VCE Summer Internship Program 2021

Smart Task Submission Format

Intern’s Details
Name UTKARSH RAMSHARAN CHATURVEDI

Email-ID CHATURVEDIUTKARSH05@GMAIL.COM

Smart Task No. 3

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 :

There are Many factors that are taken into consideration inorder to make the project qualify
for Project Finance, this is done so as lender primary intention is to only lend capital to
those who are capable in paying them back the capital with the appropriate interests on it
(the capital).New projects which look forward to finance are assessed in many factors, so
as to qualify as a project finance. These are very important factors that are taken into
considerations before the capital is provided to the new venture as a Project finance these
conditions or factors are as follows: --

1. Assessment of promoter history and background :-

An assessment of the promoters’ history is conducted to ensure the commitment of
promoters to the project. The main motive is to identify the background and track record of
the promoters sponsoring the project. The following terms are assessed:
a) Assessment of group companies
b) Track record of sponsors
c) Management profile of sponsor companies
d) Study of shareholders agreement
e) Management structure of project company

ST Solution Page 1 https://techvardhan.com

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Smart Task Submission Format

2. Evaluation of the Company and Project Business Model

An extensive evaluation of the business model assists the lenders in assessing the financial
viability of the project. Typically, a business model is developed in consultation with
financial and technical consultants. The lenders need to undertake the following steps while
accessing a business model:
a) Understanding the assumptions
b) Assessment of assumptions
c) Analysis of project cost
d) Sensitivity analysis
e) Benchmarking with the industry

3. Legal Due Diligence

Legal due diligence is usually conducted using an independent legal counsel appointed by
the lenders. Legal due diligence consists of a few steps:
o Determining the rights and liabilities of the different participants within the project
scope
o Analyzing the schedule and implementation plan of the project
o Evaluating the appropriateness of liquidated damages if the project fails to deliver as
promised

4. Analysis of Financial Statements and Structure

The following aspects need to be considered when assessing the financial structure and
statements:
a) Debt to equity ratio
b) Principal repayment schedule
c) Sinking fund build-up
d) Trust and retention mechanism

5. Determine major risks associated with the project

6. Analysis of tax effects
7. Credit analysis and evaluation of loan terms
8. Project valuation

ST Solution Page 2 https://techvardhan.com

 VCE Summer Internship Program 2021
Smart Task Submission Format

500 Words (Max.)

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

Task Q3 Solution :

Revenue models tells us how the company makes money in given business circumstances. The
revenue model for solar PV Project , Residential Building , manufacturing Unit and other PPP
projects are explained as follows---

1. Revenue model for PV project is as follows –

Capital Expenditure ( Capex )-

1. Cost of Plant and generating unit is borne by the clients and end users,the manufacturer
transfers financial obligations to the end users or the clients that have placed the orders.
2. Maintenance of the solar system is the responsibility of the client after the AMC period under
STC which is standard testing conditions so after the AMC period the manufacturer is not
liable for the maintenance of the solar system it is the sole responsibility of the client or the
end user who is in the possession of the palnt or solar system here
3. Since it is kind of outsourcing here there is no over head expenses for engineering ,
procurement and construction costs
4. Since the financial obligation for the project is on the client and the end users there is no risk
for any financial loss arising through engineering, procurement as well as construction costs
here

Operating Expenditures( OPEX ), Power Purchase Agreement (PPA)

1. The cost of plant is beared by third party as they are the one providing financial cushion for
the projects
2. Revenue arising through such business revenue model more often than not depend upon
the PPA which abbreviates to power purchase agreement which takes place between the
developer and client which states the design, permitting, financing and installation of a solar
energy system in customer property at little to no cost and this comes to be constant
throughout the life of the agreement PPA
3. Maintenance is at the duty of the third party through the total duration of the PPA as only
the operational aspect of the business is taken care by the developer.

2. Revenue model for manufacturing and other PPP projects is as follows

Manufacturing Unit-

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Smart Task Submission Format

Manufacturing unit does the work of converting unfinished raw materials to finished goods which in
turn are sold inorder to generate sales proceed, a manufacturing model helps to give an idea about
the future cash generations revenue generations, and also the financial statements projections of a
manufacturing unit in the next 10 years or so,
This model carefully uses a breakdown approach to estimate companies operating on a per ton
basis of finished goods that the unit of manufacturing can generate.
The model also uses financial ratio analysis to come to assumptions and generate projections and
it also contains DCF Valuations also
The model also has provisions sources of funds as well as applications of those funds and for
future investments in terms of reinvestments done through the profit expected out off operations of
the manufacturing unit.

PPP Projects-
A public-private partnership (PPP) is a funding model for public infrastructure projects and
initiatives such as a new telecommunications system, public transportation system, airport or power
plant. In PPP projects revenues can be obtained through governments sources as well as fee
charged by the authority from the public as charges for using the infrastructure services that has
been developed through this PPP model. The private company gets the benefit in terms of various
subsidies as well as get the chance of using governments resources the private party plays
important role in the development if the project becomes successful the government takes the
credit and benefits

3. Revenue model for residential building-

Residential Building is defined as a building that generate revenue or have potential to do so . this
model generally focuses on building commercial real estate that big ticket investors purchase and
then rent it out for commercial purposes whereas residential properties are those which that is
owner occupied and not rented out.
In residential building cash inflows occur in the sources of rent that the tenants pays to the owner
the rent can be in various frequency like monthly quarterly , semi annually or yearly also part of
these rent are also diverted towards other expenses like maintenance , utility bills or other
government taxes,
In residential buildings analysis can be done both as equity investors and debt investors as well as I
equity investors you invest taking in mind how maximum return that they can make out of it or debt
investors as you assess the risk that the investment will not default.

500 Words (Max.)

Task Q4 : 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 Q4 Solution :

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 VCE Summer Internship Program 2021
Smart Task Submission Format

The additional points that is 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

The following points needed to be taken into consideration-

1. Since the project is being financed from abroad the financial model should have provisions
for currency exchange rate as in the given example since the debt is in UD$ and the revenue
is generated is in INR there should be provision for US$ INR exchange rates
2. There must be currency exchange rate mentioned in the financial model
3. Since the debt is being raised in US $ the servicing and transaction charges needs to be
paid for financing the project to the appropriate authority in the US
500 Words (Max.)

ST Solution Page 5 https://techvardhan.com