ULTRATECH

CAPITAL BUDGETING
INTRODUCTION TO CAPITAL BUDGETING

Capital Budgeting decision pertains to fixed/long-term assets which are in operation and

yield a return over a period of time. They therefore involve current outlay in return for series of

anticipated flow of future benefits.

Capital budgeting decisions are of paramount importance in financial decision making. In

first place such decision affects the profitability at a firm. They also have a bearing on the

competitive position of the enterprise mainly because of the fact that the may enable the firm. To

generate finished goods that can ultimately be sold for profit.

During the project, I have gone through Capital Budgeting information. The proposed

objectives of the company include Power Generation.

I found Increase in Investment Turn over Ratio, Fixed Assets Turn over Ratio and Fixed

Assets to Net worth Ratio and decrease in Return on Investment and Fixed Assets Ratio.

I Suggest that the use of various project evaluation techniques, such as return on

investment, pay back period, discounted cash flow Evaluation and Review Technique, Critical

path method and strengths weaknesses, opportunities and Threats Analysis.

CONCEPT AND MEANING:
The term capital budgeting refers to “long term planning for proposal

capital outlay and their financing. It includes rising long-term funds and their utilization. It may

be defined as firms, formal process of acquisition and investment of capital.

Capital Budgeting may also 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 essentially long-term projects and

incurred among the available market opportunities.

Capital budgeting is the process of making investment decision in capital expenditure. A Capital

expenditure may be defined as an expenditure, the benefits of which are expected to be received

over a period of time exceeding one year. The main characteristic of a Capital expenditure is that

the expenditure is incurred at the one point of time whereas benefits of the expenditure are

related at different point of time in future.

In simple language we may say that a capital expenditure is an expenditure incurred for

acquiring or improving the fixed assets, the benefits of which are to be received over a number of

years in future
NEED AND IMPORTANCE:

Capital Budgeting means planning for capital assets. Capital Budgeting decisions are vital to
an organization as to include the decision as to:

 Whether or not funds should be invested in long term projects such as settings of an
industry, purchase of plant and machinery etc.,
 Analyze the proposals for expansion or creating additions capacities.
 To decide the replacement of permanent assets such as building and equipments.
 To make financial analysis of various proposals regarding capital investment so as to
choose the best out of many alternative proposals.

OBJECTIVES OF THE STUDY:

Capital Budgeting decisions are based on the objective of efficient utilization of resources by
reducing costs. Therefore capital expenditure decision can be two types –

(1) Expenditure which increases revenue

(2) Expenditure which reduces costs.

There is difference between capital expenditure increasing revenue and capital expenditure
reducing costs. The former has more uncertainty when compared to the later. The overall
objective of capital expenditure is to maximize the firm’s profits and thus optimizing the return
on investment. This objective can be achieved either by increased revenue or by reducing costs
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 ULTRATECH
CEMENTS for four years and budgeted figures of each year.

METHODOLOGY:

At each point of time a business firm has a number of proposals regarding various projects in
which, it can invest funds. But the funds available with the firm are always limited and are not
possible to invest trend in the entire proposal at a time. Hence it is very essential to select from
amongst the various competing proposals, those that gives the highest benefits. The crux of
capital budgeting is the allocation of available resources to various proposals. There are many
considerations, economic as well as non-economic, which influence the capital budgeting
decision in the profitability of the prospective investment.

Yet the right involved in the proposals cannot be ignored, profitability and risk are directly
related, i.e. higher profitability the greater the risk and vice versa there are several methods for
evaluating and ranking the capital investment proposals.
LIMITATIONS:
(1) All the techniques of capital budgeting presume that various investment proposals under
consideration that are mutually exclusive which may not practically be true in some
particular circumstances.
(2) The techniques of capital budgeting requires estimation of future cash inflows and out
flows. The future is always uncertain and the data collected for future may not be exact.
Obviously, the result based upon wrong data can not be good.
(3) There are certain factors like morale of employees, goodwill of the firm, etc., which
cannot be correctly qualified but which otherwise substantially influence the capital
decision.
(4) Urgency is another limitation in evaluation of capital investment decision.
(5) Uncertainty and risk pose the biggest limitation to the techniques of capital budgeting.
Methods of Capital Budgeting

(1) Traditional methods:

 Pay back period
 Average rate return method

(2) Discount cash flow method

 Net present value method
 Internal rate return method
 Profitability index method

Data collection:

Primary data: - The primary data is the data which is collected, by interviewing directly
with the organizations concerned executives. This is the direct information gathered from the
organization

Secondary data: - The secondary data is the data which is gathered from publications and
websites.
CAPITAL BUDGETING:

A capital expenditure is an outlay of cash for a project that is expected to

produce a cash inflow over a period of time exceeding one year. Examples of projects include
investments in property, plant, and equipment, research and development projects, large
advertising campaigns, or any other project that requires a capital expenditure and generates a
future cash flow.

Because capital expenditures can be very large and have a significant impact on the financial
performance of the firm, great importance is placed on project selection. This process is called
capital budgeting.

KINDS OF CB DECISIONS:

Capital Budgeting refers to the total process of generating, evaluating, selecting and following up
on capital expenditure alternatives basically; the firm may be confronted with three types of
capital budgeting decisions

Accept reject decisions 

This is a fundamental decision in capital budgeting. If the project is accepted, the firm
invests in it; if the proposal is rejected, the firm does not invest in it. In general, all those
proposals, which yield rate of return greater than a certain required rate of return or cost of
capital, are accreted and rest are rejected. By applying this criterion, all independent projects
all accepted. Independent projects are the projects which do not compete with one another in
such a way that the acceptance of one project under the possibility of acceptance of another.
Under the accept-reject decision, the entire independent project that satisfies the minimum
investment criterion should be implemented.

(i) Mutually exclusive project decision 

Mutually exclusive projects are projects which compete with other projects in
such a way that the acceptance of one which exclude the acceptance of other
projects. The alternatives are mutually exclusive and only one may be chosen.
(ii) Capital Rationing Decision 

Capital rationing is a situation where a firm has more investment proposals than it
can finance. It may be defined as a situation where a constraint in placed on the
total size of capital investment during a particular period. In such a event the firm
has to select combination of investment proposals which provides the highest net
present value subject to the budget constraint for the period. Selecting or rejecting
the projects for this purpose will require the taking of the following steps:
1) Ranking of projects according to profitability index (PI) or Initial rate of return
(IRR).
2) Selecting of rejects depends upon the profitability subject to the budget
limitations keeping in view the objectives of maximizing the value of firms.
 COMPANY PROFILE
ULTRATECH CEMENT:

UltraTech Cement Limited has an annual capacity of 18.2 million tonnes. It manufactures and
markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzalana
Cement. It also manufactures ready mix concrete (RMC).

UltraTech Cement Limited has five integrated plants, six grinding units and three terminals —
two in India and one in Sri Lanka.

UltraTech Cement is the country’s largest exporter of cement clinker. The export markets span
countries around the Indian Ocean, Africa, Europe and the Middle East.
UltraTech’s subsidiaries are Dakshin Cement Limited and UltraTech Ceylinco (P) Limited.

The roots of the Aditya Birla Group date back to the 19th century in the picturesque town of
Pilani, set amidst the Rajasthan desert. It was here that Seth Shiv Narayan Birla started trading in
cotton, laying the foundation for the House of Birlas.

Through India's arduous times of the 1850s, the Birla business expanded rapidly. In the early part
of the 20th century, our Group's founding father, Ghanshyamdas Birla, set up industries in
critical sectors such as textiles and fibre, aluminium, cement and chemicals. As a close
confidante of Mahatma Gandhi, he played an active role in the Indian freedom struggle. He
represented India at the first and second round-table conference in London, along with Gandhiji.
It was at "Birla House" in Delhi that the luminaries of the Indian freedom struggle often met to
plot the downfall of the British Raj.

Ghanshyamdas Birla found no contradiction in pursuing business goals with the dedication of a
saint, emerging as one of the foremost industrialists of pre-independence India. The principles by
which he lived were soaked up by his grandson, Aditya Vikram Birla, our Group's legendary
leader.
Aditya Vikram Birla: putting India on the world map
A formidable force in Indian industry, Mr. Aditya Birla dared to dream
of setting up a global business empire at the age of 24. He was the first to
put Indian business on the world map, as far back as 1969, long before
globalisation became a buzzword in India.

In the then vibrant and free market South East Asian countries, he
ventured to set up world-class production bases. He had foreseen the winds of change and staked
the future of his business on a competitive, free market driven economy order. He put Indian
business on the globe, 22 years before economic liberalisation was formally introduced by the
former Prime Minister, Mr. Narasimha Rao and the former Union Finance Minister, Dr.
Manmohan Singh. He set up 19 companies outside India, in Thailand, Malaysia, Indonesia, the
Philippines and Egypt.

Interestingly, for Mr. Aditya Birla, globalisation meant more than just geographic reach. He
believed that a business could be global even whilst being based in India. Therefore, back in his
home-territory, he drove single-mindedly to put together the building blocks to make our Indian
business a global force.
Under his stewardship, his companies rose to be the world's largest producer of viscose staple
fibre, the largest refiner of palm oil, the third largest producer of insulators and the sixth largest
producer of carbon black. In India, they attained the status of the largest single producer of
viscose filament yarn, apart from being a producer of cement, grey cement and rayon grade pulp.
The Group is also the largest producer of aluminium in the private sector, the lowest first cost
producers in the world and the only producer of linen in the textile industry in India.

At the time of his untimely demise, the Group's revenues crossed Rs.8,000 crore globally, with
assets of over Rs.9,000 crore, comprising of 55 benchmark quality plants, an employee strength
of 75,000 and a shareholder community of 600,000.

Most importantly, his companies earned respect and admiration of the people, as one of India's
finest business houses, and the first Indian International Group globally. Through this
outstanding record of enterprise, he helped create enormous wealth for the nation, and respect for
Indian entrepreneurship in South East Asia. In his time, his success was unmatched by any other
industrialist in India.

That India attains respectable rank among the developed nations, was a dream he forever
cherished. He was proud of India and took equal pride in being an Indian.

Under the leadership of our Chairman, Mr. Kumar Mangalam Birla, the Group has sustained and
established a leadership position in its key businesses through continuous value-creation.
Spearheaded by Grasim, Hindalco, Aditya Birla Nuvo, Indo Gulf Fertilisers and companies in
Thailand, Malaysia, Indonesia, the Philippines and Egypt, the Aditya Birla Group is a leader in a
swathe of products — viscose staple fibre, aluminium, cement, copper, carbon black, palm oil,
insulators, garments. And with successful forays into financial services, telecom, software and
BPO, the Group is today one of Asia's most diversified business groups.

Board of Directors
:: Mr. Kumar Mangalam Birla, Chairman
:: Mrs. Rajashree Birla
:: Mr. R. C. Bhargava
:: Mr. G. M. Dave
:: Mr. N. J. Jhaveri
:: Mr. S. B. Mathur
:: Mr. V. T. Moorthy
:: Mr. O. P. Puranmalka
:: Mr. S. Rajgopal
:: Mr. D. D. Rathi
:: Mr. S. Misra, Managing Director