pal project

8/8/2019 Pal Project

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Working Capital & ProjectAppraisals of SONA Industries: AtMPFC

PROJECT REPORTBatch (2009-11)

SUBMITTED TO SUBMITTED BY

PROF. VISHAL SOOD PALLAVI BHANDARI

MBA (FA) II SEM


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MADHYA PRADESH FINANCIAL CORPORATION

(Incorporated under State Financial Corporations Act, 1951)

(No. LXIII of 1954)

[ISO 9001:2000 CERTIFIED CORPORATION]Head Office Zonal Office

Finance House, Indore Zone-I,

A. B. Road, Opp. St. Paul PrimarySchool,

Indore 452 001 Navratan Bagh, Indore

Phone : 2522921,2580500 Phone :

2493490/2494180Fax : 2580505 Fax : 2495695

Email: [email protected] Email : [email protected]

A C K N O W L E D G E M E N TThe most awaited moment of successful completion of an endeavor is always a result of

persons involved explicitly or implicitly there in and it is impossible without the help and

guidance of the people around.

I take the opportunity to express my sincere gratitude to each and every person who gave

me the guidance and help for preparing the report.

With the sense of gratitude, I owe my regards to Mr. Sanjeev Verma, Dy. General

Manager, MPFC Zone I, Indore for his guidance, support & valuable advice and for

giving me chance to proceed with the study.

I extend my heartily thanks to all the staff members, especially DR. Pankaj Rathore and

Mr. Sunil Chandran of MPFC Zone I, Indore for their co-operation and support,

without which study would not have been completed.

Last but not the least, my heartfelt gratitude to all those people who knowingly &

unknowingly supported me for boosted my morale to make this project a reality.

My strength and inspiration are the blessings of my parents and my friends. I owe all my

success and achievements to them.

PALLAVI BHANDARI

CONTENT
mailto:[email protected]:[email protected]


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Introduction

Objectives

Organization Structure Power Delegation

Various Schemes DetailsTerm LoanWorking CapitalShort Term LoanElectro-medical EquipmentsEquipment FinanceFinance for ProfessionalsLoan ReplenishmentFinance for Marketing ActivitiesScheme for Medical ProfessionalsScheme for Financing Miscellenous Fixed AssetsLiquid Fund SchemeComposite LoanCommercial complex

Loan procedureo Project Appraisal,

o Documentation

o Reschedulement

o Recovery, Follow up, Take over and Sale

o Comparison of MPFC with Banks

Terms & conditions

SWOT analysis

Suggestion

Case Study Finding from the Case Conclusion

Referenceso Bibliography


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INTRODUCTION

A central finance corporation was set up underthe industrial finance act, 1948 in order to provide

medium and long term credit to industrial

undertaking, which fall outside the normal

activities of commercial banks.

State government also expressed, that the state

corporation be establish under special statute in

order to make it possible to incorporation in the

constitution necessary provision in regard to

majority controlled by the government, as

guaranteed by government.

Madhya Pradesh Financial

Corporation


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Madhya Pradesh Financial Corporation is the

premier institution of the state, engaged in

providing financial assistance and related

services to small to medium sized industries.

Also, it is registered as Category-I Merchant

Banker with Securities Exchange Board of India

and setup a separate merchant banking division

in the name of MPFC Capital Markets.

Incorporated in the year 1955,under the State

Financial Corporation Act, 1951 (No. LXIII of

1951), it works under the control of the Board of

Directors, consisting of representatives from

State Government, Small Industries

Development Bank of India, Reserve Bank of

India, Scheduled Banks, Insurance Companies,

Co-operative Banks and other shareholders.

MPFC is a well knit organisation with its headquarters at Indore - the industrial hub of

Madhya Pradesh, and 20 offices at different

places.

Madhya Pradesh financial corporation (MPFC)

was incorporated under the state financialcorporation Act, 1951 in the year 1955. MPFC is

well set up organization having its head office in

Indore the industrial hub of Madhya Pradesh

having 20 different offices at different places.
http://www.mpfc.org/test12.htmhttp://www.mpfc.org/test12.htm


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MPFC is premier institution of the state

providing financial assistance to small scale

industries (SSI) & small sized industries. A

division of MPFC duly registered as category 1

merchant banker with securities exchange board

of India provides merchant banking & allied to

the corporate clients.

OBJECTIVES

Studying the proceeding & functioning ofMPFC,

Which the organization adopts whiledisbursing & recovering the amount.

To acquire basic information workingguidanceabout the various financial activities of thecorporation.

To analyze the overall procedure of term

loan.

To prepare & present the reporthighlighting all the aspect.

To assess the framework of financialcorporation along with execution of new

technique of viability & need based financeso as to provide transparency & betterunderstanding.


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ORGANISATION STRUCTURE

Organization Structure for Zones

Board of Director

Chairman Director Managing

Director

General Manager

Dept. GeneralManager

Manager

Zone-1&ll


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In MPFC, there is one MD under which there arethree GM & under each GM there are three DGM i.e.

total theIre are nine DGM in the corporation. Under allDGM there are manager, deputy manager, assistantmanager, subordinates & clerical staff.

Madhya Pradesh financial corporation is having19 branches out of which 10 offices & 9 businessdevelopment center are located in following areas:

Organization Setup

Branch network and field offices structure

Dy. GeneralManager

Finance manager Legal managerTechnicalManager RRC Cell

SATNA

RATLAM

UJJAIN

GWALIOR

DELHI

JABALPUR

DEWAS

BHOPAL

INDORE-ll

INDORE-l

FIELD

OFFICESS


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CAPITAL STRUCTURE

Refinance from SIDBI

Share Capital from Sate Government

Loan in Lieu of Share Capital

Subscription of Bonds to financial institution such as Nationalized Bank, LIC,

Co-operative Society, APEX Bank

Power Delegation

The Power Delegation of MPFC is as follows :-

Asst. Manager Committee up to 5 lakhs

Dy. Manager Committee up to 10 lakhs

Manger Committee up to 15 lakhs

Dy. General Manager Committee up to 30 lakhs

General Manager Committee up to 50 lakhs

Managing Director Committee up to 100 lakhs

REWA

SHAHDOL

KATANI

SAGAR SENDHWA

KHANDWA

HARDA

INDOREURBAN-II

INDOREURBAN-1

BUSINESS

CENTRE


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H.O. Loan Committee up to 240 lakhs

Board Loan Committee Beyond 240 lakhs to 500 lakhs.

SCHEMES

Term Loan Term loan is provided for the purpose of creation of fixedassets(such as land, factory building, plant and machinery,electricals etc.), for setting up of new unit and formordernisation, diversification, expansion, and/or replacement of

equipments in existing units.

Finance is provided to new industrial units. It is also provided toHotels, Service Industries, Transportation, R & D activities.

The maximum limit of assistance to non-corporate sector is Rs.200.00 lacs and for corporate sector it is Rs. 500.00 lacs.

Period of assistance depends upon merits of the case rangingbetween 5-8 years.

WORKING CAPITALTerm Loan is provided under this scheme to part finance longterm/medium term working capital requirements of the industrialunits.

It is provided to industries having last 3 years profitableoperations and proven track record with institution/bank. MPFCborrowers whose fixed assets are mortgaged with MPFC andthose who are not MPFC borrowers but intend to offer all theirexisting fixed assets by way of mortgage as primary security canalso avail assistance under the scheme.


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Minimum loan of Rs. 2.50 lacs and maximum loan of Rs. 500.00lacs may be provided under this scheme.

Repayment should be done within 3-5 years.

SHORT TERM LOAN This scheme has been designed to meet the short termrequirement of funds for working capital purposes due to peakseason needs or for fulfillment of specific order/job enhancementof working capital limits pending upto Bank etc.

It is provided to concerns which are in the profit for the last 4years, having working capital limits sanctioned by any othercommercial bank, having regular account with MPFC /Otherfinancial institution.

The minimum assistance under the scheme is Rs. 2.00 lacs andmaximum Rs. 100.00 lacs.

The debt equity ratio should not be more than 1:1 and currentratio should not be less than 1.5:1.

Repayment should be done within 12 months.

Interest rate for the scheme will be 13.50%. A penalty @2% p.a.is levied in case default for the period and amount of default.

ELECTRO-MEDICAL EQUIPMENTSFinancial assistance under this scheme is available for purchaseof new electro medical and other equipments.

It is provided to private practioners having MBBS or BDS orphysiotherapist or equivalent qualification.

Repayment should be done within 6 years.

EQUIPMENT FINANCEAssistance is available for acquiring identifiable and new items ofplant & machinery, equipments etc.

It is available to industrial concerns in existance for atleast 4years, earning profits/declaring dividend on its share forpreceding two years and are not in default to institutions/banksin payment of their dues dues.

Maximum amount available is 77.5% of the cost of the machine -restricted to Rs. 90.00 lacs per proposal.

The overall debt equity ratio (including the assistance under thescheme) should not be more than 2:1.

FINANCE FOR PROFESSIONALS Term loan is available for setting-up professionalpractice/consultancy venture, for the first time or for acquiringadditional equipments in exisiting setup.


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It is provided to professionals in the field of management,accountancy, medicine, architecture, engineering etc.

The cost of project should not exceed Rs. 10.00 lacs, of whichland/building should not be over 50% of the total outlay.

Repayment should be done within 5 years.

ASSET CREDITAssistance under this scheme is available for purchase ofequipments for the purpose of expansion, modernization,diversification and/or for the replacement of the equipments.Medical equipments, energy saving systems, vehicles and other

equipments for manufacturing and service industry are alsoeligible under the scheme.

This scheme is available to existing, concerns having at least twoyears profitable operations.

Up to 100% of the cost of the equipment can be financed underthe scheme with a minimum of Rs 25.00 lacs and maximum ofRs. 500.00 lacs.

The debt equity ratio (including the assistance under the

scheme) should be 1:1.

The assistance under the scheme is available for 3 to 5 years &is repayable in monthly/quarterly installments.

LOAN REPLENISHMENTAssistance under this scheme is available for the purpose of

purchase of further machineries and extension of factory buildingfor the existing line of activity.It is provided only to MPFC's existing profit making borrowerswith good track record of repayment (at least thee dueinstallments of loan should have been paid in time).

The limit of assistance is up to the extent of loan already repaidby them till the date of application. Minimum loan is Rs. 2.50 lacsand maximum loan is Rs. 75.00 lacs. Repayment should be donewithin 5 years.

FINANCE FOR MARKETING ACTIVITIESAssistance is available for the purpose of

meeting capital expenditure on marketing campaign acquiring mobile sales vans setting up/renovation of showroom, warehouse, marketingoffice for industrial concerns acquiring ISI, ISO and/or other certification


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developing infrastructure like setting-up of permanentexhibition centres, industrial complex etc.

It is provided to existing SSI/MSI profit making industries withgood track record with financial institutions/Banks.

Minimum amount of assistance under the scheme is Rs. 10.00lacs with a maximum of Rs. 50.00 lacs.

Assistance under this scheme is available for 2-5 years.

SCHEME FOR MEDICAL PROFESSIONALS

Any medical professional is eligible for financial assistance under

this scheme who holds minimum qualification of MBBS/BDS.

Financial assistance shall be considered for the followingpurposes to meet:-

cost to purchase premises/chamber/flat to set upclinics/consultation chambers, and/or cost of medical equipments, infrastructure/furnishing,computers, office automation system, ambulance, car/van,interior decoration etc.

The loan shall repayable within 2 to 6 years.

SCHEME FOR FINANCINGMISCELLANEOUS FIXED ASSETS

Assistance under this scheme is available for acquisition ofmiscellaneous fixed assets (MFAs) as mentioned hereunder tomeet:-

The cost of purchase of vehicles in the name of the company The cost of office automation equipments The cost of construction/ acquisition of the officepremises/guest house for the company

Assistance shall be provided to existing assistedconcerns/companies that have:-

Availed minimum Rs.200 lacs from the Corporation. Repaid at least 25% of the total loan disbursed to them. Earned profits for last two years and having positive networth. Good track record with the Corporation.

The minimum loan amount under this scheme would be Rs. 5.00lacs and maximum would be Rs. 50.00 lacs. The loan shall berepayable in 3 to 8 years.


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LIQUID FUND SCHEME

The short term funds will be provided to meet the liquid fundsrequirement for the project. All micro, small and medium scaleenterprises are eligible who:

are in operation for last two years. are in profit for last two years. are regular with MPFC/Banks

LimitMinimum Limit - 5.00 LacsMaximum Limit - 240.00 Lacs

Minimum security margin of 25% on primary assets.

Maximum period of 12 months.Rate of interest is 10.75% pa(monthly rest) with a 4% penalty on delayed payments.

Repayment

Installment - OffPeriod

6 monthly -6months

OR

3 equalmonthly

-9months

COMPOSITE LOANAssistance under the scheme is available forprocurement of equipments, or working capital, or both.

It is granted to artisans, village and cottage industries,and small scale industries in the tiny sector (located inareas other than metropolitan areas), involvingutilisation of locally available natural resources and/orhuman skills.

Loan upto a maximum of Rs. 2.00 lacs in granted underthe scheme.

Repayment should be done within 10 years, with aninitial moratorium of 12-18 months (both for interestand principal). No upfront fee is levied under thescheme.


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COMMERCIAL COMPLEX

The scheme is for providing financial assistance for constructionof commercial complex including show rooms and sales outlets.

Loan will be given for purchase of land and construction ofcommercial complex within the State of M.P.

Sale of shops, show room or any portion of complex shall bepermissible with the prior approval of the Corporation. Theproceeds shall be deposited in the loan account of the borroweras per terms of agreement. The minimum cost of project shouldbe Rs 10.00 lacs.

The promoter is required to contribute 50% of total cost ofproject. In case of companies, net worth should not exceed Rs.

10.00 Crores.

MPFC will hold the first charge by mortgaging assets i.e. land &building, shop premises, saleable part of commercial complex.The loan should be repaid in 5 years, including a maximum of 2years moratorium.

Other Schemes

Term Loan

Schemes

Interest Rate Rebate Effective rate on

timely repayment

Infrastructure

Development

Project

16.75% 1.00% 15.75%

Working Capital

Medium Term Loan

14.00% 1.00 % 13.00 %

Short Term Loan 14.00 % 1.00 % 13.00%

Schemes For

Medical

Professionals

13.00 % 0.5 % 12.50 %

Schemes For Misc.

Fixed Assets.

14.00 % 1.00 % 13.00 %


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Terms & Conditions by MPF C

ELIGIBILITYMPFC grants assistance to "Industrial Concerns" as defined in clause (c) of section 2 of

"State Financial Corporations Act 1951", which are located in the state of MadhyaPradesh.

Howeverfee based services can be extended to units located in any part of the country.

In the definition, almost every type of manufacturing and/or process activity and relatedoperations are covered. In addition to it, MPFC also provides assistance to activities in

the service sector, as approved by the Industrial Development Bank of India (IDBI).

As per the provisions of the "State Financial Corporation Act 1951", MPFC can grantassistance to only those concerns whose paid-up capital and fee reserves taken together

do not exceed Rs. 20.00 crores. This limit is not applicable to non- fund based activities.Subject to the limits prescribed under the various schemes, MPFC's total exposure to a

single concern under all the schemes taken together shall not exceed Rs. 200.00 lacs incase of partnership and proprietary concerns, and Rs. 500.00 lacs in case of corporate

entities.

SECURITYMPFC grants loan against security only.

The primary security for the loan is usually a first charge on land, building, plant and

machinery etc. acquired/proposed to be acquired. In case of loan under consortiumarrangements, Parri-passue charge is accepted along with the other participating

institutions.Generally MPFC takes collateral security of land and/or building of the borrower or anythird party in addition to primary security.

MPFC also has a floating charge on all the remaining assets of the borrower, subject to

the charge in favour of the bankers for working capital.

MARGINMargin is the difference between the value of assets offered as prime security and the

amount of loan.

The margins prescribed for loans under various categories are as under:

CategoryBackward

Districts

Other

Districts

Small Scale Industries 20% 25%

Medium Scale Industries 25% 40%

Hotel Industry 50% 50%

Tiny Sector 10% 15%

Composite Loan NIL NIL

PROMOTER'S CONTRIBUTION
http://www.mpfc.org/mpfincorp/test12.htmhttp://www.mpfc.org/mpfincorp/test12.htmhttp://www.mpfc.org/mpfincorp/test12.htmhttp://www.mpfc.org/mpfincorp/test12.htm


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The minimum promoters contribution envisaged in the project is worked out on the basis

of Debt-Equity norm and the security margin norm applicable at the time of sanction of

the loan. The debt equity ratio is the ratio of loan component and the equity contributionin the total project cost. The maximum amount of assistance shall be lower of the two

amounts worked out on the basis of Debt-Equity norm and the security margin norm. The

normal lending norm for debt- equity is 1.5:1, however in some specific schemes thisnorm may be flexible.

The entire promoter's contribution envisaged in the project is desired to be raised by way

of capital before first disbursement of the loan installment. However in case thepromoters are short of own capital, some amount may be raised as unsecured loans in the

form of quasi-capital. The quantum is ascertained during the appraisal of loan proposal.

REPAYMENT PERIODThe period of repayment of loan is decided on the merits of each case, which generallyranges between 5 to 8 years.

The principal amount of loan is payable normally in half yearly installments with an

initial moratorium period of 3 months/6 months to two years depending upon the size ofthe project & stage of the implementation.

Interest is also normally charged on quarterly/half yearly basis and the months of

payment of interest & principal are kept different to even out the liability of theborrowers depending upon project.

INSURANCEThe assets offered as a security of the loan should be kept insured for their full value

during the currency of the loan. The risk normally covered under the insurance are those

relating to fire, riots etc., and the specific risks attributable to a specific project which thecorporation may specify.

The insurance policy should be taken in the joint names of the corporation and the

borrower - with the usual mortgage clause. The first insurance policy and the subsequentrenewals of the same should be sent to MPFC as soon as they are affected. In case thesame is not sent in time. MPFC has a right to get the same insured on the cost & risk of

the borrower unit.

Other Condition

Application for financial assistance duly filled-up and signed is submitted to

concerned field office of MPFC in the prescribed form along with all necessary

details and enclosures as specified in the said application form. Application is tobe made in duplicate/triplicate as may be required by the concerned field office.

The proprietor/partners should not draw any remunerations, interest on capital, or

any other payment and in case of corporate bodies no dividend should be declaredtill the project commences operations or any installment or interest is in default

towards the corporation.

The capital and unsecured loans stipulated & raised as per the terms and

conditions of sanction should not be withdrawn during the currency of the loan.

An undertaking should be given by the promoters that in case of any short fall in

the resources due to 'over-run' in the project cost or for any other reasons like non-

receipt or delay in receipt of capital subsidy etc. the same shall be met by themfrom their own sources.

The promoters of the concern should give a declaration that no inquiry has been

instituted against them/him and/or is pending against them/him or any of them for

economic offenses by the Central or State Govt. and they/be shall under take no todo any thing which may constitute such an economic offense.

In case the documentation is not done within one year from the date of sanctionletter, the sanction loan is automatically canceled.

In case full sanctioned amount is not availed within a period of 18 months from

the date of sanction, the balance loan is automatically cancelled


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FEES BY MPFC

APPLICATION FEE

0.25 % of the Term Loan applied for, subject to minimum of Rs.1000

Application fee has to be deposited along with the application form.

UP-FRONT FEE

Term Loan (excluding Short Term) 1.00 % of the sanctioned loan amount

Short Term Loan 0.25 % of the sanctioned loan amount

Small Loan Scheme 0.10 % of the sanctioned loan amount

Note: Application fee and upfront fee are not refundable in any

Loan Procedure

There are 3 main stages for approval of loan to the borrower.

Sanction

Legal

Disbursement

I) SANCTION PART-

This organization has certain steps to follow before sanctioning loan to borrower. These

steps are as follows :-

1) Loan Application FormAs per the norms of every organization firstly for every request of any thing theapplicant has to fill the form for the same. This organization gives loan to SSI & MSI

units and for that the company/firm has to give the request in form of application form.

MPFC entertains the loan application from different constituencies such as Partnership,Proprietorships, Private Ltd or Public Ltd Co. and HUFs. This application forms may

be in the nature of small scales or medium scales industry or they may also be related to

services sector or manufacturing sector.In this form, all the basic information that the MPFC needed is mention by the borrower

along with the appendix 3III. The form must be filled and duly sign by the borrower,

along with the documents which are given in the check list. The form is submitted by the

borrower along with application fees for registration of there case for e.g. copy ofPartnership Deed, Memorandum of Association, Estimation of Civil/Technical Engineer.

2) Registration of Loan Case

In every organization there are certain rules and regulation or norms which the staff hasto follow for doing their regular works. In this organization there are certain procedure

prescribed by higher authority which staff has to follow.

In this part the concerned authorities go through the rules & regulations / procedureprescribed and request of the borrower & registered the request as a case.

MPFC has a checklist by which it confirms that all the documents are properly given bythe borrower with application form & after that the request of borrower is considered in

MPFC as a LOAN CASE.


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3) Bank Opinion

Every organization goes through the application form to know credit worthy state of

borrower and to check the every aspect of the borrower before giving a loan to him. Atthe beginning of the loan procedure followed by MPFC, it thinks very necessary to know

about the banking status of borrower. MPFC issues a confidential letter to the bank for

the opinion from the concerning bank of the borrower as well guarantor.

4) Verification of Property/Search of Property

In this part MPFC evaluates/verifies the property/registry which the borrower mortgage

to the organization is true & exists in reality or the registry is fake. Scrutiny of security

offered by the borrower is performed in the form of confidential search by the registrar

through which MPFC finds out the charges created over the / not be in the favor ofborrower. This search shows any encumbrances or other charge created in favour of other

institute.

5) Title ReportIn this part MPFC gives all the documents which are submitted by the borrower to the

advocate for the clarification of title/ the property which the borrower wants to submit

has a clear title or not. After the verification the advocate issues the letter to MPFC in

which he clears the history of the submitted property to the organization in simplelanguage. This letter is known as The TITILE REPORT from the advocate.

6) Scrutiny of I.T.Returns/Audit Report of Company

After verifying the property mortgaged by the borrower, the MPFC scrutinize the

financial data given by the borrower (i.e. the audit repots, I.T returns etc). The company

has to be in profit for the last 3 years & it should have been paying the I.T Returns

properly.

7) Dues from MPEB / DIC Etc.

The borrower should not have any dues with the MPEB / DIC. If any, they should becleared in order to receive the loan.


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8) Project Appraisal

Financial Institution appraises a project from the Marketing, Technical, Economical and

Financial/Managerial aspects. They would like to be reasonably sure that the project

would be yield sufficient returns so that the assistance sanctioned/ disbursed would be

repaid in the time and the promoter, would have enough retained profits to declarereasonable dividends.

Future, the institution is definitely placed in a better position to check the validity ofassumption used while fixing the cost if the projects include the margin money. The

institutions can also advice on the fixation of the means of financing. They can also help

in assessing the working capital requirement, fix repayment schedule of the term loansand realistic basis and evaluate Break Even Point, Internal Rate of Return on the basis if

the various financial statements prepare on the basis of assumption supplied by the

entrepreneurs and dully modified in the case of need by this institutions. Above all thesestatements provide the institution a basis for the future reference for the comparison of

the actual working results. A variance analysis may be carried out by the institution if theprojected statements as submitted differ considerably from the projections.

The principal issues consider and criteria employed in such appraisal are discussed

below:-

(a) TECHNICAL APPRAISAL

As the name suggests this appraisal is done to ensure all technical aspects relevant to thesuccessful commissioning, if the project have been taken care of. The important issue

considered in the appraisal are :

Past track record of the company i.e. sales and working results etc.

Current and future marketing aspect of the project already in the

production.

Promoters background and their past dealings with the DFIs.

The existing infrastructure facilities like availability of sufficient land, water,

power etc.

The sufficient building and civil work to accommodate the future plant and

machinery.

The existing set of plant and machinery together with installed capacity

product mix wise and preferably with cycle wise.

The existing and future power need and availability.

The critical area of the operations i.e. pivotal points of the process by which

major deciding output is based.

The combination of the existing plant and machinery process wise if

related to installed capacity or capacity utilization.

Whether proposed plant and machinery to be acquired is used for boosting

quality of product mix.

The enhancement of installed capacity, capacity utilization or quality of

product shall generate sufficient incremented benefit to cover the debt sought

for independently. In other word the proposed set of equipments is self

continued or not.

The type of modernization equipment wise with respect to investment and

specification is to be ensured. The association of any technical consultant,

collaboration etc. to be specified or the promoters competency is sufficient

to take care the modernization in the area for dealing.

The replacement if equipment with respect to existing process wise and

balancing section wise is to be ensured.

The standard and reputed supplier/ manufacture is to be ensured.


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Whenever, there is fabrication item the detail drawing design and

specification together with cast estimated component wise to be ascertained.

In case if diversification, the relation of the existing product mix and markets

etc. is to be ensured.

The selling prices constituents a major rate with addition shall also be

critically examined.

(b) ECONOMICAL APPRIASAL

This appraisal is done to adjudge whether the project is desirable from the socialpoint of view. Some of the issues considered in the analysis are

Impact of the project or the distribution of income in the society.

Impact of the project on the level of saving and investment in the society.

Contribution of the project towards socially desirable objective like self

sufficiency, employment etc.

(C) MARKET APPRAISAL

The next step in any project analysis process is estimation of the market potential of

proposed , to get an idea of acceptability of the product in the market which will help informulating strategies for the development of the product.

Basically the market analysis is concerned with two broad issues.

1. What is the likely aggregate demand of the product?2. What will be the share of the propose product?

The market study process to carried out to find out the present situation of the productin the market and on the basis of the estimation of the product future earning capacity

is measured.

In the market studied process different steps are taken

Situation analysis

The first and the most important step in market study process is this situation

analysis of the proposed product, which give an insight into the different factor

which would affect the product like price fluctuation , customer preferencecompetitor , product substitution which will affect the product growth at different

levels .

1. Collection of secondary information

To further carry on the situational analysis process primary and secondary

information is collected which has a bearing with the performance of the product.Secondary information is the information is that has been gathered is some other

contest and is already available like plan reports, economic survey, annual survey

of industries etc.

Primary information on the other hand represent information that is collected for

the first time to meet the specific purpose on hand .conducting of market survey is

the most popularly adopted technique for gathering primary information .The various sources of general information are :-

Census of India

National sample survey reports

Plan report

Statistical abstract t of

Statistical year book Economical survey


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Guidelines to industries

Annual survey of industries

Annual reports of development wings, ministry of commerce and industries

Annual bulleting of statistics of exports and imports

Techno Economic survey

Industry potential survey Stock exchange diary

Monthly studies of production of selected industries

Publications of advertising agencies

Monthly bulletin of reserve bank of India

Other publication

2. Conduct of Market Survey

Although the secondary information is useful; but it often does not provide acomprehensive basis for the market and demand analysis. It needs to be supplemented

with primary information gathered through the market survey specific to the product

being appraised.

The information which is often expected out of the survey is the following:-

Total demand and rate of the growth of demand.

Demand in the different5 segment of the market.

Income and price elasticity of demand.

Motives for buying.

Satisfaction with existing products.

Unsatisfied needs.

Attitude towards various products.

4. Steps in Sample Survey

Commonly, a sample survey consists of the following steps :

i. Define the Target Population

In defining the target population the important items should be carefully and

clearly defined. The target population may be divided into various segmentswhich may have different characteristics.

ii. Sample Size

The sample size, other things being, has a bearing on the reliability of the

estimates, the larger the sample size the greater the reliability.

iii. Developing the Questionnaire

The questionnaire is the principal instrument for extracting information from the

sample of the respondents. The effectiveness of the questionnaire as a means forextracting the desired information depends on its length, t6he type of questions,and the wording of questions.

iv. Analysis and interpretation of the information

Information gathered in the survey needs to be analyzed and interpreted very

carefully. After tabulating it as a pen of plan of analysis, suitable statistical

investigation may be conducted, wherever possible and necessary.

(d) FINANCIAL APPRISAL


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Financial Appraisal is concerned with assessing the feasibility of a new proposed for

investment for setting up a new feasibility of a new project or expansion of existing

productive facilities.

The financial appraisal seeks to assess the following :

1. Reasonableness of the estimate of capital cost.

2. Reasonableness of the estimate of capital cost.

3. Adequacy of the rate of return and

4. Appropriateness of the financial pattern.

1. Reasonableness of the estimate of capital cost :

While assessing the capital cost estimates efforts are made to ensure that :

1. Padding or under estimate of cost is avoided.

2. Specification of machinery is proper.

3. Proper quotations are obtained from potential suppliers.

4. Contingencies are provided.

5. Inflation factors are considered.

2. Reasonableness of the estimate of working result :

The estimate of working result is sought to be based on

1. A realistic market demand forecast

2. Price computations for inputs and outputs that are based on current

quotations are inflationary factors.

3. An appropriate time schedule for capacity utilization.

4. Cost projections that distinguish between fixed and variable cost.

3. Adequacy of the Rate of Return:

The general norms for financial desirability are as follows :

1. Internal rate of return 15 percent

2. Return of investment 20-25 percent3. Debt service ratio 1.5-2.0

In applying these norms, however a certain degree of flexibility is shown on the basis ofthe nature of the project, the risks inherent in the project and the status of promotion.

4. Appropriateness of the financial pattern :

The institution considered the following in assessing the financial pattern

1. A general debt-equity ratio norm of 1.5 : 1.0.

2. A requirement that promoter should contributes 12.5% to 22.5% of the project

cost.

3. Stock exchange listing requirements.

4. The means of the promoters and his capacity to contribute.

(e) FINANANCIAL ANALYSIS

An integral aspect of financial appraisal which takes into accounts the financial features

of a project, especially source of financing. Financial analysis helps to determine smooth

operations of the project over its entire life cycle. The key financial indications used by

financial institution, while evaluating project are the:

1. Internal Rate of Return

The internal rate of return method is a discounted cash flow technique which takes

account of the magnitude and timing of cash flow. Other terms used to describe the IRR


24/49

method are yield on an investment, marginal efficiency of capital, rate of return over cost,

time-adjusted rate of internal return and so on. Internal rate of return for an investment is

proposed is the discounted rate that expects the present value of expected cash outflowswith the present value of expected cash inflow. Internal rate of return is represented by

the r such that :

At - I = 0(1+ r)n

Where At is the cash flow for periodtn is the last period in which cash flow is expected.

The accept or reject rule, arising the IRR method is to accept the project if its internal rate

of return is higher than the opportunity cost of capital (denoted by K). This K is also

known as required rate of return or the cutoff or the huddle rate. Thus the IRR acceptancerules are

Accept if r > KReject if r < K

May accept if r = k

Merits

1. Consider all cash flows.

2. True measure of profitability.

3. Based on the concept of time value of money.

4. Generally, consistent with wealth maximization principle.

Demerits

1. Requires estimates of cash flows which is a tedious task.

2. Does not hold the value activity principle (i.e. IRRs of two or more project do

not add).

3. At times fails to indicate correct choice between mutually exclusive projects.

4. At times yields multiple rates.

5. Relatively difficult to compute.

2. Debt Service Coverage Ratio (DSCR)

The debt service coverage ratio is defined as

Profit after tax + depreciation + other non cash charges interest on term loan

Interest on term loan + Repayment of term loan

Financial institution calculates the average DSCR for the period during which the term

loan is repayable. Normally, a DSCR of 1.5 to 2.0 is reasonable satisfactory.


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3. Break Even Point

The profitability projection or estimates of working results discussed above are based onthe assumption that the project would operate at given levels of capacity utilization in

future. In addition to knowing what the projected profits would be at certain level of

capacity utilization, it is also helpful to know the level of operation should be avoidinglosses. For this purpose the break even point which refers to the level of operation at

which the project neither makes profit nor incurs losses is calculated.

As first step in computing the break even point the costs are divided into two broad

categories: fixed cost and variable cost.

Fixed cost is the cost which remains constants irrespective of charges in the volume of

output and variable cost are the cost vary directly with output.

In case if anew project where the capacity utilization level is expected to rise gradually

over a period of 3-4 years. Fixed casts are normally planned in such a way that they are

stepped up as and when necessary to meet the projected increases in capacity utilization.Hence, the calculation of break even point for a new project must be with reference to

fixed costs expected to be incurred in the third year or forth year when the project issupposed to reach the rated capacity utilization level. Three measure of break even point

are

Break Even Point = Fixed cost X ExpectedProduction

In terms of volume of production % Contribution in the year

Break even point = Fixed cost X Expected Capacity

in terms of % of installed capacity Contribution utilization in the year

Break even point in terms of = Fixed cost X Expected Sales

Amount of sales Contribution realization in the year


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OTHER INDICATION

Financial institution look at the following indicator too :

# Profit margin on sales = Net profit after tax

Sales

# Return on owners equity = Net profit after tax

Promoter contribution +Soft loan

# Fixed assets coverage ratio = Net fixed assets

Term loan

# Debt equity ratio = Long term debt

Equity

# Current ratio = Current asset

Current liabilities

# Quick ratio = Current assets - Inventory

Current liabilities

# Interest coverage ratio = Net profit before taxes + interest

Interest

# Inventory turnover ratio = Sales

Inventory

# Debtors turnover ratio = Sales

Debtors

# Assets turnover ratio = Sales

Net Assets

# Working capital turnover = SalesWorking Capital

# PBDIT ratio = PBDITSales

Ratios are employed while financial analysis which revel existing strength and weaknessof the project.

9) Issue of sanction letterAfter all the procedures are completed by MPFC, it gives sanction letter to the borrower.

This letter contains the loan amount sanctioned, schedule of repayment of loan, and termsand condition of MPFC.

II) LEGAL PARTThere are some legal formalities or paper work to be done before giving the loan to the

borrower by every financial institution. Like wise, here in MPFC the same procedure isperformed known as LEGAL PART.

Here, the borrower has to submit original papers of property/ assets as a mortgage and

some other paper work with MPFC as per the requirements.

There are two types of mortgage done by MPFC :

i) Equitable Mortgage

ii) English Mortgage


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I) EQITABLE MORTGAGE

There is a specified format for this mortgage according to MPFC. The borrower has tosubmit all the documents to MPFC along with the original documents of registry of

property offered in the proposal.

II) ENGLISH MORTGAGE

This type of mortgage is done, when there is a case of lost of registry by the borrower.

For that the MPFC has a specified procedure to deal with these types of mortgage cases.1. The MPFC wants Power of Attorney by the borrower of the property which he

offered in the proposal.

2. Some affidavits like A, B, D is to be filled by the borrower.

3. Deed of Guarantee duly notarized by the public notary.4. If the loan is against machinery then deed of hypothecation is needed and duly

notarized by notary.

# Security mortgage should be 80% of the loan amount.# Agriculture land is not in consideration for mortgage by MPFC.

RECOVERY & FOLLOW UP, TAKEOVER & SALE

Revival of in case, assisted units turnout to be sick, and the promoters

are very keen and ready to revive the unit, the corporation extends a

helping hand for revival of such units - strictly on merits of each case,

and if the corporation feels that the operations of such a unit can still

be made viable.

The benefits, which may be passed on in such cases, generally include

reschedulement of loan accounts, funding of overdue interest, grant of

loan for balancing equipments, approval for change in the

management, recommendation to other financial institutions,

Bank,Govt. etc.

Defaulting borrowers are reviewed by the corporation both at field

offices and at Head Office.

Default review committee (DRC) at Zonal level considers the cases for

reschedulement of loan account, granting of rebate, issue of legal

notice, take over of the unit, change in management, disposal of units,

etc.

The zonal level DRC considers cases having sanction amount less than

Rs. 20.00 lacs, while those having a higher sanction amount are dealt

with by H.O.

INSTALLMENT

In general the installments of interest & principal fall due forpayment on quarterly basis. The months of payments of interest& principal are normally kept separate to avoid burden on theborrower. The due dates of payments are specified in the loandocuments.


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The payments made by the borrowers are appropriated in thefollowing order: firstly towards other charges, followed by arrearsof interest, and lastly towards principal. In case of multiple loan,the amount received shall be appropriated first towards loanoverdue having lower rate of interest.

REPAYMENT

The borrowers are expected to be well aware about the duedates for payment of instalments. However, to facilitate them. Itis a usual practice of the corporation to issue demands for suchpayments well in advance.

In case due to postal delay or any other reason, the demand isnot received by the borrowers, they should contact theconcerned field office and deposit the amount well in time toavoid penal interest and other consequences of default.

It may be noted that non-receipt of demand notice cannot betaken as an excuse for default.

The payment of the dues can be made at the field office, or athead office but as far as possible the payment should be made atthe concerned field office only.

RESCHEDULEMENT

In case the party fails to pay the dues to the corporation in time,

due to some genuine reason, the related facts & circumstancesshould be informed to the field office with full details.

Depending upon merits of the case, postponement of someparticular dues, for some period, may be allowed; or the facilityof the reschedulement of the entire outstanding may begranted.However, grant of such facilities is solely at thediscretion of the corporation. It is necessary that the borrowershould remain in regular touch and continue to keep the fieldoffice informed of the progress and working of the concern atregular intervals.


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SICK UNITS

In case, assisted units turnout to be sick, and the

promoters are very keen and ready to revive theunit, the corporation extends a helping hand forrevival of such units - strictly on merits of eachcase, and if the corporation feels that theoperations of such a unit can still be made viable.

The benefits, which may be passed on in such cases,generally include reschedulement of loan accounts,funding of overdue interest, grant of loan for balancingequipments, approval for change in the management,

recommendation to other financial institutions, Bank,Gov

PENALTY

Penal interest is charged in case of default. Thisinterest is over and above the contracted rate.Incase the default becomes a chronic & persisting feature or thecorporation feels that the dues are willfully not being paid, or themanagement is unable to run the units, the corporation isconstrained to take painful decision acquiring the assets U/S 29 ofthe SFC'S Act,1951 and dispose them off by auction/sale torecover the outstanding dues.In case the sale proceeds of theassets are less as compared to the outstanding, thecorporation is free to initiate legal proceeding to recoverthe balance amount from promoters/guarantorspersonally.

Recently the Government of Madhya Pradesh has alsoconferred the powers of Tahsildar on the Dy.General

Managers of MPFC.Pradesh Lok Dhan (ShodhyaRashiyon Ki Vasuli) Adhiniyam, 1987. RRC's are alsobeing issued in favour of officers at Collectorate andCollectorate Officers are recovering the MPFC dues - asdues of Land Revenue, from the defaulting borrowersand their guarantors.


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CHANGE IN MANAGEMENT

It is one of the usual conditions for grant of loanthat the change in the constitution and ormanagement should not be done by the concern.

However if it becomes necessary in the interest of theproject, a written request should be made to theconcerned field office and the desired change may beaffected only if the approval of the request is granted inwriting.

SECOND CHARGE

On the request of the regular borrowers, the

corporation usually permits second

DEFAULT REVIEW COMMITTEE

Defaulting borrowers are reviewed by thecorporation both at field offices and at HeadOffice.

Default review committee (DRC) at Zonal levelconsiders the cases for reschedulement of loan

account, granting of rebate, issue of legal notice, takeover of the unit, change in management, disposal ofunits, etc.The zonal level DRC considers cases havingsanction amount less than Rs. 20.00 lacs, while thosehaving a higher sanction amount are dealt with by H.O.

STANDING COMMITTEE

Cases of disposal of taken over units where assistanceoriginally sanctioned is above Rs5.00 lacs, areconsidered by the standing committee (SC), andconstituted in the Head Office of the corporation Theunits are disposed off after giving news papersadvertisement, calling offers from intending purchasersand subsequent negotiations.

Comparison of MPFC with Banks

MPFC Banks

1)Quarterly based interest is charged !)Monthly based charged

2)Repayment time is longer 2)Repayment time is shorter then MPFC

3)It can excise takeover power where in the

defaulters mortgage assets rights are

takeover by MPFC.

3)They dont have takeover rights.

4)They have privilege to use RRC act &

DRT act in case of default.

4)Only use DRT act in case of default

5)MPFC is governed by SFC 5)Governed by RBI


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6)Raise Money from SIDBI 6)Raise loan from RBI

7) MPFC and rating agencies assign grades

on the basis of downside scenario and even

consider current scenario.

7) Bank assigns rating on the basis of

borrowers current condition and most likely

outlook.

Documentation:(Documents required before sanction)

(Along with the Application Form)

Application form.

Partnership Deed/Memorandum & Articles Or Association of the company.

Registration/Permission/Licenses etc.:

DIC/SIA or any other registration/license.

Registration/Incorporation Certificates of Firm/Company.

Permission/NOC/Opinion form:

Drug Controller.

Director of Tourism.

SEBI.

Pollution Board etc.

Any other requisite license/Permission as per project.

Project Report with supplementary information

Certified copy of Lease deed/Sale deed/Rent agreement.

Blue print & Estimates for building. Building map approved by competentauthority.

Quotations for Plant & Machinery (from 2 to 3 reputed suppliers for each item).

Quotation for Electric motor. Transformer, Generators etc.

Quotation for other major capital items (from 3 reputed suppliers).

Details regarding Bio-Data,Experience,Property, Bank Accounts and Income

details in specified proforma and appendix III with latest self attested passportsize photograph in case of Proprietor/Partners/Directors/ Guarantors etc.

Experience Certificate.

Audited Balance sheet, Profit & Loss A/c.,Trading Account etc. of

Application/Associate/Family/Sister Concern for the last three years with briefspecifying sales, purchase, profit & losses etc.

Source of Finance for own contribution.

Trial balance showing investment, if project is under implementation.

Assurance/Sanction/Letters.

For power from M.P.Electricity Board.

For water from PHE/Municipal Corporation.

For raw material from bulk suppliers, specifying rates, terms & conditions etc.

For finished goods from bulk buyers.

For working capital loan from Bank.

For unsecured loans from relatives etc.

Specific Requirements in Case of a Company:

List of Shareholder-Existing as well as proposed with their share holding.

Resolution for making the loan application.

DOCUMENTS REQUIRED AFTER SANCTION

(For Availing Disbursement)

In Case of Free hold Property


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Original title deed of the land, where the unit is proposed to be set up. Originals of

all the title deeds of predecessors, by whom title is passed on to the seller. If moreholding/properties are comprised and only part of it is sold or purchased then

certified copies of such title deeds.

Title deeds should be in favour of the party (concern) availing the loan.

Search certificate from sub-register of the district/sub- district with in whosejurisdiction the property is situated, for the last 13 years showing all particulars,

transactions including mortgage/ transfer, but if the transaction is prior to 13 year,

then search from the said date/year of the transaction be obtained. The search maybe carried out by application through his advocate of later from Zone/ Branch be

obtained for search to be carried out by the sub-register concerned.

Certified copies of Khasra records for the last 13 years, but if the transaction isprior to 13 years, then from the year in which the said transaction took place.

Diversion order from SDO in respect of the land diverted for the purpose of

industry and if it is found that area diverted does not have clear access to the landfrom public road, such portion should be got diverted.

Aksh - Naksh (field - map) issued by revenue officer showing the clear access tothe land and demarking the diverted portion of land and its surroundings.

Diversion premium paid receipt or certificate from revenue officer to this effect.

Rin-Pustika original Part I may be retained and Part II be returned back to the

borrower after retaining photocopy of the same. This is to be returned only after

documentation.

While scrutiny of the title, if it is found that the Khasra records for the last 20

years are required to establish the clear title, then only in such cases the same are

required to be furnished.

If title deed in favour of the borrower or in favour of the predecessor bears the

security mark of magistrate against bail of any accused, the same be got cancelled

first.


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SWOT ANALYSIS

S-Strengths: Autonomous body.

Product features. Marketing arrangement of the firm.

Brand position.

W-Weakness: Scarcity of raw material.

Dependence on limited resources.

O-Opportunities: Change in government policies.

Market export opening up.

T-Threats:

Competition. Political uncertainty.

International market scenario.

Economic policies.


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STRENGTHS

Autonomous Body: MPFC is independent financialinstitutions which provides financial assistance to various

financial assistance to various SSI & to service sector unitsalso & perform the activities under the provision of SFCsAct 1951.

Features of its products: the features of the producti.e. financial assistance provided by MPFC is unique initself & has a long term standing.

Marketing arrangement of the firm: MPFC has lessbut a wide market capturing capable marketing

arrangement which helps customer to satisfy theirfinancial needs & give him what he want in the betterways.

Brand position of MPFC: MPFC has a well establishedbrand name & brand position in Madhya Pradesh.

WEAKNESSES

Scarcity of raw material: MPFC has limited resources,provided by the government, by the means of which ittries to satisfy the customers financial needs, by actingwithin the framework of SFCs act 1951.

Dependence on limited customers: MPFC has alimited number of customers, upon which it existence isgrowing & this limited number of customer are not alwaysloyal to the brand name of MPFC, in term of taking loan inthe future.

OPPORTUNITIES

Change in Government policies: change ingovernment policies of various taxes, duties, rebates,credit policies, rate of interest etc.. are alwaysopportunities to various private & public financialinstitutions, as any change (decrease) in the aboveeconomic matters, do affect the customer & the nature of

customers response depends upon the type of financialassistance provided & recovered by the firm. Likewise, italso affect as an opportunity to MPFC.

Market export opening up: as the large scaleconstruction of malls, big hospitals & hotels, multiplexesetc.. is going on within the area of operation of MPFC, itproves to be a good opportunity for MPFC to be presentthere to provide financial assistance to various suchproject.


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THREATS

Competition: MPFC has a tough competition withother bank & financial institution & due to large rate ofinterests provide along with its assistance, MPFC is notlading the market competition.

Political uncertainty: MPFC also suffer thedisadvantages of political uncertainty & due to this

misbalance in politics, MPFC has number of customers.

International market scenario: As variousinternational project are building up in India & now esp.inMadhya Pradesh which are being financed by variousother banks, proves fatal or MPFCs growth.

Economic policies: The economic policy set by thegovernment of India has a great impact on MPFCsworking since its establishment.

SUGGESTIONS

1. MPFC is having competition with banks which has reducedthe yearly turnover of the organization.

2. As compared to other financial institution MPFC is havinghigh rate of interest for various types of loans, which deviatescustomer from the corporation.

3. Processing time of sanctioning loan is very large becauseMPFC wants all paper formalities to be completed.

4. Unlike other financial institution, MPFC does not have thesound marketing strategies. Awareness through the fieldrepresentatives will definitely help MPFC to enhance the number ofcustomers.

5. The concept of the collateral security comes into the scenarioin few years ago in MPFC. This has created reluctance among the

customer to take loan from MPFC.


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THE CASE STUDY

THE CASE

To consider the sanction of a Term Loan of Rs. 46.00 Lacs and WCMTL of Rs. 15.00

Lacs (composite Rs. 61.00 Lacs) to M/s Sona Industries for the expansion of their

existing unit for Manufacturing of BOPP Self Adhesive Tapes at Plot no. D-2, Sector D,IND. Area, Sanwar road, Indore(M.P).

Factory Location : Plot no. D-2, Sector D, IND. Area, Sanwar road, Indore(M.P).

Registered Office : Plot no. D-2, Sector D, IND. Area, Sanwar road, Indore(M.P).

Constitution : A Proprietorship Concern

[Rs. In lacs.]

Application

Received on

Date

Information

completed

Date

Appraisal

Completed

Date

Loan

applied

Rs.

Loan

Apprised

Rs.

For Board

Consideration

Rs.

Products Units Capacitybeing

Installed

Production UtilizationBased on

double shift &

working

300 days in a

year

Sale Price/Box[Rs.]

BOPP Self

Adhesive

Tapes

Boxes of

72 rolls of

2 per box

25,000

Boxes

I year 40%

II Year

50%III Year

60%

60% in the

III Year

Onwards

1500/-

The Project is :-

1. A new project.

2. The Proprietor is first time seeking financial assistance from MPFC.

3. The products are well established the market.4. S.S.I Unit

5. The additional security worth Rs. 15.00 lacs in the form of fixed assets/FDR

offered.6. Adequate built in security.


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The total cost of the project:-

Items Rs (in lakhs )

Land factory shed

Site development &repairs

Plant and machineryMisc. Fixed Assets

Provision for contingency

Pre-operative expensesWorking capital

50.00

2.50

21.250.50

4.42

4.2025.13

Total 108.01

Means of Finance-

Items Rs (in lakhs )

Proprietors capitalTerm loan from MPFC

WCTML from MPFC

Unsecured loans

25.0046.00

15.00

22.01

Total 108.01

Consultants : - M/S Pramod P Chopra and Associates

Architect : - M/S Reliable Associates

Main plant suppliers : - M/S Jangir and Company, Delhi

1. Introductory

M/S Sona Industries Indore is proprietorship concern of Shri Rajesh Maheshwari

engaged in manufacturing of BOPP (Bi Oriented poly Propelyne) self adhesive tape atIndore for the last 5 Year. The unit has been working in a rented premise and after

witnessing market growth, the proprietor decided to expand the unit in its ownedpremises. In this respect the concern has purchased an industrial property which islocated at plot no D-2, Sector d, Industrial Area, Sanwer Road, Indore.

2. Proposal in Brief

The concern has moved existing set up to newly purchased industrial premises and

proposes to expand the capacity for manufacturing of BOPP self adhesive tape from to

2500 boxes per annum. Total cost of scheme is estimated at Rs 28.00 lacs, U/S loan Rs.13.50 lacs and financial assistance of Rs. 61.00 lacs sought from the corporation under

Single Window Scheme.


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3. Promoter and Management

The proprietor Shri Rajesh Maheshwari S/o Shri Maheshchandra Maheshwari agedabout 36 year is commerce graduate and hails from Vidisha . He belongs to agriculturist

Family and has been engaged in BOPP self adhesive tape business since the year 2002.

Subsequently in the year 2004 he acquired an ongoing tape unit situated in a rentedpremises and managed it successfully. His financial worth is 34.08 lacs. He is income tax

payee and returns have been filed up to 2008-09.

The other detail about the proprietor is as under:-

S.NO Name Age Adress Fathers/Husband s Name

Qualificat--ion

FA(lacs )

1. Shri Rajesh

Maheshwari

36 16/1, South

Tukoganj,

Indore

Shri Mahesh

Chandra

Maheshwari

Graduate 34.08

4. Guarantors

A condition is stipulated to offer personal guarantee from a financially sound person.

5. Details about the Project

Not Applicable

Past Performance

2007-08 : Turnover was 83.35 lacs



6. Project Cost

(a) Land & Building

The concern has purchased an industrial property situated on a leasehold land at Plot No.

D-2, Sector D, Industrial Area, Sanwer Road, Indore admeasuring 41250 Sq. ft. Thereare two ready built sheds admeasuring 7384 Sq. ft. With Sheet Roof & 3675 Sq. ft. RCC

Shed. The proprietor has purchased the above property at a price consideration of Rs.

50.00 lacs through a registered sale deed and accordingly Lease Seed transferred by DIC

in the name of the Concern, after imposing land premium amounting to Rs. 1.20 lacs.Further an expenditure of 2.00 lacs envisaged for repair & renovation of existing sheds.

(b)Plant and Machinery

The main plant & machinery required are tape coating machine, slitting machine, core

cutting machines etc. proprietor has sifted existing plant and machineries to the newlyacquired premises and commenced production. Further, it is proposes to purchase another

set of machinery i.e. BOPP Tape coating machine, slitting machines etc towards

expansion. The total cost of plant & machinery including taxes, erection installation andelectrical envisaged at Rs. 20.50 lacs.

(c) Pre-Operative Expenses

A provision of Rs. 2.50 lacs has been made towards pre-operative expenses to take care

of interest during implementation period and expenditure on legal documentation, stampduty etc.


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(d) Provision for Contingencies

Rs. 1.00 lacs have been provided for the purpose of contingencies towards costescalation.

(e) Working Capital

The total requirement of working capital on the basis of second year of its working has

been estimated at Rs. 24.80 lacs. The detailed calculations of working capital requirementof the proposed scheme are given below :-

Particulars Period Margin(%)

Total[Rs. In Lacs]

Raw Material 20days 25% 9.30

Finished Goods 15 days 25% 7.70

Sundry Debtors 20 days 25% 12.50

Working ExpensesTOTAL 12.50

Less : Sundry Creditors 10 (4.70)

Other Current Liabilities (-)

NET WORKING CAPITAL 24.80

7. Details about the Product

The Self Adhesive Bopp (Biaxial Oriented Polypropelene) tapes are available in

transparent, brown and various colors. The (BOPP) films are coated with acrylic based

adhesive in different micron (gsm) coating thickness. BOPP tape is used in carton boxsealing, gift wrapping, strapping and for stationary purpose. It has superb strong grip &stick on all types of surfaces viz. paper, plastic, wood, glass, metal etc. printing of single

and multiple color is also possible with logo or customized design. The unit is equipped

with quality processing equipments for consistent quality output ensuring marked tapelength, longer shelf life, peak performance even under extreme conditions of pressure &

temperature.

Dimensions:-

Width size: 12, 18, 24, 30, 36, 48, 60, 42, 96, 144, & 288mm

Length: 40, 50, 65, 650, 1000 metersThickness: 40, 45, 50, 55 & 60 microns

The concern is already engaged in manufacturing of adhesive tapes and now proposes toexpand capacity of the plant . These tapes are used as packaging material and insulations

tapes. The promoter of the unit is in this line of business since long and having direct

contact with buyers. In this regard a list of their regular clients submitted by the proprietoris on record. Keeping in view of the encouraging response the proprietor shifted from

rented premises to newly purchased in the line , marketing is not a problem for the concern.

There exists enough market potential for the product of the concern and no problem isanticipated in this regard.


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8. Selling price

The products are manufactured by ensuring its Durability, Dimensional accuracy,finishing, Easy installation, Tensile strength. The price is fixed on various parameters viz

width , micron , color , printing matter etc, however an average selling price per box of 72

rolls 2 tape width is considered at rs 1500/-

9. Profitability Estimates

The concern has estimated following turnover and profit for first five years of its working

after providing interest depreciation and taxes.

[Rs in lacs]

Particulars I II III IV V

Capacity Utilization 40% 50% 60% 60% 60%

Turnover 150.00 187.50 225.0

0

225.00 225.00

Profit before Depriciation,Interest and tax

34 24.77 28.59 27.29 26.63

Interest 8.37 7.80 8.58 5.40 4.14

Depreciation 4.30 4.30 4.30 4.30 4.30

Profit after tax 8.81 12.67 15.71 17.59 18.19

Cash Profit 13.11 16.97 20.01 21.89 22.49

Detailed profitability estimates together with cash flow statements are appended

with memorandum as Annexure C& D

10. Repayment

Keeping in view the liquidity position based on the estimated profit & projected cash

flow, the proposed loan is to be repaid in eight years in 28 quarterly installments with sixmonths off period as per schedule given below:

[Rs in lacs]

First installment of rs 1,00,000/- 1.00

Next 03 installment of rs 2,00,000/- 6.00

Next 24 installment of rs 2,25,000/- 54.00

Total 61.00

11. Implementation Schedule & Present Status of the Project:-

Theunit is already in operation. The proposed machinery will be purchased shortly.

12. MPFCS Prior Experience

The corporations experience of financing in packaging industries in general issatisfactory.


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THE FINANCIAL ANALYSIS

OF THE CASE

1. List of Plant and Machinery

Amt. in Lakhs

S.No. Particulars Amount

1 BOPP Tale Coating Machine capacity 975 mm 5,65,000.00

One meter length

2 Sliting Machine 3,70,000.00

3 Sliting Machine (small) (gitti) 53000.004 Core Cutting Machine 20000.00

5 Hot Arigun Machine 10000.00

6 Leth Machine 12 feet 1,35,000.00

7 Leth Machine 7 feet 1,05,000.00

8 Drill Machine 21500.00

9 Grinder 3200.00

10 Welding Machine 1+2 phase 12500.00

11 D.G. Set 40 KVA Kirloskar Make 3,95,000.00

12 Storage, Rack, Table 55000.00

13 Electronic Weighing Machine 1000 kg 25500.0017,70,700.00

ADD: Taxes, Installation etc @20% 3,54,140.00

TOTAL 21,24,840.00


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2. Calculation of Working Capital Requirement

Amt. in Lakhs

Particulars Holding

Period

Margin First

Year

Second

Year

Third

Year(in days)

(A) Current Assets

Raw Material 20 25% 7.47 9.33 11.20Work in Process 0 25% 0.00 0.00 0.00

Sundry creditors 20 30% 10.00 12.50 15.00

Consumables 0 25% 0.00 0.00 0.00Finished Goods 14 25% 5.79 7.24 8.68

Sundry Expenses 1 25% 0.41 0.52 0.62

TOTAL (A) 23.66 24.59 35.50

(B) Current

Liabilities

Sundry Creditors 10 30% 3.98 4.73 5.66

TOTAL (B) 3.98 4.73 5.66

TOTAL (A-B) 19.49 24.86 29.84

3. Calculation of Probable Profitability Statement

Amt. in Lakhs

Particulars Unit I II III IV V VI VII VIII

Installed Capacity

(Boxes

inLakhs) 300 300 300 300 300 300 300 300

Capacity utilization - 40% 50% 60% 60% 60% 60% 60% 60%

No. of Shifts No 2 2 2 2 2 2 2 2

Working days - 300 300 300 300 300 300 300 300

(A) Sales & job work receipts 150.00 187.50 225.00 225.00 225.00 225.00 225.00 225.00

Increase/Decrease in Stock 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

(B) Less:- cost of production 124.14 155.10 186.06 186.06 186.06 186.06 186.06 186.06

a) Raw Material 112.00 140.00 168.00 168.00 168.00 168.00 168.00 168.00b) Power & fuel 2.18 2.72 3.27 3.27 3.27 3.27 3.27 3.27

c) Wages & Salary 7.13 8.91 10.69 10.69 10.69 10.69 10.69 10.69

d) Direct Expenses 2.24 2.80 3.36 3.36 3.36 3.36 3.36 3.36

e) Repairs & Maintaince 0.42 0.46 0.49 0.49 0.49 0.49 0.49 0.49

f) Consumables 0.17 0.21 0.25 0.25 0.25 0.25 0.25 0.25

(C)GROSS PROFIT (A-B) 25.86 32.40 38.94 38.94 38.94 38.94 38.94 38.94

(D) Less: Admin. Expensese 7.50 8.30 9.10 9.10 9.10 9.10 9.10 9.10

a) Admin. Salary 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

b) Admin. Expenses 3.20 4.00 4.80 4.80 4.80 4.80 4.80 4.80


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c) Depriciation 4.30 4.30 4.30 4.30 4.30 4.30 4.30 4.30

(E) Financial Expenses 7.30 6.89 6.02 5.06 4.01 2.71 1.68 1.25

a) Interest on Term loan 5.52 5.40 4.89 4.29 3.60 2.64 1.68 1.25

b) Interest on WCTML 1.78 1.49 1.13 0.77 0.41 0.07 0.00 0.00

(F) Net Profit Before Tax [C-(D+E)] 11.06 17.21 23.82 24.78 25.83 27.13 28.16 28.59

(G) Income Tax 1.50 4.22 6.31 6.95 7.54 8.16 8.65 8.93

Net Profit After Tax (F-G) 9.56 12.99 17.51 17.83 18.29 18.97 19.51 19.66

4. Calculation of Depreciation on Fixed Assets (W.D.V Method)

Particulars Amount Dep. Up to Net Block Dep. Rate

(Gross) Last Year For W.D.V %

Building 50.00 0.00 50.00 10.00

Plant & Machinery 21.25 0.00 21.25 20.00

Furniture & Fixture 0.50 0.00 0.50 10.00

Calculation of Depreciation by Straight Line Method

Particular Amount Rate of Dep. Amt. of Dep.

Year Building Plant & Machinery Furniture & Fixture Total

10% 20% 10% of Dep.

W.D.V Dep. W.D.V Dep. W.D.V Dep.

1 50.00 5.00 21.25 4.25 0.50 0.05 9.30

2 45.00 4.50 15.94 3.19 0.45 0.05 7.73

3 40.50 4.05 11.95 2.39 0.41 0.04 6.484 36.45 3.65 8.96 1.79 0.36 0.04 5.47

5 32.81 3.28 6.72 1.34 0.33 0.03 4.66

6 29.52 2.95 5.04 1.01 0.30 0.03 3.99

7 26.57 2.66 3.78 0.76 0.27 0.03 3.44

8 23.91 2.39 2.84 0.57 0.24 0.02 2.98


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Building 50.00 3.39% 1.70

Plant & Machinery 21.25 12% 2.55

Furniture & Fixture 0.50 12% 0.06

TOTAL 71.75 4.31

5. Calculation of Depreciation on Fixed Assets (W.D.V Method)

Particulars Amount Dep. Rate Rate for

(Gross) For W.D.V % S.L.M. 25%

Building 50.00 10.00 3.39

Plant & Machinery 21.25 20.00 12.00

Furniture & Fixture 0.50 10.00 12.00

Year Building Plant & Machinery Furniture & Fixture Total

10% 25% 10% of Dep.

W.D.V Dep. W.D.V Dep. W.D.V Dep.

1 50.00 5.00 100.00 25.00 0.50 0.05 30.05

2 45.00 4.50 75.00 18.75 0.45 0.05 23.30

3 40.50 4.05 56.25 14.06 0.41 0.04 18.15

4 36.45 3.65 42.19 10.55 0.36 0.04 14.23

5 32.81 3.28 31.64 7.91 0.33 0.03 11.22

6 29.52 2.95 23.73 5.93 0.30 0.03 8.91

7 26.57 2.66 17.80 4.45 0.27 0.03 7.13

8 23.91 2.39 13.35 3.34 0.24 0.02 5.75

Calculation of Depreciation by Straight Line Method

Particular Amount Rate of Dep. Amt. of Dep.

Building 50.00 3.39% 1.70

Plant & Machinery 21.25 12% 2.55

Furniture & Fixture 0.50 12% 0.06

TOTAL 71.75 4.31

6. Calculation of Income Tax @ 40%

Amt. in Lakhs

S.No. Particulars I II III IV V VI VII VIII

1 Net Profit Before Tax11.0

617.2

123.8

224.7

825.8

327.1

328.1

6 28.58

2 Add: Dep. SLM 4.30 4.30 4.30 4.30 4.30 4.30 4.30 4.30


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3 Less: Dep. WDV10.3

6 8.53 7.08 5.92 4.99 4.24 3.63 3.12

4 Adjusted Profit 5.00

12.9

8

21.0

4

23.1

6

25.1

4

27.1

9

28.8

3 29.76

5 Cumilative Total 5.0017.9

821.0

423.1

625.1

427.1

928.8

3 29.76

6 Taxable profit 5.0017.9

821.0

423.1

625.1

427.1

928.8

3 29.76

7 Less: Deduction U/s 80-I 1.25 4.50 5.26 5.79 6.29 6.80 7.21 7.44

8 Profit After Deduction 3.75

13.4

8

15.7

8

17.3

7

18.8

5

20.3

9

21.6

2 22.32

9 Book Profit

11.0

6

17.2

1

23.8

2

24.7

8

25.8

3

27.1

3

28.1

6 28.58

10 Income Tax on Profit 1.50 4.22 6.31 6.95 7.54 8.16 8.65 8.93

11 Income Tax as Per MAT 1.16 1.81 2.50 2.60 2.71 2.85 2.96 8.93

12 Tax Liability 10 or 11 1.50 4.22 6.31 6.95 7.54 8.16 8.65 8.93

Which is Higher

7. Calculation of Debt Service Coverage Ratio

Amt. in Lakhs

Particulars I II III IV V VI VII VIII

Profit After Tax 9.56 12.99 17.5 17.83 18.29 18.97 19.51 19.65

Interest on Term loan 5.52 5.40 4.89 4.29 3.60 2.64 1.68 1.26

Interest on WCTML 1.78 1.49 1.13 0.77 0.41 0.07 0.00 0.00

Depriciation 4.30 4.30 4.30 4.30 4.30 4.30 4.30 4.30

TOTAL (A) 21.16 24.18 27.82 27.19 26.60 25.98 25.49 25.21

Interest on Term loan 5.52 5.40 4.89 4.29 3.60 2.64 1.68 1.26

Interest on WCTML 1.78 1.49 1.13 0.77 0.41 0.07 0.00 0.00

Installment of Term Loan & 1.50 7.00 8.00 8.00 11.00 9.50 8.00 8.00

WCMTL

TOTAL (B) 8.80 13.89 14.02 13.06 15.01 12.21 9.68 9.26

D.S.C.R (A/B) 2.40 1.74 1.98 2.08 1.77 2.13 2.63 2.72

Average DSCR 2.18

8. Calculation of Break Even Point


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S.No Particular Amount

Rs. In Lakhs

I Job Work Reciept 225.00

II Total Variable Cost

1. Raw Material 168.00

2. Power 3.27

3. Wages 10.69

4. Direct Expenses 3.36

5. Consumables 0.25

6. Interest on WCMTL 1.13

7. Depriciation 4.30

191.00

III Net Surplus (I - II) 34.00

IV Total Fixed Cost

1. Admin. & Comm. Salary 0.00

2. Admin. Overhead 4.80

3. Interest onTerm Loan 4.89

9.69

V Break Even Point 28.50%

for Installed Capacity

VI Break Even Point 17.10%for Capacity Utilization

9. Statement of Cash Flow

Amt. in Lakhs

S.No. Particulars I II III IV V VI VII VIII

SOURCES OF FUNDS

1 Profit before tax & interest 18.3524.0

929.8

329.8

429.8

429.8

429.8

4 29.84

added back

2 Depericiation 4.30 4.30 4.30 4.30 4.30 4.30 4.30 4.30

3 Term Loan 46.00 - - - - - - -

4 WCMTL 15.00 - - - - - - -

5 Unsecured Loan 22.01 - - - - - - -

6 Share Capital 25.00 - - - - - - -

TOTAL (A) 130.66 28.39 34.13 34.14 34.14 34.14 34.14 34.14

DISPOSITION OF FUNDS

7 Capital Expenditure112.2

0 - - - - - - -

8 Preliminary & Preoperative 4.20 - - - - - - -

Expenses

9 Repayment of Loan - 4.00 5.00 5.00 8.00 8.00 8.00 8.00

10 Interest On Term Loan 5.52 5.40 4.89 4.29 3.60 2.64 1.68 1.26

11 Taxation 1.50 4.22 6.31 6.95 7.54 8.16 8.65 8.93


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12 Interest On Working Capital 1.78 1.49 1.13 0.77 0.41 0.07 0.00 0.00

TOTAL (B) 125.20 15.11 17.33 17.01 19.55 18.87 18.33 18.19

Opening Balance - 5.47 18.77 35.67 52.71 67.30 82.58 98.39Net Surplus 5.47 13.30 16.81 17.14 14.59 15.28 15.81 15.95

Closing Balance 5.47 18.77 35.57 52.71 67.30 82.58 98.39 114.34

FINDINGS OF THE CASE

1. Findings from the case

The findings from the case are as follows :-

a) The company is well established and has direct contacts with buyers.

b) As this is a case of expansion, the proprietor has a good marketing experience,

which results in better selling of product.

c) Utilization of Installed Capacity is increased gradually from 40% to 60% and

constantly 60% from 3rd years.

d) Increased in utilization of installed capacity resulted in increased production from124.14 lakhs to 186.00 Lakhs and gradually from 3rd year it will become constant

at 186.00 lakhs.

e) There is enough market potential for the product of the concern and no problem is

anticipated in this regard.

f) They have purchased machinery worth Rs. 56.06 lakhs, which is imported to meet

the production target with high speed. For this the company offered additional

security, valued by manager worth Rs. 10.03 lakhs.

g) The product price is Rs. 1500 (per box), which is a high price for the profit

orientation.

h) The total working capital used in the project is 24.80 lakhs (margin from promoter5.95 lakhs and bank borrowing 18.85 lakhs) and the total estimated sale for the

first year is 150 lakhs that means their circulating working capital is almost 1/6 ofthe sales which is a very difficult task.

i) The company does not consider short sell of products.

j) The company in the project has not mentioned about the loss of production due to

some management or labour problems.

k) In this project the transportation cost, loading and unloading cost are not included.

2. Conclusion


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On the basis of above arguments, we recommend to sanction the Term Loan as well

as WCMTL, considering the proprietor experience, having a good market potential of

the product and the probable profitability statement. The sanction amount ranges from45 lakhs to 48 lakhs.

3. Bibliography

I. www.MPFC.org

II. SFC Act 1951 (book)

III. Audit Report of MPFC 2008-09IV. Data provided by MPFC

V. On conversation with Staff members of MPFC

VI. MPFC training report
http://www.mpfc.org/http://www.mpfc.org/