A PROJECT REPORT ON

__________________________________________________
AT
_____________________________________________
HYDERABAD
A PROJECT REPORT SUBMITTED TO

OSMANIA UNIVERSITY
HYDERABAD
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE AWARD OF THE DEGREE IN
BACHELORS OF BUSINESS ADMINISTRATION
SUBMITTED
BY
_________________________________
_______________________________
VILLA MARIE PG COLLEGE FOR WOMEN
SOMAJIGUDA- 82
2014-2016

DECLARATION
 I the undersigned solemnly declare that the report of the summer
training work entitled study on
_____________________________________________ is based on my work carried
out during the course of my study under the supervision of
________________________________ , _____________________________________&
Mrs_______________________________, Faculty, Department of Management.
Villa Marie Degree College
I assert that the statements made and conclusions drawn are an
outcome of the project work. I further declare that to the best of my
knowledge and believe the project report does not contain any part of any
work which has been submitted for the award of any other degree/ diploma/
certificate in this university or any other university.
_______________________
(Signature of the student)
DATE:
PLACE:

ACKNOWLEDGEMENT

I am extremely grateful to Principal Dr. Y. Philomena and the Department of

B.B.A for giving me the opportunity of learning through this research project.
It has been an excellent and rewarding experience, and has immensely
increased my knowledge.
I wish to express my sincere gratitude and appreciation to my project guide
and mentor, Ms.____________________, Head of Department, Department of
Business Administration, for her support, guidance and encouragement.

I would also like to extend special thanks to my family and friends who have
been a constant source of support and encouragement. Without them, this
project would not have been materialized.

_______________________
(Signature of the student)
DATE:
PLACE:

Index

CONTENTS
CHAPTER 1 INTRODUCTION

CHAPTER 2 RESEARCH METHODOLOGY

CHAPTER 3 INDUSTRY PROFILE

CHAPTER 4 COMPANY PROFILE

CHAPTER 5 THEORETICAL FRAME WORK

CHAPTER 6 DATA ANALYSIS & INTERPRETATION

CHAPTER 7 FINDINGS & SUGGESTIONS

CHAPTER 8 CONCLUSION & BIBLIOGRAPHY

ANNEXURE QUESTIONNAIRE
 Chapter - I

INTRODUCTION

CAPITAL BUDGETING:

An efficient allocation of capital is the most important finance function

in modern times. It involves decisions to commit firms funds to long-term
assets. Such decisions are tend to determine the value of company/firm by
influencing its growth, profitability & risk.

Investment decisions are generally known as Capital Budgeting or

capital expenditure decisions. It is clever decisions to invest current in long
term assets expecting long-term benefits firms investment decisions would
generally include expansion, acquisition, modernization and replacement of
long-term assets.
 Such decisions can be investment decisions, financing decisions or
operating decisions. Investment decisions deal with investment of
organizations resources in Long tern (fixed) Assets and / or Short term
(Current) Assets. Decisions pertaining to investment in Short term Assets fall
under Working Capital Management. Decisions pertaining to investment in
Long term Assets are classified as Capital Budgeting decisions.

Capital Budgeting decisions are related to allocation of investible funds to

different long-term assets. They have long-term implications and affect the
future growth and profitability of the firm.

In evaluating such investment proposals, it is important to carefully consider

the expected benefits of investment against the expenses associated with it.

Organizations are frequently faced with Capital Budgeting decisions. Any

decision that requires the use of resources is a Capital Budgeting decisions.
Capital Budgeting is more or less a continuous process in any growing
concern.

NEED FOR THE STUDY

The Project study is undertaken to analyze and understand the

Capital Budgeting process in Pharma sector, which gives mean
exposure to practical implication of theory knowledge.
To know about the companys operation of using various Capital
Budgeting techniques.
To know how the company gets funds from various resources.

OBJECTIVES OF THE STUDY

 To study the relevance of Capital Budgeting in evaluating the project
for project finance

To study the technique of Capital Budgeting for decision- making.

To measure the present value of rupee invested.

To understand an item wise study of the company financial

performance of the company.

To make suggestion if any for improving the financial position if the

company.
To understand the practical usage of Capital Budgeting techniques

To understand the nature of risk and uncertainty

 Chapter II

Research Methodology

METHODOLOGY

To achieve aforesaid objective the following methodology has been

adopted. The information for this report has been collected through the

primary and secondary sources.

Primary sources

It is also called as first handed information; the data is collected through

the observation in the organization and interview with officials. By asking

question with the accounts and other persons in the financial department. A
part from these some information is collected through the seminars, which

were held by HETERO DRUGS LTD.

Secondary sources

The secondary data have been collected through the various

books, magazines, brouchers & websites

LIMITATION OF THE STUDY :

Lack of time is another limiting factor, ie., the schedule period of 8

weeks are not sufficient to make the study independently regarding
Capital Budgeting in HETERO DRUGS LTD..
The busy schedule of the officials in the HETERO DRUGS LTD. is
another limiting factor. Due to the busy schedule officials restricted
me to collect the complete information about organization.
Non-availability of confidential financial data.
The study is conducted in a short period, which was not detailed in all
aspects.
All the techniques of Capital Budgeting are not used in HETERO
DRUGS LTD.. Therefore it was possible to explain only few methods of
Capital Budgeting.
 Chapter - III

INDUSTRY PROFILE
 Pharmaceutical Industry

The Indian pharmaceutical industry is a success story providing

employment for millions and ensuring that essential drugs at affordable

prices are available to the vast population of this sub-continent.

Richard Gerster

The Indian Pharmaceutical Industry today is in the front rank of Indias

science-based industries with wide ranging capabilities in the complex field

of drug manufacture and technology. It ranks very high in the third world, in

terms of technology, quality and range of medicines manufactured. From

simple headache pills to sophisticated antibiotics and complex cardiac

compounds, almost every type of medicine is now made indigenously.

Playing a key role in promoting and sustaining development in the vital field

of medicines,Indian Pharma Industry boasts of quality producers and

many units approved by regulatory authorities in USA and UK. International

companies associated with this sector have stimulated, assisted and

spearheaded this dynamic development in the past 53 years and helped to

put India on the pharmaceutical map of the world.

 Growth Scenario in 2010

India's pharmaceutical industry is now the third largest in the world in terms

of volume. Its rank is 14th in terms of value. Between September 2008 and

September 2009, the total turnover of India's pharmaceuticals industry was

US$ 21.04 billion. The domestic market was worth US$ 12.26 billion. This was

reported by the Department of Pharmaceuticals, Ministry of Chemicals and

Pharmacys. As per a report by IMS Health India, the Indian pharmaceutical

market reached US$ 10.04 billion in size in July 2010. A highly organized

sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion,

growing at about 8 to 9 percent annually. Know more out this in our article

on Indian Pharmaceutical Industry- Future Trends Also check

outPharmaceutical Market Trends 2010

Leading Pharmaceutical Companies

In the domestic market, Cipla retained its leadership position with 5.27 per

cent share. Ranbaxy followed next. The highest growth was for Mankind

Pharma (37.2%). Other leading companies in the Indian pharma market in

2010 are:

Sun Pharma (25.7%)

Abbott (25%)

Zydus Cadila (24.1%)

Alkem Laboratories (23.3%)

Pfizer (23.6 %)
 GSK India (19%)

Piramal Healthcare (18.6 %)

Lupin (18.8 %)

For details check out List of Top 10 Pharmaceutical Companies in India

Future Prospects

The Indian pharmaceuticals market is expected to reach US$ 55 billion in

2020 from US$ 12.6 billion in 2009. This was stated in a report title "India

Pharma 2020: Propelling access and acceptance, realising true potential" by

McKinsey & Company. In the same report, it was also mentioned that in an

aggressive growth scenario, the pharma market has the further potential to

reach US$ 70 billion by 2020

Due to increase in the population of high income group, there is every

likelihood that they will open a potential US$ 8 billion market for

multinational companies selling costly drugs by 2015. This was estimated in

a report by Ernst & Young. The domestic pharma market is estimated to

touch US$ 20 billion by 2015. The healthcare market in India to reach US$

31.59 billion by 2020. The sale of all types of pharmaceutical drugs and

medicines in the country stands at US$ 9.61 billion, which is expected to

reach around US$ 19.22 billion by 2012. Thus India would really become a

lucrative destination for clinical trials for global giants.

There was another report by RNCOS titled "Booming Pharma Sector in India"

in which it was projectedt that the pharmaceutical formulations industry is

expected to prosper in the same manner as the pharmaceutical industry. The

domestic formulations market will grow at an annual rate of around 17% in

2010-11, owing to increasing middle class population and rapid urbanisation.

Read More in Future Prospects of Indian Pharma Industry.

Characteristics of Indian Pharmaceutical Industry

The Indian Pharmaceutical sector is highly fragmented with more than

20,000 registered units. It has expanded drastically in the last two decades.

The leading 250 pharmaceutical companies control 70% of the market with

market leader holding nearly 7% of the market share. It is an extremely

fragmented market with severe price competition and government price

control.

The pharmaceutical industry in India meets around 70% of the country's

demand for bulk drugs, drug intermediates, pharmaceutical formulations,

chemicals, tablets, capsules, orals and injectibles. There are about 250 large

units and about 8000 Small Scale Units, which form the core of the

pharmaceutical industry in India (including 5 Central Public Sector Units).

These units produce the complete range of pharmaceutical formulations, i.e.,

medicines ready for consumption by patients and about 350 bulk drugs, i.e.,

chemicals having therapeutic value and used for production of

pharmaceutical formulations.
Following the de-licensing of the pharmaceutical industry, industrial licensing

for most of the drugs and pharmaceutical products has been done away with.

Manufacturers are free to produce any drug duly approved by the Drug

Control Authority. Technologically strong and totally self-reliant, the

pharmaceutical industry in India has low costs of production, low R&D costs,

innovative scientific manpower, strength of national laboratories and an

increasing balance of trade. The Pharmaceutical Industry, with its rich

scientific talents and research capabilities, supported by Intellectual Property

Protection regime is well set to take on the international market.

Why India?

Competent workforce: India has a pool of personnel with high managerial

and technical competence as also skilled workforce. It has an educated work

force and English is commonly used. Professional services are easily

available.

Cost-effective chemical synthesis: Its track record of development,

particularly in the area of improved cost-beneficial chemical synthesis for

various drug molecules is excellent. It provides a wide variety of bulk drugs

and exports sophisticated bulk drugs.

Legal & Financial Framework: India has a 53 year old democracyand hence

has a solid legal framework and strong financial markets. There is already an

established international industry and business community.

Information & Technology: It has a good network of world-class educational

institutions and established strengths in Information Technology.

Globalisation: The country is committed to a free market economy and

globalization. Above all, it has a 70 million middle class market, which is

continuously growing.

Consolidation: For the first time in many years, the international

pharmaceutical industry is finding great opportunities in India. The process of

consolidation, which has become a generalized phenomenon in the world

pharmaceutical industry, has started taking place in India.

Steps to strengthen the Industry

Indian companies need to attain the right product-mix for sustained future

growth. Core competencies will play an important role in determining the

future of many Indian pharmaceutical companies in the post product-patent

regime after 2005. Indian companies, in an effort to consolidate their

position, will have to increasingly look at merger and acquisition options of

either companies or products. This would help them to offset loss of new

product options, improve their R&D efforts and improve distribution to

penetrate markets.

Research and development has always taken the back seat amongst Indian

pharmaceutical companies. In order to stay competitive in the future, Indian

companies will have to refocus and invest heavily in R&D.

The Indian pharmaceutical industry also needs to take advantage of the

recent advances in biotechnology and information technology. The future of

the industry will be determined by how well it markets its products to several

regions and distributes risks, its forward and backward integration

capabilities, its R&D, its consolidation through mergers and acquisitions, co-

marketing and licensing agreements.

The Indian pharmaceutical industry is the world's second-largest by

volume and is likely to lead the manufacturing sector of India.1India's bio-

tech industry clocked a 17 percent growth with revenues of Rs.137 billion ($3

billion) in the 2009-10 financial year over the previous fiscal. Bio-pharma was

the biggest contributor generating 60 percent of the industry's growth at

Rs.8,829 crore, followed by bio-services at Rs.2,639 crore and bio-agri at

Rs.1,936 crore.2 The first pharmaceutical company are Bengal

Chemicals and Pharmaceutical Works, which still exists today as one of 5

government-owned drug manufacturers, appeared in Calcutta in 1930. For

the next 60 years, most of the drugs in India were imported

by multinationals either in fully formulated or bulk form.

The government started to encourage the growth of drug manufacturing by

Indian companies in the early 1960s, and with the Patents Act in 1970,

enabled the industry to become what it is today. This patent act removed

composition patents from food and drugs, and though it kept process

patents, these were shortened to a period of five to seven years. The lack of

patent protection made the Indian market undesirable to the multinational

companies that had dominated the market, and while they streamed out,
Indian companies started to take their places. They carved a niche in both

the Indian and world markets with their expertise in reverse-engineering new

processes for manufacturing drugs at low costs. Although some of the larger

companies have taken baby steps towards drug innovation, the industry as a

whole has been following this business model until the present.

Statistics

Top 10 Pharmaceuticals in India, as of 2010

Revenue Revenue
Ra
Company 2010(Rs cr 2010(Rs bill
nk
ore) ion)

Ranbaxy
1 4,198.96 41.989
Laboratories

Dr. Reddy's
2 4,162.25 41.622
Laboratories

3 Cipla 3,763.72 37.637

4 Sun Pharmaceutical 2,463.59 24.635

5 Lupin Ltd 2,215.52 22.155

6 Aurobindo Pharma 2,081.19 20.801

7 GlaxoSmithKline 1,773.41 17.734

8 Cadila Healthcare 1,613 16.13

9 Aventis Pharma 983.80 9.838

10 Ipca Laboratories 980.44 9.8044

In 2002, over 20,000 registered drug manufacturers in India sold $9 billion

worth of formulations and bulk drugs. 85% of these formulations were sold in

India while over 60% of the bulk drugs were exported, mostly to the United

States and Russia25. Most of the players in the market are small-to-medium

enterprises; 250 of the largest companies control 70% of the Indian

market 1. Thanks to the 1970 Patent Act, multinationals represent only 35%

of the market, down from 70% thirty years ago20.

Most pharma companies operating in India, even the multinationals, employ

Indians almost exclusively from the lowest ranks to high level management.

Mirroring the social structure, firms are very hierarchical. Homegrown

pharmaceuticals, like many other businesses in India, are often a mix of

public and private enterprise. Although many of these companies are

publicly owned, leadership passes from father to son and the founding family

holds a majority share.

In terms of the global market, India currently holds a modest 1-2% share, but

it has been growing at approximately 10% per year27. India gained its

foothold on the global scene with its innovatively engineered generic drugs

and active pharmaceutical ingredients (API), and it is now seeking to become

a major player in outsourced clinical research as well as contract

manufacturing and research. There are 74 U.S. FDA-approved manufacturing

facilities in India, more than in any other country outside the U.S, and in

2005, almost 20% of all Abbreviated New Drug Applications (ANDA) to the
FDA are expected to be filed by Indian companies21,27. Growth in other

fields notwithstanding, generics are still a large part of the picture. London

research company Global Insight estimates that Indias share of the global

generics market will have risen from 4% to 33% by 2007.

Product development

Indian companies are also starting to adapt their product development

processes to the new environment. For years, firms have made their ways

into the global market by researching generic competitors to patented drugs

and following up with litigation to challenge the patent. This approach

remains untouched by the new patent regime and looks to increase in the

future. However, those that can afford it have set their sights on an even

higher goal: new molecule discovery. Although the initial investment is huge,

companies are lured by the promise of hefty profit margins and the

recognition as a legitimate competitor in the global industry. Local firms have

slowly been investing more money into their R&D programs or have formed

alliances to tap into these opportunities.

Small and medium enterprises

As promising as the future is for a whole, the outlook for small and medium

enterprises (SME) is not as bright. The excise structure changed so that

companies now have to pay a 16% tax on the maximum retail price (MRP) of

their products, as opposed to on the ex-factory price. Consequently, larger

companies are cutting back on outsourcing and what business is left is

shifting to companies with facilities in the four tax-free states - Himachal

Pradesh, Jammu & Kashmir, Uttaranchal and Jharkhand.12Consequently a

large number of pharmaceutical manufacturers shifted their plant to these

states, as it became almost impossible to continue operating in non tax free

zones. But in a matter of a couple of years the excise duty was revised on

two occasions, first it was reduced to 8% and then to 4%. As a result the

benefits of shifting to a tax free zone was negated. This resulted in, factories

in the tax free zones, to start up third party manufacturing. Under this these

factories produced goods under the brand names of other parties on job

work basis.

As SMEs wrestled with the tax structure, they were also scrambling to meet

the July 1 deadline for compliance with the revised Schedule M Good

Manufacturing Practices (GMP). While this should be beneficial to consumers

and the industry at large, SMEs have been finding it difficult to find the funds

to upgrade their manufacturing plants, resulting in the closure of many

facilities. Others invested the money to bring their facilities to compliance,

but these operations were located in non-tax-free states, making it difficult to

compete in the wake of the new excise tax.

Challenges

All of these changes are ultimately good for the Indian pharmaceutical

industry, which suffered in the past from inadequate regulation and large

quantities of spurious drugs. They force the industry to reach a level

necessary for global competitiveness. However, they have also exposed

some of the inadequacies in the industry today. Its main weakness is an

underdeveloped new molecule discovery program. Even after the increased

investment, market leaders such as Ranbaxy and Dr. Reddys Laboratories

spent only 5-10% of their revenues on R&D, lagging behind Western

pharmaceuticals like Pfizer, whose research budget last year was greater

than the combined revenues of the entire Indian pharmaceutical industry13,

37. This disparity is too great to be explained by cost differentials, and it

comes when advances in genomics have made research equipment more

expensive than ever. The drug discovery process is further hindered by a

dearth of qualified molecular biologists. Due to the disconnect between

curriculum and industry, pharmas in India also lack the academic

collaboration that is crucial to drug development in the West.

R&D

Both the Indian central and state governments have recognized R&D as an

important driver in the growth of their pharma businesses and conferred tax

deductions for expenses related to research and development. They have

granted other concessions as well, such as reduced interest rates for export

financing and a cut in the number of drugs under price control. Government

support is not the only thing in Indian pharmas favor, though; companies

also have access to a highly developed IT industry that can partner with

them in new molecule discovery

Labor force

Indias greatest strengths lie in its people. India also boasts of well-educated,

English-speaking labor force that is the base of its competitive advantage.

Although molecular biologists are in short supply, there are a number of

talented chemists who are equally as important in the discovery process. In

addition, there has been a reverse brain drain effect in which scientists are

returning from abroad to accept positions at lower salaries at Indian

companies. Once there, these foreign-trained scientists can transfer the

benefits of their knowledge and experience to all of those who work with

them13,25. Indias wealth of people extends benefits to another part of the

drug commercialization process as well. With one of the largest and most

genetically diverse populations in any single country, India can recruit for

clinical trials more quickly and perform them more cheaply than countries in

the West47. Indian firms have just recently started to leverage.

Biotechnology

Relationship between pharmaceuticals and biotechnology

Unlike in other countries, the difference between biotechnology and

pharmaceuticals remains fairly defined in India. Bio-tech there still plays the

role of pharmas little sister, but many outsiders have high expectations for

the future. India accounted for 2% of the $41 billion global biotech market

and in 2003 was ranked 3rd in the Asia-Pacific region and 11th in the world in

number of biotechs.45 In 2004-5, the Indian biotech industry saw its

revenues grow 37% to $1.1 billion.2,9 The Indian biotech market is

dominated by biopharmaceuticals; 75% of 2004-5 revenues came from

biopharmaceuticals, which saw 30% growth last year. Of the revenues from

biopharmaceuticals, vaccines led the way, comprising 47% of sales46.

Biologics and large-molecule drugs tend to be more expensive than small-

molecule drugs, and India hopes to sweep the market in biogenerics and

contract manufacturing as drugs go off patent and Indian companies

upgrade their manufacturing capabilities.

Top 10 Pharmaceuticals in India, as of 2010

Revenue Revenue
Ra
Company 2010(Rs cr 2010(Rs bill
nk
ore) ion)

Ranbaxy
1 4,198.96 41.989
Laboratories

Dr. Reddy's
2 4,162.25 41.622
Laboratories

3 Cipla 3,763.72 37.637

4 Sun Pharmaceutical 2,463.59 24.635

5 Lupin Ltd 2,215.52 22.155

6 Aurobindo Pharma 2,081.19 20.801

7 GlaxoSmithKline 1,773.41 17.734

8 Cadila Healthcare 1,613 16.13

9 Aventis Pharma 983.80 9.838

10 Ipca Laboratories 980.44 9.804

Patents

As it expands its core business, the industry is being forced to adapt its

business model to recent changes in the operating environment. The first

and most significant change was the January 1, 2005 enactment of an

amendment to Indias patent law that reinstated product patents for the first

time since 1972. The legislation took effect on the deadline set by the WTOs

Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement,

which mandated patent protection on both products and processes for a

period of 20 years. Under this new law, India will be forced to recognize not

only new patents but also any patents filed after January 1, 1995. 3 Indian

companies achieved their status in the domestic market by breaking these

product patents, and it is estimated that within the next few years, they will

lose $650 million of the local generics market to patent-holders42.

In the domestic market, this new patent legislation has resulted in fairly clear

segmentation. The multinationals narrowed their focus onto high-end

patients who make up only 12% of the market, taking advantage of their

newly bestowed patent protection. Meanwhile, Indian firms have chosen to

take their existing product portfolios and target semi-urban and rural

populations
 Top 20 Biotechnology Companies in India, 2010

Revenue Revenue
Ra
Company 2010(Rs cr 2010(USD mill
nk
ore) ions)

1 Biocon 646 148.6

2 Serum Institute of India 565 129.9

3 Panacea Biotec 217 50.0

4 Venky's (India) Limited 188 43.2

5 Mahyco Monsanto 166 38.3

6 Novo Nordisk 135 31.0

7 Rasi Seeds 87 20.0

8 Aventis Pharma 84 19.4

9 Bharat Serums 81 18.6

10 Chiron Behring Vaccines 78 17.9

11 GlaxoSmithKline 78 17.9
12 Indian Immunologicals 72 16.6

13 Shantha Biotechnics 70 16.1

14 Novozymes 69 15.9

15 Eli Lilly and Company 68 15.7

16 Wockhardt 67 15.4

Bharat Immunological &

17 53 12.3
Biological Corp.

18 Bharat Biological International 41 9.4

19 Advanced Biochemicals 40 9.1

20 Biological E 36 8.3

USD 1 = Rs 43.5
Source: BioSpectrum Top 20: A threshold crossed
Most companies in the biotech sector are extremely small, with only two

firms breaking 100 million dollars in revenues. At last count there were 265

firms registered in India, over 75% of which were incorporated in the last five

years.2,47 The newness of the companies explains the industrys high

consolidation in both physical and financial terms. Almost 50% of all biotechs

are in or around Bangalore, and the top ten companies capture 47% of the

market. The top five companies were homegrown; Indian firms account for

62% of the biopharma sector and 52% of the industry as a whole.4,46 The

Association of Biotechnology-Led Enterprises (ABLE) is aiming to grow the

industry to $5 billion in revenues generated by 1 million employees by 2009,

and data from the Confederation of Indian Industry (CII) seem to suggest that

it is possible.7,47

Comparison with the U.S.

The Indian biotech sector parallels that of the U.S. in many ways. Both are

filled with small start-ups while the majority of the market is controlled by a

few powerful companies. Both are dependent upon government grants and

venture capitalists for funding because neither will be commercially viable

for years. Pharmaceutical companies in both countries have recognized the

potential effect that biotechnology could have on their pipelines and have

responded by either investing in existing start-ups or venturing into the field

themselves.36 In both India and the U.S., as well as in much of the globe,

biotech is seen as a hot field with a lot of growth potential.

Relationship with IT

Many analysts have observed that the hype around the biotech sector

mirrors that of the IT sector. Biotech colleges have been popping up around

the country eager to service the pools of students that want to take

advantage of a growing industry.7 The International Finance Commission, the

private investment arm of the World Bank, called India the centerpiece of

IFCs global biotech strategy. Of the $110 million invested in 14 biotech

projects investment globally, the IFC has given $43 million to 4 projects in

India.29 According to Dr. Manju Sharma, former director of the Department of

Biotechnology, the biotech industry could become the single largest sector

for employment of skilled human resource in the years to come.5 British

Prime Minister Tony Blair was similarly impressed, citing the success of

Indias biotech industry as the reason for his own countrys own biotech

opportunities.22 Malaysia is also looking to India as an example for growing

its own biotech industry.41

Government support

The Indian government has been very supportive. It established the

Department of Biotechnology in 1986 under the Ministry of Science and

Technology.47 Since then, there have been a number of dispensations

offered by both the central government and various states to encourage the

growth of the industry. Indias science minister launched a program that

provides tax incentives and grants for biotech start-ups and firms seeking to

expand and establishes the Biotechnology Parks Society of India to support

ten biotech parks by 2010. Previously limited to rodents, animal testing was

expanded to include large animals as part of the ministers initiative.10

States have started to vie with one another for biotech business, and they

are offering such goodies as exemption from VAT and other fees, financial

assistance with patents and subsidies on everything ranging from

investment to land to utilities19.

Foreign investment

The government has also taken steps to encourage foreign investment in its

biotech sector. An initiative passed earlier this year allowed 100% foreign

direct investment without compulsory licensing from the government1.6 In

April, a delegation headed by the Kapil Sibal, the minister of science and

technology and ocean development, visited five cities in the U.S. to

encourage investment in India, with special emphasis on biotech.32 Just two

months later, Sibal returned to the U.S. to unveil Indias biotech growth

strategy at the BIO2005 conference in Philadelphia.9

Challenges

The biotech sector faces some major challenges in its quest for growth. Chief

among them is a lack of funding, particularly for firms that are just starting

out. The most likely sources of funds are government grants and venture

capital, which is a relatively young industry in India. Government grants are

difficult to secure, and due to the expensive and uncertain nature of biotech

research, venture capitalists are reluctant to invest in firms that have not yet
developed a commercially viable product.26 As previously mentioned, India

hopes to solve its funding problem by attracting overseas investors and

partners. Before these potential saviors will invest significant sums in the

industry, however, there needs to be better scientific and financial

accountability. India is slowly working towards these goals, but it will be a

while before they are up to the standards of Western investors.

Indias biotech firms share another problem with their pharmaceutical

cousins: a lack of qualified employees. Biotech has the additional

disadvantage of competing against IT for ambitious, science-minded

students but not being able to guarantee the same compensation. An

aspiring researcher in India needs 710 years of education covering a range

of specialties in order to qualify to work in biotech. Even if a student does

choose to go on the biotech path, the ineffectual curriculum at many

universities makes it doubtful as to whether he will be qualified to work in

the field once finished. One estimate shows that 10% of upper-echelon

biotech recruits have come from foreign countries. While this is not a

problem, per se, it drives up cost in a country whose competitive advantage

is based on cheap, high-quality labor. Far from ending with scientists, there is

also a shortage of people with a knowledge of biotechnology in related fields:

doctors, lawyers, programmers, marketing personnel and others.7,15,17

While little has been done about the latter half of the employee crunch, the

government has addressed the problem of educated but unqualified

candidates in its Draft National Biotech Development Strategy. This plan

included a proposal to create a National Task Force that would work with the

biotech industry to revise the curriculum for undergraduate and graduate

study in life sciences and biotechnology. The governments strategy also

stated intentions to increase the number of PhD Fellowships awarded by the

Department of Biotechnology to 200 per year. These human resources will be

further leveraged with a Bio-Edu-Grid that will knit together the resources

of the academic and scientific industrial communities, much as they are in

the U.S.5

Major players

Glenmark

Glenmark is a emerging leader of Indian Pharmaceutical market in sales as

well in Research. Soon new chemical entities will hit the market.

Ranbaxy Laboratories

Ranbaxy is the leader in the Indian pharmaceutical market, taking in $1.174

billion in revenues for a net profit of $160 million in 2004. It was the first

Indian pharmaceutical to have a proprietary drug (extended-

release ciprofloxacin, marketed by Bayer) approved by the U.S. FDA, and the

U.S. market accounts for 36% of its sales. 78% of Ranbaxys sales are from

overseas markets; its offices in 44 countries manage manufacturing in 7

countries and distribution in over 100.

IMS Health estimated that Ranbaxy is among the top 100 pharmaceuticals in

the world and that it is the 15th fastest growing company. By 2012, Ranbaxy
hopes to be one of the top 5 generics producers in the world, and it

consolidated its position with the purchase of French firm RGP Aventis in

2003. Ranbaxy also has higher aspirations, however, to build a proprietary

prescription business in the advanced markets. To this end, it keeps a

dedicated research facility in Gurgaon staffed with over 1100 scientists. They

currently have two molecules in Phase II trials and 3-5 in pre-clinical testing.

It spent $75 million in R&D in 2004, a 43% increase over its 2003

expenditure.

Arun Puri is the chairman and CEO Brian Tempest is the only non-Indian on

the senior management team.38,39

Dr. Reddy's Laboratories

Founded in 1984 with $160,000, Dr. Reddys was the first Asia-Pacific

pharmaceutical outside of Japan and the sixth Indian company to be listed on

the New York Stock Exchange. It earned $446 million in fiscal year 2005,

deriving 66% of this income from the foreign market. In order to strengthen

its global position, Dr. Reddy acquired UK-based BMS Laboratories and

subsidiary Meridian Healthcare. Anji Reddy is the chairman of Dr.Reddy's.

Although 58% of Dr. Reddys revenues come from generic drugs, the

company was committed to WTO-compliance long before the 2005 bill took

effect, and most of these products were already off patent. Dr. Reddy has

long been a research-oriented firm, preceding many of its peers in setting up

a New Drug Development Research (NDDR) in 1993 and out-licensing its first
compound just four years later. Dr. Reddys has since outlicensed two more

molecules and currently has three others in clinical trials.

Although Dr. Reddys is publicly traded, the Reddy family (including

founder/chairman K. Anji Reddy, son-in-law/CEO GV Prasad and son/COO

Satish Reddy) holds a hefty 26% share in the company.11,44

Nicholas Piramal

The company led by Asish Mishra grossing $350 million per year, Nicholas

Piramal started its existence with the 1988 acquisition of Nicholas

Laboratories and grew through a series of mergers, acquisitions and

alliances. The company has formed a name for itself in the field of custom

manufacturing. It cites its 1700-person global sales force as another core

strength; with its acquisition of Rhodias inhalation anaesthetics business,

Nicholas Piramal gained a sales and marketing network spanning 90

countries34.

Nicholas Piramal is well-poised for the challenge of surviving in the aftermath

of product patent protection. The company has respected intellectual

property rights since its inception and refused to "support generic companies

seeking first-to-file or early-to-market strategies." Instead, it decided to make

its own intellectual property and opened a research facility last November in

Mumbai with hopes of launching its first drug in 2010 at a cost of

$100,000.24,33
Cipla

Cipla is one of the oldest drug manufacturers in India. It is led by Dr. Yusuf K.

Hamied, Chairman and Managing Director. Cipla burst into the international

consciousness in 2000 with Triomune, an AIDS treatment costing between

$300 and $800 per year that infringed upon patents held by several

companies who were selling the cocktail for $12,000 per year. Long before

this news, Cipla had been building a strong global presence, and it now

distributes its 800-odd products in over 140 countries. Privately held Cipla

holds a prominent spot in its home country as well; it is the leader in

domestic sales, having just unseated GlaxoSmithKline for the first time in 28

years. Revenue in 2004 totaled $552 million (using Rs 43.472 = $1) about

75% of which was derived in India. Cipla did not report having a research

program.8,18

|Dr. Kiran Mazumdar-Shaw is the Chairman and Managing Director of

BiocoIrish chemicals company seeking to break into the Indian market,

Biocon is now the leading biotech in India, bringing in Rs 646.36 crore

(almost $150 million) in revenue for fiscal year 2004. It initially made its

money by producing enzymes, but Biocon recently decided to become a

research-oriented company with the goal of bringing a proprietary new drug

to market.

The company went public in March 2004, and "its shares were

oversubscribed by 33 times on opening day." Eight months later it launched

Insugen, a bio-insulin that is its first branded product. Biocon also has two
wholly owned subsidiaries, Syngene and Clinigene, that perform custom

research and clinical trials.3,14,31

Serum Institute of India

Main article: Serum Institute of India

The Serum Institute of India can make the enviable claim that 2 out of every

3 children in the world are immunized with one of their vaccines. It is the

worlds largest producer of measles and DTP vaccines, and its portfolio

includes other vaccines, antisera, plasma products and anticancer

compounds. The Serum Institute earned Rs 565 crore ($130 million) in

revenue in fiscal year 2005, selling mainly to UN agencies and to the Indian

government. The Serum Institute is part of the Poonawalla Group, whose

holdings include a horse stud farm and manufacturers of industrial

equipment and components. Dr. Cyrus Poonawalla is the Chairman of the

company.
 CHAPTER IV

COMPANY PROFILE
Hetero Company Profile

Hetero is a research based global pharmaceutical company focused on

development, manufacturing and marketing of Active Pharmaceutical

Ingredients (APIs), Intermediate Chemicals & Finished Dosages. Ever since its

establishment in 1993, Hetero showed a tradition of excellence and deep

sense of commitment in developing cost effective processes to offer wide

range of affordable drugs.

Hetero is building on the strengths of vertical integration in discovery

research, process chemistry, API manufacturing, formulation development

and commercialization. Hetero is a leading international supplier with a rich

portfolio of over 200 products from wide range of therapeutic categories both

in active pharmaceutical ingredients and finished dosages.

Heteros manufacturing facilities are cGMP compliant meeting global

standards in terms of infrastructure and systems. Majority of them are

approved by the various regulatory authorities of USFDA, WHO-Geneva,

Australian TGA, Spanish agency of medicines & health care products,

ANVISA-Brazil, IDA-Netherlands etc.,

With full-fledged marketing capabilities, the company has been able to

market its products in over 138 countries across the globe.

Hetero Drugs, the parent company established in 1993 is one of the largest

Indian pharmaceutical companies with over 2000 crores in revenues and

employs more than 5000 employees. Hetero is a vertically integrated

pharmaceutical company and is a leading player in APIs and finished

dosages. Hetero supplys APIs and finished dosages to major domestic and

international generic companies.

Hetero operates in more than 100 countries and its manufacturing facilities

meet various national and international standards including USFDA. Hetero

has a portfolio of more than 200 products and is a leading company in

bringing new generic molecules to the market.

About Founder.

A Visionary Scientist

"Where the future started yesterday........ works a day ahead of future...."

Dr. Bandi Parthasaradhi Reddy, Chairman & Managing Director of Hetero

group is academically endowed with a Post Graduate and Doctoral degrees

with distinction in the field of synthetic chemistry. Prior to founding of Hetero

Drugs Limited, Dr. B.P.S Reddy had a stint in leading pharmaceutical

companies as the head of the Research & Development division. His sharp

analysis and ability to synthesize various chemical compounds lead to the

discovery of new processes, cost effective schemes for manufacturing of

various pharmaceutical products. During the said period Dr.B.P.S Reddy has
the credit of introducing many new molecules for the first time in Indian

pharmaceutical market.

A visionary the world knows as Dr. B.P.S.Reddy, is the driving force behind

this growing pharmaceutical phenomenon called HETERO. Dr.B.P.S.Reddys

dream child, Hetero was born in the year 1993 as a small API unit. Today, 17

years later, the name is synonymous with leadership in pharmaceuticals with

more than 18 manufacturing units and 8000 employees. An entity that is

grown in stature by virtue of its combined strength in research,

manufacturing and marketing.

Dr. B.P.S.Reddy steered Hetero towards the forefront of global

pharmaceutical industry with his vision to be recognised as an aggressive

company that combines its strength of R&D and manufacturing with definite

advantages in terms of cost and chemistry with a strong emphasis on quality

of the products.

Dr. B.P.S.Reddy is now focusing on giving new dimensions to Hetero in terms

of research and innovation programs in discovery research to take the

company to greater heights.

Awards & Accolades

Hetero has been scaling new heights on a continual basis. These

achievements have been the result of concerted efforts on the part of

different functions within the organisation to achieve the organisational goal

of being a leader.

In its path to success, Hetero has seen many a milestone being crossed and

achieved many awards on various fronts. Awards for exemplary work in R&D

and marketing are just a few to name.

A track of few events that saw Hetero reaching its Zenith of glory are :

2009

Top Pharmexcil Gold Patent award.

Top Pharmexcil Outstanding Export Performance award in Drugs and

Pharmaceuticals.

2006

Chemexil Trishul export award for outstanding export performance

2001 Excellence & National Integration award in recognition of the efforts for

excellence with affairs connected with educational specialties and creating

teaching skills besides promoting harmony at all levels in the college.

1999
 Highest exporter award against stiff competition from internationally

recognized domestic competitors.

1998

Top Chemexil award for Exports.

1996

National award for "Best Efforts in Research and Development" from

the Department of Scientific and Industrial Research, Ministry of Science and

Technology, Government of India, in the year 1996.

Corporate Social Responsibility is our commitment

Hetero Group always believes in the concept of giving back to the society to

uplift the living standards in the surrounding society as one of the prime

responsibilities and always took the lead. The Group is committed for

implementation of various CSR initiatives and contributes substantially to the

cause.

Hetero Group received appreciation from the Government of Andhra Pradesh,

for its outstanding contribution in the implementation of Corporate Social

Responsibility. .

Environment Protection:
Completed One Million Plantation Programme.

Taking up Plantation in the surrounding Schools.

Completed Plantation in newly acquired 15 acres land and a total of 25000

Nos. of saplings made.

Provided substantial amount to the industrial association for the

development of infrastructure and environment in Kazipally IDA.

Provision of Biomass Pellets for cooking purpose in place of LPG gas.

Research & Development

Research & Development is the foundation of Heteros philosophy of

developing cost-effective, high quality and safe medicines to society. Hetero

Research Foundation is one of the most innovative, productive, and

respected scientific research organizations which is recognized by the

Department of Science & Technology, Government of India.

Hetero Research Foundation (HRF) has a team of over 400 dedicated

scientists working in the areas of Process, Analytical and Discovery Research.

R & D centre conforms to international standards and has advanced

equipment for both basic and applied research.

Process R&D
HRF has developed process for 150 plus molecules for various markets. The

R&D team actively involved in process development, scaling-up technology

transfer and associates with manufacturing team through out life cycle of

product.

HRF has always been emphasizing to ensure that the processes being

adopted for the products are cost effective, safe to handle and with optimum

advantage in terms of yield and quality.

Analytical R&D

Analytical research at HRF is equipped to conduct complete physical and

chemical characterisation of APIs/ NCEs. Further, the team is well versed

with regulatory filings and has vast experience in documentation. The

infrastructure includes advanced instruments like LC-MS-MS, GC-MS, NMR,

Powder XRD apart from several HPLC systems.

Having a strong commitment and experience in

bringing quality medicines to all, Hetero entered into

the pharmacy services as part of its integration strategy. Having a strong

knowledge in this space we believe we can provide high quality services to

our customers.
Less than year after the launch of Hetero Pharmacy in Hyderabad, we scaled

up to more than 100+ pharmacies across AP. We are still growing

aggressively to serve our customers better.

Hetero also has its outlets at the prestigious Nizams Institute of Medical

Sciences (NIMS) Punjagutta, Hyderabad and GMR international airport,

Hyderabad.

At our pharmacy outlets we provide:

Qualified & trained Pharmacists

Helps you comply with prescription instructions. No scope for spurious drugs,

expired medicines and substitution

Availability of wide range of medicines

Pharmacy, surgical, disposables, ARV, anti-cancer, life saving and general

Healthcare products by Indian and International companies

Storage as specified

Stocking drugs as per prescribed temperature standards, thereby retaining

their quality and effectiveness

Computerized billing system

Proper display of batch numbers, price & expiry with no waiting time

Low Prices

Special discount on printed M.R.P

Patient education leaf-lets

Health tips & dietary suggestion

INDUSTRIALISATION AND ECONOMIC DEVELOPMENT

We have emphasised in the previous chapters the need for a substantial and

rapid improvement in agriculture in order to increase the supply of

foodgrains and raw materials needed in the country. The fact that at the

present juncture it is necessary to give the highest priority to agricultural

development including the building up of the necessary basic services like

irrigation and power does not, however, mean that industrial development is

in any sense less important. In the development of an underdeveloped

economy there is really no conflict between agricultural and industrial

development. Improvement in agriculture cannot proceed beyond a point

unless the surplus working force on the land is progressively diverted to

industries and services. Similarly, industrial development itself cannot

advance sufficiently without a large increase in the supply of food necessary

to maintain the population thus diverted and of the raw materials needed to

enable industries to expand production. The fact that the productivity of

labour in industry is much higher than in agriculture also points to the need

for rapid industrial development. Moreover, in an underdeveloped country

the surpluses created in the industrial sector are likely to be available for

investment relatively more easily than surpluses in the agricultural sector.

The pattern of industrialisation to be adopted, that is, the relative emphasis

on capital goods industries and consumer goods industries and the degree of
capital intensiveness in different lines of industry, has, of course, to be

decided in the light of several technical, economic and social factors. But

there is no doubt that over a period the desired rate of economic progress

will necessitate a rapid diversification of the occupational structure through

development of industry, together with trade and transport.

INDIAN INDUSTRIAL STRUCTURE

2. The relative backwardness of industiral development in India may be

judged from the fact that in 1948-49 factory establishments accounted for

only 6.6 percent of total national income. The total labour force engaged in

such establishments is about 2.4 million or 1.8 percent of the working

population in the country. While in the aggregate India's industrial output

may look massive, per head of population it is very much lower than the

industrial output in advanced countries.

3. Prior to the first world war the only major industries which had developed

substantiaflly were cotton' and jute textiles, for which the country had

exceptional natural advantages. The industrial development since the

twenties is associated with the adoption of a more progressive industrial and

fiscal policy. Between 1922, when the policy of discriminating 420.

the contribution of the Industrial Sector in India GDP

The industrial sector is one of the main sectors that contribute to the Indian

GDP. The country ranks fourteenth in the factory output in the world. The

industrial sector is made up of manufacturing, mining and quarrying, and

electricity, water supply, and gas sectors. The industrial sector accounts for

around 27.6% of the India GDP and it employs over 17% of the total

workforce in the country. The Growth Rate of the Industrial Sector in India

GDP came to around 5.2% in 2002- 2003. In this year, within the India GDP,

the mining and quarrying sector contributed 4.4%, the electricity, water

supply, and gas sector contributed 2.8%, and the manufacturing sector

contributed around 5.7%.

The Growth Rate of the Industry Sector in India GDP came to around 6.6% in

2003- 2004 and in this year, the electricity, water supply, and gas sector

contributed 4.8%, the mining and quarrying sector contributed 5.3%, and the

manufacturing sector contributed 7.1% in India GDP. Industry Growth Rate in

India GDP came to 7.4% in 2004- 2005, with the manufacturing sector

contributing 8.1%, the mining and quarrying sector contributing 5.8%, and

the water supply, electricity, and gas sector contributing 4.3% in India GDP.

Industry Growth Rate in India GDP came to 7.6% in 2005- 2006. In this year,

the mining and quarrying sector contributed 0.9%, the manufacturing sector

contributed 9.0%, and the water supply, gas, and electricity sector
contributed 4.3%. The Growth Rate of the Industrial Sector finally came to

9.8% in 2006- 2007. This shows that Industry Growth Rate in India GDP has

been on the rise over the last few years.

The reasons for the rise of Industry Growth Rate in India GDP

The reasons for the increase of Industry Growth Rate in India GDP are that

huge amounts of investments are being made in this sector and this has

helped the industries to grow. Further the reasons for the rise of the Growth

Rate of the Industrial Sector in India are that the consumption of the

industrial goods has increased a great deal in the country, which in its turn

has boosted the industrial sector. Also the reasons for the increase of

Industry Growth Rate in India GDP are that the industrial goods are being

exported in huge quantities from the country.

The Indian government must boost the Industrial Sector

Industry Growth Rate in India GDP thus has been registering steady growth

over the past few years. This has given a major boost to the Indian economy.

The government of India thus must continue to make efforts to boost the

industrial sector in the country. For this will in turn help to grow the country's

economy.
Industrial Revolution

The Industrial Revolution was a period from the 18th to the 19th century

where major changes in agriculture, manufacturing, mining, transportation,

and technology had a profound effect on the social, economic and cultural

conditions of the times. It began in Britain, then subsequently spread

throughout Western Europe, North America, Japan, and eventually the world.

The Industrial Revolution marks a major turning point in human history;

almost every aspect of daily life was influenced in some way. Most notably,

average income and population began to exhibit unprecedented sustained

growth. In the two centuries following 1800, the world's average per capita

income increased over tenfold, while the world's population increased over

sixfold. In the words of Nobel Prize winner Robert E. Lucas, Jr., "For the first

time in history, the living standards of the masses of ordinary people have

begun to undergo sustained growth ... Nothing remotely like this economic

behavior has happened before".

Starting in the later part of the 18th century, there began a transition in

parts of Great Britain's previously manual labour and draft-animalbased

economy towards machine-based manufacturing. It started with the

mechanisation of the textile industries, the development of iron-making

techniques and the increased use of refined coal. Trade expansion was

enabled by the introduction of canals, improved roads and railways.

The introduction of steam power fuelled primarily by coal, wider utilisation of

water wheels and powered machinery (mainly in textile manufacturing)

underpinned the dramatic increases in production capacity. The development

of all-metal machine tools in the first two decades of the 19th century

facilitated the manufacture of more production machines for manufacturing

in other industries. The effects spread throughout Western Europe and North

America during the 19th century, eventually affecting most of the world, a

process that continues as industrialisation. The impact of this change on

society was enormous.

The First Industrial Revolution, which began in the 18th century, merged into

the Second Industrial Revolution around 1850, when technological and

economic progress gained momentum with the development of steam-

powered ships, railways, and later in the 19th century with the internal

combustion engine and electrical power generation. The period of time

covered by the Industrial Revolution varies with different historians. Eric

Hobsbawm held that it 'broke out' in Britain in the 1780s and was not fully

felt until the 1830s or 1840s, while T. S. Ashton held that it occurred roughly

between 1760 and 1830.

Some 20th century historians such as John Clapham and Nicholas Crafts have

argued that the process of economic and social change took place gradually

and the term revolution is a misnomer. This is still a subject of debate among

historians. GDP per capita was broadly stable before the Industrial Revolution
and the emergence of the modern capitalist economy. The Industrial

Revolution began an era of per-capita economic growth in capitalist

economies. Economic historians are in agreement that the onset of the

Industrial Revolution is the most important event in the history of humanity

since the domestication of animals and plants.

The earliest use of the term "Industrial Revolution" seems to be a letter of 6

July 1799 by French envoy Louis-Guillaume Otto, announcing that France had

entered the race to industrialize. In his 1976 book Keywords: A Vocabulary of

Culture and Society, Raymond Williams states in the entry for "Industry":

"The idea of a new social order based on major industrial change was clear in

Southey and Owen, between 1811 and 1818, and was implicit as early as

Blake in the early 1790s and Wordsworth at the turn of the century." The

term Industrial Revolution applied to technological change was becoming

more common by the late 1830s, as in Louis-Auguste Blanqui description in

1837 of la rvolution industrielle. Friedrich Engels in The Condition of the

Working Class in England in 1844 spoke of "an industrial revolution, a

revolution which at the same time changed the whole of civil society". Credit

for popularising the term may be given to Arnold Toynbee, whose lectures

given in 1881 gave a detailed account of it.

Innovations
The only surviving example of a Spinning mule built by the inventor Samuel

Crompton

The commencement of the Industrial Revolution is closely linked to a small

number of innovations,[16] made in the second half of the 18th century:

Textiles Cotton spinning using Richard Arkwright's water frame,

James Hargreaves'sSpinning Jenny, and Samuel Crompton's Spinning

Mule (a combination of the Spinning Jenny and the Water Frame). This was

patented in 1769 and so came out of patent in 1783. The end of the

patent was rapidly followed by the erection of many cotton mills. Similar

technology was subsequently applied to spinning worsted yarn for various

textiles and flax for linen. The cotton revolution began in Derby, which has

been known since this period as the "Powerhouse of the North".

Steam power The improved steam engine invented by James

Watt and patented in 1775 was initially mainly used to power pumps for

pumping water out of mines, but from the 1780s was applied to power

other types of machines. This enabled rapid development of efficient

semi-automated factories on a previously unimaginable scale in places

where waterpower was not available. For the first time in history people

did not have to rely on human or animal muscle, wind or water for power.

The steam engine was used to pump water from coal mines; to lift trucks

of coal to the surface; to blow air into the furnaces for the making of iron;
 to grind clay for pottery; and to power new factories of all kinds. For over

a hundred years the steam engine was the king of the industries.

Iron making In the Iron industry, coke was finally applied to all

stages of iron smelting, replacing charcoal. This had been achieved much

earlier for lead and copper as well as for producing pig iron in a blast

furnace, but the second stage in the production of bar irondepended on

the use of potting and stamping (for which a patent expired in 1786)

or puddling (patented by Henry Cort in 1783 and 1784).

These represent three 'leading sectors', in which there were key innovations,

which allowed the economic take off by which the Industrial Revolution is

usually defined. This is not to belittle many other inventions, particularly in

the textile industry. Without some earlier ones, such as the spinning

jenny and flying shuttle in the textile industry and the smelting of pig iron

with coke, these achievements might have been impossible. Later inventions

such as the power loom and Richard Trevithick's high pressure steam

engine were also important in the growing industrialisation of Britain. The

application of steam engines to powering cotton mills and ironworks enabled

these to be built in places that were most convenient because other

resources were available, rather than where there was water to power

a watermill.

In the textile sector, such mills became the model for the organisation of

human labour in factories, epitomised by Cottonopolis, the name given to the

vast collection of cotton mills, factories and administration offices based

in Manchester. The assembly line system greatly improved efficiency, both in

this and other industries. With a series of men trained to do a single task on

a product, then having it moved along to the next worker, the number of

finished goods also rose significantly.

Also important was the 1756 rediscovery of concrete (based on hydraulic

lime mortar) by the British engineer John Smeaton, which had been lost for

1300 years.[17]

Technological developments in Britain

In the early 18th century, British textile manufacture was based on wool

which was processed by individual artisans, doing the spinning and weaving

on their own premises. This system is called a cottage industry. Flax and

cotton were also used for fine materials, but the processing was difficult

because of the pre-processing needed, and thus goods in these materials

made only a small proportion of the output.

Use of the spinning wheel and hand loom restricted the production capacity

of the industry, but incremental advances increased productivity to the

extent that manufactured cotton goods became the dominant British export

by the early decades of the 19th century. India was displaced as the premier

supplier of cotton goods.

Lewis Paul patented the Roller Spinning machine and the flyer-and-bobbin

system for drawing wool to a more even thickness, developed with the help

of John Wyatt in Birmingham. Paul and Wyatt opened a mill in Birmingham

which used their new rolling machine powered by a donkey. In 1743, a

factory was opened in Northampton with fifty spindles on each of five of Paul

and Wyatt's machines. This operated until about 1764. A similar mill was

built by Daniel Bourn in Leominster, but this burnt down. Both Lewis Paul and

Daniel Bourn patented carding machines in 1748. Using two sets of rollers

that travelled at different speeds, it was later used in the first cotton spinning

mill. Lewis's invention was later developed and improved by Richard

Arkwright in his water frame and Samuel Crompton in his spinning mule.

Other inventors increased the efficiency of the individual steps of spinning

(carding, twisting and spinning, and rolling) so that the supply of yarn

increased greatly, which fed a weaving industry that was advancing with

improvements to shuttles and the loom or 'frame'. The output of an

individual labourer increased dramatically, with the effect that the new

machines were seen as a threat to employment, and early innovators were

attacked and their inventions destroyed.

To capitalise upon these advances, it took a class of entrepreneurs, of which

the most famous is Richard Arkwright. He is credited with a list of inventions,

but these were actually developed by people such as Thomas Highs and John

Kay; Arkwright nurtured the inventors, patented the ideas, financed the
initiatives, and protected the machines. He created the cotton mill which

brought the production processes together in a factory, and he developed

the use of powerfirst horse power and then water powerwhich made

cotton manufacture a mechanised industry. Before long steam power was

applied to drive textile machinery.

Metallurgy

The major change in the metal industries during the era of the Industrial

Revolution was the replacement of organic fuels based on wood with fossil

fuel based on coal. Much of this happened somewhat before the Industrial

Revolution, based on innovations by SirClement Clerke and others from

1678, using coalreverberatory furnaces known as cupolas. These were

operated by the flames, which contained carbon monoxide, playing on

the ore and reducing the oxide to metal. This has the advantage that

impurities (such as sulphur) in the coal do not migrate into the metal. This

technology was applied to lead from 1678 and tocopper from 1687. It was

also applied to iron foundry work in the 1690s, but in this case the

reverberatory furnace was known as an air furnace. The foundry cupola is a

different (and later) innovation.

This was followed by Abraham Darby, who made great strides using coke to

fuel his blast furnaces at Coalbrookdale in 1709. However, the coke pig

iron he made was used mostly for the production of cast iron goods such as
pots and kettles. He had the advantage over his rivals in that his pots, cast

by his patented process, were thinner and cheaper than theirs. Coke pig iron

was hardly used to produce bar iron in forges until the mid 1750s, when his

son Abraham Darby II built Horsehay and Ketley furnaces (not far from

Coalbrookdale). By then, coke pig iron was cheaper than charcoal pig iron.

Matthew Boulton helped James Watt to get his business off the ground. he

set up a massive factory called the Soho Factory, in the midlands.

Bar iron for smiths to forge into consumer goods was still made in finery

forges, as it long had been. However, new processes were adopted in the

ensuing years. The first is referred to today as potting and stamping, but this

was superseded by Henry Cort's puddling process. From 1785, perhaps

because the improved version of potting and stamping was about to come

out of patent, a great expansion in the output of the British iron industry

began. The new processes did not depend on the use of charcoal at all and

were therefore not limited by charcoal sources.

Up to that time, British iron manufacturers had used considerable amounts of

imported iron to supplement native supplies. This came principally

from Sweden from the mid-17th century and later also from Russia from the

end of the 1720s. However, from 1785, imports decreased because of the

new iron making technology, and Britain became an exporter of bar iron as

well as manufactured wrought ironconsumer goods.

Since wrought iron was becoming cheaper and more plentiful, it also became

a major structural material following the building of the innovative The Iron

Bridge in 1778 by Abraham Darby III.

The Iron Bridge, Shropshire, England

An improvement was made in the production of steel, which was an

expensive commodity and used only where iron would not do, such as for the

cutting edge of tools and for springs. Benjamin Huntsman developed

his crucible steel technique in the 1740s. The raw material for this was

blister steel, made by the cementation process.

The supply of cheaper iron and steel aided the development of boilers and

steam engines, and eventually railways. Improvements in machine

tools allowed better working of iron and steel and further boosted the

industrial growth of Britain.

Mining

Coal mining in Britain, particularly in South Wales started early. Before the

steam engine, pits were often shallow bell pits following a seam of coal along

the surface, which were abandoned as the coal was extracted. In other

cases, if the geology was favourable, the coal was mined by means of an adit

or drift mine driven into the side of a hill. Shaft mining was done in some

areas, but the limiting factor was the problem of removing water. It could be

done by hauling buckets of water up the shaft or to a sough (a tunnel driven

into a hill to drain a mine). In either case, the water had to be discharged

into a stream or ditch at a level where it could flow away by gravity. The

introduction of the steam engine greatly facilitated the removal of water and

enabled shafts to be made deeper, enabling more coal to be extracted.

These were developments that had begun before the Industrial Revolution,

but the adoption of James Watt's more efficient steam engine from the 1770s

reduced the fuel costs of engines, making mines more profitable. Coal mining

was very dangerous owing to the presence of firedamp in many coal seams.

Some degree of safety was provided by the safety lamp which was invented

in 1816 by Sir Humphry Davy and independently by George Stephenson.

However, the lamps proved a false dawn because they became unsafe very

quickly and provided a weak light. Firedamp explosions continued, often

setting off coal dust explosions, so casualties grew during the entire 19th

century. Conditions of work were very poor, with a high casualty rate from

rock falls.

Steam power

The development of the stationary steam engine was an essential early

element of the Industrial Revolution; however, for most of the period of the

Industrial Revolution, the majority of industries still relied on wind and water

power as well as horse- and man-power for driving small machines.

The first real attempt at industrial use of steam power was due to Thomas

Savery in 1698. He constructed and patented in London a low-lift combined

vacuum and pressure water pump, that generated about one horsepower

(hp) and was used in numerous water works and tried in a few mines (hence

its "brand name", The Miner's Friend), but it was not a success since it was

limited in pumping height and prone to boiler explosions.

Newcomen's steam powered atmospheric engine was the first practical

engine. Subsequent steam engines were to power the Industrial Revolution

The first safe and successful steam power plant was introduced by Thomas

Newcomen before 1712. Newcomen apparently conceived the Newcomen

steam engine quite independently of Savery, but as the latter had taken out

a very wide-ranging patent, Newcomen and his associates were obliged to

come to an arrangement with him, marketing the engine until 1733 under a

joint patent. Newcomen's engine appears to have been based on Papin's

experiments carried out 30 years earlier, and employed a piston and

cylinder, one end of which was open to the atmosphere above the piston.

Steam just above atmospheric pressure (all that the boiler could stand) was

introduced into the lower half of the cylinder beneath the piston during the

gravity-induced upstroke; the steam was then condensed by a jet of cold

water injected into the steam space to produce a partial vacuum; the

pressure differential between the atmosphere and the vacuum on either side

of the piston displaced it downwards into the cylinder, raising the opposite

end of a rocking beam to which was attached a gang of gravity-actuated

reciprocating force pumps housed in the mineshaft. The engine's downward

power stroke raised the pump, priming it and preparing the pumping stroke.

At first the phases were controlled by hand, but within ten years an

escapement mechanism had been devised worked by a vertical plug tree

suspended from the rocking beam which rendered the engine self-acting.

A number of Newcomen engines were successfully put to use in Britain for

draining hitherto unworkable deep mines, with the engine on the surface;

these were large machines, requiring a lot of capital to build, and produced

about 5 hp (3.7 kW). They were extremely inefficient by modern standards,

but when located where coal was cheap at pit heads, opened up a great

expansion in coal mining by allowing mines to go deeper. Despite their

disadvantages, Newcomen engines were reliable and easy to maintain and

continued to be used in the coalfields until the early decades of the 19th

century. By 1729, when Newcomen died, his engines had spread (first) to

Hungary in 1722, Germany, Austria, and Sweden. A total of 110 are known to

have been built by 1733 when the joint patent expired, of which 14 were

abroad. In the 1770s, the engineer John Smeaton built some very large

examples and introduced a number of improvements. A total of 1,454

engines had been built by 1800.

Chemicals

The large scale production of chemicals was an important development

during the Industrial Revolution. The first of these was the production
of sulphuric acid by the lead chamber processinvented by the

Englishman John Roebuck (James Watt's first partner) in 1746. He was able to

greatly increase the scale of the manufacture by replacing the relatively

expensive glass vessels formerly used with larger, less expensive chambers

made of riveted sheets of lead. Instead of making a small amount each time,

he was able to make around 100 pounds (50 kg) in each of the chambers, at

least a tenfold increase.

The production of an alkali on a large scale became an important goal as

well, and Nicolas Leblanc succeeded in 1791 in introducing a method for the

production of sodium carbonate. TheLeblanc process was a reaction of

sulphuric acid with sodium chloride to give sodium sulphate andhydrochloric

acid. The sodium sulphate was heated with limestone (calcium carbonate)

and coal to give a mixture of sodium carbonate and calcium sulphide. Adding

water separated the soluble sodium carbonate from the calcium sulphide.

The process produced a large amount of pollution (the hydrochloric acid was

initially vented to the air, and calcium sulphide was a useless waste product).

Nonetheless, this synthetic soda ash proved economical compared to that

from burning specific plants (barilla) or from kelp, which were the previously

dominant sources of soda ash,[22] and also to potash (potassium carbonate)

derived from hardwood ashes.

These two chemicals were very important because they enabled the

introduction of a host of other inventions, replacing many small-scale

operations with more cost-effective and controllable processes. Sodium

carbonate had many uses in the glass, textile, soap, and paper industries.

Early uses for sulphuric acid included pickling (removing rust) iron and steel,

and for bleaching cloth.

The development of bleaching powder (calcium hypochlorite) by Scottish

chemist Charles Tennant in about 1800, based on the discoveries of French

chemist Claude Louis Berthollet, revolutionised the bleaching processes in

the textile industry by dramatically reducing the time required (from months

to days) for the traditional process then in use, which required repeated

exposure to the sun in bleach fields after soaking the textiles with alkali or

sour milk. Tennant's factory at St Rollox, North Glasgow, became the largest

chemical plant in the world.

In 1824 Joseph Aspdin, a British bricklayer turned builder, patented a

chemical process for making portland cement which was an important

advance in the building trades. This process involves sintering a mixture

of clay and limestone to about 1,400 C (2,552 F), then grinding it into a

fine powder which is then mixed with water, sand and gravel to

produce concrete. Portland cement was used by the famous English

engineer Marc Isambard Brunel several years later when constructing

the Thames Tunnel Cement was used on a large scale in the construction of

the London sewerage system a generation later.

After 1860 the focus on chemical innovation was in dyestuffs, and Germany

took world leadership, building a strong chemical industry A spring chemists

flocked to German universities in the 1860-1914 era to learn the latest

techniques. British scientists by contrast, lacked research universities and

did not train advanced students; instead the practice was to hire German-

trained chemists

Gas lighting

Another major industry of the later Industrial Revolution was gas

lighting. Though others made a similar innovation elsewhere, the large scale

introduction of this was the work of William Murdoch, an employee of Boulton

and Watt, the Birmingham steam engine pioneers. The process consisted of

the large scale gasification of coal in furnaces, the purification of the gas

(removal of sulphur, ammonia, and heavy hydrocarbons), and its storage and

distribution. The first gas lighting utilities were established in London

between 1812-20. They soon became one of the major consumers of coal in

the UK. Gas lighting had an impact on social and industrial organisation

because it allowed factories and stores to remain open longer than with

tallow candles or oil. Its introduction allowed night life to flourish in cities and

towns as interiors and streets could be lighted on a larger scale than before.

Industrial Growth in India

The latest data for Index of Industrial Production (IIP) has been released for

the month of October 2008. It shows that industrial growth in India has

turned negative for the first time since 1993. According to figures of IIP, the

overall growth rate of industrial production as measured by the IIP has been

-0.4% in the month of October 2008 as compared with that of October 2007.
The detailed data for the IIP is given in the following table:

Growth Rate of Industrial Production over the corresponding period

of the previous year

Mont

h Mining Manufacturing Electricity General

2007- 2008- 2007- 2008- 2007- 2008- 2007- 2008-

08 09 08 09 08 09 08 09

Octob

er 5.1 2.8 13.8 -1.2 4.2 4.4 12.2 -0.4

Apr-

Oct 4.9 3.7 10.6 4.2 7.2 2.8 9.9 4.1

Source: Press Note -: Quick Estimates of Index of Industrial Production and

Use-based Index (Base 1993-94=100) for the month of October, 2008.

Available at: http://pib.nic.in/release/release.asp?relid=45554

From the above table it is seen that the growth rate of the overall index

declined from a high value of 12.2% in October 2007 to a negative -0.4% in

October 2008. If we compare the growth rates of April-October 2007 and that

of 2008 we see that the growth rate declined from 9.9% in 2007 to 4.1% in

2008. In September 2008, this growth rate was 4.8%.

(Source: http://mospi.nic.in/mospi_iip.htm). This massive decline in the

growth rate of the overall industrial index is driven mainly by a drastic fall in

the growth rate of the manufacturing sector.

It is seen from the above table that the growth rate of Manufacturing

registered the maximum fall, whereby it declined from 13.8% in October

2007 to a negative -1.2% in October 2008. On the other hand, the growth

rate of manufacturing declined to 4.1% in April-October 2008 as compared to

9.9% in the same period in the previous year. The growth rate of

manufacturing in September 2008 was 4.8%.

(Source:http://mospi.nic.in/mospi_iip.htm). Manufacturing sectors weight in

the overall industrial index is close to 80%. Therefore, it is obvious that such

large fall in the growth rate of the manufacturing sector has resulted in a

negative growth rate for the overall IIP.

As far as mining is concerned, it is seen that the growth rate declined from

5.1% to 2.8%, while there has been a minor increase in the growth rate of

electricity production from 4.2% to 4.4%.

Let us also look into the growth rate of the 6 core infrastructure companies,

whose figures have also been released. This is shown in the following table:

Index of six core sector industries - October 2008

Sector Weig Oct Oct Apr- Apr-Oct

ht 07 08 Oct 08-09

(%) % % 07-08 %

in IIP grow growt % growth

th h growth

Crude 4.17 -0.1 -0.3 0.6 -0.7

Petroleum

Refinery 2.00 2.7 5 8.8 4.5

Products

Coal 3.22 8.9 10.9 3.7 8.4

Electricity 10.17 4.2 4.4 7.1 2.8

Cement 1.99 7.5 6.2 8.5 6.0

Finished 5.13 5.2 -0.5 7.3 4.2

Steel

(carbon)

Overall 26.7 4.6 3.4 6.6 3.9

Source: Infra Growth Dips to 3.4% in October, Business

Standard, 12 December 2008

From the above figure it is clear that the overall growth rate of the

infrastructure industries declined from 4.6% in October 2007 to 3.4% in

October 2008. There was a massive decline in the growth rate of steel

production from 5.2% to a negative growth of -0.5%. It is seen that the

growth rate of cement production also declined from 7.5% to 6.2% in the

same period.
The above two tables show that there has been very significant slowdown in

the industrial sector growth rate in India, which is almost spread across the

board. In order to understand the nature of this decline in the growth rate of

industrial production, let us first look at the Use-Based categorization of the

IIP figures. This is shown in the following table:

Source: Press Note -: Quick Estimates of Index of Industrial Production and

Use-based Index (Base 1993-94=100) for the month of October, 2008.

From above table it is seen that all categories of industries witnessed decline

in their growth rates in October 2008 as compared to October 2007. The

most noteworthy aspect is the fact that there has been a drastic decline in

the growth rate of capital goods industries, which declined from a very high

figure of 20.9% in October 2007 to a low figure of 3.1% in October

2008. if we consider the intermediate industries, then also a similar picture

emerges, where the growth rate declined from 13.9% ion October 2007 to a

negative growth rate of -3.7% in October 2008. Similar is the story of the
consumer goods industries, where the growth rate declined from 13.7% in

October 2007 to -2.3% in October 2008. Within the consumer goods sector,

the growth rates of both consumer durables as well as non-durables turned

negative in October 2008, while both these growth rates were quite high in

October 2007.

The question is what explains this overall slow down in the growth rate of

industrial production in India. Firstly, it must be remembered that the Indian

economy has been adversely affected by the global financial crisis. It has

been the case that as a result of the global economic crisis, there has been a

crisis of credit even in the Indian economy. As a result, banks have become

more stringent in giving loans to individuals or companies to meet their

consumption or investment needs. This has adversely affected the

investment decisions of firms and companies. As a result we are witnessing

that the growth rate of production of capital goods industry has declined

sharply in the country. Capital goods production essentially depends on the

investment decisions of firms. In a situation where the overall economic

scene is positive,firms increase their investments which get reflected in an

increase in the production of capital goods. By the same logic, a sharp

decline in the production of capital goods essentially shows that firms are

less than forthcoming in taking up new investments.

Why have firms become reluctant in taking investment decisions? One

reason for firms reluctance to make investments has been already

mentioned in the previous paragraph which is in terms of higher interest

rates on loans. There is however an additional reason for this reluctance,

which is the following. Investment decisions of firms are based upon

expectations of the future which in turn is formed on the basis of the demand

performance at the present. If at present, there is a drop in demand, then for

the firms this will manifest itself as an increase in their unutilized capacity

and/or a build up of their inventories.In this case, the firms perceive that

their earlier investment decisions were overestimates, since there exist

unutilized capacities and therefore they cut back on investment decisions. To

some extent this is currently happening in the Indian economy. We have seen

how big firms like TATA Motors or Ashok Leyland closed down their units for

some days or JSW steel cutting production and so on and so forth. This is

nothing but a manifestation of a demand problem, which is reflected in the

fact that the growth rate of the consumer goods sector has turned negative

in October 2008 from a very high level in October 2007 as has been shown in

the above table.

Now, the question is what accounts for the fall in the demand in the

Indianeconomy,which is reflected in the drastic fall in the growth rate of

consumer goods. It must first be noted that the demand in the Indian

economy which has led the good growth performance of the last few years is

very narrowly based. It stems mainly from the demand of the rich and the

middle class based upon easy loans made available to them by banks. Now,

with the global financial crisis hitting India, the banks stopped giving easy

loans which has resulted in the decline in demand for consumer goods,
particularly consumer durables in India. At the same time, with massive

poverty existing, particularly in the Indian countryside, there is very little

demand that this segment of the population generates. Therefore, what is

needed is a plan of action which tries to put more purchasing power in the

hands of the poor, whose demand can then increase the overall demand

base in the economy and lead India towards a sustained demand led growth.

On the other hand it has also been the case that in the fact of global

recession, particularly in the USA, Indias exports have also been badly hit. In

fact the export growth in October 2008 has been negative, the lowest in

many years. So, the external demand for Indian industrial output has also not

been strong enough.

It can however be argued that since the demand in India was largely based

on the consumption of the rich and middle class on the basis of soft loans,

what is essential is interest cuts, which will then automatically increase the

demand in the economy. This however is not necessarily the case. The

present crisis is a crisis of confidence, where even with low interest rates,

banks might just refuse to lend to any borrowers other than the truly credit

worthy one. On the other hand, given the uncertainties in the market, the

borrowers are also less than willing to take such loans. In other words, only

an injection of liquidity in the market may not solve the problem, since

people may just hold on to the excess liquidity without creating any demand,

a case which Keynes called the liquidity trap. The current world as well as the

Indian economic situation is akin to this phenomenon. (See, In Search of a

real Stimulus, Jayati Ghosh, Another argument can be made at this point

which is the following. Even if it is granted that by a mere reduction of

interest rates will not solve the problem,the current stimulus package

announced by the Government will take care of the problem which talks

about an additional fiscal stimulus and also tax cuts in the form of a cut in

excise duties. Firstly, it needs to be pointed out that the fiscal expenditure

of Rs 20,000crores planned by the Government is only 0.5% of

the IndianGDP and is grossly inadequate to quell the crisis. Secondly, the tax

cuts in terms of cuts in excise duties will increase demand only if they are

passed on to the consumers through a price cut. More importantly, however

such cuts in the excise duties is aimed at only a short term solution of giving

rise to a demand bubble based on lower prices. But it completely ignores the

aspect of increasing the purchasing power of the poor by direct intervention

of the state in funding the Public Distribution System, expenditure in rural

areas etc. In short the current stimulus package is inadequate to meet the

serious problem that the economy is in right now.

 Chapter - V

CONCEPTUAL FRAME-WORK

CAPITAL BUDGEING:
 An efficient allocation of capital is the most important finance function

in modern times. It involves decisions to commit firms funds to long-term

assets. Such decisions are tend to determine the value of company/firm by

influencing its growth, profitability & risk.

Investment decisions are generally known as Capital Budgeting or

capital expenditure decisions. It is clever decisions to invest current in long

term assets expecting long-term benefits firms investment decisions would

generally include expansion, acquisition, modernization and replacement of

long-term assets.

Such decisions can be investment decisions, financing decisions or

operating decisions. Investment decisions deal with investment of

organizations resources in Long tern (fixed) Assets and / or Short term

(Current) Assets. Decisions pertaining to investment in Short term Assets fall

under Working Capital Management. Decisions pertaining to investment in

Long term Assets are classified as Capital Budgeting decisions.

Capital Budgeting decisions are related to allocation of investible funds to

different long-term assets. They have long-term implications and affect the

future growth and profitability of the firm.

In evaluating such investment proposals, it is important to carefully consider

the expected benefits of investment against the expenses associated with

it.Organizations are frequently faced with Capital Budgeting decisions. Any

decision that requires the use of resources is a Capital Budgeting decisions.

Capital Budgeting is more or less a continuous process in any growing

concern.

For Example: Purchase of Land is an example of Capital Budgeting decision.

Similarly replacement of outdated equipment with modern machines,

purchase of a brand or business, computerization and networking the

organization, investment in research and development of a product launch

of a major promotional campaign etc are all example of Capital Budgeting

decisions.

However, in all cases, the decisions have a long-term impact on the

performance of the organization. Even a single wrong decision may in

danger the existence of the firm as a profitable entity.

IMPORTANCE OF CAPITAL BUDGETING:

There are several factors that make Capital Budgeting decisions among the

critical decisions to be taken by the management. The importance of Capital

Budgeting can be understood from the following aspects of Capital Budgeting

decisions.

1. Long Term Implications: Capital Budgeting decisions have long term

effects on the risk and return composition of the firm. These decisions

affect the future position of the firm to a considerable extent. The

 finance manger is also committing to the future needs for funds of that

project.

2. Substantial Commitments: The Capital Budgeting decisions

generally involve large commitment of funds. As a result, substantial

portion of capital funds is blocked.

3. Irreversible Decisions: Most of the Capital Budgeting decisions are

irreversible decisions. Once taken the firm may not be in a position to

revert back unless it is ready to absorb heavy losses which may result

due to abandoning a project midway.

4. After the Capacity and Strength to Compete: Capital Budgeting

decisions affect the capacity and strength of a firm to face competition.

A firm may loose competitiveness if the decision to modernize is

delayed.

PROBLEMS & DIFFICULTIES IN CAPITAL BUDGETING:

1. Future uncertainty: Capital Budgeting decisions involve long-term

commitments. There is lot of uncertainty in the long term. The

uncertainty may be with reference to cost of the project, future

expected returns, future competition, legal provisions, political

situation etc.
1. Time Element: The implications of a Capital Budgeting decision are

scattered over a long period. The cost and benefits of a decision may

occur at different point of time. The cost of a 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.

3. Difficulty in Quantification of Impact: The finance manger may

face difficulties in measuring the cost and benefits of projects in

quantitative terms.

Example: The new product 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 factors

other than the launch of the new product.

ASSUMPTIONS IN CAPITAL BUDGETING:

The Capital Budgeting decision process is a multi-faceted and analytical

process. A number of assumptions are required to be made.

1. Certainty with respect to cost & Benefits: It is very difficult to

estimate the cost and benefits of a proposal beyond 2-3 years in

future.
2. Profit Motive : Another assumption is that the Capital Budgeting

decisions are taken with a primary motive of increasing the profit of

the firm.

The activities can be listed as follows:

Dis-investments i.e., sale of division or business.

Change in methods of sales distribution.

Undertakings an advertisement campaign.

Research & Development programs.

Launching new projects.

Diversification.

Cost reduction.

FEATURES OF INVESTMENT DECISIONS:

The exchange of current funds for future benefits.

The funds are invested in long-term assets.

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

IMPORTANT OF INVESTMENT DECISIONS:

They influence the firms growth in long run.

They effect the risk of the firm.

They involve commitment of large amount of funds.

 They are irreversible, or reversible at substantial loss.

They are among the most difficult decisions to make.

TYPE OF INVESTMENT DECISIONS:

Expansion of existing business.

Expansion of new business.

Replacement & Modernization.

INVESTMENT EVALUATION CRITERIA:

Estimation of cash flows.

Estimation of the required rate of return.

Application of a decision rule for making the choice.

Consideration of cash flows is to determine true profitability of the project

and it is an unambiguous way of identifying good projects from the pool.

Ranking is possible it should recognize the fact that bigger cash flows are

preferable to smaller ones & early cash flows are referable to later ones I

should help to choose among mutually exclusive projects that which

maximizes the shareholders wealth. It should be a criterion which is

applicable to any considerable investment project independent of

other.There are number of techniques that are in use in practice. The chart of

techniques can be outlined as follows:

Capital Budgeting Techniques:

 Traditional Approach Modern Approach

(or) (or)

Non-Discounted Cash Flows Disconnected Cash Flows

Pay Back Period (PB) Net Present Value (NPV)

Accounting Rate of Return (ARR) Internal Rate of Return

Profitability Index (PI)

Discounted Payable Period

NET PRESENT VALUE :

The Net Present value method is a classic economic method of

evaluating the investment proposals. It is one of the methods of discounted

cash flow. It recognizes the importance of time value of money.

It correctly postulates that cash flows arising of different time period,

differ in value and are comparable only when their equivalent i.e., present

values are found out.

The following steps are involved in the calculation of NPV:

 Cash flows of the investment project should be forecasted based on

realistic assumptions.

An appropriate rate of interest should be selected to discount the cash

flows, generally this will be the Cost of capital rate of the company.

The present value of inflows and out flows of an investment proposal,

has to be computed by discounting them with an appropriate cost of

capital rate.

The Net Present value is the difference between the Present Value of

Cash inflows and the present value of cash outflows.

Net present value should be found out by subtracting present value of

cash outflows from present value of cash inflows. The project should be

accepted if NPV is positive.

NPV = Present Value of Cash inflow Present value of the cash

outflow

Acceptance Rule:

Accept if NPV > 0

Reject if NPV < 0

May accept if NPV = 0

One with higher NPV is selected.

INTERNAL RATE OF RETURN METHOD:

 The internal rate of return (IRR) method is another discounted cash

flow technique .This method is based on the principle of present value. It

takes into account of the magnitude & timing of cash flows.

IRR nothing but the rate of interest that equates the present value of

future periodic net cash flows, with the present value of the capital

investment expenditure required to undertake a project.

The concept of internal rate of return is quite simple to understand in

the case of one-period project.

Acceptance Rule:

Accept if r > k

Reject if r < k

May accept if r = k

where r = rate return

k = opportunity cost of capital

PROFITABILITY INDEX (OR) BENEFIT COST RATIO:

Yet another time-adjusted method of evaluating the investment

proposals is the benefit-cost (B/C) ratio of profitability index PI). It is benefit

cost ratio. It is ratio of present value of future net cash inflows at the

required rate of return, to the initial cash outflow of the investment.

 Present Value of Cash inflows

PI = -----------------------------------------

Present Value of Cash outflows

Acceptance Rule :

Accept if PI > 1

Reject if PI < 1

May accept if PI = 1

Profitability Index is a relative measure of projects profitability.

PAY BACK PERIODE METHOD:

One of the top concerns of any person or organization investing a large

amount of money would be the time by which the money will come back.

The concern making the investment would want that at least the capital

invested is recovered as early as possible. The pay back period is defined

 as the period required for the proposals cumulative cash flows to be equal

to its cash outflows. In other words, the payback period is the length of

time required to recover the initial cost of the project. The payback period

is usually stated in terms of number of years. It can also be stated as the

period required for a proposal to break even on its net investment.

The payback period is the number of years it takes the firm to recover its

original investment by net returns before depreciation, but after taxes.

If project generates constant annual cash inflows, the pay back period is

completed as follows:

Initial Investment

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

Annual cash inflow

In case of unequal cash inflows, the payback period can be found out

by adding up the cash inflows until the total is equal to initial cash outlay.

Acceptance Rule:

Accept if calculated value is less than standard fixed by management

otherwise reject it.

If the payback period calculated for a project is less than the

maximum payback period set up by the company it can be accepted.

 As a ranking method it gives highest rank to a project which has lowest

pay back period, and lowest rank to a project with highest pay back

period.

DISCOUNTED PAY BACK PERIOD:

One of the serious objections to pay back method is that it does not

discount the cash flows. Hence discounted pay back period has come into

existence. The number of periods taken in recovering the investment outlay

on the present value basis is called the discounted pay back period.

Discounted Pay Back rule is better as it does discount the cash flows until

the outlay is recovered.

ACCOUNTING RATE OF RETURN (OR)

AVERAGE RATE OF RETURN (ARR) :

It is also known as return on investment (ROI). It is an accounting method,

which uses the accounting information revealed by the financial statements

to measure the profitability of an investment proposal. According to

Solomon, ARR on an investment can be calculated as the ratio of

accounting net income to the initial investment i.e. .

Average Net Income

 ARR = ---------------------------

Average Investment

Average Income = Average of after tax profit

Average Investment = Half of Original Investment

Acceptance Rule:

Accept if calculated rate is higher than minimum rate established by

the management.

It can reject the projects with an ARR lower than the expected rate of

return.

This method can also help, the management to rank the proposals on

the basis of ARR.

A highest rank will be given to a project with highest ARR, whereas a

lowest rank to a project with lowest ARR.

CAPITAL BUDGETING METHODS IN PRACTICE

In a study of the Capital Budgeting practices of fourteen medium to

large size companies in India, it was found tat almost all companies

used by back.
 With pay back and/or other techniques, about 2/3 rd of companies used

IRR and about 2/5th NPV. IRR s found to be second most popular

method.

Pay back gained significance because of is simplicity to use &

understand, its emphasis on the early recovery of investment & focus

on risk.

It was found that 1/3rd of companies always insisted on computation of

pay back for all projects, 1/3 rd for majority of projects & remaining for

some of the projects.

Reasons for secondary of DCF techniques in India included difficulty in

understanding & using threes techniques, lack of qualified

professionals & unwillingness of top management to use DCF

techniques.

One large manufacturing and marketing organization mentioned that

conditions of its business were such that DCF techniques were not

needed.

Yet another company stated that replacement projects were very

frequent in the company, and it was not considered necessary to use

 DCF techniques for evaluating such projects. techniques in India

included difficulty in understanding & using threes techniques, lack of

qualified professionals & unwillingness of top management to use DCF

techniques.

PROCESS

CAPITAL BUDGETING PROCESS:

Atleast five phases of capital expenditure planning & control can be

identified:

Identification ( or Organization ) of investment opportunities.

Development of forecasts of benefits and costs.

Evaluation of the net benefits.

Authorization for progressing and spending capital expenditure.

Control of capital projects.

INVESTMENT IDEAS:

Investment opportunities have to be identified or created investment

proposals arise at different levels within a firm.

Nature of Idea Level

Cost reduction ------

Replacement Plant Level

Process/Product Development ( 50% in India cover this level)

Expansion Top management

Diversification In India, it is insignificant

New Product Marketing Dept., ( or) Plant Manager

Replacing an old

Machine ( or)

Improving the Factory Level.

Production techniques.

Investment proposals should be generated to employ the firms funds fully

well & efficiently.

FORECASTING :

Cash flow estimates should be development by operating managers

with the help of finance executives. Risk associated should be properly

handled. Estimation of cash flows requires collection and analysis of all

qualitative and quantitative data, both financial and non-financial in nature.

MIS provide such data.

Correct treatment should be given to :

Additional working capital

Sale proceeds of existing assets.

 Depreciation

Financial flows (to be distinguished from operation flows)

EVALUATION :

Group of experts who have no ake to grind should be taken in selecting

the methods of evaluation as NPV, IRR, PI, Pay Back, ARR & Discounted Pay

Back.

Pay Back period is used as Primary method & IRR/NPV as

Secondary method in India. The following are to be given due importance.

For evaluation, minimum rate of return or cut-off is necessary.

Usually if is computed by means of weighted Average cost of Capital

(WACC)

Opportunity cost of capital should be based on risky ness of cash

flow of investment proposals.

Assessment of risk is an important aspect. Sensitivity Analysis &

Conservative for costs are two important methods used in India.

AUTHORIZATION:

Screening and selecting may differ from one company to another.

When large sums are involved usually final approval rests with top
management. Delegation of approval authority may be effected subject to

the amount of outlay. Budgetary control should be rigidly exercised.

CONTROL AND MONITORY:

A Capital projects reporting system is required to review and monitor

the performance of investment projects after completion and during their

life. Follow up comparison of the actual performance with original estimates

to ensure better forecasting besides sharpening the techniques for improving

future forecasts. As a result company may re-praise its projects and take

necessary action.

Indian Companies use regular project reports for controlling capital

expenditure reports may be quarterly, half-yearly, monthly, bi-monthly

continuous reporting..

Expenditure to date

Stage and physical completion

Approved total cost

Revised total cost

DECISION MAKING LEVEL:

For planning and control purpose three levels of Decision making have been

identified :
 Operating

Administrative

Strategic

OPERATING CAPITAL BUDGETING:

Includes routine minor expenditure, as office equipment handled by

lower level management.

ADMINISTRATIVE CAPITAL BUDGETING:

Falls in between these two levels involves medium size investments

such as business handled by middle level management.

STRATEGIC CAPITAL BUDGETING:

Involves large investment as acquisition of new business or expansion

in a new time of business, handled by top management unique nature.

Long Term Capital Budgeting In HETERO DRUGS LTD.

PRE INVESTMNET STAGE:

In a planned economy, as in India, the identification of public sector

projects needs to be done within the overall framework of national the

sectoral planning. All projects of every sector need to be identified

scientifically at the time of plan formulation. In actual practice, however, it is

observed that identification stage is the most neglected stage of the project

planning.

The five year plans indicate the broad strategy of planning economic

growth rate and other basic objectives to be achieved during the plan period.

The macro level planning exercise undertaken at the beginning of every five

year plan indicates broadly the role of each sectors physical targets to be

achieved and financial outlays, which could be made available for the

development of the sector during the plan period.

The identification of a project in the Five Year Plan is not the sanction of

the project for implementation. It provides only the green signal for the

preparation of feasibility report (FR0 for appraisal and investment decision.

A preliminary scrutiny of the FR of the project is done in the Ministry and

thereafter copies of the feasibility report are submitted to the appraising

agencies, viz., Planning Commission, Bureau of Public Enterprises and the

Plan Finance Division of the Ministry of Finance.

 Thus the organizational responsibility for identifying these projects

rests with the concerned administrative ministry, in consultation with its

public enterprises.

The essential steps for project identification and preparation relates to

studying (i) imports (ii) substitutes (iii) available and raw material (iv)

available technology and skills (v) inter-industry relationship (vi) existing

industry (vii) development plans (viii) old projects etc.

It may be mentioned that in actual practice, these steps are hardly

scientifically studied and followed by the administrative ministry public

sector undertaking at the time of project identification. The public sector

projects many a time come spontaneously on the basis of ideas and

possibilities of demand or availability of some raw materials and not an

outcome of scientific investigation and systematic search for feasible

projects.

PROJECT FORMULATION :

The second stage of Project Cycle viz. Project Formulation, is a pre-

investment exercise to determine whether to invest, where to invest, when

to invest and how much to invest. The project/feasibility reports are meant

to provide required information for assessing technical, financial,

commercial, organization and economic viability of the project planning in

India, mainly because of relatively late realization of its importance. As a

result, the investment decisions for large projects in the past were taken on

half-baked and ill-conceived projects and time-over runs and cost-over runs

of public sector projects have become a regular feature rather than

exception.

In early seventies along with the setting up of the Public Investment Board

(PIB) the Government created a new project Appraisal Division in the

Planning Commission. This Division prepared and circulated Guidelines for

preparing Feasibility Reports of Industrial Projects in 1974.

This guidelines, unlike earlier manual, indicates all the information and data

required to be presented and analysed in the feasibility report, so as to

enable the appraisal agency to carry out (i) technical analysis to determine

whether the specification of technical parameters are realistic, (ii) financial

anaylsis to determine whether the proposal is financially viable, (iii)

commercial analysis to determine soundness of the product specifications,

marketing plans and organization structure and (iv) economic analysis, to

determine whether a project is worthwhile from the point of view of nation

and economy as a whole.

The guidelines describes in details, the information required to be

given and analysed on the following issues : (a) general information of the

sector, (b) objective of the proposal, (c) alternative ways, if any of attaining

the objectives and better suitability of the proposed project, (d) project
description gestation period, costs, technology proposed, anticipated life of

the project etc., (e) demand analysis, total demand / requirements of the

country, including anticipated imports and exports and share of the proposed

project, (f) capital costs and norms assumed, activity wise and year wise,

(g) operating costs and norms, (h) revenue and benefits estimation etc.

PROJECT APPRAISAL :

The appraisal of the project follows the formulation stage. The

objective of the appraisal process is not only to decide whether to accept or

reject the investment proposal, but also to recommend the ways in which the

project can be redesigned or reformulated so as to ensure better technical,

financial, commercial and economic viabilities.

The project appraised which is an essential tool for judicious

investment decisions and project selection is a multi-disciplinary task. But

many a times this is considered doubt, have played an important role in

contributing systematic methods for forecasting the future and evolving

appraisal methods to quantify socials costs and benefits, but they alone can

not carry out complete appraisal of an investment proposal.

The need for project appraisal and investment decisions based on

social profitability arises mainly because of the basic characteristics of

developing countries limited resources for development and multiple needs

objective of planning being Economic Growth with Social Justice. The

project appraisal is a convenient and comprehensive fashion to achieve, the

laid down objectives of the economic development plan. The appraisal work

presupposes availability of a certain minimum among of reliable and up to

date data in the country, as well as the availability of trained persons to

carry out the appraisal analysis.

As stated earlier the investment decision of public sector projects are

required to be taken within the approved plan frame work. The Project

Appraisal Division (PAD) that prepares the comprehensive appraisal note of

projects of Central Plans was therefore set up in Planning Commission. The

Finance Ministry issues expenditure sanction for all investment proposals

within the frame work of annual budget. The plan Finance Division and the

Bureau of Public Enterprises of the Finance Ministry are also required to

examine and give comments on the investment proposals of public.

 Chapter - VI

DATA ANALYSIS
All finance activity commences with an investment proposal, which calls for a

financial appraisal of a project. Here, Capital Budgeting has its role. Each

one of the projects is appraised on following basis

Cost Estimates.

Cost Generations.

Cost Estimates :-

Feasibility Report of the project is prepared based on the cost of similar

units prevailing at the time of preparation of projects report of the latest

costs are not available, the same should be escalated. Collection of data

with regard to the cost of the various equipment should from part of a

continuous planning so tat a realistic cost estimate is made for the project

Reports for civil works are generally based on HETERO DRUGS LTD. schedule

of rates with reasonable premium there on.

Cost of Generation :-

The financing of public sector company is generally based on Debt

Equity of 3:1 the general rate of interest chargeable by the central

Government on loan components is 10.5% ( Now enhanced to 11%) . The

plant life as provided under the Electricity Supply Act, 1948 is 25 years and

depreciation based on this period has to be calculated on straight line

method, on 90% of the cost fixed assets. The operation & maintenance

expenses are generally of the order 2.5% of the capital cost based on the
above assumptions, the cost of generation could be worked out discounted

cash flow basis taking 12% IRR (Internal Rate of Return). This rate has been

generally accepted by various appraising agencies of the power projects.

Feasibility Report based on above methodology and indicating site

selection, coal linkage, power distribution examined by Central Electricity

Authority in all cases where investment is Rs.1 Crore and above. Since

HETERO DRUGS LTD. is public sector undertaking, all the investment

decisions have to be formally sanctioned by Government after PIBs (Public

Investment Boards) clearance.

SHARE CAPITAL :

The entire share capital is owned by Government of India. During the

Year no addition has been made. However the authorized capital has been

increased from Rs. 80,000 million to Rs.1,00,000 million and the face value

or share has been split to Rs.10/- each from Rs.1000/- each.

ROLE OF FINANCE MANAGEMENT IN INVESTMENT

DECISIONS IN HETERO DRUGS LTD.:

Finance Manager is the number of a project team. He plays an

important role in investigation stage of the project, when various

alternatives are analysed & the most optimum solution is decided upon.
The soundness upon the accuracy of the data & as a finance manager has to

questing and satisfy himself on the validity of the data.

The power projects are extremely capital intensive and before large

resources are committed to a scheme a detailed feasibility study need to be

prepared covering-

The need of the project

The demand projections

The alternatives of the site locations

The broad parameters of the plant and equipment

The cost estimates

The viability of the scheme.

Cost Estimates :- Cost estimates and financial justification and returns of

the projects are the areas where financial management has to play its role.

Cost estimates should be prepared by the cost engineers and vetted by the

finance manager. Cost engineering is a specialized filed & need to be

developed in the contest of power projects because of insufficient cost data

on the components of the projects.

 This raises an important question of the present methodology of

preparing the cost estimates without any provision for price contingencies.

Because of time lag between preparation of cost estimates and investment

decisions, after its scrutiny by the appraising agencies, these estimates are

already out of data and hence would need updating.

CAPITAL BUDGETING

EXAMPLE OF STAGE I & II

Sl. Schemes Outlay

1. Stage-I ( 3 x 20000 MT) 5,48,92,00,000

2. Stage- II( 3 x 50000 MT) 11,03,69,00,00

3. Stage-III( 1 x 50000MT) 1229.38(Millions)

Stage I consisting outlay of 5,48,92,00,000 this is Recovered in 5 years of

time.

RECOVERY OF PROJECTS (Stage-I):

Following calculations are under consider

Under Discounted Pay Back Period:

Stage I ( 3 x 20000 ) Outlay : 5,48,92,00,000

NET PRESENT VALUE:

Yea Cash Inflows Dis. Present Value of

r @12% Cashflows
1 Rs. 0,892 Rs. 1.007.410.528
1.129.384.000
2 Rs. 0,797 Rs. 1.043.986.315
1.310.895.000
3 Rs. 0,711 Rs. 1.252.695.969
1.761.879.000
4 Rs. 0,635 Rs. 1.109.874.610
1.732.086.000
5 Rs. 0,567 Rs. 1.243.465.587
2.193.061.000
Present Value of Cash Rs. 5.647.433.010
Flows
Less: Cash Outlay Rs. 5.489.200.000

Net Present Rs. 158.233.010

Value
GRAPH 1:

Interpretation:

The Net Present Value is the difference between the Present value of cash

inflows and Present value of cash outflows.

PROFITABILITY INDEX ( P.I):

Year Investments (In Cash Cash Out Flows

Lakhs) inflows(P.V.) (Initial)

2003- 2,945,083.3 18180 20000

04 7
2004- 3,040,293.1 24780 30000

05 7
2005- 3,192,444.2 45070 60000

06 8
2006- 3,071,183.1 54640 80000

07 1
2007- 3,545,210.8 18630 30000

08 7
2008- 9,025,874.0 161290 22000

09 0
2009- 3,991,459.4 19210 33000

10 0
2010- 4,038,114.2 11130 70000

11 0
2011- 3,667,441.1 65420 40000

12 5
2012- 7,338,000.0 19233 80000

13 0
2013- 2,089,775.0 61323 60000

14 0
Total: 498896 525000

P.V. of Cash Inflows

PI = ---------------------------

Initial Cash outlays

498896

= ---------- = 0.95
 525000

GRAPH 2 :
Interpretation:

a) The profitability index of present value of cash inflows and cash

out flows is fluctuation from year to year in the year 2003-04 the

present value of cash inflows is 18180 were as in the year 2013-

14 has been increased with 61323.

b) The highest cash inflows has been recorded in 2008-2009 as

161290 and lowest has been recorded as 18180 in the year

2003-04.

PAY BACK PERIOD:

Year Investments (In Cash Cash Out Flows

Lakhs) inflows(P.V.) (Initial)

2003- 40,000.0 8000 20000

04 0
2004- 60,000.0 1600 30000

05 0
2005- 70,000.0 2200 60000

06 0
2006- 20,000.0 4500 80000

07 0
2007- 10,000.0 4000 30000

08 0
2008- 66,000.0 3000 22000

09 0
2009- 25,000.0 2900 33000
10 0
2010- 12,000.0 1100 70000

11 0
2011- 90,000.0 1600 40000

12 0
2012- 30,000.0 1200 80000

13 0
2013- 50,000.0 1800 60000

14 0
Total: 473,000. 31900 525000

00

Initial Investments

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

Annual Cash inflows

40,000

= --------- 5 Years

8000
GRAPH 3:

Interpretation:

a) In the Pay Back method the Investment and the case inflows are

fluctuating from year to year where as in the year 2006-07 it is

40000 and in the year 2013-14 is 50000.

 b) Cash inflows are in the order of increasing to decreasing from

2006-07and 2013-14.

AVERAGE RATE OF RETURN:

Year Investments Average Income Cash Flows after

(Lakhs) (Thousands) Taxes

2004- 400,000.0 20000 100000

05 0
2005- 480,000.0 15000 260000

06 0
2006- 280,000.0 28000 440000

07 0
2007- 240,000.0 85000 750000

08 0
2008- 150,000.0 75000 160000

09 0
2009- 260,000.0 64000 200000

10 0
2010- 600,000.0 78000 300000

11 0
2011- 100,000.0 25000 600000

12 0
2012- 250,000.0 18000 800000

13 0
2013- 520,000.0 22000 750000

14 0
Total 3,280,000. 430000 4360000

00
 Average Income

Average Rate of Return = ----------------------

Average Investments

20000

= --------- = 0.06%

400000

GRAPH 4:
Interpretation:

a) Average rate of return is calculated based on Average income and

Average investment where as Average income in the year 2007-08 is

20000 and investments in the year 2013-14 is 400000.

b) The value from 2007-08 and 2013-14 are fluctuating from year to year.
 DISTRIBUTION OF REVENUE 2020-2020

Interpretations:
 a) In the year 2013-14 the revenue is distributed in the from of fuel

retained earning, dividends is latest finance change, depreciation

and for employees.

b) Where as in the year 2013-14 it is been fluctuated the rates

compare to the year 2013-14.

TABLE 7:

FY YEAR NET BLOCK (IN LAKS)

2008-09 284738
2009-10 323083
2010-11 328916
2011-12 386106
2012-13 400381
2013-14 520861

NET BLOCK AND GROSS FIXED ASSETS

Interpretations:

a) From 2013-2014 the net block and gross fixed assets is 328916.

b) Where as the Net Block and gross fixed asset is been increased in

the year 2009-10.

TABLE 8:

FY YEAR NET SALES(IN LAKS)

2008-09 229055
2009-10 258117
2010-11 286453
2011-12 315400
2012-13 355502
2013-14 440302

NET WORTH AND NET ASSETS

Interpretations:

a) Net worth and net assets has been increasing from year to year

from 2008-09it is 229055 and compare to 2013-14 it has been

increased to 440302.
 b) By observing the chat we can say the net worth and net assets has

been increasing from 2008-09 to 2013-2014.

TABLE 9 :

FY YEAR PROFIT AFTER TAX

2008-09 34245
2009-10 37338
2010-11 35396
2011-12 36085
2012-13 52609
2013-14 72032

PROFIT AFTER TAX

Interpretations:

a) The chart show the increase value after the deduction of tax in the

year 2013-14

The Profit is changing from year to year in the year 2011-12 it is 34245

where as increasing value in the year 2007-2008 and decreased, in

the year 2013-14

the value is increased.

TABLE 10 :

FY YEAR POWER GENERATION (M UNITS)

2008-09 7470
2009-10 7080
2010-11 7090
2011-12 10923
2012-13 19790
2013-14 19237

GENERATION AND SALES

GENERATION IN MUS SALES IN MILLIONS:

Interpretations:

a) On the X airs year are been shown from 2008-09 to 2013-14 and the

value has been increasing from year to year.

b) In the year 2008-09 the generation and sale has been 7470 and the

value has been increasing year to year but 2013-2014 the value is

decreasing.
 FINDINGS AND CONCLUSION

The Corporate mission of HETERO DRUGS LTD. is to make available

reliable and quality steel in increasingly large quantities. The company

will spear head the process of accelerated development of the power

sector by expeditiously planning, implementing power project and

operating power stations economically and efficiently.

As in project implementation, the station continued to excel in power

generation with the power station having reached its first goal of total
 capacity installation. Hyderabad is generating power at consistently

high plant load factor.

From the Revenue budget for the year 2008-2009, it is clear that the

Actual sales ( Rs. 168552.50 lacks) are more then the budgeted or

Estimated sales ( Rs. 164208.54 lacks). It is a good sign and the overall

earnings of the budget indicate high volume over estimated.

Fuel utilization is perfectly carry out in RSTPS. And Cash from Ash

effectively carry out the job.

With in a Short span of its existence, the corporation has

commissioned 19502 MW as on 31 st March, 2008 with an operating

capacity of 19.9%. HETERO DRUGS LTD. today generate 24.9% of

nations electricity. HETERO DRUGS LTD. is presently executing 12

Cement manufacturing Projects and 6 Gas based cement

manufacturing projects with a total approved capacity of 29,935 MT as

on 31st March 2014.

SUGGESTIONS

Every organization has pre-determined set of objective and goals, but

reaching those objectives and goals only by proper planning and

executing of the plans economically.

 New projects acceptance consider on the basis of Return Benefits. Risk

is evaluated while considering the new projects.

The special budgets are rarely used in the organization like long-term

budgets, research & development budget and budget and budget for

constancy.

The organization needs the capable personalities as management to

lead to organization successfully. The management make the plans and

implement of these plans. These plans are expressed in terms of long-

term investment decisions.

BIBLIOGRAPHY

Financial accounting

Cost and management accounting

Financial accounting
Accounting for management

Website :

www.HETERO DRUGS LTD..com

www.yahoofinance,com

www.shriraminsigh.com

http://www.sciencedirect.com/science/article/pii/S0304405X97000378

https://scholar.google.co.in/scholar?

q=Journals+on+capital+budgeting&hl=en&as_sdt=0&as_vis=1&oi=scholart

&sa=X&ved=0ahUKEwiS4caih7LKAhXTC44KHYAcBP0QgQMIGTAA

http://www.emeraldinsight.com/doi/abs/10.1108/09727981211225671

http://scholarworks.umass.edu/cgi/viewcontent.cgi?

article=1061&context=jhfm

https://faculty.fuqua.duke.edu/~jgraham/website/SurveyJACF.pdf