A PROJECT REPORT

ON

CAPITAL BUDGETING
IN
SINGARENI COLLIERIES COMPANY LIMITED

In partial fulfillment for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION
(Finance)
By
R.DAMODAR

H.T.NO.003070117

OU. P.G COLLEG

(Affiliated to OU.UNIVERSITY)
VIKARABAD-501101
RANGAREDDY (D.T)
ANDHRA PRADESH
(2007-2009)

OSMANIA UNIVERSITY
POST GRADUATE COLLEGE
VIKARABAD - 501101,RANGA REDDY DIST.

CERTIFICATE

This is to certify that the project titled CAPITAL BUDGETING

in SINGARENI COLLIERIES COMPANY LTD is the work done
by Mr R.DAMODAR student of our college bearing hall ticket
no.003070117 in partial fulfillment for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION by Osmania
university for the academic year 2007-2009

PRINCIPAL

DECLARATION

I here by declare that, this Project Report titled

CAPITAL BUDGETING Submitted by me to the Department Of
Business

Management,

O.U.P.G.

COLLEGE,

VIKARABAD

RR(DIST). Is a Bonfire work undertaken by me and is not

submitted to any other University or Institution for the Award of
any Degree/diploma/Certificate or published any time before.

Name of the student

Signature of the student

R.DAMODAR

ACKNOWLEDGEMENTS

I am grateful to Mr. P.CHANDRA KANTH SHRAMA Sir, HRD

C.G.M AND my guide Mr. P.MOHAN Sir, Finance
Management for providing the Opportunity to do the project in
your esteemed organization.

I am also thankful to Mr. C.Praveen Kumar Reddy principal and my

guidance Mr. C.Praveen Kumar Reddy My faculty members who
extended their cooperation in completion of project effectively.

Last but not least, I am expressing my sincere thanks to my parents, who

encouraged and inspired me carrying out this project. I would like to say
thanks to my friends who helped in this regard.

Date:
Place:

(R.DMODAR)

CONTENTS

CHAPTER I

Introduction & Profile

CHAPTER II

Capital Budgeting
CHAPTER III

Capital Budgeting in SCCL

CHAPTER IV

Introduction to project

CHAPTER-V

Future of the present updating

CHAPTER-VI

Conclusions
Suggestions
BIBLIOGRAPHY

CHAPTER I

INTRODUCTION
&
PROFILE

INTRODUCTION OF COAL INDUSTRY

In a developing economy like India coal mining occupies a private place.
Conserve as a basic input to many industries like Iron and Railways. In addition other
industries like cement Fertilizers, paper chemical and thousand of medium and smallscale.
Industries are among the main consumers of coal. Despite the development of
the alternative fuels sources like electricity. Petroleum and solar energy coal
Continues to 83 be the major fuels material in many industries.
COAL IN THE ENERGY SCENARIO:

Coal is the main source of the primary energy in India and currently Meets
about 60% of the commercial energy requirements in view of limited resource
Availability of liquid hydrocarbons and natural gas, coal is likely to be the dominant
Source in the foreseeable future also.
COAL RESOURCES AND QUALITY:
Present estimate of coal resources is about 200 billion tones up to a depth of
1200 meters. Detailed exploration has resulted in and inventory of about 70 billion
Tones of proven reserves. Which can be exploited commercially? Indian coals are
Generally high in ash content (24-45%) but low in super (less than 1%) of the
Reserves 15 are cooking variety and the balance non-cooking
.ORGANIZATIONAL STRUCTURE OF THE COAL INDUSTRY:
Almost the entire sector is under state control, Coal India Ltd., (CIL) a
government under taking, has seven coal producing subsidiaries and produce, 88% of
the overall coal
Singareni collieris company Ltd., (SCCL) JOI11: venture of state government of
Andhra Pradesh and Govt. of India contribute above 10% of the coal production.
COAL CONSUMPTION PATERN:
The power industry is the single largest coal-consuming sector accounting for
about 70% of overall consumption. The steel sector (allows with about a 13% share.
The balance is consumed in the cement, fertilizers, Textile and chemical Industries.
The power sector will continue to consume the bulk of coal. Demand for coal in India
has been tentatively estimated to be about 405 million tones by 2006-07 out of which
the demand of the power sector is 254.80 million tones. It is estimated the demand by
2009-20 10 will be 550 million tones.
COLLABORATION IN THE COAL SECTOR:

Technical and financial assistance of erstwhile USSR, UK, Australia. Canada,

Germany and franc is available in developing the coal industry on continuing basis
through joint working groups of the respective govern 11t D:s and the Government of
India the world bank has also financed some projects in the coal sector.
REFORMS IN ECONOMY AND SCOPE OF PRIVATE PARTICIPATIO
The scope of private sector participation in coal mining was begun with
amendment of the coal mines nationalization of existing developed mines and a cost
sharing basis has been envisaged by CIL with foreign mining companies and mining
equipment manufactures.
PRESENT LEVEL OF PARTICIPATION:
Thirteen mining blocks with a potential for yielding 35 million tones per year
have offered for captive mining. Letter is intent have been issued for setting up of
four washes with a total installed capacity of 21 million tones per year to private
investors, including for foreign investors under a build down operate scheme of CIL,
Global tenders have also been floated by cal India to develop some existing mines in
collaboration with foreign firms.
ESTIMATE OF PRIVATE INVESTMENT:
A Production contribution of 100 million tones per year in envisaged from
private investors by 2009-2010 if the overall demand is to be met this implies and
investment of USS 4 billion, coal benefaction would also need at least USS I billion.
IMPORTS OF COAL:
Imports of cooking and non-cooking coal have been increasing over years. The bulk
of imported coal is cooking coal required by steel plants. The domestic cooking coal
production has not been able to keep pace with the increase in demand from the steel

sector.

Important of lulling coal required for metallurgical purposes cannot be

stopped since these are blended with indigenous coal lot improve its quality.
SCAPITIVE CONSUMTION:
Private sector companies engaged in production of iron and steel. Cement and
power Generation have been permitted to take up coal mining for captive
consumption the production of captive collieries namely that of TISCO, IISCO and
DBC are still small when composed with the productive collieries.
COOKING AND NON-COOING COAL:
India has limited reserves of cooking coal as well as superior grades of noncooking coal.

Super iron grades of cooking and non-cooking coal reserves are

available at depth that can be mined only though underground working. Over the
years as the mines get older and deeper the geo-mining condition is under ground
working become arduous causing decline in from steel mines.

Steel mines.

Government of augment indigenous production of these grades of coal is taking step

to the extent practicable. These include
Owing of new mines and increasing productivity and improving quality in existing
mines by modernism and improvement of infrastructure facilities.
COAL INDIA LIMITED:
Coal India limited, having head quarters at Calcutta, is the holding company
wit eight subsidiaries
1. Eastern coal field India limited (ECFIL) SANCTRIA, WEST BENGAL
2.

Bharat Cooking coal Limited (BCCI) DHANBAD, BIHAR

3. Central Coal Field Limited (CCL) Ranchil, Bihar

4. Northern Coal Fields Limited (WCFL) SINGRAVLI, MADHYA PRADEESH
5. Western coal fields limited (WCFL) NAGAPUR, MAHARASHTRA

10

6. Mahandi Coal fields Limited (MCL) Sampabalpur, Orrissa

7. Central Mining Plalu1ing for design institute limited (CMPOFI) Ranchi, Bihar
8. Eastern Coal fields limited (ECI), SANCORIA, ASANSOL
Till the end of eighties.

CIL functioned as atypical government owner

monopoly, not particularly bothered about such issues as specific cost of

production, productivity and customer care.

The advent of economic

liberalization at the beginning of the nineties jointed CIL from it stupor by

reducing or doing away with all the cozy protection. That this behemoth was
used to such as budgetary supposed restrictions on import of coal and high
important tariff wall.
The ninth plan outlay of CIL is Rs. 13700 crore split in the following manner:
New projects

On going projects
Existing mines

32.25%
-

28.8%

27.3%

Non mining projects -

12.3%

The major non-mining projects under construction are madhbani washery(BCCL),

The kedla washer (CCL) and captive power points at monish(BCCL) AND
Kathara(CCL).

THE SINGARENI COLLIERIES COMPANY LIMITED

GOVERNMENT COMPANY
LAND MARKS

1. Discovery of Coal

1871

2. Commencement of Mining Operation

1989

11

3. Introduction of Machine Mining

1948

4. Introduction of Incentive Scheme

1951

5. Introduction of Electric Lamps

1953

6. Introduction of Frame froof Mining machine

1954

7. Commencement of Open Cast Mining Projects

1975

8. Road Headers, side dump loaders, load have dumpers

1981

9. Long wall Face

1983

10. Introduction of first 123/33 KVA Sub-station

1984

11. Introduction of Computers

1986

12. Introduction of Walking dragline in opencast Mines

1986

13. Introduction of French Blasting Gallery Technology

1989

14. Introduction of Input crushing & conveying technology

1994

15. Introduction of Re-structuring capital base

1994

16. Re-structuring package

1998-99

12

17. Elections for recognition of Trade Union

1998-99

18. All time record production of 29.556 million tones

1999-00

19. All time record of 302 cores

1999-00

20. Introduction of Hi-tech information system

1999-00

21. Record profits of 400 cores

2002-03

22. Coal India productivity Award

2003

23. Best CEO Award to Sri R.H.Khawj, IAS. SCCL by lllE

2004

24. Golden peacock environmental Award for mining

2005

25. Coal India productivity Organization Award

2005-06

26. TERI Award for Environmental Excellence

2007-08

GROWTH OF PRODUCTION:
After the discovery of coal in the year 1871, the Hyderabad Deccan
Company was incorporated in England in the year 1886, in 1921, the company was
converted into a public limited company and was named as The Singareni Collieries
Company Limited after the name of village Singareni near yellandu.
In 1945, the Nizam of Hyderabad purchased the shares of the company at London
stock Exchange & this action brought the company under the Government Limited
has the distinction of beginning the first Government owned Coal Company in India.
After the need of massive investment and expansion of Coal sector was felt
following the oil crisis, the Government of India stepped up investment in SCCL.
Today the equity capital is shared in the ratio of nearly 51:49 between governments of
Andhra Pradesh and Government of India. The loan capital is entirely provided
by Government of India. The assistance is by tripartite agreement between SCCL and
Government of India and Government of Andhra Pradesh.

13

MISSION OF SCCL:
1. To emerge as a premier coal producing company operating in the competitive
business environment.
2. To strive for self-reliance by optimum utilization of existing resources and
earn adequate returns on capital employed.
3. To exploit the available mining blocks with maximum conservation and
utmost safety through improved technologies.
4. To make coal available in large quantities through sharing experience and
expertise with other organizations and to provide reliable and qualitative
supplied to consumers.

PRODUCTION PROFILE:
SCCL occupies a vital position in the coal Production program of the country
with 7% of India reserves and is producing around 105 of country annual coal
production.
Coal production from opencast mines in SCCL started as late as 1779-80 and
presently contributes about 57% of its total production.
MARKET PROFILE:
SCCL has been endeavoring to meet coal demand of entire south. All the
powerhouses located with in the state of Andhra Pradesh get their cool supplies from
singareni collieries. In addition, the requirement of coal of some of the powerhouses
located in Maharastra and Karnataka is also met from singareni collieries company
Limited.

14

COMPANY PROFILE

HISTORY
The background of discover of coal in Telangana region of Andhra Pradesh is
interesting. The harnessing of huge reserves of this mineral Wealth led to the
emergence of the going corporate entity. The singareni collieries company Limited
(SCCL).
The sage began with the accidental discovery of coal, near the village of
yellandu in khammam District by pilgrims enrooted to the temple town of
Bhadrachalam in 1870.while the pilgrims were preparing their meal one of the
supporting stones of their makeshift heart caught fire, which was immediately
reported to the coal government. This led to an extensive survey by Dr.William King,
an eminent geologist, who confirmed the revolutionary discovery of mammoth
deposits of coal in the godavari valley.
The Hyderabad Deccan company Limited, incorporated in England, acquired
mining rights in 1886 to exploit the coal found in yellandu area. Later the company
was renamed as singareni Collieries Company limited (SCCL) in 1920. The
Nizamof Hyderabad purchased majority of shares of the company in 1945. The SCCL
became a government company under the companies Act in 1956 and is now jointly
owned by the government of Andhra Pradesh and the government of India with equity
participation in the ration of 51:49.
The company has proven coal reserves of 8091.10 million tones as on March
31 2007 spread over in the districts of khammam, warangal, and adilabad in

15

Andhra Pradesh. The growth of coal production, since the companys inception up to
2007 can be classified in phases as under:
1. The Beginnings (1889-1927)
The first coal mine was opened in 1889 at Yellandu and coal mining continued
in this area till 1927. In the inaugural year (1889), 59.671 tonnes of coal was
produced.
2. Initial expension (1928-1960):
During this period SCCL commenced coal mining operations in Bellampally
and Kothagudem areas. Singareni grew from a production level of 0.07 m.t. in 1928 to
2049 m.t. in 1960.
3. Pre-Nationalization era (1961-73)
This period witnessed a steep growth in coal production as the Government of
India also participated in investment in SCCL from 1961. Coal mining activities
ware extended to other are as like mandamari and Ramagundam (1961) and
Ramakrishnapuram (1963).
4. Post Nationalizations era (1973-920
Large-scale expansion /modernization of mines was taken up during this
period. A large number of mines were opened between 1973-1992. Opencast mining
commenced in SCCL in 1975 with the opening of open- cast Godavarikhani area.
In 1947, the Government of India transferred its share capital to the newly
constrituted coal mines authority Limited (coal India Limited). The manner of
Participation
In the company financial assistance for its expansion by the state Government and the
central Government, were agreed upon in the four party agreements of
1947.subsequently. The central government decided to control its equity directly in

16

SCCL. Accordingly agreements were concluded on 13 th march 1977. The SCCL the
state government, the central government and coal India limited were parties to the
agreements. These two agreements are popularly called quadripartite agreement.
5.Liberalization era (1992-2007)
Even thought the country adopted economic reforms in the early 1990s, it was
not until 1996 that the coal industry has the first feel of liberalization through
Deregulation of pricing and distribution of higher grades of coal. During this period
The company witnessed a remarkable turnaround due to structural reforms
initiated in 1997 with significant increase in production, productivity and profitability.
SCCL has mined 275.70 million tones of coal from the Godavari valley field
during the last 100 Years.

MISSION OF SCCL
To return our strategic role of premier coal producing company in the country
and excel in a competitive business environment.
To strive for self-reliance by optimum utilization of existing resource and earn
adequate returns of capital employed.
To exploit the available e mining blocks with maximum conservation and
utmost safety by adopting suitable technologies and practices and constantly
upgrading them against international benchmark.
To supply reliable and qualitative coal in adequate

PRODUCTION PROFILE:
SCCL occupies a vital position in the coal program of the country with 75 of
India reverse and it production 10% of country annual coal production.

17

Coal production from open cast mines in SCCL commenced open cast mining and
presently contributes to more than 60% of the total coal output.
MARKET PROFILE:
SCCL has been endeavoring to meet the coal demand if entire south. All the
powerhouses located with in the state of Andhra Pradesh get their coal supplies from
singareni collieries company in addition, the requirements of coal of some of the
powerhouses located in Maharastra and Karnataka are about net fill singareni
collieries company Limited.
In the small-scale sector, about 2700 industrial units situated over the southern
states, which get their requirement of about fr0111SCCL.
FINANCIAL RESULTS:
The financial results of the company for the year 2007-08 as compared
to the Previous are as under.

18

Particulars

2006-07

2007-08

Gross revenue

441631.92

523353.23

Depreciation provision tax

11719.94

29011.77

Less: interest

848.39

876.92

Deprecation

21775.44

24477.01

Provision

2975.73

4842.03

Prior period adjustment (net)

1194.04

22.94

Provision for tax

7162.16

12235.72

Net profit after tax

6380.49

17617.03

Proposed dividend

2079.84

3466.40

Tax on dividend

353.47

589.11

Transfer to general reserve

10000.00

10000.00

Profit before incrust

Appropriations

19

Paid up capital
General reservs
Profit after tax
Dividend paid%
PAT/net warth%

04-05

05-06

06-07

07-08

2.20
110.5
38.30
349
33.96

2.20
152.76
54.68
498
34.71

2.20
197.87
59.00
540
29.20

2.20
269.87
90.00
820
33

FINANCIAL REPORT

CONSUMER SATISFACTION:
To improve the customer satisfaction the company adopted selective mining in
underground and opencast mines to improve the quality of coal dispatches.

20

Non- carbonaceous brands like clay were blasted separately and excluded
from coal brought to surface in some mines, picking arrangement for removing shale
stone etc, Were intensified at all dispatch points. Various steps are being taken by the
company to improve the quality and availability of coal. Apart from the above steps
like installation of electronic weight bridges in the place of mechanical weight
bridges, joint sampli9ng methods etc were also taken
EMPLOYEE WELFARE;
A number of welfare facilities like housing & sensation, educational
recreational sand medical facilities are being provided. For increasing housing
facilities new model town ships with integrated approach towards layouts, green
coverage, drains and sewage tremens and other civic amenities like roods, central
park, scooter sheds, community hall welfare center library. Temple complex overhead
tanks for water sriranpur, Manu guru areas.
Health educators were deputed to visit the workmen colonies to create
awareness among workmen and their families about the importance and need for
personals and public hygiene, immunization, maternity and child care etc,.
Singereni collieries educational society is serving to improve the educational
standards and provide quality education to the employs children. In the schools and
colleges run by the society about 11061 and 1570 pupils were imparted education
respectively during the academic year 2007-2008. a school for mentally retarded
children is being run by the SCCL in Godavarikhani.
To encourage the children of workmen of pursue higher studies. The
management of SCCL is awarding in merit scholarship those who get admission in
engineering and medical colleges.

21

Workers of SCCL are being provide with the terminal benefits like provident
fund gratuity, Group insurance and depended employmen

COMPUTERISATION AND USE OF IT:

Recognizing the introduced information potential need information technology
system in the functions of production the SCCL marketing. Finance, materials
management etc. all information pertaining to workmen is made available on the
database. The IT vision of the company is to make it an enterprises resources and
planning based organization by reengineering the entire business processes and the
developing local area and wide area networks, Web services, developing.
SAFETY IN MINES:
The management is striving to achieve 100%accident free mining. The
principal of safety first, safety Always, safety forever guides in every mining and
safety consciousness, safety pledge is being administered by all workman before
commencing work.
MINES RESCUE SERVICE:
The management has organized training programs seminars and inters area
competitions to make the Singareni Minis Rescue services the best in the coal
industry. 108 persons were imparted initial training in rescue 8: recovery works and
650 active rescue trained persons, working at different mines of the company, we
imparted.

HUMAN RESOURCE DEVELOPMENT:

The fundamental truth behind the success made by the company is its
committed and dedicated human resources. For further improving the technical and

22

managerial skills of employees and constantly upgrading their knowledge irrelevant

spheres, the management is sponsoring them to various training programs as detailed
below.
In-house training: SCCL is providing the in house training to its employee
with a view to up date their knowledge in their respective fields and for providing
basic knowledge in computers. In house training s are being provided with the help
of internal faculty as well as outside reputed consultants and institution. During the
year under report 43 in houses
Training programmed were conducted with the help of reputed instate and consultant
covering 1,484 employees as against 713 employees covered during the previous year.
Training outside the company: SCCL is sponsoring executives and nonexclusive to
various seminars, work shops exhibitions etc held with in the country to acquaint
themselves with the latest techniques/system in their respective functions. Executive
from mining discipline were being sponsored to a training program in students of
mining and non mining discipline from various educational institutions in the
country as apart of their academic curriculum

RESEARCH AND DEVOLOPMENT:

The R&B cell of the company has been extending assistance in solving the
multifarious problems being faced by the company. The R&B cell has assisted in
Particular in the following areas:
01. Solving strata control problems at RK new tech and RK- A1 Mines.
02. Cable bolting at Padmavathikhani at kothagudem Area.
03. Ventilation studies in various mines to save power coast.
04. Testing of inorganic quick setting cement capsules. I and P;explosive.

23

ROTECTION OF ENVIRONMENT AND ECOLOGY:

Apart form taking the measure required under various pollution control and
environmental protection laws, several measures are taken for protection and
Maintenance of eco-systems like planning of townships, service building etc,outside
the forest area, extensive plantation with the assistance of state forest department. In
UG Mines subsidence control measures and plantation were taken expensively. To
avoid air pollution arising out of vehicle movement, the roads were black topped.
60% of the mine discharge water after filtration is being used for supplying drinking
purpose, dust suppression, plantation etc, and remaining water is discharge into the
natural watercourse for agricultural use. To protect the residents around mining areas
for high noise levels, green belt barriers and developed between the mines and
residential areas.

INDUSTRIAL RELATION:
The industrial relations remained cordial. The joint consultative committee is
helping to resolve the grievances of employees and in improving the safety standards,
production and productivity the existing3-tire grievance redresses machinery is
yielding good result. There were general strikes demanding payment of arrears under
NWCA-VI: AGAINST Economic &Industrial policies of the Government etc.

TECHNOLOGY ABSORBPTION, ADAPTION AND INNOVATION:

The successful adoption and implementation of various technologies
such as Blasting Gallery, intermediate Mechanization with Load Haul Dumpers,

24

Mechanized Long wall, Shovel- Dumper technology and In- Pit crushing and
conveying technology for
LIQUIDITY AND SOLVANCY:
1. The percentage of current assets loans and advance to total net assets
(including intangible assets) had increased from 88051 in 2004-05 to
111.24 in 2005-06 and further increased to 92.25 in 2006-07.
2.

The percentage of current assets, loans and advance to trade dues and
other current liabilities (including provisions) increased from 90.15 in
2004-05 to 111.24 in 2005-06 and further increased to 191.99 in 2006-07

3.

The percentage of quick assets (Sunday debtors, advance cash & bank
balances) to trade dues and 58.60 in 2004-05 to 41.30 in 2005-06 but
increased to 89.81 in 2006-07.

WORKING CAPITAL:
The working capital (current Assets, Loans and Advance, Less Current
Liabilities and Provisions) for the year ended 31 st March 2006 was negative (-) Rs.
250.63 Laks but for year ended 31st March 2006 and 31 st March 2007 were positive
Rs. 313.80 lakhs and Rs. 1494.74 lakhs respectively.
SOURSES AND USE OF FUNDS:
During the year ended 2006-07 funds amounting to Rs.58146.48 lakhs were
generated and utilized as fallows:
01. Increasing in current liabilities

2306.01

02. Increasing in current assets

3648.03

03. Increase in fixed assets

3081.61

04. Increase in investments

3700.00

05. Repayment of borrowings

38195.73

25

06. Increase in deferred tax assets

7215.10
58146.48.

WORKING RESULTS:
The working results of the company during the three years up to 31st march.
2007
Were as following:
Particulars

2004-05

2005-06

2006-07

a) Profit during the year

119.95

543.71

1609.82

b) Add/less

+4.08.

-142.13

-9.36

124.03

401.18

1600.51

NILL

NILL

-151.67

Fringe benefit tax

-1.32

Differed

43.19

134.43

124.03

357.99

1581.05

income Expenditure-

Pertaining to previous year

c) Proof before Provision for tax
d) Provision for tax
Current

e) Profit after provision for tax

The value of Production for the year 2006-07 was more by 1223.6 lakhs compared to
2005-06 as well as there increase in the profit for the year 2006-07 compared to 200506 by Rs.1066

26

CHAPTER II

CAPITAL BUDGETING

27

CAPITAL BUDGETING
Concept of capital budgeting:
The term capital budgeting refers to long-term planning for proposed capital
outlays and their financing thus. It includes both rising of long- term funds as well as
their utilization. It may thus be defined as the firms formal process for the
acquisition and investment of capital it is the decision-making process by which the
firms evaluate the purchase of major fixed assets. It involves firms decision to invest
its current funds for addition. Disposition, modification, and Replacement of longterm or fixed assets. However it should be noted that investment in fixed assets. It
also to he taken as a capital budgeting decision for example a new distribution system
may call for both new warehouse and an additional investment in investors. An
investment proposal of this nature must be taken as a capital budgeting decision
evaluated as a single package not as an investment in a fixed asset (i.e. ware house)
and in a current asset (i.e. investment) separately.
Capital budgeting is a many sides activity. It includes searching for 1/1 kind
more profitable investment proposals, investment engineering and marketing
consideration to predict to consequence of accepting the investment and making
economic analysis to determine the profit potential of each investment proposal. Its
basis feature can be summarized as follows.
01. It has potentiality of making large anticipated profits.
02. It involves a high degree of risk.
03. it involves a relatively long-term period between the initial out lay land the
anticipated return on the basis of the above discussion it can be concluded that capital

28

budgeting consists in planning the development of available capital for the purpose of
maximizing the long- term profitability(i.e.)of the firm.
THE CAPITAL BUDGET EVLUATION PROCESS:
Many companies follow a carefully prescribed process in capital budgeting.
The process usually includes the following steps:
Project proposals are requested from departments plants and authorized capital
budgeting.
Capital Expenditure is an out lay of cash for a project that is expected to
produce a cash flow over a period of time exceeding one year. Example of projects
include investments in property, plant, and equipment, research and development
projects, large advertising companying, or any other project that requires a capital
expenditure and generates a future cash flow.
Because capital expenditures can be very large and have a significant impact on the
financial performance of the firm, great importance is placed on project selection.
This process is called capital budgeting.
CRITERIA FOR CAPITAL BUDGETING DECISIONS:
Potentially is a wide an ay of criteria for selecting projects. Some
shareholders may want the firm to select project that will show immediate surgeons in
cash inflow others may get to emphasis long term growth with little impotence on
short-term performance on short term performance. Viewed in this way, it would be
quite difficult to satisfy the differing interests of all the shareholders.
Fortunately, here is a solution.
The goal of the firm is ton maximize present shareholder value. This goal implies that
projects should be undertaken that result in a positive net present value that is the
present value of the expected cash inflow less the present value of the required capital

29

expenditure. Using net Present value (NPV) as a measure, capital budgeting involves
selecting those projects that increase the value of the firm because they have a
positive NPV. The timing and growth rate of the incoming cash flow is important only
to the extent of this on NPV.
Using NPV as the criterion by which to select projects assumes efficient capital
markets so that the film has access to whatever capital is needed to pursue the positive
NPV projects. In situation where this is not the case. There may be capital rotating
and the capital budgeting process becomes more complex.
Note that it is not the responsibility of the firm to decide whether to please particular
groups of shareholders who prefer longer or shorter-term results.
Once the film has selected the projects to maximize its net present value, it is up to the
individual shareholders to use capital markets to borrow or lend in order to move the
exact timing of their own cash inflows forward or backward.
This idea is crucial in the principal-agent relationship that exists between shareholders
and corporate managers even through each may have their own individual preference
the common goal is that of maximizing the present value of the corporation.

OBJECTIVES OF A CAPITAL BUDGETING:

The objectives of capital budgeting
1.

It determines the capital projects which work can be started during the budget
period after taking into account their urgent and the expected rate of return on
each project.

2.

It estimates the expenditure that would have to be incurred on capital projects

approved by the management together with the source from which the
required founds would be obtained.

3.

It restricts the capital expenditure on projects with in authorized limits.

30

IMPROTANCE OF CAPITAL BUDGETING:

Capital budgeting decisions are most crucial and critical business decision.
Special care should be taken in making this decision on account of the following
reasons.
INVOLMENT OF HEAVY FUNDS:
Capital budgeting decisions require large capital out lays. It is therefore
absolutely necessary that the firm should carefully plan its investment programs so
that it may get the finances of the right time and they are put to most profitable use an
opportune investment decision can give spectacular results on the other hand on illadvised and in correctors decision can jeopardize the survival of even the biggest
firm.
LONG-TERM IMLICATION:
The firm will feel the effect of Capital budgeting decision over along period
and therefore. They have a decisive influence on the rate and direction of the grow of
the firm.
For Example: If a company purchases a new plant for manufacture of a new product.
The company commits it self to sizable amount of fixed cost in terms of indirect
lebour such as supervisory staff salary and indirect expenses such as rent rates etc. In
case the product does not come out or came out but proves to be unprofitable. The
company will
Have to bear the burden of fixed cost unless it decided to write the investments
completely a wrong decision. Therefore can prove disastrous for the long-term
survival of the firm similarly in adequate investment in assets would make it difficult
for similarly inadequate investment in assets would make it difficult for the firm torun

31

the business in the long run jest as an unwanted expansion results in unnecessary
operating cost to the firm.

IRREVERSIBLE DECISIONS:
In most cases capital budgeting decision are irreversible this is because it is
very difficult to find a market for the capital assets. The only alternatives will be to
scrap the capital assets so purchased or sell than at a substantial loss in the event of
the decision being proved wrong.
MOST DIFFICULT TO MAKE:
The capital budgeting decision requires an assessment of future events, which
are uncertain. It is real a difficult task to estimate the probable future events the
probable benefits and costs accurately in quantitative terms because of economic,
political, social and technological factors.
On account of these reasons capital expenditure decisions are among the class
of division, which is best, reserved for consideration by the highest level of
management. In case some parts of it are delegated a system of effective control by
the top management should be evolved.
It has already been stage that the firm capital budgeting included both
planning for proposed capital outlays and their financing however. In this chapter we
are not dealing with selection of a particular project out of several alternative projects
available. Thus our study is restricted of the process of deciding whether or not to
comment resources to a project whose benefits to casts in manner. This is Constance
with the profit maximum limitation of business.

32

AN OVERVIEW OF CAPITAL BUDGETING DECISION

Capital Budgeting Decision

Project Generation

Project Evaluation

Project Selection

Project Execution

Payback Period

Cash Flow
Estimates

Selection of
Appraisal

Accounting Rate of
Return
Net Present Value
Internal Rate of
Return

Risk

Return

Trade Off

Market Value per Share

33

Profitability Index

KIND OF CAPITAL INVESMENT PROPOSALS:

A firm may have several investment proposals for in consideration it may
adopt some of them or all of them depending upon whether they are independent or
depend dent of maguey excusal.

CAPITAL BUDGETING APPRISAL METHODS:

In view of the significance of capital budgeting decision. It is a absolutely
necessary that the method adopted for appraisal of capital investment proposal is a
sound one any appraisal method should provide for the following.
1.

A basis of distinguishing between acceptable and non-acceptable.

2.

Ranking of project in order of their desirability.

3.

Choosing among which is applicable to any concealed project.

04. A criterion which is applicable to any concealed project.

05. Recognizing the fact that bigger benefits are preferable to smaller one and
every benefit is preferable to longer once.
These are several methods for evaluating and ranking the capital investment
proposal in case of all these methods the main emphasis is to the return, which will be
derived on the capital invested in the project. In other words the basis approach is to
compare the investment in the project with the benefits derived there from.

1.

PAYBACK PERIOD METHOD.

2.

DISCOUNTED PAYBACK METHOD.

3.

ACCOUNTED RATE OF RETURN METHOD.

4.

NET PRESENT VALUE METHOD.

5.

INTERNAL RATE OF RETURN METHOD.

34

6.

PROFITABILITY INDEX METHOD.

7.

MODIFIED INTERNAL PATE OF RETURN METHOD.

PAY BACK PERIOD METHOD:

Payback period shows the expected number of years required to recover file
original investment on a project. This is the oldest capital budgeting. This method has
several laws
Does not specify how much money is made by the project.
1.

Does not take into account the cost of capital, and

2. Completely ignores the time value of money

DISCOUNT PAY BACK PERIOD METHOD:

Discount payback period is the same, but expected cash flows are discounted
to the present at the cost of capital, which removes one of the deficiencies of the
payback period method
ACCOUNTING RATE OF RETURN METHOD:
Accounting tare of return focuses not on cash flows, but a projects
contribution to the firms net income. It is defined as average annual income divided
by average investment, with average manual income defined as average cash flow.
Minus average manual depreciation and average investment given as (cost plus
salvage value) divided by 2 although the second lowest method for capital budgeting,
the ignores the time value of money, and is an accounting rather than a financial tool
and as such should not really be used for financial decisions.

35

NET PRESENT VALUE METHOD:

The net present value of a project is defined as the summation of discounted
cash flows accepted over the life of the project. Minus the initial investment. This
returns a dollar amount, which may be positive or negative. If the value is negative
the project should probably be rejected. This method
Returns the actual dollar value expected for a project takes in to account the time
value of money, and the cost of capital. It is one of the three most popular methods,
but tends to be used less by real firms. But more by academics.
INTERNAL RATE OF RETURN METHOD:
The internal rate of return is the discount rate at which the discounted
expected cash inflows of a project equal to the initial cost be used to select mutually
exclusive projects
PROFIT ABILITY INDEX METHOD:
The profitability index is defined as the present value of the projects expected
cash inflows divided by the present value of all costs associated with the project.
MEDIFIED INTERNAL RATE OF RETURN:
The modified internal rate of return better reflects the profitability of a project.
Unlike IRR, which assumes the cash flows from the project are reinvested at the IRR,
whereas the modified IRR assumes that all cash flows are reinvested at the firms cost
of capital.
A distinction should be made the uses of these capital-budging methods. If the
indicators are used solely for an accept/reject decision then the IRR MIRR, NPV and
Pl

36

CHAPTER III

CAPITAL BUDGETING
IN
SCCL

37

CAPITAL BUDGETING IN SCCL:

Main and Feasibility report: the SCCL Boards has total power to sanction the
projects below 50 crores. The projects costing above 50 crores are sanctioned by the
Government of the India. For preparation of project reports first of all detailed
exploration works will be done considering whether the coal reserves are there or not.
In SCCL feasibility is prepared to take investment decision feasibility report is a study
of project prepared to enable the management and government to take investment
decision. The methodology adopted for preparation of feasibility report differ from
Project-to- project and industry to-industry. Feasibility report in coal sector is
evolved over a period of time observing. Various guidelines and suggestion issued by
the evaluating agencies viz; minister of coal planning commission, investment board
etc.
EVALVATION OF FEASIBILITY REPORT:
The feasibility report outlines the type of technology like underground method
with details of extractable coal recourses, life of the project etc. the feasibility report
quantities various physical input required viz. land building plant and machinery
(input) with year vise phasing of requirement.
The physical parameters are converted in to monetary terms evolved the financial
viability of the projects. The various methods adopted are:
1. Operational Cost Vs Realization 2..Discounted cash flow methods
like I.R.R.and N.P.V.drawn and compared with required rate of
return
Main and Feasibility report: The SCCL Boards has total power to sanction the
projects below 50 crores. The projects coasting above 50 crores are sanctioned by the

38

government of the India. For preparation of project reports first of all detailed
exploration works will be done considering whether the coal reserves are there or not.
In SCCL feasibility is prepared to taken investment decision feasibility report
is a study of project prepared to enable the management and government to taken
investment decision The methodology adopted for preparation of feasibility report
differ from project-to-project and industry-to-industry. Feasibility report in coal sector
is evolved over a period of time observing, various guidelines and suggestion issued
by the evaluating agencies viz; minister of coal planning commission, public
investment board etc.
EVALVATION OF FEASIBILITY REPORT:
The feasibility report outlines the type of technology like underground
method with details of extractable coal recourses, life of the project etc. the feasibility
report quantities various physical input required viz. land building plant and
machinery 9input0 with year vise phasing of requirement.
The physical parameters are converted into monetary terms the financial
viability of the projects. The various methods adopted are:
i.

Operational cost Vs Realization.

ii.

Discounted cash flow methods like I.R.R.and N.P.V. drawn and

compared with required rate of return.

iii.

Pay back Period is worked.

iv.

Economic analysis duly indicating overall benefits to the nation.

Keeping view the different stages of project cycle emphasis is made her to
analyze anew stage of projection (I.e) preparation of the FR. The structure is and
contents of the FR in SCCL have been evolved, as state earlier, over period of
time taking due consideration from the guidelines of various Government

39

agencies as well as the management of SCCL in the context. The following is

the basic structure of FR being prepared in the departments; this is more or less
the same with minor alteration necessary.
ANNUL PLANS AND AFIVE YEAR PLAN:
The Government of India will set the production target of SCCL. The annual
plans and five-year plans will be prepared and submitted to India. These fiveyear plans show the total amount required during the plan period. In this
considering the various priorities.
Production according to their requirement funds will be shown in each
year. Like that annual plan for this purpose will be drawn identifying all
prosperity, project formulation, project construction, infrastructure development
activities.
Annual plan will be prepared considering the following:
01. Complete mines and exiting mines.
02. On going projects.
03. Projects formulating waiting for approval.
04. Projects yet to be formulated and
05. Others.
The total capital requirement for the five year plan and for the annual plans
will be financed as follows:
01. Government of Andhra Pradesh equity.
02. Government of India equity.
03. Bilateral credit.
04. Government of India loan.
05. Suppliers credit.

40

06. Internal resources.

The total of the above resources in the total outlay.
PATERN OF FINANCE:
The pattern of finance for the capital expenditure will be shown as under:
The SCCL is a government company under tripartite. Government of Andhra Pradesh
contribution so 51% equity and Government of India 49% towards equality. For some
projects foreign companies will be 10; 11 directly to the company.
CLEARANCES BY SCCL BOARD:
The S.R.C. SC prepared are submitted for clearance of Technical committee
consisting of three member board Le... C&M.D. Director and managing
Directing of C.M.P.I. after clearance by the Technical committee, the F.R. S. are
cleared in the board of SCCL. Board has been delegated to approve projects up
to 5000 crores are submitted
To Government of India after clearance from the board.
PROJECT COST ESTIMATION:
The capital requirement of the project is estimated under the following major
heads.
LAND
PLANT AND EQUIPMENT
COAL HANDLING PLANT AND RAILWAY SIDING VEHICLES
FURNITURE AND FIXTURES
CAST OF DEVLOPMENT
ENVIRONMENTAL MANAGEMENT PLAN
INTEREST DURING MANAGEMENT PLAN
INTEREST DURING CONSRTUTION

41

CAPITALIZED REVENUE EXPENDITURE

The details of capital estimation under each of a above heads are given: LAND:
Based on the land requirement for mine area required for laying or roads,
auxiliary services Building Township etc. Are estimated in physical terms, father the
land requirements in identified as to private land, government; and forestland etc. For
ascertaining the acquisition cost. Taking in to account the rate prevailing far different
type of land the cost of acquisition of land is estimated.

Based on the yearly

requirement of land, the yearly capital projections are made for meeting the cost of
land.
PROSPECTION AND BORING:
The cost of drilling in the block was already incurred and backed to
exploration capital account and the ideological information of the projects is fixed up
with help of before holes drilled the cost incurred in coal connection with there
drilling bore holes has to be capitalize..
COST OF BUILDING:
The capital requirements is estimated under the following sub groups:
1. Auxiliary plant.
i.

Main plant structured.

ii.

Residential building.

iii.

Auxiliary structures.

42

ESTIMATION OF COST OF PRODUCTION:

The estimation of year wise cost production is worked out keeping view the
level of output.
Manpower, power requirement, stores cost stop etc.
Various elements considered in the estimation of cost of production art detailed
below:
1. Wages
2. Stores
3. Power
4. General administration expenses.
5. Post project environmental monitoring.
6. Interest on working capital
7. Interest on loan capital.
8. Depreciation.
Treatment and compensatory a forestation environment base line data generation
green belt development, pollution monitoring equipment etc.
INTEREST DURING CONSTRUCTION:
The total capital requirements under the above heads are registered with yearly
phasing. Keeping in view the prevailing debt equity ratio.

The capitalist

distributed into loan and equality ratio. The capitalist distributed into loan and
equity. The interest on loan capital constructions period of the projects is worked
out by adapting the prevailing interest rate 17% per annum.
CAPITALIZED REVENUE EXPENDITURE
The revenue nature of expenditure such as wages, stores, power general
overheads expected into insure till the project is put on to revenue acco0unt in

43

estimated year wise. Necessary credit will be given for the production in value
during construction period the net revenue expenditure is capitalized and
including as an element of capital head in the project cost.
Separate statements are prepared for estimating the cost under each head of
expenditure item wise details, quality, total cost with yearly passing. A summary
of the total capital cost of the project is prepared and included an annexure in
Feasibility Report, brining out the head wise total most requirements with yearly
phrasing for identifications of total project cost.
VEHICLES:
Keeping in view the size of the project and its location, the requirement of
vehicles is estimated. The vehicle normally covers jeeps, cars, transport trucks,
explosive vans, fork litters etc. The capital requirement for vehicle estimated
taking into account the prevailing prices. The phasing shown as per requirement.
FURNITURE & FIXTURES:
The furni8ture and fixtures required for the projects are estimated and
necessary provision is made under his head. Normally lump sum provisions are
made for tables, chairs, filing racks etc, for survey equipment. Personal computer
also necessary, provisions will be made.
COST OF DEVELEPMENT:
Under this head necessary cost provisions are made for providing,
development activities such as mine development roads and culvert water supply
and other amenities research and development and cost of feasibility

44

ENVIRONMENTYAL MANAGEMENT PLAN:

Under this head necessary cost provisions are made for providing
rehabilitation to the displayed persons and for making compensation pollution
abatement effluent
FLANT AND EQUALIPMENT:
The plant & equipment is estimated separately under different groups for
conventional method of mining and open cast mining.
The requirement of plant and machinery under the subgroups is arrived on the
basis of mine capacity and its development plan. To meet the contingencies for the
items, which have not been considered in the sub groups a suitable percentage of the
total P& M cost is provided under contiguities.
While estimating cost of the various plant and equipment required for the mine
the latest in house process available based on the recent purchases orders placed for
similar items, tenders and quotation received from the supplied and CMDIL price list
are adopted for basis process in the project equipment.
COAL HANDLING PLANT & RAILWAY SIDING:
Taking in account the existing coal handling plant in the project area and its
capacity, additional requirement is assessed so as to provide additional capacity or to
provide separate CHP accordingly capital requirement is estimated and phasing is
show match the production phasing of the project. Adequate railway siding facilities
would be provided in the project estimate.

45

CHAPTER IV

INTRODUCTION
TO
PROJECT

46

INTRODUCTION:
The production target set for Mis. Singareni collieriwes co.Ltd. Is 28.17
m.t.for the technical year of VII five-year plans and demand for the terminal year of
VII five year plan is s34.26 m.t. Due to its strategic location? Even if the target is
fulfilled, there is a considerable gap between man and production from singareni
collieries co. Ltd., the gap between demand and supply is 5...99 mt.for the VII plan
terminal year.
To achieve above-mentioned targets, sccl has to open new2 mines. As a
strategy, emphasis is being laid on development of opencast mines wherever feasible
and mechanization of virgin seams in existing areas where infrastructure is already
developed. Gout ham mine is one such opencast project in kothagudem area.
LOCATION:
Gouthamkhani mine is located in kothagudem area of khammam district in the
state of Andhra Pradesh in godavari valley coal field. The nearest realhead is the
bhadrachalam road railway station (BDCR), which is on the branch line of south
central railway connected to khammam(80Kms), hyearabad and viayawada(160Kms)
by asphalted roads.
SOURCES OF ALLOCATION AND PHASING EXPENDITURE:
The amounts so granted towards capital requirements in the form of equity are
made at the beginning of the financial year. The amounts are drowning monthly,
quarterly as and when the expenditure is scheduled. The interest is also calculated
keeping in view of the drawing of amounts from banks.
a) Capital expenditure and
b) Revenue expenditure.
A) CAPITAL EXPENDITURE:

47

It incurred in SCCL for the procurement of fixed assets, Heavy Earth Moving
Machinery (HEMM) and other assets to use in the mining activities.
This is the expenditure made on both the ongoing projects and IIC\V projects
the amount should be taken from the annual grams in million of equality and debt.
B) REVENUE EXPENDITURE:
It includes all the payments made during the year towards the operation of the
company such has salaries to employees. Employees welfare expenses, maintenance
and administrative charges. These are the expenditure paid for the services rendered
for the current period.

SOURCES

AND

APPLICATION

OF

FUNDS

AND

SOURCES

OF

ALLOCATION
AND
PHASING EXPENDITURE IN SCCL
A) SOURCES AND APPLICATION OF IN SCCL:
In SCCL the sources of funds to meet the capital expenditure are use
under:
1. Equity Capital from Government of India.
2. Equity capital from government of Andhra Pradesh
3. Long-term borrowings from government of India.
4. Plighting back of funds by internal resources of profit.
5. Bilateral credit from government of India.
6. Drawings funds temporarily from commercial banks such as state bank
of Hyderabad etc. to meet working capital.

48

CASH CREDIT ACCOUNT:

Secured by first charge in factor of the following participation banks ranking on
present and future stocks of stores and spares and coal stock in all the divisions.
a. State bank of Hyderabad

Limit Rs. 490 Lakhs

b. Indian Bank Hyderabad

Limit Rs. 150 Lakhs

c. canara Bank Hyderabad

Limit Rs. 90 Lakhs

d. State Bank of Partial, Hyderabad

Limit Rs. 100 Lakhs

PROJECT DETAILS:
A.FESAIBILITY REPORT:
Feasibility report of the project was prepared in june. 198 xs for a rated
production of 2.00 m.t. per annum with capital outlay of Rs. 193.11 crores and
submitted to ministry of coal vide Lr.no.PP174/89/318.dtd. 16-03-1988 for sanction.
As the project is yet to be sanctioned, the capital cost and operation cost have been
updated in order to get the sanction for the realistic outlay or the project. As per the
present updating (Dec.1992), the out lay of the project is estimated as Rs.403.67
crores as against Rs.193.22 crores of original FR,june 1988. The increase in the
capital cost work out to 100%
B.CAPACITY OF THE PROJECT:
The annual rated capacity of the project is envisaged as 1.00 MT per annum
and the annual average 08 removal IS estimated as 11.72M.CU.M. However, in some
of the year the rated production varies viz. from 10th to 15th year the expected
production would be 3MT as against. 2.00MT per annum and in 16 th year 2250 MT
per annum. Therefore the average cost of production is worked out taking into
account the above variation in production. The average cost of production has been
worked out for the period from 4 th year to 25th year. The project comes into revenue

49

account in 4the year, and is expected to achieve rated production of 2.00MT per
annum in 8th year and execution in

All aspects will be completed by 10th year. The overall life of the project is 41 years.
IT year-wise deployment of capital. Manpower and built up of rated capacity have
been showing in the following table.
Year

Capital (Rs.Crs.)

29.23

33.22

68.63

59.47

114.25

Manpower (Nos)

201

342

575

728

1014

Production (LT)

10.00

16.00

20.00

20.00

30.00

C.COMMUNICATION:
All the elements of operation cost have been estimated based on the costs
prevailing in the last quarter of the year 1992. They are firm with reference to that
period if any changes come subsequently; the operating cost has to be modified
suitably.
Gouthmnagarkhani mine is located in kothagudem area of khammam District
in state of Andhra Pradesh in Godavari valley Coalfield. The nearest railhead is the
Bhadrachaklam road Railway station, which is on the branch line of south central
Railway connection Dornakal junction all madras-Delthi Grand trunk line,
kothagudem town is connectged to khammam( 80 KM), Hyderabad(280km), and
vijayawads(160km) communicated with the good road and rail facility and also a
pilgrimage center.
SILENT FEATURES OF THE PROJECT:
This project will contribute 2.0MT of coal per annum to Kothagudem Area.
This project is expected to give its rated capacity of production in year

50

 It is proposed to remove OB by hiring of HEMM through out the life of

project.
The project utilizes the existing facilities of Goutham Khani Opencast.
It is proposed to extract the coal shovel & Dumper combination.

GEOLOGY:
A) Details of coal seams:
Partining in

Mine able

Meters/

Coal

Prevailing
0.97-23.02/12-

Reserve (M.T)

Thickness in
Seam

Grade

Meters/prevailing
TOP

3.20-11.86/4-8

60.7

22.16

42.78
71.01

18
2.61-44.56/8MIDDLE

1.82-15.50/4-8
30

BOTTOM

2.44-29.04/8-22
Total
Overall GradeE

RESERVES:
The total mine able coal, overburden quantity and the average stripping ratio
are as follows:

51

Mine able Coal

Million tones

Grade.

Top Seam

6.

Middle Seam

22.16

Bottom seam

42.78

_____________________________________
71.1

Overall Grade E

Overburden:
The Overburden

346.28 m.cu.m.

Parting Between to seam and middle seam

9.04.M.Cu.M

Parting between middle seam and bottom seam

36.00 m.cu,m.

Average stripping ratio

1:5.51

METHOD OF WORK:
The querys proposed to be worked by opencast methodology using
conventional-shovel-dumper combination. Deployment of dragline is not proposed,
as the geological structure is not amenable for the use grade line
MAIN HEMM:
No
1. 10. Cu.m. Elec. Rope Shovels

2. 5. Cu.m. Elec. Rope shovels

3. 3.5 cu.m Elec. Hyde. Excavators

4. 5.cu.m. Front-end loader

5. 85 T Rear Dumpers

60

6. 35 T Rear dumpers/coal hauler

70

7. 250 num RBH Drills

52

8. 160 mm RBH Drills

9. 410 and 320 HP Dozens

12

10. 11 cu.m. Scrapers

11. Other equipment such as Crane,

As Per

standard
Water sprinkler Road roller etc.

Requirement

COAL HANDLING PLANT:

A new CHP of 2.40 111 t. capacity is proposed exclusively for this project.
PROSPECTING & DESIGN PARAMETERS:
SL.NO
A
B
C
D
E

PARTICULERS
Strike length of quarry (Mtrs)
Width of Quarry (Mtrs)
Depth of Quarry (Mtrs)
Areas of Excavation (Hec)
Floor Gradient
a) Maximum
b) Average

MINIMISE MAXIMIZE
400
3200
1200
1925
30
240
410
1 in 5(11.3 deg)
1 In 10(5.7 Deg)

CALENDER PROGRAMME OF EXCAVATION:

Coal production is proposed to commence from the first year of project
sanction and the rated capacity of 1.5 MTPS will be achieved in 15th year.
a) Total extractable Coal

19.45MT

b) Total Overburden

144.870M.cu.m.

YEAR WISE PROGRAMME OF COAL PRODUCTION

OVERBURBEN REMOVAL
Year

Coal
1
2
3

.50
1.00
1.00

OB

Str. Ratio
7.61
10.34
8.80
53

5.32
10.34
8.80

Coal (MT)
OBC.um)Str.ration
0.50 7.66 15.32
1.50 18.00 12.00
2.50 26.79 10.72

4
5
6
7
8
9
10
11
12
13
14
15

1.00
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
0.95

8.60
9.82
8.37
8.20
8.86
10.97
13.25
13.14
13.46
12.32
9.27
1.85

54

8.60
6.55
5.58
5.47
5.87
7.31
8.83
8.76
8.97
8.22
6.18
1.95

3.50 35.39 10.11

5.00 45.21 9.04
6.50 53.58 8.20
8.00 61.79 7.72
9.50 70.61 7.43
11.00 81.58 7.74
12.50 94.83 7.58
14.00 107.97 7.71
15.50 121.43 7.83
17.00 133.72 7.87
18.50 143.02 7.73
19.45 144.87 7.45

SUMMERISED CALENDAR PROGAMME OF EXCAVATION

Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Total

Coal (M.T)

OB Removal

Stripping

.50
1.00
1.00
1.00
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
0.948
19.452

(M.cu.m)
7.66
10.34
8.80
8.60
0.82
8.37
8.20
8.86
10.97
13.25
13.14
13.46
12.32
9.27
1.85
144.87

Ration (m.cu.m/t)
15.32
10.34
8.80
8.60
6.55
5.58
5.47
5.87
7.31
8.83
8.76
8.97
8.22
6.18
1.95
7.45

DRILLING PATERN AND EXPLOSIVE CONSUMPTION:

Total 20 Nos. of boreholes were drilled in the area amounting to 300 m of
drilling for the purpose of opencast project and also to determine the quality of coal
and other rock properties. The cost of drilling for 20 Nos. of boreholes totaling to
3000 works out to Rs. 18.00 lakhs at the rate of Rs. 600 per meter and the same is
charged to this project vide original FR of June II S8 (annexure No. II)
Further 11 nos. Of boreholes were drilled in the year 1990. The toal meter age
drilled is 653111. The cost of drilling at the rate of Rs. 900 per meter work out to Rs.
5.88 lakhs
MANPOWER AND PRODUCTIVITY:
The daily average attendance required to achieve she targeted production of
2.0 MTPA is estimated as 1611 persons and the meant on roll will be 1611(t project

55

level) as OB removed is by hiring IIEMM, manpower is not considered. The total

manpower requirement is 1611 including area levels.
OMS at 100% performance level is 5.42 tonnes.
QUARRY POERATION SCHEDULE:
The following criteria have been adopted for mining operation.
a)
b)

No. Of annual working days

No. Of daily thefts
Overburden
Coal
Duration of shift hours

c)

330
3
3
8

POWER SUPPLY DETAILS:

The details of sub-station capacities, distribution networks system of power
supply, power factor improvement etc. (As shown in plate no. XVIII) Are as follows:
6.2 I distribution and Utilization Voltages.
Incoming power supply for the project
Pumps166kw
Pumps55kw
Workshop/Colony water supply equipment
Lighting

33kv
3.3kv
415V
515V
230V

POWER:
The power units required every year from 4, h to 25h is estimated separately
considering the population of machinery and volume of extraction of OB and coal.
The peak annual power requirement of the project is estimated as 342.15 lakhs. And
the corresponding power cost works out to Rs. 718.75 lakhs an against estimated cost
of Rs. 307.66 laks shown in the original FRof June 1988. The important parameters
relating to power cost estimation at a glance are shown below.
1. Annual output (LTs)

56

2. Annual OB removal (M.CU.M)

3. Max. Demand with diversity factor of 1.4(KVA)
4. Annual power per units9Lakhs)
5. Power units per tone of coal
6. Demand charges of KVA/Month (Rs.)
7. Consumption Charges/Kwh(Rs.)
8. Annual power cost at peak (Rs. Lakhs).
9. Power cost/total of coal at peak (Rs)
10. Avg. Power cost / totakl of coal (Rs)
The function-wise split up power cost / total of coal per tonne of coal is a follows.

57

I Average cost per total Rs.

Coal

OB

Common

Total

9.57

12.13

9.50

31.20

The detailed estimation is shown in annexure No. XVIII.

CAPITAL INVESTMENT:
The capital

investment

for electrical

power supply.

Distribution

communication etc.f has been estimated at Rs. 300.00 lakhs. The details are given in
annexure no. DFR-2.2
CAPITAL REQUIREMENT:
The capital outlay of the project is updated from Rs. 193.00 crore to Rs.
403.67 cores taking into account escalation over last Four and half years.

The

increase in the capital works out to 1095. The head wise capital outlay in comparison
with FR is presented as follows:
1
2
3
4

Prospecting
Land
Mine development
Service buildings

18.00
282.50
950.10
200.00

58

23.88
577.00
1525.91
375.00

5
6
7
8
9
10
11
12
13

Township &
amenities
CHP&Rly siding
Plant&machinery
Vehicle
Furniture& Fixtures
Preparation of FR
Safety, R&D
E.M.P
Capitalized revenue

360.00

571.00

925.00
15479.27
24.00
8.00
15.00
50.00
50.00
960.00

1725.00
33532.50
41.85
13.50
11.20
50.00
83.00
2836.37

GRAND TOTAL

19322.14

40366.51

The above capital outlay of Rs. 403.67 crores is exclusive of lthe amount Rs. 7.07
crores sanctioned under advance action.
LAND:
The land required for every area, western & southern dumps. Approach road
belts, drains, transmission lines, CHP and railway siding, service buildings, indirectly
affected land residential colony etc.

Is estimated as 113 hectares ad shown in

annexure no. III

Out pf the above requirement of 1113 hectare3s, land to the extent of 318
hectares is already available with SCCL. Hence the remaining 795 hectares consisting
of 632 has. Forest land 163 ha. Private land is to be acquired.
Details of land required for township as well as re-settlement of incline
colonies are given in annexure no. III. The land required for this purpose is already
available in the existing Southport colony. Hence the cost provision for the land
required for the quarters proposed in this project is not considered.
TOWNSHIP & AMENTITIES:
The project being highly mechanized, 60% housing satisfaction has been
planned which works out to 967 houses. Out of 967 houses planned for this project,

59

507 houses are already available in the existing Gouthampor whole due to closure of
existing underground mine. Hence only 460 houses need to be constructed as detailed
in Annexure No. VI Now the total estimated cost for township and amenities comes to
Rs. 571.00 Lakes bided on building index 600 as against Rs. 360 lakhs based on cost
index400.
PLANT & MACHINARY:
Out of total capital estimation or Rs. 403.67 crores the capital estimated for
plant and machinery is Rs. 325.33 crores, which is 81% of the total project capital. As
the project envisages opencast technology the content of plant and machinery is high.
In this project the solve-dumper technology is adopted for the removal of overburden
and
Extranction of coal foer removal 10 solves of different capacities ranging from 10.
cu.m. with a combination of 60 No.s 85 T and 36 No.s 35T dumpers are provide. For
extraction hoveof coal 3to 3.5 cu. m. sls with 30Nos. of 35T dumpers are provide. The
P&M capital is classified under coal. OB and common the magnitude of capital for
this operation are:
F.R.

UCE

Coal

1500.75

2670.38

OB

12624.13

27614.25

Common

1345.39

2247.87

The capital of P&M increased by Rs.170.53 crores estimate, which works out
to 110.17%. The increase is due to escalation all prices; increase is excise duty etc.,
during the 4 year 6 month period. The investment on plant and machinery per tonne of
coal works out Rs.1626.65.

60

CAPITALISED REVENUE:
The project is expected to come in to revenue account in 41st year as the
expected production of 41st year i.e. 7.00 lakh tones, which is more than the 25%of
annual rated production of 20.00lakh tones. The revenue nature expenses such as
wages, stores, power interest on loan capital, general administration etc. expected to
incur till the project is put on revenue account have been estimated separately vide
annexure.
Nos.xII (a) & xIII(B) and included IIIIhec. Capital cost estimate for the project. The
gross capitalized revenue expenses both for OB and coal for three year work out to
Rs.4174.37lakh. In the 3rd year the expected production is 3.50 lakh tones as such the
sales realizing of rs.1337.70lakhs is credited to gross capitalized revenue there by
capitalized revenue estimated vide annexure Nos.xIII(c) & xIII(D).
VEHICLES:
For the movement of officials and transportation of material 12 nos light
vehicle are provided. The estimated capital for these vehicles as per present updated
cost estimates is Rs.41.85 lakhs as against Rs.24.00 lakhs estimated in the FR.The
increase of Rs.17.85 lakhs is only due to increase in the market prices as well as tariff
on vehicles and estimate capital with phasing are shown in Annexure No .X.

FURNITURE AND FIXTURE

ASUM OF Rs. 8.00 lakhs was estimate in original FR towards furniture and
fixture. Now this has been updated to Rs.13.50 lakhs,taking in to account the current
prices.
PREPATATION OF FR:

61

In the original FR, Rs.15, 00 lakhs was estimated to wards the costr of
preparation of technical FR by CMPDIL. However, the payment mad 011 this account
is Rs.11.20lakhs, hence Rs.11.20 lakhs is only considered as agClinme1Rs.15.00
lakhs of original FR.
SAFETY AND RESERCH &DEVELOPMENT:
A lump sum amount of rs.50.00lakhs .is provided towards safety measures and
research &development activities. Out of rs.5000 lakhs Rs.10.00 lakhs is exclusively
provided to meet the R&D studies in Biological Reclamation

ENVIRONMENTAL MANAGEMENT PLAN:

The direct capital cost provided to wards various Environmental control
measures under Environmental management plan is rs83.00 lakhs. The breaks up are
given in Annexure No.XII. The overall capital expenditure for Environmental
improvement, provided under various heads works out to Rs.1505.81 lakhs as shown
in Annexure No.XII (A), which includes direct capital of Rs.83.00 lakhs mentioned
above.
However, in addition to the capital provided for Environmental improvement,
an amount of rs.10.00 lakhs is exclusively provided for R&D activities in Biological
reclamation under R&B capital head.In addition to above capital provision every year
an amount of Rs. 437.86.lakhs is estimated to be incurred in implementing
Environmental protection measures and it works out to Rs. 21.ss per tonne of coal
production.
The details of revenue cost to wards Environmental protection measure shown
in annexure No.XXXlV.
FINANCIAL VIABILITY ANALYSIS GENERAL:

62

The capital outlay of the project is Rs.193.22 Crores (Oct., 2007) price level)
with OB removal by hiring of HEMM.The financialviability of project is worked out
taking into account the latest capital and the prevailing Dept Equity ratio of 3.68:1

CAPACITY OF THE PROJECT AND ITS SCHEDULE:

The project is designed for a peak U 1ual production of 1.0 Million tones. The
project will attain in the present dept equity ratio of 3.68:1
The year wise phasing of coal production and OB removal are as follows.

OUT PUT PER MAN SHIFT (OMS)

1. Manpower (Nos.)
a) At Mine level
b) At Area level
c) Total
2. Average daily attendance (At mine level)
3. Out put at 100% performance level (MTPA)
4. Number of working days (Per day)
5. OMS at 100% performance level at mine level (tones)

EARNINGS PER MANSHIFT:

1. Average daily attendance including area level

1231

2. Annual man shifts (NO. Of Working days)

300

3. Annual wages (Rs.Lakhs)

4. Earnings/ Manshift(RS)

63

ACCOUNTING ANALYSIS:

Cost of production:
The cost of production has been estimated under SCCI debt equity ration or 1:0.29
and Notional D.E Ration of I; I, the element wise average cost of production per tone
of. Coal at 100% and 85% performances levels is presented below:
Rs.Per Tone
Sl.No Performance Level
1
A
1
2
3

Cost Production
Opening Cost
Wages
Power
Stores

Scclderatio ratio of National debt Equity

0.31:1
Ratio of 1:1
32.26 27.42
32.20 26.52
150.70 128.09

64

32.26 27.42
31.20 26.52
150.70 128.09

6
7
8
9

General Administration
Drilling cost
Post project Environmental maintaining
Working capital @ 12.00%
Sub-total (A)
B Fixed cost
1 Interest on loan
2 Depreciation
Sub-total (B)
Total Cost Production
4
Coal Extraction cost by hired
5

4.33

3.68

4.33

3.68

.19
12.16

.16
10.34

.19
12.16

.16
10.34

90.03
216.99
216.99

76.53
66.17 56.24
107.16 124.30 105.66
183.69 190.47 161.09

surface miner
OB Removal cost by hiring

The elements wise cost is briefly explained below:

WAGE COST:
The wages cost is estimated in details taking Grade/Category, latest VDA
applicable for the last quarter and all fringe benefits. The updated wage cost per
tonne works out to Rs.32.26 as against the wage cost of Rs.23.26 or original FR.

65

The increase in wage cost id due to pay revision, increase in VDA on account of
upward revision of AICPI and increase in various allowances from time to time. The
various parameters of wage cost a glance are as stated below:
FR
1. Annual Production LTS

20.00

2. Man on Roll (Incl.area) No.

UCE
20.00

1611

1611

3. Daily man shifts (at mine level) Nos. 1231

1231

4. Wages Structure

NCWA-III

NCWA-IV

5. AICPI

753

6. O.M.S.Rs.

5.42

5.42

7. E.M.S.Rs.

114.53

117.37

8. Ave. Wages cost / tone at 100%

23.26

32.26

9. Ave wages cost / tone at 85%

26.54

36.81

1195

The estimation of wages cost in famished in Annexure No. XVI

POWER COST:
The power units required every year from 4th to 25th are estimated separately
considering the population of machinery and volume of extraction of 08 and coal.
The peak annual power requirement of the project is estimated as 342.15 lakhs
kwhs and the corresponding power cost work out at Rs.71 Rs.75 lakhs as against
estimated cost of Rs. 307.66
STORES COST:
The year wise stores cost is estimated taking into account the year wise
volume of OB coal extraction for l4th 25th year.
REMOVAL COST:

66

It is proposed to remove 08 by hiring of HEMM. The drilling excavation and

transportation cost is estimated based on the recent 17 contracts awarded for
similar works with suitable increase in diesel price.

The excavation and

transportation cost of OB removal per to rule of coal out to Rs 39/32.

ADMINISTRATIVE EXPENSES:
The mine level and areas level overhead are considered while estimating main
elements of costs such as wages. Stores power etc., to meet corporate level
overheads Rs. 5.00 per tonne of coal for the rated out or 2.00 MT is provided. In
other words Rs. 100.00 lakhs per annum is provided. The average cost per tonne
of coal works out to Rs. 4.33
POST PROJECT ENVIRONMENTAL DATA MONITORING COSTS:
The a rural recurring cost towards post project environmental data monitoring
for the projects is estimated at 15. 4.00 lakhs or 15. 0.91 paisa per tone on an
average.
Based on the recent rates on which work awarded to outside agencies for post project
environmental data generation. Post project data monitoring cost has been shown as
an element of cost while computing cost of production.
INTEREST ON WORKING CAPITAL:
The working capital of the project is estimated that the project requires 3
months operating expenditure as working capital. The annual operating cost of
the project is RsA 373.60 lakhs as such the working capital of the project is Rs.
1093.40 lakhs. The interest on this working capital is calculated @22.25% p.a.
thus the interest on working capital works out to Rs.12.16/tone as against RsA
71/tone of original FR. The detailed workings are shown in annexure no. XIV.
INTEREST ON LOAN CAPITAL:

67

For calculating interest, it is assumed that the funding of the project will be
done in the current Debt-Equit Ratio of 3.68:1 the debt content of the project
would be Rs. 317.42 cores, out of total investment of Rs. A3.67 Crores. The
above loan of Rs. 317.42 crores will be drawn in phased manner over a period of
10 years. The interest is calculated on average principle by following the under
mentioned norms.

Each loan will be repaid in IS equal installment together with interest.

The current in tersest rate @ 17% p.a. is applied.

Interest is calculated every year on reduced loan amounts.

As the quantum of interest varies from yarn to year, the interest IS

averaged from 25 years.
The interest cost per tone of coal is arrived by dividing the sum of
interest for 25 years with the sum of production of 25 years.
According to the above the average interest cost per tone of coal works
out to Rs. 90.03 as against Rs. 1010.26 FR. The decrees in interest cost per
tone are due to change in methodology of computation of interest. In the
present updating the interest a calculated on an average basis for 25 years on
the assumptions that the loan outstanding gradually declines on re payment of
loan, whereas in FR. The decreasing interest cost per tone on the total loan
with out considering loan payments. The working shown in annexure No.XX.
DEPRECIATION:
The capital head- wise depreciation is a summary from is shown in
Annexure no. XXI. The depreciation is calculated on a straight-line basis
considering the normal useful life of each and every item separately and

68

allowing 5% scrap value in the plant & machinery and vehicles.

The

depreciation cost per tone of coal works out to Rs. 126.96 as against the
depreciation cost of Rs.66.89 considering in original FR.

The annual

depreciation cost on an average works out to Rs.2539.20 lakhs. The workings

are shown in Annexure No.XXI.
AVERAGE SELLING PRICE:
The is proposed to be extracted from 3seem viz. Top seam, middle
seam and bottom seam. As per the UHV of coal the top seam falls in F grade,
middle seam falls in F grade a d bottom seam falls in E grade. As the
extraction of coal goes on simultaneously the mix of coal of the different seam
falls in E grade.

As such the selling price corresponding to E grade is

considered in viability calculation.

The ratio of round and slack is assumed to be in 60:40. Further the
transportation cost is added to the sales realization to arrive at the total
realization from the customer, as the distance between pit mouth and (HP.
Where the total coals is delivered to customer, it more than 3KM. the average
selling price for this project works out to Rs. 395.17 per tonne of coal.

CROM Selling price of E grade

=Rs. 382.20/T

Reimbursement of transportation cost

Average for 4th &5th year

=Rs.12.97/T
-------------------------

Total realization per tone

Rs. 395.17/T
--------------------------

69

The grade-wise extra action and year wise sales realization are shown in
annexure no.XXII.
PROFITABILITY ANALYSIS:
The financial viability of the project is evaluated both at 100% and
X5% capacity utilization under two variants, viz., SCCL debt-equity ratio if
3.68:1 and National debt-quit ratio of 1:1 is given below:
Sl.No Particulars

Sccl

de

1
2
3

Performance level
Production (MT)
Cost of production (Rs)
Avg.sale 17 realization

3.68:1
100%
20.00
447.83
395.17

(Rs)
Profits/loss (Rs.335.89)

(-) 52.66

Ratio

of National D-E Ratio of

1:1
100%
20.00
412.31
395.17

85%
17
380.66
335.89
(-) 44.77

85%
17
358.1
335.89

(-) 26.14 (-) 22.22

FINANCIAL IRR:
Based on the year wise flow of capital cost. Replacement and operating cost
together sales realization, the initial ratio of return is worked out is rated capacity.
Sl.No
1
2

Particlulars
Performance IvI
Finance IRR%

As per FR Mach, 2008

100%
85%
3.918
3.32

SENSITIVITY ANALYSIS:
As it is financially the project loses heavily at 12% discount rate. As the table
15.2 indicates, the project is vulnerable for escalation in costs. The project yields a
return of 6.42% with the total cost escalation in by 10% over the base ease.
Base case

Finance

Economic

1. With a 10% increase in fixed cost.

499.26

428.170

2. With a 10% increase in variable cost

70

522.39

447.09

3. With a 10% increase in total cost

549.18

467.61

Note: figures in the brackets are IRER.

BREAK EVEN PRODUCTION:
The break-even production is how that the project is at no profile, no
loss at 24.40 LT s production per annum.

ENVIRONMENTAL MANAGEMENT COST

Along with the coal production and welfare of the coal mining society. The
protection to the environmental has also been given due with due age. As per the
various
Measures provided for keeping the environment is good state. The revenue nature
costs expected to incur on EMP have been estimated separately vide annexure no.
XXXIV to indicate the impact of emp on cost of operation of the project.
ORGANISATION FOR ENVIRONMENTAL MANAGEMENT:
An organization headed by project office manager along with supporting staff
and workmen has been providing in the estimates for effective implementation for
environmental control measures.
JUSTIFICATION:
Coal deposit is amenable for open cast mining because of shallow depth.
Gradient in GKOCP is favorable for deployment of surface miner. Open cast method
of work provides better recovery of coal and reduce gestation period. In yellandu area
polampally underground mine was closed & yellandu OC-II is likelyto be closed with
in next four years.
RISK FACTOR ANALYSIS:

71

1. While estimation the extractable reserves care has been taken to reduce
the quantity so that only is extracted.

72

2. It is provided to divert the nalahs along the periphery of the blocks adequate
protection, in the from of bund, will be made gains the diverted nallahs
adequate pumping arrangement are provide. Also regular monitoring will be
done during rainy season.
STATEMENT SHOWING FINANCIAL VIABILITY:
The workings relating to financial violability have also been updated taking
the various norms and costs prevailing in the third quarter. TIK summary of the
viability analysis in comparison with original FR is given below.
1
2
3
4
5
6
7
8

Debt-equity ration
Performance level
Cost of Prod. Rs/t
Avg. sales realization Rs./T
Profit/Loss Rs.T
IRR on equality (%)
Financial IRR (%)
NPV(lakhs)

FR
2.31:1
100% 85%
287.89 324.34
312.20 312.20
+24.31 -12.14
29.96
24.61

As peruse
3.68:1
100% 85% 100%
58%
447.83 499.32 421.31 468.13
395.17 395.17 395.17 395.17
-15.66 -104.15 -26.14 -72.96
-5.33 -8.70 -2.84 -6.69
+3.46 0.19
+3.91 1.24
-10363 -12344 -9362 -11208

The above table indicates that the project yields negative IRR on equity at both
SCCL debt equity ratio and 1:1 debt equity ratio.

73

STATEMKENT SHOWN THE DETAILS OF PRODUCTION, SALES

REALIZATION AND OVERBURDEN REMOVAL AT 100%
PERFORMANCE
LEVEL
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Total

Coal
Production
0.5000
1.000
1.000
1.000
1.500
1.500
1.500
1.504
1.500
1.500
1.500
1.500
1.500
1.500
.948
19.452

SALES
crores
34.700
69.400
69.400
69.400
104.100
104.100
104.100
104.378
104.100
104.100
104.100
104.100
104.100
104.100
65.791
1349.97

Rs. OB M.com
7.659
10336
8.798
8.600
9.821
8.372
8.204
8.826
10.969
13.252
13.136
13.456
12.324
9.270
1.853
144.873

CHAPTER V
74

OBR cost Rs
crores
34.027
54.708
35.336
35.193
43.095
40.790
40.790
48.440
58.810
75.981
75.804
80.822
71.780
45.607
8.690
749.47

FUTURE
OF THE
PRESENT UPDATING

FUTURE OF THE PRESENT UPDATION

The futures of present updating at a glance are given here under.
1. Original feasibility report was prepared and the present updating made
with the costs prevailing in last quarter. The time lag between the two
periods is about 4 and half years.
2. The building cost index now considered is 600 in place of 400 adopted in
the FR
3. The landed cost of HEMM and other ancillary machinery is updated on the
budgetary prices obtained from BEML for major HEMM and CPMIL
latts price list for the balance plant and machinery.
4. The ruling Debt-Equity ratio of 3.68:L1 is adopted in place of 2.32:1

75

5. The rate of interest on long-term loans and the working capital have gone
up form 15% to 17% and 16.5% to 22.25% respectively.
6. The wages cost has been updated taking into account the NCW A-IV JH
executive pay revision scales, other allowance and VDA 1195 points as
against 753 points of original corresponding to FR.
7. The latest power tariffs viz. Rs. 75/- per KVA months and Rs. 1.89/- per
unit of power have been considered as against Rs. 36 LK months and Rs.
0.82 per unit of power adopted in original FR.
8. The interest on loan capital is worked out an average principle in that
present updating as against peak interest rule followed in original FR.
9. The revised selling price including transportation charge of Rs. 395.17/T is
adopted in place of old selling price of Rs. 312.20/T
10. As a result of above changes the capital cost of project has gone up to Rs.
403.67 crores from Rs. 193.22 crores.
11. The cost per tone of coal has increased from Rs. 287.98/T to Rs. 447.83 at
100% performance and from Rs. 324.34/T to Rs. 499.32 at 85%
performance level.

76

Computation of Pay Back Period:

The Payback Period is the

method in which we will know that, in how many years invested money will
recoup. So, let use this technique and find out the Pay Back Period.

YEARS

CASH FLOWS
AFTER TAX
(CFAT)

CUMULATIVE
CFAT

89.31

89.31

101.11

190.42

111.61

302.03

104.91

406.94

98.28

505.22

91.36

596.58

84.08

680.66

76.38

757.04

757.04

The Initial Investment is 323.00 lakhs, which is covered in 4 th

year. So, we take 3rd year in the calculation of Payback Period
(PBP):
323 - 302.03
Payback Period = 3rd Yr. + --------------406.94
Payback Period = 3rd Yr. + 0.05 = 3.05 Yrs.

Interpretation:
The Payback period is 3.05 Yrs. It is less than sanctioned period
i.e. 8 Yrs.
So, it is accepted.

77

Computation of Average Rate of Return:

The ARR

method of appraising a capital project is to estimate the accounting rate

of return that the project should yield

PROFIT
AFTER TAX

YEAR
1

54.28

70.90

85.54

4
5

82.40
78.83

74.55

69.53

63.78
579.81

Average Profit After Tax

Average Rate of Return = --------------------------------------- x 100
Annual Average Investment
Total of Profit After Tax
Average Profit After Tax = -------------------------------Total No. of years
579.81
Average Profit After Tax = ----------- = 72.48
8 Yrs.
323.00
Average Initial Investment = ----------- = 161.5
2
72.48
Average Rate of Return = --------- x 100 = 44.87 %
161.5

Interpretation:

78

The ARR is 44.87%. It is higher than target rate. So, it is

accepted.

Computation of Net Present Value:

. It shows that you are making

more money on the investment than you are spending on your cost of capital.

YEARS
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000

CASH FLOWS
AFTER TAX
(CFAT)
89.310
101.110
111.610
104.910
98.280
91.360
84.080
76.380
757.04

PV @
10%

PV of CASH
INFLOWS

0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.466

81.183
83.517
83.819
71.654
61.032
51.527
43.133
35.593
511.457

NET PRESENT VALUE = PRESENT VALUE OF CASH INFLOWS

PRESENT VALUE OF CASH OUTFLOW

NET PRESENT VALUE = 511.457 323.00 = 188.457.

Interpretation:
The NPV is 188.457. It is greater than 0. So, it is accepted.

79

Computation of Internal Rate of Return:

The internal rate of

return can be defined as that rate of discount at which the present value of
cash inflows is equal to the present value of cash outflows

YEARS
1
2
3
4

CASH FLOWS
AFTER TAX
(CFAT)
89.31
101.11
111.61
104.91

5
6
7
8

98.28
91.36
84.08
76.38
757.04

Initial Investment
Fake Pay Back Period (FPBP) = -------------------------------------Average Cash Flow After Tax

Total of Cash Flow After Tax

Avg. After Cash Flow After Tax = ---------------------------------------Total No. of years
757.04
Avg. After Cash Flow After Tax = ----------- = 94.63
8 yrs.
323.00
FPBP = ----------- = 3.41
94.63

80

The above 3.41rate indicates between 24% and 25% in Net Present worth
table. So, let us calculate the CFATs at 24% and 25% Present Values.

CASH FLOWS
AFTER TAX
(CFAT)

PV @ 25%

89.31

0.800

71.448

101.11

0.640

64.710

111.61

0.512

57.144

104.91

0.410

42.971

98.28

0.328

32.206

91.36

0.262

23.945

84.08

0.210

17.632

76.38

0.168

12.817

YEARS

CFAT @25% PV

757.04

322.874

At the rate of 25% the CFAT is about 322.874, which is less than initial
investment.
CASH FLOWS
AFTER TAX
(CFAT)

PV @ 24%

89.31

0.806

71.984

101.11

0.650

65.722

111.61

0.525

58.539

104.91

0.423

44.366

98.28

0.341

33.523

91.36

0.275

25.133

84.08

0.222

18.649

76.38

0.179

13.664

YEARS

CFAT @ 24% PV

757.04

331.581

The lower rate is 24% the CFAT is about 331.581, which is higher than initial
investment. Now, let us calculate the IRR value:

81

PV of lower rate is 24% the value is 331.581

PV of higher rate is 25% the value is 322.874
Initial Investment is 323.00
PV of cash inflows at lower rate - PV of cash outflows
IRR = Lower rate + ------------------------------------------------------------------------(hr-lr)
PV of cash inflows at lower rate PV of cash inflows at higher rate

331.581 323.000
IRR = 24 + ------------------------- - x ( 25-24)
331.581 322.874
IRR = 24 + 0.986 = 24.986

Interpretation:
The IRR is 24.986. It is greater than cost of capital i.e. 12%. So, it is
accepted.

82

Computation of Profitability Index:

It is also a time-adjusted

method of evaluating the investment proposals.

YEARS
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000

CASH FLOWS
AFTER TAX
(CFAT)
89.310
101.110
111.610
104.910
98.280
91.360
84.080
76.380
757.04

PV @
10%

PV of CASH
INFLOWS

0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.466

81.183
83.517
83.819
71.654
61.032
51.527
43.133
35.593
511.457

PV of cash inflows
Profitability Index = -----------------------------PV of cash outflows
511.457
Profitability Index = ------------ = 1.58% rounded of to 2%
323.000

Interpretation:
The PI is 2%. It is greater than 1. So, it is also accepted.

83

CHAPTER VI

CONCLUSIONS
&
SUGGESTIONS

84

CONCLUSION
As the companies debt- equity Ratio is varying from year to year.

The

viability of the project is also determined in me: I notional DIE ratio, to compare the
project decision. In I: I debt Equity Ratio, the project is viable as the project yields
Financial IRR of 3.91% crores. The project is forwarded for appraisal and sanction
by GOI for Rs.403.67 crores. At the present SCCL debt-Equity ratio of 3.68: 1 is
adverse compared to the 2.32: 1. The interest burden is high thereby the project yields
only 3.46% IRR, which is less than the 12% designer in spite of this the project is
required to be executed in view of other economic consideration such as:
i.

Gap between supply and demand of coal especially in southern region.

ii.

Nearness of Vijayawada TPS with established road and railway line

communication system.

iii.

Faster rate of recovery of coal by open size technology

iv.

Economic strength the project based border-pricing method etc.

85

SUGGESTIONS

From the above conclusions drawn the following suggestions are proposed.
1. Company should meet its credit obligations regularly and more amounts
hold be paid towards loan installment to reduce are debt component.
2. GOI should give budgetary supports to generate internal sources and avoid
delay in sanction of new projects.
3. A revision/ revival in the estimated cost should be minimized.
4. Revision of selling price of coal/tones is essential & when the cost inputs
are increased otherwise the project will incur losses when they art
executed.
5. While making an estimate of the expenditure to be spent should be
fluctuate. Projects the portion of revenue clearly mimed & should not.
6. Delays in commissioning projects should minimize.

86

BIBLIOGRAPHY

1. IM PANDEY

CAPITAL BUDGETING

2. PRASSANNA CHANDRA

FUNDAMENTALS OF
CAPITAL
BUDGETING

3. S.N.MAHESWARI

CAPITAL BUDGETING
(PRINCIPLES & PRACTICE)

87