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Key Aspects of Project Appraisal for SME
Financing
CII FINcon 02.09.06
Dr Rajesh Khajuria, Director
TEAMPro Ltd, London
TEAM Projects & Consultants, Vadodara
Dr R Khajuria @ TEAM 2
A Warm Welcome to all of You!
• CII Organisers and Members• SME Owners and Managers• Chief Guests• Speakers
Dr R Khajuria @ TEAM 3
Presentation Plan
I. Indian SME Overview.
II. Project Appraisal Methods.
III. Project Appraisal: Key Aspects.
IV. Case Study @ Asahi Songwon Colors Ltd with Korean Technology for TL, WCL and Public Issue.
V. Questions?
Indian SME Overview
Part I
Dr R Khajuria @ TEAM 5
Welcome to Indian SMEs!
• 95% of Industrial Units are SMEs• 40% of Value Added in Manufacturing
Sector• 35% of National Exports• 7,500 Products Manufactured• Employs 20 million people• But, contribute only 7% of GDP ?• 40% of Bank Finances to Priority Sector
– SMEs and Agriculture
Dr R Khajuria @ TEAM 6
Welcome to 3.5m Indian SMEs!
Dr R Khajuria @ TEAM 7
SMEs achieve Rs 8000 billion Sales
Dr R Khajuria @ TEAM 8
SMEs have Rs 1000 billion Investment
Dr R Khajuria @ TEAM 9
SMEs Export Rs 800 billion G & S
Dr R Khajuria @ TEAM 10
SMEs provide 20 million Employment
Dr R Khajuria @ TEAM 11
The World depends on SMEs
• UK: 98% of all Businesses are SMEs
• Japan: 99% are SMEs
• USA: 96% are SMEs
• Africa’s 29 nations: 99.5% are SMEs
• The world depends on SMEs
• India depends on SMEs for economic success of its 1 billion people
Project Appraisal Methods
Part II
Dr R Khajuria @ TEAM 13
Project Appraisal Methods
• Today we discuss…• Bank Appraisal for Loans.• Appraisal for Public Issue of Equity.
• Other Methods:– FI Appraisal for Loans– World Bank Project Appraisal– UNIDO, Social Project Appraisal
Project Appraisal : Key Aspects
Part III
Dr R Khajuria @ TEAM 15
Project Appraisal: Key Aspects
• The Objectives• The Project• Methodology of Appraisal• Corporate Analysis• The Promoters Team• Marketability Assessment• Technical Feasibility• Economic Viability & Financial Structuring• Environmental Impact Assessment• Conclusion & Recommendation
Case Study @ Asahi Songwon Colors Ltd
Part IV
Dr R Khajuria @ TEAM 17
The Objectives @ Case Study
• Asahi Songwon Colors Ltd, Ahmedabad (Padra Plant)– Phase I: 2005 – Operating.– Phase II & III: Expansion proposed with
Term Loan, Working Capital Loan and Public Issue.
• Total Investment Rs 71 Crore.
– State Bank of India referred the Project Appraisal assignment to TEAM.
Dr R Khajuria @ TEAM 18
Methodology of Appraisal• Project Report of the company as a base.• Site visit to the Factory.• Market & Competition Analysis.• Discussions with the Bankers and Co.’s top
executives on all aspects.• Raising 35 Queries.• Balance Sheet Analysis.• Independent & unbiased Appraisal & Judgement• Confidential Report with Specific Conclusions and
Recommendations.
Dr R Khajuria @ TEAM 19
The Project @ Colors• Asahi Songwon Colors Ltd has already
invested Rs 25 Crore in a new Medium Scale Plant at Padra (Baroda) to manufacture basic Colors for export and domestic markets.
• Collaboration with Songwon Colors Ltd, Korea (taken over by Clariant of Europe).
• Colors are used in all walks of life: Textiles to everything we see, touch and feel.
Dr R Khajuria @ TEAM 20
Vision• Songwon, Korea:
– ‘Better Colour for A More Beautiful Life’.
• Asahi, India:– “To be a global leader in its field of
Pigments by supplying quality and environment friendly products
to MNCs worldwide.”
• Can you analyse both Visions?
Dr R Khajuria @ TEAM 21
Corporate Analysis• Past Performance
• Corporate Emergence
• Promoters Team – Most Important
• SWOT Analysis
Dr R Khajuria @ TEAM 22
The Promoters Team• Highly qualified and experienced with up to
15 years experience in the same line.• MBA (USA), Technologists, CA.• Exporting, Profit-making existing business.• Demonstrated Performance in
Manufacturing, Management and Export.• Politically well-known, but not spared by
State Bank of India from Project Appraisal!
Dr R Khajuria @ TEAM 23
Marketability Assessment
• Product & Applications• Demand assessment based on end-user
method– Global Consumption estimates
• Competition and Supply Assessment– Export – Import Data analysis– International and domestic prices
• Demand-Supply Gap and Customers• Scope for the Company to tap the ‘Gap’
Dr R Khajuria @ TEAM 24
Technical Feasibility
• Capacity Assessment & Projected Utilisation
• Manufacturing Process• Land & Building Requirements• Plant & Machinery & Layout proposed• Inputs: Raw Materials, Power, Fuel,
Water, sources, quantities, prices, suppliers
Dr R Khajuria @ TEAM 25
Technical Feasibility
• Technology source and cost
• Manpower Requirements & Costs
• Pollution Control Measures
• ISO Certification: 9000 / 14000
Dr R Khajuria @ TEAM 26
Economic Viability
• Project Cost– Appraisal resulted in Addition of Rs 6 Crore to
original estimate of Project Cost – Rs 71.5 Crore to Rs 77.55 Crore
– Rise in Equipment costs and increased Working Capital, detected from TEAM’s ‘Appraisal process’
– Hell lot of efforts to convince the Company about raising Sources of Finance by Rs 6 Crore!
Dr R Khajuria @ TEAM 27
Sources: Financial Re-structuring
Rs Crore• Term Loan SBI (FCNR/Rs) 13.82• Equity Share Capital 43.84• Unsecured Loan 07.98• Reserves & Surplus 11.25• Deferred Tax Liability 00.66• TOTAL Sources of Finance 77.55• Add: Working Capital Loan 24.00
Dr R Khajuria @ TEAM 28
Environmental Impact Assessment
• Water pollution quantity• Treatment methods and equipments• Disposal to ETP Channel as per GPCB
Rules• Membership of ETP Channel• Sources of Fresh Water• Ministry of Environment & Forest’s
clearance needed for large Projects
Dr R Khajuria @ TEAM 29
Conclusion & Recommendation
• The project is assessed by TEAM at the behest of State Bank of India.
• The Project is Technically Feasible and Economically Viable.
• SBI may grant Term Loan and Working Capital Loan recommended.
• The Appraisal may be ‘quoted’ in Prospectus for SEBI permission for Public Issue.
Dr R Khajuria @ TEAM 30
Learning Today
• Proven Appraisal Process. Reliability.– Based on PhD Research of Dr Rajesh Khajuria
• Independent & Unbiased Appraisal.• Appointment by a Bank or Financial Institute.• Consultant’s Track Record. Credibility.
– TEAM has 95% Success rate and 99% Recovery of Loans recommended for 200 Projects in 23 years (1983-2006).
• Quick Turnaround. • Ethics for Long Term Success.
Dr R Khajuria @ TEAM 31
Questions?
Dr Rajesh Khajuria, Director
TEAMPro Limited www.TeamPro.org
[email protected] M: 94260 75402
Data and Image Courtesy: SSI Annual Report 2003, Ministry of Small Scale Industries, Government of India
