capital budetting.docx2

8/10/2019 Capital Budetting.docx2

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A STUDY ONCAPITAL BUDGETING

AT

PENNAR INDUSTRIES LTD

A Project Report Submitted i p!rti!" #u"#i""me t o# t$eRe%uireme t& #or t$e !'!rd o# t$e De(ree

)ASTER O* BUSINESS AD)INISTRATION

+A,A-ARLAL NE-RU TEC-NOLOGICAL UNI.ERSITY

Project report &ubmitted b/DONOOR 0S-I.A 1U)AR

234L53E55356

U der t$e E&teem (uid! ce o# )r0)0DORAS,A)Y NAI1

A&&t0 Pro#0 Dept0 o# )BA

TRR COLLEGE O* ENGINEERING2APPRO.ED BY AICTE 7 A**ILIATED TO +NTU-6

I o"e2869 P!t! c$eru2)69 )ed!:2Di&t69-YDERABAD

24534;453


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CERTI*ICATE

TRR COLLEGE O* ENGINEERING

2Appro8ed b/ AICTE9 Reco( i=ed b/ Go8t0 o# A0P ! d A##"i!ted to +0N0T0U0-0 -/der!b!d6

I o"e2.69 P!t! c$eru2)69 )ed!:2Di&t6

DEPART)ENT O* )ANAGE)ENT STUDIES

This is to certify that the project work entitled CAPITAL BUDGETING is authentic record of the research work carried out by DONOOR0 S-I.A 1U)AR (12L01E0010) in partialfulfill ent of the award of the de!ree of )ASTER O* BUSINESS AD)INISTRATION is a

bonafide work carried out by hi "

The infor ation e bodied in this report has not been sub itted to any other uni#ersity for theaward of the de!ree"

$nternal %uide &ead of the 'epart ent

)R0)0DORAS,A)Y NAI1 )r0 P0 1RIS-NA D,AIPAYANA )0CO)A&&t0pro#0 Pro#e&&or'ept"of * 'ept" of *

E>TERNAL E>A)INER

DECLARATION


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$ hereby declare that the project work entitled CAPITAL BUDGETING at PENNAR

INDUSTRIES LTD is an authentic record of the research of the work carried out by e for the

award of partial fulfill ent for the award of the de!ree )ASTER O* BUSINESS

AD)INISTRATION fro TRR COLLEGE O* ENGINEERING is a bonafied work carried

out by e"

The infor ation e bodied in this report has not been sub itted to any other uni#ersity for the

award of de!ree"

D!te?

P"!ce? DONOOR 0S-I.A 1U)AR 2 34L53E55356


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AC1NO,LEDGE)ENT

*part fro the efforts of e+ the success of this project depends lar!ely on the encoura!e ent

and !uidelines of any others" $ take this opportunity to e,press y !ratitude to the people whoha#e been instru ental in the successful co pletion of this project"

$ a hi!hly obli!ed to our respected principal prof" 10SRINI.AS RAO for his #aluable support

and interest throu!hout the in#esti!ation"

$ a also #ery uch thankful to )r0P01RIS-NA D,AIPAYANA 2-OD6 for their kind help

durin! y project"

$ would like to e,tent y sincere thanks to )r010Aj!/ ('ept ana!er) of PENNAR

INDUSTRIES LTD " *nd to the ana!e ent who helped e a lot in the project work and who

!a#e e an opportunity to do this project in their corporation"

$ a hi!hly indebted to y respected super#isor )r0)0DORAS,A)Y NAI1 + *ssistant

professor * depart ent under whose constant super#ision+ eticulous !uidance and

encoura!e ent+ this work has been carried out to co pletion" $ thank hi for the freedo of

thou!ht+ e,pression and hi trust+ which was !reatly bestowed upon e"

Last but not least $ thank all other staff e bers and technical staff+ friends who directly or

indirectly assisted us in this project work"

-roject *ssociate

DONOOR S-I.A 1U)AR 235L53E554@6


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ABSTRACT

The project titled CAPITAL BUD+ETING IN PENNAR INDUSTRIES LTD ai s

at e#aluatin! the capital bud!etin! or in#est ent decisions to set up a facility at-E..*/$.' T/$E LT' for anufacturin! the dru!s for supplies directly fro bulk units"

The followin! capital bud!etin! techni ues are used for e#aluation assu in! 34 as discountin!

factor"

.on5'iscountin! Techni ues like -*6 *78 -E/$9' (- -)+ *:E/*%E /*TE 9;

/ET /. (*//)"'iscountin! Techni ues like .ET -/E E.T :*L E (.-:)+ $.TE/.*L /*TE 9;

/ET /. ($//)+ and -/9;$T* $L$T6 $.'E< (-$)"

7apital bud!etin! or in#est ent decisions are of considerable i portance to the fir "

ince they tend to deter ine its #alue by influencin! its !rowth+ profitability and risk"


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STABLE O* CONTENTS

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2 $.' T/6 -/9;$LE

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@ '*T* *.*L6 $ *.' $.TE/-/ET*T$9.

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C-APTER 3? INTRODUCTION


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INTRODUCTION

The ter capital bud!etin! refers to lon!5ter plannin! for proposed capital outlays and

their financin!" Thus+ it includes both risin! of lon!5ter funds as well as their utiliDation" $t aythis be defined as The fir s decision to in#est its current funds ost efficiently in the lon!5

ter assets in anticipation of an e,pected flow of benefits o#er a series of years" The pri ary

objecti#e of financial analysis is to assist in decision akin!"

*n efficient allocation of capital is the ost i portant finance function in the odern

ti es" $t in#ol#es decision to co it the fir s funds to the lon!5ter assets" The in#est ent

decisions of a fir are !enerally known as the 7apital ud!etin! or 7apital E,penditure

'ecisions" * 7apital ud!etin! 'ecisions aybe defined as the fir s decision to in#est its

current funds ost efficiently in the lon!5ter assets in anticipation of an e,pected flow of

benefits o#er a series of years"

I 8e&tme t Deci&io &

9ne of the basic uestions faced by the financial ana!er is &ow should the scarce

resources of the fir is allocated to !et the a,i u #alue for the fir F This refers toin#est ent decisions+ which deal with in#est ent of fir s resources in lon!5ter (fi,ed)

assets and short ter (current) assets or 7apital ud!etin! 'ecisions and ?orkin!

7apital ana!e ent"

7apital ud!etin! is a decision akin! process for in#est ent in assets that ha#e lon!

ter i plication+ affect the future !rowth and profitably of the fir and basic

co position and assets i, of the fir "

easurin! the benefits and costs associated with each alternati#e option in ter s of

incre ental cash flows"

E#aluatin! different proposals in the li!ht of return e,pected by the in#estors of the fir

and the return pro ised by the proposal


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*pplyin! different techni ues to select an alternati#e with objecti#e of a,i iDation of

#alue of the fir "

Typically+ capital bud!etin! decision in#ol#es rather lar!e cash outlays and co its the

fir to a particular course of action o#er a relati#ely lon! period and conse uently+ e#erycare should be taken care of" The future risks and uncertainties should be incorporated in

the e#aluation procedure so the future cash flows occur as they are intended to be"

T/pe& o# i 8e&tme t deci&io &?

The followin! are the #arious types of in#est ent decisions

I depe de t I 8e&tme t G These are proposals+ which do not co pete with one another

in a way that acceptance of one precludes the possibility of acceptance of another" The

case of such proposals the fir ay strai!htway accept or reject a proposals+ which

!i#e a hi!her+ return than a certain desired rate of return+ are accepted and the rest are

rejected"

Co ti (e t i 8e&tme t? These are proposals whose acceptance depends on the

acceptance of one or ore other proposals" ;or e,a ple a new achine has to be

purchased on account of substantial upon e,pansion of plant" ?hen a contin!ent

in#est ent proposal is ade+ it should also contain the proposal on which it is dependent

in order to hate a better perspecti#e of the situation"

)utu!""/ E c"u&i8e I 8e&tme t? These are proposals+ which co pete with each other in

a way that the acceptance of one precludes the acceptance of other or others" ;or

e,a ple+ if a co pany is considerin! in#est ent in one of two te perature control

syste s+ acceptance of one syste will rule out the acceptance of another" Thus two or

ore utually e,clusi#e proposals cannot be accepted" o e techni ue has to be used

for selectin! the better or the best one" 9nce this is done other alternati#es !et

auto atically !et eli inated"


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)!:e Or Bu/ Deci&io ? ake or buy decision is no lon!er a short run operatin!

decision and it beco es a proble of capital e,penditure which necessitates

consideration of re uired rate of return" * co pany has to take this decision+ when it has

to face the followin! choice"

uy certain part or sub5asse blies fro outside suppliersH or

se a#ailable capacity to produce the ite within the factory"

$n this decision+ the followin! are ajor considerationsG

7osts that will be incurred under both alternati#es are not rele#ant to the analysis

-otential uses of a#ailable capacity should be considered"

-ertinent uantitati#e factors ust be e#aluated in the decision process" These

considerations include price stability fro suppliers+ reliability of deli#ery and uality

specifications of aterials or co ponents in#ol#ed"

*!ctor& !##ecti ( c!pit!" i 8e&tme t deci&io &?

The followin! are the four i portant factors+ which are !enerally taken into account while

akin! a capital in#est ent decisionG

T$e Amou t O# I 8e&tme t? $n case a fir has unli ited funds for in#est ent it can

accept all capital in#est ent proposals which !i#e a rate of return hi!her than the

ini u acceptable or cut5off rate" &owe#er+ ost fir s ha#e li ited funds and

therefore capital rationin! has to be i posed" $n such an e#ent a fir can take only such

projects which are within its eans" $n order to deter ine which project should be taken

up on the basis the projects should be arran!ed in an ascendin! order accordin! to thea ount of capital in#est ent re uired"

Comput!tio O# C!pit!" I 8e&tme t Re%uired? The ter capital in#est ent re uired

refers to the net cash outflow+ which is the su of all outflows and inflows occurrin! at


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Dero ti e period" The net outflow it deter ined by takin! into account the followin!

factors"7ost of the new project$nstallation cost?orkin! capital

Proceed& #rom &!"e o# !&&et? * new asset ay be purchased for replace ent of an old asset" The

old asset ay therefore be sold away" The cash realiDed on account of such sale will reduce the

cost of new in#est ent"

T! E##ect&?the a ount of profit or loss on the sale of assets ay affect the cash flows on

account of ta, affects" The profit or loss is ascertained by takin! into account the cost of

assets+ it book #alue and the a ount realiDed on its sale" The ta, liability will be different

in each of the followin! case ?hen the asset is sold at its book #alue" ?hen the asset is sold at a price hi!her than the book #alue but lower than its cost ?hen the asset is sold at a price hi!her than its cost" ?hen the asses is sold lower

than its book #alue"

I 8e&tme t A""o'! ce? This is allowed to encoura!e capital in#est ent in achinery and

e uip ent" uch allowance thus reduces the cost of the initial in#est ent of the project"

)i imum R!te O# Retur O I 8e&tme t? The ana!e ent e,pects a ini u rate

of return on the capital in#est ent" The ini u rate of return usually decides on the

basis of the cost of capital" ;or e,a ple+ if the cost of capital is 104 the ana!e ent

will not like to accept a proposal+ which yields a rate of return less than 104" The project

is !i#in! yield below the desired rate of return will therefore be rejected"

Cut;O## Poi t? The cut5off point refers to the point below which a project would not be

accepted" ;or e,a ple+ if 104 is the desired rate of return the cut5off point to 104" Thecut5off point ay also be in ter s of period" ;or e,a ple if the ana!e ent desire that

the in#est ent in the project should be recouped in three years+ the period of three years

would be taken as the cut5off period"


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Retur E pected *orm T$e I 8e&tme t? 7apital in#est ent decisions are ade in

anticipation of incre>ased return in the future" $t is therefore #ery necessary to esti ate

the future the return or benefits accruin! fro the in#est ent proposals" There are two

proposals a#ailable for uantifyin! benefits fro capital in#est ent decisions" They areG

*ccountin! profitG the ter accountin! profit is identical with inco e concept used in

accountin!"

7ash flowsG in this depreciation char!es and other a ortiDation char!es on the fi,ed

assets are not subtracted fro !ross re#enue because no cash e,penditure is in#ol#ed"

OB+ECTI.ES O* T-E STUDY?

The followin! objecti#es of the present study are

To study the in#est ent decisions in the select or!aniDation" To understand the #arious ethods for deter inin! the siDe of the 7apital ud!et and

e#aluatin! in#est ent proposals" To !i#e appropriate su!!estions on capital bud!etin! techni ues for the de#elop ent of

the select or!aniDation"


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NEED *OR T-E STUDY

7apital bud!etin! decisions are the in#est ent decisions of the fir !enerally known asthe capital bud!etin!+ or capital e,penditure decisions" * capital bud!etin! decision ay be

defined as the fir s decision to in#est in current funds ost efficiently in the lon! ter assets in

anticipation of an e,pected flow or benefits o#er a series of years" The lon!5ter assets are those

that effect the fir s operations beyond the one year period" The fir s in#est ent decision

would !enerally include e,pansion+ ac uisition+ oderniDation and replace ent of the lon!5ter

assets" ale of a di#ision or business is also an in#est ent decision" 'ecisions like the chan!e in

the ethods of sales distribution+ or an ad#ertise ent ca pai!n or research and de#elop ent pro!ra e ha#e lon!5ter i plications for the fir s e,penditures and benefits+ and therefore

they should also be e#aluated as in#est ent decision" &ence+ the project ai s at e#aluatin! the

in#est ent proposal for settin! up different facilities in -ennar $ndustries Li ited+ &yderabad"


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)ET-ODOLOGY

The study has been collected throu!h secondary sources" The secondary data has been

collected fro the A years annual reports (200A50C to 2010511) of the -ennar $ndustries+ ooks+

=ournals+ a!aDines+ -eriodicals and co pany websites"

SCOPE O* T-E STUDY

The scope and period of study is restricted to the followin!

The scope is li ited to the operations of the -ennar" The infor ation obtained fro the pri ary and secondary data was li ited to -ennar" The 8ey infor ation perfor ances indicated were taken fro 200A50C to 2010511 The -BL+ The alance sheet was on the last fi#e years"


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7o parison analysis was done in co parison of sisters units"

LI)ITATIONS O* T-E STUDY

The followin! are the li itations of the study

The study is conducted with the data a#ailable and analysis is ade accordin!ly" 'ue to the confidential financial records+ the data is not e,posed so the study ay not be

detailed and full5fled!ed"


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ince the study is based on financial data that are obtained fro the financial state ents+

the li itations of financial state ent shall be e ually applicable" The analysis ay not be accurate as the a#ailable data is li ited"


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C-APTER;4

PRO*ILE O* T-E ORGANI ATION

INDUSTRY PRO*ILE

$ndia is the I th lar!est producer of steel in the world" $ron and steel for a key co ponent

of econo ic de#elop ent of the country" Econo ic de#elop ent of $ndia re#ol#es around the

$ron and teel $ndustry" $t s an industry with century old history" 'ue i portance has been !i#en

to $ron and teel industry by the !o#ern ent policy o#er the last decade"


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$t s a historical fact+ that $ndia occupied a pre5e inent position in $ron and teel akin! a

day of year" &owe#er+ the era of odern teel $ndustry of $ndia be!an only in 130J with a

launchin! of T*T* $ron B teel 7o pany in =a shedpur+ ihar" This plant went into operation

in sta!es by 1311512" $n 1330+ the $ron B teel co pany in urnpur+ near *sansol in ?est

en!al" $n 132>+ The ysore $ron B teel work+ the first public sector effort+ co enced

operations in hadra#ai in 8arnataka"

$n the pre5independence day+ these three units were the ain steel producers in country+

turnin! out 0"1J illion tonnes pi! iron and a illion tonnes steel per year" Today+ the industry

with C inte!rated plants+ J th under construction and 1C0 odd any steel plants has co e a lon!

way"

The $ndustrial -olicy state ent of 13AC placed $ron and teel in schedule5*+ which

eant that all new units in the industry would setup only by the !o#ern ent"

The pri#ate units already in e,istence+ would howe#er be per itted to e,pand their

capacities" *s the policy akers decided to accept the ahalanobis a odel for de#elop ent+

and all5out effort was ade durin! second plant period to lay a stron! industrial base" $n line

with these+ three inte!rated steel plants each with one illion tonne steel in!ot capacity were

setup in /aukela+ hilai+ and 'ur!apur" These plants ca e into operation in sta!es between 13AC

and 13C2" 'urin! this period+ Tata $ron and teel 7o pany (T$ 79.) and $$ 79 doubled their

capacities and the total in !ot capacity rose to C illion tonnes" The steel industry in !eneral is on

the upswin!+ due to stron! !rowth in de and propelled particularly by the de and of steel in

7hina" The world scenario coupled with strin! do estic de and has benefited the $ndia teel

$ndustry"

'urin! *pril5'ece ber 200A+ production of finished steel recorded a !rowth of @4 o#er

the correspondin! period of the pre#ious year to reach 2I"> illion tonnes" This !rowth rate

howe#er+ was lower that the !rowth rate in precedin! two years" 7onsu ption of finished steel

!rew by A"34 and increased to 2@"3 illion tonnes+ durin! the sa e period"


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The faster !rowth of do estic consu ption relati#e to production was reflected in a

declined in the e,port of finished steel by 1I"24 in co pared to the correspondin! period of

pre#ious production of $ron bein! consu ed as a raw aterial in the process itself"

?orld steel prices are risin! fro 'ece ber 2001 onwards" The price increase of hot

rolled coils+ durin! =an 2002 to 'ec 2002 fro K1@051JA per tonne to about KAA05CA0 per

tonne" The prices of steel eltin! scrap rose fro a low of K3>53@ per tonnes to K2JA5

2IA per tonne as part of buildin! infrastructureH $ndia has started a tre endous pro!ra e of

hi!hway construction across the country" *s a result+ do estic steel de and has risen" The

increased production of steel turned led to raise in prices of raw aterials like scraps+ cookin!

coals and etallur!ical coke" The wholesale price inde, of iron and steel has increased by >A4

to 2024 in 200> and 200@ and further to 2>J"I4 in 200@ upto 'ec >1+ 200@"

$ndia s teel $ndustry is ore than a century old" efore the econo ic refor s of the

early 1330 s the $ndia teel industry was a predo inantly re!ulated one with the public sector

do inatin! the industry" Tata teel was the only ajor pri#ate sector co pany in#ol#ed the

production of steel in $ndia" ail and Tata teel ha#e traditionally been the ajor steel producers

of $ndia" $n 1332+ the liberaliDation of the $ndia econo y led to the openin! up of #arious

industries includin! the steel industry" This led to the increase in the nu ber of producer+

increased in#est ents in the steel industry and increased production capacity" ince 1330+ ore

than /s"13+000crores ( K@@J0"AI illion) has been in#ested in the steel industry of $ndia"

)A+OR PLAYERS AND +OINT .ENTURES

teel authority of $ndia Ltd" is the leadin! steel akin! co pany in $ndia+ it s a fully

inte!rated $ron and teel aker+ producin! both basic and special steel for do estic construction+

en!ineerin! power+ auto oti#e and defense industries and for sale an in e,port arket"

%o#ern ent of $ndia owns about IC4 of $*L s e uity and retains #otin! control of the

co pany" &owe#er *$L by the #irtue of .a#aratna status+ enjoys ai!nificant operational and

financial autono y"


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)!jor u it& o# SAIL !re !& u der

I te(r!ted Stee" P"! t&

hilal teel -lant located at 7hhattis!arh"'ur!apur teel -lant located at ?est en!al"/ourkela teel -lant located at 9rissa"

okaro teel -lant located at =harkhand"

Speci!" Stee" P"! t&

*lloy teel -lant in ?est en!al"ale teel -lant in Ta il .adu"

:is#es#arya $ron teel plant in 8arnataka"

Sub&id!rie&

$ndian $ron and teel 7o pany in ?est en!alaharashtra Electro elt Ltd" in aharashtra"

hilai 9,y!en Ltd"+ in .ew 'elhi"

+OINT .ENTURES

*$L has pro oted a joint #enture in different are ran!in! fro power plants to e5co erce

.T-7 *$L -ower 7o pany -#t" Ltd setup in arch 2001+ this A05A0 =oint #enture between *$L and national Ther al -ower 7orporation operates and ana!es the

capti#e power plant to 'ur!apur and /ourkela"okaro -ower upply 7o pany -#t" Ltd" These A05A0 joint #enture between *$L and

the 'a odar :alley corporation for ed in =an 2002 in ana!in! the >02 ? power

!eneration and 1II0 tonnes per hours


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hilai electric upply co pany -#t" Ltd" *nother *$L5.T-7 =oint #enture on A05A0

for ed in arch 2002 ana!es the JA ? power plants of ilai teel plants which has

additional capacity of producin! 1A0 tonnes of steel per year"*$L ased er#ice 7enter -#t" Ltd" *$L has for ed a joint #enture with ?

$ndustries Ltd" on @05C0 bases to pro ote us ser#ices center of okaro with objecti#es of

addin! #alue to steel"/o elt5 *$L ($ndia) Ltd" * join! #enture between *$L+ .ational ineral 'e#elop ent

7orporation and /ussian pro pter for akin! /o elt technolo!y de#eloped by /ussia

of reducin! of $ron bearin! aterials+ this is carried out with carbon in sin!le sta!e

reactor with the use of o,y!en"

GO.ERN)ENT POLICY

ince 1331532 the !o#ern ent has announced and i ple ented followin! ajor chan!es in the

$ron and teel $ndustry"

/e o#al of $ron and teel fro the list of industries of reser#ed for he public sector"E,e ption of $ron and teel $ndustry fro the pro#isions of co pulsory licensin!"$nclusion of $ron and teel in the list of hi!h priority industry for the purpose of forei!n

in#est ent"'ere!ulation of pricin! and distribution of iron and steel"/eduction of duty on i port of capital !oods"LiberaliDation of i port and e,port policy"

CO)PANY PRO*ILE?

*n industrial and ser#ices business !roup based in &yderabad stri#in! to eet the

challen!es of a new $ndia" $nspired by !lobal #ision+ propelled by entrepreneurial dri#e andoti#ated to achie#e+ the -E..*/ !roup is sur!in! a head akin! an in#aluable contribution to

industry+ with a ajor presence in steel+ alu inu + profiles and che icals"

-ennar $ndustries Ltd" + the fla!ship co pany of the -ennar %roup had its be!innin!s in

13IJ+ in the for of -ennar teel Ltd as a stand5alone 7old /ollin! unit+ which has since


22/75

e#ol#ed into ulti location enterprises" The Turno#er of the co pany has !rown to o#er /s">"C

billion in 133I fro a odest /s"0"@ billion ten years a!o and now present turno#er is /s"@I0

crore per annu "

The co ercial production at -ennar $ndustries Ltd was started in ;eb 13II at $snapur in

edak district at a distance of about @0k s fro &yderabad+ with a capacity of 12+000 tonnes

per annu + and takin! ad#anta!e of de and and supply is atch in cold rolled steel coils"

* on! A0 cold rolled steel units in $ndia+ -ennar stands a on! the first three" The co pany

ade profits in the #ery first year of operation" The capacity has been increased fro 12+000

T-* to >C+000 T-* in arch" 1331" The capacity a!ain has been enhanced fro >C+000 T-* to

C0+000 T-* durin! 133J to fully e,ploit the de and for the product with total outlay of /s" 2A

crore+ funded by $' $ and ;$7$ to the e,tent of /s" 1I"A crore and throu!h internal accruals of /s" C"A crore" -resent capacity (200A) is 1+ 20+000 T per annu "

-ennar $ndustries has recei#ed 1A053002 uality certification fro /?T :+ %er any

and has reaffir ed its co it ent to achie#in! e,cellence in the uality of products and ai in!

for co plete custo er satisfaction"

-ennar $ndustry Ltd" has been specialiDin! in the anufacture of world class cold rolled

steel in 'eep 'rawin! and E,tra 'eep 'rawin! #arieties" ince+ 133> -ennar $ndustries Ltd" has

also focusin! on anufacturin! and arketin! special steel such as T @2+ ediu carbon+

sprin! steels etc" 'urin! 133A+ -ennar $ndustry Ltd" setup press co ponents di#ision in line with

its co it ent to supply custo ers with #alue added products" This di#ision is successfully

caterin! to both auto and white !oods industries" -ennar $ndustries Ltd" finds e,tensi#e

application in the auto obile+ auto oti#e co ponents+ custo er durables+ bearin! and !eneral

en!ineerin! se! ents" The arketin! offices located at u bai+ -une+ 7hennai+ an!alore+

7oi batore+ &yderabad+ ;aridabad and .ew 'elhi caters to a wide custo er base"

$ts one of the ost odern 7old /ollin! ill co ple,es in the country with e uip ent

such as @ &i57old /ollin! ill L-M%as 'iesel fi,ed annealin! furnaces" 7/ ittin! lines+ 7r 7ut5

to5len!th lines etc" upplied by anufacturers with in the country with know5howMcollaboration


23/75

fro world fa ous co panies such as wean united *+ L9$5%er any+ ta co5 *+ ie ens5

%er any+ ;lakt5 weden etc" The co pany is professionally ana!ed by people with

considerable e,perience in the 7old /olled teel strips $ndustry" -ennar teel has established

itself as a anufacturer of world5class cold rolled coils and sheets of deep drawin! and e,tra

deep drawin! #arieties"

NSL )ERGES INTO PSL

9n the e#enin! of .o#e ber 23+ 133J r" 8" " /aju+ 7hair an+ .a!arjuna !roup and

r" ." /ao+ 7hair an of -ennar %roup addressed joint co unication eetin! at . L factory

to for ally announce the er!er of . L factory into -ennar teels Ltd to e,tent their business in

the !rowth of steel production B now has been reco!niDed as -ennar $ndustries Ltd "

. L was ;la!ship 7o pany of .a!arjuna %roup+ fro a cold rolled steel strips

anufacture in 133J+. L has e,panded its production capacity si, fold and has di#ersified into

hi!h profile !rowth area as cold rolled for ed section and leather products in association with

the under license fro world leaders :oest5*lpine $ndustrial er#ices (T*$ )+*ustria"

PRODUCT )ANU*ACTURE

-ennar $ndustries Ltd is a ulti5product and ulti5location enterprise" The 7o pany

anufactured #ariety of product" -ennar is $ 95300152000 certified co pany fro /?5T :+

%er any and co itted to achie#in! e,cellence in followin! products"

7old /olled teel trips" 7old /olled ;or ed ections" En!ineerin! 7o ponents" -recision Tubes" The ;abrication

The anufacturin! facilities of -ennar $ndustries Ltd" are located near &yderabad

($snapurB-atancheru)+ which is considered as !eo!raphical center of $ndia" These facilities


24/75

e,peditious ser#icin! of custo ers in the arkets located in .orth+ ?est+ outh $ndia+ national

le#el and also at international le#el+

COLD ROLLED STEEL STRIPS 2CRSS6

7/ di#ision with its uni ue units at -atancheru+ $snapur and 7hennai has co bined an

annual 7old /ollin! capacity of 1"20"000 etric tonnes" -ennar anufactures steel strips fro

C"00 to J"A0 width and thickness ran!e of 0"2A to A both in cold coil and steel for ed"

This cold rolled steel strips is applicable inG5

Two5?heeler ;our5?heeler /efri!erator *ir conditioner En!ineerin! -roducts

Proce&& O# )! u#!cturi ( O# CRSS A&?;

/aw aterial

$nspection

&/5 littin!

-ickilin!

/ollin!

*nnealin!

kin -ass


25/75

Co"d Ro""ed *ormed Sectio & 2CR*S6

* strate!ic anne,ure of Tarapur based press etal unit of $T !roup of co panies in 133I

has ensured" The e er!ence of -ennar as the undisputed leader of 7old /olled ;or in! ills+

tools and work force of $T unit at Tarapur ha#e been absorbed in full" $n addition+ 7old /olled

;or in! ills and all tools e,cludin! work force ha#e been connected fullti e in $T 7hennai

unit" -ennar now ha#e a anufacturin! capacity of ore than about @0+000 T of 7old /olled

;or ed ections per annu + the lar!est in the country"

This 7/; is applicable inG

*uto obile/ailway7onstruction-ollution control%eneral en!ineerin!

aterial

7/ littin!7ut to len!th

-ackin! B 'ispatch

/oll

;or in!/"

/ecei#in!/aw

aterials

-ost;or in!

9ilin! B-aintin!

;inal


26/75

;i!ure 2"1 anufacturin! -rocess

ENGINEERING CO)PONENT DI.ISION

$n this di#ision the en!ineered ite s are produced in press shock operations feedin! to different

industries" This di#ision is e uipped with hydraulic+ echanical and pneu atic presses+ shearin!+

laths and buffin! achines+ for production operations"

The en!ineerin! co ponent is applicable toG5/efri!erator Two5?heeler $ndustrial 7o pressor %eneral en!ineerin! ite s7onstruction;our5?heeler

DISTRIBUTION O* PRODUCTS )ANU*ACTURED

'ispatch-ackin!

L*.8$.%

'/*?$.%51

T/$ $.%T /.$.%

;;$.%

'/*?$.%52 .9T7&$.%

-$E/7$.%;L*/$.%

7&* ;E//$.%

$. -E7T$9.

-*78$.%

'$ -T*7&


27/75

-ennar has an e,tensi#e sales network spread all o#er $ndia" $n do estic arket -ennar

supplies their uality aterial product to the #arious field such asG

7onstruction sector *uto5sector Two5wheeler ;our wheeler sector Electrical appliances/ailway sector

So9 t$eir cu&tomer& !re?;Tata otor LBT*shok LeylandT: otor

*lston -ower Eicher otor

ahindra B ahindraTher a, Ltd8irloskar 7opeland:oltas/eliance&arsha En!ineerin!

harath Earth o#ersTecu esh

-LElectolu, $ndia:ijay ElectricalsLucas T:&industan 7onstruction&ero &onda

.ISION

-ennarNs :ision it to be a !lobally reputed en!ineered etal product co pany+ -ennar endea#ors

to ha#e stron! and endurin! relationship with its custo ers based on uality and ser#ice")ISSION

-ennarNs ission is to le#era!e its ode infrastructure+ technical e,pertise and decades of

e,perience to pro#ide hi!h uality and cost effecti#e etal product to its custo ers" -ennar is

co itted to ensurin! rewardin! e,perience to its custo ers" -ennar works closely with


28/75

shareholders+ suppliers+ custo ers and e ployees to ensure attracti#e econo ic returns for all

the stake holders"

UALITY POLICY

?e+ at -ennar are co itted to producin! and pro#idin! teel based products and associated

ser#ices for custo ers all o#er the world" ?e stri#e to achie#e e,cellence in the uality of

product" ?e anufacture and the ser#ice we pro#e to our custo er" $t is out endea#ors to create a

workin! en#iron ent where oti#ated e ployees co unicate freely and where inno#ation is

encoura!ed to enable continual i pro#e ent in all areas "

?e work to!ether to achie#e 79 -LETE 7 T9 E/ *T$ ;*7T$9. T&/9 %& T9T*L

O *L$T6 *.*%E E.T"

ORGANISATION CULTURE

$n -ennar teel $ndustry Ltd" all the e ployees are sincere+ honest+ hardworkin! and loyal with

the or!aniDation" They !i#e e phasis to aintain discipline in $ndustry"-ennarNs people are well5known for ti e punctuality" They produce royal uality product and

deli#er on the desired ti e"

CO)PETITOR *OR PENNAR INDUSTRY LTD

The ajor teel producers in $ndia and ajor co petitor to -ennar $ndustries Ltd"+ are as

followsG5T$ 79Essar teel=indal :ijayna!ar teel Ltd=indal trips Ltd=$ 79

aw -ipestta teel Ltd

$spat $ndustries Ltd

ukund $ndustries LtdTata L Ltdesa %oa Ltd

AC-IE.E)ENT AND A,ARDS

est supplier award fro *'9. en!ineerin!+ 87L+ TEL79"


29/75

;irst 7old /olled ;or ed sections business to be awarded $ 9 3001 certification in

$ndia by /?T :+ %er any"9ne of the best 7/ suppliers+ awarded fro E$7&E/ *uto obile supplier award fro T: "

,EL*ARE *ACILITIES AT PENNAR INDUSTRIES LTD0

-ennar $ndustries Ltd" is considered bein! one of the hu!e anpower consistin! industries in

&yderabad" o e e ployees workin! as a per anent and so e as a contract basis" *ll welfare

facilities would co e under different acts like ;actories *ct 13@I+ The 7ontract Labour

(/e!ulation B *bolition) *ct+ 13J0"

This co pany appointed a special welfare officer -"/*:$ inside the co pany pre ises to take

the e ployees and to sol#e their proble related to work or fa ily atter"

-ennar $ndustries offers followin! outstandin! welfare facilities to their e ployees"

This or!aniDation offers e,cellent edical facilities"This or!aniDation pro#ides fine transportation ser#ices"This or!aniDation akes a#ailable tea or coffee at e ployeeNs work place"7o pany pro#ides !ood drinkin! water facilities"

9r!aniDation !i#es clean toilet B superior washin!5bathin! a enities"This or!aniDation pro#ides re!ular health check5up of the e ployees" This or!aniDation

affords the housin! facilities"

This co pany akes a#ailable trainin! pro!ra s"

This or!aniDation supplies the facilities of -";+ $nsurance to secure the future of the

e ployees of the co pany"This or!aniDation offers the aternity benefit facilities to the wo an e ployees"This co pany akes a#ailable well unifor and protecti#e cloth for the e ployees"

This co pany pro#ides rest roo facilities"

This or!aniDation supply chan!in! roo and locker facilities to their e ployees"


30/75

This co pany pro#ides first5aid bo,es"This or!aniDation pro#ides all safety e uip ent to the e ployees"This or!aniDation supply facilities of li!htin! and #entilation"This co pany pro#ides spittoon and sittin! facilities" This -ennar $ndustries offer the

facilities of E ployee /eferral che e"

ORGANI ATION STRUCTURE

The or!aniDation structure of -ennar $ndustries Ltd (-$L) is #ery wide and deep rooted so as to

ser#e the clients and to fulfill the set tar!ets by the ana!e ent" $f we !o throu!h the

or!aniDational chart of -$L+ we can understand the structure+ co ponents and way of

ad inistration" ;or the benefit of the study+ one has to see the or!aniDational chart with

eticulous thinkin!"

r".rupender/ao (E,ecuti#e 7hair an)-rof" La, i.arain

r" 7" /an!a ani (%$7 .o inee)r" -" haskara/aor" :ijaya 7handra -uljalr" 7h" *nantha /eddy (E,ecuti#e 'irector)


31/75

CO)PANY SECRETARY


32/75

r" -" :" :araprasadAUDITORS

Ms /a babuB 7o"+7hartered *ccountants"

BAN1ERState ank of $ndiatate ank of &yderabad

The $' $ ank Ltd"ank of ahrain B 8uwait " "7

STA** )ANAGER

7 ABO.E

D) 7

BELO,

O**ICE SUP0

7 DRI.ERS

TOTAL

7/ @ 2A .$L 23

7/; @ 1C .$L 20

E7' 2 2I .$L >0

7/ ($ .) > C0 .$L C>

arketin! C 2A .$L >1

;inance B *ccountin! 2 1I .$L 20

aterial 1 1 .$L 2

-ersonnel B*d n 1 I 2 11

yste B $nfor ation .$L C .$L C

7orporate 2 2 1 A

T9T*L 2A 1I3 > 21J

CRSS PTCR CR*S PTCR ECD TOTAL

9-E/*T9/ 1@I >A > 1IC


33/75

*--/E.T$7E 12 12 nil 2@

OUTLOO1 *OR *UTURE

?ith the funda entals of the econo y !rowin! stron!er and the auto and buildin!

industries set to !row further+ de and for -ennar products is #ery encoura!in!"

?ith financial reconstruction and association tit strate!ic forei!n in#estor" -ennar is said

to di#ersity further" ?hile also for!in! international linka!es to take co pany beyond the $ndian

shores"

Pe !r & &tr!te(ie& #or di8er&i#ic!tio ! d (ro't$ !re?;a) anufacturin! auto co ponents"

b) ;ocusin! on pre5en!ineered steel industries"c) *chie#e annual sales of /s" 1000 crore in three years ti e"d) %rowin! e,port #olu e"e) $nor!anic !rowth throu!h ac uisition of co panies in allied sectors"

-ennar industries+ a co pany with a #inta!e of al ost two decades in anufacture of cold rolled

steel strips+ cold rolled for ed profiles+ en!ineerin! co ponents+ E/? tubes+ is plannin! to

#enture into precision tube anufacturin!(7'?) and capacity enhance ent of E/? tube with

wide ran!e co#ered up to 9"' 11@ and thickness up to C in at -atancheru+ &yderabad" The

project tea has carried out a Techno Econo ic ;easibility /eport for the proposed project" The

study findin!s are su ariDed as belowG

PRODUCT

* -E consist of different co ponents which are desi!ned in a anner which akes

each of these co patible with other parts" *s na e i plies+ fabrication of these co ponents is

carried out in factory under strict uality control as per detailed shop drawin! and then these

co ponents are transported to the project site with proper arkin!s and asse bled as per erection drawin!s" These features pro#ide -E an ed!e o#er the con#entional steel structures in

ter s of uicker output and deli#ery+ reduction in project cost+ fle,ibility and uality control and

a one stop solution fro ualified professionals throu!h or!aniDed co panies"


34/75

ajor co ponents of -E s are pri ary fra es+ secondary e bers and sheetin! ade

out of different raw aterial inputs as detailed"

)!r:et A&&e&&me t

The use of -E s in $ndia is considered to be in introductory phase" The present

consu ption in $ndia is esti ated to be A"A0 $akh T-* which has !rown at an a#era!e annual

rate of >04 since 2001502 a!ainst this de and the supply is around A"JA lakh T-* with about

si, ajor players" /e!ionally west leads @14 of the do estic total capacity with south and north

$ndia at >04 and 234 respecti#ely"

Lookin! at the user sectors+ industryN sector leads with a consu ption of C04 9f the o#erall

de and followed but a!riculture and a#iation sector rest consu ed by others"

;or the near future the de and tor -E s is e,pected to !row at a rate of >05>A4 which will

i pro#e penetration le#el in do estic arket as co pared to the present @"A4 le#el" The ajor

dri#ers for future de and are identified asG

a) %rowth in nu ber of EPsb) &i!h !rowth in infrastructureM construction sector ass transport projects planned for

future in ultiple cities*bout J+ @0+000 Ts of -E s anufacturin! capacity is e,pected to be added in the ne,t four

years" The clients propose to set up a >0+000 T-* with one bea line and other supportin!

lines+ achinery and e uip ent s" Throu!h this project the client plans to offer inte!rated ser#ice

fro desi!nin! the buildin!s to supply and erection ser#ices" The detailed process at each sta!e"


35/75

C-APTER;@

T-EORETICAL *RA)E,OR1


36/75

C!pit!" Bud(eti (

C!pit!" bud(eti ( (or in#est ent appraisal) is the plannin! process used to deter ine whether

an or!aniDationNs lon! ter in#est ents such as new achinery+ replace ent achinery+ new

plants+ new products+ and research de#elop ent projects are worth pursuin!" $t is bud!et for ajor capital+ or in#est ent+ e,penditures"

any for al ethods are used in capital bud!etin!+ includin! the techni ues such as*ccountin! /ate of /eturn (*//)

.et -resent :alue (.-:)-rofitability $nde, (-$)$nternal /ate of /eturn ($//)

These ethods use the incre ental cash flows fro each potential in#est ent+ or project"

Techni ues based on accountin! earnin!s and accountin! rules are so eti es used 5 thou!hecono ists consider this to be i proper 5 such as the accounting rate of return + and return on

in#est ent" i plified and hybrid ethods are used as well+ such as payback period discounted

payback period "

Net pre&e t 8!"ue

$n finance+ the Net Pre&e t .!"ue 2NP.6 or Net Pre&e t ,ort$ 2NP,6 of a ti e series of cash

flows+ both inco in! and out!oin!+ is defined as the su of the present #alues (-:s) of the

indi#idual cash flows of the sa e entity" $n the case when all future cash flows are inco in!

(such as coupons and principal of a bond) and the only outflow of cash is the purchase price+ the

.-: is si ply the -: of future cash flows inus the purchase price (which is its own -:)" .-:

is a central tool in 'iscounted 7ash ;low ('7;) analysis+ and is a standard ethod for usin! the

ti e #alue of oney to appraise lon!5ter projects" sed for capital bud!etin!+ and widely


37/75

throu!hout econo ics+ finance+ and accountin!+ it easures the e,cess or shortfall of cash flows+

in present #alue ter s+ once financin! char!es are et"The .-: of a se uence of cash flows takes as input the cash flows and a discount rate or

discount cur#e and outputs a priceH the con#erse process in '7; analysis 5 takin! a se uence of

cash flows and a price as input and inferrin! as output a discount rate (the discount rate which

would yield the !i#en price as .-:) 5 is called the yield+ and is ore widely used in bond

tradin!"

*ormu"!

Each cash inflowMoutflow is discounted back to its present #alue (-:)" Then they are su ed"

therefore .-: is the su of all ter s

R t23 i6

t

?heret Q The ti e of the cash flowi Q The discount rate (the rate of return that could be earned on an in#est ent in

the financial arkets with si ilar risk)H opportunity cost of capital/ t Q The net cash flow (the a ount of cash+ inflow inus outflow) at ti e t " ;or

educational purposes+ / 0 is co only placed to the left of the su to e phasiDe

its role as ( inus) the in#est ent

I ter !" R!te O# Retur

T$e I ter !" R!te o# Retur 2IRR6 is a rate of return used in capital bud!etin! to easure and

co pare the profitability of in#est ents" $t is also called the discounted 7ash ;lo#@+ /ate of

/eturn ('7;/9/) or the rate of return (/9/)" $n the conte,t of sa#in!s and loans the $// is

also called the effecti#e interest rate" The ter internal refers to the fact that its calculation does

not incorporate en#iron ental factors (e"!"+ the interest rate or inflation)"

The internal rate of return on an in#est ent or project is the annualiDed effecti#e co poundedreturn rate or /ate of /eturn that akes the net present #alue (.-: as .ETR$M($S$//) year)

of all cash flows (both positi#e and ne!ati#e) fro a particular in#est ent e ual to Dero"


38/75

$n ore specific ter s+ the $// of an in#est ent is the discount rate at which the net present

#alue of costs (ne!ati#e cash flows) of the in#est ent e uals the net present #alue of the benefits

(positi#e cash flows) of the in#est ent"

$nternal rates of return are co only used to e#aluate the desirability of in#est ents or projects"The hi!her a projectNs internal rate of return+ the ore desirable it is to undertake the project"

*ssu in! all projects re uire the sa e a ount of up5front in#est ent+ the project with the

hi!hest $// would be considered the best and undertaken first"

* fir (or indi#idual) should+ in theory+ undertake all projects or in#est ents a#ailable with

$//s that e,ceed the cost of capital" $n#est ent ay be li ited by a#ailability of funds to the

fir andMor by the fir Ns capacity or ability to ana!e nu erous projects"

*ormu"!e

%i#en a collection of pairs (ti e+ cash flow) in#ol#ed in a project+ the internal rate of return

follows fro the net present #alue as a function of the rate of return" * rate of return for which

this function is Dero is an internal rate of return"

%i#en the (period+ cash flow) pairs (n+ 7 n) where n is a positi#e inte!er+ the total nu ber of

periods N + and the net present #alue .-:+ the internal rate of return is !i#en by r inG

The period is usually !i#en in years+ but the calculation ay be ade si pler if r is calculated

usin! the period in which the ajority of the proble is defined (e"!"+ usin! onths if ost of

the cash flows occur at onthly inter#als) and con#erted to a yearly period thereafter"*ny fi,ed ti e can be used in place of the present (e"!"+ the end of one inter#al of an annuity)H

the #alue obtained is Dero if and only if the .-: is Dero"

$n the case that the cash flows are rando #ariables+ such as in the case of a life annuity+ the

e,pected #alues are put into the abo#e for ula"

9ften+ the #alue of r cannot be found analytically" $n this case+ nu erical ethods or !raphical

ethods ust be used"

P!/b!c: Period )et$od


39/75

ethod of e#aluatin! in#est ent opportunities and product de#elop ent projects on the basis of

the ti e taken to recoup the in#est ent" This period is co pared to the re uired payback period

to deter ine the acceptability of the in#est ent proposal" $n contrast to return on in#est ent and

net present #alue ethods+ the cash inflows occurrin! after the payback period are not included

in this ethod"

;or ulaG -ayback period (in years) $nitial capital in#est ent U *nnual cash5flow fro the

in#est ent"

Pro#it!bi"it/ I de met$od

-rofitability $nde, is a ratio of discounted benefits o#er the discounted costs" $t is a easure of

profitability of an in#est ent that we can co pare with that of other in#est ents that are under

consideration" *lternati#e in#est ents ay #ary in siDe a life span and these ay pro#ide ore

or less net benefits" 6et by usin! profitability inde, ethod+ we can see for oursel#e which one

of these in#est ents is ore profitable when co pared to the rest"

-rofitability $nde, (-: of future cash flows) U $nitial in#est entG This of course bein! where

-: the present #alue of the future cash flows in uestion"

9r (.-: S $nitial in#est ent) U $nitial $n#est entG *s one would e,pect+ the .-: stands for

the .et -resent :alue of the initial in#est ent"

*ormu"!e o# Pro#it!bi"it/ I de

The -rofitability inde, shows the nu erator which is the discounted su of benefits and the

deno inator that is the discounted su of costs associated with a particular project" This

particular e uation ay also be used to infer the internal rate of return which occurs when profitability inde, is e ual to 1" ?e will lea#e that discussion to another tutorial+ here we will

e phasiDe the profitability inde, ethod


40/75

C-APTER F " $.T*.%$ LE ;*7T9/ G *s the capital e,penditure has to ake due to certain

e otional and intan!ible factors such as safety and welfare of the workers+ presti!ious

project+ social welfare+ !oodwill of the fir etc"

@" *:*$L $L$T6 9; ; .' G *s the capital e,penditure !enerally re uires the pro#isions

of lows solely influence by this factor and althou!h the project ay not be profitable" 6etthe in#est haste be ade"

A" ; T /E E*/.$.% G a project ay not be profitable as co pared to another today+ but

it ay be preferred to increase future earnin!s"

C" o eti es+ project with sonic lower profitability ay be selected due to constant flow of

inco e as co pared to another project with an irre!ular and uncertain inflow of inco e"

CAPITAL E>PENDITURE CONTROL

7apital e,penditure in#ol#es non5fle,ible lon!5ter co it ent of funds" The success of an

enterprise in the lon! run depends upon the effecti#eness with which the ana!e ent akes

capital e,penditure decision" 7apital e,penditure decision is #ery i portant as there i pact is

ore or less per anent on the well5bein! and econo ic health of the enterprise" ecause of it

lar!e5scale echaniDation and auto ation and i portance of capital e,penditure for increase in

the profitability of a concern" $t has beco e essential to aintain an effecti#e syste of capital

e,penditure control"

OB+ECTI.ES O* CONTROL O* CAPITAL E>PENDITURE


54/75

To ake an esti ate of capital e,penditure and to see that the total cash outlay is within

the financial resources of the enterprise"To ensure ti ely cash inflows for the projects so that non a#ailability of a cash ay not

be proble in the i ple entation of the proble "

To ensure that all capital e,penditure is properly sanctioned"To properly coordinates the projects of #arious depart ents"To fi, priorities a on! #arious projects and ensure their follow up"To co pare periodically actual e,penditure with the bud!eted ones so as to a#oid any

e,cess e,penditure"To easure the perfor ance of the project"To ensure that sufficient a ount of capital e,penditure is incurred to keep pact with the

rapid technolo!ical de#elop ent

STEPS IN.OL.ED IN CONTROL O* CAPITAL E>PENDITURE?

-reparation of capital e,penditure bud!et-roper authoriDation of capital e,penditure/ecordin! and control of e,penditureE#aluation of perfor ance of the projects"

STEPS IN.OL.ED

i" $dentifyin! the need of the projectii" -reparation of the project repot with respect to

a" tiliDation b" Efficiencyc" 7apacity of the particular projectd" ;uture projected arket

iii" -reparation of feasibility report based $// B .-7i#" =ustification based on

a" oney earnin!s b" Loss of arketc" Loss of !oodwilld" Technolo!ical re uire ent

#" The dele!ation of powers

T$e project propo&!"& !re &! ctio ed i t$e #o""o'i ( b!&i&

l" .o -/9=E7T

$.:E T E.T

'ELE%*T$9. 9;

-9?E/

-E/ *..

1" 20 L*8& E"'M .$T @ 7/9/E


55/75

2" W20 L*8& 5 X A

7/9/E

7 ' 5.$L5

>" WA 7/9/E 5 X A0

7/9/E

9*/' 5.$L5

@" W A0 7/9/E %9:E/. E.T 5.$L5

E.ALUATION O* NE, SC-E)E PRO+ECT

7alculation of cash flows after ta, (2"1 centraliDed blade shop)'epreciation rate 1C4 Ta, .il $n#est ent /s" @+1@AM5 (in Lakhs)

6E*/ 7; 'T 'E- ; T T*< 7; 'T E*T

200I503 1000 CC>"2 >>C"2 55 1000 >>C"I

2003510 1>2I CC>"2 CC@"I 55 1>2I CC@"I

2010511 2C@2 CC>"2 13JI"I 55 2C@2 13JI"I

2011512 2C@2 CC>"2 13JI"I 55 2C@2 13JI"I

201251> 2C@2 CC>"2 13JI"I 55 2C@2 13JI"I

T9T*L 55 102A@ C3>I"00

I terpret!tio ?

The abo#e table re#eals that earnin! after ta, (E*T)" The co pany has earned E*T 13JI"I in

2010511" *fter that so ethin! followed


56/75

7alculation of pay back period ethod

6E*/ 7;*T 7 L*T$:E 7;*T

200I503 1000 1000

2003510 1>2I 2>2I

2010511 2C@2 @3J0

2011512 2C@2 JC12

201251> 2C@2 102A@

7alculation of payback period

- - 2S1I1JM2C@2 2 S 0"C3 2 years and J onths

I terpret!tio ?

The abo#e table re#eals the - - cost of the project is @+@1A lakhs" The initial in#est ent can be

recorded in 2 years and J onths+ since the cutoff point is > years


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7alculation of *//

*#era!e inco e C3>IMA 1>IJ"C0*#era!e in#est ent @1@AM2 20J2"A

*// 1>IJ"CM20J2"AR100 CC"3A4

I terpret!tio

The a#era!e inco e of the project is 1>IJ"C0 lakhs and the a#era!e in#est ent of the project is

20J2"A0 lakhs" *ccountin! rate of return of the project is CC"3A4

C!"cu"!tio o# NP. J K

6E*/ 7;*T -: Y 34 -:7;

200I503 1000 "31J 31J"00

2003510 1>2I "I@2 111I"1I

2010511 2C@2 "JJ2 20@0"00


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2011512 2C@2 "J0I 1IJ0"A@

201251> 2C@2 "C@3 1J1@"CC

T9T*L JCC0">I

(5)$nitial $n#est ent @1@A

.-: S>A1A">I

I terpret!tio ?

The abo#e table re#eals that .ET -resent :alues (.-:) Y 34" The present #alue of annuity 9nerupee for present #alue of one rupee Y34 discountin! factor+ because the cash inflows occurs

J+CC0">A lakhs+ on this #alue subtract with the initial in#est ent /s @+1@A lakhs" &ence+ the

decision role associated with the net present #alues is accepted the project+ i"e"+ positi#e #alue of

the project"7alculation of cash flows after ta, ( 2"2 p !radation of e,itin! %T test facilities)

'epreciation /ate 124 Ta, .il $n#est ent 2CI (in lakhs)

6E*/ 7; 'T 'E- 7; T T*< 7;*T E*T

200I503 >A >2"1C 2"I@ 55 >A 2"I@

2003510 @0 >2"1C J"I@ 55 @0 J"I@

2010511 10> >2"1C J0"I@ 55 10> J0"I@

2011512 10> >2"1C J0"I@ 55 10> J0"I@


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201251> A0C >2"1C @J>"I@ 55 A0C @J>"I@

T9T*L JIJ C2C"20

I terpret!tio ?

$n the abo#e table re#eals that Earnin! *fter Ta, (E*T)" The co pany has earned J0"I@ in 20115

12" *fter ne,t year as follow the sa e ta,"


6E*/ 7;*T 7 L*T$:E 7;*T

200I503 >A >A

2003510 @0 JA

2010511 10> 1JI

2011512 10> 2I1

201251> A0C JIJ

- - > S 30M10> > years and 3 onths


60/75

I terpret!tio ?

The abo#e table re#eals that - - payback period cost of the project is 2CI lakhs" The initial

in#est ent can be recorded in > years and 3 onths+ since the cutoff point is @ years"

7alculation of *//

*#era!e $nco e C2C"2MA 12A"2@*#era!e in#est ent 2CIM2 1>@

*// 12A"2@M1>@R100 3>"@C4

I terpret!tio ?

The a#era!e inco e of the project is 12A"2@ lakhs and the a#era!e in#est ent of the project is

1>@ lakhs" *ccountin! rate of return of the project is 3>"@C4


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YEAR C*AT P. J K P.C*

200I503 >A "31J >2"03

2003510 @0 "I@2 >>"CI

2010511 10> "JJ2 J3"A2

2011512 10> "J0I J2"32

201251> A0C "C@3 >2I">3

T9T*L A@C"C

(5)$nitial $n#est ent 2CI"0

.-: S2JI"C

I terpret!tio ?


62/75

The abo#e table re#eals that .ET -resent :alues (.-:) Y 34" The present #alue of annuity 9ne

rupee for present #alue of one rupee Y34 discountin! factor+ because the cash inflows occurs

A@C"C lakhs+ on this #alue subtract with the initial in#est ent /s 2CI"0 lakhs" &ence+ the decision

role associated with the net present #alues is accepted the project+ i"e"+ positi#e #alue of the

project"C!"cu"!tio o# c!&$ #"o'& !#ter t! 2 40@ *!ci"itie& #or m! u#!cturi ( &peci!" too"&6

'epreciation /ate I4 Ta, .il $n#est ent 221"00 (in lakhs)

6E*/ 7; 'T 'E- 7; T T*< 7;*T E*T

200I503 20 1J"CI 2">2 55 20 2">2

2003510 @A 1J"CI 2J">2 55 @A 2J">2

2010511 C0 1J"CI @2">2 55 C0 @2">2

2011512 >A 1J"CI 1J">2 55 >A 1J">2

201251> @2 1J"CI 2@">2 55 @2 2@">2

T9T*L 202 11>"C

I terpret!tio G5

$n the abo#e table re#eals that Earnin! *fter Ta, (E*T)" The co pany has earned E*T

2@">2 in 201251>"



63/75

6E*/ 7;*T 7 L*T$:E 7;*T

200I503 20 20

2003510 @A CA

2010511 C0 12A

2011512 >A 1C0

201251> @2 202

I terpret!tio ?

The abo#e table re#eals that - - payback period cost of the project is 221 lakhs" The initial

in#est ent can be recorded in the year 201251> i"e"+ A th year

C!"cu"!tio o# ARR

*#era!e $nco e 11>"C2MA 22"J2*#era!e in#est ent 221M2 110"A*// 22"J2M110"AR100 20"A34

$nterpretationG


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The a#era!e inco e of the project is 22"J2 lakhs and the a#era!e in#est ent of the project is

110"A lakhs" *ccountin! rate of return of the project is 20"A34


6E*/ 7;*T -: Y 34 -:7;200I503 20 "31J 1I">@

2003510 @A "I@2 >J"I3

2010511 C0 "JJ2 @C">2

2011512 >A "J0I 2@"JI

201251> @2 "C@3 2J"2C

T9T*L 1A@"A3

(5)$nitial $n#est ent 221"00

.-: 5CC"J1


65/75

I terpret!tio ?

The abo#e table re#eals that .ET -resent :alues (.-:) Y 34" The present #alue of cash flow

221" The re uired rate of return and co pared with the ori!inal in#est ent" &ence the present

#alue 1A@"A3 inus the ori!inal in#est ent 221" The loss is 5CC"J1" o the project is rejected"7alculation of cash flows after ta, ( 2"@ 3; %T% and *u!" of new ;acilities)

'epreciation /ate 124 Ta, .il $n#est ent >1I"00 (in lakhs)

6E*/ 7; 'T 'E- 7; T T*< 7;*T E*T200I503 >00 >I"1C 2C1"I@ 55 >00 2C1"I@

2003510 1A00 >I"1C 1@C1"I@ 55 1A00 1@C1"I@

2010511 1A00 >I"1C 1@C1"I@ 55 1A00 1@C1"I@

2011512 1A00 >I"1C 1@C1"I@ 55 1A00 1@C1"I@

201251> 1A00 >I"1C 1@C1"I@ 55 1A00 1@C1"I@

T9T*L C>00 C103"20

I terpret!tio ?;

$n the abo#e table re#eals that Earnin! *fter Ta, (E*T)" The co pany has earned E*T 1@C1"IA

in 2003510"


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CALCULATION O* PAY BAC1 PERIOD )ET-OD

6E*/ 7;*T 7 L*T$:E 7;*T

200I503 >00 >00

2003510 1A00 1I00

2010511 1A00 >100

2011512 1A00 @C00

201251> 1A00 C>00

- - 1 S 1IMA00 1 S 0"012 1 year and 1 onth


67/75

I terpret!tio ?

The abo#e table re#eals that - - payback period cost of the project is >1I lakhs" The initial

in#est ent can be recorded in 1 years and 1 onths+ since the cutoff point is 2 years"

CALCULATION O* ARR

*#era!e $nco e C103"2MA 1221"I@*#era!e in#est ent >1IM2 1A3*// 1221"I@M1AIR100 JCI"@A4

I terpret!tio ?

The a#era!e inco e of the project is 122"I@ lakhs and the a#era!e in#est ent of the project is

1A3 lakhs" *ccountin! rate of return of the project is JCI"@A4

CALCULATION O* NP. J K

6E*/ 7;*T -: Y 34 -:7;

200I503 >00 "31J 2JA"1

2003510 1A00 "I@2 12C>"0


68/75

2010511 1A00 "JJ2 11A"I

2011512 1A00 "J0I 10C2

201251> 1A00 "C@3 3J>"A

T9T*L @J>1"C

(5)$nitial $n#est ent >1I

.-: S@@1>"C

I terpret!tio ?

The abo#e table re#eals that .ET -resent :alues (.-:) Y 34" The present #alue of annuity 9ne

rupee for present #alue of one rupee Y34 discountin! factor+ because the cash inflows occurs

@J>1"C lakhs+ on this #alue subtract with the initial in#est ent /s >1I lakhs" &ence+ the decision

role associated with the net present #alues is accepted the project+ i"e"+ positi#e #alue of the

project"7; '*T G 7* & ;L9? E;9/E '-E/E7$*T$9. *.' T* years 3 onths" The

a#era!e rate of return 3>"@C4 in the year 200I5201>" The net present #alue is calculated

based on discountin! factor at 34 this #alue be positi#e then the project of initial capital

of /s"2JI"C lack" &ence the co pany should in#est in the project"

2"> ;acilitatin! for anufacturin! special tools initial in#est ent /s"221 lac" -ay back period of the project in#est ent will reco#ered within A years A onths" The a#era!e rate

of return 20"A34 in the year 200I5201>" The net present #alue is calculated based on

discountin! factor at 34 this #alue be ne!ati#e then the project of initial capital of /s"5

CC"J1 lakh" &ence the co pany should not in#est in the project"


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2"@ 3; %T% new facilities initial in#est ent /s">1I lac" -ay back period of the project

in#est ent will reco#ered within 1 year 1 onth" The a#era!e rate of return JCI"@A4 in

the year 200I5201>" The net present #alue is calculated based on discountin! factor at 34

this #alue be positi#e then the project of initial capital of is /s"@@1>"1C lakh" &ence the

co pany should in#est in the pro

SUGGESTIONS

The -ay ack -eriod of centraliDed blade shop the project in#est ent reco#er 2 years andJ onths" The .-: of the centraliDed blade shop is positi#e that is its >A1A">I (%ain)*nd the *#era!e /ate of /eturn is CC"3A 4"

9 T&E 79 -*.6 &9 ' $.:E T $. T&$ -/9=E7T"

The -ay ack -eriod of the %T Test facilities project in#est ent reco#ers > years and 3

onths"The .-: of the %T Test facilities project is positi#e that /s 2JI"C0 (%ain)*nd the *#era!e /ate of /eturn is uch hi!her i"e" 3>"@C4"

9 T&E 79 -*.6 &9 L' $.:E T 1. T&$ -/9=E7T"

The -ay ack -eriod of the ;acilities for anufacturin! special tools -roject is e,ceedin!

life of the project The .-: of ;acilities for anufacturin! tools is .e!ati#e i"e" /s CC"J1

(Loss)*nd the *#era!e /ate of /eturn is 20"AC 4"

9 T&E 79 -*.6 &9 L' .9T $.:E T $. T&$ -/9=E7T"

The -ay ack -eriod of 3; %T% and *u!" of .ew ;acilities project in#est ent is

reco#ered in the first year itself"

The .-: of 3; %T% and *u!" new facilities is positi#e i"e" /s @@1>"C (%ain)The *#era!e /ate of /eturn is JCI"@A 4"9 T&E 79 -*.6 &9 L' $.:E T $. T&$ -/9=E7T"


72/75

C-APTER;M

CONCLUSION

CONCLUSIONS


73/75

The co pany has reasonable syste of deter ination of unser#iceable stores+ raw

aterials and finished !oodsH an ade uate pro#ision has been ade in the accounts for

loss arisin! in the respect of ite so deter ined"

There are ade uate internal control procedures co ensurate with the siDe of theco pany and the nature of its business for the purchase of stores+ raw aterials includin!

co ponents+ plant and achinery e uip ent and other assets for sale of !oods" *s per

the infor ation !i#en and e,planations pro#ided+ the co pany has not ade any

purchase of !oods+ aterials and ser#ices in pursuance of contract or a!ree ent"

The capital bud!etin! decision procedure basically in#ol#es the e#aluation of the

desirability of an in#est ent proposal" $t is ob#ious that the fir ost ha#e a syste atic

procedure for akin! capital bud!etin! decisions" The procedure for akin! capital bud!etin! decision"

The procedure ust be consistent with the objecti#e of wealth a,i iDation" $n #iew of

the si!nificance of capital bud!etin! decisions+ the procedure ust consist of step by step

analysis"


74/75

BIBILOGRAP-Y

BIBILIOGRAP-Y

*uthor Title of book -ublisher

$" " -anday ;inancial ana!e ent :ikas -ublishers

"6 8hanB

-"8" =ain

ana!e ent *ccountin! T*T* c%raw5&ill publishin! house

-rasanna 7handra ;inancial ana!e ent T*T* c%raw5&ill publishin! house

udhendra hatt ;inancial ana!e ent E,cel ooks


75/75

:" 8" a,enaB

7" '" :ashist

7ost *ccountin!

" ." aheshwari ;inancial ana!e ent

earch En!ines G www"!oo!le"co?ebsite G www"pennar"co
http://www.google.com/http://www.pennar.com/http://www.google.com/http://www.pennar.com/

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