Financing

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

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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)

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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

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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

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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PROJECT FINANCING PARTICIPANTS AND AGREEMENTS.

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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.

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FIRST STEP IN A PROJECT FINANCING: THE FEASIBILITY STUDY.

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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.

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WHICH FIRMS IS NEEDS THE PROJECT FINANCE?

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

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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

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PRINCIPAL AGREEMENTS IN A PROJECT FINANCING.

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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

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Diagram of a Typical Project-Financed Deal

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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

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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

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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.

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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

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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

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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

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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.

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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

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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

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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

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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.

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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 %

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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.

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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

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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.

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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:

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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.

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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.

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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.

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"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

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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.

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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.

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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

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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

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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:-

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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.

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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

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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: -

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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:-

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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,

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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-

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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.

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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

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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

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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.

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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.

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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.

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 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

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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.-

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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.

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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

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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

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.

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

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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

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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

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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

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DPES Institute of Business Management

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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

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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

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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

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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

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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

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