Understanding Rites Ltd.

1. General Framework

Originally incorporated on April 26, 1974, under the Companies Act, 1956 as a private
limited company with the name ‘Rail India Technical and Economic Service Private
Limited’. Subsequently, the word ‘private’ was deleted from the name of the company on
February 17, 1976. Thereafter, the name of the company was changed to its present name
‘RITES Limited’ on March 28, 2000. The company was converted into a public limited
company on February 5, 2008.

RITES Ltd. is one of the leading companies in transport infrastructure consultancy,

engineering and project management services, with operations in India and abroad. Rites
has business operations in four distinct fields namely consultancy in transportation
infrastructure, construction activities, export and leasing of railway equipment and
running railway system on concession. It has the benefit of being associated with the
Indian Railways, which is among the largest railway systems in the world under a single
management. The company soon transformed itself from a mere railway consultancy firm
to the activities connected with other modes of transport, with multidimensional
activities. Today RITES Ltd. is a multi-disciplinary organization engaged in various areas
related to consultancy at home and abroad ranging from concept to commissioning as
well as project management. It gets preference as a consultant for the infrastructure
projects of Indian Railways, government agencies and PSUs.
Some interesting facts about the company:

 RITES Limited is the first Indian company to operate railways systems abroad on
concession basis.
 Its services have been instrumental in getting the first ever ISO 9001:2000
certificate in Afghanistan for ARDS.
 600 ongoing projects in India and over 30 ongoing projects overseas.
 One of the consortiums for the Delhi, Mumbai and Kolkata Metro.
 Its clients include various Central and State government ministries, other
government bodies, public sector undertakings including IRCON, NALCO,
Konkan Railway Corporation Limited, DMRC, IOCL, NTPC Limited, SAIL and
NHAI as well as various private companies including Jindal Steel Limited.
 As a public sector undertaking, the company has been accorded the ‘Mini Ratna
Grade- I’ status by the GoI by virtue of operational efficiency and financial status.
 RITES Limited was upgraded from Schedule ‘B’ to Schedule ‘A’ on July 11,
2007.
2. Range of services

RITES Limited provides a broad range of services which include:

 Consultancy Services for:
o Railways
o Urban Transport
o Highways
o Ports and Waterways
o Airports
o Power
 Building, Construction and Architecture for:
o Ropeways
 Other Sectors
o Transport Planning
o Quality Assurance
o Training
o Material Systems Management
o Geo technology
o Information Technology
o Environmental Engineering
 Export Business
 Concession Business
3. SWOT Analysis

STRENGTH AND WEAKNESS

RITES strength lies with its total infrastructure solution capabilities and
experienced team of professionals & technical experts for
providing multi disciplinary services from concept to
commissioning. The company deploys state-of-art
technology and has sound financial health. The qualities of
products and services provided have resulted in immense
satisfaction among various clients including Railways of
other countries. Company has an extensive international
experience in developing countries particularly in Africa,
Asia, Middle East&Latin America.
Backed by expertise in diverse sectors of transport
infrastructure in India and abroad, RITES is capable of taking
up new challenges in all facets of transportation viz.
railways, highways, inland waterways, airports, urban
transport etc. RITES expertise in handling export,
maintenance and rehabilitation of rolling stock and railway
equipments strengthen its position to embark new
geographical markets and clients in Asia and Africa region.
Company has limited experience in managing mega projects
for rendering of consultancy in overseas and has remained
restricted in railway and highway sectors only. In the overseas business, the
major areas of operations have been in Africa where the economy is highly
volatile and open to political and financial risks.
OPPORTUNITIES AND THREATS

Investment by the Government of India in transport infrastructure covering

highways, rural roads, rail, airport, ports, harbour, inland waterways sectors
continue to grow despite of global melt down. Private sector participation
through PPP module is being actively encouraged to achieve greater
efficiencies in development, operation and maintenance of roads, airports
and other transport infrastructure projects.

The investment in the infrastructure sector is projected to be Rs. 20 lakh

crores in the 11 Five Year Plan. Government of India has taken up initiative for
development of infrastructure projects such as modernisation and
redevelopment of 21 railway stations and introduction of metro and mono rails
and world class stations; six-laning 6,500 km of the golden quadrilateral and
selected national highways, four laning 6736 km of North-South and East-
West corridors, four laning 12,109 km of national highways, widening
20,000 km of national highways and constructing 1,65,244 km of new rural
roads; modernisation and redevelopment of four metro and 35 non-metro
airports; construction of seven greenfield airports; additional power
generation capacity of about 90,000mw(78,700mw-plus captive generation
of 12,000 mw) to take electricity to all un-electrified hamlets and provide
access to all rural households through Rajiv Gandhi Grameen Vidyutikaran
Yojna; capacity addition of 485 MT in major ports; 345 MT in minor ports;
construction of jetties and berths; and port connectivity.
Opportunities are available in near future on modernization of railways
workshop on turnkey basis and the company has already embarked upon on
such projects through RCF Kapurthala. Growth in existing business in Rail
Infra, Urban Infra and QA divisions continue to secure prestigious projects
despite tough competition.
In addition to above, opportunities also exist for export of rolling stock, spare
parts, railway equipments rehabilitation and modernisation of workshops in
the international market particularly third world countries. In addition to
export, there is tremendous leasing business opportunities of rolling stock
available especially in African region.
There is a stiff competition in consultancy and BOT businesses from private
and multinational companies who at times prices their services aggressively
to enter the booming Indian market. At the same time, the company also faces
unhealthy competition from several small consultancy companies / agencies
who are quoting low prices in view of their small set up.
Other threats include increased competition from local firms with foreign
associates, slowdown in new investments in infrastructure and entries of
multinationals in the Indian railway sector.
4. Performance:

FINANCIAL PERFORMANCE

In spite of economic meltdown and recession, company has registered its

highest ever turnover of Rs. 672 crores for the year 2008-09 as compared to
Rs. 661 crores of previous year. The company has also registered profit before
tax of Rs. 150 crores after meeting the impact of Rs. 85 crores towards salary
arrears and Rs. 63 crores towards concessioning exposure in a foreign
subsidiary, as against Rs. 180 crores of the previous year. The company has
registered profit after tax of Rs. 94 crores as against Rs. 104 crores of
previous year. Net worth of the company as on 31 March, 2009 is Rs. 610
crores as compared to Rs. 539 crores as on 31 March, 2008.

SEGMENT-WISE PERFORMANCE

During the year 2008-09, consultancy services including quality assurance

services accounted for 75 % of the total operating income, export sales
accounted for 12%, construction projects accounted for 4%and balance 9%
resulted from leasing income. A segment-wise comparison is given below
which shows an increasing trend in the consultancy and leasing businesses
and a declining trend in the export sale business while construction activities
had taken up only from the year under review.

OPERATIONAL PERFORMANCE

With the vast international experience and knowledge of the prospective

clients, RITES continued to provide specialized, integrated, single window
export packages for supply of railway locomotives, coaches and equipment.
The company secured major International contracts which include supply of
DMUs, Locos, and M&P etc to Sri Lanka Railway, Rehabilitation of
locomotives for TRL-Tanzania, supply of 3 new MG coaches without Bogies,
coaches' spares & Expert Supervision for repairs of PTB Coaches- Senegal,
Supply of 3 in-service locomotives to OCBN- Benin, Supply of 4 locomotives
to CDN Nacala, Mozambique.
The leasing activity continued to grow during the year with the on-going
contracts of 23 in-service passenger coaches and 25 in-service Diesel
Locomotives to Tanzania Railways Ltd., 6 in-service locomotives to CCFB,
Mozambique and 10 locomotives to CFM (South), Mozambique.
The company secured businesses in consultancy segment from Saudi
Cement, Saudi Arabia, Reliance Energy Global, PTE Ltd. Indonesia,
construction supervision for upgradation of existing roads in Terai Region of
Nepal, construction supervision of Francis Town airport in Botswana. In
addition to above, company continuously provided services for procurement
strengthening and support for Afghanistan Reconstruction and Development
Services (ARDS), Railway signaling and design engineering in Sharjah and
management services in Tanzania, Mozambique&Malaysia.
The Industry Overview: Infrastructure

Infrastructure is the key to a nation’s social and economic development. It includes

everything from buildings to bridges, roads to railways and irrigation to
telecommunications. Infrastructure inadequacies in rural and urban India are a real threat
to continued growth.
India had been an agrarian economy. To sustain itself in the global setup, the
infrastructure, which is often referred to as the ‘lifeline of any nation’, needs to be
developed and upgraded (especially after globalization). As such, the operations of
RITES Limited hold a strategic position.
The revised draft of the 11th Plan Approach Paper stated that investment in infrastructure
would have to rise from the current 4.6% of India’s GDP to an estimated 8% during the
11th Plan period to meet India’s target GDP growth rate
of 9%. The GoI projections of investment in infrastructure would be approx. US$ 494.43
billion over 2007-2012.
RITES Limited provides consultancy from concept to commissioning of the project,
including feasibility studies, DPRs, project management, material procurement, quality
assurance and commissioning supervision. It is this strength that enables the company to
focus on sectors with growth potential and improving their position in the market in
which it is already established. The diversity in their sector portfolio expertise
differentiates RITES Limited from its peers.
The technical expertise, specialized knowledge, wide international experience, strong
financial position, experienced and qualified management personnel makes the company
enjoy key position in GoI plans.
Locations

Registered office. Our registered office is located at SCOPE Minar, Core – I, 12th Floor,
Laxmi Nagar, Delhi 110 092. The office space covering an area of approximately 19,804
square feet has been handed over to us on January 11, 2005 by the Standing Conference
of Public Enterprises on a perpetual lease basis.
Corporate Office. Our corporate office is located at Plot No.1, Sector-29, Gurgaon,
Haryana. The office space covering an area of approximately 1,56,615 square feet has
been conveyed to us vide conveyance deed dated January 7, 1999 and a supplementary
conveyance deed dated August 29, 2003 by the Haryana Urban Development Authority.
Regional Inspection and Project Offices. We have regional inspection offices in Gurgaon
(located at the same premises as our Corporate Office), Bhilai, Chennai, Gurgaon,
Kolkata and Mumbai, and we have regional project offices in Bhubaneswar, Kolkata,
Lucknow, Mumbai, Nagpur and Secunderabad.
 RITES BHAVAN, GURGAON

Consultancy
The basic business of RITES Ltd. is Consultancy. The following is the spectrum of
consultancy services provided by RITES Ltd.
1. Pre-project activities: The main activities undertaken include (a) conducting of
feasibility studies; and (b) preparation of DPRs.
2. Design engineering activities: The main activities undertaken include (a) design of
equipment or structures; (b) architecture; and (c) environment planning.
3. Procurement assistance
4. Project management activities: The main activities undertaken include (a) PMC; and
(b) independent consultant services.
5. Quality Assurance services: The main activities undertaken involve (a) third party
inspection; (b) vendor assessment; and (c) consultancy to obtain quality certifications
such as International Standards Organisation (“ISO”) ISO 9001, ISO 1401,
Operational Health and Safety (“OHSAS”) 18001, ISO 22000 and IEC 17025.
6. Construction supervision
7. Commissioning support: The main activities undertaken involve assisting the client in
(a) installing; (b) commissioning; and (c) proof testing the equipment procured.
Types of risk and their management

1. What is Risk?

1. General: Probability or threat of a damage, injury, liability, loss, or other negative

occurrence, caused by external or internal vulnerabilities, and which may be neutralized
through pre-mediated action.

2. Finance: Probability that an actual return on an investment will be lower than the
expected return. Financial risk is divided into the following general categories:

3. Food industry: Function of the probability of an adverse effect and the magnitude of
that effect, consequential to a hazard in food (FAO/WHO definition).

4. Insurance: Situation where the probability distribution of a variable (such as burning

down of a building) is known but its mode of occurrence or actual value (whether the fire
will occur at a particular property) is not. A risk is not an uncertainty (where neither the
probability nor the mode of the occurrence is known), a peril (cause of loss), or a hazard
(agent or condition that makes the occurrence of a peril more likely or more severe).

5. Securities trading: Quantifiable likelihood (probability) of a loss or stagnation in value.

Trading risk is divided into two general categories (1) Systemic risk: Affects all securities
in the same class and is linked to the overall capital-market system and which, therefore,
cannot be eliminated by diversification. Measured by beta coefficient, it is also called
market risk or (erroneously) systematic risk. (2) Non-systemic risk: Any risk that is not
market-related or is not systemic. Also called non-market risk, extra-market risk,
(mistakenly) non-systematic risk, or un-systemic risk.
6. Workplace: Product of the impact of the severity (consequence) and impact of the
likelihood (probability) of a hazardous event or phenomenon. For carcinogen effect, risk
is estimated as the incremental probability of an individual developing cancer over a
lifetime (70 years) as a result of exposure to a potential carcinogen. For non-carcinogen
effect, it is evaluated by comparing an exposure level over a period to a reference dose
derived from experiments on animals.

2. Types of Financial risk

Equity Risk Trading Risk

Market Risk Interest Rate
Risk
Gap Risk
Currency Risk

Commodity Risk

Counterparty
Transaction Risk
Risk
Financia Credit Risk
Portfolio
l Concentration Issuer Risk
Risks Liquidity Risk Risk

Operational
Risk

Regulatory
Risk
Human Factor
Risk
(A) Understanding Market Risk

It is the risk that the value of on and off-balance sheet positions of a financial institution
will be adversely affected by movements in market rates or prices such as interest rates,
foreign exchange rates, equity prices, credit spreads and/or commodity prices resulting in
a loss to earnings and capital.

Why the focus on Market Risk Management ?

• Convergence of Economies
• Easy and faster flow of information
• Skill Enhancement 14
• Increasing Market activity

Leading to

• Increased Volatility
• Need for measuring and managing Market Risks
• Regulatory focus
• Profiting from Risk

Equity risk is the risk that one's investments will depreciate because of stock market
dynamics causing one to lose money.
The measure of risk used in the equity markets is typically the standard deviation of a
security's price over a number of periods. The standard deviation will delineate the
normal fluctuations one can expect in that particular security above and below the mean,
or average. However, since most investors would not consider fluctuations above the
average return as "risk", some economists prefer other means of measuring it.

Interest rate risk is the risk (variability in value) borne by an interest-bearing asset, such
as a loan or a bond, due to variability of interest rates. In general, as rates rise, the price
of a fixed rate bond will fall, and vice versa. Interest rate risk is commonly measured by
the bond's duration.

Currency risk is a form of risk that arises from the change in price of one currency
against another. Whenever investors or companies have assets or business operations
across national borders, they face currency risk if their positions are not hedged.

 Transaction risk is the risk that exchange rates will change unfavourably over
time. It can be hedged against using forward currency contracts;
 Translation risk is an accounting risk, proportional to the amount of assets held in
foreign currencies. Changes in the exchange rate over time will render a report
inaccurate, and so assets are usually balanced by borrowings in that currency.

The exchange risk associated with a foreign denominated instrument is a key element in
foreign investment. This risk flows from differential monetary policy and growth in real
productivity, which results in differential inflation rates.

Commodity risk refers to the uncertainties of future market values and of the size of the
future income, caused by the fluctuation in the prices of commodities.[1] These
commodities may be grains, metals, gas, electricity etc.

(B) Understanding Credit Risk

Credit risk is an investor's risk of loss arising from a borrower who does not make
payments as promised. Such an event is called a default. Another term for credit risk is
default risk.

Significant resources and sophisticated programs are used to analyze and manage risk.
Some companies run a credit risk department whose job is to assess the financial health
of their customers, and extend credit (or not) accordingly. They may use in house
programs to advise on avoiding, reducing and transferring risk. They also use third party
provided intelligence. Companies like Standard & Poor's, Moody's, Fitch Ratings, and
Dun and Bradstreet provide such information for a fee.

Most lenders employ their own models (credit scorecards) to rank potential and existing
customers according to risk, and then apply appropriate strategies. With products such as
unsecured personal loans or mortgages, lenders charge a higher price for higher risk
customers and vice versa. With revolving products such as credit cards and overdrafts,
risk is controlled through the setting of credit limits. Some products also require security,
most commonly in the form of property.

Credit scoring models also form part of the framework used by banks or lending
institutions grant credit to clients. For corporate and commercial borrowers, these models
generally have qualitative and quantitative sections outlining various aspects of the risk
including, but not limited to, operating experience, management expertise, asset quality,
and leverage and liquidity ratios, respectively. Once this information has been fully
reviewed by credit officers and credit committees, the lender provides the funds subject
to the terms and conditions presented within the contract

transaction risk Probability of loss associated with a business transaction denominated in

a foreign currency, due to changes in the exchange rate. Also called transaction exposure.

Portfolio Concentration Risk Concentration risk in credit portfolios

comes into being through an uneven
distribution of bank loans to individual
borrowers (single-name concentration)
or in industry and services sectors and
Equity Risk
geographical regions (sectoral concentration). Trading Risk
Market Risk Interest Rate
Risk
Gap Risk
Currency Risk
(C) Liquidity Risk Commodity Risk

Counterparty
Transaction Risk
Risk
Probability
Financia of loss arising from
Credit Riska situation where
Portfolio
l will not be enough cash and/or cash equivalents
(1) there Issuer Risk
Concentration to meet the needs of depositors
Risks Liquidity Risk Risk
and borrowers,
Operational
Riskyield less than their fair value, or
(2) sale of illiquid assets will
Regulatory
(3) illiquid assets will not be
Risksold at the desired time due to lack of buyers.
Human Factor
Risk

In finance, liquidity risk is the risk that a given security or asset cannot be traded quickly
enough in the market to prevent a loss (or make the required profit).

Sources of Liquidity Risk

1. Incorrect judgment and complacency

2. Unanticipated change in cost of capital
3. Abnormal behavior of financial markets
4. Range of assumptions used
5. Risk activation by secondary sources
6. Break down of payments system
7. Macroeconomic imbalances
8. Contractual forms
9. Financial Infrastructure deficiency
(D) Operational risk
An operational risk is, as the name suggests, a risk arising from execution of a company's
business functions. It is a very broad concept which focuses on the risks arising from the
people, systems and processes through which a company operates. It also includes other
categories such as fraud risks, legal risks, physical or environmental risks.

(E) Regulatory Risk

When government agencies administer controls over the commercial activities of private
firms, capital invested in those firms is exposed to an additional source of risk. Because
the
nature of these controls varies across industries and regulators, the resulting “regulatory
risk” has many different forms and consequences. One consequence of this diversity of
causes and effects is that the nature of regulatory risk is not well understood. This in turn
limits the extent to which the costs of regulatory risk can be estimated, and measures can
be
designed to minimise these costs.
This paper begins by presenting some

3. Risk Management

Risk management is present in all aspects of life; It is about the everyday trade-off
between an expected reward an a potential danger. We, in the business world, often
associate risk with some variability in financial outcomes. However, the notion of risk is
much larger. It is universal, in the sense that it refers to human behaviour in the decision
making process. Risk management is an attempt to identify, to measure, to monitor and to
manage uncertainty.

Risk management is the identification, assessment, and prioritization of risks (defined in

ISO 31000 as the effect of uncertainty on objectives, whether positive or negative)
followed by coordinated and economical application of resources to minimize, monitor,
and control the probability and/or impact of unfortunate events[1] or to maximize the
realization of opportunities.

For the most part, these methods consist of the following elements, performed, more or
less, in the following order.

1. identify, characterize, and assess threats

2. assess the vulnerability of critical assets to specific threats
3. determine the risk (i.e. the expected consequences of specific types of attacks on
specific assets)
4. identify ways to reduce those risks
5. prioritize risk reduction measures based on a strategy

Principles of risk management

The International Organization for Standardization identifies the following

principles of risk management:

Risk management should:

 create value.
 be an integral part of organizational processes.
 be part of decision making.
 explicitly address uncertainty.
 be systematic and structured.
 be based on the best available information.
  be tailored.
 take into account human factors.
 be transparent and inclusive.
 be dynamic, iterative and responsive to change.
 be capable of continual improvement and enhancement.

3. Risk perspective in Rites Ltd

Some general Risks:

 Some of our projects require substantial capital outlay and time before any
benefits or
returns on investments are realized and our ability to successfully recover our costs
on
a timely basis are dependent on a number of factors.

 Delays or defaults in payments from our clients could result in a reduction of our
profits.

 We are subject to inherent risks associated with external contractors being

involved in
our projects.

 Loans given to our subsidiaries or joint ventures may be affected by changes in

interest
and exchange rates.

 Some of our business activities may require our employees to travel to and work
in
perceived high security risk areas, which may result in employee death or injury,
repatriation costs or other unforeseen costs.
  If we are unable to adapt to technological changes, our business could suffer.

 We are dependent on the expertise of our senior management and key employees
and
the results of our operations may be adversely affected by our inability to replace our
senior management and key employees who leave us.

 A significant percentage of our revenues are denominated in US$ and a

significant
percentage of our costs are denominated in Indian Rupees, so we face currency
exchange risks.

 We face competition for our business, which may adversely affect our business
and
profitability.

 A slowdown in economic growth in India could adversely impact our business.

 Political instability could delay the liberalization of the Indian economy and
adversely
affect economic conditions in India generally, which could impact our financial
statements and prospects.

RISKS AND CONCERNS

A few of the projects are being executed in risky geographical areas where
employees are exposed to risks and threats to their lives, liberty and property
while operating in such areas. The Company however feels honour in
executing such projects in the interest of nation. However, Company takes
measures to provide adequate security, facilities and insurance coverage in
such places.
A significant portion of Company's revenues are in US dollar which is
amenable to foreign exchange fluctuation risk. In this regard, foreign
exchange movements are being constantly monitored and if deemed
necessary currency risks are covered through taking appropriate measures
to minimise the risks.
Export of railway goods largely depends upon the financial aids by
multilateral institutes or line of credit facilities extended to the concerned
Governments and any change in the policy of giving such aids/facilities may
resulted into fall in export business.
RITES global operations are exposed to international legal, tax and economic
risks. These risks are inherent in establishing and conducting operations in
international market due to cultural, regulatory and statutory requirements.
Our Company is executing such projects in strict compliance of laws of the
respective countries.
Getting and retaining of requisite talented /experienced experts continues to
be a matter of concern for RITES to sustain the growth.

Risk Management System

To strengthen the risk management system, a committee of the Board of

Directors consisting of two Independent Directors, Director (Finance) and one
whole time Director has been constituted to review the risk management
aspects of our business. Further,we have a currency risk management policy
approved by our Board which prescribes the guidelines and processes to be
followed to minimise currency risk. Various aspects of currency risk
management approach, benchmarking, hedging and risk appetite,
permissible instruments, hedging policy, structure of the risk management
committee and treasury group, reporting procedures have been covered
in the policy.

Investment policy in Rites ltd

An overview:

Rites is a commercial organization making profit and paying dividend since

inception to Government f India and have been meeting all its funds and project
requirements through its internal resources and is not dependent upon
Government of India for budgetary support , grants or any other financial
assistance.

Treasury Risk and Liquidity Management

For an effective Treasury Risk and Liquidity Management, company has

constituted a committee comprising of Director (Finance), three Executive
Directors of operations units, General Manager (Treasury), Additional General
Manager (Treasury) and an external consultant which is responsible for
control and directions of operations pertaining to currency risk management.
The liquidity management of the company was further strengthened and new
avenues available to optimise the returns from investment of available surplus
funds were explored. The Board of Directors made a separate sub-committee
of the Board comprising of Managing Director, Director(Finance) and one
functional director to take timely investment decisions, as a result, funds were
invested in the instruments with highest safety and returns as per DPE
guidelines. Some such investments are in UTI Liquid Daily Dividend Debt
Instruments, UTI Fixed Maturity Debt Plan, inter corporate deposits and
deposits with banks etc. The investments made by the committee are reported
to the Board of Directors on periodical basis.

1. Investment of Surplus Funds

 Rites is a commercial organization making profit and paying dividend

since inception to Government f India and have been meeting all its funds
and project requirements through its internal resources and is not
dependent upon Government of India for budgetary support , grants or any
other financial assistance.

 Rites is placing its surplus funds by calling quoatations from banks

including private sector banks which qualify for investment as per the
investment policy. Funds are placed with the bank offering highest rate of
interest.

 To make optimum utilization of funds the cash management system

presently followed by the company provides pooling of funds in the
centralized account maintained by the corporate office.

1. Features of guidlines of investment of Surplus Funds

I. Placement of funds in term deposits with banks

 Banks should be scheduled commercial bank , excluding

cooperative and foreign banks.
  Minimum net worth of the bank should be around Rs 1000crore.

 Capital adequency ratio should be as per directions issued by DPE

in this regard from time to time or 10% whichever is higher.

 The net non performing Assests (NPA) should be equivalent to or

better than that of SBI on 31 March of every year.

 Investment of any one bank is restricted to 50% of the total fund

placed in the fixed deposit with all banks at any point of time.

II. Investment in UTI Mutual Funds

 The corporate of Rites have approved for investment of funds in

Liquid Institutional Plan and Fixed Maturity Plan of UTI Mutual
fund. This investment can be made only in debt instruments. The
ceiling of investment in both LIP and FMP is same ie. Rs 100cr.

III. Investment in SEBI Regulated PMF (Public Mutual Funds)

 The placement of surplus fund upto Rs 100cr or 30% of the

available surplus funds is made in Liquid and Fixed Term plans of
SEBI regulated Public Mutual Funds.

2. INVESTMENT OF SURLUS FUNDS BY PUBLIC SECTOR

ENTERPRISES AS PER THE DEPT. OF PUBLIC ENTERPRISES.

 Investment should be made only in the instruments with maximum safety

 There should be no element of speculation on the yield obtaing from the
investment.
 There should be a proper commercial appreciation before of any
investment decision of surplus funds is taken. The surplus availability may
be worked out for period of minimum one year at any point of time.
 Funds should not be invested by the PSE at a particular rate of interest for
a particular period of time while the PSE is resorting to borrowing at an
equal or higher rate of interest for its requirements for the same period of
time.
 Investment decision should be based on sound commercial judgment. The
availability should be worked out based on cash flow estimates taking into
account working capital requirements , replacement of assets and other
foreseeable demands.
 The remaining period of maturity of any instrument of investment should
not exceed one year from the date of investment where the investment is
made in an instrument already issued. Where investment is made in an
instrument newly issued , the final maturity of the instrument should not
exceed one year. However only in this case of term deposits with banks it
can be upto three years.
 Term deposits with any scheduled commercial bank and with a paid up
capital of at least Rs 100 crores, fulfilling the capital adequacy norms as
prescribed by the RBI from time to time. These adequacy norms should be
reflected in the last published balance sheet.
 Instruments which have been rated by an established credit rating agency
and have been accorded the highest credit rating signifying highest safety
. eg , certificates of deposits , deposits schemes or similar instruments
issued by scheduled commercial banks/ term lending institutions including
their subsidiaries , as well as commercial paper of corporate.
 Inter- corporate loans are permissible to be lent only to central PSE which
have obtained highest credit rating awarded by one of the established
credit rating agencies for borrowings .
 Any debt instrument which has obtained highest credit rating from an
established credit rating agency.
 Decisions on instrument of surplus funds shall be taken by the PSU board.
However decisions involving investing short term surplus funds upto one
year maturity may be deligated upto prescribed limits of investment to a
designated group of directors which should invariably include CEO and
Director (Finance), where such delegation order should spell out the levels
of approval and the powers of each official which should be strictly
observed. Where such delegation is exercised , there should be proper
system of automatic internal reporting to the Board and its next meeting in
all cases.
 PSE”s should ensure that all investment decisions are in accordance with
the reputations as per the company law and Government of India
instructions and any other relevant legislation and rules as applicable .
Any investment already made , which is not in conformity with the above
guidelines should not be renewed after maturity.

CURRENT RATIO
2.5
2.22
2
1.85
1.69 1.66
1.5 1.44 CURRENT RATIO

0.5

0
2004 2005 2006 2007 2008
 CASH FLOW FROM OPERATING ACTIVITIES
0.45
0.42
0.4
0.35
0.3 0.31
CASH FLOW FROM
0.25 OPERATING ACTIVITIES
0.2
0.15
0.1
0.05
0
2007 2008
2. CPF

Rites being a public sector unit has a contributory provident fund (Rites CPF) which is
independent and 100% tax exempted and is a own governed area of the organization. So
the contributions gained in the CPF by employees and the employer are invested in
various government securities and bonds in such a manner so as to maximize the
earnings. So the CPF being owned governed by the organization , promises a return of
about 8 - 10 % for its employees. And such a kind of return is only possible when the
investment is made very carefully after diversifying the portfolio and proper study of the
capital markets as to what return which bond is offering and then making any investment
in the bond. A study for maximizing the returns from such investments would constitute
my next area of project study ie: Portfolio Management. As the contribution for
investment into the market comes from the provident fund of the employees , so before
studying the portfolio structure it is deemed to study the provident fund structure of Rites
Ltd. So the area of project becomes portfolio management including the provident fund
management.

PROPOSAL FOR INVESTMENT OF 25% CPF IN EQUITY MARKET

WHICH RENDERS A PROFIT OF AROUND 10 LAC MORE THAN
WHAT OBTAINED BY INVESTMENT IN G-SECS.
THE PROFIT EARNED BY INVESTMENT IN G-SECS AND OTHER
DEBT INSTRUMENTS IS AROUNG 8-9% OF THE TOTAL AMOUNT
INVESTED.
SO IF Rs 5CR CONSTITUTE TO THE 25% OF INVESTMENT
PROPOSAL IN EQUITY MARKET THEN RETURN WOULD BE
AROUND 40LACS.
BUT THROUGH INVESTMENT IN EQUITY MARKET THE RETURN
OBTAINED IS Rs 5061557 , WHICH IS Rs 10LAC MORE THAN WHAT
IS ORIGANALLY OBTAINED THROUGH INVESTMENT IS G-SECS
AND PUBLIC SECTOR BONDS.
HENCE, IT IS PROPOSED TO INVEST 25% OF CPF IN EQUITY
MARKET AND THE REST 75% IN G-SECS, PSU BONDS AND OTHER
DEBT INSTRUMENTS.
Investment in infrastructure with respect to Rites Ltd
It is generally recognised that lack of infrastructure is one of the major
constraints on India’s ability to achieve 9 to 10% growth in GDP, which is
the rate required to make a significant difference to living conditions in the
country and achieve inclusiveness over the next ten years.
The Eleventh Five Year Plan has set an ambitious target of increasing total
investment in infrastructure from around 5% of GDP in the base year of the
Plan 2006-07 to 9% by the terminal year 2011-2012.

Projections of Investment in Infrastructure during the Eleventh Plan

1. The Eleventh Plan (2007-08 to 2011-12) aims at a sustainable annual
growth
rate of 9 per cent with emphasis on a broad-based and inclusive approach
that would
improve the quality of life and reduce disparities across regions and
communities.
2. It provides an assessment of the investment requirements of the
infrastructure development strategy, identifying investments to be
undertaken by the
Central and State Governments as well as by the private sector in each of the
infrastructure sectors.

3. Of the projected investment of Rs. 7,65,622 crore by the Centre, Rs.

5,65,622
crore is likely to be funded out of Internal and Extra Budgetary Resources
(IEBR). In
the case of States, Rs. 4,44,671 crore is expected to be funded from
budgetary
resources while about Rs. 2,26,266 crore is expected to be contributed from
their
Of the projected investment of Rs. 7,65,622 crore by the Centre, Rs.
5,65,622
crore is likely to be funded out of Internal and Extra Budgetary Resources
(IEBR).

4. Investments have been projected in two ways. The first is through a top-
down (‘orderof
magnitude’) approach derived from the Government’s growth targets and
recent
experiences of other emerging developing countries in investments in
infrastructure as
a share of GDP. The second is through a bottom-up exercise, based on
sector-wise
project plans in the pipeline.
5. Some Physical Targets for Infrastructure in the Eleventh Plan

Power
o Additional power generation capacity of about 78,577 MW
o Reaching electricity to all un-electrified hamlets and providing access to
all rural households
through Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY)
• National Highways
Widening 20,000 km of National Highways to two lanes
o Developing 1,000 km of Expressways
o Constructing 8,737 km of roads, including 3,846 km of National Highways
in the North East
Rural Roads
o Constructing 1,29,707 km of new rural roads, and renewing and upgrading
covering 60,638 rural habitations
Railways
o Constructing Dedicated Freight Corridors between Mumbai-Delhi and
Ludhiana-
o 8,132 km of new railway lines; gauge conversion of 7,148 km
o Modernisation and redevelopment of 22 railway stations
Airports
o Modernisation and redevelopment of 4 metro and 35 non-metro airports
Upgrading CNS/ATM facilities

6. Total investment in infrastructure during the Tenth Plan is anticipated to

amount to Rs. 8,71,445 crore or US$ 217.86 billion.1 Against this, based on
sectorspecific
projections, investment in the Eleventh Plan would amount to Rs. 20,56,150
crore or US$ 514.04 billion, which is 2.36 times the amount anticipated to
be
achieved during the Tenth Plan.

7. Improvement in rural infrastructure is crucial for broad-based inclusive

growth
of the economy and for bridging the rural-urban divide. The special
programme,
Bharat Nirman for upgradation of rural infrastructure, launched in 2005,
aims to
provide electricity to the remaining 1,25,000 villages and to 23 million
households; to
connect the remaining 66,802 habitations with all weather roads; to construct
1,46,185
km of new rural roads network; to provide drinking water to 55,067
uncovered
habitations; to provide irrigation to an additional 10 million hectares; and to
connect
the remaining 66,822 villages with telephones.

Projected Investment in Rural Infrastructure

(Rs. crore at 2006-07 prices)
Sectors Projected Investment
Electricity 34,000
Rural roads 41,347
Telecommunications 16,000
Irrigation (incl. Watershed Development) 253,301
Water supply and sanitation 90,701
Total 435,349

8. The required investment in infrastructure would be possible only if there

is a
substantial expansion in internal generation and extra budgetary resources of
public
sector, in addition to a significant rise in private investment. Even if the
public sector is able to achieve its ambitious targets, the required
investment in infrastructure is only possible if there is a substantial
expansion in
private sector investment. The share of the private sector in total
infrastructure
investment has to be around 30 per cent. In some sectors, the private sector’s
contributions would have to be far higher, as for instance in
telecommunications, ports
and airports where over 60 per cent of the investments have to come from
the private
sector. If these initiatives succeed, India would deliver a large programme of
PPPs
even by international standards.
9. The Working Group on Roads for the Eleventh Plan estimated investment
of
Rs. 2,09,493 crore in National Highways, with the public sector contributing
Rs.
1,21,758 crore and the private sector Rs. 87,735 crore.

Table 2.2

10. The Working Group on Telecommunications for the Eleventh Plan has
projected public sector investment (through BSNL and MTNL) at Rs.
1,21,630 crore
for the Eleventh Plan. It did not estimate the likely investment by the private
sector.

Table 3.2

11. The Working Group on Railways (excluding Metro Rail Projects

(MRTS)) for
the Eleventh Plan has estimated likely public investment of Rs. 2,51,000
crore, with
an additional private sector investment of Rs. 66,000 crore. This amounts to
2.65
times the anticipated realized investment in railways (but including MRTS)
in the
Tenth Plan of Rs. 119,658 crore
12. The Working Group on Irrigation (excluding Watershed Development
(WD))
for the Eleventh Plan has estimated public investment of Rs. 2,31,800 crore,
with a
Central contribution of Rs. 49,750 crore and of States of Rs. 1,82,050 crore.
13. The Working Group on Ports for the Eleventh Plan has estimated an
investment
of Rs. 55,401 crore in major ports, comprising public investment of Rs.
18,533 crore
and private investment of Rs. 36,868 crore.

Table 7.2

14. The Working Group on Civil Aviation for the Eleventh Plan has
estimated an
investment of Rs. 9,207 crore by the Airports Authority of India (AAI) and
did not
provide any estimation on the likely private sector investment.

14. The Eleventh Plan preparation process did not establish a Working
Group on
Storage to estimate the likely expenditure in the sector.

15. The Working Group on Petroleum and Gas has estimated that an
investment of
Rs. 39,626 crore will be required in the Eleventh Plan, in gas distribution
infrastructure, comprising Rs. 9,220 crore in LNG terminals, Rs. 11,121
crore
investments by GAIL and Rs. 10,000 crore by other entities, including the
private
sector, in gas transmission lines, and Rs. 9,000 crore in city gas distribution
infrastructure.
Table 10.2