Introduction of RINL-VSP:

Visakhapatnam Steel Plant, popularly

known as Vizag Steel is the most advanced

steel producer in India with the help of

German and soviet technology. Its products

have been rated the best in the world market.

Almost 80% of its income comes from the

exports of steel products to Japan, Germany,

United States, Singapore, Dubai, Australia,

South American countries and many more.

The company has grown from a loss making

industry to 3 billion dollar Turnover Com-

pany registering a growth of 203.6% in just

4 years. Vizag Steel Plant has been con-

ferred Navratna status on 17 November

2010. Founded in 1971, the company focus-

es on producing value-added steel, with

214,000 tons produced in August 2010, out

of 252,000 tones total of salable steel pro-

duced it is the largest single site plant in In-

dia and Asia Minor (or south and East Asia

combined).

On 17 April 1970, the then Prime Minister

of India, the late Indira Gandhi announced

the government's decision in the Parliament

to establish a steel plant at Visakhapatnam.

Planning started by appointing site selection

committee in June 1970 and subsequently

the committee‘s report was approved. On 20

January 1971 Mrs. Gandhi laid the founda-

tion stone of the plant. Consultants were ap-

pointed in February 1971, and feasibility

reports were submitted in 1972. The first

block of land was taken over on 7 April

1974. M/s M.N. Dastur & Co was appointed

as the consultants for preparing the detailed

project report in April 1975 and in October

1977 they submitted a proposal for 3.4 Mtpa

of liquid steel. With the offer for assistance

from the government of the erstwhile USSR,

a revised project evolved. A detailed project

report for a plant with a capacity of 3.4 Mtpa

was prepared by M/s M.N. Dastur & Co in

November 1980. In February 1981 a con-

tract was signed with the USSR for the

preparation of working drawings of coke

ovens, blast furnace and sinter. The blast

furnace foundation was laid, with first mass

concreting, in January 1982. The construc-

tion of the local township was also started at

the same time.

In 1970's Kurupam Zamindars donated

6,000 acres of land for Vizag Steel Plant. A

new company Rashtriya Ispat Nigam Lim-

ited (RINL) was formed on 18 February

1982. Visakhapatnam Steel Plant was sepa-

rated from SAIL and RINL was made the

corporate entity of Visakhapatnam Steel

Plant in April 1982. Vizag Steel Plant is the

only Indian shore-based steel plant and is

situated on 33,000 acres (13,000 ha), and is

poised to expand to produce up to 20 MT in

a single campus. Turnover in 2011-2012

was Rs 14,457 Cores. On 20 May 2009

Honorable Prime Minister Manmohan

Singh launched the expansion project of Vi-

sakhapatnam Steel Plant from a capacity of

3.6MT to 6.3MT at a cost of Rs. 8,692

Cores. But the investment was revised to

14,489 cores with the following classifica-

tion:

Expenditure for the financial year 2009-10

Rs 1840 Cores.

Rs 5883 Crores since inception of the

Project.

Total Commitment, including enabling

works, steel procurement, Consultancy,

Spares, etc. is Rs 11591 Cores as on

25.03.10.

The expansion project is expected to be-

come functional by 2012.It has been rated

"the best place to work in India" for con-

secutive five year

Introduction

Capital budgeting is the long term planning

for making and financing proposed capital

outlays

(Or)

Capital budgeting is concerned with plan-

ning and development of available capital

for purpose of maximizing the long term

profitability of the concern.

Objectives of the study

To understood the need of organization, to

identity and in high quality capital projects.

To analyze the expansion of business by in-

creasing production and quality by acquiring

more fixed assets and the up to date machin-

ery.

To evaluate the financial investments asso-

ciated with the replacement of existing as-

sets soar the purchase of new assets

Needs for the study

Funds should be invested in the long term

projects such as setting of an industry, pur-

chase of plant & machinery etc.

To analyze the proposal for expansion or

creating additional capacities.

To decide the replacement of permanent as-

set such as building & equipment.

Scope

The study covers the calculation of payback

period, average rate of return, net present

value, profitability index, internal rate of

return etc. also the study includes the deci-

sions as to be made for investments process.

These percentages help in analyzing the

funds for investment purpose

Research methodology

Methodology: Research methodology im-

plies a systematic attempt by the researcher

to obtain knowledge about to obtain the

facts and figures from employees

Sources of data collection:

Primary source:

Interaction with the planning and

development department em-

ployees

Interaction with finance employ-

ees

Secondary sources:

Accounting manuals of Steel

plant, broachers, magazines of

unit, new of papers

NPV = ∑ Cfn / (I+K)n-Co

Limitations:

The period of the study is limited

Financial matters are sensitive in na-

ture, the same could not acquire easi-

ly.

It may be due to restrictions imposed

by management

The study was conducted with the

data available and analysis was made

accordingly

Since the study is based on the fi-

nancial data that are obtained from

company’s financial statements, the

limitations of financial statements

shall be equally applicable.

Data is collected for five projects

which is limited.

Data analysis & interpretationPayback

period = based period+ investment -

CCFAT

Next CCFAT

Profitability index = CFN/CO

CFN = cash flow at discount rate

CO= initial investment

Sample 1

The first project generation is the unequal

cash flows for 10 years; the initial invest-

ment is Rs 5,125 lakhs

1. NPV and IRP are positive for the

proposal. Then the required rate of

return 17.7%

2. The profitability index is 1.22 times

> 1

3. The return of investment is 43.8%

Sample 2

The second project generation is the une-

qual cash flow for 10 years. The initial in-

vestment is 10,250 lakhs

1. The discounted PBP is 3.1 years; the

investment will recover in 3 years

and 1 month.

2. NPV and IRR are positive for the

proposal then the required rate of re-

turn 28%

3. The profitability index is 1.74 times.

4. The return of investment is 62.9%

Sample 3

The third project generation is the unequal

cash flows for 10 years. The initial invest-

ment is Rs 4125 lakhs

1. Total investment has not been real-

ized by the cash inflow. So there is

no payback period (PBP)

2. NPV and IRR are negative for the

proposal as a sum of pre-discounted

cash inflow is less than cost of in-

IRR = lower rate + inflows at lower rate -

investment

Inflows at lower rate – inflow

at higher rate

vestment there can’t be IRR (or)

IRR< 0.

3. The profitability index is 0.58 times,

it is not good

4. The return of investment is 19.8%

Sample 4

The fourth project generate is the unequal

cash flows for 10 years. The initial invest-

ment is Rs 8125 lakhs

1. The discounted PBP is 5.7 years. The

investment will recover in 5 years

and 7 months

2. NPV and IRR are negative for the

proposal then the required rate of re-

turn 10.4%.

3. The profitability index is 0.9 times, it

is not good sign.

4. The return of investment is 32%.

Sample 5

The fifth project generation is the unequal

cash flows for 10 years. The initial invest-

ment is Rs 1920 lakhs

1. Total investment has not been real-

ized by cash -in-flow. So there is no

payback period (PBP).

2. NPV and IRR are negative for pro-

posal as a sum of pre-discounted

cash-in-flow is less than cost of in-

vestment there can’t be IRR or

IRR<0.

3. The profitability index is 0.44 times,

it is not good.

4. The return of investment is 14.78%.

Conclusion & Suggestions:

First project in all contexts PBP of 4.2 years,

NPV, IRR, ROI and PI are positive as its

return are positive sign therefore the project

is accepted.

Second project in all contexts PBP of 3.1

years, NPV, IRR, ROI and PI are indicating

of positive sign therefore the project is ac-

cepted.

Third project NPV and IRR are negative for

the proposal as a sum of pre discounted cash

inflow is less than cost of investment there

can’t be IRR (or) IRR <0. Total investment

has not been realized by the cash inflow, so

there no PBP. The P> I is 0.58 times, it is

not a good, ROI is 20%, it indicating values

so the project is required.

Fourth project NPV is negative sign and

IRR is 10.4%, PI is 0.9 times this is not

good sign, PBP is 5.7 months, ROI is 32%

the project if may increase the NPV may get

profits so the project is accepted.

Fifth project NPV and IRR are negative for

the proposal as a sum of pre discounted cash

inflow is less than cost of investment there

can’t be IRR (or) IRR <0. Total investment

has not been realized by the cash inflow, so

there no PBP. The P> I is 0.44 times, it is

not a good, ROI is 15 %, it indicating values

so the project is required.