Key Aspects of Project Appraisal for SME Financing CII FINcon Dr Rajesh Khajuria, Director TEAMPro Ltd, London TEAM Projects & Consultants, Vadodara

Dr R TEAM2 A Warm Welcome to all of You! CII Organisers and Members SME Owners and Managers Chief Guests Speakers

Dr R TEAM3 Presentation Plan I.Indian SME Overview. II.Project Appraisal Methods. III.Project Appraisal: Key Aspects. IV.Case Asahi Songwon Colors Ltd with Korean Technology for TL, WCL and Public Issue. V.Questions?

Indian SME Overview Part I

Dr R TEAM5 Welcome to Indian SMEs! 95% of Industrial Units are SMEs 40% of Value Added in Manufacturing Sector 35% of National Exports 7,500 Products Manufactured Employs 20 million people But, contribute only 7% of GDP ? 40% of Bank Finances to Priority Sector –SMEs and Agriculture

Dr R TEAM6 Welcome to 3.5m Indian SMEs!

Dr R TEAM7 SMEs achieve Rs 8000 billion Sales

Dr R TEAM8 SMEs have Rs 1000 billion Investment

Dr R TEAM9 SMEs Export Rs 800 billion G & S

Dr R TEAM10 SMEs provide 20 million Employment

Dr R TEAM11 The World depends on SMEs UK: 98% of all Businesses are SMEs Japan: 99% are SMEs USA: 96% are SMEs Africas 29 nations: 99.5% are SMEs The world depends on SMEs India depends on SMEs for economic success of its 1 billion people

Project Appraisal Methods Part II

Dr R TEAM13 Project Appraisal Methods Today we discuss… Bank Appraisal for Loans. Appraisal for Public Issue of Equity. Other Methods: –FI Appraisal for Loans –World Bank Project Appraisal –UNIDO, Social Project Appraisal

Project Appraisal : Key Aspects Part III

Dr R TEAM15 Project Appraisal: Key Aspects The Objectives The Project Methodology of Appraisal Corporate Analysis The Promoters Team Marketability Assessment Technical Feasibility Economic Viability & Financial Structuring Environmental Impact Assessment Conclusion & Recommendation

Case Asahi Songwon Colors Ltd Part IV

Dr R TEAM17 The Case Study Asahi Songwon Colors Ltd, Ahmedabad (Padra Plant) –Phase I: 2005 – Operating. –Phase II & III: Expansion proposed with Term Loan, Working Capital Loan and Public Issue. Total Investment Rs 71 Crore. –State Bank of India referred the Project Appraisal assignment to TEAM.

Dr R TEAM18 Methodology of Appraisal Project Report of the company as a base. Site visit to the Factory. Market & Competition Analysis. Discussions with the Bankers and Co.s top executives on all aspects. Raising 35 Queries. Balance Sheet Analysis. Independent & unbiased Appraisal & Judgement Confidential Report with Specific Conclusions and Recommendations.

Dr R TEAM19 The Colors Asahi Songwon Colors Ltd has already invested Rs 25 Crore in a new Medium Scale Plant at Padra (Baroda) to manufacture basic Colors for export and domestic markets. Collaboration with Songwon Colors Ltd, Korea (taken over by Clariant of Europe). Colors are used in all walks of life: Textiles to everything we see, touch and feel.

Dr R TEAM20 Vision Songwon, Korea: –Better Colour for A More Beautiful Life. Asahi, India: –To be a global leader in its field of Pigments by supplying quality and environment friendly products to MNCs worldwide. Can you analyse both Visions?

Dr R TEAM21 Corporate Analysis Past Performance Corporate Emergence Promoters Team – Most Important SWOT Analysis

Dr R TEAM22 The Promoters Team Highly qualified and experienced with up to 15 years experience in the same line. MBA (USA), Technologists, CA. Exporting, Profit-making existing business. Demonstrated Performance in Manufacturing, Management and Export. Politically well-known, but not spared by State Bank of India from Project Appraisal!

Dr R TEAM23 Marketability Assessment Product & Applications Demand assessment based on end-user method –Global Consumption estimates Competition and Supply Assessment –Export – Import Data analysis –International and domestic prices Demand-Supply Gap and Customers Scope for the Company to tap the Gap

Dr R TEAM24 Technical Feasibility Capacity Assessment & Projected Utilisation Manufacturing Process Land & Building Requirements Plant & Machinery & Layout proposed Inputs: Raw Materials, Power, Fuel, Water, sources, quantities, prices, suppliers

Dr R TEAM25 Technical Feasibility Technology source and cost Manpower Requirements & Costs Pollution Control Measures ISO Certification: 9000 / 14000

Dr R TEAM26 Economic Viability Project Cost –Appraisal resulted in Addition of Rs 6 Crore to original estimate of Project Cost – Rs 71.5 Crore to Rs Crore –Rise in Equipment costs and increased Working Capital, detected from TEAMs Appraisal process –Hell lot of efforts to convince the Company about raising Sources of Finance by Rs 6 Crore!

Dr R TEAM27 Sources: Financial Re-structuring Rs Crore Term Loan SBI (FCNR/Rs)13.82 Equity Share Capital43.84 Unsecured Loan07.98 Reserves & Surplus11.25 Deferred Tax Liability00.66 TOTAL Sources of Finance Add: Working Capital Loan24.00

Dr R TEAM28 Environmental Impact Assessment Water pollution quantity Treatment methods and equipments Disposal to ETP Channel as per GPCB Rules Membership of ETP Channel Sources of Fresh Water Ministry of Environment & Forests clearance needed for large Projects

Dr R TEAM29 Conclusion & Recommendation The project is assessed by TEAM at the behest of State Bank of India. The Project is Technically Feasible and Economically Viable. SBI may grant Term Loan and Working Capital Loan recommended. The Appraisal may be quoted in Prospectus for SEBI permission for Public Issue.

Dr R TEAM30 Learning Today Proven Appraisal Process. Reliability. –Based on PhD Research of Dr Rajesh Khajuria Independent & Unbiased Appraisal. Appointment by a Bank or Financial Institute. Consultants Track Record. Credibility. –TEAM has 95% Success rate and 99% Recovery of Loans recommended for 200 Projects in 23 years ( ). Quick Turnaround. Ethics for Long Term Success.

Dr R TEAM31 Questions? Dr Rajesh Khajuria, Director TEAMPro Limited M: Data and Image Courtesy: SSI Annual Report 2003, Ministry of Small Scale Industries, Government of India