I N D E X Chapter- I: INTRODUCTION Introduction Importance of investment decision Objective of the study Methodology Limitations Chapter-II: INDUSTRY PROFILE IN THE COMPANY Introduction Pre-Independence Post-Independence Major Steel Industries in India Global Scenario Market Scenario Production Scenario Demand- Availability Projection Pricing &Distribution 1
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I N D E X
Chapter- I: INTRODUCTION
Introduction Importance of investment decision Objective of the study Methodology Limitations
Chapter-II: INDUSTRY PROFILE IN THE COMPANY
Introduction Pre-Independence Post-Independence Major Steel Industries in India Global Scenario Market Scenario Production Scenario Demand- Availability Projection Pricing &Distribution
1
Chapter-III: COMPANY PROFILE
Introduction Background Mission Vision ISO Policy Objectives Core values Quality Policy Environmental policy Energy policy OSHAS policy
HR policy Customer policy IT policy VSP Technology : state of the Art Major Departments Functions of various departments of RINL \ VSP Inputs and Basic Infrastructure Corporate Strategic Management(CSM) Achievements & Awards
Table Representation
A. Steel IndustriesB. Major Sources of Raw MaterialsC. Major UnitsD. Main Products of VSP E. Parameters of Sintering MachinesF. Production performanceG. Commercial performanceH. Financial performanceI. Man power at a Glance in VSP
Organization Chart –VISHAKHAPATANAM STEEL PLANT
2
Chapter-IV: PROJECT PLANNING
Introduction Nature of investment decisions Process of Investment decisions Importance of Investment decisions Types of Investment decisions Investment Evaluation criteria Cost effective Analysis Project planning
Chapter- V: PROJECT FINANCE
Sources of finance
Chapter –VI: EVALUTION OF CAPITAL BUDGETING
Payback period Average rate of return Net present value Internal rate of return Profitability index method
Chapter-VII: CAPITAL STRUCTURE
Frame work of capital structure Approaches to establishment target capital
structure Capital structuring in VSP
Chapter-VIII: EVALUTION OF CAPITAL STRUCTURING
Expansion project capital structure
3
Chapter-IX: FINDINGS, SUGGESTIONS
Findings Suggestions
CHAPTER – I
Introduction
4
1.1. Introduction:-
A project is an activity sufficiently self- contained to permit
financial and commercial analysis. In most cases projects represent
expenditure of capital funds by pre- existing entities which want to
expand or improve their operation.
In general a project is an activity in which, we will spend money
in expectation of returns and which logically seems to lead itself to
planning. Financing and implementation as a unit, is a specific
activity with a specific point and a specific ending point intended to
accomplish a specific objective.
To take up a new project, involves a capital investment
decision and it is the top management’s duty to make a situation
and feasibility analysis of that particular project and means of
financing and implementing it financing is a rapidly expanding field,
which focuses not on the credit status of a company, but on cash
flows that will be generated by a specific project.
Capital budgeting has its origins in the natural resource and
infrastructure sectors. The current demand for infrastructure and
capital investments is being fueled by deregulation in the power,
telecommunications, and transportation sectors, by the globalization
of product markets and the need for manufacturing scale, and by the
privatization of government –owned entities in developed and
developing countries.
The capital budgeting decision procedure basically involves the
evaluation of the desirability of an investment proposal. It is obvious
that the firm most have a systematic procedure for making capital
budgeting decisions. The procedure for making capital budgeting
decisions.
The procedure must be consistent with the objective of wealth
maximization. In view of the significance of capital budgeting
decisions, the procedure must consist of step by step analysis.
5
1.2 Importance of investment decisions:-
Capital investments, representing the growing edge of a
business, are deemed to be very important for three inter- related
reasons.
1. The influence firm growth in the long term consequences capital
investment decisions have considerable impact on what the firm can
do in future.
2. They affect the risk of the firm; it is difficult to reverse capital
investment decisions because the market for used capital
investments is ill organized and /or most of the capital equipments
bought by a firm to meet its specific requirements.
3. Capital investment decisions involve substantial out lays.
Visakhapatnam Steel Plant is a growing concern, capital budgeting
is more or less a continuous process and it is carried out by different
functional areas of management such a production, marketing,
engineering, financial management etc. All the relevant functional
departments play a crucial role in the capital budgeting decision process.
1.3 Objectives of the study:-
1. To describe the organizational profile of Visakhapatnam Steel
Plant.
2. To discuss the importance of the management of capital
budgeting.
3. Determination of proposal and investments, inflows and out
flows.
4. To evaluate the investment proposal by using capital budgeting
techniques.
5. To summarize and to suggest for the better investment proposal.
6
1.4 METHODOLOGY
The information for the study is obtained from two sources namely.
1. Primary Sources
2. Secondary Sources
Primary Sources:
It is the information collected directly without any references. It is
mainly through interactions with concerned officers & staff, either
individually or collectively; some of the information has been verified or
supplemented with personal observation. These sources include.
1. Thorough interactions with the various department Managers of VSP.
2. Guidelines given by the Project Guide, Sri P. MALLESWARA
RAO, Asst. Manager (Staff), Budget Section, F & A.
Secondary Sources:
This data is from the number of books and records of the company, the
annual reports published by the company and other magazines. The
secondary data is obtained from the following.
a) Collection of required data from annual records, monthly records,
internal
Published book or profile of Visakhapatnam Steel Plant.
b) Other books and Journals and magazines
c) Annual Reports of the company
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1.5 Limitations:
Though the project is completed successfully a few limitations
may be there.
a) 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.
b) The period of study that is 4 weeks is not enough to conduct
detailed study of the project.
c) 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.
d) Lack of knowledge. Some of the lack full-fledged knowledge of the
concept and its difficult to collect a specific opinion from them.
e) Time limitation. The duration of the project is short to collect the
required information accurately.
8
CHATER-II
INDUSTRY PROFILE IN INDIA
9
Introduction
Steel is an alloy of iron usually containing less than 1% carbon
is a versatile material with multitude of useful properties used most
frequently in the automotive and construction industries. Steel can be cast
into bars strips, sheets, nails, spikes, wire, rods or pipes as needed by the
intended user. The consumption of steel is regarded as the index of
industrialization and the economic maturity any country has attained.
The development of steel industry in India should be viewed in
conjunction with the type and system of government that had been ruling
the country. The production of steel in significant quantity started after
1990. The growth of steel industry can be conveniently started by dividing
the period in to pre and post independence era. In the period of pre
independence, steel production was 1.5 million tones per year, which was
raised to 9 million tones of target. This is the result of the bold steps taken
by the government to develop this sector.
Growth of Steel Industry:
2.2 Pre-independence:-
1830 - Josiah, Marshall Health constructed the first manufacturing
plant at
Port Move in Madras presidency.
1874 - James Erskin founded the Bengal iron works.
1899 - Jamshedji Tata initiated the scheme for an integrated steel
plant.
1906 - Formation of TISCO.
1911 - Tata iron & steel company started production.
1916 - TISICO was founded.
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2.3 Post-independence:-
1951-56 - First Five Year Plan.
No new steel plant came up .The Hindustan steel Ltd.
was born on 19th January, 1954 with the decision of
setting up three steel plants each with one million tone
input steel per year in at Rourkela, Bhilai and Durgapur;
TISCO stated its expansion program.
1956-61 - Second Five Year Plan
A bold decision was taken up to increase the ingot steel
output India to 6 Million tons per year & production at
Rourkela, Bhilai and Durgapur steel plant started.
1961-66 - Third Five Year Plan
During the third five year plan the three steel plants
under HSL; TISCO & HSCO were expanded as show. In
January 1964 Bokaro steel plant came into existence.
1966-69 - Recession Period
The entire expansion program was actively executed
during this period.
1969-74 -Fourth Five Year Plan
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Licenses were given for setting up of many mini steel
plants and re-rolling mills.
Govt. Of. India accepted setting up two more steel
plants in south. One each at Visakhapatnam and Hospet
(Karnataka).
SAIL was formed during this period on 24th January,
1973. The total installed capacity from 6 integrated
plants was 106 Mt.
1979 - Annual Plan
The erstwhile Soviet Union agreed to help in setting up
the Visakhapatnam steel plant.
1980-85 - Sixth Five Year Plan
Work on Visakhapatnam steel plant was started with a
big bang and top priority was accorded to start the
plant.
Scheme for modernization of Bhilai steel plant,
Rourkela, Durgapur, TISCO were initiated.
1985-91 - Seventh Five Year Plan
Expansion work of Bhilai and Bokaro steel plants
completed.
Progress on Visakhapatnam steel plant picked up and
rationalized concept has been introduced to commission
the plant with 3.0Mt liquid steel capacity by 1990.
1991-96 - Eight Five Year plan
Vishakhapatnam steel plant started its production
modernization of other steel plants is also duly
envisaged.
1997-2002 - Ninth Five Year Plan
Visakhapatnam steel plant had foreseen a 7% growth
during the entire plan period.
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2002-2007 - Tenth Five Year Plan
Steel industry registers the growth of 9.9 %
Visakhapatnam steel plant high regime targets
achieved the best of them.
2007-2012 - Eleventh Five Year Plan
Cost of schemes/project original approved by
Government of India is Rs.9, 569.18 crores
2. 4 The major steel and related companies in India:-
1. Bharat Refectories Ltd.
2. Hindustan Steel Works Construction Ltd.
3. Jindal Steel and Power Ltd.
4. Tata Iron Steel Company Metal Scrap Trade Corporation Ltd.
5. Metallurgical and Engineering Consultants India Ltd.
6. National Mineral Development Corporation Ltd.
7. Rashtriya Ispat Nigam Ltd.
8. Sponge Iron India Ltd.
9. Steel Authority India ltd.
The global steel industry has witnessed several revolutionary changes
during the last century. The changes have been in the realms of both
technology & business strategy. The ultimate object of all these changes is
to remain competitive and open global market.
13
The Indian steel industry is growing very rigorously with the major
producers like SAIL, RINL, TISCO, JVL and many others. Our steel industry
has amply demonstrated its ability of adopt to the changing scenario and
to survive in the global market that is becoming increasingly competitive.
This has been possible to a large extent due to the adoption of innovative
operating practices and modern technologies.
Industrial Development in India has reached a high degree of self-
reliance, and the steel industry occupies a primary place in the strategy for
future development. At present the production of steel industry country is
34Mt. the public sector steel industry has been restructured to meet
challenges and a separate fund has been established for modernization
and future development of the industry. It is now being proposed that
Indian steel industry should Gear up to achieve a production level of about
100 Mt by the year2000.
2.5 Global scenarios:-
As per IISI
In March’ 2005 world Crude steel output was 928Mt when
compared to march 2004 (872Mt), ∙The change in percentage
was 6.5%.
China remained the world largest crude steel producer in 2005
also (275Mt) followed by Japan (96Mt) and USA (81Mt). India
occupied 8th position (42Mt).
USA remained the largest importer of semi finished and
finished products in 2002 followed by China and Germany.
Japan remained the largest exporter of semi finished and
finished steel products in 2002 followed by Russia and
Ukraine.
Other significant recent developments in the global steel
scenario have been: Under the auspices of the OECD
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(Organization for Economic Co-operation & Development) the
negotiations among the major steel producing countries for a
steel subsidy agreement (SSA) held in 2003 with the objective
to agree on a complete negotiating test for the SSA by the
Middle of 2004. It also set subsidies for the steel industry of a
ceiling of 0.5% of the value of production to be used
exclusively for Research & Development
2.6 Market scenarios:-
The year 2004-05 was a remarkable one for the steel industry with
the world crude steel production crossing the one billion mark for the first
time in the history of the steel industry. The world GDP growth about 4%
lends supports to the expectations the steel market is all set for strong
revival after prolonged period of depression .The Indian economy also
become robust with annual growth rates of 7-8 % this will provide a major
boost the steel industry. With the nations focus on infrastructure
development coupled with the growth in the manufacturing sector, the
Indian steel industry all set for north ward movement. The draft national
steel police envisage production of 60 Mt by 2012 and 110Mt by2020, and
annual growth rate of 6-7%. All this should therefore augur well for the
Indian steel industry.
2.7 Production scenarios:-
Steel industry was de-licensed and decontrolled in 1991&1992
respectively.
India is the 8th largest producer of steel in the world.
In 2003-04 finished steel production was 36.193Mt.
Pig iron production in 2003-04 was 5.221Mt.
Sponge iron production was 80.85 Mt during the year 2003-04
The annual growth rate of crude steel production in 2002-03was 8% and
in 2003-04 was 6%.
15
The last five year production performance is as under:-
(In Million tons)
YEAR PIGIRON SPONGEIRON1.1.1.1 FINISHEDST
EEL
2000-01 3.39 5.44 29.27
2001-02 4.08 5.44 30.63
2002-03 5.28 6.44 33.67
2003-04 3.76 8.09 39.12
2004-05 3.18 9.93 41.15
2005-06 4.39 0.00 30.84
2006-07 3.52 0.00 31.40
2007-08 4.95 0.00 29.74
2008-09 4.95 0.00 29.74
2.8 DEMAND-AVAILABILITY PROJECTION:-
Demand-Availability of iron and steel in the country is projected by
ministry of steel annually.
Gaps in availability are met mostly through imports.
Interface with consumers by way of Steel Consumer Council exists,
which is conducted on regular basis.
Interface helps in redressing availability problems, complaints related
to quality.
16
2.9 PRICING & DISTRIBUTION : -
Price regulation of iron & steel was abolished on 16-01-1992.
Distribution controls on iron& steel removed except 5 priority sectors,
viz. Defense, Railways, Small Scale Industries Corporations, Exporters
of Engineering Goods and North Eastern region.
Allocation to priority sectors is made by Ministry of steel.
Government has no control over prices of iron & steel.
Open market prices are generally on rise.
Price increases of late have taken place mostly in long products than
flat products.
17
CHAPTER –III
COMPANY PROFILE
18
Introduction:-
Steel comprises one of the most important resources of the economy.
History shows that, the strongest of civilizations have evolved quickly in the
course of time, because of the proper use of the iron and steel reserves they
had. The huge iron pillars at the entrance of New Delhi suggest that the
history of iron and steel industry in India is well over 2000 years old.
Steel comprises one of the most important inputs to all sectors of the
economy. Steel Industry is both a basic and a core Industry. The economy
of any nation depends on a strong base of Iron and Steel Industry in that
nation. History has shown that the countries having a strong potential for
Iron and Steel Industry have played a prominent role in the advancement in
the civilization in the world. Steel is such a versatile commodity that every
object we see in our day-to-day life had use, such as small items as nails,
pins, needles etc., to surgical instruments, agricultural implements, boilers,
ships, railway materials, automobile parts. The great investments that has
gone into the fundamental research in Iron and Steel Technology has
helped both directly and indirectly many modern fields of today’s science
and technology. Steel is versatile and indispensable item. The versatility of
steel can be traced mainly of three reasons.
1. It is only metallic item, which can be conveniently and economically produced in tonnage quality.
2. It has got very good strength coupled with malleability.
3. Its properties can be changed over a wide range. Its properties can be manipulated to any extent by proper heat treatment techniques.
Iron and Steel making as a craft as been known to India for a long time. However, its production is significant quantities only after 1900.
VSP by successfully installing & operating efficiently Rs. 460 cores
worth of Pollution Control and Environment Control Equipments and
converting the barren landscape by planting more than 3 million plants has
made the Steel Plant, Steel Township and surrounding areas into a heaven
of lush greenery. This has made Steel Township a greener, cleaner and
cooler place, which can boast of 3 to 4° C lesser temperature even in the
peak summer compared to Visakhapatnam City.
19
VSP exports Quality Pig Iron & Steel products' to Sri Lanka,
Myanmar, Nepal, Middle East, USA, China and South East Asia. RINL-VSP
was awarded "Star Trading House" status during 1997-2000. Having
established a fairly dependable export market, VSP plans to make a
continuous presence in the export market.
The govt. of India has recognized the importance of steel in Indian industry and established the following steel plants, before it actually set up VSP/RINL. The details of those are tabulated below.
To meet the growing domestic needs of steel, Government of India decided to set up an integrated Steel plant at Visakhapatnam. An agreement was signed with erstwhile USSR in 1979 for cooperation insetting up 3.4 million tones integrated Steel Plant at Visakhapatnam. The foundation was laid by the then Prime Minister Mrs. Indira Gandhi on 20th January 1971.
The Project was estimated to cost Rs.3, 897.28 cores based on prices as on 4th Quarter of 1981. However, on completion of Construction of the whole Plant in 1992, the cost escalated to around 8500 Cr. Unlike other interagated Steel Plants in India, Visakhapatnam Steel Plant is one of the most modern Steel Plants in the country. The plant was dedicated to the nation on 1st August 1992 by the then Prime Minister, P.V.Narasimha Rao.
New Technology, large-scale computerization and automation etc., are incorporated in the Plant. To operate the plant at international levels and attain such lab our productivity, the organizational manpower has been
20
rationalized. The plant has a capacity of producing 3.0 MT of liquid steel and 2,656Mt of saleable steel.
Operational water requirement of 36 Mgd is being met from the Yeleru Water Supply Scheme.
Power supply:- Operational Power requirement of 180 to 200 MW is being met through captive Power Plant. The capacity of the power plant is 286.5 MW. Visakhapatnam Steel Plant is exporting 60MW power to Andhra Pradesh State Electricity Board.
Blast Furnace 3,400 2 Furnaces of 3200 Cu. Meters. volume
each
Steel Melt Shop 3,000 3 LD Converters each of 133 Cu. Meters.
Volume and Six 4 strand bloom casters
LMMM 710 4 Strand finishing Mill
WRM 850 4 Strand high speed continuous mill with
no twist finishing blocks
MMSM 850 6 STAND FINISHING MILL
Main Products of VSP:-
22
Main Products of VSP
Steel Products By-Products
Blooms Nut Coke Granulated Slag
Billets Coke Dust Lime Fines
Channels, Angles Coal Tar Ammonium Sulphate
Beams Anthracene Oil
Squares HPNaphthalene
Flats Benzene
Rounds Toluene
Re-bars Zylene
Wire Rods Wash Oil
Vision:
To be a continuously growing world class company
We shall
Harness our growth potential and sustain profitable growth.
Deliver high quality and cost competitive products and be the first
choice of customers.
Create an inspiring work environment to unleash the creative energy
of people.
Achieve excellence in enterprise management.
Be a respected corporate citizen, ensure clean and green
environment and develop vibrant communities around us.
Mission:-
To attain 16 Mt liquid steel capacity through technological up-gradation, operational efficiency and expansion; augmentation of assured supply of raw materials; to produce steel at international Standards of Cost & Quality; and to meet the aspirations of stakeholders.
Objectives:-
23
● Expand plant capacity to 6.3 million ton by 2011-12 with the Mission to expand further in subsequent phases as per the corporate plan.
Revamping existing Blast Furnaces to make them energy efficient to contemporary levels and in the process increase their capacity by 1 Mt, thus total hot metal capacity to 7.5 Mt
● Be amongst top five lowest cost steel producers in world by 2009-10.
● Achieve higher levels of customer satisfaction.
● Vibrant work culture in the organization.
● Be proactive in conserving environment, maintaining high levels of safety and addressing social concerns.
Core values:-
Commitment.
Customer Satisfaction.
Continuous Improvement.
Concern for Environment.
Creativity & Innovatio
Quality Policy:-
Visakhapatnam Steel Plant Employees are committed to meet the needs and expectations of our customers and other interested parties. To accomplish this, they will
Supply quality goods and services to customers delight.
Achieve quality of the products by following systematic approach
through planning, documented procedure and timely review of
quality objectives.
24
Continuously improve the quality of all materials, processes and
products.
Maintain an enabling environment, which encourages teamwork and
active involvement of all employees with their involvement.
Environment Policy:-
Visakhapatnam Steel Plant carrying out its operations without harming to the environment. To accomplish this, they will
Document, implement, maintain and continuously review the
environmental management system.
Comply with all the relevant environmental legislations, regulations
and other requirements.
Ensure continual improvement in the environmental performance
and prevention of pollution by minimizing the emissions and
discharges.
Maintain a high level of environmental consciousness amongst
employees.
Energy Policy:-
Visakhapatnam Steel Plant is committed to optimally utilize various forms of energy in a cost-effective manner to effect conservation of energy resources.
To accomplish this, they will:
Monitor closely and control the consumption of various forms of
energy through an effective Energy Management System.
Adopt appropriate energy conservation technologies.
Maximize the use of cheaper and easily available forms of energy.
OSHAS Policy:-25
Visakhapatnam Steel Plant is committed to occupational health and safety of employees and contract workers. To accomplish this, the will,
Document, implement, maintain and periodically review the
occupational health and safety management system including the
policy.
Comply with the relevant occupational health and safety legislations,
regulations and other requirements.
Ensure continual improvement in the environment performance and
prevention of pollution by minimizing the emissions and discharges.
Maintain a high level of environmental consciousness amongst
employees.
Review the environmental objectives and targets on a continuous
basis.
Human Resource Policy:-
Visakhapatnam Steel Plant is committed to create an organizational culture, which nurtures employee’s potential for the prosperity of the organization. To accomplish this, they will,
Identify development needs of the employees on a regular basis,
provide the necessary training and continually evaluate and monitor
the effectiveness of the training so that the quality of the training
also gets updated.
Provide inputs to the employees for developing their attitude towards
work and for matching their competencies with organizational
requirements.
Create an environment of learning and knowledge sharing by
providing the means and facilities and also access to the relevant
information and literature.
Facilitate the employees for continuous development of their
knowledge base, skills, efficiency, innovativeness, self-expression and
behavior so that they contribute positively with commitment for the
26
growth and prosperity of the organization while maintaining a high
level of motivation and satisfaction.
Prepare employees through appropriate development programs for
taking up higher responsibilities in the organization.
Customer Policy:-
VSP will endeavor to adopt a customer-focused approach
At all times with transparency.
VSP will strive to meet more than the customer needs
and expectations pertaining to products, quality, and
Value for money and satisfaction.
VSP greatly values its relationship with customers and
would make efforts at strengthening these relations for
Mutual benefit.
I.T. Policy:-
RINL/VSP is committed to leverage Information Technology as the
vital enabler in improving the customer-satisfaction, organizational
efficiency, productivity, decision-making, transparency and cost-
effectiveness, and thus adding value to the business of steel
making. Towards this, RINL shall:
Follow best practices in process Automation & Business Processes
through IT by in-house efforts / outsourcing and collaborative efforts
with other organization / expert groups / institutions of higher
learning, etc., thus ensuring the quality of product and services at
least cost.
Install, maintain and upgrade suitable cost-effective IT hardware,
software and other IT infrastructure and ensure high levels of data
and information security
Major Departments:-
27
Raw Material Handling Plant:
VSP annually requires quality raw materials viz. Iron Ore fluxes
(Lime stone, Dolomite); coking and non coking coals etc. to the tune of 12-
13 Million Tones for producing 3 Million Tones of Liquid Steel. To handle
such a large volume of incoming raw materials received from different
sources and to ensure timely supply of consistent quality of feed materials
to different VSP consumers, Raw Material Handling Plant serves a vital
function. This unit is provided with elaborate unloading, blending, stacking