A Project Report On Capital Budgeting at Godavari Sugar Mills LTD
A Project Report On Capital Budgeting at Godavari Sugar Mills LTD
A Project Report On Capital Budgeting at Godavari Sugar Mills LTD
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EXECUTIVE SUMMARY
Godavari Sugar Mills is Located at Sameerwadi, a small village in the Bagalkot district of Karnataka. Godavari Sugar Mills entered the sugar industry in the late thirties. Based in the Indian state Maharashtra, it began operations by setting up two sugar factories, both of which used a scientific method of cultivation. Despite increasing emphasis on traditional cultivation methods, Godavari Sugar was among the few to introdmodernity to this industry. On 6th June 1971, the foundation stone at the factory of the Godavari Sugar Mills was laid by the Governor of Karnataka. Due to the prevalent India-Pakistan war at that time. The research title to study the A STUDY ON CAPITAL BUDGETING AT GODAVARI SUGAR MILLS LTD. The importance of study is Capital Budgeting helps in decision making process when company making Expansion, Establishment of new projects etc. It helps to know the present value of the company and it avoids unnecessary expenditure in to undertake the new projects, in the time of removing the decline stages products Etc. Research objective of the study is to determine whether acquiring capital asset is a viable or not, to find out the Post Payback Profitability and to find out the Accounting Rate of Return on investment and to know the Net Present Value. As I studied in my project on capital budgeting I found out since the capital invested in the assets are recovered with in a short period of 1.604 year. The proposal is viable to the company. Post pay back profitability is Rs.14259.49 lakhs. Finally, I would like to suggest that The Godavari Sugar Mills was located at Sameerwadi. It is a small village in Mudhol talukas. It was established in the year 1971-72. The founder of Godavari Sugar Mills is Mr. K.J. Somaiya. The company achieved high crushing of sugar cane session in the year 2005-06 that is 16,39 424 tones. The present year 2008-09 it crushed sugar cane at 17, 44,267 tones. The company also celebrated in company premises and award given who are directly involved in this achievement.
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COMPANY PROFILE
Godavari Sugar Mills was a pioneer in the research-based Sugar Industry, situated in the state of Karnataka; it combines modern technology and the latest mechanization techniques and compliments it with a 6-decade experience. Alongside, the factory waste, namely molasses is used by Somaiya Oregano Chemicals. Industrial alcohol/rectified spirit are manufactured with the sugar waste. The Somaiya Group Company is also looking towards Venturing into cogeneration of power at all of its sites, with excess power being sold off to the state power grids.
VISION
The Somaiya Group will continue to expand its operations by expanding production into new markets and applications. Growth will also come from value added diversification derived from the groups strengths in products and processes. The quality of the products and services delivered by the Somaiya Group will always strive to exceed customer expectations.
MISSION
The Somaiya Group always has and will continue to use renewable resources in its products. It believes that this is an important need for sustainable development. The Somaiya Group has been and always is aware of its social commitment to the community that it serves. It believes that we have a responsibility and obligation to return to society what we earn from it.
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On 6th June 1971, the foundation stone at the factory of the Godavari Sugar Mills was laid by the Governor of Karnataka. Due to the prevalent India-Pakistan war at that time. The factory was erected on a war footing and commissioned in a record time of less than ten months. Production started on 20th April 1972.Today, advanced technology and a high level of mechanization has made Godavari Sugar Mills one of Indias largest sugar producers. This Somaiya Group Company has one of the highest average recovery rates in the industry.
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The Somaiya Group beats with strong traditional values; hard work, dedication and a caring attitude. At the same time, it employs modern industrial techniques and is today, the epitome of contemporaries, omnipresence has a new name. Somaiya, manifesting in ways & means the touch your life, in more ways than you could imagine. Society too experiences the humane touch of Somaiya; in terms of healthcare, rural development and environment-effort. Going beyond the call of duty because More than state-of-the-art, its state-of-the-heart that matters. Dynamism put to a growth-oriented approach, underlined with the will to achieve best describe the group that is the air supply of various industries in India. The Somaiya Group will continue to expand its operations by expanding production into new markets and applications. Growth will also come from value added-diversification derived from the Groups strengths in products and processes. The Quality of the Products and Services delivered by the Somaiya Group will always strive to exceed customers expectations. The Somaiya Group always has and will continue to use renewable resources in its products. It believes that this is an important need for sustainable development.
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The Somaiya Group has been always being aware of its Social commitment to the community that is serves. It believes that we have a responsibility and Obligation to return to society what we earn from it. Since the last six decades, commencing operations in the high growth field of sugar, the Group has created the perfect platform for its future success. Built upon the foundation of care, each of the following facets of the Group was response to a need.
Shri
K.J.Somaiya Also founded Suruchi in 1976 for providing employment to the needy women of
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the society and to provide quality food at reasonable prices. As the Eminent was a visionary, a dreamer and a planner, Somaiya Ayurvihar was established in 1989 to provide to free medical care and enable Medical research. To improve the quality of life and to provide a cultural input Somaiya Sanskrit Vihar was formed in 1991.Shri K.J.Somaiya vision & foresight have led to this huge Somaiya Parivar which is the pride of Bombay, of Maharashtra and of Western India. Due to his belief in Humanity and Faith in Almighty he could transform his dream into reality.
LOCATION
Godavari Sugar Mills is Located at Sameerwadi, a small village in the Bagalkot district of Karnataka. Sameerwadi lies in the potential basin between two rivers, Ghataprabha & Krishna. It falls under the command area of Hidkal dam, on the Ghataprabha Left Bank canal, at the confluence of four townships (talukas), Mudhol, Jamakhandi, Raibag, & Gokak.
MANAGEMENT TEAM
DR.SHANTILAL SOMAIYA SHRI SAMEER S SOMAIYA 7
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SHRI I G PATEL SHRI P M KAVADIA SHRI N G SATYA PROF ROOSHIKUMAR PANDYA SHRI B R BARWALE SHRI KAILASH PERSHAD DR. K V RAGHAVAN SHRI VINEY KUMAR SHRI P .K. R. NAIR
AUDITORS
AMBAL THAKKA AND ASSOCIATES. (CHARTERED ACCOUNTANTS)
SOLICITORS
o MULLA & MULLA AND CRAIGIE. o BLUNT AND CAROE.
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The GODAVARI SUGAR MILLSLTD is the manufacturer of White Crystal Sugar. Along with sugar some other main products manufactured in Godavari Sugar works Ltd. Are 1. CO GENARATION (POWER). 2. DISTLERY PRODUCTS. 3. BIO GAS. 4. OTHER BY PRODUCT.
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1. We are committed to produce and supply products to meet our costumers needs. 2. We shall continually strive to improve the effectiveness of our Quality Management system. 3. We shall train and motivate our employees for continual improvement. 4. We are conscious of our responsibility towards Safety, Health and Environment. 5. Quality is what we Think, Act and Believe
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POWER DIVISION
The factory being the cooperative society with more then 25.000 farmer members of the local area involved in its activity and selling their produce to the factory and dependent on the sugar factory for their existence and livelihood, the creation of co-generation facility has become prime need due to socio-economic reasons. Secondly, the enormous quantity of Bagasse that is generated by the factory shall be best utilized by the creation of co-generation which will help the factory by generating and making available the power.
Further taking into consideration the acute power shortage in the country, both on demand and energy terms and effort to generate power and augment the grid supply will be a laudable and worthy effort; the factory has been planning for setting up a 41MW Multi-fuel Co-generation power project at the factory site. This will enable the factory to play a significant role in supplying power to the public utility simply by increasing its operating efficiency in addition to meeting its need of power. The main purpose of setting up this power project ,as principal fuel, supplemented by Bagasse, other bio-mass fuel and conventional fuels(as needed for maximizing utilization of proposed power project) for at least 300 days per year. The part of the project cost shall be raised by increase in Share Value, a resolution for which has already been passed at an Annual general Body Meeting held on 22/09/2003 and the same have been got approved by the Govt of India & Central Register of Co-operative Societies, New Delhi vide their Letter No.L-11016 / 46/87-L&M dated 5th Feb.2004.
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The factory, for this worthy project, has obtained all statutory/non-statutory clearances such as Karnataka State Pollution Board, Airports Authority of India, Environmental clearance, In- principal clearance, Clearance for installation of 110 KV Sub-Station from the Karnataka Power Transmission Corp. Ltd which has already been set up now, to commence with the project. PRODUCTION AND DISTRIBUTION OF POWER Particulars Self load Sugar Unit Export to HESCOM TOTAL Capacity ( MW) 2.00 MW 4.50MW 17.50MW 24 MW
In the off season the plant will import the power of 1.11 MW to maintain the whole plant. To produce 1 MW of power the required Bagasse and 60 tonne of water should be needed. Whole plants machineries has manufactured by Bharat Heavy Electrical Limited. And to maintain the whole plant automatically the plant management will use DCS software (Distribution Control System)
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The factory had installed its own Distillery Unit in October 1984 as a by-product industry with its capacity of 30KL liters per day .However taking into consideration the stage wise expansion of the Sugar Mill and the excess availability of crores. The average recovery of Spirit per MT of molasses is 265 Ltrs. Basically in the beginning means 1986 to 1999 the plant was given on rent to Saptagiri Enterprise, Bangalore Recently means in the year 2002 the plant was expanded with extra of 30KL capacity with extra investment of 30.27 crores. And also recently its expansion work is going on by increasing the capacity 60 to 200 molasses, the installed capacity was later on increased 30 to 90KL Liters with another extra investment of 30.27
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BAGASSE
Bagasse is the main raw material to the co-generation. It will obtained from sugar unit as a waste material. So this will become main raw material to the co-generation department.
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FUTURE GROWTH AND PROSPECTUS Financials - Projects under Implementation New Projects
A: The Company has a well-defined strategy for near future. It has identified certain profitable opportunities that may be captured. These are as follows:
IV quarter of 12000 TCD to 15000 IV quarter of 2009 TCD 2. Cogeneration 3. Distillery 4. Bulk & Specialty 24 MW to 44 MW 60 KLPD to 120 KLPD IV quarter of 2010 IV quarter of 2009 IV quarter of 2009
2009
B: Leased sugar factories & distillery Maharashtra, GSML has acquired two sugar factories and one distillery on lease recently further adding to its capacities. These units are in high recovery areas of western Maharashtra.
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ORGANIZATION CHART
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PRODUCTION DEPARTMENT
PRODUCTION HIERARCHY
GM (Manufacturing)
Lab Chemist
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OBJECTIVES
1. Production department is the hearts of the industry so it should be continue till the organization will close. 2. Production department has to maintain good quality of sugar. 3. Production department should produce the particular type of sugar as per requirement of customer and as per quality, which is approved by quality control department and govt. 4. This department should maintain the production procedure without any stoppages
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PRODUCTION DEPARTMENT
Sugarcane contains about 14% fibred and 86% juice consists of about 13% Sucrose and 73% moistures and non-sugar solids.
Juice Heater (Heater of 70 c) Juice Sulphitation Sulphured Juice Juice Heater (heater to 100 c) Clarities Clear Juice Evaporator
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AGRICULTURAL DEPARTMENT
INTRODUCTION
The agri departments one of the important dept of the company as its function is to the provide raw materials to the factory & providing proper guidance to the farmer about cultivation of cane new techniques and supplying seeds and fertilizer. In the agricultural department 13 Cluster officer i.e. 4 at Mudhol, 1 at Jamakhandi, 1 at Rabakavi, 1 at Terdal, 1 at Harugeri, 1 at Satti, 1 at Mugalkhod, Mudalgi, Kulgod, and one at Saidapur and Mahalingpur. The farmers are providing Cane & bonded.i.e. Seasonal 1 year short term, long Term 15-20years. The objective of agricultural department is to increase yield level and increasing cane area horizontally and vertically utilizing minimum water.
Objectives
New variety & good quality seeds are provided to former on credit basic without interest and due a amount incurred in next season. Fertilizers are also provided on credit basic with interest. Margin money help for mini lift irrigation schemes and recovered through three installments.
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General manager
Office manager
Assistant Manager
Office clerk
Clerks
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General Manager
Supervisors
Office Boy
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To improve of variety of cane. To develop the backward area. To provide all facilities like seeds, fertilizers, unloading and loading charges. To maintain registration of cane, gang and plantation.
To undertake seeds distribution program.
To soil of this area is varying alluvial fertile soil is there on the bank of Krishna and Ghataprabha rivers. Further upwards, there is medium deep black soil, vary fertile well drained light to medium clay soil, which has received heavy application if from yard Manu science last 10-12 years also is presently in some parts. The main function of cane development department is to arrange for raw material, which is required to the factory. For this order is received by priority basis (that is growers who grows sugar cane first in his led). They also are providing a loading gang with 8 to 10 members per village and also a bonded tractor for transportation.
S.L 1 2 3
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OBJECTIVES
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To maintain a healthy relationship and act as a mediator between employer and employees.
To recruit and select the prospective candidate arrange for an interview and fill the vacancies in the concerned department.
To take care of all the activities done by the other departments. Personal department is responsible all the good and bad workers done by the workers. HR department has to maintain the good relationship with all other departments
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Appointment.
The person so appointed or selected will be placed in the vacant post defining the respective jobs to be done.
Induction
Later the induction program of the employees will be arranged for to introduce all the departments of company by the Labour officer as well as the concerned departmental heads. So the employees can come in terms with the objectives of the company and his participation in fulfillment of the company objectives considering him as an essential ingredient of the company.
Training policy
Every company or organization should have well-established training policy. training policy is considered necessary for the following reasons. a. To indicate a companys intention to develop its personnel to provide guidance in the framing and implementations of programs to provide information concerning them to all concerned b. To discover critical areas where training is given on a priority basis and c. To provide suitable opportunities to the employee for his own betterment. A
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instructors, they learn the job by personal observation and practice. It is learning by doing.
1. Learns on the actual equipment in case and in the true environment of his job and therefore, gets a feel of actual production condition and requirements 2. It is highly economically. 3. Learns rules and regulations through observation. 4. It is appropriate for short term learning programs
Demerits
1. Instruction is often highly disorganized and not properly supervised. 2. Lack of motivation.
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LEAVE ENTRIES
CASUAL LEAVE SICK LEAVE EARNED LEAVE PRIVILEGE LEAVE 10 DAYS 8 DAYS 25 DAYS NOT < 3 DAYS AND NOT > 4 DAYS
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FINANCE DEPARTMENT
Finance Department hierarchy
Officer Cashier
Account Asst.
Clerks
Clerks
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Accounting Process
Recording the transactions. Classifying the transactions. Summarizing the transactions. Analyzing and interpreting the results.
In this section accounts are maintained. Accounts are maintained in traditional method in this section accounts are maintained. Accounts are maintained in traditional method
OBJECTIVES
1) To maintain full and systematic records of business transactions: Accounting is the language of business transactions. Given the limitations of human memory, the main objective of accounting is to maintain a full and systematic record of all business transactions. 2) To ascertain profit or loss of the business: Business is run to earn profits. Whether the business earned profit or incurred loss is ascertained by accounting by preparing profit and loss account or income statement. A comparison of income and expenditure gives either profit or loss. 3) To depict financial position of the business: A company is interested in ascertaining its financial position at the end of this period. For this purpose, a position statement called Balance Sheet is prepared in which assets and liabilities are shown if the assets exceed liabilities, it is financially healthy in other case it is financially weak.
INDUSTRY PROFILE
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The first sugar mill in the country was set up in 1903 in the United Provinces. There are 566 installed sugar mills, of which 453 were in operation in the year 2002-03 and utilized 194.4 million ton of sugarcane (69% of total cane production) to produce 20.14 million tons of sugar. About 5 lakh workmen are directly employed in the sugar. About 5 lakh workmen are directly employed in the sugar industry besides many in industries, which utilize by-products of sugar industry as raw material. India is the largest consumer and second largest producer of sugar in the world. The Indian sugar industry is the second largest agro-industry located in the rural India. Indian sugar industry has been a focal point for socio-economic development in the rural areas. About 50 million sugarcane farmers and a large number of agricultural laborers are involved in sugarcane cultivation and ancillary activities, constituting 7.5% of the rural population. Besides, the industry provides employment to about 2 million skilled/semi skilled workers and others mostly from the rural areas. The industry not only generates power for its own requirement but surplus power for export to the grid based on by-productBagasse. It also produces ethyl alcohol, which is used for industrial and potable uses, and can be used to the manufacture Ethanol, an ecology friendly and renewable fuel for blending with petrol. The sugar industry in the country uses only sugarcane as input, hence sugar companies have been established in large sugarcane growing states like Uttar Pradesh, Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Andhra Pradesh. In sugar year 2003-04,these six states contribute more than 85%of total sugar production in the country; Uttar Pradesh, Maharashtra, and Karnataka together contribute more than 65%of total production.
The government of India licensed new units with an initial capacity of 1250 TCD up to the 1980s and with the revision in minimum economic size to 2500 TCD, the Government issued licenses for setting up of 2500 TCD plants thereafter. The government de-licensed sugar
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sector in the year of 11.September.1988. The entrepreneurs have been allowed to set up sugar factories of expand the existing sugar factories as per the techno-economic feasibility of the project. However, they are required to maintain a radial distance of 15 kms from the existing sugar factory. After de-licensing, a number of new sugar plants of varying capacities have been set up and the existing plants have substantially increased their capacity. There are 566 installed sugar mills in the country as on March 31st 2005, with a production capacity of 180 lack MTs of sugar, of which only 453 are working. These mills are located in 18 states of the country. The sector wise break ups as follows: Table no-1 Sl. No. 1. 2. 3. Sector Private Public Co-operative Total No of factories 189 62 315 566
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Sugar is extracted from two different raw materials, sugarcane and beet. Both produce identical refined sugar. Sugarcane is grown in semi-tropical regions, and accounts for around two-thirds of world accounts for the balance one third of world production. The Russian Federation, Ukraine and Europe account for around 80 per count of total beet sugar production. In addition to weather conditions, diseases, insects, and quality of soil, international trade agreements and domestic price support programmers affect production of sugarcane and beet.
Diagram no-1
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Sugar Prices
World sugar prices fell steadily from 1994-1995 till 1998-1999 and have been almost stable at those levels. The trend seems to have now reversed and refined sugar prices have increased by 30% in the last 5 quarters from 9.16 cents per pound in January, 2004 to 12.02 cents in March,2005 (Source: USDA Foreign Agriculture Services).
Sugarcane Availability
Table showing sugar cane availability in cultivated area:
Table no-2
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Sugarcane occupies about 2.7% of the total cultivated area and it is one of the most important cash crops in the country. The area under sugarcane gradually increased from 2.7 million hectares in 1980-81 to 4.3 million hectares in 2002-03, mainly because of much larger diversion of land from other crops to sugarcane by the farmers for economic reasons. The sugarcane area, however, declined in the year 2003-04 to 3.9 million hectares and to 3.7 million hectares in 2004-05, mainly due to drought and pest attacks. From a level of 154 MMT in 1980-1981, the sugarcane production increased to 241 MMT in 1990-1991 and further to 296 MMT in 2000-2001. Since then, it has been hovering around 300 MMT until last year. In the season 2003-2004, however, sugarcane production declined to 236 MMT mainly due to drought and pest attacks. Not only sugarcane acreage and sugarcane production has been increasing, even drawal of sugarcane by the sugar industry has also been increasing over the years. In India, sugarcane is utilized by sugar mills as well as by traditional sweeteners like guru and khandsari producers. However, the diversion of sugarcane to guru and khandsari is lower in states of Maharashtra and Karnataka, as compared to Northern states like UP.
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SUGARCANE UTILIZATION
Table no-3
% Sugarcane utilization for Year White Sugar 33.4 50.7 59.7 57.4 68.9 56.1 Guru Khandsari 54.8 37.4 28.8 31.5 20.1 32.5 and Seed, feed and chewing 11.8 11.8 11.5 11.1 11.1 11.4
Sugar Production
Most of the sugar in India is manufactured and sold as White Crystal Sugar which is produced by Double Suspiration Process, while the norm in developed and emerging nations is refined sugar, which is produced by the Phosphoflotation Process. Most of the mills in India are not equipped to make refined sugar Mills which are designed to produce refined sugar can manufacture sugar not only from sugarcane but also from raw sugar which can be imported. Therefore, such mills can run their production all the year round, as opposed to single state mills, which are dependent upon the seasonal supply of sugarcane.
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Conclusion
India is a largest consumer of sugar in the world and second largest manufacturer of sugar followed by China, USA, Thailand, Germany, and Pakistan. In the sugar industry the top position is Brazil as it is a world largest manufacturer of sugar. As seeing the consumption of sugar the India is having a big market for sugar industry. As it is a large-scale industry it provides large profit for the country and it can also be helpful for development of industrial infrastructure. India is a worlds largest consumer and second largest manufacturing of sugar so the sugar must be cheaper. It can be provide by our sugar industry.
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Importance
Capital Budgeting helps in decision making process when company making Expansion, Establishment of new projects etc. Capital Budgeting helps to know the present value of the company. Capital Budgeting is avoids unnecessary expenditure in to undertake the new projects, in the time of removing the decline stages products Etc.
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PROJECT METHADOLAGY I under taken this project is based on the data collected during the following five years Year
SECOUNDARY SOURCE
This type means secondary data collected from Office records Annual reports Web site of Godavari Sugar Mills Ltd
LIMITATIONS
Considering the scope mentioned above, some or few limitations are arising. That is Godavari Sugar Mills Ltd is big organization. Its finance and accounts department is also big departments. But due to shortage of information providing, I am concentrating on equations as per information given by the finance and accounts department.
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TRADITIONAL METHODS
PAY BACK PERIOD METHOD. POST BACK PROFITABILITY METHOD. ACCOUNTING RATE OF RETURN METHOD.
DISCOUNTED CASH FLOW METHODS THE NET PRASENT VALUE METHOD INTERNAL RATE OF RETURN METHOD PROFITABILITY INDEX METHOD
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TRADITIONAL METHODS
PAYBACK PERIOD METHOD
The term payback period refers to the period in which the project give the necessary cash to recover the initial investment. It is a traditional, simple method of evaluate the projects. It does not take the effect of time value of money. Cash flows refer to profit before depreciation and after tax. MERITS 1) It is a old method and traditional one. 2) It involves simple calculations 3) It is the best method for evaluating high risk projects. 4) The Results obtained under this method is more reliable. DEMERITS 1) It is based on the principle rule and thumb. 2) It does not recognize the importance of time value of money. 3) It does not recognize the pattern of cash flows and its timing.
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POST PAYBACK PROFITABILITY METHOD To remove the drawbacks of payback period, the post payback profitability method was developed. The cash inflow generated from a project during the life of the project. As payback period the cash flow were considered only to the extend of recovering the investment. But in practical, after the recovery of pay back period the project can capable to generate the cash inflows or not. Therefore, to evaluate the project the entire amount of cash inflows. Formulae: Total cash flow generated during the life of project Less: initial investment POST PAY BACK PROFITABILITY MERITS 1) It is based on simple calculations. 2) It takes less time consuming. 3) It is easy to follow and even ordinary man can also understand DEMERITS 1) It is also based on principle of rule and thumb. 2) It doesnt consider the impact of time value of money. 3) It ignores depreciation. (Amt. in Lakhs) ---------------------------------------------------
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As ARR is commonly accepted in assessing the profitability of capital expenditure. Because the method does to consider the heavy cash inflow during the project period. As the earnings with averaged.
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2) 3) 4) DEMERITS 1) 2) 3) 4)
This method takes into account saving over the entire life of the project. This method through the concept of net earnings. It can be readily by calculated by using the accounting data.
It ignores time value of money. It does not consider the length of life of the project. It does not consistent with the firms objective of maximising the market It ignores the fact that the profits earned can be reinvested.
value of shares.
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Discounted cash flow method is improved over pay back method and ARR. An investment is essential out flow of funds aiming at percentage of rate of return. This method includes the following methods.
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IRR is that rate at which the sum of discounted cash inflow equals the sum of discounted cash out flow. It is that rate at which NPV of the investment is zero. This method is advised by Joel dean. This method is also known as a) marginal efficiency of capital b) Rate of Return on Investment c) Time adjusted Rate of Return.
PROFITABILITY INDEX
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Profitability index is a conceptually sound method of appraising investment projects. It provides ready comparison between investment proposals of different investment proposals of different magnitudes. Project can be ranked on the bases of profitability index. PROFITABILITY INDEX = P V of Cash Inflow Initial investment.
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The initial investment is Rs 6666.98 lakhs. The first year cash inflow is Rs 4583.28 lakhs. The second year cash inflow is Rs 3448.82 lakhs. The cash flow need only 6666.98 4583.28 = 2083.16 lakhs for recovery of the initial investment. PAY BACK PERIOD = REMAINING CASH FLOW 2ND YEAR CASH FLOW
= 2083.16 3448.82 = 0.604 year. PAY BACK PERIOD = 1.604 YEARS. Analysis:
For the 5 years period from 2004-05 to 2008-09 the above calculation the pay back period is very low that is 1.604 years. So the investment was recovered early.
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Analysis:
For the 5 years period from 2004-05 to 2008-09 the above calculation the post payback profitability is very high that is 14259.49 lakhs. So the project is more profitable one.
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Average income =
ARR = 56.94%
Analysis:
For a 5 years period from 2004-05 to 2008-09, the above calculation the ARR works out to be 56.94%. This indicates that the company is having high rate of return.
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@ 17% 2004-05 0.855 2005-06 0.731 2006-07 0.625 2007-08 0.534 2008-09 0.457 PRASENT VALUE Less: Initial Investment NET PRESENT VALUE
Analysis:
For a 5 years period from 2004-05 to 2008-09, the above calculation the NPV is very high that is 5436.46 lakhs. It indicates the value of the is high.
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INTERNAL RATE OF RETURN METHOD: Initial investment FACTOR = Average cash inflow
(Rs in lakhs)
Average cash inflows = 4247.06+3448.82+2867.98+4538.89+3796.20 5 Average cash inflows = 18898.95 5 Average cash inflows FACTOR VALUE = = 3779.79 6666.98 3779.79 FACTOR VALUE = 1.76
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IRR =
A + C O X (B-A) C-D
7714.76 6666.98 X (50 - 40) IRR = 40 + 7714.76 5802.61 IRR = 40 + 1047.78 X 10 1912.15 IRR = 40 + 5.48 IRR = 45.48.
Analysis:
For a 5 years period from 2004-05 to 2008-09, the IRR works out to be 45.48. This is good for the company.
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Year
Discounting
factor @ 17% 2004-05 0.855 2005-06 0.731 2006-07 0.625 2007-08 0.534 2008-09 0.457 TOTAL P V of CIF
PROFITABILITY INDEX =
1.15
Analysis:
For a 5 years period from 2004-05 to 2008-09, the above calculation the profitability index or cost- benefit ratio is 1.15. So the project is viable.
Findings
1. Since the capital invested in the assets are recovered within a short period of 1.60 year. The proposal is viable to the company.
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2. Post pay back profitability is Rs.14259.49 lakhs. 3. Accounting Rate of Return is 56.94% 4. Since the Net Present Value is positive the project is financially viable.
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Suggestions
Even though the distillery and chemicals division have high potentiality to earn huge profits, the company is not giving the importance to the division continuously. The company is giving the importance to 1 division among 3 divisions. Here they are neglecting the importance of other two divisions for the year. This is resulted in high fluctuations on cash inflows for the company. Here the company may work on the area and improve the companys profitability.
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CONCLUSION
The Godavari Sugar Mills was located at Sameerwadi. It is a small village in Mudhol talukas. It was established in the year 1971-72. The founder of Godavari Sugar Mills is Mr. K.J. Somaiya. The company achieved high crushing of sugar cane session in the year 2005-06 that is 16,39 424 tones. The present year 2008-09 it crushed sugar cane at 17, 44,267 tones. The company also celebrated in company premises and award given who are directly involved in this achievement. The Distillery and Chemicals division was established in the year 1984-85. The Distillery division started working initially 30000 Ltrs. It has some by-products. that are Ethyle Actate, Bhoomilabha, SOC etc. The capital budgeting means the capital project planning is a process by which companies allocate funds to various investment projects to ensure the profitability and growth. The capital budgeting mainly has two methods, first, Discounted cash flow methods and second one is traditional cash flow methods. The Distillery and Chemicals division at Godavari Sugars Ltd, performance is very well in turns high Net Present Value early recovery period of initial investment. So the Distillery and Chemicals division performing very well.
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BIBLIOGRAPHY
References: 1) Financial Management BY- D B KULKARNI. P V SATYAPRASAD. 2) FINANCIAL MANAGEMENT BY- I M PANDE 3) Website: www.somaiya.com
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(RS IN LAKHS)
SOURCES EQUITY SHARES PREFERENCE SHARES LOANS RETAINED EARNINGS 46286.50 0.16726 Cost in % = 16.73 OR 17. AMOUNT 2748,25 1800.00 36238.18 5500.07 PRAPORTION 0.0590 0.0390 0.7829 0,1188 COST 0.375 0.120 0.1225 0.375 WACC 0.02212 0.00468 0.09591 0.04455
CALCULATION OF INVESTMENT FOR THE YEAR 2004-05 Net Assets on 31st march 2005 Cash inflow of Distillery and Chemicals Division 2004-05 Total Cash Inflow of Godavari Sugar Mills is Investment in the year 2004-05 = Net Assets X = 40999.54 CIF of Distillery and Chemicals Total CIF of GSM. Investment = 19330.71 X 14140.36 40999.54 Investment = 6666.98. = 19330.71 = 14140.36
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