Project Report on project financing

March 8, 2018 | Author: hingehanumant | Category: Project Finance, Yield Curve, Loans, Debt, Partnership
Share Embed Donate


Short Description

Download Project Report on project financing ...

Description

DPES Institute of Business Management

2008-09

DHOLE PATIL EDUCATION SOCIETY’S INSTITUTE OF BUSINESS MANAGEMENT DHOLE PATIL ROAD, PUNE- 411001.

A PROJECT REPORT ON ‘PROJECT FINANCING’ IN “SYNERGY FINANCIAL SERVISES” PUNE.

SUBMITTED TO DPES/IBM 2008-2009

PROJECT GUIDE PROF. MRS. AMEYA NISAL SUBMITTED BY MR. HANUMANT HINGE MPBA- SECOND YEAR ROLL NO. 05

1

DPES Institute of Business Management

2008-09

DHOLE PATIL EDUCATION SOCITY’S INSTITUTE OF BUSINESS MANAGEMENT DHOLE PATIL ROAD, PUNE- 411001. DATE: CERTIFICATE

This is to certify that Mr. Hanumant Dnyaneshwar Hinge, student of DPES/IBM MPBA– 2nd year, Roll no. 05, has completed his project work entitled “PROJECT FINANCING” IN “SYNERGY FINANCIAL SERVICES, PLANET HOME, M.G. ROAD, PUNE.” as a participation in fulfillment of the Master Program in Business Administration. as per the syllabus of DPES/IBM. (2008-2009). I further clarify that; the work has been carried out under my guidance.

Prof. Mr. Ameya Nisal.

(Project Guide)

2

DPES Institute of Business Management

2008-09

SYNERGY FINANCIAL SERVICES 85, M.G. ROAD, 2ND FLOOR, PLANET HOME, CAMP, PUNE-411001.

DATE: TO WHOM SO EVER IT MAY CONCERN This is to certified that Mr. Hanumant Dnyaneshwar Hinge MPBA. II year, student of Dhole Patil Education Society’s, Institute of Business Management has been successfully completed his Project Report with, “SYNERGY FINANCIAL SERVICES” Pune, and he has worked in our company and collected self information. During the training, he has been given the project titled, “PROJECT FINANCING.” He had put excellent effort under the guidance of Mr. Shridhar Shinde (Partner.) During the tenure of project work he has been observed to be sincere & with good learning ability. We wish him success in life.

For Synergy Financial Services. Mr. Shridhar Shinde (Partner) PUNE.

ACKNOWLEDGEMENT

3

DPES Institute of Business Management

2008-09

I take this an opportunity to extend my sincere thanks to “Synergy Financial Services” for offering me a unique platform to earn exposure and earn knowledge in the field of finance and learn the day-to-day activities that are carried out in the company.

I am thankful to Mr. Shridhar Shinde (Partner) and Mr. Ulas Ranade (Sr. Consultant of synergy financial services) and all employees of synergy financial services for helping and guide to prepare the project report.

With immense pleasure, I express my deep sense of gratitude and thanks to my project guide Prof. Ameya Nisal in addition, for his interest, encouragement and valuable guidance during the project work.

I would like to thanks to, Mrs. Gauri Dholepatil (director of institute of business management, Pune) for giving me an opportunity to complete this project.

MR. HANUMANT HINGE.

INDEX

4

DPES Institute of Business Management

SR. NO.

CHAPTER NAME

2008-09

PAGE No. 6

1.

Executive Summary

2.

Introduction

7

3.

Overview of the company

8

4.

Objective of the Project

11

5.

Literature

12

6.

Research Methodology

61

7.

Case Study

63

8.

Conclusion

98

9.

Bibliography

121

5

DPES Institute of Business Management

2008-09

EXECUTIVE SUMMARY

The main purpose of the project is to understand the whole concept of Project financing, and its methods and needs of project financing in the form of different committee recommendation and methods.

To know the needs and methods of project financing for term loan and working capital loan in small- scale industry as well as large-scale industry and various guidelines issued by the RBI for banking sector for Project finance.

The project has been divided into two parts. In initial chapters of the project was given to general concept and fundamental principles for project financing, method of project financing, requirement of project financing in various types of industries, the finance requirement to the borrowers and the various approaches adopted by the borrowers for selecting the mode of financing. The later chapter covers various methods of project financing and its sub methods i.e. term loan and Working capital limit in project financing. Funding the requirement of the term loan and working capital by the following procedures of Credit Monitoring Assessment (CMA) for funding of short-term loan and long-term loan. And finally various committees’ recommendation and current scenario of the MPBF were elaborated in detail.

And the project includes the case study on Steel industry for which the procedure is actually applied to PQR steel Alloys Pvt. Ltd. and the details of projection is highlighted.

6

DPES Institute of Business Management

2008-09

INTRODUCTION OF THE PROJECT FINANCING

Project financing has become one of the core activities of banks in the recent years. With the growth in the economy and the revival in the industrial sector coupled with the increasing role of private players in the field of infrastructure, more and more banks are entering into the project finance area. This examination is specially designed, in collaboration with the Institute for Financial Management and Research (IFMR), Chennai, to familiarize candidates with basic issues arising in financing projects, as well as risk analysis and risk mitigation methodologies with a specific emphasis on structured financing. The financing of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are scope of the project financing. Arranging short-term financing, controlling cash, managing accounts receivable, inventory management are function including in project financing of finance management. A thorough understanding and application of all these aspects is necessary to be able to maintain the optimum level of finance within the firm.

The requirement of the project financing is depending upon the nature of the business. The business may be small are large, but the requirement depend on the operation of the business it means the cycle of the business. If the operating cycle is longer the requirement of finance would be longer of the business. According to the requirement financing agencies, companies and banks provided finance to the borrowers in the form of fund based and non-fund based. Managing cash inflow and out flows efficiently for the optimum use of capital and to release the finance blocked in inventory and receivables constitutes the single largest problem have in business. As such the solution on this problem is that to borrowing the finance from Banks, financial institute etc. has increased tremendously in all aspects.

7

DPES Institute of Business Management

2008-09

COMPANY PROFILE ‘SYNERGY FINANCIAL SERVICES’

IS A REGISTERED PARTNERSHIP FIRM IN RENDERING

CONSULTANCY SERVICES TO CORPORATE IN DIFFERENT FACETS OF CORPORATE FINANCE.

MR. SHRIDHAR SHINDE AND MR. MILIND KULKARNI ARE THE PARTNERS AND PROMOTERS OF THIS FIRM.

Synergy financial services company and its Partners enjoy good reputation in business circle in and around Pune. The firm stands by integrity and commitment and strives to develop mutually beneficial thrilling relationship; the partners of the firm have rich experience in corporate banking, Investment banking, corporate finance and retail finance domain.

The firm is built on more than 20 years of direct consulting experience interacting with companies in and around Pune for understanding their business needs, formulating strategies and implementing them efficiently and effectively. The firm has amongst its clientele some of the leading Infrastructure, Real estate, Steel, Engineering, Educational institutes and trading companies in and around Pune. The firm has its focus on midsized corporate, SSI units and trading concerns.

The approach of synergy financial services company is on imparting the larger solution to corporate needs rather than mere isolate problem solving. This calls for developing long lasting business relationship and promoting mutual trust, and synergy financial services strive to stand by them.

8

DPES Institute of Business Management

2008-09

The Present Business Domain of the Synergy Financial

Loan Syndication –

Term Loan, Working capital facility, short-term loan, and other financing needs of corporate from Banks, Financial institutions and private Investors.

Project Finance –

Financial Viability study, business plans and project report, financial Planning and syndication requirements.

Corporate Advisory services –

Financial restructuring, mergers and acquisitions divestment and splits, business tie-ups.

9

DPES Institute of Business Management

2008-09

SWOT Analysis

Strengths Both partners of the firm have vast experience in the field of finance. The firm has strong customer base many of which are with the firms for last many years. Firms have good contact with in industry. Good reputation in market.

Weaknesses Firm does not put any efforts on marketing, which may help to grow the market. The firm has partnership structure and hence inherits the limits associated with this kind of organizational structure. Opportunity Large chunk of company’s assignment comes from developers and industry is currently in boom, which provides opportunity for the firm to expand its business.

Threats Similar types of competitors. Foreign financial services coming in India.

10

DPES Institute of Business Management

2008-09

OBJECTIVES

To understand the concept of Project financing, it’s various components, methods and nature of project financing. Another important objective is to analyze the various components of project financing, which is specifically used in borrowing the finance for the small-scale industry and largescale industry. If focuses on the requirement and the procedures applied by the banks for assessing and sanction the loan. It also studies the various guidelines issued and recommended by various RBI committees. To apply these procedures at a practical level with the help of a case study.

11

DPES Institute of Business Management

2008-09

CONCEPTUAL FRAMEWORK

History of Project Financing:Limited recourse lending was used to finance maritime voyages in ancient Greece and Rome. Its use in infrastructure projects dates to the development of the Panama Canal, and was widespread in the US oil and gas industry during the early 20th century. However, project finance for high-risk infrastructure schemes originated with the development of the North Sea oil fields in the 1970s and 1980s. For such investments, newly created Special Purpose Corporations (SPCs) were created for each project, with multiple owners and complex schemes distributing insurance, loans, management, and project operations. Such projects were previously accomplished through utility or government bond issuances, or other traditional corporate finance structures. Project financing in the developing world peaked around the time of the Asian financial crisis, but the subsequent downturn in industrializing countries was offset by growth in the OECD countries, causing worldwide project financing to peak around 2000. The need for project financing remains high throughout the world as more countries require increasing supplies of public utilities and infrastructure. In recent years, project finance schemes have become increasingly common in the Middle East, some incorporating Islamic finance. The new project finance structures emerged primarily in response to the opportunity presented by long term power purchase contracts available from utilities and government entities. These long term revenue streams were required by rules implementing PURPA, the Public Utilities Regulatory Policies Act of 1978. Originally envisioned as an energy initiative designed to encourage domestic renewable resources and conservation, the Act and the industry it created lead to further deregulation of electric generation and, significantly, international privatization following amendments to the Public Utilities Holding Company Act in 1994. The structure has evolved and forms the basis for energy and other projects throughout the world.

12

DPES Institute of Business Management

2008-09

13

DPES Institute of Business Management

2008-09

What is the Project financing?

Definition.

Project financing involves non-recourse financing of the development and construction of a particular project in which the lender looks principally to the revenues expected to be generated by the project for the repayment of its loan and to the assets of the project as collateral for its loan rather than to the general credit of the project sponsor. "Project finance" is a method for obtaining commercial debt financing for the construction of a facility. Lenders look at the credit-worthiness of the facility to ensure debt repayment rather than at the assets of the developer/sponsor. Farm biogas projects have historically experienced difficulty securing project financing because of their relatively small size and the perceived risks associated with the technology. However, project financing may be available to large projects in the future. In most project finance cases, lenders will provide project debt for up to about 80% of the facility's installed cost and accept a debt repayment schedule over 8 to 15 years. Project finance transactions are costly and often an onerous process of satisfying lenders' criteria. “Project finance involves the creation of a legally independent project company financed with non-recourse debt (and equity from one or more sponsoring firms) for the purpose of financing a single purpose capital asset, usually with a limited life.”

This definition highlights the following features of Project Finance:

Project Finance involves creating a legally independent project company to invest in the project; the assets and liabilities of the project company do not appear on the sponsors’ balance sheet. As a result, the project company does not have access to internally generated cash flows of the sponsoring firm. Similarly, the sponsoring firm does not have access to the cash flows of the project company. In contrast, in Corporate Finance, the same investment is financed as part of the company’s existing balance sheet.

14

DPES Institute of Business Management

2008-09

The purpose for Project Finance is to invest in a single purpose capital asset, usually a long-term illiquid asset. In contrast to a company, which may be investing in many projects simultaneously, a project-financed company invests only in the particular project for which it is created. The project company is dissolved once the project gets completed.

In Project Finance, the investment is financed with non-recourse debt. Since the Project Company is a standalone, legally independent company, the debt is structured without recourse to the sponsors. As a result, all the interest and loan repayments come from the cash flows generated from the project. This is in contrast to Corporate Finance where the lenders can rely on the cash flows and assets of the sponsor company apart from those of the project itself.

Project companies have very high leverage ratios compared to public companies. Esty (2003b) points out that the average project company has a leverage ratio of 70% compared to 33.1% for similar sized firms listed in the Composted database. The majority of project debt comes from bank loans. Esty (2005) shows that bank loans comprise around 80% of project debt.

It is a method of financing very large capital intensive projects, with long gestation period, where the lenders rely on the assets created for the project as security and the cash flow generated by the project as source of funds for repaying their dues.

15

DPES Institute of Business Management

2008-09

Principal Advantages and Objectives of the Project Financing

1. Non-recourse. The typical project financing involves a loan to enable the sponsor to construct a project where the loan is completely "non-recourse" to the sponsor, i.e., the sponsor has no obligation to make payments on the project loan if revenues generated by the project are insufficient to cover the principal and interest payments on the loan. In order to minimize the risks associated with a non-recourse loan, a lender typically will require indirect credit supports in the form of guarantees, warranties and other covenants from the sponsor, its affiliates and other third parties involved with the project.

2. Maximize Leverage. In a project financing, the sponsor typically seeks to finance the costs of development and construction of the project on a highly leveraged basis. Frequently, such costs are financed using 80 to 100 percent debt. High leverage in a non-recourse project financing permits a sponsor to put less in funds at risk, permits a sponsor to finance the project without diluting its equity investment in the project and, in certain circumstances, also may permit reductions in the cost of capital by substituting lower-cost, tax-deductible interest for higher-cost, taxable returns on equity.

3. Off-Balance-Sheet Treatment. Depending upon the structure of a project financing, the project sponsor may not be required to report any of the project debt on its balance sheet because such debt is non-recourse or of limited recourse to the sponsor. Off-balance-sheet treatment can have the added practical benefit of helping the sponsor comply with covenants and restrictions relating to borrowing funds contained in other indentures and credit agreements to which the sponsor is a party.

4. Maximize Tax Benefits. Project financings should be structured to maximize tax benefits and to assure that all available tax benefits are used by the sponsor or transferred, to the extent permissible, to another party through a partnership, lease or other vehicle.

16

DPES Institute of Business Management

2008-09

DISADVANTAGES. Project financings are extremely complex. It may take a much longer period of time to structure, negotiate and document a project financing than a traditional financing, and the legal fees and related costs associated with a project financing can be very high. Because the risks assumed by lenders may be greater in a non-recourse project financing than in a more traditional financing, the cost of capital may be greater than with a traditional financing.

17

DPES Institute of Business Management

2008-09

PROJECT FINANCING PARTICIPANTS AND AGREEMENTS.

18

DPES Institute of Business Management

2008-09

1.

Sponsor/Developer. The sponsor(s) or developer(s) of a project financing is the party that organizes all of the other parties and typically controls, and makes an equity investment in, the company or other entity that owns the project. If there is more than one sponsor, the sponsors typically will form a corporation or enter into a partnership or other arrangement pursuant to which the sponsors will form a "project company" to own the project and establish their respective rights and responsibilities regarding the project.

2.

Additional Equity Investors. In addition to the sponsor(s), there frequently are additional equity investors in the project company. These additional investors may include one or more of the other project participants.

3.

Construction Contractor. The construction contractor enters into a contract with the project company for the design, engineering and construction of the project.

4.

Operator. The project operator enters into a long-term agreement with the project company for the day-to-day operation and maintenance of the project.

5.

Feedstock Supplier. The feedstock supplier(s) enters into a long-term agreement with the project company for the supply of feedstock (i.e., energy, raw materials or other resources) to the project (e.g., for a power plant, the feedstock supplier will supply fuel; for a paper mill, the feedstock supplier will supply wood pulp).

6.

Product Off taker. The product off taker(s) enters into a long-term agreement with the project company for the purchase of all of the energy, goods or other product produced at the project.

7.

Lender. The lender in a project financing is a financial institution or group of financial institutions that provide a loan to the project company to develop and construct the project and that take a security interest in all of the project assets.

19

DPES Institute of Business Management

2008-09

FIRST STEP IN A PROJECT FINANCING: THE FEASIBILITY STUDY.

20

DPES Institute of Business Management

2008-09

A. Generally. As one of the first steps in a project financing the sponsor or a technical consultant hired by the sponsor will prepare a feasibility study showing the financial viability of the project. Frequently, a prospective lender will hire its own independent consultants to prepare an independent feasibility study before the lender will commit to lend funds for the project.

B. Contents. The feasibility study should analyze every technical, financial and other aspect of the project, including the time-frame for completion of the various phases of the project development, and should clearly set forth all of the financial and other assumptions upon which the conclusions of the study are based, Among the more important items contained in a feasibility study are: Description of project. Description of sponsor(s). Sponsors' Agreements. Project site. Governmental arrangements. Source of funds. Feedstock Agreements. Off take Agreements. Construction Contract. Management of project. Capital costs. Working capital. Equity sourcing. Debt sourcing. Financial projections. Market study.

21

DPES Institute of Business Management

2008-09

WHICH FIRMS IS NEEDS THE PROJECT FINANCE?

These are the firms wants project finance is as following: -

22

DPES Institute of Business Management

2008-09

A. Legal Firm. Sponsors of projects adopt many different legal firms for the ownership of the project. The specific form adopted for any particular project will depend upon many factors, including: The amount of equity required for the project The concern with management of the project The availability of tax benefits associated with the project The need to allocate tax benefits in a specific manner among the project company investors. The three basic firms for ownership of a project are:

1. Corporations. This is the simplest form for ownership of a project. A special purpose corporation may be formed under the laws of the jurisdiction in which the project is located, or it may be formed in some other jurisdiction and be qualified to do business in the jurisdiction of the project.

2. General Partnerships. The sponsors may form a general partnership. In most jurisdictions, a partnership is recognized as a separate legal entity and can own, operate and enter into financing arrangements for a project in its own name. A partnership is not a separate taxable entity, and although a partnership is required to file tax returns for reporting purposes, items of income, gain, losses, deductions and credits are allocated among the partners, which include their allocated share in computing their own individual taxes. Consequently, a partnership frequently will be used when the tax benefits associated with the project are significant. Because the general partners of a partnership are severally liable for all of the debts and liabilities of the partnership, a sponsor frequently will form a wholly owned, single-purpose subsidiary to act as its general partner in a partnership.

3. Limited Partnerships. A limited partnership has similar characteristics to a general partnership except that the limited partners have limited control over the business of the partnership and are liable only for the debts and liabilities of the partnership to the extent of their capital contributions in the partnership. A limited partnership may be useful for a project financing when the sponsors do not have

23

DPES Institute of Business Management

2008-09

PRINCIPAL AGREEMENTS IN A PROJECT FINANCING.

24

DPES Institute of Business Management

2008-09

A. Construction Contract. Some of the more important terms of the construction contract are:

1. Project Description. The construction contract should set forth a detailed description of all of the work necessary to complete the project.

2. Price. Most project financing construction contracts are fixed-price contracts although some projects may be built on a cost-plus basis. If the contract is not fixed-price, additional debt or equity contributions may be necessary to complete the project, and the project agreements should clearly indicate the party or parties responsible for such contributions.

3. Payment. Payments typically are made on a "milestone" or "completed work" basis, with a retain age. This payment procedure provides an incentive for the contractor to keep on schedule and useful monitoring points for the owner and the lender.

4. Completion Date. The construction completion date, together with any time extensions resulting from an event of force majeure, must be consistent with the parties' obligations under the other project documents. If construction is not finished by the completion date, the contractor typically is required to pay liquidated damages to cover debt service for each day until the project is completed. If construction is completed early, the contractor frequently is entitled to an early completion bonus.

5. Performance Guarantees. The contractor typically will guarantee that the project will be able to meet certain performance standards when completed. Such standards must be set at levels to assure that the project will generate sufficient revenues for debt service, operating costs and a return on equity. Such guarantees are measured by performance tests conducted by the contractor at the end of

25

DPES Institute of Business Management

2008-09

Diagram of a Typical Project-Financed Deal

26

DPES Institute of Business Management

2008-09

27

DPES Institute of Business Management

2008-09

WHAT ARE THE TYPICAL CHARACTERISTICS OF PROJECTS FINANCING? Some of the typical characteristics are: 1. Large capital costs 2. Long gestation periods 3. Assets are not easily transferable 4. Services provided are not tradable 5. Revenues only in local currency; 6. Borrowing may be in foreign currency 7. Tariffs are politically sensitive 8. Social aspects involved 9. Vulnerable to regulatory policies 10. Limited recourse financing needed What are the features of limited recourse/ non-recourse Project financing? Some of the features are following:* Financing through Special Purpose Vehicles (SPV) * Sponsor support obligation for SPV * Use of Trust and Retention Arrangement to capture the cash Flow * Govt. guarantee may be available Project Financing discipline includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds. In addition, one must understand the cogent analyses of why some project financing plans have succeeded while others have failed. A knowledge-base is required regarding the design of contractual arrangements to support project financing; issues for the host government legislative provisions, public/private infrastructure partnerships, public/private financing structures; credit requirements of lenders, and how to determine the project's borrowing capacity; how to prepare cash flow projections and use them to measure expected rates of return; tax and accounting considerations; and analytical techniques to validate the project's feasibility Project finance is finance for a particular project, such as a mine, toll road, railway, pipeline, power station, ship, hospital or prison, which is repaid from the cash-flow of that project. Project finance is different from traditional forms of finance because the financier principally looks to the assets and revenue of the project in order to secure and service the loan. In contrast to an ordinary borrowing situation, in a project financing the financier usually has little or no recourse to the non-project assets of the borrower or the

28

DPES Institute of Business Management

2008-09

sponsors of the project. In this situation, the credit risk associated with the borrower is not as important as in an ordinary loan transaction; what is most important is the identification, analysis, allocation and management of every risk associated with the project. The purpose of this paper is to explain, in a brief and general way, the manner in which financiers in a project finance transaction approach risks. Such risk minimization lies at the heart of project finance. In a no recourse or limited recourse project financing, the risks for a financier are great. Since the loan can only be repaid when the project is operational, if a major part of the project fails, the financiers are likely to lose a substantial amount of money. The assets that remain are usually highly specialized and possibly in a remote location. If saleable, they may have little value outside the project. Therefore, it is not surprising that financiers, and their advisers, go to substantial efforts to ensure that the risks associated with the project are reduced or eliminated as far as possible. It is also not surprising that because of the risks involved, the cost of such finance is generally higher and it is more time consuming for such finance to be provided. Risk minimization process Financiers are concerned with minimizing the dangers of any events which could have a negative impact on the financial performance of the project, in particular, events which could result in: (1) the project not being completed on time, on budget, or at all; (2) the project not operating at its full capacity; (3) the project failing to generate sufficient revenue to service the debt; or (4) the project prematurely coming to an end. The minimization of such risks involves a three-step process. The first step requires the identification and analysis of all the risks that may bear upon the project. The second step is the allocation of those risks among the parties. The last step involves the creation of mechanisms to manage the risks. If a risk to the financiers cannot be minimized, the financiers will need to build it into the interest rate margin for the loan. STEP 1 - Risk identification and analysis The project sponsors will usually prepare a feasibility study, e.g. as to the construction and operation of a mine or pipeline. The financiers will carefully review the study and may engage independent expert consultants to supplement it. The matters of particular focus will be whether the costs of the project have been properly assessed and whether the cash-flow streams from the project are properly calculated. Some risks are analyzed using financial models to determine the project's cash flow and hence the ability of the

29

DPES Institute of Business Management

2008-09

project to meet repayment schedules. Different scenarios will be examined by adjusting economic variables such as inflation, interest rates, exchange rates and prices for the inputs and output of the project. Various classes of risk that may be identified in a project financing will be discussed below. STEP 2 Risk allocation Once the risks are identified and analyzed, they are allocated by the parties through negotiation of the contractual framework. Ideally a risk should be allocated to the party who is the most appropriate to bear it (i.e. who is in the best position to manage, control and insure against it) and who has the financial capacity to bear it. It has been observed that financiers attempt to allocate uncontrollable risks widely and to ensure that each party has an interest in fixing such risks. Generally, commercial risks are sought to be allocated to the private sector and political risks to the state sector. STEP 3 Risk management Risks must be also managed in order to minimize the possibility of the risk event occurring and to minimize its consequences if it does occur. Financiers need to ensure that the greater the risks that they bear, the more informed they are and the greater their control over the project. Since they take security over the entire project and must be prepared to step in and take it over if the borrower defaults. This requires the financiers to be involved in and monitor the project closely. Imposing reporting obligations on the borrower and controls over project accounts facilitates such risk management. Such measures may lead to tension between the flexibility desired by borrower and risk management mechanisms required by the financier. There are many risks in finance and these risks are help to overcome on finance, these risk types is as following:Of course, every project is different and it is not possible to compile an exhaustive list of risks or to rank them in order of priority. What is a major risk for one project may be quite minor for another. In a vacuum, one can just discuss the risks that are common to most projects and possible avenues for minimizing them. However, it is helpful to categories the risks according to the phases of the project within which they may arise: (1) the design and construction phase; (2) the operation phase; or (3) either phase. It is useful to divide the project in this way when looking at risks because the nature and the allocation of risks usually change between the construction phase and the operation phase.

30

DPES Institute of Business Management

2008-09

1. Construction phase risk Completion risk Completion risk allocation is a vital part of the risk allocation of any project. This phase carries the greatest risk for the financier. Construction carries the danger that the project will not be completed on time, on budget or at all because of technical, labour, and other construction difficulties. Such delays or cost increases may delay loan repayments and cause interest and debt to accumulate. They may also jeopardize contracts for the sale of the project's output and supply contacts for raw materials. Commonly employed mechanisms for minimizing completion risk before lending takes place include: (a) obtaining completion guarantees requiring the sponsors to pay all debts and liquidated damages if completion does not occur by the required date; (b) ensuring that sponsors have a significant financial interest in the success of the project so that they remain committed to it by insisting that sponsors inject equity into the project; (c) requiring the project to be developed under fixed-price, fixed-time turnkey contracts by reputable and financially sound contractors whose performance is secured by performance bonds or guaranteed by third parties; and (d) obtaining independent experts' reports on the design and construction of the project. Completion risk is managed during the loan period by methods such as making pre-completion phase drawdown of further funds conditional on certificates being issued by independent experts to confirm that the construction is progressing as planned. 2. Operation phase risk - Resource / reserve risk This is the risk that for a mining project, rail project, power station or toll road there are inadequate inputs that can be processed or serviced to produce an adequate return. For example, this is the risk that there are insufficient reserves for a mine, passengers for a railway, fuel for a power station or vehicles for a toll road. Such resource risks are usually minimized by: (a) experts' reports as to the existence of the inputs (e.g. detailed reservoir and engineering reports which classify and quantify the reserves for a mining project) or estimates of public users of the project based on surveys and other empirical evidence (e.g. the number of passengers who will use a railway); (b) requiring long term supply contracts for inputs to be entered into as protection against shortages or price fluctuations (e.g. fuel supply agreements for a power station); (c) obtaining guarantees that there will be a minimum level of inputs (e.g. from a government that a certain number of vehicles will use a toll road); and (d) "take or pay" off-take contacts which require the purchaser to make minimum payments even if the product cannot be delivered. Operating risk These are general risks that may affect the cash flow of the project by increasing the operating costs or affecting the project's capacity to continue to generate the quantity and

31

DPES Institute of Business Management

2008-09

quality of the planned output over the life of the project. Operating risks include, for example, the level of experience and resources of the operator, inefficiencies in operations or shortages in the supply of skilled labour. The usual way for minimizing operating risks before lending takes place is to require the project to be operated by a reputable and financially sound operator whose performance is secured by performance bonds. Operating risks are managed during the loan period by requiring the provision of detailed reports on the operations of the project and by controlling cash-flows by requiring the proceeds of the sale of product to be paid into a tightly regulated proceeds account to ensure that funds are used for approved operating costs only.

METHODS OF THE PROJECT FINANCING:There are three Methods in Project Financing. 1. Cost Share financing or Low interest loan financing 2. Debts Financing 3. Equity Financing These three methods are very important in project financing, this explanation is as following:1 Cost Share Financing or Low Interest Loans There are few outright grant programs remaining for anaerobic digestion system funding. It may be possible to receive a portion of the project funding from public agency sources. The Environmental Quality Incentives Program (EQIP), administered by USDA’s Natural Resources Conservation Service (NRCS), promotes agricultural production and environmental quality as compatible goals. EQIP was reauthorized and the funding amount significantly expanded under the Farm Security and Rural Investment Act of 2002, which requires that 60 3percent of EQIP funds be spent on animal operations. Anaerobic digesters may qualify for cost share funding under NRCS programs. The owner should check with the local or state NRCS offices to see if a digester project may qualify. Another potential source of funding is a state energy program. At the time of publication, the status of renewable energy low-interest loan or grant programs is in flux. AgSTAR has identified approximately 30 states that offer financial assistance in the form of lowinterest loans, property tax exemptions, and grants. To learn more about these state

32

DPES Institute of Business Management

2008-09

programs and other federal funding opportunities, review the Ag STAR publication, Funding On-Farm Biogas Recovery Systems, EPA-430-F-04-002, and December 2003. Also Appendix B provides a list of NRCS and Department of Energy contacts that should be able to help the owner contact the correct person in his state. The advantage to receiving funding is the reduced project cost. The disadvantages are the time and effort it takes to apply for and receive funding monies. 2 Debt Financing Most agricultural biogas projects built in the last 15 years used debt financing, where the owner borrowed from a bank or agricultural lender. The biggest advantage of debt financing is the ability to use other people’s money without giving up ownership control. The biggest disadvantage is the difficulty in obtaining funding for the project. Debt financing usually provides the option of either a fixed rate loan or a floating rate loan. Floating rate loans are usually tied to an accepted interest rate index like U.S. treasury bills. Lender’s Requirements In deciding whether or not to loan money, lenders examine the expected financial performance of a project and other underlying factors of project success. These factors include contracts, project participants, equity stake, permits, technology, and sometimes, market factors. A good borrower should have most, if not all, of the following: — Signed interconnection agreement with local electric utility company — Fixed-price agreement for construction — Equity commitment — Environmental permits — Any local permits/approval However, most lenders look at the assets of an owner or developer, rather than the cash flow of a digester project. If a farm has good credit, adequate assets, and the ability to repay borrowed money, lenders will generally provide debt financing for up to 80 percent of a facility’s installed cost. Lenders generally expect the owner to put up an equity commitment of about 20 installed using his/her own money and agree to an 8 to 15 year repayment schedule. An equity commitment demonstrates the owner’s financial stake in success, as well as implying that

33

DPES Institute of Business Management

2008-09

owner will provide additional funding if problems arise. The expected debt-equity ratio is usually a function of project risk. Lenders may also place additional requirements on project developers or owners. Requirements include maintaining a certain minimum debt coverage ratio and making regular contributions to an equipment maintenance account, which will be used to fund major equipment overhauls when necessary. In this method, there are two important sub methods, which are following:

DEBT FINANCING

WORKING CAPITAL

TERM LOAN

Working Capital Method: Working capital finance is concerned with short-term investment decisions taken by a firm extended by commercial banks. Almost all firms avail working capital finance from commercial banks. In other words, working capital finance plays a pivotal role in keeping the business enterprise running. It is the most vital ingredient of any business activity. Efficient management of current assets, determining the optimum level of liquidity to be maintained, management of current liabilities etc. all form a part of working capital finance management. Current assets are assets, which are expected to be realized in cash or sold or consumed over the operating cycle of the business usually not exceeding one year.

34

DPES Institute of Business Management

2008-09

Items that are expected to be paid over one year from the date of balance sheet are classified as current liabilities. The term is use to designate obligations whose liquidation is expected to require the use of current assets or the creation of other current liabilities. Therefore, the current assets and current liabilities, for the purpose of determining the working capital gap, are classified under GWC and NWC as explained as follows: Gross working capital: - It refers to sum of all current assets. It is primarily quantitative in nature, which represents the commitment of funds to different items of current assets and their relationship to turnover. Net working capital: - Technically, it is the difference between current assets and current liabilities. NWC concept is qualitative in nature current credit soundness is indicated by positive NWC position and is of major concern to investor and bankers.

FINANCING APPROACHES

Three financing approaches are discussed below. They vary with reference to proportion of short-term vs. long-term funds in the financing mix. These have implications on profitability and risk of the firm.

HEDGING APPROACH

35

DPES Institute of Business Management

2008-09

Hedging Approach: - Under this approach, an asset would be offset with a financing instrument of the same approximate maturity, i.e. short-term or seasonal variations in current assets would be financed with short-term debt. On the other hand, hard-core component of current assets would be financed with long-term funds.

Fig. a

Troughs Troughs Short term Funds

We see that the firm’s fixed assets and permanent current assets are financed with longterm funds and temporary current assets with short-term funds. The justification for the matching of maturities is that, since the purpose of financing is to pay for assets, the financing could be relinquished when the assets is expected to be relinquished. Shortterm financing for long-term need is dangerous. A profitable firm may not be in a position to meet its cash obligations if funds borrowed on short-term basis have become tied-up in permanent assets (permanent current assets and fixed assets) A hedging approach to financing suggests that apart from current installments on longterm debt, a firm would show no current borrowings at the seasonal troughs in Fig. an above, short-term borrowings would be paid off with surplus cash. As the firm’s variable current assets would go up it would borrow on a short-term basis, again paying the borrowing off as surplus cash is generated. Permanent funds requirements would be financed with long-term debt and equity (either external or internal). In a growth situation, the level of permanent financing would go up in keeping with the increases in permanent funds requirements. Interestingly, RBI guidelines on bank credit also

36

DPES Institute of Business Management

2008-09

recommend increasing the borrower’s contribution from long-term funds to the extent to full core current assets. CONSERVATIVE APPROACH B) Conservative Practice: - The financing policy is said to be conservative when it depends more on long term funds for financing needs. Under this plan, the firm finances its permanent assets and also a part of fluctuating current assets with long term financing. The firm uses short-term funds in a small amount to meets it peak seasonal requirements. On the other hand, it stores liquidity in the form of marketable securities during offseason. The humps below the dashed line represent short term financing and the troughs below the dashed line represent short-term marketable securities. Fig.b

Marketable Securities Short Term Funds

Lo ng Term

AGGRESSIVE APPROACH Funds Rs.

Permanent Current Assets

C) Aggressive Approach: A firm here uses more short term financing than warranted under hedging approach. A part of the permanent current assets are financed by short-term funds. Some extremely aggressive companies may even finance a part of their fixed assets with short term financing. The relatively more use of short term financing makes the firm more risk. Fig. Sh ort Term Funds

37

Permanent Current Assets

DPES Institute of Business Management

2008-09

This is actually a highly aggressive, non-conservative position and a number of Indian companies have resorted to this practice in the past. These undertakings are subject to the potential risks of loan renewal problems.

How the firm should decide which of these approaches it should follow? The decision criteria for the use of long term vs. short-term funds for financing current assets are: 1) Cost of funds based on yield, 2) flexibility, 3) Risk and 4) Return

Cost: - The cost of funds is related to the term structure of interest rates and the behavior of yield curve. The yield curve is generally upward slopping, showing that interest rates increase with time. Longer dated maturities have a greater interest than short dated maturities. Hence, it can be seen that short-term loans cost less than long term funds.

Flexibility: - Short-term funds are more flexible because it is relatively easy to refund them when the need for fund diminishes. Hence, if the firm expects its needs for funds to diminish in the near feature, it may choose short-term debt for flexibility it provides.

38

DPES Institute of Business Management

2008-09

Risk: - Use of short-term debt subjects a firm to more risk than long-term debt. This risk effect occurs for two reasons:

In long term funds the interest rates are fairly stable over time, but in short term borrowings the interest rate may fluctuate widely, often going high. If it borrower heavily on short-term basis it may find itself unable to repay this debt or it may be in a shaky financial position that the lender will not extend the loan. Thus, a big uncertainty is created.

Risk return trade off: - Thus the short-term funds are less expensive but involve greater risk than long term financing. The choice between long term and short term financing involves a tradeoff between risk and return illustration below: Fig.b Yield Curve

Increase Rate %

39

DPES Institute of Business Management

2008-09

WORKING CAPITAL FINANCE FROM BANKS

Cash credit: - The banker will give this facility to the customers by giving certain amount of credit facility on continuous basis. The borrower will not be allowed to exceed the limits sanctioned by the bank.

Bank Overdraft: - It is a short term borrowing facility made available to the companies in case of urgent need of funds the banks will impose limits on the amount they can lend. When the borrowed funds are no longer required they can quickly and easily be repaid. Banks issue overdraft with a right to call them in short-term notice.

Bill Discounting: - The company, which sells goods on credit will normally draw a bill on buyer, who will accept and send it to the seller of goods. The seller in turn discounts the bill with his banker. The banker will generally earmark the discounting bill limits.

Bill Acceptance: - To obtain finance under this type of arrangement companies draws a bill of exchange. The bank accepts the bill there by promising to payout the amount of the bill at some specific future date. The bill its self is then worth something as the holder is to receive a some of money at future date. This bill can be sold either at once or when the funds are needed. It is sold in the money market to say, discount houses. It is similar to an arrangement to an ordinary bill of exchange between to companies but now one of the parties is a bank a bank bearing a reputable bank’s name can be sold in the money markets at a lower discount rate then a bill bearing the of the medium or a small sized company because of the reduced risk.

Line Of Credit: - Line of credit is a commitment by a bank to lend a certain amount of funds on demand specifying the maximum amount of unsecured credit the bank will permit the customer to lend at any point of time. The bank will charge extra cost over the normal rate of interest since it will keep the funds available to make use of the funds by the customer at all times.

40

DPES Institute of Business Management

2008-09

Letter Of Credit: - It is an arrangement by which the issuing bank on the instruction of customer or on its own behalf undertakes to pay or accept or negotiate or authorizes another bank to do so against stipulated documents subject to compliance with specified terms and conditions. The documentary credit is considered as the best payments arrangement since a reputed bank that pays against the presentation of stipulated documents as mentioned in the letter of credit.

Bank Guarantees: - Bank guarantees is one of the facilities that the commercial bank extends on behalf of their clients in a favor of third parties who will be beneficiaries of the guarantees. In fact when a bank guarantee is given no credit is extended and banks do not part with any funds there will be only guarantee to the beneficiary to make payment in the event of the customer of whose behalf the guarantee is given, he banker given guarantee has to pay and claim reimbursement from his client. The banker’s liabilities arise only of his customer fails to pay the beneficiary of the guarantee. That is why banks guarantee limit are known as ‘none borrowing limits’ or ‘none funds limits’.

SECURITY

Banks needs some security from the borrowers against the credit facilities extended to them to avoid any kind of losses. Security can be created in various ways. Banks provide credit on the basis of the following modes of security from the borrowers: -

Hypothecation: - Under this mode of security, the banks provide credit to borrowers against the security of moveable property, usually inventory of goods. The goods hypothecated, however, continue to be in possession of the owner of the goods that is the borrowers. The right of banks depends the terms of the contract between and the lender. Although the bank does not have the physical possession of the goods, it has the legal right to sell the goods to realize the outstanding loans. Hypothecation facility is normally not availed to new borrower. Pledge: -The goods, which are offered as security, are transferred to the physical possession of the lender. An essential prerequisite of pledge is that the goods are in the

41

DPES Institute of Business Management

2008-09

custody of the banks. Pledge creates some kind of liability for the bank in the sense of reasonable care of the pledge goods must be taken by the banks. Lien: - The term lien refers to the right of a party to retain goods belonging to the other party until a debt due to him is paid. Lien can be of two types via, particular lien i.e. a right to retain goods until a claim pertaining to these goods is fully paid and another one is general lien, which is applied till all dues of the claimant are paid. Banks usually enjoy general liens. Mortgage: - It is a transfer of a legal interest in specific immovable property for security the payment of debt. It is the convenience of interest in the mortgaged property. This interest is terminated as soon as the debt is paid. Mortgage is taken as an additional security for working capital credit.

DOCUMENTATIONS

Documentation is an integral part of lending by banks. It establishes legal relationships between lender and borrower and provides enforceable character to securities. Careful security of the documents is extremely important to avoid any discrepant documents not in compliance with the terms and conditions of the agreement.

List of Documents Required: -

Execution of security and other documents for credit facilities granted to borrowers. Demand promissory note. General conditions-applicable to term/demand loan. Credit facility agreement for term/demand loan. General conditions applicable to fund and non-fund based working capital credit facilities.

42

DPES Institute of Business Management

2008-09

Credit facility agreement for the overall working capital limit. Deed of hypothecation. Imports trust receipt. Corporate guarantee. 10) Letter for sharing security on pari passu basis. 11) Unstamped declaration as per the companies Act, 1956 To be given by corporate borrower. 12) Revival documents letter of acknowledgement of debt To be executed by the guarantee.

Bank Guarantee: -

Deferred payment guarantee. Omnibus counter indemnity (for guarantee issued for supply of machinery). Guarantee to be issued to government for due to performance of contractors. Guarantee for performance of contract by supplier. Omnibus counter indemnity (for guarantee issued for performance of contract). Undertakings for the guarantee issued by the bank for foreign currency loan with floating rate of interest. Guarantee for foreign currency loan with fixed/floating rate of interest. General counter guarantee and indemnity covering several letters of credit within the sanctioned letter of credit limit.

Equitable mortgage document based on the nature of business:

43

DPES Institute of Business Management

2008-09

Board resolution for creation of equitable mortgage by deposit of title deeds and confirmation thereof (for corporate borrowers). Declaratory affidavit by the Director of the corporate borrower. Memorandum of entry for corporate borrowers, sole proprietorship firms and partnership firms, for individuals etc. as the case may be. Letter of authority for creation of equitable mortgage by depositing title deeds of the properties for partnership firms. Letter to be given by the co-operative housing society in case of equitable mortgage of flats.

CREDIT MONITORING ASSESSMENT

RBI, in 1975, prescribed the format to obtain the necessary data from borrowers to assess working capital requirement under the Credit Monitoring Assessment (CMA) in 1988. Banks continue to obtain forms for funded working capital limits of Rs.10 million and above as these facilitate the computation of MPFB.

The CMA comprises of 6 forms:-

Form I: - It contains particulars of existing credit from the entire banking system including term loan facilities Form II:- Known as the operating statement, it contains data relating to gross sales, net sales, cost of raw materials, power and fuel, etc. it gives the operating profit and the net profit figures. Form III: - A complete analyses of various items of last year’s balance sheet, current year’s estimates and following year’s projection are given in this form.

44

DPES Institute of Business Management

2008-09

Form IV: - Details of various items of current assets and current liabilities are given. The figures in this form must tally with those in Form III. Form V: - The calculation of MPBF is done in this form to obtain the fund based credit limits to be granted to the borrower. Form VI: - It provides the details of fund flow from long term sources and uses to indicate whether they are sufficient to meet the borrower’s long-term requirements. Once the MPBF is arrived at on the basis of inventory and receivables norms by the appropriate method of lending, banks decide the various funds and non-fund limits based limits. The fund-based limits should not exceed the MPBF. The cash credit component should not be more than 20% for borrowers having working capital limit more than Rs. 100 million from the banks. The balance may be 80% may be provided as demand loan.

Working Capital Loan Vs Business Cash Advance An analytical approach to both these methods of working capital financing, namely, working capital loan and business cash advance, reveals the following points: Working capital business cash advance is difficult to qualify for when compared with business cash advance as an alternative source for working capital financing. Financing bodies look at the credit score of the borrower, available collateral and various other factors before granting a working capital business cash advance. However, most small businesses would easily qualify for a business cash advance. It generally takes a week or more to get working capital business cash advance at the earliest and a lot of paper work is involved. Your application for business cash advance is processed much faster (cash in 72 hours) and the paper work is also relatively lesser. We maintain a very simplified process for working capital financing. A business cash advance is never tied to a fixed repayment schedule. The repayment is done from credit card sales receipts and the businesses generally do not feel the pinch. Working capital loans on the other hand would have a fixed repayment schedule and the borrower would need to repay the amount according to the schedule. If the borrower fails to repay the working capital business cash advance, it might affect his credit score and he also stands the chance of losing his collateral. Irrespective of the business volume on a particular month the borrower will need to repay the working capital business cash advance according to the pre determined fixed amount.

45

DPES Institute of Business Management

2008-09

2. TERM LOAN METHOD: -

Definition A bank loan to a company, with a fixed maturity and often featuring amortization of principal. If this loan is in the form of a line of credit, the funds are drawn down shortly after the agreement is signed. Otherwise, the borrower usually uses the funds from the loan soon after they become available. Bank term loans are very a common kind of lending. It is becoming increasingly clear that the impact of increasing oil prices to the consumer has still to be felt," observed the RBI Governor, Venugopal Reddy. In the face of upward pressure on interest rates, the bank has kept the benchmark bank rate - the rate at which it lends to commercial banks - and Cash Reserve Ratio (CRR) that regulates liquidity in the market - unchanged. The central bank has also retained interest rates on savings bank deposits at the current 3.5 per cent per annum so as not to spur interest rate, but favored deregulation of the rate in the long run. According to Governor Reddy, the central bank did not raise key rates because the preemptive steps taken in January this year had apparently fetched the desired results, but the decision against increasing rates was a "delicate" one. However, to ensure that there is no liquidity squeeze, Governor Reddy, in his new credit policy, has raised the interest rates on rupee deposits by Non-Residents and export credit in foreign currency. This measure is expected to bring in more liquidity in the system by absorbing more foreign exchange. To boost agriculture credit, the RBI has simplified and liberalized branch-licensing policies for rural banks and set up a working group to address various issues faced by distressed farmers, including review of legal framework for money lending. The bank has said that it would set up another working group to examine the relevant recommendations of the R H Patil Committee on corporate bonds and securitization. On liquidity, the bank has said that it would continue to ensure appropriate cash availability in the system using all the policy instruments as and when required.

46

DPES Institute of Business Management

2008-09

"The Reserve Bank will continue to ensure that appropriate liquidity is maintained in the system so that all legitimate requirements of credit are met, consistent with the objective of price and financial stability," the central bank said in a statement. "Towards this end, RBI will continue with its policy of active demand management of liquidity." The 'Loan System" was introduced to minimize the risks of cash and liquidity management on the part of the banking system, caused by volatile movements in cash credit component of working capital. In the current environment of short-term investment opportunities available to both corporate and banks, RBI has reviewed the guidelines relating to the 'Loan System'. Accordingly, it has been decided that banks will henceforth have the freedom to change the composition of working capital by increasing the cash credit component beyond 20 per cent or to increase the 'Loan component' beyond 80 per cent as the case may be, for working capital limits of Rs. 10 core and above, if they so desire. Banks are expected to appropriately price each of the two components of working capital finance, taking into account the impact of such decisions on their cash and liquidity management. The guidelines relating to the 'Loan System', as currently applicable are set out in the Annexure. 4. Consequently, paragraph 13 B.I.6 of Chapter 13 in the Manual of Instructions may be replaced with the revised guidelines. Guidelines on Loan System for Delivery of Bank Credit 1. Loan Components and Cash Credit Component (a) In the case of borrowers enjoying working capital credit limits of Rs.10 corer and above from the banking system, loan component should normally be 80 per cent. Banks, however, have the freedom to change the composition of working capital by increasing the cash credit component beyond 20 per cent or to increase the 'Loan Component' beyond 80 per cent as the case may be, if they so desire. Banks are expected to appropriately price each of the two components of working capital finance, taking into account the impact of such decisions on their cash and liquidity management. (b) In the case of borrowers enjoying working capital credit limit of less than Rs.10 crore, banks may persuade them to go in for the `Loan System' by offering an incentive in the form of lower rate of interest on the loan component, as compared to the cash credit component. The bank may settle the actual percentage of `loan component’ in these cases with its borrower clients. (c) In respect of certain business activities, which are cyclical and seasonal in nature or have inherent volatility, the strict application of loan system may create difficulties for the

47

DPES Institute of Business Management

2008-09

borrowers. Banks may, with the approval of their respective Boards, identify such business activities, which may be exempt from the loan system of delivery. 2.

Ad hoc Credit Limit

As at present, ad hoc/additional credit for meeting temporary requirements can be considered by the financing bank only after the borrower has fully utilized/exhausted the existing limit. 3.

Sharing of Working Capital Finance

The ground rules for sharing of cash credit and the consortium may lay down loan components, wherever formed, subject to guidelines on bifurcation as stated in paragraph (1) above. The level of individual bank's share shall continue to be governed by the norm for single borrower/group exposure. 4.

Rate of Interest

Banks are allowed to prescribe Prime Lending Rates and spreads over Prime Lending Rates separately for `loan component' and 'cash credit component'. 5.

Period of Loan

Banks in consultation with borrowers may fix the minimum period of the loan for working capital purposes. Banks may decide to split the loan component according to the need of the borrower with different maturity bases for each segment and allow roll over. 6.

Security

In regard to security, sharing of charge, documentation, etc., banks may themselves decide on the requirement, if necessary, in consultation with the other participant banks. 7.

Export Credit

The bifurcation of the working capital limit into loan and cash credit components, as stated in paragraph (1) above, would be effected after excluding the export credit limits (pre-shipment and post-shipment). Export credit limit would continue to be allowed in the form hitherto granted. 8. Bills limit for inland sales may be fully carved out of the `loan' component�. Bills limit also includes limits for purchase of third party (outstation) cheques/bank drafts. Banks must satisfy themselves that bills limit is not misultilised and in this connection, the instructions contained in Circular DBOD. No. BC.8/16.13.100/92-93 dated July 27, 1992 should be carefully noted and complied with.

48

DPES Institute of Business Management

9.

2008-09

Renewal/ Rollover of Loan Component

The `loan component' may be renewed/rolled over at the request of the borrower. 10. Provisions for Investing Short-term Surplus Funds of Borrower The banks, at their discretion, may permit the borrowers to invest their shortterm/temporary surplus in short-term money market instruments like Commercial Paper (CP). Certificates of Deposit (CD) and in Term Deposit with banks, etc. 11. Applicability The loan system would be applicable to borrowal accounts classified as `standard' or `sub-standard'.

The most common use of term loans is for businesses. If you are running a small business, there are undoubtedly going to be times when you need some working capital to either get things going or keep yourself afloat. Many times, a term loan is the answer for just such a problem. Many banks and similarly run financial institutions offer term loans as a way to help small business owners. However, like with any other loan you and your business need to qualify. How does that work, though? There are some factors that will affect term loan approval. The first thing a bank looks at when considering your business for a term loan is your credit character. That is, they want to know how you have managed loans in the past. They will look at you personally as well as your business. They also want to know what your experience is. For example, if you want a term loan to open your own bait and tackle shop, yet have no retail or fishing industry experience then you may have a tough time. Another factor taken into account when seeking a term loan is your credit capacity. Credit capacity is how the bank views your ability or likely ability to pay back the loan. They will look at your business records, personal finances, and even your former business ventures to get a clear picture. Most banks will want collateral for a term loan. They will, in fact, probably want more in collateral than what the loan is worth in the first place. This is to ensure that if you do not pay back the term loan that the bank will be able to recoup their loss in some form.

49

DPES Institute of Business Management

2008-09

As a final point, they will look at your overall capital. They will want to see your cash holdings. They will also look at what you have available that can be liquidated. Essentially, the bank wants to make sure that they will get their money even if your business struggles.

HOW TO GET APPROVED FOR A TERM LOAN?

If you decide to seek out a term loan for your business, you want to make sure you get approved. Since the approval process is long and difficult, it is a good idea to have some idea of what you should do to help your chances. Here are a few tips on getting approved.

First of all, make sure your business plan is rock solid. Your plan is where a lot of the investigation will take place from the lender. Not only should it be solid, but also is should be well presented and laid out. Make sure you have a well polished one to three page summary of the plan on the front. This will be your hook. Secondly, lenders like to see that you have a stake in your own business. A term loan for equipment or the business as a whole will be more likely to be approved if you have at least a 24% stake in the business. Lenders see this as motivation for you to do everything you can to succeed. Unlike with a home, it is better to rent than to buy. A term loan lender would rather you were spending your money on revenue producing equipment and inventory. Rent your building so that you tie up less money and accumulate no more business debt. Term lenders like to see less debt. For a small business, sometimes bigger is not better. When seeking your term loan, try the smaller local banks. They may be more likely to take a chance on a local. Additionally, a smaller bank is likely to give you more individual attention than a large financial company.

DISADVANTAGES OF TERM LOAN

50

DPES Institute of Business Management

2008-09

While there are many reasons your small business may want to pursue a term loan, there are also reasons not to. When it comes to financing, you should always make sure you are taking into account the pros and cons of every option. By understanding the cons of term loans, you may prevent yourself from making a tough financial mistake. 1. Is the amount you can secure? As you may recall, a term loan is usually limited by the product you are financing. In fact, it is usually a percentage of the value of the equipment. What the amount is exactly depends, of course, on the individual loan, but you are definitely going to be limited. 2. Prepayments are often restricted. In fact, if they are allowed at all, prepayments of a term loan are usually heavily penalized. This is something that can cause a problem if you are used to loans that allow you to pay off the balance when you have the money available. 3. There is usually a processing fee. In fact, that fee can be fairly substantial. With most term loans, the fee is a small percentage of the total loan. So in addition to paying the interest rates and being limited by the financed piece, you have to pay a fee for processing the loan. Getting the loan, then, can be hard on your capital in itself depending on the size of the loan.

WHO SHOULD CONSIDER A TERM LOAN?

A term loan, like most financial loans, is not for everyone or for every business. You should carefully consider your own situation before ever moving forward with a term loan. Not only is there danger of not qualifying, but also of putting your business into a debt it cannot handle. Usually the best candidates for a term loans are established small businesses. You need to be able to show good financial statements. Having some working capital available for a down payment is also essential in most cases since a term loan is usually a method of financing something. Bear in mind that your repayment schedule is usually linked to the item you finance. As a final point, if you are going to finance equipment with a term loan, you should make

51

DPES Institute of Business Management

2008-09

sure your business has taken everything in to consideration. Look at depreciation as well as length of the loan. You may even want to explore leasing first. The key to good financing is to make sure it is necessary, you can handle it, and that the term loan is what is best for your business. The approval process on a term loan is grueling. Make sure you are up to it as a company and as an individual before entering into the process. Failing to get through it can mean wasted time and a bad mark on your company’s credit for future applications.

SANCTION PROCESS OF WORKING CAPITAL & TERM LOAN:-

52

DPES Institute of Business Management

2008-09

53

DPES Institute of Business Management

2008-09

54

DPES Institute of Business Management

2008-09

55

DPES Institute of Business Management

2008-09

56

DPES Institute of Business Management

2008-09

57

DPES Institute of Business Management

2008-09

3. EQUITY FINANCING Investor equity financing is a rarely used method of financing agricultural biogas projects. Project investors typically provide equity or subordinated debt. Equity is invested capital that creates ownership in the project, like a down payment on a home mortgage. Equity is more expensive than debt, because the equity investor accepts more risk than the debt lender. This is because debt lenders usually require that they be paid from project earnings before they are distributed to equity investors. Thus, the cost of financing with equity is usually significantly higher than financing with debt. Subordinated debt is after any senior debt lenders are paid and before equity investors are paid. Subordinated debt is sometimes viewed as an equity-equivalent by senior lenders, especially if provided by a credit-worthy equipment vendor or industrial company partner. There are two methods for equity finance: self and investor. Regardless of method, the following basic principles apply. In order to use equity financing, an investor must be willing to take an ownership position in the potential biogas project. In return for this share of project ownership, the investor is willing to fund all or part of the project costs. Project, as well as some equipment vendors, fuel developers, or nearby farms could be potential equity investors. The primary advantage of this method is its availability to most projects; the primary disadvantage is its high cost.

METHODS OF LENDING Like many other activities of the banks, the Reserve Bank of India till 1994 mandated method and quantum of short-term finance that can be granted to a corporate. This control was exercised on the lines suggested by the recommendations of a study group headed by Shri Prakash Tendon. The study group headed by Shri Prakash Tendon, the then Chairman of Punjab National Bank, was constituted by the RBI in July 1974 with eminent personalities drawn from leading banks, financial institutions and a wide cross-section of the Industry with a view to study the entire gamut of Bank's finance for working capital and suggest ways for optimum utilization of Bank credit. This was the first elaborate attempt by the central bank to organize the Bank credit. The report of this group is widely known as Tendon Committee report. Most banks in India even today continue to look at the needs of the corporate in the light of methodology recommended by the Group.

58

DPES Institute of Business Management

2008-09

As per the recommendations of Tendon Committee, the corporate should be discouraged from accumulating too much of stocks of current assets and should move towards very lean inventories and receivable levels. The committee even suggested the maximum levels of Raw Material, Stock-in-process and Finished Goods, which a corporate operating in an industry should be allowed to accumulate these levels, were termed as inventory and receivable norms. Depending on the size of credit required, the funding of these current assets (working capital needs) of the corporate could be met by one of the following methods: First Method of Lending: Banks can work out the working capital gap, i.e. total current assets less current liabilities other than bank borrowings (called Maximum Permissible Bank Finance or MPBF) and finance a maximum of 75 per cent of the gap; the balance to come out of long-term funds, i.e., owned funds and term borrowings. This approach was considered suitable only for very small borrowers i.e. where the requirements of credit were less than Rs.10 lacs Second Method of Lending: Under this method, it was thought that the borrower should provide for a minimum of 25% of total current assets out of long-term funds i.e., owned funds plus term borrowings. A certain level of credit for purchases and other current liabilities will be available to fund the buildup of current assets and the bank will provide the balance (MPBF). Consequently, total current liabilities inclusive of bank borrowings could not exceed 75% of current assets. RBI stipulated that the working capital needs of all borrowers enjoying fund based credit facilities of more than Rs. 10 lacs should be appraised (calculated) under this method. Third Method of Lending: Under this method, the borrower's contribution from long term funds will be to the extent of the entire CORE CURRENT ASSETS, which has been defined by the Study Group as representing the absolute minimum level of raw materials, process stock, finished goods and stores which are in the pipeline to ensure continuity of production and a minimum of 25% of the balance current assets should be financed out of the long term funds plus term borrowings.

RESEARCE & METHODOLOGY OF PROJECT

59

DPES Institute of Business Management

2008-09

1) Introduction:-

The most of important part and main strength of project comes from the process of collecting; classification and analyzing work will depend upon the methodology. It is in a way proposed plan of the study.

2) Objects of Project Report:-

To know the history and growth of company. To know and understand the definition of the term “Project financing in Synergy Financial Services.” To know and understand the meaning & definition of Projections and financial statements. To know the profit of “Synergy Financial Services.” To be acquainted with annual reports & contents. To study the financial statement with the help of Project financing. To analysis & interpret the financial statements and to preparation of Credit Monetary Assessment (CMA) To know & understanding the banking monetary system and how the bank sanction the loan. To find out the right projection of the company. To understanding the project financing system and actualization in practical.

Sources of Data Collection: -

60

DPES Institute of Business Management

2008-09

Data Collection is key part of project work. There are two types of data collection, first is primary source and second is secondary of data collection.

Primary Sources: The primary data includes company profile, financial statements, and case study has been obtained from Synergy financial services.

Secondary Sources:The secondary data relating to the procedures of assessment of project financing in smallscale industry (SSI), and large-scale industry, RBI guidelines etc. have been sourced from reference books and websites.

Hypothesis:-

Project finance is the one of the biggest source of borrowing the debts.

Scope of the project:Company has given various guidelines, advice and projection for obtaining the finance from the banks and other financial services. And developing of the company keeping in the view economic of the country. I have under taken the study of fast developing company with reference to its financial position. It is necessary to under taken the impact of “Synergy Financial Services” & various services provide to their clients.

Limitation of the study:-

61

DPES Institute of Business Management

2008-09

The time, limitation is the most important problem to collect the various information. Study is not relation to the current market position. It required lot of time and more expensive. Lack of technical knowledge of project financing, I could not understand some technical terms of the project financing.

CASE STUDY MANUFACTURING COMPANY:

NAME

PROMOD STEEL ALLOYS PVT. LTD.

NATURE

Private Limited Company, incorporated under The Companies Act,

62

DPES Institute of Business Management

2008-09

1956.Dated 12th sep. 2008. PROPSED ACTIVITY

Manufacture of steel ingots.

LOCATION OF -

140, Shriram Nagar, Tal- Khed, Dist- Pune.

FACTORY PROMOTERS

Mr. ABC Mr. PQR

Proposed Installed Capacity

60 MT per day /20400 MT per year

Total Project Cost

Rs.781.94 Lacs

BANKING REQUIREMENT

Term Loan- Rs. 350.00 lacs and Cash Credit- Rs.300.00 lacs

REPAYMENT PERIOD

To be repaid in 24 equal quarterly installments of Rs 14.58 lacs after 6 months initial moratorium period. Interest to be repaid as and when charged.

COLLETRAL SECURITY

Land with bldg at Gat No, 140, Shriram Nagar, Tal- Khed, Dist- Pune. Standing in the name of M/s Pramod Steel Alloys Pvt. Ltd. Approx MV – Rs.250 – 300 lacs

PRESENT BANKAR

Bank of Marched

Brief About the Company-

63

DPES Institute of Business Management

2008-09

Promod Still Alloys Pvt. Ltd. Is a registered private limited company, having its manufacturing units at 140, Shriram Nagar, Tal- Khed, Dist- Pune. The company is engaged in manufacturing of the Steels ingots products since 4-5 years, the company is incorporated under Company’s Act 1956. This plant is being implemented on land admeasuring total area of plot of 6600 square meters. The Reg. No. of the company is 272846829376 dated 12.09.2002.

Management set upThe company is managing by following promoter-

ABC, is 32 years old, has completed his MBA finance from Pune University. Recently he is a managing Director of the company and he is looking after entire operation and finance department. He is a young and dynamic promoter of the company.

PQR is 28 year old has completed his M.Sc from Pune University with first class, and having more than seven year experience in manufacturing field. He is looking operation and marketing department since incorporation. He has good contacts with people and good reputation in market.

PROPOSED PROJECT

M/s. Pramod Steel Alloys Pvt. Ltd. proposes to set up a unit, producing steel ingots. The plant would have installed capacity of 60 MT per day /20400 MT per year. It is based on induction melting process for producing primary steel products i.e. Steel Ingots from Steel & Iron Scrap.

64

DPES Institute of Business Management

2008-09

The total cost of project and means of finance is as under: Cost of Project (Rs. In Lacs) S. No.

Particulars

Amount

1

Land

4.66

2

Civil Work

195.46

3

Plant & Machinery

466.11

4

Miscellaneous Fixed Assets

2.25

6

Pre-operative Expenses

32.75

7

Contingencies

5.71

Total Fixed Cost

706.94

Margin for Working Capital

75.00

8 TOTAL

781.94

Means of Finance (Rs. In Lacs) S.NO. DETAILS

AMOUNT

1

Own Contribution

250.00

2

Unsecured Loan from family & Friends

181.94

2

Term Loan

350.00

65

DPES Institute of Business Management

TOTAL

2008-09

781.94

Details of the cost of projects:Civil Work:The civil work include to develop of the building, construction of the site, and other civil work, the total cost of civil work is Rs. 195.46 lacs and the area is approx. 6600 sq.ft.

Plant and Machinery:-

The company is going to purchase CNC Machines, U Machines, Y machines etc. in their set up plan with amounting Rs. 466.11 lacs. For the purpose of expansion of company.

Contingency and Pre-operative Expenses:

The contingency and pre-operative expanses are assumed 25% on total cost of assets. Manpower requirement for the company:The basis manpower requirement for the company for production department, staff, operation and marketing department etc. is as following:Designation

No. of persons

S. No

Production

01

Production Manager

1

02

Supervisors

2

03

Maintenance Incharge

1

04

Electrician

2

05

Welders

2

06

Helpers

4

07

Contract Labour

40

Total

52

66

DPES Institute of Business Management

S. No

Administration

1

Chief Executive

1

2

Accountant

1

3

Excise Assistant

1

4

Office Assistant

1

5

Computer Operator

1

6

Store Keeper

2

7

Peon

1

Total

2008-09

8

Location Advantages:The company is established in well norms areas and the infrastructural facility are easily available to moving the product into market. The company is in MIDC area thereby the company has an opportunity to utilized Government facility, and the infrastructure is well connected with rail, road etc.

Means of finance:-

The source of increasing in capital will be from:-

Own Contribution The party is going to contribute of Rs. 250.00 lacs.

67

DPES Institute of Business Management

2008-09

Term loan: The party has approach for term loan of Rs. 350 lacs.

Unsecured Loan:The unsecured loan of Rs. 181.94 lacs has been inducted into business.

COMPETITOR STV alloys Pvt. Ltd., Pune IMP Steel Industries Ltd., Pune STD Steel alloys Pvt. Ltd., Baramati, Pune SYX Steel Alloys Pvt. Ltd., Vijapur, Pune

MANUFACTURING PROCESS

The manufacturing process for the Mild Steel Ingots involves melting of iron scraps or sponge iron in a high temperature induction furnace.

68

DPES Institute of Business Management

2008-09

The electric arc type furnaces are gradually being replaced in mini Steel Plant by furnaces based on induction melting principles, requiring lower power consumption.

The Company proposes to avail advantages of latest technology by adopting Medium Frequency Induction Melting Furnace, which consumes still lower power thereby saving cost on energy consumption.

The scrap or sponge iron is kept on feeding in the molten mass in the furnace crucible which is kept at a high temperature of 1650c.

The time for melting of raw metal depends upon quality of raw material. The impurities called slag comes over the top of the slag pots and to the pure liquid metal the making up quantities of required other metal elements like Manganese, Chrome, Nickel, Carbon, Aluminum etc., are added in form of Ferro Compounds of these metals.

These Ferro Metals are added in different proportions for manufacturing different grades of the alloy steels. And after the addition of the Ferro Metals when the liquid mass is homogeneous the metal is casted either in the form of ingots.

ASSOCIATE & ALLIED CONCERN

SHRI SHA STEEL LTD.

 A proprietary concern of Mr. PQR

 Engaged in Trading of Steel Components.

69

DPES Institute of Business Management

2008-09

 Bankers: BOB Co-Op Bank

 key financials are as under:

(Rs.in lacs) Particulars

March 2006

March 2007

Actual

Actual

Income

21.30

30.57

Net Profit

1.14

1.35

Net Worth

4.12

5.11

Current Assets

5.84

11.27

Total Outside Liabilities

3.03

7.97*

Infrastructural Facilities

Power

The Company has sanctioned Power connection of 4900 KW with MAHA.

Water

70

DPES Institute of Business Management

2008-09

The Plant will consume approximately 20000 liters of water daily. The water is easily available in the area and for this purpose, the Company also has storage tanks to have requisite water requirement at a time.

Personnel

Manpower, both skilled and unskilled, required for the project is easily available locally and the promoters being will experience in this line and does not foresee any problem in this regard.

Transportation

This area is well connected from Nashik, Pune through road transportation and is well connected with rest of India by road and rail.

Statutory Requirement:MPCBPower:PAN NO. CST NO. TIN NO. Registration No.-

71

DPES Institute of Business Management

2008-09

INDUSTRY SCENARIO

RELEVANCE OF INDUCTION MELTING FURNACE IN MAKING FERROUS PRODUCTS IN THE CURRENT SCENARIO The Induction Melting Furnace industry is in operation in India for over two and half decades. Products made by this industry are given below: Mild Steel ingots for structural purposes Stainless Steel ingots for making utensils, wire rods and wires Low Alloy Steel Castings for Engineering Applications Stainless Steel Castings for Heat & Corrosion Resistant Components Alloy Steels for Forging Industry and Grinding Media, and Cast Iron Castings - Plain, Ni-hard and S.G. Iron Castings Induction Melting Furnaces and Production The Electric Induction Melting Furnaces have been filling the gap for structural and constructional steels because the Electric Arc Furnaces (EAF) ceased to produce Mild Steel and switched over to value added products. The other source of supply was from Main Producers in the form of billets for further processing by Re-rolling Mills. In the last two years there is increase in production of Mild Steel due high demand. It is, however, noted that demand in recent months has picked up further and the production of Mild Steel has increased from Electric Induction Melting Furnaces. Products made by the Induction Melting Furnace industry particularly Mild Steel for structural purposes are being accepted in the market. It meets specification requirement of the Bureau of Indian Standards (BIS). The Stainless Steels, Nickel free or low Nickel produced by the Induction Melting Furnaces are used for making utensils. Nearly 10 Plants have AOD refining facilities that have started making special quality Stainless Steels for making rods, tubes and wires. They are being exported also. During the last two years, over 20 new units have been installed in the country with bigger capacity furnaces. It is learnt that in the State of Bihar, Goa, Kerala, Uttaranchal and Pondicherry some plants have been installed by shifting them from other States because of power availability and concessional power rates. After December 2003, plants have been installed by shifting them from other States because of power availability (M/s Bhav Shakti Steelmines Pvt Ltd is not facing any power problem since its inception) and concessional power rates.

72

DPES Institute of Business Management

2008-09

Marketing arrangement

The Iron & Steel Industry in India has had an excellent market in Public & Private sectors. With trust to infrastructure development, changes in Government Policies & Liberalization, Steel Industry in India has a bright future.

The per capita consumption of Steel in India is one of the lowest in the world, which is projected to increase manifold as envisaged in the ninth plan. This substantiates the claim that there is vast potential for the demand for Steel Ingots, which is basic raw material for manufacturing of various products used by construction, automobiles, forging, heavy machineries and such other industries.

Products and its application:STEEL INGOTS

ROLLING MILLS AND FORGING SHOPS TO MANUFACTURE GIRDERS, I-BEAMS, TOR STEEL, ANGLES, CHANNELS ETC. WHICH ARE REQUIRED FOR CONSTRUCTION OF BUILDINGS, DAMS, BRIDGES, TELECOMMUNICATION AND ELECTRICAL TRANSMISSION IS A BASIC RAW MATERIAL USED BY

NETWORK ALL FORMING ESSENTIAL PART OF INFRASTRUCTURE DEVELOPMENT WHICH IS THE PRIME OBJECTIVE OF ALMOST ALL OUR

FIVE YEAR PLANS IN THE PAST AS WELL AS IN THE FUTURE.

SECURITY:-

PRIMARY

TERM LOAN: Plant & Machinery purchased out of term loan. CASH CREDIT: Hypothecation of Stocks, Receivables and Raw materials

73

DPES Institute of Business Management

COLLATERAL

2008-09

A. Mortgage of the following properties:

Land admeasuring total area of ______ sq.mt. With bldg at Gat No, ___________ standing in the name of M/s Pramod Steel Alloys Pvt. Ltd. Approx MV – Rs. ________ lacs

B. Personal guarantee of

Name

Net worth

Mr. ABC

Rs. _____ lacs

Mr. PQR

Rs. _____ lacs

SWOT ANALYSIS

STRENGTH

The promoters are in the line of activity and have adequate experience in the line of activity. The market for the products has an excellent growth potential. The steel industry is poised for growth, which is sustainable for next few years. The project is technically feasible and economically viable. .

WEAKNESS

None

74

DPES Institute of Business Management

2008-09

.

OPPORTUNITY

Tremendous potential to grow. Many rolling companies have his manufacturing base in Maharashtra that will give advantage to the project. THREATS

Future competition from units of similar nature coming up in the area.

The projection of the company is as following: - (CMA DADA) PROMOD STEEL ALLOYS PVT. LTD. List of Machineries.

PRAMODLOYS PRIVATE LIMITED

S SUPPLIER LS . N o .

P A R T Quot I C U L ation ARS /Inv No.

Basi Q c ty Pric e

T ot al Pr ic e

Re vis ed ex cis e

va t

Sales tax/VAT

Frei ght & Insu ranc e

Total cost

75

DPES Institute of Business Management

2008-09

dut y

1 4.4 2 %

12 .5 0 %

4%

2.00 %

2% 3% PLANT MACHINERY

&

(Rs. in lacs )

(Rs.in lacs)

( (Rs.in lacs) N os .)

1 ACD

4500 kw/ 12000 kg medium frequen cy inductio n furnace

ET/I/ PUN/ SQ/5 594/0 8-09

103. 1 80

2 AEE

LT Panel

A 2.65 1 EW/0 708/27 Dated 25/4/ 08

10 1 3. 4.9 80 7

2. 65

2.38

0. 33

2.08

123.22

2.98

76

DPES Institute of Business Management

C 3.25 1 CEP L/Q/0 830

3. 25

2008-09

3 CCT

FRP Cooling Tower for ETI Furnace 4500 KW

0. 41

3.66

4 OPQ

two P/CR number /1465 design, /2008 manufac turer & Supply of 30/12.5 T EOT crane

65.0 1 0

65 9 .0 .37 0

2.97

77.35

5 DFG

one do number design, manufac ture

36.0 1 0

32 4 .0 .61 0

1.46

38.08

6 SAS

72 (1830 14.4 1 mm)dia circular 0 magnet aluminium,copp er

14 2 .4 .08 0

0.43

16.91

7 GHJ

Water softenin g plant

26/04 /08

3.55 1

3. 55

0. 44

8 SWS

Water recreati on system

26/04 /08

0.43 1

0. 43

0. 05

9 AWE

electro

A

9.00 1

9.

0.07

4.06

0.48

0.27

9.27

77

DPES Institute of Business Management

2008-09

mechani cal weighbr idge

SMW :WB: 200708 Dated 3/15/ 08

00

1 ANB 0

C.I. Ingot Mould size:3 1/2*4 1/2*60

AIPL 0.42 7 /840/ 3. 20070 08 8

30 4 .6 .43 9

0.92

36.04

1 do 1

Bottom Do plate for 54Pcs Mould

0.45 1 5. 0 0

6. 0 75 .97

0.20

7.93

1 do 2

centre column

Do

0.45 1. 8 0

0. 0 81 .12

0.02

0.95

1 do 3

slag pot

Do

0.43 8. 0 0

3. 0 44 .50

0.10

4.04

1 OM 4

Laboratory Equipment

3.00

3.00

1 OM 5

CRO, Meggar, 2.50 Multimeter, Tong Tester, Tools like Tester,Screw Driver, Hand Drill, Grinder, Set of Spanners, Gas

2.50

78

DPES Institute of Business Management

2008-09

1 OM 6

Cutting Set, 4.00 Welding Set, Pipe Wrenches, (1Set) Pipe Line, Fittings, Valves, Elbows,Tees, Strainers, Pumps etc.

4.00

1 SF 7

Pollution Control Equipment

8.50

1 T&U 8

'T&R' make 5500 kva, 33kv/10 00-1000

1 Do 9

T&R' Do MAKE 500 KVA, 33KV / 415 Volts

2 O AC. Ltd. 0

33 KV Bay in Markal Subsatai on to avail the supply on express feeder

8.50

AP/E 35.0 1 IL/20 0 08-09

35 5 .0 .05 0

1.05

41.10

8.00 1

8. 1 00 .15

0.24

9.39

Dated 13.0 1 : 9 31/05 /2008

13 1 .0 .89 9

0.52

0.26

15.76

79

DPES Institute of Business Management

2008-09

2 OAC Ltd. 1

33 KV Express Feeder Line Work

Dated 14.0 1 : 0 31/05 /2008

14 2 .0 .02 0

0.56

0.28

16.86

2 OAC. Ltd. 2

33 KV Substati on in the Factory Premise s

Dated 19.0 1 : 8 31/05 /2008

19 2 .0 .75 8

0.76

0.38

22.98

2 CCC 3

power improve ment system

CC/Q 13.2 1 5 1162/ FSK Dated : 28/04 /2008

13 1 1. .2 .91 90 5

SUB TOTAL

17.06

466.11

Misc Fixed Assets 1 Fixture

OM

2.25

2.25

TOTAL

468.36

STATEMENT- I STATEMENT OF COST OF PROJECT AND MEANS OF FINANCE

80

DPES Institute of Business Management

2008-09

COST OF PROJECT Amount (Rs. Lacs)

Land

4.66

Civil

195.46

Plant & Machinery

466.11

Miscellaneous Fixed Assets

2.25

Pre-operative Expenses

32.75

Contingencies

5.71

Total Fixed Cost

706.94

Margin for Working Capital

75.00

SUB TOTAL

781.94

MEANS OF FINANCE

81

DPES Institute of Business Management

2008-09

Amount (Rs. Lacs) Promoter's Contribution: Equity Contribution / Internal accruals

- Promoters

250.00

Unsecured Loans from friends and relatives 181.94

Term Loan

350.00

781.94

Promoters' contribution to project cost 31.97%

Debt Equity Ratio

0.81

ASSESSMENT OF WORKING CAPITAL REQUIREMENTS FORM II : OPERATING STATEMENT

82

DPES Institute of Business Management

2008-09

NAME OF THE COMPANY: PRAMOD STEEL ALLOYS PVT. LTD Rs. in Lacs PARTIC ULARS

1

PROJEC TED

PROJEC TED

PROJEC TED

PROJEC TED

PROJEC TED

PROJECTE D

2010

2011

2012

2013

2014

2015

Installed Capacity (MT)

20400.00

20400.00

20400.00

20400.00

20400.00

20400.00

% Capacity Utilisatio n

60.00%

65.00%

70.00%

75.00%

80.00%

85.00%

Capacity Utilisatio n

12240.00

13260.00

14280.00

15300.00

16320.00

17340.00

(I) Domestic Sales

4507.63

5036.50

5424.91

5813.31

6201.72

6590.12

(ii) Exports & Deemed Exports

0.00

0.00

0.00

0.00

0.00

0.00

GROSS SALES

83

DPES Institute of Business Management

2008-09

Less Excise duty & Sales Tax 719.60

804.03

866.04

928.04

990.05

1052.06

TOTAL NET SALES

3788.03

4232.47

4558.87

4885.27

5211.67

5538.07

2

OTHER INCOME

0.00

0.00

0.00

0.00

0.00

0.00

3

TOTAL INCOME

3788.03

4232.47

4558.87

4885.27

5211.67

5538.07

4

% Age Rise (+) OR Fall (-)

11.73

7.71

7.16

6.68

6.26

in NET SALES compare to Prev.Year

5

COST OF SALES

84

DPES Institute of Business Management

2008-09

(i) Raw material consumed 3026.34

3278.54

3530.73

3782.93

4035.12

4287.32

ii) Alloys Consume d 107.10

116.03

124.95

133.88

142.80

151.73

iii) Stores & Spares 64.87

70.28

75.68

81.09

86.50

91.90

iv) C.I Moulds 24.00

26.00

28.00

30.00

32.00

34.00

v) Repairs & maintena nce

8.63

10.36

10.36

10.36

10.36

vi) Power and Fuel Charges 351.29

380.56

409.84

439.11

468.38

497.66

vii) Direct labour (Factory Wages & Salary) 34.44

40.13

43.47

46.92

50.49

54.19

6.64

85

DPES Institute of Business Management

2008-09

viii) Other manufact uring exps.

9.47

10.58

11.40

12.21

13.03

13.85

(iii) Depreciat ion

54.96

59.09

66.33

75.12

84.94

95.28

Sub Total

3679.10

3989.83

4300.75

4611.60

4923.61

5236.27

(iv) ADD: Opening stock of Finished Goods 0.00

125.07

135.63

146.20

156.76

167.37

Sub Total

4114.90

4436.38

4757.80

5080.38

5403.64

135.63

146.20

156.76

167.37

178.00

-

3679.10

(v) LESS: Closing Stock of Finished Goods 125.07

86

DPES Institute of Business Management

Total Cost Of Sales 3554.04

2008-09

3979.27

4290.18

4601.04

4913.01

5225.64

0.94

0.94

0.94

0.94

0.94

6

Selling Gen. & Adm. Exps. 44.88

49.37

54.30

59.74

65.71

72.28

7

Sub Total ( 5+6 ) 3598.92

4028.64

4344.49

4660.77

4978.72

5297.92

8

Operating Profit before Interest ( 3-7 ) 189.11

203.83

214.38

224.50

232.95

240.15

9

Interest T/L 41.71

34.13

26.54

18.96

11.38

3.79

CC

36.45

36.45

36.45

36.45

36.45

36.45

Others

0.00

0.00

0.00

0.00

0.00

0.00

133.25

151.39

169.09

185.13

199.90

0.94

10

Operating Profit after Interest & Dep. ( 89) 110.95

87

DPES Institute of Business Management

11

2008-09

(I).ADD: Other Nonoperating Income a. Interest

0.00

0.00

0.00

0.00

0.00

0.00

b. OthersRevaluati on reserve 0.00

0.00

0.00

0.00

0.00

0.00

Sub Total ( Income ) 0.00

0.00

0.00

0.00

0.00

0.00

a. Loss on sale of assets 0.00

0.00

0.00

0.00

0.00

0.00

b. Other expenses -Misc Exp written off 7.69

7.69

7.69

7.69

7.69

0.00

(ii)LESS: Other Nonoperating Exps.

88

DPES Institute of Business Management

2008-09

Sub Total ( Expense s) 7.69

7.69

7.69

7.69

7.69

0.00

(iii) Net of Nonoperating Income / exps. -7.69

-7.69

-7.69

-7.69

-7.69

0.00

12

Profit Before tax / Loss ( 10+11(ii i) 103.26

125.56

143.70

161.40

177.44

199.90

13

Provision For Taxes

23.26

34.45

43.45

52.04

60.00

70.21

14

Net Profit / Loss ( 12 - 13 ) 80.01

91.11

100.25

109.35

117.44

129.69

% N.P./ Turnover 2.11

2.15

2.20

2.24

2.25

2.34

a. Equity 0.00

0.00

0.00

0.00

0.00

0.00

( Net of 11(I) & (ii)

15

89

DPES Institute of Business Management

2008-09

Dividend Paid b. Dividend Rate %

16

0.00

0.00

0.00

0.00

0.00

0.00

c. I.Tax on dividend 0.00

0.00

0.00

0.00

0.00

0.00

d. Total payout on dividend 0.00

0.00

0.00

0.00

0.00

0.00

Retained Profit ( 14 - 15 ) 80.01

91.11

100.25

109.35

117.44

129.69

STATEMENT VII DEBT SERVICE COVERAGE RATIO

(Rs. In Lacs) DETAILS

200910

20102011

20112012

20122013

2013-2014

2014-15

TOTAL

NET PROFIT

80.01

91.11

100.25

109.35

117.44

129.69

627.85

ADD INTEREST

41.71

34.13

26.54

18.96

11.38

3.79

136.50

ADD DEPRECIATION

54.96

59.09

66.33

75.12

84.94

95.28

435.73

90

DPES Institute of Business Management

TOTAL

A

2008-09

176.67

184.33

193.12

203.43

213.75

228.77

1200.08

41.71

34.13

26.54

18.96

11.38

3.79

136.50

ADD PRINCIPAL REPAYMENTS 58.33

58.33

58.33

58.33

58.33

58.33

350.00

TOTAL

B

100.04

92.46

84.88

77.29

69.71

62.13

486.50

DSCR

(A/B)

1.77

1.99

2.28

2.63

3.07

3.68

2.47

INTEREST

AVERAGE DSCR

2.57

FORM III : ANALYSIS OF BALANCE SHEET NAME OF THE COMPANY: PRAMOD STEEL ALLOYS PVT. LTD

Rs. in Lacs ESTIMAT PROJECTE PROJECT ED D ED

LIABILITIES

March-09 March-10

March-11

PROJECTE PROJECT PROJECT PROJE D ED ED CTED

March-12

March-13

March-14

March15

CURRENT LIABILITIES

91

DPES Institute of Business Management

Short Borrowings 1 Banks

2008-09

Term From

( Incl. Bills purchased & Discounted and Excess Borrowings placed on Repayment basis ) I) From Applicant Bank 0.00

300.00

300.00

300.00

300.00

300.00

300.00

0.00

300.00

300.00

300.00

300.00

300.00

300.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

64.95

66.75

71.86

76.97

82.08

87.20

ii) From other Banks iii) ( Of Which BP & BD )

Sub - Total ( A )

Short Borrowings 2 Others

Term from

Sundry Creditors 3 RM 0.00

92

DPES Institute of Business Management

2008-09

Advances, Payments 4 from Customers 0.00

0.00

0.00

0.00

0.00

0.00

0.00

Provision 5 Taxation

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Instalment of Term 8 Loans / Deferred 0.00

0.00

0.00

0.00

0.00

0.00

0.00

4.21

4.94

5.44

5.79

6.16

6.53

For

6 Dividend Payable

Other 7 Liabilities

Statutory

( Due within one year )

payment debentures/ redeemable

credits/

preference shares ( Due within one year ) 9 Other Liabilities

current 0.00 and

93

DPES Institute of Business Management

2008-09

Provisions ( Due within one year ) ( Specified Major items separately ) Sub - Total ( B )

0.00

69.16

71.69

77.30

82.76

88.24

93.73

369.16

371.69

377.30

382.76

388.24

393.73

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

350.00

291.67

233.33

175.00

116.67

58.33

0.00

1 Total Current 0 Liabilities ( 1 + 9 ) 0.00

TERM LIABILITIES

1 1 Debentures ( Not Maturing within one year ) 1 2 Preference Share ( Not Maturing within one year ) 1 3 Term Loans ( Excl. of Instalments

94

DPES Institute of Business Management

2008-09

payable in one year ) 1 4 Deferred Tax liability 0.00

0.00

0.00

0.00

0.00

0.00

0.00

1 Creditors for capital 5 purchases 0.00

0.00

0.00

0.00

0.00

0.00

0.00

Other Term Liabilities unsecured loans from 1 promoters, friends & 6 relatives 116.94

181.94

181.94

181.94

181.94

181.94

181.94

1 Total Term Liabilities 7 ( 11 to 16 ) 466.94

473.61

415.27

356.94

298.61

240.27

181.94

1 Total Outside 8 liabilities ( 10 + 17 ) 466.94

842.77

786.97

734.24

681.37

628.51

575.67

NET WORTH

95

DPES Institute of Business Management

1 Ordinary 9 Capital

2008-09

Share 250.00

250.00

250.00

250.00

250.00

250.00

250.00

2 0 General Reserve

0.00

0.00

0.00

0.00

0.00

0.00

0.00

2 1 Revaluation Reserve

0.00

0.00

0.00

0.00

0.00

0.00

0.00

2 Share 2 Money

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Surplus (+) OR 2 Deficit (-) in P & L 3 A/C 0.00

80.01

171.12

271.37

380.72

498.16

627.85

2 Net Worth ( 19 to 4 23 ) 250.00

330.01

421.12

521.37

630.72

748.16

877.85

TOTAL 2 LIABILITIES ( 18 + 5 24 ) 716.94

1172.77

1208.09

1255.61

1312.09

1376.67

1453.52

Application

96

DPES Institute of Business Management

2008-09

NAME OF THE COMPANY: PRAMOD STEEL ALLOYS PVT. LTD

ESTIMAT ED PROJECTED

PROJE CTED

PROJECTE PROJECT PROJECT PROJE D ED ED CTED

March-08 March-09

March10

March-11

March-12

March-13

March14

3.00

12.92

25.03

31.95

41.15

57.66

83.36

I ) Govt. & Other Trustee Securities 0.00

0.00

0.00

0.00

0.00

0.00

0.00

ii) Fixed deposit with Banks 0.00

0.00

0.00

0.00

0.00

0.00

0.00

185.25

206.98

222.94

238.90

254.87

270.83

ASSETS CURRENT ASSETS

2 Cash & 6 Balance

Bank

2 Investments ( Other 7 than long term )

2 I) Receivables Other 8 than deferred and 0.00

97

DPES Institute of Business Management

2008-09

export receivables ( Incl. Bills purchased and discounted bankers )

by

ii) Export Receivables( Incl. Bills Purchased 0.00 and discounted bankers )

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

by

2 Instalment of 9 Deferred Receivables 0.00 ( Due within one year ) 3 0 Inventory

RM

0.00

174.12

188.63

203.14

217.65

232.16

246.67

Alloys

0.00

8.80

9.54

10.27

11.00

11.74

12.47

Finished Goods

0.00

125.07

135.63

146.20

156.76

167.37

178.00

98

DPES Institute of Business Management

Consumables

0.00

C.I Moulds

0.00

2008-09

5.33

5.78

6.22

6.66

7.11

7.55

0.00

0.00

0.00

0.00

0.00

0.00

0.00

3 Advance Payment of 2 Taxes 0.00

0.00

0.00

0.00

0.00

0.00

0.00

3 3 Other Current Assets 0.00

5.00

6.00

7.20

8.64

10.37

12.44

516.48

577.58

627.92

680.78

741.26

811.32

Advances 3 Suppliers 1 Materials

of

to Raw

and Stores/Spares/Consu mables

( Specified Major items separately )

3 TOTAL CURRENT 4 ASSETS( 26 to 33 ) 3.00

Fixed Assets

99

DPES Institute of Business Management

3 Gross Block (Land & 5 Building, Machinery) 0.00

2008-09

668.49

668.49

708.49

778.49

863.49

958.49

668.49

0.00

40.00

70.00

85.00

95.00

100.00

3 6 Depreciation

0.00

54.96

114.05

180.38

255.50

340.44

435.73

3 7 Net Block ( 35 - 36 )

668.49

613.53

594.44

598.10

607.98

618.04

622.76

Other Non - Current Assets 0.00

0.00

0.00

0.00

0.00

0.00

0.00

3 Investments/ Book 8 Debts/ Advances/ 0.00

0.00

0.00

0.00

0.00

0.00

0.00

I) a. Investment in Sub.Cos./Affiliates 0.00

0.00

0.00

0.00

0.00

0.00

0.00

b. Others

7.00

7.00

7.00

7.00

7.00

7.00

7.00

ii) Advances to Suppliers of Capital goods/ 0.00

0.00

0.00

0.00

0.00

0.00

0.00

Additions

Deposits which are non-current assets

100

DPES Institute of Business Management

2008-09

Spares and contractors for capital exps. iii) Deferred Receivables ( Other than those 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

3 Non Consumable 9 Stores & Spares 0.00

2.00

2.40

2.88

3.46

4.15

4.98

4 Other Miscellaneous 0 Assets 0.00

3.00

3.60

4.32

5.18

6.22

7.46

4 Total Non-Current 1 Assets ( 38 to 40 ) 7.00

12.00

13.00

14.20

15.64

17.37

19.44

Intangible Assets 4 (Patents, Goodwill, 2 Prel. 38.46

30.76

23.07

15.38

7.69

0.00

0.00

maturing within one year ) iv) Others

101

DPES Institute of Business Management

2008-09

and formation exps, Bad debts not provided

4 Total Assets 3 ( 34+37+41+42 ) 716.94

1172.77

1208.09 1255.61

1312.09

1376.67

1453.52

0.00

0.00

0.00

0.00

0.00

0.00

299.24

398.05

505.99

623.03

748.16

877.85

#REF!

41.46

33.02

27.12

23.13

20.08

17.33

4 5 Net Working Capital

3.00

147.32

205.89

250.62

298.02

353.02

417.59

(17+24)-(37+41+42) = (34 -10 )

3.00

147.32

205.89

250.62

298.02

353.02

417.59

4 Current Ratio ( 34 / 6 10 ) 0.00

1.40

1.55

1.66

1.78

1.91

2.06

Total Outside Liab./ Tangible N.Worth(18/44) considering u/s loan from promoters 4 friends and relatives 7 as part of networth 1.65

2.21

1.52

1.09

0.80

0.60

0.45

2.82

1.98

1.45

1.09

0.84

0.66

0.00 4 Tangible Net Worth 4 ( 24 - 42 ) 211.54 % age Increase

Total Outside Liab./ 4 Tangible 8 N.Worth(18/44) 2.21 considering u/s loan

102

DPES Institute of Business Management

2008-09

from promoters friends and relatives as part of outside liabilities

103

DPES Institute of Business Management

2008-09

FORM IV : COMPARATIVE STATEMENT OF CURRENT ASSETS & CURRENT LIABILITIES

NAME OF THE COMPANY: PRAMOD STEEL ALLOYS PVT. LTD Rs. in Lacs Estimates Ending

For

The

Year

PROJEC TED

PROJEC TED

PROJEC TED

PROJEC TED

PROJE CTED

PROJECT ED

Mar.10

Mar.11

Mar.12

Mar.13

Mar.14

Mar.15

1) Raw Material Stock

174.12

188.63

203.14

217.65

232.16

246.67

Days Consumption

21

21

21

21

21

21

2) Alloys

8.80

9.54

10.27

11.00

11.74

12.47

Days Cost of Production

30

30

30

30

30

30

3) Finished Goods

125.07

135.63

146.20

156.76

167.37

178.00

Days Cost of Sales

12

12

12

12

12

12

and Export Receivables

185.25

206.98

222.94

238.90

254.87

270.83

Days Domestic Sales

15

15

15

15

15

15

A CURRENT ASSETS .

4) Receivables Other than Export & Deferred

104

DPES Institute of Business Management

2008-09

5) Export Receivables

0.00

0.00

0.00

0.00

0.00

0.00

Months Domestic Sales

0.00

0.00

0.00

0.00

0.00

0.00

6) Consumables

5.33

5.78

6.22

6.66

7.11

7.55

Days Consumption

30

30

30

30

30

30

7) C.I Moulds

0.00

0.00

0.00

0.00

0.00

0.00

Days Consumption C.I 0 Moulds

0

0

0

0

0

8) Advances to Suppliers 0.00 of Raw Materials and

0.00

0.00

0.00

0.00

0.00

Stores/Spares/Consumabl es

0.00

0.00

0.00

0.00

0.00

31.03

39.15

49.79

68.03

95.80

516.48

577.58

627.92

680.78

741.26

811.32

( To Agree with item 34 of 516.48 FORM III )

577.58

627.92

680.78

741.26

811.32

0.00

9) Other Current Assets 17.92 ( Incl.Cash and Bank balance, Deferred Receivables Due within one year )

6)

B

Total Current Assets

CURRENT LIABILITIES ( Other than Bank Borrowings for Working Capital )

105

DPES Institute of Business Management

7) Sundry ( Trade )

Creditors 64.95

2008-09

66.75

71.86

76.97

82.08

87.20

7

7

7

7

7

7

Dealers.

0.00

0.00

0.00

0.00

0.00

0.00

9) Statutory Liabilities

0.00

0.00

0.00

0.00

0.00

0.00

10) Other Liabilities

Current 4.21

4.94

5.44

5.79

6.16

6.53

11) Total Liabilities

Current 69.16

71.69

77.30

82.76

88.24

93.73

( To Agree with Sub-total 69.16 B of FORM III )

71.69

77.30

82.76

88.24

93.73

Days Purchase 8) Advances from Customers/ Deposit from

FORM V : COMPUTATION OF MAXIMUM PERMISSIBLE BANK FINANCE FOR WORKING

106

DPES Institute of Business Management

2008-09

CAPITAL NAME OF THE COMPANY: PRAMOD STEEL ALLOYS PVT. LTD Rs. in Lacs Estimates For The Year Ending PROJECT ED

PROJEC TED

PROJECT ED

PROJECTE PROJECTE D D

PROJECTE D

Mar.10

Mar.11

Mar.12

Mar.13

Mar.14

Mar.15

Total Current Assets 1 ( 9 of FORM IV ) 516.48

577.58

627.92

80.78

741.26

811.32

Other Current Liabilities ( Other than 2 Bank 69.16

71.69

77.30

82.76

88.24

93.73

Working Capital Gap 3 ( WCG ) ( 1 - 2 ) 447.32

505.89

550.62

598.02

653.02

717.59

Min. Stipulated Net Working Capital I.e. 4 25% 129.12

144.40

156.98

170.19

185.32

202.83

Borrowings ) ( 14 of FORM IV )

of WCG/25% of Total Curr.Assets As the case may be depending upon the Method of lending being applied.

107

DPES Institute of Business Management

2008-09

( Export Receivables to be excluded ) Actual/ Projected Net 5 Working Capital 147.32

205.89

250.62

298.02

353.02

417.59

( 45 of FORM III ) 6 Item 3 - Item 4

318.20

361.49

393.64

427.82

467.71

514.76

7 Item 3 - Item 5

300.00

300.00

300.00

300.00

300.00

300.00

( Itme 6 OR 7 whichever is lower ) 300.00

300.00

300.00

300.00

300.00

300.00

Maximum Permissible 8 Bank Finance

Excess Borrowing Representing Short 9 Fall . . l in NWC ( 7 - 8 )

FORM VI : FUND FLOW STATEMENT

108

DPES Institute of Business Management

2008-09

NAME OF THE COMPANY: PRAMOD STEEL ALLOYS PVT. LTD Rs. in Lacs Estimates For The Year Ending PROJECT ED

PROJECT ED

PROJECT ED

PROJECT ED

PROJECT ED

PROJEC TED

March-10

March-11

March-12

March-13

March-14

March-15

a ) Net Profit after tax

80.01

91.11

100.25

109.35

117.44

129.69

b) Depreciation

54.96

59.09

66.33

75.12

84.94

95.28

c) Increase In Capital

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

f) Others

7.69

7.69

7.69

7.69

7.69

0.00

g)

207.66

157.90

174.27

192.17

210.07

224.97

58.33

58.33

58.33

58.33

58.33

1 SOURCES

d) Increase in Term Liabilities 65.00 ( Incl. Deposit )

Public

e) Decrease in ( I ) Fixed Assets ( ii ) Other Non Current Assets

Total

2 USES a) Net Loss b) Decrease in Term Liabilities 58.33 ( Incl. Deposit )

Public

109

DPES Institute of Business Management

2008-09

c) Increase in ( I ) Fixed Assets

0.00

40.00

70.00

85.00

95.00

100.00

( ii ) Other Non Current Assets 5.00

1.00

1.20

1.44

1.73

2.07

d) Payments

0.00

0.00

0.00

0.00

0.00

0.00

e) Others

0.00

0.00

0.00

0.00

0.00

0.00

f)

63.33

99.33

129.53

144.77

155.06

160.41

Long Term Surplus 3 (+) Deficit (-) ( 1-2 ) 144.32

58.57

44.74

47.39

55.01

64.57

Increase/Decrease 4 Current Assets

61.10

50.34

52.86

60.49

70.06

2.53

5.60

5.47

5.48

5.49

Increase/ Decrease in 6 working capital gap 444.32

58.57

44.74

47.39

55.01

64.57

Net Surplus (+)/Deficit (-) (Diff. 7 Of 3 & 6 ) -300.00

0.00

0.00

0.00

0.00

0.00

Increase/Decrease 8 Bank Borrowings

0.00

0.00

0.00

0.00

0.00

Dividend

Total

in 513.48

( As per details given below )* 2.11 Increase/Decrease in 5 Current Liabilities other than Borrowings

Bank 69.16

in 300.00

110

DPES Institute of Business Management

2008-09

CONCLUSION:STATEMENT BREAKEVEN ANALYSIS NAME OF THE COMPANY: PRAMOD STEEL ALLOYS PVT. LTD

Break Even (Rs. Lacs)

Point 2009-10

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

3,788.03

4,232.47

4,558.87

4,885.27

5,211.67

5,538.07

material 3,008.37

3,384.00

3,645.11

3,906.23

4,167.31

4,428.41

Other manufacturing 490.71 expenses

536.18

578.74

619.68

660.75

701.95

75% of Admn. & 33.66 Selling Exp.

37.03

40.73

44.80

49.28

54.21

Interest on WC

36.45

36.45

36.45

36.45

36.45

Total variable costs 3,569.19 (B)

3,993.66

4,301.03

4,607.17

4,913.80

5,221.02

Contribution (A - B)

238.81

257.84

278.10

297.87

317.05

25% of Admn. & 11.22 Selling Exp.

12.34

13.58

14.93

16.43

18.07

Interest on term loan

41.71

34.13

26.54

18.96

11.38

3.79

Depreciation and 62.65 other non cash items

66.78

74.02

82.81

92.63

95.28

Total fixed costs (c )

113.25

114.14

116.70

120.44

117.14

Net Income (A) Variable Costs Raw consumed

36.45

218.84

Fixed Costs

115.58

Sales Break (Rs. In Lacs)

Even 2000.58

2007.13

2018.10

2050.07

2107.19

2046.23

Sales Point

Even 52.81%

47.42%

44.27%

41.96%

40.43%

36.95%

Break

111

DPES Institute of Business Management

2008-09

The summer internship I have done in project financing at Synergy financial Services. In these four months tenure I achieve lot of knowledge about project financing. It is nothing but the projection for estimate about the company. In this period I have analyzed many company’s balance sheet, there projection and prepare project report. It is totally based on our logical skill and even it has to depend upon our analytical skill. In the projection I have learn how to build the company’s position, and how would the company rich their turnover? And in that to perceive the achievable turnover of the company and to put the comments on it, and to find out why the company hasn’t achieved their sales. The above case study is the live example of my portfolio. In that case study the comments on key factors is as following:

SALES:Year

Sales

% of growth

2010

3788.03

-

2011

4232.47

11.73277

2012

4558.87

7.711811

2013

4885.27

7.15967

2014

5211.67

6.681311

The company is engaged in manufacturing of steel products and the turnover for the year 2010 is of Rs.3788.03lacs with installed capacity of 20400 MT and during the year 2011 the company’s expected sales is Rs. 4232.47lacs with the growth of 11.73%. However, further the expected turnover is likely to improve in same line.

Profit before tax:-

112

DPES Institute of Business Management

2008-09

2010 2011 2012 2013 2014

The PBT for the year 2010 is Rs. 103.26 lacs and for the next year is Rs. 125.56 lacs. The PBT is in growing position because of the company is going to increase their turnover step by step. In the year 2012 the company is expected their PBT is Rs. 143.70 lacs. Its huge jump though by company is going to control on their cost of production and to improve their turnover. Hence for the projection year it is likely to improve in same line. CURRENT RATIO:The current ratio for the year 2011 is 1.40:1 and for the further next year is 1.55:1 which is sufficient for the company, it means the company has current assets more than current liabilities. The current ratio is satisfactory for the company. TANGIBLE NET WORTH:The TNW of the company for the year 2010 is 211.54 and for the next year is 299.24 it means the company have well position of net worth. It’s for the next year is also in well norms.

So, the above case study shows really position of the company and this case study is really helping me to build my analytical skill. This is the very well experienced for me and it absolute; it helps me to rich my goal.

BIBLIOGRAPHY: -

113

DPES Institute of Business Management

2008-09

NAMES OF THE BOOKS REFER

Books name Financial management Financial Management

Author l I.M. Panday M.Y. Khan

Edition

Publication

9th edition

Vikas publishing housing ltd

Third Edition

Tata McGraw Hill Publishing Co. Ltd.

P.K. Jain

Source of information: http://www.mcmullan.net/eclj/BOT.html www.worldbank.org www.rbi.org http://www.mcmullan.net/eclj/BOT.html http://www.ilustrados.com/publicaciones/EpyAuVZEyFGlwlOlSq.php http://www.greentie.org/finance/pftypes.php http://www.icbc.com.tw/chinese/news/news06/news88110601/news8811060105.htm http://www.icbc.com.tw/english/index.htm www.imf.org/external/pubs/ ft/find/1997/03/pdf/haarmeye.pdf http://www.hyflux.com/hyflux_b_model.html www.eagletraders.com/loans/loans_what_is_project_finance.htm

114

View more...

Comments

Copyright ©2017 KUPDF Inc.
SUPPORT KUPDF