CAPITAL BUDGETING

INTRODUCTION

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 edible oil manufacturing sector, which gives mean
exposure to practical implication of theoretical knowledge.

To know about the companys operation by using various Capital Budgeting

techniques.

To know how the company gets funds from various resources and effective
allocation of such funds (i.e. allocation between current and long term assets)
 SCOPE OF THE STUDY

The scope of the present study includes the following

Understanding the importance of capital Budgeting in Food, fats and

Fertilizers Pvt Ltd, Tadepaliigudem

Evaluating of an Investment proposal of setting up Facility at FFF, for

manufacturing of Edible Oil.
 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 the practical usage of capital budgeting techniques

To understand the nature of risk and uncertainty

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

company.
 METHODOLOGY OF THE STUDY

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 questions with
the accounts and other persons in the financial department

Secondary sources

It is also collected by someone else and passed through some stastical techniques. The
secondary data have been collected through the various books, magazines, broachers
& websites.

For this study collected information from company Annual Reports.

 LIMITATION OF THE STUDY

Though the project is completed successfully a few limitations may be there.

Since the procedure and polices of the company will not allow to disclose
confidential financial information, the project has to be completed with the
available data given to us.

The period of study that is 5 weeks is not enough to conduct detailed study of
the project.

The study is carried basing on the information and documents provided by the
organization and based on the interaction with the various employees of the
respective departments.

Lack of knowledge. Some of the lack full-fledged knowledge of the concept

and its difficult to collect a specific opinion from them.

Time limitation. The duration of the project is short to collect the required
information accurately
 CHAPTERIZATION PLAN

The study is presented in five chapters as the following

Chapter-1

This chapter deals with the introduction, need for the study, scope of the study

objectives, and methodology, and limitations of the study.

Chapter-2

This chapter deals with the industry profile and the company profile.

Chapter-3

This chapter deals with theoretical aspects of inventory management.

Chapter-4

This chapter deals with data analysis and interpretation.

Chapter-5

This chapter deals with findings, suggestions,conclusions and bibliography

 INDUSTRY PROFILE

In the Indian context, the term Vegetable Oils is almost synonymous with
Edible Oils and land is not used as cooking media. However it is important to keep
this distinction in mind not all Vegetable Oils are Edible Some including cater oil
are mostly non-edible and some of the edible oils like Ground Nut and Coconut are
finding increasing industrial applications as in cosmetic, soap making etc.

By virtue if they are high nutritive content, Edible oils from a major source of
nutrition. The fatty acids in Edible Oils are required by the body as a vehicle for
carrying vitamins; provide oil cakes, which are by-product of the oil extraction
process, are important source of animal nutrition. These can be processed in to edible
flavors, which are rich in proteins.

Oil seeds occupy an important position as the agriculture map pf and rank
second after food grains as a farm commodity crop. India accounts for a tenth of the
world out put of Vegetable Oils and fats. It is the largest produces of Ground Nut,
rapeseed, mustard and sesame, second in respect of castor seeds, third in coconut,
fourth in cotton seed and fifth in line seed.

Our country has a highly developed oil based industry. Providing gainful
employment to nearly 15 million persons besides another half a million engaged in
milling and processing units. It is essential a food-oil industry accounting for four
fifths of the total supply of Vegetable Oils. Soap paints and varnish industries from
the bulk of non-food applications.
 In spite of thief national importance, production of food grains has been
suffering a negative growth rate all these years. Only during the first plan period, the
targets set for production were realized after this no impressive achievement was
recorded. The main contributory factors are two fold, first only marginal land, in rain
fed areas is being used for their cultivation resulting inevitable in low productivity,
second agriculture in India is still subject to the vagaries of monsoon which makes for
erratic production. It is little wonder therefore that the annual rate; of growth of oil-
seed production for the decade 1965-1976 was a mere 1.2 percent while that of oil
seed productivity, an equally dismal one percent.

Viewed in the global context, India has the dubious distinction of having the
highest acreage under oil seeds and recording the highest output, and yet showing the
lowest yield, at 736 kg. Indias yield per hectare is lower than that of Nigeria (1615.38
Kg) U.S.A. (91474.58 Kg), Argentina (1153.49 Kg) and China (1148.55 Kg.) The
following table would give picture of Indias placing in the world settings.

For the year 1980-81, target for oil-seed production had been fixed at 11
million tones, actual production however lagged behind, with; provisional estimates.
Placed at 10.2 million tones. Production of live major oil seeds viz./ groundnut, rare
seed mustard, sesame, line seed and castor seed and is estimated to be abound 90
lakes tones, which is about 13 percent higher than the previous years production.
Production estimates of groundnut at 57 lake tones however show decline of 70,000
tones. At 2 lack tones castor seed production has also registered a decrease of 30,000
tones. Rapeseed, sesame and line seed have however, registered increased over the
previous years production levels.

The central Government therefore took various measures to increase

production of oil seeds. A centrally sponsored scheme for an intensive oil seed
development programmed was operated in 14 states with a coverage target 40.6 lakes
hectors under a liberalized pattern of central, assistance.
 However actual coverage was only 36 lake hectares and the short fall was
attributed to serve. Drought conditions in several states during the Kharrif season.
Short falls in production persisted in the oil year 1981-82 as well as a result, domestic
industry could not meet the consumption needs respect of edible oils. The total edible
and supplies from indigenous sources were estimated at about 30 lake tones in 1981-
82 (which however higher than the previous years levels of 25 lakes tones). The gap
of 10 lake tones had to be filled only though imports. Consequently, the state-trading
corporation was asked to import a million tones of Edible Oils during the oil year
1981-82. The allotment of imported Edible Oils was also pruned in a bid to ensure
more supplies though fair price shops.

The trend of imports in expected to continue in the year to come despite the best
efforts of the union agriculture ministry to raise oil seed output. The genera-based
international trade center has projected import of 13 million tones of Vegetable Oils
in 1985. As for exports, it is anticipated that India would export 15 Lake Tones of oil
equivalent of hand picked-selected groundnut, other nuts and castor oil by 1985.

The composition of our exports is expected to undergo a change palm oil and
products (palm oil and FBD palm oil) will in further account for an increasing share
of Indian exports soybean oil and rapeseed oil will continue to be imported through
their combined share may fall to about one third of the total imports refined rapeseeds
oil could be the cheap oil for the liquid market while soybean oil is expected to the
supplied to the vanaspati industry. Regarding production of oils, an increase in the
production of solvent extracted oils such as rice bran oil tree oils in lightly to occur
the ITC reports says that the country could make significant investments in view of
its resource for this oil and the demand of Edible Oils. The report has also forecast a
rise in the de oiling of ground nuts cake and other sun cakes the country could also
produce 4.5 lakes of tones seed oil per year.
PROBLEMS:
An important feature to be taken note of in the case of seeds is that
their production facilities widely from year to due to seasonal conditions as only 8
percent of the total area under oil seeds is irrigated further year substantial parts of the
verified areas under oil seeds consists of marginal lands plant population is mostly
sub-optional due to the user seed of pure quality and wide spacing the triple alliance
of weeds, pests and pathogens cause great deals of losses both in the early state of
plant growth as also at crop maturity.

Absence of rains at critical stages also causes significant losses in yields

particularly in the case of groundnuts poor post, harvest technology including
deficiency in marketing support and storage and processing also have advice effect on
returns to grower and incentives for production.
 Indian Edible Oil Industry

The Indian vegetable oil economy is the worlds fourth largest after the US,
China and Brazil, harvesting about 25 million tons of oilseeds against the world.
Since 1995, Indian share in world production of oilseeds has been around 10 percent.
Although, India is a major producer of oilseeds, per capita oil consumption in India is
only 10.6 kg/annum which is low compared to 12.5 kg/annum in China, 20.8
kg/annum in Japan, 21.3 kg/annum in Brazil and 48.0 kg/annum in USA.

Vegetable oil consumption has increased following a rise in household

incomes and consumer demand. India imports half of its edible oil requirement,
making it the worlds third-largest importer of edible oil. The country buys soya oil
from Argentina & Brazil and palm oil from Malaysia & Indonesia.
Currently, India accounts for 11.2 per cent of vegetable oil import and 9.3 per cent of
edible oil consumption.

Types of Oils commonly in use in India:

India has a wide range of oilseeds crops grown in its different agro climatic
zones. Groundnut, mustard/rapeseed, sesame, safflower, linseed, nigerseed /
castorseed are the major traditionally cultivated oilseeds. Soyabean and sunflower
have also assumed importance in recent years. Groundnut, soyabean and mustard
together contribute about 85 percent of the countrys oilseeds production. Coconut is
most important amongst the plantation crops. Efforts are being made to grow oil palm
in Andhra Pradesh, Karnataka, Tamil Nadu in addition to Kerala and Andaman &
Nicobar Islands. Among the non-conventional oils, ricebran oil and cottonseed oil are
the most important. In addition, oilseeds of tree and forest origiUn, which grow
mostly in tribal inhabited areas, are also asignificant source of oils. ntil 2002, the olive
oil sector in India was predominantly unorganised. than for cooking..
INDIAN EDIBLE OILS INDUSTRY:

The demand for edible oils in India has shown a steady growth at a CAGR of
4.43% over the period from 2001 to 2011. The growth has been driven by
improvement in per capita consumption, which in turn is attributable to rising income
levels and living standards. However, the current per capita consumption levels of
India (at 13.3 Kg/year for 2009-10) are lower than global averages (24 kg/year).1 The
Indian edible oils market continues to be underpenetrated and given the positive
macro and demographic fundamentals it has a favourable demand growth outlook
over the medium-to-long term. In terms of volumes, palm oil, soyabean oil and
mustard oil are the three largest consumed edible oils in India, with respective shares
of 46%, 16% and 14% in total oil consumption in 2010. Given the high price
consciousness and varied taste preferences of Indian consumers, ICRA expects
these three oils to continue to account for the bulk of edible oil consumption in the
country.

There has been a significant gap between demand and supply of edible oil
because of limited availability of oil seeds and shifting of acreage to other crops in the
domestic market. This gap has been met through imports, which account for almost
45-50% of the total oil consumption. In H1OY2010-11,2 edible oil imports were
observed to be the lowest in the last three years in view of improvement in domestic
oilseed production.

Notwithstanding that, ICRA expects the high dependence on imported oils to

continue in the foreseeable future due to anticipated domestic supply constraints and
the high cost competitiveness of imported oils. Refined and crude palm oil (CPO)
have accounted for the major portion of edible oil imports in India (74% in OY2009-
10) mainly due to their relatively low prices and ample availability. ICRA expects the
dominance of palm oil in imports to continue in the near-to medium term.

1 Oil World 2010

2 OY Oil Year refers to the period
ICRA Rating Feature Indian Edible Oils Industry: Key Trends and Credit
Implications

High reliance on imports, domestic edible oil prices have largely been linked
to international edible oil prices. After the decline in FY09, international edible oil
prices remained at subdued levels during most part of FY10. The prices of major
edible oils rose in H2FY11 on account of anticipated higher demand for bio-fuels,
given the high crude oil prices as well as expected production shortfalls in palm oil
production. Prices have, however, corrected and stabilised in recent months on
account of better-than-expected CPO production from Indonesia/Malaysia during
Feb-March 2011; demand rationing due to high prices in developing countries
suffering from high levels of food inflation besides the geopolitical situation in the
Middle East and North Africa. The improved pricing levels for Oil Year (OY) 2011 as
compared to OY 2010 have provided some comfort to small/medium scale domestic
solvent extractors and enabled relatively better capacity utilisation levels. Over the
near term, edible oil prices are expected to remain firm, considering the strong
demand for alternative sources of energy like bio-fuels in view of the continued rise in
crude oil prices.

The Indian edible oil industry is highly fragmented, with the presence of a
large number of participants in the organised and unorganised sectors. This has
resulted in severe competition and inherently thin profitability margins. Further, the
profitability of market participants has also been vulnerable to risks emanating from
weak harvests; commodity price volatility and forex movements.

ICRA notes that while the share of branded oils segment has remained low
over the years, it is poised for growth in view of rising income levels; uptrend in
urbanisation and increasing quality consciousness of Indian consumers.

The Government of India has cut down import duties on edible oil since April
2008. The current duty differential between crude and refined oils stands at 7.5%,
which provides protection to domestic refiners against competition from imported
refined oils. Going forward, the industrys profitability is vulnerable to any reduction
in this duty differential.
 From a business risk perspective, ICRA considers the flexibility to modify
product portfolio as a key strength in a market characterised by commodity price
volatility. Accordingly, players with a diversified presence and exposure to the three
major categories of oil, namely, palm oil, Soya bean oil and mustard oil, would be
better positioned for growth as compared to players with single product concentration.
Further, according to ICRA, the large-scale integrated players are better placed than
small and mid-sized manufacturers to withstand the challenges in the business
environment on the strength of benefits related to economies of scale such as
marginally lower cost of production and access to cheaper working capital credit.
From the perspective of revenue growth and profitability, market participants with a
high share of established branded products are better placed than participants
operating in the commoditised bulk market.

In the recent past, the Indian edible oil industry has witnessed organic and
inorganic expansion by some of its major participants. While ICRA views the
increase in scale as a credit positive, the impact of these capex activities on the capital
structure and the ability to scale up revenues and profitability to the envisaged extent
will be some of the variables to be closely observed from a credit perspective.

BACKGROUND

Historically, India has been a major importer of edible oils with almost 30-
40% of its requirements being imported till 1980s. In 1986, the Government of India
established the Technology Mission on Oilseeds and Pulses (TMOP) in order to
enhance the production of oilseeds in the country. The TMOP launched special
initiatives on several critical fronts such as improvement of oilseed production and
processing technology; additional support to oilseed farmers and processors besides
enhanced customs duty on the import of edible oils. Consequently, there was a
significant increase in oilseeds area, production and yields until the late-1990s.
However, in order to fulfill its obligations towards various international trade
agreements and also meet the increasing demand supply deficits, India began to
reduce import restrictions on edible oils in the late 1990s; and it was gradually
brought under Open General License.
 This led to a significant slump in the domestic oil seeds market, as edible oil
prices fell sharply in line with the low international prices prevailing at that time.
Subsequently, the duty structure was modified so as to maintain a duty differential
between crude and refined varieties in order to protect the domestic industry.
Nevertheless, due to high import dependence, domestic edible oil prices remain
highly correlated to international edible oil price movement, and this has resulted in
volatility in the key credit metrics of rated edible oil companies. At the same time,
ICRA notes that edible oil companies with benefits of large-scale integrated
operations, multi-product offerings and recognizable branded presence in retail
markets have fared better as compared to small/medium-scale domestic oilseed
crushers.

KEY TRENDS & CREDIT IMPLICATIONS

Favorable demand outlook for edible oils; under penetrated market offers
significant growth

Potential:

The demand for edible oils in India has shown a compounded growth of
4.5%over the last 10 years and is estimated at 16.2 million tones for Oil Year(OY)
2010-11. India plays an important role in the global edible oil market, accounting for
approx. 10.2% share of consumption; 7% share of oilseed production; 5% share of
edible oil production and 13.6% share of world edible oil imports for OY2009-10. As
per USDA estimates, India is the third largest consumer of edible oils (after China and
the EU-27 countries); and will account for 11% of global edible oil demand and 16%
of global imports in OY 2010/11F.

Indias annual per capita consumption has shown a steadily increasing trend
from 4 kg in the 1970s to10.2 kg in the late 1990s to current levels of ~13.5 - 14 kg.
However, it still ranks well below the world average of around 24 kg (per capita
figures including consumption of bio-energy), thereby signifying the high growth
potential of the industry. Refer Charts 1 and 2 for trend in domestic demand and
percapita consumption of edible oils in India.
Industry remains vulnerable to the risk of narrowing import duty differential:

Beginning 2007-08, there has been a progressive reduction in import duties on

crude and refined edible oils. Most of these policy changes have been made in order
to comply with foreign trade agreements entered by India with other countries and
associations such as ASEAN apart from meeting shortfalls in domestic supplies and
curtailing inflation. In the last round of changes in duty structure (April 2008), the
duty on crude palm oil was made nil while that on refined palm oil was made 7.5%
(7.7% including education cess), with the net duty differential being maintained at
7.5% to protect the domestic industry3. Going forward, the reduction of import duty
differential remains a key regulatory risk for the industry.

Branded oil sales, although currently low in India, are expected to grow due to
renewed thrust by major players

The share of branded product sales has remained low with most low-income
consumers opting for given the presence of a large number of unorganised
participants in the Indian edible oil market, cheaper oils sold in loose form. As per
industry data, only about 31% of urban households and about 9% of rural households
consume branded edible oils, with the national average at 16%. Given the low
penetration of branded oils; increasing affluence levels and quality consciousness of
the Indian consumers, there is a significant growth potential in the branded segment.

Amongst the major edible oils consumed, palm oil is still largely traded as a
commodity and sold mostly in loose form, with packaged sales accounting only for
15%-20% of total sales. Sunflower and soya oil, on the other hand, have a high
proportion of packaged sales estimated at around 70% and 55% of total sales. The
major participants in the organised sector, namely, Ruchi Soya, Adani Wilmar
Limited (AWL) & Cargill India, have a strong presence in the branded segment, with
branded sales accounting for 38%, 58% and 60% of total edible oil sales of these
companies respectively. Moreover, a few mid-sized, regional edible oil companies
such as Mantora Oil Products Ltd, Modi Naturals and Tara Health Foods Ltd have
also been striving to establish their brands.
 From a credit perspective, ICRA considers high share of branded sales as a
strength, given the favourable outlook for growth; relatively high margins; stability of
off take and better pricing power as compared to the bulk market. Nonetheless, since
branding activities entail high upfront outlay while sales volumes may take time to
scale up, profitability margins of companies undertaking large-scale branding efforts
are likely to come under pressure during the interim gestation period.

Some trends of consolidation visible in the industry; large-scale integrated

players leading the capacity addition process through expansion as well as
acquisition/consolidation

The edible oil industry in India in the recent past has witnessed both organic as
well as inorganic expansion by some of the major players. AWL has added 1090 TPD
of installed capacity for refining and 5050 TPD of installed capacity for seed
processing during CY 2010-11 by acquiring five operational plants and undertaking
expansion at three out of its four existing plants. AWL has also additionally taken
over the operations of other Wilmar associates in India (like Acalmar Oils & Foods
Limited) so as to consolidate its pan-India presence. Sanwaria Agro Oils Limited has
added 1000 TPD crushing capacity in 2009 through acquisition of two plants. KS Oils
has set up new facilities at Kota, Ratlam and Guna, totaling 3400-3600 tpd, and
acquired a refining unit at Haldia. Further, some edible oil manufacturers have also
undertaken backward integration to strengthen their overall business model. KS Oils
has acquired 1,38,000 acres of palm plantations in Indonesia while Ruchi Soya has
access to 1,75,000 hectares of agricultural land with palm plantations across different
Indian states.

While ICRA considers this consolidation and capacity expansion trend as a

favourable development due to the benefits associated with large scale of operations,
on the flip side, the adverse impact of such activities on the capital structure;
profitability and return metrics of the concerned companies, particularly during the
gestation period, presents a downside risk.
PROJECTIONS:
India has becoming a sizable imported of Edible Oils since the mid-seventies.
Annual reports are the order of the million tones costing around Rs.600 cores in
foreign exchange.

It has been projected that the demand edible oils will increase at the minimum
annual rates of 3.5 percent. The growth rate in oil seeds production has been then one
annual a half percent per annum in the last decade avoidably import o Edible Oils will
be on the rise. At these assumed the levels, the annual import requirements will be
around 1.6 millions tones by 1990. If demand grows at the higher rate, say at 5
percent, the volume of exports required will be 2.1 million tones by the same year.

Imports in the range 1.6 to 2.1 million tones will mean India rice bringing 8.10
percent of the projected will export vegetable oil at the time. Such heavy dependence
on India to price backs mail. That would be compounded in years of bad harvest. The
foreign exchange drain on our exchange (according to World Bank estimates) could
be us $3 to 4 billion annually.

At the instance of the Government of India the National Dairy Development

Board (NDDB) has under taken the project for restructuring the pattern of production
and marketing of oil seeds and Edible Oils. The project has been designed to
integration production, procurement, processing and marketing of oil seeds and
vegetable oils through a two-tier co-operative structure oil seeds growers co-
operative societies at villages level and an oil seeds growers federation at the state
level.

A sum of Rs.150 cores required for project investment could come from
ploughing back the sale proceeds of 2.5 lakes tones of Edible Oils gifted to the NDDB
by the co-operative league USA [CLUSA] NDDB by co-operative union of Canada
(CVL). It is sought to involve 6 states Gujarat, Maharashtra, Tamilnadu, Madhya
Pradesh, Andhra Pradesh, and Orissa in implementing the project.
RICE BRAN OIL

NEW TECHNOLOGIES:

New technology in the US has proved that rice bran oil is effective in lowering
cholesterol. This has encouraged many rice millers in the US to stabilizer rice bran oil
extraction. Edible grade rice brand oil is called Heart Oil in Japan. As demand from
this oil is likely to broaden the world over and as India is the second largest producer
of rice after China, the union government decision to encourage productions of this oil
is welcomed in oil quarters. There is great scope, to introduce modern technology in
this predominant agro-industry.

The central Government has raised the export ceiling on de oiled rice brand
from 216,000 tones to 324,000 tones for the oil year 1989-90 to encourage the
domestic production of brain oil and the export of de oiled brand. This is a welcome
step at that time when the country is poised for it is highest level of edible imports.

It is now increasingly felt that there exists scope of arguments. The and the
availability of Edible Oils through the application of appropriate technology and the
other modernization programs in the oil-milling sector of particular interest is the vast
scope of producing Edible grade oil from rice brand.

According to study the United Nations Food and Agricultural Organization (FAO) IN
1985, India is the largest producer of the rice brand oil in the world. But compared to
Japan were 80 percent of all rice brands are attracted for oil, only one-fourth of all
potential bran is used for oil attraction in this country.

Till 1977-78, India produced about 80,000 tones of rice brand oil, but only of
industrial grade, 1978-79 only 2,500 tones of Edible Oils, could be produced out of
101,000 tones of rice bran oil. The situation steadily improved since than, thanks in
part to the efforts of the solvent extractors, Association of India (SEAI).
Out of 250,000 tones of the Edible grade. Production of RICE BRAN Oil is
likely to go up from 250,000 tones in 1986-87 to 310,000 tones in 1987-88. In 1988-
89, the production is likely to go up 325,000 tones although the potential, identified
by the SEAI is of 675,000 tones per annum.

The development of RICE BRAN oil extracts illustrates how by-product

utilization can help argument Edible Oil supplies in the county and generate economic
activities as well.

The thin brown layers between the husk and kernel in a grain of paddy are
called bran. These layers are baric barbarous in nature, indigestible, and refractory to
cooking. These bran layers are, therefore, indigestible, and refractory to cooking. This
bran layers are, therefore removed by a process called polishing. About 6-Kgs Bran
in usually obtained from polishing one quintal of rice.

The bulk of the oil of rice bran (50-80 percent of the total oil) comes into bran
during its polishing. In row rice, on an average, bran contains 12-15 percent oil, while
in per per boiled rice when oil inside the grain gets deposited on the outer layer
the oil content of bran is 18-20 percent consider its fact that half of rice productive in
India is par boiled, the average oil content of rice bran could realistically be assumed
to an average of about 50 percent.

The estimated production of paddy in the 1988-89 was 93 million tones.

Calculated at the modest rate of 5 percent bran on each quintal of paddy for seed
purpose, the potential output of oil comes to 610,000 tones out of bran of 4 million
tones.

Beginning in the 1970 under private suspires oil extraction from RICE BRAN
has been steadily on the increasing move ever the profession of Edible grade RICE
BRAN oil to the total has gone up from more 2,300 tones during 1977-78 to our
100,000 tones in 1977-78. The products of Edible Oil are closely related to the use of
this oil the Vanaspathi Industry.

In spite of fluctuations in demand the use of RICE BRAN oil is Vanaspathi

manufacturing has increased steadily over the year. With the recent decisions of the
Government to reduce the allocation of imported oils to the Vanaspathi Industry, it
has become more depend on indigenous oils and fats. A situation that is going to
further increase its demand for RICE BRAN oil in the coming year. Various
Government policies like export of de oiled bran exercise rebate on the use of RICE
BRAN oil in the Vanaspathi units, excise in hex an on hardened RICE BRAN oil for
use so, and the levy on rice mills have contributed, towards the growth of the sector.

The announcement of a cash compensatory support of 10 percent on the FOB

value of exported de oiled from cake for the 3 years 1986-87 to 1988-89 as further
boosted the processing of the rice bran.

Andhra Pradesh process the largest quantum of rice bran, followed, Punjab
and Uttar Pradesh. This is also due to the growth in the no of solvent extraction units.
In 1987, out of 4.86 millions tones of solvent extraction capacity, Andhra Pradesh had
1038 million tones, followed by Punjab with 86 tones Madhya Pradesh with 6 lakes
and Uttar Pradesh, with 5,80,000 tones. In 1985-86 Andhra Pradesh processed 39.5
percent of all rice bran produced accounting for 50.3 percent of total Edible grade
RICE BRAN oil 40.2 percent of total bran and produced 70 percent of total RICE
BRAN oil. 5 states Andhra Pradesh, Punjab, Uttar Pradesh, Karnataka and Haryana
produced 81 percent of all rice bran under produced 80.4 percent total RICE BRAN
oil.

As a result of the encouragement given from the use of indigenous rice bran
oil particularly by the Vanaspathi Industry the processing capacity of rice bran in the
country went up from a more 90 lakes tones to 3.4 million tones 1994 and now stands
at 80 million tones.

A number of suggestions have been put forward for augmenting the

production of RICE BRAN oil. These include:
1) Uniform systems of rice levy for huller and Sheller millers, so that huller
cant remain Wedded their traditional technology with perpetuates wastage and would
be compelled to modernize. This would also increase the availability of rice bran for
oil extraction.
2) An increase in the excise rebate on using rice bran oil in Vanaspathi
manufacturing as well as fro soaps and other industries.
3) Fiscal incentives for production of refined solvent extracted RICE BRAN
oil for direct use of cooking medium.
4) Permission for blending similar non-conventional oil with RICE BRAN oils
for direct consumption and
5) Minimizing the import of Plan oil so as to boost the price of indigenous oils
and provide an intensive to domestic producers.

Deposit all efforts to increase the production of RICE BRAN oil to major out
stacks, one in built in the very structure of rice milling in India and the other natural
of technology, stand in the way of the fuller development of RICE BRAN oil
processing. To take the farmer first, largest production no less than half of fresh rice
bran accepts the extraction process is together due to the problems of collection (and
stabilization of oil content). This is because no less than 80,000 hullers scatters all
over the country, mostly in the rice producing and consuming states, produce these
brans.

The technology constraints are closely related to the structural ones. Where as
has the husk content or rice bran in Japan is only 3 percent, in India it is more than 12
percent. As a result, the oil content of RICE BRAN in terms of value goes down.
Further, when oil extraction is done, the husk leaves a deep color in the oil, when
poses problems at the time of bleaching, another acute technological constraint arises
from the tendency of rice bran to get dehydrated as a result exposure to the
atmosphere as a result, oil contest goes down to a great extent, making it and
economical per oil extraction.

The colossal waste of paddy by production including rice bran is ingrained in

the structure of rice milling industry in India. The number of rice mills in India
increased from 46,000 in 1993 to 107,000 in 1983 and 1,17,000 in 1987. The number
of huller mills also increased from 1963 to 80,000 in 1983, before declaring to 78,300
in 1987.
 The large number of huller units is a serious drawback, not only because their
paddy out turns is low, but also because the bran obtained from huller mills is mixed
with husk and other foreign matter. Because of the low oil content, in the rank of rice
to nine percent, it becomes uneconomical to extract oil from this bran.

Holler mills are improved versions of hand panders mostly located in small
towns and in interior villages mostly located process 200 to 500 tones of paddy in a
year. These small hullers generally involve themselves in custom milling of paddy
with fixed charges, in cash and in king. They are excluded from paying the
compulsory levy imposed on larger mills, which under take commercial milling of
paddy.

The huller mills cater to the large number of landless laborers, sharecroppers
and poor peasants whose output is frequently at or below subsistence level. It has
been estimated that at treats a quarter of the paddy produced in the country is other
land pounded or processed through huller unit custom milling. Rice bran obtained out
of such paddy, estimate about a million tones, is neither pure enough not available in
large enough quantities to be economically collected. Therefore, this quantum of rice
bran is as good as not produced at all.

There are a number of reasons why huller mills thrive in states producing rice
bran oiled vice. First, huller mills are very cheap, and conveniently located in interior
areas. Second, the investment requirement being low, under utilization of huller mills
in the lean season doesnt put the owner out of business, because the can often
supplement it with other from and non from activities.

Third, the out turn of rice is not really so low when it comes to par boiled rice.
And last but not the least, is the reason using a huller mill rather than a modernized.
Sheller mill enables the miller to avoid mill point levy of rice and associated
problems.

Since about half of the paddy produced in India is rice bran oiled, the loss of
rice bran oil potential is colossal, particularly since the bran produced out of par
boiled rice contains three o five percent more oil that produced out of raw rice and the
oil the bran of par boiled relatively stable and doesnt degrade an account of free fatty
acid formation (FFA)

Till such time as the huller mills are modernized an intermediate short-run
solution could be applied. This is to use a mini-rice mill or even a modified huller in
place of traditional huller, so as to improve the outturn of rice as well as to detain
purer bran.

In order to achieve the largest of modernization, the Central Government runs

a huller subsidy scheme provides for 50 percent of the cost of install action to
improved rice milling equipment as subsidy.

For instance, electricity heated rice bran stabilizer of various power rating and
capacities (between 50 and 250 kg. Per hour) as well as steam heated bran stabilities
have been successfully field-tested. However, the tests of chemical stabilizers, which
are simple and convenient, are yet to yield sufficient results in the field.

The Government of India has decided to install some of these stabilities in

research centers like PPRC to demonstrate its advantages to demonstrate its
advantages to the millers.

In American mills, rice is rubbed with leather straps instead of by emery, not
to get polished rice but also to get good equality. Bran in Japan, rice mills have in
built stabilization units. In countries like Belgium Japan, West Germany and U.K the
technology of continuous extraction of oil from rice bran is used to achieve maximum
economic energy, labor and materials.

While most of these technologies are sophisticated, with a high degree of

efficiency of this country, because of the specific nature of the Indian rice milling
Industry, Indignation of these process, therefore is of the most importance. There are
two major stages in producing Edible grade oil fro rice bran. The first stage consists
of stabilization of bran to pressure the oil content. The second stage involves the
processing and refining of rice bran oil.
 A number of stabilization systems have been successfully developed in India
at the Central Food Technological Research Institute (CETRI) Mysore, The Paddy
Processing Research Center (PPRC) Thiruvarur (T.N), The Post harvest Technology
Center (PHTC) at the Indian Institute of Technology, Kharagpur. The stabilization
particularly the wet heat treatment and chemical stabilization particularly the wet heat
treatment and chemical stabilization using hydrochloric acid have opened up
enormous possibilities of producing low acid bran in the rice mills. The rice mills can
now store and accumulated the stabilized bran for selling it in to the solvent
extractions. Even a truckload can be accumulated and stored for the sake of greater
economic in transport. By the end of this century, paddy productions expected to
reach a level of 130 millions tones. Keeping a side 12.5 percent of production towards
seed, the potential bran production would come to 5.7 million tones, which in turn
would yield 8,50,000 tones of RICE BRAN oil. The exploit this huge potential what
is needed is the right perspective and a commitment towards realizing the rich
possibilities in event in the agricultural by products they have conventionally been
wasted.

COMPANY PROFILE

PROFILE OF FOODS FATS AND FERTILIZERS LIMITED

Foods fats and Fertilizers limited Tadepalligudem is a family owned

organization. It is well known as Foods & Fats but the West Godavari farmers call it
as a tawdu factory. This organization is professionally carrying the business activity
by Goenka family. The company was established in the year 1962. It is having
branches in Chennai, Mumbai, Kakinada, Hyderabad, Kolkata and Baroda.

Historical background of foods Fats and Fertilizers Limited were conceived in

1959 born in 1960 and were on its beet by 1962. Today Foods Fats and Fertilizers
LTD has matured into a conglomerate of its industrial units spread over 40 acres
contently buzzing with activity and providing employment to over 800 persons.

The wheel of fortune has turned a full circle for Mr. B.K.Goenka the architect
of FFF LTD, born and bred in Burma. The Goenka family established and respected
in Industry and Trade. The rice bran from Mr. Goenkas mill sought as a mal feed and
wrapping papers used for sampling could this oil extracted.

These questions have to wait because in 1942, the Japanese invaded Burma
and Mr. Goenka has to abandon his business and return to India. Being an optimist is
transformed the adversity into opportunity by his grit and after a brief spell in his
native land in Rajasthan, his restless enterprising zeal brought Mr. Goenka to Chennai
in 1943. Where he is with his brother export of handloom fabrics in due course, he
established a textile business. In 1959, Mr. Goenka read on article by Dr. Raghunath
Prasad of central food technological institution of Mysore that oil could be extracted
from bran using alcohol as a catalyst.

Simultaneously his brother in Rangoon informed him of plans being setup with
Japanese and German technologists for extracting oil from rice bran Mr. Goenka held
deliberation with Dr. Raghunathprasad and visited Burma with him to study the
relevant technology better, he was in Japan to study in Europe to study the process of
Hurgi of Germany and Dr. smith of Belgium.

LOCATION:
 The Company is a conglomerate of various industrial units spread over 40
acres of land, with a built up area of apex. 4 lack sft. Located in the vicinity of
Tadepalligudem Mandal & Municipality in West Godavari District of Andhra
Pradesh.

DEPARTMENTS IN FFF:-
Personnel department
Production department
Marketing department
Accounts department
Research & development
MANAGEMENT:

The manufacturing activities of the company are managed by Sri O.P.Goenka

and Sri Sushil Goenka at the helm of affairs as whole time Directors at factory,
supported by team of highly educated and committed professional having wide range
of experience in the field of oil derivatives and allied fields.
1. Names of Directors:
Sri B.K.Goenka -Managing Director
Sri G.S.Goenka -Whole Time Director
Sri S.B.Goenka -Whole Time Director
Sri O.P.Goenka -Whole Time Director
Sri Bharat Goenka - Whole Time Director
Sri Sitarama Goenka -Whole Time Director
Sri Sushil Goenka -Whole Time Director
Sri Vianod kumar saraogi -Director
Sri Shiv Kumar jatia -Director
Sri Anand choradi -Director

2. Particulars of present collaboration if any, No Collaboration (name and

address, nature of collaboration, period of collaboration etc.,)

3. Name of chief Executive Sri B.K. Goenka

CAPITAL STRUCTURE:-
Finance is very much needed to any business so finance is as heart to the
business the company was incorporated kin the year 1960, the original share capital
subscribed is Rs. 5 lakhs. The company is a closely held industrial houses with no
public investment in the form of equity share capital. Following is the capital structure
as on 31.03.06.

Share Capital: (Including Reserves) 41.64 Crs.

Loaned funds: (Secured Loans) 71.49 Crs.
(Unsecured Loans) 17.51 Crs.
TOTAL 130.64 Crs

BANKERS:-

STATE BANK OF INDIA [CHENNAI]

STATE BANK OF HYDERABAD [CHENNAI]
ANDHRA BANK [TADEPALLIDUDEM]
CENTREL BANK OF INDIA [CHENNAI]
INDUSTRIAL DEVELOPMENT BANK OF INDIA LTD [CHENNAI]
KARUR VYSYA BANK LTD [TADEPALLIGUDEM]

BRANCHES:-

MUMBAI
HYDERABAD
KAKINADA
NEW DELHI
 Food fats & fertilizers LTD is the flagship company of the FFF group. Today
the FFF group has matured into a conglomerate of 20 industrial units spread over 45
acres constantly buzzing with activity and providing employment to over 1000
people.
Today the product range of FFF LTD includes oils of ricebran, soybean,
sunflower, groundnut, sesame, palm, salseed, mangokernel, acidoils, wax, gums,
deoiled meals {extractions}, crude distilled and hydrogenated fat for industrial use,
vanaspati, bakery, shortening; margarine, bakery fats, specialty fats for manufacturing
chocolate confectionery and cosmetics, canned fruits and vegetables natural colors for
use in food and feed industry, oleo resins and herbal extracts. The company also under
takes fabrication and installation of turnkey projects for processing of vagetabel oils
and their derivatives.

MULTIFARIOUS PROGRESS:-

Starting with a solvent extraction plant in 1962 units was continuously added
year after year to form a wide spectrum of products. Current manufacturing activities
comprise of-

Solvent Extraction Plant 1 [lurgi, Germany]

Solvent Extraction Plant 2 [desmet, Belgium/India]
Solvent Extraction Plant 3 [fabricated and installed by engineering division of FFF
group]

Solvent Extraction plant 4 (fabricated and installed by oilex India and

engineering division of FFF group)

The above four extraction plants provide versatility of

operation in processing different oil seeds/oil cakes at the same time and hence are
highly advantageous in marketing. The plants have facilities to process a wide variety
of oil seeds/oil cakes like rice barn, soybean, sunflower, groundnut, rapeseed, sesame,
mango, sal, Niger, etc. continuous upgradation of manufacturing process through in
house and world wide research is our hallmark.

Refiner: - [sharpels USA and engineering division FFF group]

High quality refining of a variety of vegetabel oils.

Fat Splitting Plant: - [wurster & Sanger USA and engineering division of
FFF group]

High pressure splitting of oil into fatty acids and sweet water.
Fatty Acid Distillation Plant: - [luwa, Switzerland]
High quality distillation of crude fatty acids obtained from the splitting plant.
Glycerin plant: - [wurster & Sanger USA] Processing of sweet water obtained from
fat splitting plant into various grades of refined glycerin.
Stearic acid plant:- [engineering of FFF group]
Hydrogenation of fatty acids into stearic acid flakes.
Hydrogenation plant:- [Bernardino Italy and engineering division of FFF group]
Hydrogenation of fats and fatty acids for industrial use.
Physical refinery:- [yoshinoi technology and engineering division of FFF group]
Refining of high free fatty acid oils by seam distillation.
Canning division:- [fabrication and installation by engineering division of FFF group]
Processing of fruits into pulp juice and bars.
Vanaspati-shortening- margarine division:- [fabrication and installed by engineering
division of FFF group]

Production of vanaspati shortening high quality bakery fats and margarine from
refined oils
Fractionation plant:- This division produces high quality oleins and stearines
from various edible fats for use in manufacture of chocolate confectionery and
cosmetics. Leading manufacturers in this field of activity all over the world are our
customers.
Turnkey engineering division:- In collaboration with yoshinoi Seisakusho co
LTD Japan who have done pioneering work in developing process and technical
know-how for refining high FFA rice bran oil, our engineering division has installed
and commissioned five plants of a total project cost of RS. 170 million in south India.
India is the second largest producer of rice with a large potential of crude rice bran oil
to be processed and turned into a fine cooking medium t satisfy the requirements o fan
immense Indian market. FFF group engineering division is equipped t set up any
vegetable oil and derivative processing project.

Oil palm project:- Plantation of oil palm to progressively cover 25000 hectares in
Andhra Pradesh and Karnataka the southern states of India is sponsored by us.

High yielding variety of sprouted seeds from India and abroad is grown in our
nursery and seedlings are regularly supplied for planting to the farmers to cover the
targeted area. Under comprehensive extension services provided by us the maturing of
plantation is expected to be ideal mean while the group has set u plant and machinery
along with suitable infrastructure t crush the palm fruits and kernels into oil and
process the same into refined oils oleins stearines and a host of other products. Total
project outlay is estimated to be df1 billion Indian rupees.

International trading:- Besides the export of the manufactured products

with large warehouse for dry cargo bulk storage installation for liquid cargo at the
ports, required infrastructure at our command and international trading experience of
over 40 years the FFF group has set u high standards and achieved substantial growth
in international trading of commodities like rice, edible oils, Industrial fats, maize,
tapioca, hps groundnut kernels dyes and chemicals.

The group has been a pioneer in introducing various Indian products

manufactured by us to new international markets and has won awards for our
performance. However, a research and development new product is being done on a
continuous basis for enriching the international trading in both quality and volumes.

Search And Research:- Research and development is the pivot of our

activities and has made us to stand in good steady continuous up gradation of
production process with the help of a well-equipped R&D laboratory at Hyderabad
and diversification in new research based projects in our corporation. Culture leading
us to a steady upward movement.

Serve To Society:- The FFF group is involved in a large way in social service
activities the Goenka family trust runs Arts and Science college for women in Andhra
Pradesh and a Higher Secondary School in Rajasthan. It has a established a boys
college in Andhra Pradesh, a Higher Secondary School in Myanmar and a multistory
building in Tamilnadu, providing accommodation to Tourists and Social functions
with a library and reading room. In addition to the above projects the group has also
being regularly contributing to several educational, medical and social service
institutions.

ETHICS:-

The FFF group is proud of its inherent values, which are, persuade relentlessly to
drive it towards sustainable growth. These values are common language that binds all
its people.

The FFF group stands for:-

 An intrinsic commitment to its people.

A culture of trust, mutual respect, opens communication and transparency of

action.

Commitment to welfare-driven initiatives that make a qualitative difference to

the lives of marginalized people.

An environment-conscious group through its eco-friendly units.

Indian values with a global mind set.

FFF groups manufacture a variety of products including vanaspati granite

readymade garments computer software etc. we have listed a few of our products
here.

TANDUL:- Refined rice bran oil

A multi purpose-cooking medium judged as the safest cooking oil in the world.
Contains tocopherol and oryzanol that reduce cholesterol. It is expensively used in
Japan an evidence for the Japanese larger living.
Packing 15kg/1litre flex pouch.

SUN DELITE:- Refined sunflower oil.

Imported from Argentina and refined in the most modern refinery contains
high puff. It lowers cholesterol.. A general purpose cooking oil.
Packing, 15Kg tin/15litre tin/5litre jar/1lite flex pouch.

SURABHI:- Vanaspati
An economical vegetable fat for small-scale bakeries. Multi utility fat widely used all
over the country.
Packing, 15Kg bag-in-bix/15Kg tin/15Kg jar.

Bakers Pet:- Bakery shortening.

Multipurpose bakery shortening creamy white and bland in taste. A blend of specially
formulated and textured hydrogenated fats to provide excellent plasticity. The largest
selling brand in south India for manufacturing cakes beads biscuits filling cream
cookies also used for shallow and deep-frying. Packing; 15Kg bag-in-box/15Kg
tin/15Kg jar.

FFF:-Vanaspati
100% granulated vegetabel fat. A favorite of south Indian housewives for cooking and
deep-frying. A must for all festival cooking and sweet preparations. Packing, 15Kg
tin/15 liter tin/1lite flex pouch/500,200 and 100 ml flex pouch.

MELLO:- Margarine.
Margarine made from the choicest of refined oils for bakery industries recommended
by the best bakers in the country for cake cream pastry biscuits icing and cookies.
Ideal because it is not colored and not flavored.
Packing; 15Kg bags-in-box.

BISCREME:- Aerated bakery shortening.

Uniform dispersion of nitrogen gas in the fat produces a superior bakery shortening
[contains 10% v/wt nitrogen] specially used for filling cream and icing. Best for
premium biscuits and cookies.
PALM DELITE:- Imported E&D palmolein.
A refined bleached and deodorized palm oleins imported from Malaysia, Economical
oil supplied allover the country directly from our ports on the east and west.
Packing, 15Kg tin/1 liter flex pouch/500 ml flex pouch.

BAKERS DELITE:- Puff pastry fat, An in house development to produce a smooth

fat designed of ruse in puff pastry products. A specialty fat, which gives a flaky, puff
with a good life. Packing; 15Kg bag-in-box.

GOLDEN SPREAD:- Margarine for puffs

Specially formulated product for puffs. There is already a great demand for these
margarine for its superior quality.
Packing; 15Kg bag-in-box.
BAHAAR:- Mango bar
A papad made from mango pulp favorite mouth tingler for the young and the old.
Packing; 20gms sachet.

FFF GLYCERINE:- Refined glycerin made from sweet water obtained in fat
splitting.
Grades available---industrial white-IW
Chemically pure-CP
Indian pharmacopeia-IP
Packing; 250kg plastic drums.

TRIFFA:- Fatty acids/stearic acids.

Standard and hardened quality distilled fatty acids made from rice bran palm
coconut sunflower rapeseed Soya and linseed oil. Custom made formulations
available on order. Raw material for cosmetic premium soap lubricants chemical
industries rubber and PVC formulations.
Packing, 110Kg in plastic carboys for liquids 50Kg woven hdpe lined bags for
hardened quality in flake form.

OTHERS:- Crude palm, oil-bulk.

Refined palms oil-bulk; contract farming by farmers. We provide imported seedlings
after acclimatizing know how for growing is provided to the farmers. Specialty fats;

Refined kokum fat [garcenia]

Sal stearines [shorea Robusta]

Produced from forest sources. An important nontimber forest produces.

Mango stearines [magnifier India]

Shea stearine.
Cosmetic ingredients --- mango oleins
Shea oleins.
Refined rice bran oil wax:- Used in various industries like paper coating
candles water proofing floor shoe and furniture polish cosmetics carbon paper
printing inks fruit and vegetable coatings and pharmaceuticals. Rice barn oil wax
may substitute wax like carnauba.

Exporters of :- Indian rice [non-basmati]

De oiled rice barn
De oiled saled meal- pellets non-dusty.

Importers of:-
Palm oil and its fractions.
Crude sunflower oil
Crude soybean oil
Have sea-worthy barges for unloading from ships when anchored near shallow
water ports. Presence in all minor ports in India. West coast Kochi and Mangalore
east coast gopalpur Kakinaka and nagapattinam

Turnkey project Supplier for double solvent refining of high FFA oils up to 20%
such as Rice bran oil solvent extracted high FFA oils. The refined oil obtained is of
excellent quality as per food standards.
GARMENT EXPORTERS:- We export woven garments to United States of America,
United kingdom Canada Germany Japan Chile France and Australia.

Our customer span ranges from chain stores mail order boutiques and wholesalers
order sizes vary from 1000 to 1,00,000 units.

GRNITE EXPORTERS:- We initially started exporting rough blocks and have

expanded by exporting cut-to-size slabs and random slabs. Later we shifted towards
manufacturing of finished products like monument artifact items and fireplaces.

SOFTWARE DEVELOPMENT:- Goenka InfoTech limited provides the full range

of IT solutions and services in the following segments.

1. Conformance services.
2. Web gardening.
3. Software maintenance and web enabling legacy applications.
4. IT applications in power sector.
5. Smart card based solutions.
The 500 square meters of software development center at Hyderabad has been
designed to provide the state of art infrastructure for software professionals.

NEW PROJECTS:

Apart from horizontal expansion, We have also expanded out operations

vertically. It may be noted that the company had implemented several projects during
the last 5 years which includes 6MW co-generation industrial waste based power
plant, Bakery shortening Plant at Colombo, Srilanka (Joint Venture).

In-house R & D and Technology Base

 As a pioneer in Edible industry. We have over the years built up a strong in-
house R & D and technology base. Sri Om Prakash Goenka, who is a Chemical
Engineer, with 40 years of experience in the line, is one of the leading oil
technologists of the company and he is the back bone for the implementation of
various projects in the company.

We had a technical collaboration agreement with Yoshino Scishakusho

Co.Ltd., Japan, who are the pioneers in developing the technology and process know
how for refining Rice bran Oil with high FFA (Free Fatty Acid) and making it
suitable for edible use. Out Engineering division has designed, fabricated, installed
and commissioned successfully on turn-key basis.5 Edible Oil Refinery Plant at a
total project cost of Rs.170 million, based on the above technology.

The potential of a seed is not recognised, until one fine day we see it standing
strong, majestic and gigantic as a tree So true. Its the tree that captures our
attention and not the seed from which it sprouts!

Yet, we will fail not to recall the modest start of the 3F group with Foods Fats &
Fertilisers Ltd. Its a saga of 45 years and the Vision of Mr. B.K Goenka (Chairman
and Managing Director) that has made the 3F group a conglomerate of 20 diversified
industrial units.

Starting with edible oil extraction and refining at Food Fats and Fertilisers Ltd we
branched out into multifarious vistas vis-a- vis oil palm cultivation, manufacture of
edible oils and its by-products, bakery shortenings and margarine, specialty fats,
commodity trading, garments, power, etc. Notably, we have emerged as one of the
largest Bakery fat & Margarine manufacturers in India and World leaders in
Specialty fats ( CBS ) Technology.

With the committed team enterprise of over 1000 employees, the 3F group steered
past the Indian landscape to expand overseas. Our network and goodwill has been
vibrantly growing in countries abroad eversince.
Other products manufactured at the facility are bakery shortenings, fatty acids and
tailor made solvent fractionated specialty fats. These products find use in textile, soap,
Foods Fats & Fertilisers Ltd was conceived in 1959, born in 1960 and was on its feet
by 1962.

Today Foods Fats & Fertilisers Ltd was matured into a conglomerate of 20 industrial
units spread over 40 acres constantly bussing with activity and providing employment
to over 1000 persons .

Our product range today includes oils of rice bran, soyabean, sunflower, groundnut ,
sesame, palm, sal seed, mango kemel, acid oils, wax, gums, deoiled meals
(extractions), crude distilled and hydrogenated fatty acids, oil tractions, stearic acids,
glycerine, hydrogenated fats for industrial use, vanaspati / shortening, margarine,
canned fruits, vegetables, bakery fats, speciality fats for manufacturing chocolate,
confectionery and cosmetics, natural colours for use in food and feed industry, oleo
resins and herbal extracts, fabrication and installation of turnkey projects for
processing of vegetable oils and their derivatives.

Research and development is the pivot of our activities and has made us to
stand in good stead. Continuous upgradation processes and diversification in new
research based projects is our Corporate culture leading us to steady upward
movement.

FFF has been a major player in the 3F Group of industries for almost half a
century. Continued progress in the edible oil & fats field heralded the setting up of yet
another subsidiary -the Asia Pacific Commodities Limited (APCL) in March 2002.

Its facilities comprises; a modern 250 TPD Desmet physical refinement plant,
100 TPD interesterfication plant, fatty acid distillation plant, dry fractionation plant
and state-of-art solvent fractionation plant. These fac cosmetics, candle, bakery,
confectionery, food and chemical industries.

The APCL project was implemented under Target 2000 Scheme of Government
of Andhra Pradesh and hence is eligible for sales tax exemption/deferment. APCL has
clients based all over India & overseas.

Modesty Garments is one of those rare organizations to which success has come
naturally, since its incorporation.

Success in this highly competitive field has been the result of a devotion to
quality, commitment to delivery schedules and a desire to always perform better.
Today these qualities are recognized and appreciated by importers of woven
garments. The world sees Modesty as an indispensable partner in their business,
someone who understands their needs and is able to translate that understanding into
concreteterms.

Since its inception in 1988, Modesty has grown to a turnover of US$ 12 million,
producing 4.5 million garments.
 New Delhi , India 's capital is the hub of Modesty's operation. In addition to
manufacturing facilities, most of our support departments , shipping quality control,
designing, sampling are also here.

Modesty Garments has a team of 1500 dedicated employees who are all a part of
oursuccess.

We ensure that our total fabric is checked before it goes into production. Each
and every fabric is tested to Buyer's requirements for shrinkage and colour fastness.

Modesty Garments exports woven garments to United States of America ,

United Kingdom , France and Australia . Modesty's customer span range from chain
stores, mail order, boutiques and wholesalers. Order sizes vary from 1,000 to 1,00,000
units. All receive the same care and attention

The company was established in 1990. It initially started exporting rough

blocks to countries like Japan and Australia. It then expanded its business by
exporting cut-to-size slabs and random slabs to various countries like Indonesia,
Dubai, Singapore, Saudi Arabia & Newzealand. The cut-to-size slabs which were
exported to Dubai were used in the construction of famous bank called the 'Bank of
Oman' and the ones which were exported to Indonesia were used in the construction
of non-alignment building in Indonesia.

Later the company shifted its way to manufacture of finished products like
monuments, artifacts items and fire places to countries like Belgium, Germany,
France, Holland, Scotland, Netherland, UnitedKingdom etc.

Monuments:
 Dutch model, Irish model, Belgian model, French model, English model,
German model, Leaves, Books with leaves, Heart, Doppel Heart, etc.
Artefact Items:
Flower vases, Lanterns, Urns, Bowls, Birdbaths, Fountains, Single Pillar,
Three piece pillar, Ashtray, Balls( 10cms to 60cms) and all other round items.
Fire Places:
These are made in all designs and colours.

All these products are exported in Indian materials like Paradisom, Himalayan
blue, Vizag blue, Kerala green, Ruby red, Kashmir white, Wiscon white, Absolute
black, Juprana and Black galaxy.

Recently the company has taken up a running factory where it is

manufacturing all monuments and airfacts items. Apart from Indian materials it
started processing foreign materials like Nero Impala from South Africa and Blue perl
from Norway and re-exporting the same to European countries.

The company has also got a set of skilled workers and designers in both
fields of monuments and round items, which facilitates it to manufacture any product
when provided with appropriate drawings or designs.

VIATON INFRASTRUCTURES PVT LTD

VIATON ENERGY LTD

The above companies are promoted by the 3F group and Creative group.

Power:
Power is a critical driver of economic growth and industrial development. India
is facing a huge gap between demand and supply year on year. The company aims to
set up power projects based on an entire gamut of generation / transmission/
distribution of power. The company has been alloted licenses for power projects
based on bio mass in Chattisgarh, Maharashtra and Punjab.

Minor Airports/Ports/Contractual Jobs:

The Company foresees increasing infrastructure requirement in India, keeping in view

of the huge development phase happening - aims to build in infrastructure facilities in
the above area, in more specifically, the tier 2 and tier 3 locations.
 3F IN OVERSEAS

CEYLON SPECIALIOTY FATS

Ceylon Specialty Fats Pvt.Ltd (CSF) is a subsidiary of Foods Fats &

Fertilisers Ltd.
CSF has been established to take advantage of Sri Lankas strategic
geographic location as an international business center between China, the Far East
and countries east of the Suez. Under the Indo Sri Lankan Free Trade Agreement,
CSF will be able to export its manufactured products into India duty free.

The factory is situated in the prestigious export-processing zone in

Biyagama, located about 35 kms from Colombo. The factory is modeled on the latest
technology and is largely fabricated from imported machinery.

CSF is equipped to produce 100 TPD of bakery shortenings and margarine

and 30 TPD of Specialty Fats. Unlike hydrogenation, which produces high trans fatty
acids, which are detrimental to health, CSF produces trans-free hard fats using the
interesterification Technology.

Ceylon Specialty Fats will focus on making specialty fats for the bakery
and confectionery industries. These specialty fats will be natural ingredients to
chocolates, ice cream, pastries, biscuits, breads, and many other applications. The
modern factory will also be able to produce table and industrial margarine that has a
growing market both in Sri Lanka and abroad.
3F AFRICA

The 3F group pushes on into the remote and less accessed countries of the world
because it sees a mutual opportunity for growth and development even in far removed
nations.
3F Africa has operations in various West African countries such as Ghana, Burkina
Faso, Benin, Mali, Togo, Nigeria and Ivorycoast. 3F Africa is a wholly owned
subsidiary of Foods Fats and Fertilisers Ltd., India. The company is involved in
procurement and trading of various commodities.

The commercial and economic activities of the company have extended beyond the
boundaries with various procurement centres and warehouses spread all over which
are well netted with efficient transport conduit.

Our in-house clearing and forwarding center at the port ensures swift and efficient
foreign trade. The African experience has given 3F group, the joy of co-operation
among developing nation.

PARKER INTERNATIONAL

SMALL BUT POWERFUL

The 3F group has always believed in the above adage. This prompted us to set up
Parker International at Singapore - one of the worlds most prosperous countries with
strong international trading links.
Parker International caters to the groups trading activities of Agro commodities.
SPECIALITY FATS

Celebrations are never complete without confectioneries. And confectioneries

are incomplete without a kiss of Speciality Fats. The 3F Group has been a silent
partner in sweet moments. Obscure, hidden and yet adding flavor you have relished.

Over 30 years starting from 1975 we have grown hand in hand with the
confectionery industry providing her with exotic fats extracted from Shea nuts, Sal
seeds, Kokum kernel, Mango kernel and Illipe. These products have been tailor-made
to suit the needs of various confectioners. FFF Ltd is today one of the largest sources
of specialty fats in the world.

FFF Ltd. pioneered in India, the process of both dry fractionation and solvent
fractionation through in-house development of the process technology. We
manufacture world-class Sal, Mango & Shea stearine using modern solvent
fractionation techniques. We also have the capability to produce Illipe & kokum fats
and high quality Palm Mid Fraction (IV-33). These products find extensive
application in the manufacture of cocoa butter equivalents (CBE), which are used in
the chocolate industry. Tailor-made CBEs have functional properties similar to cocoa
butter and are far more economical. In combination with cocoa butter it standardizes
product quality and enhances product shelf life. This is made possible by use of
special types of CBE's known as Cocoa Butter Improvers (CBI) which raise the
melting point of chocolate for better storage stability in tropical climates. The
Speciality Fats Division has always observed stringent quality assurance systems in
its processes.

FFF is today, one of the largest sources of speciality fats in the world.
Testimony to mark our quality is the continued patronage we enjoy from large
manufacturers of Cocoa Butter Equivalents from Japan, Malaysia, Italy, Holland, UK
& the Scandinavian countries.
OIL PALMS
The Oil Palm Division (OPD) has successfully set up a complete cycle of
operation(s) and moved from the POC (Proof of Concept) stage to Ramp up stage in a
short period of time.

In Andhra Pradesh

Operations in 9 Mandals of West Godavari Dist./4 Mandals of Vizianagaram

District with a potential of 40250 ha.

Nurseries in West Godavari and Vizianagaram Districts

12,500 ha area under Oil Palm

Multiple collection centres

10-20 T/hr Palm Oil Mill ( Including Production of Palm Kernel Oil)
Refinery / Fractionation Unit for further processing of CPO&CPKO
7.5 Mw power plant based on Palm waste as its fuel

In Karnataka

Operations in 3 district of Koppal,Gadag and Raichur with a potential of 30,000 ha.

One nursery in Koppal District
2,500 ha area under oil palm.
Multiple collection centres
5 -10 MT FFB/ Hour Palm Oil Mill coming up in Koppal District.

In Mizoram
Operations in 3 district of Aizwal,Serchhip and Saiha with a potential of 20,000 ha.
One nursery in Serchhip District
In its first year of area expansion covered 500 ha under oil palm
In Gujarat
Operations in 2 distrcts of Surat and Tapi with a potential of 18,400 ha.
One nursery in Tapi District
In its first year of area expansion covered 500 ha under oil palm

In Orissa
Operations in 3 distrcts of Dhenkanal and Jajpur with a potential of 12,000 ha.
One nursery in Dhenkanal District
In its first year of area expansion covered 500 ha under oil palm

In Tamilnadu
Government of Tamilnadu has allotted Toothukudi district for Oil Palm
Development during
2008. Arrangements are being made for establishing Nursery and start related
operations

Farmers our partners to Success

We look at farmers as our partners to success and we promise

To give them the best quality sapling / best extension practices

To ensure quality plantation / best yield at field level

To provide training to farmers

To look at intercrop in aged plantation increased income to farmers

To be a support to the farmer in his other needs.

What the Future has in Store

A major ramp up in acquiring a very good area coverage in the subsequent year(s)
Areas of Operation

OPD AP
Nursery - Dubacherla Village, West Godavari district.
Mill/Office - Yernagudem village, West Godavari district

OPD KARNATAKA
Nursery - Kinnal Village, Koppal District.
Office - Koppal Town, Koppal District.

OPD MIZORAM
Nursery - Mat Valley, Serchiip District
Office - Serchhip Town, Serchhip district.

OPD GUJARAT
Nursery - Bhatpur Village, Surat district.
Office - Vyara taluk, Surat district.

OPD ORISSA
Nursery - Krusnakumarpur Khamar Village, Dhenkanal district.
Office - Dhenkanal town, Dhenkanal district
Oil Palm division Images

OILS AND FATS

The food we eat is an expression of love. We as the 3F group try to express this
love in different ways. We are with you, right through the day, unnoticed and yet
keeping you in the finest of spirits, body and mind.

Yes, we are with you as edible oils and fats adding flavour to all that you
savour. Be it homemade edibles or bakery products, we add taste to every thing you
smack into.

Tandul, Palmdelite, Royaldelite, Soyadelite, 3F Sunflower oil and Surabhi are

few of the names dedicated to ensure a salubrious and healthy meal. Hygiene and
quality are what we are pledged to and this has made our edible oils a household name
for over 40 years.
Our range of Bakery shortenings, Margarine and Vanaspati are the delight of
bakers and confectioners.
 Bakerspet and Bakers Delight for crisp, flaky puffs and croissants. Mello
Margarine, Mello Cream, Golden Spread for soft and fluffy pastries that melt in your
mouth. 3F Vanaspati, Trim and Surabhi for the much relished Indian sweets. All
these, keeping at the fore front of our mind your health and nutrition balance.

For more details on our

Edible oils
Bakery Fats

OTHER PRODUCTS

There is never a product with no use. We put this philosophy to use by

furthering on our residual products. We call it the By-products division where every
remnant of a processing or extraction function finds an alternative application.

Fatty Acids, Glycerine, Stearic Acid and RB wax are our principal by-products
from extraction and refining of Rice bran, Vegetable, Palm and other oils.

Each of these products is an essential ingredient of varied industries such as the

Textile, Pharma, Cosmetics, Plastic, Rubber, Cement, Explosive, Paints, Coolants and
many others.

Beside we also manufacture these products based on customer specification to

suit their needs
CONSUMER PRODUCTS

Yet another division dedicated to marketing and trade of consumer goods is the
Consumer Product Division. We seek to make a foray into the retail segment by
capitalizing on the groups existent marketing network.

CPD had tied up with Coca-Cola, the worlds largest brand in Beverages
segment. It will be marketing the companys products, in the city of Chennai
(Tamil Nadu, India) to start with and will gradually expand to other cities. The
division has complete warehousing facilities and logistical set up to support
the venture.
We have also established strategic distribution alliance with the Global major
Hyundai Electronics for consumer durable products such as Air conditioners,
Refrigerators and other electronic goods.
The division is in the process of launching Premium quality branded
Pistachios in the Indian market. These pistachios are picked from the best
farms in Iran and sauted with saffron and condiments. Low cholesterol and
added health properties have made the pistachios an appetising treat amongst
royal Arab families

The division plans to introduce a melange of brands and products into the market in
the near future.

NATURAL PRODUCTS

When Mother Nature smiles, she expresses herself as 'INDIA.'-the country that is
blessed with nature's bounty of flora and fauna. From time immemorial explorers
have visited our country in search of herbs with healing properties. And India has
always shared with the world all that she has. We as a group continue this tradition of
sharing, through our Natural Products Division.
 Our focus has been medicinal plants and their therapeutic values. These herbs
are procured from some of the most far removed locales of the country, which serve
as their natural habitat. Herbal extracts and bio-nutrients are then obtained from these
plants. This is done under stringent pharmaceutical quality standards.

Our systematized procedure involves:

Procuring medicinal herbs.

Extracting active ingredients from these verdure.
Purifying and concentrating the active ingredients.
Standardizing the ingredients.
Analysing and certifying each production batch using modern
scientific equipment.
Clinical study and documentation of the efficacy of these products.
Making available tested herbal extracts for healing and medical
purposes.

We at FFF are privileged to be engaged in this highly specialized activity, giving to

the world the benefit of India's bio-diversity in medicinal plants.

The ancient is forever young.....

Because it's always rediscovered in infinite ways...

RESEARCH AND DEVELOPMENT

Research & Development is the pivot of our activities and has helped us stand in good
stead. It is due to the continuous development activities that we have been able to
introduce, products that have been well accepted both in domestic & international
markets. Some of these products such as exotic fats, rice bran wax & solansol have
gained global recognition. We have recently started search & research on herbal
extracts.
Whilst being in the commodity business, it has been our tradition to charter our
course by continuous value addition. At FFF, we have a penchant to create high value
products from waste or low value by products.
 In the normal course also, through our research & development, we try to
improve the quality of our existing products such as bakery shortenings &
margarines.

ENGINEERING

Our quest for new products had led us to the formation of this division. A small
workshop set up to manufacture pilot plants for our product development, has
culminated into a well equipped, self-sufficient engineering division.

This division besides having supplied five miscella refining projects, caters to the
continuous internal requirement of the 3F Group. Besides cost Division enables the
toideas into plant-scale reality. An embryo in the form of a laboratory trial is
converted into a mammoth manufacturing facility by the expertise of this division.

We start small, yet achieve big.... WE achieve the unthinkable!

 CAPITAL BUDGETING
Capital budgeting (or investment appraisal) is the planning process used to
determine whether an organization's long term investments such as new machinery,
replacement machinery, new plants, new products, and research development projects
are worth pursuing. It is budget for majorcapital, or investment, expenditures.
Many formal methods are used in capital budgeting, including the techniques such as

Accounting rate of return

Payback period

Net present value

Profitability index

Internal rate of return

Modified internal rate of return

Equivalent annuity

Real options valuation

These methods use the incremental cash flows from each potential investment,
or project. Techniques based on accounting earnings and accounting rules are
sometimes used - though economists consider this to be improper - such as
the accounting rate of return, and "return on investment." Simplified and hybrid
methods are used as well, such as payback period anddiscounted payback period.
NET PRESENT VALUE

In finance, the net present value (NPV) or net present worth (NPW) of
a time series of cash flows, both incoming and outgoing, is defined as the sum of
the present values (PVs) of the individual cash flows of the same entity.

In the case when all future cash flows are incoming (such as coupons and
principal of a bond) and the only outflow of cash is the purchase price, the NPV is
simply the PV of future cash flows minus the purchase price (which is its own PV).
NPV is a central tool indiscounted cash flow (DCF) analysis and is a standard method
for using the time value of money to appraise long-term projects. Used for capital
budgeting and widely used throughout economics, finance, and accounting, it
measures the excess or shortfall of cash flows, in present value terms, once financing
charges are met.

NPV can be described as the difference amount between the sums of

discounted: cash inflows and cash outflows. It compares the present value of money
today to the present value of money in future, taking inflation and returns into account

The NPV of a sequence of cash flows takes as input the cash flows and a
discount rate or discount curve and outputs a price; the converse process in DCF
analysis taking a sequence of cash flows and a price as input and inferring as
output a discount rate (the discount rate which would yield the given price as NPV)
is called the yield and is more widely used in bond trading.
 USE IN DECISION MAKING

NPV is an indicator of how much value an investment or project adds to the

firm. With a particular project, if is a positive value, the project is in the status of
positive cash inflow in the time of t. If is a negative value, the project is in the
status of discounted cash outflow in the time of t. Appropriately risked projects with a
positive NPV could be accepted. This does not necessarily mean that they should be
undertaken since NPV at the cost of capital may not account for opportunity
cost, i.e., comparison with other available investments. In financial theory, if there is a
choice between two mutually exclusive alternatives, the one yielding the higher NPV
should be selected.

If... It means... Then...

NPV the investment would

the project may be accepted
>0 add value to the firm

the investment would

NPV
subtract value from the the project should be rejected
<0
firm

We should be indifferent in the decision whether to accept or reject the

the investment would
NPV project. This project adds no monetary value. Decision should be based
neither gain nor lose
=0 on other criteria, e.g., strategic positioning or other factors not
value for the firm
explicitly included in the calculation.
CAPITAL BUDGETING DEFINITION

Capital budgeting is a long-term economics decision making. Each potential

project's value should be estimated using a discounted cash flow (DCF) valuation, to
find its net present value (NPV). (First applied to Corporate Finance by Joel Dean in
1951; see also Fisher separation theorem, John Burr Williams: Theory.) This
valuation requires estimating the size and timing of all the incremental cash flows
from the project. (These future cash highest NPV(GE).) The NPV is greatly affected
by the discount rate, so selecting the proper ratesometimes called the hurdle rate
is critical to making the right decision. The hurdle rate is the Minimum acceptable
rate of return on an investment. This should reflect the riskiness of the investment,
typically measured by the volatility of cash flows, and must take into account the
financing mix. Managers may use models such as the CAPM or the APT to estimate a
discount rate appropriate for each particular project, and use the weighted average
cost of capital (WACC) to reflect the financing mix selected. A common practice in
choosing a discount rate for a project is to apply a WACC that applies to the entire
firm, but a higher discount rate may be more appropriate when a project's risk is
higher than the risk of the firm as a whole.

INTERNAL RATE OF RETURN

The internal rate of return (IRR) is defined as the discount rate that gives
a net present value (NPV) of zero. It is a commonly used measure of investment
efficiency.
The IRR method will result in the same decision as the NPV method for (non-
mutually exclusive) projects in an unconstrained environment, in the usual cases
where a negative cash flow occurs at the start of the project, followed by all positive
cash flows. In most realistic cases, all independent projects that have an IRR higher
than the hurdle rate should be accepted. Nevertheless, for mutually exclusive projects,
the decision rule of taking the project with the highest IRR - which is often used -
may select a project with a lower NPV.
 In some cases, several zero NPV discount rates may exist, so there is no
unique IRR. The IRR exists and is unique if one or more years of net investment
(negative cash flow) are followed by years of net revenues. But if the signs of the cash
flows change more than once, there may be several IRRs. The IRR equation generally
cannot be solved analytically but only via iterations.

One shortcoming of the IRR method is that it is commonly misunderstood to

convey the actual annual profitability of an investment. However, this is not the case
because intermediate cash flows are almost never reinvested at the project's IRR; and,
therefore, the actual rate of return is almost certainly going to be lower. Accordingly,
a measure called Modified Internal Rate of Return (MIRR) is often used.

Despite a strong academic preference for NPV, surveys indicate that

executives prefer IRR over NPV[citation needed], although they should be used in concert.
In a budget-constrained environment, efficiency measures should be used to
maximize the overall NPV of the firm. Some managers find it intuitively more
appealing to evaluate investments in terms of percentage rates of return than dollars of
NPV.

EQUIVALENT ANNUITY METHOD

The equivalent annuity method expresses the NPV as an annualized cash flow
by dividing it by the present value of the annuity factor. It is often used when
assessing only the costs of specific projects that have the same cash inflows. In this
form it is known as theequivalent annual cost (EAC) method and is the cost per year
of owning and operating an asset over its entire lifespan.

It is often used when comparing investment projects of unequal lifespans. For

example if project A has an expected lifetime of 7 years, and project B has an
expected lifetime of 11 years it would be improper to simply compare the net present
values (NPVs) of the two projects, unless the projects could not be repeated.
 The use of the EAC method implies that the project will be replaced by an
identical project.

Alternatively the chain method can be used with the NPV method under the
assumption that the projects will be replaced with the same cash flows each time. To
compare projects of unequal length, say 3 years and 4 years, the projects are chained
together, i.e. four repetitions of the 3 year project are compare to three repetitions of
the 4 year project. The chain method and the EAC method give mathematically
equivalent answers.

The assumption of the same cash flows for each link in the chain is essentially
an assumption of zero inflation, so a real interest raterather than a nominal interest
rate is commonly used in the calculations.

REAL OPTIONS

Real options analysis has become important since the 1970s as option pricing
models have gotten more sophisticated. The discounted cash flow methods essentially
value projects as if they were risky bonds, with the promised cash flows known. But
managers will have many choices of how to increase future cash inflows, or to
decrease future cash outflows. In other words, managers get to manage the projects -
not simply accept or reject them. Real options analysis try to value the choices - the
option value - that the managers will have in the future and adds these values to
the NPV.

RANKED PROJECTS

The real value of capital budgeting is to rank projects. Most organizations

have many projects that could potentially be financially rewarding. Once it has been
determined that a particular project has exceeded its hurdle, then it should be ranked
against peer projects (e.g. - highest Profitability index to lowest Profitability index).
The highest ranking projects should be implemented until the budgeted capital has
been expended.
FUNDING SOURCES

When a corporation determines its capital budget, it must acquire said funds.
Three methods are ge stock have no financial risk butdividends, including all in
arrears, must be paid to the preferred stockholders before any cash disbursements can
be made to common stockholders; they generally have interest rates higher than those
of corporate bonds. Finally, common stocks entail no financial risk but are the most
expensive way to finance capital projects.The Internal Rate of Return is very
important.

NEED FOR CAPITAL BUDGETING

1. As large sum of money is involved which influences the profitability of the

firm making capital budgeting an important task.
2. Long term investment once made can not be reversed without significance loss
of invested capital. The investment becomes sunk and mistakes, rather than
being readily rectified,must often be borne until the firm can be withdrawn
through depreciation charges or liquidation. It influences the whole conduct of
the business for the years to come.
3. Investment decision are the base on which the profit will be earned and
probably measured through the return on the capital. A proper mix of capital
investment is quite important to ensure adequate rate of return on investment,
calling for the need of capital budgeting.
4. The implication of long term investment decisions are more extensive than
those of short run decisions because of time factor involved, capital budgeting
decisions are subject to the higher degree of risk and uncertainty than short
run decision.

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.

2. 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)
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 of 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 total almost all companies used by back.

With pay back and/or other techniques, about 2/3rd 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, 1/3rd 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.
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. 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 take 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.
 DATA ANALYSIS AND INTERPRETATION

NET PRESENT VALUE:

Year Cash Inflows Dis. @12% Present Value of Cashflows

1 Rs. 1.129.384.000 0,892 Rs. 1.007.410.528

2 Rs. 1.310.895.000 0,797 Rs. 1.043.986.315

3 Rs. 1.761.879.000 0,711 Rs. 1.252.695.969

4 Rs. 1.732.086.000 0,635 Rs. 1.109.874.610

5 Rs. 2.193.061.000 0,567 Rs. 1.243.465.587

Present Value of Cash Flows Rs. 5.647.433.010

Less: Cash Outlay Rs. 5.489.200.000

Net Present Value Rs. 158.233.010

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 Lakhs) Cash inflows(P.V.) Cash Out Flows (Initial)

1999-00 2,945,083.37 18180 20000

2002-03 3,040,293.17 24780 30000

2003-04 3,192,444.28 45070 60000

2004-05 3,071,183.11 54640 80000

2005-06 3,545,210.87 18630 30000

2006-07 9,025,874.00 161290 22000

2007-08 3,991,459.40 19210 33000

2008-09 4,038,114.20 11130 70000

2009-10 3,667,441.15 65420 40000

2010-11 7,338,000.00 19233 80000

2011-12 2,089,775.00 61323 60000

Total: 498896 525000

P.V. of Cash Inflows

PI = ---------------------------
Initial Cash outlays

498896
= ---------- = 0.95
525000

GRAPH 2 :
 Investments (In Lakhs)

10,000,000.00
9,000,000.00
8,000,000.00
7,000,000.00
6,000,000.00
5,000,000.00 Investments (In Lakhs)
4,000,000.00
3,000,000.00
2,000,000.00
1,000,000.00
0.00
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
INTERPRETATION:

The profitability index of present value of cash inflows and cash out flows is
fluctuation from year to year in the year 1999-00 the present value of cash inflows is
18180 were as in the year 2009-10 has been increased with 61323.

The highest cash inflows has been recorded in 2004-2005 as 161290 and
lowest has been recorded as 18180 in the year 1999-00
PAY BACK PERIOD:

Year Investments (In Lakhs) Cash inflows(P.V.) Cash Out Flows (Initial)

1999-00 40,000.00 8000 20000

2001-02 60,000.00 1600 30000

2002-03 70,000.00 2200 60000

2003-04 20,000.00 4500 80000

2004-05 10,000.00 4000 30000

2006-07 66,000.00 3000 22000

2007-08 25,000.00 2900 33000

2008-09 12,000.00 1100 70000

2009-10 90,000.00 1600 40000

2010-11 30,000.00 1200 80000

2011-12 50,000.00 1800 60000

Total: 473,000.00 31900 525000

Initial Investments
Pay Back Period = ---------------------------
Annual Cash inflows

40,000
= --------- 5 Years
8000
GRAPH 3:

Investments (In Lakhs)

100,000.00
90,000.00
80,000.00
70,000.00
60,000.00
50,000.00 Investments (In Lakhs)
40,000.00
30,000.00
20,000.00
10,000.00
0.00
0 2 3 4 5 7 8 9 0 1 2
9-0 1-0 2-0 3-0 4-0 6-0 7-0 8-0 9-1 0-1 1-1
9 0 0 0 0 0 0 0 0 1 1
19 20 20 20 20 20 20 20 20 20 20

Interpretation:

In the Pay Back method the Investment and the case inflows are fluctuating
from year to year where as in the year 1999-00 it is 40000 and in the year 2009-10 is
50000.

Cash inflows are in the order of increasing to decreasing from 1999-00 and
2009-10.
AVERAGE RATE OF RETURN:

Year Investments (Lakhs) Average Income Cash Flows after Taxes

(Thousands)
2002-03 400,000.00 20000 100000

2003-04 480,000.00 15000 260000

2004-05 280,000.00 28000 440000

2005-06 240,000.00 85000 750000

2006-07 150,000.00 75000 160000

2007-08 260,000.00 64000 200000

2008-09 600,000.00 78000 300000

2009-10 100,000.00 25000 600000

2010-11 250,000.00 18000 800000

2011-12 520,000.00 22000 750000

Total 3,280,000.00 430000 4360000

Average Income
Average Rate of Return = ----------------------
Average Investments

20000
= --------- = 0.06%
400000
GRAPH 4:

Investments (Lakhs)

3,500,000.00
3,000,000.00
2,500,000.00
2,000,000.00
Investments (Lakhs)
1,500,000.00
1,000,000.00
500,000.00
0.00
l
-0 3 -0 4 -0 5 -0 6 -0 7 -0 8 -0 9 -1 0 -1 1 -1 2 ota
02 03 04 05 06 07 08 09 10 11 T
20 20 20 20 20 20 20 20 20 20

INTERPRETATION:

Average rate of return is calculated based on Average income and Average

investment where as Average income in the year 2003-04 is 20000 and investments in
the year 2009-10 is 400000.

The value from 2003-04 and 2009-10 are fluctuating from year to year
 INTERNAL RATE OF RETURN:

The INTERNEL RATE OF RETURN IS AS FOLLOWS

IRR = A + ------------- (B-A)

CD

Where:

C = Positive NPV

D = NPV value Negative

B = Rate of return at high price.

Calculation of IRR show the fig, 5.5

YEARS CASH INFLOWS DCF(12%) PRESENT VALUE

(Rs in lakhs) (Rs in lakhs)

0.892 1007.410.528

2007-08 1,129,384

0.797 1.043.986.315

2008-09 1,310,895

0.711 1.252.695.969

2009-10 1,761,879

0.635 1.109.874.610

2010-11 1,732,086

0.567 1.243.465.587

2011-12 2,193,061

TOTAL 5,757.433.010
YEARS CASH INFLOWS DCF(15%) PRESENT VALUE

(Rs in lakhs) (Rs in lakhs)

2007-08 1129384 0.869 981434.69

2008-09 1310895 0.756 991036.62

2009-10 1761879 0.657 1157554.3

2010-11 1732086 0.571 989021.10

2011-12 2193061 0.497 1089951.31

TOTAL 5208998.06
 2500000

2000000

1500000

1000000

500000

0
YEARS 2007-08 2008-09 2009-10 2010-11 2011-12

Fig no:- 5.3

5757.433.010-5,489,200

IRR =12 +--------------------------------------------X(3)

5757. 5,208,998.069

268,233.01

= 12+ ---------------------- X (3)

548,434.941

= 12 + 0.48

= 12.048s%
 FINDINGS AND SUGESSTIONS

The Corporate mission of FFF is to make available reliable and quality in oil
increasingly large quantities. The company will spear head the process of
accelerated development of the Oil sector by expeditiously planning,
implementing projects and operating economically and efficiently.

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.

The special budgets are rarely used in the organization like long-term budgets,
research & development, budget and budgetary control.

From the Revenue budget for the year 2000-2003, it is clear that the Actual
sales ( Rs. 168552.50 lacks) are more than 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.

New projects acceptance consider on the basis of Return Benefits. Risk is

evaluated while considering the new projects.
 CONCLUSIONS

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.

Investment decisions have its own importance in the organizational growth

and future.

Growth of the organization depends on its qualitative decisions taken by the

financial department in the organization.

The overall all performance of the organization is good.

 BIBLIOGRAPHY

S.N0 AUTHOR TITLE OF BOOK NAME OF

PUBLISHER

I.M.PANDEY FINANCIAL VIKAS

PUBLICATIONS
MANAGEMENT
Pvt Ltd.,

TATA MC GRAW
2
HILL
PRASANNA FINANCIAL
PUBLISHING
CHANDRA
MANAGEMENT COMPANY
LIMITED NEW
DELHI

S.P JAIN FINANCIAL KALYANI

MANAGEMENT PUBLICATIONS

Dr.S.N.MAHESWARI FINANCIAL HIMALAYA

PUBLICATION
MANAGEMENT
HOUSE

WEBSITES

www.fff.com

www.food fats.com
BIBLIOGRAPHY

Financial Management -I. M. Pandey

Financial Management -PrasannaChandra
Financial Management -
M. Y. Khan & Jain

FFF profile & Annual Reports