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The term Capital Budgeting refers to long term planning for proposed capital outlay and their financial. It includes raising long-term funds and their utilization. It may be defined as a firm‟s formal process of acquisition and investment of capital. Capital budgeting may also be defined as “The decision making process by which a firm evaluates the purchase of major fixed assets”. It involves firm‟s decision to invest its current funds for addition, disposition, modification and replacement of fixed assets. It deals exclusively with investment proposals, which is essentially long-term projects and is concerned with the allocation of firm‟s scarce financial resources among the available market opportunities. Capital budgeting is concerned with allocation of the firm‟s scarce financial resources among the available market opportunities. The consideration of investment opportunities involves the comparison of the expected future streams of earnings from a project with immediate and subsequent streams of expenditure for it. In any growing concern, capital budgeting is more or less a continuous process and it is carried out by different functional management etc. All the relevant functional departments play a crucial role in the capital budgeting decision is considered. The role of a finance manager in the capital budgeting basically lies in the process of critically and in-depth analysis and evaluation of various alternative proposals and then to select one of these. As already stated, the basic objectives of financial management is to maximize the wealth of the
Share holders, therefore the objectives of capital budgeting is to select those long term investment projects that are expected to make maximum contribution to the wealth of the shareholders in the long.
Need for the study:
1. The project study is undertaken to analyze and understand the Capital Budgeting process in Dr.Reddy‟s Laboratories Ltd, CTO3 which gives main exposure to practical implication of theory knowledge. 2. To know about the organization‟s operation of using various Capital budgeting techniques. 3. To know how the organization gets funds from various resources. 4. Capital budgeting is applicable in company to evaluate the long term project. 5. The study is helpful for Dr.Reddy‟s Laboratories ltd to know the profitability of the project. 6. Capital budgeting is useful to evaluate and take long term decisions. 7. Accept and reject the proposal depends on capital budgeting decisions. 8. Capital budgeting decisions are highly effect to change the future destiny of the company.
Objectives of the study:
The main objectives of capital budgeting arises mainly due to the following:
1. To Analyze the Capital Projects by using Discounted Techniques & Non discounted Techniques of Dr.Reddy‟s Laboratories Ltd, Hyderabad.
2. To study the capital budgeting Decision criteria & procedures followed in Dr.Reddy‟s Laboratories Ltd, Hyderabad.
3. To evaluate the financial viability/feasibility and profitability of Dr.Reddy‟s Laboratories Ltd, Hyderabad.
4. To Asses the effectiveness of long term investment decisions of Dr.Reddy‟s Laboratories Ltd, Hyderabad.
Methodology of the study:
Methodology is a systematic process of collecting information in order to analyze and verifies a phenomenon. The collection of data is two principle sources. They are discussed as 1. Primary data 2. Secondary data
Primary data: The data is collected through the interactions with financial manager of the organization and other employees in the finance department.
Secondary data: The secondary data was be collected through various journals, newspapers, websites, magazines etc., and also collected from various files & records of Dr.Reddy‟s Laboratories.
The procedure has completed with the available data with us. 2. The period of study that is 8 weeks is insufficient to conduct study of the project. The study is carried basing on the information and documents provided by the organization. 3.Limitations of the study: The following are the limitations of the study: 1. -5- .
Despite a growth rate of 7% down sliding from 2004 and the lowest since 1998. The global pharmaceutical market is enforced to grow to US$ 842 billion in 2010.7% down from 7. The industry is primarily privately owned and is technologically sophisticated. Russia and Turkey experienced double-digit growth signaling an important occurring in the pharmaceutical industry. Emerging markets such as china. There were sixteen blockbuster drugs in 2005 generating combined sales of US#l8.INDUSTRY PROFILE The global pharmaceutical industry is a multinational industry that is a highly regulated. capital intensive. audited was just 5. industry attention shifting to smaller developing markets that are doing exceptionally well. in2005 the global pharmaceutical sales reached US$602.Among the ten leading international markets combined. Of the leading product classes in 2005.1 billion.9% over the next five years. Brazil. South Korea. Many of those developing nations are experiencing significant gross domestic product a access and fuels the double digit growth access and fuels the double digit growth -6- . The total pharmaceutical sales from the companies accounted for more than 40% of the total market. cytostatics and angioteusin-II inhibitors generated the greatest year on year growth. which account for 81 % of world wide sales. and which is driven by large research and development expenditures. The strong growth in ten European market that joined the European Union in 2004 will help to boodt European sales over the next five years. an equivalent CAGR of 6.2% in 2004. As growth ill the mature markets flatten.
Growth in the global pharmaceutical industry is expected to slow in2008. This place is down from growth of 6-7% in 2007. CT). China.' These seven emerging markets ( Brazil. senior vice-president of Healthcare insights at IMS Health. marking a historic low for the US market. „In several respects. Russia. Pharmaceutical measures are gearing up to the challenges of meeting the unmeet needs of these markets. The global pharmaceutical market is projected to increase between 5 and 6% in 2008 to research $735-745 billion.. while seven emerging markets will contribute nearly 25% of growth world wide. according to IMS Health(Norwalk. the seven largest markets will contribute just half of overall pharmaceutical growth. And 2008 will see continued growth generic and specialty drugs. in a company release. At the same time. Mexico. 'For the first time. 2008 marks an important inflection point for the global pharmaceutical market‟. sales growth in 2008 is projected at 4-5%. according to IMS. says Murray Aitkin. In the US and the five largest European markets. pharmaceutical industry growth in emerging markets is expected to reach double-digits. South Korea and Turkey) are expected to grow 12-13% next year to $85-90 billion according -7- tIMS. although these markets still represent a small percentage of global pharmaceutical sales. marked by slowing growth in the United States and other major markets. .
About a third of India's production . while the rest is accounted for by large number of small companies. Russia. The revenues generated by the industry are approximately US47bn and have grown at an average rate of 10% over last five years. The largest formulation players occupies market share of less than 6%. The top ten companies make up for more than a third of the market. the UK. Half a billion dollars worth of exports is to the US alone. Europe and Japan follows next. Italy and Japan are among others.India Pharmaceutical Industry: Global pharmaceuticals market is of US$500bn growing at about 9% a year with North America as the largest market accounting for almost half the total global sales. while Germany. India currently accounts for less than 8% of the world's pharmaceutical consumption and is the fifth largest producer of Pharmaceutical products in the world. The Indian pharma industry accounts for about 1 % of the world's pharma industry in value terms and 8% in volume terms.close to US$3. -8- . Canada. The industry manufactures about 400 bulk drugs and almost the entire range of formulations. USA is also the largest generics market in the world estimated at around US$17bn and growing at about 14%.000 players around 330 in the organized sector and remaining in the unorganized sector.5 billion . Pharmaceutical industry in India is highly fragmented with about 24. The industry comprises large. medium and small-scale operates out of which some 330 companies‟ together account for nearly 90 percent of the domestic market.is exported and exports are growing at 25% per annum.
00 428.00 487.00 2055. Crore) 1 2 3 4 5 6 Ranbaxy laboratories Ltd. marked the beginning afresh chapter in the industry„s evolution and India has finally transited into product patent regime from process patent.00 1341. The top 10 Indian companies in terms of Turnover are: S.00 767.00 Turn Over (US million) 987.00 273.00 1172.00 287.No Company Name Turn Over (Rs.Reddy‟s Laboratories Nicholas Primal India Ltd Aurobindo Pharma Ltd.00 312.00 1440.00 1839.The signing of the trade related intellectual property rights(TRIPS) agreement in 1995.00 178.00 289.00 335.00 -9- . which committed India to honor the WTO mandated product patent regime from 2005.00 Ltd. Cipla Ltd Dr.00 GlaxoSmithKline Pharmaceuticals 1242. 4243.. 7 8 9 10 Lupine Ltd Cadila Health care Ltd Sun Pharmaceutical Industry Ltd Woekhardt Ltd 1233.
Its plant in Toana. which id the largest manufacturer of antibiotics. Punjab. The company went public in1973 and began the first of its several strategic al1iances through a joint venture in Nigeria in 1977. . Technology services Ranbaxy Laboratories: Estimated in 1961 . The company has strong growth rates with an expanding international presence in the USA. Ranbaxy leverages its Indian competitiveness into global markets. Germany. Ranbaxy had opened its third state-of-art R&D 'facility in India and also entered the Canadian market. Brazil etc. Ranbaxy Laboratories is India' largest pharmaceutical and ranks 9th world wide as a generics drug manufacturer.Hamid in1935. France. India.10 - . A Mumbai-based company currently Cipla is leading domestic Indian Pharmaceutical company with a market share of about and crossed Rs20 bn mark in revenues during FYO4.A. got US FDA approval in 1988. Formulations 2. China. The Ranbaxy research foundation was initiated in 1985 and several more production facilities were in place by 1987.Major players: Cipla Limited: The chemical industrial & pharmaceutical laboratories which came to be popularly know as Cipla was founded by Dr K. UK. Cipla‟s businesses are broadly divided into the following segments: 1.By 2005. Bulk drugs & intermediates 3.
gynecological.11 - . the major areas of research being inflammation and metabolic disorders. 2. 3. Glen mark Pharmaceuticals Limited: Glen mark Pharmaceuticals Limited was established in 1977 in Mumbai (India) and listed on the Indian bourses in 1999. kurkumbh and Sholapur and its generic formulation is located at Goa. pediatrics. Radically improve the productivity. It has presence in over ten therapeutic segments with a strong product portfolio in dermatology. With an overall market . It is ranked first by general/consulting physicians and general surgeons.Ranbaxy Laboratories Limited has managed to lead the industry and strengthen its global presence by successfully implementing the following Marker Business modes: 1. manufacturing and marketing of Branded Generic and Generic Drug Formulations and API (active pharmaceutical ingredient). The success factors of Glen mark include Leveraging strategic partnerships and product development with the API advantage. Glen mark is a key player in the development. GlaxoSmithKline (GSK): It is number one prescription generator in India. The company is actively engaged in New Drug Discovery Research. Make a Land Grab. anti-diabetes. Baddi and Nasik. Capitalize one second order effects of shifts in constraints.
gastroenterological. with a market share of 3. 3.5percent. Cadila Healthcare Limited: Cadila Healthcare Limited the flagship company of the Ahmadabad based Zydus group. It enjoys the highest sales force among global MNNs in India. Manufacturing and marketing of domestic formulations. It is also a leading producer of bulk drugs. GSK's coverage span over 9 segments. the company has held a leading position in the Indian market for over last two decades. with top ranking in 8 out of 12 doctor segments.12 - . anti-inflammatory. 2. The company‟s activity comprises of: 1. analgesic.share of 6.Pankaj Patel. ant allergic and dermatological (corticosteroids) segments. comprises of nine subsidiaries and two 5 companies namely Zydus Atlanta and Sarabhai Aydus. The company headed by Mr. It is the leader in anti-infective.85%. sarabhai zydus is the leading animal health care company in India. Manufacturing bulk drugs and API. While Aldus Atlanta manufactures intermediaries of pantoprazole and conducts clinical research on new molecules. . Chairman&MD. is one of the top five pharmaceutical companies in the domestic formulations market. Contract manufacturing services.
It operates in over 60 countries. The company is already strongly present in most of the world's biggest less-regulated markets. balancing equipment. The scope of capital budgeting also includes expenditure on plant betterment. 2005. provides the basis for procurement of funds from Management. Dr Reddy's is also an innovator in the use of venture capital to maintain cash-flow for R&D. the firm reported revenues up 14percent to $387.13 - .Reddy's Laboratories: It is an emerging global pharmaceutical and biotechnology company. although India and the USA each accounts for around a third of the firm's total sales. the budget. having received$57 million from ICICI Venture Funds to support ANDA filings for 18 months beyondFY2005 for royalties from sales in the USA. which was founded by Chairman Anji Reddy in 1984. and renovation. including annual Capex plan and provides long term plan for the application of internal resources and debt servicing translated into the corporate plan. The budgeting exercise in Dr Reddy‟s also covers the long term capital budgets. Brazil and South Africa. Capital budgeting in Dr. Utilities up gradation capital additions and commissioning expenses in trial runs generating units. For the nine-month period to December 31. such as Russia. .4 million. besides meeting the essential requirements of the managerial control.Reddy‟s: The budgeting process in Dr Reddy‟s is designed for performance budgeting for the construction phase. China.Dr. which includes commissioning activities. driven by sales of APIs and branded formulations.
3. . 2. Objectives of Capital Budgeting at Dr Reddy‟s: The Capital Budgeting practices of Dr Reddy‟s are based on the following objectives: 1. To introduce and operate responsibility accounting by which manager are responsible for achievement of specifies targets with the resources allocated for the purpose. 8. to asses long term requirements of funds and plan for application of internal resources and debt servicing.14 - . To bring about effective co-ordination of all activities of the organizations and to gear up service division to meet effectively the requirements of projects. 4. To achieve cost control and to identify and account for cost over runs and to analyses contributory factors into deviation and cost exclamation etc… 5. to products a basis for assessing international assistance for finance of outlays.To prepare annual budgets in such a manner that managers at various levels in the organization carry periodical exercises to identify physical target in respect of reach contract or responsibility center and matching resources broken up into monthly targets or programs and cash flows. 7.root level. To establish a close link between physical progress and monitory outlay and to inculcate the culture of planning and target setting a grass.In Dr Reddy‟s some cost control techniques have been incorporated added to monitor and control the cost of projects within the amount of sanctioned by the Management. Additional budget format have been included to plan fund requirement for research and development activities and preliminary survey on NCE. 6. To provide the basis for plan allocation and budgetary support by the government.
Capital Budgets For Plant Betterment’s/ Renovation/ Balancing Equipment’s /Capital Additions: Schemes covered under this head should also be included in the capital budget both in the annual plan as well as in the long term capital budget and they should be submitted to central Government. 2. Evaluation for setting up of Solvent recovery System. These also include schemes for which survey and investigation is in progress for preparation of feasibility reports. 3. Capacity up gradation for Parasols. 3. Some of ongoing or Continuing Projects: 1. Approved and Ongoing Schemes: These projects are basically Product oriented and. Facility up gradation. 2. which have been approved by certain regulatory authorities over the globe. Research and Development Budgets: Capital expenditure for establishment or construction of research and development laboratory and facilities are normally financed from plan outlay from Science and Technology budget. New Unapproved Schemes: These include schemes for which feasibility reports are under preparation or have been submitted to government of India for their approval. Esomeprazole Magnesium Project. 4.15 - . 4.Scope of capital budget in Dr Reddy’s: 1. .
At the time of review of budget estimates to frame revise estimates.16 - . New schemes: In the case of new schemes yet to be approved by government. 6. the budget estimates earlier framed for the current year are reviewed thoroughly and updated in the form to be reviewed on monthly and quarterly basis by project Review. budget provision should be based on project estimates in feasibility report schedules and payment terms for similar contracts for continuing schemes should also be traces into account. funds for balance period are broken up into monthly phasing. While drawing up the Capes budget before commencement . Teams in the light of actual expenditure and projections in the budget period.5. The long-term capital budget indicates and phasing of capital expenditure and physical schedules. The budget is to be drawn up for the ensuring financial year in the form of Budget Estimates. At the same time. the long term capital budget for ongoing and new schemes is to be formulated as part of the exercise for preparation of Budget. Budget estimate also indicate monthly phasing of expenditure and targets for this first of half of the year and quarterly phasing for the second half of the year. Budget Period and Phasing: The budget period for these budgets corresponds with the year. resources based network internal generation of resources and net budgetary support required till the completion of each project. Capital expenditure decisions in Dr Reddy‟s: .
payback period. weaknesses. 3. Building is available without sacrificing any product. The manual recommends the computation of NPV at a cost of capital/discount rate specified from time to time. A single discount rate should not be used for all the capital budgeting projects.It suggest the use of various projects evaluation techniques. Analysis of capital budgeting in Dr Reddy‟s: This Proposal is to set up facility for manufacture of a new drug. The project should be appraised from the perspectives of technical feasibility. In brief. such as return on investment (ROD. Critical path Method (CPM) and strengths. Facility will be constructed in available structure with suitable modifications and civil finishing.17 - . opportunities and Threats (SWOT) Analysis. Advantages: 1. 2. and commercial profitability and financial soundness. discounted cash flow (DCF) Evaluation and Review Technique (PERT). . the objective of the manual is to provide a systematic. economic viability. pragmatic and comprehensive method of project planning and appraisal. Different discount rates should be used for different projects having different risks: the projects with higher risk should be subject to the higher discount rate. for supplies directly from bulk units. New drug 30 is manufactured in this unit.
Scope for expansion on service floor. API Operators will be require to trained in operations. The job involves key operations like material drug coating and operation of fluid bed processor. Disadvantages: 1. May not possible to expand without major modifications or separateBlock. Non-Flameproof equipments-area classifications may not be met with 100%. . Process development of low cost pellets: 1. 3.3-4 weeks of training will be sufficient. Operational requirements of this project on execution: 1.18 - . 6. 2. Use RM Consumption and makes of expedients as used by our contract manufacturing. Thus additional manpower is required. 2. Availability of Built up area. Process will be developed with suitable alternative aqueous Coating materials. 5. Process Development to offer low cost pellets formula with fluid bed Processor (FBP) Technology. QC Support is available with some augmentation in future. 2. which will be done during the process of project executions .4.
The basic research program of Dr.19 - . diabetes. entrepreneur . in 1984 the DNA of the company. manufactures and markets a wide range of pharmaceutical products India and overseas. The company develops. The company is focused on creating and delivering innovative and quality products to help people lead healthier lives. is drawn from its founder and his vision to establish India‟s first discovery led global pharmaceutical company in fact. kits. diagnostic. critical are and biotechnology products.scientist.COMPANY PROFILE An over view of organization: Dr.Reddy‟s is the research based company with vertically integrated operations. Dr. Reddy‟s laboratories was founded by Dr. bacterial infections and pain. it is this spirit of entrepreneurship that has shaped the company to become what it is today. . Anji Reddy. active pharmaceutical ingredients. Dr. Reddy‟s produces finished dosage forms. Reddy‟s focused on cancer.
Reddy‟s Laboratories with $40.1947 cores (US$446million) as of fiscal year 2005. is Indian‟s second largest pharmaceutical company and the youngest among its peer group. The company is already strongly present in most of the world's biggest less-regulated markets.Reddy's Laboratories is an emerging global pharmaceutical and biotechnology company.000 in bank loan! Today. starter Dr. Dr. It operates in over 60 countries. Since its inception in 1984. Dr. Reddy‟s has chosen to walk the path of discovery and innovation in health sciences Reddy‟s has been a quests to sustain and improve the quality of life. which was founded by Chairman Anji Reddy in 1984. Dr. All this has been possible because of our innovative and sustained marketing efforts. and they. Reddy‟s having moved out of standard organics limited. the company with revenues of Rs. such . a company he had successfully co-founded.000 in cash and $120. Reddy‟s generic formulations have also become very popular in quality-conscious regulated markets such as the US and Europe.20 - . heaves had nearly two decades of creating safe pharmaceutical Solutions with the ultimate purpose of making the world a heather place. healthier and more productive lives. We are all set to spread pure wings further and touch more lives across the globe. although India and the USA each accounts for around a third of the firm's total sales.Dr. Reddy‟s create and deliver innovative pharmaceutical health care solutions that people enjoy longer.
Despite its size. This is the largest overseas acquisition by an Indian pharmaceutical company so far. It is now looking towards expansion in Spain. This is currently being felt in the USA and shrinking business there. Brazil and South Africa. Germany's fourth-largest generics manufacturer. although it is active in the UK pure generics market. the world's second-largest after the USA. Dr Reddy's is also an innovator in the use of venture capital to maintain cash-flow for R&D. led by growth of 34 percent in India and 35 percent in Russia). . not through building a business organically there but with the purchase of Beta harm. driven by sales of APIs (up 48 percent in the third quarter and19 percent in the first nine months) and branded formulations (up 34 percent in the third quarter.4 million. Dr Reddy's made history in February when it entered the German branded generics market. Satish Reddy from Dr Reddy's is still optimistic about prospects in the USA. France and the rest of Europe. This will be presented there by patent expiries on major products going forward to 2010.21 - . for $570 million. For the nine-month period to December 31. pointing to the huge opportunities. the German generics market is not experiencing the pricing pressure. Dr Reddy's did not have a presence generally in the European branded generics market. the firm reported revenues up 14percent to $387.as Russia. having received$57 million from ICICI Venture Funds to support ANDA filings for 18 months beyondFY2005 for royalties from sales in the USA . China. 2005. and also to rolling out its existing product range in major regulated markets including Australia and New Zealand.Before the Beta harm purchase.
Reddy‟s played a major role in pioneering the technology and production of „sulphamethonazole „an anti bacterial in India. In 1981. Dr. . after gaining six years of experience in the manufacturing and implementation of new technologies in bulk drugs from public sector company IDPL. Hyderabad. There were only a couple of –pharmaceutical company„s at that time with the capacity to develop newer drugs bit they would not sell the bulk to other formulators. Another dream was to do it on his own. Based on the work done in these laboratories he constructed a plant in 1976 to manufacture. In 1975. drug called „metrodinazole‟ for the treatment of amoebic dysentery the drug became a hit. as managing director of standard organics Ltd. Reddy‟s aim was to develop and manufacture a wide spectrum of bulk drugs to enable the pharmaceutical industry to launch their formulations.The Making of Dr. Reddy‟s started the construction of uniloids of which he was the founder-managing director it was here that they made a move that was to become the hallmark of the group in the years to come.22 - . Dr Reddy‟s decided to start up basic drugs unit at that time there were few other players in the private sector at that end of the pharmaceutical value chain. This move was first to construct and stat R&D laboratory ever before commencing the construction of the plant. because that was the time that his second experiment with partnership was also crumbling. Dr. Dr. for the first time in India.Reddy’s: In 1973. Here.
Reddy‟s pioneered drug discovery in India. 2001) is only one among then. Dr. Reddy‟s chose to do it in the most difficult of circumstances against widespread skepticism. Anji Reddy‟s is well known for his passion for research and dug discovery. Being the first pharmaceutical company from Asia Pacific (outside Japan) to be listed on the New York Stock Exchange (on April 11. The process and production of methyldopa was the ultimate challenge.Reddy‟s came up trumps not only having its stock oversubscribed but also becoming the best performing IPO that year.He realizes his dream shortly thereafter. Dr. Dr. then the established Dr. inspirer of the complicated nature of the process for it and within a matter of 6 months the company was ready to manufacture the drug. Dr. And as always. Chemists at Dr. Dr Reddy‟s started its drug discovery programmed in 1993 and within three years it achieved its first break through by out licensing an anti – diabetes molecule to Novo Nor disk in March 1997 With this very small but significant step. There are several such inflections points in the company‟s evolution from a bulk drug (API) manufacturer into a vertically integrated global pharmaceutical company today.23 - . The company has several distinctions to its credit. Reddy‟s laboratories in 1984. the company manufactures and . Reddy‟s stream limed and simplified the unit process for it. the Indian industry went through a paradigm shift in its image from being known as just „copycats‟ to „innovators‟! Through its success. Today.
is known globally for its proven high quality-low cost advantage in delivering sage effective pharmaceuticals. . Reddy‟s Laboratories. And when it does that. the company continues its relentless march forward to discover and deliver a breakthrough medicine to address an unmet medical need and make a difference to people‟s lives worldwide. a tough and often-perilous one. in addition to having a very promising Drug Discovery Pipeline. Reddy‟s started its first big move in 1986 from manufacturing and marketing bulk actives to the domestic (Indian) market to Manufacturing and exporting difficult-to-manufacture bulk votes such as Methyldopa to highly regulated overseas markets. When Dr. was made possible thanks to the pioneering efforts of companies such as Dr. Leveraging on its „Low Cost. This transition. Today. around the clock. Dr. Taking on new challenges and groaning stronger and more capable. „Even 1000milejourney starts with a single step. it would only be the beginning and yet it would be the most important step. the Indian Pharma industry. in stark contrast. As Lao Tzu wrote a long time ago.markets API(Bulk Actives). Each failure and each success renewing the sense of purpose and helping the company evolve with over 950 scientists working across the globe.24 - . Today. Foraying into new markets and new businesses. High Intellect” advantage. it had to not only overcome regulatory and legal hurdles but also battle deeply entrenched mind-set issues of Indian Pharma being seen as producers of „cheap‟ and therefore „low quality‟ pharmaceuticals. Reddy‟s continues its journey. Finished Dosages and Biologics in over 100 countries worldwide.
We have wholly-owned subsidiaries in the US. India. UK. Reddy‟s is a global. Our products are marketed across the globe. We conduct NCE drug discovery research in the areas of metabolic disorders and cardiovascular indications at our research facilities . Dr. Europe. Russia and other emerging markets. We serve society‟s important needs for affordable medicines through the API component of PSAI and the Global Generics business. regardless of geographic and socio-economic barriers. and for innovative products that solve unmet medical needs through the CPS component of PSAI and the Proprietary Products Businesses. geographies and products gives us an edge in an increasingly competitive global market and allows us to provide affordable medication to people across the world. active pharmaceutical ingredients and biological products. with an emphasis on North America. Reddy's we aim at providing affordable and innovative medicines for healthier lives. Germany and Brazil. Dr. and third-party distribution set ups in 21 countries. representative offices in 16 countries. Our strong portfolio of businesses. joint ventures in China.At Dr. we are a global pharmaceutical company with a presence in more than 100 countries. and high quality finished dosage forms. Headquartered in India. South Africa and Australia. Reddy‟s is the first pharmaceutical company in Asia outside of Japan to be listed on the NYSE. innovative. Russia.25 - . producing and delivering safe. vertically integrated pharmaceutical company with a presence across the value chain.
we provide drug substance and drug product development and manufacturing services on a proprietary basis. To strive for excellence in everything they think. Respect for the individual: We uphold the self-esteem and dignity of each other by creating an open culture conducive for expression of views and ideas irrespective of hierarchy. internal & external. say and so. . Mission and vision: Purpose: Providing affordable and innovative medicines for healthier lives. Values: Our business practices are guided by highest ethical standards of truth integrity and transparency.in Atlanta (USA) and Hyderabad (India). every time. Mission: To be the first Indian pharmaceutical company that successfully takes its products from discovery to commercial launch globally. Through our Custom Pharmaceutical Services business unit.26 - . Quality: Reddy‟s are dedicated to achieving the highest levels of quality in everything we do to delight customers. Vision: To be a top 20 global pharmaceutical company by 2020.
along with documentation. Some of the objectives are: 1. businesses and locations. 4. To Improvement in supply and availability of utilities and time bound repair of m/c and equipments (along with the relevant records as per site objectives). people training and development and performance orientation in line with Dr Reddy‟s values and policies. of filters and other related equipments) as per SOP. 3. calibration. . Reduce utilities consumption in line with the site objectives. To creating a work environment that promotes safety.Reddy‟s seek opportunities to build relationships and leverage knowledge. Ensure that the equipment and related systems (both old and new) are (re)qualified / (re)validated as per schedule. To ensure that all the drawings and technical specifications of the equipment and system in his/her area is updated. expertise and resources to create greater value across functions. qualifi-cation and maintenance. To ensure clean room performance (checks. a desire to excel and willingness to experiment. 2. To identify and implement energy conservation measures. Collaboration & Teamwork: Dr. 5.27 - . 6.Innovation & continuous learning: We create an environment of innovation and learning that fosters. in each one of us.
transparency and disclosure. including strategic and regulatory matters.To meet SHE targets for their area. To reuse and recycle equipments. Our directors are experts in the diverse fields of medicine. 12. 8.28 - . including the non-executive directors. chemistry and medical research human resource development. business strategy.Liaisoning (with peers and out side agencies) to meet business objectives. They review all significant business decisions. Investigating calibration failures and failure between preventive maintenance and taking the corrective action. Trouble shooting with an objective of finding permanent solution.To ensure the facility is as per site objectives at all times. discharging its fiduciary responsibilities. Every member of the Board.7. . and in ensuring that the management observes the highest standards of ethics. etc. The Board acts with autonomy and independence in exercising strategic supervision. 9. 10. Board of directors: Dr. finance. take decisions within the authority delegated to them and make specific recommendations to the Board on matters in their areas or purview.To Ensure the good upkeep of the department. 11. where ever possible. and economics. Reddy‟s Board of Directors comprises eminent individuals from diverse fields. 13. has full access to any information related to our company. Committees appointed by the Board focus on specific areas.
We have built a robust pipeline of generic products which will help us derive growth in the medium and long term. Dr. Our Generics business started operations in 2001 and focuses primarily on the North America and EU markets. the company is investing in creating businesses of the future the innovation led businesses-of specialty and Drug Discovery.Business and list of products: The business in Dr. the drug discovery arm of the company conducts basic research in the areas of diabetes. Reddy‟s serves Generics and Innovator companies through the Active Pharmaceutical Ingredients (API) and Custom Pharmaceutical Services (CPS) businesses respectively. In addition. The revenues for fiscal 2005 were U. India. with a focus on United States. India and Russia. was shipped to West Germany. Strong Chemistry skills and our emphasis on high quality led to USFDA . the first consignment of that drug. Methyldopa. Reddy‟s began API operations in 1984 and started with a single drug in a 60-tonne facility near Hyderabad. We manufacture Active Pharmaceutical (Ingredients and Finished Dosage forms and market them globally. The Pharma Services & Active Ingredients business of Dr.29 - . Reddy‟s is a vertically integrated. inflammation and bacterial infection.S. The core business of Active Pharmaceutical Ingredients (API) and Branded Formulations are well established with an impressive track record of growth and profitability. In additions. cardiovascular. Europe. $446 million. In 1986. global pharmaceutical company with proven research capabilities and presence across the pharmaceutical value chain.
UK.30 - .inspections of our manufacturing facilities. This facility added a niche capability of steroid API manufacture to our capability portfolio. Reddy‟s has emerged as a trusted supplier of value-added advanced intermediates and APIs to generic as well as innovator companies. Dr. The CPS business got a boost in 2005 with the acquisition of Roche‟s API manufacturing unit in Mexico. we are the largest CPS player from India. Our Global API business offers over 100 molecules to customers across the world. As one of the few integrated pharma companies to provide Custom Pharmaceutical Services. Since then. Dr. Our CPS business. with the acquisition of the Small Molecule business of Dow Pharma at its Mirfield and Cambridge sites. addition of new capacities and product lines (Oncology. Our core strength in APIs has continued to increase significantly over the years. and the expansion of our marketing and regulatory teams have set the tone for robust growth. serves more than five big pharmaceutical companies and over 25 emerging pharma companies today. We have the largest number of US DMF submissions from India and are among the top three API players globally. A spate of new launches. Reddy‟s has come a long way and today has a wide portfolio of APIs. formed in 2001. In 2008. Today. we are also emerging as a 'partner of choice' for innovator companies globally. Hormones). CPS business got stronger in its service offerings. . development of a varied pipeline.
Regulatory and Analytical skills are evident in the 84 US DMFs we have filed. Reddy‟s We are equipped with six multi-ton. Our strong IP.Reddy‟s manufacturing facilities are capable of supporting the product development effort through the concurrent scale-up and piloting of feasible routes as they are developed by the R&D teams. process development and a controlled supply chain enables us to provide our customers with high quality Bulk Actives at competitive prices. Their expertise in organic synthesis. . We are aggressively building our product portfolio to cater to generic players in the emerging markets and generic and generic and patent challenge formulators in regulated markets. Reddy‟s offers an unparalleled portfolio to its customers. the highest in India and second highest in the world. which include both emerging as well as developed markets. Principal markets in this business segment include North America (The United States and Canada). Middle East. state-of-the-art facilities .31 - . which offer over 100varieties of bulk actives and several key intermediates. SE Asia and India. active pharmaceutical ingredients are exported worldwide. hydrogenations and cyanations. Dr. who include innovators and generic formulators worldwide. Europe. Reddy‟s capabilities span 24 major chemistries including stereoselective synthesis. cryogenics. Dr. The products are well documented according to the latest ICH and other regulatory guidelines. Dr. Reddy‟s Dr.Active pharmaceutical ingredients (API) is one of the major business divisions of Dr.
led to continued expansion of the generic pharmaceuticals market. ISO-certified facilities. which offers significant supply chain efficiencies. and secondly. acceptance of generics and favorable legislation. have together with the large volume of branded products losing patent protection over the coming years. Rather than just being a chemical provider. Reddy‟s strive to make medicines more accessible and affordable to people all over the world. Dr Reddy‟s capitalized this opportunity by leveraging its product development capabilities.In an industry cluttered with chemical manufacturers. Reddy‟s works towards providing patients access to high quality generic medicines at affordable prices. we at Dr. Dr. Hence by providing cost-effective alternatives to highly-priced innovator brands through our branded and unbranded Generics. and provide them with GMP-compliant products manufactured in FDAinspected. A team of experienced project managers ensures smooth progress of projects from initiation to closure in order to avoid any cost and time overruns. We execute cost-effective and time-bound projects for our customers. CPS offers a service mix covering the entire pharmaceutical value chain. CPS stands out because of our understanding of the pharmaceutical business and the associated expertise needed.32 - . Increased awareness. state of the art manufacturing capacities and access to its own APIs. . helps develop new treatments that satisfy unmet medical needs and are improvements over currently existing therapies.
In Germany we are amongst the top five. In US we are in the top five in terms of the ANDA filings with 69 ANDA pending approval of which 32 are Para IV certifications. and are constantly looking for opportunities to maximize the potential of our current and future portfolio in different territories across the US and EU. 2. strengthening our product portfolio and building scale – we at Dr. Russia. In India we are amongst the top ten players. high return route. Apart from these four markets. US and Germany. In US we are in the top five in terms of the ANDA filings with 69 ANDA pending approval of which 32 are Para IV certifications. Russia is the fastest growing market amongst the emerging countries. The generics business gives a direct presence in the world markets. We are now the fourth largest player in Germany after the acquisition of beta Pham. Geographic diversification. MCC and the MCA its path to value has taken the higher risk. Germany is the largest generics market amongst the developed nations. cost containment. with a series of patent challenge products.The top four key markets for our generics business include India. Dr Reddy‟s has its business presence in over 45 countries through Joint Ventures. 1.33 - . 3. In Russia we are the largest Indian Company and the sixth largest generic player. We have . representative offices and third party arrangements. Reddy‟s are strong in all these aspects in the generics space. It has grown aggressively on the back of some profitable products successfully clearing inspections by USFDA. its current focus is to innovate and build both technological and commercial skills to build capabilities for special products.
including the Asia Star. This idea came to fruition with the establishment of Dr. molecular biology. microbiology. and anti-counterfeit packaging. Biologics business and Differentiated Formulations in the US. innovation and integrity. The over a hundred-strong Biologics team is currently . ft. toxicology. our first biologics product to enter the market. proteomics. analytical chemistry. coli and mammalian cell culture. with development and manufacturing suites for both E. DR‟s institutional capabilities span a wide range of areas across medicinal chemistry. The idea of Drug Discovery Research at Dr. Dr. GLP and applicable levels of bio-safety. now called Discovery Research (DR). Reddy‟s Research Foundation. Our Biologics Development Center spans an area of 36. Grafeel (Filgrastim). It caters to the highest Development standards of cGMP.000 sq. enjoys a market share of almost 50% in India and has been able to reach many more patients than the innovator‟s product due to its affordability. Its mission is to create world-class capabilities for the discovery and development of new therapies based on scientific excellence.34 - .. In fact.the necessary expertise for customer-specific packaging. compliance packaging. Ameristar and World Star awards. even while the GATT negotiations were in progress. Reddy‟s has won several awards globally for our packaging efforts. prietary Products at Dr. Reddy‟s was conceived by Dr. and much before India signed the agreement in April 1994 and became a member of the WTO. formulation and clinical development. Anji Reddy in 1990. Reddy‟s encompasses our NCE Research focus. pharmacology. genomics.
Our Differentiated Formulations business is currently focused on the US markets. have more than 300 scientists actively involved in a number of drug-discovery and clinical development programmes. . The research foundation in India has world-class chemistry and strong pharmacology skills. We have put in place a state-of-the-art. Having successfully launched Grafeel™ (Filgrastim) and Reditux™ (Rituximab) . Reddy‟s drug discovery program is at the heart of its vision-to a global discovery led major with 260 scientists forced exclusively on discovery research. Our two Discovery Research centers – one in Atlanta. Dr.dedicated to the development of Biosimilars. Its Atlanta. and the other in Hyderabad.the World‟s first dissimilar MAB (Monoclonal Antibody) our Biologics division has a strong pipeline of biosimilars that consists of 9 additional products in various stages of development. USA. USA laboratory focused on early stage research skills like target identification and through put screening. Reddy‟s is currently developing topical products for various indications that will be detailed directly to dermatologists and other physician audiences.35 - . 23 patents and a nine molecule pipeline. while its long term vision is to also develop NBEs (New Biological Entities) in niche therapeutic areas. India. fully-integrated discovery infrastructure to strengthen our effort to discover and develop therapeutically useful New Chemical Entities (NCEs) and market them globally. Dr.
Their talent and superior R&D skills have fuelled rapid process development and reduction in product development time. The branded formulations has evolved from an Indian market player to a global organization starting with brands based on its own formulations. developing the synthesis rout in R&D lab(S).36 - .The key element in generic drug development is the need for speed. „Rachna. Our scientists have enabled us to develop processes for over 100 molecules. plant scaleup and validations-finally culminating in the filing of a Drug Master File. There is a growing need to reduce the time in which cheaper generic alternative is provided to the masses. manufacturing cycle time reduction.‟ is a project management approach that drives their product development process. waste and energy reduction and continuous process improvement. staying within the regulatory frame work and honoring the IP imperatives. it has grown through brand and company acquisition. The focus is on using the most advanced techniques in product identification and structure elucidations. This approach ensures a smooth workflow from product selection. valuable product mix distribution . They have as many as 200 scientist working on process innovation and simplification.
All the above advantages make Dr. A key component of the strategy in this area is a strong. Latin America. Brands like Omez (Omeprazole).000-strong field force to reach out to over 210. Ciprolet (Ciprofloxacin). Enam (Enalapril) and Ketorol (Ketorolac) are leaders in their category in several countries. IPM. QA/QC. Stamlo (Amlodipine). and current internal compounds under pre-clinical and clinical development. The active pharmaceutical ingredient development activities are R&D(AR&D). two therapeutic areas that best leverage our internal assets. Reddy‟s brands are today recognized and trusted across several continents.Production. Reddy‟s branded formulations are marketed in the county across Russia. Dr. internally developed proprietary drug-delivery platforms.000 doctors and 115. an ideal partner in the product development efforts. Our Differentiated Formulations business deals with assets like acquired proprietary technologies.5 million patients across the world take „Omez‟ for their acid peptic disorders every single day! Entrepreneurship. coupled with the will to make a difference drives our 2. with many of them being used by more patients than use the innovator‟s product.000 pharmacies in more than 40 countries across the world. China and Africa. Reddy‟s API. targeted business development effort to accelerate market entry. Dr. Over 1. Nise (Nimesulide). Regulatory.37 - .Strength and therapeutic area focus to become one of the country‟s largest players. SCM. Our initial global therapeutic area focus is on dermatology and oncology. . cist.
Develop scale up demo. Manufacturing units: Chemisorbs drugs Ltd. Define literature survey &process route finalization. Units: Strategic Business Units Bulk has 6units. . Reddy‟s Labs in the year 2000-01 restructured as Strategic Business Units are Bulk.Research and development: The research and development division. 3. structure elucidation and stability studies. merged in to Dr. Design process optimization. It contributes significantly to our business by creating intellectual property. Research feasibility studies are: 1. 1 unit in Jeedimetla. The analytical research group supports the development activity by carrying out impurity profiling. analytical validation and process validation. 4. providing research to reduce the cost of production of the products and playing an active role in the selection and development of new products.38 - . Implement DMF filling. The units are 3units in Bollarum. R&D emerging business. 1unit in PydiBhimavaram .1 unit in Miryalaguda . established in the late 1980‟s. is central to the active pharmaceutical ingredients business. corporate center. Branded formulation. Generics. 2.
Clamp. Nise. Atocor . delivery. Execution Excellence: we will constantly improve systems. Constantly improve the procedure. Enam. Ensure optimum training to all personnel accountable for quality related activities. Stamlo. Customer Focus: we are committed to delight customers by providing products and services that exceed expectations consistently in terms of quality. technical support. Maintain mutually beneficial relationship with vendors.Brands: The top 10 brands are Omez. technologies & infrastructure to continuously better the quality of products produced. . Stamlo Beta. Competency Building: we will ensure high level of competency by attracting and retaining talented personnel in all areas through continual education and development. Razo.Reddy‟s is committed to provide customer‟s products meeting or exceeding exceptions consistently in terms of specifications.39 - . speed to market. infrastructure. Beneficial Partnerships: we will develop and maintain mutually beneficial relationships with all business associates and provide lasting value to all stakeholders. Quality policy: Dr. Mintop . delivery and competitiveness. technologies. regulatory compliance and technical support. regularity compliance & competitive. enrich the quality of life of employees & provide lasting value of shareholders. Reclimet.
Reddy‟s Foundation 2.Dr. We see Social Initiatives as an integral component of Corporate Social Responsibility. This objective is achieved by increasing access and affordability of medicines through the company‟s generics. .Social initiatives: We at Dr. the company ensures that the initiators also figure among the beneficiaries. but employees as well by including employees in our definition of Social Initiatives. Our investments in the community have gone beyond the adhoc disbursement of funds. API and branded generics products.Dr. and by addressing unmet medical needs by innovation through its Specialty and NCE businesses. Our Social Initiatives do not involve just the community. Reddy‟s take pride in the company‟s mission – to help people lead healthier lives.The Centre for Social Initiative & Management (CSIM) 1. to planned programs in capability building. We do this by supporting the following organizations: 1.40 - .The Nandi Foundation 3. Reddy's Foundation For Health Education (DRFHE) 4.
Organization structure: .41 - .
The Capital investment decision once made are not easily reversible without much financial loss to the firm because their may be no market for second-of –hand plant and equipment and their conversion to other uses may most financially viable. usually exceeding one year.Horngreen “Capital Budgeting is long term planning for making and financial proposed capital outlay”.42 - . and yield a return. Capital budgeting also has a bearing on the competitive position of the enterprise mainly because of the fact that they relate to fixed asset. therefore involve a series of outlays of cash resources in return for anticipated flow of future benefits. The fixed asset represents a true earning asset of the firm. They enable the firm to generate finished goods that can be ultimately being sold for profits. The Capital Expenditure decision has its effects over a long time span and inevitable affects the company‟s future cost structure. over a period of time. Definitions: According to T. .THEORITICAL FRAME WORK Introduction to capital budgeting: Capital Budgeting decisions pertaining to fixed /long term assets which by definition refer to assets which are in operation. Capital investment involves cost and the majority of the firms have search capital resources. They.
Factors influencing capital budgeting decisions: There are many factors.CPhilpot’s“Capital Budgeting concerns with allocation of firm‟s scarce financial resources among the available market opportunities. Ranking of the investment proposals and 5. 2. 4. which influence that Budget decisions. Based on profitability the raking is evaluated I.” Factors affecting capital budgeting: While making capital budgeting investment decision the following factors or aspects should be considered. Return expected from the investments (R). expected rate of return on investment. “Capital Budgeting consists in planning development of available capital purpose of maximizing the long term profitability of the concern.According to Lynch. with immediate end subsequent streams of expenditure for it. financial as well as non-financial.e. .. 3. The considerations of investment opportunities involve the comparison of expected future of the streams of earning from a project.43 - . The amount of investment. 1. Minimum rate of return on investment (k).” According to G. The crucial factor that influences the capital expenditure decisions is the profitability of the proposal.
In such circumstances. prestigious project. 5. Intangible Factors: some times a capital expenditure has to be made due to certain emotional and intangible factors such as safety and welfare of workers. goodwill of the firm. is solely influenced by this factor and although the project may not be profitable yet the investment has to be made. The examples of such urgency are breakdown of some plant and machinery.44 - 5 . the availability of funds is an important factor that influences the capital budgeting decisions. Degree of Certainty: Profitability directly related to risk. a project with some lower profitability may be selected due to constant flow of income. which have to be in considerations such as. Future Earnings: A project may not be profitable as compared to another today but it may promise better future earnings. Urgency: Sometimes an investment is to be made due to urgency for the survival of the firm or to avoid heavy losses. 2. the proper evaluation of the proposal cannot be made through profitability tests. A project. Legal Factors: Any investment. . social welfare.etc. 3. Availability of Funds: As the capital expenditure generally requires large funds. 4. which is required by the provisions of the law. Sometimes. In such cases it may be preferred to increase earnings. higher the profits. may not be taken for want of funds and a project with a lesser profitability may be some times preferred due to lesser pay-back period for want of liquidity. fire accident etc.. 1. how so ever profitable. 6. Greater is the risk or uncertainty.There are other factors.
In case of projects with high rate of obsolescence. . Cost Consideration: Cost of the capital project. Rate of Taxation. Obsolescence: There are certain projects. Expected economic life of the project. The future cash inflows are estimated based on the following factors. 8. Depreciation rate. Are other considerations involved in the capital budgeting decisions.7. 1. the project with a lesser payback period may be preferred other than one this may have higher profitability but still longer pay-back period. etc. 9. Production cost. 6. 3. 8. cost of production. which have greater risk of obsolescence than others. opportunity cost of capital. 5. 2. 4. Future demand of product. etc.45 - . Risk and uncertainty in capital budgeting: All the techniques of capital budgeting require the estimation of future cash inflows and cash outflows. Salvage value of the assets at the end of economic life. Capacity of the project. Research and Development Projects: It is necessary for the longterm survival of the business to invest in research and development project though it may not look to be profitable investment. 7. Selling price of the product.
selling prices. All these elements of uncertainty have to be taking in to account in the form of forcible risk while taking on investment decision. a product may become obsolete much earlier than anticipated due to unexpected technological developments. For example.But due to the uncertainties about the future. production. But some allowances for the elements of the risk have to provide.46 - . The following methods are suggested for accounting for risk in capital Budgeting: Risk Adjusted Cut off Rate Decision Tree Analysis Certainty Equivalent Method Suggestions Accounting risk In Capital Budgeting Co-Efficient of Variation Method Sensitivity Technique Standard Deviation Method Profitability Technique . etc. the estimates of demand. sales. cannot be exact.
Risk-Adjusted cut off rate or method of varying discount rate:
The simple method of accounting for risk in capital Budgeting is to increase the cut-off rate or the discount factor by certain percentage on account of risk. The projects which are more risky and which have greater variability in expected returns should be discounted at a higher rate as compared to the projects which are less risky and are expected to have lesser variability in returns.
The greatest drawback of this method is that it is not possible to determine the premium rate appropriately and more over it is the future cash flow, which is uncertain and requires adjustment and not the discount rate.
Certainty Equivalent Method:
Another simple method of accounting for risk in capital budgeting is to reduce expected cash flows by certain amounts. It can be employed by multiplying the expected cash in flows certain cash outflows.
Where cash inflows are very sensitive under different circumstances, more than one forecast of the future cash inflows may be made. These inflows may be regards as “Optimistic”, “Most Likely”, and “Pessimistic”. Further cash inflows may be discounted to find out the Net present values under these three different situations. If the net present values under the three situations differ widely it implies that there is a great risk in the project and the investor‟s decision to accept or reject a project will depend upon his risk bearing abilities.
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Probability Technique: A probability is the relative frequency with which an event may occur in the future. When future estimates of cash inflows have different probabilities the expected monetary values may be computed by multiplying cash inflow with the probability assigned. The monetary values of the inflows may further be discounted to find out the present vales. The project that gives higher net present vale may be accepted.
Standard Deviation Method:
If two projects have same cost and there net present values are also the same, standard deviations of the expected cash inflows of the two projects may be calculated to judge the comparative risk of the projects. The project having a higher standard deviation is set to be more risky has compared to the other.
Coefficient of variation Method:
Coefficient of variation is a relative measure of dispersion. If the projects have the same cost but different net present values, relative measure, i,e. coefficient of variation should be computed to judge the relative position of risk involved.
Decision Tree Analysis:
In modern business there are complex investment decisions which involve a sequence of decisions over time. Such sequential decisions can be handled by plotting decisions trees. A decision tree is a graphic representation of the relationship between a present decision and future events, future decisions and their consequences.
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The sequences of event are mapped out over time in a format resembling branches of a tree and hence the analysis is known as decision tree analysis.
The various steps involved in a decision tree analysis are:
1. Identification of the problem 2. Finding out the alternatives; 3. Exhibiting the decision tree indicating the decision points, chance events, and other relevant date. 4. Specification of probabilities and monetary values for cash inflows. 5. Analysis of the alternatives.
Limitations of Capital Budgeting:
1. All the techniques of capital budgeting presume the various investment proposals under consideration are mutually exclusive which may not practically be true in some particular circumstances. 2. 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. Obviously the results based upon wrong data may not be good. 3. There are certain factors like morale of the employees, goodwill of the firm, etc., which cannot be correctly quantified but which otherwise substantially influence the capital decision. 4. Urgency is another limitation in the evaluation of capital investment decisions. 5. Uncertainty and risk pose the biggest limitation to the techniques of capital budgeting.
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Steps involved in the capital expenditure:
The various steps involved in the control of capital expenditure. 1. Preparation of capital expenditure. 2. Proper authorization of capital expenditure. 3. Recording and control of expenditure. 4. Evaluation of performance of the project.
Objectives of control of capital expenditure:
In the following all the main objectives are on control of capital expenditure: 1. To make an estimate of capital expenditure and to see that the total cash outlay is with in the financial resources of the enterprise. 2. To ensure timely cash inflows for the projects so that non-availability of cash may not be a problem in the implementation of the project. 3. To ensure all the capital expenditure is properly sanctioned. 4. To properly co-ordinate the projects of various departments. 5. To fix priorities among various projects and ensure their follow up. 6. To compare periodically actual expenditure with the budgeted ones so as to avoid any excess expenditure. 7. To measure the performance of the project. 8. To ensure that sufficient amount of capital expenditure is incurred to keep pace with the rapid technological developments. 9. To prevent over expansion.
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5. Fixed priorities. Capital Budgeting Steps: 1. Screen proposals. The proposal or ideas about potential investment opportunities may originate from the top management or may come from the rank and file worker of any department are from any officer of the organization. Evaluate various proposals.Capital budgeting process: Capital Budgeting is a complex process as it involves decisions relating to the investment of the current funds for the benefit to the achieved in future and the future always uncertain. 3. the following procedure may be adopted in the process of capital budgeting. Implements the proposals 7. 2. The departmental head analyses the various proposals in the light of the corporate strategies and submits the suitable proposals to the Capital Expenditure Planning Committee in case of large organizations or to the officers concerned with the process of long-term investment decisions. Identity investment proposals. . 4.51 - . However. Final approval 6. Reviews performance Identification of Investment Proposals: The capital budgeting process begins with the identification of investment proposals.
Internal Rate of Return method etc. Rate of Return method.Screening the Proposals: The expenditure Planning Committee Screens the various proposals received from different departments. Hence it is very essential to rank the various proposals and to establish priorities after considering urgency. There are many methods that may be used for this purpose such as Pay Back Period methods. The committee views these proposals from various angles to ensure that these are accordance with the corporate strategies or selection criterion of the firm and also do not lead to departmental imbalances. But it may not be possible for the firm to invest immediately in all the acceptable proposals due to limitation of funds. . Fixing Priorities: After evaluating various proposals. the unprofitable or uneconomic proposals may be rejected straight away. Final Approval and Preparation of Capital Expenditure Budget: Proposals meeting the evaluation and other criteria are finally approved to be included in the capital expenditure budget. risk and profitability involved therein.52 - . All these methods of evaluating profitability of capital investment proposals have been discussed. Evaluation of Various Proposals: The next step in the capital budgeting process is to evaluate the profitability of proposals. Net Present Value method.
The unfavorable variances.53 - . A request for the authority to spend the amount should further to be made to the capital expenditure committee. while implementing the project. and also by comparing the actual return from the investment with the anticipated return. Network techniques used in the project management such as Pert and CPM can also be applied to control and monitor the implementation of the project.However. The capital expenditure budget lays down the amount of estimated expenditure to be incurred on fixed assets during the budget period. . it is better to assign the responsibility for completing the project within given time frame and cost limit so as to avoid unnecessary delays and cost over runs. proposals involving smaller investment may be decided at the lower levels for expeditious action. which may like to revive the profitability of the project in the changed circumstances. Performance Review: The last stage in the process of capital budgeting is the evaluation of the performance of the project. Implementing Proposal: Preparation of capital budgeting expenditure budgeting and incorporation of a particular proposal in the budget doesn‟t itself authorized to go ahead with the implementation of the project. Further. The evaluation is made through post completion audit by way of comparison of actual expenditure on the project with the budgeted one. if any should be looked into and the causes of the same be identified so that corrective action may be taken in future.
1. Mutually Exclusive Project Decision 3. capital budgeting decisions can be broadly classified into two categories. Reduce costs. in view of the investment proposal under consideration.54 - . In such cases. The second category increases the earning of the firm by reducing costs and includes decisions relating to replacement of obsolete. a firm has to decide whether to continue the same asset or replace it. The first category of capital budgeting decisions is expected to increase revenue of the firm through expansion of the production capacity or size of the firm by reducing a new product line. Further. outmoded or worn out assets. Capital budgeting decisions may be classified as: 1. Both categories of above decision involve investments in fixed assets but the basic difference between the two decisions are in the fact that increasing revenue investment decisions are subject to more uncertainty as compared to cost reducing investments decisions. This.Kinds of capital budgeting decisions: The overall objectives of capital budgeting are to maximize the profitability of a firm or the return on investment. Increase revenue. The firm takes such a decision by evaluating the benefit from replacement of the asset in the form or reduction in operating costs and the cost\ cash needed for replacement of the asset. Capital Rationing Decision . 2. Accept Reject Decision 2. These objectives can be achieved either by increasing revenues or by reducing costs.
All those proposals which yields a rate of return higher than the minimum required rate of return of capital are accepted and the rest rejected. 2. The firm selects the combination of proposals that will yield the greatest profitability by ranking them in descending order of there profitability. thus. Are automatically rejected. Once the alternative is selected the others. For ex: A company has the option of buying a machine.1. Or a second hand machine. or taking on old machine hire or selecting a machine out of more than one brand available in the market. the firm has to rate them. In such a cases the company can select one best alternative out of the various options by adopting some suitable technique or method of capital budgeting. Thus one of the proposals is selected at the cost of the other.55 - . Accept Reject Decision: Accept reject decisions relate independent projects do not compute with one another. Such decisions are generally taken on the basis of minimum return on investment. If the proposal is accepted the firm makes investment in it. Mutually Exclusive Project Decision: Such decisions relate to proposals which compete with one another in such away that acceptance of one automatically excludes the acceptance of the other. and if it is rejected the firm does not invest in the same. and the rest are rejected. Capital Rationing Decision: A firm may have several profitable investment proposals but only limited funds and. 3. . If the proposal is accepted the firm makes investment in it.
56 - .Methods of Capital Budgeting and Evaluation Techniques CAPITAL BUDGETING METHODS NON – DISCOUNTED CASH FLOW METHOD DISCOUNTED CASH FLOW METHOD PAY BACK PERIOD ACCOUNTING RATE OF RETURN INTERNAL RATE OF RETURN NET PRESENT VALUE PROFITABILITY INDEX .
57 - . then only the depreciable cost (cost salvage value) of the machine should be divide by two in ordered to ascertain the average net investment. the average after tax profits is equal to any year‟s profit. Average Rate of Return: The average rate of return (ARR) method of evaluating proposed capital expenditure is also to know as the accounting rate of return method. This means that. The average investment is determined by dividing the net investment by two. in which case the book value of the asset declines at a constant rate from its purchase price to zero at the end of its depreciable life. Consequently if the machine has salvage value. on the average firms will have one-half of their initial purchase prices in the books.Non-Discounted cash flow /Traditional Methods: 1. Therefore an amount equivalent to the salvage value remains tied up in the project though out its lifetime. It is based upon accounting information rather than cash flows. This averaging process assumes that the firm is suing straight line depreciation. In the case of annuity. There is no unanimity recording the definition of the rate of return. ARR = Average annual profits after taxes × 100 Average investment over the life of the project The average profits after taxes are determined by adding up the aftertax profits expected for each year of the projects life and dividing by the number of the years. as the salvage money will be recovered only at the end of the life of the project. .
Average investment = Net Working Capital + Salvage Value + ½ (initial cost of machine value) Accept – Reject Value: With the help of ARR. 2. Obviously projects having higher ARR would be preferred with projects with lower ARR. the financial maker can decide whether to accept or reject the investment proposal. Like wise if any additional net working capital is required in the initial year.58 - . Alternatively the ranking method can be used to select or reject proposals under consideration may be arranged in the descending order of magnitude. A project would qualify to be accepted if the actual ARR is higher than the minimum desired ARR. It is the simplest and. The full amount of working capital should be taking determining relevant investment for the purpose of calculating ARR. which is likely to be released only at the end of the projects life. . As an accept – reject criterion. it is liable to be rejected. starting with the proposals with the highest ARR and ending with the proposal with the lowest ARR.Hence no adjustment is required to sum of salvage value to determine the average investment. Pay Back Period: The Pay Back method is the second traditional method of capital budgeting. the actual ARR would be compared with a predetermined or a minimum required rate of return or cut – off rate. Other wise. Thus. the most widely employed quantitative method for apprising capital expenditure decisions.
normally disregarding salvage value? Cash benefits represent CFAT ignoring interest payment. In such a situation the initial cost of the investment is divided by the constant annual cash flow is Investment Constant Annual Cash Flow The second method is used when project cash flows are not uniform (mixed stream) but vary form year to year. .This method answers the question. PB is calculated by the process of cumulating cash flows till the time when cumulative cash flow become equal to the original investment outlay. The first method can be applied when the cash flow stream is in the nature if annuity for each year of the projects life that is CFAT is uniform. How many years will it for the cash benefits to pay the original cost of an investment. There are two ways of calculating the pay back period. Thus the pay back method measures the number of years required for the CFAT to pay back the original out lay required in an investment proposal. In such a situation. Accept Reject Criteria: The pay back period can be use as a decision criterion to accept or reject investment proposals.59 - . One application of this technique is to compare the actual pay back with a predetermined pay back that is the pay back set up by the management in terms of the maximum period during which the initial investment will be recovered.
the pay back can be used as a ranking method. projects with shorter payback period will be selected. Obviously. Net Present Value Method: The net present value is a modern method of evaluating investment proposals. It recognizes the fact that rupee earned today is worth more than the same rupee earned tomorrow. . then may be ranked according length of pay back period.on long term loans or it should reflect the opportunity cost of capital of the investor. the project would be accepted. The following are the Net Present value method of evaluating investment proposals: First of all determined an appropriate rate of interest that should be selected as minimum required rate of return called “ cut – off rate” of interest in the market and the market.If the actual pay back period less than the predetermined pay back. the project has having the shortest pay back may be assigned rank one followed in that order so that the project with the longest pay back would be ranked last. This method takes into consideration the time value of money and attempts to calculate the return on investments by introducing the factor of time element. Alternatively. When mutually exclusive projects are under consideration. Discounted cash flow/ Time adjusted methods: 1.60 - . Thus. it would be rejected. If not. Net present values of all inflows and outflows of cash occurring during the life of the project is determined separately for each year by discounting these flows by the firm‟s cost of capital or a pre–determined rate.
when present value of cash inflows either exceeds or is equal to the present values of cash outflows. projects should e ranked in order of net present values. But in case the present value of inflows is less than the present value of cash outflows. The present value of re. the proposal should be rejected.Compute the present value of total investment outlay. cash outflows at the determined discount rate. i.. Accept Reject Criteria: If the Net present value is positive or zero. If the total investment is to be made in the initial year. inflows (profit before depreciation and after tax) at the above determined discount rate. the present value shall be as the cost of investment.e. Calculate the Net present value of each project by subtracting the present value of cash inflows from the value of cash outflows for each project... To select between mutually exclusive projects. i.e. the proposal may be accepted.e. the first preferences to be given to the project having the maximum net present value. I.. Compute the present value of total investment proceeds i.1 due in any number of years may be found with the use of the following the mathematical formula: PV= 1/(1+r) n Where PV = present value R = rate of interest/ Discount rate N = number of years .61 - .e.
2. rate of return. rate of return method. It is therefore appropriately referred to as internal rate of return. and marginal productivity of capital. But the IRR depends entirely on the initial outlay and the cash proceeds of the projects. This technique is also known as yield on investment. time-adjusted rate of return and so on. Like the present value method the IRR method also considers the time value of money by case of the net present value method. . In other words while arriving at the required rate of return for finding out present values the cash inflows as well as outflows are not considered. marginal productivity of capital. its determinants are external to the proposal under consideration. the discount rate is the required rate of return and being a predetermined rate. The IRR. In other words it is that rate which gives the project of Net present value is zero. Internal Rate of Return: The second discounted cash flow or time-adjusted method of appraising capital investment decisions is the internal rate of return method. It is defined as the discount rate ( r ) which equates the aggregate present value of the Net cash inflows ( CFAT ) with the aggregate present value of cash outflows of a project. usually the cost of capital. which is been evaluated of acceptance or rejection. marginal efficiency of capital. which are internal to the proposals.62 - . on the other hand it is based on facts. This technique is also known a yield on investment. marginal efficiency of capital. The internal rate of return is usually the rate of return that a project earns.
63 - . It is. PI = Present value of cash inflows Present value of cash outflows This method is also known as B / C ratio because the numerator measures benefits and the denominator costs. in other words. it is not reliable method to evaluate project inquiring different initial investments. Accept Reject Criteria: . The PI method proves a solution to this kind of problem. 3. while the NPV is based on the differences between the present value of future cash inflows and the present value of cash outflows. It is similar to the approach of NPV. involves a comparison of the actual IRR with the required rate of return also then the cut off rate or hurdle rate. a relative measure. which is obtained by dividing the present value of future cash inflows by the present value of cash inflows.Accept Reject Criteria: The use of the IRR. It may be defined as the ratio. The profitability index approach measures the present value of returns per rupee invested. The project would quality to be accepted if the IRR (r) Exceeds the cut off rate(k). as a criterion to accept capital investment decisions. If the IRR and the required rate of return are equal the firm is different as to whether to accept or reject the project. A major shortcoming of the NPV method is that. Profitability Index: The time adjusted capital budgeting is Profitability Index (P1) or Benefit Cost Ratio (B / C). being an absolute measure.
When PI is greater than. the firm is indifferently to the project. Thus. the Net present value is greater than. a project will quality for acceptance if it‟s PI exceeds one. In other words.Using the B / C ratio or the PI. equal to or less than 1 (one). the NPV will be positive when the PI is greater than 1 (one).64 - . will be negative when the PI is less than 1. the NPV and PI approach give the same results regarding the investments proposals. equal to or less than zero respectively. . When PI equals 1 (one).
8 Million 10% 8. Capital employed 2. . Method of Depreciation SLM 9.04 Interpretation: The pay back period of this Project is 3.1 Million (Per Month) 2. Rate of depreciation 15% 6. as such the below formula has been applied. Cost of Capital 11. Selling Price per Kg 900 Rs 4.65 - .EVALUATION OF PROJECT PROPOSAL – 1 Project Basic Details: 1. Net Income/Year 7. Pay Back Period (PBP): Pay back period is the number of years required to recover the original cash outlay invested in a project. it would be accepted. Pay Back Period = Initial Investment Constant annual Cash = 2100000 8289500 = 3.04 years is less than the life of the project.DATA ANALYSIS & INTERPRETATION I. Rate of Income Tax 35% 1. a. Life of the Project (Assumed) 5 Years 3. The Cash inflow in this Project is Constant. Contribution Rs/Kg 430 Rs 5.
66 - .1. b.80 Years.791 PV of Cash Inflow 31425495 PBP = Initial Investment Constant Annual Cash Inflows = 25200000 31425495 =.80 Years Interpretation: The initial Investment can be recovered from . Discounted Pay Back Period: Year 1-5 Years Cash in flow 8289500 PV AF@10% 3. .
it would be accepted.1. c. There is no unanimity recording the definition of the rate of return.67 - .74% is higher than the standard ARR set by the management. Average rate of return (ARR): The average rate of return (ARR) method of evaluating proposed capital expenditure is also to know as the accounting rate of return method. .74% Interpretation: The average rate of return from project is 51. ARR = Average annual profits after taxes × 100 Average investment over the life of the project Since the Profit after tax is Constant. It is based upon accounting information rather than cash flows. as such the average profit after tax is 6519500 Average investment = ½ (Initial Investment + Instillation ChargesSalvage) +Salvage value = ½ (25200000+0-0)+0 = 126000000 ARR = Average PAT X100 Average Investment = 6519500 X 100 12600000 =51.
68 - . This method takes into consideration the time value of money and attempts to calculate the return on investments by introducing the factor of time element. Net Present Value (NPV): The net present value is a modern method of evaluating investment proposals.1. d. As the cash flow are constant. .791 = 31425495 NPV= PV of Cash Inflow. = 8289500 X 3.PV of Cash out flow =31425495-25200000 = Rs 6225495 Interpretation: It is desirable to accept the project as it is generating a Positive NPV of Rs 6225495. we can calculate the NPV of the Project by applying the following formula: PV of Cash Inflow = Constant Annual X P V annuity Factor Years Cash Inflow @ 10% against 5.
rate of return. time-adjusted rate of return and so on.058 = Pay Back Period =3.04 Years Should be higher than 3.991 = Difference in the Discount Rate=20-19 .Internal Rate of Return (IRR): This IRR method is another discounted cash flow technique which takes account of the magnitude and thing of cash flows.69 - .2.058 At 20% -----.3. RL DFRL PB DFRH = Lower Rate = 19% = Discount Factor at Lower Rate =3.PB DFRL.991 IRR Lies Between 19 TO 20 % IRR = RL + DFRL . marginal efficiency of capital. e. This technique is also known a yield on investment.DFRH Where.04 and other lower then 3. As the annual cash inflows are Constant we need to Calculate IRR by applying the actual PBP formulae instead of fake pay back period. and marginal productivity of capital.04 At 19% -----. Pay Back Period = Initial Investment Constant Annual Cash inflows = 25200000 8289500 = 3.1.04 = Discount Factor at Higher Rate =2.
991 =19+0.IRR = 19+3.04 3.27% Interpretation: The IRR of this Project is 19.70 - .27% is higher than its cost of capital or cut out rate. it would be accepted.018 0.067 =19+0.058-2.058-3.268 = 19. .
1.f. The profitability index approach measures the present value of returns per rupee invested. .25 is grater than one. PI = PV of Cash inflow PV of Cash outflow = 31425495 252000000 = 1. It is obtained by dividing the present value of future cash inflows by the present value of cash inflows. It is similar to the approach of NPV. while the NPV is based on the differences between the present value of future cash inflows and the present value of cash outflows.71 - .25% Interpretation: The Projects have a Profitability index of 1.Profitability Index (PI): The time adjusted capital budgeting is Profitability Index (P1) or Benefit Cost Ratio (B / C). it would be accepted.
Depreciation . 4 Year = 11000 Units = 11000 Units c. Capital Outlay/Capital employed Life of the Project 21600000 10 Years 2. Contribution Per Kg 1 Year 4 Year = Rs188/Kg = Rs 50/Kg 3-10 Year = Rs 213/Kg 5. Selling Price Per Kg 1 Year 2 Year 3 Year = Rs1000/Kg = Rs 700/Kg = Rs 1350/Kg 3. Rate of income Tax 35% 10.II.EVALUATION OF PROJECT PROPOSAL – 2 Project Basic Details: 1. Total Cost Per Kg 1 Year 4 Year = Rs812/Kg = Rs 650/Kg 3-10 Year = Rs 1137/Kg 4. 1 Year b. Repairs and Maintenance 8. Number of Units Produced per Year a. Cost of Capital 9% Rs 41667 7. Salvage ( 5% of Investment) 6.72 - . 3-10 Year = 17000 Units 9.
73 - . it would be rejected .172 = 10.17 years is higher than the life of the project.Pay Back Period (PBP): The annual Cash inflows are not constant so we Calculate Cumulative Cash inflows in order to Compute the pay back period Year 1 2 3 4 5 6 7 8 9 10 Cash Inflows 2062400 550000 3071850 3071850 3071850 3071850 3071850 3071850 3071850 3071850 Cumulative Cash Inflows 2062400 2612400 5684250 8756100 11827950 14899800 17971650 21043500 24115350 27187200 =21600000 Initial Investment Amount received up to the end of 8 th Year =21043500 Amount to be received in 9th Year=556500(21600000-21043500) Cash inflow after Tax (CFAT) in 9 th Year =30718750 PBP = 8+ 556500 × 12 3071850 = 8+2.17 Years Interpretation: . The Payback Period for this Project is 10. a.2.
b. .650 .772 .460 .842 .547 .Cashinflow 1891221 463100 2371468 2174870 1996703 1830823 1680302 1542069 1413051 1296321 1891221 2354321 4725789 6900659 8897362 10728185 12408487 13950556 15363607 16659928 Interpretation: The payback Period is more than 10 Years as the initial Investment cannot be recouped until 10 Years.917 .422 PV of Cash inflow Cumm.708 .596 .Discounted Payback Period: Computation of Discounted Pay Back Period Year Cash inflow 1 2 3 4 5 6 7 8 9 10 2062400 550000 3071850 3071850 3071850 3071850 3071850 3071850 3071850 3071850 PV@9% .74 - .502 .2.
87% Interpretation: The ARR of this project is 5.Average Rate of Return (ARR): ARR = Average PAT X 100 Average Investment Average PAT = Total PAT Number of Years Average investment = ½ (Initial Investment + Installation Chgs-Salvage Value) + Salvage Value Average PAT = 6667200 10 = 666720 Average Investment=1/2(21600000+41667-1080000)+1080000 =1/2(20561667)+1080000 =10280833.50 ARR = 666720 11360833.50 × 100 =5.50+1080000 =11360833.75 - .2.c. . it would be rejected.87% is less than the standard ARR set by the management.
76 - .2.00 14311749.05 is negative. Fake PBP = Initial Investment Average Cash inflows Average Cash Inflows = Total Cash inflow Number of Years .05 Interpretation: The NPV of the Project is -4933930.659 PV of Cash Inflow 1891220.Internal Rate of Return (IRR): In this Project as the Cash inflows are not constant.842 4.d.80 463100. it would be rejected. 2.95-21600000 =-4933930.917 .95 NPV = 16666069. we calculate fake payback period.Net Present Value (NPV): NPV =Present value of Cash Inflows-Present Value of Cash outflows Year 1 2 3-10 CFAT 2062400 550000 3071850 PV@9% .e.15 PV of Cash inflow is 16666069.
77 - .05 .80 508750.907 5. We need to decrease the rate.225 PV of Cash inflow 1984028.962 .81 against year 10 AT 5%-7.925 6.35 To increase the PV of Cash inflow is.94 Locate a Discount factor in PV of Annuity Table nearest to 7.00 19122266.722.=27187200 10 =2718720 Fake PBP =21600000 2718720 =7.25 PV of Cash inflows 21615045.952 .80 498850 18010256. Let the new rate be 4%. Therefore our starting rate is 5% Year 1 2 3-10 Cash inflow 2062400 550000 3071850 PV@5% . Year 1 2 3-10 Cash inflow 2062400 550000 3071850 PV@4% .863 PV of Cash inflow 1963404.55 PV of Cash inflows 20472511.
35 =1142533.35 So therefore IRR Lies in Between 4-5% IRR= RL+PVC PAT-PVC×r PV Where RL= Lower rate of Discount = 4% PVCFAT=PV of Cash Inflow at Lower Rate PVC PV=Difference in Pv of Cash in Flow =21615045.05 × 1 1142533.70 = 4+.05 =20472511.013% is less than its cost of capital or cut out rate.78 - .05-20472511.PV of Cash outflow PV of Cash inflow @4% PV of Cash inflow @5% = Rs 21600000 =21615045.7 r= Difference in Discounting rate = 4-5 =1 IRR= 4+21615045. it would be rejected.013 = 4.013% =21615045.05 =21600000 Interpretation: The Internal rate of return of this Project is 4.7 = 4+15045.05-21600000 ×1 1142533. .
f.Profitability Index (PI): PI = Present Value of Cash Inflows Present Value of Cash Outflows PI = 16666069 21600000 PI = 0.77% Interpretation: The Profitability Index generated by this Project is 0.79 - .2.77 is less than the one. it would be rejected. .
The global pharmaceutical industry is a multinational industry that is a highly regulated.SUMMARY. and which is driven by large research and development expenditures. disposition. The industry is primarily privately owned and is technologically sophisticated.80 - . The company is focused on creating and delivering innovative and quality products to help people lead healthier lives. It includes raising long-term funds and their utilization. Dr.Reddy‟s is the research based company with vertically integrated operations. Anji Reddy. which is essentially long-term projects and is concerned with the allocation of firm‟s scarce financial resources among the available market opportunities. is drawn from its founder and his vision to establish India‟s first discovery led global pharmaceutical company in fact. . Capital budgeting may also be defined as “The decision making process by which a firm evaluates the purchase of major fixed assets”.scientist. modification and replacement of fixed assets. FINDINGS&SUGGESTIONS Summary: Dr. in 1984 the DNA of the company. It may be defined as a firm‟s formal process of acquisition and investment of capital. capital intensive. it is this spirit of entrepreneurship that has shaped the company to become what it is today. The term Capital Budgeting refers to long term planning for proposed capital outlay and their financial. It deals exclusively with investment proposals. It involves firm‟s decision to invest its current funds for addition. entrepreneur . Reddy‟s laboratories was founded by Dr.
The payback Period is more than 10 Years as the initial Investment cannot be recouped until 10 Years. The Payback Period for this Project is 10. it would be rejected. 6. The pay back period of this Project is 3. 2. it would be rejected. The average rate of return from project is 51. The Internal rate of return of this Project is 4.77 is less than the one. it would be accepted. it would be rejected. 6. 4. The NPV of the Project is -4933930.25 is grater than one.27% is higher than its cost of capital or cut out rate.Findings: The following are the findings of project-1: 1. it would be accepted.17 years is higher than the life of the project. 4. The initial Investment can be recovered from . The Profitability Index generated by this Project is 0. 3.74% is higher than the standard ARR set by the management.81 - . .013% is less than its cost of capital or cut out rate. The IRR of this Project is 19. 2. The Projects have a Profitability index of 1. it would be rejected.80 Years. it would be accepted. it would be accepted. The ARR of this project is 5. It is desirable to accept the project as it is generating a Positive NPV of Rs 6225495. The following are the findings of project-2: 1.87% is less than the standard ARR set by the management. it would be rejected. 3. 5. 5.05 is negative.04 years is less than the life of the project.
82 - . With a better and Optimal Product mix higher doses of capital Budgeting can be introduced for boosting turnover aiming at Proportionately higher margins while absorbing additional costs on account of Incremental funding. Considering high technology profile of the company a good inventory policy to do away with obsolete and non-Moving materials will help in reining Capital budgeting requirements there by reducing the related financial costs. 3. 2. There should be a good and improved Credit policy to decrease collection period in respect of receivables. .Suggestions: 1.
83 - .Reddy‟s also covers the long term capital budgets.Conclusion: The budgeting exercise in Dr. The Dr Reddy‟s was started in 1984 with the aim of Promoting and developing affordable medicines to all sections of the society. . including annual planning and provides long term plan for application of internal resources and debt servicing translated in to the corporate plan.
BIBLIOGRAPHY: .R.Financial Management .Financial Management -Management Accounting -Management Accounting -Financial Management -Research Methodology -Prasanna Chandra .Kothari Journals: Study Materials http\\:www.N.84 - .google.Sharma & Shashi Gupta -S.R.Maheshwary -Khan and Jain -K.IM Pandey .com .K.mydrreddys.com http\\:www.
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