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Banks have played a critical role in the economic development of some developed countries such as Japan and Germany and most of the emerging economies including India. Banks today are important not just from the point of view of economic growth, but also financial stability. In emerging economies, banks are special for three important reasons. First, they play a leading role in developing other financial intermediaries and markets. Second, due to the absence of well developed equity and bond markets, the corporate sector depends heavily on banks to meet its financing needs. Finally, in emerging markets such as India, banks cater to the needs of a vast number of savers from the household sector, which prefer assured income and liquidity and safety of funds, because of their inadequate capacity to manage financial risks.
The Indian banking sector has been remarkably successful in some respects. Its immense size and enormous penetration in rural areas are exemplary among developing countries, as is its solid reputation for stability among depositors. The last decade has seen many positive developments in the Indian banking sector. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made several notable efforts to improve regulation in the sector. The sector now compares favourably with banking sectors in the region on metrics like growth, profitability and non-performing assets (NPAs). A few banks have established an outstanding track record of innovation, growth and value creation. This is reflected in their market valuation. Indian banks have compared favourably on growth, asset quality and profitability with other regional banks over the last few years. The banking index has grown at a compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market index for the same period. This project explains various credit facilities and processes followed by one of the most reputed bank in the country, Punjab National Bank. Each bank has its own set of policies that must be followed while sanctioning a loan and care must be taken that the money provided by the bank is being used up for the intended purpose only. The task ranging from acceptance of loan proposal to sanctioning of loan is carried out at Credit Division of the bank. Moreover, each loan proposals fall under powers of different levels depending on the size of the proposal. The study is undertaken to understand the process of project appraisal for term loans being followed at PNB. With a developing economy and many multinational companies coming up, new projects are being undertaken. These projects require huge amount of capital and thus banks come forward to finance these projects depending on the feasibility of the project. PNB carries out an extensive study of the project and checks for it feasibility and if the project seems to be feasible, a decision is taken. This process of carrying out the feasibility test of the project based on the financial position of the company is called Project Appraisal.
Contents
Page No. Acknowledgement Certificate of Approval Executive Summary Abstract 1. Introduction 1.1. Banking an introduction (Indian Perspective). (a)Nationalisation of Banks. (b)Liberalisation. 1.2. About Punjab National Bank. 1.3. Profile of the Bank. 1.4. Vision. 1.5. Corporate Mission. 1.6. Organizational Structure. 1.7. Diversification of PNB. 1.8. Financial Performance. 1.9. Credit Department. 1.10. Risk Management Department (RMD). (a)Credit Risk Rating Tools.. 1.11. About the Project (a) Objectives of the Project. (b) Scope of the study. (c) Methodology. 1.12. Credit Facilities (a) Fund Based Facilities. (b) Non Fund Based Facilities. 2. Term Loans and Working capital 2.1. Term Loan Appraisal. 2.2. Financial Evaluation. 2.3. Sensitivity Analysis. 2.4. Techno-Economic Viability (TEV. 2.5. Technical Appraisal. 2.6. Economic Viability. 2.7. Financial Viability. 2.8. Risk Analysis. 2.9. Management Evaluation. 2.10. Compliance to exposure Norms. 2.11. Maximum Industry Exposure Limit. 2.12. Security. 2.13. Pricing. 2.14. Post Sanction Process (a) Ensuring end-use of funds. (b) Preventive Monitoring System (PMS). (c) Stock Audit. (d) Monitoring of Weak Irregular Accounts. 2 3 4-5 6 9-22 9 9 9 10 11 12 13 13 14 14 15 16 17 20 20 20 20 21 21 21 23-32 24 24 27 27 28 28 28 28 30 30 30 31 31 31 32 32 32 32
3. Assessment of Term Loan to XYZ Cement Corporation Ltd. (XCCL). 3.1 Introduction (a)The Promoter Company: XYZ Associates Ltd(XAL) 3.2 Loan Proposal (a) Management Evaluation. (b) Business Group Evaluation. (c) Business Strategy. (d) Banking arrangement of the parent company. (e) Compliance to exposure Norms. (f) Financial analysis. 1. Past Financials. 2. Usage and Sources of Fund. (g) Status of Tie-Up of Loans. (h) Financial Viability Analysis of the Project. 1. Sales and Profitability Projections. (i) Projected Financial. 1. Financial ratios. 2. Balance Sheet Projections. 3. Cash Flow Projections. (j) Calculation of DSCR. (k) Sensitivity Analysis. (L) Security. 1. Primary. 2. Collateral. (m) Security Margin. (n) Technical Evaluation. (o) Statutory Approvals. (p) Present Physical & financial status. (q) Implementation schedule, Procurement & location analysis. (r) Economic analysis. (s) Industry analysis. (t) Risk analysis. (u) Draw down Schedule. (v) Proposed Repayment Schedule. (w) Pricing. (x) Strength weakness and Mitigants 4. Conclusions and Recommendations 4.1 Conclusions. 4.2 Recommendations. 5. Limitations of the Study 6. List of Abbreviations Used 7. References
modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more. Currently (2010), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.
PNB has had the privilege of maintaining accounts of national leaders such as Mahatama Gandhi, Shri Jawahar Lal Nehru, Shri Lal Bahadur Shastri, Shrimati Indira Gandhi, as well as the account of the famous Jalianwala Bagh Committee. The Bank made steady progress right from its inception. It has shown resilience to tide over many a crisis. It withstood the crisis in banking industry of 1913 and the severe depression of the thirties. With the passage of time the Bank grew in strength spreading its wings from one corner of the country to another. Some smaller banks like, The Bhagwan Dass Bank Limited, Universal Bank of India, The Bharat Bank Limited, The Indo-Commercial Bank Limited, The Hindustan Commercial Bank Limited and The Nedungadi Bank were brought within its fold.
Punjab National Bank also maintains strong correspondent banking relationship with 200 leading international banks all over the world. This enhances its capacities to handle transaction world-wide. Besides, bank has Rupee Drawing arrangement, with exchange companies in the Gulf. The Bank is also a member of SWIFT and 85 branches of the bank are connected through SWIFTs computerbased terminal at Bombay. With its state-of-art dealing rooms and well-trained dealers, the bank offers efficient FOREX dealing operations in India. The bank has been focusing on expanding its operations outside India and has identified some of the emerging economies which offer large economies which offer large business potential. Bank has set up a representative office at Almaty, Kazakhstan with effect from 23rd October 1998.
1.4 VISION
"To be a Leading Global Bank with Pan India footprints and become a household brand in the IndoGangetic Plains providing entire range of financial products and services under one roof" PNB VISION 2013 QUANTITATIVE DIMENSIONS Deposits to increase from Rs.166457 Crore in March 2008 to Rs.582000 Crore in March 2013,at an average growth of 32%. Advances to increase from Rs.119502 Crore in March 2008 to Rs.418000 Crore in March 2013,at an average growth of 28%.c. Total business to increase from Rs.285959 Crore in March 2008 to Rs.1000000 Crore in March2013,at an average growth of 28%. Operating profit to increase from Rs.4006 Crore in March 2008 to Rs.15000 Crore in March 2013 with a CAGR of 30.2%. Net profit to increase from Rs.2049 Crore in March 2008 to Rs.7500 Crore in March 2013,at anaverage growth of 30%. The Return On Assets {ROA} to increase from 1.15% in March 2008 to 1.30% in March 2013 (This ratio is comparable to the ROA of the peer banks and is also better than all banks ratio of 1% as on March 08). The Return on Equity {R OA} to increase from 19% in March 2008 to 21% in March 2013. 15 Crore in March 2013. To have a rural coverage of 100000 villages in the Indo-Gangetic plains by March 2013.
QUALITATIVE DIMENSIONS 1. A leader and front runner amongst nationalized banks In Financial inclusion. In all domestic operations. In adopting best risk management practices. In adopting global best practices in Corporate Governance & Corporate Social Responsibility. In HR policies to raise skills, morale and productivity. 2. To be Global Bank Among the top 3 Indian banks with global presence in Middle East, South East Asia, China, UK, Australia, Canada, etc. 7
Bring best global practices to effectively compete with global players in India. 3. Become a universal bank Provider of complete range of financial services. 4. To be the most profitable Bank amongst nationalized banks by focusing on: Fee based income/off-balance sheet exposures Mid Cap segment, Retail lending, SME Advances & Agriculture. Reduction in Gross NPAs Expenditure Control. Low cost deposits. Ensuring higher spreads (return on advances minus cost of deposits/funds) 5. Capitalize on IT initiatives Provide more value added services. Expand reach of ATMs. Bank Office Centralization of all CBS branches. Provide IT advisory services to other banks 6. Explore options of in-organic growth Merger of Private/Public Sector Banks 7. Enlargement of customer base and retention of existing customers. 8. Ensure smooth transition to adopting Basel II norms ahead of schedule. 9. Develop robust Management Information System for better decision making and policy prescription. 10. Further entrench brand image of the bank.
Board of directors
CMD
ED GM ( NPA & Weak Account) DGM GM (Retail & lending) DGM GM (Treasury ) DGM GM (Deposits )
GM (Credit)
GM (IRMD)
GM (Audit)
FGM'S
......
......
AGM
AGM
AGM
Functional head
1.7 Diversification of PNB Diversification initiatives of the bank have shown promising results. PNB has undertaken bullion
business, merchant banking, mutual fund business, PNB Debit card and has also undertaken foreign exchange business. Consistent profit performance, improved fundamentals and strong technology base have provided PNB with distinct advantages to meet the forces of composition effectively. Punjab National Bank has taken a number of initiatives for the benefit of its invaluable customers and has virtually become one stop shop for various financial products & services. The bank has made Bancassurance Tie-up with oriental Insurance Co. Ltd. (OICL), a public sector undertaking, which offers variety of products e.g. Fire Insurance, Motor Vehicle Insurance, Marine Insurance & Misc. Insurance Policies like Shop-keepers policy; theft/burglary Policy; Fidelity Guarantee Policy; Personal Accident Policy, Health Insurance Policy; Overseas Travel Insurance Policy, House Hold Goods etc. at a competitive price with assured post sale services.
amounts to over Rs 6.73 lakh crore. PNB is ranked as the 2nd largest bank in the country after SBI in terms of branch network, business and many other parameters. During the FY 2011-12, Net Interest Income (NII) increased by 13.6% while Net Interest Margin (NIM) was 3.84%. Net Profit increased by 10.2% to reach Rs.4884 crore. Operating Profit was Rs.10614 crore, 17.2% up from last year. PNB continues to be among leading banks amongst nationalized banks in net profit, operating margins, total business, deposits, advances, CASA deposits and customer base. Summary of the financials for this year is as below: PARAMETERS Mar12 (quarter) (in Crore Rs.) Operating Profit 10614 Net Profit 4884 Deposit 379588 CASA Deposits 134129 Advance 293775 Total Business 673363 Source: press release (performance highlights) Mar11(in Crore Rs.) 9056 4433 312899 120325 242107 555005
Similarly, at Circle Office level, two Credit Approval Committees shall be set up as under: CAC at CO level COCAC Level-I Headed by Circle Head Credit proposals Beyond loaning powers of Incumbent of the branch but within vested loaning powers of Circle Head (AGM/DGM as the case may be) Beyond loaning powers of Circle Head but not exceeding Rs.35 crore 10
COCAC Level-II
FGM
CD looks after proposals for all types of loans which fall within the purview of GMsHO/ED/CMD/MC/Board. A credit appraisal goes through different level of sanctioning to enforce internal controls and other practices to ensure that exceptions to policies, procedures and limits are reported in a timely manner to the appropriate level of management for action. The bank has introduced grid/committee system in credit sanction process wherein every loan proposal falling within the vested power of DGM and above is discussed in a credit committee, which, on the merit of the case, recommends the proposal to the sanctioning authority. Such committees have been formed both at HO and ZO levels. The credit committee at HO includes GMscredit and CGM/GM-RMD. For credit proposals falling within the vested power of CGM/GM, the credit committee at HO includes DGM/AGM/Chief Manager-RMD and DGM/AGM/Chief ManagerCD. CD looks after all proposals for all types of loans which fall within the purview of GMsHO/ED/CMD/MC/Board. A credit appraisal goes through different level of sanctioning to enforce internal controls and other practices to ensure that exceptions to policies, procedures and limits are reported in a timely manner to the appropriate level of management for action.
applicable to all large corporate borrower accounts availing total limits (fund based and non-fund based) of more than Rs. 12 crore or having total sales/ income of more than Rs. 100 crore. The Bank has robust credit risk framework and has already placed credit risk rating models on central server based system PNB TRAC, which provides a scientific method for assessing credit risk rating of a client. Taking a step further, the Bank has developed and placed on central server the score based rating models for retail banking. These processes have helped the Bank to achieve fast & accurate delivery of credit; bring uniformity in the system and facilitate storage of data & analysis thereof. The analysis also involves analyzing the projections for the future years.
The financial data can be recorded in the system either manually or by retrieving the data directly to the tool through Prowess. The model is segregated into four main parameters on the basis of which a company is rated. 1) Financials: Financials of a corporate borrower forms the basis of its credibility to the banks. It determines the viability of the cost of the project and means of finance as envisaged in the project report. Profitability and the capability of the project to create cash inflows for servicing the debt and interest can be ascertained by the past and projected financials of the company. 2) Quality of Management: Under this, the bank ascertains the performance of the company under competition in terms of return on investment. It ascertains whether the promoters have the desired background, experience, and knowledge to successfully implement the project. 3) Conduct of Account The past experiences of the bank with the borrower are assessed in this section. The bank takes into account whether the borrower had shown signs of being credible by regularly repaying the interest amount. Records of defaulting in the past can bring a possibility of creation of an NPA. 4) Industry Outlook and Business Performance In order to check on the profitability of a new project, an independent reasonable assessment based on the study of various relevant variables should be made. Each of the main parameter includes different subjective as well as objective parameters on which the company is rated on a scale of range 0 to 4 with 0 being a very poor and 4 as an excellent score. In subjective parameters, scores can be assigned in decimals in multiples of 0.5 with a proper justification whereas in objective parameters, scores are assigned up to two decimal places. 12
Once the overall scoring is done, it is then the rating is assigned to the borrower ranging from PNBAAA to PNB- D as given in the table. Rating Category Description Score Obtained (%) Grade Within the rating Category Above 80.00 PNB-AAA Above 77.50 up to 80.00 PNB-AA+ Above 72.50 up to 77.50 PNB-AA Above 70.00 up to 72.50 PNB-AAPNB-A Modest Risk Above 67.50 up to 70.00 PNB-A+ Above 62.50 up to 67.50 PNB-A Above 60.00 up to 62.50 PNB-APNB-BB Average Risk Above 57.50 up to 60.00 PNB-BB+ Above 52.50 up to 57.50 PNB-BB Above 50.00 up to 52.50 PNB-BBPNB-B PNB-C PNB-D Marginally Acceptable Risk High Risk Caution Above 47.50 up to 50.00 PNB-B+ Above 42.50 up to 47.50 PNB-B Above 40.00 up to 42.50 PNB- BAbove 30.00 up to 40.00 PNB- C 30.00 and below PNB- D
PNB-AAA PNB-AA
The company gets rated regularly and the latest rating is considered when it applies for a renewal of WCL or a new term loan. The rating assigned to the company is valid up to 18 months from the last date of drafting of the current balance sheet or 15 months from the last date of the month at which rating was confirmed, whichever is earlier. Right after the deadline, the previous rating is mentioned as due and further if the company fails to submit the required financial data to the bank for three months after this date; it is then coined as overdue.
Hurdle points
Hurdle points are the minimum acceptable benchmark rate for some specific parameters. If the company fails to attain the benchmark rating in that particular parameter, then the final rating of the company gets PNB-BB (Average risk) as its final rating in spite of considering the previous final rating( in case the rating is higher than BB) or 1 rating lower than the previous rating (in case the rating is lower than BB).
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PMS TRACKING
It is a system to provide post sanction monitoring of the health/conduct of borrower accounts on regular intervals on a continuous basis. Earlier the bank had QRS (Quarterly Review Sheets) as its monitoring system which was subjective in nature, had limited parameters to be captured and did not propose any action. On the contrary, PMS is an action oriented post sanction monitoring tool. PMS report consists eight parts: Part I is a brief profile of the account. Part II has PMS index score and mentions the reasons for the irregularities. Part III details about the financial/operational performance of the borrower. Part IV consists of details of un-compiled important terms and conditions of sanctions. Part V mentions the status of outstanding serious inspection irregularities. Part VI includes position of the account(s) as at the end of the quarter. Part VII has details of security verification, insurance, stock audit, consortium meeting. Part VIII has comments and action plan. There are 6 sections subdivided into 29 parameters on which the borrower is evaluated. PMS scores are penalty points allotted for unsatisfactory features observed in the conduct of an account. The scores awarded are negative in nature i.e. higher the score poorer is the health. It is based on this score that PMS rank is determined. The ranking scale is a ten point scale based on PMS index score, in which 1 is said to be the most satisfactory position and 10 to be the most unsatisfactory position. Given below is the ranking and the category to which an account belong with respect to its rank:PMS SCORE 0-1000 1001-2000 2001-3000 3001-4000 4001-5000 5001-6000 6001-7000 7001-8000 8001-10000 ABOVE 10000 PMS RANK 1 2 3 4 5 6 7 8 9 10 CATEGORY HEALTHY HEALTHY EARLY WARNING EARLY WARNING EARLY WARNING WARNING WARNING WARNING LIKELY NPA / NPA LIKELY NPA / NPA
PMS also provide an action manual for the bank which mentions options as an early warning. Some of these options are:
Careful vetting of loan documents. Review of compliance with terms and conditions. Meeting with party on reasons for business decline. 14
Influence borrower business plans. Demand financial restructuring of borrowers balance sheet. Increase interest rates. Increase frequency of PMS and appraisal. Re-inspection of primary security, stock audit by external auditors. Valuation of collateral security. Change loans terms and conditions. Legal counsel on documentation and charge creation. Insistence on higher collateral, guarantees. Insistence on higher margins. Change in the form of exposure - cash credit to short term loans. Tagging Reduction of exposure - insist on inclusion of other banks in consortium. Phased exit from the consortium.
(c) Methodology
To fulfill the objectives of the study following methods were used: 1) Study of various bank guidelines, circulars and instruction books. 2) Study of pre-approved proposals 3) Personal interaction with the employees of Credit Division 4) Personal interaction with the employees of RMD and Technical Cell 5) Developing cases based on actual work done at Credit Division 15
(b)Non-fund Based Credit While fund based credit facilities require immediate outlay of funds from the bank, non-fund based facilities basically include the promises made by banks in favor of third party to provide monetary compensation on behalf of their clients if certain situations emerge or certain conditions are fulfilled. The non-fund based business is one of the main sources of bank income. Income is in the form of fees and commissions as compared to interest income in case of fund based lending. Non-fund based credit plays an important role in trade and commerce. The borrowing clients of banks prefer to avail of the non fund based facilities mainly because: a) The facility does not require immediate outlay of funds and therefore the cost of such funds tend to be lower than the cost of fund based credit facilities.
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b) A bank guarantee (BG) or letter of credit (LOC) issued by a bank on behalf of its client is an off-balance sheet item in the books of clients, hence do not show up as debt or liability. For the lending banks, cost of providing non-fund based facilities is significantly lower than the cost of providing fund-based facilities. Nevertheless, the inherent risk which are associated with N.F.B credit facility are same as those attached with FB credit proposals. In case of default, provision of funds becomes necessary. Also, NFB exposure is facilities that are not treated as off-balance sheet exposure and minimum capital adequacy need to be maintained against the NFB exposures as well. Assessment of Non Fund based facilities shall be subjected to the same degree of appraisal, scrutiny as in the case of fund based limits because outstanding in these facilities are to be reckoned at 100% for exposure purposes. Therefore, need based requirement of a borrower should be assessed after reckoning the lead time, credit period available, source of supply, proximity of supplier, etc. in case of LCs and industry practices and business requirements in case of LGs. The working of NFB assessment is to be incorporated in the appraisal note. Further, while assessing non-fund facilities, cash flow aspects should also be taken into account. 1. Bank Guarantees BGs maybe financial or performance based in nature. In a financial guarantee, the issuing banks assume an usual credit risk which is the domain of the banks. However, issue of a performance guarantee involved technical competency and managerial ability of a customer to ensure the performance of the contract for which guarantee has been drawn. Issuing banks responsibility against the BG is absolute. Thus, proper appraisal needs to be done before issuing BG, as it is the responsibility of the issuing bank to honor its guarantee when invoked. 2. Letter of Credit A document issued by a bank that guarantees the payment of a customer's draft; substitutes the bank's credit for the customer's credit. It is an undertaking issued by bank on behalf of the buyer to the seller, to pay for the goods and services, provided that the seller presents the documents which comply with the terms and conditions stipulated in the LOC. All letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. It is different from BG in the sense that in case of LOC, the issuing bank does not wait for the buyer to default, and for the seller to invoke the undertaking. While in BG, comes into play only when the principal party (the buyer) has failed to pay its supplier.
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One of the main advantages of looking at the working capital position is being able to foresee any financial difficulties that may arise. Even a business that has billions in fixed assets will quickly find itself in bankruptcy court if it can't pay its monthly bills. Under the best circumstances, poor working capital leads to financial pressure on a company, increased borrowing, and late payments to creditor - all of which result in a lower credit rating. A lower credit rating means banks charge a higher interest rate, which can cost a corporation a lot of money over time. Any manufacturing firm for that matter any company operating in any industry needs to maintain a bare minimum level of inventory at any point of time below which its production would get suffer, this minimum level is called as Core Current Asset level. This varies constantly with changes in sales and activity level. Fluctuating component in the working capital is the portion above this level that is continuously changing due to changes in demand, seasonality of product etc. Businesses finance permanent core component through long-term sources of fund like equity or long term loans. Fluctuating Component is financed mainly by availing the short term loans and other credit facilities from the bank. Main focus here is to avoid overfunding or underfunding of the operations. While over funding will amount to locking up of assets unproductively in the form of idling cash or inventories, at the same time under funding would seriously hamper the day-to-day operations and 18
pose a threat to the survival of the enterprise. Hence, it is critical to determine correctly the maximum amount of bank finance that should be provided.
Current Assets 1. Cash and Bank balances 2. Investments in Govt./Trust Securities, for short term and fixed deposits with banks. Investments in shares and debentures etc. should be excluded from current assets. 3. Recoverable arising out of sales. 4. Instalment of deferred receivable due within one year. 5. Raw material and consumable spares including that under transit. But slow moving and obsolete items should be excluded from current assets and should be grouped as noncurrent assets. 6. Stock in process, and finished goods( including goods-in-transit) 7. Advance payment for tax, prepaid expenses, advance for purchase of raw material and consumables. But security deposit/tender deposit are classified as non-current assets irrespective of their maturity. 8. Money receivable from contracted sales of fixed asset during the next 12 months. Treatment of Export Receivables a. For calculating MPBF, the amount of export receivables may be excluded from the current assets as need based limits for export receivables could be sanctioned and in respect of such receivables borrowers are not required to bring in 25% by way of Net Working Capital. b. Where an exporter desires, export receivable may be included in the total current assets for arriving at MPBF, but the minimum stipulated NWC(i.e. 25% of total current assets) may be reckoned after excluding the quantum of export receivables from the total current assets for fixing up the post shipment credit limit. Treatment of Investment Made in Associate/Allied Companies/Subsidiaries etc. Investments made in shares, debentures, etc. of a current nature, units of UTI and other mutual funds and in associate companies/subsidiaries and inter corporate deposits and loans are to be excluded from the current assets build up for calculating MPBF (Maximum Permissible Bank Finance).
Treatment of Redeemable Preference Shares Preference shares redeemable within one year should be considered as current liabilities. However, preference shares redeemable after one year should be considered as term liabilities. Treatment of Unsecured Loans In case of Partnership, Proprietorship, and Private Ltd. Companies, the unsecured loans raised by friends, relatives, and directors etc. that remain in the business for continuous basis may be treated as quasi capital to the extent not exceeding 100% of tangible net worth of the party subject to the condition that these loans shall not be withdrawn during the currency of the loan and shall be subordinate to bank borrowings. Amount of unsecured loans over and above the net worth of the party should be treated as term liability for calculating various financial ratios. For Public Ltd. companies, the unsecured loans should be treated as long term debts. Treatment of DTL and DTA(Deferred Tax Asset and Liability) The tax effect of the timing difference originating during a period (Difference between Accounting Income and Taxable Income) is referred to as Deferred Tax Asset/Liability depending on whether the Tax rebate relating to the current accounting period would be
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available in the subsequent accounting periods has been claimed in advance during the current accounting period. DTA is arrived at through increasing the profits/ reducing the loss. The eligible tax rebate reflected as DTA can be recognized only if it is reasonably certain that the company will earn adequate profits in the subsequent accounting period(s). Till such time, it is in the nature of an intangible asset. Therefore, it should be reduced from the Net Worth to arrive at the TNW. Using similar logic, DTL is to be treated as part of the Net Worth. Since DTL/DTA are accounting treatments only, DTL is to be added to, and DTA is to be subtracted from, the net profit for arriving at PAT.
Cost of Project & Means of Financing Cost of project and sources of finance are ascertained to ensure the Financial viability of the project for which funding is sought. The major cost components of the project is given including land and building including transfer, registration and development charges as also plant and machinery, equipment for auxiliary services, including transportation, insurance, duty, clearing, loading and unloading charges etc. The means of financing the project cost may be one or more of the following: Equity capital from shareholders Preference capital from preference shareholders Capital subsidies from government Debentures/ bonds issued by the company public issue or private placement Public deposits Unsecured loans from friends and relatives Term loans (including deferred payment guarantees) Lease finance Projections of Sales, Profits, Cash Flows and Balance Sheet Revenues during the tenor of the loan are estimated for the project, based on the Techno-Economic evaluation and past performance. Revenue projection, in addition to the estimates of sales and other expenses are used to generate projection of profits and cash accruals during the loan tenor. Similarly, financing, repayment schedule etc. are used to arrive at balance sheet projections. A unit is considered to be financially viable, progressive and efficient if it is able to earn enough profits not only to service its debts timely but also to finance its future development/growth. Calculating key Financial Ratios Current financials of existing operations, project funding information like sources of funds etc. and future projections are used for calculating key financial ratios for a period of time. These ratios tell us a lot about a unit's liquidity position, managements' stake in the business, capacity to service the debts etc. The financial ratios which are considered important are discussed as under: DER =
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DER signifies how much the project is leveraged. For a project of private firm, equity capital is the capital put up by the promoter, hence lower the DER higher are the promoters stake in the project. DER also varies from industry to industry. In capital intensive industries involving large capital investment, DER is normally higher as compared to the other industries. DSCR= Debt Service Coverage Ratio (DSCR)
This ratio provides us with a measure of the ability of an enterprise to service its debts i.e. `interest' and `principal repayment' besides indicating the margin of safety. The ratio may vary from industry to industry but has to be viewed with care when it is less than 1.5. This ratio shows the relationship between cash generating capacity of the unit and its repayment obligation and indicates whether the cash flow would be adequate to meet the debt obligations and whether there is sufficient margin for the lending banker. Tangible Net Worth to Total Outside Liabilities (TNW/TOL)
TNW/TOL= This ratio gives a view of borrower's capital structure. If the ratio shows a rising trend, it indicates that the borrower is relying more on his own funds and less on outside funds and vice versa. Profit-Sales Ratio
This ratio gives the margin available after meeting cost of manufacturing. It provides a yardstick to measure the efficiency of production and margin on sales price i.e. the pricing structure.
expenditure on the project and will not be deviated to capital markets or other activities. TEV involves market potential studies, stages of business cycle, technology related inputs and cost components including the reports on equipment/raw material suppliers, comparative study of similar projects and preparation of financial models for the individual project.
4. Conduct of account (10%) Cumulative weighted score is calculated and rating of the project/company is ascertained as per the chart below: Rating Description score obtained grade category AAA AA Minimum risk Marginal risk Above 80.00 Between 77.50 - 80.00 Between 72.50 77.50 A Modest risk Between 70.00 72.50 Between 67.50 70.00 Between 62.50 67.50 Between 60.00 62.50 BB Average risk Between 57.50 60.00 Between 52.50 57.50 Between 50.00 52.50 B Marginally acceptable risk Between 47.50 50.00 Between 42.50 47.50 Between 40.00 42.50 C D High risk Caution risk Between 30.00 40.00 Below 30.00 AAA AA+ AA AAA+ A ABB+ BB BBB+ B BC D
Some of the important risk rating models used in loan appraisals are summarized as below: S.No. Credit Risk Rating Applicability Total Limit Sales 1 Large Corporate Above Rs. 15 Cr. Above Rs 100Cr. 2 Mid Corporate Between 5 Cr.and 15 Cr. Between Rs 25 Cr and 100 Cr 3 New Project Rating Above Rs. 5 Cr. Cost of Project Models above 15 Cr 4 Entrepreneur New New Business et requiring finance b/w Cost of Project upto Business Model 20 Lakh and 5 cr Rs.15 Cr 5 Credit Risk Rating model All Banks and Financial Institutions for banks and FI Table: Rating Models and Their Applicability PNB also takes into account the ratings of the company/project from the independent credit rating agencies like ICRA, CRISIL, Fitch, CARE etc. Rating history of the borrower is studied and any degradation in the rating demands causal analysis. In some cases, final sanction is conditional upon the completion of credit rating by external agencies.
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Credit history of the management and the company is sought from the centralized credit databases like CIBIL, Equifax etc. Directors etc. should have positive credit reports and should not be there in the list of wilful defaulters circulated by RBI etc. Credit history is also sought from other banks where the company has accounts to find out any abnormal behaviour. Moreover, credit history and account behaviour of the companies belonging to the same business group (i.e. business houses) as the borrower is also taken into account. In case the accounts of any unit belonging to a Group become irregular and the concerned promoters do not co-operate with the Bank and Financial Institution to settle their dues, the Group will not be provided accommodation from the Bank. According to the banks guidelines, financial support for setting up of new ventures or expansion should not be extended to unit belonging to a group which is a wilful defaulter or non cooperative so as to ensure that no amount lent to a healthier unit of a group for its Working Capital requirements is transferred to another unit within the group by reducing the Current Ratio or any other means. For identification of cases of Promoter Groups/Companies for deterrent action, a coordinated approach should be taken by the Banks and Financial Institutions. However, Industrial Units in Public Sector are to be kept out of the purview of Group Approach.
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Industry/Sector Ceiling in percentage S. No. Sector All Engineering Chemicals, Dyes, Paints Construction Food Processing Iron and Steel Other Textiles Paper and Paper Products Petroleum Sugar
Exposure 6% 3% 5% 5% 10% 5% 3% 3% 5%
2.12. Security
All the loans are secured against the collaterals. During the loan appraisal process collateral are valued for margin of safety requirements and valuation is verified. Type of banks claim on the collateral i.e. mortgage, hypothecation, first pari-passu charge, lein etc is decided. In addition, the terms and condition for maintenance of the collateral are laid down. Further Guarantee is sought for the loan from the group holding company. This is known as Corporate Guarantee. Sometimes personal guarantee is also sought from the Promoters in case of privately held companies or partnerships. FACR is one critical financial ratio which is ascertained to ensure that loans are adequately covered by fixed assets.
2.13 Pricing
Loan pricing which was earlier based on the BPLR (Benchmark Prime Lending Rate) regime has now been administered under BR (Base Rate) regime as per the RBI directives. Under BR system banks specify a base rate above which all the loans are priced. Base rate is revised from time to time as per the leads of RBI review of interest rates that depends on the macroeconomic situations. At PNB pricing of loans depends on following factors: a) Credit Rating of the Client Better the risk rating of a business lower is the spread (interest charged) over the base rate. b) Nature of the business sector Apart from the credit rating business sector to which a borrower belongs also effects the pricing of the loan. For example pricing for a business in Food processing sector with credit rating AA will be different from a business in Real estate sector having the same credit rating AA. c) Special Business Considerations and Competitive Pressures In consortium financing, PNB has to keep the pricing in line with other business partners. Also due to competitive consideration and a view of garnering further business from reputed clients discounts can be offered. Sometimes, there are special lending schemes for various sectors having specific pricing guidelines.
(a)Ensuring end-use of funds One aspect of credit risk management and control is to ascertain the end use of the funds. This is because the risk profile of a loan is directly related to its prospected use. For example, if a loan issued for purchase of machinery is diverted to real estate investment or say to capital markets, then probability of default increases considerably. Hence, it becomes necessary for banks to monitor the usage of the loaned funds. Financial statements issued by Chartered Accountants are analyzed to observe the spending of the funds. Moreover, PNB has put in place guidelines and procedure to ascertain the use of funds through actual inspection. Some of the illustrative measures that could be taken by the branches to ensure end-use of funds are: i) Meaningful scrutiny of quarterly progress reports/operating statements, balance sheets of the borrowers. ii) Regular inspection of borrowers assets charged to the Bank as security. iii) Periodical scrutiny of borrowers books of accounts. iv) Periodical visits to the assisted units. v) System of periodical stock audit, in case of working capital finance. (b)Preventive Monitoring System (PMS) Bank has introduced Preventive monitoring system for large borrower accounts. The system is applicable to all borrower accounts having sanctioned limits (FB plus NFB) above Rs. 1 crore. The model for PMS has also been placed in central server environment. This system is a dynamic system for tracking the health and conduct of borrowers accounts to capture the signals for an early warning. Timely decision should be taken on the future course of action in the borrower accounts depending upon PMS rank. (c)Stock Audit Bank has a policy to conduct annual stock audit (including book debts) for all accounts with fund based working capital limits of Rs.5 crore and above whether standard or NPAs. Annual Stock Audit is compulsorily conducted in all accounts with risk rating B & below and having fund based working capital limits of Rs. 1 crore and above. (d)Monitoring of Weak and Irregular Accounts The bank has established systems for Inspection and control of its lending activity to ensure that loan accounts are conducted in terms of sanction so as to have a sound credit portfolio. Credit Division, HO monitors all weak and irregular loan accounts below standard category having outstanding of above Rs.10 lac on monthly basis.
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(a)The Promoter Company: XYZ Associates Ltd (XAL) XYZ Group (the Group) is a diversified business entity with interest in various business segments such as Engineering & Construction, Cement Manufacturing, Power Generation (Thermal, Hydro and Wind), Real Estate & Hospitality, Roads & Expressways, Oil & Gas Exploration, Mining, Hotels, Education and Sports. XYZ Associates Limited (XAL), promoted by Shri A and his associates, is the flagship company of XYZ Group. The group is third largest cement manufacturing group of India with existing capacities of over 21.30 million tonnes. With the proposed capacity additions, the Group will have a total capacity of 39.05 MMTPA by FY 2014 and make the group pan India player. In its Construction division, XAL has an extremely robust order book. As on 30th September 2010 the total value of contracts pending execution stood at over Rs. 46,000 crore. XAL through its various subsidiaries has business interests in Real estate, Power generation and Hospitality industry also. The company is implementing/developed number of thermal and hydro power projects across India like Baspa, 28
Vishnuprayag, Nigrie, Bara, Bina etc and is developing large tracts of real estate projects. The company along with its subsidiaries has 700 MW of operational capacity and 12770 MW of power generation capacity under implementation. The company currently has five star hotels operating across north India. The company is listed on both NSE and BSE. The market capitalization of the company stood at Rs. 18,638 crore as on March 28, 2011. (Rs in crore) March 31st , 2010 March 31st , 2009 Company Turnover 10,497 6,100 Net Profit 1,708 897 Cash Accruals 2,614 1,201
3.2 Loan Proposal: GIST OF THE PROPOSAL Proposal for approval of Term Loan (TL) of Rs.250 crore for implementing 3.0 MMTPA Integrated Cement Plant and 35 MW CPP at Village Shahabad, Gulbarga, District,Karnataka. [ROI: BR(10.75%)+TP(0.50%)+Spread(1.75%)=13%, Up-front Fee:0.25%, Door-to-Door Period :10 years]
Purpose
To part finance the project for implementing 3.0 MMTPA Integrated Cement Plant and 35 MW CPP at Village Shahabad, Gulbarga District in the State of Karnataka Rs.1404.00 crore Rs.913.00 crore Rs.491.00 crore Rs.250.00 crore 27.38% 1.86:1 3 years 1 year 6 years 10 years
Cost of Project Total Debt Promoters contribution Proposed TL Our share DER Construction Period Post construction moratorium Repayment Period Door to door tenor
Whether enhancement
fresh/renewal/ Fresh
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Asset Classification as on date and N.A. being a new company last PMS score Credit Risk Rating by Bank is BB indicating average risk Present Previous Rating Date Rating BB of Score ABS Reasons for degradation
08.08.2011
*NPM: New Project Model up to implementation. Rating from External Agency (The To be arranged within a period of 6 months from the date of external rating should be mapped first disbursement failing which penal interest as per bank to the internal rating) guidelines to be charged. Whether Agriculture/Retail/ Large SME/Others (Please specify) a) Whether Sensitive Sector Real Estate/Capital Market b) Applicable Risk weight Consortium/Multiple Banking Lead Bank PNBs Share Date of application Date of receipt of proposal 100% Consortium Yet to be decided 27.38% 22.04.11 (BO) 22.04.11 (BO)/13.07.2011(HO) No
Date of clarifications, if any, 08.07.11(BO)/08.08.2011(HO) received at BO/CO/HO Date of placing the proposal Remarks Nil Date of last sanction & 10.05.11/NBG authority/In Principle Consent Customer ID No. Activity code (as per ladder) N.A 7210 manufacturing of Cement: Large Plants) 08.08.2011
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(a)Management Evaluation
i)Promoters and Directors Profile Directors (S/Shri) Name Designation and Address/Mobile Directors/ No./e-mail address of Main Whether Promoter/ Professional/ Nominee
Guarantor Directors/ Key persons A A-9/27, Vasant Vihar, New Delhi-57 PAN:AAOPG1931A B A-9/27, Vasant Vihar, New Delhi-57 PAN:AANPG5143P C
Promoter
Promoter
Director
Director
Director
a) If any of them, in the list of Caution Advices circulated by the Bank from No time to time/RBI's/Wilful defaulters' list/Caution List of ECGC b) If any one of them connected in the past NPA/OTS/Compromise/unscrupulous defaulters c) If any of them, related to Directors/Senior Officers of PNB d) i) Management Change since last sanction, if any with any No No N.A.
e) i) Report on due diligence carried out in terms of L&A Circular No. 170 Yes ( No adverse dated 25.10.2008 and comments on adverse features, if any features) (ii) Due diligence report from CA/CS in terms of LAC 139/2009 Will be obtained (iii) Confirmation that CRs have been compiled/reviewed as per extant before release of guidelines the facility.*
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iv) Confirmation that CRs have been drawn from CIBIL Database and comments on adverse features, if any
Conclusions a) Company management is well qualified and possesses requisite experience for executing the projects of complexity for which funding has been sought. Directors have experience in the field of supply chain and infrastructure development and also in the diverse business functions such as finance, administration and personnel management. b) CIBIL reports of the above mentioned has been obtained and all of them have clean credit history. None of them have been notified as willful defaulter or has been connected in the past with any NPA. c) There is no conflict of interest, as none of the Directors is related to Directors or senior officers of PNB.
f. g.
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The XYZ Group is an Indian conglomerate based in Noida, India. It was founded by Shri A the company is involved in well diversified infrastructure conglomerate with business interests in Engineering & Construction, Power, Cement, Real Estate, Hospitality, Expressways, Sports & Education (not-for-profit). MR. A, Founder Chairman of XYZ Associates Limited after acquiring a Diploma in Civil Engineering in 1950 from the University of Roorkee (now Indian Institute of Technology Roorkee), had a stint with Govt. of U.P. and branched off on his own, to start as a civil contractor in 1958, group is the 3rd largest cement producer in the country. The groups cement facilities are located today all across the country. XYZ Group (the Group) is a diversified business entity with interest in various business segments such as Engineering & Construction, Cement Manufacturing, Power Generation (Thermal, Hydro and Wind), Real Estate & Hospitality, Roads & Expressways, Oil & Gas Exploration, Mining, Hotels, Education and Sports. The flagship company of Xyz Group is Xyz Associates Limited (JAL). The XYZ Group structure is as below (along with % completion of various projects):
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Having established a satisfactory presence in the development of hydro-power projects as an Engineering Procurement and Construction (EPC) contractor and on a Build-Operate-Own (BOO) basis, the company is now entering into other areas related to the energy sector including, amongst others, the development of thermal power projects, oil & gas exploration, coal mining and reconnaissance surveys with a focus on developing into an integrated power player. As part of this strategy, the company, in consortium with Prize Petroleum Company Ltd. (PPCL) [a joint venture company of Hind Petroleum Corporation Limited (HPCL) and certain India Financial Institutions], participated in the New Exploration Licensing Policy (NELP)-VI round of bidding for various potential oil blocks in India. The bid by the consortium for the South Rewa Block has been accepted (with the company holding 90% PPCL holding 10% of the participating interest in the block).
In view of the Governments encouragement of hydro-power projects to meet the current energy supply demand imbalance and to meet projected increases in power demands and to rebalance the thermal power/hydro-power mix, the company expects that there will be increased business opportunities in the hydro-power sector, both on an EPC contract basis and on a BOO basis. The companys success in the hydro-power sector in integrating its strengths in engineering, technology, project management and construction expertise together with its large well-trained workforce and its highly specialized machinery, plant and equipment, provides it with a significant competitive advantage. The Groups principal areas of activities are categorized into the following segments: Engineering and Construction Cement production Power Generation (including Thermal, Wind and Hydro-power); Real Estate & Hospitality Roads and Expressways Oil and Gas Exploration 34
CORPORATE TERM LOAN State Bk of Patiala Bank of India L&T Finance IDBI Bank Karnataka Bk SBI Total (b) 200.00 500.00 100.00 2500.00 150.00 1000.00 4450.00 100.01 84.00 1899.58 150.00 905.15 3138.74
(c)
XYZ HIMACHAL CEMENT PROJECT SBOP BOM OBC KarnatakaBk Syndicate Bk Corporation Bk Central BOI J&K Bank IDBI Bank Ltd Axis Bank:NCD 100.00 75.00 50.00 50.00 80.00 50.00 100.00 25.00 100.00 50.00 56.25 40.00 20.00 70.00 17.50 53.26
(d)
XYZ ROORKEE CEMENT GRINDING UNIT (JRCGU) Uco Bank Total (d) 160.00 160.00 0.00
(e)
U. P. CEMENT PLANTS PNB Central Bk of India BOM SBT Karnataka Bank State Bank of Patiala Corporation Bank OBC 100.00 100.00 75.00 50.00 60.00 80.00 50.00 75.00 79.68 75.00 100.00 69.95 0.12
257.01
Total (e)
590.00
324.75
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15.85 M (f) XYZ SIDHI CEMENT PLANT Yes Bank. KVB PNB OBC Total (f) 50.00 50.00 50.00 100.00 250.00 6235.00 Total (a+b+c+d+e+f) + EURO 15.85 M 29.98 0.00 54.14 84.12 3809.62
XYZ GUJARAT CEMENT PLANT Sl A FIs/Banks SP-I PSB OBC PNB SBM SBI Syndicate Bank Corporation Bk SBOP L&T Infra Fin. Axis Bank Total (a) 75.00 50.00 100.00 80.00 80.00 80.00 100.00 665.00 0.02 0.00 50.00 50.00 0.02 Limit O/s Sl B FIs/Banks SP-II Union Bank of India BOM Central BOI Bank of India J&K Bank Corporation Bank Punjab & Sind Bank Bank of India (ECB) Total (b) 100.00 50.00 100.00 100.00 100.00 50.00 75.00 45.58 620.58 95.00 47.00 95.00 95.00 95.00 46.96 0.00 44.68 518.64 Limit O/s
CPP Wanabori Union BOI Total (c) Total (a+b+c) 63.00 63.00 1348.58 (0.00) (0.00) 518.66 36
XYZ BALAJI CEMENT PROJECT Sl FIs/Banks Corp. Bank SBT Andhra Bank Limit 150.00 80.00 80.00 O/s 150.00 55.91 80.00
SIKANDRABAD XYZ CEMENT GRINDING UNIT Sl FIs/Banks Axis Bank Ltd Total Limit 125.00 125.00 O/s 103.71 103.71
PNB
80.00
66.54
600.00
285.00
IOB
80.00
80.00
SIDBI FCL
201.00
201.00
Allahabad Bank Central BOI SBBJ Dena Bank Axis Bank Total
Total
801.00
486.00
Captive Power Plant- Churk & Sidhi ICICI Bank (Churk) ICICI Bank (Sidhi) Total Other Cement Project Axis Bank: NCDs YES Bank Total 500.00 450.00 950.00 500.00 25.00 525.00 800.00 400.00 1200.00 639.00 332.00 971.00
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Engineering Division Name of Bank/FI Term Loan: Canara Bank Exim Bank of India ICICI Bank ICICI Bank (ECB) IDBI Bank IDFC Karur Vysya Bank LIC SBBJ SBH SBI SBOP UCO Bank Union BOI Sub-total (i) 200 160 375 USD 38 Mio 300 100 30 50 50 300 1250 50 100 65 3030 + $ 38 M 200 32 300 Amount O/S Name of Bank/FI NCDs Axis Bank. (Arranger) ICICI Bank. LIC 1400 1000 1500 900 500 5300 1400 645 1438 675 500 4658 Amount O/S
116 SCB 147 27 13 25 17 229 1026 17 25 19 2193 Grand Total Division Yes Bank Sub-total (ii) Unsecured Loan Yes Bank Ltd. LIC Mutual Fund ECB Sub-total (iii)
Conclusions a) Group has adequate experience in planning and executing the project. b) The company seems to be operating the accounts in a satisfactory fashion. Credit Opinion of the Major Banks shall be obtained before disbursement. c) All the businesses of the group are in the manufacturing sector. Group has considerable experience in this field. d) New project for which funding has been sought is part of the horizontal integration and fits in with the overall business of the group.
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Existing
Proposed
%age of Banks Capital Funds As per Exposure Norms as on 31.03.11 Amount (%age) 0.81% 0.48% 0.84% 2.89% 3706.52 12.00%
Company XAL XPVL XKHCL XIITS XSS BPSCL XIL XPGL XPGCL Total
250.00
To continue
3475.95 3725.95
XKHCL- XYZ Karchan Hydro Corporation Ltd.: BO: Foreshaore Road, Mumbai XIITS- XYZ Institute of Information & Technology Society: BO:The Mall , Shimla XSS- XYZ Seva Samsthan: The Mall , Shimla BPSCL- Bina Power Supply Company Ltd: LCB, Delhi. XIL- XYZ Infratech Ltd.: LCB, Delhi
XPGL-XYZ Power Grid Ltd.:BO: Foreshore Road, Mumbai PPGCL- Prayagraj Power Generation Company Ltd.: LCB, Delhi.
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Coclusion: 1) Exposure to the group and company is within the prescribed norms. 2) Exposure to the Industry is as per the extant guideline
(f)Financial analysis
1.Financial Ratios Key past financials of JAL is presented hereunder: Particulars Mar-07 (Audited) Net Sales Operating Profit Other Income PBDIT Depreciation Interest PAT Cash Accrual Paid up Capital TNW TTL TOL Net Sales Growth (in %) PBDIT Margin (in %) PAT Margin (in %) TOL/TNW TTL/TNW Current Ratio Interest Coverage 3,478 943 98 1,040 163 257 415 585 219 3,054 4,725 7,823 29.91% 11.93% 2.56 1.55 1.31 4.04 Mar-08 (Audited) 3,985 1,097 289 1,386 203 339 610 883 234 4,849 7,280 11,961 14.58% 34.77% 15.30% 2.47 1.5 1.22 4.09 Mar-09* (Audited) 5,764 1,676 388 2,064 309 504 897 1,295 237 7,076 11,795 18,143 44.64% 35.81% 15.56% 2.56 1.67 1.39 4.09 Mar-10* (Audited) 10,089 2,525 1,371 3,896 458 1,056 1,708 2,400 425 9,120 15,024 23,762 75.03% 38.61% 16.93% 2.61 1.65 1.46 3.69 (Rs Crore) 9M FY11 (UnAud) 9,061.16 2,463.39 523.18 2,813.39 457.29 989.47 864.16 1,553.42 425.29 31.05% 9.54% -
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* Financials post merger of group companies namely Gujarat Anjan Cement Ltd, Xyz Cement ltd., Xyz Enterprises Ltd. and Xyz Hotels Ltd. with JAL. Conclusion: a) Consolidated DER for the Group is 2.61. This figure shows that the company is quite dependent on outside sources for funds and its own funds are not sufficient for operations. But, an important issue to be looked at here is that this is an infrastructure firm and a large chunk of its projects are nearing completion (formula 1 race track, expressways, power plants etc) this will increase the profitability of the company and bring down the DER (as payment is done after completion of the project). b) JAL reported 75% growth in Net Sales in FY10 on account of robust performance across business segments; cement sales increased from 6.95 MMTPA in FY09 to 9.15 MMTPA in FY10; Construction division reported 90% increase in topline on account of execution of large orders in construction division (Yamuna Expressway and other projects for group companies). c) The operating profit margin of JAL decreased in FY10 on account of lower margins in construction segment due to increased competition and higher raw material prices. Cement prices also corrected in second half of FY10 thereby decreasing the margins for the cement segment. d) Net profit for FY10 includes onetime extraordinary income of Rs.1316.35 crores on account of sale of shares held in treasury (created on account of merger of group companies). e) The company is in an expansion mode and hence the gearing (TTL/TNW) was high at 1.99 (as on 31.03.10). Gearing is expected to reduce over the next 3 years as the ongoing expansion plans are expected to stabilize and the additional cash flows will be used for repayment of debt. The position may be considered satisfactory. f) 9MFY11 Sales: XAL has reported a 33% increase in Net Sales for 9MFY11 vis--vis corresponding period of the last FY, with higher revenues from construction, real estate and cement divisions (commissioning of new capacities). g) 9MFY11 Profitability: Operating profit, for 9MFY11 vis--vis corresponding period of the last FY, increased marginally by 4% with lower contribution from the Cement and Power divisions owing to increased input costs. Real Estate and Hotel divisions registered higher profits. Employee costs increased by 40% with commissioning of new capacities in cement and power. Interest costs also increased by 31% owing to drawdown of sanctioned loans for expansion projects and hardening of interest rates.
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2.Usage and Sources of Fund: A brief summary of the Project Cost is presented hereunder: a) Cost of Project S. No 1 2 3 4 5 6 Particulars Land and Site Dev. Amount 97.00 S. No 7 8 9 10 Particulars Pre operative expenses (Rs. Crore) Amount 25.16
Building, Civil Works 182.00 and equip.foundation Mechanical & Electric 533.81 Equipment Engi. & Know how Mining Machinery 6.05 41.46
Contingency @ 5% of 54.68 hard cost excl land Margin Money Working Capital IDC @ 12.25% Total Project Cost Say for 22.49 136.31 1404.12 1404
b) Sources of Funds The project is proposed to be funded by way of a mix of debt: equity ratio of 65:35 as under: Particulars Debt Equity Total Amount (Rs Crore) 913 491 1404
The Company has approached Axis Bank Limited to arrange the term debt aggregating Rs 913 crore. Axis Bank has already sanctioned Rs. 100 crore as short term loan to the company for meeting the project expenses. Considering the resourcefulness of promoters, it is expected that they would be able to mobilize Rs 491 crore towards equity infusion for the Project. XALs projection for the next three years is provided below: (Rs. Crore) Particulars SOURCES OF FUNDS PAT Depreciation and other non cash expenses TOTAL SOURCES OF FUNDS USES OF FUNDS 42 1,346 837 2,183 2,771 1,121 3,892 2,732 1,214 3,946 3,512 1,166 4,678 2011 2012 2013 2014
2011 1,487
2012 1,466
2013 1,958
2014 2,503
1,487 1,487
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Additives
Raw Meal
Raw Mill Grinding (Vertical Roller Mill /Ball Mill) Storage Silos (Storage)
Kiln Feed
Clinker
Fuel
Cement
44
b) Sources and Drivers of Revenue Cement demand is expected to register a CAGR of 10 per cent in the next 3-4 years (2010-11 to 2013-14), translating into a GDP multiplier of 1.1 during the period. Growth in the northern and southern regions, although lower than the last 3 years, is expected to outpace the all-India average.
The demand for cement in 2010 was estimated at 200 million tonne. With the expected growth rate of 10-11%, the demand is expected to be around 320 million tonne by 2015. The housing market has witnessed a boom in the last 5 years on the back of increasing affordability, change in the demographic pattern, and nuclearisation of families due to urbanisation and growing penetration of finance. Housing, which accounts for 60-65 per cent of total cement consumption, is likely to grow at a healthy rate due to rising income levels, migration trends and strong growth potential. It is expected the total housing stock, estimated at around 146 million units, to increase by 4-6 per cent (CAGR) from 2008 to 2012, i.e. the addition of around 4.6 million units, annually. Housing Stock in India Particulars 2008 2012 Estimated housing stock (million units) Estimated floor space area (bn sq ft) 146.3 112.9 164.7 135.8
Roads have been the largest beneficiary of the infrastructure boom as its intensity of construction is the highest amongst all sectors taken into consideration. The majority of investments are expected for the National Highway Development Project. Overall in the roads sector an investment to the tune of Rs 2,446 billion over the 5 years from 2007-08 to 2012-13 is being expected. Other sectors such as power, ports, airports, railways and irrigation are expected to witness considerable investments as well, thereby pushing up cement consumption. The commercial construction segment can be divided into four parts - retail, office space, hotels, and other civil structures such as hospitals, multiplexes and schools, all of which are registering strong growth that is translating into healthy cement consumption. IT and ITeS industries are expected to register a CAGR of 17.8 per cent and 22 per cent over the next 5 years, respectively, due to global cues. During the previous corresponding period, the IT and ITeS industries rose at a CAGR of 33 per cent and 34 per cent, respectively.
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The organised retail industry in India expanded at a healthy pace of over 28 per cent in 2007-08 on the back of the influx of large domestic and international conglomerates looking to tap the local opportunity and capture market share. Hence, the total organised retail market size, which was estimated at around Rs 679 billion in 2007-08, is expected to increase to Rs 2,366 billion by 2012. Thus, we see a huge demand for cement from this segment in the coming years. With the Indian economy growing at an average of 8 per cent in last 3 years, demand from all enduser segments has risen substantially. This has resulted in the majority of industries such as steel, cement, paper and petrochemicals operating at high utilisation rates to meet demand. Consequently, all major players have announced capacity expansion plans that are in various stages of implementation. Thus, industrial investments are expected to surge nearly three-fold, from Rs 2,867 billion in 2002-03 to 2006-07 to Rs 7,841 billion between 2007-08 and 2011-12. India has gradually built competency in the global cement industry. Export demand, especially from the Middle East market has emerged as the new stabilizing factor for the Indian cement industry and we see this growing further in the near future. As per Crisil estimates based on real GDP growth method, the cement demand for the next five years is illustrated in the following chart:
350 300 253.7 250 200 150 FY11 FY12 FY13 Years FY14 FY15 230.6 301.4 276.5 328.5
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c) Profitability Projections: Year ending 31st March, 2015 Gross Sales Less: VAT Less: Excise Less: Freight Net Sales Raw Material Cost Power & Fuel Distribution /packing Salaries & Wages Overheads Total Costs EBITDA Other Income Interest on TL Interest on WC Total Interest Depreciation Profit Before Tax Tax Paid PAT 1122 125 129 180 688 87 174 29 38 28 356 332 6 111 7 118 118 102 20 82
2016 1265 141 146 203 776 98 196 33 40 33 400 376 12 99 8 108 118 163 33 131
2017 1336 148 154 214 819 104 207 35 42 36 424 396 18 81 9 89 118 206 41 165
2018 1336 148 154 214 819 104 207 35 44 38 428 392 25 62 9 71 118 228 53 175
2019 1336 148 154 214 819 104 207 35 46 40 432 388 31 44 9 53 118 249 93 155
2020 1336 148 154 214 819 104 207 35 48 42 436 383 37 25 9 34 118 269 104 165
2021 1336 148 154 214 819 104 207 35 51 44 440 379 44 7 9 16 118 290 113 176
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2.Balance Sheet Projections: Year ending 2012 2013 31st March, Share Capital Res & Sur Net Worth Term Debt WC Loan Total Debt Current Liabilities Total Sources Gross Block Dep. Net Block WIP Current Assets Cash & Balance Total Uses Bank 147 147 184 184 331 332 331 293 293 543 543 836 836 836
2015 491 82 573 913 67 980 30 1583 1382 118 1264 120 199 1583
2016 491 213 704 761 76 837 33 1574 1382 235 1147 135 293 1574
2017 491 378 869 608 80 689 35 1593 1382 353 1029 142 422 1593
2018 491 552 1044 456 80 537 36 1616 1382 470 912 143 562 1616
2019 491 708 1199 304 80 384 36 1619 1382 588 794 143 683 1619
2020 491 873 1364 152 80 232 36 1633 1382 706 677 143 813 1633
2021 491 1049 1541 80 80 37 1657 1382 823 559 143 955 1657
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3.Cash Flow Projections: Cash Flow 2012 2013 Statement A. Cash Flow From Operating activities PBT Adjusted for: Interest Depreciation Operating Cash Flow before WC Changes (Inc)/Dec in Current Assets Inc/(Dec) in Current Liabilities Cash Operations Less: Interest Less: Taxation Net Cash Flow From Operating Activities from -
2014
2015
2016
2017
2018
2019
2020
2021
102
163
206
228
249
269
290
89 118 413
71 118 416
53 118 419
34 118 421
16 118 423
B. Cash Flow From Investing Activities Purchase of Fixed Assets Net Cash Flow From Investing Activities 331 (331) 505 (505) 546 (546) -
C. Cash Flow From Financing Activities Inc/ (Dec) Proceeds from equity infusion Inc/(Dec) in Borrowings Inc/(Dec) loans WC Term 147 184 145 359 199 369 67 9 (152) 4 (152) (0) (152) (0) (152) (0) (152) (0) (152)
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Cash Statement
Flow
2012 331 -
2013 505 -
2014 568 22 22
Net Cash Flow From Financing Activities Opening Cash Net Flow Closing cash
(j)Calculation of DSCR:
Year ending 31st March, 2015 2016 2017 2018 2019 2020 2021
82 117 111
Cash Flow available to serve the 310 debt Principal Repayment Interest Total Debt Service DSCR 0 111 111 2.82:1
1.61:1 1.73:1
Conclusion 1) DSCR is well above the minimum stipulated DSCR values. This signifies that project will be able to generate enough funds for repayment of interest and principal as per the repayment schedule The summary of Financial Projections is as under : Financial Indicator Minimum DSCR Average DSCR Project IRR (Post tax) Estimated Value 1.38 1.71 16.68%
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Observations: a) Company will commence operations in the FY 2014-15 with an effective capacity utilization of 80%. b) The projection indicates net profit of Rs.82 Crores in the first year of operations. c) The estimated revenue generation is considered quite good & achievable in view of the potential available as well as the fact that rate for various facilities are considered very competitive. Further, the group has previously been operating in the same industry so their assumption of high plant utilization in the initial years is not unfounded.
(K)Sensitivity Analysis
The project profitability is most sensitive (i) Capacity Utilization, (ii) Direct Operating Expenditure and (iii) Selling Price. Accordingly, the sensitivity analysis has been carried out for the above stated parameters. Since the project is planned to be completed in time bound schedule and cost of most of the project elements are almost firmed up, necessary provision of escalation contingencies are also made, there are negligible chances of increase in capital cost of the project. The various results after different changes in parameters are as shown below: Sensitivity Analysis Base Case Sales Realization decrease by 5% Increase in Variable Cost by 5% Decrease in Capacity Utilization by 5% Increase in Rate of Interest by 1% p.a. Project IRR 16.68% 13.85% 15.57% 15.59% 16.65% Min DSCR 1.38 1.21 1.31 1.31 1.33 Avg DSCR 1.71 1.51 1.63 1.63 1.66
As can be seen, the Companys ability to service debt continues to be satisfactory even in adverse scenarios.
(L)Security
1.Primary Primary security is the asset created out of the credit facility extended to the borrower and / or which are directly associated with the business / project of the borrower for which the credit facility has been extended. In the present case the term debt facility, together with interest, liquidated damages, penal interest, additional interest, costs, charges, expenses and other monies whatsoever payable to the Lenders and their Trustees will be secured by: 1. A first mortgage and charge in favour of the Lenders, in a form satisfactory to the Lenders, of all of the Projects immovable properties, present and future; 2. A first ranking pari-passu fixed charge by way of hypothecation on the present and future movable fixed assets of the Project; 52
3. A second ranking pari-passu charge by way of hypothecation on the present and future current assets of the Project; 4. Assignment or creation of charge in favour of the Lenders of (i) all the rights, title, interest, benefits, claims and demands whatsoever of the company in the Project Documents; (ii) all the rights, title, interest, benefits, claims and demands whatsoever of the company in the clearances; (iii) all the rights, title, interest, benefits, claims and demands whatsoever of the Company in any letter of credit, guarantee, performance bond provided by any party to the Project Documents and (iv) all Insurance Contracts/Insurance Proceeds related to the project; The aforesaid mortgage will rank pari-passu amongst the participating consortium banks / financial institutions and will be created within 180 days of first disbursement (as detailed in para 14.C.1). AGM(Br) has proposed that in the event of non-creation of security within the said period, additional interest at the rate of 1% p.a. on the disbursed amount will be charged, from the date of expiry of security creation period till the creation of security. 2.Collateral: Name Guarantor of Relationship with borrower Net Worth Immovable Property Date of CR
Prev.
Present
Prev. as at .
Present as at 31.03.10 --
Prev.
Present
N.A.
N.A.
08.07.11
*Total project cost (Rs.1404.12 crore) WC Margin money (Rs.22.49 crore) @1.27 on taking only hard cost as security value.
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(n)Technical Evaluation
Costing Analysis
1.Land and Site Development: The land and site development cost, estimated above include the cost of acquiring land for the two mining blocks i.e. Masarwada and Shahabad Taranhalli. Apart from this cost of acquisition, this cost also includes expenditure for site leveling and development, cost of laying/repairing roads within the plant site and the township, boundary walls, watch tower and township etc. 2.Building, Civil Works & Equipment Foundations: The estimates for civil works & structures include facilities for plant, equipments as well as other infrastructure facilities. Total cost for the same has been estimated at Rs. 182 crore. 3.Plant & Machinery: The estimated cost for plant & machinery include mechanical and electric equipment & engineering, know how, the basic cost for equipment, the cost of spares, taxes, duties and transportation cost to the sitThe freight and insurance cost up to the site has also been included in the estimate. The estimate also includes foundation and erection charges for plant and machinery. 4.Mining Machinery: The cost under this head includes expenses towards mining equipment, electrics and civil & structures for mine development. The cost for duties & taxes, freight and insurance is also included in the plant & machinery cost. 5.Miscellaneous Fixed Assets incl. Power Plant Cost: Miscellaneous Fixed Assets include costs towards power plant, compressed air station, water supply facilities, fire fighting facilities, transportation facilities, furniture, office machinery and equipment and computers, inter-plant pipeline facilities, power distribution, shop electrics and illumination, fuel storage, dam and water pipeline, heavy and mobile equipments, central maintenance and workshop etc. Infrastructure facilities like external power link, external water link and external road link have been included under this. The estimate also includes costs towards duties and taxes, erection, spares and transportation to factory site for the items covered under this head. Total MFA has estimated at Rs. 305.16 crore. 6.Pre-Operative Expenses (incl. Financing Charges): Pre-Operative Expenses include provision towards establishment charges along with travelling expenses, start-up expenses, administrative expenses, and other miscellaneous expenses likely to be incurred during the implementation of the project. The head also includes financing and capital-raising expenses.
7. Interest during Construction: The project is being financed in the debt: equity ratio of 65:35. The
Interest during Construction has been estimated at Rs. 136.31 Crores. The IDC has been estimated at the interest rate of 12.25% p.a. on a Rupee Term Loan of Rs. 913 crores. Construction period of 36 months has been assumed for the project. 8.Margin Money: The working capital requirement, assessed for the first year of operation and the resultant margin money for working capital has been estimated at Rs 22.49 crores as under:
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Margin Money Components Raw Materials Work in Progress Finished Goods Receivables Consumables Store & Spares Less: Creditors Total working capital requirement Margin Money (25% of above)
Holding period 30 days 15 days 15 days 30 days 30 days 30 days 30 days 89.95 crore 22.49
9.Contingency: Considering that certain components of the project cost have not yet been firmed up and lot of components, which are imported whose cost, may vary due to the fluctuation in exchange rates, a provision for funding contingency has been made. Contingency provision has been estimated at Rs. 54.68 Crores, which is 5% of civil and plant and machinery.
(o)Statutory Approvals
The Company has secured all the necessary statutory approvals like diversion of land uses, permission for domestic warehousing, layout plan for the proposed project from the relevant authorities.The status of all necessary approvals/clearances required for the project is as under: S. No. Approval Status
CEMENT PLANT & CAPTIVE POWER PLANT 1 Land Possession 519 hectares already in possession and registered in the name of the company which includes approx 328 Ha of mining land and 191 Ha land for plant/infrastructure. The land is sufficient for the proposed plant. The company is proposing to source from Raichur Thermal Power Plant. The company has initiated process for long-term contract. The company has initiated process for coal linkage from Singereni Collieries Company Limited (SCCL) for long-term coal linkage. 55
Coal Linkage
S. No. 4
Approval
Status
The company has prepared the power application along with plant layout. A 25 X 30 m plot is proposed for 33 KV/ 11 KV and 11 KV / 440 V substation opp. main receiving substation (in the plantation portion). The company is in the process for applying the same. The company has already received permission to draw water from Kagina river. Company has received permission from Railway authorities to reopen the existing railway siding facility. The railways had earlier suspended the approval as the company went into DRT and failed to clear the dues. The new owners cleared the railway dues and the company received permission from authorities for the same. Already in Possession. To be applied To be applied
Water Arrangement
Railway Line
7 8 9
10
Environment Clearance
The Company has received TOR from MOEF and the draft EIA report is under preparation. The company does not envisage a problem in the same as there was a plant running earlier on the same site and there is no further acquisition of land etc for the same. M/s Vimta labs has been appointed by the company for the same for preparation of EIA report.
11
Rehabilitation Plan
Not Applicable (no habitation on the proposed Block-2 and Block-3 mines).
Other Compliances 12 13 Registration with Sales Tax Authorities Registration Central Department with Excise Already in possession Already in possession
14
Already in possession
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S. No.
Approval
Status
LIME STONE MINING ACTIVITY: 1 Allotment of Mine 1. Bankur concession (Block-1): Already allotted. 2. Masarwada concession (Block-2): Already allotted. 3. Shahabad Taranhalli block (Block-3): Already allotted. 1. Bankur concession (Block-1): Already approved. 2. Masarwada concession (Block-2): Yet to start. 3. Shahabad Taranhalli block (Block-3): Under preparation by the consultant M/s Mineral Engineering Services. 1. Bankur concession (Block-1): Not Applicable. 2. Masarwada concession (Block-2): Not Applicable. 3. Shahabad Taranhalli block (M3 Block): Not Applicable. 1. Bankur concession (Block-1): Already Signed. 2. Masarwada concession (Block-2): Consent to sign mining lease obtained. Will be signed after approval of mining plan. 3. Shahabad Taranhalli block (Block-3): Consent to sign mining lease obtained. Will be signed after approval of mining plan. 1. Bankur concession (Block-1): Acquired 2. Masarwada concession (Block-2) and Shahabad Taranhalli block (Block-3): Commenced and company has already acquired approx. 667 Ha land for Block-2 and Block-3 mines. 1. Bankur concession (Block-1): Public hearing has been conducted. Final EIA report and final presentation has been made to MOEF. Clearance expected shortly. 2. Masarwada concession (Block-2): It will be applied after approval of mining plan. 3. Shahabad Taranhalli block (Block-3): It will be applied after approval of mining plan.
Mining Plan
Mining Lease
Land acquisition
Environment
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Financial Status: The company has incurred expenditure of Rs.60.36 crore on the project till 31.05.11 as under: (Rs.in crore) Particulars Advance for land Amount 35.82
Advance payment to equipment supplier i.e. Loesche GmbH & Loesche 19.35 India Pvt Ltd Consultancy fee Financial charges & office equipments Total 1.15 4.04 60.36
The above expenditure has been funded out of the share application money of Rs.10.36 crore brought by the promoters and STL to the extent of Rs.50 crore availed from Axis Bank which will be converted into the Term Loan by Axis bank.
Already acquired Already acquired for plant for plant* April 2011 Nov 2011 Nov 2011 Feb 2012 March 2012 August 2012 October 2012 Dec 2012 March 2013 Oct.2013 July 2013 Jan 2014 Feb 2014 Feb 2014 March 2014
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Procurement and Execution Strategy XCCL proposes to use the semi-turnkey mode of procurement for project execution. XCCLs directors would directly oversee the execution of the Project with the assistance of an internal Project Implementation Team or with the help of an external Project Management Agency. However, it is envisaged that the Company would en-cash on the vast experience of XYZ Group in complex project execution and set up an internal Project Management Team. XCCL proposes to enter into an Engineering & Construction (E&C) contract with XAL for execution of the Project. XCCL is in the process of placing orders for Plant & Machinery with leading international and domestic suppliers. The Engineering and Construction Division of XAL would be responsible for erection and commissioning of the Project. The demonstrated capability of XAL in the sphere of Engineering and Construction augurs well for the Project. Further, appointment of Lenders Independent Engineer (LIE) has been stipulated as a pre-disbursement condition, who shall oversee the implementation of the Project. Location Analysis The Project is proposed to be located at village Shahabad in Gulbarga district in Karnataka. The area is well accessible by road and rail network. The nearest state highway (SH 29) is about 17 km east of the plant site connected by Shahabad Jevargi district road. The nearest railway station is at Shahabad on Mumbai Chennai broad gauge line situated adjacent to the plant. The road distance from important cities is (Hyderabad: 240 Km, Mumbai 570 km, Pune - 390 km). The location of the plant is as shown in the map below:
Proposed Product Mix The Company has proposed an installed capacity of 7,000 MT of clinker per day and a product mix comprising 35% OPC, 65% PPC. Total cement producing capacity of the plant with the above product mix works out to 9,192 TPD i.e. 3.00 MMTPA. The details of major plant and machinery proposed to be installed by XCCL are presented hereunder: 59
Major plant and machinery proposed to be installed by XCCL Details Capacity CEMENT PLANT Limestone crusher Stacker (Circular) Reclaimer (Circular) Limestone Conveyor Stacker (Linear) Reclaimer (Linear) Raw mill Coal crusher Coal mill Rotary kiln PH & PC Clinker cooler Gypsum crusher Cement mill Packing plant POWER PLANT Boiler Turbine Generator Air Cooled Condenser MINING EQUIPMENTS Primary Drilling Machine 4 Nos. Hydraulic Excavator - 6 Nos. Transport Vehicle - 12 Nos. Payloader - 4 Nos. 100 110 mm diameter hole 5.5 m3 bucket capacity 50 tonnes 4.5 m3 bucket capacity 170 TPH (Coal) 515C 144 TPH, 510 C 35 MW, 11.0 KV 0.8 pf 111.30 TPH, 0.22 at a pressure 1750 tph 1750 tph 1500 tph 1500 tph 1500 tph 1 x 600 tph 475 tph 1200 tph 55 tph 7000 tph 7000 tph 7000 tph 25 tph 2 x 300 tph 4 x 240 tph
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Storage Capacity Storage Capacity to be constructed at the site Particulars Limestone Preblending stockpile (in mines) Limestone Preblending stockpile (in plant) Raw meal silo Clinker silo Coal stock pile Gypsum Fly ash Cement silo Limestone Preblending stockpile (in mines) Capacity 1 x 75,000 t 2 x 50,000 t 24,000 t 2 x 50,000 t 2 x 12000 t 1 x 5000 t 1 x 5,000 t 1 x 20,000 t 1 x 75,000 t
The basic raw materials for production of cement are limestone, gypsum and silica. The production of cement entails mixing limestone with small quantities of silica and iron-ore, grinding the mixture, calcinations of the mixture in a kiln, and then further grinding of the calcined mixture (clinker), with appropriate quantities of gypsum for OPC and fly ash in the case of PPC. The raw materials requirements of the proposed plant will be met from different sources as under: Raw Material and their sources Est. Qty. Req. (at Source Distance Landed 95% Material Remarks capacity) per Location from site cost (Rs/MT) annum?) Limestone Captive Concession Bankur, Masarwada and Taranhalli Mines Hospet Bellary / 5 6 km 100 3,920,000 MT Sufficient for requirement 100%
Iron Ore
300 km
1050
34,234 MT
Easy availability in the proposed area of sourcing. To ensure steady supply of uniform quality of iron ore, a long-term contract is proposed to be entered into. Extensive bauxite deposits are available in Belgaum 61
Bauxite
Belgaum
300 km
1150
34,234 MT
Material
Source Location
Remarks
district. Chemical Gypsum From Chemical Factories 400 800 km 1500 1,25,359 MT Gypsum is proposed to be procured from Coromondel Fertilizers Ltd, Visakhapattanam, Sterlite Industries Tuticorin and Rashtriya Chemicals & Fertilizers Ltd, Mumbai. Fly ash is proposed to be procured from Raichur thermal power plant. Coal is proposed to be transported via railway to the plant site.
Fly Ash
200 km
500
561,953 MT
Fuel Coal
525 km
3900
329,175 MT
(r)Economic Analysis
Market Analysis Target Market: The markets of interest for XCCL are: North East Karanataka includes districts of Gulbarga, Raichur and Bidar. North West Karnataka includes districts of Belgaum, Bijapur, Bagalkot, Koppal, Gadag and Dharwad. Central Karnataka includes districts of Bellary, Karwar, Haveri, Udupi, chikmanglur, Chitradurga, Devangere and Shimoga. North West Andhra Pradesh includes districts of Nizamabad, Medak and Mahbubnagar. Marathawada includes districts of Bid, Hingoli, Jalna, Latur, Nanded, Prabhani, Aurangabad, Buldana and Osmanabad. Khandesh includes districts of Dhule, Jalgaon, Nandurbar and Nashik. South Maharashtra includes districts of Kolhapur, Ratnagiri, Sangli, Satara, Sindhudurg and Solapur. Vodharbha includes districts of Akola, Washim, Amravati, Bhandara, Chandrapur, Gadchiroli, Gondiya, Nagpur, Wardha and Yavatmal. West Maharashtra includes districts of Mumbai, Raigarh, Thane, Ahmadnagar and Pune. Goa. These markets have been identified keeping in mind the economic transportation distance and the location of other supplying clusters.
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Current Scenario The demand for different markets is given below Consumption in Target markets Particulars North East Karnataka North West Karnataka Central Karnataka North West Andhra Pradesh Marathwada Khandesh South Maharashtra Vidarbha West Maharashtra Goa Total Figures for FY 10 Consumption Share of Target (MMT) Market 1.05 3 1.80 1.83 2.09 2.85 2.01 2.84 3.36 12.95 0.54 31.32 6 6 7 9 6 9 11 41 2 100
West Maharashtra is the biggest cement market in this target market with an annual consumption of around 12.95 million tonnes in FY 10, which is around 41 % of the consumption of the total the target market. Cement prices in the target market vary between Rs. 135 per bag in North West Andhra Pradesh to Rs. 250 per bag in West Maharashtra. Prices especially in the North West Andhra Pradesh have been very volatile and have been fluctuating sharply since the third quarter of the FY 10. This fluctuation is primarily due to the commissioning of new capacities in Andhra Pradesh thereby increasing the supply pressure in the region. Freight is the key component in cement distribution and pricing. Primary freight (freight from cement plant to cement depot/ warehouse in the desired market) for players has been worked out based on rail/road distances from each cement plant to each district in the target region. In the case of grinding units, clinker freight from the supplying clinkerization units to the grinding units has also been considered. Freight from railway siding to the depot or dealer warehouse has also been added to compute primary freight. Primary freight varies from Rs 15 - 40 per bag, for most players.
Players operating in the target market use both Road as well as Rail as the mode of transportation for cement. Transportation by road is generally preferred for short distances up to 300 Km from the plant, whereas, for distances beyond this range rail is the preferred mode of transportation. However, with the shortage in the availability of racks from railways, almost every cement company was forced to use road as the mostly utilized mode of transportation for distance over 300 Km as well to a point till which they could economize their total logistic cost.
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Future Outlook Quantitative forecasting of cement demand considering the independent variables below: Time National State Domestic Product (NSDP)
The future growth rates as predicted by the model for different target markets in the region are given below Growth rates in Target Market Particulars Consumption (million tonnes) Karnataka 10.0 % pa for next till FY 15, thereafter 8.0 % pa for next 5 years North West A P Maharashtra Goa 12 % pa for next till FY 15, thereafter 10 % pa for next 5 years 8.5 % pa for next till FY 15, thereafter 6.5 % pa for next 5 years 7.0 % pa for next till FY 15, thereafter 5.0 % pa for next 5 years
From a level of around 34.11 million tonnes, in FY 11, the cement demand in the target region is likely to reach around 66.18 million tonnes, in FY 20.
Target Market in volume terms Year FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 North West North East North West Central Maharashtr Andhra Goa Karnataka Karnataka Karnataka a Pradesh 1.15 1.27 1.39 1.53 1.69 1.82 1.97 2.13 2.30 2.43 1.98 2.18 2.39 2.63 2.90 3.13 3.38 3.65 3.94 4.18 2.02 2.22 2.44 2.69 2.96 3.19 3.45 3.73 4.02 4.27 2.34 2.63 2.94 3.29 3.69 4.06 4.46 4.91 5.40 5.83 26.05 28.26 30.67 33.27 36.10 38.45 40.95 43.61 46.44 48.53 0.57 0.61 0.66 0.70 0.75 0.79 0.83 0.87 0.91 0.94 Total 34.11 37.17 40.49 44.11 48.09 51.44 55.04 58.90 63.01 66.18
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Achievable Volumes Competitive Advantage Index (CA Index) for JCCL and all its probable competitors has been used to determine the volume share to be achieved in the target markets where CA index may be defined as: CA Index = Ex Factory Realization for a player in a market/ Average Ex Factory Realization for all players in a market. Based on the above calculations Achievable volumes and market share for JCCL based on the CA Indices for FY 15 is given below:
Acheivable Volumes in FY15 Particulars North East Karnataka North West Karnataka Central Karnataka North West Andhra Pradesh Marathwada Khandesh South Maharashtra Vidarbha West Maharashtra Goa Total Market Size 1.69 2.90 2.96 23.69 4.28 3.02 4.27 5.06 19.47 0.75 48.09 Achievable Volume 0.12 0.26 0.23 0.17 0.24 0.21 0.27 0.28 0.94 0.04 2.76 Market Share 7% 9% 8% 5% 6% 7% 6% 5% 5% 5% 6%
(s)Industry Analysis
India has one of the lowest per capita consumption of cement. The per capita consumption is around 159 Kg compared to the world average of 320 kg. Presently, the industry operates out of 12 clusters across India. Industry competition is also regionalized since cement is a low-value high volume commodity making transportation over long distances uncompetitive. At present, 94% of the total capacity in the industry is based on modern, environment-friendly and energy-efficient dry process technology, with only 6% of the capacity based on old wet and semidry process technologies. India is the second largest producer of cement in the world after China, having a cement capacity of 246 MMT for the year ended 31st March 2010 as compared to 206 MMT for the year ended 31st March 2009 (Source: CMA). Cement production commenced in India in 1914 and has increased significantly since 1980. During the period from 1989 to 1990, to the period 2009
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to 2010, installed capacity (excluding the estimated capacity of mini cement plants) increased from approximately 55.87 MMTPA to approximately 235 MMTPA. The cement industry in India is fragmented and consists of large manufacturing plants and mini cement plants. Mini cement plants are those with capacities of up to 300,000 MTPA. There are approximately 134 large plants with a combined installed capacity of 235 MMTPA, which are operated by some 44 cement producers. The total capacity of mini cement plans is estimated at approximately 11.10 MMTPA. Cement prices and margins vary across regions, due to the variation in demand-supply balance, level of concentration and demand growth. Over the last five years, prices in the North have remained lower than the rest of the country because of the highly fragmented nature of the market. The prices in all the regions have been quite firm and have been stable in the year ended 31st March 2010. Supply Outlook In 2009-10, the aggregate cement capacity in India was 246 MMT. The industry operated at a utilization level of 82 % producing 200 MMT for FY 2009-10. Further, the cement plants can be classified as either large units or mini or white cement units. Their capacities and production for FY2009-10 is as under: Capacity and Production for Large Cement Plants Particulars Capacity % Production % Large cement units Mini cement and white cement units Total 235.9 11.1 246 94% 194.0 6% 6.0 97% 3% 100%
100% 200
Note: Mini cement units refer to those with a capacity of under 0.3 MMTPA Source: All India Mini Cements Association of India and CMA The Indian Cement industry is characterized by regional concentrations. Southern region have a cement surplus, while regions in eastern and northern India have a deficit. This is because cement is a bulky commodity with high transportation costs which results in most of the cement plants being setup near the limestone mines of Andhra Pradesh, Karnataka, Gujarat, Rajasthan, Madhya Pradesh and Maharashtra. The Southern region had the highest installed capacity, estimated at around 88 MMTPA with Andhra Pradesh alone accounting for 55 MMTPA.
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The region-wise production and consumption pattern is presented in the table below: Region-wise production and consumption pattern For the FY ended 2004 2005 2006 2007 2008 2009 Capacity North South East West and Central Production North South East West and Central Capacity utilization (%) Demand North South East West and Central Exports Surplus (Deficit) North South East West and Central Source: CMA -7.6 4.6 -0.8 7.4 -7.5 6 -1.6 7.3 -0.1 -0.8 0.2 5.5 -8.6 5.9 -2.2 11.5 -8.3 4.9 -2.6 10.3 6.1 5.9 -2.2 -6.2 146.4 32.4 46.3 23 44.8 117.4 28.7 36.1 16.7 36 80.2 122 36.3 31.5 17.5 28.6 8.1 153.6 35.1 46.9 23.4 47 127.6 30.9 36.8 18.7 38.9 83.1 131 38.4 30.8 20.3 31.6 9.9 158.1 37 49.8 24 47.3 140.5 34.5 43.6 20 42.3 88.9 144.8 34.6 44.4 19.8 36.8 9.2 167.1 40.6 53.2 25.2 48.1 155.7 37.2 49.9 21.8 46.7 93.1 154.9 45.8 44 24 35.2 5.9 175.7 43.6 55.8 26.5 49.8 168.3 41.5 53.6 22.7 50.5 95.8 167.7 49.8 48.7 25.3 40.2 3.7 206.6 48.5 67.1 30.3 60.7 181.4 41.2 59.7 26.0 54.5 88 177.7 35.1 53.8 28.2 60.7 -
(In MMT) 2010 235.9 50.6 88.1 33.4 63.8 200.6 46.5 66.4 28.4 59.3 85 198 39.0 59.0 33.0 67.0 -
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The future effective cement capacity based upon effective plant utilization works out to be as follows: Year FY 11 FY 12 FY 13 FY 14 FY 15 Effective Capacity in mtpa 281.9 319.4 346.6 359.5 367.8
(t)Risk Analysis
The company has been rated as BB (53.12%) signifying Average Risk under New Project Rating Model by RMD, HO. Risk factors and Mitigants as proposed by the company: Risk Factors Risk Mitigants
Project Execution Land Acquisition: XCCL is already in possession of approx. 519 Ha of land, Risk including 328 Ha of limestone mines and 191 Ha of plant and other area. The presently available area is sufficient for implementation of the proposed plant and operations from limestone from the Bankur mine. The land acquisition for Block-2 and Block-3 mines has also commenced and the company has already acquired approx. 667 Ha land for the said mines. Construction Contract: XAL, having substantial experience in setting up of cement plants, is expected to carry out all civil works for the plant. No major risk is envisaged in the same. Cost Escalation: Project cost estimates are based on the extensive experience of the Group in cement and DPR by HOLTEC. The XYZ Group has significant experience in implementation of large cement projects. Orders of around Rs.300 crores for plant & machinery have already been placed. Further the sponsors shall provide an undertaking to fund any cost overrun from their own resources. Sponsor Risk The XYZ Group has existing cement capacities of approx 21 MMTPA, which is slated to increase to around 36 MMTPA by FY12. The Group has an established track record of over 30 years in cement, civil engineering construction and hospitality businesses and execution of similar projects across India. The sponsor company, XAL is estimated to have sufficient cash flows to fund the said project. Considering the net worth of XAL and the resourceful promoters, it is expected that the company would be able to mobilize the required Promoters 68
Funding Risk
Risk Factors
Risk Mitigants Contribution of Rs.491 crores. As shown in the financial projections for XAL, the company had enough cash balance for the next three years to infuse the required equity.
Clearances Approvals
& As the old unit was already operational in FY09, most of the approvals like water, railway siding etc. are already in place. XCCL has already received TOR from MOEF and the draft EIA report is under preparation for the plant. The company does not envisage any major problem in the same as there was 70year old plant running on the same site and there is no further acquisition of land etc. for the same. Public hearing for first mine has been conducted and EIA report/Final presentation to MOEF has been made. Final environmental clearance is expected shortly. XCCL has also submitted the mining plan for other 2 mines to the concerned authority and has commenced acquisition of land for the same.
Industry Risk: Bunching of capacity additions is expected to impact capacity utilizations and Cyclicality in the operating margins upto FY11. However, demand for cement is estimated to Cement Industry grow at a CAGR of 10-11% over the next 5 years, primarily driven by demand from infrastructure sectors with governments increased focus on infrastructure and housing. In the medium to long term, demand is expected to be sufficient to absorb the impact of capacity additions. Geographical Concentration Risk & associated Revenue Risk The majority market for the unit shall be Maharashtra where approx. 70% of output would be sold. The demand for cement in West & South has demonstrated some firmness even in the current temporary oversupply situation and is expected to be sufficient to sustain firm prices beyond FY12. Sensitivity analysis for a 5% drop from conservatively estimated gross selling prices (Rs.230-35 per bag) gives a comfortable Avg. and Min. DSCR of 1.51 and 1.21, respectively. With Xyz Groups established presence in the North and Central India and upcoming capacities in the South & West, the Group would have a national presence.
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(W)Pricing
Proposed ROI Applicable rate BR (10%)+TP (0.50%) + Spread BR(10%)+TP(0.50%)+ (1.75%)= 13%* Spread 5.75%)=16.25% 0.25% 1.25% 10 paisa per Rs.100/- (subject to maximum of Rs.10 lac) p.a. & 5 paisa per Rs.100/- (subject to maximum of Rs.5 lac) p.a. Rs.200/- per Rs.1 lac (subject to maximum of Rs.25000/-)
Upfront Fee
*The spread will be calculated as the difference between the Rate of Interest (i.e. 12.25%) and the Base Rate on the date of documentation. The first spread will be reset on COD and every two years thereafter. Concluion Rate of interest has been proposed at 13 % at present linked to BR, i.e. BR + 1.75% + 0.5 % term premium. ROI will be fixed at 12.25% till the COD, thereafter the same will be reset and every two year onwards. ROI & upfront fee are in line with in-principle approval accorded by NBG in its meeting held on 10.05.11. Further, this being a consortium account, the ROI and upfront fee will be common for all the lenders.
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The matter for charging of annual review charges of Rs.5 lac as per our bank guidelines was taken up with the company/Axis Bank by AGM(Br). They have informed that the Company is agreeable to pay 0.25% plus applicable service tax as up-front fee, on the execution of Common Loan Agreement. Further, the Project Debt is being funded by way of consortium financing, and as such the facility will be subject to identical terms and conditions in order to maintain uniformity amongst the consortium members. Therefore, in view of the fact that the review charges have not been indicated by any other consortium member or by Axis Bank ( which has underwritten the entire debt facility) & the sizable upfront fee offered, the Company/ Axis Bank has requested for waiver of the annual review fee. AGM(Br) has accordingly recommended. In respect of documentation charges, AGM(Br) has recommended that instead of charging our card rates, the company shall bear the actual expenses for documentation etc. We are proposing that AGM(Br) to recover all charges as well as actual expenses as per bank guidelines.
Weaknesses:
1. Industry Risk: Cyclicality in the Cement Industry
Mitigation: Bunching of capacity additions was expected to impact capacity utilizations and operating margins upto FY11. However, demand for cement is estimated to grow at CAGR of 10-11% over the next 5 years, primarily driven by demand from infrastructure sectors with governments increased focus on infrastructure and housing. In the medium to long term, demand is expected to be sufficient to absorb the impact of capacity additions. Moreover, the established credentials of 71
XYZ Group in setting up several large capacity cement plants in given time and cost and running them on profitable lines will come handy in the company overcoming the cyclical nature of the cement.
Mitigation: 70% of output of the unit will be sold in Maharashtra. The demand for cement in West & South India has demonstrated firmness even in the current temporary over-supply situation and is expected to be sufficient to sustain firm prices beyond FY12. Sensitivity analysis for a 5% drop from conservatively estimated gross selling prices (Rs.230-35 per bag) gives a comfortable Average and Minimum DSCR of 1.51 and 1.21, respectively.
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o o o o o o o o o
Financial position of the promoter company is not satisfactory. Cost of the project is unduly high. Promoters contribution is unusually low and promoters decline to increase it Debt equity ratio abnormally low. Industry to which a particular unit belongs has low priority or is included in the negative list in govt. guidelines. Location of the proposed unit has apparent disadvantages ex. far removed from sources of raw materials. Second hand equipment to be acquired is too old and will not have trouble free residual life. Process know how has become obsolete. There is no certainty that utilities like power, water will be available by the time the project needs them.
For the Project: The analysis of the project reveals that it is technically feasible and economically viable. The location of the project near sources of raw materials and excellent road/rail connection imparts advantage to the project. The locational advantage and the integrated nature of the project would help XCCL to maintain cost and quality advantage. The cement industry, driven by strong investment in infrastructure and robust demand for housing in Indian economy, is expected to do well in short to medium term. The Company has sound marketing strategy for capturing market share and sustaining it. The proposed Project team and Marketing team of Company will draw upon the rich experience of the parent Group in the cement sector. The demonstrated capability of XAL in the engineering and construction space augurs well for the project. The Project is expected to make positive net cash accruals from its very first year of operation. In the very first year of operation (FY 2015), the Project is expected to make a net profit of Rs. 82 crore on net sales of Rs. 702 crore. The Project shows a minimum DSCR of 1.38 and average DSCR of 1.71 over the loan tenor. The Project structure ensures comprehensive risk mitigation measures, adequate debt servicing capabilities and reasonably good returns to the stakeholders. The project is financially & commercially viable. The project has sound financials and the project IRR works out to 16.68%. Considering all this the overall debt servicing capability of the project is considered satisfactory and adequate. 4.2 Recommendations More stress should be placed on collateral valuations. Since term loans are advanced for diverse category of businesses, sector expert should be roped in for collateral valuations. Collaterals should be estimated gross amount, expressed in terms of money, that could be typically realized from a liquidation sale, given a reasonable period of time to find a purchaser (or purchasers), with the seller being compelled to sell on an as-is, where-is basis, as of a specific date. If any of the critical ratios is marginally unfavorable then additional collaterals could be charged or pricing of the loan could be revised upward to compensate for the additional risk. Due to increased activism and regulatory crises like that with spectrum allocation, mining leases, land acquisitions issues, environmental considerations etc. viability of otherwise sound projects is threatened. Social, political and economical risks should also be taken into consideration while deciding project viability. Evaluation of these risks should be made
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mandatory in TEV report. In addition, while assessing the risk rating for a particular project, these factors must be taken into account. Intercompany transactions should be taken into account while analyzing financial statements. This is particularly important for the companies belonging to a closely held group because intercompany transaction may be used to make financials of the borrowing group companies look good. More stress should be placed on the analysis of cash flows. Income is calculated based on accounting principles while debt has to be serviced through the cash flows. With short term perspective, a profitable firm may not be good for lending purpose if it does not generate enough cash to service the debt. Cash flows factor in the past trends and also take into account the company specific factors As described above a profitable firm is not necessarily also good for lending purpose in short term. Firm may be generating good accounting profits but there could be serious liquidity problems. To identify these issues, NWC to Sales ratio could be calculated while appraising working capital financing proposals. Ideally this ratio should be around 8% - 12%. If NWC to Sales ratio is less then it means that business is growing too fast without building an adequate backup in the form of NWC also there are chances of serious liquidity problems and company is relying more on short term funds. Financial and operational performance of the company applying for loan should be compared with its industry peers. Relative performance comparisons will not only highlight the management capability but also help in identifying any abnormalities in the information submitted by the company. Forward looking statements with respect to sales, profitability etc. provided in the DPR and other reports submitted by the company should be treated with caution. Market analysis, demand analysis, sales projections etc. should be evaluated on with prevailing norms. Earlier performance and trend analysis could be used to ensure objectivity in forward looking statements. Use of other ratios like DuPont analysis to evaluate how effectively assets are used by a company. It measures the combined effects of profit margins and asset turnover.
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Using this model we arrive at the ROI for the company as below
2016 0.165
2017 0.175
2018 0.170
2019 0.167
2020 0.163
2021 0.158
This ratio gives us an idea how much profit is generated by assets like in case of XYZ Ltd this company is generating an average of 0.162 profit for every 1 asset invested. 1. ERR (Economic Rate of Return) of the projected should be Calculated or Social Cost Benefit Analysis is to be done to reflect the real value of a project to society, we must consider the impact of the project on society. Thus, when we evaluate a project from the point of view of the society (or economy) as a whole, it is called Social Cost Benefit Analysis (SCBA). We then calculate the Economic Rate of Return (ERR) taking into the consideration the contribution of project to society. The main focus of Social Cost Benefit Analysis is to determine: i. ii. iii. iv. v. Economic benefits of the project in terms of shadow prices; The impact of the project on the level of savings and investments in the society; The impact of the project on the distribution of income in the society; The contribution of the project towards the fulfillment of certain merit wants (Self- sufficiency, employment etc). Foreign Exchange earnings
The social cost is quantified in terms of employment generation, railways, road, Forex etc. Social cost benefit analysis is done by certain banks like World Bank, IFC (W) etc. 2. ROCE in consideration: ROCE should be taken into consideration along with the PBT and Other Income. Timely measurement of ROCE indicates if any diversion of funds from the project (for which financing has been done) to any other project or company. It gives a better picture of the profitability of the company and the shareholders share in profit making. = ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowings will reduce shareholders earnings.
3. Sanctioning of Term loan should always be accompanied with the financing of working capital because in case of term loan bank is not authorised to look into the details of the company and also financials of the company could not be tracked. But with the sanctioning of working capital monitoring of the company by looking at CMA data and other financials become easy. This prevents the diversion of loan funds by the company. 4. Number of tiers: faster decision making and faster dispersion of credit is of paramount importance. There are 3 channels:i. Branch Office 3 touching points ( Officer, Manager, Chief Manager) 76
ii. iii.
Circle Office - 3 touching points ( Officer, Chief Manager, Circle Head) Head Office - 3 touching points ( Chief Manager, Deputy General Manager, General Manager)
Circle Office
Officer Manager Chief Manager
Branch Office
Head Office
The bank at present has a 3 tier system with 9 touching points which need drastic reduction for faster decision making. This will curtail avoidable delays; improve efficiency besides reducing appraisal time as well as cost. In order to expedite decision making besides qualitative improvement in credit appraisal system, it is suggested that: Marketing /delivery and the credit appraisal systems to be distinct and separate. The branches to: Concentrate on marketing of credit Focus on improvement in customer service Act as delivery point for credit dispensation and monitoring of credit
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6. Abbreviations Used:
AGM BG CC CMD CO CRMD CCA CAD CD CARD CASA CRMC DSCR DER DTL DPG DTA BD ED FACR FB GM HO IRMD LCB LC Assistant General Manager Bank Guarantee Cash Credit Chairman and Managing Director Circle Office Circle Risk Management Department Core Current Assets Credit Administration Department Credit Division Credit Audit Review Division Current Account/Savings Account Credit Risk Management Committee Debt Service Coverage Ratio Debt-Equity Ratio Defered Tax Liability Deferred Payment Gurantee Deferred Tax Liability Discount of Bills Executive Director Fixed Asset Coverage Ratio Fund Based General Manager Head Office Integrated Risk Management Division Large Corporate Branch Letter of Credit
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LOC MC MPBF MCB NWC NFB PMS PF PNB RBI RMC RMD TEV TL WC ZO
Letter of Credit Management Committee Maximum permissible Bank Finance Mid Corporate Branch Net Working Capital Non Fund Based Preventive Monitoring System Provident Fund Punjab National Bank Reserve Bank of India Risk Management Committee Risk Management Division Techno-Economic Valuation Term Loan Working Capital Zonal Office
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7.REFERENCES:
As of now, the references that have been used to understand the field of study and to gain an insight are provided below: Websites http://en.wikipedia.org/wiki/Punjab_National_Bank rbi.org.in RBI circular/policy/guidelines Accounting standards http://www.irc.nl/page/8903 http://www.unido.org/fileadmin/media/documents/pdf/tcb_role_standards.pdf United Nations Industrial Development Organization (1998), Guide to project proposal; Social benefit cost analysis in developing countries.(BOOK) Monitory policy DBOD/ RBI/ECGC notification/policies http:// en.wikipedia.org/wiki/credit_appraisal http://www.crisil.com/
Books Book of Instruction on Loan Accounts PNB, knowledge management centre, Internal Circulation. Project Appraisal, Prasanna chandra. Project Appraisal and Technical Analysis, UNIDO. PNB Annual Report 2010-11. Internal Files of PNB. PNB Monthly Review. Performance Highlights 2011-12. PNB Credit Policy 2012-13.
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