NIESBUD

12 SEP 2015
STATE BANK OF INDIA
CONSULTANCY SERVICES CELL
LOCAL HEAD OFFICE, NEW DELHI
Detailed Project Report (DPR)

& Bank Finance

STATE BANK OF INDIA

CONSULTANCY SERVICES CELL
LOCAL HEAD OFFICE, NEW DELHI
 BUSINESS PLAN / DPR
A Business Plan / DPR should invariably contain all the
relevant information related to the Project viz.

Management
Legal & Statutory Requirements
Products & Usage
Marketing Management
Production Management
Cost of Project & Means of Finance
Economic Viability

STATE BANK OF INDIA,

NEW DELHI
 MANAGEMENT

• This section should contain information regarding:

 Promoters and the key Management Personnel details viz.

qualification, experience, core competency area, social
status etc.

 Organizational Structure & Succession Plan

STATE BANK OF INDIA,

NEW DELHI
LEGAL & STATUTORY REQUIREMENTS
• This section should contain the status of compliance with the
various legal & statutory requirements viz.
 Entrepreneur’s Memorandum
 Director’s Identification Number (DIN)
 Certificate of Incorporation
 Registration for VAT, EPFO, ESIC etc.
 Change of Land Use/ Conversion if required
 Approval of Building plan
 NOC from Fire Department
 Approval from Central Ground Water Authority (CGWA)
 NOC from Pollution Control Board / Environmental
Clearance etc.
STATE BANK OF INDIA,
NEW DELHI
 PRODUCTS & USAGE
This section should incorporate:

 Why the promoters have chosen this project

 Details of the proposed product

 Usage of the product
 Technical Specifications
 Packaging
 Distribution
 Pricing

STATE BANK OF INDIA,

NEW DELHI
 MARKETING MANAGEMENT
• This section should provide information on :

 Industry Scenario
 Major Players in the market
 Potential Customers
 Competitors
 Why would the customers buy from this unit, i.e., Unique
Selling Propositions
 Proposed market share and the prospect of achieving the
same with special emphasis on competitive edge

STATE BANK OF INDIA,

NEW DELHI
 PRODUCTION MANAGEMENT
This section should provide information on various
components of production management viz.

Location
Key factors for selection of location of project should be
mentioned:
 Surrounding Topographical Features
 Proximity to sources of raw materials
 Availability of labor, power and water
 Market for finished goods
 Availability of Transport Facilities

STATE BANK OF INDIA,

NEW DELHI
 PRODUCTION MANAGEMENT
Land
Size : should be sufficient to take care of the present
needs of the project as per proposed plant
layout and future expansion needs

Type : Industrial/Commercial/Residential/Agricultural

Ownership: Owned/ rented/ on lease – permission to

mortgage if leasehold

Cost : Registered cost to be considered

STATE BANK OF INDIA,

NEW DELHI
 PRODUCTION MANAGEMENT
Building
Size : should be sufficient with respect to the size of
the plant and proposed scale of operations

Type : Brick and Mortar, Shed, Pre-Engineered

Building

Construction : should be as per approved map

Cost : Architect’s estimates for construction of

building should be obtained.

STATE BANK OF INDIA,

NEW DELHI
 PRODUCTION MANAGEMENT
Plant & Machinery
 Process Flow chart & Plant lay Out
 Basis of Selection of Technology
 Profile of Suppliers
 Landed Cost
 Delivery Schedule
Utilities
Generators, Boilers, Transformers, Air Compressors,
Cooling Towers, HVAC, Electrical Panels, Laboratory &
Workshop Equipments, Fire fighting equipments etc.
Miscellaneous Fixed Assets
Furniture & Office Equipments, Fixtures & fittings, Vehicles
etc.
STATE BANK OF INDIA,
NEW DELHI
 FINANCIAL MANAGEMENT
Cost of Project
Land & Land Development
Expenses
Building & Other Civil Works
Means of Finance
Term Loan from Bank / FI
Promoters’ Contribution

Plant & machinery Subsidy or Unsecured Loans

from friends / relatives
Utilities
Miscellaneous Fixed Assets
Security / Fixed Deposits
Prel. & Pre operative Expenses

Contingencies
Margin For Working Capital

Total Total
STATE BANK OF INDIA,
NEW DELHI
 FINANCIAL MANAGEMENT

• Assessment of cost of various components of the project viz.

land and land development, building and other civil
construction, plant & machinery, utilities and fixed assets has
already been discussed in the previous slides.

• Other components of the cost of the project are discussed in

the subsequent slides.

STATE BANK OF INDIA,

NEW DELHI
 FINANCIAL MANAGEMENT
Preliminary Expenses
Expenses incurred till the incorporation of the company are
termed as preliminary expenses. These include:

 Cost of printing the Memorandum & Articles of Association

 Registration Charges
 Legal Fees
 Travelling Expenses
 Expenditure incurred on feasibility reports, market surveys
 These expenses are amortized over a period, say 5 to 6
years.

STATE BANK OF INDIA,

NEW DELHI
 FINANCIAL MANAGEMENT
Pre operative Expenses
• Expenses incurred during the period between incorporation
of the company and commencement of commercial
production. These include:
 Establishment expenses, rent, rates and taxes
 Interest and other financial charges on borrowings accrued and payable
during the construction period
 Mortgage expenses (like legal fees, stamp duty, registration charges etc.)
 Miscellaneous expenses incurred on insurance, stationery, travelling,
publicity etc
 Expenses incurred on trial run
 These expenses are capitalized over fixed assets, which are then
subjected to depreciation.

STATE BANK OF INDIA,

NEW DELHI
 FINANCIAL MANAGEMENT
Margin / Deposits

• A business concern is often required to make certain security

deposits with various government departments in order to
obtain certain facilities/clearances/approvals etc.
For example:
 Security Deposit with Electricity Department, Pollution
Control Board, Export Promotion Department etc.
 Margin for LC / BG
 Except for Margin for LC/ BG, all other security deposits
come under Non Current Assets in the Balance Sheet

STATE BANK OF INDIA,

NEW DELHI
 FINANCIAL MANAGEMENT
Provision for Contingencies
• Escalation in the cost because of increase in prices, import/excise
duty, sales tax, transportation charges, fluctuations in foreign
exchange rates
• Delay in the implementation of the project owing to technical,
regulatory or other factors, in turn leading to increased interest and
other costs
• Unforeseen expenses cropping up during project implementation
• Sundry items/ expenses initially omitted, as they could not be
envisaged at the time of project formulation.
• The contingency should be provided towards non firm costs only
• If the machinery is to be imported, forward cover for 6 months to 1
year may be considered.

STATE BANK OF INDIA,

NEW DELHI
 FINANCIAL MANAGEMENT
Margin For Working Capital

• After the commencement of commercial operations, unit

would require to hold acceptable level of current assets or
working capital for its day to day operations.

• The amount of working capital required should be assessed

taking into account the acceptable holding levels of inventory
and receivables in the concerned industry sector.

• A portion of the working capital, usually 25% of the total

current assets is to be brought from the long term sources.
This enables to have Current Ratio of 1.33.
STATE BANK OF INDIA,
NEW DELHI
 FINANCIAL MANAGEMENT
Cost of Project
Aggregate of cost of all the components of project discussed
above will constitute the total cost of the project.
Means of Finance
This comprises of two types of funds:
 Owned Funds
 Borrowed Funds
Owned Funds:
 Share Capital
 Venture Capital
 Government Subsidies
 Unsecured Loans
STATE BANK OF INDIA,
NEW DELHI
 FINANCIAL MANAGEMENT

Borrowed Funds
1. Long Term Sources:
 Term Loan
 Deferred Payment Guarantee (DPG)

2. Short Term Sources:

 Working Capital
 Letter of Credit

STATE BANK OF INDIA,

NEW DELHI
TERM LOAN & WORKING CAPITAL

Term Loan
A term loan is generally granted for creation/acquisition of
fixed assets, modernization, shoring of Net Working Capital
etc. for a term ranging from 3 to 8 years. It is to be repaid
out of the future earnings of the business.

Working Capital
Working Capital is the sum total of funds required to carry
day to day operations of the unit. Alternatively, it may be
defined as the funds required to carry the current assets so
that the unit can function without any interruption.

STATE BANK OF INDIA,

NEW DELHI
 OPERATING CYCLE
• The time that lapses between cash outlay and cash
realisation by sale of finished goods and realisation of sundry
debtors is known as the length of the operating cycle.
Raw
Materials

Stock in
Cash
Process

Finished
Receivables
Goods

STATE BANK OF INDIA,

NEW DELHI
 ECONOMIC VIABILITY
Achievable Capacity
Achievable Capacity is the maximum number of units that a
plant can produce over a given period, taking into
consideration the available time of the machine after
considering stoppages such as setup time, cleaning time,
breakdowns, holidays etc.

Capacity Utilization
Capacity Utilization should be worked out on the basis of
market information viz. demand and supply of the proposed
product / product mix

STATE BANK OF INDIA,

NEW DELHI
 ECONOMIC VIABILITY
Sales

• Total production in number of units should be estimated on

the basis of proposed capacity utilization.

• Selling Price per unit should be estimated on the basis of

market survey and the prevailing prices of similar products.

• Multiplying the number of units produced with the selling

price per unit would give the estimated sales over the period.

STATE BANK OF INDIA,

NEW DELHI
 ECONOMIC VIABILITY
Operating Cost
Raw Materials / Consumables/ Spares
• Consumption of raw materials/consumables/spares including
wastage should be estimated based on the production
process and technical specifications of the product.

• Cost per unit (number or weight) of raw

materials/consumables/spares should be estimated on the
basis of their landed price at the factory premises.

• Multiplying the number of units consumed with the cost price

per unit would give the estimated cost to be incurred.

STATE BANK OF INDIA,

NEW DELHI
 ECONOMIC VIABILITY
Power & Fuel Expenses:
Number of units of electricity consumed per tonne of
production should be calculated as per connected load and
plant load factor. This multiplied with the price per unit of
electricity would give the estimated expenses on power and
fuel.

Labour Cost
Labour cost should be estimated on the basis of number of
employees, type of labour viz. skilled/semi skilled , number of
shifts of operation, existing wage norms etc.

STATE BANK OF INDIA,

NEW DELHI
 ECONOMIC VIABILITY
Selling, General & Administrative Expenses
• Selling and General Expenses should be estimated on the
basis of proposed level of operation and should broadly
include:
• Discount offered
• Sales Promotion Expenses
• Transportation Cost etc.
• Administrative expenses are more or less fixed in nature.

Depreciation
• Depreciation is calculated as per the Company’s Schedule.

STATE BANK OF INDIA,

NEW DELHI
 ECONOMIC VIABILITY
Tax

• For the purpose of computation of Income Tax, depreciation

as per Company’s Act should be added back and then
depreciation as per Income Tax Act should be deducted.

Repayment of Term Loans

• Operating Statement, i.e., Statement showing the projected

level of turnover, corresponding costs involved and the profit
achieved should be drawn for the future years of operation ,
say 7-8 years.

STATE BANK OF INDIA,

NEW DELHI
 ECONOMIC VIABILITY

• The ability of a unit to service its debt obligations can be

best interpreted by a ratio, Debt Service Coverage Ratio
(DSCR).

GROSS DSCR = (Cash Accruals + TL Intt)

(TL Repayment + TL Intt)

• Bank’s Benchmark for this ratio is 1.75. This implies that if

a unit is having a total debt obligations of Rs. 100, it
should earn at least Rs. 175 so as retain a portion of the
profit after meeting its service obligations.

STATE BANK OF INDIA,

NEW DELHI
 Presentation by---

Pradeep Sharma
State Bank of India
Consultancy Services Cell
Local Head Office, New Delhi
Mobile 9871695173
Email: pradeep.sharma@sbi.co.in

STATE BANK OF INDIA,

NEW DELHI