Project Financeand Apprisal

8/13/2019 Project Financeand Apprisal

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PROJECT FINANCING ANDAPPRAISAL

Dr A. P. DashPower Management InstituteNTPC


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OVERVIEW OF BALANCE SHEET

EQUITY SHARECAPITAL

+RESERVES

INVESTMENTS

FIXED ASSETSGROSS BLOCK

LESS ACC DEPNET BLOCK

LIABILITIES ASSETS

LOANFUNDS

CURRENTLIABILITIES

CURRENTASSETSLOANS

& ADVANCES

CURRENTLIABILITIES


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Goal Of The Firm

STAKEHOLDER WEALTH MAXIMISATION

Goal offirm


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ASSETS

EQUITY DEBT

Creating The Firm

Goal offirm


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ASSETS SALES

Building Up The Firm

Goal offirm


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ASSETS SALES EARNINGS


INTEREST

Goal offirm


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ASSETS SALES DIVIDEND EARNINGS


INTEREST

Goal offirm


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ASSETS SALES DIVIDEND EARNINGS *A T/O

*NPM

*Payout

The Key Links

INTEREST

Goal offirm


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ASSETS SALES DIVIDEND EARNINGS *AT/O

*NPM

*payout

At whatrate???

Dividend Policy And The Re-investment Rate: The Critical Factor

INTEREST

Goal offirm


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ASSETS SALES DIVIDEND 1 EARNINGS *AT/O

*NPM

*payout

At whatcost???

DIVIDEND2

DIVIDEND3

DIVIDENDn

Moving From The Static To Dynamic

INTEREST1

INTEREST 2

INTEREST 3

INTERESTn

Goal offirm


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Nature of Risks

Development Period Risks

Approvals / Clearances- non availability Unreasonable Contract Terms Erosion of Project Economics Communities, R&R issues in case of Hydro Environmental


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Nature of Risks

Construction Period Risks

Timely Completion Cost Over run Transit Damage Force Majeure Technical Performance


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Nature of Risks

Operating Period Risks Output Shortfall

Off take Shortfall Price below Forecast Fuel Short Supply Fuel Price Escalation

Inflation Currency Convertibility/Exchange Rate Risk Interest Rates Nationalisation

Change in Laws


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Risk Profile

Development Period Construction Period Operation Period

Financial Closure

Time in Years

R i s k


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Framework & Context

DeveloperFuelSupplier

O & M

Company

EPCCompany

Buyer

FinanceLender

Govt./Regulator

PPAFSA

EPCContract

O&MContract

Clearances/

LicensesLA


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Two Sides of a Project

Financing Side Investment Side0

1

0

1

LoanRs 1000 /-

PayRs 1150 /-

InvestRs 1000 /-

ReturnRs 1200 /-

Cost of Funds :1000 = 1150 /( 1 + k )

k = 15 %

Rate of Return :1000 = 1200 /( 1 + r )

r = 20 %


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Cash Flow Stream

0 1 2 3 4 5

-1,00,000 30,000 20,000 20,000 40,000 30,000

TIME SCALE

STEPS : Separate Investment side from Finance Side, for, finance side is the hurdle rate.

Synthesize all the points and arrive at judgmentalassessment.


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Net Present value ( NPV) COST OF CAPITAL

Years Investment /Cash Flow,

Rs

10 %Rs

12 %Rs

14 %Rs

0 -1,00,0001 20,000 (0.909) 18180 (0.893) 17860 (0.877) 17540

2 30,000 (0.826) 24780 (0.797) 23910 (0.769) 230703 40,000 (0.751) 30040 (0.712) 28480 (0.675) 270004 40,000 (0.683) 27320 (0.636) 25440 (0.592) 236805 30,000 (0.621) 18630 (0.567) 17010 (0.519) 15570

Present Value 118950 112700 106890Present Investment -100000 -100000 -100000

NPV +18950 +12700 +6890

Value Additivity Principle : NPV ( A&B) = NPV(A) + NPV ( B)


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Sources of Profitability ( + NPV )

# Economics of Scale* Volume of Business* Low Margin - High Turnover

# Product Differentiation # Cost Advantage

# Marketting Reach # Technical Edge

# Govt. Policy


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RETURN ON INVESTMENT [ ROI ]

Earning (EBIT)Sales

SalesTotal Inves tment

Sales - Cost of Sales

Factory Cost+ Selling Expenditure+ Transportation Expenditure

+ Admn. Expenditure

Permanent Investment

+ Working Capital

Inventories+ Accounts receivables+ Cash

+ Marketable securities

X


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HOW TO TAKE A DECISION

# Estimate Cost and Benefit # Assess Risk and Inflation

# Establish Discounting Rate # Apply a suitable investment criteria # Go behind the numbers

# Evaluate the proposal from thestrategic point of view


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QUALITATIVE INFLUENCES

# Sponsorships

# Superstition # Political consideration

# Intuition


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NTPC LOOKING HE D

Project Financeand Apprisal

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