary units
around its manufacturing sites that supplies parts and components to its
manufacturing plant. With the help of tata motors, ancillaries are able to
45

maintain the high quality of manufactured components. The car

manufacturing company, maruti,, which is now controlled by Suzuki of japan,
has the similar system of supply.

COMPUTERISED INVENTORY CONTROL SYSTEM:

More and more companies, small or large size, are adopting the computerized
system of controlling inventories. A computerized inventory control system
enables a company to easily track large items of inventories. It is an
automatic system of counting inventories, recording withdrawals and
revising the balance. There is an in built system of placing order as the
computer notices the reorder point has been reached. The computerized
inventory system is inevitable for large retail stores, which carry thousands of
items. The computer information systems of the buyer and suppliers are
linked to each other. As soon as the suppliers computer receives an order
from the buyers system, the supply process is activated.

FINANCIAL PERFORMANCE OF SWARAJ MAZDA

LIMITED
Last 11 yrs Vehicles Production & Sales of
SWARAJ MAZDA

46

1996-97

4006

3726

1997-98

2931

3303

1998-99

2877

2975

1999-00

4010

3983

2000-01

5211

5069

2001-02

6360

6222

2002-03

8201

8101

2003-04

10225

10279

years

production

sales

2004-05

12385

12353

2005-06

11946

11887

2006-07

10915

10841

47

SML VEHICLES (%AGE) SHARE IN

MARKET
Vehicles

%age share

Truck

62%

Bus

34%

AMB

3%

Special Applications

1%

48

Truck
Bus
Spp. Appl.
ABM

SML is 3rd player in LCV segment with 15% market share. Out of this 15% large
market share is covered by SML trucks with 6762 units (62%) in LCV segment.
Sales of bus vehicles are 3706 units with 34% market share. Ambulance vehicles
have 3% market share by a sale of 297 units. Swaraj Mazda special Application has
just 1% market share in LCV segment.

LAST 2 YEARS SALES

COMPARISON OF
SWARAJ MAZDA
VEHICLES

49

Vehicles

2005-06

2006-07

Truck

8401

6702

Bus

3275

3706

Spp. Appl.

117

136

ABM

94

297

TOTAL

11887

10841

50

LAST 5 YRS COMPETITORS SALES

51

YRS.

2002-03

2003-04

2004-05

2005-06

2006-07

TELCO
EICHER
SWARAJ
MAHINDRA
FORCE
A.LEYLAND

17007
11466
8101
7095
4076
1515

22680
14208
10279
7205
5164
1788

25928
15164
12353
7955
4155
4477

30936
16048
11887
7078
5286
4002

29331
16821
10841
8694
4592
2526

Total

49260

61324

70032

75237

72823

CO.

52

53

MARKET SHARE (%AGE) OF

DIFFERENT
COMPANIES IN 20062007

COMPANIES
TELCO
EICHER
SWARAJ
MAHINDRA
FORCE MOTOR
A.LEYLAND

MARKET SHARE
(%AGE)
40%
23%
15%
12%
6%
4%

54

The above Table and Graph shows the %age of market share of different
companies in LCVs segment. All these companies are competitors in 5-10
Ton GVW in LCV sector. Telco is a market leader having 40% market share.
Telco has local technology. Eicher stands at 2nd place with 23% market share.
Swaraj Mazda is the 3rd player with 15% market share in LCV segment.
Mahindra & Mahindra holds 12% market share it stands at 4 th place. Force
motors have 6% & Ashok Leyland has just 4% market share in LCV segment.

55

SHARE HOLDING PATTERN OF SWARAJ MAZDA

LIMITED

Sumitomo corporation
Punjab tractors limited(ptl)
Mutual funds/nationalized banks
FIIs
Public

41.03%
14.04%
7.83%
9.31%
27.79%

56

EXPENDITURE OF SWARAJ MAZDA LIMITED FOR

THE LAST 6 YEARS

YEARS
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07

EXPENDITURE
52
66.6
73.5
71.4
64
65.6

57

58

YEARS
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07

EPS
6.4
13.9
20
23
16
15.3

59

EARNING PER SHARE OF SWARAJ MAZDA

LIMITED FOR LAST 6 YEARS

60

DIVIDEND RATE OF SWARAJ MAZDA LIMITED

FOR THE LAST 6 YEARS

YEARS
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07

DIVIDEND(%)
25%
45%
70%
75%
55%
55%

61

62

SWARAJ MAZDA LIMITED - FINANCIALS

LAST '6' YEARS
PARTICULARS

2001-02

2002-03

2003-04

(Rs. Crore)
2004-05

2005-06

2006-07

ACTUALS

Sales (Nos.)
Passengers Applications

2104

2512

3715

4516

5475

5714

Goods Applications

4118

5589

6564

7837

6412

5127

6222

8101

10279

12353

11887

10841

Net Operating Revenue

297.8

372.3

477.7

589.9

613.1

605.5

Material Cost

228.0

278.0

368.1

474.2

513.8

504.5

%age

76.6%

74.7%

77.1%

80.4%

83.8%

83.3%

Contribution Per Vehicle Rs.

(112183)

(116405)

(106625)

(93661)

(83537)

(93165)

14.4

18.3

19.2

20.4

22.3

26.7

Total

Expenditure
Employees Cost

63

Per Vehicle Rs.

%age

(23144)

(22590)

(18679)

(16514)

(18760)

(24629)

4.8%

4.9%

4.0%

3.5%

3.6%

4.4%

Manufacturing & Others

10.4

11.4

12.7

13.6

15.3

16.9

Per Vehicle Rs.

(16715)

(14072)

(12355)

(11009)

(12871)

(15589)

3.5%

3.1%

2.7%

2.3%

2.5%

2.8%

%age

Selling & Distribution

24.9

33.7

37.2

34.6

26.4

22.0

Per Vehicle Rs.

(40019)

(41600)

(36190)

(28009)

(22209)

(20293)

8.4%

9.1%

7.8%

5.9%

4.3%

3.6%

%age

Royalty

2.3

3.2

4.4

2.8

Total Expenses

52.0

66.6

73.5

71.4

64.0

65.6

Per Vehicle Rs.

(83574)

(82212)

(71505)

(57800)

(53840)

(60511)

%age

17.5%

17.9%

15.4%

12.1%

10.4%

10.8%

Operating Profit

17.8

27.7

36.1

44.3

35.3

35.4

Margin

6.0%

7.4%

7.6%

7.5%

5.8%

5.8%

Interest

5.8

3.1

1.6

4.0

7.3

9.3

Cash Profit

12.0

24.6

34.5

40.3

28.0

26.1

Depreciation

1.6

2.1

2.1

2.5

2.7

2.9

Profit Before Tax

10.4

22.5

32.4

37.8

25.3

23.2

Margin

3.5%

6.0%

6.8%

6.4%

4.1%

3.8%

Corporate Tax

3.7

7.9

11.4

13.6

8.5

7.1

Profit After Tax

6.7

14.6

21.0

24.2

16.8

16.1

Paid-up Equity Capital

10.5

10.5

10.5

10.5

10.5

10.5

EPS (Rs)

6.4

13.9

20.0

23.0

16.0

15.3

64

Book Value

17.9

26.8

38.9

53.4

63.2

72.1

Dividend (%age)

25%

45%

70%

75%

55%

55%

FINANCIAL PARTICULARS OF SWARAJ MAZDA

LIMITED FOR THE YEAR 2007-08
PARTICULARS

2007-08
PLAN

Q1

Passengers Applications

7400

1429

Goods Applications

5800

1253

13200

2682

Net Operating Revenue

780.0

153.0

Material Cost

651.5

124.7

%age

83.5%

81.5%

Contribution Per Vehicle Rs.

(97348)

Sales (Nos.)

Total

(105518)

Expenditure
Employees Cost

32.0

Per Vehicle Rs.

(24242)

6.7
(24981)

65

%age

4.1%

4.4%

Manufacturing & Others

20.0

Per Vehicle Rs.

(15152)

(15287)

2.6%

2.7%

%age

4.1

Selling & Distribution

28.0

Per Vehicle Rs.

(21212)

(18270)

3.6%

3.2%

%age

Royalty

4.9

Total Expenses

80.0

15.7

Per Vehicle Rs.

(60606)

(58538)

%age

10.3%

10.3%

Operating Profit

48.5

12.6

Margin

6.2%

8.2%

Interest

12.0

3.0

Cash Profit

36.5

9.6

Depreciation

3.5

0.8

Profit Before Tax

33.0

8.8

Margin

4.2%

5.8%

Corporate Tax

10.0

2.8

Profit After Tax

23.0

6.0

Paid-up Equity Capital

10.5

10.5

EPS (Rs)

21.9

5.7

Book Value

66

Dividend (%age)

SWARAJ MAZDA LIMITED

CKD STOCK

30th
June

AS AT 31st MARCH
PARTICULARS

2003

2004

2005

2006

2007

2007

FACTORY

647

1146

1361

3496

7350

4895

PORT

1000

1000

1040

6000

2260

1340

8700

10480

19480

12060

7540

1620

10347

12626

21881

21556

17150

7855

CONS-PRODUCTION

8201

10225

12385

11946

10915

2653

CLOSING STOCK

2146

2401

9496

9610

6235

5202

OPENING STOCK

SHIPMENT

KITS STOCK LOCATION

67

FACTORY

1146

1361

3496

7350

4895

4782

PORT

1000

1040

6000

2260

1340

420

KIT STOCK TOTAL

2146

2401

9496

9610

6235

5202

SWARAJ MAZDA LIMITED

VEHICLE STOCK
30th
June

AS AT 31st MARCH
PARTICULARS

2003

2004

2005

2006

2007

2007

OPENING STOCK

506

605

548

578

636

708

PRODUCTION

8201

10225

12385

11946

10915

2653

8707

10830

12933

12524

11551

3361

5589

6564

7837

6412

5127

1253

SALES INCLUDES :
GOODS APPLICATIONS

68

PASSANGER
APPLICATIONS

2512

3715

4516

5475

5714

1429

8101

10279

12353

11887

10841

2682

-BONDED / SAC

77

52

118

30

88

123

-BODY BUILDER

105

107

89

57

30

113

-MKTG.

423

389

371

549

590

441

-TOTAL

605

548

578

636

708

677

-PRODUCTION

683

852

1032

996

910

884

-SALE

675

857

1029

991

903

894

INS. CLAIM RECD./CAPITAL.

VEH. STOCK LOCATION

AVERAGE PER MONTH :

69

CASH FLOW STATEMENT OF SWARAJ MAZDA

LIMITED
FOR THE LAST 5 YEARS

particulars
cash flow from
operating
activities (A)

2001- 2002- 200302

03
04
857.96 3947.4 760
5

200405
523

200506
6599.0
6

net cash from

operating
activities
Cash flow from
Investing
activities

327.91 314.05 195.42 342.69 587.76

Net cash
from

70

investing
activities
Cash flow from
Financing
Activities

519.18 4342.0 595.50 1077.1 7516.3

9
1
2

Net cash
used in
financing
activities

KEY PERFORMANCE INDICATORS FOR THE LAST

11 YEARS
199596

199697

199798

199899

199900

200001

200102

200203

200304

Sales (Nos.)

4231

3726

3303

2975

3983

5069

6222

8101

10279 12353 11887

Net Revenue

1654

1622

1510

1372

1855

2360

2978

3723

4777

5899

6126

Operating Profit

97

125

125

91

90

137

178

277

361

443

353

7.7%

8.3%

6.6%

4.9%

5.8%

6.0%

7.4%

5.8%

7.5%

5.8%

Margin 5.9%

200405

200506

Interest

40

65

45

47

39

57

58

31

16

40

73

Cash Profit

57

60

80

44

51

80

120

246

280

403

280

3.7%

5.3%

3.2%

2.7%

3.4%

4.0%

6.6%

4.6%

6.8%

4.6%

Margin 3.4%
Depreciation

11

11

11

13

14

15

16

21

21

25

27

Profit Before Tax

(PBT)

46

49

69

31

37

65

104

225

253

378

253

3.0%

4.6%

2.3%

2.0%

2.8%

3.5%

6.0%

4.1%

6.4%

4.1%

Margin 2.8%
Extra Ordinary
Item

29

--

--

--

--

--

--

--

--

--

Income Tax

--

--

25

36

79

114

136

85

Profit After Tax

75

49

67

26

28

40

68

146

168

242

168

71

(PAT)
Dividend
- Rate

--

--

--

--

10%

15%

25%

45%

70%

75%

55%

- Outflow

--

--

--

--

13

17

26

53

83

90

66

- Payout Ratio

--

--

--

--

46%

43%

38%

36%

40%

37%

39%

Equity Share
Capital

105

105

105

105

105

105

105

105

105

105

105

Net Worth

(5)

44

111

136

152

174

188

281

408

561

663

Earnings Per
Share (Rs.)

7.2

4.7

6.4

2.4

2.7

3.8

6.5

13.9

20.0

23.1

16.0

Book Value Per

Share (Rs.)

--

4.2

10.6

13.0

14.5

16.6

17.9

26.8

38.9

53.5

63.2

Return on Avg.
Net Worth

--

--

--

20.8% 19.8% 24.4% 37.3% 62.2% 60.9% 50.0% 27.5%

72

TECHNICAL AND FINANCIAL AGREEMENTS OF

SWARAJ MAZDA LIMITED
Swaraj mazda entered into three technical and financial agreements which
are:
1)
2)
3)

Technical assistance agreement

Joint venture agreement
CKD agreement

TECHNICAL ASSISTANCE AGREEMENT

Technical assistance agreement provides:
73

Right to manufacture and sell T-3500 diesel series models WT-48, WT-49
& WT-50.
Right to use the well knows mazda trademark and patents.
To provide complete drawings, technical information and know-how for
manufacture, sale & service
Modifications in product and components to suit Indian operating conditions.
Provide guidance on selection of plant and equipment.
Provide guidelines on plant layout, services and facilities.
Provide support on development of vendors.
Provide continued information on development and improvements.
Train adequate number of SML personnel at their facilities.
Depute adequate number of swaraj mazda corporations experts to SML for
training of counter-part personnel, establish manufacturing processes, vendor
development etc.

ROYALTY AGREEMENT
Royalty agreement made on 5th day of October, 1984 between mazda motor
corporation ( formerly called Tokyo kogyo company limited), accompany
organized and existing under the laws of japan (called licensor) and swaraj
vehicles limited, a company organized and existing under the laws of republic
of India and having its registered office at phase iv, S.A.S nagar, district
ropar, Punjab, the republic of India (called licensee). Licensee shall pay
licensor the royalty listed in addendum (B), which shall be in the net amount
of the deduction of all the taxes and duties, if levied in territory, for each unit
of CKD vehicles assembled and/or manufactured and shipped out of
licencee,s plant for sale or its own use , provided that the royalty including
Indian taxes per/each unit of CKD vehicle shall not exceed 1.5% of the net
74

ex-factory selling price of the vehicle minus landed cost of imported CKD
part used therein and the cost of standard bought out components namely
tyres, tubes, wheel rims, batteries and shock absorbers.

Initially royalty provided for here in above was payable for a maximum
period of 10 years which was ended in September 1994. later the agreement
had again been extended two times for 5 years on the same terms and
condition.

JOINT VENTURE AGREEMENT

Mazda motor corporation (MC) and their long term trading partner, the
internationally well known sumitomo corporation (SC), jointly agreed to
participate in SMLs equity. Promoters share in the equity, capital of SML is:
PTL

- 29%

Mazda motor corporation

Sumitomo corporation

15.6%
10.4%
------------55%
75

Remaining 45% was raised by SML from public and Indian financial
institutions in the usual manner.
MC and SC agreed to nominate their directors on the board of SML. The joint
venture agreement provided for the right of upto 3 directors. MC and SC
agreed to subscribe to their entire equity at the earliest stage of the project
even before the public issue signifying their commitment to the project.

76

77

CKD AGREEMENT
In case of CKD agreement, MC will send the CKD agreement through SC
against the letter of credit in five products WT_48,
WT-49, and WT-50, WV-26,ZT-54.

78

PRODUCT MIX
The product selected by the Swaraj Mazda for introduction in India
in 1985 was the latest, state of art technology of Japan, which had been
introduced there in March 1984. The company started with a 30% of
local content. Starting with one standard product i.e. truck, Swaraj
Mazda has over the years, on the strength of their own R&D, have
developed various variants of the same.
The company is manufacturing Light Commercial Vehicles in fourwheel base i.e. 2515MM, 2815MM, 3335MM. All the version and the
models are being fabricated on these wheelbases. Swaraj Mazda T3500
vehicles have been tested by Vehicles Research and Development
Establishment (VERD), a designated authority by Government of India
under Ministery of Defense. VERD tests the companys vehicles at
frequent intervals and issue certificates confirming it the Indian road
standards laid down by Government of India from time to time. Vehicles
are fuel efficient and meet emission norms.
The range of products now includes Buses, Ambulances, Police Vans,
Dumpers, Sky Lifts, Dumper placer, Delivery vans, Bottle Carriers,
Mobile Ration Shops, Fire Tenders, CNG Buses & Trucks etc. as a
result of such wide range of products the companys products are very
popular with both private and government customers.
In addition to the above SML is adding up 4 wheel drive & CNG
vehicles as with the changes which take places in the market CNG has
more powerful engine more torque at low rpm thus higher pick up,
Grade ability & fuel efficient.

79

PRODUCTS FEATURES:(a) Quality Control: There exits a detailed & elaborate system of Quality Assurance on
every product, covering the manufacturing activity in plant & at the vendors
end. The Quality Control development manned by highly qualified & trained
manpower is fully involved in development of local components in addition
to the routine activity of incoming material inspection, in house inspection &
pre delivery inspection.

(b) Localisation:At the time of inception, production stated with 30% local content
keeping in view the govt. of India guidelines, Swaraj has now achieved a
local content 75% & such critical parts as starter motor, crankshafts,
connecting rods, transmission gears are all in the local list now.

(c) Manufacturing Methods:All vehicles of Swaraj Mazda are based on the modern chassis
manufacturing method using a welded box construction. The chassis is much
stronger despite of its being
.

(d) Efficiency:The vehicle is powered by a Fuel Efficient, Direct Injection Engine of

86.5HP running at a comparatively low RPM of 3000 thereby giving a
long engine life.

(e) Better Maneuverability in SML vehicles due to shorter wheel

base
makes it also suitable for narrow hilly roads.

80

(f) Average consumption of diesel of Swaraj Mazda Super Truck is 8 kms

per liter in consumption to its competitors TATA 709 is 5.5 kms per liter,
Eicher 10.90 is 6 kms per liter & Ashok Leyland Cargo 909 is 5.5 kms
per liter.
(g) Fuel consumption per month of Swaraj Mazda Super Truck is 312 liter in
comparison to TATA 709 is 455 liter, Eicher 10.90 is 416.67 litres & Ashok
Leyland cargo 909 is 45.45 litres.
(h) Swaraj Mazda vehicle has more Lugging power & allows easy handling
of the hilly terrain.
(i) In addition to sedimentor which removes water from fuel, Swaraj Mazda
has two diesel filters causing more filtration & thus more F.I pump life.
(j) Its oil by pass filter increases the sup capacity resulting on oil temperature,
better oil filtration & increases oil change period, hence lower down time &
maintenance cost.

81

82