VARDHAN CONSULTING ENGINEERS

Financial Modelling and

Analysis of 50 Flats
Housing Project in
Gurgoan, Haryana IN
Project Finance Modeling and Analysis
Ronak Jain

2020
 ACKNOWLEDGEMENT

The report has been prepared as a part of the module task of the VCE- Internships. It is
based on the Financial Modeling and Analysis of 50 Flats Housing Project in
Gurgoan, Haryana. This is a report which is been prepared for the internship topic-
Project Finance and Modeling.

First of all would like to thank VCE- Internships for providing a platform to learn
about project finance & modeling and for doing virtual internship .This has given me
opportunity to learn about project finance or analyzing the project and have given me
idea how to create a financial model.

Then, I would like to express my gratitude to my mentor Mr. Ashish Kumar, CEO,
Vardhan Consulting Engineers, for providing guidelines throughout this project
through live interaction sessions.

I would like to thanks Miss Neha Kumari for providing me opportunity to work as an
intern at Vardhan consulting engineers.

It’s a pleasure to do an internship program at Vardhan Consulting Engineers. The

knowledge and experience I gained during the project was great.

RONAK JAIN

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 ABSTRACT

Gurgoan, officially gurugam, is a city located in the northern Indian state of Haryana.
It is situated near the Delhi-Haryana border, about 30 kilometers southwest of the
national capital New Delhi. Gurgoan has architecturally noteworthy buildings in a
wide range of styles and distinct time periods. The city has been home to several tall
buildings with the modern planning. Gurgoan had estimated 1100 residential rises.
The average cost of a 93 square meter (1,000 sq ft) two bedroom at a decent
condominium in gurgoan is at least $160,130 (10,000,000).

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 EXECUTIVE SUMMARY

VCE is a consulting company founded by group of engineers who have strong academic background
with decades of management experience while working in companies all across the globe. VCE is
providing solutions to the complex engineering, management and financial issues of clients.

We provide engineering and project management consultancy to energy projects. Especially Solar
PV power project (Utility Scale Large Sized Projects), Pyrolysis Projects (Plastic to Oil).

Our service includes;

Feasibility Analysis, Detailed Project Report, Financial Analysis (IM).

Financial Closure through Debt or Private Equity for Project Finance.
On-site and Off-site
site Project Management and EPC-Management
ement Services.
Documentation and Transaction Services for Sale of Project.
Project Development and Transfer of Rights at NTP.

Our lead consultants have 10+ years of experience in energy sector in India, Philippines, UK,
Cambodia and Thailand. We are specialist in Solar PV projects, we provide tailored made
engineering and management solutions for the client’s needs VCE have different business horizons
and revenue sources such as;

Engineering and Management Consulting.

Importing and Branding Pearl Jewellery.
Stock Market and Cross
Cross-Currency Trading.
Insurance and Investment Advisory.

From past 3 years we saw a good growth in our all business and expecting good returns to all our
stakeholders. Apart from the businesses mentioned above, VCE also believe in give back to the
society for building a greater future of our country.

The various initiatives on VCE Society Pay Back are;

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1. Vardhan Merit Scholarship-
In this initiative, we pay scholarship to poor under-privileged girls and pay their entire educational
expense till class 12th. So that, financial burden never be the reason for them to drop out from
schools.

It also encourages the kids to study with more focus. Currently, we grant Rs. 50,000 (Fifty
Thousand Rupees) per year for this. We believe, this amount is going to increase in future. (Amount
Spent so far, Rs. 3.00 Lakhs+).

2. Internships and Training

In this initiative, we select students from various engineering and management colleges and provide
them internship and training. Our internships and training are very unique in nature and it’s
especially for the students of Core Engineering Sector (Electrical, Mechanical, Civil and Energy
Engineering) and Finance Management for preparing them to corporate / industry ready. We provide
them mentor from the industry. All this is done without taking any fee / favor from the students.
Currently, we grant Rs. 60,000 (Sixty Thousand Rupees) per year for this. Majority of the amount
will be paid as stipend to the best interns as encouragement. (Stipend Paid so far, Rs. 1.50 Lakhs+).

The internship opportunity provides by vce has given all its interns a chance to improve their skills
and to gain theoretical as well as practical knowledge as per the individual specific project titles and
internship requirements.

My topic of my internship is Project Finance and Modeling. The modules and tasks that were
provided in the project are very helpful and knowledgeable. The initial tasks were so basic they
helped interns or me to gain the basic knowledge of the project finance and the idea of preparing a
financial model and to do financial analysis. It helps us to know the terminologies and different
aspects of project finance.

While, completing this internship with VCE, I have learned many new things and gained many
things and skills. This last module of this internship is very helpful in learning how to make analysis
and prepare a financial model. This is a very helpful tool in field of finance.

This report will be helpful in knowing the structure of residential and housing industry in India, the
scope for investing in residential projects, schemes and policies, and overall analysis of residential;
growth in india and state of housing in Gurgoan, Haryana, IN.

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 TABLE OF CONTENTS

CHAPTER-1: INTRODUCTION TO PROJECT FINANCE

1.1- Project finance
1.2- Non- recourse debt or mezzanine loan
1.3- Factors that needed to be considered to access

CHAPTER-2: METHODOLOGY
2.1- Aim of the Project.
2.2- Techniques for analysis.
2.3- Limitations of the Project.

CHAPTER-3: RESIDENTIAL/HOUSING SECTOR IN INDIA

3.1- Indian Market Size
3.2-Investments/Developments
3.3- Government initiatives for residential and housing

CHAPTER-4: DESCRIPTION OF THE PROJECT

4.1- Project details
4.2- Project location
4.3-Project size
4.4- Project Commencement & End Date
4.5- Project assumptions
4.6- Project revenue sources
4.7- Project Financing

CHAPTER-5: FINANCIAL ANALYSIS OF THE PROJECT

5.1- Cost Allocation
5.2- Revenue Growth
5.3- EBITDA
5.4- Debt Service Coverage Ratio
5.5- Final project cash flow
5.6- Project feasibility analysis

CHAPTRR-6: CONCLUSION
BIBLIOGRAPHY

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LIST OF TABLES
Table 1: Project Details-....................................................................................................... 17
Table 2: Project Assumptions............................................................................................... 17
Table 3: Project Revenue Sources- ....................................................................................... 17
Table 4: Debt Schedule ........................................................................................................ 18
Table 5: Results ................................................................................................................... 23
LIST OF FIGURES
Figure 1: CAPEX ................................................................................................................. 20
Figure 2: OPEX ................................................................................................................... 20
Figure 3: Revenue Growth ................................................................................................... 21
Figure 4: EBITDA growth ................................................................................................... 21
Figure 5: DSCR ................................................................................................................... 22
Figure 6: Final Project Cash flow ......................................................................................... 22

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1.1- PROJECT FINANCING-

Project Financing is a long-term, zero or limited recourse financing solution that is available to a
borrower against the rights, assets, and interests related to the concerned project.

In other words, “Project finance involves a corporate sponsor investing in and owing a single
purpose, industrial asset through a legally independent entity financed with non-recourse debt”.

Project finance repayment is not based on sponsoring company’s assets or balance sheet, but on the
basis of revenues that the project will generate once it is completed. Corporate finance cannot
demonstrate that revenue stream from completed project will be sufficient to repay the loan
that’s why it can’t put Project finance under corporate finance.

Project financing incorporates-

 Financing of long-term infrastructure, industrial projects, and public services.

 Non-recourse/limited recourse financial structure.
 Payment from cash flow generated by the project.

Methods of the Project Financing-

There are three methods in Project Financing-
1. Cost Share Financing or Low interest loan financing.

2. Debts Financing.

3. Equity Financing.

The types of project for which project finance is suitable for are-

i. infrastructure projects, such as government buildings and transport systems;

ii. oil and gas exploration projects;
iii. sports stadia; and
iv. Liquefied natural gas development projects.
v. Mining
vi. Building
vii. Construction
viii. Real estate

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1.2- NON-RECOURSE LOAN AND MEZZANINE DEBT

Non-Recourse debt is a loan that is secured by given collateral. A non-recourse loan, more broadly,
is any consumer or commercial debt that is secured only by collateral. In case of default, the lender
may not seize any assets of the borrower beyond the collateral. Non-recourse loans are often used to
finance commercial real estate ventures and other projects that involve a long lead time to
completion. In the case of real estate, the land provides the collateral for the loan. Mortgages are
common examples of non-recourse debts.

Mezzanine debt gets its name because it blurs the line between what constitutes debt and equity. It is
highest risk form of debt, but it offers some of the highest returns- a typical rate is in the range of
12% to 20% per year. A mezzanine lender is generally brought into a buy out to display some of the
capital that would as it usually be invested by an equity investor. Mezzanine loans are a hybrid of
both debt and equity.

1.3- FACTORS THAT NEED TO BE CONSIDERED TO ASSESS A NEW

VENTURE AS PROJECT FINANCE-
1. Caliber of business principle-
Principles are the primary sources of fuel for business projects. Their vision, energy and the
effort they are willing to make the factors that make or break projects.

2. Business environment risks-

Lenders make sure that you are not perceived to be subject to inordinate risk. The upcoming
lifting of a tariff barrier, a procedure that creates pollution or the fact that your business is
situated within a fragile sector of the economy may cause a lender to be overly cautious. The
Company should also be adequately covered by insurance that is tailor to the nature of its
activities.

3. Project credibility-
If lenders or investors decide to put money in your project, it’s because they hope the
investment will pay off. They’ll make sure your provision are based on verifiable facts are
realistic.

4. Company’s ability to pay and financial structure-

You’ll have to prove that the company is able to meet all its financial obligation. The
company’s financial structure should therefore show a healthy balance between loans and
assets.

5. Principal’s financial history-

In lenders eyes, the future is largely be predicted by past. It is more than likely that they will
run a credit check on the business principals to see if principles effectively met past financial
obligation.

6. Security-
Debt financing is usually secured against company assets, which could be sufficient to allow
lenders to cover their risk.

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2.1- AIM OF THE PROJECT-
The aim of the project is to analyze the residential sector and housing scenario in Gurgoan, Haryana,
IN. Another requirement for preparing this report is to create a financial model for 50 flats housing
project and to know that the project is feasible or not.

2.2- ANALYSIS TECHNIQUES-

The techniques used for analysis are-

Quantitative techniques
Charts and graphical analysis

2.3- LIMITATIONS-

The project debt obligation is very high as it is not able to fulfill.

Revenue generated by the project is not enough to pay the debt.
The project will not be able to generate the income that can cover the cost itself.
The project is totally non feasible.
The location chosen for the project is also very expensive for construction.

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13
3.1- INDIAN MARKET SIZE-

By 2040, real estate market will grow to Rs 65,000 crore (US$ 9.30 billion) from Rs 12,000 crore
(US$ 1.72 billion) in 2019. Real estate sector in India is expected to reach a market size of US$ 1
trillion by 2030 from US$ 120 billion in 2017 and contribute 13 per cent to the country’s GDP by
2025. Retail, hospitality, and commercial real estate are also growing significantly, providing the
much-needed infrastructure for India's growing needs. Indian real estate increased by 19.5 per cent
CAGR from 2017 to 2028.
Housing sales reached 2.61 lakh units in 2019 across seven major cities.

3.2-INVESTMENTS/DEVELOPMENTS-
Rapid urbanization in the country is pushing the growth of real estate. More than 70 per cent of
India’s GDP will be contributed by urban areas by 2020. The Government of India has been
supportive towards the real estate sector. In August 2015, the Union Cabinet approved 100 Smart
City Projects in India. The Government has also raised FDI (Foreign Direct Investment) limits for
townships and settlements development projects to 100 per cent. Government of India’s Housing for
All initiative is expected to bring US$ 1.3 trillion investment in the housing sector by 2025. As of
December 2019, under Pradhan Mantri Awas Yojana (Urban) [PMAY (U)], 1.12 crore houses were
sanctioned in urban areas, with a potential to create 1.20 crore jobs. The scheme is expected to push
affordable housing and construction in the country and give a boost to the real estate sector.

Some of the major investments and developments in this sector are as follows:

On July 09, 2020, Union Cabinet approved the development of Affordable Rental Housing
Complexes (AHRCs) for urban migrants and poor as a sub-scheme under PMAY–U.
As of December 2019, under Pradhan Mantri Awas Yojana (Urban) [PMAY (U)], 1.12 crore
houses were sanctioned in urban areas, with a potential to create 1.20 crore jobs.
Government has also released draft guidelines for investment by Real Estate Investment
Trusts (REITs) in non-residential segment.
Housing sales reached 2.61 lakh units in 2019 across seven major cities.

3.3-GOVERNMENT INITIATIVES FOR RESIDENTIAL AND HOUSING –

Government of India along with the governments of respective States has taken several initiatives to
encourage development in the sector. The Smart City Project, with a plan to build 100 smart cities, is
a prime opportunity for real estate companies. Below are other major Government initiatives:

In order to revive around 1,600 stalled housing projects across top cities in the country, the
Union Cabinet has approved the setting up of Rs 25,000 crore (US$ 3.58 billion) alternative
investment fund (AIF).
Under Pradhan Mantri Awas Yojana (Urban) (PMAY (U)), 1.12 crore houses have been
sanctioned in urban areas, creating 1.20 crore jobs.
Government has created an Affordable Housing Fund (AHF) in the National Housing Bank
(NHB) with an initial corpus of Rs 10,000 crore (US$ 1.43 billion) using priority sector
lending short fall of banks/financial institutions for micro financing of the HFCs.

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15
4.1- PROJECT DETAILS-
Techvardhan Infra Pvt. Ltd (Any Company) “CLIENT” has acquired a piece of land near Gurugram
HR and wants to develop it as a residential building having 50 flats of 900 sq. ft each. They are
expecting to sell the flats at a rate of Rs. 4000 / sq.ft. The expected Capex is Rs. 8 Crore and Opex is
Rs. 50 Lacs / per annum for the whole project. They are seeking a non-recourse debt (project
financing) with 70:30 as D/E ratio from leading commercial banks in India as a 12 years term loan.

4.2- PROJECT LOCATION-

The Project going to be constructed in Gurgoan, officially gurugam, is a city located in the northern
Indian state of Haryana. It is situated near the Delhi-Haryana border, about 30 kilometers southwest
of the national capital New Delhi. Gurgoan has architecturally noteworthy buildings in a wide range
of styles and distinct time periods.

The city has been home to several tall buildings with the modern planning. Gurgoan had estimated
1100 residential rises. The average cost of a 93 square meter (1,000 sq ft) two bedroom at a decent
condominium in gurgoan is at least $160,130 (10,000,000).

The factor to be considered while selecting the building location is as follows:-

Access to park & play ground.

Availability of public utility services, especially water, electricity & sewage disposal.
Contour of land in relation the building cost. Cost of land.
Distance from places of work.
Ease of drainage.
Location with respect to school, collage & public buildings.
Transport facilities.
Other essential facilities.

4.3- PROJECT SIZE-

The project is going to be developed in 5000 sq. ft. where each flat would be 900 sq. ft. and others
details related to the construction of project is a follows-

It would have 50 Flats.

It would have 10 floors and each floor would have 5 flats of 900 sq. ft. each.
The building would have sufficient no. of lifts that will be 4-5.
There would a parking area for the residential coverage.
The building would have the best trending and best infrastructure facilities.

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The table below shows the necessary project details-
Table 1: Project Details-

PROJECT DETAILS
Size in sq. ft 5,000.00 80.00
Size Per Flat (Sq. ft.) 900.00
No. of Flats 50.00
Equity 30% 24.00
Debt 70% 56.00
Debt service reserve 0.10 yrs

4.4- PROJECT COMMENMENT & END DATE-

The project is going to start 4-Oct-2020

The end date of project will be 30-Nov-2032

4.5- PROJECT ASSUMPTIONS-

Table 2: Project Assumptions

ASSUMPTIONS
Inflation 7.66% Construction Time 0.10 yrs
Tax rate 12% MAT 15%
Debt Rate 10% Discount 10%
Moratorium 0.10 yrs USD/INR 73.16
Debt tenure 12.00 yrs DDT 0
Depreciation 5.00% Flat Appreciation 10.00%

4.6- PROJECT REVENUE SOURCES-

Table 3: Project Revenue Sources-

Revenue Parameters
City GURUGAM, HARYANA
Size (Sq. ft) 5,000.00
Size Per flat (Sq. ft) 900.00
No of Floors 10.00
No. of Flats 50.00
Selling Price (Sq. ft) 4,000.00
Selling Price Per Flat 3,600,000.00
Flat Appreciation 10%
Sales commission 2%

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4.7- PROJECT FINANCING-
Table 4: Debt Schedule

Details
Debt Amount 56.00
Debt rate 10.00%
Moratorium 0.10 yrs
Term 12.0 yrs
Payment Periods 48
One period is one quarter
COD 6-Oct-2020
First Quarter End 4-Jan-2021

The project is being financed through a commercial bank through debt and equity in 70:30. The
schedule of debt repayment is for 12 years in 48 period (one period means one quarter) respectively.

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19
5.1- COST ALLOCATION-
The total project cost (CAPEX) of the project Rs. 80,000,000 and the total of operating expenses
(OPEX) is Rs. 5,000,000 per annum. The expenses are expected to rise as per the inflation rate
that is approx. 7.2%. The allocation of the total project cost is as follows-
follows

Loan and Total Project Cost

Documentation Fee
2% Interest During Flat Construction
Tranfer of
Moratorium CSR, HSE, Training Cost
Deed Fee
1% 14% 18%
0%

Fund Raising Stamp Duty

Fee 4%
0% Broker Fee Interior Decoration
3% 20%
Furniture
Building Fixtures 21%
Registration 13%
1% Lift
4%

Figure 1: CAPEX

Operating Expenses
Building Maintainance
5%
20%
Utilities (Electric + Water +
Internet)
57% 10% Salary (Maid + Acountant)

8%
Plumber + Electrician + Misc etc

Insurance

Figure 2: OPEX

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5.2- REVENUE GROWTH-
The revenue growth during the period of 10 years has been increasing constantly due to the
appreciation in the value of flat that are been projected as follows
follows-

Total Revenue
45.000
40.000
35.000
30.000
25.000
20.000
15.000
10.000
5.000
0.000
1 2 3 4 5 6 7 8 9 10
Total Revenue 17.88 19.66 21.63 23.79 26.17 28.79 31.67 34.84 38.32 42.16

Figure 3: Revenue Growth

5.3- EBITDA GROWTH -

The EBITDA has been constantly growing negatively dduring
uring the period of 10 years. The continuous
EBITDA is shown as follows-

EBITDA
0.000
-10.000
-20.000
-30.000
-40.000
-50.000
-60.000
-70.000
-80.000
1 2 3 4 5 6 7 8 9 10
Series1 -42.1 -44.9
44.9 -47.9 -51.0 -54.4 -57.9 -61.7 -65.7 -69.9 -74.4
74.4

Figure 4: EBITDA growth

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5.4- DEBT SERVICE COVERAGE
VERAGE RATIO-
RATIO
DSCR is measure of thee cash flow to available to pay current debt obligation. The average
DSCR of the company is 1.25.

DSCR
25.000
20.000
15.000
10.000
5.000
0.000
-5.000
-10.000
-15.000
1 2 3 4 5 6 7 8 9 10 11 12
DSCR -1. -2.
2. -2. -4. -13 20. 5.8 3.4 2.4 1.9 7.6 -1.

Figure 5: DSCR

5.5- FINAL PROJECT CASHFLOW-

CASHFLOW
The final project cash flow of the company during the construction and debt repayment schedule
is as follows-

Final Project Cashflow

10.000
8.000
6.000
4.000
2.000
0.000
--2.000
--4.000
--6.000
1 2 3 4 5 6 7 8 9 10 11 12
Final Project Cashflow 2.9 2.4 1.8 1.1 0.4 -0. -1. -2. -3. -4. -1. 8.0

Figure 6: Final Project Cash flow

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5.6- PROJECT FEASIBILITY ANALYSIS-
The best way to find out whether your project is feasible is to complete a Feasibility Study. This
process helps you gain confidence that the solution you need to build can be implemented on time
and under budget.

The importance of a feasibility study is to establish whether or not a company, team, or organization
will deliver on its promises in a satisfactory manner and a reasonable period of time.

These are the five questions most feasibility studies have to answer in order to justify a new project,
plan, or method:

Is this plan technically feasible?

Is this plan legal?

Is this plan operationally feasible?

Is this plan feasible within a reasonable period of time?

Is this plan economically feasible?

You can assess this area of feasibility based on several different factors, including:

Projected profitability
The total cost of completion
Estimated investment by outside parties

No matter how incredible a project may seem, if the numbers don’t add up, then either you’ll have to
seek out larger budgets or the plan isn’t worth the risk.

Table 5: Results

RESULTS
Equity IRR 0.00%
Min DSCR -131.83
Avg. DSCR 12.46
Project IRR -23.32%

The following result shows the internal rate of return of the project which is -23.32% and equity
internal rate of return is 0.00%. The average DSCR from the project is 12.46. DSCR is an important
measure to consider the feasibility of the project. DSCR interpretation is important to the debt
obligation and repayment capacity of the project.

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DSCR is interpreted as:

DSCR<1:

You have negative cash flow. You don’t have enough income to service all of the debt.

DSCR >1:

You have positive cash flow. The higher you’re DSCR, the more income you have to pay off
your debt.

DSCR=1:

You have exactly enough cash coming in to service your debt, but you don’t have additional
cash flow other than that.

So, from the following it could be clearly interpreted that the project is not feasible for being build
and constructed and to fulfill its debt obligation and to earn income from it. The following time
period is also not suitable for scheduling the project.

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25
 CONCLUSION

From the following report and analysis it can be conclude that there is difference between the
theoretical and practical work done. As the scope of understanding will be much more when practical
work is done. As, we get more knowledge in such a situation where we have great experience doing
the practical work.
On the basis of financial model being provide in the module 2 of the project I am being able to
understanding the concept of financial modeling.

The overall internship sessions are divided into four modules that are as
-
Module1- It is basically about the Project Finance and the difference between project finance and
corporate finance. It helped to know the different terms related to project finance.

Module 2- It helps to know the assumptions that need to be kept in mind while preparing a financial
model and function of revenue, cost and debt sheet in financial model and the steps involved in
preparation of fin flow sheet.

Module 3- This task helped to know that how a venture is assessed to qualify as project finance and
how revenue models are prepared for different types of projects either they are residential, solar PV
or PPP projects.

Module 4- This is the last module of the internship and the main module. A project report and
financial model is being prepared in the project. The project report gives the brief explanation of
what the Project finance, what is the Indian scenario in residential and housing sector, how to prepare
a financial model and how to know the feasibility of the project and analyzing the project.

From the analysis it has been cleared that the Project on Financial Modeling and Analysis of 50 Flats
Housing project in Gurgoan, Haryana is not feasible and is not good to be considered as a feasible.
As, the debt obligations of the project are so high and the income generation is low at the given point
of time. So, the project is not viable to be executed.

The Overall experience during the internship was very good and fruitful as it helped to learn many
new things, including financial modeling and analyzing a project.

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 BIBLIOGRAPHY

1. https://en.wikipedia.org/wiki/Gurgaon

2. https://www.ibef.org/uploads/industry/Real-Estate-June_2020.jpg

3. https://techvardhan.com/

4. https://www.ibef.org/industry/real-estate-india.aspx

5. https://mubrealestate.com/india/learn-the-truth-about-real-estate-industry/

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