Intern’s Details

Name Abhishek Dongre

Email-ID abhishekdongre1999@gmail.com

Smart Task No. 03

Project Topic Project Finance – Modelling and Analysis

Smart Task (Solution)

Task Q1: How a new venture is assessed to qualify as project finance. What are the factors that needed to
be considered?

Task Q1 Solution:
New venture is being assessed in terms of many factors in order to qualify as project finance. As the lenders
always want to invest in a venture which is capable of paying them off. New ventures are assessed in
following ways to quality as project finance. These are the important factors that are needed to be
considered in order to assess a new venture-

1.Calibre of business principle-

Principles are the primary sources of fuel for business projects. Their vision, energy and the effort they are
willing to make the factors that make-or-break projects.

2.Business environment risks-

Lenders make sure that your is not perceived to be subject to inordinate risk. The upcoming lifting of a tariff
barrier, a procedure that creates pollution or the fact that your business is situated within a fragile sector of
the economy may cause a lender to be overly cautious. The Company should also be adequately covered by
insurance that is tailor to the nature of its activities.

3.Project credibility-
If lenders or investors decide to put money in your project, it’s because they hope the investment will pay
off. They’ll make sure your provision are based on verifiable facts are realistic.

4.Company’s ability to pay and financial structure-

You’ll have to prove that the company is able to meet all its financial obligation. The company’s financial
structure should therefore show a healthy balance between loans and assets.

5.Principal’s financial history-

In lenders eyes, the future is largely be predicted by past. It is more than likely that they will run a credit
check on the business principals to see if principles effectively met past financial obligation.

6.Security-
Debt financing is usually secured against company assets, which could be sufficient to allow lenders to
cover their risk.
 500 Words (Max.)

Task Q2: Explain in detail the revenue model for Solar PV Project, Residential Building, Manufacturing
Unit and other PPP projects.

Task Q2 Solution:
Revenue model is how a business makes money. Revenue model of solar PV project, residential building,
manufacturing unit and other PPP projects are explained as follows-
A. Revenue model for solar PV project is as follows-Basically there are two types of models in this-

1.CAPEX-
●Cost of plant is beard by client/end users.
●Maintenance of system is in client scope after AMC period under STC (Standard test conditions).
●No overhead expenses for EPC (engineering, procurement and construction).
●No capital loss risk for EPC.

2.OPEX/RESCO/PPA-
●Cost of plant is beard by third party.
●Revenue depends on PPA rate (Solar Power Purchase Agreement is an agreement where developer
arranges for the design, permitting, financing and installation of a solar energy system on a customer’s
property at little to no cost) and probably would be constant over a period.
●Maintenance of system is in scope of third party for total duration of PPA.

B. Revenue model for residential building-

Residential building is defined as building that generate revenue or have potential to do so. It is generally
focused on commercial real estate that is purchased and then rented out to individuals or businesses,
as opposed to residential real estate, such as single-family homes, that is owner-occupied and not rented out
to others.
In residential estate, individuals or business, i.e., tenants, pay rents to property owners to use their space.
The owner earns income from this rent, and they use part of it to pay for expenses such as utilities,
property taxes, and insurance. In some cases, tenants are responsible for portion of these expenses as well.
Here is an important definition of Residential financial modelling-

In residential building financial modelling, you analyse a property from the perspective of an equity
investor (owner) or debt investor(lender) in the property and determine whether or not the equity or
debt investor should invest, based on risks and potential returns.

C. Revenue model for manufacturing units and other PPP projects. In manufacturing unit,
revenue is generated by selling the finished goods. The Manufacturing Revenue Model provides a
framework to accurately forecast the financial statements of a manufacturing company over the next 10
years. The model uses a detailed breakdown to estimate the company’s operating assumptions on a per ton
basis. The model then uses financial ratio analysis and contains a DCF valuation framework. Furthermore,
the model also includes an acquisition analysis with sources and uses of funds, as well as investor IRR
analysis based on dividend and exit valuation assumptions.
The PPP project’s revenues are obtained from the government and/or fees (tariffs) charged to the
users of the service.
In some projects, the private sector provider also pays concession fees to the government or to another
designated authority, in return for the use of the government’s projects, for example, the concession fee is
based on the use of the service or the net income, giving the government a vested interest in the success of
the project. In such cases, the government’s interests are comparable to those of an equity investor.

500 Words (Max.)

Task Q3: What should be the additional points that needed to be included in a financial model, if the
financing bank is from abroad and the debt is in US$ but revenue is in INR?

Task Q3 Solution:
The additional points that needed to be included in a financial model, if the financing bank is from abroad
and the debt is in UD$ but revenue is in INR are as follows-1.
 
The financial model should include a basic assumption of the currency exchange.2.
 
There must be currency exchange rate (USD/INR) been mentioned in the financial model so that the fin
flow sheet is consistent.3.
 
The service tax and transaction charges need to be paid for the financing of the project.

500 Words (Max.)