LIVE PROJECT ON

TERM LOAN FUNDING FOR CLIENT

OF FIRM
AT
WALTER & ASSOCIATES

PROJECT GUIDES
Mr. SUNIL MEHTA (COMPANY GUIDE)
Dr. S. K. MITRA

By
AMIT KHANDELWAL
2009043
PGDM- 2009-11 BATCH
 AGENDA
• Objectives

• Process Chart

• Expansion Decision

• Drawdown Schedule

• Projections and Credit Monetary Assessment Note

• Decision Making Indicators

• Proposed Project Profile

• Risk Analysis and Mitigation

• Proposal Files

• Project Timelines

• Bibliography

•
 OBJECTIVES
• Assistance in development of Projections for Proposed Project

• Consultancy and Advice on Cash Inflows from Project

• Checking Financial Viability via various analysis

– Sensitivity Analysis

– Breakeven Analysis

– Scenario Analysis

– NPV, Payback Period and IRR computation

• Preparation of Project Profile

• Preparation of Proposal Files

• Proposal Briefing to Bank(s)

• Advising on replies to Banker(s) Queries


PROCESS CHART FOR TERM LOAN
FUNDING
CLIENT COMPANY’S DECISION FOR
EXPANSION
• Why?
– Increase Production Capacity
– Improve Product Portfolio
– Meet rising and un-met demand
– Technologically upgrade



• How?

– Order Sheets and Delivery timeline analysis

– MD in consultation with Plant Manager zeroed in on minimum

capacity increase number



PARTICULARS PROPOSED
TEXTURISING (10 CAPACITY
4200 MTPA UNDER
WINDERS)
POY (96 WINDERS) EXPANSION
32400 MTPA
DRAWDOWN SCHEDULE
 • To get tentative dates of important activities and events

PROJECT IMPLEMENTATION SCHEDULE

Sr. No. Activities Commencement Completion

1. Acquisition and Development of Land Already acquired Already acquired

2. Construction of Building June 2010 March 2011

3. Selection and Ordering of Plant & 1st Qtr of 2010-11 1st Qtr of 2010-11
Machineries

4. Delivery of Machines 2nd Qtr of 2010-11 3rd Qtr of 2010-11

5. Installation & Erection of Plant & 4TH Qtr of 2010-11 1st Qtr of 2011-12
Machineries and Utilities

6. Trial Production May - 2011 June - 2011

7. Commercial Production July - 2011 July - 2011

COST OF THE PROJECT
• How the cost of the project was estimated?

•Particulars Estimation Way

Plant & Machinery Quotations From indigenous
and foreign suppliers
Also Estimates from Markets
Land & Site Development Quotation from seller
Building Corporate Valuators
Preliminary & Pre-operative As per previous expansion rates
Expenses and standard rates
• Total cost of Project estimated = Rs. 168 Cr.

•
COST OF THE PROJECT

(Rs. in Cr)

PARTICULARS POY TEXTURISING

Land & Site Developments 10.60 0

Building 14.40 1.20

Plant & Machinery 52.80 18.60

Other Plant & Machinery 30.00 0

Preliminary & Pre-operative expenses 13.00 2.40

Margin money for working capital 20.20 4.80

Total 141.00 27.00

MEANS OF FINANCE
• Company was advised maintain a Debt-Equity Ratio of 2:1

Particulars Break-up of Debt-Equity Cost (Rs. In Cr.)

Term Loan Equity

POY 94.00 47.00

Texturising 18.00 9.00

Total 112.00 56.00

 Assumptions
• Following were the assumptions for the project as a whole

• Also are sent along in the proposal file to Bank(s)

•
 PROJECT ASSUMPTIONS
 Cost of Project

TEXTURISING
 POY


PARTICULARS Amount (%) PARTICULARS Amount (%)

           

           

Building 1.20  4.44% Building 14.40  10%

           

Land & Development Site 0.00  0.00% Land & Development Site 10.60  8%

           

Plant & machinery 18.60  68.89% Plant & machinery 82.80  59%

           

Preliminary & Pre-operative expenses 2.40  8.89% Preliminary & Pre-operative expenses 13.00  9%

           

Margin money for working capital 4.80  17.78% Margin money for working capital 20.20  14%

           

Total 27.00  100% Total 141.00  100%

 Banking Arrangement

PARTICULARS PROJECT FACILITY AMOUNT (RS. IN CR.)

BANK A (PSU) Texturising (Term Loan) 18.00

BANK B (PSU) POY (Term Loan) 94.00

CMA
CM A
CM A
CM A
 Sensitivity Analysis
Overview
Particulars Range NPV Cash Accruals
  2012 2012 2012
  Pessimistic (- Expected (2%) Optimistic Pessimisti Expected Optimistic Pessimisti Expected Optimistic
10%) (5%) c c
Sales 205.52 223.78 239.77 313.51 496.14 655.93 32.29 50.56 66.54
                   
Particulars Range NPV Cash Accruals
  2013 2013 2013
  Pessimistic Expected Optimistic Pessimisti Expected Optimistic Pessimisti Expected Optimistic
c c
Sales 281.88 306.94 328.86 313.51 496.14 655.93 58.55 83.61 105.53
                   
Particulars Range NPV Cash Accruals
  2014 2014 2014
  Pessimistic Expected Optimistic Pessimisti Expected Optimistic Pessimisti Expected Optimistic
c c
Sales 288.29 313.92 336.34 313.51 496.14 655.93 61.12 86.75 109.17
                   
Particulars Range NPV Cash Accruals
  2015 2015 2015
  Pessimistic Expected Optimistic Pessimisti Expected Optimistic Pessimisti Expected Optimistic
c c
Sales 320.50 314.09 336.52 313.51 496.14 655.93 62.71 88.35 110.78
                   
Particulars Range NPV Cash Accruals
  2016 2016 2016
  Pessimistic Expected Optimistic Pessimisti Expected Optimistic Pessimisti Expected Optimistic
c c
Sales 320.50 314.09 336.52 313.51 496.14 655.93 64.28 89.92 112.35
                   
CMA
NP
V

CMA
CMA
DECISION MAKING INDICATORS
PROPOSED PROJECT PROFILE

WRITE-UP FOR PROPOSED PROJECT

 CONTENTS
• COMPANY DETAILS

• PROPOSED PROJECT PARTICULARS

• COST OF PROJECT & MEANS OF FINANCE

• HIGHLIGHTS OF INDUSTRY – INDIAN CONTEXT

• FUTURE OF GLOBAL INDUSTRY

• SWOT Analysis of Industry

• KEY FINANCIALS OF THE COMPANY

• DETAILS OF VARIOUS FACILITIES, APPROVALS & DUES

• PERFORMANCE EVALUATION

• ASSOCIATE CONCERNS

• TECHINICAL EVALUATION

• COMMERCIAL EVALUATION
– RISK ANALYSIS AND MITIGATION


RISK REFLECTS MITIGATION
PHASE 1: DURING IMPLEMENTATION OF PROJECT
Cost Increase and Increase in Prices of Not Material as would
Price Escalation
Currency Risk RM
Appreciation or be undergoing
Not Material. No
Force Majeure Occurrence ofofUn- contracts
Depreciation FCTLs for
have
Possibility fixed
is been
Foreign Currency
expected
PHASE 2: POST IMPLEMENTATIONand in pricing
demanded RISK
negligible
OPERATIONAL
Availability Risk case of FCTLs natural No hindrance had
uncontrollable
Availability/Non-
Currency Risk and/or man-made
availability
Appreciation oforRM been
In observed.
case of LCs, Many
disaster(s)
Depreciation of indigenous
company wouldas well
be as
Foreign Currency foreign suppliers
going for Hedge
when L/Cs facility present
Agreements
availed
RISK REFLECTS MITIGATION
Throughput Risk Fluctuation in Technologically most
Technology Risk Production
Risk of technology advanced machines.
Most advanced
Operating Risk gettingissues
Labor obsolete
and 100% Efficiency
machines
Plenty of
in the and
of skilled
availability
PHASE 3: POST IMPLEMENTATION Machines
industry are being
semi-skilled
SELLING RISK labor
Market(Demand) risk Demand decline imported
available
Expansionaround
was area
Revenue Risk planned collection
Reflects Impact on Prudent only because
revenue because of of risingfollowed
policies and un-met
bad debts demand from
religiously by a long
time
companies. Client
include giant
Corporate
Conglomerates
PREPARATION OF PROPOSAL FILE(S)
• Covering Letter

• Assumptions

• Financials and Projections

• Project Write-Up

• Ratings and Recognitions

• Annual Reports

– Company undergoing expansion

– Subsidiary of company (if any)

– Guarantor Company
PROJECT TIMELINE
 RECOMMENDATIONS
• Tax Gains should have been taken into consideration for Calculation of
NPV

• Sensitivity Analysis Overview should have been done for other key
indicators too

• Intangible Benefits like market positioning, etc. – from the proposed

project - should not be ignored

• Quotations from many suppliers could have been analysed

• Term Loan Tenor should be analysed, i.e., Sensitivity Analysis for the
Tenor should be done

•
•
BIBLIOGRAPHY
• FINANCIAL MANAGEMENT, Theory and Practice, Author: Prasanna Chandra, 7th Edition

• www.investopedia.com

• www.financial-dictionary.thefreedictionary.com
THANK YOU!!