Itc Srinivasarao

8/3/2019 Itc Srinivasarao

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INTRODUCTION TO CAPITAL BUDGETING:

INTRODUCTION:

The word Capital refers to be the total investment of a company of firm in money,Tangible and intangible assets. Whereas budgeting defined by the “Rowland andWilliam” it may be said to be the art of building budgets. Budgets are a blue print of aplan and action expressed in quantities and manners.

The examples of capital expenditure:1. Purchase of fixed assets such as land and building, plant and machinery, good will, etc.2. The expenditure relating to addition, expansion, improvement and alteration to the fixedassets.3. The replacement of fixed assets.4. Research and development project

CONCEPT OF CAPITAL BUDGETING:

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

The aim of every firm first maximize the wealth of the shareholders and reputation of the

company There exist no inseparable relationship between the financial functions and other

mangers to achieve its goals and objectives, which are related to the company‟s

investment and financial decisions.

The analysis of the past information helps us to forecast the future accurately since

financial statements provide valuable and genuine information concerning the past. Hence

financial analysis will help us to analyze the present position and fix future goals.The

financial decision making authority vests in the hands of management.

Management should be particularly interested in knowing financial strength and

weakness of the firm. Capital budgeting is the important tool in the hand of management

to detect the efficiency of the investment which the firm is going to invest on the new

projects. There are so many techniques to measure the efficiency of the project



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MEANING OF CAPITAL BUDGETING:

The long term investment decision of the firm is generally known as thecapital budgeting or capital expenditure decision. Capital budgeting decision may bedefined as the firm‟s decisions to invest its current fund most efficiently in the on germ

assets anticipation of an expected flow of benefits over series of years.

1. The exchange of current funds for future benefits.

2. The funds are invested in long term assets.

The future benefits will occur to the firm over a series of years.

DEFINITIONS:

“Capital budgeting is a long-term planning for making and financing proposed capital out lays”.

-- Charles T. Hrongreen.

“Capital budgeting is concerned with the allocation of the firms source

financial resources among the available opportunities.The consideration of investmentopportunities involves the comparison of the expected future streams of earnings from aproject with the immediate and subsequent streams of earning from a project, with theimmediate and subsequent streams of expenditure”.

-- G.C. Philippatos.

“Capital budgeting is acquiring inputs with long-term return”.

-- Richard and Green law.

“Capital budgeting consists in planning development of available capitalfor the purpose of maximizing the long-term profitability of the concern”.

-- Lyrich.



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OBJECTIVES OF THE STUDY:

To know the techniques adopted by the organization while investing a capital on a

particular project.

To know the present & previous position of the organization before implementing

the project.

To determine capital projects those are feasible

To estimate the expenditure involved.

To restrict the capital expenditure on projects within authorized limits.

Compute, interpret and evaluate the accounting rate of return (ARR) and the

widely-used traditional capital budgeting technique-the payback period.

Apply the sophisticated capital budgeting techniques-net present value (NPV) and

internal rate of return (IRR) – to relevant cash flows to choose acceptable as well as

preferred capital projects.

Compute and illustrate terminal value (TV) method and profitability index (PI) as

capital budgeting evaluation techniques.

To find out long term planning in ITC.



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SCOPE OF THE STUDY:

The efficient allocation of capital is the most important financial

function in the modern times. It involves decision to commit the firm‟s, since they

stand the long- term assets such decision are of considerable importance to the firm

since they send to determine its value and size by influencing its growth, probability

and growth.

The scope of the study is limited to collecting the financial data of ITC

for four years and budgeted figures of each year.



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NEED AND IMPORTANCE OF THE STUDY:

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

reasons.

Involvement of heavy fund:

Capital budgeting decision require large capital outlay in is therefore absolutely

necessary that the form should carefully plan its investment programmed so thus it may

get the finance at right time and thus are put to most profitable use.

Long term implications:

The firms will feel the effects capital budgeting decision over at long period and

wither fore they have a decisive influence on the rate and directions for the growth of the

firm.

Irreversible decisions:

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

difficult to find a market for the capital assets

Most difficult to market:

The capital budgeting decisions require assessment of future events, which are

uncertain. It is really a default risk to estimate the probable future event the probable

benefit and costs accurately in quantitative term because of economic political social and

technologic factors



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METHODLOGY OF THE STUDY:

These are two types of methods of data collection.

a) Primary Data.

b) Secondary Data.

a. Primary Data:

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

this study it was mainly through interviews with concerned officers and staffs either

individually or collectively some of the information had been verified or supplemented

with personal observations.

The data includes

Conducting personal interviews are with the officers of the financials department.

Guidelines and necessary information is taken from my guide.

By using primary methods collected the primary information or data.

observation method

Survey method

Interview method.

b. Secondary Data:

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

other internal records.

The data includes:

By referring to the books in the company.

By collecting data from the websites.

By collecting data from company annual reports.



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FEATURES OF CAPITAL BUDGETING:

It is a many sides activity, it includes searching for new and

more profitable investment proposals investigating engineering and marketing

considerations to predict the consequences of accepting the investment and making

economic analysis to determine the profit potential of each investment proposal, its basic

features can be summarized as follows.

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

future profits.

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

uncertain.

C. Involves relatively long period between outlay and anticipated returns. There is a

long gap between cash out flow and future cash flows.

On the basis of the above discussion it can be concluded that

capital budgeting consists in planning the development of available capital for the purpose

of maximizing the long term profitability of the firm.

Capital budgeting is also called as capital expenditure budget. Operating budget shows

planned operations in the coming period where as capital budget deals exclusively with

major investment proposals. It assesses economies of expenditure and investment.

Limitations of Study:

The data mostly consists of secondary information

Study is concentrated only on financial aspects of the company.

Study is limited only to micro level.

Capital expenditure decisions are of considerable significance as the future success

and growth of the firm depends heavily on them.



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ITC PROFILE

ITC is one of India's foremost private sector companies with a market capitalisation

of over US $ 30 billion and a turnover of US $ 6 billion.* ITC is rated among the World's

Best Big Companies, Asia's 'Fab50' and the World's Most Reputable Companies by Forbes

magazine, among India's Most Respected Companies by Business World and among

India's Most Valuable Companies by Business Today. ITC ranks among India's `10 Most

Valuable (Company) Brands', in a study conducted by Brand Finance and published by the

Economic Times. ITC also ranks among Asia's 50 best performing companies compiled

by Business Week.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers,

Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology,

Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products.

While ITC is an outstanding market leader in its traditional businesses of Cigarettes,

Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even

in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal

Care and Stationery.

As one of India's most valuable and respected corporations, ITC is widely perceived to

be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration

"a commitment beyond the market". In his own words: "ITC believes that its aspiration to

create enduring value for the nation provides the motive force to sustain growing

shareholder value. ITC practices this philosophy by not only driving each of its businesses

towards international competitiveness but by also consciously contributing to enhancing

the competitiveness of the larger value chain of which it is a part."



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ITC's diversified status originates from its corporate strategy aimed at creating

multiple drivers of growth anchored on its time-tested core competencies: unmatched

distribution reach, superior brand-building capabilities, effective supply chain

management and acknowledged service skills in hoteliering. Over time, the strategic

forays into new businesses are expected to garner a significant share of these emerging

high-growth markets in India.

ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is

one of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade).

The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance

its competitiveness by empowering Indian farmers through the power of the Internet. This

transformational strategy, which has already become the subject matter of a case study at

Harvard Business School, is expected to progressively create for ITC a huge rural

distribution infrastructure, significantly enhancing the Company's marketing reach.

ITC's wholly owned Information Technology subsidiary, ITC Infotech India Ltd,

provides IT services and solutions to leading global customers. ITC Infotech has carved a

niche for itself by addressing customer challenges through innovative IT solutions.

ITC's production facilities and hotels have won numerous national and international

awards for quality, productivity, safety and environment management systems. ITC was

the first company in India to voluntarily seek a corporate governance rating.

ITC employs over 26,000 people at more than 60 locations across India. The

Company continuously endeavors to enhance its wealth generating capabilities in a

globalising environment to consistently reward more than 4,19,000 shareholders, fulfill



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the aspirations of its stakeholders and meet societal expectations. This over-arching vision

of the company is expressively captured in its corporate positioning statement: "Enduring

Value, For the Nation, and For the Shareholder."

ITC is a board-managed professional company, committed to creating enduringvalue for the shareholder and for the nation. It has a rich organisational culture rooted inits core values of respect for people and belief in empowerment. Its philosophy of all-

round value creation is backed by strong corporate governance policies and systems.

ITC’s corporate strategies are:

Create multiple drivers of growth by developing a portfolio of world class

businesses that best matches organisational capability with opportunities in

domestic and export markets.

Continue to focus on the chosen portfolio of FMCG, Hotels, Paper, Paperboards &Packaging, Agri Business and Information Technology.

Benchmark the health of each business comprehensively across the criteria of

Market Standing, Profitability and Internal Vitality.

Ensure that each of its businesses is world class and internationally competitive.

Enhance the competitive power of the portfolio through synergies derived by

blending the diverse skills and capabilities residing in ITC are various businesses.

The ITC Way:



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Create distributed leadership within the organisation by nurturing talented and

focused top management teams for each of the businesses.

Continuously strengthen and refine Corporate Governance processes and systemsto catalyze the entrepreneurial energies of management by striking the goldenbalance between executive freedom and the need for effective control andaccountability.

HISTORY AND EVOLUTION:

ITC was incorporated on August 24, 1910 under the name Imperial Tobacco

Company of India Limited. As the Company's ownership progressively Indianised, the

name of the Company was changed from Imperial Tobacco Company of India Limited

to India Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974. In

recognition of the Company's multi-business portfolio encompassing a wide range of

businesses - Cigarettes & Tobacco, Hotels, Information Technology, Packaging,

Paperboards & Specialty Papers, Agri-business, Foods, Lifestyle Retailing, Education &

Stationery and Personal Care - the full stops in the Company's name were removed

effective September 18, 2001. The Company now stands rechristened 'ITC Limited'.

The Company‟s beginnings were humble. A leased office on Radha Bazar Lane,

Kolkata, was the centre of the Company's existence. The Company celebrated its 16th

birthday on August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee,

(now renamed J.L. Nehru Road) Kolkata, for the sum of Rs 310,000. This decision of the

Company was historic in more ways than one. It was to mark the beginning of a long and

eventful journey into India's future. The Company's headquarter building, 'Virginia

House', which came up on that plot of land two years later, would go on to become one of

Kolkata's most venerated landmarks.

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Though the first six decades of the Company's existence were primarily devoted to the

growth and consolidation of the Cigarettes and Leaf Tobacco businesses, the Seventies

witnessed the beginnings of a corporate transformation that would usher in momentous

changes in the life of the Company.

ITC's Packaging & Printing Business was set up in 1925 as a strategic backward

integration for ITC's Cigarettes business. It is today India's most sophisticated packaging

house.

In 1975 the Company launched its Hotels business with the acquisition of a hotel in

Chennai which was rechristened 'ITC-Welcomgroup Hotel Chola'. The objective of

ITC's entry into the hotels business was rooted in the concept of creating value for the

nation. ITC chose the hotels business for its potential to earn high levels of foreign

exchange, create tourism infrastructure and generate large scale direct and indirect

employment. Since then ITC's Hotels business has grown to occupy a position of

leadership, with over 100 owned and managed properties spread across India.

In 1979, ITC entered the Paperboards business by promoting ITC

Bhadrachalam Paperboards Limited, which today has become the market leader

in India. Bhadrachalam Paperboards amalgamated with the Company effective

March 13, 2002 and became a Division of the Company, Bhadrachalam

Paperboards Division. In November 2002, this division merged with the

Company's Tribeni Tissues Division to form the Paperboards & Specialty Papers

Division. ITC's paperboards' technology, productivity, quality and

manufacturing processes are comparable to the best in the world. It has also

made an immense contribution to the development of Sarapaka, an economically backward area in the state of Andhra Pradesh. It is directly involved in

education, environmental protection and community development. In 2004, ITC

acquired the paperboard manufacturing facility of BILT Industrial Packaging



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Co. Ltd (BIPCO), near Coimbatore, Tamil Nadu. The Kovai Unit allows ITC to

improve customer service with reduced lead time and a wider product range .

In 1985, ITC set up Surya Tobacco Co. in Nepal as an Indo-Nepal and British joint

venture. Since inception, its shares have been held by ITC, British American Tobacco and

various independent shareholders in Nepal. In August 2002, Surya Tobacco became a

subsidiary of ITC Limited and its name was changed to Surya Nepal Private Limited

(Surya Nepal).

In 1990, ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing

company and a major supplier of tissue paper to the cigarette industry. The merged entity

was named the Tribeni Tissues Division (TTD). To harness strategic and operational

synergies, TTD was merged with the Bhadrachalam Paperboards Division to form the

Paperboards & Specialty Papers Division in November 2002.

Also in 1990, leveraging it is agri-sourcing competency, ITC set up the Agri Business

Division for export of agri-commodities. The Division is today one of India's largest

exporters. ITC's unique and now widely acknowledged e-Choupal initiative began in 2000

with soya farmers in Madhya Pradesh. Now it extends to 10 states covering over 4 million

farmers. ITC's first rural mall, christened 'Choupal Saagar' was inaugurated in August

2004 at Sehore. On the rural retail front, 24 'Choupal Saagars' are now operational in the 3

states of Madhya Pradesh, Maharashtra and Uttar Pradesh.

In 2000, ITC forayed into the Greeting, Gifting and Stationery products business with

the launch of Expressions range of greeting cards. A line of premium range of notebooks

under brand “Paperkraft” was launched in 2002. To augment its offering and to reach awider student population, the popular range of notebooks was launched under brand

“Classmate” in 2003. “Classmate” over the years has grown to become India’s largest

notebook brand and has also increased its portfolio to occupy a greater share of the

school bag. Years 2007- 2009 saw the launch of Children Books, Slam Books, Geometry

Boxes, Pens and Pencils under the “Classmate” brand. In 2008, ITC repositioned the



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business as the Education and Stationery Products Business and launched India's first

environment friendly premium business paper under the “Paperkraft” Brand.

“Paperkraft” offers a diverse portfolio in the premium executive stationery and office

consumables segment. Paperkraft entered new categories in the office consumable egment

with the launch of Textliners, Permanent Ink Markers and White Board Markers in 2009.

ITC also entered the Lifestyle Retailing business with the Wills Sport range of

international quality relaxed wear for men and women in 2000. The Wills Lifestyle chain

of exclusive stores later expanded its range to include Wills Classic formal wear (2002)

and Wills Clublife evening wear (2003). ITC also initiated a foray into the popular

segment with its men's wear brand, John Players, in 2002. In 2006, Wills Lifestyle

became title partner of the country's most premier fashion event - Wills Lifestyle IndiaFashion Week - that has gained recognition from buyers and retailers as the single largest

B-2-B platform for the Fashion Design industry. To mark the occasion, ITC launched a

special 'Celebration Series', taking the event forward to consumers.

In 2000, ITC spun off its information technology business into a wholly owned

subsidiary, ITC Infotech India Limited, to more aggressively pursue emerging

opportunities in this area. Today ITC Infotech is one of India‟s fastest growing global IT

and IT-enabled services companies and has established itself as a key player in offshore

outsourcing, providing outsourced IT solutions and services to leading global customers

across key focus verticals - Manufacturing, BFSI (Banking, Financial Services &

Insurance), CPG&R (Consumer Packaged Goods & Retail), THT (Travel, Hospitality and

Transportation) and Media & Entertainment.

ITC's foray into the Foods business is an outstanding example of successfully blending

multiple internal competencies to create a new driver of business growth. It began in

August 2001 with the introduction of 'Kitchens of India' ready-to-eat Indian gourmet

dishes. In 2002, ITC entered the confectionery and staples segments with the launch of the

brands mint-o and Candyman confectionery and Aashirvaad Atta (wheat flour). 2003

witnessed the introduction of Sunfeast as the Company entered the biscuits segment.

ITC's entered the fast growing branded snacks category with Bingo! In 2007. In eight



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years, the Foods business has grown to a significant size with over 200 differentiated

products under six distinctive brands, with an enviable distribution reach, a rapidly

growing market share and a solid market standing.

In 2002, ITC's philosophy of contributing to enhancing the competitiveness of the

entire value chain found yet another expression in the Safety Matches initiative. ITC now

markets popular safety matches brands like iKno, Mangaldeep, Aim, Aim Mega and

Aim Metro.

ITC's foray into the marketing is of Agarbattis (incense sticks) in 2003 marked the

manifestation of its partnership with the cottage sector. ITC's popular agarbattis brands

include Spriha and Mangaldeep across a range of fragrances like Rose, Jasmine,

Bouquet, Sandalwood, Madhur, Sambrani and Nagchampa.

ITC introduced Essenza Di Wills, an exclusive range of fine fragrances and bath &

body care products for men and women in July 2005. Inizio, the signature range under

Essenza Di Wills provides a comprehensive grooming regimen with distinct lines for men

(Inizio Homme) and women (Inizio Femme). Continuing with its tradition of bringing

world class products to Indian consumers the Company launched 'Fiama Di Wills', a

premium range of Shampoos, Shower Gels and Soaps in September, October and

December 2007 respectively. The Company also launched the 'Superia' range of Soaps

and Shampoos in the mass-market segment at select markets in October 2007 and Vivel

De Wills & Vivel range of soaps in February and Vivel range of shampoos in June 2008.



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THE ITC LEADERSHIP:

BOARD OF DIRECTORS

AUDITCOMMITTEE

COMENSATIONCOMMITTEE

NOMINATIONSCOMMITTEE

INVESTERSERVICE COMMITTEE

SUSTAINABILITCOMMITTEE

CORPORATE MANAGEMENT COMMITTEE

Divisional/ Strategic Business Unit (SBU)

Management Committees, each headed by a

divisional/ SBU Chief Executive

Business includes: FMCG, Hotels, Paperboards,

Specialty Papers & Packaging, Agri Business andInformation Technology

Corporate Functions, each headed by aHOD Corporate Functions include: Planningand Treasury, Accounting, Taxation, Risk Management, Legal, Secretarial, EHS,

Human Resources, CorporateCommunications, Corporate Affairs,Internal Audit and Research &

Development.

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CODE OF PRODUCT:

Applicable to all directors, senior management and employees of the Company

Preamble

ITC‟s Code of Conduct was circulated to the employees more than five years back and is

posted on the Company‟s corporate website. This Code has now been re-drafted for better

presentation. This Code is derived from three interlinked fundamental principles, viz.

good corporate governance, good corporate citizenship and exemplary personal conduct.

Philosophy

ITC is a professionally managed organisation and the core value underlying our corporate

philosophy is "trusteeship". We believe this organisation has been handed to us by the

various stakeholders in "trust" and we as professionals are the "trustees" of these

stakeholders. It is therefore our responsibility to ensure that the organisation is managed in

a manner that protects and furthers the interests of our stakeholders. We recognize society

as an important stakeholder in this enterprise and therefore it is part of our responsibility

to practice good corporate citizenship.

It is also our belief that in order to serve the interests of our stakeholders in perpetuity, we

must build ITC into an institution whose dynamism and vitality are anchored in its core

values.

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Corporate Governance Policy

The Corporate Governance Policy is the apex level instrument guiding conduct of the

affairs of the Company and clearly delineates the roles, responsibilities and authorities of

the key entities in the governance structure of the Company. This Code forms an integral

part of the Company‟s Governance Policy. The directors, senior management and

employees must adhere to the Corporate Governance Policy of the Company.

Good Corporate Citizenship

In the conduct of the Company‟s business, the practice of good corporate citizenship is

a prerequisite and embraces the following:

Dealing with People in the Organisation:

In dealing with each other, directors, senior management and employees shall uphold

the values which are at the core of our HR Philosophy - trust, teamwork, mutuality and

collaboration, meritocracy, objectivity, self respect and human dignity. Indeed, these

values form the basis of our HR management systems and processes. In selection and

recruitment, while meritocracy will be a prime criterion, managers will scrupulously

consider all factors that go towards securing the interests of the Company. ITC will focus

on meritocracy, equity and upholding of Company values in all people processes including

performance management systems, appraisals, remuneration and rewards.

A Gender Friendly Workplace

As a good corporate citizen, ITC is committed to a gender friendly workplace. It seeks

to enhance equal opportunities for men and women, prevent/stop/redress sexual

harassment at the workplace and institute good employment practices.

Sexual harassment includes unwelcome sexually determined behavior such as: unwelcome

physical contact; a demand or request for sexual favors sexually colored remarks; showing



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pornography and any other unwelcome physical, verbal or non-verbal conduct of a sexual

nature.

ITC maintains an open door for reportees; encourages employees to report any harassment

concerns and is responsive to employee complaints about harassment or other unwelcome

and offensive conduct. A Grievance Committee on Gender Issues has been constituted

to enquire into complaints and to recommend appropriate action, wherever required.

ITC demands, demonstrates and promotes professional behavior and respectful treatment

of all employees.

Relationships with Suppliers and Customers

All directors, senior management and employees shall ensure that in their dealings with

suppliers and customers, the Company‟s interests are never compromised. Accepting gifts

and presents of more than a nominal value, gratuity payments and other payments from

suppliers or customers will be viewed as serious breach of discipline as this could lead to

compromising the Company‟s interests.

Legal Compliance

It is the Company‟s policy to comply fully with all applicable laws and regulations.

Ensuring legal and regulatory compliance is the responsibility of the Chief Executives of

the Businesses and the Divisional Management Committees. The Company cannot accept

practices which are unlawful or may be damaging to its reputation. Divisional

Management Committees must satisfy themselves that sound and adequate arrangements

exist to ensure that they comply with the legal and regulatory requirements impacting each

business and identify and respond to developments in the regulatory environment in which

they operate. In the event the implication of any law is not clear, the Company‟s Legal

Department shall be consulted for advice.

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Health and Safety

The Company attaches great importance to a healthy and safe work environment. ITC is

committed to provide good physical working conditions and encourages high standards of

hygiene and housekeeping. Particular attention should be paid to training of employees to

increase safety awareness and adoption of safe working methods, particularly designed to

prevent serious or fatal accidents.

Environment Policies

The Company believes that commitment to sustainable development is

a key component of responsible corporate citizenship and therefore deserves to be

accorded the highest priority. Accordingly, the Company is committed to Best Practices in

environmental matters arising out of its business activities and expects each business to

fully demonstrate this commitment.

In addition to complying with applicable laws and regulations, Businesses must establish

procedures for assessing the environmental effects of their present and future activities.

They should adopt Best Practices in their environmental policies and procedures.

Personal Conduct

All directors, senior management and employees have the obligation to conduct

themselves in an honest and ethical manner and act in the best interest of the Company at

all times. They are expected to demonstrate exemplary personal conduct through

adherence to the following:

Avoidance of Conflict of Interest

All directors, senior management and employees must avoid situations in which their

personal interest could conflict with the interest of the Company. This is an area in which

it is impossible to provide comprehensive guidance but the guiding principle is that



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conflict, if any, or potential conflict must be disclosed to higher management for guidance

and action as appropriate.

Transparency and Audit ability

All directors, senior management and employees shall ensure that their actions in the

conduct of business are totally transparent except where the needs of business security

dictate otherwise. Such transparency shall be brought about through appropriate policies,

systems and processes, including as appropriate, segregation of duties, tiered approval

mechanism and involvement of more than one manager in key decisions and maintaining

supporting records. It shall be necessary to voluntarily ensure that areas of operation are

open to audit and the conduct of activities is totally auditable.

Protection of Confidential Information

No director, senior management and employee shall disclose or use any confidential

information gained in the course of employment/ association with the Company for

personal gain or for the advantage of any other person. No information either formally or

informally shall be provided to the press, other publicity media or any other external

agency except within approved policies.

Company Facilities

No director, senior management and employee shall misuse Company facilities. In the

use of Company facilities, care shall be exercised to ensure that costs are reasonable and

there is no wastage.



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Leading by Example

The organization‟s directors and senior management set the professional tone for the

Company. Through both their words and their actions, the organization‟s leadership

conveys what is acceptable and unacceptable behavior. ITC‟s directors, senior

management and employees must constantly reinforce through their actions and behavior

that ITC‟s stated beliefs of responsible corporate citizenship are rooted in individual

conviction and personal integrity.

Waivers

Any waiver of any provision of this Code of Conduct for a director, senior management

or employee must be placed for approval before the Company‟s Board of Directors/

Corporate Management Committee, as appropriate.

Non Adherence

Any instance of non-adherence to the Code of Conduct / any other observed unethical

behavior on the part of those covered under this Code should be brought to the attention of

the immediate reporting authority, who shall in turn report the same to the Head of

Corporate Human Resources.

* Senior management for the purpose of this Code would mean the following:

- Managers at Grade „A‟ & its equivalent, and above

- Divisional & SBU Chief Executives

- Corporate HODs.

* This Code of Conduct, as adopted by the Board of Directors of the Company on 26th

March, 2005, was amended on 29th March, 2006.



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Preamble:

Over the years, ITC has evolved from a single product company to a multi-business corporation. Its businesses are spread over a wide spectrum, ranging from

cigarettes and tobacco to hotels, packaging, paper and paperboards and international

commodities trading. Each of these businesses is vastly different from the others in its

type, the state of its evolution and the basic nature of its activity, all of which influence the

choice of the form of governance. The challenge of governance for ITC therefore lies in

fashioning a model that addresses the uniqueness of each of its businesses and yet

strengthens the unity of purpose of the Company as a whole.

Since the commencement of the liberalization process, India's economic scenario

has begun to alter radically. Globalization will not only significantly heighten business

risks, but will also compel Indian companies to adopt international norms of transparency

and good governance. Equally, in the resultant competitive context, freedom of executive

management and its ability to respond to the dynamics of a fast changing business

environment will be the new success factors. ITC's governance policy recognizes the

challenge of this new business reality in India.

Definition and Purpose:

ITC defines Corporate Governance as a systemic process by which companies

are directed and controlled to enhance their wealth generating capacity. Since large

corporations employ vast quantum of societal resources, we believe that the governance

process should ensure that these companies are managed in a manner that meets

stakeholder‟s aspirations and societal expectations.

CORPORATE GOVERNANCE:



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Core Principles:

ITC's Corporate Governance initiative is based on two core principles. These are :

Management must have the executive freedom to drive the enterprise forward without

undue restraints; and

This freedom of management should be exercised within a framework of effective

accountability.

ITC believes that any meaningful policy on Corporate Governance must provide

empowerment to the executive management of the Company, and simultaneously create a

mechanism of checks and balances which ensures that the decision making powers vested

in the executive management is not only not misused, but is used with care and

responsibility to meet stakeholder aspirations and societal expectations.

Cornerstones:

From the above definition and core principles of Corporate Governance emerge

the cornerstones of ITC's governance philosophy, namely trusteeship, transparency,

empowerment and accountability, control and ethical corporate citizenship. ITC believes

that the practice of each of these leads to the creation of the right corporate culture in which

the company is managed in a manner that fulfils the purpose of Corporate Governance.

Trusteeship:

ITC believes that large corporations like itself have both a social and economic

purpose. They represent a coalition of interests, namely those of the shareholders, other

providers of capital, business associates and employees. This belief therefore casts a

responsibility of trusteeship on the Company's Board of Directors. They are to act as

trustees to protect and enhance shareholder value, as well as to ensure that the Company

fulfills its obligations and responsibilities to its other stakeholders. Inherent in the concept



25

of trusteeship is the responsibility to ensure equity, namely, that the rights of all

shareholders, large or small, are protected.

Transparency:

ITC believes that transparency means explaining Company's policies and actions to

those to whom it has responsibilities. Therefore transparency must lead to maximum

appropriate disclosures without jeopardizing the Company's strategic interests. Internally,

transparency means openness in Company's relationship with its employees, as well as the

conduct of its business in a manner that will bear scrutiny. We believe transparency

enhances accountability.

Empowerment and Accountability:

Empowerment is an essential concomitant of ITC's first core principle of governance

that management must have the freedom to drive the enterprise forward. ITC believes that

empowerment is a process of actualizing the potential of its employees. Empowerment

unleashes creativity and innovation throughout the organisation by truly vesting decision-

making powers at the most appropriate levels in the organisational hierarchy.

ITC believes that the Board of Directors are accountable to the shareholders, and the

management is accountable to the Board of Directors. We believe that empowerment,

combined with accountability, provide an impetus to performance and improve

effectiveness, thereby enhancing shareholder value.

Control:

ITC believes that control is a necessary concomitant of its second core principle of

governance that the freedom of management should be exercised within a framework of

appropriate checks and balances. Control should prevent misuse of power, facilitate timely

management response to change, and ensure that business risks are pre-emotively and

effectively managed.



26

Ethical Corporate Citizenship:

ITC believes that corporations like itself have a responsibility to set exemplary

standards of ethical behavior, both internally within the organisation, as well as in their

external relationships. We believe that unethical behavior corrupts organisational culture

and undermines stakeholder value

Board of Directors

Chairman

Y C Deveshwar

Executive directors

Nakul Anand P V Dhobale K N Grant

Non-executive directors

A Baijal S Banerjee AV Girija Kumar

S H Khan S B Mathur D K Mehrotra

H G Powell P B Ramanujam Anthony Ruys

Basudeb Sen K Vaidyanath B Vijayaraghavan

http://www.itcportal.com/about-itc/itc-leadership/board-of-directors.aspx#ycd


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27

Corporate Management Committee

Members

Y C Deveshwar Chairman

Nakul Anand Executive Director

P V Dhobale Executive Director

K N Grant Executive Director

Anand Nayak Human Resources

T V Ramaswamy R&D, Projects, EH&S

S Sivakumar Agri & IT Businesses

K S Suresh Legal

Rajiv Tandon Finance

B B Chatterjee Secretarial






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28

ITC constantly endeavors to benchmark its products, services and processes to

global standards. The Company's pursuit of excellence has earned it national and

international honors. ITC is one of the eight Indian companies to figure in Forbes A-List

for 2004, featuring 400 of "the world's best big companies" . Forbes has also named

ITC among Asia's'Fab 50' and the World's Most Reputable Companies.

ITC has several firsts to its credit:

ITC is the first from India and among the first 10 companies in the world

to publish its Sustainability Report in compliance (at the highest A+ level)

with the latest G3 guidelines of the Netherlands-based Global Reporting

Initiative (GRI), a UN-backed, multi stakeholder international initiative to

develop and disseminate globally applicable Sustainability Reporting

Guidelines.

ITC is the first Indian company and the second in the world to win the

prestigious Development Gateway Award. It won the $100,000 Award for

the year 2005 for its trailblazing ITC e-Choupal initiative which has achieved

the scale of a movement in rural India. The Development Gateway Award

recognizes ITC's e-Choupal as the most exemplary contribution in the field of

Information and Communication Technologies (ICT) for development during

the last 10 years. ITC e-Choupal won the Award for the importance of its

contribution to development priorities like poverty reduction, its scale and

replicability, sustainability and transparency.

ITC has won the inaugural 'World Business Award', the worldwide business

award recognizing companies who have made significant efforts to create

sustainable livelihood opportunities and enduring wealth in developingcountries. The award has been instituted jointly by the United Nations

Development Programme (UNDP), International Chamber of Commerce

(ICC) and the HRH Prince of Wales International Business Leaders

Forum (IBLF).

Global Honors



29

ITC is the first Corporate to receive the Annual FICCI Outstanding Vision

Corporate Triple Impact Award in 2007 for its invaluable contribution to the

triple bottom line benchmarks of building economic, social and natural capital

for the nation.

ITC has won the Golden Peacock Awards for 'Corporate Social

Responsibility (Asia)' in 2007, the Award for â€˜CSR in Emerging

Economies 2005â€™ and â€˜Excellence in Corporate Governance' in the

same year. These Awards have been instituted by the Institute of Directors,

New Delhi, in association with the World Council for Corporate Governance

and Centre for Corporate Governance.

ITC Hotel Royal Gardenia, Bengaluru is the first Indian Hotel and world's

largest, to get the LEED Platinum rating - the highest green building

certification globally.

The Company's Green Leaf threshing plants at Chirala and Anaparti in

Andhra Pradesh are the first units of their kind in the world to get ISO

14001environment management systems certification.

ITC's cigarette factory in Kolkata is the first such unit in India to get ISO

9000 quality certification and the first among cigarette factories in the world

to be awarded the ISO 14001 certification.

ITC Maurya in New Delhi is the first hotel in India to get the coveted ISO

14001 Environment Management Systems certification.

ITC Filtrona is the first cigarette filter company in the world to obtain ISO

14001.

ITC Infotech finds pride of place among a select group of SEI CMM Level 5

companies in the world.

ITC's Green Leaf Threshing plant in Chirala is the first in India and

among the first 10 units in the world to bag the Social Accountability (SA

8000) certification.

ITC's R&D Centre at Peenya, Bengaluru has the distinction of being the first

independent R&D centre in India to get ISO 9001 accreditation and certified

with ISO 14001 for Environment Management Systems by DNV. The R&D



30

Centre is also certified for the standard ISO/IEC17025:2005, by National

Accreditation Board for Testing and Calibration Laboratories (NABL).

This certification is awarded for "General requirement for the competence of

Testing & Calibration Laboratories".

ITC Chairman Y C Deveshwar has received several honors over the years.

Notable among them are:

Year Award

2010 The U.S.-India Business Council (USIBC) Award for Global Leadership.

2007SAM/SPG Sustainability Leadership Award conferred at the International

Sustainability Leadership Symposium, Zurich.

2006Business Person of the Year from UK Trade & Investment, the UK

Government organization that supports overseas businesses in that country.

2006 Inducted into the `Hall of Pride' by the 93rd Indian Science Congress.

2005 Honored with the Teacher's Lifetime Achievement Award.

2001

Manager Entrepreneur of the Year from Ernst & Young.

Retail Visionary of the Year from Images, India's only fashion and retail

trade magazine.

1998 Honorary Fellowship from the All India Management Association

1996 Distinguished Alumni Award from IIT, Delhi.

Some of the other notable recognitions are:

The Stockholm Challenge 2006 for the e-Choupal initiative. This award is for

using Information Technology for the economic development of rural

communities.

United Nations Industrial Development Organisation (UNIDO) Award at the

international conference on Sharing Innovative Agribusiness Solutions 2008 at

Cairo for ITC's exemplary initiatives in agri business through the e-Choupal.



31

The Corporate Social Responsibility Crown Award for Water Practices from

UNESCO and Water Digest for its distinguished work carried out in the water

sector in India. ITC also received the National Award for Excellence in Water

Management 2007 in the 'beyond the fence' category from the CII Sohrabji

Godrej Green Business Centre for its leadership role in implementing water and

watershed management practices.

The watershed programmed also won the Asian CSR Award 2007 for

Environmental Excellence given by the Asian Institute of Management. The

Award recognizes and honors Asian companies for outstanding, innovative and

world-class projects. The Company also received the Ryutaro Hashimoto

Incentive Prize 2007 for Environment & Development from the Asia Pacific

Forum. This Award aims at promoting information dissemination of good practices

towards sustainable development in the Asia-Pacific region.

The Readers' Digest Pegasus Award for corporate social responsibility,

recognizing outstanding work done by socially conscious companies.

The Corporate Award for Social Responsibility 2008 from The Energy and

Resources Institute (TERI) in recognition of its exemplary initiatives in

implementing integrated watershed development programmers across 7 states in

India. The company also won the award in 2004 for its e-Choupal initiative. The

Award provides impetus to sustainable development and encourages ongoing social

responsibility processes within the corporate sector.

The Best Corporate Social Responsibility Practice Award 2008 jointly instituted

by the Bombay Stock Exchange, Times Foundation and the NASSCOM

Foundation.

The NASSCOM - CNBC IT User Award 2008 in the Retail & Logistics category.

The Company has been recognized for its pro-active and holistic approach to IT

adoption and the seamless alignment of IT with business strategy. This is the fourth

Time that ITC has won Nasscom's Best IT User Award since it was instituted in

2003.



32

The Institute of Chartered Accountants of India Award for Excellence in

Financial Reporting with its Annual Report and Accounts, adjudged as a

commendable entry under the Category 'Manufacturing and Trading Enterprises'.

The Business Today Award for the Best Managed Company in recognition of its

outstanding initiatives in the consumer products segment.

The only Indian FMCG Company to have featured in the Forbes 2000 list. The

Forbes 2000 is a comprehensive ranking of the world's biggest companies,

measured by a composite of sales, profits, assets and market value. The list spans 51

countries and 27 industries.

The NDTV Profit Business Leadership Award for being the Best FoodCompany of 2007. The Award has been instituted to recognize organizational

excellence.

The CNBC-TV18's International Trade Award 2008 for Outstanding Exporter

of the Year in the FMCG & Food category.

ITC continues its dominance of The Economic Times' Brand Equity listing of

India's 100 Biggest FMCG Brands, with three brands from its stable making it to

the top five. Gold Flake remains India's biggest FMCG brand in terms of sales.

Navy Cut ranks at No. 4. ITC's Scissors brand ranks at No 5 and is the only new

entrant into the top 10.

ITC‟s mission is to sustain and enhance the wealth-generating capacity of its

portfolio of businesses in a progressively globalizing environment. As one of India‟s

premier corporations employing a vast quantum of societal resources, ITC seeks to fulfill

larger role by enlarging its contribution to the society of which it is a part. The trusteeshiprole related to social and environmental resources, aligned to the pursuit of economic

objectives, is the cornerstone of ITC‟s Environment, Health and Safety philosophy. ITC‟s

EHS philosophy cognizes for the twin needs of conservation and creation of productive

resources.

ITC's EHS Policy:



33

In the multi-business context of ITC, Corporate Strategies are designed to create

enduring value for the nation and the shareholder, through leadership in each business and

the attainment of world-class competitive capabilities across the value chain. The

objective of leadership extends to all facets of business operations including Environment,

Health and Safety.

ITC is, therefore, committed to conducting its operations with due regard for the

environment, and providing a safe and healthy workplace for each employee. Various

international and national awards and accreditations stand testimony to ITC‟s commitment

to EHS. Such external recognition further reinforces the need to direct the collective

Endeavour of the Company‟s employees at all levels towards sustaining and continuously

improving standards of Environment, Health and Safety in a bid to attain and exceed

benchmarked standards, whether regulatory or otherwise.

In particular, it is ITC’s EHS policy: -

To contribute to sustainable development through the establishment and

implementation of environment standards that is scientifically tested and meets the

requirement of relevant laws, regulations and codes of practice.

To take account of environment, occupational health and safety in planning and

decision-making.

To provide appropriate training and disseminate information to enable all

employees to accept individual responsibility for Environment, Health and Safety,

implement best practices, and work in partnership to create a culture of continuous

improvement.

To instill a sense of duty in every employee towards personal safety, as well as that

of others who may be affected by the employee‟s actions.

To provide and maintain facilities, equipment, operations and working conditions

which are safe for employees, visitors and contractors at the Company‟s premises.

To ensure safe handling, storage, use and disposal of all substances and materials

that is classified as hazardous to health and environment.



34

To reduce waste, conserve energy, and promote recycling of materials wherever

possible.

To institute and implement a system of regular EHS audit in order to assure

compliance with laid down policy, benchmarked standards, and requirements of laws, regulations and applicable codes of practice.

To proactively share information with business partners towards inculcating world-

class EHS standards across the value chain of which ITC is a part.

All employees of ITC are expected to adhere to and comply with the EHS Policy and

Corporate Standards on EHS.

ITC‟s EHS Policy extends to all sites of the Company. It will be the overall

responsibility of the Divisional/SBU Chief Executives, through the members of their

Divisional Management Committees, General Managers and Unit Heads, to ensure

implementation of this Policy and Corporate Standards on EHS, including formation of

various committees and designating individuals for specific responsibilities in respect of

their Division/SBU.

The Corporate EHS Department is responsible for reviewing and updating Corporate

Standards on EHS, and for providing guidance and support to all concerned.



35

About ITC Ltd Paper & Specialty Paper Division:

The Paper Boards & Specialty paper Divisions came into existence in November

2002 with the amalgamation of ITC Bhadrachalam Paper Boards Ltd. The New Company

was set up as integrated paper board manufacturing facility and commenced operations at

Bhadrachalam in Andhra Pradesh, 300 Km east of Hyderabad. The Bhadrachalam mill

today produces 2,10,000 TPY of papers & boards and it the largest single location mill in

India. The mill is focused on producing paper boards for packaging and graphic segments

and product range includes cyber XLpac (folding box boards), Pearl/Sapphire Graphic/

(Solid bleached boards high value boards a part from the Echovirus range of recycled

boards. The mill also makes liquid packaging boards for Tetrapak in India.

With the commissioning of the new fiber line in September, 2007 the Bhadrachalam

mill have a Elemental Chlorine free pulp capacity of 2,40,000 TPY. The Bhadrachalam

location today has three board machines and two smaller paper machines. A new paper

machine of 90,000 tons per year capacity is scheduled for commissioning in April ‟08. This

line will have the capability to make both uncoated and coated wood free and

communication papers. The unit is ISO 9002: 2000 series accredited. The unit is also ISO

14001 certified for Environment management system.

The Tribeni Tissues unit has a hoary history and traces its founding to British

American Tobacco and commenced operations in 1949 manufacturing papers for the

cigarette industry. Between 1961 & 1988 Tribeni was part of the Wiggins Tape co. of UK.

It merged with ITC Ltd. In 1992 modernized the mill with an investment of USD 35

million and refurbished two of the paper machines with latest drives and electronic

controls.

The Tribeni mill has a capacity of 33,000 TPY and has expanded its product

range beyond cigarette tissues to fine papers, packaging paper and specialties the unit now

has three paper machines making a stunningly diverse range of cigarette Tissues and

components, Laminating Base Tissue. Acid-Free and Antirust tissues, Low Gramm age



36

printing papers, Decor papers to Insulation Grade Medical and Grade Papers. The unit is

ISO 9001: 2000 version and ISO 14001 accredited.

The third manufacturing location at Bollaram near Hyderabad produces 5000 TPY

of cost coated papers and Boards, 10,000 TPY of poly extrusion coated boards and 10,000

TPY of C2S art boards any Ivory cards. The Unit is ISO 9001:2000 series accredited.

The division is the market leader in south Asia in Carton boards and ranks

second in turnover within the Indian paper industry. ITC provide paper boards for most

leading fast moving consumer goods brands in India. ITC is the largest exporter of coated

boards from India. About 20 years of ITC sales supplied to the international markets in

Malaysia, Srilanka, Bangladesh, Iran, Australia, UAE, Turkey, and china, Singapore, UK,

Greece, Germany and USA.

The Paper board facility at Coimbatore was acquired from BILT industries

packing company in March 2004. The mill is located at Thekkampati Village near

Mettupalayam in Coimbatore Dist of Tamilnadu. The commercial production management

began on 29th March 2004.

The mill at present has single board machine with a capacity of 90,000 TPY.

The main products are coated duplex boards a Grey back and white back made with 100%

recycled fiber. The board machine was 3-wire fourdrinier section, MGclyliner, size press

and three coaters. A siemens DCs system and measurex QCS system ensures that machine

can deliver high quality recycle boards for demanding print and converting applications.

A modern finishing house ensures the delivery of rolls and sheets, with short

turnaround and times. The fiber supply to the Board machine was supplemented with a

deinking line in early 2006. A lamination line has been added at the unit to produce

composite solid boards in high calipers for the publishing display and package.



37

ECO naturo and Eco naturo-HS are the two grades of coated Duplex Grey

Back board made from this unit. For almost the first time in India a customer has the option

to buy higher bulk and of Grey back Board (GD2 grade) for his Cason requirements.

The unit has made rapid strides in becoming a word-class producer and has

achieved ISO 9001, ISO 14001 and OHSAS 18001 Certifications.

The product range, true to ITC‟s innovative streak, has been enlarged by

developing cone boards for textiles cones and grey boards for book binding boards.

Addition of power block and deinking facility will increase the

competitiveness of the unit, with potential to make 2,00,000 TPA of Recycled Boards for

Indian and export markets.

Vision

To be a Valued Player in the Global Paperboard & Paper Industry by

Leadership in quality – Products, Processes, Service & People.

Continuous enhancement of value for all stakeholders, and

Upholding societal values and expectations

Mission

To manufacture and market 500,000 TPY of premium coated paperboards &

specialty papers by the year 2005.

To be a customer-driven company with strong focus on:

Customer's needs & total satisfaction

Continuous product innovation to develop new paperboard packaging solutions



38

Award won by ITC – PSPD (Bhadrachalam Unit)

Paper mill of the year by Indian paper manufacturers association in the year 2005-

06

National award for excellence in energy management best innovative project

award and national award for excellence in water management.

The Greentech environment excellence gold award in 2006.

National award for energy conservation in 2005.

Certification of appreciation award for excellence in energy management 2006 by

CII Hyderabad.

CERTIFICATION:

ISO 9002(2000): Unit Bhadrachalam - Assurance for Quality Management Systems

certified by DNV, the Netherlands. We are in the process of getting the accreditation

for ISO 9001(2000)

ISO 14001(1996): Unit Bhadrachalam – Environment Healthy and Safety systems

certified by DNV (Det Norske Veritas), The Netherlands.



39

Innovation of Paper:

Paper is a unique product used for communicating strong and transporting

messages. The credit of innovating paper goes to “TSAI-LUN” A resident of china in

105 AD.

He soaked “bark of trees hemp waste” all contained cellulose for “someone” to

tenderize them. He then macerated them by beating them under a motor into

individual fiber, until they were fabricated and swollen due to this action. He dispersed

them further into diluted suspension & formed a thin flat sheet of fibrous material by

staining that material through a screen held in a frame of “mold”

The tender sheet was then transferred to wool felt and pressed to higher

consistency the wt web was dried under the sun the sheet was then polished flat and

smooth with stones to give the suitable material for writing. Even after many countries

the same techniques are used. But the only difference is modernization of the

production process.

The Paper making techniques was brought into India by Arabs who acquired it

form the chine prisoners. The local paper makers were termed as “kagazis” William

care is credited with the mechanization of production process of papers in India, he

was success in this experiment by the co-ordination of the local “Kagazis” in today’s

world the basic paper & board making process right from the raw material to the

product paper can be represented in a simplified form as.



40

PRODUCT

RAW MATERIAL

PROCUREMENT

SIZE REDUCTIONDIGESTION

(COOKING)

BLEACHING WASHING

STOCK

PREPARATIONSHAPING

GRAVITY AND

SUCTION

DRAINAGE

CALENDARING DRYING PRESSING

PAPER

MAKING

CYCLE



41

Products (Bhadrachalam Unit)

ITC is the largest manufacturer of packaging and graphic boards in south Asia

accompanied by diverse range of specialty papers & Boards fulfilling a variety of needs.

The band width of products has increased continuously and moved up on the value.

Quality scale and today represents one of the preferred set of choices for any discerning

global customer. Seeking a more effective medium to present pack and protest content or

products are in a world overloaded with message.

ITC- Pspd (Badrachalam) has 6 machines. These machines are producing different

types of papers.

In these machines one machine was newly installed.

The following types of papers of each machine producing in ITC-Pspd (Badrachalam)

Machine- I

Absorbent Kraft,

I L Faced Kraft line

Deluxe Kraft paper

Deluxe Kraft paper (Special)

Folding B.Board special

Duplex Board

Liner Board

Single coated grey back

White duplex Board (coated)

Coated match



42

Machine- II

Alfa plus

Hi brite Paper CPM shade

Hi Brite Paper Hi bulk

Hi strength cost coating base

Hi Brite paper

SS Maplitho (T) cb

SS Maplitho (NS)

SS ml mcb

Writing, printing stocks.

Machine – III

Mg poster paper.

Machine – IV

Art Naestrd Base

Carte Perona Base

Coated FBBD stocks

Cyber XL PAC coated

Cyber XL pak

CLC Triplex Board

Coated Cypalc

LP Board

MG Triplex Board

Pearl Graphic

Pearl Graphic Uncoated

Pearl XL Pac

Safire XL Pac



43

Sbs base board uncoated

Safire cote

Sbs board Tr,

Triplex board, uncoated caste Lcemina.

Machine – V

Carte persona Base

Elc triplex Board

Coated Board white Back

Coated FBBD stocks

Coated Folding Box Boards

Coated Gravure Board

Cyber Propac

Cyber XL Pac

Cyber XL Pac uncoated

Coated Board (GB)

Laminating Base Board (white Black)

MG triplex BoardPearl graphic

Pearl XL Pac

SBS base Board uncoated

Single coated grey back

Sbs board TV

Unconventional coated board (GB)

White DX board super white back

Production (in metric Tons)



44

REVIEW OF LITERATURE:

INTRODUCTION TO FINANCIAL MANAGEMENT:

Finance may be defined as the art and science of managingmoney. The major areas of finance are:

a. FINANCIAL SERVICES

b. MANAGERIAL FINANCE or FINANCIAL MANAGEMNT.

a. FINANCE SERVICES:

It is concerned with design and delivery of advice and

financial products to individuals, businesses and governments.

b.FINANCIAL MANAGEMENT:

It is concerned with the duties of the financial managers in thebusiness firm.

DEFINITIONS:

Financial management is “as an application of general

managerial principles to the area of financial decision-making”.

-- Howard and Upton.

Financial management “is an area of financial decision-making, harmonizing individual motives and enterprise goals”.

-- Weston and Brigham.

Financial management “is the operational activity of a business

that is responsible for obtaining and effectively utilizing the funds necessary for efficientoperations”.

--Joshep and Massie



45

SCOPE OF FINANCIAL MANAGEMENT:

Financial management is one of the important parts of overallmanagement, which is directly related with various functional departments like personnel,marketing and production. Financial management covers wide area with

multidimensional approaches the following are the important scope of financialmanagement.

1. Financial Management and Economics:

Economic concepts like micro and macroeconomics aredirectly applied with the financial management approaches. Investment decisions, microand macro environmental factors are closely associated with the functions of financialmanager.

2. Financial Management and Accounting:

Accounting records includes the financial information of thebusiness concern. Hence, we can easily understand the relationship between the financial

management and accounting.

3. Financial Management or Mathematics:

Modern approaches of the financial management applied largenumber of mathematical and statistical tools and techniques. They are also called aseconometrics.

INVESTMENT DECISION:

The investment decision relates to the section of assets in whichfunds will be invested by firm .The assets which can be acquired fall into broad groups.

i. Long term assets which yield a return over a period of the in time in future.

ii. Short term or current assets, defined as those assets which in the normal course of

business are convertible into cash without diminution in value, usually within a

year.



46

MEANING OF CAPITAL BUDGETING:

Capital Budgeting may be defined as “The decision making

process which the firm evaluates the purchase of major fixed assets. It involves firm‟s

decision to invest its current funds for addition, disposition, modification and replacement

of fixed assets”. It deals exactly with major investment proposals, which are essentiallylong-term projects and incurred among the available market opportunities. Capitalbudgeting is the process of making investment decision in capital expenditure.

DEFINITION OF CAPITAL BUDGETING:

“Capital budgeting consists in planning development of availablecapital for the purpose of maximizing the long-term profitability of the concern”.

-- Lyrich.

METHODS OF CAPITAL BUDGETING:

By matching the available resources and projects it can beinvested. The funds available are always living funds. There are many considerationstaken for investment decision process such as environment and economic conditions. Themethods of evaluations are classified as follows:

(A) Traditional methods (or Non-discount methods)

(i) Pay-back Period Methods

(ii) Post Pay-back Methods

(iii) Accounts Rate of Return

(B) Modern methods (or Discount methods)

(i) Net Present Value Method

(ii) Internal Rate of Return Method

(iii) Profitability Index Method



47

Accounting rate of return

NPV method IRR method PI method

METHODS OF CAPITAL BUDGETING

TRADITIONAL METHOD MODERN METHODS

Pay back method Post pay back method



48

CAPITAL BUDGETING APPRAISAL METHODS:

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

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

There are several methods for evaluating and ranking the capital investment

proposals. In case of all these methods the main emphasis is on the return which will be

derived on the capital invested in the projects.

Traditional Methods:

Payback period method:

The term pay back refers to the period in which the project will generate the

necessary cash to recoup the initial investment.

Initial investmentPayback period = --------------------------------------------

Annual cash inflow

Accept or reject criteria

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

proposal. A project whose actual payback period is more than what has been

predetermined by the management will be straight away rejected. Taking into the account

the reciprocal of the cost is the maximum acceptable payback period.

Advantages:

1. It is an important guide to investment policy.

2. It lays a great emphasis on liquidity

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

4. This method costs less as it requires only very little effort for its computation.

5. It weighs early returns heavily and ignores distant returns.



49

Disadvantages:

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

2. It ignores the value of money.

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

period.

Accounting/Average Rate of Returns:

Average rate of returns is average of the net profit after taxes over the whole of the

economic life of the project are taken. Under this method return, is expressed as

percentage of capital or investment. Accounting rate of returns may be calculated using

any one of the following formulas.

Average net profit after taxARR = --------------------------------------------

Average investment

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

Total net profit after taxesA. Average net profit after tax = -----------------------------------------------------

No. of years

Investment – Scrap value + Additional working capital + Scrap value

B. Average Investment = --------------------------------------------------------------------------

2

Accept or reject criteria:

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

accepted otherwise rejected.- While evaluating mutually exclusive projects, calculated ARR of the

alternatives will be compared to judge the profitability. The projects,

which has higher rate of return, will be accepted.



50

Advantages:

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

2.

It uses the entire earnings of a project in calculating rate of return.3. It facilitates the comparison of new product project with that of cost reducing

project or other projects of competitive nature.

Disadvantages:

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

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

make in parts.

Discounted cash flow techniques:

1. Net present value method

NPV is considered the best method or evaluating the capital investment proposals.

In case of this method cash inflow and cash out flow associated with each project are first

worked out. The manager then calculates the present values of these, cash inflow and out

flows at the rate of acceptable. This rate of return is considered as the cut off rate and is

generally determined based on cost of capital. Cash out flows represent the investment

and commitment of cash in the project at various points of time. The working capital is

taken as a cash outflow in the year the project starts commercial production. The NPV is

the difference between the total present value of future cash inflows and the total present

value of future cash out flows.



51

The equation for calculating NPV in case of conventional cash flows can be put as

follows.

A1 A2 A3 An NPV = ---------- + ---------- + ---------- + ……….. + ----------- - C

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

Where

NPV = Net present value, A1, A2, A3………An = Annual cash inflows

R = Discounting rate / cost of capital

1, 2, 3…….n = no. of years C = Cash out flows.


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

the project should be accepted. However, if the NPV is negative the project should be

rejected. Symbolically represents

NPV > 0 Accept the proposal

NPV < 0 Reject the proposal

Advantages:

1. It is generally accepted by economist

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

3.

It recognizes the time value of money.4. It recognizes all cash flows throughout the life of the project.



52

Disadvantages:

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

investment.

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

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

to understand.

2. Profitability Index:

Profitability index is one of the methods of evaluating the investment proposal. It

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

Present value of inflowProfitability index = ----------------------------------------------------

Present value of cash out flow


The proposal is accepted if the profitability index is more than one and rejected in

case the profitability index is less than one. In case of mutually exclusive projects and

capital rationing situation projects are ranked in orders of their profitability index and

accepted.

Advantages:

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

superior to.P.V. Method.

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

gemental benefit- Cost ratio.



53

Disadvantages:

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

difficult to understand.

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

3. Internal rate of returns:

Internal rate of return is that rate at which the sum of discounted cash inflows

equals the sum of discounted cash out flows. In other words, it is the rate which discounts

the cash flows to zero. It can be stated in the form of a ratio as follows.

Cash in flows……………… = 1 Cash out flows

The equation for calculation of conventional cash flows.

R1 R2 R3

C= …… + …… + …….

(1+r) (1+r)2

(1+r)3

Where C = Initial outlay at time zero.

R1, R2….Rn = Future cash flow at different period

r = Rate of discount

1,2,……….n = Number of years.


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

afford to pay on the capital invested in a project would qualify to be accepted of IRR

exceeds the cut off rate. While evaluating two or more projects, a project giving the higher

rate of return would be preferred. This is because the higher the rate of return, the more

profitable is the investment.



54

Advantages:

1. It provides more precise information regarding profitability.

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

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

enables evaluating of true profitability.

Disadvantages:

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

investment proposal.

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

Kinds of Capital Budgeting:

Capital Budgeting refers to the total process of generation evaluating, selecting and

following up on capital expenditure alternatives. The firm allocates or budgets financial

resource to new investment proposals. Basically the firms may be confronted with three

types of capital budgeting decisions.

The accepts reject decision

The mutual exclusive choices decision.

The capital rationing decision.



55

TOTAL PRODUCTION :

Production 2006-07 2007-08 2008-09 2009-10

Machine – I 62,658 59,621 67,492 66,397

Machine – II 26,421 25,250 25,262 23,431

Machine – III 6,121 6,718 6,923 6,449

Machine – IV 1,34,650 1,32,921 1,33,629 1,49,768

Machine – V 26,212 76,813 87,740 93,126

Total Production 2,56,061 3,01,321 3,21,046 3,39,192

Total production:

Interpretation:

In the year 2006-07, the total production of all five machines is 2, 56,061 units.

Whereas in the year 2009-10, the total production is increased to 3, 39,192 units.

0

50000100000

150000

200000

250000

300000

350000

2006-07 2007-08 2008-09 2009-10

TOTAL PRODUCTION



56

Interpretation:

In the 2006-07 the production of machine 1 is 62,658 units.

Compare to previous year, the production of machine 1 is decreased to 59,621

units in the year 2007-08.

Compare to previous year, the production of machine 1 is increased to 67,492




54,000

56,000

58,000

60,000

62,000

64,000

66,000

68,000

2006-07 2007-08 2008-09 2009-10

MACHINE- I

21,500

22,000

22,500

23,000

23,500

24,000

24,500

25,000

25,500

26,000

26,500

2006-07 2007-08 2008-09 2009-10

MACHINE- II



57

Interpretation:








Interpretation:








5,600

5,800

6,000

6,200

6,400

6,600

6,800

7,000

2006-07 2007-08 2008-09 2009-10

MACHINE- III



58

Interpretation:

In the 2006-07 the production of machine 4 is 1,34,650 units.

Whereas in the year 2009-10, the production of machine 4 is increased to

1, 49,768 units.

Interpretation:

In the 2006-07 the production of machine 5 is 2, 56, 061 units.

Whereas in the year 2009-10, the production of machine 4 is increased to 3, 39, 192

units.

120000

125000

130000

135000

140000

145000

150000

2006-07 2007-08 2008-09 2009-10

MACHINE- IV

0

10,000

20,000

30,000

40,000

50,000

60,000

70,00080,000

90,000

100,000

2006-07 2007-08 2008-09 2009-10

MACHINE- V



59

PAYBACK PERIOD:

Initial investmentPayback = --------------------------------------

Total cash inflows

1. Budget Title

Auto values for caustic

3, 00,000= ------------------- = 7.2 months

5, 00,000

2. Budget Title

Installation of separate lighting transformers for lighting circuits

40, 00,000Payback = --------------------

11, 54,000

= 3 years (4 months)

3. Budget Title

Basis control weight valves instrumentation

18, 44,000Payback = --------------------

10, 60,000

= 1.74 years

4. Budget Title

Street c pulper, carrying system

1, 47, 63,000Payback = --------------------

6, 84, 00,000

= 0.2 years = 2.59 months



60

5. Budget Title

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

28, 00,000Payback = ------------------

7, 58,000

= 3 years 6 months =24 months.

6. Budget Title

Top layer clear filtrate lime to SFT-B

5, 00,000

Payback = ---------------------2, 52,000

= 2 years

7. Budget Title

Energy efficient vacuum pump for PM1&3

30, 00,000

Payback = --------------------18, 30,000

= 19 months

8. Budget Title

Replacement of old vacuum pump with energy efficient vacuum pump at PM1

8, 50,000Payback = --------------------

5, 06,000

= 1years 8 months (approx)



61

9. Budget Title

VFD‟s for stock pump

20, 98,000Payback = ----------------------

12, 45,000

= 1.6 year (20 months)

10. Budget Title

Water conservation measures

37, 18,000Payback = ---------------------

15, 38,000


11. Budget Title

Clamp truck

39, 72,000Payback = -----------------------

12, 00,000

=3.3 years (39 months)

12. Budget Title

Chest auto cleaning

47, 98,000Payback = ---------------------

36, 00,000

=1.3 years (15 months)

13. Budget Title

250 KW VFD Pumps

8, 83,000Payback = ----------------------

7, 43,000




62

NET PRESENT VALUE METHOD

1. Budget Title

Auto valves for caustic

A1 A2 A3 A4 A5 An NPV = ----------- + ----------- + ---------- + ---------- + ---------- + …… ---------- - C

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

5, 00,000 5, 00,000 5, 00,000 5, 00,000 5, 00,000= -------------- + -------------- + ---------------- + -------------- + ------------ - 2, 98,849

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

5, 00,000 5, 00,000 5, 00,000 5, 00,000 5, 00, 000= -------------- + -------------- + ---------------- + -------------- + -------------- -2,98,8491.12 1.2544 1.4049 1.5735 1.7623

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

= 1,80,2405 – 2, 98,849

= 1,50,3556

2. Budget Title

Installation of Separate Lighting Transformers for Lighting Circuits

11 ,54 ,000 11 ,54 ,000 11 ,54 ,000 11 ,54 ,000 11 ,54 ,000NPV = ------------- + ------------- + ------------- + ------------- + ------------- -30,32,477

1.12 1.2544 1.4049 1.5735 1.7623

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

= 41, 59,953 – 30, 32,477

= 11, 27,476



63

3. Budget Title

Basis control weight valves instrumentation

10, 60,000 10, 60,000 10,60,000 10, 60,000 10,60,000NPV = ------------ + ------------- + ------------- + ------------- + ------------- - 18, 43,990

1.12 1.2544 1.4049 1.5735 1.7623

= 9,46,428.57+8,45,025.51+ 7,54,502.09 + 6,73,657.45 + 6,01,486.69 – 18,43,990

= 3821100.31 – 18, 43,990

= 19, 77,110.31

4. Budget Title

Street – c pulper, carrying system

6,84,00,000 6, 84,00,000 6,84,00,000 6, 84,00,000 6,84,00,000NPV = -------------- + -------------- + -------------- + --------------+ --------------- -1 ,47,83,403

1.12 1.2544 1.4049 1.5735 1.7623

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

1,47,83,403

= 20, 74, 46,141.1 – 1, 47, 83,403

= 19, 26, 62,738.1

5. Budget title

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

7, 58, 000 7, 58,000 7, 58,000 7, 58,000 7, 58,000NPV = -------------- + -------------- + -------------- + --------------+ --------------- - 27, 98,519

1.12 1.2544 1.4049 1.5735 1.7623

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

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

= (-66072)

NOTE: It will not Taken the Negative Value.



64

6. Budget Title

Top Layer Clear Filtrate Lime to SFT-B

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

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

1.12 1.2544 1.4049 1.5735 1.7623

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

= 9, 08,443 – 4, 98,560

= 4, 09, 853

7. Budget Title

Energy Efficient Vacuum Pump for PM1 & 3

18, 30,000 18,30 ,000 18,30,000 18, 30,000 18,30,000NPV= -------------- + -------------- + -------------- + --------------+ ------------- - 26, 59,560

1.12 1.2544 1.4049 1.5735 1.7623

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

=65, 96,804 – 26, 59,560

= 39, 37,244

8. Budget Title

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

5, 06,000 5, 06,000 5,06,000 5, 06,000 5,06,000NPV = -------------- + -------------- + -------------- + -------------- + ------------- -8, 47,345

1.12 1.2544 1.4049 1.5735 1.7623= 4,51,786+4,03,380+3,60,168+3,21,576+2,87,125 – 8,47,345

= 18, 24,025 – 8, 47,345

= 9, 76,690



65

9. Budget Title

VFD‟s for stock pump

12,45,000 12 ,45,000 12,45,000 12 ,45,000 12,45,000NPV = -------------- + -------------- + -------------- + --------------+ --------------- - 20,97, 974

1.12 1.2544 1.4049 1.5735 1.7623

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

= 44, 87,990.46 – 20, 97,974

= 23, 90,016.46

10. Budget Title

Water conservation measures

15, 38,000 15, 38,000 15, 38,000 15, 38,000 15, 38,000NPV = -------------- + -------------- + -------------- + --------------+ --------------- -37, 18,413

1.12 1.2544 1.4049 1.5735 1.7623

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

= 5544200.26 – 37, 18,413

= 18, 25,787.26

11. Budget Title

Clamp truck

12, 00,000 12, 00,000 12, 00,000 12, 00,000 12, 00,000NPV = -------------- + -------------- + -------------- + --------------+ --------------- - 39, 72,299

1.12 1.2544 1.4049 1.5735 1.7623

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

= 43, 25,773.94 – 39, 72,299

= 3, 53,474.94



66

12. Budget Title

Chest auto cleaning

36, 00,000 36, 00,000 36, 00,000 36, 00,000 36, 00,000NPV = -------------- + -------------- + -------------- + --------------+ --------------- - 47, 97,852

1.12 1.2544 1.4049 1.5735 1.7623

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

= 12977321.84 – 47, 97,852

=8179469.86

13. Budget Title

250 KW VFD pumps

7, 43,000 7, 43,000 7, 43,000 7, 43,000 7, 43,000NPV = -------------- + -------------- + -------------- + --------------+ --------------- - 8,82,617

1.12 1.2544 1.4049 1.5735 1.7623

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

= 26, 78,375 – 882617

= 17, 95,758.



67

(Ranking as per Net Present value)

S.No SCHEME INVESTMENT PAYBACK

(months)

NPV RANK

1 Auto Valves forCaustic

2, 99,000 7 15,03,556 VIII

2 Installation of Separate LightingTran formers forlighting circuits

30,32,000 32 11,27,476 IX

3 Basis ControlWeight valuesInstrumentation

18,44,000 21 19,77,110.31 V

4 Street-capulper

Carrying system

1,47,63,000 3 19,26,62,738.1 I

5 Consistencytransmitters forHorizontal Chests3 , 4,6and 7

27, 99, 000 42 (-66072) XIII

6 Top Layer clearfiltrate lime toSFT-B

4, 99,000 24 4,09,850 XI

7 Energy EfficientVacuum pump forPM1&3

26,60,000 19 39,37,244 III

8 Replacement of old Vacuum pumpwith energyefficient Vacuumpump at PM1

8,47,000 20 9,76,690 X

9 VFD‟s for stock

pump20,98,000 20 23,90,016.46 IV

10 Waterconservationmeasures

37,18,000 29 18,25,787.26 VI

11 Clamp truck 39,72,000 39 3,53,474.94 XII

12 Chest autocleaning

47,98,000 15 81,79,469.84 II

13 250 kw VFDPumps

8,83,000 14 17,95,758 VII



68

NPV & INVESTMENT OF PROJECTS

NPV & INVESTMENTS OF PROJECTS

-50000 0 50000 100000 150000 200000 250000

1

2

3

4

5

6

7

8

9

10

11

12

13

PROJECTS

VALUE IN 1000'S

NET PRESENT VALUE INVESTMENT



69

COST BENFIT

Budget Title: - Auto Valves for Caustic

Cost Benefit: 5.00 lakhs per annum

Payback = 7 months

Cost Benefit is taken as cash inflows.

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

Total mill lighting load is- 816.8 kW

Envisaged savings in % - 20%

Power saving per hour – 163kw

Annual running hours @ 10 hrs /day-3650 hours

Annual savings in kWh -594950

Annual saving @Rs 1.94/kwh – Rs 11.54 lakh

Cost benefit is taken cash inflows.

Budget Title: - Basis control weight values instrumentation.

After replacing Basis control in PMC

Loss per ton = Rs. 6000

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

= 85 MT x 6000 = Rs. 5.10 lakh

Paper M/c 2

Estimate saving of fiber

= 7.0 kg/hour

= 168 kg/day

= 168 x 330 days = 55000 kg /annum



70

Fiber saving @ Rs. 10,000-00 MT

= 55 x 10,000 =Rs.5.5 lack

Total Saving = Rs. 5.10 lakhs + 5.5 lakhs

=Rs. 10.60 lakh/annum

Cost benefits are taken as cash inflows.

Budget Title: Street-capulper, carrying system

Capacity enhanced by 950 Mt per month

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

= 57 lakh per month

= 6, 84, 00,000 per annum

Investment = 147.63 lakhs

Payback = 12 weeks

Here costs Benefit are taken as cash inflows.

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

6and 7

Cost Benefit : 7.58 lakhs /per year

Pay back =3 year 6 months

Here cost benefits are taken as cash inflows.

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

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

Annual savings: Rs. 2.52 lakhs

Payback: 2 Years




71

Budget Title: Energy Efficient vacuum pump for PM1 & 3

Cost benefit: 18.30 lakh/annum

Investment: 30 lakhs

Payback: 19 months


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

pump at PM1

Cost benefit: 5.06 lakh

Power saving per/annum = 5.06

Payback period: 1 year 8 months

Cost benefit are taken as cash inflows

Budget Title: Chest Auto Cleaning

Cost benefit:-

Reduction in down time is 2 hours per sheet.

Total reduction per annual is 24 hours.

Addl. Contribution = 24 x 10 tph x Rs. 15000/7 = Rs. 36 lakhs/Annum

Reduction in contract Labor is 48/ annual

Therefore addl. Reduction in cost is 48x 123.73 = Rs. 5939/annum

Payback: 16 months

Cost benefit taken as cash flows.



72

Budget Title: Clamp Truck

Cost Benefit: Rs. 12 lakh per annum

Pay back = 3.3 years


Budget Title: 250 kW VFD pumps

By implementing in this scheme

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

2. Optimization of power consumption for process water pump by VFD

Cost benefit: Rs. 7.43 Lac /annum

This is taken as cash inflows.

Budget Title: VFD‟s for stock pump

By implementing in this scheme

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

from paper machine based on GSM.

Cost benefit:-

Power saving by VFD is 94.23 kW

Annual hours considered is 7920 hrs

Annual energy savings is 7.46 lakh kWh

Cost of generation is Rs. 1.6/ Kwh

Annual savings is Rs. 1245 Lakh

Annual savings are taken as cash inflows.



73

Scheme Title: - Water conservation measures

In this scheme we have to implement 2 proposals

Copex proposal Title:

Proposals: 1. Water conservation Proposal- Chemical recovery plant (SRP)

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

By implementing the proposal Fto congerve 1300 m3/day of process water

consumption at limekiln and caustic zing through recycling bases on findings of CII water

audit.

By implementing the Proposals are 2. To conserve 1500 m3/day of process water

consumption at pm 2/3 from vacuum pumps & refiners sealing water by installing fan &

finless cooling tower through recycling.

The Cost Benefit:

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

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

Total saving: 15.37 lakh

This is taken as cash inflows.



74

FINDINGS:

It is observed that the company is able to increase its profits from year

to year.

The Gross profits from 2005 to 2010 increased from year to year

It is observed that the companies’ net worth is increasing considerably.

By observing the sources & applications, it is clear that the company is actively

increasing or standardizing its operations.

SUGGESTIONS:

A business may like to reduce its risk by operating in several markets rather than in

a single market.

I suggest capital investment may become necessary for purchase of new machinery

and facilities to handle the new products.

Company needs to identify the potential business revenue generation which results

to profit on operations.

A firm may have to expand its productions capacity on account of high demand for

its products as inadequate production capacity.



75

CONCLUSIONS:

1. In ITC-PSPD there is no debt in the capital structure that means the interest outflow are

totally nil. In view of the above ITC-PSPO has calculated NPV by discounting at 12%.

2. ITC PSPD is the parent company is No.1 paper production in India. Especially they are

pioneered in the premium products. This has helped them in capturing exports markets.

So the capital investment is in this company enrich good sales and they are by good

returns.

3.

In this organization capital budgeting technique are being implemented even for capitalassets which are having values lesser than 7 lakhs.

4. They invest the maximum capital production, development and equipment and attraction

of machines and to develop them for best utilize.

5. They maintain check list for every scheme even to minimum valued and minimum

valued.

6. Simple pay back should not be more than 36 months and NPV at 5 year period should be

positive particularly in the small investments.

7. Further there is substantially growth in paper industry. This will enable the company to

increase sales there by maximum the profits.

8. Only two techniques of capital budgetings are implemented.



Bibliography:

TITLE AUTHOR

Financial Management D. Chandra Bose

Fundamentals of financial Management Chandra

Financial Management I.M.Pandy

Journals:

1. www.Itcportal.com

2. www.itcpspd.com

3. www.google.co.in

Documents

Itc Srinivasarao