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“Art of preparation of Project Report for Assured Bank Finance”

ALL INDIA CPE Conference

By : Vinay Mruthyunjaya Senior Partner

VINAY & KESHAVA LLP.,

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!   WHEN & WHY Project Report is Required !   WHO Prepares the Project Report !   CONTENTS of a Good Project Report !  HOW A Project Report is Prepared

- Logical Order - Presentation Order

!   APPRAISAL of a Project Report !   Documentation

STRUCTURE

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PROSPECTS & Efforts - CURRENT SCENERIO

!   Excellent Potential

!   Libralised financing

!   Stable Government

!   Interest Rates – downward trend

!   Foreign Currency Loans

!   Interest & Flair

!   State Laws ! Labour Laws

!   Economic Laws !   Trade Laws

!   Industrial Policy

!   Credit Policy !   Current Affairs

!   Good Analytical Skills !   Logical in Thinking

!   Good at English !   Exposure to Computer

!   Ideal for CA’s

!   Accounts

!   Costing

!   Direct Taxes / Indirect Taxes

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Pre-Investment Study Own Funding

Internal Purpose

New UnitExpansionModernisationDiversificationSubstitutionSubsidiary etc

Financial Assistance

Environment ClearancesCentral Govt.State GovtLocal AuthoritiesInspection of LabourDept. of Industries

& CommerceLicensing AuthoritiesRegistration Etc.,

Statutory Clearances

External Purpose

Requirement of Project Reports

Ø  Term Loan Ø  Working Capital Ø  Seed Capital Ø  Venture Capital Ø  Lease Finance Ø  Hire Purchase Ø  Share Capital Ø  Debentures

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PromotersTechnical ConsultantArchitectsAdvocatesEngineersValuersSurveyors (Market)ExpertsChartered Accountant

LARGE PROJECTS

PromoterTechnical ConsultantChartered Accountant

MEDIUM SCALEPROJECTS

PromoterChartered Accountant

SMALL SCALEPROJECTS

WHO PREPARES THE PROJECT REPORT

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TheoriticalWrite up

TECHNICALCONTENTS

FinancialProjections

FINANCIALCONTENTS

Co-RelatingTheory and

Financial Figures

FINANCIALIMPLICATIONS

CONTENTS OF GOOD PROJECT REPORT

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THEORETICAL WRITE- UP

!   INTRODUCTION !   PROMOTER’S BACKGROUND !   PROJECT AT A GLANCE !   PROJECT CONCEPT !   PRODUCT/S / BY-PRODUCT ITS APPLICATION !   RAW MATERIAL !   PRODUCTION PROCESS !   INFRASTRUCTURE !   IMPLEMENTATION SCHEDULE !   CLEARANCES AND APPROVALS

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FINANCIAL PROJECTIONS

!   COST OF THE PROJECT AND MEANS OF FINANCE !   PROJECTED BALANCE SHEET !   PROJECTED PROFIT & LOSS ACCOUNT !   PROJECTED CASH FLOW & FUND FLOW !   BREAK EVEN ANALYSIS !   DEBT SERVICE COVERAGE RATIO !   COMPUTATION OF WORKING CAPITAL !   CAPACITY PARTICULARS !   INTERNAL RATE OF RETURN (IRR)

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COORDINATING THEORY & FINANCIAL FIGURES

!   CAPACITY PARTICULARS !   ASSUMPTIONS !   RATE OF INTEREST !   DEPRECIATION RATES / METHOD !   SELLING PRICE !   DRS/CRS/INVENTORY/EXPENSES PERIOD !   BASIS OF ESTIMATES !   INFORMATION RELIED ON !   MORATORIUM PERIOD IF ANY !   EMPLOYEES BENEFITS CONSIDERED

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Further Details of Financial Statements

!   FIXED ASSETS !   ADVANCES & DEPOSITS !   PRELIMINARY & PRE-OPERATIVE EXPENSES !   PRODUCTION OVERHEADS !   PERSONNEL EXPENSES !   ADMINISTRATION EXPENSES !   SELLING EXPENSES !   FINANCIAL EXPENSES !   DEPRECIATION !   REPAYMENT OF TERM LOAN !   COMPUTATION OF INCOME TAX !   DETAILS OF INVENTORIES !   CONTINGENCIES

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P & MManufacturing ProcessPromoter'sTechnical

StrengthPromoter's Financical

StrengthAvailabilty of ManpowerSelling CompetenceTechnological ChangesIndustrial Policy

TECHNICALFEASIBILITY

Analyse COP & MOFContingenciesDebt Equity RatioPromoter's MarginSubsidyArithmetic AccuracyAnalysis of all Projected StatementDSCRProfitability RatioLiquidity RatioReturn on InvestmentBreakeven AnalysisIRRSensitivity AnalysisProjected Wkg. Capital RatioCurrent RatioDOCUMENTATION ANALYSIS

FINANCIALVIABILITY

Impact on SocietyEmployment GenerationForeign Exchange EarningsCountry /State/Local ImplicationsAncilliary UnitsContribution to the Ex-chequerNon-monetary Benefits to the Society

SOCIO-ECONOMICFEASIBILITY

APPRAISAL OF PROJECT REPORT

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Critical aspects of project Report:

!   Starting point !   Capacity Particulars !   Assumptions !   Net of taxes !   Multi purpose !   Productive Assets !   Contingencies !   P & M Cost !   Land Cost !   Margin money !   Preliminary !   Pre-operative !   Int –Implementation

!   F.A. Capitalisation !   Depreciation modes !   Income tax Cal. !   Inventories Value !   Sensitivity Analysis !   IRR !   BEP !   DER !   DSCR !   Profitability !   Liquidity !   Current

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Documentation

!   MOA / AOA / Deeds !   ROC / ROF / ROS !   Approvals ; !   Central !   State !   Local !   Ind & Comm !   FEMA !   RBI !   SEBI !   Forest !   Environment !   Power

!   Fire Force !   Collaborations !   Drug Control !   Land Conversion !   Bio-Data !   Net worth !   I.T & WT returns !   Investment certificate !   Last three yrs Audited

Statements !   MOU if any !   Shareholders list !   Organisation Chart

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Documentation (Cont’d)

!   Credit Reports !   Status Report !   Sale/lease deeds !   Soil test report !   Location map !   Plan Sanction !   Agreements !   Power sanction !   Water Sanction !   Quotations !   Guarantors details !   Legal Documents

!   Working capital arrangement

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Key Factors – Presenting the Project Report – Practical Tips

!   Neatly Binded !   Indexing with page no’s !   Proper Order !   Present it with pictures !   Good quality print out !   Sufficient number of topics !   CMA Data – Verification !   Don’t compromise of Promoters Margin-JACK UP Costs !   Proper Documentation and Support Papers

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SPECIALISING – Factors to be considered :

CONCLUSION

!   Not to share the Fees !   Not to charge fees on percentage basis !   Associating the Firm’s name

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THANK YOU

Vinay Mruthyunjaya Senior Partner

Vinay & Keshava LLP., #8,VK Commerce 3rd Main Road, Rajajinagar Industrial Estaate, Opp IT Park Bangalore : 560 003

E-mail : vinaym@blr.vsnl.net.in Ph : (O) 080- 23167560 / 75

Fax : 080- 23167562 Mobile : +91 9972567575 Res : 080- 23371176