NOTE FOR THE DEPUTY GENERAL MANAGER (CB)

ADVANCES : TRADE
BORROWER: GUPTA PROPERTIES
BRANCH: COMMERCIAL BRANCH, PATNA

Present proposal: Sanction of term loan for construction of a commercial complex at

Boring Canal Road, Patna for leasing out the complex.
Date of receipt of proposal : GROUP :
Date of receipt of final comprehensive data : No Particular
Group
ACTIVITY : Constitution:
Construction of commercial complex Proprietorship
ADDRESS: Date of Incorporation:
“Anand Vihar”
West Boring Canal Road, Patna
Credit Rating: SBTL- 1 Asset: Standard
Proprietor: Chief Executive:
Shri Arjun Kumar Gupta Shri Arjun Kumar Gupta

(Rs. in Lac)
INDEBTEDNES PRESENT PROPOSE SHARE %
S D
FBL : Nil 25.00 LEAD BANK: State 100%
Bank of India
NFBL : Nil - OTHER BANKS: SBI is Nil
the sole banker.
TOTAL : Nil 25.00

F.B.LIMITS EXISTING PROPOSED CHANGE

SBI % CONS SBI % CONS. SBI CONS
. .
Cash Credit (Stocks) Nil Nil Nil Nil 100 Nil Nil Nil

Cash credit (Bills) Nil Nil Nil Nil 100 Nil Nil Nil
Term Loan Nil Nil Nil 25.00 100 Nil 25.00 Nil
TOTAL EXPOSURE: Rs. 25.00 lacs

INTRODUCTION

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In recent times, construction of commercial complexes has gained great momentum. This is
largely attributed to the escalating land prices and moreover the shortage of land for the
construction of Buildings. There are in fact, numerous advantages associated with the
construction of commercial complexes and their development. To cite here, one of the main
advantages is the creation of large amount of usable space as compared to the availability of the
Land.

Keeping this in mind, Sri Arjun Kumar Gupta, owner of a piece of land at Main Boring Road,
Patna has decided to construct a commercial complex over the land. He had acquired the land
way back in 1987. The present value of the land has been estimated at Rs. 148.68 lacs by Sri
Shyam Sunder Bhartiya, an approved valuer of State Bank Of India.

The plan of Sri Gupta is to construct a seven Storeyed complex. However, at present, the proposal
is to construct basement, ground floor and mezannine floor only and accordingly, Sri Arjun
Kumar Gupta has applied for the approval of the construction plan at P.R.D.A. This has been
done keeping in view the fact that Sri Arjun Kumar Gupta has been awarded the dealership of
Telco Passenger Cars in his company, Guinea Motors (P) Ltd. in which he is a Director. The
proposed construction has already been let out on lease to Guinea Motors (P) ltd. for its
showroom for a period of ten years.

PRESENT PROPOSAL

The construction of the complex has already commenced. The estimated cost of the construction
is Rs. 40.09 lacs. Keeping this in view, the present proposal is being made for sanction of term
loan of Rs. 25.00 lacs. The balance amount would be funded by the Promoter.

CAPITAL & OWNERSHIP PATTERN

The firm is a proprietory concern and whatever capital needs to be infused will be infused by Sri
Arjun Kumar Gupta, Proprietor of the concern.
ASSOCIATE CONCERNS

The following are the associate concerns of the Directors of the Company:

Sl. Name of the firm/company Association

1. M/s Guinea House Sri Arjun Kumar Gupta is a partner in HUF
capacity.

The associate concern of the firm is doing well. The firm is not enjoying any credit
facility. The details of the concerns have been discussed under Annexure-I.

BACKGROUND OF THE PROMOTERS AND THE MANAGEMENT

Brief bio-data of the promoters are as under:

Name & Age of the Educational Net Means Experience

promoter Qualification As on
31.03.2000
(Rs.In Lac)
Arjun Kumar Gupta B.Com 434.60 Running the firm, M/s
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 Guinea House since last
thirty years.

Key Financial Parameters

Sl. Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

1 Receipts 7.50 15.00 15.00 15.00 15.00 19.50 19.50
2 Profit After Tax 2.63 4.49 5.38 6.22 7.03 11.83 12.56
3 PAT to Receipts % 35.07% 29.93% 35.87% 41.47% 46.87% 60.67% 64.41%
4 PBDIT 5.84 11.62 11.56 11.49 11.42 15.38 15.30
5 PBDIT to Receipts % 77.87% 77.47% 77.07% 76.60% 76.13% 78.87% 78.46%
6 Current Assets 5.92 9.18 12.07 15.17 18.50 26.10 32.68
7 Current Liabilities 4.37 4.93 5.19 5.45 5.69 7.17 3.51
(Including t/l instalments)
8 Current Ratio 1.36 1.86 2.32 2.79 3.25 3.64 9.31
9 Net Working Capital 1.55 4.25 6.88 9.72 12.82 18.93 29.17
10 Promoters' Capital 26.04 28.54 31.37 34.78 38.77 46.11 53.96
11 Tangible Net Worth(TNW) 26.04 28.54 31.37 34.78 38.77 46.11 53.96
12 Total Outside Liabilities 24.86 21.58 18.00 14.42 10.82 8.42 4.76
(TOL)
13 TOL/TNW 0.95 0.76 0.57 0.41 0.28 0.18 0.09
14 ROCE % 11.47% 23.18% 23.41% 23.35% 23.03% 28.21% 26.06%

Comments:

Receipts: As the receipts of the firm are lease rentals, the achievement of the projected
level shall not be a problem for the firm.

Profitability: The profitability parameter like PAT/Receipts is showing a rising trend

except in the year 2000-01 when the burden of term loan interest is higher. PBDIT is
showing a almost steady trend till 2004-05. In subsequent years, it is rising on account of
increase in receipts of the firm. A similar trend is followed by ROCE.

Liquidity: The unit’s liquidity as indicated by the current ratio is quite comfortable and
has been projected to improve further over the years. This is mainly due to plough back
of profits.

Liability structure: TOL/TNW is 0.95 at the end of first year of operation. And, in the
subsequent years, it is projected to improve because of the decreasing term loan liabilities
and strengthening of the net worth.

ABOUT THE PROJECT

Construction process

The construction of a commercial complex is being carried out in a pre-defined manner and is
more or less same in almost all the cases. After identification of the plot, a boundary is built
around the plot to earmark the area. After this, foundation is being laid by R.C.C. piling as per
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the prescribed specification of materials. After laying the foundation, super structure is being
constructed in R.C.C. frame as per the structural design. This work is done up-to the pre-
determined and approved number of floors. After this, the brickwork is being done in the super
structure at the external level and in the partitions of the units. Electrical pipes are being laid in
the roofs at the time of raising the structure itself.

After brickwork, next step is plastering of walls from inside and outside. In this step, cement and
sand is being mixed in the desired ratio and the mixture is applied to the walls by the workers.
After completing plastering work, flooring work is commenced.

After completion of flooring, electrical work is being done. PVC conduits are being laid with
copper conductor. Switches are provided in all the units depending upon the electrical points. In
addition to this, points are being made for TV, telephone, intercom etc. The next step is of
plumbing and sanitary work. Sanitary pipes are laid and fittings are being made as per the
specifications in the plan. Generally I.S.I. mark fittings are being used by the builders.

Subsequently, fitting and fixing of MS steel/wooden doors, windows and ventilator frames is
being done. This is being followed by fitting and fixing of solid core flush door of approved make
in the already fixed frames.

Then comes the work of painting and finishing. All internal surfaces of walls are painted with
two coats of white cement. All external surfaces are painted with cement paint of approved
quality, shade and colour. Wooden surfaces are being painted with two coats of synthetic enamel
over a surface of wood primer of approved shade and quality. Then coats of synthetic enamel are
applied over a coat of steel primer of approved shade and quality.

One of the most important jobs after completing the above is terrace treatment from water.
Proper water proofing treatment is done with lime or other suitable material. This is followed by
site development work in the last wherein landscaping, complete over dressing and compacting
of loose soil is done.

On the completion of the above the construction process comes to an end. However, furnishing it
with the base minimum amenities is of prime importance. The building is provided with lift,
generator as standby in case of power failure and boring for water requirement. All this makes
the building readily usable.

Location

The proposed project is located at one of the prime business centres of Patna. In fact,
Boring Canal Road, Patna is an apt road for such projects. One of the Maruti Showrooms
and the local Santro showroom is in close distance with the project. This will lead to the
development of an automobile market in a close range.

BUSINESS PROSPECTS

The prospects in the business of acquisition and development of land properties have been quite
fulfilling from the very beginning. In recent times, however, there has been a mushroom growth
of commercial complexes in Patna. Numbers of buildings have come up and a lot of them are
lying unoccupied and/or unsold. This is largely on account of unplanned construction and lack
of confidence of the buyers for the developers. Occupancy and/or saleability of a commercial
complex depends largely on certain factors such as:

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- The construction shall be done as per the specifications.
- The location of the complex shall be proper.
- The credentials of the promoter shall be good.
- The maintenance provisions of the building and amenities viz. generator, lift etc. shall be
proper.

However, despite the fact that the scenario is not very bright for the business on the whole, the
present project shall not be facing any problem as the promoter is not going to sell the units. As
explained above, he shall be letting out the entire construction on rental basis to Guinea Motors
(P) Ltd. And as the project being taken up by Guinea Motors (P) ltd. is a highly prestigious one
with high profit estimates, the project shall not face any problem in realisation of rental receipts.

RBI DEFAULTER LIST

The name of the promoter of the firm does not figure in the RBI defaulter list (current as
on September 1998).

TAXES

No tax as such, is applicable to the unit.

STATUTORY LIABILITIES

The unit being new, there are no statutory liabilities.

DUES TO SMALL SCALE INDUSTRIES

Nil

SECURITY

Our total exposure to the company vis-à-vis the securities shall be as under:

Facility Limit Primarily covered by

Term loan 25.00 Fixed assets of the firm
TOTAL 25.00

STATUTORY REGISTRATIONS

The firm is required to obtain approval of the site plan from Patna Regional Development Authority
(PRDA) for the construction of the proposed complex. At the time of making the application to the bank,
the firm was yet to receive the necessary approval. As on date, the approval has been granted by the
PRDA.

No other registration is required by the firm.

SPECIAL MONITORING

The promoter should bring their contribution up-front. That is, before disbursement of term loan
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commences, the firm would provide a certificate from their Chartered Accountant that proposed
contribution towards setting up of the project has been infused in the firm.

CREDIT RISK ASSESSMENT

Term loan : SBTL-1

As the CRA exercise is based on estimated financial, for pricing purpose, we propose rate
of interest chargeable on term loan account corresponding to SBTL2 rating.

SWOT Analysis:

Strengths:
 The complex is being constructed for giving the same on lease to Guinea Motors (P)
Ltd., the TELCO passenger cars dealer for Patna. The dealership of TELCO being one
of the profitable businesses, generation of revenue in the form of rental receipt is a
surety.
 The Promoter of the project being financially a sound party, any contingency can be
easily met by the promoter.

Weaknesses:
The firm’s revenue are totally dependent on the company, Guinea Motors (P) Ltd. In case of any problem
with the lessee, the revenues of the firm will be affected.

Opportunities:
With an assured revenue source, the firm can generate enough funds in future for expansion of the project
further.

Threats:
There is no apparent threat to the firm.

RECOMMENDATIONS

In view of what has been stated in the note and its annexures, the proposal is considered to be fair banking
risk. Hence, we recommend for sanction of a term loan of Rs. 25.00 lacs to the firm on the terms and
conditions stipulated in the note as also in the annexures.

Submitted for sanction, please.

Deputy Manager (Credit) Manager (Credit) Chief Manager

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 ANNEXURE-I

ASSOCIATE CONCERN

The associate concern of the firm is M/s Guinea House. The firm was established nearly
30 years back. The showroom is located at Moradpur, Patna. The firm is one of the
renowned jewellery shops of the Patna and it enjoys good reputation in the market. The
firm is not enjoying any credit facility from any bank and/or any financial institution.

We have examined the financials of the firm for the last three years and the key financials
of the firms for the years under review are as under:

(Rs. in lakhs)
Sl. Particulars 1996-97 1997-98 1998-99
No.
1. Sales 9.52 17.13 17.90
2. Profit Before Tax 0.65 0.22 0.54
3. Cash Accrual 0.74 0.32 0.62
4. Current Ratio 5.73 2.93 8.82
5. Proprietor’s Capital 4.62 4.17 4.16
6. TOL/TNW 3.62 4.62 5.31

Comments:

Sales: As is evident from the above, the sales of then firm are on the rise in the years
under review. However, the sales are drastically low when seen in the context of the
nature of business.

Profitability: The profitability of the firm declined sharply in the year 1997-98 as
compared to 1996-97 on account of heavy liability incurred on account of electricity
expenses. In subsequent year, it has however increased.

Liquidity: The unit’s liquidity as indicated by the current ratio is quite comfortable. This
is mainly due to plough back of profits.

Liability structure: TOL/TNW is on the rise as the proprietor had to withdraw from
capital to meet his personal expenses and in the absence of adequate profits, the TNW
dipped. On the other hand, TOL is high because of high level of unsecured loans in the
firm. However, as the loans are mostly from friends and relatives, the firm is at a
comfortable position as there is no immediate repayment liability.

ANNEXURE - II

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TERM LOAN APPRAISAL

Purpose:
The firm is constructing a commercial building under approval from PRDA for letting out the same to
Guinea Motors (P) Ltd., the company which has been awarded the dealership for Telco passenger cars at
Patna. The funds required for the construction of the project are to the tune of Rs. 40.089 lacs. This is based
on the estimates obtained from a Chartered Engineer. And to part finance the project, a term loan of Rs.
25.00 lacs has been sought by the firm. The detailed cost of Project and the means of finance works out to
be as under:

Project Cost & Means of finance

A statement giving detail break up of the project cost is being placed below:

(Rs. In Lacs)
Particulars Amount Contribution Amount of
loan
Land 4.57 100% -
Construction of building 40.09 37.6% 25.00
Pre-operative Expenses 2.45 100% -
Contingencies 2.13 100% -
Total : 49.24 25.00

MEANS OF FINANCE

(Rs. In lacs)
Particulars Amount
Term loan 25.00
Promoters' Capital 24.24
Total : 49.24

Other Financial Parameters

*Based on the estimates of 2000-01

Promoter’s contribution % project cost 49.22%

Debt-equity 1.03

DSCR i. DSCR Gross (Average) 1.91

ii. Maximum DSCR Gross 2.79
iii. Minimum DSCR Gross 1.52

Details of Cost of Project

Land and Land Development
The proprietor of the firm is already in possession of the land on which the project is
coming up. The plot was acquired way back in 1987 by way of registered sale deed. The
original title deed of the plot is available with the proprietor. Though the cost of the plot

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at the time of its acquisition was Rs. 4.57 lacs, its present market value as per the valuaion
done by Sri Shyma Sunder Bhartiya, bank’s approved valuer is Rs. 148.68 lacs.

Civil construction
The whole project in itself is the construction of the commercial complex for letting the same on lease to
Guinea Motors (P) Ltd. The applicant firm is concerned only with the civil works of the project. The lessee
at its own cost will do the work related to the interiors. Estimates in respect of the expenses incurred have
been obtained from a Chartered Engineer. He has estimated that the expenditure under this head shall be
to the tune of Rs. 40.09 lacs.

Pre-operative Expenses
Total cost under this head is Rs. 2.45 lacs and will be provided 100% from the borrower’s
own sources.

Contingencies
A contingency provision of 5% has been made in respect of project to meet the contingency related to
escalation in the project cost. The total amount of the contingency provision is Rs. 2.13 lacs which will be
provided 100% by the firm from own sources.

Debt Service Coverage Ratio:

The proposed DSCR calculation stands as under:

(Rs. in lacs)
Particulars Total 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Profit after tax 36.92 2.10 3.40 4.03 4.61 5.18 8.54 9.05
Interest on term loan 11.40 1.08 3.09 2.54 2.00 1.44 0.90 0.35
Depreciation 21.07 2.13 4.04 3.64 3.27 2.95 2.65 2.39
Total : 69.39 5.31 10.53 10.21 9.88 9.57 12.09 11.79
Repayment of term loan 25.00 1.92 3.84 3.84 3.84 3.84 3.84 3.88
Interest on term loan 11.40 1.08 3.09 2.54 2.00 1.44 0.90 0.35
Total : 36.40 3.00 6.93 6.38 5.84 5.28 4.74 4.23
DSCR 1.91 1.77 1.52 1.60 1.69 1.81 2.55 2.79

From the above, it is evident that despite annual repayment obligation of Rs.3.84 lacs
from the 2nd year onwards and an equally heavy annual interest liability on term loan,
the unit is projected to generate sufficient cash accrual every year giving a comfortable
gross DSCR all through the years of repayment.
Security Margin Analysis:
The coverage of the term loan vis-à-vis the W.D.V. of fixed assets is as under:

Year Fixed Out standing Security

Assets Term loan Margin (%)
(WDV)
2000-01 44.98 23.08 48.69%
2001-02 40.94 19.24 53.00%
2002-03 37.3 15.40 58.71%
2003-04 34.03 11.56 66.03%
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2004-05 31.08 7.72 75.16%
2005-06 28.43 3.88 86.35%
2006-07 26.04 0.00 100.00%

From the third year of the project, the Bank will have a margin of approximately
59% of the W.D.V. of fixed assets.

Repayment Schedule
The proposed repayment schedule of the term loan is as detailed below:

(Rs. In Lacs)
Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Opening balance 0.00 23.08 19.24 15.40 11.56 7.72 3.88
Add : Additions 25.00 0.00 0.00 0.00 0.00 0.00 0.00
Repayment 1st quarter 0.00 0.96 0.96 0.96 0.96 0.96 0.96
Repayment 2nd quarter 0.00 0.96 0.96 0.96 0.96 0.96 0.96
Repayment 3rd quarter 0.96 0.96 0.96 0.96 0.96 0.96 0.96
Repayment 4th quarter 0.96 0.96 0.96 0.96 0.96 0.96 1.00
Closing balance 23.08 19.24 15.40 11.56 7.72 3.88 0.00

The repayment of term loan shall start from December quarter of 2000-’01. No moratorium is being
proposed as the unit will start generating funds from the very first month of the operations.

Schedule of implementation:

Detailed schedule for the implementation of the project as estimated by the promoters is
as under:
Particulars Completion by
Foundation Already completed
Structure work 20 th of July, 2000
Brick work, plastering and front facie 5 th of August, 2000
M. S. Steel/wood work
Flooring and electrical work 31 st of August, 2000
Plumbing and sanitary work
Painting, finishing and other works 15th of September, 2000
Site Development and generator installation

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 ANNEXURE-III
TERMS AND CONDITIONS

Security

(a) Primary

FACILITY AMOUN SECURITY

T
Term Loan 25.00 First charge on entire fixed
assets including land valued at
Rs. 148.68 lacs.

(b) Collateral

The proposed exposure will be collaterally secured by the personal guarantee of Sri
Arjun Kumar Gupta, proprietor of the firm having net means of Rs. 434.60 lacs worked
out as per their opinion report dated ……..

Rate of interest
Rate of interest corresponding to SBTL3 rating for Term Loan.

Commission
As per extant instructions.

Inspection
Monthly at irregular intervals.

Insurance
Insurance of the commercial complex at its full value.

Documentation
As per Bank’s extant instructions.

Other Conditions
Special condition and various stipulation made in the note shall also be the part of the
terms and conditions.

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 ANNEXURE - IV

CREDIT RISK ASSESSMENT

Term Loan

Financial Value Score

Parameters
Debt-equity ratio 1.03 5
TOL/TNW 0.95 5
Gross average 1.91 4
DSCR
DSCR for all loans 1.91 4
Terms of 7 3
repayment
Total 21
Normalised on 100 = 84

INDUSTRY RISK

Competition & Market Risk At par

Industry Cyclicality At par
User Profile At par
Inputs Profile At par
Regulatory Risk At par
Technology At par
Negative Score - Nil

MANAGEMENT RISK

Integrity At par
Expertise At par
Track Record At par
Structure & Systems At par
Negative Score - Nil
CREDIT RISK RATING : TERM LOAN 84 of 100, i.e., SBTL 1.

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 STATE BANK OF INDIA, COMMERCIAL BRANCH, PATNA

DATE OF REPORT:

NAME OF THE BORROWER : M/S GUPTA PROPERTIES

NAME OF THE GUARANTOR : SRI ARJUN KUMAR GUPTA

1. Name : Sri Arjun Kumar Gupta

2. Father’s name : Late Lakhi Prasad

3. Address : “Gharaunda”,
East Boring Road, Patna.
4. Assets
A) Tangible Assets/Liquid Rs.
Assets :
i) Investment in Steel Emporium 338926.14
ii) Investment in Guinea House 1101851.76
iii) Cash in hand 3981.72
iv) Cash at bank 1897058.38
v) Gold, Silver Ornaments & Diamonds 638203.00

B) Immovable Properties :
i) House at Boring Road,
Anand Vihar, Patna 15859000.00
ii) House at Utsav Place
Nageshwar Colony (50 % share) 6321000.00
iii) House at East Boring Canal Road,
(Gharunda), Patna.(50% Share) 8000000.00
iv) Property at Gupta Enclave,
Kankarbagh, Patna (50% Share) 9300000.00

5. Total Means : 43460021.00

6. Liabilities : Nil.

7 . Net Means : 43460021.00

8. Brief comments :

Sri Arjun Kumar Gupta is a self made man and as is evident he is financially very sound. He enjoys a very
good reputation in the market.

Deputy Manager (Credit) Manager (Credit) Chief Manager

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