8/2/2019 Project Finance EMBA - Nandakumar
1/63
CHAPTER 1 RATIONALE FOR THE STUDY
1
8/2/2019 Project Finance EMBA - Nandakumar
2/63
Project finance is the financing of long-term infrastructure and industrial projects based upon acomplex financial structure where project debt and equity are used to finance the project.
Usually, a project financing scheme involves a number of equity investors, known as sponsors, as
well as a syndicate of banks which provide loans to the operation. The loans are most commonly
non-recourse loans, which are secured by the project itself and paid entirely from its cash flow,
rather than from the general assets or creditworthiness of the project sponsors. The financing is
typically secured by all of the project assets, including the revenue-producing contracts. Project
lenders are given a lien on all of these assets, and are able to assume control of a project if the
project company has difficulties complying with the loan terms.
Generally, a special purpose entity is created for each project, thereby shielding other assetsowned by a project sponsor from the detrimental effects of a project failure. As a special
purpose entity, the project company has no assets other than the project. Capital contribution
commitments by the owners of the project company are sometimes necessary to ensure that the
project is financially sound. Project finance is often more complicated than alternative financing
methods. It is most commonly used in the mining, transportation, telecommunication and public
utility industries.
Risk identification and allocation is a key component of project finance. A project may be subjectto a number of technical, environmental, economic and political risks, particularly in developing
countries and emerging markets. Financial institutions and project sponsors may conclude that
the risks inherent in project development and operation are unacceptable (unfinanceable). The
financing of these projects must also be distributed among multiple parties, so as to distribute
the risk associated with the project while simultaneously ensuring profits for each party involved.
A riskier or more expensive project may require limited recourse financing secured by a surety
from sponsors. A complex project finance scheme may incorporate corporate finance,
securitization, options, insurance provisions or other further measures to mitigate risk.
2
8/2/2019 Project Finance EMBA - Nandakumar
3/63
WHY WE ARE TAKEN THIS PROJECT ON PROJECT FINANCING.
Finance can be defined as funds management, involving processes like resource allocation as well as
resource management, acquisition and investment. Finance deals with matters related not only to
money but also with matters related to market. Areas of concern within the field include business
finance, Risk Management, Audit and Accounting, public finance, balance sheet, personal finance,
International Finance, Inventory Control, Money & Banking, Budgeting/Cost Control, Corporate
Finance, Business Valuations, Cost Benchmarking, Personal Finance, Project finance, Trade finance,
income statement, FASB, Initial Public Offering, Insurance, cash flow, wire transfer, opportunity
cost, money market fund and the like. Our writers resolve all such issues and accomplish assignments
through a well structured team of assignment writers and assignment helpers who specialize in the
subjects like finance. Have subjects like finance messed your overall grades and you are still tensed
how to accomplish the assignments on time not missing on your grades. Finance Assignment Help
provides you with absolutely plagiarism free content and 100% deadline deliveries. The basic
requirement for a perfect content involves long drilling hours of research work but our highly
qualified assignment writers have already done the field work for you and provides you the best
services in the industry. Finance may cause weariness for many students but we make the subject a
substance of high interest.
WHY COMPANY HAS GIVE THE PROJECT TO THE MANAGEMENT STUDENT.
The value of the term and money is best understood by the finance manager and student of finance
who are doing specialization in the Finance. Both the these term are closed linked to each other
Taking into account the importance of both these terms the expert team work on it.The company get
the expert decision on the from Capital Budgeting, Working Capital Management, Foreign Exchange,
Portfolio Management were the company get idea where there is deficit in the planning because the
planning and decision making run in hand to hand and which is very important in the term of value
and Money.
3
8/2/2019 Project Finance EMBA - Nandakumar
4/63
The company gives us case studies which help them with the new idea to solve the problem with the
new technique and idea after researching by the finance person.
HOW WILL COMPANY GET BENEFIT FROM THIS PROJECT REPORT.
The companies get the benefit by keeping control the expenses which they occur every month or
every day such you can canteen, printing and stationery and many more head each head has the
budget amount which the company does not cross but the company. Every time in the expenses
amount has to be properly utilized in the proper held otherwise it will over the budget which will
create problem at the time of the provision which the company make the project which we make it
help the company to keep watch the expenses head and budget given to that expenses does not
cross which they keep every finance year.
HOW WE WILL GET BENEFIT BY DOING THIS STUDY.
We can get the benefit in the many way such we come to know the various thing such working
capital, budget, prepaid expenses and provision know the question arise that these we learn from
the 11th standard but the thing is that the learning and actually doing the work is different one can
make the file but managing we can learn from the project which we make for the finance.
4
8/2/2019 Project Finance EMBA - Nandakumar
5/63
CHAPTER 2 OBJECTIVE OF THE STUDY
5
8/2/2019 Project Finance EMBA - Nandakumar
6/63
2.1 Title Of The Project : Project FinanceDesignation (your co name)
2.2 Objective of the Study Financial Position of the company. Various projects taken by the company for the growth and expansion. To be a profitable company with a steady growth in earnings. To set an example as a socially responsible company. History of the company including the formation the company. Quarterly and sale wise performance of the company
2.3 Scope of the Study The Finance department deals in the best utilization of the available financial resources
irrespective of the constraints. It is key department in any organization and plays major role in
company s success and failure. All other departments whether HR, Marketing or Production
revolves around the Finance dept only. Finance doesn t only means currency notes or money, but
any asset or liability in the company is a part of finance as the money is invested in all these and
the profitability of the company is measured after considering all the factors. The finance
department makes the resources available to different departments and at the end of the year it
analyzes the results received from utilization of those available resources. It also analysis the
opportunities to make best utilization of resources to increase the profitability of the company by
maintaining the liquidity and at the minimum risk.
Here in this Project I have learn how the company plan the finance from the staring of theproject the WIP and finished good until the report is generated (for e.g in my co the important is
6
8/2/2019 Project Finance EMBA - Nandakumar
7/63
sample as a WIP until it is put in the testing laboratories it is raw material once it is generated itis finished good)
I have learned how the company manages the Provision, Expenses and budget for the Same andhow it utilize in the different dept for the output.
I want to learn the suspenses account item and contingent item which I have not cover in theproject because I have no knowledge in it I want to have the idea how the company show it in the
suspense account and contingent in the balance sheet and how it prove it presence in the front of
the auditor for the audit.
7
8/2/2019 Project Finance EMBA - Nandakumar
8/63
CHAPTER 3 PROFILE OF SAVAIR ENERGY LTD
8
8/2/2019 Project Finance EMBA - Nandakumar
9/63
Vision of the company In line with our Mission and vision. The Company plans to increase its product range by adding a
manufacturing a variety of SKIDS which have huge potential in India and abroad.
The company is starting its new 3 acre facility at the Ambernath by October 2009 which will beused for heavy fabrication, skidding, manufacture of process equipments packaging
Diversification.
SAVAIR intends to qrow by entering into a new sectors such as industrial gases, process water,fire fighting etc which will provide a competitive edge as compared to its competitor which cater
to clients in one sector.
The company is aiming to diversify into the new segment by building new technical collaborationand by partnering with internationally renowned DEMS and other players.
100 Million Dollar company SAVAIR aims to grow its revenues to reach the target of $ 100 millionby 2014 As reiterated, SAVAIR plans to achieve its vision by expanding into the same / similar line
of business as well as by diversifying these services to various sectors.
The company will partner with other renowned companies for realizing its vision. SAVAIR plansfocus on increasing its product and service portfolio by setting up a new manufacturing and
assembly unit at Ambernath
The new product/ service to be provided includes skidding, packaging, process equipmentpackaging, gas compressor plants, DG sets, Heat Exchangers etc.
SAVAIR plans to focus on mega infrastructure projects and Government Funded Projects whichhas less impact of recession.
The Company also plans to serve across the industry verticals covering industries such as power,shipyard, laboratories, Oils and Gas.
SAVAIR plans to increase its presence across India by opening up new regional offices in North,East and south to tap the new opportunities developed due to the industrialization of states such
as Uttaranchal, Himachal Pradesh and madras.
9
8/2/2019 Project Finance EMBA - Nandakumar
10/63
SAVAIR plans to build up a strong technical collaboration which will allow the company to grow byproviding its customer with the latest technology.
This will help the company to increase its presence by providing need based solution to the clientas per its needs
HistoryHeadquarters Mahape, Navi Mumbai, India
Company Name Formerly known as Energy Logistics Pvt Ltd.
Changed its name to SAVAIR Energy Limited in 2007
Manufacturing Operations Design, Engineering facility covering 9000 square feet area in Navi Mumbai
New factory facility with 25000 square feet factory spread across 3-acresAmbernath
Founded Company incorporated in January 2001
Prior to this the promoters were in energy audits and project managemeservices
PositionOne of the up coming players in the mid-segment LSTK, EPC & skiddmarket which has a presence of very few large players
Founded in 2001Awarded its first Energy Saving Project from Tata Steel in 2002 Undertook many Energy Audits and low-value projects
Total number of employees: 4
10
8/2/2019 Project Finance EMBA - Nandakumar
11/63
Diversification to New Area of Process Cooling Moved into new premises with 9000 sq. of operatingarea and assembly section Awarded a number of EPC contracts from top National and Multinational
companies Employee strength increased to double digit
Employee strength increased to 40 across various functional teams SAVAIR participated in first mega infrastructure (shipyard) project The company was awarded INR120 million EPC project by Reliance The Company entered into new services of gas, fire and hydrant systems Bought a 3-acre land to construct a new operational facility Projects from customers such as ITC, Cairn Energy, IOTL, BARC.NCL, EPI etc Aiming to diversify into the new segment by building new technical collaboration Expected to shift to a new factory at 3 acres land at MIDC Ambarnath by 2010
Key Management/ Board of DirectorsNAME OFDIRECTORS
DATE OFBIRTH
DATE OFAPPOINTMENT
PERMANENT ADDRESS PAN NO.TELEPHO
NO.
Mr. Saji JosephAntony
21.05.1960 22.01.2001501, 5* Floor, Karuna Bldg.,11th road, Plot no. 537,Chembur, Mumbai 71.
AABPA7533K 022-27781
Mr. MathaiThomas
09.11.1948 01.02.2002NL-6, Bldg. No. 18, RoomNo.-101, Phase 11, sector-18, *Nerul, Navi Mumbai.
ANCPM8550G 022-27781
Mr. ArvindHemraj Nagda
27.03.1974 14.01.2008
201, Jay ShivshaktiCHS,Jawaharlal NehruRoad,Mulund(w),Mumbai -80.
ABZPN0360J 022-25900
Mr.PashupathyPuthuseri Veedu
30.07.1961 14.01.20083, Ashwini B-Wing, ApnaGhar Housing society,Andheri(w), Mumbai- 53
AGUPP0672M 022-27781
11
8/2/2019 Project Finance EMBA - Nandakumar
12/63
What they deal in ( Company Profile )
12
8/2/2019 Project Finance EMBA - Nandakumar
13/63
Growth Statistics
13
8/2/2019 Project Finance EMBA - Nandakumar
14/63
CHAPTER 4 REVIEW OF LITERATURE
14
8/2/2019 Project Finance EMBA - Nandakumar
15/63
Project finance is the financing of long-term infrastructure and industrial projects based upon acomplex financial structure where project debt and equity are used to finance the project.
Usually, a project financing scheme involves a number of equity investors, known as sponsors,
as well as a syndicate of banks which provide loans to the operation. The loans are most
commonly non-recourse loans, which are secured by the project itself and paid entirely from its
cash flow, rather than from the general assets or creditworthiness of the project sponsors. The
financing is typically secured by all of the project assets, including the revenue-producing
contracts. Project lenders are given a lien on all of these assets, and are able to assume control
of a project if the project company has difficulties complying with the loan terms. Generally, a
special purpose entity is created for each project, thereby shielding other assets owned by a
project sponsor from the detrimental effects of a project failure. As a special purpose entity,
the project company has no assets other than the project. Capital contribution commitments by
the owners of the project company are sometimes necessary to ensure that the project is
financially sound. Project finance is often more complicated than alternative financing
methods. It is most commonly used in the mining, transportation, telecommunication and public
utility industries. Risk identification and allocation is a key component of project finance. A
project may be subject to a number of technical, environmental, economic and political risks,
particularly in developing countries and emerging markets. Financial institutions and project
sponsors may conclude that the risks inherent in project development and operation are
unacceptable (unfinanceable). The financing of these projects must also be distributed among
multiple parties, so as to distribute the risk associated with the project while simultaneously
ensuring profits for each party involved. A riskier or more expensive project may require limited
recourse financing secured by a surety from sponsors. A complex project finance scheme may
incorporate corporate finance, securitization, options, insurance provisions or other further
measures to mitigate risk.
15
8/2/2019 Project Finance EMBA - Nandakumar
16/63
16
8/2/2019 Project Finance EMBA - Nandakumar
17/63
SOURCES OF FUNDSA company might raise new funds from the following sources:
The capital markets:
new share issues, for example, by companies acquiring a stock market listing for the first time rights issues Loan stock Retained earnings Bank borrowing Government sources Business expansion scheme funds Venture capital Franchising
ORDINARY (EQUITY) SHARESOrdinary shares are issued to the owners of a company. They have a nominal or 'face' value, typically
of 1 or 50 cents. The market value of a quoted company's shares bears no relationship to their
nominal value, except that when ordinary shares are issued for cash, the issue price must be equal to
or be more than the nominal value of the shares.
DEFERRED ORDINARY SHARES Are a form of ordinary shares, which are entitled to a dividend only after a certain date or if
profits rise above a certain amount. Voting rights might also differ from those attached to other
ordinary shares. Ordinary shareholders put funds into their company:
By paying for a new issue of shares Through retained profits. Simply retaining profits, instead of paying them out in the form of dividends, offers an important,
simple low-cost source of finance, although this method may not provide enough funds, for
example, if the firm is seeking to grow.
17
8/2/2019 Project Finance EMBA - Nandakumar
18/63
RIGHTS ISSUES A rights issue provides a way of raising new share capital by means of an offer to existing
shareholders, inviting them to subscribe cash for new shares in proportion to their existing
holdings.
For example, a rights issue on a one-for-four basis at 280 per share would mean that a companyis inviting its existing shareholders to subscribe for one new share for every four shares they
hold, at a price of 280 per new share.
A company making a rights issue must set a price which is low enough to secure the acceptanceof shareholders, who are being asked to provide extra funds, but not too low, so as to avoid
excessive dilution of the earnings per share
TYPES OF APPRAISALS WHICH ARE REQUIRED FOR PROJECT FINANCING1. TECHNICAL APPRAISAL
Clearly, every project must be technically feasible. Technical Appraisal provides acomprehensive review of all technical aspects of the project such as rendering judgment on
merits of technical proposals and operating costs. Here is a checklist that can be used:
Is the technology proven or tested? If not, has it ever been successful elsewhere and can thatsuccess be replicated in current context and conditions.
Does the technology/ process/ equipment technically fit with the facilitys existingtechnology/process/ equipment & machinery? If not, what aspects of the technology /
process do not fit and what measures is the implementing agency planning to take in this
regard.
List of equipments and machinery to be installed with cost and specifications of theequipment.
Equipment capacity & whether it is as per requirement List of recommended equipmentsuppliers.
18
8/2/2019 Project Finance EMBA - Nandakumar
19/63
2.SOCIAL APPRAISAL A social appraisal reviews the project design and the process of project identification through to
implementation and monitoring, from a social perspective. Particular attention is paid to the
likely impact of the project on different stakeholders, their opportunities for participation, and
the projects contribution to poverty reduction.
3.GENDER APPRAISAL The Gender Analysis Matrix (GAM) (Table 2) is a tool for conducting a gender analysis of a
project (Parker, 1993). It may be used at the planning stage to determine whether the
potential gender impacts of a project are desirable and consistent with the project purpose
and goal. The GAM may also be used during implementation to monitor the impacts of a
project and address any unexpected results. It can also be used during project evaluation.
4.ECONOMIC & FINANCIAL APPRAISAL This includes an analysis of economic soundness of the project and the quantification and
valuation of costs and benefits to ensure financial viability.
5.ENVIRONMENTAL APPRAISAL (ENVIRONMENTAL IMPACT ASSESSEMENT) Environmental Assessment (EA) is supposed to provide the project analyst with a good
quantification of the biophysical and social impacts from developments. Environmental
Assessment generally refers to the broader system of environmental analysis, including
project-specific Environmental Impact Assessment (EIA). Most countries have an EIA policy
and supporting legislation. Traditionally, EIA was designed to operate at the project level;
that is to identify impacts and mitigation measures for an individual project.
19
8/2/2019 Project Finance EMBA - Nandakumar
20/63
CHAPTER 5 RESEARCH METHODOLOGY
20
8/2/2019 Project Finance EMBA - Nandakumar
21/63
Research Design Research design means adopting that type technique of research which is most suited for the
research and study of the problem. For the study and the research of the problem proper
material has to be selected and collected for the investigation.A research design is the
arrangement of conditions for collection and analysis of data in a manner that aims to
combine relevance to the research purpose with economy in procedure.- Jahoda, deutish.
Cook..
In order to know about effectiveness of Finance Dept of Super religare Labrotoreis Ltd., it wasnecessary to interact with the Vedor (Client) and various Dept in the company. The sample
taken comprised of respondents from Mumbai city. A questionnaire had to be designed to
collect valuable information from the different Vendor and Carious Dept. The questionnaire
which was designed suitably to meet the objective of research work.
Nature of Research In this project report I have undertaken quantitative type of study.
Type of the questions The questions in the questionnaire asked to the Vendors and Various Dept of Super Religare
Laboratories Ltd, Regional office in Mumbai are Straight Forward and Limited Probing.
Type of the Questionnaire
The questionnaire in this project report is straight forward and formalized.
Type of Analysis The analysis done in this particular project report is statistical.
21
8/2/2019 Project Finance EMBA - Nandakumar
22/63
Data Collection Methods / Sources Primary Data
The Primary data are those data which are collected fresh and for the first time and thus happen to
be original in character. The primary data that was collected through interview conducted in
Regional Branch with daily visiting customers. The primary data sources include copies of
questionnaire and data of their respective responses.
Secondary DataThe secondary data are those which have already been collected by someone else and which have
been passed through the statistical process. Secondary data was collected through company
websites.
PRIMARY DATA COLLECTION Research Technique
As the researcher, I adopted survey method as a research technique for this particular project report.
Contact MethodI as a researcher interviewed the internal dept by Face to Face interview.
22
8/2/2019 Project Finance EMBA - Nandakumar
23/63
CHAPTER 6 DATA ANALYSIS AND INTERPRETATIONS
23
8/2/2019 Project Finance EMBA - Nandakumar
24/63
ONGC PROJECT ( TOTAL PROJECT VALUE 700 LACS) OF 2004ONGC Project AMOUNT IN LACS
ITEMS
BUDGET
EXPNESES
ACTUAL
EXPENSES
ADDITIONAL EXP.
ABOVE BUDGET
Material Expenses 320.00 358.00 38.00
Labour Expenses 70.00 83.00 13.00
Overhead Expenses 60.00 64.00 4.00
Administrative Expenses 35.00 49.00 14.00
House keeping expense 67.00 86.00 19.00
Water charges 16.00 23.00 7.00
Seminars & training 15.00 20.00 5.00
TOTAL VALUE 583.00 683.00 100.00
Net Profit By Project 17Lacs (Total Project Value Less Total Actual Exp.)
24
-
100.00
200.00
300.00
400.00
500.00
600.00
700.00
800.00
AMOUNT IN LACS BUDGET
EXPNESES
AMOUNT IN LACS ACTUAL
EXPENSES
AMOUNT IN LACS
ADDITIONAL EXP. ABOVE
BUDGET
8/2/2019 Project Finance EMBA - Nandakumar
25/63
ONGC PROJECT ( TOTAL PROJECT VALUE 1300 LACS) OF 2005ONGC Project AMOUNT IN CRORE
ITEMSBUDGET
EXPNESESACTUAL EXPENSES
ADDITIONAL EXP.ABOVE BUDGET
Material Expenses 720.00 753.00 33.00
Labour Expenses 135.00 144.00 9.00
Overhead Expenses 108.00 124.00 16.00
Administrative Expenses 60.00 55.00 (5.00)
Housekeeping expense 120.00 115.00 (5.00)
Water charges 30.00 43.00 13.00
Seminars & training 20.00 22.00 2.00
TOTAL VALUE 1,193.00 1,256.00 63.00
Net Profit By Project 44Lacs (Total Project Value Less Total Actual Exp.)
25
-20%
0%
20%
40%
60%
80%
100%
ADDITIONAL EXP. ABOVE BUDGET
ACTUAL EXPENSES
BUDGET
EXPNESES
8/2/2019 Project Finance EMBA - Nandakumar
26/63
ONGC PROJECT ( TOTAL PROJECT VALUE 1500 LACS) OF 2006ONGC Project AMOUNT IN CRORE
ITEMSBUDGET
EXPNESESACTUAL
EXPENSESADDITIONAL EXP.ABOVE BUDGET
Material Expenses 840.00 876.00 36.00
Labour Expenses 155.00 162.00 7.00
Overhead Expenses 120.00 138.00 18.00
Administrative Expenses 70.00 71.00 1.00
House keeping expense 125.00 133.00 8.00
Water charges 38.00 44.00 6.00
Seminars & training 22.00 23.00 1.00
TOTAL VALUE 1,370.00 1,447.00 77.00
Net Profit By Project 53Lacs (Total Project Value Less Total Actual Exp.)
26
-
500.00
1,000.00
1,500.00
2,000.00
2,500.003,000.00
3,500.00
ADDITIONAL EXP. ABOVE BUDGET
ACTUAL EXPENSES
BUDGET
EXPNESES
8/2/2019 Project Finance EMBA - Nandakumar
27/63
ONGC PROJECT ( TOTAL PROJECT VALUE 1800 LACS) OF 2007ONGC Project AMOUNT IN CRORE
ITEMS
BUDGET
EXPNESES
ACTUAL
EXPENSES
ADDITIONAL EXP.
ABOVE BUDGET
Material Expenses 1,075.00 1,125.00 50.00
Labour Expenses 165.00 176.00 11.00
Overhead Expenses 127.00 137.00 10.00
Administrative Expenses 78.00 87.00 9.00
House keeping expense 122.00 121.00 (1.00)
Water charges 48.00 52.00 4.00
Seminars & training 24.00 23.00 (1.00)
TOTAL VALUE 1,639.00 1,721.00 82.00
Net Profit By Project 79Lacs (Total Project Value Less Total Actual Exp.)
27
-20% 0% 20% 40% 60% 80% 100%
Material Expenses
Labour Expenses
Overhead Expenses
Administrative Expenses
House keeping expense
Water charges
Seminars & training
TOTAL VALUE
AMOUNT IN CRORE BUDGET
EXPNESES
AMOUNT IN CRORE ACTUAL
EXPENSES
AMOUNT IN CRORE ADDITIONAL
EXP. ABOVE BUDGET
8/2/2019 Project Finance EMBA - Nandakumar
28/63
ONGC PROJECT ( TOTAL PROJECT VALUE 1275 LACS) OF 2008ONGC Project AMOUNT IN CRORE
ITEMS
BUDGET
EXPNESES
ACTUAL
EXPENSES
ADDITIONAL EXP.
ABOVE BUDGET
Material Expenses 695.00 728.00 33.00
Labour Expenses 130.00 142.00 12.00
Overhead Expenses 105.00 118.00 13.00
Administrative Expenses 57.00 69.00 12.00
House keeping expense 118.00 129.00 11.00
Water charges 28.00 22.00 (6.00)
Seminars & training 18.00 21.00 3.00
TOTAL VALUE 1,151.00 1,229.00 78.00
Net Profit By Project 46Lacs (Total Project Value Less Total Actual Exp.)
28
Material Expenses
Labour Expenses
Overhead Expenses
Administrative Expenses
House keeping expense
Water charges
Seminars & training
TOTAL VALUE
8/2/2019 Project Finance EMBA - Nandakumar
29/63
ONGC PROJECT ( TOTAL PROJECT VALUE 2500 LACS) OF 2009ONGC Project AMOUNT IN CRORE
ITEMS BUDGETEXPNESES
ACTUALEXPENSES
ADDITIONAL EXP.ABOVE BUDGET
Material Expenses 1,625.00 1,632.00 7.00
Labour Expenses 195.00 217.00 22.00
Overhead Expenses 180.00 187.00 7.00
Administrative Expenses 110.00 109.00 (1.00)
House keeping expense 150.00 155.00 5.00
Water charges 60.00 63.00 3.00
Seminars & training 25.00 24.00 (1.00)
TOTAL VALUE 2,345.00 2,387.00 42.00
Net Profit By Project 113Lacs (Total Project Value Less Total Actual Exp.)
29
(500.00)
-
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
0 2 4 6 8 10
BUDGET
EXPNESES
ACTUAL EXPENSES
ADDITIONAL EXP. ABOVE BUDGET
8/2/2019 Project Finance EMBA - Nandakumar
30/63
PROFIT COMPARISON SHEET FOR THE YEAR FROM 2004 TO 2009( Amount in lacs )
Year Project Value Net Profit% of profit on Project
value
2004 700 17.00 2.43%
2005 1300 44.00 3.38%
2006 1500 53.00 3.53%
2007 1800 79.00 4.39%
2008 1275 46.00 3.61%
2009 2500 113.00 4.52%
30
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
1 2 3 4 5 6 7
% of profit on Project value
Net Profit
Project Value
Year
8/2/2019 Project Finance EMBA - Nandakumar
31/63
PROFIT COMPARISON SHEET FOR THE YEAR FROM 2004 TO 2009( Amount in lacs )
Year Project Value Actual Expenses incurred% of Expenses on
Project value
2004 700 683.00 97.57%
2005 1300 1,256.00 96.62%
2006 1500 1,447.00 96.47%
2007 1800 1,721.00 95.61%
2008 1275 1,229.00 96.39%
2009 2500 2,387.00 95.48%
31
0
500
1000
1500
2000
2500
1 2 3 4 5 6 7
Year
Project Value
Actual Expenses incurred
% of Expenses on Project value
8/2/2019 Project Finance EMBA - Nandakumar
32/63
Project Report Introduction of Capital
The initial authorized share capital of our Company of 50 million comprising 6,000,000 Equity Shares
was increased to 25 million divided into 15,000,000 Equity Shares pursuant to a resolution of the
shareholders of our Company dated May 17, 1996.
Further, the authorized share capital of our Company was increased to 20 million divided into
20,000,000 Equity Shares pursuant to a resolution of the shareholders of our Company dated October
22, 1997. Further, the authorized share capital of our Company was increased to 30 million divided
into 30,000,000 Equity Shares pursuant to a resolution of the shareholders of our Company dated
February 23, 2009.
Further, the authorized share capital of our Company was increased to 500 million divided into
20,000,000 Equity Shares and 3,000,000 non-cumulative convertible preference shares of 100 each by
creation of 2,000,000 non-cumulative convertible preference shares of 100 each and re-classification
of the un-issued 100 million equity capital of our Company divided into 10,000,000 Equity Shares was
re-classified into 1,000,000 non-cumulative convertible preference shares of 100 each, pursuant to a
resolution of shareholders of our Company dated June 13, 2009.
Further, the authorized share capital of our Company was increased to 650 million divided into
65,000,000 Equity Shares by creation of 15,000,000 Equity Shares and reclassification of the existing
3,000,000 non-cumulative convertible preference shares of 100 each into 30,000,000 Equity Shares,
pursuant to a resolution of the shareholders of our Company dated August 4, 2010.Further, the
authorized share capital of our Company was re-organized by re-classification of the existing un-
issued equity capital of 100 million divided into 10,000,000 Equity Shares to 10,000,000 redeemable
preference shares of 10 each, pursuant to a resolution of the shareholders of our Company dated
August 19, 2010.
32
8/2/2019 Project Finance EMBA - Nandakumar
33/63
Further, the authorized share capital of our Company was increased to 900 million divided into
80,000,000 Equity Shares of 10 each and 10,000,000 redeemable preference shares of 10 each,
pursuant to a resolution of the shareholders of our Company dated December 21, 2010.
Further, the authorized share capital of our Company was increased to 950 million divided into
85,000,000 Equity Shares of 10 each and 10,000,000 redeemable preference shares of 10 each,
pursuant to a resolution of the shareholders of our Company dated February 3, 2011.
This Issue has been authorized by resolutions of our Board dated February 7, 2011, and by a special
resolution passed by our shareholders pursuant to Section 81(1A) of the Companies Act, at the EGM
held on February 7, 2011.
Cost of Preference Share CapitalDATE OF
ALLOTMENT
NUMBER OFPREFERENCE
SHARES
FACEVALUE
ISSUEPRICE/REDEMPTION
PRICE
NATURE OFCONSIDERAT
ION
REASONSFOR
ALLOTMENT
20-Aug-10 50,000.00 10 200 CashPreferentialAllotment
4-Feb-11 50,000.00 10 200 - Redemption
Cost of Equity Share Capital
DATE OFALLOTMENT NAME OF THESHAREHOLDER NO. OFSHARES ISSUE PRICE
REASONS
FORALLOTMENT
REASONS
FORALLOTMEN
4-Aug-09 Promoter Group 1,000,000 10 allotmentPreferentiaAllotment
20-Jun-11 Promoter Group 1,000,000 10 allotmentPreferentiaAllotment
33
8/2/2019 Project Finance EMBA - Nandakumar
34/63
REVENUE VERSUS PROFIT AFTER TAX FROM 2004-2009From FY2004 to FY2009, sales revenue grew from Rs. 100 millions to Rs. 500 millions. The net profit
for the same period increased from Rs. 2 millions to Rs.15 millions. From FY2007 to FY2008 the sales
revenue increased from Rs.350 millions to Rs.500 million. However, the company reported a net loss
of Rs (5) million for FY 2008 compared to net profit Rs 8 million for FY2007.In Q3'08 Consolidated
Revenue was Rs. 150 Mn against Rs.200 Mn in Q3'07, exhibiting a growth of 14.3%.
The growth was due to the weakening in Rupee against US Dollar and sales growth which was 6% in
Rupee terms at 128mn. Sales were hindered by an Savair Dealing in the Enegry and gas Compessor
research sanoperating margin Up to 7.8% in Q3'08 from 16.0% in Q3'07.
The resultant operating profit stood at Rs 14 mn as against 20 mn in Q3'07, up by 45.00%.
ANNUAL SALES : 7 YEARS AT A GLANCEYEAR SALE (AMT MILLION) PROFIT ( AMT MILLION)
2004 100 2
2005 200 5
2006 250 8.5
2007 325 10
2008 410 12.75
2009 500 15
34
0
100
200
300
400
500
600
2004 2005 2006 2008 2009 2010
SALE
PROFIT
8/2/2019 Project Finance EMBA - Nandakumar
35/63
QUARTERLY CLOSINGS IN 2009
QUARTER Q109 Q209 Q309 Q409
SALES 120 130 125 125
PROFIT 3.5 3.75 3.25 4.5
PERFORMANCE HIGHLIGHTSNet Sales de-grew by 3.7%: For 1QCY2009, Savair posted Net Sales of Rs 50.17 cr, a de-growth of 3.7%
yoy, which was in line with our estimates For CY2009, the company has guided for Top-line Rs 50.17
cr, a de-growth of 3% over CY2008. The companys guidance does not include any upside from the
launch of Valtrex. The company expects a marginal sequential improvement in Operating Margins by
restructuring costs.Net Profit of Rs 1.5 cr.
35
0
20
40
60
80
100
120
140
Q109 Q209 Q309 Q409
SALES
PROFIT
8/2/2019 Project Finance EMBA - Nandakumar
36/63
BUSINESS PERFORMANCEFor the F.Y 2009, the company posted Net Sales of Rs 50.17 cr registering 8.7% yoy de-growth.
Emerging markets, which accounted for 75% of the companys Total Sales, de-grew by 20% to Rs
41.00 cr. For F.Y 2009, Savair has guided for Sales of around Rs 65.00 cr and Net Profit of Rs 2.00
cr.The guidance does not include any upside from the launch of Valtrex.
DEMAND FORECASTING: FY 2009-2010Year Sales in Million
2004-05 100.00
2005-06 200.00
2006-07 250.00
2007-08 325.00
2008-09 410.00
2009-10 500.00
2010-11 550.00
36
Sales in Million
2004-052005-06
2006-07
2007-08
2008-09
2009-10
2010-11
8/2/2019 Project Finance EMBA - Nandakumar
37/63
SAVAIR PROFIT/LOSS YEAR WISE:Year
Profit in
Million
2004 2.00
2005 5.00
2006 8.50
2007 10.00
2008 12.75
2009 15.00
2010 17.00
37
0
500
1000
1500
2000
2500
1 2 3 4 5 6 7 8
Profit in
Million
Year
8/2/2019 Project Finance EMBA - Nandakumar
38/63
COMPARISON BETWEEN YEARSFinancial
YearProfit Comparison
(Million)
2004 3.00
2005 3.502006 1.50
2007 2.75
2008 2.25
2009 2.00
2010 3.00
38
1998
2000
2002
2004
2006
2008
2010
2012
2014
1 2 3 4 5 6 7
Profit Comparison
(Million)
Financial
Year
8/2/2019 Project Finance EMBA - Nandakumar
39/63
Sources of Finance:Company can use any of the following sources or combination of finance to their project
1. Initial Public Offer (IPO)2. Private Equity Fund3. Term Loan from Bank4. Venture Capital
1. Initial Public Offer :-IPO in India means the new offer of a company's shares to the public in the country's capital
markets. Initial Public Offer (IPO) in India is done through various methods like method of
book building, Method of fixed price or a mixture of both.
Initial Public Offering (IPO) in India means the selling of the shares of a company, for the
first time, to the public in the country's capital markets. This is done by giving to the public,
shares that are either owned by the promoters of the company or by issuing new shares.
During an Initial Public Offer (IPO) the shares are given to the public at a discount on the
intrinsic value of the shares and this is the reason that the investors buy shares during the
Initial Public Offering (IPO) in order to make profits for themselves
IPO in India is done through various methods like book building method, fixed price method,
or a mixture of both. The method of book building has been introduced in the country in
1999 and it helps the company to find out the demand and price of its shares. A merchant
banker is nominated as a book runner by the Issuer of the IPO
The company that is issuing the Initial Public Offering (IPO) decides the number of shares
that it will issue and also fixes the price band of the shares. All these information are
mentioned in the company's red herring prospectus.
39
8/2/2019 Project Finance EMBA - Nandakumar
40/63
During the company's Initial Public Offering (IPO) in India, an electronic book is opened for
at least five days. During this period of time, bidding takes place which means that people
who are interested in buying the shares of the company make an offer within the fixed price
band. Once the book building is closed then the issuer as well as the book runner of the
Initial Public Offering (IPO) evaluate the offers and then determine a fixed price.
Procedure for Issuing an IPO
When a company wants to go public, the first thing it does is hire an investment bank, which does the
underwriting. Underwriting is the process of raising money by either debt or equity (in this case we are
referring to equity). Underwriters are middlemen between companies and the investing public. The
biggest underwriters are Goldman Sachs, Merrill Lynch, Credit Suisse First Boston, and Morgan Stanley.
The company and the investment bank will first meet to negotiate the deal. Items usually discussed
include the amount of money a company will raise, the type of securities to be issued and all the
details in the underwriting agreement. The deal can be structured in a variety of ways. For example, in
a firm commitment, the underwriter guarantees that a certain amount will be raised by buying the
entire offer and then reselling to the public. In a best efforts agreement, however, the underwriter
sells securities for the company but doesn't guarantee the amount raised. Also, investment banks are
hesitant to shoulder all the risk of an offering. Instead, they form a syndicate of underwriters. One
underwriter leads the syndicate and the others sell a part of the issue. Once all sides agree to a deal,
the investment bank puts together an offer document to be filed with the SEBI. This document contains
information about the offering as well as company info such as financial statements, management
background, any legal problems, where the money is to be used and insider holdings. The SEBI then
requires a cooling off period, in which they investigate and make sure all material information has
been disclosed. Once the SEBI approves the offering, a date (the effective date) is set when the stock
will be offered to the public.
40
8/2/2019 Project Finance EMBA - Nandakumar
41/63
ADVANTAGES OF IPOThe Advantages of IPO are numerous. The companies are launching more and more IPOs to raise
funds which are utilized for undertakings various projects including expansion plans.
ADVANTAGES OF IPO OVERVIEWThe Advantages of IPO is the primary factor for the immense growth of the same in the last few
years. The IPO or the initial public offering is a term used to describe the first sale of the shares to
the public by any company. All types of companies with the idea of enhancing growth launch IPOs to
generate funds to cater the requirements of capital for expansion, acquiring of capital instruments,
undertaking new projects.
MAJOR ADVANTAGES OF IPOIPO has a number of advantages. IPO helps the company to create a public awareness about the
company as these public offerings generate publicity by inducing their products to various investors.
The increase in the capital: An IPO allows a company to raise funds for utilizing in various corporate
operational purposes like acquisitions, mergers, working capital, research and development,
expanding plant and equipment and marketing.
Liquidity: The shares once traded have an assigned market value and can be resold. This is
extremely helpful as the company provides the employees with stock incentive packages and
the investors are provided with the option of trading their shares for a price.
Valuation: The public trading of the shares determines a value for the company and sets a
standard. This works in favor of the company as it is helpful in case the company is looking
for acquisition or merger. It also provides the share holders of the company with the present
value of the shares.
41
8/2/2019 Project Finance EMBA - Nandakumar
42/63
DRAWBACKS OF IPOSIt is true that IPO raises huge capital for the issuing company. But, in order to launch an Initial Public
Offering (IPO), it is also necessary to make certain investments. Setting up an IPO does not always
lead to an improvement in the economic performance of the company. A continuing expenditure has
to be incurred after the setting up of an IPO by the parent company. A lot of expenses have to be
incurred in the form of legal fees, printing costs and accounting fees, which are connected to the
registering of an IPO. Such expenses might cost hundreds of US dollars. Apart from such enormous
costs, there are other factors as well that should be taken into consideration by the company while
introducing an IPO.
Such factors include the rules and regulations involved to set up public offerings and this entire
process on the other hand involve a number of complexities which sometime require the services of
experts in relevant fields. Some companies hire experts to do the needful to ensure a hassle-free
execution of the task. After the IPO is introduced, the expenses become a routine in every activity
involved. Besides, the CEO of the company would have to spend a lot of time in handling the SEC
regulations or sometimes he hires experts to do the same. All these aspects, if not handled with
efficiency, prove to be some major drawbacks related to the launch of IPOs.
The launch of IPO also brings about shareholders of the company. Shareholders have ownership in the
company. The primary owners of the company or the people holding maximum authority in the
company cannot take decisions all by themselves once an IPO has been launched and shareholders
have been formed. The shareholders have an active participation in every decision that is being
taken even if they do not hold 50 percent share of the company. They have their individual demands
to be met as they own a certain percentage of stakes in the company. The SEC regulations require
notifications from the shareholders of the company, meetings, and also approvals from them while
making important business decisions. A major risk with shareholders is that, they can sell off their
stocks any time they want, in case they see the price band of the stakes of that company is going
down.
42
8/2/2019 Project Finance EMBA - Nandakumar
43/63
IPO FUNDINGSRules for IPO Fundings Change by RBI-The entire scenario of IPO Fundings went through radical
changes in the year 2007 as per the directives of the Reserve bank of India. According to RBI, the
lending limit for one investor would come down from Rs. 20 lacs to Rs. 10 lacs against any
convertible bonds, equity-mutual funds, convertible debentures, PSU bonds and Equity shares. The
loan limit Set for each investor to invest in IPOs is Rs. 10 lacs and it has been strictly stated by the
Reserve Bank of India that no single investor would be allowed loans more than the limit for investing
in the IPOs. Before 2007, the IPO market in India was rising heavily in terms of booking subscriptions
which accounted for the lining up of at least two issues every week. The market players were
allowed to invest in at least five IPOs in India to make quick profits as it takes only 15 days after the
closing date of the subscription of the company's IPO. The speculators will get a bit affected by the
new set of rules being implemented for the IPO fundings. However, the chances of retail investors
being affected by the same are much less. The banks are allowed to use up to 40 percent of their net
worth for capital market related exposures. ICICI Bank, Kotak Mahindra Bank and HDFC Bank are not
entitled to direct exposure in terms of investing in their own subsidiaries, shares, joint ventures and
regional rural banks. The fundings in IPO are issued to the investors with the aim to meet the
investment requirements in public issues and other projects.
IPO GRADINGThe main objective of issuance of Initial Public Offering (IPO) is to invest the corpus so accumulated,
for either establishing of a new company or expansion of an existing private company. The shares
held by such financer or investors give them the rights of the company and to its future profits,
which are categorically mentioned in the offer document. The process of underwriting determines
the issue size and type, offer price and best time of introduction into the market is called
"underwriting". The underwriting is generally done by the investment bankers.
43
8/2/2019 Project Finance EMBA - Nandakumar
44/63
These underwriting firms or investment bankers are allotted some specified numbers of shares to sell
to the general investor before the share is being traded on an exchange. IPO Grading also called
Rating is a process by which the back ground of an IPO issuing company is verified. The main
objective of such verification of track record is to provide higher security to the money of the
investor. The IPO Grading process does not involve any "pricing suggestion" related to buying or
selling price. The rating agency only does the IPO Grading on the previous track record of the
company which has issued such IPO. The IPO Grading process mainly checks-for any negative factor in
the track record of the IPO issuing company. Further, IPO Grading also arrests scrupulous or fictitious
company from entering in to the market and run-away with investor's money.
PRIVATE EQUITY FUNDWhat is Private Equity?
Private equity first emerged in the early 1980s, with Kohlberg, Kravis and Roberts (KKR) opening the
first, and still among the largest LBO (Leveraged Buy Out) firms.
The logic for LBO firms, at least initially, was this: Publicly traded companies are forced to focus on
extremely short-term (often quarterly or monthly) results, thus making decisions which may not be in
line with their long-term goals. Going 'private' or delisting from the exchanges allows them to focus
on these goals. Leveraging, that is, taking debt to buyback these shares as well as spending on
longer-term expansion, etc allowed managers to run their companies the way they wanted to.
Moreover, the LBO firms were often run by investment bankers and consultants who contributed
significant financial and industry expertise. Over time, however, the deals also began to be 'hostile',
that is, the LBO managers perceived value in firms which they felt were mismanaged, so they would
buy them out, restructure them, and then sell them off once more. The other side of private equity
investment comes from the world of venture capital, where small companies that need to grow but
are cash-strapped and too small to list on exchanges approach (or are approached by) VC firms to
take a stake in the company, as well as hand-hold them onto a growth path.
44
8/2/2019 Project Finance EMBA - Nandakumar
45/63
THE INDIAN CASEIn India, private equity is reasonably young, dating back to the mid-1990s. The environment heated
up in the end of the 90s with the IT boom, with companies investing (and getting their finge rs burnt)
with their investments. In recent years, there has been a resurgence of these firms, with Indias
stock markets booming and sectors like the life sciences, infrastructure and most recently, real
estate being growth stories for the future. Global firms such as Warburg Pincus, Blackstone and the
Carlyle Group have a presence in India while Indian players like ICICI Venture and Chrys Capital also
have a large presence.
WHAT DOES THE WORK ENTAIL AND HOW DO THESE FIRMS MAKE MONEY?Essentially, PE funds raise money from high net worth individuals, financial institutions, etc. for a
period of seven-ten years and then invest in opportunities as and when they arise, either in early-
stage, maturing or even public companies. The work involves of course, valuing the companies that
approach you and deciding how much of the company your stake is actually worth, what the
companys growth prospects are, etc. Structuring the transactions for tax-efficiency and industry-
specific reasons is also part of the job. Post-stake taking, day-to-day monitoring and growth plans
are monitored by the fund, with a senior director taking a seat on the companys board. Since the
target is also to exit the investment in a few years and return money to investors, the deal teams
also constantly monitor the capital markets for suitable times to do an Initial Public Offering or find
a strategic investor to sell to.
VENTURE CAPITALStarting and growing a business always require capital. There are a number of alternative methods to
fund growth. These include the owner or proprietors own capital, arranging debt finance, or seeking
an equity partner, as is the case with private equity and venture capital.
45
8/2/2019 Project Finance EMBA - Nandakumar
46/63
Private equity is a broad term that refers to any type of non-public ownership equity securities that
are not listed on a public exchange. Private equity encompasses both early stage (venture capital)
and later stage (buy-out, expansion) investing. In the broadest sense, it can also include mezzanine,
fund of funds and secondary investing.
Venture capital is a means of equity financing for rapidly-growing private companies. Finance may be
required for the start-up, development/expansion or purchase of a company. Venture Capital firms
invest funds on a professional basis, often focusing on a limited sector of specialization (eg. IT,
infrastructure, health/life sciences, clean technology, etc.).
The goal of venture capital is to build companies so that the shares become liquid (through IPO or
acquisition) and provide a rate of return to the investors (in the form of cash or shares) that is
consistent with the level of risk taken.
With venture capital financing, the venture capitalist acquires an agreed proportion of the equity of
the company in return for the funding. Equity finance offers the significant advantage of having no
interest charges. It is "patient" capital that seeks a return through long-term capital gain rather than
immediate and regular interest payments, as in the case of debt financing. Given the nature of
equity financing, venture capital investors are therefore exposed to the risk of the company failing.
As a result the venture capitalist must look to invest in companies which have the ability to grow
very successfully and provide higher than average returns to compensate for the risk .When venture
capitalists invest in a business they typically require a seat on the company's board of directors. They
tend to take a minority share in the company and usually do not take day-to-day control. Rather,
professional venture capitalists act as mentors and aim to provide support and advice on a range of
management, sales and technical issues to assist the company to develop its full potential.
Venture capital has a number of advantages over other forms of finance, such as:
It injects long term equity finance which provides a solid capital base for future growth.
46
8/2/2019 Project Finance EMBA - Nandakumar
47/63
The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalistsare rewarded by business success and the capital gain.
The venture capitalist is able to provide practical advice and assistance to the company based onpast experience with other companies which were in similar situations.
The venture capitalist also has a network of contacts in many areas that can add value to thecompany, such as in recruiting key personnel, providing contacts in international markets,
introductions to strategic partners, and if needed co-investments with other venture capital firms
when additional rounds of financing are required.
The venture capitalist may be capable of providing additional rounds of funding should it
HOW DOES THE VENTURE CAPITAL INDUSTRY WORKVenture capital firms typically source the majority of their funding from large investment institutions
such as fund of funds, financial institutions, endowments, pension funds and banks. These
institutions typically invest in a venture capital fund for a period of up to ten years.
To compensate for the long term commitment and lack of both security and liquidity, investment
institutions expect to receive very high returns on their investment. Therefore venture capitalists
invest in either company with high growth potential where they are able to exit through either an
IPO or a merger/acquisition. Although the venture capitalist may receive some return through
dividends, their primary return on investment comes from capital gains when they eventually sell
their shares in the company, typically between three to five years after the investment.
Venture capitalists are therefore in the business of promoting growth in the companies they invest in
and managing the associated risk to protect and enhance their investors' capital. Venture capital
firms typically source the majority of their funding from large investment institutions such as fund of
funds, financial institutions, endowments, pension funds and banks. These institutions typically
invest in a venture capital fund for a period of up to ten years
47
8/2/2019 Project Finance EMBA - Nandakumar
48/63
SELECTING THE VC INVESTORSThe members of the Indian Venture Capital Association comprise a number of venture capital firms in
India. The IVCA Directory of Members provides basic information about each member's investment
preferences and is available from the Association.
Prior to selecting a venture capitalist, the entrepreneur should study the particular investment
preferences set down by the venture capital firm. Often venture capitalists have preferences for
particular stages of investment, amount of investment, industry sectors, and geographical location.
An investment in an private, unlisted company has a long-term horizon, typically 4-6 years. It is
important to select venture capitalists with whom it is possible to have a good working relationship.
Often businesses do not meet their cash-flow forecasts and require additional funds, so an investor's
ability to invest in additional financing rounds if required is also important. Finally, when choosing a
venture capitalist, the entrepreneur should consider not just the amount and terms of investments,
but also the additional value that the venture capitalist can bring to the company. These skills may
include industry knowledge, fund raising, financial and strategic planning, recruitment of key
personnel, mergers and acquisitions, and access to international markets and technology.
Entrepreneurs should not hesitate to ask for references from investors.
WHAT DO VENTURE CAPITALIST'S LOOK FORVenture capitalists are higher risk investors and, in accepting these risks, they desire a higher return
on their investment. The venture capitalist manages the risk/reward ratio by only investing in
businesses which fit their investment criteria and after having completed extensive due diligence
Venture capitalists have differing operating approaches. These differences may relate to location of
the business, the size of the investment, the stage of the company, industry specialization, structure
of the investment and involvement of the venture capitalists in the companys activities. The
entrepreneur should not be discouraged if one venture capitalist does not wish to proceed with an
investment in the company.
48
8/2/2019 Project Finance EMBA - Nandakumar
49/63
The rejection may not be a reflection of the quality of the business, but rather a matter of the
business not fitting with the venture capitalist's particular investment criteria. Often entrepreneurs
may want to ask the venture capitalist for other firms that might be interested in the investment
opportunity. Venture capital is not suitable for all businesses, as a venture capitalist typically
seeks.
SUPERIOR BUSINESSESVenture capitalists look for companies with superior products or services targeted at large, fast
growing or untapped markets with a defensible strategic position such as intellectual property or
patents.
QUALITY AND DEPTH OF MANAGEMENTVenture capitalists must be confident that the firm has the quality and depth in the management
team to achieve its aspirations. Venture capitalists seldom seek managerial control, rather they want
to add value to the investment where they have particular skills including fund raising, mergers and
acquisitions, international marketing, product development, and networks.
APPROPRIATE INVESTMENT STRUCTUREAs well as the requirement of being an attractive business opportunity, the venture capitalist will
also seek to structure a deal to produce the anticipated financial returns to investors. This includes
making an investment at a reasonable price per share (valuation).
EXIT OPPORTUNITYLastly, venture capitalists look for the clear exit opportunity for their investment such as public
listing or a third party acquisition of the investee company. Once a short list of appropriate venture
capitalists has been selected, the entrepreneur can proceed to identify which investors match their
funding requirements.
49
8/2/2019 Project Finance EMBA - Nandakumar
50/63
At this point, the entrepreneur should contact the venture capital firm and identify an investment
manager as an initial contact point. The venture capital firm will ask prospective investee companies
for information concerning the product or service, the market analysis, how the company operates,
the investment required and how it is to be used, financial projections, and importantly questions
about the management team.
In reality, all of the above questions should be answered in the Business Plan. Assuming the venture
capitalist expresses interest in the investment opportunity, a good business plan is a pre-requisite.
THE BUSINESS PLANVenture capitalists view hundreds of business plans every year. The business plan must therefore
convince the venture capitalist that the company and the management team have the ability to
achieve the goals of the company within the specified time.
The business plan should explain the nature of the companys business, what it wants to achieve and
how it is going to do it. The companys management should prepare the plan and they should set
challenging but achievable goals.
The length of the business plan depends on the particular circumstances but, as a general rule, it
should be no longer than 25-30 pages. It is important to use plain English, especially if you are
explaining technical details. Aim the business plan at non-specialists, emphasizing its financial
viability. Avoid jargons and general position statements.
Consider how the venture capital investors will exit the investment and make a return. Possible exit
strategies for the investors may include floating the company on a stock exchange or selling the
company to a trade buyer.
TERM LOAN
50
8/2/2019 Project Finance EMBA - Nandakumar
51/63
What Does Term Loan Mean?A loan from a bank for a specific amount that has a specified repayment schedule and a floating
interest rate. Term loans almost always mature between one and 10 years. For example many banks
have term-loan programs that can offer small businesses the cash they need to operate from month
to month. Often a small business will use the cash from a term loan to purchase fixed assets such as
equipment used in its production process.
REQUIREMENTS FOR TERM LOANCompany has to provide the following details / statements to the bank to appraise their project.
1. Statement of Profit & Loss a/c and Balance sheet for last three years2. Statement showing Cost of the Project and means of the finance3. CMA Report for the projections for the next five years related to the existing and proposed plan4. Computation of various ratios like Current Assets Ratio, Debt Equity Ratio, Debt Service Coverage
Service Ratio (DSCR), Debtors Turnover Ration, Creditors Turnover Ratio, Stock Turnover Ration etc.
5. Projected Fund flow statement and Cash Flow Statement6. Net Worth certificate of the company certified by the Statutory Auditor of the Company7. Net Worth certificate of the Directors who are giving guarantee to the term loan8. Business plan for which the bank has to finance9. Bank Statements for last one year10.After getting the above documents bank will go through the documents and do the legal procedure
and bank will check the viability of the project. After approval from legal department bank will
provide the finance to that project. Bank will laid down some terms and conditions and ask the
company to give the repayment schedule for the loan given.
KEY FINANCIAL INDICATORSA financial ratio or accounting ratio is a ratio of selected values on Company financial statements.
51
8/2/2019 Project Finance EMBA - Nandakumar
52/63
There are many standard ratios used to evaluate the overall financial condition of a corporation or
other organization. Financial ratios are used by managers within a firm, by current and potential
shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to
compare the strengths and weaknesses in various companies. If shares in a company are traded in a
financial market, the market price of the shares is used in certain financial ratios.
Values used in calculating financial ratios are taken from the balance sheet, income statement, cash
flow statement and (rarely) statement of retained earnings. These comprise the firm's "accounting
statements" or financial statements. Ratios are always expressed as a decimal value, such as 0.10, or
the equivalent percent value, such as 10%. Financial ratios quantify many aspects of a business and
are an integral part of financial statement analysis. Financial ratios are categorized according to the
financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of
cash to pay debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets.
Debt ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the firm's
use of its assets and control of its expenses to generate an acceptable rate of return. Market ratios
measure investor response to owning a company's stock and also the cost of issuing stock.
Financial ratios allow for comparisons
between companies
between industries
between different time periods for one company
between a single company and its industry average
The ratios of firms in different industries, which face different risks, capital requirements, and
competition, are not usually comparable
52
8/2/2019 Project Finance EMBA - Nandakumar
53/63
ACCOUNTING METHODS AND PRINCIPLESFinancial ratios may not be directly comparable between companies that use different accounting
methods or follow various standard accounting practices. Most public companies are required by law
to use generally accepted accounting principles for their home countries, but private companies,
partnerships and sole proprietorships may not use accrual basis accounting. Large multi-national
corporations may use International Financial Reporting Standards to produce their financial
statements, or they may use the generally accepted accounting principles of their home country.
There is no world-wide standard for calculating the summary data presented in all financial
statements, and terminology is not always consistent between companies, industries, countries and
time periods.
Net sales Turnover:- Net Sales Turnover Amount which shown in Income Statement .Amount includes sales within and outside India.
Other Income:- Other Income amount which shown in Income Statement Non Operating Income:- Non Operating Income amount which shown in Income
Statement
Total Income:- Total Income amount is a addition of Net Sales Turnover + OtherIncome + Non Operating Income.
PBDIT = Profit before Dividend, Interest & Tax Amount is already calculated in IncomeStatement .
PAT = Profit after Tax Amount is already calculated in Income Statement .
PBDIT/Total Income (%) Profit before Dividend, Interest & Tax / Total Income * 100 PAT/Total Income = Profit after Tax / Total Income
53
8/2/2019 Project Finance EMBA - Nandakumar
54/63
Cash Profit = Depreciation + Profit after Tax [both figure is already calculated inIncome Statement
Share Capital = Share capital Amount is already calculated in Balance Sheet Total Term Loan = Total Term Loan Amount is already calculated in Balance Sheet Debt-Equity Ratio = Debt / Equity TOL/TNW = Total Outside Liabilities / Total Net Worth Net Fixed Assets = Net Fixed Assets amount is already calculated (Gross Block-
Depreciation) in Balance Sheet .
Fixed Assets coverage Ratio = Profit after Tax / Fixed Assets. Total Current Assets = Total current Assets amount is already calculated Balance
Sheet.
Total Current Liabilities = Total current Liabilities Amount is already calculated inBalance Sheet.
Current Ratio = Current Assets / Current Liabilities Return on capital Employed = Profit after Tax / Capital Employed. No of share = share capital / face value of share EPS ( Face Value Rs.10 Per Share) Earnings Per Share = profit after tax / No. of Equity Share
54
8/2/2019 Project Finance EMBA - Nandakumar
55/63
CHAPTER 7. OBSERVATION AND FINDINGS
55
8/2/2019 Project Finance EMBA - Nandakumar
56/63
Companys financial condition is very good. Company is using more own fund rather than borrowed fund. Companys track record is very good. Company doesnt have any litigation regarding the financial matters. Vision of the Board of the company is remarkable.
56
8/2/2019 Project Finance EMBA - Nandakumar
57/63
CHAPTER 8. LIMITATIONS
57
8/2/2019 Project Finance EMBA - Nandakumar
58/63
1. In the Case of the finance Department should impose more concentration on the expenses and howthey manage their expenses against budget and actual for this they must have the specified staff who
can concentrate more on the Expenses part so that the flow of the amount is not crossing the river
(Which mean the Budget Amount) So this will not create much problem in managing the finance
expenses.
2. The Company Should more Concentrate on the loss side which mean they should rectify how the lossare occurring in the project and how should they manage it and plan to other project so they dont
occur much loss in the near futhure for the more upcoming project.
3. The company should bring more storage system in the lab so that there is no fear for the damage ofthe sample because in this business sample is the only way for the earning as it is testing industries
otherwise the storage is good but not in advance technology which other lab use for their storage.
58
8/2/2019 Project Finance EMBA - Nandakumar
59/63
CHAPTER 9. RECOMMENDATIONS AND SUGGESTIONS
59
8/2/2019 Project Finance EMBA - Nandakumar
60/63
1. The Company should arrange for the training to the persons related to the new project.2. Before installing the plant company should complete all the legal requirements which are
required to install the plant.
3. Company should expand their current laboratory and add department of Research anddevelopment.
4. In the Case of the finance Department should impose more concentration on the expenses andhow they manage their expenses against budget and actual for this they must have the specified
staff who can concentrate more on the Expenses part so that the flow of the amount is not
crossing the river (Which mean the Budget Amount) So this will not create much problem in
managing the finance expenses.
5. The Company Should more Concentrate on the loss side which mean they should rectify how theloss are occurring in the project and how should they manage it and plan to other project so they
dont occur much loss in the near futhure for the more upcoming project.
6. The company should bring more storage system in the lab so that there is no fear for the damageof the sample because in this business sample is the only way for the earning as it is testing
industries otherwise the storage is good but not in advance technology which other lab use for
their storage .
60
8/2/2019 Project Finance EMBA - Nandakumar
61/63
CHAPTER 10. BIBILOGRAPHY
61
8/2/2019 Project Finance EMBA - Nandakumar
62/63
www.Savair.co.in WWW.NSE.Com WWW.BSE.Com WWW.NSDL.Com Various Finance book for the understanding of the Finance of Concept Financial Book for the understanding of the share and profit ratio of the company WWW.BSE.Com WWW.NSDL.Com Companys Internal Documents Annual Reports of Last 4 years Journals of Ranbaxy Text Books & Literature Khan, M.Y., Jain, PK, Financial Management, Tata McGraw-Hill,PublishingCompany Ltd., New
Delhi, 2003.
Pandey, I.M., Financial Management, Vikas Publishing House Private Limited, New Delhi, 2001. Chandra Prasanna, Financial Management Theory and Practice, TATAMcgraw-Hill Publishing
Company, 2004
62
http://www.savair.co.in/http://www.nse.com/http://www.bse.com/http://www.nsdl.com/http://www.nsdl.com/http://www.bse.com/http://www.nse.com/http://www.savair.co.in/8/2/2019 Project Finance EMBA - Nandakumar
63/63