SIDBI Project Appraisal - Basic

8/2/2019 SIDBI Project Appraisal - Basic

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Project Appraisal- An Overview


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Agenda

Introduction

Aspects of Project Finance

Managerial Appraisal

Technical Appraisal

Commercial Appraisal

Selected financial indicators Case Study


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Project

A non repetitive activity

Involves large capital expenditures

Returns over a long period of timeRequires significant managerial bandwidth

Varied risks

Uncertainty of future business environment


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Project Finance

Level of funding raised based purely onthe merits of the relevant project

Lender is satisfied to look initially at thecashflows and earnings of a economic unit

Debt would be repaid from the economicunit

The loan and equity returns are tied to the

cash flows and fortunes of the projectrather than being dependant on the parentcompany/companies.


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Project Appraisal

The purpose of Project Appraisal is toascertain whether the project is sound technically, economically, financially andmanagerially and is ultimately viable as a

commercial proposition. Multifaceted activity; Requires skills ofPsychologist

EngineerFinancial Analyst

Economist


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Project Appraisal Each and every project is based upon assumptions,

necessarily involve capital expenditure in the hope of areasonable return on investment over a future period oftime.

Project Appraisal necessarily involves validation ofvarious assumptions

Appraisal of

Management/ Sponsor/ Promoter

Technical aspects

Market & Selling Arrangements

Financial viability


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Initial Screening 1/ 3

WHAT IS THE PRODUCT (Generalindustry structure)

WHO IS SETTING UP THE PROJECT

(Promoters and their experience) Our experience from similar units

Banks lending policies

Government/ RBI Regulations Past business financials

Collaterals


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Distance of unit from branch RBI/ CIBIL/ AML Lists

ECGC Specific Approval List

Discussions with banks

Independent Market Enquiry


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Prudential Exposure norms Individual & Group Exposure norms

Industry Exposure norms

Scheme Eligibility Norms DER, PC,DSCR, Asset coverage

Takeover norms, if applicable

Profitability Projections

Credit Risk Rating norms


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Management Appraisal 1/ 5

Who are the promoters KYC

Cohesiveness - relationship

Competence - Age, Qualifications

Experience general or similar line

Net-worth of promoters

IT/ Wealth tax status


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Associate concerns in which interested Associate Concerns

When established

Which industry; Products

Financial performance

Visit to associate concerns

Role of promoters in the associate concerns


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Bankers report of unit and associate concernsWritten

Discussions

Independent Market EnquiriesOur own customers, Suppliers, Customers Employees Prominent businessmen

Statutory Checks RBI Caution AdviceWilful defaulters database RBI and CIBIL RBI and CIBIL Defaulters list AML list - UN website


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Shareholding pattern% stake of promoters; Majority shareholderStake held by investment companiesStake by foreign funds/ FDI/ Overseas

investorsExamine shareholders agreements;

restrictive covenantsPartnership deed/ Society/ Trust deed to be

examined for any restrictive clausesMemorandum & AoA to be examined for

objectives, borrowing powers, security,nominee directors etc.


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Composition of Board Chief Executive; Organisational set up

In case promoters not qualified/

experienced, critically examine linemanagement

Adequacy of personnel for project

implementation and each of functionalareas viz. finance, marketing, technology,production, materials, HR etc.


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KYC

Companies : Memorandum and articles ofassociation object clause, borrowing powers,power to mortgage, authorized share capital,directors and board of directors, nominee

directors provision, Pvt or public ltd Partnership concerns Partnership deed

(registration), no of partners, powers to borrow Trusts, HUFs, Co-operatives necessary

safeguards Address and Identity proof, Networth

statements, ITRs, Signature attestation frombankers, PAN/Sales tax/ EPF registration


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Technical Aspects 1/3

Scope of projectPlant scale, product mix

Capacity

Bottlenecks in upscaling

LocationApproach road

Infrastructure facilities

Power distance from substationRaw materials

Availability of skilled/ unskilled labour


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Mfg process - Selection of technology Technical consultants/ collaborators

Similar technology used by other units

Selection of machinery cost and quality Performance guarantee

Training personnel

Imported After sale service Second hand/ fabricated


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Major Raw MaterialsAvailability (Quantity & Quality)

Price fluctuations

Imported or Indigenous - duty structure

Proximity

Power, Water, Fuel

Effluent Disposal

Manpower availability Implementation Schedule ????


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Market Analysis 1/ 2

Target customers Market prospects - Market Survey

Demand Supply scenario

Price trends

Competition - local

Competition foreign - duty structure

Firm tie ups (collaborator off take !!!)


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Market Analysis 2/ 2

Selling arrangements Industry practices

Credit period

Payment defaultsAdvance payments

Ancillary units : Tripartite agreements


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Financial Appraisal - Cost of Project & Means of Finance

Project Cost Means of Finance

Land & site development Equity

Buildings (Main/ Auxiliary) Promoters Equity

Plant and Machinery Internal Accruals

Miscellaneous fixed assets Unsecured Loans

Pre. & pre-op exp. Subsidy

Contingency Term Loans

Margin Money for WC Others

Total Total


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Capital Cost Validation Land

Cost as per Sale / Lease deed, Registration cost

Cost of Land Development, as estimated by a CivilEngineer

Land use permission

Building & Civil works

Approval of construction plan by LocalAuthorities Types of construction Estimates by a Civil

Engineer

Plant, Machinery & Equipments Selection criteria i.e. Technical specifications,

Capacity, Quality, After sales service, Guarantee,Delivery schedule, Cost, Terms of payment

Quotations / Offer letters from manufacturers Excise Duty, Sales Tax, Transportation Foundation, Erection & Commissioning


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Financial Viability 1/ 2 Assumptions underlying projections

Installed capacity & Capacity utilisation Selling Price Raw material, power, manpower and other direct

costs

Administration and selling costs Interest and Depreciation, Taxation structure

Projected profitability Projected cash flow

Projected balance sheet Working capital calculations


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Financial Viability 2/ 2 DER GPM and NPM comparison with peers DSCR Project IRR BEP

Cost of Capital (CoC) Return on Capital Employed (RoCE) Sensitivity analysis

Variations in capacity utilisation, selling price, raw material andother key costs

Test the performance of key parameters Inter-firm comparison

Project Cost, Means of finance, Projections of income andprofitability and DSCR


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Others

Repayment schedule EMI/ Balooning Moratorium

Capital/ interest subsidy

Internal Risk Rating External rating

Primary and collateral security

Security Margin/ Asset Coverage

Pre-disbursement conditions


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Thank You

Documents

SIDBI Project Appraisal - Basic