A SYNOPSIS REPORT

CAPITAL BUDGETING
AT
DR REDDY’S LABORATORY

PROJECT SYNOPSIS SUBMITTED FOR

MASTER OF BUSINESS ADMINISTRATION

Department of Business Administration

Submitted By
PADMA SUPRIYA
H.T.NO: 1415-20-672-014

Under the Guidance of

Mr. V. SHANTHAN KUMAR
ASSISTANT PROFESSOR

PENDEKANTI INSTITUTE OF MANAGEMENT

IBRAHIMBAGH
(Affiliated to Osmania University-2021-22).
 INTRODUCTION
The term capital budgeting refers to long-term planning for proposed capital outlays
and their financing. Thus, it includes both rising of long-term funds as well as their
utilization. It may be defined as “The firm’s decision to invest its current funds most
efficiently in the long-term assets in anticipation of an expected flow of benefits over
a series of years”. The primary objective of financial analysis is to assist in decision
making.

An efficient allocation of capital is the most important finance function in the modern
times. It involves decision to commit the firm’s funds to the long-term assets. The
investment decisions of a firm are generally known as the Capital Budgeting or
Capital Expenditure Decisions. A Capital Budgeting Decisions maybe defined as the
firm’s decision to invest its current funds most efficiently in the long-term assets in
anticipation of an expected flow of benefits over a series of years.

Investment Decisions
One of the basic questions faced by the financial manager is” How should the scarce
resources of the firm is allocated to get the maximum value for the firm? This refers
to investment decisions, which deal with investment of firm’s resources in long-term
(fixed) assets and short term (current) assets or Capital Budgeting Decisions and
Working Capital Management. Capital Budgeting is a decision making process for
investment in assets that have long term implication, affect the future growth and
profitably of the firm and basic composition and assets mix of the firm. Measuring the
benefits and costs associated with each alternative option in terms of incremental cash
flows. Evaluating different proposals in the light of return expected by the investors of
the firm and the return promised by the proposal Applying different techniques to
select an alternative with objective of maximization of value of the firm. Typically,
capital budgeting decision involves rather large cash outlays and commits the firm to
a particular course of action over a relatively long period and consequently, every care
should be taken care of. The future risks and uncertainties should be incorporated in
the evaluation procedure so the future cash flows occur as they are intended to be.
Types of investment decisions:
The following are the various types of investment decisions

Independent Investment: These are proposals, which do not compete with one
another in a way that acceptance of one precludes the possibility of acceptance of
another. The case of such proposals the firm may straightway “accept or reject” a
proposals, which give a higher, return than a certain desired rate of return, are
accepted and the rest are rejected.
Contingent investment: These are proposals whose acceptance depends on the
acceptance of one or more other proposals. For example a new machine has to be
purchased on account of substantial upon expansion of plant. When a contingent
investment proposal is made, it should also contain the proposal on which it is
dependent in order to hate a better perspective of the situation.
Mutually Exclusive Investment: These are proposals, which compete with
each other in a way that the acceptance of one precludes the acceptance of other or
others. For example, if a company is considering investment in one of two
temperature control systems, acceptance of one system will rule out the acceptance of
another. Thus two or more mutually exclusive proposals cannot be accepted. Some
technique has to be used for selecting the better or the best one. Once this is done
other alternatives get automatically get eliminated.
Make Or Buy Decision: Make or buy decision is no longer a short run operating
decision and it becomes a problem of capital expenditure which necessitates
consideration of required rate of return. A company has to take this decision, when it
has to face the following choice.
Buy certain part or sub-assemblies from outside suppliers; or
Use available capacity to produce the item within the factory.
In this decision, the following are major considerations:
Costs that will be incurred under both alternatives are not relevant to the analysis
Potential uses of available capacity should be considered.
Pertinent quantitative factors must be evaluated in the decision process. These
considerations include price stability from suppliers, reliability of delivery and
quality specifications of materials or components involved.
Factors affecting capital investment decisions:
The following are the four important factors, which are generally taken into account
while making a capital investment decision:
The Amount Of Investment: In case a firm has unlimited funds for investment
it can accept all capital investment proposals which give a rate of return higher than
the minimum acceptable or cut-off rate. However, most firms have limited funds and
therefore capital rationing has to be imposed. In such an event a firm can take only
such projects which are within its means. In order to determine which project should
be taken up on the basis the projects should be arranged in an ascending order
according to the amount of capital investment required.
Computation Of Capital Investment Required: The term capital
investment required refers to the net cash outflow, which is the sum of all outflows
and inflows occurring at zero time period. The net outflow it determined by taking
into account the following factors.
Cost of the new project
Installation cost
Working capital
Proceeds from sale of asset: A new asset may be purchased for replacement of an
old asset. The old asset may therefore be sold away. The cash realized on account of
such sale will reduce the cost of new investment.

Tax Effects:the amount of profit or loss on the sale of assets may affect the cash
flows on account of tax affects. The profit or loss is ascertained by taking into account
the cost of assets, it book value and the amount realized on its sale. The tax liability
will be different in each of the following case
NEED OF THE STUDY
Capital budgeting decisions are the investment decisions of the firm generally known
as the capital budgeting, or capital expenditure decisions. A capital budgeting
decision may be defined as the firm’s decision to invest in current funds most
efficiently in the long term assets in anticipation of an expected flow or benefits over
a series of years. The long-term assets are those that effect the firm’s operations
beyond the one year period. The firm’s investment decision would generally include
expansion, acquisition, modernization and replacement of the long-term assets. Sale
of a division or business is also an investment decision. Decisions like the change in
the methods of sales distribution, or an advertisement campaign or research and
development programme have long-term implications for the firm’s expenditures and
benefits, and therefore they should also be evaluated as investment decision. Hence,
the project aims at evaluating the investment proposal for setting up different facilities
in Dr Reddy’s Laboratory Limited, Hyderabad.
OBJECTIVES OF THE STUDY

The following objectives of the present study are

 To study the investment decisions in the select organization.

 To investigated on the various methods for determining the size of the Capital
Budget evaluating the investment proposals of Dr Reddy’s Laboratory Limited

 To give appropriate suggestions on capital budgeting techniques for the

development of the select organization
SCOPE OF THE STUDY
The scope and period of study is restricted to the following

 The scope is limited to the operations of the Dr Reddy’s Laboratory Limited.

 The information obtained from the primary and secondary data was limited to
Dr Reddy’s Laboratory Limited.

 The Key information performances indicated were taken from 2016-2021

 The P&L, The Balance sheet was on the last five years.

 Comparison analysis was done in comparison of sisters units

RESEARCH METHODOLOGY

The study has been collected through secondary sources. The secondary data has been
collected from the 5 years annual reports (2016-2021) of the Dr Reddy’s Laboratory
Limited, Books, Journals, Magazines, Periodicals and company websites.
Primary Sources

It is also called as first handed information. The data is collected through the
observation in the organization and interview with officials. By asking question with
the accounts and other persons in the financial department.

Secondary Sources
The secondary data have been collected through the various books, Magazines and
websites.

Data Analysis Techniques

 Payback period
 Accounting rate of return
 Profitability Index
 Net Present Value
 Internal Rate of Return

.
LIMITATIONS OF THE STUDY

The following are the limitations of the study

 The study is conducted with the data available and analysis is made
accordingly.

 Due to the confidential financial records, the data is not exposed so the study
may not be detailed and full-fledged.

 Since the study is based on financial data that are obtained from the financial
statements, the limitations of financial statement shall be equally applicable.

 The analysis may not be accurate as the available data is limited.


 COMPANY PROFILE
Dr. Reddy's Laboratories is an Indian multinational pharmaceutical company
located in Hyderabad, Telangana, India. It was first started as a cast based
company.The company was founded by Anji Reddy, who previously worked in the
mentor institute Indian Drugs and Pharmaceuticals Limited. Dr. Reddy's manufactures
and markets a wide range of pharmaceuticals in India and overseas. The company has
over 190 medications, 60 active pharmaceutical ingredients (APIs) for drug
manufacture, diagnostic kits, critical care, and biotechnology products.

Dr. Reddy's began as a supplier to Indian drug manufacturers, but it soon started
exporting to other less-regulated markets that had the advantage of not having to
spend time and money on a manufacturing plant that would gain approval from a drug
licensing body such as the U.S. Food and Drug Administration (FDA). By the early
1990s, the expanded scale and profitability from these unregulated markets enabled
the company to begin focusing on getting approval from drug regulators for their
formulations and bulk drug manufacturing plants - in more-developed economies.
This allowed their movement into regulated markets such as the US and Europe. In
2014, Dr. Reddy Laboratories was listed among 1200 of India's most trusted brands
according to the Brand Trust Report 2014, a study conducted by Trust Research
Advisory, a brand analytics company.
By 2007, Dr. Reddy's had seven FDA plants producing active pharmaceutical
ingredients in India and seven FDA-inspected and ISO 9001 (quality) and ISO
14001 (environmental management) certified plants making patient-ready
medications – five of them in India and two in the UK.
In 2010, the family-controlled Dr Reddy's denied [5] that it was in talks to sell
its generics business in India to US pharmaceutical giant Pfizer, which had been suing
the company for alleged patent infringement after Dr Reddy's announced that it
intended to produce a generic version of atorvastatin, marketed by Pfizer as Lipitor,
an anti-cholesterol medication. Reddy's was already linked to UK pharmaceuticals
multinational Glaxo Smithkline.
Dr. Reddy's Laboratories Limited, together with its subsidiaries, operates as an
integrated pharmaceutical company worldwide. It operates through Global Generics,
Pharmaceutical Services and Active Ingredients (PSAI), Proprietary Products, and
Others segments. The Global Generics segment manufactures and markets
prescription and over-the-counter finished pharmaceutical products that are marketed
under a brand name or as a generic finished dosages with therapeutic equivalence to
branded formulations. This segment also engages in the biologics business. The PSAI
segment manufactures and markets active pharmaceutical ingredients and
intermediates, which are principal ingredients for finished pharmaceutical products.
This segment also provides contract research services; and manufactures and sells
active pharmaceutical ingredients and steroids in accordance with the specific
customer requirements. The Proprietary Products segment focuses on the research,
development, and commercialization of differentiated formulations for dermatology
and neurology therapeutic areas. The Others segment engages in developing therapies
in the fields of oncology and inflammation. As of March 31, 2021, it had three late
stage projects at various stages of development. Its therapeutic categories primarily
include gastro-intestinal, cardiovascular, anti-diabetic, dermatology, oncology,
respiratory, stomatology, urology, and nephrology. The company has a collaboration,
license, and option agreement with Curis, Inc. to discover, develop, and
commercialize small molecule antagonists for immuno-oncology and precision
oncology targets. Dr. Reddy's Laboratories Limited was incorporated in 1984 and is
headquartered in Hyderabad, India.