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APPENDIX 6A : VEGETRON LIMITED: A CASE STUDY ON FINANCIAL PROJECTIONS

Cost of Project and Means of Finance


(Rs. In million)
Basic Assumptions
Land and site development
10
Installed capacity in TPA
2880
Capacity
Building
15
Year
utilisation
Plant and machinery
62
1
50%
Miscellaneous fixed assets
4
2
60%
Preliminary expenses
2
3
70%
Pre-operative expenses
( including interest during
construction)

Contingency margin

11.5

Working capital margin


TOTAL
The proposed means of
finance
Share capital
Term loans
State government's special
incentive loan ( Repayable
in 6 instalments after 12
years)

8.5
121
(Rs. In
million)
50
60

11
121

onwards
Average sales realisation
per kg of TVP,net of
excise duty, in Rs.
Cost of raw materials and
consumables as a
percentage of sales
Cost of power as a
percentage of sales
Wages & salaries
during operating year
1
2

120

65%
4%

(Rs. in million)
9.0
10.0

12.0

Increment per year from


4th year
Factory overhead
expenses in year

5%
(Rs. in million)

No.of equal term loan


instalments

16

Period of each instalment in


years

0.5

Increment per year from


2nd year

6%

First instalment falling due


at the end of operating year

Administrative expenses
per year in Rs.million

1.0

Interest rate on the


outsanding term loan
amount
Current asset/liability
requirements

12%

Months

0.5

Selling expenses per


year in Rs.as a
percentage of sales

10%

Interest rate on working


finance

13%

Raw materials(including
consumables)
Stock-in- process
Finished goods

1.5
0.03
0.5

Book debt
Trade credit

1.0
0.5

No. of equal annual


instalments in which
preliminary expenses will
be written off

10

Applicable income tax rate


Deduction allowed on
Gross total income

30%
0%

Depreciation rates for


Building
Plant and machinery
Miscellaneous fixed
assets

Company law
purposesunder
straight line
method
3.34%
7.42%

For income
tax purposes
under WDV
method
10%
15.00%

7.42%

15.00%

Dividends
Planned to be paid from
the year
Rate of dividend planned
for the second year
Increase proposed
thereafter once in years
Percentage of increase
Exhibit 6A.1 : Interest on Term Loans

Year
1
2
3
4
5
6
7
8
9
10

Loan
o/s at
the
beginni
ng
60
60
56.25
48.75
41.25
33.75
26.25
18.75
11.25
3.75

Year
1
Installed capacity(TPA)
2880
Production(TPA)
1440
Capacity utilisation
50%
Sales realisation(Rs.million) 172.80

2
12%
2
2%
( Rs.in million)

Loan
o/s at
the end
of the
first
Interest for
Interest for
half
Loan o/s at the end of
the first half the second
year
the second half year
year
half year
60
60
3.60
3.60
60
56.25
3.60
3.60
52.5
48.75
3.38
3.15
45
41.25
2.93
2.70
37.5
33.75
2.48
2.25
30
26.25
2.03
1.80
22.5
18.75
1.58
1.35
15
11.25
1.13
0.90
7.5
3.75
0.68
0.45
0
0
0.23
0.00
Exhibit 6A.4 : Sales realisation
2
3
4
5
2880
2880
2880
2880
1728
2016
2016
2016
60%
70%
70%
70%
207.36
241.92
241.92
241.92

Exhibit 6A.2 : Working Capital Requirements (Rs.in million)


Norms
in
months

1.5

14.04

16.85

19.66

Sock-in-process

0.03

0.32

0.38

0.45

Finished goods
Book debts
Total current assets

0.5
1

5.34
14.40
34.10

6.38
17.28
40.89

7.46
20.16
47.72

8.53

10.22

11.93

4.68

5.62

6.55

20.90

25.05

29.24

Item
Raw materials(including
consumables)

Less: Margin for working


capital from long-term
sources(25% of total
current assets)
Less: Trade credit for raw
materials and consumable
stores
Bank finance for working
capital

Year
Building
Plant & machinery & misc.
fixed assets
Total

Year
A. Sales realisation
B.Cost of production
Raw materials
Power
Wages and salaries
Factory overheads
C. Administration & selling
expenses
Administration expenses
Selling expenses
D. Gross profit before
interest
E. Total financial expenses
Interest on term loans
Inerest on bank borrowing

0.5

Years
2

Depreciation schedule for income tax purposes ( Written down value method)
1
2
3
4
5
1.821
1.639
1.475
1.328
1.195
12.021
13.843

10.218
11.858

8.685
10.161

7.383
8.710

6.275
7.470

1
172.80

Exhibit 6A.5 Profitability Estimates (Estimates of Working Results)


2
3
4
5
207.36
241.92
241.92
241.92

112.32
6.91
9.00
0.50

134.78
8.29
10.00
0.53

157.25
9.68
12.00
0.56

157.25
9.68
12.60
0.60

157.25
9.68
13.23
0.63

1.00
17.28

1.00
20.74

1.00
24.19

1.00
24.19

1.00
24.19

25.79

32.02

37.24

36.61

35.94

7.20
2.72

7.20
3.26

6.53
3.80

5.63
3.80

4.73
3.80

F.Depreciation
G. Operating profit
H. Preliminary expenses
written off
I. Profit/Loss before tax
J. Provision for tax
K. Profit after tax
L. Less: Dividend
M. Retained profit
N. Add: Depreciation
Preliminary expenses
written off
O. Net cash accruals

Year
Profit/loss before tax
Add: depreciation for
company law purposes

6.55
9.32

6.55
15.00

6.55
20.36

6.55
20.63

6.55
20.86

0.20
9.12
0.55
8.57
8.57
6.55

0.20
14.80
2.85
11.95
6
5.95
6.55

0.20
20.16
4.97
15.19
6
9.19
6.55

0.20
20.43
5.48
14.95
7
7.95
6.55

0.20
20.66
5.92
14.74
7
7.74
6.55

0.2
15.32

0.2
12.71

0.2
15.95

0.2
14.70

0.2
14.49

Exhibit 6A.6 : Tax Calculation


3
4
20.16
20.43

( Rs. In million)
5
20.66

1
9.12

2
14.80

6.55
15.67

6.55
21.36

6.55
26.72

6.55
26.98

6.55
27.22

13.84
1.83

11.86
9.50

10.16
16.55

8.71
18.27

7.47
19.75

Less: unabsorbed
depreciation of earlier years
Gross total income

1.83

9.50

16.55

18.27

19.75

Less deduction u/s 80 I at


30% from gross total
income for 10 years
Total income
Income tax @ 30%

1.83
0.55

9.50
2.85

16.55
4.97

18.27
5.48

19.75
5.92

Less: depreciation for tax


purposes

Exhibit 6A.7 : Projected Cash Flow Statements

Year
Sources of Funds
Share issue
Profit before taxation with
interest added back
Depreciation
Preliminary expenses
written off
Increase in secured
medium and long- term
borrowings

Constr
uction
period

( Rs. In

19.03
6.55

25.26
6.55

30.49
6.55

29.85
6.55

0.2

0.2

0.2

0.2

50

60

Increase in bank
borrowings for working
capital
Increase in the State Govt's
Special Incentive Loan
11
Total ( A)
121.00
Disposition of Funds
Capital expenditure for the
project
110.50
Increase in working capital
Preliminary expenses

20.90

4.15

4.19

46.69

36.17

41.43

29.42

5.85

5.89

7.20

3.75
7.20

7.50
6.53

7.50
5.63

2.72
0.55
0.00
39.89

3.26
2.85
6.00
28.91

3.80
4.97
6.00
34.69

3.80
5.48
7.00
29.41

8.50
6.80

15.30
7.26

22.56
6.74

29.30
7.20

15.30

22.56

29.30

36.50

36.61

2.00

Decrease in secured
medium & long term
borrowings
Interest on term loans
Interest on bank borrowings
for working capital
Taxation
Dividend
Total (B)
112.50
Opening balance of cash in
hand and at bank
Net surplus/deficit(A-B)
8.50
Closing balance of cash in
hand and at bank
8.50

Exhibit 6A.8 : Projected Balance Sheets

(R

At the
end of
the
constr
uction
period
Liabilities
Share capital
Reserves and surplus
Secured loans
Term loans
Working capital advance
Unsecured loans
State Govt. loan
Current liabilities &
Provisions
Trade credit
Total
Assets

Years
1

50

50
8.57

50
14.52

50
23.72

50
31.66

60

60.00
20.90

56.25
25.05

48.75
29.24

41.25
29.24

11

11

11

11

11

121.00

4.68
155.15

5.62
162.44

6.55
169.25

6.55
169.70

Fixed assets
Gross block
Less: Accumulated
depreciation
Net fixed assets
Investments
Current assets, loans and
advances
Raw materials
Stock-in-process
Finished goods
Book debts
Cash & bank balances
Misc. expenditure & losses
Preliminary expenses
Total

110.50

110.50

110.50

110.50

110.50

110.50

6.55
103.95

13.11
97.39

19.66
90.84

26.22
84.28

8.50

14.04
0.32
5.34
14.40
15.30

16.85
0.38
6.38
17.28
22.56

19.66
0.45
7.46
20.16
29.30

19.66
0.45
7.46
20.16
36.50

2.00
121.00

1.80
155.15

1.60
162.44

1.40
169.25

1.20
169.70

( Rs.in million)

Total
interest for
the term
loan
7.20
7.20
6.53
5.63
4.73
3.83
2.93
2.03
1.13
0.23

ation
6
2880
2016
70%
241.92

7
2880
2016
70%
241.92

8
2880
2016
70%
241.92

9
2880
2016
70%
241.92

10
2880
2016
70%
241.92

Exhibit 6A.3: Depreciation Schedules (Rs.in million)

Asset valuation for depreciation


purposes
Share
of
Share of continge
preoperat ncy
ive cost margin
Total
1.26
0.88
12.14

Asset
expenses
Land

Basic
cost
10

Building
Plant &
machinery
Misc.fixed
assets

15

1.90

1.32

18.21

62

7.84

5.45

75.29

0.51

0.35

4.86

Depreciation schedule for Company Law purposes

Building
Plant &
machinery
Misc.fixed
assets
Annual
depreciation

3.34%

0.61

7.42%

5.59

7.42%

0.36

(Rs.in millions)

6.55

wn value method)
6
1.076

7
0.968

8
0.871

(Rs.in millions)
9
10
0.784
0.706

5.334
6.410

4.534
5.502

3.854
4.725

3.276
4.060

2.784
3.490

( Rs. In millions)
7
8
9
241.92
241.92
241.92

10
241.92

157.25
9.68
13.89
0.67

157.25
9.68
14.59
0.71

157.25
9.68
15.32
0.75

157.25
9.68
16.08
0.80

157.25
9.68
16.89
0.84

1.00
24.19

1.00
24.19

1.00
24.19

1.00
24.19

1.00
24.19

35.24

34.51

33.74

32.93

32.07

3.83
3.80

2.93
3.80

2.03
3.80

1.13
3.80

0.23
3.80

Working Results)
6
241.92

6.55
21.06

6.55
21.23

6.55
21.36

6.55
21.44

6.55
21.49

0.20
20.86
6.30
14.56
8
6.56
6.55

0.20
21.03
6.62
14.40
8
6.40
6.55

0.20
21.16
6.90
14.26
9
5.26
6.55

0.20
21.24
7.12
14.12
9
5.12
6.55

0.20
21.29
7.31
13.99
10
3.99
6.55

0.2
13.31

0.2
13.16

0.2
12.01

0.2
11.88

0.2
10.74

( Rs. In million)
6
20.86

7
21.03

8
21.16

9
21.24

10
21.29

6.55
27.42

6.55
27.58

6.55
27.71

6.55
27.80

6.55
27.85

6.41
21.01

5.50
22.08

4.72
22.99

4.06
23.74

3.49
24.36

21.01

22.08

22.99

23.74

24.36

21.01
6.30

22.08
6.62

22.99
6.90

23.74
7.12

24.36
7.31

( Rs. In million)

10

29.19
6.55

28.49
6.55

27.75
6.55

26.98
6.55

26.17
6.55

25.32
6.55

0.2

0.2

0.2

0.2

0.2

0.2

35.94

35.24

34.51

33.74

32.93

32.07

7.50
4.73

7.50
3.83

7.50
2.93

7.50
2.03

7.50
1.13

3.75
0.23

3.80
5.92
7.00
28.95

3.80
6.30
8.00
29.43

3.80
6.62
8.00
28.85

3.80
6.90
9.00
29.22

3.80
7.12
9.00
28.55

3.80
7.31
10.00
25.08

36.50
6.99

43.49
5.81

49.31
5.66

54.97
4.51

59.48
4.38

63.86
6.99

43.49

49.31

54.97

59.48

63.86

70.85

( Rs.in million)

Years
5

10

50
39.40

50
45.96

50
52.36

50
57.62

50
62.74

50
66.73

33.75
29.24

26.25
29.24

18.75
29.24

11.25
29.24

3.75
29.24

0.00
29.24

11

11

11

11

11

11

6.55
169.94

6.55
169.00

6.55
167.90

6.55
165.66

6.55
163.28

6.55
163.52

110.50

110.50

110.50

110.50

110.50

110.50

32.77
77.73

39.33
71.17

45.88
64.62

52.44
58.06

58.99
51.51

65.55
44.95

19.66
0.45
7.46
20.16
43.49

19.66
0.45
7.46
20.16
49.31

19.66
0.45
7.46
20.16
54.97

19.66
0.45
7.46
20.16
59.48

19.66
0.45
7.46
20.16
63.86

19.66
0.45
7.46
20.16
70.85

1.00
169.94

0.80
169.00

0.60
167.90

0.40
165.66

0.20
163.28

0.00
163.52

(Rs.in millions)

COPMOF

Sb
Sc
S

20% B
80% C
10% of Sales

Branded
Commoditized

Land
Bldg
P&M
MFA
Total

Pre-Op
Total
Rate
1.26
12.14
3.34%
1.9
18.21
7.42%
7.84
75.29
7.42%
0.51
4.86
11.51
110.5