NFL

Budgetary Control
of National Fertilizers Limited, Bathinda
Contents to be discussed:
Fertilizer Industry
Introduction to NFL
Classification of NFL Products
Bathinda Unit of NFL
Research Methodology
Introduction to Budgetary Study
Budgetary Control System at NFL
Data Analysis & Interpretation
Findings
Recommendations
Conclusion

Page  2
Fertilizer Industry
Fertilizer industry in India is meeting all the requirements of agricultural industry
since the time of its inception in 1906. The first plant for fertilizers manufacture was
set up in the same year in Ranipet, Chennai.
Then established the first two large-sized fertilizer plants:
1. Fertilizer & Chemicals Tranvancore of India Ltd. (FACT) in Cochin, Kerala
2. Fertilizers Corporation of India (FCI) in Sindri, Bihar.
At present, India has more than 57 large sized plants of fertilizers, which includes
Public sector Industries & Private Sector Industries,
 Apart from it, there are other 64 small and medium scale Indian manufacturers
producing fertilizers.
India has become third largest country with a total capacity of 11.07 million tons of N
in year 2000-2001.
Natural gas has been the preferred feedstock for the manufacture of urea over other
feed stocks viz. naphtha and FO/LSHS:
1. Firstly, because it is clean and efficient source of energy and
2. Secondly, it is considerably cheaper and more cost effective in terms of manufacturing
cost of urea
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Introduction to NFL

Page  4
Mission of NFL
“NFL’s mission is to be a market leader in fertilizers & a significant player in all
its other business, reputed for customer satisfaction, reasonable reward to
shareholders, ethics, professionalism & concern for ecology and the
community.”
Registered on 23 August, 1974
Authorized capital Rs. 500.00 Crores
Paid up Capital Rs. 490.58 Crores
Capacity* 14.86 Lakh MT Nitrogen
NFL was incorporated on 23rd August, 1974 with two nitrogenous
manufacturing Units at Bathinda(Punjab) and Panipat(Haryana)
On the reorganization of Fertilizer Corporation of India Limited (FCI) - NFL
group of Companies, the Nangal Unit of FCI came under the NFL fold on 1st
April,1978.
Later on, a gas based fertilizer plant was entrusted to NFL. It has come up at
Vijaipur, Madhya Pradesh, which started production in July 1988.

Page  5
Units & Offices

NFL has four operating units and one Central Marketing Office with
Zonal Offices at Chandigarh, Bhopal, Lucknow and New Delhi. It has its

Registered Office at
New Delhi &
Corporate Office at
NOIDA (U.P.)

Page  6
Plants

Vijaipur Plant

Panipat Plant

Bathinda Plant

Nangal Expansion Plant

Page  7
Page  8
NFL’s Core Competence
 NFL, is the second largest producer of Nitrogenous Fertilizers in the Country with
16.8% share in domestic production of Urea achieved in the country during 2008-09.

 The Company's strength lies in its brand loyal customers, its harmonious
commitments on human resources, its efficient operations, Industrial
Relations (IR), goodwill it has generated over by the work culture, fulfilling its
Page  9
social commitments.
Classification of NFL Products

Products

Main Industrial
Products Products
Page  10
Uravarak Videsh Limited (UVL)
NFL in collaboration with M/s KRIBHCO & RCF has formed a joint venture
company (JVC) named as Uravarak Videsh Limited (UVL) to explore
investment opportunities abroad and within country in Nitrogenous,
Phosphatic & Potassic sectors and to render consultancy services for setting
up Projects in India & Abroad.

Uravara
M/s k
NFL KRIBHC Videsh
O & RCF Limited
(UVL)

A gas based Urea plant at Barauni in Bihar has been entrusted to the
above Joint venture Company.

Page  11
Awards to NFL

NFL was given the ‘Mini Ratna Category-I’ status by the Govt. of India in
July, 1988 based on the Company’s overall performance during the preceding
years.
NFL Vijaipur Unit, during 1998-99, received ISO 14001 Certification in
addition to ISO 9002 Certification already obtained by the Unit. NFL, thus,
is the First Company in Public and Cooperative Sector in the Fertilizer
Industry to have both these Certifications.
NFL has been selected by a panel of judges for Economic Times- Harvard
Business School Association of India Corporate Performance Award for
1994, among 213 Public Sector Companies in the country.
International Greenland Society, Hyderabad awarded NFL”Best
Environmental and Ecological Implementation Award” for 1995-96.

Page  12
BATHINDA Unit of NFL

Page  13
NFL, Bathinda
National Fertilizers Limited was incorporated on 23rd August 1974 and its
plant at Bathinda started its commercial Production on 01.10.1979. Toyo
Engineering Corporation was prime Engineering Contractors for the plant.
M/s Engineers India Ltd.,(EIL) did the detail engineering and supervised
the Erection and Commissioning of the plant.

NFL
Bathinda

EIL

TEC
Page  14
 Bathinda unit is Producing Urea whose Installed capacity is 1550 MT
per day i.e. 5,11,500 MT Urea per annum. The unit is producing Urea at
more than 100% capacity utilization.

The following factors were considered in view by Govt. of India while

selecting site at Bathinda:
Availability of land
Steady power supply in the vicinity of project 
Availability of good quality water from sirhind canal
Bathinda town being at conjunction of Punjab, Haryane & Rajasthan
& all states having potential for fertilizer consumption.

Page  15
Installed Capacity
NH3 (Ammonia) 900 MT/day of NH3
NH3(Annual) 297000 MT
Urea 1550 MT/day of Urea
Urea(Annual) 511500 MT

Page  16
Awards to NFL Bathinda Unit
National Safety Award to the Unit from the Ministry of Labour, Government of India
for Meritorious performance in Industrial Safety during 1989.
Bathinda Unit received “Prime Minister’s Shram Award” and “Vishwakarma Rashtriya
Puraskar” during 1994-95 under various suggestion schemes. The unit also received
“Punjab Safety Krit Shiromani Award” and “Krit Veer Awards” from the State
Government. The unit also received “Udyog Excellence Gold Medal and a Citation”
from Industrial Economic Forum, New Delhi.
“Jawahar Lal Nehru Memorial National Awards” constituted by the International
Greenland Society, Hyderabad for Pollution Control and Energy Conservation won
by the Unit.
The Unit won 1st Prize in:
 Lowest Accident Frequency Rate
 Maximum Reduction in Accident Frequency Rate and
 Longest Accident Free period
 During 2001-02, Bathinda Unit was awarded National Safety Award First Prize for Largest
‘Accident Free Period’ in Fertilizer and Chemical Industry relevant for 1999.

Page  17
Research Methodology

Collection of Data:
In order to understand the present system of budgetary control,
Secondary Data from Review of Literature and various departments of
the company have been collected.
Secondary Data:
Secondary data is the data derived from some other source. Its not the
original data for the purpose of solving the problem at hand. It has been
collected by the Review of Literature.
Tools of Analysis:
Close analysis and graphical presentation was used as a tool of analyzing
the data.

Page  18
Scope of the Study

The study is conducted only at “NFL, Bathinda” Punjab for six weeks
duration. The study of budget is purely based on secondary data and all the
information is available within the company itself in the form of records,
which is based on the data collection for the year 2009-10. Hence, the scope
of the study is limited up to the availability of official records and
information provided by the employees.

Page  19
Objectives of the Study

1. To know about the need for Budgetary Control System in the company
2. To be conversant with the Budgetary Control System and various types of
planning and control measures adopted by the company
3. To be familiar with the nature, types and purpose of budget to be
submitted by the various departments and get knowledge about them in a
practical aspect.
4. To develop the understanding about responsibility as to why and by
whom it is made
5. To know about the different measures and ways to make budgetary
control a successful instrument for planning and control purpose

Page  20
Sources of information

 Office Records
 Internet
 NFL Library
 Personal Interviews
 Newspaper Clippings
 Pamphlets

Page  21
Limitations of the Study

1. Due to policies of company, only screened information is provided by the

accounting department.
2. Information already compiled by the company is the basis of the study
and not the information from the raw/ primary data.
3. Policies of company & Govt. are frequently changing.
4. Although the staff of NFL Bathinda was highly co-operative & devoted
enough to spend considerable time on me but because of their busy
schedules, I was unable to gain complete knowledge. Further more I was
allotted a limited time period for study.

Page  22
Introduction to Budgetary Study

Page  23
Budget
 A budget may be defined as a formal expression of the expected income and
expenditure for a definite future period.
Budgetary Control
 Budgetary Control is a system whereby the budgets are used as a means of
planning and controlling costs.
 Budgeting lays down as to what is to be attained and how it is to be attained
 while control ensures that the objectives are realized and actual results do not
deviate from the planned course more than necessary.
The targets set up under the system are such that they can be directly compared with
the actual performances, and the differences, if any, can be traced to an individual
who is responsible for the same. This building up of a sense of responsibility in
accounting is the main feature of budgetary control.

Page  24
 Types of Budgets

●
Short- Term Budgets ●
Basic
●
Long- Term Budgets ●
Current

Time
Condition
Period

Activity
Function
Levels

●
Fixed ●
Functional
●
Flexible ●
Master

Functional Budgets
Selling & Administr Capital R&D
Producti Purcha Labour Cash
Sales Distributi
on Cost
ation Expendit Cost
Page  25 on Cost ses Cost Cost ure Budget Budget
Objectives of Budgetary Control
To plan the policy of a business for the coming period for achievement of
the firm’s objectives and its translation into monetary and quantitative
terms
To determine the responsibility of each department and executive so that
they are made accountable for definite and precise results
To coordinate the activities of a business so that each is a part of an integral
total
To provide for continuous comparison of actual and budgeted performance
in terms of results achieved and costs incurred so that cause for any
inefficiency is immediately detected and removed
To control and direct each function so that best possible results may be
obtained
To provide for the revision of budgets for future in the light of experience
gained

Page  26
Process of Budgetary Control

The exercise of Budgetary Control involves the following steps:

The establishment of budgets for each section or department of the
organization
The measurement of actual performances
The continuous comparison of actual performances with the budgeted
performances so as to determine the deviations or variances and
The ascertainment of reasons for such variance and taking suitable actions
to remedy the defects in order to achieve the objective under the original
policy or to provide a basis for its revision

Page  27
Advantages of Budgetary Control System

Helps in Planning
Encourages Cost Consciousness
Leads to Economy in Operations
Promotes Cooperation and Coordination
Encourages Safe Delegation and Responsibility
Helps in Effective Cost Control
Gives Motivation to Workers
Serves as a media of communication
Encourages Management by Exception

Page  28
Limitations of Budgetary Control System

Use of Estimated Figures

Expensive System
Extensive Decentralization
Opposition by Staff
It is simply a tool of Management
Lack of Flexibility

Page  29
Budgetary Control in NFL
The exercise of budget formulation is done taking into account
1. policy of the company regarding manufacturing, marketing, maintenance of plant
and machinery and
2. allied objectives of the company
While preparing the budget, it is not only the company’s policy which has been
considered but
3. Government policies are also taken into account.
 In an industry like NFL Govt. policy plays an important role as price mechanism,
quality and distribution are governed under the Fertilizer Control Order and
Essential Commodities Act (ECA).
Budgeting is not merely a mathematical or statistical exercise but a management
exercise. It results from the coordinated efforts & involvement of a large number of
people. Success of such a system will largely depend upon the quality and ability of
the individuals who operate the system.

Page  30
Contd.
Some factors which should be looked into in this regard are as follows:
Those who would be made responsible to achieve the budget should be fully
associated with the process of setting the budgets and no budgets should be
imposed from the top.
 Individual should be made responsible for the costs they can control.
While real favorable variances are always to be commended, adverse
variances should not invariably be viewed as failures of the individual’s
concerned but as stepping stones towards future successes.

Page  31
Considerations for Budget Preparation

The exercise of budgetary control is carried out in the company since its
inception. While preparing the Budget, the executives departments ensure
the following:
1. The budget estimates are prepared on realistic basis.
2. The objectives of the company have been kept in view while drawing the
budget estimates.
3. It is ensured that the budget estimates are prepared taking each division
as the cost-centre.
4. The forward escalation/de-escalation in prices is also hept in mind while
preparing the budget estimates.
Keeping in view the above factors, budget estimates for the next year and
revised budget estimates with reference to original budget estimates for the
current year are prepared.

Page  32
Budgets prepared at NFL, Bathinda
Broadly, three types of Budgets are prepared
1. Revenue Budget
2. Working Capital Budget
3. Capital Budget

I. Revenue Budget:
The control of revenue budget is the most important area for any organization
so as to maintain the profitability as per the budgeted expenditure. If utmost
care is taken at the time of formulating the budget, the company can achieve
its desired goals of optimizing the profit. To optimize the profit and minimize
the expenditure, the control of expenditure is basic necessity.
The expenditure under Revenue Budget is divided as under:
Variable Cost/Expenditure
Fixed Cost/ Expenditure

Page  33
1. Variable Cost/Expenditure
 Input Materials
 Production and Sales Budget
 Freight and Handling Charges
 

2. Fixed Cost/ Expenditure

 Salaries and Wages, Bonus and other benefits to Employees
 Administrative Overhead
 Factory Overhead
 Repairs and Maintenance Expenditure

Page  34
II. Working Capital Budget

1. Inventory
2. Sundry Debtors
Sundry Debtors consist of two parts namely
 Subsidy to be received from Govt. of India
 Consumers’ price to be realized by Marketing Department of NFL
NFL has no control over subsidy to be received from Govt. of India. If funds are
available, reimbursement of subsidy claim is made within 45 days.
So far realization of consumer’s price – it depends upon policy of the Company
during busy and off season.
3. Loans and Advances
4. Cash and Bank Balances

Page  35
III. Capital Budget
Process of Formation:
1. First, the information regarding requirement of capital schemes is asked
by the Budget Section of Finance Department from each department.
2. Then, the capital schemes/items are forwarded to Budget Section.
3. After receipt of schemes/items from all departments, the same are
compiled.
4. The list of all schemes duly recommended for inclusion by CGM is
prepared by Budget Section.
5. After that, Administrative approval is obtained from Ministry of
Fertilizers and Chemical department of fertilizers.
6. While examining and approving the schemes, schemes are either
dropped, provisions get reduced
7. Schemes duly approved by the C and MD of the Company are conveyed to
unit.
Page  36
Data Analysis & Interpretation

Page  37
Net Profit, NFL Bathinda

Year Net Profit (Rs./Lakhs)

2002-03 17028.36

2003-04 2594.67

2004-05 3619.67

2005-06 2693.08

2006-07 1421.53

2007-08 815.68

2008-09 10492.88

2009-10 9001.29

Page  38
 Net Profit (Rs./Lakhs)
18000

16000

14000

12000

10000

8000

6000

4000

2000

0
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Net Profit (Rs./Lakhs)

Page  39
Analysis of Budget 2009-10
Month Total Income Total Cost Net Profit/Loss

April 8866.90 8545.80

321.10
May 9843.42 9367.72
475.70
June 9517.92 9093.76
424.16
July 9843.43 9367.72
475.71
August 9843.43 9367.72
475.71
September 8866.90 8545.81
321.09
October 9843.43 9367.72
475.71
November 9517.92 9093.76
424.16
December 9843.43 9367.72
475.71
January 9843.43 9367.72
475.71
February 8866.90 8545.81
321.09
March 3658.75 4170.23
-511.48
Total 108355.86 104201.49
4154.37

Page  40
Total income/Total cost in 2009-10

10000

9000

8000

7000

6000

5000

4000

3000

2000

1000

0
ril ay ne ly st be
r er be
r
be
r ry ry ch
A p M Ju Ju
ugu m t ob m m n ua rua ar
A e c e e Ja b M
pt O ov ec Fe
Se N D

Total Income Total Cost

Page  41
Net Profit/Loss in 2009-10

Net Profit/Loss
600

475.7 475.71 475.71 475.71 475.71 475.71

424.16 424.16
400
321.1 321.09 321.09

200

0
April May June July August September October November December January February March

-200

-400

-511.48

-600

Page  42
Interpretation

The Total Income/Total Cost graph shows Total Income and Total Sales in
different months in Budget 2009-10. It shows that income was more than
sales in all the months except in March where Total Cost is more than
Total Income by -511.48, which results in Net Loss of this amount as is
shown in the second Graph of Net Profit/Loss. It shows that Net Profit was
sufficiently good in all the months except in March 2010. Besides this for
the months of April, September & February Net Profit was somewhat less
than other months.

Page  43
Findings, Conclusion & Recommendations

Page  44
Findings
The exercise of budgetary control is carried out in the company since its inception.
Budgeting exercise is essential because it compels the management to put its policy
and objectives into action to take place in future.
Budget estimates are prepared on realistic basis considering objectives of the
company.
While preparing the budget, not only the company’s policy but Government policies
are also taken into account.
The Budgets maintained by the company are mainly:
 Revenue Budget
 Working Capital Budget
 Capital Budget
The control of Revenue Budget is very important to maintain the profitability as per
the budgeted expenditure.
The budgetary control is exercised by Budget Section of Finance and Accounts
Department.
ABC Analysis is mainly used as the Material Control Technique, measuring the cost
significance of each item of material.
Page  45
SWOT ANALYSIS
STRENGTHS:
Profit making and reputed firm.
More than 29 years experience in the fertilizer industry.
Capable and highly disciplined staff
Producing high quality products comparable with the international
standards. As awarded by ISO 9001.
Technical and operating efficiency comparable with other firms.
Availability of cheap and skilled labour.
A number of Awards and Recognitions.

WEAKNESSES:
Problem on timely availability of imported and indigenous raw material.
Facing some infrastructure problems.

Page  46
Contd.
OPPORTUNITIES:
Good demand for neam coated urea
Scope for growth in biofertilizers.
Locational advantage as the production unit is located in the main
consumption area.
 
THREATS:
Slow growth in urea consumption during last 7-8 years due to increasing
interest of farmers towards imported fertilizers.
Increasing input costs of feed- stock i.e. FUEL OIL/SHS/NAPTHA/NS.
Single nutrient product base
Globalised competitive scenario in industrial products.

Page  47
Recommendations

1. Bio-fertilizer gives the ever best performance and to increase the profit
-production of bio-fertilizer should be increased.
2. Company must have to make the product available to the farmer when he
is in need of the product.
3. NFL has to more concentrate on the Kisan Melas instead of other modes
of advertising.
4. The fixed overheads like salaries and wages, repairs and maintenance,
interest charges etc. should be kept in control and should not exceed the
budgeted overheads.
5. Effective control should be kept on the power and fuel consumption also.
6. Gas based plants are more energy efficient as compared to the plants
based on the feed stock. It is recommended to transfer the fuel based
plants to gas based plants. It will increase the efficiency and production
and will reduce cost.

Page  48
Contd.

7. The revamping project should be adopted because the increase in the

prices of FO/LSHS increased the production cost.
8. NFL must have to spent good amount on R and D so that innovative
products can be launched to stay ahead from its competitors
9. The farmers are illiterates or less educated so NFL has to spent more on
educating them about the new products and their use.
10. The firm should try to improve its sales by marketing at large scale and
doing its advertising and sale promotional operations in other states
except than northern states of India and should face the competition.
11. The process of setting the budget should be fully associated with the
persons responsible to achieve the budget and no budgets should be
imposed from the top.

Page  49
Conclusion
Finally, it may be concluded that Budgeting is a management exercise which
is very essential for achieving the set objectives. The System for budgetary
control is applied in NFL in each field of activities. The Control of Revenue
budget is the most important area for the company to maintain the
profitability as per the budgeted expenditure. It includes various variable
and Fixed costs. Revenue Budget for 2009-10 shows net profit of Rs. 4154.32
lakhs. Whole of this Budgetary Control is exercised by Budget Section of
Finance and Accounts department.
 Also, the revamping process is a good step in the development of the
company as it will decrease the per unit cost of urea and will also decrease
the subsidy given by the government. The decrease in the profit by 12 cr. is
due to the high input feedstock which will be decreased by the revamping
process. Thus, NFL has controlled internal cost up to a great extent.

Page  50
Page  51