MBA Programme

INTRODUCTION

INTRODUCTION TO FINANCIAL MANAGEMENT

Finance in the modern business world is regarded as life blood of a business

enterprise; finance function has become so important that it has give birth to financial

management as a separate subject. So this subject is acquiring universal applicability.

Financial management is that managerial activity, which is concerned with the planning

and controlling of the firm's financial resources, as a separate activity of recent origin it

was a branch of its own, and it draws heavily on economics for its theoretical

concepts.

Financial management is broadly concerned with the acquisition and use of

funds by a business firm. It deals with

1. How large should the firm be and how fast should it grow?

2. What should be the composition of the firm's avels?

3. What should be the mix of the firm's financing?

4. How should the firm analysis, plan and control its financial affairs?

While the first three questions express Ezra Solomon's conception of financial

management as discussed in his clerical work. "The theory of financial

management" the forth one represents an addition that is very relevant in the light of

the responsibilities shouldered by finance managers in practice.

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Key activities of financial management

The three broad activities of financial management

Financial analysis, planning and control.

Management of the firm's asset structure.

Management of the firm's financial structure

Financial Analysis, Planning And Control

Finance analysis, planning and control are concerned with

Assessing the finance performance and conciliation of the firm.

Forecasting and planning the finance future of the firm.

Estimating the financing needs of the firm.

Instituting appropriate systems and control to ensure that the actions of the firm.

The modern thinking in financial management accords a far greater importance to

management in decision making and formulation of policy. Financial management

occupies key position in top management and plays a dynamic role in solving complex

management problems. They are now responsible for snapping the fortunes of the

enterprise and are involved in allocation of capital.

Nature of financial management

Financial management is that managerial activity which is concerned with

the planning and controlling of the financial resources. Though it was a branch of

economics t i l l 1890, as a separate activity or discipline it is of recent origin still, it

has no unique body of knowledge of its own and draws heavily on economics for its

theoretical concept even today. Financial management is that managerial activity

which is concerned with the planning and controlling of the firms financial

resources.

Business finance may further sub divided into various categories personal

finance, partner ship finance and corporate or company finance as separate activity

it is of recent origin. The finance in the modern world is the life of the business economy.

We can't imagine a business without finance because it is actual point of all business

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activities. Finance function has not unique body it is part of economics,

accounting marketing, product and quantitative methods.

Management Of The Firm's Asset Structure Involves

Management of the firm's asset structure involves

1. Determining the capital budget.

2. Managing the liquid resources.

3. Establishing the credit policy.

4. Controlling the level of inventories

Management of the firm's financial structure

Management ofthe firm's financial structure involves

1. Establishing the debt-equity ratio or financial leverage.

2. Determining the divided policy.

3. Choosing the specific instruments of financing.

4. Negotiating and developing relationship with various suppliers of

capital.

Scope of financial management

The approach the scope and functions of financial management is vided, for

purpose of exposition into two broad categories

1. The traditional approach.

2. The modern approach.

The traditional approach

The traditional approach of the scope of the financial management efers to its

subject matter. The scope of the finance function was treated by the traditional approach in the

narrow sense of procurement of funds by corporate enterprise to meet their financing needs.

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1. The institutional agreement in the form of financial institution

which comprise the organization of the capital market.

2. The financial instruments through which funds are raised from the

capital markets and the related aspects of practices and the

procedural aspects of capital.

3. The legal and accounting relationships between a firm and its sources of

funds.

The coverage of corporations, finance was therefore conceived to ascribe the

rapidly evolving complex of capital markets institutions istruments and practices.

The first argument against the traditional approach was based on its nphasis on

issues relating to the procedural of iimds by corporate iterprises. The second

ground of criticism of the traditional treatment as that the focus was on financing of

corporate enterprises.

The traditional treatment was found to have a lacuna to the extent that the focus

was on term financing. The limitation of the traditional approach was more

fundamental it did not consider the important dimension of allocation of capital

Modern Approach

The modern approach views the term financial management in a broad sense

and provides a conceptual analytical frame work for financial decision making.

According to it the finance function covers both acquisitions of fund as well as their

allocation, the main concern of financial management is the efficient and wise

allocation of funds to various as an defined in a broad sense, and it is viewed as

an integral part of overall management.

Financial management in the modern sense of the term can be broken down

into three major decisions as function of finance.

1. The investment decision.

2. The financing decision.

3. The dividend policy decision.

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Investment Decision

The investment decision relates to the selection of quest in which mds will be

invested by a firm. The assets are of two types they are

1. Long .term assets and

2. Short term assets (or) current assets.

The assets selection decision of a firm is of two types. The first itegory of

assets is popularly known as "capita! budgeting" And the second category of assets is

known as 'working capital management"

Capital Budgeting

The capital budgeting is the oldest and most crucial decision of relates to

allocation of capital and involves the decision to commit funds to long term assets

which would yield benefits in future. The measurement of the worth of the

investment proposals is a major element in the capital budgeting decision.

Further benefits are difficult to measure and can't be predicted with

certainty. So the second element of the capital budgeting decision is the

analysis of risk and uncertainty. The investment proposals should therefore be

evaluated in terms of both expected return and risk associated with the return. The

total assets and their composition.

1. The business rise completion f the firm.

2. Concept and measurement of cost of capital

Working capital management

Working capital management is concerned of current assets. The financial

manager has a duty to manage the current assets affects firm's profitability liquidity

and risk. One aspect of working capital m anagement is the trade of

profitability and risk. There is a conflict between profitability and liquidity. If

firm doesn't have adequate working capital it may become liquidity.

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If the current assets are too large, the profitability is adversely af fected.

Thus a proper trade off must be achieved between profitability id liquidity in order

to ensure that neither in sufficient unnecessary f inds invested in current assets. The

financial managers should develop >und techniques of managing current assets. He

should estimates firm's working capital needs and make sure that funds would be made

available hen needed.

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Financial decision

The second important function to be performed by the financial manager. He must

decide when where and how to acquire funds to meet e firm's needs. The financial

manager is concerned with determining e financing mix can capital structure for his

firm. Once the financial manager is able to determine the best combination of debts

and equity he must raise the appropriate amount through best available sources.

Dividend decision

Dividend decision is the third major financial decision the financial manager

must the firm should distribute all profits (or) retain then (or) distribute a portion and

retain the balance, the optimum dividend policy s one which maximizes the market

value of the firm's dividends policy, he manager must determined the optimum

dividend payout ratio. Finding the firm's appropriate role in the efforts they solve these

problems demanding on increasing the proportion of these items of financial

manager.

Objectives of financial management

Financial management is concerned with procurement and use of funds it 's

main aim is to use business funds in such a way that the firm's value earning are

maximized. There are various alternatives available for sine business funds. Each

alternative course has valuated in detail. The decisions will have to take in to

consideration the commercial strategy of the business. Financial management

provides a frame work for selecting a course of action and deciding available

commercial strategy. The Main objective of a business is to maximize the owner's

economic welfare.

The objectives can be achieved by

1. Profit maximization.

2. Wealth maximization

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Profit maximization

The main objectives of any business enterprise is maximization of profits. Each

company raises its finance by way of issue shares to public. Investors purchase these

shares in the hoe of getting maximum profits from the company as dividend. It is

possible only where the company's goal to earn "profit" can beyond in two senses

1. As a owner-oriented concept

2. Operational concept

As owner-oriented concept it refers to the amount and share of national

income which is paid to the owners of business i.e., those who supply capita]. It

is an operational concept and signifies economic efficiency.

Higher profits are the parameters of its efficiency on all fronts that is

production, sales and management. A few replace the concept of profit

maximization to safe-guard the economic interest of persons who directly or

indirectly connected with the company that is share holders, creditors and employees

the all such interested parties must get the maximum return for their contributions.

'That this is possible only when the company earns higher profits or sufficient

profits to discharge its obligations to them. Therefore, the goal of maximization of

profits said to be the best criteria of the decision making.

Thus the retinal behind maximization of profits is simple because profits are

the test of economic efficiency. It is a measuring rod by which the economic

performance of the company can be judged

1. Profits lead to efficient allocation of resources

2. It ensures maximum social welfare

Goal of wealth maximization

This is also known as "value maximization" of "Net present worth maximization"

wealth maximization is universally accepted as an appropriate operational decision

criteria for financial decision making. The value of an asset should be viewed in

terms of benefits it can produce. The worth of a course of action can similarly

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be judged in terms of the value of the benefits it produces less the cost of undertaking

it.

The wealth maximization objective is consistent with the objectives of

maximization of owner's economic welfare that is their welfare the wealth of

owners of company is reflected by the market value of company shares. Thus

the fundamental principal of the company is to maximize the value of its share on

the basis of day to day fluctuations of the market price.

In order to like the market price of its shares over the short run at the expense

or me long run by temporarily diverting source If its funds some other accounts or by

the cutting some of its expenditure to the cutting at the cost of future profits. This does

not reflect the worth of ie share because it will result in the fall of the share price in the

market i the long run. It is therefore the goal of the financial management to ensure its

share holders that the value of their shares will be maximize in le long run. The

performance of the company can be evaluated by the value of its shares.

Importance of financial management

Financial management is of greater importance in the present c orporate

would it is a science of money. Which permits the authorities to go further. The

significance of financial management can be summarized as

1. It assists in the assessment of financial needs of industry large or small and

indicates the internal and external resources for meeting them.

2. It assesses the efficient and effectiveness of the financial initiation in

mobilizing individual or corporate savings. It also prescribes various

means for such mobilizing of saving into desirable investment channels.

3. It assists the management while investing funds in profitable projects by

analyzing the viability of that project through capital budgeting techniques.

Cultivation

Successful cultivation of cotton requires a long frost-free period, plenty of

sunshine, and a moderate rainfall, usually from 600 to i200mm (24 to 48

inches). Soils usually need to be fairly heavy, although the level of nutrients does

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not need to be exceptional. In general, these conditions are met within the seasonally

dry tropics and subtropics in the Northern and Southern hemispheres, but a large

proportion of the cotton grown today is cultivated in areas wilh less rainfall that obtain

the water from irrigation.

Production of the crop for a given year usually starts soon after harvesting the

preceding autumn. Planting time in spring in the Northern hemisphere varies from the

beginning of February to the beginning of June. The area of the United States known

as the South Plains is the largest contiguous cotton-growing region in the world. It is

heavily dependent on irrigation water drawn from the Ogallala Aquifer.

Cotton is a thirsty crop, and as water resources get tighter around the

world, economies that rely on it face difficulties and conflict, as well as potential

environmental problems. For example, cotton has led to desertification in areas of

Uzbekistan, where it is a major export. In the days of the Soviet Union, the Aral

Sea was tapped for agricultural irrigation, largely of cotton, and now salivation is

widespread.

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Capital budgetingCB is a long term investment made by the organization in different projects and it

helps the firm in evaluating the projects under taken by different techniques.According to

Weston and Brigham “CB involves the entire process of planning expenditures whose

returns are expected to extend beyond one year.

The CB decisions include replacement, expansion, diversification research and

development and miscellaneous proposals.

Feature Of Capital Budgeting

The important features, which distinguish capital budgeting decision in other day-

today decision, are Capital budgeting decision involves the exchange of current funds for

the benefit to be achieved in future. The futures benefits are expected and are to be

realized over a series of years. The funds are invested in non-flexible long-term funds.

They have a long term and significant effect on the profitability of the concern. They

involve huge funds. They are irreversible decisions. They are strategic decision associated

with high degree of risk.

Importance of Capital Budgeting

The importance of capital budgeting can be understood from the fact that an

unsound investment decision may prove to be fatal to the very existence of the

organization.

The importance of capital budgeting arises mainly due to the following:

1. Large investment:

Capital budgeting decision, generally involves large investment of funds. But the

funds available with the firm are scarce and the demand for funds for exceeds resources.

Hence, it is very important for a firm to plan and control its capital expenditure.

2. Long term commitment of funds:

Capital expenditure involves not only large amount of funds but also funds for

long-term or a permanent basis. The long-term commitment of funds increases the

financial risk involved in the investment decision.

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3. Irreversible nature:

The capital expenditure decisions are of irreversible nature. Once, the decision for

acquiring a permanent asset is taken, it becomes very difficult to impose of these assets

without incurring heavy losses.

4. Long term effect on profitability:

Capital budgeting decision has a long term and significant effect on the profitability of a

concern. Not only the present earnings of the firm are affected by the investment in capital assets

but also the future growth and profitability of the firm depends up to the investment decision

taken today. Capital budgeting decision has utmost has importance to avoid over or under

investment in fixed assets.

5. Difference of investment decision:

The long-term investment decision are difficult to be taken because uncertainties

of future and higher degree of risk.

6. Notional Importance:

Investment decision though taken by individual concern is of national importance

because it determines employment, economic activities and economic growth.

Kinds Of Capital Budgeting

Every capital budgeting decision is a specific decision in the situation, for a given

firm and with given parameters and therefore, almost infinite number of types or forms of

capital budgeting decision may occur. Some projects affect other projects of the firm is

considering and analyzing. The project may also be classified as revenue generating or

cost reducing projects can be categorized as follows.

1. From the point of view of firm’s existence:

The capital budgeting decision may be taken by a newly incorporated firm or by an

already existing firm.

New Firm: A newly incorporated firm may be required to take different decision such

as selection of a plant to be installed, capacity utilization at initial stages, to set up or not

simultaneously the ancillary unity etc.

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Existing Firm: A firm which already exists may be required to take various decisions

from time to time meet the challenge of competition or changing environment. These

decisions may be:

Replacements and Modernization Decision:

This is a common type of a capital budgeting decision. All types of plant and

machineries eventually require replacement. If the existing plant is to be replaced because

of the economic life of the plant is over, then the decisions may be known as a

replacement decision. However, if an existing plant is to be replaced because it has

become technologically outdated (though the economic life may not be over) the decision

any be known as a modernization decision. In case of a replacement decision, the

objective is to restore the same or higher capacity, whereas in case of modernization

decision, the objectives are to increase the efficiency and/or cost reduction. In general, the

replacement decision and the modernization decision are also known as cost reduction

decisions.

Expansion:

Sometimes, the firm may be interested in increasing the Installed production capacity so

as to increase the market share. In such a case, the finance manager is required to evaluate

the expansion program in terms of marginal costs and marginal benefits.

(i) Diversification:

Sometimes, the firm may be interested to diversify into new product lines, new markets;

production of spares parts etc. in such a case, the finance manager is required to evaluate

not only the marginal cost and benefits, but also the effect of diversification on the

existing market share and profitability. Both the expansion and diversification decisions

may be also be known as revenue increasing decisions.

The capital budgeting may also be classified from the point of view of the decision

situation as follows:

Independent project Decision:

This is a fundamental decision in Capital Budgeting. It also called as accept /reject

criterion. If the project is accepted, the firm invests in it. In general all these proposals,

which yield a rate of return greater than a certain required rate of return on cost of

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capital, are accepted and the rest are rejected. By applying this criterion all independent

projects with one in such a way that the acceptance of one precludes the possibility of

acceptance of another. Under the accept-reject decision all independent projects that

satisfy the minimum investment criterion should be implemented.

(ii) Mutually Exclusive Projects Decision:

Mutually Exclusive project are those, which compete with other projects in such a

way that the acceptance of one will exclude the acceptance of the other projects. The

alternatively are mutually exclusive and only one may be chosen. Suppose a company is

intending to buy a new machine. There are three competing brands, each with a different

initial investment adopting costs. The three machines represent mutually exclusive

alternatives as only one of these can be selected. It may be noted here that the mutually

exclusive projects decisions are not independent of the accept-reject decisions.

(iii) Capital Rationing Decision:

In a situation where the firm has unlimited funds all independent investment

proposals yielding return greater than some pre-determined levels are accepted. However

this situation does not prevail in most of the business firms in actual practice. They have a

fixed capital budget.

A large number of investment proposals compete for these limited funds, the firm

must therefore ration them. The firm allocates funds to projects in a manner that it

maximizes long run returns; this rationing refers to a situation in which a firm has more

acceptance investment than it can finance. It is concerned with the selection of a group of

investment proposals acceptable.

Under the accept-reject decision capital rationing employees ranking of the

acceptable investment projects. The project can be ranked on the basis of a predetermined

criterion such as the rate of return. The project is ranked in the descending order of the

rate of return.

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Problems And Difficulties In Capital Budgeting

The problems in Capital budgeting decision may be as follows:

Future uncertainty:

Capital budgeting decision involves long-term commitments. However there is lot

of uncertainty in the long term. Uncertainty may be with reference to cost of the project,

future expected returns, future competition, legal provisions, political situation etc.

Time Element:

The implication of a Capital Budgeting decision are scattered over a long period.

The cost and benefit of a decision may occur at different points of time. The cost of

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

years. The future benefits have to be adjusted to make them comparable with the cost.

Longer the time period involved, greater would be the uncertainty.

Difficulty in quantification of impact:

The finance manager may face difficulties in measuring the cost and benefits of

projects in quantitative terms. For example, the new products proposed to be launched by

a firm may result in increase or decrease in sales of other products already being sold by

the same firm. It is very difficult to ascertain the extent of impact as the sales of other

products may also be influenced by factor other than the launch of the new products.

Assumption in capital budgeting:

The capital budgeting decision process is a multi-faceted and analytical process. A

number of assumptions are required to be made. These assumptions constitute a general

set of condition within which the financial aspects of different proposals are to be

evaluated. Some of these assumptions are:

1. Certainty With Respect To Cost and Benefits:

It is very difficult to estimate the cost and benefits of a proposal beyond 2-3 years

in future. However, for a capital budgeting decision, it is assumed that the estimate of cost

and benefits are reasonably accurate and certain.

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2. Profit Motive:

Another assumption is that the capital budgeting decisions are taken with a

primary motive of increasing the profit of the firm. No other motive or goal influences the

decision of the finance manager.

3. No Capital Rationing:

The capital Budgeting decisions in the present chapter assume that there is no

scarcity of capital. It assumes that a proposal will be accepted or rejected in the strength

of its merits alone. The proposal will not be considered in combination with other

proposals to the maximum utilization of available funds.

Capital Budgeting Process

Capital budgeting is complex process as it involves decision relating to the

Investment of current funds for the benefit for the benefit to be achieved in Future and the

future are always uncertain. However, the following procedure may be adopted in the

process of Capital Budgeting.

Identification of investment proposals:

The capital budgeting process begins with the identification of investment

Proposals. The proposal about potential investment opportunities may originate either

from top management or from any officer of the organization. The departmental head

analysis various proposals in the light of the corporate strategies and submits the suitable

proposals to the capital expenditure planning.

Screening proposals:

The expenditure planning committee screens the various proposals received from

different departments. The committee reviews these proposals from various angles to

ensure that these are in accordance with the corporate strategies or selection criterion of

the firm and also do not lead departmental imbalances.

Evaluation of Various proposals:

The next step in the capital budgeting process is to various proposals. The method,

which may be used for this purpose such as, payback period method, rate of return

method, N.P.V and I.R.R etc.

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Fixing priorities:

After evaluating various proposals, the unprofitable uneconomical proposal may

be rejected and it may not be possible for the firm to invest immediately in all the

acceptable proposals due to limitation of funds. Therefore, it essential to rank the

project/proposals after considering urgency, risk and profitability involved in there.

Final approval and preparation of capital expenditure budget

Proposals meeting the evaluation and other criteria are approved to be included in

the capital expenditure budget. The expenditure budget lays down the amount of

estimated expenditure to be incurred on fixed assets during the budget period.

Implementing proposals

Preparation of a capital expenditure budget and incorporation of a particular

Proposal in the budget doesn’t itself authorize to go ahead with the implementation of the

project. A request for the authority to spend the amount should be made to the capital

Expenditure committee, which reviews the profitability of the project in the changed

circumstances. Responsibilities should be assigned while implementing the project in

order to avoid unnecessary delays and cost overruns. Network technique likes PERT and

CPM can be applied to control and monitor the implementation of the projects.

Performance Review

The last stage in the process of capital budgeting is the evaluation of the

performance of the project. The evaluation is made by comparing actual and budget

expenditures and also by comparing actual anticipated returns. The unfavorable variances,

if any should be looked in to and the causes of the same be identified so that corrective

action may be taken in future.

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Methods or techniques of capital budgeting

There are many methods for the evaluating the profitability of investment

proposals the various commodity used methods are

Techniques Of Capital Budgeting

Traditional Methods Time Adjusted Methods

1. Pay Back Period 1. Net Present Value method

2. Accounting Rate of Return 2. Internal Rate of Return method

3. Profitability Index method

Traditional methods:

Payback period method (P.B.P)

Accounting Rate of Return Method (A.R.R)

Time adjusted or discounted technique:

(I) Net Present Value method (N.P.V)

(II) Internal Rate of Return method (I.R.R)

(III) Profitability Index method (P.I)

Pay Back Period Method

The pay back come times called as payout or pay off period method represents the

period in which total investment in permanent assets pay back itself. This method is based

on the principle that every capital expenditure pays itself back within a certain period out

of the additional earnings generated from the capital assets.

Decision rule

A project is accepted if its payback period is less than period specific decision

rule. A project is accepted if its payback period is less than the period specified by the

management and vice-versa.

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Initial Cash Outflow

Pay Back Period = ----------------------------

Annual Cash Inflows

Advantages:

Simple to understand and easy to calculate.

It saves in cost; it requires lesser time and labour as compared to other methods

of capital budgeting.

In this method, as a project with a shorter payback period is preferred to the one

having a longer pay back period, it reduces the loss through obsolescence.

Due to its short- time approach, this method is particularly suited to a firm which

has shortage of cash or whose liquidity position is not good.

Disadvantages:

It does not take into account the cash inflows earned after the payback period and

hence the true profitability of the project cannot be correctly assessed.

This method ignores the time value of the money and does not consider the

magnitude and timing of cash inflows.

It does not take into account the cost of capital, which is very important in making

sound investment decision.

It is difficult to determine the minimum acceptable payback period, which is

subjective decision.

It treats each assets individual in isolation with other assets, which is not feasible

in real practice.

Accounting Rate Of Return Method:

This method takes into account the earnings from the investment over the whole

life. It is known as average rate of return method because under this method the concept

of accounting profit (NP after tax and depreciation) is used rather than cash inflows.

According to this method, various projects are ranked in order of the rate of earnings or

rate of return.

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Decision rule:

The project with higher rate of return is selected and vice-versa.

The return on investment method can be in several ways, as

Under this method average profit after tax and depreciation is calculated and then it is

divided by the total capital out lay.

Average Annual profits (after dep.& tax)

Average rate of return = ----------------------------------------- ---- x 100

Average Investment

Advantages:

It is very simple to understand and easy to calculate.

It uses the entire earnings of a project in calculating rate of return and hence gives

a true view of profitability.

As this method is based upon accounting profit, it can be readily calculated from

the financial data.

Disadvantages:

It ignores the time value of money.

It does not take in to account the cash flows, which are more important than the

accounting profits.

It ignores the period in which the profit are earned as a 20% rate of return in 2 ½

years is considered to be better than 18%rate of return in 12 years.

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

made in parts.

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Net Present Value Method:

The NPV method is a modern method of evaluating investment proposals. This

method takes in to consideration the time value of money and attempts to calculate the

return on investments by introducing time element. The net present values of all inflows

and outflows of cash during the entire life of the project is determined separately for each

year by discounting these flows with firms cost of capital or predetermined rate. The steps

in this method are

1) Determine an appropriate rate of interest known as cut off rate.

2) Compute the present value of cash inflows at the above –determined discount rate.

3) Compute the present value of cash inflows at the predetermined rate.

4) Calculate the NPV of the project by subtracting the present value of cash

outflows.

Decision rule

Accept the project if the NPV of the projects 0 or positive that is present value of cash

inflows should be equal to or greater than the present value of cash outflows.

Advantages:

It recognizes the time value of money and is suitable to apply in a situation with

uniform cash outflows and uneven cash inflows.

It takes in to account the earnings over the entire life of the project and gives the

true view if the profitability of the investment

Takes in to consideration the objective of maximum profitability.

Disadvantages:

More difficult to understand and operate.

It may not give good results while comparing projects with unequal investment of

funds.

It is not easy to determine an appropriate discount rate.

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Internal Rate Of Return Method

The internal rate of return method is also a modern technique of capital budgeting

that takes in to account the time value of money. It is also known as time- adjusted rate of

return or trial and error yield method. Under this method the cash flows of a project are

discounted at a suitable rate by hit and trial method, which equates the net present value

so calculated to the amount of the investment. The internal rate of return can be defined

as “that rate of discount at which the present value of cash inflows is equal to the present

value of cash outflow.

Decision Rule:

Accept the proposal having the higher rate of return and vice versa. If

IRR>K, accept project. K=cost of capital. If IRR<K, reject project.

Determination Of Irr

a) When annual cash flows are equal over the life of the asset.

Initial Outlay

FACTOR = -------------------------------- x 100

Annual Cash inflow

b) When the annual cash flows are unequal over the life of the asset:

PV of cash inflows at lower rate – PV of cash out flows

IRR = LR+ --------------------------------------------------------- (hr-lr)

PV of cash inflows at lower rate - PV of cash inflows at higher rate

The steps are involved here are:

1. Prepare the cash flows table using assumed discount rate to discount the net cash

flows to the present value.

2. Find out the NPV, & if the NPV is positive, apply higher rate of discount.

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3. if the higher discount rate still gives a positive NPV increases the discount rate

further. Until the NPV becomes zero.

4. if the NPV is negative, at a higher rate, NPV lies between these two rates.

Advantages:

it takes into account, the time value of money and can be applied in situation with

even and even cash flows.

It considers the profitability of the projects for its entire economic life.

The determination of cost of capital is not a pre-requisite for the use of this

method.

It provide for uniform ranking of proposals due to the percentage rate of return.

This method is also compatible with the objective of maximum profitability.

Disadvantages:

It is difficult to understand and operate.

The results of NPV and IRR methods my differ when the projects under

evaluation differ in their size, life and timings of cash flows.

This method is based on the assumption that the earnings are reinvested at the IRR

for the remaining life of the project, which is not a justified assumption.

Profitability indexmethod or benefit cost ratio method:

It is also a time-adjusted method of evaluating the investment proposals. PI also

called benefit cost ratio or desirability factor is the relationship between present value of

cash inflows and the present values of cash outflows. Thus

PV of cash inflows

Profitability index = -----------------------------

PV of cash outflows

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NPV

Net profitability index = ---------------------------

Initial Outlay

Advantages:

Unlike net present value, the profitability index method is used to rank the

projects even when the costs of the projects differ significantly.

It recognizes the time value of money and is suitable to applied in a situation with

uniform cash outflow and uneven cash inflows.

It takes into account the earnings over the entire life of the project and gives the

true view of the profitability of the investment. Takes into consideration the

objectives of maximum profitability.

Disadvantages:

More difficult to understand and operate.

It may not give good results while comparing projects with unequal investment

funds.

It is not easy to determine and appropriate discount rate.

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INDUSTRY PROFILE

Coffee production in India is dominated in the hill tracts of South Indian states, with the

state of Karnataka accounting 53% followed by Kerala 28% and Tamil Nadu 11% of

production of 8,200 tonnes. Indian coffee is said to be the finest coffee grown in the shade

rather than direct sunlight anywhere in the world. There are approximately 250,000 coffee

growers in India; 98% of them are small growers. As of 2009, the production of coffee in

India was only 4.5% of the total production in the world. Almost 80% of the country's

coffee production is exported. Of that which is exported, 70% is bound for Germany,

Russian federation, Spain, Belgium, Slovenia, United States, Japan, Greece, Netherlands

and France, and Italy accounts for 29% of the exports. Most of the export is shipped

through the Suez Canal.

Coffee is grown in three regions of India with Karnataka, Kerala and Tamil Nadu forming

the traditional coffee growing region of South India, followed by the new areas developed

in the non-traditional areas of Andhra Pradesh and Orissa in the eastern coast of the

country and with a third region comprising the states of Assam, Manipur, Meghalaya,

Mizoram, Tripura, Nagaland and Arunachal Pradesh of Northeastern India, popularly

known as “Seven Sister States of India".

Indian coffee, grown mostly in southern India under monsoon rainfall conditions, is also

termed as “Indian monsooned coffee". Its flavour is defined as: "The best Indian coffee

reaches the flavour characteristics of Pacific coffees, but at its worst it is simply bland and

uninspiring”. The four well known varieties of coffee grown are the Arabica, robusta, the

first variety that was introduced in the Baba Budan Giri hill ranges of Karnataka in the

17th century marketed over the years under the brand names of Kent and S.795.

History

Coffee Plantation in Araku, Andhra Pradesh

Coffee growing has a long history that is attributed first to Ethiopia and then to Arabia,

mostly to Yemen. However, the earliest history is traced to 875 AD according to the

Bibliotheque Nationale in Paris. The original source is also traced to Abyssinia from

where it was brought to Arabia in the 15th century. The Indian context started with an

Indian Muslim saint, Baba Budan, while on a pilgrimage to Mecca, smuggled seven

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coffee beans (by tying it around his waist) from Yemen to Mysore in India and planted

them on the Chandragiri Hills (1,829 metres (6,001 ft)), now named after the saint as

Baba Budan Giri (‘Giri’ means “hill”) in Chikkamagaluru district. It was considered an

illegal act to take out green coffee seed out of Arabia. As number seven is a sacrosanct

number in Islamic religion, the saint’s act of carrying seven coffee beans was considered

a religious act. This was the beginning of coffee industry in India, and in particular, in the

then state of Mysore, now part of the Karnataka State. This was an achievement of

considerable bravery of Baba Budan considering the fact that Arabs had exercised strict

control over its export to other countries by not permitting coffee beans to be exported in

any form other than as in a roasted or boiled form to prevent germination.

Systematic cultivation soon followed Baba Budan’s first planting of the seeds, in 1670,

mostly by private owners and the first plantation was established in 1840 around Bab

Budan Giri and its surrounding hills in Karnataka. It spread to other areas of Wynad (now

part of Kerala), the Shevaroys and Nilgiris in Tamil Nadu. With British colonial presence

taking strong roots in India in the mid 19th century, coffee plantations flourished for

export. The culture of coffee thus spread to South India rapidly.

Initially, Arabica was popular. However, as result of serious infestation caused to this

variety by c o f fee rust , an alternative robust variety of coffee, appropriately named as

robusta and another hybrid between liberica and Arabica, a rust-tolerant hybrid variety of

Arabica tree became popular. This is the most common variety of coffee that is grown in

the country with Karnataka alone accounting for 70% of production of this variety.

In 1942, the government decided to regulate the export of coffee and protect the small and

marginal farmers by passing the Coffee VII Act of 1942, under which the C o f fee Boar d

of India got established, operated by the Ministr y of Commerceand Industry . The

government dramatically increased their control of coffee exports in India and pooled the

coffees of its growers. In doing so, they reduced the incentives for farmers to produce

high-quality coffee, so quality became stagnant.

Over the last 50 years, coffee production in India has grown by over 15 percent. From

1991, economic liberalization took place in India, and the industry took full advantage of

this and cheaper labour costs of production. In 1993, a monumental Internal Sales Quota

(ISQ) made the first step in liberalizing the coffee industry by entitling coffee farmers to

sell 30% of their production within India. This was further amended in 1994 when the

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Free Sale Quota (FSQ) permitted large and small scale growers to sell between 70% and

100% of their coffee either domestically or internationally. A final amendment in

September 1996 saw the liberalization of coffee for all growers in the country and a

freedom to sell their produce wherever they wished.

ProductionKarnataka coffee beans

Like in Ceylon, coffee production in India declined rapidly from the 1870s and was

massively outgrown by the emerging tea industry. The devastating c o f fee rust affected the

output of coffee to the point that the costs of production saw coffee plantations in many

parts replaced with tea plantations. However, the coffee industry was not as affected by

this disease as in Ceylon, and although overshadowed in scale by the tea industry, India

was still one of the strongholds of coffee production in the British Empire along with

British Guiana. In the period 1910–12, the area under coffee plantation was reported to be

203,134 acres (82,205 ha) in the southern states, and was mostly exported to England.

In the 1940s, Indian filter c o f fee , a sweet milky coffee made from dark roasted c o f fee

beans (70%–80%) and chicory (20%–30%) became a commercial success. It was

especially popular in the southern states of Andhra Pradesh, Karnataka, Kerala and Tamil

Nadu. The most commonly used coffee beans are Arabica and Robusta grown in the hills

of Karnataka (Kodagu, Chikkamagaluru and Hassan), Kerala (Malabar region) and Tamil

Nadu (Nilgiris District, Yercaud and Kodaikanal).

Glenlorna Tata Coffee Estate, Coorg, India

Coffee production in India grew rapidly in the 1970s, increasing from 68,948 tonnes in

1971–72 to 120,000 tonnes in 1979–80 and grew by 4.6 percent in the 1980s. It grew by

more than 30 percent in the 1990s, rivalled only by Uganda in the growth of production.

By 2007, organic coffee was grown in about 2,600 hectares (6,400 acres) with an

estimated production of about 1700 tonnes. According to the 2008 statistics published by

the Food and Agricultural Organization (FAO), the area of coffee green harvested in India

was 342,000 hectares (850,000 acres), with yield estimates of 7,660 hectogram/ha,

forming a total production estimate of 262,000 tonnes.

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There are approximately 250,000 coffee growers in India; 98% of them are small

growers. Over 90 percent of them are small farms consisting of 10 acres (4.0 ha) or fewer.

According to published statistics for 2001–2002, the total area under coffee in India was

346,995 hectares (857,440 acres) with small holdings of 175,475 accounting for 71.2%.

The area under large holding of more than 100 hectares (250 acres) was 31,571 hectares

(78,010 acres) (only 9.1 % of all holdings) only under 167 holdings. The area under less

than 2 hectares (4.9 acres) holdings was 114,546 hectares (283,050 acres) (33% of the

total area) among 138,209 holders.

Size of holdingsNumbers (2013-2014

Area of holding

Less than 10 ha 10 hectares

(25 acres)175,475

247,087 hectares (610,570

acres)

Between 10 and 100 ha and above 2833 99,908 hectares (246,880 acres)

Total 178,308346,995 hectares (857,440

acres)

The most important areas of production are in the southern Indian states of Karnataka,

Kerala, and Tamil Nadu which accounted for over 92 percent of India's coffee production

in the 2005–2006 growing season. In this same season, India exported over 440,000

pounds (200,000 kg) of coffee, with over 25 percent destined for Italy. Traditionally,

India has been a noted producer of Arabica coffee but in the last decade robusta beans are

growing substantially due to high yields, which now account for over 60 percent of coffee

produced in India. The domestic consumption of coffee increased from 50,000 tonnes in

1995 to 94,400 tonnes in 2008.

According to the statistics provided by the Coffee Board of India, the estimated

production of Robusta and Arabica coffee for the "Post Monsoon Estimation 2009–10"

and "Post Blossom Estimation 2010–11" in different states accounted for a total of

308,000 tonnes and 289,600 tonnes, respectively. As of 2010, between 70% and 80% of

Indian grown coffee is exported overseas.

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Growing conditionsAll coffees grown in India are grown in shade and commonly with two tiers of shade.

Often inter-cropped with spices such as cardamom, cinnamon, clove, and nutmeg, the

coffees gain aromatics from the inter-cropping, storage, and handling functions. Growing

altitudes range between 1,000 m (3,300 ft) to 1,500 m (4,900 ft) above sea level for

Arabica (premier coffee), and 500 m (1,600 ft) to 1,000 m (3,300 ft) for Robusta (though

of lower quality, it is robust to environment conditions). Ideally, both Arabica and

Robusta are planted in well drained soil conditions that favour rich organic matter that is

slightly acidic (pH 6.0–6.5). However, India's coffees tend to be moderately acidic which

can lead to either a balanced and sweet taste, or a listless and inert one. Slopes of Arabica

tend to be gentle to moderate, while Robusta slopes are gentle to fairly level.

Blooming and maturing

Irrigated coffee plantation

Blooming is the time when coffee plants bloom with white flowers which last for about

3–4 days (termed "evanescent" period) before they mature into seeds. When coffee

plantations are in full bloom it is a delightful sight to watch. The time period between

blooming and maturing of the fruit varies appreciably with the variety and the climate; for

the Arabica, it is about seven months, and for the Robusta, about nine months. The fruit is

gathered by hand when it is fully ripe and red-purple in colour.

Climatic conditions

Ideal climatic conditions to grow coffee are related to temperature and rainfall;

temperatures in the range of 73 °F (23 °C) and 82 °F (28 °C) with rainfall incidence in the

range of 60–80 inches (1.5–2.0 m) followed by a dry spell of 2–3 months suit the Arabica

variety. Cold temperatures closer to freezing conditions are not suitable to grow coffee.

Where the rainfall is less than 40 inches (1.0 m), providing irrigation facilities is essential.

In the tropical region of the south Indian hills, these conditions prevail leading to coffee

plantations flourishing in large numbers. Relative humidity for Arabica ranges 70–80%

while for Robusta it ranges 80–90%.

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Cobras on an Indian coffee plantation

Coffee diseases

The common disease to which the coffee plants are subjected to in India is on account of

fungus growth. This fungus is called the Hemileia vastatrix, an endophytous that grows

within the matter of the leaf; effective cure has not been discovered to eliminate this. The

second type of disease is known as the c o f fee rot , which has caused severe damages

during the rainy season, particularly to plantations in Karnataka. Pellicularia kole-rota is

the name given to this rot or rust, which turns the leaves into black colour due to the

coverage by a slimy gelatinous film. This causes the coffee leaves and the cluster of

coffee berries to drop off to the ground. Snakes such as cobras can also cause a nuisance

to coffee plantations in India.

Processing

Processing of coffee in India is accomplished using two methods, dry processing and wet

processing. Dry processing is the traditional method of drying in the sun which is

favoured for its flavour producing characteristics. In the wet processing method, coffee

beans are fomented and washed, which is the preferred method for improved yields. As to

the wet processing, the beans are subject to cleaning to segregate defective seeds. The

beans of different varieties and sizes are then blended to derive the best flavour. The next

procedure is to roast either through roasters or individual roasters. Then the roasted coffee

is ground to appropriate sizes.

Varieties

Coffee on hills of Cauvery River in Coorg

The four main botanical cultivars of India's coffee include Kent, S.795, Cauvery, and

Selection 9. In the 1920s, the earliest variety of Arabica grown in India was named

Kent(s) after the Englishman L.R. Kent, a planter of the Doddengudda Estate in Mysore.

Probably the most commonly planted Arabica in India and Southeast Asia is S.795,

known for its balanced cup and subtle flavour notes of mocca. Released during the 1940s,

it is a cross between the Kents and S.288 varieties. Cauvery, commonly known as

Catimor, is a derivative of a cross between Caturra with Hybrido-de-Timor, while the

award-winning Selection 9 is a derivative from the crossing between Tafarikela and

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Hybrido-de-Timor. The dwarf and semi-dwarf hybrids of San Ramon and Caturra were

developed to meet the demands for high density plantings. The Devamachy hybrid (C.

arabica and C. canephora) was first discovered around 1930 in India.

The Indian Coffee Association's weekly auction includes such varieties as Arabica

Cherry, Robusta Cherry, Arabica Plantation, and Robusta Parchment.

Regional logos and brands include: Anamalais, Araku valley, Bababudangiris, Biligiris,

Brahmaputra, Chikmagalur, Coorg, Manjarabad, Nilgiris, Pulneys, Sheveroys,

Travancore, and Wayanad. There are also several specialty brands such as Monsooned

Malabar AA, Mysore Nuggets Extra Bold, and Robusta Kaapi Royale.

Workers in Kerala

Organic coffee

Organic c o f fee is produced with synthetic agro-chemicals and plant protection methods.

A certification is essential by the accrediting agency for such coffee to market it (popular

forms are of regular, decaffeinated, flavoured and instant coffee variety) as such since

they are popular in Europe, United States and Japan. The Indian terrain and climatic

conditions provide the advantages required for the growth of such coffee in deep and

fertile forest soils under the two tier mixed shade using cattle manure, composting and

manual weeding coupled with the horticultural operations practiced in its various coffee

plantations; small holdings is another advantage for such a variety of coffee. In spite of all

these advantages, the certified organic coffee holdings in India, as of 2008, (there are 20

accredited certification agencies in India) was only in an area of 2,600 hectares (6,400

acres) with production estimated at 1700 tonnes. In order to promote growth of such

coffee, the Coffee Board, based on field experiments, surveys and case studies has

evolved many packages for adoption, supplemented with information guidelines and

technical documents.

Research and development

Coffee research and development efforts are well organized in India through its C o f fee

Research Institute, which is considered the premier research station in South East Asia. It

is under the control of the Coffee Board of India, an autonomous body, under the

Ministry of Commerce and Industry, Governmen t of India , which was set up under an Act

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of the Parliament with the objective of promoting “research, development, extension,

quality up gradation, market information, and the domestic and external promotion of

Indian coffee.” It was established near Balehonnur in Chikmagalur district of Karnataka,

in the heartland of coffee plantations. Prior to establishing this institute, a temporary

research unit was established in 1915 at Koppa primarily to evolve solutions to crop

infestation by leaf diseases. This was followed by the field research station established by

the then Governmen t of Mysore , titled "Mysore Coffee Experimental Station," in 1925.

This was handed over to the Coffee Board which was formed in 1942, and regular

research started at this station from 1944. Dr L. C. Coleman is credited as the founder of

coffee research in India. The Coffee Board of India is an autonomous body, functioning

under the Ministry of Commerce and Industry, Government of India. The Board serves as

a friend, philosopher and guide of the coffee industry in India. Set up under an Act of the

Parliament of India in the year 1942, the Board focuses on research, development,

extension, quality up gradation, market information, and the domestic and external

promotion of Indian coffee.

Chikmagalur district, the headquarters of the Coffee Board of India, shown within the

state of Karnataka

The research activities covered by the Institute constitute research in seven disciplines

such as Agronomy, Soil Science and Agricultural Chemistry, Botany,

Entomology/Nematology, Plant Physiology, Biotechnology and Post Harvest Technology

with the basic aim of increasing productivity and quality of coffee grown in India. The

institute has 60 scientific and technical personnel involved in research activities. The

institute has a well established farm land of 130.94 hectares (323.6 acres) for carrying out

crop research, out of which 80.26 hectares (198.3 acres) are dedicated to coffee research

(51.32 hectares (126.8 acres) of arabica and 28.94 hectares (71.5 acres) of robusta), 10

hectares (25 acres) are used for growing CXR, 12.38 hectares (30.6 acres) are apportioned

for nurseries, roads and buildings, and the balance area of 12.38 hectares (30.6 acres) is a

reserve area for future expansion. The research farm has a well established network of

check dams that provides a regulated water source to the plantations which offer a wide

range of shade tree species under which coffee is grown, and germplasm and exotic

material from all the coffee growing countries including Ethiopia which is known as the

home land of Arabica. In addition, crop diversification with crops such as pepper and

areca are also part of income generating programmes of the institute.

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Part of the institute includes a research laboratory to carry out research in identified

disciplines, as well as a stocked library with books and periodicals, not only on coffee but

also on other crops. Training of personnel is an important activity of the institute. The

training unit of the institute conducts regular training programs for estate managers and

supervisory personnel of the coffee plantations and also for the extension officers of the

Coffee Board. Recognised by UNDP and USDA, the training unit of the institute is

providing training to foreign nationals on coffee cultivation in which personnel from

Ethiopia, Vietnam, Sri Lanka, Nepal, and Nestle Singapore have been trained.

In addition, a Plant Tissue Culture & Biotechnology division, established in Mysore, is

carrying out exclusive research in bio-technology and molecular biology to

supplement/complement the conventional breeding programs in developing high yielding,

pest and disease resistant varieties. The Coffee Board of India maintains a Quality

Control Division in its head office in Bangalore which plays an active role in

collaborating with other research disciplines in upgrading the “quality of coffee in the

cup.”

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COMPANY PROFILE

CCL Products cordially invites you to taste one of the finest, richest, instant coffee in the

world. We manufacture Soluble Instant Spray Dried Coffee Powder, Spray Dried

Agglomerated / Granulated Coffee, Freeze Dried Coffee, as well as Freeze Concentrated

Liquid Coffee. Our coffee is prepared from carefully chosen Arabica and Robusta coffee

beans, roasted and processed to perfection, for an aroma and flavour that will bring you

real satisfaction instantly. CCL Products is an Export Oriented Unit, with the ability to

import green coffee into India from any part of the world, and export the same to any part

of the world, free of all duties. CCL Products' state-of-the-art Coffee Manufacturing Plant

is located at Duggirala Mandal, Guntur District, Andhra Pradesh, India.

The company was granted the International Quality Systems Standard ISO 9001 : 2000 –

Quality Management System Certificate in January, 2003 by American Quality Assessors

– AQA International, LLC, accredited by the American National Accreditation Program

for Registrars of Quality Systems, ANSI-RAB, which was subsequently upgraded to

International Quality Systems Standard ISO 9001 : 2008 – Quality Management System

Certificate in November, 2010.

CCL also has the stamp of approval from Food Cert.BV-Netherlands-FSS-Food Safety

System, in January 2004 for compliance with the Dutch National Board of Experts –

HACCP - Analytical Critical Control Point standards. The qualified HACCP System

standard declares that it covers the company’s activities of procurement of green coffee,

storage, processing of Instant Soluble Coffee (cleaning, roasting, extraction, drying,

agglomeration and soluble coffee storage) including packing, packed product storage and

dispatch.

CCL has also obtained the British Retail Consortium – BRC Certificate, a stringent

Quality Certificate which enables it to market its product in the UK and European

supermarkets.

CCL can offer its customers speciality products with the following certifications:

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1. Organic Certification

Organic coffee is produced by management practices which help to conserve and/or

enhance soil structure, resilience and fertility by use of cultivation practices that use only

non-synthetic nutrients and plant protection methods. Further, though many producers

grow coffee without use of synthetic agrochemicals, this passive approach is not

sufficient to consider the produce organic in the absence of credible certification by an

accredited certification agency. CCL Products is in a position to provide credible

certification from an accredited certification agency for our organic coffee products.

2. Fair Trade Certification

The Fair Trade organization works to ensure fair income / fair price to the farmers and

workers and to responsibly address the problems of coffee farmers, workers in several

developing countries. Offering fair price ensures all-round development of coffee farmers

and their families in developing/ underdeveloped regions in Africa and Latin America.

The spirit of Fair Trade is:

(a) giving fair income / fair price to the farmers & workers, as well as,

(b) giving opportunity for fair consumption (consumption without exploiting the farmer/

worker).

3. Rain Forest Alliance Certification

This certification is granted by the Rainforest Alliance, after an independent third party

awards its seal of approval, guaranteeing consumers that the products they are buying are

the result of practices carried out according to a specific set of criteria, balancing

ecological, economic and social considerations.

Rainforest Alliance certification is a comprehensive process that promotes and guarantees

improvement in agriculture and forestry. CCL is committed to sustainable development

and we are in a position to offer certification to the effect that our coffee was produced in

compliance with strict guidelines protecting the environment, wildlife, workers and local

communities.

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CONTINENTAL SPÉCIALE

Continental Spéciale is 100% pure, granulated soluble instant coffee processed from

carefully selected plantation Arabica and washed Robusta beans blended to perfection for

complete satisfaction instantly.

CONTINENTAL PREMIUM

Continental Premium is a distinctive blend of carefully selected plantation Arabica coffee

beans, processed to perfection to give an aroma and taste for real satisfaction, instantly.

The flavour of this unique blend will linger long after the coffee is consumed.

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Nutritional Information

Approx. Value per 100g

Energy (Kcal) 352

Carbohydrates (g) 69

Protein (g) 19

Fat (g) 0

Nutritional Information

Approx. Value per 100g

Energy (Kcal) 354

Carbohydrates (g) 70

Protein (g) 14

Fat (g) 2

MBA Programme

CONTINENTAL SUPREME

Continental Supreme is made from carefully chosen coffee beans blended with roasted

chicory to provide a strong cup of rich tasting coffee.

JARS

CCL Products has the capacity to offer coffee in 50 gms,100 gms, 200 gms jars. The jars

and caps on the jars can be customised in varied shapes, and printed or embossed with

labels and design/ logo, as per the requirements of the customers. The varied shapes, sizes

and materials include:

Sizes : 50 gms,100 gms, 200 gms.

Shapes : Round, square, rectangular, etc. or as per requirements of the customer.`

As can be seen above, the caps on the jars can be of various shapes and printed or

embossed with design/ logo.

CCL is also in a position to offer shrink sleeve labels.

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Nutritional Information

Approx. Value per 100g

Energy (Kcal) 352

Carbohydrates (g) 69

Protein (g) 16

Fat (g) 0

MBA Programme

The jars can be further packed in corrugated boxes and loaded into the containers or can

be shrink wrapped on trays and palletized as well, depending on the requirements of the

customer.

CANS

CCL Products has the capacity to offer coffee in cans of sizes, ranging between 50 gms

and 1 kg. The cans can be customised in varied shapes and printed or embossed with

labels and design/ logo, as per the requirements of the customers. CCL Products is also in

a position to offer cans in “easy open” and “RLD” style.

CCL has the capacity to offer coffee in cans of varied sizes, shapes and style.

Sizes : From 50 gms to 1 kg.

Shapes : Square, oval, round- insert pictures.

CCL is also in a position to offer cans in “easy open” and “RLD” style.

The cans are further packed in corrugated boxes and loaded into the containers either

directly or palletized, as per the requirements of the customer.

Pouches/ sachets

CCL Products has the capacity to offer coffee in sachets / pouches of varied sizes, ranging

from 1 gm to 1 kg. The sachets / pouches can be printed with labels and design/ logo, as

per the requirements of the customers.

CCL has the capacity to offer coffee in sachets / pouches of varied sizes, with customized

artwork.

Sizes : 1 gm, 5 gms, 8 gms, 10 gms, 25 gms, 50 gms, 100 gms, 200 gms and 1 kg.

In addition to the above mentioned standard dimensions, CCL has the ability to further

customize the sizes of the sachets / pouches as per the requirements of the customer.

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The sachets / pouches are further packed in corrugated boxes and loaded into the

containers either directly or palletized, as per the requirements of the customer.

Bag-in-box

CCL Products has the capacity to offer coffee in sachets, packed in printed carton boxes,

as per the design, specifications and requirements of the customer.

The bag-in-boxes are further packed in corrugated boxes and loaded into the containers

either directly or palletized, as per the requirements of the customer.

Drums

CCL Products has the capacity to supply freeze concentrated liquid coffee in drums

loading in refrigerated containers, as per the requirements of the customer.

Bulk Box

CCL Products has the capacity to supply freeze dried and spray dried coffee in bulk, in

corrugated boxes, which can optionally be palletized as per the requirement of the

customer.

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Manufacturing Process

Diagram of production processes

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Process Description

Green beans

storage, cleaning

and grading

(Sorting and

cleaning)

The green coffee received in bags / bulk is sampled and classified.

The storage building incorporates natural ventilation to maintain

the beans at moisture levels between 9% and 11%. The cleaning

operation removes various impurities such as fabric, dust and

stones using specially designed machines. The cleaned and sized

coffee is held in storage silos.

   

Roasting and

Grinding

(Roasting machine

and grinders)

Batch weighed green coffee beans are fed into the roasters.

Roasting is carried out by circulating hot air and also by colour

monitoring, which in turn is dependent on temperature. On

completion, the roasted beans are quenched by water injection,

followed by air cooling. The beans are then ground to 2-3 mm

with the help of special grinder in order to facilitate extraction.

   

Extraction /

Clarification

(Extraction and

clarification)

Ground coffee is weighed and charged into a battery of seven

extractors. Purified hot water at 180° C is passed through the

charge under controlled counter current conditions, and then the

extractors are emptied of spent grounds and refilled with fresh

ground coffee in a sequence. The liquid product is then divided

into two parts.

The initial volatile aroma extract is collected and stored separately

in a refrigerated tank, to be added back after the evaporation stage

and before spray drying. This is to preserve the aroma in the

product.

The extract that results from deeper extraction of the soluble

coffee solids is clarified to remove fines prior to storage and

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concentration.

   

Evaporation &

Aroma recovery

(Evaporation and

Aroma Recovery)

The liquid extract is concentrated at this stage. Also the aromatic

compounds are separated with the help of specially designed

aroma recovery system.

   

Spray Drying

(Spray Drier)

After the extraction and clarification the product in liquid form,

combined with flavor, will be filtered first and then it flows

through the positive pump to the Plate Heat Exchanger (PHE). The

outlet of PHE goes to a high pressure pump and suction spray

system. When the fine particles produced from the spray system

come in contact with hot air, the water content evaporates and the

temperature drops in the drying chamber which is under vacuum.

The dried solid fine particles are removed from the bottom of the

tower while the moist air is taken out through the cyclone. The

final dried product is screened and collected in the totes for

inspection and the product parameters are maintained as per the

desired standards.

   

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Agglomeration

(Agglomeration)

This is an additional process by which Spray Dried powder is

converted into Granules. This process involves Spray dried

powder being further milled into fine particles through a

pulverizer. Steam and the milled powder pass through spraying

nozzles to form granules in an Agglomeration tower under

vacuum. The granules then pass through a fluid bed to maintain

the moisture level before going into a vibrator screen to separate

over-sized granules, desired size granules and fines. The desired

size granules are collected in totebins while the the fines are

reprocessed.

   

Freeze-drying

(Freeze-drying)

Instead of Spray Drying the liquid extract after the extraction and

clarification stage, in order to retain the inherent characteristics

(including aroma and taste profile) of the coffee, Freeze Drying

can be done. This freeze-drying method preserves the most 'coffee

flavour' but it is a more involved procedure. First, the coffee is

allowed to sit so the water evaporates naturally, leaving a

concentrated coffee solution. This concentrate is then put on a

conveyor and frozen to around -40 Celsius, with the water plus

coffee freezing into ice crystals. Sublimation (the process of

converting ice to gaseous form) is used to remove the ice. What is

left, is dry grains of freeze dried coffee granules which are

collected into storage containers and sent for packing. more..

   

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Freeze

Concentrated

Liquid Coffee

Modern freeze concentration processes consist of a crystallization

section where part of the water is converted into solid ice crystals

using a refrigeration system. The ice crystals are then separated by

filters, centrifuges or by using wash columns. The key aspect of

the Freeze Concentration technology is maximum retention of the

product quality, which is due to:

a) operation at sub zero temperatures

b) closed system design eliminating vapor/liquid interfaces

c) no loss of aroma or other vital components

d) retention of sensory properties of the original feed product

e) no thermal degradation

f) no oxidation

   

Packing

(Packing)

(Packing)

On the basis of laboratory tests, batches are blended and finally

sieved to remove lumps for reworking. The final product is packed

with the help of specialized packing machines in the form of bulk,

cans, jars, pouches etc. (as per the customer requirements) and

dispatched.

Board Members

Mr. Challa Rajendra Prasad

Chairman & Managing Director

Mr. Challa Rajendra Prasad is an Engineer-Technocrat-Entrepreneur having more than 25

years of industrial experience and more than 20 years of experience in International

Coffee Industry. CCL Products (formerly known as M/s. Continental Coffee Ltd.) was

promoted by Mr. Prasad in 1995.

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Mr. Prasad is reckoned as a Pioneer and First Entrepreneur in India to have placed Indian

Soluble Coffee in the hard currency world markets.

Mr. Prasad was the Promoter Managing Director of Asian Coffee Ltd., set up in 1989,

which was the first Indian non-multi-national owned company engaged in the business of

producing instant coffee. He was instrumental in Asian Coffee Ltd. achieving the

distinction of being the first recipient of assistance in India from the Commonwealth

Development Corporation, United Kingdom.

Mr. Prasad has been, in the past, also closely associated with two other coffee projects,

one in Singapore and the other in Dunstable, UK.

In recognition of his eminence in the Coffee Industry, Mr. Prasad was appointed as a

Member the Coffee Board of India by the Ministry of Commerce, Government of India

for three consecutive terms from 1990 to 1999. He was also appointed as the Special

Invitee to the Coffee Board of India in the year 2004. Mr. Prasad is currently a member of

the Coffee Board of India, having being appointed for a three year term in 2009.

Mr. Prasad also holds Directorship in several companies, engaged in diverse businesses.

Mr. C. Srishant

Executive Director

Mr. C. Srishant is a lawyer by education, having graduated in Law from the National

Academy of Legal Studies And Research (NALSAR), University of Law, Hyderabad. He

also holds a Diploma in Information Technology Laws from the Asian School of Cyber

Laws.

He was awarded a gold medal in Corporate Law at the NALSAR, University of Law and

was also Andhra Pradesh State topper and gold medalist in Mathematics prior to that.

Mr. C. Srishant has more than 7 years experience in the coffee industry alone and he also

holds Directorships in several national and international companies across the world,

engaged in diverse businesses ranging from manufacturing to construction to Information

Technology.

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MBA Programme

Mr. Jonathan T. Feuer

Director

Mr. Jonathan T. Feuer is a businessman by profession and is the President of a privately

held firm, LMZ Soluble Coffee Incorporated, a New York, an importer and

manufacturer's representative specializing exclusively in the trade of soluble coffee. Mr.

Feuer joined the firm in 1977, and has held the position of President and CEO since 1990.

Mr. Feuer holds over 3 decades experience and expertise in the industry, and has held

membership in the Green Coffee Association of New York, the Pacific Coast Coffee

Association, the Tea and Coffee Association of Canada and the National Coffee

Association of the USA. He has served in various roles in all of these trade associations.

Most notably, Mr. Feuer has served as a Director of the National Coffee Association of

the USA for the past 15 years, during which time, he has served as Treasurer and

Chairman from 2008-2010. The NCA is the foremost trade association serving all sectors

of the coffee industry in North America, and represents the industry and government in

all international forums such as International Coffee Organization (ICO).

A former director of Asian Coffee Ltd. (presently Tata Coffee Ltd.), Mr. Feuer has been

on the Board of CCL Products (India) Ltd. since 1994. Mr. Feuer is one of the Foreign

Collaborators of the Company. In addition, Mr. Feuer has served as Director of various

charitable organizations.

Mr. Feuer travels extensively to South America, Southeast Asia, Europe and India in

connection with the soluble coffee business.

Mr. Zafar Saifullah

Chairman - Audit Committee & Member - Investor Grievances & Remuneration

Committees.

Mr. Zafar Saifullah was an illustrious member of the Indian Administrative Service,

having held the top most post of the Cabinet Secretary to the Government of India. Mr.

Saifullah has held various positions of responsibility in the Government of India, several

State Governments and several Public Sector Undertakings, including:

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MBA Programme

Special Assistant to Minister for Industrial Development, Government of India.

Advisor to the Governor of Haryana.

Development Commissioner and Additional Chief Secretary, Government of

Karnataka.

Chairman, Mumbai Port Trust.

Managing Director, Trade Fair Authority of India (now ITPO)

Secretary, Rural Development and Cooperation Department, Government of

Karnataka.

Chairman and Managing Director, Mysore Paper Mills Ltd.

Chairman and Managing Director, Karnataka State Industrial Investment and

Development Corporation.

Managing Director, Trade Fair Authority of India (now ITPO)

Managing Director, Gauribidanur Corporation Sugar Factory Ltd.

Director of Industires & Commerce, Govt.of Karnataka

General Manager, National Mineral Development Corporation Limited

Mr. Saifullah is the Chairman of the Audit Committee and Member of the Investor

Grievances and Remuneration Committees of the Company.

Mr. I.J. Rao, IRS (Retd.)

Chairman - Investor Grievances Committee & Member - Audit & Remuneration

Committees.

Mr. I.J. Rao is a Gold Medalist in M.A. (Economics) from Andhra University. He was a

lecturer in a college and thereafter joined the Indian Customs and Excise service in 1955.

Mr. Rao served as the Collector of Central Excise at Guntur, Madras and Kanpur. He also

served as the Collector of Customs at Kolkata.

Mr. Rao joined the Customs, Excise, Gold (Control) Appellate Tribunal (CEGAT), Delhi

in March 1983 and retired in 1991 as the Vice-President of the Tribunal.

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Mr. Rao has authored hundreds of short stories, several novels, radio plays and was

awarded with Prathiba Puraskaram for 1998 for his short story/novel by Potti Sriramulu

Telugu University, Hyderabad. Mr. Rao has also authored numerous articles on finance,

revenue and taxation, which were published in leading newspapers like the Statesmen

(Kolkatta), Economic Times (Bombay), Business standard (Kolkatta), Excise Law Times

(Delhi), etc.

Mr. Rao is the Chairman of the Investor Grievances Committee & \Member - Audit &

Remuneration Committees.

Mr. Vipin K Singal

Director

Mr. Vipin K. Singal is a businessman by profession. He completed his Graduation in

Agricultural Engineering from Punjab Agricultural University.

Mr. Singal heads the Delhi Express Travels Group, which is engaged in arranging

international air tickets - business and leisure, inbound tourism, outbound holidays,

cruises, hotels & resorts in India, domestic tourism and promotion & marketing of Eurail

in India. He has been associated with travel and tourism industry for the last 3 decades,

affording him vast experience in the field of business and management.

Mr. Singal is a member of the Audit, Investor Grievances & Remuneration Committees

of the Company.

Mr. K.Chandrahas

Director

Kata Chandrahas studied M.Sc. (Physics) in India and MBA from the United Kingdom.

He was selected for the Indian Revenue Service in 1976 and served the Income Tax

Department at Hyderabad, Delhi, Chennai, Pune, Allahabad and Nagpur in various

positions until his retirement as the Chief Commissioner of Income Tax, Chennai in

September, 2009. He served as Under Secretary in the Finance Ministry, New Delhi

during 1984-85 and as Personal Secretary to the Union Minister of State for Finance

during 1985-88.

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BIBLIOGRAPHY

Reference:

1. Financial Management - I.M . Pandey

2. Financial of Financial

Managements - James C. Van horne

3. Financial management - Khan & jain

Website:

www.cclproducts.com

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