Appraising Term Loan

Data

M/s PQR enterprises, one of your valued clients, maintains a current account with an average balance of INR 15 to INR 20 lakhs. They have submitted their audited
financials, and estimates and projections for the next 5 years. The brief details of the same in lakhs of INR are as follows:

Particulars 2013 2014 2015 2016 2017 2018 2019 2020 2021

Sales 100.00 125.00 150.00 200.00 250.00 300.00 375.00 475.00 600.00

Cost of Production 80.00 110.00 130.00 160.00 180.00 200.00 300.00 415.00 520.00

Cost of Sales 90.00 120.00 135.00 180.00 225.00 270.00 335.00 430.00 550.00

Interest on Loan 0.50 2.00 2.25 2.00 1.75 1.50 1.00

Depreciation 2.00 2.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00

PBT 5.00 6.50 8.00 10.00 12.00 14.50 18.00 20.00 24.00

PAT 4.00 5.00 6.00 7.50 9.50 12.00 15.50 17.00 21.00

The unit requested for a Term Loan of INR 25 lakhs to install a generator to take care of the power supply interruptions.

Data

Financial Indicators
 Particulars 2013 2014 2015 2016 2017 2018 2019 2020 2021

Capital 50.00 60.00 75.00 100.00 115.00 125.00 140.00 160.00 175.00

Reserves 52.00 54.00 58.00 63.00 70.00 80.00 93.00 105.00 125.00

CR 1.34 1.37 1.38 1.39 1.40 1.40 1.41 1.43 1.45

TOL/TNW 0.75 0.70 1.00 1.00 0.90 0.85 0.80 0.78 0.75

DE 1.50 1.50 2.00 2.00 1.90 1.85 1.80 1.75 1.70

NWC 10.00 15.00 20.00 25.00 30.00 35.00 40.00 50.00 60.00

The generator is being supplied by The Power Suppliers (India) Ltd. The unit has enclosed the proforma invoice or quotation, with the cost being INR 40 lakhs. Ms Fatima,
director of the company expressed that there are frequent power cuts, which are disrupting production. They have regular and continuous orders on hand. In addition,
they are expecting new orders. The sales are expected to improve in the coming years and the market is expanding. Hence, they are planning to install the generator. The
requisite infrastructure and mandatory permissions are already in place. She also mentioned that they are confident to repay the said loan of INR 25 lakhs in the next 5
years in monthly instalments, commencing in January 2014.

Discussion Question

What is your opinion about the unit? Can we consider the Term Loan request of the unit?