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37 Project Report and Appraisal
37 Project Report and Appraisal
37 Project Report and Appraisal
Introduction
Project finance is providing finance for particular projects, which is later repaid from cash flows generated by those specific projects. Importance of risk management in project finance
CA Debasish Banerjee
Agenda
Today we are going to discuss the method of preparing a Project Report and its appraisal Preparing of Schemes for SSI Registration
CA Debasish Banerjee
Overview
CA Debasish Banerjee
Great care should be taken Every item is properly scrutinized by financer Over-invoice to be avoided and creditability of the promoters retained Omission to be financed by promoter Time schedule fixed by
Bar-Chart ( < 5 crores) PERT or CPM method
CA Debasish Banerjee
The Cost of Project Land and Site development Building and civil woks Plant & Machinery Escalation & contingencies Other Fixed Assets Technical know-how fees Interest during construction Preliminary & Preoperative expenses Margin Money for working capital
6 CA Day July 01 2007
CA Debasish Banerjee
Basic Cost of land Conveyancing charges and other allied charges Levelling of the plot Laying of the internal road Laying of the approach road Construction of the Boundary Walls Construction of the main gate Tube-well digging cost
7 CA Day July 01 2007
CA Debasish Banerjee
There is a tendency of over stating this cost There is a tendency for over-run due to increase in the area and / or cost of construction
CA Debasish Banerjee
Evaluation of technologies
Increased Profitability Saving of labour Better consumption norms Lesser requirement of Plants Ease in availability of raw material
CA Debasish Banerjee
Takes care of escalation which may take place during the actual implementation of the project.
CA Debasish Banerjee
There are other items of machinery which do not form part of the direct manufacturing process
CA Debasish Banerjee
CA Debasish Banerjee
The promoter is required to pay the interest during the period and depends on
Quantum of loan Duration for which the loan will remain outstanding
CA Debasish Banerjee
Expenses which are not directly related with any of the above expenses and are required to be incurred
CA Debasish Banerjee
CA Debasish Banerjee
Promoters contribution Unsecured Loan Debt Service Coverage Ratio Repayment capacity
CA Debasish Banerjee 16 CA Day July 01 2007
Should be in the vicinity of 1.5. Earlier it was 2. High DSCR can be reduced by
Reducing cash accruals
By lower Capacity Utilization More Pessimistic Approach
CA Debasish Banerjee
CA Debasish Banerjee
CA Debasish Banerjee
Performance Ratios
Share Capital Reserve NET WORTH Profitability ratios Analysis of Cash Accruals Analysis of Sales Analysis of the Working Capital Analysis of Debtors
CA Debasish Banerjee
CA Debasish Banerjee
CA Debasish Banerjee
Essential criteria
For project financing, the financier essentially looks at the revenue generating capacity of the project for which a loan is sought.
CA Debasish Banerjee
Additional Formats
Preparation of a Project Report Preparation of the CMA Data for the Bank (Format enclosed) Appraisal Report of the Banker (Format enclosed) Credit rating Norms ( details enclosed ) Preparation of Schemes ( Format enclosed)
25 CA Day July 01 2007
CA Debasish Banerjee
More Information
Project Reports and Appraisals by H.P.S.Pahwa (Bharat Law House Pvt Ltd) Credit Appraisal of any Bank
CA Debasish Banerjee