ASSIGNMENT

1. Name - Jay Prakash

2. Reg. No. - 29-08-31-7529-2111

3. Course No. - PGPPM

4. Course Title - Construction Formulation

and Appraisal

5. Assignment No. - Seven

Question:

Any company that has to survive in a competitive environment can not remain

complacent with the present. It has to continuously bring about change in order to

adapt to the altered environment.

Investment opportunities in India are today perhaps at a peak. Supported by India's

natural strengths, the country offers investment opportunities in excess of $500

billion in diverse sectors over the next five years.

Projects, that are endeavours to create unique products and services, are basically

the instruments leading to organizational growth. Projects have a long term impact

on the character of the organization. Projects create wealth not only for the

organization but also for the nation. Projects, therefore, form a very important part of

the organization's strategy for survival & growth and therefore are the main concern

of the corporate management.

Realising the tremendous opportunities, the most of the pragmatic organizations

are planning to invest in new projects. Every project starts with the perception of an

opportunity. The better this is characterised, the easier it will be to judge the levels

of expenditure and risk that are justified. Identifying the patterns by which

technology treates new products & services and exploiting them early gives the

company a significant competitive advantage.

In the light of your studies prepare an assignment on project formulation,

evaluation and appraisal of a hypothetical project by covering the following:

1. Market Analysis

2. Technical Analysis

3. Financial Analysis.

1) INTRODUCTION:
ABC Company is focusing on investments in emerging retail sector
throughout India. It has proposed to develop a commercial space in Panaji-Goa. This
gives an opportunity to enter a market not tested so far by the big players in retail
sector and reap benefits of the first footer.

Goa State has established itself among the fastest growing industrial
& commercial centers in India. It has made impressive progress in all round
development, measured by socio-economic indicators and ranks among the leading
union territory states of India. This is one of the most urbanized states in India.
Tourism and mining are the main sectors of the state economy. Sizeable percentage
of population works in the Middle East and western countries and brings home not
only valuable foreign exchange kitty but also a new consumer test of those places.
The tourists from India and all over the world are spending much on leisure while on
holidays in Goa. This brings us a good opportunity to invest in retail sector.

2) MARKET ANALYSIS:
a) Situational analysis
Company proposes to develop a Shopping Mall in Panaji-Goa. The
market is mainly consisting small-scale retail outlets, virtually monopolized by the
sellers. The market also lacks presence of strong cooperative sector. Due to
scattered and satellite patterns of development, the city lacks cohesive and
homogenous volume of population compared to other Indian cities. However,
excellent infrastructure, importance of capital place, large base of floating
 population, high purchasing power of consumers and higher level of consumer
spending gives a solid base for investment decision.

Hence, we decided to develop a commercial space It consisting mainly

of following facilities.

• Hyper market dealing in grocery, and household items

• Branded clothes, textile products, cosmetics.
• Processed agriculture, horticulture, floriculture products.
• Beverages and restaurant.
• Consumer durable goods etc.
• Handicrafts and antiques
• Processed Fish products

b) Secondary Information:
 Economic Profile of Goa: The Eleventh Finance commission Report,
2000 ranked Goa as the premier state in terms of social and economic
infrastructure. Goa is an attractive destination for foreign Direct Investment
( FDI) . The contribution of FDI to the state’s economy has increased ten fold
in the past years.

POPULATION (2001 census) 13,47,668

MALES 6,87,248
FEMALES 6,60,420
URBAN POPULATION % 49.47
LITERACY RATE ( census 2001 ) in % 82
MALE LITERACY in % 88.4
MALE LITERACY in numbers 5,41,032
FEMALE LITERACY in % 75.4
FEMALE LITERACY in numbers 4,44,530

Census of India has projected population by Sex i.e. 16,28,000 for Goa as on 1st
March – 2008

Sr. No. of
No. District Total/Rural/Urban Households Persons Male Females
North
1 Goa Total 1,64,129 7,58,573 3,88,502 3,70,071
North
2 Goa Rural 88,265 4,16,824 2,11,543 2,05,281
North
3 Goa Urban 75,864 3,41,749 1,76,959 1,64,790
South
4 Goa Total 1,30,683 5,89,095 2,98,746 2,90,349
South
5 Goa Rural 56,964 2,60,267 1,29,002 1,31,265
South
6 Goa Urban 73,719 3,28,828 1,69,744 1,59,084
Source of information: Census of India

All India pattern of consumption in 2006-07: (Ref.annexure no.lII)

Out of every rupee spent in 2006-07 by the average urban Indian on
consumption, 39 paise were spent on food. Of this, 9 paisa was spent on cereals
and cereal substitutes, 7 paisa on milk and milk products, 6 paise on beverages,
refreshments and processed food, and 4 paise on vegetables. There was little
difference between rural and urban households in the share of the budget allocated
to fuel and light (10% for rural, 9% for urban) and clothing, including bedding and
footwear (7% for rural, 6% for urban).
The average urban Indian differed noticeably from the rural mainly by
spending only 9 paise out of one rupee on cereals, but as much as 14 paise on
consumer services, 7 paise on education and 5 paise on rent. In fact the urban
Indian devoted only 39 paise of the rupee on food, spending a smaller portion of the
rupee than the rural Indian on every food group except the category "beverages,
refreshments and processed food".

Percentage of population below specific MPCE: (Ref. annexure no.lll & VI)
In 2006-07, roughly one-half (50.3%) of the rural population of India had MPCE
less than RS.580 (column 2 of Table P1) compared to only 17.4% of the urban
population column 6). For urban India, the median level of MPCE was Rs.990.

Average MPCE on groups of items of consumption: (Ref. annexure no.IV)

for urban area applicable to Group of union territories shall be applicable to Goa.
Average MPCE for urban area applicable to Goa may be considered as 1944.88 for
food and non-food group of expenditure

c) DEMAND FORECASTING:
Demand forecast was done using casual method of forecasting. As the project
involves products of direct consumption, Consumption Level Method suits best
to forecast demand of the products.

Estimate based on income and price elasticity of demand: (Ref.

annexure no. I & IV)
Aggregate demand can be worked out from secondary information available with us
(ref. Annexure)
a) Total population as per 2001 census: 13,47,668 for Goa
b) Projected population for the Year 2008:
16,28,000 for Goa
c) Growth rate per year: (1628000-1347668) x100
134766
8 x 8yrs. d) Projected population for
the Year 2010:
16, 28,000 x (1 +2.6)2 =
21100734 e) Projected population for north Goa in the
Year 2010:
7,58,573 x (1+2.6)2 = 9831106 - Aggregate demand
f) Rise in level of disposable income:
 Per capita income in the year-2000-01 =Rs.
49693 Per capita income in the year-2004-
05 =Rs. 58184 Rise in level of disposable
income =17%
g) Supply of primary articles of consumption in the year-2001 =156.9
(All India fig.) In the year-2005 =170.1
Rise in level of supply i.e. (+) 8.40%
in the year-1992 =5.80kg In the
year-2005 =7.20kg Rise in level
of supply i.e. (+) 24.13%
in the year-1992 =13.50kg In the
year-2005 =16.30kg Rise in level
of supply i.e. (+) 20.74%
in the year-1992 =24.50metre In the
year-2005 =31.40metre Rise in
level of supply i.e. (+) 28.16%
in the year-1992 =709.00gm In the
year-2005 =690.00gm Fall in level
of supply i.e. (-) 2.67%
I) MPCE for urban area (all India) in the year-1987 =139.73
In the year-2007
=517.25 Change in
MPCE = 2.7times
h) Supply of edible oil (All India fig.)
i) Supply of sugar (All India fig.)
j) Supply of cloth (All India fig.)
k) Supply of tea & coffee (All India fig.)
i.e. (+) 2.60%

 Conclusion : (Ref. annexure no.lI)

1) From above study, we can project- Aggregate demand =. (+) 2.60%
2) From above study, we can project- Rise in level of income = (+) 17.00%
3) From above study, we can project- Rise in Aggregate supply (avg.) = (+)
15.75%
4) From above
study, we can project- Rise in MPCE = (+) 2.70
times

Hence, we project sufficient demand exists that needs to be fulfilled.

d)TECHNICAL ANALYSIS:
 DETAILS OF FACILITIES: The proposed shopping mall may have
outlets as detailed below
 Departmental Store
 Fashion and Shoes
 Health and Beauty
 Food
 Sports and outdoor
 Electrical and phones
 Jewellerys
 Gifts and Music
 Children
 Miscellaneous

 Arrangements for process &technical know how:

• The project work may be taken up on E.P.C Contract

basis in a time bound manner.
• Technical collaboration may be made for commissioning and
training of personnel.
• Various systems such as crowd control, display and
information
systems,
for shops parking areas, lounge; passages are to be provided.
• Plants and Machineries for processing, material packaging,
labeling, is required.
• Sound arrangements for Power back up, air-conditioning,
Escalators, capsule lifts, waste disposal etc required to be
planned complying all the regulations.

 CAPACITY STRATEGY:
• The only limiting factor from aggregate demand point of view
discussed in the last chapter is population growth rate. This is
lesser than other Indian states; hence, we should adopt
'CHASING' strategy.
• The projected demand and existing demand to be
diverted may take longer time span.

 LOCATION OF SITE:

• The project site is located in the capital city of Panaji. The proposed
site is situated in the EDC Plaza behind central bus stand and hence a very
convenient and crowd pulling location.

• Proximity to markets Geographically, the place is centrally

located between the two districts of the state. The city is being an
important cultural, political and economic centre attracts sizeable
population from all over the state and huge flow of domestic and worldwide tourist
ready to spend.

• Proximity to Raw material sources: The neighboring districts of

Sindhudurg Kolhapur and Belgaon offers cheap sources of commodities
agriculture produce and dairy products. Supply of beverages is locally available
and further can be strengthened through tie up with local producers. Supply of
Consumer durables Garments and textile products can be directly arranged
through supply agreements with the manufacturers.

• Industrial infrastructure: Goa has one of the best infrastructures in

place. Uninterrupted power supply at reasonable tariff, advanced
telecommunication facilities, Road network with better quality riding surface,
Convenient Railway network, proximity to port and inland navigation are available.

• Urban infrastructure: Apart from industrial infrastructure, proper

urban facilities are available such as housing schooling hospitals, banks
etc.

• Labour situation & Availability: The city boasts better quality

and educated labour force suitable for trading activities. The level of
labour union activism is low due to migration, heterogeneous mix of labour
force from different geography etc.

• Govt. policies: As per data published by RBI, FDI Equity inflows

(from April 2000 to September 2008) in Goa are RS.1 047crore, which is 0.33%
of total FDI inflows in India and ranks ninth in attracting investment. This is
quite significant considering size of the state and economy.

• Climatic condition: Except two months of active heavy monsoon,

climate is moderate and hardly disrupts economic activities taking place. It dose not
pose any significant challenge to our proposed business.

 PROPOSED SITE:

• The site is completely developed by the EDC (Economic

Development Corporation) of Goa. The site is a leveled plot with flat
topography. It is located near the city entry point and emerging fast as a central
business zone. The place has become popular and very convenient to the
people all over Goa due to location near the main bus stand.

• Many of the business activities are concentrated in this area

due to its suitability. A foundation stratum is marshy soil due to
reclamation of backwater area and hence needs extra cost.
Supply of power, water is available in the vicinity and a waste
disposal system available in the area.

 Work schedule planning: The work schedules shall be thoroughly

prepared and correlated to activities and time
estimates.

 BUILDINGS AND STRUCTURES: following activities required with distinct

and meticulous planning of the interior and exterior. The total area required
as per break up tabulated here.
 Built up area
Requirement in
Sr. No. Sections ( Sqmt)

1 Departmental stores 3000.00

2 Fashion and stores 500.00

3 Health and Beauty 500.00

4 Food 1500.00
5 Sports and Outdoor 500.00
6 Electrical and phones 500.00
7 jwellery 500.00
8 Gifts and usic 500.00
9 Children 500.00
10 Miscellaneous 500.00
Administration and
11 Security 500.00
Processing &
12 Packaging 1000.00
Health, Ventilation and
air conditioning system
13 (HVAC) 500.00
Total 10500.00
14 Parking 5000.00

E) FINANCIAL ANALYSIS:
 COST OF PROJECT

Sr. No. Component of Quantity in Unit rate / Cost Cost

Project Sqmt percentage of
development
Land and Building

1 Land cost 10000.00 5000.00/ sqmt 7,20,00,000.00

2 Buildings ( with 10500.00 15000.00 / sqmt 7,50,00,000.00

area @ 2,37,00,000.00
2100.00 sqmt
per floor
Keeping @ 0.2
FSI permissible
for future
needs)

3 Parking and 7900.00 3000.00/sqmt 2,37,00,000.00

Landscape 3000.00/sqmt
Development
etc.

4 Architect / @ 2% of (1,2& 34,14,000

Consultants 3)3

Other Expenses

1 Plants & As per 2,00,00,000.00

Machineries quotation
Plant utilities As per
quotation

2 Technical Know As per 50,00,000.00

- how fee quotation

3 Misc. Fixed As per 50,00,000.00

assets quotation

4 Preliminary and As per 10,00,000.00

capital issue quotation
expenses

Total 20,51,14,000.00

5 Pre Operative @2% 41,02,280.00

Expenses

6 Provision for @3% 61,53,420.00

Contingencies

Total Cost of the Project 21,53,69,700

  CALCULATION OF REVENUE

Population forecast for the year 2011:

Year 1910 1921 1931 1940 1950 1960 1971 1981 1991 2001 2011
Population
Growth
Rate 2.36 (3.55) 7.62 7.05 1.21 7.77 34.77 26.74 16.08 15.21
Three
Months
Moving
Average 2.14 3.71 5.29 5.34 14.58 23.09 25.86 19.34
Two
Months
Moving
Average 0.59 2.04 7.34 4.13 4.49 21.27 30.75 21.41 15.64

Sum of square error ( three months) = 2.142 + 3.712 + 5.292 + 5.342 + 14.582 + 25.862
= 216.83

Sum of square error (three months) = 0.592 + 2.042 + 7.342 + 4.132 + 4.492 + 21.272 +
30.752 + 21.412
= 243.99

1. Hence, we can assume, population growth rate applicable to year – 2011 i.e.
19.34% due to lower average square error i.e. 216.83

2. Projected population in the year 2011 i.e. 50 percentage of North Goa district
plus 50% of south Goa district, which will serve as a consumer base.
( 1,34,7668/2) x 19.34 / 100 = 2,60,638

3. Expected sales per Month ( Revenue)

Here, we assume 10% of the population uses this mail mall to fulfill
their needs
Hence = 10% 260638 = 26063.00 Nos.
MPCE for Goa = Rs. 1974.88 for urban india in the year 2007.
(Ref. group of UTs as per ANNEXURE NO.)
Expected sales per month = 26063.00 nos x 1974.88/2 =
2,57,35,648.72/-

Hence , expected sales per annum Rs. 30,88,27,783.60

 CALCULATION OF COSTS

Assuming total cost @ 80% of expected sales per annum

 Sr. No. Item Description Estimated Amount

1 Total Material cost @ 60% 14,82,37,336.00

2 Total utilities cost @ 5% 1,23,53,111.00

3 Total Labour cost @ 10% 2,47,06,222.00

4 Total Overheads @5% 1,23,53,111.00

5 Total service cost @ 5% 1,23,53,111.00

6 Total Administrative cost @ 5% 1,23,53,111.00

7 Total Sales Expenses @ 5% 1,23,53,111.00

8 Total Royalty payable @55 1,23,53.111.00

9 Gross Total 24,70,62,227.00

 FINANCIAL STRUCTURE

Mode of Percentage Amount Rs. In Cr.

Finance

Equity @ 50% 10.78

Term Loan @ 50% 10.77

Total 100% 21.55

 Operating cost with yearly breakup:-

Cost of the project Rs. 21,53,69,700.00

Period of completion of Project- 2 Year

For the year ending December 2011

Opening Balance – Rs. 30,88,27,784.60 + Rs.

11,23,225.00 30,99,51,009.00
 Add -

Cash – Interest earned @ 9.5% on Rs. 11,23,225 Rs. 1,06,706.00

Less –

Cash – for Purchase of material, wages and other Rs.

expenses 24,70,62,227.00

Cash – Release of security deposit ( defect Rs. 3,23,05,455.00

liability ) @ 15% of Rs 21,53,69,700.00

Cash – for repayment of loan @ 11% and 05 Rs.

years term 3,62,,91,046.00

Closing Balance Rs. (56,01,013)

For the year ending December 2012

Opening Balance – Rs. ( 56,01,013) + Rs. Rs. 30,32,26,771.00

30,88,27,784.60

Add-

Cash – Interest earned NIL

Less-

Cash for purchase of material, wages and Rs.24,70,62,227.00

other expenses

Cash- for repayment of loan @ 11% and 05 Rs. 3,62,91,046.00

years term

Closing Balance Rs. 1,98,73,498.00

For the year ending December 2013

Opening balance – Rs. 1,98,73,498.00 Rs. 32,87,01,282.00

+Rs. 30,88,27,784.60

Add-
 Cash – Interest earned @9.5% on Rs. Rs. 18,87,982.00
19873498.00

Less-

Cash – for purchase of material, wages Rs. 24,70,62,227.00

and other Expenses

Cash – for repayment of loan @ 11% and Rs.3,62,91,046.00

05 years term

Closing Balance Rs. 4,72,35,991.00

EVALUATION OF FINANCIAL VIABILITY

 Pay Back Method:

Pay back period = cash investment / cash returned per year

For Cash, investment of rs. 10,76,84,850.00 per annum
Cash returned in 2012 is Rs. 1,98,73,498.00
Cash returned in 2012 is Rs. 4,72,35,991.00
Cash to be returned at the end of 5th year = 10,76,84,850.00 – 1,98,73,498.00
– 4,72,35,991.00
= 4,05,75,361.00

Assuming earnings remain same in the sixth year, period required to recover
above amount Rs. ( 4,05,75,361.00 / 4,72,35,991.00)/12 = 10.3 , Say 3
Months

Hence, Pay back period for the project is 05 years and 10 Months.

 NET PRESENT VALUE METHOD:

NPV = [ CF1 / (1+K) ] + [ CF2 / ( 1+K) ] + [CF3 / ( 1+K) ]+…up to CF5 -

INVEST.
Here, PV1 = Rs. 12,33,08,800.50 / ( 1+ 0.11) = 11,10,89,009.50
PV2 = Rs. 11,23,225.00 / ( 1+ 0.11)2 = 9,11,634.00
PV3 = Rs. (56,01,013) / ( 1+ 0.11)3 = (40,95,42.43)
PV4 = Rs. 1,98,73,498.00 / ( 1+ 0.11) = 1,30,91,288.70
PV5 = Rs. 4,72,35,991.00 / (1+0.11) = 2,80,32,261.59
Sum of PVs = 14,90,28,782.00

Hence NPV = 14,90,28,782.00 – Rs. 10,76,84,850.00 = Rs. 4,13,43,931.96

As the value of NPV is Positive, investment is advisable for the project.

References:
1. Project financing in corporate sector by C.G. Karandikar / G.M Dave

2. Construction Finance management ( NCP 29 ) by NICMAR

3. Project formulation and Appraisal ( PGPM – 21) By NICMAR

4. Website: http:/indiabudget.nic.in

5. Website: Census of india

6. NSS 63rd Round ( July 2006 – June 2007)