Key Aspects of Project Appraisal for SME Financing CII FINcon 02.09.06 Dr Rajesh Khajuria, Director...

Key Aspects of Project Appraisal for SME

Financing

CII FINcon 02.09.06

Dr Rajesh Khajuria, Director

TEAMPro Ltd, London

TEAM Projects & Consultants, Vadodara

Dr R Khajuria @ TEAM 2

A Warm Welcome to all of You!

• CII Organisers and Members• SME Owners and Managers• Chief Guests• Speakers


Presentation Plan

I. Indian SME Overview.

II. Project Appraisal Methods.

III. Project Appraisal: Key Aspects.

IV. Case Study @ Asahi Songwon Colors Ltd with Korean Technology for TL, WCL and Public Issue.

V. Questions?

Indian SME Overview

Part I


Welcome to Indian SMEs!

• 95% of Industrial Units are SMEs• 40% of Value Added in Manufacturing

Sector• 35% of National Exports• 7,500 Products Manufactured• Employs 20 million people• But, contribute only 7% of GDP ?• 40% of Bank Finances to Priority Sector

– SMEs and Agriculture


Welcome to 3.5m Indian SMEs!


SMEs achieve Rs 8000 billion Sales


SMEs have Rs 1000 billion Investment


SMEs Export Rs 800 billion G & S


SMEs provide 20 million Employment


The World depends on SMEs

• UK: 98% of all Businesses are SMEs

• Japan: 99% are SMEs

• USA: 96% are SMEs

• Africa’s 29 nations: 99.5% are SMEs

• The world depends on SMEs

• India depends on SMEs for economic success of its 1 billion people

Project Appraisal Methods

Part II


Project Appraisal Methods

• Today we discuss…• Bank Appraisal for Loans.• Appraisal for Public Issue of Equity.

• Other Methods:– FI Appraisal for Loans– World Bank Project Appraisal– UNIDO, Social Project Appraisal

Project Appraisal : Key Aspects

Part III


Project Appraisal: Key Aspects

• The Objectives• The Project• Methodology of Appraisal• Corporate Analysis• The Promoters Team• Marketability Assessment• Technical Feasibility• Economic Viability & Financial Structuring• Environmental Impact Assessment• Conclusion & Recommendation

Case Study @ Asahi Songwon Colors Ltd

Part IV


The Objectives @ Case Study

• Asahi Songwon Colors Ltd, Ahmedabad (Padra Plant)– Phase I: 2005 – Operating.– Phase II & III: Expansion proposed with

Term Loan, Working Capital Loan and Public Issue.

• Total Investment Rs 71 Crore.

– State Bank of India referred the Project Appraisal assignment to TEAM.


Methodology of Appraisal• Project Report of the company as a base.• Site visit to the Factory.• Market & Competition Analysis.• Discussions with the Bankers and Co.’s top

executives on all aspects.• Raising 35 Queries.• Balance Sheet Analysis.• Independent & unbiased Appraisal & Judgement• Confidential Report with Specific Conclusions and

Recommendations.


The Project @ Colors• Asahi Songwon Colors Ltd has already

invested Rs 25 Crore in a new Medium Scale Plant at Padra (Baroda) to manufacture basic Colors for export and domestic markets.

• Collaboration with Songwon Colors Ltd, Korea (taken over by Clariant of Europe).

• Colors are used in all walks of life: Textiles to everything we see, touch and feel.


Vision• Songwon, Korea:

– ‘Better Colour for A More Beautiful Life’.

• Asahi, India:– “To be a global leader in its field of

Pigments by supplying quality and environment friendly products

to MNCs worldwide.”

• Can you analyse both Visions?


Corporate Analysis• Past Performance

• Corporate Emergence

• Promoters Team – Most Important

• SWOT Analysis


The Promoters Team• Highly qualified and experienced with up to

15 years experience in the same line.• MBA (USA), Technologists, CA.• Exporting, Profit-making existing business.• Demonstrated Performance in

Manufacturing, Management and Export.• Politically well-known, but not spared by

State Bank of India from Project Appraisal!


Marketability Assessment

• Product & Applications• Demand assessment based on end-user

method– Global Consumption estimates

• Competition and Supply Assessment– Export – Import Data analysis– International and domestic prices

• Demand-Supply Gap and Customers• Scope for the Company to tap the ‘Gap’


Technical Feasibility

• Capacity Assessment & Projected Utilisation

• Manufacturing Process• Land & Building Requirements• Plant & Machinery & Layout proposed• Inputs: Raw Materials, Power, Fuel,

Water, sources, quantities, prices, suppliers


Technical Feasibility

• Technology source and cost

• Manpower Requirements & Costs

• Pollution Control Measures

• ISO Certification: 9000 / 14000


Economic Viability

• Project Cost– Appraisal resulted in Addition of Rs 6 Crore to

original estimate of Project Cost – Rs 71.5 Crore to Rs 77.55 Crore

– Rise in Equipment costs and increased Working Capital, detected from TEAM’s ‘Appraisal process’

– Hell lot of efforts to convince the Company about raising Sources of Finance by Rs 6 Crore!


Sources: Financial Re-structuring

Rs Crore• Term Loan SBI (FCNR/Rs) 13.82• Equity Share Capital 43.84• Unsecured Loan 07.98• Reserves & Surplus 11.25• Deferred Tax Liability 00.66• TOTAL Sources of Finance 77.55• Add: Working Capital Loan 24.00


Environmental Impact Assessment

• Water pollution quantity• Treatment methods and equipments• Disposal to ETP Channel as per GPCB

Rules• Membership of ETP Channel• Sources of Fresh Water• Ministry of Environment & Forest’s

clearance needed for large Projects


Conclusion & Recommendation

• The project is assessed by TEAM at the behest of State Bank of India.

• The Project is Technically Feasible and Economically Viable.

• SBI may grant Term Loan and Working Capital Loan recommended.

• The Appraisal may be ‘quoted’ in Prospectus for SEBI permission for Public Issue.


Learning Today

• Proven Appraisal Process. Reliability.– Based on PhD Research of Dr Rajesh Khajuria

• Independent & Unbiased Appraisal.• Appointment by a Bank or Financial Institute.• Consultant’s Track Record. Credibility.

– TEAM has 95% Success rate and 99% Recovery of Loans recommended for 200 Projects in 23 years (1983-2006).

• Quick Turnaround. • Ethics for Long Term Success.


Questions?

Dr Rajesh Khajuria, Director

TEAMPro Limited www.TeamPro.org

[email protected] M: 94260 75402

Data and Image Courtesy: SSI Annual Report 2003, Ministry of Small Scale Industries, Government of India

Key Aspects of Project Appraisal for SME Financing CII FINcon 02.09.06 Dr Rajesh Khajuria, Director...

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