A

Project Report On

CAPITAL BUDGETING
AT

ULTRATECH CEMENT
(In partial fulfilment of the requirement for the award of the degree of) MASTER OF BUSINESS ADMINISTRATION BY R.BALAMANI HT.NO:226912672026 Unde !"e G#$d%n&e '( M$)) P* +IRTHANA

P*RR PG COLLEGE ,A-- '.ed /0 AICTE1 A(($2$%!ed !' O)3%n$% Un$.e )$!04 U--% $5#d%,.41 I/ %"$3-%!n%3,M41R%n5% edd0 D$)!6701706 ,2012620184

DECLARATION

I here by declare that the project titled 9CAPITAL BUDGETING: submitted by me to the epartment of !usiness

"anagement# O$%$# &yderabad# is a bonfire wor' underta'en by me and it is not submitted to any other %ni(ersity or Institution for the award of any degree diploma certificate or published any time before$

)ame of the *tudent R.BALAMANI (&T$)o+,,-./,-0,1,-)

*ignature of the *tudent

AC+NO;LEDGEMENT
I ta'e this opportunity to e2press my sincere and heartfelt gratitude towards Principal "r$ Project$ I cordially offer my bounds less and profound sense of gratitude to "r$ RA"A4RI*&)A(I)T5R)*&IP 6%I 5)$ 7ithout whose the 8ompletion of the project$ I would also li'e to than' "I**$P3 4IRT&A)A internal guide# and other faculty member for the (aluable suggestions and prudent encouragement$ 9inally I place on record my sincere to my staff# "!A department of P3RR P6 8O::565# and my friends for co;operation in my project a success$ $*RI)I3A*# who granted me permission to do

A/)! %&!
8apital !udgeting is a fundamental decision$ If the project is accepted$ The firm in(ests in it if the proposal is rejected then the firm does not in(est in it$ India is the world<s second largest producer of cement according to the cement manufacturers association$ This project o(er (iew to de(elopment of the cement industry$ The cement industry is one of the (ital industries for economic de(elopment in a country$ The total utili=ation of cement in a year is used as an indicator of economic growth$ 8ement is a necessary consistent of infrastructure de(elopment and a 'ey raw material for the construction industry$ 5(aluate the capital budgeting practices to assets the long term requirements of funds and plan for application of internal resources and debt ser(icing$ To assets the effecti(eness of long term in(estment ecisions$

CONTENTS
CHAPTER6I INTRODUCTION Introduction Object of the study *cope of the study "ethodology :imitations (/ TO >) (/ TO ,) ? @ > (0 TO ,1)

CHAPTER6II R53I57 O9 :IT5RAT%R5 CHAPTER6III 8O"PA)A PRO9I:5 CHAPTER6I* ATA A)A:AA*I* C I)T5RPR5TATIO) CHAPTER6* 9I) I)6* *%665*TIO)* 8O)8:%*IO) !I!:IO6RAP&A

(,/TO @0)

(@B TO >B)

(>. TO -,) >. -1 -/ -,

8&APT5R;I

INTRODUCTION+

Among the (arious business decisions capital budgeting decisions are critical and crucial decisions$ Therefore special care must be ta'en while ta'ing these decisions$ An efficient allocation of capital is the most important finance function in the modern times$ It in(ol(es decisions to commit the firm<s funds to the long;term assets$ The in(estment decisions of a firm are generally 'nown as the 8apital !udgeting# or 8apital 52penditure ecisions$ A 8apital !udgeting ecision may be defined as the firm<s decision to in(est its current funds most efficiently in the long;term assets in anticipation of an e2pected flow of benefits o(er a series of years$ The project aims at e(aluating the in(estment proposal for setting up a facility in U2! % Te&" Ce3en!) L$3$!ed$# !udgets can be prepared for and used by anyone and anything$ That is# we can prepare and use personal budgets and organi=ations# ministries and nonprofit ma'ing organi=ations can all use them$ 8apital budgeting is a required managerial tool$ One duty of a financial manager is to choose in(estments with satisfactory cash flows and rates of return$ Therefore# a financial manager must be able to decide whether an in(estment is worth underta'ing and be able to choose intelligently between two or more alternati(es$ To do this# a sound procedure to e(aluate# compare# and select projects is needed$ This procedure is called &%-$!%2 /#d5e!$n5$

A capital e2penditure is an outlay of cash for a project that is e2pected to produce a cash inflow o(er a period of time e2ceeding one year$ 52amples of projects include in(estments in property# plant# and equipment# research and de(elopment projects# large ad(ertising campaigns# or any other project that requires a capital e2penditure and generates a future cash flow$ !ecause capital e2penditures can be (ery large and ha(e a significant impact on the financial performance of the firm# great importance is placed on project selection$ This process is called &%-$!%2 /#d5e!$n5$ The in(estment decisions of a firm are generally 'nown as the capital budgeting# or capital e2penditure decisions$ A capital budgeting decision may be defined as the firm<s decision to in(est its current funds most efficiently in the long term assets in anticipation of an e2pected flow of benefits o(er a series of years$ The long term assets are those that affect the firms operations beyond the one year period$ The firm<s in(estment decisions would generally include e2pansion# acquisition# moderni=ation and replacement of the long;term assets

OB<ECTI*ES OF THE STUDY:

To e(aluate the capital budgeting practices relating to (arious projects U2! % Te&" Ce3en!) L$3$!ed ; &yderabad To Assess the long term requirements of funds and plan for application of internal resources and debt ser(icing$ To Assess the effecti(eness of long term in(estment decisions of U2! % Te&" Ce3en!) L$3$!ed To offer conclusion deri(ed from the study and gi(e suitable suggestions for the efficient utili=ation of capital e2penditure decisions$

? SCOPE OF THE STUDY:

The efficient allocation of capital is the most important financial function in the modern times$ It in(ol(es decision to commit the firm<s# since they stand the long; term assets such decision are of considerable importance to the firm since they send to determine its (alue and si=e by influencing its growth# probability and growth$ The scope of the study is limited to collecting the financial data of U2! % Te&" Ce3en!) L$3$!ed for fi(e years and budgeted figures of each year$

@ METHODOLOGY
Research design or research methodology is the procedure of collecting# analy=ing and interpreting the data to diagnose the problem and react to the opportunity in such a way where the cost can be minimi=ed and the desired le(el of accuracy can be achie(ed to arri(e at a particular conclusion$ DATA COLLECTION+ The data has been collected through the following sources$ P $3% 0 d%!%: Primary data is the information collected directly without any references$ In this study it was mainly through inter(iews with concerned officers and staffs either indi(idually or collecti(ely some of the information had been (erified or supplemented with personal obser(ations$ T"e d%!% $n&2#de): 8onducting personal inter(iews with the officers of the financials department 6uidelines and necessary information ta'en from my guide!y using primary methods collected the primary information or data$ ;Obser(ation ; *ur(ey method ; Inter(iew method $ Se&'nd% 0 d%!%: *econdary data has been collected from (arious sources such as+ Publications of the company !usiness maga=ines Dournals# te2t boo's 7ebsites

Annual reports >

LIMITATIONS OF THE STUDY

The data mostly consists of secondary information$ *tudy is concentrated only on financial aspects of the company$ *tudy is limited only to micro le(el$ There was a constraint with regard to the time allocation for the research study i$e$ for a period of @> days$

CHAPTER II
REVIEW OF LITARATURE

C%-$!%2 B#d5e!$n5 %nd F$n%n&$%2 M%n%5e3en!:

!usinesses loo' for opportunities that increase their share holders< (alue$ In capital budgeting# the managers try to figure out in(estment opportunities that are worth more to the business than they cost to acquire$ Ideally# firms should peruse all such projects that ha(e good potential to increase the business worth$ *ince the a(ailable amount of capital at any gi(en time is limitedE therefore# it restricts the management to pic' out only certain projects by using capital budgeting techniques in order to determine which project has potential to yield the most return o(er an applicable period of time$ 8apital budgeting is the process which enables the management to decide which# when and where to ma'e long;term in(estments$ 7ith the help of 8apital !udgeting Techniques# management decide whether to accept or reject a particular project by ma'ing analysis of the cash flows generated by the project o(er a period of time and its cost$ "anagement decides in fa(or of project if the (alue of cash flows generated by the project e2ceeds the cost of underta'ing that project$

Methods of Capital Budgeting:

(/) T %d$!$'n%2 3e!"'d)+ Pay bac' period A(erage rate return method

D$)&'#n! &%)" (2'= 3e!"'d

)et present (alue method Initial rate return method Profitability inde2 method

D%!% &'22e&!$'n:

P $3% 0 d%!%: 6 T"e primary data is the data which is collected# by inter(iewing
directly with the organi=ations concerned e2ecuti(es$ This is the direct information gathered from the organi=ation$ 0

Se&'nd% 0 d%!%: ; The secondary data is the data which is gathered from
publications and websites$

CAPITAL BUDGETING:
A capital e2penditure is an outlay of cash for a project that is e2pected to produce a cash inflow o(er a period of time e2ceeding one year$ 52amples of projects include in(estments in property# plant# and equipment# research and de(elopment projects# large ad(ertising campaigns# or any other project that requires a capital e2penditure and generates a future cash flow$ !ecause capital e2penditures can be (ery large and ha(e a significant impact on the financial performance of the firm# great importance is placed on project selection$ This process is called &%-$!%2 /#d5e!$n5$

+INDS OF CB DECISIONS:
8apital !udgeting refers to the total process of generating# e(aluating# selecting and following up on capital e2penditure alternati(es basicallyE the firm may be confronted with three types of capital budgeting decisions

A&&e-! e>e&! de&$)$'n)

This is a fundamental decision in capital budgeting$ If the project is accepted# the firm in(ests in itE if the proposal is rejected# the firm does not in(est in it$ In general# all those proposals# which yield rate of return greater than a certain required rate of return or cost of capital# are accreted and rest are rejected$ !y applying this criterion# all independent projects all accepted$ Independent projects are the projects which do not compete with one another in such a way that the acceptance of one project under the possibility of acceptance of another$ %nder the accept;reject decision# the entire independent project that satisfies the minimum in(estment criterion should be implemented$

M#!#%220 e?&2#)$.e - '>e&! de&$)$'n

"utually e2clusi(e projects are projects which compete with other projects in such a way that the acceptance of one which e2clude the acceptance of other projects$ The alternati(es are mutually e2clusi(e and only one may be chosen$

C%-$!%2 R%!$'n$n5 De&$)$'n

8apital rationing is a situation where a firm has more in(estment proposals than it can finance$ It may be defined as a situation where a constraint in placed on the total si=e of capital in(estment during a particular period$ In such a e(ent the firm has to select combination of in(estment proposals which pro(ides the highest net present (alue subject to the budget constraint for the period$ *electing or rejecting the projects for this purpose will require the ta'ing of the following steps+ Ran'ing of projects according to profitability inde2 (PI) or Initial rate of return (IRR)$ *electing of rejects depends upon the profitability subject to the budget limitations 'eeping in (iew the objecti(es of ma2imi=ing the (alue of firms$

NATURE OF IN*ESTMENT DECISSIONS:

The in(estment decisions of a firm are generally 'nown as the capital budgeting# or capital e2penditure decisions$ A capital budgeting decision may be defined as the firm<s decision to in(est its current funds most efficiently in the long term assets in anticipation of an e2pected flow of benefits o(er a series of years$ The long term assets are those that affect the firms operations beyond the one year period$ The firm<s in(estment decisions would generally include e2pansion# acquisition# moderni=ation and replacement of the long;term assets$

Fe%!# e) '( In.e)!3en! De&$)$'n):6

The following are the features of in(estment decisions+ The e2change of current funds for future benefits$ The funds are in(ested in long;term assets$ The future benefits will occur to the firm o(er a series of year$

I3-' !%n&e '( In.e)!3en! De&$)$'n):6

In(estment decisions require special attention because of the following reasons$ They influence the firms growth in the long run They affect the ris' of the firm They in(ol(e commitment of large amount of funds They are irre(ersible# or re(ersible at substantial loss They are among the most difficult decisions to ma'e$

G '=!"
The effects of in(estment decisions e2tend in to the future and ha(e to be endured for a long period than the consequences of the current operating e2penditure$ A firm<s decision to in(est in long;term assets has a decisi(e influence on the rate and direction of its growth$ A wrong decision can pro(e disastrous for the continued sur(i(al of the firmE unwanted or unprofitable e2pansion of assets will result in hea(y operating costs of the firm$ On the other hand# inadequate in(estment in assets would ma'e it difficult for the firm to complete successfully and maintain its mar'et share$

R$)@
A long;term commitment of funds may also change the ris' comple2ity of the firm$ If the adoption of an in(estment increases a(erage gain but causes frequent fluctuations in

its earnings# the firm will become more ris'y$ Thus# in(estment decisions shape the basic character of a firm$

/1 F#nd$n5
In(estment decisions generally in(ol(e large amount of funds# which ma'e it imperati(e for the firm to plan its in(estment programmers (ery carefully and ma'e an ad(ance arrangements for procuring finances internally or e2ternally$

I e.e )$/$2$!0
"ost in(estment decisions are irre(ersible$ It is difficult to find a mar'et for such capital items once they ha(e been acquired$ The firm will incur hea(y losses if such assets are scrapped$

C'3-2e?$!0
In(estment decisions are among the firm<s most difficult decisions$ They are an assessment of future e(ents# which are difficult to predict$ It is really a comple2 problem to 5conomic# political# social and technological forces cause the uncertainty in cash flow estimation$

TYPES OF IN*ESTEMENT DECISIONS:

There are many ways to classify in(estments$ One classification is as follows+ 52pansion of e2isting business 52pansion of new business Replacement and moderni=ation$

E?-%n)$'n %nd D$.e )$($&%!$'n:

A company may add capacity to its e2isting product lines to e2pand e2isting operations$ 9or e2ample# the 6ujarat *tate 9ertili=er 8ompany (6*98) may increase its

plant capacity to manufacture more urea$ It is an e2ample of related di(ersification$ A firm may e2pand its acti(ities in a new business$ 52pansions of a new business require in(estment in new products and a new 'ind of production acti(ity with in the firm$ //

Re-2%&e3en! %nd M'de n$A%!$'nB

The main objecti(e of moderni=ation and replacement is to impro(e operating efficiency and reduces costs$ 8ost sa(ings will reflect in the increased profits# but the firm<s re(enue may remain unchanged$ Assets become outdated and obsolete with technological changes$ The firm must decide to replace those assets with new assets that operate more economically$ If a cement company changes from semi;automatic drying equipment to finally automatic drying equipment# it is an e2ample of moderni=ation and replacement$ Replacement decisions help to introduce more efficient and economical assets and therefore# are also called as cost reduction in(estments$ &owe(er# replacement decisions that in(ol(e substantial moderni=ation and technological impro(ements e2pand re(enues as well as reduce costs$ Ye! %n'!"e #)e(#2 =%0 !' &2%))$(0 $n.e)!3en!) $) %) ('22'=)+ "utually e2clusi(e in(estments Independent in(estments 8ontingent in(estments

M#!#%220 E?&2#)$.e In.e)!3en!) :

"utually e2clusi(e in(estments ser(e the same purpose and compete with each other$ If one in(estment is underta'en# others will ha(e to be e2cluded$ A company may# for e2ample# either use a more labour;intensi(e# semi;automatic machine# or employ a more capital;intensi(e# highly automatic machine for production$ 8hoosing the semi; automatic machine precludes the acceptance of the highly automatic machine$

/,

Inde-enden! In.e)!3en!):
Independent in(estments ser(e different purposes and do not compete with each other$ 9or e2ample# a hea(y engineering company may be considering e2pansion of its plant capacity to manufacture additional e2ca(ators and addition of new production facilities to manufacture a new product ; light commercial (ehicles$ epending on their profitability and a(ailability of funds# the company can underta'e both in(estments$

C'n!$n5en! In.e)!3en!):
8ontingent in(estments are dependent projectsE the choice of one in(estment necessitates underta'ing one or more other in(estments$ 9or e2ample# if a company decides to build a factory in a remote# bac'ward area# if may ha(e to in(est in houses# roads# hospitals# schools etc$ for employees to attract the wor' force$ Thus# building of factory also requires in(estments in facilities for employees$ The total e2penditure will be treated as one single in(estment$

In.e)!3en! E.'2#!$'n C $!e $%:

T" ee )!e-) % e $n.'2.ed $n !"e e.%2#%!$'n '( %n $n.e)!3en!: 5stimation of cash flows$ 5stimation of the required rate of return (the opportunity cost of capital) Application of a decision rule of ma'ing the choice$ The first two steps# discussed in the subsequent chapters# are assumed as gi(en$ Thus# our discussion in this chapter is confined to the third step$ *pecifically# we focus on the merits and demerits of (arious decision rules$

/? In.e)!3en! de&$)$'n #2e:

The in(estment decision rules may be referred to as capital budgeting techniques# or in(estment criteria$ A sound appraisal technique should be used to measure the economic worth of an in(estment project$ The essential property of a sound technique is that it should ma2imi=e the share holder<s wealth$ The following other characteristics should also be possessed by a sound in(estment e(aluation criterion$ It should consider all cash flows to determine the true profitability of the project$ It should pro(ide for an objecti(e and unambiguous way of separating good projects from bad projects$ It should help ran'ing of projects according to their true profitability$ It should recogni=e the fact that bigger cash flows are preferable to smaller ones and early cash flows are preferable to later ones$ it should be a criterion which is applicable to any concei(able in(estment project independent of others$

E.%2#%!$'n & $!e $%:

A number of in(estment criteria (or capital budgeting techniques) are in use in practice$ They may be grouped in the following two categories$

D$)&'#n!ed &%)" (2'= & $!e $%

)et present (alue()P3) Internal rate return(IRR) Profitability inde2(PI)

N'n d$)&'#n!ed &%)" (2'= & $!e $%

Paybac' period(P!) iscounted paybac' period Accounting rate of return(ARR)

/@

NET PRESENT *ALUE:

The )et Present 3alue technique in(ol(es discounting net cash flows for a project# then subtracting net in(estment from the discounted net cash flows$ The result is called the )et Present 3alue ()P3)$ If the net present (alue is positi(e# adopting the project would add to the (alue of the company$ 7hether the company chooses to do that will depend on their selection strategies$ If they pic' all projects that add to the (alue of the company they would choose all projects with positi(e net present (alues# e(en if that (alue is just F/$ On the other hand# if they ha(e limited resources# they will ran' the projects and pic' those with the highest )P3Gs$ The discount rate used most frequently is the companyGs cost of capital$ )et present (alue ()P3) or net present worth ()P7) H is defined as the total present (alue (P3) of a time series of cash flows$ It is a standard method for using the time (alue of money to appraise long;term projects$ %sed for capital budgeting# and widely throughout economics# it measures the e2cess or shortfall of cash flows# in present (alue terms# once financing charges are met$ The rate used to discount future cash flows to their present (alues is a 'ey (ariable of this process$ A firmGs weighted a(erage cost of capital (after ta2) is often used# but many people belie(e that it is appropriate to use higher discount rates to adjust for ris' for ris'ier projects or other factors$ A (ariable discount rate with higher rates applied to cash flows occurring further along the time span might be used to reflect the yield cur(e premium for long;term debt$

INTERNAL RATE OF RETURN:

The internal rate of return (IRR) is a 8apital budgeting metric used by firms to decide whether they should ma'e In(estments$ It is also called discounted cash flow rate of return ( 89ROR) or rate of return (ROR)$ It is an indicator of the efficiency or quality of an in(estment# as opposed to )et present (alue ()P3)# which indicates (alue or magnitude$ /> The IRR is the annuali=ed effecti(e compounded return rate which can be earned on the in(ested capital# i$e$# the yield on the in(estment$ Put another way# the internal rate of return for an in(estment is the discount rate that ma'es the net present (alue of the in(estmentGs income stream total to =ero$ Another definition of IRR is the interest rate recei(ed for an in(estment consisting of payments and income that occur at regular periods$ A project is a good in(estment proposition if its IRR is greater than the rate of return that could be earned by alternate in(estments of equal ris' (in(esting in other projects# buying bonds# e(en putting the money in a ban' account)$ Thus# the IRR should be compared to any alternate costs of capital including an appropriate ris' premium$ In general# if the IRR is greater than the projectGs cost of capital# or hurdle rate, the project will add (alue for the company$ In the conte2t of sa(ings and loans the IRR is also called effecti(e interest rate$ In cases where one project has a higher initial in(estment than a second mutually e2clusi(e project# the first project may ha(e a lower IRR (e2pected return)# but a higher )P3 (increase in shareholdersG wealth) and should thus be accepted o(er the second project (assuming no capital constraints)$ IRR assumes rein(estment of positi(e cash flows during the project at the same calculated IRR$ 7hen positi(e cash flows cannot be rein(ested bac' into the project# IRR o(erstates returns$ IRR is best used for projects with singular positi(e cash flows at the end of the project period$

PROFITABILITY INDEC:

Aet another time adjusted method of e(aluating the in(estment proposals is the benefit;cost (!I8) ratio or profitability inde2$ Profitability inde2 is the ratio of the present (alue of cash inflows at the required rate of return# to the initial cash out flow of the in(estment$ /-

E.%2#%!$'n '( PI 3e!"'d:

:i'e the )P3 and IRR rules# PI is a conceptually sound method of arising in(estment projects$ It is a (ariation of the )P3 method and requires the same computations as the )P3 method$ T$3e .%2#e it recogni=es the time (alue of money$ *%2#e 3%?$3$A%!$'n it is consistent with the share holder (alue ma2imi=ation principle$ A project with PI greater than one will ha(e positi(e )P3 and if accepted it will increase share holders wealth$ Re2%!$.e - '($!%/$2$!0 in the PI method since the present (alue of cash in flows is di(ided by the initial cash out flow # it is a relati(e measure of project<s profitability$ :i'e )P3 method PI criterion also requires calculation of cash flows and estimate of the discount rate$

PAYBAC+ PERIOD:
The paybac' period is one of the most popular and widely recogni=ed traditional methods of e(aluating in(estment proposals$ Paybac' is the number of years required to co(er the original cash outlay in(ested in a project$ If the project generates constant annual cash inflows# the paybac' period can be computed by di(iding cash outlay by the annual cash inflow$

E.'2#!$'n '( -%0/%&@+

"any firms use the paybac' period as an in(estment e(aluation criterion and a method of ran'ing projects$ They compare the project<s paybac' with pre; determined standard pay bac'$ The would be accepted if its paybac' period is less than

the ma2imum or standard pay bac' period set by management as a ran'ing method$ It gi(es highest ran'ing to the project# which has the shortest paybac' period and lowest ran'ing to the project with highest paybac' period$ Thus if the firm has to choose between two mutually e2clusi(e projects# the project with shorter pay bac' period will be selected$ /0

E.'2#!$'n '( -%0/%&@ -e $'d:

S$3-2$&$!0

Pay bac' is a popular in(estment criterion in

practice$ It is considered to ha(e certain (irtues$

The significant merit of paybac' is that it is simple to understand and easy to calculate$ The business e2ecuti(es consider the simplicity of method as a (irtue$ This is e(ident from their hea(y reliance on it for appraising in(estment proposals in practice$

C')! e((e&!$.e
Paybac' method costs less than most of the sophisticated techniques that require a lot of the analyst<s time and the use of computers$

S"' !6!e 3
5ffects a company can ha(e more fa(orable short;run effects on earnings per share by setting up a shorter standard paybac' period$ It should# howe(er# be remembered that this may not be a wise long;term policy as the company may ha(e to sacrifice its future growth for current earnings$

L$D#$d$!0
The emphasis in paybac' is on the early reco(ery of the in(estment$ Thus# it gi(es an insight into the liquidity of the project$ The funds so released can be put to other uses$ In spite of its simplicity and the so# called (irtues# the paybac' may not be a desirable in(estment criterion since it suffers from a number of serious limitations$

R$)@ )"$e2d

The ris' of the project can be tac'led by ha(ing a shorter standard paybac' period$ As it may be in a ensured guaranty against its loss$ A company has to in(est in many projects where the cash inflows and life e2pectancies are highly uncertain$ %nder such circumstances# pay bac' may become important# not so much as a measure of profitability but# as a means of establishing an upper bound on the acceptable degree of ris'$ /B

DISCOUNTED PAYBAC+ PERIOD:

One of the serious objections to the paybac' method is that it does not discount the cash flows for calculating the paybac' period$ 7e can discount cash flows and then calculate the paybac'$ The discounted pay bac' period is the no$ of$ Periods ta'en in reco(ering the in(estment outlay on the present (alue basis$ The discounted paybac' period still fails to consider the cash flows occurring after the paybac' period$

ACCOUNTING RATE OF RETURN:

The %&&'#n!$n5 %!e '( e!# n (ARR) also 'nown as the e!# n 'n$n.e)!3en! (ROI) uses accounting information as re(ealed by financial statements# to measure the profitability of an in(estment$ The accounting rate of return is the ratio of the a(erage after ta2 profit di(ided by the a(erage in(estment$ The a(erage in(estment would be equal to half of the original in(estment if it were depreciated constantly$ Alternati(ely# it can be found out by di(iding the total if the in(estment<s boo' (alues after depreciation be the life of the project$

E*ALUATION OF ARR METHOD:

The ARR method may claim some merits+

S$3-2$&$!0: the ARR method is simple to understand and use$ It does not in(ol(e
complicated computations$

A&&'#n!$n5 d%!%: The ARR can be readily calculated from the accounting data# unli'e in the )P3 and IRR methods# no adjustments are required to arri(e at cash flows of the project$

A&&'#n!$n5 - '($!%/$2$!0: The ARR rule incorporates the entire stream of income in calculating the project<s profitability$ The ARR is a method commonly understood by accountants and frequently used as a performance measure$ As decision criterion# how e(er it has serious short comings$ /.

CASH FLO;S IGNORED:

The ARR method uses accounting profits# not cash flows# in appraising the projects$ Accounting profits are based on arbitrary assumptions and choices and also include non;cash items$ It is# there fore in appropriate to relay on them for measuring the acceptability of the in(estment projects$

TIME *ALUE IGNORED:

The a(eraging income ignores the time (alue of money$ In fact# this procedure gi(es more weight age to the distant receipts$

ARBITRARY CUT6OFF+
The firm employing the ARR rule uses an arbitrary cut;off yardstic'$ 6enerally# the yardstic' is the firm<s current return on its assets (boo' ;(alue)$ !ecause of this# the growth companies earning (ery high rates on their e2isting assets may project profitable projects and the less profitable companies may accepts bad projects$

PRO<ECT CLASSIFICATION:
Project classification entails time and effort the costs incurred in this e2ercise must be justified by the benefits from it$ 8ertain projects# gi(en their comple2ity and magnitude# may warrant a detailed analysisE others may call for a relati(ely simple

analysis$ &ence firms normally classify projects into different categories$ 5ach category is then analy=ed somewhat differently$ 7hile the system of classification may (ary from one firm to another# the following categories are found in cost classification$

M%nd%!' 0 $n.e)!3en!)+
These are e2penditures required to comply with statutory requirements$ 52amples of such in(estments are pollution control equipment# medical dispensary# fire fitting equipment# crJche in factory premises and so on$ ,1

CHAPTER III
PROFILE OF ULTRATEC CEME!T LT"

INTRODUCTION TO CEMENT:
In the most general sense of the word# cement is a binder# a substance which sets and hardens independently# and can bind other materials together$ The word KcementK traces to the Romans# who used the term Kopus caementiciumK to describe masonry which resembled concrete and was made from crushed roc' with burnt lime as binder$ The (olcanic ash and pul(eri=ed bric' additi(es which were added to the burnt lime to obtain a hydraulic binder were later referred to as cementum# cimentum# cLment and cement$ 8ements used in construction are characteri=ed as "0d %#2$& or n'n6 "0d %#2$&$ The most important use of cement is the production of mortar and concreteMthe bonding of natural or artificial aggregates to form a strong building material which is durable in the face of normal en(ironmental effects$ 8oncrete should not be confused with cement because the term cement refers only to the dry powder substance used to bind the aggregate materials of concrete$ %pon the addition of water andIor additi(es the cement mi2ture is referred to as concrete# especially if aggregates ha(e been added$ It is uncertain where it was first disco(ered that a combination of hydrated non; hydraulic lime and a po==olan produces a hydraulic mi2ture (see also+ Po==olanic

reaction)# but concrete made from such mi2tures was first used on a large scale by engineers$ They used both natural po==olans (trass or pumice) and artificial po==olans (ground bric' or pottery) in these concretes$ "any e2cellent e2amples of structures made from these concretes are still standing# notably the huge monolithic dome of the Pantheon in Rome and the massi(e !aths of 8aracalla$ The (ast system of Roman aqueducts also made e2tensi(e use of hydraulic cement$ The use of structural concrete disappeared in medie(al 5urope# although wea' po==olanic concretes continued to be used as a core fill in stone walls and columns$ ,/ "odern cement"odern hydraulic cements began to be de(eloped from the start of the Industrial Re(olution (around /B11)# dri(en by three main needs+ &ydraulic renders for finishing bric' buildings in wet climates&ydraulic mortars for masonry construction of harbor wor's etc$# in contact with sea water$ e(elopment of strong concretes$In !ritain particularly# good quality building stone became e(er more e2pensi(e during a period of rapid growth# and it became a common practice to construct prestige buildings from the new industrial bric's# and to finish them with a stucco to imitate stone$ &ydraulic lines were fa(ored for this# but the need for a fast set time encouraged the de(elopment of new cements$ "ost famous was Par'erGs KRoman cement$K This was de(eloped by Dames Par'er in the /0B1s# and finally patented in /0.-$ It was# in fact# nothing li'e any material used by the Romans# but was a K)atural cementK made by burning sectarian ; nodules that are found in certain clay deposits# and that contain both clay minerals and calcium carbonate$ The burnt nodules were ground to a fine powder$ This product# made into a mortar with sand# set in >N/> minutes$ The success of KRoman 8ementK led other manufacturers to de(elop ri(al products by burning artificial mi2tures of clay and chal'$ Dohn *meaton made an important contribution to the de(elopment of cements when he was planning the construction of the third 5ddy stone :ighthouse (/0>>;.) in the 5nglish 8hannel$ &e needed a hydraulic mortar that would set and de(elop some strength in the twel(e hour period between successi(e high tides$ &e performed an e2hausti(e mar'et research on the a(ailable hydraulic limes# (isiting their production sites# and noted that the KhydraulicityK of the lime was directly related to the clay

content of the limestone from which it was made$ *meaton was a ci(il engineer by profession# and too' the idea no further$ Apparently unaware of *meatonGs wor'# the same principle was identified by :ouis 3icat in the first decade of the nineteenth century$ 3icat went on to de(ise a method of combining chal' and clay into an intimate mi2ture# and# burning this# producedO artificial cementK in /B/0$ Dames 9rost# or'ing in !ritain# produced what he called K!ritish cementK in a similar manner around the same time# but did not obtain a patent until /B,,$ In /B,@# Doseph Aspdin patented a similar material# which he called Portland cement# because the render made from it was in color similar to the prestigious Portland stone$ ,, All the abo(e products could not compete with limeIpo==olan concretes because of fast;setting (gi(ing insufficient time for placement) and low early strengths (requiring a delay of many wee's before formwor' could be remo(ed)$ &ydraulic limes# KnaturalK cements and KartificialK cements all rely upon their belite content for strength de(elopment$ !elite de(elops strength slowly$ !ecause they were burned at temperatures below /,>1 P8# they contained no alite# which is responsible for early strength in modern cements$ The first cement to consistently contain alite was made by Doseph AspdinGs son 7illiam in the early /B@1s$ This was what we call today KmodernK Portland cement$ !ecause of the air of mystery with which 7illiam Aspdin surrounded his product# others (e$g$ 3icat and I 8 Dohnson) ha(e claimed precedence in this in(ention# but recent analysis of both his concrete and raw cement ha(e shown that 7illiam AspdinGs product made at )orth fleet# 4ent was a true alite;based cement$ &owe(er# AspdinGs methods were Krule;of;thumbK+ 3icat is responsible for establishing the chemical basis of these cements# and Dohnson established the importance of sintering the mi2 in the 'iln$7illiam AspdinGs inno(ation was counter;intuiti(e for manufacturers of Kartificial cementsK# because they required more lime in the mi2 (a problem for his father)# because they required a much higher 'iln temperature (and therefore more fuel) and because the resulting clin'er was (ery hard and rapidly wore down the millstones which were the only a(ailable grinding technology of the time$ "anufacturing costs were therefore considerably higher# but the product set reasonably slowly and de(eloped strength quic'ly# thus opening up a mar'et for use in concrete$ The use of concrete in construction grew rapidly from /B>1 onwards# and was soon the

dominant use for cements$ Thus Portland cement began its predominant role$ it is made from water and sandTypes of modern cementPortland cement8ement is made by heating limestone (calcium carbonate)# with small quantities of other materials (such as clay) to /@>1P8 in a 'iln# in a process 'nown as calcination# whereby a molecule of carbon dio2ide is liberated from the calcium carbonate to form calcium o2ide# or lime# which is then blended with the other materials that ha(e been included in the mi2 $ The resulting hard substance# called Gclin'erG# is then ground with a small amount of gypsum into a powder to ma'e GOrdinary Portland 8ementG# the most commonly used type of cement (often referred to as OP8)$ ,? Portland cement is a basic ingredient of concrete# mortar and most non; specialtygrout$ The most common use for Portland cement is in the production of concrete$ 8oncrete is a composite material consisting of aggregate (gra(el and sand)# cement# and water$ As a construction material# concrete can be cast in almost any shape desired# and once hardened# can become a structural (load bearing) element$ Portland cement may be gray or white$Portland cement blendsThese are often a(ailable as inter; ground mi2tures from cement manufacturers# but similar formulations are often also mi2ed from the ground components at the concrete mi2ing plant$ P' !2%nd /2%)! (# n%&e &e3en! contains up to 01Q ground granulated blast furnace slag# with the rest Portland clin'er and a little gypsum$ All compositions produce high ultimate strength# but as slag content is increased# early strength is reduced# while sulfate resistance increases and heat e(olution diminishes$ %sed as an economic alternati(e to Portland sulfate;resisting and low;heat cements$ P' !2%nd (20%)" &e3en! contains up to ?1Q fly ash$ The fly ash is po==olanic# so that ultimate strength is maintained$ !ecause fly ash addition allows a lower concrete water content# early strength can also be maintained$ 7here good quality cheap fly ash is a(ailable# this can be an economic alternati(e to ordinary Portland cement$ P' !2%nd -'AA'2%n &e3en! includes fly ash cement# since fly ash is a po==olan# but also includes cements made from other natural or artificial po==olans$ In countries where (olcanic ashes are a(ailable (e$g$ Italy# 8hile# "e2ico# thePhilippines) these cements are often the most common form in use$

P' !2%nd )$2$&% (#3e) &e3en!$ Addition of silica fume can yield e2ceptionally high strengths# and cements containing >;,1Q silica fume are occasionally produced$ &owe(er# silica fume is more usually added to Portland cement at the concrete mi2er$ M%)'n 0 &e3en!) are used for preparing bric'laying mortars and stuccos# and must not be used in concrete$ They are usually comple2 proprietary formulations containing Portland clin'er and a number of other ingredients that may include limestone# hydrated lime# air containers# retarders# water proofers and coloring agents$ They are formulated to yield wor'able mortars that allow rapid and consistent masonry wor'$ *ubtle (ariations of "asonry cement in the %* are Plastic 8ements and *tucco 8ements$ These are designed to produce controlled bond with masonry bloc's$ ,@ E?-%n)$.e &e3en!) contain# in addition to Portland clin'er# e2pansi(e clin'ers (usually sulfoaluminate clin'ers)# and are designed to offset the effects of drying shrin'age that is normally encountered with hydraulic cements$ This allows large floor slabs (up to -1 m square) to be prepared without contraction joints$ ;"$!e /2ended &e3en!) may be made using white clin'er and white supplementary materials such as high;purity met 'aolin$ C'2' ed &e3en!) are used for decorati(e purposes$ In some standards# the addition of pigments to produce Kcolored Portland cementK is allowed$ In other standards (e$g$ A*T")# pigments are not allowed constituents of Portland cement# and colored cements are sold as Kblended hydraulic cementsK$ *e 0 ($ne20 5 '#nd &e3en!) are made from mi2tures of cement with sand or with slag or other po==olan type minerals which are e2tremely finely ground together$ *uch cements can ha(e the same physical characteristics as normal cement but with >1Q less cement particularly due to their increased surface area for the chemical reaction$ 5(en with intensi(e grinding they can use up to >1Q less energy to fabricate than ordinary Portland cements$

N'n6P' !2%nd "0d %#2$& &e3en!)

P'AA'2%n62$3e &e3en!). "i2tures of ground po==olan and lime are the cements used by the Romans# and are to be found in Roman structures still standing (e$g$ the Pantheon in Rome)$ They de(elop strength slowly# but their ultimate strength can be

(ery high$ The hydration products that produce strength are essentially the same as those produced by Portland cement$ S2%562$3e &e3en!).6round granulated blast furnace slag is not hydraulic on its own# but is Kacti(atedK by addition of al'alis# most economically using lime$ They are similar to po==olan lime cements in their properties$ Only granulated slag (i$e$ water; quenched# glassy slag) is effecti(e as a cement component$ ,> S#-e )#2(%!ed &e3en!). These contain about B1Q ground granulated blast furnace slag# />Q gypsum or anhydrite and a little Portland clin'er or lime as an acti(ator$ They produce strength by formation of ettringite# with strength growth similar to a slow Portland cement$ They e2hibit good resistance to aggressi(e agents# including sulfate$ C%2&$#3 %2#3$n%!e &e3en!) are hydraulic cements made primarily from limestone and bau2ite$ The acti(e ingredients are monocalcium aluminate 8aAl ,O@ (8aO R Al,O? or 8A in 8ement chemist notation# 88)) and mayenite 8a/,Al/@O?? (/, 8aO R 0 Al,O?# or 8/,A0 in 88))$ *trength forms by hydration to calcium aluminate hydrates$ They are well;adapted for use in refractory (high;temperature resistant) concretes# e$g$ for furnace linings$ C%2&$#3 )#2('%2#3$n%!e &e3en!) are made from clin'ers that include yeGelimite (8a@(AlO,)-*O@ or 8@A? in 8ement chemistGs notation) as a primary phase$ They are

used in e2pansi(e cements# in ultra;high early strength cements# and in Klow;energyK cements$ &ydration produces ettringite# and speciali=ed physical properties (such as e2pansion or rapid reaction) are obtained by adjustment of the a(ailability of calcium and sulfate ions$ Their use as a low;energy alternati(e to Portland cement has been pioneered in 8hina# where se(eral million tons per year are produced$ 5nergy requirements are lower because of the lower 'iln temperatures required for reaction and the lower amount of limestone (which must be endothermicallydecarboni=ed) in the mi2$ In addition# the lower limestone content and lower fuel consumption leads to a 8O , emission around

half that associated with Portland clin'er$ &owe(er# *O, emissions are usually significantly higher$ EN%!# %2E Ce3en!) correspond to certain cements of the pre;Portland era# produced by burning argillaceous limestones at moderate temperatures$ The le(el of clay components in the limestone (around ?1;?>Q) is such that large amounts of belite (the low;early strength# high;late strength mineral in Portland cement) are formed without the formation of e2cessi(e amounts of free lime$ As with any natural material# such cements ha(e highly (ariable properties$ ,Ge'-'203e &e3en!) are made from mi2tures of water;soluble al'ali metal silicates and aluminosilicate mineral powders such as fly ash and met 'aolin

CEMENT INDUSTRY IN INDIA:

India is the worldGs second largest producer of cement according to the 8ement "anufacturers< Association$ uring *eptember ,1/1# the cement production touched /,$>@ million tons ("T)# while the cement dispatches quantity was /,$>- "T during the month$ The total cement production during April;*eptember ,1/1;// reached B/$>@ "T as compared to 00$,, "T o(er the corresponding period last fiscal$ 9urther# cement despatchers also witnessed an upsurge from 0-$>1 "T during April;*eptember ,11.;/1 to B/$/1 "T during April;*eptember ,1/1;//$ "oreo(er# the go(ernmentGs continued thrust on infrastructure will help the 'ey building material to maintain an annual growth of .;/1 per cent in ,1/1# according to IndiaGs largest cement company# A88$ In Danuary ,1/1# rating agency 9itch predicted that the country will add about >1 million tonne cement capacity in ,1/1# ta'ing the total to around ?11 million tonne$ 9urther# spea'ing at the 6reen 8ementech ,1/1# a seminar jointly organi=ed by the 8onfederation of Indian Industry (8II) and the 8ement "anufacturerGs Association in &yderabad in "ay ,1/1# 6 Dayaraman# 52ecuti(e President# !irla 8orporation :td#

said that in ,11.# @1 "T of capacity was added and he e2pects a similar trend to follow this year$

Ne= In.e)!3en!):
8ement and gypsum products ha(e recei(ed cumulati(e foreign direct in(estment (9 I) of %*F /#.0/$0. million between April ,111 and *eptember ,1/1# according to the epartment of Industrial Policy and Promotion ( IPP)$ ,0 !harathi 8ement plans to double its production capacity by the end of the current financial year by e2panding its plant in Andhra Pradesh# with an in(estment of %*F /@.$.0 million$ "adras 8ements :td is planning to in(est %*F /0B$@ million to increase the manufacturing capacity of its Ariyalur plant in Tamil )adu to @$> "T from , "T by April ,1//$ "y &ome Industries :imited ("&I)# a >1+>1 joint (enture (D3) between the &yderabad;based "y &ome 6roup and IrelandGs building material major 8R& Plc$# plans to scale up its cement production capacity from the e2isting > million tonne per annum (mtpa) to ing ("o%) with the 4arnata'a go(ernment to in(est %*F @,?$million for setting up a cement unit and a power plant$ %*F ?/0$0 million will be used to set up a cement manufacturing unit with an annual capacity of ? mtpa while the balance will be for the /11 megawatt power plant$ Daipra'ash Associates plans to in(est %*F -@1 million to increase its cement capacity$ *wiss cement company &olmic plans to in(est %*F / billion in setting up ,;? greenfield manufacturing plants in the country in the ne2t fi(e years to ser(e the rising domestic demand$ &olmic is present in the country through A88 and Ambuja 8ements and holds around @- per cent sta'e in each company$ 7hile A88 operates /- cement plants# Ambuja 8ements controls fi(e plants in India$ The Aditya !irla group is the almia !harat 5nterprises plans to in(est %*F >>@$?, million to set up two 6reenfield cement plants in 4arnata'a and "eghalaya$

largest cement;ma'ing group by capacity in the country and controls 6rasim Industries and %ltratech 8ement$

G'.e n3en! In$!$%!$.e):

The cement industry is pushing for increased use of cement in highway and road construction$ The "inistry of Road Transport and &ighways has planned to in(est %*F ?>@ billion in road infrastructure by ,1/,$ &ousing# infrastructure projects and the nascent trend of concrete roads would continue to accelerate the consumption of cement$ Increased infrastructure spending has been a 'ey focus area$ In the %nion !udget ,1/1;//# %*F ?0$@ billion has been pro(ided for infrastructure de(elopment$ ,B

The go(ernment has also increased budgetary allocation for roads by /? per cent to %*F @$? billion$ 6ujarat plans to treble its cement production capacity in ?;> years$ Proposals ha(e been in(ited from cement companies such as A88# A!6# Ambuja 8ement# 5mami# Indiabulls# Adani group# %ltratech and :CT and the state hopes to raise its capacity from ,1 million tonnes per annum to 01 million tonne$ The state will host the biennial 3ibrant 6ujarat 6lobal *ummit in Danuary ,1// and e2pects to witness in(estment proposals worth %*F /?$, billion in the cement sector$ 52change rate used+ / %* S @>$@, I)R (as of ecember ,1/1) The cement industry is one of the (ital industries for economic de(elopment in a country$ The total utili=ation of cement in a year is used as an indicator of economic growth $8ement is a necessary constituent of infrastructure de(elopment and a 'ey raw material for the construction industry# especially in the go(ernment<s infrastructure de(elopment plans in the conte2t of the nation<s socioeconomic de(elopment$

- $' !' $nde-enden&e

The first endea(or to manufacture cement dates bac' to /BB. when a 8alcutta based company endea(ored to manufacture cement from Argillaceous ('an'ar)$!ut the first endea(or to manufacture cement in an organi=ed way commenced in "adras$

*outh India Industries :imited began manufacture of Portland cement in /.1@$!ut the effort did not succeed and the company had to halt production$ 9inally it was in /./@ that the first licensed cement manufacturing unit was set up by India 8ement 8ompany :td at Porbandar# 6ujarat with an a(ailable capacity of /1#111 tons and production of /111 installed$ The 9irst 7orld 7ar ga(e the impetus the cement industry still in its initial stages$ The following decade saw tremendous progress in terms of manufacturing units #installed capacity and production$This phase also referred to as the )ascent *tage of Indian 8ement Industry$ uring the earlier years# production of cement e2ceeded the demand$*ociety had a biased opinion against the cement manufactured in India# which further led to reduction in demand$ The go(ernment inter(ened by gi(ing protection to the Industry and by encouraging cooperation among the manufacturers$ In /.,0# the 8oncrete Association of India was formed with the twin goals of creating a positi(e awareness among the public of the utility of cement and to propagate cement consumption$ ,.

A(!e Inde-enden&e:
The growth rate of cement was slow around the period after independence due to (arious factors li'e low prices# slow growth in additional capacity and rising cost$ The go(ernment inter(ened se(eral times to boost the industry# by increasing prices and pro(iding financial incenti(es$ !ut it had little impact on the industry$ In /.>-# the price and distribution control system was set up to ensure fair prices for both the manufacturers and consumers across the country and to reduce regional imbalances and reach self;sufficiency$

Pe $'d O( Re)! $&!$'n ,1969619F24

The cement industry in India was se(erely restrained by the go(ernment during this period$ 6o(ernment hold o(er the industry was through both direct and indirect means$ 6o(ernment inter(ened directly by e2ercising authority o(er production# capacity and distribution of cement and it inter(ened indirectly through price control$ In /.00 the go(ernment authori=ed higher prices for cement manufactured by new units or through capacity increase in e2isting units$!ut still the growth rate was below$ In /.0. the go(ernment introduced a three tier price system$ Prices were different for cement produced in low# medium and high cost plants$

?1 &owe(er the price control did not ha(e the desired effect$ Rise in input cost# reduced profit margins meant the manufacturers could not allocate funds for increase in capacity$

P% !$%2 C'n! '2 ,19F2619F94+

To gi(e impetus to the cement industry# the 6o(ernment of India introduced a quota system in /.B,$A quota of --$-1Q was imposed for sales to 6o(ernment and small real estate de(elopers$ 9or new units and sic' units a lower quota at >1Q was effected$ The remaining ??$@1Q was allowed to be sold in the open mar'et$ These changes had the desired effect on the industry $ Profitability of the manufacturers increased substantially# but the rising input cost was a cause for concern$

A(!e L$/e %2$A%!$'n+

In /.B. the cement industry was gi(en complete freedom# to gear it up to meet the challenges of free mar'et competition due to the impending policy of liberali=ation$In /../ the industry was de licensed$ This resulted in an accelerated growth for the industry and a(ailability of state of the art technology for moderni=ation$ "ost of the major players in(ested hea(ily for capacity

To ma2imi=e the opportunity a(ailable in the form of global mar'ets# the industry laid greater focus on e2ports$ The role of the go(ernment has been e2tremely crucial in the growth of the industry$

F#!# e T end):
The cement industry is e2pected to grow steadily in ,11.;,1/1 and increase capacity by another >1 million tons in spite of the recession and decrease in demand from the housing sector$ The industry e2perts project the sector to grow by . to /1Q for the current financial year pro(ided IndiaGs 6 P grows at 0Q$ India ran's second in cement production after 8hina$ ?/

The major Indian cement companies are Associated 8ement 8ompany :td (A88)# 6rasim Industries :td# Ambuja 8ements :td# D$4 8ement :td and "adras 8ement :td$

The major players ha(e all made in(estments to increase the production capacity in the past few months# heralding a positi(e outloo' for the industry$

The housing sector accounts for >1Q of the demand for cement and this trend is e2pected to continue in the near future$ An increased outflow in infrastructure sector# by the go(ernment as well as pri(ate builders# has raised a significant demand of cement in India$ It is the 'ey raw material in construction industry$ Also# it has highly influenced those bigger companies to participate in the growing sector$ At least /,> plants set up by the big companies in India with about ?11 other small scale cement manufacturers# to fulfill the growing demand of cement$ !eing one of the (ital industries# the cement industry contributes to the nationGs socioeconomic de(elopment$ The sum total utili=ation of cement in a year indicates the countryGs economic growth$ 8ement plant was first set up in 8alcutta# in /BB.$ At that time# the cement used to manufacture from Argillaceous$ In /.1@# the first organi=ed set up to manufacture cement was commenced in "adras# which was named *outh India Industries :imited$

Again in /./@# another cement manufacturing unit was set up in Porbandar# 6ujarat# but this time it was licensed$ In the early years of that era# the demand for the cement tremendously e2ceeded but only after few years# the industry faced a se(ere downfall$ To o(ercome from this the worsening situation# the 8oncrete Association of India was founded in /.,0$ The organi=ation has two prime goals# one was to create awareness about utility of cement and another was to encourage cement utili=ation$ 5(en after the independence# the growth of the cement industry was too gradual$ In the year /.>-# a istribution 8ontrol *ystem was established with an objecti(e to pro(ide Indian manufacturers and consumers self sufficiency$ Indian go(ernment then introduced a quota system to pro(ide an impetus to this industry# in which --Q of the sales was imposed to go(ernment or small real estate de(elopers$ After the implementation of quota# the cement industry tasted a sudden growth and profitability in India$ In /../# the go(ernment de;licensed the cement industry$ ?,

The growth of the industry accelerated forthwith and majority of the industrialists in(ested hea(ily in the industry with the awarded freedom$ The industry started focusing on e2port also to double the opportunity a(ailable for it in global mar'ets$ Today# the cement manufacturers in India ha(e transformed into leading Indian e2porters of cement across the world$ The demand of cement in year ,11.;,1/1 is e2pected to increase by >1 million tons despite of the recession and decline in demand of housing sector$ Against IndiaGs 6 P growth of 0Q# the e2perts ha(e estimated the cement sector to grow by . to /1 Q in the current financial year$ "ajor Indian cement manufacturers and e2porters ha(e all made huge in(estments in the last few months to increase their production capability$ This heralds an optimistic outloo' for cement industry$ The housing sector in India accounts for >1 Q of the cementGs demand$ And the demand is e2pected to continue$ 7ith the constant effort made by cement manufacturers and e2porters# India has become the second largest cement producer in the world$ "adras 8ement :td$# Associated 8ement 8ompany :td (A88)# Ambuja 8ements :td# 6rasim Industries :td# and D$4 8ement :td$ are among few renowned names of the major Indian cement companies

ULTRATECH CEMENT: %ltraTech 8ement :imited has an annual capacity of /B$, million tonnes$ It manufactures and mar'ets Ordinary Portland 8ement# Portland !last 9urnace *lag 8ement and Portland Po==alana 8ement$ It also manufactures ready mi2 concrete (R"8)$ %ltraTech 8ement :imited has fi(e integrated plants# si2 grinding units and three terminals M two in India and one in *ri :an'a$ %ltraTech 8ement is the country<s largest e2porter of cement clin'er$ The e2port mar'ets span countries around the Indian Ocean# Africa# 5urope and the "iddle 5ast$ %ltraTech<s subsidiaries are :imited$ a'shin 8ement :imited and %ltraTech 8eylinco (P)

?? The roots of the Aditya !irla 6roup date bac' to the /.th century in the picturesque town of Pilani# set amidst the Rajasthan desert$ It was here that *eth *hi( )arayan !irla started trading in cotton# laying the foundation for the &ouse of !irlas$ Through IndiaGs arduous times of the /B>1s# the !irla business e2panded rapidly$ In the early part of the ,1th century# our 6roupGs founding father# 6hanshyamdas !irla# set up industries in critical sectors such as te2tiles and fiber# aluminum# cement and chemicals$ As a close confidante of "ahatma 6andhi# he played an acti(e role in the Indian freedom struggle$ &e represented India at the first and second round;table conference in :ondon# along with 6andhi$ It was at K!irla &ouseK in elhi that the luminaries of the Indian freedom struggle often met to plot the downfall of the !ritish Raj$6hanshyamdas !irla found no contradiction in pursuing business goals with the dedication of a saint# emerging as one of the foremost industrialists of pre;independence India$ The principles by which he li(ed were soa'ed up by his grandson# Aditya 3i'ram !irla# our 6roupGs legendary leader$

Ad$!0%*$@ %3B$ 2%: -#!!$n5 Ind$% 'n !"e =' 2d 3%A formidable force in Indian industry# "r$ Aditya !irla dared to dream of setting

up a global business empire at the age of ,@$ &e was the first to put Indian business on the world map# as far bac' as /.-.# long before globali=ation became a bu==word in India$ In the then (ibrant and free mar'et *outh 5ast Asian countries# he (entured to set up world;class production bases$ &e had foreseen the winds of change and sta'ed the future of his business on a competiti(e# free mar'et dri(en economy order$ &e put Indian business on the globe# ,, years before economic liberali=ation was formally introduced by the former Prime "inister# "r$ )arasimhaRao and the former %nion 9inance "inister# r$ "anmohan *ingh$ &e set up /. companies outside India# in Thailand# "alaysia# Indonesia# the Philippines and 5gypt$ Interestingly# for "r$ Aditya !irla# globali=ation meant more than just geographic reach$ &e belie(ed that a business could be global e(en whilst being based in India$ Therefore# bac' in his home;territory# he dro(e single;mindedly to put together the building bloc's to ma'e our Indian business a global force$ ?@ %nder his stewardship# his companies rose to be the worldGs largest producer of (iscose staple fiber# the largest refiner of palm oil# the third largest producer of insulators and the si2th largest producer of carbon blac'$ In India# they attained the status of the largest single producer of (iscose filament yarn# apart from being a producer of cement# grey cement and rayon grade pulp$ The 6roup is also the largest producer of aluminum in the pri(ate sector# the lowest first cost producers in the world and the only producer of linen in the te2tile industry in India$ At the time of his untimely demise# the 6roupGs re(enues crossed Rs$B#111 crore globally# with assets of o(er Rs$.#111 crore# comprising of >> benchmar' quality plants# an employee strength of 0>#111 and a shareholder community of -11#111$ "ost importantly# his companies earned respect and admiration of the people# as one of IndiaGs finest business houses# and the first Indian International 6roup globally$ Through this outstanding record of enterprise# he helped create enormous wealth for the nation# and respect for Indian entrepreneurship in *outh 5ast Asia$ In his time# his success was unmatched by any other industrialist in India$

That India attains respectable ran' among the de(eloped nations# was a dream he fore(er cherished$ &e was proud of India and too' equal pride in being an Indian$ %nder the leadership of our 8hairman# "r$ 4umar "angalam !irla# the 6roup has sustained and established a leadership position in its 'ey businesses through continuous (alue;creation$ *pearheaded by 6rasim# &indalco# Aditya !irla )u(o# Indo 6ulf 9ertili=ers and companies in Thailand# "alaysia# Indonesia# the Philippines and 5gypt# the Aditya !irla 6roup is a leader in a swathe of products M (iscose staple fibre# aluminum# cement# copper# carbon blac'# palm oil# insulators# garments$ And with successful forays into financial ser(ices# telecom# software and !PO# the 6roup is today one of AsiaGs most di(ersified business groups$

B'% d '( D$ e&!' )

:: :: :: :: :: :: :: :: :: :: :: "r$ 4umar "angalam !irla# 8hairman "rs$ Rajashree !irla "r$ R$ 8$ !harga(a "r$ 6$ "$ a(e "r$ )$ D$ Dha(eri "r$ *$ !$ "athur "r$ 3$ T$ "oorthy "r$ O$ P$ Puranmal'a "r$ *$ Rajgopal "r$ $ $ Rathi "r$ *$ "isra# "anaging irector

?>

E?e&#!$.e P e)$den! G C"$e( F$n%n&$%2 O(($&e :: "r$ 4$ 8$ !irla C"$e( M%n#(%&!# $n5 O(($&e :: R$4$ *hah C"$e( M% @e!$n5 O(($&e :: "r$ O$ P$ Puranmal'a C'3-%n0 Se& e!% 0 :: "r$ *$ 4$ 8hatterjee

O# .$)$'n
ET' %&!$.e20 &'n! $/#!e !' !"e )'&$%2 %nd e&'n'3$& de.e2'-3en! '( !"e &'33#n$!$e) $n ="$&" =e '-e %!e. In )' d'$n51 /#$2d % /e!!e 1 )#)!%$n%/2e =%0 '(

2$(e (' !"e =e%@e )e&!$'n) '( )'&$e!0 %nd %$)e !"e &'#n! 0H) "#3%n de.e2'-3en! $nde?.E Mrs. Rajashree Birla# 8hairperson# The Aditya !irla 8entre for 8ommunity Initiati(es and Rural e(elopment$

?A=% d) ='n:
Ye% ,1/1;,1// ,1/1;,1// ,1/1 ,1/1 ,1/1 ,11.;,1/1 ,11.;,1/1 ,11.;,1/1 A=% d *ubh 4aran *arawagi 5n(ironment Award !usiness 7orld 9I88I;*5 9 8*R Award 6reentech 5n(ironment 52cellence 6old Award I"8 Ram'rishna !ajaj )ational Tuality Award Asian 8*R Award )ational Award for Pre(ention of Pollution Raji( 6andhi 5n(ironment Award for 8lean Technology *tate :e(el 5n(ironment Award (Plant)

M%@$n5 % d$((e en&e:

!efore 8orporate *ocial Responsibility found a place in corporate le2ion# it was already te2tured into our 6roupGs (alue systems$ As early as the /.@1s# our founding father *hri 6$ !irla espoused the trusteeship concept of management$ *imply stated# this entails that the wealth that one generates and holds is to be held as in a trust for our multiple sta'eholders$ 7ith regard to 8*R# this means in(esting part of our profits beyond business# for the larger good of society$ 7hile carrying forward this philosophy# his grandson# Aditya !irla wea(ed in the concept of Gsustainable li(elihoodG# which transcended cheque boo' philanthropy$In his (iew# it was unwise to 'eep on gi(ing endlessly$ Instead# he felt that channeli=ing resources to ensure that people ha(e the wherewithal to ma'e both ends meet would be more producti(e$ &e would say# K6i(e a hungry man fish for a day# he

will eat it and the ne2t day# he would be hungry again$ Instead if you taught him how to fish#he would be able to feed himself and his family for a lifetime$K Ta'ing these practices forward# our chairman "r$ 4umar "angalam !irla institutionali=ed the concept of triple bottom line accountability represented by economic success# en(ironmental responsibility and social commitment ?0 The footprint of our social wor' today straddles o(er ?#011 (illages# reaching out to more than 0 million people annually$ Our community wor' is a way of telling the people among whom we operate that 7e 8are$

O# )! %!e50+
Our projects are carried out under the aegis of the KAditya !irla 8entre for 8ommunity Initiati(es and Rural e(elopmentK# led by "rs$ Rajashree !irla$ The 8entre pro(ides the strategic direction# and the thrust areas for our wor' ensuring performancemanagementaswell$ Our focus is on the all;round de(elopment of the communities around our plants located mostly in distant rural areas and tribal belts$ All our 6roup companies M; 6rasim# &indalco# Aditya !irla )u(o# Indo6ulf and %ltraTech ha(e Rural 8ells which are the implementation bodie Projects are planned after a participatory need assessment of the communities around the plants$ 5ach project has a one;year and a three;year rolling plan# with milestones and measurable targets$ The objecti(e is to phase out our presence o(er a period of time and hand o(er the reins of further de(elopment to the people$ This also enables us to widen our reach$ Along with internal performance assessment echanisms# our projects are audited by reputed e2ternal agencies# who measure it on qualitati(e and quantitati(e parameters# helping us gauge the effecti(eness and pro(iding e2cellent inputs$ Our partners in de(elopment are go(ernment bodies# district authorities# (illage panchayats and the end beneficiaries ;; the (illagers$ The 6o(ernment has# in their >;year plans# special funds earmar'ed for human de(elopment and we recourse to many of these$ At the same time# we networ' and collaborate with li'e;minded bilateral and e(elopment

unilateral agencies to share ideas# draw from each otherGs e2periences# and ensure that efforts are not duplicated$ At another le(el# this pro(ides a platform for ad(ocacy$ *ome of the agencies we ha(e collaborated with are %)9PA# *I9*A# 8AR5 India# &abitat for &umanity International# %nicef and the 7orld !an'$

?B O# ('&#) % e%)+
Our rural de(elopment acti(ities span fi(e 'ey areas and our single;minded goal here is to help build model (illages that can stand on their own feet$ Our focus areas are healthcare# education# sustainable li(elihood# infrastructure and espousing social causes$ The name UAditya !irlaO e(o'es all that is positi(e in business and in life$ It e2emplifies integrity# quality# performance# perfection and abo(e all character$

Our logo is the symbolic reflection of these traits$ It is the cornerstone of our corporate identity$ It helps us le(erage the unique Aditya !irla brand and endows us with a distincti(e (isual image$ epicted in (ibrant# earthy colors<# it is (ery arresting and shows the sun rising o(er two circles$ An inner circle symboli=ing the internal uni(erse of the Aditya !irla 6roup# an outer circle symboli=ing the e2ternal uni(erse#and a dynamic meeting of rays con(erging and di(erging between the two$ Through its wide usage# we create a consistent# impact;oriented 6roup image$ This undoubtedly enhances our profile among our internal and e2ternal sta'eholders$ Our corporate logo thus ser(es as an umbrella for our 6roup$ It signals the common (alues and beliefs that guide our beha(ior in all our entrepreneurial acti(ities$ It embeds a sense of pride# unity and belonging in all of our /?1#111 colleagues

spanning ,> countries and ?1 nationalities across the globe$ Our logo is our best calling card that opens the gateway to the world$ ?.

GROUP OF COMPANIES:
G :: :: :: :: '#- &'3-%n$e) 6rasim Industries :td$ &indalco Industries :td$ Aditya !irla )u(o :td$ %ltraTech 8ement :td$

Ind$%n &'3-%n$e)
:: Aditya !irla "inacs IT *er(ices :td$ :: Aditya !irla "inacs 7orldwide :imited :: 5ssel "ining C Industries :td :: Idea 8ellular :td$ :: Aditya !irla Insulators :: Aditya !irla Retail :imited :: Aditya !irla 8hemicals (India) :imited International companies

T"%$2%nd
:: :: :: :: :: :: Thai Rayon Indo Thai *ynthetics Thai Acrylic 9ibre Thai 8arbon !lac' Aditya !irla 8hemicals (Thailand) :td$ Thai Pero2ide

@1 P"$2$--$ne)
:: Indo Phil 6roup of companies :: Pan 8entury *urfactants Inc$

Ind'ne)$%

:: :: :: :: ::

PT Indo !harat Rayon PT 5legant Te2tile Industry PT *unrise !umi Te2tiles PT Indo :iberty Te2tiles PT Indo Raya 4imia

E50-!
:: Ale2andria 8arbon !lac' 8ompany *$A$5 :: Ale2andria 9iber 8ompany *$A$5

C"$n%
:: :iaoning !irla 8arbon :: !irla Dingwei9ibres 8ompany :imited :: Aditya !irla 6rasun 8hemicals (9angchenggang) :td$

C%n%d%
:: A$3$ 6roup

A#)! %2$%
:: Aditya !irla "inerals :td$

L%')
:: !irla :aos Pulp C Plantations 8ompany :imited @/

N' !" %nd S'#!" A3e $&%1 E# '-e %nd A)$% :: )o(elis Inc$ S$n5%-' e
:: *wiss *ingapore O(erseas 5nterprises Pte :td$ (**O5)

<'$n! .en!# e)
:: :: :: :: !irla *un :ife Insurance 8ompany !irla *un :ife Asset "anagement 8ompany Aditya !irla "oney "art :imited Tanfac Industries :imited %ltraTech is IndiaGs largest e2porter of cement clin'er$ The companyGs production facilities are spread across ele(en integrated plants# one white cement plant# one clin'erisation plant in %A5# fifteen grinding units# and fi(e terminals M four in India

and one in *ri :an'a$ "ost of the plants ha(e I*O .11/# I*O /@11/ and O&*A* /B11/ certification$ In addition# two plants ha(e recei(ed I*O ,011/ certification and four ha(e recei(ed *A B111 certification$ The process is currently underway for the remaining plants$ The company e2ports o(er ,$> million tonnes per annum# which is about ?1 per cent of the countryGs total e2ports$ The e2port mar'et comprises of countries around the Indian Ocean# Africa# 5urope and the "iddle 5ast$ 52port is a thrust area in the companyGs strategy for growth$ %ltraTechGs products include Ordinary Portland cement# Portland Po==olana cement and Portland blast furnace slag cement$ Ordinary Portland cement Portland blast furnace slag cement Portland Po==olana cement 8ement to 5uropean and *ri :an'an norms

@,

O d$n% 0 P' !2%nd &e3en!:

Ordinary portland cement is the most commonly used cement for a wide range of applications$ These applications co(er dry;lean mi2es # general;purpose ready;mi2es# and e(en high strength pre;cast and pre;stressed concrete$

P' !2%nd /2%)! (# n%&e )2%5 &e3en!+

Portland blast;furnace slag cement contains up to 01 per cent of finely ground# granulated blast;furnace slag# a nonmetallic product consisting essentially of silicates and alumino;silicates of calcium$ *lag brings with it the ad(antage of the energy in(ested in the slag ma'ing$ 6rinding slag for cement replacement ta'es only ,> per cent of the energy needed to manufacture portland cement$%sing slag cement to replace a portion of portland cement in a concrete mi2ture is a useful method to ma'e concrete better and more consistent$ Portland blast;furnace slag cement has a lighter

colour# better concrete wor'ability # easier finishability# higher compressi(e and the fle2ural strength# lower permeability# impro(ed resistance to aggressi(e chemicals and more consistent plastic and hardened consistency$

P' !2%ndP'AA'2%n%&e3en!:
Portland po==olana cement is ordinary portland cement blended with po==olanic materials (power;station fly ash# burnt clays# ash from burnt plant material or siliceous earths)# either together or separately$ Portland clin'er is ground with gypsum and po==olanic materials which# though they do not ha(e cementing properties in themsel(es# combine chemically with Portland cement in the presence of water to form e2tra strong cementing material which resists wet crac'ing# thermal crac'ing and has a high degree of cohesion and wor'ability in concrete and mortar$

"As a Group we have always operated and continue to operate our businesses as Trustees with a deep rooted obli ation to syner i!e rowth with responsibility." Mr. "umar Man alam Birla, #hairman, Aditya Birla Group @? The cement industry relies hea(ily on natural resources to fuel its operations$ As these dwindle# the imperati(e is clear M alternati(e sources of energy ha(e to be sought out and the use of e2isting resources has to be reduced# or eliminated altogether$ Only then can sustainable business be carried out# and a corporate can truly say it is contributing to the preser(ation of the en(ironment$ %ltraTech ta'es its responsibility to conser(e the en(ironment (ery seriously# and its eco;friendly approach is e(ident across all spheres of its operations$ Its major thrust has been to identify alternati(es to achie(e set objecti(es and thereby reduce its carbon footprint$ These are done through+ :: :: :: :: 7aste management 5nergy management 7ater conser(ation !iodi(ersity management

:: ::

Afforestation Reduction in emissions

Importantly# %ltraTech has set a target of ,$.- per cent reduction in 8O , emission intensity# at a rate of 1$> per cent annually# up to ,1/>;/-# with ,11.;/1 as the baseline year$ This will also include 8O, emissions from the recently acquired 5TA *tar 8ement and upcoming projects$

O# )! %!e50
Our projects are carried out under the aegis of the KAditya !irla 8entre for 8ommunity Initiati(es and Rural e(elopmentK# led by "rs$ Rajashree !irla$ The 8entre pro(ides the strategic direction# and the thrust areas for our wor' ensuring performance management as well$

@@ Our focus is on the all;round de(elopment of the communities around our plants located mostly in distant rural areas and tribal belts$ All our 6roup companies ;; 6rasim# &indalco# Aditya !irla )u(o and %ltraTech ha(e Rural e(elopment 8ells which are the implementation bodies$ Projects are planned after a participatory need assessment of the communities around the plants$ 5ach project has a one;year and a three;year rolling plan# with milestones and measurable targets$ The objecti(e is to phase out our presence o(er a period of time and hand o(er the reins of further de(elopment to the people$ This also enables us to widen our reach$ Along with internal performance assessment mechanisms#our projects are audited by reputed e2ternal agencies# who measure it on qualitati(e and quantitati(e parameters# helping us the gauge the effecti(eness and pro(iding e2cellent inputs$

Our partners in de(elopment are go(ernment bodies# district authorities# (illage panchayats and the end beneficiaries M the (illagers$ The 6o(ernment has# in their >; year plans# special funds earmar'ed for human de(elopment and we recourse to many of these$ At the same time# we networ' and collaborate with li'e;minded bilateral and unilateral agencies to share ideas# draw from each otherGs e2periences# and ensure that efforts are not duplicated$ At another le(el#this pro(ides a platform for ad(ocacy$*ome of the agencies we ha(e collaborated with are %)9PA#*I9*A#8AR5 India# &abitat for &umanity International# %nicef and the 7orld !an'$

O# .$)$'n
ET' %&!$.e20 &'n! $/#!e !' !"e )'&$%2 %nd e&'n'3$& de.e2'-3en! '( !"e &'33#n$!$e) $n ="$&" =e '-e %!e. In )' d'$n51 /#$2d % /e!!e 1 )#)!%$n%/2e =%0 '( 2$(e (' !"e =e%@e )e&!$'n) '( )'&$e!0 %nd %$)e !"e &'#n! 0H) "#3%n de.e2'-3en! $nde?.E Mrs. Rajashree Birla# 8hairperson# The Aditya !irla 8entre for 8ommunity Initiati(es and Rural e(elopment @> M%@$n5 % d$((e en&e !efore 8orporate *ocial Responsibility found a place in corporate le2icon# it was already te2tured into our 6roupGs (alue systems$ As early as the /.@1s# our founding father *hri 6$ !irla espoused the trusteeship concept of management$ *imply stated# this entails that the wealth that one generates and holds is to be held as in a trust for our multiple sta'eholders$ 7ith regard to 8*R# this means in(esting part of our profits beyond business# for the larger good of society$ 7hile carrying forward this philosophy# our legendary leader# "r$ Aditya !irla# wea(ed in the concept of Gsustainable li(elihoodG# which transcended cheque boo' philanthropy$ In his (iew# it was unwise to 'eep on gi(ing endlessly$ Instead# he felt that channeli=ing resources to ensure that people ha(e the wherewithal to ma'e both ends meet would be more producti(e$ &e would say# K6i(e a hungry man fish for a day# he

will eat it and the ne2t day# he would be hungry again$ Instead if you taught him how to fish# he would be able to feed himself and his family for a lifetime$K Ta'ing these practices forward# our chairman$"r$ 4umar "angalam !irla institutionali=ed the concept of triple bottom line accountability represented by economic success# en(ironmental responsibility and commitment$ In a holistic way thus# the interests of all the sta'eholders ha(e been te2tured into our 6roupGs fabric$ The footprint of our social wor' today spans ,#>11 (illages in India# reaching out to se(en million people annually$ Our community wor' is a way of telling the people among whom we operate that 7e 8are$

PRODUCT PROFILE:
ULTRA TECH CEMENTS manufactures and distributes its own main product lines of cement $7e aim to optimi=e production across all of our mar'ets# pro(iding a complete solution for customerGs needs at the lowest possible cost# an approach we call strategic integration of acti(ities$ @8ement is made from a mi2ture of B1 percent limestone and ,1 percent clay$ These are crushed and ground to pro(ide the Kraw mealO# a pale# flour;li'e powder$ &eated to around /@>1P 8 (,-@,P 9) in rotating 'ilns# the UmealO undergoes comple2 chemical changes and is transformed into clin'er$ 9ine;grinding the clin'er together with a small quantity of gypsum produces cement$ Adding other constituents at this stage produces cements for speciali=ed uses$

IUALITY :
S$? )! 'n5 /ene($!) that ma'e 8J1 7J G %de1 S#-e ($ne1 P e3$#3 %nd S"%@!$ the $de%2 &e3en! &igher compressi(e strength$

!etter soundness$ :esser consumption of cement for ";,1 8oncrete 6rade and abo(e$ 9aster de shuttering of formwor'$ Reduced construction time with a superior and wide range of cement catering to e(ery concei(able building need# %:TRA T58& 85"5)T* is a formidable player in the cement mar'et$ &ere just a few reasons why %:TRA T58& 85"5)T* chosen by millions of India$

Ideal raw material :ow lime and magnesia content and high proportion of silicates$ 6reater fineness$

@0

CHAPTER I*
$ATA A%A&'()( * )%T+R,R+TAT)-%

ULTRATECH CEMENTS CASHFLO; STATEMENT FOR THE YEARS 200F62009 TO 20126201J

(Rs$ In crorers) *I$)O PARTI8%:AR* 8ash inflow+ /$ ,$ *ales turno(er (re(enue) Other income Total+ ?>-,$> 1 ,B>$-B ?B@B$/ B ?-,.$/1 ??1$?B ?.>.$@B ?0.1$>> ?/-$?0 @/1-$., @@..$-0 ?B@$@B @BB@$/> >>11$?. @01$.. >.0/$?B ,11B; ,11. ,11.; ,1/1 ,1/1; ,1// ,1//; ,1/, ,1/,; ,1/?

?$

Add+ 8losing stoc' Total+

.0$-1 ?.@>$0 B @.$?> ?B.-$@ ? ->$B@ ?B?1$> . ,/@$?. ?-/-$, 1 .$B0 ?-1-$? ?

//1$>@101$1@

B,$,> @/B.$/0

/?$// @B.0$,-

/@$,> >.B>$-?

@$

:ess+ operating stoc' Other income+ :ess+ operating e2penses 8ash flow before ta2+ :ess+ depreciation Ta2able income+ :ess+ ta2 5arnings after ta2+

@.$.@ @1,1$ /1 >B$>/ ?.-/$> . ,/,$1 ?0@B$.. //$?/ ?0?0$B

//1$>@10B$-/ B?$??..>$,>

B,$,> @B/>$1/ B0$/B @0,0$B?

/?$// >.0,$>, B1$-? >B./$B.

>$

-$

,/0$0> ?000$> 0$,. ?001$,/

,@@$00 @@B?$1,$1? @@B/$1?

,@.$/. >-@,$01 ?$,B >-?.$@,

0$

Add+ ,.-$@1 ,/,$,/0$0> ,@@$00 ,@.$/. depreciation 1 8ash flow after ?.1,$0 ?.>1$, ?.B0$.@0,>$B >BBB$-/ ta2+ ? B )OT5+ (8ash flows after ta2 has been ta'en as an initial in(estment or cash out flows for the calculation of capital budgeting techniques)

B$

TRADITIONAL CAPITAL BUDGETING APPRISAL METHODS RELATED :

PAY BAC+ PERIOD METHOD: Paybac' period method is a traditional method of e(aluation of capital budgeting decision$ The term paybac' or pay out or payoff refers to the period in which the project will generate the necessary cash and recoup the initial in(estment or the cash out flows$

To calculate the pay period# the cumulati(e cash flows will be calculated and by using interpolation the e2act period may be calculated$ The He $!%5e F''d) ,Ind$%4 L$3$!ed has Rs$ 0-B?$01B lac's of initial in(estment and the annual cash flows for the years ,11B to ,1/?$ Then the paybac' period is calculated as follows+

CALCULATION OF PAY BAC+ PERIOD OFULTRATECH CEMENTS:

*:$)O / , ? @ A5AR ,11B;,11. ,11.;,1/1 ,1/1;,1// ,1//;,1/, 8A*& I)9:O7 ?.1,$0? ?.>1$,B ?.B0$.@0,>$B1 (Rs$ In crorers) 8%"%:ATI35 8A*& 9:O77* ?.1,$0? 0->>$0//-@?$0, /-?-.$>,

> ,1/,;,1/? >BBB$-/ ,,,>B$/? The abo(e table shows that# the initial in(estment R*$@0,>$B1 :ac's lies between first and second years with Rs$ ?.>1$,B and 0->>$0- lac's ifference in cash flows P!P S Actual (!ase) year V ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; )e2t year cash flows 0@-$/@P!P S / V ;;;;;;;;;;;;; ?.>1$,B S S / V 1$/BB@ /$/BB@ year @.

Paybac' period (P!P) S /$/BB@ year$

ACCEPT6RE<ECT CRITERION:
P!P can be used as a criterion to accept or reject an in(estment proposal$ A proposal whose actual paybac' period is more than what is pre;determined by the management$ P!P thus# is useful for the management to accept the in(estment decision on the ULTRATECH CEMENTSand also to assist the management to 'now that the initial in(estment is reco(ered in /$/BB@years$

II. ACCOUNTING OR A*ERAGE RATE OF RETURN METHOD:

It is another traditional method of capital budgeting e(aluation$ According to this method the capital in(estment proposals are judged on the basis of their relati(e profitability$ The capital employed and related incomes are determined according to the commonly accepted accounting principles and practices o(er the certain life of project and the a(erage yield is calculated$ *uch a rate is called the accounting rate of return or the a(erage return or ARR$ It may be calculated according to any one of the following methods+ Annual a(erage net earnings ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; W /11 Original in(estment Annual a(erage net earnings ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; W /11 A(erage in(estment Increase in e2pected future annual net earnings ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; W /11 Initial increase in required in(estment >1

The term a(erage annual net earnings are the a(erage of the earnings after depreciation and ta2$ O(er the whole of the economic life of the project order and these gi(ing on ARR abo(e the required rate may be accepted$ The amount of a(erage in(estment can be calculated according to any of the following methods+ (a) Original in(estment ;;;;;;;;;;;;;;;;;;;;;;;; , (b) Original in(estment Vscrap (alue ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; , (c) Original in(estment Vscrap (alue V net additional V scrap (alue 7or'ing capital ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; ,

>/ 8ash flows of the ULTRATECH CEMENTSare shown in cash flow statement$ ARR is calculated as follows+

*tatement showing calculation of ARR X (Rs$ In la'es) A5AR* 5AR)I)6* A9T5R TAW (5AT) 2008-2009 ,11.;,1/1 ,1/1;,1// ,1/1;,1/, 3603.33 ?0?0$-B ?001$,/ @@B/$1?

,1/,;,1/? TOTA:

>-?.$@,

17838.67

ARR

A(erage annual 5AT<* S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 2 /11 A(erage in(estment

Total amount A(erage Annual 5AT<* S ;;;;;;;;;;;;;;;;;;;;; )o of years /0B?B?$-0 S ;;;;;;;;;;;;;;;;;; > A(erage in(estment S@@>/$-,?>-0$0?@ ARR S ;;;;;;;;;;;;;;;; W /11 @@>/$-,A(erage Rate of Return S .>Q S ?>-0$0?@

S .>Q >,

ACCEPT6RE<ECT CRIT ARR method allows ULTRATECH CEMENTS to fi2 a minimum rate of return$ Any project e2pected to gi(e a return below it will be straight away rejected$ The a(erage rate of return is as good as .>Q of ULTRATECH CEMENTSdepicts the prospects of management efficiency$ T$3e %d>#)!ed ,' 4 D$)&'#n! C%)" (2'= 3e!"'d The time adjusted or discounted cash flow methods ta'e into accounts the profitability time (alue of money$ These methods are also called the modern methods of capital budgeting$

 NET PRESENT *ALUE METHOD: ,NP*4

)et present (alue method or )P3 is one of the discounted cash flows methods$ The method is considered to be one of the best of e(aluating the capital in(estment proposals$ %nder this method cash inflows and outflows associated with each project are first calculated$

ROLE OF DISCOUNTING FACTOR:

The cash inflows and out flows are con(erted to the present (alues using discounting factor which is the actuary discount factor of Regulated display tool 'it project of ULTRATECH CEMENTSis BQ$ The rate of return is considered as cut off rate or required rate or rate generally determined on the basis of cost of capital to allow for the ris' element in(ol(ed in the project$ >?

STEPS FOR CALCULATION OF NP*:

/) 8alculation of each cash flows after ta2es of three years# which is arri(ed at This residue is profit after ta2 to arri(e at cash flow after ta2$ ,) This cash flow after ta2 are multiplied with the (alues obtained from the Table (the present (alue annuity table against the BQ actuary discount Rate i$e$ in the case of project$ ?) )P3 is deri(ed by deducting the sum of present (alues from the initial In(estment$ @) Initial in(estments are the sum of cash flows of three years shown in 8apital e2penditure table by

deducting depreciation# interest and ta2 from earnings before ta2 and interest (5!IT)$

:et us assume the discount rate be /1Q+ *tatement showing calculation of )P3$ A5AR* ,11B;,11. ,11.;,1/1 ,1/1;,1// ,1//;,1/, ,1/,;,1/? 89AT<* ?.>1$,B ?.B0$.@0,>$B1 >BBB$-/ -B.0$,> (Rs$ In la'hs) P3<* ?,-,$.? ,..-$/> ?,,0$0, ?->1$.1 @,>1$B. /->1>$.B @@>/$-, /,1>@$.B

P3I9 Y /1Q 1$B,1$0>/? 1$-B? 1$-,1 1$0,B TOTA:+ :5**+ Initial In(estment+ )P3+

>@

ACCEPT6RE<ECT CRITERION+
The accept ;reject decision of )P3 is (ery simple$ If the )P3 is positi(e then the project should be accepted and if )P3 is negati(e then the project should be rejected i$e $If )P3 Z1 (A885PT) and )P3 [1 (R5D58T) &ence in the case of ULTRATECH CEMENTS project it is (isible that the positi(e )P3 shows the acceptance and importance of the project$

INTERNAL RATE OF RETURN METHOD: ,IRR4

The internal rate of return method is also a modern technique of capital budgeting that ta'es into account the time (alue of money$ It is also 'nown as U TIME

ADGUSTED

RATE

OF

RETURN:1

9DISCOUNTED

CASH

FLO;:1

9DISCOUNTED RATE OF RETURN:1 9YIELD METHOD: %nd 9TRAIL AND ERROR YIELD METHOD:. IRR is the rate the sum of discounted cash inflows equals the sum of discounted cash outflows$ It equals the present (alue of cash inflow to present (alue of cash outflows$ In this method discount rate is not 'nown# but the cash inflows and cash out flows are 'nown$ It is the rate of return# which equates the present (alue of cash inflows to out flows or it# is the rate of return# which renders )P3 TO \5RO$

STEPS IN*OL*ED IN THE CALCULATION OF IRR:

8alculation of )P3 with gi(en discount rate 8alculation of )P3 with assumed discount rate *elect the higher )P3 of both :et R be the higher discount rate :et R/ be the difference of discount rates 8alculation of difference of P 3s (Always higher )P3;lower )P3)

>> &igher )P
(0) IRRS R V ;;;;;;;;;;;;;;;;;;;;;;;;;;;; WR/ ifference of P 3 s$

B) ecision ma'ing(Accepting; Rejecting the proposal)

FORMULATION OF STEPS:
*TAT5"5)T O9 *&O7I)6 8A:8%:ATIO) )P3 YBBQ#B.Q#.1Q %) 5R IRR "5T&O (R s corers)

A5AR*

Annual 89A Ts

iscount Rate;BBQ P39 P3 //>?$B 0 -?1$1/ @1>$@1 ,0/$@@@-?$> >

iscount Rate;B.Q P39 1$,0.. 1$/@B/ 1$10B? 1$1@/@ @,01$.P3 //1>$B >.1$./ ?01$1? ,@?$0B

iscount Rate;.1Q P39 1$,00 1$/@> 1$101$1@1 P3 /1.@$,, >0B$>@ ?>.$/,?>$>@ @,/-$>@

,11.;,1/1 ,1/1;,1// ,1//;,1/, ,1/,;,1/?

?.>1$,B ?.B.$.@0,>$B1 >BBB$-/

1$,.,/ 1$/>0. 1$1B>B 1$1@-/

9rom the abo(e calculations the following can be obser(ed$ P3 1f net cash flows at BBQ is+ @@-?$>> lac's P3 1f net cash flows at B.Q is+ @,01$.-lac's

>DECISION:
*ince the initial in(estment R*$@@>/$-,- lac's is lies between BBQ and B.Q the company APT 8 can determine the IRR as BB$>Q &ence IRRSBB$>Q

ACCEPT6RE<ECT CRITERION:
IRR is the ma2imum rate of interest# which an organi=ation can afford to pay on capital in(ested in# is accepted if IRR e2ceeds the cutoff rates and rejected if it is below the cutoff rate$

The cutoff rate of ULTRATECH CEMENTSis /1Q# which is less than the IRRi$e BB$>Q &ence the acceptance of ULTRATECH CEMENTSis quiet a good in(estment decision ta'en by management$

J. PROFITABILITY INDEC: ,BCR OR PI4

Profitability inde2 method is also 'nown as time adjusted method of e(aluating the in(estment proposals$ Profitability also called as benefit cost ratio (!X8) in relationship between present (alue of cash inflows and the present (alue of cash out flows$ Thus Present (alue of cash inflow Profitability inde2 S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; Present (alue of cash outflows (OR) Profitability inde2 Present (alue of cash inflows S ; ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; Initial cash outlay

CALCULATIONS OF BCR:
STEP1+ 8alculations of cash flows after ta2es STEP2+ 8alculations of Present (alues of cash inflows Y/1Q$ STEPJ: Application of the formula$ >0

ACCEPT6RE<ECT CRITERION+
There is a slight difference between present (alue inde2 method and profitability inde2 method$ %nder profitability inde2 method the present (alue of cash inflows and cash outflows are ta'en as accept;reject decision$ I$e$ the accept reject criterion is+ If Profitability Inde2 Profitability Inde2 [ / (R5D58T)$ Z / (A885PT)$

The acceptance of by the management is e(aluated through Profitability Inde2 method of as the PI Z / (i$e$?$010 years)

MERITS AND DEMERITS

This method is slight modification of net present (alue method$ The net present (alue method has one drawbac' that# it is not easy to ran' the projects on the basis of this method# particularly when the costs of the projects differ significantly$ To e(aluate such projects# the profitability inde2 method is most suitable$ The other ad(antages and disad(antages of this project are similar to net present (alue method$

>B

CHAPTER *
.)%$)%G(, (/GG+(T)-%(, G #-%#&/()-%(

FINDINGS:

It is obser(ed that the company is able to increase its profits from year to year$

The 6ross profits from ,1/1 to ,1/? increased from year to year

It is obser(ed that the companies< net worth is increasing considerably$

!y obser(ing the sources C applications# it is clear that the company is acti(ely increasing or standardi=ing its operations$

>.

SUGGESTIONS:
There are (arious de(elopments ta'ing in the industry to challenge so as to the company should de(elop as a full;fledged research and de(eloped department for bringing technological changes and impro(ements in it design C process$ The management has physically (erified the stoc' of finished goods and wor';in; progress at the end of the year$

8ompany needs to identify the potential business re(enue generation which results to profit on operations$

In respect of ser(ice acti(ities# there is a reasonable system of recording the relati(e job$ 8ommensurate with its si=e and nature of its business$

receipts#

issues and consumption of materials and stores of allocation of materials consumed to

-1

CONCLUSIONS

The budgeting e2ercise in ULTRATECH CEMENTS also co(ers the long term capital budgets# including annual planning and pro(ides long term plan for application of internal resources and debt ser(icing translated in to the corporate plan$ The scope of capital budgeting also includes e2penditure on plant betterment# and reno(ation# balancing equipment# capital additions and commissioning e2penses on trial runs generating units$ To establish a close lin' between physical progress and monitory

outlay and to pro(ide the basis for plan allocation and budgetary support by the go(ernment$ The manual recommends the computation of )P3 at a cost of capital I discount rate specified from time to time$ A single discount rate should not be used for all the capacity budgeting projects$ The analysis of rele(ant facts and quantifications of anticipated results and benefits# ris' factors if any# must be clearly brought out$ 9easibility report of the project is prepared on the cost estimates and the cost of generation$

-/

BIBLIOGRAPHY
P %)%nn% C"%nd %1 20061 F$n%n&$%2 M%n%5e3en! T"e' 0 %nd P %&!$&e1 6!" Ed$!$'n1 T%!% M&G %= H$22. I.M. P%nde0 : F$n%n&$%2 M%n%5e3en!1 *$@%) P#/2$)"e ). B $5"%31 E.F. %nd E" "% d!.M.C.1 20061 F$n%n&$%2 M%n%5e3en! T"e' 0 %nd P %&!$&e1 10!" Ed$!$'n1 T"'3)'n S'#!"6;e)!e n.

+"%n M.Y.1 %nd <%$n.P.+.1 20071 M%n%5e3en! A&&'#n!$n51 I* ed$!$'n1 T%!% M& G e= H$221 Ne= De2"$. Heritage Foods (India) LimitedManuals 2010-2013.

;EBSITES
www$google$com www$heritage$com www$retailindia$com www$apdrcd$com

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