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Preparation of project reports and appraisal of projects


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Suresh Mohan FCA, on preparing a great project report and effective project appraisal

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Preparation of project reports and appraisal of projects

  1. 1. Preparation of Project Reports and Appraisal of Projects An Orientation Programme At RIAB on 22 nd May 2010
  2. 2. Space for information
  3. 3. Project reports- Communication tools <ul><li>&quot; It is insight into human nature that is the key to the communicator's skill. </li></ul><ul><li>For whereas the writer is concerned with what he puts into his writing, the communicator is concerned with what the reader gets out of it. </li></ul>
  4. 4. Communication tools <ul><li>With limited availability of time , and ,information overload in current times, crisp & clear written communication has become a critical factor in decision making. </li></ul>
  5. 5. Be effective <ul><li>Your written expression, in your absence, is a direct communication of your & your company’s / projects signature, who you are, what your company/project stands for. </li></ul>
  6. 6. Be Effective <ul><li>Honoring fundamental principles of effective report writing </li></ul><ul><li>brings clarity, </li></ul><ul><li>velocity and </li></ul><ul><li>produces intended results. </li></ul>
  7. 7. Approach <ul><li>Why are we making this report ? </li></ul><ul><li>Terms of reference </li></ul><ul><li>What is the report expected to achieve? </li></ul><ul><li>Who are the target audience? Best source of information </li></ul><ul><li>Time and cost </li></ul>
  8. 8. Maximize the effectiveness Demonstrate Familiarity Modeling Experience Maximum Reader insight Minimum Reader effort
  9. 9. Demonstrate familiarity <ul><li>An effective introduction demonstrates your familiarity with the project. </li></ul><ul><li>Project goals </li></ul><ul><li>Assumptions </li></ul><ul><li>Flow charts </li></ul>
  10. 11. Minimize Reader Effort Organization level At the Sentence level Get to the point Top down Technical details- option Use Simple text
  11. 12. Modeling Experience <ul><li>Power of thought and intent </li></ul><ul><li>KELTEC </li></ul><ul><li>Air cargo complex, CFS, Solar Roof top etc </li></ul><ul><li>Proto type development </li></ul><ul><li>Contract farming ??? </li></ul>
  12. 13. Modeling Experience <ul><li>Effective analysis of the project </li></ul><ul><li>Describe models used [Air cargo] </li></ul><ul><li>Illustration with graphs, tables </li></ul><ul><li>Sensitivity </li></ul><ul><li>Toy problem </li></ul>
  13. 15. Contents <ul><li>Highlights of the Project </li></ul><ul><li>Sponsors of the project </li></ul><ul><li>Constitution and Management of the industrial concern </li></ul><ul><li>Present and proposed composition of the Board </li></ul><ul><li>Description of the project Purpose, capacity, process and design </li></ul><ul><li>Technical arrangements </li></ul>
  14. 16. Contents <ul><li>Project management </li></ul><ul><li>Labour </li></ul><ul><li>Location </li></ul><ul><li>Buildings </li></ul><ul><li>Plant and equipment </li></ul><ul><li>Raw materials, Consumables, Utilities </li></ul><ul><li>Ecological effects Safety measures </li></ul><ul><li>Effluent disposal </li></ul>
  15. 17. Contents <ul><li>Means of financing </li></ul><ul><li>Share Capital </li></ul><ul><li>Loan requirements </li></ul><ul><li>Market and selling arrangements Product, its uses and Government policy, etc </li></ul><ul><li>Projected demand and supply, Prices </li></ul><ul><li>Commercial Aspects – Sales forecast, marketing plan and distribution arrangements </li></ul>
  16. 18. Contents <ul><li>Financial evaluation operational performance Operating costs and profits </li></ul><ul><li>Financial Statements </li></ul><ul><li>Financial Return Economic and social evaluation Economic Effects </li></ul><ul><li>Social Effects </li></ul>
  17. 20. Highlights of the Project <ul><li>Brief description of the project and special features. </li></ul><ul><li>Nature of industry and products as also capacity licensed/installed </li></ul><ul><li>Special features (introduction of the product for the first time, innovation and technology, export-oriented/import substitutive, defense oriented, promoted by technician entrepreneurs based on local resources, located in backward area) </li></ul><ul><li>Factors influencing selection of the project and preparatory studies/investigations on which it is based </li></ul>
  18. 21. Highlights <ul><li>Benefits (social and economic) expected out of the project for the region/country </li></ul><ul><li>Overall cost and financial requirement </li></ul><ul><li>Economic and industrial policies of the Government having a bearing on the industry and the project. </li></ul><ul><li>Present status and progress of the project </li></ul>
  19. 22. Sponsors of the project <ul><li>Background of chief sponsors in business, industry, etc.and their role in the project </li></ul><ul><li>Details of associates as co-promoters, collaborators , etc. of the project in India and abroad. </li></ul><ul><li>Details of other projects, if any, promoted/proposed to be promoted by same group/company simultaneously with the project or in the near future. </li></ul><ul><li>Details of other companies with which the sponsors are associated </li></ul><ul><li>Previous exposure of the company and sponsors to financial institutions/banks in India and abroad. </li></ul>
  20. 23. Constitution and Management of the industrial concern <ul><li>Name, nature and evolution, date and place of incorporation of the company; addresses of registered/controlling office and place to business </li></ul><ul><li>Activities covered in the Memorandum and the Articles of Association </li></ul><ul><li>Information on ownership and control of the company promoters and their holdings other main shareholders and their holdings foreign participation and control </li></ul>
  21. 24. Present and proposed composition of the Board <ul><li>Present composition of Board, background of directors particularly of whole-time directors, their past experience in industry , business, etc </li></ul><ul><li>Changes contemplated for broad basing the Board for inducting experts on it etc </li></ul>
  22. 25. Description of the project Purpose, capacity, process and design <ul><li>Detailed description of project and its purpose </li></ul><ul><li>Complete details of product range, including by products proposed to be manufactured, product mix proposed with reasons therefore, utilization/disposal of by-products and scrap generation. </li></ul><ul><li>Details of overall capacity to be installed as also capacity of each product line. </li></ul><ul><li>Balancing of capacities of different sections with reasons for deviation, if any </li></ul>
  23. 26. Project description <ul><li>Number of shifts proposed to be worked, production expected and phased utilisation of the installed capacity </li></ul><ul><li>Utilisation of excess capacity, if any, and the benefits proposed to be derived from it. </li></ul><ul><li>Key factors having a bearing on utilisation of capacity such as availability of raw materials, market, import export policy, etc </li></ul><ul><li>Possible alternate production programme based on plant capacities </li></ul>
  24. 27. Project description <ul><li>Detailed specifications of the products and comparison with international/ISI specifications </li></ul><ul><li>Technological process proposed to be adopted for manufacture and reasons for adopting/choosing a particular process in preference to other technological processes; successful adoption of the process elsewhere; if new, its commercial worthiness ; description of process with flow diagram; material balance and time chart. </li></ul><ul><li>Present stage of technology in the industry and possible technological changes </li></ul>
  25. 28. Project description <ul><li>Measures for inspection/testing and quality control </li></ul><ul><li>Manufacturing units using the same process as proposed by the applicant and major technical and other problems, if any, faced by them </li></ul>
  26. 29. Clarity <ul><li>Can I smoke while Praying </li></ul><ul><li>NO </li></ul><ul><li>You can pray while smoking </li></ul>
  27. 30. Technical arrangements <ul><li>Availability of and arrangements for obtaining engineering know how, basic design engineering, detailed engineering, selection of equipment suppliers and contractors , construction, erection , supervision, trial runs and staff </li></ul><ul><li>Jobs to be undertaken by the company itself and by the collaborators and consultants </li></ul><ul><li>Foreign /local collaboration with background and experience of the parties involved </li></ul><ul><li>Details of collaboration agreement, etc </li></ul>
  28. 31. Project management <ul><li>Organizational structure at different stages of implementation and when plant goes into stream, and the overall staffing pattern </li></ul><ul><li>Description of functions of operating divisions ands senior functionaries </li></ul><ul><li>Senior personnel, especially department heads and above appointed/to be appointed, their technical background and experience. </li></ul><ul><li>Details of key personnel required for the project together with requirements of training </li></ul><ul><li>Collaborator’s project team ( if applicable ) during project implementation and start-up </li></ul>
  29. 32. Labour <ul><li>Number sources and quality of manpower required by categories and skills </li></ul><ul><li>Training requirements, programmes and facilities </li></ul><ul><li>Effect of labour legislation, labour relations , etc </li></ul><ul><li>Wages of operating and non-operating staff ( direct and indirect labour wages), social security, incentive system and other benefits. </li></ul>
  30. 33. Location <ul><li>Factors influencing choice of location in preference to alternative location ( transport of material and personnel, nearness to market, communication system, availability of raw materials, water, power, labour, etc) </li></ul><ul><li>Details about erection and maintenance facilities, waste/effluent disposal facilities, social/environmental factors such as living conditions, recreational , educational, medical facilities, etc </li></ul><ul><li>Suitability of site with reference to rainfall, floods, cyclones, earthquakes, climatic conditions, etc </li></ul><ul><li>Area of land required for factory buildings, ancillary buildings, storage facilities, housing colony and provision for future expansion. </li></ul>
  31. 34. Land <ul><li>Formalities for acquisition of land and position regarding use of land for industrial purpose </li></ul><ul><li>Details of cost of land including conveyance charges, reasonableness of cost </li></ul><ul><li>Terms of purchase of land particularly the mode of payment lump sum or deferred installment </li></ul><ul><li>Site development requirement and cost </li></ul><ul><li>Soil and other tests of the land </li></ul>
  32. 35. Buildings <ul><li>Area required , type of construction proposed for various buildings, building plans and details of cost estimates with basis. </li></ul><ul><li>Arrangements for construction of buildings, selection of architects, structural consultants, civil contractors, etc </li></ul><ul><li>Experience and competence of contractors, etc and terms of contracts including penalty provisions. </li></ul><ul><li>Cost of building roads, compound walls, fences and other related infrastructure and the bases for the cost estimates. </li></ul><ul><li>Time schedule for completion of construction and occupation </li></ul>
  33. 36. Plant and equipment <ul><li>List of items of plant equipment with specifications </li></ul><ul><li>Layout of the plant and machinery indicating the flow of material </li></ul><ul><li>Basis for selection of machinery and equipment and suppliers (price quality, plant, scale, balancing of equipment , future expansion , etc) </li></ul><ul><li>Source of availability; local or imported ( incase of imported equipment, reasons for import, country or origin, import licensing, delivery schedule, landed cost, mode of payment, services, provision for spare parts and performance guarantees) </li></ul>
  34. 37. Plant <ul><li>Indigenous equipment, its capacity, prices, delivery schedule, services, performance guarantees , etc </li></ul><ul><li>Position regarding stores and spares, erection and installation costs </li></ul><ul><li>Position regarding erection on turnkey basis or otherwise </li></ul><ul><li>Equipment for pollution control </li></ul><ul><li>Time schedule for erection </li></ul>
  35. 38. Raw materials <ul><li>Detailed specifications ( including any industrial standard) of raw materials and the quantity required </li></ul><ul><li>Sources of supply( imported and indigenous) </li></ul><ul><li>Prices, price trends, import duties dependence on imports, foreign exchange requirement and availability </li></ul><ul><li>Details of concessions, contracts and trade credits </li></ul>
  36. 39. Raw materials <ul><li>If in short supply special arrangements for obtaining them indigenously /by import and substitution possibilities . ( In case of automobile and ……industries (i) complete list of parts indicating separately details of manufactured, bought-out semi-finished (BOSF), bought out finished (BOF) and proprietary components and (ii) details about ancillary development for supply of components and alternate sources in view for critical components be given) </li></ul>
  37. 40. Consumables <ul><li>Description of each item and quantity involved , prices inventory policy, storage facilities, etc </li></ul>
  38. 41. Utilities <ul><li>A detailed assessment of the utilities required appropriate to location, technology and plant capacity </li></ul><ul><li>Estimate of consumption of utilities, identification of existing source of supply and any bottlenecks and shortages that exist or are likely to develop and appropriate measures envisaged to provide for additional supplies in time </li></ul>
  39. 42. Electricity <ul><li>(i) Analysis of energy situation specifying requirements and sources , availability and costs of supply </li></ul><ul><li>(ii) Estimation of maximum power demand, connected load, peak load and possible stand-by arrangements and daily and annual consumption both by shifts and in total </li></ul>
  40. 43. Water <ul><li>(i) Estimate of water requirements for production, auxiliary and general purposes </li></ul><ul><li>(ii) Sources of water availability ( with capacities of the sources , tube well, tank, reservoir, etc) and approvals, when necessary </li></ul><ul><li>(iii) Water charges, if any, payable </li></ul><ul><li>(iv) Testing of quality of water and arrangements for treatment </li></ul>
  41. 44. Others <ul><li>(i) Requirements of various fuels, their sources of supply and unit costs. </li></ul><ul><li>(ii) Requirements of other utilities, such as steam ( with specification of boiler) , compressed air, fuel , etc </li></ul>
  42. 45. Ecological effects Safety measures <ul><li>Accident prevention, protection from fire, explosion , noise, radiation, etc </li></ul>
  43. 46. Effluent disposal <ul><li>1. Details of toxic and poisonous effluents in the form of solids, liquids, vapours, etc </li></ul><ul><li>2. Arrangements made for treating/disposing of effluents </li></ul><ul><li>3. Approvals from regulative authorities fore pollution control, etc </li></ul><ul><li>4. By-product disposal or recycling </li></ul><ul><li>5. Problems and recommended investigations. </li></ul>
  44. 47. Means of financing <ul><li>Envisaged pattern of financing and factors taken into consideration for proposed pattern or resources –mix as between owned funds, borrowed funds, etc </li></ul><ul><li>Nature and quantum or resources already raised, their sources , terms and conditions, security , etc </li></ul>
  45. 48. Share Capital <ul><li>1. Equity proposed </li></ul><ul><li>2. Equity brought in/proposed to be brought in by promoters </li></ul><ul><li>3. Mode and source of promoters contribution </li></ul><ul><li>4.Capital contribution , if any, from foreign collaborators </li></ul><ul><li>5. Quantum of equity to be raised through public issue of shares and underwriting support required/tied up for public issue. </li></ul>
  46. 49. Loan requirements <ul><li>1. Loan requirements from institutional and other sources in the form of foreign currency and /or rupee loans </li></ul><ul><li>2. Quantum of funds raised/proposed to be raised by way of deposits/unsecured loans from promoters, their associates and others </li></ul><ul><li>3. Guarantees, if any, required, indicating purpose, nature of currency and form </li></ul><ul><li>Details of security for loans, guarantees, etc </li></ul>
  47. 50. Market and selling arrangements Product, its uses and Government policy, etc <ul><li>Description of product and its major uses-present and future-and its importance in country’s manufacturing sector </li></ul><ul><li>Special features of product (s) (quality, price, etc) which would result in consumer acceptance/preference </li></ul>
  48. 51. Assessment of market-Capacity& trends in production & consumption, etc <ul><li>Present installed capacity in industry (unit-wise, region-wise, product specification-wise) and trend in capacity creation and utilization in the past </li></ul><ul><li>Local production and imports in terms of quantity and value </li></ul><ul><li>Trends in consumption from domestic production and imports, total and per capita </li></ul><ul><li>Classes of buyers, product end-use and consumption patterns (sectoral , regional and seasonal) </li></ul>
  49. 52. Projected demand and supply <ul><li>Demand for domestic and export markets year to year (till the end of the current plan/for a period of 5 years) </li></ul><ul><li>Estimates of domestic production ( including capacities of other new projects), imports and market shares of unit for at least 5 years) </li></ul><ul><li>Regarding export possibilities, nature of competition in foreign countries, comparative data on manufacturing cost and prices (domestic as well as export) prevailing in selected competing countries </li></ul><ul><li>In case of export commitments, as part of Government requirements, arrangements proposed for meeting and export incentives available </li></ul>
  50. 53. Prices <ul><li>Current prices of the product( for domestic, ex-factory , wholesale and retail and for imports : cif/fob prices and landed cost) </li></ul><ul><li>Past and anticipated trends in prices </li></ul>
  51. 54. Commercial Aspects – Sales forecast, marketing plan and distribution arrangements <ul><li>Estimates of sales for unit in physical and financial terms, both domestic and export. </li></ul><ul><li>Prices fixed for products, basis for fixing prices, comparison with prices of similar products from other existing manufacturers, etc </li></ul><ul><li>Conditions for export, if any, and arrangements for fulfilling it. </li></ul><ul><li>Forecast of profitability and sales ( volume and value) </li></ul>
  52. 55. Commercial <ul><li>Distribution arrangement with reference to – (a) sales and distribution organization, (b) sale through sole selling agents/distributors/directly through own sales network </li></ul><ul><li>If bulk production is supplied to some principal customers, long-term arrangements with such customers/dealers </li></ul>
  53. 56. Financial evaluation Operating costs and profits <ul><li>Cost structure, fixed and variables costs </li></ul><ul><li>Unit cost by products </li></ul><ul><li>Break-even point as percent of capacity utilisation </li></ul><ul><li>Operating profits and profitability by product line </li></ul>
  54. 57. Financial Statements <ul><li>Income statements </li></ul><ul><li>Cash flow statements </li></ul><ul><li>Balance sheets </li></ul>
  55. 58. Financial indices forecast and evaluation future situation) <ul><li>Liquidity ratios </li></ul><ul><li>Current ratio </li></ul><ul><li>Debt service coverage ratio </li></ul><ul><li>Profitability ratios </li></ul><ul><li>-Profit margin (gross profits/sales) </li></ul><ul><li>-Net profit/turnover ratio </li></ul><ul><li>-Profitability ratio (net profit/equity) </li></ul><ul><li>Other ratios </li></ul><ul><li>-Receivable turnover </li></ul><ul><li>-Average turnover ( sales cost/inventory ,etc) </li></ul>
  56. 59. Financial Return <ul><li>1. Internal (financial) rate of return </li></ul><ul><li>2. Sensitivity analysis risks and uncertainty </li></ul><ul><li>3. Return to investors </li></ul><ul><li>Past dividend distributions and future policies </li></ul><ul><li>Earnings per share, etc </li></ul>
  57. 60. Economic and social evaluation Economic Effects <ul><li>1. Benefit-cost analysis </li></ul><ul><li>Economic rate of return </li></ul><ul><li>Sensitivity analysis </li></ul><ul><li>2. Rate of return on notional capital (where appropriate) </li></ul><ul><li>3. Other effects </li></ul><ul><li>On growth and country’s development programme ( balance of payments, import-substitution, etc) </li></ul><ul><li>Economics of scale </li></ul><ul><li>Externalities –utilisation of idle productive capacity, creation of new markets, transfer of technology, stimulation of new industries, interdependencies with other projects, etc </li></ul>
  58. 61. Social Effects <ul><li>Employment (local and national): direct and indirect effects </li></ul><ul><li>Rates </li></ul><ul><li>New job opportunities </li></ul><ul><li>Income distribution, standard of living; modification of consumption habits </li></ul><ul><li>Other social effects </li></ul><ul><li>Training of local labour and management </li></ul><ul><li>Improvement in literacy level of local population; improvement in health, nutrition and housing conditions. </li></ul>
  59. 63. Project Appraisal A case study and approach
  60. 64. Project Appraisal <ul><li>The purpose of Project Appraisal is to ascertain whether the project will be sound – technically, economically, financially and managerially – and ultimately viable as a commercial proposition. </li></ul><ul><li>The appraisal of a project will involve the examination of: </li></ul><ul><li>a) Technical Feasibility : To determine the suitability of the technology selected and the adequacy of the technical investigation, and design. </li></ul>
  61. 65. Project Appraisal <ul><li>b) Economic Feasibility : To determine the conduciveness of economic parameters to setting up the project and their impact on the scale of operations. </li></ul><ul><li>c ) Financial Feasibility : To determine the accuracy of cost estimates, suitability of the envisaged pattern of financing and general soundness of the capital structure. </li></ul>
  62. 66. Project Appraisal <ul><li>d) Commercial Viability : To ascertain the extent of profitability of the project and its sufficiency in relation to the repayment obligations pertaining to term finance. </li></ul><ul><li>e) Managerial Competency : To ascertain that competent men are behind the project to ensure its successful implementation and efficient management after commencement of commercial production. </li></ul>
  63. 67. Social Objectives <ul><li>A project should also be examined, wherever appropriate, from the point of view of its value to the national economy in terms of socio-economic benefits like generation of employment opportunities, forex earnings, the quantum of import substitution, etc. </li></ul>
  64. 68. Project Appraisal <ul><li>The first step in Project Appraisal is to find out whether the project is prima facie acceptable by examining salient features such as: </li></ul><ul><li>The background and experience of the applicants, particularly in the proposed line of activity </li></ul><ul><li>The potential demand for the product </li></ul><ul><li>The availability of the required inputs, utilities and other infrastructural facilities </li></ul><ul><li>Whether the project is in keeping with the priorities, if any, laid down by the Government. </li></ul>
  65. 69. Project Appraisal <ul><li>The original application may not contain all the basic data / information. In such cases, it may be necessary to interview the applicants and elicit all the necessary data / information with a view to forming an overall idea about the general feasibility of the project. </li></ul><ul><li>After satisfying itself about the prima facie acceptability of the project, we should call for from the promoters, an ‘Application’, containing the following essential data / information, such as: </li></ul>
  66. 70. Project Appraisal <ul><li>a) Particulars of the project along with a copy of the Project Report furnishing details of the technology, manufacturing process, availability of construction / production facilities, etc. </li></ul><ul><li>b) Estimates of cost of the project detailing the itemized assets acquired / to be acquired, inclusive of Preliminary / Pre-operative Expenses and WC margin requirements. </li></ul>
  67. 71. Project Appraisal <ul><li>c) Details of the proposed means of financing indicating the extent of promoters’ contribution, the quantum of Share Capital to be raised by public issue, the composition of the borrowed capital portion with particulars of Term Loans, DPGs, Foreign Currency Loans, etc. </li></ul><ul><li>d) WC requirements at the peak level (i.e., when the level of Gross Current Assets is at the peak) during the first year of operations after the commencement of commercial production and the banking arrangements to be made for financing the WC requirements. </li></ul>
  68. 72. Project Appraisal <ul><li>e) Project Implementation Schedule. </li></ul><ul><li>f) Organisational set up along with a list of Board of Directors and indicating the qualifications, experience and competence of (i) The key personnel to be in charge of implementation of the project during the construction period and (ii) The executives to be in charge of the functional areas of purchase, production, marketing and finance after commencement of commercial production. </li></ul>
  69. 74. Project Appraisal <ul><li>g) Demand projection based on the overall market prospects together with a copy of the market survey report. </li></ul><ul><li>h) Estimates of sales, CoP and profitability. </li></ul><ul><li>i) Projected P&L Account and B/S for the operating years during the currency of the Bank’s term assistance. </li></ul><ul><li>j) Proposed amortisation schedule, i.e., repayment programme. </li></ul>
  70. 75. Project Appraisal <ul><li>k) Projected Funds Flow Statement covering both the construction period and the subsequent operating years during the currency of the Term Loan. </li></ul><ul><li>l) Details of the nature and value of the securities offered. </li></ul><ul><li>m) Consents from the Government / other authorities and any other relevant information. </li></ul>
  71. 76. Project Appraisal <ul><li>In respect of existing concerns, in addition to this information, particulars regarding the history of the concern, its past performance, present financial position, etc., should also be called for. </li></ul><ul><li>The ‘Application’ completed in all respects and duly signed by the authorised signatories of the Company will form the basis for the detailed appraisal of the project. </li></ul>
  72. 77. Project Appraisal <ul><li>An inspection of the project site (or factory in the case of existing units) is a must. </li></ul><ul><li>Each project has to be examined in proper perspective having due regard to its nature, size and scope. </li></ul><ul><li>Although the basic techniques employed for appraising the viability of various projects are more or less the same, there could be no standard or uniform approach for appraising all projects. </li></ul>
  73. 78. Project Appraisal <ul><li>The ultimate objective of the appraisal exercise is to ascertain the viability of a project with a view to ensuring the repayment of the borrower’s obligations . </li></ul><ul><li>Therefore, it is not so much the quantum of the proposed term assistance as the prospects of its repayment that should weigh with us while appraising a project. </li></ul>
  74. 80. Project Appraisal <ul><li>In project appraisal, nothing should be assumed or taken for granted. </li></ul><ul><li>All the data / information should be checked and, wherever possible, counter-checked through inter-firm and inter-industry comparisons. </li></ul><ul><li>It should be borne in mind that “Healthy skepticism is a cardinal virtue in project appraisal.” </li></ul>
  75. 85. Project Appraisal Memorandum <ul><li>Proposal </li></ul><ul><li>Nature of proposal; </li></ul><ul><li>Purpose: New project , expansion,modernisation or for any other approved purpose </li></ul>
  76. 86. 2. Brief History <ul><li>Brief account of corporate history;MA&AA;Regd address;present organizational set up with BoD; Qualifications, experience and background; Line of activities,Financial position,etc,of Associate Concerns; overall structure of inter-corporate Investments </li></ul>
  77. 87. 3. PAST PERFORMANCE <ul><li>Summary of Company’s past performance in terms of licensed/installed/operating capacities, sales, operating profit and Net Profit for the past 3 years; Capacity utilization; Sales & profitability; Dividend policy; Capital expenditure programmes implemented by the Company during the past 3years and how they were financed; company’s management-labour relations </li></ul>
  78. 88. 4. PRESENT FINANCIAL POSITION <ul><li>Company’s audited Balance Sheets & P/L Accounts for the past 3 years with analysis; Company’s Capital structure; Summaries conclusions of financial analysis; Method of depreciation; Revaluation of F/A; Record of major defaults; Position of Company’s tax assessment; contingent Liabilities; Pending suits; Qualifications /Adverse remarks by auditors </li></ul>
  79. 89. 5. PROJECT <ul><li>(a) Description of the project (Modernization, expansion, diversification or a new venture); Standing, experience and reliability of outside agency who prepared the Project report (b) Collaboration Arrangement (Technical or Financial);© Technical Feasibility covering suitability of technology, size & location of plant, technical arrangements & mfg. process (d) Financial Feasibility covering Cost of Project& Means of Finance </li></ul>
  80. 90. 6. PROJECT IMPLEMENTATION SCHEDULE <ul><li>With reference to Bar or PERT/CPM Chart and in the light of actual implementation; </li></ul><ul><li>Main stages in the project implementation and whether the time schedule for construction, erection/installation of P&M, start-up/trial run, commencement of commercial production is reasonable &acceptable </li></ul>
  81. 91. 7. PRODUCTION FACTORS <ul><li>(a) Mfg. Process-Basis of selection & justification; </li></ul><ul><li>(b)Raw Materials-Imported/Indigenous, Names of main suppliers, Pattern of unit prices& fluctuation; </li></ul><ul><li>© Utilities & Essential Services-Requirements of power , fuel, water, transport, railway siding with comments on adequacy of arrangements, treatment and disposal of effluents; </li></ul><ul><li>(d) Operating Organisation – Experience and expertise of Managerial/technical personnel, other staff required </li></ul>
  82. 92. 8. WORKING CAPITAL REQUIREMENTS <ul><li>Assessment of total WC requirements at the peak level (GCA) during the first year of operations after commencement of commercial production; sharing of business among member banks; financing of additional WC requirements in case of existing companies. </li></ul>
  83. 93. 9. MARKETING <ul><li>(a) Sales prospects and underlying assumptions, demand projections on the basis of past consumption, total supply position, general condition of industry </li></ul><ul><li>(b) Selling Price-Trend to see whether stable, Govt. price controls ,quota systems, etc </li></ul><ul><li>© Prospects for exports – Export obligations; </li></ul><ul><li>(d) Marketing Organisation – Adequacy, Distributors/Selling Agents, Terms of arrangement, remuneration, competence, Asso, Concerns – Siphoning of profits </li></ul>
  84. 94. 10. COMMERCIAL VIABILITY – CoP & PROFITABILITY <ul><li>(A) Sales Volume/Value – </li></ul><ul><li>(a) Volume; </li></ul><ul><li>(b) No.of working days; </li></ul><ul><li>C) Capacity utilisation, </li></ul><ul><li>(d) Value (B) CoP – </li></ul><ul><li>(a) Matls. Consumed;( </li></ul><ul><li>b) Utilities (PW&F); </li></ul><ul><li>C) Wages & Salaries </li></ul><ul><li>(d) factory Overheads ;( </li></ul><ul><li>e) depreciation – SLM/WDV- Consistency ;(f) Selling Exp; (g) Financial Exp; (h) Royalty & Know-how; (j) Preliminary/Pre-operative Exp, (k) Taxation © Profitability (CMA Data and ratios) (D) Inter-firm comparison </li></ul>
  85. 95. Ratios <ul><li>Liquidity Current ratio </li></ul><ul><li>Current assets </li></ul><ul><li>Current Liabilities </li></ul><ul><li>Acid-test ratio </li></ul><ul><li>Quick assets </li></ul><ul><li>Current liabilities </li></ul><ul><li>Leverage Debt-equity </li></ul><ul><li>Debt </li></ul><ul><li>Equity </li></ul><ul><li>Interest coverage ratio </li></ul><ul><li>PBIT </li></ul><ul><li>Interest </li></ul>
  86. 96. Ratios
  87. 98. 11. COMMERCIAL VIABILITY – DSCR&REPAYMENT PROGRAMME <ul><li>(a) DSCR (Gross) and (Net) [‘Core Test’Ratio], </li></ul><ul><li>Margin of safety and extent of risk coverage; </li></ul><ul><li>(b) Break-Even Analysis-For first full year of production and the year of maximum capacity utilisation; </li></ul><ul><li>© cost-Volume-Price (CVP) or Sensitivity Analysis – For the year with operating profit nearest to the average operating profit to determine ‘Span of Resiliency’ of the project; </li></ul><ul><li>(d) Repayment Programme based on the above factors and initial moratorium (start-up) period. </li></ul>
  88. 99. 12.FUNDS FLOW ANALYSIS <ul><li>Funds Flows to be divided into Long term Funds Flows and Short Term Funds Flows- </li></ul><ul><li>Dif. would indicate Long Term Surplus or Deficit/Movements in C/A &OCL leading to increase or decrease in WCG, </li></ul><ul><li>Essential expenditure on F/A, repayment obligations, taxes and dividends are fully provided for; </li></ul><ul><li>Cash generation would be adequate to meet all commitments during the entire repayment period. </li></ul>
  89. 100. 13. PROJECTED BALANCE SHEETS <ul><li>(a) Projected B/S covering the entire period of repayment to be scrutinised; </li></ul><ul><li>(b) CoP,MoF, Profitability estimates, Funds Flow projections and projected B/S are all inter-related </li></ul><ul><li>© projected B/S to be scrutinised analytically with reference to all other related essential data to ensure that all the projections, made realistically and accurately , have been woven into well co-ordinated financial statements. </li></ul>
  90. 101. 14. SECURITY & MARGIN AND RATE OF INTEREST <ul><li>(a) Complete details of security to be offered for the Term Loan; </li></ul><ul><li>(b) Detailed Opinion Report on Guarantors; </li></ul><ul><li>© Security Margin Coverage Ratio; </li></ul><ul><li>(d) Whether security offered and the margin available are adequate and satisfactory </li></ul><ul><li>(e) Credit Rating to be done and interest rate (Pricing) to be in line with this rating, unless market forces demand otherwise </li></ul>
  91. 102. 15. CONSENTS FROM GOVERNMENT AND OTHERS <ul><li>These will relate, inter alia, to </li></ul><ul><li>(a) Industrial License; </li></ul><ul><li>(b) Approval for collaboration agreement and technical know-how arrangement; </li></ul><ul><li>© Clearance for import of P&M; </li></ul><ul><li>(d) Approval for making payments for imported P&M on deferred terms and specific clearance for tax exemption on interest; </li></ul><ul><li>(e) Consent from Controller of Capital issues </li></ul><ul><li>(f) Various approvals /No Objection Certificate from CG/SG/Local Authorities, etc </li></ul><ul><li>(g) Present position </li></ul>
  92. 103. 16. GROUP COMPANIES <ul><li>(a) Brief resume of Group Companies indicating the extent to which they are depend on the parent company/other companies in the Group;(b) Company’s liability in respect of partly paid shares in subsidiary companies </li></ul>
  93. 104. 17. MANAGERIAL COMPETENCY <ul><li>(a) Company’s management set-up; </li></ul><ul><li>(b) Composition of the BoD; </li></ul><ul><li>© CEO in charge of day-to day affairs of the Company; </li></ul><ul><li>(d) Quality of the Company’s management and the level of managerial expertise built-up within the Group; </li></ul><ul><li>(e) Whether all departments are well served by professionals </li></ul>
  94. 105. 18.OTHERS AND RECOMMENDATIONS <ul><li>a) verify RBI’s List of Defaulters/Suit Filed Accounts; </li></ul><ul><li>(b)Verify ECGC’s Specific Approval List; </li></ul><ul><li>c) Indicate the IRR for the project and comments on comparison with the IRR’s for similar projects in the same industry; </li></ul><ul><li>d) indicate the importance of the project in terms of national priority and impact thereon; </li></ul>
  95. 106. Go Kiss the world Thank you