Industry Profile

Introduction
Without a sound and effective banking system in India it cannot have a healthy economy.
The banking system of India should not only be hassle free but it should be able to meet new
challenges posed by the technology and any other external and internal factors. Banking in India
has its origin as early as Vedic Period. It is believed that the transition from money lending to
banking must have occurred even before anu! the great "indu #urist who has devoted a section
of his work to deposits and advances and laid down the rules relating to rates of interest. $uring
the days of %ast India &ompany it was the turn of the agency houses to carry on the banking
business.
History
The banking system of India should not only be hassle free but it should be able to meet
new challenges posed by the technology and any other external and internal factors. 'or the past
three decades India(s banking system has several outstanding achievements to its credit. The
most striking is its extensive reach. It is no longer confined to only metropolitans or
cosmopolitans in India. In fact! Indian banking system has reached even to the remote corners of
the country. The first bank in India! though conservative! was established in )*+,. 'rom )*+, till
today! the -ourney of Indian Banking .ystem can be segregated into three distinct phases. They
are as mentioned below/
%arly phase from )*+, to )0,0 of Indian Banks
1ationalisation of Indian Banks and up to )00) prior to Indian banking sector
2eforms.
1ew phase of Indian Banking .ystem with the advent of Indian 'inancial 3
Banking .ector 2eforms after )00).
1
Phase I
The 4eneral Bank of India was set up in the year )*+,. 1ext came Bank of "industan
and Bengal Bank. The %ast India &ompany established Bank of Bengal 5)+607! Bank of Bombay
5)+867 and Bank of adras 5)+897 as independent units and called it Presidency Banks.
These three banks were amalgamated in )0:6 and Imperial Bank of India was established
which started as private shareholders banks! mostly %uropeans shareholders. In )+,; <llahabad
Bank was established and first time exclusively by Indians! Pun-ab 1ational Bank =td. was set
up in )+08 with head>uarters at =ahore. Between )06, and )0)9! Bank of India! &entral Bank of
India! Bank of Baroda! &anara Bank! Indian Bank! and Bank of ysore were set up. 2eserve
Bank of India came in )09;.
$uring the first phase the growth was very slow and banks also experienced periodic
failures between )0)9 and )08+. There were approximately ))66 banks! mostly small. To
streamline the functioning and activities of commercial banks! the 4overnment of India came up
with The Banking &ompanies <ct! )080 which was later changed to Banking 2egulation <ct
)080 as per amending <ct of )0,;.
Phase II
4overnment took ma-or steps in this Indian Banking .ector 2eform after independence.
In )0;;! it nationalised Imperial Bank of India with extensive banking facilities on a large scale
specially in rural and semi?urban areas. It formed .tate Bank of india to act as the principal agent
of 2BI and to handle banking transactions of the @nion and .tate 4overnments all over the
country.
By the )0,6s! the Indian banking industry has become an important tool to facilitate the
development of the Indian economy. <t the same time! it has emerged as a large employer! and a
debate has ensued about the possibility to nationalise the banking industry. Indira 4andhi! the?
then Prime inister of India expressed the intention of the 4AI in the annual conference of the
<ll India &ongress eeting. .even banks forming subsidiary of .tate Bank of India was
nationalised in )0,6 on )0th #uly! )0,0! ma-or process of nationalisation was carried out.
2
< second dose of nationaliBation of , more commercial banks followed in )0+6. The
stated reason for the nationaliBation was to give the government more control of credit delivery.
With the second dose of nationaliBation! the 4AI controlled around 0)C of the banking business
of India. =ater on! in the year )009! the government merged 1ew Bank of India with Pun-ab
1ational Bank. It was the only merger between nationaliBed banks and resulted in the reduction
of the number of nationalised banks from :6 to )0.
Phase III
This phase has introduced many more products and facilities in the banking sector in its
reforms measure. In )00)! under the chairmanship of 1arasimham! a committee was set up by
his name which worked for the liberalisation of banking practices.
The country is flooded with foreign banks and their <T stations. %fforts are being put
to give a satisfactory service to customers. Phone banking and net banking is introduced. The
entire system became more convenient and swift. Time is given more importance than money.
The financial system of India has shown a great deal of resilience. It is sheltered from any
crisis triggered by any external macroeconomics shock as other %ast <sian &ountries suffered.
This is all due to a flexible exchange rate regime! the foreign reserves are high! the capital
account is not yet fully convertible! and banks and their customers have limited foreign exchange
exposure.
Liberalisation
In the early )006s! the then 1arsimha 2ao government embarked on a policy of
liberalisation! licensing a small number of private banks. These came to be known as 1ew
4eneration tech?savvy banks and included 4lobal Trust Bank. This move! along with the rapid
growth in the economy of India! revitaliBed the banking sector in India! which has seen rapid
growth with strong contribution from all the three sectors of banks! namely! government banks!
private banks and foreign banks.
3
The next stage for the Indian banking has been setup with the proposed relaxation in the
norms for 'oreign $irect Investment! where all 'oreign Investors in banks may be given voting
rights which could exceed the present cap of )6C!at present it has gone up to 80C with some
restrictions. &urrently! banking in India is generally fairly mature in terms of supply! product
range and reach?even though reach in rural India still remains a challenge for the private sector
and foreign banks. In terms of >uality of assets and capital ade>uacy! Indian banks are
considered to have clean! strong and transparent balance sheets relative to other banks in
comparable economies in its region. With the growth in the Indian economy expected to be
strong for >uite some time?especially in its services sector?the demand for banking services!
especially retail banking! mortgages and investment services are expected to be strong. Ane may
also expect 3<! takeovers! and asset sales. In arch :66,! the 2eserve Bank of India allowed
Warburg Pincus to increase its stake in Dotak ahindra Bank 5a private sector bank7 to )6C.
This is the first time an investor has been allowed to hold more than ;C in a private sector bank
since the 2BI announced norms in :66; that any stake exceeding ;C in the private sector banks
would need to be vetted by them.
Indian Banking system
The Indian Banking Industry can be categoriBed into non?scheduled banks and scheduled
banks. .cheduled banks constitute of commercial banks and co?operative banks. There are about
,*!666 branches of .cheduled banks spread across India. <s far as the present scenario is
concerned the banking industry in India is in a transition phase. The Public .ector Banks 5Pubs7!
which are the foundation of the Indian Banking system account for more than *+ per cent of total
banking industry assets. @nfortunately they are burdened with excessive 1on Performing assets
51P<s7! massive manpower and lack of modern technology.
An the other hand the Private .ector Banks are witnessing immense progress. They are
leaders in Internet banking! mobile banking! phone banking! <Ts. An the other hand the Public
.ector Banks are still facing the problem of unhappy employees. There has been a decrease of :6
percent in the employee strength of the private sector in the wake of the Voluntary 2etirement
.chemes 5V2.7. <s far as foreign banks are concerned they are likely to succeed in India
4
2eserve Bank of India







Indusland Bank was the first private bank to be set up in India. I$BI! I14 Vyasa Bank!
.BI &ommercial and International Bank =td! $hanalakshmi Bank =td! Darur Vysya Bank =td!
Bank of 2a-asthan =td etc are some Private .ector Banks. Banks from the Public .ector include
Pun-ab 1ational bank! Vi-aya Bank! @&A Bank! Ariental Bank! <llahabad Bank! <ndhra Bank
etc.
<1E 4rindlays Bank! <B1?<2A Bank! <merican %xpress Bank =tdF &itibank etc are
some foreign banks operating in India.
Commercial banks
5
&o?operative Banks 2egional 2ural Banks &ommercial Banks
.tate Bank
4roup
Private .ector
Banks
Indian Banks 'oreign Banks
Public .ector
Banks
1ationaliBed
Banks
.tate Bank of India <ssociate Banks
.tate &o?operative
Banks
&entral &o?operative
Banks
Primary &redit
&ommercial banks have been in existence for many decades. &ommercial Banks
mobiliBe savings in urban areas and make them available to large and small individual and
trading units mainly for Working &apital re>uirements. <fter)0,0! &ommercial Banks are
broadly classified into nationaliBed public sector banks and private sector banks. The .tate Bank
of India and its associate Banks along with another :6 banks are the public sector banks. The
private sector banks include a small number of Indian .cheduled banks which have not been
nationaliBed.
Public Sector Banks
Public sector banks are those which are owned by the &entral 4overnment either directly
or through the 2eserve Bank of India. They are also known as 1ationalised Banks. %g/ .tate
Bank of India and its subsidiaries! <llahabad Bank! &orporation Bank! Vi-aya Bank! &anara
Bank! Bank of Baroda! Pun-ab 1ational Bank! .yndicate Bank! the Ariental Bank of
&ommerce.
Private Sector Banks
Private .ector banks are those which are owned and controlled by private entrepreneurs.
Private sector banks are classified as Private sector Indian Banks and Private .ector 'oriegn
banks.
Private .ector India Banks are those which are owned and controlled by Indian
%ntrepreneurs. Indusland Bank was the first private bank to be set up in Inda. I$BI! I14 Vyasa
Bank! "$'& Bank! I&I&I Bank! @TI Bank 51ow <xis Bank7! &enturion Bank.
Private sector 'orign Banks are those which are owned and controlled by foreign
entrepreneurs. <1E 4rindlays Bank! <B1?<2A Bank! <merican %xpress Bank =tdF &itibank
etc are some foreign banks operating in India
Regional Rural Banks
6
The 2egional 2ural Banks 522B7 came into existence since the middle of )0*6Gs with
the specific ob-ective of providing credit and deposit facilities particularly to the small and
marginal farmers! agricultural laborers and artisans and small entrepreneurs.
Co-operative banks
In India! co?operative Banks has assigned an important role in the development of vital
areas such as agriculture! rural and small?scale industry! retail distributionF housing etc. the co?
operative banking sector has been developed in the country to replace the village moneylenders.
They also promote savings of the farmers and meet their credit needs for cultivation. The co?
operative banking sectors are not only in rural areas but now they have spread to urban areas
also.
Scheduled banks and non-scheduled banks
@nder the 2BI <ct! )098! banks were classified as .cheduled banks and non?scheduled
banks. the scheduled banks are those which have are included in the schedule5second7of 2BI
<ct!)098.these banks have a paid up capital and reserves of an aggregate value of not less than
2s.; lakhs and which satisfy 2BI that their affairs are carried out in the interest of their
depositors. .cheduled Banks comprise commercial banks and the cooperative banks! In terms of
ownership! &ommercial banks can be further grouped into nationaliBed banks! the .tate Bank of
India and its group banks! 2egional 2ural Banks and Private sector Banks 5old! new! domestic
and foreign7.These banks have over ,*!666 branches spread across the country. 1on?scheduled
banks are those which have not been included in the second schedule of 2BI <ct! )098.at
present! there are three non?scheduled banks in India.
Company Profile
7
&orporation Bank is one of the oldest Banking Institutions in the $akshina Dannada
district of Darnataka and one of the oldest banks in India. <s the saying goes on H< thousand
mile -ourney starts with small stepI. < step was taken by .hri Dhan Bahadur "a-i <bdullha "a-i
Dasim .aheb Bahadur! a businessman of @dupi way back on the ):
th
of arch )06, with a
group of philanthropist founded the J&anara Banking &orporation of @dupi =imitedG.
< handful of people representing the various interests decided to promote the
J&anara Banking &orporation of @dupi =imitedG. %leven persons who included 8 pleaders! :
educationist! ) insurance agent and ) retired sub magistrate where the first signatories of the
<rticles of <ssociation and emorandum of <ssociation of the bank who had in all ))) shares.
The need to start this bank was felt because there was no such facility at @dupi! an
important trading centre next to anglore in $akshin Dannada district. The indigenous banking
was largely in the hands of few rich private individuals and some thing had to be done to provide
relief to the common man from the clutches of the money lenders who held fully swey. What
inspired the founding fathers was the fervor of swadeshism! for promoting the bank! the founder
president made an appeal saying! the primary ob-ect in forming the J&orporation BankG is not
only to cultivate habit of thrifts amongst all classes of people! without distinction of the cast or
creed! but also habit of co?operation amongst all classes. This is swadeshism! pure and simple
and every lover of the country is expected to come forward and co?operate in achieving the end
in view. It was called through co?operation of all! shorn of distinction of caste and creed H The
&anara Banking &orporation =imitedI as the institution was called then! started functioning as a
H1idhiI with a humble beginning. The initial capital was 2s ;666.
&orporation Bank which was founded in )06, and today it is a H)66 year young bankI.
The bank had its origin in the temple town! @dupi which was then a part of $akshin Dannada
district. The credit of introducing the bank goes to the &anara Banking &orporation of @dupi
=imeted. &orporation Bank is a public sector bank which has been silently creating waves
among the domestic banks in India. It is one of the 1ationalised Banks in India.
The bank withstood the challenges of the financial sector reforms and has emerged as the
one of the financially and fundamentally strong! well capitalised! technological sophisticated!
efficient! effective and one of the most profitable bank in India.
8
In the year )0;:! &orporation Bank became the third bank in the country to receive
license from the 2eserve Bank of India as J.cheduled BankG. In the year )0,)! the bank of
citiBens was merged with the &orporation Bank. It was nationalised in <pril )0+6! which
triggered the growth of the bank in terms of geographical reach and business volumes. The name
of the bank was changed from &anara Banking &orporation of @dupi =imited to &orporation
Bank in the year )0*9 and the corporate office of the bank was shifted to anglore.
Corporate ision
HTo evolve into a strong! sound and globally competitive financial system! providing
integrated services to customers from all segments! leveraging on technology and human
resources! adopting the best accounting and ethical practices and fulfilling corporate and social
responsibilities towards all stake holders.I
Corporate !ission
To become a provider of World?&lass financial services.
To meet customer expectations trough innovation and technological initiatives.
To emerge as a role model with distinct culture identity! ethical values and good
corporate governance.
To enhance share holderGs wealth by sustained! profitable and financially sound
growth with prudent risk management systems.
To fulfill national and social obligation as responsible corporate citiBen.
To create environment! intellectually satisfying and professionally rewarding to
the employees.
Service Profile
The &orporation Bank will provide the different services with &<2% approach to the
customerGs. The service profile of the &orporation Bank is as follows/
9
Personal Products
a" #eposit Products
i" Corp Pragathi $ccount% The account can be opened with an initial deposit of 2s )6K? and
will provide the account holder the basic banking facilities. 1o penalty will be levied even if
the balance in the account drops below 2s )6.
ii" Centenary &ear 'old coin% It is +gm &entenary Lear 4old coin of 000.0 purity! :8 carat.
This gold coin is available at &orp Bank branches in select cities across India to individuals
or retailers at a competitive price.
iii" Saving Bank% &orp Bank .B account holder will get the facilities like any Branch banking.
&orp power che>ue! &orp convenience card! &orp -unior account! &orp senior account.
iv" (shemanidhi Cash Certificates% D&& is a money multiplier deposit. It is a reinvestment
Term $eposit scheme that can be opened for a period ranging from , months to )6 years.
The rate of interest depends on the period of deposit.
v" !oney )le*% The flexible term deposit? it allows the customer to withdraw money whenever
heKshe wants. The deposit can be made for a period ranging from , to ):6 months. The
minimum deposit is 2s ;666.
vi" )i*ed #eposit% The deposit can be made for period ranging from ); days to )6 years. The
rate interest depends on the period of deposit.
vii" Corp classic% It is an innovative technology?based account that combines the hi?li>uidity of a
savings bank account and the high?returns of a Terms deposit. The account works simply by
fixing by fixing your savings from a savings bank account to a term deposit and vice versa.
viii" Recurring #eposit% Best suite to the salaried class! the customer can save a fixed sum
every month for a period ranging from ): months to ):6 months.
i*" +anatha #eposit% This deposit is for a period from ) to ;. Aur collection agent will call at
customers place to collect your savings at regular intervals even daily.
10
b" Personal Loans Products
i. Corp Plus% It is a loan facility to meet the short term financial re>uirement. This loan can be
availed by professionals having gross income of 2s +6666 p.a. The loan amount will be
limited to the extent of :;C of borrowerGs net annual income.
ii. Corp Rental% The loan may be availed for any productive purpose such as taking up new
pro-ects! business or to meet domesticKpersonalKany other commitments. The minimum loan
amount is 2s ; lakh.
iii. ,ducation Loan% @nder this scheme the bank finances the financial re>uirements of the
student for higher studies.
iv. Consumer Loan% This is a financial arrangement to finance the purchase of consumer
durables. This loan can be availed to any person having an income of 2s ;6666 p.a.
v. Home Loan - Insurance% &orp bank in association with the life insurance corporation of
India gives life insurance cover to the housing loan taken by the customers. aximum term
assure under the scheme will be 9 years.
vi. ehicle Loan% &orp obile offers the customer easiest motor cycleKcar loans with absolutely
no hassles.
vii. Corp !ortgage% @nder this scheme an individual can avail a loan minimum of 2s ) lakh
and maximum of 2s :; lakh by mortgaging an asset as security.
viii. .ther Personal loan Products% &orporation bank also offers few more personal loan
products such as &orp itra! =oan against shares and &orp "ome etc.
c" Corporate Products
&orporation Bank offers several corporate banking services. The bank offers uni>ue
services tailor? made for the re>uirement of &orporate and large business houses as well as small
and medium enterprises.
11
i" Corp )ast% &orp fast is an innovative solution which facilities speedy realiBation of
outstation che>ues and instruments using latest communication technology.
ii" Pro/ect )inance% &orp Bank also finances the financial re>uirements for certain pro-ects on
the basis of economic a technical feasibility of the pro-ect.
iii" Corp Rental% This facility helps the customer to encash the rent receivable from the
commercial properties.
iv" )ore*% &orp Bank also offers 'orex services to its customers.
v" 0orking capital% &orp Bank also provides the short term financial facility to finance the
working capital re>uirements.
vi" 1erm )inance% The bank extends term loans for capital investment being made by the
clients on account of expansion of existing enterprises for establishment of a new enterprise.
d. 2RI Schemes
i. Corp ,*press !oney% The bank has entered into a tie up with @<% %xchange &enter ==&
for facilitating global money transfers into India from 4ulf region. With a view to facilitating
the 12Is in the 4ulf and iddle %ast to transfer their earnings back home swiftly.
ii. 2RI Loans% &orp bank is granting loans in rupees to 12Is against security of shares!
immovable property in India corp. It also provides housing loans to 12Is.
iii. )ore* )acility for Residents% Indian residents can get foreign exchange assistance from
&orporation bank for study in abroad! foreign travel! purchase of air tickets and investments.
e" Internet Banking
i. Corp-,-che3ue% It is an innovative product developed by &orp bank by combining the
power of &orp net the bankGs Internet Banking .ervices with %'T scheme.
12
ii. Corp 2et% In the niche area of collection and payment services &orp bank has a leadership
presence in the country and caters exclusively to the cash management re>uirements of the
corporate.
f" .ther Services
i. .nline Rail4ay Reservation% The Bank has entered into a tie up with the Indian railway
catering and tourism corporation for online booking of railway tickets.
ii. Corp !ediclaim% This is a group medical claim insurance offered by the &orp Bank to its
account holders. This product has been devised to meet the medical insurance needs of banks
customer.
iii. Corp +unior% It enables parents whose children are studying away from them to remit
money at periodic intervals in a hassle free manner.
iv. Corp !obile Recharge% %lectronic 2echarge of pre?pad mobile phones is a facility which
customers having prepaid mobile phones to electronically recharge their mobile phones cards
by debiting their account through &orp bank <Ts or through .. from their mobile
phones.
v. Corp Bullet R1'S )acility% It is a remittance facility! which enables customer to transfer
funds to anybody anywhere within India. The facility works on the 2eal Time 4ross
.ettlement 52T4.7 platform developed by the 2BI.
vi. Corp Po4er che3ue !ulti city che3ue )acility% ulti city che>ue is a facility wherein the
customer can issue che>ues drawn at the base branch and payable at selected remote centers.
This che>ues will thus! be treated as local che>ues in the remote center selected by the
customer.
)inancial Results of the Bank
1able 2o 5% )inancial Results of the Bank
52s in crores7
13
Particulars 65
st
!arch
7889
65
st
!arch
788:
65
st
!arch
788;
Interest %arned
Ather income
1otal Income
Interest %xpended
Aperating %xpenses
1otal ,*penditure
Aperating Profit before provision and
contingencies
Provisions 5other than tax7
PB1
Tax
P$1
&apital
2eserves
$eposits
<dvances
Investment
:,;0.,0
8,).98
6575"86
)8)9.++
*;).6;
:),8.09
0;,.)6
:+9.++
9:7"77
::0.::
<<6"88
)89.88
9:9).8;
9:+*,.;9
:90,:.89
)6,;).00
99,*.;9
,9;.;*
<886"58
:6;8.8,
+68.8*
7;=;">6
))88.)*
9:9.8,
;78":5
968.;*
=59"5>
)89.88
9,::.6)
8:9;,.+0
:0080.,;
)88)*.80
8;),.;+
*6:.6+
=75;"59
96,9.60
+0:.:,
6>=="6=
):,9.9)
)+;.*8
58::"=:
9:*.),
:=8"<5
)89.88
8)90.*+
;;8:8.8:
90)+;.;*
),;):.9+
(ey Ratios
1able 2o 7% Ratio analysis of Bank
Particulars 65
st
!arch
7889
65
st
march
788:
65
st
!arch
788;
&apital <de>uate 2atio 5C7 )9.0: ):.:, ):.60
2eturn on <vg <sset 5C7 ).:+ ).), ).98
2eturn on %>uity 5C7 )9.): )9.*) )*.;)
14
%arnings per .hare 52s7 96.+0 9;.0+ ;:.9)
Book Value per .hare 52s7 :9;.:0 :,:.;) :08.*0
Lield .pread 9.;, 9.6+ :.*)
1on?interest income to total income )8.*+ );.+* )9.8;
4ross 1P< to 4ross <dvances :.;, :.6; ).80
Ratio $nalysis
5" Capital $de3uacy Ratio
&apital ade>uacy ratio is the ratio that signifies the amount of capital on 2isk Weigted
<sset of the Bank.
Chart 2o 5% Capital $de3uacy Ratio
The banks should have 0C capital ade>uacy ratio! the corporation bank has much more
than the standerd rate. %ven the ratio is decreasing it is above the standerd.
7" Return on $verage $sset
2eturn on average asset signifies that the ratio between net profit after interest and tax to
the average asset utilised by the bank to earn the returns.
Profit after Tax
2eturn on <verage <sset M )66
<verage <sset
Chart 2o 7% Return on $verage $sset
15
In the year :66, the ratio was ).:+! but in the year :6 6* there was decrease in the ratio.
But in the year :66+ it goes to ).98. It clearly shows that there is increase in the returns. In the
year :66+ there is only :;.;C increase in the asset but there is a 8;C increase in the returns.
6" Return on ,3uity
2eturn on e>uity shows the relationship between profit earned and e>uity.
Chart 2o 6% Return on ,3uity
Profit after Tax
2eturn on %>uity M )66
%>uity N 2eserves
2eturn on e>uity is increasing every year. The ratio is )9.):! )9.*) and )*.;) in the year
of :66,! :66* and :66+ respectively. There is increase of 8;C in returns against only )9C
increase in the e>uity.
16
<" ,arnings per Share
%arnings per share signify that the earnings available for the each share held by the
shareholder.
Profit after Tax
2eturn on %>uity M )66
1o of shares
Chart 2o <% ,arnings per Share
The ratio is increasing year by year. That shows the bank is earning sufficient funds to its
shareholders. 'rom :66, O :66+ the ratio has almost increased by *6C! this is good indicator for
its shareholders of the Bank.
=" Book value per Share
Book value per share signifies the value of the book of each e>uity share of the bank.
Book value consists of e>uity share capital and reserves of the bank.
%>uity .hare &apital N 2eserves
Book Value Per .hare M
1o of shares
Chart 2o =% Book alue per Share
17
There is increasing trend in the ratio! it because of the increase in the reserves of the
bank. It is good indication from the investorGs point of view.
9" &ield Spread
It is the difference between yields on advances over cost of deposits. It is useful to know
the spread of yields over cost of depositF more the spread bank is more efficient in lending and
accepting deposit.
Lield .pread M Lield on <dvances? &ost of $eposits
Chart 2o 9% &ield Spread
The yield spread is decreasing year on year basis. This is because the percentage increase
in yield on advance is less than percentage increase in cost of deposits of the bank. The bank is
inefficient in earning high yield on the advances granted by them.
:" 2on Interest income to 1otal Income
This ratio indicates the relationship between non interest income and total income. 1on?
interest income arises out of the activities other than the lending.
Chart 2o :% 2on Interest Income to 1otal Income
18
The ratio was )8.*+ in the year :66,! but there was slight increase in it in the year :66*.
It shows the bank earnings are increased out of lending business. But in the year :66+ the ratio
has decreased.
;" 'ross 2P$ to 'ross $dvances
This ratio shows the relationship between 4ross 1P< to 4ross <dvances of the bank. It
states that the percentage of 1on Performing <ssets out of total advances granted by the bank.
Chart 2o ;% 'ross 2P$ to 'ross $dvance
The ratio is decreasing from :66, O :66+. It means the 1P<s are decreasing from year to
year. It is good indication for the bank.
Research #esign
19
It is the conceptual structure within which the research is conducted. It constitutes the
blue print for the collection! measurement and analysis of data. The design includes an outline of
what the researcher will do from writing the hypothesis and its operational implication to the
final analysis of data. It constitutes the steps taken beginning with the collection of data!
classifying! analyBing and interpretation! processing and finally putting in textual form. This is
one important chapter of pro-ect and can be considered as skeletal of pro-ect.
Statement of the Problem
Progressive deregulation and liberaliBation of the Indian financial sector have offered
banks tremendous business opportunities and brought in competition. <s there is growth in the
economy many industry sectors like! anufacturing and Infrastructure etc are growing up. This
provides a good business opportunity of financing them. The long term or short term loan
providing to the pro-ect is known as Pro-ect 'inancing.
The banks should see the various risk related to the pro-ect before sanctioning the loan
for the pro-ect. The bank should see uncertainty involved in the pro-ect. These risk and
uncertainty may have an adverse impact on the BankGs capital and earnings.
The pro-ect financing involves detailed and indepth analysis of the results of the pro-ect.
In this process the technical! the marketing! the organiBational! the financial! the economic and
the social aspects of the Pro-ects are examined to ensure technical feasibility! market necessity!
financial viability! economic strength and social desirability. The pro-ect financing is to identify
measures! monitor and control various risk arising for its lending.
When fierce competition is the rule! the banking sector is no exception. Banks compete
with each other to attract >uality borrowers. In this scenario! a hasty or ade>uate pro-ect appraisal
will result in growth of 1P<. There fore the banks should have proper appraisal methods.
.b/ective of the study
To understand the analytical framework of pro-ect financing and to analyBe the
existing pro-ect appraisal mechanism at bank.
20
To study the pro-ect financing of &orporation Bank
To familiariBe with the interrelationship among various aspects of pro-ect finance.
To understand the importance of pro-ect appraisal in sharpening the ability of the
bank to identify investment opportunities of the pro-ect undertaken.
To study the assessment of the various aspects of investment proposition to arrive
at a financing decision
2eed for the study
To have practical knowledge and experience towards pro-ect financing.
To sharpen the ability of identification of various attractive investment
opportunities.
To value the options embedded in the pro-ect
To familiariBe with the inter relationship among the various aspects of pro-ect
appraisal.
To evaluate the pro-ect in order to give suggestions to the bank
Scope of the study
The scope of the study is limited to Pro-ect 'inance $epartment of &orporation Bank
"ead Affice! to the area of pro-ect financing. It will give an indepth theoretical and practical
knowledge about the pro-ect financing. This study also covers ratio analysis! cash flow from
proposed pro-ect! risk involved in the pro-ect! analysis of the financial statement and the data
found in the appraisal statement.
!ethodology of #ata Collection
<s regarded to methodology! normally both >uantitative and >ualitative approaches are
adopted. In order to collect the data! this study brings a live analysis based on the live data
21
collected from secondary type of data. The techni>ues of ratio analysis have been made use for
the analysis of the financial statement of the bank.
Interacting with executives! functional in charge of various areas and departments
discussing informally.
2eferring to the secondary that is! various pro-ect reports prepared by the bank
and desk guides available with the bank.
Visiting official website of the bank and other related websites.
2eferring to news papers and various business magaBines.
Limitation of the study
The study is limited to the Pro-ect appraisal department of &orporation Bank. The
investigator could not cover all the banks! who are providing similar services.
The data recorded was presumed to be authentic
This study curtails comparison! as it is within the purview of only one
organiBation.
The study is conducted on the data that are made available to the bank by the
concern.
Pro-ect <ppraisal
Introduction
22
Pro-ect appraisal involves detailed and in?depth analysis of the results of the pro-ect. In
this process the technical! the marketing the organiBational! the financial! the economic and the
social aspects of the pro-ects are examined one by one to ensure technical feasibility! market
necessity! financial viability! economic strength and social desirability.
It is a process where by a lending financial institution makes an independent and
ob-ective assessment of the various aspects of investment proposition for arriving at a financial
decision. <ppraisal exercises are aimed at determining the viability of a pro-ect and some times
helps in reshaping the pro-ect to upgrade its viability. It is most crucial stage of pro-ect cycle at
which the bank makes a critical evaluation of all the parameter to determine the feasibility of the
pro-ect and to make a decision whether to finance or not.
2eed for $ppraisal
$uring recent times! not only have the number of pro-ects increased! but the siBe of
pro-ects have gone up substantially. The lenders are also concerned about debt e>uity ratio and
insist on promoters bringing in e>uity so that they have a stake in the pro-ect. 1ow the ratio
hovers at 8/) for the infrastructure sector and )/) in other pro-ects. This is opposed to the
situation in the )006Gs when the ratio used to go even as high as );.
ega pro-ects like Power Pro-ects! Infrastructure are very common these days. When the
pro-ect is of such siBe! it is easy desirable that the pro-ect Technical! 'easibility and &ommercial
possibility are assessed by the committee member of lending institution to ensure to lend funds
for the pro-ects. &orporation Bank is one such institution and has a vibrant and efficient team of
professionals! which are most capable in appraising pro-ects.
Steps in Pro/ect $ppraisal
The steps which are followed by the bank in appraisal of a pro-ect are as follows.
23
The borrower 5promoter7 approaches the bank with his pro-ect report and gives a
written re>uest to bank to appraise the pro-ect.
Bank >uotes a fee for the appraisal 5usually 6.:;C of the total cost of the pro-ect7.
<long with it bank also gives a >uestionnaire to borrower. Puestionnaire will
cover all financial! economical and technical factors of the pro-ect.
If the borrower agreed over fee charges! term and condition of the payment of
fees as it is indicated by bank along with the reply of >uestionnaire! then the bank
has to study the report that is submitted by the borrower.
The appraising staff should visit the pro-ect site to make physical verification.
)unctions of Pro/ect $ppraisal 'roup
@ndertake detailed techno?economic appraisal of large pro-ects seeking financial
assistance from bank and preparation of appraisal report by evaluating technical!
managerial! financial and commercial aspects of the pro-ect.
@ndertake regular evaluation of progress of implementation of large pro-ects
assisted by the Bank.
Peruse and furnish viewsKobservations on pro-ect appraised by other
banksKreputed consultants! submitted by &osKother groups of the wing.
To undertake monitoring agency activity of companies going for IPA as per .%BI
guidelines.
@pgrade pro-ect evaluation skills.
@ndertake unit visits and hold discussions with the official of the company.
4uiding @ser .ections of the wing on pro-ect appraisal skills.
@ndertake detailed techno?economic merchant appraisal of pro-ects going for IPA
as per .%BI guidelines.
Pro/ect $ppraisal ? $n .vervie4
1able 2o 6% $n .vervie4 of Pro/ect $ppraisal
1echnical !arketing )inancial ,conomic !anagement
24
$ppraisal $ppraisal $ppraisal $ppraisal $ppraisal
anufacturing
ProcessKTechnology
$emand
techni>ues for
forecasting
&apital cost of
pro-ect
2atio of
economic
appraisal
Pualities of an
entrepreneur
Technical
<rrangements
.upply depth of
competition
.ources of
finance
%conomic rate
of return
Various forms
of organiBation
.iBe of plant Pricing policy 'inancial
pro-ections
%xchange rates
of the pro-ect or
resource cost
ArganiBational
setup
Product ix =ife cycle of the
product
2atio analysis &omparative
study of
financial and
economic rate
of return
anagement
problems
.election of PK Brand name for
the product
Break %ven
Point
Plant =ayout $istribution
channels
=ocation of the
Pro-ect
.ales promotion
.chedule of Pro-ect
Implementation
.ources of
market
information
Publication to
study various
aspects of mktg

Bank@s 4ay of $ppraisal%
The Branch should call for from the applicant an J<pplicationG in the prescribed format
covering full particulars. The application should contain the following essential dataKinformation.
a. Particulars of the pro-ect along with the copy of pro-ect report furnishing details
of the Technology! anufacturing Process! <vailability of 2aw aterial!
&onstruction! Production facilities etc.
25
b. %stimate of costs of the pro-ect detailing assets ac>uired! to be ac>uired inclusive
preliminary expenses and working capital.
c. $etails of the proposed means of financing! indicating the extent of promoterGs
contribution! the share capital is to be raised from public and borrowings.
d. Working capital re>uirement at the initial year
e. Pro-ect implementation schedule
f. ArganiBation setup with list of Board of $irectors! Pualification! %xperience and
&ompetencies.
g. $emand pro-ection based on the overall market prospectus together with copy of
market survey report if any.
h. %stimate of sales! cost of production! profitability.
i. Pro-ected profit and loss aKc! balance sheet for the operating years during banks
assistance.
-. Proposed amortiBation schedule 5repayment program7
k. Pro-ected fund flow statement
l. $etails of the nature and value of securities of fund.
$ue deligence report shall be submitted in the prescribed format. &onsent from the
authorities of the Pollution &ontrol Board and any other information.
Brief History
In case of already existing company the bank will collect following information!
%ssential particulars about its promoters and background
Its incorporation
Its subse>uent corporate growth to the date
a-or developmentsKchanges in its management
26
If the borrowing unit is new to the bank a credit report will be obtained by bank to
ascertain the credit worthiness of the company. The banks will carefully scrutiny the A< and
<A< to ensure there is no limitations have been placed on the companies borrowing power and
operations.
Past Performance
< summery of companyGs past performance in terms of operating capacity! sales!
operating profit and net profit for the past 9 year will be analyBed by the bank. The bank will
analyBe the sales and profitability for last 9 years. If the trend is in ascending order the
performance can be consider satisfactory.
Capacity Atilisation
If the actual production is less than the rated capacity! the reason for the under?
utilisation of the capacity should be examined. The bank will examine the steps taken by the
company to improve the capacity utiliBation. The bank will examine the special important
aspects relates to companyGs management labour relation. Whether there was any strike! lock?
outs or shut down during the past 9 years and how the labour disputes were settled.
Present financial position
The bank will analyBe the companyGs <udited Balance .heet and Profit and =oss aKc for
the last 9 years. < careful analyBe and interpretation of the financial statement would provide a
reasonable clear picture of the companyGs financial history! present position and future trend.
The bank will look into $ebtK%>uity ratio and &urrent 2atio.
The bank also collects the information regarding the following!
The method of $epreciation
2ecord of ma-or defaults by the company
The position regarding the companyGs tax assessment
Pending suits by or against the company and their financial implication
PualificationKadverse remarks if any! made by the statutory auditors on the
companyGs accounts.
27
1echnical )easibility
If the pro-ect involve a new process or new technology! a technical feasibility report by a
competent agent will experienced in the line will be essential. The bank will examine the
technical feasibility of new pro-ect from the following angle.
i. The suitability of the Technology
The bank will examine whether the proposed technology can be successfully
employed in local condition with regard to the availability of resources! men and
materials.
ii. The siBe of the Plant
The bank will examine the siBe of the plant in relation to the optimum siBe
warranted be technical factors! economies of scale and production cost factor.
iii. The location of the plant
The bank will examine that whether it has ready accessibility to critical inputs and
utilities like raw materials! supplies! fuel! water etc.
iv. Technical arrangements
The arrangement made for obtaining the technical know how! design and detailed
engineering of plant and selection of suppliers of machineryKe>uipment will be examined
by the bank.
v. The bank will also examine the manufacturing process of the product.
)inancial feasibility
a. &ost of the Pro-ect
&orrect estimation of the total cost of the pro-ect is an important fact of appraisal as it has
bearing on the means of financing and profitability. The bank will scrutiniBe the estimated
cost with a view to ensuring that they have been arrived at realistically after taking into
account all relevant cost factors.
b. Total cost of the pro-ect
28
The various components of the total cost of given below will be studied by the bank.
i. =and
The bank has to examine the suitability of the site. Topographical features!
<vailability of Transport and the sources like water! power! labour! raw materials and
market for finished goods. Bank will examine that the land will be sufficient to take care
of present needs. The bank has to satisfy itself that the price paidKpayable for the land is
comparable.
ii. Building
The bank will examine whether the building will be sufficient having regard to
the layout and it will permit and it will permit further addition if needed.
iii. Plant and achinery
The bank will examine the stated plant and machinery is re>uired or not according
to the recommendations made in the technical feasibility report in the pro-ect report and
will see they will be suitable and ade>uate for the production programme. The cost of the
plant and machinery will be examined by bank to ensure that the price paid is reasonable.
iv. Technical know?how
The bank will examine the basis of selection of technical consultants. It should
ensure that the promoters will not get any benefit out of it by selecting subsidiary concern
of the promoter as technical consultants. The bank will ensure that the fees paid are
reasonable to the service.
v. Preliminary %xpenses
These are the expenses incurred before the incorporation of the company.
%xpenditure incurred on pro-ect report! market survey in the initial stage. The bank will
examine the cost estimated are reasonable to the organiBation.
vi. Working &apital
The bank has to estimate the working capital re>uirement of the company during
the )
st
year operations and the provision has to be made to meet the re>uirements.
29
!eans of )inancing
The bank will examine the mean proportion of debt and e>uity components of means of
financing of the pro-ect. The bank will comment on the pro-ect debtKe>uity ratio is satisfactory
and acceptable. <s per group credit policy the debtKe>uity ratio shall not exceed :/).
i. .hare &apital
The bank will ensure that the promoterGs of the company have invested atleast
:;C of the total cost. The investment should be made in share capital.
ii. Internal cash accruals
The bank will examine whether the company will be able to meet its expenses and
working capital re>uirements. It will ensure that the remaining part of the profit5cash
accrual7 will be possible to use it as part of financing for pro-ect.
iii. $ebenture
The bank will examine the terms of proposed issue of debentures such as the
nature of debenture! rate of interest! date of redemption and security offered.
iv. Term =oans
The power of public company to borrow by way of term loans is restricted to the
amount of its paid?up capital and free reserves. The bank has to ensure that the loan taken
by the company under those limits only. If the loan is provided by many lenders the
information regarding that to be collected.
v. $eferred payment facilities
The bank has to get the details of the deferred payment guarantee.
vi. <ny other5&entralKstate sales tax loans! development loans7
Bank has to specify whether it is centralKstate sales tax loan and will examine the
term and conditions of granting the loan.
Pro/ect Implementation Schedule
30
The bank will examine the pro-ect implementation schedule with reference to Bar chart
or P%2TK&P chart by referring to actual implementation of similar pro-ects. The bank has to
ensure that the t;ime schedule for construction of building! installation of plant and machinery
and commencement of commercial production is reasonable and acceptable.
Production )actors
i. anufacturing Process
The bank has to examine the basis of selection of the process in relation to the
other alternative process. If the technology is new to the country! the appraiser has to
ensure about the suitability of the manufacturing process.
ii. 2aw aterial
The bank will list out the ma-or raw materials re>uired for the company
production programme. The bank will examine the continuity of supply of the raw
materials. The bank also examines the prices of the raw material to ascertain whether the
fluctuations in the past years have taken into account while pro-ecting the cost of
production and profitability.
iii. @tilities and %ssentials
The bank will examine the re>uirements of power! fuel! water! transport and the
arrangement made by the company.
!arket and #emand $nalysis
This constitutes a crucial aspect of pro-ect appraisal as the basic viability of the pro-ect
and conse>uently the repayment of the BankGs loan depends on the marketability of its product.
The bank will study this aspect under following heads.
i. .ales Prospectus
The bank will examine the company sales pro-ections and the underlying
assumption with reference to the demand forecast made in the publications and through
market survey. It will examine also through past consumption from imported sources and
31
likely future trend. The bank will examine the nature and extent of competition likely to
be faced by the pro-ect from the principal competitors. Bank also examines the
competitive ability of the company to penetrate the market and earn market share based
on price! >uality etc.
ii. .elling price
The bank will examine the industryGs general price trend to see that the prices
were stable in the past and will continue to be same in the future.
iii. Prospectus for export
The bank has to comment on the prospectus for export. The bank should state
how the company would meet the export commitments. The bank should state whether
any subsidyKcash incentives will be available to company.
iv. arketing organiBation
The appraiser has to give brief description of the companyGs marketing
organiBation. If the company selling its products through distributors and selling agents
bank has to examine the term of arrangement.
Commercial iability and Profitability
<ppraising profitability is the most crucial exercise in pro-ect appraisal. The bank will
examine estimated sales! cost of production and net profit furnished for the pro-ect.
Inter firm comparison
The reasonableness of the financial pro-ection may be cross checked by the comparing
the key financial parameters of the pro-ect with those of a similar pro-ect or with the industry
average.
#ebt Service Coverage Ratio
The $ebt .ervice &overage 2atio is the Jcore testG ratio in pro-ect financing. This ratio
indicates the degree of viability of pro-ect and influence in fixing the repayment period and the
32
>uantum of annual installments. "ere J$ebtG means installments payable during the year and
J.erviceG means cash accruals comparing net profit plus depreciation and non cash write?off. It
measures the extent of cash accruals5service7 available to cover the maturing term
obligation5debt7 during each year.
Interest due and chargeable can be fully paid even in a year where the pro-ect undergoes
in loss. The bank will ensure that the profitability the pro-ect does not fall to that extent where
the interest can not be paid by the company. The bank will ensure because of any genuine or
valid reason the installment can be post?phoned! but the pro-ect should be able to pay the interest
as and when falls due. The Bank 4roup &redit Policy is that the pro-ect shall give an average
debt service coverage ratio of ).;/).
Break ,ven $nalysis
'ixed N .emi 'ixed %xpenses Production value
Break %ven .ales M
&ontribution
'ixed N .emi 'ixed %xpenses &apacity @tilisation )66
Break %ven Installed &apacity M
&ontribution
)und )lo4 and Cash )lo4 Statement
The statement which shows various sources of funds and their uses is called fund flow
statement and itGs different from revenue statement of balance sheet. The ''. can be based on
two concepts! those are as follows.
i. &hange in Working &apital concept
It is derived from the need for availability of li>uidity and need for the li>uid
funds. That is current assets and current liability.
ii. &hange in 'inancial Position
33
< promoterKbanker concerned with funds not only for the working capital but for
the entire funding needs. Their concern is to adding fixed assetKrepayment of long term loans
as per their pre?fixed repayment schedule. ovement of all the funds in the business has to
be considered.
The fund flow statement should be carefully examined and reasonableness of the
various assumptions underlying the pro-ect should be ascertained. An the long term side! it
should be ensure that fund outflow for essential expenditure on fixed asset! repayment
obligation! taxes and dividends are fully provided for that the cash generation will be ade>uate.
An the short term side! the pro-ected increase in current liabilitiesKbank borrowings should be
matched by pro-ected increase in the inventoriesKreceivables.
&ash flow estimates
It is prepared to ensure that the unit will have necessary cash with it and it will not face
li>uidity problem. It is necessary for the construction period also to ensure availability of cash
according to the re>uirement of the pro-ect.
Pro-ected Balance .heet
In the case of cost of production and profitability estimates and fund flow pro-ection! the
pro-ected balance sheet should be furnished by the company for the entire period. While
appraising the following points will be checked by the bank. The cost of the pro-ect! means of
financing! the profitability estimates and the fund flow pro-ection.
.thers BBrief CommentC
i. Puality of anagement
<ppraiser will briefly comment on the companyGs management setup! the
composition of the board and the chief executive in?charge of the day?to?day operations.
ii. &redit 2ating
The bank will do the overall assessment of the company and rate the company
according to the assessment.
#isbursement%
34
%xecution of loan agreement and other necessary legal documents is not sufficient for
disbursing the amount. Branch will ensure that the amount disbursed is utilised for the purpose
for which it has been sanctioned.

Supervision and )ollo4-up
Pro-ected supervision and follow?up of assisted pro-ect during and after implementation
is indeed a important exercise to performed periodically by bank. It not only safeguard the
interest of the bank but also to ensure optimum returns on the total investment in pro-ect. %ven a
pro-ect well accepted at the appraisal stage may go bad due to lack of ade>uate care. There fore
supervision and control during implementation is necessary during and after pro-ect
implementation it will be done by the bank by following methods.
.crutiny of progress chart
<nalysis of annual financial results
VisitKInspection! regulatory control
$iscussion with management
!urali Industries Limited
The urali Industries =imited! a 1agpur based company was initially established on :
nd
$ecember )00)! in the name of urali <gro Products Pvt =td to process soyabean in a .olvent
%xtraction Plant to produce vegetable Ail and $e?oiled cakes with an installed capacity of );6
tonnes per day. An ;
th
#anuary )009 the company was renamed as urali Industries =imited
when it raised funds from capital market through its public offer.
35
The company entered capital market in the year )009 through IPA and expand the
capacity of .olvent %xtraction Plant to :;6 tonnes per day. In the same year the company
ac>uired another soya plant to strengthen its stake in the industry.
In the year )00* I= diversified into paper manufacturing by setting up 86 tonnes per
day. Draft paper manufacturing plant! which was sold in the year :668 to .B industries pvt ltd.
In the year :666 the company established $uplex paper manufacturing unit with an established
capacity of ,6 tonnes per day.
In the year :66: the company also set up a *6 tonne per day new print paper
manufacturing unit! along captive power plant with 9 W capacity to meet the power
re>uirements of its paper units. In the year :668?6; the company set up );6 tonne per day
writing and printing paper unit along with ); W co?generation units.
The company is also setting up a :.)8 million tonnes per annum cement manufacturing
plant together with 96 W captive power plant at &handapur in aharastra with capital outlay
of 2s ;*+ cr! this plant is reportedly in the advanced stage of implementation and the commercial
production is expected in the current financial year 5:66+?607.
I= is has already into cement industry by setting up a :.)8 million tonnes per annum
cement manufacturing plant together with 96 W captive power plant at &andapur in
aharastra. In addition to this! company is also going in for setting up of three more cement
plants of 9 million tonnes per annum capacity each! along with these ;6 W captive power plant
in the state of 2a-astan 5village Barana7! Darnataka 5<loora7 and 4u-arath 5#u-arpur7.
The 2a-astan plant shal have out lay of 2s +,:.;; cr! Darnataka 2s +9*.0+ cr and
4u-arath +,;.*9 cr. The pro-ect will be financed by banks at these plants shall be ;*;.68 cr!
;;+.,; cr and ;**.); cr respectively.
Present proposal
The credit sanctioned by the bank as under/
=imit .anctioned 2ate of Interest
36
.l 1o 1ature of 'acility
%xisting Proposed %xisting Proposed
) 'und Based );6 )9C
Banking $rrangements
The following Banks financed for the pro-ect.
1able 2o <% Banks arrangements for )inancing
1ame of Banks =oan <mt Interest 2ate C
&orporation Bank
.tate Bank of India
.tate Bank of ysore
.tate Bank of Patiala
.tate Bank of Bikaner and #aipur
Pun-ab 1ational Bank
$ena Bank
Bank of Baroda
<llahabad Bank
.tate Bank of Travancare
);6
966
06
);6
06
966
;6.+8
966
);6
)96
+.*,
)*.;8
;.:,
+.*,
;.:,
)*.;8
:.0:
)*.;8
+.*,
*.,,
Security Coverage
Bank will change on the pro-ect specific factory =and 3 Building and Plant 3
achinery. The &orporation Bank share is )+9.9, cr out of the total cost :)90.;) cr. The finance
made by bank! interest there on and all amounts in respect there of shall be secured inter alia by!
< first mortgageKhypothecation and charge on all the pro-ect immovable and
movable properties both present and future infavour of Bank
.ecurity interest by way of first mortgageKhypothecation! performance bonds and
any letter of credit in relation to the pro-ect that may be provided by any party.
37
< first mortgageKhypothecation of all insurance policies taken in respect of the
pro-ect asset.
< first mortgageKhypothecation and charge in favour of the bank on all the bank
account in relation to the pro-ect.
(ey Indicators
1able 2o =% (ey indicators
52s in &rores7
Particular 9)K9K:66*
<udited
9)K9K:66+
Provisional
9)K9K:660
Pro-ected
1et .ales ;:9.09 ,8,.8* 09).);
C of 4rowth ?? :9.90 88.68
Aperating Profit 8,.)9 *6.+: );,.6:
Aperating Profit to 1et .ales C *.+8 +.,) )8.+0
&ash <ccruals ;0.; **.)* ),0.8*
.hare &apital 0.,) )6.:8 :).86
Tangible 1et Worth ):0.;9 ::).,9 0)).06
1et Awned 'unds ):0.;9 ::8.*) +:).*8
$ebtK%>uity 2atio ).9 :.+) ).+)
&urrent 2atio ).*+ :.*0 ).*0
1A'K T'$ C :0.:* :9.,) 96.90
Share Holding Pattern% The company has Paid?up &apital of 2s)6.:8 crores.
1able 2o 9% Share Holding Pattern of the company
.hare "older &ategory C "oldings
Promoters ;).**
Bodies! &orporate and Public 99.;+
Individuals 0.+:
Athers 8.+9
Compliance 4ith 'roup Credit Policy 'uidelines
1able 2o :% Compliance 4ith 'roup Credit Policy
Parameters Banks 1orms <ctual Position
%ntry =evel per Borrower %xposure for 'B and 1'B
'acilities
:66 cr );6 cr
aximum per Borrower %xposure 5corporate7
;8* cr );).+6
38
%xposure to IndustryK.ector
)6C of 1B& :.,C of 1B&
&urrent 2atio
).:; :.*0
&urrent 2atio for %xport Arient @nits
).) ??
$ebtK%>uity 2atio
: :.+)
$.&2
).; ).,,
TA=KT1W
8 9.:+
Promoters &ontribution to Pro-ect cost
:;C )0.,,C
In this the company current position of $ebtK%>uity ratio is :.+)! where as the banks
norms are :. It is less than the standard! which is not acceptable. But for the pro-ect taken up by
the company the $ebtK%>uity ratio will be below the norms. .o the pro-ect can be acceptable.
Summary of )inancials
a" )inancials
1able 2o ;% )inancial Results of the company
Particulars :66* :66+ :660 :6)6
1et .ales ;:9.09 ,8,.8* 09).:; ),++.,0
C growth in net sales ?? :9.90 88.68 +).9,
2aw aterial 9*).:: 8;*.;0 ;;;.*: *,8.)*
2 consumed as C of &AP +;.)6 +;.9; +).*) *:.):
&ost of .ales 88).;) ;:*.** ,*9.): )6;0.69
&ost of .ales as C of 1et .ales +8.:* +).;, *:.:0 ,:.*)
Aperating Profit 8,.)9 *6.+: );,.6: 9;;.:+
Aperating Profit C +.+6 )6.0; ),.*, :).68
Ather Income ).)9 6.,) 6.+: ??
PBT 8*.:, *).89 );,.+8 9;;.:+
P<T 8).) ;;.,9 )9+.,) 9):.;*
1et Profit argin C *.+8 +.,) )8.+0 )+.;)
&ash Profit ;0.;6 **.)* ),0.8* 9*:.)*
2etained Profit 8).) ;;.,9 )9+.,) 9):.;*
Paid?up %>uity capital 0.,) )6.:8 :).86 :).86
Tangible 1et Worth ):0.;9 ::).,9 0)).06 )::+.9+
TA=KT1W :.8: 9.:+ :.68 :.)8
39
The company has achieved a sales growth of :9.90C during the year ended 9)K9K:66+!
operating profit margin has improved from +.+6C to )6.0;C! and net profit margin has also
improved from *.+8C to +.,)C as on 9)K9K:66+. &ash accruals has improved substantially from
2s ;0.;6 cr to **.)* cr. Total 1et worth of the company improved substantially from 2s ):0.;9
cr to ::).,9 cr. =i>uidity position of the company is comfortable with net working capital
showing 2s )++.+8 cr and li>uidity parameters may be considered satisfactory for financing the
pro-ect.
b" )inancial .bservation
i" Sales
1able 2o >% Sales of products of the company
52s in crores7
1ame of the Product :66, :66* :66+
$uplex Paper @nit 90.;0 8;.;: 8).+,
1ews Print @nit ;8.*, ,0.9* *6.:*
Power 96.9, 99.60 9,.):
Pulp ill @nit ?? ?? :;.;
.olvent %xtraction @nits :,,.68 :**.98 980.*6
Writing and Printing @nits ))0.*6 )8+.;: ):9.66
The company achieving a growth in the sales 5except $uplex Paper @nit and Writing 3
Printing @nit7. The performance of the company in .olvent %xtraction @nit has been satisfactory
with ;9C growth. %ven though there is negative growth in the units. "owever overall growth in
the turnover of the company with :9C will be considered satisfactory.
ii" Production
1able 2o 58% Production and Capacity utilisation
1ame of the Product Production
:66*
C @tilisation Production
:66+
C @tilisation
.olvent %xtraction @nits ):;9 0+.,, )8+6 )),.;8
$uplex Paper @nit :,;96 )66.80 :8*;* 09.*+
1ews Print @nit 9:,8* ):9.,, 9:);9 ):).*0
Writing and Printing @nits ;88*; ))6.6; 8:6+6 +;.6)
Power 4eneration +:0*6 ;+.: ++*+, ,:.:+
Pulp ?? ?? )+888 9*.:,
40
The capacity utilised by the company is satisfactory except in the pulp production unit.
iii" Profitability
$uring the year ended 9)K9K:66+ the company has earned operating profit of *6.+: cr at
margin of )6.0;C compare to 2s 8,.)9 cr at margin +.+C for the previous year. 1et profit for
the year ended :66+ is 2s ;;.,9 5+.,)C7 compared to earlier year :66* of 2s 8).) cr 5*.+8C7.
&ash accrual for the year ended 9).9.:66+ was 2s **.)* cr compared to previous year :66* of
2s ;0.; cr. The profitability of the company during the year :66+ has increased and it is
satisfactory.
iv" 2et .4ned )unds
1able 2o 55% 2et .4ned )und
Particulars :66* :66+
1et Worth )99.6* ::8.8,
5?7 Intangible asset 9.;8 :.+9
Tangible 1et Worth ):0.;9 ::).,9
5?7 @sed for unrelated to Business 59.6+7
1et Awned 'unds ):0.;9 ::8.*)
Total 'unds $eployed 88:.;6 0;).08
1A'KT'$ C :0.:* :9.,)
The ratio of the 1A' as a percentage of total funds deployed has come down from
:0.:*C in :66* to :9.,)C in :66+. This is below the Banks norms which is not acceptable for
financing for the pro-ect. "owever the position is expected to improve to :0C in the coming
years.
v" #ebtD,3uity position
The debtKe>uity ratio as on 9).9.:66* stood at satisfactory level at ).9. "owever the same
has increased to :.+) on 9).9.:66+ is below the less than the banks norms. It is not good to
provide finance to the company. "owever by considering the pro-ected balance sheet the ratio
will be within the desired level for the pro-ect in future years.
vi" )und )lo4 Statement
41
The position of movement of funds is furnished as under.
1able 2o 57% )und )lo4 Statement of the company
Particulars :66* :66+
=ong Term .ources 96).** ;8+.:)
=ong Term @ses )++.,: 8*:.;:
=ong Term .urplusK$eficit )99.); *;.,0
.hort Term Borrowings %xcluding bank Borrowings *,.*6 ??
.hort Term @ses :;*.8: ,*.6)
.hort Term .urplusK$eficit ?)+6.*: ?,*.6)
1et .urplusK$eficit ?,*.;* +.,+
IncreaseK$ecrease in Bank Borrowings ,*.;* ?+.,+
The overall long term funds deployment in the company is considered satisfactory. It has
ade>uate sources of funds to deploy in the company as and when re>uired.
vii" Li3uidity Position
The position of current asset! ade>uacy of 1et Working &apital and &urrent 2atio
discussed as under.
1able 2o 56% Li3uidity position of the ,*isting Company
Particulars :66* :66+
Total &urrent <sset :8*.08 :+*.;9
in re>uired 1W& 80.;0 ;*.;)
<ctual 1W& ))9.); )++.+*
.urplusK$eficit in W& ,9.;, )9).99
&2 ).*+ :.*0
=i>uidity position of the company is controllable and satisfactory throughout with the
ratio showing above the BankGs bench mark ratio of ).:;.
viii" #ebt Servicing .bligation
$ebt .ervice ability of the company as a whole! as well as pro-ect on standalone basis is
satisfactory with debt service coverage ratio showing the bench mark ratio of ).;.
There is no adverse features reported on the notes forming part of audited accounts for
the year ended 9).9.:66+.
42
#etails of the Pro/ect
The company has taken up setting up of 9 pro-ects of 9 million tones per annum along
with ;6 W captive power plant each! in the state of Darnataka! 4u-arath and 2a-astan.
&ompany intends to manufacture Portland &ement at these location along with co?generation
plans of ;6 W capacity at each of these location.
1echnical )easibility
i" Ra4 !aterials
The ma-or raw material for cement manufacturing is =ime .tones mines. These three
plants are being located near to the =ime .tone mines. Thus this will be logistic advantage
for the company. The mining will be done by conventional method. The company has
installed )6;6 tph capacity crusher in mines.
!aterial 1ransportation
The company to deliver the crushed =imestone and arl to the 2aw aterial yard at
cement plant! the transportation conveyor has been chosen amongst the several methods and
possibilities. The distance between Puarries to plant yard is )666 meters and plan of using of
two )666mm wide rubber belt conveyers.
ii" Po4er
The company plans to set up captive thermal power plant of ;6 W at each of the 9
locations. The re>uired coal for power generation will be supplied by the Indian coal. This
will supplement the power re>uirement of the plants.
iii" Building
43
The necessary buildings for main 'actory .hed include 4odown! .tores! %lectric
room! Blower 2oom and Work shop. The building also re>uired for management offices!
official departments! laboratories! services and welfare facilities have been estimated up to
):666 s>uare meters.
)inancial iability
a" Pro/ect Cost
1able 2o 5<% Cost of the Pro/ect
52s in &rores7
1ame of each &ash &omponent %stimated &ost &ost to be
incurred in future
=and and .ite $evelopment 9).;0 9).;0
Building 9:+.): 9:+.):
Plant and achinery )6:8.;) )6:8.;)
&aptive Power Plant ;+.99 ;+.99
iscellaneous '< )*).00 )*).00
Preliminary %xp ;9.9; ;9.9;
@pfront fees 8.9: 8.9:
Working &apital argin +9.9+ +9.9+
isce and &ontingencies :+;.; :+;.;
b" !eans of )inance
1able 2o 5=% !eans of )inance
52s in &rores7
.ources <mount C of Total
%>uity 8;6.66 )*.;8
Internal <ccrual 9;).66 )9.,+
Term =oan 'rom Banks )*)6.+8 ,,.,*
@nsecured =oan ;8.8: :.))
The company proposes to bring on its margin for the 9 pro-ects as detailed below.
1able 2o 59% !argin brought by the Promoters
52s in &rores7
44
Pro-ect =ocation
@nsecured
=oan
Internal
<ccruals
Private
%>uity
Darnataka :).;+ ))* );6
4u-arath ):.99 ))* );6
2a-astan :6.;: ))* );6
Total ;6.89 9;) 8;6
The company has pro-ected to generate sufficient internal accruals as detailed below.
1able 2o 5:% Internal accruals of the company
Particulars :660 :6)6
1et Profit :9+.:6 9)9.99
<dd/ $epreciation ,).66 ;0.,0
4ross &ash <ccruals :00.:6 9*9.6:
$ecrease in term loan )98.:) ))+.6+
$ividend :.*8 ??
Athers )9.99 ;).:0
.urplus )8+.09 :69.,;
The balance margin would be bought in through e>uity investment by private e>uity
investor 58;6 cr7 as well as in the form of unsecured loans by the promoters.
The company states that the negotiations are at advanced stage for private e>uity. The
loan provider has stipulated a condition that the private e>uity. The bank has stipulated condition
that the private e>uity amount has to be tied up before disbursement of loan.
Pro/ect implementation schedule
<s for the information furnished by the company! the 2a-astan pro-ect shall commence
commercial production during the month of <pril :6)6! that of Darnataka in #uly :6)6! and that
of 4u-arath in Actober :6)6. The company is confident of finishing the pro-ect according to the
schedule.
Business Pro/ections and #SCR
Pro/ect 5An standalone basis7
1able 2o 5;% Pro/ected #SCR for the Pro/ect
45
Particulars :6)) :6): :6)9 :6)8 :6); :6), :6)* :6)+
1et .ales ),98.,
9
:8;:.,
,
:8;+.9
;
:8;+.9
;
:8;+.9
;
:8;+.9
;
:8;+.9
;
:8;+.9;
P<T )8).)+ :;;.0; :*;.06 :0+.*; 9:6.;; 989.8) 9,;.8* 9*).99
&ash Profit :98.** 9+6.9+ 866.99 8:9.)+ 888.0+ 8,*.+8 8+0.06 80;.*,
Interest on T= ),6.6* )+*.): );).8+ ));.+8 +6.:6 88.;; )6.6: ??
Total 5a7 908.+8 ;,*.;6 ;;).+) ;90.6: ;:;.)+ ;):.90 800.0: 80;.*,
Installment $ue
?? :)8.;8 :+;.)8 :+;.)8 :+;.)8 :+;.)8 :+;.)8 *6.,6
Interest on T= ),6.6* )+*.): );).8+ ));.+8 +6.:6 88.;; )6.6: ??
Total 5b7 ),6.6* 86).,, 89,.,: 866.0+ 9,;.98 9:0.,0 :0;.), *6.,6
$.&2 :.8* ).8) ).:, ).98 ).88 ).;; ).,0 *.6:
<vg $.&2 ).,,
Company as 4hole
1able 2o 5>% Pro/ected #SCR for the 4hole company
Particulars :6)) :6): :6)9 :6)8 :6); :6), :6)* :6)+
1et .ales 990+.;
*
8:,*.:
+
89:9.;
*
8988.:
;
89**.9
8
890:.+
+
890:.+
+
890:.++
P<T 8+*.0: ,96.8* ,**.*, *),.)9 *;0.:6 *+*.;; +60.8) +)0.89
&ash <ccrual ,90.0: +):.:9 +;+.+: +0;.0+ 098.,: 0,:.:6 0+9.90 009.9*
Interest on T= ),6.6* )+*.): );).8+ ));.+8 +6.:6 88.;; )6.6: ??
Total 5a7 *00.00 000.9; )6)6.6
6
)6)).+
:
)6)8.+
:
)66,.*
;
009.9* 009.9*
Installment $ue
+,.)+ 966.*: 9,0.6+ 9,9.+* 99,.8, :+;.)8 :+;.)8 *6.,6
Interest on T= ),6.6* )+*.): );).8+ ));.+8 +6.:6 88.;; )6.6: ??
Total 5b7 :8,.:; 8+*.+8 ;:6.;, 8*0.*) 8),.,, 9:0.,0 :0;.), *6.,6
$.&2 9.:; :.6; ).08 :.)) :.88 9.6; 9.9, )8.*6
<vg $.&2 :.*;
$etailed Balance .heet and &ash 'low .tatement for the pro-ects on standalone basis and
company as whole is furnished by way of <nnexure.
The business pro-ection and profitability working furnished by the company may be
considered reasonable and achievable! as the same is based on the market study! capacity being
created and the demand?supply gap.
The pro-ects are individually and severally viable as revealed by the $.&2 which is
above the bench mark ratio of ).;.
46
Sensitivity $nalysis of #SCR
If the pro-ectGs sale decreased by )6C in that the average $.&2 will be 6.+0 which is
risky for the banks to lend. If there is increase in the expenditure by )6C then the $.&2 will be
).):. %ven though the standard ratio is ).; the company is able to pay its debt with the ratio ).
If the company sale decreased by )6C the average $.&2 will go to ).;; from the
existing :.*; but it is more than the bank norms. <nd if there is increase in the operating
expenses by )6C the average will be ).00 so it is good for the bank to lend. %ven adverse
situation also the company can pay its debts.
Profitability $nalysis
Pro/ect
1able 2o 78% Pro/ect Profitability $nalysis 52s in crore7
Particulars :6)) :6): :6)9 :6)8 :6); :6), :6)* :6)+
4ross sales )00:.+6 :006.6
,
:00*.6
6
:00*.6
6
:00*.6
6
:00*.6
6
:00*.6
6
:00*.66
5?7 %xcise duty 9;+.)* ;9*.86 ;9+.,; ;9+.,; ;9+.,; ;9+.,; ;9+.,; ;9+.,;
Aperating Income ),98.,9 :8;:.,
,
:8;+.9
;
:8;+.9
;
:8;+.9
;
:8;+.9
;
:8;+.9
;
:8;+.9;
2aw aterial 8;8.,: ,,*.6+ ,,*.6+ ,,*.6+ ,,*.6+ ,,*.6+ ,,*.6+ ,,*.6+
.tores consumed ),.:6 :8.96 :8.96 :8.96 :8.96 :8.96 :8.96 :8.96
Power and 'uel )98.;) :6).*, :6).*, :6).*, :6).*, :6).*, :6).*, :6).*,
$irect =abour ):.*, )*.+, )+.*; )0.,0 :6.,+ :).*) ::.+6 :9.09
Ather fg %xp :98.;, 98+.,* 98+.,* 98+.,* 98+.,* 98+.,* 98+.,* 98+.,*
$epreciation 09.;0 ):8.89 ):8.89 ):8.89 ):8.89 ):8.89 ):8.89 ):8.89
5Inc7K$ec in WIP ?,.68 ?;.:9 ?6.6, ?6.6: ?6.69 ?6.69 ?6.69 ?6.69
5Inc7K$ec in '4 ?8.;9 ?9.0: ?6.68 ?6.6: ?6.6: ?6.69 ?6.6: ?6.6:
Total &ost of .ale 09;.,* )9*8.0
;
)9+8.+
0
)9+;.+
0
)9+,.+
*
)9+*.+
0
)9++.0
0
)906.):
.elling 3 <dmin 96:.09 8,*.00 8,0.60 8,0.60 8,0.60 8,0.60 8,0.60 8,0.60
Ap profit before Int 90,.69 ,60.*: ,68.9* ,69.9* ,6:.90 ,6).9* ,66.:* ;00.)8
Interest on W& :9.8; 98.+, 98.0: 98.09 98.09 98.08 98.08 98.0;
Interest on T= ),6.6* )+*.): );).8+ ));.+8 +6.:6 88.;; )6.6: ??
Profit Before Tax :):.;) 9+*.*8 8)*.0* 8;:.,6 8+*.:, ;:).++ ;;;.9) ;,8.)0
Tax 5&urrent7 :9.*+ 89.09 8*.9, *+.,6 ),;.,+ )+9.80 )00.0; :6*.9)
Tax 5deferred7 8*.;; +*.+, 08.*) *;.:; ).69 ?;.6: ?)6.)) ?)8.8;
P<T )8).)+ :;;.0; :*;.06 :0+.*; 9:6.;; 989.8) 9,;.8* 9*).99
&ash Profit :98.** 9+6.9+ 866.99 8:9.)+ 888.0+ 8,*.+8 8+0.06 80;.*,
47
The profit after tax to net sales of the pro-ect is pro-ected at rate of +.,9C in the first year
and it is increasing every year. The average profit after tax to net sale for the pro-ect is ):.8,C!
which are satisfactory returns. 'rom the above table it shows that the company has got cash
accruals to pay its loan obligation every year.
0hole Company
1able 2o 75% 0hole Company Profitability $nalysis
52s in crore7
Particulars :6)) :6): :6)9 :6)8 :6); :6), :6)* :6)+
4ross sales 869*.0, ;)6).+
*
;)*;.8
8
;:6).9
9
;:88.;
*
;:,:.9
+
;:,:.9
+
;:,:.9+
5?7 %xcise duty ,90.90 +98.;0 +;).+* +;*.6+ +,,.09 +,0.;6 +,0.;6 +,0.;6
Aperating Income 990+.;* 8:,*.:
+
89:9.;
*
8988.:
;
89**.,
8
890:.+
+
890:.+
+
890:.++
2aw aterial ):8;.9: )8,8.:
9
)8*,.*
;
)8+9.0
:
)80:.:
9
)800.,
*
)800.,
*
)800.,*
.tores consumed 9+.;) 8*.)* 8*.*; 8*.+; 8+.0* 8+.0* 8+.0* 8+.0*
Power and 'uel 9:).8+ 908.86 900.90 90+.0; 866.)9 866.;; 866.;; 866.;;
$irect =abour 9:.89 9+.*: 86.0) 89.:; 8;.*, 8*.0, 8*.0, ;6.)*
Ather fg %xp )8).;9 :6).+0 :6:.)0 :6:.;; :6:.09 :69.6) :69.6) :69.6)
$epreciation );:.66 )+).*, )+6.*, )*0.+; )*;.+: )*8.,; )*8.,; )*9.08
5Inc7K$ec in WIP ?,.90 ?;.;, ?6.6+ ?6.6, ?6.6; ?6.69 ?6.69 ?6.69
5Inc7K$ec in '4 ?8.;9 ?9.0: ?6.68 ?6.6: ?6.6: ?6.69 ?6.6: ?6.6:
Total &ost of .ale )0:6.)9 :9:).8
+
:98*.8
8
:9;,.6
+
:9,;.)
*
:9*8.*
,
:9*8.*
,
:9*,.:;
.elling 3 <dmin ,8:.*: +*9.88 ++,.9: +06.6: +0*.)0 +0+.;0 +0+.;0 +0+.;0
Ap profit before Int +9;.*: )6*:.9
,
)6+0.+
)
)60+.)
;
)));.:
+
)))0.;
9
)))0.;
9
)))+.68
Interest on W& ,+.0) *).,6 ,9.:* ;8.0; 80.:8 8+.:* 8+.:* 8+.)9
Interest on T= ),6.6* )+*.): );).8+ ));.+8 +6.:6 88.;; 88.;; ??
Profit Before Tax ,6,.*8 +)9.,8 +*;.6, 0:*.9, 0+;.+8 )6:,.*
)
)6:,.*
)
)6,0.0)
Tax 5&urrent7 ))+.+: )+9.)* )0*.96 :)).:9 ::,.,8 :90.), :90.), :;6.8+
P<T 8+*.0: ,96.8* ,**.*, *),.)9 *;0.:6 *+*.;; *+*.;; +)0.89
&ash <ccrual ,90.0: +):.:9 +;+.+: +0;.0+ 098.,: 0,:.:6 0+9.90 009.9*
48
The profit after tax to net sales for the company as whole is pro-ected )8.9;C at the first
year and it is increasing every year. The average profit after tax to net sale for company is
),.,8C. The returns are satisfactory to provide the loan.
!anagement
The management of the company is having a full fledged Board comprising of Promoters!
$irectors! %xecutive and 1on?%xecutive $irector and Professional $irector! who have re>uired
>ualification and ade>uate experience in different areas. r .hobhagmal B aloo is the chief
promoter and chairman of the company. Ather promoter directors are r 1 B aloo! r = B
aloo and r . D aloo. %xecutive director r Lashpal $himan and independent directors r
B P 4anu! r 2 P 4upta and <dvocate ani are on the board.
The Board of $irectors are supported by team of experienced and well >ualified
executives from different area of functioning! like production! marketing! finance and accounts
etc. The company being a listed one in Bombay stock exchange! 1ational stock exchange and
&ulcutta stock exchange! they are governed by the directive of .%BI for the implementation of
corporate governance! which they have implemented in their spirit. The relations with
employeesKlabourers have been maintained very well by the company.
Industry $nalysis
The cement industry has continued its growth over the past seven years. $omestic cement
demand growth has surpassed the economic growth rate of the country for the past couple of
years. The growth rate of the cement demand over the past five years at +.9*C was higher than
the rate of growth of supply at 8.+8C as also the rate of growth of capacity addition during the
same period.
&ement Industry in India is on a roll at the movement. With the boost given by the
government to various infrastructure pro-ects! road network! housing facilities! a booming real
estate sector and global demand! growth in the cement consumption is anticipated in the coming
49
years. $ue to the enormous population of India! there has been a perpetual focus on the
development of civic infrastructure as well as housing facilities. The high demand for cement is
coupled with favourable 4overnmental policies has been favourable factors driving the growth
of the cement industry in India.
Production capacity has gone up and top cement companies of the world are vying to
enter the Indian market! there by sparking off a spate of mergers and ac>uisitions. India is the
worldGs second largest producer of cement after &hina with industry capacity of over :66 million
tonnes. The present scenario of cement industry is very good in terms of demand and with the
prices going above 2s ),6 to 2s )+6 everywhere.
i" #emand Supply 'ap
The cement industry witnessing high growth! in the last : years 5:66;?6, 3 :66,?6*7
demand for cement has grown at a compounded annual growth rate of over )6C. &2I.I=
research expects demand to grow at &<42 of 0C over the next 8 years! due to growth in the
end user segment. 4oing forward! &2I.I= research expects a ma-or thrust to cement demand
to come from "igher Infrastructure Investment.
ii" Cement and Cement Products
In the last 8 years the cement industryGs demand supply gap narrowed! leading to
higher operating rates of over 06C. In the next : ? 9 years! &2I.I= research expects nearly
*6 O +6 million tonnes of cement capacities to come on stream and ma-ority of them are
expected to bunch up in :66+?60 and :660?)6. 4oing forward this is likely to result in the
lowering of operating rates and easing of demand?supply gap. &2I.I= research expects
prices to decrease from the fourth >uarter of :66+?60 onwords! due to incremental capacity
addition that are expected.
iii" 'overnment Policies
Till mid :66*! the cement industry shows a lot of struggle between cement players
and the 4ovt. The 4ovt took various steps to control cement prices. It announced a
differential excise duty and removal of all duties on import of Portland cement. <ll these
steps have not resulted in any price reduction! on the contrary! they have increased during
50
this period. The cement industry will continue to en-oy the pricing flexibility in the short to
medium term! due to a tight demand?supply situation. "owever! price increase will not be as
significant as seen in the last ): O ); months.
Input related risks
=ime stone! fuel 5coal and lignite7 and power are the main inputs in the manufactures of
cement. The industry is dependent on the 4ovt for the pricing and availability of these inputs!
which accounts for a significant portion of the total production cost.
In the last )6 years! =ime .tone cost has not increased significantly. But as more
capacities come on stream! it is expected to exert pressure on the countryGs limited mineable
=ime stone resolves. 4oing forward! prices of lime stones are not expected to rise significantly.
"owever! increased level of blinding is likely to help cement players lower their consumption
norms of =imestone! there by mitigating the risk of a price hike.
%nergy cost! which account for nearly :,?96 C of net sales have been rising steadily. In
:66,?6*! energy cost decreased to :)C from :,C in :66;?6,. This has been primarily on
account of the increasing focus of companies on captive power plant. &urrently ;:C of the total
production of cement is through captive power plant.
$emand?.upply position of cement during :66*?6+
1able 2o 77% #emand Supply Position 5in million tonnes7
1ame of the .tate
Installed
&apacity
Production $emand
Darnataka ):.8) )6.+6 )).+6
4u-arath )*.*, );.86 )).,+
2a-astan :8.+: :;.*6 )6.99
$emand?.upply position in India during :66*?6+
5in million tonnes7
Particulars $emand .upply
1orth India 80.*0 89.,)
West India 86.:) 8+.:0
%ast India :;.99 :,.;;
.outh India 8+.,* ;;.+6
Total ),8.66 )*8.:;
51
"owever the average per capita consumption of cement in India has increased from the
level of 0* Dgs during :66)?6: to )8+ Dgs during :66*?6+.
&2I.I= research expects the domestic cement consumption to register a &<42 rate of
+C in the next ; years as against the +.:C &<42 recorded in the preceding ; years owing to the
following factors.
i" Housing Sector
This sector accounts for ,6?,;C of the total cement consumption! is likely to be the
key demand drivers. &2I.I= estimates the total housing stock to increase by 9C 5&<427
from the level of )8,.9 million units during :66+ to ),8.* million units during :6):.
ii" Infrastructure Sector
In recent years the investment in infrastructure increasing! this sector accounts for :6?
::C of the cement consumption! is expected to double from the level of 2s 8.* trillion during
the period from :66:?6* to 2s 0.: trillion during the period from :66*?):! this is expected to
push up cement consumption.
iii" Industrial Pro/ects
$ue to capacity expansions undertaken by industrial such as steel! cement! paper and
petrochemicals! investment in industrial pro-ects in India are expected to surge nearly three
fold form 2s :+,* billion during the period from :66:?6* to 2s *+8) billion between :66*?
):. This is also expected to increase the demand for cement.
iv" Commercial construction
It is estimated that the commercial construction 52etail! Affice space! "otels!
"ospitals! ultiplexes! .chools etc7 is estimated to take place at slower pace in the forth
coming year when compare to previous years.
In order to meet the demand! capacity addition to the )); million is expected to take
place during the period from :66+?60 to :6):?)9. <s against 9* million tonnes added during the
preceding ; years. $ue to the lower capacity addition! cement prices have been on an upword
trend 5&<42 of ))C7 over last ; years. "owever due to the large capacity expansion that are
taking place.
52
&2I.I= research expects cement prices to fall by as much as 2s );?:6Kbag over the next
two years! once these units becomes operational.
The company is implementing the most modern state of the art technology in setting up
of the cement plants at the strategic location in Darnataka! 2a-astan and 4u-arath. 'urther! the
cement industry being power intensive in nature! they are going in for setting up in parallel
captive power plant of ;6 W each! which will support the power re>uirements of these units.
The captive power plant also helps in reducing pollution and reducing the production cost. Thus
the company shall have advantage to face stiff competition from the market. The company also
has the advantage of utiliBing the existing selling and marketing set up for marketing cement and
cement products. There is also possibilities that the company may be eligible for &arbon &redit
in future.
Business $nalysis
i" Production and Infrastructure )acilities
&ompany is setting up the production and infrastructural facilities with the able
guidance of 1ational &ouncil for &ement and Building aterials 51&B7! who have prepared
Techno?%conomic feasibility reports. &ompany has made arrangements to get mining lease
for >uarrying =imestone! which is the main raw material for the cement manufacturing. They
have well planned for housing production infrastructure with all the re>uired amenities like!
ining! &ement plant and =abour colony. They have obtainedK in the process of getting
clearance from the statutory agencies including pollution clearance.
ii" Selling and !arketing arrangements
With the 4overnment of India giving thrust in the infrastructure development in the
country! the demand for the cement is ever increasingF >uality cement at affordable prices as
proposed by the company can be easily sold in the market with a suitable brand name.
The promoterKcompany has already earned good name for their brand for their soya
meal and soya refined oil in central India. The company may encash this strength for
developing good brand for cement also. Thus the market position of the company may be
considered favorable for the company.
53
!arketing Position and Competitiveness
1able 2o 76% Company !arket Position
52s in &rores7
1ame of the &ompany 2A&%
Aperating profit
argin C
Industry <verage ): )*.:
Ather &ompanies
.ri Vishnu &ement =imited +:.,+ ::.;*
Euari &ement =imited :*.80 96.,)
!urali Industries Limited 58"65 58">=
<&& )).66 ;.;
Birla White )6.86 ,.:;
<n-ani Portland &ement =imited :8.;, )+.,9
&ement anufacturing &ompany =imited 88.:9 90.06
$almia &ement Bharath =imited )+.,: )8.;9
$eccan &ement =imited 99.,+ :;.0)
# D white &ement works )+.;* );.:)
#aiprakash <ssociates =imited )9.+9 )8.6;
adras &ement =imited :,.96 9).6,
Penna &ement Industries =imited )).6; *.,+
2amco Industries =imited )6.:0 +.::
.agar &ement =imited );.;9 :).00
In this analysis the company operating profit margin5)6.0;C7 is below the industry
average 5)*.:C7! which is not acceptable by the banks appraiser. But company yet to enter into
cement production. "ence industry average of cement industry may not be comparable with the
companyGs financialKprofitability parameters.
Risk $nalysis
Risk )actor !itigation
arketing 2isk
&ompany proposes to use its existing as well as
Brand recognition to sell its products.
54
%mployee 2isk
The states where the cement plants are being set
up has ade>uate skilled and unskilled human
resources.
Aff take riskK arket 2isk
<ccording to &2I.I= research the industry is
expected to add capacities e>uivalent to ;6 TP<
in the next :?9 years. The company is confident of
leveraging on present brand recognition as well as
contacts to secure firm clients for the product.
Power availability risk
&ompany plans to set up captive power plant of
;6 W at each of the 9 locations! which will
supplement the power re>uirement.
<vailability and Transportation of
=ime stone
The plants are being located ad-acent to the =ime
.tone mines 5ma-or 2aw aterial7! hence there
will be logistic advantage.
&ost Aver run
<de>uate contingency provision of around )6C
has been provided in the pro-ect cost. This will be
useful for to pay extra cost
&onstruction 2iskK Time over run
risk
&ompany has proposed to hire reputed engineering
consultants and contractors for the execution of the
pro-ect. ore over it is also proposed to have a
well chosen team of experienced persons and in
house task force to co?ordinate the implementation
of the pro-ect
Aperating 2isk
&ompany is already into cement business by
setting up :.)8 TP< cement plant along with a
96 W &PP at &handrapur! which is likely to be
55
commenced in this year! in the schedule time.
anagement 2isk
The promoters are well experienced businessmen!
who have shown commitment to the company and
have successfully implemented many pro-ects in
the past. It is also expected that they will show the
same commitments and Beal to this pro-ects as
well. .uitable stipulation in the sanction term not
to sell stake of promoter share mitigate this risk.
'unding 2isk
=enders are stipulating for )0.,,C upfront e>uity
from the promoters. &onsidering the past record of
the promoters! no difficulty is involved in the tie
up of debt funds for the pro-ect. <lso the internal
accruals of the company are considered ade>uate
to part finance the pro-ect.
%nvironmental 2isk
&ompany does not face any problem in obtaining
the clearance.
Ratio $nalysis
a" 2et Profit Ratio
This ratio shows the relationship between net profit and net sales which indicates
efficiency of management.
1able 2o 7<% 2et Profit Ratio
56
Chart 2o >% 2et Profit Ratio
57
&ear P$1 Sales 2P Ratio E
:6)) )8).)+ ),98.,9 +.,9
:6): :;;.0; :8;:.,, )6.89
:6)9 :*;.06 :8;+.9; )).::
:6)8 :0+.*; :8;+.9; ):.);
:6); 9:6.;; :8;+.9; )9.69
:6), 989.8) :8;+.9; )9.0,
:6)* 9,;.8* :8;+.9; )8.,,
:6)+ 9*).99 :8;+.9; );.)6
<s per the pro-ected Profit and =oss <Kc it is estimated that the profit will be 2s )8).)+ cr
in the year :6)). This ratio increasing every year! it shows the operational efficiency of the
company. It shows that the company is earning enough money to meet its obligations.
b" #ebtD,3uity Ratio
The debt e>uity ratio is determined to ascertain the soundness of the long?term financial
policies of the company.
1able 2o 7=% #ebtD,3uity Ratio
58
&ear #ebt ,3uity #, Ratio
:6)) )*+).): +;;.8: :.6+
:6): ),;8.88 +;;.8: ).09
:6)9 )8,8.6) +;;.8: ).*)
:6)8 ):;8.): +;;.8: ).8,
:6); 0*6.6) +;;.8: ).)9
:6), ,*0.+; +;;.8: 6.*0
:6)* 9+8.,6 +;;.8: 6.88
:6)+ :00.;9 +;;.8: 6.9;
Chart 2o 58% #ebtD,3uity Ratio
The bank norm for the ratio is :! the current position of the ratio is :.+). But the
companyGs promoters in the pro-ected balance sheet ensured that the ratio will be below the bank
norms. Anly in the first year it was above the norm! after that the ratio decreasing. It is because
of the decrease of the term loan. The average of the ratio is ).:; which is below the norms.
c" Current Ratio
It measures the relationship between current asset and current liability. The ratio is an
indicator of the firmGs commitment to meet itGs short O term liabilities.
1able 2o 79% Current Ratio
59
Chart 2o 55% Current Ratio
60
&ear Current $ssets Current Liabilities Current Ratio
:6)) *;9.:8 ;*;.9: ).,+
:6): ):;;.:) ,60.6; :.6,
:6)9 )8,;.,) ,60.;; :.8
:6)8 ),*+.0; ,60.;0 :.*;
:6); )+90.+* ,60.,: 9.6)
:6), )08,.:0 ;9+.9* 9.,)
:6)* )0:*.)9 9:8.;, ;.09
:6)+ :99*.++ 9:8.,6 *.:
The standard for the ratio is :! but the ratio is less in the first year. But still the company
has sufficient funds to pay its creditors and current liabilities. The ratio is increasing year by
year! it shows that the company has high capable of paying its creditors. the ratio is more in the
later years it shows that less efficient use of funds.
d" #ebt Service Coverage Ratio
The $ebt .ervice &overage 2atio is the Jcore testG ratio in pro-ect financing. This ratio
indicates the degree of viability of pro-ect. "ere J$ebtG means installments payable during the
year and J.erviceG means cash accruals comparing net profit plus depreciation and non cash
write?off. It measures the extent of cash accruals 5service7 available to cover the maturing term
obligation 5debt7 during each year.
1able 2o 7:% #ebt Service Coverage Ratio
61
Chart 2o 57% #ebt Service Coverage Ratio
62
&ear Cash $ccruals #ebt #SCR
:6)) :98.** ),6.6* :.8*
:6): 9+6.9+ 86).,, ).8)
:6)9 866.99 89,.,: ).:,
:6)8 8:9.)+ 866.0+ ).98
:6); 888.0+ 9,;.98 ).88
:6), 8,*.+8 9:0.,0 ).;;
:6)* 8+0.06 :0;.), ).,0
:6)+ 80;.*, *6.,6 *.6:
It is pro-ected that the cash accrual will be :.8* more than the debt obligation! which is
more than the bankGs norm ).;. But from :6): the pro-ected ratio came down to below the
bankGs norm. <ny way the ratio is more than )! it shows that the company will be able to repay
its term loan and the interest arise on the loan. The average $.&2 is ).,, which is more than the
BankGs norm.
e" Interest Coverage Ratio%
1able 2o 7;% Interest Coverage Ratio
63
&ear PBI1 Interest ICR
:6)) 90,.69 )+9.;: :.);
:6): ,60.*: ::).0+ :.*8
:6)9 ,68.9* )+,.86 9.:8
:6)8 ,69.9* );6.** 8.66
:6); ,6:.90 ));.)9 ;.:9
:6), ,6).9* *0.80 *.;,
:6)* ,66.:* 88.0, )9.9;
:6)+ ;00.)8 98.0; )*.)8
Chart 2o 56% Interest Coverage Ratio
The ratio is very important from the lenderGs point of view. It indicates whether the
business would earn sufficient profits to pay periodically the interest charges. The pro-ectGs
pro-ected profit before interest and tax to interest is only :.);! it has increasing trend in the future
period. It shows that the company is earning sufficient funds to pay the interest arising for the
loan taken to put up pro-ect. In the year the PBIT is will be )* times to its interest payment! it is
because of the decrease in the interest and increase in the profits.
64
)I2#I2'S
Pro-ect appraisal methods try to reduce the sub-ectivity involved in assessing the capacity
of the borrowers with respect to repayment capacity. The availability of computerised software
makes the technicalities of the assessment much simpler as compared to earlier. The pro-ect can
be appraised by using some of the methods like healthy discussion can be held with the members
of management of borrowings firms to get better idea about the business! its viability and the
capacity of management to take decision in exceptional situation.
The study revealed that the different aspects of a pro-ect are not independent entities but
are highly inter?related and a meaningful pro-ect appraisal depends upon the appreciation of
these fundamental facts. The appraisal of a pro-ect is undertaken by the bank with the ob-ective
of determining the market potential of a pro-ect! to determine repayment capacity of sanctioning
unit and selecting an optimal strategy. The methods of analysis vary from pro-ect to pro-ect! but
there are certain common aspects of study from the angle of technology and engineering.
<n analysis of a region economy provides a general framework within which the
assessment of any pro-ect is made. This analysis indicates whether the pro-ect is in a potential
environment! which en-oys priority for economic development of the regionKstate concerned.
This exercise itself usually involves the investigation of six different aspectsF %conomic!
65
Technical! ArganiBational! anagerial! Aperational and 'inancial. The relative importance of
these different aspects can vary considerably according to circumstances and type of pro-ect.
The study also revealed that in a large ma-ority of cases! it is possible to >uantify pro-ect
costs and benefits. 'uture costs and benefits are calculated! using either market are shadow prices
and on the basis of past performance in case of expansion pro-ects. 'urther both costs and
benefits are put under subsidence to initiate the pro-ects estimated rate of return. The latter is
then compared with the minimum earning power. While the rate of return is an important test
that all pro-ects with >uantifiable costs and benefits must pass! importance and significance is
usually overestimated.
The rate of return is a necessary confirming test of pro-ects that have to be -ustified
within a much wider frame of reference! in which basic pro-ect ob-ectives and the nature of
pro-ect benefits increased employment and improved income distribution play ma-or roles.
It was found that technical feasibility study is mainly done to consider the ade>uacy and
suitability of the plant! the e>uipments and their significations! plant layout! balancing of
different sections of the plant! proposed arrangements for procurement of the plant and
e>uipments! reputation of the machinery suppliers etc. The feasibility study also considers the
technology re>uired for a particular pro-ect! evaluate technological alternatives and select the
most appropriate technology in terms of optimum combination of pro-ect components.
The study revealed that the market analysis gives a comprehensive account of the market
opportunity! as well as of the marketing strategy appropriate for converting the opportunity into a
reality. <n intensive scanning and analysis of the proposed environment in which the industrial
unit has to function should from the basis for analyBing market opportunities as well as for
specifying the marketing strategy. This is because the ever changing environment! in which the
industry sector functions! restricts or expands the opportunities available to and the threats to be
faced by an industrial unit.
The purpose of the appraisal of financial aspects of a pro-ect is generally to ensure its
initiation of financial conditions for the sound implementation and efficient operation. The scope
of this aspect of appraisal varies! of course! considerable with the nature of the pro-ect and
66
whether it is revenue producing or not. 'or pro-ects! which involve the marketing of a product or
services by an entity! the appraisal includes in investigation of the availability and cost of raw
material! power! labour and services needed for production and the prospects for marketing the
product or services profitability.
In every case! it is necessary to ensure that satisfactory accounts are maintained for
effective control over expenditure and revenue and to disclose the pro-ect and entity carrying it
out also. .ince the banks finance only a part of the investment cost of a pro-ect! it is necessary to
ensure that funds from other sources are available on acceptable terms to meet the balance of the
cost.
This may be relatively simple where the government is able to provide the rest of the
necessary funds from budgetary sources or it may be complicated! as in a pro-ect to expand or
moderniBe a revenue earning concern where all the financial re>uirements of the concern during
the construction of the pro-ect must be considered.
'inancial appraisal also evaluates capacity of revenue producing investments from the
stand point of the entity. Industrial sponsor or other investors! who would make them in order to
ascertain whether it is sufficiently attractive to warrant their participation establishing that the
entity carrying out the pro-ect is in a position to manage its business in a cost?effective fashion is
another important aspects.
The efforts made by the &orporation Bank to constantly update its evaluation procedures
indicate its high level professionalism and explains why it is in a leading position amongst all
nationalised banks and incase of urali Industries =imited cement pro-ect bank has done
efficient appraisal. The pro-ect is to set up 9 cement plants at Darnataka! 2a-astan and 4u-arath
with a capacity of 9 million tonne per annum.
The current $%2 is :.+) where the banks norm is :! it is less than the bank norm. But in
coming year the ratio will be improved. 'or the pro-ect the average $%2 is ).:;. .ensitivity
analysis shows that the debt servicing capacity if the urali Industries =imited would be
ade>uate in the adverse scenario assumed. The promoterKmanagement risk! pro-ect
67
implementation risk! operational risk! market risk and finance risk are considered to be normal.
The overall $.&2 of the company and pro-ect are :.*; and ).,, respectively! which indicates
viability and its above the Bank norms.
SA'',S1I.2S
i. 1et Present Value of the pro-ect should be calculated. 1PV is considered as one of the best
method for evaluating the capital investment pro-ects. It is the difference between the total
present value of future cash inflows and the total present value of future cash outflows. The
pro-ect should be accepted if the 1PV is positive. If the bank would have calculated the 1PV
it would have made better appraisal. Because present value methods always provides for
correct ranking of investment pro-ects.
ii. <ll critical assumption could be valued in the light of actual parameters for similar
understanding in the same industry and sensitivity analysis can be undertaken by varying
these factors accordingly. 2elative comparison with other players in the industry would
provide a better estimation and analysis of the pro-ect. It also helps to assess the impact of
adverse changes in the operating conditions of the pro-ect on its viability.
iii. In recent years! environmental concerns have assumed a greater deal of significance. The
bank has to do %cological analysis as the new pro-ect like drug and chemical industry impact
the %nvironment.
iv. The Bank should also consider the capability of management and its analytical skills of the
top management in the company.
68
v. The &osts! Profits are predicted only on the basis of the past trends. But same trend may not
continue in the future. They may vary depending upon the %conomic conditions! Business
cycles! 4overnment policies etc. .o there should be a provision for all these contingencies.
This exercise is critical as it calls for a multi?dimensional analysis of the pro-ect that is! a
complete scanning of the pro-ect.
C.2CLASI.2
Pro-ect <ppraisal is a science as well as an art. While the basic principles of appraisal
could be mastered in a short time span! the successful practice of the art of carrying out of
appraisal re>uires keen observation! ob-ectivity and decision making. It is also necessary to took
ahead of the pro-ect. Pro-ect appraisal is a key to broad based! balanced industrial growth of the
country. In a way! it calls for a -udicious -udgment and perspective outlook.
The lending institutions examine the pro-ect to study its soundness on Technical!
%conomic! &ommercial and anagement grounds. If the appraisal report is found satisfactory!
the loan application will be favourable considered. The manager then communicates his decision
to the borrower and terms and conditions will be negotiated.
The most important areas for the borrower and lender to negotiate are timing in relation
to negotiation method of financing based on certificates of work done! repayment schedule! rate
of interest! commitment fees! security options and monitoring and control re>uirements.
'inancial institutions also pay attention to political environment and labour conditions of the area
where the pro-ect is to be located. .trikes! =ockouts! Industrial Peace and &ommunal "armony
in the area play a decisive role in examining success or failure of the pro-ect.
<s a lender and a development institution! the bank places particular stress on the need
for an efficient organisation and responsible management for the execution of the pro-ect. It is!
therefore natural that financial institutions very carefully appraise the managerial aspects before
69
sanctioning assistance for a pro-ect. If a proper appraise of the managerial aspects is made in the
beginning itself! future problems in these areas can be avoided to a very large extent. It is
therefore necessary that the overall background of the promoters! their academic >ualification!
business and industrial experience and their past performance are looked into in greater detail to
assess their capabilities for implementing the pro-ects for which financial assistance has been
sought.
70