A

STUDY ON

CAPITAL BUDGETING

Submitted To

In partial fulfillment of the requirements for the award of the

Degree of

POST GRADUATE DIPLOMA IN BUSINESS MANAGEMENT

Submitted by

LADE.VARSHA NIHANTH

Roll no. 2013150045

Under the Guidance of

C.A.SUDHAKAR REDDY

Manager (F & A)

RINL, VISAKHAPATNAM STEEL PLANT

2014-15

CMT BUSINESS SCHOOL

(Affiliated to AICTE, DELHI)

DEPARTMENT OF MANAGEMENT STUDIES

MANAGEMENT DEVELOPMENT

RASTRIYA ISPAT NIGAM LIMITED

1

CERTIFICATE

This is to certify that Mr. L.VARSHA NIHANTH of PGDM 2013-15 year

bearing registration no: 2013150045 in the CMT BUSINESS SCHOOL CAPITAL

BUDGETING” under the guidance & supervision of Mr. C.A.Sudhakar Reddy of

finance department, RINL-Visakhapatnam steel plant. The project has been

approved by the management development, RINL-VSP and further certificate of the

successful completion of the project has been provided for the same.

Date: 15-09-2014 Shri.O.R.M.Rao

Place: Visakhapatnam AGM (MD)RINL-VISAKHAPATNAM STEEL PLANT

2

EXTERNAL GUIDE CERTIFICATE

This is to certify that the project work entitled “CAPITAL

BUDGETING” at RASHTRIYA ISPAT NIGAM LIMITED,

VISAKHAPATNAMSTEELPLANT is a bonfire work done and submitted in

partial fulfillment for the award of the Post-Graduation Diploma And

Management by L.VARSHA NIHANTH bearing Registration No. 2013150015 of

CENTER FOR MANAGEMENT AND TECHNOLOGY, Affiliated by

A.I.C.T.E, Approved by Ministry of HRD, New Delhi under my guidance and

supervision during the period from 19-05-2014 to 12-07-2014 at Management

Development (MD), RINL-Visakhapatnam Steel Plant.

Sri C.A.Sudhakar Reddy

Manager [F&A]

Place: VisakhapatnamDate:

3

DECLARATION

I hereby declare that the project entitled A STUDY ON “CAPITAL

BUDGETING “ is an original and independent work done by me and has been

submitted to the Department of Management Studies, CMT BUSINESS SCHOOL

affiliated to AICTE,DELHI in partial fulfillment for the award of degree of

“POST GRADUATE DIPLOMA IN MANAGEMENT”.

I also declare that this project is the result of my own effort and is not

submitted to any University for the award of any Degree or Diploma.

Place: Visakhapatnam Date:

ACKNOWLEDGEMENT

4

I take this opportunity to acknowledge, all the people who rendered their

valuable advice in bringing the project to function.

I would like to take this opportunity to express my heartful thanks to Mr .

Satish, Placement Incharge of CMT Business School Visakhapatnam, for giving me

this opportunity to do my project on “capital budgeting” in the esteemed

organization.

I also express my sincere thanks to my faculty members without whose

cooperation I would not have been able to complete the project successfully.

As a part of the curriculum at CMT BUSINESS SCHOOL the project enables

us to enhance our skills, expand our knowledge by applying various theories,

concepts and laws to real life scenario which would further prepare us to face the

extremely ‘competitive corporate world’.

ABBREVIATIONS FOR DEPARTMENTS

• ACS Air Conditioning System

• BF Blast furnace

• CO&CCP Coke oven & Coal Chemical Plant

5

• CM(E) Central Maintenance Mechanical

• CMM central Maintenance department

• DNW distribution network

• EMID environment management department

• ERS electrical repair shop

• ES&F engineering shop & foundry

• ETL electro technical laboratory

• MMSM medium merchant & structural mill

• RED refectory engineering department

• SMS steel melt shop

• TTI Technical Training Institute

• RED Refractory Engineering Maintenance

• RMD Raw Material Department

• IT Information Technology

• F&A Finance & Accounts

• HRD Human Resources Department

• D&E Designs & Engineering Department

• MKTG Marketing

• ERP Entrepreneur Retail Price

CONTENTS

TITLE PAGE

NO.CHAPTER-I

6

INTRODUCTION

NEED FOR THE STUDY

OBJECTIVES OF THE STUDY

SCOPE OF THE STUDY

METHODOLOGY

LIMITATIONS

CHAPTER-II INDUSTRY PROFILECHAPTER-III 3C’S

COMPANY PROFILECUSTOMERCOMPETITOR

CHAPTER – IV ETTENVIRONMENTTECHNOLOGY

CHAPTER – V THEORETICAL FRAME WORK

CHAPTER – VI OJT TASK ASSIGNED FINDINGS AND SKILLS REQUIRED BIBLIOGRAPHY

CHAPTER – I

7

INTRODUCTION

Need of the study

Objective of the study

Scope of the study

Methodology

Limitations

8

INTRODUCTION

A project is an activity sufficiently self- contained to permit financial and commercial

analysis. In most cases projects represent expenditure of capital funds by pre- existing entities

which want to expand or improve their operation.

In general a project is an activity in which, we will spend money in expectation of returns

and which logically seems to lead itself to planning. Financing and implementation as a unit, is a

specific activity with a specific point and a specific ending point intended to accomplish a specific

objective.

To take up a new project, involves a capital investment decision and it is the top

management’s duty to make a situation and feasibility analysis of that particular project and means

of financing and implementing it financing is a rapidly expanding field, which focuses not on the

credit status of a company, but on cash flows that will be generated by a specific project.

Capital budgeting has its origins in the natural resource and infrastructure sectors. The

current demand for infrastructure and capital investments is being fueled by deregulation in the

power, telecommunications, and transportation sectors, by the globalization of product markets and

the need for manufacturing scale, and by the privatization of government –owned entities in

developed and developing countries.

The capital budgeting decision procedure basically involves the evaluation of the desirability

of an investment proposal. It is obvious that the firm most have a systematic procedure for making

capital budgeting decisions. The procedure for making capital budgeting decisions.

The procedure must be consistent with the objective of wealth maximization. In view of the

significance of capital budgeting decisions, the procedure must consist of step by step analysis.

9

NEED OF THE STUDY

Capital investments, representing the growing edge of a business, are deemed to be very

important for three inter- related reasons.

1. The influence firm growth in the long term consequences capital investment

decisions have considerable impact on what the firm can do in future.

2. They affect the risk of the firm; it is difficult to reverse capital investment decisions

because the market for used capital investments is ill organized and /or most of the capital

equipments bought by a firm to meet its specific requirements.

3. Capital investment decisions involve substantial out lays.

Visakhapatnam Steel Plant is a growing concern, capital budgeting is more or less a

continuous process and it is carried out by different functional areas of management such a

production, marketing, engineering, financial management etc. All the relevant functional

departments play a crucial role in the capital budgeting decision process.

10

OBJECTIVES OF THE STUDY

1. To describe the organizational profile of Visakhapatnam Steel Plant.

2. To discuss the importance of the management of capital budgeting.

3. Determination of proposal and investments, inflows and out flows.

4. To evaluate the investment proposal by using capital budgeting techniques.

5. To summarize and to suggest for the better investment proposal.

11

SCOPE OF THE STUDY

The study has been conducted to understand the position of the industry and various

functional areas of the company and their operations. The study mainly focuses on Capital

Budgeting of the company.

Keep in view the accessibility and availability of the data sources 10% has been choosen for

the purpose of study. This study causes 2003-2009 and it is limited only to the perception of the

personal belonging to “RASTRIYA ISPAT NIGAM LIMITED”.

METHODOLOGY

12

The information for the study is obtained from two sources namely.

1. Primary Sources

2. Secondary Sources

Primary Sources:

It is the information collected directly without any references. It is mainly through

interactions with concerned officers & staff, either individually or collectively; some of the

information has been verified or supplemented with personal observation. These sources include.

1. Thorough interactions with the various department Managers of VSP.

2. Guidelines given by the Project Guide, Sri C.A.Sudhakar Reddy, Manager (Staff),

Budget Section, F & A.

Secondary Sources:

This data is from the number of books and records of the company, the annual reports

published by the company and other magazines. The secondary data is obtained from the

following.

a) Collection of required data from annual records, monthly records, internal

Published book or profile of Visakhapatnam Steel Plant.

b) Other books and Journals and magazines

c) Annual Reports of the company.

LIMITATIONS

13

Though the project is completed successfully a few limitations may be there.

a) Since the procedure and polices of the company will not allow to disclose

confidential financial information, the project has to be completed with the available data given to

us.

b) The period of study that is 6 weeks is not enough to conduct detailed study of the

project.

c) The study is carried basing on the information and documents provided by the

organization and based on the interaction with the various employees of the respective

departments.

d) Lack of knowledge. Some of the lack full-fledged knowledge of the concept and its

difficult to collect a specific opinion from them.

e) Time limitation. The duration of the project is short to collect the required

information accurately.

14

CHAPTER-II

INDUSTRY PROFILE

15

Steel is an alloy of iron usually containing less than 1% carbon is a versatile material

with multitude of useful properties used most frequently in the automotive and construction

industries. Steel can be cast into bars strips, sheets, nails, spikes, wire, rods or pipes as needed by

the intended user. The consumption of steel is regarded as the index of industrialization and the

economic maturity any country has attained.

The development of steel industry in India should be viewed in conjunction with the type and

system of government that had been ruling the country. The production of steel in significant

quantity started after 1990 .The growth of steel industry can be conveniently started by dividing the

period in to pre and post independence era. In the period of pre independence, steel production was

1.5 million tones per year, which was raised to 9 million tones of target. This is the result of the

bold steps taken by the government to develop this sector.

Growth of Steel Industry:

Pre-independence

1830 - Josiah, Marshall Health constructed the first manufacturing

Plant at port Move in Madras presidency.

1874 - James Erskin founded the Bengal iron works.

1899 - Jamshedji Tata initiated the scheme for an integrated steel plant.

1906 - Formation of TISCO.

1911 - Tata iron & steel company started production.

1916 - TISICO was founded.

Post-independence

1951-56 - First Five Year Plan.

No new steel plant came up .The Hindustan steel Ltd. was born on 19 th January,

1954 with the decision of setting up three steel plants each with one million tone input steel per

year in at Rourkela, Bhilai and Durgapur; TISCO stated its expansion program.

1956.61 - Second Five Year Plan

16

A bold decision was taken up to increase the ingot steel output India to 6 Million

tons per year & production at Rourkela, Bhilai and Durgapur steel plant started.

1961.66 - Third Five Year Plan

During the third five year plan the three steel plants under HSL; TISCO &

HSCO were expanded as show. In January 1964 Bokaro steel plant came into existence.

1966.69 - Recession Period

The entire expansion program was actively executed during this period.

1969-74 -Fourth Five Year Plan

Licenses were given for setting up of many mini steel plants and re-rolling mills.

Govt. Of. India accepted setting up two more steel plants in south. One each at

Visakhapatnam and Hospet (Karnataka).

SAIL was formed during this period on 24th January, 1973. The total installed

capacity from 6 integrated plants was 106 Mt.

1979 - Annual Plan

The erstwhile Soviet Union agreed to help in setting up the Visakhapatnam steel

plant.

1980.85 - Sixth Five Year Plan

Work on Visakhapatnam steel plant was started with a big bang and top priority was

accorded to start the plant.

Scheme for modernization of Bhilai steel plant, Rourkela, Durgapur, TISCO were

initiated.

1985-91 - Seventh Five Year Plan

Expansion work of Bhilai and Bokaro steel plants completed.

Progress on Visakhapatnam steel plant picked up and rationalized concept has been

introduced to commission the plant with 3.0Mt liquid steel capacity by 1990.

1991-96 - Eight Five Year plan

17

Vishakhapatnam steel plant started its production modernization of other steel

plants is also duly envisaged.

1997-2002 - Ninth Five Year Plan

Visakhapatnam steel plant had foreseen a 7% growth during the entire plan period.

2002-2007 - Tenth Five Year Plan

Steel industry registers the growth of 9.9 % Visakhapatnam steel plant high regime

targets achieved the best of them.

2007-2012 - Eleventh Five Year Plan

Cost of schemes/project original approved by Government of India is Rs.9,569.18

crores

The major steel and related companies in India

1. Bharat Refectories Ltd.

2. Hindustan Steel Works Construction Ltd.

3. Jindal Steel and Power Ltd.

4. Tata Iron Steel Company Metal Scrap Trade Corporation Ltd.

5. Metallurgical and Engineering Consultants India Ltd.

6. National Mineral Development Corporation Ltd.

7. Rashtriya Ispat Nigam Ltd.

8. Sponge Iron India Ltd.

9. Steel Authority India ltd.

The global steel industry has witnessed several revolutionary changes during the last century.

The changes have been in the realms of both technology & business strategy. The ultimate object

of all these changes is to remain competitive and open global market.

The Indian steel industry is growing very rigorously with the major producers like SAIL,

RINL, TISCO, JVL and many others. Our steel industry has amply demonstrated its ability of

adopt to the changing scenario and to survive in the global market that is becoming increasingly

18

competitive. This has been possible to a large extent due to the adoption of innovative operating

practices and modern technologies.

Industrial Development in India has reached a high degree of self-reliance, and the steel

industry occupies a primary place in the strategy for future development. At present the production

of steel industry country is 34Mt. the public sector steel industry has been restructured to meet

challenges and a separate fund has been established for modernization and future development of

the industry. It is now being proposed that Indian steel industry should Gear up to achieve a

production level of about 100 Mt by the year 2000.

Global scenarios

As per IISI

In March’ 2005 world Crude steel output was 928Mt when compared to march 2004

(872Mt), ∙The change in percentage was 6.5%.

China remained the world largest crude steel producer in 2005 also (275Mt)

followed by Japan (96Mt) and USA (81Mt). India occupied 8th position (42Mt).

USA remained the largest importer of semi finished and finished products in 2002

followed by China and Germany.

Japan remained the largest exporter of semi finished and finished steel products in

2002 followed by Russia and Ukraine.

Other significant recent developments in the global steel scenario have been: Under

the auspices of the OECD (Organization for Economic Co-operation & Development) the

negotiations among the major steel producing countries for a steel subsidy agreement (SSA) held

in 2003 with the objective to agree on a complete negotiating test for the SSA by the Middle of

2004. It also set subsidies for the steel industry of a ceiling of 0.5% of the value of production to be

used exclusively for Research & Development

Market scenarios

The year 2004-05 was a remarkable one for the steel industry with the world crude steel

production crossing the one billion mark for the first time in the history of the steel industry. The

19

world GDP growth about 4% lends supports to the expectations the steel market is all set for strong

revival after prolonged period of depression .The Indian economy also become robust with annual

growth rates of 7-8 % this will provide a major boost the steel industry. With the nations focus on

infrastructure development coupled with the growth in the manufacturing sector, the Indian steel

industry all set for north ward movement. The draft national steel police envisage production of 60

Mt by 2012 and 110Mt by2020, and annual growth rate of 6-7%. All this should therefore augur

well for the Indian steel industry.

Production scenarios

Steel industry was de-licensed and decontrolled in 1991&1992

respectively.

India is the 8th largest producer of steel in the world.

In 2003-04 finished steel production was 36.193Mt.

Pig iron production in 2003-04 was 5.221Mt.

Sponge iron production was 80.85 Mt during the year 2003-04

The annual growth rate of crude steel production in 2002-03was 8% and in

2003-04 was 6%.

The last five year production performance is as under

(In Million tons)

YEAR PIG IRON SPONGE IRONFINISHED STEEL

2000-01 3.39 5.44 29.272001-02 4.08 5.44 30.632002-03 5.28 6.44 33.672003-04 3.76 8.09 39.122004-05 3.18 9.93 41.152005-06 4.39 0.00 30.842006-07 3.52 0.00 31.402007-08 5.28 20.37 56.072008-09 6.21 21.09 57.162009-10 5.88 24.33 60.622010-11 5.68 25.08 68.62

20

2011-12 5.78 20.37 73.422012-13 5.36 22.18 85.33

DEMAND-AVAILABILITY PROJECTION

Demand-Availability of iron and steel in the country is projected by ministry of steel

annually.

Gaps in availability are met mostly through imports.

Interface with consumers by way of Steel Consumer Council exists, which is

conducted on regular basis.

Interface helps in redressing availability problems, complaints related to quality.

PRICING & DISTRIBUTION

Price regulation of iron & steel was abolished on 16-01-1992.

Distribution controls on iron& steel removed except 5 priority sectors, viz. Defense,

Railways, Small Scale Industries Corporations, Exporters of Engineering Goods and

North Eastern region.

Allocation to priority sectors is made by Ministry of steel.

Government has no control over prices of iron & steel.

Open market prices are generally on rise.

Price increases of late have taken place mostly in long products than flat

products.

21

CHAPTER –III

COMPANY PROFILE

22

Steel comprises one of the most important resources of the economy. History shows that,

the strongest of civilizations have evolved quickly in the course of time, because of the proper use

of the iron and steel reserves they had. The huge iron pillars at the entrance of New Delhi suggest

that the history of iron and steel industry in India is well over 2000 years old.

Steel comprises one of the most important inputs to all sectors of the economy. Steel

Industry is both a basic and a core Industry. The economy of any nation depends on a strong base

of Iron and Steel Industry in that nation. History has shown that the countries having a strong

potential for Iron and Steel Industry have played a prominent role in the advancement in the

civilization in the world. Steel is such a versatile commodity that every object we see in our day-

to-day life had use, such as small items as nails, pins, needles etc., to surgical instruments,

agricultural implements, boilers, ships, railway materials, automobile parts. The great investments

that has gone into the fundamental research in Iron and Steel Technology has helped both directly

and indirectly many modern fields of today’s science and technology. Steel is versatile and

indispensable item. The versatility of steel can be traced mainly of three reasons.

1. It is only metallic item, which can be conveniently and economically produced in

tonnage quality.

2. It has got very good strength coupled with malleability.

3. Its properties can be changed over a wide range. Its properties can be manipulated

to any extent by proper heat treatment techniques.

Visakhapatnam steel plant profile

To meet the growing domestic needs of steel, Government of India decided to set up an

integrated Steel plant at Visakhapatnam. An agreement was signed with erstwhile USSR in 1979

for cooperation insetting up 3.4 million tones integrated Steel Plant at Visakhapatnam. The

foundation was laid by the then Prime Minister Mrs. Indira Gandhi on 20th January 1971.

23

The Project was estimated to cost Rs.3, 897.28 cores based on prices as on 4 th Quarter

of 1981. However, on completion of Construction of the whole Plant in 1992, the cost escalated to

around 8500 Cr. Unlike other integrated Steel Plants in India, Visakhapatnam Steel Plant is one of

the most modern Steel Plants in the country. The plant was dedicated to the nation on 1 st August

1992 by the then Prime Minister, P.V.Narasimha Rao.

New Technology, large-scale computerization and automation etc., are incorporated in

the Plant. To operate the plant at international levels and attain such lab our productivity, the

organizational manpower has been rationalized. The plant has a capacity of producing 3.0 MT of

liquid steel and 2,656Mt of saleable steel.

Major sources of raw materials

Water supply

Operational water requirement of 36 Mgd is being met from the Yeleru Water Supply

Scheme.

Power supply

Operational Power requirement of 180 to 200 MW is being met through captive Power

Plant. The capacity of the power plant is 286.5 MW. Visakhapatnam Steel Plant is exporting

60MW power to Andhra Pradesh State Electricity Board.

Major Units

Raw Materials SourceIron Ore Lumps & Fines Bacheli, Chattisgarh/Gua, JharkhandBF Lime Stone Jaggayyapeta, APSMS Lime Stone UAEBF Dolomite Madharam, APSMS Dolomite Madharam, APManganese Ore Chipurupalli, APBoiler Coal Talcher, OrissaCoking Coal AustraliaMedium Coking Coal (MCC) Gidi/Swang/Rajarappa/Kargali

24

Department

Annual

Capacity

(‘000 T)

Units (3.0 MT Stage)

Coke Ovens 2,261 4 Batteries of 67 Ovens & 7 Meters. Height

Sinter Plant 5,256 2 Sinter Machines of 312 Sq. Meters. grate area

eachBlast Furnace 3,400 2 Furnaces of 3200 Cu. Meters. volume each

Steel Melt Shop 3,000 3 LD Converters each of 133 Cu. Meters. Volume and Six 4 strand bloom castersLMMM 710 4 Strand finishing Mill

WRM 850 4 Strand high speed continuous mill with no twist

finishing blocksMMSM 850 6 STAND FINISHING MILL

Main Products of VSP

Steel Products By-ProductsBlooms Nut Coke Granulated SlagBillets Coke Dust Lime FinesChannels, Angles Coal Tar Ammonium SulphateBeams Anthracene OilSquares HPN aphthaleneFlats BenzeneRounds TolueneRe-bars ZyleneWire Rods Wash Oil

Vision

• To be a continuously growing world class company

• We shall Harness our growth potential and sustain profitable growth.

• Deliver high quality and cost competitive products and be the first choice of customers.

• Create an inspiring work environment to unleash the creative energy of people.

25

• Achieve excellence in enterprise management.

• Be a respected corporate citizen, ensure clean and green environment and develop vibrant

communities around us.

Mission

To attain 16 Mt liquid steel capacity through technological up-gradation,

operational efficiency and expansion; augmentation of assured supply of raw materials; to produce

steel at international Standards of Cost & Quality; and to meet the aspirations of stakeholders.

Objectives

● Expand plant capacity to 6.3 million ton by 2011-12 with the Mission to expand further in subsequent phases as per the corporate plan.

• Revamping existing Blast Furnaces to make them energy efficient to contemporary levels and in the process increase their capacity by 1 Mt, thus total hot metal capacity to 7.5 Mt

● be amongst top five lowest cost steel producers in world by 2009-10.

● Achieve higher levels of customer satisfaction.

● Vibrant work culture in the organization.

● be proactive in conserving environment, maintaining high levels of safety and

addressing social concerns.

Core values

Commitment.

Customer Satisfaction.

Continuous Improvement.

Concern for Environment.

Creativity & Innovation.

26

Quality Policy

Visakhapatnam Steel Plant Employees are committed to meet the needs and

expectations of our customers and other interested parties. To accomplish this, they will

Supply quality goods and services to customers delight.

Achieve quality of the products by following systematic approach through planning,

documented procedure and timely review of quality objectives.

Continuously improve the quality of all materials, processes and products.

Maintain an enabling environment, which encourages teamwork and active

involvement of all employees with their involvement.

Environment Policy

Visakhapatnam Steel Plant carrying out its operations without harming to the environment. To accomplish this, they will

Document, implement, maintain and continuously review the environmental

management system.

Comply with all the relevant environmental legislations, regulations and other

requirements.

Ensure continual improvement in the environmental performance and prevention of

pollution by minimizing the emissions and discharges.

Maintain a high level of environmental consciousness amongst employees.

Review the environmental objectives and targets on a continuous basis.

Energy Policy

Visakhapatnam Steel Plant is committed to optimally utilize various forms of energy in a cost-effective manner to effect conservation of energy resources.

To accomplish this, they will:

Monitor closely and control the consumption of various forms of energy through

an effective Energy Management System.

27

Adopt appropriate energy conservation technologies.

Maximize the use of cheaper and easily available forms of energy.

Oshas Policy

Visakhapatnam Steel Plant is committed to occupational health and safety of employees and contract workers. To accomplish this, the will,

Document, implement, maintain and periodically review the occupational health and

safety management system including the policy.

Comply with the relevant occupational health and safety legislations, regulations

and other requirements.

Ensure continual improvement in the environment performance and prevention of

pollution by minimizing the emissions and discharges.

Maintain a high level of environmental consciousness amongst employees.

Review the environmental objectives and targets on a continuous basis.

Human Resource Policy

Visakhapatnam Steel Plant is committed to create an organizational culture, which

nurtures employee’s potential for the prosperity of the organization. To accomplish this, they will,

Identify development needs of the employees on a regular basis, provide the

necessary training and continually evaluate and monitor the effectiveness of the training so that the

quality of the training also gets updated.

Provide inputs to the employees for developing their attitude towards work and for

matching their competencies with organizational requirements.

28

Create an environment of learning and knowledge sharing by providing the means

and facilities and also access to the relevant information and literature.

Facilitate the employees for continuous development of their knowledge base,

skills, efficiency, innovativeness, self-expression and behavior so that they contribute positively

with commitment for the growth and prosperity of the organization while maintaining a high level

of motivation and satisfaction.

Prepare employees through appropriate development programs for taking up higher

responsibilities in the organization.

Customer Policy

VSP will endeavor to adopt a customer-focused approach At all times with transparency.

VSP will strive to meet more than the customer needs and expectations pertaining to

products, quality, and Value for money and satisfaction.

VSP greatly values its relationship with customers and would make efforts at strengthening

these relations for Mutual benefit.

I.T. Policy

RINL/VSP is committed to leverage Information Technology as the vital enabler in

improving the customer-satisfaction, organizational efficiency, productivity, decision-

making, transparency and cost-effectiveness, and thus adding value to the business of steel

making. Towards this, RINL shall:

Follow best practices in process Automation & Business Processes through IT by in-house

efforts / outsourcing and collaborative efforts with other organization / expert groups /

institutions of higher learning, etc., thus ensuring the quality of product and services at least

cost.

29

Install, maintain and upgrade suitable cost-effective IT hardware, software and other IT

infrastructure and ensure high levels of data and information security

Strive to spread IT-culture amongst employees based on organizational need, role and

responsibilities of the personnel and facilitate the objective of becoming a World-Class

business organization.

Enrich the skill-set and knowledge based of all related personnel at regular intervals to

make employees knowledge-employees.

Periodically monitor the IT investments made and achievements accrued to review their

cost effectiveness.

Major Departments

Raw Material Handling Plant

VSP annually requires quality raw materials viz. Iron Ore fluxes (Lime stone, Dolomite);

coking and none coking coals etc. to the tune of 12-13 Million Tones for producing 3 Million

Tones of Liquid Steel. To handle such a large volume of incoming raw materials received from

different sources and to ensure timely supply of consistent quality of feed materials to different

30

VSP consumers, Raw Material Handling Plant serves a vital function. This unit is provided with

elaborate unloading, blending, stacking & reclaiming facilities viz. Wagon Tipplers, Ground &

Track Hoppers, Stock yards Crushing plants, Vibrating screens, Single/ twin boom stickers, wheel

on boom and Blender reclaimers. In VSP peripheral unloading has been adopted for the first time

in the country.

The Raw Material Handling Plant (RMHP) Department procures the different raw materials

from various sources. The following are the important raw material handled by the RMHP

Department.

Iron OreCoalDolomiteLimestone ManganeseSand

The RMHP department dispatches the raw material to other departments only after screening

the material.

Coke Oven Department

The main function of this department is to convert the coal in to coke, which is received from

RMHP Department.

Coke is a hard porous mass obtained by functional distillation of coal in

absence of air at a temperature above 125oC for a period of 16-18 hours. It is used as

a fuel and reducing agent for reduction of iron ore in blast furnace. The following are the

parameters of Coke Ovens:

Number of batteries 4Number of ovens in

batteries

67

Coal handling capacity of

ovens

31.6 tones

Dimensions of oven 16m length x 7m

height

31

Besides coke production, a number of coal chemicals are being extracted in coal chemical

plants. The coal chemicals are tar, benzyl and ammonia based products. The coal is not consumed

directly because coke helps in reducing the pollution.

Sinter Plant Department

Sinter is a hard and porous lump obtained by agglomeration of lines of iron ore, coke,

limestone and metallurgical waster. This department by not wasting the powder and small pieces

of iron ore coal manganese, dolomite and limestone makes Sinter Cakes and put it for reuse. This

increases the productivity of Blast Furnace, improves the quality of pig iron and decreases the

consumption of coke rate.

32

Blast Furnace

Pig iron/hot metal is produced in blast furnace. The furnace is named as blast furnace as it is

running with blast at high pressure with a temperature of 1150oC.

Raw materials required for iron making are iron ore, sinter coke and limestone. For one tone

of hot metal production, 310Kgs. iron ore, 1390Kgs. sinter and 627Kgs. of coke with some other

additives.

For production of pig iron/hot metal there are two blast furnaces named Godavari and

Krishna. They are of the largest and most modern furnaces in the country.

33

Steel Melt Shop

Hot metal produced in blast furnace contains impurities like carbon, sulphur, phosphorus,

silicon, etc.; these impurities will be removed in steel making by oxidation process.

There are three LD converters to convert hot metal in to steel, after the conversion of hot

metal in to steel, the steel is subjected to homogenization treatment and cast in to blooms in

continuous casting machines.

34

Rolling Mills

Blooms cannot be used as they are in daily life. These blooms have to reduce in size and

properly shaped to fit for various jobs. Rolling is one of the mechanical processes to reduce larger

size sections in to smaller cones. The cast blooms are heated and rolled in to various long products

of different specifications at three high capacity sophisticated high-speed rolling mills.

Wire Rod Mill

WRM is a stand mill and is fully automated with computers. The mill consists of 2.5 stands

and a capacity of 850,000 tonnes per annum. The mill product mix includes rounds and ribbed

wire in the sizes of 5.5 mm to 12.7 mm dia. wire rods are made in coil having maximum weight of

1200 Kgs. Liquid Steel produced in LD Converters is solidified in the form of blooms in

continuous Bloom Casters. However, to homogenize the steel and to raise its temperature, if

needed, steel is first routed through, Argon rinsing station, IRUT (Injection Refining & Up

temperature) / ladle Furnaces.

Wire Rod Mill is fully automated & sophisticated mill. The billets are rolled in 4 strand,

high-speed continuous mill having a capacity of 8, 50,000 Tonnes of Wire Rod Coils. The mill

produces rounds in 5.5 - 14 mm range and rebars in 8, 10 & 12 mm sizes. The mill is equipped

with standard and Retarded Stelmore controlled cooling lines for producing high quality Wire rods

35

in Low, Medium & High carbon grade meeting the stringent National & International standards

viz. BIS, DIN, JIS, BS etc. and having high ductility, uniform grain size, excellent surface finish.

Medium Merchant & Structural Mill (MMSM)

This mill is a high capacity continuous mill. The feed material to the mill is 250 x 250

mm size bloom, which is heated to rolling temperatures of 1200 °C in two walking beam furnaces.

The mill is designed to produce 8,50,000 tons per annum of various products such as rounds,

squares, flats, angles (equal & unequal), T bars, channels, IPE beams I HE beams (Universal

beams) .

36

AUXILIARY FACILITIES

Power Generation & Distribution

The average power demands at all units of VSP when operating the full capacity will be 221

MW. The captive generation capacity of 270 MW is sufficient to meet all the plant needs in normal

operation time. In case of partial outage of captive generation capacity due to break down,

shutdown or other reasons. The short fall of power is availed from APSEB grid. The agreement

with APSEB provides for exporting of surplus power to APSEB. The captive generating capacity

comprises of

- TPP -247.5 MW (3x60 MW + 1 X 67.5 MW)

- Back pressure Turbines (C&CCD)* - 2 x 7.5 MW

- Gas Expansion Turbines (BF / ces)* - 2x12 MW

(*Power availability from BPT & GET is around 22MW)

Power plant also meets the Air Blast requirements of Blast Furnaces thro' 3 Turbo blowers

each of 6067 NM 3 / hr capacity.

Power from APSEB is received at Main Receiving Station thro' 220KV overhead

distribution lines. The entire plant is configured as 5 electrical load blocks (LBSS 1 to 5) and step-

down substations are provided in each block with 220 KV transformers to step down to 33/11/6.6

KV for further distribution.

Traffic Department

A steel plant of the size of VSP has to handle around 60 to 65 MT traffic comprising of

incoming traffic in the form of raw materials and outgoing traffic in the form of finished or

saleable steel, and also the in process traffic such as cast pig iron, mill scrap, hot metal.

Of this 50% is transported by belt conveyors, 45% by Rail Transport and 5% by Road. VSP

has the distinction of having peripheral unloading system for the 1st time in Steel Industry.

To handle this huge quantities of traffic, VSP has a fleet of 31 locomotives, Hot Metal ladle

cars, Torpedo ladle cars, Captive wagons of different types, 5 internal Railway stations, loco and

wagon repair shop, number of weigh bridges.

Engineering shops & Foundry (ES & F)

37

Engineering Shops are set up to meet the requirements of Ferrous & Non Ferrous spares of

different departments. This complex is divided into 1. Forge Shop 2. Structural shop 3. Foundry 4.

Central machine shop 5. Wood Working Shop and 6. Utility Equipment Repair Shop (UERS).

The Forge shop is designed for production of shafts, coupling flanges etc. and also of forge

shapes such as crusher hammer heads, special bolts, nuts etc. In the Structural shops the fabricated

structural of about 4500 Tonnes are produced annually and the input consisting of sheets, plates,

channels, angles beams etc. In Foundry Iron castings up to a weight of 5 tons and non-ferrous

casting up to a weight of 1 ton are produced. 2600 Tonnes of iron castings and 200 tones of non-

ferrous castings are produced annually. In steel foundry, steel casting up to maximum piece weight

of 10T is produced. Steel ingots up to 1.3 Tonnes for forging are also produced.

In the Central Machine Shop, various spares are made. The machining section has over 100

major machine tools including lathes, milling, boring, planning, slotting, shaping, grinding and

other machines. The Wood working Shop manufactures patterns for foundries. The shop will

require 300 Cu.m. Per year of wooden patterns.

Central Maintenance Electrical

Maintenance of all H.T motors, L.T motors and DC motors of above 200KW. There are 810

such large rotating electrical machines spread throughout the plant including 3 Nos. of 60 MW

Turbo-Generators, 1 No of 67.5M TG in TPP, 2 no's of Back Pressure Turbo Generators of 7.5

MW each and 2 Nos. of Gas Expansion Turbo- Generator of 12 MW each. The services provided

are as mentioned below.

a) Repairs, Maintenance and condition monitoring of all rotating Electrical machines of the

plant. The job includes transportation, Overhauling and re-erection with precision alignment.

b) Maintenance of Electrics of all streetlights, Tower lights and Weigh Bridges throughout

the plant.

Electro Technical Laboratory

1) Repairs all the defective electronic PCB’s, which are taken out from the equipment

during their functioning.

2) Procures and arranges spare PCB’s for the equipment of PLC’s and drive controls for

motors in the plant and also for UPS systems.

3) Involves in the plant modernization activities and up gradation of equipment.

38

Electrical Repair Shop (ERS)

ERS is a central repair shop to carry out repair activities like overhauling, rewinding, testing

etc., of various types of AC Motors, DC Motors, HT Motors, Submersible pumps, Distribution

transformers, Welding Machines, Control Transformers, Lifting magnets, Coils etc., of the plant.

The Main Functions of ERS are:

a) Overhauling of motors

b) Rewinding of motors, magnets, transformers, pumps, coils etc.

c) Testing of Electrical equipment

d) Emergency Site Repairs

e) Performance assessment of electrical motors

Utilities Department

Utilities dept. Consists of 1. Air Separation Plant 2. Compressor Houses 3. Chilled

water plants and Acetylene plants. The ASP is designed to meet the maximum daily demand of

gaseous oxygen, gaseous nitrogen and gaseous argon. Compressor Houses produce Compressed

Air required for the operation of pneumatic devices, for instruments and controls, pneumatic tools

and for general purpose in the various production units of Steel Plants. Chilled Water plants ( 2

No's ) produce chilled water required for use in the ventilation and air conditioning system in areas

such as office rooms, electrical control room etc. Acetylene plant produces Acetylene gas required

for general purpose cutting and welding.

Quality Assurance and Technological Development (QA &TD)

The QA & TD dept. has been set up to take care of activities pertaining to Quality Control of

Raw Materials, Semi finished products and finished products. The QA & TD labs are provided at

major department like CO&CCP, SP, BF, SMS, and Rolling Mills etc., in addition to Central

Laboratory. The department monitors the process parameters for production of quality products.

QA & TD carries out analysis, testing and final inspection including spark testing of finished prod-

ucts and assigns grades to them.

Calcining & Refractory Material Plant:

39

CRMP consists of two units - Calcining Plant & Brick Plant. In Calcining plant

limestone & dolomite are calcined for producing lime & calcined dolomite, which are used for

refining of steel in the converters.

Roll shop & Repair shop:

Roll shop & Repair shop is in the complex of Rolling Mills catering to the needs of mills in

respect of roll assemblies, guides few Maintenance spares and roll pass design. Geographically this

dept. is in three areas as roll shop-1, Roll shop-II and Area Repair Shop. The main activities of this

shop is Roll pass Design, grooving of rolls, assembly of rolls with bearings, preparation of guides

and their service and manufacture / repair of mill maintenance spares.

For the first time in the country, VSP has adopted CNC technology for grooving of steel

rolling mill rolls. High constant respective accuracy, higher productivity, use of standard tool for

any groove turning, elimination of the use of different templates, easier to incorporate groove

modification etc., are some of the advantages of CNC lathes over the conventional one.

Plant Design

Major functions of this unit are

• Development of detailed Manufacturing Drawing and Replacement Specification drawings

• Suggesting New Designs and detailing by doing elaborate engineering study and Analysis

• Standardization

Works Contracts Department

• Obtaining administrative approval on receipt of proposal from indenting departments,

tendering and awarding of work

• Converting tender committee meetings and preparing recommendations forwarding work.

• Preparing COM/Board Note for decisions at those forum Participating in claims and

arbitration proceedings and legal cases pertaining to contracts

• Registration for agencies under various categories & classes of works periodically.

40

FUNCTIONS OF VARIOUS DEPARTMENTS OF RINL/VSP:

Directorate of Operations

Production Planning and Control

Formulation of long term production plans and infrastructure support.

Formulation of Annual and Monthly production plan. This involves detailed

planning for product mix and value added steel along with Marketing Dept.

Analyzing Plant performance against targets on a periodic basis and taking

necessary corrective actions.

Techno-economic and Quality

Formulation of techno-economic norms and energy management parameters and reviewing

the same against targets periodically.

Inputs and Basic Infrastructure

Long term and short term planning for procurement of raw materials like Imported

Coking Coal (ICC), Medium Coking Coal (MCC), Boiler Coal, Iron Ore Fines and Iron Ore

Lumps etc.,

Formulation of Annual Inward and Outward traffic movement plan for raw

materials and finished products in consultation with Marketing and Material Management Depts.

Repairs and Maintenance Planning

Planning of major Capital Repairs, Shutdowns, Spares requirement and ensuring

preparedness before taking up the repairs.

Mines planning

Formulation of annual and monthly production plans for BF limestone, BF grade

dolomite, Mn Ore and Sand at VSP Captive Mines.

41

Monitoring of production and dispatch of Limestone, Dolomite, Mn Ore and Sand

from Captive Mines.

Projects planning

Long and short term planning for all developmental schemes of capital nature

comprising modernization and technology up-gradation.

Planning and implementation of Additions, Modifications and Replacement (AMR)

schemes.

Expansion of Plant Capacity from 3.0 Mt liquid steel to 6.3Mt.

Research and Development

Identification of Technological Improvement scopes for various processes and plan

for adoption of them by acquiring design and know-how capability.

Indigenous development of technology involving laboratory investigation.

Development of new grades and products in coordination with marketing dept.

Information Technology

Formulation of Organizational IT-Policy, IT-Security Policy and IT-Vision.

Identification of IT enabled projects for various processes and implements them.

Budget plan and control

Identification of Budget requirement under various heads.

Control of the Budget and Spares, Consumables & Raw Materials Inventory.

Systems and Procedures

Streamlining the contract management system to ensure consistency of approach

and adoption of sound principles of contract management.

Ensuring the implementation and maintenance of quality management system

requirements for ISO 9001:2000 Certificate.

42

Monitoring pollution control activities of the Plant and interaction with the State

and Central Pollution Control Board.

Project Division

Design & Engineering Department

♦ Liaisoning with Consultants and Government Authorities in connection with

designs, specifications, approval of drawings and Liaisoning work for various types of clearances.

♦ Preparation of drawings, design and specification for AMR and Non-AMR jobs.

♦ Assisting indenting departments in technical discussion with parties and preparation

of technical recommendation.

♦ Layout clearances of various facilities coming in the Plant and Township.

♦ Operation of Consultancy contracts.

Construction Department

♦ Exercising supervision of work at sites both for quality and quantity checks.

♦ Preparation of contractor’s bills, processing of extra items and closure of contracts.

♦ Liaisoning with suppliers, MM department, Design & Engineering Department and

Stores in connection with progress of work at site.

♦ Arranging PAT/FAT will all concerned departments like works, design, consultants

and suppliers in terms of contract and handing over the unit to works department for operation.

Contracts Department

♦ Awarding of contract from the point on receipt of administrative approval from

indenting departments.

♦ Conducting commercial discussions with parties.

♦ Arranging Tender Committee meetings and preparing recommendations for

awarding work.

♦ Preparing COM/Board Note for decisions at those forms.

♦ Participating in claims and arbitration proceedings.

43

Project Monitoring Department

♦ To monitor the physical and financial progress of all the works executed by

Construction department.

♦ To monitor the progress of works executed by D&E as well as Contracts

department.

♦ Preparation of various types of reports for information of Government and different

levels of Management.

♦ Interaction with departments and consultant for updating the schedules and

networks for Project Monitoring.

Directorate of Finance & Accounts

• Making arrangement for long-term fund requirements.

• Accounting of all minority transactions and preparation of financial statement of the

company and getting the same audited as required under law.

• Maintaining records with regard to the cost of products produced by the company.

• Release of payments to suppliers/providers of goods and services.

• Release of salaries to the employees.

• According concurrence to proposals for investments & expenditure as per the policies,

procedures and the Delegation of Powers.

• Conduct Internal Audits, Stock Verification and Statutory compliance.

• Making working capital arrangements.

• Submission of periodical reports to banks as per their sanctioned terms.

• Organizing for payment of Central Excise, Sales Tax, Income Tax and other statutory

payments.

• Co-ordination with statutory Auditors and Government Audit.

44

• Generation of various MIS reports pertaining to F&A department for Management

Information and Control.

Directorate of Personnel

Personnel Department

Manpower Planning,

Employees’ induction,

Service matters, policy & rules

Industrial relations,

Employees’ welfare

Corporate Social Responsibility (CSR),

Replies to parliamentary questions,

Official Language implementation

Legal Affairs

Legal Affairs deals with all legal matters including arbitration, coordination with

Standing Councils, Legal Advices etc.

Management Services

Quality Circle,

Suggestion Scheme,

Incentive Scheme,

Reward Scheme,

Procedural Orders etc.

Training & HRD

Leadership Training,

Training on Motivation and Attitude,

45

Team Building

Skill Training.

Induction and Orientation,

Plant Practice Lectures,

Basic Engineering Lectures,

Plant Specialized Training,

Management Development,

On the Job Training,

Multi Skilling/SUPW and Mentoring.

Corporate Strategic Management (CSM):-

CSM is a “think tank” of the organization. The Department is engaged in formulation of

VMO (Vision, Mission & Objectives) of the organization and developing the strategy to achieve

VMO. It has various wings which inter-alia includes Knowledge Management Cell (KM Cell). It

has also developed the Corporate Plan of RINL. It takes up strategic tasks of the organization.

Town Administration & Administration

Matters relating to Land & State,

Civil Maintenance,

Electrical Maintenance,

Water Supply,

Roads and Drain Maintenance,

Horticulture and Afforestation,

Peripheral Development and

Medical & Health Services

The Medical & Health Services Division of RINL consists of Visakha Steel General Hospital

(VSGH) & Peripheral Units viz. Pedagantyada Health Center (PGHC), Health Center – II,

46

Occupational Health Services & Research Center (OHSRC), Emergency Unit – I & II and

Hospitals in Mines – Jaggayyapeta Limestone Mines and Madharam Mines. The special features

of Visakha Steel General Hospital are:

Full fledged Modern American Designed ICU and MBU capable of

treating 6 patients at a time.

Full fledged Modern Radiology with Central A/c systems

Well equipped Path. Lab with Blood bank facility

Cluster type Wards & Casualty with Central Nursing Station

Modern Operation Theatre couples with Shadow less cold lights and

100% bacterial free A/c system

Directorate of Commercial

Marketing Department

It has 24 no. of Branch Sales Offices all over India and four Regional Offices

viz. North Delhi, South – Chennai, West – Mumbai, East – Kolkata and Headquarter Sales. Main

Activities of Marketing are as follows:

Collecting Market feedback and Customers requirements for the preparation of

Annual Plan in coordination with Works Department, for the sale of Pig Iron Steel and Byproducts

Preparation of Marketing Policies

Finalization of Long Term Contracts, MOUs, Spot sale agreements etc., in

Domestic and Export Markets

Preparation of Monthly Rolling Plans in coordination with Works Department

for meeting the sale commitments

Processing of Materials like straightening of coils, cutting, bending, bundling,

packaging etc., at the plant premises and in branches to meet customers as well as transportation

requirements

Dispatch of products to various stockyards by road or rail or to customers from

the plant on direct dispatch basis

47

Operation of the contracts for transportation of products by road and stockyard

handling/ consignment agency contracts for domestic sales, stevedoring contracts and third party

inspection agency for exports

Sale of products at branches, Headquarters and on direct dispatch basis to the

customers in domestic markets and on Ex-works and fob Visakhapatnam basis in exports

subject to tying up of commercial and financial terms and conditions. Ensure

documentation as per the procedures and as per the statutory requirements

Rendering after sales services, obtaining customer feedback and Customer

Relations Management.

Materials Management Department

Procurement of all materials such as Raw materials, Spares and consumables required for

the entire Plant Operations.

To enter into long term agreements for supply of major & minor raw materials with

indigenous and imported suppliers.

To effect economy in the cost of materials by purchasing materials of the right quality, in

the right quantity at the right time from the right source at the right place.

To arrange inspection of materials prior to handing over to Production Units to ensure

quality materials only are issued to Production Units.

Storage of materials & issue the same to the Production Units as per their requirement.

To develop and encourage ancillary industries so that the availability of the materials at

right time is ensured.

MILE STONES OF THE ORGANIZATION

Sl.

No.

Date Milestone

1 17-04-1970

Prime Minister of India Announced in Parliament to

construct new steel plant at Visakhapatnam2 June 1970 Site selection committee appointed

48

3 30-11-1970 Committee report approved for site4 20-01-1971 Foundation stone laid by Prime Minister

5

27-02-1971

Consultant appointed Feasibility reports submitted in 1972 &

other investigation carried out6 07-04-1974 First block of land taken over for VSP7 15-10-1977 Detailed Project report submitted by consultant8

24-05-1979

Public investment aboard accords approval for 3.4 million

tonnes steel project9

12-06-1979

Inter-Government agreement signed between India erstwhile

USSR at Moscow for the co-op in the construction of VSP

10 19-10-1979

Government approved setting up of VSP. Soviet side carried

out the revision of details project work 11 January 1980 Site levelling work started

12 30-11-1980

M. N. Dastur & co principal consultant submits the

comprehensive revised detailed project report 13 06-01-1981 Expert committee submits Recommendations for approval of

comprehensive revised detailed project report with

modifications 14 05-02-1981 Contract signed with erstwhile Soviet Union for preparation

of working drawings for Coke Oven, Blast Furnace Sinter

plant.

1

15

1

23-02-1981

Comprehensive revised detailed project report along

with expert committee recommendations approved

1

16

10-07-1981 Protocol signed with erstwhile Soviet Union for

supply of equipments and specialists

3

17

23-01-1982

To

26-01-1982

Blast Furnace foundations

(First mass concreting in the project)1

18 01-02-1982

Zero date of construction of the project

1

19 18-02-1982

RASHTRIYA ISPAT NIGAM Limited formed

49

2

20 29-01-1987

Commissioning of structural shop with this

commissioning of various auxiliary units commenced.

2

21 06-09-1989

Coke Oven battery # 1 starts pushing of come with

this the commissioning of metallurgical units started

2

22 14-11-1989

Sinter Plant (Machine 1) commissioned

2

23 28-03-1990

“GODAVARI” the first Blast Furnace

commissioned2

24 03-05-1990

Prime Minister decided “GODAVARI” to the nation

2

25 06-09-1990

The first converter and the first continuous casting

machine of the steel melt shop started production

2

26 28-09-1990

Billet production in the light and medium merchant

mill started.

2

27 21-11-1990

Wire rod mill commissioned

2

28 04-03-1991

The second converter commissioned

2

29 30-06-1991

Yarada water supply scheme made obey for supply

of VSP3

30 28-10-1991

First production commences in the plant of Light &

Medium merchant mill3

31

31-10-1991 Coke Oven battery # 2 commissioned

3

32

27-12-1991 Sinter Machine # 2 commissioned

3

33

20-03-1992 Medium merchant and Structural mill commissioned

3 21-03-1992 “KRISHNA” Blast Furnace # 2 commissioned

50

343

35

July 1992 Coke Oven batter # 3 commissioned

3

36

July 1992 Converter # 3 of steel melt shop commissioned of all

the units of the 3 million tonnes plant

3

37

July 1992 Dedication of plant to the nation by the Prime Minister

3

38

1992-93 Indira Priyadarshini Vriksha Mitra Award

3

39

1992-93

&

1993-94

Nehru Memorial National Award for Pollution Control

4

40 1994-95

EEPC Export Excellence Award

4

41 1991-94

Ispat Suraksha Puraskar (First Prize) for longest

Accident free period

4

42 1995-96

CII Energy Conservation Award

4

43 1996

Steel Ministers’ Trophy for “Best Safety

Performance”

PERFORMANCE OF RINL AT A GLANCE

PRODUCTION PERFORMANCE

Achieving new targets year after year in production has become a part of the work

culture.

The production performance of VSP in the last four years is as follows:

51

Year Hot Metal Liquid Metal Saleable Steel1998 - 1999 2510 2225 21931999 - 2000 2943 2656 23822000 - 2001 3165 2909 25072001 - 2002 3485 3083 27572002 - 2003 3941 3356 30562003 - 2004 4055 3508 31692004 - 2005 3920 3560 31732005 - 2006 4153 3603 32372006 - 2007 4046 3606 32902007 - 2008 3913 3322 30742008 - 2009 3546 3145 27012009-2010 3900 3399 31672010-2011 3830 3424 30772011-2012 3778 3410 29902012-2013 3998 3456 3010

PRODUCTION PERFORMANCE CHART– (‘000 TONS)

52

Figure of production performance

COMMERCIAL PERFORMANCE

The commercial performance of VSP for the past four years is as follows:

Commercial Performance (In crores)

YEAR

SALES

TURNOVER

DOMESTIC

SALES EXPORTS2000-2001 3436 3122 3222001-2002 4081 3710 371

53

2002-2003 5059 4433 6262003-2004 6174 5406 7682004-2005 8181 7933 2482005-2006 8469 8026 443

2006-2007 9131 8487 4242007-2008 10433 9878 5552008-2009 10411 10332 782009-2010 10635 10284 3512010-2011 11517 11095 4222011-2012 14462 14047 4162012-2013 15451 15041 410

Commercial Performance Line Chart (in crores)

Figure of commercial performance

54

FINANCIAL PERFORMANCE

VSP had to bear the burnt of huge project cost right from the day of its inception. This has

affected the company’s balance sheet due to very high interest burden. The company, in spite of

making operating profit every year had to report net loss during all financial years. This on the

other hand had resulted in making VSP to take great care in planning the financial resources.

The financial performance of VSP for the past ten years is as follows:

YEAR

GROSS

MARGIN

CASH

PROFIT

NET

PROFIT

2000-2001 504 153 (-) 2912001-2002 690 400 (-) 752002-2003 1049 915 5212003-2004 2073 2024 15472004-2005 3271 3260 20082005-2006 2383 2355 12522006-2007 2633 2584 1363

2007-2008 3515 3483 1943

2008-2009 2355 2267 1336

2009-2010 1603 1525 797

2010-2011 1412 1247 6670.8

2011-2012 1167 1110 7492.

2012-2013 1265 1250 845

55

FINANCIAL PERFORMANCE LINE CHART (In crores)

Figure of Financial performance

56

Manpower at a Glance in VSP

2004-2005 2005-2006As on 31/3/2005 As on 30/04/2006 As on 31/05/2006

Executives Works ProjectsMinesOthers

32571994145511067

32252142227531103

35202140227531100

Junior officersWorks ProjectsMinesOthers

12559252120280

11057762722280

11047752722280

Non Executives Works ProjectsMinesOthers

121011077873289961

119321067374281904

119231067662281904

Total Works ProjectsMinesOthers

16613136972393602317

16561135903283562287

16547135913163562284

57

Manpower at a Glance in VSP

2006-2007 2007-2008As on 31/3/2007 As on 29/02/2008 As on 31/03/2008

Executives Works ProjectsMinesOthers

38602362263561179

41922578276641274

42082577275641290

Junior officersWorks ProjectsMinesOthers

8145591822215

7615631021167

7615641021166

Non Executives Works

ProjectsMinesOthers

1172710533642732857

114591031061264824

114491030261263823

TotalWorks ProjectsMinesOthers

16401134543453512251

16412134513473492265

16416134433463482279

58

ORGANIZATION CHART OF VISAKHAPATNAM STEEL PLANT

CHAIRMAN – CUM – MANAGING DIRECTOR

DIRECTOR (PERSONNEL)

DIRECTOR (OPERATIONS)

DIRECTOR (COMMERCIAL)

DIRECTOR (FINANCE)

ED (WORKS)

CVO

GM (TIC)

Comm.dt(CISF)

GM (CBS)

DGM (CA&CS

GM (Steel & CCD)

GM (BF)

GM (Mills)

GM (Inst & Tel)

GM (SSD)

ED (Maint.)

GM (Serv)

GM (T&R)

GM (Steel)

GM (Mines)

DGM (IT)

GM (Corp Planning)

GM (Projects)

ED (MM)

GM (Mktg)

ED (F & A)

DGM (F&A)IA & SV

ED (P&IR)

GM (Corp. Pers & Co ord.)

GM (P&A)

GM (Trg & HRD)

GM (M & HS)

GM (MS)

59

CUSTOMERS OF STEEL PLANT

THE MAIN CUSTOMERS OF THE STEEL PLANT ARE:

• BUILDERS

• CONSTRUCTION COMPANIES.

• INDIAN RAILWAYS.

• STATE GOVERNMENTS.

• VISAKHA STEEL PRODUCTS ARE ALSO BEING EXPORTED TO OTHER

COUNTRIES

60

COMPETITORS OF STEEL PLANT

• Bharat Refectories Ltd.

• Hindustan Steel Works Construction Ltd.

• Jindal Steel and Power Ltd.

• Tata Iron Steel Company Metal Scrap Trade Corporation Ltd.

• Metallurgical and Engineering Consultants India Ltd.

• National Mineral Development Corporation Ltd.

• Sponge Iron India Ltd.

61

CHAPTER - IV

ETT

4.1 Environment

4.2 Technology

62

Visakhapatnam steel plant technology: state-of-the-art

7m tall Coke Oven Batteries with coke dry quenching.

Biggest Blast Furnaces in the country.

Bell less top changing system in Blast Furnace.

100% slag granulation at the Blast Furnace cast house.

Suppressed combustion—LD gas recovery system.

100% continuous casting of liquid steel.

‘Tempcore’ and ‘Stelmor’ cooling process in LMMM & WRM.

Extensive waste heat recovery systems.

Comprehensive pollution control measure.

63

ENVIRONMENT

Iron and Steel making as a craft as been known to India for a long time. However,

its production is significant quantities only after 1900.

VSP by successfully installing & operating efficiently Rs. 460 cores worth of Pollution

Control and Environment Control Equipments and converting the barren landscape by planting

more than 3 million plants has made the Steel Plant, Steel Township and surrounding areas into

a heaven of lush greenery. This has made Steel Township a greener, cleaner and cooler place,

which can boast of 3 to 4° C lesser temperature even in the peak summer compared to

Visakhapatnam City.

VSP exports Quality Pig Iron & Steel products' to Sri Lanka, Myanmar, Nepal, Middle

East, USA, China and South East Asia. RINL-VSP was awarded "Star Trading House" status

during 1997-2000. Having established a fairly dependable export market, VSP plans to make a

continuous presence in the export market.

The govt. of India has recognized the importance of steel in Indian industry and

established the following steel plants, before it actually set up VSP/RINL. The details of those

are tabulated below.

64

CHAPTER- IV

THEORETICAL FRAME WORK

65

THEORETICAL FRAMEWORK OF CAPITAL BUDGETING

An efficient allocation of capital is the most important finance function in the modern

times. It involves decisions to commit the firm’s funds to the long - term assets. Capital

budgeting for investment decisions is of considerable importance to the firm since they tend to

determine its value by influencing its growth, evaluation of capital budgeting decisions.

NATURE OF INVESTMENT DECISIONS

The investment decisions of a firm are generally known as the capital budgeting, or

capital expenditure decisions. A capital budgeting decision may be defined as the firm’s

decision to invest its current funds most effectively in the long- term assets in anticipation of an

expended flow of benefits over a series of years. The long-term assets are those that affect the

firm’s operational beyond the one year period.

Investment decisions generally include expansion, acquisition modernization and

replacement of the long-term assets. Sale of a division or business (Divestment) is also an

investment decision. Decision like the change in the methods of sales distribution, or an

advertisement campaign or a research and development program have long-term implications

for the firm’s expenditures and benefit, and therefore, they should also be evaluated as

investment decisions.

The following are the features of investment decisions.

The exchange of current funds for future benefits.

The funds are invested in long-term assets.

The feature benefits will occur to the firm over a series of years.

OBJECTIVES OF INVESTMENT DECISIONS

Understand the nature and importance of investment decisions.

Explain the methods of calculating Net present value (NPV) and

Internal rate of return (IRR)

66

Show the implicated of Net present value (NPV) and internal rate of

Return (IRR)

Describe the Non- DCF evaluation Criteria. Payback period and

Accounting rate of return (ARR).

Institute the competition of the discounted payback.

Compare and contract NPV and IRR and emphasize the superiority of NPV

rule.

PROCESS OF INVESTMENT DECISIONS

Capital Budgeting is a complex process which may be divided into the following phases.

Capital Budgeting Process

1. Identification of investment proposal.

2. Screening the proposal.

3. Evaluation of various proposals.

4. Fixing priorities.

5. Final approval & preparation of capital expenditure budget.

6. Implementing proposal.

7. Performance review.

Identification of investment proposal

The capital budgeting process begins with the identification of investment proposal. The

proposal or idea about potential investment opportunities may originate from the top of

management or may come from the rank and file workers of any department or from any

officers of the organization. The departmental head analyses the various proposals in the light of

the corporate strategies and submits the suitable proposals to the capital expenditures planning

committee in case of large organization or to the officers a concerned with the corporate

strategies and submits the suitable proposals to the capital expenditures. Capital expenditures

67

planning committee in the case of large organization or the officers concerned with the process

of long-term investment decision.

Screening the proposal

The expenditures planning committee screens the various proposals received from

different departments. The committee view these proposals form various angles to ensure that

these are in accordance with the corporate strategies or selection criterion of the firm and also

do not lead to the department imbalances.

Evaluation of various proposals

The next step in the capital budgeting process is to evaluate the profitability of various

proposals. There are many method which may be used for this purpose such as pay back period

method, rate of return method, net present value method, internal rate of return, etc.

All these method of evaluating profitability of capital investment proposals have been

discussed in detail separately in the page of this chapter. It should be classified as below.

i. Independent proposals.

ii. Contingent or dependent proposals and

iii. Mutually exclusive proposals.

Fixing priorities

After evaluating various proposals, the unprofitable proposals may be

rejected straight away. But it may not be possible for the firm to invest

immediately in the all the acceptable proposals due to limitation of funds. Hence,

it is very essentials to rank the various proposals and to establish priorities after

considering urgency, risk and profitability involved there in.

Final approval & preparation of capital expenditure budget

Proposals meeting the evaluation and other criteria are finally approved to be included in

the capital expenditure budget. However, a proposal involving smaller investment may be

68

decides at the lower levels for expenditure action. The capital expenditures a budget lays down

the amount of the estimation expenditures to be incurred on fixed assets during the budget

period.

Implementing proposals

Translating an investment proposal into a concrete project is a complex, time

consuming, and risk- fraught task.

1. Adequate formulation of projects the major reason for delay is insinuate

formulation of projects put differently, if necessary homework in terms of preliminary

comprehensive and detailed formulation of the project.

2. Use of the principle of responsibility accounting Assigning specific

responsibility to project managers for completing the project within the defined time-frame

and cost limits is helpful for expeditious execution and cost control.

3. Use of Network Techniques for project planning and control several network

techniques like PERT (Programme Evaluation Review Techniques) and CPM (Critical Path

Method) are available.

Performance Review

Performance review, or post – completion audit, is a feedback device. It is a means for

comparing actual performance with projected performance. It may be conducted, most

appropriately. When the operations of the project have stabilized.

It is useful several ways.

I. It throws light on how realistic were the assumptions underlying the

project.

II. It provided a documented log of experience that is highly valuable for

decision making.

Importance of Investment Decisions

Investment decisions require special attention because of the following reasons.

They influence the firm’s growth in the long term.

They affect the risk of the firm.

They involve commitment of large amount of funds.

69

They are irreversible, or reversible at substantial loss.

They are among the most difficult decisions to make.

Types of investment decisions

There are many ways to classify investments one classification is as follows;

Expansion of existing business.

Expansion of new business.

Replacement and modernization.

Expansion and diversifications

A company may add capacity to its existing product lines to expand existing operations.

For example, the Visakhapatnam Steel Plant (VSP) may increase its plant capacity to

manufactures more liquid steel. It is an example of related diversification.

A firm mat expand is activities in a new business expansion of a new business requires

investment in new products and new kind of production activating within the firm. If packing

manufacturing company invests in a new plant and machinery to produce ball bearings, which

the firm has not manufactured before, this represents expansion of new business or unrelated

diversification. Sometimes a company acquires existing firms to expand its business.

Replacement and modernization

The main objective of modernization and replacement is to improve operating efficiency

reduce costs. Cost savings will reflect in the increased profits, but the firm’s revenue may

remain unchanged. Assets become outdated and absolute with technological changes. The firm

must decide to replace those assets with new assets that operate more economically.

Replacement decisions help to introduce more efficient and economical assets and therefore, are

also called cost- reduction investments.

How ever replacement decisions that involve substantial modernization and

technological improvements expand revenues as well as reduce costs.

Yet another useful way to classify investments is as follows;

Mutually exclusive investments

Independent investments

70

Contingent investments

Mutually exclusive investments

Mutually exclusive investments serve the same purpose and compete with each other. If

one investment understands others will have to be excluded. Accompany May, for example,

either use a more labour- intensive, semi- automatic machine, or employ a more capital

intensive, highly automatic machine for production.

Independent investments

Independent investments serve different purposes and do not compete with each other.

For example, a heavy engineering company may have been considering expansion of its plant

capacity to manufacture additional excavators and addition of new production facilities to

manufacture a new product.

Contingent Investments

Contingent investments are dependent projects; the choice of one investment

necessitates understanding one or more other investments for example, if a company decides to

build a factory in a remote, backward area, it may have to invest in houses, roads, hospitals,

schools, etc., and the total expenditure will be treated as one single investment.

Investment Evaluation Criteria

Three steps are involved in the evaluation of investment.

• Estimation of cash flows

• Estimation of the required rate of return

• (the opportunity cost of capital )

• Application of a decision rule for making the choice.

Evaluation Criteria

A number of investment criteria (or capital budgeting techniques) are in use in practice.

They may be grouped in the following two categories.

71

Capital budgeting techniques

Non DCF Criteria

Payback period (PB)

The payback period (PB) is one of the most popular and widely recognized traditional

methods of evaluating investment proposals. Pay back is the number of years required to

recover the original cash outlay invested in a project.

If the project generates constant annual cash inflows, the payback period can be

computed by dividing cash outlay by the annual cash inflow.

Co : Initial Investment

Payback = Initial Investment Co Annual cash flow C

Capital Budgeting Techniques

DCF Criteria Non – DCF Criteria

NPV I.R.R. P. IPayback period

Accounting Rate of Return

72

C : Annual Cash in flow

In case of UN equal cash inflows, the payback period can be found out by adding up the

cash inflows until the total is equal to the initial cash outlay.

Accounting Rate of Return (ARR)

The accounting rate of return (ARR) also known as the return on investment (ROI) uses

accounting information, as revealed by financial statements, to measure the profitability of an

investment. The Accounting rate of return is the ratio of the average after fax profit divided by

the average investment. The average investment would be equal to half of the original

investment if it were depreciated constantly.

ARR =

DCF Criteria

Net Present Valued Method (NPV)

The NPV present value (NPV) method is the classic economic method of evaluating the

investment proposals. If is a DCF technique that explicitly recognizes the time value at

different time periods differ in value and are comparable only when their equipment present

values- are found out.

- Co

N P V = Σ - Co

Average income

Average investment

C1 + C2 + C3 + … … … + Cn (1+k) (1+k) 2 (1+k) 3 (1+k) n

Ci (1+k) i

n

i = 0

× 100

NPV =

73

Where

N P V = Net present value

Cfi = Cash flows occurring at time

k = the discount rate

n = life of the project in years

Co = Cash out lay

Internal Rate of Return (IRR)

The internal rate of return (IRR) method is another discounted cash flow technique

which takes account of the magnitude and thing of cash flows, other terms used to describe the

IRR method are yield on an investment, marginal efficiency of capital, rate of return over cost,

time- adjusted rate of internal return and soon.

N P V = Σ +

Where

Cfi = Cash flows occurring at different point of time

k = the discount rate

n = life of the project in years

Co = Cash out lay

SV & WC = Salvage value and Working Capital at the end of the n years.

I R R = A L + (H – L)

B-A

Where

L : Lower discount rate at which NPV is positive

H : Higher discount rate at which NPV is negative

A : NPV at lower discount rate, L

B : NPV at higher discount rate.

Cfi SV+WC (1+k) i (1+k) n

n

i = 0

74

Profitability Index (PI)

Yet another time- adjusted method of evaluating the investment proposals is the benefit-

cost (B/C.) ratio or profitability index (PI) Profitability Index is the ratio of the present valued

of cash inflows, at the required rate of return, to the initial cash out flow of the investment.

PI =

Where

PV: Present Value

Cost Effective Analysis

In the cost effectiveness analysis the project selection or technological choice, only the

costs of two or more alternative choices are considered treating the benefits as identical. This

approach is used when the acquisition of how to minimize the costs for undertaking an activity

at a given discount rates in case the benefits and operating costs are given, one can minimize the

capital cost to obtain given discount.

Project Planning

The planning of a project is a technically pre- determined set of inter related activities

involving the effective use of given material, human, technological and financial resources over

a given period of time. Which in association with other development projects result in the

achievement of certain predetermined objectives such as the production of specified goods &

services?

PV of cash inflow

Initial Cash outlay

75

Project planning is spread over a period of time and is not a one shot activity. The

important stages in the life of a project are:

It’s Identification

It’s initial formulation

It’s evaluation (Whether to select or to project)

It’s final formulation

It’s implementation

It’s completion and operation

The time taken for the entire process is the gestation period of the project. The period of

the project. The process of identification of a project begins when we are seriously trying to

overcome certain problems. They may be non- utilization to overcome available funds. Plant

capacity, expansion etc

Contents of the project report

1. Market and marketing

2. Site of the project

3. Project engineering dealing with technical aspects of the project.

4. Location and layout of the project building

5. Building

6. Production capacity.

7. Work Schedule

Details of the cost of the Project

1. Cost of land

2. Cost of Building

3. Cost of plant and machinery

4. Engineering know how fee

5. Expenses on training Erection supervision

6. Miscellaneous fixed assets

76

7. Preliminary expenses

8. Pre-operative expenses

9. Provision for contingencies

Project financing is considered right from the time of the conception of the project. The

proposal of the project progress working capital, so, in general a project is considered as a ‘mini

firm’ is a part and parcel of the organization.

Sources of Finance:

Loan Financing

Security Financing

Internal Financing

Loan Financing

(a) Short- Term Loans & Credits

Short – Term Loans & Credits are raised by a firm for meeting its working capital

requirements. These are generally for a short period not exceeding the accounting period i.e.,

one – year.

Types of Short Term Loans & Credits:

1. Trade Credit.

2. Installment Credit.

3. Advances.

4. Commercial papers

5. Commercial banks

6. Cash Credits

7. Over Drafts

8. Public Deposits.

(b) Term Loans

77

Term loans are given by the financial institutions and banks, which form the primary

source of long term debt for both private as well as the Government organizations. Term loans

are generally employed to finance the acquisition of fixed assets that are generally repayable in

less than 10 years. In addition to short- term loans, company will raise medium term and long

term loans.

Security Financing

Corporate Securities can be classified into two categories.

(a) Ownership Securities or capital stock.

(b) Creditor ship Securities or debt Capital.

(a) Ownership Securities or capital Stock

Types of Ownership Securities or Capital Stock

i) Equity Capital:

Equity Capital is also known as owner’s capital in a firm. The holders of these shares are

the real owners of the company. They have a control over the working of the company.

Different ways to raise the equity capital.

oInitial public offering.

oSeasoned offering

oRights issue.

oPrivate placement

oPreferential allotment.

ii) Preference Capital

These shares have certain preferences as compared to other type of shares.

1. Payment of Divided

2. Repayment of the capital at the time of liquidation of the company.

b) Types of Creditor ship Securities

i) Debentures

Debentures are an alternative to the term loans and are instruments for raising the debt

finance. Debenture holders are the creditors of a company and the company and the company

78

have the obligations to pay the interest and principal at specified times. Debentures provide

more flexibility, with respect to maturity, interest rate, security and repayment Debentures may

be fixed rate of interest or floating rate or may be zero rates. Debentures & Ownership

Securities help the management of the company to reduce the cost of capital.

Internal Financing

A new company can raise finance only through external sources such as shares,

debentures, loans and public deposits. For existing company they need to raise funds through

internal source. Such as retained earnings depreciation as a source of funds. Some other

innovative source of finance.

♦ Venture Capital

♦ Seed Capital

♦ Bridge Finance

♦ Lease Financing

♦ Euro- Issues

a) Equity Capital

1. Infusion of Government equity either from budgetary resources or from Steel

Development Funds (SDF).

2. Induction of equity by agencies/ companies who are setting up separate stand alone

blast furnaces or blast furnace based steel plant complexes without captive coke oven plant.

3. Equity by overseas buyer suppliers of coking coal.

4. Equity by overseas buyer of coke, whom may hedge initial capital invested and

assured by buy – back arrangement for limited number of years.

b) Loan Capital

1. Loan capital from financial installations like TDBI, IFCI, ICICI etc., guaranteed by

the central Government who is the owner of RINI.

2. Surplus credit by major supplier of plant & equipment.

3. Providing loan by agencies that enter into an assured buy- back arrangement at the

terms and condition mutually agreed upon.

79

CHAPTER- VI

ON JOB TRAINING (OJT)

80

TASK ASSIGNED IN VSP

Project Expansion Of VSP:-

VSP is operating at 3.00 M.T. of liquid steel at present. It is framed to

Enhance its capacity to produce 6.3M.T of liquid steel by expansion.

The estimated cost of expansion is:

Approved cost: 11,999 Crs (Base Jun, 2005)

Debt component: 2399.8 Crs.

Assumed in calculation as per rate as 5.5%.

How expansion will affect the capacity in positive way:

81

Year Constructionyear

OperationYear

Capitalcost

ExpectedCash inflow

Year no.

Cash flow

Net cash

2011-12 1 0 10133 0 1 -10133 -10133

2012-13 2 0 933 0 2 -933 -11066

2013-14 3 0 933 0 3 -933 -11999

2014-15 4 1 0 1154.54 4 1154.54 -10844.5

2015-16 5 2 0 2187.04 5 2187.04 -8657.42

2016-17 6 3 0 2718.78 6 2718.78 -5938.64

2017-18 7 4 0 2684.85 7 2684.85 -3253.79

2018-19 8 5 0 2798.69 8 2798.69 -455.1

2019-20 9 6 0 2657.31 9 2657.31 2202.21

2020-21 10 7 0 2298.82 10 2298.82 4501.03

2021-22 11 8 0 2210.36 11 2210.36 6711.39

2022-23 12 9 0 2159.06 12 2159.06 8870.45

2023-24 13 10 0 2140.15 13 2140.15 11010.6

2024-25 14 11 0 2123.82 14 2123.82 13134.42

2025-26 15 12 0 3755.22 15 3755.22 16889.64

82

PAY BACK PERIOD

(a) Cash Outlay: 8692

(c) Payback period: FLOWCASHANNUAL

INVESTMENTINITIAL

= 5 + 11999-11543.9 2657.31

= 5 + 455.1 2657.31

= 5 + 0.171

= 5.171

S.No Years Cash flowsCumulative Cash Flows

1 2014-15 1154.54 1154.542 2015-16 2187.04 3341.583 2016-17 2718.78 6060.364 2017-18 2684.85 8745.215 2018-19 2798.69 11543.96 2019-20 2657.31 14201.217 2020-21 2298.82 16500.038 2021-22 2210.36 18710.399 2022-23 2159.06 20869.4510 2023-24 2140.15 23009.611 2024-25 2123.82 25133.4212 2025-26 3755.22 28888.64TOTAL 28888.64

83

PAY BACK PERIOD

Interpretation:

It is assumed that the cash flows from the project would start from 2014-15.Taken

consideration of (incremental adjusted cash flow) i.e. expansion base year, for calculating Pay

Back Period.

• Estimated cash flows are taken from the data provided by the Company.

The calculated payback period of the project is 5.17 years.

Though there is uncertainty of commencement of production from the expansion project

to an extent of 6 months to one year or reduction of cash flows of 5%, the company would

achieve pay back at the year end of 2019-20.

AVERAGE RATE OF RETURN

S.No YearsCash flow Dep. Cash Inflows after

depreciation1 2014-15 1154.54 329.972 824.5682 2015-16 2187.04 659.945 1527.0953 2016-17 2718.78 659.945 2058.8354 2017-18 2684.85 659.945 2024.9055 2018-19 2798.69 659.945 2138.7456 2019-20 2657.31 659.945 1997.3657 2020-21 2298.82 659.945 1638.8758 2021-22 2210.36 659.945 1550.4159 2022-23 2159.06 659.945 1499.11510 2023-24 2140.15 659.945 1480.20511 2024-25 2123.82 659.945 1463.87512 2025-26 3755.22 659.945 3095.275TOTAL 28888.64 21299.273

84

ARR = AVERAGE PROFITAVERAGE INVESTMENT

Average Profit =Total cash inflows No. of years

= 21299.273 12 = 1774.939

Average investment :

here the additional working capital is also taken the consideration while calculating the ARR.

Average investment = investment2

= 11999 2

= 5999.5

A R R =

= 1774.939 5999.5

0.295

R O I = Average Annual profit

85

Total initial investment

R O I

= 1774.939 11999 X 100= 0.147 X 100 = 14.7

It is more calculation taking total profit and taking average of it.

It Show the return on an average as what an average income of the firm on

Long run basis with certain assumption 61.14% for any firm at long run is

Good but there must be some decrease as future is not certain.

NET PRESENT VALUE

s.no Years Cash flows 8% Dis flows @ 8%1 2014-15 1154.54 0.926 1069.1042 2015-16 2187.04 0.857 1874.2933 2016-17 2718.78 0.794 2158.7114 2017-18 2684.85 0.735 1973.3655 2018-19 2798.69 0.681 1905.9086 2019-20 2657.31 0.630 1674.1057 2020-21 2298.82 0.583 1340.2128 2021-22 2210.36 0.540 1193.5949 2022-23 2159.06 0.500 1079.53010 2023-24 2140.15 0.463 990.88911 2024-25 2123.82 0.429 911.11812 2025-26 3755.22 0.397 1490.822TOTAL 17661.651

86

N P V = Total Present Value of Cash inflows – Total Outlay

=17661.651 – 11999 = 5662.651

The NPV method is a modern method of evaluating investment proposals. The method

takes into consideration the time value of money and attempts to calculate the return on

investments by introducing the factor of time element. It recognizes the fact that a rupee earned

today is worth more than the same rupee earned tomorrow.

INTERNAL RATE OF RETURN

Discount rate taken as 18% (in crores)

I R R = 15 + 410.230 X 1 410.23+145.760

= 15 + 410.230 X 1 555.990

= 15 + 0.737 X 1

S.NoYears

Cash flows 15% Dis. flow @ 15%

16% Di. flow @ 16%

1 2014-15 1154.54 0.870 1004.450 0.862 995.2132 2015-16 2187.04 0.756 1653.402 0.743 1624.9713 2016-17 2718.78 0.658 1788.957 0.641 1742.7384 2017-18 2684.85 0.572 1535.734 0.552 1482.0375 2018-19 2798.69 0.497 1390.949 0.476 1332.1766 2019-20 2657.31 0.432 1147.958 0.410 1089.4977 2020-21 2298.82 0.376 864.356 0.354 813.7828 2021-22 2210.36 0.327 722.787 0.305 674.1599 2022-23 2159.06 0.284 613.173 0.263 567.83210 2023-24 2140.15 0.247 528.617 0.227 485.81411 2024-25 2123.82 0.215 456.621 0.195 414.14412 2025-26 3755.22 0.187 702.226 0.168 630.877total 28888.64 12409.230 11853.240Invst.(less) 11999.000 11999.000NPV 410.230 -145.760

87

= 15.733%

Probability index:(in crores)

s.no Years Cash flows 8% Dis flows @ 8%1 2014-15 1154.54 0.926 1069.1042 2015-16 2187.04 0.857 1874.2933 2016-17 2718.78 0.794 2158.7114 2017-18 2684.85 0.735 1973.3655 2018-19 2798.69 0.681 1905.9086 2019-20 2657.31 0.630 1674.1057 2020-21 2298.82 0.583 1340.2128 2021-22 2210.36 0.540 1193.5949 2022-23 2159.06 0.500 1079.53010 2023-24 2140.15 0.463 990.88911 2024-25 2123.82 0.429 911.11812 2025-26 3755.22 0.397 1490.822TOTAL 17661.650

Probability index :-

= Total PV cash flow Initial investment

=17661.650 11999.000

=1.471

FINDINGS:

88

The project completion cost is estimated to be Rs.11999. Cr.

The payback period of the project in VSP is 5 years and 2 months. The payback period is

nearly 1/3 of the 15 years, the economic life project so the project is viable.

The NPV of the project is positive and higher than the cost of the capital.

The Internal rate of return is Internal rate of 15.73% it is greater than the cost of capital.

So the project is accepted.

The estimated cash flows of the project are after payment of interest and tax.

Expansion from 3.0MT capacity to 6.3MT capacity undertaken is profitable.

Increase in Debt component is decreasing the Profitability due to the tax on debt as

dividend on equity is not considered as entire equity is held by GOI. Had dividend on

equity is considered, the evaluation will change.

The completion cost may further increase if any delay in construction process.

SUGGESTIONS

The project completion cost is estimated to be Rs. 11999. Cr.

89

The payback period of the project in VSP is 5 years and 2 months. The payback

period is less than the target period so the project may be accepted.

The NPV of the project is positive than the value of the capital.

The Internal rate of return is Internal rate of 15.73% it is greater than the cost of

capital i.e., 18% so the project accepted.

The company has to maintain at 7: 3 (debt: equity), that is better for company.

It also maintains 60: 40, but equity to be raised.

.

SKILLS REQUIRED

90

• THE SKILLS REQUIRED FOR PERFORMING THIS TASK ARE

OBSERVATION SKILLS.

• THOROUGH VERIFICATION OF THE COMPANY’S FINANCIAL

DATA.

• AS CAPITAL BUDGETING INVOLVES ALL THE ASPECTS OF

FINANCE THERE SHOULD BE THE BASIC KNOWLEDGE OF

FINANCE.

• GOOD COMMUNICATION SKILLS.

91

BIBLIOGRAPHY

♦ ‘The Financial Management’ by I.M.Pandey

♦ ‘Projects’ (preparation, appraisal, implementation) by Prasanna

Chandra.

♦ Source of finance sharma&guptha

♦ Total project management by P.K.Joy.

♦ Successful projects by O.P Kharbanda &E.A Stall worthy.

♦ Project management by Harey maylor.

♦ Project planning and management by M.Shaghil & M.M.M

musterque.

♦ Project management (techniques appraisal managerial issues) by

E.W.Davis.

The journals

Steel times

SAILS news.

Iron & steel technology.

Steel & materiality.

92