CONTENTS

CHAPTER 1 INTRODUCTION CHAPTER 2 CHAPTER 3 CHAPTER 4

Scope of Financial Management Functions of Financial Management Identification of relevant groups Objectives of Financial Decision Making Other methods of Financial Management Importance of Financial Management Methodology of the study Objectives of the study Limitations of the study

INDUSTRIAL PROFILE COMPANY PROFILE THEORETICAL FRAME WORK OF

CAPITAL BUDGETING Balance Sheet of NFCL

INTERPRETATIONS FINDINGS

SUGGESTIONS

BIBILOGRAPHY

INTRODUCTION
Financial Management is an Integral part of overall management. Finance function has become so important that it has given birth to financial management as a separate subject. Finance is one of the basic foundations of all kinds of economic activities. It is the master key which provides access to all the sources for being employed in manufacturing and merchandising activities. It has rightly been said that business needs money to make more money. However, it is also true that money begets more money, only when it is properly managed. Hence, efficient management of every business enterprise is closely linked with efficient management of its finances. Finance Management includes the activities concerned with the planning, raising, controlling and administering of the funds used in the business. It entails planning for the future of a person or a business enterprise to ensure a positive cash flow. It includes the administration and maintenance of financial assets. Besides, financial management covers the process of identifying and managing risks. Finance can be classified into two major parts: The subject of Financial Management is of immense interest to both academicians and practicing managers. It is of great interest to academicians because the subject is still developing, and there are still certain areas where controversies exist for which no unanimous solutions have been reached as yet. Practicing Managers are interested in this subject because among the most crucial decisions of the firm are those which relate to finance and an understanding of the theory of financial management provides them with conceptual and analytical insights.

Scope of Finance Management: Firms create manufacturing capacities for production of goods; some provide services to customers. They sell their goods or services to earn profits. They raise funds to acquire manufacturing and other facilities. Thus, the three most important activities of a business firm are: Production Marketing Finance

A firm secures whatever capital it needs and employees it (finance activity) in activities that generate returns on invested capital (production and marketing activities). A business firm thus is an entity that engages in activities to perform the functions of finance, production and marketing. The raising of capital funds and using them for generating returns to the supplies of funds is called the finance function of the firm.

FUNCTIONS OF FINANCIAL MANAGEMENT

Financial decisions refer to decisions concerning financial matters of a business firm. There are many kinds of financial management decisions that the firm makes in pursuit of maximizing shareholders wealth, viz., kind of assets to be acquired, pattern of capitalization, distribution of firms income etc. We can classify these decisions into three major groups: Investment decision Financing decision Dividend decision

Investmen t Decision

Financing Decision

Dividend Decision

I)

Investment Decision:
Investment Decision relates to the determination of total amount of assets to held in the firm, the composition of these assets and the business risk complexions of the firm as perceived by its investors. So, the investment decisions are the decisions relating to assets composition of the firm. The investment decisions include not only those that create revenues and profits (e.g. introducing a new product line) but also those that save money. The investment decisions can be classified under two broad groups : (i) (ii) Long-term investment decision and Short-term investment decision,

The long-term investment decision referred to the capital budgeting and the short-term investment decision referred to working capital management.

The Capital Budgeting decisions are more crucial for any firm. Capital budgeting is the process of making investment decisions in capital expenditure. These are expenditures, the benefits of which are expected to be received over a long period of time exceeding one year. The finance manager has to assess the profitability of various projects before committing the funds. The investment proposals should be evaluated in terms of expected profitability, costs involved and the risks associated with the projects. Working Capital Management, on the other hand, deals with the Management of current assets of the firm. Though the current assets do not contribute directly to the earnings, yet their existence is necessitated for the proper, efficient and optimum utilization of fixed assets. There are dangers of both the excessive working capital as well as the shortage of working capital. A finance manager has to ensure sufficient and adequate working capital to the firm.

II Financing Decisions:
Once the firm has taken the investment decision and committed itself to new investment, it must decide the best means of financing these commitments. Since, firms regularly make new investments, the needs for financing and financial decisions are on going. Hence, a firm will be continuously planning for new financial needs. The financing decision is not only concerned with how best to finance new assets but also concerned with the best overall mix of financing for the firm.

III) Dividend Decisions:

The establishment of dividend policy is another important function of finance manager which involves the determination of the percentage of profits earned by the enterprise which is to be paid to its shareholders. The dividend decision is concerned with the quantum of profits to be distributed among shareholders. A decision has to be taken whether all the profits to be distributed, to retain all the profits in business or to keep a part of profits in the business and distribute other among shareholders. The higher rate of dividend may raise the market price of shares and thus, maximize the wealth of shareholders. The firm should also consider the question of dividend stability, stock dividend (bonus shares) and cash dividend.

Functional areas of Modern financial management Modern financial management performs several functions, following are important functional area of modern management.

Identification of the relevant groups:

The various groups which may have stakes in the financial decisions making of a firm and therefore required to be considered while taking financial decisions are: The shareholders The debt investors, The employees, The customer and the suppliers, The public, The Government, and The Management

Objective of the Financial Decision Making

The main objective of a business is to maximize the owners economic welfare. This objective can be achieved by : Profit Maximization and Wealth Maximization

Profit Maximization
For any business firm, the maximization of the profits is often considered as the implied objective and therefore it is natural to retain the maximization of profit as the goal of the financial also. The profit maximization as the objective of financial management has a built in favor for its choice. The profit is regarded as yard stick for the economic efficiency of any form. If all business firm of the society are working towards profit maximization then the economic resources of the society as a whole would have been most efficiently, economically and profitably used. The profit maximization by one firm and if targeted by all, will ensure the maximization of the welfare of the society. So, the profit maximization as objective of financial management will result inefficient allocation of resources not only from the point of view of the firm but also for the society as such. It ignores the risk. The profit maximization concentrates on the profitability only and ignores the financing aspect of that decision and the risk associated with that financing. It ignores the timings of costs and returns and thereby ignores the time value of money The profit maximization as an objective is ague and ambiguous. The profit maximization may widen the gap between the perception of the management and that of the shareholders. The profit maximization borrows the concept of profit from the field of accounting and thus tends to concentrate on the immediate effect of a financial decisions as reflected in the increase in the profit of that year or in near future.

Wealth Maximization :
This objective is generally expressed in term of maximization of the value of a share of a firm. It is necessary to know and determine as to how the maximization of shareholders wealth is to be measured. The measure of wealth which is used in financial management is the concept of economic value. The economic value is defined as the present value of the future cash flows generated by a decision, discounted as appropriate rate of discount which reflects the degree of associated risk. This measure of economic value is based on cash flows rather than profit. The economic value concept is objective in its approach and also takes into account the timing of cash flows and the level of risk through the discounting process.

Profit Maximization Versus Wealth Maximization:

The objective of profit maximization measures the performance of a firm by a looking at its total profit. The objective of maximization of the shareholders wealth is operational and objective in its approach. A firm that wishes to maximize the profits may opt to pay no dividend and to reinvest the retained earnings, whereas a firm that wishes to maximize the shareholders wealth may pay regular dividends.

Other Objectives of Financial Management

Financial Management has been playing a vital role in achieving the following objectives also. 1. Ensuring a fair return to shareholders. 2. Building up reserves for growth and expansion. 3. Ensuring maximum operational efficiency by efficient and effective utilization of finances. 4. Ensuring financial discipline in the organization.

IMPORTANCE OF FINANCIAL MANGEMENT:

Finance Management is of greater importance on the present corporate world. It is indispensable in any organization as it helps in : i. ii. iii. iv. v. vi. vii. Financial planning and successful promotion of an enterprise; Acquisition of funds as and when required at the minimum possible cost; Proper use and allocation of funds; Taking sound financial decisions; Improving the profitability through financial controls; Increasing the wealth of the investors and the nation Promoting and mobilizing individual and corporate savings.

10

METHOLOGODY OF THE STUDY

The required for this study would be collected through two sources i.e.,

METHODS

PRIMARY DATA Primary PRIMARY data DATA

SECONDARY DATA

1. Primary Data: The primary data comprises information obtained by the candidate during discussions with Heads of Departments and from the meeting with officials and staff. 2. Secondary Data: The secondary data has been collected through Annual Reports, Bulleting and other Printed Materials supplied by the Company. In the present study 2/4th of the total information of time is from primary data and the rest is from the secondary data.

11

OBJECTIVES OF THE STUDY

This project work is mainly focused to attain the following major objectives. They are

1. To know about the fertilizer industry and business activities of M/s. Nagarjuna Fertilizers and Chemicals Limited, Kakinada. 2. To study the ability of the firm to meet its current requirements. 3. To study the extent to which the firm has used its long-term solvency by borrowing funds. 4. To study the overall operating efficiency in performance of M/s. Nagarjuna Fertilizers and Chemicals Limited, Kakinada. 5. To study the efficiency with which the firm is utilizing its various assets in generating sales.

6. To suggest guidelines to the company for improving its financial position

7. To study the estimated outcomes of new projects and its benefits

12

LIMITATIONS OF STUDY
1. The study is limited to NFCL, Kakinada; it does not relate to any other

company of Nagarjuna Group or other firms of Fertilizer Industry. 2. The smaller time frame for understanding this study is also a significant

limitation.

3.

Uncertainty: the future business success is todays investment decision.

The future in the real world is never known with certainty.

4.

Difficult to measure in quantitative terms: Even if benefits are certain,

some might be difficult measure in quantitative terms.

5.

Time Element: the problem of phasing properly the availability of capital

assets in order to have them come on stream at the correct time.

6.

Unrealistic assumptions: Risk and uncertainty is not considered in the

business environment, cash flows are received in lump sum at the end of the period, and the cost of capital and discount rate are one and the same. These are some of the unrealistic assumptions of capital budgeting.

13

14

INDUSTRIAL PROFILE
India has been predominantly considered as an agricultural dependent economy. Agriculture plays a very dominant role as more than one-fourth of our GDP come from this sector. Nearly 70% of population depends on the agriculture for their lively-hood. The basic need for an agricultural dependant economy is fertilizers and urea is one of the main fertilizers. India is the second largest manufacturing country in the world. All fertilizers consist if three main ingredients. Nitrogen(N) -- which promotes general plant growth Phosphorous(P) -- which promotes flowering Potassium (K) which promotes strong roots. The ingredients are mixed in various combinations because plants have different needs. The combinations are indicated by a three number code: The first number is the percent of nitrogen (N) The second number is the percent of phosphorus (P) The third number is the percent of potassium (K)

15

ABOUT FERTILIZER:
Fertilizer is simply, plant food. Just like the human body needs vitamins and minerals, plants need nutrients in order to grow. Plants need large amounts of three nutrients nitrogen, phosphorus, and potassium. These are commonly referred to as macronutrients. Fertilizer makers take those three nutrients from nature and put them into soluble forms that plants can easily use. There are a number of other nutrients plants need in small amounts. These are referred to as the minor nutrients, or micronutrients. These many nutrients are typically produced separately, but end up being mixed together in varying amounts to match the needs of a particular crop. The analysis found on each bag or bulk shipment of fertilizer tells the farmer or consumer the amount of nutrients being supplied. States have a system of laws and regulations that ensure the fertilizer is properly labeled and delivers the amount for nutrients stated on the bag. Our world would be vastly different without commercial fertilizers. Following World War II, new technologies allowed for the rapid expansion of fertilizer production. Coupled with growing food demand and the development of higher-yielding crop varieties, fertilizer helped fuel the Green Revolution. Today, the abundance of food we enjoy is just one way fertilizers help enrich the world around us. While fertilizers provide many important benefits that are necessary for our way of life, the improper use of fertilizers can harm our environment. Weve used the most recent developments in science to study our products and make sure safety comes first.

FERTILIZER:
Fuel for growing plants just like humans and animals, plants need adequate water, sufficient food, and protection from diseases and pests to be healthy. Commercially produced fertilizers give growing plants the nutrients they crave in the form they can most readily absorb and use: nitrogen (N), available phosphate (P) and soluble potash (K), Elements needed in smaller amounts, or micronutrients, include iron (Fe), zinc (Zn), copper (Cu) and boron (B).

16

Each crop year, certain amounts of these nutrients are depleted and must be returned to the soil to maintain fertility and ensure continued, healthy future crops. Scientists project that the earths soil contains less than 20 percent of the organic plant nutrients needed to meet our current food production needs. Therefore, through the scientific application of manufactured fertilizers, farmers are meeting the challenge of the future, today. Another component of plant DNA is phosphate, which helps plants to use water efficiently. It also helps to promote root growth and improves the quality of grain and accelerates its ripening. And potassium, commonly called potash, is important because it is necessary for photosynthesis, which are the production, transportation and accumulation of sugars in the plant. Potash makes plants hardy and helps them to withstand the stress of drought and fight off disease.

Fertilizer Types:
Because every crop is different and the soils and weather conditions crops are grown in vary dramatically around the world, commercial fertilizers, which are manufactured from natural sources, come in many formulations. Combining air with hydrogen using natural gas as the feedstock makes ammonia, the building block for nitrogen fertilizers. Ammoniated phosphates, which include mono ammonium phosphate (MAP) and diammonium phosphate (DAP), are made by reacting ammonia with phosphoric acid. Muriate of potash, also called potassium chloride, is made from mine ores that have been processed to remove naturally occurring salts. Ammonium nitrate is a solid fertilizer containing approximately 34 percent nitrogen that is water soluble and used in various fertilizer solutions. Aqua ammonia is another nitrogen-based fertilizer made by combining ammonia with water. It contains up to 25 percent nitrogen and is either applied directly to the soil or is used to manufacture phosphate fertilizers. Nitrogen solutions are water solutions of ammonia, ammonium nitrate and, sometimes, urea, a solid fertilizer containing approximately 45 percent nitrogen, and other soluble compounds of nitrogen. Nitrogen solutions are used in ammoniating super phosphate, the manufacture of complete fertilizer and for direct injection into the soil.

17

NITROGEN (N):
Nitrogen is a part of all plant proteins and is a component of DNA and RNA the blueprints for genetic characteristics. It is necessary for plant growth and chlorophyll production. Nitrogen is the building b lock for many fertilizers. Where does N come from? Nitrogen is present in vast quantities in the air, making up about 78 percent of the atmosphere. Nitrogen from the air is combined with natural gas in a complex chemical process to make ammonia.

PHOSPHOURUS/PHOSPHATE (P):
Phosphorus as a nutrient is sometimes most valuable to plants when put near the seed for early plant health and root growth. Plant root uptake is dependent on an adequate supply of soil P. Phosphorus is relatively insoluble in water. The water in most soils must replace all of the P in the soil water 2 to 3 times each day to meet the crops demand for P. Phosphorus compounds help in directing where energy will be used. Phosphorus compounds are needed in plant photosynthesis to repackage and transfer energy. Phosphate is also a component of DNA, so it is one of the building blocks of genes and chromosomes. Phosphorus is involved in seed germination and helps plants to use water efficiently. Where does P come from? Phosphorus occurs in natural geological deposits. Deposits can be found in the U.S. and other parts of the world.

Potassium/Potash (K):
18

Potassium protects plants against stresses. Potassium protects plants from cold winter temperatures and helps them to resist invasion by pests such as weeds and insects. Potassium stops wilting, helps roots stay in one place and assists in transferring food. Potassium is a regulator. It activates plant enzymes and ensures the plant uses water efficiently. Potassium is also responsible for making sure the food you buy is fresh. Where does K come from? The element potassium is seventh in order of abundance in the Earths crust. Through long-term natural processes K filters into the oceans and seas. Over time, these bodies of water evaporate, leaving behind mineral deposits. Although some of these deposits are covered with several thousands of feet of earth, it is mined as potash or potassium chloride. Potash ore may be used without complex chemical conversion; just some processing is necessary to remove impurities such as common salt.

FOOD FOR THE GROWING WORLD

Industry at a glance:
Since 1883 the industry has worked to promote the advances in the development and application of fertilizers that have helped to feed a hungry world. The revolutionary concept of plant nutrition was born from the discovery of the biological role of chemical elements in plant nutrition and the need to feed a growing population concentrated away from the farm in the rising industrial centers of the world. Because of modern fertilizers, world food production since 1960 has more than doubled, keeping pace with the population explosion. Today, the fertilizer industry is poised to help produce the food that will be needed to feed the worlds projected 9 billion people in 2025. The fertilizer industry is essentially concerned with the provision of three major plant nutrients nitrogen (N), phosphorous (P) and potassium (K) in plant available form. Each nutrient is responsible for different aspects of plant growth and health.

Fertilizers:
19

Regulated for quality and safety like other manufactured goods, fertilizers are regulated for quality and safety at the federal and state levels. Every state in the country, plus Puerto Rico, has its own fertilizer regulatory program, usually administered by the state department of agriculture.

State Regulation:
State regulation is concerned with consumer protection, labeling, the protection of human health and the environment, and the proper handling and application of fertilizers. Fertilizers are regulated at the state level because soil conditions vary dramatically from state to state across the country. For example, the rocky, thin soils of New England are vastly different from the deep, rich black soils of the Midwest Corn Belt. A different level of fertilizer nutrients in the soil, different crops (potatoes versus corn, for instance) and different weather and cropping patterns require state-specific regulation. Where Science and safety come first the modern commercial fertilizer industry was founded on the revolutionary scientific discovery in the last part of the 18th century that chemical elements play a direct role in plant nutrition. This initial concept was supported by direct scientific experiment and opened the way for industrial-scale manufacturing of fertilizers of all types in the 19th century, beginning with super phosphate in 1843. this was followed by ammonium sulphate, sodium nitrate and, finally, in the first two decades of the 20th century, the manufacturing of synthetic nitrogen fertilizers directly from atmospheric nitrogen.

Assessing Fertilizer Safety:

Fertilizer research and development historically have been focused on maximizing economic crop yields from given rates of nutrient application. Since the advent of the modern environmental movement in the 1960s, research has also been concerned with minimizing potentially adverse human health and environmental effects from fertilizer manufacture and application. As part of its continuing commitment to safety, in 1996. The Fertilizer Institute initiated a comprehensive safety assessment project to determine the risks, if any, of metals in fertilizer. Small amounts of metals are found in phosphate and potash fertilizers due to their presence in the mined ore bodies. In addition to phosphate and

20

potash products, some micronutrient fertilizers. Which come from both mined ores and recycled wastes, also contain metals.

Fertilizers Enrich our World:

Improvements in agricultural efficiency through research and technology increase food output while protecting the environment and enriching our world in numerous ways. Fertilizers feed the growing world. As the worlds population continues to climb toward an estimated 8.5 billion in 2040, experts estimate that food production must increase more than two percent annually to even maintain current diets. Commercial fertilizers will be key in the fight to feed the growing world. Fertilizers protect the environment. The efficient use of fertilizer also helps to conserve the natural environment. With fertilizers and modern high yield farming practices, more food is produced per acre each year, so land may be conserved. Fertilizers, used properly, help to prevent the widespread loss of habitat that results from wasteful slash and burn low-yield farming, which is a major global environmental threat.

Fertilizers at work in industry:

Aside from their benefits to agriculture, fertilizer components are central to such industrial process as semiconductor chip making, resin manufacture, cattle feed production, metal finishing, the manufacture of detergents, fiberglass insulation and more, even rocket fuel.

21

22

COMPANY PROFILE

NAGARJUNA GROUP FOUNDER SRI K.V.K. RAJU Nagarjuna Group is a dream willed into reality by its visionary Founder Shri KVK Raju. Shri KVK Raju a first generation technopreneur was born in a humble agricultural family in Andhra Pradesh on November 28, 1928. On graduating from Banaras Hindu University and the Madras Institute of Technology he went on to complete his Master's in Mechanical and Industrial Engineering from Michigan State University and the University of Minnesota, USA. After a short stint in the American Industry he returned to India and worked for short periods at Caltex Oil Refinery, Orient General Industries and Associated Electrical Industries. Finally, he joined Union Carbide of India and worked with them for 15 years. While working with Union Carbide, KVK's deep-rooted urge to serve society through industry impelled him to start out on his own. Thus was born Nagarjuna Group in 1973

23

with an investment of US$ 23 million. The Group has since then come a long way to become a diversified conglomerate with an asset base of US$ 2.5 billion. Finance: The total cost of the existing complex is Rs. 2156 corers (Rs. 1186 corers for Unit-I and Rs. 970 corers for Unit II). This consists of loan of Rs. 1,162 corers (Rs. 515 corers for Unit-I and Rs. 647 cooers for Unit II) sanctioned by IDBI, IFCI, ICICI, UTI, LIC, GIC and also Banks. The foreign exchange component of Rs. 781.07 crores was met by the Indian Financial Institutions like IDBI, IFCI & ICICI and also by Italian Buyers credit. The public and promoters subscribed the equity portion of Rs. 332.12 corers. The internal reserves of Rs. 323 corers were utilized for construction of Unit II.

LIVING IN HARMONY WITH NATURE NFCLS CONTRIBUTION TO ECOLOGY

Environmental protection is an avowed corporate philosophy and the plant is built on the principle of zero-effluent discharge and is totally eco-friendly. NFCLs aim is to maintain ecological harmony, which is NATURES INVALUABLE AND BEAUTIFUL GIFT TO MANKIND. Man can live in harmony with the environment only when mankind is guided by respect for the Mother Earth and all living things. Nagarjuna Fertilizers and Chemicals Limited believe that Industry should exist in harmony with nature. In pursuance of the corporate vision, and as a humble contribution to the Mother Nature, the complete ecological system in and around the factory has been changed by establishing a K.V.K.RAJU SUNDARAVANAMU in an area of 747 acres surrounding the Complex. The entire area has been covered with 4,50,000 plants consisting of 170 species, transforming a once highly saline marshy area devoid of any vegetation into a lush green arboreal park. The establishment of 1 KM wide K. V. K. Sundarvanam is an integral part of overall natural ecological system consisting of eleven water bodies for fish, habitat for animal life and sanctuary for both indigenous as well as migratory birds with the factory nestled in the most natural and idyllic surroundings created with dedication.

24

An integrated Environmental Management Plan (EMP) has been incorporated in the basic design itself to ensure strict adherence to International Standards. The investment on pollution control equipment in the Plant is close to Rs.110 corers of capital investment and recurring expenditure of Rs.6 corers being spent annually for operating and maintaining the equipment. MAIN FEATURES OF ECO-SYSTEM: A forestation: 740 acres of area has been planted with 4.5 lakhs samplings of 170 species. Weak areas have been planted with selected species based on criteria like tolerance to salinity; availability from local sources and their ability survive with least maintenance. A full-fledged nursery with mist chamber and sprinkler irrigation system has been developed for supply of plants to a forestation programmer. Animal Enclosures: A deer park with spotted deer has been set up in an area of six hectares with chain-link fence on all sides. Separate enclosures for birds, rabbits and certain other animals are made available. Some of these animals like jungle cat, fox, jackals, mongooses, squirrels, bats, snakes, and turtles are also being let out freely in this ecosystem as a part of our animal conservation program. Use of Treated Effluent: The total treated effluent generated from the factory is being utilized through a network of over 17 KM of PVC pipeline for sustenance of the eco-system to show the purity levels of the effluents and the technological efficiency of the plant equipment. Awareness Program: As a part of NFCLs sincere endeavor to bring awareness about the benefits of cleaner environment on the general standards of life, company has started GREENING THE ROADS of Kakinada in Phases. As a part of this program, flowering trees were planted on either side of the 4 km length of roads from Bhanugudi Junction to Nagamallithota and from Nagamallithota to NFCL. This program is being extended to further areas in phases.

25

VALUES STATEMENT OF NFCL COMMITMENT

The Associates of NFCL are committed to continuously evoking customer delight through constant review and monitoring and delivering proactive value added solutions. They are also committed to strive for satisfaction of all stakeholders in a balanced manner through sustainable growth and profitability Excellence: They shall continuously strive for Excellence in all dimensions of the Company through teamwork, creativity and other means. Ethics: They shall strive for wholesome business relationships by adhering to the principles of trusteeship, fair play and transparency in all our dealings that they shall practice a work cultural, which is performance driven and conducive to in proving discipline, accountability and depth of character, team spirit and honesty in all our personal and professional relationships. They shall build a learning organization where creativity, innovation, entrepreneurship and knowledge sharing are encouraged and fostered actively Concern: They consciously recognize that the development of associates is inextricably linked to the sustainable growth and profitability of the organization. Therefore, mutual care and concern between the associates and the organization shall be our abiding value.

26

NFCLS VISION STATEMENT SERVING SOCIETY THROUGH INDUSTRY

For close to two decades, the employees at NFCL have predominantly been in the business of manufacturing and marketing Urea, a segment of the plant Nutrition business space. Given our cumulated experience and strengths in understanding the farmer, the agriculture, various initiatives taken in the past, the exposure of Indian agriculture to global economy and therefore the need for Indian farmers to be globally competitive, have realized the need to provide innovative and comprehensive Plant Nutrition Solutions. The leadership they refer to in our Vision Statement is in terms of providing innovative and creative solutions. NFCLS MISSION STATEMENT They shall: Pioneer transformation in the approach to plant nutrition Deliver holistic plant nutrition solutions to the farmers Be the most preferred organization to be associated with

Pioneer transformation in the approach to plant nutrition they shall develop crop, site and stage specific wholesome plant nutrition solutions. NFCL shall focus on all necessary initiatives towards this be it manufacturing technology, regulatory, logistics and using a mix of several sciences and skills. The most preferred organization to be associated with in the process of providing these solutions, NFCL shall delight all the stakeholders employees, investors, suppliers, customers and society at large. The stakeholders would prefer to be associated with us not only for the higher value they offer, but also shall cherish their relationship with us due to the way they deal with them with full commitment, responsibility and accountability.

27

EMPLOYEE FOCUS:

NFCLs aim to have the most satisfied employee base by the turn of the century through its commitment to Personal and professional development of the individual. Rewarding teamwork, innovation and quality behavior Through job satisfaction Creating and sustaining a close-knit family culture wherein every individual experience a sense of belonging. Marketing: NFCL is operating in Andhra Pradesh, Orissa, West Bengal, Maharashtra, Karnataka, Pond cherry (Yanam territory). A professional team, with a wide range of products, that include Urea, traded fertilizers (DAP, MOP, Complex fertilizers), Micronutrients, Pesticides, Organic fertilizers and Bio-Pesticides, has taken NFCL very close to the farmers and made NAGARJUNA a household name among the farming community. Keeping pace with the changes in agricultural practices NFCL has developed organic-fertilizers and bio-pesticides with support from NARDI. A new concept in fertilizers i.e., Customized Fertilizer Granules (CFGs) has been developed and the product is in trials. NFCLs Development activities focus on imparting training to farmers and dealers on the latest package of practices in various crop sand technology transfers. Training programs are carried out both on campus at KVK, Kakinada and off-campus at villages and towns. A Well-equipped and trained development tem organizes the

28

programs using audio-visual vans, jeeps, slide projectors and literature on products and crops, etc. State Governments, Agriculture Universities and the farming community as a whole have acknowledged the effectiveness of development programs being carried out by NFCL.

CUSTOMER FOCUS:
In recognition that business is based on quality and integrity, NFCLs aim to have the most satisfied customer base by enhancing farmer productivity through forward integration on the one hand, and through catering to industrial needs on the other. Unto this end, NFCL shall:

Produce high quality products that give value for money Offer, both products and services Innovate to satisfy the real needs of customers Engage in fair, open and ethical practices.

29

SHARE HOLDER FOCUS

NFCL aim to keep its shareholders satisfied by: Delivering the best long-term return on investment amongst all companies in the Indian agri-business industry. Continuous growth and excellence in business performance.

AWARDS AND HONOURS

EPIC Award for Anti-Pollution measures taken by the Industry by Environment Public interest Committee, Kakinada in 1993. Good Housekeeping Award for 1994 by National Safety Council, A.P. Chapter. Best Industrial Canteen Award for 1994 by National Safety Council, A.P. Chapter. Indian Chemical Manufacturers Association (ICMA) Award for Environmental Control Strategies and Safety in Chemical Plants for the year 1994. Award of Merit for 1994-95 by National Safety Council, U.S.A. for completing 2 Million Accident Freeman Hours. ISO 9002 Certification from Bureau Verities Quality International (BVQI), Netherlands, in 1995. Golden Peacock National Quality Award by Institute of Directors, New Delhi, India for 1995. British Safety Councils National Safety Award for the five consecutive years, 1994, 1995, 1996, 1997 & 1998 and also for the year 2000. Rajiv Gandhi Pitra Bhoomi Mitra Award for 1994-96 by Wasteland Development Board, Government of India. National Safety Award for 1996 by National Safety Council, U.S.A. Award for Innovative and Purposeful Program for Social Progress for the year 1996 by Indian Chemical Manufacturers Association (ICMA), Mumbai. Merit Award for 1997 and 1998 by Royal Society for the Prevention of Accident (ROSPA)

30

 Best Workers Welfare (including Family Planning) effort by an Industrial or Commercial Unit in the State for the year 1997-98 by Andhra Pradesh Chambers of Commerce & Industry (FAPCCI) Golden Peacock National Award for environmental Management by World Environment Foundation for the year 1998 Paryavarana Parirakshak Award by Rotary International at Visakhapatnam for the year 1998 VANAMITRA 1999 from Govt., of A.P. for Developing and Maintaining Greenbelt. Achieved 84% in OH & S Audit conducted by British Safety Council, U.K. in January 2000. Best School Industry Linkage Award 2000 by NCERT an Autonomous Organization of Government of India December 2000. Best Environmental Management Plan 2000-01 in Vizag Zone by Andhra Pradesh Pollution Control Board, Visakhapatnam. National Safety award for 2000-01 from British Safety Council, U.K. Best Environmental Improvement Effort by Industries located in the State in 2000-2001 from Federation of A.P. Chamber of Commerce and Industry, Andhra Pradesh. Bronze Award for Occupational Safety for the year 2001 by Royal Society for the Prevention of Accident (RoSPA), UK Commendation Trophy jointly given by National Safety Council, A.P. Chapter & Director of Factories, A.P. for Implementing OHSAS 18001 in March 2001. Environmental Protection Award in Nitrogenous Fertilizer plants category for the year 2001-02 from Fertilizer Association of India, New Delhi. Perfect Record in Occupational Safety/Health Award Programmer for operating two million employee hours without occupational injury or illness for the period from 10.10.01 to 13.11.02 from National Safety Council (NSC) of USA. Commendation prize under the process stream category for its energy conversation initiatives by Andhra Pradesh productivity council, Hyderabad in 2007. National award for Water efficient unit 2007 by confederation of Indian industry Hyderabad in 2007. 31

 Certificate of Appreciation for implementing the process safety management system (PSMS) by national safety council, A.P. Chapter, Hyderabad in 2008 Green Leaf 2nd runner-up award in the Global Competition for Excellence and Innovation in Safety, Health and Environment held by International Fertilizer Industry Association (IFA) in 2009. NFCL bagged two awards from the Fertilizer Association of India (FAI), New Delhi. It won the prestigious FAI Environmental Protection Award in the nitrogenous fertilizer plants category and stood as joint winner for excellence in Safety Award. NFCL has been awarded for the 3rd consecutive year and 5th time in the span of last 8 years and this reckoning has been done out of 31 Nitrogenous Fertilizers Plants in the country.

OTHER GROUP OF COMPANIES OR INSTITUTIONS:

Nagarjuna Agric hem Limited Nagarjuna Palma India Limited Nagarjuna Agricultural Research & Development Institute KVK Raju International Leadership Academy Nagarjuna Power Corporation Limited Nagarjuna Haifa India Limited Nagarjuna Oil Corporation Limited Bijam Biosciences Limited Nagarjuna Foundation

32

FUTURE PLANS OF THE COMPANY

1) To improve the capacity utilization and energy efficiency through technology up gradation. 2) Switching over to 100% natural gas as raw material instead of Naphtha in Ammonia plant II 3) To continue to improve environmental performance under the framework of ISO 14000 EMS. 4) To enhance the standards in the present quality management system (ISO 9002) by adopting the ISO 9001-2000 revision. 5) To widen the scope and offer technical services to various external agencies including overs as a excitement. Diversification: Nagarjuna Group is on the threshold of major growth phase. Nagarjunas aim is not just to meet the challenges of change, but to be the leaders in all the businesses that we are in namely, Agri Inputs/Outputs, Energy Sector and Refinery. Nagarjuna Group will thus have significant presence in the core sectors of the economy, which will have a multiplier effect on the industrial and socio-economic development of the country. Nagarjuna Fertilizers and Chemicals Limited (NFCL) has sought the Centers permission to expand the existing production capacity of urea from 12 lakhs metric tones per annum to 17 lakh tones per annum, reports Business Standard. NFCL is also undertaking several activities for the development of the surrounding villages by providing free medical, educational and drinking water facilities besides supporting the mentally-retarded children. The Kakinada facility of Nagarjuna Fertilizers and Chemicals Limited (NFCL), has achieved a record Urea production of 113.1%, producing a total of 13.79 lakhs Metric Tones of Urea during 2005-06. The Plant has repeated this phenomenal feat, producing Urea more than its capacity, for the consecutive second year. NFCL produces Urea in

33

two units. While the Unit one Produced 7,03,645 Metric Tones, unit two also surpassed its capacity by producing 6,75,571 Metric Tones making this phenomenal feat repeated during 2005-06 too. Total capacity of the plant is 11, 94,600 Metric Tones. The Plant also has achieved this record production at a very optimal utilization of energy of 5.662 MKcal/MT of Urea against Internal target of 5.67 Mkcal/MT, which is already much lower than the standard Fertilizer Industry Coordination Committees (FICC) norm of 5.712 MKcal/MT. NFCL has one more reason to celebrate that full production of Urea i.e., 13.79 lakhs Metric Tones has been dispatched to the farmers. Along with the production, NFCL has also done well in sales and distribution wings. Its products, which include Mahazinc, Zinc Sulphate, zeta specialty fertilizers besides Urea have been sold out during 2005-06.

NFCL WINS GAS CONSERVATION AWARD FROM GAIL:

Fertilizer facility of Nagarjuna Fertilizers and Chemicals Limited in Kakinada has been selected for the Award for Excellence in Natural Gas Conservation in the Fertilizers Sector category for its outstanding contribution to natural gas conservation in the country during 2004-05. This annual award has been instituted by Gas Authority of India Limited (GAIL) as recognition of the excellent work done by the organizations in Gas Conservation. GAIL has been conducting a nation-wide Natural Gas Conservation Program, meant to spread the word of conservation of this precious natural resource. All the natural gas using industries like power, fertilizer, steel, sponge iron, transport, glass, ceramic and petrochemicals would be considered for this award. This is the 4th achievement of NFCL for its excellence in different departments during 2005. These include; 5 star rating in O.H & S Audit from British Safety Council, UK. Commendation Award in Leadership and Excellence Awards in Safety, Health & Environment (SHE) 2004, by Confederation of Indian Industry, Southern Region, Chennai. Re-certification for ISO 9001:2000 by Bureau Verities Quality International (BVAI) for quality management systems. And NFCL also received Environment Protection Award from Fertilizers Association of India.

34

NFCL wins the prestigious Environment Protection Award from the Fertilizer Association of India Nagarjuna Fertilizers and Chemicals Limited (NFCL) the flagship company of the Nagarjuna Group has won the prestigious FAI (Fertilizer Association of India) Environment Protection Award in the Nitrogenous fertilizer plants category for the year 2004-05. NFCL had won the same award for 2001-02 also. Going much beyond the statutory requirements of law for environment protection, NFCL has implemented a comprehensive protection plan in its plant at Kakinada. further adds to the long list of recognition. NFCL has also won two more awards from FAI. A video film titled The Sugarcane produced by NFCL was adjudged Runner-up in the Annual Video Film Competition by FAI for the year 2004-05. The video film has been developed with the objective to transfer technology and to enhance the yield of sugarcane farmers in Andhra Pradesh. For NFCL, this is the second consecutive year of winning in this category. An article titled From Products to Solutions Exploring Opportunities published in the September 2005 issue of the Indian Journal of Fertilizers was awarded the Second prize in the category of Shriram Award for Best article in Marketing. Bureau Verities Quality International (BVQI) awards re-certification of ISO 9001:2000 for Nagarjuna Fertilizers and Chemicals Limited. Nagarjuna Fertilizers and Chemicals Limited (NFCL) has been re-certified of ISO 9001:2000 by Bureau Verities Quality International (BVQI), for its Quality Management Systems. The Flagship Company of the Nagarjuna Group has already been an ISO 9001:2000 organization since 1995. This re-certification, which is valid up to February 2008, is only an extension of recognition for companys excellent quality management systems. BVQI team has done the re-certification audit during February at NFCL plant Kakinada. After conducting audit in Plant Operations and Area Marketing Offices BVQI sent a certificate to NFCL in which it mentioned Quality Management System of the Nagarjuna Fertilizers and Chemicals Limited has been audited and found to be in accordance with the requirements of the standards ISO 9001:2000. NFCL has been widely acknowledged for its Commitment to the betterment of Environment and this award

35

BVQI is today the most widely recognized certification body in the world, offering solutions in the key strategic fields of companies operations: Quality, Health and Safety, Environment and Social Responsibility. It is recognized by more than 30 national and international accreditation bodies across the world to deliver ISO 9001 certification. Nagarjuna Fertilizers and Chemicals Limited Awarded the prestigious 5 star Rating by the British Safety Council, U.K: Nagarjuna Fertilizers and Chemicals Limited (NFCL), the flagship company of the Nagarjuna Group has been awarded the highly coveted 5 star rating by the British Safety Council, U.K. After a detailed Health and Safety Management System Audit conducted during the month of January 2005, the British Safety Council has awarded an Excellent rating (Score of 92.39%) to NFCLs manufacturing facility at Kakinada. The audit covered eight areas of NFCLs management systems leading to best practices, Fire Control Systems, Measurement and Control Systems, Workplace implementation, Verification, Best practice and Continuous improvement. The British Safety Council (BSC) is one of the worlds leading occupational health, safety and environmental organizations. BSCs Five Star Health and Safety Management System Audit is a benchmark for best practices. It provides a detailed examination of the organizations current practices, and gives a comprehensive report and plan for implementing, monitoring and achieving continuous improvement. It is based on the Business excellence Model and goes beyond HS(G)65 and OHSAS 18001 to measure how far an organization has gone towards achieving best practice. Information Technology & Communications Department, Government of Andhra Pradesh signs MOU with IKisan Limited To provide agriculture related information and services through Rajiv Internet Village Centers / (RSDPs/Rural eSeva Centers) In its efforts towards Grameen Vikas aimed at alleviating rural poverty and ensuring agricultural development, the Information Technology & Communications Department, Government of Andhra Pradesh today signed a MOU with Ikisan Limited to provide agricultural related information and services to the vast farming community of the state through Rajiv Internet Village Centers (RSDPs/Rural e-Seva Centers). 36

The Information Technology and Communications Department has already set up 1200 kiosks spreading across the state under the Rural Service Delivery Point Project (RSDP) in rural areas to serve as centers of e-commerce and information dissemination. Ikisan Limited has partnered with the Information Technology & Communications Department to provide agriculture information software and services in these kiosks. The modules will be in Telugu and voice enabled addressing the needs of rural population comprising mainly of farmers. The kiosk operators will be provided training by Ikisan Limited enabling them to effectively utilize the software and other applications for the benefit of agriculturists. Ikisan Limited is a pioneer in Agri-Portals in India. A Nagarjuna Group initiative, Ikisan.com is a comprehensive Agri Portal addressing the Information, knowledge and business requirements of various players in the Agri arena viz., Farmers, Trade Channel partners and Agri Input/Output companies. Leveraging Information Technology and extensive field presence, Ikisan is positioned as an Information/Output companies. Leveraging Information Technology and extensive field presence, Ikisan is positioned as an Information/Knowledge exchange and an e-Marketplace. An integrated agriculture group, Nagarjuna has core competencies in the fields of plant nutrition, plant protection, and irrigation and farm services. NFCL Values: Deliver solutions that will please our customers deliver returns that motivate out investors take actions that strengthen us and inspire the best in others (by setting an example in relationship, integrity, honesty, humility and hard work) By understanding the deep and fundamental needs of our people, our customers our Investors and our Ecosystem (Alliances, Community and Environment). The Group: Founded in 1973 by Shri K.V.K. Raju with a modest investment of US$ 23 million, the Nagarjuna Group Today is a prominent industrial house in India with an asset base of US$ 2.5 billion. 1974: Birth of a business group that pioneered several core sector enterprises in the coming decades. Starting with manufacturing steel, Nagarjuna Steels Limited was launched. 37

1985: With focus on agriculture input business started plant nutrition business with Nagarjuna Fertilizers and Chemicals Limited 1992: Forayed into the Crop Protection Business with Investments in Pesticide Formulations manufacturing followed by Technical Grade Manufacturing in the year 1994. 1995: Ventured into Energy Sector. Entered into power generation by setting up Nagarjuna Power Corporation Limited. 1997: Entered into petroleum by setting up Nagarjuna Oil Corporation Limited. Consolidating its core activities, today the Groups major operations cover Agri and Energy sectors. It has taken several welfare measures to improve the general working conditions. They are given below.

38

The logo exemplifies the Groups inner strength through the circles, which stand for the core values of the organization viz., concern,

commitment, quality and integrity towards its stakeholders employees, viz.,

customers,

investors

and community.

The central circle

symbolizes the Sun, the source of prime energy for the solar system. The new corporate logo of the Nagarjuna Group symbolizes a dynamic and value-based organization, actualizing the concept of Trusteeship. planet The five circles also symbolize the five elements of the Universe and the spirit of continuity. The triangle represents the Mars. Mars, has from time

immemorial

symbolized

prosperity, success and abundance of energy. The triangle in the logo represents perennial mission of the upward flow of the

energy the

towards group

Serving

Society through Industry

39

NFCL OBJECTIVES: Performance management High performance potential Individual growth potential Belief in Youth High Result Orientation Law procedure orientation Entrepreneurial Development Distinct Nagarjuna Group Ethos High sense of respect for value of time and money Harmonious employee relations Development of Human Resources on a continuous basis Highest importance to human values Objectives assessment of individual performance Disciplined behavior of all employees Belief in system management Belief dynamism Belief in multi skilled concept Continuous monitoring cost control \

FINANCE DEPARTMENT IN NFCL PLANT:

Following are the sections in the finance department: Bill section Cash and bank section General Accounts Costing and FICC (Fertilizers industry co-ordinate committee) CPC Indirect Taxation etc.

40

BILL SECTION:
This section receives bills from various departments in the plant. It checks the invoices as per the purchase order/service order terms and passes. The passed vouchers are sending to cash and bank section.

CASH AND BANK SECTION:

The section makes payments as per due dates in mode of cheque or DD. employees in mode of Cash. This section decides

that bills have to be paid in the order of importance. Travel bills and imprest bills are paid to

GENERAL ACCOUNTS SECTION:

This section is also responsible to the maintenance of the accounts for the purpose of the all audits. Budget preparation initiating necessary control mechanism is also part & parcel of this department. It looks after the entire transport bills payments. All addition and deletions of assets related to Plant are done by this section.

COSTING AND FICC:

Fertilizers industry co-ordination committee is formed by members from different departments like agriculture departments, ministry of finance and representation of big fertilizer industry. FICC section in the finance department co-ordinates with other departments and calculates the production cost of urea and with proper documentation submits it to the FICC to fix the subsidy. It is also responsible for maintaining other statutory requirements and sends various reports to FICC.

CPC: They prepare salaries of the employees and other after statutory payments like P.F, E.P.F, and E.S.I.

41

42

CAPITAL BUDGETING
Meaning of Capital Budgeting Capital budgeting is primarily concerned with sizable investments in long-term assets. These assets may be tangible items such as property, plant or equipment or intangible ones such as new technology, patents or trademarks. Investments in processes such as research, design, development and testing through which new technology and new products are created may also be viewed as investments in intangible assets. Irrespective of whether the investments are in tangible or intangible assets, a capital investment project can be distinguished from recurrent expenditures by two features. One is that such projects are significantly large. The other is that they are generally long-lived projects with their benefits or cash flows spreading over many years. Sizable, long-term investments in tangible or intangible assets have long-term consequences. An investment today will determine the firms strategic position many years hence. These investments also have a considerable impact on the organizations future cash flows and the risk associated with those cash flows. Capital budgeting decisions thus have a long range impact on the firms performance and they are critical to the firms success or failure. Process of capital budgeting:

43

Replacement Contingent investment proposals

Independent:- It includes all such investment proposals as of being considered by the management for performing different tasks within the organization. Investments in machinery, automobiles, buildings, parking lot, and recreation and so on are the examples of independent investment proposals. Acceptance of each of these projects is done on its own merit without depending on other projects. Dependent:- The decisions on one project effect in certain way the decisions on other projects if they are dependent. Mutual exclusive:- These kind of proposing connote those proposals which represent alternative methods of doing the same job. In case of proposal is accepted , the need to accept the other is ruled out.

44

TECHNIQUES OF INVESTMENT APPRAISAL There are many methods of evaluating profitability of capital investment proposals. The risk involved in the proposal cannot be ignored because profitability and risk are directly related, i.e. higher the profitability, greater the risk vice-versa. The various commonly used methods are as follows; (A) (B) Traditional (or) Non-discounted cash flows Modern (or) Discounted cash flows

CAPITAL BUDGETING METHODS

TRADITIONAL NON DISCOUNTED Payback Period Accounting Rate of Return Net Present Value MODERN DISCOUNTED CASH FLOW Internal Rate of Return Profitability Index

PAYBACK PERIOD: The Payback sometimes called as Pay of period method represents the period in which the total investment in permanent assets pay back it self. This method is based on the principal that every capital expenditure pay itself back with in a certain period out of the additional earnings generated from the capital assets. Thus it measures the period of time for the original cost of the person to be recover from the additional earning of the projects itself.

45

Advantages of Payback Period It is easy to understand and apply. The concept of recovery is familiar to every decision maker. Business enterprises facing uncertainty both of product and technology will benefit by the use of payback period method since the stress in this technique is on early recovery of investment. So enterprises facing technological obsolescence and product obsolescence as in electronics/computer industry prefer payback period method. Disadvantages of Payback Period The time value of money is ignored. For example, in the case of project A Rs. 500 received at the end of 2nd and 3rd year are given same weightage. Broadly a rupee received in the first year and during any other year within the payback period is given same weight. But it is common knowledge that a rupee received today has higher value than a rupee to be received in future. But this drawback can be set right by using the discounted payback period method. The discounted payback period method looks at recovery of initial investment after considering the time value of inflows. ACCOUNTING RATE OF RETURN Accounting Rate of Return is the rate arrived at by expressing the average annual net profit (after tax) as given in the income statement as a percentage of the total investment or average investment. The accounting rate of return is based on accounting profits. Accounting profits are different from the cash flows from a project and hence, in many instances, accounting rate of return might not be used as a project evaluation decision. Accounting rate of return does find a place in business decision making when the returns expected are accounting profits and not merely the cash flows.

Advantages of Accounting Rate of Return: It is easy to calculate

46

The percentage return is more familiar to the executives

Disadvantages of Accounting Rate of Return: Time value of money is not considered here.

NET PRESENT VALUE The Net Present Value method is a modern method of evaluating investment proposals. This method takes into consideration the time value of money and attempts to calculate the return of investments by introducing the factor of time element. The Net Present values flows in and flows out of cash occurring during the entire life of the project is determined separately for each year by discounting these flows by the firms cost of capital. If the net present value is positive or zero that is when present value of cash out flow the proposal may be accepted but in case the present value of cash inflow is less then the present value of cash out flow the proposal should be rejected. Advantages of the Net Present Value Method It recognizes the time value of money and is suitable to be applied in a situation with uniform cash outflows and uneven cash inflows or cash flows at different period of time. It takes into account the earnings over the entire life of the project and the true profitability of the investment proposal can be evaluated. It takes into consideration the objective of maximum profitability.

Disadvantages of the Net Present Value Method As compared to the traditional methods, the net present value method is more difficult to understand and operate. It is not easy to determine an appropriate discount rate.

INTERNAL RATE OF RETURN

47

The internal rate of return method is also a modern technique of capital budgeting that takes into account the time value of money. It is also known as time adjusted rate of return, discounted cash flow, discounted rate of return, yield method. The internal rate of return can be defined as that rate of discount at which the present value of cash-inflows is equal to the present value of cash outflows. Advantages of Internal Rate of Return Method Like the net present value method, it takes into account the time value of money and can be usefully applied in situations with even as well as un even cash flow at different periods of time. It considers the profitability of the project for its entire economic life and hence enables evaluation of true profitability. Disadvantages of Internal Rate of Return Method It is difficult to understand and is the most difficult method of evaluation of investment proposals. This method is based upon the assumption that the earnings are reinvested at the internal rate of return for the remaining life of the project, which is not a justified assumption particularly when the average rate of return earned by the firm is not close to the internal rate of return. PROFITABILITY INDEX METHOD It is also a time-adjusted method of the evaluating the investment proposal. Profitability index also called, as a benefit cost ratio is the relationship between the present value of cash in flow and the present value of cash out flows. Profitability Index = Present value of cash inflows Present value of cash outflows

48

Co2 Recovery Plant The CDR plant has been installed as a part of Revamp Phase-2 for capacity augmentation of the plants keeping in view the availability of gas supplies from RIL which is commenced from April 9th onwards. As we may be aware NFCL has two units to produce urea fertilizer and the unit I is operated on gas while the unit II is operated mainly on Naptha because of shortage of natural gas from the current sources in KG basin from ONGC and RAVVA JV and marketed through GAIL. Currently, unit I is operated is at higher loads than the reassessed and recognized capacity of the plant by the Government. While unit II is operated at the reassessed capacity only which is around 6LMT per annum. As there is no benefit to produce extra capacity of urea with naphtha inputs. On availability of RIL Gas, the operations of unit II will also be switched over gaseous input and it will help to increase loads in unit II also. This CDR project was ordered on M/s. MHI, Japan and Tecnimont ICB, Mumbai on lump sum turnkey (LSTK) basis. The scope of MHI comprised of licensing of process and basic know-hoe, supply of some proprietary items while tecnimont ICB has been ordered for engineering, procurement and construction scope of the project. The total installed cost of the project has been around Rs.100 crores , with close co-ordination amongst the key agencies viz., MHI, TICB and NFCL, the project has been completed in a record time of around 20 months. This CDR Project was taken up as a part of Revamp-2 and in addition to this project, there are some additional De-bottlenecking Schemes to be implemented in Ammonia & Urea plants and cooling tower to achieve better asset utilization of capacities for which procurement action is already in advanced stage and this will be hooked-up in annual Turnaround of plants, scheduled in Aug / Sep 09. The De-bottlenecking Schemes being executed will facilitate further increase in capacity and improvement in energy input and will add to the reliability of plants. As we know, Urea Fertilizer Industry is under the control regime of Department of Fertilizer, Ministry of Chemicals & fertilizers, Govt. of India, but the domestic production in the country is short by about 25% of the demand of Urea fertilizers (around

49

5 to 6 Million Tons per annum) and the same is being bridged through imports by the GOI at a huge cost. In order to contribute to reduce the shortfall of urea, we have been contemplating to do the Revamp-De-bottlenecking of the plants in order to augment the capacity of plants at much cheaper cost as compare to Import cost. In fact, under new pricing scheme-3, of dept., of Fertilizers, GOI effective from 1st Oct 06, some incentives were approved for the additional production beyond the reassessed capacity of plants. In anticipation of this policy, we had actively initiated revamp/de-bottlenecking schemes phase wise in order to augment the capacity of the existing plants from the year 2005 itself as per the feasibility reports of the consultants. These were planned phase wise as per the financial capacity of the company. The details of the revamps already carried out and being carried out and also the one in the study state are as follows; 1. Phase 1 Revamp (OPTION 1) : It was done and implemented in the year 07-08 which helped us to increase plant production capacity in Unit-1 by about 40,000 MT per annum during the year and around 50,000 MT during the full year 08-09 and the total capacity outlay for these schemes around Rs.55 crores. 2. Phase 2 Revamp (OPTION 2): is in process at an approximate cost of Rs. 200 crores which includes the CDR plant also as explained above. Part benefit will start accruing from the commissioning of CDR on availability of gas from RIL and the full benefits will be revitalized w.e.f Oct 09 and it will increase the capacity further by about 2.0 LMT of urea per anum. The total annual production is expected to increase to 15.66 LMT from the present leavel of 13.70 LMT in the current year. Besides, it will improve the energy consumption also. The total operations will be on gaseous inputs which needs lesser working capital as naphtha is much costlier than gas. The total revamp schemes have the validation of projects and development India limited, a renowned public sector undertaking.

50

3. Phase-3 Revamp (OPTION3): the proposal for increasing the capacity further by approximately 90000 MT per annum, by installing certain equipment and implementing a few additional schemes mainly in Ammonia plants in under study of the consultants, namely, M/S Haldor Topsoe of Denmark. Prima-facie, the investment is estimated around Rs 180 crores and when completed will lead us to a total production level of 16.56 LMT of Urea per annum. The Govt. has noticed certain incentives on 4th Sep 08 for the additional production beyond a cut-off level for each plant linking the concessions with import Party Price (IPP) in the New Urea Investment policy. On implementation of phase 2 and phase 3revamps, the qualifying additional production will fetch us incentives over and above the normal gains under NPS-3 on group concessions basis and the profitability of the company is likely to improve in lieu of these Revamps. Incidentally, the investments through Revamps per MT of additional Urea capacity in the in plants is much lower than the corresponding investments in Grass-Root or full expansion plants. That is why; we have opted for this route.

4.12 Application of capital budgeting techniques for CDR and Revamp project and its computation:Calculation for option 1:capital Capital cost of equipment Loan (75%) Own(25%) ROI Capital cost of equipment including IDC % 1224 8
51

Rs Lacs 11579 8684 2895 11

Loan operating balance in 1 year of operation 9353

Cash flows of option 1 is as follows:Additional income:Less: Tax Interest LoanRepaymen t Net cash flows after Loan ,Tax And Int Net cash flows after Tax only
1029 80 0 0 941 80 0 853 90 0 754 90 1000 1300 1300 1300 1000 53 655 545 402 259 116 6 Financial year 0910 1828 0

1011
1828 0

1112 1828 0

1213 1828 0

1314 1828 0

1415 1828 0

1516 1828 0

1617 1828 9 5

1718 1828 41 2

1819 1828 475

-1 1828

87 1828

75 1828

174 1828

173 1828

-17 1828

126 1828

174 1733

300 1416

1294 1353

Income tax:52

Income tax:-

Financial year

09-10 1828

1011
1828

11-12 1828

12-13 1828

13-14 1828

14-15 1828

15-16 1828

16-17 1828

17-18 1828

18-19 1828

Profit before int,dep Tax dep Interest Taxable profit for the year Taxable profit- with c/f impact Income tax @33.99%

1837 1029 -1038

1562 941 -674

1327 853 -352

1128 754 -54

959 655 214

815 545 468

693 402 734

589 259 980

501 116 1212

426 6 1397

-1038

-1712

-2064

-2118

-1903

-1435

-701

279

1212

1397

95

412

475

Loan schedule:Financial year 0910 9353 800

1011
8553 800

1112 7753 900

1213 6853 900

1314 5953 1000

1415 4953 1300

1516 3653 1300

1617 2353 1300

1718 1053 1000

1819 53 53

Opening balance Repayment Interest Closing balance

9353

1029

941

853

754

655

545

402

259

116

8553

7753

6853

5953

4953

3653

2353

1053

53

53

54

Calculation for option 2:capital Capital cost of equipment Loan (75%) Own(25%) ROI Capital cost of equipment including IDC % 1505 2 3 3558 11 Rs Lacs 14230 1067

Loan operating balance in 1 year of operation 11494

Cash flows of option 2 is as follows:-

55

Additional income:Less: Tax Interest LoanRepaymen t Net cash flows after Loan ,Tax And Int Net cash flows after Tax only

Financial year

0910 3277

1011 3277

1112 3277

1213 3277

1314 3277

1415 3277

1516 3277

1617 3277

1718 3277

1819 3277

0 126 4 20 00

0 104 4 200 0 21

0 82 4 200 0 45 3

0 6 04 20 00 67 3

0 38 4 200 0

0 0 0 24 67

0 0 0 22 68

0 0 0 22 52

0 0 0 22 39

0 0 0 222 7

13

893

3277

3277

3277

3277

3277

2467

2268

2252

2239

2227

Income tax:Income tax:Financial year 09-10 3277

1011
3277

11-12 3277

12-13 3277

13-14 3277

14-15 3277

15-16 3277

16-17 3277

17-18 3277

18-19 3277

Profit before int,dep Tax dep Interest Taxable profit for the year Taxable profit- with c/f impact Income tax @33.99%

10418 1264 -8405

695 1044 1538

591 824 1862

502 604 2171

427 384 2466

363 164 2750

308 0 2969

262 0 3015

223 0 3055

189 0 3088

-8405

-6867

-5005

-2834

-368

2382

2969

3015

3055

3088

810

1009

1025

1038

1050

Loan schedule:56

Financial year

09-10

1011
8553 2000

1112 7494 2000

12-13

1314 3494 2000

14-15

1516 0 0

1617 0 0

1718 0 0

1819 0 0

Opening balance Repayment Interest Closing balance

11494

11494 2000

5494 2000

1494 1494

1264

1044

824

604

384

164

9494

7494

5494

3494

1494

57

NPV Calculation for option 2

Calculation for option 3:-

58

capital Capital cost of equipment Loan (75%) Own(25%) ROI- mini revamp ROI-CDR Capital cost of equipment including IDC

Rs Lacs 17017 1276 3 4254 11 % 11 % 1800 0

59

Loan operating balance in 1 year of operation 13745

Working for IDC

LOAN CDR 1361 5446 6807 IDC CDR 225 300 524 7331

Year 2007-08 2008-09 (A)

Mini Revamp 1191 4765 5956

Total 2553 10210 12763

Year 2007-08 2008-09 (B) (A+B)

Revamp 197 262 459 6414

Total 421 562 983 13745

Cash flows of option 2 is as follows:-

60

Additional income:Less: Tax Interest Loan Repayment Net cash flows after Loan ,Tax And Int Net cash flows after Tax only

Financial year

0910 3277

1011 3277

1112 3277

1213 3277

1314 3277

1415 3277

1516 3277

1617 3277

1718 3277

1819 3277

0 126 4 20 00

0 104 4 200 0 21

0 82 4 200 0 45 3

0 6 04 20 00 67 3

0 38 4 200 0

0 0 0 246

0 0 0 226 8

0 0 0 22 52

0 0 0 22 39

0 0 0 222 7

13

893

3277

3277

3277

3277

3277

2467

2268

2252

2239

2227

Income tax:Income tax:Financial year 09-10 3277

1011
3277

11-12 3277

12-13 3277

13-14 3277

14-15 3277

15-16 3277

16-17 3277

17-18 3277

18-19 3277

Profit before int,dep Tax dep Interest Taxable profit for the year Taxable profit- with c/f impact Income tax @33.99%

10418 1264 -8405 -8405

695 1044 1538 -6867

591 824 1862 -5005

502 604 2171 -2834

427 384 2466 -368

363 164 2750 2382

308 0 2969 2969

262 0 3015 3015

223 0 3055 3055

189 0 3088 3088

810

1009

1025

1038

1050

Loan schedule:-

61

Financial year

09-10

1011
8553 2000

11-12

12-13

13-14

14-15

1516 0 0

1617 0 0

1718 0 0

1819 0 0

Opening balance Repayment Interest Closing balance

11494

11494 2000

7494 2000

5494 2000

3494 2000

1494 1494

1264

1044

824

604

384

64

9494

7494

5494

3494

1494

62

Payback period of option 3 is 2years 2 months which is very short period when compared with option1 and option 2 to recover the invested amount. So option3 is better.

NPV analysis of mutually independent projects

The ve NPV indicates that over its economic life, the cash inflows generated by investment wont recover the original outlay and it cant earn the desired return. In option 1 and option 2 cases NPV is less than ZERO so reject those projects and in option 3 NPV is positive that indicates that over
63

its economic life time, the cash inflows generated by investment recover the original outlay. It earns the desired return and in addition provide cushion of excess value. So accept option 3.

Replacement Project NFCL wants to replace third row tubes which costs to the company is 400000/- the installation and maintenance charges are 100000, 120000 pa respectively . If the company does not install the tubes company would incurred a loss of 5000/- per day Note:- assume company expected rate of returns 10% and also at 15% Machinery cost Installation expenses Cost of machinery (-) maintaince (10000 p.m) Total project cost 400000, 100000 -----------500000 120000 ----------620000 ----------If the above mentioned project is not installed the loss incurring to the company is 5000/- per month. So the company thought that the machine should be installed the necessary replacement benefit to the company is as follows.
64

Cash flows Discount factor (10%) Project cost = NPV Discount factor (15%) Project cost = NPV

5000*365 = 1825000 1658925 620000 ----------1038925 ------------1587750 620000 ----------967750 -------------

By using NPV method if the cash flows are the savings of the company discount rate at 10% the NPV is 1038925 or at 15% then the NPV 967750.

65

1.

Balance Sheet as at March 31, 2009

Rs.Lakhs

66

67

68

69

INTERPETATION: 1. NAPTHA consumption is not there for process plant I for every year 2. NAPTHA consumption has been increased according to the production it indicates that process plant II is majorly using NAPTHA than NG 3. NATURAL GAS is supplied by O.N.G.C 4. NAPTHA is used in plant II only 5. Previously NFCL uses NAFTA, presently it is using Urea. 6. Urea is supplied from GAIL and also from Gadimoga. 7. Packing material cost is variable cost it will varies according production. 8. We are getting power form the A.P.S.E.B and we are getting by power by own.

70

FINDINGS

1. The production of second plant is started in the year 1998. 1. The revenue budget of the company is increasing regularly even though the share of the departments has same every year. 2. Catalyst budget is comedown because of the introduction of new technology. 3. The packing cost has been increase according to change of production. 4. The company is trying to decrease the consumption of NAPHTHA because its cost is more than NATURAL GAS. 5. The company has cut down the consumption of LSHS. 6. The company is using SAP. 7. The company is production-oriented so its capital expenditure is majorly allocated to the Mechanical and Maintains department 8. The Company is concentrating on the Nature so it is trying to increase the green belt we can say that this is eco friendly organization. 9. In this year 2008-09 as per the Business world ratings the company is in the 6th place in fertilizers industry. 10. In overall ranking the company is in the 71st position.

71

SUGGESTIONS
1. Company may be able to decrease the bagging cost. It can save the amount in lakhs. 2. The world is very competitive but the company is spending more money on ecological system so that can affect its profitability. .

72

CONCLUSIONS

73

BIBILOGRAPHY
Financial management : RUSTAGI

REFERENCES
http://www.nagarjunafertilizers.com http://www.nagarjuna.com http://www.wikipedia.com http://www.google.com

74