SUMMER INTERNSHIP PROJECT

ON
CAPITAL BUDGETING IN
MAKE MY TRIP INDIA

SUBMITTED FOR THE PARTIAL FULLFILLMENT OF BBA DEGREE

OF
AMITY GLOBAL BUSINESS SCHOOL HYDERABAD
IN THE
FACULTY OF MANAGEMENT
BY
AJAY JOSHI
A306064013058

UNDER THE SUPERVISION

OF PROF.N.VANI

AMITY GLOBAL BUSINESS SCHOOL

HYDERABAD
1

DECLARATION
I hereby declare that the following project report titled capital budgeting in Make My Trip
India submitted by me to Amity Global Business School, Hyderabad In partial fulfillment
of the requirement for the award of the degree of bachelor of business and administration is
a record of bonafide project work carried out be me under the guidance of Prof.N.Vani
I further declare that the work reported in this project has not been submitted and will not be
submitted, either in part or in full, for the award of any other degree or diploma in this
institution or any other institution or university.

AJAY JOSHI
ROLL NO: A306064013058
BBA-5(B)

ACKNOWLEDGEMENT
It is my proud privilege to release the feelings of my gratitude to several persons who helped
me directly or indirectly to help me complete this project report.
My Sincere thanks to Dr. P. Prasada Rao,DG Amity Global Business School Hyderabadfor
giving me an opportunity to do Summer Internship programme in .
My Sincere thanks to Pof D.Surekha Thakur Summer internship programme coordinator fot
her constant supervision and guidance throughout my internship project.
My Sincere thanks to Prof.N.Vani faculty guide for her constant guidance and help
throughout my internship.
My Sincere thanks to Mr Amit Prasad Industry Guide for giving an opportunity to do
Summer Internship Project

Certificate From Faculty Guide

This is to certify that Mr Ajay Joshi student of BBA class of 2016 semester V Enrollment
No.A30606413058 has completed his summer Internship project titled "A Study on Capital
Budgeting in MakeMyTrip.com" under my supervision and guidance throughout.

_________________________
Signature of Faculty Guide
(PROF.N.VANI)
DATE:
PLACE : HYDERABAD

CONTENTS
1. Executive Summary
2. Objectives of the Study
3. Research Methodology
4. Limitations of the Study
5. Literature Review
Chapter I: Introduction to Capital budgeting in MakeMyTrip India Ltd
Chapter II: - MakeMyTrip India profile
- Service Strategy

Chapter III: - Comparative analysis of MakeMyTrip India With

- The Indian Travel Market
- Cox & Kings
- Thomas and Cook

Chapter IV: Data Analysis and Interpretation

Chapter V: Findings,Learnings and Conclusion

Chapter Vl: - Annexure
-

Fact sheets
Case Study- The Ketan Parekh Scam
Article Consumer Borrowing Record

Bibliography

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

An efficient allocation of capital is the most important finance function in modern times. It
involves decisions to commit firms funds to long-term assets. Such decisions are tend to
determine the value of company/firm by influencing its growth, profitability & risk.
Investment decisions are generally known as capital budgeting or capital expenditure
decisions. It is clever decisions to invest current in long term assets expecting long-term
benefits firms investment decisions would generally include expansion, acquisition,
modernization and replacement of long-term assets.

Such decisions can be investment decisions, financing decisions or operating

decisions. Investment decisions deal with investment of organizations resources in Long tern
(fixed) Assets and / or Short term (Current) Assets. Decisions pertaining to investment in
Short term Assets fall under Working Capital Management. Decisions pertaining to
investment in Long term Assets are classified as Capital Budgeting decisions.
Capital budgeting decisions are related to allocation of investible funds to different long-term
assets. They have long-term implications and affect the future growth and profitability of the
firm.

In evaluating such investment proposals, it is important to carefully consider the expected

benefits of investment against the expenses associated with it.

Organizations are frequently faced with Capital Budgeting decisions. Any decision that
requires the use of resources is a capital budgeting decisions. Capital budgeting is more or
less a continuous process in any growing concern.
The return associated to the project is more than the cost of capital and the net present value
also shows a positive figure that suggests viability of new project. Certain financial risk
should also be taken into consideration. Adapting the new project will mean that the
accounting face approximately 3 times more risk than pre-tax operating cash flow profits for
every 1% of change in revenue. In addition to this, the variable cost has been proven to be
7

the most sensitive factor that affects the net present value of project. Please bear in mind that
a 10% decrease in our projected output on new project will mean that the company will
suffer loss. On financial grounds, the current assumptions on new projects is enough to
consider that it is a viable venture however the net present value is sensitive with 10%
fluctuation on certain variables. There are also certain non-financial factors that should be
taken into consideration. Firstly, the new project would require to lay-off certain amount of
workers. The high unemployment in Tasmania may imply that BlueScape will suffer certain
costs related to dealing with unions and redundancy costs. Another non-financial factor to
consider is the public image of BlueScape. Since the new project is less environmentally
friendly than the older alternative, this may influence public perception and thus sales of the
company. In summary, the financial factors indicate to pursue the project but it is important
to take into account various risk and non-financial factors

OBJECTIVES OF STUDY
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The Project study is undertaken to analyze and understand the Capital Budgeting process in
cement manufacturing sector, which gives mean exposure to practical implication of theory
knowledge.
To know about the companys operation of using various Capital Budgeting techniques.
To know how the company gets funds from various resources.
To study the relevance of capital budgeting in evaluating the project for project finance
To study the technique of capital budgeting for decision- making.
To measure the present value of rupee invested.
To understand an item wise study of the company financial performance of the company.
To make suggestion if any for improving the financial position if the company.
To understand the practical usage of capital budgeting techniquesTo understand the nature of
risk and uncertainty

Purchasing Assets for Positive Returns

An asset produces income. An asset also costs money. One objective of your capital budget
should be to purchase assets whose net income runs higher than the ongoing costs of the
asset. For example, consider a printing press that provides $500,000 of annual income and
costs $200,000 in loan interest plus $50,000 in maintenance. This purchase would meet the
capital budget objective of buying assets that produce positive returns .

Alignment with Marketing Plan

If you buy income-producing assets, but have no marketing plan for the products or services
from those assets, they will go unused. An objective of the capital budget is to support the
marketing plan with strategic purchases. The capital budget must clearly state criteria for
meeting this objective. For example, the budget could say, "No expenditure for assets shall
be made without a review of the marketing plan for that asset's output."

Keeping Pace with Projected Growth

Your growth projections depend on acquiring the assets that contribute to that growth. The
capital budget must be built around the objective of making purchases that are timed with
growth initiatives. For example, if you anticipate increasing sales by 50 percent over the next
year, your capital budget must include money for assets that will help you produce or acquire
more products. This could be production equipment, for example, or warehouse space to
store additional inventory.
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Least-Cost Objective
The capital budget should contain an objective of keeping costs low. For example, if you
consider two assets that will both provide the same income, the least expensive one fits in
with the least-cost objective. Your consideration must not focus on purchase or lease price
only, but also on maintenance costs.

Keeping Debt in Line

Some capital expenditures require you to borrow money. The budget can include loans as
part of its resources, but the need for an asset does not necessarily mean you can afford to
service a loan for that asset. The capital budget must set an objective of keeping your debt
within the limits you set.

Increased Retained Earnings

A capital budget should contain measures that will replenish the capital expenditure account.
In other words, when you buy an asset, part of the income from that asset should go into
retained earnings. Retained earnings do not get paid out as dividends or other distributions.
The capital budget can earmark retained earnings from an asset for future capital
expenditures. Meeting the objective of using retained earnings for asset purchases can reduce
the need to borrow.

Anticipating Inflation
A capital budget should set the objective of keeping up with inflation. If you set a budget for
an asset five years from the present, for example, that budget should include expected price
increases. These increases will be estimates based on projected inflation rates, but estimates
are better than omissions. You will have rough price estimates in mind for future purchases.
Objectives of Capital Budgeting:
1.Setting Priorities
You don't always spend capital on growth. Sometimes you have to buy replacement
equipment, for example. Your capital budget must clearly define priorities, especially when
you are faced with the choice between maintaining current productivity and seeking
additional income. Your capital budget should make provisions for spending on assets that
will keep your core businessoperating, in addition to spending on new assets for growth.
2.Purchasing Assets for Positive Returns

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An asset produces income. An asset also costs money. One objective of your capital budget
should be to purchase assets whose net income runs higher than the ongoing costs of the
asset. For example, consider a printing press that provides $500,000 of annual income and
costs $200,000 in loan interest plus $50,000 in maintenance. This purchase would meet the
capital budget objective of buying assets that produce positive returns.
3.Alignment with Marketing Plan
If you buy income-producing assets, but have no marketing plan for the products or services
from those assets, they will go unused. An objective of the capital budget is to support the
marketing plan with strategic purchases. The capital budget must clearly state criteria for
meeting this objective. For example, the budget could say, "No expenditure for assets shall
be made without a review of the marketing plan for that asset's output."
4.Keeping Pace with Projected Growth
Your growth projections depend on acquiring the assets that contribute to that growth. The
capital budget must be built around the objective of making purchases that are timed with
growth initiatives. For example, if you anticipate increasing sales by 50 percent over the next
year, your capital budget must include money for assets that will help you produce or acquire
more products. This could be production equipment, for example, or warehouse space to
store additional inventory.
5.Least-Cost Objective
The capital budget should contain an objective of keeping costs low. For example, if you
consider two assets that will both provide the same income, the least expensive one fits in
with the least-cost objective. Your consideration must not focus on purchase or lease price
only, but also on maintenance costs.
6.Keeping Debt in Line
Some capital expenditures require you to borrow money. The budget can include loans as
part of its resources, but the need for an asset does not necessarily mean you can afford to
service a loan for that asset. The capital budget must set an objective of keeping your debt
within the limits you set.
7.Increased Retained Earnings
A capital budget should contain measures that will replenish the capital expenditure account.
In other words, when you buy an asset, part of the income from that asset should go into
retained earnings. Retained earnings do not get paid out as dividends or other distributions.
The capital budget can earmark retained earnings from an asset for future capital
expenditures. Meeting the objective of using retained earnings for asset purchases can reduce
the need to borrow.
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8.Anticipating Inflation
A capital budget should set the objective of keeping up with inflation. If you set a budget for
an asset five years from the present, for example, that budget should include expected price
increases. These increases will be estimates based on projected inflation rates, but estimates
are better than omissions. You will have rough price estimates in mind for future purchases.

RESEARCH METHODOLOGY

12

PRIMARY RESEARCH

Primary research consists of a collection of original primary data collected by the researcher.
It is often undertaken after the researcher has gained some insight into the issue by reviewing
secondary research or by analyzing previously collected primary data.[clarification needed]
It can be accomplished through various methods, including questionnaires and telephone
interviews in market research, or experiments and direct observations in the physical
sciences, amongst others.The term primary research is widely used in academic research,
market research and competitive intelligence.There are advantages and disadvantages to
primary research
Advantages:

Researcher can focus on both qualitative and quantitative issues.Addresses specific research
issues as the researcher controls the search design to fit their needs Great control; not only
does primary research enable the marketer to focus on specific subjects, it also enables the
researcher to have a higher control over how the information is collected. Taking this into
account, the researcher can decide on such requirements as size of project, time frame and
goal.
Disadvantages:

Compared to secondary research, primary data may be very expensive in preparing and
carrying out the research. Costs can be incurred in producing the paper for questionnaires or
the equipment for an experiment of some sort.
In order to be done properly, primary data collection requires the development and execution
of a research plan. It takes longer to undertake primary research than to acquire secondary
data.
Some research projects, while potentially offering information that could prove quite
valuable, may not be within the reach of a researcher.By the time the research is complete it
may be out of date.
Low response rate has to be expected..An example of primary research in opinion research:
the government wants to know if people are pleased with how the government is being run,
so they hand out questionnaires to the public asking if they are happy and, if not, how to
improve.
An example of primary research in the physical sciences: Can the transition temperature of
high-temperature superconductors be increased by varying the composition of the
superconducting material. The scientist will modify the composition of the high-Tc material
in various ways and measure the transition temperature of the new material as a function of
its composition..All research, whether primary or secondary, depends eventually on the
collection of primary research data
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SECONDARY RESEARCH

Secondary research (also known as desk research) involves the summary, collation and/or
synthesis of existing research rather than primary research, where data is collected from, for
example, research subjects or experiments.
Care should be taken to distinguish secondary research from primary research that uses raw
secondary data sources. The key of distinction is whether the secondary source being used
has already been analyzed and interpreted by the primary authors.
The term is widely used in health research, legal research, and in market research. The
principal methodology in health secondary research is the systematic review, commonly
using meta-analytic statistical techniques, although other methods of synthesis, like realist
reviews and meta-narrative reviews, have been developed in recent years. Such secondary
research uses the primary research of others typically in the form of research publications
and reports.
In a market research context, secondary research is taken to include the re-use by a second
party of any data collected by a first party or parties.
In archaeology and landscape history, desk research is contrasted with fieldwork.
Sometimes secondary research is required in the preliminary stages of research to determine
what is known already and what new data is required, or to inform research design. At other
times, it may be the only research technique used.
A key performance area in secondary research is the full citation of original sources, usually
in the form of a complete listing or annotated listing.
Secondary sources could include previous research reports, newspaper, magazine and journal
content, and government and NGO statistics.

LIMITATIONS OF CAPITAL BUDGETING

1) It has long term implementations which can't be used in short term and it is used as
operations of the business. A wrong decision in the early stages can affect the long-term
survival of the company. The operating cost gets increased when the investment of fixed
assets is more than required.
2) Inadequate investment makes it difficult for the company to increase it budget and the
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capital.
3) Capital budgeting involves large number of funds so the decision has to be taken carefully.
4) Decisions in capital budgeting are not modifiable as it is hard to locate the market for
capital goods.
5) The estimation can be in respect of cash outflow and the revenues/saving and costs
attached which are with projects.
6)Capital budgeting decisions are for long term and are majorly irreversible in nature
.
7)Most of the times, these techniques are based upon the estimations and assumptions as
the future would always remain uncertain
8)Capital budgeting still remains introspective as the risk factor and the discounting factor
remains subjective to the managers perception.
9)A wrong capital budgeting decision taken can affect the long term durability of the
company and hence it needs to be done judiciously by professionals who understands the
project well.
Accountancy assists users of financial statements to make better financial decisions. It is
important however to realize the limitations of accounting and financial reporting when
forming those decisions.
Following are the main limitations of corporate financial reporting:
1.Different accounting policies
2.accounting estimates
3.Professional judgement
4.Verifiability
5.Use of historical cost basis
6.Measurability
7.Limited predictive value
8.fraud and error
9.Cost benefit compromise
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1.

Different accounting policies and frameworks

Accounting frameworks such as IFRS allow the preparers of financial statements to use
accounting policies that most appropriately reflect the circumstances of their entities.
Whereas a degree of flexibility is important in order to present reliable information of a
particular entity, the use of diverse set of accounting policies amongst different entities
impairs the level of comparability between financial statements.
The use of different accounting frameworks (e.g. IFRS, US GAAP) by entities operating in
different geographic areas also presents similar problems when comparing their financial
statements. The problem is being overcome by the growing use of IFRS and the convergence
process between leading accounting bodies to arrive at a single set of global standards.
2.

Accounting estimates

Accounting requires the use of estimates in the preparation of financial statements where
precise amounts cannot be established. Estimates are inherently subjective and therefore lack
precision as they involve the use of management's foresight in determining values included
in the financial statements. Where estimates are not based on objective and verifiable
information, they can reduce the reliability of accounting information.
3.

Professional judgment

The use of professional judgment by the preparers of financial statements is important in

applying accounting policies in a manner that is consistent with the economic reality of an
entity's transactions. However, differences in the interpretation of the requirements of
accounting standards and their application to practical scenarios will always be inevitable.
The greater the use of judgment involved, the more subjective financial statements would
tend to be.

4.

Verifiability

Audit is the main mechanism that enables users to place trust on financial statements.
However, audit only provides 'reasonable' and not absolute assurance on the truth and
fairness of the financial statements which means that despite carrying audit according to
acceptable standards, certain material misstatements in financial statements may yet remain
undetected due to the inherent limitations of the audit.
5.

Use of historical cost

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Historical cost is the most widely used basis of measurement of assets. Use of historical cost
presents various problems for the users of financial statements as it fails to account for the
change in price levels of assets over a period of time. This not only reduces the relevance of
accounting information by presenting assets at amounts that may be far less than their
realizable value but also fails to account for the opportunity cost of utilizing those assets.
6.

Measurability

Accounting only takes into account transactions that are capable of being measured in
monetary terms. Therefore, financial statements do not account for those resources and
transactions whose value cannot be reasonably assigned such as the competence of
workforce or goodwill.
7.

Limited predictive value

Financial statements present an account of the past performance of an entity. They offer
limited insight into the future prospects of an enterprise and therefore lack predictive value
which is essential from the point of view of investors.

8.

Fraud and error

Financial statements are susceptible to fraud and errors which can undermine the overall
credibility and reliability of information contained in them. Deliberate manipulation of
financial statements that is geared towards achieving predetermined results (also known as
'window dressing') has been a unfortunate reality in the recent past as has been popularized
by major accounting disasters such as the Enron Scandal .
9.

Cost benefit compromise

Reliability of accounting information is relative to the cost of its production. At times, the
cost of producing reliable information outweighs the benefit expected to be gained which
explains why, in some instances, quality of accounting information might be compromised
LITERATURE REVIEW

The foremost prominence of the capital decision making is that the capital is a limited
resource regardless of whether capital is being raised through debt or equity, therefore
employment of this vital resource has to be timely and accordingly to the prolonged capital
budgeting projects as companys prosperity and growth depends on the success of such
projects (Verma 2013). In other words, this decision making process lays down the path way
to achieve businesss long term goals and sets its direction in the future (Kersyte 2011).
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Furthermore unlike other business decisions that involve a singular aspect of a business, a
capital budgeting decision comprises two important decisions at once: a financial decision
and an investment decision (Ekanayake 2012). By taking on a project, the business has
agreed to make a financial commitment to a project, and that involves its own set of risks.
Therefore, capital budgeting decisions are so crucial because value and future stability of a
firm depends on the success or failure of such long term capital investments (Ekanayake
2012, pp. 341-342). Moreover, capital budgeting process facilitates the transmission of vital
information within the company to the appropriate decision makers and enables business to
set out a road map for the long term projects which are essential for the future prosperity and
the growth of a firm (Ekanayake 2012). In other words, one can say that running a business
is nothing more than a constant exercise in capital budgeting decisions. Understanding that
both a financial and investment decision is being made is paramount to making successful
capital investment decisions.
Ekanayake (2012) indicates that in capital budgeting there are two main approaches that can
be used to evaluate a project and they are the Internal Rate of Return (IRR) and the Net
Present Value (NPV). Net present value is a capital budgeting technique that is consistent
with the goal of maximising shareholder wealth (Ekanayake 2012). The method estimates the
amount by which the benefits or cash flows from a project exceed the cost of the project in
present value (dollar) terms. The net present value of a project is the difference between the
present value of the expected future inflows and the present value of the expected future
outflows. NPV are estimates that determine an approximate value for the financial viability
of a project. Net Present Value uses the discounted cash flow valuation technique that
considers both the risk and time variables and it is a direct measure of how much a capital
project will increase or decrease the value of the firm (Ekanayake 2012). If the NPV is larger
than zero the shareholder wealth will be increased so the project should be accepted; if the
NPV is less than zero the project should be rejected due to the decrease; and finally if the
project is equal it will not affect shareholder wealth it may be accepted (Ekanayake 2012).
The Internal rate of return is an alternative to the NPV method. The IRR discounts cash flows
of the project. The IRR looks at the rate of return of a project to determine whether this rate
is higher or lower than the companys cost of capital. The IRR technique can provide more
than one solution of which makes the result less reliable than NPV and should not be used in
deciding the viability of a project (Vernimmen 2011). Furthermore another issue with IRR, is
that is assumes that the cash flows from the project are reinvested in the IRR, while the NPV
assumes that they are invested at the companys cost of capital. Mutually exclusive projects
calculated by the IRR can also provide incorrect investment decisions, and with nonconventional cash flows the IRR generates no or multiple answers.The decisions are made
based on a projects NPV is consistent with goal of shareholder wealth maximisation, the
result shows management the dollar amount by which each project is expected to increase the
18

value of the company (Ekanayake 2012). The Net Present Value is superior over other
methods due to being consistent with the goal of maximising shareholder value, providing a
direct dollar amount measure of how much a capital project will increase the value of the
company; and the NPV uses discounted cash flows in its valuation to adjust for the time
value of money (Vernimmen 2011).
It is generally considered in finance curriculum that in addition to the quantitative or
financial factors, well-rounded decision making process must take into account non-financial
factors. These factors relevant to a decision that is difficult to measure in terms of money.
According to Thales (1999, cited in Malgharni et al 2011), the future of understanding and
reporting financial performance will be more inclined towards non-financial factors that are
well supported by their financial counterpart. Thus, the implication is that neither qualitative
nor quantitative data should be considered in isolation. Out of many qualitative factors, these
may include customer satisfaction and employee morale.
Customer Satisfaction
Common knowledge tells that without customers, there is no business. Soomasundaram
(2010) supports the previous statement by indicating that current financial measures have
little value to future profitability as it has with customer satisfaction. Researches conducted
by technology firms indicate that the stock price of a company is directly correlated with
customer satisfaction (Soomasundaram 2010). Prior to undertaking a certain project, Oliver
(1980, cited in Soomasundaram 2010, p.120) suggests to use customer perception as one of
the primary basis to determine projects viability. Various ways to determine customer
perception is to conduct market research such as surveys and questionnaire. One of the
financial measures that can be utlisied to link with customer satisfactions is employee
turnover (Soomasundaram p. 127). Employee turnover is related to productivity of the
company in terms of providing goods and services and higher productivity may make
customers more satisfied as their wants or needs are met. Therefore, customer satisfaction
should not be overlooked and should be lined with various financial measures to make sense
of it.

. Organization Culture
Every organization has an identity that recognizes them for their behavior, surroundings,
rules and norms (Dev 2013). This is essential to gauge as it shapes the behavior of the
employees and directors of the organizations. In the context of project valuation, a company
must ensure that their prospective projects are in line with their culture as going beyond it
may impact financial factors (Dev 2013). For instance, an employee who is well aware of its
19

organization culture may have hard time doing something that is out of his/her values that
were introduced to her as a worker for the company. Therefore, it is essential for the
organization to set certain cultural boundaries as to what type of project they wish to pursue.
Cash Flow
The single most important step in capital budgeting is also the most difficult to get right:
forecasting the cash flows a project will produce. Capital budgeting is simply the process of
determining whether the increased revenue from a project justifies the investment required,
but that future revenue is only your best estimate. Even up-front costs, which are more
immediate and therefore easier to forecast, are still only estimates at this stage. Overestimate
revenue or underestimate costs, and a project that looks profitable could become a moneyloser. Underestimate revenue or overestimate costs, and you might end up rejecting a project
that would have proved profitable.
Time Horizon
Forecasting cash flows gets increasingly difficult the farther into the future you go. You can
make predictions based only on what you know right now. As you expand the time horizon
for a capital project, the likelihood rises that between the time you get started and the time
you expect to be reaping the benefits, some disruptive event will change your operating
environment. Unforeseen competition, legal and regulatory changes or technological
innovations can affect the ultimate success of your project, yet they may be impossible to
consider in your capital budgeting process. At the same time the most ambitious projects -the ones that truly can take your company to the next level -- may take years to develop. As
is often the case in finance, getting the reward requires taking the risk.
Time Value
One of the most common capital budgeting methods, particularly among small businesses, is
the payback period method. It simply requires that a project's forecast cash flows repay its
investment within a set amount of time. Say you require payback within five years. If a
project has $45,000 in up-front costs and estimates cash flows of $10,000 a year for five
years, this project meets your criteria. The problem is that this method doesn't account for the
time value of money -- the fact that equal sums of money at different points in time have
different values based on a number of factors. If you had to borrow the money for the project
at 4 percent annual interest, for example, you actually would lose money, and inflation would
add losses on top of that. Other capital budgeting methods consider these issues, but they,
too, have limitations.
Discount Rates
Capital budgeting methods that attempt to account for the time value of money do so by
figuring your cost of capital -- the annual rate it will cost you to finance a project, either by
borrowing the money and paying interest or using your own money and not earning a return
on it somewhere else. Figuring the proper discount rate, as it's called, is yet another
challenge. Even if you peg it fairly accurately, there's always a chance that interest rates will
rise or something else will happen to increase your cost of capital down the road, reducing
20

the real value of those future cash flows. If you get the discount rate wrong to start with, your
yes-or-no decision on pursuing a project will be based on a flawed assumption.

21

CHAPTER-I
INTRODUCTION OF CAPITAL
BUDGETING OF MAKEMYTIP INDIA
LTD

INTRODUCTION OF CAPITAL BUDGETING OF MAKEMYTRIP INDIA

Capital Budgeting projects are classified as either Independent Projects or Mutually

Exclusive Projects. An Independent Project is a project whose cash flows are not affected by
the accept/reject decision for other projects. Thus, all Independent Projects which meet the
Capital Budgeting critierion should be accepted.

22

Mutually Exclusive Projects are a set of projects from which at most one will be accepted.
For example, a set of projects which are to accomplish the same task. Thus, when choosing
between "Mutually Exclusive Projects" more than one project may satisfy the Capital
Budgeting criterion. However, only one, i.e., the best project can be accepted.
Of these three, only the Net Present Value and Internal Rate of Return decision rules consider
all of the project's cash flows and the Time Value of Money. As we shall see, only the Net
Present Value decision rule will always lead to the correct decision when choosing among
Mutually Exclusive Projects. This is because the Net Present Value and Internal Rate of
Return decision rules differ with respect to their Reinvestment Rate Assumptions. The Net
Present Value decision rule implicitly assumes that the project's cash flows can be reinvested
at the firm's Cost of Capital, whereas, the Internal Rate of Return decision rule implicitly
assumes that the cash flows can be reinvested at the projects IRR. Since each project is likely
to have a different IRR, the assumption underlying the Net Present Value decision rule is
more reasonable.
Every decision made in a business has financial implications, and any decision that involves
the use of money is a corporate financial decision. Defined broadly, everything that a
business does fits under the rubric of capital budgeting. It is, in fact, unfortunate that we even
call the subject capital budgeting; because it suggests to many observers a focus on how
large corporations make financial decisions and seem to exclude small and private businesses
from its purview. A more appropriate title for this discipline would be Business Finance,
because the basic principles remain the same, whether one looks at large, publicly traded
firms or small, privately run businesses. All businesses have to invest their resources wisely,
find the right kind and mix of financing to fund these investments, and return cash to the
owners if there are not enough good investments.
In this introduction, we will lay the foundation for this discussion by listing the three
fundamental principles that underlie capital budgetingthe investment, financing, and
dividend principlesand the objective of firm value maximization that is at the heart of
corporate financial theory.
The Firm: Structural Set-Up
The firms investments are generically termed assets. Although assets are often
categorized by accountants into fixed assets, which are long-lived, and current assets, which
are short-term, we prefer a different categorization. The assets that the firm has already
23

invested in are called assets in place, whereas those assets that the firm is expected to invest
in the future are called growth assets. Though it may seem strange that a firm can get value
from investments it has not made yet, high-growth firms get the bulk of their value from
these yet-to-be-made investments. To finance these assets, the firm can raise money from two
sources. It can raise funds from investors or financial institutions by promising investors a
fixed claim (interest payments) on the cash flows generated by the assets, with a limited or
no role in the day-to-day running of the business. We categorize this type of financing to
be debt. Alternatively, it can offer a residual claim on the cash flows (i.e., investors can get
what is left over after the interest payments have been made) and a much greater role in the
operation of the business. We call this equity. Note that these definitions are general enough
to cover both private firms, where debt may take the form of bank loans and equity is the
owners own money, as well as publicly traded companies, where the firm may issue bonds
(to raise debt) and common stock (to raise equity).
Thus, at this stage, we can lay out the financial balance sheet of a firm as follows:

Note the contrast between this balance sheet and a conventional accounting balance sheet.

24

An accounting balance sheet is primarily a listing of assets in place, though there are some
circumstances where growth assets may find their place in it; in an acquisition, what gets
recorded as goodwill is a conglomeration of growth assets in the target firm, synergies and
overpayment.

First Principles
Every discipline has first principles that govern and guide everything that gets done
within it. All of capital budgeting is built on three principles, which we will call, rather
unimaginatively, the investment principle, the financing principle, and the dividend principle.
The investment principle determines where businesses invest their resources, the financing
principle governs the mix of funding used to fund these investments, and the dividend
principle answers the question of how much earnings should be reinvested back into the
business and how much returned to the owners of the business. These core capital budgeting
principles can be stated as follows:

The Investment Principle: Invest in assets and projects that yield a return greater than
the minimum acceptable hurdle rate. The hurdle rate should be higher for riskier projects
and should reflect the financing mix usedowners funds (equity) or borrowed money
(debt). Returns on projects should be measured based on cash flows generated and the
25

timing of these cash flows; they should also consider both positive and negative side
effects of these projects.

The Financing Principle: Choose a financing mix (debt and equity) that maximizes
the value of the investments made and match the financing to nature of the assets being
financed.

The Dividend Principle: If there are not enough investments that earn the hurdle
rate, return the cash to the owners of the business. In the case of a publicly traded firm,
the form of the returndividends or stock buybackswill depend on what stockholders
prefer.
When making investment, financing and dividend decisions, capital budgeting is

single-minded about the ultimate objective, which is assumed to be maximizing the value of
the business. These first principles provide the basis from which we will extract the
numerous models and theories that comprise modern capital budgeting, but they are also
commonsense principles. It is incredible conceit on our part to assume that until capital
budgeting was developed as a coherent discipline starting just a few decades ago, people who
ran businesses made decisions randomly with no principles to govern their thinking. Good
businesspeople through the ages have always recognized the importance of these first
principles and adhered to them, albeit in intuitive ways. In fact, one of the ironies of recent
times is that many managers at large and presumably sophisticated firms with access to the
latest capital budgeting technology have lost sight of these basic principles.
The Objective of the Firm
No discipline can develop cohesively over time without a unifying objective. The
growth of corporate financial theory can be traced to its choice of a single objective and the
development of models built around this objective. The objective in conventional corporate
financial theory when making decisions is to maximize the value of the business or firm.
Consequently, any decision (investment, financial, or dividend) that increases the value of a
26

business is considered a good one, whereas one that reduces firm value is considered a poor
one. Although the choice of a singular objective has provided capital budgeting with a
unifying theme and internal consistency, it comes at a cost. To the degree that one buys into
this objective, much of what corporate financial theory suggests makes sense. To the degree
that this objective is flawed, however, it can be argued that the theory built on it is flawed as
well. Many of the disagreements between corporate financial theorists and others (academics
as well as practitioners) can be traced to fundamentally different views about the correct
objective for a business. For instance, there are some critics of capital budgeting who argue
that firms should have multiple objectives where a variety of interests (stockholders, labor,
customers) are met, and there are others who would have firms focus on what they view as
simpler and more direct objectives, such as market share or profitability.
Given the significance of this objective for both the development and the
applicability of corporate financial theory, it is important that we examine it much more
carefully and address some of the very real concerns and criticisms it has garnered: It
assumes that what stockholders do in their own self-interest is also in the best interests of the
firm, it is sometimes dependent on the existence of efficient markets, and it is often blind to
the social costs associated with value maximization.
An efficient allocation of capital is the most important finance function in modern times. It
involves decisions to commit firms funds to long-term assets. Such decisions are tend to
determine the value of company/firm by influencing its growth, profitability & risk.
Investment decisions are generally known as capital budgeting or capital expenditure
decisions. It is clever decisions to invest current in long term assets expecting long-term
benefits firms investment decisions would generally include expansion, acquisition,
modernization and replacement of long-term assets.
Such decisions can be investment decisions, financing decisions or operating
decisions. Investment decisions deal with investment of organizations resources in Long tern
27

(fixed) Assets and / or Short term (Current) Assets. Decisions pertaining to investment in
Short term Assets fall under Working Capital Management. Decisions pertaining to
investment in Long term Assets are classified as Capital Budgeting decisions.
Capital budgeting decisions are related to allocation of investible funds to different long-term
assets. They have long-term implications and affect the future growth and profitability of the
firm.
In evaluating such investment proposals, it is important to carefully consider the expected
benefits of investment against the expenses associated with it.Organizations are frequently
faced with Capital Budgeting decisions. Any decision that requires the use of resources is a
capital budgeting decisions. Capital budgeting is more or less a continuous process in any
growing concern.
For Example: Purchase of Land is an example of Capital Budgeting decision. Similarly
replacement of outdated equipment with modern machines, purchase of a brand or business,
computerization and networking the organization, investment in research and development
of a product launch of a major promotional campaign etc are all example of Capital
Budgeting decisions.
However, in all cases, the decisions have a long-term impact on the performance of the
organization. Even a single wrong decision may in danger the existence of the firm as a
profitable entity.
IMPORTANCE OF CAPITAL BUDGETING:
There are several factors that make capital budgeting decisions among the critical decisions
to be taken by the management. The importance of capital budgeting can be understood from
the following aspects of capital budgeting decisions.

28

1.

Long Term Implications: Capital Budgeting decisions have long term effects on the
risk and return composition of the firm. These decisions affect the future position of
the firm to a considerable extent. The finance manger is also committing to the future
needs for funds of that project.

2.

Substantial Commitments: The capital budgeting decisions generally involve large

commitment of funds. As a result, substantial portion of capital funds is blocked.

3.

Irreversible Decisions: Most of the capital budgeting decisions are irreversible

decisions. Once taken the firm may not be in a position to revert back unless it is
ready to absorb heavy losses which may result due to abandoning a project midway.

4.

After the Capacity and Strength to Compete: Capital budgeting decisions affect
the capacity and strength of a firm to face competition. A firm may loose
competitiveness if the decision to modernize is delayed.

PROBLEMS & DIFFICULTIES IN CAPITAL BUDGETING:

Future uncertainty: Capital Budgeting decisions involve long-term commitments. There is
lot of uncertainty in the long term. The uncertainty may be with reference to cost of the
project, future expected returns, future competition, legal provisions, political situation etc.
Time Element: The implications of a Capital Budgeting decision are scattered over a long
period.

The cost and benefits of a decision may occur at different point of time. The cost

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

years. The future benefits have to be adjusted to make them comparable with the cost.
Longer the time period involved, greater would be the uncertainty.
Difficulty in Quantification of Impact: The finance manger may face difficulties in
measuring the cost and benefits of projects in quantitative terms.
Example: The new product proposed to be launched by a firm may result in increase or
decrease in sales of other products already being sold by the same firm. It is very difficult to
ascertain the extent of impact as the sales of other products may also be influenced by factors
other than the launch of the new product.
29

ASSUMPTIONS IN CAPITAL BUDGETING:

The Capital Budgeting decision process is a multi-faceted and analytical process. A number
of assumptions are required to be made.

1.

Certainty with respect to cost & Benefits: It is very difficult to estimate the cost and
benefits of a proposal beyond 2-3 years in future.

2.

Profit Motive : Another assumption is that the capital budgeting decisions are taken
with a primary motive of increasing the profit of the firm.

The activities can be listed as follows:

Dis-investments i.e., sale of division or business.
Change in methods of sales distribution.
Undertakings an advertisement campaign.
Research & Development programs.
Launching new projects.
Diversification.
Cost reduction.

FEATURES OF INVESTMENT DECISIONS:

The exchange of current funds for future benefits.
The funds are invested in long-term assets.
The future benefits will occur to the firm over a series of years.

30

IMPORTANT OF INVESTMENT DECISIONS:

They influence the firms growth in long run.
They effect the risk of the firm.
They involve commitment of large amount of funds.
They are irreversible, or reversible at substantial loss.
They are among the most difficult decisions to make.

TYPE OF INVESTMENT DECISIONS:

Expansion of existing business.
Expansion of new business.
Replacement & Modernization.

INVESTMENT EVALUATION CRITERIA:

Estimation of cash flows.
Estimation of the required rate of return.
Application of a decision rule for making the choice.

31

CHAPTER-II
COMPANY PROFILE OF
MAKE MY TRIP INDIA

MAKE MY TRIP INDIA PROFILE

32

MakeMyTrip Inc. is an Indian online travel company, founded by Deep Kalra in 2000.
Headquartered in Gurgaon, Haryana, the company provides online travel services including
flight tickets, domestic and international holiday packages, hotel reservations, rail and bus
tickets. In 2011 and 2012, MakeMyTrip made strategic acquisitions in pursuit of growth
through new channels and markets in Southeast Asia. Recently, it launched Travel Apps for
mobile devices. The company has been consistently recognised as one of India's best travel
portals. In addition to a full-service online portal, the company also operates through 59
retail stores across 37 cities in India along with international offices in New York City and
Sydney.
MakeMyTrip was founded by Deep Kalra, an alumnus of Indian Institute of Management
Ahmedabad. Prior to setting up MakeMyTrip, Deep had worked with GE Capital as vice
president of business development (retail), as well as serving stints with ABN AMRO
Bank and AMF Bowlinghai.
MakeMyTrip was launched in the US market ] in 2000 to cater to the overseas Indian
community for their US-to-India travel needs. The founding team consisted of Deep Kalra,
Keyur Joshi (Co-Founder & Chief Commercial Officer), Rajesh Magow( Co-Founder &
CEO - India, formerly Chief Operating Officer & Chief Financial Officer) and Sachin Bhatia
(ex-Chief Marketing Officer). After serving a long tenure of 10 years, since the company's
inception, Sachin Bhatia quit MakeMyTrip as an active member and decided to work as an
independent advisor and a prime shareholder in the company.
With the success of IRCTC (Indian Railways Catering and Tourism Corporation)'s online
business model which enabled the Indian traveller to purchase railway tickets on the Internet,
things started to look brighter for the travel market in India. This was also the time when
Low-Cost Carriers entered the Indian Aviation space. MakeMyTrip started its Indian
operations in September 2005 offering online flight tickets to Indian travellers. To broaden
it's travel portfolio, the company also started to focus on non-air businesses like holiday
packages and hotel bookings. On 13 August 2010, MakeMyTrip was listed on the NASDAQ
and went public, making a debut in the US market. Trade Analysts believed that this was an
encouraging sign for both the investors and other Indian firms.
In 2011, the company strengthened focus on the mobile route by creating several travelrelated Apps for all types of mobile devices (smartphones and basic cellphones). In the same
year, MakeMyTrip also made three acquisitions, namely, Luxury Tours and Travel Private
Limited (Singapore), Le Travenues Technology Private Limited (Gurgaon, India) and My
Guest House Accommodation (New Delhi, India). MakeMyTrip's other acquisitions include
travel operators like ITC Group and Hotel Travel Group to enter new markets in the South-

33

East Asian region in the year 2012. In June 2015 MakeMyTrip invested $3 Million Dollars
in Inspirock, a vacation itinerary planning website to improve trip planner.
Rajesh Magow was appointed as CEO - India in August 2013.

PRODUCTS :
.

Flights - MakeMyTrip provides flight tickets for travel in all major domestic,
international as well as low-cost carriers operating in India. It caters to travellers for both
domestic and international travel from India. Apart from this, it caters to inbound travel
to India from countries like US, Canada, Singapore and UAE.

Rail and Bus tickets - MakeMyTrip sells online rail tickets to its customers offering
features like return tickets with single payment option, flexi-search and automatic alerts
and updates on the availability of tickets. It also offers bus tickets across different

34

categories like Volvo, Air Conditioned, Non Air Conditioned, Deluxe, Semi-Deluxe and

Sleeper vehicles.

Cab Service - MakeMyTrip introduced car hire services on its Indian website in May
2010. It currently provides car hire services in conjunction with holiday package
bookings.

Hotels and Packages (Holidays) - The company offers hotel reservations in India
and international cities alike. There are over 13,000 hotels and guesthouses in India that
can be searched and compared online on the MakeMyTrip website. The hotels range
from luxury to budget accommodations. In November 2012, MakeMyTrip acquired My
Guest House MakeMyTrip also offers a wide selection of hotels outside India. Through
the acquisition of easytobook.com, MakeMyTrip now offers access to more than 184,000
hotels outside India. MakeMyTrip also offers group and customised holiday packages for
popular domestic and international destinations.

35

Mobile Solutions - In 2012, MakeMyTrip launched travel mobile applications (Apps)

for iPhone, Android, and BlackBerry devices. The app offers services like flight and bus
bookings, hotel reservations and holiday packages. It also caters to other post-purchase
requirements like generating e-tickets, making cancellations, tracking status of refunds
and other travel alerts. The travel itineraries available on the Apps can be shared on
Facebook and Twitter.

36

Route Planner - Makemytrip route planner section provides all basic required
information on more than 1 Million routes in India.

37

38

Nurtured from the seed of a single great idea - to empower the traveller - MakeMyTrip went
on to pioneer the entire online travel industry in India. MakeMyTrip has revolutionised the
travel industry over the years. This is the story of MakeMyTrip, Indias Online Travel
Leader.
MakeMyTrip.com, Indias leading online travel company was founded in the year 2000 by
Deep Kalra. Created to empower the Indian traveller with instant booking and
comprehensive choices, the company began its journey in the US-India travel market. It
aimed to offer a range of best-value products and services along with cutting-edge
technology and dedicated round-the-clock customer support.

After consolidating its position in the market as a brand recognised for its reliability and
transparency, MakeMyTrip followed its success in the US by launching its India operations
in 2005.
With the foresight to seize the opportunities in the domestic travel market, brought on by a
slew of new airlines, MakeMyTrip offered travellers the convenience of online travel
bookings at rock-bottom prices. Rapidly, MakeMyTrip became the preferred choice of
millions of travellers who were delighted to be empowered by a few mouse clicks!
MakeMyTrips rise has been lead by the vision and the spirit of each one of its employees,
for whom no idea was too big and no problem too difficult. With untiring innovation and
determination, MakeMyTrip proactively began to diversify its product offering, adding a
variety of online and offline products and services. MakeMyTrip also stayed ahead of the
curve by continually evolving its technology to meet the ever changing demands of the
rapidly developing global travel market.
Steadily establishing itself across India and the world, MakeMyTrip simultaneously nurtured
the growth of its offline businesses like its franchises and affiliates simultaneously,
augmenting the brands already strong retail presence further.
Today, MakeMyTrip is much more than just a travel portal or a famous pioneering brand - it
is a one-stop-travel-shop that offers the broadest selection of travel products and services in
India. MakeMyTrip is the dominant market-leader with 47% market-share (PhocusWright,
2013), a fact evinced by the trust placed in it by millions of happy customers.
Remaining reliable, efficient and at the forefront of technology, MakeMyTrips commitment
and customer-centricity allows it to better understand and provide for its customers diverse
needs and wants, and deliver consistently. With dedicated 24x7 customer support and offices
in 20 cities across India and 2 international offices in New York and San Francisco (in
addition to several franchise locations), MakeMyTrip is there for you, whenever and
wherever.
39

.
MakeMyTrips Products:

International and Domestic Air Tickets, Holiday Packages and Hotels

Domestic Bus and Rail Tickets
Private Car and Taxi Rentals
B2B and Affiliate Services

MAKE MY TRIP INDIA

Parent Company

Make My Trip India

Category

Online Travel Company

40

Sector

Air Ticketing and Packages

Tagline/ Slogan

Dil Toh Roaming Hai

USP

Cheapest Air tickets and Best Hotel Accommodations

Product Portfolio
1. Air Tickets
2.Bus Ticket
3.Rail Ticket
4.Hotels
5.Hoidays

Brands

6.Rent a Car Service (Private Cars)

STP

Segment

Service Sector(depends on needs and wants of customer

Target Group

All Class of people

Positioning

Holidays at Best offers

SWOT Analysis
1.Deals in Air/Bus/Rail and holidays
2.Cheapest Flight Ticket Guranteed
3.Excellent quality of Hotel Choices

Strength

4. Easily Accesible to any part of India

1.Very wast Network

Weakness

2.Huge Competition

41

1.Adverisement in televisions etc.

2.Increase its USP awareness
3.Concerntrate on branding and advertising
Opportunity

4.Introduce user friendly apps

1.Competition from existing domestic players

Threats

2.Increase of unorganized sector in the Travel business

Competition
1. Yatra.com
2.Cleartrip.com
3.Goibibo

Competitors

4.Easemytrip.com

42

CHAPTER-III
COMPARATIVE ANALYSIS OF
MAKEMYTRIP INDIA WITH THE
INDIAN TRAVEL MARKET

COMPARATIVE ANALYSIS WITH THE INDIAN TRAVEL MARKET

List of India's leading and popular Travel Companies

43

Cox & Kings

Cox & Kings is the longest established travel company in the world. Its distinguished history
began in 1758 when it was appointed as general agents to the regiment of Foot Guards in India
under
the
command
of
Lord
Ligonier.
By 1878, C&K were agents for most British regiments posted overseas, including the Royal
Cavalry, Artillery and Infantry, as well as the Royal Wagon Train and the Household Brigade.
The Royal Navy was next and in 1912, The Royal Air Force came under its wings.
Between 1750's and 1950's, Cox & Kings was witness to an exciting era in Indian history, and,
in its own way, helped to shape it. In 1947, the British administration departed, but bound by
strong ties to India, Cox & Kings stayed on and flourished. Today, Cox & Kings is a premium
brand in all travel related services in the Indian subcontinent, employing over 5000 trained
professionals.
Its India operations are headquartered in Mumbai and has the status of a limited company. It has
over 12 fully owned offices in India across key cities such as New Delhi, Chennai, Bangalore,
Kolkata, Ahmedabad, Kochi, Hyderabad, Pune, Goa, Nagpur and Jaipur.
The worldwide offices are located in UK, USA, Japan, Russia, Singapore and Dubai. It has
associate offices in Germany, Italy, Spain, South Africa, Sweden and Australia
can be accessed via mobile app and available on iOS, Android and Windows

Cleartrip
44

We come together each day to fulfill a promise of offering the single most
comprehensive travel experience to users, through award winning Mobile and Desktop
solutions. With intuitive products that have the largest selection of flights, hotels and trains,
we keep customers at the centre of everything we do. Spread across three fully-functional
offices in India and one in the Middle East, our leadership team has oodles of global
experience in travel and eCommerce. With an eclectic mix of expertise, our Executive team
is a pool of the best the industry can offer.

Established in year 2008, Easy Trip Planners Pvt. Ltd (EaseMyTrip.com) is a fast
growing player in travel Industry of India. Providing extensive range of travel products and
services, it customizes diverse leisure trips and holiday packages as per the budget and
requirements of its customers. Being a reliable travel portal, EaseMyTrip aspires to provide
the best services to the travelers at irresistible tariffs.
Within 7 years of our subsistence in this industry, it has created a niche for itself as one of the
reputed travel companies of India.

Tomas Cook

45

Thomas Cook & Son started its Indian operations in Mumbai in 1881 as a branch. It
was subsequently converted into a public limited company, under the name of Thomas Cook
(India) Limited in 1979. In 2012, Thomas Cook (India) Limited was acquired by Fairfax
Financial Holdings Limited, a Canadian conglomerate, through its step-down subsidiary,
Fairbridge Capital (Mauritius) Limited, and the promoter equity was diluted to 75% in June
2013, in keeping with SEBI regulations. Thomas Cook (India) Limited offers a range of
products and services including Outbound travel, Inbound travel, Domestic travel, MICE,
Corporate Travel Management, Foreign Exchange, Travel Insurance, Visa & Passport
Services and Centre of Learning (travel & tourism education & training vertical).

Expedia

Expedia is an online travel company initially

launched in October 22, 1996 as the first Microsoft internet property. The idea came from
going beyond content which was the standard at the time. The initial team was composed of
Greg Slyngstad, Group Manager; Richard Barton, Group Product Manager; Soraya
Bittencourt, Group Program Manager; and Byron Bishop, Group Developer Manager. In
2001, Bill Gates decided to spin off the property to become a public company and raise the
financial portfolio of Microsoft. Rich Barton became its CEO and Lloyd Frink who used to
work for Richard at Microsoft joined the now independent company.
Yatra.com

Yatra.com is
an Indian online travel
agency and
a travel
search
engine based
in Gurgaon, Haryana, founded by Dhruv Shringi, Manish Amin and Sabina Chopra in August
2006.
In April 2012, it was the second largest online travel website in India, with 30 per cent share
of the 370 billion (US$5.7 billion) market for all online travel-related transactions., it also
launched a "holiday-cum-shopping card" with State Bank of India (SBI), India's largest bank.

Flights
46

Buses
Rail
Hotels
Holidays

Go Ibibo

Goibibo is a B2C online travel aggregator, headquartered at Gurgaon, India. Goibibo is a

part of ibibo group travel organisation that was founded by Ashish Kashyap in 2007.
Goibibo.com was organically developed and launched by ibiboGroup in 2010. The
platform enables travellers to search, compare and buy from across categories and width
of travel suppliers comprising: air tickets, hotels & bus tickets. Goibibo can be accessed
via mobile app and available on iOS, Android and Windows

47

SOTC is Kuoni Indias main outbound travel brand. SOTC is a tour operator based in India.
It was acquired by Switzerland-based Kuoni Travel in 1996. SOTC is known for different
kinds of travel segments including, Individual Travel, Escorted Tours, and Domestic
Holidays, and as of 2014, had 80 franchisees across India. SOTC is Kuoni Indias main
outbound travel brand. SOTC is a tour operator based in India. In 1996, Kuoni acquired
SOTC, and eventually renamed it as Kuoni India. Being a 100% subsidiary of Kuoni
Travel Holding, one of the largest travel companies in the world, SOTC provides its
customers with value-for-money packages and budget tours.[3] In 2013, at the Travel Awards
2013, it won the 'Best Outbound Tour Operator' and 'Best Domestic Tour Operator' awards,
given by the Travel Agents Association of India.

Akbar Travels is a leading travel company in India founded in

1978 with headquartered in Mumbai, Maharashtra.[6] Akbar Travels of India is the largest
Travel Agent in India in terms of IATA approved Branches, staff strength and business
turnover.[7] Founded in 1978, currently they have a total of 54 IATA and 12 non- IATA
branches all over India. The growth from humble beginnings as a small travel agency
specializing in Gulf traffic to a well diversified agency providing the entire products of travel
services is indeed spectacular. The growth started in the southern Indian state of Kerala and
now omnipresent across all metros of India and Middle East. Presently there are 28 branches
in Kerala, spanning almost all the districts of God's own country. Internationally, the network
is also spread in the Gulf countries in places like Sharjah, Ajman, Ras Al Khaima, Dubai,
[8]
Doha,[9] Muscat, Riyadh and Jeddah. Akbar Travels is the only Travel company other than
airlines to have its presence at more than 16 Airports in India
[5]

48

CHAPTER-IV
DATA ANALYSIS AND
INTERPRETATION

DATA INTERPRETATION

49

SHARE HOLDING PATTERN

Fiscal Year Ended March 31

2013

2014

2015

(in thousands, except per share

data
and number of shares)

Consolidated Statement of
Comprehensive Income (Loss) Data:
Revenue:
Air ticketing

$14,091.4

$19,225.1

$32,119.5

Hotels and packages

24,189.4

48,622.8

50,287.9

Other revenue

50.1

703.8

1,152.8

Total revenue

38,330.9

68,551.7

83,560.2

Procurement cost of hotels and packages

services

(21,823.
8)

(43,069.
2)

(42,292.
2)

Purchase of air ticket coupons

()

(491.8)

(985.5)

Personnel expenses

(8,459.2)

(9,679.8)

(16,562.
0)

Other operating expenses

(23,229.
0)

(24,369.
9)

(28,160.
5)

Depreciation and amortization

(1,107.5)

(1,558.7)

(1,569.7)

Service cost:

50

Results from operating activities

(16,288.
7)

(10,617.
6)

(6,009.8)

Net finance income (costs)

(2,611.2)

3,244.1

(188.8)

Loss before tax

(18,899.
8)

(7,373.5)

(6,198.6)

Income tax benefit (expense)

4.5

25.3

(8.4)

(18,895.
$4)

Loss for the year

$(7,348.2)

$(6,207.0)

BALANCE SHEET AS PER 31 MAR 2015

31-Mar-2015

Period Ending

Assets
Current Assets

51

31-Mar-2014

31-Mar-20

Cash And Cash Equivalents

49,857

38,011

29,039

30,557

32,8

1,997

516

1,5

132,974

64,253

70,8

213,867

133,337

141,9

Long Term Investments

8,535

6,079

7,0

Property Plant and Equipment

8,900

8,533

9,2

36,000

39,241

13,103

82,647

280,405

269,837

194,6

103,655

86,214

80,5

137

115

12,692

9,744

3,4

116,484

96,073

84,1

Long Term Debt

362

203

Other Liabilities

2,332

8,631

7,8

Deferred Long Term Liability Charges

3,373

2,630

596

714

123,147

108,251

Misc Stocks Options Warrants

Redeemable Preferred Stock

Preferred Stock

Short Term Investments

Net Receivables
Inventory
Other Current Assets

Total Current Assets

Goodwill
Intangible Assets
Accumulated Amortization
Other Assets
Deferred Long Term Asset Charges

Total Assets

36,8

34,9

1,4

Liabilities
Current Liabilities
Accounts Payable
Short/Current Long Term Debt
Other Current Liabilities

Total Current Liabilities

Minority Interest
Negative Goodwill

Total Liabilities
Stockholders' Equity

52

93,3

Common Stock

21

Retained Earnings

(100,181)

21
(81,805)

(60,

Treasury Stock

Capital Surplus

242,662

238,423

153,7

Other Stockholder Equity

14,756

4,947

8,5

Total Stockholder Equity

157,258

161,586

101,3

Net Tangible Assets

121,258

122,345

66,3

53

PROFIT AND LOSS STATEMENT

Period Ending

Mar 31, 2015

Mar 31, 2014

Mar 31, 2013

Total Revenue

299,662

255,375

228,822

Cost of Revenue

160,713

148,979

140,657

Gross Profit

138,949

106,396

88,165

145,534

116,025

102,474

7,955

5,692

3,753

Operating Expenses
Research Development
Selling General and Administrative
Non Recurring
Others

Total Operating Expenses

Operating Income or Loss

(14,540)

(15,321)

(18,062)

3,168

2,442

4,198

(11,511)

(13,050)

(14,050)

6,712

7,776

4,940

(18,223)

(20,826)

(18,990)

Income from Continuing Operations

Total Other Income/Expenses Net
Earnings Before Interest And Taxes
Interest Expense
Income Before Tax
Income Tax Expense
Minority Interest

54

135

79

8,599

Net Income From Continuing Ops

(18,497)

(21,076)

(27,775)

Non-recurring Events
Discontinued Operations

Extraordinary Items

Effect Of Accounting Changes

Other Items

Net Income

(18,358)

Preferred Stock And Other Adjustments

(20,905)

Net Income Applicable To Common Shares

(27,589)

(18,358)

(20,905)

(27,589)

CASH FLOW STATEMENT OF MAKE MY TRIP INDIA

Period Ending:

Period Length:

Net Income/Starting Line

Cash From Operating
Activities
Depreciation/Depletion
Amortization
Deferred Taxes
Non-Cash Items
Cash Receipts
Cash Payments
Cash Taxes Paid
Cash Interest Paid
Changes in Working Capital
Cash From Investing
Activities

2015

2014

2013

2012

31/03

31/03

31/03

31/03

12
Months
-18.36

12
Months
-20.91

12
Months
-27.59

10.83

-3.96

13.6

2.43
5.52
16.23
3.81
0.83
5
5.42

55

1.84
3.86
15.43
2
1.45
-4.18
-64.45

12 Months

1.75
2
21.18
1.97
0.48
16.25
-17.95

7.05
10.88
1.65
1.14
3.92
3.6
0.81
-2.88
-46.22

Capital Expenditures
Other Investing Cash Flow
Items, Total
Cash From Financing
Activities
Financing Cash Flow Items
Total Cash Dividends Paid
Issuance (Retirement) of
Stock, Net
Issuance (Retirement) of
Debt, Net
Foreign Exchange Effects
Net Change in Cash

-6.97
12.39
-2.72

-5.57
58.88
72.46

-6.98
10.96
-1.39

-9.01
37.22
35.23

-2.65
-

-4.27
-

-1.28
-

-2.53
-

-0.27

76.79

-0.11

37.99

0.2

-0.07

-0.01

-0.22

-1.68
11.85

-1.67
2.38

-2.42
-8.16

-3.96
-4.08

* In Millions of USD (except for per share items)

ACCOUNTING ASSUMPTIONS:
The accounts have been prepared under the historic cost convention on the basis of a
going concern concept, with revenues recognized and expenses accounted for on their
accrual, with due provisions/adjustments for obligations that have been crystallised but not
yet incurred.
Accounting policies not specifically referred to herein below are consistent and in
consonance with generally accepted accounting principles prevalent in India.
2. BASIS OF PRESENTATION:
The structures of the accounts have been drawn in accordance with the Revised Schedule
VI to the Companies Act, 1956.
3. FIXED ASSETS:
Fixed assets are stated at cost less depreciation. Cost includes freight, installation charges,
duties, taxes, insurance, interest levied on borrowed funds used to finance assets in the
course of construction and installation and other related incidental charges. Expenditure
for additions and improvements are capitalized and expenditure for maintenance and repairs
are charged to profit and loss account. When assets are sold or retired, their cost or
valuation and accumulated depreciation are removed from the accounts and any gain or
loss resulting from their disposal is included in the profit and loss account.
4. DEPRECIATION:
Depreciation on fixed assets (except land) has been provided on Straight Line Method as
per rates provided in Schedule XIV to the Companies Act, 1956.
56

5. INVESTMENTS:
All investments are stated at cost i.e., cost of acquisition is inclusive of expenditure incidental
to acquisition.
Provision for diminution in their market value of current investments is recognized and
charged to Profit and Loss Account.
6. INVENTORIES:
Inventories are valued as under:
a) Raw-materials, packing materials, stores and spares:
At cost (determined on a weighted average basis) which includes freight, duty and
insurance or net realizable value whichever is lower.
b) Work-in-process:
At cost plus allocation and apportionment of relevant factory overheads applicable
till the stage of completion.
c) Finished goods:
1. At factory: Valued at lower of cost or market value. Cost computed on the basis
of material, direct labour and allocation and apportionment of relevant factory
overheads incurred and exise duty payable on such goods.
2. At branches: Valued at lower of cost or market value. Cost computed on the
basis of material, direct labour and allocation and apportionment of relevant
factory overheads including excise duty paid on such goods and transport
charges to the branch.

7. PROVISIONS:
A. In accordance with year-end review of the reliability of Trade receivables and other
receivables, specific provisions are created and maintained against those Trade
receivables and other receivables that in the opinion of the management may not be
recovered partially or fully.
B. Provisions are made for non-moving, obsolete and unserviceable inventories / stores
on the basis of technical evaluation.
8. REVENUE RECOGNITION:
Sale of goods is recognized at the point of dispatch of finished goods to Customers.
Sales are exclusive of excise duty and sales tax.
Income from interest on call money arrears, Investment in National savings certificates
being insignificant and accounted for on cash basis.
9. RESEARCH AND DEVELOPMENT:
Expenditure pertaining to Research and Development is charged to revenue in the year in
which it is incurred.
10. EMPLOYEE BENEFITS
A) In respect of Gratuity for eligible employees, provision is made as per Acturial Valuation
certified by Mr. K.V.Y .Sastry for the year ended 31/03/2014
B) In respect of leave encashment, provision is made based on salary as at March, 31,
2014 for the leave accumulated and credited to the respective employees.
11. PRIOR-PERIOD ITEMS:
An item has been determined as prior period item in accordance with the accounting
57

standards issued by the ICAI

12. EXCEPTIONAL ITEM:
An item of income/expense arising from certain ordinary activities of the Company which
are of such size, nature or incidence that their disclosure is relevant to be made separately
are treated as exceptional item.
13. FOREIGN CURRENCY TRANSACTIONS:
Foreign currency transactions are accounted at the rate prevailing on the transaction date.
Exchange differences if any arising on the date of settlement have been charged to profit &
loss account.
14. TAXES ON INCOME
Current tax is determined in accordance with the provisions of the Income Tax Act, 1961, as
the amount of tax payable to the Tax Authorities in respect of taxable income for the year.
Deferred tax: Since the company has substantial carried forward business losses and
unabsorbed depreciation, it is unlikely to have taxable profits in the near future and the
deferred tax liability is much lesser than deferred tax assets and hence it is considered
prudent not to recognize either deferred tax assets or deferred tax liability.
15. TREATMENT OF CONTINGENT LIABILITIES:
Liabilities, which may or may not arise and not crystallized as at the end of accounting
Period, have been shown as contingent liabilities.

58

Overview of the Indian Online Travel Industry

Growth of the Indian Online Travel Industry

59

According to PhoCusWright, the Indian online travel market grew 11% to reach
$3.4 billion in 2009. Netscribes has cited sources stating that, in 2009, approximately 34% of
air tickets and 14% of train tickets booked in India were sold online. Many travelers also
utilize online travel agency websites for travel-related research and information.

Key Drivers of Growth

We believe that the online travel industry in India is under-penetrated and will continue
to grow faster than the overall Indian travel industry, primarily because of the following
drivers of growth:

Increasing Internet Penetration. According to Internet World Stats, in 2009, Internet

penetration was at only 7.0% in India, as compared to over 74.1% in the United States. We
therefore believe that the Indian online travel industry is well-positioned for long-term
growth. Increased Internet usage as well as the growing breadth of travel products offered
online are expected to drive this growth. There is significant potential to serve small and
medium businesses through websites rather than traditional corporate travel agencies. In
addition, the Forrester July Report estimates that India will have the third largest number of
Internet users in the world by 2013, after China and the United States. The Forrester April
Report expects the Internet penetration in India and other emerging markets such as China
and Indonesia to grow annually at an average rate of 10% to 20% over the next five years.

Growth in Low-Cost Airlines. We believe that increasing competition in the Indian

airline industry and the emergence of more airlines, particularly low-cost airlines, has
spurred more and more travelers to choose air travel over the traditional rail travel due to
affordability and convenience. With the increase in low-cost airlines, online air travel
bookings have also increased. We believe this is in part due to the fact that low-cost airlines
typically prefer to use cost-effective distribution channels such as the Internet, using it as
their primary distribution channel, either directly or through online travel agents.

60

Source: Netscribes, Competitive Intelligence on leading OTA players in India

Increasing Credit Card Penetration and Secure Payment Mechanism. Indian travelers
are able to pay online for travel services and products using a variety of payment methods,
including credit cards, debit cards, cash cards and Internet banking. According to
Euromonitor, the number of credit cards in India was over 24.3 million in 2009, having
grown at an annualized growth rate of 19% since 2000, while the number of debit cards in
India was over 130 million, having grown at an annualized growth rate of 84% since 2000.
Euromonitor expects the number of credit cards in India to reach 73.7 million by 2014 (i.e.,
an annual growth rate of over 25%) and the number of debit cards in India to reach
350 million by 2014 (i.e., an annual growth rate of over 22%).

Number of Credit Cards and Debit Cards in India

61

Source: Euromonitor, Consumer Finance in India

We believe that with increasing sophistication of the banking infrastructure in India and
the provision of more secure online payment interfaces, Internet users in India are
overcoming their apprehensions about security in online transactions and thereby adding to
the online consumer base.
Competition in the Indian Online Travel Agency Industry
PhoCusWright estimates that the total business-to-customer online travel agency
market (i.e. businesses serving end consumers with travel products and/or services through
an online channel) in India is valued at $1 billion and is dominated by four players
MakeMyTrip, Yatra, Cleartrip and Travelguru (which was acquired by Travelocity in August
2009). Of these, MakeMyTrip commands a market share of 48%, followed by Yatra at 24%
and Cleartrip at 18%, based on gross bookings for 2009. These online travel agencies face
competition from traditional travel agents as well as meta search engines, such as Ixigo,
Ezeego1 and Zoomtra.

62

Source: The PhoCusWright Indian Online Report

Travel Products Sold by Online Travel Agents
Online travel agencies in India primarily facilitate travel arrangements by selling or
arranging for air tickets, hotel and package reservations, rail tickets, bus tickets and car hire.
According to Netscribes, online travel agencies are the most used online method for the
booking of air tickets, hotels and packages and train tickets. The following chart shows the
services and products offered by the top four online travel agents in India:

Source: Netscribes, Competitive Intelligence on leading OTA players in India

According to PhoCusWright, air ticket bookings contributed to approximately 70% of
the online travel market in India in 2009. However, the non-air ticket segments are also
growing in the Indian online travel market. Online rail revenues grew in excess of 25% in
2008-2009 according to PhoCusWright. Rail and bus tickets are increasingly popular new
offerings by online travel agencies.

63

Travel Stores
We have 19 travel stores in major cities including metropolitan areas across India, which
primarily sell packages. Our main office in Gurgaon also serves customers seeking to
purchase outbound packages from India. We believe that these travel stores and offices are
important for our overall growth as they represent a direct interface between our customers
and us. At our travel stores, customers can consult with our sales representatives, receive
comprehensive, real time flight, hotel and package information as well as information for
other services and products, and make travel bookings, without prior appointment. Our travel
stores are also equipped with our ERP application and linked to our CRM system.

Travel Agents Network

We have a travel agents network in India which we started in 2009, where
approximately 4,000 travel agents across more than 450 cities and towns in India can access
our B2B website enabling them to sell our full suite of online travel products to their
customers. Our B2B website uses a similar interface as our external customer-facing
websites and we were able to launch our B2B platform in a few months by leveraging
technology already being used by us for our customer-facing websites. We believe our
network is attractive to travel agents as we provide access to a range of travel services and
products which such agents may not be able to access cost-effectively or at all. These travel
agents earn commissions from us depending on the volume and type of travel services and

64

products sold. Furthermore, our travel agents network allows us to expand our footprint in
India and distribution network in a cost-effective manner.

Mobile
In 2008, we launched makemytrip.mobile, our mobile service platform. Our mobile
service allows customers to search, book and pay for India domestic air tickets on their
mobile phones at no additional cost. Tickets can also be delivered to our customers by SMS.
Currently, our mobile service is only available for Indian domestic air tickets and
cancelations and changes cannot be handled via our mobile platform but instead are routed to
our call centers. We plan to continue to develop and refine the services which can be
delivered over our mobile

65

CHAPTER-V
FINDINGS LEARNINGS AND
CONCLUSIONS

FINDINGS AND ANALYSIS

66

 In a study of the capital budgeting practices of fourteen medium to large size

companies in India, it was found that almost all companies used by back.

With pay back and/or other techniques, about 2/3 rd of companies used IRR and about
2/5th NPV. IRR s found to be second most popular method.

Pay back gained significance because of is simplicity to use & understand, its
emphasis on the early recovery of investment & focus on risk.

It was found that 1/3rd of companies always insisted on computation of pay back for
all projects, 1/3rd for majority of projects & remaining for some of the projects.

Reasons for secondary of DCF techniques in India included difficulty in

understanding & using threes techniques, lack of qualified professionals &
unwillingness of top management to use DCF techniques.

One large manufacturing and marketing organization mentioned that conditions of its
business were such that DCF techniques were not needed.

Yet another company stated that replacement projects were very frequent in the
company, and it was not considered necessary to use DCF techniques for evaluating
such projects. techniques in India included difficulty in understanding & using threes
techniques, lack of qualified professionals & unwillingness of top management to use
DCF techniques.

67

PROCESS

CAPITAL BUDGETING PROCESS:

Atleast five phases of capital expenditure planning & control can be identified:
Identification ( or Organization ) of investment opportunities.
Development of forecasts of benefits and costs.
Evaluation of the net benefits.
Authorization for progressing and spending capital expenditure.
Control of capital projects.
Customer Service
Our customer focused approach is centered on ensuring a favorable user experience on
our websites as well as excellent customer service. Our websites are designed to provide a
user-friendly experience and integrate valuable travel information, such as information on the
on-time performance of airlines, user-generated travel reviews and destination guides, to help
customers research and make travel decisions. We also monitor feedback from our customers
using our CRM system and review and upgrade the features of our websites from time to
time.
The key channels through which we implement our customer support and communicate
with our customers are as follows:
Web-based Support. We offer two web-based customer support services. Our self
service web-support called TripAssist, which is available on our Indian website, enables
our customers to check the status of their domestic flight or train booking, cancel tickets and
track the progress of their refund, among other things. Customers who require assistance or
have inquiries about certain products also have an option to contact our sales representatives
via our websites and we have dedicated personnel available 24 hours a day, seven days a
week, who provide assistance to our customers on a real time basis.
Call Centers. We provide our customers with comprehensive and real time assistance
through our call centers which are available 24 hours a day, seven days a week. Currently, we
outsource a portion of our customer service call center operations to IBM Daksh and
Intelenet Global Services in India, whose employees have been trained by our respective
outsourcing service providers and us.

68

Travel Stores. Customers may also visit our 19 travel stores in various cities in India
and obtain assistance from our sales and customer service representatives.
Mobile Service. Our mobile service platform enables customers to receive e-tickets,
itineraries, booking numbers or confirmations for their flight, hotel, rail or bus reservations
via SMS. Customers can also receive flight cancellation alerts and updates of waitlist status
for flights via SMS.
E-mail. Customers may also e-mail any inquiries or complaints, which we endeavor to
address expeditiously.
Through our CRM system, we are able to maintain a customer database containing
information on the transaction history and preferences of each customer who has booked a
travel product through us. We document all sales and customers service processes at our
company using business process management system, or BPMS, methodology, where the
entire value chain, starting from the customers requirement until the delivery of the relevant
service or product, or refund, if applicable, is documented. We also monitor our customer
transactions and have a dedicated in-house escalation service which operates 24 hours a day,
seven days a week, which is responsible for answering any complaints or issued raised by
our customers.
We have a fulfillment process that we mainly outsource, which minimizes any travel
disruption for our customers, with a team of personnel responsible for ensuring that
customers hotel bookings are checked and reconfirmed prior to the date of travel.
As part of our customer focused approach, we have also set up an Indian online travel
community website, www.oktatabyebye.com, which allows our customers and other travelers
to exchange views and travel tips. Our Indian website also offers our customers the option to
make cash donations to plant trees in India to reduce their carbon footprint, when completing
their bookings.

69

CHAPTER-VI
ANNEXURE

CONCLUSION AND SUGGESTIONS

70

CONCLUSION:
Capital budgeting decisions are the decisions that small-business owners make about the
long-term allocation of resources. Effective managers make capital budgeting decisions
while using data-driven analyses. Knowing some of the most common capital budgeting
decision techniques can help you use these methods to make long-term choices that are best
for your business.
Net Present Value
To most business owners, a dollar today is worth more than a dollar 10 years in the future.
This idea, called the time value of money, is pivotal in the net present value method of
capital budgeting. A cash flow's present value is the value that a cash flow would have today,
in contrast with some time in the future. To evaluate an investment based upon net present
value, the manager will calculate the net present value of an investment by subtracting the
present value of the investment's cash inflows and cash outflows. If the result is positive, the
investment may be acceptable. However, if the result is negative, then once the time value of
money is considered, the company is better off by not investing in the project. In addition,
many companies compare this value to a required rate of return. For example, if a company
could earn 10 percent interest in an investment account, then any project that returns less
than 10 percent would be less profitable than the investment account and should be rejected,
even though the net present value is positive.
Total Cost Approach
When comparing multiple capital budgeting projects, small-business owners may want to
consider the total cost approach. To use this method, small-business owners create a schedule
of all of the costs and cash inflows for each decision alternative. Then, each cost or inflow is
adjusted, on a time value of money basis, to a present value. Once all of the present valueadjusted costs are aggregated for each decision alternative, the alternative with the greatest
net present value is the most profitable. As a drawback, because the total cost approach
requires small-business owners to identify every cost involved in each decision alternative,
the total cost method can be complicated and cumbersome.

Incremental Cost Approach

71

A simpler variation of the total cost approach is the incremental cost approach. This method
uses the same procedure as the total cost approach. However, instead of examining all costs,
only the costs that differ between the alternatives are used. These are known as relevant
costs. Small-business owners may wish to consider this approach as it can be considerably
less cumbersome; however, if more than two decision alternatives are being examined, the
total cost method must be used.
Payback Method
The payback method helps a manager determine how long it will take for an investment to
make enough cash to "pay back" the company for the cash outflow. To evaluate a budgeting
decision under the payback method, the manager first computes the payback period. To
calculate the payback period, the manager divides the investment's cost by the amount of
cash that the investment is expected to generate on an annual basis. For example, if an
investment required $10,000 and it was expected to produce $5,000 of cash inflow a year, the
payback period would be two years. When choosing between capital budgeting alternatives,
managers should choose the alternative with the shortest payback period. One major
drawback of this method is that it fails to account for the time value of money. In this
method, cash flows now are evaluated with the same value as cash flows in the future.
Rakesh is India's top market guru. Multi-Bagger Picks using his rules!

ANNEXURE-BALANCE SHEET
72

Period Ending
Assets
Current Assets
Cash And Cash Equivalents
Short Term Investments
Net Receivables
Inventory
Other Current Assets

31-Mar-2015 31-Mar-2014 31-Mar-2013

49,857
29,039
1,997
132,974

38,011
30,557
516
64,253

36,879
32,826
1,523
70,863

Total Current Assets

Long Term Investments
Property Plant and Equipment
Goodwill
Intangible Assets
Accumulated Amortization
Other Assets
Deferred Long Term Asset Charges

213,867
8,535
8,900
36,000
13,103
-

133,337
6,079
8,533
39,241
82,647
-

141,902
7,089
9,204
34,987
1,439
-

Total Assets
Liabilities
Current Liabilities
Accounts Payable
Short/Current Long Term Debt
Other Current Liabilities

280,405

269,837

194,620

103,655
137
12,692

86,214
115
9,744

80,592
135
3,416

Total Current Liabilities

Long Term Debt
Other Liabilities
Deferred Long Term Liability Charges
Minority Interest
Negative Goodwill

116,484
362
2,332
3,373
596
-

96,073
203
8,631
2,630
714
-

84,144
284
7,815
383
694
-

Total Liabilities
Stockholders' Equity
Misc Stocks Options Warrants
Redeemable Preferred Stock
Preferred Stock
Common Stock
Retained Earnings
Treasury Stock

123,147

108,251

93,320

21
(100,181)
73

21
(81,805)
-

19
(60,964)
-

Capital Surplus
Other Stockholder Equity

242,662
14,756

238,423
4,947

153,743
8,503

Total Stockholder Equity

157,258

161,586

101,300

Net Tangible Assets

121,258

122,345

66,313

74

CASE STUDY

CASE STUDY

KP was a chartered accountant by profession and used to manage a family business, NH

Securities started by his father. Known for maintaining a low profile, KP's only dubious
75

claim to fame was in 1992, when he was accused in the stock exchange scam 6. He was
known as the 'Bombay Bull' and had connections with movie stars, politicians and even
leading international entrepreneurs like Australian media tycoon Kerry Packer, who
partnered KP in KPV Ventures, a $250 million venture capital fund that invested mainly in
new economy companies. Over the years, KP built a network of companies, mainly in
Mumbai, involved in stock market operations.
The 176-point1 Sensex2 crash on March 1, 2001 came as a major shock for the Government
of India, the stock markets and the investors alike. More so, as the Union budget tabled a day
earlier had been acclaimed for its growth initiatives and had prompted a 177-point increase
in the Sensex. This sudden crash in the stock markets prompted the Securities Exchange
Board of India (SEBI) to launch immediate investigations into the volatility of stock markets.
SEBI also decided to inspect the books of several brokers who were suspected of triggering
the
crash.
Meanwhile, the Reserve Bank of India (RBI) ordered some banks to furnish data related to
their capital market exposure. This was after media reports appeared regarding a private
sector bank3 having exceeded its prudential norms of capital exposure, thereby contributing
to the stock market volatility. The panic run on the bourses continued and the Bombay Stock
Exchange (BSE) President Anand Rathi's (Rathi) resignation added to the downfall. Rathi
had to resign following allegations that he had used some privileged information, which
contributed to the crash. The scam shook the investor's confidence in the overall functioning
of the stock markets. By the end of March 2001, at least eight people were reported to have
committed suicide and hundreds of investors were driven to the brink of bankruptcy.
The first arrest in the scam was of the noted bull, 5 Ketan Parekh (KP), on March 30, 2001, by
the Central Bureau of Investigation (CBI). Soon, reports abounded as to how KP had single
handedly caused one of the biggest scams in the history of Indian financial markets. He was
charged with defrauding Bank of India (BoI) of about $30 million among other charges. KP's
arrest was followed by yet another panic run on the bourses and the Sensex fell by 147
points. By this time, the scam had become the 'talk of the nation,' with intensive media
coverage and unprecedented public outcry.

76

SOLUTION OF CASE STUDY

SOLUTION OF CASE STUDY

SEBI should launch investigation of the scam

SEBI should immediately suspend all the member directors of BSE governing board
SEBI should also ban trading all stock exchange presidents, vice presidents and treasurer
SEBI should band all naked short sales
77

RBI should start inspecting accounts and sub accounts twice a year in spite of once in two
years
SEBI should allow banks for collateralized lending only through NSE and BSE
An addition 10% deposit margin should be imposed on outstanding net sales in the stock
markets
The limit of application of limited volatility margins should be lowered from 80% to 60%
To revive the market SEBI should imposed restriction on short sales ordered

78

ARTICLE ON CAPITAL BUDGETING

ARTICLE ON CAPITAL BUDGETING

CONSUMER BORROWINGS HITS ANOTHER RECORD IN JUNE
BY PAUL WISEMAN
U.S. consumer borrowing hit another record in June, good news for the American economy.
Americans piled on another $20.7 billion in debt in June, bringing total consumer borrowing to a
record $3.42 trillion, the Federal Reserve reported Friday.

79

In June, borrowing in the category that includes auto and student loans rose by $15.2 billion.
Borrowing in the category that includes credit cards rose by $5.5 billion.
The Fed's monthly report on credit doesn't cover home mortgages or other loans secured by real
estate such as home equity loans.
Economists expect consumers to borrow and spend more the rest of the year. That would boost
growth in a country where consumer spending accounts for nearly 70 percent of economic
activity.
The American economy grew at annual rate of 0.6 percent from January to March and 2.3
percent from April through June. Economists expect growth to pick up to about a 3 percent pace
the second half of the year.
Consumers are drawing confidence from an improving job market. On Friday, the Labor
Department said employers added 215,000 jobs in July and unemployment remained at a sevenyear low 5.3 percent.
Over the past year, consumer borrowing is up 6.5 percent. Borrowing rose 7.7 percent in the
student and auto loan category and 3.5 percent in the credit card category.
During and after the 2007-2009 Great Recession, Americans scaled back their borrowing.
Consumer borrowing hit bottom at less than $2.52 trillion in July 2010 and has been climbing
more or less steadily ever since.

80

BIBLIOGRAPHY

BIBLIOGRAPHY
BOOKS :
1. FINANCIAL MARKET AND SERVICE BY Gorden
2. FINANCIAL MANAGEMENT 1&2 BY I M PANDEY
81

NEWS PAPERS
1. BUSINESS INDIA
2. BUSINESS STANDARD

MAGAZINES
1. ECONOMIC TIMES
2. BUSINESS WORLD
3. TRAVEL WORLD

WEBSITES
1. WWW.WIKIPEDIA.COM
2. WWW.MAKEMYTRIP.COM
3. WWW.MONEYCONTROL.COM

82