Intern’s Details

Name Ronak Jain

Smart Task No. 3

Project Topic Project finance and modelling

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 are 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, its because
they hope the 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 model in this-

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

2. OPEX/RESCO/PPA-
● Cost of plant is beared by third party.
● Revenue depends on PPA rate (Solar Power Purchase Agreement is a
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 analyze 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 finflow sheet is consistent.

3. The service tax and transaction charges need to be paid for the financing of
the project.

500 Words (Max)