Key Aspects of Project Appraisal for SME Financing CII FINcon 02.09.

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Dr Rajesh Khajuria, Director TEAMPro Ltd, London TEAM Projects & Consultants, Vadodara

A Warm Welcome to all of You!

CII Organisers and Members SME Owners and Managers Chief Guests Speakers

Dr R Khajuria @ TEAM

Presentation Plan
I. I. I. I. Indian SME Overview. Project Appraisal Methods. Project Appraisal: Key Aspects. Case Study @ Asahi Songwon Colors Ltd with Korean Technology for TL, WCL and Public Issue. Questions?
Dr R Khajuria @ TEAM 3

I.

Indian SME Overview

Part I

Welcome to Indian SMEs!

95% of Industrial Units are SMEs 40% of Value Added in Manufacturing Sector 35% of National Exports 7,500 Products Manufactured Employs 20 million people But, contribute only 7% of GDP ? 40% of Bank Finances to Priority Sector
SMEs and Agriculture
Dr R Khajuria @ TEAM 5

Welcome to 3.5m Indian SMEs!

Dr R Khajuria @ TEAM

SMEs achieve Rs 8000 billion Sales

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SMEs have Rs 1000 billion Investment

Dr R Khajuria @ TEAM

SMEs Export Rs 800 billion G&S

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SMEs provide 20 million Employment

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The World depends on SMEs

UK: 98% of all Businesses are SMEs Japan: 99% are SMEs USA: 96% are SMEs Africas 29 nations: 99.5% are SMEs The world depends on SMEs India depends on SMEs for economic success of its 1 billion people
Dr R Khajuria @ TEAM 11

Project Appraisal Methods

Part II

Project Appraisal Methods

Today we discuss Bank Appraisal for Loans. Appraisal for Public Issue of Equity. Other Methods:
FI Appraisal for Loans World Bank Project Appraisal UNIDO, Social Project Appraisal
Dr R Khajuria @ TEAM 13

Project Appraisal : Key Aspects

Part III

Project Appraisal: Key Aspects

The Objectives The Project Methodology of Appraisal Corporate Analysis The Promoters Team Marketability Assessment Technical Feasibility Economic Viability & Financial Structuring Environmental Impact Assessment Conclusion & Recommendation
Dr R Khajuria @ TEAM 15

Case Study @ Asahi Songwon Colors Ltd

Part IV

The Objectives @ Case Study

Asahi Songwon Colors Ltd, Ahmedabad (Padra Plant)
Phase I: 2005 Operating. Phase II & III: Expansion proposed with Term Loan, Working Capital Loan and Public Issue.
Total Investment Rs 71 Crore.

State Bank of India referred the Project Appraisal assignment to TEAM.

Dr R Khajuria @ TEAM 17

Methodology of Appraisal
Project Report of the company as a base. Site visit to the Factory. Market & Competition Analysis. Discussions with the Bankers and Co.s top executives on all aspects. Raising 35 Queries. Balance Sheet Analysis. Independent & unbiased Appraisal & Judgement Confidential Report with Specific Conclusions and Recommendations.
Dr R Khajuria @ TEAM 18

The Project @ Colors

Asahi Songwon Colors Ltd has already invested Rs 25 Crore in a new Medium Scale Plant at Padra (Baroda) to manufacture basic Colors for export and domestic markets. Collaboration with Songwon Colors Ltd, Korea (taken over by Clariant of Europe). Colors are used in all walks of life: Textiles to everything we see, touch and feel.

Dr R Khajuria @ TEAM

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Vision
Songwon, Korea:
Better Colour for A More Beautiful Life.

Asahi, India:
To be a global leader in its field of Pigments by supplying quality and environment friendly products to MNCs worldwide.
Dr R Khajuria @ TEAM Can you analyse both Visions? 20

Corporate Analysis
Past Performance Corporate Emergence Promoters Team Most Important SWOT Analysis

Dr R Khajuria @ TEAM

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The Promoters Team

Highly qualified and experienced with up to 15 years experience in the same line. MBA (USA), Technologists, CA. Exporting, Profit-making existing business. Demonstrated Performance in Manufacturing, Management and Export. Politically well-known, but not spared by State Bank of India from Project Appraisal!
Dr R Khajuria @ TEAM 22

Marketability Assessment
Product & Applications Demand assessment based on end-user method
Global Consumption estimates

Competition and Supply Assessment

Export Import Data analysis International and domestic prices

Demand-Supply Gap and Customers Scope for the Company to tap the Gap
Dr R Khajuria @ TEAM 23

Technical Feasibility
Capacity Assessment & Projected Utilisation Manufacturing Process Land & Building Requirements Plant & Machinery & Layout proposed Inputs: Raw Materials, Power, Fuel, Water, sources, quantities, prices, suppliers
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Technical Feasibility
Technology source and cost Manpower Requirements & Costs Pollution Control Measures ISO Certification: 9000 / 14000

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Economic Viability
Project Cost
Appraisal resulted in Addition of Rs 6 Crore to original estimate of Project Cost Rs 71.5 Crore to Rs 77.55 Crore Rise in Equipment costs and increased Working Capital, detected from TEAMs Appraisal process Hell lot of efforts to convince the Company about raising Sources of Finance by Rs 6 Crore!
Dr R Khajuria @ TEAM 26

Sources: Financial Restructuring

Rs Crore Term Loan SBI (FCNR/Rs) 13.82 Equity Share Capital 43.84 Unsecured Loan 07.98 Reserves & Surplus 11.25 Deferred Tax Liability 00.66 TOTAL Sources of Finance 77.55 Add: Working Capital Loan 24.00
Dr R Khajuria @ TEAM 27

Environmental Impact Assessment

Water pollution quantity Treatment methods and equipments Disposal to ETP Channel as per GPCB Rules Membership of ETP Channel Sources of Fresh Water Ministry of Environment & Forests clearance needed for large Projects
Dr R Khajuria @ TEAM 28

Conclusion & Recommendation

The project is assessed by TEAM at the behest of State Bank of India. The Project is Technically Feasible and Economically Viable. SBI may grant Term Loan and Working Capital Loan recommended. The Appraisal may be quoted in Prospectus for SEBI permission for Public Issue.
Dr R Khajuria @ TEAM 29

Learning Today
Proven Appraisal Process. Reliability.
Based on PhD Research of Dr Rajesh Khajuria

Independent & Unbiased Appraisal. Appointment by a Bank or Financial Institute. Consultants Track Record. Credibility.
TEAM has 95% Success rate and 99% Recovery of Loans recommended for 200 Projects in 23 years (1983-2006).

Quick Turnaround. Ethics for Long Term Success.

Dr R Khajuria @ TEAM 30

Questions?

Dr Rajesh Khajuria, Director TEAMPro Limited www.TeamPro.org

dr.khajuria@gmail.com M: 94260 75402

Data and Image Courtesy: SSI Annual Report 2003, Ministry of Small Scale Industries, Government of India

Dr R Khajuria @ TEAM

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