Key Aspects of Project

Appraisal for SME Financing

CII FINcon 02.09.06

Dr Rajesh Khajuria, Director

TEAMPro Ltd, London
TEAM Projects & Consultants, Vadodara
A Warm Welcome to all of You!
• CII Organisers and Members
• SME Owners and Managers
• Chief Guests
• Speakers

Dr R Khajuria @ TEAM 2
 Presentation Plan
I. Indian SME Overview.
II. Project Appraisal Methods.
III. Project Appraisal: Key Aspects.
IV. Case Study @ Asahi Songwon
Colors Ltd with Korean Technology
for TL, WCL and Public Issue.
V. Questions?
Dr R Khajuria @ TEAM 3
Indian SME Overview

Part I
Welcome to Indian SMEs!
• 95% of Industrial Units are SMEs
• 40% of Value Added in Manufacturing
Sector
• 35% of National Exports
• 7,500 Products Manufactured
• Employs 20 million people
• But, contribute only 7% of GDP ?
• 40% of Bank Finances to Priority Sector
– SMEs and Agriculture
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Welcome to 3.5m Indian SMEs!

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SMEs achieve Rs 8000 billion
Sales

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SMEs have Rs 1000 billion
Investment

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SMEs Export Rs 800 billion G &
S

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SMEs provide 20 million
Employment

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The World depends on SMEs
• UK: 98% of all Businesses are SMEs
• Japan: 99% are SMEs
• USA: 96% are SMEs
• Africa’s 29 nations: 99.5% are SMEs
• The world depends on SMEs
• India depends on SMEs for economic
success of its 1 billion people
Dr R Khajuria @ TEAM 11
Project Appraisal Methods

Part II
Project Appraisal Methods
• Today we discuss…
• Bank Appraisal for Loans.
• Appraisal for Public Issue of Equity.

• Other Methods:
– FI Appraisal for Loans
– World Bank Project Appraisal
– UNIDO, Social Project Appraisal
Dr R Khajuria @ TEAM 13
Project Appraisal : Key Aspects

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

Dr R Khajuria @ TEAM 15
 Case Study @
Asahi Songwon Colors Ltd

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

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

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

Dr R Khajuria @ TEAM 19
 Vision
• Songwon, Korea:
– ‘Better Colour for A More Beautiful Life’.
• Asahi, India:
– “To be a global leader in its field of Pigments
by supplying quality and environment
friendly products
to MNCs worldwide.”
• Can you analyse both Visions?

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 Corporate Analysis
• Past Performance
• Corporate Emergence
• Promoters Team – Most Important
• SWOT Analysis

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

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 Marketability Assessment
• Product & Applications
• Demand assessment based on end-user
method
– Global Consumption estimates
• Competition and Supply Assessment
– Export – Import Data analysis
– International and domestic prices
• Demand-Supply Gap and Customers
• Scope for the Company to tap the ‘Gap’
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 Technical Feasibility
• Capacity Assessment & Projected
Utilisation
• Manufacturing Process
• Land & Building Requirements
• Plant & Machinery & Layout proposed
• Inputs: Raw Materials, Power, Fuel,
Water, sources, quantities, prices,
suppliers
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 Technical Feasibility
• Technology source and cost
• Manpower Requirements & Costs
• Pollution Control Measures
• ISO Certification: 9000 / 14000

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 Economic Viability
• Project Cost
– Appraisal resulted in Addition of Rs 6 Crore to
original estimate of Project Cost – Rs 71.5 Crore
to Rs 77.55 Crore
– Rise in Equipment costs and increased Working
Capital, detected from TEAM’s ‘Appraisal
process’
– Hell lot of efforts to convince the Company
about raising Sources of Finance by Rs 6 Crore!

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 Sources: Financial Re-
structuring
Rs Crore
• Term Loan SBI (FCNR/Rs) 13.82
• Equity Share Capital 43.84
• Unsecured Loan 07.98
• Reserves & Surplus 11.25
• Deferred Tax Liability 00.66
• TOTAL Sources of Finance 77.55
• Add: Working Capital Loan 24.00
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 Environmental Impact
Assessment
• Water pollution quantity
• Treatment methods and equipments
• Disposal to ETP Channel as per GPCB
Rules
• Membership of ETP Channel
• Sources of Fresh Water
• Ministry of Environment & Forest’s
clearance needed for large Projects
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Conclusion & Recommendation
• The project is assessed by TEAM at the
behest of State Bank of India.
• The Project is Technically Feasible and
Economically Viable.
• SBI may grant Term Loan and Working
Capital Loan recommended.
• The Appraisal may be ‘quoted’ in Prospectus
for SEBI permission for Public Issue.

Dr R Khajuria @ TEAM 29
 Learning Today
• Proven Appraisal Process. Reliability.
– Based on PhD Research of Dr Rajesh Khajuria
• Independent & Unbiased Appraisal.
• Appointment by a Bank or Financial Institute.
• Consultant’s Track Record. Credibility.
– TEAM has 95% Success rate and 99% Recovery of
Loans recommended for 200 Projects in 23 years
(1983-2006).
• Quick Turnaround.
• Ethics for Long Term Success.

Dr R Khajuria @ TEAM 30
 Questions?

Dr Rajesh Khajuria, Director

TEAMPro Limited www.TeamPro.org
dr.khajuria@gmail.com M: 94260 75402
Data and Image Courtesy: SSI Annual Report 2003, Ministry of Small Scale Industries, Government of India
Dr R Khajuria @ TEAM 31