INTRODUCTION OF THE STUDY

Introduction
Capital budgeting or capital expenditure decision is a systematic program for
investing funds in the long-term or fixed assets of a firm in expectation of future profit. It
may be referred to as the process of identifying, evaluating and selecting investment
projects who expected returns are received for more than one year-generally, for a
considerable period of time in the future

According to T. Horn Green
Capital budgeting is a long term planning for making and financing
proposed capital out lays.

In general a project is an activity in which, we will spend money in expansion of
returns in which logically seems to lead it self planning. Financing and implementations
as a unit, is a specific activity with a specific point and a specific ending point intended to
a accomplish a specific objective of the study.

An efficient allocation of capital is the most important finance function in the
modern times. It involves decisions to commit the firms funds to the long term assets.
Capital budgeting for investment decisions is of considerable importance to the firm since
they tend to determine its value by influencing its growth, evaluation of capital budgeting
decisions.



A capital budgeting decisions may be defined as the firms decision to invest is
current funds most effectively & efficiently in the long term assets in anticipation of an
expected flow of benefits over a series of years. The long term assets are those that
affect the firms operations beyond the one year period. The firms investment decisions
would generally includes expansion, acquisition modernization and replacement of long
term assets. Sale of a division or business is also an investment decision. The quality of
these decision is improved by capital budgeting. Capital budgeting decision can be of two
types:

1) To those which expand revenues and
2) To those which reduce costs.

So that I conducted my study regarding capital budgeting in this organization to
know how effectively investment decision taken in the organization. I think it would be a
great achievement for my future also.



Introduction to Capital Budgeting

Capital budgeting is the process of making investment may be defined as an
expenditure the benefits of which are expected to be received over period of time
exceeding one year. The main characteristic of a capital expenditure is that the
expenditure is incurred at one point of time whereas benefits of the expenditure are
realized at different points of time in future. In simple language we may say that a capital
expenditure is an expenditure incurred for acquiring or improving the fixed assets, the
benefits of which are expected to be received over a number of years in future.
This project presents two versions of heuristic algorithm to solve a model of
capital budgeting problems in a decentralized multidivisional firm involving no more
than two exchanges of information between headquarters and divisions. Head quarter
make an allocation of funds to each division based upon its cash demand and its potential
growth rate. Each division determines which projects to accept. Then, an additional
iteration is performed to define the solution.
To take up a new project, involves a capital investment decision and it is the top
managements duty to make a situation and feasibility analysis of that particular project
and means of financing and implementing it financing is a rapidly expanding field, which
focuses not on the credit status of a company, but on cash flows that will be generated by
a specific project.

The capital budgeting decisions procedure basically involves the evaluation of the
desirability of an investment proposal. It is obvious that the firm must have a systematic
procedure for making capital budgeting decisions. The procedure for making capital
budgeting decisions must be consistent with objective of wealth maximization.



Definition

Capital Budgeting is along term planning for making and financing proposed
capital outlays
- T. Horn green

A budget is an estimate of future needs arranged according to at an orderly basis
covering some or all the activities of an enterprise for a definite period of time.
- George R. Terry

Budget as a financial and / or quantitative statement prepared to a definite period
of time, of the policy to be pursued during that period for the purpose of attaining given
objective.













Need of capital budgeting

The importance of capital budgeting can be well understood from the fact that
unsound investment decision may prove to be fatal to the very existence of the concern.
The need, significance or importance of capital budgeting arises mainly due to the
following.

Large investments
Long term commitment of funds
Irreversible nature
Long ter effect on profitability
Difficulties of investment mdecisions
National importance

Objectives for Capital Budgeting

It determines the capital projects on which work can be started during the budget
period after taking into account their urgency and the expected rate of return on each
project.
It estimates the expenditure that would have to be incurred on capital projects
approved by the management together with the sources from which the required funds
would be obtained.
It restricts the capital expenditure on projects within authorized limits.







Types of Capital Budgeting decisions

Capital budgeting decisions are of paramount importance in financial decision
making. In first place they affect the profitability of the firm. They also have a bearing
on the competitive position of the firm because they relate to fixed assets. The fixed
assets are true goods than can ultimately be sold for profit. Generally the capital
budgeting of investment decision includes addition, disposition, modification and
replacement of fixed assets.
Diagram 3.1














Expansion of existing business

A company may add capacity to its existing product lines to expand existing
operations. For example Amaravathi Textiles Pvt.Ltd may increase its plant capacity to
manufacture more detergents soaps & powder. It is an example of related expansion.



EXPANSION OF
EXISTING BUSINESS

TYPES OF CAPITAL
BUDGETING
EXPANSION OF NEW
BUSINESS
REPLACEMENT
& MODERNIZATION
Expansion of new business

A firm may expand its activities in a new business expansion of a new business
requires investment and new kind of production activating with in the firm. If packing
manufacturing company invests in a new plant and machinery to produce ball bearings,
which the firm has not manufactured before, this represents expansion of new business or
unrelated diversification. Sometimes accompany acquires existing firms to expand its
business.

Replacement and modernization

The main objective of modernization and replacement is to improve operating
efficiency reduce costs. Cost saving will reflect in the increased profits, but the firms
revenue may remain unchanged. Assets become outdated and absolute with technological
changes. The firm must decide to replace those with new assets that operate more
efficient and economical assets and therefore, are also called cost reduction investment.
However replacement decision that involves substantial modernization and
technological improvements expand revenues as well as reduce costs. Yet another useful
way to classify investment is as follows:
Mutually exclusive investment
Independent investment
Contingent investment

Capital budgeting involves

Committing significant resources
Planning for the long term 5 to 50 years.
Decision making by senior management
Forecasting long term cash flows
Estimating long term discount rates & analyzing risk.
Factors for Capital Budgeting

Cost of acquisition of permanent asset as land and building, plant and machinery,
goodwill etc.
Cost of addition, expansion, improvement or alteration in the fixed assets.
Cost of replacement of permanent assets.
Research and development projects cost, etc.

Significance of Capital Budgeting

Capital budgeting decisions deserve to be treated in a different manner as there
are conceptual problems involved which necessarily make the decision process more
complex, which this makes things more difficult for the decision process maker, it also
makes the problem more challenging. There are several practical reasons for placing
greater emphasis on capital expenditure decisions. These are:

1. Long term Period

The consequences of capital expenditure decisions extended far into future.
The scope of current manufacturing activities of an organization is governed largely by
capital expenditures in the past. Likewise, current capital expenditures decision provides
the frame work for future activities. Capital investment decisions have an enormous
bearing on the basic character of a organization.

2. Irreversibility

The markets are used for capital equipment in general is ill organized.
Further, for some types of capital equipment, custom made to meet specific requirements,
the market may virtually be non existent.

3. Substancial Outlay

Capital expenditure usually involves substantial outlays. An integrated steel
plant, for example, involves an outlay of several thousand millions. Capital costs tend to
increase with advanced technology.

Capital Budgeting Process

The preparation of the capital budget is a process that lasts many months and is
intended to take into account neighborhood and bough needs as well as organization
wide. The process begin in the fall, when each of the segment holds public hearings,
each community board submits a statements of its capital priorities for the next fiscal year
to the managing director and appropriate borough chairmen.

The capital budgeting process involves 8 steps explained in theoretic as
Follows:

Identification of investment proposals
Screen proposals
Evolution of various proposals
Fixing priorities
Final approval
Implementing proposals
Performance review
Feed back.




1. Identification of Investment Proposals

The capital budgeting process begins with the identification of investment
proposals. The investment proposals may originate from the top management or from
any officer of the organization. The department head analyses the various proposals in
the light of the corporate strategies and submit the suitable proposal to the capital
budgeting committee in case of the organizations concerned with process of long term
investment proposals.
Identification of investment ideas it is helpful to:

Monitor external environment regularly to scout investment opportunities.
Formulate a well defined corporate strategy based on through analysis of strengths,
weaknesses, opportunities and threats
Share corporate strategy and respective with persons.
Motivate employees to make suggestions.

2. Screen Proposals

The expenditure planning committee screen the various proposals received
from different departments in different angles to ensure that these are in selection criteria
of the organization and also do not lead to department imbalances.

3. Evalution of Various Proposals

The next steps in capital budgeting process in to evaluate the probability of
various probability the independent proposals are those which do not complete with one
another and the same way be either accepted or rejected on the basic of a minimum return
on investment required.


4. Fixing priorities

After evaluating various proposals, the unprofitable or uneconomic proposals
may be rejected straight away. But it may not be possible for the organization to invest
immediately in all the acceptable proposals due to limitations of funds. Hence, it is very
essential to rank the various proposals and to establish priorities after considering
urgency, risk & profitability involved the criteria.

5. Final approval

Proposals meeting the evaluation and other criteria are finally approved to be
included in the capital expenditure budget. However proposals involving smaller
investment may be decided at the lower levels for expeditious action. The capital
expenditure budget lay down of estimated expenditure to be incurred on fixed assets
during the budget period.

6. Implementing Proposals

Preparation of a capital expenditure budgeting & incorporation of a particular
proposals in the budget does not itself authorize to go ahead with implementation of the
project. A request for authority to spend the amount should be made to be the capital
expenditure committee which may like to review the profitability of the project in
changed circumstances. In the implementation of the projects networks techniques such
as PERT & CPM are applied for project management.





7. Performance review

In this stage the process of capital budgeting is the evaluation of he
performance of the project. The evaluation is made through post completion audit by
way of comparison of actual expenditure on the project with the budgeted one and also
by comparing the actual return from the investment with the anticipated return. The
unfavorable variances if any should be looked into and the causes the same is identified
so that identified so that corrective action may be taken in future.
It throws light on how realistic were the assumptions underlying the project.
It provided a documented log of experience that is highly valuable for decision
making.

8. Feedback

The last step in the capital budgeting process is feedback from employee
involved in the organization. If any consequences are there the process come to 1
st
step
of the process.

Guideline for Capital Budgeting

There are many guidelines for capital budgeting process either it is long term
plan.
The major points are:

Need and objectives of owner
Size of market in terms of existing & proposed product lines and anticipated growth
of the market share
Size of existing plants & plans for new plant sites and plant
Economic conditions which may affect the firms operations and
Business and financial risk associated with the replacement & existing assets of the
purchases of new assets.
Contents of the Project Report

Raw material
Market and marketing
Site of project
Project engineering dealing with technical aspects of the project
Location and layout of the project building
Building
Production capacity
Work schedule

Criteria for Capital Budgeting

Potentially, there is a wide array of criteria for selecting projects. Some
shareholders may want the firm to select projects that will show immediate surges in cash
flow, others may want to emphasize long - term growth with little importance on short
term performance viewed in this way, it would be quite difficult to satisfy the differing
interests of all the shareholders. Fortunately, there is a solution.










Methods for evaluation

In view of the significance of capital budgeting decisions, it is absolutely
necessary that the method adopted for appraisal of capital investment proposals is a
sound one. Any appraisal method should provide for the following.

A basis of distinguishing between acceptable and non acceptable project.
Ranking of projects in order of their desirability.
Choosing among several alternatives
A criterion which is applicable to any conceivable project.
Recognizing the fact that bigger benefits are preferable to smaller ones and early
benefits to later ones.

There are several methods for evaluating the investment proposals. In case of
all these methods the main emphasis is one the return which will be derived on the capital
invested in the project.















Diagram 3.4

Capital Budgeting Techniques




Traditional Modals Discounted Cash Flow Models

Payback period (PBP) Net present value (NPV)

Accounting rate of return (ARR) Internal rate of return (IRR)

Profitability index (PI)


Traditional Modals

Pack Back Period

The payback period one of the most popular and widely recognized
Additional method of evaluation investment proposals. Payback period is number of
years required to recover the original cash outlay invested in a project.
If the project generates constant annual cash flows, the payback period can be
computed by dividing cash outlay by the annual cash inflows.

Payback period =
|
.
|

\
|
C
C
s cashinflow Annual
investment Initial
0

UN equal cash inflows, Payback period =
CFAT year Next
CFAT Required
Baseyear +
C
o
= Initial investment
C = Annual cash inflows
In the case of UN equal cash inflows, the payback period can be found out
by adding up the cash inflow until the total is equal to the initial cash outlay.

Merits

This method is simple to understand and easy to calculate.
Surplus arises only if the initial investment is fully recovered. Hence, there is no
profit on any project unless the payback period is over.
Administrative difficulties may be faced in determining the maximum acceptable
payback period.

Limitations

It stresses on capital recovery rather than profitability.
It does not consider the return from the project after its payback period.
Administrative difficulties may be faced in determining the maximum acceptable pay
back period.







(b) Accounting Rate of Return (ARR)

The accounting rate of return (ARR) also known as the return on investment (ROI)
uses accounting information, as revealed by financial statements, to measure to
profitability of an investment. The accounting rate of return is the ratio of the average
after fax profit divided by the average investment if it were depreciated constantly.
ARR = X100
estment Averageinv
ome AverageInc


Merits

This method is simple to understand
It is easy to operate and compute
Income throughout the project life is considered.
It can be readily calculated using the accounting data.

Limitations

It does not consider cash inflows which is important project evaluation rather than
PAT
It takes the rough average of profits of future years. The pattern or fluctuations in
profits are ignored.
It ignores time value of money, which is important in capital budgeting decisions.





Discounted Cash Flow Models

(a) Net Present Value (NPV)

The Net Present Value (NPV) method is the classic method of evaluating the
investment proposals. If is a DCF technique that explicitly recognizes the time value at
different time periods differ in value and comparable only when their equipment present
values are found out.
NPV =
( )
( ) ( ) ( )
0
3
3
2
2 1
1 1 1
1
C
k
C
k
C
k
C
k
C
n
n

+
+ +
+
+
+
+
+

NPV =
( )
0
1
1
0 1
C
k
C
n
i

+

=

Where
NPV = Net Present Value
C
fi
= Cash flows occurring at time
K = The discount rate
C
o
= Cash outlay.

Merits

NPV method takes account the time value of money
All cash inflows are considered
All cash inflows are converted into present value
It satisfies value additively principle i.e., NPV of two or more projects can be added.




Limitations

It may not satisfactory answer when the projects being compared involved different
amounts of investment.
It is difficult to use
It may mix lead when dealing with alternative projects or limited funds.
It involves difficult calculations
In involves forecasting cash flows and applications of discount rate.

















(b) 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 thing of cash flows, other terms used to
describe the IRR method are yield on an investment, marginal efficiency of capital, rate
of return over cost, time adjusted rate of internal return and so on.
NPV =
( ) ( )
n 1
fi
n
0 i
k 1
WC SV
k 1
C
+
+
+
+

=

Where
C
fi
= Cash flows occurring at different point of time
K = The discount rate
N = Life of the project in year
C
o
= Cash out lay
SV & WC = Salvage value and working capital at the end of the n years.
IRP =
( )
( ) L H
b a
A
L

+

Where
L = Lower discount rate at which NPV is positive
H = Higher discount rate at which NPV is negative
A = NPV at lower discount rate, L
B = NPV at higher discount rate, H






Merits

This method considers the time value of money
All cash flows are considered
It has psychological appeal to the users.
The percentage figure calculated under this method is more meaningful and
acceptable, because it satisfies them in terms of rate of return on capital.

Limitations

It may not give unique answer in all situations.
It is difficult to understand and use in practices.
It implies that the intermediate cash inflows generated by the project.









(c) Profitability Index (PI)
Yet another time adjusted method of evaluating the investment proposals is the
benefit cost (B/C) ratio or profitability index (PI) required rate of return, to the initial
cash out of the investment.
PI =
houtlay InitialCas
flow PVofCashin

Where
PV = Present Value
Merits
This method considers the time value of money.
All cash inflows are considered.
It is better evaluation technique than NPV.
Limitations

It fails as a guide in resolving capital rationing when projects are indivisible.






Capital Commitment Plan

The progress of projects included in the capital budget, a capital commitment plan
is issued three times a year. The commitment plan lays out the anticipated
implementation schedule for there current fiscal and the next three years. The first
commitment plan is published within 90days of the adoption of the capital budget.
Updated commitment plans are issued in January & April along with the companys
budget proposals.
The commitment plan translates the appropriations approved under the adopted
capital budget into schedule for implementing individual projects. The fact that funds are
appropriated for a project in the capital budget does not necessarily mean that work will
start or be completed that fiscal year. He choice of priorities and timing of projects is
decided by office management & budget in consultation with the agencies along with
considerations of how much the managing director thinks the organization can afford to
append on capital projects overall.
The capital commitment plan lays out the anticipated implemented schedule for
capital projects and is one source of information on how far along projects are although
not a consistent or always useful one. The adopted commitment plan is usually published
in September, & then updated in January & April.
In the capital budgeting for every two adjacent years there will be gap. The gap
between authorized commitments and the target is presented in capital commitment plan
as diminishing over the course of the year plan, in practice many of the unattained
commitments will be rolled over into the next years plan, so that the current year gap
will remain large. The gap has grown in recent year exceeding in last two executive
capital plans.


Kinds of Capital Budgeting

Capital budgeting refers to the total process of generating, evaluating, selecting
and following up a capital expenditure alternatives. The firm allocates or budgets
financial recourses to new investment proposals. Basically, the firm may be confronted
with three types of capital budgeting decisions:-

The accept or reject decision,
The mutually exclusive choice decisions, and
The capital rationing decision

Difficulties of Capital Budgeting

While capital expenditure decisions are extremely important, they also pose
difficulties which stem from three principal sources:

Identifying & measuring the costs & benefits of a capital expenditure proposal tends
to be difficult
There is great deal of uncertainty for capital expenditure decision which involves cost
& benefits that extend far into the future
It is impossible to product exactly what will happen in the future
The time period creates some problems in estimating discount rates & establishing
equivalences.


Limitations of Capital Budgeting
Capital budgeting techniques suffer from the following limitations:

All the techniques of capital budgeting presume that various investment proposals
under consideration are mutually exclusive which may not practically be true in some
particular circumstances.
The techniques of capital budgeting require estimation of future cash inflows and
outflows. The future is always uncertain and the data collected for future may not be
exact. Obliviously the results based upon wrong data may not be good.
There are certain factors like morale of the employees, goodwill of the firm, etc.,
which cannot be correctly quantified but which other wise substantially influence the
capital decision.
Urgency is another limitation in the evaluation of capital investment decisions.
Uncertainty and risk pose the biggest limitation to the techniques of capital budgeting.


OBJECTIVES OF THE STUDY

To study the financial aspects of Aadhar seeds Pvt.Ltd for future expansion of
project.

To study the various capital budgeting techniques of Aadhar seeds Pvt.Ltd.

To compare the projects A&B for future expansion.

Understand the nature and importance of investment decisions.

Find out the profitability of projects A&B.


















NEED OF THE STUDY

To know the investment performance of the company.

To have a exposure by visiting the organization for many times.

To study the role of capital budgeting in the organization.

To know more information about the capital budget management both theoretically
and practically.

The search for new and more profitable investment proposals.
















METHODOLOGY OF THE STUDY

Methodology has systematic process of collecting information. Methodology is
divided into two parts. One is primary data and another is secondary data.

Primary data

The primary data is the data, which is collected from questionnaire, and from
concerned officers of finance department of Aadhar seeds Pvt. Ltd.

Secondary data

The secondary data is the data collected from annual records of the company text
books and journals relating to financial management.

At present for my study I gathered information mostly through secondary data from
Annual records of the company.
Text books and journals relating to financial management.











SCOPE OF THE STUDY

This study represents capital budget management in the Aadhar seeds Pvt.ltd, Mature
Orly.

The avalable information was taken from annuel reports only.

The study relates to past data of 2008 Jun to 2013 May.



















LIMITATIONS OF THE STUDY

Information collected from secondary data.

The project period of study is only 45 days.


The study is related to future project returns, there may be number of factors effect the
decisions taken now.


INDUSTRY PROFILE

The prospects of the seed industry would require changes in Government policy,
facilitating its development and removing controls and restrictions. In brief seed industry
requires a simple policy and legislation.
Historically, the importance of seed has been recognized since the Vedic times for
increasing food production and quality. However organized production and supply of
quality seed at the national level started in 1963 as a consequence of the introduction of
hybrid technology during 1961- 65.
GROWTH:
The release of high yield dwarf varieties of wheat and rice by the mid 1960s gave
further impetus to the growth of seed industry. This period also saw the constitution of
the Seed Review Team, enactment of Seeds Act, 1996 for regulating the quality of seed
and formation of the National Commission of Agriculture.
This was the period in which the private sector took significant steps into the seed
business.
The 1980s witnessed two more important developments viz., granting of
permission to MRTP/FERA companies for investment in the seed sector in 1987 and the
introduction of NEW POLICY on seed development in 1988.
The new policy on seed development while helping liberalize import of vegetable
and flower seeds in general and seeds of other crops in a restricted manner encouraged
global seed companies to enter the seed business of India


CURRENT STATUS
To supply the seeds necessary for the five hundred thousand Indian villages is a
big problem. Storage, transportation and timely distribution of pure seed from village to
village calls for careful organization within the State Department of Agriculture and the
willing cooperation of farmers.
Indians seed industry has grown in size and level of performance over the past
four decades. It represents a blend of private and public sector companies / corporations.
The private sector comprises approximately 140 seed companies, which includes
national, global, regional and other seed producing and/or selling companies.
The industry has made impressive strides from a modest beginning in 1962-63 to
over 5 lakh hectares in seed production in 1995-96. The quantum of seed distributed also
grew from 14 lakh to 70 lakh quintals during this period.
On the inputs supply the certified quality seeds distribution touched a new high of
one million tones during the year 2000 2001. It was 0.91 million tones the previous
year.
CHALLENGES:
Use of new techniques requires dissemination and training for their beneficial use.
To achieve these goal radical changes will be required in the existing extension systems.
In many cases entirely new approaches for dissemination of knowledge will be required.
These will have to be constant learning and up gradation of skills to enable transmission
of knowledge to the user.
To realization of the prospects of the industry will also changes in the government
policy, which would facilitate the development of the Indian Agriculture and seed
industry. The policy must aim at governing greater self-discipline and removing controls
and restrictions which inhibit growth and development.
ROLE OF THE GOVERNMENT:
To achieve self-sufficiency in the production through planned programmers, the
distribution of quality seed was rightly considered as a key factor by the government. The
far-sighted and liberal policies of Government of India has always laid emphasis to build
a sound seed industry in the country and has supported both public and private sector
organizations to develop and to meet the increasing seed demand and also to produce
surplus stocks require for export.
To support expanded activities the National Seed Programmed was launched
with the financial assistance of the World Bank (International Bank for Reconstruction
and Development). In order to make available the right quality of seed to the Indian
farmers in adequate quantities and at reasonable price in time, the Government of India
took various steps including promulgation of Seed Act during 1996 which became
operative throughout the country from October 1969.
The main objective of the Act is to produce quality seed of different crop varieties
under a system of seed certification and testing is voluntary but the farmers have
recognized the importance of quality seed to get higher production with limited resources
available at their end.
High yielding varieties are being released for cultivation in quick succession by
various Agricultural Universities and ICAR institutions through massive research project
and Screening of planting materials. Steps have been taken during early 1984 to bring
seeds within the purview of the Essential Commodities Act to strengthen the regulation
of seed quality and to economies production at desired levels.
PROBLEMS
Many problems are being faced by the seed industries and farmers for many years.
A number of Multinational corporations have stepped into our agricultural country to
gain control over the seeds and their distribution. Recently, a new variety of seeds have
entered the country. This created many new problems for the seed industries and farmers.
Generally, a seed may be used either as a food material or as a seed for another
crop. But now, the life in the seed is being taken out for making it to be used only as a
food material and not as a seed for another crop. These types of seeds are called genetic
change or genetic engineering seeds. For example, BT cotton seed. The farmers are made
to purchase those seeds which are manufactured by the corporation for their crops.
Once the farmers or industries have used these types of seeds, they face many
problems. They have to use only those pesticides which are produces by those
associations for protecting their crops from the pests, diseases etc. Those would wide
Associations use that type of formula itself while making the seed.
The seed industries in India are facing a big problem with the entering the world
wide organizations into the country. Also the production is down grading. In 1992, the
Experiments conducted by the Monsanto scientist in Porrtoriko show that these
has been approximately 11.5 percent decrease in the production of cotton.
SEED INDUSTRY IN GLOBAL PERSPECTIVE
The population has been growing at a faster rate in the country. To increase the
production accordingly an All India Co-coordinated organization has been established
in 1951 with the assistance of Rockefeller Foundation which belongs to America. As a
part of this project, it produced new seeds of maize in 1961 and cotton seeds in 1971.
With a view that the State Governments are unable to meet the demand for seeds
correctly, two associations have been established with the help of Rockefeller
Foundation. They are National Seed Association 1963 and State Farm Corporation of
India, 1969. Due to the Development Programme Which came into existence in 1988,
many multi-national corporations have stepped into the seed production.
At present there are more than 700 multinational corporations in India doing seed
business directly or indirectly. 19 multinational companies have made an agreement with
the Indian seed Industries and have been enjoying the leadership in the seed market.
Monsanto, an American Multinational corporation, has acquired one-fourth part of the
MICO seeds industry, one of the biggest seed industries in India. The acquisition value
given by the Monsanto Corporation is more than 17 times the real value.
SEED INDUSTRY IN INDIA
Indians seed industry has grown in size and level of performance over the past
four decades. India stands in the 8
th
position all over the world in the production of
different variety of crops. Again in each crop there are thousands of varieties.
To coordinate the seeds research centres and private organizations in the country
and to support the expanded activities, the National Seed Programme was launched in
1967 with the financial assistance of the World Bank. In 1960 many private organizations
have participated in the production of seeds. Many seed industries have laid a strong
foundation in the country. Following are some of the major seed industries in India.
MICO Seeds Private Limited, Mumbai
Monsanto Holdings Private Limited, Mumbai
Namdhari Seeds Private Limited, Bangalore
National Seeds Corporation Limited, New DelhRallis India Limited, New
Delhi
Sungro seeds Limited, Delhi
Cargill Hybrids Private Limited, New Delhi
Pioneer India Limited, Kolkota
Proagro Seeds Private limited, Chennai
Sasys Seeds Private Limited, Bangalore
Sinjent India Limited, Pune
Nunhams Seeds Private Limited, Gurgaon.
SEED INDUSTRY IN ANDHRA PRADESH
In Andhra Pradesh the seed industries are many in number. Though Andhra
Pradesh is one among the states in India who have been producing different varieties of
crops, it does not have the major seed industries in it when compared to other states.
Many seed industries have formed recently in the state. Also the state is growing
industrially and there is sample scope and potential for the entry and success of new
industries.
The crop producing seasons are different for different states. In Andhra Pradesh,
the crop producing season starts from June and ends with the month of September.
Generally the rain fed crop in situated in the state. Irrigated crop may not have better
results when compared. The stock to be sold by the seed industries is kept ready during
the starting of the year as the period during which the demand will be more fall between
March ad August. The industries in the state start the crop again the month June Itself.
The seed industries in the state market with other states which form the boundaries of it.
The selling period for those states will vary.
The following are some of the seed industries in Andhra Pradesh.
Indo American Hybrid Seeds (India) Pvt. Ltd., Hyderabad
Seed Works India Limited, Hyderabad
Mourya Agri Tech, Hyderabad
Sriram Bioseed Genetics India Ltd., Hyderabad
Nath Seeds Limited, Hyderabad
Jk Seeds Limited, Secunderabad
Nujiveedu Seeds, Limited, Hyderabad
Tulasai Seeds Private Limited, Guntur
Venus Crane Seeds Pvt, Ltd, Guntur
Tammareddy Seeds, Vijayawada
Gopikrishna Seeds, Mahaboobnagar.
Role of Cotton Industry in Indian Economy
Over the years, country has achieved significant quantitative increase in
cotton production. Till 1970s, country used to import massive quantities of cotton in the
range of 8.00 to 9.00 lakh bales per annum. However, after Government launched special
schemes like intensive cotton production programmes through successive five-year plans,
that cotton production received the necessary impetus through increase in area and
sowing of Hybrid varieties around mid 70s.
Since then country has become self-sufficient in cotton production barring
few years in the late 90s and early 20s when large quantities of cotton had to be imported
due to lower crop production and increasing cotton requirements of the domestic textile
industry.



Cotton production areas in India
India is an important grower of cotton on a global scale. It ranks third in
global cotton production after the United States and China; with 9.50 million hectares
grown each year, India accounts for approximately 21% of the world's total cotton area
and 13% of global cotton production.
The Cotton producing areas in India are spread throughout the country. But
the major cotton producing states which account for more than 95% of the area under and
output are:
1. Punjab.
2. Haryana.
3. Rajasthan.
4. Maharastra.
5. Gujarat.
6. Madhya Pradesh.
7. Andhra Pradesh.
8. Tamil Nadu.
Of the nine cotton producing States in India, average yields are highest in
Punjab where most of the cotton area is irrigated.
But the yields of cotton in India are low, with an average yield of 503 kg/ha
compared to the world average of 734 kg/ha. The problem is also compounded by higher
production costs and poor quality in terms of varietals purity and trash content. However
the Cotton plays an important role in the National economy providing large employment
in the farm, marketing and processing sectors. Cotton textiles along with other textiles
also contribute about 1/3rd of the Indian exports.
Contribution of Cotton industry for Textile Industry
Cotton is the most important raw material for India's Rs. 1,50,000 crores
textile industry, which accounts for nearly 20% of the total national industrial production.
The cotton Industry is the backbone of our textile industry, accounting for 70% of total
fiber consumption in textile sector. It also accounts for more than 30% of exports, making
it India's largest net foreign exchange industry. India earns foreign exchange to the tune
of $10-12 billion annually from exports of cotton yarn, thread, fabrics, apparel and made-
ups.
Policy of Government of India towards Cotton Industry
The Cotton production policies in India historically have been oriented
toward promoting and supporting the textile industry. The Government of India
announces a minimum support price for each variety of seed cotton (kapas) based on
recommendations from the Commission for Agricultural Costs and Prices. The
Government of India is also providing subsidies to the production inputs of the cotton in
the areas of fertilizer, power, etc
The cotton Industry provides employment to over 15 million people. And
the area under cotton cultivation in India (9.5 million ha) is the highest in the world, i.e.,
25% of the world area.
Markets for Indian Cotton
The three major groups in the cotton market are
Private traders,
State-level cooperatives,
The Cotton Corporation of India Limited.
Of these three groups, private traders handle more than 70 percent of
cottonseed and lint, followed by cooperatives and the CCI. The Cotton Corporation of
India Ltd. for the year 2006-07 had purchased 60.30 lakh quintals of kapas equivalent to
11.77 lakh bales valuing Rs.1218.70 crores in Andhra Pradesh, Maharashtra, Madhya
Pradesh, Orissa and Karnataka. Beside these the Corporation had also carried out
commercial operations and purchased 2.71 lakh bales valuing Rs.285.82 crores in the
year 2006-07 as compared to around 1.00 lakh bales valuing Rs.108.81 crores during the
previous year (i.e. for the year 2005-06).


















COMPANY PROFILE
INTRODUCTION:
Aadhaar which means Reliability itself states the companys motto of being a reliable partner
in the farming. The Aadhaar Seeds Pvt. Ltd is an organization born out of the vision of like
minded individuals who dream to see sparkling smiles on the face of farmer. Aadhaar is
committed to provide top quality, cost-effective and integrated approaches for improving farm
productivity to produce better quality foods, strictly adhering to stringent standards for eco-care
and safety. The company has started its R&D in the year 2001, upon thorough clinical research
and understanding of farming needs, entered the market in the year 2006. The company has its
own R&D facilities and world-class sophisticated modern seed processing, conditioning and
storage units/ware houses at Hyderabad. Since inception the company has been supplying research
proved best quality hybrid seeds for field crop varieties such as Maize, Jowar, Bajra, Cotton,
Redgram, Paddy, Sunflower, Castor, S.S.G and vegetable crops like Chillis, Bhendi, Tomato,
Gourds, Watermelon.





The company has been offering services in the major market areas like Andhra Pradesh,
Karnataka, Rajasthan, UP, Bihar, Jharkhand and won accolades & great trust theose farming
communities. The company is also entering in to the markets of Maharastra form this year. The
company has a strong network of 2500 dealers and P.Ds. 120 Distributors and 6 C&Fagents in
the above markets. The company certified as an ISO 9001:2008 organization. The after sales team
of the company often visits farmers fields and guides them in technical know-how matters. That
helps farmers to get most out of the developed sed and thus a good yield. Under the flagship of
Aadhaar Seeds Pvt. Ltd., two associated companies namely







1. Aadhaar Bio Organics & Chemicals


2. Aadhaar Agro Farms & Nurseries are in incepted in the year 2009 at Hyderabad. The
company is making strides towards becoming a panIndia and global player with initial interests
in countries like China, Bangladesh, and Pakistan. Company is determined to bring many
revolutionary products and technological breakthroughs in the agricultural sciences. With a
constant dedication to make the farming a profitable occupation the company marching ahead,
and in this endeavor it seeks everyone support.

Cosidered as the Tech-genius of the company, He is the erudite in agricultural sciences. He is the
head of the company's line development, R&D activities, and also a founder member. He is rich
experience in the seed industry is an asset to organization. The many of company's products are
trial tested under his supervision. Being from the farmin community has made him cultivate a
deep understanding towards farmer's problems and marshalling company's technical teams.
Under his guidance and support.
He is the chief architect in the growth of the organization and also the co-founder of the
organization. He is childhood as a farmer's son has taught him a lot about farming and the
difficulties involved in it. With a mission to eliminated them, and make farming a good
occupation he joined in the renowned university of N.G Ranga and came out with good grades.
Having worked with some of the best organizations in the field over a period of two decades, the
visionary in him has laid the seed for "Aadhaar". Under his able leadership the company is
growing at a healthy rate. The setting up world-class research and processing facilities in such a
short span is one of the remarkable fetes achieved by company under his illustrious heading. His
relent less efforts are shaping the company as an ideal seed supplying company not just at Pan-
India but also at global level.
Aadhaar Seeds Private Limited has been started in May 2006 and managed by Mr.M.S.Sai Babu
and N.R.S.Praveen, techno professionals with more than 18 years of experience in seed industry.
The activity of the company can be broadly categorized into :


Research and Development for new varieties & hybrids seed of field & vegetable crops

Commercial production and marketing of hybrid and OP (open pollinated) seeds

ASPL is research driven enterprise committed to evolve superior products which have
improved characteristics such as better yield, adoptability and disease resistance etc.

The company has special focus on hybrid maize, sunflower, and paddy which has huge
potential in the market.

Apart from above, the companys product profile includes Cotton, Jowar, Bajra, Red
Gram, Castor, Tomato, Chillis, Brinjal, Gourds, and other vegetables. The company has
been focusing on both hybrids and OPs.

The company has already successfully commercialized 62 varieties of 23 crops and 36
are in pipeline to be commercialised in 1-2 years.

ASPL has marketing tie up with Kaveri seeds pvt ltd, Secundrabad, A.P. for transgenic
genes in cotton.

It also has tie-ups with research institutes(like DRR,DOR)), reputed R&D house (like

SEHGAL foundation etc) and freelance breeders for product sourcing and exchange of
technology & germplasm in order to achieve its broad- based objective of evolving
versatile hybrids.

Germplasm is the key R&D asset which is utilized in hybridization of seed and evolving
new varieties.The company has collection of around 1500 varieties of germplasm of
different crops.

Currently ASPL is adequately equipped with infrastructure for R&D, seed processing
and testing.

The company has 31 acres of farm space for carrying out research operations (6 R&D
farms) and 2 seed processing plants having a cumulative capacity of 6 metric tonnes per
hour and two ware houses for a storage capacity of 2000 tons.

The company has an established network of around 50 Distributors and over 2000
dealers spread across 7 states in India.

The companys activities are managed by experienced personnel engaged in various
functional groups like R&D production, marketing, administration, accounting, customer
service and field support.

INTRODUCTION:

The company is engaged in plant breeding & transgenic research offering innovative
products of several field & vegetable crops for better productivity, adoptability and pest
and disease resistance/tolerance.

The company carries research on versatile germplasm for developing new hybrid seeds

The company adheres to three generation system of seed multiplication, namely, breeder,
foundation and labelled/certified seed

The company has its own processing and quality testing facilities where the commercial
seed are processed and are tested for purity.
Activity flow & Description





Research & Development:



Aadhaar seeds have a collection of around 1500 different germplasm lines of various
crops. This germplasm is evaluated and maintained for further research work.



The evaluated germplasm are being utilized for hybridization and genetic enhancement.



After hybridization, hybrids are being tested in R & D as well as in different locations
across the country and seasons to evaluate the yielding performance and adoptability.



The selected hybrids from trials are sending to farmer fields as minikits for macro level
testing. Simultaneously the parental multiplication can be taken care from breeders seed
to foundation seed.



The nucleus seed that developed in R&D is directly used for production of breeder seed.



Breeder seed is then planted in controlled environment (R&D farms) for initial and uses
the same for production of foundation seed.


Foundation seed production:



The foundation seed developed in R&D farms goes through technical scrutiny for its
purity level before F1 Hybrid multiplication


Seed production & Quality Control:



Foundation seed pertaining to the new product is given to production organizers who
in turn distribute it among farmers for large scale production. production organizers are
responsible for collection of the produce (Raw seed) and sending it to companys
processing unit as per the terms of contract.



Quality control at field level is taken care by production & quality control staff. They are
responsible for maintaining prescribed genetic purity as per the norms stipulated by govt.
of India under minimum standards.


Seed processing/chemical treatment/quality testing:



After the harvest, the produce (raw seed) is moved to the companys seed processing
plant where these seeds are divided into lots for conditioning and inspection as per seed
certification standards set by central government.



The same lots are being sent to Quality control dept. for assessing the genetic purity.



Seed is also subject to inspection which includes tests for physical and genetic purity,
germination, presence of noxious weed seeds and moisture content.



After receiving satisfactory pass results on various tests further processing of seeds such
as seed grading, gravity separation are made.



The conditioning process typically includes drying, cleaning, sorting and treating the
seed with insecticides and fungicides.



The processed and graded seeds are packed in labelled bags and are sent to distributors
and dealers for marketing.



Marketing & sales:



On obtaining large scale exposure, the product gets established in the market by virtue of
its USPs (unique selling proposition) & better performance and is taken into the fold of
regular product-range.



The company has established marketing network of distributors and preferred dealers to
market its wide range of products.



The marketing activity begins 5 months before the actual crop season. The company
offers booking schemes/coupons so as to book the requirements of seed in advance.



The Demand generation and publicity programme in villages is started at least 2
months before commencement of season.



The company on a temporary basis hires additional marketing personnel who either Agri-
graduates or diploma holders for sales promotion. These marketing personnel known as
ASPs (Aadhaar sales promoters) are engaged in addition to regular marketing staff.



Season (Kharif/Rabi/summer) wise finished products saleable in particular season are
consigned for distribution through the company established trade network.



Distribution of seed begins 15 days before commencement of season so as to be on
shelves of retail dealers so as to be available to farmers in time.



The company has necessary infrastructure to handle the existing production and processing
requirements. In this connection the company has constructed its own huge seed
processing/conditioning facility with a floor area of 28,000 square feet with a capacity of 6 metric
tons/hr for which the company has invested an amount of Rs. 450 lacks.


R&D Infrastructure



The company is focused on its core objective of strengthening its R&D activity and to develop
genetically superior planting material.



ASPL is collecting seed germplasm from various sources and is using this core set of
germplasm in developing new hybrid varieties.



Procurement of germplasm from government institutions such as Directorate of Rice Research,
Directorate of Oilseeds Research, Directorate of Maize Research and several crop specific
research stations under agriculture universities is another source for germplasm enrichment.



The company has own research farms where they test the adoptability, stability and specific
resistance of new varieties developed. In-house breeding program of various crops is also
carried out at these research farms.

MAIZE


In Maize, we have identified and released 3 double cross hybrids in 2006 followed by one single
cross and one doubled cross hybrids in 2008 and four double cross hybrids in 2009.We have
evaluated over 200 germplasm lines which we acquired from different public and private sector
organizations. Some of these lines were used as parents and developed over 100 new in breds
which later used in hybridization to produce hybrids for different segments.

SUN FLOWER


We have a range of versatile germplasm in sunflower (i.e. early, medium and late maturity) with
oil content ranging from 40 to 44% and volume weight (50 or >50 gr/100ml). We have evaluated
good number of germplasm lines and developed new ABR lines with high oil content, good vol.
weight and tolerance to necrosis.


At present hybrids SUNGENE, SUNTOP, SUNRISE & SUNGOLD are being marketed for the
last 3 years and these are highly potential and receiving good response from farmers.






HYBRIDE RICE


Rice is the most important food crop in India contributing about 45% of the total food grain
production, and its demand is increasing year by year, to sustain self sufficiency on food front.
Our companys main emphasis has been for development of hybrids of RICE.


Developing hybrids of rice, a self pollinating crop, must involve an effective male sterility
system. Use of CMS system has been the most effective and practically successful, so far.
Successful use of a CMS line in breeding hybrids depends on its stability and adaptability across
diverse environments. Out of hundreds of CMS lines developed in china over the years, less than
about 20 have been used to develop commercial rice hybrids, but in India, only the IR 58025 A
is a stable MS line being exploited t develop the rice hybrids.


Initially we got the breeder seed of different male steriles, maintainers and restorer lines from
Directorate of Rice Research and also collected from farmers fields. These were evaluated in
our research farm. Purification and maintenance of the lines and utilization in heterosis breeding
program is being continued


First year, we have produced about ten hybrids using different restores on CMS lines, out of
which two hybrids were found to be better in yielding than the local improved varieties in a
multilocational trials and minikit trials conducted in rice growing areas of Andhra Pradesh &
Karnataka. Out of two, one has released on the name of SRESHTA for commercial cultivation in
A.P. & KARNATAKA.


So far, we have been conducted six initial hybrid trials, and three advanced hybrids trials tested
about 30 hybrids including the popular check entries of hybrid rice, in our R&D farm.






RESEARCH OP/VARIETAL PADDY


In our R&D, we have also a programme on development of elite high yielding varieties of
paddy, under which, we have released a fine grain (short Slender) variety, RUCHI (a medium
maturing, non lodging and tolerant to pests and diseases) and now there is huge demand for this
variety. We have released another early maturing fine grain variety SIRI (medium, dwarf
compact, non lodging) in kharif 2007 which has performed well. This early OP variety has
created a niche for our brand along with RUCHI.


Brief Report on Development of other Crop Hybrids

COTTON


Over the last few years we have evaluated about 100 new germplasm lines of cotton against
different attributes. Some these lines are used as parents in connection with developing new
inbreds which would be used in hybridization. Many of new hybrids are in different stages of
testing and few advanced hybrids are in multi location trials. Two new hybrids were identified
and released on the name of BHOOMIJA (early), and RAJA (medium) in year of 2006.


Finally with the advantage of the Bt Cotton, the PRIOROTY is to get the source of BT gene for
which we are planning to tie-up arrangement with a provider of this technology of transferring
Cry1Ac & Cry2Ab genes for BG II with Monsanto. With this, companys all leading cotton
hybrids will have to be injected by BT gene into them and this will provide our brand a sharp
edge over competition.


BAJRA


Developed and released two hybrids in Bajra in the year of 2006 and 2009 on the name of ASHA
and ABHAY respectively. We have evaluated good number of germplasm lines and developed
new ABR lines. Many hybrids are under testing in IETs and few hybrids are in AHTs.


SORGHUM


In grain sorghum, high yielding hybrid AISHWARYA and AJANTA were launched in 2006 and
2009 respectively for A.P. & Karnataka markets. Many new ABR lines are developed and
utilizing in hybridization programme. Newly generated hybrids are under evaluating from initials
to test marketing. In forage sorghum (Sorghum Sudan Grass), improved variety SUDHA has
been released in the year of 2008.

HYBRID VEGETABLES

CHILLI


In 2007, five hybrids AADHAAR 373, AASHIRWAD, WESTERN HOT, INDU-35 (red chilly
segment) and KAREENA (green chilli segment) were commercialized. In 2009, three more
hybrids were commercialized named AADHAAR-504, AADHAAR-555 in red chilli segment
and UJWALA in green chilli segment of AP and Karnataka. In same year two improved varieties
named JYOTHI and SURYA-285 also been released in keeping farmers preferences in mind. So
far we have evaluated a wide range of germplasm in connection with developing new lines that
used in hybridization. Many hybrids are in different stages of testing and few advanced hybrids
are in multi location trials to check the adoptability and disease incidence

TOMATO


Over the last three years we have evaluated about 49 new germplasm lines of tomato against
diseases, TSS content and other important attributes. Some these lines are used as parents in
connection with developing new inbreeds which would be used in hybridization. Many new
hybrids are in different stages of testing and few advanced hybrids are in multi location trials.
Three new hybrids were released in 2007 named POORNA, APOORVA, AND SWATHI and
another hybrid SRAVANI was released in succession year 2009


BHENDI


Developed and released a hybrid AADHAAR 10 with medium green fruits, high yield and
moderate tolerant to YVM disease. It has been in the market for the last 3 years and given good
result everywhere. We have also released another hybrid in the year of 2007 named KOMAL
which is tolerant to YVM disease and having good quality dark green fruits. An Improved
BHENDI variety SNEHA also been introduced in same year. We have evaluated good number
of germplasm lines and developed new lines and being utilised in hybridization. Few hybrids are
under testing for higher fruit yield, quality and YVM resistance.

BRINJAL


Evaluated a large number (120) of germplasm lines of brinjal during last three years and
maintenance of selected lines is in progress. Some of these lines are used as parents in
connection with developing new inbreed which would be used in hybridization. Many new
hybrids are in different stages of testing and few advanced hybrids are in multi location trials.
Four hybrids have been commercialized in the year of 2007 named ANJALI, NAYANA,
SURABHI, and SUMATHI.

RIDGE GOURD


The Improved KAVYA has been released in the year of 2007 and hybrid NAVYA has been
released in 2009.Different germplasm lines have been evaluated for the past three years and
maintenance of selected line is in progress.

BOTTLE GOURD


A hybrid named RAMBA and improved variety SHREYA has been released in the years of 2008
and 2009 respectively. Different germplasm lines have been evaluated for the past three years
and maintenance of selected line is in progress.


WATERMELON


Released hybrid MADHU in 2007 and hybrids MADHUBALA and PRIYA were released in
2009. Different germplasm lines have been evaluated for the past three years and maintenance of
selected line is in progress. A few selections are used for hybridization and hybrids are
evaluating in trials.

BITTER GOURD


Released two hybrids INDIANA and INDICA in the year of 2007 to AP and Karnataka markets.
Different germplasm lines have been evaluated for the past three years and maintenance of
selected line is in progress. A few selections are used for hybridization and hybrids are
evaluating in trials.


SEED PRODUCTION:


Companys seed production is organized through experienced and skilled seed growers in
Andhra Pradesh and Karnataka. At present companys Executive Director, Mr. N.R.S.PRAVEEN
is responsible head for this function and jointly with Mr. V.SHIVAPRASAD and Mr.Prabhakar
Reddy. All statutory requirements for quality control par excellence are fulfilled at field level on
the strength of 12 technically qualified & experienced personnel.


First and foremost point in the quality seed production is supplying genetically pure foundation
seed followed by selection of good organizers/production agent/farmer. The quality control and
production staff will be monitoring other parameters like checking isolation distance from other
varieties of the same crop, inspection of fields at different crop stages, and rouging of any off-
types in both male and female parents and also pollen shedders (if seed parent is a male sterile)
and at maturity, harvest the male rows and separate them before harvesting female rows so as to
avoid any admixture of male seed in female. This assures the quality seed production.


Seed Quality Tests are being carried out at our seed testing laboratory, Koheda (vill) nearby
Hyderabad and the genetic purity tests (GOTs) at field level are undertaken at our R&D farms at
main farm Rajabollaram (V), Medchal (M).


We have a full fledged seed quality control laboratory furnished with walk in germinator,
incubator, moisture testing machines, seed physical purity board, weighing machines,
germination papers and plastic trays etc. and the required chemicals.

SEED PROCESSING:


Our seeds are perfectly graded, gravity separated & treated with latest fungicides/insecticides
before going into packaging channel at following seed processing plants equipped with modern
machineries and trained & skilled manpower.

PROCESSING:


KOHEDA,
HAYATHNAGAR
PLANT-I 12,000SFT 2 MT/HOUR
RANGAREDDY
(Dt). A.P.

KOHEDA,
HAYATHNAGAR
PLANT-II 16,000SFT 4 MT/HOUR
RANGAREDDY
(Dt). A.P.



At Koheda, we have 2 seed processing units having an area of about 28000 square feet, having
installed two machines with 4 & 2 metric tons per hour capacity respectively to facilitate huge
quantities of seeds getting conditioned and packed in shorter time. The machinery comprise pre-
cleaners, graders, destoners, gravity separators, chemical treators, seed dryers, besides large bins
and elevators, conveyors, packing machines (weigh metric and volumetric) and also sufficient
weighing machines & sealing machines.


QUALITY CONTROL PROCESS:

When raw seed is received at companys seed processing plant, it is put for physical purity,
germination & genetic purity tests for each lot and then seed grading, gravity separation and
chemical treatment is completed on receipt of satisfactory PASS result from seed testing lab and
GOT department for each lot, the packing in containers is undertaken and then it is sent to
markets.


DATA ANLYSIS AND INTERPRETATION

Criterian Table

In the evaluation process or capital budgeting techniques there will be a criteria to
accept or reject the project. The criteria will be expressed as

Criteria / Method Accept Reject
Pay Back Period (PBP) <Target Period > Target Period
Accounting Rate of Return (ARR) >Target Rate < Target Rate
Net Present Value (NPV) >0 <0
Internal Rate of Return (IRR) > Cost of Capital <Cost of Capital
Profitability Index (PI) >1 <1












Company New projects A and B

Project A belongs to only spinning activity in Aadhar seeds means the process of
preparing seeds.

Project B belongs to activity the process under Seed Company.


YEAR Project A
Cash inflows
Project B
Cash inflows
1 6,62,08,767 6,25,27,806
2 6,74,50,149 6,54,14,055
3 15,06,71,995 15,15,17,500
4 23,93,77,038 22,76,05,759
5 29,71,32,363 26,55,67,272
6 31,69,12,772 29,47,73,936
Initial outlay 42,86,36,698 48,65,88,986
Cost of capital 10% 10%








PROJECT A

TRADITIONAL MODEL

(a) Payback period (PBP)
Table 4.1
YEARS INCOME
(CFAT)
(Rs)
DEPRECIATIO
N
(Rs)
CASH
INFLOW (Rs)
(CFAT+DEP)
CUMULATI
VE
CASH
INFLOWS
(Rs)
2012-2013 3,12,08,767 3,50,00,000 6,62,08,767 6,62,08,767
2013-2014 3,24,50,149 3,50,00,000 6,74,50,149 13,36,58,916
2014-2015 11,56,71,995 3,50,00,000 15,06,71,995 28,43,30,911
2015-2016 20,43,77,038 3,50,00,000 23,93,77,038 52,37,07,949
2016-2017 26,21,32,363 3,50,00,000 29,21,32,363 81,58,40,312
2017-2018 28,69,12,772 3,50,00,000 31,69,12,772 113,27,53,084

Payback period =
|
.
|

\
|
C
C
lows cash Annual
investment Initial
0
inf

Payback period =
CFAT year Next
CFAT Required
Baseyear +
Initial outlay = 42,86,36,698
Base year
= 3
CFAT Required

= 87 14,43,05,7
Next year CFAT = 23,93,77,038
Payback period =
11 28,43,30,9 - 49 52,37,07,9
11 28,43,30,9 - 98 42,86,36,6
3+
=
38 23,93,77,0
87 14,43,05,7
3+
= 3+0.60
= 3.60 years

Criteria for evaluation

The payback period computed for a project is less than the payback period set by
management of the company, it would be accepted. A project actual payback period is
more than the determined period by the management, it will be rejected.

Decision

The standard payback period is set by Aadhar Seeds Pvt.Ltd for considering
expansion project is six years, whereas actual payback period is 3.75years. Hence we
accept the project.











Table 4.2
(b) Average rate of return (ARR)
YEARS INCOME
2012-2013 3,12,08,767
2013-2014 3,24,50,149
2014-2015 11,56,71,995
2015-2016 20,43,77,038
2016-2017 26,21,32,363
2017-2018 28,69,12,772
TOTAL 93,27,53,084

Average rate of return = 100
investment Average
Tax after profit net Average
X

Average net Profit after tax =
s no.of.year
Tax After prifit net Total

=
6
84 93,27,53,0

= 15,54,58,847
Average investment =
2
Investment Instial

=
2
89 42,86,36,6

= 21,43,18,349
Average rate of return(ARR) = 100
349 , 18 , 43 , 21
47 15,54,58,8
X


= 0.7253 x 100
= 72.53%

Criteria for evaluation

According to this method ARR is higher than minimum rate of return established
by the management are accepted. It reject the project have less ARR then the minimum
rate set by the management.

Decision

The standard ARR set by Aadhar Seeds Pvt.Ltd management is 21%. The actual
ARR is 72.53% is higher than the standard ARR set by the management, hence we accept
the project
















Discounted Cash flow Criteria
Table 4.3
(a) Net Present Value
YEAR CASH
INFLOWS
DCF (10%) PRESENT
VALUE
2012-2013 6,62,08,767 0.909 6,01,83,769
2013-2014 6,74,50,149 0.826 5,57,13,823
2014-2015 15,06,71,995 0.751 11,31,54,668
2015-2016 23,93,77,038 0.683 16,34,94,517
2016-2017 29,21,32,363 0.621 18,45,19,197
2017-2018 31,69,12,772 0.564 17,87,38,803
TOTAL 75,58,04,777

Net Present Value = Total present value-Initial Investment
Total present value = 75,58,04,777
Initial Investment = 42,86,36,698
Net Present Value = 75,58,04,777-42,86,36,698
= 32,71,68,079 Rs.

Criteria for evaluation

In case of calculated NPV is positive or zero, the project should be accepted.
If the calculated NPV is negative, the project is rejected.

Decision : The project is accepted due to calculate NPV is positive


(b) Internal rate of return (IRR)

Table 4.4
YEARS CASH
INFLOWS
DCF (10%) PRESENT
VALUE
2012-2013 6,62,08,767 0.909 6,01,83,769
2013-2014 6,74,50,149 0.826 5,57,13,823
2014-2015 15,06,71,995 0.751 11,31,54,668
2015-2016 23,93,77,038 0.683 16,34,94,517
2016-2017 29,21,32,363 0.621 18,45,19,197
2017-2018 31,69,12,772 0.564 17,87,38,803
TOTAL 75,58,04,777

YEARS CASH
INFLOWS
DCF (14%) PRESENT
VALUE
2012-2013 6,62,08,767 0.877 5,80,65,089
2013-2014 6,74,50,149 0.769 5,18,69,165
2014-2015 15,06,71,995 0.675 10,17,03,597
2015-2016 23,93,77,038 0.592 14,17,11,206
2016-2017 29,21,32,363 0.519 15,42,11,696
2017-2018 31,69,12,772 0.455 14,41,95,311
TOTAL 65,17,56,064





IRR = Xr R
PV
PVC - CFAT PV
A
+
Where
R = Lower rate of return
PV = PV of cash inflows at lower rate
PVC = PV of investment
PV = difference between the calculate pvc
r = difference between the discount rares chosen

IRR = ) 10 14 (
64 65,17,56,0 - 77 75,58,04,7
98 42,86,36,6 - 77 75,58,04,7
10 +
= ) 4 (
13 10,40,48,7
79 32,71,68,0
10 +

=10+3.144(4)
=10+12.576
=22.576%

Criteria for evaluation

In this method the project is accepted when IRR is higher than its cost of capital or
cut out rate. If the project is not accepted when the IRR is less than cost of capital.

Decision

The project is accepted because of the calculation IRR is higher than its cost of
capital. The cost of capital fixed by management is 10%, the actual is more than its
standard. Hence, the project is accepted

(c) Profitability index
Table 4.5
YEARS CASH IN FLOW (Rs)
2012-2013 6,62,08,767
2013-2014 6,74,50,149
2014-2015 15,06,71,995
2015-2016 23,93,77,038
2016-2017 29,21,32,363
2017-2018 31,69,12,772
TOTAL 113,27,53,084

PI =
outlay cash Initial
inflow cash of PV

=
98 42,86,36,6
084 113,27,53,

= 2.64 Rs.

Criteria for evaluation

A project can be accepted if its PI index is greater than one. If the PI is less than
one we should reject the project.

Decision

Profitability index of proposed expansion project is found our 2.64 this is more
than the PI. Hence we accept the project.


PROJECT B
Traditional Model

Payback period
Table 4.6
YEARS INCOME
(CFAT)
(Rs)
DEPRECIATION
(Rs)
CASH
INFLOW
(Rs)
(CFAT+DEP)
CUMULATIVE
CASH
INFLOWS
(Rs)
2012-13 2,75,27,806 3,50,00,000 6,25,27,806 6,25,27,806
2013-14 3,04,14,055 3,50,00,000 6,54,14,055 12,79,41,861
2014-15 11,65,17,500 3,50,00,000 15,15,17,500 27,94,59,361
2015-16 19,26,05,759 3,50,00,000 22,76,05,759 50,70,65,120
2016-17 23,05,67,272 3,50,00,000 26,55,67,272 77,26,32,392
2017-18 25,97,73,936 3,50,00,000 29,47,73,936 106,74,06,328

Initial outlay = 48,65,88,986
Payback period =
CFAT year Next
CFAT Required
+ Baseyear

Payback period =
361 , 59 , 94 , 27 120 , 65 , 70 , 50
361 , 59 , 94 , 27 986 , 88 , 65 , 48
3

+
=
759 , 05 , 76 , 22
625 , 29 , 71 , 20
3+


= 3+0.91
=3.91 Years



Criteria for evaluation

The payback period computed for a project is less than the payback period set by
management of the company, it would be accepted. A project actual payback period is
more than the determined period by the management, it will be rejected.

Decision

The standard payback period is set by Aadhar Seeds for considering expansion project
is six years, whereas actual payback period is 3.91 years. Hence we accept the project.

















(c) Average Rate of Return (ARR)
Table 4.7
YEARS INCOME(CFAT)

2012-2013 2,75,27,806
2013-2014 3,04,14,055
2014-2015 11,65,17,500
2015-2016 19,26,05,759
2016-2017 23,05,67,272
2017-2018 25,97,73,936
TOTAL 85,74,06,328

Average Rate of Return = 100
investment Average
Tax after profit net Average
X
Average investment =
2
Investment Initial

=
2
86 48,65,88,9

= 24,32,94,493

Average net Profit after tax=
s no.of.year
Tax After prifit net Total

=
6
28 85,74,06,3

= 14,29,01,055
Average Rate of Return = 100
93 24,32,94,4
55 14,29,01,0
_

= 0.5873X100
=58.73%
Criteria for evaluation

According to this method ARR is higher than minimum rate of return established
by the management are accepted. It reject the project have less ARR then the minimum
rate set by the management.

Decision

The standard ARR set by Aadhar Seeds Pvt.Ltd management is 26.17%. The
actual ARR is 58.73% is higher than the standard ARR set by the management, hence we
accept the project.


















Discounted Cash flow Criteria
(a) Net Present Value
Table 4.8
YEAR CASH
INFLOWS
DCF (10%) PRESENT
VALUE
2012-2013 6,25,27,806 0.909 5,68,37,775
2013-2014 6,54,14,055 0.826 5,40,32,009
2014-2015 15,15,17,500 0.751 11,37,89,643
2015-2016 22,76,05,759 0.683 15,54,54,733
2016-2017 26,55,67,272 0.621 16,49,17,276
2017-2018 29,47,73,936 0.564 16,62,52,499
TOTAL 71,12,83,935

NPV = Total present value-Initial Investment
= 71,12,83,935 48,65,88,986
= 22,46,94,949 Rs.

Criteria for evaluation

In case of calculated NPV is positive or zero, the project should be accepted. If
the calculated NPV is negative, the project is rejected.

Decision: The project is accepted due to calculate NPV is positive.




(b) Internal Rate of Return (IRR)
Table 4.9
YEARS CASH
INFLOWS
DCF (10%) PRESENT
VALUE
2012-2013 6,25,27,806 0.909 5,68,37,775
2013-2014 6,54,14,055 0.826 5,40,32,009
2014-2015 15,15,17,500 0.751 11,37,89,643
2015-2016 22,76,05,759 0.683 15,54,54,733
2016-2017 26,55,67,272 0.621 16,49,17,276
2017-2018 29,47,73,936 0.564 16,62,52,499
TOTAL 71,12,83,935

YEARS CASH
INFLOWS
DCF (14%) PRESENT
VALUE
2012-2013 6,25,27,806 0.877 5,48,36,886
2013-2014 6,54,14,055 0.769 5,03,03,408
2014-2015 15,15,17,500 0.675 10,22,74,313
2015-2016 22,76,05,759 0.592 13,47,42,609
2016-2017 26,55,67,272 0.519 13,78,29,414
2017-2018 29,47,73,936 0.455 13,41,22,141
TOTAL 61,41,08,771







IRR = Xr R
PV
PVC - CFAT PV
A
+
Where
R = Lower rate of return
PV = PV of cash inflows at lower rate
PVC = PV of investment
PV = difference between the calculate pvc
r = difference between the discount rares chosen

IRR = ( ) 10 14
771 , 08 , 41 , 61 - 35 71,12,83,9
486588986 - 35 71,12,83,9
10 + X

= 4
164 , 75 , 71 , 9
949 , 94 , 46 , 22
10 X +
= 10+2.312(4)
= 10+9.248 Rs.
= 19.428%

Criteria for evaluation

In this method the project is accepted when IRR is higher than its cost of
capital or cut out rate. If the project is not accepted when the IRR is less than cost
of capital.

Decision

The project is accepted because of the calculation IRR is higher than its cost of
capital. The cost of capital fixed by management is 10%; the actual is more than its
standard. Hence, the project is accepted.
(c) Profitability index (PI)
Table 4.10
YEARS CASH IN FLOW (Rs)
2012-2013 6,25,27,806
2013-2014 6,54,14,055
2014-2015 15,15,17,500
2015-2016 22,76,05,759
2016-2017 26,55,67,272
2017-2018 29,47,73,936
TOTAL 106,74,06,328

PI =
outlay cash Initial
low cash of PV inf


=

86 48,65,88,9
328 106,74,06,

= 2.19 in crs

Criteria for evaluation

A project can be accepted if its PI index is greater than one. If the PI is less than
one we should reject the project.

Decision

Profitability index of proposed expansion project is found our 1.62 this is
more than the PI. Hence we accept the project.

Decision: Project A should be accepted because it is having more NPV with compare
to project B.
FINDINGS

Project A
The payback period is 3 years 6month, which is less than standard payback period of
6 years by Aadhar Seeds Pvt.Ltd.

The ARR is fixed by BSW is 41%. The actual ARR is 72.53% and its return on
investment is 12.05%.

The NPV is actually getting 32,71,68,079Rs is positive.

The IRR is worked for project is 22.576% cut off rate is 10% less than the actual IRR.

The PI is getting actual for the expansion project is 2.64 in crs.

The profitability index is getting actual for the expansion project is more than the
investment.











Project B

The payback period is 3 years 9month.which is less than standard payback period of 6
years by Aadhar Seeds Pvt.Ltd.

The ARR is fixed by BSW is 41%. The actual ARR is 58.73%.

The NPV is actually getting 22,46,94,949 Rs is positive.

The IRR is worked for project is 19.428% cut off rate is 10% less than the actual IRR.

The PI is getting actual for the expansion project is 2.19 in crs

The profitability index is getting actual for the expansion project is more than the
investment.












SUGGESTIONS

It has been suggested that the Aadhar Seeds Pvt.Ltd to consider the investment / accept
the investment proposal is actual PBP is less than the standard PBP.
It is suggesting to Aadhar Seeds Pvt.Ltd management that is better to fix ROI is more
than the standard ROI. So it is advisable to maintain same consideration of project in
the future also.
The NPV of the project is positive it is advisable to suggest selecting the same type of
the projects.
The cutoff rate / cost of capital for the company are 10% where as the actual IRR is
worked for the proposal is 22.576%. Which is below the accepted level? The cost of
capital is taken into consideration on the basis of weighted average cost of capital.
It is safer to accept proposal it is 2 times more than its investment. So it is advisable
to select the same type of project in the future also.













CONCLUSION

Based on the study in Aadhar Seeds Pvt.Ltd there is forecasting project cash flow
involves numerous estimates and many individuals and departments participate in this
exercise. The role of the finance manager in to coordinate the efforts of various
departments and obtain information from them, ensure that the forecasts are based on a
set of consistent economic assumptions, keep to the exercise focused on relevant
variables and minimize the bias is inherent in cash flow forecasting.

In the study I know that the company is following payback period. Based on the
data shows that the company can use any criteria to get return on the investment.

The project A study on Capital Budgeting in Aadhar Seeds Pvt.Ltd, it is
suggested to hold the company is the same situation.















Estimation of cash inflows

Cash inflows refer to cash receipts. It does not refer to future incomes. It may be
calculated for a particular project or for the whole business for one year or series of years.

Capital has a cost. If we borrow from a bank, the rate of interest we pay is the cost of
the loan. If we have own funds the cost of these funds is the interest we could have
earned had we deposited the same in a bank.
Estimation of amount and the timing of the cash flows are very crucial stages. The
cash inflows are determined on an after-tax basis that is, from the gross inflows, deduct
the cash expenses and depreciation, and lastly, taxes. The following is the format
generally used to compute the cash inflows.

PROJECT A
Estimation of cash inflows
Fist year

Cash Revenues 13,26,39,921
Less: Cash Expenses 5,30,55,968
Cash Flow Before taxes(CFBT) 7,95,83,953
Less: Depreciation 3,50,00,000
Taxable Income 4,45,83,953
Less: Taxes 30% 1,33,75,186
Cash Flow After Taxes(CFAT) 3,12,08,767
Add: Depreciation 3,50,00,000
Cash In Flow 6,62,08,767


Second Year

Cash Revenues 13,55,95,593
Less: Cash Expenses 5,42,38,237
Cash Flow Before taxes(CFBT) 8,13,57,356
Less: Depreciation 3,50,00,000
Taxable Income 4,63,57,356
Less: Taxes 30% 1,39,07,207
Cash Flow After Taxes(CFAT) 3,24,50,149
Add: Depreciation 3,50,00,000
Cash In Flow 6,74,50,149


Third Year

Cash Revenues 33,37,42,845
Less: Cash Expenses 13,34,97,138
Cash Flow Before taxes(CFBT) 20,02,45,707
Less: Depreciation 3,50,00,000
Taxable Income 16,52,45,707
Less: Taxes 30% 4,95,73,712
Cash Flow After Taxes(CFAT) 11,56,71,995
Add: Depreciation 3,50,00,000
Cash In Flow 15,06,71,995




Fourth Year

Cash Revenues 54,49,45,329
Less: Cash Expenses 21,79,78,132
Cash Flow Before taxes(CFBT) 32,69,67,197
Less: Depreciation 3,50,00,000
Taxable Income 29,19,67,197
Less: Taxes 30% 8,75,90,159
Cash Flow After Taxes(CFAT) 20,43,77,038
Add: Depreciation 3,50,00,000
Cash In Flow 23,93,77,038

Fifth Year

Cash Revenues 68,24,58,006
Less: Cash Expenses 27,29,83,202
Cash Flow Before taxes(CFBT) 40,94,74,084
Less: Depreciation 3,50,00,000
Taxable Income 37,44,74,804
Less: Taxes 30% 11,23,42,441
Cash Flow After Taxes(CFAT) 26,21,32,363
Add: Depreciation 3,50,00,000
Cash In Flow 29,71,32,363





Sixth Year

Cash Revenues 74,14,58,981
Less: Cash Expenses 29,65,83,592
Cash Flow Before taxes(CFBT) 44,48,75,389
Less: Depreciation 3,50,00,000
Taxable Income 40,98,75,389
Less: Taxes 30% 12,29,62,617
Cash Flow After Taxes(CFAT) 28,69,12,772
Add: Depreciation 3,50,00,000
Cash In Flow 31,69,12,772














PROJECT B

Estimation of cash inflows

Fist year

Cash Revenues 12,38,75,729
Less: Cash Expenses 4,95,50,292
Cash Flow Before taxes(CFBT) 7,43,25,437
Less: Depreciation 3,50,00,000
Taxable Income 3,93,25,437
Less: Taxes 30% 1,17,97,631
Cash Flow After Taxes(CFAT) 2,75,27,806
Add: Depreciation 3,50,00,000
Cash In Flow 6,25,27,806


Second Year

Cash Revenues 13,07,47,749
Less: Cash Expenses 5,22,99,099
Cash Flow Before taxes(CFBT) 7,84,48,650
Less: Depreciation 3,50,00,000
Taxable Income 4,34,48,650
Less: Taxes 30% 1,30,34,595
Cash Flow After Taxes(CFAT) 3,04,14,055
Add: Depreciation 3,50,00,000
Cash In Flow 6,54,14,055



Third Year

Cash Revenues 33,57,55,952
Less: Cash Expenses 13,43,02,381
Cash Flow Before taxes(CFBT) 20,14,53,571
Less: Depreciation 3,50,00,000
Taxable Income 16,64,53,571
Less: Taxes 30% 4,99,36,071
Cash Flow After Taxes(CFAT) 11,65,17,500
Add: Depreciation 3,50,00,000
Cash In Flow 15,15,17,500


Fourth Year

Cash Revenues 51,69,18,474
Less: Cash Expenses 20,67,67,389
Cash Flow Before taxes(CFBT) 31,01,51,085
Less: Depreciation 3,50,00,000
Taxable Income 27,51,51,085
Less: Taxes 30% 8,25,45,326
Cash Flow After Taxes(CFAT) 19,26,05,759
Add: Depreciation 3,50,00,000
Cash In Flow 22,76,05,759







Fifth Year

Cash Revenues 60,73,03,027
Less: Cash Expenses 24,29,21,211
Cash Flow Before taxes(CFBT) 36,43,81,816
Less: Depreciation 3,50,00,000
Taxable Income 32,93,81,816
Less: Taxes 30% 9,88,14,544
Cash Flow After Taxes(CFAT) 23,05,67,272
Add: Depreciation 3,50,00,000
Cash In Flow 26,55,67,272


Sixth Year

Cash Revenues 67,68,42,705
Less: Cash Expenses 27,07,37,082
Cash Flow Before taxes(CFBT) 40,61,05,623
Less: Depreciation 3,50,00,000
Taxable Income 37,11,05,623
Less: Taxes 30% 11,13,31,687
Cash Flow After Taxes(CFAT) 25,97,73,936
Add: Depreciation 3,50,00,000
Cash In Flow 29,47,73,936





BIBLIOGRAPHY

S.NO AUTHOR NAME TITLE OF THE BOOK
1 I.M .PANDEY FINANCIAL MANAGEMENT
2 PRASANNA CHANDRA FINANCIAL MANAGEMENT
3 M.Y.KHAN&JAIN FINANCIAL MANAGEMENT
4 V.K BHALLA FINANCIAL MANAGEMENT



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