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1. EXECUTIVE SUMMARYSAIL, a Navratna PSU, is the largest integrated steel producer in India with about 23% market share. With five integrated steel plants and special alloy plants, SAIL manufactures and sells a broad range of steel products both flat and long. Bhilai Steel Plant (BSP), one of the five integrated steel plants was set up in the year 1959 with an initial capacity of 1 Mtpa. It presently has a hot metal capacity of about 4.08 Mntpa (production of 5.18 Mntpa in FY 2006). BSP is one of the major producers of long steel products in India. The current product mix of BSP comprises Plates, Rails, Heavy Structural, beams, channels, merchant products, bars, rods and light structural, wire rods and semis like blooms and billets. Presently, the long products constitute about 74% and flat products about 26% of the saleable steel produced at BSP. The 250mm Wire Rod Mill was commissioned in the year 1967 under 2.5Mt stage expansion of Bhilai Steel Plant. It was a four strand continuous mill with capacity to produce 0.4Mtpa of wire rods from rolled billets of low, medium and high carbon grades supplied by the Billet Mill of the Plant. Two strands C & D of the mill were revamped in the year 1995.The mill after revamping produces wire rod coils(plain and rebar)0.2Mtpa of diameter 8 and 10mm from A&B strands and wire rod coils 0.225Mtpa(Plain and TMT)of diameter 5.5,6,7,8and 10 from C&D strands. The mill was originally designed for input billet size of 80*80*12000mm to produce wire rod coils of 0.54t.Presently 105*105*11500 mm billets are being rolled to produce wire rods of 0.925t coil weight. The products of existing B strand have poor dimensional tolerance with high secondary scale formation. The line faces difficulty to roll smaller section products. Further , special grades and TMT cannot be rolled due non-availability of adequate control & automation and controlled cooling facilities. The scope of the project for B strand revamping envisages continuation of production in A strand, provision of equipment & facilities similar to C & D strands for minimum inventory, utilization of additional capacity of compacting and unloading station # 2, modification/ relocation of interfacing equipments/ facilities, enhancement of water , oil system and electric capacity. This report has been designed to study the steel industry, the position of BSP, the inter departmental working of the organization, functioning of the finance department, and its domain of operation with regards to BSP and SAIL. It also analyzes the companys strength, weaknesses, opportunities and threats. Considering all details mentioned above it then deals with analysis of the decision of BSP to accept the project for Revamping/Replacement of B Strand and also find out its technical feasibility and financially viability of the project. The major findings have been mentioned in the conclusion part and strategies. 2

2. THE GLOBAL STEEL INDUSTRYThe global steel industry has been going through major shifts in focus. Not only has a new steel making giant emerged the entire geographical focus of steel production has been undergoing major changes. Such changes have been taking place on a critical scale since the Second World War but have completely taken many by surprise in the last quarter of a century. Steel is a strong material. The strength of steel reflects the strength of nation. It is reflected in two ways, economic and military. The quantum of steel consumed has been the barometer for measuring development and economic progress. Whether it is construction or industrial goods, steel is the basic raw material. Global steel production grew enormously in the 20th century from a mere 28 MT at the beginning of the century to 780 MT at the end. That was the period when the steel industry developed in Western Europe and the USA followed by the Soviet Union, Eastern Europe and Japan. However, steel consumption in the developed countries has reached a high stable level and growth has tapered off. Attention has now shifted to the developing regions. In the West, steel is referred to as a sunset industry. In the developing countries, the sun is still rising, for most it is only a dawn. Towards the end of the last century, growth of steel production was in the developing countries such as China, South Korea, Brazil and India. "In 2007 World Crude Steel output at 1342.1 million MT was 5.9% more than the previous year. (Source: IISI) "China remained the world's largest Crude Steel producer in 2005 also (349.4 million MT) followed by Japan (112.47 million metric tons) and USA (93.89 million metric tons). India occupied the 8th position (38.08 million metric tons). (Source: IISI) The International Iron & Steel Institute (IISI) in its forecast for 2006 has confirmed the trend of recent years of an increase in steel use in-line with general economic growth and with the fastest growth occurring in the countries with the highest GDP growth such as India and China. Apparent world-wide Steel Demand is forecast to grow to between 1,040 and 1,053 MT in 2008 from a total of 972 MT in 2006. This is a growth of 4-5% over the two year period. However, according to IISI the cost of raw materials and energy would continue to represent a major challenge for the world steel industry. The healthy world economic growth and demand in emerging market countries, notably in Asia, where major infrastructure projects were under way, acted as the key trigger to the significant production rise. But this trend seems rather transitory. The Organization for Economic Cooperation and Development in 3

November opined, while steel prospects for 2007 remained relatively sound, an increase in output capacity especially in Asia, could lead to overproduction and fall in prices. Some important points regarding Global Steel Industry are as follows: 1. During 2006, the world crude steel production reached a level of 1244 Million Tonnes. 2. It shows a growth of 9.0% over 2005 crude steel production level at 1142 Million Tonnes. 3. China retained it's no. 1.position by producing around 422 Million tonnes, followed by Japan with production of 116 Million Tonnes and USA with production at around 98 Million Tonnes. 4. India with production of 44 Million Tonnes ranked 7th amongst world steel producing countries. 5. China accounted for 34% of world crude steel production where as contributions from rest of the world were at EU 16%, NAFTA 10.5%, CIS 9.6%, JAPAN 9.3% and other ASIA 10.5%. 6. If we look at crude steel equivalent consumption figures during the year 2006 it will be seen that China accounted for 31%, EU 17% ,NAFTA 14.5%, CIS 4.7%, JAPAN 6.7% and other ASIA 14% towards crude steel consumption for the world. 7. Apparent finished steel consumption during the year 2006 was around 1113 Million Tonnes as against 1026 Million tonnes during 2005. 8. During the year 2005 , total world trade was around 364 million tones. 9. During the year 2005 ,USA ranked no.1 as net importer country at 20.8 million tones followed by Thailand at 10.8 million tones and Iran at 6.9 million tones. 10. During the year 2005, Japan lead the world steel trade as a net exporter at 26.8 million tones followed closely by CIS and Russia at 26.3 Million tones. 11. During 2007, crude steel production till Sept'07(Jan-Sept'07) has been around 980 million tones representing an increase of around 7.7% over same period last year (910 million tones) . 12. The ocean freight due to high demand for carrying iron ore has increased substantially in the recent period.

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Global Crude Steel Production (IISI) Region Africa Middle East C.I.S Asia South America North America Other Europe EU-27 World Year 2006 18.8 15.4 119.9 675.6 45.3 131.7 28.1 206.8 1250.2 Year 2007 18.8 16.4 124 754.3 48.3 132.1 30.5 210.3 1343.5

(in Million Tones) %Change 0 6.7 3.4 11.6 6.5 0.4 8.5 1.7 7.5

Source: IISI Rank 2006 1 2 3 4 5 6 7 8 9 10 Rank 2005 1 2 3 4 5 6 7 8 10 9 Country China Japan USA Russia South Korea Germany India Ukraine Italy Brazil 2006 418.8 116.2 98.5 70.6 48.4 47.2 44.0 40.8 31.6 30.9 2005 355.8 112.5 94.9 66.1 47.8 % Change 17.7 3.3 3.8 6.8 1.3

44.5 6.1 40.9 7.6 38.6 5.7 29.4 7.5 31.6 -2.2 Production (Mt)

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INDIAN STEEL INDUSTRYThe Indian Steel industry is almost 100 years old now. Till 1990, the Indian steel industry operated under a regulated environment with insulated markets and large scale capacities reserved for the public sector. Production and prices were determined and regulated by the Government, while SAIL and Tata Steel were the main producers, the latter being the only private player. In 1990, the Indian steel Industry had a production capacity of 23 MT. 1992 saw the onset of liberalization and the Indian economy was opened to the world. Indian steel sector also witnessed the entry of several domestic private players and large private investments flowed into the sector to add fresh capacities. The last decade saw the Indian steel industry integrating with the global economy and evolving considerably to adopt world-class production technology to produce high quality steel. The total investment in the Indian steel since 1990 is over Rs 19,000 crores mostly in plant equipments, which have been installed after 1990. The steel industry also went through a turbulent phase between 1997 and 2001 when there was a downturn in the global steel industry. The progress of the industry in terms of capacity additions, production, consumption, exports and profitability plateaued off during this phase. But the industry weathered the storm only to recover in 2002 and is beginning to get back on its feet given the strong domestic economic growth and revival of demand in global markets. With a currant capacity of 35MT the Indian steel industry is today the 8th largest producer in the world. Today India produce international standard steel of all most all grades/ varieties and has been net exporter for the last few years, underlying the growing acceptability of its product in the global market. Steel is a highly capital intensive industry and cyclical in nature. Its growth is intertwined with the growth of economy at large and in particular the steel consuming industries such as manufacturing, housing and infrastructure. Steel given its backward and forward linkages has its large multiplier effect.

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With capital investments of over Rs 100, 000 crores, the Indian steel industry currently provides direct/indirect employment to over 2 million people. As India moves ahead in the new millennium, the steel industry will play a critical role in transforming India into an economic superpower. Current Scenario: 1. Indian economy growing @ 8 to 9 %, is one of the fastest growing economies in the world. 2. Industrial prodn. showing encouraging trends. Index of industrial production for Capital goods is growing @ 8.4% CAGR and growth in index for consumer durables was @10.5% CAGR during 2005-06. 3. The 10th plan investment in infrastructure has been envisaged at around Rs.880,550 crores. 4. The major sector wise anticipated investment is likely to be Rs.292000 crores in Power, Rs.145000 crores in Roads & Bridges, irrigation Rs. 111000 crores. 5. During 11th plan (2007-08 to 2011-12), the projected investment towards infrastructure is likely to be Rs. 2027000 crores, an increase of 180% over 10th plan. 6. Per capita steel consumption at 35 kg low as compared to world average of 150 kg. and 300kg for china. 7. National Steel Policy, as formulated by Indian Ministry of Steel envisages the following i. Crude steel production of 110 million tones by 2019-20 at CAGR of 7.1% from 2004-05. ii. The demand of steel by 2020 is likely to be 90 million tones at CAGR of 6.9% from 04-05. iii. Steel exports by 2020 is likely to grow at CAGR of 13.3% from 04-05 to 26 million tones . iv. Steel imports to the country by 2020 shall grow at CAGR of 7.1% from 04-05 to 6 million tones. 8. Lot of steel projects both Brownfield and Greenfield likely to come up and are in various stage of execution.

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9. As per the news paper reports (Eco. Times dt.14-11-07), Steel Minister has projected India's steel production to be around 124 million tones by 2012 and a capacity of around 275 million tones by 2019-20. 10. During the year 06-07, India produced around 49 million tones of finished steel which was higher by 11 % over 05-06. 11. Imports at 4.1 million tones during 06-07 was higher by 6.5%. Exports at 4.7 million tones grew by 6.1% during 06-07. 12. During 05-06 Iron ore exports at 84 million tones was almost at the previous year's level of 87 million tones . 13. During April - Sept.'07 following has been the performancei. Crude steel prodn. at 25.7 million tones, exhibited a growth of 5 % over corresponding period last year. ii. Exports at 2.6 million tones shows an increase by around 8% over the same period of last year. iii. Imports were around 3.2 million tones which was an increase by 63% over April-Sept'06. 14. Due to infrastructure focus, production of long products is gradually increasing and ratio of flat to long products is narrowing. 15. During Ap-Sept'07 non flat steel produced at 12.4 million tones showed an increase of around 9% over April-Sept'06. 16. In case of flat products prodn. during April-Sept'07 at 12.2 million tones was almost at same level of last year. 17. Apparent Consumption of steel during April-Sept'07 was 22 million tones which was an increase by 11 % over April-Sept'06. While long products (excl. semis) at 12.3 million tones registered a growth of 9%, the flat products consumption at 12.5 million tones indicated an increase of 12%. 18. With due focus on infrastructure development and strong economic indicators, the demand for steel in India shall continue to remain robust.

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UPCOMING STEEL PLANTS: DESTINATION INDIAIndia has finally emerged as a steel making location for global players. The global steel industry appears to be in a race to invest in high-growth zones, such as, India. The amount of activity in the sector has picked up speed in the past few years. The sector has received investments of US$ 5994 million lined up through 102 memorandum of understanding (MoUs) signed by different state governments to add 103 Mt in steel capacity4. Much has happened ever since SAILs Corporate Plan was announced in 2004. Investment plans for the three specialty steel plants have been firmed up. The company has grown in size with the amalgamation of IISCO (now renamed as IISCO Steel Plant). Production targets have been revised from 19 Mt of steel to about 24 Mt. Estimated investments have increased from Rs 250 000 million to around Rs 400 000 million. And the time period has been squeezed by two years, bringing the targeted year of completion of major projects5 from 2012 to 2010. Besides expanding its existing facilities at Jamshedpur, Tata Steel plans three new Greenfield projects in Orissa, Chhattisgarh and Jharkhand. It is also investing almost $100 million in a ferro-chrome project in South Africa. The single biggest foreign investment proposal in India relates to steel. Posco, the South Korean steel giant, had announced an $11.3 billion project in the eastern state of Orissa, where it hopes to put up a 12 Mt steel plant in phase-wise manner. However, the project has run into controversies, with some political parties raising objections to the state governments plans to hand over captive iron ore mines to the company. Mittal has announced plans for an $8.7 billion, 12 Mt steel plant in the neighboring state of Jharkhand. Japans Nisshin Steel Company also plans to start a unit in India, to meet the growing demand from Japanese automobile companies. The US$ 5.25 billion Russian major Magnitogorsk Iron and Steel Company (MMK) plans to set up a 10 Mt Greenfield steel plant in Orissa.

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4. STEEL AUTHORITY OF INDIA LIMITED (SAIL)4.1 INTRODUCTION: Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structural, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being Indias largest producer of iron ore and of having the countrys second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making. SAIL's wide range of long and flat steel products are much in demand in the domestic as well as the international market. This vital responsibility is carried out by SAIL's own Central Marketing Organization (CMO) and the International Trade Division. CMO encompasses a wide network of 34 branch offices and 54 stockyards located in major cities and towns throughout India. With technical and managerial expertise and know-how in steel making gained over four decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and consultancy to clients world-wide. SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training Institute (MTI) and Safety Organization at Ranchi. Our captive mines are under the control of the Raw Materials Division in Kolkata. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Kolkata. Almost all our plants and major units are ISO Certified. SAIL VISION: To be a respected word class corporation and leader in Indian Steel Business in quality, productivity, profitability and customer satisfaction.

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CREDO: We build lasting relationship with customer and mutual benefits. We uphold highest ethical standards in conduct of our business. We create and nurture a culture that support flexibility, learning and is proactive to change. We chart is challenging career for employees with opportunities for advancements and rewards. We value the opportunities and responsibility to make a meaningful difference in peoples lives. CORE VALUES OF SAIL: Customer satisfaction Concern for People Consistent Profitability Commitment of Excellence THE SEVEN Cs OF SAIL: Consistent Quality Committed Delivery Customized Product Mix Contemporary Products Competitive price Complaint Settlement Culture of Customer Service.

4.2 MAJOR UNITS Integrated Steel Plants : Bhilai Steel Plant (BSP) in Chhattisgarh Durgapur Steel Plant (DSP) in West Bengal Rourkela Steel Plant (RSP) in Orissa Bokaro Steel Plant (BSL) in Jharkhand IISCO Steel Plant (ISP) in West Bengal

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Special Steel Plants: Alloy Steels Plants (ASP) in West Bengal Salem Steel Plant (SSP) in Tamil Nadu Visvesvaraya Iron and Steel Plant (VISL) in Karnataka Subsidiary Maharashtra Elektrosmelt Limited (MEL) in Maharashtra JOINT VENTUERS SAIL has promoted joint ventures in different areas ranging from power plants to e-commerce. NTPC SAIL Power Company Pvt. Ltd: A 50:50 joint venture between Steel Authority of India Ltd. (SAIL) and National Thermal Power Corporation Ltd. (NTPC Ltd.), it manages the captive power plants at Rourkela, Durgapur and Bhilai with a combined capacity of 314 megawatts (MW) Bokaro Power Supply Company Pvt. Limited: This 50:50 joint venture between SAIL and the Damodar Valley Corporation formed in January 2002 is managing the 302-MW power generation and 1880 tonnes per hour steam generation facilities at Bokaro Steel Plant. Mjunction Services Limited: A joint venture between SAIL and Tata Steel on 50:50 basis, this company promotes e-commerce activities in steel and related areas. SAIL-Bansal Service Center Ltd.: SAIL has formed a joint venture with BMW industries Ltd. on 40:60 basis to promote a service centre at Bokaro with the objective of adding value to steel. Bhilai JP Cement Ltd: SAIL has also incorporated a joint venture company with M/s Jaiprakash Associates Ltd to set up a 2.2 MT cement plant at Bhilai. SAIL has signed an MOU with Manganese Ore India Ltd (MOIL) to set up a joint venture company to produce ferro-manganese and silicomanganese at Bhilai.

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SAIL today is one of the largest industrial entities in India. Its strength has been the diversified range of quality steel products catering to the domestic, as well as the export markets and a large pool of technical and professional expertise. Ownership and Management The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. However, SAIL, by virtue of its Navratna status, enjoys significant operational and financial autonomy. OTHER UNITS: SAIL Consultancy Division Centre for Engineering and Technology Management Training Institute Safety Organization Environment Management Division Raw Material Division Growth Division Central Power Training Institute Central Marketing Organization

4.3 Major Capital Schemes

Bhilai Steel Plant: Rebuilding of Coke Oven batteries Modernization of BFs (including Gas Cleaning Plant) Installation of new Slab Caster, RH Degasser & Ladle furnace () Revamping of existing slab casters in phased manner New Bar & Rod Mill (1 million tonne) New Pipe Plant of 0.2 million tonne capacity AMR (Additions, Modifications & Replacements) & other Schemes including logistics & infrastructure Installation of new Steel Melting Shop (SMS) (3.9 million tonne capacity) Durgapur Steel Plant: Bloom Caster & associated facilities New 0.7 mtpa Bar & Rod Mill & 0.4 mtpa Medium Structural Mill 15

Up gradation of BF & CDI (Coal Dust injection) in BF Rebuilding of Coke Oven battery Installation of a new Billet Caster Rourkela Steel Plant: Rebuilding of Coke oven battery New Blast Furnace 2,000 m3 CDI & Reconstruction of BF Revamping of Sinter Plant including Pollution Control Scheme New Plate Mill (0.7 1.0 million tonne capacity Wide width)

Bokaro Steel Plant: New 2.5 million tonne hot strip mill & 0.6 million tonne Cold rolling mill Installation of Slab Caster Installation of New modern BOFs Rebuilding of Coke Oven batteries CDI in blast furnace

IISCO Steel Plant: Modernization of Steel making facilities New Multi purpose Section Mill/ Universal Mill Development of collieries Raw Materials Division: Development of Chiria & Rowghat Mines Installation of Pellet Plant

4.3 Proposed Mergers & Acquisitions in SAIL: Neelanchal Ispat Nigam Limited (NINL) Committee of secretaries, Government of India, have recommended merger of NINL with SAIL. SAIL board has approved the merger in principle and final decision on this would be after valuation. Appointment of valuer for valuation of NINL is underway.

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Maharashtra Elektrosmelt Limited (MEL) Ministry of Steel has accepted the recommendation of expert committee on merger. SAIL & MEL boards have approved the merger in principle. National Iron & Steel Company (NISCO) SAIL board has approved the acquisition of NISCO in principle. Final decision would be declared after confirmatory letter from Govt. of West Bengal, regarding taking over of NISCO by SAIL on clean slate basis. Rashtriya Ispat Nigam Limited (RINL) The Prime Minister Office is also backing the merger of Rashtriya Ispat Nigam Limited (RINL) with SAIL, which is the 3rd largest steel producer in India with Annual production of 3.5 million tonne.

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4.5 ORGANISATION STRUCTURE OF SAILCHAIRMAN DIRECTOR (TECH)DIRECTOR (PERSONNEL) DIRECTOR (FINANCE MANAGING DIRECTOR, BSP)

MANAGING DIRECTOR, BSL

MANAGING DIRECTOR, RSP

CHIEF VIGILANCE

MANAGING DIRECTOR, DSP

EXE.. DIR (OPRAN) EXE.. DIRECTOR VISL EXE.. DIR (IA) ED (TECH & LEGAL SERVICE) EXE.. DIR (PROJECTS) EXE.. DIRECTOR SSP

EXE.. DIRECTOR ASP

EXE.. DIR (CMMG)

EXE.. DIR. (CIG) 18 EXE.. DIR. (CP)

4.6 STEEL PRODUCTS Products are mainly used in the construction, heavy engineering, railways etc. Semi-finished products (also called semis) are intermediate products, cast from liquid steel prior to further rolling into finished products. Finished steel products, available in a vast range, can be broadly categorized as longs and flats. Long products include bars, wire rods, angles, structural, channels. These Flat products available in sheet, coil and plate form are used for manufacture of automobiles, consumer durable, roofing material, pipes etc. STEEL MAKING PROCESS: Broadly there are two ways of making steel - Primary steel producers (also known as integrated steel plants -ISPs) use iron ore as raw material and coke as source of energy. Secondary steel producers (also known as mini steel plants MSPs or electric arc furnaces EAFs) use ferrous scrap/sponge iron as raw material and electricity as the energy source. 4.7 SAIL TODAY: SAIL today is one of the largest industrial entities in India. Its strength has been the diversified range of quality steel products catering to the domestic, as well as the export markets and a large pool of technical and professional expertise. The total turnover of the company was an all time high of Rs.39,189 Crore during 2006-07, a growth of 21 percent as compared to 2005-06 (i.e. 32,280 Crore). SAIL also recorded the highest ever net profit of Rs. 6,202 Crore. Today the accent in SAIL is to continuously adapt to the competitive business environment and excel as business organization, both within and outside India 4.8 EXPANSION PLAN 2012

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The Corporate Plan, 2012 was reviewed by Honble Minister of Steel in Jul06, wherein it was decided to take up the Expansion of Integrated Steel Plants and Special Steel Plant in one go based on Composite Project Feasibility Report (CPFR). By that time Expansion of IISCO Steel Plant and Salem Steel Plant was already approved in-principle based on the Techno-Economic Feasibility Report (TEFR) of MECON. For the Expansion of other four integrated Steel Plants, MECON was assigned the job of Preparation of CPFR in Aug06. The CPFR for the four integrated steel plants was prepared by MECON. In principle approval has been accorded by SAIL Board for the expansion plans of IISCO Steel Plant (Jul06), Salem Steel Plant (Jun06), Bokaro Steel Plant (Dec06), Bhilai Steel Plant (Apr07), Rourkela Steel Plant (May07) and Durgapur Steel Plant (Jul07).

Item

2006-07 (Actual)

Hot Metal 14.61 Crude Steel 13.51 Saleable Steel 12.58 Source: SAIL

Capacity as per Expansion Plans 2010 26.18 24.59 23.13

Saleable Steel Production Capacity7 6 Million Tonne 5 4 3 2 1 0U R LA A I O K A R BH UR II S CPlanned increase 2.3 2.7

4.2

1.9 1.2

3.82.0

1.6

1.9O

0.4A P R G K E

IL

DU

Source: SAIL in key raw material

4.9 SWOT Analysis of SAIL

RO

Existing capacity

B O

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STRENGTH : Largest player in the Indian Steel industry. Strong backward integration like iron ore and power. Very aggressive expansion plans. The single largest rail manufacturer in the world. Merger with IISCO would boost its profitability, as SAIL would have access to IISCOs underutilized iron ore and coalmines. All its plants are a profit centers. SAIL is a virtually Debt-Free Company. The approved acquisitions and merger of NINL, NISCO and MEL would result in synergy benefits, operating efficiencies, cost savings and thus higher profit. WEAKNESS: Concern in obtaining new mining leases and renewal of old leases. Low liquidity in Stock Exchange (85.82% shares is held by GOI itself). Heavily dependent on import of raw materials (coking coal). It has high operation cost when compared to its peers like Tata Steel, JSW Steel.

OPPORTUNITIES: Strong Economy growth (second fastest growing economy after China). Booming infrastructure sector (Roads, Ports, Airports, SEZs, Power). Strong demand in automobile sector, consumer durables sector and engineering goods sector. Robust demand in construction and retail industry. Low per capita steel consumption offers a higher growth. Rich Geological Resource base. Large consumer base, low labor cost and high productivity. THREAT: Steel prices may remain stumpy on account of over supply from China. Bureaucratic nature of Government - Socio-Political interventions (in leasing mines). Rising interest rates could affect expansion programmers (High cost of Finance). High cost of energy. Big ticket investment by POSCO and Mittal could swallow the market (specifically export). Cyclical nature of Steel Industry. Deficit infrastructure, high ash coal. 21

Board of Directors, Steel Authority Of India Ltd.Shri S.K. Roongta Chairman Steel Authority of India Limited, New Delhi-110003 Director (Personnel) Steel Authority of India Limited, New Delhi-110003 Addl. Secretary & Financial Adviser Government of India Ministry of Steel, Udyog Bhavan. New Delhi-110011 Joint Secretary to the Government of India Ministry of Steel, Udyog Bhawan, New Delhi-110011 Director (Finance) Steel Authority of India Limited, New Delhi-110003 Director (Commercial) Steel Authority of India Limited, New Delhi-110003 Director (Technical) Steel Authority of India Ltd. New Delhi-110003

Shri G. Ojha

Shri B.S. Meena

Shri G. Elias

Shri S. Bhattacharya

Shri Shoeb Ahmed

Shri V.K. Gulhati

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Shri R. Ramaraju

Managing Director Bhilai Steel Plant, Bhilai-490001 Managing Director Bokaro Steel Plant, Bokaro-827001

Shri V.K. Srivastava

Shri V. Shyamsundar

Managing Director Durgapur Steel Plant, Durgapur-713203 Managing Director Rourkela Steel Plant, Rourkela-769011 Managing Director IISCO Steel Plant

Shri B.N. Singh

Mr S P Rao

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BHILAI STEEL PLANT

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5. BHILAI STEEL PLANT5.1 THE BEGINNING: This Leadership of free, India took a visionary decision to set up integrated steel plants under the exclusive responsibility of the state owing to the massive investment needed for creating additional Steel capacity, which private industry would not be able to mobilize and the cardinal role steel would play in rapid economic advancement as a major step towards this goal, government of INDIA and USSR entered into an agreement signed at New Delhi on 2nd march 1955, for the establishment of an integrated Iron and Steel works at Bhilai with an initial capacity of one million tonnes of ingot steel. The main consideration which responsible for setting up the plant at Bhilai, was the availability of Iron ore at Delhi-Rajhara at a distance of about 90 Km from the site limestone from Nandini at 22 km and dolomite at HIRRI at 41 km. the plant was commissioned with the inauguration of the first blast furnace by the then president of India. Dr. Rajendra Prasad on 4th Febraury 1959. The plant was soon expanded to 2.5 Million tonnes in September 1967 and in further expansion to 4 MT was completed in 1988. The main focus in the 4 MT stage was on the continuous casting unit and the plate mill, a new technology in steel casting and shaping for any integrated steel plant to India during those times. THE ORGANIZATION: Bhilai Steel Plant functions as a unit of SAIL with its corporate office at New Delhi. SAIL is governed by a Board consisting of function Directors, Managing Directors and government nominee Directors, 85.62% of the shares of SAIL are with Indian Government and balance are with financial institutions, mutual funds, Indian Public and others, corporate office formulate Policies, strategies and overall guidelines for its unit, central organization like CMO ( Central Marketing Organization ) RDCIS ( Research and Development Centre for Iron &

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Steel ) CET ( Centre for engineering and Technology ) look after the relevant activities for the plates under SAIL. Over the years, Bhilai Steel Plant has developed an organizational culture that run forces its commitment to values and stimulates continuous improvements and higher levels of performance. the chief executives at Bhilai is the Managing director (MD) who is in overall control of the operations of the plant, township and the mines, Managing Director is assisted by his DROS i.e. the functional heads (Executive directors/General Manager) concept of Zonal heads and HODS helps in integrating various functions with clear accountability for achieving corporate vision, company goals and objectives. India 2020 A vision for the new Millennium We still have a number of persons in our country in Steel authority of India Limited (SAIL) They have the will to excel and transform the country, given a long term vision. Dr. A.P.J. Abdul Kalam 5.2 BSPs ORGANISATIONAL OBJECTIVES: To encage customer satisfaction through: Improvement in productivity and product quality. Skill enhancement of our people by competence commitment and culturebuilding. Production as per customer requirements. QUALITY POLICY: Attending market leadership through enhancing customer satisfaction. Achieving continual improvement in productivity, quality and salability of our products. Active involvement of all our people in achieving our goals, objectives and target. 5.3 PRODUCT PROFILE: Bhilai Steel Plant (BSP) has mainly three types of products:Semis Product Long Products Flat Products BSP is one of the major producers of long steel products in India. The current product mix of BSP comprises Plates, Rails, Heavy Structurals, beams, channels, merchant products, bars, rods and light structurals, wire rods and semis, like

1. 2. 3.

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blooms and billets. Presently, the long products constitute about 74% and flat products about 26% of the saleable steel produced at BSP. 5.4 PRODUCT MIX OF BSP: Rail & Structural Mill (Capacity - 7,50,000 T )

Products Rails - R52 Kg/m & R60 Kg/m ; UTS 880 N/mm2 rails as per IRST-12/96 specifications , Euronorms and international standards. Thick web asymmetric rail Zu 1-60 Beams - 600,500,450,400,350,300 & 250. Channels - 400,300 & 250. Angles - 200 & 150. Crossing Sleeper. Crane Rails - KP80, 100,120 & 140. Bhilai is the sole supplier of the country's longest rail tracks of 260 metres. Bhilai Rails Largest producer and leading rail maker of the world. Four and a half decades of experience in rail making. Produced over 15 million tonnes of rails; 2.7 lakh km in length. Indian Railways- Worlds second largest rail company moves exclusively on Bhilai rails. Bhilai rails are subjected to worlds highest traffic density and axle loads. Rails exported to 10 countries with exports to South Korea, New Zealand, Argentina, Turkey, Iran, Egypt, Ghana, Bangladesh and Malaysia. Technological Superiority Steel from LD Converter Ladle furnace - RH Degasser Comcast route; achieving world best level of degassing/refining to less than 1.5 ppm of hydrogen in liquid steel in 100% of heats. Capability to produce as rolled lengths of 80 meter and welded panels up to 260 meters High degree of Straightness due to worlds most advanced and Laser straightness measurement based end straightening machine. World class tested rails passing through state of art online NDT equipment; Laser straightness measurement, Ultrasonic and eddy current testing machines Computer controlled automatic rail handling system and automatic yard mapping for rail storage.

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Computerized Rail Tracking system for collection and storage of all process and testing related data of each rail. Merchant Mill (Capacity - 5,00,000 Tonnes) Products Plain Rounds : dia 28, 32, 36,40, 50,53, 56, 63 & 67 TMT Bars : 25,28, 32, 36, 40 & 45 Lt. Structurals :Channel 100 x 50, 75 x 40 Angles : 50 x 50 x 5 upwards to 90 x 90 x 10 Wire Rod Mill (Capacity - 4,20,000 T) Products Wire Rods (Plain, Electrode Quality & TMT) in 5.5, 6, 7, 8 & 10 mm plain and ribbed, and 12 mm plain in coil form 8, 10, and 12 mm TMT Product Mix: Saleable Steel Production: 2010 (Estimated)19.80%

FY: 2006-0719.60%

16.40%

23.30%10.20% 24.10% 2.80% 8.70% 8% 6.70%

22.10%

4.80%

10.40% 7.40%

15%

S EMIS ROUNDS /BARS COATED PRODUCTS CR COILS /S HEETS S TRUCCTURALS RAILWAY MATERIALS HR COILS /S HEETS PLATES

RO UNDS/BARS CO ATED PO DUCTS CR CO ILS/SHEETS STRUCTURALS RAILWAY MATERIALS HR CO ILS/SHEETS PLATES

Sou

Plate Mill (Capacity 9, 50, 000 T) 28

(Plate thickness: 8-120mm, Width: 1500-3270mm, Length: 5-12.5 M) The modern Plate Mill rolls out heavy and medium plates, as well as those for pipe manufacturers. Plates of wide variety, in any required size, and strength, chemical and physical properties, can be produced here. It has capacity to produce high pressure, boiler quality and high tensile steels. Shipbuilding plates, conforming to Lloyds specifications, and pressure vessel boiler plates, conforming to various ASTM, ASME standards, have withstood the challenges of nature and time. Some of the unique features of the mill are on-line finishing facilities and off-line normalizing facilities. Bhilai has the widest plate mill in the country, and it uses continuously cast slabs as input. Liquid steel produced under controlled conditions in the LD Converters is rinsed with argon gas to homogenize the composition as well as to remove non-metallic inclusions before continuous casting so as to ensure the production of high quality feedstock for the Plate Mill. As per customers' requirement or specifications, plates are normalized in a roller hearth normalizing furnace. 5.5 NEW PRODUCTS: To meet the customers requirements, increase the market share and widen the product range, several new products have been developed. BS-1501-224 Grade 490A for mounded pressure vessels. API 5L X-52/X-65 Plates for Line Pipe Applications. High Tensile Plates BSEN-100025, S-355 K2G3 and BS4360 50 DD Specifications for export with sub-zero impact toughness, thicker plates in boiler quality grade. SAILMA 300 HI plates in 75 & 80 mm thickness were developed for DLW, Varanasi, for application in locomotive base plate. DMR-249 A (ABA grade) plates with stringent toughness requirement at sub-zero temperature was developed for Defense Research Lab, Hyderabad. Corrosion resistant Molybdenum rail (52 kg) was developed and supplied to Railways. Commercial production of Cu-Ni-Cr Plates for corrosion resistant (with corrosion resistance index of 6 Min.) applications has been successfully done for customers like BHEL & TISCO. Commercial production of 25 mm TMT- Fe 415 and TMT- HCR 500 bars at Merchant Mill. 950 mm High Tensile impact tested IS 8500 Fe 540 B Plates were successfully rolled and supplied for the first time. 63 mm High Tensile Plates of DIN 17100 St 52.3 were successfully rolled and supplied for the first time. API X-60 plates were developed in up to 3270 mm width in thickness range of 14-22 mm for pipeline segment.

29

SAILMA 300 HI plates in 75 & 80 mm thickness were developed for DLW, Varanasi for application in locomotive base plate. A new segment - Windmill Tower was identified in Non-conventional Energy sector and supplies to the tune of 2500 T/month are being made to customers like L&T, ECC & ATMASTCO. Narrow width slabs in 180 mm thickness, in 205x290 size in SWR 14 grade with specific chemistry, and Hy blooms in 205x 265 size and 205x325 size in SWR 14 grade were developed at BBM for cycle manufacturers. Besides, successful trial production of wire rods of EN-8 grade high carbon steel, and Weather Resistant Cu-P Plates for corrosion resistant applications has been done. Lower tonnage orders of non-standard size plates with lower slab weight are also being. Plates from Bhilai have been exported to Europe, America, Middle East, and South East Asia from 1986. 5.6 EXPANSION AND MODERNISATION: Presently total requirement of iron ore of BSP is met from Dalli Rajhara, Iron Ore Complex. In view of fast depleting reserves at Iron Ore Complex, Rajhara and to meet future requirement, BSP has decided to open up an iron ore mine at Rowghat which is located about 80 Kms from Rajhara in Narayanpur District of Chhattisgarh. Accordingly, BSP will develop the mine in Block-A of Deposit-F of Rowghat with a production capacity of 14.0 MT per year wef 2011-12. Due to environmental reasons, the beneficiation plant shall be of dry circuit type. However, grant of forest clearance under Forest (Conservation) Act, 1980 is still awaited. work of layings Railway line for Rajhara to Rawghat has already been selected into by SECR. 5.7 MAJOR PROJECT ACTIVITIES AT BHILAI STEEL PLANT SI. NO. 1 2 3 Project Sanction Expected ed/Estim- Date of ated cost Completion 520.76 170.41 48.10 Sep-07 July-06 Feb-06

New Slab Caster In SMS2 along with Ladle Furnace & RH Degasser Technological Up gradation of BF7 including GCP Installation of 15MW Turbo generator at P&BS

30

4 5 6 7 8 9 10 11

Replacement of strand 9, 10 and 12 with housing less stands in Merchant Mill. On line ultrasonic testing machine in Plate Mill. Rebuilding of Coke Oven Battery no 5 along with integrated coal chemical facilities. Modernization of B Strand Wire rod Mill. Hydraulic AGC, ATG & PV rolling in Plate Mill. Hot Metal Desulphurization unit in SMS 2

18.64 10.37 219.04 74.66 64.10 75.68

Sep-05 Sep-o5 Jan-07 Feb-06 July-06 * * *

Revamping of Sintering Plant-2 DIRECTOR 102.00 MANAGING ERP Facilities 43.97

5.8 ORGANISATIONAL ED STRUCTIRE OF GM(F&A) STEEL PLANT ED (PROJECTS) ED (P&A) BHILAI (WORKS)GM (IT) GM (PROJECTS) GM (TS)

ED (MM)

GM (MM)

GM (M&SP)

GM (PERS) GM (PP&E & BEDB) GM (HRD) GM I/C (SERVICES) GM (SAFETY) GM (MS)

GM (IA)

GM I/C (MINES) DIR (M&HS)

GM I/C (M&U) (REFR) GM (P MILL & MILLS-LP) GM(CO,CCD & SP,OHP) GM I/C (PE,EN & STEEL)

DGM (L & A)

ACVO

COC GM (QUALITY) GM (CCS)- SMS-II 31

5.9 SWOT Analysis The primary function of Bhilai Steel Plant are derived from the functions of the mother organization SAIL. As a production unit of SAIL, BSP carries out the specific functions and task assign to it from time to time, both with regards to production and execution of other functions of SAIL, such as design consultancy, training and development etc. The primary analysis of any organization begins with the SWOT Analysis. It gives a complete picture so as to where an organization stands with respect to its competitors And areas where its lags behind. It also gives a bird eye view f the possible opportunity that exists which can be capitalize upon the threats that may affect its operations at present or in the future. SWOT Strengths: Capacity of plant Product Mix Quality of Products Human Resource & Management Weakness: Supply of Raw Materials Demurrages Rigidity of Labor Law compared to other countries 32

Opportunities: Upsurge in Indian Economy Technological Edge Human Resource Management Threats: Effect of Custom Duty International Competition Domestic Competition Increase in Oil Prices Depleting Mines

BHILAI STEEL PLANT PERFORMANCE HIGHLIGHTS: 2007 - 08During 2007-08, the year of Golden Jubilee, Bhilai Steel Plant continued to forge ahead in the areas of production, productivity and techno-economics. With expansion activities picking up pace for enhancement of production capacities, BSP took up various projects and chalked out an ambitious road map (production plan). Special emphasis was also given to the production of Special Steel/ Value added products. With depleting Iron Ore reserves & constraints in Coal supplies throughout the year, Coke Oven pushing had to be regulated resulting in reduced production of Hot Metal. For optimally utilising the available Hot Metal, production at SMS-2 was maximised to sustain higher production of Rails & Plates. The semis component in Saleable Steel was restricted in order to sustain production in finishing mills. Against all odds, the Plant continued to operate well above the rated capacity in all major areas of production and achieved a capacity utilization of 112.4 % in Hot Metal, 129.1 % in Crude Steel and 140.8 % in Saleable Steel. This has resulted in a growth of 9.4%, 5.3% and.9% respectively over the last year. In response to increasing market demand all the four finishing mills viz. RSM, MM, WRM & PM

33

operated well above the rated capacity and achieved best ever yearly production for the first time since inception. As regard of Saleable Steel at, the plant operated above the rated capacity for the fifteenth year in succession and notched a production of 4.43 MT. The upward trend in production was maintained throughout and several new records were established. Bhilai Steel Plant registered substantial growth and achieved best yearly production of Sinter from Sintering Plant-3, Total Sinter, Hot Metal, Cast Steel at SMS-2, Cast Slabs, Cast Blooms, Total Crude Steel, Rails, Total Rails & Structurals, Merchant Products, Wire rods, Plates, Total Finished Steel and Total Saleable Steel. Growth was also registered in the areas of production of Limestone from Nandini, Iron Ore from Rajhara, BF Coke, Sinter from Sintering Plant 2, Ingot Steel at SMS-1, Ingots rolled at BBM and Billets from CBM. Several Strategies were adopted & new initiatives were taken up for enhancing performance and to provide a cutting edge to the organization during the year, which paved the path for continuous growth and helped in maximizing our share in the domestic steel market. Some of the initiatives were: Optimum utilization of available resources like operating all seven Blast Furnaces and three Converters with 3 Casters simultaneously with the fourth Caster being operated on overlapping sequence. Maintaining average pushing level at 718 equivalent ovens per day throughout . Higher Finished Steel component in Saleable Steel at 81.4 % registering a growth of 6.3 % over last year. Greater thrust on value addition of products like gradual switches over to higher grade, i.e. Fe-500 for both TMT Bars & Rods. Enhancing customer satisfaction by on-line invoicing of deliveries by road. Rolling of different TMT profiles simultaneously from different strands at WRM. Charging of Nut Coke with Iron Ore lumps in BF 3 & 4. Use of Chiller in ASU-3 of OP-2 to increase Oxygen Production. Maximize Utilization of Grinding facilities for increasing CDI injection in BFs. 100 % Utilization of LD slag. Rolling of 100 % TMT in Fe500 grade in Merchant Mill. Restarting of Tar Injection in Blast Furnace. Record production of 7.23 MT of Total Sinter, surpassing the previous best of 6.93 MT in 05-06 and registering a growth of 8.8 % over previous year.

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AWARDS & ACCOLADEBhilai Steel Plant has excelled in all walks of life, be it technology, quality, environment or socio-culture, some of the prestigious awards bugged by BSP are as follows. Prime minister Trophy for best integrated steel plant in India Won seven times science its inception in the year1992-93, 1993-94, 1995-96, 1996-97, 1997-98, 2003-04 and 2004-05. National energy conservation award in the integrated steel sector won for 1994,1996,1998 & 1999. IIM National Quality awards winners in ferrous category during 1995-96, 1997-98 and 1999-2000. BIS Rajiv Gandhi National Quality award won twice in recent years. IOD Golden Peacock National Quality Award won therice in recent year. INSAAN Award for employee suggestions six times in last Seven year. SAIL paryawaran Award for all the six times (this ward was given from 1992-93 til 1997-98), for best environmentally managed Integreted Steel

35

Plant. Several Paryawaran Awards have been also been won by captive mines and SMS-1 of BSP. Indo- German Green Tech. Environment Excellent Award for the year 1999-2000. Lal Bahadur shastri Memorial Award for the year 2000-01 for Best Pollution Control Implementation Gold Award. Dalli mines has bigged National Safety Award for a record seven times. National Award for best pay rolls the year 1999-2000 for outstanding social work won by Bhilai savings group in public sector for 1999-2000 and thrice earlier as best Sanchayika Award. Washeshari Devi Bhatia memorial Charitable Trust Award for Mahila Samaj. Steel ministers Trophy for the longest accident free period during 1995 -96 in the integrated steel plant category. BTI adjudged the best Training Establishment in northern zone by all India Regional Council several times. Padam Bhushan Awarded to smt. Teejan Bai, Pandwani Singer. Prime Ministers Shram Awards since inception of the award(1985)- Total 25 won as follows: Shram Ratan : 08

Shram Bhushan

: 09

Shram vir

: 04

Shram Shri

: 04

Vishwakarma Rastriya puruskar

: 188

36

Arjun Award

: 02

Apart from above, numbers individual group awards have been won time by BSP employees at National level in the field of Quality Circles, Management , Metallurgy, Sport & Cultural Activities etc.

Bhilai Rail universally certified

RDSO, Indian Railways RITES Ltd ISO: 9001- 2000 certificate by LRQA (Lloyds Register Quality Assurance) ISO 14000 certified by BIS Crown Agents, London General Superintendence Company, Geneva Lloyds Register of Shipping Robert W Hunt & Company Overseas Merchandise Inspection Company, Tokyo Egyptians Railway inspection Team

37

FINANCE & ACCOUNTS DIPARTMEN T38

6. FINANCE AND ACCOUNTS DIPARTMENT6.1 An Overview: For any organization, the Finance & Accounts function plays a key role in guiding the organization to meet its ultimate goals and objectives. While Finance function embarks upon regulating the inflow and outflow of funds, the Accounts function basically supports the finance function by way of analyzing the transaction in a most befitting manner. Finance & Accounts function is like a mirror through which one can peep into the health of an organization. Finance & Accounts Department of BSP has to execute several activities. The Department has been divided into several sections based on organizational needs and functional expertise required by grouping activities of similar nature as a section. The objective of Department is always to meet the requirements of Line Departments, customers, suppliers, stakeholders and Government Departments while discharging its own functions such as accounting, budgetary control, rendering advice on financial matters and meeting the statutory requirements. To back up all above functions, the Department has a vast and dedicated team of professional accountants and experts. The entire department is represented by the following sections Cash & Bank Central Accounts & Assets Accounts Central Excise & Service Tax Contract Concurrence Contributory Provident Fund (CPF) Cost Accounting & Energy Cell Final Claim Cell (FCC) Finance Co-ordination & Administration Freight & Claims Import Accounts Incentive Cell Management Accounting Medical Accounts

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Mines-Rajhara, Nandini, Hirri Operation Accounts Operation Budget Project Finance & Accounts Purchase Concurrence Raw Material Accounts Rent Cell Sales Accounting Sales Invoicing and Central Freight Sales Tax & Entry Tax Stock Ledger (Stock valuation) Stock Verification Store Accounts Store Bill Accounting Store Bills Township Accounts Wages

Finance also discharges special functions such as taxation like Central Excise, Sales Tax, VAT, CST, Entry Tax, and Terminal Tax.

40

6.2 ORGANISATIONAL STRUCTURE OF FINANCE AND ACCOUNT DEPARTMENT OF BHILAI STEEL PLANTGM(F&A)

D.G.M.(F&A)

D.G.M.(F&A)

CFM

CFM

CFM

CFA

CASH, WAGES-I WAGES-III A, INCENTIVE CELL, STORES, FIN. ESTABLISHMENT ADMINISATION & COORDINATION

MINES, ZONAL WAGES, WAGES COORDINATION

PROJECT FINANCE, CAPITAL BUDGET, WORKS FINANCE ZONAL A/CS & WORKS COMPILATION

CENTRAL A/CS, MANAGEMENT A/CS, ASSETS A/CS, OPERATION BUDGET, COST A/CS, ENERGY CELL, OPERATION A/CS, PC, CC.

RAW MATERIALS A/C, FREIGHT & CLAMS, STOCK VERIFICATION, TOWNSHIP SERVICES, HOSPITAL A/CS

SALES, EXCISE, SALES TAX, FRT. OUTWARD

41

PROJECT FINANCE & ACCOUNTS (BSP)42

7. PROJECT FINANCE & ACCOUNTAt the time of the countrys independence in 1947, it was confronted with various economic and social problems that require to be tackled in a planned and systematic manner. India was primarily an agrarian economy; it had a very weak industrial base, low level of savings/investments and lacked infrastructural facilities. A vast percentage of the population was extremely poor. Their existed considerable inequalities in income and regional imbalances in economic attainments. Under such circumstances, a bag effort was required from the government s the private sector had neither the necessary resources in terms of funds, nor the will to assume risks involved in long neither the necessary resources in terms of funds, nor the will to assume risks involved in long generation investment projects. Moreover, the financial returns on such projects were too low to attract private sector enterprises investment. Give the type and range of problems faced by the country on its economic, social and strategic fronts and the vari9ous imperatives such as the necessity on the part of government to use the public sector as an instrument for self-reliant economic growth so as to develop a sound agricultural and industrial base, diversify the public economy and overcome the economic backwardness. In view of the above expectations for continued large investment in PSU, there has been a significant growth, both in number and investments, in such enterprises over the years, their declining role in the recent years notwithstanding. For instance, from a modest investment of Rs. 29 crore in 5 PSU as on April 1, 1951, investments grow to Rs 3, 24,632 crore in 240 such enterprises by march 31, 2002. The predominant considerations for continued large investments in PSU were:

43

(i) to accelerate the growth of core and strategically important sectors like railways, telecommunications, defense, etc; (ii) to invest in the consumer oriented industries such as drugs and food industries, with a view to ensure easier availability of vital articles of mass consumption at economic and reasonable prices; (iii) To take over sick units from private sector enterprises in order to sustain production and protect employment. The project finance & accounts section is broadly covered under the following five headings: 7.1 Capital Budget 7.2 Project Concurrence 7.3 Zonal Accounts 7.4Works Compilation

7.1 CAPITAL BUDGET SECTION Before project finance & Account covered goes on FEASIBILITY REPORT A) Initiation and submission of investment proposal : Capital investment proposals are initiated by various shops/departments. These shops/departments submit their investment proposal in the prescribed format to the project planning & Engineering Department(PP&E). PP&E is the nodal agency for submission, processing and decision of all investment proposal. PP&E makes a preliminary scrutiny and sends the investment proposals for finance capital budget section, industrial engineering department, O&M and BEDB. These proposals are studies in capital budget section and checked with respect to following points:1. Whether any techno-economic/feasibility report for the proposal has been prepared or not. If any techno-economics has been prepared, the pay-back period, NPV, IRR, ROI & Sensitivity analysis of the investment proposal is checked. 2. If the proposal is for replacement of the asset, whether write-off sanction of assets being replaced has been obtained by the shop. 3. Whether the cost estimate prepared by the shop/consultant is correct. 4. Proposal is studies with respect to need, the process, benefits, and technical/legal/financial implications.

44

These proposals are then discussed in investment planning units (IPU) meetings. The in-charge of PP&E is chairman of the IPU committee. Officers of the capital budget section attend the IPU meeting as member of the committee. Other members of the IPU committee are: 1. 2. 3. 4. 5. 6. 7. Representation from industrial Engineering Department Representation of the Organizations & Methods Department Consultant (BEDB, CET or other) Proposing Department Material Management Department Executing Agency Specialized agencies/Consultant

The IPU committee thoroughly examines the investment proposal under the following aspects: a) Technical feasibility b) Economic viability c) Commercial aspects d) Financial aspects e) Others Depending on the merits of the proposal, the IPU committee either recommends it or may reject it or may suggest modifications for further consideration. B) Approval of the investment proposal: Proposals recommended by IPU are put up for Managements approval by PP&E Deptt. These proposals are received in the capital budget section before management approval for final scrutiny of the proposal. Scheme sanctioning Authorities are as under: C) Budget Certification: All contractual agencies (incl. contract cell, Turnkey cell and Material management department) before issuing award letter/placement of final purchase order/Letter of intent/for procurement/work to be done under any capital scheme are required to obtain budget certification from capital budget section. While certifying budget section has to verify the availability of budget and has to see that whether the material being procured or work order/contract being awarded is as envisaged at the time of approval. D) Monthly Expenditure Report: A monthly report of capital expenditure incurred on various project is compiled at the month end and is sent to corporate office (project Directorate and Finance Directorate). Copies of the report are also to sent to project planning & Engg. Deptt. (PP&E) and project Monitoring cell (PMC). A summarized monthly report 45

of capital expenditure is also sent to MD, ED (F&A), ED(Proj), ED(Works), ED(MM), GM(F&A), GM(Proj), GM(PP&E & BEDB). For the purpose of the monthly report information from various section of finance department has to be obtained. These sections are: 1. 2. 3. 4. 5. Zonal Accounts sections of project finance Store Bills Section Project Accounts section Operation Accounts Section Township Accounts Section

E) Post Completion Audit: All major schemes are reviewed by the post completion Audit (PCA) committee after one year of commissioning of the scheme. Committee for PCA: a) Head of department where the project was executed is the chairman of the committee. b) Representative of concerned department c) Project co-coordinator/Officer d) Representative of Finance (capital budget section) e) Representative of PP&E f) Representative of executive agency g) The consultant h) Representative from IED & O&M as the case may be. Chairman of each post completion audit committee convenes the post completion audit meeting and coordinates preparation of the post completion Audit Report. The post completion report is prepared in the format issued by project directorate of SAIL. The report is submitted to the Sanctioning Authority. The capital budget section is required to compile following information for preparation of post completion Audit report: a) Activity-wise Actual completion cost of the project vs. sanctioned cost b) Cost over-run analysis: Physical factors Fiscal factors c) Time over-run Analysis d) Phasing of Expenditure F) Budget Provision & Annual Budget Preparation: During each financial year in the month of June-july, finance department prepares the Revised Budget estimate (RE) & Budget estimate (BE) for capital expenditure against all running/ recently completed and forthcoming AMR schemes. 46

RE BE FOR

FOR CURRENT FINANCIAL YEAR BUDGET YEAR SUCCEEDING THE CURRENT FINANCIAL YEAR.

Budget provision (both RE & BE) is made scheme-wise for all running schemes based on the payments terms of various contracts, expected delivery schedules and further orders/contracts to be placed during the year. Budget provision is also made for schemes yet to be sanctioned where execution will start in the current year or next year. All departments send their fund requirement to the PP&E department. Based on above information a draft budget is compiled by capital budget section. A budget meeting is held under the Chairmanship of ED(projects) where the budget requirement of various departments is examined in the light of availability of resources for meeting the expenditure. The budget is finalized and submitted to corporate office after approval of MD. G) Review of capital schemes: Capital schemes are reviewed periodically in the capital budget section. Slow moving and non-moving schemes are identified and the same is intimated to PP&E for necessary action.

7.1.1 Formulation of investment proposals at plant:For all investment proposals, a feasibility report (FR) should be prepared. The plants may assign preparation of FR to the in-house consultant, centre for Engineering & Technology (CET), for before submission to the IPU. In exceptional cases, outside consultant may be appointed with due approval of the competent authority. The consultant may involve representative from environment control division of the plant, if required. The Consultant shall explore all options with techno-economics to arrive at the cost-effective scheme. FR should, inter-alia, include minimum technical solution and cut-off capital cost. In the case of market oriented proposals, specific vetting by the central marketing organization (CMO) on the following shall be obtained by the plant before the proposal is put-up for approval of competent authority: Increase in sales realization due to augmentation in production of finished products; Increase in sales realization on account of improvement in mechanical/chemical properties; Increase in sales realization on account of improvement in physical properties/ condition viz. better surface finish, removal of bends, better packaging etc.

47

While preparing FR, the consultant shall make a realistic assessment of input parameters, so as to ensure proper designing of equipment and efficient operation of plant after commissioning. The consultant shall also verify important input parameters, which are vital for the success of the scheme. a) FEASIBILITY REPORT For each new project a feasibility report is prepared. The FR contents following details: 1. Executive Summary: Summary of project background & history Summary of market analysis Raw material & Supplies Location, site & environment Engineering & technology Organization & overheads cost Human resource Investment appraisal o Advantages o Drawbacks

2. Project background & basic idea Description of the project idea Project promoter or initiator Project history (Development) Investigations already preformed Cost of preparatory studies & related investigations. Last Five years Performance YEAR 2002-03 2003-04 Like that INPUT OUTPUT MILL UTILISATION -

Existing Facility Need of installation of facility Production details of five years Annual business plan

3. Selection of alternatives. 4. Project Description Proposal and Scope of work

48

Layout Demand Market analysis Envisaged technological parameters. Instrumentation, control & automation Utilities & Services Fire fighting system Civil work Design consideration Technical specification

5. Structural Dismantling Modification Design consideration Specifications of steel structural work Pollution control Manpower requirement 6. Location, site & environment 7. Engineering & technology 8. Organization & overheads cost Wages and Salaries Factory overheads Maintenance Rent Insurance Taxes Overheads cost 9. Raw material & supplies cost by Unit cost Annual cost Overheads cost 10. Human Resource

11. Project Implementation Implementation schedule Implementation strategy Technical eligibility criteria of bidders for proposed package Basic accounting statement 49

Methods of investment appraisal 12.Financial analysis Capital cost estimates Taxes & Duties (excise duty, custom duty, cst@, Vat@, service tax, education tax, Fright & insurance) Mode of finance Phasing of capital expenditures Interest during construction Cost benefit analysis Financial analysis o Net working capital o NPV o Internal rate of return o Interpretation of the IRR o Interpretation of the payback o Simple & annual rate of return 11. Recommendations b) Sanctioning Authority for investment proposals: Present delegation of powers for sanction of investment proposals for SAIL plant/ Units is as follows:

Project cost limit 1. Up to Rs. 10 Cr. 2. Rs 10 Crore to Rs. 25 Crores 3. Above Rs. 25 crore

Sanctioning Authority MDs of Integrated plant Director (commercial) ED , ASP/SSP/VISL Chairman, SAIL SAIL Board

c) Investment Planning Unit (IPU): Investment planning unit shall be the nodal agency at the plant who will coordinate the formulation and appraisal of capital investment proposals. The existing IPU or its equivalent shall be strengthened with experienced executives drawn from various units/ shops of the plant and shall preferably report to the Head of project. IPU shall also make initial prioritization of the proposals to be taken up depending upon fund availability and the business plans of the company. d) Project Appraisal Group (PAG): The proposal after processing by IPU shall be considered by a high powered Project Appraisal Group comprising head of works, finance, projects with head 50

of IPU as convener. In addition to a representative of CET and for market related proposals a representative of CMO may be co-opted. PAG shall obtain commitment on benefits from the project owner and also ensure final prioritization of proposals at the plant level and finance closure i.e. sourcing of funds for financial concurrence and approval of the chief executive. The proposals beyond the delegated powers of the chief executive shall be forwarded to the corporate office for approval. e) Budgetary provision: To facilitate examination of all critical aspects/ operations/ project parameters, the project to be taken up should be in conformity with the Business plan of the company. Necessary provision should exist in the five year plan. The proposal should be taken up within the available provisions as per the prioritized list as well as the annual budget. For proposals which are not covered in the prioritized list but are considered urgent for implementation, adequate justification needs to be given for taking up the proposal indicating the schemes which may be dropped in lieu of the same. f) To-stage project Approval: 1. Stage-I (In-principal) Approval 2. stage-II ( formed up cost ) Approval g) Time Schedule for Appraisal of proposals: Receipt of the proposal in project Directorate Dispatch of proposal copies to the Appraising agencies and receipt of comments Receipt of clarifications from the plant Holding of meeting at project directorate for freezing of all outstanding issues, if needed Finalization of investment proposal on the basis of clarifications from plant Finalization of Approval Note by the project directorate Concurrence of proposal by finance directorate and submission for approval of Chairman, SAIL 7.1.2 Importance of investment decisions: Investment decisions require special attention because of the following reasons They influence the firms growth in the long run. They affect the risk of the firm. They involve commitment of large amount of funds. They are irreversible at substantial loss. They are among the most difficult decisions to make.

7.1.3 Types of investment decision: I. Mutually exclusive investments 51

II. Independent investments III. Contingent investments I) Mutually exclusive investments: Mutually exclusive investment serve the same purpose and compete with each other. If one investment is undertaken, others will have to be excluded. A company may for example either use a more labour intensive, highly automatic, or employ a capital intensive, highly automatic machine for production. Choosing the semi automatic machine preludes the acceptance of the highly automatic machine. II) Independent investments: Independent investment serves different purpose and do not complete with each ot6her. For example a heavy engineering company may be considering expansion of its plant capacity to manufacture additional excavators and addition of new production facilities to manufacture a new product light commercial vehicles. Depending on their profitability and availability of funds the company can undertake both investments. III) Contingent investments: Contingent investment are dependent projects the choice of one investment necessitates undertaking one or more other investment. 7.1.4 Investment Evaluation Criteria: Three steps are involved in the evaluation of an investment: Estimation of cash flows Estimation of the required rate of return Application of a decision rule for making the choice. 7.1.5 Investment decision rule: The investment decision rules may be referred to capital budgeting techniques, or investment criteria. A sound appraisal technique may be used to measure the economic worth of an investment project. the essential property of a sound technique is that it should maximize the shareholders wealth. The following other characteristics should also be possessed by a sound investment evaluation criterion: It should consider all cash flows to determine the true profitability of the project. It should provide for an objective and unambiguous way of separating good project from bad projects It should help ranking of projects according to their profitability. It should recognize the fact that bigger cash flows are preferable to smaller ones and early cash flows are preferable to later ones.

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It should help to choose among mutually exclusive projects that projects which maximizes the share holders wealth. It should be a criterion which is applicable to any conceivable investment project independent of others. These conditions will be clarified with the features of various investment criteria. 7.1.6 Evaluation criteria: A number of investment criteria are in use in practice. They may be grouped in the following two categories: a) Discounted cash flow (DCF) criteria I. Net present value (NPV) II. Internal Rate of Return (IRR) III. Profitability Index (PI) b) Non Discounted cash flow criteria I. Payback period (PB) II. Discounted payback period III. Accounting rate of return (ARR) Discounted payback is a variation of the payback period method. It involves discounted cash flows, but as we shall see latter it is not a true measure of investment profitability. As practically NPV is the most valid technique of evaluating an investment project. It is consistent with the objective of maximizing shareholders wealth. I. Net Present Value Method (NPV) The net present value method is the classic economic method of evaluating the investment proposals. It is a DCF technique that explicitly recognizes the time value of money. It correctly postulates that cash flows arising at different time periods differ in value and are comparable only when their equivalents present values are found out. The following steps are involved in calculating NPVs: Cash flow of the investment project should be forecasted based on realistic assumptions. Appropriate discount rate should be identified to discount the forecasted cash flows. The appropriate discount rate is the projects opportunity cost of capital, which is equal to the required rate of return expected by investments of equivalent risk. Present value of cash flows should be calculated using the opportunity cost of capital as the discount rate. Net present value should be found out by subtracting present value of cash outflows from present value of cash inflows. The project should be accepted if NPV is positive (i.e. NPV>0) Evaluation of NPV method

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NPV is the measure of an investments profitability. It provides the most acceptable investment rule for the following reasons: Time value: It recognizes the time value of money a rupee received tomorrow. Measure of true profitability: it uses all cash flows occurring over the entire life of the project in calculating its worth. Hence it is a measure of the projects true profitability. The NPV method relies on estimated cash flows and the discount rate rather than any arbi9trary assumptions, or subjective considerations. Value additivity: The discounting process facilitates measuring cash flows in terms of present values; that is in terms of equivalent current rupees. There fore the NPVs of projects can be added. This is called value additivity principle. It implies that if we know the NPVs of individual projects the value of the firm will increase by the sum of their NPVs. we can also say that if know values of individual assets the firms value can simply be found out by adding their values. Shareholder value: The NPV method is always consistent with the objective of the shareholder value maximization. This is the greatest virtue of the method. Are there any limitations in using the NPV rule? The NPV method is a theoretically sound method. In practice it may pose some computational problems. Cash flow estimation- the NPV method is easy to use if forecasted cash flows are known. In practice it is quite difficult to obtain the estimates of cash flows due to uncertainty. Discount rate- it is difficult in practice to precisely measure the discount rate. Mutually exclusive projects- Further caution needs to be applied in using the NPV method when alternative projects with unequal lives or under funds constraint are evaluated. The NPV rule may not give unambiguous results in these situations. Ranking of projects- It should be noted that the ranking of investments projects as per the NPV rule is not independent of the discount rates. The impact of the discounting becomes more severe for the cash flow occurring later in the life of the project; the higher is the discount rate the higher would be the discounting impact. II. Internal Rate of Return (IRR) The internal rate of return (IRR) method is another discounted cash flow technique, which takes account of the magnitude and timing of cash flows. Other term used to describe the IRR method are yield on an investment, marginal efficiency of capital, rate of return over cost, time adjested rate of internal return and so on. The concept of IRR is quite simple to understand in the case of a one period project.

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For example that you deposit Rs. 10000 with a bank and would get back Rs. 10800 after one year. The true rate of return on your investment id s 8%. You may observe that the rate of return of your investment (8 percent) makes the discounted (present) value of your cash inflow (Rs. 10800) equal to your investment (Rs. 10000) By formula if we calculate R= C1-C0/C0 R= C1/C0-1 Hear rate of return r depends on the projects cash flows rather than any outside factor. Therefore it is referred to as the IRR. The IRR is the rate that equates the investment outlay with present value of cash inflow received after one period this also implies that the rate of return is the discount rate which makes NPV=0. there is no satisfactory way of defining the true rate of return of a long term assets. IRR is the best available concept. We shall see that although it is a very frequently used concept in finance, yet at times it can be a misleading measure of investment worth. It can be noted that the IRR equation is the same as the one used for the NPV method. In the NPV method the required rate of return, is known and the net present value is found, while in the IRR method the value of r has to b determined at which the net present value becomes zero. Uneven cash flows: calculating IRR by Trial and Error: The accept rule of reject rule using the IRR method is to accept the project if its internal rate of return is higher than the opportunity cost of capital (r>k). here k is also known as the required rate of return or cut off, or hurdle rate. The project shall be rejected if its internal rate of return is lower than opportunity cost of capital (rk r Mutually exclusive projects It may also fail to indicate a correct choice between mutually exclusive projects under certain situations. Value additively Unlike in the case of the NPV method, the value additively principle does not hold when the IRR method is used-IRR of projects do not add. III. Profitability Index: Yet another time adjusted method of evaluating the investment proposals is the benefit cost ratio or profitability index (PI). Profitability index is the present value of cash inflows, at the required rate of return, to the initial cash outflow of the investment. The formula for calculating benefit cost ratio or profitability index is as follows: PI = PV of cash inflow/ Initial cash outlay = PV (Ct)/C0 Acceptance rule: The following are the PI acceptance rules: Accept the project when PI is greater than one Reject the project when PI is less than one May accept the project when PI is equal to one PI > 1 PI < 1 PI = 1

The project with positive NPV will have PI greater than one PI less than means that the project NPV is negative. Evaluation of PI method: Like the NPV and IRR rules, PI is a conceptually sound method of appraising investment projects. It is a variation of the NPV method, and requires the same computations as the NPV method. Time value It recognizes the time value of money.

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Value maximization it is consistent with the shareholder value maximization principle. A project with PI greater than one will have positive NPV and if accepted, it will increase share holders wealth. Relative profitability In the PI method since the present value of cash inflow is divided by the initial cash inflow; it is a relative measure of project profitability. Like NPV method, PI criteria also require calculation of cash flows and estimates of the discount rate. In practice estimation of cash flows and discount rate pose problem. b)Non Discounted cash flow criteria I. Payback Period Method (PB) Payback is a popular investment criterion in practice. It is considered to have certain virtues. Simplicity- the most significant merit of payback is that it is simple to understand and easy to calculate. The business executives consider the simplicity of method as a virtue. This is evident from their heavy reliance on it for appraising investment proposals on practice. Cost effective- Payback method costs less than most of the sophisticated techniques that require a lot of analysis time and use of computers. Shot term effect- A company more favorable short run effect on earning per share by setting up a shorter standard payback period. It should however be remembered that this may have to sacrifice its future growth for current earnings. Risk shield- the risk of the project can be tackled by having a shorter standard payback period as it may ensure guarantee against loss. A company has to invest in many projects where the cash inflow and life expectancies are highly uncertain. under such circumstances payback may become important not as much as a measure of profitability but as a means of establishing an upper bound on the acceptable degree of risk. Liquidity- the emphasis in payback is on the early recovery of the investment. Thus it gives an insight into the liquidity of the project. The funds so released can be put to other uses. In spite of its simplicity and the so called virtues the payback may not be a desirable investment criterion since it suffers from a number of serious limitations: Cash flows after payback- payback fails to take account of the cash inflows earned after the payback period. As per the payback rule both the projects are equally desirable since both return the investment outlay in two years. Cash flows ignored- payback is not an appropriate method of measuring the profitability of an investment project as it does not consider all cash inflows yielded by the project.

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Cash flown pattern- payback fails to consider the pattern of cash inflow that is magnitude and timing of cash inflows. In other words, ti gives equal weights to returns of equal amounts even though they occur in different time periods. Administrative difficulties- A firm may face difficulties in determining the maximum acceptable payback period there is no rational basis for setting a maximum payback period. It is generally a subjective decision. Inconsistent with shareholder value- payback is not consistent with the objective of maximization the market value of the firms share. Share values do not depend on payback periods of investment projects. Let us remained that the payback is not a valid method for evaluating the acceptability of the investment projects. It can however, be used along with the NPV rule as a first step in roughly screening the projects. In practice the use of DCF techniques has been increasing but payback continues to remain popular and a primary method of investment evaluation. Payback Reciprocal and the Rate of Return Payback is considered theoretically useful in a few situations. One significant argument in favour of payback is that its reciprocal is a good approximation of the rate of return under certain conditions. The payback period is defined as follows: Payback = initial investment / Annual cash inflow (annuity) = Co/C The reciprocal of payback will be a close approximation of the internal rate of return if the following two conditions are satisfied: The life of the project is large or at least twice the payback period. The project generates equal annual cash inflows. The payback reciprocal is a useful technique to quickly estimate the true rate of return. But its major limitations that every investment project does not satisfy the conditions on which this method is based. When the useful life of the project is not at lest twice the payback period, the payback reciprocal will always exceed the rate of return. Similarly it cannot be used as an approximation of the rate of return if the project yields uneven cash inflows. IV. Discounted Pay Back (PB): One of the serious objections to the payback method is that it does not discount the cash flows for calculating the payback period. we can discount cash flows and then calculate the payback. the discounted payback period is the number of period taken in recovering the investment on the present value basis. the

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discounted payback period stills fails to consider the cash flow occurring after the payback period. III. Accounting Rate of Return Method (ARR) The accounting rate of return method also known as the return on investment uses Accounting information as revealed by financial statements, to measure the profitability of an investment the accounting rate of return is the ratio of the average after tax profit divide by average investment the average investment would be equal to half of the original investment if it were depreciated constantly. Alternatively it can be founded out by dividing the total of the investment book value after depreciation by the life of the project. the accounting rate of return thus is an average rate and can be determined by the following equation. ARR=AVERAGE INCOME / AVERAGE INVESTMENT In the above equation average income should be defined in terms of earnings after tax without any adjustment for interest viz. EBIT (1-T) or net operating profit after tax. Thus ARR=[{EBITt (1-t)] ------------------------(Io+In)/2 Where EBIT is earnings before interests and taxes, T tax rate, Io book value of investment In the beginning in book value of investment at the end of n number of years. Acceptance rule: As an accept or reject criterion this method is accept all those projects whose ARR is higher then the minimum rate established by the management and reject those projects which have ARR less then the minimum rate this method would rank a project as number 1 if it has highest ARR and lowest rank would be assigned to the project with lowest ARR Evaluation of ARR Method: The ARR Method may claim some merits: The ARR method is simple to understand and use. It does not involve complicated computations. Accounting data the ARR can be readily calculated from the accounting data unlike in the NPV and IRR methods, no adjustments are required to arrive at cash flows of the projects. Accounting profitability the ARR rule incorporates the the entire steam of income in calculating the projects profitability.

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The ARR a method commonly understood by accounts, and frequently used as a performance measure. As a decision criterion however it has serious short comings. Cash flows ignored the ARR method uses accounting profiles, not cash flows, in appraising the projects. Accounting profits are based on arbitrary assumptions and choices and also include non cash items. It is therefore, inappropriate to rely on them for measuring the investment projects. Time value ignored the averaging of income ignores the time value of money. In fact this procedure gives more weight age to the distant receipts. Arbitrary cutoff the firm employing the ARR rule uses arbitrary cut off yard stick. Generally the yardstick is the firms current return on its assets (book value). Because of this, the growth companies earning very high rates on their existing assets may reject profitable projects (i.e. with positive NPVs) and the less profitable companies may accept bad projects (that is negative NPVs). The ARR method continues to be used as an investment criterion is certainly undesirable. It may lead to unprofitable allocation of capital. NPV versus IRR: The Net present value and internal rate of return methods are closely related investment criteria. Both are time adjusted methods investment worth. In case of Independent projects, two methods lead to same decisions. However under satiation a conflict arises between them. It is under these cases that a choice between the two criteria has to be made. Equivalence of NPV and IRR : Cases of Conventional Independent Projects. It is important to distinguish between conventional and non conventional investment in discussing the comparison between NPV and IRR methods. A conventional investment can be defined as one whose cash flows take the patterns of an initial cash outlay followed by the cash inflows. conventional projects have only one change in the sign of cash flows; for example ,the initial outflow followed by inflows, I.e.- = ++++ In case of conventional investments which are economically independent of each other, NPV and IRR methods results in same accept or reject decision if the firm is not constrained for funds in accepting all profitable projects. Same projects would be indicted profitable by both methods. The logic is simple to understand, all projects with positive NPV would be accepted if the NPV is used, or projects with internal rates of return higher than the required rate of return would be accepted if the IRR method were followed. The last or marginal project acceptable under the NPV method is the one which has zero net present value, while using the IRR this project will have an internal rate of return equal to the required rate of return.

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NPV of a project declines as the discount rate increases. This may not be true in the case of all projects. Investments projects may have the characteristics of lending or borrowing or both. Consider the situations Cash flows (RS) Project Co Cl IRR NPV at 10% X Y -100 100 120 -120 20% 20% 9 -9

It can be see that for project X the NVP declines as the discount rate increases. This NVP is zero at 20 percent rate of return; it is positive for rates lower than 20 percent rate and negative for rates higher than 20 percent. Project X a lending type project is a typical example of conventional investment in which a series of cash outlays is followed by a series of cash inflows. Projects Y on the other hand we find that the NVP increases with increases in the discount rate. However it is negative at rates lower than 20 percent and positive at rates higher than 20 percent. Project Y is borrowing type project. Non conventional investments: Problem of Multiple IRRs A serious short coming of the I