SUMMER INTERNSHIP PROJECT REPORT

On
A study on Working Capital Management & Effect of COVID19
At
CEAT LTD.

Submitted to
Institute Code: 836
Tolani Motwane Institute Of Management Studies, Adipur.

Under the guidance of

Prof: Anuj Sharma
(Assistant Professor)

In partial Fulfilment of the Requirement of the award of the degree of

Master of Business Administration (MBA)
Offered By
Gujarat Technical University
Ahmedabad

Prepared by:
Dharmesh.R.Jharu
198360592024
MBA (Semester- III)
June-July 2020.
 DECLARATION

I hereby declare that the Summer Internship Project Report

on “A Study on Working Capital Management & Effect of COVID19 at
CEAT LTD” is a result of my own work and indebtedness to other work
publications, reference if any, have been duly acknowledged .

If I am found guilty of copying from any other report or published information

and showing as my original work or extending plagiarism limit, I understand
that I shall be liable and punishable by the university, which may include ―
Fail ― in examination or any other punishment that university may decide .

Enrollment no. Name Signature

198360592024 Dharmesh.R.Jharu

Place:…………………. Date:…………
 FEEDBACK FORM
This is to certify that project work embodied in this report entitled “Working Capital
Management and Effect of COVID19 on CEAT LTD” was carried out by Dharmesh
Jharu Enrollment No:198360592024 of Tolani Motwane Institute of Management
Studies 836.

The report is approved / not approved.

Comments of External Examiner:

This report is for the partial fulfilment of the requirement of the award of the degree of
Master of Business Administration offered by Gujarat Technological University.

______________
Date: (Examiner’s Signature)

Place: Name of Examiner:

Institute Name:

Institute Code:
 PREFACE
I am presenting this report on working capital management of CEAT LTD and
effect of COVID19 on it, as this was the topic of research for which I have gone
through various sources for understanding it.

The primary motive was the same i.e. to understand about company’s working
capital and effect of COVID19 on it. The company is in operation of tyre
manufacturing and is India’s leading company in tyre manufacturing. This
report contains various details related to project, company, its goals, its past and
present working, problems that have arise due to pandemic COVID19, etc.

The research study is conducted in Gandhidham region and various operations

of CEAT LTD are being understood. CEAT is having a good working staff and
supports them as well as CEAT supports their customers, dealers, etc who were
affected by the COVID19. Also the literature reviews are being done
considering the research study. The various methods of data collections have
been specified that are used for research and on basis of that data analysis are
done and interpreted the position of the company.
 ACKNOWLEDGMENT

I would like to express my special thanks of gratitude to Director of Tolani

Motwane Institute of Management Studies Dr. Sampada Kapse who gave
us the golden opportunity to do the internship for gaining the practical
knowledge which also helped me in doing a lot of Research and I came to know
so many new things, I really thankful to them.

Also I would like to give special thanks to the staff of CEAT LTD especially
Mr Pankaj Soni Sir and Mr Rajesh Sir for giving their precious time in
giving knowledge about the company and to help me out on this project.

I am very pleased and thankful to Prof Anuj Sharma my Internship project

guide who always support me when I was in great confusion related every step
in the project. Prof Anuj Sharma guided me well and because of him only I am
able to complete this project.
 TABLE OF CONTENTS
Sr Description Page
No No
Preface I
Acknowledgement II
List of Tables III
List of Figures IV
List of Abbreviations used V
1 Introduction 1
1.1 Introduction of the Project
1.2 Literature Review
1.3 Introduction to Tyre Industry
1.4 Introduction to CEAT LTD
2 Objectives of the Project
3 Methodology
3.1 Scope of Study
3.2 Period & Region of study
3.3 Need of Study
3.4 Techniques of Analysis used for study
3.5 Sources of Data Collection
4 Analysis & Findings
5 Limitations
6 Conclusion & Recommendations
7 Appendix
7.1 One on One Interview Questionnaire
7.2 Bibliography
 LIST OF TABLES

Sr Description Page
No. No.
1.1 Structure of Working Capital
1.2 Key Figures of Indian Tyre Industry
1.3 CEAT Key Facts
1.4 Key figures from replacement business
4.1 Calculation of Gross Profit Margin Ratio
 LIST OF FIGURES.

Sr no. Description Page no.

1.1 Concept of Working Capital

1.2 Working Capital Policy
1.3 Matching Approach
1.4 Conservative Approach
1.5 Aggressive Approach
1.6 Operational Facilities
1.7 Global Presence
1.8 FY19 Revenue Breakup by product%
 LIST OF ABBREVIATIONS.
Acronym Meaning
WCM Working Capital Management
CA Current Assets
CL Current Liabilities
CR Current Ratio
NWC Net Working Capital
GOC Gross Operating Cycle
NOC Net Operating Cycle
CCC Cash Conversion Cycle
 CHAPTER: 1

INTRODUCTION.
1.1 Introduction to Project.

The financial management decisions of a firm have four aspects which are
Investment decision, Financing decision, Dividend decision and Liquidity
decision. The working capital management is considered to be a vital issue in
firm’s liquidity and short term investment decision. It has an effect on liquidity
and profitability of firm as well.

The term working capital refers to quantum of funds required to maintain day to
day operations of any business enterprise. The main objective of working
capital is to maximise the profitability of company by acquiring adequate level
of current assets and current liabilities.

There should not be excess working capital because if there will be excess
working capital it means firm’s cash is more invested in inventories and other
assets and they may have loss of opportunity cost. In the same way there should
not be less working capital, if there will be less working capital then there will
be loss of customers and investors too.

The other objective behind the working capital management is to ensure

continuity in the operations of a firm and that it has sufficient funds to satisfy
both maturing short term debt and upcoming operational expenses. The basic
theme of working capital management is to provide adequate support for
smooth and efficient functioning of day to day business operations by striking a
trade between three proportion of working capital they are liquidity,
profitability and risk.

In the field of financial affairs of company, management of working capital is

very important and crucial as it has a direct effect on profit and liquidity
position of the company.

 Working Capital is Life Blood of Business:

Working Capital represents the funds or resources available to a business for
use in day to day operations. It is lifeblood of every business because it is what
enables the business to cover day to day cost and ultimately keeps its door open.

A lower of working capital may result in unable to pay to creditors or may lead
to low level of investment in business operations which is likely to result in loss
of sales opportunities.
  Concepts of Working Capital:

Basically there are few concepts related to working capital. They are balance
sheet and circular flow concept. These concepts are stated as follows in figure
1.1:

Concept of Working Capital

Balance Sheet Circular Flow

Concept Concept

Gross Net Working Gross Operating Net Operating

Working Capital Cycle Capital

Balance Sheet Concept:

Gross Working Capital: GWC refers to the firm’s investment in current

assets. Current assets are the assets which can be converted into cash within an
accounting year and include cash, short term securities, debtors, bills receivable,
stock.

Net Working Capital: NWC refers to the difference between current assets and
current liabilities. Current liabilities are those claims of outsiders which are
expected to mature for payment within an accounting year and include creditors,
bills payables, and outstanding expenses.

Circular Flow Concept:

Gross Operating Cycle: The firms have to invest enough funds in current
assets for generating sales. Current assets are needed because sales do not
convert into cash instantaneously. There is always an operating cycle involved
in conversion of sales into cash. The firm’s gross operating cycle can be
 determined as inventory conversion period (ICP) plus debtors’ conversion
period (DCP).

Net Operating Cycle: Net Operating Cycle is difference between gross

operating cycle and payables deferral period. It is also referred to as Cash
Conversion Cycle (CCC).

 Working Capital Policies:

Every company must monitor their working capital closely in order to cover its
cash requirements. As a business grows the firm should keep an eye on its
investment in working capital. The firm can also form effective policies
regarding working capital for smooth running of business. The firm need
separate policy on all components of working capital like cash policies,
inventory policies, debtors’ policy, creditors’ policies, payable policies etc.

Working Capital Policies

Current
Aggressive Moderate Aggressive
Assets
Financing
Policy Conservativ Conservative Moderate
e
Conservative Aggressive

The above figure 1.2 explains that policy can be Aggressive, Moderate, or
Conservative.

 Policies for Financing Current Assets:

There are three types of financing. They are:

1. Long-term Financing
2. Short-term Financing
3. Spontaneous Financing
1. Long-term Financing: The sources of long-term financing include
ordinary share capital, preference share capital, debentures, long-term
borrowings from financial institutions and reserves and surplus.
2. Short-term Financing: The short-term financing is obtained for a period
of less than one year. It is arranged in advance from banks and other
suppliers of short term finance in the money market. Short term finance
includes working capital funds from bank, public deposits, commercial
papers, factoring of receivables, etc.
3. Spontaneous Financing: Spontaneous financing refers to automatic
sources of short-term funds arising in the normal course of a business.
Trade credit and outstanding expenses are examples of spontaneous
financing.

Depending on the mix of short and long-term financing, the approach

followed by a company may be referred as:
1. Matching Approach
2. Conservative Approach
3. Aggressive Approach

1. Matching Approach: The firm can adopt a finance plan which matches
the expected life of source of funds raised to finance assets. When the
firm follows a matching approach long term financing will be used to
finance fixed assets and permanent current assets and short term
financing to finance temporary or variable current assets.

Figure 1.3
2. Conservative Approach: A firm in practice may adopt a conservative
approach in financing its current and fixed assets. The finance policy of
the firm is said to conservative when it depends more on long term funds
for financing needs. Under a conservative plan, the firm finances its
permanent assets and also a part of temporary current assets with long
term financing.

Figure 1.4
3. Aggressive Approach: A firm may be aggressive in financing its assets.
An aggressive policy is said to be followed by the firm when it uses more
short term financing than warranted by the matching plan. Under an
aggressive policy, the firm finance a part of its permanent current assets
with short term financing.

Figure 1.5
  Factors affecting Working Capital Management:
Nature of Business: Working capital requirements of a firm are basically
influenced by the nature of business. Trading and financial firms have a very
small investment in fixed assets, but require a large sum of money to be
invested in working capital. The wholesalers as compared to retail shops require
more working capital as they have to maintain large stock.

Length of Operating Cycle: The amount of working capital is directly depends

upon the length of operating cycle. Operating cycle refers to time period
involved in production. It gets start right from raw material consumed till
payment is received from sales. Lower will be the operating cycle lower
working capital will required and vice-a-versa.

Scale of Operation: In this context the firms operating at large scale need to
maintain more inventory, debtors etc. So they need huge amount of working
capital for its operations, in same way firms operating at small scale will require
less working capital

Market and demand conditions: The working capital needs of a firm are
related to its sales. Sales depend on demand conditions. Larger number of firms
experience seasonal and cyclical fluctuations in the demand for their products
and services. These business variations affect the working capital requirement,
specially the temporary working capital requirement of firm.

Technology & Manufacturing Cycle: The manufacturing cycle (or the

inventory conversion cycle) comprises the purchase and use of raw materials
and the production of finished goods. Longer the manufacturing cycle, larger
will be firm’s working capital requirements.

Credit Allow Policy: The credit policy refers to average period for collection
from sales proceeds. It depend upon number of factors such as creditworthiness,
of clients, industry norms etc. Those enterprise which sells goods on cash
payment basis need little working capital but those who provide credit facilities
to the customers need more working capital.

Credit Availed: The working capital requirement of a firm are also affected by
credit terms granted by its suppliers. If raw material and other inputs are easily
available on credit, less working capital is needed. On contrary if these things
are not available on credit then to make cash payment quickly large amount o
working capital is needed

Operating efficiency: The operating efficiency of the firm relates to the

optimum utilization of all its resources at minimum costs. The efficiency in
controlling operating cost and utilizing fixed and current assets leads to
operating efficiency.

 Structure of Working Capital:

The different aspect of current assets and current liabilities represents the
structure of working capital.

Table 1.1

Current Assets Current Liabilities

Cash & Bank balance Bank Overdraft
Inventories: Raw Materials Creditors
Work in Progress
Finished Goods
Account Receivables Bills Payables or accounts payable
Short term Investments Provident Fund
Loans Provision for Taxes
Prepaid Expenses Short term loans
Other current assets Other current liabilities
1.2 Literature Reviews.
1. A study on analysis of the effect of Working Capital Management on
Profitability of the firm: Evidence from Indian Steel Industry
Pinku Paul & Paroma Mitra had researched & examined the impact of working capital
management on profitability of the firms of Indian Steel Industry. The research study is
divided in 6 sections containing Introduction, Literature Review, Objectives of Study,
Methodology, Analysis and Findings and Conclusion. The objective of the study was to
identify the effect of working capital management on firm’s profitability in steel industry, for
this they considered four variables i.e. Current Ratio, Quick Ratio, Debtor Turnover Ratio,
and Finished Goods Turnover Ratio. Also they have formed hypothesis in their study. The
period of study had been considered for 17 years i.e. from 2000 to 2016. In their research
empirical model is used to study the impact of working capital ratios on the profitability of
steel industry. The analysis of this study was taken on the 35 steel companies to know the
impact of WCM on Profitability. The conclusion came after analysis was that the firm can
invest more on productive purpose and focus more on Credit sales of Company which in
turns increase the profitability of Company and also the investment in liquid assets of the
firm has positive impact on Profitability.

2. A Study on Working Capital Management on Mahindra & Mahindra

Private Limited.
Mr.V.Venkatachalan (2016). In their Research article they propounded that WCM is the life
blood and nerve centre of the business. Just as circulation of blood is necessary for human
body in same way WCM is also as much important for any business unit for its smooth
running. In their study their objectives were 1) To study the working capital performance 2)
To identify liquidity position of company 3) To know ways and means of financing working
capital. The Income Statements and annual Reports were used for the study and analysis like
Ratio analysis, Statement of Changes in Working Capital was undertaken. This study covers
a period of 5 years i.e. from 2011 to 2015. The Conclusion came from the analysis of the
study is that the company is in sound position and there is increase in its profitability over
years and also there is improvement in the financial position of company for upcoming years.

3. Impact of Working Capital Management on Profitability of Indian

Telecom Sector.
Jyoti Mahato and Uday Kumar Jagannathan(2016). From the point of view of these
researchers management of working capital is regarded as one of the very important and
essential part of business. This article studies the impact of working capital management on
the profitability of Telecom Industry. The research contains certain objectives like 1) To
study the background and characteristics of the Telecom Industry in India. 2) To develop a
framework for measuring the relationship between WCM Ratios and firms Profitability in the
Telecom Industry in India. 3) To analyse data related to WCM and Profitability of Telecom
Industry in India. This study contains dependent as well as Independent variables. Variables
like Return on Assets (ROA) to measure Profitability. Average Collection Period (ACP),
Inventory Conversion Period (ICP), Average Payment Period (APP) and Cash Conversion
Cycle (CCC) are used for Proxy of WCM. The analysis of data is carried out on 8 Telecom
Company listed in National Stock Exchange and the data are taker for period of 5 years i.e.
2010 to 2015. The research methodology used in this study is descriptive statistics,
correlation analysis to know the impact of these variables on Profitability. At last from the
above analysis conclusion came that there is significant relationship between Profitability and
WCM & also maintaining efficient level of working capital is very important not only for
Telecom Sector but for other sectors as well.

4) A Study on effect of Working Capital on the Profitability of Infosys.

Sumathy A & Narasimhaiah T theorized that fixed and current assets plays a vital role in
the success of any company. They explained that it is very important for every firm or
business toh have significance on Profitability and liquidity of business. The objectives of the
study are 1) To understand and analyse the relationship between management of working
capital and profits of the firm 2) To find out the effect of different components of working
capital on the profits of the firm. 3) To make suggestions for improvement for the successful
survival in the competitive world. The study conducted for the period of 5 years from 2011 to
2015. The data for analysis are collected from the Annual report of the company. The authors
conclude from the analysis that overall position of WCM of Company is satisfactory and the
company needs to invest in its inventory.

5) A Study on the Impact of Working Capital Management on the

Profitability of the Leading Listed Automobile Companies in India.
Dr. Navena Nesa Kumari & Dr. Victor Louis Anthuvan. In their research study they talk
about increasing demand in automobile sector in India and so there is huge requirement of
investment so this sector is attracting more investment to minimize its risk of liquidity and
maximize the profitability and for this improvements WCM plays a vital role, and therefore
the purpose of this study was to analyse whether WCM can affect the company profitability
of Automobile Sector in India. This study has framed to show how efficient WCM impacts
the corporate profitability of 10 leading listed automobile sector in Chennai. The analysis is
done with help of data like Income Statements, Balance sheets etc. The data collected are
dealt with descriptive and Inferential Statistics. From the study it has been found that among
the working capital components, inventory turnover period is affecting the Net Operating
profitability of automobile sector. After all analysis related to WCM and Inventory the
researchers conclude that this sector should focus more on managing and reducing the
inventory turnover days in order to maximize profitability and withstand the competitive
environment.

6) A Study on Impact of Working Capital Management on Liquidity and

Profitability of Coal India Limited.
Mr Shivakumar, Dr. N Babitha Thimmaiah (2016) examined on WCM and assess its
impact on liquidity and profitability of Coal India Ltd. These two aspects have become very
important for all organizations and so the objectives of the study are related to it i.e. 1) To
study the WCM of Coal India Ltd 2) To examine the liquidity of Coal India Ltd. 3) To know
the relationship between Liquidity and Profitability. The study covers a period of 5 years
from 2010-11 to 2014-15. Different variables like CR, QR, ST, DT, WCT were used for the
analysis. Also the MOTAAL’S test is applied to find out the liquidity of the Coal India Ltd.
The conclusion came from the study was the firm shows significant improvement in the
performance in terms of liquidity and profitability aspects. Overall the working capital
performance of company is satisfactory.

7) Working Capital Management in Indian Paper Industry.

Dr. Yellaswamy Ambati (2017) propounded that the importance of working capital in an
industry cannot be overstressed, as it is one of the important causes of success or failure of an
industry. The objectives of the study were 1) To know the liquidity position of Sirpur Paper
Mill Ltd 2) To understand the impact of the working capital on profitability of Sirpur Papers
Mill Ltd. The data is collected from Annual Reports of the company and study is carried over
period of 5 years from 2007-08 to 2011-12. Conclusion came from the study is that sundry
debtors are the major component of current assets, the factor is heavily depending upon
current liabilities to finance its current assets requirements.

8) Relationship between Working Capital Management Efficiency and

EBIT.
Dr.Azhagaiah Ramachandran & Muralidharan Janaikiraman had aimed at analysing the
relationship between Working Capital Management Efficiency and EBIT of paper industry in
India. So their objectives were 1) To analyse the firms efficiency in WCM in the paper
industry in India. 2) To analyse the relationship between the WCM efficiency and EBIT in
selected companies in the paper industry in India. The variables used for analysing the data
are Performance Index, Utilization Index, and Efficiency Index. The study was undertaken
for the period of 10 years from 1997-2006. The Conclusion came from the study was that
adequate WCM is essential as it has a direct impact on EBIT and Liquidity also the Indian
Paper Industry performs remarkably well during this period.

9) Efficient Management of Working Capital: A Study of Healthcare

Sector In India.
Harsh, Vineet, Kaur had indicated that efficient management of working capital means
managing various working capital components in such a way that an adequate amount of
working capital can be maintained for smooth running of business and fulfilment of twin
objectives of liquidity and profitability. Therefore the objective of this study were 1) To
measure overall efficiency of working capital 2) To evaluate the efficiency of each firm under
study to achieve the target level of efficiency 3) To measure the relationship between
efficiency of working capital and profitability. The present study was conducted on 13
manufacturing companies for which data for 14 years from 2000-01 to 2013-14 were taken.
The methodology was done on basis of three parameters which were used in above Literature
review i.e. Performance Index, Utilization Index, efficiency Index. The conclusion came was
that the most of the firms performed well from the point of view of performance of working
capital, utilization of current assets to generate sales and its efficiency.

10) Working Capital, Corporate Performance and Strategic Choices of

wholesale & Retail Industry in China.
Chuan-guo Li, Shou Chen, and Yan Yang (2014) had examined the influence of strategic
choice on working capital and observe how the relationship between working capital ratio
and operational performance differs depending on strategy. In their study they form
hypothesis and on basis of these hypothesis different variables are formed like strategy
variable, capital investment efficiency, cost control, operational cash flow, growth
opportunities etc. These variables are classified on the basis of strategy formed by clustering
the samples of strategic factors of wholesale & retail industry. The conclusion came from the
study is the strategic choices developed by the wholesale and retail industry affect the WCM,
so strategic choice are clearly a determining factor in WCM and deserve more attention in
future investigations.

11) An Empirical Study on Working Capital Management and

Profitability.
M. Eswarareddy (2017) investigates the relationship between components of working
capital and firms profitability for automobile companies listed on the National Stock
Exchange in India for period of 5 years from 2010-11 to 2014-15 and this was their primary
objective. The financial reports of the firms are taken into consideration for the study. The
variables like CCC, Inventory Management, ROA, BR, BP, etc were used for the study. The
conclusion came was that there is negative relationship between accounts receivables and
corporate profitability and a positive relationship between accounts payable and profitability.
These results can be strengthened more if the company works more on managing its working
capital.

12) The Effect of Working Capital Management on Firm’s Profitability:

Empirical Evidence from an Emerging Market.
Melita Stephanou Charitou, Maria Elfani, Petros Lois (2010) empirically investigates the
effect of WCM on firm’s financial performance in an emerging market. The data consist of
all the firms that are listed in Cyprus Stock Exchange who have financial data available from
1998-2007. They ever hypothesize that CCC affects the firm’s Profitability. Also they test
their hypothesis by using multivariate regression analysis. They conclude that even in the
hard times and global financial crisis, better utilization of resources leads to value creation,
increased profitability and reduce volatility.

13) A Panel Data Analysis of Working Capital Management Policies.

Mian Sajid Nazir and Talat Afza (2009) had examined the traditional relationship of
working capital management and firm’s profitability. Here the research is done on the
different working capital policies i.e. the study uses aggressive investment policy, aggressive
financing policy, ROA as a variables of working capital management. Impact of these
aggressive and conservative working capital policies on profitability of firm had been
evaluated by applying panel data regression analysis. Descriptive statistics is used for study
the variables and 1632 observations were taken. The conclusion came that there is negative
relationship between profitability of firm and degree of aggressiveness of working capital
investment and financing policies.

14) Managing Optimal Working Capital and Corporate Performance

Evidence from Vietnam.
Ha Thi Thuy Van, Dang Ngoc Hung, Vu Thi Thuy Van (2019) examined from this article
the impact of WCM on corporate performance in Vietnam. They considered as whether there
exists an optimal CCC, an optimal NTC and how WCM affects CP. This study examined the
empirical relationship between working capital management and corporate performance, and
incorporated the financial constraints factors in studying the above relationship for listed non
financial companies in Vietnam from 2009 -2018. The result of the study shows that
relationship between WCM and CP was not a linear relationship. This means there is optimal
working capital level that balances benefits, costs, and maximize the corporate performance.
15) Focus on Working Capital Management Practices among SMEs:
Survey Evidence and Empirical Analysis.
Padachi DK and Carole Howorth (2014) investigated the study into WCM of small to
medium sized manufacturing firms operating in diverse industry groups of the Mauritian
economy. Therefore the objectives are to study the current practice of WCM of Mauritian
SMEs and to examine the extent to which firms and owner-manager characteristics influence
adoption of WCM routines. Analysis of 141 questionnaires administered to the small to
medium sized Mauritian manufacturing firms revealed that size of firm was a major
constraint to the adoption of good financial management discipline. There came many
problems for small and medium sized firm because of internal and external factors but due to
empirical evidence the problem of internal factors were solved and owner and managers are
able to handle short term financial management of their enterprise.

16) The Focus of Working Capital Management in UK Small Firms.

Carole Howorth, Paul Westhead (2003) propounded that small firms need to control and
monitor their working capital because they are generally associated with huge current assets
relative to large firm, less liquidity, volatile cash flows, and a reliance on short term debt.
Evidences suggests that small firms are less likely to take up WCM routines so they formed
different hypothesis i.e. larger firms are positively associated with take up of WCM routines,
older firms are positively associated with the take up of WCM routines, firms with high
return on assets are negatively associated with take up of WCM routines etc likewise 11
routines were detected and study had done. The result consistently highlighted across a
variety of statistical tests, that small firms are not a homogeneous group with regard to WCM
routines. At last evidence that majority of small companies focus their efforts on one area of
WCM indicates that resources for WCM are limited.
1.3 Introduction to Indian Tyre Industry.
It is witnessed that technology generation in Indian Tyre Industry has a fair
amount of expertise and versatility to absorb, adopt, and modify international
technology to suit Indian Conditions. This reflected the swift technology
progression from cotton (reinforcement) carcass to high performance radial
tyres in a span of four decades. Globalization has led to linking of economies of
all nations and therefore major Indian players in tyre industry are pursuing
global strategies to enhance their competitiveness in world markets.

 Key figures:
Table 1.2
No of Tyre Companies: 41

No. of Tyre Plants: 62

Industry Turnover 2018-19 (Est.) Rs.63000 Crores (US$ 9 Billion)

Exports 2018-19 (Est.) Rs. 12890 Crores (US$ 1.8 Billion)

The origin of the Indian Tyre Industry dates back to 1926 when Dunlop Rubber
Limited set up first tyre company in West Bengal. MRF followed suit in 1946
and CEAT in 1958. Tyre industry is predominantly ruled by organized sector
while the unorganized sector consists of bicycle tyres.

Major Players are MRF, Apollo tyres, CEAT and JK tyres, which account for
around 63% of organized tyre market. The other key players include Modi
Rubber, Kesoram Industries, Goodyear India, with 11%, 7% and 6% share
respectively. Dunlop, Falcon, TVS, Balkrishna, Metro etc are some others
significant players in industry.

The industry is a major consumer of the domestic rubber market. Natural rubber
constitutes 80% while synthetic rubber constitutes only 20% of the material
content in Indian Tyres. Interestingly, worldwide, the proportion of natural to
synthetic rubber tyre is 30:70. India represents the 4th largest market for tyres in
the world.
The sector is raw material intensive, with raw material accounting for 70% of
total cost of production.

The Indian Tyre market reached a production volume of 192 million units in
FY19, making it the fourth largest in the world after China, Europe, and US.

 Evolutionary Phases of the Tyre Industry in India.

Table 1.3
Phase Period Characteristics Policy Regime
Phase 1 1920-35 No domestic production. Liberal Imports.
Demand met through imports.
Key players included Dunlop
(U.K), firestone & Goodyear
(USA)

Phase 2 1935-60 Domestic production begins by Imposition of tariff & Non

erstwhile trading companies: tariff barriers on Imports.
Dunlop, Firestone, Goodyear &
India Tyre and Rubber
Company.

Phase 3 1961-74 Indian companies- MRF, Regulation on capacity

Premier &Incheckenter expansion and repatriation
manufacturing sector with of Profits of Foreign
foreign technology, licensing of Companies, enforcement
additional production capacity. of Export obligation on
MNC, protection from
external competition.
Phase 4 1975-91 Entry of large Indian business Delicensing of production,
houses like Singhania & Modi placing of imports under
& technical collaboration with OGL with Tariff & Non
MNCs Tariff barriers

Phase 5 1992 onwards External Trade Liberalization & Progressive reduction in

Reduction in Import duty, re- Import duty, Liberalized
entry of MNCs either imports.
independently or in
collaboration with Indian capital
1.4 Introduction to CEAT LTD.

 About CEAT LTD:

CEAT (Cavi Electrici e Affini Torino) founded in 1924 in Turin, Italy, the
flagship of RPG Group, was incorporated in 1958 as CEAT Tyres of India in
Mumbai. CEAT is one of the largest manufacturer in terms of revenue and is
one of the fastest growing tyre company in India. Recently, CEAT became a $1
Billion Company and was organised as one of the India’s Top 25 Workplaces
(Manufacturing) by the Great Place to Work Institute.

CEAT produces best in class, high performance tyres for a wide range of
vehicles, including tyres for 2/3 wheelers, Passenger Vehicles and Utility
Vehicles, Commercial Vehicles and Off-Highway Vehicles and produces over
37 million tyres in a year. CEAT also manufactures and markets superior
quality Tubes and Flaps. The Replacement, Original Equipment Manufacturing
(OEM) and International Business segments accounted for 59%, 29%, and 12%
of CEAT’s revenue respectively, in FY 19.

Currentlty, CEAT is present in over 100 countries across the world. CEAT has
plants in Nashik, Mumbai, Halol, Ambernath, and Nagpur. Recently in FY
2019-2020 they have come up with new unit in Chennai , now CEAT has total
of 6 manufacturing plants in India. Ambernath plant is undertaken by CEAT’s
wholly owned subsidiary. CEAT also has a manufacturing facility in Sri Lanka
through its overseas joint ventures.

CEAT is aggressively working on expanding its manufacturing capacity across

different products, categories for 2 wheeler tyres in Nagpur, Commercial
Vehicle Radial tyre plant in Halol and Off-Highway tyres Ambernath . Also the
new plant in Chennai is set for making of Passenger Car Tyres.

CEAT has six decades of experience and has led the industry in innovation,
product diversity and technology. CEAT has dedicated state- of-the art R&D
centres in Halol, Gujarat and Frankfurt, Germany. CEAT is committed to
innovate, rebuild, and help millions vehicles travel safely.
  Subsidiary Comapnies of CEATLTD:

I. CEAT Speciality Tyres Ltd (CSTL), Mumbai.

II. Rado Tyres Ltd (RTL), Kochi.
III. Associated CEAT Holding Company (Private) Ltd (ACHL)
Colombo, Sri Lanka
IV. CEAT Akkhan Ltd (CAL) Dhaka, Bangladesh.

 Values of CEAT:\

CEAT’s values defines their customer centric culture which is led by

innovation, passion, and transparency.

Challenger: Innovative and agile, questioning the existing ways and promoting
experimentation.

Aspiration-LED: Purpose-led, passion for superior performance and walking

the extra mile.

Integrity: Being authentic, transparent and keeping commitments

Result Obsession: Passion, high energy, speed and collaboration

Openness: Approachable open and boundary-less

 CEAT Strategic Pillars:

1) Strong Brand Equity

2) Differentiated Products
3) Strong OEM Entries
4) Global Reach
5) World class R&D
6) Extensive Distribution Network
  CEAT’s Key Facts FY19:
Table 1.3

Revenue Organization $1 Billion

Ranked in Manufacturing Top25
Consolidated income 7023 Crores
Consolidated PAT 251 Crores
Dividend per Share 12
Capital Expenditure 1199 Crores
New Products Launched 124
Manufacturing capacity per day 1 Lac+ tyres

 Operations of CEAT:

CEAT is in operation of manufacturing and selling of bias and radial tyres for
2/3 wheelers tyres, PCR tyre, TBB tyres, TBR tyres, Off-Highway tyres etc all
this are included in replacement segment while there are other segments like
OEM entries, Exports etc through which revenues are earned.

 Operational Facilities:

Figure 1.6
 Operational Facilities:

1) Bhandup Plant (1958), Mumbai:

Bhandup was the first plant of CEAT for manufacturing TBB tyres and
Off- Highway Tyres.
Factory Manager: Mr Pankaj K Lavania

2) Nashik Plant (1973), Maharashtra:

Nashik plant was set up by CEAT to manufacture LCV tyres, TBB tyres
and Off-highway tyres.
Factory Manager: Mr Rajendrakumar Das

3) Halol Plant (2009), Gujarat:

Halol plant was set up in year 2009 for manufacturing PCR Tyres and
TBR Tyres.
Factory Manager: Mr Jayasankar Kuruppal

4) Nagpur Plant (2016), Maharashtra:

Nagpur plant was set up in 2016 for manufacturing only two wheeler
tyres.
Factory Manager: Mr Shibu Thomas

5) Ambernath Plant (2017):

Ambernath plant was set up in 2017 for manufacturing only Off-Highway
Radial tyres.
Factory Manager: Mr Vinod Rajguru Singh

6) Chennai Plant (2020):

Chennai Plant is set up in this year only for manufacturing PCR tyres.

The main contribution in production of tyres is Bhandup, Halol and

Nashik plant because the sales of TBB & TBR tyres is more as compared
to others and these plant are in operation of manufacturing TBB & TBR
tyres.
  International Business:

CEAT continues to be a dominant player in exporting tyres from India.

Geographically, the company has a stratified export market divided into seven
clusters. This division has helped CEAT better understand customer needs and
design market specific products. In FY 2018-19, CEAT expanded its global
footprint by entering 9 new countries.

Figure 1.7

Here CEAT is presented in different Countries of Continents. They are as

follows:

Europe

Africa

United States of America

Latin Africa

Middle East Asia

South East Asia.

  Business Reviews:

CEAT is one of the most respected and fastest-growing brands in the Indian
Tyre market. The company’s strategic focus areas include 2 wheeler tyre,
Passenger Vehicle tyre, Commercial Vehicle tyre segments and off-highway
tyre business and sales to emerging markets. In the last few years, CEAT has
continued to maintain profitability despite a challenging environment. For
FY19, it is reported that net revenue from operations of 6984.51 Crores,
growing by 8% year on year.

CEAT is building its production capacity to cater to increasing demand through

capacity expansion plans. CEAT is working on capacity expansion of 2 wheeler
tyre plant in Nagpur, Commercial Vehicles Radial tyre plant in Halol, Passenger
Vehicle tyre plant in Chennai and Off-Highway tyre plant in Ambernath.

CEAT has laid a strong emphasis on effective marketing and branding of its
products. To position its products competitively, CEAT has developed creative
ad campaigns based on extensive research and consumer insights and has also
invested in innovative marketing programmes.

CEAT’s focus on R&D will help it to close the technology gap with industry
leaders. The CEAT R&D centre at Frankfurt, Germany is another milestone
achieved on its journey of enriching customer experience through innovation.

 Capacity Expansion:

CEAT increased its capacity in the Commercial Radial Tyre category to 9.6 lacs
tyres per annum at Halol. The new Commercial Radial tyre capacity was
commissioned in FY19.

CEAT is also setting up greenfield Passenger Car Radial tyre plant of 96 lacs
tyres per annum, near Chennai with an estimated investment of approximately
2000 Crore.

CEAT is also increasing its 2 wheeler tyre capacity at Nagpur by 170 lacs tyres
per annum. This projects were expected to be commissioned in FY20 and
probably they did so but due to COVID19 CEAT got much loss.
The total investment in capacity expansion is 3500 crore, including the amount
already incurred on the Halol Commercial Radial tyre expansion, with the
remaining amount to be spent over the next 3-4 years. These expansion projects
will be funded by a combination of internal accrual and debt.

This capacity expansion will enable CEAT, increase market share in the key
focus category of TBR tyres, PCR tyres/UVR tyres and 2 wheeler tyre
categories.

Figure 1.8

Here from above figure it can be understand that:

I. About 32% of revenue is earned from TBB & TBR tyres

II. 31% revenue is generated from sales of 2/3 wheeler tyres
III. 12% revenue is being generated from sales of LCV tyres
IV. 14% revenue is earned from sale of PCR/UVR tyres
V. 7% revenue is earned by selling farm equipment tyres
VI. And 4% revenue is generated by sales of speciality tyres.
From the above figure 1.9 it can be said that:

I. 59% of market share in revenue is from replacement.

II. 29% of market share in revenue is from OEM entries.
III. 12% of market share in revenue is from Exports.

 Replacement Business:

Replacement business means the product or something that replaces the current
product because of not giving proper services, out of service or it becomes
obsolete etc. So here company earns larger from replacement business because
the more vehicles will run the more tyres will be needed. For example: if I had
purchased a truck 1 year ago and at that time tyres in truck was of MRF
company now they become out of service and now I purchased CEAT tyres for
my truck. So in this way CEAT’s Replacement business is well developed.

 Key Figures from Replacement Business:

Table 1.4

Dealers 3400+
Distributors serving over 30000 sub- 270+
dealers
Exclusive (CEAT shoppes and CEAT 300+
tyres Service Hubs)
Districts Covered 600+
Multi brand Outlets and shop-in- shop 400+
concepts
  OEM Business:

OEM stands for Original Equipment Manufacturer (OEM). Every vehicles

come with OEM fitted tyres. It means when a new vehicle is produced by any
company they need tyres for it and due to brand equity whosoever company’s
tyre is fitted in it is said as OEM.

For Example: Royal Enfield Company uses CEAT tyres in their bikes when
they are being manufactures and for CEAT this is called as OEM business.

 NEW OEM Entries of CEAT in 2019:

Hyundai Venue

Hyundai New Santro

Hyundai Verna

Hero Destiny

Royal Enfield Classic, Royal Enfield Bullet trails, Royal Enfield Himalayan

Mahindra Bolero Pick Up

JBM CNG Bus etc.

 Export Business:

CEAT is one of the major exporters among India’s tyre manufacturer, selling its
products to over 100 countries across the globe. CEAT’s main growth driver
categories have been 2 wheeler, PCR and TBR tyres. CEAT’s main focus
continues to be European markets where it is expanding its footprint.

CEAT has not only increased its depth in several countries but has also entered
9 new countries in FY19.
  Organizational Structure:

H.V.Goenka
Chairman

Anant Goenka
Managing

Arnab Banerjee
Chief Operating Officer and Independent Director

Atul C. Mahesh S Punita Lal Vinay Bansal

Choksey Gupta
Independent Independent
Independent Independent Director Director

Haigreve Paras K Ranjit V Pandit

Khaitan Choudhary
Independent
Independent Independent Director

Factory Finance Costing Accounts HR

Managers Managers Managers Managers Managers

Figure 1.10

 Corporate Social Responsibility:

At CEAT, they believe that it is their responsibility to uplift and foster strong
relationship with the society they operate in. Therefore they are committed to
conduct operations in a socially responsible manner. All their CSR initiatives
are undertaken through RPG Foundation (A public charitable trust).

 Netranjali:

The project aimed at providing vision/eye care to prevent avoidable blindness.

During FY19 the project screened 167328 people (including 117182 truck
drivers, 14568 bus drivers, and 35578 beneficiaries from community and
schools) through 1895 eye camps and 244 days at Vision Centre. Under this
project 86097 spectacles were distributed and 12857 referrals were provided for
severe cases.

 Women Empowerment:

CEAT had undertaken several initiatives to empower women with skills and
employment opportunities.

Swayam: They imparted driving skills to women and helped them get licences
to be employed as drivers in the transport sector. They trained to drive taxis,
vans, and 2 wheelers to earn a livelihood. 1279 women across locations (728
two wheelers, 361 three wheeler, 250 four wheeler) enrolled in driver’s training
programme.

Sanjeevani: This programme supported the training of 719 less-privileged

women in Bed Side Assistant/Patient Care Assistant programme, providing
them with livelihood options in the healthcare sector. 114 candidates were also
trained in Halol.

 Education:

Pehla Akshar: This project focuses on primary education, with emphasis on

English speaking and reading skills to enhance employability. The initiative
reached out to 2932 students across 26 schools in Mumbai (Worli and
Bhandup), Halol and Nashik. They also invested in developing 11 Pehla Akshar
Classrooms across Bhandup, Nashik and Halol. The programme also trained
670 teachers from government and municipal schools.

 Community Development:
The Community Development project focuses on holistic improvement in
quality of life, by working towards providing clean drinking water, sanitation,
overall health and nutrition, and skilling/employability among others.

 CEAT’s Motto:

SAFER, SMARTER, BETTER

 Committed towards a SAFER TOMORROW:

Safety is of utmost importance to CEAT, for their customers as well as for

their employees. Therefore they invest well towards creating safer products
for customers and building safer work environment for the employees.

 Driving towards a SMARTER TOMORROW:

At CEAT, their driving force is working towards a smarter tomorrow, by

investing in upgrading technological and R&D capabilities to deliver high
quality, innovative and customized products across categories. CEAT
facilities are well equipped with new simulation technologies for predictive
testing, enabling better understanding of products.

 Striving towards a BETTER TOMORROW:

Sustainability is a key business priority for CEAT with there being a clear
transition towards greener mobility solution worldwide. There capabilities,
culture, and use of best available technology enable them to prepare for a
better tomorrow and touch the lives of their stakeholders positively.

 CEAT Head Office:

CEAT Limited,

CEAT Mahal, 463

Dr Annie Besant Road, Worli

Mumbai-400030
  CEAT Awards & Recognitions:

‘Great place to work’- Ranked amongst Top 25 manufacturing companies in

India.

IR Magazine Award- Best IR team in small to midcap category 2018

AVTAR Group 7 working Mother Media- One of the 100 Best Companies for
Women in India.

British Safety Council’s ‘Sword of Honour’- Manufacturing excellence at

Nagpur Plant

Hyundai Partnership Award- Excellence in Customer Delight

Manufacturing today- Mr Anant Goenka recognized as the Young Enterpreneur

of the year 2018

Kyoorius Design Awards

TISS Leapvault CLO Awards

ET Innovation Awards

 About RPG Group:

Established in 1979, the RPG Group is diversified conglomerate with interests

in the areas of infrastructure, tyres, information technology, pharmaceuticals,
energy and plantations.

Founded by Dr R.P.Goenka the Group’s lineage dates back to early 19th

Century. Today, the group has several companies in diverse sectors
predominantly are:

CEAT,

Zensar Technologies,

KEC International ,

RPG Life Science, etc

 Chapter:2
Objectives of Study
  Objectives of Study.

Every study is undertaken on the basis of certain objectives that are formed
previously at time of commencing the study. Generally objectives are divided
into two parts:

I. Primary Objectives
II. Secondary Objectives

 Primary Objectives:

I. To analyse the Working Capital Management & factors affecting WCM

of CEAT LTD.
II. To investigate the impact of COVID 19 on CEAT LTD’s working capital
Requirements.

 Secondary Objectives:

I. To ascertain the Profitability of CEAT LTD

II. To ascertain the liquidity of CEAT LTD
III. To know the effect of COVID 19 on liquidity of CEAT LTD
IV. To know the effect of COVID 19 on Profitability of CEAT LTD
V. To know the available sources of finance
VI. To know how government helps CEAT to continue its operation &
increase their profitability
VII. To know which public welfare services or programs were undertaken at
time of COIVD 19.
 Chapter:3
ResearchMethodology
 Research Methodology:
Research Methodology is simply a frame work that allows a reader to
evaluate a study’s overall validity and reliability. It is a specific procedure
that is to be followed for identifying, selecting, processing and analysing
information about the topic. Here a Quantitative research will be conducted
by investigating the annual reports of the company because Quantitative data
is any data that is in numerical form such as statistics and percentages.
Therefore computational methods & techniques are used for this research.

3.1 Scope of the Study:

The scope of the study is determined when the research is being conducted.
This study focuses on the CEAT LTD’s working capital management,
profitability and liquidity.

The scope of the study is also to know the effect of COVID 19 on CEAT
LTD and to do certain analysis that shows the WCM & Profitability of
CEAT LTD.

The study covers Gandhidham region of Kutch District.

3.2 Period & Region of Study:

The study covers a period of 5 years from 2014-15 to 2018-19.

The study covers Gandhidham region of Kutch District.

3.3 Need for Study:

The basic need for study is to do our Summer Internship as a part of MBA
curriculum & to fulfill this requirement for MBA degree.

The study has been conducted to implicate the theoretical knowledge into
practical knowledge which helps us for future purpose.

The study has been done to know efficiency and capability of any work we
undertake.
3.4 Analysis of Study:

The following analyses are done to understand the WCM and Profitability of
company.

A. Ratio Analysis
i. Liquidity Ratio
ii. Profitability Ratio
B. Schedule of changes in working capital.
C. Operating Cycle method.
D. CEAT SWOT Analysis

3.5 Sources of Data Collection:

Sources of data are very essential for doing research and majorly there are
two sources of data they are:

I. Primary Data
II. Secondary Data

Primary Data:

Primary data is the first hand data. Here in this study primary data is
collected through one on one interview questionnaire with regional manager
of CEAT LTD at its Gandhidham office and by social media networks of the
company.

Secondary Data:

Secondary data is collection of data from secondary sources. Here the data is
collected through following sources:

i. Website of company
ii. Library search, Research Papers
iii. Annual reports of company especially Financial Statements
 iv. Journals & Different books of Financial Management.

Chapter:4
Analysis & Findings.
  Ratio Analysis.

 At the end of accounting period, companies prepare statement of financial position i.e.
Profit & Loss A/c under final Accounts under specific format prescribed by
companies act. Here, the financial position of the company is good or bad may be
evaluate on basis of Profit or loss as well as values of Liabilities & Assets.

 But for better evaluation the systematic method needs to be applied. For this purpose
Ratio Analysis is useful for the Management. In this way under management
accounting system, Ratio Analysis is used to evaluate the progress of the firm.

 According to Webster, a ratio is defined as the indicated quotient of two

mathematical expressions and ‘the relationship between two or more things’.
Accounting ratios compute the relationships between two interrelated accounting
figures from Balance Sheet and Profit & Loss A/c.

 Ratio analysis is the comparison of the line items in the financial statements of a
business.

 Ratio analysis is a quantitative method of gaining insight into a company’s liquidity,

operational efficiency, and profitability by comparing information contained in its
financial statements.

 The data retrieved from the statements is used to compare a company’s performance
over time to assess whether the company is improving or deteriorating, to compare a
company’s financial standing with the industry average, or to compare to one or more
other companies operating in its sector to see how the company stacks up.

 Ratios to be calculated for this study are as under:

I. Profitability Ratio.
II. Liquidity Ratio.
 1. Profitability Ratio:
A company should earn profits to survive and grow over a long period of time. Profits are
essential, but it would be wrong to assume that every action initiated by company should
be aimed at maximizing profits, irrespective of concern of customers, employees,
suppliers or social consequences.

Profit is difference between revenue and expenses over particular period of time.

The profitability ratios are calculated to measure the operating efficiency of the company.

1. Gross Profit Margin Ratio

2. Net Profit Margin Ratio

1. Gross Profit Margin Ratio:

Gross profit margin is a ratio that indicates the performance of a company’s sales and
production.
It is calculated by dividing the gross profit by sales:

Gross profit margin= Sales – Cost of goods sold × 100

Sales

= Gross Profit × 100

Sales

Calculation of Gross Profit Margin:

Below are the Table 4.1 and Figure 4.1 that shows the Gross Profit Ratio of CEAT LTD.

Table 4.1 (Rs In Lakhs)

Year Sales Cost of Goods Gross Profit Gross Profit

Sold Margin
2015 639388 525360.76 114027.24 17.83%

2016 614592 546759.76 67832.24 11.04%

2017 644130 586624.28 57505.72 8.927%

2018 645233 593492 51741 8.02%

2019 698451 643001 55450 7.94%

 Gross Profit Margin
20.00%

18.00%

16.00%

14.00%

12.00%
Gross Profit Margin
10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
1 2 3 4 5

Figure 4.1

Interpretation:
As we know that higher gross profit margin ratio is a sign of good management. A GP ratio
increases due to certain reasons like:

1 Higher sales price cost of goods sold remains constant.

2 Lower cost of goods sold, sales price remain constant etc.

Here in year 2015 the GP ratio is high then it starts reducing because of certain reasons
related to raw materials.

At last in year 2019 the ratio went down from 17.83% to 7.94% which is considered as not
very satisfactory.
2 Net Profit Ratio:
Net profit Margin is obtained when operating expenses, interest and taxes are subtracted from
gross profit.

The Net Profit Margin Ratio is obtained by dividing profit after tax by sales.

It is intended to be a measure of the overall success of a business.

Formula for Net profit margin ratio:

Net profit margin ratio = Net Profit (Profit after tax) × 100

Sales

Calculation of Net Profit Margin:

Below are the Table 4.2 and Figure 4.2 that shows the Gross Profit Ratio of CEAT LTD

Table 4.2 (Rs In Lakhs

Year Sales Net Profit Net Profit

Margin
2015 639388 31392.2 4.91%

2016 614592 43571.94 7.09%

2017 644130 35922.97 5.58%

2018 645233 23329 3.616%

2019 698451 25108 3.595%

 Net Profit Margin
8.00%
7.00%
6.00%
5.00%
Net Profit Margin
4.00%
3.00%
2.00%
1.00%
0.00%
2015 2016 2017 2018 2019

Interpretation:
This ratio is the overall measure of firm’s ability to turn each rupee sales into net profit. If the
net profit margin is inadequate, the firm will fail to achieve satisfactory return on
shareholders’ funds.

The firm with higher net profit margin would be in an advantageous position to survive in the
face of falling selling prices, rising cost of production, or declining demand for the product.

Here in year 2015 the NP margin of the company is 4.91%, in year 2016 the ratio percentage
of net profit increases to 7. 09% and for the remaining years the percentage of net profit
continuously falls down which shows the negative impact on investors, suppliers etc of the
company.
 1. Liquidity Ratio:
1) Current Ratio
2) Quick / Acid test Ratio
3) Net Working Capital Ratio

1. CURRENT RATIO:

Current Ratio is calculated by dividing current assets by current liabilities.

Current assets include all those assets that can be converted into cash within year.
Current liabilities include all the obligations maturing within a year.
Generally a current ratio of 2:1 or more is considered satisfactory.

 Formula: Current Ratio = Current Assets

Current Liabilities

Calculation of Current Ratio:

Below are the table and figure that shows the Current Ratio of CEAT LTD. (Rs. In Lakhs)

Year Current Assets Current Liabilities Current Ratio

2015 192275.15 159431.38 1.206

2016 149320.66 123144.77 1.21
2017 184196.97 140785.03 1.308

2018 181461 183995 0.986

2019 200067 212960 0.939
 Current Ratios
1.4

1.2

0.8 Current Ratios

0.6

0.4

0.2

0
2015 2016 2017 2018 2019

Interpretation:
As we know that the standard current ratio is considered as 2:1, here in CEAT LTD the
current ratio is 1.206:1 in year 2015.

In year 2016 the ratio slightly went up to 1.21 as compared to previous year but there is huge
decrease in current assets as well as current liabilities.

In year 2017 both current assets and current liabilities were increased as compared to
previous year but increase in assets was more than liabilities therefore the ratio increased to
1.308:1.

In year 2018 the current ratio had decreased at a higher rate as compared to that in year 2017.

In year 2019 the current ratio had decreased to 0.939 as compared to previous years because
of increase in trade payables days by 4 days.

So the company should focus on their current assets as the ratio is decreased from last 2
years.
 2. Quick Ratio:

Quick ratio is a financial ratio used to gauge company’s liquidity. It is also known as Acid
test ratio.

Quick ratio compares the total of cash and cash equivalents+ marketable securities+ accounts
receivables to current liabilities.

Quick ratio establishes a relationship between quick or liquid, assets and current liabilities.

It measures the ability of a company to use its near cash or quick assets to extinguish or
retire its current liabilities immediately

Generally a quick ratio of 1:1 is considered satisfactory.

 Formula: Quick Ratio = Current Assets - Inventories

Current liabilities

Calculation of Quick Ratio:

Below are the table and figure that shows the Quick Ratio of CEAT LTD. (Rs. In Lakhs)

Year Liquid Assets Current Quick Ratio

Liabilities
2015 124260.62 159431.38 0.78

2016 85349.56 123144.77 0.69

2017 89848.7 140785.03 0.64

2018 103000 183995 0.56

2019 99507 212960 0.47

 Quick Ratio
0.9

0.8

0.7

0.6

0.5 Quick Ratio

0.4

0.3

0.2

0.1

0
2015 2016 2017 2018 2019

Interpretation:
As it is known that quick ratio of 1:1 is considered as standard ratio or satisfactory. A Quick
ratio is an indication that a firm is liquid and has the ability to pay of its liabilities on time. If
this ratio is more than 1 than it means that company has enough fund to pay off the liabilities
and hence the liquidity position of company is considered as stong.

In year 2015 quick ratio is 0.78:1 which is quite satisfactorily.

In year 2016 quick ratio is 0.69:1 which had decreased as compared to previous year.

In year 2017, 2018 & 2019 the ratio had been decrease to 0.64, 0.56, and 0.47 respectively.

These decrease in ratio shows that company’s liquidity position is little weaker and may does
not have funds to pay off the liabilities in time.
 3. Net Working Capital Ratio:
The difference between current assets and current liabilities excluding short term bank
borrowing is called Net Working Capital or Net Current Assets.

NWC is sometimes used as a measure of firm’s liquidity. It is considered that between two
firms, the one having larger NWC has the greater ability to meet its current obligations. This
is not necessarily so the measure of liquidity is a relationship, rather than difference between
current assets and current liabilities.

It measures the firm’s potential reservoir of funds.

Net Working Capital

Formula: Net working capital ratio =
Net Assets

To calculate net working capital we must need to focus on two main

components:
I. Current assets
II. Current liabilities

Current Assets:
Current assets include all those assets that can be converted into cash within a year such as
marketable securities, debtors, inventories, trade receivables etc.

Below is the table and figure that shows the Current assets acquired by the CEAT LTD for
different period.

(Rs. In Lakhs)

Year Current Assets

2015 192275.15
2016 149320.66
2017 184196.97
2018 181461
2019 200067
 Current Assets
250000

200000

150000 Current Assets

100000

50000

0
2015 2016 2017 2018 2019

Interpretation: (Rs. In Lakhs)

If the current assets of the company are continuously going on increasing it means company
is in a good position. The continuous increase shows the well soundness of the business.

In year 2015 the current assets of company are 192275.15.

In year 2016 the current assets fell down by 42954.49 as compared to previous year.

In year 2017 the current assets went up by 34876.31 as compared to previous year.

In year 2018 the current assets reduces slightly by 2735.97 from that of previous year’s
current assets.

In year 2019 the current assets went high from the previous years by 18606. In this year
current assets remain high from all the years.
Current Liabilities:
All obligations maturing within a year are included in current liabilities.

Current liabilities include creditors, bills payable, accrued expenses, short term bank loan,
income tax liability etc.

Below is the table and figure that shows the Current liabilities acquired by the CEAT LTD
for different period.

(Rs. In Lakhs)

Year Current Liabilities

2015 159431.38

2016 123144.77

2017 140785.03

2018 183995

2019 212960
 Current Liabilities
250000

200000

150000 Current Liabilities

100000

50000

0
2015 2016 2017 2018 2019

Interpretation: (Rs. In Lakhs)

Current liabilities show the company’s short term debts that are to be payed within a year.

In year 2015 the current liabilities of company are 159431.38.

In year 2016 the current liabilities fell down by 36286.61 as compared to previous year.

In year 2017 the current liabilities went up by 17640.26 as compared to previous year.

In year 2018 the current liabilities again went up by 43209.97 from that of previous year’s
current liabilities.

In year 2019 the current liabilities went high from the previous years by 28965. In this year
current liabilities remain high from all the years.
Net Working Capital:
Net Working Capital= Current assets- Current liabilities

Net Working Capital

Net Working Capital Ratio=
Net Assets

Below is the table and figure that shows the Net Working Capital(NWC) acquired by the
CEAT LTD for different period.

Calculation of Net Working Capital:

Below are the table and figure that shows the Net Working Capital of CEAT LTD. (Rs. In Lakhs)

Year Current Assets Current Liabilities Net Working

Capital
2015 192275.15 159431.38 32843.77
2016 149320.66 123144.77 26175.89
2017 184196.97 140785.03 43411.94

2018 181461 183995 -2534

2019 200067 212960 -12893

Net Working Capital

50000

40000

30000
Net Working Capital
20000

10000

0
2015 2016 2017 2018 2019
-10000

-20000
 Interpretation:
Working capital is required to finance day to day operations of a firm. There should be
optimum level of working capital. It should neither be too less nor too excess.

As we can see from the above graph that Working capital for year 2015, 2016 and 2017 are in
optimum level but in year 2018 and 2019 these funds are so much reduced that they went in
negative. So in year 2018 & 2019 the company must focus on their working capital to
smoothly run the business.

 Statement of Changes in working Capital:

(Rs. In Lakhs)
Particulars. 2015 2016 Increase Decrease 2016 2017 Increase Decrease

Current
Assets: 68014.53 63971.10 ------
Inventories 4043.43 63971.10 94348.27 30377.17 ------
Current 31243.32 4021.24 ------ 27222.08 4021.24 6426.88 2405.64 ------
Investments
Trade 70494.98 59351.04 ------ 11143.94 59351.04 61379.85 2028.81 ------
receivables
Cash & Bank 12627.59 6303.38 ------ 6324.21 6303.38 3592.07 ------ 2711.31
Balance
Short term 8357.35 280.06 ------ 8077.29 280.06 127.47 ------ 152.59
loan &
Advances
Other Current 1537.38 14506.13 12968.75 ------ 14506.13 16951.56 2445.43 ------
assets
Current
Liabilities:
Short term 27154.82 3353.64 ------ 23801.18 3353.64 5798.99 2445.35 ------
borrowings
Trade 65828.14 63532.12 ------ 2296.02 63532.12 75821.35 12289.23 ------
Payables
Other current 55351.43 9930.78 ------ 45420.65 9930.78 10692.19 761.41 ------
liabilities
Short term 11096.99 4703.36 ------ 6393.63 4703.36 5381.59 678.23 ------
provisions
Other -------- 41624.87 41624.57 ------ 41624.87 43090.91 1466.04 ------
liabilities
Particulars. 2017 2018 Increase Decrease 2018 2019 Increase Decrease

Current
Assets:
Inventories 94348.27 78461 ------ 15887.27 78461 100560 22099 ------
Current 6426.88 4006 ------ 2420.88 4006 0 ------ 4006
Investments
Trade 61379.85 74723 13343.15 ------ 74723 70638 ------ 4085
receivables
Cash & Bank 3592.07 8625 5032.93 ------ 8625 7354 ------ 1271
Balance
Short term 127.47 36 ------ 91.47 36 75 39 ------
loan &
Advances
Other Current 16951.56 14654 ------ 2297.56 14654 17699 3045 ------
assets
Current
Liabilities:
Short term
borrowings 5798.99 19557 13758.01 ------ 19557 22425 2868 ------
Trade 75821.35 87051 11229.65 ------ 87051 105287 18236 ------
Payables
Other current 10692.19 9720 ------ 972.19 9720 9001 ------ 719
liabilities
Short term 5381.59 5038 ------ 343.59 5038 10053 5015 ------
provisions
Other 43090.91 62526 19435.09 ------ 62526 66194 3668 ------
liabilities

 Statement of Changes in working Capital:

(Rs. In Lakhs)
  Gross Operating & Cash Conversion Cycle:
Operating Cycle is the time duration required to convert sales, after the conversion of
resources into inventories, into cash.

Gross Operating Cycle (GOC) = ICP + DCP

Net Operating Cycle (NOC) or Cash Conversion Cycle (CCC) = GOC – CDP

Below is the table that shows the Gross Operating Cycle of CEAT LTD.

(No of Days)

Year ICP DCP GOC

2015 41 42 83

2016 39 39 78

2017 45 34 79

2018 49 38 87

2019 47 38 85

Interpretation:
As GOC is the time period after raw material purchased till its transformation to cash. It is the
time taken in selling the inventories plus time taken in recovering cash from trade
receivables.

Length of operating cycle is an indicator of the company’s liquidity and asset utilization.

Longer operating cycle must result in higher rate of return so that the opportunity cost may be
saved.

Here the gross operating cycle in 2015 is 83 days which reduced by 5 days in 2016, in next
year there is increase of 1 day as compared to previous year.

The gross operating cycle in year 2018 was 87 which is the highest but it reduced by 2 days
in year 2019.

The shorter the cycle, the better a company is. This is because less capital is tied up in
business.

 Net Operating Cycle:

Net Operating Cycle is difference between Gross Operating Cycle and Creditors Deferral
Period.

It is also referred to as Cash Conversion Cycle.

NOC= GOC-CDP

Below is the table that shows the Net Operating Cycle or Cash Conversion Cycle of CEAT
LTD.

(No of Days)

Year GOC CDP NOC or CCC

2015 83 50 33

2016 78 51 27

2017 79 50 29

2018 87 54 33

2019 85 54 31

Interpretation:
As we know that lower the GOC the company is better in same way the lower the Cash
Conversion Cycle the better will be company because NOC or CCC is the operating cycle in
which the payable period is subtracted.

Here in year 2015 the CCC is 33 days, in year 2016 it reduced by 6 days which considered to
be good for the company.

In year 2017 the CCC went up by 2 days as compared to previous year, again the CC
increased by 4 days in 2018 which shows the negative impact on company’s quickly
conversion of cash

But in year 2019 the cycle period goes down by 2 days because there GOC is reduced by 2
days which is good for the company.
  Quarterly Analysis of profitability of CEAT for year 2020.

Below are the table & figure that shows the quarterly sales and profits of the
CEAT LTD.

(Rs In Lakhs)

Quarter Sales PBT PAT

1st 175210 8502 8220

2nd 164531 9568 6588

3rd 170857 9175 6205

 Gross Profit Ratio:

(Rs In Lakhs)

Quarter Sales Cost of Goods Sold Gross Profit Gross Profit

Margin
1st 175210 161985 13225 7.55%

2nd 164531 150397 14134 8.59%

3rd 170857 155748 15109 8.84%

Interpretation:

In 1st quarter the sales were high i.e. 175210 with gross profit margin of 7.55%
because of summer season. In summer season the sales of tyres are more.

In next quarter the sales were reduced as the season changed but there is
increase in gross profit because of reduction in cost of material consumed and
other expenses.

In 3rd quarter the sales gone high to 170857 and also there is increase in gross
profit margin.
  Net Profit Ratio:
(Rs In Lakhs)

Quarter Sales PAT Net Profit

Margin
1st 175210 8220 4.69%

2nd 164531 6588 4%

3rd 170857 6205 3.63%

Interpretation:

In 1st quarter the profit of the company was highest i.e. 4.69% because of
seasonal demand was more.

In next quarter the profit of the company get decreased as there was increase in
tax liability of the company and the sales were reduced too.

In 3rd quarter the profit of the company again reduced to 3.63% because of
increase in expenses and taxes.

 Quarter 4 2020 Results and Estimates:

As from the Net profit of CEAT it can be estimated that the profit of CEAT had
gone down and according to Economic Times and Money control the profit of
CEAT has fall down by 20% i.e. there Consolidated Net Profit for 4th quarter
was 51.72 Crores.

There is decrease in March 2020 sales by 10.63% as compared to previous year.

This is because of COVID 19 that affects the whole economy of country as well
as world.
  SWOT Analysis of CEAT:

The term SWOT is abbreviation of Strength, Weakness, Opportunities &

Threat. The SWOT analysis of CEAT is as follows:

 Strength:
1. Superior Quality Products
2. High degree of customer satisfaction
3. Strong Brand Image & Strong Balance Sheet
4. Pan India coverage through dealers and wide distribution network
5. Robust research and development focus.
6. Strengthened association with brand and safety.

 Weakness:
1. Low capacity in the Truck Radial markets.
2. Low market share in commercial categories
3. Sub scale manufacturing plants.

 Opportunities:
1. Indian growth in rural and semi urban markets
2. Value play in developed markets
3. E-commerce and new business models
4. High investment by the government on road infrastructure has
increased demand for tyres especially Radial tyres.
5. Shifting customer preference towards branded products.

 Threats:
1. Competitive intensity in two wheelers
2. Increasing footprint of global players in India
3. Commodity price fluctuation
4. Cheap Imports from China.
  Findings related to Gandhidham region:

The CEAT LTD has their CFA (Clearing and Forwarding Agent) name as
Ghanshyam Agency working since more than 14 years with their effective and
efficient performance they fulfil all the demands of CEAT customers and
dealers.

At present there are 14 Dealers of CEAT LTD in Gandhidham and 40 Dealers

in Kutch.

There are four zones from company perspective they are East Zone, West Zone,
North Zone & South Zone. Ghanshyam Agency comes under West Zone.

West Zone covers region of Gujarat, Rajasthan & Maharashtra. Recently

Ghanshyam Agency have received award of 2nd best performance in West
Zone. The first award was received by Jodhpur Agency.

 CEAT Supply Chain:

The supply chain of CEAT is as follows:

Manufacturing Plant

Company Warehouse

CFA

Distributors Dealers Customers

When the tyres are produced they were stored in manufacturing plant and are
sent after some period to the warehouse situated in the major city of any State.
After the goods received in the warehouse they are sent to CFA (Clearing &
Forwarding Agent) when they required and on the basis of which product &
how much quantity they want.

The tyres are then sold to the dealers, distributors & customers when they give
order to the CFA through CEAT ASSIST App.

The monthly target of Gandhidham CFA is to sell 2500 tyres & yearly it has to
sell 30000 tyres in TBB & TBR likewise different targets are set for different
tyres.

There is one distributor in Gujarat region named as Bharat Tyres (Gujarat) Ltd
and recently they commenced their distribution centre in Gandhidham.

To become a dealer one have to do certain procedure related to business and

have to make fixed deposits based on the level of the sales they will do. The
fixed deposit starts from 500000 lacs it means to become a dealer one has to
deposit this amount in CEAT’s account as security deposit and after then they
became dealer and has to sell minimum Rs 500000 tyres as their monthly target.

 Working Capital Policy of CEAT:

As I have explained in the introduction section that there are three types of
working capital policies from that CEAT applied moderate policy for
management of working capital it means that long term financing is used to
finance fixed assets and permanent current assets and short term financing to
finance temporary or variable current assets.

 Executive Officer for Working Capital Management:

At present the Chief Financial office of CEAT is Mr Kumar Subbiah whos is

looking after the working capital management and other thing related to
financing.

 Minimum Working Capital Requirement:

The minimum requirement of working capital for day to day operations of

CEAT is approximately amounted to Rs 50 Crores.
  Ratios & techniques followed by CEAT as working capital norms:

CEAT follows certain ratios like Net Working Capital to Total Assets &
Current Assets to Current Liabilities as working capital norms through which
they can find and analyse their need for requirement of working capital.

Also CEAT follows Inventory Turnover Rate and working Capital Analysis as
the technique to analyse the management of working capital management.

 Review of Working Capital Management:

CEAT needs to review their working capital on monthly basis as due to change
in demand and price of raw materials they have to forecast their working capital
budget and accordingly they take decisions regarding maintaining of certain
amount of working capital. Also the concept of operating cycle was not
incorporated in forecasting working capital requirement because of irregular
demand in the market.

 Shortage or excess of Working Capital :

CEAT does not faced shortage of working capital because of receiving dues in
time in fact they have excess of working capital which they used to repay their
debts.

 Sources of Working Capital Finance:

Generally there are two types of finance they are Long term & Short term
finance in that also there are internal and external. CEAT uses both long term
and short term finance for requirement of working capital. For this they use
Long term internal (retained earnings, provisions, Reserves, etc) and Short term
external (Bank borrowing, Overdraft, etc).

 Credit Allowance:

CEAT allows 27 days credit period to their dealers for the goods they sold. This
credit period matters a lot in the operating cycle of the company. If the dealers
failed to pay the amount on time they lose the interest and it will loss for the
company in receiving dues beyond time limit and hence operating cycle will be
more.
  Effect of COVID 19 on CEAT LTD:

The following points will describe the effect of COVID19 on CEAT LTD:

 Effect on Receivales :

As CEAT gives 27 days credit period to pay the dues so before lockdown every
dealer & customers are able to pay the dues on time but due to COVID 19 more
than 90% dealers & customers in Gandhidham were unable to pay the dues on
time even they loss their discount percents for late payment.

 Effect on Production:

CEAT has six plants for producing tyres. From march 22nd they have to shut
their all plants because of COVID19 due to which the production gets stopped
and it makes a huge loss to a company.

 Effect on Stock of Inventories & Finished goods:

As due to lockdown because of COVID 19 all the dealers’ shops, CEAT

shoppes etc were closed and this results in decrease in purchase of tyre by
customers and dealers and remains as stock in the warehouse of the company.

 Effect on Sales:

COVID 19 affects drastically on the sales of the company the sales gone down
by 30% in month of March in Gandhidham region and approximately there is
20% decrease in sales of the whole company.

 Effect on Profitability:

As the sales have been decreased due to lockdown the profitability also
decreased. The profit of Gandhidham region had decreased by approximately
25% and also 90% customers & dealers were failed to pay the dues in time. The
overall decrease in profit of company for March month was 20%.

 Other problems company faced due to COVID19:

The other problems that company faced are related to their employees and
workers. During lockdown the company has to keep their employees at home
and active so they told to do work from home and CEAT gives full salary to
them without any cut off from salary. Also CEAT gives full wages to their
workers.
  Services & Programs undertake by CEAT during Pandemic
COVID19 situation:

There are various services given by CEAT in this COVID 19 situation and also
had introduced public 7 customer welfare schemes and programs which are as
follows:

 Warrenty extension on tyres:

CEAT extended the warranty on all

tyres they manufactures because of
COVID 19. The Company said that
extension is valid on those tyres
whose warranty is due to expire
between March 1 and May 31.

 Free Meal Distribution Program (COVID 19 Response Program):

the poor people residing nearby

plant areas in Nagpur, Bhandup &
Halol for their livelihood. The free
meal program was undertaken from
30th march to 5th Apirl at Bhandup
likewise in another places. This
program was also initiated along
Indian Oil Ltd to give food packets
to the truck drivers came at Indian
Oil Petrol Pumps.
CEAT had distributed free meals to
  Sanitization of Trucks:

CEAT had initiated the project of & Cleaner and pair of face masks.
sanitizing the truck with the help of
AITWA (All Indian Transporters’
Welfare Association). CEAT not
only sanitized the trucks but also
gave 200 ml of Sanitizers to truck
drivers, two food packets for Driver

 Government’s help to CEAT for continuing its operations &

Profitability:

There are certain government provisions & policies related to help the business
enterprise for continuing its operations without any stoppage. The govenrnment
gives grant in aid, subsidies, relief from taxes, postponement of taxes etc so that
it helps the buisness enterprises to continue its operations & increase their
profits. In same way CEAT can apply for loan to RBI at lower rate of interest to
bring down the liquidity in the business.

Also Government may not charge any taxes or duty for exporting the tyres to
othe countries. CEAT’s CFO ( chief operating officer) Arnab Banerjee in a
news interview on ZEE Business during lockdown period told that at present the
liquidity position of the company is not good and CEAT needs to work more
on its working capital and also Arnab Banerjee asked the government to
increase the duty on import of Chinese tyres so that domestic market may come
in a good position and will again earn profits if there will be restrictions on
cheaper imports of tyre from China.
 Chapter:5
Limitations of Study.
  Limitations of Study:

The following are the limitations of the study on working capital management:

1. Basically CEAT being a process & manufacturing industry it was not

able for me to check the process they undertake because of COVID19
2. Also the data related to FY 2019-20 were also not available at whole only
three quarters data were available
3. As due to COVID 19 it was impossible for me to go and research on the
CEAT dealers and other parties related with CEAT
4. Some secret information regarding CEAT, their dealers and their agents
were not given to me as they form a crucial part for this study.
5. The another limitation of the study is that the ratios that I found and the
same ratios may differ as compare to different sites like money control or
economic times due to difference in consideration of some items.
6. The sixth limitation that I felt for this study is the inventory conversion
period, receivables period and payables period are directly take from the
website money control because some items related to these terms were
missing in the information which i have collected.
7. Also time being a main limitation for this study because more
information had not been collected.
 Chapter:6
Conclusion & Recommendation.
  Conclusion:
As we understand the policies and concepts related to working capital
management it is proved that working capital is life blood of any business
without working capital any business cannot run smoothly. Also it is analysed
from the different years annual reports that CEAT is the company who require
huge amount of working capital and it follows proper policy of financing for
working capital requirement.

From the analysis it can be said that the profitability of the company is low
because in tyre business company’s funds are more invested in raw material like
rubber and other fabrics whose costs are high and so the profitability of the
company is less. CEAT may increase its profitability by assuring and
convincing the customers of other brand tyres that product quality of CEAT is
much higher than the substitute products available in the market.

As the requirement of working capital is very high in this business the company
must have good liquidity . from the analysis done above it can be said that
company ‘s profit are less but in terms of liquidity CEAT is in good position.
Therefore I conclude that even if the profitability is low the company is in a
good liquidity position that it can attract investors too. Of course the Pandemic
COVID19 affects the company at a huge amount but it is forecasted by the
financial executives that company will recover everything soon.

 Recommendations:

As there will be many advisors whose advises on the proper working and new
strategies to be formed to compete with the rival companies in same way I
recommend CEAT the following things:

1. CEAT should introduce different varieties of Radials & Bias tyre because
this is the major weakness of CEAT that it have only few varieties in
Commercial radial tyres.
2. CEAT’s one of the threat is that of cheaper imports from China. So
CEAT should produce the substitute of that tyres at lower rate if possible.
3. CEAT must train their marketing employees and find the reasons that
why the dealers of CEAT are less than the dealers of other brands and
accordingly shouls form the strategies to increase the dealers.