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Chapter
12
12.1BORROWERS PROFILE
Industry/Sector
Business Activity (Product)
BACKGROUND
The Company ABC Parts Pvt. Ltd. was incorporated in 1960. The borrower has setup
manufacturing units at 4 locations for manufacturing of Automotive Parts. This company is an
ISO-9001 - 2000 Certified Company and working speedily on achieving the TQ 14000. The
Management of the company is experienced and working in the line since long and the party is
having the regular orders for marketing of products and as well as contracts with corporate
manufacturing units of Vehicles/Auto Mobiles. Because of their standing the company is getting
repeated orders. The Company is supplying its product to manufacture of Automobile/Vehicles
Manufacturer unit as Original Equipment Manufacturers. The company has set up in- house R&D
facility in their unit, sophisticated instrumentation laboratory, testing laboratory etc., which
reflects the broad vision of the company to withstand the changing environment.
SHAREHOLDING
Major Share holders
Promoters Holding
100000
100.00
100%
NIL
NIL
NIL
NRIs/OCBs
NIL
NIL
NIL
Public
NIL
NIL
NIL
Total
100000
100.00
100%
FACILITIES REQUIRED
Secured/Unsecured
Nature
Proposed
Fund Based
Secured
CC(H)
900.00
900.00
RBIs guidelines)
NIL
(As per
ILG/ FLG
NIL
NIL
Term Loan
1600.00
Secured
TOTAL COMMITMENT
2500.00
Secured
Rs. In Lacs
MANAGERIAL EVALUATION
1. Market reputation on the promoter / management of the company: Satisfactory
of
the
company is well experienced and have more than 40 year experience in the auto parts line.
5. Marketing: The endless pursuit for quality excellence for over four decades has earned
ABC the unswerving confidence of leading automotive and tractor manufactures, that's
why its components are used as Original Equipment in vehicles manufactured. The
company supplies its products to various ORIGINAL VEHICLE MANUFACTURERS
like:
Escorts Tractors Limited,
Tractors and Farm Equipment Limited (Massey Ferguson U.K)
Carraro India Ltd., (Carraro Spa, Italy)
Samey Deutz Fahr India Ltd.,(Samey, Italy)
Eicher Tractors (Valtra, Brazil)
Ford New Holland (CNH, Italy)
"Sonalika" International Tractors Ltd (Renault, France)
International Auto Ltd. etc.
On the other hand company have well experienced management, good marketing team and vide
market network of customers of its products.
company is
setting up a new manufacturing facility, as a part of companys overall
expansion/integration plant for its production activities. For the above purpose, a plot of
land measuring about 11,190 sq. meters has been allotted to the company by New Okhala
Industrial Development Association, near New-Delhi. The Company Intend to set up new
machinery there for setting up a new plant to cater growing demands of its customers, who
have already placed orders to increase supply.
make significant incremental investment Hence, the Indian auto component industry (and
by sequel the forging industry) is poised to achieve a position in the top slot in the world
and will be in all probability a major driver of growth and employment in the domestic
economy.
The fortunes of the auto ancillary sector are closely linked to those of the auto sector.
Demand swings in any of the segments (cars, two-wheelers, commercial vehicles) have an
impact on auto ancillary demand. Demand is derived from original equipment
manufacturers (OEM) as well as the replacement market. Replacement demand accounts for
close to 57% of total demand, while OEMs account for 27%, with exports accounting for the
balance 16%.
The Indian auto component industry had an estimated 480 companies operating in this area in
FY05, employing more than 250,000 people and the industry exported goods worth
estimated at US$ 1.4 bn. Share of exports to output is estimated to have increased from 15%
in FY04 to 16% in FY05.
One area where domestic units compare favorably with their international peers is it terms of
costs. Lower labour costs give Indian auto ancillary companies an absolute cost
advantage. India's strength in exports lies in forgings, castings and plastics historically. But this
is changing with more component manufactures investing in upgradation of
technology in recent years
manufacturing unit at Noida -II having the area of 11,190 sq Mts The Party has already
constructed approx 45000 sq feet Industrial Shed. The building area is sufficient for the
installation of the plant and machinery and for smooth working of the unit.
2. Plant and Machinery: It is reported by the party that they are one of the largest integrated
plant of its kind for manufacturing Auto and Tractor Component in North India spread
over sprawling area of 57,340 sq feet at different locations in Delhi, Faridabad and Noida.
There are different types of shops i.e grinding shop, Turning centers, Machine Shops,
ensuring high productivity and better quality to keep pace with the ever rising quality
standards. The party is also having HEAT TREATMENT SHOP with hardening,
annealing, carbonizing, tampering furnaces which make the component to withstand
strength in operating conditions of the parts.. The party has submitted the quotations from
the suppliers/manufacturers with the term and conditions for supply. The credential of the
suppliers is verified for the supply of the machinery as per bank guidelines.
3. Raw Materials: The basic raw material required for the unit is forging of auto parts ,
stainless steel, welding rods and store items etc. The material is available through local
suppliers/ units and most of the raw material is purchased from Delhi & NCR.
4. Manufacturing Process: The auto parts being manufactured under strict quality control
by using latest CNC Machines of improved technology, modern process control devices
monitored by microprocessors and backed by a competent team of technical personnel to
ensure strict quality norms as laid down by the OEM units/ Manufacturer of Tractors and
other Vehicles.
5. Production Capacity: The stated projections are accepted by the bank as they both match
and are in sync the installed capacity and the market demand. The new plant will become
operational in the mid of the financial year 2010-11 and production capacity of the
company will increased.
6. Quality Control: The party has proposed to set up in- house R&D facility comprising of
pilot plant facility, sophisticated instrumentation laboratory, testing laboratory etc. for Raw
Material and finished goods etc. Quality control test are being undertaken for raw material
and other products at stages of production. The product shall meet all the specification
requirement of their client.
7. Staff and Labor: As the machines are semi automatic and the unit is located at the Nodia,
which is the approved industrial area. So, there is no problem of skilled and unskilled labor
and it will be easily available as per the requirement of the party as and when required for
the proposed unit at Noida.
8. Power: The party has taken the temporary power load connection of
20KW for
developed
industrial area and is connected to other parts of the country by roads and rails routes. All
types of facilities like postal, telecommunication, transportation etc. are easily/already
available.
IV. LEGAL EVALUATION
Status of various statutory approvals and clearances:
For the Noida Unit Company has already obtained the Various approvals such as sanction of
building plan, Electricity/Power Load Connection, Water Connection, Pollution Control
Clearance. The other units of the Company are
Faridabad and Delhi. The Director of the company has reported that they have obtained the all
approvals required for the units for manufacturing of auto parts i.e, registration of the units
with the concerned departments i.e. SSI registration, Income tax, Sales Tax, authorization
from Pollution control board.
V. FINANCIAL EVALUATION
Financial Statements of the company are as follows
Sales Turnover
% rise or fall in sales
Cost of sales
Operating Profit
Other Income
Profit Before Tax
Provision for taxes
Profit After Tax
Depreciation
Cash Profit
Audited
Audited
Provisional
Projection
Share capital
100.00
100.00
100.00
100.00
175.00
482.55
542.69
573.16
691.10
1064.68
0.00
0.00
0.00
75.00
0.00
17.45
32.79
45.84
60.88
75.00
0.00
0.00
32.81
32.81
0.00
Revaluation Reserves
0.00
0.00
0.00
0.00
0.00
Net Worth
600.00
675.48
751.81
959.79
Secured Loans
496.55
685.86
981.12
1119.01
1819.54
Unsecured Loans
0.00
0.00
0.00
0.00
0.00
Term Liabilities
496.55
685.86
981.12
461.01
482.21
0.00
1314.68
1119.01
1819.54
442.79
900.00
Sundry Creditors
496.60
400.67
694.94
633.65
100.00
Statutory Liabilities
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
707.92
187.91
105.32
85.00
138.59
Current Liabilities
1204.52
1049.59
1282.47
1161.44
1138.59
1701.07
1735.45
2263.59
2280.45
2958.13
Total Liabilities
2301.07
2410.93
3015.40
3240.24
4272.81
Fixed Assets
1640.29
1830.50
2372.27
2590.20
3998.99
Depreciation
792.19
845.10
919.18
1004.16
1398.16
Lease Asset
0.00
0.00
0.00
0.00
0.00
Net Block
848.10
985.40
Inventories
426.89
Sundry Debtors
1453.09
1586.04
2600.83
602.67
796.42
932.02
979.28
735.23
353.35
473.80
326.43
403.33
13.38
68.33
3.72
37.19
19.30
Advances to suppliers
0.00
64.57
38.14
44.23
0.00
0.00
0.00
0.00
0.00
0.00
Advance Tax
0.00
0.00
0.00
0.00
113.59
277.47
330.22
243.75
307.85
150.00
1452.97
1419.14
1555.83
1647.72
1665.50
0.00
6.39
6.48
6.48
6.48
Security Deposits
0.00
0.00
0.00
0.00
0.00
Margin Money
0.00
0.00
0.00
0.00
0.00
Exp. Not WO
0.00
0.00
0.00
0.00
0.00
Non-current Assets
Total Assets
0.00
2301.07
6.39
2410.93
6.48
3015.40
6.48
3240.24
6.48
4272.81
600.00
496.55
1096.55
675.48
685.86
1361.34
751.81
981.12
1732.93
959.79
1119.01
2078.80
1314.68
1819.54
3134.22
848.10
0.00
848.10
248.45
985.40
6.39
991.79
369.55
1453.09
6.48
1459.57
273.36
1586.04
6.48
1592.52
486.28
2600.83
6.48
2607.31
526.91
1204.52
1452.97
-248.45
1049.59
1419.14
-369.55
1282.47
1555.83
-273.36
1161.44
1647.72
-486.28
1138.59
1665.50
-526.91
Intangible Assets
TNW
Investments in allied co.
Adjusted TNW
Current Ratio
Debt/Equity
NWC
TOL/TNW
TOL/ Adjusted TNW
Operating Profit / Sales (%)
PAT / Sales (%)
FACR
Capital Limit after the Sanction of the Proposal but before the disbursement of the
loan.
b. TNW of the company is steadily increasing with full retention of profits. It was
Rs. 582.55 Lacs as on 31.03.2007 and increased to Rs. 675.48 Lacs as on
31.03.2008 and further increased to Rs. 751.81 Lacs as on 31.03.2009. It has been
estimated / projected at Rs. 959.79 Lacs and Rs.1314.68 Lacs respectively as at
31.03.2010 and 31.03.2011 due to retention of estimated/projected internal accruals
and proposed induction of capital in the business. Keeping in view of the past trend of
profitability, estimates/projections of TNW can be accepted.
2. Sales: Gross Sales of the company is showing increasing trend. Sales have increased from
Rs. 20.47 crores in 2007-08 to Rs. 25.85 crores in 2008-2009. Thus the company has
registered a growth of more than 26% over the last year. But sale during the financial year
2009-10 did not register any growth, due to fluctuation in the foreign market export sale of
the company decreased from the last financial year. The company has achieved net sales of
Rs 22.30 crore during the financial year 2009-10. The company is estimating the sale on
the basis of order in hand. In view of the recovery of economy since Oct. 2009, Company
is expecting the good growth rate in sale in coming financial years, Another reason of the
healthy estimates are good government policies for export out of India and recovery of
overall global market from the financial crunch. The new plant of the company will
become function in the mid of the financial year 2010-11, which will increase the
production capacity of the company. The company has good demand of its product in the
market. Increase in the production capacity of the company will increase the turnover of
the company. Based on its existing clientele and the demand in the market of the products
of the company, the company is estimating its Gross turnover for the financial year 201011 at Rs.48.40 Crore. Keeping in view the overall growth in the automobile and auto part
manufacturing market, the estimated turnover of the company can be accepted.
3. Other income: The other income of the company includes interest on FDR, Rebate and
Discounts received, Foreign Exchange Benefit etc. The other incomes for the year end
31.03.2008 were Rs. 7.44 Lacs and for the year ending 31.03.2009 were Rs. 17.84 Lacs.
The other incomes of the company as per the provisional balance sheet for the financial
year 2009-10 have Rs. 12.39 Lacs. The company is estimating other income at Rs. 20.00
for the financial year 2010-11.The Company estimated these income by taking care of
interest receivable on FDR and current discounts /rebate policies of the suppliers. Keeping
in view the past records of the company, Estimates/Projections of Other Incomes can be
accepted.
4. Profitability: PAT / Sale of the company for the financial year 2007-08 was 3% and for
the financial year 2008-09 was 1% . The PAT of the company for the financial year 200809 was decreased because of increase in the depreciation and Interest expenditure of the
company. Due to expansion and installation of new equipments during the financial year,
depreciation and financial expenses of the company increased disproportionately as
compared to the increase in gross sale of the company. These expenses were 10.68% of
turnover for the financial year 2008-09 in comparison to 8.59% for the financial year
2007-08. As per the provisional balance sheet for the financial year 2009-10 the company
achieved profitability @ 4.96% (PAT/Sale) upto 31.03.2010. The company is estimating
the profitability for the financial year 2010-11 at 7.04%. Increase in the production
capacity of the company will reduce the operation cost of the company and the
profitability of the company will increase. Keeping in view the industry scenario and past
trends of the company projections/estimates of the profitability of the company can be
accepted.
5. Investments: The Company has made investments in Fixed Deposits. The value of Fixed
Deposits at the end of the financial year 2008-09 is Rs. 6.48 Lacs.
6. Current ratio: Current ratio of the company for the financial year ending 31.03.2007 &
31.03.2008 was 1.21:1 & 1.35:1 .But current ratio for the financial year 2008-09 was
1.22:1 which is little lower than the bench mark of the bank i.e, 1.33:1 which was due to
expansion plan of the company and formation of long term assets of the company during
the financial year 2008-09 to increase the overall profitability of the company. The
company used its internal accrual for purchase of capital assets of the company. In spite of
using its short term funds for the purchase of the capital assets the NWC of the company is
positive. The expansion in the capital assets has increased the size of the plant and
profitability of the company which also improve the short term liquidity of the company.
As per the provisional balance sheet for the financial year 2009-10 the current ratio of the
company is 1.42, which is above the bench mark of the bank. Keeping in view the past
records/trends of the company estimated level current ratio can be accepted.
7. Debt Equity Ratio: Debt Equity Ratio of the company for the financial year 2007-08 was
1.02:1 and for the financial year 2008-09 was 1.31:1. As per provisional Balance sheet of
the company the debt equity ratio for the financial year 2009-10 is 1.17. The Company has
estimated it debt equity ratio for current financial year at 1.38:1. The debt equity ratio of
the company is below the acceptable bench mark of the bank i.e. 3:1 and proves the long
term solvency of the company. Hence keeping in view the past trends of the company
estimates/ projections of Debt Equity ratio of the company can be accepted.
Inventories
Sundry Debtors
Chargeable Current Assets
Other Current Assets
Total Current Assets
Other Current Liabilities
Working Capital Gap (A)
Minimum Stipulated
Working Capital -25% of
TCA (B)
Actual / Projected NWC
(C)
PBF 1 ( A - B )
PBF 2 ( A - C )
MPBF
588.58
800.26
718.65
830.56
755.57
929.07
238.59
1426.91
363.24
354.79
388.96
411.93
416.38
248.45
369.55
273.36
486.28
526.91
-114.79
0.00
475.78
461.01
366.61
482.21
517.14
442.79
-114.79
461.01
366.61
442.79
1010.54
900.00
900.00
Purpose: Sanction of Fresh Term Loan of Rs. 988.00 Lacs for purchase of New
Plant & Machinery at new unit at New Industrial Area, Noida.
Cost of Project
Cost of Machinery
Electricity and Water Connection
Amount
1313.79
20.00
1333.79
Total
Means of Finance
Term Loan
Unsecured Loans
Share Capital & internal accruals
Total
Amount
988.00
75.00
270.79
1333.79
(In Rs. Lacs)
Net sales
Profit after
Tax
Depriciatio
n
Cash Profit
2010-
2011-
2012-
2013-
2014-
2015-
2016-
2017-
2018-
11
4251.3
12
4677.4
13
5145.2
14
5648.7
15
16
6811.8
17
7482.0
18
7850.6
19
256.83
316.38
350.91
385.66
414.55
489.72
551.54
570.83
606.02
224.81
266.09
226.17
207.25
176.16
164.74
140.03
149.02
126.67
6202.6
8237.69
e. DSCR calculation
2011-
2012-
2013-
2014-
2015-
2016-
2017-
2018-
PAT
11
256.83
12
316.38
13
350.91
14
385.66
15
414.55
16
489.72
17
551.54
18
570.83
19
606.02
Depreciation
224.81
266.09
226.17
207.25
176.16
164.74
140.03
149.02
126.67
Interest
220.62
240.23
213.89
188.2
165.27
151.41
143.8
136.15
130.27
Sub Total
856
862.96
Loan Instalment
228.29
207.94
197.44
197.7
155.02
58.34
58.66
58.98
31.5
Interest
220.62
240.23
213.89
188.2
165.27
151.41
143.8
136.15
130.27
Sub Total
DSCR
1.56
1.84
1.92
Average DSCR
2.02
2.36
3.84
4.13
4.39
5.33
2.59
Imp: Detailed projected financial statements are not shown in the report due to confidentiality of the data
Average DSCR
Minimum DSCR
1.95:1
1.21:1
2.08:1
1.28:1
1.89:1
1.17:1
Cost Incurred
Cost to be Incurred
Total Cost
NIL
1313.79
1313.79
1.65
18.35
20.00
1.65
1332.14
1333.79
Cost of Construction
Cost of Electricity and Water
Connection
Total
(In Rs lacs)
h. Implementation Schedule
Activity
Start Date
Land Acquisition
Already
Already
March ,2010
Installation of Equipments
June, 2010
Commissioning of plant
August,2010
Completion Date
Done
June 2010 ( Shed Measuring 45000 Sq Ft is
already Constructed)
June,10
July,10
Sept,10
Sept 2010
Oct 2010
6 Months
12 Months
84 Months
No. of installment
84
Starting Date
Oct 2011
Sept 2018
102 months
12.4 SECURITY
1. Primary
For working capital limits: Hypothecation of Companys present and future raw
i)
material, Stock in process, finished goods, stores and spares and other current assets and Book
Debts
For Term Loan:
ii)
First charges on plant and machinery purchased from fresh term loan of Rs.
Book Value
365.68
1100.00
519.55
519.55
1671.87
1671.87
56.21
56.21
2613.31
3347.63
Total
iii)
Guarantee:
(In Rs lacs)
Personal /Corporate
Name of Guarantor
Mr. M K Bhunsali
Mr. Munish Kumar Bhunsali
Mrs. Kumad Bhunsali
Market Value
Position
Chairman
394.95
261.00
MD
389.45
261.00
Director
124.56
40.50
(In Rs lacs)
Comments
Rate
Status of account
3.00
Operations in account
3.00
3.00
TOTAL SCORE
Factor
% score obtained
Weight
Weighted Score
Financial Evaluation
75.00
40.00%
30.00
Business
60.00
25.00%
15.00
Evaluation
Management Evaluation
75.00
20.00%
15.00
Conduct of Account
75.00
15.00%
11.25
&
Industry
71.25
AGGREGATE SCORE
(The Aggregate Score of 71.25 refers to CBI- B+)
12.6 RECOMMENDATIONS:
On examining the request of the Company, the following were observed:
The Management of the company is well experienced.
The Company has been in operation for past 40 years and has been earning profits
continuously.
The company has good track record in dealing with Banks.
The overall financial position of the company is satisfactory.
Keeping in view the increasing profitability and financial position of the company, the
following are recommended
For Sanction Term Loan of Rs. 1600.00 Lacs ( including Takeover of Term Loan of Rs. 612
Lacs from State Bank of Bikaner and Jaipur) for purchase of new plant and machinery .
ii
The facilities desired by the borrowers are subject to the given ROI and Terms and Conditions.
Nature
Applicable ROI
Limits Sanctioned
Fund Based
900.00
Term Loan
1600.00
TOTAL COMMITMENT
2500.00
(In Rs lacs)
Chapter
CONCLUSION&
RECOMMENDATIONS
13
CONCLUSION
The study at CBI gave a vast learning experience to me and has helped to enhance my
knowledge. During the study I learnt how the theoretical financial analysis aspects are used in
practice during the working capital finance and term loan assessment. I have realized during my
project that a credit analyst must own multi-disciplinary talents like financial, technical as well as
legal know-how.
The credit appraisal for business loans has been devised in a systematic way. It is a process of
appraising the credit worthiness of loan applicants. Thus it extremely important for the lender
bank to assess the risk associated with credit; thereby ensure the security for the funds deposited by
the depositors. There are clear guidelines on how the credit analyst or lending officer has to
analyze a loan proposal. It includes phase-wise analysis which consists of 6 phases:
1. Financial statement analysis
2. Working capital and its assessment techniques
3. Techno Economic Feasibility Analysis
4. Credit risk assessment
5. Documentation
6. Loan administration
Central Bank of Indias adoptions of the Projected Balance Sheet method (CMA) of assessment
procedures are based on sound principles of lending. This method of assessment has certain
flexibility required to avoid any rigid approach to fixing quantum of finance.
FINDINGS
After completing the entire project at CENTRAL BANK OF INDIA the following key findings as mentioned
below were observed.
1. At Central Bank of India, Branch Office the priority to appraise a proposal was given to
new or fresh clients over the existing clients presenting proposals for renewal
2. Ratings, as being performed at CBI, are done once a year. Therefore, the ratings do not
take into account short term drastic changes like price level changes (which are an issue
with any method based on accounting statements, since annual reports are based on
historical cost basis of accounting and other changes like sudden mishap/ of the
counterparty are not readily accounted for by the rating system due to long lag between
repeat ratings on the same account.
3. Some of the parameters in Business and industry evaluation are based on the information
provided by company, which in some cases may not be sufficient. No specific guidelines
are followed in such cases. Also, some of the parameters here may be rendered redundant
in some cases and may push up/ push down the rating needlessly in these cases.
4. The present risk rating model does not have any mechanism to prioritize certain sectors of
the economy. There are certain sector in the economy where risk spread is low and certain
sectors where spread of risk is high like real estate. Also, there are certain infrastructural
projects which need to be prioritized. The risk rating model is not flexible to incorporate
all these issues.
5. Banks choose benchmark to arrive at the Base Rate for a specific tenor that may
be disclosed transparently.
6. With the deregulation of the financial sector, the ability of the banks to service the credit
requirements of the SME sector depends on the underlying transaction costs, efficient
recovery processes and available security. There is an immediate need for the banking
sector to focus on credit and finance requirements of SMEs.
RECOMMENDATIONS
The Credit Department at CBI Branch Nehru Place Delhi, works at its full potential and the
staff is highly experienced and has a very strong intuitive sense. So, there is no such
recommendation on the entire
and
efficient, an electronic database should be designed carrying all the available and important
information related to the proposals accepted, and it should be easily accessible to the Credit
Department. This will help reduce paperwork and loss of information.