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A SUMMER TRAINING REPORT

ON

CAPEX BUDGETING, MONITORING AND APPRAISAL

SUBMITTED IN PARTIAL FULFILLMENT FOR THE

REQUIREMENT OF

MASTER OF BUSINESS ADMINISTRATION

(2009-11)

SUBMITTED TO: SUBMITTED BY:

CONTROLLER OF EXAMINATION KASHIKA WELLINGTON

ITM UNIVERSITY 09-ITMG-6818MBA

INSTITUTE OF TECHNOLOGY AND MANAGEMENT

SECTOR- 23 A, GURGAON



Page 1

ACKNOWLEDGEMENT

On the completion of this report, I take the opportunity and pleasure to express my gratitude

to all those who have directly or indirectly helped me in my project work. I express my

deepest gratitude to Mr. Jagjit Singh, Senior Manager, Finance, for guiding me through four

weeks tenure of my project work and especially for helping me understand post CAPEX

appraisal. I sincerely thank my mentors, Mrs. Asha Kansal, Deputy Manager, Finance andMs. Anshu Rajpal, MT, Finance, for their immense help in my academic exploration, for

guiding me throughout, for giving me an ambience to work with zeal and comfort andhelping me understand the various processes at the CAPEX division.

I am also thankful to Mrs. Neelam Dhaka, Senior Manager, HR, for giving me this

opportunity to work as an intern at JCB India Headquarters.Last, but not the least, I am highly thankful to Mr. Pradeep Kathuria, GM, Finance, for

accepting my request and letting me do my training in the Finance Department of JCB.



Page 2

TABLE OF CONTENTS

S.NO. PARTICULARS PAGE NO.

1.0 Synopsis 3

2.0 Introduction / Objective 4

3.0 Company Profile 5

4.0 Research Methodology 65.0 Review of Literature 7-17

6.0 Analysis 18

7.0 Findings and

Recommendations

19-20

8.0 Conclusion 21

9.0 Appendices 22-35

10.0 Bibliography 36



Page 3

1.0 SYNOPSIS

Capital Expenditure budget is prepared annually so as to take into account all the expenditure

the company is going to incur in the coming financial year. At JCB because of the scale of its

production which implies mammoth capital expenditure, there is a separate CAPEX division

in the Finance Department of the company. The division looks after the budgeting and

monitoring of the CAPEX of various departments. There is an elaborate process involvingchecks and verifications at every step in place. Studying and understanding that process

forms the first part of this project report.

In 2007 to meet the rising need for world class cranes, JCB India decided to produceLIFTALL, a pick and carry crane. Subsequently the business plan was prepared with

estimated cash flows. Now, in retrospect, the robustness of the business plan can be checkedthrough an appraisal. In this project, the appraisal of capital investment has been discussed.

Various steps that should be present in a post CAPEX appraisal have been suggested.

Apart from the appraisal, another issue which is critical is the frequency of such appraisals.

The purpose of the appraisal is to check whether the planned budget was correct, and also

whether the project is in line with the vision with which the project was launched. If the planis too optimistic, or maybe due to some unforeseen changes in the economy the actual

expenditure or / and the sales can deviate from the plan. An appraisal should not be done after

too long a gap that the conclusions obtained from it are of no use. On the other hand,

conducting an appraisal requires extra man hours and thus cannot be performed too

frequently.

In this project, an effort has been made to suggest the frequency with which an appraisalshould be conducted. Keeping in mind the no disclosure policy of the company, the data used

while conducting the project has not been included in the project report.



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2.0 INTRODUCTION / OBJECTIVE

2.1 CAPEX

Capital Expenditure or CAPEX is a fund required by companies to create future benefits. A

capital expenditure is incurred when companies spend money to either buy fixed assets or

upgrade existing fixed assets. CAPEX is used to increase the scope of the business. Theamount of capital expenditure a company has depends on the industry in which it operates.

Certain industries like telecom, oil etc are capital intensive.

The following are included in capital expenditure:

a) Acquiring fixed assets

b) Fixing problems with an asset which existed prior to acquisition if it results in

superior fixtures

c) Restoring property or adapting it to a new use

d) Preparing asset to be used in the business

For accounting purposes, CAPEX is commonly found in cash flow statements in the

investing subsection. There is often a dilemma over whether certain expenditures should beexpensed or capitalized. Costs that are expensed appear in the income statement whereas

costs which are capitalized are amortized over multiple years. But for certain capitalexpenditure which maintains the asset in its current state, the cost is deducted fully in the year

of the expense. Capitalized expenditure appears in the balance sheet.

2.1 OBJECTIVE

1. To study the CAPEX process of JCB India limited.

2. To properly understand the structure and working of the finance department as a

whole.

3. To develop a process of Post CAPEX Appraisal.

4. To know strengths, weaknesses, opportunities and threats of JCB.



Page 5

3.0 COMPANY PROFILE

³W e aim to deliver the best customer support in our industry - putting the customer at the

very heart of our business´

JCB is one of the world's top five privately-owned manufacturers of construction

equipment. J. C. Bamford Excavators Limited, or JCB as it is more properly known, is namedafter its founder J. C. Bamford, producing distinctive yellow-and-black engineering vehicles,

diggers ("Backhoes"), excavators, tractors, and diesel engines.

Headquartered in Rocester, Staffordshire, JCB is one of the ten largest constructionequipment manufacturers in the world and has 17 factories in UK, Germany, Brazil, North

and South America, India and China. Its Indian factories are based Haryana and Pune. Thecompany employs some 8,000 people, has a range of more than 250 products and has

operations in 150 countries. It has the largest range of compact equipments in the world andhas developed solutions for industries as diverse as construction, agriculture, waste handling,

landscaping, military, timber and many other specialist areas. The company has also licensed

its name and image to a line of consumer power tools, manufactured by Alba PLC.

JCB now makes over 300 types of machines for construction, industry, agriculture and

military engineering. Throughout a 60 year history, JCB has always invested heavily in

research and development, keeping itself at the cutting edge of innovation.

Its mission is to grow by providing innovative, strong and high performance products and

solutions to meet its global customers' needs.



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4.0 RESEARCH METHODOLOGY

As the project had two distinct divisions, it required two separate treatments.

The first part of the project involved my understanding of workings of the Finance

Department, specifically the CAPEX division. For that, I understood the various steps

involved in maintenance of the CAPEX of the company. Apart from this, I was also involvedwith every step of CAPEX monitoring. Through that, I got a thorough idea about the division.

I was also exposed to the ERP (SAP) package used here, and also various functionalities of Microsoft Excel.

The second part of the project involved suggesting a method for doing the post CAPEX

appraisal of the LIFTALL project. For that I researched about the product using secondary

data, and after that came to know more about it through various company documents. Later I

collected the planned, budgeted and actual data related to the LIFTALL project and

calculated and analyzed the variation.

The data for understanding the CAPEX process of the company was collected and compiled

by referring to various sources. These include:

1. PRIMARY DATA

Managers and Management trainees of the finance department

2. SECONDARY DATA

i. Capital Sanction Reports

ii. Purchase Requisitions

iii. Purchase Orders

iv. ZAST report in SAP software

v. Internal CAPEX report

vi.

Internal audit reports submitted by auditorsvii. Internet



Page 7

5.0 REVIEW OF LITERATURE

5.1 CAPEX PROCESS OF JCB

At JCB, expenditure on assets broadly falling under the following categories is taken as

capital expenditure:

a) Land and Building b) Computers

c) Furniture and fixtures

d) Plant and Machinery

e) Vehicles

Various departments, throughout the year, initiate a request for expenditure of some amount

of the budget allocated to that department. After all the formalities involved with sanctioning

a capital expenditure request is completed, the next involves making a Purchase Order and

subsequent asset code generation.

5.2 STEPS IN CAPEX PROCESS

y CAPEX Budget Approval

y CSR checking and posting

y Asset Code Generation

y Purchase Order (PO) checking

y CAPEX Reporting

5.2.1 CAPEX Budget Approval

The financial year of JCB is Jan ± Dec. Thus every department at the time of budget has tosubmit the amount of CAPEX they would be requiring in the coming financial year. At JCB

the budgeting is done using the zero-based budgeting method.

Thus instead of traditional process of budgeting where a department just increases over

previous year¶s budget, here every department has to prepare a detailed budget havingdetailed break-up of the expenditure to be incurred. For example a typical capital expenditure

budget of any department would look like: Refer to APPENDIX 9.2.

5.2.2 CSR Checking and Posting

For any desired capital expenditure the department has to raise a capital sanction request. It

has to be signed by the heads of various affected departments. It typically looks like: Refer to

APPENDIX 9.3.

The amount of CAPEX should include the basic price + all taxes + installation costs + all

costs required for transporting the fixed asset to the current location.



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The fixed asset for which the CSR is raised can fall in any of the following categories:

y Land and Building

y Computers

y Furniture and fixtures

y Plant and Machinery

y Vehicles

Each of the above categories or asset classes has a separate asset code.

After the respective department raises the CSR, it is approved by the head of that department.

Once this formality is finished, it is sent to the finance department for further approvals. Inthe finance department, an excel document is maintained as a database for all the CSR which

has been raised. For every year, there is a separate excel document.

The following values are entered into the excel sheet:

1. D EPARTMENT ± A dropdown containing list of all the departments.

2. AMOUNT - CSR amount is entered in INR.

3. S TATU S - There can be total 6 types of status:

i. Approved- After obtaining all the mandatory signatures the CSR is

declared and a photocopy of the CSR is sent to the user department for further process required for asset purchase.

ii. Sent to user- This status can denote either a cancellation or a hold status(the CSR might be sent back due to some doubts).

iii. Sent to UK - If the CSR amount is greater than specified amount then ascanned copy of the CSR is mailed to UK for further approval after the

MD has signed it.

iv. Cancelled- There can be various reasons leading to cancellation of a CSR.

It might be that the Finance Department doesn¶t approve of the costing for

the asset, or UK rejects the CSR. It also might be that the department

which raised the CSR later cancels it due to change in the business plan

v. Pending with Finance- After all the particulars are verified, the CSR is

sent to Director Finance for approval. Till the Director doesn¶t sign the

CSR the status remains as Pending with Finance.

vi. Pending with MD- The next step in the approval process in that the CSR

is sent to the MD for approval.

4. D ATE OF S EN DI NG TO U.K.- For all those CSR which are sent to UK the date is

noted down.

5. I N I T I ATOR- The name of the initiator is noted down here.



Page 9

6. BU DGET I N / OUT - As mentioned above there is a worksheet containing the allotted budget of various departments. This sheet typically looks like: Refer to APPENDIX

9.4. The amount which is entered in the CSR worksheet gets added up appropriatelyand thus a positive value in the column further CSR gives us an idea whether the

department has exceeded the allotted budget. When a department exceeds it budget

they are asked for further justification of the CSR, and the value is noted under the

forecasted budget of that department.

7. D ATE OF APPROVAL - The day the final signature on the CSR is obtained, the CSR

is declared approved, and that date is noted down.

As we can see that CSR posting also includes checking various details in the raised CSR,thus, to ease the job of CSR checking off late, a CSR checklist has been prepared which is

illustrated in APPENDIX 9.5.

5.2.3 Asset Code Generation

When the CSR is approved, the next step is asset code generation. Now say, for example, theHR department has raised a CSR for 10 laptops. Say on priority basis they want to purchase 1Laptop. Then they would approach the Finance department with the approved CSR for

generating an asset code. Now every asset falls under a unique asset class. There are a total of 19 asset classes and there are 3 asset classes for CWIP. The table containing some of the asset

classes with their life spans and depreciation rates is given in APPENDIX 9.6.

The particulars are entered in the SAP. The SAP screen is illustrated in APPENDIX 9.7.

5.2.3.1 I N S ERT I ON OF T-CO D E

The SAP generates a unique 9 digit code for every asset. Thus every asset is associated with a brief description, cost centre (the department for which it is being obtained), location (e.g.:Ballabgarh, Guwahati, Kolkata etc), and the depreciation rates.

Now there are two types of asset codes:

y DI RECT ASS ET CO D E : For all the assets under asset classes 1 ± 21 direct asset

codes are given, because as soon as they are obtained they are capitalized and thustheir depreciation is charged. Assets whose CSR¶s value is less than a specified

amount are depreciated completely in the current year.

y I N DI RECT / C W I P ASS ET CO D E : Say JCB is constructing a machine at one of its

plants. Now the various tools and parts required for the machine to be constructedwould be given an indirect asset code (the last three CWIP asset codes). Now once the

machine is build verification is done and an installation certificate is given. The asset

is now reclassified into any of the asset classes and given a direct code.



Page 10

5.2.3.2 D EPREC I AT I ON

A decrease in the value of property through wear, deterioration, or obsolescence is

Depreciation.

It¶s of two types:

1. Straight line method2. Diminishing balance method

Refer to APPENDIX 9.8 for depreciation and written down value of an asset respectively.

5.2.4 Purchase Order Checking

Once the CSR is approved the user department can raise purchase order as and when they

require the asset. The purchase order is sent to the Finance department for approval. Thefollowing mandatory attachments / particulars are checked:

y C S R number - The PO should contain the CSR number.y Commercials- the PO should contain all the quotations from different vendors for that

asset. There should be a minimum of two quotations for every PO. The minimum of

the two quotations is taken and this is checked by the finance department. For certainassets like laptop, desktops etc there is a dedicated vendor HP, and hence no second

quotation is taken.

y Budget - It is checked whether the PO is within the approved CSR budget.

Refer to APPENDIX 9.9 for Purchase Order Checking Sheet.

After the approval, the PO is deposited in the purchase department where they make an entry

in the SAP application. In this entry a purchase order is tagged with its CSR.

S AP CU S TOM IZ E D REPORT

SAP can generate a report which contains the following details till the date of generation:

y Asset Number

y Asset Class

y Description

y CSR No.

y Qty

y Vendor

y Currency

y Correct PO Value

Every CSR can have more than one PO. It is important thus to track the total amount of the

entire PO, and to see whether it is still within the CSR amount. Hence to ease this job a PO

checking sheet is made using the CSR sheet and ZAST sheet.



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5.2.5 CAPEX Reporting

At the end of every month a consolidated CAPEX report is prepared using the ZAST report.

In the report the 23 asset classes used for generating asset codes are clubbed into five broad

categories:

1. Land & Building

2. Plant & machinery3. Fixtures and Fittings

4. Motor Vehicles5. CWIP

The reclassification of assets from CWIP to direct assets are calculated, and every months

total CAPEX expenditure is also tracked by deducting the YTD previous months value. Thedepreciations for each category are separately calculated and finally net CAPEX done is

obtained.

The report also contains forecasted CAPEX for each department.

5.3 APPRAISAL AND CONTROL OF CAPEX

Capital Expenditures are some of the important decisions taken by the management as they

involve substantial costs and by purchasing those assets the company commits itself to using

that asset for some time. If such a decision proves to be wrong the company might be forced

to sell the asset at a discount. Capital investments affect the future profitability and

productivity and thus has affect on all the stakeholders of the company.

The essential problem in appraisal of capital expenditure is determining whether the cash

outflow involved in the investments were justified by the cash inflows created from revenue.

Now at JCB there are basically three distinct phases in the life of a project.

When the project still in the papers a forecasted cash flow is prepared for a stipulated number

of years. The essential constituents of the cash flow are tabulated in APPENDIX 9.10.

Interestingly, throughout all the years for which the cash flow had been prepared for

projecting future sales and costs, the rates had been taken constant. At JCB cash flows are

prepared on an inflation neutral template. It is assumed that any increase in input costs would

be offset by an equivalent increase in price of the product. Another assumption is that the

sales and marketing cost is considered only for the pre-launch phase. Using the NPV method

the feasibility and viability of the project is calculated and only then the next step for

implementing the project is taken.

In the next phase come the budgeting this is done for every year. A detailed budget is donefor every department and separately for big projects (e.g. LIFTALL). Using the data from the

forecasted cash flow prepared in business plan, and studying the current industry scenario a budget with revised figures is prepared.



Page 12

Finally throughout the year the expenditures are tracked through the elaborate CAPEXmonitoring method explained earlier and the revenues are also tracked. This comprises the

actual data. So we have now three sets of data. Using these we have to answer the two mostimportant questions for the appraisal; what should be the appraisal indices and when should

the appraisal take place. Hence for a comprehensive appraisal of the planned cash flow, the

following should be evaluated:

y Forecasted cash flow Vs. Budget cash flow

y Budget Vs. Actual

y Forecasted Vs. Budget Vs. Actual

y Estimated Vs Actual Payback Period

5.3.1 Forecasted Vs. Budget

For every financial year budget is prepared. Hence once the budget is prepared it can becompared with the model / forecasted cash flow. There are likely to be changes in the sales

and also the estimated capital and operational expenses. Hence it is suggested that theappraisal should be conducted at the end of every year, and in case of variations the reasons

should be analyses and effort should be put to make the budget in line with the forecastedcash flow.

5.3.2 Budget Vs Actual

Every month a CAPEX report is prepared which clearly states the amount of expenditure

incurred by each department / project. For big projects like LIFTALL which entail a lot of

initial CAPEX, it is necessary to tally the budget and the actual expenditure at the end of every month. As the budget is broken down into months it would be very easy to compare the

two set of data.

Using bar charts one can easily prepare a pictorial representation of the variations. Once the

areas where large digressions from the budget are identified they can be dealt with.

If the actual overshoots the budget by large value then it is of concern, and as the appraisal is

done every month rectification can be done in the next month. On the other hand if this

appraisal is being done at the end of the year, possible checks for controlling the actual

expenditure are not possible.



Page 13

5.3.3 Forecasted Vs. Budget Vs Actual

Once in every year all the three phases should be evaluated against each other. So when the

appraisal is being done in June the actual data is present only till June. Now using that data it

is difficult to predict the sales of the coming months. It is often seen that sales in some

quarter is more than the sales in other quarters. Hence one can take the actual data till June

and add the budgeted data for the next six months and thus prepare an appraisal report. In thereport there should be comparison of all the three set of data, and the following percentagesshould be calculated:

y Percentage deviation of Budget from Model

y Percentage deviation of Actual form Model

y Percentage deviation of Actual from Budget

The percentages should be calculated for each of the constituents of the cash flow. This shall

give a clear picture on the areas where the deviation is more. A large deviation might point

two things:

1. Unforeseen Issues2. Faulty Model

For the first there can be some backup plan, but if the problem is with the model, then

immediate action needs to be taken.

As throughout the year the actual capital expenditure and sales are checked against the

budgeted this last step is performed only twice a year. The budget is prepared keeping the

forecasted cash flow in mind. As the effort is made to confirm the actual cash flow to the

budgeted cash flow, all the three type of cash flows become in-lined.

5.3.4 Estimated Vs Actual Payback Period

Now while preparing every project a payback period for the investments is calculated. JCBtoo has a fixed maximum number of months as the payback period. If a project exceeds the

maximum number of months, then it is not taken up by the company. So when the investment

incurred for the project is being appraised it is very important to calculate the amount and

timing of the actual income. Using this we can validate the estimated payback period. If there

is a deviation and the actual payback period is coming to be longer than the estimated period,

there should immediate review of all the processes and sales. It is necessary to find out

whether the reason is high cost or low revenue. As we already have all these data documented

one can easily identify the cause and thus take appropriate action.



Page 14

5.4 A NEW PROJECT MODEL ± LIFTALL

At JCB a new project specially one involving massive capital investment is treated like a

separate project. It is a detailed plan which takes one from the conceptualization of the

project through all the phases which converts this plan to paper and then from paper to shop

floors. It has around 4 phases which have been briefly described below.

Different Stages:

PHAS E 1

This is the first step to initiate the proceeding of any new project. It kicks starts by

submission of a formal document containing the following 5 important points:

a) Project Title: An appropriate title is given to the new project.

b) Outline of the Project : A brief sketch of the project is laid down on paper.

c) Need for new project : A justification for the new project is also given.

d) Foreseen benefits: The future benefits to the company obtained from the suggested

project are also written down.

e) Anticipated Job Timing : The estimated duration of the project is given.

It is followed by an executive meeting after which the following are documented:

a) The key product deliverables are planned.

b) A thorough distribution strategy is prepared.

c) The quality standards are finalized and further improvement targets are set.

d) The finance model and sales and marketing model are prepared.

e) The resources for the next phase are finalized.

For reviewing the progress of Phase 1 an interim meeting is held in which the following are

evaluated:

a) Sales and Marketing brief

b) Customer Machine Evaluation Strategy

c) Serviceability objectivesd) Product benchmarking

e) Manufacturing plansf) Engineering brief



Page 15

PHAS E 2

In this phase the business plan gets approved. For that an exhaustive document of 13 pages is

prepared containing various details regarding the project. Some of them are listed below:

a) Updated manufacturing plan

b) Tooling requirement plan

c) Pre-production and shakedown plansd) Project team approval

e) Finalized engineering bill of materialsf) Manufacturing and assembly feasibility

g) List of approved suppliersh) Patents and trademark

Apart from the above there are various other steps too. A risk assessment is done. Various

opportunities and threats are analyzed.

PHAS E 3

This phase is preceded by a progress review. The steps are given below:

a) Production intent design detail review

b) Supplier quality plan developed

c) Production packaging

d) Production tooling costs agreed

e) Appraisal of service conducted

PHAS E 4

This is the last phase before the project goes to the shop floor. Hence in this phase we see all

the finalization of every aspect of a business plan taking place:

a) Sign ± off of marketing, finance and attachments.

b) Sign off of manufacturing and assembly.

c) Pre-production review and statement of manufacturing readiness.



P 16

5.5 MANAGEMENT INFORMATION SYSTEM

5.6 PM 10 UK R EPOR TING SOFT AR E

C ¡ ¢

£

¤ ¥ ¦ i a l adi provider of sof t are t at hel ps companies implement and execute

strategy.

Its integrated solution for corporate performance management (C M hel ps companies to

reali e improvements in business agility and decision-mak ing effectiveness- through

integrated planning, budgeting, forecasting, f inancial consolidation, management repor ting

and analysis.

Monthly R epor ting is done to UK

Flash prof itability repor t is made

Actual full year repor ting is made in UK Sof t are-PM

(Screenshot enclosed)

Monthly power point presentation for executive members is made.

Business review ± Internal & External



P 17

5.7 INTERNAL AUDITING

Internal auditing is a profession and activity involved in hel ping organi ations achieve their

stated ob jectives. It does this by using a systematic methodology for analyzing business

processes, procedures, and activities with the goal of highlighting organizational problems

and recommending solutions. Professionals called internal auditors are employed by

organizations to perform the internal auditing activity.

Procedure:

Audit year 1st

July to 30t

June

Audit tracker

Meeting between auditors and auditees

Audit program is discussed

Issue draf t audit repor t

Audit committee meeting



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6.0 ANALYSIS

When business is good, cash flow seems plentiful. But, managers know that their companies

are vulnerable to economic trends and changes in market demand. Quick decisions and the

reallocation of finite resources are often required to meet the challenges. If too much capital

is tied up in heavy-duty assets, managers lose the benefit of liquidity.

Most people think replacing a heavy duty machine requires nothing more than selling the old

one and buying a new one, but experienced equipment managers know much better. Theyintuitively know this kind of machinery is costly and can represent a huge outlay of precious

financial resources. When in charge of a fleet of cement trucks, backhoe loaders, excavators,and other similar types of vehicles, they must carefully consider how to best spend these

resources.

Every business relying on heavy machinery should design a strategy for capital expendituresthat prevents credit overextension while providing flexibility.

Since every vehicle or piece of heavy duty machinery requires a substantial outlay of capital,

managers should be careful in approaching replacement, considering long term objectives,changes in market demand, technological obsolescence, and budget constraints.

Effective capital expenditure strategies must reflect both the long and short term needs of a

business, keeping market changes in mind. Considering heavy equipment finance options

within budget limitations allows managers to forecast whether their capital resources would

be better used elsewhere.

Construction equipment leasing can free up capital and offers managers flexibility in decision

making as budget becomes less of a priority. It can provide a business with immediate accessto machinery and equipment with a minor investment upfront. This is advantageous for

businesses of every level. New businesses usually have less cash flow so this type of heavy

equipment finance allows them to conserve their capital. Longstanding businesses can

leverage these leases by utilizing resources in areas that provide liquidity and a higher rate of

return.

Therefore, every organization must involve in allocating a proper budget across all the

departments, monitoring and appraise it at regular intervals to reap profits and increase its

market share.



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7.0 FINDINGS AND RECOMMENDATIONS

7.1 SWOT OF JCB India Ltd.

Strengths

1. Brand Image: As the company is the oldest entrant in the field of construction

equipment so it has well reckoned name. Its innovative & versatile approach leads it

to set the benchmark for its competitors.

2. Financial soundness: JCB extends its operations in various areas of the country as

well as all around the world due its financial worthiness. JCB has the highest number

of dealers and retail outlets in India.

3. Efficient and skilled staff: JCB possesses skilled and efficient staff. Their rigorous

effort and efficient management planning lead the company at the premium position.4. Technology: The technology offered to the customers is of high quality. They timely

make changes in their products according to the changing market condition.5. Wide range of products: JCB India Ltd. manufactures a wide range of machines of

different capacities keeping in view the need and desire of different projects andclients.

6. After sales services: JCB is best known for its after sales services. It has 37 dealersand 150 retail outlets. Its components are also easily available in the local market. The

company¶s operators provide their services to the customers within 24 hours with

their utmost efficiency.

Weaknesses

1. In spite of having good brand image as well as self-sufficient resources; the companyis not able to trap the big market share in all products especially in case of Excavators.

Recommendation: For that they should offer the advanced technology at reduced price andof improved quality to tap the potential market.

2. Though the company has been increasing its sales revenue and fixed assets in the past

few years, the percentage increase in sales revenue over the years has been

comparatively less than the increase in fixed assets. This shows that the company has

not been utilizing its fixed assets efficiently.

Recommendation: It can make full use of its resources by leasing its constructionequipments.



Page 20

Opportunities

1. Emergence of Indian economy: Due to globalization, immense opportunities for

construction equipment companies have come up. Government takes active

participation in the construction of dams, metros, railways, roads and infrastructure

development. Various other projects are soon to be commenced which will enhance

the scope of construction earthmovers industry. 2. Development of agriculture Sector: The government showing keen interest in the

development of agriculture sector makes heavy expenditure for the uplifting the rural

areas. It provides several grants to farmers for using the latest hi - tech machinesavailable in the market.

3. Development of banking and other financial institution: In the era of

globalization, banks and other financial institutions are emerging in a remarkablemanner which proves to be a boom for the customers. Easy availability of credit lures

the investors and farmers to think of high ± tech construction machines. Threats

1. Entry of new entrants: Globalization brings good prospects for the construction

industry but the company should take care that new players are emerging at a veryhigh rate with high technology.

2. Joint Venture of a big MNC: Although, JCB is a fully owned subsidiary havinggood financial backup yet still a collaboration of big MNC creates hurdles in catering

to the market share in various earthmovers products because of economies of scale.

7.2 LIMITATIONS

Though I indulged myself in a thorough research, the following limitations might haveaffected the project.

1. Since JCB India Ltd. is a closed bound company, it doesn¶t reveal its profits and sales

figures. Also, the company is not listed on stock exchange. Hence, I did not have the privilege to work on a large scale, so my findings and recommendations may not be as

much in tune with the ground realities as desired.

2. The time constraint faced in the project might have affected the comprehensiveness of

its findings.



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8.0 CONCLUSION

The project involved overall understanding of JCB¶s CAPEX process from the Sanction of

Capital Budget to Installation of an Asset in the company, basic understanding of U.K.

Management Information System, Budgeting Process, Internal Audit Function in JCB India

Ltd. and functional knowledge of SAP system.

The company indulges itself in proper allocation of its annual budget across all the

departments every year. To make it more efficient, the company uses various new softwares

(SAP, Comshare, etc). This implies that the company keeps itself technologically updated to

cut out time and human labour. It also involves itself into internal auditing that removes alldiscrepancies from its capital budgeting, monitoring and appraisal processes. But, in order to

increase its sales and broaden its market share it will have to use make it CAPEX processmore effectively. Since it invests heavily on its heavy equipment, there is a need to make

proper use of its fixed assets.



P 22

9.0 APPENDICES

APPENDIX 9.1

Company Revenue (US $ Million) Market Share

JCB India Ltd. 329 13.2 %

BEML 307 12.3 %Telcon 283 11.3 %

L&T 156 6.3 %

Caterpillar India 143 5.7 %

Ingersoll R and 105 4.2 %

Volvo 99 3.9 %

ECEL 61 2.4 %

Greaves Cotton 37 1.5 %

ACE Ltd 36 1.5 %

Others 944 37.7 %

Total Market 2500 100.0 %

56%

18%

15%

8%

3%

MARKET SHARE OF JCB IN INDIA

JCB

L & T

TATA JOHN DEEREE

CATERPILLAR

OTHER



Page 23

APPENDIX 9.2

S.No. Description Of

CAPEX

Purpose Date of

Capitalisation

Cost

Center

Category

1 Wi-Fi

connectivity

New Project Plant &

Machinery2 Vehicles for sales

Managers - 30 Nos.

Replacement Vehicles

3 Desktop PC - 29 Nos.

Replacement Furniture &Fixtures

4 Laptop - 17 Nos. New Joinee Furniture &

Fixtures

5 Printers - 19 Nos. Replacement Furniture &

Fixtures

The above budget is of the Marketing Department. Similarly every department submits its

own detailed CAPEX Budget. The justification of the costs needs to be approved by eachdivision manager. After that the Finance Department sums up all the CAPEX costs and

submits the same for approval to the Head Office. Once the amount is approved therespective department starts spending the fund on various capital goods.



Page 24

APPENDIX 9.3



Page 25

APPENDIX 9.4

Deptts. CSR approved till

date

Budget Total Further CSR's that

can be Raised

IT

Manufacturing

Marketing

HR

Sales

APPENDIX 9.5

CSR

No.

Justification

Sheet

Quotation

(Nos.)

Replacement

(Year)

Budget Payback

Period

Signature

by HOD

UK

Approval

Required



Page 26

APPENDIX 9.6

Asset

Class

Description HO Life

(yrs)

India Life

(yrs)

HO Dep

Rate

India Dep.

Rate

XX1100 Land

XX1200 Building

XX1401 Jigs, Dies and

Fixtures

XX1403 Industrial

Electrification

XX1405 Moveable

Plant and

Machinery

XX2100 CWIP P&M 0 0 0 0

XX2000 CWIPBuilding

0 0 0 0

XX2200 CWIP

Furniture

0 0 0 0

APPENDIX 9.7



Page 27

APPENDIX 9.8

Appendix 9.8.1: DEPRECIATION



Page 28

Appendix 9.8.2: WRITTEN DOWN VALUE OF AN ASSET



Page 29

APPENDIX 9.9



Page 30

APPENDIX 9.10

Particulars StartingYear (X)

X+1 X+2 Year of Matured

Volume

X+4 Total

SalesVolumes

(units)

Sales Value

Materials

Direct

Labour

Gross Profit

GrossMargin %

VariableOverhead

Contribution

Contribution

%

Depreciation

charge

Project

RevenueCosts

Fixed costs

Net Profit

Before tax

Corporation

tax rate

Corporation

Tax

Net Profit



Page 31

APPENDIX 9.11

Appendix 9.11.1: SAP LOGIN PROCESS



Page 32

Appendix: 9.11.2



Page 33

Appendix 9.11.3



Page 34

APPENDIX 9.12

Appendix 9.12.1: ASSET VALUE CHECKING



Page 35

Appendix 9.12.2



BIBLIOGRAPHY

y www.jcbindia.com

y www.investopedia.com

y www.ibef.org

y www.cii.org

y www.researchandmarket.com

kashika modified

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