ZUARI CEMENTS HYDERABAD.docx

8/10/2019 ZUARI CEMENTS HYDERABAD.docx

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A

PROJECT REPORT

ON

CAPITAL BUDGETING

ZUARI CEMENTS HYDERABAD

(Submitted in Partial Fulfillment of the Award of the Degree Of)

MASTER OF BUSINESS ADMINISTRATION

Submitted By

G RAMALINGESWAR REDDY

MBA

ROLL NUMBER: 129U1E0033

Under The Guidance Of

SSIM

AFFLIATED TO JNTU ANANTAPUR

2012-2014


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DECLARATION

I here declare that the project report entitled CAPITAL BUDGETINGhas

been prepared by me in partial fulfillment of the requirements for the award ofthe degree of MASTER OF BUSINESS ADMINISTRATION

I also declare that this project work is a result of my effort and it has not been

submitted to any other university for the award of any degree or diploma.

PLACE:

DATE:

RAMALINGESWAR REDDY

ROLL NUMBER: 129U1E0033.


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ACKNOWLEDGMENT

With a profound sense of thankfulness, I acknowledge my indebtedness

to my company guide Mr.G.RAMALINGESWARA REDDY Faculty Guide

Mrs.RASHIDHA BEGAM ., for their valuable guidance, timely suggestions

and constant encouragement. Their insightful criticisms and patience throughout

the duration of this project have been instrumental in allowing this project to be

completed.

My sincere thanks are to the name ofDirector, Mr.------------- name of

HOD,_________ M.B.A) and all the staff members of Department of

management studies, _______, For their consistent guidance in my project

work.

Their continual support and careful attention to the details involved in

producing a document of this nature are very much appreciated.

RAMALINGESWAR REDDY

ROLL NUMBER: 129U1E0033.


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INDEX

Contents Title Page No:

ChapterI Introduction

Theoretical structure

ChapterII Industry & Company profile

Industry profile

Company profile

Product profile

ChapterIII Review of literature

ChapterIV Research Methodology

Need of the study

Objectives of study

Scope of the study

Limitations of the study

Research design &collection, Hypothesistesting

ChapterV Data Analysis and Interpretation

ChapterVI Findings

Suggestions

Conclusion

Bibliography


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Chapter - 1

Introduction


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all the relevant functional departments play a crucial role in the capital budgeting decision are

considered.

The role of a finance manager in the capital budgeting basically lies in the process of

critically and in-depth analysis and evaluation of various alternative proposals and then to

select one out of these. As already stated, the basic objectives of financial management is to

maximize the wealth of the share holders, therefore the objectives of capital budgeting is to

select those long term investment projects that are expected to make maximum contribution

to the wealth of the shareholders in the long run.


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Industry profile:

Cement is a key infrastructure industry. It has been decontrolled from price and

distribution on 1stMarch 1989 and deli censed on 25thJuly 1991. However, the performance

of the industry and prices of cement are monitored regularly. The constraints faced by the

industry are reviewed in the infrastructure coordination committee meetings held in the

cabinet secretariat under the chairmanship of secretary (coordination). The cabinet committee

on infrastructure also reviews its performance.

Cement industry is one of the major and oldest established manufacturing industries

in the modern sector of Indian economy. It is an indigenous industry in which the company is

well endowed with the necessary raw materials, skilled manpower and equipment &

machinery technology.

Cement is required by firms, bridges, buildings, water supply projects, dams, roads,

hydroelectric power projects, seaports, airports, and irrigation schemes. It is thus a vital

industry which assumes a crucial part in the economic development of the country.


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RAW MATERIALS:

The basic raw material for manufacturing cement is limestone. This is available in

plenty in the form of limestone deposits in the nature. Limestone is excavated for mines bymechanical equipment with the help of stocker & reclaimed the correct.

The raw materials consist of limestone, iron ore & bauxite. The correct proportions

are fed into a grinding mill where they are reduced to a very fine of compressed air. The

power from the storage ribs is fed into rotator kiln; the material is subjected to a temperature

is about 1500c. chemical reaction takes place between the various materials resulting in the

formation of cement compound like Tricalcium silicate (about 24%), die calcium silicate

(about 20%), Tri calcium alumina (about 7 to 10%) and aluminum ferrate (about 10 to 12%).

CAPACITY AND PRODUCTION:

The cement industry comprises of 125 large cement plants with an installed capacity

of 148.28 million tones and more than 300 mini cement plants with and estimated capacity of

11.10 million tones per annum. The cement corporation of India, which is a central public

sector undertaking, has 10 units. There are ten large cement plants owed by various State

governments. The total installed capacity in the country as a whole is 159.38 million tones.

Actual cement production in 2002-03 was 116.35 million tones as against a production of

106.90 million tones in 2001-02, regarding a growth rate of 8.84%.

Keeping in view the trend of growth of the industry in previous years, a production

target of 126 million tones has been fixed for the year 2003-04. During the period April-June

2003, a production (provisional) was 31.30 tones. The industry has achieved a growth rate of

4.86% during the year.

EXPORTS:

A Part from meeting the entire domestic demand, the industry is also exporting

cement and clinker.The export cement during 2001-02 and 2003-04 was 5.41 million tones

and 6.92 million tones respectively. Export during April-may, 03 was 1.35 million tones.

Major exporters were Gujarat Ambuja Cement ltd. and L&T ltd.

RECOMMENDATIONS ON CEMENT INDUSTRY:


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For the development of cement industry Working Group of cement industry was

constituted by the planning commission for the formulation of X five year plan. The working

group has projected creation of additional capacity of 40-62 million tones mainly through

expansion of existing plants. The working group has identified following thrust areas for

improving demand for cement.

Further push to housing development programmers

Promotion of concrete Highways and roads; and

Use of ready-mix concrete in large infrastructure projects.

Further, in order to improve global competitiveness of the Indian cement industry, the

dept. of industrial policy & promotion commissioned a study on the global competitiveness

of the Indian cement industry. The report submitted by the organization has made several

recommendations for making the Indian cement Industry more competitive in the

international market. The recommendations are under consideration.

TECHNOLOGY CHANGE:

Cement industry has made tremendous strides in technological up gradation and

assimilation of latest technology. At present 93% of the total capacity in the industry is

based in modern and environment-friendly dry process technology. There is tremendous

scope for waste heat recovery in cement plants and there by reduction in emission level. One

project for cogeneration of power utilizing waste heat in an Indian cement plant is being

implemented with Japanese assistance under green Aid plan. The induction of advanced

technology as helped the industry immensely to conserve energy and fuel and to save

materials substantially.

India is also production different varieties of cement like ordinary Portland cement

(OPC), Portland Pozzolana cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil

Well Cement, Rapid Hardening Portland cement, Sulphate resisting Portland cement, While

cement etc. Production of these varieties of cement conforms to the BIS Specifications. It is

worth mentioning that some cement plants have set up dedicated jetties for promoting bulk

transportation and export.

ITAL CEMENTI GROUP:

OUR MISSION:-


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Our shared ambition: Effective and Efficient

To become the most effective and most efficient cement manufacturer and distributor in

the world.

OUR APPROACH: We are local, we think glowCement aggregates and ready mixed concrete manure and distribution are local business.

Around the world we serve local customers in local market with local needs.

OUR WAY OF WORKING: Technological leadership is our goal,

Our technology plays the key role in realizing our ambition we are committed to

increasing the value of our group, our companies, our products and services, the capabilities of

our employees and the ecological standards by which we operate.

OUR SPIRIT: One team worldwide.

We operate worldwide in many diverse markets, culture and continents.

We are proud of our cultural diversity and our distinctions character.

HISTORY OF CEMENTS:

1. Invention of cement of JOSEPH ASPARIN. Leeds builder in bricklayer.

2. 21stOctober, 1824 patented as Portland cement.

3.

1904 its and American standards of Portland cement.

4.

1912 Indian cement company limited established factory at Portlander.

5.

1951 Indian standards.

CEMENT MANUFACTURING PROCESS:

1. The cement manufacturing process beings when limestone, the basic raw material used to

make cement, is transported by rail to the plant from the limestone quarry.

2.

The limestone is combined with clay, ground in a crusher and fed into the additive silos.

Sand, iron and bottom ash are then combined with the limestone and clay in a carefully

controlled mixture with which is ground into a fine power in a 200hp roller mill.

3. Next, the fine power is heated as it passes through the pre-Heater tower into a large kiln,

the power is heated to 1500degrees Celsius. This creates a new product, called clinker,

which resembles pellets about the size of marbles.

4. Next the fine powder is heated as its passes through the pre-header tower into a large kiln,

which is over half of the length of a football field and 4.2 meters in diameters. In the kiln,


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the powder is heated to 1500 degrees Celsius. This creates a new product, called clinker,

which resembles pellets about the size of marbles.

5.

The clinker is combined with small amounts of gypsum and limestone and finely ground

in a finishing mill. The mill is large revolving cylinder containing 250 tones of steel balls

i.e. driven by a 4000ph motor. The finished cement is ground so fine that it can pass

through a sieve that will hold water.

6.

The cement manufacturing process consists of many simulations and continuous

operations using some of the largest moving machinery in manufacturing. Over 5000

sensors and 50.

7.

Computers allow the entire operations to be controlled by a single operator from a central

control room.

DIFFERENT TYPES OF CEMENT:

There are varieties of cement based on different compositions according to specific

end uses namely Ordinary Portland Cement, Portland Pozolona cement, Portland Blast

furnace slag cement, and specialized cement. The basic difference lies in the percentage of

linker used.

ORDINARY PORTLAND CEMENT (OPC):

OPC, popularly know as grey cement has 95% clinker and 5% of gypsum and other

materials. It contains for 56% of the total consumption. White cement is a variation of OPC

and is used for decorative purposes like rendering of walls, flooring etc. Contains a very low

proportion of oxide.

PORTLAND POZZOLONA CEMENT (PPC):

PPC has 80% clinker, 15%pozzolona and 5% gypsum and accounts for 18% of the

total cement consumption. Pozzolona has siliceous and aluminous materials that do not

possess cementing properties in the presence of water. It is cheaply manufactured because it

uses fly ash / burnt clay/ coal waste as the ingredient. It has lower heat of hydration, which

helps in preventing cracks where large volumes are being cast.

PORTLAND BLAST FURNACE SLAG CEMENT (PBSFC):

PBSFCconsist of 45% clinker, 50% blast furnace slag and 5% gypsum and accounts

for 10% of the total cement consumed. It has a heat of hydration even lower than PPC and isgenerally used in construction of dams and similar massive constructions.


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SPECIALIZED CEMENT:

Oil Well Cement: Is made from clinker with special additives to prevent any porosity.

RAPID HARDENING PORTLAND CEMENT:

It is similar to OPC, except, that it is ground much finer, so that casting, the compressible

strength increases rapidly.

WATER PROOF CEMENT:

OPC, with small portion of calcium separate or non- specifiable of to impart waterproofing

properties.

CEMENT INDUSTRY IN INDIA

OVERVIEW

1.

Indian cement industry data back to 1914-first unit was setup at Proddatur with

a capacity of 1000 tones.

2. Currently India is ranked second in the world with an installed capacity of 114.2

million tones.

3. Current per capita consumption-85 pages. Against world standard of 256 kgs.

4. Cement grade limestone in the country reported to be 89 bit. A large proportion

however is unexplainable.

5.

55-60% of the cost of production is govt control.

6.

Cement sales primarily through a distribution channel. Bulk sales account for


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1% of the total cement produced.

7. Ready mix concrete a relatively nascent market in India.

CEMENT INDUSTRY: STRUCTURE

Installed capacity 114.2 mn tones per annum, Production around 87.8 mn tones.

Major cement plants Mini cement plants

Companies:59 Nearly 300 plants

Plant: 116 Located in Gujarat, Rajasthan, MP.AP

Typical installed capacity for plant: Above

1.5 mntpa.

Typical capacity < 200 tpd installed capacity

around gmm. Tones

Total installed capacity: 1.05 mntpa Production around : 6.2 mn tones

Production 98-99:81.6 mntpa. Excise : Rs 250/ tone

Excise: Rs 408 tones Mini plants were meant to tap scattered

limestone reserves.

All India reach through multiple plants However most set up in A.P.

Export to Bangladesh, Nepal, Srilanka, UAE

and Mauritius

Most use vertical Kiln technology

Strong marketing network, tie ups with

customers, contractors

Production cost/ tone- Rs 1,000 to 1,400

Wide spread distribution network Infrastructural facilities not to the best

Sales primarily through the Consumer

channel


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However, cement consumption per capita in our country at about 99-kg/ capita is one

of the Lowest. The world average is about 267 kg/ capita. While that of china is 450 kg / capita.

Similar in Japan its 631 kg/ capita while in France it is 447 kg / capita.

Production:

1. Excess capacity exists, through some units are sick.

2. 1999-2000 production expended to reach 95 mn tones

3. Exports around 2 mn tones.

4. Cement manufactured through the wet, semi-dry or process.

5. Dry process accounts for 90% of the installed capacity.

6. Wet process popular in the past- better control over mixing of raw materials.7. Dry process replacing the wet process as it is space saving energy efficient and

economical.

Prices

a. Price fluctuations.

b. Essentially determined by demand.

c. Prices also vary with grades

AVERAGE MAXIMUM RETAIL PRICE

Delhi

Amount ( Rs.)

Calcutta

Amount ( Rs.)

Chennai

Amount ( Rs.)

Bangalore

Amount ( Rs.)

Aug 1999 137 146 175 170

Sep 1999 137 139 175 161

Oct 1999 136 125 175 161

Nov 1999 136 125 172 140

Dec1999 128 117 160 136

Jan 2000 120 140 136

1.

Over 370 companies in the organized sector.


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2. However, industry dominated by 20 companies who account for ever 70% of the

market.

3. Individually no company accounts for over of the market

Manufacturing Process:

Cement is manufactured by using the wet, semi dry and processes. The wet process

was popular in the past as it provided better control over materials mixing process. However,

the dry process has now gained popularity globally because it is space saving, energy

efficient and economical.

Capacity Distribution and Consumption Norms

ProcessCapacity

(TPD) % of totalPower

KHz/MTFuel

Kcal/kgDry 282486 93 120-125 750-800

Semi-Dry 13910 5 115-120 900-1000

Wet 5260 2 110-115 1300-1600

Total 301656 100

GEOGRAPHICAL DISPERSION

Limestone is the most important material input into cement manufacture. The plant

locations are primarily determined based on the proximity of cement grade limestone

deposits. These limestone deposits have been classified as cluster, some of which overlap

two states.

Cluster Wise Installed Capacity (Large Plants)

Cluster State No of plants

Capacity

(mn tpa)


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Satna MP 8 12.18

Ballarpur MP 11.16

Gulbarga Karnataka/AP 7 7.82

Chandrapur Maharashtra/AP 7 7.49

Chanderia Rajasthan/MP 7 7.45

Nalgonda AP 8 5.85

Yerraguntla AP 4 5.40

Sub total 50

57.37

(52.5%)

Non cluster 63

52.75

(47.5%)

Total 120 110.10


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PRODUCTION CAPACITY

Cement plant with a capacity of up to 0.3 mntpa are classified as mini cement plants

and are eligible for concessional excise duty. Though the minimum economic size of a

cement plant is 1 mntpa, there are over 300 white and mini cement plants in India acollective capacity of only 9 mntpa (8% of the total domestic installed capacity). Most of the

new cement plants being set up have a capacity of 1 mntpa or more. The average cost of

setting up a mini cement plant is about Rs 1400 per ton, while for large cement it is about Rs

3500 per ton.

Ready mix concrete: Industry

1. RMC-ready to use concrete, a blend of cement, sand and aggregate and water mixed

in convenient proportion.

2.

Launched first in Mumbai a few years ago is gaining in other metros in India.

3. Typical cost of a plant- Rs. 7.8 crs (US $ 1.6 to 1.8 mn) to set up a 100 cubic meter

(cum) plant with 4-5 transit mixers. Gestation period is around 3-4 months

4.

Currently RMC is at a very nascent stage, accounts for 0.5% of the demand.

Company No of plants Capacity ( cu m/hr)

ACC 13 712

RMC Ready mix 4 440

L & T 5 330

Fletcher Challenge 3 320

HCC 2 240

Unitech 2 150

Jog Construction 1 120

Starmnac 1 120

Madras Cement 1 56

Birla Cement 1 30

Three units of ACC to be commissioned

Companies planning to enter this Market:


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1. Priyadharshini Cements in Hyderabad.

2. Saurashtra Cements in Navy Mumbai.

3. Pioneer a world leader entering the market

4. Capacity additions expected in the next few years

5. ACC plans to treble its capacities.

6. Grasim is setting up four more plants.

7. L & T plans to add another eight more.

Concerns:

Cement industry going through a consolidation phase in the last few years.

Transportation:

1. Transportation costs high-freight accounts for 17% of the selling and distribution

cost.

2. Road preferred for transportation for distances less than 250 kms. However, industry

is heavily dependent on roads are the railway infrastructure is not adequate shortage

of wagons.

Capacity additions:

1. Acquisitions have been the mainstay of the business.

2. Regional imbalance resulting in cross regional movement-limestone availability in

Pockets has led to uneven capacity additions.

3.

Capacity additions have slow down.


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Industry inputs:

1.

Highly capacity intensive industry.

2.

Nearly 55-60% of the inputs controlled by the controlled.

3. Facing problems due to power shortage.

4. Coal availability the quality affecting production.

5. Mini plants realization of the revenue lower large plants, survival difficult.

Future out look

Most economic forecasts for the Indian cement industry indicate a favorable outlook

for the Indian cement sector. With no significant addition expected, the supply demand

position is expected to the better balanced. Retail housing segment is expected to show

significant demand growth over the next two year. With the industrial production showing an

upward trend, housing construction showing a sign so revival and the government gearing up

to spend more on infrastructure, the sector looks favorably poised. The overall demand

growth is expected to about 7-8 per cent. Withdrawal of sales tax benefits for the new units

will give an added push to consolidation via acquisitions. Consolidations will be more

regional, with companies seeking to gain dominance in their chosen regions.

Indias per capital cement consumption is less than 100 kg compared to the world

average of 250 kg. Currently, the total cement demand in India is lower than the total

capacity. The cement manufacturers association of India projects a demand of 101 mn tap in

2000-01 as against 93 mn yap last year. Against this, the total installed capacity is 109 mn

tap. However seven million tones of Cement Corporation of India and two million tones of

UP cement are lying ideal. An 8-10 per cent growth is projected in the coming years, which

will take the demand to 200 million tones in 10 years.

A focus on more value added products likely Ready Mix Concrete (RMC) is

emerging. RMC is a compound in which sand, gravel additives and water are added to

cement and sold as readymade concrete. Cement products benefit from RMC production as it

involves low capital expenditure. The cost of setting up a 100 metric cube per hour plant is in

the range of Rs 70 to 90 mn. While the central government has declare a zero excise duty on

RMC, the Maharashtra government has made it mandatory to use RMC in construction of all

the flyovers. With these measures, the total; RMC consumption is expected to touch 6 per


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cent of total cement capacity in next four year. To tap is existing potential, leading cement

manufacturers in the country like L & T and ACC have already announced their plans to

expand their RMC capacities is coming years.

Next cost cutting measure appears to be transporting bulk cement. This method is

cement transpiration is preferred by cement manufacturers as it results in lower packaging

costs, hence lower demurrage costs. At present, cement is predominantly sold in 50 kg bags.

But the pattern appears to the changing as cement manufacturers have increasingly started

selling cement in bulk, especially in cities where construction activity as it is peak. Most of

the cement sold in bulk is currently used by the ready mix concrete plants. Cement consumed

in bulk could help save about Rs 110 per tone (Rs 5.50 per 50 kg bag) compared to the use of

conventional bags.

Around the world, almost 80% of the cement transportation is carried out in bulk

form. But in India, only about 1%of total cement is transported in this form. This is because

of the attendant problems like inadequate infrastructure in the form of port facilities and lack

of timely availability of wagons from the railways. Cement packaging costs accounts for

nearly 4 per cent of total costs for a cement manufacturer.

The industry will see more action on the mergers and acquisition front. So far, the

market has seen only two major international players. Lafarge and Cement Francais, in

action. But others, such as CEMEX and the big daddy, Holders Bank are waiting in the

wings. These global players are; looking towards getting a foothold in the Indian market,

offering a higher acquisition price than the international standards. Within the next three to

five years the industry is expected to be dominated by five six big players and less than ten

companies in all, both Indian and foreign.


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Company profile:

This cement division project in 1978 and according to the Texaco it has taken the

steps for acquiring the land at YERRAGUNTLA in KADAPA dist. in 1982. Constructing

activity is started and the cement plant is completed in March 1985. Texaco is started

production at clinker by March 1985. Original plant capacity was 5 lakh tones per annum at

first.

The Zuari cement is strategically located at Yerraguntla. The plant location existence

of 6km from Yerraguntla. It is connected to the railway station on by a railway track of 7 km

length and is having on exchange plant inside the factory; plant is connected to the nearest

highway by 0.2 km land private load.

Basically this is belongs to DR.K.K. Birla. In 1994 January 1, this cement unit of

Texaco being handed over to Zuari agro chemical industry. Under working agreement on 7-2-

95. This unit is sold by Texaco to Zuari in 1997 company has conceives expansion project

investing 370 crores and making increasing rated capacity from 5 lakh to 7 lakh. This project

was completed by formally 1999 and in fact from1-4-2000. Company entered in agreement

with joint venture partner with Italy cement with 50% of partnership and working agreement.

The Group has strength of 22,300 employees worldwide.

62 cement plants.

14 Grinding Units.

4 stand alone terminals.

147 aggregate quarries.

575 concrete batching units.


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Part of the prestigious Dr.K.K.Birla Group a Rs 4000 crores conglomerate Zuari

cement as within a short time span made its presence felt in the cement industry. It has done

so by making top quality cement.

Consistently, Cement that has won the confidence and trust of millions in the country.

This commitment to quality has being it grow from a modest 0.5 million ton capacity in 1995

to 2 million tons today. Zuaries quality drive originates in its state of the are cement plant,

situated at yerraguntla; Renewed for rich Narji limestone deposits, this plant is cement

manufacturers envy. Yet, strategic location is just factor contributing to Zuari success.

There are other equal important reasons.

Superior work force. Cutting-edge technology.

Decentralized quality assurance teams.

All this combine seamlessly to ensure that every bag of cement. That leaves the plants

is of consistent quality, and worthy of bearing the zuari label. World Wife excellence with

ital cement.

Zuari industries ltd has entered into 50:50 joint venture with Ital cement group, the

largest producer and distributor of cement in Europe and one of the leaders in cement

production in the world.

Ital cementi operates in 19 countries including Canada, France, Italy, Morocco, USA

and Bulgaria. Italic cements global industrial network includes more than 50 cement plants,

500 concrete batching units 150 quarries.

Zuari joint with Ital cement gives Sri Vishnu cement a global technological advantage

which reflects in finesses of every grain of Sri Vishnu cement.


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History of Zuari cements:

1.

Zuari cement was started in 1994 to operate the cement plant of Texaco Ltd.

Subsequently, Texacos cement business was taken over by the company in 1995.

2. Zuari cements manufacturing facility at yerraguntla in Andhra Pradesh is one of the

largest in south India and places Zuari cement among the top 5 manufacturers in the

south.

3. In 2000, Ital cement group the second largest producer and distributor of cement in

Europe and fifth largest cement producer in the world enter into a joint venture with

Zuari cement and Zuari cement Limited was formed.

COMPETITORS:

1.

CORAMANDAL CEMENT

2. MAHA CEMENT

3. NAGARJUNA CEMENT

4.

LANCO CEMENT

5. ULTRATECH CEMENT

6. PENNA CEMENT, etc.

Joint venture with Ital cementi:

The scenario of mergers and acquisitions is still vast in the cement industry. The entry

of many multinationals. The other MNCs planning to enter the Indian market and

consolidation of the companies in India has been forcing mergers in the cement industry.

Now company is under joint venture having rated capacity of 17 lakhs per annum.

Ital cements group CCBs mother company ( Companies des cements ), and the Zuari

Industries Ltd (ZIL) of India have reached an agreement to create a 50:50 joint venture which

will assume the cement activities of ZIL, consisting of the cement plant of yerraguntla, in

Andhra Pradesh.


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Location of the plant:

Cement and its raw materials namely coal and lime stone, are all bulky that make

transportation difficult and uneconomical. Given this, cement plants are located close to both

sources of raw materials and markets. Most of lime stone deposits in India are located in

Madhya Pradesh, Rajasthan, Andhra Pradesh, Maharashtra and Gujarat.

There is a trade-off between proximity to markets and proximity to raw materials due

to which some cement plants have been setup near big markets despite lack of raw materials.

Zuari cement industries ltd., is located at Krishna Nagar, in Yerraguntla, Kadapa

district. It was nearest to the railway station and also nearest to the road. It was 6 km distance

to yerraguntla. Location of the plant at this place is having the following advantages.

Location in industrial belt of Rayalaseema with sophisticated facilities like water.

Present of best suited limestone proved scientifically for cement.

Low free limestone to ensure reduce surface cracks.

Low heat of hydration from better soundness.

Low magnesia content to ensure reduced tensile cracks.

Specially designed setting time to suit Indian working conditions.

PRODUCTION:

Cement production during the period has also increased from about 72.23

Million tons about 90 million tons in 2005-2006 excluding the contribution of mini cement

plants.

RAW MATERIALS:

The actual requirements of raw material at 100% capacity utilization would be;

1.

12.5 million tons of limestone per annum.2. 70000 tons of Gypsum per annum.

3. 39000 tons of Bauxite per annum.

4. 20000 tons of Iron ore per annum.

1.

The limestone is major component required for the plant is net from the mines located

adjacent to the proposed site.

2. Gypsum is procured from fertilizer factories at Madras and Cochin.

3.

Iron is soured partly from mini steel plants located at Tirupathi and partially from Bellary.4. Bauxite is procured from Goa, Karnataka and Maharashtra.


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POWER:

Maximum estimated power demand is 45 M.V. The company has an existing contract

50 M.V demands APSEB, the plant presents has D.G sets with an aggregate general capacity

of 12.6 M.V.

WATER:

Water is required for seeds of consumption make for plant and machinery for general

need in plant. Company has a pumping station and underground bore wells near Hanuman

Gutta village at Penna River to tap the undergrounds water in riverbed.

TRANSPORT:

The factory is when connected to different part of the country through rail and road

facilities is near to Yerraguntla railway station and has a railway lint to the factory with an

extern point within the factory premises 605 of the cement is dispatched by rail gal is

received through rail. The plant is connected to the nearest state highway to Bangalore,

Hyderabad and Chennai.

MANPOWER:

Existing plant has a total of 500 employees. After and addition of employees may be

required.

QUARRY:

It is situated adjacent to the factory. It constituted limestone, one of the major

materials for cement industry. The quarry has a mining base area of 1027.56 acres.


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S.No Description

Massive

(MT)

grade limesto

Flagged

stone(MT

Total (MT)

1 Total reserves of limestone36 blocks

108442 9.894 118.36

2 Un workable limestone dueto mining obstacles

29530 2540 32.07

3 Workable reserves 79912 7354 86.266

Chambal fertilizers and chemicals ltd (CFCL) promoted by Zuari industries ltd.,

has set up a large gas based area manufacturing plant at Gadapan about 35 km from Keta,

a major industrial town of Rajasthan state in India.

CFCLs plant is a state-of-the-are-high-tech complex built at a cost of Rs.12.67

billions. Spread over an area of 1105 acres (or 447 hectares 4.47 sq.kms), containing the

manufacturing units offsite facilities including captive power plant, railways siding and

amenities like residential complex, club, school, etc in a pleasant and green surroundings

snamprogetti of Italy and Haldor topsoe of Denmark provided the technical know-how and

Engineering and other services for Ammonia and urea plant while off-site facilities were built

mainly by Tokyo engineering India ltd.

The enterprise value of the unit has been pegged at Rs. 740 crores. The creation of

this joint venture company is a new step in the international of the Ital cement group in Asia.

It is a new opportunity for the group, to further increase its presence in the emerging

countries by entering the promising Indian market, the third largest in the world. In

combination with a very important partner says a release issued by laggard who advised ital

cement on the deal.


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Here are 6 of the many reasons why Zuari 53 grade and 43 grades cement

edges out its competitors.

1.

High compressive strengths.

2. Low heat of hydration.

3. Better soundness.

4.

Lesser consumption of cement for M-20 concrete grade and above.

5.

Faster de-shuttering of formed work.

6. Reduced construction time.

With a superior and wide range of cement catering to very conceivable building

need, Zuari cement is a formidable player in the cement market. Here are just a

few reasons why Zuari cement is chosen by millions in India.

Ideal raw materials

Low time and magnesia content and high proportion of silicates

Greater fineness

Slow initial and fast final setting

Wide range of applications

Quality customer service

A wide range to address every need:

Residential, commercial, multistoried buildings and complex.

Mass concreting-dams, canals, spillways

Construction and repair of pavements, roads, flyovers and runways.

Spun pipes and poles manufacturing

Cold weather concreting

Pre-fabricated elements such a pipes, sleepers, windows, door frames etc.

Quality customer service:

In an effort to reach out to customers better, Zuari cement as set up a technical

cell named Zuari home partner. This cell gives guidance in the field of building.

Technology, architecture, housing finance and economical usage of the high

quality. Technical experts provide the assistance according to the individual

requirements. So that customers get the best value for the investment they have

made.

Products


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Zuari Cement manufactures and distributes its own main product lines of cement .We aim to

optimize production across all of our markets, providing a complete solution for customer's

needs at the lowest possible cost, an approach we call strategic integration of activities.

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

crushed and ground to provide the "raw meal, a pale, flour-like powder. Heated to around

1450 C (2642 F) in rotating kilns, the meal undergoes complex chemical changes and is

transformed into clinker. Fine-grinding the clinker together with a small quantity of gypsum

produces cement. Adding other constituents at this stage produces cements for specialized

uses.

Zuari Cements range of cement
http://zuaricements.com/scripts/productsOPC53.aspxhttp://zuaricements.com/scripts/productsOPC43.aspxhttp://zuaricements.com/scripts/productsPPCsuperfine.aspxhttp://zuaricements.com/scripts/productsOPC53.aspxhttp://zuaricements.com/scripts/productsOPC43.aspxhttp://zuaricements.com/scripts/productsPPCsuperfine.aspxhttp://zuaricements.com/scripts/productsOPC53.aspxhttp://zuaricements.com/scripts/productsOPC43.aspxhttp://zuaricements.com/scripts/productsPPCsuperfine.aspxhttp://zuaricements.com/scripts/productsOPC53.aspxhttp://zuaricements.com/scripts/productsOPC43.aspxhttp://zuaricements.com/scripts/productsPPCsuperfine.aspxhttp://zuaricements.com/scripts/productsOPC53.aspxhttp://zuaricements.com/scripts/productsOPC43.aspxhttp://zuaricements.com/scripts/productsPPCsuperfine.aspx


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Process Technology, the Solid Foundation

The culture of quality that has always prevailed in Zuari Cement's manufacturing facilities is

best exemplified in the process technology employed.

Advanced technology methods are used to ensure that a high level of quality is attained and

sustained right through the manufacturing process. Yet, these high standards are constantly

improved upon by an experienced and dedicated R&D team to attain performance oriented

cement

The process Technology Advantages

Complete homogenization of limestone is achieved by stacking the limestone in

stock-plies with the use of stackers and reclaiming it through reclaimers. The

optimum ratio of raw mix is attained by the use of X-ray analyzer and automatic

weigh feeder which are linked to the centralized computers control room.


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BOARD OF DIRECTORS

DIRECTORS : Saroj Kumar Poddar, Chairman

Rodolfo Danielle

Yves Rene Nanot

Goran Siefert

Maurizio Caneppele, Managing director

Raghunathan Vishwanathan

EXECUTIVES : Director-Marketing ; K. Srivasthava

Director-Technical : P. Sheoran

Vice President : S. Suresh

COMPANY SECRETARY : L.R Neelakanta

BANKERS : State Bank of India, Andhra bank,

BNP Paribas, Standard chartered Bank,

State Bank of Hyderabad.

AUDITORS : BSR & Co.,

Chartered accountants Bangalore

FACTORY : Krishna Nagar, Yerraguntla,


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Literature review:

FEATURE OF CAPITAL BUDGETING:

The important features, which distinguish capital budgeting decision in other day-to

day decision, are Capital budgeting decision involves the exchange of current funds for the

benefit to be achieved in future. The future benefits are expected and are to be realized over a

series of years. The funds are invested in non-flexible long-term funds.They have a long term

and significant effect on the profitability of the concern. They involve huge funds.They are

irreversible decisions. They are strategic decision associated with high degree of risk.

IMPORTANCE OF CAPITAL BUDGETING:

The importance of capital budgeting can be understood from the fact that an unsound

investment decision may prove to be fatal to the very existence of the organization.

The importance of capital budgeting arises mainly due to the following:

1. LARGE INVESTMENT:

Capital budgeting decision, generally involves large investment of funds. But the funds

available with the firm are scarce and the demand for funds for exceeds resources. Hence, it

is very important for a firm to plan and control its capital expenditure.

2.LONG TERM COMMITMENT OF FUNDS:

Capital expenditure involves not only large amount of funds but also funds for long-term or a

permanent basis. The long-term commitment of funds increases the financial risk involved in

the investment decision.


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3. IRREVERSIBLE NATURE:

The capital expenditure decisions are of irreversible nature. Once, the decision for acquiring a

permanent asset is taken, it becomes very difficult to impose of these assets without incurring

heavy losses.

4. LONG TERM EFFECT ON PROFITABILITY:

Capital budgeting decision has a long term and signifant effect on the profitability of a

concern. Not only the present earnings of the firm are affected by the investment in capital

assets but also the future growth and profitability of the firm depends up to the investment

decision taken today. Capital budgeting decision has utmost has importance to avoid over or

under investment in fixed assets.

5. Difference of investment decision:

The long-term investment decision are difficult to be taken because uncertainties of future

and higher degree of risk.

6. Notional Importance:

Investment decision though taken by individual concern is of national importance because it

determines employment, economic activities and economic growth.


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KINDS OF CAPITAL BUDGETING:

Every capital budgeting decision is a specific decision in the situation, for a given firm and

with given parameters and therefore, almost infinite number of types or forms of capital

budgeting decision may occur. Even if the same decision being considered by the same firm

at two different points of time, the decision considerations may change as a result of change

in any of the variables. However, the different types of capital budgeting decision undertaken

from time to time by different firms can be classified on a number of dimensions.

Some projects affect other projects of the firm is considering and analyzing. At the other

extreme, some proposals are pre-requisite for other projects. The project may also be

classified as revenue generating or cost reducing projects can be categorized as follows:

1. From the point of view of firms existence: The capital budgeting decision may be

taken by a newly incorporated firm or by an already existing firm.

NewFirm:

A newly incorporated firm may be required to take different decision such as selection of a

plant to be installed, capacity utilization at initial stages, to set up or not simultaneously the

ancillary unity etc.

Existing Firm:

A firm which already exists may be required to take various decisions from time to time meet

the challenge of competition or changing environment. These decisions may be:

Replacements and Modernization Decision: This is a common type of a capital budgeting

decision. All types of plant and machineries eventually require replacement. If the existing

plant is to be replaced because of the economic life of the plant is over, then the decisions


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may be known as a replacement decision. However, if an existing plant is to be replace

because it has become technologically outdated (though the economic life may not be over)

the decision any be known as a modernizationdecision.

In case of a replacement decision, the objective is to restore the same or higher capacity,

whereas in case of modernization decision, the objectives are to increase the efficiency and/or

cost reduction. In general, the replacement decision and the modernization decision are also

known as cost reductiondecisions.

Expansion:

Some times, the firm may be interested in increasing the Installed production capacity so as

to increase the market share. In such a case, the finance manager is required to evaluate the

expansion program in terms of marginal costs and marginal benefits.

Diversification:

Some times, the firm may be interested to diversify into new product lines, new markets,

production of spares parts etc. in such a case, the finance manager is required to evaluate not

only the marginal cost and benefits, but also the effect of diversification on the existing

market share and profitability. Both the expansion and diversification decisions may be also

be known as revenue increasing decisions.


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(iii) Capital Rationing Decision:

In a situation where the firm has unlimited funds all independent investment proposals

yielding return greater than some pre-determined levels are accepted. However this situation

does not prevail in most of the business firms in actual practice. They have a fixed capital

budget.

A large number of investment proposals compete for these limited funds, the firm must

therefore ration them. The firm allocates funds to projects in a manner that it maximizes

long run returns; this rationing refers to a situation in which a firm has more acceptance

investment than it can finance. It is concerned with the selection of a group of investment

proposals acceptable. Under the accept-reject decision capital rationing employees ranking of

the acceptable investment projects. The project can be ranked on the basis of a predetermined

criterion such as the rate of return. The project is ranked in the descending order of the rate of

returns.

PROBLEMS AND DIFFICULTIES IN CAPITAL BUDGETING:

The problems in Capital budgeting decision may be as follows:

Future uncertainty: Capital budgeting decision involves long-term commitments. However

there is lot of uncertainty in the long term. Uncertainty may be with reference to cost of the

project, future expected returns, future competition, legal provisions, political situation etc.

Time Element: The implication of a Capital Budgeting decision are scattered over along

period. The cost and benefit of a decision may occur at different points of time. The cost of

project is incurred immediately. However the investment is recovered over a number of

years. The future benefits have to be adjusted to make them comparable with the cost. Longer

the time period involved, greater would be the uncertainty.


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Difficulty in quantification of impact: The finance manager may face difficulties in

measuring the cost and benefits of projects in quantitative terms. For example, the new

products proposed to be launched by a firm may result in increase or decrease in sales of

other products already being sold by the same firm. It is very difficult to ascertain the extent

of impact as the sales of other products may also be influenced by factor other than the

launch of the new products.

ASSUMPTION IN CAPITAL BUDGETING:

The capital budgeting decision process is a multi-faceted and analytical process. A number of

assumptions are required to be made. These assumptions constitute a general set of condition

within which the financial aspects of different proposals are to be evaluated. Some of these

assumptions are:

1. Certainty With Respect To Cost And Benefits: it is very difficult to estimate the cost

and benefits of a proposal beyond 2-3 years in future. However, for a capital budgeting

decision, it is assumed that the estimate of cost and benefits are reasonably accurate and

certain.

2. Profit Motive:Another assumption is that the capital budgeting decisions are taken with a

primary motive of increasing the profit of the firm. No other motive or goal influences the

decision of the finance manager.

3. No Capital Rationing:The capital Budgeting decision in the present chapter assumes that

there is no scarcity of capital. It assumes that a proposal will be accepted or rejected in the

strength of its merits alone. The proposal will not be considered in combination with other

proposals to the maximum utilization of available funds.


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CAPITAL BUDGETING PROCESS

Capital budgeting is complex process as it involves decision relating to the investment of

current funds for the benefit for the benefit to be achieved in future and the future is always

uncertain. However, the following procedure may be adopted in the process of Capital

Budgeting.

Identification of investment proposals

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

The proposal about potential investment opportunities may originate either from top

management or from any officer of the organization. The departmental head analysis various

proposals in the light of the corporate strategies and submits the suitable proposals to the

capital expenditure planning.

Screening proposals:

The expenditure planning committee screens the various proposals received from different

departments. The committee reviews these proposals from various angles to ensure that these

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

not lead departmental imbalances.

Evaluation of Various proposals:

The next step in the capital budgeting process is to various proposals. The method, which

may be used for this purpose are Payback period method, Rate of return method, N.P.V and

I.R.R etc.


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Fixing priorities:

After evaluating various proposals, the unprofitable uneconomical proposal may be rejected

and it may not be possible for the firm to invest immediately in all the acceptable proposals

due to limitation of funds. Therefore, it is essential to rank the project/proposals after

considering urgency, risk and profitability involved in there.

FINAL APPROVAL AND PREPARATION OF CAPITAL EXPENDITURE

BUDGET:

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

expenditure budget. The expenditure budget lays down the amount of estimated expenditure

to be incurred on fixed assets during the budget period.

Implementing proposals:

Preparation of a capital expenditure budget and incorporation of a particular Proposal in the

budget doesnt itself authorize to go ahead with the implementation of the project.

A request for the authority to spend the amount should be made to the capital Expenditure

committee, which reviews the profitability of the project in the changed circumstances.

Responsibilities should be assigned while implementing the project in order to avoid

unnecessary delays and cost overruns. Network technique likes PERT and CPM can be

applied to control and monitor the implementation of the projects.

Performance Review:

The last stage in the process of capital budgeting is the evaluation of the performance of the

project. The evaluation is made by comparing actual and budget expenditures and also by

comparing actual anticipated returns


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PAY BACK PERIOD METHOD

The pay back come times called as payout or pay off period method represents the period in

which total investment in permanent assets pay back itself. This method is based on the

principle that every capital expenditure pays itself back within a certain period out of the

additional earnings generated from the capital assets.

Decision rule:

A project is accepted if its payback period is less than period specific decision rule.

A project is accepted if its payback period is less than the period specified by the

management and vice-versa.

Initial Cash Outflow

Pay Back Period = ----------------------------

Annual Cash Inflows

ADVANTAGES:

o Simple to understand and easy to calculate.

o It saves in cost; it requires lesser time and labor as compared to other methods

of capital budgeting.

o

In this method, as a project with a shorter payback period is preferred to the

one having a longer pay back period, it reduces the loss through

obsolescence.

o Due to its short- time approach, this method is particularly suited to a firm

which has shortage of cash or whose liquidity position is not good.


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DISADVANTAGES:

o It does not take into account the cash inflows earned after the pay back period

and hence the true profitability of the project cannot be correctly assessed.

o This method ignores the time value of the money and does not consider the

magnitude and timing of cash inflows.

o It does not take into account the cost of capital, which is very important in

making sound investment decision.

o

It is difficult to determine the minimum acceptable pay back period, which is

subjective decision.

o It treats each assets individual in isolation with other assets, which is not

feasible in real practice.

ACCOUNTING RATE OF RETURN METHOD

This method takes into account the earnings from the investment over the whole life. It is

known as average rate of return method because under this method the concept of accounting

profit (NP after tax and depreciation) is used rather than cash inflows. According to this

method, various projects are ranked in order of the rate of earnings or rate of return.

Decision rule:

The project with higher rate of return is selected and vice-versa.

The return on investment method can be in several ways, as


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AVERAGE RATE OF RETURN METHOD:

Under this method average profit after tax and depreciation is calculated and then it is divided

by the total capital out lay.

Average Annual profits (after dep. & tax)

Average rate of return =----------------------------------------- ----x100

Net Investment

ADVANTAGES:

o It is very simple to understand and easy to calculate.

o It uses the entire earnings of a project in calculating rate of return and hence

gives a true view of profitability.

o As this method is based upon accounting profit, it can be readily calculated

from the financial data.

DISADVANTAGES:

o It ignores the time value of money.

o It does not take in to account the cash flows, which are more important than

the accounting profits.

o

It ignores the period in which the profit are earned as a 20% rate of return in 2

years is considered to be better than 18%rate of return in 12 years.

o This method cannot be applied to a situation where investment in project is to

be made in parts.


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NET PRESENT VALUE METHOD

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

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

investments by introducing time element. The net present values of all inflows and outflows

of cash during the entire life of the project is determined separately for each year by

discounting these flows with firms cost of capital or predetermined rate. The steps in this

method are

1)

Determine an appropriate rate of interest known as cut off rate.

2) Compute the present value of cash inflows at the abovedetermined discount rate.

3) Compute the present value of cash inflows at the predetermined rate.

4) Calculate the NPV of the project by subtracting the present value of cash outflows.

Decision rule

Accept the project if the NPV of the projects 0 or positive that is present value of

cash inflows should be equal to or greater than the present value of cash outflows.


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ADVANTAGES:

o It recognizes the time value of money and is suitable to apply in a situation

with uniform cash outflows and uneven cash inflows.

o It takes in to account the earnings over the entire life of the project and gives

the true view if the profitability of the investment

o Takes in to consideration the objective of maximum profitability.

DISADVANTAGES:

o

More difficult to understand and operate.

o It may not give good results while comparing projects with unequal

investment of funds.

o It is not easy to determine an appropriate discount rate.

INTERNAL RATE OF RETURN METHOD

The internal rate of return method is also a modern technique of capital budgeting that

takes in to account the time value of money. It is also known as time- adjusted rate of return

or trial and error yield method. Under this method the cash flows of a project are discounted

at a suitable rate by hit and trial method, which equates the net present value so calculated to

the amount of the investment. The internal rate of return can be defined as that rate of

discount at which the present value of cash inflows is equal to the present value of cash

outflow.

Decision Rule:

Accept the proposal having the higher rate of return and vice versa.

If IRR>K, accept project. K=cost of capital. If IRR


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DETERMINATION OF IRR

a) When annual cash flows are equal over the life of the asset.

Initial Outlay

FACTOR = -------------------------------- x 100

Annual Cash inflow

b) When the annual cash flows are unequal over the life of the asset:

PV of cash inflows at lower ratePV of cash out flows

IRR =LR+ ------------------------------------------------------------------------- (hr-lr)

PV of cash inflows at lower rate - PV of cash inflows at higher rate

The steps are involved here are

o

Prepare the cash flows table using assumed discount rate to discount the net cash

flows to the present value.

o Find out the NPV, & if the NPV is positive, apply higher rate of discount.

o If the higher discount rate still gives a positive NPV increases the discount rate

further. Until the NPV becomes zero.

o If the NPV is negative, at a higher rate, NPV lies between these two rates.


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ADVANTAGES:

o It takes into account, the time value of money and can be applied in situation with

even and even cash flows.

o It considers the profitability of the projects for its entire economic life.

o The determination of cost of capital is not a pre-requisite for the use of this method.

o It provide for uniform ranking of proposals due to the percentage rate of return.

o This method is also compatible with the objective of maximum profitability.

DISADVANTAGES:

o It is difficult to understand and operate.

o The results of NPV and IRR methods my differ when the projects under evaluation

differ in their size, life and timings of cash flows.

o This method is based on the assumption that the earnings are reinvested at the IRR for

the remaining life of the project, which is not a justified assumption.


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PROFITABILITY INDEX METHOD OR BENEFIT

COST RATIO METHOD

It is also a time-adjusted method of evaluating the investment proposals. PI also called

benefit cost ratio or desirability factor is the relationship between present value of cash

inflows and the present values of cash outflows. Thus

PV of cash inflows

Profitability index = -----------------------------

PV of cash outflows

NPV

Net profitability index = ---------------------------

Initial Outlay

ADVANTAGES:

o Unlike net present value, the profitability index method is used to rank the

projects even when the costs of the projects differ significantly.

o It recognizes the time value of money and is suitable to apply in a situation

with uniform cash outflow and uneven cash inflows.

o

It takes into account the earnings over the entire life of the project and gives

the true view of the profitability of the investment. Takes into consideration

the objectives of maximum profitability.


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DISADVANTAGES:-

o More difficult to understand and operate.

o It may not give good results while comparing projects with unequal

investment funds.

o It is not easy to determine and appropriate discount rate.

o It may not give good results while comparing projects with unequal lives as

the projects having higher NPV but have a longer life span may not be as

desirable as a projects having somewhat lesser NPV achieved in a much

shorter span of life of the asset.

According to Robert S. Haris (2008): Finance scholars' approach to capital-structure

issues reflects a progression of thought over time. This note provides an overview of the

current state of capital-structure theory. One perspective on capital-structure choice is to view

it as posing trade-offs among five elements: (1) the tax benefits of financing, (2) the explicit

costs of financial distress, (3) the agency costs of debt (including an array of indirect costs

linked to financial distress), (4) the agency costs of equity, and (5) the signaling effect of

security issuance.

The first two elements reflect the "modern, traditional" balancing theory of capital structure.

The third and fourth build on agency theory and imperfect information and emphasize the

individual incentives of decision makers. The fifth element recognizes that the very act of

issuing a security can convey new information to investors when there is imperfect

information. While newer theories provide a rich array of insights into aspects of financial

policy beyond how much debt the firm should undertake, the downside is that at present there

is no overarching synthesis of these theories. As a result, practical application requires careful


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identification of how these particular theories are relevant to the business, the markets, and

the situations at hand.

According to Matti J. Suominen (2010): In this paper, they studied a two-country

general equilibrium model with partially segmented financial markets, where hedge funds

emerge endogenously. Empirically, we show that the hedge fund investment strategy

predicted by our model, so called risk-adjusted carry trade strategy, explains more than

16% of a broad hedge fund index returns and more than 33% of a fixed income arbitrage sub-

index returns. The flow of new money to hedge funds affects market interest rates,

exchange rate, the both the hedge funds contemporaneous and expected future returns as

predicted by the model.

According to Robert F. Bruner (2008): A mutual-fund management firm pored over

analyst write-ups of Nike, Inc., the athletic shoe manufacturer. Nikes share price had

declined significantly from the beginning of the year. Ford was considering buying some

shares for the fund she managed, the North Point Large-Cap Fund, which was invested

mostly in Fortune 500 companies with an emphasis on value investing. Ford had read all the

analyst reports that she could find about the June 28th meeting, but the reports gave her no

clear guidance. She decided instead to develop her own discounted cash flow forecast to

come to a clearer conclusion.

According toIgnacio Velez-Parejas ( 2010): a short review of the major statistics

regarding the non traded firms in the U.S. and in Colombia as an example of an emerging

market. He shows some alternatives to estimate the cost of equity capital when there is not

enough trading information. Some of them use the Capital Assets Pricing Model (CAPM)
http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=145648http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=145648http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=145648http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=145648


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The note is organized as follows: In Section One he present some relevant statistics

regarding the non traded firms in the U. S. and in Colombia. In Section Two he mention the

importance of the emerging markets mostly composed of non-trading firms and the relevance

of popular approaches to the estimation of cost of equity capital. In Section Three he

distinguish between total and systematic risk and present methods to estimate the cost of

equity capital with systematic risk and total risk. When using Accounting Risk Models

(ARM) he used data from a well known firm in the Colombian stock market .In section Four

he presented some concluding remarks.

According to Harry De Angelo (2008): Firms deliberately but temporarily deviate

from permanent leverage targets by issuing transitory debt to fund investment. Leverage

targets conservatively embed the option to issue transitory debt, with the evolution of

leverage reflecting the sequence of investment outlays. They estimated a dynamic capital

structure model with these features and find that it replicates industry leverage very well,

explains debt issuances/repayments better than extant tradeoff models, and accounts for the

leverage changes accompanying investment "spikes." It generates leverage ratios with slow

average speeds of adjustment to target, which are dampened by intentional temporary

movements away from target, not debt issuance costs.

According to Rebecca N. Hann Maria Ogneva (2009): she examined whether

organizational form matters for a firm's cost of capital. Contrary to the conventional view,

our model shows that coinsurance among a firm's business units can reduce systematic

risk through the alleviation of countercyclical deadweight costs. Using measures of implied

cost of capital constructed from analyst forecasts, she found that


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diversified firms have on average a lower cost of capital than stand-alone firms. In addition,

diversified firms with less correlated segment cashflows have a lower cost of capital ,

consistent with a coinsurance effect. Holding the magnitude of cash flows constant, our

estimates imply an average value gain of approximately 6% when moving from the highest to

the lowest cash flow correlation quintile.

According to Byoun (2008):They hypothesized that financial flexibility - characterized

by future investment opportunities relative to expected future cash flows and financing

constraints - is the main driver of firms' structure decisions. The ensuing implication is that

there is an inverted-U relationship between leverage ratio and the financial life cycle. They

found that: developing firms have lower leverage ratios; growth firms have high leverage

ratios; finally, mature firms have moderate leverage ratios. Their hypothesis explains several

capital structure "puzzles'' raised in the literature and can be a prominent alternative to

existing theories.. It also provides important implications for dividend and cash holding

policies.


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NEED FOR THE STUDY

The Project study is undertaken to analyze and understand the Capital Budgeting

process

in ZUARI , which gives exposure to practical implications of theory knowledge.

To know about the organizations operation of using various Capital budgeting

techniques.

To know how the organization gets funds from various resources


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SCOPE OF THE STUDY:

The scope of the study is restricted to the following:

The scope is limited to the operations of company or a firm and the system followed in the

company or a firm for capital expenditure decision.


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LIMITATIONS OF THE STUDY

Lack of time is a limiting factor, i.e., the schedule period of 6 weeks are not sufficient

to make the study on Capital Budgeting in ZUARI CEMENTS.

The busy schedule of the officials in the ZUARI CEMENTS is another limiting

factor.

The study is conducted in a short period, which was not detailed in all aspects.


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INTERNAL RATE OF RETURN:

The Internal rate of return is also one of the capital budgeting technique that identifies the

time value of money. This method is also known as yield method. It is that rate of return

which equates the present value of cash inflows to the present value of cash outflows.

The internal rate of return is calculated by using the formula:

()

PAYBACK PERIOD:

Payback period method is a traditional method of capital budgeting. It is the simple and

widely used quantitative method of investment evaluation. Payback period is also termed aspayout or payoff period method, with the help of payback period method firm can evaluate

the number of years to recoup the initial investment from cash flow after tax.

The formula to calculate payback period is:

ACCOUNTING RATE OF RETURN:

Accounting Rate of Return (ARR) is a traditional method of capital budget evaluation and it

is also known as average rate of return method. According to this method the capital

investment proposals are judged on the basis of accounting information rather than cash

flows.

Average Rate of Return can be calculated using the formula:

journals, annual reports of ZUARI CEMENTS


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DATA ANALYSIS & INTERPRETATION

ZUARI HYDERABAD

CAPITAL BUDGETING

EXAMPLE OF STAGE I & II

Sl. Schemes Outlay

1. Stage-I ( 3 x 20000 MT) 5,48,92,00,000

2. Stage- II( 3 x 50000 MT) 11,03,69,00,00

3. Stage-III( 1 x 50000MT) 1229.38(Millions)

StageI consisting outlay of 5,48,92,00,000 this is recovered in 5 years of time.

RECOVERY OF PROJECTS (Stage-I):

Following calculations are under consider

Under Discounted Pay Back Period:

StageI (3 x 20000) Outlay : 5,48,92,00,000


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TABLE-3

PAY BACK PERIOD:

YearZUARI Investments (InLakhs)

Cashinflows(P.V.) Cash Out Flows (Initial)

2013-09 25,000.00 2900 33000

2009-10 12,000.00 1100 70000

2010-11 90,000.00 1600 400002011-12 30,000.00 1200 80000

2012-13 50,000.00 1800 60000

Total: 207,000.00 8,600.00 283,000.00

Initial Investments

Pay Back Period = ---------------------------

Annual Cash inflows

25000

= --------- 5 Years

8600

GRAPH 3:

Interpretation:

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

2008-09 2009-10 2010-11 2011-12 2012-13 Total:

BHEL Investments (In Lakhs)

Cash inflows(P.V.)

Cash Out Flows (Initial)


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a) In the Pay Back method the Investment and the case inflows are fluctuating from

year to year where as in the year 1999-00 it is 40000 and in the year 2009-10 is

50000.

b) Cash inflows are in the order of increasing to decreasing from 1999-00 and 2009-

10.


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TABLE-4

Year ZUARI Investments (Lakhs) Cash Flows after Taxes Average Income

(Thousands)

2013-09 260,000.00 64000 200000

2009-10 600,000.00 78000 3000002010-11 100,000.00 25000 600000

2011-12 250,000.00 18000 800000

2012-13 520,000.00 22000 750000

Total 3,280,000.00 430000 4360000

Interpretations:

a) From 2006-2007 the net block and gross fixed assets is 328916.

b) Whereas the Net Block and gross fixed asset is been increased in the year 2009-10.

0.00

500,000.00

1,000,000.00

1,500,000.00

2,000,000.00

2,500,000.00

3,000,000.00

3,500,000.00

4,000,000.00

4,500,000.00

BHEL Investments (Lakhs)

Cash Flows after Taxes

Average Income


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TABLE-6

Interpretations:

a) Net worth and net assets has been increasing from year to year from 2005-06 it is229055 and compare to 2009-10 it has been increased to 440302.

b)

By observing the chat we can say the net worth and net assets have been increasingfrom 2005-06 to 2009-2010.

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2008-09 2009-10 2010-11 2011-12 2012-13 TOTAL

284738 323083 328916386106 400381

1723224

ZUARI NET BLOCK (IN LAKS)

FY YEAR ZUARI NET BLOCK (IN LAKS)

2013-09 284738

2009-10 3230832010-11 328916

2011-12 386106

2012-13 400381

TOTAL 1723224


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TABLE 7 :

FY YEAR ZUARI PROFIT AFTER TAX

2008-09 34245

2009-10 37338

2010-11 35396

2011-12 36085

2012-13 52609

TOTAL 195673

PROFIT AFTER TAX

Interpretations:

a) The chart shows the increase value after the deduction of tax in the year 2009-10.

b) The Profit is changing from year to year in the year 2004-05 it is 34245 where asincreasing value in the year 2004-2005 and decreased, in the year 2009-10 the value isincreased.

0

20000

40000

60000

80000

100000

120000

140000

160000180000

200000

2008-09 2009-10 2010-11 2011-12 2012-13 TOTAL

34245 37338 35396 36085

52609

195673

ZUARI PROFIT AFTER TAX


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Mar '13 Mar '12 Mar '11 Mar '10 Mar '09

Sources Of Funds

Total Share Capital 489.52 489.52 489.52 489.52 489.52

Equity Share Capital 489.52 489.52 489.52 489.52 489.52

Share Application Money 0 0 0 0 0Preference Share Capital 0 0 0 0 0

Reserves 29,954.58 24,883.69 19,664.32 15,427.84 12,449.29

Revaluation Reserves 0 0 0 0 0

Networth 30,444.10 25,373.21 20,153.84 15,917.36 12,938.81

Secured Loans 1,286.00 0 0 0 0

Unsecured Loans 129.2 123.43 102.14 127.75 149.37

Total Debt 1,415.20 123.43 102.14 127.75 149.37

Total Liabilities 31,859.30 25,496.64 20,255.98 16,045.11 13,088.18

Application Of Funds

Gross Block 10,585.56 9,542.79 7,917.62 6,579.70 5,224.43

Less: Accum. Depreciation 6,127.07 5,245.98 4,516.70 4,164.74 3,754.47

Net Block 4,458.49 4,296.81 3,400.92 2,414.96 1,469.96

Capital Work in Progress 1,171.59 1,347.61 1,733.76 1,550.49 1,212.70

Investments 429.17 461.67 439.17 79.84 52.34

Inventories 11,763.82 13,444.50 10,852.05 9,235.46 7,837.02

Sundry Debtors 29,234.49 26,336.13 20,103.50 20,688.75 15,975.50

Cash and Bank Balance 7,732.05 6,671.98 9,630.15 865.08 1,950.51

Total Current Assets 48,730.36 46,452.61 40,585.70 30,789.29 25,763.03

Loans and Advances 15,338.84 14,217.32 13,100.74 4,801.24 4,616.67Fixed Deposits 0 0 0 8,925.00 8,364.16

Total CA, Loans & Advances 64,069.20 60,669.93 53,686.44 44,515.53 38,743.86

Deffered Credit 0 0 0 0 0

Current Liabilities 29,327.02 33,638.01 31,407.77 28,097.73 23,415.10

Provisions 8,942.13 7,641.37 7,596.54 4,417.98 4,975.58

Total CL & Provisions 38,269.15 41,279.38 39,004.31 32,515.71 28,390.68

Net Current Assets 25,800.05 19,390.55 14,682.13 11,999.82 10,353.18

Miscellaneous Expenses 0 0 0 0 0

Total Assets 31,859.30 25,496.64 20,255.98 16,045.11 13,088.18

Contingent Liabilities 3,441.04 6,500.34 5,129.50 2,538.13 2,546.25

Book Value (Rs) 124.38 103.67 411.71 325.16 264.32


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Findings and suggestions:

The Corporate mission of ZUARI is to make available reliable and quality power in

increasingly large quantities. The company will spear head the process of accelerated

development of the power sector by expeditiously planning, implementing CEMENT

project and operating power stations economically and efficiently.

The organization needs the capable personalities as management to lead to organization

successfully. The management make the plans and implement of these plans. These plans

are expressed in terms of long-term investment decisions.

The special budgets are rarely used in the organization like long-term budgets, research &

development budget and budget and budget for constancy.

From the Revenue budget for the year 2012-2013, it is clear that the Actual sales ( Rs.

168552.50 lacks) are more then the budgeted or Estimated sales ( Rs. 164208.54 lacks). It

is a good sign and the overall earnings of the budget indicate high volume over estimated.

New projects acceptance consider on the basis of Return Benefits. Risk is evaluated while

considering the new projects.


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Conclusions :

Every organization has pre-determined set of objective and goals, but reaching those

objectives and goals only by proper planning and executing of the plans economically.

Within a Short span of its existence, the corporation has commissioned 19502 MW as on

31st

March, 2000 with an operating capacity of 19.9%. ZUARI today generate 24.9% of

nations Best Cement is presently executing 12 Cement manufacturing Projects with a

total approved capacity of 29,935 MT as on 31stMarch 2014


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Bibliography:

References:

1. According to Robert S. Harris, Susan Chaplin skys (2008) article on capital structure theory:

A current perspective, Darden case no. UVA-F-1165.

2. According to Matti J. Suominen Petri Jylhas(2010) article on speculative capital & currency

trader.

3. According to Robert F.Bruners (2008) article on Nike inc: cost of capital, Darden case no.

VVA-F-1353.

4. According to Ignacio Velez- Parejas (2010) article on cost of capital for non trading firms.

5. According to Harry De Angelo, Linda De Angelo, Toni m. whites (2008) article on capital

structure dynamics and transitory debt

6. According to Rebecca N. Hann Maria Ognevas (2009) article on corporate diversification and

cost of capital.

7. According to Byoun, Sokus (2008) article on financial flexibility and capital structure

decision.


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BOOKS & AUTHORS

FINANCIALMANAGEMENT PRASANNA CHANDRA

6th

EDITION

FINANCIAL MANAGEMENT I.M.PANDEY

FINANCIALMANAGEMENT KHAN AND JAIN

FINANCIAL MANAGEMENT F.M.VANHORNE

Web Site

S.no Web sites

01 www.zuaricements.com

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