Académique Documents
Professionnel Documents
Culture Documents
ON
CAPITAL BUDGETING
IN
SINGARENI COLLIERIES COMPANY LIMITED
H.T.NO.003070117
OSMANIA UNIVERSITY
POST GRADUATE COLLEGE
VIKARABAD - 501101,RANGA REDDY DIST.
CERTIFICATE
PRINCIPAL
DECLARATION
Management,
O.U.P.G.
COLLEGE,
VIKARABAD
R.DAMODAR
ACKNOWLEDGEMENTS
Date:
Place:
(R.DMODAR)
CONTENTS
CHAPTER I
Capital Budgeting
CHAPTER III
Introduction to project
CHAPTER-V
Conclusions
Suggestions
BIBLIOGRAPHY
CHAPTER I
INTRODUCTION
&
PROFILE
Coal is the main source of the primary energy in India and currently Meets
about 60% of the commercial energy requirements in view of limited resource
Availability of liquid hydrocarbons and natural gas, coal is likely to be the dominant
Source in the foreseeable future also.
COAL RESOURCES AND QUALITY:
Present estimate of coal resources is about 200 billion tones up to a depth of
1200 meters. Detailed exploration has resulted in and inventory of about 70 billion
Tones of proven reserves. Which can be exploited commercially? Indian coals are
Generally high in ash content (24-45%) but low in super (less than 1%) of the
Reserves 15 are cooking variety and the balance non-cooking
.ORGANIZATIONAL STRUCTURE OF THE COAL INDUSTRY:
Almost the entire sector is under state control, Coal India Ltd., (CIL) a
government under taking, has seven coal producing subsidiaries and produce, 88% of
the overall coal
Singareni collieris company Ltd., (SCCL) JOI11: venture of state government of
Andhra Pradesh and Govt. of India contribute above 10% of the coal production.
COAL CONSUMPTION PATERN:
The power industry is the single largest coal-consuming sector accounting for
about 70% of overall consumption. The steel sector (allows with about a 13% share.
The balance is consumed in the cement, fertilizers, Textile and chemical Industries.
The power sector will continue to consume the bulk of coal. Demand for coal in India
has been tentatively estimated to be about 405 million tones by 2006-07 out of which
the demand of the power sector is 254.80 million tones. It is estimated the demand by
2009-20 10 will be 550 million tones.
COLLABORATION IN THE COAL SECTOR:
sector.
stopped since these are blended with indigenous coal lot improve its quality.
SCAPITIVE CONSUMTION:
Private sector companies engaged in production of iron and steel. Cement and
power Generation have been permitted to take up coal mining for captive
consumption the production of captive collieries namely that of TISCO, IISCO and
DBC are still small when composed with the productive collieries.
COOKING AND NON-COOING COAL:
India has limited reserves of cooking coal as well as superior grades of noncooking coal.
available at depth that can be mined only though underground working. Over the
years as the mines get older and deeper the geo-mining condition is under ground
working become arduous causing decline in from steel mines.
Steel mines.
10
On going projects
Existing mines
32.25%
-
28.8%
27.3%
12.3%
1. Discovery of Coal
1871
1989
11
1948
1951
1953
1954
1975
1981
1983
1984
1986
1986
1989
1994
1994
1998-99
12
1998-99
1999-00
1999-00
1999-00
2002-03
2003
2004
2005
2005-06
2007-08
GROWTH OF PRODUCTION:
After the discovery of coal in the year 1871, the Hyderabad Deccan
Company was incorporated in England in the year 1886, in 1921, the company was
converted into a public limited company and was named as The Singareni Collieries
Company Limited after the name of village Singareni near yellandu.
In 1945, the Nizam of Hyderabad purchased the shares of the company at London
stock Exchange & this action brought the company under the Government Limited
has the distinction of beginning the first Government owned Coal Company in India.
After the need of massive investment and expansion of Coal sector was felt
following the oil crisis, the Government of India stepped up investment in SCCL.
Today the equity capital is shared in the ratio of nearly 51:49 between governments of
Andhra Pradesh and Government of India. The loan capital is entirely provided
by Government of India. The assistance is by tripartite agreement between SCCL and
Government of India and Government of Andhra Pradesh.
13
MISSION OF SCCL:
1. To emerge as a premier coal producing company operating in the competitive
business environment.
2. To strive for self-reliance by optimum utilization of existing resources and
earn adequate returns on capital employed.
3. To exploit the available mining blocks with maximum conservation and
utmost safety through improved technologies.
4. To make coal available in large quantities through sharing experience and
expertise with other organizations and to provide reliable and qualitative
supplied to consumers.
PRODUCTION PROFILE:
SCCL occupies a vital position in the coal Production program of the country
with 7% of India reserves and is producing around 105 of country annual coal
production.
Coal production from opencast mines in SCCL started as late as 1779-80 and
presently contributes about 57% of its total production.
MARKET PROFILE:
SCCL has been endeavoring to meet coal demand of entire south. All the
powerhouses located with in the state of Andhra Pradesh get their cool supplies from
singareni collieries. In addition, the requirement of coal of some of the powerhouses
located in Maharastra and Karnataka is also met from singareni collieries company
Limited.
14
COMPANY PROFILE
HISTORY
The background of discover of coal in Telangana region of Andhra Pradesh is
interesting. The harnessing of huge reserves of this mineral Wealth led to the
emergence of the going corporate entity. The singareni collieries company Limited
(SCCL).
The sage began with the accidental discovery of coal, near the village of
yellandu in khammam District by pilgrims enrooted to the temple town of
Bhadrachalam in 1870.while the pilgrims were preparing their meal one of the
supporting stones of their makeshift heart caught fire, which was immediately
reported to the coal government. This led to an extensive survey by Dr.William King,
an eminent geologist, who confirmed the revolutionary discovery of mammoth
deposits of coal in the godavari valley.
The Hyderabad Deccan company Limited, incorporated in England, acquired
mining rights in 1886 to exploit the coal found in yellandu area. Later the company
was renamed as singareni Collieries Company limited (SCCL) in 1920. The
Nizamof Hyderabad purchased majority of shares of the company in 1945. The SCCL
became a government company under the companies Act in 1956 and is now jointly
owned by the government of Andhra Pradesh and the government of India with equity
participation in the ration of 51:49.
The company has proven coal reserves of 8091.10 million tones as on March
31 2007 spread over in the districts of khammam, warangal, and adilabad in
15
Andhra Pradesh. The growth of coal production, since the companys inception up to
2007 can be classified in phases as under:
1. The Beginnings (1889-1927)
The first coal mine was opened in 1889 at Yellandu and coal mining continued
in this area till 1927. In the inaugural year (1889), 59.671 tonnes of coal was
produced.
2. Initial expension (1928-1960):
During this period SCCL commenced coal mining operations in Bellampally
and Kothagudem areas. Singareni grew from a production level of 0.07 m.t. in 1928 to
2049 m.t. in 1960.
3. Pre-Nationalization era (1961-73)
This period witnessed a steep growth in coal production as the Government of
India also participated in investment in SCCL from 1961. Coal mining activities
ware extended to other are as like mandamari and Ramagundam (1961) and
Ramakrishnapuram (1963).
4. Post Nationalizations era (1973-920
Large-scale expansion /modernization of mines was taken up during this
period. A large number of mines were opened between 1973-1992. Opencast mining
commenced in SCCL in 1975 with the opening of open- cast Godavarikhani area.
In 1947, the Government of India transferred its share capital to the newly
constrituted coal mines authority Limited (coal India Limited). The manner of
Participation
In the company financial assistance for its expansion by the state Government and the
central Government, were agreed upon in the four party agreements of
1947.subsequently. The central government decided to control its equity directly in
16
SCCL. Accordingly agreements were concluded on 13 th march 1977. The SCCL the
state government, the central government and coal India limited were parties to the
agreements. These two agreements are popularly called quadripartite agreement.
5.Liberalization era (1992-2007)
Even thought the country adopted economic reforms in the early 1990s, it was
not until 1996 that the coal industry has the first feel of liberalization through
Deregulation of pricing and distribution of higher grades of coal. During this period
The company witnessed a remarkable turnaround due to structural reforms
initiated in 1997 with significant increase in production, productivity and profitability.
SCCL has mined 275.70 million tones of coal from the Godavari valley field
during the last 100 Years.
MISSION OF SCCL
To return our strategic role of premier coal producing company in the country
and excel in a competitive business environment.
To strive for self-reliance by optimum utilization of existing resource and earn
adequate returns of capital employed.
To exploit the available e mining blocks with maximum conservation and
utmost safety by adopting suitable technologies and practices and constantly
upgrading them against international benchmark.
To supply reliable and qualitative coal in adequate
PRODUCTION PROFILE:
SCCL occupies a vital position in the coal program of the country with 75 of
India reverse and it production 10% of country annual coal production.
17
Coal production from open cast mines in SCCL commenced open cast mining and
presently contributes to more than 60% of the total coal output.
MARKET PROFILE:
SCCL has been endeavoring to meet the coal demand if entire south. All the
powerhouses located with in the state of Andhra Pradesh get their coal supplies from
singareni collieries company in addition, the requirements of coal of some of the
powerhouses located in Maharastra and Karnataka are about net fill singareni
collieries company Limited.
In the small-scale sector, about 2700 industrial units situated over the southern
states, which get their requirement of about fr0111SCCL.
FINANCIAL RESULTS:
The financial results of the company for the year 2007-08 as compared
to the Previous are as under.
18
Particulars
2006-07
2007-08
Gross revenue
441631.92
523353.23
11719.94
29011.77
Less: interest
848.39
876.92
Deprecation
21775.44
24477.01
Provision
2975.73
4842.03
1194.04
22.94
7162.16
12235.72
6380.49
17617.03
Proposed dividend
2079.84
3466.40
Tax on dividend
353.47
589.11
10000.00
10000.00
Appropriations
19
Paid up capital
General reservs
Profit after tax
Dividend paid%
PAT/net warth%
04-05
05-06
06-07
07-08
2.20
110.5
38.30
349
33.96
2.20
152.76
54.68
498
34.71
2.20
197.87
59.00
540
29.20
2.20
269.87
90.00
820
33
FINANCIAL REPORT
CONSUMER SATISFACTION:
To improve the customer satisfaction the company adopted selective mining in
underground and opencast mines to improve the quality of coal dispatches.
20
Non- carbonaceous brands like clay were blasted separately and excluded
from coal brought to surface in some mines, picking arrangement for removing shale
stone etc, Were intensified at all dispatch points. Various steps are being taken by the
company to improve the quality and availability of coal. Apart from the above steps
like installation of electronic weight bridges in the place of mechanical weight
bridges, joint sampli9ng methods etc were also taken
EMPLOYEE WELFARE;
A number of welfare facilities like housing & sensation, educational
recreational sand medical facilities are being provided. For increasing housing
facilities new model town ships with integrated approach towards layouts, green
coverage, drains and sewage tremens and other civic amenities like roods, central
park, scooter sheds, community hall welfare center library. Temple complex overhead
tanks for water sriranpur, Manu guru areas.
Health educators were deputed to visit the workmen colonies to create
awareness among workmen and their families about the importance and need for
personals and public hygiene, immunization, maternity and child care etc,.
Singereni collieries educational society is serving to improve the educational
standards and provide quality education to the employs children. In the schools and
colleges run by the society about 11061 and 1570 pupils were imparted education
respectively during the academic year 2007-2008. a school for mentally retarded
children is being run by the SCCL in Godavarikhani.
To encourage the children of workmen of pursue higher studies. The
management of SCCL is awarding in merit scholarship those who get admission in
engineering and medical colleges.
21
Workers of SCCL are being provide with the terminal benefits like provident
fund gratuity, Group insurance and depended employmen
22
23
INDUSTRIAL RELATION:
The industrial relations remained cordial. The joint consultative committee is
helping to resolve the grievances of employees and in improving the safety standards,
production and productivity the existing3-tire grievance redresses machinery is
yielding good result. There were general strikes demanding payment of arrears under
NWCA-VI: AGAINST Economic &Industrial policies of the Government etc.
24
Mechanized Long wall, Shovel- Dumper technology and In- Pit crushing and
conveying technology for
LIQUIDITY AND SOLVANCY:
1. The percentage of current assets loans and advance to total net assets
(including intangible assets) had increased from 88051 in 2004-05 to
111.24 in 2005-06 and further increased to 92.25 in 2006-07.
2.
The percentage of current assets, loans and advance to trade dues and
other current liabilities (including provisions) increased from 90.15 in
2004-05 to 111.24 in 2005-06 and further increased to 191.99 in 2006-07
3.
The percentage of quick assets (Sunday debtors, advance cash & bank
balances) to trade dues and 58.60 in 2004-05 to 41.30 in 2005-06 but
increased to 89.81 in 2006-07.
WORKING CAPITAL:
The working capital (current Assets, Loans and Advance, Less Current
Liabilities and Provisions) for the year ended 31 st March 2006 was negative (-) Rs.
250.63 Laks but for year ended 31st March 2006 and 31 st March 2007 were positive
Rs. 313.80 lakhs and Rs. 1494.74 lakhs respectively.
SOURSES AND USE OF FUNDS:
During the year ended 2006-07 funds amounting to Rs.58146.48 lakhs were
generated and utilized as fallows:
01. Increasing in current liabilities
2306.01
3648.03
3081.61
3700.00
38195.73
25
7215.10
58146.48.
WORKING RESULTS:
The working results of the company during the three years up to 31st march.
2007
Were as following:
Particulars
2004-05
2005-06
2006-07
119.95
543.71
1609.82
b) Add/less
+4.08.
-142.13
-9.36
124.03
401.18
1600.51
NILL
NILL
-151.67
-1.32
Differed
43.19
134.43
124.03
357.99
1581.05
income Expenditure-
The value of Production for the year 2006-07 was more by 1223.6 lakhs compared to
2005-06 as well as there increase in the profit for the year 2006-07 compared to 200506 by Rs.1066
26
CHAPTER II
CAPITAL BUDGETING
27
CAPITAL BUDGETING
Concept of capital budgeting:
The term capital budgeting refers to long-term planning for proposed capital
outlays and their financing thus. It includes both rising of long- term funds as well as
their utilization. It may thus be defined as the firms formal process for the
acquisition and investment of capital it is the decision-making process by which the
firms evaluate the purchase of major fixed assets. It involves firms decision to invest
its current funds for addition. Disposition, modification, and Replacement of longterm or fixed assets. However it should be noted that investment in fixed assets. It
also to he taken as a capital budgeting decision for example a new distribution system
may call for both new warehouse and an additional investment in investors. An
investment proposal of this nature must be taken as a capital budgeting decision
evaluated as a single package not as an investment in a fixed asset (i.e. ware house)
and in a current asset (i.e. investment) separately.
Capital budgeting is a many sides activity. It includes searching for 1/1 kind
more profitable investment proposals, investment engineering and marketing
consideration to predict to consequence of accepting the investment and making
economic analysis to determine the profit potential of each investment proposal. Its
basis feature can be summarized as follows.
01. It has potentiality of making large anticipated profits.
02. It involves a high degree of risk.
03. it involves a relatively long-term period between the initial out lay land the
anticipated return on the basis of the above discussion it can be concluded that capital
28
budgeting consists in planning the development of available capital for the purpose of
maximizing the long- term profitability(i.e.)of the firm.
THE CAPITAL BUDGET EVLUATION PROCESS:
Many companies follow a carefully prescribed process in capital budgeting.
The process usually includes the following steps:
Project proposals are requested from departments plants and authorized capital
budgeting.
Capital Expenditure is an out lay of cash for a project that is expected to
produce a cash flow over a period of time exceeding one year. Example of projects
include investments in property, plant, and equipment, research and development
projects, large advertising companying, or any other project that requires a capital
expenditure and generates a future cash flow.
Because capital expenditures can be very large and have a significant impact on the
financial performance of the firm, great importance is placed on project selection.
This process is called capital budgeting.
CRITERIA FOR CAPITAL BUDGETING DECISIONS:
Potentially is a wide an ay of criteria for selecting projects. Some
shareholders may want the firm to select project that will show immediate surgeons in
cash inflow others may get to emphasis long term growth with little impotence on
short-term performance on short term performance. Viewed in this way, it would be
quite difficult to satisfy the differing interests of all the shareholders.
Fortunately, here is a solution.
The goal of the firm is ton maximize present shareholder value. This goal implies that
projects should be undertaken that result in a positive net present value that is the
present value of the expected cash inflow less the present value of the required capital
29
expenditure. Using net Present value (NPV) as a measure, capital budgeting involves
selecting those projects that increase the value of the firm because they have a
positive NPV. The timing and growth rate of the incoming cash flow is important only
to the extent of this on NPV.
Using NPV as the criterion by which to select projects assumes efficient capital
markets so that the film has access to whatever capital is needed to pursue the positive
NPV projects. In situation where this is not the case. There may be capital rotating
and the capital budgeting process becomes more complex.
Note that it is not the responsibility of the firm to decide whether to please particular
groups of shareholders who prefer longer or shorter-term results.
Once the film has selected the projects to maximize its net present value, it is up to the
individual shareholders to use capital markets to borrow or lend in order to move the
exact timing of their own cash inflows forward or backward.
This idea is crucial in the principal-agent relationship that exists between shareholders
and corporate managers even through each may have their own individual preference
the common goal is that of maximizing the present value of the corporation.
It determines the capital projects which work can be started during the budget
period after taking into account their urgent and the expected rate of return on
each project.
2.
3.
31
the business in the long run jest as an unwanted expansion results in unnecessary
operating cost to the firm.
IRREVERSIBLE DECISIONS:
In most cases capital budgeting decision are irreversible this is because it is
very difficult to find a market for the capital assets. The only alternatives will be to
scrap the capital assets so purchased or sell than at a substantial loss in the event of
the decision being proved wrong.
MOST DIFFICULT TO MAKE:
The capital budgeting decision requires an assessment of future events, which
are uncertain. It is real a difficult task to estimate the probable future events the
probable benefits and costs accurately in quantitative terms because of economic,
political, social and technological factors.
On account of these reasons capital expenditure decisions are among the class
of division, which is best, reserved for consideration by the highest level of
management. In case some parts of it are delegated a system of effective control by
the top management should be evolved.
It has already been stage that the firm capital budgeting included both
planning for proposed capital outlays and their financing however. In this chapter we
are not dealing with selection of a particular project out of several alternative projects
available. Thus our study is restricted of the process of deciding whether or not to
comment resources to a project whose benefits to casts in manner. This is Constance
with the profit maximum limitation of business.
32
Project Generation
Project Evaluation
Project Selection
Project Execution
Payback Period
Cash Flow
Estimates
Selection of
Appraisal
Accounting Rate of
Return
Net Present Value
Internal Rate of
Return
Risk
Return
Trade Off
33
Profitability Index
2.
3.
1.
2.
3.
4.
5.
34
6.
7.
35
36
CHAPTER III
CAPITAL BUDGETING
IN
SCCL
37
38
government of the India. For preparation of project reports first of all detailed
exploration works will be done considering whether the coal reserves are there or not.
In SCCL feasibility is prepared to taken investment decision feasibility report
is a study of project prepared to enable the management and government to taken
investment decision The methodology adopted for preparation of feasibility report
differ from project-to-project and industry-to-industry. Feasibility report in coal sector
is evolved over a period of time observing, various guidelines and suggestion issued
by the evaluating agencies viz; minister of coal planning commission, public
investment board etc.
EVALVATION OF FEASIBILITY REPORT:
The feasibility report outlines the type of technology like underground
method with details of extractable coal recourses, life of the project etc. the feasibility
report quantities various physical input required viz. land building plant and
machinery 9input0 with year vise phasing of requirement.
The physical parameters are converted into monetary terms the financial
viability of the projects. The various methods adopted are:
i.
ii.
iii.
iv.
Keeping view the different stages of project cycle emphasis is made her to
analyze anew stage of projection (I.e) preparation of the FR. The structure is and
contents of the FR in SCCL have been evolved, as state earlier, over period of
time taking due consideration from the guidelines of various Government
39
40
41
requirement of land, the yearly capital projections are made for meeting the cost of
land.
PROSPECTION AND BORING:
The cost of drilling in the block was already incurred and backed to
exploration capital account and the ideological information of the projects is fixed up
with help of before holes drilled the cost incurred in coal connection with there
drilling bore holes has to be capitalize..
COST OF BUILDING:
The capital requirements is estimated under the following sub groups:
1. Auxiliary plant.
i.
ii.
Residential building.
iii.
Auxiliary structures.
42
The capitalist
distributed into loan and equality ratio. The capitalist distributed into loan and
equity. The interest on loan capital constructions period of the projects is worked
out by adapting the prevailing interest rate 17% per annum.
CAPITALIZED REVENUE EXPENDITURE
The revenue nature of expenditure such as wages, stores, power general
overheads expected into insure till the project is put on to revenue acco0unt in
43
estimated year wise. Necessary credit will be given for the production in value
during construction period the net revenue expenditure is capitalized and
including as an element of capital head in the project cost.
Separate statements are prepared for estimating the cost under each head of
expenditure item wise details, quality, total cost with yearly passing. A summary
of the total capital cost of the project is prepared and included an annexure in
Feasibility Report, brining out the head wise total most requirements with yearly
phrasing for identifications of total project cost.
VEHICLES:
Keeping in view the size of the project and its location, the requirement of
vehicles is estimated. The vehicle normally covers jeeps, cars, transport trucks,
explosive vans, fork litters etc. The capital requirement for vehicle estimated
taking into account the prevailing prices. The phasing shown as per requirement.
FURNITURE & FIXTURES:
The furni8ture and fixtures required for the projects are estimated and
necessary provision is made under his head. Normally lump sum provisions are
made for tables, chairs, filing racks etc, for survey equipment. Personal computer
also necessary, provisions will be made.
COST OF DEVELEPMENT:
Under this head necessary cost provisions are made for providing,
development activities such as mine development roads and culvert water supply
and other amenities research and development and cost of feasibility
44
45
CHAPTER IV
INTRODUCTION
TO
PROJECT
46
INTRODUCTION:
The production target set for Mis. Singareni collieriwes co.Ltd. Is 28.17
m.t.for the technical year of VII five-year plans and demand for the terminal year of
VII five year plan is s34.26 m.t. Due to its strategic location? Even if the target is
fulfilled, there is a considerable gap between man and production from singareni
collieries co. Ltd., the gap between demand and supply is 5...99 mt.for the VII plan
terminal year.
To achieve above-mentioned targets, sccl has to open new2 mines. As a
strategy, emphasis is being laid on development of opencast mines wherever feasible
and mechanization of virgin seams in existing areas where infrastructure is already
developed. Gout ham mine is one such opencast project in kothagudem area.
LOCATION:
Gouthamkhani mine is located in kothagudem area of khammam district in the
state of Andhra Pradesh in godavari valley coal field. The nearest realhead is the
bhadrachalam road railway station (BDCR), which is on the branch line of south
central railway connected to khammam(80Kms), hyearabad and viayawada(160Kms)
by asphalted roads.
SOURCES OF ALLOCATION AND PHASING EXPENDITURE:
The amounts so granted towards capital requirements in the form of equity are
made at the beginning of the financial year. The amounts are drowning monthly,
quarterly as and when the expenditure is scheduled. The interest is also calculated
keeping in view of the drawing of amounts from banks.
a) Capital expenditure and
b) Revenue expenditure.
A) CAPITAL EXPENDITURE:
47
It incurred in SCCL for the procurement of fixed assets, Heavy Earth Moving
Machinery (HEMM) and other assets to use in the mining activities.
This is the expenditure made on both the ongoing projects and IIC\V projects
the amount should be taken from the annual grams in million of equality and debt.
B) REVENUE EXPENDITURE:
It includes all the payments made during the year towards the operation of the
company such has salaries to employees. Employees welfare expenses, maintenance
and administrative charges. These are the expenditure paid for the services rendered
for the current period.
SOURCES
AND
APPLICATION
OF
FUNDS
AND
SOURCES
OF
ALLOCATION
AND
PHASING EXPENDITURE IN SCCL
A) SOURCES AND APPLICATION OF IN SCCL:
In SCCL the sources of funds to meet the capital expenditure are use
under:
1. Equity Capital from Government of India.
2. Equity capital from government of Andhra Pradesh
3. Long-term borrowings from government of India.
4. Plighting back of funds by internal resources of profit.
5. Bilateral credit from government of India.
6. Drawings funds temporarily from commercial banks such as state bank
of Hyderabad etc. to meet working capital.
48
PROJECT DETAILS:
A.FESAIBILITY REPORT:
Feasibility report of the project was prepared in june. 198 xs for a rated
production of 2.00 m.t. per annum with capital outlay of Rs. 193.11 crores and
submitted to ministry of coal vide Lr.no.PP174/89/318.dtd. 16-03-1988 for sanction.
As the project is yet to be sanctioned, the capital cost and operation cost have been
updated in order to get the sanction for the realistic outlay or the project. As per the
present updating (Dec.1992), the out lay of the project is estimated as Rs.403.67
crores as against Rs.193.22 crores of original FR,june 1988. The increase in the
capital cost work out to 100%
B.CAPACITY OF THE PROJECT:
The annual rated capacity of the project is envisaged as 1.00 MT per annum
and the annual average 08 removal IS estimated as 11.72M.CU.M. However, in some
of the year the rated production varies viz. from 10th to 15th year the expected
production would be 3MT as against. 2.00MT per annum and in 16 th year 2250 MT
per annum. Therefore the average cost of production is worked out taking into
account the above variation in production. The average cost of production has been
worked out for the period from 4 th year to 25th year. The project comes into revenue
49
account in 4the year, and is expected to achieve rated production of 2.00MT per
annum in 8th year and execution in
All aspects will be completed by 10th year. The overall life of the project is 41 years.
IT year-wise deployment of capital. Manpower and built up of rated capacity have
been showing in the following table.
Year
Capital (Rs.Crs.)
29.23
33.22
68.63
59.47
114.25
Manpower (Nos)
201
342
575
728
1014
Production (LT)
10.00
16.00
20.00
20.00
30.00
C.COMMUNICATION:
All the elements of operation cost have been estimated based on the costs
prevailing in the last quarter of the year 1992. They are firm with reference to that
period if any changes come subsequently; the operating cost has to be modified
suitably.
Gouthmnagarkhani mine is located in kothagudem area of khammam District
in state of Andhra Pradesh in Godavari valley Coalfield. The nearest railhead is the
Bhadrachaklam road Railway station, which is on the branch line of south central
Railway connection Dornakal junction all madras-Delthi Grand trunk line,
kothagudem town is connectged to khammam( 80 KM), Hyderabad(280km), and
vijayawads(160km) communicated with the good road and rail facility and also a
pilgrimage center.
SILENT FEATURES OF THE PROJECT:
This project will contribute 2.0MT of coal per annum to Kothagudem Area.
This project is expected to give its rated capacity of production in year
50
GEOLOGY:
A) Details of coal seams:
Partining in
Mine able
Meters/
Coal
Prevailing
0.97-23.02/12-
Reserve (M.T)
Thickness in
Seam
Grade
Meters/prevailing
TOP
3.20-11.86/4-8
60.7
22.16
42.78
71.01
18
2.61-44.56/8MIDDLE
1.82-15.50/4-8
30
BOTTOM
2.44-29.04/8-22
Total
Overall GradeE
RESERVES:
The total mine able coal, overburden quantity and the average stripping ratio
are as follows:
51
Million tones
Grade.
Top Seam
6.
Middle Seam
22.16
Bottom seam
42.78
_____________________________________
71.1
Overall Grade E
Overburden:
The Overburden
346.28 m.cu.m.
9.04.M.Cu.M
36.00 m.cu,m.
1:5.51
METHOD OF WORK:
The querys proposed to be worked by opencast methodology using
conventional-shovel-dumper combination. Deployment of dragline is not proposed,
as the geological structure is not amenable for the use grade line
MAIN HEMM:
No
1. 10. Cu.m. Elec. Rope Shovels
5. 85 T Rear Dumpers
60
70
52
12
As Per
standard
Water sprinkler Road roller etc.
Requirement
PARTICULERS
Strike length of quarry (Mtrs)
Width of Quarry (Mtrs)
Depth of Quarry (Mtrs)
Areas of Excavation (Hec)
Floor Gradient
a) Maximum
b) Average
MINIMISE MAXIMIZE
400
3200
1200
1925
30
240
410
1 in 5(11.3 deg)
1 In 10(5.7 Deg)
19.45MT
b) Total Overburden
144.870M.cu.m.
Coal
1
2
3
.50
1.00
1.00
OB
Str. Ratio
7.61
10.34
8.80
53
5.32
10.34
8.80
Coal (MT)
OBC.um)Str.ration
0.50 7.66 15.32
1.50 18.00 12.00
2.50 26.79 10.72
4
5
6
7
8
9
10
11
12
13
14
15
1.00
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
0.95
8.60
9.82
8.37
8.20
8.86
10.97
13.25
13.14
13.46
12.32
9.27
1.85
54
8.60
6.55
5.58
5.47
5.87
7.31
8.83
8.76
8.97
8.22
6.18
1.95
Coal (M.T)
OB Removal
Stripping
.50
1.00
1.00
1.00
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
0.948
19.452
(M.cu.m)
7.66
10.34
8.80
8.60
0.82
8.37
8.20
8.86
10.97
13.25
13.14
13.46
12.32
9.27
1.85
144.87
Ration (m.cu.m/t)
15.32
10.34
8.80
8.60
6.55
5.58
5.47
5.87
7.31
8.83
8.76
8.97
8.22
6.18
1.95
7.45
55
c)
330
3
3
8
33kv
3.3kv
415V
515V
230V
POWER:
The power units required every year from 4, h to 25h is estimated separately
considering the population of machinery and volume of extraction of OB and coal.
The peak annual power requirement of the project is estimated as 342.15 lakhs. And
the corresponding power cost works out to Rs. 718.75 lakhs an against estimated cost
of Rs. 307.66 laks shown in the original FRof June 1988. The important parameters
relating to power cost estimation at a glance are shown below.
1. Annual output (LTs)
56
57
Coal
OB
Common
Total
9.57
12.13
9.50
31.20
investment
for electrical
power supply.
Distribution
communication etc.f has been estimated at Rs. 300.00 lakhs. The details are given in
annexure no. DFR-2.2
CAPITAL REQUIREMENT:
The capital outlay of the project is updated from Rs. 193.00 crore to Rs.
403.67 cores taking into account escalation over last Four and half years.
The
increase in the capital works out to 1095. The head wise capital outlay in comparison
with FR is presented as follows:
1
2
3
4
Prospecting
Land
Mine development
Service buildings
18.00
282.50
950.10
200.00
58
23.88
577.00
1525.91
375.00
5
6
7
8
9
10
11
12
13
Township &
amenities
CHP&Rly siding
Plant&machinery
Vehicle
Furniture& Fixtures
Preparation of FR
Safety, R&D
E.M.P
Capitalized revenue
360.00
571.00
925.00
15479.27
24.00
8.00
15.00
50.00
50.00
960.00
1725.00
33532.50
41.85
13.50
11.20
50.00
83.00
2836.37
GRAND TOTAL
19322.14
40366.51
The above capital outlay of Rs. 403.67 crores is exclusive of lthe amount Rs. 7.07
crores sanctioned under advance action.
LAND:
The land required for every area, western & southern dumps. Approach road
belts, drains, transmission lines, CHP and railway siding, service buildings, indirectly
affected land residential colony etc.
59
507 houses are already available in the existing Gouthampor whole due to closure of
existing underground mine. Hence only 460 houses need to be constructed as detailed
in Annexure No. VI Now the total estimated cost for township and amenities comes to
Rs. 571.00 Lakes bided on building index 600 as against Rs. 360 lakhs based on cost
index400.
PLANT & MACHINARY:
Out of total capital estimation or Rs. 403.67 crores the capital estimated for
plant and machinery is Rs. 325.33 crores, which is 81% of the total project capital. As
the project envisages opencast technology the content of plant and machinery is high.
In this project the solve-dumper technology is adopted for the removal of overburden
and
Extranction of coal foer removal 10 solves of different capacities ranging from 10.
cu.m. with a combination of 60 No.s 85 T and 36 No.s 35T dumpers are provide. For
extraction hoveof coal 3to 3.5 cu. m. sls with 30Nos. of 35T dumpers are provide. The
P&M capital is classified under coal. OB and common the magnitude of capital for
this operation are:
F.R.
UCE
Coal
1500.75
2670.38
OB
12624.13
27614.25
Common
1345.39
2247.87
The capital of P&M increased by Rs.170.53 crores estimate, which works out
to 110.17%. The increase is due to escalation all prices; increase is excise duty etc.,
during the 4 year 6 month period. The investment on plant and machinery per tonne of
coal works out Rs.1626.65.
60
CAPITALISED REVENUE:
The project is expected to come in to revenue account in 41st year as the
expected production of 41st year i.e. 7.00 lakh tones, which is more than the 25%of
annual rated production of 20.00lakh tones. The revenue nature expenses such as
wages, stores, power interest on loan capital, general administration etc. expected to
incur till the project is put on revenue account have been estimated separately vide
annexure.
Nos.xII (a) & xIII(B) and included IIIIhec. Capital cost estimate for the project. The
gross capitalized revenue expenses both for OB and coal for three year work out to
Rs.4174.37lakh. In the 3rd year the expected production is 3.50 lakh tones as such the
sales realizing of rs.1337.70lakhs is credited to gross capitalized revenue there by
capitalized revenue estimated vide annexure Nos.xIII(c) & xIII(D).
VEHICLES:
For the movement of officials and transportation of material 12 nos light
vehicle are provided. The estimated capital for these vehicles as per present updated
cost estimates is Rs.41.85 lakhs as against Rs.24.00 lakhs estimated in the FR.The
increase of Rs.17.85 lakhs is only due to increase in the market prices as well as tariff
on vehicles and estimate capital with phasing are shown in Annexure No .X.
61
In the original FR, Rs.15, 00 lakhs was estimated to wards the costr of
preparation of technical FR by CMPDIL. However, the payment mad 011 this account
is Rs.11.20lakhs, hence Rs.11.20 lakhs is only considered as agClinme1Rs.15.00
lakhs of original FR.
SAFETY AND RESERCH &DEVELOPMENT:
A lump sum amount of rs.50.00lakhs .is provided towards safety measures and
research &development activities. Out of rs.5000 lakhs Rs.10.00 lakhs is exclusively
provided to meet the R&D studies in Biological Reclamation
62
The capital outlay of the project is Rs.193.22 Crores (Oct., 2007) price level)
with OB removal by hiring of HEMM.The financialviability of project is worked out
taking into account the latest capital and the prevailing Dept Equity ratio of 3.68:1
1231
300
63
ACCOUNTING ANALYSIS:
Cost of production:
The cost of production has been estimated under SCCI debt equity ration or 1:0.29
and Notional D.E Ration of I; I, the element wise average cost of production per tone
of. Coal at 100% and 85% performances levels is presented below:
Rs.Per Tone
Sl.No Performance Level
1
A
1
2
3
Cost Production
Opening Cost
Wages
Power
Stores
64
32.26 27.42
31.20 26.52
150.70 128.09
6
7
8
9
General Administration
Drilling cost
Post project Environmental maintaining
Working capital @ 12.00%
Sub-total (A)
B Fixed cost
1 Interest on loan
2 Depreciation
Sub-total (B)
Total Cost Production
4
Coal Extraction cost by hired
5
4.33
3.68
4.33
3.68
.19
12.16
.16
10.34
.19
12.16
.16
10.34
90.03
216.99
216.99
76.53
66.17 56.24
107.16 124.30 105.66
183.69 190.47 161.09
surface miner
OB Removal cost by hiring
65
The increase in wage cost id due to pay revision, increase in VDA on account of
upward revision of AICPI and increase in various allowances from time to time. The
various parameters of wage cost a glance are as stated below:
FR
1. Annual Production LTS
20.00
UCE
20.00
1611
1611
1231
4. Wages Structure
NCWA-III
NCWA-IV
5. AICPI
753
6. O.M.S.Rs.
5.42
5.42
7. E.M.S.Rs.
114.53
117.37
23.26
32.26
26.54
36.81
1195
66
67
For calculating interest, it is assumed that the funding of the project will be
done in the current Debt-Equit Ratio of 3.68:1 the debt content of the project
would be Rs. 317.42 cores, out of total investment of Rs. A3.67 Crores. The
above loan of Rs. 317.42 crores will be drawn in phased manner over a period of
10 years. The interest is calculated on average principle by following the under
mentioned norms.
68
The
depreciation cost per tone of coal works out to Rs. 126.96 as against the
depreciation cost of Rs.66.89 considering in original FR.
The annual
=Rs. 382.20/T
=Rs.12.97/T
-------------------------
Rs. 395.17/T
--------------------------
69
The grade-wise extra action and year wise sales realization are shown in
annexure no.XXII.
PROFITABILITY ANALYSIS:
The financial viability of the project is evaluated both at 100% and
X5% capacity utilization under two variants, viz., SCCL debt-equity ratio if
3.68:1 and National debt-quit ratio of 1:1 is given below:
Sl.No Particulars
Sccl
de
1
2
3
Performance level
Production (MT)
Cost of production (Rs)
Avg.sale 17 realization
3.68:1
100%
20.00
447.83
395.17
(Rs)
Profits/loss (Rs.335.89)
(-) 52.66
Ratio
85%
17
380.66
335.89
(-) 44.77
85%
17
358.1
335.89
FINANCIAL IRR:
Based on the year wise flow of capital cost. Replacement and operating cost
together sales realization, the initial ratio of return is worked out is rated capacity.
Sl.No
1
2
Particlulars
Performance IvI
Finance IRR%
SENSITIVITY ANALYSIS:
As it is financially the project loses heavily at 12% discount rate. As the table
15.2 indicates, the project is vulnerable for escalation in costs. The project yields a
return of 6.42% with the total cost escalation in by 10% over the base ease.
Base case
Finance
Economic
499.26
428.170
70
522.39
447.09
549.18
467.61
71
1. While estimation the extractable reserves care has been taken to reduce
the quantity so that only is extracted.
72
2. It is provided to divert the nalahs along the periphery of the blocks adequate
protection, in the from of bund, will be made gains the diverted nallahs
adequate pumping arrangement are provide. Also regular monitoring will be
done during rainy season.
STATEMENT SHOWING FINANCIAL VIABILITY:
The workings relating to financial violability have also been updated taking
the various norms and costs prevailing in the third quarter. TIK summary of the
viability analysis in comparison with original FR is given below.
1
2
3
4
5
6
7
8
Debt-equity ration
Performance level
Cost of Prod. Rs/t
Avg. sales realization Rs./T
Profit/Loss Rs.T
IRR on equality (%)
Financial IRR (%)
NPV(lakhs)
FR
2.31:1
100% 85%
287.89 324.34
312.20 312.20
+24.31 -12.14
29.96
24.61
As peruse
3.68:1
100% 85% 100%
58%
447.83 499.32 421.31 468.13
395.17 395.17 395.17 395.17
-15.66 -104.15 -26.14 -72.96
-5.33 -8.70 -2.84 -6.69
+3.46 0.19
+3.91 1.24
-10363 -12344 -9362 -11208
The above table indicates that the project yields negative IRR on equity at both
SCCL debt equity ratio and 1:1 debt equity ratio.
73
Coal
Production
0.5000
1.000
1.000
1.000
1.500
1.500
1.500
1.504
1.500
1.500
1.500
1.500
1.500
1.500
.948
19.452
SALES
crores
34.700
69.400
69.400
69.400
104.100
104.100
104.100
104.378
104.100
104.100
104.100
104.100
104.100
104.100
65.791
1349.97
Rs. OB M.com
7.659
10336
8.798
8.600
9.821
8.372
8.204
8.826
10.969
13.252
13.136
13.456
12.324
9.270
1.853
144.873
CHAPTER V
74
OBR cost Rs
crores
34.027
54.708
35.336
35.193
43.095
40.790
40.790
48.440
58.810
75.981
75.804
80.822
71.780
45.607
8.690
749.47
FUTURE
OF THE
PRESENT UPDATING
75
5. The rate of interest on long-term loans and the working capital have gone
up form 15% to 17% and 16.5% to 22.25% respectively.
6. The wages cost has been updated taking into account the NCW A-IV JH
executive pay revision scales, other allowance and VDA 1195 points as
against 753 points of original corresponding to FR.
7. The latest power tariffs viz. Rs. 75/- per KVA months and Rs. 1.89/- per
unit of power have been considered as against Rs. 36 LK months and Rs.
0.82 per unit of power adopted in original FR.
8. The interest on loan capital is worked out an average principle in that
present updating as against peak interest rule followed in original FR.
9. The revised selling price including transportation charge of Rs. 395.17/T is
adopted in place of old selling price of Rs. 312.20/T
10. As a result of above changes the capital cost of project has gone up to Rs.
403.67 crores from Rs. 193.22 crores.
11. The cost per tone of coal has increased from Rs. 287.98/T to Rs. 447.83 at
100% performance and from Rs. 324.34/T to Rs. 499.32 at 85%
performance level.
76
method in which we will know that, in how many years invested money will
recoup. So, let use this technique and find out the Pay Back Period.
YEARS
CASH FLOWS
AFTER TAX
(CFAT)
CUMULATIVE
CFAT
89.31
89.31
101.11
190.42
111.61
302.03
104.91
406.94
98.28
505.22
91.36
596.58
84.08
680.66
76.38
757.04
757.04
Interpretation:
The Payback period is 3.05 Yrs. It is less than sanctioned period
i.e. 8 Yrs.
So, it is accepted.
77
The ARR
PROFIT
AFTER TAX
YEAR
1
54.28
70.90
85.54
4
5
82.40
78.83
74.55
69.53
63.78
579.81
Interpretation:
78
more money on the investment than you are spending on your cost of capital.
YEARS
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
CASH FLOWS
AFTER TAX
(CFAT)
89.310
101.110
111.610
104.910
98.280
91.360
84.080
76.380
757.04
PV @
10%
PV of CASH
INFLOWS
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.466
81.183
83.517
83.819
71.654
61.032
51.527
43.133
35.593
511.457
Interpretation:
The NPV is 188.457. It is greater than 0. So, it is accepted.
79
return can be defined as that rate of discount at which the present value of
cash inflows is equal to the present value of cash outflows
YEARS
1
2
3
4
CASH FLOWS
AFTER TAX
(CFAT)
89.31
101.11
111.61
104.91
5
6
7
8
98.28
91.36
84.08
76.38
757.04
Initial Investment
Fake Pay Back Period (FPBP) = -------------------------------------Average Cash Flow After Tax
80
The above 3.41rate indicates between 24% and 25% in Net Present worth
table. So, let us calculate the CFATs at 24% and 25% Present Values.
CASH FLOWS
AFTER TAX
(CFAT)
PV @ 25%
89.31
0.800
71.448
101.11
0.640
64.710
111.61
0.512
57.144
104.91
0.410
42.971
98.28
0.328
32.206
91.36
0.262
23.945
84.08
0.210
17.632
76.38
0.168
12.817
YEARS
CFAT @25% PV
757.04
322.874
At the rate of 25% the CFAT is about 322.874, which is less than initial
investment.
CASH FLOWS
AFTER TAX
(CFAT)
PV @ 24%
89.31
0.806
71.984
101.11
0.650
65.722
111.61
0.525
58.539
104.91
0.423
44.366
98.28
0.341
33.523
91.36
0.275
25.133
84.08
0.222
18.649
76.38
0.179
13.664
YEARS
CFAT @ 24% PV
757.04
331.581
The lower rate is 24% the CFAT is about 331.581, which is higher than initial
investment. Now, let us calculate the IRR value:
81
331.581 323.000
IRR = 24 + ------------------------- - x ( 25-24)
331.581 322.874
IRR = 24 + 0.986 = 24.986
Interpretation:
The IRR is 24.986. It is greater than cost of capital i.e. 12%. So, it is
accepted.
82
It is also a time-adjusted
YEARS
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
CASH FLOWS
AFTER TAX
(CFAT)
89.310
101.110
111.610
104.910
98.280
91.360
84.080
76.380
757.04
PV @
10%
PV of CASH
INFLOWS
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.466
81.183
83.517
83.819
71.654
61.032
51.527
43.133
35.593
511.457
PV of cash inflows
Profitability Index = -----------------------------PV of cash outflows
511.457
Profitability Index = ------------ = 1.58% rounded of to 2%
323.000
Interpretation:
The PI is 2%. It is greater than 1. So, it is also accepted.
83
CHAPTER VI
CONCLUSIONS
&
SUGGESTIONS
84
CONCLUSION
As the companies debt- equity Ratio is varying from year to year.
The
viability of the project is also determined in me: I notional DIE ratio, to compare the
project decision. In I: I debt Equity Ratio, the project is viable as the project yields
Financial IRR of 3.91% crores. The project is forwarded for appraisal and sanction
by GOI for Rs.403.67 crores. At the present SCCL debt-Equity ratio of 3.68: 1 is
adverse compared to the 2.32: 1. The interest burden is high thereby the project yields
only 3.46% IRR, which is less than the 12% designer in spite of this the project is
required to be executed in view of other economic consideration such as:
i.
ii.
iii.
iv.
85
SUGGESTIONS
From the above conclusions drawn the following suggestions are proposed.
1. Company should meet its credit obligations regularly and more amounts
hold be paid towards loan installment to reduce are debt component.
2. GOI should give budgetary supports to generate internal sources and avoid
delay in sanction of new projects.
3. A revision/ revival in the estimated cost should be minimized.
4. Revision of selling price of coal/tones is essential & when the cost inputs
are increased otherwise the project will incur losses when they art
executed.
5. While making an estimate of the expenditure to be spent should be
fluctuate. Projects the portion of revenue clearly mimed & should not.
6. Delays in commissioning projects should minimize.
86
BIBLIOGRAPHY
1. IM PANDEY
CAPITAL BUDGETING
2. PRASSANNA CHANDRA
FUNDAMENTALS OF
CAPITAL
BUDGETING
3. S.N.MAHESWARI
CAPITAL BUDGETING
(PRINCIPLES & PRACTICE)
87