A PROJECT REPORT ON PROJECT APPRAISAL OF SMALL SCALE INDUSTRY AT STATE BANK OF HYDERABAD BY B.PRAVEEN.

Roll no130798046 2006-08

PROJECT SUBMITTED IN PARTIAL FULLFILLMENT FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION

ST.JOSEPH PG COLLEGE KING KOTI (AFFILIATED TO OSMANIA UNVERSITY)

ACKNOWLEDGEMENT

I take this opportunity to express my deep share of obligation to management STATE BANK OF HYDERABAD for their kind permission to undertake the project in their organization. I express my deep sense of gratitude and thanks to M.Y. Reddy (chief manager of SIB department) providing me this opportunity to be associated through the project their organization. I also express my sincere regard to Mr. Sanjay Wanker who expressed his advice and counseling to me in my finalization of this project report. In spite Of his valuable commitments and responsibilities, he spared his time and interest in competing of my project work I thank whole heatedly. The very topic, given by them made the project interesting and enthralling the learning experience was perhaps the best project trainee could receive I wish to express my gratitude to all the staff that extended all their co-operation to me. I also wish to thank my internal guide Mr Mayur kumar (faculty of management) for givingme valuable inputs and advice during the duration of project. This acknowledgement will be incomplete without a mention of gratitude to my parents for their support and encouragement during project.

CERTIFICATE
This is to certify that the project work entitled PROJECT APPRAISAL OF SMALL SCALE INDUSTRY done for STATE BANK OF HYDERABAD, is bonafide work done and submitted by Mr. B. PRAVEEN. in partial fulfillment of the requirements for the award of the degree of MASTER OF BUSINESS ADMINISTRATION in

KANDULA SCHOOL OF MANAGEMENT (Affliated to Sri venkateswara

university ,Tirupathi and approved by AICTE,New Delhi) Kadapa during the year
2006-2008.

Mr. A.MAYUR KUMAR, M.B.A. Project Guide, Kandula School of Management, Kadapa. 51 6003. Management,

Dr.G.L.Narayanappa, M.Com.,Ph.D.,PGDBA, Head of the Department, Kandula School of Kadapa. 516003.

Declaration

I here by declare that this project entitled as Project Appraisal of Small Scale Industry is submitted to KANDULA SCHOOL OF MANAGEMENT is a Bonafide work under taken by me and it is not submitted to any other university or institution for the award of any degree/diploma/certificate or published any time before.

Place: HYDERABAD Date:

B.PRAVEEN.

CONTENT
CHAPTER 1
INTRODUCTION OBJECTIVE OF THE STUDY RESEARCH METHODOLOGY

PAGE NO.
1 6 7

CHAPTER 2
COMPANY PROFILE 8

CHAPTER 3
DETAIL STUDY OF PROJECT APPRAISAL METHODOLOGY 18

CHAPTER 4
A CASE STUDY OF M/R VIJAY FOODS 65

CHAPTER 5
FINDINGS AND SUGGETIONS ABBREVIATIONS GLOSSARY TERMS BIBILIOGRAPHY 110 111 112 117

CHAPTER 1

PROJECT APPRAISAL

INTRODUCTION: Project appraisal is an exercise where by a lending financial institution makes an independent and objective assessment of various aspects of an investment proposition to arrive at the financing decision. Appraisal exercises are basically aimed at determining the viability of a project and sometimes, also in reshaping the project so as to upgrade its Viability. Allocating the term finance sought by a promoter does this

The factors generally considered by institutions while appraising a project include technical, financial, commercial, economic, ecological, social and managerial aspects. This makes it necessary to recognize the inter-relationship underlying the various aspects of a project. For example the size of the initial market and the estimates for demand build-up would determine the plant capacity and production phasing: there together would have a bearing on the profitability, which in turn, would determine the means of financing location also has an important bearing on project cost and cost of production. Above all, the management behind the project has a decisive influence on most of these aspects. These considerations imply that project appraisal is viewed as composite process against the approach of viewing each aspect individually.

MEANING:

The exercise of a project appraisal simply means the assessment of a project in terms of its economic, social, and social viability. This exercise is critical as it calls for a multi-dimensional analysis of the project that is, a complete scanning of the project. Financial institutions and banks make a critical appraisal of projects, which

are submitted to them by the entrepreneurs for availing loans. They have traditionally accepting the data provided by the entrepreneur as valid while assessing the project. In fact, the emphasis has largely been on the cash flow and financial viability of a project in assessing their suitability for extending the loans.

DEFINITION: Project appraisal can be defined as the promoter taking a second look critically and carefully at a project as presented by the promoter to a person who is in no way involved in or connected with its preparation and who is as such able to take an independent, dispassionate and objective view of the project in its totality as also in respect of its various components. The person who carries out appraisal of a project is usually an official from the financial institutions or a team of financial officials. Since all ending activities involve risk in a smaller or a larger measure, project appraisal aims at sizing up the quality of projects and their long term profitability aims at minimizing the risk of lending by rectifying their weakness and improving their quality by incorporating in to them features safeguards missed by the promoters either because of lack of knowledge or information. Need for study: The financial institutions/bankers has to play key vital role for analyzing different Facts of the project. There responsibilities are appraising the soundness of the project that is presented to then for financial assistance to understand the lending criteria and appraisal technique for financing a project.

From promoter's point of view:

Project Appraisal for promoter is process of reexamine the various critical aspects by the third party and is found viable, an indication to follow the appropriate 8

direction. If non-viable, drop the project and create an opportunity to identify the other appropriate project without losing much and thus safeguarding their interest. Ultimately it strengthens the national economy by identifying a good project.

From Bank/ Financial Institutions Point of view:

Project Appraisal instills confidence that the deployment of funds is being done in an appropriate manner, thus yielding in good financial results and profits. Scope of appraisal: The appraisal of a project under take by the financial institutions with the twin objectives of determining the market under take by the potential of a project and selecting an optimal strategy. The method of analysis varies from project to project. Nevertheless, certain common ascents of study from the angle of technology and engineering are with a mention: Choice of technical process and / or appropriate technology; Technical collaboration arrangements, if any; Location aspects of the project and availability of infrastructure facilities; Selection of plant, machinery and equipment together with back ground, Competence and capability of machinery/equipment suppliers; Plant lay out and factory building; Technical engineering services;

 Project design and network analysis for the assessment of project implementation schedule; OBJECTIVES OF THE STUDY The objectives of study of the research study are: To understand the concepts and techniques of project appraisal. To study the market, technical and financial feasibility of Vipul foods Ltd. To analyze the risk of the project and credit worthiness of the project. .

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RESEARCH METHODOLOGY:
Research is mainly depends upon secondary data. Which as given to bank by the promoter we need to analyze all the aspects of that data i.e. is it economically viable, financial soundness ,technically feasible, and social aspects. Primary source: Primary source was by means structured observations by visiting company site and doing enquiry from market and competitors about demand of product, latest technology of machines. . Secondary source: The secondary source mainly depends data provided to bank by the enterprise, for which Applied for loan. And visiting some websites and referring the some of books, magazines etc.

Limitations: 1. Being the title of the project is "Project Appraisal the viability of the project is assessed based on the Projected Financial Statements for seven years. 2. The broad parameters under which this study is conducted are based on the guidance of SBH and some of the critical decisions revealed by the company.

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CHAPTER 2 COMPANY PROFILE

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ORIGIN OF STATE BANK OF HYDERABAD:

State Bank of Hyderabad was constituted as Hyderabad State Bank on 8.8.1941 under Hyderabad State Bank Act, 1941. The Bank started with the unique distinction of being the central bank of the erstwhile State of Hyderabad, covering present-day Telangana region of Andhra Pradesh, Hyderabad-Karnataka of Karnataka and Marathwada of Maharashtra, to manage its currency - Osmania Sikka and public debt apart from the functions of commercial banking. The first branch of the Bank was opened at Gun foundry, Hyderabad on 5th April 1942. In 1953, the Bank took over the assets and liabilities of the Hyderabad Mercantile Bank Ltd. In the same year, the Bank started conducting Government and Treasury business as agent of Reserve Bank of India. In 1956, the Bank was taken over by Reserve Bank of India as its first subsidiary and its name was changed from Hyderabad State Bank to State Bank of Hyderabad. The Bank became a subsidiary of the State Bank of India on the 1st October 1959 and is now the largest Associate Bank of State Bank of India. A board of directors, managers of the bank, chairman, state bank of India is the ex-officio chairman of the board, which comprises experts in various fields. E.g. agriculture, business etc. And he representatives of the workmen/officers associations besides nominees of the government of India, Reserve Bank of India and the State Bank of India. The chief executive officer, managing director is appointed by the State Bank of India in consultation with the bank's board and approval of Reserve Bank of India. The Management team consists of managing director, Chief General Manager and five general Managers. There are separate senior functionaries to look after various functional and developmental activities. The organizational setup is decentralized with seven zonal offices at Hyderabad, Secunderabad, Warangal, vizag, Gulbarga, Aurangabad and Mumbai headed by deputy general managers, 24 regional offices attached to the zones act as controlling offices for branches. 13

Our Mission
"To achieve pre-eminence in banking and financial sectors with commitment to excellence in customer satisfaction, profit maximization and continued emphasis on developmental banking through a skilled and committed work force by providing training facilities and technological up gradation"

OVERALL AREAS: The bank's urban, rural, metro and other areas comprises in Andhra Pradesh, Karnataka, Maharashtra and other states 929 branches located in the overall area, the bank has been playing a significant role in the development of these regions through financing commerce, industry and agriculture and making investments in development projects of these states. As at the end march 2005, the outstanding advance in the areas stood at Rs.9734.85 core. Another Rs.362.10 was deployed as investment.

BANKERS TO THE GOVERNMENT:The Bank started as a central Bank to the then Hyderabad State managing Currency and public debt besides functioning as a commercial Bank till it became a subsidiary of State Bank of India in 1959. Since then, it is conducting government business and maintains currency chests and small coin depots. As at the end of March 2005, there were 178 branches conducting Government Business, 200 branches maintaining currency chests.

TRADE AND INDUSTRY: A significant portion of the bank's lend able funds have been channeled into Industrial sector comprising large, medium scale and small-scale industry. In

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addition to this, the funds are also deployed in personal segment, small business; investments etc. out of the total advances, 40% are deployed in priority sector advances.

INTERNATIONAL BANKING: The bank has over the years developed expertise in conducting international trade and offers, through it's66 authorized branches, a full fledged foreign department in Chennai, 2 dealing rooms in Delhi, Mumbai, and large network of correspondents throughout world, comprehensive facilities to exporters, importers and NRIs.

PRIORITY SECTOR LENDING: The bank is alive to its development role and actively participates in meeting needbased requirements of SSI, agriculture and small business etc. It has consistently met the benchmarks for priority sector advances stipulated from time to time. As on March3Ist 2005 Bank's priority sector advances stood at 6388.72 crores and constituted 40.65% of net bank credit.

AGRICULTURE: The bank caters to the needs of farmers through its 876 rural and semi urban branches. 33ADBs are totally dedicated to agricultural advances. The bank also encourages allied activities like dairy, poultry, piggery, fishery, horticulture etc. earn mechanization and agro based industries are also given due attention. During 98-99, the bank launched Krishi credit card scheme to enable farmers to purchase agricultural inputs and meet other productive needs. As at the end of march2005, the outstanding finance to agricultural segment stood at Rs.2113.42crore.

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LEAD BANK: The bank has been entrusted with lead responsibilities in Adilabad, Karimnagar, Khammam, Nalgonda, Nizambad and Rangareddy districts of Andhra Pradesh besides Hyderabad metropolitan and two districts in Karnataka, viz, Raichur and Koppal under the Lead Bank Scheme of Reserve Bank of India. A detailed Annual Credit plan for each district is prepared and implemented with help of other Banks and Financial Institutions operating in the district and Government Departments. Under the Annual Credit Plan, the Bank achieved 88% of its share in the total outlay against all financial institutions achievements of 84%. SELF HELP GROUPS: The concept of self-help Groups is being actively pursued to inculcate financial discipline among the weaker sections of the society. The number of such groups linked to the batik stood at 11817 as on the year ended.

REGIONAL RURAL BANKS: The Bank has sponsored four Regional Rural Banks in its lead districts viz., Sri Saraswathi Grameena Bank, Adilabad, Sri Satavahana Grameena Bank, Karimnagar, Golconda Grameena Bank, Rangareddy and Sri Rama Grameena Bank, Nizamabad. The four RRB's have a combined network of 169 branches and has mobilized Rs.440.07crore deposits and extended financial assistance of Rs.232.44crore and earned a profit of Rs.11.18crore as at the end of the financial year.

COMMUNITY SERVICES BANKING: Alive to the needs of the society in which Bank is functioning, the Bank's activities under community Services Banking include financial assistance to Charities/Service, organizations/physically handicapped, conducting health camps, adult education distribution of books/uniforms to poor students, organizing sports/quiz competitions, tree plantations, blood donation, etc. The Bank

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had sponsored 4 athletes from Andhra Pradesh to the special summer Olympics for mentally retarded persons at North Carolina, USA. The sponsored athletes won 2 Gold, 4 Silver and 1 Bronze medal.

Technology: Customer occupies pivotal place at State Bank of Hydria. With a view to provide efficient service through translating technology, the bank has computerized 236 branches of which 89 are fully computerized branches. D.D/B.C. package has been provided at 74 branches, TDR package at 43 branches and pass book printers at 94 branches.

The bank has also installed 8 ATM's, 4 at Hyderabad 3 at Mumbai and 1 at Delhi with inter connectivity at Mumbai and Hyderabad. Electronic Funds Transfer Scheme was implemented at 4 metro canters. Electronic clearing Services Scheme for debit/credit transactions was implemented at the entire 4 metro canter. A VSAT has been installed for the Bank's SBHNET project for net working of Branches, regional offices and head offices, 34 branches/departments at head office have been connected to the Internet for speedier communications. Customer terminals have been provided to 28 corporate customers.

NEW PRODUCTS: Multi-options Deposit Scheme (MODS) which combines the features of both current/savings account and special term deposit account and provides liquidity and high return was implemented through 61 computerized Bank Master branches. On assets side, a new trade finance scheme styled as SBHs total package for Financing Traders and two new products namely SBHDOCFIN and SBHPROFFIN for medical practioners/qualified professionals was introduced during the year.

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CITIZENS CHARTER: The Bank presented the Citizen's Charter to its customers. The charter contains two parts viz., (a) Governing principles and (b) Information on various services being offered by the Bank and is a reiteration of its commitment to the society to provide timely and efficient customer service.

FEED BACK: A system of customer audit through a questionnaire has been introduced to obtain feedback on customer expectations for corrective action wherever necessary.

HUMAN RESOURCES DEVELOPMENT: It is the objective of the Bank to prepare its human resources fully geared up to face emerging challenges of the next millennium following financial sector reforms, by proper motivations, reorientation of attitudes and sharpening of skills. Training is imparted at the Bank's three training centre at Warangal, Hyderabad, and Gulbarga besides deputing the staff to reputed institutions like state bank staff college, BTC, National Institute of Bank Management, etc. Employees are encouraged to make suggestions on product innovation/improvement in customer service. Total employees recruited are 13,500 odd.

DEPOSITS AND ADVANCES: The bank's total deposits crossed Rs.28929crore and the advances given were seen as 15599crore as on 31st March 2005.

About State Bank of Hyderabad / Performance Highlights

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(Rs in cores) PARTICULARS Total Income Total Expenditure Net Profit Owned Funds (Paid up Capital + Reserves) Deposits Advances Investments Total Assets / Liabilities Return on Assets (%) Book Value per Share (Rs. 100/-) in Rs. Earning per Share (Rs. 100/-) in Rs. Capital Adequacy Ratio (%) Net NPAs (%) Business per Employee (Rs. in lacs) Profit per Employee (Rs. in lacs) Return on Average Equity (RoE %) Dividend % March March 2004-2005 2746.72 2495.83 250.90 1765.65 28929.51 15599.74 14559.39 34922.29 0.72 10235.65 1454.49 11.74 0.61 339.74 1.91 15.03 300 20052006 3338.75 2911.71 427.04 2114.02 34024.60 20863.02 14256.01 40630.40 1.05 12255.19 2475.59 12.08 0.36 403.48 3.26 22.01 400 % increase 21.55 16.66 70.20 19.73 17.61 33.74 (-) 2.08 16.35 45.83 19.73 70.20 2.90 (-) 40.98 18.76 70.68 46.44 33.33

STATE BANK OF HYDERABAD

Balance sheet for nine months

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Figures for

Corresponding Figures for Figures for the Nine month period ended 31.12.2005 (Reviewed) 6 203,696 107,247 89,909 3,005 3,316 219 28,527 232,223 124,548 53,816 32,152 21,664 178,364

Previous accounting year 31.03.2006 (Audited) 7 274,887 148,638 118,284 3,248 4,436 281 58,988 333,875 165,455 81,612 53,133 28,479 247,067

PARTICULARS 1 1 a. b. c. d. e. 2 A. 3 4 a. b. B. 2 INTEREST EARNED Interest and discount on Advances/bills Income on investments Interest on Term Money lendings Interest on balances with RBI and Other inter bank funds Other interest income OTHER INCOME TOTAL INCOME (1+2) INTEREST EXPENDED OPERATING EXPENSES Payments to and provisions for employees Other operating expenses TOTAL EXPENDITURE (3+4) (Excluding Provisions and Contingencies) C. OPERATING PROFIT/LOSS (Profit before Provisions and Contingencies) D. Other Provisions and Contingencies (of which provisions for NPAs) E. Provision for Taxes (including FBT) Deferred Tax F. 5 Net Profit (C-D-E)

Nine month quarter ended quarter ended period ended 31.12.2006 31.12.2005 31.12.2006 (Reviewed) (Reviewed) (Reviewed) 3 88,013 57,010 28,218 1,399 1,204 182 15,628 103,641 58,206 20,237 11,921 8,316 78,443 25,198 9,580 6,923 -1,192 9,887 1,725 209,677 6,792 4,900 6,211 1,725 174,840 24,340 19,773 -2272 30,595 1,725 209,677 17,903 72,436 4 69,051 37,374 29,208 1,014 1,262 193 10,938 79,989 42,580 19,506 11,275 8,231 62,086 5 247,264 155,461 85,155 2,879 3,370 399 41,194 288,458 155,360 60,662 35,897 24,765 216,022

53,859

86,808

24,700 1,000 8,800 20,359 1,725 174,840

30,340 8,500 9,925 3,839 42,704 1,725 209,677

PAID - UP EQUITY SHARE CAPITAL Reserves excluding revaluation reserves (as per 6 balance sheet of previous accounting year)

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7 (I) (ii)

ANALYTICAL RATIOS Percentage of shares held by GoI Capital Adequacy Ratio 12.79 573 40,050 4,287 1.47 0.16 0.87 ---------13.19 360 56,891 15,300 2.93 0.8 0.65 ---------12.79 1,774 40,050 4,287 1.47 0.16 0.95 ---------13.19 1,180 56,891 15,300 2.93 0.8 0.72 ---------12.08 2,476 45,306 7,539 2.13 0.36 1.13

(iii) Earning per share (in Rs.) (**) not annualized (iv) (a) Amount of Gross Non-performing Assets (b) Amount of Net Non-Performing Assets (c ) Percentage of Gross NPAs (d) Percentage of Net NPAs (v) Return on Assets (ROA) (annualized)

(**) Figures reported for Nine months are not annualized.

Note: 1. The above results have been taken on record by the Board of Directors in the meeting held on 16-01-2007 and the during the period under review, Commission on DPGs, and expenses on rent, taxes, lighting, annual 2.maintenance contract, telephone bills, property tax and miscellaneous expenditure are accounted for on accrual basis instead of cash basis followed in ear line months results have been subjected to limited review by the Center has been no change in the Accounting policies adopted during the nine month period ended 31-12-2006 to those followed in the previous year including those covering income recognition and asset classification aspects except as mentioned in Note No.2 overall Statutory Auditors 3. The revised Accounting Standard (AS) - 15 has not been considered as clarifications are awaited from the RBI. 4. Figures have been regrouped and reclassified wherever necessary to make them comparable with the figures for the Nine months Period ended 31-12-2006.

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CHAPTER 3 DETAIL STUDY OF PROJECT APPRAISAL METHODOLOGY

PROJECT APPRAISAL METHODOLOGY : It consists the following all aspects. They are 1. MARKET ANALYSIS 2. TECHNICAL ANALYSIS

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3. FINANCIAL ANALYSIS 4. ECOLOGICAL ANALYSIS 5. RISK ANALYSIS 6. ECONOMIC ANALYSIS 7. ENTREPRENEUR

1. MARKET ANALYSIS: In most cases, the first step in project analysis is to estimate the potential size of the market for the product proposed to be manufactured and get an idea about the market share that is likely to be captured. Market and Demand analysis is mainly concerned with two broad issues: What is the aggregate demand for the product/service? What share of the market will the proposed project enjoy? It is organized in to seven steps:

1. Situational analysis and specification of objectives 2. Collection of secondary market 3. Conduct of market survey 4. Characterization of the market 5. Demand forecasting 6. Uncertainties in demand forecasting 7. Market planning

Steps to be followed while Sample Survey: -

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Define the Target population

Select the sampling scheme and sample size

Develop the questionnaire

Recruit and train the field investigators

Obtain information as per the questionnaire

Scrutinize the information gathered

Analyze and interpret the information

2. Technical analysis

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Analysis of the technical and engineering aspects of a project needs to be done Continually when a project is formulated. Technical analysis is concerned primarily with:

Material inputs and utilities Manufacturing process/technology Plant capacity Location and site Machineries and equipments Structures and civil works Project charts and layouts Work schedule

Technical analysis seeks to determine whether the prerequisites for the successful Commissioning of the project has been considered and reasonably good choices have been made with respect to location, size, process, etc. Analysis of technical and engineering aspects is done continually when a project is being examined and formulated. Other types of analysis are dependent and closely intertwined with technical analysis. Technical analysis is concerned primarily with: -

MATERIALS INPUTS AND UTILITIES: -

An important aspect of technical analysis is concerned with defining the materials and utilities required, specifying their properties in some detail and setting up their supply programmed. There is an intimate relationship between the study of materials, utilities and other aspects of project formulation, particularly those concerned with location, technology and equipments. Material inputs and utilities may be classified into four broad

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categories: Raw materials Processed industries materials and components. (Manufacturing parts) Auxiliary materials and factory supplies Utilities (power, water, steam, fuel etc)

LOCATION AND SITE: -

The choice of location and site follows an assessment of demand, size, and input requirement. Though often used synonymously the terms `location' and `site' should be distinguished. Location Refers to a fairly broad area like city, an industrial zone or a coastal area. Site refers to a specific piece of land where the project would be set up. Once the broad location is chosen, attention needs to be focused on the selection of a specific site. Two or three alternatives sites must be considered and evaluated with respect to cost of land cost of site preparation and development.

Te cost of land tends to differ from one site to another in the same broad location. Sites closes to a City cost more whereas sites away from city cost less. Sites in an industrial areas developed by a government agency may be available at a concession rate. The cost of site preparation and development depends on the physical features of the site, the need to demolish and relocate existing structures and the work involved in obtaining utility connections to the site. The last elements, viz., the work involved in obtaining utility connections and the cost associated with it should be carefully looked into.

SITE PREPARATION AND DEVELOPMENT: 1. Grading and leveling of the site. 2. Demolition and removal of existing structures. 26

3. Relocation of existing pipelines, cables, roads, power lines etc. 4. Reclamation of swamps and draining and removal of standing water. 5. Connections for the following utilities from the site to the public network. 6. Electric power (high tension and low tension) water for drinking 7. Purposes, communications (Telephone, telex, etc.), roads, railways sidings

BUILDINGS AND STRUCTURES: It may be divided into: 1. Factory or process building. 2. Ancillary building required for stores, warehouses, laboratories, and utility 3. Supply center and maintenance services. 4. Administrative building 5. Staff welfare buildings, cafeteria and medical service buildings. 6. Residential buildings PROJECT CHARTS AND LAYOUTS: Once date is available on the principal dimensions of the project-market size, plant Capacity, production technology, machineries and equipments, buildings and civil works, conditions obtaining at plant site supply of inputs to the project-project charts and layouts may be prepared.

The important charts and layouts drawings are: -

I. General Functional Layouts Ii .Material Flow Diagram Iii. Production Line Diagram Iv. Transport Layout v. Utility Consumption Layout 27

Vi. Communication Layout Vii. Organizational Layout Viii. Plant Layout

NEED FOR CONSIDERING ALTERNATIVE: The need for considering alternatives has been touched upon earlier. This point, however, needs to be emphasized. There are alternative ways of transforming an idea into a concrete project. These alternatives may differ in one or more of the following aspects. Nature of the project: The project must envisage manufacture of all the parts and components in a vertically integrated unit or it may consist of an assembly type unit, which obtains the bulk of the parts and components from outside suppliers. The project may consist of processing up to the finished stage or may stop at semi-finished stage.

Production quality: Barring a few products like clinical thermometers where a certain standard has to be maintained, the choice respect to quality is fairly wide. This is particularly true in the case of consumer products like textiles, footwear, etc. The quality and product range decisions would depend on the characteristics on the market, the elasticity of demand, consumer preferences and the nature of competition.

Scale of operating and time phasing: In many cases several scales of operations are feasible technically and financially. The choice of a particular scale would depend on the financial resources available, the nature of competition, and the nature of demand and the economies of scale.

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Further, a given capacity may be installed in one stage or in phases. The capital cost of capacity installation is usually lower when it is, done in one stage. The cost of idle capacity, however, is higher when it is done in one stage. The trade off between these costs would determine the optimal pattern of time phasing.

Locations: Location and size are closely interrelated. Perhaps the same demand could be satisfied by: 1. A single plant for the entire market 1. One large plant for the bulk of the market with a few smaller plants for remaining market 3. Several plants of similar size spread over the market areas. the

3. FINANCIAL ASPECTS
To judge a project from the financial angle we need information about The following

Cost of the project Means of financing Estimates of sales and production Cost of production Working capital requirement and its financing Estimates of working results Break-even point

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Means of finance To meet the cost of project the following means of finance are available:

Share capital Term loans Debentures Deferred credit Incentive sources

Deferred credit: Many times the suppliers of the plant and machinery offer a deferred credit facility under which payment for the purchase of the plant and machinery can be made over a period of time.

Share capital: There are two types of share capital-equity and preference capital. Equity capital: Represents the contribution made by the owners of the business, the equity shareholders, who enjoy the rewards and bear the risks of the ownership. Equity capital being a risk capital carries no fixed rate of dividend. Preference: Institutions and commercial banks provide these loans. Preference capital represents the contribution made by preference shareholders and the dividend paid on it is generally fixed.

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Debenture capital: Debentures are instruments for rising debt. There are two broad types of debentures: Non-convertible debentures These are straight debt instruments. Typically they carry a fixed rate of interest And have a maturity period of 5to9 years. Convertible debentures These are the debentures, which are convertible, wholly or partly, in to equity Shares. The conversion period and price are announced in advance

Term loans: Term loan represents secured borrowings, which are very important source for financing new projects as well as for the expansion, modernization, and renovation schemes of existing firms. There are 2 broad types of term loans available in India: Rupee term loans and foreign currency term loans. While the former are given for financing land, building, civil works, indigenous plant and machinery, and so on, the latter are provided for meeting the foreign currency expenditure towards the import of equipment and technical Incentive sources: The government and its agencies may provide financial support as an incentive to certain types of promoters or for setting up industrial units in certain locations. These incentives may take the form of seed capital assistance or capital subsidy or tax deferment or exemption for a certain period.

Key business considerations: The key business consideration that is relevant for the project financing decision is cost, risk, control and flexibility. 31

Estimates of sales and production: The starting point for profitability projections is the forecast for sales revenues. In estimating sales revenues, the following considerations should be taken: 1. It is not advisable to assume a high capacity utilization level in the First year of Operation. Even if the technology is simple and the Company may not face Technical problems in achieving a high rate of Capacity utilization in the first year itself, there are likely to be many Constraints. 2. It is not necessary to make adjustments for stocks of finished goods. For practical Purpose, it may be assumed that production would be equal to sales. 3. The selling price considered should be the price realizable by the company net of excise duty. 4. The selling price used may be the present selling price-it is generally assumed that changes in selling price will be matched by proportionate changes in cost of production.

Working capital requirement and its financing: In estimating the working capital requirement and its financing the following should be kept in mind1. The working capital requirements consists of the following:

Raw materials and components Stock of goods in progress progress Stock of finished goods Debtors

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 Operating expenses 2. The principal sources of working capital finance are: Working capital advances provided by commercial banks Trade credit Accruals and provisions Long-term sources of finance 3. There are limits to obtaining working capital advances from commercial banks. They are in two forms the aggregate permissible bank finance is specified as per the norms of lending, followed by the lending bank, a against each current asset a certain amount of firm. Profitability projections If the sales revenue and cost of production are given the next step is to prepare the profitability projections or estimates of working results. The estimates of working results may be prepared along the following lines: A. Cost of production: This represents the cost of materials, labor, utilities, and factory overheads B. Total administrative expenses: This consists of administrative salaries, remuneration to directors, professional fees, light, postage, telegrams, telephones, printing, stationery, insurance, taxes on office property. C. Total sales expenses: The expenses included under this head are commission payable to dealers, packing and forwarding charges, salary of sales staff, sales promotion and advertising expenses and other miscellaneous expenses. D. Royalty and know-how payable: The royalty rate is usually 2-5 percent of sales. Further, royalty is payable often for limited number of years, say 5-10 years. Margin money has to be provided by the

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E. Total cost of production (A+B+C+D)

BREAK EVEN POINT The profitability projections or estimates of working results are based on the assumption that the project would operate at given levels of capacity utilization in future. Break-even point= Fixed costs/units selling price-unit variable cost. Break-even point for a new project: In the case of a new project where the capacity utilization level is expected to rise gradually over a period of 3 to 4 year, fixed costs are normally planned in such a way that they are stepped up as when necessary to meet the projected increases in capacity utilization. Hence, the calculation of the break even point for a new project must be with reference to the fixed costs expected to be incurred in the third year of fourth year when the project is supposed to reach the rated capacity utilization.

RATIO ANALYSIS A ratio is a simple mathematical expression, expressing the quantitative relationship between the two. Ratios do not add to any information that is already available, but they show the relationship between two items in a more meaningful way. Ratios may be used for comparison in any of the following ways. 1. Comparison of a firm with its own performance in the past. 2. Comparison of one firm with another firm in the industry. 3. Comparison of one firm with the industry as a whole. 4. Comparison of an achieved performance with pre-determined standards.

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5. Comparison of one department of a concern with other departments. Ratios are classified in a number of ways, depending upon the basis of classification. The basis for classification is

1. Traditional classification 2. Functional classification 3. On the basis of importance of ratios 4. On the basis of usage 5. On the basis of point of time 6. On the basis of nature of Ratios a. Liquidity Ratios b. Leverage Ratios c. Turn over Ratios d. General Profitability Ratios

Liquidity Ratios
1. Current Ratio or Working capital Ratio: Current ratio is the ratio of current Assets to current liabilities. Current assets are assets that are expected to be realized in cash or sold or consumed during the normal operating cycle of the business or within one year, which ever is long. Current liabilities are liabilities that are to be repaid within a period of one year. A current Ratio of 2:1 is considered as ideal. If the current ratio is less than 2, it indicates that the business does not enjoy adequate liquidity. However, a high current ratio of more than 3 indicates that the firm is having idle funds and has not invested them properly. A Minimum current ratio of 1.33 is expected.

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Current Ratio = Current Assets/ Current Liabilities 2. Quick Ratio: Quick Ratio is ratio of Quick Assets to Quick Liabilities. Quick Assets are the Assets that can be converted in to cash very quickly without much loss. Quick Liabilities are liabilities, which have to be necessarily paid within one year. All current assets, except stock & prepaid expenses are quick assets. All current liabilities, except Bank overdraft, are quick liabilities. A Quick Ratio of 1 is usually considered as ideal. If Quick Ratio is less than 1 it is indicative of inadequate liquidity of the business. Quick Ratio = Quick Assets/Quick Liabilities 3. Absolute Liquid Ratio (Super Quick Ratio): It is a ratio of Absolute Liquid Assets to Quick Liabilities. However, for calculation purposes, it is taken as ratio of Absolute Liquid Assets to Current Liabilities. Absolute Liquid Assets include cash in hand, cash at bank and short term or temporary investments. Absolute Quick Ratio = Absolute Liquid Assets/ Current Liabilities 4. Basic Defensive Interval Ratio: It examines the firms Liquidity position in terms of its ability to meet projected daily expenditure from operations.
Basic Defensive Interval Ratio = Quit Assets/Projected Daily Cash Requirement Projected Daily Cash Requirement= Projected Cash Operating expenses/ Number of Working days in a Year

Leverage ratios
1. Debt and Equity Ratio: It reflects the relative claim of creditors and shareholders against the assets of the business. Debt usually refers to long-term liabilities. Equity includes Equity and Preference share capital and reserves. A Debt

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equity ratio of 2:1 is considered ideal. A firm with a debt equity ratio of 2 or less exposes its creditors to relatively lesser risks. A firm with a high debt equity ratio exposes its creditors to greater risk Debt Equity Ratio= Long Term Liabilities/Shareholders funds.

2. Proprietary Ratio: It expresses the relationship between Net Worth and Total Assets. A high Proprietary Ratio is indicative of strong financial position of business. The higher the ratio, the better it is. Proprietary Ratio = Net Worth/ Total Assets Net worth=Equity share capital+ Preference share capital+ reserves + Fictitious Assets Total Assets= Fixed Assets+ Current Assets (Excluding Fictitious Assets) Reserves earmarked specifically for a particular purpose should not be included in Calculations of Net worth. 3. Capital Gearing Ratio: The extent of gearing determines the future financial Structure of the business. A company that is highly geared will have to raise Funds by issuing fresh equity shares, whereas a lowly geared company would find it attractive to raise funds by way of term loans and debentures.
Funds bearing fixed interest and fixed dividend/Equity shareholder's fund = Debentures+ Term Loans+ Preference Share Capital/Equity

Share Capital + Reserves- Fictitious Assets 4. Fixed Assets Ratio: This ratio indicates the mode of financing the fixed assets. A Financially wellmanaged company will have its fixed assets financed by long Term funds. Therefore, the fixed assets ratio should never be more than 1.A ratio of 0.67 is

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considered ideal. Fixed Assets Ratio= Fixed Assets/Capital Employed Capital Employed= EquityShareCapital+PreferenceShareCapital+ Reserves+ Long Term Liabilities- Fictitious Assets

5. Interest coverage Ratio: This ratio indicates whether a business is earning sufficient profits to pay the interest charges. A debt service ratio of around 6 is normally considered as ideal. The higher the ratio the better it is, as it indicates a greater margin of safety to the lenders of long-term debt. Interest Coverage Ratio= PBIT/ Fixed Interest Charges Where PBIT= Profits before interest and taxation.

6. Dividend Coverage Ratio: It indicates the ability of a business to pay and maintain the fixed preference dividend to preference shareholders. The higher the ratio, the better it is perceived to be by financial analysis. Dividend Coverage Ratio=Profit After Tax/Fixed Preference Dividend 7. Debt Service Coverage Ratio: It indicates whether the business is earning sufficient profits to pay not only the interest charges, but also the installments due on the `Principal amount'. The greater the debt service coverage ratio, the better is the-servicing ability of organization. PBIT/ Interest +Periodic loan installment/ (1- rate of income tax) Turnover Ratios: 1. Inventory Turnover Ratio: Stock turn over ratio:

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Stock turn over indicates the number of times the stock has turned over in to sales in a year. A stock turnover ratio of `8' is considered ideal. A high stock turnover ratio indicates that the stocks are fast moving and converted into sales quickly. Thus, the Stock turnover ratio indicates the extent of stock required to be held in order to achieve a desired level of sales. Stock turnover Ratio= Cost of Goods sold/ coverage stock Where Cost of Goods sold= Sales- Gross profit Average Stock= (Opening Stock +Closing Stock)/2. 2. DEBTORS TURN OVER RATIO Debtors Turnover Ratios expresses the relationship between debtors and sales. A high debtor's turnover ratio or a low Debt Collection period is indicative of sound credit management policy. A Debtors turnover ratio of 10-12 and a debt collection period of 30-36 days are considered ideal. Debtors Turnover Ratio= Net Credit Sales/ Average Debtors Where Net Credit Sales = Credit Sales -Sales Returns 3. CREDITORS TURNOVER RATIO Creditors Turnover Ratio expresses the relationship between Creditors and purchases. The creditors turnover ratio of 12 or more, implying a debt payment period of 30 or less number of days, it indicates that the firm is not able to get the best terms of credit. However, very less creditors turnover ratio, or a high debt payment period, May indicate the firms inability in meeting its obligations in time. Creditors Turnover Ratio= Net Credit Purchases / Average Creditors Creditors Turnover ratio can also be expressed in terms of number of days taken by the business to pay of its debts. Debt Payment Period = Number of days in a year / Creditors Turnover Ratio 39

4. Working Capital Turnover Ratio A high Working Capital Turnover Ratio indicates efficient utilization of Firms funds. However, it should not result in over- trading. If cost of goods sold is not known, net sales can be taken in the numerator. Working Capital Turnover Ratio= Cost of Goods sold/Working capital Working Capital = Current Assets - Current Liabilities 5. Fixed Assets Turnover Ratio A high fixed assets turnover ratio indicates better utilization of the firms fixed assets. A ratio of around 5 is considered as ideal. Fixed Assets Turnover Ratio=Net Sales / Total Assets Fixed assets imply Net Fixed Assets= Gross Fixed AssetsDepreciation.

6. TOTAL ASSETS TURNOVER RATIO Total assets include Net Fixed Assets, Investments and Current Assets but do not include fictitious assets. Higher the Total Assets turnover Ratio, greater is the ability of the firm to utilize the investments in the business. Total Assets Turnover Ratio=Net Sales / Total Assets General Profitability Ratios: 1 Gross Profit Ratio: Gross Profit ratio is one of the most commonly used ratios. It reveals the result of trading operations of the business. In other words, it indicates to us the profitability of the core activity of the business. There is no ideal or standard gross profit ratio. The higher the ratio, the better will be the performance of the

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business. Gross Profit Ratio= Gross Profit /Net ales Gross Profit= Net Sales- Cost of goods sold Net Sales=Total Sales-Sales returns Cost of Goods Sold=Opening Stock +Purchases Manufacturing expenses-Closing stock 2. NET PROFIT RATIO: It indicates the result of overall operations of the firm while the Gross profit ratio indicates the extent of profitability of core operations, Net profit ratio tells us about overall profitability. The higher the ratio, the more profitable is the business. Net Profit Ratio=Profit after Sales / Net Sales

3. Operating Ratio: It expresses the relationship between expenses incurred for running the business, and the resultant net sales. A low operating ratio is an Indication of operating efficiency of the business. Lower the ratio, the better it is. Operating Cost = Cost of Goods Sold +Office and Administration expenses + Selling and Distribution expenses 4. Operating Profit Ratio: It establishes the relationship between operating profit and sales. The higher the ratio the better it is. Operating Profit Ratio= Operating Profit / Net Sales It can also be calculated as 1- Operating ratio. 5. Expense Ratios:

Expense ratios are the ratios that supplement the information given by the operating ratio. Each of the expense highlights the relationship between the particular expense and net sales. Any expenditure can be shown as a Ratio to sales.

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6. ECONOMIC ANALYSIS:
The economic aspects of an appraisal are fundamental as they logically precede all other aspects. This is so because the bank will not finance a project unless it stands assured that the project represents a high priority use of a region's resources. However a purely financial analysis normally does not provide our adequate basis for judging a project value to the economy, since the financial analysis looks at the project only from a limited view points of the revenues entering the project's own accounts, so an economic or social analysis looks at the project from the view point of the whole economy, asking whether the latter will show benefits sufficiently greater than project costs to justify investment in it. Te economic benefits brought about by a successful project normally take the form of an increased output of goods or services, either directly or indirectly (as in a large class of cost reducing projects). This increase production will also generate many different forms of additional income, such an increased wages or employment of lab our, larger government revenues, higher earnings for the owner's capital, or most frequently a combination of their income benefits. In a large majority of cases it is possible to quantify project costs and benefits and to construct a rate if return or some other appropriate move. Future costs and benefits are calculated, using either market or shadow prices, as found appropriate. Further both costs and benefits are put under subsidence to initiate the projects estimated rate of return The latter is then compared with the minimum earning power of capital judged appropriate for each country. While the rate of return is an important test that all

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projects with quantifiable cost and benefits must pass, importance and its significance is usually overestimated. The rate of return is a necessary confirming test of projects that have to be justified with in a much wider frame of reference, in which basic project objectives and the nature of project benefits. (E.g. foreign exchange savings, increased employment and improved income distribution) play major roles. ECONOMIC ASPECTS OF A PROJECT: ECONOMIC ASPECTS 1. Increased output 2. Enhanced service 3. Increased employment 4. Larger government revenue 5. Higher earnings 6. Higher standard of living 7. Increased national income 8. Improved income distribution

Economic analysis also refers to as social cost benefit analysis, is concerned with judging a project from the larger social point of view. In such an evaluation the focus is on the social costs and benefits of a project, which may often be different from its monetary costs and benefits.

7.ENTREPRENEUR
Relation ship between bank lending and entrepreneur ship Normally to start any business there must be knowledge on that business and capital required for that business. The entrepreneur plays key role on success of every business. Here the entrepreneur will approach for banker for loan capital require by him. Banker will analyze that the project report produced by the entrepreneur. This report is known as project

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appraisal. In this report it covers various accepts like technical, financial, ecological, economical, and about entrepreneur. Banker will analyze that report and sanction the loan if project is viable. This is chapter concentrated mainly entrepreneur skills it tells how banker will analyze entrepreneur qualities. The banker critically examine following criteria as an entrepreneur some of them as follows Does the entrepreneur have relevant experience in that field? If not how he will manage things? How the was past business? About leadership skills? Qualification of entrepreneur? Is it newly established business or second-generation business? Does the Entrepreneur have technical background of that business? Definition Entrepreneurs have many of the same character traits as leaders. Similarly to the early great man theories of leadership, however, trait-based theories of entrepreneurship are increasingly being called into question. Entrepreneurs are often contrasted with managers and administrators who are said to be more methodical and less prone to risk-taking. Although such person-centric models of entrepreneurship have shown to be of questionable validity, a vast but clearly dated literature studying the entrepreneurial personality found that certain traits seem to be associated with entrepreneurs Characteristics of entrepreneurship The entrepreneur has an enthusiastic vision, the driving force of an enterprise. The entrepreneur's vision is usually supported by an interlocked collection of specific ideas not available to the marketplace. The overall blueprint to realize the vision is clear, however details may be incomplete, flexible, and evolving. The entrepreneur promotes the vision with enthusiastic passion. With persistence and determination, the entrepreneur develops strategies to change the vision into reality.

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The entrepreneur takes the initial responsibility to cause a vision to become a success. Entrepreneurs take prudent risks. They assess costs, market/customer needs and persuade others to join and help. An entrepreneur is usually a positive thinker and a decision maker Personality Characteristics: A desire to achieve: The push to conquer problems, and give birth to a successful venture. Hard work: It is often suggested that many entrepreneurs are workaholics. Desire to work for themselves: Entrepreneurs like to work for themselves rather than working for an organization or any other individual. They may work for someone to gain the knowledge of product or service that they may want to produce. Nurturing quality: Willing to take charge of, and watch over a venture until it can stand alone. Acceptance of responsibility: Are morally, legally and mentally accountable for their ventures. Some entrepreneurs may be driven more by altruism than by self-interest. Reward orientation: Desire to achieve, work hard, and take responsibility but also with a commensurate desire to be rewarded handsomely for their efforts; rewards can be in forms other than money, such as recognition and respect Optimism: Live by the philosophy that this is the best of times, and that anything is possible. Orientation to excellence: Often desire to achieve something outstanding that they can be proud Organization: Are good at bringing together the components (including people) of a venture. Profit orientation: Want to make a profit; but the profit serves primarily as a meter to gauge their success and achievement Entrepreneur as a risk bearer An entrepreneur is an agent who buys factors of production at certain prices in order to combine them into a product with a view to selling it at uncertain prices in the future. Uncertainty is defined as a risk, which cannot be insured against and is incalculable. There is a distinction between ordinary risk and uncertainty. A risk can be reduced through the insurance principle, where the distribution of the outcome in a group of instances is known. On the contrary, uncertainty is a risk, which cannot be calculated. The entrepreneur, according to Knight, is the economic functionary who undertakes such responsibility of uncertainty, which by its very

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nature cannot be insured, or capitalized or salaried to. Mark Cass on has extended this notion to characterize entrepreneurs as decision makers who improvise solutions to problems which cannot be solved by routine alone.

Entrepreneur as an organizer An entrepreneur is one who combines the land of one, labor of another and the capital of yet another, and, thus, produces a product. By selling the product in the market, he pays interest on capital, rent on land and wages to laborers and what remains is his or her profit.

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CHAPTER 4 CASE STUDY

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1.0 PROFILE OF THE UNIT

Name of the unit

M/s. Vijay foods

Constitution proprietor

Sole proprietary concern MR .Mahesh 15-2-346, karan arcade, S.D Road, Secunderabad Plot no. 27,sector-A, Industrial Area, jeedimetla District Rangareddy (A.p) Processing of Bengal Gram (Chana) And Pulverization of Bengal Gram Dal.

Registered Office

Factory

Line of Activity

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Installed capacity

Processing capacity-4500mt/Annum (on the basis 300 Working days with 12hr single sift)

2.0 BACKGROUND M/s Vijay foods is a proprietary concern. The firm was registered on 25.01.2003 as a SSI unit with District Industry Center Ranga reddy Dist. (A.P.), for the industrial activity of processing pulses. Subsequently it incorporated additional item Besan (activity of pulverizing pulses) on 06.06.2006. It is suggested that branch should obtain the revised registration copy.Shri Mahesh is a proprietor of concern. His family concern namely M/s Vijay Trading Company is engaged in processing of pulses, which is banking with us and is enjoying the credit limits with our Shapur Branch. The firm has acquired a plot at Jeedimetla industrial area of Ranga reddy Dist. (A.P.) on the lease basis from A.P. Industrial board, A.P.I.I.C. (Andhra pradesh industrial Infrastructure) 3.0 Present Request The present request of the unit is as follows: 1. Term Loan of Rs.67.50 lakhs 2. Working capital fund based limit of Rs.75.00 lakhs 4.0 PROMOTERS

Shri Mahesh aged about 26 years is a proprietor of the unit. He is a commerce graduate and having PGDBM. He was associated with his family business of Dall Mill with his father. Shri Suresh father of Mahesh aged about 56 years engaged in

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Dall Milling activity since last 20 years. He is the key person behind the project and is involved in project to the large extent. In view of forgoing it is suggested that bank should also suggest the unit to offer Shri Mahesh either as a partner or as a guarantor for the credit facility of this project.

5.0

FAMILY CONCERNS

M/s Vijay trading Company is a partnership firm managed by Shri Suresh this unit is engaged in processing of pulses (Bengal Gram). The unit in enjoying credit limit of Rs.35.00lakhs with our shapur branch. The conduct of account is reported to be satisfactory. The units sales turnover is good but growth rate and profitability trends are marginal for the past three years. The brief past performance and key ratios of the unit is furnished below:

S.NO. PARTICULARS / YEARS 1 Net Sales 2 Net Profit 3 Depreciation and Pre. & Preli. Exp. 4 Cash Accrual/Cash Losses (2+3) 5 Partners Capital A/c 6 Tengible Net Worth (TNW) 7 Term Loan (ICICI Car Loan) 8 Unsecured Loan 9 Deposits from Dealers 10 Current Liabilities 11 Total Outside Liabilities (TOL)(7+8+9+10) 12 TOL/TNW 13 Current Assets 14 Current Liabilities 15 Current Ratio (13/14)

2003-04 909.39 0.79 2.32 3.11 63.60 63.60 0.00 58.12 0.00 70.27 128.39 2.02 177.36 70.27 2.52

Rs in lakhs 2004-05 2005-06 971.55 997.52 0.98 1.20 2.95 2.79 3.93 3.99 64.19 65.52 64.19 65.52 2.11 1.73 76.54 109.13 0.00 0.00 47.43 60.03 126.08 170.89 1.96 2.61 174.01 223.23 47.43 60.03 3.67 3.72

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16 Short Term Bank borrowing as % of CA 17 Interest Coverage Ratio (PBIDT/ Total Interest) 18 PAT/ Net Sales % 19 PBDIT/ Capital (ROCE) 20 (Inv+Rec.)/Sales in Days

16.37 1.23 0.09 26.46 63.93

16.81 1.34 0.10 24.04 63.51

14.85 1.25 0.12 30.80 79.69

6.0

PRODUCT

The unit has proposed to process the Bengal Gram (Chana) and pulverizing Bengal Gram Dal to produce Besan. Pulses are basically grain legumes. They occupy an important place in human nutrition due to their high protein content. In Indian dietary regime it occupies an important place since majority of Indians depend largely on grain legumes (pulses) for their dietary protein. They are also a fairly good source of vitamins like thiamine, niacin, riboflavin and much needed iron. Gram flour, which is popularly known as Besan, is an important ingredient in preparations of sweet as well as spicy food. It is a versatile product used in many preparations round the year. Apart from individual households, there are some institutional bulk consumers like restaurants, other eateries, hostels and canteens, clubs, caterers, etc. The certification under the prevention of food adulteration (PFA) ACT is necessary for Besan. Grade specifications and definition of quality of Besan as per PFA Act.1954 Besan means the product obtained by grinding dehusked Bengal Gram (Cicer arietinum) and shall not contain any added colouring matter or any other foreign ingredient. Besan shall conform to the following standards: (a) Total ash - Not more than 5 per cent.

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(b) Ash insoluble in diluted hydrochloric acid 7.0 TECHNOLOGY

Not more than 0.5 per cent.

The unit has proposed to process pulse with multi pass from the roller and Sheller, which is having better yield of pulse as compared with the traditional dal mill. The de-husking efficiency in traditional mills is quite low. Moreover, the yield of dehusked and spitted pulses in traditional mills is about 65-70 % vis--vis 88-89% in modern mills, which is a maximum potential recovery of splits. There is excessive loss of pulse cotyledons and embroyos in the form of broken and powdered grain in traditional mills. However, the yield would the around 80% in the proposed mill. The unit has also proposed to construct main factory building of two floors with two concrete slabs. The dal will be lifted by bucket elevators to the top of the first floor for the conditioning and brought back to the processing area by gravity flow, which will reduce the land requirement for the factory and man power compare with the traditional dal mills. 8.0 Land AND BUILDING The unit has acquired land admeasuring approximately 3706.95 Sq.mts at Jeedimetla industrial area of Rangareddy Dist. (A.P.) on the lease basis from A.P.I.I.C the lease period is 99 years commencing from 27.03.2003 and ending 26.03.2109. The unit has submitted the cost estimations for the proposed civil work from M/s Anand & Association, Hyderabad. The unit has proposed to construct two-floor factory building, with 714.40 Sq.mt at ground floor and 558.15 Sq.mt at first floor. The top of the first floor is going to be utilized for the conditioning process, here the pulses are lifted by the bucket elevators and after conditioning brought back to the processing area by gravity flow. This arrangement will save the additional land area required for the conditioning and reduce the material handling time and manpower requirements. The unit also The proposed to construct office building of 83.65 Sq.mt in the factory premises.

proposed cost for civil construction of factory and office building is Rs.52.01 lakhs, the rate of civil construction works out to Rs.356 per Sq.ft, which is reasonable. The unit also proposes to

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9.0 PLANTS AND MACHINERY The unit has proposed to acquire Roller, Sheller, Sieves, Dryer, stone separator, Blower, worms, Elevators, etc., for the processing of pulses and pulveriser, pneumatic system, elevator etc., for pulverizing pulses. The details of plant and machinery are furnished in the annexure -9. Total cost of plant and machinery works out to Rs26.95lakhs. The unit has proposed to purchase plant and machinery worth Rs.15.61lakhs. The pulverize, pneumatic system, machinery parts & components are the major items, the unit proposes to purchase from the M/s Sanjay Enterprises, patancharuvu (A.P.). The unit also proposes to get fabricated plant and machinery worth of Rs.11.34lakhs. The proposed plant and machinery is adequate for the proposed activity. 10.0 INSTALLED CAPACITY

The processing of the Dall mill is having Roller is a bottleneck facility. The proposed Roller of the unit can process 14 bags of chana per hour. Based on this the installed capacity has been worked out to 4536 MT/annum. We have considered installed capacity 4500 MT / annum on the basis of 300 working days with 12 hr single shift. Pulverize is a bottleneck facility for the besan unit. The proposed pulveriser can pulverize 10 bags of pulses per hour. The Installed capacity of pulverizer works out to 3240 MT/annum. We have considered installed capacity at 3200 MT / annum on the basis of 300 working days with 12 hr single shift. 11.0 MANUFACTURING PROCESS

The basic processes involved in Dal milling and pulverization of pulses are cleaning, grading, conditioning, de-husking, splitting, destoning, pulverization, etc.

CLEANING AND GRADING

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The raw material (chana) passes through sieve to remove dust, chaff, dirt, grit etc. The clean chana passes through another sieve to segregate the chana by size-wise and obtain the various grades of chana i.e. small, medium and big size. DEHUSKING The graded chana passes through the Roller machine to de-husk the chana. The partly de-husk chana again passes through roller machine and de-husked chana is separated.

SPLITTING The de-husked chana is conditioned for the better yield and less breakages. The conditioning of dal is done by wetting dal with water and drying it for about 812 hrs. The conditioned chana passes through Sheller and splited into dal. The untapped dal again passes through Sheller. The split dal passes through Sieves to separate dal with various grades according to its size. The graded dal is passed through de-stoner to remove stone. The clean dal is packed in the gunny bags. PULVERISING The clean dal is fed to the pulveriser, the ground dal powered passes through screen, the besan is collected and packed. The oversize from the screen is again fee to purveriser.

12.0

RAW MATERIAL

The chana is the main raw material for the unit. There are major two varieties of chana known as Kabuli Chana and Desi Chana. India is one of l the largest producer of chana in the world. The Chana is an agriculture produce, and the effect of the seasonality on the price of chana is shown in below;

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2006

The price of chana is varies throughout the year. The price of chana started at lowest level in the beginning of the seasons and gradually increases and reaches at the peak levels during the October to December i.e. festival seasons. The Andhra Pradesh is one of the major producers of chana, Medak and Guntur are two major market centers in Andhra Pradesh. The unit is having locational advantages being very near to the market PACKAGING MATERIAL The chana dal and besan can be packed in Jute bag of 50 Kg along with the PVC cover inside. 13.0 LOCATION The plant is located at Plot No.27; sector A, Industrial Area, Jeedimetla, District Ranga reddy (A.P.). This industrial area is about 25 Km from Hyderabad City. This industrial area is having all the infrastructure facilities like road, power, and water etc. 14.0 UTILITIES POWER: The unit is already having power connection form A.P. Electricity Board. The total power requirement for production and general purpose works out to 145 HP. The unit

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should obtain the necessary enhancement in the connected load before the disbursement of loan. WATER: Water is required for the process and other domestic purposes, which can be met from the existing water connection. The unit has also proposed to construct underground water storage tank with size of 4X3X1.75 Mt, which will be sufficient for the units water requirements. EFFLUENTS: In the pulse processing, the unit may not generating any harmful effluents where as in the process of pulverization of pulses, the unit may generate some fume of besan. However, the unit has already obtained consent for its establishment to process pulses from A.P. Pollution Control Board, Rangareddy. It is suggested that unit should make the necessary change in certificate as they have incorporated the product besan in their activity.

MANPOWER The manpower requirement is estimated at 1 for supervisory category, 5 for administrative section and about 12 for production section (includes skilled and unskilled). As the unit is located nearby to Hyderabad City, it is envisaged that there would not be any problem in the availability of required manpower by the unit. 15.0 MARKET The Bengal Gram (chana) is an agriculture commodity and main raw material for the unit. The market for the units products i.e. Bengal Gram Dal and Besan is totally dependent on the production of chana. The detail of production of chana in India over a period of time is furnished below;

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During the year 2006-2007, production of chana is estimated at 5.78 mn tones. Normally the price of chana is at minimum level during the month of March & April and reaches at maximum level during October to December period. The price of chana dal and besan also varies accordingly. The price of chana and chana dal has been collected from the National Commodity and Derivative Exchange for the period of one year (from 01.01.2006 to 31.12.2007) on daily basis and the average price for the year 2006 is arrived at. On the basis of annual average price trend, the prices of raw material and finished goods have been considered for the projection. This market is dominated by unorganized sector. The brokers are playing vital role in this market. Mostly the purchase of raw materials and sales of finished goods are done through the brokers only. The promoters belong to a business family dealing with Dall Mill since long back and has outstanding reputation and contacts in this market, which will help the unit in marketing aspects. Moreover the brokers are also dealing with besan and initially the unit proposes to sell basen through the brokers by unitizing their contacts with the brokers in the market. While making the market enquiries, the brokers revealed that there is a good potential for the besan. There are bulk consumers for the besan like hotels, restaurants, and industries engaged in making packed sweets and spicy snacks. It is suggested that the unit should go for some tie-up arrangements with the bulk consumer in the market. Competitors There are about 5-6 players in the local New Malapert Besan Market, but most of them are small and having only pulverizing unit. There are a few big units, which are both having dal mill and besan unit. The unit has to face the competition mainly from units

57

having both Dal Mill and Besan Unit like M/s G.S. Oil Mill, M/s gokul Industries, M/s roxy industries etc. During the visit to M/s G.S. Oil Mill, the brisk activity of production was observed. It was understood that, they are marketing their products mostly in Karnataka and Maharastra States; M/s Haldiram (a leading snacks maker) is their one of the major customer for besan. Sales Projection: Based on proprietors family concerns long existence in the market and their contacts with the brokers, we have considered 65% of the capacity unitization of dal mill for the first year of operation. It is also considered that in the first year of operation unit can sell 50% production as chana dal and besan unit will utilize remaining 50% production of chana dal. Based on this assumption, the units net sales have been projected to Rs.537.94lakhs for the first year. Inter-Firm Comparison: In the absence of audited financial statement of units with similar size and type of activities, the inter-firm comparison has not been done. As the industry is dominated by unorganized sector, the industry benchmark is not available. However as a part of viability study the similar type of unit have been visited and requirement of plant & machinery, operational levels, product, yield, etc were discussed. 16.0 PROJECT IMPLEMENTATION SCHEDULE The unit has already acquired industrial plot in Jeedimetla industrial area of Rangareddy Dist. (A.P.) on lease basis. The unit has also commenced their project activity and proposes to commence their commercial production during first week of May 2007. The detailed project implementation schedule submitted by the unit is furnished as annexure10. The total project implementation period proposed by the unit is about eight months, which is reasonable for this type of project.

58

During the visit, it was observed that civil construction work of factory and administrative building was under progress. During the discussion with the major machinery supplier M/s Sanjay Enterprises, patancharuvu (A.P.). it is understood that the proposed machinery can be made and delivered within a time frame of 5-6 weeks. 17.0 PROJECT COST & MEANS OF FINANCE The total project cost works out to Rs.134.46lakhs including building cost of Rs.58.00lakhs and plant and machinery cost of Rs.26.95lakhs. The working capital margin of Rs.35.94lakhs as proposed by the promoter has been considered. The contingency has been considered @ 3% on the cost of building and plant & machinery. The details of project cost and means of finance are furnished in annexure-1. The promoters have proposed to bring capital of Rs.57.34lakhs, out of which Rs.22.50lakhs towards margin for term loan and Rs.35.94lakhs towards margin for working capital. The total term loan has been computed to Rs.59.63lakhs. The gap of Rs.17.49 has been considered as unsecured loan. The debt equity ratio for the project works out to 1.34: 1, which is within the stipulated norms (2:1) for financing of term loan. TERM LOAN: The total term loan has been worked out to Rs.59.63lakhs, out of which Rs.38.67lakhs for civil construction including factory & office building and Rs20.96lakhs for acquiring plant and machinery. The unit has acquired the land on lease basis for period of 99 years from a.pi.i.c. It is suggested that branch / controlling authority may seek legal advise from the Banks legal advisor in respect of creation of mortgage of this property. State Subsidy: The unit may be eligible for state subsidies like investments subsidy @15% on the fixed capital investments with maximum of Rs.15.00lakhs, 5% of interest subsidy, which is maximum unto Rs.20.00lakhs. The amount of subsidy is going to be ascertained by the

59

Industries Department of State Government. The realization of subsidy amount depends on the funds position of State Government. Thus the subsidy amount is not taken into account in the means of finance. However, it is suggest that, Branch may stipulate a suitable condition so that as and when the subsidy amount is received will be utilized for purpose of repayment of bank loan.

18.0

WORKING CAPITAL ASSESSMENT

The working capital limits have been worked out and furnished in annexure-2. The holding of raw material and finished goods have been considered 1.75 months and 0.5 months respectively. As per the market trends one-month bill receivable period has been considered. The need based working capital limits (fund based) works out to Rs.69.30lakhs for first year. The working capital margin has been works out to Rs.26.90lakhs as per the assessment of the working capital limits. However the promoters have proposed to bring Rs.35.94lakhs as working capital margin in the project cost, so accordingly we have considered later one being higher side. 19.0 PROJECTED PROFITABILITY The projected profitability statement and repayment schedule, Debt Service Coverage Ratio, Interest coverage Ratio, Break Even Point analysis, Cash Flow statement and Projected Balance Sheet are worked out and furnished in Annexure-3, 4,5,6,7 and 8 respectively. The major financial parameters of the project: 1. 2. Debt Equity Ratio Net Sales (first Year) Net Profit-year-I : : : 1.34 : 1 Rs.537.94lakhs Rs.12.09lakhs

60

3.

4.

5.

6. 7.

Gross Debt Service Coverage Ratio (DSCR) : Minimum DSCR : 1.61 : 1 Maximum DSCR : 1.99 : 1 Average DSCR : 1.85 : 1 Interest Coverage Ratio (ICR) Minimum ICR : 2.07 : 1 Maximum ICR : 2.92 : 1 Average ICR : 2.48 : 1 Break Even Point In Rs : Rs332.81lakhs In % of Net Sales : 61.87% Cash Break Even Point : 50.24% Repayment Period : 7 years (Six months of moratorium period has been considered) TOL/TNW (Max) During Repayment: : 2.46

Comments: The debt equity ratio of the project (1.34 :1) is well within the stipulated benchmark for financing SSI units (Norms: DER 2:1) The average gross DSCR of 1.85 :1 is satisfactory The average ICR of 2.48 :1 is satisfactory The Break Even Point of the company offers a reasonably good margin of safety.

With average gross DSCR of 1.85: 1 and average Interest coverage ratio of 2.48 :1, the financials of the unit are considered satisfactory which shows the companys capacity to service the term loan and interest. 20.0 Sensitivity Analysis:

The units raw material (chana) is an agricultural produce and its price is varies throughout the year. In the market as the price of chana varies, accordingly the price of chana dal and besan also varies. Hence under such market conditions there is no point in computing various parameter based upon the change in selling price & raw material rate under the sensitivity analysis (As we have collected the price of chana and chana dal from the National Commodity and Derivative Exchange for the period of one year (from 01.01.2005 to 31.12.2005) on the daily basis and arrived on the average price for the year

61

2005. On the basis of annual average price trend, the price of raw material and finished goods has been considered for the projection.) However, we have the sensitivity analysis has been done with a decrease in selling price by 3% and also increase in raw material price by 3%. It is furnished below: At Normal Average DSCR Average ICR BEP(Ist year) 1.85:1 2.48:1 61.87% Increase in Raw Material cost by 3% 0.90:1 1.44:1 101.55% Decrease in selling price 3% 0.86:1 1.41:1 104.34%

The will not sustain the 3% change in raw materials or finished goods. The units activity is in the conventional industry where the profit margin is very thin. 21.0 Credit Rating:

The credit risk assessment for term loan and working capital loan has not been carried out for the unit. However the rate of interest for the term loan and working capital limits has been considered at 13%. The maximum rate of interest has been considered for term loan and working capital to ascertain the viability of the project at the highest rate of interest. These will also give the flexibility / option to the sanctioning authority to select the competitive rate of interest if required. 22.0 SWOT ANALYSIS

STRENGTHS The promoters belong to a business family dealing with Dall Mill since long back and has outstanding reputation and contacts in this market, which will help the unit in marketing aspects The unit is located near to the main raw material market.

62

WEAKNESSES The promoters do not have any experience in besan market and mostly they have to depend upon the brokers as mostly market is operated through brokers only. However, It is suggested that unit should go for strategic alliance with bulk consumers of the besan like hotels, restaurants, and industries engaged in making packed sweets & spicy snacks or its long term survival and profitability. OPPURTUNITY The Government is encouraging the food processing industry by categorizing as a priority sector and besan being one of the important ingredients for the various food processing industries, there will be good opportunity for this project. THREAT 23.0 1. Bengal Gram (chana), the main raw material is an agriculture produce any adverse agriculture conditions will affect the units activity drastically. Basis & Assumptions: The capacity utilization for dall mill during the repayment period has been considered as 65%, 75% and 85% for first three years of operations and 85% during the subsequent years. 2. 3. 4. 5. 6. 7. The net price of chana, chana dal and besan has been consider Rs16000/MT, Rs.21000/MT and Rs.21850/MT respectively. The pulse processing has been considered with yield of 80% dal, 19% byproducts and 1% wastage. Power & Fuel has been considered @ Rs.526.23/MT of production for first year of operation. Direct labor & wages have been considered @Rs147.69/MT. Repair & Maintenance has been considered @Rs.0.50lakhs for first year. Other manufacturing expenses have been considered@ Rs.0.50lakhs for first year.

63

8. 9. 1. 2. 3. 10. 11. 12. 13.

Administrative and selling expenses have been considered at Rs.10.71lakhs for first year and 10% increase from second year onwards. Depreciation has been considered as follows; SLM (Company Act) Land Building Plant & Machinery Nil 3.34% 6.33% WDVM (Income Tax) Nil 10% 25%

The depreciation is computed based on straight-line method. However for tax computation depreciation is computed by using WDV methods. The repayment has been fixed from first year of operation, the moratorium period has been considered for the period of six months. Preliminary, Pre-Operative and Contingencies have been taken while arriving at project cost Proposed term loan interest has been considered @13.00%p.aThe working capital interest has been considered @ 13.00% p.a.Income tax has been considered

64

ANNEXURES

LIST OF ANNEXURES
Project Cost & Means of Finance Working Capital Assessment Projected Profitability & Repayment Schedule Annexure- 1 Annexure-2 Annexure-3

65

Debt Service Coverage Ratio Interest Coverage Ration Break Even Point Cash Flow Statement Projected Balance Sheet Proposed Plant & Machinery Project Implementation Schedule Basis & Assumption

Annexure-4 Annexure-5 Annexure-6 Annexure-7 Annexure-8 Annexure-9 Annexure-10 Annexure-11

PROJECT COST & MEANS OF FINANCE

66

S.N. PROJECT COST 1 Land & Development cost (Land on Lease) 2 Buildings 3 Plant & Machinery 4 Office Equipments 5 Vehicles 6 Contingency @3% on items no.s (2 to 5) 7 Pre. & Preop. Expenses 8 Working capital margin Total Project Cost MEANS OF FINANCE 1 Share Capital 2 Share app. Money 3 Less: Losses Tangible Net Worth 4 Medium Term Loan 5 Unsecured loans (Without interest) Total Means of Finance DEBT EQUITY RATIO {(4+5)/(1+2-3)}

Rs.(Lakhs) 5.94 58.00 26.95 1.00 0.00 2.58 4.05 35.94 134.46

57.34 0.00 0.00 57.34 59.63 17.49 134.46 1.34

67

TERM LOAN CALCULATION S.NO. PARTICULARS COST 1 Land & Development cost (Land on Lease) 5.94 2 Buildings 58.00 3 Plant & Machinery 26.95 4 Office Equipments 1.00 5 Vehicles 0.00 6 Contingency @3% on items no.s (2 to 5) 2.58 7 Pre. & Preop. Expenses 4.05 total 98.52 0.00

MARGIN % MARGIN 100.00 5.94 33.33 19.33 25.00 6.74 25.00 0.25 0.00 0.00 100.00 2.58 100.00 4.05 38.89 0.00

(Rs. In lakhs) TERM LOAN 0.00 38.67 20.21 0.75 0.00 0.00 0.00 59.63

Working Capital Assessment

68

S.N s.i

PARTICULARS / LEVELS Anticipated monthly sales Cost of sales per month Cost of production per month Cost of raw materials per month ARRIVAL OF CROSS WORKING CAPITAL REQUIRED AS PER TRADITIONAL METHOD 1 Raw Materials & consumables (Months) 2 Stocks - in - Process (Months) Stocking @COP 3 Finished Goods (Months) stocking @COS 4 Bills Receivables (Months) of Gross Sales 5 Other Chargeable Current assets Advances GROSS WORKING CAPITAL ARRIVAL OF GROSS WORKING CAPITAL AS PER NAYAK COMMITTEE RECOMMENDATIONS Projected annual sales GROSS WORKING CAPITAL (25% of projected annual sales) ASSESSMENT OF WORKING CAPITAL REQUIRMENT GROSS WORKING CAPITAL (Higher of A or B arrived above) Less: promoter's margin (NWC) I 5% of projected annual sales ii 1/5th of GWC at (A) iii Margin proposed by promoters (Whichever is highest) PERMISSIBLE BANK FINANCE (C-D) LESS I Creditors for purchase, if any ii Advance payment received if any NEED BASED BANK FINANCE (E-F)

I 44.83 41.41 41.41 39.00

II 51.73 47.72 47.72 45.00

III 58.62 54.03 54.03 51.00

IV 58.62 54.03 54.03 51.00

V 58.62 54.03 54.03 51.00

VI 58.62 54.03 54.03 51.00

VII 58.62 54.03 54.03 51.00

68.25 78.75 89.25 89.25 89.25 89.25 1.75 1.75 1.75 1.75 1.75 1.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 20.70 23.86 27.01 27.01 27.01 27.01 0.50 0.50 0.50 0.50 0.50 0.50 44.83 51.73 58.62 58.62 58.62 58.62 1.00 1.00 1.00 1.00 1.00 1.00

89.25 1.75 0.00 0.00 27.01 0.50 58.62 1.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 133.78 154.33 174.89 174.89 174.89 174.89 174.89

537.94 620.71 703.47 703.47 703.47 703.47 703.47 134.49 155.18 175.87 175.87 175.87 175.87 175.87

134.49 155.18 175.87 175.87 175.87 175.87 175.87

26.90 31.04 35.17 35.17 35.17 35.17 35.17 26.90 31.04 35.17 35.17 35.17 35.17 35.17 35.94 35.94 35.94 35.94 35.94 35.94 35.94 35.94 98.55 119.24 139.93 139.93 139.93 139.93 139.93 29.25 33.75 0.75 0.75 69.30 38.25 0.75 38.25 0.75 38.25 0.75 38.25 0.75 38.25 0.75

85.49 101.68 101.68 101.68 101.68 101.68 Annexure -3 Annexure -3 (Rs. in lakhs)

Projected Profitability &Repayment Schedule

69

S.ino PARTICULARS / LEVELS NET SALES Sales Other Income A B NET SALES COST OF PRODUCTION 1 Raw Material Consumption 2 Packaging materials 3 Power & Fuel 4 Direct Labour & wages 5 Repairs & Maintenance 6 Other Mfg. Expenses 7 Depreciation Pre. & Preop. Expenses W/O Sub-total (1 TO 7) Add : Opening Stocks - In - Process Less: Closing Stocks - In - Process COST OF PRODUCTION Add : Opening Finished Goods Stocks Less: Closing Finished Goods Stocks COST OF SALES 8 General Administrative & Selling Expenses Sub-total (C+8) Operating Profit/(Loss) before Interest 9 Interests i. Term Loan ii. Working Capital @13% Sub-total (Interests) Operating Profit/(Loss) after Interest Add: Non operating income Less: Non operating expenses Profit/(Loss) before Taxes Provision For Taxes@36.75% Net Profit/(Loss) (F-G) Add : Depreciation Add : Pre. & Preop. Expenses` W/O Cash Accruals REPAYMENT OBLIGATIONS Term Loan Term Loan Installment

II

III

IV

VI

VII

537.94 620.71 703.47 703.47 703.47 703.47 703.47 0.00 0.00 0.00 0.00 0.00 0.00 0.00 537.94 620.71 703.47 703.47 703.47 703.47 703.47 468.00 7.02 12.31 4.32 0.50 0.50 3.81 0.41 496.86 0 0 496.86 0.00 0.00 496.86 10.71 507.57 30.38 7.53 9.01 16.54 13.84 0.00 0.00 13.84 1.75 12.09 3.81 0.41 16.31 59.63 4.59 540.00 8.10 14.20 4.98 0.55 0.55 3.81 0.41 572.60 0 0 572.60 0.00 0.00 572.60 11.78 584.38 36.33 6.41 11.11 17.52 18.81 0.00 0.00 18.81 4.42 14.39 3.81 0.41 18.60 55.04 9.17 612.00 9.18 16.09 5.65 0.61 0.61 3.81 0.41 648.35 0 0 648.35 0.00 0.00 648.35 12.95 661.30 42.16 5.22 13.22 18.44 23.73 0.00 0.00 23.73 6.90 16.83 3.81 0.41 21.05 45.87 9.17 612.00 9.18 16.09 5.65 0.61 0.61 3.81 0.41 648.35 0 0 648.35 0.00 0.00 648.35 14.25 662.60 40.87 4.03 13.22 17.24 23.63 0.00 0.00 23.63 7.39 16.24 3.81 0.41 20.45 36.70 9.17 612.00 9.18 16.09 5.65 0.61 0.61 3.81 0.41 648.35 0 0 648.35 0.00 0.00 648.35 15.67 664.02 39.44 2.83 13.22 16.05 23.39 0.00 0.00 23.39 7.73 15.66 3.81 0.41 19.88 612.00 9.18 16.09 5.65 0.61 0.61 3.81 0.41 648.35 0 0 648.35 0.00 0.00 648.35 17.24 665.59 37.88 1.64 13.22 14.86 23.02 0.00 0.00 23.02 7.94 15.08 3.81 0.41 19.30 612.00 9.18 16.09 5.65 0.61 0.61 3.81 0.41 648.35 0 0 648.35 0.00 0.00 648.35 18.97 667.31 36.15 0.45 13.22 13.67 22.49 0.00 0.00 22.49 8.02 14.47 3.81 0.41 18.68 9.17 9.17

F G H

I J K

27.52 18.35 9.17 9.17

70

Debt Service Coverage Ratio

Annexure-4

PARTICULARS / LEVELS Net Profit Depreciation + P&P Expenses Term Loan Interest Total Term Loan Installment Term Loan Interest Total Gross DSCR (A/B) Average Gross DSCR

I 12.09 4.22 7.53 23.84 4.59 7.53 12.12 1.97 1.85

II 14.39 4.22 6.41 25.02 9.17 6.41 15.58 1.61

III 16.83 4.22 5.22 26.27 9.17 5.22 14.39 1.83

IV 16.24 4.22 4.03 24.48 9.17 4.03 13.20 1.85

(Rs. in lakhs) V VI 15.66 15.08 4.22 4.22 2.83 1.64 22.71 20.94 9.17 9.17 2.83 1.64 12.01 10.81 1.89 1.94

VII 14.47 4.22 0.45 19.13 9.17 0.45 9.62 1.99

INTEREST COVERAGE RATIO

S.N. PARTICULARS / LEVELS Net Profit Depreciation Interest Tax Total (PBIDT) Interests IRC = PBIDT/ Interest Average Interest Coverage Ratio I 12.09 3.81 16.54 1.75 34.19 16.54 2.07 2.48 II 14.39 3.81 17.52 4.42 40.14 17.52 2.29 III 16.83 3.81 18.44 6.90 45.98 18.44 2.49

Annexure-5
(Rs. In lakhs)

IV 16.24 3.81 17.24 7.39 44.68 17.24 2.59

V 15.66 3.81 16.05 7.73 43.26 16.05 2.70

VI 15.08 3.81 14.86 7.94 41.69 14.86 2.81

VII 14.47 3.81 13.67 8.02 39.97 13.67 2.92

71

BREAK EVEN POINT

BREAK EVEN POINT S.N PARTICULARS / LEVELS O. Sales Increase/decrease of SIP & FG A Net Income (Net Sales) B Variable Expenses 1 Raw material Consumption 2 Packaging materials 3 Power & Fuel 4 Direct Labour & wages 5 Repairs & Maintenance 6 Other Mfg. Expenses 7 Working Capital Interest Total Variable Expenses C Fixed Expenses 8 Depreciation 9 Pre. & Preop. Expenses W/O 10 General & Administrative & Selling Expenses 11 Term Loan Interest Total Fixed Expenses D Contribution (A-B) E BEP in % (C/D*100) Break Even Point (BEP) in Sales Rs in lakhs F Cash Break Even Point in % {(C-8)/D*A) Cash Break Even Point in Sales figure G Total Variable Expenses % of Net Sales H Total Fixed Expenses % of Net Sales Total Expenses (G+H) I II III IV

Annexure-6

(Rs. in lacs) V VI

VII

537.94 620.71 703.47 703.47 703.47 703.47 703.47 0.00 0.00 0.00 0.00 0.00 0.00 0.00 537.94 620.71 703.47 703.47 703.47 703.47 703.47 468.00 540.00 612.00 612.00 612.00 612.00 612.00 7.02 8.10 9.18 9.18 9.18 9.18 9.18 12.31 14.20 16.09 16.09 16.09 16.09 16.09 4.32 4.98 5.65 5.65 5.65 5.65 5.65 0.50 0.55 0.61 0.61 0.61 0.61 0.61 0.50 0.55 0.61 0.61 0.61 0.61 0.61 9.01 11.11 13.22 13.22 13.22 13.22 13.22 501.65 579.49 657.35 657.35 657.35 657.35 657.35 3.81 0.41 10.71 3.81 0.41 11.78 3.81 0.41 12.95 3.81 0.41 14.25 3.81 0.41 15.67 3.81 0.41 17.24 3.81 0.41 18.97

7.53 6.41 5.22 4.03 2.83 1.64 0.45 22.45 22.40 22.39 22.49 22.72 23.10 23.63 36.29 41.21 46.12 46.12 46.12 46.12 46.12 61.87 54.37 48.55 48.77 49.27 50.09 51.24 332.81 337.46 341.52 343.09 346.63 352.35 360.46 50.24 44.13 39.40 39.62 40.13 40.94 42.09

270.28 273.93 277.18 278.75 282.29 288.01 296.11 93.25 4.17 97.43 93.36 3.61 96.97 93.44 3.18 96.63 93.44 3.20 96.64 93.44 3.23 96.67 93.44 3.28 96.73 93.44 3.36 96.80

72

CASH FLOW STATEMENT

Annexure-7

CASH FLOW STATEMENT

Annexure - 7 (Rs. in lacs) VI

S.N PARTICULARS / LEVELS CONST. PREIOD O. A SOURCE OF FUNDS 21.40 1 Increase in Share Capital 0.00 2 Increase in Share
application money 3 Increase in Term Loans 4 Depreciation 5 Pre. & Preop. Expenses W/O 6 Increase in Unsecured Loan 7 Profit before Tax & Interests 8 Increase in Working Capital Borrowings 9 Increase in Sundry Creditors Total (A) B DISPOSITION OF FUNDS 1 Capital expenditure 2 Increase in Pre. & Preop. Expenses 3 Term loan installments 5 Term loan interest 6 Working Capital Interest 7 Increase in Current Assets 8 Tax Total (B) Net Surplus (A-B) Opening Cash Balance Closing Cash Balance 59.63

II

III

IV

VII

35.94

3.81 0.41 17.49 0.00 30.38 69.30 29.25 98.52 169.08 94.47 4.05 4.59 7.53 9.01 134.49 1.75 157.36 11.72 0.00 11.72

3.81 0.41 0 36.33 16.19 4.50 61.24

3.81 0.41 0 42.16 16.19 4.50 67.07

3.81 0.41 0 40.87 0.00 0.00 45.09

3.81 0.41 0 39.44 0.00 0.00 43.66

3.81 0.41 0 37.88 0.00 0.00 42.09

3.81 0.41 0 36.15 0.00 0.00 40.37

98.52 0.00 0 0.00

9.17 6.41 11.11 20.69 4.42 51.81 9.43 11.72 21.16

9.17 5.22 13.22 20.69 6.90 55.20 11.88 21.16 33.03

9.17 4.03 13.22 0.00 7.39 33.81 11.28 33.03 44.31

9.17 2.83 13.22 0.00 7.73 32.95 10.71 44.31 55.02

9.17 9.17 1.64 0.45 13.22 13.22 0.00 0.00 7.94 8.02 31.97 30.86 10.13 9.51 55.02 65.15 65.15 74.66

73

Projected balance sheet

annexure-8

74

PROJECTED BALANCE SHEET S.N PARTICULARS / O. LEVELS LIABILITIES 1 Share Capital 2 Reserve & Surplus 3 Term Loan 4 Unsecured Loan 5 Working Capital Borrowings 6 Sundry Creditors TOTAL ASSETS 1 Gross Block Less: Depreciation 2 Net Block 3 Current Assets 4 Cash & Bank Balance 5 Pre & preoperative Exp. W/O TOTAL I 57.34 12.09 55.04 17.49 69.30 II III IV Annexure - 8 (Rs. in lakhs) V VI VII 57.34 104.76 0.00 17.49 101.68 38.25 319.51 94.47 26.69 67.78 175.87 74.66 1.22 319.51 0.00

57.34 57.34 57.34 57.34 57.34 26.48 43.31 59.55 75.21 90.29 45.87 36.70 27.52 18.35 9.17 17.49 17.49 17.49 17.49 17.49 85.49 101.68 101.68 101.68 101.68

29.25 33.75 38.25 38.25 38.25 38.25 240.51 266.41 294.76 301.83 308.32 314.22 94.47 94.47 94.47 94.47 94.47 94.47 3.81 7.63 11.44 15.25 19.07 22.88 90.66 86.84 83.03 79.22 75.40 71.59 134.49 155.18 175.87 175.87 175.87 175.87 11.72 21.16 33.03 44.31 55.02 65.15 3.65 3.24 2.84 2.43 2.03 1.62 240.51 266.41 294.76 301.83 308.32 314.22 0.00 0.00 0.00 0.00 0.00 0.00

TOL TNW TOL/TNW

I II III IV V VI 171.08 182.60 194.11 184.94 175.76 166.59 69.43 83.82 100.65 116.89 132.55 147.63 2.46 2.18 1.93 1.58 1.33 1.13

75

List of plant and machinery

LIST OF PLANT AND MACHINERY

Annexure-9
QTY 3 1 1 1 2 2 1 AMOUNT (Rs.) 330000.00 85000.00 35000.00 35000.00 23655.00 7900.00 429051.00 ANNEXURE-9 SUPPLIERS M/s Sanjay Enterprises, 44,Sanjan Nagar, patancharuvu (A.P)

S.NO PARTICULARS . Items proposed to purchase 1 Pulvlizer 2 Centrifugal 3 Stone separator 4 Neumatic system 5 Electronic Weighing Scale 6 7 REVO Bag closer Powerhouse 11/0, 433KV

M/s Duriabhji Jivan Kantawala, Near naveen lodge,hyderabad M/s Rita Sewing Machine Agency, S.D Road,secundarad M/s hyderabad Switchgears Pvt.Ltd. 29 & 30 - E, Industrial Area, jeedimetla,hyderabad M/s hyderabad Switchgears Pvt. Ltd. 29 & 30 - E, Industrial Area, jeedimetla, hyderabad M/s Sharda Engineers & Contractors, 29, S.P Road, secunderabad M/s Sharda Engineers & Contractors, 29, S.P Road, secunderabad M/s Sharda Engineers & Contractors, 29, S.P Road, secunderabad For Channel & Anlgle Bars: M/s Hakeem Sales Trading Company Jawahar Chowk, Bhopal (MP) For Iron Sheets: M/s Gurunanak Steels, 780, vijaya wada , A.P. For Sal wood M/s Janta Saw Mills, Mandi Road, Bhopal (MP) For Machinery Parts(V-belt): M/s Shri Shankar Machinery Stores, Opp.Bal Vihar, Hamidia Road, BPL. M/s Sanjay Enterprises, 44,Sanjan Nagar, Patancharuvu

Electric Pannels

321498.00

9 10 11 12 13 14 15 16 17 18 19 20

Electric Motors Electric Motors Water Pump Gen.Set Items proposed to fabricate Chalna (Sieves) Elevators Blower Worm Roll Sheller Dryer components, Counter Shaft, Bearings, Pedestal, Belts, Pulley, Fanner belts, Bush, and other Utilities. Installation & Fabrication Charges TOTAL

11 2 1 1

226323.00 26288.00 4610.00 37000.00

7 Nos 185000.00 12 Nos 12 N 272909.00 12 Nos 2 Nos. 2 Nos. 27852.00 1 No.s 7020.00 441507.00

21

200000.00 2695613.0076

Deprecation schedule
Written down DEPRECIATION SCHEDULE - Written Down Value Method - IT S.N PARTICULARS / LEVELS O. 1 Land 2 Buildings 3 Plant & Machinery 4 Office Equipment 5 Generator 6 Other Fixed Assets NET BLOCK 1 Land @0% 2 Buildings @10% 3 Plant & Machinery @25% 4 Lab Equipment @10% 5 Generator @25% 6 Other Fixed Assets @10% Total Depreciation I 5.94 58.00 26.95 1.00 0.00 2.58 94.47 5.94 52.20 20.21 0.90 0.00 2.32 81.57 0.00 5.80 6.74 0.10 0.00 0.26 12.90 II 5.94 46.98 15.16 0.81 0.00 2.09 70.98 0.00 5.22 5.05 0.09 0.00 0.23 10.60 III

annexure-10

IV 5.94 38.05 8.53 0.66 0.00 1.69 54.87 0.00 4.23 2.84 0.07 0.00 0.19 7.33

(Rs. in lakhs) V VI 5.94 34.25 6.40 0.59 0.00 1.52 48.70 0.00 3.81 2.13 0.07 0.00 0.17 6.17 5.94 30.82 4.80 0.53 0.00 1.37 43.46 0.00 3.42 1.60 0.06 0.00 0.15 5.23

VII 5.94 27.74 3.60 0.48 0.00 1.23 38.99 0.00 3.08 1.20 0.05 0.00 0.14 4.47

0.00

5.94 42.28 11.37 0.73 0.00 1.88 62.20 0.00 4.70 3.79 0.08 0.00 0.21 8.78

Straight-line method
Straight Line Method (Company Act) Value Particulars 1 Land 2 Buildings 3 Plant & Machinery 4 Office Equipment 5 Generator 6 Other Fixed Assets Total Depreciation 5.94 58.00 26.95 1.00 0.00 2.58 94.47 0.00 (Rs. in lakhs) Depreciation in % in amount 0 0.00 3.34 1.94 6.33 1.71 4.75 0.05 4.75 0.00 4.75 0.12 3.81

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Assumptions

annexure-11 Annex ure-11 IV (Rs. in (Rs. in lakhs) lakhs) VI VII

Assumptions INSTALLED CAPACITY Dall mill 1 Milling capacity bags/hr 2 1bag=90kg 3 O/P MTper day@ 12 hr /shift 3 Annual processing capcity MT 4 Annual processing capcity Considered MT 5 Capacity Utilisation % 6 Processing per annum MT 7 Production MT 8 Dall* 9 Chunni 10 chihilka 11 Gatarra 12 Shortage * 50% Dal supplied to Besan unit 13 Sales (Rs. In Lakhs) 14 Dall 15 Chunni 16 chihilka 17 Gatarra 18 Shortage 19 Sub-total(1) 20 Besan unit 21 Pulvriser capacity bags/hr 22 1bag=90kg 23 O/P MTper day@ 12 hr /shift 24 Annual capcity MT 25 Annual capcity Considered MT 26 Capacity Utilisation % 27 Processing per annum MT 28 Production MT

I 14 1260 15.1 2 4536 4500 65 2925

II

III

75 3375

85 3825

85 3825

85 3825

85 3825

85 3825

% yield 80 1170.00 1350.00 1530.0 1530.0 1530.0 1530.0 1530.0 0 0 0 0 0 14 409.50 472.50 535.50 535.50 535.50 535.50 535.50 4 117.00 135.00 153.00 153.00 153.00 153.00 153.00 1 29.25 33.75 38.25 38.25 38.25 38.25 38.25 1 29.25 33.75 38.25 38.25 38.25 38.25 38.25 100 Rate/MT 2100 245.70 283.50 321.30 321.30 321.30 321.30 321.30 0 7000 28.67 33.08 37.49 37.49 37.49 37.49 37.49 5500 6.44 7.43 8.42 8.42 8.42 8.42 8.42 6000 1.76 2.03 2.30 2.30 2.30 2.30 2.30 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00 282.56 326.03 369.50 369.50 369.50 369.50 369.50 10 900 10.8 3240 3200 36.56 42.19 47.81 47.81 47.81 47.81 47.81 1170.00 1350.00 1530.0 1530.0 1530.0 1530.0 1530.0 0 0 0 0 0 % yield 99.9 1168.83 1348.65 1528.4 1528.4 1528.4 1528.4 1528.4 7 7 7 7 7 Rate/MT 2185 255.39 294.68 333.97 333.97 333.97 333.97 333.97 0

29 Sales Besan (Rs. In Lakhs) 30 Sub-total (2)

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Total sales (Rs. In lakhs) Sales Sub total (1) Sales Sub total (2) 31 Total Sales (Rs. In Lakhs)(1)+(2) 32 Raw material (Channa) MT/annum 33 Raw material (Channa)Rs Lakhs/annum 34 Packaging mateials 35 Production of Dall MT 36 Production of Besan MT 37 Total production MT 38 Packaging mateials(50 kg Gunny bags)

282.56 326.03 255.39 294.68 537.94 620.71 2925.00 3375.00

369.50 333.97 703.47 3825.0 0

369.50 333.97 703.47 3825.0 0

369.50 333.97 703.47 3825.0 0

369.50 333.97 703.47 3825.0 0

369.50 333.97 703.47 3825.0 0

Rate/MT 1600 468.00 540.00 612.00 612.00 612.00 612.00 612.00 0 1170.00 1350.00 1530.0 0 1168.83 1348.65 1528.4 7 2338.83 2698.65 3058.4 7 46776.6 53973.0 61169. 0 0 40 46777.0 53973.0 61169. 0 0 00 Rate /Pc 15 8.10 9.18 1530.0 0 1528.4 7 3058.4 7 61169. 40 61169. 00 9.18 1530.0 0 1528.4 7 3058.4 7 61169. 40 61169. 00 9.18 1530.0 0 1528.4 7 3058.4 7 61169. 40 61169. 00 9.18 1530.0 0 1528.4 7 3058.4 7 61169. 40 61169. 00 9.18

39 Packaging mateials Rs in lakhs

7.02 POWER CHARGES CONNECTED LOAD HP Rollers (2) 25.00 Shellars(2) 15.00 Pulverisers (3) 45.00 Bucket elevators (10) Sieves (7) 30.00 Dryer 11.00 Pneumatic System 5.00 Stone separators 3.00 water pump 1.00 Others(incl. Lighting etc.) 10.00 TOTAL CONNECTED LOAD 145 MAXIMUM DEMAND CHARGES 296888 @Rs.195/KVA ENERGY CHARGES@Rs4.0/unit at 100% 146160 capcity utilisation 0 FUEL(assuming that DG used 90 days / year on an average 50 ltrs/day) HSD(@Rs30/lts) 1.35 POWER CHARGES for 100 % capacity 18.93 utilization(Rs in lakhs) POWER CHARGES for the year(Rs in 12.31 lakhs) WAGES NO' 526.23 S FACTORY MANAGER 0 SUPERVISORS 1 6000 LABOUR

14.20

16.09

16.09

16.09 16.09

16.09

0.00 0.72 0.00

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SKILLED 4 3500 SEMI-SKILLED 0 2500 UN-SKILLED 8 2000 TOTAL(Rs in lakhs) Processing per annum MT 2925 wages Rs in lakhs 4.32 ADMINISTRATIVE 147.69 EXPENSES(SALARY) Administrative staff 1 6000 Safty officer 1 6000 Wireman 1 3500 peon 1 2000 watchman 1 3000 TOTAL(Rs in lakhs) ADMINISTRATIVE EXPENSES &SELLING EXPENSES MANAGEMENT RENUMERATION OTHER ADMINSTRATIVE EXPENSES SALARIES SELLING EXPENSES(Rs.60/MT) INSURANCE @0.25% OF STOCK & FA) ADMINISTRATIVE EXPENSES &SELLING EXPENSES (Rs.IN LAKHS) Pre. & Preop. Expenses (Rs. In lakhs) 4.05 Tax Calculation (Rs. In lakhs) I Profit Before Tax 13.84 Add:Depreciation -SL 3.81 Less: Depreciation -WDVM 12.90 Total 4.76 Losses 0.00 Unapplied Interest 0.00 Taxable Income 4.76 Taxes @36.75% 1.75 Term Loan Interest Calculation & Repayment Schedule Particulars/Years I Instalment Quarter - I 0 Quarter - II 0 Quarter - III 2.29 Quarter - IV 2.29 Total Instalment 4.59 Outsanding Balance at end of Quarter Quarter - I 59.63 Quarter - II 59.63 Quarter - III 57.34 Quarter - IV 59.6 55.04 3 Interest @ 13 Quarter - I 2.29 1.94 Quarter - II 1.94

1.68 0.00 1.92 4.32 3375 4.98 0.72 0.72 0.42 0.24 0.36 2.46 0.00 6.27 2.46 1.40 0.57 10.71

3825 5.65

3825 5.65

3825 5.65

3825 5.65

3825 5.65

II III IV V VI VII 18.81 23.73 23.63 23.39 23.02 22.49 3.81 3.81 3.81 3.81 3.81 3.81 10.60 8.78 7.33 6.17 5.23 4.47 12.02 18.76 20.11 21.03 21.60 21.83 12.02 4.42 II 2.29 2.29 2.29 2.29 9.17 52.75 50.46 48.16 45.87 1.71 1.64 18.76 6.90 III 2.29 2.29 2.29 2.29 9.17 43.58 41.28 38.99 36.70 1.42 1.34 20.11 7.39 IV 2.29 2.29 2.29 2.29 9.17 34.40 32.11 29.82 27.52 1.12 1.04 21.03 21.60 7.73 7.94 V 2.29 2.29 2.29 2.29 9.17 VI 2.29 2.29 2.29 2.29 9.17 21.83 8.02 VII 2.29 2.29 2.29 2.29 9.17 6.88 4.59 2.29 0.00 0.22 0.15

25.23 16.05 22.94 13.76 20.64 11.47 18.35 9.17 0.82 0.75 0.52 0.45

80

Quarter - III Quarter - IV Total Interest

1.86 1.79 7.53

1.57 1.49 6.41

1.27 1.19 5.22

0.97 0.89 4.03

0.67 0.60 2.83

0.37 0.30 1.64

0.07 0.00 0.45

Sensitivity analysis
S.No

annexure - 12
Normal 1.85 2.48 61.87 RM+3% 0.90 1.44 101.55 SP-3% 0.86 1.41 104.34

Sensitivity analysis

1 Avg DSCR 2 Avg ICR 3 BEP %

81

FIGURES

82

83

84

85

86

87

88

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CHAPTER 5

91

FINDINGS AND SUGGESTONS

FINDINGS: Vipul foods are aspiring to produce dhal and besan. with an installed capacity of 4500 tons of dhal and 3200 tons besan per annum. At a proposed cost of 134.46 laths. Vipul is promoted by sri Vinod Mangle having 25 years of experience in the field of fabrication and installation. Of dhal mills. It is proposed that company will attain 65% capacity utilization in the first year of instillation and 75% second year and 85% after 3 rd year. The plant is proposed to be located at jeedimetla industrial area of R.R district. Raw material will be procured from various parts of AP Major Customers of the company are trading companies in HYD, Mumbai, and Ahmedabad. Vipul foods have requested SBH to finance 59.63 lakhs. of term loan to meet 98.52 lakhs of long term investment in fixed assts and 69.30 lakhs of working capital loan for its proposed project. An analysis of projected income statement indicates that the company will earn profits right form first year vipul foods has a gross profit margin of 7.6% and net profit margin of 2.2% the company is operating on very thin margins which is a singe of high operational risk. Break even analysis of proposed project shows good margin of safety of around 40 to 58%. Interest coverage ratio has fluctuated between 2.07 to 2.70.the ratio is on the lower side which is a cause of concern for nbaker. Debt service coverage ratio is around 1.6 to 1.94 which is also low exposing the bank to default risk. Current ratio of the proposed project is 4.5 and offers good credibility to the bank for financing working capital.

92

SUGGESTIONS: Considering the financial analysis and risk involved it is suggested that SBH may consider term loan for the unit through collateralization of land plant and machinery. Considering the nature of business being agri based and thin margins bank should exercise caution and monitoring of project at regular intervals. As margin of safety is more banks may consider issue of working capital loan on convenient terms with hypothecation of stocks.

93

BIBILIOGRAPHY

PROJECT MANAGEMENT BY -Mr. PRASANNA CHANDRA SOME NEW VIEWS ON PAY BACK PERIOD AND CAPITAL BUDGETING PRENTICE-HALL, By Engle Wood Cliffs FINANCIAL MANAGEMENT By IM pandey

CENTRE FOR MONETARING AND INDIAN ECONOMY By National Institute for Small Industry Extension Training

WEBSITES
www.sbhyd.com www.nasaprojectrisk.com www.commoditymarket.com www.tatamcgrawhill.com

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