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Capex ProjectReport

Acumen Education, Sonari

Group 4Jay Amin | B13028

Sandeep Mishra | B13111Anik Roy | B13010

Ayush Goenka | B13141Ishu Mahajan | B13151



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Acumen Education

The Assistant. General Manager,

Central Bank of India

Jamshedpur

Dear Sir,

Subject: Request for term loan of INR 464 Million

We take this opportunity to collaborate with you for building educational infrastructure in

Jamshedpur, Jharkhand. The state of Jharkhand has been focal point of India’s industrial development

and growth story. Over the years, the state has developed various other industries in addition to the

pioneering enterprise of the steel behemoth; Tata Steel Ltd. Tata Motors is another example of groups’

presence in the state. State due to its rich mineral resources has also become metals and mining

centre of the country. The government is also focussing on promoting the state as a major industrial

centre in the east zone of India. Many industrial hubs in Jharkhand are slated to witness considerablegrowth in business and allied activities. The state is filled with burgeoning educated and middle class

and upper middle class working in these huge enterprises. They are particularly conscious about

education and skill development.

Jharkhand already has world class management institutes such as Xavier Labour Relations Institute

(XLRI) and IIM Ranchi which offer premium post graduate programmes in management. At the

undergraduate level Jharkand has the National Institute of Technology (NIT) Jamshedpur, BIT Sindri

and BIT Mesra which offer engineering degree across multiple disciplines. Jharkhand also has good

medical colleges such as RIMS in Ranchi.

However, Jharkhand lacks presence of a reputed undergraduate commerce college where students

can pursue commerce. At present they have no choice but to move to other educational hubs such as

Delhi, Mumbai or Kolkata. Kolhan University established in 2009 is not up to the mark for the local

gentry.

It is in this context that our group, Acumen Education, has undertaken the onus of constructing and

operating a full-fledged commerce college in Jamshedpur. In view of the existing demand for quality

commerce education we see great potential in the business of establishing and providing highereducational services to the state. The financial case for the same has been built henceforth.



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Business Model

We are starting an undergraduate college which offers degree programs in commerce stream and

computer applications. The degrees offered under the commerce stream will be

1. Bachelors in commerce (B.com)

2. Bachelors in Business Administration (BBA)

3.

Bachelor of Finance and Investment Analysis (BFIA)4. Bachelors in Economics (B.A. Eco)

We will offer the degree of Bachelors in computer application (BCA) under the computer application

stream.

All of the above courses are three year programs with semester system in place. Since many of our

students will be from out of city of Jamshedpur we are also offering a hostel and lodging facility for a

reasonable rate for 50% of the maximum student intake. Each of these courses will have annual

intake of batch of 60 students. Hence each academic year will have 300 students across all the degrees

in total and the total student base of college would be 900 students.

Construction of college is expected to begin in September 2014 and should be completed by March

2016. The college will be operational by June 2016.

Total Cost

Head Cost

Building 463.97

Land & Site Development 39.27

Furniture& Fixtures 20.77Kitchen & Washing Equipment 1.00

Electronic & Other Misc. Equipments 7.34

Preoperative Expenses 8.14

Preliminary Expenses 2.82

Sub Total Capex 543.31

Working Capital Margin 5.58

Contingency Costs 29.87

Total Capex 578.76



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Management and Promoter Group

Acumen Education is a venture by four Business Management graduates from XLRI Jamshedpur to

provide quality Under-graduate education in and around the areas of Jamshedpur. The promoter

group intends to sub-lease the land in the Sonari area and set up a state-of-the art Under-graduate

University. The promoter group comprises individuals with commendable professional and

educational background. None of the promoters have ever been on the defaulter’s list which in turn

makes sure that they are very high on credit worthiness. All of the Promoters have a very strong

credit worthiness and have never been accused of any kind of immoral behaviour and have never

been on the defaulter’s list. A brief snapshot of the Promoter group is given below. The complete

biographies are attached in the appendices.

Name of the company Acumen Education

Proposed date of Incorporation 30-09-2013

Proposed Legal Status Private Limited Company

Proposed to be registered with Registrar of Companies, JamshedpurProposed Board of Directors Ram Kumar Agarwal, Sajjan Bansal,

NareshModi, Pushkar Gupta

Proposed registered office Jamshedpur

Proposed Project Establishing an under-graduateuniversity in Jamshedpur

Expected date of commencement of

operations 01-06-2016

FinancingLong -term debt will be the major source of funding of the fixed assets of our business. The share

capital of the company will be Rs 116 million. The debt-equity ratio (pre-capitalization of interest) will

be 4:1. Therefore, the long term debt that the company seeks is Rs 464 million. This amount will be

utilized towards construction of fixed assets. This is in compliance with the regulation pertaining to

such loans.

The long- term borrowing shall be secured against buildings. The Gross Block value of these buildings

in the opening year is Rs 586 million, which clearly covers the principal amount of the loan that is

sought. The Written down value of these buildings in subsequent years will also be more than the

unpaid principal amount of long-term loan outstanding.

The asset specificity of the assets under consideration is not very general, so these assets in a highly

unlikely case of default can also be disposed off at or below market value.

As per the rules of the bank, despite ours being a company form of organization, the promoters shall

be personally liable for the long-term loan taken.

The Base rate of CBI is currently at 10.25%. The spread on the loan depends on the credit worthiness

and past experience of the promoter. The experience of our promoters in the field of education, the

positive results in the pro-forma estimates despite conservative estimates of our project and pasttrack-record of timely repayment of borrowings by promoters is what will let us get the loan at an



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interest rate of 11.25% i.e. spread of 1% over the base rate of CBI. We believe that this would be a

conservative estimate of interest rate.

As per the credit rating model of a leading bank, our Credit Score is 1 on 10, which gives a poor credit

risk quality in the first year. However, this is for the first year of the project when we are not at full

capacity, over and after year 3 project’s credit capacity improves highly.

As per our discussions, the interest on the loan amount is considered to be charged on simple interest

basis during the construction period of one and half year (1.5 years). The interest accrued during the

first one and a half year is capitalized and paid in the subsequent years.

The total loan repayment period comes out to be 9.5 years with a moratorium being enjoyed on both

principal and interest payment during the construction period of 1.5 years.

The loan is effectively repaid in 8 annual instalments commencing from the end of the first year of

operations on an Equated Yearly Instalment basis.

Debt Repayment Schedule

The long-term loan has been taken for construction of the required buildings and infrastructure for

smooth running of the college. For the first 1.5 years the interest (finance cost) on the loan is not paid

when it’s due but is capitalized and added to the loan amount outstanding. Apart from the first 1.5

years the interest is repaid as and when it is due. The repayment of the outstanding loan begins in FY

2017 (1st year of operations) and the repayment is completed by FY 2024.

Short Term Loan

The short-term loan in our case will be taken in the form of cash credit line from CBI. This loan would

be availed to meet the repayment obligation of debt and to run the operations of the business.

2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Working CapitalRevolver 81.98 141.58 153.81 150.05 131.73 104.79 74.76 58.90 -

Particulars FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024

Opening Loan

Amount463.18 479.34 511.65 468.90 421.34 368.43 309.56 244.07 171.22 90.17

Finance Cost

Incurred16.16 32.31 57.56 52.75 47.40 41.45 34.83 27.46 19.26 10.14

Finance Cost Paid - - 57.56 52.75 47.40 41.45 34.83 27.46 19.26 10.14

Principal

Repayment- - 42.75 47.56 52.91 58.86 65.49 72.85 81.05 90.17

Ending Loan

Amount479.34 511.65 468.90 421.34 368.43 309.56 244.07 171.22 90.17 -



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Forecast of Financial Performance

As on 31st March 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Gross Revenues (in Rs. Mn.) 40.95 95.21 164.47 193.01 213.32 223.99 235.19 246.95 259.29

EBITDA (in Rs.

Mn) 17.66 54.45 103.01 125.32 140.72 148.60 156.27 164.33 172.79

EBITDA as %

Sales 43% 57% 63% 65% 66% 66% 66% 67% 67%

EBIT (in Rs.

Mn.) (21.38) 19.83 71.80 96.82 114.45 124.20 133.49 142.97 152.70

EBIT as % Sales -52% 21% 44% 50% 54% 55% 57% 58% 59%

PBT(in Rs. Mn.) (78.94) (45.22) 7.63 33.22 56.83 75.61 96.49 119.36 142.67PBT as % Sales -193% -47% 5% 17% 27% 34% 41% 48% 55%

PAT (in Rs. Mn.) (78.94) (45.22) 7.63 33.22 56.83 75.61 88.52 84.91 100.51PAT as % Sales -193% -47% 5% 17% 27% 34% 38% 34% 39%

Net Worth (in

Rs. Mn.) 36.86 (8.36) (0.73) 32.49 89.32 164.93 253.46 338.37 438.88

DSCR 0.18 0.43 0.87 1.03 1.18 1.27 1.30 1.16 NA

D/E 4.76 4.86 4.51 3.97 3.25 2.38 1.42 0.51 -Outstanding

Term Loan 468.90 421.34 368.43 309.56 244.07 171.22 90.17 - -

Project IRR 25.77%Equity IRR 43.13%

A detailed project report has been enclosed herewith along with other supporting documents to

corroborate the merit of the credit limit sought by Acumen Education. We hope to seek your

participation in the said venture. In the event of the need for any further clarification or information,

we shall be glad to provide the same.

Managing Director,Acumen EducationAugust 20, 2014



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ContentsBusiness Model ................................................................................................................................................................. 3

Total Cost .......................................................................................................................................................................... 3

Management and Promoter Group .................................................................................................................................. 4

Financing ........................................................................................................................................................................... 4

Debt Repayment Schedule ................................................................................................................................................ 5

Short Term Loan ................................................................................................................................................................ 5

Forecast of Financial Performance ................................................................................................................................... 6

Contents ............................................................................................................................................................................ 7

Acknowledgement ............................................................................................................................................................ 9

Management and Promoter Group ................................................................................................................................ 10

Credit Worthiness Analysis ............................................................................................................................................. 11

Project Proposal (Undergraduate Private Commerce College) ...................................................................................... 12

Porter’s Five Forces ......................................................................................................................................................... 15

Rationale ......................................................................................................................................................................... 16

Project Implementation Schedule .................................................................................................................................. 17

Project consultant ........................................................................................................................................................... 17

Operations Plan ............................................................................................................................................................... 17Infrastructure .................................................................................................................................................................. 18

Regulatory Compliance ................................................................................................................................................... 19

Forecast Assumptions ..................................................................................................................................................... 20

Fundamental Analysis ..................................................................................................................................................... 21

Liquidity and Coverage Analysis .................................................................................................................................. 21

Profitability Analysis .................................................................................................................................................... 22

Du Pont Analysis.......................................................................................................................................................... 22

Altman Z-Scores .......................................................................................................................................................... 23

NPV Analysis .................................................................................................................................................................... 23

Analysis of NPV, IRR and MIRR of the Project ............................................................................................................. 23

Project IRR ................................................................................................................................................................... 26

Equity IRR .................................................................................................................................................................... 26

Project MIRR ............................................................................................................................................................... 26

Equity MIRR ................................................................................................................................................................. 27

Pay-Back Period .......................................................................................................................................................... 27

Breakeven Analysis ..................................................................................................................................................... 27



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Sensitivity Analysis .......................................................................................................................................................... 28

Risk Mitigation ................................................................................................................................................................ 31

Real Options .................................................................................................................................................................... 32

Balance Sheet (Rs mn) as on financial year ending 31st March ..................................................................................... 33

Statement for Profit and Loss for Years Ended (Rs mn) .................................................................................................. 34

Cash Flow Statement (Rs Mn)For Year Ended: ............................................................................................................... 35

Annexure ......................................................................................................................................................................... 36



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Acknowledgement

We would like to take this opportunity to thank the following individuals for their contribution to our

project. Without their valuable guidance and support, this project would not have been feasible.

Mr. Lawrence Francis, Founder, Lawrence-Kunj and associates.

Mr. Bino Jose, Librarian, XLRI Jamshedpur.

Mrs. Anshu Jha, Central Bank of India, Jamshedpur Branch.

Mr. Kamlesh, Accounts Department, XLRI Jamshedpur.

Mr. Ravi and Mr. Vinay, IT Support, XLRI Jamshedpur.

We would also like to express our sincere gratitude to Prof. S.S., Finance Area, XLRI Jamshedpur. He

has been a constant source of inspiration and the guiding light behind this project.

August 20, 2014

Jamshedpur



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Management and Promoter Group

Acumen Education Pvt. Ltd. is a venture by four Business Management graduates from XLRI

Jamshedpur to provide quality Under-graduate education in and around the areas of Jamshedpur. The

promoter group intends to sub-lease the land in the Sonari area and set up a state-of-the art Under-

graduate University. The promoter group comprises individuals with commendable professional andeducational background. None of the promoters have ever been on the defaulter’s list which in turn

makes sure that they are very high on credit worthiness. All of the Promoters have a very strong

credit worthiness and have never been accused of any kind of immoral behavior and have never been

on the defaulter’s list. A brief snapshot of the Promoter group is given below. The complete

biographies are attached in the appendices.

A Brief Profile of the Promoters is mentioned here-under. The complete CV’s of the promoters are

attached in the appendix:

Ram Kumar Agarwal was a senior consultant in a global Consulting Firm. Prior to that he was apartner with a leading wealth management firm and before that he served as a senior manager in

the Credit Risk Management Group of leading bank. He is an alumnus in Business Management

from XLRI Jamshedpur and an economics graduate from St. Stephens College.

His work experience includes

Senior Consultant, Delloite Consulting LLP (2007-2013)

Partner, Burt Wealth Advisors (2005-2007)

Senior Manager, Credit risk management group, CITI Bank (2003-2005)

Sajjan Bansal served on the board of SEBI. He was also a global business consultant for a

prestigious consulting firm for several years. Prior to that he washead of Statutory Audit and

Compliances department for one of the big four Audit firms. He is a commerce graduate in

accounting and finance from St. Xavier’s College Kolkata and is also a Qualified Chartered

Accountant and Cost Accountant. His comfort with numbers and shrewd business strategies and

analytical acumen ensures a smooth development of finances and business strategies.

His work experience includes:

Whole-time Manager, Securities Exchange Board of India ( 2009-2013)

Senior Consultant, Monitor Group (2005-2009) Senior Mgr. , Statutory Audit and Compliances, Price Waterhouse Coopers (2001-2005)

Naresh Modiwas a board member of the West Bengal Higher Secondary Board. He served as

senior manager in a global Private Equity firm after starting his career in an equity research

company. He is a qualified CFA charter holder and an alumnus in Mechanical Engineering from IIT

KGP and Business Management from XLRI Jamshedpur. He has worked across sectors in key roles

in finance with bulk of experience coming in the banking and oil and gas sector.

His work experience includes

Board Member, West Bengal Higher Secondary Board (2011-2013) Senior Manager, Leonard Green and Partners (2007-2011) Senior Analyst, Nomura Equity Research (2005-2007)



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Pushkar Gupta has worked with the Government of India in the Human Resource Development

Ministry. His most recent stint has been as the Joint Secretary in the Ministry. He is an IAS officer

of batch of 1990. He has worked with MHRD on several initiatives and projects undertaken by

different elected governments to increase private sector participation in education sector. He has

an engineering degree from IIT Guwahati and is an MBA from XLRI Jamshedpur.

Credit Worthiness Analysis

Based on the traditional 5-C model, the following is a credit worthiness check on the promoter group,Acumen Education

1. CHARACTER: The promoters of the trust have maintained a sound professional record with anin-depth understanding of the Education industry. With a strong pedigree in professionaleducation, they have gone on to establish their claim by working with reputed firms in theconcerned industry.

2. CAPITAL: 20% of the investment will be made by the promoters themselves. The promotergroup has already undertaken negotiations in executing the land sub-lease from Tata Steel Ltd.to establish the undergraduate college in Jamshedpur. We can safely assume a growingdemand and high profitability for under graduate education in Jamshedpur. Hence, thepromoters’ capital is not only expected to stay protected but would also grow in the future.

3. CAPACITY : As the business is catering to an ever increasing demand of quality education incourses like BCOM, BBA, BFIA and BA Eco in the under-graduate the overall performance of theventure is expected to improve in the future. Given the prominence of Jharkhand as a major

industrial hub with burgeoning middle class and considering the fact that its cities are wellconnected in terms of rail and road, the students from other parts of the state would find itconvenient to study in Jamshedpur. The case for growing demand in the under-graduateeducation business has been established in a very big way in the subsequent portions of thereport. Moreover, there are few competing colleges offering same program with high quality inthe area hence we can safely expect that within few years of operations we will be operating atfull capacity.

4. COLLATERAL: The University would be constructed on the land sub-leased from Tata SteelLtd. The 7-acre land is located on C.H. Road, Sonari area next to Military camp of Jamshedpur.The promoters would own the college establishment in terms of the infrastructure assets andthe capital expenditure thus incurred. The fixed assets would be offered as the collateral to thelender.

5. CONDITION: While the case for the growing demand and the financial suitability of theenterprise would be dealt with in a very prominent way for most parts of the report, it issufficient to mention here that the growth and demand for under-graduate education is onlybound to increase in India. Already home to two quality institutes like XLRI and NITJamshedpur, the region has substantial number of students who want to pursue non-engineering courses but have to go out of the state to pursue the same. We look at this ventureas a feasible and a quality alternative to cater to this huge demand.



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Credit Worthiness: Numerical Scorecard

The attempted calculation of the numerical score for the credit worthiness of the project displays astrong performance. The scores improve from 1.0 to 6.1 on a 10 point scale during the explicitforecast period.The scorecard includes ratios/indicators from profitability and liquidity considerations.

Parameter Total D/ENet

Debt/EBITDA

Current

RatioROE

EBIT

Interest

Coverage

DSCR NPMEBITDA margin

trendTotal

Weights 0.5 2 0.25 0.25 2 1 2 2 10

Value(FY2017) 4.76 30.84 3.89 (2.14) 0.32 0.18 (1.92) -

Score 1 1 8 1 1 1 1 1.0

Value(FY2018) 4.86 10.16 3 5.41 0.81 0.43 (0.48) Favourable

Score 1 1 7 10 1 1 1 10 3.2

Value(FY2019) 4.51 4.97 2.1 (10.5) 1.83 0.87 0.046 Favourable

Score 1 1 5 1 4 2 1 10 3.6

Value(2020) 3.97 3.58 1.89 1.02 2.5 1.03 0.172 Favourable

Score 3 3 4 3 6 3 1 10 4.6

Value(2021) 3.25 2.59 1.79 0.64 3.4 1.18 0.27 Favourable

Score 4 5 4 2 7 3 1 10 5.3

Value(2022) 2.38 1.78 1.78 0.46 4.64 1.27 0.34 Stable

Score 6 7 4 1 10 3 1 5 5.3

Value(2023) 1.42 0.98 1.77 0.35 6.78 1.3 0.38 Stable

Score 8 9 4 1 10 3 1 5 5.8

Value(2024) 0.51 0.28 1.76 0.25 11.48 1.16 0.34 Stable

Score 9 10 4 1 10 3 1 5 6.1

Project Proposal (Undergraduate Private Commerce College)

Business Model

The Business Model is to develop and operate an Undergraduate commerce college in Jamshedpur,Jharkhand at Sonari. The above said location is currently leased by (Indian Army) and we havedecided to sub-lease the land from m/s Tata Steel Ltd. We plan to construct an academic block,residential hostel and library along with other land development for sports activities and parking. Thecollege is expected to enrol a total of 900 students across all the disciplines and years of degree at aparticular point in time once the college reaches its full capacity i.e. in 2019. We are targeting wards(who want to pursue non-medical and non-engineering education) of working middle and upper classpopulation in state of Jharkhand. We expect an increase in their already high affluence with growingindustrialisation of the state and a commensurate increase in their buying power. We also believe thatthis market is uncontested space till date and is expected to remain so in the near future.

We will attract and recruit full-time faculty to provide quality education to our students in order toestablish a strong brand (as a provider of solid educational foundation) for our college amongst the



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student fraternity. We forsee a shortage of faculty in this state but we intend to attract them fromneighbouring states where higher educational faculty are plenty for example Kolkata (West Bengal)and Bhubaneswar (Orissa).

Theme

To develop a UG commerce collegecampus in Jamshedpur within an area of 28,338 sqm. The main

idea is to capture UG commerce education demand in Jharkhanddue to absence of such an institute.We propose a business plan which is essentially exploiting a market gap in Jharkhand’s Education

Industry. We hope that this institute will cater to the growing demands of the city and the adjoining

districts in the state.Education Industry outlook

A Macro-Economic Perspective

Education in India

The Indian education sector is said to be one of the largest sun rise sectors of the Indian economy.

According to the India Ratings1 report on Education sector in India, the market size of Indian

education sector is set to increase to Rs. 602,410 crore ($109.84 billion) by FY15 from Rs 341,180

crore in FY12. This increase is majorly due to the increased emphasis on quality education by the

Indian middle class. The compounded annual growth rate (CAGR) of the education sector over the

period FY05-FY12 was 16.5%.

At present there are about 7002 universities and around 35,000 colleges. 85% of these students are

pursuing bachelor’s degree and about 16% of this student population is pursuing engineering and

technology programmes. But recently a huge spurt has been seen in the number of students opting for

commerce and arts courses. The government intends to increase the number of students going in forhigher education to 30% by 2020 and to fulfill this goal India needs around 35,000 3 colleges.

Although the Government’s expenditure spend on education is 3.35% of the GDP (FY12 Budget

estimates) the quality of education in the government run institutes as well as the infrastructure of

these institutes is abysmally poor. Therefore, there is a need of private institutes in the country.

Why Jamshedpur?

Jamshedpur, which is predominantly an industrial city, is the largest urban conglomeration4 of

Jharkhand. It houses factories of Tata steel, Tata Motors, Tinplate, etc. All the middle level and seniorlevel managers of these companies reside in Jamshedpur. There are also many small scale industries

located in Adityapur Industrial Estate. Adityapur has also been a major industrial hotspot for many

years. Thus, there is no doubt as to the buying power of people residing in Jamshedpur.

Jamshedpur is very well connected to other major cities in the country and there are frequent bus

services available from Jamshedpur to other neighboring major cities such as Ranch and Kolkata.

1 India ratings 2013 Outlook: Indian Education Sector2 India Brand Equity Foundation – www.ibef.org updated as of June 14, 20143 Estimate of Ministry of Human Resource Development (HRD)4 www.wikipedia.com

http://www.ibef.org/






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Jamshedpur has a high literacy rate of 85.94%4 much higher than national average of 74%. It also has

good quality schools such Sacred Heart Convent, Loyola school which will help our institute get the

required number of students per year. Thus, because Jamshedpur performs exceptionally well on the

parameters of demographics, connectivity and buying power we chose Jamshedpur as the location of

our institute.

Jharkhand Market Size: Commerce College

We have estimated the market size by using:

A bottom up approach with the help of primary data gathered from schools in and aroundJamshedpur.

A top-down analysis by gathering secondary data from the data provided through NCERT.

From both the above approaches the estimated demand per year is c.3000 from top-down approach

and around 30% of the students enrolling for higher education as per bottom-up approach.

SWOT Analysis

Strengths

• Experienced and qualified

promoters

• Unique Location

• Professional Management

• Highly credible promoters

Weakness

• Promoters unfamiliar with

government machinery in the

state and lack the right network

of stakeholders

• Promoters handling the project

for the first time

• Promoters Lack the marketing

knowhow for going to marketOpportunity

• Very big middle class population

• Increasing literacy rate

• Lack of good institution in the

area

• Rising demand for quality non-

science undergraduate

institutions

• Excellent infrastructure in

Jamshedpur (good connectivity)

Threats

• Migration of students to

other states (e.g. Kolkata)

• Greater inclination towards

engineering

• Lack of availability of

lecturers and professors



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Porter’s Five Forces

1. Threat of New Entrant: Threat of new entrant and Competitive Rivalry is low (L) due to two main

reasons –

- High regulatory requirements in the state to open a college of this size and stature

- The long run effort required to build up reputation to run a college successfully

2. Buyer Power: Buyer Power and Threat of Substitution is low for this type of college as there is no

other college in Jharkhand which offers courses in B.Com, BBA, and BFIA etc. This will be a unique

opportunity for the students of Jharkhand to pursue these upcoming degree courses.

3. Supplier Power: The supplier power in our case is high because it is very difficult to retain

professors in a state like Jharkhand where the culture of such degree courses is not very prevalentand many employers of the talent do not exist.

4. Substitutes Power: Although there are many other courses which are remote substitutes for the

target market, the courses offered cover majority of the commerce undergraduate courses and so

students will definitely find the degree mix of the college exhaustive for their undergraduate

degree consideration set.

5. Competitive Rivalry: Due to growing nature of the market and absence of a university offering

such courses with a strong brandname the college will rarely face any rivalry.

6.

Overall the project is very attractive due to combination of the above mentioned market dynamics inthe industry.

Competitive

Rivalry (L)

Threat of

New

Entrant (L)

Buyer

Power (L)

Threat of

Substitution

(L)

Supplier

Power (H)



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7. The profitability of such projects will be very high because of high bargaining power of the college

which will translate into premium fees and full capacity this can be observe from high EBITDA margins

that are projected in our report as well as looking at Industry EBITDA which is about 45-55%.

Rationale

Increasing Demand of Higher education in Jharkhand

The Indian middle class has woken up to the need of quality education. The aspiring middle class of

our country sees higher education an essential requirement for a smooth career of their children.

Jharkhand is no exception to this trend. It has a population of around 3.3 croresand a literacy rate

which has seen major correction from 53.56% in 2001 to 66.41% in 2011. The trend of past data

suggests that more and more students of the state are going for higher education. Therefore, the

demand for higher education in this state is bound to witness a huge spike. But to cater to thisincreased demand there are hardly a few good institutes and even lesser to satiate the demand of

students aspiring for commerce education.

Why a Commerce College?

During our preliminary analysis we found out that Jharkhand has premiere institutes in the field of

engineering (NIT Jmashedpur, BIT Mesra). Jharkhand also houses the world-renown XLRI which runs

postgraduate programmes in management. Even medical aspirants have been catered to by the

opening of Rajendra Institute of Medical Sciences (RIMS, Ranchi). But what it lacks is a good quality

commerce college which offers courses for undergraduate students.

The feedback that we got from the academic fraternity regarding quality of education being offered in

Kolhan University with which our college experiences some overlap regarding the courses being

offered wasn’t positive. Therefore, we feel that Jharkhand has huge unmet demand for a good quality

commerce college. In fact, as of now students willing to pursue commerce at undergraduate level are

being forced to shift base to either New Delhi or Mumbai, just because of lack of a good quality

Commerce college in the state.

Why a not a Medical or an Engineering College?

Jharkhand already has a well-established engineering college and a medical college, NIT-Jamshedpur

and RIMS respectively. Existing presence of such big names in the state would make it tough for a

private medical or engineering college to carve a niche for itself within a few years.

Another factor influencing our decision is that the investment required to establish an engineering

college is much higher than that to set-up a commerce college because engineering colleges have

multiple streams and each of these streams require independent labs. Building these labs is extremely

expensive. The same is true for medical colleges. The equipment in these labs is also a huge expense.



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Attracting and recruiting faculty for medical and engineering colleges away from government colleges

in Jharkhand or getting faculty from other states to our college would also be extremely tough.

Therefore, we didn’t consider opening a Medical or Engineering college in Jharkhand.

Project Implementation Schedule

Tasks Start Date Completion Date

Month Ending

Land Acquistion Sept2013 Sept2014

Loan application & award Jan 2014 Sept 2014

Construction Sept 2014 Mar2016

External Development Sept2014 Mar2016

Hostel Construction Mar2015 Mar2016

Academic Block Mar2015 Jan, 2016

Libarary construction Sept 2014 Mar2016

Project consultantWe have hired reputed Consultants to conduct and provide a preliminary feasibility of the proposed project.

The key financial inputs are based on the discussions between us and various specialists:

Project Consultants

Architect Yogesh Katyal of KalpaakritiStructural Designer N.K. Shah Structural Engineers

Contractor Lawrence Francis of Lawrence-Kunj &Associates

Legal Counsel Luthra & LuthraEducation Sector Consultant Ankur Jain from TIME Education

Operations Plan

Items Details

Degrees conferred Bcom/BBA/BCA/ B. Econ/ BFIA

Students per degree per year (students in one class room) 60

Intake per year 300

Total Students Bcom 180

Total Students BBA 180

Total Students Econ 180Total Students Bachelor of Finance and Investment

Analysis 180

Total Students BCA 180

Total Students in the College at any time 900

Shifts 8:00 am to 1:00pm and 2:00pm to 7:00 pm

Total hrs of classes per week 20 hrs

Total Months in a Semester 4

Total Semesters in a year 2

Semester 1 July to October



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Semester 2 December to March

Total Amount of Faculty 22

Infrastructure

Land

We propose to lease a land area of 7 acre to house:

1. Academic block

2. Library

3. Hostel

Along with the same we propose to develop the remaining 80% of the land for roads, sewage systems,

street lamps, playing fields and parking. We are keeping so much land for two reasons a) In order to

have an option to expand in the future if the demand is higher than we expected b) To avoid

competition by blocking the available land in Jamshedpur (we might also sublease / rent the same for

family functions, school events and other events requiring land for the functions).

Academic Block

We propose to build a 3 floor academic building with area of 1500sqm with 8 Lecture halls, 1 Staff

room, 2 computer labs with 60 computers each and internet available in the academic area with Wifi.

First two floors will house the lecture halls and the third floor will house faculty offices. The whole

block will have AC through independent units. The academic block will also have Projectors & audiovisual instruments as well as other IT equipment such as printers and Xerox. Academic block will have

adequate furniture and fixtures for students as well as faculty for conducting classes.

Library

Library will be housed in an air-conditioned single floor building with area of 650sqm. It will include

adequate sitting furniture such as Tables and chairs as well as book wracks of steel on the lines

similar to the library at XLRI. We estimate that the total book requirement and hence total books in

the library will be 7200 books. This is after taking into account 3 books requirement per enrolled

student and 100 books requirement per faculty.

Hostel

We plan to build a hostel with capacity of 450 residents in the area of 1860sqm. There will be two

building each of 930 sqm one with 4 floors and other with 5 floors because it is difficult to construct a

high-rise building in Jamshedpur due to geological reasons. Hostel will also have mess facility housed

in one of the buildings. The student rooms will have spartan furniture for e.g. cots, table and chair and

mess will have cooking equipment for catering and cooking for residents.



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The major Components of cost are given below:

Head Cost

Building 463.97

Land & Site Development 39.27

Furniture& Fixtures 20.77

Kitchen & Washing Equipment 1.00Electronic & Other Misc. Equipments 7.34

Preoperative Expenses 8.14


Sub Total Capex 543.31

Working Capital Margin 5.58

Contingency Costs 29.87

Total Capex 578.76

Regulatory Compliance

Registration as a society under Societies Recognition Act, 1860

Obtaining “No Objection Certificate” from the Directorate ofHigher Education (DoHE)

Sub-Leasing the Land Required

Affiliation with a recognised University ( Ranchi University)

Follow the guidelines stated by UGC.



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Forecast Assumptions

Revenue from student fees

The student demand forecast is done by both a top-down approach and a bottom-up approach.

In the bottom-up approach we gathered primary data from schools in and around Jamshedpur.

Other places we considered include Bokaro, Ranchi and Dhanbad

We have assumed that we would provide for five degree courses with a maximum capacity of 60students in each course per year i.e. a total intake of 300 students.

In the bottom up approach we found that 30.62% of the total students in the schools take up non-science courses mainly commerce.

In the top down analysis we calculated the demand in Jharkhand by taking the data of number ofstudents enrolled in major districts in Jharkhand in class 12 and found that at least 3370 studentswould want to take up the courses offered by us. We expect that about 10% (a conservativeestimate) i.e. 300 students to take admission in our college.

We have assumed that in the first year of commencement i.e. FY2017, only 70% of the studentcapacity is utilized thus assuming that 210 students take admission in the first year. We have alsoassumed that the increase in capacity utilization increases to 85% in the second year and thenreach our maximum capacity henceforth.

We have assumed the fees to be INR 1.5 lakhs per year and have grown the fees at the rate of 5%YoY which is also equal to the inflation rate in education industry. Thus our revenues from studentfees have increased from INR 31.5 Mn in FY2017 to INR 199.46 Mn in FY2025, a CAGR of 25.94%.

The Operating Expenses are all estimated line-by-line using a top-down analysis, where this teamhas gone into great detail as to estimate minute details of the expenses, The detailed calculationsare provided in the Annexure.

-

50

100

150

200

250

300

FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025

I n R s M n

Revenue Growth & Breakup

Fees Revenue Hostel Revenue



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Revenue from Hostel fees

The hostel demand forecast for students is done by estimating the expected no of students perannum.

The maximum capacity for hostel accommodation is capped at 450 students. We have alsoassumed that only 50% of the incoming batch is given hostel accommodation.

In the first year of commencement i.e. FY2017, we have provided hostel accommodation to 105students and have reached our peak hostel capacity of 450 students in FY2019.

We have charged an annual hostel fee of INR 90K and have grown the same at the rate of 5% i.e. atthe inflation rate in the education industry.

We have also assumed a hostel outsourcing margin of 60% in FY2017 which has grown to 70% inFY2019 after which it is kept constant at the same level in our explicit forecasting period. We payhigh outsourcing costs initially because our hostel facilities are not fully operational and thus wepay higher. When we reach our maximum capacity in FY2019, we keep a higher amount of hostel

revenues with us and is constant in line with maximum hostel capacity henceforth. Net revenues (Inclusive of hostel outsourcing margin) has increased from INR 5.67 Mn in FY2017

to INR 41.89 Mn in FY2025, a CAGR of 28.4%.

The operating expenses are estimated line-by-line with a detailed estimation of each minutecomponent, the details of these are present in the annexure

Fundamental Analysis

Liquidity and Coverage Analysis

We can see that the DSCR of our company is low in the first few years this is because it takes time

before the admissions in the college pick-up. The DSCR of the company is greater than one 2020

onwards

The current ratio of the company is high in the 2017 but then it starts declining. This is because of

the working capital loan that the company takes to meet its operational cost and also its long-term

loan repayment

Interest coverage ratio for our company is increasing significantly over the years this is because

the long-term loan gets repaid over the years and also the operating income of the college

increases with time

2017 2018 2019 2020 2021 2022 2023 2024

DSCR 0.18 0.43 0.87 1.03 1.18 1.27 1.30 1.16

Current Ratio 3.89 3.00 2.10 1.89 1.79 1.78 1.77 1.76

Quick Ratio 3.28 2.55 1.77 1.58 1.50 1.50 1.49 1.49

Interest Coverage 0.32 0.81 1.83 2.50 3.40 4.64 6.78 11.48



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Profitability Analysis

2017 2018 2019 2020 2021 2022 2023 2024 2025

Operating Margin -52.2% 20.8% 43.7% 50.2% 53.7% 55.4% 56.8% 57.9% 58.9%

Net Profit Margin -192.8% -47.5% 4.6% 17.2% 26.6% 33.8% 37.6% 34.4% 38.8%

Operating Leverage (1.17) 3.25 1.62 1.45 1.37 1.32 1.29 1.27 1.25

Financial Leverage 0.27 (0.44) 9.41 2.91 2.01 1.64 1.38 1.20 1.07

Total Leverage (0.32) (1.42) 15.26 4.22 2.75 2.17 1.79 1.52 1.33

In the initial years the Net profit margin is negative. This is because of the burden of interest costs.

These interest costs reduce as and when the repayment of loan takes place. The Net profit Margin

for our company shall stabilize at around 38% in the long run

The operating margin for our company is initially negative this is because of lower number of

admissions in the first year but as we have more number of students the fixed costs get

apportioned over larger number of students and leads to an increase in margins

Financial leverage of our company is initially high as we have both long-term loan and Working

capital loan but with repayment of loan it starts getting reduced

Du Pont Analysis

2017 2018 2019 2020 2021 2022 2023 2024 2025

ROE (2.14) 5.41 (10.48) 1.02 0.64 0.46 0.35 0.25 0.23

PAT/Net Sales -192.8% -47.5% 4.6% 17.2% 26.6% 33.8% 37.6% 34.4% 38.8%

Net Sales/TA 6.9% 17.1% 31.2% 38.7% 45.2% 49.9% 55.2% 60.9% 57.9%

TA/Total Equity 16.0 (66.8) (723.7) 15.3 5.3 2.7 1.7 1.2 1.0

ROE is negative in 2017 is because our Net profit margin is negative in the initial years this is

because of the interest cost of the loan that is taken and also because demand shall take time to

pick up

From the asset turnover ratio we can see that it is only with time i.e. as and when the demand

increases the assets starts to get utilized efficiently. Our major assets are the buildings that we

have constructed



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Altman Z-Scores

The Altman Z-score for our company is very low for the first 5 years. In fact the company lies in

the distress zone. The Z-score improves after that but still the company is in the grey zone w.r.t

bankruptcy

There has been huge investment in buildings and therefore the book value of the these buildings

is high. The rating is inversely related to the book value of the assets and this is the reason that

our company gets a low Altman Z-score

The main reason for low Altman Z-score is the negative working capital that our company has but

this is because the tuition fee is collected in advance from students

NPV Analysis

Analysis of NPV, IRR and MIRR of the Project

To evaluate the feasibility of the project we will be using the SCF techniques as we have already learntthat they are superior to any other techniques.

Actual tax paid is Zero till FY 2022 as the business losses of the previous years were set off. Postwhich, we have taxed the taxable income at 30% plus the applicable cess.

Denominator:

Unlevered Cost of Equity (ρ)

We have calculated the NPV of the project using the Adjusted Present Value Method

We acquired the asset betas or the unlevered betas of comparable firms in the educationbusiness from yahoo finance.

The overall unlevered beta or asset beta of Acumen Education is calculated by taking the meanof the asset betas of firms in the education business.

For Pvt. Firms 2017 2018 2019 2020 2021 2022 2023 2024 2025

WC/TA 0.718 (0.13) (0.24) (0.28) (0.29) (0.27) (0.22) (0.16) (0.13) 0.15

RE/TA 0.847 (0.13) (0.22) (0.22) (0.17) (0.06) 0.11 0.32 0.55 0.72

EBIT/TA 3.1 (0.04) 0.04 0.14 0.19 0.24 0.28 0.31 0.35 0.34

BE/TL 0.42 0.06 (0.01) (0.00) 0.07 0.19 0.37 0.59 0.83 0.98

Sales/TA 0.998 0.07 0.17 0.31 0.39 0.45 0.50 0.55 0.61 0.58

Z Score (0.22) (0.09) 0.34 0.67 1.04 1.45 1.93 2.42 2.77

Zone Distress Distress Distress Distress Distress Grey Grey Grey Grey



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Levered Cost of Equity

Levered Cost of Equity can be given by the equation

ρ +( ρ-kd)*D/E = ke

Where

D = Market value of Debt

E = Market Value of Equity

ρ = Unlevered Cost of Equity

Kd = Cost of Debt

Ke = Levered Cost of Equity

However, here we note that the Debt and Equity both are market values hence we see a circularityproblem, so in order to avoid that we used the Goal-Seek function to arrive at correct values of Equityand Levered Cost of Equity (Ke).

Weighted Average Cost of Capital

Now the WACC can be calculated by using both Kd, Ke and estimated market values of equity andbook value of debt each year.

Item Value

Asset Beta 0.68

Effective Tax Rate 30.9%

Risk Free Rate 8.50%

Market Risk Premium 7.12%

Unlevered Cost of Equity 13.34%

Remarks:

Risk free rate of return is taken as the yield on 10-year government bonds



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Numerator:

APV Method

1) In APV method we have estimated the FCF by the following steps2) We calculate the EBIT for respective years3) Then we calculate the Taxable EBIT by taking the Depreciation as per IT Act into consideration

and adding the interest expense on long term loan as well as the working capital revolver4) Then this income is adjusted for carry-forwards of tax-credits and then the tax payable is

estimated5) Then we substract this tax payable from EBIT and add back book depreciation and subtract

any investments in WC or CAPEX and then add back any debt repayments

Terminal Growth Rate has been assumed to be 8.50 % (current risk free rate)Terminal Value = 2863.29


DF (Rho

13.34%)

0.88 0.78 0.69 0.61 0.53 0.47 0.42 0.37 0.32

FCFF 17.55 56.45 101.06 100.11 109.54 114.06 118.26 122.83 127.77

Terminal

Value

(g=5%)

2863.29

PV 15.48 43.94 69.41 60.66 58.56 53.80 49.21 45.10 968.99

Unlevered

Value

1365.16 1,529.75 1,677.40 1,800.13 1,940.19 2,089.51 2,254.22 2,436.71 2,638.98 2,863.29

Tax Shield - - - - - - 121.62 7.30 3.10

P.V. of Tax

Shield

54.30 61.54 69.75 79.06 89.60 101.56 115.11 8.85 2.73 0.00

Enterprise

Value

1419.46 1,591.29 1,747.15 1,879.19 2,029.80 2,191.06 2,369.32 2,445.56 2,641.71 2,863.29

Debt 511.65 550.88 562.91 522.24 459.61 375.81 276.01 164.93 58.90 -

Equity Value 907.81 1,040.41 1,184.23 1,356.95 1,570.19 1,815.26 2,093.31 2,280.63 2,582.81 2,863.29

D/E 0.56 0.53 0.48 0.38 0.29 0.21 0.13 0.07 0.02 -

Ke 14.52% 14.15% 13.89% 13.72% 13.60% 13.50% 13.43% 13.37% 13.30% 13.34%Kd 11.25% 11.81% 12.19% 12.35% 12.47% 12.56% 12.67% 12.95% 15.00% 0.00%

WACC 12.09% 12.08% 12.13% 12.28% 12.47% 12.68% 12.89% 13.07% 13.24% 13.34%


EBIT (21.38) 19.83 71.80 96.82 114.45 124.20 133.49 142.97 152.70

Taxable EBIT (48.13) (2.43) 52.75 80.46 100.50 112.46 123.77 135.09 146.47

Taxable EBIT

(Carry Forward)

2.18 80.46 100.50 112.46 123.77 135.09 146.47

Tax Paid If no

Loan

- - (0.67) (24.86) (31.05) (34.75) (38.24) (41.74) (45.26)

Add: Dep. 39.04 34.62 31.21 28.50 26.27 24.40 22.78 21.36 20.09

Capex 0 0 0 0 0 0 0 0 0

Change in WC (0.11) 2.00 (1.28) (0.35) (0.13) 0.21 0.23 0.24 0.24

FCFF 17.55 56.45 101.06 100.11 109.54 114.06 118.26 122.83 127.77



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Project IRRFY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025

FCF 17.55 56.45 101.06 100.11 109.54 114.06 118.26 122.83 127.77

Terminal Value 2863.29

Initial

Investment

-627.45

Project IRR 25.77%

Equity IRRFY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025

EBIT (21.38) 19.83 71.80 96.82 114.45 124.20 133.49 142.97 152.70

Tax Paid - - - - - - (7.96) (34.45) (42.16)

Capex 0 0 0 0 0 0 0 0 0

Change in WC (0.11) 2.00 (1.28) (0.35) (0.13) 0.21 0.23 0.24 0.24

Add: Dep 39.04 34.62 31.21 28.50 26.27 24.40 22.78 21.36 20.09

LT Debt Repaid (42.75) (47.56) (52.91) (58.86) (65.49) (72.85) (81.05) (90.17) -

ST Debt Repaid 81.98 59.60 12.23 (3.76) (18.31) (26.94) (30.03) (15.87) (58.90)

Interest Paid (57.56) (65.05) (64.17) (63.60) (57.61) (48.59) (37.00) (23.61) (10.02)

FCFE -115.80 (0.79) 3.44 (3.11) (1.26) (0.83) 0.43 0.45 0.48 61.94

Terminal Value 2863.29

-115.80 -0.79 3.44 -3.11 -1.26 -0.83 0.43 0.45 0.48 2,925.23

Equity IRR 43.13%

Project MIRR

As we see that the MIRR of the project is well above the WACC. Hence it is a feasible project and will add wealth.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%


Project MIRR vs WACC

WACC Project MIRR


FCFF 17.55 56.45 101.06 100.11 109.54 114.06 118.26 122.83 2,991.06WACC 12.08% 12.13% 12.28% 12.47% 12.68% 12.89% 13.07% 13.24% 13.34%

Re-investment Factor 2.61 2.33 2.08 1.85 1.64 1.45 1.28 1.13 1.00

Value at the end of 9 years (627.45) 0 0 0 0 0 0 0 0 4,199.06

Project MIRR 23.52%



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Equity MIRRFY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025

FCFE (0.79) 3.44 (3.11) (1.26) (0.83) 0.43 0.45 0.48 2,925.23

Cost of Equity 14.15% 13.89% 13.72% 13.60% 13.50% 13.43% 13.37% 13.30% 13.34%

Re-investment

Rate

2.76 2.42 2.13 1.87 1.65 1.46 1.28 1.13 1.00

Value after 9

years

115.80 0 0 0 0 0 0 0 0 2,922.8

Equity MIRR 43.15%

As the Cost of Equity is less than the equity MIRR it will add value to the shareholders wealth

Pay-Back Period

We have calculated the payback period, which is the time that their capital would be invested in thecompany. It comes out to be 7 years and 3 months from the gestation period.

FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026

FCFF 17.55 56.45 101.06 100.11 109.54 114.06 118.26 122.83 127.77 138.63

Cash Flow 17.55 74.00 175.05 275.16 384.70 498.76 617.02 739.85 867.61 1,006.24

Initial 627.45

Pay Back Period- 7 years and 3 Months

Breakeven AnalysisFor Year 2017

For our project to break-even in the FY 2017 (on a profit before tax basis in the first year of

operation), the tuition fee to be charged per annum per student comes out to be Rs 2.65 lakhs.

For Year 2018

For our institute to break-even by FY 2018 (on a profit before tax basis in the second year of

operation), the tuition fee to be charged per annum per student comes out to be Rs. 2.48 lakhs.

If we charge the same fees i.e. 1.5 lakhs per student per annum then we find that even if we operate at

full capacity we are unable to break even on PBT basis in the first year of operation.

0.00%

5.00%

10.00%

15.00%20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%


Equity MIRR vs WACC

Cost of Equity Equity MIRR



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Sensitivity Analysis

Rho vs Groth rate

Growth

Rho

1,419 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0%

12.5% 1,373 1,464 1,574 1,713 1,890 2,128 2,460

12.8% 1,313 1,394 1,492 1,614 1,767 1,968 2,24113.0% 1,258 1,331 1,419 1,525 1,659 1,831 2,059

13.3% 1,208 1,274 1,352 1,446 1,563 1,711 1,905

13.5% 1,161 1,221 1,291 1,375 1,478 1,607 1,773

13.8% 1,118 1,172 1,235 1,311 1,402 1,515 1,658

14.0% 1,077 1,127 1,184 1,252 1,333 1,433 1,557

14.3% 1,040 1,085 1,137 1,198 1,271 1,359 1,468

The Sensitivity analysis above suggests that NPV is highly sensitive to rho and growth rate

The Beta unlevered used is 0.68, the risk free rate is 8.5% and the equity risk premium is 7.12% 5.

The rho for our business comes out to be 13.34% and the growth assumed id 8.5%

As we can see that despite conservative assumptions the NPV of the project is strong and

therefore, this project has tremendous potential

NPV vs Change in Staff Salary

Staff salary forms a major portion of our costs and therefore we thought of studying the sensitivity of

NPV with respect to staff salary. At present we have assumed that each professor on an average

charges Rs 8 lakhs per annum even if there was a 15% increase in this salary we would have a good

NPV for this project.

5 Calculate by Mr. Pitabas Mohanty

Change in

Staff Salary

NPV (Rs

mn)

-15% 1,446

-10% 1,437

-5% 1,428

0% 1,419

5% 1,410

10% 1,402

15% 1,393



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PV vs Change in Student FEE

Since, student fee is our only source of revenue it is important to study the impact of change in student fee peracademic year on NPV. A fall of 15% in student fee from the current Rs 1.5 lakh per annum would result in a fall in

NPV but only to 1,236 mn. Thus, this project has huge potential

Project MIRR vs Staff Salary

It is important to study the impact of staff salary on project MIRR. In the worst case a 15% increase in staff salary will

lead to reduction in project MIRR by 1.3%

Change in

Student

Fee

NPV (Rs

mn)

-15% 1,236.84-10% 1,297.57

-5% 1,358.45

0% 1,419.46

5% 1,480.60

10% 1,798.50

15% 1,954.71

%Change in

Staff Salary

%Change in

Project MIRR

-15% 1.3%

-10% 0.8%

-5% 0.4%

0% 0.0%

5% -0.4%

10% -0.9%

15% -1.3%



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Project MIRR vs Change in Student Fee

The impact of change in student fee is observed over project MIRR. A 15% reduction in student fee leads to an

approximate 9% reduction in project MIRR.

Interest Rate vs NPV

% change inInterest rate

% change inNPV

-13.333% -0.63%

-8.889% -0.42%

-4.444% -0.21%

0.000% 0.00%

4.444% 0.21%

8.889% 0.43%

13.333% 0.66%

17.778% 0.89%

Interest Rate vs Equity MIRR

% change inInterest Rate

% change inEquity MIRR

-13% 0.62%

-9% 0.42%

-4% 0.21%

0% 0.00%

4% -0.21%

9% -0.43%

13% -0.66%

18% -0.79%

% Change in

student Fee % Change in

Project MIRR

-15% -8.9%

-10% -5.8%

-5% -2.8%

0% 0.0%

5% 2.7%

10% 14.8%

15% 20.0%



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Risk Mitigation

Construction Period Risk

Risk Factor Risk Nature Proposed Mitigation Mechanism

Regulatory Risks -

Approvals needed from variousGoverning Authorities

- Risks involved in leasing land of

required amount

-

Thorough screening of consultants to behired

- All regulations to be obtained before

starting construction- MOU for land leasing to be signed

beforehand- Land leasing to be done before any

project execution

Construction Defectand Cost OverrunRisk

- Stringent qualification criteria for EPCContractor to be followed including pastexperience

-

Quality Requirements to be strictlymentioned in EPC Contract- Timelines and project milestones to be

clearly communicated- Regular Supervision onsite report

collection to be done- Contingency Provision made for current

cost overrun- Insurance to cover damages

- Performance security clause to be addedin

Operating Period Risk

Student/Sales Risk - Marketing and branding exercises to be

followed in target schools and collegefairs before start of term

Availability ofProfessors/Lecturers

- Enter into long term contracts with

lecturers- Scouting for faculty to begin 3 months

before actual hiring- Admin team can be easily hired from

Jamshedpur- Create a pool of part time faculty in caseof emergency

Other Cost ItemsSecurity Risk

- Long term contracts to be executed for all

other services like electricity, internet,library subscriptions

- Performance clauses to be entered in

wherever possible- Backup to be created for emergency

services like electricity etc

Interest Riskmitigation

- To be entered into long term fixedinterest rate with Bank

Property destructionRisk

-

Insurance for fire and theft on all assetsto be taken



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Real Options

Option to expand intake capacity in Jamshedpur

The institute has repaid all its debt, both long term and short term by the end of year 9. It will start

generating excess cash from the year after. Hence the company will be in a position to take a decision

regarding expanding its current capacity of student intake of 300 per year and total capacity of 900

per year. It can also think of expanding its hostel facility if it is in demand. Hence effectively and in asimple format it has 2 options:

Option1: To expand the per year student intake capacity of 300 per year

Option2: To expand the hostel facility for students

Option3: Increase the variety of courses being offered

In case of these available options, institute holds the right of whether to invest in such expansion

plans or not. Further the constructed land is ~20% of leased land currently and hence there are no

bound restrictions for imposing of these constructions except for demand criteria. Hence the institute

can be said to have a call option in making the investment decisions.

In terms of expiry period of such option, we think that for capacity expansion, it is 5 years, i.e. FY2021,

where we will be able to gauge the demand increase in our institute. For the expansion of hostel, 3

years is perfect time where we will be able to gauge the demand where the number of students

enrolled is well above the capacity of the hostel, thus giving us an idea of the popularity for such

services. For increased course variety offer, investment needs to go into faculty training and into

capacity development. In order to gauge the demand we feel the perfect timing would be after we

have achieved the current plan, i.e. after 6 years i.e. FY2022.

A common framework for all the three investment options is shown below:

The value of such options cannot be computed precisely as the future projected numbers with

probabilities are not available.

No

Decision to invest High Demand

Don’t Invest

InvestYes

P

1-P



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Balance Sheet (Rs mn) as on financial year ending 31st March

FY17E FY18E FY19E FY20E FY21E FY22E FY23E FY24E FY25E

Liabilities

Share Capital 115.8 115.8 115.8 115.8 115.8 115.8 115.8 115.8 115.8

Retained Earnings (78.9) (124.2) (116.5) (83.3) (26.5) 49.1 137.7 222.6 323.1

Term Loan 468.9 421.3 368.4 309.6 244.1 171.2 90.2 0.0 0.0

Working Capital Revolver

82.0 141.6 153.8 150.0 131.7 104.8 74.8 58.9 0.0

Trade Payables 1.9 3.7 5.6 6.6 7.3 7.6 8.0 8.4 8.8

Total 589.6 558.3 527.1 498.7 472.4 448.6 426.4 405.7 447.7

Assets

Net Fixed Assets (WDV)

580.0 545.4 514.2 485.7 459.4 435.0 412.2 390.9 370.8

Stock 0.7 1.3 1.5 1.6 1.7 1.8 1.9 2.0 2.1

Pre Paid Expenses 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.0

Cash & Bank Balances 6.2 9.5 10.0 10.4 10.9 11.4 12.0 12.5 74.8

Preliminary Expenses (To be w/o) 2.3 1.7 1.1 0.6 0.0 0.0 0.0 0.0 0.0

Total 589.6 558.3 527.1 498.7 472.4 448.6 426.4 405.7 447.7



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Statement for Profit and Loss for Years Ended (Rs mn)

2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Revenue From Student

Fees 31.50 73.24 126.51 148.47 164.09 172.30 180.91 189.96 199.46

Revenue From Hostel Fees 9.45 21.97 37.95 44.54 49.23 51.69 54.27 56.99 59.84

Total Revenue 40.95 95.21 164.47 193.01 213.32 223.99 235.19 246.95 259.29

Land Lease Cost 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20

Employee Costs 8.32 16.38 26.37 27.69 29.07 30.53 32.06 33.66 35.34

Hostel Costs Outsourcing 3.78 7.69 11.39 13.36 14.77 15.51 16.28 17.10 17.95

Marketing Expenses 0.53 0.55 0.58 0.61 0.64 0.67 0.71 0.74 0.78

SG&A 4.28 4.95 5.81 6.19 6.48 6.67 6.86 7.07 7.29

Maintenance Costs 2.05 4.76 8.22 9.65 10.67 11.20 11.76 12.35 12.96

Preliminary Expenses

Written Off 0.56 0.56 0.56 0.56 0.56 - - - -

Other Expenses 1.58 3.66 6.33 7.42 8.20 8.61 9.05 9.50 9.97

Operational Expenses 23.29 40.76 61.46 67.69 72.60 75.39 78.91 82.62 86.50

Operational Expense margin 56.9% 42.8% 37.4% 35.1% 34.0% 33.7% 33.6% 33.5% 33.4%

EBITDA 17.66 54.45 103.01 125.32 140.72 148.60 156.27 164.33 172.79

EBITDA Margin 43.1% 57.2% 62.6% 64.9% 66.0% 66.3% 66.4% 66.5% 66.6%

Dep. & Amortization 39.04 34.62 31.21 28.50 26.27 24.40 22.78 21.36 20.09

EBIT (21.38) 19.83 71.80 96.82 114.45 124.20 133.49 142.97 152.70

EBIT Margin -52.2% 20.8% 43.7% 50.2% 53.7% 55.4% 56.8% 57.9% 58.9%

Interest Expenses 57.56 65.05 64.17 63.60 57.61 48.59 37.00 23.61 10.02

PBT (78.94) (45.22) 7.63 33.22 56.83 75.61 96.49 119.36 142.67

PBT Margin -

192.8%-47.5% 4.6% 17.2% 26.6% 33.8% 41.0% 48.3% 55.0%

Taxes Due - - - - - - 7.96 34.45 42.16

PAT (78.94) (45.22) 7.63 33.22 56.83 75.61 88.52 84.91 100.51

PAT Margin -

192.8%-47.5% 4.6% 17.2% 26.6% 33.8% 37.6% 34.4% 38.8%



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Cash Flow Statement (Rs Mn)For Year Ended:

2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

A) Cash Flows From

Operating Activities

Profit Before Taxes (78.9) (45.2) 7.6 33.2 56.8 75.6 96.5 119.4 142.7

Depreciation 39.0 34.6 31.2 28.5 26.3 24.4 22.8 21.4 20.1

Preliminary Expenses

Written Off 0.6 0.6 0.6 0.6 0.6 0.0 0.0 0.0 0.0

Interest on Term Loan 57.6 52.8 47.4 41.4 34.8 27.5 19.3 10.1 0.0

Interest on Working Capital

Advance 0.0 12.3 16.8 22.2 22.8 21.1 17.7 13.5 10.0

Funds from Operations 18.2 55.0 103.6 125.9 141.3 148.6 156.3 164.3 172.8

Working Capital Investments 0.7 1.3 1.7 0.8 0.6 0.3 0.3 0.3 0.6

Cash Generated From

Operations

18.9 56.3 105.3 126.7 141.9 148.9 156.6 164.7 173.4

Net Cash Flows From

Operating Activities 18.9 56.3 105.3 126.7 141.9 148.9 148.6 130.2 131.2

B) Cash Flows From

Investing Activities

- - - - - - - - -

C) Cash Flows From

Financing Activities

Working Capital Advance

Raising/(Repayment) 82.0 59.6 12.2 (3.8) (18.3) (26.9) (30.0) (15.9) (58.9)

Dividend Payment

Interest on Term Loans (57.6) (52.8) (47.4) (41.4) (34.8) (27.5) (19.3) (10.1) 0.0

Interest on WC Advances 0.0 (12.3) (16.8) (22.2) (22.8) (21.1) (17.7) (13.5) (10.0)

Loan Repayment (42.8) (47.6) (52.9) (58.9) (65.5) (72.9) (81.1) (90.2) 0.0

Net Cash Flows From

Financing Activities

(18.3) (53.0) (104.8) (126.2) (141.4) (148.4) (148.1) (129.6) (68.9)

Increase in Cash

Balance 0.6 3.3 0.4 0.5 0.5 0.5 0.5 0.6 62.3

Closing Cash Balance (Refer

Balance Sheet) 6.2 9.5 10.0 10.4 10.9 11.4 12.0 12.5 74.8

Opening Cash Balance 5.6 6.2 9.5 10.0 10.4 10.9 11.4 12.0 12.5Min. Cash Balance 6.2 9.5 10.0 10.4 10.9 11.4 12.0 12.5 12.5

Surplus/ Deficit from Cash

Flow

(81.4) (56.3) (11.8) 4.2 18.8 27.4 30.6 16.4 121.2



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Annexure

A1. Building Construction Cost

1. Academic block includes 3 floors with areas of 1500 Sq. metre each.

2. Hostel will include 2 blocks one with 4 floors and the other with 5 floors. The cumulative capacity of the

9 floors would be 450 students.

Building

Parameters

Area (Sq Ft of

Construction)

Construction

(Rs/Sq. Ft)

Total Cost (Rs

mn)

Rooms Design, Number &

Specification

Academic Block 48,420 3,500 169.4 2 floors with 8 lecture halls, 2computer rooms and 2 staff room,1 floor with 30 professor office

Library 7,000 3,500 24.5 2 floors with 17 racks for books

Hostel 90,000 3,000 270.0 50 students per floor in floor areaof 10,000 sq. Ft., with 9 floors.Total Capacity of 450 students

Total 1,45,420 463.9

A2. Land and Site Development Cost

1. We have taken a land lease for a total area of 7 acres (304920 Sq. feet)

2. Total land area under construction is estimated to be 43140 Sq. feet which would include the academic

block, hostel and library.

3. Our construction area is ~20% of the total area. The extra land would be used for parking space

development, playground, guard posts, roads and other land development activities. Cost of such

activities at a per Sq. ft. level is indicated in the table.

Parameters Area (Sq. ft) Cost (Rs/ Sq. Ft) Total Costs (Rs Mn)Total Land under Construction 43,140 Academic Block 16,140

Library 7,000

Hostel 20,000

Total Leased Land 304,920

Total Unconstructed Land 261,780 150 39.27

A3. Furniture and Fixtures

Parameters Particulars Cost (Rs Million)

Electrical Fixtures 2.5% of construction Cost 11.60

Academic Block Furniture 900 students capacity @ Rs5,000 per student 4.50

Library Furniture 17 rack and chair units @ Rs10,000 per unit 0.17

Hostel Furniture 450 rooms @10,000 per room 4.50

Total Costs 20.77



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A4. SG&A Expenses (in Rs. Mn)

1. We have assumed that the electricity charges are Rs. 5/unit and have appreciated at the rate of

5% YoY. The rate is in line to current commercial rate.

2. Electricity usage is based on the average electricity usage in each room and by each computer.

3.

Library running costs involved the magazines, newspapers and online gateway subscriptions.

4. We have provided for 0.5% of fees collected for various student related activities. Cost of

stationery and teaching material costs have been approximated to be 1% of total fees collected

each year.

5. Insurance costs are approximated to be 0.080% of the net assets. Hence it will decrease with

time due to depreciation.

Items 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025EElectricity Costs 0.73 0.77 0.82 0.86 0.90 0.95 1.00 1.05 1.10

Library Running Cost 2.01 2.01 2.02 2.02 2.02 2.02 2.02 2.02 2.02

Internet Connection

Expenses0.60 0.63 0.66 0.69 0.73 0.77 0.80 0.84 0.89

Student Activities 0.16 0.37 0.63 0.74 0.82 0.86 0.90 0.95 1.00

Cost of Stationary &

Teaching Material0.32 0.73 1.27 1.48 1.64 1.72 1.81 1.90 1.99

Insurance Cost Per year 0.46 0.44 0.41 0.39 0.37 0.35 0.33 0.31 0.30

Total 4.28 4.95 5.81 6.19 6.48 6.67 6.86 7.07 7.29

A5. Operating Expenses (Rs mn)

1. We have kept the teacher: student ratio to be constant at 40. We have calculated the

requirement of teachers each year using this ratio and the number of incoming students. We

have assumed that the initial salary would be 0.8 Mn. INR and grows at the inflation rate of 5%.

2. The current student teacher ratio is sufficient for 5 courses having 5 different subjects in each

semester and one teacher being expected to take up 3 subjects in a semester across courses

across the years.

3.

In the marketing expenses, we have factored the cost of advertising in 4 newspapers and havefound the average cost of Ad printing to be Rs400/Sq.cm.. Print page and the billboard costs to

be 10% of the print ad cost.

4. We have assumed the margin for outsourcing costs to be 60% in FY2017 which increases at the

rate of 5% each year to 70% in FY2019 and then remains constant henceforth.

5. We have assumed the other expenses to be 5% of the total fees collected each year.

6. We have assumed the maintenance costs to be 5% of the total revenues generated each year.

7. The total lease land required is assumed to be 363550 Sq. Feet with a total cost of INR 2.2 Mn.



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Particulars 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Variable Components

Staff Salary Costs 8.32 16.3 26.3 27.6 29.0 30.5 32.0 33.6 35.3

Marketing Expenses 0.53 0.55 0.58 0.61 0.64 0.67 0.71 0.74 0.78

Electricity Costs 0.73 0.77 0.82 0.86 0.90 0.95 1.00 1.05 1.10

Internet Expense 0.60 0.63 0.66 0.69 0.73 0.77 0.80 0.84 0.89

Student Activities 0.16 0.37 0.63 0.74 0.82 0.86 0.90 0.95 1.00

Hostel Outsourcing Costs 3.78 7.69 11.3 13.3 14.7 15.5 16.2 17.1 17.9

St. & Teaching Material 0.32 0.73 1.27 1.48 1.64 1.72 1.81 1.90 1.99

Other Expenses 1.58 3.66 6.33 7.42 8.20 8.61 9.05 9.50 9.97

Fixed Components

Land Lease Cost 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20

Library Running Cost 2.01 2.01 2.02 2.02 2.02 2.02 2.02 2.02 2.02

Maintenance Cost 2.05 4.76 8.22 9.65 10.6 11.2 11.7 12.3 12.9

Insurance Cost 0.46 0.44 0.41 0.39 0.37 0.35 0.33 0.31 0.30

Prel. Exp. Written off 0.56 0.56 0.56 0.56 0.56 - - - -

Total Opex 23.2 40.7 61.4 67.6 72.6 75.3 78.9 82.6 86.5

Total Variable Costs 16.0 30.7 48.0 52.8 56.7 59.6 62.6 65.7 69.0

Total Fixed Costs 7.29 9.98 13.4 14.8 15.8 15.7 16.3 16.8 17.4

% of Variable Costs to Total 68% 75% 78% 78% 78% 79% 79% 79% 79%

A6. Pre-Operating Expense

Interest charge has been taken at 1% above the CBI base rate of 10.25%. This was done in

consultation with CBI officer, who assured us that only 1% premium is charged for promoters with

prior experience as ours.

1. While calculating the Staff Salary & Training costs we have assumed that we will hire the

required staff 3 months before opening the college.

2. Office and administrative costs include salary costs of admin staff and other staff and also

includes other expenses.

Particulars (Rs Mn) FY2015E FY2016E

Interest Charge DuringConstruction

16.16 32.31

Cost of Professional Report,Studies, websites etc

0.25 0.75

Branding & Marketing 0.18

Staff Salary & Training 0.62 1.87

Travelling 0.10 0.10

Office and Administrative 0.58 0.58

Land Lease 1.10 2.20

Total 18.81 38.00

Total At the end of 2016 to Bal.Sheet

56.81



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A7. Balance Sheet of FY 2016E

This is the balance sheet at the end of Y0 or FY2016E. This includes the capitalized interest in both

assets and term loan.

A8. Distribution of Pre-operative and Contingency in Fixed Assets

1. Electronic equipment include computers, projectors & A/V and other equipments(Printers,

Xerox, WIFI equipment ) which includes requirements for each

2. Cost of other office equipments is taken at 10% which is sufficient to cover such costs.

3. Pre-operative expenses and Contingency has been added into the assets by taking the pro-rata

asset value in each class to the total asset as per initial level.

Particulars (Rs Mn) Initial Share ofPreoperative

Share ofContingency

Total

Building & Others 503.24 53.70 28.24 585.1

Electronic Equipments 6.69 0.71 0.38 7.77

Furniture and Fixtures 20.77 2.22 1.17 24.15

Kitchen Equipment 1.00 0.11 0.06 1.16

Other Office Equipment 0.67 0.07 0.04 0.78

Total 532.3 56.81 29.88 619.0

Liabilities ( Rs Mn)

Share Capital 115.75

Term Loan 511.47

Total 627.23

Assets (Rs Mn)

Net Fixed Assets 618.82

Cash & Bank Balances 5.58


Total 627.23



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A9. Revenue Analysis

Particulars FY2017E

Per Student Fees (Rs Mn) 0.15

Per Student Hostel Fees (Rs Mn) 0.09

2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025EIntake Capacity Per Year 300 300 300 300 300 300 300 300 300

Students In the College 210 465 765 855 900 900 900 900 900

Capacity Utilization 23% 52% 85% 95% 100% 100% 100% 100% 100%

% Capture of Y1 Student 70% 85% 100% 100% 100% 100% 100% 100% 100%

Hostel Capacity 450 450 450 450 450 450 450 450 450

Hostel Utilization 23% 52% 85% 95% 100% 100% 100% 100% 100%

Revenue from Fees 31.5 73.2 126.5 148.5 164.1 172.3 180.9 190.0 199.5

Revenue from Hostel 9.5 22.0 38.0 44.5 49.2 51.7 54.3 57.0 59.8

Total Revenue 41.0 95.2 164.5 193.0 213.3 224.0 235.2 246.9 259.3

A10. Tax Calculations

Gross Block – Asset Schedule as per IT Act

2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

PBT as per

P&L (78.9) (45.2) 7.6 33.2 56.8 75.6 96.5 119.4 142.7

(+) Dep. As per

P&L 39.0 34.6 31.2 28.5 26.3 24.4 22.8 21.4 20.1

(-) Dep. As per

IT Act 65.8 56.9 50.3 44.9 40.2 36.1 32.5 29.2 26.3

TaxableIncome

(105.7) (67.5) (11.4) 16.9 42.9 63.9 86.8 111.5 136.4

EBDT Tax (39.9) (10.6) 38.8 61.7 83.1 100.0 119.3 140.7 162.8

EBDT Post

Absorption of

EBDT Loss - - - 50.1 83.1 100.0 119.3 140.7 162.8

Dep. (65.8) (56.9) (50.3) (44.9) (40.2) (36.1) (32.5) (29.2) (26.3)

Taxable

Income Post

Absorption of

Unabsorbed

Dep.

- - - - - - 25.8 111.5 136.4

Tax Payable - - - - - - 8.0 34.4 42.2

Blocks of Assets Dep. Rate as per IT Act Gross Block Of Asset as on FY2016

Building Block I 10% 585.18

Furniture Block-I 10% 26.09Computer Block-I 60% 7.77



cumen Education

A11. Personnel Expenses

Particulars 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Students enrolled 210 465 765 855 900 900 900 900 900

Teacher : student 40 40 40 40 40 40 40 40 40

Professors / Lecturers

required 8 15 23 23 23 23 23 23 23

Avg. Salary/year (Rs

Mn) 0.80 0.84 0.88 0.93 0.97 1.02 1.07 1.13 1.18

Total Costs for

Professor (Rs Mn) 6.4 12.6 20.3 21.3 22.4 23.5 24.7 25.9 27.2

Ratio of Professors to

Supp. Staff 2 2 2 2 2 2 2 2 2

Support staff

(Administration) 4.00 7.50 11.50 11.50 11.50 11.50 11.50 11.50 11.50

Average Salary per

year (Rs Mn) 0.36 0.38 0.40 0.42 0.44 0.46 0.48 0.51 0.53

Total Admin Staff Cost

(Rs Mn)

1.44 2.84 4.56 4.79 5.03 5.28 5.55 5.83 6.12

Ratio of Profs. to

cleaning staff 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5

Other Staff 4.00 7.50 11.50 11.50 11.50 11.50 11.50 11.50 11.50

Average Salary per

year (Rs Mn) 0.12 0.13 0.13 0.14 0.15 0.15 0.16 0.17 0.18

Total Support Staff

Costs (Rs Mn) 0.48 0.95 1.52 1.60 1.68 1.76 1.85 1.94 2.04

Total Personnel Costs 8.3 16.4 26.4 27.7 29.1 30.5 32.1 33.7 35.3

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