CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

INTRODUCTION
Capital budgeting is a required managerial tool. One duty of a financial
manager is to choose investments with satisfactory cash flows and rates of return.
Therefore, a financial manager must be able to decide whether an investment is worth
undertaking and be able to choose intelligently between two or more alternatives. To
do this, a sound procedure to evaluate, compare, and select projects is needed. This
procedure is called capital budgeting.

Capital budgeting (or investment appraisal) is the planning process used to

determine whether a firm's long term investments such as new machinery,
replacement machinery, new plants, new products, and research development projects
are worth pursuing. It is budget for major capital, or investment, expenditures.

Many formal methods are used in capital budgeting, including the techniques such as

 Net present value

 Profitability index

 Internal rate of return

 Modified Internal Rate of Return

 Equivalent annuity

These methods use the incremental cash flows from each potential investment,
or project. Techniques based on accounting earnings and accounting rules are
sometimes used - though economists consider this to be improper - such as the
accounting rate of return, and "return on investment." Simplified and hybrid methods
are used as well, such as payback period

CAPITAL IS A LIMITED RESOURCE

In the form of either debt or equity, capital is a very limited resource. There is
a limit to the volume of credit that the banking system can create in the economy.
Commercial banks and other lending institutions have limited deposits from which
they can lend money to individuals, corporations, and governments. In addition, the
Federal Reserve System requires each bank to maintain part of its deposits as
reserves. Having limited resources to lend, lending institutions are selective in
extending loans to their customers. But even if a bank were to extend unlimited loans
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
to a company, the management of that company would need to consider the impact
that increasing loans would have on the overall cost of financing.

In reality, any firm has limited borrowing resources that should be allocated
among the best investment alternatives. One might argue that a company can issue an
almost unlimited amount of common stock to raise capital. Increasing the number of
shares of company stock, however, will serve only to distribute the same amount of
equity among a greater number of shareholders. In other words, as the number of
shares of a company increases, the company ownership of the individual stockholder
may proportionally decrease.

The argument that capital is a limited resource is true of any form of capital,
whether debt or equity (short-term or long-term, common stock) or retained earnings,
accounts payable or notes payable, and so on. Even the best-known firm in an
industry or a community can increase its borrowing up to a certain limit. Once this
point has been reached, the firm will either be denied more credit or be charged a
higher interest rate, making borrowing a less desirable way to raise capital.

Faced with limited sources of capital, management should carefully decide

whether a particular project is economically acceptable. In the case of more than one
project, management must identify the projects that will contribute most to profits
and, consequently, to the value (or wealth) of the firm. This, in essence, is the basis
of capital budgeting.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

INDUSTRY PROFILE
About the industry

India, in 1994 has become the 4th largest producer of cement in the world. This
impressive record owes its origin to the progressive policies of the government since
late 70s and enabled on assured 12% post tax return on net worth (70). It economy
refers of July 91gave a further fillip by abolishing the licensing system for setting up
cement plants. Since then, innumerable technological development look place in
cement production enabling cost reduction and mass production. The kilns of the late
70,s were replaced by dry kilns which reduced the fuel cost by 30%. Thermal
efficiency was improved by instilling pre-heaters, followed by the addition of pre-
calcinatory. Optimal usage of fuel and power we achieved through computerization
and quality control or raw materials.

In a developing country like India, the requirement of housing and

infrastructure is high and so the demand elasticity of the cement with respect to G.D.P
of 1.6% is also high.

Cement Industry in India

South India Industries Limited. Madras, produced cement for the first time in
India in1904. This unit, which had an installed capacity of 30 tones/day since the
partial decontrol in 1989. The cement industry has witnessed spectacular progress
mainly due to the force economic liberalization and the jettisoning of price controls
and capacity restriction.

The foundation of a stable Indian cement industry was laid in 1914 2h3n
Indian Cement Company Limited started manufacturing cement at Probated in
Gujarat. By the end of March 1988 there were 20 large and 136 small cement plants
with a total installed capacity of 57 million tones.

Step by step company growth

1994 Setting up of Mini Blast Furnace with 90,000 TPA capacity

1995 Setting up a 250 TPD Mini Cement Plant

1997 Setting up of LKCL for manufacture of 40,000 TPA castings

and 35,700 TPA D I Pipes

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
2002 Strategic Alliance with Electrosteel Casting Limited

2002 Infusion of Rs.2200 lakhs to the equity and financial restructuring

2003 Merger of LKCL with LIL for synergy

2003 Capacity of Pig Iron was increased to 90,000 TPA to 150000 TPA.

2004 Capacity of DI Pipes was increased to 90,000 TPA.

2005 Commissioning of 150,000 TPA coke oven plant.

2005 Setting up of Captive Power Plant of 12 MW by using the waste heat

recovered from the coke oven plant.

VISION & MISSION

We aim to be world class, committed to customer satisfaction and to

encourage the spirit of leadership amongst our dedicated team by creating a healthy
environment for continuous growth, profit and prosperity.

We are in the business of manufacturing pipes for conveying safe drinking

water and other fluids for domestic and overseas markets.

We will maintain our dominant position in the domestic pipe market and
enhance our presence in the overseas market by setting up multi- location units as per
business potential.

SRIKALAHASTHI PIPES LIMITED GROUP OF COMPANIES

1. SRIKALAHASTHI PIPES LIMITED INDUSTRIES OF LIMITED (LIL)

2. SRIKALAHASTHI PIPES LIMITED CONSTRUCTIONS LIMITED (LCL)

3. SRIKALAHASTHI PIPES LIMITED KONDAPALLI POWER LIMITED

(LKPL)

4. SRIKALAHASTHI PIPES LIMITED KALAHASTI CASTINGS LIMITED

(LKPL)

5. SRIKALAHASTHI PIPES LIMITED GLOBAL SYSTEMS LIMITED

(LGSL)

6. SRIKALAHASTHI PIPES LIMITED PROJECTS LIMITED (LPL)

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

TOTAL QUALITY CONTROL

A central control room, with a mainframe computer, controls all plant

activities. From the mining of limestone to the final packing, vigorous checks are
conducted at every stage to ensure the highest quality control.

Salient features of cement:

1. High strength and great durability

2. A very perceptible saving in costs (up to 20% to 25%) due to low setting time

3. Suprior quality of the cement resulting in a better overall finish.

4. Strong bonding with aggregates.

Dedication

It is mission of Srikalahasthi pipes limited cement to provide the best quality

cement to every customer. It is a continuous, ongoing effort on the company’s part to
constantly improve the quality of its products. Moreover the company is constantly
growing to meet the needs of changing market.

Important customers

 AP State Housing Corporation

 AP Transco

 Telugu Ganga Project

 AP Genco

 TTD Trirumala

 Gannon Dunkerly & Co Ltd

 Indian Railway Construction Co Ltd

 Indian Home Pipes Ltd

 APco Concreate Blocks

 C.P.W.D
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
 Progressive Constrictions

 Bangalore sports Complex

 APMCs Karnataka

 Bhandri Builders/ Ranka & Ranka

 Engineers Syndicate

 All government departments of Karnataka

Share Capital

The authorized capital of the company 53000000Equity shares of Rs10 each.

The issued and capital of the company is 39763595 Equity shares of Rs 10 each.

Future Prospects

The government in demand for cement continuous to rise the government

thrust on development on infrastructure projects and housing in India, it is expected
that there will be a growth in the areas of Housing,, road construction and other
infrastructure. The government ambitious road development programmer is
progressing a head of schedule and this will not only contribute towards a larger
demand for cement, but will auger well for the development of the economy as a
whole

Report on subsidiary companies

Sri Industries Limited

Wholly owned subsidiary company, has commenced commercial generation in

its 17.4 M.W.Power project based on natural gas on JUNE 1 st 2001 been stabilized.
The power generated is being supplied to PCIL and the balance un-utilized power is
being supplied to M/S .Chaanakya Cement Limited.

M/S.Chanaya Cement Limited

A 0.8 million tones cement plant, another wholly owned subsidiary company
has commercial production on 28th 2002. The quality of the cement was well accepted
in the market.

Cement Industry in India

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
South India Industries Limited. Madras, produced cement for the first time in
India in1904. This unit, which had an installed capacity of 30 tones/day since the
partial decontrol in 1989. The cement industry has witnessed spectacular progress
mainly due to the force economic liberalization and the jettisoning of price controls
and capacity restriction.

The foundation of a stable Indian cement industry was laid in 1914 2h3n
Indian Cement Company Limited started manufacturing cement at Porbader in
Gujarat. By the end of March 1988 there were 20 large and 136 small cement plants
with a total installed capacity of 57 million tones.

In 1936, all the Cement companies (with exception of Song Valley Portland
Co. Ltd.) merged to form the Associated Cement Companies Ltd., this facilitated cost
education ads as well as uniformity in quality. By 1947 the installed capacity of the
industry rose to 2.2 million tones per annum.

After partition, five cement-producing units in the country went to Pakistan

and the total installed capacity of the eighteen units that remained in India was 1.5
million tones/annum. This increased to 3.8 million tones/annum 1950-51.

What is cement?

Cement is a mixture of limestone, clay, silica and gypsum. it is a fine powder

which mixed with water sets to a hard mass as a result of hydration of the constituent
compounds. It is the most commonly used construction material.

How is Made Cement?

The manufacturing process of cement consists of mixing, drying and grinding

of limestone, clay and silica into a composite mass. The mixture is then heated and
burned in a pre-heater and kiln and then cooled in an air cooling systems of form
clinker, which is the semi-finished from. This clinker is cooled by air, subsequently
grinded with gypsum to form cement.

Limestone is the key raw material and normally, 1.2-1.5 tons are needed for
every ton of cement. The quality of the limestone significantly affects the operating
efficiently of the units. Under normal conditions, to produce 1 ton of cement, 0.25 ton
of coal, 120 kWh of power and 0.05 ton of gypsum is required.

The raw materials required for the manufacture Cement are:

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
 Limestone

 Shale

 Gypsum

 Sand

 Iron Ore

 Nickel

 Titanium

 Chromium

 Bauxite

 Clay

 Quartz

Types of Cement in India

The types of cement in India have increased over the years with the
advancement in research, development, and technology. The Indian cement industry
is witnessing a boom as a result of which the production of different kinds of cement
in India has also increased.

By a fair estimate, there are around 11 different types of cement that are being
produced in India. The production of all these cement varieties is according to the
specifications of the BIS.

Some of the various types of cement produced in India are:

 Clinker Cement

 Ordinary Portland Cement

 Portland Blast Furnace Slag Cement

 Portland Pozzolana Cement

 Rapid Hardening Portland Cement

 Oil Well Cement

 White Cement
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
 Sulphate Resisting Portland Cement

The major companies producing Portland Blast Furnace Slag Cement in India
are:

 J K Cement

 Grasim Industries and Ultra Tech

 ACC

 India Cement Ltd

 Gujarat Ambuja Cement Ltd

In India, the different types of cement are manufactured using dry, semi-dry,
and wet processes. In the production of Clinker Cement, a lot of energy is required. It
is produced by using materials such as limestone, iron oxides, aluminum, and silicon
oxides. Among the different kinds of cement produced in India, Portland Pozzolana
Cement, Ordinary Portland Cement, and Portland Blast Furnace Slag Cement are the
most important because they account for around 99% of the total cement production
in India.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

COMPANY PROFILE
The name Srikalahasthi pipes limited has been derived from the promoter of
the Group Shri. Lagadapati Amarappa Naidu. The Srikalahasthi pipes limited
group is a diversified multi faced conglomerate with the business interests in Pig Iron,
Cement, Power, Graded Castings, Spun Pipes, Information Technology and
Infrastructure Development. Young technocrats with exceptional entrepreneur skills
promote the Srikalahasthi pipes limited Group with a mission and a great vision and
the top agenda to put the group on the global corporate may be during the next 10
years.

"Economy builds the nation and industry builds the economy"

SRIKALAHASTHI PIPES LIMITED industries limited are one of the best

mini-blast furnace pig iron manufacturing units in our country and it was 5th plant
under TATA - KORE technology. The company was incorporated on 1st November
1991 under company's act-1956, in the name of SRIKALAHASTHI PIPES LIMITED
FERRO LTD.,

THE COMPANY started construction work in august 1993. The entire

construction work was completed in a record time of 12 months. This was achieved
by teamwork of SRIKALAHASTHI PIPES LIMITED collective and the best efforts
of the contractors. With this achievement the company started commercial
productions in September 1994.

Administration

The general administration of the company is carried out by managing

director, and general managers of finance. Commercial, operations, materials,
purchase, human resource and administration.

The chairman and managing director are holding Overall control on

administration in all aspects, with the help of Vice-President and-other General
Managers. The board consists of five member's directors, Vice-Chairman, a Managing
Director and a Company Secretary

The name SRIKALAHASTHI PIPES LIMITED Ferro limited was

changed to SRIKALAHASTHI PIPES LIMITED INDUSTRIES L1MITDED
ON JULY 6th, 1994.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
Srikalahasthi pipes limited Industries Limited is located in between Tirupathi
and Srikalahasti with an access of about 30kms from Tirupati and about Rachagunneri
village, Srikalahasti Mandal of Chittoor district Andhra Pradesh is as follows

 Cheap availability of required land.

 There is more water resource.

 The distance between the harbor and present work spot is less.

 Proximity to raw materials.

 Proximity to marketing.

 Nearer to the railway sidings.

 Well connected to the road, rail and port.

 Availability of labour.

SRIKALAHASTHI PIPES LIMITED industries are importing coke from

china, Japan and Australia because; there is scarcity of prime cooking coal, which is
the raw material for producing coke. The coke, which is imported, comes to Chennai
port. This is approximately 100km away from the site. And from there is brought to
site, and also fluxes. Which are required to produce pig iron like Limestone,
Dolomite, Quartzite and Manganese, are available in nearby districts.

Srikalahasthi pipes limited industries limited

Established in the year of 1993. An ISO 9002 Company, it had setup a state of
the art integrated manufacturing facility for Pig Iron through mini-blast furnace route
conforming to the latest international technology with initial capacity of 1,00,000
TPA. Its quality products of S G-Grade pig iron are being supplied to foundries in the
south. As a forward integration, it has utilized the slag produced in the Pig Iron are
being supplied to foundries in the south.

As a forward integration, it has utilized the slag produced in the Pig Iron
manufacturing process to install the cement plant is being met through a 2.5 mw co-
generation power plant. Due to severe completion and survival, company has
increased the production capacity from 90,000 TPA to 1, 50,000 TPA from 2003.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

It reduction in Green House Gases Will contribute to our battle against global
warming.

 Pig iron Project was conceived in 1992. Commercial production started in

September 1994 .Capacity:- 90,000 TPA at inception.

 Cement Division started commercial production in 1996.

 Spun Pipe Project conceived in march 1998 and commercial production

commenced in January 2000. Capacity:- 60000 TPA at inception.

 ECL joined as strategic partner in 2002/LKCL Merged with LIL in 2003

 New 1,50,000 TPA Coke Oven Plant Commissioned in 2005.

 “ An integrated industrial complex for manufacture of DI Pipes ”

Expansion/New Projects after Take-over: Investment Rs. 175 Crs.

 Spun Pipe Division : Capacity increased from 60,000 TPA to 90,000 TPA
 Pig Iron Division : Capacity increased from 90,000 TPA to 1,75,000 TPA
 Coke Oven Division: New Plant with a Capacity of 1,50,000 TPA
 12 MW Capacity : Power Plant Expected Commissioning by End May'07

SPUN:

Pre-analyzed liquid metal from Blast Furnace is taken in to Induction Furnace.

The metal is superheated to a temperature of about 1520 o C and adjusted for
chemical composition by addition of Steel Scrap and Ferro Silicon. The adjusted
metal is taken into a converter for treatment to convert into SG iron. The adjusted
from converter is transferred to Spinning Machines through ladles. The metal is
poured to unlined water-cooled metallic moulds through a runner. The mould is kept
at a slightly inclined position and rotated at high speed. The uniform flow of metal
and uniform travel of the mould is ensured through flow control valves to achieve the
uniformity in the thickness. Due to the centrifugal force the metal is held against the
mould wall and the solidification of metal takes place due to water-cooling of mould.
The pipe cast through above process known as DELVAD Process is heat-treated to
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
achieve the requisite physical properties and microstructure. After heat treatment the
pipes are coated externally with Zinc and then the pipes are finished before testing
them with hydrostatic pressure. The tested pipes are lined internally with cement and
then cured in the stream chamber. The lined pipes are ground and washed with water
before sending them for bitumen painting. The pipes are preheated before bitumen
coating on external surface. The coated pipes are sent to dispatch yard after marking.

PIG IRON

“Blossoming of a fiery bud!” exclaimed Dr. Shankar Dayal Sharma, the then
President of India while inaugurating the Pig Iron Plant of SRIKALAHASTHI PIPES
LIMITED Industries Limited in September 1994. And the bud has indeed blossomed!

Commissioned in a record time of 11 months, SRIKALAHASTHI PIPES

LIMITED Industries Limited, a 90,000 tones per annum Pig Iron Plant, surpassed its
rated capacity just after two years of commissioning. Later it transformed the slag-a
waste by-product, into productive Slag Cement with setting-up of Cement Plant. The
Pig Iron Plant capacity was upgraded to 1,50,000 tones per annum in the year 2003.

“What represented the finest facet of India's youthful techno-entrepreneurial

strength has today evolved to become the future of growth of Indian

SRIKALAHASTHI PIPES LIMITED CEMENT

Srikalahasthi pipes limited Cement is the result of a unique blend of slag and
clinker with the following destructive characteristics.

 Progressively increasing later stage strength.100% no leakage & no honey

combing on application.

 Low heat of hydration, very low pore volume in concrete, high

impermeability, resulting in structures of high strength & long life.

 Crack free structure & walls, result of low thermal stresses and absence of
differential volume change. Super resistance to sulphate in concrete, resultant
low corrosion, less alkali aggregate reaction, and final outcome of long lasting
super finish surfaces.

 East workability with high concentration of fines.

 Wide range application from domestic to industrial, piling foundation, marine

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
constructions, coastal area buildings, roads, bridges and any for all other
special purposes.

COKEOVEN
ENERGY RECOVERY COKE OVEN PLANT
Srikalahasthi pipes limited Industries Limited is engaged in manufacturing of
the ductile iron pipes manufactured through a spinning process from 1999, with a
capacity of 1,00,000 tons/year. To meet the pipe plant requirement of hot metal
Srikalahasthi pipes limited operates a mini blast furnace with a capacity of 1,65,000
tons/year

Previously, Srikalahasthi pipes limited use to import coke from Japan and
China to meet the requirement of the mini blast furnace but then due to the steep rise
in the coke prices in the international market it was very difficult to maintain the cost
of hat metal produced.

Thus it was decided to install a coke manufacturing facility to meet the in-
house coke requirements. The company was attracted by the low cost of the non-
recovery type of coke ovens with its easy compliance with the pollution

control norms without any major investments. Now the company operates a
coke oven plant with a set of 68 ovens based on the Dasgupta Technology. The plant
was commissioned in May 2005 and is producing to the rated capacity of 1,25,000
Tons/year.

POWER PLANT
Srikalahasthi pipes limited Industries Limited (LIL) has installed a 12MW
captive power plant (CPP) whose input would be hot waste gases from non-recovery
type Coke Oven as source of energy to generate electricity of 79.2 MU annually.

CPP auxiliaries like

 Water Treatment Plant
 Cooling Tower & cooling water system
 DG Sets – 2 x 600KVA
 Compressors- 2 Nos
 Hot Gas Dampers(4 nos) with cooling system
 Generation of Power : Approx. 10 MW
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
 Use of Power
 CPP Auxiliaries : 1.0 MW
 In house consumption : 9.0 MW

Power Will be used for running Coke Ovens, Cement Division, MBF
Division, Spun Division.

So, we would displace 9.0 MW from Southern Power Distribution Co. Ltd.
Grid. Therefore reduction in CO2 emission due to this project approx : 28028
Tonnes / annum. In case of Grid feeding : 49082.6 Tonnes/annu

Brief History of LIL since Incorporation till Date

Srikalahasthi pipes limited Industries Limited (LIL) was incorporated on 1st

November 1991 by Srikalahasthi pipes limited Group of Companies to manufacture
Pig Iron using Korf (German) technology and Cement. The unit is located at
Rachagunneri Village on Tirupati Srikalahasti road, which is about 30Kms from
Tirupati and 10Kms from Srikalahasti. The installed capacity of Pig Iron was 90,000
TPA and with similar capacity 90,000 TPA for cement

Due to the poor demand and other reasons, the operation of the cement unit of
the Company was suspended and the unit was reengineered for producing a different
product mix having potential in South India.

As a measure of forward integration project for adding value to the Pig Iron
manufactured by the Company, LIL floated an another company named Srikalahasthi
pipes limited Kalahasti Castings Limited (LKCL) on 4th March 1997 to manufacture
iron castings and spun pipes in the same campus of the Company with an annual
capacity of 40,000 TPA and 35,700 TPA respectively.

However, due to falling Pig Iron prices, increase additional capacity in the
industry, competition and the technical and financial assistance, the operations of both
LIL and LKCL were affected and the Company was exploring financial and technical
strategic alliance with Indian 1st Foreign Partner.

During the same time Mrs. Electrosteel Castings Limited, was also looking for
additional capacities for producing spun pipes. Considering the synergies involved,
Srikalahasthi pipes limited Industries Limited entered into a strategic alliance
partnership during December 2002, with MIs. Electro steel Castings Limited (ECL),
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
Calcutta a. leading manufacturer of CI, Pipes and DI pipes. This was win-win
situation for both L1L and ECL.

After takeover, a financial re-engineering and re-structuring of LIL was

undertaken by ECL by implementing the following

 Immediately after take over an amount of RS.2200 lakhs was infused as share
capital of the Company by Mis ECL to strengthen the equity base of the
company.

 During 2002, the capacity of Pig Iron was increased from 90,000 TPA to
150,000 TPA. With effect from 1st April, 2002 LKCL was merged with the
company to take advantage of the close synergy in the business of the two
companies, since a large part of Molten Iron/Pig Iron is consumed by LKCL
for manufacture of 01 Pipes.

 After the merger, the share capital of LIL, the paid up share value of RS.101-
was reduced.

 To RS.2.50 per share and accordingly one share of RS.101- each fully paid up
in LIL.

 Was issued to all the existing shareholders for every 4 shares held by them.
Using 2003, the capacity of the 01 pipe was increased to 90,000 TPA.

 During 2004, the company took the step of backward integration by setting up
150,000 TPA coke oven plant in the same complex, which was commissioned
in June 2005. During 2005, the company started setting up of a Captive Power
Plant of 12 MW by using the waste heat recovered from the coke oven plant
which is expected to be commissioned by March 2006.

 An additional amount of RS.25crores is being spent on other capital works

like revamping of bitumen coatings machine, balancing equipment and
facilities for production of higher diameter DI pipes etc. to increase the
capacity of 01 pipe from the present 90,000 TPA to 120,000 TPA by 2006-07.

 The above has resulted in the company witnessing a profitable years after a
gap of 8 years during the years ended 31st March, 2003, 2004 and 2005 and a
dividend of 10% was declared for the years ended 31 st March 2004 and 2005
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
to the shareholders.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

ADDRESS OF BRANCH OFFICES

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

Step-by-Step Company's Growth

1991 - Incorporation of Srikalahasthi pipes limited

1994 - Setting up of Mini Blast Furnace with 90,000 TPA

Capacity

1995 - Setting up a 250 TPO Mini Cement Plant

1997 - Setting up of LKCL for manufacture of 40,000 TPA

castings and 35,700 TPA 01 Pipes.

2004 - Strategic Alliance with Electrosteel Casting Limited

2006 - Infusion of RS.2200 lakhs to the equity and financial

restructuring

2009 - Merger of LKCL with L1L for synergy

2010 - Capacity of Pig Iron was increased to 90~000 TPA to

150000 TPA.

2012 - Capacity of 01 Pipes was increased to 90,000 TPA.

2013 - Commissioning of 150,000 TPA coke oven plant.

2013 - Setting up of Captive Power Plant of 12 MW by using

the waste heat recovered from the coke oven plant .

2014 - Merger of LKCL with LIL for synergy.

2014 - Setting up the capacity of spun division

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
Committee of SRIKALAHASTHI PIPES LIMITED Executives and Directors
(COLEAD)

COLEAD is the apex review and decision-making body of SRIKALAHASTHI PIPES

LIMITED Group.

Chairman, SRIKALAHASTHI PIPES LIMITED

L Madhusudhan Rao
Group of Companies

Vice Chairman, SRIKALAHASTHI PIPES

G Bhaskara Rao
LIMITED Group of Companies

Director, SRIKALAHASTHI PIPES LIMITED

L Sridhar
Group

Joint Managing Director, SRIKALAHASTHI

G Venkatesh Babu
PIPES LIMITED Group

Chief Financial Officer, SRIKALAHASTHI

J Suresh Kumar
PIPES LIMITED Group

Director and Chief Executive Officer

SRIKALAHASTHI PIPES LIMITED Kondapalli
P Panduranga Rao
Power Private Limited
and ABAN Power Company Limited

Director and Chief Executive Officer

D V Rao SRIKALAHASTHI PIPES LIMITED Green Power
Private Limited

Director and Chief Executive Officer

K Raja Gopal SRIKALAHASTHI PIPES LIMITED Amarkantak
Power Private Limited

Director - Operations, SRIKALAHASTHI PIPES

D N Reddy
LIMITED Infratech Limited
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

Director and Chief Executive Officer

KK V Nagaprasad Rithwik Energy Systems Limited and
Clarion Power Corporation Limited

Director - Corporate Affairs

V Sreenivas SRIKALAHASTHI PIPES LIMITED Group
Limited

Executive Director
MN Ravi Shankar SRIKALAHASTHI PIPES LIMITED Electric
Utility Limited
 CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

ORGANISATION CHART OF SRIKALAHASTHI PIPES LIMITED

Managing Director

Vice President

General Manager

Cement Division
Pig Iron Division

Marketing Deputy General

Chief Executive.BF
Manager-CD

Commercial Personal Finance

&
Senior
Manager
Manager
Prod Mechan- Electri- Inst- P.P Quality
ical cal rument Control Division Assistant General
Manager

Sr.Mgr. Adm Mgr Sr.Mgr. Dy.Mgr. Sr.Chemist

Production Mechanical Electrical Quality control

Sr.Mgr. Dy.Mgr Sr.Engr Sr. chemistrys

CD PID
PIDD
DGM-Marketing
CD
DGM-Marketing Manager Marketi
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

RESEARCH METHODOLOGY
Sources

The data have been collected from both the primary and secondary sources.
The data was collected from the officials of the organization.

The data collected related to the study was from the two sources.

Primary data

Secondary data

a. Primary Data:

Primary data is the information collected directly without any references. In

this study it was mainly through interviews with concerned officers and staffs either
individually or collectively some of the information had been verified or
supplemented with personal observations.

The data includes

Conducting personal interviews with the officers of the financials department.

Guidelines and necessary information taken from my guide.

By using primary methods collected the primary information or data.

 Observation method
 Survey method
 Interview method.

b. Secondary Data:

It was collected from already published sources. This includes magazines and
other internal records.

The data includes:

 By referring to the books in the company.

 By collecting data from the websites.

 By collecting data from company annual reports.

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

OBJECTIVES OF THE STUDY

 To analyze the net present value of the SRIKALAHASTHI PIPES LIMITED.

 To analyze the present & previous position of the organization before

implementing the project.

 To offer suggestion to the SRIKALAHASTHI PIPES LIMITED to improve

financial performance.

 To estimate the expenditure involved.


CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

LIMITATIONS OF STUDY

 The data mostly consists of secondary information.

 Study is concentrated only on financial aspects of the company.

 Study is limited only to micro level.

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

SCOPE OF THE STUDY

The scope of study is limited to collecting financial data published in annual

reports of the company with reference to the objectives stated above and an analysis
of data with a view to understand the solutions by applying various Appraisal
Methods in Capital Budgeting.

Payback period, Net present value, Internal Rate of Return methods used
for different budgets titles.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

REVIEW OF LITERATURE
Concept of Capital budgeting

Financial management is one of the important functions in the area of

management. The aim of every firm first maximize the wealth of the shareholders and
reputation of the company There exist no inseparable relationship between the
financial functions and other mangers to achieve its goals and objectives, which are
related to the company’s investment and financial decisions.

The analysis of the past information helps us to forecast the future accurately
since financial statements provide valuable and genuine information concerning the
past. Hence financial analysis will help us to analyze the present position and fix
future goals. The financial decision making authority vests in the hands of
management. Management should be particularly interested in knowing financial
strength and weakness of the firm. Capital budgeting is the important tool in the hand
of management to detect the efficiency of the investment which the firm is going to
invest on the new projects. There are so many techniques to measure the efficiency of
the project

Meaning of capital budgeting

The long term investment decision of the firm is generally known as the capital
budgeting or capital expenditure decision. Capital budgeting decision may be defined
as the firm’s decisions to invest its current fund most efficiently in the on germ assets
anticipation of an expected flow of benefits over series of years.

1. The exchange of current funds for future benefits.

2. The funds are invested in long term assets.

3. The future benefits will occur to the firm over a series of years.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

OBJECTIVES OF CAPITAL BUDGETING

 It determines the capital projects which work can be started during the budget
period after taking into account their urgent and the expected rate of return on
each project.

 It estimates the expenditure that would have to be incurred on capital

projects approved by the management together with the source from which the
required

 Founds would be obtained.

 It restricts the capital expenditure on projects within authorized limits.

Cases of capital budgeting decisions

A business organization has to face quite the problem of capital investment

decisions capital investment refers to investment in projects whose results would be
available only after a year. The investments in these projects are a quite heavy and to
be made immediately but the returns will be available only after a period to time’s
following are same of the case’s where heavy capital investment may be necessary.

Replacements

Replacements of fixed assets may become necessary either on account of their

being worm out or becoming outdated on account of new technology.

Expansion

A firm nay has to expand its productions capacity on account of high demand
for its products as inadequate production capacity. This will need additional capital
investment.

Diversification

A business may like to reduce its risk by operating in several markets rather
than in a single market .In such an ever, capital investment may become necessary for
purchase of new machinery and facilities to handle the new products.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

Research and development

Large sums of money may have to be expended for research and development
in case of those industries where technology is rapidly changing in case large sums of
money are needed for equipment .These proposals will normally be included in the
capital budget.

Miscellaneous

A firm may have to invest money in project which do not directly helps in
achieving; profit. For example installation of pollutions control equipment many by
necessary on account of legal requirement. Thus founds will be required for such
purposes also.

Importance of capital budgeting

Capital budgeting decisions are among the most crucial and critical business
decisions; special care should be taken in making these decisions on account of the
following reasons.

Involvement of heavy fund

Capital budgeting decision require large capital outlay in is therefore absolutely

necessary that the form should carefully plan its investment programmed so thus it
may get the finance at right time and thus are put to most profitable use.

Long term implications

The firms will feel the effects capital budgeting decision over at long period and
wither fore they have a decisive influence on the rate and directions for the growth of
the firm.

Irreversible decisions

In most cases capital budgeting decisions are irreversible this is because it is

very difficult to find a market for the capital assets

Most difficult to market

The capital budgeting decisions require assessment of future events, which

are uncertain .It, is really a default risk to estimate the probable future event the
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
probable benefit and costs accurately in quantitative term because of economic
political social and technologic factors

Process of Capital Budgeting

The various steps involved in capital budgeting process depend upon large
number of factors such as size of the concern, nature of projects, their numbers,
complexities and diversities and so on. The following five steps are involved in the
process of capital budgeting.

1. Project generation

2. Project evaluation

3. Project selection

4. Project execution

5. Follow-up

1. Project Generation

A continuous generation of capital expenditure proposals like proposals

expanding the revenues and proposals reducing the cost is highly essential to make
efficient and full use of funds of the concern. If the proposals expanding the revenues
relate to the proposals to add new products and to expand the capacity in existing
lines, the proposals reducing the costs are designed to bring savings in cost in existing
lines without changing the scale of operations.

2. Project Evaluation

This process deals with judging the suitability of a project by applying various
criteria. Thus the process of project evaluation involves estimating the costs and
benefits in terms of cash flows, and selecting an appropriate criterion for judging the
desirability of the projects.

3. Project Selection

This step deals with screening and selecting the projects. Usually, projects
under consideration can be screened at various levels of management. But the final
approval of them should be given by the top management.

4. Project Execution
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
After the projects are selected, the funds are to be allocated for them. Such a
formal plan for the allocation of fund is known as capital budget. The top
management or executive committee should ensure that funds are spent as per the
allocation made in the capital budgets.

5. Follow-up

Follow-up deals with comparison of actual performance with the budgeted

data. This will ensure better forecasting and also help in sharpening the technique of
forecasting.

The basic features of Capital Budgeting are:

It is a many sides activity, it includes searching for new and more profitable
investment proposals investigating engineering and marketing considerations to
predict the consequences of accepting the investment and making economic analysis
to determine the profit potential of each investment proposal, its basic features can be
summarized as follows.

A. Potentiality of making large anticipated profits i.e., the possibility of

anticipating future profits.

B. Involves high degree of risk. A high degree of risk is involved since future is
uncertain.

C. Involves relatively long period between outlay and anticipated returns. There
is a long gap between cash out flow and future cash flows.

On the basis of the above discussion it can be concluded that capital budgeting
consists in planning the development of available capital for the purpose of
maximizing the long term profitability of the firm.

Capital budgeting is also called as capital expenditure budget. Operating

budget shows planned operations in the coming period where as capital budget deals
exclusively with major investment proposals. It assesses economies of expenditure
and investment.

Types of Capital Budgeting Decisions

Capital Budgeting refers to the total process of generation evaluating,

selecting and following up on capital expenditure alternatives. The firm allocates or
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
budgets financial resource to new investment proposals. Basically the firms may be
confronted with three types of capital budgeting decisions.

 The accepts reject decision

 The mutual exclusive choices decision.

 The capital rationing decision.

CAPITAL BUDGETING APPRAISAL METHODS

It views of the significance of capital decision, it is absolutely necessary that

the method adopted for appraisal of capital investment proposals is a sound one.

There are several methods for evaluating and ranking the capital investment
proposals. In case of all these methods the main emphasis is on the return which will
be derived on the capital invested in the projects.

Traditional methods:

I. Payback period method:

The term pay back refers to the period in which the project will generate the
necessary cash to recoup the initial investment.

Initial investment
Payback period = --------------------------------------------
Annual cash inflow

Accept or reject criteria

The payback period can be used as criteria to accept or reject an investment

proposal. A project whose actual payback period is more than what has been
predetermined by the management will be straight away rejected. Taking into
account the reciprocal of the cost the maximum acceptable payback period.

Advantages

1. It is an important guide to investment policy.

2. It lays a great emphasis on liquidity

3. It is simple to operate and easy to understand.

4. This method costs less as it requires only very little effort for its computation.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
5. It weighs early returns heavily and ignores distant returns.

Disadvantages

1. It fails to consider the period over which an investment is likely to fetch

incomes.

2. It ignores the value of money.

3. This method does not take into consideration the cash flows beyond the
payback period.

II. Accounting/Average rate of returns (ARR)

Average rate of returns is average of the net profit after taxes over the whole
of the economic life of the project are taken. Under this method return, is expressed
as percentage of capital or investment. Accounting rate of returns may be calculated
using any one of the following formulas.

Average net profit after tax

ARR = --------------------------------------------
Average investment

The amount of average net profit after taxes and “Average Investment” are
calculated as

Total net profit after taxes

A. Average net profit after tax = -----------------------------------------------------
No. of years
Investment – Scrap value + Additional working capital
+ Scrap value
B. Average Investment = ---------------------------------------------------------------
2

Accept or reject criteria

- In case of independent projects, calculated ARR of the project will be

accepted otherwise rejected.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
- While evaluating mutually exclusive projects, calculated ARR of the
alternatives will be compared to judge the profitability. The projects,
which has higher rate of return, will be accepted.

Advantages

1. It is simple to calculate and easy to understand and hence it is widely used.

2. It uses the entire earnings of a project in calculating rate of return.

3. It facilitates the comparison of new product project with that of cost reducing
project or other projects of competitive nature.

Disadvantages

1. This method is like payback period method, ignores the time value of money.

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

to make in parts.

Discounted cash flow techniques

1. Net present value method

NPV is considered the best method or evaluating the capital investment

proposals. In case of this method cash in flow and cash out flow associated with each
project are first worked out. The manager then calculates the present values of these,
cash inflow and out flows at the rate of acceptable. This rate of return is considered
as the cut off rate and is generally determined based on cost of capital. Cash out
flows represent the investment and commitment of cash in the project at various
points of time. The working capital is taken as a cash outflow in the year the project
starts commercial production. The NPV is the difference between the total present
value of future cash inflows and the total present value of future cash out flows.

The equation for calculating NPV in case of conventional cash flows can be
put as follows.
A1 A2 A3 An
NPV = ---------- + ---------- + ---------- + ……….. + ----------- - C
(1+r) 1 (1+r) 2 (1+r) 3 (1+r) n
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
Where NPV = Net present value, A1, A2, A3………An = Annual cash inflows.

R = Discounting rate / cost of capital

1, 2, 3…….n = no. of years

C = Cash out flows

Accept or reject criteria

Net present value be used as an “accepted or rejection” in case the NPV is

positive, the project should be accepted. However, if the NPV is negative the project
should be rejected. Symbolically represents

NPV > 0 Accept the proposal

NPV < 0 Reject the proposal

Advantages

1. It is generally accepted by economist

2. It is superior to other methods of evaluating the economic worth of

investments.

3. It recognizes the time value of money.

4. It recognizes all cash flows through out the life of the project.

Disadvantages

1. It may not give good results while comparing project with unequal lives and
investment.

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

3. As compared to the traditional methods the net present value method is more
difficult to understand.

2. Profitability Index

Profitability index is one of the methods of evaluating the investment

proposal. It is also called as benefit cost ratio and measures the relationship between
present values of cash out flows and cash in flows. Thus, it can be calculated by
using formula.

Present value of inflows

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
Gross Profitability index = ----------------------------------------------------
Present value of cash out flows
Accept or reject criteria

The proposal is accepted if the profitability index is more than one and
rejected in case the profitability index is less than one. In case of mutually exclusive
projects and capital rationing situation projects are ranked in orders of their
profitability index and accepted.

Advantages:

1. It evaluates the worth of projects in terms of their relative magnitude. Hence,

it is superior to P.V. Method.

2. It can used to choose between mutually exclusive projects by computing in

gametal benefit- Cost ratio.

Disadvantages

1. It involves more calculations than the traditional methods and hence it is very
difficult to understand.

2. In some cases of mutually exclusive nature, P.I is interior to N.P.V method.

3. Internal rate of returns:

Internal rate of return is that rate at which the sum of discounted cash inflows
equals the sum of discounted cash out flows.

(Or)

IRR is the rate which discounts the cash flows to zero.

So at IRR

Cash in flows
---------------------- =1
Cash out flows

Relationship between Payback period& Rate of Return by using PBP we can

find the IRR .we follow “Two Methods” to find the IRR.

a) When Fixed Annuity of Cash Inflows.

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
b) In the case of Mixed Stream.

We can choose the Fixed Annuity of cash flows method.

IRR=r-(PBP-DFr/DFrl-DFrh)*r

Where:

R= rate of return

PBP= Pay Back Period

DFr=Discount factor of interest rate

DFrl= Discount factor of lower rate

DFrh= Discount factor of higher rate

Accept or reject criteria:

Internal rate of return is the maximum rate of interest, which an organization

can afford to pay on the capital invested in a project would qualify to be accepted of
IRR exceeds the cut off rate. While evaluating two or more projects, a project giving
the higher rate of return would be preferred. This is because the higher the rate of
return, the more profitable is the investment.

Advantages:-

1. It provides more precise information regarding profitability.

2. It helps the form to choose from among different alternatives.

3. It considers the profitability of the project for its entire economic life and
hence enables evaluating of true profitability.

Disadvantages:-

1. It is different to understand and is most difficult method of evaluation of

investment proposal.

2. It does not provide significant answers under all situations.

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

DATA ANALYSIS AND INTERPRETATION

PAYBACK PERIOD

Initial investment
Payback = --------------------------------------
Total cash inflows
1. Budget Title

Auto values for caustic

3, 00,000
Pay back = -------------------
5, 00,000

=7.2 moths

2. Budget Title

Installation of separate lighting transformers for lighting circuits

40, 00,000
Payback = --------------------
11, 54,000

= 3 years 4 months

3. Budget Title

Basis control weight valves instrumentation

18, 44,000
Payback = -------------------
10, 60,000
=1year 7months
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

4. Budget Title

Street c pulper, carrying system

1, 47, 63,000
Payback = --------------------
6, 84, 00,000

= 0.2 years
5. Budget Title

Consistency transmitters for horizontal chests 3, 4,6and 7

28, 00,000
Payback = ------------------
7, 58,000
=3 years 6 months

6. Budget Title

Top layer clear filtrate lime to SFT-B

5, 00,000
Payback = ---------------------
2, 52,000
= 1year 9 months
7. Budget Title

Energy efficient vacuum pump for PM1&3

30, 00,000
Payback = --------------------
18, 30,000
= 1 year 6 months
8. Budget Title
Replacement of old vacuum pump with energy efficient vacuum pump PM1
8, 50,000
Payback = --------------------
5, 06,000
= 1 year 6 months
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

9. Budget Title

VFD’s for stock pump

20, 98,000
Payback = ----------------------
12, 45,000

= 1.6 year (18 months)

10. Budget Title

Water conservation measures

37, 18,000
Payback = ---------------------
15, 38,000

= 2.4 year (28 months)

11. Budget Title

Clamp truck

39, 72,000
Payback = -----------------------
12, 00,000

=3.3 years (39 months)

12. Budget Title

Chest auto cleaning

47, 98,000

Payback = ---------------------

36, 00,000

=1.3 years (15 months)

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

13. Budget Title

250 KW VFD Pumps

8, 83,000
Payback = ----------------------
7, 43,000

= 14 months
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

Budgets of 2012-2013 were ranked on the basis of least pay back (months).

S.No SCHEME Investment Payback Rank

1 Auto Valves for 2, 99,000 7.2(months) I

Caustic

2 Installation of Separate Lighting 30,32,000 3year4months X

Tran formers for lighting circuits

3 Basis Control 18,44,000 1 year 7m V

Weight values

Instrumentation

4 Street-cpulper 1,47,63,000 0.2year VIII

Carrying system

5 Consistency transmitters for 27, 99, 000 3 year 6m XI

Horizontal Chests 3 , 4,6and 7

6 Top Layer clear filtrate lime to SFT- 4, 99,000 1 year 9m VI

B

7 Energy Efficient Vacuum pump for 26,60,000 1 year 6m IV

PM1&3

8 Replacement of old Vacuum pump 8,47,000 1 year 6m IV

with energy efficient Vacuum pump
at PM1

9 VFD’s for stock pump 20,98,000 1 year 6m IV

10 Water conservation measure 37,18,000 2 year 4m VII

11 Clamp truck 39,72,000 3 year 3m IX

12 Chest auto cleaning 47,98,000 1 year 3m III

13 250 kw VFD pumps 8,83,000 1 year 2m II

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

Graph showing ranks based on

budgets

50

40
ranks
30
Months

20 payback period in
months
10

0
1 3 5 7 9 11 13
Budget titles

INTERPRETATION:

In this payback period ranks are given low months can give the highest rank.
The first rank of the budget title is “auto valves for caustic” the pay back will be 7.2
months.

Then the last rank of the budget title is “Consistency transmitters for
Horizontal Chests 3, 4,6and 7”the pay back will be 3 years 6 months.

53

NET PRESENT VALUE METHOD

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

1. Budget Title

Auto valves for caustic

A1 A2 A3 A4 A5 An

NPV = ----------- + ----------- + ---------- + ---------- + ---------- + --------- - C

(1+r) 1 (1+r)2 (1+r)3 (1+r)4 (1+r)5 (1+r)n

5, 00,000 5, 00,000 5, 00,000 5, 00,000 5, 00,000

= -------------- + -------------- + ---------------- + -------------- + ------------ -2, 98,849

(1+0.12)1 (1+0.12)2 (1+0.12)3 (1+0.12)4 (1+0.12)5

5, 00,000 5, 00,000 5, 00,000 5, 00,000 5, 00, 000

= -------------- + -------------- + ---------------- + -------------- + -------------- - 2, 98,849

1.12 1.2544 1.4049 1.5735 1.7623

= 446428+398597+355897+317763+283720 - 298849

= 1,80,2405 – 2, 98,849

= 15, 03,556

2. Budget Title

Installation of Separate Lighting Transformers for Lighting Circuit

11 ,54 ,000 11 ,54 ,000 11 ,54 ,000 11 ,54 ,000 11 ,54 ,000

NPV = ------------- + ------------- + ------------- + ------------- + ------------- - 3,032,477

1.12 1.2544 1.4049 1.5735 1.7623

= 10,30,357 + 9,19,962 + 8,21,411 +7,33,397+ 6,54,826 – 30,32,477

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
= 41, 59,953 – 30, 32,477

= 11, 27,476

3. Budget Title

Basis control weight valves instrumentation

10, 60,000 10, 60,000 10, 60,000 10, 60,000 10, 60,000

NPV = ------------ + ------------- + ------------- + ------------- + ------------- - 18, 43,990

1.12 1.2544 1.4049 1.5735 1.7623

= 9,46,428.57+8,45,025.51+ 7,54,502.09 + 6,73,657.45 + 6,01,486.69 –

18,43,990

= 3821100.31 – 18, 43,990

= 19, 77,110.31

4. Budget Title

Street – c pulper, carrying system

6,84,00,000 6, 84,00,000 6,84,00,000 6, 84,00,000 6,84,00,000

NPV = -------------- + -------------- + -------------- + --------------+ --------------- - 1, 47,834.03

1.12 1.2544 1.4049 1.5735 1.7623

=6,10,71,428.57+5,45,28,061.22+4,86,86,739.27+4,34,69,971.4+3,88,12,
914.94– 1,47,83,403

= 20, 74, 46,141.1 – 1, 47, 83,403

= 19, 26, 62,738.1

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

5. Budget title

Consistency Transmitters for Horizontal Chests 3, 4, 6and 7

7, 58, 000 7, 58,000 7, 58,000 7, 58,000 7, 58,000

NPV = -------------- + -------------- + -------------- + --------------+ --------------- - 27, 98,51

1.12 1.2544 1.4049 1.5735 1.7623

= 6, 76, 786 +6, 04, 273 +5, 39, 540 +4, 81,728 +4, 30,120 -27, 98,519

=27, 32,447-27, 98,519

= (-66072).

6. Budget Title

Top Layer Clear Filtrate Lime to SFT-B

2, 52,000 2, 52,000 2, 52,000 2, 52, 000 2, 52,000

NPV = -------------- + -------------- + --------------- + --------------+ ------------- - 4, 98,560

1.12 1.2544 1.4049 1.5735 1.7623

= 2,25,000+2,00,893+1,79,372+1,60,153+1,42,995 – 4, 98, 560

= 9, 08,443 – 4, 98,560

= 4, 09, 853

7. Budget Title

Energy Efficient Vacuum Pump for PM1 & 3

18, 30,000 18, 30, 000 18, 30,000 18, 30,000 18, 30,000

NPV= -------------- + -------------- + -------------- + --------------+ --------------- - 26, 59,560

1.12 1.2544 1.4049 1.5735 1.7623

=16,33,929+14,58,865+13,02,584+11,63,012+10,38,414– 26, 59,560

=65, 96,804 – 26, 59,560

= 39, 37,244
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

8. Budget Title

Replacement of Old Vacuum Pump with Energy Efficient Vacuum pump at PM1

5, 06,000 5, 06,000 5,06,000 5, 06,000 5,06,000

NPV = -------------- + -------------- + -------------- + -------------- + ------------- -8, 47,345
1.12 1.2544 1.4049 1.5735 1.7623

= 4,51,786+4,03,380+3,60,168+3,21,576+2,87,125 – 8,47,345

= 18, 24,025 – 8, 47,345

= 9, 76,690

9. Budget Title

VFD’s for stock pump

12, 45,000 12, 45,000 12, 45,000 12, 45,000 12, 45,000

NPV = -------------- + -------------- + -------------- + --------------+ -------------- - 20, 97,974.00

1.12 1.2544 1.4049 1.5735 1.7623

= 11, 11,607.14+992506.37+886184.07+791229.74+7, 06,463.14 – 20, 97,974

= 44, 87,990.46 – 20, 97,974

= 23, 90,016.46

10. Budget Title

Water conservation measures

15, 38,000 15, 38,000 15, 38,000 15, 38,000 15, 38,000
NPV = -------------- + -------------- + -------------- + --------------+ --------------- -37, 18,413
1.12 1.2544 1.4049 1.5735 1.7623

=1373214.28+1226084+1094739.83+977438.83+872723.14 – 37, 18,413

= 5544200.26 – 37, 18,413

= 18, 25,787.26
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

11. Budget Title

Clamp truck

12, 00,000 12, 00,000 12, 00,000 12, 00,000 12, 00,000
NPV = -------------- + -------------- + -------------- + --------------+ --------------- - 39, 72,299
1.12 1.2544 1.4049 1.5735 1.7623

= 1071428.57+956632.65+854153.32+762631.07+680928.33 – 39, 72,299

= 43, 25,773.94 – 39, 72,299

= 3, 53,474.94

12. Budget Title

Chest auto cleaning

36, 00,000 36, 00,000 36, 00,000 36, 00,000 36, 00,000
NPV = -------------- + -------------- + -------------- + --------------+ --------------- 47, 97,852
2 1.2544 1.4049 1.5735 1.7623

= 3214285.71+2869897.95+2562459.96+2287893.23+2042784.99 – 47, 97,852

= 12977321.84 – 47, 97,852

=81, 79,469.86

13. Budget Title

250 KW VFD pumps

7,43,000 7,43,000 7,43,000 7,43,000 7,43,000

NPV = -------------- + -------------- + -------------- + --------------+ --------------- - 882617
1.12 1.2544 1.4049 1.5735 1.7623

= 663392.85+592315.05+528863.26+472195.74+421608.1 – 8, 82,617

= 26, 78,375 – 882617

= 17, 95,758
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

Budgets of 2013-2014 net present value ranking on the basis of highest value

S.no Scheme Investment Net present Ranking

value
1 Auto Valves for 2, 99,000 15,03,556 VIII
Caustic
2 Installation of Separate 30,32,000 11,27,476 IX
Lighting Tran formers for
lighting circuits
3 Basis Control 18,44,000 19,77,110.31 V
Weight values
Instrumentation
4 Street-cpulper 1,47,63,000 19,26,62,738.1 I
Carrying system
5 Consistency transmitters 27, 99, 000 -66072 XIII
for Horizontal Chests 3 ,
4,6and 7
6 Top Layer clear filtrate 4, 99,000 4,09,853 XI
lime to SFT-B
7 Energy Efficient Vacuum 26,60,000 39,37,244 III
pump for PM1&3
8 Replacement of old 8,47,000 9,76,690 X
Vacuum pump with energy
efficient Vacuum pump at
PM1
9 VFD’s for stock pump 20,98,000 23,90,016.46 IV
10 Water conservation 37,18,000 18,25,787.26 VI
measure
11 Clamp truck 39,72,000 3,53,474.94 XII
12 Chest auto cleaning 47,98,000 81,79,469.86 II
13 250 kw VFD pumps 8,83,000 17,95,758 VII
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

Graph showing ranks based on NPV

250000000

200000000
NPV Values

150000000
NPV
100000000
RANKS
50000000

0
1 3 5 7 9 11 13
-50000000
Budget titles

INTERPRETATION:

NPV can give the ranks in to highest value can give the first rank. First rank of
the budget title is “street-cpulper carrying system”.

The lowest rank of the budget title is “consistency transmitter for horizontal
chests 3, 4, 6 and 7”.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

INTERNAL RATE OF RETURN (IRR)

(R-(PBP-DFr)
IRR= --------------------*r
(DFrl-DFrh)

Where:

R= rate of return

PBP= Pay Back Period

DFr=Discount factor of interest rate

DFrl= Discount factor of lower rate

DFrh= Discount factor of higher rate

1. Budget Title

Installation of separate lighting transformers for lighting circuits

3.466-3.517
= 13- --------------------*1
3.517-3.433

(-0.0510)
= 13- -----------*1
0.084

= 13+0.607
= 13.60

2. Budget Title

Basis control weight valves instrumentation

1.7396-1.7896
= 48- ------------------*2
17896-1.7366
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

=48+ (0.9433)2

=48+1.886

= 49.88

3. Budget Title

Consistency transmitters for horizontal chests 3, 4,6and 7

3.466-3.696
= 11 - ----------------*1
3.696-3.605
=11+0.032

=11.032

4. Budget Title

Top Layer Clear Filtrate Lime to SFT-B

1.9841-2.168
= 40 - ------------------*2
2.168-1.9685
=40+ (0.9195)2

= 41.83

5. Budget Title

Energy Efficient Vacuum Pump for PM1 & 3

1.6293-1.6860
= 52 - -------------------*2
1.6860-1.638
= 52+ (0.972)2

=52+1.94

= 53.94
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

6. Budget Title

Replacement of old vacuum pump with energy efficient vacuum pump PM1

1.6798-1.6860
= 52- ---------------------*2
1.6860-1.636
=52+ (0.1291)2

=52+0.258

=52.25
7. Budget Title

VFD’s for stock pump

1.6851-1.6850
= 52- -------------------*2
1.6860-1.638
=52+ (0.0187)2

=52+0.3

=52.03
8. Budget Title

Water conservation measures

2.417-2.436
= 30- -----------------*1
2.436-2.390
=30+0.413

=30.413

9. Budget Title

Clamp truck

3.310-3.352
= 15- ---------------- *1
3.352-3.274
=15+0.538

=15.538
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
10. Budget Title

Chest auto cleaning

1.3327-1.3606
= 68 - ----------------------- *2
1.3606-1.3279

=68+ (0.8532)2

=68+1.706

=69.70

11. Budget Title

250 KW VFD pumps

1.1884-1.2100
= 78- ----------------------*2
1.210-1.188
=78+ (0.8000)2

=78+1.60

=79.60

INTERPRETATION;

IRR is maximum rate of interest which an organization can offer to pay on

capital invested on the project.

The cut off rate is 12%.IRR above 12% it can be accepted.

Below 12% budgets will be rejected.

The budget title Consistency transmitters for horizontal chests 3, 4,6and 7, this
budget have to reject

IRR = 11.03

Accepted budgets will be shown below table.

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
LIST OF ACCEPTED BUDGET TITLES

S.NO BUDGET TITLE IRR RANKING

1 Installation of separate lighting 13.60 X

transformers for lighting circuits

2 Basis control weight valves 49.88 VI

instrumentation

3 Top Layer Clear Filtrate Lime to SFT-B 41.83 VII

4 Energy Efficient Vacuum Pump for PM1 53.94 III

&3

5 Replacement of old vacuum pump with 52.25 IV

energy efficient vacuum pump PM1

6 VFD’s for stock pump 52.03 V

7 Water conservation measures 30.41 VIII

8 Clamp truck 15.53 IX

9 Chest auto cleaning 69.70 II

10 250 KW VFD pumps 79.60 I

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

Listof accepted budget titles

90
80
70
60
50 IRR
IRR

40 RANKS
30
20
10
0
1 2 3 4 5 6 7 8 9 10
Budget titles

INTERPRETATION:

The range of rate of returns should be decreased for the budget title
“installation of separate lighting transformers for lighting circuits”. The highest rank
of IRR budget title is “250 kW VFD pumps”. Lowest rank of budget is
“installation of separate lighting transformers for lighting circuits”
 CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

COST BENFIT

Budget Title: - Auto Valves for Caustic

Cost Benefit: 5.00 lacks per annum

Payback = 7.2 months

Cost Benefit is taken as cash inflows.

Budget Title: - Installation of separate lighting Transformers for lighting circuits.

Total mill lighting load is- 816.8 kW

Envisaged savings in % - 20%

Power saving per hour – 163kw

Annual running hours @ 10 hrs /day-3650 hours

Annual savings in kWh -594950

Annual saving @Rs 1.94/kwh – Rs 11.54 lack

Cost benefits are taken cash inflows.

Budget Title: - Basis control weight values instrumentation.

After replacing Basis control in PMC

Loss per ton = Rs. 6000

Net saving = 170 / 2 = 85 MT/annum,

= 85 MT x 6000 = Rs. 5.10 lack

Paper M/c 2

Estimate saving of fibre

= 7.0 kg/hour

= 168 kg/day

= 168 x 330 days = 55000 kg /annum

 CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
Fiber saving @ Rs. 10,000-00 MT

= 55 x 10,000 =Rs.5.5 lack

Total Saving = Rs. 5.10 lack + 5.5 lack

=Rs. 10.60 lack/annum

Cost benefits are taken as cash inflows.

Budget Title: Street-c pulper, carrying system

Capacity enhanced by 950 Mt per month

Cost benefit = 950 mt x 6000 (Diff of contribution between VAP and grey
back)

= 57 lakh per month

= 6, 84, 00,000 per annum

Investment = 147.63 Lacks

Payback = 30 months

Here costs Benefit are taken as cash inflows.

Budget Title: - Consistency Transmitters for Horizontal Chests, 3, 4, 6and 7

Cost Benefit : 7.58 lachs /per year

Pay back =42 months

Here cost benefits are taken as cash inflows.

Budget Title: Top Layer clear filtrate lime to SFT-B

Fresh water saving 7000m3/month*Rs 3*12 =2.52 lacks/yr

Annual savings: Rs. 2.52 lacks

Payback: 21 months

Cost benefits are taken as cash inflows.

Budget Title: Energy Efficient vacuum pump for PM1 & 3

Cost benefit: 18.30 lack/annum

Investment: 30 lacks
 CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
Payback: 18 months

Cost benefits are taken as cash inflows.

Budget Title: Replacement of old Vacuum pump with energy efficient Vacuum pump at
PM1

Cost benefit: 5.06 lack

Power saving per/annum = 5.06

Payback period: 18 months

Cost benefit is taken as cash inflows.

Budget Title: VFD’s for stock pump

By implementing in this scheme

1. To eliminate energy loss due to throttling of pump delivery value due to

variable draw from paper machine based on GSM.

Cost benefit:-

Power saving by VFD is 94.23 kW

Annual hours considered is 7920 hrs

Annual energy savings is 7.46 lack kWh

Cost of generation is Rs. 1.6/ Kwh

Annual savings is Rs. 1245 Lack

Budget Title: - Water conservation measures

In this scheme we have to implement 2 proposals

Copex proposal Title:

Proposals: 1. Water conservation Proposal- Chemical recovery plant

(SRP)

Proposals: 2. Water conservation Proposal –paper machine 2 & 3

By implementing the proposal For Congreve 1300 m3/day of process water

consumption at limekiln and caustic zing through recycling bases on findings of CII
water audit.
 CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
By implementing the Proposal 2. To conserve 1500 m3/day of process water
consumption at pm 2/3 from vacuum pumps & refiners sealing water by installing fan
& finless cooling tower through recycling.

The Cost Benefit:

Proposal: 1: Rs. 935 Lac (1300 m3 1 day + 333days + Rs. 1.65)

Proposal: 2: Rs 10.78 lack (1500 m3 1day + 333 days + 2.16)

Total saving: 15.37 lack

This is taken as cash inflows

Budget Title: Clamp Truck

Cost Benefit: Rs. 12 lakh per annum

Pay back = 28 months

Cost benefits are taken as cash inflows.

Budget Title: Chest Auto Cleaning

Cost benefit:-
Reduction in down time is 2 hours per sheet.
Total reduction per annual is 24 hours.
Addl. Contribution = 24 x 10 tph x Rs. 15000/7 = Rs. 36 lacks/Annum
Reduction in contract Labor is 48/ annual
There fore addl. Reduction in cost is 48x 123.73 = Rs. 5939/annum
Payback: 18 months

Cost benefit taken as cash flows.

Budget Title: 250 kW VFD pumps

By implementing in this scheme

1. Installation of 1 x 250 kw VFD for process water pumps.

2. Optimization of power consumption for process water pump by

VFD

Cost benefit: Rs. 7.43 Lac /annum

This is taken as cash inflows.

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

BALANCE SHEETS

SRIKALAHASTHI PIPES LIMITED INDUSTRIES LIMITED

BALANCESHEET FOR THE YEAR 2009-10

Sources of funds 2010 2009

Share holders funds
A) share capital 3976.36 3976.36
B) Reserves and Surplus 3804.74 2160.18
A) Secured Loans 10886.36 10723.23
B) Unsecured Loans 9588.74 5404.59
Differed tax Liability 424.17 -
Total 28680.37 22264.36
Application of funds
Fixed Assets -
A) Gross Block 2002136 17884.47
B) Less Depreciation 5417.03 4648.10
Net Block 14604.33 13236.37
Capital Work In Progress 6015.09 2652.95
Investment 589.83 -
Current Assets, Loans and Advances
A) Inventories 7075.18 5294.05
B) Sundry Debtors 7197.89 4098.66
C) Cash and Bank Balance 247.72 447.49

D) Loans and Advances 1616.75 1462.76

16,137.54 11,302.96
Less current Liabilities and Provisions
A) Current Liabilities 8090.45 5052.57

B) Provisions 586.14 572.72

8676.59 5625.29
Net Current Assets 7460.95 5677.67
Differed Tax Assets 683.48
Miscellaneous Expenditure 10.17 13.89
Total 28,680.37 22,264.36
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

SRIKALAHASTHI PIPES LIMITED INDUSTRIES LIMITED

BALANCESHEET FOR THE YEAR 2010-11

Sources of funds 2011 2010

Share holders funds
A) Share capital 3976.36 3976.36
B) Reserves and Surplus 3993.06 3804.74
A) Secured Loans 9244.82 10886.36
B) Unsecured Loans 15069.11 9588.74
Deferred Tax Liability 618.06 424.17
Total 32901.40 28680.37
Application of funds
Fixed Assets -
A) Gross Block 25035.99 20021.36
B) Less Depreciation 6510.29 5417.03
Net Block 18525.70 14604.33
Capital Work In Progress 5604.02 6015.09
Investment - 589.83
Current Assets, Loans and Advances
A) Inventories 9194.04 7075.18
B) Sundry Debtors 6706.59 7197.89
C) Cash and Bank Balance 350.67 247.72

D) Loans and Advances 2070.42 1616.75

18,321.76 16,137.54
Less current Liabilities and Provisions
A) Current Liabilities 9202.11 8090.45

B) Provisions 354.42 586.14

9556.53 8676.59
Net Current Assets 8765.23 7460.95
Differed Tax Assets - -
Miscellaneous Expenditure 6.45 10.17
Total 32,901.40 28,680.37
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

SRIKALAHASTHI PIPES LIMITED INDUSTRIES LIMITED

BALANCESHEET FOR THE YEAR 2011-12

Sources of funds 2012 2011

Share holders funds
A) Share capital 3976.36 3976.36
B) Reserves and Surplus 5,108.64 3993.06
A) Secured Loans 16,382.92 9244.82
B) Unsecured Loans 13,733.65 15069.11
Deferred Tax Liability 1,184.79 618.06
Total 40,386.36 32901.40
Application of funds
Fixed Assets -
A) Gross Block 31,824.32 25035.99
B) Less Depreciation 7,666.24 6510.29
Net Block 24,158.08 18525.70
Capital Work In Progress 754.45 5604.02
Investment - -
Current Assets, Loans and Advances
A) Inventories 10,636.86 9194.04
B) Sundry Debtors 7,667.92 6706.59
C) Cash and Bank Balance 2,650.37 350.67
D) Loans and Advances 5,241.68 2070.42
26,196.83 18,321.76
Less current Liabilities and Provisions
A) Current Liabilities 10,188.34 9202.11
B) Provisions 538.25 354.42
10,726.59 9556.53
Net Current Assets 15,470.24 8765.23
Differed Tax Assets - -

Miscellaneous Expenditure 3.59 6.45

Total
40,386.36 32,901.40
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

SRIKALAHASTHI PIPES LIMITED INDUSTRIES LIMITED

BALANCESHEET FOR THE YEAR 2012-13

Sources of funds 2013 2012

Share holders funds

A) Share capital 3976.36 3976.36

B) Reserves and Surplus 7179.70 5,108.64
A) Secured Loans 17832.33 16,382.92
B) Unsecured Loans 12271.32 13,733.65
Deferred Tax Liability 2576.95 1,184.79
Total 43836.66 40,386.36
Application of funds
Fixed Assets -
A) Gross Block 35516.23 31,824.32
B) Less Depreciation 9127.88 7,666.24
Net Block 26388.35 24,158.08
Capital Work In Progress 862.01 754.45
Investment - -
Current Assets, Loans and Advances
A) Inventories 12092.91 10,636.86
B) Sundry Debtors 8814.31 7,667.92
C) Cash and Bank Balance 420.10 2,650.37

D) Loans and Advances 5289.66 5,241.68

26,616.98 26,196.83
Less current Liabilities and Provisions
A) Current Liabilities 9319.38 10,188.34

B) Provisions 711.30 538.25

10,030.68 10,726.59
Net Current Assets 16586.30 15,470.24
Differed Tax Assets - -
Miscellaneous Expenditure - 3.59
Total 43,836.66 40,386.36
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

SRIKALAHASTHI PIPES LIMITED INDUSTRIES LIMITED

BALANCESHEET FOR THE YEAR 2013-14

Sources of funds 2014 2013

Share holders funds

A) Share capital 3976.36 3976.36

B) Reserves and Surplus 8549.77 7179.70
A) Secured Loans 22645.54 17832.33
B) Unsecured Loans 15460.46 12271.32
Deferred Tax Liability 3123.73 2576.95
Total 53755.86 43836.66
Application of funds
Fixed Assets -
A) Gross Block 38974.86 35516.23
B) Less Depreciation 10734.88 9127.88
Net Block 28239.98 26388.35
Capital Work In Progress 425.37 862.01
Investment - -
Current Assets, Loans and Advances
A) Inventories 14436.48 12092.91
B) Sundry Debtors 11966.16 8814.31
C) Cash and Bank Balance 3463.66 420.10

D) Loans and Advances 6107.54 5289.66

35,973.84 26,616.98
Less current Liabilities and Provisions
A) Current Liabilities 10108.38 9319.38

B) Provisions 774.95 711.30

10,883.33 10,030.68
Net Current Assets 25090.51 16586.30
Differed Tax Assets - -
Miscellaneous Expenditure - -
Total 53,755.86 43,836.66
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

SRIKALAHASTHI PIPES LIMITED INDUSTRIES

LIMITED BALANCESHEET FOR THE YEAR 2014-15
Sources of funds 2015 2014
Share holders funds

A) Share capital 3,976.36 3976.36

B) Reserves and Surplus 13,713.91 8549.77
A) Secured Loans 26,486.50 22645.54
B) Unsecured Loans 6,130.29 15460.46
Deferred Tax Liability 3,435.74 3123.73
Total 53,742.80 53755.86
Application of funds
Fixed Assets -
A) Gross Block 40,286.29 3,8974.86
B) Less Depreciation 12,527.20 10,734.88
Net Block 27,759.09 28,239.98
Capital Work In Progress 3,441.21 425.37
Investment - -
Current Assets, Loans and Advances
A) Inventories 11,519.49 14,436.48
B) Sundry Debtors 11,845.80 11,966.16
C) Cash and Bank Balance 1,516.42 3,463.66

D) Loans and Advances 5,581.47 6,107.54

30,463.18 35,973.84
Less current Liabilities and Provisions
A) Current Liabilities 6,853.94 10,108.38
B) Provisions 1,066.74 774.95
7,920.68 10,883.33
Net Current Assets 22,542.50 25,090.51
Differed Tax Assets - -
Miscellaneous Expenditure - -
Total 53,742.80 53,755.86
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
STATEMENT OF CHANGES IN WORKING CAPITAL (Rupees in Lakhs)

2009-10

Changes in working capital

Particulars 2009 2010
Increase Decrease

Current assts (CA)

Inventories 5294.05 7075.18 1781.13 -

Sundry debtors 4098.66 7197.89 3099.23 -

Cash and bank balances 447.49 247.72 - 199.77

Loans and advances 1462.76 1616.75 153.99 -

11302.9
16137.54 - -
Total Current Assets 6

Current liabilities (CL)

Current liabilities 5052.57 8090.45 - 3037.88

Provisions 572.72 586.14 - 13.42

Total current liabilities 5625.29 8676.59 - -

Net Working capital (CA-

5677.67 7460.95 - -
CL)

Increase in Net working

1783.28 - - 1783.28
capital

7460.95 7460.95 5034.35 5034.35

Net increase in the working capital is 1783.28.

Interpretation

From the above table is observed that the networking capital of the
company shows increasing trend. The total current assets of the company have
increased from Rs.11302.96. in 2009 to Rs.16137.54 in 2010.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
But the bank balance decreased from Rs.447.49 to Rs.247.72 i.e.,
199.77. The total current liabilities increased from Rs.5677.67 to Rs.8676.59. The net
working capital increases Rs.1783.28.

STATEMENT OF CHANGES IN WORKING CAPITAL (Rupees in Lakhs)

2010-11

Changes in working capital

Particulars 2010 2011
Increase Decrease
Current assts (CA)
Inventories 7075.18 9194.08 2118.9 -

Sundry debtors 7197.89 6706.59 - 491.3

Cash and bank balances 247.72 350.67 102.95 -

Loans and advances 1616.75 2070.42 453.67 -

16137.5
18321.76 - -
Total Current Assets 4

Current liabilities (CL)

Current liabilities 8090.45 9202.11 - 1111.66

Provisions 586.14 354.42 231.72 -

Total current liabilities 8676.59 9556.53 - -

Net Working capital

7460.95 8765.23 - -
(CA-CL)

Increase in Net working

1304.48 - 1304.48
capital

8765.23 8765.23 2907.24 2907.24

Net increase in the working capital is 1304.48

Interpretation
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
From the above table is observed that the networking capital of the
company shows increasing trend. The total current assets of the company have
increased from Rs. 16137.54. in 2010 to Rs.18321.76 in 2011.

But the bank balance increased from Rs.247.72 to Rs.350.67 i.e.,

102.95. The total current liabilities increased from Rs. 8676.59 to Rs.9556.53. The net
working capital increases Rs.1304.48.

STATEMENT OF CHANGES IN WORKING CAPITAL (Rupees in Lakhs)

2011-12

Changes in working capital

Particulars 2011 2012
Increase Decrease
Current assts (CA)

Inventories 9194.08 10,636.86 1442.78 -

Sundry debtors 6706.59 7667.92 961.33 -

Cash and bank balances 350.67 2650.37 2299.70 -

Loans and advances 2070.42 5241.68 3171.26 -

Total Current Assets 18321.76 26196.83 - -

Current liabilities (CL)

Current liabilities 9202.11 10188.34 - 986.23

Provisions 354.42 538.25 - 183.83

Total current liabilities 9556.53 10726.59 - -

Net Working capital

8765.23 15470.24 - -
(CA-CL)

Increase in Net
6705.01 - - 6705.01
working capital

15470.24 15470.24 7875.07 7875.07

Net increase in the working capital is 6705.01

Interpretation
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
From the above table is observed that the networking capital of the
company shows increasing trend. The total current assets of the company have
increased from Rs. 18321.76. in 2011 to Rs.26196.83 in 2012.

But the bank balance increased from Rs.350.67 to Rs.2650.37 i.e.,

2299.70. The total current liabilities increased from Rs. 9556.53 to Rs.10726.59. The
net working capital increases Rs.6705.01.

STATEMENT OF CHANGES IN WORKING CAPITAL (Rupees in Lakhs)

2012-13

Changes in working capital

Particulars 2012 2013
Increase Decrease
Current assts (CA)
Inventories 10,636.86 12092.91 1456.05 -
Sundry debtors 7667.92 8814.31 1146.39 -
Cash and bank
2650.37 420.10 - 2230.27
balances
Loans and advances 5241.68 5289.66 47.98 -
Total Current Assets 26196.83 26616.98 - -
Current liabilities (CL)
Current liabilities 10188.34 9319.38 868.96 -
Provisions 538.25 711.03 - 173.05
Total current
10726.59 10030.68 - -
liabilities
Net Working capital
15470.24 16586.30 - -
(CA-CL)
Increase in Net
1116.06 - - 1116.06
working capital
16586.30 16586.30 3519.38 3519.38
Net increase in the working capital is 1116.06

Interpretation

From the above table is observed that the networking capital of the
company shows increasing trend. The total current assets of the company have
increased from Rs. 26196.83. in 2012 to Rs.26616.98 in 2013.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
But the bank balance decreased from Rs. 2650.37to Rs.420.10 i.e.,
2230.27. The total current liabilities increased from Rs.10726.59 to Rs.10030.68. The
net working capital increases Rs.1116.06.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

STATEMENT OF CHANGES IN WORKING CAPITAL (Rupees in Lakhs)

2013-14

Changes in working
Particulars 2013
2014 capital
Increase Decrease
Current assts (CA)

Sundry debtors 8814.31 11966.16 3151.85 -

Cash and bank balances 420.10 3463.66 3043.56 -
Loans and advances 5289.66 6107.54 817.88 -
Total Current Assets 26616.98 35973.84 - -
Current liabilities (CL)
Current liabilities 9319.38 10108.38 - 789.00
Provisions 711.03 774.95 - 63.65
Total current liabilities 10030.68 10883.33 - -
Net Working capital
16586.30 25090.51 - -
(CA-CL)
Increase in Net working
8504.21 - - 8504.21
capital
25090.51 25090.51 9356.86 9356.86

Net increase in the working capital is 8504.21

Interpretation

From the above table is observed that the networking capital of the
company shows increasing trend. The total current assets of the company have
increased from Rs. 26616.98. in 2013 to Rs.35973.84 in 2014.

But the bank balance increased from Rs.420.10 to Rs.3463.66 i.e.,

3043.56. The total current liabilities increased from Rs. 10030.68 to Rs.10883.33. The
net working capital increases Rs.8504.21
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED
STATEMENT OF CHANGES IN WORKING CAPITAL (Rupees in Lakhs)

2014-15

Changes in working
Particulars 2014 2015 capital
Increase Decrease
Current assts (CA)
11519.4
14436.48 - 2916.99
Inventories 9
11845.8
11966.16 - 120.36
Sundry debtors 0
Cash and bank balances 3463.66 1516.42 - 1947.24
Loans and advances 6107.54 5581.47 - 526.07
30463.1
35973.84
Total Current Assets 8
Current liabilities (CL)
Current liabilities 10108.38 6853.94 3254.44 -
Provisions 774.95 1066.74 - 291.79
Total current liabilities 10883.33 7920.68 - -
Net Working capital (CA- 22542.5
25090.51 - -
CL) 0
Decrease in Net working
- 2548.01 2548.01 -
capital
25090.5
25090.51 5802.45 5802.45
1

Net Decrease in the working capital is 2548.01

Interpretation

From the above table is observed that the networking capital of the
company shows increasing trend. The total current assets of the company have
Decreased from Rs.35973.84 . in 2014 to Rs.30463.18 in 2015.

But the bank balance Decreased from Rs.3463.66 to Rs.1516.42 i.e.,

1947.24.The total current liabilities Decreased from Rs. 10883.33 to Rs.7920.68. The
net working capital Decreases Rs.2548.01
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

FINDINGS
1)It was found that the payback Period of the project is 7.2 months.

2) It was found that the installation of separate lighting circuits 3years4 months

3) The Payback Period shows that the initial investment can be recovered with in a
short period only.

4) Net Present Value of the project was Rs.192662738.1. This indicates high
profitability because it was >1.

5) The Internal Rate of Return 250 KW VFD pumps shows 79.60% .These are also
ensures a profitable investment.

6) The Internal Rate of Return is greater than the opportunity cost of capital.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

SUGGESTIONS

2) Net Present Value method is more suitable for the company for making
investment decision.

3) In future the company may follow the capital budget method before making
investment decisions.

4) The company may effectively use the available resources for attaining
maximum profit.

5) The company has to analyze the proposal for expansion or creating additional
capacity.

6) The company may plan and control its capital expenditure.

CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

CONCLUSION

This study was taken to evaluate project after analyzing all the capital
budgeting techniques. The researcher also recommended NPV method but the
company shall consider all other critical factors before long term decisions.
CAPITAL BUDGETING IN SRIKALAHASTHI PIPES LIMITED

BIBLIOGRAPHY

 Khan M.Y. & Jain P.K. Financial Management, 2 nd Edition Tata Mc. Graw-
Hill Publishing Co. Ltd., New Delhi.

 Pandey I.M., Financial Management, 7th Edition, Vikas Publishing House Pvt.
Ltd., New Delhi, 1995.

 Kothari C.R. Research Methodology, 2nd Edition, Wishwa Prakasham, New

Delhi, 1990.

 Maheswari S.N., Financial Management, 4th Edition, Sultan Chand & Sons,
New Delhi. 1997.

 Prasanna Chandra, Financial Management, 3rd Edition, Tata Mc.Graw-Hill

Publishing Co., Ltd., New Delhi, 1984.

Website :

www.Srikalahasthi pipes limitedindustries.com