CREDIT RISK MANAGEMENT

1.1 INTRODUCTION TO CREDIT RISK MANAGEMENT:

1.1.1 INTRODUCTION:
Trade credit arises when a firm sells in products or services on Credit and does not
receive cash immediately. It is an essential marketing tool, acting for the moment of
goods through production and distribution stages to customer. Affirm grants trade
credit. To protect is sales form the competitors and to attract the potential customers to
by its products at favorable terms. Trade creates “Accounts receivable or trade
debtors” that the firm is expected to in the near futures. The customers from whom
receivable or book debits have to be collected in the future is called trade debtors or
simply as debtors and represent the firms clime or asset.

1.1.2 RISK DEFINED:

Risk is the actual exposure of something of human value to a hazard and is
often regarded as the product of probability and loss

- Source: Smith K 2001; Environmental Hazards Assessing Risk and

Reducing Disaster: London: Routledge: 6 -7.

Risk Assessment: The evaluation of a risk to determine its significance, either

quantitatively or qualitatively.

Risk Management: Determines the levels at which risk acceptability is set and
methods of risk reduction are evaluated and applied.

Resilience: The ability at every relevant level to detect, prevent and, if necessary
handle disruptive challenges. Source: CCS Resilience

Business Continuity: A proactive process which identifies the key functions of an

organization and the likely threats to those functions; from this information plans and
procedures which ensure that key functions can continue, whatever the circumstances,
can be developed.

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1.1.3 WHY MANAGE RISK?
Good risk management at a strategic level helps protect an organization’s
reputation, safeguard against financial loss, minimize disruption to services and
increase the likelihood of achieving business objectives successfully.

This also gives assurance on how an organization’s business is managed and at the
same time will satisfy any compliance requirements of the organization, where an
internal control mechanism is established. Internal control includes:
 The establishment of clear business objectives, standards, processes and
procedures
 Clear definition of responsibilities
 Measurement of inputs, outputs and performance outcomes in relation to
objectives
 Performance Management
 Financial controls over expenditure and budget.

1.1.4 WHAT DOES IT REQUIRE?

 The establishment and understanding of a risk management policy and
framework.
 The identification, assessment and judgement of threats to the achievement of
clear business objectives
 Effecting the right action to anticipate and mitigate against risk - this includes
establishing effective internal controls to counter key risks
 Where necessary, to take reasonable and calculated risks based on well
informed management decisions
 Balancing risks by design control to give reasonable assurance to contain risks
and offer value for money
 Monitoring risks and reviewing progress
 Quantifying risks by assessing any potential costs or benefits arising from
possible impact
 Reporting on the above.
1.1.5 HOW TO IDENTIFY RISKS?
Step 1 - Clarity of Objectives:
Be clear first of all about the overall objectives of the organisation and understand
how departmental objectives are aligned to the delivery of same. Think about:
 What needs to be done
 By when
 Who is accountable for delivery.

Step 2 - Identify Risks:

With your objectives in mind, ask the following questions:
1. What can go wrong?
2. How and why can it happen?
3. What do we depend on for continued success?
4. What could happen?

Consult with staff and others as appropriate and consider a range of possible
scenarios including the best and worst cases. Be as creative with this process as
possible. Consider the 'cause and effect' and scope of the risk and state as clearly as
possible to avoid misunderstanding and misinterpretation. Try to quantify where
possible based on what the effect might be.

Go back to Step 1 above and do the same for external risks by considering the
relationship between the organisation and its wider environment and follow the steps
above. Consider potential external cause of business disruption, issues affecting
relationship with partners, suppliers and any possible changes in government policy
and legislation.

Step 3 - Assess Risks:

 Identify existing controls and their effectiveness
 Assess what other controls may be necessary
 Determine likelihood / impact - use a bespoke template:
  Likelihood of risk occurring is used as a qualitative description of probability
or frequency
 Impact is the outcome of the risk impacting and is expressed qualitatively or
quantitatively, i.e. being a loss, injury, disadvantage or gain. NB - there may be
a range of possible outcomes.
 Set out a realistic timeframe for managing / mitigating risk.

Step 4 - Address Risks:

This involves practical steps to managing and controlling risks. Think about:
 what actions or responses are required to control risks
 what are the associated cost of these actions
 are the costs proportionate to the risk that it is controlling
 What information is needed to make an informed decision to accept, manage,
avoid, transfer or reduce the risks
 Is it better to work to eliminate or innovate through taking reasonable
calculated risks.

Step 5 - Review, Quantify and report Risks:

Although policy may dictate a review and half yearly update should be enacted,
risk owners need to regularly review to ensure there is ongoing relevant management
of risks

Advice should be sought where quantification / confirmation is needed, i.e.

Finance or Audit Department

Build into the current reporting structure via the business planning round.
Where key risks need to be considered, ensure it is given priority within the agreed
framework

.
 1.1.6 A CREDIT SALE HAS CHARACTERISTICS:
i) It involves an element of risk that should be carefully analyzed. Cash sales are
totally risk less, but not the credit sales as the cash sales as the cash payment are yet
too received.
ii) It is based on economic value to the buyer, the economic value goods services
passes immediately at the time of sales while the seller expects on the equivalent value
to be received later on.
iii) It implies futurity the buyer will make the cash payment for goods services
received by him in future period. debtors constituted a substantial portion of customer
assets several firms. For e.g.:- In India, traders Debtors after inventories are the major
components of current assets. They
from 1/3rd of current assets in India. Granting credit and creating Dr’s amount to the
blocking of the firms founds. Thus trade debtors represent investment as substantial
amount are tide-up in trade debtors it needs careful analysis and proper management.
Challenges to Successful Credit Risk Management

 Inefficient data management. An inability to access the right data when it’s needed
causes problematic delays.

 No groupwide risk modeling framework. Without it, banks can’t generate complex,
meaningful risk measures and get a big picture of groupwide risk.

 Constant rework. Analysts can’t change model parameters easily, which results in
too much duplication of effort and negatively affects a bank’s efficiency ratio.

 Insufficient risk tools. Without a robust risk solution, banks can’t identify portfolio
concentrations or re-grade portfolios often enough to effectively manage risk.

 Cumbersome reporting. Manual, spreadsheet-based reporting processes overburden

analysts and IT.
 1.1.7 BEST PRACTICES IN CREDIT RISK MANAGEMENT:
The first step in effective credit risk management is to gain a complete
understanding of a bank’s overall credit risk by viewing risk at the individual,
customer and portfolio levels.While banks strive for an integrated understanding of
their risk profiles, much information is often scattered among business units. Without
a thorough risk assessment, banks have no way of knowing if capital reserves
accurately reflect risks or if loan loss reserves adequately cover potential short-term
credit losses. Vulnerable banks are targets for close scrutiny by regulators and
investors, as well as debilitating losses.

The key to reducing loan losses – and ensuring that capital reserves
appropriately reflect the risk profile – is to implement an integrated, quantitative credit
risk solution. This solution should get banks up and running quickly with simple
portfolio measures. It should also accommodate a path to more sophisticated credit
risk management measures as needs evolve. The solution should include:
 Better model management that spans the entire modeling life cycle.
 Real-time scoring and limits monitoring.
 Robust stress-testing capabilities.
 Data visualization capabilities and business intelligence tools that get important
information into the hands of those who need it, when they need it.

1.1.8 CREDIT POLICIES :

The first decision area is credit policies;-

The credit policy of a firm provides the frame work to determine –

A. whether or not to extend credit to a customer and
B. How much credit to extend.

The credit policy decision of firm has two broad dimensions are;

1) Credit Policy Variables and

2) credit standards
CREDIT POLICY VARIABLES:
In establishing an optimum credit policy. The financial manager must consider the
important decisions variables which influence the level of receivables.

The major controllable decision variable include the following –

 Credit standards
 Credit analysis
 Credit terms
 Collection policies and procedures

CREDIT STANDARDS:
The term credit standards represent the basic criteria for the extension of credit to
Customers. The quantitative basic of establishing credit standards or factors such as
credit rating, credit reference, average payment period and certain financial ratio’s
since we areinterested in illustrating the trade – off between benefit and cost to the
firm as a whole.
We do not consider here these individual components of credit standards. To
illustrate the effect,
We have divided the overall standards into –
a) Tight or restrictive and
b) Liberal or non- restrictive i.e., to say our aim is to show what happens to the trade-
off
when standards are relaxed or alternatively, tighten.
The trade – off with reference to credit standards covers –
I. The collection cost
II. The average collection period or investment in receivables
III. Levels of bad debts losses and
IV. Level of sales.

These factors should be considered while deciding whether to relax credit

standards
or not.
 If standards are relaxed, it means more credit will be extended while. If credit
standards are tightened. Less credit will be extended.
 The implication of four factors are elaborated below –

COLLECTION COST :
The implication of relaxed credit standards are –

i) more credit
ii) A large credit department to service accounts receivables and related
matters
iii) Increase in collection cost
The effect of tightening of credit standards will be exactly the opposite. These
costsare likely to be semi-variable.

This is because up to a certain point the existing staff will be able to carry on the
Increased workload but beyond that, additional staff would be required these are
assumed to be included in the variable cost per unit and need not be separately
identified.

1.1.9 INVESTMENT IN RECEIVABLE OR AVERAGE COLLECTION PERIOD :

The investment in accounts receivable involves a capital cost as funds have to
be arranged by the firm to finance them till customers make payment. Moreover, the
higher the average accounts receivables; the higher is the capital or carrying cost. a
change in the credit standards – relaxation or tightening leads to a change in the level
of accounts receivables either –
a) Through a change in sale.
b) Through a change in collection.
A relaxation in credit standards as already stated, implies an increase in sales
which in turn would lead to higher average accounts receivables? further relaxed
standards would mean that credit is extended liberally so, that it is available to even
less credit worthy. Customers who will take a longer period to pay over dues. The
extension of trade credit to slow paying customers would result in a higher level of
accounts receivables.
A tightening of credit standards would signify –
i) A decrease in sales and lower average accounts receivables / ACP and
ii) an extension of credit limited to more credit worthy customers who can
promptly pay their bills and thus, a lower average level of accounts
receivables.
Thus a change in sales and change in collection period together with a relaxation in
Standards would produce a higher carrying cost, while changes in sales and collection
period result in lower costs when credit standards are tightened. These basic reactions
also occur when changes in credit terms or collection procedures are made.
BAD DEBTS EXPENSES:
Another factor which is expected to be affected by changes in the credit
standards is bad debts (default) expenses. They can be expected to increase with
relaxation in credit standards and decreases if credit standards become more
restrictive.
SALES VOLUME:
Changing credit standards can also be expected to be change the volume of sales.
As standards are relaxed, sales are expected to increase; conversely a tightening is
expected.To cause a decline in sales.
The basic changes and effects on profits arising from a relaxation of credit standards
are summarized in exhibit –
 If the credit standards are tightening, the opposite effects, as shown in the brackets
would follow-

EFFECT OF STANDARDS

Direction of Effect on profits

change (positive +
ITEM (Increase = I Negative - )
Decrease = D)

1 SALES VOLUME I (D) + (-)

2 AVG COLLECTION PERIOD I (D) - (+)
3 BAD DEBTS I (D) - (+)

Item Direction of change Effect on profits

(I = increase D = ( positive + or Negative -
decrease) )
BAD DABTS D +
ACP D +
SALES VOLUME D -
COLLECTION I -
EXPENDITURE

1.1.10 CREDIT ANALYSIS:

Credit standards influence the quality of the firm’s customers. There are two aspects
of the quality of customers –
i) The time taken by customers to repay credit obligations,
ii) The default rate.
The ACP determines the speed of payment by customers. It measures
the number of days for which credit sales remains outstanding. The longer the ACP,
the higher the firm’s investment in accounts receivables.
DEFAULT RATE - Can be measured in terms of bad debts losses ratio’s – the
proportion of uncollected receivable. Bad debts losses ratio indicates default risk.
DEFAULT RISK - Is the likelihood that a customer will fail to repay the credit
obligation. On the basis of past practice and experience, the financial or credit
manager should be able to form a reasonable judgment regarding the chance of
default. To estimate the probability of default, the financial or credit manager should
consider 3 c’s –
1. Character
2. capacity and
3. Conditions 1. CHARACTER:-
Refers to the customers willingness to pay the financial or credit manager should
Judge whether the customer will make honest efforts to honor their credit obligation.
the moral factor is considerable importance in credit evaluation in practice.

2. CAPACITY: -
Refers to the customers ability to pay can be judged by assessing the customers
capital and assets which he may offer as security capacity is evaluated by the financial
position of the firm’s as indicated by analysis of ratio’s and trends in firm’s cash and
working Capital position. The financial position or credit manager should determine
the real worth
Of assets offered as collateral (security).

3. CONDITIONS:-
Refers to the prevailing economy and other conditions which may effects the
customers ability to pay. Adverse economic conditions can affect the ability or
willingness of a customer to pay. An experienced financial or credit manager will be
able to judge the extent and genies ness to which the customer’s ability to pay is
effected by the economic conditions.
1.2 NEED AND SCOPE OF THE STUDY:
NEED FOR THE STUDY:
Credit risk management is one of the key areas of financial decision-making. It
is significant because, the management must see that an excessive investment in
current assets should protect the company from the problems of stock-out. Current
assets will also determine the liquidity position of the firm.
The goal of Credit risk management is to manage the firm current assets and
current liabilities in such a way that a satisfactory level of working capital is
maintained. If the firm cannot maintain a satisfactory level of working capital, it is
likely to become insolvent and may be even forced into bankruptcy.

SCOPE OF THE STUDY:

The scope of the study is limited to collecting financial data published in the
annual reports of the company every year. The scope of the study limited to collecting
the data published in the reports of the company and opinions of the employees of the
organization with reference to the objective stated above and theoretical framework of
the data. With a view to suggest solutions to various problems relating to Credit risk
management. The analysis is done to suggest the possible solutions. The study is
carried out for 4 years (2014-18).
1.3 OBJECTIVES OF THE STUDY:
1. To analysis the credit policies of Zuari cement limited.
2. To find out debtor turnover ratio and average collection period.
3. To find out whether. It is profitable to extend credit period or reduce credit
Period.
4. To suggest measures to increase profits.
5. How all areas of business are influenced by Credit Risk Management.
6. How to manage information to create a volume driven business.
7. To Assess the long term requirements of funds and plan for application of
internal resourcesand debt servicing.
8. To Assess the effectiveness of long term investment decisions of Zuari
Cements
9. To offer conclusion derived from the study and give suitable suggestions for
the efficient utilization of capital expenditure decisions.
1.4 RESEARCH METHODOLOGY:
The data used for analysis and interpretation from annual reports of the company
that is secondary forms of data. DDR, ACP and Increase in credit period analysis are
the Techniques used for calculation purpose. The project is presented by using tables,
graphs and with their interpretations.

Primary data:
Primary data is collected from the Execute of the organization. The efficient allocation
of capital is the most important financial function in the modern times. It involves
decision to commit the firm’s, since they stand the long- term assets such decision are
of considerable importance to the firm since they send to determine its value and size
by influencing its growth, probability and growth.
 Officers of accounts sections.
 Executives and staff of financial and accounts department.
 Meeting with concerned people.
 Personal observation.

Secondary data:
Secondary data obtained from the annual reports, books, magazines and
websites. At each point of time a business firm has a number of proposals regarding
various projects in which, it can invest funds. But the funds available with the firm are
always limited and are not possible to invest trend in the entire proposal at a time.
Hence it is very essential to select from amongst the various competing proposals,
those that gives the highest benefits. The crux of capital budgeting is the allocation of
available resources to various proposals. There are many considerations, economic as
well as non-economic, which influence the capital budgeting decision in the
profitability of the prospective investment. Yet the right involved in the proposals
cannot be ignored, profitability and risk are directly related, i.e. higher profitability the
greater the risk and vice versa there are several methods for evaluating and ranking the
capital investment proposals.
1.5 LIMITATIONS OF THE STUDY:
 The study is based on only ZUARI CEMENT LIMITED.
 The period of study was 2014-18 financial years only.
 Another limitation is that of standard ratio with which the actual ratios may be
compared generally there is no such ratio, which may be treated as standard for
the purpose of comparison because conditions of one concern differ
significantly from those of another concern.
 The accuracy and correctness of ratios are totally dependent upon the reliability
of the data contained in financial statements on the basis of which ratios are
calculated.
2. INDUSTRY PROFILE:
Cement, and steel, is one of the basic material for the technical development of
country. Its consumption is universally recognized as an index of the economic
development of the country.

Cementry industry in India is nearly eight decades old, the first cement plant
having been commissioned in 1917 at Boradhpur(Gujarat). The cement industries
growth has been slow and even mainly on account of the statutory price and
distribution control for over forty years. Consequently, the targets of capacity and
production fixed under successive five year plans did not fully materialize. This trend
was reversed in 1977 and climate of accelerated growth set in with the announcement
of a formula for new investment based on 15% post tax return, the policy of partial
decontrol announced in 1982 gave further boost to the cement industry.

In the wake of new policy, ambitions and comprehensive modernization

expansion programs have been under taken by the industry which include conversion
measures; comprehensive adoption of latest technology, such as the use of vertical
raw materials precalcinators and installations of pollution control devices, setting up
of captive power units, modernization of quarry operation etc.

India is the third largest producer of cement in the world after china and japan.
Though the Indian cement industry has come a longer way in terms of production yet
the per capital consumption is 87 kegs in India is abysmally low when comparing to
the world average of 200 kegs.

The cement industry has passed through various stages. Tight price and
distribution control in 70’s with resultant sluggish growth, partial decontrol and
extensive modernization in the early 80’s followed by total decontrol and massive
investment in the late 80’s and severe market recession and abrupt slow down of pace
of growth is the early 90’s and in the last two years. With firming up cement prices,
the industry witnessed a recovery in 1994,which turned up a boom in 1994-1995.
 The Indian cement industry now in the midst of consolidations phase has seen
its fortunes flagging in the 4 last 18-24 months, a full construction activity and dismal
infrastructure development have led to poor off take and result low capacity utilization
and falling prices have dogged the industry. However, recent development. Suggest
signs of modest revival. The last five years of 2000-2014 have shown a definite
change for the better.

Cement Industry in India:

India is the world's second largest producer of cement according to the Cement
Manufacturers’ Association.

During September 2017, the cement production touched 15.54 million tonnes
(MT), while the cement despatches quantity was 15.56 MT during the month. The
total cement production during April-September 2017-18 reached 81.54 MT as
compared to 77.22 MT over the corresponding period last fiscal. Further, cement
despatches also witnessed an upsurge from 76.50 MT during April-September 2016-
17 to 81.17 MT during April-September 2017-18.

Moreover, the government's continued thrust on infrastructure will help the key
building material to maintain an annual growth of 9-17 per cent in 2017, according to
India's largest cement company, ACC.

In January 2017, rating agency Fitch predicted that the country will add about
50 million tonne cement capacity in 2017, taking the total to around 300 million
tonne.

Further, speaking at the Green Cementech 2017, a seminar jointly organised by

the Confederation of Indian Industry (CII) and the Cement Manufacturer's Association
in Hyderabad in May 2017, G Jayaraman, Executive President, Birla Corporation Ltd,
said that in 2016, 40 MT of capacity was added and he expects a similar trend to
follow this year.
New Investments:
Cement and gypsum products have received cumulative foreign direct investment
(FDI) of US$ 1,971.79 million between April 2000 and September 2017, according to
the Department of Industrial Policy and Promotion (DIPP).

 Dalmia Bharat Enterprises plans to invest US$ 554.32 million to set up two
greenfield cement plants in Karnataka and Meghalaya.
 Bharathi Cement plans to double its production capacity by the end of the current
financial year by expanding its plant in Andhra Pradesh, with an investment of US$
179.97 million.
 Madras Cements Ltd is planning to invest US$ 178.4 million to increase the
manufacturing capacity of its Ariyalur plant in Tamil Nadu to 4.5 MT from 2 MT by
April 2018.
 My Home Industries Limited (MHI), a 50:50 joint venture (JV) between the
Hyderabad-based My Home Group and Ireland's building material major CRH Plc,
plans to scale up its cement production capacity from the existing 5 million tonne per
annum (mtpa) to 18 mtpa by 2016. The company would undertake this capacity
expansion at a cost of US$ 1 billion.
 Shree Cement, plans to invest US$ 97.16 million this year to set up a 1.5 million
MT clinker and grinding unit in Rajasthan. Moreover, in June 2017, Shree Cement
signed a memorandum of understanding (MoU) with the Karnataka government to
invest US$ 423.6 million for setting up a cement unit and a power plant. US$ 317.7
million will be used to set up a cement manufacturing unit with an annual capacity of
3 mtpa while the balance will be for the 170 meg watt power plant.
 Jaiprakash Associates plans to invest US$ 640 million to increase its cement
capacity.
 Swiss cement company Holcim plans to invest US$ 1 billion in setting up 2-3
greenfield manufacturing plants in the country in the next five years to serve the rising
domestic demand. Holcim is present in the country through ACC and Ambuja
Cements and holds around 46 per cent stake in each company. While ACC operates
16 cement plants, Ambuja Cements controls five plants in India. The Aditya Birla
group is the largest cement-making group by capacity in the country and controls
Grasim Industries and Zuari Cement.

Future Trends:
 The cement industry is expected to grow steadily in 2016-2017 and increase
capacity by another 50 million tons in spite of the recession and decrease in demand
from the housing sector.
 The industry experts project the sector to grow by 9 to 17% for the current
financial year provided India's GDP grows at 7%.
 India ranks second in cement production after China.
 The major Indian cement companies are Associated Cement Company Ltd
(ACC), Grasim Industries Ltd, Ambuja Cements Ltd, J.K Cement Ltd and Madras
Cement Ltd.
 The major players have all made investments to increase the production
capacity in the past few months, heralding a positive outlook for the industry.
 The housing sector accounts for 50% of the demand for cement and this trend
is expected to continue in the near future.

An increased outflow in infrastructure sector, by the government as well as

private builders, has raised a significant demand of cement in India. It is the key raw
material in construction industry. Also, it has highly influenced those bigger
companies to participate in the growing sector. At least 155 plants set up by the big
companies in India with about 300 other small scale cement manufacturers, to fulfill
the growing demand of cement. Being one of the vital industries, the cement industry
contributes to the nation's socioeconomic development. The sum total utilization of
cement in a year indicates the country's economic growth.

Cement plant was first set up in Calcutta, in 1889. At that time, the cement used to
manufacture from Argillaceous. In 1904, the first organized set up to manufacture
cement was commenced in Madras, which was named South India Industries Limited.
Again in 1917, another cement manufacturing unit was set up in Porbandar, Gujarat,
but this time it was licensed. In the early years of that era, the demand for the cement
tremendously exceeded but only after few years, the industry faced a severe downfall.
To overcome from this the worsening situation, the Concrete Association of India was
founded in 1927. The organization has two prime goals, one was to create awareness
about utility of cement and another was to encourage cement utilization.

Even after the independence, the growth of the cement industry was too gradual. In
the year 1956, a Distribution Control System was established with an objective to
provide Indian manufacturers and consumers self-sufficiency. Indian government then
introduced a quota system to provide an impetus to this industry, in which 66% of the
sales was imposed to government or small real estate developers. After the
implementation of quota, the cement industry tasted a sudden growth and profitability
in India. In 1991, the government de-licensed the cement industry. The growth of the
industry accelerated forthwith and majority of the industrialists invested heavily in the
industry with the awarded freedom. The industry started focusing on export also to
double the opportunity available for it in global markets. Today, the cement
manufacturers in India have transformed into leading Indian exporters of cement
across the world.

The demand of cement in year 2016-2017 is expected to increase by 50 million

tons despite of the recession and decline in demand of housing sector. Against India's
GDP growth of 7%, the experts have estimated the cement sector to grow by 9 to 17
% in the current financial year. Major Indian cement manufacturers and exporters
have all made huge investments in the last few months to increase their production
capability. This heralds an optimistic outlook for cement industry. The housing sector
in India accounts for 50 % of the cement's demand. And the demand is expected to
continue. With the constant effort made by cement manufacturers and exporters, India
has become the second largest cement producer in the world. Madras Cement Ltd.,
Associated Cement Company Ltd (ACC), Ambuja Cements Ltd, Grasim Industries
Ltd, and J.K Cement Ltd. are among few renowned names of the major Indian cement
companies.
Modern cement
Modern hydraulic cements began to be developed from the start of the
Industrial Revolution (around 1800), driven by three main needs:
Hydraulic renders for finishing brick buildings in wet climates
Hydraulic mortars for masonry construction of harbor works etc, in contact with sea
water.
Development of strong concretes:
In Britain particularly, good quality building stone became ever more
expensive during a period of rapid growth, and it became a common practice to
construct prestige buildings from the new industrial bricks, and to finish them with a
stucco to imitate stone. Hydraulic lines were favored for this, but the need for a fast
set time encouraged the development of new cements. Most famous was Parker's
"Roman cement." This was developed by James Parker in the 1780s, and finally
patented in 1796. It was, in fact, nothing like any material used by the Romans, but
was a "Natural cement" made by burning septaria - nodules that are found in certain
clay deposits, and that contain both clay minerals and calcium carbonate. The burnt
nodules were ground to a fine powder. This product, made into a mortar with sand, set
in 5–18 minutes. The success of "Roman Cement" led other manufacturers to develop
rival products by burning artificial mixtures of clay and chalk.

John Smeaton made an important contribution to the development of cements

when he was planning the construction of the third Eddystone Lighthouse (1755-9) in
the English Channel. He needed a hydraulic mortar that would set and develop some
strength in the twelve hour period between successive high tides. He performed an
exhaustive market research on the available hydraulic limes, visiting their production
sites, and noted that the "hydraulicity" of the lime was directly related to the clay
content of the limestone from which it was made. Smeaton was a civil engineer by
profession, and took the idea no further. Apparently unaware of Smeaton's work, the
same principle was identified by Louis Vicat in the first decade of the nineteenth
century. Vicat went on to devise a method of combining chalk and clay into an
intimate mixture, and, burning this, produced an "artificial cement" in 1817. James
Frost,orking in Britain, produced what he called "British cement" in a similar manner
around the same time, but did not obtain a patent until 1822. In 1824, Joseph Aspdin
patented a similar material, which he called Portland cement, because the render made
from it was in color similar to the prestigious Portland stone.

All the above products could not compete with lime/pozzolan concretes
because of fast-setting (giving insufficient time for placement) and low early strengths
(requiring a delay of many weeks before formwork could be removed). Hydraulic
limes, "natural" cements and "artificial" cements all rely upon their belite content for
strength development. Belite develops strength slowly. Because they were burned at
temperatures below 1550 °C, they contained no alite, which is responsible for early
strength in modern cements. The first cement to consistently contain alite was made
by Joseph Aspdin's son William in the early 1840s. This was what we call today
"modern" Portland cement. Because of the air of mystery with which William Aspdin
surrounded his product, others (e.g. Vicat and I C Johnson) have claimed precedence
in this invention, but recent analysis of both his concrete and raw cement have shown
that William Aspdin's product made at Northfleet, Kent was a true alite-based cement.
However, Aspdin's methods were "rule-of-thumb": Vicat is responsible for
establishing the chemical basis of these cements, and Johnson established the
importance of sintering the mix in the kiln.
William Aspdin's innovation was counter-intuitive for manufacturers of
"artificial cements", because they required more lime in the mix (a problem for his
father), because they required a much higher kiln temperature (and therefore more
fuel) and because the resulting clinker was very hard and rapidly wore down the
millstones which were the only available grinding technology of the time.
Manufacturing costs were therefore considerably higher, but the product set
reasonably slowly and developed strength quickly, thus opening up a market for use in
concrete. The use of concrete in construction grew rapidly from 1850 onwards, and
was soon the dominant use for cements. Thus Portland cement began its predominant
role. it is made from water and sand.
Types of modern cement:
Portland cement:
Cement is made by heating limestone (calcium carbonate), with small
quantities of other materials (such as clay) to 1750°C in a kiln, in a process known as
calcination, whereby a molecule of carbon dioxide is liberated from the calcium
carbonate to form calcium oxide, or lime, which is then blended with the other
materials that have been included in the mix . The resulting hard substance, called
'clinker', is then ground with a small amount of gypsum into a powder to make
'Ordinary Portland Cement', the most commonly used type of cement (often referred
to as OPC).

Portland cement is a basic ingredient of concrete, mortar and most non-

speciality grout. The most common use for Portland cement is in the production of
concrete. Concrete is a composite material consisting of aggregate (gravel and sand),
cement, and water. As a construction material, concrete can be cast in almost any
shape desired, and once hardened, can become a structural (load bearing) element.
Portland cement may be gray or white.

Portland cement blends

These are often available as inter-ground mixtures from cement manufacturers,
but similar formulations are often also mixed from the ground components at the
concrete mixing plant.

Portland blastfurnace cement contains up to 70% ground granulated blast furnace

slag, with the rest Portland clinker and a little gypsum. All compositions produce high
ultimate strength, but as slag content is increased, early strength is reduced, while
sulfate resistance increases and heat evolution diminishes. Used as an economic
alternative to Portland sulfate-resisting and low-heat cements.

Portland flyash cement contains up to 30% fly ash. The fly ash is pozzolanic, so that
ultimate strength is maintained. Because fly ash addition allows lower concrete water
content, early strength can also be maintained. Where good quality cheap fly ash is
available, this can be an economic alternative to ordinary Portland cement.
Portland pozzolan cement includes fly ash cement, since fly ash is a pozzolan, but
also includes cements made from other natural or artificial pozzolans. In countries
where volcanic ashes are available (e.g. Italy, Chile, Mexico, and the Philippines)
these cements are often the most common form in use.

Portland silica fume cement. Addition of silica fume can yield exceptionally high
strengths, and cements containing 5-20% silica fume are occasionally produced.
However, silica fume is more usually added to Portland cement at the concrete mixer.

Masonry cements are used for preparing bricklaying mortars and stuccos, and must
not be used in concrete. They are usually complex proprietary formulations containing
Portland clinker and a number of other ingredients that may include limestone,
hydrated lime, air entrainers, retarders, waterproofers and coloring agents. They are
formulated to yield workable mortars that allow rapid and consistent masonry work.
Subtle variations of Masonry cement in the US are Plastic Cements and Stucco
Cements. These are designed to produce controlled bond with masonry blocks.

Expansive cements contain, in addition to Portland clinker, expansive clinkers

(usually sulfoaluminate clinkers), and are designed to offset the effects of drying
shrinkage that is normally encountered with hydraulic cements. This allows large floor
slabs (up to 60 m square) to be prepared without contraction joints.

White blended cements may be made using white clinker and white supplementary
materials such as high-purity metakaolin.

Colored cements are used for decorative purposes. In some standards, the addition of
pigments to produce "colored Portland cement" is allowed. In other standards (e.g.
ASTM), pigments are not allowed constituents of Portland cement, and colored
cements are sold as "blended hydraulic cements".

Very finely ground cements are made from mixtures of cement with sand or with
slag or other pozzolan type minerals which are extremely finely ground together. Such
cements can have the same physical characteristics as normal cement but with 50%
less cement particularly due to their increased surface area for the chemical reaction.
Even with intensive grinding they can use up to 50% less energy to fabricate than
ordinary Portland cements. Non-Portland hydraulic cements.

Pozzolan-lime cements. Mixtures of ground pozzolan and lime are the cements used
by the Romans, and are to be found in Roman structures still standing (e.g. the
Pantheon in Rome). They develop strength slowly, but their ultimate strength can be
very high. The hydration products that produce strength are essentially the same as
those produced by Portland cement.

Slag-lime cements.Ground granulated blast furnace slag is not hydraulic on its own,
but is "activated" by addition of alkalis, most economically using lime. They are
similar to pozzolan lime cements in their properties. Only granulated slag (i.e. water-
quenched, glassy slag) is effective as a cement component.

Supersulfated cements. These contain about 80% ground granulated blast furnace
slag, 18% gypsum or anhydrite and a little Portland clinker or lime as an activator.
They produce strength by formation of ettringite, with strength growth similar to a
slow Portland cement. They exhibit good resistance to aggressive agents, including
sulfate.

Calcium aluminate cements are hydraulic cements made primarily from limestone
and bauxite. The active ingredients are monocalcium aluminate CaAl 2O4 (CaO ·
Al2O3 or CA in Cement chemist notation, CCN) and mayenite Ca15Al17O33 (15 CaO ·
7 Al2O3 , or C15A7 in CCN). Strength forms by hydration to calcium aluminate
hydrates. They are well-adapted for use in refractory (high-temperature resistant)
concretes, e.g. for furnace linings.

Calcium sulfoaluminate cements are made from clinkers that include ye'elimite
(Ca4(AlO2)6SO4 or C4A3 in Cement chemist's notation) as a primary phase. They are
used in expansive cements, in ultra-high early strength cements, and in "low-energy"
cements. Hydration produces ettringite, and specialized physical properties (such as
expansion or rapid reaction) are obtained by adjustment of the availability of calcium
and sulfate ions. Their use as a low-energy alternative to Portland cement has been
pioneered in China, where several million tonnes per year are produced. Energy
requirements are lower because of the lower kiln temperatures required for reaction,
and the lower amount of limestone (which must be endothermically decarbonated) in
the mix. In addition, the lower limestone content and lower fuel consumption leads to
a CO2 emission around half that associated with Portland clinker. However, SO2
emissions are usually significantly higher.

"Natural" Cements correspond to certain cements of the pre-Portland era, produced

by burning argillaceous limestones at moderate temperatures. The level of clay
components in the limestone (around 30-35%) is such that large amounts of belite (the
low-early strength, high-late strength mineral in Portland cement) are formed without
the formation of excessive amounts of free lime. As with any natural material, such
cements have highly variable properties.

Geopolymer cements are made from mixtures of water-soluble alkali metal silicates
and aluminosilicate mineral powders such as fly ash and metakaolin.
 3. ZUARI CEMENT
Italcementi Group History Founded in 1864, Italcementi was quoted for the first
time on thestock markets, at the Milan Stock Exchange, in 1925, under the name of
“Società Bergamasca per la Fabbricazione del Cemento e della Calce Idraulica” and
has been operating since 1927 under the name of Italcementi Spa. Zuari Cement is
part of the Italcementi Group, the fifth largest cement producer in the world and the
biggest in the Mediterranean region. With net sales over 5 billion Euros in 2013 and a
capacity of 70 million tonnes. Italcementi Group combines the expertise, know-how
and culture of a number of companies from more than 22 countries in 4 continents.
This includes an industrial network of 59 cement plants, 15 grinding centres, 5
terminals, 92 aggregates quarries and 373 concrete batching units. In India, with its
inherent strengths, Italcementi Group's Zuari Cement is committed to give the
building industry cement that is truly international. cement that is truly international.

A commitment to customer satisfaction has seen Zuari Cement grow from a

modest 0.5 million tonne capacity in 1995 to 3.5 million tonnes in 2013. In 2014,
wehave expanded the production capacity at our yerraguntla plant by installing a
second burning line with a designed production capacity of 2.3 million tons of cement
per year and adopting top-of-range technical solutions with a particular focus on
energy performance.By this the production is almost doubled and a grinding center at
Chennai of 1 million ton capacity is under construction, to be commisioned in early
2011. A captive power plant with a capacity of 43 MW has already been set up at the
Company's cement manufacturing facility at Sitapuram. With a 6% market share in
the south Indian cement market and sales of about Euro 172 million in 2013, Zuari
Cement has chalked out ambitious plans for the future. This includes strengthening its
presence in the Maharashtra, Orissa and West Bengal markets. While technology is
just one of its strengths, there are many other factors that contribute equally to Zuari's
success. These include a high-level organisation and decentralised quality assurance
teams to guarantee the full compliance with the customers' expectations.
Strong foundationsfor a company of strength:
Zuari entered the Cement business in 1994 to operate the Texmaco Cement
Plant. In 1995, Texmaco’s Plant at Yerraguntla was taken over by Zuari and a Cement
Division was formed. The fledging unit came into its own in the year 2001 when Zuari
Industries entered into a Joint Venture with the Italcementi Group, the 5th largest
producer of Cement in the world, Zuari Cement Limited was born. Zuari Cement took
over Sri Vishnu Cement Limited in 2002. Today, the Company is amongst the
topmost cement produces in South India.

Zuari Cement is part of the worldwide HeidelbergCement Group, a global

construction material major Number 1 in aggregates and number 2 in cement, and
number 3 in ready-mixed concrete globally.

Zuari Cement has a total cement manufacturing capacity of 7.1 million tons
in India, which includes two manufacturing units at Sitapuram and Yerraguntla, along
with two grinding centres at Chennai and Solapur and a cement terminal at Kochi,
Kerala. This makes Zuari Cement a formidable brand in the South Indian Cement
Market with more than 5% market share. The states of Karnataka, Andhra Pradesh,
Telengana, TamilNadu& Kerala form the core markets for Zuari Cement with a
notable footprint in Maharashtra, Orissa & Chattisgarh.

In line with Groups' global focus on quality and environment, Zuari Cement's
manufacturing units are ISO 50001:2011, ISO: 9001 and ISO: 14001 Certified. Zuari
Cement has in its growth strategy has chalked out ambitious plans for the future.

Adjudged “Power Brand” in 2012 & 2013, in the year 2016, among the
accolades Zuari Cement amongst other have won the other accolades, are “India’s
Most Trusted Brand 2016” by Consumer Survey Report-MRG, “Best Brands 2016 -
Emerging No1 category”, by WCR and “Greenco Gold Certification by Green
Company Rating system 2016. In previous years Zuari Cement won “Asia
Manufacturing Excellence Award for Safety 2015”, CII “National Award for
Excellence in Energy Management” and “Excellence Award” by IES. Our Whole
Time Director won the “Udyog Ratan” Award by IES for 2015.
Strength lies in our People:
Zuari Cement has an extensive human resource an empowered team of talent
pool with strong skills set of expertise in their respective fields. Our diverse work
force is spread across a wide geographical area across India.

Zuari Cement provides employment to over 3000 people and provides indirect
employment to over 5600 people for material handling, godown operations and
transportation.

Zuari and Italcementi:

Zuari Cement is one of the leading cement producers in South India. A fully
owned subsidiary of the Euro 6 billion Italcementi Group, Commitment to customer
satisfaction has seen Zuari Cement grow from a modest 0.5 million tonne capacity in
1995 to almost 6 million tones in 2014, and earned a place among the most reliable
cement producers in the country.

Italcementi Group History Founded in 1864, Italcementi was quoted for the
first time on the stock markets, at the Milan Stock Exchange, in 1925, under the name
of “Società Bergamasca per la Fabbricazione del Cemento e della Calce Idraulica” and
has been operating since 1927 under the name of Italcementi Spa.Thanks to a careful
plan of investments and take-overs of other cement producers, the company expanded,
quickly reaching a strong position on the market and becoming the leading cement
manufacturer in Italy.

After several acquisitions abroad, in 1992 Italcementi achieved important

international status with its take-over of Ciments Français, one of the main global
cement producer. In 1997 Italcementi consolidated its verticalisation strategy with the
acquisition of Calcestruzzi, thus becoming Italian leader in the ready-mixed concrete
sector.

In March 1997, all the international companies of the Group gathered under one single
corporate identity.
 Since 1998 Italcementi Group has been pursuing its internationalisation
strategy by acquiring new cement works in Bulgaria, Kazakhstan, Thailand, Morocco,
India, Egypt and the United States.

Our Management:
While professional management and quality workforce ensure superior results,
the role played by the core management should not be discounted. With their vision
and experience, they make sure that Zuari Cement moves in the right direction.
Towards becoming one among the leading cement producers in India.

Mr. Kevin Gerard Gluskie

Chairman

Mr. Jamshed Naval Cooper

Managing Director

Mr. Ramakrishnan Ramamurthy

Independent Director
Locations
E-mail: [email protected]
Zuari Cement Ltd.,
H.No.: 8-2-269/S/4,
Sagar Society,
Road No.2, Banjara Hills,
Hyderabad – 500 034
Tel: 040-40329999
Fax: 040-40329970
Email :[email protected]

Italcementi Group at a glance with an annual production capacity of

approximately 70 million tons of cement, Italcementi Group is the world’s fifth largest
cement producer. The Parent Company, Italcementi S.p.A., is one of Italy’s 14 largest
industrial companies and is listed on the Italian Stock Exchange.

Italcementi Group’s companies combine the expertise, know how and cultures
of 22 countries in 4 Continents boasting an industrial network of 59 cement plants,
15 grinding centres, 5 terminals, 373 concrete batching units and 92 aggregates
quarries.
In 2013 the Group had sales amounting to over 5 billion Euro.
Italcementi, founded in 1864, achieved important international status with the
take-over of Ciments Françaisin 1992. .
Following a period of re-organization and integration that culminates in the adoption
of a single corporate identity for all Group subsidiaries, the newly-born Italcementi
Group began to diversify geographically through a series of acquisitions in emerging
countries such as Bulgaria, Morocco, Kazakhstan, Thailand and India, as well as
operating in North America. As part of the plan to further enhance its presence in the
Mediterranean area, in 2009 the Group boosted its investments in Egypt becoming the
market leader. .
In 2010 Italcementi acquired full control of the activities in India and signed an
agreement to strengthen its position in Kazakhstan while, in 2011, it further
strengthened its presence in Asia and the Middle East through the operations in China,
Kuwait, Saudi Arabia.

As a member of the World Business Council for Sustainable Development

(WBCSD) Italcementi Group has signed the Cement Sustainability Initiative’s
Agenda for Action, the first formal commitment that binds a number of world cement
industry leaders to an action plan that aims at satisfying present-day needs at the same
time as safeguarding the requirements of future generations.
To further confirm its commitment on these issues, the Group has taken over the co-
Chairmanship of the Cement Sustainability Initiative for the period 2010-2011.
Moreover, Italcementi has been included in “The Sustainability Yearbook 2014” the
most comprehensive publication on corporate sustainability released yearly by SAM
(Sustainable Asset Management).

Industrial network

Countries 22
Cement plants 59
Grinding centres 15
Concrete units 373
Quarries 92
Terminal 5

Employees Over 21,000

Sustainable Development Initiatives

Zuari Cement is aware of its social role and promotes socially responsible
behavior among all its employees and subsidiaries. We believe that Sustainable
Development, as a combination of economic prosperity, environmental protection and
social responsibility, is the basis of our own future.

As a corporate citizen, Zuari Cement is also acutely aware of its responsibilities

towards the near-by communities. As a part of this responsibility and in an effort to
strengthen its relationship with the villages around the factory, the Company has
undertaken and carried out many initiatives.

Italcementi considers business leadership to be a catalyst for change towards

sustainability, in particular by promoting the roles of eco-efficiency, innovation and
socialresponsibility.

Italcementi strongly believes in values, such as:

 responsibility as long term commitment to sustainability
 integrity as ethical behavior at the heart of its business
 efficiency as operational excellence through continuous improvement
 innovation in product, application and management
 diversity of local identities as a source of value and focuses its growth strategy.

 renewal and expansion of its existing industrial network

 small/medium size acquisitions and partnerships in emerging and high growth
markets
 vertical integration with ready-mixed concrete and aggregates
 development of innovative building products, applications and services
 initiatives in renewable energy sector
 Research and Innovation
 At Italcementi Group, research is a strategic asset aimed at creating innovation
projects that follow up new market trends. Italcementi invests some 13 million
Euro a year in Research and Innovation: its innovation rate – i.e. the ratio of
revenues generated by innovation projects to total Group sales – is currently
3.2%, but the medium-to-long term goal is to bring it up to 5%.
 As an integral part of the innovation process, the laboratories of CTG, the
Group Technical Center, carry out R&D activities in the field of cementitious
materials and related applications.
Innovation Rate 2010 2011 2012 2013 2014
Mature markets 1.8 2.8 2.9 3.4 3.8
Emerging markets 0.4 0.9 1.5 2.4 2.7
Group 1.5 2.0 2.5 2.9 3.2

The distinctive feature of CTG’s research activities lies in the multidisciplinary

resources and skills involved; chemists, physicists, geologists and engineers work
closely every day thereby generating a value-added mix of expertise that is paramount
to fulfill ambitious goals.
 The Group’s growth vision and Research & Innovation strategy for new
products and enhanced manufacturing processes hinge on Sustainable
Development. Current studies are being focused on new clinker and cement
production processes entailing lower CO2 emissions into the atmosphere. Other
research studies are aimed at reusing secondary materials for manufacturing
cement and concrete thereby impacting less on the environment on account of a
lower raw materials content. Among more conventional studies, let’s recall
here those regarding concrete durability and materials for building
rehabilitation programs.
 Products of sure environmental interest are the photocatalytic cementitious
materials containing the TX Active® principle. These materials are capable of
preserving the aesthetic quality of built surfaces and abating the polluting
substances occurring in the air. The potential of these materials will be
developed on increasingly effective applications.
 The research activity is structured as a synergistic network of international
scientific partnerships involving research centers, universities and enterprises
from the building materials and construction industry. At present, the network
is comprised of 14 external centers, 30 enterprises and 26 universities in Italy,
Europe and in other non-European countries. The network fosters joint
scientific projects on cross-cutting themes (CO2 emission reduction,
sustainable development, materials durability, etc.), bilateral cooperation
projects focused on industrial objectives, as well as standardization activities
within CEN – the European Committee for Standardization – and UNI – Italy’s
 standardization body. Last but not least, both basic and finalized research
projects are carried out.

3.1.PRODUCT PROFILE:
Zuari Cement manufactures and distributes its own main product lines of cement .We
aim to optimize production across all of our markets, providing a complete solution
for customer's needs at the lowest possible cost, an approach we call strategic
integration of activities.

Cement is made from a mixture of 80 percent limestone and 20 percent clay.

These are crushed and ground to provide the "raw meal”, a pale, flour-like powder.
Heated to around 1450° C (2642° F) in rotating kilns, the “meal” undergoes complex
chemical changes and is transformed into clinker. Fine-grinding the clinker together
with a small quantity of gypsum produces cement. Adding other constituents at this
stage produces cements for specialized uses.

Zuari Cement products are preferred by professionals throughout all disciplines

of the construction industry. Wheather sparked by an architect an owner or a building
engineer, any project's vision is only as realistic as access to materials capable of
achieving precise details in their purest form. At Zuari, we are proud to provide
materials that are uncompromising in creative breadth, technical quality and practical
applicability.

ZUARI CEMENT PRODUCTS:

Zuari Cement products are preferred by professionals throughout all disciplines
of the construction industry. Wheather sparked by an architect an owner or a building
engineer, any project's vision is only as realistic as access to materials capable of
achieving precise details in their purest form. At Zuari, we are proud to provide
materials that are uncompromising in creative breadth, technical quality and practical
applicability.
 OPC CEMENT 43 GRADE OPC CEMENT 53 GRADE

PPC CEMENT PRIMO CEMENT

3.2. ZUARI CEMENT PLANTS:

The culture of quality which prevails in Zuari Cement's manufacturing facilities is
best exemplified in the process technology employed.

 Centralized online process control

Advanced technology methods are used to ensure that a high level of quality is
attained and sustained right through the manufacturing process. Yet, these high
standards are constantly improved upon by an experienced and dedicated R&D team
to attain performance oriented cement.
 Advantages of process technology
Complete homogenization of limestone is achieved by stacking the limestone in
stock-plies with the use of stackers and reclaiming it through reclaimers.The optimum
ratio of raw mix is attained by the use of X-ray analyser and automatic weigh feeder
which are linked to the centralized computers control room.

Reduced variability in kiln feed and complete homogenisation of raw meal is attained
through Continuous Flow Silo. This ensures that every grain of cement is of consistent
quality.

 The totally computerised monitoring system enables quality clinkerisation.

It dictates the optimum retention time in the precalciner and the kiln.
Equipped with a six stage double stream pre-heater cyclone system, the
precalciner only adds to the quality.
 The modern closed grinding units have a high efficiency separator that
produces finer particles of cement. This yields cement matrix with a lower
pore diameter. This in turn gives concrete of higher density and lower
permeability.
  Ventomatic Electronic Packing
Zuari Cement employs Ventomatic packers to ensure that the customer
gets exactly 50 kgs per bag. To minimize damages during transport, advanced
loading techniques are used. These steps reflect Zuari Cement's commitment to
offer the best quality and correct quantity to its customers.
 Environment-Friendly Technology
To minimise dust emission, Zuari Cement has installed the latest
pollution control equipment such as electrostatic precipitators in the kiln, raw
mills, coal mills and cement mills. this environmental friendly aspect of Zuari's
process technology has resulted in abundance of greenery and clean air in the
factory premises.

QUALITY:

Six strong benefits that make Zuari 43, 53 Grade, Super fine, Vishnu Premium
and Vishnu Shakti the ideal cement
 Higher compressive strength.
 Better soundness.
 Lesser consumption of cement for M-20 Concrete Grade and above.
 Faster de shuttering of formwork.
 Reduced construction time with a superior and wide range of cement catering
to every conceivable building need, Zuari cement is a formidable player in the
cement market.
Here just a few reasons why Zuari cement chosen by millions of India.
 Ideal raw material
 Low lime and magnesia content and high proportion of silicates.
 Greater fineness.
 Slow initial and fast final setting.
 Wide range of applications.
 Quality customer services.
CREDIT RISK MANAGEMENT

The calculations using in Data analysis are –

1) DTR ( Debtor’s turnover ratio )
2) ACP ( Average collection period )
 Calculation of DTR :-
This measures a relationship between debtor’s and sales.
DTR = credit sales (or) sales
Debtors
 Calculation for: 2015:-
DTR = 177,543,234.2 = 2.572
69017419.6

 Calculation for: 2016:-

DTR = 396,781,447.10 = 5.057
78,459,255.88

 Calculation for: 2017:-

DTR = 534,965,023.45 = 4.186
157,778,905.34

 Calculation for: 2018:-

DTR =427,752,546.23 =2.59
168,285,625.57

SREC Page 39
  DTR from 2015 to 2017 are :-
YEAR DTR

2015 2.572

2016 5.057

2017 4.186

2018 2.59

DTR
Series1

5.057
4.186

2.572 2.59

1 2 3 4 5 6 7 8
CREDIT RISK MANAGEMENT
Calculation of ACP:-

The ACP calculation is compared with the firm’s stated credit period to judge

The collection efficiency.

The ACP measures the quantity of receivables.

Since, it indicates the speed of their collect ability.

ACP = Debtors x 360 (or) 360

Credit sales DTR

Calculation for: 2015:-

ACP = 360 = 169.93
2.572

Calculation for: 2016:-

ACP = 360 = 71.186
5.057

Calculation for: 2017:-

ACP = 360 = 85.98
4.186

Calculation for: 2018:-

ACP = 360 = 168.98
2.59

SREC Page 41
CREDIT RISK MANAGEMENT

 ACP from 2015 to 2018 are :-

YEAR ACP

2015 169.93

2016 71.186

2017 85.98

2018 168.98

ACP
139.93 138.98

85.98
71.186

1 2 3 4 5 6 7 8

SREC Page 42
A SCENARIO ANALYSIS: -

Suppose credit period is extended to 170 days.

Then sales may increase by 18%.

If credit period is decreased to 80 days.

Then sales decreases by 17%.

The cost of financing is 18%.

CALCULATION OF INCREASE IN CREDIT PERIOD: -

Calculation for 2015:-

Statement of increase in credit period

PARTICULARS EXISTING DAYS (+18%) DAYS (- 17%)

A) Credit period 90 170 80

B) Annual sales 177543234.2 204,174,719.33 189,788,917.78

C Level of
receivables (at sales
value) (Ax / 360) 44,385,815.55 56,718,199.8168 35,515,646.84

D Increment
investment in
receivable - 15329391.2638 (8877161.71)
(C- 44,385,815.55)
E) Assume
incremental profit - 2,465,878.25276 (1,775,432.342)
@20% (0.2xD)
WORKING NOTES:-

1) Annual sales :-

170 days = 177543234.2 + (177543234.2 x 18%)

177543234.2 + 26631785.16

= 204,174,719.33

80 days = 177543234.2 - (177543234.2 x 17%)

177543234.2 - 17754323.42

= 189,788,917.78

2) Level of receivables : -

Ax/ 360: 90 days = 177543234.2 x 90 = 44,385,815.55

360

170 days = 204,174,719.33 x 170 = 56,718,199.8168

360

80 days = 189,788,917.78 x 80 = 35515646.84

360
3) Incremental investment in receivables : -

(C - 44,385,815.55)

90 days = 44385815.55 - 44385815.55 = 0

170 days = 56718199.8168 - 44385815.55 = 15,329,391.2638

80 days = 35515646.84 – 44385815.55 = (8,877,161.71)

4) Assume incremental profit @ 20% (0.20 x D) : -

90 days = 0

170 days = 15329391.2638 x 20% = 2465878.25276

80 days = - 8877161.71 x 20 % = (1,775,432.342)

Calculations for 2016:-

Statement of increase in credit period

PARTICULARS EXISTING DAYS (+ 18 % ) DAYS (-17 %)

A) Credit period
90 170 80
B) Annual sales
452789444.86 520,714,861.589 414,517,500.375
C) Level of
receivables (at 183,197,361.218 174,641,145.663 90,557,888.9719
sales value)
(AxB/360)
D) Incremental
investment in
receivables (C- - 31,443,718.448 (22,639,472.244)
183,197,361.218)
E) Assume
incremental profit - 6,288,742.2896 (4,527,894.4488)
@ 20% (0.20 x D)

WORKING NOTES:-

1) Annual sales :-

90 days = 452789444.86

170 days = 452789444.86 + (452789444.86 x 18%)

= 520,714,861.589

80 days = 452789444.86 - (452789444.86 x 17%)

= 414,517,500.374

2) Level of receivables ( at sales value ) :-

Ax / 360

90 days = 90 x 452789444.86 = 183,197,361.218

360
CREDIT RISK MANAGEMENT
170 days = 170 x 520,714,861.589 = 174,641,145.663
360

80 days = 80 x 414,517,500.374 = 90,557,888.9719

360

3) Incremental investment in receivables :-

( C - 183,197,361.218)

90 days = 0

170 days = 174641772.663 - 183197361.218 = 31,443,718.448

80 days = 90557888.9719 - 183197361.218 =

(22,639,472.244)

4) Assume incremental profit @ 20% (0.20x D) :-

90 days =0

170 days = 31743718.448 x 20% = 6,288,742.2896

80 days = (22,639,472.244 x 20%) = 4,527,894.4488

SREC Page 46
CREDIT RISK MANAGEMENT

Calculation for 2017: -

Statement of increase in credit period

PARTICULARS EXISTING DAYS (+18%) DAYS (-17%)

A) Credit period
90 170 80
B) Annual sales
534,965,023.45 618,216,776.967 481,468,521.175
C) Levels of
receivables (at 163,741,255.862 170,891,604.716 176,993,004.69
sales value) (Ax)
D) Incremental
investment in 37,180,348.851 (26,748,251.172)
receivables ( C- -
163,741,255.862)
E) Assume
incremental profit - 7,430,109.7702 7,349,650.2344
@ 20% (0.20x D)

WORKING NOTES: -

1) Annual sales :-

170 days = 534,965,023.45 + (534,965,023.45 x 18 %)

= 618,216,776.967

80 days = 534,965,023.45 - (534,965,023.45 x 17 %)

= 481,468,521.175

2) Level of receivables (at sales value) :-

(Ax) / 360

90 days = 90 x 534965023.45 = 163,741,255.862

360

170 days = 170 x 618,216,776.967 = 170,891,604.716

360
80 days = 80 x 481,468,521.175 = 176,993,004.69

SREC Page 47
3) Incremental investment in receivables : -

(C - 163,741,255.862)

90 days = 0

170 days = 170,891,604.716 - 163,741,255.862

= 37,180,348.851

80 days = 176,993,004.69 - 163,741,255.862

= (26,748,251.172)

4) Assumed incremental profit @ 20% (0.2 x D) : -

90 days = 0

170 days = 37,180,348.851 x 20%

= 7,430,109.7702

80 days = (26,748,251.172) x 20%

= (7,349,650.2344)
Calculation for 2018: -

Statement of increase in credit period

PARTICULARS EXISTING DAYS (+18%) DAYS (-17%)

A) Credit period
90 170 80
B) Annual sales
427,752,546.23 641,628,817.935 427,752,540.623
C) Levels of
receivables (at 176,938,166.557 178,230,225.272 99,056,150.168
sales value) (Ax)
D) Incremental
investment in 71,292,158.718 (78,820,160.419)
receivables ( C- -
163,741,255.862)
E) Assume
incremental profit - 17,258,417.743 (18,764,032.153)
@ 20% (0.20x D)

WORKING NOTES: -

1) Annual sales :-

170 days = 427,752,546.23+ (427,752,546.23x 18 %)

= 641,628,817.935

80 days = 427,752,546.23- (427,752,546.23x 17 %)

= 427,752,540.623

2) Level of receivables (at sales value) :-

(Ax) / 360

90 days = 90 x 427,752,546.23= 176,938,166.557

360

170 days = 170 x 641,628,817.935= 178,230,225.272

360
80 days = 80 x 427,752,540.623 = 99,056,150.168
360
CREDIT RISK MANAGEMENT
3) Incremental investment in receivables : -

(C - 163,741,255.862)

90 days = 0

170 days = 178,230,225.272- 176,938,166.557

= 71,292,158.718

80 days = 99,056,150.168 -176,938,166.557 -

= (78,820,160.419)

4) Assumed incremental profit @ 20% (0.2 x D) : -

90 days = 0

170 days = 71,292,158.718x 20%

= 17,258,417.743

80 days = (78,820,160.419) x 20%

= (18,764,032.153)

SREC Page 50
CREDIT RISK MANAGEMENT

5.1 FINDINGS:
 Debtor’s turnover ratio increasing every year from 2015 to 2018.

 Average collection period decreasing every year from 2015 to 2018.

 The scenario analysis was conducted assuming credit period to be 80

 days and 170 days. The result should that while credit period is 170

 Days the company is getting profits. When the credit period is 80

days the company is getting losses.

 Based on the report it is concluded that credit policies are decided by

 zonal manager so, powers are centralized.

 Credit standards are determined based on economic conditions.

 Credit is 90 days and if credit is paid before that period the company will give
cash discount.

SREC Page 51
5.2 SUGGESTIONS:
 It is suggested to management to increase credit period to 170 days. So that

company can earn profits.

 It is suggested to management to offer more incentives for prompt payment of

credit. So that receivables are paid promptly by dealers.

 In management can be littlie bit liberal in credit policies so that more profits are

achieved.

 Relaxing credit standards will enable to increases the customers.

CREDIT RISK MANAGEMENT

5.3 CONCLUSIONS:
Although a relatively young discipline, credit risk management has matured
rapidly. Improved risk measurement and reporting techniques paired with
comprehensive credit risk policies can provide extremely effective protection against
credit risk losses. The best risk management techniques are operational and legal, with
collateral providing the best financial risk mitigation. Credit insurance and credit
default swaps offer financial protection against default, but each at its own cost—
which must be compared to the benefits of reducing the specific risk it is intended to
mitigate.

In view of these limitations, we believe that an alternative approach is now

needed which should have two components. First we believe that the regulatory
capital regime should seek directly to assess the extent to which a firm's earnings are
vulnerable to stress losses of any type - a measure we refer to as regulatory equity at
risk - and should then establish a capital requirement which is sufficient to provide a
high level of assurance that the firm could survive such a stress event and still remain
solvent during a work out period.

Secondly we argue that there needs to be much more explicit regulatory

oversight of the liquidity management arrangements in place at the firm, since
effective liquidity management arrangements rather than capital provide the primary
protection against any stress events affecting the firm.

SREC Page 53
 6.1 SECONDARY DATA:

 DTR from 2015 to 2017 are :-

YEAR DTR

2015 2.572

2016 5.057

2017 4.186

2018 2.59

 ACP from 2015 to 2018 are :-

YEAR ACP

2015 169.93

2016 71.186

2017 85.98

2018 168.98
 Calculation for 2015:-
Statement of increase in credit period

PARTICULARS EXISTING DAYS (+18%) DAYS (- 17%)

A) Credit period 90 170 80

B) Annual sales 177543234.2 204,174,719.33 189,788,917.78

C Level of
receivables (at
sales value) (Ax / 44,385,815.55 56,718,199.8168 35,515,646.84
360)

D Increment
investment in
receivable - 15329391.2638 (8877161.71)
(C- 44,385,815.55)
E) Assume
incremental profit - 2,465,878.25276 (1,775,432.342)
@20% (0.2xD)

Calculations for 2016:-

Statement of increase in credit period

PARTICULARS EXISTING DAYS (+ 18 % ) DAYS (-17 %)

A) Credit period
90 170 80
B) Annual sales
452789444.86 520,714,861.589 414,517,500.375
C) Level of
receivables (at 183,197,361.218 174,641,145.663 90,557,888.9719
sales value)
(AxB/360)
D) Incremental
investment in
receivables (C- - 31,443,718.448 (22,639,472.244)
183,197,361.218)
E) Assume
incremental profit - 6,288,742.2896 (4,527,894.4488)
@ 20% (0.20 x D)
CREDIT RISK MANAGEMENT

Calculation for 2017: -

Statement of increase in credit period

PARTICULARS EXISTING DAYS (+18%) DAYS (-17%)

A) Credit period
90 170 80
B) Annual sales
534,965,023.45 618,216,776.967 481,468,521.175
C) Levels of
receivables (at 163,741,255.862 170,891,604.716 176,993,004.69
sales value) (Ax)
D) Incremental
investment in 37,180,348.851 (26,748,251.172)
receivables ( C- -
163,741,255.862)
E) Assume
incremental profit - 7,430,109.7702 7,349,650.2344
@ 20% (0.20x D)
Calculation for 2018: -

Statement of increase in credit period

PARTICULARS EXISTING DAYS (+18%) DAYS (-17%)

A) Credit period
90 170 80
B) Annual sales
427,752,546.23 641,628,817.935 427,752,540.623
C) Levels of
receivables (at 176,938,166.557 178,230,225.272 99,056,150.168
sales value) (Ax)
D) Incremental
investment in 71,292,158.718 (78,820,160.419)
receivables ( C- -
163,741,255.862)
E) Assume
incremental profit - 17,258,417.743 (18,764,032.153)
@ 20% (0.20x D)

SREC Page 56
6.2 BIBILOGRAPHY:
TEXT BOOKS:
 I.M. Pandey, Financial Management, 3rd edition, Vikas Publishers,
(Pg.Nos.205-234)
 Prasanna Chandra, Financial Management, 5th edition TataMcGrawhill,
(pg.no.172194)
 R.K. Sharma & Shashi K. Gupta, Management Accounting, 8th edition Kalyani
Publishers (pg.no.83-96)
 S.P. Jain& K.L. Narang, Financial Accounting, 3rdedition, Kalyan
Publishers,(146164)
 C.R. Kothari- Business Research methodology, 12th edition, Visas Prakasam
Publishers,(Pg.no.14-19)

WEB SITES:

 www.Zuari cement.com

 www.yahoofinance.com