SUMMER TRAINING REPORT SUBMITTED TOWARDS THE PARTIAL FULFILLMENT OF POST GRADUATE DEGREE IN

INTERNATIONAL BUSINESS

CAPITAL RESTRUCTURING

SUBMITTED BY:APOORVA BHATEJA

MBA-IB (2009-2011) Roll No. : A1802009027

INDUSTRY GUIDE FACULTY GUIDE

Mr. Pardeep Kapoor Ashu JainManager LecturerEscorts Ltd AIBS

AMITY INTERNATIONAL BUSINESS SCHOOL, NOIDA

AMITY UNIVERSITY – UTTAR PRADESH

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CERTIFICATE OF ORIGIN

This is to certify that Ms. Apoorva Bhateja, a student of Post Graduate Degree in MBA-IB, Amity International Business School, Noida has worked in Escorts Ltd, under the able guidance and supervision of Mr. Pardeep Kumar, Manger Finance, Escorts Ltd.

The period, for which she was on training for 7 weeks, starting from 17th May to 3rd July. This Summer Internship report has the requisite standard for the partial fulfillment the Post Graduate Degree in International Business. To the best of our knowledge no part of this report has been reproduced from any other report and the contents are based on original research.

Signature Signature(Faculty Guide) (Student)

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ACKNOWLEDGEMENT

I express my sincere gratitude to my industry guide Mr. Pardeep Kumar, (Designation) Manager, (Company) Escorts Ltd, for his/her able guidance, continuous support and cooperation throughout my project, without which the present work would not have been possible.

I would also like to thank the entire team of Escorts Ltd, for the constant support and help in the successful completion of my project.

Also, I am thankful to my faculty guide Mr. Ashu Jain of my institute, for his continued guidance and invaluable encouragement.

Signature(Student)

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TABLE OF CONTENTS

CHAPTER NO:

SUBJECT PAGE NO:

1 Executive Summary 62 Introduction

Objectives 8

103 Industry Profile

Introduction Historical Perspective Farm Machinery Industries in India Agricultural Machinery Marketing & After

Sale Services Popularization of Agri-Machinery Future Thrust in Agricultural Mechanization Future Perspective in Agricultural Machinery

Manufacture

121416

202122

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4 Company Profile About The Company Businesses of Escorts History of Escorts Outlook of Escorts Sectors Quality Policy

2633394346

5 Issues and challenges facing the organization 486 Reflections on what has been learned during the

placement experience50

7 Analysis & Findings Analysis Findings

5256

8 Recommendations 589 Bibliography 6010 Annexure

a. Tablesb. Graphs

6264

11 Case Study 6612 Synopsis of the project 74

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EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY

The title of the project is Capital restructuring, which means to re-allocate the assets of the company in order to improve liquidity or availability of the assets. The project includes the definition and benefits of capital restructuring and also the different aspects which are touched by it. It includes the objectives of capital restructuring as well.

The project has been done on the capital structure of Escorts Ltd. The Escorts Group is among India's leading engineering conglomerates operating in the high growth sectors of agri-machinery, construction & material handling equipment, railway equipment and auto components. Although Escorts operates in many sectors but basically it belongs to the agri machinery industry.

Therefore the project has industry profile of agri machinery industry which includes introduction to the industry, its historical perspective, different types of farm machinery industries in India like village craftsmen, tiny and small scale industries and farm organized industry. Then is how agricultural machinery is popularized, future thrusts in agricultural mechanization and finally the industry profile has the future perspective in agricultural machinery manufacture.

After that comes the profile of the company i.e. company profile of Escorts Ltd. It explains what Escorts is all about, its founding philosophy and the corporate social responsibility. Escorts is into different businesses like

i) Agri machinery,ii) Engineering which includes railway equipment and auto

component, andiii) Construction Equipment

In this project we first study the cost of borrowed funds in the capital structure of Escorts Ltd. Then we find a suitable blend of debt and equity which will maximize the shareholders rate of return. This forms the analysis part of the project.

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INTRODUCTION

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INTRODUCTION

Capital RestructuringCapital is generally the assets, often monetary, that are available to generate more assets. Thus the liquidity of capital should be high. Restructuring them means re-allocating them to improve their availability (liquidity). The process requires selling assets to buy different ones in order to improve your capital (monetary) position so that you can improve your asset position thus enabling you to earn more with them. It is generally undertaken by companies that are generally doing poorer than expected and wish to stabilize future performance of their assets.

Objectives of Capital Restructuring

1 To enhance the shareholder value. For this the company should continuously evaluate its:

a) Portfolio of businesses, b) Capital mix, c) Ownership & d) Asset arrangements to find opportunities to increase the share

holder’s value. 2 To focus on asset utilization and profitable investment opportunities.

3 To reorganize or divest less profitable or less making business/products.

4 The company can also enhance value through, it can innovate securities that help to reduce cost of capital.

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Capital Restructuring touches upon the following aspects:

1. Leverage of the company: This is essentially the Debt: Equity Ratio. Here, companies have the option of undertaking Debt Restructuring - especially if it is a Debt - laden company (high debt leveraged company).

Debt Restructuring: It is a process that allows a private or public company - or a sovereign entity - facing cash flow problems and financial distress, to reduce and renegotiate its deliquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations.

2. Investment Pattern: This relates to ability of corporations to identify the various investments opportunities that would lead to higher returns.

3. FDI Participation: This aspect relates to the change in structure of the shareholding due to the increasing FDI inflows.

4. Divestitures: As stated earlier in the types of Divestiture in Portfolio and Asset Management, this aspect relates to divesting divisions and / or businesses to improve the financial standing of the organization.

Benefits of Capital Restructuring

a) Greater Financial Muscleb) Access to Better / Greater Technologiesc) Focus on Core Competencies

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Objectives of the study

1 To understand and observe the practical work in escorts.

2 To seek out the difference between theory and practical work.

3 To observe the functioning of finance department of escorts.

4 To gain knowledge about different policies of escorts.

5 To develop new skills.

6 To have a direct contact with the employees of Escort to learn from them.

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INDUSTRYPROFILE

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INDUSTRY PROFILE

A INTRODUCTION

Farm mechanization helps in effective utilization of inputs to increase the productivity of land and labor. Besides it helps in reducing the drudgery in farm operations. The early agricultural mechanization in India was greatly influenced by the technological development in England. Irrigation pumps, tillage equipment, chaff cutters, tractors and threshers were gradually introduced for farm mechanization. The high yielding varieties with assured irrigation and higher rate of application of fertilizers gave higher returns that enabled farmers to adopt mechanization inputs, especially after Green revolution in 1960s. The development of power thresher in 1960, with integrated Bhusa making attachment and aspirator blower and mechanical sieves for grain and straw separation, was the major achievement of Indian engineers. These threshers were widely adopted by the farmers. Gradually demand for other farm machinery such as reapers and combine harvesters also increased. Equipment for tillage, sowing, irrigation, plant protection and threshing have been widely accepted by the farmers. Even farmers with small holdings utilize many improved farm equipment through custom hiring to ensure timeliness of farming operations. The present trend in agricultural mechanization is for high capacity machines through custom hiring and for contractual field operations. However, mechanization of horticulture, plantation crops and commercial agriculture is yet to be introduced in the country. The pace of farm mechanization in the country accelerated with the manufacture of agricultural equipment by the local industries. With the modest beginning of manufacture of tractors in 1960s with foreign collaboration, to-day the Indian farm machinery industries meet the bulk of the requirement of mechanization inputs and also export. The manufacture of agricultural machinery in India is quite complex comprising of village artisans, tiny units, small-scale industries, State Agro-Industrial Development Corporations and organized tractor, engine and processing equipment industries. Traditional hand tools and bullock drawn implements are largely fabricated by village craftsmen (blacksmith and carpenters) and small-scale industries. The small-scale industries depend upon public

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institutions for technological support. These industries, however, upgrade these designs and production processes with experience. Organized sectors confine to the manufacture of machines like tractors, engines, milling and dairying equipment.

These industries have adopted sophisticated production technologies, and some of them match international standards. The enhanced scope of import of technology (product designs and manufacturing process) by organized sector and entry of foreign investors is likely to accelerate exports. Since cost of production of farm machinery in India is more competitive due to lower labour wages, the importers from various Countries will find Indian farm equipment more attractive. Indian products, however, shall need improvements in quality for gaining major export growth. For this, mass production of critical and fast wearing components and their standardization would greatly help.

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B HISTORICAL PERSPECTIVE

Blacksmiths and carpenters have been the traditional fabricators of agricultural equipment in India. The early agricultural mechanization in India was greatly influenced by the technological development in England.In 1889, Watts and Kaisar introduced ploughs, corn grinders and chaff cutters Cawnpore (now Kanpur) Experimental Farm in Uttar Pradesh. Sardar Joginder Singh (1897-1946), who was the Agriculture Minister in the Punjab Government (1926-37), introduced the steam tractors in India in 1914 for reclamation of waste land and eradication of ‘Kans’. Horse drawn and steam tractor operated implements were imported during the latter part of the 19th century. The horse drawn equipment imported from England were not suitable for bullocks and he-buffaloes used in India and thus, were suitably modified by small scale manufacturers to suit Indian draught animals. With the establishment of Allahabad Agricultural Institute, Allahabad in 1942, the development activities in agricultural machinery accelerated and as a result bullock drawn Meston, Shabash and Wah-Wah ploughs were introduced in Uttar Pradesh, manufactured by the Agricultural Development Society, Naini in early forties.

The Indian farmers gradually responded to farm mechanization technology especially after Green revolution in 1960s. High yielding varieties with assured irrigation and higher rate of application of fertilizer gave higher yields and better economic returns. This enabled the farmers to start adopting mechanization. The development of power thresher with integrated Bhusa making attachment and aspirator blower and mechanical sieves for grain and straw separation in 1960s was the major achievement of Indian engineers which was widely adopted by our farmers. Gradually demand for other farm machinery such as reaper and combine harvester also increased. Demand of tractors in the country was met through importation until 1961 when Eicher Tractors Ltd. and Tractors and Farm Equipment Ltd started manufacturing tractors with foreign collaborations. To meet the additional demand, importation continued up to 1977. Meanwhile many other industries started manufacturing tractors with foreign know how such as Gujarat Tractors Ltd (1963), Escorts Ltd (1966), International Tractors (India) Ltd. (1966), and Hindustan

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Machine Tools Ltd (1977). Punjab Tractors Ltd. started their production with indigenous Technology in 1974. Many more industries started manufacturing tractors since then with indigenous and foreign know how.

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C FARM MACHINERY INDUSTRIES IN INDIA

The adoption of mechanization technology depends upon the local manufacture and after-sales-services besides credit and financial incentive provided by the Government. The manufacture of agricultural machinery in India is quite complex comprising from village artisans, tiny units, small scale industries to State Agro- Industrial Development Corporations and organized tractor, engine and processing equipment industries. Traditional hand tools and bullock drawn implements are largely fabricated by village craftsmen and small scale industries. Organized sectors manufacture sophisticated machinery such as tractors, engines, mills and dairying equipment. The small-scale industries seldom have R&D facilities and they depend upon public institutions for technological support. They require not only drawings but also prototypes and technical guidance to manufacture the equipment. These industries however, upgrade the technology with experience.

Classification of IndustriesThe classification of industries in India is based on total capital investment (plant and machinery) rather number of workers employed. These are (i) village craftsmen, (ii) cottage industries, (iii) tiny industries, (iv) small scale industries, (v) medium scale industries and (vi) large scale industries. This classification was done to help the small-scale units through incentives and marketing support.

Category Maximum Capital InvestmentVillage artisans and cottage industries

Unorganized in rural areas

Tiny industries Rs. 15 lakhsSmall scale industries Rs. 1 croreMedium scale industries Rs. 5crores

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Village craftsmen

Village artisans are the main source of supply and repair and maintenance of hand tools and traditional implements are made by village craftsmen. These include implements and tools like khurpi, spade, sickle, local ploughs, bakhar, sowing devices, yokes, patela, leveller, oil ghanis, grinding wheels, hand mills, handoperated milk churning tools, winnowing devices, sieves, wooden storage structures, bullock carts, manual water lifting devices etc. If village artisans are properly trained they will accelerate the adoption of mechanization inputs due to their proximity with farmers.

Tiny and small-scale industries

The tiny and small scale units fabricate bulk of improved agricultural machinery such as ploughs, cultivators, disc ploughs and harrows, seed drills, planters, plant protection equipment, reaper harvesters, combine harvesters, threshers, cleaners, graders, mills, crushers, oil expellers, diesel engines, irrigation pumps, dairy machinery etc. Agricultural machines are reserved for small-scale units. There are more than 18000 such units scattered all over the country but have concentration in selected regions.

Some of these units also fabricate implements and equipment for tractor and power tiller manufacturers. They may lack good machine tools and heat treatment facilities. Some of them are more organized and have better fabrication toolings and thus are able to manufacture better quality machinery. The bulk of the farm machinery is made by the small-scale industries. They use materials from mild steel to medium carbon steel. Heat treatment practices are generally inadequate except in few industries manufacturing knife & tillage tools. Equipment manufactured by the SSI units includes Soil working tools, seeding & planting equipment, hand hoes, sprayers & dusters, harvesting & threshing equipment, like reapers, threshers, combines, maize shellers, decorticators, cleaners, graders, mills, oil expellers etc.

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Regions having concentration of agricultural machinery

Northern regionLudhiana, Moga, Jalandhar, Goraya, Batala, Hoshiyarpur, Karnal,Panipat, Faridabad, Delhi, Agra, Ghaziabad, Meerut, Rudrapur,Muzaffarnagar, Lucknow, Kanpur, Fatehpur and Allahabad.

Western regionBombay, Pune, Nagpur, Ahmed Nagar, Sangli, Kolhapur, Sholapur,Ahmedabad, Baroda, Anand, Junagarh, Bhopal, Indore, Dewas, Bina,Khurai, Raipur, Vidisha and Gwalior.

Southern regionHyderabad, Guntur, Anantpur, Kakinada, Coimbatore, Madurai,Chennai, Salem, Palghat, Ernakulam, Kochin and Bangalore.Eastern region

Calcutta, Vardhaman, Durgapur, Bhubaneswar, Sambhalpur, Patna,Ranchi, Dhanbad and Muzaffarpur.

Organized farm machinery industries

The medium scale and large scale industries manufacture diesel engines, electric motors, irrigation pumps, sprayers and dusters, land developmentmachinery, tractors, power tillers, post harvest and processing machinery and dairy equipment. There are 13 tractor, 2 power tiller, 200 diesel engine, 600 irrigation pump, 48 combine and 188 earthmoving machinery manufacturers (Table 21). The marketing of agricultural machinery by these industries is through their network of dealerships and, therefore, these manufacturers are able to provide effective after-salesservice. These industries upgrade their product and process technologies through their own R&D efforts, in addition to technological support from external agencies.

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Today, India is recognized as a leading country in the world for the development and manufacture of agricultural implements and equipment. The range of equipment includes, tractors, harvesting and threshing equipment, plant protection machines, irrigation and drainage pumps, sprinkler systems, land development machinery, dairy and agro-processing equipment, etc. India is the exporting increasing volumes of these to various countries including USA, Africa, Asia, etc.

Status of farm machinery industries in India

Equipment manufacturers No. of units

1. Agricultural tractors 13

2. Power tillers 2

3. Earth movers 3

4. Pumps 600

5. Sprinkler set 35

6. Drip irrigation system 35

7. Plant protection equipment 300

8. Combines 48

9. Reapers 60

10. Threshers 6000

11. Seed drills 2500

12. Ploughs, cultivator and harrows 5000

13. Tractors parts and accessories 546

14. Earth moving machinery and parts 188

15. Diesel oil engines 200

16. Rice processing machinery 300

17. Sugarcane crusher 50

18. Chaff cutter 50

19. Dairy and food industries 500

20. Village craftsmen 1 million

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D Agricultural Machinery Marketing and After Sale Services

The large and medium scale manufacturers have well organized distributors and dealers through out the country to undertake advertising and product promotion in their respective territories, conduct product awareness training programmes for the prospective customers, provide after-sales-service to the customers including free services, repair and maintenance, supply of parts, etc. Therefore, this organized sector has the whole of the country as their market due to which their production volumes are large, and their information feed back about their product performance, improvements required in design, production processing or quality, and the new requirements of the farmers to undertake product developments.

Very few small-scale industries have established their marketing network and therefore provide service support in their premises. In the absence of standardization of parts and components farmers are compelled to carry their machines to the manufactures for repair and replacement of parts and components. Due to this, their market size is limited to their proximity, and they are not able to develop their businesses. The village artisans on the other hand are located in the villages and therefore provide immediate attention to the needs of the farmers in their immediate neighborhoods. Therefore, the tools and implements, etc. made by them are against specific requirements of individual customers .

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E Popularization of agricultural machinery

The assimilation of R & D requires an effective technological infrastructure of institutions and services to develop and test prototypes, to set up pilot plants for intensive evaluation and extensive demonstrations besides, training and credit support. New technology also requires network for transfer of technology to the manufactures. Popularization of agricultural machinery in the country is undertaken by the Provincial Governments through Department of Agriculture or Department of Agricultural Engineering. The activities are coordinated by the Department of Agriculture in Cooperation with the Ministry of Agriculture, Government of India. The Ministry of Food Processing promotes technology related to agro-processing. The extension system deals with the first-line extension projects with a view to: (i) demonstrating the latest technologies to the farmers as well as the extension agencies; (ii) testing and verifying the technologies on the farmers field (iii) providing opportunities to get firsthand scientific feed-back; (iv) developing extension or technological models for the state extension systems; (v) providing training and communication support; and (vi) promoting research in transfer of technologies.

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F FUTURE THRUSTS IN AGRICULTURALMECHANIZATION

India is a large country with wide-agro ecological diversity having predominance of rain fed agriculture, with irrigated agriculture limited to 34% only. Farm holdings are small due to higher population density and land fragmentation will continue due to ‘Laws of Inheritance’ and ‘Hindu Succession Act’. Majority of the farmers have limited surplus money to modernize farms or to invest in improved inputs. Draught animals and increasing agricultural workers population may remain to be the major source of farm power for soil manipulation and for crop handling, particularly in Hill and Mountain regions. Mechanical power for tillage, irrigation, harvesting and threshing will be preferred, including on custom hiring basis. As a result of GATT agreement, prospects of agro-export are likely to increase and product quality standards stipulated under WTO would encourage more and more farmers to adopt modern agricultural production technologies. The future agricultural mechanization technology package therefore may have to;• be eco-friendly utilizing land water and bioresource catering to the varied group of farm holders,• facilitate farming operations which are arduous and hazardous,• increase productivity and conserve resources through effective utilization of chemical, biological and mechanical inputs, and• modernize commercial agriculture to facilitate agro-export.

Keeping above objectives, the mechanization policy may have to be distinctly different to serve hill agriculture, low lying water logged soils; rain fed and irrigated lands and regions having agro export potential.

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G FUTURE PERSPECTIVE IN AGRICULTURAL MACHINERY MANUFACTURE

Equipment for tillage, sowing, irrigation, plant protection and threshing has been widely accepted by the farmers in India. Draught animal and human power in India will continue to be used, but these are inadequate to ensure timeliness of agricultural operations. Even farmers with small holdings utilize selected improved farm equipment, including through custom hiring. The future mechanization strategy may have to be based on agro-ecological diversity and economic disparity of the farmers. The present trend in agricultural mechanization is for high capacity machines to be used on custom hiring and for contractual field operations.

Rice mechanization, sugarcane mechanization, cotton mechanization, potato mechanization, horticulture mechanization, green house and covered cultivation, drip and micro irrigation are new emerging areas which need attention of Agricultural Engineering Institutions and industries for their development, production and marketing.

Water is a scarce commodity and in future with increasing demand for more irrigation water, concerted efforts will be needed for controlled application of water through drip, sprinkler and micro-sprinkler systems to economize use of water and improving water use efficiency.

With the shift in agriculture towards diversification and agri-business, substantial areas will go under horticultural crops. This will also help to export good quality high value agri-products for better returns to farmers and to earn more foreign exchange. The green house technology offers ample scope for increasing productivity particularly of high value cash crops like exotic fruits, flowers and bio-tech plants. Design of green house with environmental control mechanized cultivation and product-handling technology package will assume greater importance.

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Presently little effort has been made to mechanize hill agriculture, where there is tremendous potential of growing horticultural crops, flowers etc. In future this calls for developing appropriate technologies for mechanization.

In order to enforce quality, reliability and safety in the manufacture of agricultural implements, manufacturing of critical components need to be standardized and encouraged for mass production by medium and large scale manufacturers. Keeping long standing demand of farmers and the Ministry of Agriculture and on the recommendation of the Advisory Committee of the Ministry of Industries, the Union Budget of India 1998-99, announced the exclusion of farm implements and tools from the list of items reserved for manufacture by small scale industries sector to enable the farmers to get benefit of wider range of implements and tools at competitive prices, and with requisite after sale- service. The decision of the Government of India to de-reserve the manufacture of farm machinery will help the organized sector to bring latest farm machinery technology for accelerated adoption by the farmers. The small-scale industries in turn will adopt the technology for local manufacturing at a much lower cost. This will help the small-scale sector to become more competitive and to enlarge their market size.

However, the constraints experienced in the growth of farm mechanization so far need to be dealt with so that the farmers are enabled to adopt new methods to produce more, to earn more through gains in productivity, quality of produce, higher prices, etc, for raising their standards of living and better life styles. The critical constraint factors are:• Reliability and quality of agricultural machinery.• Availability of products, spare parts and after sales-services in close proximity.• Availability of Bank credit on terms where currently the farmers have to mortgage both the equipment purchased and his land.• Lack of effective consumer protection in rural areas for redressel of cases of product problems, and poor after-sales- services, etc.

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COMPANYPROFILE

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COMPANY PROFILE

A ABOUT THE COMPANY

The Escorts Group is among India's leading engineering conglomerates operating in the high growth sectors of agri-machinery, construction & material handling equipment, railway equipment and auto components.

Having pioneered farm mechanization in the country, Escorts has played a pivotal role in the agricultural growth of India for over five decades. One of the leading tractor manufacturers of the country, Escorts offers a comprehensive range of tractors, more than 45 variants starting from 25 to 80 HP. Escort, Farmtrac and Powertrac are the widely accepted and preferred brands of tractors from the house of Escorts.

A leading material handling and construction equipment manufacturer, we manufacture and market a diverse range of equipment like cranes, loaders, vibratory rollers and forklifts. Escorts today is the world's largest Pick 'n' Carry Hydraulic Mobile Crane manufacturer.

Escorts has been a major player in the railway equipment business in India for nearly five decades. Our product offering includes brakes, couplers, shock absorbers, rail fastening systems, composite brake blocks and vulcanized rubber parts.

In the auto components segment, Escorts is a leading manufacturer of auto suspension products including shock absorbers and telescopic front forks. Over the years, with continuous development and improvement in manufacturing technology and design, new reliable products have been introduced.

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Throughout the evolution of Escorts, technology has always been its greatest ally for growth. In the over six decades of our inception, Escorts has been much more than just being one of India's largest engineering companies. It has been a harbinger of new technology, a prime mover on the industrial front, at every stage introducing products and technologies that helped take the country forward in key growth areas. Over a million tractors and over 16,000 construction and material handling equipment that have rolled out from the facilities of Escorts, complemented by a highly satisfied customer base, are testimony to the manufacturing excellence of Escorts. Following the globally accepted best manufacturing practices with relentless focus on research and development, Escorts is today in the league of premier corporate entities in India.

Technological and business collaboration with world leaders over the years, Globally competitive indigenous engineering capabilities, over 1600 sales and service outlets and footprints in over 40 countries have been instrumental in making Escorts the Indian multinational. At a time when the world is looking at India as an outsourcing destination, Escorts is rightly placed to be the dependable outsourcing partner of world's leading engineering corporations looking at outsourcing manufacture of engines, transmissions, gears, hydraulics, implements and attachments to tractors, and shock absorbers for heavy trailers.

In today's Global Market Place, Escorts is fast on the path of an internal transformation, which will help it to be a key driver of manufacturing excellence in the global arena. For this we are going beyond just adhering to prevailing norms, we are setting our own standards and relentlessly pursuing them to achieve our desired benchmarks of excellence.

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THE FOUNDING PHILOSOPHY

Over six decades back two young men set out on a journey together armed with little beyond intelligence, business acumen and determination and dreams aplenty. They believed that India could only achieve total freedom with a breakthrough in the field of agriculture and mechanization would have to rule the fields. Their youthful enthusiasm had kindled the hope that one day they would make a mark of their own. They were in fact writing the first chapter of what has come to be widely recognized as one of the greatest success stories in Indian industry.

Escorts came into being with a vision. A vision that eschewed easy paths to profitability, and sought instead for ways to make a contribution. A vision that led two young brothers, Yudi and Hari Nanda, to branch out of their family's prospering transport business and institute ventures that were to become the foundations of Escorts Limited. On 17th October 1944, Escorts Agents Limited was born at Lahore (now in Pakistan) with Mr. Yudi Nanda as Managing Director and Mr. Hari Nanda as Chairman. It was a trend-setting marketing house driven by the same business philosophy, which had given their family enterprise an unrivalled reputation: customer concern. Not long afterwards, this driving ambition to go beyond the expected led Hari Nanda to the first of his many successful business insights - the discovery of the great business potential that lay in India's villages. This led to the launch, in 1948, of Escorts (Agriculture and Machines) Ltd., with Yudi Nanda as Director. Though separate business entities then, both companies had two great strengths in common: the dynamic Nanda brothers and the unifying force of the name they gave their companies; Escorts, literally 'escorting' their products and services to the customer while most other businessmen were just selling.

Tragically, Mr. Yudi Nanda died in an accident in 1952 - but his spirit remained embedded in the foundations of the company. Mr. H P Nanda then took on the mantle to realize the dreams which he had always seen with his brother.Escorts (Agents) Ltd. and Escorts (Agriculture and Machines) Ltd. merged in 1953 to create a single entity -Escorts Agents Pvt Ltd. Having initially started with a franchise for Westinghouse domestic appliances, by this time the Company had already expanded its marketing and service operations, representing internationally known German and American organizations

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such as MAN, AEG, Haniel & Leug, Knorr Bremse, MIAG and BMA for sophisticated electrical and mechanical engineering equipment and Minneapolis Moline and Wisconsin for agricultural tractors, implements and engines. Escorts made a major thrust into the agricultural arena by taking on the marketing and service franchise for Massey Ferguson tractors in Northern India, which soon comprised 75% of MF's all-India sales - a signal tribute to Escorts' inherent strengths. Its first industrial venture came up in 1954, in partnership with Goetzewerke of Germany for the manufacture of piston rings and cylinder liners - followed by production of pistons in collaboration with MAHLE, also of Germany, in 1960. The company's incorporation in its present name, Escorts Limited, was effected on 18th January, 1960. Escorts' next major industrial activity was the assembly of tractors in 1961 in technical cooperation with URSUS of Poland. Subsequently this led to the manufacture of the country's first indigenous tractors under Escorts' own brand name, which were to play a pivotal role in the Green Revolution. This went on to lay the foundations that even today are the Company's core strengths -relevant, world-standard technology through strategic international alliances; a broadbased marketing and service network yet unrivalled; powerful symbiotic relationships with suppliers and dealers; and above all, the crusade to make a difference.

Beyond the growth of the organization, these principles have ensured that Mr. H. P. Nanda's contribution to the cause of industry and the consumer will endure. He pioneered the revolutionary concept of 'interdependence' between ancillary and large industries, institutionalizing vendor development and in the process building Faridabad and the entire belt of townships in the region. He introduced the discipline of service going before marketing, reassuring the customer that Escorts would stay with them, that they were here for the long run. He built lasting alliances with an array of the world's most respected names in tractors, industrial equipment, two-wheelers, construction equipment and telecommunications. Going further, he created institutions devoted to value engineering and training, not only as investments in the company's future but also as catalysts for the enhancement of Indian industry as a whole the Escorts R&D Centre and the unique Escorts Institute of Farm Mechanization. His concern extended to the society in which he worked, and he manifested it by establishing the Escorts Medical Centre at Faridabad, Escorts Heart Institute and Research Centre at New Delhi, as well as numerous village development programmes. And above all, he imbued the corporation with his own pioneering, entrepreneurial spirit, instilling both a conscience and a vision of leadership.

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Escorts is testimony to the valor, vision and values of its Founder Mr. H P Nanda. He remains the inspiration for our courage, spirit of adventure and ability to ‘Think Big’. These qualities are his enduring legacy and have inspired and encouraged us down the decades and will continue doing so in all our endeavors.

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CORPORATE SOCIAL RESPONSIBILITY

CORPORATE SOCIAL RESPONSIBILITY CHARTER

At Escorts Limited, we are committed to making a positive difference in the socio economic fabric of the rural communes where we operate in. Being in a position of advantage, we recognize our responsibility in fostering sustainable development in the rural communities. We strive to earn the respect and trust of our stakeholders, be it the employees who work for us, the customers who buy our products or the environment that we work in. In the last two decades, Escorts has made a concerted effort in making the benefit of progress reach the backward section of the community.

Employees

Escorts Limited is committed to providing a safe, secure, fair and stimulating work environment to its employees that empowers them to not only make a meaningful contribution to the organization’s performance but also helps in personal and professional growth of the employee.

The company has implemented systems that promote safety at workplace and have contributed to reductions in lost time injury rates. Educative seminars are conducted on a regular basis for workers where they are exposed to various training and skill development programmes including Fire Fighting demonstration & training, safety seminars etc. to euip employees to work safely. We also provide effective rehabilitation programs for our employees. At Escorts, health awareness drives are a regular occurrence where workers are given counseling on personal hygiene, polio awareness, eye care and general health. We also organize health check up camps for our employees and their families. For children of our employees, we regularly organize career counseling sessions to help build their future.

Community

As a good corporate citizen, Escorts engages in activities that contribute to the society. The company has conducted numerous awareness generation campaigns in the rural areas on effective agriculture and horticulture

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practices. The company has given assistance to farmers by making available certified seeds, fertilizers and pesticides for improved agricultural output, liaisoning with banks and district agencies for the generation of bank loans and government subsidies, or educating the farmers on preservation of food grains

Besides this, Escorts has been promoting the “Social Forestry Programme” in order to improve the environment in and around the villages of rural Haryana, where its factories are based. Under this programme 8690 fruit trees and saplings have been planted over a land area of 25 acres and 19200 fruit plants have been distributed to farmers for growing orchards till date. Escorts has been taking active part in the “Green Haryana Campaign” and thousands of trees have been planted on the National Highway to combat the menace of air pollution.

Escorts has also joined hands with a number of external agencies and NGOs working in the field of community development. A complete programme on “quality reproductive health care services”, covering 25 villages in the Faridabad District is being run with the able support and help of “The Population Foundation of India”. Escorts also works in collaboration with the National Association for the Blind in the field of prevention of blindness. This programme includes activities i.e. administering vitamin A, free screening of the school going children, distribution of glasses and the like. Besides this, Escorts also allocates funds for other agencies, working in the field of improving rural environment, to run income generation programme, and upliftment of the rural poor.

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B BUSINESSES

Escorts has three types of businesses:

1 Agri Machinery2 Engineering Division3 Construction Equipment

1 Agri Machinery

Background

 In 1960, Escorts set up the strategic Agri Machinery Group (AMG) to venture into tractors.

 In 1965, we rolled out our first batch of tractors under the brand name of Escort.

 In 1969 a separate company, Escorts Tractors Ltd., was established with equity participation of Ford Motor Co., Basildon, UK for the manufacture of Ford agricultural tractors in India.

 In the year 1996 Escorts Tractors Ltd. formally merged with the parent company, Escorts Ltd.

 Since inception, we have manufactured over 1 million tractors.

Technologies

 Escorts AMG has three recognized and well-accepted tractor brands, which are on distinct and separate technology platforms.

 Farmtrac: World Class Premium tractors, with single reduction and epicyclic reduction transmissions from 34 to 75 HP.

 Powertrac: Utility and Value-for-money tractors, offering straight-axle and hub-reduction tractors from 34 to 55 HP. India’s No.1 economy range – engineered to give spectacular diesel economy.

 Escort: Economy tractors having hub-reduction transmission and twin-

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cylinder engines from 27 to 35 HP. Pioneering brand of tractors introduced by Escorts with unbeatable advantages.

International SubsidiariesEscorts AMG has one international subsidiary.Farmtrac Tractors Europe.They now cater to 41 countries.

Functional ExcellenceManufacturingQuality AssuranceMaterials ManagementSales & MarketingKnowledge ManagementFinanceHuman Resources Information Technology

Beyond manufacture, Escorts has made substantial investments towards the modernization of farm technology. The Escorts Institute of Farm Mechanization (EIFM) at Bangalore is a unique center where training is imparted in operation, maintenance and repair of farm machinery. It is among the few institutions of its kind in the world. Its programs are aimed at encouraging customers, dealers, engineers, mechanics as well as the field staff of Escorts, towards meeting its objective of enhancing agricultural productivity and improving quality of life in rural India.

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2 Engineering Division

A. Railway Equipment

Escorts is a leading manufacturer of critical railway components since the last 40 years. It is one of the oldest and most trusted partners of Indian Railways, the largest rail network in the world. Having played a significant role in the growth and modernization of Indian Railways, today it is a multi-product, multi-technology business at Escorts.

Broad Product PortfolioShock AbsorbersCouplersBrake Systems Brake Blocks

An ISO: 9001-20000 certified company, Escorts manufactures products as per international standards specified by UIC, AAR and Indian Railways. The products are exported to over 15 countries worldwide.

A state of the art manufacturing facility located at Faridabad, near New Delhi has facilities for advanced product development, design, testing and validation. The in-house Research & Development has played a critical role in bringing about a high level of customer satisfaction, reliability and safety - the key drivers of business.

Escorts’ engineering experts have trained over 8000 railway personnel of various countries. As Asia’s largest manufacturer of air brake systems, the conversion of vacuum brake stocks to air brakes and installation and commissioning of complete brake systems on new builds are also undertaken by Escorts.

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B Auto Components

The Engineering Division of Escorts Ltd. is the leading manufacturer of auto suspension products including shock absorbers, struts and telescopic front forks. Escorts was the pioneer in Automotive Shock Absorber manufacturing in India in 1966 in Technical Collaboration with Fichtel & Sachs, Germany. Over the years the technology obtained from Fichtel & Sachs of Germany has been continuously upgraded and new reliable products have been introduced. Another step forward in this direction is a comprehensive technical collaboration with world leaders Kayaba of Japan. A strong in-house design and development infrastructure of the Division enables introduction of new applications as per specifications of customers.

Broad Product PortfolioShock AbsorbersFront ForksMcPherson Struts

Technical CollaborationFichtel & Sachs, Germany (1966 - 75)Kayaba, Japan (for Motorcycle Front Forks & Shock Absorbers) since 1998

Quality SystemsObtained TS:16949 in 2004 ( Earlier ISO-9001 )Adopted KAYABA Quality Systems as a subset of TS:16949

Business PhilosophyCustomer Satisfaction - QCDContinuous Benchmarking with KAYABA, JapanKAIZEN - For Quality & Productivity

Production Capacity Per Annum: 5 million (Shock Absorbers, Front Forks, McPherson Struts)

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Markets2 Wheelers & 3 Wheelers - OEMs and After MarketMUV / LCV / HCV - OEMs and After MarketPassenger Cars - After Market

3 Construction Equipment

Escorts manufacturers and markets a diverse range of construction and material handling equipment like cranes, loaders, vibratory rollers and forklifts. The company was a pioneer in introducing the concept of Pick 'n' Carry hydraulic mobile cranes in the 70s in India and continues to be the world's largest manufacturer of these cranes.

A nationwide network of 16 Sales Offices, 50 dealership locations, over 300 company trained dealers’ service engineers, gives it the best market reach in India for the Sales & Service of material handling and construction equipment.

With over 30 years experience in Construction Equipment Industry, Escorts has a proven track record in:

Hydraulic Mobile CranesLoadersForkliftsVibratory Compactors

Today, it not only continues to be the largest mobile crane manufacturer in the country, but also the largest Pick ‘n’ Carry Hydraulic Mobile Crane manufacturer in the world.

While recording a rapid growth in Crane Industry we’ve also been able to steadily increase our presence in the field of Vibratory, Soil & Tandem Compactors. Escorts was the first to bring the concept of Vibratory Compactors in India in a big way, back in 80’s. Subsequently more models in Tandem Vibratory Compactors and heavy duty Soil Compactor range were added in technical collaboration with HAMM Germany. Recently, we’ve further strengthened the range with a 3T Shoulder Compactor. Today our range of compaction equipments is one of the most preferred in the market, and is being viewed as the most efficient and effective

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compaction solutions available in the country.

Along with Cranes and Compactors, we also manufacture Frontend loaders with payload capacity of 700kgs. Suitable for narrow lanes and confined spaces, these loaders are compact in design and are ideal for garbage handling, handing of chemicals, sands, small chips, etc.

Escorts also offers other material handing solutions like Forklifts from Daewoo Doosan Infracore Ltd., Korea and Articulated boom cranes from Fassi, Italy. In LPG Forklift category, the company enjoys a market share in excess of 85%.

This single-minded pursuit of precision and customer satisfaction has made us the 3rd largest in terms of Construction Equipment Sales unit per annum.

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C THE HISTORY OF ESCORTS

The genesis of Escorts goes back to 1944 when two brothers, Mr. H. P. Nanda and Mr. Yudi Nanda, launched a small agency house, Escorts Agents Ltd. in Lahore. Over the years, Escorts has surged ahead and evolved into one of India's largest conglomerates. In this journey of six decades, Escorts has had the privilege of being associated with some of the world leaders in the engineering manufacturing space like Minneapolis Moline, Massey Ferguson, Goetze, Mahle, URSUS, CEKOP, Ford Motor Company, J C Bamford Excavators, Yamaha, Claas, Carraro, Lucky Goldstar, First Pacific Company, Hughes Communications, Jeumont Schneider, Dynapac . These valued relationships be it technological or marketing, are our highly cherished experiences treasures, which have helped us inculcate best in class manufacturing practices and to emerge as a technologically independent world class engineering organization.

1944 - Launch of Escorts (Agents) Ltd.

1948 - Pioneered farm mechanization in the country by launching Escorts Agricultural Machines Limited, with a franchise from the U.S. based Minneapolis Moline, for marketing tractors, implements, engines & other farm equipment. Launch of Escorts (Agriculture and Machines) Ltd.

1949 - Franchise of Massey Ferguson tractors for northern India

1951 - Escorts established India’s first private Institute of Farm Mechanisation at Delhi.

1953 -Escorts (Agents) Ltd. and Escorts (Agriculture and Machines) Ltd. merged to form Escorts Agents Pvt. Ltd.

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1954 - 1st industrial venture of Escorts to manufacture piston rings in collaboration with Goetze of Germany, in an era when joint ventures of Indian firms with foreign companies were virtually unheard of.

1958 - Started importing Massey Ferguson tractors from Yugoslavia for marketing the same in India.

1959 - Collaboration with Mahle of Germany to manufacture pistons. Soon, Escorts became the largest producer of piston assemblies in India.

1960 - Set up of Escorts Limited

1961- Setting up of manufacturing base at Faridabad for manufacture of tractors in collaboration with URSUS of Poland and 50% indigenous components. Launch of Escort brand of tractors. Collaboration with CEKOP of Poland for manufacture of motorcycles and scooters. Escorts moves into high gear by nurturing the two wheeler culture. The first Rajdoot motorcycle rolls off the assembly line.

1969 - Escorts Tractors Limited was born. A technical and financial joint venture with the global giant Ford Motor Company, USA, to manufacture Ford tractors in India. The years ahead saw Escorts grow as the largest tractor manufacturer in India.

Escorts Institute of Farm Mechanisation (EIFM) established at Bangalore.

Escorts Employees Ancillaries Ltd. (EEAL), a unique venture in industrial democracy comes into being.

1971 - 1st February, the first tractor FORD 3000 rolled out of the factory.

Escorts diversifies and starts manufacturing construction equipment.

1974 - Crossing national boundaries, Escorts exports for the first time. After winning a global tender, 400 tractors were exported to Afghanistan, which was perhaps the world's largest ever airlift of

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tractors.

1976 - FORD 3600, an advancement in Farm Mechanisation launched. Trial production of in-plant manufacturing of engine parts (Block & Head).

1977 - Escorts enters the world of self-developed technology by setting up its first independent R&D Center. Escorts Scientific Research Centre marked its beginning at Faridabad by developing its own Engines for E-27 and E-37. Due to constant technology absorption, indigenisation level touched 72% for FORD tractors. 2nd plant at Bangalore for manufacturing piston assemblies was set up.

1979 - Collaboration with JCB Excavators Ltd., UK for manufacture of excavators.

1980 - Foray into healthcare, Escorts Hospital and Research Center set up in Faridabad.

1983 - Escorts Tractors Limited (ETL) established a state-of-the-art research and development centre to spearhead newer breakthroughs in Farm Mechanisation and to maintain industry leadership. Line concept introduced for engine block machining. 11,000 ton floating dry-dock Escorts I launched.

1984 - JV Escorts - Yamaha to manufacture motorcycles

1984 - Signing of agreement with the Japanese bike giant Yamaha to manufacture motorcycles with Yamaha technology. Collaboration with Jeumont Schneider of France to manufacture EPABX systems Collaboration with Dynapac of Sweden to manufacture vibratory road compactors

1985 - Escorts Tractors Limited (ETL) offered its first Bonus Issue (1:1).

1988 - Escorts Heart Institute and Research Centre (EHIRC), a world class cardiac care facility launched in New Delhi.

1989 - Joint Venture with Claas of Germany to manufacture harvester

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combines.

1990-91 - First Public Issue in February 1991, over-subscribed four times. Shares listed on Delhi and Bombay Stock Exchanges.

1993 - FORD 3620 tractor launched.

1996 - Disengagement of joint venture collaboration with New Holland and launch of FARMTRAC Tractor.

1997 - Joint Venture with Carraro of Italy for manufacturing and marketing of transmission and axles.

Joint Venture with First Pacific Company of Hong Kong - Escotel Mobile Communications.

1998 - POWERTRAC series of tractors launched.

MoU was signed with Long Manufacturing Company, USA for setting up a Joint Venture in USA.

1999 - MoU for Joint Venture with a Polish Company POL-MOT was signed for assembly, manufacturing and marketing of Farm Machinery.

2004 - Divested Escotel Mobile Telecommunications to Idea Cellular

TS16949 certification for Agri Machinery Group.

2005 – Divested Escorts Heart Institute and Research Centre (EHIRC) to Fortis Healthcare.

2006 - Divested in Carraro India Ltd.

Set up new manufacturing facility in Rudrapur for manufacture of new range of railway equipment

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D Outlook of Escorts Sectors

The Indian Tractor market is the largest in the world, in terms of sales volumes. Many factors affect tractor sales including the monsoon, means of irrigation and reach of water, government support prices for crops, commodity prices, crop production expenses & credit policy announced by RBI (most relevant as more than 90% of tractor sales are on credit).

Tractor industry has been performing well in the last four years and the trend is expected to continue in view of good rains in India. It recorded a growth of 21.2% in volume over last FY & is expected to perform better with a lot of government focus shifting to agriculture in the 11th Plan.

Further the fact that Arable land area remains limited and water tables are shrinking; again add to the need for more mechanized farming. However Tractor density as well as the HP input per hectares is low relative to international standards and the tractor population today is concentrated; all this shows great potential for the growth in this industry.

It is expected that Government agriculture credit estimated at INR 1940 bn would escalate & Banks would continue their focus on tractor finance.

The Industry has also registered an increase of 16% in Exports & volumes have now begun significantly contributing to the Industry's total production.

Indian Economy has shown some fantastic growth figures in the last financial year with Manufacturing, Construction and Infrastructure sectors taking the lead this scenario would be beneficial for capital goods sector.

With infrastructure identified as a key focus area by Government, development & construction of Roads & Highways, Ports & Airports would continue, adding up prospects for the Industrial &

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Construction Machinery sector with a large number of infrastructure projects on the anvil.

Further the overall construction industry is expected to grow at around 15- 20% for the next few years. This should translate into a rise in demand of the construction and material handling equipments. In India the auto sector has grown at an impressive 16.82 % over last year.

India is the largest 3 wheeler market, 2nd largest 2 wheeler market & 4th largest Commercial Vehicle market. It is poised to be the 3rd largest automobile market by 2030. The key development of road infrastructure & the connecting of major cities may further act as a growth driver.

Global giants like Toyota, Nissan, and Honda are eyeing on India as one of their manufacturing bases due to the cost and quality it has to offer.

Automobile exports have grown by over 40% in last few years and even the auto components segment has seen a growth of 26% in exports.

The car and commercial vehicle segments have shown good growth in the last FY. Even the 3 wheeler segment has posted a 28% growth. However there has been a slight slow down in 2- wheeler segment.

The two-wheeler industry comprises of motorcycles, scooters and mopeds. Out of total market of 8.4 million in the year 2006-07, Motorcycles market at 7.1 million accounted for 84.5% of the total market. Motorcycle industry has been growing at a CAGR of almost 21.5% since last 7 years, even though the growth in the last year has been slightly less.

The Indian Railways (Railways) has seen a fantastic turn around in the last few years. It has initiated unprecedented expansion plans targeting 1100 mn tn of freight and INR 8400 mn worth of passenger traffic. The plans are not only to extend the routes but also number & types of trains running on them. Expenditure only for expansion of

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new routes is estimated at INR 300 bn over 5 years, where as the outlay for FY 07-08 is INR 310 bn.

The Railways plan to double its freight transport capacity. This is one of the main reasons that it has initiated more freight wagons and enhance current network to run 23T axle trains and mineral routes to run 25T axle trains. This would be done by adding third and fourth lines between destinations and installing automatic signaling between them.

Railways procure wagons based on RDSO’s designs. However, wagon manufacturers will now be permitted to supply wagons of their own designs, with RDSO recommended bogies, coupler, draft and brake gear. These higher pay load, lower tare weight wagons with new technology would be costlier compared to old wagons.

700 Coaches were added to current trains in FY 06-07 and the railways plan to add 800 more coaches to popular trains this FY. The number of unreserved coaches is also likely to be increased by 50% for most trains.

1250 coaches specifically for handicapped, old and disabled passengers are planed to be introduced into many trains over the next two years.

Newly designed coaches with increase passenger capacity have been manufactured at Kapurthala Rail factory on a pilot basis and full fledged manufacture is expected to commence soon.

The outlay for Metropolitan transport projects is INR 7.2 bn in the current FY. 150 new suburban trains are planned to be operational in Mumbai alone with adequate expansions in other Metros too. Budget for overaged asset replacement has also be increased to INR 55 bn a 162% rise y-o-y.

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E Quality Policy Of Escorts

“We shall strive to continuouslyimprove to meet the ever risingexpectations of our customers

at the lowest cost.Each one of us must fulfill theneed of our customers, both

internal and external, with thehighest degree of commitment,

thereby creating a qualityorganization geared to ensuretotal customer satisfaction and

the sustained health andprosperity of our business”

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ISSUES AND CHALLENGES FACED BY THE ORGANISATION

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ISSUES AND CHALLENGES FACING THE ORGANIZATION

1. The performance of the tractor industry is directly and closely related to the performance of the agricultural sector. Even now there is a heavy dependency on monsoon and a majority of farms are still rain fed.

2. Apart from the dependency on monsoons irrigation infrastructure is also suboptimal.

3. Furthermore, there is a huge pressure on the existing agricultural land. The Net Sown Area across States has either remained constant or changed slightly and efficient land utilization is approaching the peak level in all states.

4. Many farmers still lack access to finance and depend on money lenders. Escorts continues to focus on creating additional mechanisms for access to cash.

5. All the employees are not allowed to access the internet facility which hinders the cooperation among various departments.

6. To maintain the goodwill of the company in the market.

7. To strive effective strategies and policies in order to survive in business environment.

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REFLECTIONS ON WHAT HAS BEEN LEARNED

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REFLECTIONS ON WHAT HAS BEEN LEARNED DURING THE PLACEMENT

EXPERIENCE

1. Experienced the working environment of an organization.

2. Learned to deal with different situations that I might face while working in an organization.

3. Gained knowledge about different software that makes your work easier.

4. Gained practical knowledge of what we have studied in theory.

5. Saw the working and functioning of different departments of an organization.

6. Learned to build and maintain cordial relationship with the staff of the company.

7. Confidence level is increased and attained professional attitude towards work.

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ANALYSIS&

FINDINGS

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ANALYSISCAPITAL RESTRUCTURING

PRESENT SITUATION OF ESCORTS LTDFor the year ending 31st March 2009

As per their P&L Account attached

PAT – Profit After Tax-------------------------------------------------Rs89.73 cr.

Tax Rate------------------------------------------------------------------30%

DEBT

Number of Debentures-------------------------------------------------61455

Interest on Debentures (Rate) -----------------------------------------4.25%

Price per Debenture-----------------------------------------------------Rs9900

Full Value of Debentures ----------------------------------------------Rs 60.84 cr

*Amount of Interest on Debentures ----------------------------------Rs 2.58 cr

EQUITY

Number of Equity Shares-----------------------------------------------90,709,496

Price per Share-----------------------------------------------------------Rs 10

Earning per Share--------------------------------------------------------Rs 9.89

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WORKING NOTES

*Calculation of interest amount Interest = 4.25% of Rs 60.84 crores

= Rs 2.58 crores

RESTRUCTURING

Restructuring means changing the debt-equity ratio in order to increase the earning per share or maximize shareholder’s wealth.

For this we will follow the following process:

1 We will buy back the shares from the market. We will buy back 1crore shares of Rs 10 each. This means we will buy back shares worth Rs 10 crores. Now the number of equity shares of the company is 80709496 of Rs 10 each i.e. value of share is Rs 80.71cr.

2 Then we will issue new 4.25%debentures worth Rs 10 cr with same face value i.e. Rs 9900 per debenture.

3 This will reduce the number of shares from 90,709,496 to 80,709496.

4 And it will increase the number of debentures from 61455 to 71555.

WORKING NOTES

Calculation of number of debentures (point 4)

No. of debentures re-issued = 60.84 +10 9900

= 7155

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RESTRUCTURED SITUATION

PAT – Profit After Tax ----------------------------------------------89.4325

Tax Rate ---------------------------------------------------------------30%

DEBT

Number of Debentures -------------------------------------------------71555

Interest on Debentures (Rate) -----------------------------------------4.25%

Price per Debenture -----------------------------------------------------Rs 9900

Full Value of Debentures ----------------------------------------------Rs 70.84 cr

Amount of Interest on Debentures -----------------------------------Rs 0.425 cr

EQUITY

Number of Equity Shares-----------------------------------------------80,709,496

Price per Share-----------------------------------------------------------Rs 10

Earning per Share--------------------------------------------------------Rs 11.08

WORKING NOTES:

1 PAT as per present situation = 89.73(this is before deducting interest on 4.25% debentures Rs 10 cr net of taxes)

2 Calculation of interest on 4.25% debentures of Rs 10 crInterest = 10 cr * 4.25%

= 0.425 cr

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Interest Net of Taxes = 0.425 cr * (1- 30%) = 0.2975 cr

3 Calculation of new PAT PAT = (89.73-0.2975) cr = 89.4325 cr

4 Earning per Share = 89.4325 8.07= Rs 11.08

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FINDINGS

Through the analysis we found out:

1. Shareholder’s wealth is increased by maintaining appropriate value of debt and equity in the capital structure.

2. The increase in interest on 4.25% debentures of Rs 1cr (approx) increased the EPS by Rs 2(approx).

3. Here we found that when number of equity shares is reduced and the number of debentures is increased, EPS increases from Rs 9.89 to Rs11.05

4. It also maintained the Financial Operating Leverage of the company.

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RECOMMENDATIONS

58

RECOMMENDATIONS

1. The company should choose the value of debt and equity in the capital structure in such a way so that the shareholder’s wealth is maximized.

2. As a result of increase in the Earning per Share of the company, the goodwill of the company will also increase.

3. The company should carefully decide the ratio of debt and equity.

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BIBLIOGRAPHY

60

BIBLIOGRAPHY

Books Referred:

1 Financial Management by I M Pandey

Sites Visited

1 www.escortsgroup.com2 www.agricoop.nic.in3 www.outlookmoney.com4 www.agriculturalequipments.com5 www.escortsagri.com6 www.seekandsource.com

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ANNEXURE

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FINANCIAL INFORMATION OF THE COMPANY

1 Last three years: INCOME STATEMENT

Particulars FY06-07 FY07-08 FY08-09 H1(FY09-10)

Net Sales 2077 1993 2158 1272

Business & Other Income 27 59 32 8

Total Income 2103 2052 2190 1279

Expenditure 1993 1899 1982 1161

EBITDA 111 152 207 118

EBITDA Margin (%) 5% 8% 10% 9%

Depreciation & Amortization 53 51 49 24

EBIT 58 101 158 94

EBIT Margin (%) 3% 5% 7% 7%

Interest & Finance Charges 68.95 55.93 51.54 4

Exceptional item 7 19 -4 3

PBT -17 26 111 87

Tax -11 14 21 22

PAT -6 12 90 65

PAT Margin (%) 1% 4% 5%

2 Last three years: BALANCE SHEET

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Particulars FY06-07 FY07-08 FY08-09 H1(FY09-10)

Sources

Share capital 84 91 91 94

Reserves & Surplus 1035 1112 1353 1440

Shareholder Funds 1119 1203 1444 1534Debt 445 442 264 304

Total 1564 1645 1708 1838

UsesNet Fixed Assets 867 837 1468 1461

Investments 425 426 236 236

Total Current Assets

Inventory 158 202 199 233

Debtors 380 518 329 280

Cash & Bank Bal. 173 115 165 279

Loan & Advances 215 250 122 161

Other Current Assets 0 10 15 16Less: Creditors & Provisions 761 771 859 843

Net Current Assets 166 324 -28 127

Misc. Exp. Written Off 16 11 5

Deferred Tax (Net) 90 48 28 12

Total 1564 1645 1708 1838

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3 Last five Years: TURNOVER

Till March, 10 they have achieved a turnover of Rs 1272 crore.

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Last five years: EBITDA & PAT

EBITDA

PAT

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CASE STUDY

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CASE STUDY

ESCORTS AMG’S ERP UPGRADE

Introduction

Escorts Limited's, Agri Machinery Group had deployed Avalon's ERP systems and faced challenges like inability to upgrade, lack of vendor support, and buggy software. It used tools from the Oracle 11i suite and now performs its critical operations with better productivity levels.

Escorts Limited's Agri Machinery Group (EL-AMG) manufactures agricultural machinery, and has four manufacturing plants in Faridabad. It manufactures three lines of tractors, imports and sells various other farm equipment, and consequently accounts for around almost two-third of Escort's revenues (Rs. 900 crore in FY 2002-2003). The use of an ERP thus plays a significant role in the business operations of this busy manufacturing company.

EL-AMG had already deployed ERP systems from Avalon, but was plagued with a number of challenges. The company was unable to draw a future roadmap and upgrade its technology. And to make matters worse, the ERP vendor Avalon had shut shop in India. This prompted EL-AMG to look for an alternative enterprise applications solution for its business. As a solution, it deployed a number of modules of the Oracle 11i suite of products and can now make better and more informed decisions, and enjoy a bug-free software performance.

Business challenges:

Despite using an ERP, the toughest challenge was the inability to draw a future roadmap by leveraging the latest technologies. This was impeding the scope for future growth. The company could not leverage the benefits of the Internet by offering e-commerce and other Web initiatives. Since the Avalon ERP could not be Web-enabled. To make matters worse, Avalon had shut shop in India, shutting down chances of upgrades and making use of the latest technology developments.

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"The Avalon ERP system had outlived itself and had become a dead product," said Vinay Mehta, IT Head, EL-AMG. The product had inadequate documentation, which made maintenance very difficult. It was a headache to incorporate frequent changes in the application.

EL-AMG also had to deal with the problems of software bugs, which could not be resolved due to lack of proper documentation. The company feels that the bugs appeared due to over-customization of the product. The central systems department, which took charge of applications maintenance, spent most of its time tackling these bugs.

The system was not very user-friendly. The users were not able to run queries on their own. The responsibility of running the large amounts of queries and reports was delegated to the central systems department. This created a huge backlog of work.

EL-AMG also had a certain amount of legacy, which included i2 SCM, demand planner, factory planner, and warehouse management software for the spare parts division, HR and payroll applications, after-sales and warranty systems, and Auto-Matrix Exchange for collaboration with vendors. The group wanted an end-user-driven system that would empower the users and allow them to run their own queries, reducing the burden on the systems department. These made the company decide to implement a new ERP system, which could take care of the future growth strategies of the company and provide the needed functionalities.

Choosing the ERP system

In early 2001, EL-AMG began to look for a new ERP system to replace the existing one. The company chose Oracle among other vendors keeping in mind the organization's functional and technical requirements. Since the ERP project was very significant for company, it was named, 'Pragati'.

A lot of time was spent in planning and deciding upon the right software. And the entire proceedings were conducted in an elaborate and phased manner to ensure efficiency.

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The company laid down three ground rules for vendors willing to participate.

They were:

The vendor had to conduct a three-month Business Process Re-engineering (BPR) exercise at EI-AMG.

The ERP vendor would be the technology implementation partner and handle the sole responsibility of the project.

The ERP systems had to integrate seamlessly with the company's legacy software systems.

An important highlight in the selection process was the involvement of end users. A team of around 70 members was created during evaluation. Almost 80 percent of the members belonged to functional areas. The rest were from the IT department.

"This was a key learning from the earlier ERP implementation, which was largely IT-driven. If the selection process is not end-user-driven, you'll have a hard time convincing users about the benefits. In our new ERP implementation, we made sure that it was the choice of the end users, so that they accepted the decision easily," explained Mehta. The Gartner group was also involved in providing consultancy at each stage.

Each member of the team gave ratings to the vendor. The evaluation was finally done on the following criteria:

Functionality The ability to integrate third party software Type of feedback from existing user base (through visits to other

company's ERP sites) Presence in India Localization of modules Cost Time taken to implement.

In March 2002, Oracle was chosen for the applications, an Accenture was chosen to conduct the BPR exercise.

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Implementing 'Pragati'

The rollout of Oracle's products began in March 2002. EL-AMG is present in five locations, which comprised four manufacturing plants and an R&D setup, all within distances of three Km in Faridabad.

The company decided upon the 'big bang' approach to implementation in the five locations. It went live on Oracle 11i in March 2003. The modules implemented were Oracle Financials, Oracle Discrete Manufacturing, Oracle Purchasing, Oracle Order Management, Oracle Workflow and Alerts, Financial Analyzer (OFA), Purchasing and Manufacturing Intelligence, Teleservice, iReceivables, and Oracle Treasury.

An important set of exercises during implementation was on data cleansing and migration. Earlier, different finance divisions used various items, parts, and vendor codes. With the unification of the different divisions, standard codes were created for simplification and more efficiency. The data was taken from legacy system and the coding scheme was revamped.

Reporting and MIS systems had different formats and had to be revamped. The Bill of Materials (BOM) systems also had to be re-done during implementation.

The company network

The heart of the network is at the second plant (Plant 2) in Faridabad. Around 40 servers, some of which are PCs configured as servers, act as a centralized system. The servers range from NT, Windows 98, Windows 2000 to Linux and Solaris.

A set of four HP severs (HP-Ux 11i) run the core Oracle application modules. These are connected to a SAN box. The other three plants and the R&D locations connect to these servers through 2 Mbps leased lines. The area offices are able to connect to the servers located in Plant 2 through a VPN provided by HCL Infinet using a PSTN dial-up.

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BPR

"If one goes for an ERP without BPR, there is a chance the company will miss out on a lot of benefits of BPR," said Mehta. The BPR exercise was closely aligned with the ERP implementation, ensuring that 'best practices' were incorporated. Accenture was involved in defining the re-engineered processes and convincing the end users of the future benefits. Oracle's role was to map the processes into their products.

The processes involved in re-engineering included finance, procurement, materials, plant maintenance, and quality assurance.

How the new tools helped

A significant benefit of the new Oracle-based systems was the resolution of the problems with present in the earlier Avalon ERP. Due to the bugs, the company could not use its database (Oracle) for generating any meaningful MIS. So, the MIS for the top management was generated through Excel sheets instead of being generated directly through the system.

With 11i, the MIS is generated through the system and standard reports are created. Currently, there are around 250 reports generated for the middle management and operational people.

The company has also deployed Business Intelligence (BI) tools from Oracle for the top management. While earlier the focus was on the middle management and operational personnel, the present focus is on the top management so that they can perform informed planning and better decision making activities.

With the help of the new tools, the company was able to shorten the time taken to close the annual accounts. It was able to close the year end accounts of FY 2002-2003 within two months, an improvement from four months time taken earlier. By next year, the company hopes to bring the time taken down to one week. It is also able to close the accounts each month by the first week of the next month.

At any time the company is aware of its inventory status. According to R.K. Jain, Dy. General Manager, AMG (Information Systems), there has been elimination of a lot of non-value added activities as well, translating into benefits for the group.

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ROI

The company feels that it's a little early to calculate ROI, and the results are already visible in the lowered inventory value. According to Mehta, the system has already brought down the value of inventory by around 30 percent. There has been substantial savings in terms of inventory and manpower resources.

The future roadmap

Within the next three months, the company will extend its ERP system to its area offices, which number 25. It will roll out the ERP to 15 nationwide depots. And will implement product data management systems. It will also integrate its R&D systems, designing, and product development systems in the plants in the next few months.

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SYNOPSIS

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SYNOPSIS OF THE PROJECT

ESCORTS LTD “CAPITAL RESTRUCTURIUNG”

Apoorva BhatejaMr. Pardeep KumarMr. Ashu Jain

Objectives of the study

1 To understand and observe the practical work in escorts.

2 To seek out the difference between theory and practical work.

3 To observe the functioning of finance department of escorts.

4 To gain knowledge about different policies of escorts.

5 To develop new skills.

6 To have a direct contact with the employees of Escort to learn from them.

Findings

Through the analysis we found out:

1. Change in the ratio of debt and equity i.e. in the capital structure of the company changes the earning per share of the company.

2. When we reduce the equity and increase the debt, it changes the amount of interest on debentures.

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3. Change in the amount of interest on debentures changes the profit after tax i.e. PAT.

4. Change in PAT finally changes the earning per share of the company.

5. Here we found that when number of equity shares is reduced and the number of debentures is increased, EPS increases from Rs 9.89 to Rs11.05

RECOMMENDATIONS

1. The company should choose the value of debt and equity in the capital structure in such a way so that the shareholder’s wealth is maximized.

2. As a result of increase in the Earning per Share of the company, the goodwill of the company will also increase.

3. The company should carefully decide the ratio of debt and equity.

MY PERCEPTION ABOUT INDUSTRY GUIDE

1. Sir was very cooperative and very helpful to me.

2. He was very king and lenient to me.

3. When needed he was strict also.

4. He guided me very well throughout the project.

5. He taught me the working style of an organization in the corporate world.

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6. I learned how to behave professionally.

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