Production Expansion of Vitrified Tiles of MCL

EXECUTIVE SUMMARY

The dynamic of constant change in the present business environment brings forth to us the challenges of well-equipping ourselves with profound theoretical knowledge and the skill of applying the same with this view point. Project was thus designed to be a part of our curriculum. This project is done on “Production Expansion of Vitrified Tiles” This has three parts in which first part contains the organization study. Which covers Ceramic industry profile, Objectives, Product Profile, Strengths of MCL, MCL Profile, SWOT MCL, R N S Profile.

Production expansion gives rise to capital investment decisions. The second part deals with the theoretical aspects of the project, this part consists how the theoretical aspect will be applied for practical business. How the decision making process.

The third part consist of

Market and demand analysis, Financial analysis ,Preliminary

statements, Technical feasibility, Appraisal Criteria statement, Projected P & L Statement, Financing Decision, Limitations and Findings ,Conclusion.

LITERATURE REVIEW

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Production Expansion of Vitrified Tiles of MCL

CAPITAL INVESTMENT DECISIONS: Is a decision intended to benefit future periods, in contrast, to a revenue expenditure which benefits in the current year. It is a long term planning for making and financing proposed capital outlays.

TYPES OF CAPITAL INVESTMENT DECISIONS: 1. Expansion of existing business. 2. Expansion of new business. 3. Replacement and moderation.

Expansion of existing business: the company may add capacity to its existing product line to expand existing operations. Decision-making Criteria in Capital Investment Decisions: How do we decide if a capital investment project should be accepted or rejected? The Ideal Evaluation Method should: • • • • Include all cash flows that occur during the life of the project, Consider the time value of money, Incorporate the required rate of return on the project. Payback Period: How long will it take for the project to generate enough cash to pay for itself? CAPITAL INVESTMENT DECISIONS  Traditional techniques

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Production Expansion of Vitrified Tiles of MCL Pay Back period method Accounting rate of return

Discounted cash flow techniques Net Present value Internal Rate of Return Profitability Index

 Statement of the Problem:Production expansion of vitrified tiles of MCL

Management problem: The Management wants to expand their production.

Research problem: The research was carried on Production expansion of vitrified tiles.

Purpose of the study:

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Production Expansion of Vitrified Tiles of MCL The purpose of the study in Murudeshwar Ceramics Limited is to know whether the expansion of the vitrified tiles will be possible. Whether the expansion is financially feasible and viable. For the study purpose projections is been made to know whether the project should be accepted or rejected.

Scope of the study: The expansion of the production is related to some of the departments. 1. Finance Department 2. Production Department 3. Technical Department 4. Human Resource Department

OBJECTIVE OF THE STUDY

The project work was carried out with the objective to find out the financial feasibility and viability of the proposed expansion. To compute the net present value of an investment proposal. To compute the internal rate of return of an investment proposal. To compute the payback period of an investment proposal. To determine whether a particular investment proposal should be undertaken.

DATA COLLECTION METHOD

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Production Expansion of Vitrified Tiles of MCL The methodology that was adopted is:    Collecting the secondary data from the books of accounts and other documents Interaction with departmental heads and employees. Projection on the basis of past performance based on certain assumption.

CERAMICS TILE INDUSTRY

OVERVIEW

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Production Expansion of Vitrified Tiles of MCL

Tiles have been used as surfacing materials for walls and floors for thousands of years because of their beauty and durability. They have been produced in most countries in the world because of the abundance of the raw materials and the simplicity of the manufacturing technology. These two factors, together with the employment-generating capacity of this labour intensive industry have attracted the interest of developing countries. To these countries, ceramic tiles have promise as an export item over and above the large domestic markets.

Indigenous manufacture of glazed tiles began in India 1958, when the Government of India banned its imports. Until 1985, in which year Sparteck Ceramic Limited stormed market with its Matt and Semi Matt finished tiles manufactured using single Firing fast process, two companies namely H & R Johnson India Limited and Somany Pilkington Limited had the lions share to themselves which was predominantly approximately Rs.400 crores with an installed capacity of 4.83 lakhs metric tones, as on 1992.

EVOLUTION

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Production Expansion of Vitrified Tiles of MCL Market surveys have indicated that in the case of wall and floor covering, consumers preferences are leaning away from textile (carpeting), wood, stone, vinyl, paper and plastic towards ceramic tile. In the home the tile is no longer confined to kitchens an bathroom, it has moved out into the hall, in the corridors, and on the balcony.

In public buildings, it is used more readily in walkways, community centers, schools, hospitals, restaurants, swimming pools and surroundings areas, super markets and subways. With the arrival of unglazed tile followed by multicolored screen-printing in variety of design, it became possible to blend aesthetics with utility. Floors once

neglected are getting attention. Its utility as industry flooring is also getting increasingly appreciated.

The tile may appear to be a costlier surfacing material initially, but if costs are spread over the full life cycle of buildings, it becomes cost competitive. The enduring utility of the ceramic tiles comes under its mechanical strength in spite of brittleness, chemical durability against the deteriorating effects of oxidants (liquids or vapor), acids, and salts, in all concentrations and all temperatures, hardness, resistance to erosion and above all the aesthetic qualities.

Like other consumer products, preferences and fashion in ceramic tile also keep slowly changing. Consumers‟ preferences have been seen to move from small sizes to

comparatively large once, from the glossy finish to Matt surfaces, from smooth to rustic from deep to light shades, from solid colors to decors interspersed with plain tiles and single, shades to a chiaroscuro of colours.

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Production Expansion of Vitrified Tiles of MCL PRODUCT

The word “Ceramic” originates from the Greek word “Keramic” which means an art of Potter. In our country, the Pottery manufacture started as early as 3, 000 B.C. The second world ward came as boon for the ceramic industry in India. During the war period certain metals for metallic utensils were banned and hence, the production of ceramic products was geared up to meet the demand of war hospitals.

Clay is a general name for all earths that form a paste when mixed with appropriate amounts of water and that harden when heated. Most clay is composed of silica and alumina while kaolin‟s are their purest form. Wall and floor tiles are formed by pressing higher grades of clay after blending them with flint, feldspar and (especially in the case of wall tiles) talc.

Ceramic tiles are broadly classified into wall and floor tiles with sub classification of Glazed and Matt/Semi Matt finished tiles.

PRODUCT PROFILE

MCL manufacture three kinds of tiles viz:  Ceramic Tiles  Vitrified Tiles  Natural Granite Tiles

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Production Expansion of Vitrified Tiles of MCL

1. CERAMICS TILES Ceramic tiles are broadly classified into wall and floor tiles with sub-classification of glazed finished tiles and unglazed finished tiles. The major raw material used in this manufacture is clay. The floor tiles are formed by pressing higher grades of clay after blending them with flint, feldspar and talc.

All the tiles are further classified during inspection into 4 grades namely A, B, B-1 and C. Tiles which are defect free and export quality are “A” grades tiles these tiles are packed separately.

“B” (Commercial) grade tiles are tiles which have minimum chipping, minimum cracks, and glaze or surface defects. Even in case of slight shade variation a pin holes on the surface the tiles are segregated as „B‟ grade tiles.

“B-1” tiles have more chipping, edge cracks, and shade variation surface defects, pinholes on surface and major print defects. In case of defects greater than „B-1‟ tiles they are classified as „C-1‟ tiles.

Rest all tiles fall in the C grade

The advantage of ceramic tiles over mosaic, marble ad other tiles are:

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Production Expansion of Vitrified Tiles of MCL 1. Due to their glazed finish they are impermeable and so stain proof, fire proof with anti-echo properties. 2. They are unaffected by either alkaline or acidic substances 3. Abrasive resistance is very high. 4. In case of multi-storeyed buildings the beam weight is reduced 5. They can be easily transported 6. They are slip proof.

2. VITRIFIED TILES: Vitrified tiles of Naveen Diamontiles come both in Mat and Shine finishes. When the tile is polished it is known as a „shine‟ finish, else it is a „mat‟ finish. The difference between ceramic and vitrified tiles is that ceramic tile consists of a base part and a glazed part while a vitrified tile is a single whole.

There are two classifications “A” grade and “B” grade. Tiles without defect and of export quality are “A” grade while rests all are segregated as “B” grades.

The various properties of vitrified tiles are listed below 1. Frost resistant 2. Non fading 3. Abrasion resistant 4. Hygienic 5. Water resistant

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Production Expansion of Vitrified Tiles of MCL 6. Acid, alkali resistant 7. Extreme hardness 8. Shock resistant. The recommended applications of DIAMONTILE are in schools, colleges and education centers, airport floors and other transport station floors, shopping centers, dance floors, industries, hospitals, restaurants, etc.,

Vitrified tiles can be used for following purposes

Residential Bathrooms, kitchen, living room, exterior areas, Staircases, window skills.

Commercial Showrooms, reception hall, hotels, airports, shopping malls, restaurants, offices.

Industrial Heavy duty Industrial floor, chemical industries.

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Production Expansion of Vitrified Tiles of MCL

Decorative External cladding, inlays, borders.

3. NATURAL GRANITE SLABS: These are natural stones which are obtained from mines located at lkal, Bangalore, and Agumbe etc.

These stones are cut in required sizes and then polished. They come in a wide variety of colours depending on the colours of the raw materials. No additional colours are added at the factory.

BUSINESS OVERVIEW:

Murudeshwar ceramics Ltd., (MCL) is a joint sector undertaking promoted by KSIIDC and Mr.R.N.Shetty an industrialist and Builder of repute in Karnataka. The initial project for the manufacture of 12500 tones per annum of Ceramic Tiles was set up near Hubli at an investment of Rs. 13.45 crores, the machinery was imported from the world renowned sacmi Imola, Holy. The project was financed by Equity capital of Rs. 4.50 crores and loans of Rs.8.80 crores. The project was completed in a record time of 14 months and the technology adopted is the latest and the state of the Art-single firing technology.

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Production Expansion of Vitrified Tiles of MCL Murudeshwar ceramics Limited is one of the major industries to come up in the backward North Karnataka Region for a long time. The location for the project was chosen considering the nearness to the source of raw materials and to the consuming centers like Mumbai, Pune, Bangalore and Goa.

During the first year of operation itself, MCL achieved a sales turnover of Rs. 9.64 crores. And notched up a net profit of Rs.42 lakhs. MCL Ceramic Tiles which are marketed under the brand name “Naveen Ceramics Tiles”, and in a short period of only six months, Naveen Tiles also established a separate, Johnson and so many Pilkington, Kajario.

Encouraged by the good response to the tiles in the market the company undertook an expansion project costing Rs.8 crores to double the installed capacity in the second year itself. The expansion project was completed n a record of six months.

In 1993 the Murudeshwar Ceramic Limited has undertaken a massive Expansion cum Diversification programme. An additional 15000 tones per annum of capacity has been created at the existing location. The capacity is being predominantly used for the

manufacture of high value added vitrified tiles in malt and shine finish. The MCL has also set up a new unit for the manufacture of 72000 sq. meters per annum of polished Granite slabs. Hence, MCL in its industry of six years has built in an assets base of Rs.70 crores and is total the only company in the county which manufacture‟s ceramics Glazes

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Production Expansion of Vitrified Tiles of MCL Tiles and polished Granite slabs MCL has maintained over 100% capacity utilization right from the beginning till now.

Murudeshwar Ceramic Limited‟ sales turnover which was Rs. 9.64 crores in the first year of operation has crossed Rs. 87 crores for the year ended march 2001. MCL has also made profits every year and has already paid dividend for the last 10 years in row. MCL started initially with 3 sizes of tiles have been manufactured in six sizes. The sizes are 8*4, 8*6, 8*8, 12*12, 16*16, and 24*24.

MCL started manufacturing tiles in plain and flamed tiles in the beginning and has introduced newer shades and designs regularly every six months. MCL was the first to introduce Linen weave and whispering shades of tiles in 1998. Today, MCL,

manufactures tiles in Ripples series, Shrinagar Series printed, Marbles Series, Granite Series, Italian Granite Series and tiles with dry power coated designs in ceramic category

Naveen Ceramic Tiles are today available in over 159 colours and shades, Naveen tiles offer widest choice to the customers.

MCL has full fledged R&D set up and has the only recognized in the house R&D unit among the ceramic tiles plants in India. MCL‟s major strength has been the strict adherence to quality control. Naveen Ceramic Tiles are known for the high quality and command a premium over their competitive brands. MCL has been awarded prestigious

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Production Expansion of Vitrified Tiles of MCL ISO 9007 certificate by TUV ceramic for Naveen tiles are also exported in a big way to markets in the Gulf, African countries and the South East and for East Asia.

R.N.S GROUPS OF COMPANIES

CONSTRUCTION

The construction wing of the R.N.Shetty Group has carved a name for itself in the industry for its architectural designs, quality and time bound completion of projects. The group operates its construction projects in the name of RNS Infrastructure Ltd. (formerly known as R.N.Shetty & Co.) and Naveen Mechanised Construction Co. Pvt Ltd. These companies have made their mark in the Indian Construction Industry by executing many renowned projects in architectural design, construction, landscaping, period architectural styles and urban planning. The companies have also specialized in major civil works and have constructed dams, canals, bridges and tunnels, national highways of national importance.

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Production Expansion of Vitrified Tiles of MCL

MANUFACTURING The Manufacturing wing of the R.N.Shetty Group is the one of the core business areas of the group. The group is recognized in the elite group of Business leaders in India for the kind of growth it has achieved in this sector. The group operated under the name of Murudeshwar Ceramics Limited.

HOTEL INDUSTRY.

The R.N.Shetty Group is also ventured into the hotel industry. The group is having a number of hotels all over Karnataka under the name of Naveen Hotels.
   

Hotel Naveen - Hubli RNS Residency - Murudeshwar Naveen Beach Resort -Murudeshwar Taj Residency, Bangalore.

AUTOMOBILE INDUSTRY

The R.N.Shetty Group has entered into the automobiles sector under the name of RNS Motors. The name RNS Motors is a trusted and reliable name in the Karnataka region due to its superior quality services. The company has showrooms in Hubli, Bangalore,

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Production Expansion of Vitrified Tiles of MCL Murudeshwar and Bijapur. RNS Motors is one of the leading authorized dealers for Maruti Udyog Limited. Maruti Udyog is the largest manufactures of Maruti cars and vans in India.

POWER SECTOR

Murdeshwar Power Corporation Limited Incorporated in 1993, Murdeshwar Power Corporation Ltd. has made key investments in the field of R&D in the power sector and also specialized in the implementation of the various power projects. This includes planning, designing, geographic and geological study and analysis. Murdeshwar Power Corporation has constructed the prestigious powerhouse of 12MW cap at the Narayanpur Left Bank Canal. The bulb turbines have been supplied by BHEL.

ENGINEERING

The R.N.Shetty Group has ventured into the field of engineering works under the name of ˜Naveen Structurals and Engineering Co. Pvt. Ltd. The company provides cost effective quality solutions to the construction industry.

Naveen Structurals and Engineering Company Private Limited the Company was incorporated in 1981 and specializes in skilled fabrication works, specific to the construction industry. The workshop in Hubli is highly sophisticated, and contains stateof-the-art equipment and machinery. Company has manufactured shuttering, silos, crest gates and many other specialized structures.

EDUCATION

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Production Expansion of Vitrified Tiles of MCL R.N.S. Education Institutions. The R.N.Shetty Group of Companies has varied interests in Education areas and has formulated education institutions under its group chairman name and is run by the R.N.Shetty Trust.

R.N.Shetty Rural Polytechnic (RNSRPM), Murudeshwar instituted in the year 1987 is a premier polytechnic in Northern Karnataka. RNSRPM is managed by the R.N.Shetty Trust and is headed by its founder Chairman, R.N.Shetty.

R.N. Shetty Institute of Technology (RNS IT.), instituted in the year 2001 is part of the R.N.Shetty Group of companies headed by its founder chairman R.N.Shetty. With its continuous drive to provide quality education to the society, The RNS group has established R.N.S.I.T, a college to nourish and produce the best of Engineering talent in the country

STRENGHS OF MURUDESHWAR CERAMIC LIMITED

One of Murudeshwar‟s Major plus pint is its plant location at close proximity to raw material sources, which has helped it to procure good quality of ball day a base material for ceramic tiles. Another advantages for the company‟s plant is its close access to unmarked consuming markets like Madras, Bangalore, Mumbai and Ahemadabad which could enable it rush in on to there urban pockets result in comparatively lower transport cost.

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Production Expansion of Vitrified Tiles of MCL The company was one of the few ceramic tile unit to have commenced production earlier i.e., since 1988 onwards it now enjoys comparatively lower capital cost thus insuring lower interest costs and lower depreciation.

Another major factor shrift project implementation this evident from the fast that the first phase of 12,500 Mt. was completed in 14 months and the second phase of 12,500 Mt. in 7 months both achievements compared with international standards.

Very loyal network of dealers which the company cultivated with investments of long credit period and healthy discounts have created awareness and brand image for Naveen Tiles.

WIDEST RANGE: ONLY NAVEEN DIAMONTILE COMES IN WIDE RANGE OF 4 SIZES:

SIZE(CM) 30*30 40*40 60*30 60*60

THICKNESS(MM) 8.0 8.5 8.5 9.5

AVAILABLE IN 1. Plain Colours Babasabpatilfreepptmba.com Page 19

Production Expansion of Vitrified Tiles of MCL 2. Marble effect 3. Granite Texture 4. Anit-Skid Also cut tiles and borders are available on specific orders.

RESEARCH & DEVELOPMENT Company enjoys technical expertise from Klingerberg Decoramik AG of West Germany and through its own in-house Research center (The only one in the industry to be recognized by the Department of Science and Technology, Govt. of India) has constantly introduced innovations in its product range. This is reflective from the fact that, the company has gradually increased its Tile Range to 40 shades within a span of four years.

The company‟s R & D efforts are presently concentrated on import substitution, technology up gradation and development of alternate raw materials. The R & D efforts had help the company maintaining high quality ceramic and vitrified tiles. It also regularly introduce those tiles in new shades and designs and indigenous efforts.

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Production Expansion of Vitrified Tiles of MCL

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Production Expansion of Vitrified Tiles of MCL

SWOT PROFILE OF MURUDESHWAR CERAMICS LIMITED Following are the Strengths, Weakness, Opportunity and Threats of Murudeshwar Ceramic Limited.

STRENGTHS: 1) SUPERIOR PRODUCT QUALITY:

Company‟s consistency in product quality is due to term of well trained and skilled personnel who are trained by collaborator techniques who help in minimizing the cost of production and optimum usage of plant machinery.

2) RESEARCH AND DEVELOPMENT BACKUP

It has well equipped in house research and development base for developing a new and improved product range it also the capability of absorbing imported technology and indigenizing strains and other kind of raw materials required.

3) BRAND LOYALTY: Company enjoys a high degree of brand loyalty, as it is pioneer in vitrified tiles field.

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Production Expansion of Vitrified Tiles of MCL 4) NEAREST TO RAW MATERIAL SOURCE: One of the MCL‟s major strength that is located closed to the source of raw material as well as to the end of the market. MCL caters to the demand for the tiles in area such as Madras, Bangalore, Bombay and Ahemedabad. Thus, it is centrally located to its final markets.

5) PRODUCT AVAILABILITY Products are easily available to customers. Vitrified it self which is enough for catering the needs of existing and potential customers.

6) GROWING DEMAND: As the Government and other organized finance providers are giving more thrust for housing finance, there is going to be a boom in the current demand.

WEAKNESSES:

1. MCL doesn‟t have national presence; it is weaker in Eastern Region. 2. MCL needs to spend more on promotional activities. It is a scarce spender on advertisement and promotional activities. 3. Cost of the product.

4. Company‟s product needs clay imported from Ukraine (Russia) are liquefied petroleum gas for firing which have direct impact on cost of production.

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Production Expansion of Vitrified Tiles of MCL 5. Heavy excise duty has to a certain extent not allowed the company to compete effectively with others flooring alternatives, which act as potential threat to the company‟s products. 6. The R.N.Shetty group albeit being well known in South India does not have a national presence. This restricts the company‟s markets and its ability to borrow large amounts at finer rates. 7. Ever since the government de-licensed the ceramic industry, there is virtually no barrier to emerging fresh competition and hence level of competition in this industry is intense. Hence any wrong move on the part of the company of failure of any product can prove to be dangerous for the company.

OPPORTUNITIES:

1. It has got a strong in house research and development which can help in cost reduction exercise of the company. 2. It has got a strong infrastructure, financial backup and a very good bunch of brand loyal customers who can be offered other products also like sanitary ware and sanitary fittings. 3. Wherever needed company has to open up to prove its presence.

THREATS:

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Production Expansion of Vitrified Tiles of MCL 1. New type of flooring methods offered to the customers like PVC floor coverings, synthetic granites, and wall papers which are much cheaper and elegant also are seen as major threats. 2. Unorganized tile manufactures who are importing pre used machinery from foreign countries and they evade taxed will definitely compete cost wise if not quality wise, threat is cheaper always attracts customers. 3. Dumping of cheaper foreign tiles particularly from china a major threat. They dump their rejects all low quality material in to our market through tradesmen.

PROFILE OF MR. R.N.SHETTY

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Production Expansion of Vitrified Tiles of MCL

An entrepreneur from the fabled town of Murudeshwar, Mr. R.N. Shetty, realized early in life that business was all about spotting the right opportunities and seizing them wherever they surfaced. Today, R.N. Shetty Group of Companies is the result of the untiring efforts of this man.

A perfect role model for young entrepreneurs across the country, Mr. R.N. Shetty has integrated the country‟s entrepreneurial tradition with professional management, which is based on sound values and uncompromising integrity. His strength lies in bringing together and building teams of people with great potential and performance. His vision and pragmatism has helped the Group to emerge as one of the most competitive and successful business groups in India. Moreover, Mr. R.N. Shetty‟s humanitarian activities are a true manifestation of the higher purpose behind his widespread business. He has established various educational institutions and charitable organizations for the welfare of humanity. A firm believer in traditional Indian values, Mr. R.N. Shetty has all along striven to inculcate the family concept in his business enterprise and in the group as whole. Besides, he‟s an individual who particularly emphasizes that mutual trust and respect, cohesion and co-operation are the key principles that drive the organization. Babasabpatilfreepptmba.com Page 26

Production Expansion of Vitrified Tiles of MCL Mr. R.N. shetty was born on the 15th of August 1928 at Murudeshwar in North Karana District, Karnataka. He started his career in 1952 as Civil Contrator in Sirsi, a small town in North Karana District. He initially executed several contract works like the

reformation mataling and asphalting of Roads and Construction of Buildings.

In 1961, he formed a partnership firm, the R.N.Shetty and company during the next years he built the major bridges on the Honnavar Gerusoppa Road. He also executed Major Kharl and works at Sunker-Karwar.

In 1961, he moved out of his native district and started operating from Hubli, a major city in Northern Karnataka. He also switched over to executing irrigation projects. In 1967 he took over Naveen Mechanized Construction Company Private Limited which was promoted by 8 well known contractors of Karnataka but which was then under heavy loss.

During the next 8 year he successfully executed several major irrigation works under the Malaprabha Ghataprabha and Upper Krishna Projects. He also nursed the Naveen

Mechanized Construction Company Private Limited to health.

In 1973 he diversified into civil works for power projects of the Karnataka Power Corporation. During the next decade he executed several prestigious works like the Tattihal tunnel. Additional water system for Chatra Projects for the Karnataka Power Corporation Limited.

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Production Expansion of Vitrified Tiles of MCL

He was also involved in the construction of Supa Dam, Tattihalla concrete Dam and the Mani Dam for the Kalinadi and Varahi Hyder Project of the Karnataka Power Corporation Limited He also constructed the entire underground Power house at

Honsangudi for Varahi Hyder Project, this is the first of its kind in Karnataka state. He also executed major civil works like Rajankollur Gundalgera and Ramdurn Tunnel for the upper Krishna Projects.

In 1997 he diversified and set up an industry to manufacture Mangalore roofing tiles at Murudeshwar, which is one of the most automatic tile plants in the country. Mr.

R.N.Shetty today has major civil works like a Rs. 100 crores Canal projects as part of the upper Krishna Project and the Rs. 50Crores Project the Gerusoppa Dam for the Sharavathi Tail Race Project, both financed by the World Bank a major hospital building project at Belguam. And nearly 20 tunnel for the Prestigious Konkan Railway Projects. The total turnover of the group during 1993-94 was Rs.130 Crores and the projected turnover for the current year is Rs. 170 Crores.

BOARD OF DIRECTORS: Shri R.N.Shetty (Chairman) Dr. K.Sandip Malli Shri K. Jeevan Shetty Dr. .Sudesh Hegde Shri K.P.Surendranath Babasabpatilfreepptmba.com Page 28

Production Expansion of Vitrified Tiles of MCL Shri. I.M.Vittala Murthy Justice K.Jagannatha Shetty Dr. Sadanand V.Nadig Shri. Satish R Shetty (Managing Director) Shri Sunil R.Shetty (Joint Managing Director) Shri Naveen R Shetty (Joint Managing Director) Company Secretary Shri P.A Ravish Vice President-Finance Shri N.M Hegde Auditors M/s. M.A Narasimhan & Co. Chartered Accountants Bangalore Registered Office Murudeshwar Bhavan Gokul Road. HUBLI-580 030 Ph :0836- 2331615-18 Plant Krishnapur Viallage HUBLIPh: 0836-2206741 Kallabalu Village Jigani Hobli Anekal Taluk Bangalore Dist Ph: 08110-27825900 143, Illayancudy Road Devamapuram Village Thirunallur Commune KARAIKAL-609 607 Pondicherry State

Bankers CANARA BANK STATE BANK OF INDIA BANK OF BARODA THE LAKSHMI VILAS BANKS LIT., PUNJAB NATIONAL BANK

THEORETICAL FRAME WORK

MOTIVATION FOR CAPITAL INVESTMENT DECISIONS:

1. Replacement 2. Modernization 3. Expansion Babasabpatilfreepptmba.com Page 29

Production Expansion of Vitrified Tiles of MCL 4. strategic 5. Research and Development

CAPITAL INVESTMENT DECISIONS

The Capital expenditure is an expenditure incurred by the organisation to increase the revenue earning capacity of the organisation or to reduce the cost of production or to acquire fixed assets. The benifts of capital expenditure lasts for more than one year. They are non recurring nature. The decision here will be based on several inter-related criteria. Management must "maximize the value of the firm" by investing in projects which are NPV positive

Pictorial representation of the Capital Investment Decisions:

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THE DECISION-MAKING PROCESS
1) INITIAL INVESTIGATION Before the proposal is subject to detailed evaluation, it is useful to undertake preliminary investigation to determine if the proposal appears to be a feasible project. This initial investigation will consider such factors as, the resources required, the technical and commercial feasibility, the risks of the project and how the project matches the firm‟s strategic objectives.

2) DETAILED EVALUATION

If a project appears to be feasible, a detailed investigation of all facets will be undertaken. This will include attempting to forecast the expected cash flows from the project and possibly calculate the NPV, IRR or other relevant technique (perhaps a profit-based Babasabpatilfreepptmba.com Page 31

Production Expansion of Vitrified Tiles of MCL technique). The proposal should be subject to financial appraisal. The NPV method of appraisal should be used wherever possible, as it is consistent with the objective of shareholder wealth maximization. The results of this analysis should be compared with the results of any other options available. Sensitivity analysis may be applied to the results in order to help assess the degree of risk involved in the project. In addition to the financial analysis, sources of finance for the project and non-financial factors will need to be detailed.

3. AUTHORISATION

In the case of large investment projects, the decision to accept a particular proposal should be made by senior management, or perhaps the board of directors if necessary. The decision-making body must be satisfied that the proposal meets the necessary profitability criteria and is compatible with the overall strategy of the business. Where there are insufficient funds to undertake all the proposals put forward, ranking of proposals in order of priority will need to be employed.

4. PROJECT IMPLEMENTATION

Once the decision to proceed has been taken, the appointment of a project manager or the assignment of responsibility for the project will be necessary. The person given the

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Production Expansion of Vitrified Tiles of MCL responsibility will need to be allocated the required resources and to be given specified targets to achieve.

5. MONITORING THE PROJECT

Once the project is underway, senior managers should be kept informed of progress on a regular basis. Feed forward principles should be employed to reassess the original expected costs and benefits by preparing revised forecasts and identifying any forecast variations from the desired outcome. This is necessary in order that the corrective action can be instigated to rectify any adverse variance. This will facilitate more effective project control or in some cases lead to project abandonment if necessary.

6. POST-COMPLETION AUDIT

Once the project has been implemented, a post-completion audit should be conducted in order to monitor and report on project progress as well as to identify aspects which could be improved for future project planning.

FINANCIAL FEASIBILITY STUDY Generation of Ideas

Initial Screening Babasabpatilfreepptmba.com Is the Idea Prima Facie Promising? Page 33

Production Expansion of Vitrified Tiles of MCL

MARKET AND DEMAND ANALYSIS

There are eight major players in the ceramic tiles industry.

The vitrified tiles are

manufactured by only four companies. They are Murudeshwar Ceramics Limited, H & R Johnson India Limited, Kjaria and Bell Ceramics Limited. 60*60 is the biggest manufacturing by MCL. The demand for vitrified tile (especially for bigger sizes) has

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Production Expansion of Vitrified Tiles of MCL been increasing. In order to exploit this opportunity, MCL want to increase its

production capacity of vitrified tiles. With the proposed expansion, the company will be able to meet the increasing demand for vitrified tiles and thereby earn more profits.

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Production Expansion of Vitrified Tiles of MCL SALES OF VITRIFIED TILES:

YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

VOLUME 7,066 6,551 12,880 9,473 14,041

RS. 13,83,14,531 19,26,18,749 24,62,69,344 21,96,83,572 29,61,61,702

Market demand analysis

16000 14000 12000 10000 Sale volume 8000 6000 4000 2000 0

12,880 9,473 7,066 6,551

14,041

Year
Sales 2001- 2002- 2003- 2004- 20052002 2003 2004 2005 2006 Years

FINANCIAL ANALYSIS: Babasabpatilfreepptmba.com Page 36

Production Expansion of Vitrified Tiles of MCL

COST OF THE PROJECT: The cost of the project represents the total items of all outlay associated with a project, which are supported by long term fund: Particulars (Rs. In Cr.) Total cost Land and Building P &M/C Imported Indigenous Miscell.Fixed Assets Provision for contingencies Margin money for working capital Total 3735 410 200 250 250 4,995 150

Proposed Expansion: The project is of production capacity expansion of 12, 00,000 sqmts of vitrified tiles which is to be financed in the following manner. Cost of the project Means of finance: Term loan Internal Accruals PROJECT: “Production Capacity expansion of Unglazed Vitrified tiles: 12, 00,000 sq mts” Babasabpatilfreepptmba.com Page 37 Rs.36 Crores Rs. 14 Crores Rs. 50 Crores

Production Expansion of Vitrified Tiles of MCL

COST OF EXPANSION The estimated cost of the proposed production capacity expansion project is Rs.50 Crores.

MEANS OF FINANCING: The Project is to be financed by the following means (In Rs) Term loan Internal Accrual Total 36 crores 14 crores 50 crores

MEANS OF FINANCE:

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Production Expansion of Vitrified Tiles of MCL

PARTICULARS Term Loan Internal Accruals Total

AMOUNT IN CRORES 36 14 50

P R E L I M I N A R Y

S T A T E M E N T S

The preliminary statements presented in this project will have the purpose in various stages of the project, in fact to establish the magnitude both in physical and monetary terms. The statements presented here are designed to serve both commercial and profitability analysis.

The following are the statements Φ Φ Φ Φ Φ Requirement of Land and Buildings Requirement of Machinery and Equipments Other Fixed Assets Pre-operative Expenses Provision for Contingencies.

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Production Expansion of Vitrified Tiles of MCL Φ Φ Φ Requirement of Manpower Requirement Raw Materials Estimation of Production and Sales.

REQUIREMENT OF LAND AND BUILDING:

There is no need to purchase additional land for expansion. The company has got enough land for the same. The building comprises of ball mill, spray dryer, press section, vertical, dryer glaze line and klin polishing line.

Particulars 1. Building for Slip House 2. Building for Press Machine

Cost (Rs. In Cr.)

150,00,000 3. Building for Glaze Line 4. Building for Godown

REQUIREMENT OF MACHINERY AND EQUIPMENTS:

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Production Expansion of Vitrified Tiles of MCL

The requirement of machinery and equipments has been worked out for the proposed capacity expansion of 12, 00,000 Sq. Mtrs. The company proposes to acquire main plant machinery for the project from Sacmi, who have also supplied the existing plant and machinery. The plant and machinery would be similar to the existing machinery of the company, thus enabling smooth erection, commissioning and operation. Further, the spare parts for the procurement being same those for existing equipment, the company would benefit by way of interchangeability of spare parts. Sl. No. 1. 2. 3. 4. 5. 6. Ball Mill Spray Dryer Press Vertical Dryer Glaze Line Loading & Unloading Machinery Description 1 1 1 1 1 2 No of machines

Total Cost = 414

OTHER FIXED ASSETS:

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Production Expansion of Vitrified Tiles of MCL In this provision Rs. 200 Lakhs is provided to purchase other fixed assets. Other fixed asset includes furniture‟s, computers, tools, laboratory equipments, workshop equipments, fire fighting equipments.

PRE-OPERATIVE EXPENSES:

The foundation charges for machinery, its erection and installation charges, deposits for power and telephone, insurance charges, establishment charges, interest on term loan during pre-operative period, project appraisal fees, etc. 5% is entire project cost ( Rs. 250 lakhs).

PROVISION FOR CONTINGENCIES: Under this provision, Rs. 2,50,00,000 is provided to meet the unforeseen expenses

REQUIREMENT OF MANPOWER

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Production Expansion of Vitrified Tiles of MCL

The company presently employs 600 employees and proposes to recruit 355 persons for the expansion project.

Particulars Managerial Supervisory Technical Staff Administrative staff

Existing 31 35 79 48 600

Expansion 10 15 45 35 355 75 117 215 600 600 355 57 78 115 335

Skilled Workers Semiskilled Workers Unskilled Workers Total

This company employees 600-650 causal labourers and would require an additional of 355 labourers for the proposed expansion. The company‟s plant is located in an

adequately developed industrial area and hence the company envisages no difficulty in meeting its additional manpower requirements.

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Production Expansion of Vitrified Tiles of MCL REQUIREMENT OF RAW MATERIAL:

The requirements of raw materials for vitrified tiles are clay, feldspar and quartz. The company has its own excavation equipment for quarrying. The company sources ties requirement of clay from captive quarries in Govinkoppa and yaragatti in Belguam District and at Tirthalli in Shimoga District and Mysore Minerals Limited. The company has to import clay from Switzerland, which is mixed with local clay in a proportion for the manufacture of bigger size vitrified tiles.

ESTIMATION OF PRODUCTION AND SALES:

The basis of estimation the production and sales is by considering the productivity. It is an estimation of production output. In this project, the productivity of or production output is measured in terms of number of Sq. Mtrs or tones of tiles manufactured. Production per year by utilizing 55% plant capacity for the first year and further increasing at the rate of 5% each year.

TECHNICAL FEASIBILITY: As the company is already engaged in the manufacturer of vitrified tiles, the project does not envisage any technical arrangement for the same. Moreover, other of analysis is dependent and closely intertwined with technical analysis, technical is concerned with.

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Production Expansion of Vitrified Tiles of MCL  Project  Material inputs and utilities  Manufacturing process  Plant Capacity  Location and site.  Legal Consents.

PROJECT: The project is “Production Capacity Expansion of Unglazed Vitrified Tiles 12, 00,000” sq.mts.

MATERIAL INPUTS AND UTILITIES: RAW MATERIALS: The main raw materials required for manufactures of the vitrified tiles are clay, feldspar and quartz. The company has its own excavation equipment for quarrying. The company sources its requirements of clay from captive quarries in Govinkoppa and Yaragatti in Belguam district and at Tirthahalli in Shimoga district, both in Karnataka. The

availability of clay at these quarries is established by the Company to be sufficient for its needs for about 100 years. Feldspar and quartz are sourced from local suppliers such as Mysore Minerals Limitied. Besides, the company procures thancly from Rajasthan. Vitrified tiles require stains to import desired colour to the tiles. The company also imports clay for the manufactures of vitrified tiles from Switzerland. The company does not expect difficulty in the procurement of the above raw material and consumables.

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Production Expansion of Vitrified Tiles of MCL

POWER: The KEB has sanctioned 3650 KVA power. The 3650 KVA is adequate to run the plant. The company has five D.G. sets of aggregate capacity of 5500 KVA to take care of power cuts, load-shedding etc.,

WATER: The company‟s current requirement of water is 957 kiloliters (KL) per day which is expected to go up to 1087 KL per day on implementation of the proposed project. The company currently meets its requirement of water from 3 bore wells sunk at its site which are adequate to meet the additional water requirement of the expansion programme. FUEL: The company‟s requirement of light diesel oil (LDO) for use in the spray dryer and D. G. set would increase from 17 KL to 20 KL per day, while its requirement of LPG for use in the vertical dryer and kiln would increase form 18 tonnes per day to 21 TPD. The company would obtain the additional requirements of LDO and LPG from HPCL, Bharat Petroleum and IOC from whom the current requirement is being sourced.

LOCATION AND SITE: The expansion project is to implement at the company‟s existing site at Krishnapur village near Hubli, District Dharwad, and Karnataka. The company has acres of land at this site. Of which only 11 acres have been utilized for existing facilities. As the proposed expansion project would require about 1 acre of land, there is no need to

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Production Expansion of Vitrified Tiles of MCL acquire additional land for the project. The site is infrastructurally well developed and connected by road, rail and air to the major markets of Mumbai and Bangalore.

MACHINERY AND EQUIPMENT: The company proposes to acquire main plant machinery for the project from Sacmi, who have also supplied the existing plant and machinery.

The plant and machinery will be similar to the existing machinery of the company, thus enabling smooth erection, commissioning and operations. Further, the spare parts for the procurement being some as those for existing equipment, the company would benefit by way of interchangeability of spare parts.

LEGAL CONSENTS: There are no much legal formalities involved in the expansion programme. Only the increased capacity has to be getting registered with the Government. The company will apply for getting certificates from the Government for the proposed capacity expansion of 12, 00,000 sq. Mtrs. Vitrified tiles. Estimation of Production and Sales
Sl.No. 1. 2. 3. 4. 5. 6. Particulars Installed Capacity per day in Sq. Mtrs. No. of shifts per day Capacity Utilization % Estimated production per day in Sq. Mtrs. No. of Working days Estimated annual prodn in Sq. Mtrs (Matt) I 3636 3 55% 2000 330 1,18,800 II 3636 3 60% 2182 330 1,29,600 III 3636 3 65% 2364 330 1,40,400 IV 3636 3 70% 2545 330 1,51,200 V 3636 3 75% 2727 330 1,62,000

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Production Expansion of Vitrified Tiles of MCL
7. 8. 9. Estimated annual prodn shine Sq. Mtrs. Estimated annual prodn 6 & 7 Sq.Mtrs Units selling price in Rs/Sq. Mtrs (Matt) 5,41,200 6,60,000 275/460/1,18,800 5,41,200 28,16,22,000 5,90,400 7,20,000 275/460/1,29,600 5,90,400 30,72,24,000 6,39,600 7,80,000 275/460/1,40,400 6,39,600 33,28,26,000 6,88,800 8,40,000 275/460/1,51,200 6,88,800 35,84,28,000 7,38,000 9,00,000 275/460/1,62,000 7,38,000 38,40,30,000

10. Units selling price in Rs./Sq. Mtrs.(Shine) 11. Sales volume in Sq. Mtrs.(Matt) 12. Sales volume in Sq. Mtrs. (Shine) 13. Volume of Sales(Matt & Shine)

Estimation of production and sales Installed capacity start from 55% and there is gradual increase by 5% every year Installed capacity per day= 12,00,000/330 = 3636 estimated annual production 12,00,000*55/100= 6,60,000 No of working days is 330. Estimated production per day in Sq. Mtrs 3636*55/100=2000 3636*60/100=2182 and so on

Estimated annual production 660000*18/100 = 118800 this is for matt tiles 660000*82/100=541200 this is for shine tiles Volume of sales = 1188000*275= 3,26,70,000 5412000*460= 24,89,52,000 28,16,22,000 Babasabpatilfreepptmba.com Page 48

Production Expansion of Vitrified Tiles of MCL For rest all the years it is taken in the same manner.

Estimation of Sales on production:
Sl.No. 1. 2. Particulars Installed Capacity . Capacity Utilization % 3. 4. Prodn in Sq. Mtrs. Prodn Sq. Mtrs.(18%) Matt 5. Prodn Sq. Mtrs 5,41,200 5,90,400 6,39,600 6,88,800 7,38,000 7,87,200 6,60,000 1,18,800 7,20,000 1,29,600 7,80,000 1,40,400 8,40,000 1,51,200 9,00,000 1,62,000 9,60,000 1,72,800 I 12,00,000 55% II 12,00,000 60% III 12,00,000 65% IV 12,00,000 70% V 12,00,000 75% VI 12,00,000 80%

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Production Expansion of Vitrified Tiles of MCL
(82%) Shine 6. 7. 8. 9. 10. Sales Matt Sales Shine Net Sales (6+7) Excise (24%) Gross Sales 3,26,70,000 24,89,52,000 28,16,22,000 6,75,89,280 34,92,11,280 3,56,40,000 27,15,84,000 30,72,24,000 7,37,33,760 38,19,57,760 3,86,10,000 29,42,16,000 33,28,26,000 7,98,78,240 41,27,04,240 4,15,80,000 31,68,48,000 35,84,28,000 8,60,22,720 44,44,50,720 4,45,50,000 33,94,80,000 38,40,30,000 9,21,67,200 47,61,97,200 4,75,20,000 36,21,12,000 40,96,32,000 9,83,11,680 50,79,43,680

For Estimation of sales on production Excise is 24% on net sale i.e. 28,16,22,000*24/100= 6,75,89,280

PROFITABILITY STATEMENTS Estimated Cost of Production and Profitability Plant Capacity Utilization: 55% Total Production: 6,60,000 Sq. Mtrs. For 1st year on 12,00,000 Sq. Mtrs. 1st year (2006-2007) Sl. No 1 2 3 Particulars Raw materials Stores Power & Water Rs. 544 364 205 Page 50

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Production Expansion of Vitrified Tiles of MCL

4 5 6 7 8 9 10 11 12 13 14 15 16

Fuel Salaries & Wages Repairs and Maintenance Commission & Selling Expense

251 62

31

Administration and Miscellaneous 45 expenses Interest on Term loan @ 15% 520 Depreciation Interest on Working Capital (15%) Pre-operative expense Total Sales(Net Sales) Profit Before Tax Less: Income Tax 7.5% under MAT Profit After Tax 230 45 25 2454 2816 362 27 335

PROFITABILITY STATEMENTS Estimated Cost of Production and Profitability Plant Capacity Utilization: 60% Total Production: 7, 20,000 Sq. Mtrs. For 2nd year on 12, 00,000 Sq. Mtrs. 2nd year (2007-2008)

Sl.No 1 2

Particulars Raw materials Stores

Rs. 554 374 Page 51

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Production Expansion of Vitrified Tiles of MCL 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Power & Water Fuel Salaries & Wages Repairs and Maintenance Commission & Selling Expense Administration and Miscellaneous expenses Interest on Term loan @ 15% Depreciation Interest on Working Capital (15%) Pre-operative expense Total Sales(Net Sales) Profit Before Tax Less: Income Tax 7.5% under MAT Profit After Tax 215 261 72 142 41 55 419 230 45 25 2433 3072 639 48 591

PROFITABILITY STATEMENTS Estimated Cost of Production and Profitability Plant Capacity Utilization: 65% Total Production: 7, 80,000 Sq. Mtrs. For 3rd year on 12, 00,000 Sq. Mtrs. 3rd year (2008-2009)

Sl.No 1 2 3 4 5

Particulars Raw materials Stores Power & Water Fuel Salaries & Wages

Rs. 564 374 225 271 82 Page 52

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Production Expansion of Vitrified Tiles of MCL 6 7 8 9 10 11 12 13 14 15 16 17 Repairs and Maintenance Commission & Selling Expense Administration and Miscellaneous expenses Interest on Term loan @ 15% Depreciation Interest on Working Capital (15%) Pre-operative expense Total Sales(Net Sales) Profit Before Tax Less: Income Tax 7.5% under MAT Profit After Tax 152 51 65 311 230 45 25 2405 3328 923 69 854

PROFITABILITY STATEMENTS Estimated Cost of Production and Profitability Plant Capacity Utilization: 70% Total Production: 8,40,000 Sq. Mtrs. For 4th year on 12, 00,000 Sq. Mtrs. 4th year (2009-2010) Sl.No 1 2 3 4 5 6 7 Particulars Raw materials Stores Power & Water Fuel Salaries & Wages Repairs and Maintenance Commission & Selling Expense Rs. 574 394 235 281 92 162 61 Page 53

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Production Expansion of Vitrified Tiles of MCL 8 9 10 11 12 13 14 15 16 17 Administration and Miscellaneous expenses Interest on Term loan @ 15% Depreciation Interest on Working Capital (15%) Pre-operative expense Total Sales(Net Sales) Profit Before Tax Less: Income Tax 7.5% under MAT Profit After Tax 75 203 230 45 25 2377 3584 1207 90 1117

PROFITABILITY STATEMENTS Estimated Cost of Production and Profitability Plant Capacity Utilization: 75% Total Production: 9,00,000 Sq. Mtrs. For 5th year on 12, 00,000 Sq. Mtrs. 5th year (2010-2011) Sl.No 1 2 3 4 5 6 7 8 Particulars Raw materials Stores Power & Water Fuel Salaries & Wages Repairs and Maintenance Commission & Selling Expense Administration and Miscellaneous expenses Rs. 584 404 245 291 102 172 71 85

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Production Expansion of Vitrified Tiles of MCL 9 10 11 12 13 14 15 16 17 Interest on Term loan @ 15% Depreciation Interest on Working Capital (15%) Pre-operative expense Total Sales(Net Sales) Profit Before Tax Less: Income Tax 7.5% under MAT Profit After Tax 95 230 45 25 2349 3840 1491 112 1379

PROFITABILITY STATEMENTS Estimated Cost of Production and Profitability Plant Capacity Utilization: 80% Total Production: 9, 60,000 Sq. Mtrs. For 6th year on 12, 00,000 Sq. Mtrs. 6th year (2011-2012) Sl.No 1 2 3 4 5 6 7 8 9 10 Particulars Raw materials Stores Power & Water Fuel Salaries & Wages Repairs and Maintenance Commission & Selling Expense Administration and Miscellaneous expenses Interest on Term loan @ 15% Depreciation Rs. 594 414 255 301 112 182 81 95 8 230 Page 55

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Production Expansion of Vitrified Tiles of MCL 11 12 13 14 15 16 17 Interest on Working Capital (15%) Pre-operative expense Total Sales(Net Sales) Profit Before Tax Less: Income Tax 7.5% under MAT Profit After Tax 45 25 2342 4096 1754 132 1622

CALCULATION OF DEPRECIATION

(Straight Line Method)

1. Bldg.

1, 50, 00,000 X3.34/100=

50,000

2.

P&M

---Imp ---Indg.

37, 35, 00,000X5.28/100= 4, 10, 00,000X5.28/100=

1, 97, 20,800 21, 64,800

3. Misc. Fixed Assets Total Therefore 2, 29, 91,600/300, 00,000

2, 00, 00,000 X 5.28/100=

10, 56,000 2, 29, 91,600

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Production Expansion of Vitrified Tiles of MCL

BREAK EVEN POINT The Break Even Point is an “a point of zero profitability”. It is a point at which the total costs are equal to total revenue. It is thus, the point where the level of production is such that neither profit nor loss occurs. The break even statement, in this project explain the basis and the calculation involved in, anticipated fixed and variable costs that go into production effort, projected sales and the prices at which the sales are to take place and expected income from total sales. The interaction of these parameters in a given year of production yields this break even point of that year. It denotes the level of capacity utilization as a percentage of installed capacity. Where the level of production results in equalizing the production costs to sales income. BASIC ASSUMPTION: 1. Costs can be classified into two categories: a) Variable costs: These costs vary directly with the output. The variable costs are: 1. Raw material 2. Stores Babasabpatilfreepptmba.com Page 57

Production Expansion of Vitrified Tiles of MCL 3. Power and Water 4. Fuel 5. Salaries and Wages (30%) 6. Repairs and Maintenance. 7. Commission and Selling Expenses. 8. Administrative and Miscellaneous expenses 9. Interest on Working Capital @ 15%.

b) FIXED COSTS: These costs remain fixed or constant irrespective changes in the volume of output.

THE FIXED COSTS ARE: 1. Salaries and Wages (70%). 2. Interest on Term Loan @ 15 %. 3. Depreciation on Fixed Assets. 4. Pre-operative expenses written of.

2. UNIT SELLING CHARGES CONSTANT: It means that the total revenue vary linearly with the volume of production

3. INVENTORY CHARGES ARE NIL: This means that the quantity sold in a period is same as the quantity produced in that period.

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Production Expansion of Vitrified Tiles of MCL

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Production Expansion of Vitrified Tiles of MCL

IN THIS PROJECT, BREAK EVEN ANALYSIS IS CARRIED OUT IN: ARITHMETIC FORM: In arithmetic form, the break even point is calculated in terms of volume of production, installed capacity and sales revenue.

Break even point (In terms of % age of = Capacity of utilization)

Fixed Costs X Expected capacity utilization Contribution

Break Even point (In terms of sales = revenue)

Fixed Costs Contribution X Expected sales Realization in the year

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Production Expansion of Vitrified Tiles of MCL BREAK EVEN ANALYSIS 1st year 2006-2007 (Arithmetic Form) Plant Capacity Utilization: - 55% Sl.No 1. 2. Sales Realization Variable Cost a) Raw Materials b) Stores c) Power & Water d) Fuel e) Salaries & Wages (30%) f) Repairs & maintenance. g) Commission & Selling Expenses h) Administrative & Miscellaneous Expenses. i) Interest on Working Capital 3 4 5 Total Contribution (1-3). Fixed Costs. a) Salaries & Wages (70%) b) Interest on Term Loan (15%) c) Depreciation (Straight line Method) 43 520 230 544 364 205 251 19 132 31 45 45 1636 1180 Particulars Total Production 6, 60,000 Sq. Mtrs Rs 2816

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Production Expansion of Vitrified Tiles of MCL d) Preoperative Expenses written off. (10% of 250 lakhs for 10 years) 6 8. 9. Total Break Even point terms of volume of production Break even point in terms of sales 818 4575 1952 25

Break even point in terms of volume of production FC Contribution 818/1180*660000 = 4572 Break even point in terms of sales FC Contribution 818/1180*2816 =1952 * sales * volume of production

BREAK EVEN ANALYSIS 2nd year 2007-2008 (Arithmetic Form)

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Production Expansion of Vitrified Tiles of MCL Plant Capacity Utilization: - 60% Sl.No Particulars Rs 1. 2. Sales Realization Variable Cost a) Raw Materials b) Stores c) Power & Water d) Fuel e) Salaries & Wages (30%) f) Repairs & maintenance. g) Commission & Selling Expenses h) Administrative & Miscellaneous Expenses. i) Interest on Working Capital 3 4 5 Total Contribution (1-3). Fixed Costs. a) Salaries & Wages (70%) b) Interest on Term Loan (15%) c) Depreciation (Straight line Method) d) Preoperative Expenses written off. (10% of 250 lakhs for 10 years) 50 419 230 25 554 374 215 261 22 142 41 55 45 1709 1363 3072 Total Production 7, 20,000 Sq. Mtrs

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Production Expansion of Vitrified Tiles of MCL 6 8. 9. Total Break Even point terms of volume of production Break even point in terms of sales 724 3824 1631

Break even point in terms of volume of production FC Contribution 724/1363*720000 = 3824 Break even point in terms of sales FC Contribution 724/1363*3072 =1631 * sales * volume of production

BREAK EVEN ANALYSIS 3rd year 2008-2009 (Arithmetic Form) Plant Capacity Utilization: - 65% Total Production 7, 80,000 Sq. Mtrs

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Production Expansion of Vitrified Tiles of MCL Sl.No 1. 2. Sales Realization Variable Cost a) Raw Materials b) Stores c) Power & Water d) Fuel e) Salaries & Wages (30%) f) Repairs & maintenance. g) Commission & Selling Expenses h) Administrative & Miscellaneous Expenses. i) Interest on Working Capital 3 4 5 Total Contribution (1-3). Fixed Costs. a) Salaries & Wages (70%) b) Interest on Term Loan (15%) c) Depreciation (Straight line Method) d) Preoperative Expenses written off. (10% of 250 lakhs for 10 years) 6 8. 9. Total Break Even point terms of volume of production Break even point in terms of sales 623 3143 1341 57 311 230 25 564 384 225 271 25 152 51 65 45 1782 1546 Particulars Rs 3328

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Production Expansion of Vitrified Tiles of MCL

Break even point in terms of volume of production FC Contribution 623/1546*780000 = 3143 Break even point in terms of sales FC Contribution 623/1546*3328 =1341 * sales * volume of production

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Production Expansion of Vitrified Tiles of MCL BREAK EVEN ANALYSIS 4th year 2009-2010 (Arithmetic Form) Plant Capacity Utilization: - 70% Sl.No 1. 2. Sales Realization Variable Cost a) Raw Materials b) Stores c) Power & Water d) Fuel e) Salaries & Wages (30%) f) Repairs & maintenance. g) Commission & Selling Expenses h) Administrative & Miscellaneous Expenses. i) Interest on Working Capital 3 4 5 Total Contribution (1-3). Fixed Costs. a) Salaries & Wages (70%) b) Interest on Term Loan (15%) c) Depreciation (Straight line Method) 64 203 230 574 394 235 281 28 162 61 75 45 1855 1729 Particulars Total Production 8,40,000 Sq. Mtrs Rs. 3584

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Production Expansion of Vitrified Tiles of MCL d) Preoperative Expenses written off. (10% of 250 lakhs for 10 years) 6 8. 9. Total Break Even point terms of volume of production Break even point in terms of sales 522 2536 1082 25

Break even point in terms of volume of production FC Contribution 522/1729*840000 = 2536 Break even point in terms of sales FC Contribution 522/1729*3584 =1082 * sales * volume of production

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Production Expansion of Vitrified Tiles of MCL BREAK EVEN ANALYSIS 5th year 2010-2011 (Arithmetic Form) Plant Capacity Utilization: - 75% Sl.No 1. 2. Sales Realization Variable Cost a) Raw Materials b) Stores c) Power & Water d) Fuel e) Salaries & Wages (30%) f) Repairs & maintenance. g) Commission & Selling Expenses h) Administrative & Miscellaneous Expenses. i) Interest on Working Capital 3 4 5 Total Contribution (1-3). Fixed Costs. a) Salaries & Wages (70%) b) Interest on Term Loan (15%) c) Depreciation (Straight line Method) 71 95 230 584 404 245 291 31 172 71 85 45 1928 1912 Particulars Total Production 9, 00,000 Sq. Mtrs Rs. 3840

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Production Expansion of Vitrified Tiles of MCL d) Preoperative Expenses written off. (10% of 250 lakhs for 10 years) 6 8. 9. Total Break Even point terms of volume of production Break even point in terms of sales 421 1981 845 25

Break even point in terms of volume of production FC Contribution 421/1912*900000 = 1981 Break even point in terms of sales FC Contribution 421/1912*845 =684 * sales * volume of production

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Production Expansion of Vitrified Tiles of MCL BREAK EVEN ANALYSIS 6th year 2011-2012 (Arithmetic Form) Plant Capacity Utilization: - 80% Sl.No 1. 2. Sales Realization Variable Cost a) Raw Materials b) Stores c) Power & Water d) Fuel e) Salaries & Wages (30%) f) Repairs & maintenance. g) Commission & Selling Expenses h) Administrative & Miscellaneous Expenses. i) Interest on Working Capital 3 4 5 Total Contribution (1-3). Fixed Costs. a) Salaries & Wages (70%) b) Interest on Term Loan (15%) c) Depreciation (Straight line Method) 78 8 230 594 414 255 301 34 182 81 95 45 2001 2095 Particulars Total Production 9,60,000 Sq. Mtrs Rs 4096

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Production Expansion of Vitrified Tiles of MCL d) Preoperative Expenses written off. (10% of 250 lakhs for 10 years) 6 8. 9. Total Break Even point terms of volume of production Break even point in terms of sales 341 1562 666 25

Break even point in terms of volume of production FC Contribution 341/2095*960000 =1562 Break even point in terms of sales FC Contribution 314/2095*4096 =666 * sales * volume of production

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Production Expansion of Vitrified Tiles of MCL APPRAISAL CRITERIA STATEMENT 1) Payback period: The pay back period is the length of time required to recover the initial cash outlay on the project. According to the payback criterion, the shorter the payback period, the more desirable the project. For 5 years 6th year 1622 lakhs 4276 lakhs

PBP =

initial investment Annual Cash in flows

5+

5000 lakhs 1622 lakhs

The PBP

8 years

Since the initial investment is 5000lakhs can be recovered within 8 years. The pay back period can be used as a decision to accept or reject investment proposals. If the actual pay back period is less than the predetermined pay back, the project accepted, else rejected.

2) ACCOUNTING RATE OF RETURN: ARR also known as ROI is found out by dividing the average income after tax by the average or initial investment. ARR Avg income after tax Initial Investment Higher the rate of return the better the project. 983 lakhs 5000 lakhs Babasabpatilfreepptmba.com Page 73

Production Expansion of Vitrified Tiles of MCL = 19.66% (335+591+854+1117+1379+1622)/6 = 983

3) MARGIN OF SAFETY--- The excess of fixed assets over term loans provides margin on security for term loans. To know the present value factor.

MOS

value of fixed assets - Term loan Value of fixed assets 4495- 3600 4495 X 100 X 100

= NOTE: Bldg.

19.9% OR 20%

150 lakhs 3735 lakhs 410 lakhs 200 lakhs 4495 lakhs

P & M imp P & M Indg Miscel Fixed Assets.

1) For calculation of C F A T Particulars I II III IV V VI

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Production Expansion of Vitrified Tiles of MCL Sales Less : Cash Operation Expenses Fixed Cost Variable Cost 818 1636 2454 Total Less: Depreciation EBT Less Tax EAT Add: Depreciation Cash flow after tax 362 230 132 27 105 230 335 724 1709 2433 639 230 409 48 361 230 591 623 1782 2405 923 230 693 69 624 230 854 522 1855 2377 1207 230 977 90 887 230 1117 421 1928 2349 1491 230 1261 112 1149 230 1379 341 2001 2342 1754 230 1524 132 1392 230 1622 2816 3072 3328 3584 3840 4096

Net present value NPV is a standard method in finance of capital budgeting – the planning of long-term investments. Using the NPV method a potential investment project should be undertaken if the present value of all cash inflows minus the present value of all cash outflows (which equals the net present value) is greater than zero.

Net Present Value can thus be calculated by the following formula, where t is the amount of time (usually in years) that cash has been invested in the project, N the total length of the project (in this case, five years), i the cost of capital and C the cash flow at that point in time. Babasabpatilfreepptmba.com Page 75

Production Expansion of Vitrified Tiles of MCL

The Net present value of project is equal to the sum of all the cash flows associated with it. CALCULATION OF NET PRESENT VALUE

Sl.No.

C F A T(Lakhs)

PVF 20%

PV

1. 2. 3. 4. 5. 6.

335 591 854 1117 1379 1622 Total present value Less: Investment Net present values

.833 .694 .579 .482 .402 .335

279 410 494 538 554 543 2818 5000 2182

2) INTERNAL RATE OF RETURN IRR is another method of discounting cash flow technique which takes into account of the magnitude and timing of cash flows. IRR is the rate which equates the present values of cash outflows with the present values of cash inflows. Year CFAT Discount rate Present Discount rate Present value

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Production Expansion of Vitrified Tiles of MCL 15% 1 2 3 4 5 6 Total 335 591 854 1117 1379 1622 5898 0.870 0.756 0.658 0.572 0.497 0.432 value 291 446 561 638 685 700 3321 20% 0.833 0.694 0.579 0.482 0.402 0.335 279 410 494 538 554 543 2818

IRR= Lower rate+ Net Present Value at lower rate – Cost of investment*(higher rate-Lower rate) Net present value Lower rate Net present value Higher rate

-

15% +

(3321-5000) 3321-2818

*(15-20)

15% + 1679 503 15% +3.33 = 18.33%

*5

2) PROFITABILITY INDEX • • It is also called as Desirability factor or benefit/cost ratio. It provides a relative measure of judging desirability and evaluating the worth of an investment proposal.

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Production Expansion of Vitrified Tiles of MCL Profitability of index = PV of cash inflows Initial investment in the project 2818 5000 0.5636

Accept / Reject Criteria • • • PI > 1 Accept the proposal PI = 1 Accept the proposal PI < 1 Reject the proposal

CALCULATION OF TERM LOAN Interest 15% Quarterly repayment-180 lakhs 2006-2007 Particulars 30-9-2006 31-12-2006 31-03-2007 15 crs X 1/12 X.15 15 crs X ¼ X .15 25 crs X ¼ X .15 Total Principle lakhs --------Interest Lakhs 19 56 94 169

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Production Expansion of Vitrified Tiles of MCL
2007-2008 Particulars 30-06-2007 30-09-2007 31-12-2007 31-03-2008 36 crs X ¼ X.15 36 crs X ¼ X .15 3420 lks c X ¼ X .15 3240 lks. X ¼ X.15 Total 2011-2012 Particulars 30-06-2011 30-09-2011 31-12-2011 31-03-2012 31-06-2012 900 X ¼ X.15 720 X ¼ X .15 540 lks X ¼ X .15 360 lks. X ¼ X.15 180 lks. X ¼ X.15 Principle lakhs 180 180 180 180 180 Interest Lakhs 34 27 20 14 8 Principle lakhs --180 180 180 540 Interest Lakhs 135 135 128 122 520

DSCR is the ratio of cash generation to debt service (interest repayment of principal). This statement shows the manner and the duration of the debt repayment schedule spread over a period. DEBT SERVICE COVERAGE RATIO (DSCR)

Particulars PAT Depreciation INT TERM LOAN P O EXP

I 335 230 520 25

II 591 230 419 25

III 854 230 311 25

IV 1117 230 203 25

V 1379 230 95 25

VI 1622 230 8 25

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Production Expansion of Vitrified Tiles of MCL A INT TERM LOAN RE-PAYMENT B A/B-DSCR 1110 520 -520 2.13 1265 419 720 1139 1.11 1420 311 720 1031 1.37 1575 203 720 923 1.70 1729 95 720 815 2.12 1885 8 180 188 10.02

18.45/6 = 3.07

PROJECTED PROFIT AND LOSS STATEMENT

PARTICULARS Sales revenue Dep. Int. term loan (15%) Int. Bank Brrgs (15%) Cost other than above 3 partic Pre Optv Exp w/o Total cost PBT

I 2816 230 520 45 1634 25 2454 362

II 3072 230 419 45 1714 25 2433 639

III 3328 230 311 45 1794 25 2380 923

IV 3584 230 203 45 1874 25 2377 1207

V 3840 230 103 45 1954 25 2349 1491

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Production Expansion of Vitrified Tiles of MCL I.T (MAT) (7.5%) PAT 27 335 48 591 69 854 90 1117 112 1379

PARTICULARS

I

II

III

IV

V

VI

PROJECTED PROFIT AND LOSS STATEMENT
4500 4000 3500 3000 2500 2000 1500 1000 500 0 3840

2816

3072

3328

3584

SALES

Sales revenue 1117 1379 PAT

335

591

854

1

2

3 PAT

4

5

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Production Expansion of Vitrified Tiles of MCL Capacity Units (000‟s) Sales LESS: Variable Cost Contribution LESS : Fixed Cost PBDIT ADD: DEP EBIT 55% 660 2816 1636 1180 818 362 230 592 60% 720 3072 1709 1363 724 639 230 869 65% 780 3328 1782 1546 623 923 230 1153 70% 840 3584 1855 1729 522 1207 230 1437 75% 900 3840 1928 1912 421 1491 230 1721 80% 960 4096 2001 2095 341 1754 230 1984

CALCULATION OF E.B.I.T

EBIT
2500 1984 2000 1721 1437 1153 869 592 55% 0 1 2 3 4 5 6 CAPACITY OF PRODUCTION 60% 65% 70% 75% 80% EBIT Capacity

EBIT

1500 1000 500

FINANCING DECISION 100% EQUITY

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Production Expansion of Vitrified Tiles of MCL Particulars E.B.I.T INT. P.B.T TAX (7.5%) P.A.T NO OF SHARES E.P.S. I 592 --592 44 548 35001676 1.57 II 869 ---869 65 804 35001676 2.29 III 1153 ---1153 86 1067 35001676 3.04 IV 1437 ---1437 107 1330 35001676 3.79 V 1721 ---1721 129 1592 35001676 4.54

E.P.S AVG 35001675 *14 490023464

= 15.23/5 3.04

EPS IN 100% EQUIRY
2000 1500 1330 1067 1000 548 500 1.57 0 P.A.T E.P.S. 1 548 1.57 2.29 2 804 2.29 3.04 3 1067 3.04 EPS 3.79 4 1330 3.79 4.54 5 1592 4.54 804 P.A.T E.P.S. 1592

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PAT

Page 83

Production Expansion of Vitrified Tiles of MCL CALCULATION OF FINANCING DECISIONS INTEREST=15% 50% OF 4995=2498 (20 EQUATED QUARTERLY INSTALLMENTS) = 124.0 OR 125 2005-2006 PARTICULARS PRINCIPLE -30. 06 .2005 2498 X .15 X ¼ 125 30.09.2005 2498 X .15 X ¼ 125 31-12-2005 2373 X .15 X ¼ 125 31.03.2006 2248 X .15 X ¼ 375 TOTAL 361 84 89 94 INTEREST 94

TILL 2011-2012 30.06.2011 123 X .15 X ¼ 123 5

123

5

NOTE: FOR 1ST YEAR ( FROM 1/7/2004 TO 30/6/2005) NO PRINCIPLE BECAUSE OF CONSTRUCTIN PERIOD.

FINANCING DECISION

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Production Expansion of Vitrified Tiles of MCL 50% EQUITY + 50% LOAN I 592 E.B.I.T

II 869

III 1153

IV 1437

V 1721

INT. (15%)

361

291

164

140

65

P.B.T

231

578

989

1297

1656

TAX (7.5%)

17

43

74

97

124

P.A.T

214

535

915

1200

1532

No of Shares

25015818

25015818

25015818

25015818

25015818

E.P.S

0.86

2.13

3.65

4.79

6.12

E.P.S. AVG = 17.55/5= 3.51

EPS IN LOAN AND EQUITY
2000 1532 1500 1200 915 535 500 0 P.A.T E.P.S 214 0.86 1 214 0.86 2.13 2 535 2.13 3.65 3 915 3.65 EPS 4.79 4 1200 4.79 6.12 5 1532 6.12 P.A.T E.P.S

PAT

1000

CALCULATION OF FINANCING DECISION: INTEREST=15% Babasabpatilfreepptmba.com Page 85

Production Expansion of Vitrified Tiles of MCL

80% OF 4995=3996 (20 EQUATED QUATERLY INSTALLMENTS) = 199.80=200 2005-2006 PRINCIPLE INTEREST 150 30. 06 .2005 3996 X .15 X ¼ ---200 30.09.2005 3996 X .15 X ¼ 200 31-12-2005 3796 X .15 X ¼ 200 31.03.2006 3596 X .15 X ¼ TOTAL 600 577 142 142 150

Till 2011-2012 30.06.2011 196 X .15% X ¼ 196 196 7 7

Note: for 1st year (e.i., from 1/07/2004 to 30/06/2005) no principle because of construction period.

FINANCING DECISION

20% INTERNAL ACCRUALS + 80% LOAN PARTICULARS I II III IV V Page 86

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Production Expansion of Vitrified Tiles of MCL

592 E.B.I.T

869

1153

1437

1721

INT.(15%)

577

365

344

224

104

P.B.T

15

504

809

1213

1617

TAX (7.5%)

1

38

60

90

121

PAT

14

466

749

1123

1496

NO OF SHARES

15025818

15025818

15025818

15025818

15025818

EPS

.93

3.10

4.98

7.47

9.95

E.P.S AVG = 26.43/5 = 5.28 THE E.P.S. OF LOAN + INTERNAL ACCRUALS SHOWS GOOD (6.28) HENCE THE COMPANY CAN ADOPT THIS

EPS IN DIFFERENT FINANCING DECISIONS Particulars E.P.S in 100% Equity E.P.S. in Equity and loan E.P.S. internal accruals and loan Babasabpatilfreepptmba.com Financing decisions 3.04 3.51 5.28 Page 87

Production Expansion of Vitrified Tiles of MCL

EPS IN FINANCING DECISIONS

3.04 EPS in 100%EQTY 5.28 EPS in 50% EQT & 50% LN EPS in IA & LN 3.51

LIMITATIONS  Technical information given in this report is obtained from the staff of MCL  The projections have been made assuming that the project will be implement in the year 2006-2007 and the commercial operation starts from 2007-2008

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Production Expansion of Vitrified Tiles of MCL  Capacity utilization rate has been taken as 55% for the 1st year of operation and 60% for the 2nd year ----80% for the 6th year.  The life of the project is assumed to be 10 years and calculation is taken for 6 to 5 years.  Calculation is based on assumptions.  The projection figures are estimates based on the past figures.  The financial statements have been prepared on incremental basis.  Figures taken for calculation of profitability statements and break even point. It is assumed that the raw material and all other items required for variable cost fixed cost will be increasing by 10 units  Most of the information for calculation is taken from the employees.

FINDINGS:

  

The project is financially feasible The pay back period of the project is 8 years. The Account Rate of Return is 19.66

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Production Expansion of Vitrified Tiles of MCL       The Net Present value is positive. 2182 The Internal Rate of Return is 18.33%. The Profitability Index is 0.563 The Debt Service Coverage Ratio is 3.07 Margin Of Safety is 20%. Earnings Per Share of 20% internal accruals and 80% loan shows 5.28.

SUGGESTION

The proposed project is technically feasible and is certified by Technical Experts of MCL.

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Production Expansion of Vitrified Tiles of MCL ♣ The proposed project is commercially and financially feasible.

The Earning Per Share of the project is greater when the project is Financed by loan + internal accruals shows good (5.28)

The Company can adopt this project

CONCLUSION This project is to expand the manufacturing capacity of vitrified tiles especially of bigger sizes. The necessity of this proposed expansion would be to meet the increasing demand for bigger size vitrified tiles, increase of the turnover of the company and also maximizing shareholders wealth by selecting the best financing decision.

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Production Expansion of Vitrified Tiles of MCL To start with, the overview part of the project deals with the capital budgeting aspect in that production expansion is taken. Schematic diagram under feasibility study shows the different steps involves in and from the generation of idea to implementation and review of the project. Market and demand analysis reveals the need for implementing the proposed project.

Technical feasibility reveals the availability of technical know how for the manufacturing of vitrified tiles, availability of good location, essential services, machinery and

equipment, manpower, raw materials.

Financial analysis shows the cost of the project and cost on different heads and means of finance. The preliminary statements shows requirement of land and buildings, machinery and equipments, other fixed assets, pre-operative expenses manpower, raw materials estimations of sales based on production capacity and also production and sales.

The profitability statement shows the working capital requirement and margin money. The cost of production and profitability statements points out the extent of profit that may be generated by the project year after year based on certain assumptions in manufacturing costs.

The B.E.A made under the arithmetic form indicates no loss no profit of level production sales.

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Production Expansion of Vitrified Tiles of MCL

The appraisal criteria statement shows the positive net present value. I R R being 18.33%, P B P 8 years, A R R being 19.66%, the profitability Index is 0.563 all these measures the economic viability of the project. The important statement of DSCR shows the returns years after the year which are sufficient to cover the debt liabilities.

P & L Statement indicated the distribution of sales revenue to obtain PAT

By over all economic evaluation this project would be considered as viable and profitable project.

BIBLIOGRAPHY

Financial Management by books used from which I have taken help for the theory part of the study: M.V. Khan & P.K. Jain I.M. Pandey

For the calculations of the project information is taken from ANNUAL REPORTS OF M C L. And the some information is taken by SEARCH ENGINES GOOGLE

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Production Expansion of Vitrified Tiles of MCL

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