Credit Risk Analysis of Steel Customers and Analysis Regarding Norms of Banks Providing Working Capital Finance

Department of Management Sciences - 1 - University of Pune (PUMBA)

Department of Management Sciences (PUMBA) University of Pune

CERTIFICATE

This is to certify that the Summer Project titled “Credit Risk Analysis of

Steel Customers and Analysis Regarding Norms of Banks Providing

Working Capital Finance” carried out at the Zonal office of HDFC BANK,

has been submitted by Mr.Nitin Kumar Banka, 2nd year MBA Finance with

additional in Banking & insurance student of The Department of Management

Sciences, University of Pune (PUMBA), towards the partial fulfillment of the

requirement for the award of the Masters in Business Administration

(MBA++) and the same has been satisfactorily carried out under the guidance

of Mr. Ashutosh Kolte during the academic year 2008 - 2010.

Mr. Ashutosh Kolte External Dr. B.V. Sangvikar Lecturer Examiner Head of Department PUMBA PUMBA


ACKNOWLEDGEMENT

It is very important for me to put forward my sincere gratitude to Mr. Shreedhar

Kochikar, AVP, Business Banking (Working Capital), Regional Office, Pune. I am

thankful to him for not only giving me this excellent project but also for patiently

answering to all my queries during the period, even after having very busy schedules.

I would like to put forth my earnest thanks to the college Head of Department Prof.

B.V. Sangvikar and my internal project guide Mr. Ashutosh.P.Kolte for providing me

vital inputs to co-relate the present project work with theoretical concepts and hence

provide a sound base to the report structure.

Lastly, I would like to thank all my friends for all the co-operation and God for giving me

the strength to move on when the times were difficult.

This project was not just a professional training for me, but an academic learning on the

exposure in area of credit risk Analysis, which has become an area of interest for me.

It was a pleasure to be associated with HDFC Bank. The experience that I have garnered

has had a profound impact on my career choices.

I carry high regards for the complete team of HDFC Bank.

Nitin Kumar Banka

Department of Management Sciences (PUMBA)

University of Pune


Table of Contents

SR NO. TITLE PAGE NO.

1.0 Objective 4 2.0 Company Profile 5 3.0 Introduction to Working Capital Finance 8 4.0 World Steel Industry Scenario 12 5.0 Analysis Of Steel Customers 17 6.0 Analysis of the Norms of Working Capital Finance 55 7.0 Conclusion 81 8.0 Bibliography 82


OBJECTIVE OF THE REPORT

The report was divided into two parts.

The first report was regarding the analysis regarding the major steel clients of the bank in

Pune. Presently the steel prices are rising and there is a great impact of that on the steel

manufacturers as well as the steel traders. So the analysis was all about the impact of the

steel price on the business of the steel customers of the bank and then provide a

recommendation that whether the bank should continue with the steel customers or not.

And if yes, what are the risks that are related with the financing to these clients.

The second report was regarding the study of the different banks in providing working

capital finance. The study covered the norms of all major banks in providing the

working capital finance. And then provide the conclusion, which are the most suitable

options to the customers while requiring the working capital finance from the banks or

financial institution.


HDFC BANK The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive

an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private

sector, as part of the RBI's liberalisation of the Indian Banking Industry in 1994. The bank was

incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in

Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January

1995.

HDFC is India's premier housing finance company and enjoys an impeccable track record in

India as well as in international markets. Since its inception in 1977, the Corporation has

maintained a consistent and healthy growth in its operations to remain the market leader in

mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has

developed significant expertise in retail mortgage loans to different market segments and also has

a large corporate client base for its housing related credit facilities. With its experience in the

financial markets, a strong market reputation, large shareholder base and unique consumer

franchise, HDFC was ideally positioned to promote a bank in the Indian environment.

BUSINESS FOCUS

HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound

customer franchises across distinct businesses so as to be the preferred provider of banking

services for target retail and wholesale customer segments, and to achieve healthy growth in

profitability, consistent with the bank's risk appetite. The bank is committed to maintain the

highest level of ethical standards, professional integrity, corporate governance and regulatory

compliance. HDFC Bank's business philosophy is based on four core values - Operational

Excellence, Customer Focus, Product Leadership and People.

CAPITAL STRUCTURE

The authorised capital of HDFC Bank is Rs.450 crore (Rs.4.5 billion). The paid-up capital is

Rs.311.9 crore (Rs.3.1 billion). The HDFC Group holds 22.1% of the bank's equity and about

19.4% of the equity is held by the ADS Depository (in respect of the bank's American Depository

Shares (ADS) Issue). Roughly 31.3% of the equity is held by Foreign Institutional Investors

(FIIs) and the bank has about 190,000 shareholders. The shares are listed on the The Bombay

Stock Exchange, Mumbai and the National Stock Exchange. The bank's American Depository

Shares are listed on the New York Stock Exchange (NYSE) under the symbol HDB.


DISTRIBUTION NETWORK

HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of over

1229 branches spread over 444 cities across India. All branches are linked on an online real-time

basis. Customers in over 120 locations are also serviced through Telephone Banking. The Bank's

expansion plans take into account the need to have a presence in all major industrial and

commercial centers where its corporate customers are located as well as the need to build a strong

retail customer base for both deposits and loan products. Being a clearing/settlement bank to

various leading stock exchanges, the Bank has branches in the centers where the NSE/BSE has a

strong and active member base.

The Bank also has a network of about over 2526 networked ATMs across these cities. Moreover,

HDFC Bank's ATM network can be accessed by all domestic and international Visa/MasterCard,

Visa Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.

MANAGEMENT

Mr. Jagdish Kapoor took over as the bank's Chairman in July 2001. Prior to this, Mr. Kapoor was

a Deputy Governor of the Reserve Bank of India.

The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years and

before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia.

The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in

public policy, administration, industry and commercial banking. Senior executives representing

HDFC are also on the Board. Senior banking professionals with substantial experience in India

and abroad head various businesses and functions and report to the Managing Director. Given the

professional expertise of the management team and the overall focus on recruiting and retaining

the best talent in the industry, the bank believes that its people are a significant competitive

strength.

BUSINESSES

HDFC Bank offers a wide range of commercial and transactional banking services and treasury

products to wholesale and retail customers. The bank has three key business segments:


Retail Banking Services

The objective of the Retail Bank is to provide its target market customers a full range of financial

products and banking services, giving the customer a one-stop window for all his/her banking

requirements. The products are backed by world-class service and delivered to the customers

through the growing branch network, as well as through alternative delivery channels like ATMs,

Phone Banking, Net Banking and Mobile Banking. The HDFC Bank Preferred program for high

net worth individuals, the HDFC Bank Plus and the Investment Advisory Services programs have

been designed keeping in mind needs of customers who seek distinct financial solutions,

information and advice on various investment avenues. The Bank also has a wide array of retail

loan products including Auto Loans, Loans against marketable securities, Personal Loans and

Loans for Two-wheelers. It is also a leading provider of Depository Participant (DP) services for

retail customers, providing customers the facility to hold their investments in electronic form.

Wholesale Banking Services

The bank's target market ranges from large, blue-chip manufacturing companies in the Indian

corporate to small & mid-sized corporates and agri-based businesses. For these customers, the

Bank provides a wide range of commercial and transactional banking services, including working

capital finance, trade services, transactional services, cash management, etc. The bank is also a

leading provider of structured solutions, which combine cash management services with vendor

and distributor finance for facilitating superior supply chain management for its corporate

customers. Based on its superior product delivery / service levels and strong customer orientation,

the Bank has made significant inroads into the banking consortia of a number of leading Indian

corporates including multinationals, companies from the domestic business houses and prime

public sector companies. It is recognised as a leading provider of cash management and

transactional banking solutions to corporate customers, mutual funds, stock exchange members

and banks.

Treasury

Within this business, the bank has three main product areas - Foreign Exchange and Derivatives,

Local Currency Money Market & Debt Securities, and Equities. The Treasury business is

responsible for managing the returns and market risk on this investment portfolio.


WORKING CAPITAL FINANCE

1. For running an establishment, two types of capital are required:

Fixed capital: Money for acquiring fixed assets such as land, building, equipments etc.

Working capital: Money for purchasing/ stocking of raw materials, payment of salary,

power etc., and for financing the interval between the supply of goods and receipt of payment

post sales. i.e. finance to meet the cost involved during the working capital cycle.

The products being offered can be broadly categorized into fund based and non-fund based as

follows.

Fund Based: Funded Services from HDFC Bank are meant to directly bolster the

day-to-day working of a small and a medium business enterprise. From working

capital finance to credit substitutes; from export credit to construction equipment

loan. The bank caters to virtually every business requirement of an SME.

The lending of funds can be by the way of Demand Loan repayable on demand or

Term Loan repayable over a period of time at agreed intervals. It can also be by the

way of Overdraft where the credit limits upto the amount to be lent is set in the

Current Account or a Cash Credit account where against the security of stocks or

receivables a limit upto the sanctioned level of lending is made available to the

borrower in the form of running account allowing withdrawals upto the limit as per

his requirement. Lending can also take the form of Bills Discounting where the bank

lends against the bills of exchange drawn in favour of the borrower but payable at a

future date by placing the amount of the bill less discount charges at the disposal of

the borrower by discounting the bill.

Non-fund Based: Under Non-Funded services HDFC Bank offers solutions that act

as a catalyst to propel your business. Imagine a situation where you have a letter of

credit and need finance against the same or you have a tender and you need to equip

yourself with a guarantee in order to go ahead. This is exactly where we can help you

so that you don't face any roadblocks when it comes to your business.

There are certain types of advances which do not involve the deployment of funds at

least in the initial stage. These are called Non-Fund Based Credit. A Performance

Guarantee issued by the bank on behalf of a customer to the third party in India or

abroad are some of the examples of this type of finance. Even the funds are not

involved at this stage, bank is taking risk, and on the failure of its client to fulfill the

terms of guarantee or letter of credit, we will have to pay out the funds to the


beneficiary on behalf of the customer and recover it later from the customer. A letter

of credit is a written instrument issued by the banker at the request of a buyer

(applicant) in favour of the seller (beneficiary) undertaking to honour the documents

or drafts drawn by the seller in accordance with the terms and conditions specified in

the credit, with a specified time. The parties involved in letter of credit are Applicant,

Opening bank, Advising bank, Seller/Beneficiary, Negotiating bank and Conforming

bank.

2. Working capital : It is the money for purchasing/stocking of raw materials , payment of

salary, power etc. and for financing the interval between the supply of goods and receipt

of payment post sales i.e. finance to meet the cost involved during the operating cycle.

Two possible interpretations of Working Capital:

Balance Sheet concept

Operating Cycle concept

Balance sheet concept: It is presented by the excess of current assets over current liabilities and

the amount is normally available to finance current operations.

Operating Cycle Concept:

Operating Cycle = ICP (Inventory Conversion Period)+ RCP( Receivables Conversion Period)

ICP=AVERAGE INVENTORY/ (COST OF SALES /365)

RCP= ACCOUNTS RECEIVABLES/(ANNUAL CREDIT SALES/365)

3. Customer Appraisal: It is a process through which we arrive at the credit decision gauging

the ability and the intention of the borrower.

Borrower Appraisal: Every credit proposal whether small or big originates from an

individual, group of individuals or a body run by the individuals. It is important to

ascertain the credit worthiness of the people behind the show. Confidence is the basis

of all credit transactions. Thus, if the bank officer has no confidence in honesty,

willingness and the ability of the borrower to repay the loans at the maturity or when

called upon to repay. Similarly, no credit facility should be granted to the borrower,

unless one has sufficient confidence in the borrower that it will not be necessary to

enforce the securities or seek legal redressal for recovery of advances. The necessary

information regarding the customer is obtained from the following

- Application form

- Borrower’s dealing with the bank

- Reports obtained from the persons dealing with them


- Reputation in the society or community which he/ she belongs to

- Credit information from other banks and financial institutions with whom

he is having dealings.

- Family information

- Other business interests of the promoter’s family ( the financials of all the

group business must be obtained)

- Other sources

Management Appraisal: In every family owned concern there is usually a key

stakeholder and decision maker, so the involvement and competence level must be

ascertained.

Financial Appraisal: The main source of information for judging the viability and

financial strength of the operations of the borrower are financial statements which

consists of two parts. i.e. Balance Sheet and Profit & Loss Account.

4. Charging of primary/ collateral security: Once the appropriate security is selected, bank’s

charge on the security should be ensured by observing necessary formalities, so that in case

of default by a borrower, the security will be available to the bank to recover its dues.

However, it should be noted that whatever may be the mode of charge, bank only has defined

rights in it, until the debt due is repaid. The Retail Assets Overdraft Operations unit would

ensure that the appropriate charge on various securities is registered with the ROC for Private

and Public Ltd. Companies within a period of 30 days from the execution of the documents.

The important modes of charging the securities are:

- Pledge: The purpose is to secure payment of a debt or to secure performance of a

promise. Any movable property can be pledged. Delivery (actual or constructive) is

necessary to complete a pledge. In case of default by the pledger to repay the debt

the pledgee can, after giving notice to the pledger, sell the goods pledged to him.

However, the pledger has no right to use the goods pledged. Where pledged

securities or goods are indivisible, the pledgee can sell securities or goods only of

that much quantity by which the loan amount will be satisfied.

- Hypothecation: the possession of the property in the goods and other movables

offered as security remains with the borrower and an equitable charge is created in

favour of the lender. The term hypothecation is described as under:” Charge against

property for an amount of debt where neither ownership nor possession is passed on

to the creditor”. If the borrower fails to liquidate the advance granted to him against


hypothecated goods, under agreement, he has to give the possession of goods to

hypothecatee (bank). At this stage, hypothecation converts into pledge and the

banker as hypothecatee enjoys the powers and rights of pledge and the banker as

hypothecatee enjoys the power and rights of pledgee. In case of the default by the

borrower, if the possession of goods hypothecated to the bank is not handed over to

the bank, the hypothecation may be converted to the pledge after giving due notice

to the borrower.

- Mortgage: Mortgage is the transfer of an interest is specific immovable property

for the purpose of securing the payment of money advanced or to be advanced by

way of loan, an existing or future debt or the performance of the agreement which

may lead to a pecuniary liability. The borrower is called the ‘mortgagor’ and lender

the ‘mortgagee’.

- Lien: it is the right of a creditor to retain in his possession the goods and securities

owned by the debtor until the debt has been discharged, but has no right to sell the

goods and securities to be retained. There are two types of lien i.e. particular and

general.

- Assignment: It means to transfer of a right of an actionable claim, existing or

future. The transferor of actionable claim is called the ‘assignor’ and the transferee

is called ‘assignee’.

5. Calculation of Working Capital: For instance if an SSI units estimates a sales turnover of Rs. 80 Lacs and the bank, bank based on the past performance, installed capacity, available market and other factors, satisfies itself achievement of the estimated turnover of Rs. 80 Lacs, the working capital assessment would be done as under:

Estimated Sales turnover Rs. 80 Lacs Minimum Working Capital @25% of the estimated sales which represents 3 months’ sale.

Rs. 20 Lacs

Contribution of the borrower Rs. 4 Lacs Minimum bank credit for working capital @20% Rs. 16 Lacs


THE SCENARIO OF WORLD STEEL INDUSTRY The government's decision to lean on primary steel producers to fight inflation while doing

precious little to curb iron ore prices has produced an anomalous situation. But no such exercise has been undertaken for iron ore, the key raw material needed to produce

steel and accounting for as much as 35 per cent of steel manufacturers' costs. Most of the steel

makers do not have captive iron ore mines and so buy their iron ore from the state-owned

National Mineral Development Corporation (NMDC), which also comes under the steel ministry.

NMDC, ever since it raised iron ore prices for domestic steel firms by a massive 47 per cent last

October, is charging its domestic customers a massive 97-231 per cent more than it is charging its

major overseas customers like Japanese and Korean steel mills.

Perhaps the last straw for Indian steel producers is a new export duty of 5-15 per cent, which

prevents them from getting something out of the higher prices prevailing internationally. Little

wonder that steel firms are foreseeing a clear decline in their margins.

Iron ore prices were raised by a large margin last October, whereas since January steel companies

have gone through several price hikes and rollbacks. So they have been able to pass on at least

some of the impact of higher iron ore prices though not all as prices of other raw materials like

coking coal have also risen sharply.

With Indian tariff barriers having gone down over time (currently there is no import duty on steel)

it is impractical for the Indian government to try to curb domestic prices, except very temporarily,

for such a widely traded commodity like steel. So differences between raw material and finished

product prices will narrow once the temporary selling price freeze is over. This needs correcting

by making the process of allocating mines to steel producers transparent and based on open

tendering. Once this is done, the time taken to allocate mines will come down. This should

happen once the new mining policy is in place.

Indian steel is globally competitive and nothing should be done to take away from this through

the imposition of controls and transaction costs. Globally, demand of steel has come down, especially from the infrastructure sector, resulting in a

dip in prices. “The gap between domestic and international steel prices has reduced. They have

not come at par. The domestic steel producers have been holding the price line for over three

months now to help the government check spiralling inflation. The contribution of the commodity

in the Wholesale Price Index (WPI) has increased in the last one month as inflation peaked to 13-

year high of 12.63 per cent. Steel prices have a weightage of about seven per cent in the

Wholesale Price Index (WPI).


Steel prices are falling. In certain markets in the world they are tumbling down. In India, as per

several market reports, the prices have fallen in various measures. There are obvious reasons for

that.

Industrial growth is slowing down. Construction has been hit by the credit crunch and

loss of speculative demand for housing, higher costs of construction and the rise in the

rates of home loans.

There is the monsoon factor. Overall, one could not expect steel demand to grow strongly

in these circumstances.

Under these conditions and also considering the global trend, the steel prices could not

have risen, despite the fact that some of the prices were maintained below the global level

at the producers' end for some time. Therefore, there is no government action required on the

steel market. There is no need for the government to ask steel makers to hold prices down. They

have no options now and will do so irrespective of whether the government asks them to do so or

not.

The very fact that the export prices of billets from the CIS have been quoted at only $950, down

from $1,250 a few weeks ago, steel scrap prices have fallen to as low as $450 per tonne and the

export price of iron ore fines being quoted only at $100 per tonne, FOB Indian ports, there are

reasons for the government to relax a little, stay away from active interventions in the market and

let the market correct itself to the overall global and domestic conditions.

The recessionary conditions will take the shine off from steel. It will, as has already been

witnessed, bring down the prices of steel raw materials. Therefore, the steel industry or the

government need not worry about the spot market prices of many of the major raw materials. It

has never been experienced differently in the past. It is only the annual contracts on cooking coal

which are matters of concern. The contracts were signed at huge levels corresponding to the

record prices of steel prevailing at that time. The steel industry did not foresee the downturn that

could cause a major problem for them such as the one they are faced with. They were more

concerned about supply security and feared capacity under utilisation if they were not through

with the contracts.


The Steel Situation: Production, Prices and Shipments

Here we look at what's been happening with steel — from production and prices to shipments and

inventories — so far in 2008, through last month, and how it compares with this time last year.

Production

World crude steel production in July dropped 1.6 percent from June, yet it remained 6.2

percent ahead of the same month last year, according to the International iron and Steel

Institute.

Total world crude steel production was 815.1 million metric tons in the first seven

months of 2008, a 6.1 percent increase over the same period in 2007. July 2008

production of 117.2 metric tons was down from 118.8 million in June as China’s

production dropped by 4.4 percent, reflecting the industrial slowdown as the country

prepared to host the Summer Olympics in August.

In July 2008, China’s million metric tons growth rate slowed to 9.6 percent, compared to

its growth rate peak of 26.3 percent in January 2006. Nonetheless, China's crude steel

production for July 2008 was 7.5 percent higher than in July 2007. In the first seven

months of 2008, China produced 308.3 million metric tons of crude steel, an increase of

9.3 percent compared to the same period in 2007.Overall, Asia produced 66.4 million

metric tons of crude steel in July 2008 compared to 62 million metric tons in July 2007, a

7.1 percent increase in crude steel production.

Other key findings from the IISI:

The largest producer in the European Union this July was Germany, with 3.8

million metric tons of crude steel.

The United Kingdom produced 1.1 million metric tons of crude steel, a decrease

of -3.9 percent compared to the same month last year.

South America recorded a 12.8 percent increase in crude steel production with

4.5 million metric tons in July 2008.

Brazil produced 3.2 million metric tons, 11.5 percent higher than in July 2007.


Prices : “Carbon steel prices are exploding by 46 percent this year after rising just 2 percent last

year while stainless steel prices have dropped 14 percent off the record highs of 2007 — when

prices increased by 42 percent," Purchasing.com noted earlier this month.

Overall, steel prices are expected to average $933/ton for hot-rolled sheet this year, up from $527

in 2007, and then $948 next year, Purchasing reported. Cold-rolled sheet is projected at $1,019

this year, up form $614 in 2007, and then rise to $1,051 in 2009. Hot-dipped galvanized is

projected to average $1,066 this year, up from $656 in 2007 and then average $1,061 next year.

Shipments : In terms of shipments, steel products from United States and Canadian metals

service centers continued to decline on a year-over-year basis in July, according to the Metals

Service Center Institute (MSCI). Yet the rate of decline slowed both in the U.S. and Canada

versus earlier months' reporting.

Steel product shipments from U.S. metals service centers for the first seven months of this year

totaled 30.35 million tons, a 3.6 percent decline from the same period last year. Canadian metals

service centers' shipments for the first seven months of 2008 totaled 2.16 million tons, down 2.6

percent.

The MSCI's Metals Activity Report provides the following highlights:

In July, steel product shipments from U.S. metals service centers totaled 4.07 million

tons, a 2.1 percent decline from July 2007.

U.S. inventories of steel products, at 13.12 million tons at the end of July, were down 2.2

percent from July 2007 and, at current shipping rates, represent a 3.2-month supply.

Canadian metals service centers shipped 265,400 tons of steel products during July,

down 1.8 percent from a year ago.

Canadian inventories at the end of July were at 1.08 million tons, down 10.1 percent from

the end of July 2007 and, at current shipping rates, represent a 4.1-month supply of steel

on hand.

Finally, in its August 2008 report on business conditions, the Precision Metal forming

Association (PMA) determined that North American metalworking companies are anticipating

weak business to continue over the next three months.

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When asked what the trend in general economic activity will be during the next three months,

metal formers expect only a slight improvement. Twenty percent of the 147 metal forming

companies in the U.S. and Canada report that activity will improve (up from 17 percent in July),

52 percent predict activity will remain unchanged (compared to 48 percent last month) and 28

percent forecast a decline in business conditions (down from 35 percent in July).

Current average daily shipping levels remained virtually unchanged in August

Steel prices dip on rising supply and cheaper scrap supply

Steel prices, which had crossed Rs 40,000 a ton mark after ebbing to Rs 35,000-37,000 within a

span of six months, are once again on a downward trend. This time, there has been a fall of over

Rs 5,000 in last 10 days owing to a host of reasons. The current rates are ruling at around Rs

38,000 a ton. Steel angles used for industrial purposes are also being quoted at around Rs 40,000

a ton, which is again a reduction of close to Rs 5,000.

Interestingly, Beijing Olympics too have been one of the major factors in the price movement. As

a part of efforts to reduce pollution during this mega event, Chinese steel makers had shut down

the blast furnaces to ensure clean air. Now, as the event is heading towards an end, the units have

restarted, which would increase the supply in the days ahead leading to the downward trend in the

prices, say traders.

Apart from this, melting scrap which India imports has become cheaper to USD565-570 a ton as

against USD720. The scrap prices in the international market have come down due to lesser

demand for construction steel arising out of holidays in Europe, as well as long stoppage and

slow progress in construction work in the Middle-East due to Ramzan and seasonal drop in

demand, said a senior official in a leading steel company.

The domestic market, which is expecting a further downfall in the coming days, also apprehends

a rise after that. Krishna Rathi of Vidarbha Steel and Hardware Chamber said apart from the

international reasons, high interest rates and low rains in the state have also led to the fall. Praful

Doshi, local steel trader, said the Chinese units resuming work has ensured further supply in the

market with the rates coming down in anticipation of increased supply. Even as these factors may

have eased the rates, it mainly depends on the availability of iron ore, the basic raw material for

making steel. Its shortage will continue to keep steel dearer.


SHARADA INDUSTRIES

1. COMPANY HISTORY AND BACKGROUND

Sharada Industries (SI) started in the year 1974 in the business of making of motor vehicle parts

Mr. Parabhalar Modak after gaining experience for 20 years in the same Industry, he ventured on

his own to start “Sharada Industries“. He successfully executed his skills to the fullest by

establishing the units at Bhosari Pune and therefore setting up the founding stones of “ Sharada

Industries “.

The unit at Bhosari is divided into 7 units Unit 1 Sharada Indisustries (Parent Company) workspace area 720 sq. Mtr. Operations -

Welding, & assembly. Unit 2 Workspace area 720 sq. Mtr. Operations - pressing , Welding , pipe cutting , Rolling Unit 3 Workspace area 720 sq. Mtr. Operations- Pressing , Shearing , Welding Unit 4 Workspace area 720 sq. Mtr. Operations- Profile Cutting , Shearing , pressing Gas

cutting , welding Unit 5

Workspace area 720 sq. Mtr. Operations -Painting, Powder coating, Pickling, Bush fitting, Finishing

Unit 6 Workspace area 806 sq. Mtr- Operations Pressing, Welding Gas Cutting

Unit 7 workspace area 1010 sq. Mtr Operations Welding, Tapping, Boring, & Machining

The Growth Pattern of Sharada Industries is as: In the year 1974 Sharada Industries founded at

Bhosari, worked as Weldo works with handful of people.

Like new venture faced the share of struggles and Successes but it was able to stand the test of

time for the past 30 years with the skilled & experienced entrepreneur development with the zeal

& dedication towards the organisational goals. The company has grown from 3 people to over

100 people and from one manufacturing unit to 7 units. SI is operating from its location in

Bhosari for over 20 Years. The company initially made material Bins for Telco (Tata Motors)

with the earning of Rs. 25000/- per Month. Company is combined with efficiency & reliability

Sharada Industries assures their customers that the finished product will be of highest quality,

competitively priced & efficient delivery. To supplement their manufacturing setup, they have

well equipped facilities and in-house Tool manufacturing facilities. Sharada Industries is entirely

Customer Driven and has it's strong technical focus combine their experience and knowledge

with the most modern computer assisted equipment to create special, precise motors parts. The

result is consistent, quality production from first order through each subsequent re-order.

Past Track Record in handling growth: The company has done exceedingly well in handling its

growth. Today company is considering among the top 10 sheet metal components suppliers of


TATA Motors and has a yearly turnover of Rs. 58 Cr. per year. As both Net profit and Gross

profit margins are very good to keep the business stable. Production wise company has grown

from 20 Lacs motors to 60 Lacs with additional items and from Turnover point of View Company

has grown from a turnover of Rs. 5432.4 Lacs in 2004-05 to Rs 5730.1 Lacs in 2005-06. The

company has grown from 3 people to over 100 people and from one manufacturing unit to seven

manufacturing unit. Company has never faced a labour problem and well managed company with

many workers working with the company from last 20 years. The total employee strength is 90

labourers and 10 other staff

1 Level of decentralization : The company is managed by Mr. P.V.Modak & Other

Experienced workers and they follow the concept of centralization as

involvement of management in day to day affair is very high

2 Empowerment of key executives: As all the key employees report directly to

respective heads other responsibility is increased as they handle their Respective

department independently.

3 Importance given to finance function: The Finance is managed by a Mr. Modak,

having experience of more than30 years in the field of accountancy and finance.

4 Human resource management: As stated earlier due importance is given to each and

every employee of the company and hence the employee turnover ratio is almost nil

5 Strategy for the next two years: To continue the momentum of growth with proper

planning and continuous expansion. Companies USP (Unique Selling Point)

• One Stop Solution for Welding & Pressing & Rolling

• ISO/ TS 16949:2002 Quality System

• Specialised in Manufacturing of Motor Vehicle Parts

• In House Inspections & testing

• Well Equipped Testing Laboratory

• Professional Skilled Team

2. BUSINESS ANALYSIS

Manufacturing/distribution Company

Manufacturing Process: Sharada industries manufacturing company has 7 units one is located

at Bhosari in commercial area of Pune city. The company is having the ample land & good

infrastructural facility with dedicated modern machinery including continuous power supply of

100 % genset. Company enhanced with 5416 sq.mtr. factory floor space. Current production


capacity – SI run approximately 1 ½ shifts (12 hours) per unit, Six days a week and therefore

have additional 1 ½ shifts unused keeping in mind production fluctuations as well as new

development. No of shifts in operation is one of 8 hours each.

Inspection Facility – with latest instruments and gauges to meet the quality parameter expected

by our customer

• Testing and Validation Facility – SI outsources testing and Validation services from TATA

Motors approved NABL certified testing facilities. Company do not have current plan to

develop the facility in house.

• Performance v/s industry - The Motor Components Industry is doing well and expected to

grow Executive director of Tata Motors has speculated that the Indian Auto industry is not

going to see a slump for the next couple of years. The purchasing power of the Indian

consumer is increasing every year and the market would see a continuous growth for many

years to come. The company is fully dependent on Auto mobile industry and if we consider

the growth of company in lines with that of Industry Company will grow by minimum 10 %

for next five year, however with the companies stress on increasing its product line and

capacity which can cater to large requirement the growth of company is inevitable.

• Major competition & market shares - In Maharashtra where all major Motor Vehicle parts

Industry is based company is not having any competition in and around Maharashtra and

outside Maharashtra it is very difficult to manage cost as Transportation cost will play a

major role.

• Cyclicality in product prices / realisations - The prices are generally decided once very

year and revision in prices is done every year in industry as they Issue an open purchase order

and price is fixed. However for other customer the company is pricing its product depending

on the Credit period normally given

• Proximity to raw material suppliers, other benefits. The major Raw Material is Steel alloy of

highest grade and is purchased from a Mumbai based company

• Customer profile and concentrations - The major customer is TATA Motors.

• Terms of sale (Credit periods extended / clean / LC backed ) - Normal credit period offered

is 30-60 days clean credit

Monthly Sales Figures

Month FY Sales in Rs. (Lacs) 08 -09

Sales in Rs. (Lacs) 06 -07

Sales in Rs. (Lacs) 07 -08

April 824.83 606.87 682.83May 838.43 616.85 597.12


June 624.73 626.46 389.54July 695.78 488.17Aug 774.95 521.86September 749.03 615.60Oct 699.69 646.13Nov 765.63 577.75Dec 774.89 662.75Jan 841.77 711.46Feb 821.28 845.72Mar 1156.81 831.29Total 2287.99 9130.01 7570.22

3. BANKING FACILITY

Description Amount Rs./Lacs Cash Credit 500.00 Total Credit Exposure 500.00

4. FINANCIAL APPRAISAL

P&L (All Figures In Lacs) 2007 – 08 (P) 2006 – 07 2005 – 06Total Income 7737.1 9,103.3 5,997.8PBDIT 7270.0 651.3 390.6Interest 23.8 18.6 0.0Depreciation 106.2 62.3 23.4PBT 337.1 570.4 367.2Tax 94.0 192.0 122.5PAT 243.1 378.4 244.7Cash Profits 349.3 440.7 268.1LIABILITIES Tangible Net Worth 1693.7 1300.8 975.2Short Term Debt 299.6 296.7 0.0Long Term Debt 0.0 0.0 0.0Unsecured Loans from Promoters 0.0 0.0 0.0Total Debt 299.6 296.7 0.0Current Liabilities and Provisions 1190.8 1297.1 1034.4Total Liabilities 3184.0 2914.9 2022.9ASSETS Net Fixed Assets 882.8 649.9 304.8Investments 0.0 102.5Loans and Advances 341.1 177.0 124.3Sundry Debtors 1182.8 1684.3 945.0Inventories 547.1 147.9 216.7Other Current Assets 230.3 255.8 329.6Total Current Assets 2301.2 2265.0 1615.6Total Assets 3184.0 2914.9 2022.9FINANCIAL RATIOS


Gross Margin (PBDIT/TI) 6.0% 7.2% 6.5%Net Margin (PAT/TI) 3.1% 4.2% 4.1%Current Ratio 1.54 1.42 1.56Interest Coverage 19.67 34.94 0.00DSCR 15.71 24.64 0.00Debt/Equity 0.18 0.23 0.00Leverage (TOL/Net Worth) 0.88 1.24 1.07TOL (Excl. Unsecured loans)/Tangible Net 0.88 1.24 1.07Current Assets/Sales 31% 25% 28%Debtor Days 58 69 60Inventory Days Cost of Sales 27 6 14Creditor Days as Cost of Sales 60 56 67

5. OVERALL ANALYSIS

• Sales: The sales have shown an increase in the sales but due to the increase in the steel prices

the sales have declined. The sales in the period April 07 – June 07 were 1850.18 while the

sales in the current quarter ending June-08 are 2287.99. So if we compare the sales there is

an increase of around 24%. This is so because there is an increase in the price of steel from

28 to 48 per quintal. The director says that there is hardly any kind of effect of the rise in

the steel prices. The firm is conscious in growing its business in a gradual manner with

select customers. Due to the increase in no. Of new industries being set up around Pune, the

firm expects demand to be on a higher side for the current year.

Sales Comparison (in Lacs)

• Though there is decline in gross and net margins over the period the margins are on a higher

side if we compare them with other traders. In this regard the customer informed that they

are particular in accounting of transactions and these are the actual margins in the business.

• Current Ratio is at 1.54 indicating satisfactory liquidity position of the firm


• Leverage is at 0.88 indicating satisfactory leverage position of the firm.

• Margin: Margins show marginal decline in the last two years due to the adverse raw material

prices. Margins have decreased in the financial year 07 – 08 and are expected same in the

coming financial year.

• Other Current Assets include Advance Tax of 230.3.

• Levels of Debtors, Inventory and Creditors are as per past trends and within acceptable limits.

Risks and Mitigants

Risks Mitigants Concentration Risk in termsof dependence on a singlecustomer

The group is presently supplying majorly to TATA motors and assuch is dependent on them. According to the director there will not bemuch difference in sales because this company provides 380components to TATA motors.

Volatility in Prices of Steelleading to pressure on margins

Because the company provides a number of components to TATA motors and there will be a constant demand by the TATA Motors andwill not be affected by the increase in the steel price rise.

SWOT Analysis Strength: There is an increase in the sales which shows a decent growth of business and the

company manufactures 380 components and supplies to the three units of TATA Motors

including Pune, Jamshedpur and Lucknow.

Weaknesses: The Company uses a lot of metals which shows a wide fluctuations due to an

increase in he rise in the steel prices.

Opportunities: Since the quality of the material of the company is good, it has a constant

demand by the company TATA Motors.

Threats: Increase in the steel price about 50% and slowdown in the auto industry. And due to

this the input cost has increased to about 65%. The other risk is in getting the raw material from

the suppliers.

Comments from the Director: Due to an increase in the steel price of about 60%, there is a

problem in getting the raw material from the suppliers and they demand immediate payment and

the customers of the company i.e. TATA Motors do take around 50 -60 days in making the

payments. With the increase in the price of steel there is an increase in the cost of raw material,

the manufacturing cost is increasing. So, the overall cost is increasing. Because this year TATA

Motors have declined their production so the sales is declining and expected to decrease by 10%

in the current financial year. One of the other risks involved is the salaries and the turnover. The

profit margin of the company is around 6 % – 7 % which is same as the last year. The

maintenance cost is increasing due to which there is a decrease in margin.


MITTAL PRECISION STEEL TUBES Pvt. Ltd. (MPSTPL) 1. COMPANY HISTORY AND BACKGROUND

The company has two manufacturing units:

a) MITTAL PRECISION STEEL TUBES PVT. LTD. - located at CHAKAN, PUNE.

b) PHEONIX PRESS PARTS (PPP) – located at MIDC, CHINCHWAD, PUNE.

The company was established in the year 1990 in the name of Yashshree Press Parts by the

Mittals (Chinchwad Unit) as a partnership firm. The firm was earlier known as Bansal Packaging

Pvt. Ltd. and was bought over by Mittals in 1990. In the year 2000 additional area was purchased

to add to manufacturing capacity of Yashshree Press Parts. This was converted into Mittal

Precision Steel Tubes Pvt. Ltd. (MPSTPL) in the year 2002. The directors being four members

from Mittal’s family – Mr. Premchand Mittal – the main promoter with the three sons – Arun,

Anil and Sunil. In the meanwhile Yashshree Press Parts was renamed to Pheonix Press Parts and

was merged in MPSTPL in the year 2002. They have taken ISO 9001 – 2000 Certification and

Certificate of Appreciation from Tata Johnson Controls.

PRODUCT RANGE

The chakan unit is into manufacturing of Precision Steel Tubes of the following varieties in the

table which are used in various automotive and industrial components. The Chinchwad unit is

also a manufacturing unit.

1. CHAKAN UNIT IS : 3074 ASTM, BS, DIN, JIS etc. in the size of

• OD 12.7 mm TO 50.8 mm

• THK 0.8 mm TO 4.0 mm2. CHINCHWAD

UNIT (PPP) • Heavy duty sheet metal

• Tubular welded Sub – assemblies. GROUP CONCERNS : MPSTPL is a part of the group companies of the Mittal Family – which

includes Vasant Industries, Mittal Precision Autocomps Pvt. Ltd (MPSTPL) and Rohit Industries

and Phoenix Press Parts that is a division of MPSTPL.


Operational Performance

• Location

MPSTPL has two manufacturing units one is at Chinchwad and the other one at Chakan. The registered office of the company is in the Chinchwad unit. 1. MPSTPL GAT No. 392/1, Chakan Talegoan Road, Mahalunge, Chakan, PUNE – 410501 2. PPP 30/11, D-II Block, MIDC , Chinchwad, PUNE – 411019


• Area

1. MPSTPL Total area – 66000 sq. ft. of which factory building is of 34000 sq. ft and having electrical connections of 300KVA.

2. PPP Total area – 14000 sq. ft. of which factory building is of 10000 sq. ft and having electrical connections of 130 HP.

• Production

1. Chakan Unit It has installed capacity of 2000 MT per month. The unit has installed the latest and unique roll design for all its rollers. The unit also has the machines like Steel Tube Mill along with 100 KW high frequency induction welder, Looper & Decoiler, Straightening Machine, Draw Bench, Cutting Machine etc

2. Chinchwad Unit The unit is well equipped with machines like Hydraulic press, Mechanical Press, Press Brake, Shearing Machine, Co2 Welding Machines, Spot Welding Machine, and Powder Coating Machine.

• Staff Strength:The total staff strength is around 50 employees out of which 20 are at Chakan and 30 at Chinchwad.

• Expenses

The major expenses of the company are in Raw Material (74% of total income) and Employee Costs (9.8% of the total)

• Purchases (Raw material)

a) The basic raw material used in MPSTPL is Steel Sheets, Steel Pipes, and Frames.

b) Credit period extended by the suppliers to MPSTPL is around 30 days.

Market Position

• Customer Segments: The main customers of the Chinchwad unit are from the field of Automobile Industry while the Chakan unit caters to the automobile as well as the other industrial companies. The major customers of the company are

- Tata Motors

- Harita Grammer Ltd.

Out of the total sales of the firm, 8 percent are supplied to the sister concern Vasant Industries and 10% to Rohit Industries. The credit period extended by MPSTPL to its customers is between 30 – 60 days.

• Sales figures of both the units for the last 12 months are as follows:

Mittal Precision Phoenix parts Month FY Sales in Rs.

(Lacs) 06 -07 Sales in Rs. (Lacs) 07 -08

Month FY

Sales in Rs. (Lacs) 06 - 07

Sales in Rs (Lacs) 07 -08

April 249.96 241.10 April 108.88 137.32 May 260.95 172.32 May 97.96 143.97 June 184.43 162.25 June 97.44 144.91 July 194.74 181.36 July 112.43 129.88


Aug 225.84 202.02 Aug 101.49 139.59 September 226.97 205.09 September 115.70 153.81 Oct 203.43 269.67 Oct 147.01 207.87 Nov 222.48 209.67 Nov 181.72 280.44 Dec 259.75 358.81 Dec 148.15 295.31 Jan 255.73 232.32 Jan 180.81 295.92 Feb 212.37 256.84 Feb 181.47 223.69 Mar 256.64 437.12 Mar 181.78 202.17 Total 2753.29 2928.62 Total 1654.84 2354.93 Month FY Sales in Rs.

(Lacs) 08 -09

April 347.12 May 451.15 June 287.00 Total 1085.27

3. BANKING FACILITY

Mittal Precision Phoenix Press Parts Cash credit facility 210.00 Cash credit facility 73.00 WCDL 190.00 WCDL 22.00 Term Loan 150.00 Term Loan - Total Credit Exposure 550.00 Total Credit Exposure 95.00


Consolidated financials for the Chakan and Chinchwad Unit P&L (All Figures In Lacs) 2007 – 08 (P) 2006 – 07 2005 – 06Total Income 4264.4 3741.2 2707.1PBDIT 282.7 155.5 133.7Interest 33.0 23.9 22.4Depreciation 0.0 33.9 34.9PBT 249.6 97.7 76.4Tax 0.0 22.8 12.1PAT 249.6 74.9 64.3Cash Profits 249.6 108.8 99.2LIABILITIES Tangible Net Worth 615.7 439.2 333.6Short Term Debt 393.6 454.5 134.6Long Term Debt 42.7 0.0 289.7Unsecured Loans from Promoters 0.0 46.0 31.9Total Debt 436.4 500.5 456.2Current Liabilities and Provisions 787.7 383.4 300.4Total Liabilities 1839.8 1323.1 1090.1ASSETS Net Fixed Assets 327.9 259.2 255.3Investments 49.5 2.0 2.0


Loans and Advances 17.7 4.1 16.4Sundry Debtors 996.6 773.8 594.4Inventories 382.5 210.0 170.7Other Current Assets 65.7 74.0 51.3Total Current Assets 1462.5 1062.0 832.8Total Assets 1839.2 1323.2 1090.1FINANCIAL RATIOS Gross Margin (PBDIT/TI) 6.6% 4.2% 4.9%Net Margin (PAT/TI) 5.9% 2.0% 2.4%Current Ratio 1.65 1.32 2.05Interest Coverage 8.55 6.51 5.98DSCR 5.98 5.56 1.02Debt/Equity 0.71 1.14 1.37Leverage (TOL/Net Worth) 1.99 2.01 2.27TOL (Excl. Unsecured loans)/Tangible Net 1.99 1.73 1.98Current Assets/Sales 35% 30% 31%Debtor Days 87 81 80Inventory Days Cost of Sales 35 21 24Creditor Days as Cost of Sales 45 35 39

5. OVERALL ANALYSIS


side if we compare them with other traders. In this regard the customer informed that they are

particular in accounting of transactions and these are the actual margins in the business.

• Current Ratio is at 1.65 indicating satisfactory liquidity position of the firm


• Margin: Margins show marginal decline in the last two years due to the adverse raw material

prices. Margins have increased in the financial year 07 – 08.

• Other Current Assets include Advance Tax of 65.7 Lacs.

• Sales: The sales have shown an increase in the sales but due to the increase in the steel prices

the sales have declined. The sales in the period April 07 – June 07 were 1001.87 while the

sales in the current quarter ending June-08 are 1085.27. So if we compare the sales there is an

increase of around 9%. This is so because there is an increase in the price of steel from 28 to

46 per quintal. The firm is conscious in growing its business in a gradual manner with select

customers. Due to the increase in no. Of new industries being set up around Pune, the firm

expects demand to be on a higher side for the current year.




Risks and Mitigants

Risks Mitigants

Concentration Risk in terms ofdependence on a singlecustomer

The group is presently supplying majorly to TATA motors and assuch is dependent on them. However, they have taken steps to diversify the customer base which adds Cummins India, JohnsonControls, TATA Marco Polo, YUTAKA Auto Parts etc.

Volatility in Prices of Steelleading to pressure on margins

The group is taking steps to renegotiate prices with its customers and the major customer TATA motors has informed that they would bereimbursing the group for the difference shortly.

Ways Out: Business Cash Flows, Sale of primary security, Sale of collateral security, Personal guarantee and legal course. SWOT Analysis Strength: There is an increase in the sales which shows a decent growth of business.

Weaknesses: The Company uses a lot of metals which shows a wide fluctuations due to an

increase in he rise in the steel prices. The major customer of the company is TATA Motors to

which the company provides 80% of the sales.

Opportunities: Since the quality of the material of the company is good, it can take orders from

various auto companies. The company also has diversified into manufacturing of gensets, colour

coated sheets used in the construction process.

Threats: Increase in the steel price about 60% and slowdown in the auto industry.

Comments from the Director: Due to an increase in the steel price of about 60%, the customers

of the company are demanding the payments immediately and the end customer demands a

minimum of 60 days and above.


With the increase in the price of steel there is an increase in the cost of raw material, the

manufacturing cost is increasing. So, the overall cost is increasing. Because this year TATA

Motors have declined their production so the sales is declining and expected to decrease by 10%

in the current financial year. One of the other risks involved is the salaries and the turnover. The

profit of the company is declining because of a reduction in sales. There is a huge gap between

the supplier and the vendor. The maintenance cost is increasing due to which there is a decrease

in margin. The company has started diversifying their business and has started to make contacts

with the companies like Cummins India, Johnson Controls, TATA Marco Polo, and YUTAKA

Auto Parts.


SUJALI ENTERPRISES

1. COMPANY HISTORY AND BACKGROUND

M/s Sujali Enterprises is a proprietary concern, dealing in the business of welding rods, sheet

metals, steel pipes and Co2 welding wires.

The firm was started in the year 1989 by Mrs. Sujata Sandesh Seth who is the proprietor of the

firm. The educational qualification of the proprietor is B.A.(H) and having a sound experience of

15 years in the business. Her husband Mr. Sandesh m Seth is the key person behind the business.

His educational qualification is post graduation in Materials management. The firm is dealing

with M/s Automotive Stampings & ASSY Ltd., Boxpack Mfg. Ltd., and Industrial Products Co.

etc. At present the firm mostly deals in trading of Co2 welding wires which are manufactured by

M/s Shakunt Enterprises Pvt. Ltd., Ludhiana. The firm is the only distributor in Pune.At present,

the firm is selling approx 25MT per month of Co2 welding wires and they want to increase this to

50 MT. In view of the increased demand from the automobile segment, the turnover is expected

to increase Rs. 500 Lacs during the current financial year.


The firm is a stock holding firm, they supply to the suppliers of TELCO, TEMPO, and BAJAJ

Auto. In the aim to maintain the largest variety of stock, the firm also procures from distributors

and stockiest. The huge variety and quantity of stock is the main feature of the firm and is the

main success factor.

The firm is into trading of various metal components like: Steel tubes, welding rods, welding

wires and MS pipes. These components find their application in various industries, from

manufacturing of metal parts, tin and sheet works, molding and casting industries, foundries,

infrastructure firms etc. Also, these parts are required for any set up of a plant. Thus, the wide

range of application of the firm's products ensure the year on year growth of the firm. Most of the

firms in this trade do not maintain extremely high levels and various variety of stock, since this

requires huge investment, huge storage space and expertise. The newer firms have the huge

investment as the main entry barrier.

Major suppliers of the firm: GE Ltd, JM Oberoi, ISPAT, B&H Electron, Tondon Steel Pvt Ltd,

Nika Steel Pvt Ltd, Zenith Steels etc.

Major clients for the firm: The major clients are Devchaya industries, Autoplus Engg, Dolphin

industries, Gadsing industries, Sanyog Industries etc who all are suppliers of TELCO, TEMPO,

BAJAJ Auto and other automobile companies.


Sales for the Company:

Month FY Sales in Rs. (Lacs) 08 -09 Sales in Rs. (Lacs) 06 -07 Sales in Rs. (Lacs) 07 -08

April 17.10 33.16 27.25May 18.59 26.50 25.77June 17.85 19.69 20.91July 29.46 28.34Aug 25.09 34.20September 28.79 30.81Oct 26.43 29.76Nov 34.83 24.73Dec 35.02 32.19Jan 31.94 23.19Feb 28.57 18.76Mar 35.47 17.04Total 53.54 354.95 312.95

3. BANKING FACILITY

Description Rs./Lacs Amount Cash Credit 25.00Total Credit Exposure 25.00


P&L Sheet (All figures in Rs. Lacs) Mar 31, 08 Mar 31, 07 Mar 31, 06Total Income 314.2 346.0 345.8PBDIT 16.8 14.6 13.2Interest 1.5 1.3 0.6Depreciation 2.7 1.9 1.1PBT 12.6 11.4 11.5Tax 0.0 2.5 0.0PAT 12.6 8.8 11.5Cash Profits 15.3 10.7 12.6Liabilities Tangible Net worth 62.4 47.3 53.5Short Term Debt 0.0 0.0 0.0Long Term Debt 2.9 12.0 3.3Unsecured loans from promoters 19.7 22.0 17.2Total Debt 22.6 34.0 20.5Current Liabilities & Provisions 53.6 60.2 30.1Total Liabilities 138.6 141.5 104.1Assets Net Fixed Assets 23.5 22.2 9.1Investments 25.8 16.6 7.4Loans & Advances 0.0 0.0 0.0


Sundry Debtors 80.4 108.0 76.3Inventories 16.3 4.9 6.5Other Current Assets -7.4 -10.2 4.8Total Current Assets 89.3 102.7 87.6Total Assets 138.6 141.5 104.1Financial Ratios Gross Margin (PBDIT/TI) 5.4% 4.2% 3.8%Net Margin (PAT / TI) 4.0% 2.6% 3.3%Current Ratio 2.18 2.13 2.93Interest Coverage 11.15 10.89 22.0DSCR 6.85 2.27 7.76Debt / Equity Ratio 0.36 0.72 0.38Leverage (TOL / Tangible Net worth) 1.22 1.99 0.95TOL (excl Unsec loans) / Tangible NW 0.69 1.04 0.47Current Assets / Sales 29% 30% 25%Debtor Days 94 116 81Inventory Days cost of sales 20 5 7Creditors days as cost of sales 50 53 33

5. OVERALL ANALYSIS

• Sales show a decreasing trend over the period.If we compare the sales of the period April 07 -

08 to the month of June 08 is 73.93 while in the April 08 – 09 to the month of June 09 is

53.53. So if we see both the figures then there is a decrease of around 28% in the sales. This is

so because there is an increase in the price of steel from 32 to 50 per quintal and because the

customer base is decreasing. The firm is conscious in growing its business in a gradual manner

with select customers. The firm is trying to increase






• Gross/Net Margins: the gross margins are increased from last year and so the net margin

which has increased from 2.6% to 4.0%

• Current Ratio is at 2.18 indicating satisfactory liquidity position of the firm but maintaining

such a high current ratio is the blockage of cash which can be further used in the business and

the amount of working capital loan taken from the bank will be less if this is used in the

appropriate manner.


• Other Current Assets include Advance Tax of -7.4 Lacs. Other current assets show a negative

trend in the last two financial years


The debtor’s turnover have decreased from 116 to 94 days, the inventory turnover have

increased from 5 to 20 days and the creditors level have decreased from 53 to 50 days.

Risks and Mitigants Risks Mitigants

Volatility in Prices of Steel

leading to pressure on margins

There is not much affect on the margins.

Stiff competition The firm is having a wide range of products in its portfolio and is a

one stop shop for steel. Often other traders in the market procure

material from the firm as they have almost all the types of steel.

Considering this and the goodwill the promoters have built up over

the years, the firm is able to maintain its position vis-a-vis its

competitors.

Ways out : Business Cash flows, Sale of primary security, Sale of collateral security, Personal

guarantee (wherever available), Legal recourse

Industry Risk: The firm is engaged in trading of steel in form of components like: Steel tubes,

welding rods, welding wires and MS pipes. These components find their application in various

industries, from manufacturing of metal parts, tin and sheet works, molding and casting

industries, foundries, infrastructure firms etc. Also, these parts are required for any set up of a

plant. Thus, the wide range of application of the firm's products ensure the year on year growth of

the firm. The steel trading industry is dominated by unorganised sector and there multiple number


of players in the market. The differentiation is in terms of ability of the trader to cater to the needs

of the customers in terms of variety of the products requiring the trader to maintain high stocks.

One of the other factors impacting the industry is the volatility in steel prices depending on

market demand and supply. In this regard the firm has the ability to maintain stocks and is able to

manage the volatility in prices.

Business Risk: The firm is catering to a large no. Of customers besides walkin customers and as

such concentration risk is not there in terms of customers. The firm has the requisite infrastructure

including storage space for the stock and vehicles for transportation enabling them to maintain

business levels and increase turnover.

Financial Risk: The financials of the firm are satisfactory and there is improvement year on year.

The liquidity and leverage position of the firm is satisfactory. There is decline in margins,

however, overall margins continue to be above the industry average.

Management Risk: Management of the firm has 19 years vintage in the business and has the

relevant expertise to manage the business successfully. The promoters have contacts in the

industry and have goodwill in the market. The management is professional in their approach.

Comments from the Entrepreneur: The steel prices are rising because there is an increase in

the demand of steel and the steel prices are higher in the international market. Due to this there is

a decrease in the supply of raw material and in regard to this the production cost is becoming

higher. There is almost a decrease of 28% if compared to the last year sales. The major risks are

that they require more funds to sustain the hike in steel prices. So, ultimately the investment is

increasing. The profit margin is increasing. One of the other risks is that the company being a

trading company has to maintain the stock so it is blocking a lot of money. There is not much risk

involved due to the increase in the steel price.


ASVEE TRADING COMPANY 1. COMPANY HISTORY AND BACKGROUND

Asvee trading company was established on 29-04-1979. The firm is now over 28 years into metal

trading. This is the 2rd generation of the family in the business. The firm started as a small player

in metal trading. Sheer hard work and quality of service and products has led to the firm grow

into the huge size it is now. It has taken years of hard work and dedication by the Oswals to earn

the name and reputation that the firm has as of now.

Mr. Chandulal Oswal, the founder started a firm by the name “SteelAll” in 1979. It was started as

a partnership firm between the brothers Arun, Satish, Vilas and sister Saroj Oswal. In 2002, the

businesses were split in 2002 as per the respective products detailed in the chart above. Thus,

ASVEE Trading was established in 2002 as a partnership firm Between Vilas Oswal, his wife

Lata Oswal and son Paresh Oswal. The segregation of businesses has lead to business being

carried out in a more organized way and has also led to growth in turnover.

Over the years Steel All had build a reputation among its clients as a reputed trader of metal

products. The same has carried forward to the next generation companies viz Masvee, Asvee and

Vilas Steel fabrications. ASVEE has taken good care of the existing client relationships with their

prompt service and good quality and ready inventory of all kinds of Steel parts. This has led to

the firm increasing the turnover year on year.

Management

Mr. Vilas and Paresh Oswal are the main managing partners in the firm. Mrs. Lata Oswal does

not participate in the day to day business workings.

All the managers are key people in the firm and are associated with the firm since inception. They

have good experience in the field of metal trading and have a strong say in the business working.

The firm has total staff strength of 22 people. This excludes the daily wages workers, and

unskilled staff working at the go down premises.


The firm is a stock holding firm for products of SAIL, Rashtriya Ispat, and Jindal South West etc.

In the aim to maintain the largest variety of stock, the firm also procures from distributors and

stockists. The huge variety and quantity of stock is the main feature of the firm and is the main

success factor.

The firm is into trading of various metal components like: M.S. plate, Angle Channel, Beam,

Round Bars, Square Bars, Hot Rolled and cold rolled Sheets, TMT bars.


These components find their application in various industries, from manufacturing of metal parts,

tin and sheet works, molding and casting industries, foundries, infrastructure firms etc. Also,

these parts are required for any set up of a plant. Thus, the wide range of application of the firm's

products ensure the year on year growth of the firm. Most of the firms in this trade do not

maintain extremely high levels and various variety of stock, since this requires huge investment,

huge storage space and expertise. Asvee, being very old in the trade and having a huge storage

space for the inventory is well placed. The newer firms have the huge investment as the main

entry barrier.

Key Strengths of the firm:

1. The firm has a huge godown which is located outside the octroi limits and hence its customers

can save up to 2% in procurement costs, since most of the clients are located outside the Pune

city limits. Hence, this is one reason why most of the city based metal traders cater to only

select customers within the city whereas Asvee can cater to both city as well as outside city

locations with a competitive advantage of being cost effective as well as having the highest

level of inventory and the largest variety of stock.

2. The firm is a very big trader for metal and holds significant level of inventory. This is the very

reason, many retailers and distributors for the same purchase the stock from Asvee.

3. The firm has 5 delivery vehicles for doorstep delivery. The firm has earned a big repute in the

industry for its sales and service guarantee.

4. The firm has its own weighing scale of capacity 40 tones whereas the same is not available

with other traders. The availability of the weighing scale gives the advantage of in house

weighing and reduces the costs and delivery time as well as hassle involved to go to separate

weighing stations.

5. The most important factor for the success of Asvee is the trust the people have in the firm and

also the fact that the firm is operating from the past 3 generations.

Sales for the Company:

Month FY Sales in Rs. (Lacs) 06 -07 Sales in Rs. (Lacs) 07 -08 Sales in Rs. (Lacs) 08 -09 April 352 427.23 372.0May 389 458.20 479.0June 382 406.62 423.0July 363 338.21Aug 267 304.14September 331 323.0Oct 285 339.0Nov 472 400.0


Dec 414 374.0Jan 414 390.0Feb 406 402.0Mar 353 342.0Total 4428 4505.4 1274.0

Major suppliers for the firm:

Name % supply Jindal South West 11 Rashtriya Ispat Nigam Ltd 27 SKS Ispat & Power Ltd 8 Pushpak Steel Industries 7 Orange City Steel Industries Pvt Ltd. 4

Major clients for the firm:

Name % supply Rieco Industries 6 Millennium Engg. & Contr. Pvt Ltd 4.5 DGP Hinoday Industries Ltd. 2 EON Kharadi Infrastructure Pvt Ltd. 3.5 Dhiraj Engg Works 3.5

3. BANKING FACILITY

Description Rs./Lacs Amount Cash Credit 350.00 Adhoc 30.00 Total Credit Exposure 380.00


P&L Sheet (All figures in Rs. Lacs) Mar 31, 08 Mar 31, 07 Mar 31, 06Total Income 4,452.5 4,453.3 4,365.4PBDIT 299.5 269.0 303.1Interest 96.3 87.5 78.0Depreciation 12.0 11.9 11.3PBT 191.2 169.6 213.8Tax 65.0 60.0 72.0PAT 126.2 109.6 141.8Cash Profits 138.2 121.5 153.0Liabilities Tangible Net worth 438.2 475.5 465.1Short Term Debt 394.7 221.6 105.9Long Term Debt 0.0 7.7 15.7Unsecured loans from promoters 355.5 278.2 248.5


Total Debt 750.1 507.5 370.1Current Liabilities & Provisions 23.8 302.2 228.3Total Liabilities 1282.9 1285.2 1063.5Assets Net Fixed Assets 64.8 67.1 45.4Investments 0.0 0.0 0.0Loans & Advances 34.6 14.8 21.2Sundry Debtors 396.1 406.8 291.4Inventories 730.0 568.3 543.1Other Current Assets 57.3 228.2 162.4Total Current Assets 1218.1 1218.1 1018.1Total Assets 1282.9 1285.2 1063.5Financial Ratios Gross Margin (PBDIT/TI) 6.7% 4.7% 6.9%Net Margin (PAT / TI) 2.8% 0.0% 3.2%Current Ratio 2.91 2.33 3.05Interest Coverage 3.11 2.39 3.89DSCR 2.44 1.14 2.96Debt / Equity Ratio 1.71 1.07 0.80Leverage (TOL / Tangible Net worth) 1.93 1.70 1.29TOL (excl Unsec loans) / Tangible NW 0.62 0.71 0.49Current Assets / Sales 27% 27% 23%Debtor Days 32 33 24Inventory Days cost of sales 64 49 49Creditors days as cost of sales 2 26 21

5. OVERALL ANALYSIS

• Current Ratio is at 2.91 indicating satisfactory liquidity position of the firm but

maintaining such a high current ratio is the blockage of cash which can be further used in the

business and the amount of working capital loan taken from the bank will be less if this is used

in the appropriate manner.


• Other Current Assets include Advance Tax of Rs.212.74 Lacs.

• Sales show consistent rising trend over the period.If we compare the sales of the period April

07 -08 to the month of June 08 is 1292.05 while in the April 08 – 09 to the month of June 09 is

1274. So if we see both the figures then there is a decrease of 2%. This is so because there is

an increase in the price of steel from 34 to 46 per quintal. The firm is conscious in growing its

business in a gradual manner with select customers. Due to the increase in no. Of new


industries being set up around Pune, the firm expects demand to be on a higher side for the

current year.





• Levels of Debtors, Inventory and Creditors are as per past trends and within acceptable

limits.

Risks and Mitigants

Risks Mitigants



The customer has a vintage of 28 years in metal trading and over the

years the customer has gained experience and expertise and hence can

manage the impact of price fluctuations. Further as discussed with the

Customer, they are stockists and as such whatever, the price rise the

same is passed on to their customers. Since everybody is aware of the

steel prices there is ready acceptance of the price rise by their

customers.

Stiff competition The firm is having a wide range of products in its portfolio and is a one

stop shop for steel. Often other traders in the market procure material

from the firm as they have almost all the types of steel. Considering

this and the goodwill the promoters have built up over the years, the

firm is able to maintain its position vis-a-vis its competitors.


Ways out : Business Cash flows, Sale of primary security, Sale of collateral security, Personal

guarantee (wherever available), Legal recourse

Industry Risk: The firm is engaged in trading of steel in form of sheets, angles, beams, bars etc.

The firm is a stockist for products of SAIL, Rashtriya Ispat Nigam, Jindal South West etc. The

products are sold to mainly industries to be utilised in construction and manufacturing of

machinery parts. The steel trading industry is dominated by unorganised sector and there multiple

no. Of players in the market. The differentiation is in terms of ability of the trader to cater to the

needs of the customers in terms of variety of the products requiring the trader to maintain high

stocks. One of the other factors impacting the industry is the volatility in steel prices depending

on market demand and supply. In this regard the firm has the ability to maintain stocks and is able

to manage the volatility in prices.

Business Risk: The firm is catering to a large no. of customers besides walkin customers and as

such concentration risk is not there in terms of customers. The firm has the requisite infrastructure

including storage space for the stock and vehicles for transportation enabling them to maintain

business levels and increase turnover.

Financial Risk: The financials of the firm are satisfactory and there is improvement year on year.

The liquidity and leverage position of the firm is satisfactory. There is decline in margins,

however, overall margins continue to be above the industry average.

Management Risk: Management of the firm has 28 years vintage in the business and has the

relevant expertise to manage the business successfully. The promoters have contacts in the

industry and have goodwill in the market. The management is professional in their approach.

Comments from the Entrepreneur: The steel prices are rising because there is an increase in

the demand of steel and the steel prices are higher in the international market. Due to this there is

a decrease in the supply of raw material and in regard to this the production cost is becoming

higher. There is almost a decrease of 30% if compared to the last year sales. The major risks are

that they require more funds to sustain the hike in steel prices. So, ultimately the investment is

increasing. The profit margin is constant as last year but if we consider the inflation then there is

a decrease of 0.5%. One of the other risks is that the company being a trading company has to

maintain the stock so it is blocking a lot of money. There is not much risk involved due to the

increase in the steel price.


K.V. STEEL CORPORATION

1. COMPANY HISTORY & BACKGROUND

M/s. K.V.Steel Corporation is a proprietary concern. The business was started in 1989 in the

name of K V Sales Corporation. Subsequently, it was renamed as K.V.Steel Corporation. The

firm is industrial supplier of hardware items, Valves, Stainless steel, pipe & pipe fitting products

in Pune & has distribution network in Maharashtra as well as outside Maharashtra 80% of the

business is in the state while remaining 20% is spread in the places like Jalandhar, Gurgaon, etc.

The firm is also stockiest & representative for APL brand hardware items, in Pune, which are

specially designed for Chemical & engineering companies. The products supplied are:

• M.S. & G.I. Pipes & Fittings of TATA & BIRLA.

• Whole series of structural steels of SAIL, TISCO & VAIZAG.

• M.S. & S.S. Copper Brass Fasteners of GKW, APL, UNBRAKO & TVS.

• Valves & Cocks of LEADER, AUDCO, OSCAR, UTAM, PRINCE, etc.

The valves are used by the industries such as Sugar, Breweries, Forging, Varnish, Automobiles,

etc.


The firm deals with structural steel, pipes, nut bolts and hardware of TATA, BIRLA, SAIL,

TISCO, VAIZAG, etc. Some of their customers are Kalyani Thermal Systems Ltd., Bharat

Forge Ltd., Sudarshan Chemicals Ind. Ltd., Poonawalla, Deepak Nitrite Ltd.,etc. K.V.Steels

buys their stock through brokers as well as directly from companies like Maharashtra Stainless

ltd.

Sales of the past:

FY 2008-2009(1st QTR) FY 2007-2008 FY 2006-2007 April 251.9 140.47 84.17 May 132.54 131.35 50.02 June 213.12 119.33 80.48 July 96.09 73.43 August 100.36 78.04 September 105.22 72.91 October 151.83 90.64 November 122.94 106.45


December 126.17 127.35 January 170.68 184.57 February 112.99 121.7 March 151.66 97.59 TOTAL 597.56 1529.09 1167.35

3. BANKING FACILITY

Particulars Existing Facilities (HDFC Bank (Rs. in Lacs))

Renewal Proposed Facilities (HDFC Bank)

Cash Credit 50 50 Total 50 50

4. FINANCIAL APRRAISAL

P&L Sheet(All figures in Rs. Lacs) 31-Mar-08 31-Mar-07 31-Mar-06 Total Income 1,455.50 1,117.10 808.2 PBDIT 26.7 16.2 10.6 Interest 3.5 1.4 0.9 Depreciation 1.1 1.0 1.1 PBT 22.2 13.8 8.6 Tax 0.0 0.0 0.0 PAT 22.2 13.8 8.6 Cash Profits 23.2 14.8 9.7 Liabilities Tangible Net worth 66.2 49.1 38.0 Short Term Debt 126.1 27.9 31.3 Long Term Debt 0.0 0.0 0.0 Unsecured loans from promoters 37.2 12.4 12.4 Total Debt 163.3 40.4 43.8 Current Liabilities & Provisions 280.2 183.5 127.2 Total Liabilities 509.7 272.9 209.0 Assets Net Fixed Assets 4.4 4.7 5.0 Investments 19.9 40.5 14.9 Loan & Advances 19.8 6.3 7.6 Sundry Debtors 400.2 205.4 161.0 Inventories 18.9 15.6 12.7 Other current assets 46.6 0.5 7.8 Total Current Assets 485.5 227.8 189.2


Total Assets 509.7 272.9 209.0 Financial Ratios Gross Margin (PBDIT/TI) 1.80% 1.4% 1.3% Net Margin (PAT/TI) 1.50% 1.2% 1.1% Current Ratio 1.19 1.16 1.25 Interest coverage 7.64 11.90 12.45 DSCR 7.64 11.90 12.45 Debt/Equity Ratio 2.47 0.82 1.15 Leverage (TOL/Tangible Net worth) 6.7 4.56 4.50 TOL (excl Unsec loans)/Tangible NW 3.93 3.44 3.14 Current assets/sales 33% 20% 23% Debtor days 100 67 73 Inventory Days cost of sales 5 5 6 Creditors days as cost of sales 72 56 55

5. OVERALL ANALYSIS

Sales: Compared to last year, this year’s sale is at higher side but compared to sales in April

2008, sales in May 2008 is very low i.e. it dropped by 47.38%.this was because of the hike in

steel prices. In the month of June 2008, it again increased to Rs.132.54 from Rs.213.12 lac.


Gross margin: The gross margin has increased to 1.8% from 1.4%.

Net margin: The net margin has increased from 1.2% to 1.5%.

Current Ratio: The current ratio has increased to 1.19 from 1.16.


Debt/ Equity ratio: Debt/ Equity ratio has increased to 2.47 from last year’s 0.82.

Debtor’s turnovers are increased to 100 days from 67 days which shows the negative sign.

Inventory turnover has remained the same i.e. 5 days. Creditor’s level is increased from 56 to

72 days.

Risk & Mitigants

Risks Mitigants



The customer has 19 years of experience and hence can manage the

impact of price fluctuations. Further as discussed with the Customer,

they are stockists and as such whatever the price rise, the same is

passed on to their customers. Since everybody is aware of the steel

prices there is ready acceptance of the price rise by their customers.

Stiff competition The firm is having a wide range of products in its portfolio. Often

other traders in the market procure material from the firm.

Considering this and the goodwill the promoters have built up over

the years, the firm is able to maintain its position vis-a-vis its

competitors.

SWOT Analysis: Strength: Years of experience in this particular business.

Weakness: Loss due to price hike.

Opportunity: Booming infrastructure sector of the country.

Threat: Increasing prices of crude oil, steel & other raw materials.

Comments of the Entrepreneur: According to Mr. Ritesh, steel prices are increasing because

of the Olympic Games that are coming up in China. To improve the infrastructure of the country,

China is demanding more and more of steel. So the export of steel is increasing which in turn

affecting the price. Also, the raw materials’ cost is going high which is again affecting the steel

prices.

The hike in the steel price has direct effect on the sales. The supply has decreased decreasing the

profit margin.


SHIRIDI STEELS RE-ROLLERS PVT. LTD.

1. HISTORY & BACKGROUND The Company was incorporated in 1998. It has eight directors namely Mr.Vinod Goyal,

Mr.Yogesh Goyal, Mr.Aakash Goyal, Mr.Aditya Poddar,Mr.Arun Poddar, Mr.Rajesh Oswal,

Mr.Sachin Oswal, Mr.Vijay Oswal.

Oswal and Poddar family has its business on similar lines at Alandi, Pune.Goyal family earlier

has 2 rolling mills and 1 foundry at Jalna. However since the operations are unviable due to

increase in power tariffs in the region, they decided to close these ventures and joined Oswal and

Poddar family in this business. With the experience of Oswal and Poddar family, the group

decided to implement the plant at Goa. For this, they acquired the Company at Cuncolim.The

reason for implementing the plant at Goa was based on various incentives offered by the Govt of

Goa (Union Territory) and also nearness to Southern Market, where there are very few players in

this field.The operations in Goa are mainly looked after by Mr.Yogesh Goyal. Other directors are

based in Pune. As far as the shareholding pattern goes the three families – Goyals,Poddars and

Oswals hold 33.33% each in both Shirdi Steel and its group concern viz.Shraddha Ispat Pvt Ltd.

Shirdi Steel has a group co. viz.Shraddha Ispat Pvt.Ltd, which is into making of Sponge Iron.It

was floated in March 2004 by the same promoters. Investment by Shirdi Steel in Shraddha Ispat

is nil to date.

The Company has group concern viz. Shraddha Ispat Pvt Ltd, which is engaged in the business of

manufacturing of sponge iron. The Co started in December 2004 and as on 2006-07, the

Company has achieved the turnover of Rs. 71.45 Cr, Net profit of Rs. 7.20 Cr and total debt of

Rs. 14.75 Cr. There are no inter firm transfer of the funds.


Production Cycle: The production cycle for manufacturing of re-rolled products consists of:-

Iron.Ore----->Sponge Iron----->Ingot------>MS / Re-rolled products

Since the company has experience in manufacturing of re-rolled products, they initially decided

to start Shirdi Steel, which is into re-rolled products.As far as profit margins are concerned,

Sponge Iron has more margins than re-rolled products and re-rolled products have more margins

than Ingots. Hence, after Shirdi Steel, the group started with Sponge Iron project. Now, since this

project is stabilising, the group has decided to acquire another unit at Cuncolim, for manufactur

of Ingots. With this, the group will complete entire backward integration and value addition.


The Company is engaged in the manufacture of angles, flats and channels. They are not

manufacturing TMT bars as they are low margin business.

Operational Performance

The factory is located at Cuncolim Industrial Estate, Cuncolim in GIDC. It enjoyed a 5 year

income tax exemption, being a new industrial unit and also 15 year Sales Tax exemption. The

installed capacity is around 48000 tonnes p.a. The output is approx. 2500 tonnes p.m. It operates

in two shifts of 10 hours.

The company has 57 variety products .The range of producs are:

Angles : 20*3 and 75*6

Flat : 18*4 to 100*12

Channel: 70*14 to 100*50

There are 40 employees working for it. Raw material is sourced locally and on cash

basis.Payment for raw material purchased has to be made the next day.The raw material used in

Ingots which is made from Sponge Iron which in turn is produced from Iron Ore. The raw

material used in Ingots and Furnace Oil which are locally sourced from the local manufacturers.

Nothing is sourced from the sister concern.

It is then heated in Oil furnace. After heating it passes through the rough mill for adjusting its

size.The next process is shaping it in the Intermediate Mill which then goes through the Polish

Mill for polishing thus giving the finished product for sales.

The company has three furnaces. Out of this 2 furnaces are for higher end products and 1 for lower end product.

Market Position

Problems of re-rolling industry:

1 Financial Crunch as most of the banks and FIs are cautious about lending to this sector 2 Inadquate Power Supply and Raw Materials 3 Unorganised Sector 4 Increase in Raw Material Prices

Demand Drivers

Growing infrastructure across the country, Housing sector is booming, Govt is keen in reducing

the duties and giving boost to this industry

Demand Supply Scenario: There are approx. 1200 re-rolling mills in India with the total installed

capacity of 27 mn MT.Against this, the demand for the product is approx. 23mn MT.However the

industry is going through restructuring and this will lead to closing down of some of the small /


unorganised players.Therefore, more or less the demand supply gap will continue to be present.

Further, most of the re-rolling mills are engaged in the manufacture of TMT bars, which is low

margin high volume business and there are less players in the product range offered by Shirdi

Steel.

Prospects for Shirdi Steel:There are few competitors to the co.apart from Pushpak viz.Bhoruka

Steel, Mahavir Rolling, G P Malhotra Steel etc.The profitability of these cos is as good as or

better than Shirdi Steel.However, barring Bhoruka Steel, other players are catering to Western or

Northern areas of the country.The Company's plant at Goa is mainly catering to Southern part.

There are very few players in this area. In Goa region, Shirdi is the only main player and hence it

almost enjoys a monopoly in its segment with more than 80% market share.

Shirdi's products are the Structural Steel products like Angles, Channels, Flats, Rectangle/Round

bars. These products are mainly used in every industry/residence/offices etc.These products are

mainly used by heavy engineering units and electric depatments.Major selling markets are the

sates of Kerala, Karnataka, Maharashtra and Goa with 50% of sales coming from Kerala

alone.The Company has more than 80% market share in Goa, 30% each in Kerala and Bangalore,

60% in Karnataka and about 10% share in Maharashtra.The Company maintains an inventory of

one month and gives 20 days credit to debtors.

Sales of the company(Rs. In Lacs): Month Sales 06-07 Sales07-08 Sales 08-09 April 656.37 1014.03 1478.50 May 868.05 1123.19 1534.36 June 779.26 1275.77 1569.57 July 828.99 1310.43 August 987.80 1209.87 September 981.52 1116.20 October 507.07 1403.04 November 757.43 1317.57 December 1245.83 1687.45 January 1056.95 1562.88 February 1226.01 1247.06 March 1541.86 2155.50 Total 11437.15 16423.02

The company has achieved a turnover of Rs 16423.02 lacs during the year 2007-08

Locational Advantages

Benefits for the Company in Goa:

The Company’s in Goa have following major advantages.

- Availability of power at lower cost forms major part of cost of production.


- Close proximity to Marmagoa Port facilitates import of scrap.

- Close proximity to ingot manufacturing companies in Goa.

- Rolling Mills in down South purchase raw material from Goa and hence there raw material cost

are higher than the Company and hence the Company is cost competitive over other players in

neighboring states like Karnataka, Kerala, & southwestern Maharastra.

Besides local market in Goa, the market in and around Goa is easily accessible.

Other benefits to the Company:

- The company has got pollution NOC.

- Power tariff in Goa is cheaper compared to any other neighboring states.

- Proximity to the customers.

- Proximity to Marmagoa Port for import of scrap.

- Lesser labour problems.

- Good infrastructure facilities in the state.

Products & its uses: The customer is engaged in the manufacturing of re-rolled products like

structural steel – MS angles, MS flats, MS shapes etc. These products are used mainly in

infrastructure projects. The consumers of the product are various infrastructure developers,

traders etc.

3. CREDIT FACILITY

Particulars Existing Facilities

(HDFC Bank (Rs. in Lacs) Renewal Proposed Facilities

(HDFC Bank) Cash Credit 750 750

WCDL - 35 Total 750 785

4. FINANCIAL APPRAISAL P&L Sheet (All figures in Rs. lacs) 2007-08 P 2006-07 2005-06Total Income 16,350.5 11,366.5 8,845.6PBDIT 950.0 1,435.4 1,208.3Interest 42.4 13.0 8.4Depreciation 34.8 34.8 28.6PBT 872.8 1,387.6 1,171.3Tax 0.0 22.5 1.7PAT 872.8 1,365.1 1,169.6Cash Profits 907.6 1,399.9 1,198.2Liabilities Tangible Networth 1779.6 1779.6 1536.7


Short Term Debt 423.0 329.1 327.2Long Term Debt 0.0 0.0 0.0Unsecured loans from promoters 0.0 101.5 0.0Total Debt 423.0 430.6 327.2Current Liabilities & Provisions 1372.7 386.4 56.7Total Liabilities 3602.8 2634.5 2147.2Assets Net Fixed Assets 657.3 573.8 423.5Investments 1.8 221.7 221.7Loans & Advances 218.3 354.1 286.7Sundry Debtors 1277.1 998.3 605.5Inventories 1083.3 478.4 580.1Other Current Assets 364.9 8.2 29.7Total Current Assets 2943.7 1839.0 1502.0Total Assets 3602.8 2634.5 2147.2Financial Ratios Gross Margin (PBDIT/TI) 5.8% 12.6% 13.7%Net Margin (PAT / TI) 5.3% 12.0% 13.2%Current Ratio 1.64 2.57 3.91Interest Coverage 22.42 110.42 143.85DSCR 22.42 108.68 143.64Debt / Equity Ratio 0.24 0.24 0.21Leverage (TOL / Tangible Networth) 1.02 0.48 0.40TOL (excl Unsec loans) / Tangible NW 1.02 0.40 0.40Current Assets / Sales 18% 16% 17%Debtor Days 29 32 25Inventory Days cost of sales 26 18 28Creditors days as cost of sales 33 14 3 5. OVERALL ANALYSIS RATIOS:

Current Ratio: The current ratio is comfortable indicating adequate liquidity in the WC system.

With plough-back of majority of accruals the liquidity is expected to further strengthen.

Leverage: Leverage is low on account of most the profits are ploughed back in the system. For

last 3 years leverage is below 0.5.

Interest Coverage: This is comfortable for last 3 years

There are no extrnal borrowings and hence DSCR is at the comfortable level


Debtor, Inventory & Creditors levels are steady for last 3 years. Out of the current liabilities, the

major part i.e. Rs. 181.80 lacs is provision for dividend and creditors is Rs. 56.29 lacs.

Sales: Sales shows increasing trend. The sales has increased from Rs. 8845.60 lacs to Rs.

11366.50 lacs in 2007. The Company expects to achieve the turnover of Rs. 120 Cr in the year

2007-08.


Margin: Margin shows increasing trend.This is mainly on account of reduction in variable costs.

Due to increase in the production, fixed cost per unit as well as variable cost has reduced and

hence margin has increased.

Short Term Loans are working capital facility from HDFC Bank Ltd.

Investment has increased during the year and it is with Cosmos Bank and Indian Overseas Bank.

The customer was with Cosmos Bank and hence they have invested in the bank’s share as per

norms. Also group concern is with IOB and hence they have invested in shares of IOB. SWOT Analysis: Strengths: Account Conduct is Good, Sales shows good growth in the business Weakness:

The customer uses lots of metals, which shows wide fluctuations The competition in this product range is high The price which is major cost is controlled by Govt of Goa and in case it increases, it

will affect the margin.

Opportunities: Due to increase in the infrastructure demand, the customer’s products has good

scope for the business

Threats:Price fluctuations


Comments of the Entrepreneur: Increase in the price of steel globally, does not directly

affect the company. They are getting profits from the inflation because there is continous

development and the demand for infrastructure is increasing day by day. As there customer are

builders and engineers they are suffering any nkind of heavy losses.but the main is required to

have a constant watch not only towards the price of steels but also towards the changes in the

price of oil and petrol ,as it directly affects the prices of coal.

Ways Out

- Ways out Business Cash flows

- Sale of primary security

- Sale of collateral security

- Personal guarantee (wherever available)

- Legal recourse


MAHALAXMI STEELS

1. COMPANY PROFILE

The Mahalaxmi Steel is a proprietorship concern. The business was started by Mr. Manoj Gupta

who has completed MBA (Marketing) and has basic degree BE (Mech.), in February 2001with

the help of his family but he started full fledged business in 2005. The firm is Iron & Steel trader.

The firm Mainly Deals with the trading and distribution of tools, Alloy Steel Bright Shafting,

Mild Steel Products like M/S Angels, Channel & Beams. The Firm is the Industrial Suppliers to

Major Industries in and around Pune. The regular clients are the Industries like, Suttati

Enterprises Pvt. ltd, Precision Automation & Robotics (I) Ltd (PARI). Maheshwari Forgings &

Sane’s.


The huge variety and quantity of stock is the main feature of the firm and is the main success

factor. The firm is into trading of various metal components like: M.S. plate, Angle Channel,

Beam, Round Bars, Square Bars, Hot Rolled and cold rolled Sheets, TMT bars. Thus, the wide

range of application of the firm's products ensure the year on year growth of the firm.

Major suppliers are Bhushan steel Ltd., Balaji steel Traders and Om Enterprises.

Major customers of the firm are Ravian Groups, Siddhivinayak Kohinoor Association, Surya

engineering, Shubhashree, Kumar housing corporation ltd.,etc.

Recently the business has been developed through the orders of the following clients (figures. In

Lacs):

Raviraj group Rs. 2261934.00 Pride purple Sheth Rs. 4359869.00 Prathamesh developers Rs. 491450.00 Kumar housing corporation ltd Rs. 2336793.00 Shubhashree Rs. 1244283.00

Sales of the company:

FY 2008-2009 (1st

QTR) FY 2007-2008 FY 2006-

2007 FY 2005-2006

APRIL 116.68 112.19 109.23 95.52

MAY 451.49 432.05 153.81 179.30

JUNE 870.33 832.06 218.31 115.17

JULY 1080.29 259.23 118.42


3. BANKING FACILITY

In Rs. Lacs Existing Facilities (HDFC Bank) Proposed Facilities(HDFC Bank) Cash Credit 47.00 22.00

Total 47.00 22.00 4. FINANCIAL ANALYSIS

P&L Sheet(All figures in Rs. Lacs) March 31, 2008P 31-Mar-07 31-Mar-06 Total Income 2,544.30 2,054.60 1,633.50 PBDIT 56.3 34.2 42.1 Interest 24.0 19.0 15.7 Depreciation 0.0 2.2 2.0 PBT 32.4 13.0 24.4 Tax 0.0 0.0 6.0 PAT 32.4 13.0 18.4 Cash Profits 32.4 15.2 20.4 Liabilities Tangible Net worth 60.7 44.1 42.7 Short Term Debt 13.7 9.7 14.5 Long Term Debt 67.5 79.5 8.4 Unsecured loans from promoters 293.7 141.8 99.6 Total Debt 374.9 230.9 122.5 Current Liabilities & Provisions 263.9 167.2 187.0 Total Liabilities 699.6 442.2 352.2 Assets Net Fixed Assets 11 12.9 30.9 Investments 258.9 140.5 4.6 Loan & Advances 5.5 11.0 0.0 Sundry Debtors 343.7 150.0 295.6 Inventories 25.4 14.6 8.6 Other current assets 55.1 113.3 12.5

AUGUST 1297.18 196.33 137.75

SEPTEMBER 1555.24 156.19 115.47

OCTOBER 1804.00 125.08 156.05

NOVEMBER 1919.86 126.49 133.60

DECEMBER 2086.44 191.43 147.81

JANUARY 2283.27 182.88 185.23

FEBRUARY 2417.95 243.94 132.57

MARCH 2655.15


Total Current Assets 429.7 288.8 316.7 Total Assets 699.6 442.2 352.2 FINANCIAL RATIOS Gross Margin (PBDIT/IT) 2.2% 1.7% 2.6% Net Margin (PAT/IT) 1.3% 0.6% 1.1% Current Ratio 1.55 1.81 1.57 Interest coverage 2.35 1.80 2.68 DSCR 1.21 0.75 1.95 Debt/Equity Ratio 6.17 5.24 2.87 Leverage (TOL/Tangible Networth) 10.52 9.03 7.25 TOL (excl Unsec loans)/Tangible NW 0.97 1.38 1.48 Current assets/sales 17% 14% 19% Debtor days 49 27 66 Inventory Days cost of sales 4 3 2 Creditors days as cost of sales 39 27 43

5. OVERALL ANALYSIS

Sales: If the sales figures of first quarter of financial year 2008- 2009 are compared with the

sale figures of first quarter of financial year 2007- 2008, the sales are approximately the same.

Sales of April 2008 – June 2008 is little higher than sales of April 2007- June 2007.


Gross margin: The gross margin has increased to 2.2% from 1.7%.

Net margin: The net margin has increased from 0.6% to 1.3%.

Current Ratio: The current ratio has increased to 1.55 from 1.81.

Debt/ Equity ratio: Debt/ Equity ratio has increased to 6.17 from last year’s 5.24.


Debtor’s turnover is increased to 49 days from 27 days. Inventory turnover has moved up

from 3 days to 4 days. Creditor’s level is increased from 27 to 39 days.

RISKS AND MITIGANTS

Risks Mitigants

Volatility in Prices of Steel leading

to pressure on margins

There is not much affect on the margins.

Stiff competition Even with the stiff competition,the firm is able to maintain

its position vis-a-vis its competitors. Ways out : Business Cash flows, Sale of primary security, Sale of collateral security, Personal guarantee (wherever available), Legal recourse. Industry Risk: The firm is engaged in trading of steel for last 3 years. The increasing trend in the

sales shows that the business is growing at a good pace. The firm is having turnover of approx. 23

crores. They have wide range of products. Thus, the wide range of application of the firm's

products ensure the year on year growth of the firm. The steel trading industry is dominated by

unorganised sector and there multiple number of players in the market. The differentiation is in

terms of ability of the trader to cater to the needs of the customers in terms of variety of the

products requiring the trader to maintain high stocks. One of the other factors impacting the

industry is the volatility in steel prices depending on market demand and supply. In this regard

the firm has the ability to maintain stocks and is able to manage the volatility in prices.

Business Risk: The firm is catering to a large no. of customers. Most of the big firms are their

customers. The firm has the requisite infrastructure including storage space for the stock enabling

them to maintain business levels and increase turnover.

Financial Risk: The financials of the firm are satisfactory and there is increase year on year. The

leverage position of the firm is satisfactory. There is decline in margins, however, overall margins

continue to be above the industry average.

Management Risk: Management of the firm has 3 years of experience in the business and has

the relevant expertise to manage the business successfully. The promoters have contacts in the

industry and have goodwill in the market.


CENTRAL BANK OF INDIA For the development of small and medium enterprises, central bank of India provides the following:

1. MSE’s (Micro and small enterprises) Manufacturing Advances Category Rates of interest for MSE Upto Rs. 50000 BPLR – 2.25% Rs. 50000 – Rs.100 Lacs BPLR – 2.00% Above Rs. 100 Lacs As per the credit rating of the account as per

loan policy of the bank 2. Food and Agro based processing industries

Category Rates of interest for MSE Irrespective of loan amount BPLR – 2.00%

3. MSE’s service advances

Category Rates of interest for MSE Upto Rs. 25000 BPLR – 1% Rs. 25000 – Rs.2 Lacs BPLR Above 2 Lacs - Rs. 100 Lacs BPLR + 2% Above Rs. 100 Lacs As per the credit rating of the account as per

loan policy of the bank 4. Retail traders advances under priority sector

Category Rates of interest for MSE Upto Rs. 25000 BPLR – 1% Rs. 25000 – Rs.2 Lacs BPLR Above 2 Lacs - Rs. 20 Lacs BPLR + 2%

5. For medium enterprises the interest rate to be charged on ME is as per the credit rating of the

account as per loan policy of the bank. 6. BPLR – 13.00%

DENA BANK 1. Acknowledgement for receipt of loan application which are complete in all respects.

2. No processing fee and BPLR – 13.00%.

3. Time norms for disposal of loan application :

Upto Rs.25,000 2 weeks Over Rs.25,000 and upto Rs.5,00,000 4 weeks


Over Rs.5,00,000 8 weeks

4. Collateral security

1. No Collateral required upto Rs.5 Lacs 2. Over Rs.5 Lacs and upto Rs.50 Lacs (based on good track record and financial

position of SME unit.) – No Collateral 3. For advances sanctioned upto a limit of Rs.50 Lacs without collateral security

/ third party guarantee; guarantee is available under Credit Guarantee Scheme for SME i.e. Credit Guarantee Trust Fund Scheme for Micro & Small Enterprises (CGTMSE). For obtention of guarantee, a guarantee fee of 1.5% of credit facility sanctioned for a period of 5 years and Annual service fee @ 0.75% of sanctioned amount as on 31st March every year is payable. 50% of guarantee fee under this scheme is borne by Bank.

5. Loan Quantum

Working Capital Finance Minimum 20% of projected annual sales turnover (Nayak Committee norms)

Margin (Stake of borrowers) • Upto Rs.25,000 : NIL • Over Rs.25,000 : 15 to 20% (depending upon

purpose & quantum of advances)

6. Under Dena Shakti Scheme – Scheme for financing to Women Entrepreneurs :

Interest rebate of 0.5% is available in respect of advances upto Rs.15 Lacs subject to certain conditions.

7. Interest Rates on SSI -The current interest rates are as under:

S. No Size of Loan Rate of Interest 1 Upto Rs. 50,000 BPLR -- 2.50% 2 Above Rs. 50,000 & upto Rs. 2.00 Lacs BPLR -- 1.50% 3 Above Rs. 2.00 Lacs and upto Rs. 5.00 Lacs BPLR

4 Above Rs. 5.00 Lacs and upto Rs. 10.00 Lacs BPLR

5 Above Rs. 10.00 Lacs

The rates of interest on loans/Advances classified under SSI sector are to be based on credit rating, however maximum rate will be BPLR + 2%

ICICI Bank

ICICIC bank provides the following schemes to the SME’s for their working capital requirement

and to meet with their day to day operations. The working capital facilities offered includes Fund

based and Non-Fund bases facilities


• Fund Based : Cash Credit, Overdraft, Working Capital Demand Loan, Term Loan • Non Fund Based: Bill Discounting, EPC, LC & BG, CMS and Limits for Foreign

exchange.

1. Flexi Credit (FC)

Purpose It is product suitable for customers in need of working capital requirement but their financials reflect only average strength. They can take Overdraft (OD)/Demand Loan (DL)/Letter of Credit (LC)/Bank Guarantee (BG)/Term Loan (TL) under this program.

Facilities Available Term Loan / Cash Credit / Overdraft / Bank Guarantee/ Letter of Credit

Eligibility Proprietorship, Partnership, Company Quantum of Finance 10Lacs to 5 crore Maximum Amount 5 crores Age of business 3 Years (Cases with 1 full year audited financials can also be

funded under this program)

2. Enterprise Credit (FC)

Purpose It is a product suitable for customers with decent financial but not in a position to offer higher collateral. Suitable for customers with both term loan and working capital requirement.

Facilities available Overdraft / Demand Loan/ Letter of Credit/Bank Guarantee/Cash credit /Export Packing Credit.

Eligibility Proprietorship, Partnership, Company Quantum of Finance 10Lacs to 3 crore Maximum Amount 3 crores Age of business 3 Years (Cases with 1 full year audited financials can also be


3. Lending against Credit Card Receivables (LACR)

Purpose Credit Card Securitization (CCS) / Loan Against Credit Card Receivables (LACR) is a product which offers O/D limits against security of credit card swipes routed through ICICI bank machines.

Facilities available Overdraft / Demand Loan/ Term Loan Eligibility Should have Credit card swiping Machine Quantum of Finance 10Lacs to 10 crore Maximum Amount 10 crores Age of business 2 Years (Cases with 1 full year audited financials can also be



Documents required while applying for the loan

S. No Documents 1. Audited Financials for Last 3 years for the Entity

2. Tax Audit Report for Last 3 years along with copy of ITR

3. ITR of all the Partners/ Directors/ Proprietor for last 2 years

4. Latest sales tax/VAT/service tax return

5. Latest income tax return

6. Bank statement for last 12 months

7. Latest income tax return

8. Sanction letter for existing limits.

9. Certificate of registration

10. Proof of ownership: Title Deed, Municipal Tax/ Municipal Charge Bill / Receipt, Property Tax Paid Bill

11. Residence Proof: Telephone Bill/Electricity Bill Driving License/Valid Passport

12. Identity proof: Driving License, Passport, Pan Card

Collateral (for EC and FC)

S. No Particulars 1. Properties accepted as Security include - Residential / Commercial / Industrial (on

case to case basis) / Godowns (only for Logistics and C&F business). 2. The property needs to be owned and self occupied 3. The security cover may vary from as low as 30% of the facility to as high as

200%.Collateral security coverage is decided by our Credit Professional on examining the basic documents of your business i.e.: Financials, Bank statements etc.

4. Loans can be granted to the extent of 60% of the property value with additional security of charge on current assets, fixed assets, and personal guarantee of promoters.

CHARGES/FEES PAID

S. No Charges/ fees Value

1. Processing Fees 1-2%

2. Interest Charges 12-15%(depends upon the client)

3. Renewal Fees Negotiable

3. BG/LC Commission Decided at the time of issuance of LC/BG.

4. Transaction charges Nothing specified


5. Current charges As per schedule of charges for current account.

6. Other Charges As mentioned in the sanction letter.

7. BPLR 15%

IDBI (Industrial Development Bank of India)

SME Finance - IDBI has been actively engaged in providing a major thrust to financing of

SMEs. With a view to improving the credit delivery mechanism and shorten the Turn around

Time (TAT), IDBI has set up Centralized Loan Processing Cells (CLPCs) at major centers

across the country. To strengthen the credit delivery process, the CART (Credit Appraisal &

Rating Tool) Module developed by Small Industries Development Bank of India (SIDBI), which

combines both rating and appraisal mechanism for loan proposals, was adopted by IDBI

for faster processing of loan proposals. Recently, a number of products have been rolled out

for the SME sector, which considerably expanded IDBI’s offerings to its customers.

BPLR 12.75%

Dealer Finance Eligible Segments Distribution chain partners comprising dealers, stockists, distributors,

etc. Facility Overdraft, Cash Credit, Term loan, Other working capital facilities Purpose OD/ CC: Working capital/ Meeting temporary mismatch of funds.

TL: Acquisition of fixed assets, renovation of premises, retiring of high cost debt, etc. Other working capital facilities on case to case basis.

Loan Amount Minimum: Rs.10 Lacs and Maximum: Rs 500 Lacs. Tenor One year to 3 years. Pricing Linked to BPLR Security Exclusive charge on all assets of the borrower.

Personal Guarantee of the borrower. Collateral security as deemed necessary.

Processing charges Upto 1% on the loan amount.

FUNDING UNDER Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGFMSE)

Eligible Segments Should be a Micro and Small Enterprise (manufacturing / services) as defined under MSMED Act 2006.


Purpose Working Capital & Term Finance for capex / takeover of existing loans Loan Amount Minimum Rs.25 thousand

Maximum Rs.50 Lacs. Tenor As per the facilities requested. Pricing Annual Service Fee and One time Guarantee Fee as specified by Credit

Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Interest rate linked to BPLR.

Security Guarantee cover from CGTMSE to the extent applicable on a case-to-case basis but not exceeding Rs.37.50 Lacs. Exclusive charge on current and fixed assets purchased out of Bank’s finance. Personal guarantee of the borrower. No collateral/ 3rd party guarantee will be taken.

Processing charges Upto 1% of the loan amount. DIRECT CREDIT SCHEME with SIDBI

Eligible Segments All entities in the SME segment as covered under MSMED Act 2006. Purpose Working Capital & Term Finance capex / takeover of existing loans. Loan Amount Minimum Rs.10 Lacs.

Maximum Rs.20 Crore. Tenor Depending upon the nature of facilities. Pricing Linked to BPLR Security Charge on fixed and current assets. PG of the proprietor / partners/

promoter directors. Processing charges Upto 1% of the loan amount. Service tax as applicable.

WORKING CAPITAL FINANCING – IT & ITES ENTITIES

Eligible Segments

Micro, Small and Medium Enterprises as per definition given in MSMED Act 2006 The entity must be engaged in export of software / software services to acceptable countries.

Facility Overdraft-limit. Loan Equivalent Ratio (LER) for Booking of Forward Contracts against underlying transactions.

Purpose Working capital finance. Loan Amount

Minimum Rs.25 Lacs and Maximum Rs. 200 Lacs.

Tenor 12 months. Pricing Linked to BPLR. Processing charges

Upto 1.00% of loan amount.

Security Hypothecation of entire current assets. Hypothecation of the company’s equipments like servers, Routers, Work stations etc. Personal Guarantee of Proprietor / Partner / Directors of the company


UNION BANK OF INDIA

Union Bank of India has adopted a policy package for stepping up credit to Small & Medium

Enterprises [SME] with the approval of the Board in its meeting held on 30th September 2005

and subsequently following steps have been initiated in this direction. They provide three

products.

BPLR 12.50%

1. Union High Pride

Quantum Above Rs 5 crores to Rs 25 crores. Appraisal/Assessment Based on FBF with relaxed terms i.e. Current Ratio at 1.1:1,

DER at 3.00:1 and DSCR at 1.50:1. Collateral Collateral coverage of not less than 20% of total exposure. Interest rate Rate ranging from 125 bps below BPLR to maximum

BPLR for Working Capital based on credit rating. Further interest concession upto 0.50% in case of SME rated by SMERA or CRISIL.

2. Union Procure

Purpose Financing the purchases of dealers supplying products to Corporates.

Quantum of finance Above Rs 25 Lacs to Rs 25 crores Appraisal/Assessment Based on Turnover/FBF with relaxed terms i.e. Current Ratio

not less than 1.17:1, TOL/TNW not exceeding 4.00:1. Collateral Minimum coverage of 30% of advance value. Pricing Based on Credit Rating with floor rate of 175 bps below BPLR. Facility Bills drawn by Corporates on Vendors duly accepted by the

latter. Margin Nil

3. Union Supply

Purpose Financing against Receivables of the Vendor of goods supplied to the Corporates.

Quantum Above Rs 25 Lacs to Rs 25 crores. Appraisal/

Assessment

Based on Turnover/FBF with relaxed terms i.e. Current Ratio not less than 1.10:1, TOL/TNW not exceeding 4.00:1.

Collateral Minimum coverage of 10% of advance value.

Pricing Based on Credit Rating with floor rate of 300 bps below BPLR.


Facility Bills drawn by Vendors on Corporates duly accepted by the latter.

Margin Nil

HSBC(Hong Kong Shanghai Bank Corporation)

The bank provides ‘Business Credit’, a unique lending facility for SME’s. It is indeed the credit facility which suits the working capital needs.

S. No. Particulars Details 1. Purpose Working capital requirements 2. Credit amount Rs. 5 Lacs – Rs. 35 Lacs 3. Period of facility 1 year 4. Margin required No margin up to 15 Lacs. 25% for credit above Rs. 15

Lacs 5. Interest rate(RLR) 20-22% 6. Interest calculation

method Interest calculated on daily balances and interest charged on monthly basis on the amount utilized

7. Minimum amount due 5% of the outstanding balance as specified on sanction letter or Rs. 1000 whichever is higher

8. Processing fee 2% plus applicable taxes 9. Late payment charges Rs. 300 plus applicable taxes 10. Annual renewal fee 1% plus applicable taxes 11. Prepayment No prepayment charges 12. Guarantor Personal guarantee of partners in partnership firm or

Directors in Private limited company. Not applicable to sole proprietors (where personal guarantee applicable the minimum age is 21 and maximum is 65.

13. Collateral No collateral security is required. 14. RLR 13.75%

Financial Documents

• Sole Proprietor • Partnership • Private Limited

Company

• Last 2 year audited B/S, P&L account • Last 2 year IT returns • Bank statement for at least 6 months up to 15 Lacs and 12

months for above 15 Lacs

Documents 1. Sole

Proprietor

Proof of the firm – any of the given

• Sales/Vat/Service Tax/Excise Registration • Registration under Shops and Establishment Act. • Pan ID/ It return of the concern • Water/ Electricity/ Municipal Tax bill in the


name of the concern. • MAPIN card in the name of the concern.

Proof of the individual– any of the given

• Passport • Photo PAN card • Voter’s Id • MAPIN card • Driving License

Proof of Residence Address– any of the given

• Passport • Voter’s Id • Driving License • Ration Card • Society Outgoing Bills • LIC Policy • Water/ Electricity/ Telephone bill

PAN Card / PAN allotment number/Form 60 of the concern.

2. Partnership Firm

• Proof of firm as per Sole proprietor. • Proof of the partners • Proof of the residence address • Partnership deed • PAN Card / PAN allotment number/Form 60 of

the concern. 3. Private

Limited Company

• Proof of the company (Sole proprietor) • MOA, AOA • Certificate of incorporation • Board resolution • Copy of annual establishing the shareholding

pattern • List of Directors • Copy of Form 32 filed with ROC • Proof of the individual identity to be submitted

for all the authorized signatories, all principal shareholders and at least two Directors

4. Partnership Firm

• Proof of firm as per Sole proprietor. • Proof of the partners • Proof of the residence address • Partnership deed • PAN Card / PAN allotment number/Form 60 of

the concern.


STANDARD CHARTERED

The bank provides loans for the working capital of SME’s. For the Medium Enterprises it provides

• Fund based • Non – Fund Based

It covers manufacturers, traders, non-manufacturers (service), Professionals.

Medium Enterprises multi Product (Combination of two or more products)

• OD/CC/TL • WCTL • PC • Bank guarantee • PCFC • Pre shipment and Post Shipment Finance/LER(Forward Contracts)

Collateral Security

The bank takes the property as collateral security. It divides the property into the following

• Residential – Luxury/Common • Commercial • Quasi commercial • Industrial

The weightage given on the property is as follows: 1. Residential Luxury 70% Common 75% 2. Commercial 60% 3. Quasi

commercial 60%

4. Industrial 10%

If the party is not having any property then the loan is given on the basis of FD. The interest rate is 11%.

Limits: X > 47.30 Lacs. Over and above 1crore CAP of 110 Crores is required. Mid market above 110 crores. In case of corporate banking X.500 crores. And the rate i.e FTP (Fund Transfer Price) is FD rate plus 2%.

Basic Criteria Manufacturing Turnover must be above 92 Lacs Wholesale 322 Lacs Non –Manufacturing 460 Lacs


There is a product named WINTAGE product for the existing line of activity (over and

above 3 years). The documents are the returns filed for the last three years and the audited

Balance Sheet must be there. All this is verified by PAMAC and then the request goes to Chennai

for the approval and then the sanction letter is issued.

CC/OD limits

• Three years audited Balance Sheets

• Projected Balance Sheet for two years

• Director and Guarantor

• Personal Guarantee taken as 51% holding – minimum three directors.

In case of Partnership/Sole proprietorship

• Identity of all partners

• Six month bank statements with all existing bankers to check that there should be no

discrepancy.

• Verify IT returns

FEDERAL BANK

The bank provides loan schemes to SME’s under the following

• Trade sector • Service Provider • Manufacturing Sector

TRADE SECTOR

Purpose To set up a new venture / to meet Working Capital Requirement Eligibility Individuals/Firms/Companies or any other legal entity engaged in

lawful business activity Quantum of Finance 20% of the projected turnover for limits upto 2 crores .MPBF for

limits above 2 crores Maximum Amount 500 Lacs Margin • FA – 25%

• Stock – 25% • Book Debts – 40% • Cash Margin – For non funded 20%


Repayment Maximum period 30 months subject to review every year Rate of Interest Based on Credit Risk Assessment

• FB1 – 12% (BPLR – 1.75%) • FB2 – 12.75%(BPLR – 1.00) • FB3 – 13.75(BPLR)

Security Working Capital

• Hypothecation/pledge of stock/book debts. • Drawings against book debts shall be restricted to max 50%

of the limit book debts beyond 90% shall not be considered for drawing power. In exceptional cases book debts upto 180days considered with justification, at next higher level.

Collateral If value of the landed property taken as primary security for TL is in excess of TL required, then such excess value could be considered to meet collateral security requirement.

Processing Fees • TL - 0.50% • CC - 0.25% • Non-funded – 0.125%

Service Charges • Branch Head – up to 15% • Regional Head – up to 25%

SERVICE PROVIDER

Purpose To set up a new venture / to meet Working Capital Requirement Eligibility • FB1

• FB2 • FB3

Nature of facility TL/WC/Non – funded limits Quantum of Finance 20% of the projected turnover for limits upto 2 crores .MPBF for

limits above 2 crores for contractors(limit on contract value) Maximum Amount 500 Lacs Margin • FA – 25%

• Stock – 25% • Book Debts – 40% • Cash Margin – For non funded 20%

Repayment Maximum period 30 months subject to review every year Rate of Interest Based on Credit Risk Assessment

• FB1 – 12% (BPLR – 1.75%) • FB2 – 12.75%(BPLR – 1.00) • FB3 – 13.75(BPLR)

Security Working Capital

• Hypothecation/pledge of stock/book debts. • Drawings against book debts shall be restricted to max 50%

of the limit, except contractors book debts beyond 90 days


shall not be considered for drawing power. In exceptional cases book debts upto 180days considered with justification, at next higher level.

Collateral If value of the landed property taken as primary security for TL is in excess of TL required, then such excess value could be considered to meet collateral security requirement.

Processing Fees • TL - 0.50% • CC - 0.25% • Non-funded – 0.125%

Service Charges • Branch Head – up to 15% • Regional Head – up to 25%

Manufacturing Sector

Purpose To set up a new venture / to meet Working Capital Requirement

Quantum of finance Working capital :20% of the projected turnover

Max. amount Rs. 500 Lacs

Margin • Fixed Assets : 25% • Stock : 25% • Book debts : 40% • Cash Margin : For non fund- 20%

Repayment Max. period 30 months

Rate Of Interest FB1-12.00% (BPLR-1.75%)

FB2-12.75% (BPLR-1.00%)

FB3-13.75% (BPLR)

Security Primary

• Hypothecation/pledge of stock/book debts. • Drawings against book debts shall be restricted to max 50% of

the limit, except contractors book debts beyond 90 days shall not be considered for drawing power. In exceptional cases book debts up to 180days considered with justification, at next higher level

Collateral

Without CGTMSE cover

Mortgage of landed property(without stipulation of margin) &/ or other approval collateral securities with existing margin norms, should cover the enrire liability.

With CGTMSE

• Max. limit upto Rs. 50 Lacs • Neither collateral security nor third party guarantee is

taken.


Processing Fees • Cash Credit- 0.25% • Non funded - 0.125% • Term Loan- 0.50%

Service charges • Branch Head – up to 15% • Regional Head – up to 25%

ORIENTAL BANK OF COMMERCE

Purpose For meeting Working Capital and acquiring assets for business needs. Eligibility • Traders who are individuals, firms, companies, co-operative

societies, dealing in those goods, which are not prohibited.

• Small business concerns/agencies providing services such as

Xeroxing, dry cleaning, license to deal in petroleum, license for the

applicable business, petrol pump dealers, auto services center,

ISD/STD/PCO booths and others.

Quantum of Finance

Max. composite loan of Rs.25Lacs

Maximum Amount

25 Lacs

Margin 20% Repayment Working capital limit to be reviewed every year. However , limit upto

Rs.2Lacs shall be renewed every 3 yrs. Rate of Interest 13.75% Security/ Collateral

• Cash credit/Term Loan upto Rs.2 Lacs: 1. In case of CC limit Hypothecation of stock (stock

statement to be ob yearly basis & insurance to be done invariably).

2. Hypothecation of assets purchased out of loan amount. 3. Personal guarantee of adequate net worth acceptable to the

Bank. 4. Nil collateral. 5. No financial statements are required except statements of

sales, purchases, overheads and net profit. • Loan/limit above Rs.2Lacs and upto Rs.5Lacs:

1. In case of CC limit hypothecation of stocks (stock statement to be ob yearly basis & insurance to be done invariably).

2. In case of Term Loan hypothecation of assets purchased out of loan amount.

3. Collateral security in the shape of NSC, LIC policy (surrender value) etc. with value of at least 25% along with 1/3 party guarantee of adequate net value or mortgage of immovable property having realizable value


equivalent to 75% of amount sanctioned. • Loan/limit above Rs.5Lacs:

Collateral security in the shape of NSC, LIC policy (surrender value) etc. with value of at least 50% along with 1/3 party guarantee of adequate net value or mortgage of immovable property having realizable value equivalent to amount sanctioned.

Processing Fees 0.50% of loan amount with min. of Rs.500/-. PLR 13.25%

CLEAN LOAN TO TRADERS

Amount Interest Rates (%) Upto 0.50 Lacs PLR – 2.00% i.e. 11.25% Above 0.50 Lacs upto 2 Lacs PLR – 1.50% i.e. 11.25% Above 2 Lacs upto 10 Lacs PLR – 1.00% i.e. 11.25% Above 10 Lacs upto 25 Lacs PLR i.e. 11.25%

BANK OF BARODA The bank provides loans to the Small and Medium Enterprises as:

• SME Short Term Loan

• SME Medium Term Loans

PLR 12.75% SME Short Term Loan

Purpose To meet temporary shortfall / mismatch in liquidity, for meeting genuine business requirements only.

Eligibility Small and Medium-sized Corporates, business and Trading houses (including partnership firms).

Eligibility Criteria • Satisfactory credit rating for the last three years

• Latest Balance Sheet etc. should be available.

• Satisfactory financial performance in terms of sales / turnover and profits. Negative variance, if any, should not be more than 10%.

• Satisfactory dealings with the Bank for at least five years.

Quantum of Finance

Upto 25% of the existing Fund based Working capital limits (depending on the Credit Rating), subject to a minimum of Rs. 10


Lacs and maximum of Rs. 250 Lacs. Maximum Amount 250 Lacs Period Not exceeding 180 days – minimum 90 days Margin 18% Rate of Interest 0.5% below the existing rate on working capital limits Security/Collateral • First charge / Equitable mortgage of fixed assets of the

company / firm or extension of existing first charge / equitable mortgage of fixed assets, ensuring that there is a minimum asset cover of 1.50.

• Extension of Charge on current assets for the additional facility ensuring that adequate drawing power is available.

• Extension of all existing guarantees of Directors / Third party guarantees to cover the additional facility.

Processing Fees 0.1% of the amount of loan, with a minimum of Rs. 10,000/- and maximum of Rs. 25,000/-.

SME Medium Term Loans

Purpose To augment enterprise’s working capital gap and to help in improvement of current ratio and also for meeting genuine business requirements. The facility will also be available for repayment of secured and unsecured Loans of other banks or institutions, but not for any purpose, which is not related to the enterprises activity.

Eligibility Small and Medium-sized Corporates, business and Trading houses (including partnership firms).

Eligibility Criteria • Satisfactory credit rating for the last three years

• Latest Balance Sheet etc. should be available.

• Satisfactory financial performance in terms of Sales/turnover and profits. Negative variance, if any, should not be more than 10%.

• Debt-equity ratio should not be higher than 2.5:1 and average DSCR should be not less than 1.5:1.

• Satisfactory dealings with the Bank for at least Three years.

Quantum of Finance

Upto 25% of the existing fund based Working capital limits (depending on the Credit Rating), subject to a minimum of Rs. 25 Lacs and maximum of Rs. 500 Lacs.

Maximum Amount 500 Lacs


Margin 18% Repayment Not exceeding –36- months, to be repaid in equal quarterly or half-yearly

installments. Rate of Interest • 0.5% - 1.0% over the Bank’s BPLR, only for the additional

Loan to be granted under the Scheme.

• Prepayment penalty of 1%, if loan is prepaid within -24- months of drawdown.

Security/Collateral First charge / Equitable mortgage of fixed assets of the Company / firm or extension of existing first charge/ equitable mortgage of fixed assets, ensuring that there is a minimum asset cover of 1.50

Processing Fees 0.1% of the amount of loan, with a minimum of Rs. 25,000/- and maximum of Rs. 50,000/-.

Service Charges No COSMOS BANK PRODUCTS:

• Cash Credit

• Bill Discounted

• Non funding facility :-letter of credit & bank guarantee

• Both term loan and overdraft facility available

Purpose • Term Loan for capital investment in fixed assets, such as Plant & Machinery, Construction/Purchase of factory Shed/Office Premises, Furniture & Fixtures, Technical Gadgets/Equipment, etc.

• Vehicle Loan for commercial vehicles, used for the factory, transportation etc.

• Working Capital Facilities, such as - Cash-Credit for working capital requirement i.e. to avail the credit

against the security of stock, debtors or other liquid assets. - Bills Discounting for finance against accepted bills of the reputed buyers. - Non-Funding Limits, such as Letter of Credit & Bank Guarantee can be extended for securing large contracts / work orders.

Eligibility • The applicant should be regular member or nominal member


of bank. • Applicant should have banking relation with our bank. • The applicant shall be engaged with trading/ industrial/

Service activity with valid Licenses. Type of facility Operative Overdraft facility with cheque book. Quantum of Finance

500 Lacs

Maximum Amount

Loan upto Rs. 50 Lacs

Margin NA Repayment On demand or 3 years; Renewable with necessary documents. Rate of Interest 13% p.a Security (Collateral)

Stock & Debtors will be collateral security, only initial stock/debtors statement will have to be submitted.

Security (Prime) • In the form of immovable constructed property in Corporation Limits: if outside Corporation limit- TP Plan & Collector NA is required. The property shall be self occupied.

• Any other assignable security such as NSC, LIC, Shares, FDRs etc in support of the above 1.

• If only shares are offered as security, the maximum limit will be restricted to Rs.20.00 Lacs.

Processing Fees @ 0.10% of the Loan Demand Margin 25% of the marketable Security value in bank’s favour (Limit will

be 75%).

Important points for Security:

• The property shall have clear & marketable title & salability.

• Valuation Report of the Panel Value to be considered.

• The property shall not be older than 25 years.

• It should be self occupied.

• If the property is already mortgaged with the bank; the unencumbered portion can

be considered in deserving cases.

• The property will have to be mortgaged with registered mortgage.


BANK OF INDIA

Working Capital Assessment :For providing the working capital loan the bank assess the working capital of the enterprises.

Upto 5 crores Branches should obtain and scrutinise latest audited financials of the constituent in all cases of WC limits above Rs.10 Lacs. Turnover Method would be applicable as mandated under Nayak Committee Recommendations for financing working capital needs of the SMEs @ 20% of the projected turnover based on the assumption of a three month operating cycle. It is abundantly clarified that this 20% is the minimum WC limit to be sanctioned even if the proponent’s operating cycle is shorter than 3 months. Branches should, however, ensure to restrict the drawings in such cases to actual drawing power. MPBF method may be resorted in specific cases with longer operating cycle.

• In case of provisional balance sheets it should be ensured that in the audited financials, the variation is not beyond +/- 5%.

• The next year’s sales projections made by the borrower, however, would have to be corroborated by the trend in sales over 2 years, last year actual sales through verification of the following indicative parameters (besides the financial data submitted by the borrower):

Sales Ledger/Sales Turnover.

Credit Summation in the account.

Sales Memos or Invoices/Delivery Challans.

Sales Tax Paid/Turnover Tax/Excise Register, as applicable,

Electricity Bills –wherever applicable.

Orders on hand/expected orders.

Installed capacity vis-à-vis the projections.

Overall market trend etc.

Such projections should be within reasonable limits say 25% over last year’s sales. However, in

exceptional cases deviations from this may be allowed if supported by LCs/Firm orders on hand

etc.

The bank consider the following ratios of the firms in providing the working capital finance

Current Ratio:

While a benchmark current ratio of 1.33:1 is always desirable, it is felt that some relaxations are

provided to SMEs in their Current Ratio. The bank may be permitted to maintain a minimum

current ratio of 1.20:1 as against 1.25-1.33:1 stipulated for others. Deviations from this range are


not to be allowed (except by one level above the sanctioning authority), particularly if the rating

gets below AA. Borrower has to improve the position by building up the current assets through

infusion of more capital/funds.

Debt-Equity Ratio:

The following may be accepted as the benchmark in this regard:

W/C Limits up to Rs.5 Crores to Micro & Small Enterprises - 4:1. W/C Limits over Rs.5 Crores to Micro & Small Enterprises - 3:1. W/C Limits to Medium Enterprises: 3:1.

Advances to SMEs & SSIs

(a) The rate of interest for all existing and fresh advances to be made to the SMEs will be as

under: (i) The structure of rate of interest

Slab Existing rate Revised rateLimit upto Rs.25000/- 10.25% 10.25% Limit over Rs. 25000/- and upto Rs. 50000/- 10.75% 11.25% Limit over Rs.50000/- and upto Rs. 2 Lacs 11.75% 12.25% Limit over Rs. 2 Lacs & upto Rs. 5 Lacs 12.50% 13.00% Limit over Rs. 5 Lacs & upto Rs. 15 Lacs 13.00% 13.50% Limit over Rs. 15 Lacs & upto Rs. 25 Lacs 13.50% 14.00% Limit over Rs. 25 Lacs As per Credit

Risk ratingAs per Credit Risk rating

(ii) For limits over Rs.25.00 Lacs, the applicable rate is determined by their Risk Rating within a

band 2% above and below the BPLR . The existing interest structure i.e. the proposed rate

with effect from 01.01.2008 are shown in the following table:

UBICR 0 11.50

UBICR 1 12.50 UBICR 2 13.75 UBICR 3 14.75 UBICR 4 15.25 UBICR 5 15.25

(b) Units rated by accredited Credit Rating Agencies under Performance & Credit Rating Scheme

of NSIC for Small Industries and enjoying credit limits above Rs.2 Lacs will be given further

relaxation in the rate of interest as provided below:


1. Highest Rating Reduction of interest by 0.50% 2. Second Highest

Rating Reduction of interest by 0.25%

(c) Any further relaxation in the rate of interest will be approved by Head Office in terms of the

existing delegation in this regard.

PUNJAB NATIONAL BANK The bank provides loans to SME’s under the following categories: 1. PNB SME SAHAYOG SCHEME

Purpose The limit can be utilized for contingencies like additional purchase of raw materials including packing materials/handling charges for the execution of bulk orders, taking part in national/international trade exhibitions for creating market base, payment of consultancy charges, repairs to machinery, labour payments, etc.

Eligibility The scheme is applicable to the existing borrowers whose account have been classified as standard assets as on 31st March for the last three consecutive years and is having credit limits above Rs. 20 Lacs. For sanctioned limits (Term Loan and working capital) above Rs. 20 Lacs the threshold rating should be ‘BB’ as on the closing of previous financial year and earlier years should not be less than ‘B’.

Quantum of Finance

The eligible borrowers will be sanctioned a special credit limit for an amount equal to 20% of the aggregate working capital limits (i.e. fund based and non fund based separately) sanctioned to the unit, subject to a maximum of Rs.25 Lacs and no further adhoc facility should be sanctioned.

Assessment A simple assessment will be made by computing 20% of the aggregate cash credit working capital limits (i.e. limits against stocks and bills put together) or Rs.25 Lacs, whichever is lower. “A unit having aggregate working capital limits of Rs.25 Lacs will be eligible for a limit of Rs.5 Lacs and a unit having aggregate working capital limit of Rs.150 Lacs or above, will be eligible for a limit of Rs.25 Lacs”.

Margin Varies between 17 – 20 % Repayment The borrowers are free to utilize the facility up to 12 times in a year. Each

amount of withdrawal is repayable within maximum period of two months and there should be a gap of 15 days between the date of complete repayment of outstanding and the next withdrawal. In any case, an amount once drawn cannot remain outstanding for more than 2 months. The account is not meant for utilization as a running cash credit account.

Rate of Interest The rate of interest shall be charged as per extant guidelines linked with credit risk rating

Security Collateral security to be obtained as per bank's extant guidelines. The


charge on available security by way of primary/collateral to the existing sanctioned limits will be extended to cover the clean cash credit limit.

Processing Fees 1% Service Charges No Accounting Procedure

The adhoc facility will be made available in the existing account by way of increasing the existing limit by 20% or Rs.25 Lacs, whichever is lower for the stipulated period for which the facility is being extended. However, the limit so enhanced will automatically be reduced to the original limit on expiry of the stipulated period. The limit will have to be reviewed once in every year along with the other working capital limits. The limit has to be enhanced / reduced if there is a revision in the quantum of working capita1limits sanctioned.

2. FINANCE FOR TRADERS

Purpose The bank extends credit to the retail and wholesale traders on attractive terms to meet their requirements of working capital and term loan. Financing stock in trade, book debts and other assets to be used in the trade. Acquiring book / fixed assets like setting up of show room, ACs, delivery van, etc.

Eligibility Traders Quantum of Finance

• Small Traders may be granted facility of term loan for working capital to extent of 60% to 80% of their requirement subject to maximum of Rs. 5 lac.

• For other traders with a working capital requirement of above Rs. 5 lac, 60% to 80% of their requirement can be financed with no upper limit.

Term Loan 60% to 80% of the cost of assets to be purchased. There is no upper limit.Margin Varies between 17 – 20 % Repayment • Term loan for acquiring fixed assets is repayable in equated

monthly/quarterly installments within a period of 5 to 7 years. • Term loan for working capital to small traders up to Rs.5 Lacs is

repayable in equal monthly/quarterly installments within a period of 3 to 5 years.

Rate of Interest

For advances upto Rs.2Lacs:

• Working Capital: BPLR - 1% p.a. • Term Loans: BPLR - 1% + 0.5% (TP) p.a.

For advances above Rs.2Lacs and upto Rs.20Lacs:

• Working Capital: BPLR p.a • Term Loans: BPLR + 0.5% (TP) p.a

For advances above Rs.20Lacs:


• Based on Credit Risk Rating • BPLR to BPLR+ 2% + 0.5% (TP) p.a

Security • Hypothecation/pledge/mortgage of assets to be created with the amount of loan.

• Mortgage of immovable property. • Negative lien on immovable property. • Suitable third party guarantee

Processing Fees

1%

Service Charges

No

BANK OF MAHARASHTRA

The bank provides the following products:

• Cash Credit • Working Capital

PLR 14%

Purpose To provide working capital finance Eligibility Individuals/Firms/Companies or any other legal entity engaged in lawful

business activityQuantum of Finance Maximum up to 200 Lacs

Term Loan Size of the advance Mark up Effective ROI(%) Up to Rs. 50,000 BPLR(-) 2.5 11.50% Greater than 50,000 up to 2.00 Lacs

BPLR(-) 2.00 12.00%

#Greater than Rs. 2 Lacs up to & inclusive of Rs. 25.00 Lacs

BPLR(-)0.75 13.25%

#Greater Rs. 25.00 Lacs& up to Rs. 1.crore

BPLR 14.00%

#Greater Rs.1. crore BPLR + 1. 15.00%

Margin • Upto Rs.25000 :NIL • Above Rs.25000:25%

Repayment Up to 3 years Rate of Interest

BPLR – 13.25% Size wise advance SME Advance-CC/WC limit upto Rs.50000 BPLR(-)2.50% 10.75% >50000 upto Rs.2Lacs BPLR(-)2.00% 11.25% >Rs.2Lacs & upto Rs.25Lacs BPLR(-)0.75% 12.50% >Rs.25Lacs & upto Rs.1crore BPLR 13.25% >1crore BPLR(+)1.00% 14.25%


Security Collateral Processing Fees

Up to Rs. 25,000/- Nil

Rs. 25,001/- to Rs. 1,00,000/- Rs. 250/-

Rs. 1,00,001/- to Rs. 2,00,000/- Rs. 250/- per Lacs or part thereof

Time Norms • Upto Rs.25000 :2 weeks • Over Rs.25000 and upto Rs.5Lacs :4 weeks • Over Rs.5Lacs :8-9 weeks

STATE BANK OF INDIA

Purpose Financing franchisees of Reliance Industries limited for petroleum retail outlets. Term loan and working capital.

Eligibility The following having dealership-appointment letter from Reliance • Corporate

• Non corporate

• Individuals

Quantum of Finance

Term loan – maximum Rs.100 Lacs Cash credit – as per eligibility.

Margin Term loan – 15-25 % Working Capital-25%

Repayment Term Loan • Fixed rate of interest - Maximum of 54 EMIs after a moratorium of

6 months

• Floating rate of interest – Maximum of 78 EMIs after a moratorium period of 6 months

Cash credit – Repayable on demand and to be renewed every year Rate of Interest 12.25% PLR Security/Collateral Primary security: Mortgage of land. Hypothecation of stocks/other

assets created out of bank finance. Collateral security: Security value should be 150% of the overall exposure in case of dealers with good track record (in any business) of three years and 200% in other cases. Personal guarantees of the promoters (dealers). Third party guarantee wherever required

Processing Fees Processing fees:- 0.5%

Transport Plus

Purpose To finance new trucks/tankers/trailers/tippers/luxury buses including take over of existing similar loans from other banks/institutions


Eligibility Profit making Corporates/Non-Corporates (surface transport operators) owning more than 10 well-maintained vehicles (including the proposed).

Quantum of Finance

Minimum Rs. 10 Lacs and maximum Rs. 10 crores.

Term Loan: 100 % of the cost of the chassis, inclusive of excise duty. Other expenses are to be borne by the borrower. Where body building is not required, 80 % of the cost of the vehicle will be financed. An additional Term Loan limit, subject to a maximum of 20% of the original limit may be sanctioned for repair of the vehicle, on or after the 3rd year if the loan account is regular. Cash Credit: 80% of receivables.

Maximum Amount 10 Crores Margin 20% Repayment Term Loan: Maximum 5 years. Repayment will be in Equated Monthly

Installments (EMI), starting two months after disbursement. Cash Credit: Repayable on demand, renewal every year

Rate of Interest For Term loans, 8.50% p.a. with monthly rests and for Cash Credit, 11.75% p.a. with monthly rests.

Security Primary: Hypothecation of vehicles financed as well as book debts. Collateral i) At least 50% of the loan amount

ii) Personal guarantee of promoters and two third-party guarantors. Processing Fees Processing fees:- 0.5% Service Charges No Prepayment Term Loan: Maximum 1% p.a. on the pre-paid amount, for the residual

period. Insurance As per Banks guidelines. Applicability Metro/urban/semi-urban centers

SME CREDIT PLUS

Upto Rs. 50,000 8.50% Above Rs. 50,000 to Rs. 2 Lacs 9.50% Above Rs. 2 Lacs to Rs. 5 Lacs 10.25% Above Rs. 5 Lacs to Rs. 25 Lacs 11.00% Above Rs. 25 Lacs based on credit assessment -

SMALL BUSINESS CREDIT CARD

Size of Credit limit Rate Repayable in 3 years and above

Upto Rs. 50,000 8.5 1.25% below SBAR 9.00 Above Rs. 50,000 to Rs. 2 Lacs 9.5 0.25% below SBAR 10.00 Above Rs. 2 Lacs to Rs. 5 Lacs 10.25 0.50% above SBAR 10.75 Above Rs. 5 Lacs to Rs. 25 Lacs 11.00 1.50% above SBAR 11.75 Above Rs. 25 Lacs based on credit assessment - 11.00 to 12.75% -


EICHER MOTOR LIMITED

Loan Category Rate Repayable in 3 years and above

Rate

Upto Rs. 6 Lacs 9.00 1.00% below SBAR 9.25 Upto Rs. 8 Lacs 10.00 SBAR 10.25

TRANSPORT PLUS

Corporates Type Description Rate

Rs. 15 Lacs to Rs. 7.5 Cr Term loan 0.75% above SBAR 11.00

Rs. 10 Lacs to Rs. 10 Cr Cash Credit 0.50% above SBAR 10.75

HDFC BANK

The bank provides the following:

Purpose Working capital Eligibility Turnover of Rs.60 Lacs , At least in business from 5 years and 3 years

profit Quantum of Finance

Min. Rs10 Lacs up to Rs.25 crores

Maximum Amount

25 crores

Margin • Stock-25% • Bad debt-40%

Repayment No Rate of Interest Min. 12.25% PLR being 16% Security Primary – stock and book debts Collateral 110% of the loan amount Processing Fees 1% Service Charges Not applicable Renewal fee 0.50%


CONCLUSION OF THE REPORT

The first report was regarding the analysis of the steel customers.

The steel manufacturers say that they do not have much impact on their business. The processing

costs have increased because there is an increase in the price of raw material. Further they say

that the impact is due to the rise in the fuel prices and there is a rise in the demand for housing

and infrastructure sector in Pune. Due to this demand there is a rise in the demand for steel and

growth in sales. So, this has an impact on the net margin of the steel manufacturers and

effectively increases the profits of the firm. So the business of the steel manufacturers is growing

and there is no problem in financing them for the requirement of their working capital finance by

the bank. In fact the bank can negotiate with these clients with their interest rate. The banks

should increase the interest rates and should charge a minimal amount as processing fees.

While if we see the steel traders, some of them say that there is an increase in the demand of steel

but others say that the developers have a huge amount of steel dumped with them for their

requirement. So, there is a decrease in their clients which further impact their net margin. They

say that the margin is same as last year. So, if we take the inflation factor they are on the loss. So

the bank should have a think over financing the small traders of the steel sector.

The second report was regarding the analysis of the norms of different banks providing working

capital finance. The entrepreneurs have the different options available with them in the financial

market. Basically the entrepreneurs look at the following things:

PLR (Prime Lending Rate) Number of Documents required

Collateral Security Interest rate

Service charges Processing fees

Renewal fees Repayment schedule

The customers look for the banks market position and value. Their previous experience with the

bank and their friend’s experience with other banks provide them the reference to have a

relationship with the bank. The customer mainly looks for the minimal obligations and the ease in

getting the amount they required for the loan. So, the proposed customer looks for the minimum

interest rate with the maximum possible service in the shortest span of time. The proposed

customers must look for those banks which have lowest NPA’s (Non Performing Assets) and the

flexibility in the repayment process if required.


BIBILIOGRAPHY

www.hsbc.co.in

www.stancharetered.co.in

www.statebankofindia.com

www.federalbank.com

www.unionbankofindia.com

www.hdfcbank.com

www.hsbc.co.in

www.obcindia.co.in

www.centralbankofindia.co.in

www.icicibank.com

www.denabank.com

www.idbibank.com

www.bankofbaroda.com

www.cosmosbank.com

www.bankofindia.com

www.pnbindia.com

www.bankofmaharashtra.in

www.smallindustry.com

www.india.smetoolkit.org

www.smebank.com

www.sme.in

www.ficci.com

Financial management by I M Pandey.

Financial Management by Khan and Jain.

HDFC also provided a product note on working capital finance.

http://www.hsbc.co.in/�

http://www.stancharetered.co.in/�

http://www.statebankofindia.com/�

http://www.federalbank.com/�

http://www.unionbankofindia.com/�

http://www.hdfcbank.com/�

http://www.hsbc.co.in/�

http://www.obcindia.co.in/�

http://www.centralbankofindia.co.in/�

http://www.icicibank.com/�

http://www.denabank.com/�

http://www.idbibank.com/�

http://www.bankofbaroda.com/�

http://www.cosmosbank.com/�

http://www.bankofindia.com/�

http://www.pnbindia.com/�

http://www.bankofmaharashtra.in/�

http://www.smallindustry.com/�

http://www.india.smetoolkit.org/�

http://www.smebank.com/�

http://www.sme.in/�

http://www.ficci.com/�