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SUMMER PROJECT REPORT
ON
“TERM LOAN IN PROJECT FINANCING”
FOR
Adinath cables and conductots pvt limited
(A Unit of JVL Agro Industries)
ALWAR, RAJASTHAN
SUBMITTED TO
FACULTY OF MANAGEMENT STUDIES
MOHAN LAL SUKHADIA UNIVERSITY, UDAIPUR
MBA (2010-12)
Guided by: Submitted By:
MR. DEEPAK TIWARI SHYAM LAL JANGID
HEAD MBA-II PART ACCOUNTS & FINANCE
DECLARATION
I, the undersigned, hereby declare that the Project Report entitled “TERM LOAN
IN PROJECT FINANCING” FOR JVL AGRO FOODS, ALWAR written and submitted
byme to the Faculty of Management Studies, Mohan Lal Sukhadia University, Udaipur,
Rajasthan, in partial fulfillment of the requirements for the award of degree of Master of
Business Administration, is my original work and the conclusions drawn therein are
based on the material collected by myself.
Place: Alwar Student’s signature:
Date: (SHYAM LAL JANGID)
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Preface
Practical training has been incorporating the curriculum of MBA, which enables the management studies to finalize themselves with the practical aspect of management. This is very important and beneficial as it cultivates in the student sense of professionalism and makes them ready to face the real life challenges in their respective future. Thus a student gets theoretical aspects in classroom and how these are implemented in practical training in industry.
The main objective of practical training is to develop practical knowledge & awareness about industrial environment and business practices in the students as a supplement to theoretical studies of administration and management in specific area like Finance, Marketing, HRM etc., it increases the skills, abilities and attitude to perform specific job in industrial environment.
Fortunately I got golden opportunity to visit and complete my two months training at JVL Agro Industries Ltd. I got a chance to see the functioning of all departments & imbibe a lot learning of subjects.
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Acknowledgement
I would like to thank JVL AGRO FOODS for giving me a wonderful opportunity to
develop the strategy for future growth and expansion. I would like to express gratitude to
Mr. DEEPAK TIWARI for sharing the journey of conceptualizing and developing all the
ideas. They stood in times of difficulty and despite of their busy schedule devoted a
major chunk of his time towards this project. They have been a part of all the activities
and duly guided the project to its destination. I am indebted for their endeavors in making
this project a success. & I am indebted to them for providing insight into the tedious
Documentation Process. They have taken their best efforts so as to facilitate all
necessary inputs for the project.
I would like to thank Mr. DEEPAK TIWARI (head - accounts and finance, Alwar
Branch) for his constant endeavor in making this project a success. He has truly fulfilled
his role as a guide during my real term financing training in from to.
I would like to acknowledge the help and support extended by all the employees of
JVL agro foods whose names have not been mentioned here. They all have been very
co-operative and provided impetus to this project. Without their help this project would
not have reached its destination.
I would also like to thank my Institution Faculty of Management Studies,
Rajasthan and DR. HANUMAN PRASD, CORDINATOR (RMAT) for providing me this
magnificent opportunity to work and learn and for providing us such a wonderful platform
to get us exposed to the industry. I will not miss the opportunity of expressing gratitude
towards all my professors for the knowledge they shared with me which provided
necessary ingredients to this project.
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INDEX
CHAPTE
R NO.
CONTENTS
PAGE NO
01INTRODUCTION AND COMPANY PROFILE
01-14
HISTORY08
GROWTH STORY IN SHORT FORM09
COMPANY PROFILE06
VISION, MISSION AND ACHIEVEMENTS11
MANAGEMENT PROFILE12
PRODUCT MIX13
COST EFFICIENT PRODUCTION FACILITY14
PENETRATION OF COMPANY15
CURRENT PRODUCTION CAPACITY 16
SALES AND DISTRIBUTION17-18
STRATEGIC CORPORATES 19
BUSINESS ENABLERS 20-23
BALANCE SHEET 24
02 PROJECT FINANCING 25
PROJECT FINANCE INTRODUCTION 26-27
SOURCE OF FINANCE 27
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AGREEMENT IN PROJECT FINANCING 27-32
03 TERM LOAN 33
INTRODUTION 34
FEATURE OF TERM LOAN 34-36
TERM LOAN PROCEDURE 37-39
IMPORTANT TERMS 40
04 DOCUMENTATION OF TERM LOAN 41
ONE PAGER 41-42
CMA OF JVL AGRO FOODS 43-51
DETAILS OF PROPOSED PROJECT 52
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INTRODUCTION
AND
COMPANY
PROFILE
Page | 7
HISTOR Y
JVL Agro Industries was formerly known as Jhunjhunwala Vanaspati. Jhunjhunwala Vanaspati, incorporated in the year 1989, manufactures hydrogenated vegetable oil (Vanaspati Ghee) and refined oils, at its manufacturing facility at Varanasi in Uttar Pradesh. What started as a modest unit, with a production capacity of 25 MT per day is today the single largest manufacturing company of hydrogenated vegetable oil in India producing over 300 MT per day.
The company uses a modern physical process for production of hydrogenated vegetable oil and refined oil as opposed to the traditional chemical based process, employed by a majority of producers. The company is an ISO 9001-2000 certified company for its quality system for manufacture and supply of branded hydrogenated vegetable oil and refined oil. The recognition establishes Jhunjhunwala Vanaspati as a quality oriented organization.
In terms of growth, the company has also promoted the setting up of a hydrogenated vegetable oil plant in Colombo, Sri Lanka and recently acquired an edible oil plant at Alwar (Rajasthan) in February 2007. This has helped the company to ramp up production and acquire customers and market share in the western region.
The Vanaspati Ghee (hydrogenated vegetable oil) and edible oils businesses of Jhunjhunwala Vanaspati are marketed under the brand name ‘Jhoola’. The company today has a strong and extensive distribution network across India, built over the years, which is its major strength. With its distributors, 17 depots, and sales points and over 100 sales staff, the company also has a presence with a large number of retailers. Special emphasis is laid on production of retail packs, packaging and quality for customers of all facets.
The company has created a manufacturing facility by acquiring one unit in Rajasthan for production of mustard oil and with its joint venture in Sri Lanka for production of Vanaspati Ghee. This has helped the company to increase its production and reach out new markets and customers in North and West India. The company hopes
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to grow its consumer base and product portfolio with new alliances and acquisitions.
The equity shares of the company are listed on the Bombay Stock Exchange (BSE) and Kanpur Stock Exchange in India.
Cutting a long story shortLajawaab taste, mazedaar results
1990Commenced production with a 25 TPD capacity
1993Achieved 100-TPD production at Varanasi
1995Switched vanaspati processing from chemical to modern mechanical technology
1999Installed a 60 TPD unit for refined oil at Jaunpur, introducing crude soybean and palm olien oil
2000Increased vanaspati production capacity to 200 TPD
2005Introduced a fractionation unit of 200 TPD capacityGross sales
2006• Acquired Rajasthan-based mustard oil seed-crushing and refining plant• Invested in Adamjee Extraction, Sri Lanka, to import saturated fats under the Jhoola brand• Product sales in the states of UP, Bihar, Jharkhand, Madhya Pradesh, Uttaranchal and
Chhattisgarh.
2007• Emerged as the first Uttar Pradesh vanaspati manufacturer to commission a 3-MW power plant• Formed a wholly-owned Singapore subsidiary under JVL Overseas Pte Ltd• Introduced products in the Northeastern states
2008• Commissioned an edible oil refinery/saturated fats unit in Bihar• Commenced production of a new refinery in Uttar Pradesh, plant supplied by Alfa Laval with the latest technology, Initiated de-oiled cake exports
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• 2009• Commenced commercial production from the Bihar unit• Introduced products in Jammu and Kashmir, Himachal Pradesh and West Bengal
2010• Commenced development of the Haldia unit with 1,200 TPD refining capacity, captive power, plant and oleochemical section.
Date of Establishment 1989
Revenue 275.293 ( USD in Millions )
Market Cap 1900.912 ( Rs. in Millions )
Corporate AddressJhunjhunwala Bhawan,Nati Imli, Varanasi-221001, Uttar Pradeshwww.jhoola.com
Management Details
Chairperson - D N Jhunjhunwala MD - S N JhunjhunwalaDirectors - Adarsh Jhunjhunwala, Alka Khemka, D N Jhunjhunwala, D N Jhunjhunwala, H L Agrawal, H L Agrawal, Harsh Agarwal, Kanhaiya Lai Goenka, Kanhaiya Lal Goenka, Mahesh Kedia, S K Dikshit, S N Jhunjhunwala, S K Dikshit, S N Jhunjhunwala, Shyam Poddar, Sunil Kumar Tripathi
Business Operation Consumer Food
Background
JVL Agro Industries was formerly known as Jhunjhunwala Vanaspati. Jhunjhunwala Vanaspati, incorporated in the year 1989, manufactures hydrogenated vegetable oil (Vanaspati Ghee) and refined oils, at its manufacturing facility at Varanasi in Uttar Pradesh. What started as a modest unit, with a production capacity of 25 MT per day is today the single largest manufacturing company of hydrogenated vegetab
FinancialsTotal Income - Rs. 12446.3 Million ( year ending Mar 2010) Net Profit - Rs. 292.2 Million ( year ending Mar 2010)
Company Secretary Sunil Kumar Tripathi
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Bankers
AuditorsGarg & Co
Vision
To delight the consumer through a complete vegetable oils solution, through
continuous research and development in healthier oil varieties, leading to a single-stop
convenience
Mission
We expect to extend our leadership from saturated fats to the entire vegetable oil
segment in the first stage and then to agro-based premium food products thereafter, from
one region in India to a global manufacturing and marketing presence
tAwards and achievements
• The company’s brand ‘Jhoola’ was recently awarded “Globoil Gold Award, 2006 as the 'fastest growing Vanaspati brand in India' by Globoil India.
• The company is ISO 9001-2000 certifiedyPromote
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MANAGEMENT PROFILE
S.No Name Designation
1 D N Jhunjhunwala Chairman
3 S N Jhunjhunwala Managing Director
2 Sunil Kumar Tripathi Company Secretary
5 S K Dikshit Director
6 Mahesh Kedia Director
7 Kanhaiya Lal Goenka Director
4 Harsh Agarwal Director
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8 Adarsh Jhunjhunwala Whole Time Director
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Addressing Wider Market through an Intelligent Product Mix
13
Product
Mix
In India Palm, Soybean and Mustard constitutes 75% of total edible oil consumption
One of the leading brands in Central, Northern and Eastern India
Refined Palm Oil
Refined Soybean
Saturated fats
Palmoline Vegetable Oil
Mustard Oil
Fatty Acid
Customised
Packaging From 200 ml to 1 litre to 15 kg
Addressing the varied quantity needs of consumers
Leveraging its established Brand power to sell all its products
Jhoola
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Cost Efficient Production Facilities
14
Single largest Saturated fats manufacturing unit
in India
One of the lowest per ton production cost
Better bargaining power and logistical competitiveness
Northern and Central India’s largest crude oil importer
In-house facility for packaging material production
A 3-MW captive plant in the Varanasi facility,
fulfilling most of unit’s power requirement
Reduced power cost compared with the prevailing grid tariff
Reduced packaging cost
Informed decision making
Invested in ERP for transparency,
enhanced scalability and accuracy
Uninterrupted raw material supply
Trusted 2-decade relationship with suppliers locally and internationally
Over 80% capacity utilisation in Varanasi, Bihar and Alwar units
Enhanced capacity utilisation
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Feeding the States Account for >60% of India’s Population
15
Transformed from a Regional player to a Zonal entity
De-oiled cake exported to Vietnam, Bangladesh,
Thailand, China, Indonesia and South Korea
Available in 17 Indian states and 2 union territories, accounting for more than 60% of the total population
International
Markets
UP and Bihar are the largest saturated fats and refined oil consuming market in India
Pan North, Central, East and North-East India
Available in more than 5000 retail outlets in India
Network of over 30 depots and 12 sales points
Distribution
Network
Sales agreement with large retail formats like Big Bazaar in UP
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Current Production Capacity
17
• 1,800,000 HDPE jars per annum
• 4,200,000 tins per annum
• Also manufactures the handles and caps required for the containers
Plant Location Product Capacity (TPA)
UP and Bihar Saturated Fats 198,000
UP and Bihar Refined Palm Oil 231,000
UP Refined Soybean Oil 33,000
Rajasthan Mustard Seed Crushing
80,000
Rajasthan Solvent Extraction 90,000
Packaging material production capacity
Saturated fats and Edible oil production capacity
TPA – Tonnes Per Annum; TPD – Tonnes Per Day
SALES AND DISTRIBUTION OF PRODUCTS
Product Name YearMont
hSales
Quantity
Sales Value(Rs.Million
)% of STO
Deacidified Oil 2010 03 113576.27 4405.30 35.70
Refined Oil 2010 03 80581.85 3379.90 27.39
Oil - Traded 2010 03 64700.39 2230.00 18.07
Mustard Oil 2010 03 25294.94 1289.20 10.45
DOC 2010 03 72167.02 766.50 6.21
Fatty Acid Oil 2010 03 6904.60 194.60 1.58
Mustard Seed -
Traded2010 03 1511.39 39.90 0.32
DOC - Traded 2010 03 2997.28 36.00 0.29
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Refined
Oil/Vanaspati2010 03 0.00 0.00 0.00
Red Palmolein &
Enter Esterified2010 03 0.00 0.00 0.00
Edible Oils 2010 03 0.00 0.00 0.00
Vanaspati 2010 03 0.00 0.00 0.00
Gasification 2010 03 0.00 0.00 0.00
Fatty Distillation 2010 03 0.00 0.00 0.00
HDPE Jars 2010 03 0.00 0.00 0.00
Tins 2010 03 0.00 0.00 0.00
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Strategic corporate pillars
Experience JVL possesses over two decades of rich experience in the vegetable oil industry.
Product range JVL provides an extensive range of vegetable oils comprising refined (palm oil and soya oil),saturated fats (vanaspati) and mustard oil.
RelationshipsJVL enjoys long-term relationships with plantation owners in Indonesia and Malaysia ensuring timely and cost-effective raw material delivery.
LogisticsJVL’s positioning as northern and Central India’s largest crude oil importer translates intobetter bargaining and logistics competitiveness.
BrandThe Jhoola brand is available across 18 Indian states and two union territories, enjoying a market-leading share in Central India’s edible oil market.
ScaleJVL’s saturated fats manufacturing unit is the single-largest in India, resulting in optimized production and conversion costs.
IntegrationJVL is integrated from plantation access to product packaging (18,00,000 HDPE jars perannum and 42,00,000 tins per annum as well as manufacturing container handles and caps).
EnergyJVL invested in a 3-MW captive power plant in its Varanasi facility, feeding 100% of the unit’s requirements.
Quality JVL is certified for the prestigious ISO 9001-2008.
Distribution JVL enjoys an entrenched presence in North India through a distribution network comprising over 30 depots, over 5,200 dealers and thousands of retail outlets.
Customization JVL caters to the needs of various Indian consumers through various packaging optionsranging from 200 ml to 15 ltrs to 15 kg.
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Customer-centric JVL offers customers a superior price-value proposition in terms of
product diversity,
Business enablers
A. Robust product portfolio
JVL enjoys a growing presence in four major edible oil categories – palm oil, soybean oil, mustard oil and vanaspati (hydrogenated vegetable oil). This wide positioning makes it possible for the Company to capitalize on more opportunities than single-product players. The Company is also among India’s few large integrated players, better placed over small and mid-sized manufacturers in countering scrotal cyclicality. The Company’s economies of scale translated into enhanced bargaining power, optimized production costs and superior product availability.
B. Scale
JVL is among India’s largest edible oil producers. Some of the production highlights in 2010-11 comprise:• Increased vanaspati production from 1, 14,526 MT in 2009-10 to 1, 24,570 MT• Increased refined oil (palm oil and soya oil) production from 84,395 MT in 2009-10 to 1, 25,239 MT• Increased mustard oil production from 26,486 MT in 2009-10 to 41,483 MT• Increased de-oiled cake production from 69,638 MT in 2009-10 to 72,321 MT• Increased fatty acid oil production from 6,825 MT in 2009-10 to 12,823 MT The increase in production was derived from the following:• The Greenfield Bihar unit produced 51,734 MT of refined oils in 2010-11 as against 16,369 MT in 2009-10• The Varanasi fractionation capacity expanded from 300 TPD to 700 TPD our assetsUsed as a cooking medium by midland lower-income groups, comprising 70% of India’s population .The share of refined palm oil and saturated fats in the edible oil market stands at 50% and 15% respectively.The demand for refined oil has grown steadily, owing to rising incomes and health awareness. The cumulative refined palm oil demand in India is pegged at over 7 mn MT per annum.Vanaspati, refined oils and mustard oilare also used as a cooking medium in kitchens, hotels, restaurants, sweet makers/halwaais, namkeen makers and industrial consumers (bakers and confectioners). While vanaspati is essentially saturated fat, refined and mustard oil are unsaturated fats.Vanaspati is widely consumed in UP and Bihar and refined palm olein is fast-emerging as a popular cooking medium in both these states. Mustard oil is widely consumed in eastern Uttar Pradesh and Bihar while refined soybean oil is a popular cooking medium in North India. These products enjoy steady round-the-year consumption and are less prone to demand cyclicality. De-oiled cake is used for cattle and poultry feed.
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C. Location
JVL’s manufacturing facilities are located strategically to capture consumption upturns:• Varanasi (Uttar Pradesh): Located in eastern UP, which accounts for the highest vanaspati per capita consumption in India• Dehri-on-sone (Bihar): Located in a state that is among India’s largest vanaspati and RBD palm olein markets• Alwar (Rajasthan): Located proximate to raw material sources as Rajasthan is India’s largest mustard seed producer• Haldia (West Bengal): This upcoming plant is located near the Haldia port, facilitating international tradeThe Company transports imported raw material (crude palm oil) from Kolkata port (700 km from Varanasi and 600 km from Pahleza) through its rail network, which is cheaper than road transportation. Besides, the upcoming plant’s proximity to the Haldia port is expected to reduce freight and will prove cheaper than transporting by trucks.
D. Product utility andAcceptance
Palm oil is the most affordable of all oils (mustard, soybean and sunflower) used in refined and saturated forms. It also possesses a higher nutrition value than other edible oils and is largely• Vanaspati/hydrogenated vegetable oil• RBD palm oil• RBD palm olefin• Refined soybean oil• Mustard oil
JVL’s product portfolio
Products Installed capacity (MT per annum)Vanaspati (Varanasi, UP) 84,000Red palm olefins and esterifies oil (Varanasi, UP) 90,000Mustard oil (Alwar, Rajasthan) 81,000Refined oil/vanaspati (Dehri-on-sone, Bihar) 1, 50,000
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E. Markets and brand
The edible oil industry comprises big, small and MNC players. The Company faces competition from national and regional players. International competitors comprise multinational players like Cargill India, Bunge India and Louis Dreyfus Commodities, while Indian competitors comprise Ruchi Soya, Adani Wilmar, Gokul Refoils andSolvents , K S Oils, Emami Biotech, among others. The Company has grow, competition notwithstanding, on account of direct raw material import, scale economies and logisticsadvantages. The Company markets products under the Jhoola, Payal and Joohi umbrella brands.• Vanaspati is sold under the Jhoola brand• RBD palm olein under Jhoola and Payal brands• Refined soybean oil under Jhoola Health brand• Mustard oil under Jhoola, Joohi and Shankar brands
Our brands are easily recognised and well-accepted. They are sold in diverse pack sizes (200 ml, 500 ml, 1 litres, 2 litres, 5 litres, 10 litres, 15 litres and 15kg) to meet various requirements.Besides household consumers, JVL also caters to institutional clients fromthe hospitality, bakery and confectionery sectors. The Company’s stock keeping units comprise 11 for vanaspati, five each for refined soyabean and palm oil and eight formustard oil. The Company’s biggest consumption centres comprise Uttar Pradesh and Bihar, contributing over 70% of revenues.
The Company enjoys about a 30%market share across these core markets.
F. Quality and R&D
At JVL, our quality policy is enshrined in our ability to consistently meet customer expectations through process and manufacturing improvements. We possess confidence-enhancing certifications like ISO 9001-2008 and AGMARK for newly introduced mustard oil. We also enjoy certifications from high-quality standard authorities like PFA (Prevention of Food Adulteration Act) and VOP (vegetable oil product) specification from the Government of India. Our quality infrastructure comprises centralized laboratories for inspecting incoming raw material quality (oils, packaging material and chemicals), intermediate materials and finished products, leading to negligible rejection rates.
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G. Raw material
Our principal raw materials include crude palm oil, soybean degum/refined oil and mustard seeds. We import crude palm oil from Indonesia andMalaysia, soybean degum from Argentina and Brazil. These are also purchased from within the country. As a prudent policy, we source mustard seeds ahead of requirement.Procurement strengths• JVL is a direct importer of its principal raw material• It is among India’s largest manufacturers and marketers of vanaspati, strengthening bargaining power• Its brands are prominent across target markets, resulting in a premium• It enjoys logistical advantages across primary markets owing to its proximity to key consumption centers
H. Information technology
Information technology is JVL’s backbone, networking its offices, manufacturing facilities and depots and resulting in a quicker access to real time information. It currently uses ERP (based on SQL).At JVL, the implementation of MIS links technology, information and people.The Company established day-to-day production information based on the physical stock of commodities, thereby controlling losses. It developed a techno-commercial hub of 10-15 competent people resulting in a better coordination between production, planning and marketing.
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Balance Sheet as at March 31, 2011
(Rs. In crore)
Schedule March 31,2011 March 31,2010
Sources Of Funds
Share Capital 12.84 12.84
Prefernces Warrant 19.00 0.00
Reserve and Surplus 210.21 163.19
Loan Funds
Secured and Unsecured Loan 148.56 340.38
Deferred Tax Liabilities 19.97 18.30
410.58 534.71
Applications Of Funds
Fixed Assests 203.00 164.20
Less: Depreciations 34.23 25.72
68.77 138.48
Investments 19.72 9.09
Currents assests and loan advances
Inventories & Sundry Debtors 432.39 323.33
Cash Bank Balance 332.77 297.88
Loans and Advances 96.66 95.97
861.82 717.18
Less: Liabilities 639.73 330.04
Net Current Assests 222.09 387.14
410.58 534.71
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Project
Financing
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Project finance
Project finance is the long term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of the project sponsors. Usually, a project financing structure involves a number of equity investors, known as sponsors, as well as a syndicate of banks or other lending institutions that provide loans to the operation. The loans are most commonly non-recourse loans, which are secured by the project assets and paid entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors, a decision in part supported by financial modeling.[1] The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets, and are able to assume control of a project if the Parties to a Project Financing
Parties to project financing
There are several parties in a project financing depending on the type and the scale of a project. The most usual parties to a project financing are;
1. Project company
2. Sponsor
3 Borrowers
4. Financial Adviser
5. Technical Adviser
6. Lawyer
7. Equity Investors
8. Regulatory agencies
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9. Multilateral Agencies
10. Host government
. contractual framework
The typical project finance documentation can be reconduct to four main types
Shareholder/sponsor documents Project documents
Finance documents
Other project documents
Source of finance requirement to set up a project
Capital structure Menu of financing Equity capital Preference capital Internal accrual Term loan Debentures Working capital advance Miscellaneous sources Raising venture capital in international market
Engineering, Procurement and Construction Contract - (EPC Contract)
The most common project finance construction contract is the EPC Contract. An EPC contract generally provides for the obligation of the contractor to build and deliver the project facilities on a turnkey basis, i.e. at a certain pre-determined fixed price, by a certain date, in accordance with certain specifications, and with certain performance warranties. EPC contract is quite complicated in terms of legal issue therefore the project company the EPC contractor shall have enough experiences and knowledge about the nature of project in order to avoid their faults and minimize the risks during the contract execution. Other alternative forms of construction contract are project management approach and alliance contracting. Basic contents of an EPC contract are:
o Description of the project
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o Price
o Payment
o Completion date
o Completion guarantee and Liquidated Damages (LDs):
o Performance guarantee and LDs
o Cap under LDs
Operation and Maintenance Agreement - (O&M Agreement)
An agreement between the project company and the operator. The project company delegates the operation, maintenance and often performance management of the project to a reputable operator with expertise in the industry under the terms of the Operations and Maintenance (O&M) agreement. The operator could be one of the sponsors of the project company or third party operator. In other cases the project company may carry out by itself the operation and maintenance of the project and may eventually arrange for the technical assistance of an experienced company under a technical assistance agreement. Basic contents of a O&M contracts are:
o Definition of the service
o Operator responsibility
o Provision regarding the services rendered
o Liquidated damages
o Fee provisions
Concession Deed
Agreement between the project company and a public-sector entity (the contracting authority). The concession agreement concedes the use of a government asset (such as a plot of land or river crossing) to the Project Company for a specified period of time. A concession deed would be found in most projects which involve Government such as in infrastructure projects. The concession agreement may be signed by a national / regional government, a municipality, or a special purpose entity set up by the state to grant the concession. Examples of concession agreements include contracts for the following:
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o A toll-road or tunnel for which the concession agreement giving a right to collect tolls / fares from public or where payments are made by the contracting authority based on usage by the public
o A transportation system (e.g. a railway / metro) for which the public pays fares to a private company)
o Utility projects where payments are made by a municipality or by end-users.
o Ports and airports where payments are usually made by airlines or shipping companies.
o Other public sector projects such as schools, hospitals, government buildings, where payments are made by the contracting authority.
Shareholders Agreement - (SHA Agreement)
The agreement between the project sponsors to form a special purpose company (“SPC”) in relation to the project development. This is the most basic of structure held by the sponsors in project finance transaction. This is an agreement between the sponsors and deals with:
o Injection of share capitalo Voting requirements
o Resolution of disputes
o Dividend policy
o Management of the SPV
o Disposal and pre-emption rights
Off-Take Agreement
An agreement between the project company and the off taker (the party who is buying the product / service the project produces / delivers). In a project financing the revenue is often contracted (rather to the sold on a merchant basis). The off-take agreement governs mechanism of price and volume which make up revenue. The intention of this agreement is to provide the project company with stable and sufficient revenue to pay its project debt obligation cover the operating costs and provide certain required return to the sponsors. The main off-take agreements are:
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Take-or-pay contract: under this contract the off-taker – on an agreed price basis – is obligated to pay for product on a regular basis whether or not the off-taker actually takes the product.
Power purchase agreement: commonly used in power projects in emerging markets. The purchasing entity is usually a government entity.
Take-and-pay contract: the off-taker only pays for the product taken on an agreed price basis.
Long-term sales contract: the off-taker agrees to take agreed-upon quantities of the product from the project. The price is however paid based on market prices at the time of purchase or an agreed market index, subject to certain floor (minimum) price. Commonly used in mining, oil and gas, and petrochemical projects where the project company wants to ensure that its product can easily be sold in international markets, but off-takers not willing to take the price risk
Hedging contract: found in the commodity markets such as in an oilfield project.
Contract for Differences: the project company sells its product into the market and not to the off-taker or hedging counterpart. If however the market price is below an agreed level, the off taker pays the difference to the project company, and vice versa if it is above an agreed level.
Throughput contract: a user of the pipeline agrees to use it to carry not less than a certain volume of product and to pay a minimum price for this.
Supply Agreement
An agreement between the project company and the supplier of the required feedstock / fuel. If a project company has an off-take contract, the supply contract is usually structured to match the general terms of the off-take contract such as the length of the contract, force majeure provisions, etc. The volume of input supplies required by the project company is usually linked to the project’s output. Example under a PPA the power purchaser who does not require power can ask the project to shut down the power plant and continue to pay the capacity payment – in such case the project company needs to ensure its obligations to buy fuel can be reduced in parallel. The main supply agreemnts are: The degree of commitment by the supplier can vary.
Fixed or variable supply: the supplier agrees to provide a fixed quantity of supplies to the project company on an agreed schedule, or a variable
supply between an agreed maximum and minimum. The supply may be under a take-or-pay or take-and-pay.
Output / reserve dedication: the supplier dedicates the entire output from a specific source, e.g. a coal mine, its own plant. However the supplier may have no
obligation to produce any output unless agreed otherwise. The supply can also be under a take-or-pay or take-and-pay
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Interruptible supply: some supplies such as gas are offered on a lower cost interruptible basis – often via a pipeline also supplying other users.
Tolling contract: the supplier has no commitment to supply at all, and may choose not to do so if the supplies can be used more profitably elsewhere. However the availability charge must be paid to the project company.
Loan Agreement
An agreement between the project company (borrower) and the lenders. Loan agreement governs relationship between the lenders and the borrowers. It determines the basis on which the loan can be drawn and repaid, and contains the usual provisions found in a corporate loan agreement. It also contains the additional clauses to cover specific requirements of the project and project documents. Basic terms of a loan agreement include the following provisions.
General conditions precedent Conditions precedent to each drawdown
Availability period, during which the borrower is obliged to pay a commitment fee
Drawdown mechanics
An interest clause, charged at a margin over base rate
A repayment clause
Financial covenants - calculation of key project metrics / ratios and covenants
Dividend restrictions
Representations and warranties
The illegality clause
Intercreditor Agreement
Intercreditor agreement is agreed between the main creditors of the project company. This is the agreement between the main creditors in connection with the project financing. The main creditors often enter into the Intercreditor Agreement to govern the common terms and relationships among the lenders in respect of the borrower’s obligations. Intercreditor agreement will specify provisions including the following.
Common terms Order of drawdown
Cash flow waterfall
Limitation on ability of creditors to vary their rights
Page | 32
Voting rights
Notification of defaults
Order of applying the proceeds of debt recovery
If there is a mezzanine funding component, the terms of subordination and other principles to apply as between the senior debt providers and the mezzanine debt providers.
Tripartite Deed
The financiers will usually require that a direct relationship between itself and the counterparty to that contract be established which is achieved through the use of a tripartite deed (sometimes called a consent deed, direct agreement or side agreement). The tripartite deed sets out the circumstances in which the financiers may “step in” under the project contracts in order to remedy any default. A tripartite deed would normally contain the following provision.
Acknowledgement of security: confirmation by the contractor or relevant party that it consents to the financier taking security over the relevant Project contracts.
Notice of default: obligation on the relevant project counterparty to notify the lenders directly of defaults by the project company under the relevant contract.
Step-in rights and extended periods: to ensure that the lenders will have sufficient notice /period to enable it to remedy any breach by the borrower.
Receivership: acknowledgement by the relevant party regarding the appointment of a receiver by the lenders under the relevant contract and that the receiver may continue the borrower’s performance under the contract
Sale of asset: terms and conditions upon which the lenders may transfer the borrower’s entitlements under the relevant contract.
Tripartite deed can give rise to difficult issues for negotiation but is a critical document in project financing.
Common Terms Agreement
Terms Sheet
Agreement between the borrower and the lender for the cost, provision and repayment of debt. The term sheet outlines the key terms and conditions of the financing. The term sheet provides the basis for the lead arrangers to complete the credit approval
Page | 33
to underwrite the debt, usually by signing the agreed term sheet. Generally the final term sheet is attached to the mandate letter and is used by the lead arrangers to syndicate the debt. The commitment by the lenders is usually subject to further detailed due diligence and negotiation of project agreements and finance documents including the security documents. The next phase in the financing is the negotiation of finance documents and the term sheet will eventually be replaced by the definitive finance documents when the project reaches financial close.
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Term
loan
Term loan
Term loan given by financial institutions and banks have been the primary source of long-term debt for private firms and most public firms. Term loans, also referred to as term finance; represent a source of debt finance which is generally repayable in less than10 years. They are employed to finance acquisition of fixed assets and working capital margin
Term loan differ from short-term bank loans which are employed to finance short-term working capital need and tend to be self-liquidating over a period of time, usually less than one year
Page | 35
Features of term loan
The following features of term loans may be discussed.
Currency Security Interest payment and principal repayment Restrictive covenants
Currency
Financial institutions give rupee term loans as will as foreign currency term loans. The most significant form of assistance provided by financial institutions, rupee term loans are given directly to industrial concerns for setting up new projects as well as for expansion, modernization, and renovation projects. These funds are provided for incurring expenditure for land, building, plant and machinery, technical know-how, miscellaneous fixed assets, preliminary expenses, preoperative expenses, and margin money for working capital.
Financial institutions provide foreign currency term loans for meeting the foreign currency expenditure towards import of plant, machinery and equipment, and payment of foreign technical know-how fees. The periodical liability for interest and principal remains in the currency/ currencies of the loan and is translated into rupees at the prevailing rate of exchange for making payments to the financial institutions
Security
Term loans typically represent secured borrowing. Usually assets, which are financed with the term loan, provide the prime security. Other assets of the firm may serve as collateral security. All loans provided by financial institutions, along with interest, liquidated damages, commitment charges, expenses, etc. ate secured by way of:
1. first equitable mortgage of all immovable properties of the borrower, both present and future; and
2. hypothecation of all movable properties of the borrower, both present and future, subject to prior charges in favour of
Page | 36
commercial banks for obtaining working capital advance in the normal course of business.
Interest payment and principal repayment
The interest and principal repayment on term loans ate definite obligations that are payable irrespective of the financial situation of the firm. To the general category of borrowers, financial institutions charge an interest rate that is related to the credit risk of the proposal, subject usually to a certain floor rate. Financial institutions impose a penalty for defaults. In case of default of payment of interest, the borrower is liable to pay further interest on interest (compound interest) at the document rate. For default in repayment of instalments of principal, the borrower is liable to pay by way of liquidated damages, additional interest at the of 2 percent per annum for the period of default on the amount of principal in default, In addition to interest, lending institutions levy an upfront fee on the sanctioned loan amount usually at the rate of one percent.
The principal amount of a term loan is generally repayable over a period of 4 to 7 years after an initial grace period of 1to 2. typically, term loans provided by financial institutions are repayable in equal semi-annual instalments or equal quarterly instalments.
Note that the interest burden declines over time, whereas the principal repayment remains constant. This means that the total debt servicing burden (consisting of interest payment and principal repayment) declines over time. This pattern of debt servicing burden typical in India, differs from the pattern obtaining in western economies where debt is typically amortized in equal periodic instalments.
The latter pattern is relatively more acceptable to borrowers because it does not result in a heavy debt servicing burden in earlier years. However, presently, financial institutions in India do not follow the scheme of equal periodic amortization. Yet they try to ensure, by suitably modifying the debt repayment schedule, within limits, that the debt servicing burden is not very onerous.
Restrictive covenants
Page | 37
In order to protect their interest, financial institutions impose restrictive covenants on the borrowers. While the specific set of restrictive covenants depends on the nature of the project and the financial situation of the borrower, loan contracts often require that the borrowing firm:
broad base its board of directors and finalize its management set-up in consultation with and to the satisfaction of the financial institutions;
make arrangements to bring additional funds in the form of unsecured loans/ deposits for meeting overruns / shortfalls;
refrain from undertaking any new project and/ or expansion or make an investment without the prior approval of the financial institutions;
obtain clearances and licenses from various government agencies; repay existing loans with the concurrence of the financial institutions; refrain from additional borrowings or seek the consent of the
financial institutions for additional borrowings;
further, loan agreements impose restrictions on the transfer of shareholding by promoters / associates.
Term loan procedure
The procedure associated with a term loan involves the following steps:
Submission of loan application
Page | 38
The borrower submits an application from which seeks comprehensive information about the project. The application form covers the following aspects
promoters background particulars of the industrial concern particulars of the project (capacity, process, technical arrangements,
management, location, land and buildings, plant and machinery, raw materials, effluents, labour, housing, and schedule of implementation).
Cost of the project Means of financing Marketing and selling arrangements Profitability and cash flow Economics considerations Government consent
Initial processing of loan application
When the application is received, an offer of the financial institution reviews it to ascertain whether it is complete for processing. If it is incomplete, the borrower is asked to provide the required additional information. When the application is considered complete, the financial institution prepares a “flash report”, it is decided whether the project justifies a detailed appraisal or not.
Appraisal of the proposal project
The detailed appraisal of the project covers the marketing, technical, financial, managerial, and economic aspects. The appraisal memorandum is normally prepared within two months after site inspection. Based on that a decision is taken whether the project will be accepted or not.
Issue of the letter of sanction
If the project is accepted, a financial letter of sanction is issued to the borrower. This communicates to the borrower the assistance sanctioned and the terms and conditions relating thereto.
Page | 39
Acceptance of the terms and conditions by the borrowing unit
On receiving the letter of sanction from the financial institution, the borrowing unit convenes its board meeting at which he terms and conditions associated with the letter of sanction are accepted and an appropriate resolution is passed to that effect. The acceptance of the terms and conditions has to be conveyed to the financial institution within a stipulated period.
Execution of loan agreement
The financial institution, after receiving the letter of acceptance from the borrower, sends the draft of the agreement to the borrower to be executed by authorized persons and properly stamped as per the Indian stamp act, 1899. the agreement, properly executed and stamped, along with other documents as required by the financial institution must be returned to it. Once the financial institution also signs the agreement, it becomes effective.
Creation of security
The term loans (both rupee and foreign currency) and the deferred payment guarantee assistance provided by financial institutions are secured through the
First mortgage, by way of deposit of title deeds, of immovable properties and hypothecation of movable properties. As the creation of mortgage, particularly in the case of land, tends to be a time consuming process, the institutions permit interim disbursements. The mortgage, however, has to be created within a year from the date of the first disbursement. Otherwise the borrower has to pay an additional charge of 1 percent interest.
Disbursement of loans
Periodically, the borrower is required to submit information on the physical progress of the projects, financial status of the project, arrangement made for financing
Page | 40
the project, contribution made by the promoters, projected funds flow statement, compliance with various statutory requirements, and fulfillment of the pre-disbursement conditions. Based on the information provided by the borrower, the financial institution will determine the amount of term loan to be disbursed from time to time. Before the entire term loan is disbursed, the borrower must fully comply with all terms and conditions of the loan agreement.
Monitoring
Monitoring of the project is done at the implementation stage as well as at the operational stage. During the implementation stage, the project is monitored through
Regular reports, furnished by the promoters, which provide information about placement of orders, construction of buildings, procurement of plant, installation of plant and machinery, trial production, etc.
Periodic site visits, Discussion with promoters, bankers, suppliers, creditors, and others connected
with the project, Progress reports submitted by the nominee directors, Audited accounts of the company.
During the operational stage, the project is monitored with the help of
Quarterly progress report on the project, Site inspection, Reports of nominee directors, and Comparison of performance with promise.
The most important aspect of monitoring, of course, is the recovery of dues represented by interest and principal repayment.
Debt service coverage ratio(DSCR)
The payment of interest and repayment of principal within the stipulated tie measured by DSCR. Gross cash accruals are related to projects liability in respect of interest and payment of instalment towards principal. The gross cash accruals should normally be 1.6 to 2 times to assure that the project has inherent strength and potential to service debt.
Page | 41
Security margin
The term loan is sanctioned against the security of fixed assets. Security margin represents the excess value of fixed assets over the term loan. Normally, The term loan is 75 percent of the value of fixed assets. The security margin is 25 percent.
Term loan are granted subject to the following terms and conditions.
1. Clean title to land as security.2. Insurance of assets, building and machinery separately.3. Scrutiny of articles of association to ensure that it does not contain any restrictive
clause against coverants of the financial institutions.4. Lien on all fixed assets. 5. Personal and corporate guarantees of major share holders and associates
concerns.6. Undertaking from promoters to finance shortfalls in funds/ cost over run 7. Approval of appointment of managerial personnel by DFI.8. Further capital expenditure only on the approval DFI.9. Payment of dividend and issue of bonus shares subject to the approval of financial
institution.10.Undertaking for non-disposal of promoters shareholding for period of 3 years
Documentation for term loan
One pager
Proposal Term loan of Rs. 30.00 lacs Page | 42
Company Details:
Name of the Company Jvl agro industries limitedDirectors Chairman
Mr. D. N. Jhunjhunwala
Managing Director
Mr. S. N. Jhunjhunwala
Whole time Director
Mr. Adarsh Jhunjhunwala
Mr. H. L. Agrawal
Dr. S. K. Dikshit
Mr. Mahesh Kedia
Mr. Kanhaiya Lal Goenka
Constitution Limited CompanyDate of establishment 1989Regd. Office Jhunjhunwala Bhawan
Nati Imli, Varanasi 221001
Works Office JVL Agro Foods
(a unit of JVL Agro Industries Ltd.)
207 MIA, Alwar 301001, Rajasthan
Business Activity (New) Consumer foods ( vanspati ghee, Refined Soya been and mustard oil )
Existing bankers Bank of Baroda
Punjab National Bank
State Bank of India
State Bank of Bikaner and Jaipur
State Bank of Hyderabad
State Bank of Patiala
State Bank of Travancore
Page | 43
Vijaya Bank
Registrar and Share Transfer Agent
M/s. MCS Limited
F-65, 1st Floor, Okhla Industrial Area
Phase-I, New Delhi 110020Proposed Facility Term loan - Rs. 70.00 lacsStrengths 1. The Directors are having good experience and vast
experience in the business and industry. 2. The growth of the Company is being backed by the
goodwill of the existing firms in the national market.3. The directors are committed with a track record of
timely delivery, competitive prices and customer satisfaction.
Financial Details:
Total Income - Rs. 12446.3 Million ( year ending Mar 2010) Net Profit - Rs. 292.2 Million ( year ending Mar 2010)
Security Offered: (Rs. in lacs)
Equitable mortgage over First charge over the factory land & Building, area 4,000 sq. mt., situated at 207 MIA, Alwar at very prime location
Current market valuation
160
TOTAL 160
CMA OF JVL AGRO FOODS
JVL AGRO FOODS, ALWAR 31.03.2009 31.03.2010 31.03.2011 31.03.2012 30.3.2013
(Audited) (Audited) (Provisional) (Projected) (projected)
PROFIT AND LOSS ACCOUNT:
SALES:
(I) INDIGENOUS 82.11
114.54
125.79
155.00
Page | 44
(II) other income
GROSS SALES: 82.11
114.54
125.79
155.00 180.00
LESS: Excise Duty -
ADD: Other Operating Income 22.20
4.18
0.01
-
NET SALES: 104.31
118.72
125.80
155.00 180.00
Increase in Net Sales (%) 13.81% 5.96% 23.21%
COST OF SALES: 73.48% 76.79% 73.90% 73.50%
(I) RAW MATERIALS
A. IMPORTED
B. INDIGENOUS 76.65
91.16
92.97
113.93 132.30
B. LESS MODVAT CLAIM
(II) OTHER SPARES
INDIGENOUS
PACKING MATERIAL
(III) POWER & FUEL 1.88
1.92
5.77
7.11 8.26
(IV) DIRECT LABOUR 5.11
3.79
3.48
3.83 4.21
(V) DIRECT EXPENSES 4.98
5.17
6.49
8.00 7.89
(VI) DEPRECIATION 2.00
2.26
3.25
4.15
(VII) Repair & Maintenance Expenses
Purchase of Goods for trading - - -
SUB TOTAL: 90.62
104.30
111.96
137.01
ADD: OPENING STOCK IN PROCESS
2.58
3.40
4.40
6.53 8.56
DEDUCT: CLOSING STOCK IN PROCESS
3.40
4.40
6.53
8.56
COST OF PRODUCTION: 89.80
103.30
109.83
134.98
C O P AS % OF GROSS SALES 109.37% 90.19% 87.31% 87.08% 0.86 ADD: OPENING STOCK OF FINISHED GOODS - -
-
DEDUCT: CLOSING STOCK OF FINISHED GOODS
- - -
-
COST OF SALES: 89.80
103.30
109.83
134.98
COST OF SALES AS % OF GROSS SALES 109.37% 90.19% 87.31% 87.08% 0.87 SELLING, GENERAL & ADMIN EXPENSES
4.66
4.36
4.26
5.25 6.10
PROFIT BEFORE INTEREST & TAX (PBIT)
9.85
11.06
11.71
14.77 17.88
PBIT AS % OFGROSS SALES 12.00% 9.66% 9.31% 9.53% INTEREST & OTHER FINANCE CHARGES:
3.94
3.90
4.68
6.56 8.56
INTT. & FIN. CHARGES AS % OF SALES 4.80% 3.40% 3.72% 4.23% OPERATING PROFIT BEFORE TAX (PBT)
5.91
7.16
7.03
8.22 9.32
PBT AS % OF GR. SALES 7.20% 6.25% 5.59% 5.30% ADD OTHER NON OPERATIVE INCOME:
(I) EXPORT INCENTIVE - - -
-
(II) Misc income (commission) -
(III) INTT & OTHER INCOME -
(IV) Rent Received etc.
(V) Profit from shares - - -
-
SUB-TOTAL (INCOME) - - -
-
DEDUCT OTHER NON OPERATING EXP.
Page | 45
(I) PRELIM. EXP. W/O - -
(II) PRIOR PERIOD ADJUSTMENTS
- -
(III) loss from f&o /Other Expenses - (IV)LOSS ON SALE OF Fixed Assets
- -
(V) Misc Exp W/O
SUB-TOTAL (EXPENSES) - - -
-
Intt on tl
31.03.2009 31.03.2010 31.03.2011 31.03.2012 31.3.2013
(Audited) (Audited) (Provisional) (Projected) (Projected)
PROFIT BEFORE TAX / LOSS 5.91
7.16
7.03
8.22 9.32
TAX PAID
PROVISION FOR TAXES 0.89
0.66 -
-
NET PROFIT/LOSS (PAT) 5.02
6.50
7.03
8.22 9.32
PAT AS % OF GROSS SALES 6.11% 5.67% 5.59% 5.30% (I)
DIVIDEND - - -
(II) RATE
- - -
-
RETAINED PROFIT 5.02
6.50
7.03
8.22 9.32
Loss b/f
Bal c/f to b/s
BALANCE SHEET
LIABILITIES: 31.03.2009 31.03.2010 31.03.2011 31.03.2012
(Audited) (Audited) (Provisional) (Projected) (Projected)
CURRENT LIABILITIES: Short Term borrowings from banks (including bill purchased/discounted)
(i) from applicant bank 13.48
14.59
15.49
30.00
(ii) from other banks (iii) (of which Bill purchased & disc.) (sub limit)
- - -
-
SUB TOTAL 13.48
14.59
15.49
30.00
Short Term borrowings from others
Sundry Creditors (Trade) 19.27
18.88
22.90
18.99 22.05
Advance payment from customers / deposits from dealers
Provision for taxation - - -
-
Dividend payable/Prov for Dividend Other Statutory Liabilities( Due within One Year)
0.20 -
Instalments of Term loans / Debentures / DPGs / deposits etc. (due within 1 year)
Other Current liabilities & provisions (due within 1 year)
Earnest Money/Security Deposits
Sundry Creditors (Non-Trade) 0.08
0.24
Interest accrued but not due on loan
Unclaimed dividend Outstanding liabilities
Page | 46
1.02 0.98 2.65 -
SUB TOTAL 20.57
20.10
25.55
18.99
TOTAL CURRENT LIABILITIES 34.05
34.69
41.04
48.99
TERM LIABILITIES Debentures (not maturing within 1 year)
- - -
- -
Sundry creditor fo capital goods - -
-
Term Loans( Excluding instalments payable . within one year)
-
2.54
5.21
3.47 2.24
Term Deposits ( repayable after 1 year)
Other Loans- USL 15.60
10.30
23.80
23.80
Vehicle Loans & others
TOTAL TERM LIABILITIES 15.60
12.84
29.01
27.27 26.04
Capital 10.53
14.87
24.21
32.43 41.75
Share Application Money
General Reserve - - -
-
Subsidy Surplus (+) or deficit (-) in P & L Account
Deferred Tax Liabilities
Revaluation Reserve
DEBT Redemption Reserve
Share Premium Account
Less :- Intangible Assets
NET WORTH 10.53
14.87
24.21
32.43 41.75
TOTAL LIABILITIES 60.18
62.40
94.26
108.68 119.84
BALANCE SHEET
ASSETS 31.03.2009 31.03.2010 31.03.2011 31.03.2012 31.3.2013
(Audited) (Audited) (Provisional) (Projected) (projected)
CURRENT ASSETS
Cash and Bank Balances 0.33
0.98
0.84
1.04
INVESTMENTS (Other than Long Term)
(i) Govt. & other securities
(ii) Fixed deposits with banks 0.63
0.68
0.69
0.69
RECEIVABLES RECEIVABLES other than deferred & exports (Incl. bills purchased & discounted by banks)
25.77
19.78
25.26
35.52 42.27
Export Receivables ( Incl. bills purchased & discounted by banks)
INVENTORY
Raw Material - INDIGENOUS 19.47
22.06
31.11
37.98
Raw Material - IMPORTED Work-In-Progress
Page | 47
3.40 4.40 6.53 8.56
Finished Goods - -
Other Consumable spares - Indigenous Other Consumable spares- Imported Advances to suppliers of Raw Materials
Advance payment of tax
Other Current Assets:
(i) Balance With Excise Deptt.
(ii) Interest Accrued on Deposits (iii) Other Current Assets (TDS, VAT Rec.)
0.17
0.41
0.55
-
(iv)Loan & Advances 0.37
0.39
0.74
0.50
TOTAL CURRENT ASSETS 50.14 48.70 65.72 84.29
FIXED ASSETS
(I) Land 2.65
2.65
2.65
2.65
(ii) Building 3.53
3.53
3.53
3.53
(iii) Plant & Machinery 8.48
10.54
28.63
28.63
(iv) Furniture & Fixtures 0.17
0.17
0.17
0.17
(v) Other Fixed Assets 6.67
10.38
10.38
10.38
(vi) Capital Works in progress
Less :- Accumulated Depreciation 11.87
14.13
17.38
21.53 24.89
NET BLOCK 9.63
13.14
27.98
23.83 20.47
OTHER NON CURRENT ASSETS . (I) Investments in Subsidiary companies/ Affiliates
- - -
-
(ii) Other Investments
(iii) Advances to suppliers of capital goods and contractors
(iv) Deferred receivables(maturity exceeding 6 months)
(v) Margin money kept with banks.
(vi) IDBI BRS Deferred Receivables (vii)Security/Earnest money deposits
0.41
0.56
0.56
0.56
(viii) Inter Corporate Deposits
(ix) Other Non current assets incl. dues from directors
- - -
-
TOTAL OTHER NON CURRENT ASSETS
0.41
0.56
0.56
0.56
INTANGIBLE ASSETS (Patents, goodwill, prelim. expenses, bad/doubtfull expenses not provided for)
- - -
-
TOTAL ASSETS 60.18
62.40
94.26
108.68 119.84
Total Liabilities - Total Assets - - -
0.00 0.00
BUILD UP OF CURRENT ASSETS 31.03.2009 31.03.2010 31.03.2011 31.03.2012 31.3.2013
(Audited) (Audited) (Provisional) (Projected) (Projected)
Page | 48
Raw Material - Indigenous AMOUNT
19.47
22.06
31.11
37.98
MONTH'S CONSUMPTION 3.05
2.90
4.02
4.00
Raw Material - Imported AMOUNT
- - -
-
MONTH'S CONSUMPTION - - -
-
Consumable spares indigenousAMOUNT
- - -
-
MONTH'S CONSUMPTION - - -
-
Consumable spares- Imported AMOUNT
- - -
-
MONTH'S CONSUMPTION - - -
-
Stock in process - AMOUNT 3.40
4.40
6.53
8.56
MONTH'S COST OF PRODUCTION
0.45
0.51
0.71
0.76
Finished Goods - AMOUNT - - -
-
MONTH'S COST OF SALES - - -
-
RECEIVABLES (DOMESTIC) other than . deferred & exports (Incl. bills purchased & . discounted by banks) AMOUNT
25.77
19.78
25.26
35.52 42.27
MONTH'S DOMESTIC SALES 3.77
2.07
2.41
2.75
EXPORT RECV.(Incl. bills purchased & . discounted by banks) AMOUNT
- - -
-
MONTH'S EXPORT SALES
BUILD UP OF CURRENT LIABILITY ( OTHER THAN BANK BORROWINGS FOR WORKING CAPITAL) Creditors for Purchases of RM-AMOUNT
19.27
18.88
22.90
18.99 22.05
MONTH'S PURCHASES 3.02
2.49
2.96
2.00 2.00
CALCULATION OF MAXIMUM PERMISSIBLE BANK FINANCE -
SECOND METHOD OF LENDING 31.03.2009 31.03.2010 31.03.2011 31.03.2012 31.3.2013
(Audited) (Audited) (Provisional) (Projected) (Projected)
1. TOTAL CURRENT ASSETS 50.14
48.70
65.72
84.29
2. OTHER CURRENT LIABILITIES (Other than Bank Borrowings & TL Instalments due within one Year)
20.57
20.10
25.55
18.99
3. WORKING CAPITAL GAP 29.57
28.60
40.17
65.30
4. MIN. STIPULATED NET WORKING CAPITAL ( 25% ofTOTAL CURRENT ASSETS excluding Export Receivables)
12.54
12.18
16.43
21.07
5. ACTUAL / PROJECTED NWC 16
.09 14.
01 24.6
8 35
.30
6. ITEM 3 MINUS ITEM 4 17.04
16.43
23.74
44.23 52.06
7. ITEM 3 MINUS ITEM 5 13.48
14.59
15.49
30.00
8. MAXIMUM PERMISSIBLE 30.00
Page | 49
BANK FINANCE ( lower of 6 or 7 ) 13.48 14.59 15.49 30.00 9. Excess borrowings representing Shortfall in NWC NIL NIL #REF! NIL
NWC/TCA 0.32
0.29
0.38
0.42
BANK BORROWING/TCA 0.27
0.30 #REF!
0.36 0.30
OCL/TCA 0.03 0.03 0.04 0.00
S.CREDITORS/TCA 0.38
0.39
0.35
0.23 0.22
INVENTORIES/SALES (DAYS) - - -
-
RECEIVABLES/SALES (DAYS) 90.17
60.81
73.29
83.65
CREDITORS/SALES (DAYS) 91.76 75.59 89.91 60.83 60.83
.
STATEMENT OF FINANCIAL CONDITION (Rs. Lakh)
31.03.2009 31.03.2010 31.03.2011 31.03.2012 31.3.2013
(Audited) (Audited) (Provisional) (Projected) (Projected)
A. PROFILE ANALYSIS
TOTAL ASSETS (TANGIBLE) 60.18
62.40
94.26
108.68 119.84
TOTAL OUTSIDE LIABILITIES 49.65
47.53
70.05
76.26 78.09
TANGIBLE NETWORTH 10.53
14.87
24.21
32.43 41.75
NET SALES 104.31
118.72
125.80
155.00 180.00
PBDIT 11.85
13.32
14.96
18.92 21.24
OPERATING PROFITS (PBIT) 9.85
11.06
11.71
14.77 17.88
NET PROFITS 5.02
6.50
7.03
8.22 9.32
GROSS CASH ACCRUALS 7.02
8.76
10.28
12.37 12.69
NET WORKING CAPITAL 16.09
14.01
24.68
35.30 46.76
B. LIQUIDITY ANALYSIS
CURRENT RATIO 1.47
1.40
1.60
1.72 1.90
CURRENT RATIO (without TL instalments as CL) 1.47 1.40 1.60 1.72
QUICK RATIO 0.80
0.64
0.68
0.77 0.86
C. PROFITABILITY ANALYSIS
PBDIT/SALES (%) 11.36% 11.22% 11.89% 12.21%
PBIT / NET SALES (%) 9.44% 9.32% 9.31% 9.53%
PBT / NET SALES (%) 5.67% 6.03% 5.59% 5.30%
NET PROFIT / SALES (%) 4.81% 5.48% 5.59% 5.30%
RETURN ON ASSETS (%) 8.34% 10.42% 7.46% 7.56% RETAINED PROFITS / NET PROFITS (%) 100.00% 100.00% 100.00% 100.00% RETURN ON CAPITAL EMPLOYED (%) #REF! 41.08% 28.94% 26.17%
RETURN ON NET WORTH(%) 47.67% 43.71% 29.04% 25.34%
D. ACTIVITY ANALYSIS( IN DAYS)
RECV. TURNOVER -DOMESTIC 114.55
63.03
73.30
83.65 85.71
RECV. TURNOVER -EXPORT #DIV/0! #DIV/0! #DIV/0! #DIV/0!
INVENTORY TURNOVER 101.66
84.32
109.22
109.59 109.20
ACCOUNTS PAYABLES 60.83
Page | 50
TURNOVER 91.76 75.59 89.91 60.83 FIXED ASSETS TURNOVER RATIO #REF!
10.43
6.12
5.98 8.13
DEBTORS ABOVE 6 MONTHS - - -
-
% OF DEBTORS ABOVE 6 MONTHS 0.00% 0.00% 0.00% 0.00%
WORKING CAPITAL CYCLE 2.14 2.57 2.00 1.89
DEBTORS DAYS (FOR RATING TOOL) #REF! 70.02
65.34 71.56
CREDITOR DAYS (FOR RATING TOOL) #REF! 67.40
69.42 56.64
E. GROWTH RATIOS
NET SALES GROWTH (%) #REF! 13.81% 5.96% 23.21%
NET PROFIT GROWTH (%) #REF! 29.48% 8.15% 16.88%
NET WORTH GROWTH (%) #REF! 41.22% 62.81% 33.94%
CAGR-NET SALES (%) #REF! #REF! #REF! #REF!
CAGR-PBDIT (%) #REF! #REF! 8.08% 9.18%
F. LEVERAGE RATIO TOL / TANG. NET WORTH (with USL as TOL)
4.72
3.20
2.89
2.35 1.87
TOL / TANG. NET WORTH (with USL as QE)
1.30
1.48
0.96 0.93
DEBT EQUITY RATIO 1.48
0.86
1.20 0.84
INTEREST COVER 3.01
3.42
3.20
2.89 2.48
(RS IN LACS)
31.03.2009 31.03.2010 31.03.2011 31.03.2012 31.3.2013
(Audited) (Audited) (Provisional) (Projected) (Projected)
FUNDS FLOW STATEMENT
PROFIT AFTER TAX 5.02
6.50
7.03
8.22 9.32
DEPRECIATION 2.00
2.26
3.25
4.15 3.36
DIVIDENDS - - -
- -
FUNDS FROM OPERATIONS 7.02
8.76
10.28
12.37 12.69
LONG TERM SOURCES:
CHANGE IN CAPITAL #REF! 4.34
9.34
8.22 9.32
NET CHANGE IN RESERVE #REF! (6.50)
(7.03)
(8.22) (9.32)
CHANGE IN TERM LOANS #REF! (2.76)
16.17
(1.74) (1.23)
TOTAL (SOURCE / DEFICIT) #REF! 3.84
28.76
10.63 11.46
LONG TERM USES:
NET CHANGE IN FIXED ASSETS #REF! 5.77
18.09
- 0.00
CHANGE IN OTHER NON CURRENT . ASSETS (INCLUDING INVESTMENTS) #REF!
0.15 -
- -
CHANGE IN INVESTMENTS IN GROUP COS. #REF! - -
- -
CHANGE IN INTANGIBLES #REF! - - - -
CONTRIBUTION TO WORKING CAPITAL #REF!
(2.08)
10.67
10.63 11.46
SHORT TERM USES
Page | 51
CHANGE IN NET WORKING ASSETS #REF!
(2.40)
16.66
19.16 14.06
CHANGE IN OTHER CURRENT ASSETS #REF!
0.26
0.49
(0.79) -
SHORT TERM SOURCES CHANGE IN OTHER CURRENT LIABILITIES #REF!
(0.47)
5.45
(6.56) 3.06
CHANGE IN BANK BORROWINGS / LOANS #REF!
1.11
0.90
14.51 -
NET DEFICIT / SURPLUS IN S T SOURCES #REF!
2.78
(10.80)
(10.42) (11.00)
NET MOVEMENT IN LIQUID ASSETS #REF!
0.70
(0.13)
0.20 0.46
CHANGE IN CASH #REF! 0.65
(0.14)
0.20 0.46
CHANGE IN MARKETABLE INVESTMENTS #REF!
0.05
0.01
- -
NET MOVEMENT IN LIQUID ASSETS #REF!
0.70
(0.13)
0.20 0.46
(RS IN LACS)
31.03.2009 31.03.2010 31.03.2011 31.03.2012 31.3.2013
(Audited) (Audited) (Provisional) (Projected) (projected)
CASH FLOW STATEMENT
OPERATING SECTOR
SALES 104.31
118.72
125.80
155.00 180.00
DEBTORS (TRADE) (5.99)
5.48
10.26 6.75
CASH FROM SALES 104.31
124.71
120.32
144.74 173.25
COSTS- INTEREST & FINANCE CHARGES
3.94
3.90
4.68
6.56 8.56
EXPENSES ON STOCKS PURCHASES
76.65
91.16
92.97
113.93 132.30
TRADE CREDITORS 0.39
(4.02)
3.91 (3.06)
MANUFACTURING EXPENSES 11.97
10.88
15.74
18.93 20.36
CASH COST OF SALES 92.56
106.33
109.37
143.33 158.16
EXPENSES FOR INC. / DEC. IN STOCKS
2.59
9.05
6.87 6.13
CASH FROM ASSET CONVERSION CYCLE
11.75
15.79
1.90
(5.46) 8.97
SELLING, GEN. & ADM. EXPENSES
4.66
4.36
4.26
5.25 6.10
ADVANCE PAYMENTS (PREPAYMENTS) - -
- -
ADVANCES RECEIVED - - - -
TAXATION 0.89
0.66 -
- -
DIVIDENDS - - -
- -
CASH FROM OPERATIONS 6.20
10.77
(2.36)
(10.71) 2.87
OTHER CURRENT ASSETS 0.26
0.49
(0.79) -
OTHER CURRENT LIABILITIES 0.08
(1.43)
2.65 -
OTHER INCOME/EXPENSES (NET)
- - -
- -
NET CASH FROM OPERATIONS 6.20
10.43
(1.42)
(12.57) 2.87
INVESTMENT SECTOR
CAPITAL EXPENDITURE 5.77
18.09
- 0.00
Page | 52
INVESTMENT IN GROUP COMP'S - -
- -
INTANG,/OTHER TERM ASSETS 0.15 -
- -
CASH BEFORE FUNDING 6.20
4.51
(19.51)
(12.57) 2.87
FINANCING SECTOR
DUES TO BANKS 1.11
0.90
14.51 -
SHORT TERM DEBTS - - - -
TERM DEBTS (2.76)
16.17
(1.74) (1.23)
EQUITY 4.34
9.34
8.22 9.32
OTHER LOANS & RESERVES (6.50)
(7.03)
(8.22) (9.32)
TOTAL -
(3.81)
19.38
12.77 (1.23)
MOVEMENT IN CASH ASSETS 6.20
0.70
(0.13)
0.20 1.64
CASH & BANK BALANCE 0.65
(0.14)
0.20 0.46
INVESTMENTS(OTHER THAN LONG TERM)
0.05
0.01
- -
MOVEMENTS IN CASH ASSETS -
0.70
(0.13)
0.20 0.46
Details of proposed project
Physical situation
1. location of the unit
2. area of unit
3. utilities :
water, power, labour
Page | 53
4. justification of project
5. implementation schedule
6. cost of project
land, building, plant and machine, miscellaneous asset, pro-
operative expenses, contingencies
7. assessment of credit facility
8. financial viability
for the existing unit
for the new unit
consolidated assumptions
repayment schedule
Objectives of study
The objectives are:
1. To evaluate the source of project financing to fulfillment of requirement of fund or
money
2. To know brief knowledge of term loan its procedure and documentation which is
required to get term loan.
3. To know what is impact of term loan on company’s image.
Page | 54
4. To evaluate the significance of term loan in project financing.
5. To know financial institution’s role in term loan and procedure of term loan to get.
Review of literature
The basic project is promoting the concept of term loan in project financing as a
tool for project planning. Term loan play a significant role in project financing from initial
stage to last stage to save tax and for working capital. As company wants to grow in
Rajasthan, this can be achieved through quantity and quality of product to satisfy
consumers. So, it is necessary to maintain good relation with commercial banks for
finance. Commercial bank may be give help and opportunity to expand and to start a new
project.
Page | 55
The various methods to get financial fund and money from market, most are
described below:
Share capital market
Term loans
Reserve and surplus
Debenture
Features of project financing are:
Various sources to get finance or fund
Project financing play vital role to create or organize a project planning
Term loan is a better source to finance rather than another sources of finance
Term loan gives a tax shield facility to promoters
1. Source of project financing which preferred by most businessman
Source of Financing Percentage (%)
Share Capital 60 %
Debentures 20%
Term Loan 15%
Other 5%
Page | 56
60%
20%15%
5%
0%10%20%30%40%50%60%70%
Source of Financing
Pref
ered Percentage (%)
Interpretation:
According to above chart out of 30 businessman of Alwar, the most of the persons like
preferred to get finance from share capital i.e.60%, the second most businessman likes
to get finance from debentures i.e. 20% and the businessman like term loan i.e. 15% and
least business man like preferred other .i.e. 5%.
2. Basic factors to consider a project picking up or not.
Factor Percentages(%)
Market Growth 40%
Investment Fund 30%
Demand of Project 20%
Page | 57
Other 10%
40%
30%
20%
10%
0%
5%
10%15%
20%
25%
30%35%
40%
45%
Percentages(%)
Factor
Op
inio
n
Market Growth
Investment Fund
Demand ofProject
Other
Interpretations:
According to above chart, market growth has the most factors which require the new
project i.e.40% and another factor has 30%, 20%, and 10% part which force the new
project investment fund, demand of project and other respectively.
3. Main feature of project has significance role.
feature Percentage%
Project planning and analysis 17%
Project financing 22%
Project implication 46%
Page | 58
Production in new established project 15%
17%
22%
46%
15%
Project planningand analysis
Project financing
Projectimplication
Production innew establishedproject
Interpretations:
4. What do you understand by term loan?
Feature Percentage (%)
A Tax Saving Tool 16%
A Debt Burden Tool 23%
Page | 59
A Formal Document tool of Finance 12%
All of the Above 49%
16%23%
12%
49%
0%5%
10%15%20%25%30%35%40%45%50%
Opinions
Percentage (%)
Tools
A Tax SavingTool
A Debt BurdenTool
A FormalDocument tool ofFinance
All of the Above
Interpretations:
5. Have you taken instrument of term loan in your business or project?
Term Loan Percentages(%)
Yes 41 %
Page | 60
No 59 %
Term Loan
41%
59%
Yes
No
Interpretations:
6. The businessman who preferred term loan as a project financing tool.
Scale Level Percentage (%)
Large Scale Business 46%
Small Scale Business 27%
Page | 61
Both 23%
Can’t Say 4%
Percentage (%)
46%
27%
0%5%
10%15%20%25%30%35%40%45%50%
Large ScaleBusiness
Small ScaleBusiness
Percentage (%)
Interpretations:
7. Divisions of the businessman according to risk factor in term loan.
Page | 62
Risk Factor Percentage(%)
Yes 56%
No 32%
May Be 12%
Risk Factors
56%32%
12%
Yes
No
May Be
Interpretations:
8. The reason behind to preferred the term loan as source of Financing.
Factor Percentages (%)
Page | 63
Tax Planning 24%
Ease To Get 20%
Good Relation with Bank 11%
Instalment Payment 45%
24%20%
11%
45%
0%5%
10%15%20%25%30%35%40%45%
Opinions
Percentages (%)
Factors
Tax Planning
Ease To Get
Good Relation withBank
Instalment Payment
Interpretations:
9. Have you idea about the term loan’s document which required by bank?
Knowledge Percentage(%)
Page | 64
Yes 64%
No 36%
Awareness
64%
36%
Yes
No
Interpretations:
10. Which accounting term loan has more significant role to get term loan by bank?
Page | 65
Accounting Term Percentages(%)
Assets 21%
Debt Service coverage Ratio 20%
Valuation of the firm 43%
Ratio 16%
21%
20%
43%
16%
0% 10% 20% 30% 40% 50%
Assets
Debt Service coverageRatio
Valuation of the firm
Ratio
Acco
untin
g Te
rm
Preferences
Percentages(%)
Interpretations:
11. For How Many year term loan taken by business firms?Page | 66
Time Period Percentages (%)
Up To 5 Years 16%
5-10 Years 36%
More Than 10 Years 30%
Short Term Loan 18%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Up To 5Years
5-10 Years More Than 10 Years
ShortTerm Loan
Time Period
Per
cent
ages
Percentages (%)
Interpretations:
12. Name of the financial instruments which provide term loan to business firms/ project
Page | 67
Name of the Institution Percentages (%)
Commercial Bank 19%
Non Banking Finance Company 21%
SIDBI and IDBI 44%
Any other 16%
0%5%
10%15%20%25%30%35%40%45%
Percentage
Percentages (%)
Name of Institution
Finanacial Instrument
Commercial Bank
Non Banking FinanceCompany
SIDBI and IDBI
Any other
Interpretations:
Questionnaire
Page | 68
Purpose: To evaluate the concept of term loan in project financing as
better tool from other resources of finance.
1. What is source of project financing which preferred by most businessman.
Share capital
Debentures
Term loan
Others
2. What are the basic factor that you will be consider before picking up a project
Market growth
Investment of fund (project financing)
Demand of new project
Other factor
3. According to you what is main feature of a project play vital role.
Project planning and analysis
Project financing
Project implementation
To start production in new established project
4. What do you understand by term loan?
A tax saving tool
A debt tool
A formal documented tool
All of them
5. Which kind of business owner has preferred the term loan as project financing
tool?
Page | 69
Large scale business
Small scale business
Both
Can’t have knowledge
6. Are you a business man?
Yes
No
Your any relative is business man
7. If yes, have you invest fund in your business or project in form of term loan?
Yes
No
8. If yes, what do you think about term loan that it is a highly risky source of
project financing?
Yes
No
May be
9. What is reason that you will be prefer the term loan as source of finance?
For tax planning
Easy to get
Good relation with bankers
Payment done in installments
10. Have you any knowledge about term loan documentation which are required
by bank?
Page | 70
Yes
No
11. if yes, which accounting document has more significant role to get term loan
by bank?
Balance sheet
Goodwill or valuation of firm
Ratio
Cash flow and fund flow
12. Normally, how many years’ term loan has taken by business firms?
Short term loan for 1-2 years
Up to 5 years
5-10 years
More than 10 years
13. Term loan is mostly provided by financial institution for business firms, which
financial institution provides or provide most part of term loan to project or
business firm?
Commercial bank
Non banking finance company
SIDBI and IDBI
Any other
Page | 71
